Maruti Suzuki India Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 467/DEL/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9018 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I1
• Next Hearing Date: 04-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 27-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; Charitable institution; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency; Earning of tax free income; Question of law; Cost of acquisition; Competent authority; Capital receipt; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 92C; 43B; 143(3); 92B; 234B; 14A; 260A; 37(1); 32; 145; 28; 144

Judgement Text

1 ITA NO. 4 67/DEL/2014 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 467/DEL/20 14 (A.Y 2009-10) MARUTI SUZUKI INDIA LTD. PLOT NO. 1, NELSON MANDELA ROAD, VASANK KUNJ NEW DELHI AAACM0829Q (APPELLANT) VS ADDL. CIT RANGE-6 NEW DELHI (RESPONDENT) APPELLANT BY SH. AJAY VOHRA, SR. ADV., SH. ROHIT JAIN, ADV., MS. TEJASVI ADV RESPONDENT BY SHR. G. C. SRIVASTAVA, ADV, SH. SANJAY KR. DASS, DR. ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 AGAINST THE ORDER DATED 2/1/2014 U/S 143(3) R/W SECTION 144 C OF INCOME TAX ACT, 1961, PASSED BY ADDL. CIT, RANGE 06, NEW DELHI. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1.0. THAT ON THE FACTS AND CIRCUMSTANCES OF TH E CASE THE IMPUGNED ASSESSMENT COMPLETED VIDE ORDER DATED 2/1/2014 U/S 143(3) READ WITH SECTION 144C OF THE INCOME TAX ACT, 1961 (;THE ACT;) IS ILL EGAL AND BAD IN LAW. 1.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE IMPUGNED ASSESSMENT HAVING BEEN COMPLETED ON THE BASIS OF DI RECTIONS ISSUED BY THE DISPUTE RESOLUTION PANEL (DRP) U/S 144C(5) OF THE ACT WITHOUT JUDICIOUSLY AND DATE OF HEARING 27.07.2018 DATE OF PRONOUNCEMENT 17.10.2018 2 ITA NO. 4 67/DEL/2014 INDEPENDENTLY CONSIDERING THE FACTUAL AND LEGAL OBJ ECTIONS TO THE DRAFT ASSESSMENT ORDER, IS ILLEGAL AND BAD IN LAW. 1.2. THAT THE DRP ERRED ON FACTS AND IN LA W IN NOT INTERFERING WITH THE DRAFT ORDER PASSED BY THE ASSESSING OFFICER HOLDING THAT SINCE APPEALS HAVE BEEN FIELD BY THE APPELLANT AND THE DEPARTMENT ON VARIOU S ISSUES, THERE IS NO WARRANT TO INTERFERE WITH THE PROPOSED ADDITIONS/DISALLOWAN CES. 1.3. THAT THE DRP ERRED ON FACTS AND IN L AW IN NOT DIRECTING THE ASSESSING OFFICER TO DELETE VARIOUS ADDITIONS/DISALLOWANCE, W HICH WERE SQUARELY COVERED IN FAVOUR OF THE APPELLANT BY THE APPELLATE ORDERS FOR THE EARLIER YEARS. 2.0. THAT THE ASSESSING OFFICER ERRED ON FACTS OF THE CASE AND IN LAW IN COMPLETING THE IMPUGNED ASSESSMENT AT AN INCOME OF RS.2071,38,86,572/- AGAINST INCOME OF RS.1262,60,79,909/-. 3.0. THAT THE ASSESSING OFFICER ERRED ON FAC TS AND IN LAW IN NOT ALLOWING AN AGGREGATE CLAIM OF DEDUCTION OF RS. 78,01,08,417/- UNDER SECTION 43B OF THE ACT. 3.1. THAT THE ASSESSING OFFICER ERRED IN MAKING DI SALLOWANCE UNDER SECTION 43 B OF THE ACT FOLLOWING THE ASSESSMENT ORDERS FOR TH E EARLIER ASSESSMENT YEARS DESPITE ADMITTING THAT IN THE EARLIER YEAR(S) MOST OF THE ISSUES HAVE BEEN DECIDED IN FAVOUR OF THE APPELLANT. 3.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE DEDUCTION OF LIABILITY TO PAY TAXES/DUTIES UNDER SECTION 43B IS ADMISSIBLE ONLY AFTER SUCH LIABILITY HAS BEEN INCURRED UNDER THE ACT. 3.3. THAT THE ASSESSING OFFICER FAILED TO APPRECIA TE THAT THE ASSESSEE HAVING ADMITTEDLY PAID RS. 41.61.588 - AS EXCISE DUTY ON V EHICLES. RS.24J0.93' - AS R& D CESS ON VEHICLES AND RS. 1.10.654/- ON ACCOUNT OF EXCISE DUTY ON SPARE PARTS IN THE RELEVANT ASSESSMENT YEAR, THE SAME WERE ALLO WABLE DEDUCTION U/S 43 B OF THE ACT. 3.4. THAT THE ASSESSING OFFICER HAS, WITHOUT ANY BA SIS OR MATERIAL, ERRONEOUSLY CONCLUDED THAT THE AFORESAID PAYMENTS HAVE BEEN MAD E IN ADVANCE FOR THE STOCKS STILL TO BE MANUFACTURED, WITHOUT APPRECIATI NG THAT AS ON 31.03.09 THE APPELLANT HAD FINISHED STOCK OF VEHICLES AMOUNTING TO RS 166 APPELLANT HAD FINISHED STOCK OF VEHICLES AMOUNTING TO RS 166 CROR ES, WHICH INCLUDED ACCRUED LIABILITY OF EXCISE DUTY AND R&D CESS AMOUNTING TO RS 12.87 CRORES AND CONSEQUENTLY, THE SAME WERE, IN ANY CASE, ALLOWABLE DEDUCTION U/S 43 B OF THE ACT. 3.5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING 3 ITA NO. 4 67/DEL/2014 DEDUCTION UNDER SECTION 43B OF THE ACT FOR A SUM OF RS 20,99,92,306/- REPRESENTING THE CUSTOMS DUTY PAID IN RESPECT OF IN PUTS IMPORTED BY THE ASSESSEE COMPANY AND, FOR WHICH THE CORRESPONDING E XPORTS HAD BEEN MADE BY THE YEAR END . 3.6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION UNDER SECTION 43B OF THE ACT FOR A SUM OF RS 10,15,93,048/- REPRESENTING THE AMOUNT OF EXCISE DUTY ACTUALLY PAI D ON PURCHASED INPUTS INCLUDED IN RG 23A PART II. 3.7. THAT THE ASSESSING OFFICER FAILED TO APPRECIAT E THAT THE AFORESAID BALANCES REPRESENTED THE AMOUNT OF EXCISE DUTY ACTUALLY PAID BY THE APPELLANT TO THE SUPPLIERS OF RAW MATERIALS AND OTHER INPUTS FOR WHI CH LIABILITY HAD ALREADY BEEN INCURRED AND THUS COULD NOT BE CONSIDERED AS ADVANC E PAYMENT OF EXCISE DUTY. 3.8. THAT THEASSESSING OFFICER ERRED ON FACTS AND I N LAW IN NOT ALLOWING DEDUCTION UNDER SECTION 43B OF THE ACT FOR A SUM OF RS.21,90,94,216/- REPRESENTING THE CUSTOM DUTY PAID AND INCLUDED IN V ALUATION OF CLOSING STOCK. 3.9. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION UNDER SECTION 43B OF THE ACT FO R A SUM OF RS 13,85,95,901/- REPRESENTING CUSTOM DUTY (CVD) PAID TO BE ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS. 3.10. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION UNDER SECTION 43B OF THE ACT FOR A SUM OF RS 7,13,58,922/- REPRESENTING CUSTOM DUTY IN RESPECT OF THE GOODS IN TRANSIT/UNDER INSPECTION. 3.11. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION UNDER SECTION 43B OF THE ACT FOR A SUM OF RS. 2,20,97,979/- BEING CUSTOMS DUTY PAID UNDER PROTEST. 3.12. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION U/S 43B OF THE ACT FOR A SUM OF RS.1,06,7 2,866/- BEING EXCISE DUTY PAID UNDER PROTEST. 3.13. THAT THE ASSESSING OFFICER ERRED IN NOT FOLLOWING T HE BINDING DECISIONS OF THE HIGH COURT AND THE TRIBUNAL IN THE APPELLANT'S OWN CASE FOR THE EARLIER ASSESSMENT YEARS, IN GROSS VIOLATION OF PRINCIPLES OF JUDICIAL PROPRIETY. 4.0. THAT THE ASSESSING OFFICER HAS ERRED IN LAW, O N FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN NOT ALLOWING THE CLAIM OF THE ASSESSEE FOR WITHDRAWAL OF ADD BACK OF RS. 69,50,54,572/- IN THE COMPUTATION OF TAXABLE INCOME, BEING THE AMOUNTS DISALLOWED IN EARLIER YEA RS UNDER SECTION 43B OF THE ACT. 4 ITA NO. 4 67/DEL/2014 4.1. THAT THE ASSESSING OFFICER HAS ERRED IN LAW, O N FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN FAILING TO APPLY THE F UNDAMENTAL RULES OF LAW OF TAXATION THAT THE SAME INCOME CANNOT BE TAXED TWICE AND THAT THE AO IS DUTY BOUND TO DETERMINE THE TRUE FIGURE OF THE ASSESSEE S TAXABLE INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 4.2 THAT THE ASSESSING OFFICER HAS ERRED IN NOT APP RECIATING THAT SIMILAR WITHDRAWAL OF ADD- BACK UNDER SECTION 43B WAS ALLOW ED BY THE AO HIMSELF AND CONFIRMED BY THE DRP IN AY 2007-08. 5.0. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING FURTHER DISALLOWANCE OF RS.8,35,98,603/- UNDER SECTION 14A OF THE ACT. 5.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN PROCEEDING TO MAKE DISALLOWANCE UNDER SECTION 14A SIMPLY ON THE BASIS OF METHOD/ FORMULA PRESCRIBED IN RULE 8D OF THE I.T. RULES, WITHOUT AP PRECIATING THAT PRECONDITIONS FOR APPLYING THE SAID RULE AS PRESCRIBED IN SUB-SEC TIONS (2)/ (3) OF SECTION 14A OF THE ACT WERE NOT SATISFIED. 5.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THERE WAS NO NEXUS BETWEEN ANY EXPENDITURE INC URRED AND EXEMPT DIVIDEND INCOME. 5.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN HOLDING THAT SUO- MOTU DISALLOWANCE OF RS. 1,60,71,719/- MADE BY THE APPELLANT IN THE RETURN OF INCOME UNDER SECTION 14A OF THE ACT WAS INCORRECT. 5.4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISREGARDING THE EXPLANATION GIVEN BY THE APPELLANT FOR NON-INCLUSIO N OF INTEREST EXPENSES FOR THE PURPOSES OF DISALLOWANCE UNDER SECTION 14A OF THE A CT. 5.5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT FOLLOWING THE BINDING ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999-2000 AND 2000-2001 WHEREIN THE TRIBUNAL DELET ED THE DISALLOWANCE MADE U/S 14A OF THE ACT. 6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ACCEPTING THE CLAIM OF THE APPELLANT THAT SALES TAX INCENTIVE/ SU BSIDY AMOUNTING TO RS.7,03,81,097/- REPRESENTED CAPITAL RECEIPT NOT LI ABLE TO TAX UNDER THE PROVISIONS OF THE ACT. 6.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN HOLDING THAT THE SALES TAX SUBSIDY RECEIVED BY THE APPELLANT WAS NOT CAPITAL RECEIPT BUT TAXABLE REVENUE RECEIPT UNDER SECTION 28(IV) OF THE ACT. 5 ITA NO. 4 67/DEL/2014 6.2. THAT THE ASSESSING OFFICER FAILED TO APPRE CIATE THAT IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE APPELLANT BOTH BY THE CIT( A) AND THE ITAT IN APPELLANTS OWN CASE FOR AY 2005- 06, FOLLOWING THE DECISION OF THE APEX COURT IN THE CASE OF CIT V PONNI SUGARS AND CHEMICALS LIMITED: 306 ITR 3 92 (SC). 6.3 THAT THE ASSESSING OFFICER ERRED ON FACT S AND IN LAW IN NOT APPRECIATING THAT SINCE THE OBJECT OF SUBSIDY WAS TO PROMOTE IND USTRIAL GROWTH/ DEVELOPMENT, TO GENERATE EMPLOYMENT, ETC., THE SUBS IDY SO RECEIVED WAS IN THE NATURE OF CAPITAL RECEIPT NOT LIABLE TO TAX UNDER T HE PROVISIONS OF THE ACT. 6.4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE FACT THAT APPELLANT IS A CASH RICH COMPANY OR THAT THE APPELLANT WAS GRANTED SUBSIDY UNDER PRESTIGIOUS UNIT CATEGORY OR THAT THE APPELLANT COULD UTILIZE THE SUBSIDY AMOUNT WITHOUT ANY PRE-RESTRICT ED OBJECT, HAD NO BEARING ON DECIDING THE ISSUE IN QUESTION. 6.5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT CONSIDERING THE MEMORANDUM DATED 18.10.01 ISSUED BY THE PROHIBITION , EXCISE AND TAXATION COMMISSIONER, HARYANA, WHICH WAS THE COMPETENT AUTH ORITY AND PART OF HIGH POWERED COMMITTEE, CERTIFYING THE AFORESAID AMOUNT RETAINED AS PER ENTITLEMENT CERTIFICATE AS CAPITAL SUBSIDY. 7.0. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING EXPENDITURE OF RS. 679,11.80,556/- INCURRED ON ACCO UNT OF ROYALTY, BOTH LUMPSUM AND RUNNING, HOLDING THE SAME TO BE CAPITAL EXPENDITURE. 7.1 THAT THE ASSESSING OFFICER ERRED, ON FACTS AND IN LAW IN NOT APPRECIATING THAT ROYALTY PAID BY THE APPELLANT TO SUZUKI MOTOR CORPORATION, JAPAN (HEREINAFTER REFERRED TO AS SMC) IS MERELY FOR TH E RIGHT AND LICENSE TO MANUFACTURE AND SELL THE LICENSED PRODUCT FOR A SPE CIFIED DURATION IN INDIA AND WAS THEREFORE, REVENUE IN NATURE. 7.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT PAYMENT OF ROYALTY IS DIRECTLY LINKED AND CORR ELATED WITH THE PRODUCTION/SALES OF CARS AND SPARES BY THE APPELLAN T AND IF THERE IS NO PRODUCTION/SALE OF CARS AND SPARES, THERE WILL BE O ROYALTY PAYABLE TO SMC. 7.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT ROYALTY PAYMENT (INCLUDING CESS) WAS HELD TO B E REVENUE EXPENDITURE IN ALL THE PRECEDING ASSESSMENT YEARS TILL ASSESSMENT YEAR 2005-06 AND THAT THERE BEING NO CHANGE IN FACTS DURING THE YEAR UNDER CONS IDERATION, THERE WAS NO WARRANT OR JUSTIFICATION TO TAKE A TOTALLY CONTRADI CTORY VIEW IN HOLDING THE SAME TO BE CAPITAL EXPENDITURE. 7.4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING RS. 6 ITA NO. 4 67/DEL/2014 32,03,13,445/-ON ACCOUNT OF R&D CESS ON ROYALTY, HO LDING THAT CESS ALSO PARTOOK THE CHARACTER OF ROYALTY, WITHOUT APPRECIATING THAT ROYALTY WAS PAID TO SMC WHEREAS R&D CESS ON ROYALTY, BEING A STATUTORY PAYM ENT, WAS PAID TO THE INDIAN GOVERNMENT. 7.5. THAT THE ASSESSING OFFICER ERRED IN FAILING TO APPRECIATE THAT R&D CESS, BEING A STATUTORY PAYMENT, IS GOVERNED BY SECTION 4 3B OF THE ACT, WHICH IS A SEPARATE CODE IN ITSELF AND OVERRIDES OTHER PROVISI ONS OF THE ACT, AND HENCE THE PAYMENT OF R&D CESS IS AN ALLOWABLE DEDUCTION UNDER THAT SECTION. 7.6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT R&D CESS ON ROYALTY WAS ALWAYS ACCEPTED TO BE REVENUE EXPENDITURE IN ALL THE PREVIOUS ASSESSMENTS TILL ASSESSMENT YEAR 2005- 06, AND THAT THERE BEING NO CHANGE IN FACTS DURING THE YEAR UNDER CONSIDERATION , THERE WAS NO WARRANT OR JUSTIFICATION TO TAKE A TOTALLY CONTRADICTORY VIEW AND HOLDING THE SAME TO BE CAPITAL EXPENDITURE. 7.7. WITHOUT PREJUDICE, THE ASSESSING OFFICER ER RED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE APPELLANT HAD SUO-MOTO DISALL OWED R&D CESS PAID ON ROYALTY TO THE EXTENT OF RS. 52,84,893/- UNDER SECT ION 43B , THEREBY RESULTING IN A DOUBLE DISALLOWANCE TO THE EXTENT OF RS. 52,84,893/ -. 8.0. THAT THE ASSESSING OFFICER HAS ERRED IN LAW AN D ON FACTS IN DISALLOWING DEDUCTION OF RS.67,00,000/- REPRESENTING THE EXCISE DUTY PAID BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR. 8.1. THAT THE ASSESSING OFFICER FAILED TO APPRECIAT E THAT THE SAID AMOUNT OF RS.67,00,000/- CONSTITUTED AND REPRESENTED EXCISE D UTY ACTUALLY PAID BY THE APPELLANT AND IS, THEREFORE, ALLOWABLE DEDUCTION UN DER SECTION 43 B OF THE ACT. 8.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVELING FALSE AND BASELESS ALLEGATIONS OF THE APPELLANT HAVING, INTER ALIA, HIDDEN TRUE NATURE OF PAYMENT OF EXCISE DUTY. 9.0 THAT THE ASSESSING OFFICER HAS ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE OF RS.36,38,43,197/- BEING THE EXPENDI TURE PROVIDED ON ESTIMATED BASIS ON ACCOUNT OF FORESEEN PRICE INCREASE (IN SHO RT FPI), DISREGARDING THE CONSISTENT AND ACCEPTED METHOD FOLLOWED BY THE APPE LLANT FOR LAST MANY YEARS SINCE INCEPTION. 9.1. THAT THE ASSESSING OFFICER COMPLETELY FAILED TO APPRECIATE THAT THERE WAS A CLEAR CONTRACTUAL AGREEMENT/ UNDERSTANDING BETWEE N APPELLANT AND SUPPLIERS 7 ITA NO. 4 67/DEL/2014 UNDER WHICH THE APPELLANT WAS LIABLE TO PAY ADDITIO NAL AMOUNT OF PRICE FOR THE SUPPLIES OF VARIOUS INPUTS RECEIVED DURING THE YEAR AND ACCORDINGLY THE SAID LIABILITY ACCRUED DURING OR BEFORE THE END OF THAT YEAR AND ESTIMATED AMOUNT THEREOF WAS ACCORDINGLY ALLOWABLE AS DEDUCTION FROM ASSESSABLE INCOME. 9.2. THAT THEASSESSING OFFICERFAILED TO APPRECIATE THAT MERE FACT THAT THE EXACT AMOUNT OF ADDITIONAL PRICE PAYABLE TO SUPPLIERS WAS NOT QUANTIFIED UNTIL THE END OF RELEVANT ACCOUNTING YEAR DID NOT AT ALL MEAN THA T THERE WAS NO ACCRUAL OF LIABILITY IN THAT YEAR. 9.3. THAT THE ASSESSING OFFICERCOMPLETELY DISREGARD ED THE EVIDENCE AND MATERIAL PLACED ON RECORD WHICH CONCLUSIVELY ESTABL ISHES THE EXISTENCE OF AGREEMENT/UNDERSTANDING BETWEEN APPELLANT AND SUPPL IERS FOR THE PAYMENT OF ADDITIONAL PRICE TO THEM FOR SUPPLIES MADE DURING T HE ACCOUNTING YEAR ENDED ON 31 ST MARCH, 2009. 9.4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT TAKING COGNIZANCE OF THE FACT THAT THE ENTIRE AMOUNT OF LI ABILITY HAS EITHER BEEN PAID OR WRITTEN BACK AND OFFERED TO TAX AS ITS INCOME IN TH E SUCCEEDING ASSESSMENT YEAR. 9.5. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING THE DEDUCTION OF THE AMOUNT DISALLOWED IN THE PRECEDING ASSESSMENT YEAR(S) BUT ACTUALLY PAID DURING THE YEAR UNDER CON SIDERATION. 10.0. THAT THE ASSESSING OFFICER HAS ERRED IN LAW, ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN MAKING AD-HOC DISALL OWANCE OF RS. 17,29,22,979/- FOR ALLEGED SHARING OF RESOURCES BY THE APPELLANT WITH OTHER GROUP / SUBSIDIARY COMPANIES. 10.1. THAT THE ASSESSING OFFICER / DRP ERRED IN OB SERVING THAT THE APPELLANT HAD BORNE EXPENSES INCURRED FOR OTHER CORPORATE ENTITIE S, FAILING TO APPRECIATE THAT THE ENTIRE EXPENSES WERE INCURRED BY THE APPELLANT FOR THE PURPOSES OF ITS BUSINESS AND HENCE NO PART OF THE EXPENDITURE INCURRED WAS R EQUIRED TO BE DISALLOWED ON ACCOUNT OF SHARING OF RESOURCES. 10.2. THAT THE ASSESSING OFFICER/ DRP FURTHER FAILE D TO APPRECIATE THAT THE DISALLOWANCE OF ANY PART OF THE EXPENSES INCURRED I S ULTIMATELY TAX NEUTRAL IN AS MUCH AS THE EXPENSES DISALLOWED IN THE HANDS OF THE APPELLANT WOULD HAVE TO BE ALLOWED IN THE HANDS OF THE GROUP/ SUBSIDIARY COMPA NIES. 10.3. WITHOUT PREJUDICE TO THE AFORESAID, THE QUANT UM OF DISALLOWANCE COMPUTED BY THE ASSESSING OFFICER IS VERY HIGH AS COMPARED T O EXPENSES THAT COULD, IF AT ALL, REASONABLY ATTRIBUTED TOWARDS SHARING OF EXPEN SES. 8 ITA NO. 4 67/DEL/2014 11.0 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING RS.7.67.00.000-. BEING THE EXPENDITURE INCURRED ON ACCOUNT OF DISCHARGING CORPORATE SOCIAL RESPONSIBILITY}. WITHOUT APPRECIAT ING THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. 11.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN HOLDING THAT THE EXPENDITURE INCURRED ON CORPORATE SOCIAL RESPONSIBI LITY IS, EVEN OTHERWISE, CAPITAL IN NATURE ON THE GROUND THAT THE SAME RESULTED IN E NDURING BENEFIT TO THE APPELLANT. 11.2. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRE D ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION UNDER SECTION 32 OF THE ACT, CONSISTENT WITH HIS FINDING THAT THE AFORESAID EXPENDITURE IS CAPITAL IN NATURE. 12.0. THAT THE ASSESSING OFFICER HAS ERRED ON FACT S AND IN LAW IN DISALLOWING A SUM OF RS.6,41,060/-, BEING EXPENDITURE INCURRED ON ACCOUNT OF CLUB MEMBERSHIP FEES, FOLLOWING THE ASSESSMENT ORDERS FO R THE EARLIER YEARS, ALLEGING THAT THE APPELLANT FAILED TO JUSTIFY THE SAID EXPEN SES. 13. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING ADDITION TO THE INCOME OF THE APPELLANT TO THE EXTENT OF RS. 44 7.73 CRORES ON ACCOUNT OF THE ALLEGED DIFFERENCE IN THE ARMS LENGTH PRICE OF INT ERNATIONAL TRANSACTIONS. 14. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN ADOPTING A COMPLETELY CONTRADICTORY POSITION OF ACCEPTING TRAN SACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD ON THE ONE HAND, AND YET SEEKING TO QUESTION APPROPRIATENESS OF INDIVIDUAL ELEMENTS OF OPERATING COST ON THE OTHER, THEREBY FAILING TO APPRECIATE FUNDAMENTAL TP PRINCI PLES. 15. THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS A ND IN LAW IN MAKING TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS. 136,00 ,00,000/- IN RELATION TO THE ADVERTISEMENT, MARKETING AND SALES PROMOTION EXPENS ES (HEREINAFTER REFERRED TO AS 'THE AMP EXPENSES) INCURRED BY THE APPELLANT. 15.1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE DRP ERRED IN LAW IN UPHOLDING, IN PRINCIPLE, TRANSFER PRICING ADJUSTMENT MADE BY THE ASSESSING OFFICER / TPO IN RESPECT OF EXPENDITURE I NCURRED ON ADVERTISING, MARKETING AND PUBLICITY (AMP EXPENSES)? 15.2. THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ONLY TRANSFER PRICING ADJUSTMENT PERMITTED BY CHAPTER X OF THE ACT WAS IN RESPECT OF THE DIFFERENCE BETWEEN THE ARM'S LENGTH PRICE (ALP) AND THE CONTRACT OR DECLARED 9 ITA NO. 4 67/DEL/2014 PRICE BUT IT CANNOT DETERMINE THE 'QUANTUM' OF THE INTERNATIONAL TRANSACTION OR EXTENT OF BUSINESS EXPENDITURE. 15.3. THE DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE TRANSFER PRICING ADJUSTMENT SOUGHT TO BE MADE BY THE TPO IN THE PRESENT CASE WAS A MERE QUANTITATIVE ADJUSTMENT, ON THE FOOTING THAT T HE APPELLANT HAD INCURRED AN EXCESSIVE AMOUNT OF AMP EXPENDITURE , AND NOT ON TH E FOOTING THAT THERE WAS A DIFFERENCE BETWEEN THE ALP AND THE CONTRACT OR DECL ARED PRICE, AND THAT A TRANSFER PRICING ADJUSTMENT WAS NOT AT ALL PERMITTE D OR AUTHORIZED BY CHAPTER X OF THE ACT. 15.4. THE DRP ERRED ON FACTS AND IN LAW IN NOT HOLDING THAT MERELY BECAUSE THE INDIAN COMPANY HAS INCURRED EXPENDITURE ON PROD UCT ADVERTISEMENTS INCLUDING THE FOREIGN BRAND AND THE AMP EXPENSES IN CURRED BY THE TAXPAYER WHICH ARE PROPORTIONATELY HIGHER THAN THOSE INCURRE D BY COMPARABLE CASES, IT DOES NOT LEAD TO THE INFERENCE OF TRANSACTION BET WEEN THE TAXPAYER AND THE FOREIGN AE FOR CREATING MARKETING INTANGIBLES ON BE HALF OF THE LATER. 15.5. THE DRP/TPO ERRED ON FACTS AND IN LAW IN HOLDING THAT EXPENDITURE INCURRED BY THE APPELLANT WHICH INCIDENTALLY RESULT ED IN BRAND BUILDING FOR THE FOREIGN AE, WAS A TRANSACTION OF CREATING AND IMPRO VING MARKETING INTANGIBLES FOR AND ON BEHALF OF ITS FOREIGN AE AND FURTHER THA T SUCH A TRANSACTION WAS IN THE NATURE OF PROVISION OF A SERVICE BY THE APPELLANT T O THE AE. 15.6. THAT THE ASSESSING OFFICER ERRED ON FACT S AND IN LAW IN NOT APPRECIATING THAT THE CHARACTERIZATION OF THE APPELLANT BEING TH AT OF A FULL FLEDGED MANUFACTURER AND THE SOLE BENEFICIARY OF THE AMP EX PENDITURE INCURRED BY IT, JUSTIFIES THE CONDUCT OF THE APPELLANT IN INCURRING AND BEARING THE COST OF AMP EXPENDITURE. 15.7. THE DRP ERRED ON FACTS AND IN LAW IN NO T HOLDING THAT EXPENDITURE ON ADVERTISEMENT AND BRAND PROMOTION, UNILATERALLY INC URRED BY THE APPELLANT, COULD NOT BE REGARDED AS A TRANSACTION IN THE ABS ENCE OF ANY PROVED UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT A ND THE ASSOCIATED ENTERPRISE. 15.8. THE DRP/TPO ERRED ON FACTS AND IN LAW I N NOT APPRECIATING THAT THE AMP EXPENSES, ETC., UNILATERALLY INCURRED BY THE AP PELLANT IN INDIA COULD NOT BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION AS PE R SECTION 92B,IN THE ABSENCE OF ANY PROVED UNDERSTANDING / ARRANGEMENT BETWEEN T HE APPELLANT AND THE ASSOCIATED ENTERPRISE, SO AS TO INVOKE THE PROVISIO NS OF SECTION 92 OF THE ACT. 15.9. THE DRP/TPO ERRED ON FACTS AND IN LAW IN NO T APPRECIATING THAT IN 10 ITA NO. 467/DEL/2014 ABSENCE OF ANY UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE, THE ASSOCIATED ENTERPRISE WA S UNDER NO OBLIGATION TO REIMBURSE AMP EXPENSES INCURRED BY THE APPELLANT FO R SALE OF ITS PRODUCTS IN INDIA. 15.10. THE DRP TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ADVERTISEMENT AND MARKETING EXPENSES WERE INCURRED BY THE APPELLANT WHOLLY AND EXCLUSIVELY FOR PURPOSES OF ITS BUSINESS AND NO T ON BEHALF OF OR FOR THE BENEFIT OF THE AE: ANY BENEFIT TO THE AE BEING ONLY INCIDEN TAL. 15.11 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE JOINT TRADE MARK MARUTI-SUZUKI IS EXCLU SIVELY USED BY THE ASSESSEE AND AE (SMC) DOES NOT HAVE ANY RIGHT TO USE/SELL PR ODUCTS UNDER THE JOINT TRADEMARK MARUTI-SUZUKI 15.12. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN NOT APPRECIATING THAT THE AMP EXPENSES ,ETC, UNILATERALLY INCURRED B Y THE APPELLANT IN INDIA CANNOT BE CHARACTERIZED AS AN INTERNATIONAL TRANSAC TION AS PER SECTION 92B SO AS TO INVOKE THE PROVISIONS OF SECTION 92 OF THE AC T. 15.13. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN NOT APPRECIATE THE A&M EXPENSES INCURRED BY THE ASSESSE E WERE TOWARDS THE PRODUCTS MANUFACTURED AND OWNED BY THE ASSESSEE AND NOT TOWARDS THE BRAND, PER SE (JOINT BRAND); 15.14. WITHOUTPREJUDICE TO THE ALL OTHER GROUND S, AOFAILED TO APPRECIATE THAT FULL DISALLOWANCE OF EXCESSIVE A&M EXPENDITURE IS N OT APPROPRIATE AS THE EXCESSIVE EXPENDITURE WILL LEAD TO BRAND BUILDING O F BOTH MARUTI AND SUZUKI. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN HOLDING THAT THE APPELLANT INCURRED EXTRA-ORDINARY / NON ROUTINE EXPENSES OF P ROMOTION AND DEVELOPMENT OF SUZUKI BRAND AND, THEREFORE, HELPED IN CREATION OF MARKETING INTANGIBLE IN INDIA. 15.15. THAT THEASSESSING OFFICER ERRED ON FA CTS AND IN LAW IN NOT APPRECIATING THAT THE AMP EXPENSESINCURRED BY THE APPELLANT, DID NOT RESULT IN CREATION OF ANY MARKETING INTANGIBLES; MUCH LESS ON ACCOUNT OF THE AE. 15.16. WITHOUT PREJUDICE THAT THE ASSESSING OFFICE R ERRED ON FACTS AND IN LAW IN IGNORING THE FACT THAT, SINCE THE APPELLANT EARNS RETURN COMMENSURATE WITH OTHER BRAND OWNERS, THE APPELLANT IS ADEQUATELY COM PENSATED FOR ITS FUNCTIONS AND AMP EXPENSES. 15.17. WITHOUT PREJUDICE THAT THE ASSESSING OF FICER ERRED ON FACTS AND IN LAW, IN NOT APPRECIATING THAT THE AMP EXPENSES INCURRED BY THE APPELLANT WAS APPROPRIATELY ESTABLISHED TO BE AT ARMS LENGTH APP LYING TRANSACTIONAL NET MARGIN METHOD (TNMM). 11 ITA NO. 467/DEL/2014 15.18. THE DRP/TPO ERRED ON FACTS AND IN LAW IN APPLYING BRIGHT LINE TEST (BLT) FOR COMPUTING ADJUSTMENT ON ACCOUNT OF EXPE NDITURE ON ADVERTISEMENT AND BRAND PROMOTION EXPENSES, WITHOUT APPRECIATING THAT IN ABSENCE OF SPECIFIC PROVISION IN THE TRANSFER PRICING STATUTORY PROVISI ONS IN INDIA., ADJUSTMENT ON ACCOUNT OF THE ARMS LENGTH PRICE OF THE ADVERTISEM ENT AND BRAND PROMOTION EXPENSES COULD NOT BE MADE. 15.19. THE DRPTPO ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT SUCH A TRANSFER PRICING ADJUSTMENT CANNOT AT ALL BE MADE I N LAW WITHOUT DETERMINING THE ARM'S LENGTH PRICE ('ALP') BY APPLYING ONE OF T HE METHODS SPECIFIED IN SECTION 92C OF THE ACT. 15.20. THE DRP/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT MERELY BECAUSE THE NET PROFIT RATE OF THE APPELLANT WAS BE TTER THAN THE CORRESPONDING NET PROFIT RATE OF COMPARABLE COMPANIES, WOULD NOT LEAD TO THE CONCLUSION THAT INCURRING OF AMP EXPENSES FOR THE AE WAS AT ARMS L ENGTH. 15.21 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN IGNORING THAT BRIGHT LINE LIMIT IS NOT A PRESCRIBED METHOD UNDE R THE PURVIEW OF SECTION 92C OF THE ACT. 15.22. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN FAILING TO APPRECIATE THAT THE APPELLANT HAS LONG-TERM RIGHTS TO USE THE TRADEMARK/ LICENSED INTANGIBLES AND REAPS ALL THE BENEFITS OF THE SAID A&M EXPENSES AND IS THUS THE ECONOMIC OWNER OF ANY RELATED MARKETING INTANGIBLE. 15.23. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN FAILING TO APPRECIATE THAT ALL THE KEY DECISIONS WITH RESPECT TO ADVERTISING, MARKETING, SELLING AND DISTRIBUTION OF THE PRODUCTS MANUFACTUR ED BY THE APPELLANT FOR SALE IN DESIGNATED TERRITORIES ARE TAKEN BY THE APPELLANT A ND CONSEQUENTLY, THE APPELLANT IS RESPONSIBLE / ELIGIBLE FOR THE RELATED RISKS AND REWARD. 15.24. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT SHOULD HAVE EARNED A MARK-UP IN RESPECT O F THE AMP EXPENSES, ALLEGED TO HAVE INCURRED FOR AND ON BEHALF OF THE ASSOCIATE D ENTERPRISE. 15.25. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN INDIVIDUALLY EXAMINING THE INTERNATIONAL TRANSACTIONS ENTERED IN TO BY THE APPELLANT, NOT APPRECIATING THAT SUCH TRANSACTIONS BEING CLOSELY L INKED, OUGHT TO HAVE BEEN 12 ITA NO. 467/DEL/2014 BENCHMARKED ON AN AGGREGATE BASIS. 15.26.THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN CONSIDERING THE NET SALES OF HINDUSTAN MOTORS AS RS.59,118.21 CRORES IN STEAD OF RS.591.1821 CRORES WHILE COMPUTING THE AMP/ SALES RATIO OF THE COMPARABLE COMPANIES. 15.27. THAT THE ASSESSING OFFICER ERRED ON FACTS A ND IN LAW IN NOT APPRECIATING THAT ON CONSIDERING THE CORRECT NET SALES OF HINDUS TAN MOTORS AS RS 591.1821 THE AMP TO SALES RATIO (REFER TABLE BELOW) OF THE COMPA RABLE COMPANIES IS MORE THAN AMP TO SALES RATION OF THE APPELLANT AND THE AMP AD JUSTMENT STANDS DELETED. COMPANY NAME RS. IN CRORE NET SALES ADVERTISEMENT/PUBLICITY EXPENSES PERCENTAGE (%) HINDUSTAN MOTORS LTD. 591.1821 32.94 5.57% MAHINDRA & MAHINDRA 12649.06 96.49 0.76% 25660.79 321.29 1.25% ARITHMETIC MEAN (5.57+0.76+1.25/3) 2.53% MARUTI SUZUKI INDIA LTD. 20358.3 258.50 1.27% 15.28 THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN NOT FOLLOWING THE DRP DIRECTION TO TAKE THE CORRECT FIGURES FOR T URNOVER AND AMP EXPENDITURE FOR HINDUSTAN MOTORS. 16.0. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS.311,73,59,562/- IN RELATION TO THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROYALTY ENT ERED INTO BY THE APPELLANT. 13 ITA NO. 467/DEL/2014 16.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW, IN NOT APPRECIATING THAT THE INTERNATIONAL TRANSACTION OF PAYMENT OF RO YALTY ENTERED INTO BY THE APPELLANT WAS APPROPRIATELY ESTABLISHED TO BE AT AR M'S LENGTH APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM). 16.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN ARTIFICIALLY SPLITTING THE SINGLE AND INSEVERABLE LICENSE AGREEMENT ENTERE D INTO BY THE APPLICANT INTO TWO SEPARATE AGREEMENTS FOR USE OF TECHNOLOGY AND F OR USE OF BRAND NAME FAILING TO APPRECIATE THAT THE LICENSE AGREEMENT PROVIDED T HE APPELLANT AN EXCLUSIVE RIGHT AND LICENSE TO MANUFACTURE AND SELL THE LICEN SED PRODUCT FOR A SPECIFIED DURATION IN INDIA AND ALL OTHERS RIGHTS VESTED IN T HE LICENSE AGREEMENT INCLUDING TECHNOLOGY, TECHNICAL KNOW HOW AND TRADE MARK ARE L INKED TO THE CORE RIGHT TO MANUFACTURE AND SELL LICENSED PRODUCTS AND WERE ARE LINKED TO THE CORE RIGHT TO MANUFACTURE AND SELL LICENSED PRODUCTS AND WERE THE REFORE INSEVERABLE. 16.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN FAILING TO APPRECIATE THAT THE METHODS USED BY THE LD. TPO TO COMPUTE THE ARMS LENGTH ROYALTY IS NOT A METHOD PRESCRIBED IN TP REGULATIONS UNDER INCOME TAX ACT, 1961 THEREFORE THE ADDITION MADE BY TPO IS VOID-AB -INITIO. 16.4. THAT THE ASSESSING OFFICER ERRED ON FAC TS AND IN LAW IN FAILING TO APPRECIATE THAT THE DECISION TO OBTAIN THE LICENSED TRADEMARKS WAS TAKEN SOLELY/EXCLUSIVELY BY THE APPELLANT FOR ITS BUSINE SS PURPOSES SINCE ITS INCEPTION [AS AGAINST BEING IMPOSED ON IT BY SMC MOTOR CORPO RATION (A.E OR SMC)]. 16.5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN FAILING TO APPRECIATE THAT THE LICENSE AGREEMENT SIGNED BETWEE N THE ASSESSEE AND ITS AE (I.E. SMC) WAS SIGNED IN 1982 WHEN THE APPELLANT WAS A WHOLLY OWNED GOVERNMENT COMPANY AND THUS THE LICENSE AGREEMENT W AS ENTERED INTO BETWEEN TWO UNRELATED ENTERPRISES THEREBY COMPLYING WITH TH E ARM'S LENGTH STANDARD AS PER THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD. 16.6. FAILING TO APPRECIATE THAT BY THE TIME WHEN A SSESSEE STARTED USING THE CO- BRANDED TRADEMARK MARUTI - SUZUKI, MARUTI BRAND W AS TOTALLY NEW BRAND WHEREAS SUZUKI BRAND HAD INTERNATIONAL PRESENCE A ND THEREFORE THERE CANNOT BE ANY QUESTION OF IMPAIRMENT OF THE MARUTI BRAND A ND REINFORCEMENT OF SUZUKI BRAND. 16.7. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN FAILING TO APPRECIATE THAT THE LICENSE AGREEMENT WAS ENTERED INTO BY THE APPELLANT WITH THE APPROVAL OF THE SECRETARIAT OF INDUSTRIAL ASSISTANCE, MINIST RY OF COMMERCE AND INDUSTRY/ APPROVAL FROM THE RESERVE BANK OF INDIA. 14 ITA NO. 467/DEL/2014 16.8. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN HOLDING THAT CO- BRANDING OF MARUTI-SUZUKI HAS RESULTED IN THE REI NFORCEMENT OF VALUE OF SUZUKI BRAND AND SIMULTANEOUS IMPAIRMENT OF MARU TI TRADEMARK FAILING TO APPRECIATE THAT SUCH CONCEPT OF REINFORCEMENT CAN NOT BE CONSIDERED TO BE AN INTERNATIONAL TRANSACTION AS DEFINED IN SECTION 9 2B OF THE ACT WHICH CONSISTS OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE P ROPERTY; 16.9. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN HOLDING, ON THE BASIS OF CONJECTURES AND SURMISES THAT, THE ASSOCIA TED ENTERPRISES HAS CHARGED SEPARATE ROYALTY FOR THE USE OF TECHNOLOGY AND FOR USE OF BRAND NAME IN THE PROPORTION IN WHICH IT INCURS EXPENDITURE ON R& D AND BRAND PROMOTION. 16.10. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERR ED IN CONSIDERING THE CONSOLIDATED FINANCIALS OF THE ASSOCIATED ENTERPRIS E FOR THE PURPOSE OF SEGREGATING THE PAYMENT OF ROYALTY FOR THE USE OF T ECHNOLOGY AND FOR THE USE OF BRAND NAME. 16.11 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN FAILING TO APPRECIATE STATURE OF THE ASSOCIATED ENTERPRISE AND THE BRAND RECOGNITION ENJOYED BY IT GLOBALLY. 16.12. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN IGNORING THE SEARCH FOR THIRD PARTY INDEPENDENT TECHNOLOGY AGREEMENTS C ONDUCTED BY THE APPELLANT. 16.13. WITHOUT PREJUDICE, THE ASSESSING OFFICER ERR ED IN FAILING TO APPRECIATE THE PERMISSIBLE LIMITS OF RBI FOR THE PAYMENT OF THE BR AND ROYALTY I.E. 5% ON DOMESTIC SALES AND 8% ON EXPORTS FOR COMPOSITE ROYALTY (BOTH BRAND AND TECHNOLOGY) AND 1 % AND 2% IF ONLY FOR BRAND RESULTING IS A MAXIMUM 2 0-25% OF ROYALTY ATTRIBUTION TOWARDS BRAND AS AGAINST THE 46% COMPUTED BY THE TP O. 16.14. WITHOUT PREJUDICE, THE ASSESSING OFFICER ER RED ON FACTS AND IN LAW IN NOT APPRECIATING THAT IF COMPENSATION FOR AMP EXPEN SES WAS TO BE RECEIVED BY THE ASSESSEE FROM ITS AE, IT WILL EFFECTIVELY TRAN SFER THE ECONOMIC OWNERSHIP OF THE BRAND OF THE ASSOCIATED ENTERPRISE, AND IN WHIC H CASE IT WOULD BE GROSSLY UNJUSTIFIED TO DISALLOW THE PAYMENT OF ROYALTY FOR USE OF BRAND NAME. 17.0. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING VARIOUS STATEMENTS/ AVERMENTS MERELY BASED ON CONJECTURE/SU RMISES AND UNSOUND PRESUMPTIONS, WHICH WERE NOT IN ACCORDANCE WITH THE FACTS OF THE CASE, THEREBY MAKING A HIGH PITCHED ASSESSMENT DISREGARDING JUDIC IAL PRONOUNCEMENTS UNDERTAKING THE TP ADJUSTMENT. 15 ITA NO. 467/DEL/2014 18.0. THAT THE A.O HAS ERRED IN LAW, ON FACTS AND I N THE CIRCUMSTANCES OF THE CASE IN ALLOWING TDS CREDIT OF RS.39,53,78,592/- ON LY AGAINST RS.42,81,91,036/- CLAIMED BY THE APPELLANT IN THE REVISED RETURN OF I NCOME OR BEFORE DRP, THEREBY ALLOWING A SHORT-CREDIT OF RS.3,28,12,444/-. 19.0. THAT THE ASSESSING OFFICER ERRED ON FACTS A ND IN LAW IN CHARGING INTEREST UNDER SECTIONS 234B, 234C AND 234D OF THE ACT. 19.1. THAT THE ASSESSING OFFICER GROSSLY ERRED IN COMPUTING THE INTEREST U/S 234B OF THE ACT BY FIRST ADJUSTING THE INTERES T COMPUTED UNDER THAT SECTION ON THE BASIS OF THE ASSESSED INCOME AGAINST THE SEL F ASSESSMENT TAX PAID BY THE APPELLANT. 19.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN CHARGING INTEREST U/S 234C ON ASSESSED INCOME INSTEAD OF RETURNED INC OME AS PER THE PROVISIONS OF ACT. 3. STARTING BUSINESS IN 1909 AS SUZUKI LOOM WORKS, SMC WAS INCORPORATED IN 1920. SMC DESIGNS AND MANUFACTURES PASSENGER CAR S, COMMERCIAL VEHICLES, MOTORCYCLES, OUTBOARD MOTORS, GENERATORS, GENERAL P URPOSE ENGINES, MARINE AND POWER PRODUCTS. MARUTI SUZUKI INDIA LIMITED (MS IL) WAS INCORPORATED ON FEBRUARY 24, 1981 AS A FULLY OWNED GOVERNMENT COMPA NY FOR THE MODERNIZATION OF INDIAN AUTOMOBILE INDUSTRY AND PRO DUCTION OF FUEL-EFFICIENT VEHICLES. IN OCTOBER 1982, MSIL CHOSE SMC AS ITS PA RTNER, AND SMC ACQUIRED 26% EQUITY STAKE IN THE COMPANY. SMC FURTHER INCREA SED ITS SHARE TO 50% IN 1992, CONVERTING MSIL INTO A NON-GOVERNMENTAL COMPA NY. SUBSEQUENT TO THE DISINVESTMENT IN MAY 2002 BY THE GOVERNMENT OF INDI A, SMC NOW HOLDS 54.2% EQUITY IN MSIL. MSIL IS ENGAGED IN THE MANUFACTURIN G OF PASSENGER CARS PRIMARILY FOR SALE IN THE INDIAN MARKET. IT ALSO EX PORTS VEHICLES TO VARIOUS COUNTRIES IN EUROPE, ASIA, ETC. MSIL HAS VARIOUS MO DELS CURRENTLY PLYING ON INDIAN ROADS INCLUDING MARUTI 800, OMNI, ESTEEM, AL TO, GYPSY, SWIFT, VERSA, WAGON R, SX4, VITARA, ZEN ESTILO, SWIFT DZIRE AND E RTIGA. MSIL UNDERTAKES SALES PROMOTION AND CUSTOMER EDUCATION ACTIVITIES A S WELL. FURTHER, 315 MARUTI TRUE VALUE OUTLETS WERE ENGAGED IN THE SALE, PURCHA SE AND EXCHANGE OF PRE- OWNED CARS. MSIL ALSO OPERATES IN AUTO FINANCE, AUT O INSURANCE, CORPORATE 16 ITA NO. 467/DEL/2014 LEASE AND FLEET MANAGEMENT AND PRE-OWNED CARS, IN A DDITION TO OPERATING TO OVER 50 DRIVING SCHOOLS. THE FOLLOWING INTERNATIONA L TRANSACTIONS HAD BEEN UNDERTAKEN BY THE ASSESSEE DURING THE F.Y. 2008-09: S.NO. DESCRIPTION OF THE TRANSACTIONS AMOUNT (IN RS.) METHOD 1 PURCHASE OF COMPONENTS, CONSUMABLES, SPARES ETC. 12,110,450, 295 TNMM 2 PURCHASE OF CBUS 24,206,633 TNMM 3 SALE OF VEHICLES, SPARES AND COMPONENTS 4,427,693,972 TNMM 4 PURCHASE OF CAPITAL ITEMS 3,571,719,761 TNMM 5 PAYMENT OF ROYALTY 6,776,868,613 TNMM 6 PAYMENT OF TECHNICAL SERVICE FEE 654,248,018 TNMM 7 OTHER EXPENDITURE 6,248,255 TNMM 8 PAYMENT OF GUARANTEE FEE 120,180,464 TNMM THE ASSESSEE FILED ITS RETURN OF INCOME ON 26/09/20 09 DECLARING TOTAL INCOME OF RS. 1319,47,29,675/-. A REFERENCE WAS MADE TO TH E TRANSFER PRICING OFFICER (TPO). THE TPO VIDE ORDER DATED 21.01.2013 MADE FOL LOWING ADJUSTMENTS TO THE RETURNED INCOME OF THE ASSESSEE: 1 ADJUSTMENT ON ACCOUNT OF PAYMENT OF ROYALTY FOR USE OF BRAND NAME RS. 311.74 CR. 2 ADJUSTMENT ON ACCOUNT OF AMP RS. 136 CR. TOTAL ADJUSTMENT TO BE MADE RS. 447.74 CR. DRAFT ASSESSMENT ORDER WAS PASSED ON 28.03.2013. RE VISED RETURN WAS FILED ON 29/03/2011 AT AN INCOME OF RS. 1262,60,79,909/-. THE CASE WAS PROCESSED U/S 143(1) ON 29/03/2011 AT RETURNED INCOME. THE AS SESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DISP UTE RESOLUTION PANEL VIDE 17 ITA NO. 467/DEL/2014 DATED 30.12.2013 REJECTED ALL THE GROUNDS RAISED BY THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO ALLOW THE TDS CREDIT OF RS .17,21,027/-. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT VIDE ORDER DATED 0 2.01.2014. THE ASSESSING OFFICER MADE VARIOUS ADDITIONS AMOUNTING OF RS. 207 1,04,18,575/-. 4. BEING AGGRIEVED BY THE SAME, THE ASSESSEE FILED THIS APPEAL. 5. GROUND NO. 1 TO 2 ARE GENERAL IN NATURE AS PER S UBMISSIONS OF THE LD. AR, THEREFORE, THE SAME ARE DISMISSED. 6. GROUND NO. 3 TO 3.2 ARE REGARDING DISALLOWING DE DUCTION CLAIMED U/S 43B OF THE ACT. THE ISSUE RAISED RELATES TO ALLOWAB ILITY OF DEDUCTION OF STATUTORY DUTIES ON PAYMENT BASIS UNDER SECTION 43B OF THE IN COME-TAX ACT, 1961 (THE ACT). THE ASSESSEE IN THE RETURN OF INCOME CLAIMED DEDUCTION OF RS.78,01,08,417 IN RESPECT OF VARIOUS STATUTORY DUT IES PAID DURING THE YEAR UNDER CONSIDERATION UNDER SECTION 43B OF THE ACT. T HE DUTIES SO PAID INCLUDE EXCISE DUTY, CUSTOM DUTY ON IMPORT/ PURCHASE OF INP UTS/COMPONENTS AND ALSO AMOUNT OF DUTY PAID IN PLA ACCOUNT. THE ASSESSING O FFICER, FOLLOWING THE ASSESSMENT ORDER FOR THE EARLIER YEARS DISALLOWED T HE AFORESAID AMOUNT OF RS.78,01,08,417/- ON THE GROUND THAT DEDUCTION UNDE R SECTION 43B OF THE ACT IS ALLOWABLE ONLY WHERE THE AMOUNT CLAIMED AS DEDUC TION ON ACTUAL PAYMENT BASIS IS CHARGED TO THE P&L ACCOUNT. IT IS PRIMARIL Y THE CASE OF THE ASSESSING OFFICER THAT THE AMOUNT PAID BY THE ASSESSEE IS IN THE NATURE OF ADVANCE PAYMENT OF DUTY, LIABILITY IN RESPECT OF WHICH HAS NOT ACCRUED/ CRYSTALLIZED AND CONSEQUENTLY, SUCH ADVANCE PAYMENT IS NOT ALLOWABLE AS DEDUCTION. 7. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER FAILED TO APPRECIATE THAT AS PER THE MANDATE OF SECTION 43B OF THE ACT ANY AM OUNT OF DUTY PAID BY THE ASSESSEE IS ALLOWABLE AS DEDUCTION ON PAYMENT BASIS IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. SUCH DUTY C AN ONLY BE CLAIMED IN THE YEAR OF PAYMENT AND NOT IN ANY OTHER YEAR(S). ACCOR DINGLY, IRRESPECTIVE OF THE TREATMENT GIVEN BY THE ASSESSEE TO THE VARIOUS AMOU NT OF DUTIES PAID DURING 18 ITA NO. 467/DEL/2014 THE YEAR UNDER CONSIDERATION, THE DUTIES PAID WERE ALLOWABLE AS DEDUCTION UNDER SECTION 43B OF THE ACT. THEREFORE, THE LD. AR SUBMITTED THAT THE AGGREGATE AMOUNT OF RS. 78,01,08,417/- WAS ALLOWABL E AS DEDUCTION TO THE ASSESSEE UNDER SECTION 43B OF THE ACT. THE LD. AR R ELIED UPON THE FOLLOWING DECISIONS:- BERGER PAINTS INDIA LTD. VS. CIT(2004) 266 ITR 99 ( S.C) CIT V. SHRI RAM HONDA POWER EQUIPMENT CORPORATION : 258 CTR 329 / 352 ITR 481 (SC) CIT V. MODIPON LTD.: 400 ITR 1 (SC) CIT V. PAHARPUR COOLING TOWERS LTD.: CA NO. 19769 O F 2017 (SC) LAKHANPAL NATIONAL V. ITO : 162 ITR 240 (GUJ) BHARAT PETROLEUM CORPORATION LTD: 252 ITR 43 (BOM) CIT V. NCR CORPORATION INDIA (P) LTD.: 240 TAXMAN 5 98 (KAR.) CHEMICALS AND PLASTICS INDIA LTD. V. CIT : 260 ITR 193 (MAD) CIT VS. C.L. GUPTA: 259 ITR 513 (ALL.) CIT V. RAJ AND SANS DEEP LTD: 293 ITR 12 (P&H) INDIAN COMMUNICATION NETWORK : 206 ITR 96 (ITAT - S B) DCIT V GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD: 10 7 ITD 343 (SB) (CHD.) HIND LAMPS LTD. DCIT: ITA NO. 283/D/92 (AGRA) EURO RSCG ADVERTISING (P) LTD V. ACIT : [2013] 154 TTJ 389 (MUM) THE LD. AR FURTHER SUBMITTED THAT THE AFORESAID ISS UE IS, IN PRINCIPLE, ALSO COVERED BY THE ORDER OF THE HONBLE DELHI HIGH COUR T IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1994-95, 1995-96 AND 1996-97, REPORTED IN 255 CTR 140 AND ORDERS FOR ASSESSMENT YEARS 1999-00, 2000-0 1, 2001-02, 2005-06 AND 2006-07. 8. THE LD. DR SUBMITTED THAT THE HONBLE HIGH COURT HAS NOT CONSIDERED IMPACT OF DEDUCTION WITH RESPECT TO SECTION 145A. S ECTION 43B IS A NON- OBSTANTE CLAUSE WHICH OVERRIDES THE PROVISIONS OF T HE ACT. THUS, THE LD. DR SUBMITTED THAT THIS ISSUE HAS TO BE REMANDED BACK T O THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION. THE LD. DR SUBMITTED THAT THE USE OF THE WORDS 19 ITA NO. 467/DEL/2014 IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIAB ILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE OCCURRING IN SECTION 43B T O MEAN THAT WHETHER OR NOT THE LIABILITY TO PAY SUCH SUM WAS INCURRED IS IMMAT ERIAL AND THAT IF AN AMOUNT OF TAX OR DUTY IS PAID IN THE FIRST YEAR AS ADVANCE , THEN THE DEDUCTION IS TO BE ALLOWED IN THAT YEAR ITSELF, BUT ONE OF THE PRIMARY CONDITIONS FOR THE OPERATION OF SECTION 43B IS THAT THE LIABILITY TO PAY TAX OR DUTY MUST NECESSARILY HAVE BEEN INCURRED. THE LD. DR SUBMITTED THAT THIS HAS A LSO BEEN OBSERVED BY THE HON'BLE SUPREME COURT IN ALLIED MOTORS (P) LTD. V. CIT (1997) 224 ITR 677 (SC), WHICH IS REPRODUCED BELOW: 'AS IS EVIDENT FROM THE BUDGET SPEECH OF THE FINANC E MINISTER FOR THE YEAR 1983-84 AND THE MEMORANDUM EXPLAINING THE PROVISION S IN THE FINANCE BILL, 1983 THAT SECTION 43B WAS CLEARLY AIMED AT CURBING THE ACTIVITIES OF THOSE TAXPAYERS, WHO DID NOT DISCHARGE THEIR STATUTORY LI ABILITY OF PAYMENT OF EXCISE DUTY, EMPLOYER'S CONTRIBUTION TO PROVIDENT FUND, ET C. FOR LONG PERIODS OF TIME BUT CLAIMED DEDUCTIONS IN THAT REGARD FROM THEIR IN COME ON THE GROUND THAT THE LIABILITY TO PAY THESE AMOUNTS HAD BEEN INCURRE D BY THEM IN THE RELEVANT PREVIOUS YEAR. IT WAS TO STOP THIS MISCHIEF THAT SE CTION 43B WAS INSERTED... ' 9. ACCORDING TO THE LD. DR, VIDE PARA 4.1 ON PAGE 3 OF ITS ORDER FOR A.Y. 2006-07, THE COORDINATE BENCH OF THIS TRIBUNAL HAS, ITSELF AGREED THAT THE AMOUNTS PAID UNDER PLA ARE NOTHING BUT EXCISE DUTY PAID AS ADVANCE INASMUCH AS IN INDIAN MOLASSES CO. (P.) LTD. 37 ITR 66, THE HON'BLE SUPREME COURT STATED THAT 'SPENDING' IN THE SENSE OF 'PAYIN G OUT OR AWAY' OF MONEY IS THE PRIMARY MEANING OF 'EXPENDITURE AND 'EXPENDITUR E' IS WHAT IS PAID OUT OR AWAY AND IS GONE IRRETRIEVABLY. BASING ON THIS, HE ARGUED THAT THE EXPENDITURE, WHICH IS DEDUCTIBLE FOR INCOME TAX PURPOSES IS ONE WHICH IS TOWARDS A LIABILITY EXISTING AT THE TIME, BUT PUTTING ASIDE OF MONEY WH ICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT IS NOT AN EXPENDITURE AND ON THIS ANALOGY, HE SUBMITTED THAT ANY ADVANCE PAYMENT OF TAX OR DUTY C ANNOT BE CONSIDERED AS EXPENDITURE SINCE IT IS NEITHER IRRETRIEVABLY GONE NOR DOES IT RELATE TO ANY EXISTING LIABILITY. IN REPLY TO THE SUBMISSION ON B EHALF OF THE ASSESSEE THAT THE 20 ITA NO. 467/DEL/2014 ISSUE WAS COVERED IN THE ASSESSEE'S OWN CASE FOR TH E ASSESSMENT YEARS 1994- 95, 1995-96, 1996-97, 1999-00, 2000-01, 2002-03, 20 04-05, 2005-06, 2006- 07 AND 2007-08, THE LD. DR SUBMITS THAT THESE ARE C ONTINUOUS ISSUES FORMING PART OF THE ASSESSMENT ORDER FOR AY 2005-06 AND 200 6-07 ALSO, AND ARE AT PRESENT PENDING FOR ADJUDICATION BEFORE HON'BLE DEL HI HIGH COURT. ON THIS ISSUE, FOR A.Y. 2006-07 A COORDINATE BENCH OF THIS TRIBUNAL, VIDE 4.13 OF ITS ORDER: ' 4.13 UNDER THE 'INCLUSIVE METHOD', THE FIGURE OF PU RCHASE, SALE AND INVENTORIES ARE REQUIRED TO BE TAKEN WITH THE ELEME NT OF TAX OR DUTY ETC. SINCE THE AMOUNT OF UNUTILIZED BALANCE OF EXCISE DUTY UND ER PLA DOES NOT FORM PART OF PURCHASE, THIS AMOUNT WILL BE ELIGIBLE FOR SEPAR ATE DEDUCTION U/S. 43 B. AT THE SAME TIME, THE LAST YEAR'S UNUTILIZED PLA GETTI NG DEDUCTION IN THAT YEAR DUE TO THE APPLICATION OF SECTION 43B, WOULD BE REQ UIRED TO BE ADDED BACK TO THE INCOME OF THE CURRENT YEAR AS DETERMINED ABOVE. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND DIRECT THE A.O. TO FIRSTLY R ECAST THE ASSESSEE'S PROFIT AND LOSS ACCOUNT ON INCLUSIVE BASIS AND THEN MAKE S UITABLE DEDUCTION IN RESPECT OF THE AMOUNT OF UNUTILIZED PLA AT THE END OF THE CURRENT YEAR AND ALSO THE PRECEDING YEAR. ' WHILE REPRODUCING THE ABOVE PARAGRAPH FOR AY 2007-0 8, THE TRIBUNAL OBSERVED AS UNDER: '8.5 WE FIND THAT THE ITAT UNDER SIMILAR SET OF FAC TS HAS DECIDED AN IDENTICAL ISSUE AFTER DISCUSSING IN DETAIL AND FOLLOWING THE DECISION CITED BEFORE IT INCLUDING THE DECISION OF SPECIAL BENCH OF THE ITAT IN THE CASE OF DCIT VS. GLAXO SMITH KLIN CONSUMER HEALTH CARE LTD. (SUPRA) HOLDING THAT THE EXCESS AMOUNT OF EXCISE DUTY REFLECTED IN THE ACCOUNT-CURR ENT IS NOTHING BUT ACTUAL PAYMENT OF EXCISE DUTY EVEN THOUGH MENTIONED AS ADV ANCE PAYMENT AND HENCE ALLOWABLE AS DEDUCTION UNDER SEC. 43B OF THE ACT IN THE YEAR OF PAYMENT. THE SPECIAL BENCH HAS FURTHER CLARIFIED TH AT THE ALLOWING OF DEDUCTION ON PAYMENT BASIS COULD NOT RESULT IN DOUB LE DEDUCTION UNDER ANY 21 ITA NO. 467/DEL/2014 CIRCUMSTANCE. WE THUS RESPECTFULLY FOLLOWING THE AB OVE DECISION SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECI DE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E AS PER THE DECISION CITED ABOVE IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESS MENT YEAR 2006-07 (SUPRA). GROUND NOS. 3, 3.0.1 TO 3.1.1 ARE ACCORDINGLY ALLOW ED FOR STATISTICAL PURPOSES.' THE LD. DR SUBMITTED THAT THERE IS NO CHANGE IN THE CIRCUMSTANCES THAT ARE DISCUSSED IN PARA NO 8.5 OF THE ABOVE ORDER SO AS T O TAKE ANY CONTRARY VIEW. THE LD. DR SUBMITTED PLEA OF THE REVENUE THAT THESE ARE CONTINUOUS ISSUES FORMING PART OF THE ASSESSMENT ORDER FOR AY 2005-06 AND 2006-07 ALSO, AND ARE AT PRESENT PENDING ADJUDICATION BEFORE HON'BLE DELHI HIGH COURT IS NOT A GROUND FOR US TO DEVIATE FROM THE CONSISTENT VIEW T AKEN BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE EARLIER YEARS. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE R ECORDS. IT IS PERTINENT TO NOTE THAT THE HONBLE DELHI HIGH COURT IN ASSESS EES OWN CASE FOR A.Y. 1994- 95 TO 1996-97 HELD AS UNDER: 3. ISSUE INVOLVED IN GROUNDS NO 3 TO 3.0.2 RELATES TO THE ALLOWABILITY OR DISALLOWABILITY OF DEDUCTION OF THE STATUTORY DUTIE S ON PAYMENT BASIS UNDER SECTION 43B OF THE INCOME-TAX ACT, 1961 (THE ACT). ACCORDING TO THE ASSESSMENT ORDER, THE FOLLOWING ARE SUCH STATUTORY DUTIES CLAIMED BY THE ASSESSEE FOR DEDUCTION, BUT DISALLOWED BY THE ASSES SING OFFICER: ITEM ITEM PARTICULARS AMOUNT (RS.) NO. 1(A) PLA BALANCE OF EXCISE DUTY ON VEHICLES 28, 21,616 1(B) PLA BALANCE R&D CESS ON VEHICLES 23,02,815 22 ITA NO. 467/DEL/2014 1(C) PLA BALANCE EXCISE DUTY ON SPARE PARTS 90, 04,752 2 CUSTOMS DUTY PAID ON IMPORT OF COMPONENTS FOR 42,961 EXPORTS FOR PURPOSES FOR WHICH EXPORT HAD NOT BEEN MADE BY YEAR END 3 CUSTOMS DUTY PAID ON IMPORT OF COMPONENTS FOR 12,64,98,615 EXPORTS PURPOSES FOR WHICH EXPORT HAD BEEN MADE BY YEAR END 4 EXCISE DUTY ON INPUTS BALANCE IN RG 23A PART-II 18 ,47,40,688 5A CVD (MODVAT) PAID ON GOODS IN TRANSIT TO BE 10, 73,21,757 ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS COMPONENTS 5B. CVD (MODVAT) PAID ON GOODS IN TRANSIT TO BE 2,78,71,332 ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS STEEL COILS 6 CUSTOMS DUTY ON GOODS IN TRANSIT/UNDER 1,93,27,627 I NSPECTION 7 CUSTOMS DUTY ON INVENTORY IN CLOSING STOCK 18,23,52 ,893 8 CUSTOMS DUTY PAID UNDER PROTEST 92,431 TOTAL 66,23,77,487 3.1. ACCORDING TO THE ASSESSEE, THE ASSESSEE, IN THE RE TURN OF THEIR INCOME, HAS CLAIMED DEDUCTION OF RS.66,23,77,487 IN RESPECT OF THE ABOVE STATUTORY DUTIES PAID DURING THE YEAR UNDER CONSIDE RATION UNDER SECTION 43B OF THE ACT AND SIMULTANEOUSLY OFFERED FOR TAX RS.L 17,72,92,005 CLAIMED AS DEDUCTION IN EARLIER YEARS. THE DUTIES SO PAID INCL UDE EXCISE DUTY, CUSTOM DUTY ON IMPORT/ PURCHASE OF INPUTS/COMPONENTS AND A LSO AMOUNT OF DUTY PAID IN PLA ACCOUNT. HOWEVER, THE ASSESSING OFFICER, FOLLOWING THE ASSES SMENT ORDER FOR THE EARLIER YEARS, DISALLOWED RS.66,23,77 ,487 ON THE GROUND THAT DEDUCTION UNDER SECTION 43B OF THE ACT IS ALLOWABLE ONLY WHERE THE AMOUNT CLAIMED AS DEDUCTION ON ACTUAL PAYMENT BASIS IS CHA RGED TO THE P&L ACCOUNT. IT IS PRIMARILY THE CASE OF THE ASSESSING OFFICER T HAT THE AMOUNT PAID BY THE 23 ITA NO. 467/DEL/2014 ASSESSEE IS IN THE NATURE OF ADVANCE PAYMENT OF DUT Y, LIABILITY IN RESPECT OF WHICH HAS NOT ACCRUED/ CRYSTALLIZED AND CONSEQUENTL Y, SUCH ADVANCE PAYMENT IS NOT ALLOWABLE AS DEDUCTION. DISPUTE RESOLUTION PANEL (DRP), ALSO APPROVED THE FINDINGS OF THE ASSESSING OFFICER ON THE GROUND THAT SIMILAR ISSUES ARISING IN THE PRECEDING YEARS IS PENDING BE FORE THE ITAT AS WELL AS THE HONBLE HIGH COURT. 3.2. IT IS THE SUBMISSION OF THE LD. AR THAT THE ASSESS ING OFFICER/DRP, FAILED TO APPRECIATE THAT AS PER THE MANDATE OF SEC TION 43B OF THE ACT ANY AMOUNT OF DUTY PAID BY THE ASSESSEE IS ALLOWABLE AS DEDUCTION ON THE BASIS OF PAYMENT ITSELF IRRESPECTIVE OF THE METHOD OF ACC OUNTING FOLLOWED BY THE ASSESSEE AND SUCH A DUTY CAN ONLY BE CLAIMED IN THE YEAR OF PAYMENT BUT NOT IN ANY OTHER YEAR, AND THEREFORE, IRRESPECTIVE OF T HE TREATMENT GIVEN BY THE ASSESSEE TO THE VARIOUS AMOUNT OF DUTIES PAID DURIN G THE YEAR UNDER CONSIDERATION, THE DUTIES PAID WERE ALLOWABLE AS DE DUCTION UNDER SECTION 43B OF THE ACT. 3.3. WHILE PLACING RELIANCE ON THE DECISIONS REPORTED I N BERGER PAINTS INDIA LTD. V. CIT (2004) 266 ITR 99 (SC), CIT V. SHRI RAM HONDA POWER EQUIPMENT CORPORATION : 258 CTR 329 / 352 ITR 481 (SC), CIT V . MODIPON LTD.:334 ITR 106 (DEL), LAKHANPAL NATIONAL LTD. V. ITO : 162 ITR 240 (GUJ), BHARAT PETROLEUM CORPORATION LTD.: 252 ITR 43 (BOM), CIT V . NCR CORPORATION INDIA (P) LTD. : 240 TAXMAN 598 (KAR.), CHEMICALS AND PLA STICS INDIA LTD. V. CIT : 260 ITR 193 (MAD), CIT V. C.L. GUPTA: 259 ITR513 (A LL.), CIT V. RAJ AND SANS DEEP LTD: 293 ITR 12 (P&H), INDIAN COMMUNICATION NE TWORK 206 ITR 96 (ITAT - SB), DCIT V. GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD: 107 ITD 343 (SB) (CHD.), HIND LAMPS LTD. DCIT: ITA NO. 283/D/92 (AGR A), EURO RSCG ADVERTISING (P) LTD V. ACIT : 154 TTJ 389 (MUM), HE SUBMITTED THAT THE AGGREGATE AMOUNT OF RS.66,23,77,487 WAS ALLOWABLE A S DEDUCTION TO THE ASSESSEE UNDER SECTION 43B OF THE ACT. LD. AR FURTH ER SUBMITTED THAT THIS 24 ITA NO. 467/DEL/2014 ISSUE IS, IN PRINCIPLE, ALSO COVERED BY THE ORDER O F THE DELHI HIGH COURT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1994-9 5, 1995-96 AND 1996- 97, REPORTED IN 255 CTR 140. 3.4. IN THE LIGHT OF THESE SUBMISSIONS AND DETAILED EXP LANATION OFFERED BY BOTH THE PARTIES NOW WE SHALL PROCEED TO DEAL WI TH THE ITEM WISE SUBMISSIONS UNDER GROUND NO.3. 10. AS CAN BE SEEN FROM THE FACTUAL ASPECT FOR A.Y. 1994-95, THE SAID ISSUE IS DEALT HEREINAFTER AS THE ASSESSEE HAS TAKEN SEPARAT ELY EACH ITEM OF THE DISALLOWANCE. HENCE, GROUND NOS. 3 TO 3.2 DOES NOT REQUIRE ADJUDICATION. 11. GROUND NOS. 3.3 TO 3.4 IS REGARDING PLA BALANCE ON EXCISE DUTY ON VEHICLES, R & D CESS ON VEHICLES AND EXCISE DUTY ON SPARE PARTS. THE RETURN OF INCOME, THE ASSESSEE CLAIMED DEDUCTION OF DUTY PAID AMOUNTING TO RS.67,03,179/-, BEING BALANCE IN THE PLA, UNDER SEC TION 43B OF THE ACT. THE AFORESAID AMOUNT WAS PAID BY THE ASSESSEE UNDER RUL E 4 OF THE EXCISE RULES, 2002 IN ORDER TO COVER THE DUTY REQUIRED TO BE PAID ON THE GOODS TO BE REMOVED FROM BONDED WAREHOUSE. AT THE TIME OF REMOVAL OF TH E GOODS, EXCISE DUTY/R&D CESS PAYABLE ON THE GOODS IS DEBITED TO THE PLA. AS PER THE MANDATE OF SECTION 43B OF THE ACT, THE AFORESAID AMOUNT WAS CLAIMED AS DEDUCTION IN THE RETURN OF INCOME. THE ASSESSING OFFICER DISALLOWED THE SAME F OLLOWING THE ASSESSMENT ORDER FOR THE PRECEDING ASSESSMENT YEARS. 12. THE LD. AR SUBMITTED IN THE ASSESSEEES OWN CAS E FOR THE ASSESSMENT YEAR 1999-2000, THE TRIBUNAL ALLOWED THE CLAIM SUBJ ECT TO INCURRING OF LIABILITY ON MANUFACTURED GOODS. THE ASSESSEE HAD CLOSING STO CK ON 31 ST MARCH, 2009, OF MANUFACTURED VEHICLES AMOUNTING TO RS.166 CRORES , WHICH SUM INCLUDES THE ACCRUED LIABILITY OF EXCISE DUTY AND R&D CESS AMOUN TING TO RS.12.87 CRORES. THIS AMOUNT OF ACCRUED LIABILITY HAS BEEN DEBITED T O THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR AND ALSO INCLUDED IN THE VALUATION OF THE CLOSING 25 ITA NO. 467/DEL/2014 STOCK. THE LD. AR RELIED ON THE DECISION OF SPECIA L BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. GLAXO SMITH KLINE CONSUMER HEALTH C ARE LTD REPORTED IN 107 ITD 343 (SB) (CHD.), WHEREIN IT IS HELD THAT PLA BALANCE IS AN ALLOWABLE DEDUCTION. FURTHER, THE ISSUE STANDS COVERED IN FAV OUR OF THE ASSESSEE IN VIEW OF DECISION OF THE HON'BLE SUPREME COURT IN THE CAS E OF CIT V. MODIPON LTD.: CA NO.19763, 19767, 19768,19770 OF 2017 / 87 TAXMANN.C OM 275 (SC). SIMILAR VIEW HAS BEEN TAKEN BY THE DELHI BENCH OF THE TRIBU NAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1994-95, 1995-96, 199 6-97, 1999-00, 2000-01, 2004-05, 2005-06,2006-07,2007-08 AND 2008-09. THE O RDER OF THE TRIBUNAL HAS BEEN CONFIRMED BY HONBLE DELHI HIGH COURT FOR THE ASSESSMENT YEARS 1994-95,1995-96 AND 1996-97, REPORTED IN 255 CTR 14 0. THE ORDERS OF THE DELHI TRIBUNAL HAVE BEEN AFFIRMED BY THE HONBLE DE LHI HIGH COURT FOR THE ASSESSMENT YEARS 1999-00 (ITA NO.31/2005) AND 2000- 01 (ITA NO.442/2005). 13. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT IS PERTINENT TO NOTE THAT THE HONBLE DELHI HIGH COURT IN ASSESS EES OWN CASE HELD AS UNDER: 15. IN THE PRESENT CASE, THE ASSESSEE HAD NO OPTION, BU T TO KEEP THE ACCOUNT, IN RESPECT OF EACH EXCISABLE U' PRODUCT (EVIDENT FR OM THE MANDATE IN RULE 173G THAT IT 'SHALL KEEP AN ACCOUNT CURRENT'). THE LATTER PART OF THE MAIN RULE MAKES IT CLEAR BEYOND ANY DOUBT THAT THE ASSESSEE H AS NO CHOICE IN THE OBLIGATION, AND CANNOT REMOVE THE GOODS MANUFACTURE D BY IT, UNLESS SUFFICIENT AMOUNTS ARE KEPT IN CREDIT: '...AND THE ASSESSEE SHALL PERIODICALLY MADE CREDIT IN SUCH ACCOUNT- CURRENT, BY CASH PAYMENT INTO THE TREASURY, SO AS T O KEEP THE BALANCES, IN SUCH ACCOUNT-CURRENT SUFFICIENT TO COVER THE DULY D UE ON THE GOODS INTENDED TO BE REMOVED AT ANY TIME, AND EVERY SUCH ASSESSEE SHALL PAY THE DUTY DETERMINED BY HIM FOR CONSIGNMENT BY DEBIT TO SUCH ACCOUNT-CURRENT BEFORE 26 ITA NO. 467/DEL/2014 REMOVAL OF THE GOODS' THE REVENUE'S CONTENTION THAT THE AMOUNTS IN CREDIT ALSO RELATE TO GOODS NOT MANUFACTURED, AND THEREFORE NOT RELATABLE TO ANY 'L IABILITY INCURRED' IS, IN THE OPINION OF THIS COURT, WITHOUT ANY BASIS. THE ARRAN GEMENT PRESCRIBED BY THE RULE IS BOTH A COLLECTION MECHANISM - DICTATED BY C ONVENIENCE, AS WELL AS MANDATORY. IT IS CONVENIENT, FOR THE REASON THAT IF THE ASSESSEE WERE TO BE ASKED TO PAY THE EXACT AMOUNT, THROUGH SOME OTHER M ETHOD, BY DEPOSIT, AS A PRECONDITION FOR CLEARANCE, THAT WOULD HAVE BEEN CU MBERSOME TO IT AS WELL AS THE REVENUE; IT WOULD ALSO HAVE LED TO PROBLEMS OF STORAGE OF GOODS, AND SLOW DOWN THEIR SUPPLY AND DISTRIBUTION. THE RULE MAKERS PRAGMATICALLY DIRECTED THAT 'SUFFICIENT' AMOUNTS OUGHT TO BE MAINTAINED IN THE ACCOUNT, TO COVER THE REMOVALS. THEREFORE, AT ANY GIVEN POINT OF TIME, TH ERE HAD TO BE AN EXCESS IN THE ACCOUNT, IF THE ASSESSEE WERE TO REMOVE THE GOO DS. EACH CLEARANCE MENTIONS THE QUANTUM OF GOODS, AND THE DUTY AMOUNT, WHICH IS APPARENTLY RECONCILED AT THE END OF THE PERIOD, AND SHORTFALLS IF ANY ARE APPROPRIATED FROM THE ACCOUNT. THE EXCESS CREDIT IS LIKEWISE ADJUSTED FOR THE NEXT DAY'S CLEARANCES. THE POINT TO BE UNDERLINED IS THAT THER E IS NO CHOICE, AND THE AMOUNTS RELATE TO THE ASSESSEE'S DUTY LIABILITY, FA LLING WITHIN THE DESCRIPTION UNDER SECTION 43-B. THE CONSEQUENCE OF NOT ALLOWING THE AMOUNTS AS DEDUCTIONS, ARE VIVIDLY BROUGHT OUT IN THE DECISION OF THE ALLAHABAD HIGH COURT IN C.L. GUPTA & SONS (SUPRA), WHERE IT WAS HE LD THAT: '10. IN THE CASE IN HAND, ADMITTEDLY, THE AMOUNT OF CUSTOMS DUTY OF RS. 3,56,451 WAS PAID BY THE ASSESSEE IN MARCH, 1987, A ND, THEREFORE, IN TERMS OF SECTION 43B IT IS DEDUCTIBLE ONLY IN THE Y EAR IN WHICH IT IS ACTUALLY PAID, I.E., FOR THE ASSESSMENT YEAR 1987-88, IRRESP ECTIVE OF THE YEAR IN WHICH THE ASSESSEE INCURRED THE LIABILITY ON THE BA SIS OF THE METHOD OF ACCOUNTING REGULARLY ADOPTED BY HIM AND, THEREFORE, IN VIEW OF THE CLEAR PROVISIONS OF LAW, THE DEDUCTION CANNOT BE ALLOWED IN THE ASSESSMENT YEAR 1988-89. IN OUR VIEW, BOTH THE LEARNED INCOME TAX A PPELLATE TRIBUNAL AS 27 ITA NO. 467/DEL/2014 WELL AS THE COMMISSIONER OF INCOME TAX (APPEALS) FE LL IN ERROR IN HOLDING THAT SINCE THE ASSESSEE-FIRM DEBITED THE COST OF GO ODS IMPORTED INCLUDING THE DUTY PAID ON DELIVERY OF GOODS IN THE TRADING A CCOUNT IN APRIL, 1987, AND BEFORE THE ACTUAL DELIVERY OF THE GOODS, THE VA LUE OF THE GOODS AND CUSTOMS DUTY PAID THEREON WAS SHOWN IN THE BALANCE- SHEET AS DOCUMENT IN HANDS, THEREFORE, THE DEDUCTION SHOULD BE ALLOWE D IN THE ASSESSMENT YEAR 1988-89, IS CONTRARY TO THE PRESCRIPTION OF LA W. SECTION 43B IN CLEAR TERMS PROVIDES THAT THE DEDUCTION CLAIMED BY THE AS SESSEE IN RESPECT OF ANY SUM PAID BY WAY OF TAX, DUTY, CESS OR FEE, SHAL L BE ALLOWED ONLY IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 OF T HAT PREVIOUS YEAR IN WHICH IT WAS ACTUALLY PAID, IRRESPECTIVE OF THE PRE VIOUS YEAR IN WHICH THE LIABILITY WAS INCURRED FOR THE PAYMENT OF SUCH SUM AS PER THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. FOR THE PURPOSE OF CLAIMING BENEFIT OF DEDUCTION OF THE SUM PAID AGAIN ST THE LIABILITY OF TAX, DUTY, CESS, FEE, ETC., THE YEAR OF PAYMENT IS RELEV ANT AND IS ONLY TO BE TAKEN INTO ACCOUNT. THE YEAR IN WHICH THE ASSESSEE INCURR ED THE LIABILITY TO PAY SUCH TAX. DUTY, ETC., HAS NO RELEVANCE AND CANNOT B E LINKED WITH THE MATTER OF GIVING BENEFIT OF DEDUCTION UNDER SECTION 43B OF THE ACT. IN THIS VIEW OF THE MATTER, THE APPEAL DESERVES TO BE ALLOWED. 16. THIS COURT ALSO NOTICES THAT THE SUPREME COURT HAS UPHELD THE VIEW WHICH ALLOWS ASSESSEE'S TO CLAIM CREDITS, SUCH AS M ODVAT, ETC, FALLING WITHIN THE DESCRIPTION OF LIABILITY PAID, TO ESCAPE THE MI SCHIEF OF SECTION 43-B. CIT V. SHRI RAM HONDA POWER EQUIPMENT CORPN. [2012] 210 TAXMAN 577/26 TAXMANN.COM 331(SC) AS A RESULT OF THE ABOVE DISCUSSION, THE FIRST QUES TION IS ANSWERED IN FAVOUR OF THE ASSESSEE, AND AGAINST THE REVENUE. THE HONBLE DELHI HIGH COURT HAS ALREADY DECIDED T HIS ISSUE IN FAVOUR OF THE ASSESSEE FOR A.YS. 1999-00 AND 2000-01. THEREFO RE, IN ABSENCE OF ANY 28 ITA NO. 467/DEL/2014 CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. DR AGAINST THE ORDER OF THE TRIBUNAL, WE ALLOW GROUND NOS. 3.3 TO 3.4. 15. IN RESULT, GROUND NOS. 3.3. TO 3.4 ARE ALLOWED. 16. AS REGARDS TO GROUND NO. 3.5, RELATING TO CUST OMS DUTY PAID ON IMPORT OF COMPONENTS FOR EXPORT PURPOSES FOR WHICH EXPORTS HAS BEEN MADE. THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING IN RESPECT OF CUSTOM DUTY PAID ON IMPORT OF COMPONENTS FOR EXPORT PURPOSES. ACCORDINGLY, DUTIES PAID ON PURCHASES ARE NOT INCLU DED IN THE COST OF PURCHASES AND THE VALUE OF CLOSING STOCK IN THE PRO FIT AND LOSS ACCOUNT. ADDITION OF THE DUTY, BOTH IN THE PURCHASES AS WELL AS THE CLOSING STOCK AS PER THE REQUIREMENT OF SECTION 145A, IS TAX NEUTRAL INA SMUCH AS THE SAME AMOUNT IS BOTH DEBITED AS WELL AS CREDITED TO THE PROFIT A ND LOSS ACCOUNT. HOWEVER, TO GIVE EFFECT TO THE PROVISIONS OF SECTION 43B, WHICH MANDATES THAT DUTIES PAID BY THE ASSESSEE ARE ALLOWABLE ONLY ON PAYMENT BASIS, C USTOM DUTY PAID BY THE ASSESSEE ON IMPORT OF COMPONENTS FOR EXPORT PURPOSE S, WHETHER OR NOT EXPORT AGAINST THE SAME HAD ACTUALLY TAKEN PLACE DURING TH E RELEVANT YEAR, IS CLAIMED AS DEDUCTION IN THE RETURN OF INCOME. THE ASSESSING OFFICER, DISALLOWED THE SAME FOLLOWING THE ASSESSMENT ORDER FOR THE ASSESSM ENT YEAR 2005-06, WHEREIN IT WAS HELD THAT SINCE THE ASSESSEE IS ENTI TLED FOR DUTY DRAWBACK, WHICH BECOMES IMMEDIATELY DUE ON THE DATE OF EXPORT , THE AMOUNT OF CUSTOM DUTY ON IMPORT IS REVENUE NEUTRAL. CONSEQUENTLY, NO DEDUCTION IS ALLOWABLE TO THE ASSESSEE IN RESPECT OF THE SAME. 17. THE LD. AR SUBMITTED THAT ASSESSING OFFICER FAI LED TO APPRECIATE THAT DUTY DRAWBACK DOES NOT ACCRUE AUTOMATICALLY ON EXPORT OF GOODS SINCE THE EXPORTER IS REQUIRED TO FULFILL VARIOUS CONDITIONS/REQUIREME NTS IN ORDER TO CLAIM THE SAME. DUTY DRAWBACK ACCRUES ONLY WHEN THE CLAIM OF THE EXPORTER-ASSESSEE IS SANCTIONED BY THE CUSTOM AUTHORITIES; DUTY DRAWBACK RECEIVABLE IS SEPARATELY CHARGEABLE TO TAX AS INCOME OF THE ASSESSEE UNDER S ECTION 28 OF THE ACT. 29 ITA NO. 467/DEL/2014 RECEIPT OF DUTY DRAWBACK IS ALTOGETHER DIFFERENT FR OM ALLOWABILITY OF DEDUCTION IN RESPECT OF WHICH DUTY PAID BY THE ASSESSEE ON PA YMENT BASIS UNDER SECTION 43B OF THE ACT. THE LD. AR FURTHER SUBMITTED THAT W ITHOUT PREJUDICE TO THE AFORESAID, IN CASE THE ASSESSING OFFICERS CONTENTI ON WERE TO BE ACCEPTED, THEN DUTY DRAWBACK INCOME AMOUNTING TO RS. 15,93,11,093/ - DECLARED BY THE ASSESSEE HIMSELF, BEING THE AMOUNT OF DUTY DRAWBACK RECEIVED IN THE INSTANT YEAR BUT WHICH ALLEGEDLY ACCRUED IN THE PREVIOUS YE AR, AS PER THE PRINCIPLE ADOPTED BY THE ASSESSING OFFICER IS NOT TAXABLE IN THE YEAR UNDER CONSIDERATION. THE LD. AR SUBMITTED THAT THERE IS NO JUSTIFICATION FOR ADOPTING TWO DIFFERENT AND INCONSISTENT METHODS WHILE COMPUTING THE INCOME OF THE PRESENT YEAR. THE AFORESAID SUM WAS DULY DECLARED AS THE INCOME OF TH E IMMEDIATELY SUCCEEDING YEAR ON RECEIPT, A METHOD CONSISTENTLY ADOPTED BY T HE ASSESSEE COMPANY AND ACCEPTED BY THE AO SINCE INCEPTION. THE TRIBUNAL HA S DECIDED THE AFORESAID ISSUE IN FAVOUR OF ASSESSEE IN THE ASSESSMENT YEARS 1999-00, 2000-01, 2001- 02, 2002-03, 2004-05, 2005-06, AY 2006-07, 2007-08 AND 2008-09. THE ORDERS OF THE DELHI TRIBUNAL HAVE BEEN AFFIRMED BY THE DELHI HIGH COURT FOR ASSESSMENT YEARS 1999-00 (ITA NO.250/2005), 2000-01 (ITA NO.976/2005), 2005-06 (ITA NOS. 171 AND 172/2012) AND 2006-07 (IT A NO. 381/2016). FURTHER, THE ISSUE STAND COVERED IN FAVOUR OF THE A SSESSEE IN VIEW OF THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF CIT V. SRIYANSH KNITTERS P. LTD. 336 ITR 235 WHEREIN THE HIGH COURT, WHILE AFFIRMING THE FINDING OF THE TRIBUNAL HELD THAT DUTY DRAWBACK ACCRUES IN THE YEAR IN WHICH RATE IS FIXED BY THE COMPETENT AUTHORITY AFTE R VERIFICATION OF CLAIM OF THE ASSESSEE AND AMOUNT IS QUANTIFIED AND NOT IN THE YE AR OF EXPORT. SIMILAR VIEW HAS BEEN HELD IN THE CASE OF CIT V. MANAV TOOLS (IN DIA) P. LTD: 336 ITR 237 (P&H). IT HAS BEEN HELD SIMILARLY BY THE DELHI HIGH COURT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1994-95, 1995-96, 1996-97 , 1997-98, 1998-99, 1999-00, 2001-02 AND 2004-05. 18. THE LD. DR RELIED UPON THE ASSESSMENT ORDERS. 30 ITA NO. 467/DEL/2014 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT IS PERTINENT TO NOTE THAT THE HONBLE DELHI HIGH COURT IN ASSESS EES OWN CASE HELD AS UNDER: 6. QUESTION (III) CONCERNS THE DISALLOWANCE OF AN ADDITION OF RS. 20,60,14,392 REPRESENTING THE CUSTOMS DUTY PAID ON IMPORTS CLAIM ED AS A DEDUCTION UNDER SECTION 43B OF THE ACT. THIS WAS DIRECTLY PAID BY T HE ASSESSEE TO THE CUSTOMS AUTHORITIES AND PAID DURING THE AY IN QUESTION. CON SEQUENTLY, IT WAS CORRECTLY ALLOWED AS A DEDUCTION BY THE ITAT. QUESTION (III) THEREFORE, IS ANSWERED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE . THE FACTS OF THE PRESENT CASE AND THE DECISION OF THE DELHI HIGH COURT IS ON IDENTICAL ISSUE. THUS, THIS ISSUE IS COVERED BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN FAVOUR OF THE ASSESSEE. 20. IN RESULT, GROUND NO. 3.5. IS ALLOWED. 21. GROUND NO. 3.6 TO 3.7 IS REGARDING BALANCE IN RG 23A PART II THE ASSESSEE HAD CLAIMED DEDUCTION U/S 43B OF THE ACT A MOUNTING TO RS. 10,15,93,048/- REPRESENTING BALANCE IN RG23A AS ON 31.03.2009. THE AFORESAID AMOUNT REPRESENTS EXCISE DUTY PAID ON RAW MATERIAL AND INPUTS PURCHASED BY THE ASSESSEE FOR USE IN THE MANUFACTUR E OF AUTOMOBILES. UNDER THE CENTRAL EXCISE LAW, THE ASSESSEE IS ENTITLED TO CLAIM MODVAT CREDIT IN RESPECT OF THE AMOUNT OF CENTRAL EXCISE DUTY SO PAI D ON RAW MATERIAL AND INPUTS PURCHASED FOR MANUFACTURE OF EXCISABLE GOODS. THE S AID AMOUNT OF DUTY PAID TO THE SUPPLIER OF RAW MATERIAL AND INPUTS IS REGARDED AS AMOUNT OF CENTRAL EXCISE DUTY ACTUALLY PAID BY THE ASSESSEE UNDER THE EXCISE LAWS. SINCE THE AFORESAID AMOUNT OF EXCISE DUTY WAS ACTUALLY PAID BY THE ASSE SSEE AS PART OF PURCHASE PRICE OF RAW MATERIAL AND INPUTS, THE SAME HAS BEEN CLAIMED AS DEDUCTION UNDER SECTION 43 B OF THE ACT. THE ASSESSING OFFICE R, HOWEVER, DISALLOWED THE AFORESAID AMOUNT FOLLOWING THE ASSESSMENT ORDERS FO R THE PRECEDING YEARS. 31 ITA NO. 467/DEL/2014 22. THE LD. AR SUBMITTED THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD: 107 ITD 343/ 299 ITR (AT) 1 (CHD.) (SB), HAS HELD THAT, UNUTILIZED MODVAT CREDIT IS NOT AN A LLOWABLE DEDUCTION, SINCE SUCH CREDIT DOES NOT AMOUNT TO PAY MENT OF DUTY. THEREFORE, THE LD. AR POINTED OUT THAT, AS A RESULT OF THE ORD ER OF THE TRIBUNAL, SUCH DEDUCTION MAY BE HELD AS NOT ALLOWABLE TO THE ASSES SEE IN THE INSTANT YEAR BUT WOULD BE ALLOWABLE IN THE YEAR WHEN THE SAME IS ADJ USTED AGAINST EXCISE DUTY PAYABLE. THE PRINCIPLE LAID DOWN IS THAT DEDUCTION IS ALLOWABLE IN THE YEAR WHEN ADJUSTMENT IS MADE AND NOT IN THE YEAR OF PURCHASE OF RAW MATERIAL/INPUT. FOLLOWING THE ORDER OF THE SPECIAL BENCH IN GLAXO ( SUPRA), THE ITAT IN ASSESSEES OWN CASE FOR AY 2001-02 DECIDED THE ISSU E AGAINST THE ASSESSEE. HOWEVER, THE SUPREME COURT HAS HELD THAT DEDUCTION IS ALLOWABLE U/S 43B OF THE ACT FOR THE AMOUNT LYING CREDITED IN THE MODVAT ACCOUNT AT THE END OF THE ACCOUNTING YEAR, DISMISSING THE SLP (NO. 23461/2012 ) FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE HIGH COURT IN THE CASE OF SHRI RAM HONDA POWER EQUIPMENT LTD: [2013] 258 CTR 329 / 352 ITR 481 (SC ). FOLLOWING THE ABOVE JUDGMENT, THE ITAT IN AY 2006-07, AY 2007-08 AND 20 08-09 DECIDED THE AFORESAID ISSUE IN FAVOUR OF ASSESSEE. THE LD. AR POINTED OUT THAT THE AFORESAID ISSUE HAS BEEN DECIDED AGAINST THE ASSESS EE BY THE DELHI HIGH COURT IN ASSESSMENT YEARS 1999-00 (ITA NO.31/2005 AND 250 /2005), 2000-01 (ITA NO.442/2005) AND 2004-05 (ITA NO.397/2009). THE HIG H COURT HAS, HOWEVER, DECIDED THE ALTERNATE CLAIM IN FAVOUR OF THE ASSESS EE AND HELD THAT UNUTILIZED MODVAT CREDIT OF EARLIER YEAR TO THE EXTENT ADJUSTE D IN THE YEAR UNDER CONSIDERATION SHALL BE ALLOWED AS DEDUCTION IN THE RELEVANT YEAR ( PARA 45 OF DELHI HIGH COURT ORDER FOR AY 1999-00 IN ITA NO.31/ 2005). THUS THE LD. AR SUBMITTED THAT THE ASSESSEE MAY BE ALLOWED THE DED UCTION REPRESENTING THE RG 23A BALANCE AT THE END OF ASSESSMENT YEAR 2008-0 9 AMOUNTING TO RS.18,47,40,688/- BEING THE OPENING BALANCE IN THE INSTANT ASSESSMENT YEAR. THE HIGH COURT HAS FURTHER ALLOWED DEDUCTION FOR AM OUNT REPRESENTING ADDITIONAL OR COUNTERVAILING DUTY WHICH HAS BEEN PA ID DIRECTLY TO THE CUSTOM AUTHORITIES. THUS, THE LD. AR REQUESTED THAT THE ASSESSING OFFICER MAY BE 32 ITA NO. 467/DEL/2014 DIRECTED TO ALLOW DEDUCTION FOR AMOUNT FORMING PART OF RG 23A BALANCE TO THE EXTENT IT HAS BEEN DIRECTLY PAID TO CUSTOM AUTHORIT IES. 23. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSI NG OFFICER. 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT IS PERTINENT TO NOTE THAT THE HONBLE DELHI HIGH COURT IN ASSESS EES OWN CASE HELD AS UNDER: 32. AN ANALYSIS OF SECTION 43B OF THE ACT REVEALS THAT FOR THE DEDUCTION THERE UNDER TO BE ALLOWED, THE FOLLOWING CONDITIONS ARE REQUIRED TO BE SATISFIED. (A) THERE SHOULD BE AN ACTUAL PAYMENT OF EXCISE DUTY WH ETHER BY WAY OF TAX, DUTY, CESS OR FEE, BY WHATEVER NAME; (B) SUCH PAYMENT HAS TO BE UNDER ANY LAW FOR THE TIME BEING IN FORCE (C) THE PAYMENT OF SUCH SUM SHOULD HAVE BEEN MADE BY T HE ASSESSEE; D) IRRESPECTIVE OF THE METHOD OF ACCOUNTING REGULAR LY EMPLOYED BY THE ASSESSEE, DEDUCTION SHALL BE ALLOWED WHILE COMPUTIN G THE INCOME TAX FOR THE PREVIOUS YEAR IN WHICH SUM IS ACTUALLY PAID B Y THE ASSESSEE; E) THE EXPRESSION ANY SUCH SUM PAYABLE REFERS TO A SUM FOR WHICH THE ASSESSEE INCURRED LIABILITY IN THE PREVIOUS YEAR E VEN THOUGH SUCH SUM MIGHT NOT HAVE BEEN PAYABLE WITHIN THAT YEAR UNDER THE RELEVANT LAW. 33. THERE ARE TWO KINDS OF PAYMENT ENVISAGED BY SECTIO N 43B OF THE ACT. TAX PAYABLE COULD BE IN THE FORM OF EXCISE DUTY ON THE RAW MATERIAL/INPUTS PURCHASED BY THE MANUFACTURER. THE SECOND KIND OF P AYMENT COULD BE OF EXCISE DUTY THAT IS PAYABLE BY MANUFACTURER ON THE FINAL PRODUCT AT THE TIME OF CLEARANCE OF SUCH FINAL PRODUCTS FROM THE FACTORY. 34. IN EICHER MOTORS (SUPRA), A CHALLENGE WAS RAISED TO THE VALIDITY OF RULE 33 ITA NO. 467/DEL/2014 57F (4A) OF THE CE RULES UNDER WHICH CREDIT WHICH W AS LYING UNUTILISED AS OF 16 TH MARCH 1995 WITH THE MANUFACTURERS STOOD LAPSED IN THE MANNER SET OUT THEREIN. THE SUPREME COURT UPHELD THE CHALLENGE BY THE MANUFACTURERS TO THE AFOREMENTIONED RULE 57F (4A) OF THE CE RULES ON THE GROUND THAT UNDER THE MODVAT SCHEME AS IT EXISTED ON THE DATE OF CHANGE, I.E. 16 TH MARCH 1995, MODVAT CREDIT LYING IN THE BALANCE WITH THE ASSESSE E REPRESENTED A VESTED RIGHT ACCRUED OR ACQUIRED BY THE ASSESSEE UNDER TH E EXISTING LAW. IT WAS OBSERVED AS UNDER: 5 WHEN ON THE STRENGTH OF THE RULES AVAILABLE, CERTA IN ACTS HAVE BEEN DONE BY THE PARTIES CONCERNED, INCIDENTS FOLLO WING THERETO MUST TAKE PLACE IN ACCORDANCE WITH THE SCHEME UNDER WHICH THE DUTY HAD BEEN PAID ON THE MANUFACTURED PRODUCTS AND IF SUCH A SITUATIO N IS SOUGHT TO BE ALTERED, NECESSARILY IT FOLLOWS THAT THE RIGHT, WHI CH HAD ACCRUED TO A PARTY SUCH AS THE AVAILABILITY OF A SCHEME, IS AFFECTED A ND, IN PARTICULAR, IT LOSES SIGHT OF THE FACT THAT THE PROVISION FOR FACILITY O F CREDIT IS AS GOOD AS TAX PAID TILL TAX IS ADJUSTED ON FUTURE GOODS ON THE BA SIS OF THE SEVERAL COMMITMENTS WHICH WOULD HAVE BEEN MADE BY THE ASSES SEE CONCERNED. 35. IT WAS FURTHER EXPLAINED THAT THE MODVAT CREDIT IS A RIGHT ACCRUED TO THE ASSESSEE ON THE DATE WHEN THEY PAID THE TAX ON THE RAW MATERIALS OR THE INPUTS AND THAT RIGHT WOULD CONTINUE UNTIL THE FACI LITY AVAILABLE THERETO GETS WORKED OUT OR UNTIL THOSE GOODS EXISTED. 36. IN DAI ICHI KARKARIA (SUPRA), THE QUESTION THAT ARO SE FOR CONSIDERATION WAS WHETHER THE COST OF THE RAW MATERIAL WAS THE PR ICE PAID BY THE MANUFACTURER TO ITS SELLER, AS CONTENDED BY THE REV ENUE, OR IS IT THE PRICE OF RAW MATERIAL MINUS THE EXCISE DUTY THEREON WHICH HA S BEEN PAID BY THE SELLER AND FOR WHICH THE MANUFACTURER IS ENTITLED TO CREDI T UNDER THE MODVAT SCHEME TO BE UTILIZED AGAINST THE PAYMENT OF EXCISE DUTY ON PRODUCTS MANUFACTURED BY HIM, INCLUDING THE INTERMEDIATE PRO DUCT, AS CONTENDED BY THE MANUFACTURER. THE SUPREME COURT ANALYSED THE EN TIRE MODVAT SCHEME, 34 ITA NO. 467/DEL/2014 IN PARTICULAR RULES 57A TO 571, AND OBSERVED AS UND ER: 18. IT IS CLEAR FROM THESE RULES, AS WE READ THEM, THAT A MANUFACTURER OBTAINS CREDIT FOR THE EXCISE DUTY PAID ON RAW MATE RIAL TO BE USED BY HIM IN THE PRODUCTION OF AN EXCISABLE PRODUCT IMMEDIATE LY IT MAKES THE REQUISITE DECLARATION AND OBTAINS AN ACKNOWLEDGEMEN T THEREOF. IT IS ENTITLED TO USE THE CREDIT AT ANY TIME THEREAFTER W HEN MAKING PAYMENT OF EXCISE DUTY ON THE EXCISABLE PRODUCT. THERE IS NO P ROVISION IN THE RULES WHICH PROVIDES FOR A REVERSAL OF THE CREDIT BY THE EXCISE AUTHORITIES EXCEPT WHERE IT HAS BEEN ILLEGALLY OR IRREGULARLY TAKEN, I N WHICH EVENT IT STANDS CANCELLED OR, IF UTILISED, HAS TO BE PAID FOR. WE A RE HERE REALLY CONCERNED WITH CREDIT THAT HAS BEEN VALIDLY TAKEN, AND ITS BE NEFIT IS AVAILABLE TO THE MANUFACTURER WITHOUT ANY LIMITATION IN TIME OR OTHE RWISE UNLESS THE MANUFACTURER ITSELF CHOOSES NOT TO USE THE RAW MATE RIAL IN ITS EXCISABLE PRODUCT. THE CREDIT IS, THEREFORE, INDEFEASIBLE. IT SHOULD ALSO BE NOTED THAT THERE IS NO CORELATION OF THE RAW MATERIAL AND THE FINAL PRODUCT; THAT IS TO SAY, IT IS NOT AS IF CREDIT CAN BE TAKEN ONLY ON A FINAL PRODUCT THAT IS MANUFACTURED OUT OF THE PARTICULAR RAW MATERIAL TO WHICH THE CREDIT IS RELATED. THE CREDIT MAY BE TAKEN AGAINST THE EXCISE DUTY ON A FINAL PRODUCT MANUFACTURED ON THE VERY DAY THAT IT BECOMES AVAILA BLE. 19. IT IS, THEREFORE, THAT IN THE CASE OF EICHER MO TORS LTD. VS. UNION OF INDIA (1999) 2 SCC 361 THIS COURT SAID THAT A CREDIT UNDE R THE MODVAT SCHEME WAS AS GOOD AS TAX PAID. 37. NOW TURNING TO THE TREATMENT OF THE SAID PAYMENT O F EXCISE DUTY WHICH HAS ANY MODVAT CREDIT IN THE BOOKS OF ACCOUNTS, A R EFERENCE MAY BE MADE FIRST TO THE AS-2 ISSUED BY THE ICAI, PARA 7 OF WHI CH READS AS UNDER: COSTS OF PURCHASE 7. THE COSTS OF PURCHASE CONSIST OF THE PURCHASE PR ICE INCLUDING DUTIES AND TAXES (OTHER THAN THOSE SUBSEQUENTLY RECOVERABLE BY THE ENTERPRISE FROM 35 ITA NO. 467/DEL/2014 THE TAXING AUTHORITIES), FREIGHT INWARDS AND OTHER EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE ACQUISITION. TRADE DISCOUNTS, R EBATES, DUTY DRAWBACKS AND OTHER SIMILAR ITEMS ARE DEDUCTED IN DETERMINING THE COSTS OF PURCHASE. 38. THE ICAI HAS ALSO ISSUED A GUIDANCE NOTE FOR TREATMENT OF MODVAT/CENVAT. PARAS 16 AND 18 OF THE GUIDANCE NOTE READS THUS: 16. SPECIFIED DUTY PAID ON INPUTS MAY BE DEBITED T O A SEPARATE ACCOUNT, E.G. MODVAT/CENVAT CREDIT RECEIVABLE (INPUTS) ACCOU NT. AS AND WHEN MODVAT/CENVAT CREDIT IS ACTUALLY UTILIZED AGAINST P AYMENT OF EXCISE DUTY ON FINAL PRODUCTS, APPROPRIATE ACCOUNTING ENTR IES WILL BE REQUIRED TO ADJUST THE EXCISE DUTY PAID OUT OF MODVAT/CENVAT CR EDIT RECEIVABLE (INPUTS) ACCOUNT TO THE ACCOUNT MAINTAINED FOR PAYM ENT / PROVISION FOR EXCISE DUTY ON FINAL PRODUCT. IN THIS CASE, THE PUR CHASE COST OF THE INPUTS WOULD BE NET OF THE SPECIFIED DUTY ON INPUTS. THERE FORE, THE INPUTS CONSUMED AND THE INVENTORY OF INPUTS WOULD BE VALUE D ON THE BASIS OF PURCHASE COST NET OF THE SPECIFIED DUTY ON INPUTS. THE DEBIT BALANCE IN MODVAT/ CENVAT CREDIT RECEIVABLE (INPUTS) SHOULD BE SHOWN ON THE ASSETS SIDE UNDER THE HEAD ADVANCES, XXX 18. A QUESTION MAY ARISE AS TO WHEN THE MODVAT/CENVAT CREDIT SHOULD BE TAKEN IF DOCUMENTS EVIDENCING PAYMENT OF SPECIFI ED DUTY ON INPUTS ARE RECEIVED LATER THAN THE PHYSICAL RECEIPT OF THE GOO DS.ACCORDING TO THE ACCRUAL CONCEPT OF ACCOUNTING, ONE MAY ACCOUNT FOR SUCH CREDIT, PROVIDED ONE IS REASONABLY CERTAIN OF GETTING THE SAID DOCUM ENTS AT A LATER DATE. 39. THE ABOVE GUIDANCE NOTE ANSWERS BOTH ISSUES RAISED BY THE REVENUE. ONE IS THAT IT CLARIFIED THAT MODVAT CREDIT IS TREA TED AS A SEPARATE ACCOUNT WHERE APPROPRIATE ACCOUNTING ENTRIES WILL BE MADE T O ADJUST THE EXCISE DUTY PAID OUT OF THE SAID ACCOUNT. IT IS CLEAR THAT THE DEBIT BALANCE IN MODVAT/CENVAT CREDIT RECEIVABLE (INPUTS) HAS TO BE SHOWN ON THE ASSETS 36 ITA NO. 467/DEL/2014 SIDE, UNDER THE HEAD ADVANCES. ACCORDING TO THE A CCRUAL CONCEPT OF ACCOUNTING (MERCANTILE SYSTEM), CREDIT IS TAKEN EVE N AFTER THE DOCUMENTS EVIDENCING PAYMENT OF SPECIFIC DUTY ON INPUTS ARE R ECEIVED LATER THAN THE PHYSICAL RECEIPT OF THE GOODS. 40. MR. BHATIA IS RIGHT IN POINTING OUT THAT THE ASSES SEE HAS TWO OPTIONS. ONE, TO CLAIM EXCISE DUTY PAID AS EXPLAINED, AND THE OTH ER, TO CLAIM IT UNDER MODVAT CREDIT FOR UTILIZATION AT A SUBSEQUENT POINT IN TIME. IT IS PLAIN THAT THE ASSESSEE IN THE PRESENT CASE HAS NOT EXERCISED THE FIRST OPTION. 41.1. THE COURT NOW TURNS TO THE DECISION IN OSWAL AGRO MILLS (SUPRA). THE FACTS, IN BRIEF, IN THE ABOVE DECISION WERE THAT TH E APPELLANT THEREIN WAS ENGAGED IN THE MANUFACTURE AND TRADE OF PRODUCTS LI KE DE-OILED MEALS, INDUSTRIAL HARD OIL, EDIBLE OILS ETC. THE ASSESSEE ENTERED INTO AGREEMENTS WITH OTHER ENTITIES FOR THE PURCHASE OF IMPORTED PALM ST EARIN FATTY ACID (IMPORTED MATERIAL) FROM THE SAID IMPORTERS. IN TERMS OF THE SAID AGREEMENT, THE IMPORTED MATERIAL WAS TO BE PURCHASED BY THE APPELL ANT AT LANDED COST, I.E. CIF PRICE, CUSTOMS DUTY, CLEARING CHARGES, ETC. AND 3% OFTHE TOTAL COST. UNDER CLAUSE 11 OF THE AGREEMENTS, ANY LIABILITY ARISING AFTER THE SALE OF THE IMPORTED MATERIAL IN RESPECT OF CUSTOMS DUTY, EXCIS E DUTY, PENALTY, SALES TAX, ETC. WOULD BE PAID BY THE APPELLANT AND INCLUDED IN THE LANDED COST OF IMPORTED MATERIAL. 41.2 AT THE TIME OF ACTUAL IMPORT OF MATERIAL, THE CUST OMS DEPARTMENT DEMANDED 100% OF THE APPLICABLE CUSTOMS DUTY AS ADD ITIONAL CUSTOMS DUTY ON THE CIF VALUE OF THE IMPORTED MATERIAL. THE ADDI TIONAL DEMAND WAS CHALLENGED BY THE IMPORTERS BEFORE THE SUPREME COUR T. AS AN INTERIM MEASURE, THE SUPREME COURT ALLOWED THE CLEARANCE OF IMPORTED MATERIAL ON PAYMENT OF 15% OF THE DISPUTED ADDITIONAL CUSTOMS D UTY. A STAY WAS GRANTED FOR THE BALANCE 85% SUBJECT TO FURNISHING OF BANK G UARANTEES BY THE IMPORTERS IN FAVOUR OF THE CUSTOMS DEPARTMENT. IN TERMS OF TH E AGREEMENT BETWEEN THE APPELLANT AND THE IMPORTERS, THE APPELLANT PROVIDED COUNTER GUARANTEES FOR 37 ITA NO. 467/DEL/2014 THE BANK GUARANTEES PROVIDED BY THE IMPORTERS FOR T HE UNPAID DISPUTED AMOUNT OF 85% OF THE ADDITIONAL CUSTOMS DUTY. 41.3. AS FAR AS THE APPELLANT THEREIN WAS CONCERNED, THE UNPAID ADDITIONAL CUSTOMS DUTY PERTAINING TO THE PREVIOUS YEAR RELEVANT TO AY 1987- 88 WAS RS. 1,64,87,375. THE APPELLANT THEREIN, FOLL OWING THE MERCANTILE SYSTEM OF ACCOUNTING, CLAIMED DEDUCTION ON ACCOUNT OF THE SAID ADDITIONAL CUSTOMS DUTY, IN AS MUCH AS THE SAME WAS INCLUDED I N THE LANDED COST OF THE IMPORTED MATERIAL. THE AO REJECTED THE CLAIM SINCE THE APPELLANT THEREIN HAD FAILED TO PRODUCE EVIDENCE BY WHICH IT COULD BE ASC ERTAINED THAT THE LIABILITY TO PAY THE ADDITIONAL CUSTOMS DUTY WAS CRYSTALLIZED DU RING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR . 41.4. AFTER THE CIT (A) ALSO DISMISSED THE APPEAL OF THE APPELLANT HOLDING THAT THE LIABILITY WOULD ARISE ONLY WHEN TH E SUPREME COURT GAVE A VERDICT IN FAVOUR OF THE CUSTOMS DEPARTMENT, THE AP PELLANT WENT BEFORE THE ITAT. REJECTING THE APPELLANTS APPEAL, THE ITAT HE LD THAT THERE WAS NO ACTUAL PAYMENT AND THE LIABILITY WAS COVERED ONLY BY THE B ANK GUARANTEE WHICH HAD NOT YET BEEN APPROPRIATED OR ENCASHED AND THE SAME IS STILL IN THE OWNERSHIP OF THE APPELLANT AND THEREFORE, THE CLAIM FOR DEDUC TION COULD NOT BE ALLOWED AS THE BANK GUARANTEE CANNOT FULFILL THE REQUIREMENTS OF EXPENDITURE SO AS TO QUALIFY FOR DEDUCTION FROM THE TOTAL INCOME. AS FAR AS SECTION 43B WAS CONCERNED, IT WAS HELD THAT EVEN ASSUMING IT IS A S TATUTORY LIABILITY, AS THE LIABILITY IS EVENTUALLY FASTENED UPON THE APPELLANT , THE PROVISION OF BANK GUARANTEE IN ITSELF CANNOT BE TREATED AS PAYMENT AS IT HAS NOT BEEN ADJUSTED TOWARDS THE CUSTOMS DUTY. 41.5. THIS COURT CONCURRED WITH THE ITAT AND HELD THAT A S LONG AS THE WRIT PETITIONS WERE PENDING BEFORE THE SUPREME COUR T, THE APPELLANT THEREIN WOULD HAVE NO OBLIGATION TO PAY ANY AMOUNT AS THE C ONDITION PRECEDENT FOR THE APPELLANT TO PAY DISPUTED AMOUNT WOULD NOT BE S ATISFIED. THE LIABILITY OF THE APPELLANT TO PAY THE ADDITIONAL CUSTOMS DUTY WA S CONTINGENT UPON THE 38 ITA NO. 467/DEL/2014 IMPORTERS BEING CALLED UPON TO PAY THE SAME. REFERE NCE WAS MADE BY THIS COURT TO THE DECISION OF THE SUPREME COURT IN ROTOR K CONTROLS INDIA P. LTD. V. CIT [2009] 314 ITR 62 (SC) WHERE THREE CONDITIONS W ERE LAID DOWN WHILE CONSIDERING WHERE A PROVISION MADE FOR FUTURE CLAIM S AGAINST WARRANTEES WAS ALLOWABLE AS A DEDUCTION. ON THE FACTS OF THE CASE, THIS COURT HELD THAT SUBJECT LIABILITY WAS A CONTINGENT LIABILITY IN RESPECT THE REOF COULD NOT BE ALLOWED AS A DEDUCTION FOR THE AY IN QUESTION. 41.6. SPECIFIC TO SECTION 43B, THE COURT CONSIDERED WHET HER IT WAS IN FACT AN OBLIGATION OF THE APPELLANT THEREIN TO PAY ADDITION AL CUSTOMS DUTY AND WHETHER SUCH OBLIGATION COULD BE CONSIDERED TO BE A COURT OBSERVED: ALTHOUGH THE ASSESSEE IS OBLIGED TO PAY THE ADDITI ONAL CUSTOMS DUTY AS AND WHEN THE IMPORTERS ARE CALLED UPON TO PAY THE S AME, NONETHELESS, IT CANNOT BE CONSIDERED AS A STATUTORY LIABILITY BECAU SE THE SAME IS NOT IMPOSED ON THE ASSESSEE BY VIRTUE OF ANY STATUTE. C USTOMS DUTY IS AN INCIDENT OF IMPORT OF GOODS AND AN IMPORTER IS OBLI GED TO PAY THE SAME UNDER THE CUSTOMS ACT. THEREFORE, THE LIABILITY TO PAY THE ADDITIONAL CUSTOMS DUTY IS A STATUTORY LIABILITY OF THE IMPORT ERS. HOWEVER, IN THE HANDS OF THE ASSESSEE, THE LIABILITY TO PAY THE QUA NTUM OF CUSTOM DUTY IMPOSED ON THE IMPORTERS, EITHER DIRECTLY TO THEM O R ON THEIR BEHALF, CANNOT BE CONSIDERED AS A STATUTORY LIABILITY AS THIS OBLI GATION IS NOT IMPOSED BY ANY STATUTE BUT FROM THE CONTRACTS ENTERED INTO BET WEEN THE ASSESSEE AND THE IMPORTERS. THE LIABILITY IN QUESTION IS THUS, C LEARLY A CONTRACTUAL LIABILITY INSOFAR AS THE ASSESSEE IS CONCERNED. (EMPHASIS SUPPLIED) 41.7. THE COURT CLARIFIED THAT SECTION 43B OF THE ACT WO ULD APPLY ONLY IN CASES OF STATUTORY LIABILITY AND HELD THAT: THIS PROVISION WOULD HAVE NO APPLICATION INSOFAR A S THE ASSESSEE IS CONCERNED, AS THE LIABILITY TO PAY THE AMOUNT OF AD DITIONAL CUSTOMS DUTY ON BEHALF OF THE IMPORTERS AS AND WHEN THEY ARE CALLED UPON TO DISCHARGE THE 39 ITA NO. 467/DEL/2014 SAME IS, CLEARLY, A CONTRACTUAL LIABILITY AND NOT A STATUTORY LIABILITY. THEREFORE, THE QUESTION WHETHER THE SAID LIABILITY SHOULD BE CONSIDERED AS DEDUCTIBLE UNDER SECTION 43B OF THE INCOME TAX ACT DOES NOT ARISE. 42. IN THE CONSIDERED VIEW OF THE COURT, THE ABOVE DECISION SHOULD ANSWER THE QUESTION IN THE PRESENT CASE IN FAVOUR OF THE REVEN UE AND AGAINST THE ASSESSEE. THE PRIMARY LIABILITY TO PAY EXCISE DUTY IS ESSENTIALLY ON THE MANUFACTURERS OF THE RAW MATERIALS AND INPUTS. AS F AR AS THE ASSESSEE IS CONCERNED, THE LIABILITY TO PAY THE SAID AMOUNT IS ONLY CONTRACTUAL. 43. IT MUST BE NOTED AT THIS STAGE THAT AFTER HEARING T HE ARGUMENTS ON 21 ST SEPTEMBER 2017, AN AFFIDAVIT DATED 6 TH NOVEMBER 2017 HAS BEEN FILED BY THE ASSESSEE POINTING OUT THAT OUT OF THE TOTAL AMO UNT OF UNUTILIZED MODVAT CREDIT OF RS. 69,93,00,428, AN AMOUNT OF RS. 15,73, 38,110 PERTAINS TO GOODS ALREADY CONSUMED AND WHICH WERE, THEREFORE, NOT INC LUDABLE IN THE CLOSING STOCK OF RAW MATERIALS AND INPUTS AS ON 31 ST MARCH 1999. IT IS POINTED OUT THAT THIS WAS NOTED BY THE CIT (A) IN PARA 9.16 OF THE APPELLATE ORDER AND THAT THIS FINDING WAS NOT QUESTIONED BY THE REVENUE. IT IS ACCORDINGLY SUBMITTED THAT EVEN IF THE REVENUES CONTENTION ON THE INTERP RETATION OF SECTION 43B WAS ACCEPTED, THE ASSESSEE IS UNQUESTIONABLY ENTITLED T O DEDUCTION OF THE AFOREMENTIONED AMOUNT OF RS. 15,73,38,110. IT IS FU RTHER POINTED OUT THAT OUT OF THE AFOREMENTIONED UNUTILIZED MODVAT CREDIT CLAI MED AS A DEDUCTION BY THE ASSESSEE FOR THE AY 1999-00, A FURTHER AMOUNT O F RS. 14,96,79,029 REPRESENTS ADDITIONAL OR COUNTERVAILING DUTY WHICH HAS BEEN PAID BY THE ASSESSEE DIRECTLY TO THE CUSTOMS DEPARTMENT ON THE IMPORT OF RAW MATERIALS, COMPONENTS AND THE INPUTS. THIS, ACCORDING TO THE A SSESSEE, IS BORNE OUT BY THE RG-23 (PART-II) REGISTER MAINTAINED BY THE ASSE SSEE AND VERIFIED AND AUDITED FROM TIME TO TIME BY THE EXCISE AUTHORITIES . IT IS ASSERTED THAT THE SAID AMOUNT HAS ACTUALLY BEEN PAID BY THE APPELLANT TO THE CUSTOMS AUTHORITIES (AND NOT TO THE APPELLANTS SUPPLIERS) AND THEREFO RE, THIS AMOUNT SHOULD ALSO BE ALLOWED UNDER SECTION 43B OF THE ACT. 40 ITA NO. 467/DEL/2014 44. THE COURT WOULD ONLY LIKE TO OBSERVE THAT IT WOULD BE FOR THE AO TO GIVE EFFECT TO THE ORDER PERTAINING TO THE AFOREMENTIONE D AMOUNTS PAID BY THE ASSESSEE TO BE MADE IN RESPECT OF THOSE GOODS ALREA DY CONSUMED AS ON 31 ST MARCH 1999 AND IN RESPECT OF ADDITIONAL COUNTERVAIL ING DUTY PAID DIRECTLY TO THE CUSTOMS AUTHORITIES. IF INDEED SUCH PAYMENT HAS BEEN MADE, THE CREDIT FOR THE SAME WOULD BE ALLOWABLE AS A DEDUCTION UNDER SE CTION 43B OF THE ACT. 45. HOWEVER, IT IS ALSO TO BE NOTED THAT IN PARA 35 OF THE IMPUGNED ORDER, THE ITAT HAS ACCEPTED THE ALTERNATE CONTENTION OF THE A SSESSEE THAT UNUTILIZED MODVAT CREDIT OF AN EARLIER YEAR WHICH HAS BEEN ADJ USTED IN THE YEAR IN QUESTION SHOULD BE ALLOWED AS A DEDUCTION IN AS MUC H AS SUCH ADJUSTMENT WOULD HAVE TO BE TREATED AS AN ACTUAL PAYMENT OF EX CISE DUTY. IN VIEW OF THE COURT AGREEING WITH THE ITAT ON THE NON-ALLOWABILIT Y OF UNUTILIZED MODVAT CREDIT AS A DEDUCTION UNDER SECTION 43B OF THE ACT FOR THE AY IN QUESTION, THIS COURT ALSO AGREES WITH THE ITATS ACCEPTANCE OF THE ASSESSEES ALTERNATE CONTENTION WITH REGARDS TO THE UNUTILIZED MODVAT CR EDIT OF THE EARLIER YEAR BEING ALLOWABLE AS A DEDUCTION IN THE AY IN QUESTIO N TO THE EXTENT THAT IT HAS BEEN ADJUSTED BY TREATING AS ACTUAL PAYMENT OF THE CREDIT FOR THE AY IN QUESTION. AS THE ITAT HAS ALREADY POINTED OUT, THE ASSESSEE WOULD BE ENTITLED TO SUCH DEDUCTION SUBJECT TO VERIFICATION PROVIDED THE SAME WAS NOT ALLOWED AS DEDUCTION IN THE EARLIER YEAR. 46. AN ATTEMPT WAS MADE BY MR. GANESH TO CONTEND THAT IT SHOULD NOW BE ALLOWED TO BE TREATED AS UNUTILIZED MODVAT CREDIT A S PART OF THE CLOSING STOCK. AN ATTEMPT WAS THEN MADE BY MR. GANESH TO CO NTEND THAT THE AMOUNT OF EXCISE DUTY PAID BY THE ASSESSEE SHOULD BE TREAT ED AS EXPENDITURE ALLOWED UNDER SECTION 37 OF THE ACT AS BUSINESS EXPENDITURE . AS RIG POINTED OUT BY MR. BHATIA, THE ASSESSEE APPEARS TO HAVE FOLLOWED EXCLU SIVE METHOD OF VALUATION OF STOCK AS OPPOSED TO AN INCLUSIVE STOCK VALUATION METHOD. SUCH A PLEA WAS NOT TAKEN AT ANY STAGE OF THE PRESENT CASE; BEFORE THE AO, CIT (A) OR THE ITAT. AS RIGHTLY POINTED OUT, IF THE AMOUN PAID HAS TO BE ALLOWED AS A DEDUCTION 41 ITA NO. 467/DEL/2014 UNDER SECTION 37 OF THE ACT THEN TBS INCLUSIVE METH OD OF VALUATION OF STOCK HAS TO BE FOLLOWED. THE ASSESS- I MUST OPT TO EITHER TR EAT THE SAME AS EXPENDITURE OR TREAT IT AS FORMING PART OF CURRENT ASSETS. IF THE PLEA OF DEDUCTION UNDER SECTION 37 IS TO BE ALLOWED THEN THE QUESTION OF UT ILISING THE UNUTILIZED MODVAT CREDIT FOR PAYMENT OF EXCISE DUTY WOULD NOT ARISE AT ALL. 47. IT MAY BE NOTED THAT AFTER THE INSERTION OF SECTION 145A OF THE ACT, V EFFECT FROM 1 ST APRIL 2010, AN ASSESSEE MUST NOW NECESSARILY FOLLO W N INCLUSIVE METHOD OF VALUATION OF STOCK. IT W AS EXPLAINED BY THE BOMBAY HIGH COURT IN CA RTINI INDIA LIMITED V. ASSISTANT COMMISSIONER OF INCOME TAX [2007] 291 ITR 355 (BOM) THAT AS PER THE NEW PROVISION OF SEC: 145 A OF THE INCOME-TAX ACT, 1961, THE UNUTILIZED MODVAT CREDIT HA: BE INCLUDED IN THE CLOSING STOCK OF RAW MATERIAL AND WORK IN PROGRESS, WHEREAS THE EXCI SE DUTY PAID ON UNSOLD FINISHED GOODS HAD TO BE INCLUDE, M THE INVENTORY O F FINISHED GOODS. HOWEVER, SECTION 145A OF THE AC - 5 PROSPECTIVE AND DOES NOT APPLY TO THE AY IN QUESTION. 48. THE COURT IS NOT INCLINED TO PERMIT THE ASSESSEE TO RAISE THE PLEA FOR MORE THAN ONE REASON. IN THE FIRST PLACE, IT IS A PLEA TAKEN FOR THE FIRST TIME IN THESE PROCEEDINGS. IT APPEARS TO BE AN AFTERTHOUGHT. SECO NDLY, THE ITAT HAS ALREADY ACCEPTED ANOTHER ALTERNATE PLEA MADE BEFORE IT BY T HE ASSESSEE BY ALLOWING DEDUCTION IN RESPECT OF THE UNUTILIZED MODVAT CREDI T OF THE EARLIER AY, THE COURT IS NOT INCLINED TO DISAGREE WITH THE REASONIN G AND CONCLUSION OF THE ITAT. THE ASSESSEE CANNOT BE ALLOWED TO GO BACK AND FORTH ON THE ABOVE PLEA. THERE HAS TO BE CONSISTENCY. THIRDLY, BALANCE SHEET OF THE ASSESSEE FOR AY 1999-00 SHOWS THAT THE TURNOVER FOR THE YEAR WAS OV ER RS. 8,000 CRORES. THE CORRESPONDING SUM CLAIMED AS DEDUCTION REPRESENTING THE UNUTILIZED MODVAT CREDIT IS NOT VERY SIGNIFICANT IN COMPARISON. 49. CONSEQUENTLY, QUESTION (II) IS ANSWERED IN THE NEG ATIVE, I.E. IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE. 42 ITA NO. 467/DEL/2014 IN VIEW OF THE FINDING OF THE HON'BLE HIGH COURT, T HIS ISSUE IS REMANDED BACK TO THE FILE OF THE A.O TO VERIFY THE CLAIM AS PER T HE DIRECTIONS OF THE HON'BLE HIGH COURT AND IF FOUND PROPER BE ALLOWED FOR DEDUCTION FOR AMOUNT FORMING PART OF RG 23A BALANCE TO THE EXTENT IT HAS BEEN DIRECTLY P AID TO CUSTOM AUTHORITIES. NEEDLESS TO SAY THE ASSESSEE BE GIVEN OPPORTUNITY O F HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTICE. 25. IN RESULT, GROUND NO. 3.6 TO 3.7 IS PARTLY ALLO WED FOR STATISTICAL PURPOSE. 26. GROUND NO. 3.8 IS REGARDING CUSTOMS DUTY INCLUD ED IN CLOSING INVENTORY. IN RESPECT OF CUSTOM DUTY PAID ON IMPORT OF RAW MAT ERIAL/INPUTS, THE ASSESSEE FOLLOWED INCLUSIVE METHOD OF ACCOUNTING. ACCORDINGL Y, THE AMOUNT OF CUSTOM DUTY PAID ON IMPORTED INPUTS/ RAW MATERIAL IS INCLU DED IN THE PURCHASE PRICE, WHICH IS DEBITED TO THE PROFIT & LOSS ACCOUNT. THE SAID DUTY IS ALSO INCLUDED AND CONSIDERED AS PART OF THE VALUE OF CLOSING STOC K, WHICH IS SHOWN IN THE CREDIT SIDE OF THE PROFIT & LOSS ACCOUNT. CUSTOM DU TY OF RS.21,90,94,216/- REPRESENTS CUSTOM DUTY ON IMPORT OF RAW MATERIAL/IN PUTS, WHICH IS INCLUDED IN THE VALUE OF CLOSING STOCK AS PER THE AFORESAID INC LUSIVE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. THE SAID METHOD IS ALSO I N LINE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. INCLUSION OF CUSTOM DUTY, BOTH IN THE VALUE OF PURCHASE AS WELL AS IN THE VALUE OF CLOSING STOCK, IS TAX NEUTRAL INASMUCH AS THE VERY SAME AMOUNT IS BOTH DEBITED AND CREDITED T O THE PROFIT & LOSS ACCOUNT. HOWEVER, AS PER THE MANDATE UNDER SECTION 43B OF THE ACT, THE CUSTOM DUTY SO ACTUALLY PAID BY THE ASSESSEE IS SEP ARATELY CLAIMED AS DEDUCTION ON PAYMENT BASIS IN THE RETURN OF INCOME. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE AFORESAID AMOUNT HOLDING TH E SAME TO BE MERELY ADVANCE PAYMENT, LIABILITY IN RESPECT OF WHICH HAS NOT CRYSTALLIZED AND THEREFORE, NOT ALLOWABLE AS DEDUCTION UNDER SECTION 43 B OF THE ACT. 27. THE LD. AR SUBMITTED THAT THE HONBLE SUPREME C OURT, IN THE CASE OF BERGER PAINTS INDIA LIMITED V CIT (2004) 266 ITR 99 HELD THAT CUSTOMS AND 43 ITA NO. 467/DEL/2014 EXCISE DUTIES ARE ALLOWABLE IN THE YEAR OF PAYMENT U/S 43B OF THE ACT, AND EVEN IF SUCH DUTIES ARE INCLUDED IN THE VALUE OF CLOSING STOCK, THEY WOULD BE SEPARATELY ALLOWABLE. THE AFORESAID ISSUE IS COVERE D BY THE DECISION OF THE SUPREME COURT IN THE CASE OF SAMTEL COLOR LTD WHERE IN THE COURT DISMISSED THE SLP IN CIVIL APPEAL NO 6449/2012 FILED BY DEPAR TMENT AGAINST THE ORDER OF DELHI HIGH COURT IN 184 TAXMAN 120 AND HELD THAT AD VANCE CUSTOMS DUTY PAID IS ALLOWABLE DEDUCTION U/S 43B OF THE ACT. THE KARN ATAKA HIGH COURT IN THE CASE OF CIT V. NCR CORPORATION INDIA (P) LTD. 240 TAXMAN 59 8, REITERATED THE PRINCIPLE LAID DOWN BY THE APEX COURT IN THE CASE O F BERGER PAINTS (SUPRA) AND HELD THAT THE ENTIRE AMOUNT OF EXCISE DUTY AND CUST OMS DUTY PAID BY THE ASSESSEE IN A PARTICULAR YEAR ARE ALLOWABLE AS DEDU CTION IRRESPECTIVE OF THE FACT THAT SUCH DUTIES ARE INCLUDED IN THE VALUE OF CLOSI NG STOCK. IT WAS FURTHER HELD THAT PROVISIONS OF SECTION 43B, WHILE OVERRIDING AL L THE OTHER PROVISIONS OF THE ACT, ALSO OVERRIDE SECTION 145A AND FURTHER THAT TH E PROVISIONS OF SECTION 145A DOES NOT IN ANY MANNER DILUTE OR NULLIFY THE EFFECT OF PROVISIONS OF SECTION 43B OF THE ACT. THE LD. AR FURTHER SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y 1999-00, 2000-01, 2001-02, 2002-03, 2004-05 2005-06, 2006-07, 2007-08 AND 2008-09 WHEREIN THE TRIBUNAL HAS HELD T HAT, SINCE THE DUTY IS PAID, DEDUCTION CLAIMED U/S 43B OF THE ACT HAS TO B E ALLOWED. THE ORDERS OF THE DELHI TRIBUNAL HAVE BEEN AFFIRMED BY THE DELHI HIGH COURT FOR ASSESSMENT YEARS 1999-00 (ITA NO.250/2005), 2000-01 (ITA NO. 9 76/2005), 2001-02 (ITA NO. 519/2010), 2005-06 (ITA NO. 171/2012) AND 2006- 07 (ITA NO. 381/2016). 28. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT IS PERTINENT TO NOTE THAT THE HONBLE DELHI HIGH COURT IN ASSESS EES OWN CASE HELD AS UNDER: 12. AS REGARDS QUESTION (IX), OF THE TWO AMOUNTS T HAT REPRESENT CUSTOMS DUTY/PAID AND DEBITED TO THE P&L ACCOUNT. IT IS CLA RIFIED BY THE ASSESSEE THAT 44 ITA NO. 467/DEL/2014 THE AMOUNT OF RS.69,12,41,610/- REPRESENTS CUSTOMS DUTY INCLUDED IN CLOSING STOCK AND RS 50,28,051/- REPRESENTS CUSTOMS DUTY ON TOOLS IMPORTED BY THE ASSESSEE WHICH WERE MADE AVAILABLE BY IT TO ITS CON TRACT MANUFACTURERS, ALSO. DESCRIBED AS VENDORS IN THE QUESTION OF LAW FRAMED ON THE SAME ISSUE IN SUBSEQUENT AY 2001-02. 13. IN VIEW OF THE DECISION IN BERGER PAINTS LIMITED V. CIT [2004] 266ITR 99 (SC), QUESTION (IX) IS ANSWERED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THIS REGAR D, THE OBSERVATIONS OF THE ITAT IN PARA 41 OF THE IMPUGNED ARE REITERATED, VIZ . THAT THE AO SHOULD, WHILE GIVING EFFECT TO THE ITATS ORDER, ENSURE THAT NO D OUBLE DEDUCTION IS ALLOWED. THEREFORE, HE WILL ENSURE THAT THE DEDUCTION ALLOWE D IN THIS YEAR UNDER SECTION 43B OF THE ACT IS INCLUDED IN THE INCOME OF THE NEXT YEAR WHEN SUCH OPENING STOCK IS DISPOSED OF. THUS, THE ISSUE IS SQUARELY COVERED BY THE DECISIO N OF THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE. GROUND NO. 3.8 I S ALLOWED. 30. IN RESULT, GROUND NO. 3.8 IS ALLOWED. 31. GROUND NO. 3.9 TO 3.10 IS REGARDING CUSTOMS DUT Y (CVD) PAID WHICH WAS TO BE ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINIS HED PRODUCTS, CUSTOMS DUTY ON GOODS IN TRANSIT/UNDER INSPECTION. THIS AMOUNT R EPRESENTS CUSTOM DUTY/CVD PAID BY THE ASSESSEE DURING THE RELEVANT A SSESSMENT YEAR UNDER CONSIDERATION, ON IMPORT OF COMPONENTS/RAW MATERIAL , WHICH WERE IN TRANSIT AS ON THE LAST DATE OF FINANCIAL YEAR. SINCE THE AFORE SAID AMOUNT REPRESENTS ACTUAL CUSTOM DUTY/ CVD PAID BY THE ASSESSEE DURING THE YE AR UNDER CONSIDERATION, THE SAME WAS CLAIMED AS DEDUCTION UNDER SECTION 43B OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE AFORESAID FOLLOWIN G THE ASSESSMENT ORDERS FOR THE PRECEDING ASSESSMENT YEARS. 45 ITA NO. 467/DEL/2014 32. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE I S COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SUPREME COURT IN CI VIL APPEAL NO. 6449/2012 DISMISSING THE SLP FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. SAMTEL COLOR LTD : 184 TAXMAN 120. THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORD ER OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1999-2000, 2000-01, 2002-03, 2004- 05, 2005-06, 2006-07, 2007-08 AND 2008-09. 33. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSI NG OFFICER. 34. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT IS PERTINENT TO NOTE THAT IN ASSESSEES OWN CASE THE TRIBUNAL HE LD THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL HELD AS UNDER: 3.25 INSOFAR AS THE DISALLOWANCE OF DEDUCTION UNDE R SECTION 43B OF THE ACT FOR A SUM OF RS.13,51,93,089/- REPRESENTING CUS TOM DUTY (CVD) PAID TO BE ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PR ODUCTS, AND A SUM OF RS.1,93,27,627/- REPRESENTING CUSTOM DUTY IN RESPEC T OF THE GOODS IN TRANSIT/UNDER INSPECTION IS CONCERNED, THE CASE OF THE ASSESSEE IS THAT THESE AMOUNTS REPRESENT CUSTOM DUTY/CVD PAID BY THE ASSES SEE DURING THE FINANCIAL YEAR 2007-08, AND SINCE THE AFORESAID AMO UNT REPRESENTS ACTUAL CUSTOM DUTY/CVD PAID BY THE ASSESSEE DURING THE YEA R UNDER CONSIDERATION, THE SAME WAS CLAIMED AS DEDUCTION UNDER SECTION 43B OF THE ACT. BUT THE ASSESSING OFFICER DISALLOWED THE AFORESAID FOLLOWIN G ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005-06. LD. AR SUBMITTED THAT THIS ISSUE WAS ALSO DECIDED IN FAVOUR OF ASSESSEE BY THE SUPREME COURT IN CIVIL APPEAL NO. 6449/2012 WHEREIN THE SLP FILED BY THE DEPARTMENT AGAINST THE ORDER OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. SAMTEL COLOR LTD.: 184 TAXMAN 120 WAS DISMISSED HOLDING THAT CUSTOM DUTY PAID IS ALLOWABL E DEDUCTION U/S 43B OF THE ACT. HE FURTHER SUBMITS THAT APART FROM THIS, T HE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF A COORDINATE BENCH OF THIS TRIBUNAL FOR THE ASSESSMENT YEARS 1999-00, 2000-01, AY 2002-03, AY 2005-06, AY 2006- 46 ITA NO. 467/DEL/2014 07 AND 2007-08 WHEREIN IT WAS HELD THAT SINCE THE D UTY IS PAID, DEDUCTION CLAIMED U/S 43B OF THE ACT HAS TO BE ALLOWED. 3.26 PER CONTRA, ON THESE GROUNDS 3.6 AND 3.7, LD. DR SUBMITTED THAT IN RESPECT OF THE AMOUNT OF RS.13,51,93,089/- BEING CU STOMS DUTY (CVD) PAID TO BE ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS, A COORDINATE BENCH OF THIS TRIBUNAL HAS ALSO ACCEPTED THAT UNDER THE INCLUSIVE METHOD IT WILL BE INCLINED IN PURCHASES, SALES, AND OPENING A ND CLOSING STOCK OF INVENTORIES, AS A RESULT OF WHICH THE ULTIMATE IMPA CT IS REVENUE NEUTRAL AND NO DEDUCTION WILL BE ALLOWABLE TO THE ASSESSEE UNDER T HIS HEAD. AS REGARDS THE AMOUNT OF RS.1,93,27,627/- BEING CUSTOMS DUTIES ON GOODS IN TRANSIT/UNDER INSPECTION, HE CONTENDS THAT IT IS BE NOTED THAT TH E DUTY PAID IS NOT TAX DEDUCTIBLE AS GOODS IN TRANSIT ARE NOT EXPENDITURE OF THE YEAR AND ARE NOT ROUTED THROUGH THE P&L ACCOUNT. FURTHER ACCORDING T O HIM, THE LIABILITY TO PAY CUSTOMS BARRIER AND SINCE THE ASSESSEE HAS CLAIMED DEDUCTION ON THIS ACCOUNT, THE ONUS OF PROVING THIS FACT WAS ON THE A SSESSEE. HE POINTS OUT THAT IT IS NOT ON RECORD WHETHER THE ASSESSEE HAS DISCHA RGED THIS RESPONSIBILITY, AS SUCH IN VIEW OF THE DECISION OF HONBLE SUPREME COU RT IN INDIAN MOLASSES CO. (P) LTD. 37 ITR 66, THIS AMOUNT HAS TO BE TREATED A S AN ADVANCE PAYMENT, WHICH IS NOT AN ALLOWABLE DEDUCTION. LASTLY HE CONT ENDED THAT THESE ARE CONTINUOUS ISSUES FORMING PART OF THE ASSESSMENT OR DER FOR AY 2005-06, 2006-07 AND 2007-08 ALSO, AND ARE AT PRESENT PENDIN G ADJUDICATION BEFORE HONBLE DELHI HIGH COURT. 3.27. SUBSTANTIALLY THIS QUESTION HAD FALLEN FOR CO NSIDERATION BEFORE A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2006-07 AND 2007-08 AND BY PARA NOS. 5.3 AND 5.4 OF ITS ORD ER FOR A.Y. 2006-07, A COORDINATE BENCH OF THIS TRIBUNAL RESOLVED THE ISSU E IN THE FOLLOWING MANNER, 5.3. NEXT ITEM IS CUSTOMS DUTY (CVD) PAID TO BE AD JUSTED AGAINST EXCISE DUTY PAYABLE ON FINISHED PRODUCTS AMOUNTING TO RS.1 5,59,44,258/-, WHICH IS THE AMOUNT OF CUSTOMS DUTIES ON GOODS IN TRANSIT /UNDER INSPECTION. THE ASSESSEE CLAIMED DEDUCTION FOR THE ABOVE AMOUNTS U/ S 43B OF THE ACT, WHICH THE AO DENIED. 47 ITA NO. 467/DEL/2014 5.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. AR CONTENDED THAT THIS ISSUE HAS BEEN DECIDED IN EARLIER YEARS IN THE ASSESSEES FAVOUR BY THE TR IBUNAL. HE FURTHER REFERRED TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CIT VS. SAMTEL COLOUR LTD. (2009) 184 TAXMAN 120 (DEL) IN WHICH IT HAS BEEN HELD THAT ADVANCE CUSTOMS DUTY PAID IN THE YEAR IN QUESTION I S AN ADMISSIBLE DEDUCTION U/S 43B. IN OUR CONSIDERED OPINION, THERE CAN BE NO DISPUTE ON THE OTHERWISE AVAILABILITY OF DEDUCTION OF ADVANCE CUSTOMS DUTY PAID BY THE ASSESSEE, WHICH HAS TO BE ALLOWED IN THE YEAR O F PAYMENT. IN THIS JUDGMENT ALSO, THE HONBLE HIGH COURT HAS NOTICED V IDE PARA 3 THAT THE PROVISIONS OF SECTION 145A WERE NOT APPLICABLE AS T HE ASSESSMENT YEAR UNDER CONSIDERATION WAS 1995-96. IN VIEW OF THE DET AILED DISCUSSION SUPRA WITH REFERENCE TO THE APPLICABILITY OF SECTION 145A TO THE YEAR IN QUESTION, THERE CAN BE NO ESCAPE FROM VALUATION OF PURCHASE, SALE AND INVENTORIES UNDER THE INCLUSIVE METHOD. WE, THEREFORE, DIRECT T HE AO TO RECAST PROFIT AND LOSS ACCOUNT UNDER INCLUSIVE METHOD AS PER TH E MANDATE OF SECTION 145A, THEREBY, INTER ALIA, INCREASING THE PURCHASE VALUE WITH THE ABOVE CUSTOMS DUTY. THEN THE AO WILL ALLOW SEPARATE DEDUC TION FOR THE ABOVE REFERRED SUMS TO THE EXTENT NOT GETTING EVENTUALLY DEDUCTED SEPARATELY BY WAY OF INCREASED PURCHASE PRICE, AS HAS BEEN DISCUS SED ABOVE. AT THE SAME TIME, WE ALSO DIRECT THE AO TO MAKE SURE THAT SUCH AMOUNT SEPARATELY GETTING DEDUCTED IN THIS YEAR DOES NOT G ET DEDUCTION ONCE AGAIN IN THE NEXT YEAR. IN THE LIKE MANNER, THE LAST YEAR S SIMILAR DEDUCTION SEPARATELY ALLOWED SHOULD BE TAXED IN THE COMPUTATI ON OF INCOME OF THE CURRENT YEAR, AND BY FOLLOWING THE SAME FOR AY 2007-08, VIDE PA RA 14.1 THE MATTER WAS SET ASIDE TO THE FILE OF THE ASSESSING OFFICER TO D ECIDE THE ISSUE AFRESH AS PER THE ABOVE DIRECTION OF THE ITAT IN THE APPEAL FOR T HE ASSESSMENT YEAR 2006-07 AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. IN THE ABSENCE OF ANY CHANGE OF CIRCUMSTANCES OR LAW, WE THINK IT FIT TO FOLLOW THE SAME LINE OF REASONING AND SET ASIDE TO THE FILE OF THE ASSESSIN G OFFICER TO DECIDE THE ISSUE 48 ITA NO. 467/DEL/2014 AFRESH AS PER THE ABOVE DIRECTION IN THE APPEAL FOR THE ASSESSMENT YEAR 2006- 07 AND 2007-08 AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NOS. 3.6 AND 3.7 ARE, ACCORDINGLY, ALLOWED F OR STATISTICAL PURPOSES. THUS, THE ISSUE IN THE PRESENT YEAR AS WELL AS OF T HE EARLIER ASSESSMENT YEARS IS IDENTICAL AND HENCE WE ALSO DEEM IT FIT TO FOLLOW T HE SAME REASONING AND SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICE R TO DECIDE THE ISSUE AFRESH AS PER THE EARLIER ASSESSMENT YEARS. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF N ATURAL JUSTICE. GROUND NO. 3.9 TO 3.10 ARE PARTLY ALLOWED FOR STATISTICAL PURP OSE. 34. GROUND NO. 3.9 TO 3.10 ARE PARTLY ALLOWED FOR S TATISTICAL PURPOSE. 35. GROUND NO. 3.11 TO 3.12 IS IN RESPECT OF CUSTO M DUTY AND EXCISE DUTY BOTH PAID UNDER PROTEST. CUSTOM DUTY PAID UNDER PRO TEST REPRESENTED THE DUTIES PAID AS PER THE ADDITIONAL DEMAND RAISED BY THE STATUTORY AUTHORITIES, I.E. THE EXCISE DEPARTMENT AND THE CUSTOMS DEPARTME NT. THOUGH THE ASSESSEE HAS DISPUTED SUCH ADDITIONAL DEMAND AND PAID THE AM OUNT UNDER PROTEST, IN VIEW OF THE DEMAND BEING IN THE NATURE OF A STATUTO RY LIABILITY, THE SAME REPRESENTED ACCRUED/ CRYSTALLIZED LIABILITY. AS PER THE MANDATE OF SECTION 43B OF THE ACT, THE AFORESAID ADDITIONAL EXCISE DUTY AN D CUSTOM DUTY SO ACTUALLY PAID UNDER PROTEST WAS CLAIMED AS DEDUCTION ON PAYM ENT BASIS WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER, FOLLOWING THE ORDERS FOR PRECEDING ASSESSMENT YEARS, DISALLOWED THE SAID CLAIM ON THE GROUND THAT SINCE THE ASSESSEE WAS CONTESTING THESE LIABILITIES AND THERE WAS NO FINALITY REGARDING THE LIABILITIES AND THAT THE SAME WERE NO T DEBITED TO THE P&L A/C. 36. THE LD. AR SUBMITTED THAT THE TRIBUNAL HAS HELD IN ASSESSEES OWN CASE THAT, SINCE THE DUTY HAS BEEN PAID, DEDUCTION CLAIM ED UNDER SECTION 43B OF THE ACT HAS TO BE ALLOWED. THE LD. AR RELIED UPON THE D ECISION OF DELHI HIGH COURT IN THE CASE OF CIT V. DHARAMPAL SATYAPAL SONS (P.) LTD. 50 DTR 287 WHEREIN 49 ITA NO. 467/DEL/2014 THE HIGH COURT HAS HELD THAT AMOUNT PAID BY THE ASS ESSEE AGAINST EXCISE DUTY DEMAND RAISED BY EXCISE AUTHORITIES WAS ALLOWABLE D EDUCTION AS IT WAS STATUTORY LIABILITY WHICH WAS ALLOWABLE ON PAYMENT BASIS UNDER SECTION 43B OF THE ACT. SIMILARLY, THE MUMBAI BENCH OF THE TRIBUNA L IN THE CASE OF EURO RSCG ADVERTISING (P) LTD V. ACIT [2013] 154 TTJ 389 (MUM ) HELD THAT SERVICE TAX LIABILITY ALONGWITH THE INTEREST PAID ON THE BASIS OF THE SHOW CAUSE NOTICE ISSUED BY THE SERVICE TAX AUTHORITIES, IS ALLOWABLE DEDUCTION UNDER SECTION 43B OF THE ACT IN THE YEAR IN WHICH THE PAYMENT WAS MAD E IRRESPECTIVE OF THE FACT THAT SUCH DEMAND WAS PAID UNDER PROTEST AND THE MAT TER WAS SUBJUDICE BEFORE THE AUTHORITIES. THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y S 1999-00, 2000-01, 2001- 02, 2002-03 2005-06, 2006-07, 2007-08 AND 2008-09. 37. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSI NG OFFICER. 38. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT IS PERTINENT TO NOTE THAT THE TRIBUNAL IN ASSESSEES OWN CASE HE LD AS UNDER: 3.28. WITH REGARD TO THE DISALLOWANCE OF CLAIM FOR DEDUCTION UNDER SECTION 43B OF THE ACT FOR A SUM OF RS. 92,431 /- BEING CUS TOMS DUTY PAID UNDER PROTEST, ASSESSEE SUBMITS THAT THE CUSTOM DUTY PAID UNDER PROTEST REPRESENTED THE DUTIES PAID AS PER THE ADDITIONAL D EMAND RAISED BY THE STATUTORY AUTHORITIES, I.E. THE CUSTOMS DEPARTMENT, AND THOUGH THEY HAVE DISPUTED SUCH ADDITIONAL DEMAND AND PAID THE AMOUNT UNDER PROTEST, IN VIEW OF THE DEMAND BEING IN THE NATURE OF A STATUTORY LI ABILITY, THE SAME REPRESENTED ACCRUED/ CRYSTALLIZED LIABILITY. ACCORD ING TO THE ASSESSEE, AS PER THE MANDATE OF SECTION 43B OF THE ACT, THE AFORESAI D ADDITIONAL CUSTOM DUTY SO ACTUALLY PAID UNDER PROTEST WAS CLAIMED AS DEDUC TION ON PAYMENT BASIS WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE AFORESAID FOLLOWING ASSESSME NT ORDER FOR THE ASSESSMENT YEAR 2005-06. LD. AR INVITED OUR ATTENTI ON TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF EURO RS CG ADVERTISING (P) LTD V. 50 ITA NO. 467/DEL/2014 ACIT : 154 TTJ 389 (MUM) WHEREIN IT WAS HELD THAT W HEREIN THE SERVICE TAX LIABILITY ALONGWITH THE INTEREST WAS PAID ON THE BA SIS OF SHOW CAUSE NOTICE ISSUED BY THE SERVICE TAX AUTHORITIES, THE SAME WAS ALLOWABLE UNDER SECTION 43B IN THE YEAR IN WHICH THE PAYMENT WAS MADE IRRES PECTIVE OF THE FACT THAT SUCH DEMAND WAS PAID UNDER PROTEST AND THE MATTER W AS SUBJUDICE BEFORE THE AUTHORITIES. HE FURTHER SUBMITTED THAT IN SIMIL AR CIRCUMSTANCES THE HONHLE DELHI HIGH COURT IN THE CASE OF CIT V. DHARAMPAL SA TYAPAL SONS (P.) LTD.: 50 DTR 287, HELD THAT THE AMOUNT PAID BY THE ASSESSEE AGAINST EXCISE DUTY DEMAND RAISED BY EXCISE AUTHORITIES WAS ALLOWABLE D EDUCTION AS IT WAS STATUTORY LIABILITY WHICH WAS ALLOWABLE ON PAYMENT BASIS UNDER SECTION 43B OF THE ACT, AND ALSO SUBMITTED THAT IN ASSESSEES O WN CASE FOR A.YS 1999-00, 2000-01, 2001-02, 2002-03, 2005-06, 2006-07 AND 200 7-08, COORDINATE BENCHES OF THIS TRIBUNAL HAVE HELD THAT, SINCE THE DUTY IS PAID, DEDUCTION CLAIMED U/S 43B OF THE ACT HAS TO BE ALLOWED. 3.29. THIS ASPECT OF DISALLOWANCE OF CLAIM FOR DEDU CTION UNDER SECTION 43B OF THE ACT FOR THE AMOUNT OF CUSTOMS DUTY PAID UNDE R PROTEST HAS BEEN ONE OF THE SUBJECT OF MATTERS IN ASSESSEES OWN CASE FOR T HE AY 2006-07 AND 2007- 08 SUCCESSIVELY, AND FOR THE AY 2006-07 VIDE PARA 5 .5 OF THE ORDER DATED 24.8.2015, THE FOLLOWING FINDING WAS RETURNED BY TH E TRIBUNAL, 5.5. NEXT ITEM IS CUSTOMS DUTY PAID UNDER PROTEST AMOUNTING TO RS. 1,34,25,787. WE HAVE DISCUSSED SIMILAR ISSUE SUPRA WHILE DEALING WITH 'EXCISE DUTY PAID UNDER PROTEST' BY HOLDING THAT FI RST THE PROFIT AND LOSS ACCOUNT BE RECAST AS PER 'INCLUSIVE METHOD' IN TERM S OF SECTION 145A AND THEN SOME ADJUSTMENTS AS STATED ABOVE BE SEPARATELY MADE. SUCH DIRECTIONS ARE FULLY APPLICABLE PRO TANTO TO THE CU STOMS DUTY PAID UNDER PROTEST. THE AO IS DIRECTED TO FOLLOW THE SAME. 3.30. WHILE FOLLOWING THE SAME FOR AY 2007-08, TRI BUNAL SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECI DE IT AFRESH AS DECIDED ABOVE BY THE ITAT AFTER AFFORDING OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 51 ITA NO. 467/DEL/2014 3.31. LD. DR FAIRLY CONCEDES THAT THE DECISION OF THE TRIBUNAL ON THE ISSUE OF EXCISE DUTY PAID UNDER PROTEST, IN A.Y. 2006-07 AND 2007- O8 WAS ACCEPTABLE TO THE REVENUE, AND ACCORDINGLY, NO FURT HER APPEAL WAS PREFERRED ON THIS ISSUE. IN THESE CIRCUMSTANCES, WHILE FOLLO WING THE SAME, WE SET ASIDE GROUND NO. 3.8 TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IT AFRESH AS DECIDED BY THE ITAT FOR THE ASSESSMENT YEARS 2006-0 7 AND 2007-08 AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. THUS, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE, THEREFORE, WE SET SIDE THIS IS SUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IT AFRESH AS DECIDED BY THE TRIBU NAL IN EARLIER ASSESSMENT YEARS. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPOR TUNITY OF HEARING. GROUND NO. 3.11 TO 3.12 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 39. IN RESULT, GROUND NO. 3.11 TO 3.12 ARE PARTLY A LLOWED FOR STATISTICAL PURPOSE. 40. GROUND NO. 3.13. IS GENERAL IN NATURE HENCE, D ISMISSED. 41. GROUND NO. 4 TO 4.2 IS REGARDING NON ALLOWING W ITHDRAWAL OF ADD BACK U/S 43B. THE ASSESSEE COMPANY HAD IN THE INSTANT AS SESSMENT YEAR 2009-10 OFFERED AN AMOUNT OF RS.69,50,54,573/- IN ITS RETUR N OF INCOME. THIS AMOUNT REPRESENTS AMOUNTS RECEIVED BACK/ ADJUSTED IN THE P ROFIT AND LOSS ACCOUNT DURING THE FINANCIAL YEAR 2008-09 OUT OF THE AMOUNT S WHICH HAVE ALREADY BEEN CLAIMED AS DEDUCTION ON PAYMENT BASIS UNDER SECTION 43B OF THE ACT IN THE PRECEDING ASSESSMENT YEARS. THIS AMOUNT WAS OFFERED TO TAX BY THE ASSESSEE DURING AY 2009-10 ON THE PRESUMPTION THAT DEDUCTION WOULD BE ALLOWED IN PRECEDING YEARS ON PAYMENT BASIS. 42. THE LD. AR SUBMITTED THAT THE AFORESAID TOTAL A MOUNT HAS NOT BEEN ALLOWED TO THE ASSESSEE ON PAYMENT BASIS IN THE PRE CEDING ASSESSMENT YEARS AND THUS THE ASSESSEE HAS PRAYED THAT IT SHOULD BE ALLOWED A WITHDRAWAL OF 52 ITA NO. 467/DEL/2014 ADD BACK OF THE AFORESAID AMOUNT. NOT ALLOWING WITH DRAWAL OF ADD BACK HAS RESULTED IN THE CLAIM NOT BEING ALLOWED IN ANY YEAR . TO THE EXTENT THE ASSESSEES CLAIM UNDER SECTION 43B OF THE ACT ARE A LLOWED IN THE EARLIER ASSESSMENT YEARS OUT OF THE SAID AMOUNT OF RS.69,50 ,54,573/-, THE SAME WOULD CERTAINLY BE LIABLE TO BE ADDED TO THE ASSESS ABLE INCOME OF THE PRESENT YEAR. WITHDRAWAL OF ADD BACK HAS ALSO BEEN ALLOWED BY ITAT IN ASSESSEE CASE FOR AY 2000- 01, 2004-05, AY 2005-06, AY 2006-07 AN D AY 2008-09. DEPARTMENT APPEAL IN AY 2004-05 ON THIS ISSUE HAS N OT BEEN ADMITTED BY DELHI HIGH COURT VIDE ORDER DATED 28- 01-2010. 43. THE LD. DR RELIED UPON THE ORDER OF TPO/AO. 44. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT IS PERTINENT TO NOTE THAT THE TRIBUNAL IN ASSESSEES OWN CASE HE LD AS UNDER: GROUNDS NO. 4 TO 4.2 NOT ALLOWING WITHDRAWAL OF AD D BACK U/S 43B: 4. ADVERTING TO GROUND NO 4 TO 4.2, IN THE AY 2008-09 T HE ASSESSEE COMPANY OFFERED AN AMOUNT OF RS. 117,72,92,005/- IN ITS RETURN OF INCOME REPRESENTING THE AMOUNTS RECEIVED BACK OR AD JUSTED IN THE PROFIT AND LOSS ACCOUNT DURING FY 2007-08 OUT OF THE AMOUNT S WHICH HAVE ALREADY BEEN CLAIMED AS DEDUCTION ON PAYMENT BASIS U/ S 43B OF THE ACT IN THE PRECEDING ASSESSMENT YEARS, AND THIS AMOU NT WAS OFFERED TO TAX BY THE ASSESSEE DURING AY 2008-09 ON THE PRESUMP TION THAT DEDUCTION WOULD BE ALLOWED IN PRECEDING YEARS ON PAYM ENT BASIS. IT IS PLEADED THAT THE AFORESAID TOTAL AMOUNT OF RS.117,7 2,92,005/- HAS NOT BEEN ALLOWED TO THE ASSESSEE ON PAYMENT BASIS IN THE PRECEDING ASSESSMENT YEARS AND THUS THE ASSESSEE HAS PRAYED TH AT IT BE ALLOWED TO WITHDRAW THE ADD BACK OF THE SAID AMOUNT AND NOT A LLOWING WITHDRAWAL OF ADD BACK HAS RESULTED IN THE CLAIM NOT BEING ALLOWED IN 53 ITA NO. 467/DEL/2014 ANY YEAR. LD. AR BROUGHT TO OUR NOTICE THAT ASSESSE ES CLAIM UNDER SECTION 43B DEDUCTION WAS ALLOWED IN THE EARLIER ASSE SSMENT YEARS, AS SUCH, SAID AMOUNT OF RS. 117,72,92,005/- WOULD CERTAI NLY BE LIABLE TO BE ADDED TO THE ASSESSABLE INCOME OF THE PRESENT YE AR. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE WITHDRAWAL OF WRI TE-BACK HAS BEEN ALLOWED BY AO FOR AY2007-08, WHICH HAS BEEN CONFIRM ED BY DRP. HE SUBMITTED THAT IDENTICAL CLAIMS HAVE BEEN ALLOWED IN THE ASSESSEES OWN CASE BY ITAT IN AY 1999-2000, 2000-01 AY 2005-0 6 AND AY 2006- 07 AND BY CIT(A) IN AY 2001-02 AND 2002-03. 4.1. AS SUBMITTED BY THE LD. AR, IN THE ORDER DT 24.08.20 15 FOR THE AY 2006-07, THIS TRIBUNAL IN ASSESSEES OWN CASE, V IDE PARAGRAPH NO 6.3 AND 6.4 DEALT WITH THIS ISSUE IN THE FOLLOWING MANNER: 6.3. GROUND NOS. 4 TO 6.1 DEAL WITH A SUM OF RS. 1 ,41,59,08,897, WHICH HAS BEEN STATED TO BE A TOTAL OF CERTAIN AMOUNTS CLAIME D BY THE ASSESSEE AS DEDUCTIBLE IN THE PRECEDING YEAR U/S 43B AS EXCISE DUTY AND CUSTOMS DUTY AND VOLUNTARILY OFFERED FOR TAXATION IN THE CURRENT YEA R'S INCOME. THE LD. AR CONTENDED THAT SINCE SUCH DEDUCTIONS HAVE BEEN DENIED BY THE AO, THE CORRESPONDING OFFERING OF THE SAME TO TAX IN THE CURRENT YEAR, BE ELIMINATED. 6.4. WE AGREE WITH THE LD. AR THAT ONE AMOUNT CANNO T BE TAXED TWICE. IT IS BUT NATURAL THAT IF AN AMOUNT CLAIMED AS DEDUCTION BY T HE ASSESSEE IN THE EARLIER YEAR HAS NOT BEEN ALLOWED, THEN ON THE ASSESSEE'S S UO MOTU OFFERING OF IT AS AN ITEM OF INCOME FOR THE CURRENT YEAR ON THE STRENGTH OF DEDUCTION CLAIMED IN THE EARLIER YEAR, WHICH FINALLY STANDS DENIED, SHOULD N OT BE CHARGED TO TAX. ON BEING CALLED UPON TO FURNISH THE DETAIL OF SUCH AMOUNT, I T WAS STATED THAT IT, INTER ALIA, INCLUDES A SUM OF RS.71,63,89,449, WHICH IS SUBJECT MATTER OF GROUND NO. 3.5, THAT WE HAVE DISCUSSED IMMEDIATELY HEREINBEFORE. WE NOTE THAT APART FROM THE SUSTENANCE OF DISALLOWANCE OF RS.71.63 CRORE IN THE PRECEDING YEAR, THERE IS NO OTHER DISALLOWANCE U/S 43B WHICH HAS BEEN UPHELD BY THE TRIBUNAL. IT IS OVERT THAT ALL OTHER DISALLOWANCES MADE BY THE AO U/S 43B HAVE BEEN DELETED BY THE TRIBUNAL. THE LD. AR COULD NOT FURNISH ANY DETAIL O F THE REMAINING AMOUNT OF RS.69.96 CRORE (RS.141.59 CRORE MINUS RS.71.63 CROR E), ALLEGEDLY FINALLY DISALLOWED U/S 43B OF THE ACT BY THE TRIBUNAL IN TH E PRECEDING YEAR. IT IS SIMPLE AND PLAIN THAT IF THE TRIBUNAL HAS ALLOWED DEDUCTIO N FOR THE AMOUNTS DISALLOWED BY THE AO IN THE PRECEDING YEAR, THEN THE SAME ARE RIGHTLY CHARGEABLE TO TAX IN THE CURRENT YEAR. THIS GROUND IS, THEREFORE, DISMIS SED, SUBJECT TO OUR DECISION ON 54 ITA NO. 467/DEL/2014 GROUND NO. 3.5 IN GRANTING DEDUCTION OF RS.71,63,89 ,449, REPRESENTING LAST YEAR'S UNUTILIZED MODVAT CREDIT WHICH WAS CLAIMED BY THE A SSESSEE AS DEDUCTIBLE U/S 43B BUT DISALLOWED BY THE AO AND ALSO THE TRIBUNAL. 4.2. FOR THE AY 2007-08, THOUGH THE AO REFUSED TO ALLOW THE DEDUCTIONS CLAIMED BY THE ASSESSEE UNDER SECTION 43B O F THE ACT, BY ORDER DATED 20-05-2016 THE TRIBUNAL CONSIDERED THE C ASE OF THE ASSESSEE AND SET ASIDE THE MATTER TO THE FILE OF AO , AND THE RELIEF ON THIS ASPECT IS DEPENDENT UPON THE FINDINGS OF THE AO WHIL E IMPLEMENTING THE SAID ORDER, AS SUCH WE DEEM IT JUST AND PROPER TO DIRE CT THE AO TO CONSIDER THIS ASPECT ALSO IN THE LIGHT OF IMPLEMENTI NG THE ORDER OF THIS TRIBUNAL FOR THE AY 2007-08. THESE GROUNDS ARE, THE REFORE, ALLOWED FOR STATISTICAL PURPOSE. THUS, THE ISSUE IS SQUARELY COVERED BY THE DECISIO N OF THE TRIBUNAL IN ASSESSEES OWN CASE, THEREFORE, WE SET SIDE THIS IS SUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IT AFRESH AS DECIDED BY THE TRIBU NAL IN EARLIER ASSESSMENT YEARS. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPOR TUNITY OF HEARING. GROUND NO. 4 TO 4.2 ARE PARTLY ALLOWED FOR STATISTICAL PUR POSE. 45. IN RESULT, GROUND NO. 4 TO 4. 2 ARE PARTLY ALLO WED FOR STATISTICAL PURPOSE. 46. GROUND NOS. 5 TO 5.5 ARE RELATING TO DISALLOWAN CE U/S 14A. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED DIVID END INCOME OF RS. 143,99,95,324/-, WHICH WAS CLAIMED AS EXEMPT FROM T AX UNDER SECTIONS 10(34) AND 10(35) OF THE ACT. ON THE BASIS OF THE S AID FACT, THE ASSESSING OFFICER CONCLUDED THAT PROVISIONS OF SECTION 14A OF THE ACT BECOMES APPLICABLE TO THE ASSESSEE AND CONSEQUENTLY, EXPENDITURE INCUR RED IN RELATION TO EXEMPT INCOME IS REQUIRED TO BE DISALLOWED, WHILE COMPUTIN G TAXABLE INCOME. THE ASSESSING OFFICER APPLIED THE METHOD PRESCRIBED IN RULE 8D OF THE INCOME-TAX 55 ITA NO. 467/DEL/2014 RULES, 1962 (THE RULES) AND DETERMINED THE AMOUNT DISALLOWABLE UNDER SECTION 14A OF THE ACT AT RS.9,96,70,322/-, COMPRIS ING OF THE FOLLOWING: S. NO. PARTICULARS AMOUNT IN RS. (IN MILLIONS) 1 DIRECT EXPENDITURE NIL 2 INTEREST EXPENDITURE INCURRED DURING THE YEAR (RS. 148 MILIONS) ATTRIBUTED IN THE RATIO OF AVERAGE VALUE OF INVESTMENTS RESULTING IN EXEMPT INCOME TO AVERAGE VALUE OF TOTAL ASSETS 18.44 MILLION 3 % OF AVERAGE VALUE OF INVESTMENTS 81.23 TOTAL 99.67 THE ASSESSING OFFICER MADE A NET DISALLOWANCE OF RS .8,35,98,603/- AFTER GIVING BENEFIT OF THE SUO MOTO DISALLOWANCE OF RS. 16,071, 719/- MADE BY THE ASSESSEE. 47. THE LD. AR SUBMITTED THAT THE AFORESAID DISALLO WANCE MADE IN THE FINAL ASSESSMENT ORDER IS, IN OUR RESPECTFUL SUBMISSION, WITHOUT JUDICIOUS APPRECIATION OF THE FACTS AND CORRECT POSITION OF L AW, AND IS LIABLE TO BE DELETED FOR THE REASONS ELABORATED HEREUNDER: A) RE: ASSESSING OFFICER ERRED IN APPLYING RULE 8D IN PRESENT CASE IN TERMS OF THE PROVISIONS OF SECTION 14A OF THE AC T, ONLY EXPENDITURE INCURRED, HAVING RELATION WITH EARNING OF EXEMPT INCOME, IS N OT AN ALLOWABLE DEDUCTION UNDER THE PROVISIONS OF THE ACT. THE PHRASE EXPEND ITURE INCURRED USED IN THE AFORESAID SECTION REFERS TO ACTUAL EXPENDITURE, WHI CH HAS PROXIMATE NEXUS WITH EXEMPT INCOME, AND NOT SOME IMAGINARY OR NOTIONAL E XPENSES, FOR THE PURPOSES OF DISALLOWANCE UNDER THAT SECTION. IN VIEW THEREOF , THE PROVISIONS OF SECTION 14A ARE APPLICABLE ONLY IF THE ASSESSING OFFICER AT THE FIRST PLACE FINDS THAT THE ASSESSEE HAS ACTUALLY INCURRED EXPENSES, WHICH HAVE PROXIMATE NEXUS WITH EARNING OF EXEMPT DIVIDEND INCOME AND NOT OTHERWISE . IN OTHER WORDS, THE ONUS IS ON THE ASSESSING OFFICER TO FIND PROXIMATE NEXUS OF EXPENSES WITH EARNING OF 56 ITA NO. 467/DEL/2014 EXEMPT INCOME, BEFORE REJECTING THE CLAIM OF ASSESS EE AND COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE PROV ISIONS OF SUB-SECTION (2) AND (3) TO SECTION 14A, WHICH EMPOWERS THE ASSESSIN G OFFICER TO COMPUTE DISALLOWANCE AS PER PROVISIONS OF RULE 8D OF THE RU LES, W.E.F ASSESSMENT YEAR 2008-09, ALSO PROVIDES THAT DISALLOWANCE AS PER PRO VISIONS OF RULE 8D CAN BE COMPUTED, ONLY IF THE ASSESSING OFFICER, HAVING REG ARD TO THE ACCOUNTS OF ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF T HE CLAIM OF THE ASSESSEE. IN OTHER WORDS, EVEN FROM ASSESSMENT YEAR 2008-09 AND ONWARDS, THE ASSESSING OFFICER CAN COMPUTE DISALLOWANCE UNDER SECTION 14A AS PER THE PROVISIONS OF RULE 8D, ONLY IF ASSESSING OFFICER, HAVING REGARD T O ACCOUNTS OF ASSESSEE, REACHES A FINDING, THAT ASSESSEE HAS INCURRED EXPEN SES OVER AND ABOVE EXPENSES SUO-MOTU DISALLOWED BY HIM.. IN THE ABSENC E OF SUCH FINDING, THE ASSESSING OFFICER DOES NOT HAVE POWER TO COMPUTE DI SALLOWANCE UNDER SECTION 14A OF THE ACT AS PER PROVISIONS OF RULE 8D, EVEN F OR ASSESSMENT YEARS 2008-09 AND ONWARDS. RELIANCE IN THIS REGARD IS PLACED ON F OLLOWING DECISIONS: CIT VS. WALFORT SHARE & STOCK BROKERS: 326 ITR 1 (S C) GODREJ & BOYCE MFG. CO. LTD. V. DCIT : 394 ITR 449 (SC) - AFFIRMING GODREJ & BOYCE MFG. CO. LTD. V. CIT: 328 ITR 81 (BO M.) MAXOPP INVESTMENT LTD. VS. CIT: 347 ITR 272 (DEL.) ATTENTION IS ALSO INVITED TO THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES: 323 ITR 518, WHEREIN, TOO, HIGH COURT HELD THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MA DE ONLY IF ASSESSING OFFICER ESTABLISHES PROXIMATE NEXUS OF EXPENDITURE WITH EXE MPT INCOME. IT HAS SIMILARLY BEEN HELD IN THE FOLLOWING DECISIONS: CIT V. METALMAN AUTO P. LTD.: 336 ITR 434 (P&H) CIT V. RELIANCE UTILITIES AND POWER LTD.: 313 ITR 3 40 (BOM) CIT V. TORRENT POWER LTD.: 363 ITR 474 (GUJ). IN VIEW OF THE ABOVE, IT IS RESPECTFULLY SUBMITTED THAT THE PROVISIONS OF SUB- SECTION (2) AND SUB-SECTION (3) OF SECTION 14A OF T HE ACT, AS DISCUSSED SUPRA, PERMITS THE ASSESSING OFFICER TO APPLY THE PROCEDUR E OF COMPUTING DISALLOWANCE 57 ITA NO. 467/DEL/2014 BY APPLYING THE FORMULA PRESCRIBED IN RULE 8D OF TH E RULES, IF AND ONLY IF, THE ASSESSING OFFICER RECORDS THE SATISFACTION THAT THE EXPENDITURE DISALLOWED BY THE ASSESSEE UNDER THAT SECTION IS NOT CORRECT AND/OR S UFFICIENT. IN THE PRESENT CASE, THE ASSESSING OFFICER , IT IS SUBMITTED, PRIM ARILY HELD THAT: ACTUAL EARNING/ RECEIPT OF DIVIDEND INCOME IS NOT E SSENTIAL; RULE 8D HAS BEEN BROUGHT IN THE STATUTE TO MITIGATE THE CALCULATION OF DISALLOWANCE; ASSESSEE-COMPANY IS PAYING HUGE INTEREST ON LOANS, WHICH COULD HAVE BEEN REDUCED BY NOT MAKING SUCH INVESTMENTS; FACT THAT ASSESSEE, SUO MOTU, MADE DISALLOWANCE GOE S TO SHOW THAT THE ASSESSEE WAS CONSCIOUS OF THE FACT THAT IT HAD INCURRED SOME EXPENDITURE FOR ACQUIRING SHARES. B) RE: NO DISALLOWANCE WAS WARRANTED UNDER SECTION 14A IN PRESENT CASE THE ASSESSEE, IT WILL BE APPRECIATED, IS AN OPERATI NG COMPANY ENGAGED IN MANUFACTURE OF AUTOMOBILES. THE ENTIRE EXPENDITURE INCURRED WAS IN RELATION TO THE MANUFACTURING OPERATIONS OF THE ASSESSEE AND TH E ASSESSING OFFICER HAS FAILED TO BRING ON RECORD ANY EVIDENCE/ MATERIAL TO DEMONSTRATE THAT ANY PART OF SUCH EXPENDITURE WAS RELATABLE TO THE EXEMPT INC OME. C) RE: DISALLOWANCE OUT OF INTEREST EXPENDITURE INSOFAR AS INTEREST EXPENDITURE WAS CONCERNED, INTE REST PAID BY THE ASSESSEE WAS ON ACCOUNT OF THE FOLLOWING: PARTICULARS AMOUNT (RS. MILLIONS) INTEREST ON- (A) ADVANCES FROM DEALERS (B) OTHERS INCLUDING INTEREST ON EXPORT CREDIT/OVERDRAFT 79 69 TOTAL 148 58 ITA NO. 467/DEL/2014 ON PERUSAL OF THE AFORESAID, IT WILL KINDLY BE NOTI CED THAT THE AFORESAID EXPENDITURE ACTUALLY RELATED TO THE MANUFACTURING O PERATIONS OF THE ASSESSEE. BORROWED FUNDS AVAILABLE WITH THE ASSESSEE, AS A MA TTER OF FACT, WERE UTILIZED FOR BUSINESS OPERATIONS AND NOT USED FOR MAKING THE INVESTMENTS. IT IS FURTHER SUBMITTED THAT INTEREST FREE OWN FUNDS AVAILABLE WI TH THE ASSESSEE FAR EXCEEDS THE INVESTMENT MADE IN SHARES/SECURITIES ON WHICH E XEMPT DIVIDEND INCOME WAS RECEIVED. THE ASSESSEE, AS ON THE LAST DATE OF THE RELEVANT ASSESSMENT YEAR, HAD INVESTMENTS AMOUNTING TO RS.317 CRORES, WHICH I S SUBSTANTIALLY LESS THAN THE OPENING INVESTMENTS OF RS.518 CRORES (REFER PAGE 151 OF PB VOL 1). FURTHER, ON PERUSAL OF THE BALANCE SHEET FOR THE RELEVANT YE AR (REFER PAGE 151 OF PB VOL I), IT WILL KINDLY BE NOTICED THAT THE FOLLOWING INTERE ST FREE FUNDS WERE AVAILABLE AT DISPOSAL OF THE ASSESSEE: A) SHARE CAPITAL RS. 145 CRORES B) OPENING RESERVES AND SURPLUS RS. 8,270 CRORES C) CURRENT YEARS CASH PROFITS RS. 10,797 CRORES FURTHER, NET CASH FROM OPERATING ACTIVITIES FOR THE YEAR UNDER CONSIDERATION AMOUNTED TO RS. 1 193 CRORES (REFER PAGE 153 OF PB VOL I). IT WILL, THUS, BE APPRECIATED THAT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE (BOTH OPENING AS WELL AS CLOSING) FAR EXCEEDS THE TOTAL INVESTMEN TS. IN THE AFORESAID FACTS, IT CANNOT, IT IS SUBMITTED, BE CONCLUDED THAT INVESTME NTS WERE MADE FROM BORROWED FUNDS; ON THE CONTRARY, IT IS CLEARLY EVID ENT THAT THE BORROWED FUNDS HAD ALSO REDUCED DURING THE RELEVANT ASSESSMENT YEA R. FURTHER, IT IS SUBMITTED THAT IN CASE OF MIXED POOL OF FUNDS, THE CORRECT ME THOD TO ESTABLISH SOURCE OF INVESTMENT WOULD BE TO CONSIDER THE MACRO FUND/ CAS H FLOW POSITION DURING THE YEAR AND IF THE ASSESSEE HAD SUFFICIENT SURPLUS FUN DS AVAILABLE, PRESUMPTION SHOULD BE DRAWN IN FAVOUR OF THE ASSESSEE THAT SURP LUS FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENTS. RELIANCE IN THIS R EGARD IS ALSO PLACED ON THE FOLLOWING DECISIONS, WHEREIN IT HAS BEEN HELD THAT WHERE ASSESSEE HAD SUFFICIENT FUNDS/ DEPOSITS FOR ADVANCING INTEREST FREE LOANS O R MAKING INVESTMENT IN 59 ITA NO. 467/DEL/2014 SHARES, ETC., AND THERE IS NOTHING ON RECORD TO SHO W THAT BORROWED FUNDS HAVE BEEN DIRECTLY UTILIZED FOR SUCH PURPOSE, A PRESUMPT ION IN FAVOUR OF THE ASSESSEE CAN BE DRAWN WITH RESPECT TO UTILIZATION OF INTERES T FREE AND BORROWED FUNDS: EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT : 224 ITR 627 (S.C) INDIAN EXPLOSIVES LTD. V. CIT: 147 ITR 392 (CAL.) WOOLCOMBERS OF INDIA LTD. V. CIT: 134 ITR 219 (CAL. ) - APPROVED BY SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTI CAL WORKS LTD. V. CIT: 224 ITR 627 ALKALI & CHEMICAL CORP. OF INDIA V. CIT: (1986) 161 ITR 820 (CAL.) CIT V. RELIANCE UTILITIES AND POWER LTD.: 313 ITR 3 40 (BOM.) CIT VS. M/S. ASHOK COMMERCIAL ENTERPRISES: ITA NO. NO.2985 OF 2009 (BOM) GUJARAT STATE FERTILIZERS AND CHEMICALS LTD : 358 I TR 323 (GUJ) HERO HONDA FINLEASE LTD VS. ACIT: ITA NO. 3726 & 61 02/DEL/2012 (DEL) THE GUJARAT HIGH COURT IN THE CASE OF CIT V. UTI BA NK LTD: 215 TAXMAN 8 (MAG.) HELD THAT WHERE THERE ARE SUFFICIENT INTERES T FREE FUNDS TO MEET TAX FREE INVESTMENTS, THEY ARE PRESUMED TO BE MADE FROM INTE REST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT. THE SUPREME COURT HAS DISMISSED THE REVENUES SLP I N CIVIL APPEAL NO. 468/2014 AGAINST THE AFORESAID DECISION. IN THE CA SE OF MIXED FUNDS, THE OPTION IS WITH THE ASSESSEE TO APPROPRIATE FUND AND EXPENDITURE IN A MANNER MOST FAVOURABLE TO THE ASSESSEE. WHILE FOLLOWING TH E RATIO EMANATING FROM THE AFORESAID DECISIONS, IT HAS BEEN HELD IN THE FOLLOW ING CASES, THAT INTEREST EXPENDITURE CANNOT BE DISALLOWED UNDER SECTION 14A OF THE ACT, WHERE THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS AND THERE WAS NO FINDING BY THE ASSESSING OFFICER OF ANY DIRECT NEXUS OF BORROWED F UNDS WITH INVESTMENTS: GODREJ & BOYCE MFG. CO. LTD. V. DCIT : 394 ITR 449 (SC) HDFC BANK LTD V. DCIT: 366 ITR 505 (BOM) HDFC BANK LTD V. DCIT: 383 ITR 529 (BOM) CIT V. K. RAHEJA CORPORATION PVT. LTD: ITA NO. 1260 OF 2009 (BOM.) BRIGHT ENTERPRISES PVT LTD. V. CIT: 381 ITR 107 (P& H) CIT V. MAX INDIA LTD: 388 ITR 81 (P&H) 60 ITA NO. 467/DEL/2014 GURDAS GARG V. CIT: ITA NO.413 OF 2014 (P&H) CIT V. MICROLABS LTD. : 383 ITR 490 (KAR.) PCIT V. SINTEX INDUSTRIES LTD. : TA NO.268 OF 2017/ 82 TAXMANN.COM 171 (GUJ.) LUBI SUBMERSIBLES LTD.: ITA NO.868 OF 2010 (GUJ.) CIT V. GUJARAT POWER CORPORATION LTD.: 352 ITR 583 (GUJ) GUJARAT STATE FERTILIZERS AND CHEMICALS LTD: TAX AP PEAL NO. 82 OF 2013 (GUJ HC) CIT V. TORRENT POWER LTD.: 363 ITR 474 (GUJ) CIT VS. SUZLON ENERGY LTD.: 215 TAXMAN 272 (GUJ) M/S GOGREJ AGROVET LTD. V. AC1T: ITA NO. 1629/MUM/0 9 (MUM.) DY. CIT V. EIMCO ELECON (INDIA) LTD.: 142 ITD 52 (A HD) DY. CIT V. JAMMU & KASHMIR BANK LTD.: 142 ITD 553(A SR.) T AND T MOTORS LTD. V. ADDL. CIT : 154 ITD 306 (DEL HI) HERO HONDA FINLEASE LTD VS. ACIT: ITA NO. 3726/DEL/ 2012 (DEL) ACIT VS. CHAMPION COMMERCIAL CO LTD: 152 TTJ 241 (K OL) TML DRIVE LINES LTD VS. ACIT : ITA NO. 6064/MUM/201 0 (MUM) KULGAM HOLDINGS PVT. LTD. VS. ACIT : ITA NO. 1259/A HD/2006 (AHD) THE AFORESAID DECISIONS ARE SQUARELY APPLICABLE IN THE FACTS OF THE PRESENT CASE INASMUCH AS TOTAL INVESTMENT MADE IS MUCH LOWER THA N INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND HENCE, THERE IS NO BASIS TO HOLD THAT ANY PART OF INTEREST BEARING FUNDS WOULD HAVE BEEN UTILIZED FOR MAKING INVESTMENT. RE: ADMINISTRATIVE EXPENSES IT IS SUBMITTED THAT SINCE NO PORTION OF THE EXPEND ITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT HAD PROXIMATE NEXUS WITH INVESTMEN TS IN SHARES OR EARNING OF DIVIDEND INCOME THEREFROM, NEITHER THE SAME HAS BEEN ESTABLISHED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, THERE IS NO WARRANT FOR MAKING ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT, LEAVE AL ONE ATTRIBUTION @ L A% OF AVERAGE VALUE OF INVESTMENTS, IN ACCORDANCE WITH PR OVISIONS OF RULE 8D OF THE RULES. IN FACT, THE ASSESSEE, ON A CONSERVATIVE BAS IS SUO-MOTU DISALLOWED AN AMOUNT OF RS. 1,60,71,719/- ON ACCOUNT OF SALARY CO ST AND ADMINISTRATIVE EXPENDITURE FOLLOWING AN OBJECTIVE METHOD OF COMPUT ATION. 61 ITA NO. 467/DEL/2014 D) RE: INCORRECT COMPUTATION OF DISALLOWANCE UNDER SECTION 14A WITHOUT PREJUDICE, THE LD. AR SUBMITTED THAT, THE DISALLOWANCE COMPUTE D UNDER SECTION 14A OF THE ACT IS INCORRECT SINCE WHI LE COMPUTING DISALLOWANCE AS PER RULE 8D, ENTIRE INVESTMENTS HAVE BEEN CONSID ERED, WITHOUT EXCLUDING INVESTMENTS NOT RESULTING IN ANY EXEMPT INCOME DURI NG THE YEAR UNDER CONSIDERATION. E) RE- INVESTMENTS NOT RESULTING IN EXEMPT INCOME T O BE EXCLUDED IN THE FOLLOWING DECISIONS, IT HAS CONSISTENTLY BEE N HELD DISALLOWANCE UNDER SECTION 14A OF THE ACT IS ONLY TO BE MADE ONLY IF T HERE IS EXEMPT INCOME AND NOT OTHERWISE: . CHEMINVEST LTD. V. CIT : 379 ITR 33 (DEL.) PCIT V. IL & FS ENERGY DEVELOPMENT COMPANY LTD. : 2 97 CTR 452 (DEL.) CIT V. HOLCIM INDIA (P) LTD.: 272 CTR 282 (DEL.)'' CIT V. CORRTECH ENERGY PVT. LTD.: 372 ITR 97 (GUJ.) CIT V. WINSOME TEXTILE INDUSTRIES LTD.: 319 ITR 204 (P&H) CIT V. M/S LAKHANI MARKETING: 272 CTR 265 (P&H) CIT V. M/S. SHIVAM MOTORS (P) LTD.: 272 CTR 277 (AL L) REDINGTON (INDIA) LTD VS. ACIT: 392 ITR 633 (MAD.) S INTERGLOBE ENTERPRISES V. DCIT: ITA NO.1362 & 1032/ DEL./2013 (DEL. TRIB.) - AFFIRMED BY DELHI HIGH COURT IN ITA NO.456 OF 2016 DCIT V. MORGAN STANLEY INDIA SECURITIES PVT. LTD. : ITA NO. 114/MUM/2013 (MUM.) VS ACIT V. M. BASKARAN: 152 ITD 844 (CHN. TRIB.) SPECIFIC RELIANCE IN THIS REGARD IS PLACED ON THE D ECISION OF THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF REI AGRO LTD VS. DCIT: 144 ITD 141. IN THE SAID CASE, IN A.Y .2008-09, THE ASSESSEE HAD INVESTED RS .103 CRORES IN SHARES ON WHICH IT EARNED TAX-FREE DIVIDENDS OF RS.1.3 LAKHS. THE ASSESSEE CLAIMED THAT THOUGH ITS BORROWINGS HAD INCREASED BY RS.122 CRORE S, THE SAID INVESTMENTS WERE FUNDED OUT OF OWN FUNDS. IT FURTHER CLAIMED TH AT NO EXPENDITURE HAD BEEN INCURRED TO EARN THE DIVIDENDS THEREBY WARRANTING A DISALLOWANCE U/S 14A OF THE ACT. HOWEVER, THE AO APPLIED RULE 8D AND COMPUT ED THE DISALLOWANCE AT 62 ITA NO. 467/DEL/2014 RS.4 CRORE. ON APPEAL BY THE ASSESSEE, THE CIT(A) R EDUCED THE DISALLOWANCE TO RS.26 LAKH. APPEAL FILED BY THE REVENUE AGAINST THE AFORESAID DECISION HAS BEEN DISMISSED BY THE CALCUTTA HIGH COURT AS NOT GI VING RISE TO ANY SUBSTANTIAL QUESTION OF LAW IN APPEAL NO. GA NO.358 1 OF 2013. THE HONBLE DELHI HIGH COURT IN THE CASE OF ACB INDIA LIMITED V . ACIT: 374 ITR 108, SIMILARLY HELD THAT ONLY INVESTMENT WHICH ACTUALLY RESULTED IN EXEMPT DIVIDEND INCOME HAS TO BE CONSIDERED FOR THE PURPOSE OF COMP UTING THE DISALLOWANCE AS PER RULE 8D OF THE RULES. IN VIEW OF THE AFORESAID, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER ERRED IN CONSIDERING THE ENTI RE INVESTMENTS WHILE COMPUTING DISALLOWANCE U/S 14A READ WITH RULE 8D. T HE DISALLOWANCE U/S 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKIN G INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME. THE ITAT FOR AYS 2001-02, 2002-03 20 05-06, 2006-07, 2007-08 AND 2008-09 HAS REMANDED THE MATTER BACK TO THE ASS ESSING OFFICER FOR FRESH ADJUDICATION. FURTHER, THE ASSESSING OFFICER HAS, IN THE APPEAL EFFECT ORDER FOR THE ASSESSMENT YEAR 2006-07, DELETED THE ENTIRE DIS ALLOWANCE MADE UNDER SECTION 14A OF THE ACT. THE AFORESAID ISSUE IS SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE DELHI HIGH COURT FO R ASSESSMENT YEARS 1999-00 (ITA NO. 250/2005) AND 2000-01 (ITA NO.976/2005), W HEREIN THE HIGH COURT HAS HELD THAT ONUS IS ON THE REVENUE TO ESTABLISH P ROXIMATE NEXUS OF EXPENSES WITH EARNING OF EXEMPT INCOME AND THAT NO DISALLOWA NCE OF INTEREST WAS CALLED FOR UNDER SECTION 14A OF THE ACT. IN THE AFORESAID CIRCUMSTANCES, THE ASSESSING OFFICER ERRED IN DISALLOWING RS.8,35,98,603/- IN TH E ASSESSMENT ORDER AND THE SAME, THEREFORE, CALLS FOR BEING DELETED. ALTERNATI VELY, THE ASSESSING OFFICER MAY BE DIRECTED TO RE-COMPUTE THE DISALLOWANCE UNDER SE CTION 14A OF THE ACT. 48. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 49. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. IT IS PERTINENT TO NOTE THAT THOUGH THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE HELD 63 ITA NO. 467/DEL/2014 THAT THERE WAS NO QUESTION OF DISALLOWANCE OF ANY A MOUNT ON ACCOUNT OF INTEREST UNDER SECTION 14A OF THE ACT, BUT THE TRIB UNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 HELD AS UNDER: GROUND NO 6.0 TO 6.4 DISALLOWANCE OF RS. 7,43,27, 349/- UNDER SECTION 14A OF THE ACT 6. ADVERTING TO THE ASPECT OF DISALLOWANCE U/S 14A OF THE ACT, WE FIND FROM THE RECORD AND CONTENTIONS OF THE PARTIES THAT, DUR ING THE YEAR UNDER CONSIDERATION, THE APPELLANT EARNED DIVIDEND INCOME OF RS.166,83,50,967/-, WHICH WAS CLAIMED AS EXEMPT FROM TAX UNDER SECTIONS 10(34) AND 10(35) OF THE ACT, ON THE BASIS OF WHICH, THE ASSESSING OFFIC ER CONCLUDED THAT PROVISIONS OF SECTION 14A OF THE ACT BECOMES APPLICABLE TO THE ASSESSEE AND CONSEQUENTLY, EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME IS REQUIRED TO BE DISALLOWED, WHILE COMPUTING TAXABLE INCOME AND B Y PLACING RELIANCE UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD: 312 ITR (AT) 01(MUM.), THE ASS ESSING ITA NO.- 6021/DEL/2012 OFFICER APPLIED THE METHOD PRESCRIBED IN RULE 8D OF THE INCOME-TAX RULES, 1962 (THE 'RULES') AND DETERMINED THE AMOUNT DISALLOWABLE UNDER SECTION 14A OF THE ACT AT RS.7,43,27,349/-, C OMPRISING OF THE FOLLOWING:- S. NO. PARTICULARS AMOUNT IN RS. (IN MILLIONS) 1 DIRECT EXPENDITURE NIL 2 INTEREST EXPENDITURE INCURRED DURING THE YEAR (RS.128.46MILLIONS) ATTRIBUTED IN THE RATIO OF AVERAGE VALUE OF INVESTMENTS RESULTING IN EXEMPT INCOME TO AVERAGE VALUE OF TOTAL ASSETS. 13.73 3 % OF AVERAGE VALUE OF INVESTMENTS 60.59 TOTAL 74.32 64 ITA NO. 467/DEL/2014 6.1. IT IS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE DISALLOWANCE MADE ON THIS COUNT IN THE FINAL ASSESSMENT ORDER IS WITHOUT JUDICIOUS APPRECIATION OF THE FACTS AND CORRECT POSITION OF LAW, AND IS LIABL E TO BE DELETED. LD. AR BASED HIS ARGUMENTS ON THREE REASONS: 1. THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER, HAS NOT POINTED OUT EVEN A SINGLE EXPENDITURE BEING INCURRED BY THE APPELLANT DURING THE YEAR, HAVING RELATION/ PROXIMATE NEXUS WITH EXEMPT DIVIDEND INCO ME EARNED DURING THE YEAR; 2. NO INVESTMENTS WERE MADE FROM BORROWED FUNDS; 3. WHILE COMPUTING DISALLOWANCE AS PER RULE 8D, ENT IRE INVESTMENTS HAVE BEEN CONSIDERED, WITHOUT EXCLUDING THE STRATEGIC LO NG-TERM BUSINESS INVESTMENTS, NOT FOR THE PURPOSE OF EARNING DIVIDEN D BUT FOR FURTHERING THE OPERATIONS/ BUSINESS OF THE COMPANY; AND INVESTMENT S NOT RESULTING IN ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION; 6.2. ON THE FIRST ASPECT, BASING ON THE PROVISIONS OF SECTION 14A IT IS CONTENDED THAT EVEN FOR ASSESSMENT YEARS 2008-09 AN D ONWARDS, DISALLOWANCE UNDER SECTION 14A, AS PER PROVISIONS O F RULE 8D OF THE RULES CAN BE MADE ONLY IF THE ASSESSING OFFICER, HAVING R EGARD TO THE ITA NO.- 6021/DEL/2012 ACCOUNTS OF THE ASSESSEE, REACHES A F INDING THAT ASSESSEE HAS INCURRED ACTUAL EXPENSES, WHICH HAVE PROXIMATE NEXUS WITH EARNING OF EXEMPT INCOME. LD. AR SUBMITTED THAT THE ONUS IS ON THE ASSESSING OFFICER TO FIND PROXIMATE NEXUS OF EXPENSES WITH EARNING OF EX EMPT INCOME, BEFORE REJECTING THE CLAIM OF ASSESSEE AND COMPUTING DISAL LOWANCE UNDER SECTION 14A OF THE ACT, AND THE PROVISIONS OF SUB-SECTION ( 2) AND (3) TO SECTION 14A, WHICH EMPOWERS THE ASSESSING OFFICER TO COMPUTE DIS ALLOWANCE AS PER PROVISIONS OF RULE 8D OF THE RULES, W.E.F. ASSESSME NT YEAR 2008-09, ALSO 65 ITA NO. 467/DEL/2014 PROVIDES THAT DISALLOWANCE AS PER PROVISIONS OF RUL E 8D CAN BE COMPUTED, ONLY IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF ASSESSEE IS NOT SATISFIED WITH THE CLAIM OF ASSESSEE THAT NO EXPEND ITURE IN RELATION TO EXEMPT INCOME HAS BEEN INCURRED BY ASSESSEE. IN OTHER WORD S, EVEN FROM ASSESSMENT YEAR 2008-09 AND ONWARDS, THE ASSESSING OFFICER CAN COMPUTE DISALLOWANCE UNDER SECTION 14A AS PER THE PROVISIONS OF RULE 8D, ONLY IF ASSESSING OFFICER, HAVING REGARD TO ACCOUNTS OF ASSESSEE, REACHES A FI NDING, THAT ASSESSEE HAS INCURRED EXPENSES, HAVING PROXIMATE NEXUS WITH EARN ING OF EXEMPT DIVIDEND INCOME. ACCORDING TO THE LD. AR IN THE ABSENCE OF S UCH FINDING, AS IS HELD IN CIT VS. WALFORT SHARE & STOCK BROKERS: 326 ITR 1 (SC), GODREJ & BOYCE MFG. CO. LTD. V. DCIT : 394 ITR 449 (SC) - AFFIRMIN G GODREJ & BOYCE MFG. CO. LTD. V. CIT: 328 ITR 81 (BOM.), MAXOPP INVESTMENT L TD. VS. CIT: 347 ITR 272 (DEL.), AND PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES: 323 ITR 518, ASSESSING OFFICER DOES NOT HAVE POWER TO COMPUTE DISALLOWANCE UNDER SECTION 14A AS PER PROVISIONS OF RULE 8D, EVE N FOR ASSESSMENT YEARS 2008-09 AND ONWARDS. HE SUBMITTED THAT SIMILAR VIEW IS TAKEN IN CIT V. METALMAN AUTO P. LTD.: 336 ITR 434 (P&H) , CIT V. R ELIANCE UTILITIES AND POWER LTD.: 313 ITR 340 (BOM) , CIT V. TORRENT POWE R LTD.: 363 ITR 474 (GUJ). 6.3. REFERENCE CAN ALSO BE MADE TO THE DECISIONS IN CHEMICAL & METTALLURGICAL DESIGN CO. LTD : ITA NO. 803/2008 (DELHI), CIT VS M S. SUSHMA KAPOOR : 319 ITR 299 (DELHI), ACIT V. EICHER LIMITED: 101 TTJ 36 9 (DEL.) , MARUTI UDYOG LIMITED V. DCIT: 92 ITD 119 (DEL.), ON THE ASPECT O F SECTION 14A OF THE ACT, WHEREIN IT HAS BEEN HELD THAT WITHOUT ANY COGENT BA SIS AND MATERIAL ON RECORD, NO ARTIFICIAL/ AD-HOC DISALLOWANCE IS PERMI SSIBLE FOR EXPENSES INCURRED BY THE ASSESSEE, AND THE LEGAL POSITION THAT EMERGE S FROM THE THESE DECISIONS IS THAT: (A) THERE MUST BE SOME ACTUAL EXPENDITURE INCURRED; AND (B) SUCH EXPENDITURE MUST BE INCURRED 'IN RELATION TO' THE E ARNING OF EXEMPT INCOME, WHICH MEANS THAT THERE MUST BE SOME NEXUS BETWEEN T HE ACTUAL EXPENDITURE AND THE EXEMPT INCOME. IN THIS REGARD HE PLACED REL IANCE ON SIL INVESTMENT LTD. VS ACIT: 148 TTJ 213 (DEL.) , M/S MULTI COMMOD ITY EXCHANGE OF (INDIA) 66 ITA NO. 467/DEL/2014 LTD. VS. DCIT: ITA NO.1050/MUM/2010 (MUM.), M/S. AU CHTEL PRODUCTS LTD. VS ACIT: I.T.A. NO. 3183 /MUM/2011 (MUM.), OM ERA E NGINEERING (P) LTD. VS ITO: ITA NO. 3913/D/2010 (DEL.), MINDA INVESTMENTS LTD. V. DCIT: 138 TTJ 240 (DEL.), PUNJAB NATIONAL BANK V. DCIT: 103 TTJ 9 08 (DEL.), VIDYUT INVESTMENT LTD: [2006] 10 SOT 284 (DEL.) , IMPULSE (INDIA) PVT. LTD.: (2008) 22 SOT 368 (DEL.) , D.J. MEHTA V. ITO: 290 ITR 238 (MU M.)(AT), JINDAL PHOTO LTD VS. DCIT: ITA NO. 814 (DEL) 2011, DISHMAN PHARMACEU TICALS & CHEMICALS LTD. V. DY. CIT: 45 SOT 37 (AHD.), MINDA INVESTMENTS LTD . VS. DY. CIT: 138 TTJ 240 (DEL), BUNGE AGRIBUSINESS (INDIA) (P.) LTD. V. DY. CIT: 132 ITD 549 (MUM.) ALSO. 6.4. IN THE PRESENT CASE OF THE ASSESSEE, THE ASSES SING OFFICER HAS SIMPLY APPLIED THE PROCEDURE PRESCRIBED IN RULE 8D OF THE RULES TO COMPUTE THE AMOUNT DISALLOWABLE UNDER SECTION 14A OF THE ACT WI THOUT APPRECIATING THAT IN THE PRESENT CASE, NO PART OF INTEREST AND/OR ADM INISTRATIVE EXPENDITURE WAS INCURRED IN RELATION TO EXEMPT INCOME. 6.5. FURTHER THE ASSESSING OFFICER, IN THE ASSESSME NT ORDER, HAS NOT POINTED OUT EVEN A SINGLE EXPENDITURE BEING INCURRED BY THE APPELLANT DURING THE YEAR, HAVING RELATION/ PROXIMATE NEXUS WITH EXEMPT DIVIDE ND INCOME EARNED DURING THE YEAR. THE ASSESSING OFFICER, IT IS SUBMITTED, I NVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES IN A MECHANICAL MANNER, WHICH, IT IS RESPECTFULLY SUBMITTED IS BEYOND JURIS DICTION. 6.6. FOR THE PRINCIPLE THAT DISALLOWANCE UNDER SECT ION 14A OF THE ACT CANNOT BE SUSTAIN WITHOUT ANY SATISFACTION BEING RECORDED BY THE ASSESSING OFFICER BEFORE APPLYING RULE 8D OF THE RULES, RELIANCE IS P LACED ON THE DECISIONS REPORTED IN PR.CIT VS. U.K. PAINTS (INDIA) (P.) LTD .: 244 TAXMAN 309 (DEL.), JOINT INVESTMENTS P. LTD. V. CIT: 275 CTR 4 71 (DEL.), MINDA INVESTMENTS LTD. VS. DCIT: 138 TTJ 240 ( DEL.) , AC IT VS. MMTC LIMITED: ITA NO. 724/DEL/2014 (DEL. TRIB.), REI AGRO LTD VS. DCI T: 144 ITD 141 (REVENUE APPEAL DISMISSED BY CALCUTTA HIGH COURT IN APPEAL N O. GA NO.3581 OF 67 ITA NO. 467/DEL/2014 2013)., CIT V. ABHISHEK INDUSTRIES LTD - 231 TAXMAN 85 (P&H), 6.7. SECOND CONTENTION RAISED ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE IS AN OPERATING COMPANY ENGAGED IN MANUFACTURE OF AUTOMOB ILES AND THE ENTIRE EXPENDITURE INCURRED WAS IN RELATION TO THE MANUFAC TURING OPERATIONS OF THE ASSESSEE AND THE ASSESSING OFFICER HAS FAILED TO BR ING ON RECORD ANY EVIDENCE/ MATERIAL TO DEMONSTRATE THAT ANY PART OF SUCH EXPENDITURE WAS RELATABLE TO THE EXEMPT INCOME. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE WAS ACTUALLY RELATED TO THE MANUFACTURING OPERATIONS, ALL THE BORROWED FUNDS AV AILABLE WITH THE APPELLANT WERE UTILIZED FOR BUSINESS OPERATIONS AND NOT USED FOR MAKING THE INVESTMENTS AND THAT THE INTEREST FREE OWN FUNDS AV AILABLE WITH THE APPELLANT FAR EXCEEDS THE INVESTMENT MADE IN SHARES/SECURITIE S ON ITA NO.- 6021/DEL/2012 WHICH EXEMPT DIVIDEND INCOME WAS RECE IVED. DURING THE YEAR INTEREST PAID BY THE APPELLANT WAS ON ACCOUNT OF TH E FOLLOWING: PARTICULARS AMO UNT (RS. MILLIONS) A) ADVANCES FROM DEALERS 67 B) OTHERS INCLUDING INTEREST ON CASH CREDIT/OVERDRAFT 61 TOTAL: 128 6.8. WHEREAS AS IS EVIDENT FROM THE BALANCE SHEET T HE FOLLOWING INTEREST FREE FUNDS WERE AVAILABLE AT DISPOSAL OF THE ASSESSEE: (A) SHARE CAPITAL RS. 144 CRORES (B) RESERVES AND SURPLUS RS. 8,271 CRORES TOTAL RS. 8,415 CRORES 6.9. LD. AR SUBMITTED THAT IN CASE OF MIXED POOL OF FUNDS, THE CORRECT METHOD TO ESTABLISH SOURCE OF INVESTMENT WOULD BE TO CONSI DER THE MACRO FUND/ CASH FLOW POSITION DURING THE YEAR AND BASING ON THE DEC ISIONS IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT: 224 ITR 627 (SC), INDIAN EXPLOSIVES LTD. V. 68 ITA NO. 467/DEL/2014 CIT: 147 ITR 392 (CAL.), WOOLCOMBERS OF INDIA LTD. V. CIT: 134 ITR 219 (CAL.) - APPROVED BY SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT: 224 ITR 627, ALKALI & CHEMICAL CORP. O F INDIA V. CIT: (1986) 161 ITR 820 (CAL.), CIT V. RELIANCE UTILITIES AND POWER LTD.: 313 ITR 340 (BOM.), CIT VS. M/S. ASHOK COMMERCIAL ENTERPRISES: ITA NO. NO.2985 OF 2009 (BOM), GUJARAT STATE FERTILIZERS AND CHEMICALS LTD : 358 ITR 323 (GUJ), HERO HONDA FINLEASE LTD VS. ACIT: ITA NO. 3726 & 6102/DE L/2012 (DEL) HE SUBMITTED THAT IF THE ASSESSEE HAD SUFFICIENT SURPL US FUNDS AVAILABLE, PRESUMPTION SHOULD BE DRAWN IN FAVOUR OF THE ASSESS EE THAT SURPLUS FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENTS. HE SUBMI TTED THAT THE GUJARAT HIGH COURT IN THE CASE OF CIT V. UTI BANK LTD: 215 TAXMAN 8 (MAG.) HELD THAT WHERE THERE ARE ITA NO.-6021/DEL/2012 SUFFICIENT IN TEREST FREE FUNDS TO MEET TAX FREE INVESTMENTS, THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUNDS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MAD E UNDER SECTION 14A OF THE ACT, AND THE HON'BLE APEX COURT HAS DISM ISSED THE REVENUE'S SLP IN CIVIL APPEAL NO. 468/2014 AGAINST THE AFORESAID DECISION. 6.10. HE CONTENDED THAT IN THE CASE OF MIXED FUNDS, THE OPTION IS WITH THE ASSESSEE TO APPROPRIATE FUND AND EXPENDITURE IN A M ANNER MOST FAVORABLE TO THE ASSESSEE, AND BY PLACING RELIANCE ON GODREJ & B OYCE MFG. CO. LTD. V. DCIT : 394 ITR 449 (SC), HDFC BANK LTD V. DCIT: 366 ITR 505 (BOM), HDFC BANK LTD V. DCIT: 383 ITR 529 (BOM), CIT V. K. RAHE JA CORPORATION PVT. LTD: ITA NO.1260 OF 2009 (BOM.), BRIGHT ENTERPRISES PVT LTD. V. CIT: 381 ITR 107 (P&H), CIT V. MAX INDIA LTD: 388 ITR 81 (P&H), GURD AS GARG V. CIT: ITA NO.413 OF 2014 (P&H), CIT V. MICROLABS LTD. : 383 I TR 490 (KAR.), LUBI SUBMERSIBLES LTD.: ITA NO.868 OF 2010 (GUJ.), CIT V . GUJARAT POWER CORPORATION LTD.: 352 ITR 583 (GUJ), GUJARAT STATE FERTILIZERS AND CHEMICALS LTD: TAX APPEAL NO. 82 OF 2013 (GUJ HC), CIT V. TOR RENT POWER LTD.: 363 ITR 474 (GUJ), CIT VS. SUZLON ENERGY LTD.: 215 TAXMAN 2 72 (GUJ), M/S GOGREJ AGROVET LTD. V. ACIT: ITA NO. 1629/MUM/09 (MUM.), D Y.CIT V. EIMCO ELECON (INDIA) LTD.: 142 ITD 52 (AHD), DY.CIT V. JAMMU & K ASHMIR BANK LTD.: 142 69 ITA NO. 467/DEL/2014 ITD 553(ASR.), T AND T MOTORS LTD. V. ADDL. CIT : 1 54 ITD 306 (DELHI), HERO HONDA FINLEASE LTD VS. ACIT: ITA NO. 3726/DEL/2012 (DEL), ACIT VS. CHAMPION COMMERCIAL CO LTD: 152 TTJ 241 (KOL), TML DRIVE LINES LTD VS. ACIT : ITA NO. 6064/MUM/2010 (MUM), KULGAM HOLDINGS PVT. LTD. VS. ACIT : ITA NO. 1259/AHD/2006 (AHD), HE SUBMITTED THAT THAT INTEREST EXPENDITURE CANNOT BE DISALLOWED UNDER SECTION 14A OF THE ACT, WHERE THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS AND THERE WAS NO FINDING B Y THE ASSESSING OFFICER OF ANY DIRECT NEXUS OF BORROWED FUNDS WITH INVESTMENTS : 6.11. LASTLY IT IS CONTENDED ON BEHALF OF THE ASSES SEE THAT THE DISALLOWANCE COMPUTED UNDER SECTION 14A OF THE ACT IS INCORRECT SINCE WHILE COMPUTING DISALLOWANCE AS PER RULE 8D, ENTIRE INVESTMENTS HAV E BEEN CONSIDERED, WITHOUT EXCLUDING THE FOLLOWING: (A) STRATEGIC LONG-TERM BUSINESS INVESTMENTS, NOT F OR THE PURPOSE OF EARNING DIVIDEND BUT FOR FURTHERING THE OPERATIONS/ BUSINES S OF THE COMPANY; AND (B) INVESTMENTS NOT RESULTING IN ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. 6.12. RELIANCE IS PLACED ON THE DECISIONS IN CIT V. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD.: 216 TAXMAN 92 (DEL.) , CHEMINV EST LTD V. CIT : 379 ITR 33 (DEL HC), EICHER GOODEARTH LTD. V. CIT: 378 ITR 28 (DEL.), VA TECH ESCHER WYSS FLOVEL (P) LTD. V. ACIT: [2014] 147 ITD 678 (D EL TRIB.) , CIT V. KNORR BREMSE INDIA(P) LTD.: ITA NO 1676/2002 (DEL TRIB.), INTERGLOBE ENTERPRISES V. DCIT: ITA NO. 1362 & 1032/D/2013 (DEL TRIB.), GARWA RE WALL ROPES V. ACIT: ITA NO. 5408/2012 (MUM.), ACIT VS. M/S SPRAY ENGINE ERING DEVICES LTD: ITA NO. 646/CHD/2009 (CHD.), J.M. FINANCIAL LTD. V. ACI T: ITA NO. 4521/ MUM/2012 (MUM. TRIB.), PIEM HOTELS LIMITED V. DCIT: I.T.A NO. 240/MUM/2012 (MUM TRIB.), DCIT V. MORGAN STANLEY IN DIA SECURITIES PVT. LTD: ITA NO.114/MUM/2013 (MUM.TRIB.), IN SUPPORT OF THE CONTENTION THAT WHILE COMPUTING AVERAGE INVESTMENTS, STRATEGIC LONG -TERM BUSINESS 70 ITA NO. 467/DEL/2014 INVESTMENTS NOT FOR EARNING DIVIDEND BUT FOR PROMOT ING MANUFACTURING OPERATIONS OUGHT TO HAVE BEEN EXCLUDED. IN VIEW OF THE ABOVE, WITHOUT PREJUDICE TO THEIR CONTENTION THAT NO DISALLOWANCE IS WARRANTED UNDER SECTION 14AOF THE ACT, LD. AR PRAYED THAT, THE ASSESSING OF FICER MAY BE DIRECTED TO RE- COMPUTE DISALLOWANCE UNDER THAT SECTION AFTER REDUC ING THE STRATEGIC LONG- TERM TRADE INVESTMENTS. 6.13. FOR THE PRINCIPLE THAT DISALLOWANCE UNDER SEC TION 14A OF THE ACT IS ONLY TO BE MADE ONLY IF THERE IS EXEMPT INCOME AND NOT O THERWISE, SUPPORT IS DERIVED FROM THE DECISIONS IN ACB INDIA LTD. V. ACI T: 374 ITA NO.- 6021/DEL/2012 ITR 108 (DEL.), CHEMINVEST LTD. V. CI T : 379 ITR 33 (DEL.), CIT V. HOLCIM INDIA (P) LTD.: 272 CTR 282 (DEL.), A CIT V. VIREET INVESTMENTS (P.) LTD: 165 ITD 27 (DEL SB), CIT V. CORRTECH ENER GY PVT. LTD.: 372 ITR 97 (GUJ.), CIT V. WINSOME TEXTILE INDUSTRIES LTD.: 319 ITR 204 (P&H), CIT V. M/S LAKHANI MARKETING: 272 CTR 265 (P&H) , CIT V. M/S. SHIVAM MOTORS (P) LTD.: 272 CTR 277 (ALL), INTERGLOBE ENTERPRISES V. DCIT: ITA NO.1362 & 1032/DEL./2013 (DEL. TRIB.) - AFFIRMED BY DELHI HIG H COURT IN ITA NO.456 OF 2016, REI AGRO LTD VS. DCIT: 144 ITD 141 (KOL. TRIB .) - DEPARTMENT APPEAL DISMISSED IN CIT V. REI AGRO LTD. : I.T.A.T NO.220 OF 2013 (CAL. HC), DCIT V. MORGAN STANLEY INDIA SECURITIES PVT. LTD. : ITA NO. 114/MUM/2013 (MUM.), ACIT V. M. BASKARAN: 152 ITD 844 (CHN. TRIB.), AND IT IS SUBMITTED THAT THE ASSESSING OFFICER ERRED IN CONSIDERING THE ENTIRE I NVESTMENTS WHILE COMPUTING DISALLOWANCE U/S 14A READ WITH RULE 8D. THE DISALLO WANCE U/S 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING IN TO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME. 6.14. BASING ON THE CONTENTIONS AND SUBMISSIONS MAD E FOR THE AY 2006-07 AND 2006-07, LD. DR ARGUED ON THE ASPECTS WHETHER E ARNING OF EXEMPT INCOME IS NECESSARY FOR DISALLOWANCE U/S 14A, RELAT IONSHIP OF EXPENDITURE 71 ITA NO. 467/DEL/2014 WITH EXEMPT INCOME, DOMINANT OBJECT OR PURPOSE TEST , WHAT DOES IT MEAN BY EXPENDITURE INCURRED ETC BY PLACING EXTENSIVE RELIA NCE ON THE DECISIONS IN MAXOPP INVESTMENTS, WALFORT SHARE AND STOCK BROKERS P LTD., DBDT CIRCULAR NO 5/2014 ETC. 6.15. IN THIS MATTER, ASSESSEE EARNED DIVIDEND INC OME OF RS.166,83,50,967/- , WHICH WAS CLAIMED AS EXEMPT FROM TAX UNDER SECTIO NS 10(34) AND 10(35) OF THE ACT. HOWEVER, ACCORDING TO THE ASSESSEE, THEY DID NOT INCUR ANY EXPENDITURE IN EARNING THIS. MAKING I NVESTMENT, MAINTAINING OR CONTINUING WITH ANY INVESTMENT IN A ITA NO.-6021/DE L/2012 PARTICULAR SHARE/MUTUAL FUND ETC. AND THE TIME WHEN TO EXIT FR OM ONE INVESTMENT TO ANOTHER ARE ALL THE ACTIVITIES REQUIRING WELL COORD INATED AND WELL INFORMED MANAGEMENT DECISIONS, INVOLVING NOT ONLY INPUTS FRO M VARIOUS SOURCES BUT IT ALSO INVOLVES ACUMEN OF SENIOR MANAGEMENT FUNCTIONA RIES. THERE ARE INCIDENTAL ADMINISTRATIVE EXPENSES ON COLLECTING TH E INFORMATION, RESEARCH, ETC. WHICH HELPS IN ARRIVING AT PARTICULAR INVESTMENT DE CISIONS AND THESE EXPENSES, RELATING TO EARNING OF INCOME ARE EMBEDDE D IN THE INDIRECT EXPENSES WITHOUT WHICH IT WOULD NOT BE POSSIBLE TO CARRY OUT THIS HERCULEAN TASK. IT, THEREFORE, CANNOT BE SAID THAT NO EXPENDITURE AT AL L INCURRED TO EARN RS.166,83,50,967/-, WHEN HUGE AMOUNTS TO A TUNE OF RS. 8,415 CRORES WAS AVAILABLE WITH THE ASSESSEE. BY LOOKING INTO THESE FACTORS, LD. AO PROCEEDED TO HOLD THAT RULE 14A IS APPLICABLE. IN THESE CIRCU MSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE AO IS JUSTIFIED IN TAKI NG THE VIEW THAT THE PLEA OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR E ARNING THE EXEMPT INCOME CANNOT BE ACCEPTED, AND TO PROCEED WITH THE APPLICA TION OF THE FORMULA PRESCRIBED UNDER RULE 8D OF THE RULES, WHICH IS IN FORCE FROM THE AY 2008-09. 6.16. ADVERTING TO THE ARGUMENTS OF THE LD. AR ON T HE ASPECTS OF INTEREST EXPENSES RELEVANT UNDER RULE 8(II) OF THE RULES AND THE RECKONING OF THE INVESTMENT AMOUNT RELEVANT FOR 8D(III), ON A CONSID ERATION OF THE SAME IN THE LIGHT OF THE PRINCIPLES OF LAW LAID DOWN BY THE COU RT, AS STATED SUPRA, WE 72 ITA NO. 467/DEL/2014 AGREE WITH THE SUBMISSIONS MADE ON BEHALF OF THE AS SESSEE THAT INSOFAR AS THE INTEREST EXPENSE UNDER RULE 8D(II) IS CONCERNED , IT HAS TO BE DETERMINED AFTER EXAMINATION OF THE MACRO FUND/ CASH FLOW POSI TION DURING THE YEAR AND IF THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS AVAILABLE , PRESUMPTION SHOULD BE DRAWN IN FAVOUR OF THE ASSESSEE THAT SURPLUS FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENTS, AND WHILE ITA NO.-6021/DEL/2012 CALCULATING THE DISALLOWANCE UNDER RULE 8D(III) HAS TO BE CALCULATE D IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND TH IS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AFTER REDUCING THE STRATEGIC LONG- TERM TRADE INVESTMENTS. WE, THEREFORE, DEEM IT JUST AND PROPER TO SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND SEND THE MATTER TO THE FILE OF AO FOR MAKING DISALLOWANCE U/S 14A, IN ACCORDANCE WITH THE VIEW T AKEN ABOVE. THE DISALLOWANCE U/S 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND TH IS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THIS ASPECT WAS NOT PROPERLY VERIFIED BY THE ASSESSING OFFICER IN THE PRESENT AS SESSMENT YEAR AS WELL. THUS, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF TH E TRIBUNAL IN ASSESSEES OWN CASE, THEREFORE, WE SET SIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IT AFRESH AS DECIDED BY THE TRIBUNAL IN EARL IER ASSESSMENT YEARS. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING. GROUND NO. 5 TO 5.5 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 50. IN RESULT, GROUND NO. 5 TO 5.5 ARE PARTLY ALLOW ED FOR STATISTICAL PURPOSE. 51. GROUND NO. 6 TO 6.5 ARE REGARDING SALES TAX SUB SIDY CLAIMED AS CAPITAL RECEIPT FROM THE TOTAL INCOME. THE ASSESSEE HAD, FO R THE YEAR UNDER CONSIDERATION RECEIVED SALES TAX CONCESSIONS AMOUNT ING TO RS.7,03,81,097/-. THE SAID AMOUNT REPRESENTING CAPITAL RECEIPT WAS, H OWEVER, ERRONEOUSLY 73 ITA NO. 467/DEL/2014 INCLUDED IN THE GROSS TOTAL INCOME WHILE FILING ORI GINAL RETURN OF INCOME. IN VIEW OF THE DECISION OF SUPREME COURT IN THE CASE OF CIT VS PONNI SUGARS AND CHEMICALS LTD: 306 ITR 392/ 174 TAXMAN 87 (SC) THE ASSESSEE REVISED RETURN ON 27.03.2010 AND REDUCED RS.7,03,81,097/- RECEIVED ON ACCOUNT OF SUBSIDY FROM THE TOTAL INCOME. IT WAS, THUS, CLAIMED THAT T HE AFORESAID RECEIPT, BEING IN THE NATURE OF CAPITAL RECEIPT, IS NOT INCLUDIBLE IN THE TOTAL INCOME, WHICH HAS NOT BEEN ACCEPTED BY THE ASSESSING OFFICER. THE ASS ESSING OFFICER, IN THE ASSESSMENT ORDER, HELD THAT SALES TAX AMOUNT RETAIN ED/ RECEIVED BY THE ASSESSEE WAS REVENUE IN NATURE AND CONSEQUENTLY, TA XABLE UNDER PROVISIONS OF THE ACT. 52. THE LD. AR SUBMITTED THAT THE AFORESAID INCENTI VE/ SUBSIDY IS IN THE NATURE OF CAPITAL RECEIPT NOT LIABLE TO TAX UNDER T HE PROVISIONS OF THE ACT. THE STATE GOVERNMENT OF HARYANA ANNOUNCED THE INDUSTRIA L POLICY, 1999 (POLICY), WHICH WAS NOTIFIED ON 11.11.1999, WHICH WAS AIMED A T LARGER PUBLIC PURPOSE OF PROMOTING INDUSTRIAL GROWTH AND INCREASING EMPLOYME NT OPPORTUNITIES BY INCENTIVIZING FRESH INVESTMENT/ SUBSTANTIAL EXPANSI ON AND CREATING AN INVESTOR FRIENDLY ENABLING ENVIRONMENT THAT FACILITATES THE INDUSTRY TO MOVE STRONGLY TO THE FRONT RANKS OF GLOBAL COMPETITION. ACCORDINGLY, SALES TAX CONCESSIONS WERE TO BE PROVIDED TO NEW UNITS AND ALSO INDUSTRIAL UNI TS UNDERGOING EXPANSION/ DIVERSIFICATION. PURSUANT TO THE AFORESAID POLICY, CHAPTER IV-C WAS INSERTED IN JULY, 2000 IN THE HARYANA GENERAL SALES TAX RULES 1975, CONTAINING RULE 28C DEALING WITH TAX CONCESSIONS , CLASS OF INDUSTRIES , PERIOD AND OTHER CONDITIONS. IN THE AFORESAID BACKGROUND, THE ASSES SEE HAD UNDERTAKEN INDUSTRIAL EXPANSION IN TERMS OF THE RULE 28C OF HARYANA GENERAL SALES TAX RULES, 1975. THE HIGH POWERED COMMITTEE, THEREAFTER, IN IT S MEETING HELD ON 14.06.2001, GRANTED SALES TAX CONCESSION TO THE ASSESSEE, WHEREBY THE A SSESSEE COMPANY WAS REQUIRED TO PAY 50% OF THE SALES TAX COLLECTED ON SALES OF FINISHED PRO DUCTS FROM EXPANDED UNIT AND, RETAIN BALANCE 50% OF THE TAX SO COLLECTED, SUBJECT TO MAXIMUM PER MISSIBLE BENEFIT OF RS.564.35 CRORES. THE LETTER/ COMMUNICATION RECEIVED FROM DIRECTOR OF IND USTRIES, HARYANA INTIMATING THE AFORESAID DECISION, CLEARLY REFERRED TO CONCESSION BEING GRAN TED ONLY IN RESPECT OF VEHICLES ROLLED OUT OF 74 ITA NO. 467/DEL/2014 PRODUCTION CAPACITY OF 70,000 VEHICLES ADDED AS A R ESULT OF FIRST EXPANSION. PURSUANT THERETO, THE ASSESSEE WAS ISSUED ENTITLEMENT CERTIFICATE DAT ED 01.08.2001 UNDER RULE 28C OF HARYANA GENERAL SALES TAX RULES, 1975 TO AVAIL SALES TAX CO NCESSION TO THE EXTENT OF RS.564.35 CRORES DURING THE PERIOD 01.08.2001 TO 31.07.2015. THE LD. AR SUBMITTED THAT THAT THE INCENTIVE/ SUBSIDY WAS GRANTED TO THE ASSESSEE FOR UNDERTAKING SUBSTANTIAL EXPANSION OF EXISTING INDUSTRY IN LINE WITH THE LARGER PUBLIC OBJECTIVE OF THE POL ICY TO PROMOTE INDUSTRIALIZATION AND EMPLOYMENT GENERATION AND NOT TO SUPPLEMENT TRADING RECEIPTS, WHICH IS, IT IS RESPECTFULLY SUBMITTED, CLEARLY IN THE NATURE OF A CAPITAL RECEIPT, NOT LIABLE TO T AX. THE LD. AR POINTED OUT THAT IN TERMS OF SUB-RULE (5)(B) OF RULE 28C, THE DECISION TO GRANT TAX CONCESSION TO A PRESTIGIOUS UNIT (THE CATEGORY IN WHICH THE ASSESSE E FALLS) IS GIVEN ON THE BASIS OF FACTORS LIKE EMPLOYMENT GENERATION, IMPACT ON OV ERALL INDUSTRIAL GROWTH, ETC. THE UNDERLYING OBJECTIVE OF CONFERRING THE BENEFIT UNDER RULE 28C, CLEARLY PROVES BEYOND ANY DOUBT THE FACT THAT THE AVOWED IN TENT/ PURPOSE OF GRANTING THE CONCESSION IS INDUSTRIAL DEVELOPMENT OF THE STA TE AND EMPLOYMENT GENERATION. DURING THE RELEVANT ASSESSMENT YEAR, TH E ASSESSEE ACCORDINGLY RETAINED RS.7,03,81,097/- OUT OF THE SALES TAX COLL ECTED ON SALES OF FINISHED PRODUCTS FROM EXPANDED UNIT AND CLAIMED IT AS CAPIT AL RECEIPT NOT LIABLE TO TAX. THE ASSESSING OFFICER, HOWEVER, DID NOT APPRECIATE THE CORRECT POSITION IN LAW AND DISALLOWED THE ENTIRE AMOUNT HOLDING IT AS REVE NUE IN NATURE. IN VIEW OF THE OBJECTS OF THE SCHEME, THE LD. AR SUBMITTED THAT TH E SALES TAX EXEMPTION/INCENTIVE WAS GIVEN FOR PROMOTING INDUSTR IAL GROWTH OF EXISTING INDUSTRIAL UNITS AND CREATING EMPLOYMENT OPPORTUNIT IES. THE LD. AR THAT THE INCENTIVES RECEIVED UNDER THE SCHEME BY WAY OF EXEM PTION FROM PAYMENT OF CERTAIN TAXES WAS JUST A MODE ADOPTED TO DISBURSE T HE INCENTIVE/ SUBSIDY BY THE STATE GOVERNMENT. IT IS SETTLED LAW THAT THE TA XATION OF SUBSIDY, BY WHATEVER NAME CALLED, IS DETERMINED BY THE PURPOSE FOR WHICH THE SUBSIDY IS GRANTED AND NOT THE FORM / MODE / MANNER IN WHICH T HE SUBSIDY IS RECEIVED / DISBURSED. THE SUPREME COURT IN THE CASE OF V.S. S. V. MEENAKSHI ACHI: 60 ITR 253 HELD THAT THE CHARACTER OF THE SUBSIDY IN THE H ANDS OF THE RECIPIENT IS TO BE DETERMINED HAVING REGARD TO THE PURPOSE FOR WHICH T HE SUBSIDY HAS BEEN GIVEN. THE AFORESAID PRINCIPLE HAS BEEN REITERATED BY THE SUPREME COURT IN THE CASE OF 75 ITA NO. 467/DEL/2014 SAHNEY STEEL AND PRESS WORKS LTD. AND OTHERS VS. CI T: 228 ITR 253 WHEREIN THE COURT HELD THAT THE CHARACTER OF A SUBSIDY IN T HE HANDS OF THE RECIPIENT, WHETHER REVENUE OR CAPITAL, IS TO BE DETERMINED HAV ING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. THE HONBLE SUPREME COURT OF INDIA IN SAHNEY STEEL & PRESS WORKS LTD.S CASE (SUPRA) AND PONNI S UGARS & CHEMICALS LTD.S CASE (SUPRA). THE LD. AR RELIED UPON THE DECISION O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. JOHNSON MATTHEY INDIA PVT. LTD. : ITA NO. 193/2015 WHEREIN THE HONBLE DELHI HIGH COURT, ON E XACTLY SIMILAR FACTS DECIDED THE AFORESAID ISSUE IN FAVOUR OF THE ASSESS EE BY HOLDING THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE PURSUANT TO HA RYANA GOVERNMENTS SCHEME GIVEN FOR PROMOTING THE LOCAL INDUSTRY WAS I N THE NATURE OF A CAPITAL RECEIPT, NOT LIABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IN THAT CASE, THE ASSESSEE WAS A MANUFACTURER OF CATALYSTS FOR AUTO I NDUSTRIES AND WAS AWARDED AN ENTITLEMENT CERTIFICATE UNDER RULE 28C OF THE HA RYANA GENERAL SALES TAX RULES, 1975 WHICH ENTITLED THE ASSESSEE TO A 50% SA LES TAX CONCESSION FOR A PERIOD OF TEN YEARS. THE SALES TAX SUBSIDY WAS GRAN TED BY HARYANA GOVERNMENT UNDER THE INITIATIVE OF GOVERNMENT TO PROMOTE INVES TMENT IN CERTAIN AREAS OF HARYANA AND WAS AVAILABLE TO SUCH INDUSTRIAL UNITS WHICH DULY FULFILLED THE CONDITIONS PRESCRIBED UNDER RULE 28C OF HARYANA GEN ERAL SALES TAX RULES, 1975. ACCORDINGLY, THE ASSESSEE RECEIVED RS.2,00,64 ,000/-AS SUBSIDY FROM THE GOVERNMENT FOR ESTABLISHING A MANUFACTURING UNIT IN MANESAR (HARYANA) WHICH WAS CLAIMED AS A CAPITAL RECEIPT NOT LIABLE TO TAX. THE ASSESSI NG OFFICER DISALLOWED THE SAME TREATING IT AS A REVENUE RECEIP T. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. ON FU RTHER APPEAL, THE TRIBUNAL REVERSED THE ORDER OF THE CIT(A) AFTER CONSIDERING THE DECISIONS OF THE APEX COURT IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD . (SUPRA) AND DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MARU TI SUZUKI INDIA LTD. FOR AY 2005-06. THE PERTINENT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER: 9. DISCUSSING THE ISSUE IN DETAIL THE DELHI BENCH OF THE TRIBUNAL IN THE ABOVE CITED CASE OF MARUTI SUZUKI INDIA LTD. HAS DECIDED THE ISSUE IN FAVOUR OF THE 76 ITA NO. 467/DEL/2014 ASSESSEE WITH THIS FINDING THAT THE SUBSIDY IN QUES TION VIEWED FROM THE ANGLE OF PROVISIONS OF SECTION 25A OF THE HARYANA GENERAL SALES TAX ACT READ WITH INDUSTRIAL POLICY 1999 OF THE GOVT, OF HARYANA, ARE PART OF CAPITAL RECEIPT GIVEN BY THE STATE GOVT, FOR THE PURPOSE OF MEETING THE O BJECTIVE OF INDUSTRIAL POLICY 1999 TO ATTRACT INVESTMENT AND TO ENSURE GROWTH OF THE EXISTING INDUSTRIES SO THAT THEY CAN GENERATE EMPLOYMENT IN INDUSTRIAL AND ALLIED SECTOR BY 20% IT WAS HELD THAT THE ENTIRE PACKAGE OF INCENTIVE AND C ONCESSION SHOULD BE READ AS FOCUSING AND PROVIDING INCENTIVE FOR INVESTMENT OF INDUSTRIAL SECTOR TO ACHIEVE EFFECTIVE, MEANINGFUL AND SPEEDY DEVELOPMEN T OF THE STATE. 10. IN THE CASE OF MARUTI SUZUKI INDIA LTD. THE ASS ESSEE HAD RECEIVED SALES TAX SUBSIDY OF RS. 16,04,04,733/- DURING THE ASSTT. YEAR 2005-06. ACCORDING TO THE ASSESSEE THE SAID RECEIPT REPRESENTED TO BE CAPITAL IN NATURE. THEREFORE IT SHOULD BE EXCLUDED FROM THE TAXABLE INCOME. BEFO RE THE LD. CIT(A) THE SUBSEQUENT DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. PONNI SUGARS AND CHEMICAL LTD. (SUPRA) WAS CITED AND THE LD. CIT(A) FOLLOWING THE RATIO OF THE SAID DECISION OF HON'BLE SUPREME COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WHICH WAS QUESTIONED BY THE REVENUE BEFORE THE TRIBUNAL. IT WAS ARGUED THAT THEIR LORDSHIP OF HON'BLE SUPREME C OURT IN THE CASE OF PONNI SUGARS AND CHEMICALS LTD. (SUPRA) HAVE AGAIN REITER ATED THAT THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN IS ONLY RELEVANT FOR DET ERMINING ITS NATURE . THE PURPOSE OF SUBSIDY WAS TO PROMOTE INDUSTRIAL DEVEL OPMENT IN THE STATE BY PROMOTING AN ESTABLISHMENT OF NEW INDUSTRIAL UNIT O R SUBSTANTIAL EXPANSION OF EXISTING INDUSTRIAL UNITS. ALMOST SIMILAR ARE THE FACTS IN THE PRESENT CASE BEFORE US AS WELL AS SIMILAR ARE THE INDUSTRIAL POL ICY 1999 ISSUED BY THE DEPARTMENT OF INDUSTRIES, GOVT. OF HARYANA AND THE RELEVANT RULE 28C OF GENERAL SALES TAX RULES, 1975 AS APPLICABLE IN THE CASE OF PRESENT ASSESSEE, WHEREBY THE ASSESSEE WAS REQUIRED TO PAY 50% OF THE TAX COLLECTED AND RETAIN 50% SUBJECT TO OTHER CONDITIONS. SIMILARLY IN THE CASE OF PRESENT ASSESSEE WAS ISSUED ENTITLEMENT CERTIFICATE UNDER RULE 28C O F THE HARYANA SALES TAX RULE 1975 TO AVAIL THE SALES TAX CONCESSION DURING THE PERIOD. THE HON'BLE 77 ITA NO. 467/DEL/2014 SUPREME COURT IN THE CASE OF PONNI SUGAR & CHEMICAL S LTD HAS LAID DOWN SOME PRINCIPLES AFTER ELABORATELY DISCUSSING ITS EA RLIER JUDGMENT IN THE CASE OF M/S. SAHNEY STEEL & PRESS WORKS (SUPRA). IN VIEW OF THOSE PRINCIPLES THE TRIBUNAL IN THE CASE OF MARUTI SUZUKI HAS DECIDED A N IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE UNDER ALMOST SIMILAR FACTS OF THE C ASE. FOLLOWING THE SAID DECISION WE IN THE PRESENT CASE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE WITH THIS DIRECTION TOT EH A.O TO ALLOW THE CLAIMED SALE TAX SUBSIDY RECEIPT AMOUNT TO RS.2,00,64,000/- RECEIVED BY THE ASSESSEE DURING THE YEAR AS CAPITAL RECEIPT FOR THE ASSESSMENT. GROUND NO. 2 I S THUS ALLOWED. ON REVENUES APPEAL TO THE HIGH COURT, THE ORDER OF THE TRIBUNAL WAS CONFIRMED BY THE HIGH COURT HOLDING THAT IF THE PUR POSE OF THE SUBSIDY WAS TO PROMOTE AN INDUSTRY ESPECIALLY WITH SPECIAL INTERES T OF DEVELOPMENT OF CAPITAL INFRASTRUCTURE, IT SHOULD BE TREATED AS CAPITAL REC EIPT. THE HONBLE HIGH COURT OBSERVED AS UNDER: THIS COURT HAS CONSIDERED THE SUBMISSIONS AND IS O F THE OPINION THAT THE ITATS IMPUGNED ORDER HAS NOTED THE RELEVANT LA W. CRUCIALLY, PONNI SUGARS (SUPRA) IS A LATER DECISION OF THE SUPREME C OURT WHICH HAD GONE TO DEAL WITH VARIOUS AUTHORITIES, INCLUDING SAHNEY (SUPRA). THE SUPREME COURT HAS EMPHASIZED IN EACH CASE THE PURPOSE FOR W HICH SUBSIDY OR ASSISTANCE IS GIVEN BY THE STATE GOVERNMENT OR A PU BLIC AGENCY. IF THAT IS TO PROMOTE AN INDUSTRY, ESPECIALLY WITH SPECIAL INTEREST OF DEVELOPMENT OF CAPITAL INFRASTRUCTURE, THE AMOUNTS RECEIVED ARE TO BE TREATED AS CAPITAL AND NOT REVENUE. THIS COURT TOO HAD THE OCCASION TO DEAL WITH THE ISSUES IN CIT V. BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE PVT. LTD. (ITA 586/2013, DECIDED ON 30.01.20 15) WHERE THE DECISION IN PONNI SUGARS (SUPRA) AND PREVIOUS AUTHO RITIES WERE DISCUSSED AND APPLIED IN GIVEN FACTS OF THE CASE. WE ARE OF THE OPINION THAT THE IMPUGNED ORDER OF TH E IT AT DOES NOT DISCLOSE ANY INFIRMITY. NO SUBSTANTIAL QUESTION OF LAW ARISES. IT IS ACCORDINGLY DISMISSED. A REFERENCE WAS ALSO MADE BY THE LD. AR REGARDING CBDT CIRCULAR NO.142 DATED 1 ST AUGUST, 1974 IN THE CONTEXT OF SUBSIDY RECEIVED UNDER THE CENTRA L 78 ITA NO. 467/DEL/2014 OUTRIGHT GRANT OF SUBSIDY SCHEME. THE LD. AR RELIED UPON THE DECISION OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SHAM LAI BANSAL IN ITA: 472 OF 2010, WHEREIN THE HIGH COURT, FOLLOWING THE DECISION OF T HE SUPREME COURT IN THE CASE OF PONNI SUGAR (SUPRA), HELD THAT THE SUBSIDY RECEIVED BY THE ASSESSEE WAS CAPITAL RECEIPT NOT LIABLE TO TAX. THE FOLLOWING DECISIONS ARE ALSO TO THE SAME EFFECT: CIT V. CHAPHALKAR BROTHERS PUNE : 400 ITR 279 (SC) SUNBEAM AUTO PVT. LTD. V. PCIT : 402 ITR 309 (DEL.) BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P.) L TD.: 373 ITR 14 (DEL) CIT VS. SIYA RAM GARG (HUF): 237 CTR 21 (P&H) CIT VS. TALBROS ENGINEERING LTD.: 386 ITR 154 (P&H) CIT VS RASOI LTD.: 335 ITR 438 (CAL.) DCIT VS. INOX LEISURE LTD.: 351 ITR 314 (GUJ) GARDEN SILK MILLS LTD. V. CIT AND ANR. : 394 ITR 192 (GUJ.) CIT VS. BIRLA VXL LTD.: 215 TAXMAN 117 (GUJ.) DCIT VS. MUNJAL AUTO INDUSTRIES LTD.: 218 TAXMAN 13 5 (GUJ.) CIT VS. SAMTA CHAVIGARH: ITA NO. 144 OF 2007 (RAJ)/ 222 TAXMAN 205 (MAG.) SHIV SHAKTI FLOUR MILLS (P) LTD. V. CIT: ITA NO. 6 OF 2014 (GAU) HONDA SIEL CARS INDIA LTD IN ITA NO.5577/ DEL/ 2004 (DEL.) ACIT VS. SHREE CEMENT LTD. : ITA NO. 614, 615 AND 6 35/JP/2010 (JP) DCIT VS. M/S TEESTA AGRO INDUSTRIES LTD. ITA NO. 12 37, 1053, 1753/KOL/2010 . ASSOCIATED CEMENT CO. LTD. VS. ADDL. CIT : ITA NO . 6289 & 6320 /MUM/2003 . EVEREST INDUSTRIES LTD VS. ACIT: ITA NO.814/MUM/200 7 ZENITH FIBER LTD VS. ITO: 2009 TIOL 468 (MUM) STERLITE OPTICAL TECHNOLOGIES LTD. IN ITA NO.7136/M UM/04 INDO RAMA INDUSTRIES LIMITED IN ITA NO. 2130/ DEL/ 2008 PVR LIMITED V. ACIT: ITA NO. 1897/ DEL/ 2010 (DEL I TAT) FORD INDIA (P) LTD. VS. DCIT: 59 SOT 221 (CHENNAI I TAT) SHYAM STEEL INDUSTRIES LTD. V. ACIT: 161 ITD 1 (TM) (KOL.) 79 ITA NO. 467/DEL/2014 THE LD. AR SUBMITTED THAT THE NATURE OF THE SUBSIDY - WHETHER CAPITAL OR REVENUE, HAS TO BE EXAMINED BY APPLYING THE PURPOS E TEST AS LAID DOWN REPEATEDLY BY THE SUPREME COURT IN THE CASE OF SAHN EY STEEL (SUPRA) AND REITERATED IN PONNI SUGAR (SUPRA). THERE IS ALSO NO DISPUTE THAT THE FORM AND NOMENCLATURE OF THE SUBSIDY ARE TOTALLY IRRELEVANT IN ORDER TO DETERMINE THE NATURE OF THE SUBSIDY. IT WOULD THUS BE APPRECIATED THAT THE PURPOSE OF GR ANT OF SUBSIDY/ INCENTIVE IS THE ONLY RELEVANT AND CRUCIAL TEST FOR DETERMINING THE NATURE OF THE SUBSIDY. IF THE INCENTIVE/ SUBSIDY IS GIVEN FOR PROMOTING INDUSTRIALIZATION AND FOR EMPLOYMENT GENERATION, TH EN ALL OTHER FACTORS LIKE THE MANNER OF GIVING THE INCENTIVE (WHETHER IT BE LINKE D TO PURCHASE OF A CAPITAL ASSET LIKE MACHINERY, ETC., OR TO PURCHASE OF A CIR CULATING ASSET LIKE RAW MATERIAL, ETC.), THE TIME OF GIVING THE INCENTIVE ( WHETHER PRIOR TO START OF OPERATIONS OR AFTER THAT DATE) AND THE SOURCE OF TH E SUBSIDY (WHETHER RECEIVED FROM CUSTOMERS AS PART OF SALE PRICE) ARE TOTALLY I RRELEVANT. IN VIEW OF THE AFORESAID, IT IS SUBMITTED THAT THE AFORESAID INCEN TIVE/ SUBSIDY WAS IN THE NATURE OF CAPITAL RECEIPT NOT CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. IT MAY ALSO BE POINTED OUT THAT A PROSPECTIVE AMENDMEN T BY INSERTION OF CLAUSE (XVIII) TO SECTION 2(24) OF THE ACT IS MADE BY FINA NCE ACT, 2015 APPLICABLE W.E.F. 01.04.2016 BRINGING TO TAX THE SUBSIDY (IES) RECEIV ED BY THE ASSESSEE (EXCEPT FOR REIMBURSEMENT OF ACTUAL COST). IT IS SUBMITTED THAT AS THE AMENDMENT IS MADE PROSPECTIVE, THE SUBSIDIES, CONSIDERING THE PURPOSE TEST, SHALL BE TREATED AS CAPITAL RECEIPTS FOR EARLIER YEARS INCLUDING YEAR U NDER CONSIDERATION. THE LD. AR MENTIONED THAT THE AFORESAID ISSUE WAS DECIDED IN F AVOUR OF THE ASSESSEE BY THE ORDER OF THE DELHI BENCH OF THE TRIBUNAL IN ASSESSE ES OWN CASE FOR THE ASSESSMENT YEAR(S) 2002-03, 2004-05, 2005-06, 2006- 07 AND 2007-08. SUBSEQUENTLY, THE TRIBUNAL HAD, FOR THE ASSESSMENT YEAR 2008-09, RELYING UPON THE DECISION OF THE DELHI HIGH COURT IN THE CA SE OF BHUSHAN STEELS AND STRIPS LTD., DECIDED THE AFORESAID ISSUE AGAINST TH E ASSESSEE. THE ADVERSE DECISION OF THE DELHI HIGH COURT IN THE CASE OF BHU SHAN STEELS AND STRIPS LTD. HAS BEEN STAYED BY THE HON'BLE SUPREME COURT VIDE O RDER DATED 20.11.2017 IN SLP (C) NO.30728-30732/2017. FURTHER, THE ORDER OF THE TRIBUNAL FOR AY 2005- 80 ITA NO. 467/DEL/2014 06 HAS RECENTLY BEEN AFFIRMED BY THE DELHI HIGH COU RT VIDE ORDER DATED 7.12.2017 IN ITA NO.171/2012, WHEREIN THE HIGH COUR T HAS, RELYING UPON THE DECISION IN THE CASE OF JOHNSON MATTHEY (SUPRA) HEL D THAT SALES TAX EXEMPTION RECEIVED UNDER THE HARYANA GENERAL SALES TAX RULES, 1975 IS TO BE TREATED AS CAPITAL RECEIPT. SIMILARLY, ORDER OF THE TRIBUNAL F OR ASSESSMENT YEAR 2006-07 HAS ALSO BEEN AFFIRMED BY THE DELHI HIGH COURT IN I TA NO.381/2016. THEREFORE, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER ERR ED IN NOT EXCLUDING THE AMOUNT OF SUBSIDY WHILE COMPUTING THE TAXABLE INCOM E OF THE ASSESSEE. SUCH ACTION IS CONTRARY TO THE FACTS OF THE CASE AND POS ITION IN LAW AND THE SAME, THEREFORE, CALLS FOR BEING REVERSED. 53. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 54. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT RECORDS. THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09 HE LD AS UNDER: 11. GROUNDS NO 11 TO 11.5 RELATE TO THE SALES TAX SUBSIDY CLAIMED AS CAPITAL RECEIPT FROM THE TOTAL INCOME. BRIEFLY STATED RELEVANT FACTS ON THIS GROUND, AS APPARENT FROM RECORD AND THE INDUSTR IAL POLICY, 1999 NOTIFIED ON 11.11.1999 BY THE STATE GOVERNMENT OF HARYANA HAVING A BEARING ON THE CLAIM OF THE ASSESSEE, ARE THAT THE ASSESSEE HAD, FOR THE RELEVANT YEAR UNDER CONSIDERATION, RECEIVED SALES TAX CONCESSIONS AMOUNTING TORS.13,55,68,826/- FROM THE GOVERNMENT O F HARYANA UNDER RULE 28C OF THE HARYANA GENERAL SALES TAX RULES, 19 75, AND CLAIMED IT TO BE A CAPITAL RECEIPT NOT LIABLE FOR TAX. HOWEVE R, AO DENIED THE SAME AND BROUGHT IT TO TAX BY TREATING THE SAME AS REVEN UE RECEIPT. 11.1. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE INCENTIVE/ SUBSIDY WAS GRANTED TO THE ASSESSEE FOR UNDERTAKING S UBSTANTIAL EXPANSION OF EXISTING INDUSTRYIN LINE WITH THE LARGE R PUBLIC OBJECTIVE OF THE POLICY TO PROMOTE INDUSTRIALIZATION AND EMPLOYMENT GENERATION AND 81 ITA NO. 467/DEL/2014 NOT TO SUPPLEMENT TRADING RECEIPTS, WHICH IS, IT IS RESPECTFULLY SUBMITTED, CLEARLY IN THE NATURE OF A CAPITAL RECEIPT, NOT LIA BLE TO TAX. LD. AR SUBMITS THAT THE ISSUE REGARDING TAXABILITY OF SALE S TAX INCENTIVE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISIONS REPORTED IN CIT VS PONNI SUGARS AND CHEMICALS LTD: 306 ITR 392 (SC) , SAHNEY STEEL AND PRESS WORKS LTD. V. CIT: 228 ITR 253 (SC), V.S. S .V. MEENAKSHI ACHI: 60 ITR 253 (SC), CIT V. JOHNSON MATTHEY INDIA PVT. LTD. : ITA NO. 193/2015 (DEL.), BOUGAINVILLEA MULTIPLEX ENTERTAINM ENT CENTRE (P.) LTD.: 373 ITR 14 (DEL), CIT VS. NATIONAL CO-OPERATIVE CON SUMER FEDERATION LTD.: 254 ITR 599 (DEL), SHREE BALAJI ALLOYS VS. CIT : 198 TAXMAN 122 (J&K) REVENUES APPEAL DISMISSED BY THE SUPREME CO URT IN CIVIL APPEAL NO. 10061 OF 2011 [287 CTR 459 (SC)], CIT VS. RUBY RUBBER WORKS LTD., 178 ITR 181 (KER. FB) AFFIRMED BY THE S UPREME COURT IN KALPETTA ESTATES LTD. VS. CIT : 260 ITR 601, CIT VS. SHAM LAL BANSAL IN ITA: 472 OF 2010 (P&H), CIT VS. SIYA RAM GARG (HUF) : 237 CTR 21 (P&H), CIT VS. TALBROS ENGINEERING LTD. : 386 ITR 1 54 (P&H), CHAPHALKAR BROTHERS: 351 ITR 309 (BOM.), SADICHHA C HITRA VS. CIT: 189 ITR 774 (BOM.), CIT VS RASOI LTD.: 335 ITR 438 (CAL .), CIT VS. BALARAMPUR CHINI MILLS LTD.: 238 ITR 445 (CAL.), CIT VS. MADURANTAKAM CO-OPERATIVE SUGAR MILLS LTD.: 263 ITR 388 (MAD), GA RDEN SILK MILLS LTD. V. CIT AND ANR. : 394 ITR 192 (GUJ.), DCIT VS. INOX LEISURE LTD.: 351 ITR 314 (GUJ), CIT VS. BIRLA VXL LTD.: 215 TAXMAN 117 (G UJ.), DCIT VS. MUNJAL AUTO INDUSTRIES LTD.: 218 TAXMAN 135 (GUJ.), DCIT VS. RELIANCE INDUSTRIES LIMITED: 88 ITD 273 (MUM SB.). 11.2. HE DREW SUPPORT FROM THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT V. BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P.) LTD.: 373 ITR 14. LD. AR FURTHER SUBMITTED THAT A COORDINATE BENCH OF DELHI BENCH OF THE TRIBUNAL CONSIDERED ALL RELEVA NT FACTS AND DECIDED 82 ITA NO. 467/DEL/2014 THE ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES O WN CASES IN ITA NO.1927/DEL/2010 (AY 2005-06), ITA NO.5120/DEL/2010 (AY 2006-07), ITA NO.5720/DEL/2011 (AY 2007-08) AND THE DECISION IN ITA NO.1927/DEL/2010 FOR ASSESSMENT YEAR 2005-06 WAS FO LLOWED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF JOHNSON MATTHEY INDIA (P) LTD.V. ADDL. CIT IN ITA NO.952/DEL/2011, WHEREIN THE TRIBUNAL, IN THE CONTEXT OF THE AFORESAID SALES TAX INCENTIVE IN THE STATE OF HARYANA, HELD THE INCENTIVE TO BE CAPITAL RECEIPT, NOT LIABLE TO TAX, MOST IMPORTANTLY THE HONBLE DELHI HIGH COURT AFFIRMED THE SAID DECISION IN THE CASE TITLED AS CIT VS. JOHNSON MATTHEY INDIA PVT. LTD. IN ITA NO. 193/2015. 11.3. BASING ON THIS SET OF FACTS AND LAW, LD. AR SUBMITT ED THAT THE ISSUE OF TAXABILITY OF SALES TAX SUBSIDY PURSUANT TO THE HARYANA GOVERNMENTS SCHEME IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID BINDING DECISION OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF JOHNSON MATTHEY (SUPRA). 11.4. PER CONTRA, LD. DR PLACED RELIANCE ON THE DECISION O F THE DELHI HIGH COURT IN THE CASE OF CIT VS BHUSHAN STEEL AND S TRIPES LTD., DT. 13.7.2017, ITA NO. 315/03,316/03,317/03,349/03 AND 4 34/05 AND SUBMITTED THAT IN THIS DECISION AFTER CONSIDERING AL L THE DECISIONS SPECIALLY SAHNEY STEEL AND PONNI SUGARS AND CHEMICALS LTD. OF HONBLE SUPREME COURT, IT WAS CONCLUDED BY THE HONBLE DELHI HIGH COURT THAT THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE AS REVENU E RECEIPT. THE INDUSTRIAL POLICY AND SALES TAX SUBSIDY POLICY HAVE DISCUSSED IN DETAIL FOR CONSIDERATION OF SUCH RECEIPTS IN THE HAND S OF THE ASSESSEE WHEREAS THE STATE GOVERNMENT IS OF THE OPINION THAT FOR PROMOTING OF CERTAIN INDUSTRIES AND EXPANSION OF DIVERSIFICATION OR MODERNIZATION EXISTING UNITS (PAGE NO. 15 OF THE ABOVE SAID ORDER O F THE HON'B!E DELHI 83 ITA NO. 467/DEL/2014 HIGH COURT). PAGE NO. 23 OF THE ABOVE SAID ORDER ALS O MENTIONS THAT THE OBJECT OF PROVIDING SUBSIDY BY WAY OF PERMISSION TO NOT DEPOSIT AMOUNTS COLLECTED (AS SALES TAX LIABILITY) - WHICH MEANT THAT THE CUSTOMER OR SERVICER USER CONCERNED HAD TO PAY SALE S TAX, BUT AT THE SAME TIME, THE COLLECTOR (I.E THE ASSESSEE) COULD RE TAIN THE AMOUNT SO COLLECTED, UNDOUBTEDLY WAS TO ACHIEVE THE LARGER GOAL OF INDUSTRIALIZATION. THIS HAS BEEN THE BASIS OF SALES TAX SUBSIDY RECEIVED DURING THE YEAR. IN PRINCIPLE THERE HAS NOT BEEN ANY DIFFERENCE IN HARYANA SALES TAX SUBSIDY POLICY AND UP SALES TAX PO LICY. THE LTD. AR OF THE ASSESSEE HAS BEEN GAS LIGHTING THE ISSUES OF SALES TAX SUBSIDY SIMPLY BIFURCATING IT IN THE NAME OF THE STATES. TH E DIFFERENT FORMS CANNOT BE TAKEN AWAY THE SUBSTANCE FROM THE ISSUES OF SALES TAX SUBSIDY. ACCORDING TO HIM, THE JURISPRUDENCE KEEPS I NVOLVING, AND ACCORDINGLY, THE DELHI HIGH COURT HAS DECIDED THE ISS UES OF SALES TAX SUBSIDY AS REVENUE RECEIPTS IN THE CASE OF BHUSHAN S TEEL AND STRIPES LTD. STATING VERY CLEARLY AT PAGE NO. 26 OF ITS JUD GMENT. 11.5. ACCORDING TO THE LD. DR THE ASSESSEES CASE ALSO ENC IRCLES THE ISSUES OF SALES TAX SUBSIDY IN THE SIMILAR WAYS, THE REBY, THE SALES TAX SUBSIDY RECEIVED IN THE HANDS OF THE ASSESSEE NEEDS TO BE TREATED AS REVENUE RECEIPTS, AND THE ASSESSEES RELIANCE ON BO UGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE PVT. LTD. 373 ITR 14 (DEL) AND JOHNSON MATTHEY INDIA PVT. LTD., ITANO. 192/2015(DEL) ARE M ISPLACED. LD. DR EMPHASIZES THAT THE HONBLE DELHI HIGH COURTS DECIS ION IN THE CASE OF M/S BHUSHAN STEEL AND STRIPES LTD. DT. 13.7.2017 BE ING THE RECENT DECISION AFTER CONSIDERATION OF ALL THE CASE LAWS, WH EREIN THE WISDOM OF THE DELHI HIGH COURT HAS REACHED, IN THE PROCESSES OF ADVANCEMENT OF JURISPRUDENCE, AS TO TREAT THE SALES TAX SUBSIDY AS R EVENUE RECEIPT, HAS TO BE PREFERRED TO OTHER EARLIER DECISIONS. THIS IS B EING RECENT, SPEAKING 84 ITA NO. 467/DEL/2014 AND THE WELL REASONED ORDER NEEDS TO BE FOLLOWED BY THE HO NBLE BENCH, ITAT WHICH FALLS UNDER THE JURISDICTION OF THE HONB LE DELHI HIGH COURT. 11.6. ON THIS PREMISE, LD. DR, THEREFORE, PRAYED TO CONSID ER THE RECENT DECISION OF THE HONBLE DELHI HIGH COURT REAC HED IN THE CASE OF BHUSHAN STEEL & STRIPES LTD. FOR CONSIDERING THE SALE S TAX SUBSIDY AS THE REVENUE RECEIPT WITHOUT CONSIDERING THE DECISIO N AS PER INCURIAM WHICH IS A SUBJECT MATTER OF HONBLE SUPREME COURT. 11.7. IN REPLY, LD. AR SUBMITTED THAT IN THE CASE OF THE BHUSHAN STEEL & STRIPS LIMITED THE HONBLE DELHI HIGH COUR T CONSIDERED THE CASE OF SALES-TAX SUBSIDY RECEIVED UNDER AN ALTOGETH ER DIFFERENT INDUSTRIAL POLICY OF THE GOVERNMENT OF UP, AND IN TH AT DIFFERENT CONTEXT OF THE POLICY OF THE GOVERNMENT OF UP, THE COURT HE LD THAT THE SALES TAX SUBSIDY WAS IN THE NATURE OF A REVENUE RECEIPT AND NO T A CAPITAL RECEIPT. 11.8. LD. AR REFERRED TO THE PARAGRAPH NO 25 AND 26 OF THE D ECISION IN BHUSHAN STEEL & STRIPS LIMITED (SUPRA) IN SUPPOR T OF HIS SUBMISSION THAT THIS DECISION OF THE DELHI HIGH COURT IN THE C ASE OF BHUSHAN STEEL (SUPRA) IS CONFINED TO THE PECULIAR FACTS OF THE UT TAR PRADESH INDUSTRIAL POLICY, 1990, AS WOULD BE EVIDENT FROM THE FOLLOWING OBSERVATIONS : 25PARAS 6 (A) AND 6(B) OF THAT SCHEME SPECIFIC ALLY PROVIDED FOR CAPITAL SUBSIDY TO SET UP PRESTIGE UNITS; THE AMOUNTS INDIC ATED (RUPEES FIFTEEN LAKHS) WERE TO BE TOWARDS CAPITAL EXPENDITURE. NOW, IF THA T WAS THE SCHEME UNDER WHICH THE ASSESSEES SET-UP THEIR UNITS, UNDOUBTEDLY IT CO NTAINED SPECIFIC PROVISIONS THAT ENABLED CAPITAL SUBSIDIES. WHETHER THE ASSESSEES WE RE ENTITLED TO IT, OR NOT, IS NOT RELEVANT. THE ASSESSEES ARE NOW CONCERNED WITH THE SALES TAX AMOUNTS THEY WERE PERMITTED TO RETAIN, UNDER THE AMENDED SCHEME (DATE D 27.07.1991) WHICH ALLOWED THE FACILITY OF SUCH RETENTION, AFTER THE U NIT (ESTABLISHED AND WHICH COULD POSSIBLY CLAIM BENEFIT UNDER THE FIRST SCHEME) WAS ALREADY SET UP. THIS SUBSIDY SCHEME HAD NO STRINGS ATTACHED. IT MERELY STATED TH AT THE COLLECTION COULD BE RETAINED TO THE EXTENT OF 100% OF CAPITAL EXPENDITU RE. WHILST IT MIGHT BE TEMPTING TO READ THE LINKAGE WITH CAPITAL EXPENDITURE AS NOT ONLY APPLYING TO THE LIMIT, BUT ALSO IMPLYING AN UNDERLYING INTENTION THAT THE CAPI TAL EXPENDITURE WOULD THEREBY 85 ITA NO. 467/DEL/2014 BE RECOUPED, THE ABSENCE OF ANY SUCH CONDITION SHOU LD RESTRAIN THE COURT FROM SO CONCLUDING. 26. HOW A STATE FRAMES ITS POLICY TO ACHIEVE ITS O BJECTIVES AND ATTAIN LARGER DEVELOPMENTAL GOALS DEPENDS UPON THE EXPERIENCE, VI SION AND GENIUS OF ITS REPRESENTATIVES. THEREFORE, TO SAY THAT THE INDICAT ION OF THE LIMIT OF SUBSIDY AS THE CAPITAL EXPENDED, MEANS THAT IT REPLENISHED THE CAP ITAL EXPENDITURE AND THEREFORE, THE SUBSIDY IS CAPITAL, WOULD NOT BE JUS TIFIED. THE SPECIFIC PROVISION FOR CAPITAL SUBSIDY IN THE MAIN SCHEME AND THE LACK OF SUCH A SUBSIDY IN THE SUPPLEMENTARY SCHEME (OF 1991) MEANT THAT THE RECIP IENT, I.E. THE ASSESSEE HAD THE FLEXIBILITY OF USING IT FOR ANY PURPOSE. UNLIKE IN PONNI SUGARS (SUPRA), THE ABSENCE OF ANY CONDITION TOWARDS CAPITAL UTILIZATIO N MEANT THAT THE POLICY MAKERS ENVISIONED GREATER PROFITABILITY AS AN INCENTIVE FO R INVESTORS TO EXPAND UNITS, FOR RAPID INDUSTRIALIZATION OF THE STATE, ENSURING GREA TER EMPLOYMENT. CLEARLY, THE SUBSIDY WAS REVENUE IN NATURE. 11.9. BASING ON THE ABOVE OBSERVATIONS, HE SUBMITTED THAT THE HONBLE COURT GAVE MUCH EMPHASIS TO THE FACT THAT T HE UP INDUSTRIAL POLICY SPECIFICALLY PROVIDED FOR CAPITAL SUBSIDIES, AND CONSIDERING THE FACT THAT THE IN THAT CASE ASSESSEE WAS NOT GRANTED CAPITAL SUBSIDY, AS SPECIFICALLY CONTAINED IN THE SAID POLICY, THE COUR T CONCLUDED THAT THE SUBSIDY RECEIVED WAS NOT IN THE NATURE OF A CAPITAL S UBSIDY BUT ONLY A REVENUE SUBSIDY; WHEREAS, ACCORDING TO THE LD. AR, UN LIKE IN THE UP INDUSTRIAL POLICY, THERE IS NO SPECIFIC PROVISION I N THE HARYANA INDUSTRIAL POLICY FOR CAPITAL SUBSIDY AND HENCE, THE DECISION IN THE CASE OF BHUSHAN IS NOT APPLICABLE. AS REGARDS OBSERVATIONS O F THE HONBLE COURT REGARDING NO STRINGS BEING ATTACHED TO THE INCENTIV ES, LD. AR SUBMITTED THAT SUCH OBSERVATIONS HAVE TO BE READ IN THE AFORE SAID CONTEXT/ DISCUSSION WHEREIN THE COURT HELD THAT THE CASE OF BHUSHAN WAS NOT FALLING IN CAPITAL SUBSIDY SCHEME AS CONTAINED IN THE UP POLICY. 11.10. LD. AR POINTED OUT THAT IN FACT, IN JOHNSON MATTHEY (SUPRA) AND BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P) L IMITED: 373 ITR 14 THE HONBLE DELHI HIGH COURT HELD THAT DESPITE NO ST RINGS BEING ATTACHED 86 ITA NO. 467/DEL/2014 THERETO, THE SUBSIDY OR INCENTIVE, AS THE CASE MAY BE, WAS IN THE NATURE OF CAPITAL SUBSIDY. HE SUBMITTED THAT IN SIMILAR VIE W HAS BEEN TAKEN IN SHREE BALAJ ALLOYS : 198 TAXMAN 122 (J&K) AFFIRMED BY SC IN 287 CTR 459, CIT V. CHAPHALKAR BROTHERS: 351 ITR 309 (B OM) , CIT V. RASOI LIMITED : 335 ITR 438 (CAL) , CIT V. BIRLA VXL LTD: 215 TAXMAN 117 (GUJ) , DCIT V INOX LEISURE LTD. : 351 ITR 314 (GUJ) , CI T V.SAMTA CHAVIGARH: 268 CTR 199 (RAJ.). 11.11. LD. AR EMPHATICALLY SUBMITTED THAT THE ISSUE OF TAXA BILITY OF SALES TAX SUBSIDY PURSUANT TO THE HARYANA GOVERNMENT S SCHEME IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE B INDING DECISION OF THE JURISDICTIONAL DELHI HIGH COURT IN THE CASE OF JOHNSON MATTHEY (SUPRA), WHEREAS THE DECISION IN THE CASE OF BHUSHA N STEEL (SUPRA) RENDERED IN THE CONTEXT OF AN ALTOGETHER DIFFERENT I NDUSTRIAL POLICY OF THE GOVERNMENT OF UP, AS SUCH, IT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 11.12. ACCORDING TO THE LD. AR THERE IS NO CONFLICT BETWEE N THE JUDGEMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF JOHNSON MATTHEY (SUPRA) AND BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P) LIMITED: 373 ITR 14 ON ONE HAND AND BHUSHA N STEEL (SUPRA) ON THE OTHER, INASMUCH THEY DEALT WITH TWO DIFFEREN T INDUSTRIAL POLICIES SURROUNDED BY DIFFERENT FACTS AND CIRCUMSTANCES. HOW EVER, ACCORDING TO HIM, EVEN IF IT IS CONSTRUED THAT THERE IS A CON FLICT BETWEEN TWO JUDGEMENTS OF THE DIVISION BENCH OF THE JURISDICTIO NAL HIGH COURT, THEN IT HAS TO BE SEEN THAT THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF JOHNSON MATTHEY (SUPRA) HAVING BEEN RENDERED IN THE CONTEXT OF THE VERY SAME SCHEME, HARYANA INDUSTRIAL POLICY, 19 99 IN THE CONTEXT OF WHICH THE CASE OF ASSESSEE FALLS, HAS TO BE PREFERR ED OVER THE DECISION 87 ITA NO. 467/DEL/2014 OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF BHU SHAN STEELS (SUPRA), BECAUSE IT HAS BEEN RENDERED IN CONTEXT OF AN ALTOGE THER DIFFERENT INDUSTRIAL POLICY. 11.13. PLACING RELIANCE ON THE DECISIONS RENDERED IN GOVERN MENT OF ANDHRA PRADESH AND ANR. VS. B. SATYA NARAINA RAO(DEAD ) BY LRS. AND OTHERS (2000) : 4 SCC 262(SC), A.R. ANTULEYVS. R.S.NA IK: AIR 1988 SC 1531 (SC), R. THIRUVIRKOLAM V. PRESIDING OFFICER AND ANOTHER : 1 SCC 9 (SC), STATE OF ASSAM V. RIPASARMA : 3 SCC 63 (SC), PUN JAB DEVELOPMENT AND RECLAMATION CORPORATION LIMITED VS. PRESIDING OFFICER, LABOUR COURT : 1990 : 3SCC 682 (SC), CIT V. THANA ELE CTRICITY SUPPLY LTD.: 206 ITR 727 (BOM.), CIT V. CASCADE HOLDINGS ( P) LTD.: 365 ITR 84 (BOM.), LD. AR SUBMITTED THAT EVEN IF THERE IS A CO NFLICT BETWEEN THE JUDGEMENTS OF JURISDICTIONAL HIGH COURT, VIZ., BOUG AINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (SUPRA) AND JOHNSON MATTHEY (SU PRA) ON THE ONE HAND, AND BHUSHAN STEELS (SUPRA) ON THE OTHER, THE JU DGMENT RENDERED IN CASE OF JOHNSON MATTHEY (SUPRA) HAS TO BE PREFER RED BECAUSE THE DECISION IN THE CASE OF BHUSHAN STEEL (SUPRA) WAS RE NDERED WITHOUT CONSIDERING THE EARLIER DECISIONS RENDERED BY THE BENC H OF CO-EQUAL STRENGTH IN CASE OF JOHNSON MATTHEY (SUPRA) AND BOU GAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P.) LTD. (SUPRA). SA YING SO, HE SUBMITTED THAT THE CONTENTION OF THE LD. DR THAT IN T HE PROCESSES OF ADVANCEMENT OF JURISPRUDENCE, THE HONBLE HIGH COURT HAS EVOLVED THE LAW TO TREAT THE SALES TAX SUBSIDY AS REVENUE RECEIP T CANNOT BE ACCEPTED. 11.14. LASTLY, LD. AR CONTENDED THAT IN SANDEEP KUMAR BAFN A V. STATE OF MAHARASHTRA AND ANR. : AIR (2014) SC 1745; AND MAM ALESHWAR PRASAD V. KANHAIYALAL (DEAD) THROUGH L.RS. : AIR (1 975) SC 907 IT HAS 88 ITA NO. 467/DEL/2014 BEEN HELD THAT WHERE TWO JUDICIAL PRECEDENTS OF CO- EQUAL STRENGTH ARE AVAILABLE ON THE ISSUE AND THE LATER JUDGMENT DOES NOT CONSIDER THE EARLIER ONE, THEN, THE LOWER COURT SHALL FOLLOW THE JUDICIAL PRECEDENT RENDERED EARLIER IN POINT OF TIME. 11.15. WE HAVE CAREFULLY GONE THROUGH THE RIVAL CONTENTION S IN THE LIGHT OF THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V. BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P.) L TD.: 373 ITR 14 AND CIT VS BHUSHAN STEEL AND STRIPES LTD., AND THE DECISIO N OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF JOHNSON MATTHE Y INDIA (P) LTD.V. ADDL. CIT IN ITA NO.952/DEL/2011, AND UPHELD BY THE HON BLE DELHI HIGH COURT IN THE CASE TITLED AS CIT VS. JOHNSON MAT THEY INDIA PVT. LTD. IN ITA NO. 193/2015. IN ALL THESE CASES THE GUIDAN CE IS TAKEN AND STRENGTH IS DERIVED FROM THE DECISIONS OF THE HONBL E APEX COURT IN SAHNEY STEEL AND PRESS WORKS LTD. V. CIT: 228 ITR 253 (SC), AND CIT VS PONNI SUGARS AND CHEMICALS LTD: 306 ITR 392 (SC). P URPOSIVE TEST IS THE KEY PRINCIPLE THAT IS APPLIED FOR DETERMINATION OF THE NATURE OF THE SUBSIDY. THOUGH IT IS AN UNDISPUTED FACT THAT A COO RDINATE BENCH OF THIS TRIBUNAL CONSIDERED ALL RELEVANT FACTS AND DECIDE D THE ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASES IN I TA NO.1927/DEL/2010 (AY 2005-06), ITA NO.5120/DEL/2010 (AY 2006-07), ITA NO.5720/DEL/2011 (AY 2007-08), SUBMISSION OF TH E DR THAT THE LAW IS KEPT ON EVOLVING BY THE HONBLE JURISDICTION AL HIGH COURT, INASMUCH AS THE HONBLE COURT IN A SUBSEQUENT AND LA TEST JUDGEMENT IN BHUSHAN STEELS CASE (SUPRA) HELD THAT THE SUBSIDY GI VEN AT POST PROJECT STAGE WITHOUT MANDATING FOR ANY SPECIFIC USE OF SUC H SUBSIDY FUND, IS ONLY A REVENUE RECEIPT, NECESSITATES THIS BENCH TO LOOK AFRESH AT THE ISSUE IN THE LIGHT OF THE MARCH OF LAW. FOR PROPER APPRECIATION OF THE 89 ITA NO. 467/DEL/2014 CONTENTIONS OF THE PARTIES, IT IS BUT NECESSARY TO FIND OUT THE PRINCIPLES OF LAW LAID DOWN IN THESE DECISIONS. 11.16. IN SAHNEY STEEL AND PRESS WORKS LTD ( SUPRA) FACTS INVOLVE THE NOTIFICATION ISSUED BY THE ANDHRA PRADESH GOVERNMENT WHERE UNDER CERTAIN FACILITIES AND INCENTIVES WERE TO BE GIVEN T O ALL THE NEW INDUSTRIAL UNDERTAKINGS WHICH COMMENCED PRODUCTION ON O R AFTER 1ST JAN., 1969 WITH INVESTMENT CAPITAL (EXCLUDING WORKI NG CAPITAL) NOT EXCEEDING RS. 5 CRORES. THE INCENTIVES WERE TO BE A LLOWED FOR A PERIOD OF FIVE YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTI ON. CONCESSION IS ALSO AVAILABLE FOR SUBSEQUENT EXPANSION OF 50 PER C ENT AND ABOVE OF EXISTING CAPACITIES PROVIDED IN EACH CASE, THE EXPAN SION WAS LOCATED IN A CITY OR TOWN OR PANCHAYAT AREA OTHER THAN THAT IN WHICH THE EXISTING UNIT IS LOCATED. THE INCENTIVES WERE, REFUND OF SALES -TAX ON RAW MATERIALS, MACHINERY AND FINISHED GOODS, LEVIED BY TH E STATE GOVERNMENT SUBJECT TO A MAXIMUM OF 10 PER CENT OF T HE EQUITY CAPITAL PAID UP IN THE CASE OF PUBLIC LIMITED COMPANIES AND T HE ACTUAL CAPITAL IN THE CASE OF OTHERS; SUBSIDY ON POWER CONSUMED FOR PR ODUCTION TO THE EXTENT OF 10 PER CENT IN THE CASE OF MEDIUM AND LARG E SCALE INDUSTRIES ETC; EXEMPTION FROM PAYMENT OF WATER RATE LIABILITY ON ACCOUNT OF ASSESSMENT OF LAND REVENUE OR TAXES ON LAND USED FOR E STABLISHMENT OF ANY INDUSTRY, SHALL BE LIMITED TO THE AMOUNT OF SUCH TAXES PAYABLE IMMEDIATELY BEFORE THE LAND IS SO USED. 11.17. IN SAHNEY STEELS CASE, IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE SUBSIDY GIVEN WAS UP TO 10 PER CEN T OF THE CAPITAL INVESTMENT CALCULATED ON THE BASIS OF THE QUANTUM OF INVESTMENT IN CAPITAL, AND, THEREFORE, RECEIPT OF SUCH SUBSIDY WAS ON CAPITAL ACCOUNT AND NOT ON REVENUE ACCOUNT. IT WAS ALSO URGED IN THA T CASE THAT SUBSIDY 90 ITA NO. 467/DEL/2014 GRANTED ON THE BASIS OF REFUND OF SALES TAX ON RAW M ATERIALS, MACHINERY AND FINISHED GOODS WERE ALSO OF CAPITAL NATURE AS TH E OBJECT OF GRANTING REFUND OF SALES TAX WAS THAT THE ASSESSEE COULD SET U P NEW BUSINESS OR EXPAND HIS EXISTING BUSINESS. HOWEVER, HONBLE APE X COURT ON EXAMINATION OF THE DECISIONS IN THE CASE OF SEAHAM HA RBOUR DOCK CO. VS. CROOK 16 TAX CASES 333 (HL), LINCOLNSHIRE SUGAR CO. LTD. VS. SMART 20 TAX CASES 643 AND A CANADIAN CASE ST. JOHN DRY DO CK & SHIP BUILDING CO. LTD. VS. MINISTER OF NATIONAL REVENUE 4 DLR 1, AND WHILE AFFIRMING THE PRINCIPLE LAID DOWN IN OSTIME VS. PONT YPRIDD & RHONDDA JOINT WATER BOARD 28 TAX CASES 262, HELD THAT THE CONTENTION THAT THE SUBSIDIES WERE OF CAPITAL NATURE AND WERE GIVEN FOR THE PURPOSE OF STIMULATING SETTING UP AND EXPANSION OF INDUSTRIES IN THE STATE CANNOT BE UPHELD BECAUSE OF THE SUBSIDY SCHEME ITSELF. HONB LE COURT OBSERVED THAT NO FINANCIAL ASSISTANCE WAS GRANTED TO THE ASSE SSEE FOR SETTING UP OF THE INDUSTRY, AND IT WAS ONLY WHEN THE ASSESSEE H AD SET UP ITS INDUSTRY AND COMMENCED PRODUCTION, VARIOUS INCENTIVES WERE GIVEN FOR THE LIMITED PERIOD OF FIVE YEARS. THE HONBLE COURT FURTHER OBSERVED THAT THAT THE ENDEAVOUR OF THE STATE WAS TO PROVIDE THE NE WLY SET UP INDUSTRIES A HELPING HAND FOR 5 YEARS TO ENABLE THEM TO BE VIABLE AND COMPETITIVE, SALES-TAX REFUND AND THE RELIEF ON ACCO UNT OF WATER RATE, LAND REVENUE AS WELL AS ELECTRICITY CHARGES WERE ALL INTENDED TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY, A S SUCH THE AMOUNT PAID TO THE ASSESSEE WAS IN THE NATURE OF SUBSIDY FRO M PUBLIC FUNDS TO ASSIST IT IN CARRYING ON ITS TRADE OR BUSINESS. HAV ING REGARD TO THE SCHEME OF THE NOTIFICATION, IT WAS HELD THAT THERE CAN BE LITTLE DOUBT THAT THE OBJECT OF VARIOUS ASSISTANCES UNDER THE SUBSIDY S CHEME WAS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFIT ABLY, SINCE THE PAYMENTS WERE MADE ONLY AFTER THE INDUSTRIES HAVE BE EN SET UP. 91 ITA NO. 467/DEL/2014 PAYMENTS ARE NOT BEING MADE FOR THE PURPOSE OF SETT ING UP OF THE INDUSTRIES. BUT THE PACKAGE OF INCENTIVES WAS GIVEN TO THE INDUSTRIES TO RUN MORE PROFITABLY FOR A PERIOD OF FIVE YEARS FROM THE DATE OF THE COMMENCEMENT OF PRODUCTION. IN OTHER WORDS, A HELPIN G HAND WAS BEING PROVIDED TO THE INDUSTRIES DURING THE EARLY DAYS TO E NABLE THEM TO COME TO A COMPETITIVE LEVEL WITH OTHER ESTABLISHED INDUS TRIES. IN SUCH CIRCUMSTANCES, THE HONBLE COURT HELD THAT THE PAYM ENTS WERE NOTHING BUT SUPPLEMENTARY TRADE RECEIPTS, THOUGH THE ASSESS EE COULD NOT USE THIS MONEY FOR DISTRIBUTION AS DIVIDEND TO ITS SHAREH OLDERS, BUT, THE ASSESSEE WAS FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY AS IT LIKED AND WAS NOT OBLIGED TO SPEND THE MONEY FOR A PARTICU LAR PURPOSE, AS SUCH, BY NO STRETCH OF IMAGINATION CAN THE SUBSIDIE S WHETHER BY WAY OF REFUND OF SALES-TAX OR RELIEF OF ELECTRICITY CHARGES OR WATER CHARGES CAN BE TREATED AS AN AID TO SETTING UP OF THE INDUSTRY OF THE ASSESSEE. IF ANY SUBSIDY IS GIVEN, THE CHARACTER OF THE SUBSIDY IN THE HANDS OF THE RECIPIENTWHETHER REVENUE OR CAPITALWILL HAVE TO B E DETERMINED BY HAVING REGARD TO THE PURPOSE FOR WHICH THE SUBSIDY I S GIVEN. IF IT IS GIVEN BY WAY OF ASSISTANCE TO THE ASSESSEE IN CARRYING ON OF HIS TRADE OR BUSINESS, IT HAS TO BE TREATED AS TRADING RECEIPT. T HE SALES-TAX UPON COLLECTION FORMS PART OF THE PUBLIC FUNDS OF THE STA TE. IN THIS SENSE IT WAS HELD THAT THE SOURCE OF THE FUND IS QUITE IMMATERIAL . IF THE PURPOSE IS TO HELP THE ASSESSEE TO SET UP ITS BUSINESS OR COMPLET E A PROJECT, THE MONIES MUST BE TREATED AS TO HAVE BEEN RECEIVED FOR CAPITAL PURPOSE. BUT, IF MONIES ARE GIVEN TO THE ASSESSEE FOR ASSIST ING HIM IN CARRYING OUT THE BUSINESS OPERATION AND THE MONEY IS GIVEN ONLY A FTER AND CONDITIONAL UPON COMMENCEMENT OF PRODUCTION, SUCH SU BSIDIES MUST BE TREATED AS ASSISTANCE FOR THE PURPOSE OF THE TRADE. IN SAHNEYS CASE, SUBSIDIES HAVE NOT BEEN GRANTED FOR PRODUCTION OF OR BRINGING INTO 92 ITA NO. 467/DEL/2014 EXISTENCE ANY NEW ASSET, BUT WERE GRANTED YEAR AFTE R YEAR ONLY AFTER SETTING UP OF THE NEW INDUSTRY AND COMMENCEMENT OF P RODUCTION AND SUCH A SUBSIDY COULD ONLY BE TREATED AS ASSISTANCE GI VEN FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS OF THE ASSES SEE. THESE SUBSIDIES ARE OF REVENUE CHARACTER AND WILL HAVE TO BE TAXED AC CORDINGLY. HONBLE APEX COURT ALSO NOTED MANY DECISIONS OF INDIAN COU RTS ON THIS ASPECT, VIZ., V.S.S.V. MEENAKSHI ACHI & ANR. VS. CIT (1966) 60 ITR 253 (SC), CIT VS. RUBY RUBBER WORKS LTD. (1989) 78 CTR (KER) 75, S ADICHHA CHITRA VS. CIT (1990) 90 CTR (BOM) 135, KESORAM INDUSTRIES & COTTON MILLS LTD. VS. CIT (1991) 191 ITR 518 (CAL), CIT VS. DUSA D INDUSTRIES (1986) 51 CTR (MP) 217 ETC. 11.18. IN THIS CONTEXT, IT IS PERTINENT TO NOTE THAT THE M ADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS. DUSAD INDUSTRIES ( 1986) 51 CTR (MP) 217 : (1986) 162 ITR 784 (MP) : TC 13R.622, DEALT W ITH A CASE WHERE GOVERNMENT HAD FRAMED A SCHEME FOR GRANTING SALES-TA X SUBSIDIES TO INDUSTRIES SET UP IN BACKWARD AREAS TOOK THE VIEW THA T THE OBJECT OF THE SCHEME WAS NOT TO SUPPLEMENT THE PROFITS MADE BY IN DUSTRIES. IN THAT VIEW OF THE MATTER, THE HIGH COURT HELD THAT THE SUB SIDIES GIVEN UNDER THE SAID SCHEME BY THE GOVERNMENT TO NEWLY SET UP I NDUSTRIES WERE CAPITAL RECEIPTS IN THE HANDS OF THE INDUSTRIES AND COULD NOT BE TAXED AS REVENUE RECEIPTS. IN THAT CASE, 75 PER CENT OF THE SALES-TAX PAID IN A YEAR FOR A PERIOD OF FIVE YEARS FROM THE DAY OF STA RTING OF PRODUCTION WAS TO BE GIVEN BACK BY THE GOVERNMENT TO THE INDUST RY CONCERNED. THE HIGH COURT WAS OF THE VIEW THAT OBVIOUSLY THE SUBSI DY WAS GIVEN BY WAY OF AN INCENTIVE FOR CAPITAL INVESTMENT AND NOT B Y WAY OF ADDITION TO THE PROFITS OF THE ASSESSEE AS WAS CLEAR FROM THE F ACTS AND CIRCUMSTANCES OF THE CASE. WHILE REFERRING TO THESE FACTS, HONBLE APEX COURT HELD THAT THE MADHYA PRADESH HIGH COURT, HOWEVE R, FAILED TO 93 ITA NO. 467/DEL/2014 NOTICE THE SIGNIFICANT FACT THAT UNDER THE SCHEME F RAMED BY THE GOVERNMENT, NO SUBSIDY WAS GIVEN UNTIL THE TIME PRODU CTION WAS ACTUALLY COMMENCED, MERE SETTING UP OF THE INDUSTRY D ID NOT QUALIFY AN INDUSTRIALIST FOR GETTING ANY SUBSIDY, AND THE SUBSIDY WAS GIVEN AS HELP NOT FOR THE SETTING UP OF THE INDUSTRY WHICH WAS ALR EADY THERE BUT AS AN ASSISTANCE AFTER THE INDUSTRY COMMENCED PRODUCTION. HO NBLE APEX COURT, THEREFORE, HELD THAT THE VIEW TAKEN BY THE MA DHYA PRADESH HIGH COURT IS ERRONEOUS. 11.19. LAW LAID DOWN BY THE HONBLE APEX COURT IN SAHNEY S TEEL AND PRESS WORKS LTD ( SUPRA) IS, THEREFORE, THAT THE CH ARACTER OF THE SUBSIDY IN THE HANDS OF THE RECIPIENTWHETHER REVENUE OR CA PITALWILL HAVE TO BE DETERMINED BY HAVING REGARD TO THE PURPOSE FOR WH ICH THE SUBSIDY IS GIVEN. IF THE PURPOSE IS TO HELP THE ASSESSEE TO SE T UP ITS BUSINESS OR COMPLETE A PROJECT, THE MONIES MUST BE TREATED AS T O HAVE BEEN RECEIVED FOR CAPITAL PURPOSE, AND IF IT IS GIVEN BY WAY OF AS SISTANCE TO THE ASSESSEE IN CARRYING ON OF HIS TRADE OR BUSINESS, I T HAS TO BE TREATED AS TRADING RECEIPT. THE SOURCE OF THE FUND IS QUITE IMM ATERIAL. IN A CASE WHERE 75 PER CENT OF THE SALES-TAX PAID IN A YEAR F OR A PERIOD OF FIVE YEARS FROM THE DAY OF STARTING OF PRODUCTION WAS TO BE GIVEN BACK BY THE GOVERNMENT TO THE INDUSTRY CONCERNED, THE VIEW TAKEN BY THE MADHYA PRADESH HIGH COURT THAT THE SUBSIDY WAS GIVEN BY WAY OF AN INCENTIVE FOR CAPITAL INVESTMENT AND NOT BY WAY OF ADDITION TO THE PROFITS OF THE ASSESSEE WAS EXPRESSLY DISAPPROVED BASING ON THE SIG NIFICANT FACT THAT UNDER THE SCHEME FRAMED BY THE GOVERNMENT, NO SUBSIDY WAS GIVEN UNTIL THE TIME PRODUCTION WAS ACTUALLY COMMENCED. 11.20. IN PONNI SUGARS CASE (SUPRA), FOUR FACTORS EXIST IN THE INCENTIVE SCHEMES, WERE, (I) BENEFIT OF THE INCENTIVE SUBSIDY W AS AVAILABLE ONLY TO 94 ITA NO. 467/DEL/2014 NEW UNITS AND TO SUBSTANTIALLY EXPANDED UNITS, NOT TO SUPPLEMENT THE TRADE RECEIPTS; (II) THE MINIMUM INVESTMENT SPECIFI ED WAS RS. 4 CRORES FOR NEW UNITS AND RS. 2 CRORES FOR EXPANSION UNITS; (III) INCREASE IN THE FREE SALE SUGAR QUOTA DEPENDED UPON INCREASE IN THE PRODUCTION CAPACITY. IN OTHER WORDS, THE EXTENT OF THE INCREAS E OF FREE SALE SUGAR QUOTA DEPENDED UPON THE INCREASE IN THE PRODUCTION CA PACITY; (IV) THE BENEFIT OF THE SCHEME HAD TO BE UTILIZED ONLY FOR REP AYMENT OF TERM LOANS. THE IMPORTANT POINT NOTED BY THE HONBLE APE X COURT IN THIS CASE IS THAT GOVERNMENT OF INDIA, FINANCIAL INSTITUTIONS AS WELL AS THE SUGAR INDUSTRIES ARE PARTIES TO THE SCHEME IN THE SENSE THA T BUT FOR THE SCHEME THE FINANCIAL INSTITUTIONS WOULD NOT HAVE GIVE N TERM LOANS TO SET UP NEW UNITS/EXPANSION OF THE EXISTING UNITS. KEEP ING IN MIND THE OBJECT BEHIND THE PAYMENT OF THE INCENTIVE SUBSIDY S UCH PAYMENT RECEIVED BY THE ASSESSEE UNDER THE SCHEME WAS NOT IN THE COURSE OF A TRADE BUT WAS OF CAPITAL NATURE, WHILE REITERATING THE PRINCIPLE OF PURPOSIVE TEST ENUNCIATED IN SAHNEY STEEL & PRESS W ORKS LTD., HONBLE APEX COURT HELD, THAT THE RECEIPT OF THE SUBSIDY BY THE ASSESSEE IN THAT CASE WAS CAPITAL IN NATURE AS THE ASSESSEE WAS OBLI GED TO UTILIZE THE SUBSIDY ONLY FOR REPAYMENT OF TERM LOANS UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS/EXPANSION OF EXISTING BUSI NESS. 11.21. IN BOUGAINVILLE CASE (SUPRA), FACTS SUBMITTED TO THE COURT ARE THAT AGAINST THE BACKDROP OF STEEP DECLINE OF VIEWER SHIP DUE TO VARIOUS REASONS INCLUDING ONSLAUGHT OF CABLE TELEVISION LEA DING TO EROSION IN ENTERTAINMENT TAX COLLECTIONS AND WITH A VIEW TO ENC OURAGE SETTING UP OF MULTIPLEX CINEMA HALLS AND MALLS, IN ORDER TO PROMOT E THE VIEWERSHIP IN CINEMA HALLS, VARIOUS STATE GOVERNMENTS, BEING AWAR E THAT SETTING UP AN OPERATION OF SUCH MULTIPLEXES INVOLVES VARIOUS P ROBLEMS INCLUDING HUGE CAPITAL INVESTMENTS, HAD COME UP WITH SCHEMES OFFERING INCENTIVES 95 ITA NO. 467/DEL/2014 TO CINEMA INDUSTRY AND THE GOVERNMENT OF THE STATE OF UTTAR PRADESH FORMULATED A PROMOTIONAL SCHEME TO SUCH EFFECT AND N OTIFIED IT BY GOVERNMENT ORDER ISSUED ON 13.07.1999. HONBLE JURISD ICTIONAL HIGH COURT AFTER NOTICING THE DECISIONS OF THE HONBLE A PEX COURT IN SAHNEY STEEL AND PRESS WORKS LTD. V. CIT: 228 ITR 253 (SC), AND CIT VS PONNI SUGARS AND CHEMICALS LTD: 306 ITR 392 (SC) FOUND VIDE PARA NO 32, THAT THE UP SCHEME UNDER WHICH THE ASSESSEE CLAIMS EX EMPTION TO THE EXTENT OF ENTERTAINMENT TAX SUBSIDY, CLAIMING IT TO BE CAPITAL RECEIPT, IS CLEARLY DESIGNED TO PROMOTE THE INVESTORS IN THE CIN EMA INDUSTRY ENCOURAGING ESTABLISHMENT OF NEW MULTIPLEXES. SINCE THE SUBSIDY OF SUCH NATURE CANNOT POSSIBLY BE GRANTED BY THE GOVERN MENT DIRECTLY, THE ENTERTAINMENT TAX IS LEVIABLE ON THE ADMISSION TICK ETS TO CINEMA HALLS ONLY AFTER THE FACILITY BECOMES OPERATIONAL, AND SI NCE THE SOURCE OF THE SUBSIDY IS THE PUBLIC AT LARGE WHICH IS TO BE ATTRAC TED AS VIEWERS TO THE CINEMA HALLS, THE FUNDS TO SUPPORT SUCH AN INCENTIVE CANNOT BE GENERATED UNTIL AND UNLESS THE CINEMA HALLS BECOME FU NCTIONAL, BY APPLYING THE PURPOSE TEST, REFERRED TO IN PONNI SU GARS (SUPRA) HELD THAT THE ASSISTANCE IN THE FORM OF ENTERTAINMENT TA X EXEMPTION CAME IN THE HANDS OF ASSESSEE TO ENABLE IT TO SET UP THE NE W UNIT WHICH RENDERS IT A RECEIPT ON CAPITAL ACCOUNT. THE PERIODICITY (Y EAR TO YEAR) OF THE SUBSIDY, ITS SOURCE (COLLECTIONS FROM THE PUBLIC AT LARGE) AND THE FORM (DEEMED DEPOSIT) ARE IRRELEVANT CONSIDERATIONS. 11.22. IN CIT VS. JOHNSON MATTHEY INDIA PVT. LTD., WHILE R EFERRING TO THE DECISIONS IN SAHNEY (SUPRA), PONNI SUGARS (SUPRA) AN D BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (SUPRA), HONBLE JUR ISDICTIONAL HIGH COURT OBSERVED AS UNDER: THIS COURT HAS CONSIDERED THE SUBMISSIONS AND IS O F THE OPINION THAT THE ITATS IMPUGNED ORDER HAS NOTED THE RELEVANT LAW. CRUCIALL Y, PONNI SUGARS (SUPRA) IS A 96 ITA NO. 467/DEL/2014 LATER DECISION OF THE SUPREME COURT WHICH HAD GONE TO DEAL WITH VARIOUS AUTHORITIES, INCLUDING SAHNEY (SUPRA). THE SUPREME COURT HAS EMPHASIZED IN EACH CASE THE PURPOSE FOR WHICH SUBSIDY OR ASSISTAN CE IS GIVEN BY THE STATE GOVERNMENT OR A PUBLIC AGENCY. IF THAT IS TO PROMOT E AN INDUSTRY, ESPECIALLY WITH SPECIAL INTEREST OF DEVELOPMENT OF CAPITAL INFRASTR UCTURE, THE AMOUNTS RECEIVED ARE TO BE TREATED AS CAPITAL AND NOT REVENUE. THIS COUR T TOO HAD THE OCCASION TO DEAL WITH THE ISSUES IN CIT V. BOUGAINVILLEA MULTIPLEX E NTERTAINMENT CENTRE PVT. LTD. (ITA 586/2013, DECIDED ON 30.01.2015) WHERE THE DEC ISION IN PONNI SUGARS (SUPRA) AND PREVIOUS AUTHORITIES WERE DISCUSSED AND APPLIED IN GIVEN FACTS OF THE CASE. WE ARE OF THE OPINION THAT THE IMPUGNED ORDER OF TH E ITAT DOES NOT DISCLOSE ANY INFIRMITY. NO SUBSTANTIAL QUESTION OF LAW ARISES. IT IS ACCORDINGLY DISMISSED. 11.23. RECENTLY THE HONBLE DELHI HIGH COURT IN THE CASE O F CIT VS BHUSHAN STEEL AND STRIPES LTD., DT. 13.7.2017, ITA N O. 315/03,316/03,317/03,349/03 AND 434/05 AFTER CONSIDE RING ALL THE DECISIONS SPECIALLY SAHNEV STEEL AND PONNI SUGARS AN D CHEMICALS LTD. OF HONBLE SUPREME COURT, AND BOUGAINVILLE CASE (SUP RA) OF HIGH COURT, REACHED A CONCLUSION THAT THE SALES TAX SUBSIDY RECE IVED BY THE ASSESSEE AS REVENUE RECEIPT. 11.24. IN THIS CASE, THE HONBLE COURT OBSERVED THAT THE OBJECT OF PROVIDING SUBSIDY BY WAY OF PERMISSION TO NOT DEPOSI T AMOUNTS COLLECTED (AS SALES TAX LIABILITY)- WHICH MEANT THA T THE CUSTOMER OR SERVICER USER CONCERNED HAD TO PAY SALES TAX, BUT A T THE SAME TIME, THE COLLECTOR (I.E. THE ASSESSEE) COULD RETAIN THE AMOU NT SO COLLECTED, UNDOUBTEDLY WAS TO ACHIEVE THE LARGER GOAL OF INDUSTRI ALIZATION, AND THE ACHIEVEMENT OF A QUANTITATIVE LIMIT (OF 125% OF CAP ITAL EXPENDITURE IN THE CASE OF SMALL SCALE UNITS AND 100% IN THE CASE OF O THER UNITS) MEANT THAT THE SUBSIDY COULD NO LONGER BE CLAIMED. HOWEVER, IT WAS FURTHER OBSERVED THAT WHILST IT MIGHT BE TEMPTING TO READ TH E LINKAGE WITH CAPITAL EXPENDITURE AS NOT ONLY APPLYING TO THE LIM IT, BUT ALSO IMPLYING 97 ITA NO. 467/DEL/2014 AN UNDERLYING INTENTION THAT THE CAPITAL EXPENDITUR E WOULD THEREBY BE RECOUPED, THE ABSENCE OF ANY SUCH CONDITION SHOULD RESTRAIN THE COURT FROM SO CONCLUDING. IN THIS MATTER, IT WAS STATED T HAT IN SAHNEY STEEL (SUPRA) AND PONNI SUGARS (SUPRA) THE ISSUE DECIDED WAS - WHAT WAS THE TRUE PURPOSE OF THE INCENTIVE OR THE SUBSIDY, WHEREA S THE END USE OF THE FUNDS WAS CONSIDERED AS AN ADDITIONAL ARGUMENT TO DECI DE THE MATTER EITHER WAY. FURTHERMORE, BASING ON THE AMENDMENT T O SECTION 2(24) OF THE ACT BY THE FINANCE ACT, 2015, IT WAS CONTENDED BE FORE THE HONBLE JURISDICTIONAL HIGH COURT THAT , .. THE FINANCE ACT OF 2015 WHICH CAME INTO FORCE ON 01.04.2016 AMENDED SECTION 2(24) OF THE INCOME TAX ACT AND INSERTED CL AUSE (XVI). IT IS STATED THAT ASSISTANCE IN THE FORM OF SUBSIDY OR GRANT OR CASH INCENTIVE OR DUTY DRAWBACK OR WAIVER BY CENTRAL OR STATE GOVERNMENTS OR ANY AUTHO RITY IN CASH OR KIND TO THE ASSESSEE OTHER THAN SUBSIDY OR GRANT OR REIMBURSEME NT WHICH IS TAKEN INTO ACCOUNT DETERMINING THE ACTUAL COST OF THE ASSET, I S DEEMED TO BE INCOME. IT WAS SUBMITTED THAT THIS AMENDMENT CLARIFIES THE INTENT OF PARLIAMENT WHICH IS THAT THE ASSISTANCE RECEIVED OTHERWISE THAN TOWARDS CAPITAL AUGMENTATION OR CREATION IS DEEMED TO BE INCOME. THIS AMENDMENT IS PROSPECTIVE WHICH MEANS THAT THE LAW IS TO BE INTERPRETED IN THE LIGHT OF THE JUDGMENTS APPLICABLE, NOTABLY PONNI SUGARS (SUPRA) IN THE PRESENT CASE. 11.25. AFTER CONSIDERING THE ENTIRE CASE LAW ON THIS ASPEC T, VIDE PARAGRAPH NO 26, THE HONBLE COURT HELD,- 26. HOW A STATE FRAMES ITS POLICY TO ACHIEVE ITS OB JECTIVES AND ATTAIN LARGER DEVELOPMENTAL GOALS DEPENDS UPON THE EXPERIENCE, VI SION AND GENIUS OF ITS REPRESENTATIVES. THEREFORE, TO SAY THAT THE INDICAT ION OF THE LIMIT OF SUBSIDY AS THE CAPITAL EXPENDED, MEANS THAT IT REPLENISHED THE CAP ITAL EXPENDITURE AND THEREFORE, THE SUBSIDY IS CAPITAL, WOULD NOT BE JUS TIFIED. THE SPECIFIC PROVISION FOR CAPITAL SUBSIDY IN THE MAIN SCHEME AND THE LACK OF SUCH A SUBSIDY IN THE SUPPLEMENTARY SCHEME (OF 1991) MEANT THAT THE RECIP IENT, I.E. THE ASSESSEE HAD THE FLEXIBILITY OF USING IT FOR ANY PURPOSE. UNLIKE IN PONNI SUGARS (SUPRA), THE ABSENCE OF ANY CONDITION TOWARDS CAPITAL UTILIZATIO N MEANT THAT THE POLICY MAKERS ENVISIONED GREATER PROFITABILITY AS AN INCENTIVE FO R INVESTORS TO EXPAND UNITS, FOR RAPID INDUSTRIALIZATION OF THE STATE, ENSURING GREA TER EMPLOYMENT. CLEARLY, THE SUBSIDY WAS REVENUE IN NATURE. 98 ITA NO. 467/DEL/2014 11.26. A READING OF ALL THESE DECISIONS, THEREFORE, MAKES THE GOLDEN PRINCIPLE THAT RUNS THROUGH THEM VERY CLEAR. WHILE FRAMING ITS POLICY TO ACHIEVE ITS OBJECTIVES AND ATTAIN LARGER DEVELOPMENTA L GOALS, DEPENDING UPON THE EXPERIENCE, VISION AND GENIUS OF ITS REPRE SENTATIVES, IT IS ALWAYS OPEN FOR THE STATE TO PROVIDE INCENTIVES, WHI CH RESULTS IN CAPITAL AND REVENUE RECEIPTS IN THE HANDS OF THE RECEIVER, D EPENDING UPON THE PURPOSE FOR WHICH THEY ARE GIVEN. IF ANY SUBSIDY IS GIVEN, THE CHARACTER OF THE SUBSIDY IN THE HANDS OF THE RECIPIENTWHETHER REVENUE OR CAPITALWILL HAVE TO BE DETERMINED BY HAVING REGARD T O THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN. IF THE PURPOSE IS TO HEL P THE ASSESSEE TO SET UP ITS BUSINESS OR COMPLETE A PROJECT, THE MONIES M UST BE TREATED AS TO HAVE BEEN RECEIVED FOR CAPITAL PURPOSE. BUT, IF MON IES ARE GIVEN TO THE ASSESSEE FOR ASSISTING HIM IN CARRYING OUT THE BUSI NESS OPERATION AND THE MONEY IS GIVEN ONLY AFTER AND CONDITIONAL UPON COMMENCEMENT OF PRODUCTION, SUCH SUBSIDIES MUST BE TREATED AS ASSISTA NCE FOR THE PURPOSE OF THE HOWEVER, ANY STIPULATION PLACING THE ASSESSEE IS UNDER OBLIGATION TO UTILIZE THE SUBSIDY ONLY FOR REPAYMENT OF TERM LOANS UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS/ EXPANSION OF EXISTING BUSINESS, OR TO LIQUIDATE THE COST INCURRE D IN CREATING THE CAPITAL ASSET, MAKES THE RECEIPT A CAPITAL RECEIPT AND RENDE RS THE TIME OF PROVIDING THE SUBSIDY IRRELEVANT. MERE INDICATION OF THE LIMIT OF SUBSIDY AS THE CAPITAL EXPENDED DOES NOT JUSTIFY THE CONCLUS ION THAT IT REPLENISHED THE CAPITAL EXPENDITURE AND THEREFORE, TH E SUBSIDY IS CAPITAL. IT IS, THEREFORE, NEITHER THE LOFTY IDEALS /OBJECTIVES OF THE POLICY DOCUMENT NOR THE PRESUMED END USE OF THE SUBSIDY AMOU NT THAT DETERMINES THE NATURE OR SUBSIDY IN THE HANDS OF THE RECIPIENT, BUT THE PURPOSE ENVISAGED BY THE POLICY DOCUMENT THAT SATIS FIES THE PURPOSE TEST FORMULATED UNDER SAHNEYS CASE. UNLESS THE IN TENTION OF THE POLICY 99 ITA NO. 467/DEL/2014 MAKERS IS EXPRESS AND CLEAR DISCERNIBLE FROM THE PO LICY DOCUMENT TO LINK UP THE UTILIZATION OF SUBSIDY AMOUNT, IRRESPECTIVE O F THE TIME OF RECIPIENT GETTING IT, WITH LIQUIDATION OF THE CAPITAL COST, A S COULD BE GATHER FROM THE DECISIONS OF SAHNEY STEELS AND PONNI SUGARS CASES , NO INFERENCE IS PERMISSIBLE TO BE DRAWN THAT THE SUBSIDY RESULTS IN CAPITAL RECEIPT IN THE HANDS OF THE RECIPIENT. DEVELOPMENTAL OBJECTIVES OF THE SUBSIDY POLICY DOCUMENT, IPSO FACTO, DO NOT DETERMINE THE NATURE OF S UBSIDY. PURPOSE AS COULD BE CULLED OUT FROM THE FRAMEWORK OF THE POL ICY DOCUMENT IS THE SOLE DETERMINATIVE FACTOR. HAVING NOTED THE CONTEXT OF RELEVANCY OR OTHERWISE OF THE SOURCE, FORM AND TIME OF SUBSIDY IN DETERMINING ITS NATURE, NOW WE SHALL PROCEED TO EXAMINE THE NATURE OF RECEIPT IN THE HANDS OF THE ASSESSEE IN THIS MATTER. 11.27. MAIN OBJECTIVES OF THE HARYANA INDUSTRIAL POLICY A RE TO INCREASE THE SHARE OF INDUSTRY IN THE NET/GROSS STATE DOMESTI C PRODUCT BY ATTRACTING NEW INVESTMENTS AND GROWTH OF EXISTING IN DUSTRY; TO INCREASE THE EMPLOYMENT IN INDUSTRIAL AND ALLIED SECTOR BY 20 % IN THE NEXT FIVE YEARS; TO ATTAIN SUSTAINABLE ECONOMIC DEVELOPMENT T HROUGH CATALYSIS OF INVESTMENTS IN ALL SECTORS OF THE ECONOMY; TO ACHIE VE LARGER VALUE ADDITION WITHIN THE STATE THEREBY CONTRIBUTING TO A HIGHER QUALITY OF LIFE ETC. ACCORDING TO THE ASSESSEE, A PERUSAL OF THE AF ORESAID INDICATES THAT THE OBJECTIVES OF THE POLICY INTER-ALIA, INCLUDED GR OWTH OF EXISTING INDUSTRY AND INCREASING THE EMPLOYMENT OPPORTUNITIES. FOR ACHIEVING THE AFORESAID OBJECTIVE, THE STATED APPROACH, INTER ALIA, WAS TO RATIONALIZE THE PACKAGE OF INCENTIVES MAKING IT MOR E EFFECTIVE AND MEANINGFUL FOR SPEEDY DEVELOPMENT OF THE STATE. THE POLICY SPECIFICALLY PROVIDED FOR CUSTOMISED PACKAGE OF INCENTIVES AND CON CESSIONS FOR PRESTIGIOUS PROJECTS TO BE DECIDED BY A HIGH POWER COM MITTEE. 100 ITA NO . 467/DEL/2014 11.28 POLICY DOCUMENT SAYS, SCHEME OF INCENTIVES CUSTOMISED PACKAGE OF INCENTIVES CUSTOMISED PACKAGE OF INCENTIVES AND CONCESSIONS WI LL BE PROVIDED FOR PRESTIGIOUS PROJECTS HAVING INVESTMENT OF RS.30 CRO RES AND ABOVE. A HIGH POWERED COMMITTEE WILL BE CONSTITUTED UNDER THE CHA IRMANSHIP OF THE CHIEF MINISTER TO DECIDE THE PACKAGE IN INDIVIDUAL CASES 11.29. ACCORDINGLY, SALES TAX CONCESSIONS WERE TO BE PROV IDED TO NEW UNITS AND ALSO INDUSTRIAL UNITS UNDERGOING EXPANSION/ DIVERSIFICATION. PURSUANT TO THE AFORESAID POLICY, CHAPTER IV-C WAS INSERTED IN JULY, 2000 IN THE HARYANA GENERAL SALES TAX RULES 1975, CONTAINING RULE 28C DEALING WITH TAX CONCESSIONS, CLASS OF INDUSTRI ES, PERIOD AND OTHER CONDITIONS. THE SALIENT FEATURES OF THE SAID RULE 28C, TO THE EXTENT RELEVANT, ARE AS UNDER: (A) CONCESSIONS SHALL BE AVAILABLE TO AN ELIGIBLE INDU STRIAL UNIT; (B) THE EXPRESSION ELIGIBLE INDUSTRIAL UNIT WAS DEFIN ED IN SUB-CLAUSE (C) OF RULE 28C(3) OF HARYANA GENERAL SALES TAX RULES1975 TO I NCLUDE A NEW INDUSTRIAL UNIT OR UNIT UNDERTAKING EXPANSION OR DIVERSIFICATION SU BJECT TO FULFILLMENT OF OTHER CONDITIONS. THE RELEVANT EXTRACT OF THE SAID DEFINI TION IS AS UNDER: RULE 28-C (3)(C) ELIGIBLE INDUSTRIAL UNIT MEANS- (1) A NEW INDUSTRIAL UNIT OR A UNIT UNDERTAKING EXPANSION OR DIVERSIFICATION WHICH, ON THE DATE OF COMMERCIAL PR ODUCTION OF NEW/EXPANDED/DIVERSIFIED UNIT, FULFILLS THE FOLLOWI NG CONDITIONS (EMPHASIS SUPPLIED) (C) THE TERM EXPANSION WAS DEFINED IN CLAUSE (F) OF R ULE 28C(3) OF HARYANA GENERAL SALES TAX RULES1975 AS UNDER: EXPANSION MEANS AN INDUSTRIAL CAPACITY SET UP OR INSTALLED DURING THE OPERATIVE PERIOD WHICH CREATES ADDITIONAL PRODUCTION FACILITIES FOR MANUFACTURE OF THE SAME PRODUCT (S) AS OF THE UNIT BEFORE EXPANSION IN WHIC H THE ADDITIONAL FIXED CAPITAL INVESTMENT IN PLANT AND MA CHINERY MADE DURING THE OPERATING PERIOD IN ONE GO, NOT EXC EEDING THE PERIOD OF ONE YEAR, EXCEEDS 25% OF THE FIXED CAPITAL 101 ITA NO . 467/DEL/2014 INVESTMENT (GROSS BLOCK) OF THE UNIT BEFORE EXPANSION AT THE SAME OR NEW LOCATION. (EMPHASIS SUPPLIED) (D) ELIGIBILITY OF PRESTIGIOUS UNITS DEFINED IN CLAUSE (M) AS UNIT HAVING FIXED CAPITAL INVESTMENT EXCEEDING RS.30 CRORES, SHALL BE DETERMI NED BY THE HIGH POWERED COMMITTEE; (E) CLAUSE 5(B), PROVIDES THAT DECISION TO GRANT TAX CO NCESSION TO PRESTIGIOUS UNIT SHALL BE TAKEN BY THE HIGH POWERED COMMITTEE ON THE BASIS OF FACTORS LIKE EMPLOYMENT GENERATION, LIKELY REVENUE, GROWTH OF AN CILLARIES, IMPACT ON OVERALL INDUSTRIAL GROWTH, ETC. [ALSO REFER CLAUSE 6(E)].; (F) CLAUSE 8(A) PROVIDES FOR ISSUANCE OF THE ENTITLEMEN T CERTIFICATE IN FORM ST-72B. 11.30. IN TERMS OF SUB-RULE (5)(B) OF RULE 28C, IT IS PRO VIDED THAT THE DECISION TO GRANT TAX CONCESSION TO A PRESTIGIOUS UN IT IS GIVEN ON THE BASIS OF FACTORS LIKE EMPLOYMENT GENERATION, IMPACT ON OVERALL INDUSTRIAL GROWTH, ETC. ACCORDING TO THE LD. AR ASSESSEE IN T HIS CASE FALLS IN THE CATEGORY OF PRESTIGIOUS UNIT. HE EMPHASIZED THAT THE UNDERLYING OBJECTIVE OF CONFERRING THE BENEFIT UNDER RULE 28C, CLEARLY PROVES BEYOND ANY DOUBT THE FACT THAT THE AVOWED INTENT/ PUR POSE OF GRANTING THE CONCESSION IS INDUSTRIAL DEVELOPMENT OF THE STAT E AND EMPLOYMENT GENERATION. 11.31. IN THIS BACKGROUND, THE ASSESSEE HAD UNDERTAKEN INDU STRIAL EXPANSION IN TERMS OF THE RULE 28C OF HARYANA GENER AL SALES TAX RULES, 1975. THE HIGH POWERED COMMITTEE, THEREAFTER , IN ITS MEETING HELD ON 14.06.2001 GRANTED SALES TAX CONCESSION TO TH E ASSESSEE, WHEREBY THE ASSESSEE WAS REQUIRED TO PAY 50% OF THE SALES TAX COLLECTED ON SALES OF FINISHED PRODUCTS FROM EXPANDED U NIT AND, RETAIN BALANCE 50% OF THE TAX SO COLLECTED, SUBJECT TO MAX IMUM PERMISSIBLE BENEFIT OF RS.564.35 CRORES. THE LETTER/ COMMUNICAT ION RECEIVED FROM DIRECTOR OF INDUSTRIES, HARYANA INTIMATING THE AFORE SAID DECISION, CLEARLY REFERRED TO CONCESSION BEING GRANTED ONLY I N RESPECT OF VEHICLES 102 ITA NO . 467/DEL/2014 ROLLED OUT OF PRODUCTION CAPACITY OF 70,000 VEHICLES ADDED AS A RESULT OF FIRST EXPANSION. PURSUANT THERETO, THE ASSESSEE W AS ISSUED ENTITLEMENT CERTIFICATE DATED 01.08.2001 UNDER RULE 28C OF HARYANA GENERAL SALES TAX RULES, 1975 TO AVAIL SALES TAX CO NCESSION TO THE EXTENT OF RS.564.35 CRORES DURING THE PERIOD 01.08.2 001 TO 31.07.2015. 11.32. LD. AR SUBMITTED THAT IN THE CASE OF THE BHUSHAN ST EEL & STRIPS LIMITED THE HONBLE DELHI HIGH COURT CONSIDERED THE CASE OF SALES-TAX SUBSIDY RECEIVED UNDER AN ALTOGETHER DIFFERENT INDUSTRI AL POLICY OF THE GOVERNMENT OF UP, AND IN THAT DIFFERENT CONTEXT OF T HE POLICY OF THE GOVERNMENT OF UP, THE COURT HELD THAT THE SALES TAX SUBSIDY WAS IN THE NATURE OF A REVENUE RECEIPT AND NOT A CAPITAL RECEI PT. 11.33. A COMPARATIVE ANALYSIS OF THE BOTH THE POLICIES, N AMELY, UTTAR PRADESH INDUSTRIAL POLICY, 1990 (APPLICABLE TO THE F ACTS OF BHUSHANS CASE (SUPRA)) AND HARYANA INDUSTRIAL POLICY, 1999 ( APPLICABLE TO THE CASE OF THE APPELLANT), IS TABULATED BY THE LD. AR A S FOLLOWS: SALIENT FEATURES BHUSHANS CASE APPELLANT/ JOHNSON MATTHEY CASE POLICY UTTAR PRADESH INDUSTRIAL POLICY, 1990 HARYANA INDUSTRIAL POLICY, 1999 GOVERNING ACT AND SECTION SECTION 4A OF THE UP SALES TAX ACT, 1948 READ WITH RULE 25 OF THE UP SALES TAX RULES. RULE 28C OF THE HARYANA SALES TAX RULES. OBJECT OF SUBSIDY (SEE PREAMBLE) TO ENCOURAGE THE CAPITAL INVESTMENT AND ESTABLISHMENT OF NEW INDUSTRIAL UNITS IN THE STATE OF UTTAR PRADESH TO PROMOTE INDUSTRIAL GROWTH IN THE CONTEXT OF OVERALL ECONOMIC DEVELOPMENT OF THE STATE BY CREATING AN INVESTOR FRIENDLY ENABLING ENVIRONMENT THAT FACILITATES THE INDUSTRY TO MOVE STRONGLY TO THE FRONT RANKS OF GLOBAL COMPETITION. 103 ITA NO . 467/DEL/2014 ELIGIBILITY CRITERIA FOR A PRESTIGIOUS UNIT 'STATE CAPITAL SUBSIDY SCHEME . '6 (A) :SPECIAL CAPITAL SUBSIDY FOR THE PRESTIGE UNITS: ANY DISTRICT, WHERE ANY INDUSTRY OF FIXED CAPITAL INVESTMENT OF 25 CRORE IS NOT ALREADY ESTABLISHED, THE FIRST INDUSTRIAL UNIT TO BE ESTABLISHED FROM THE CAPITAL INVESTMENT OF RS.25 CRORE OR MORE , WITHIN THE PERIOD OF 1.4.90 TO 31.3.95, SHALL BE TREATED AS 'PRESTIGE' UNIT AND THE SPECIAL STATE CAPITAL SUBSIDY WORTH RS.15 LAKH SHALL BE GRANTED TO THIS UNIT. IF PRESTIGE UNIT INCENTIVE TO THE ANCILLARY UNITS FOR THE SUPPLY OF REQUIREMENT OF MORE THAN 30% OF ITS OWN PURCHASED PARTS AND COMPONENTS, THEN THE FURTHER ADDITIONAL SPECIAL CAPITAL SUBSIDY OF RS.15 LAKH SHALL BE AVAILABLE TO IT. THIS SCHEME SHALL BE APPLIED WITH EFFECT FROM 1.4.90 AND THE FACILITY OF SUBSIDY SHALL NOT BE ADMISSIBLE IN THE DISTRICT UNDER THE SCHEME, WHERE ANY SCHEME OF INCENTIVES CUSTOMISED PACKAGE OF INCENTIVES CUSTOMISED PACKAGE OF INCENTIVES AND CONCESSIONS WILL BE PROVIDED FOR PRESTIGIOUS PROJECTS HAVING INVESTMENT OF RS.30 CRORES AND ABOVE. A HIGH POWERED COMMITTEE WILL BE CONSTITUTED UNDER THE CHAIRMANSHIP OF THE CHIEF MINISTER TO DECIDE THE PACKAGE IN INDIVIDUAL CASES RULE 28-C (3)(C)ELIGIBLE INDUSTRIAL UNIT MEANS- (1) A NEW INDUSTRIAL UNIT OR A UNIT UNDERTAKING EXPANSION OR DIVERSIFICATION WHICH, ON THE DATE OF COMMERCIAL PRODUCTION OF NEW/EXPANDED/DIVERSIFIED UNIT, FULFILLS THE FOLLOWING CONDITIONS . (F) EXPANSION MEANS AN INDUSTRIAL CAPACITY SET UP OR INSTALLED DURING THE OPERATIVE PERIOD WHICH CREATES ADDITIONAL PRODUCTION FACILITIES FOR MANUFACTURE OF THE SAME PRODUCT (S) AS OF THE UNIT BEFORE EXPANSION IN WHICH THE ADDITIONAL FIXED CAPITAL INVESTMENT IN PLANT AND MACHINERY MADE DURING THE OPERATING PERIOD IN ONE GO, NOT EXCEEDING THE PERIOD OF ONE YEAR, EXCEEDS 25% OF THE FIXED CAPITAL INVESTMENT (GROSS BLOCK) OF THE UNIT BEFORE EXPANSION AT THE SAME OR NEW LOCATION. 104 ITA NO . 467/DEL/2014 UNIT OF THE CAPITAL INVESTMENT OF RS.25 CRORE HAS ALREADY BEEN ESTABLISHED PRIOR TO 1.4.90. (M) PRESTIGIOUS UNIT MEANS AN ELIGIBLE UNIT HAVING FIXED CAPITAL INVESTMENT EXCEEDING RS.30 CRORES. .. (5)(B) DECISION ABOUT THE TAX CONCESSION TO PRESTIGIOUS UNIT SHALL BE TAKEN BY THE HIGH POWERED COMMITTEE ON THE BASIS OF FACTORS LIKE EMPLOYMENT GENERATION, LIKELY REVENUE, GROWTH OF ANCILLARIES, IMPACT ON OVERALL INDUSTRIAL GROWTH ETC. A PRESTIGIOUS UNIT SHALL NOT BE, AS A MATTER OF RIGHT ENTITLED TO BENEFITS AVAILABLE TO OTHER UNITS. 11.34. BASING ON THIS HE SUBMITTED THAT THE UTTAR PRADESH INDUSTRIAL POLICY, 1990 AND THE HARYANA INDUSTRIAL POLICY,1999, ARE ALTOGETHER DIFFERENT INDUSTRIAL POLICIES WITH ALTOGETHER DIFFE RENT ELIGIBILITY CRITERIA. HE SUBMITTED THAT THE UP INDUSTRIAL POLICY SPECIFICA LLY PROVIDED FOR CAPITAL SUBSIDY SCHEME, WHICH IS NOT THERE IN THE C ASE OF HARYANA POLICY. 11.35. HOWEVER, ON A CAREFUL PERUSAL OF THE SCHEMES IN QU ESTION, WE FIND THAT, BUT FOR CERTAIN CHANGES IN THE FORM AND EX PRESSION, THERE IS NO MATERIAL DIFFERENCE BETWEEN THESE SCHEMES IN SUBSTA NCES. THEY ARE SIMILAR IN RESPECT OF THE TIME, ITS SOURCE AND THE F ORM OF SUBSIDY IN THE HANDS OF THE ASSESSEE. TIME OF ASSESSEE GETTING SUB SIDY AS IS ADVERTED TO IN SAHNEYS CASE OR THE STIPULATION OF UTILIZATI ON OF SUBSIDY AS IS IN PONNIS CASE ARE SIMILAR IN BOTH THE SCHEMES. IN T HE CASE ON HAND THE FACT REMAINS THAT THE CONCESSION IS GRANTED ONLY IN RESPECT OF VEHICLES ROLLED OUT OF PRODUCTION CAPACITY OF 70,000 VEHICLES ADDED AS A RESULT OF 105 ITA NO . 467/DEL/2014 FIRST EXPANSION. EXCEPT MAKING SOME SPECIFIC PROVI SION FOR CAPITAL SUBSIDY IN THE MAIN SCHEME AND THE LACK OF SUCH A SU BSIDY IN THE SUPPLEMENTARY SCHEME (OF 1991) IN RESPECT OF THE UP SCHEME, UNDER BOTH THE SCHEMES THERE IS NO DIFFERENCE. UNDER BOTH THE SCHEMES NO STRINGS ATTACHED IN RESPECT OF THE UTILIZATION OF F UNDS AND THE ASSESSEES HAVE THE FLEXIBILITY OF USING IT FOR ANY PURPOSE. T HERE IS NO STIPULATION AS TO HOW THE SUBSIDY MONEY HAS TO BE UTILIZED WHICH M EANS THAT THE ASSESSEE HAD THE FLEXIBILITY OF USING IT FOR ANY PU RPOSE. SPECIFIC PROVISION FOR CAPITAL SUBSIDY IN THE MAIN SCHEME AND THE LACK OF SUCH A SUBSIDY IN THE SUPPLEMENTARY SCHEME (OF 1991) IN RES PECT OF THE UP SCHEME ONLY CORROBORATED THE CONCLUSION THAT THE REC IPIENT OF THE SUBSIDY, I.E. THE ASSESSEE HAD THE FLEXIBILITY OF US ING IT FOR ANY PURPOSE. PER SE, THE EXISTENCE OR OTHERWISE OF PROVISIONS FO R CAPITAL SUBSIDY DOES MAKE ANY DIFFERENCE IN THE NATURE OF SUBSIDY FUNDS IN THE HANDS OF THE ASSESSEE INSOFAR AS THEY ARE ALLOWED ONLY AFTER THE COMPLETION OF THE FORMATION OF CAPITAL ASSET AND THE ABSENCE OF ANY CO NDITION TOWARDS CAPITAL UTILIZATION MEANT THAT THE POLICY MAKERS EN VISIONED GREATER PROFITABILITY AS AN INCENTIVE FOR INVESTORS TO EXPA ND UNITS, FOR RAPID INDUSTRIALIZATION OF THE STATE, ENSURING GREATER EMP LOYMENT WHICH FACT DISTINGUISHES THE PRESENT CASE FROM THE FACTS OF PO NNI SUGARS CASE. WHEN THE PURPOSE OF THE SUBSIDY IS CLEARLY REVENUE I N NATURE, END USE OF THE FUNDS BY THE ASSESSEE TO LIQUIDATE THE COST I NCURRED IN THE EXPANSION ACTIVITY REMAINS IRRELEVANT HAVING REGARD TO THE FACT THAT THE SUBSIDY WAS NOT EXPRESSLY FOR MEETING THE CAPITAL EX PENSES EITHER IN THE PRESENTI OR OF PAST AS WAS THE CASE IN PONNI SUGARS CASE. THOUGH THE CASE IN BOUGAINVILLE WAS REFERRED TO IN THE CASE OF JOHNSON MATTHEY, THE HONBLE COURT NOTICED THE SAID CASE IN BOUGAINVILLE WHILE RENDERING THE DECISION IN BHUSHAN STEELS CASE ALSO. THOUGH THE FIN DINGS OF THE 106 ITA NO . 467/DEL/2014 TRIBUNAL IN JOHNSON MATTHEYS CASE WERE UPHELD BY T HE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. JOHNSON MATTHE Y INDIA PVT. LTD., WE FIND IT DIFFICULT TO AGREE WITH THE ARGUMENT OF T HE LD. AR THAT THE OBSERVATIONS OF THIS TRIBUNAL MADE IN ASSESEES CAS E WERE APPROVED BY THE HONBLE HIGH COURT, INASMUCH AS THE HONBLE COU RT HAS NOT SPECIFICALLY CONSIDERED THE SAME. AS HAS BEEN CONSIS TENTLY HELD IN ALL THE DECISIONS FROM SAHNEY STEELS TO BHUSHAN STEELS T HAT INSOFAR AS THE SUBSIDY BENEFITS INURE TO THE BENEFIT OF THE ASSESSE E AFTER THE ACCOMPLISHMENT OF THE EXPANSION WITHOUT ANY BURDEN O F ANY CONDITION TOWARDS CAPITAL UTILIZATION OF THE SUBSIDY AMOUNT ME ANT THAT THE POLICY MAKERS ENVISIONED GREATER PROFITABILITY AS AN INCEN TIVE FOR INVESTORS TO EXPAND UNITS, FOR RAPID INDUSTRIALIZATION OF THE STATE , ENSURING GREATER EMPLOYMENT. IN THIS CONTEXT, WE FIND IT DIFFICULT T O AGREE WITH THE SUBMISSION OF THE LD. AR THAT THE DECISION IN CIT VS . JOHNSON MATTHEY INDIA PVT. LTD., HAS TO BE PREFERRED TO THE LATEST DE CISION OF THE JURISDICTIONAL HIGH COURT IN CIT VS BHUSHAN STEEL A ND STRIPES LTD. ON THE GROUND THAT THE HARYANA STATE SCHEME WAS CONSID ERED IN THE LATER, WHEREAS IN THE LATER ONE UP SCHEME WAS CONSIDERED. FO R THAT MATTER IN BOTH BOUGAINVILLES CASE AND BHUSHAN STEELSS CASE, THE VERY SAME UP SCHEME WAS CONSIDERED, BUT WITH DIFFERENT RESULT. NO CONFLICT COULD BE SEEN IN THE PRINCIPLE APPLIED OR LAID DOWN, BUT WHA T WE UNDERSTAND IS THAT THE CHANGE IN RESULT IS OCCASIONED BY THE VARI ANCE OF FACTS. 11.36. FOR THE REASONS STATED IN THE PRECEDING PARAGRAPHS , WE ARE OF THE CONSIDERED OPINION THAT ANY SUBSIDY GIVEN TO THE A SSESSEE POST ACCOMPLISHMENT OF THE PROJECT OR EXPANSION THERE, W ITHOUT ANY OBLIGATION TO UTILIZE THE SUBSIDY ONLY FOR REPAYMENT OF TERM LOANS UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS/ EXPANSION OF EXISTING BUSINESS, OR TO LIQUIDATE THE COST INCURRE D IN CREATING THE CAPITAL 107 ITA NO . 467/DEL/2014 ASSET OR ITS EXPANSION, IS ONLY IN THE NATURE OF TH E REVENUE RECEIPT AND IS LIABLE TO BE BROUGHT TO TAX. WE, THEREFORE, UPHOLD THE ADDITION ON THIS COUNT AND ACCORDINGLY DISMISS THE GROUNDS 11 TO 11.5. THUS, THE ISSUE IS SQUARELY COVERED BY THE DECISIO N OF THE TRIBUNAL IN ASSESSEES OWN CASE. THEREFORE, IN ABSENCE OF ANY C ONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. AR AGAINST THE ORDER OF THE T RIBUNAL, WE DISMISS THE GROUNDS. GROUND NO. 6 TO 6.5 ARE DISMISSED. 55. IN RESULT, GROUND NO. 6 TO 6.5 ARE DISMISSED. 56. GROUND NO. 7 TO 7.3 IS REGARDING DISALLOWANCE O F ROYALTY PAID. THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE PAID ROYALTY AMOUNTING TO RS.6,791,180,556/- TO SUZUKI MOTOR COR PORATION, JAPAN (SMC) FOR USE OF LICENSED INFORMATION FOR THE ENGINEERING , DESIGN AND DEVELOPMENT, MANUFACTURE, TESTING, QUALITY CONTROL, SALE AND AFT ER SALES SERVICE OF PRODUCTS AND PARTS. THE SAID PAYMENT WAS CLAIMED AS REVENUE EXPENDITURE. THOUGH IN THE ORIGINAL RETURN THE ASSESSEE HAD CLAIMED RUNNIN G ROYALTY AS REVENUE EXPENDITURE AND LUMP SUM ROYALTY AS CAPITAL EXPENDI TURE, THE LUMP SUM ROYALTY WAS CLAIMED AS A REVENUE EXPENDITURE THROUG H THE REVISED RETURN OF INCOME. THE ASSESSING OFFICER, IN THE IMPUGNED ASSE SSMENT ORDER, HAS HELD THAT ROYALTY PAID BY THE ASSESSEE WAS CAPITAL IN NATURE AND CONSEQUENTLY, HELD THAT THE ENTIRE ROYALTY IS DISALLOWABLE. SINCE, TPO HAD MADE ADJUSTMENT OF RS.311.74 CRORES, THE ASSESSING OFFICER HAS COMPUTE D THE DISALLOWANCE OUT OF ROYALTY PAYMENTS AS UNDER: TOTAL ROYALTY RS.679.11CR LESS: ADJUSTMENT BY TPO -RS.311.73CR BALANCE RS.367.38CR DEPRECIATION ON ABOVE@25% -RS.91.84CR DISALLOWANCE RS.275.54CR 108 ITA NO . 467/DEL/2014 IN THIS REGARD, THE LD AR SUBMITTED THAT THE AFORES AID ACTION OF THE ASSESSING OFFICER IN HOLDING THE ROYALTY PAYMENTS TO BE CAPIT AL IN NATURE. THE AFORESAID RIGHT VESTED WITH THE ASSESSEE WAS NOT EXCLUSIVE IN AS MUCH AS IN TERMS OF ARTICLE 2.01(B)(II), SMC GRANTED LICENSE FOR NON-EXCLUSIVE USE OUTSIDE I NDIA, MEANING THEREBY, THAT THE OWNER OF THE TRADEMARK RE SERVED WITH ITSELF, THE RIGHT TO ALLOW THE USER OF THE VERY SAME TRADEMARK TO ANY OTHER NATURE IS NOT TENABLE IN LAW DUE TO THE REASON THAT THE PAYMENT WAS UNDER THE AGREEMENT AND THE SAME IS ALLOWABLE REVENUE EXPENDITURE. EXPENDITURE IS REGARDED AS CAPITAL IN NATURE, IF THE SAME RESULTS IN, (I) ACQUISITION OF CAPITAL ASSET (S); OR (II) BENEFIT OF ENDURING NATURE IN THE CAPITAL FIELD OR ADDS TO THE PROFIT EARNING APPARATUS OF THE ASSESSEE. HAVING REGARD TO THE AFORESAID SETTLE D LEGAL PRINCIPLES, THE LD. AR SUBMITTED THAT IN THE PRESENT CASE SINCE THE PAYMEN T OF ROYALTY BY THE ASSESSEE UNDER THE AFORESAID AGREEMENT DOES NOT RESULT IN AC QUISITION OF ANY NEW ASSETS OR BENEFIT OF ENDURING NATURE IN THE CAPITAL FIELD, THE SAME CANNOT BE REGARDED AS IN THE NATURE OF CAPITAL EXPENDITURE. THE LD. AR SUBMITTED THAT ON PERUSAL OF THE AGREEMENT DATED 04.01.2005 ENTERED INTO BETW EEN THE ASSESSEE AND SMC, IT IS PATENTLY CLEAR THAT PAYMENT OF ROYALTY B Y THE ASSESSEE DOES NOT RESULT IN ACQUISITION OF ANY NEW ASSETS OR BENEFIT OF ENDURING NATURE IN THE CAPITAL FIELD, AND THEREFORE, THE SAME CANNOT BE RE GARDED AS CAPITAL EXPENDITURE. TO FURTHER ELABORATE, THE LD. AR SUBMI TTED THAT THERE IS NO OWNERSHIP RIGHTS GIVEN TO THE ASSESSEE. THE LD. AR SUBMITTED THAT DURING THE CURRENCY OF THE AGREEMENT, THE ASSESSEE ONLY HAD A LIMITED RIGHT TO USE THE TECHNOLOGY PROVIDED BY SMC. IN TERMS OF ARTICLES 2. 02, 2.03 AND 2.04, THE OWNERSHIP/PROPRIETARY RIGHTS IN THE TECHNICAL KNOW- HOW, AT ALL TIMES, CONTINUED AND STILL CONTINUES TO VEST IN SMC AND TH E ASSESSEE WAS NOT AUTHORIZED TO TRANSFER, ASSIGN OR CONVEY THE LICENS ED/KNOW-HOW/TECHNICAL INFORMATION TO ANY THIRD PARTY AND, THEREFORE, THE ASSESSEE ONLY ACQUIRED LIMITED RIGHT TO USE AND EXPLOIT THE KNOW-HOW, FOR CARRYING ON MANUFACTURING/ BUSINESS OPERATIONS. FURTHER, THE CONDITIONS IN THE AGREEMENT STIPULATED IN ARTICLE 3.10 AS TO NON-PARTIBILITY, CONFIDENTIALITY AND THE SECR ECY OF THE KNOW- HOW ALSO INDICATE THAT THE ASSESSEE OBTAINED MERE R IGHT TO USE THE KNOW-HOW 109 ITA NO . 467/DEL/2014 DURING THE CURRENCY OF THE AGREEMENT, WITHOUT ANYTH ING MORE. EVEN IMPROVEMENTS TO THE TECHNICAL KNOWLEDGE/ INFORMATIO N BELONG TO THE OWNER, I.E. SMC. THE COURTS, INCLUDING THE APEX COURT AND THE J URISDICTIONAL HIGH COURT HAVE, IN THE FOLLOWING CASES, CONSISTENTLY HELD THA T PAYMENT MADE FOR OBTAINING ACCESS TO INFORMATION AND RESTRICTED LICENSE TO THE LIMITED USE OF KNOW-HOW, SHOULD BE TREATED AS REVENUE EXPENDITURE. THE LD. A R RELIED UPON THE FOLLOWING DECISIONS: CIT V. CIBA INDIA LTD: 69 ITR 692 (SC) ALEMBIC CHEMICAL WORKS CO. LTD. V. CIT: 177 ITR 377 (SC) CIT V. SHRIRAM PISTONS AND RINGS LIMITED -CC 12154/ 2009 (SC) (DISMISSING THE SLP FILED BY THE REVENUE AGAINST TH E ORDER OF THE DELHI HIGH COURT IN ITA NO. 167/2008) SHRIRAM REFRIGERATION INDUSTRIES LTD. V. CIT: 127 I TR 746(DEL) TRIVENI ENGINEERING WORKS LTD. V. CIT 136: ITR 340 (DEL) CIT V. SHARDA MOTOR INDUSTRIAL LIMITED: 319 ITR 109 (DEL) CLIMATE SYSTEMS INDIA LIMITED V. CIT: 319 ITR 113 ( DEL) SHRIRAM PISTONS AND RINGS LIMITED V. CIT: 307 ITR 3 63 (DEL) CIT V LUMAX INDUSTRIES LIMITED 173 TAXMAN 390 (DEL) CIT V. J.K. SYNTHETICS LTD. 309 ITR 371 (DEL) CIT V. MUNJAL SHOWA LTD.: 329 ITR 449 (DEL) CIT V. DENSO INDIA P. LTD.: 232 TAXMAN 437 (DEL.) CIT V. MODI REVLON (P) LTD : 210 TAXMAN 161(MAG.) ( DEL.) CIT V. PREM HEAVY ENGINEERING WORKS P. LIMITED: 282 ITR 11 (ALL.) CIT V. ARTOS BREWERIES LTD : [2013] 215 TAXMAN 80 ( AP) CIT V. ESSEL PROPACK 325 ITR 185 (BOM) CIT V. EICHER MOTORS LTD : 293 ITR 464 (M.P.) ITO V. SHIVANI LOCKS : 118 TTJ 467 (DEL ITAT) GOODYEAR INDIA LTD. V. ITO : 73 ITD 189 (DEL ITAT) HERO MOTOCORP LTD. V. ACIT : ITA NOS. 5130/DEL/2010 FOR ASSESSMENT YEAR 2006-07 (DEL. ITAT) FENNER (INDIA) LTD V. ACIT : [2012] 139 ITD 406 (CH ENNAI) GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. : ITA NO. 1324/CHD/2012 (CHD) GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. V DCIT: 1 75 TTJ 552 (CHD. TRIB.) 110 ITA NO . 467/DEL/2014 THE LD. AR FURTHER POINTED OUT THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT V. HERO HONDA MOTORS LTD.: 372 ITR 481, WHEREIN THE HIGH COURT WHILE FOLLOWING THE AFORESAID DECISIONS HAS HELD THAT ROY ALTY PAYMENT MADE TO A FOREIGN COMPANY FOR MERELY ACQUIRING RIGHT TO USE T ECHNICAL KNOWHOW WHEREAS OWNERSHIP AND INTELLECTUAL PROPERTY RIGHTS IN KNOW HOW REMAINED WITH FOREIGN COMPANY, WAS ALLOWABLE REVENUE EXPENDITURE. IN THE AFORESAID JUDGMENTS, THE COURTS/ TRIBUNAL HAVE, ON AN ANALYSIS OF THE AGREEM ENT, COME TO THE CONCLUSION THAT PAYMENT MADE UNDER THE AGREEMENT WA S DEDUCTIBLE REVENUE EXPENDITURE, SINCE THERE WAS NO OUT AND OUT/ ABSOLU TE TRANSFER OF THE KNOW- HOW BY THE OWNER-LICENSOR TO THE LICENSEE AND THE K NOW-HOW SUPPLIED BY THE FOREIGN COMPANY REMAINED THE PROPERTY OF THE FOREIG N COMPANY FOR ALL TIMES TO COME; THE ASSESSEE HAVING ONLY A LIMITED RIGHT TO U SE THE KNOW-HOW DURING THE CURRENCY OF THE AGREEMENT. THE NO EXCLUSIVE USE OF TRADEMARK, THE AFORESAID RIGHT VESTED WITH THE ASSESSEE WAS NOT EXCLUSIVE IN AS MUCH AS IN TERMS OF ARTICLE 2.01(B)(II), SMC GRANTED LICENSE FOR NON-EX CLUSIVE USE OUTSIDE INDIA, MEANING THEREBY, THAT THE OWNER OF THE TRADEMARK R ESERVED WITH ITSELF, THE RIGHT TO ALLOW THE USER OF THE VERY SAME TRADEMARK TO ANY OTHER PERSON. THE LD. AR SUBMITTED THAT IN TERMS OF ARTICLE 2.01 (B)(I), THE EXCLUSIVE LICENSE GRANTED TO THE ASSESSEE WITHIN INDIA BY SMC ONLY ENSURES THAT SMC WOULD NOT GRANT SIMILAR LICENSE(S) TO ANY OTHER PERSON IN THE SAME TERRITORY FOR MANUFACTURE OF THE SPECIFIED PRODUCTS. SUCH AN EXCLUSIVE LICENSE O NLY ELIMINATES COMPETITION THEREBY SECURING PROFITABILITY OF THE ASSESSEE. THE SAME DOES NOT RESULT IN ACQUISITION OF ANY NEW ASSET OR ANY ENDURING ADVANT AGE IN THE CAPITAL FIELD. THE EXCLUSIVE LICENSE ONLY ENABLES THE BUSINESS OF THE ASSESSEE TO BE CARRIED ON MORE EFFICIENTLY AND PROFITABLY, WHILE LEAVING THE FIXED CAPITAL UNTOUCHED. IN THE FOLLOWING CASES, NOTWITHSTANDING THAT THE LICENSEE IN INDIA HAD ACCESS TO THE KNOW-HOW OF THE FOREIGN COMPANY UNDER AN EXCLUSIVE LICENSE, THE PAYMENT IN THE NATURE OF ROYALTY MADE HAS BEEN HELD TO BE REVE NUE IN NATURE. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: CIT V. CIBA INDIA LTD: 69 ITR 692 (SC) 111 ITA NO . 467/DEL/2014 CIT V. IAEC (PUMPS) LTD.: 232 ITR 316 (SC) SHRIRAM REFRIGERATION INDUSTRIES LTD. V. CIT: 127 I TR 746(DEL) TRIVENI ENGINEERING WORKS LTD. V. CIT: 136 ITR 340 (DEL) CIT V. BHAI SUNDER DASS & SONS (P) LTD: 158 ITR 19 5 (DEL.) CIT V. HERO HONDA MOTORS LTD.: 372 ITR 481 (DEL.) PRAGA TOOLS LTD. V. CIT : 123 ITR 773 (AP) MYSORE KIRLOSKAR LTD. V. CIT: 114 ITR 443 (KAR.) CIT V. TATA ENGINEERING & LOCOMOTIVE CO. PVT. LTD. 123 ITR 538 (BOM) CIT V. HINDUSTAN MOTORS LTD.: 192 ITR 619 (CAL.) CIT V. AVERY INDIA LTD.: 207 ITR 813 (CAL.) SHIVANI LOCKS LTD. (ITA NO. 3173 & 3048/D/07) (DEL) (ITAT) HERO HONDA (P) LTD.: ITA NO 5130/DEL/2010 (DEL. IT AT) THE LD. AR FURTHER SUBMITTED THAT THERE IS NO ENDUR ING BENEFIT IN CAPITAL FIELD. THE ASSESSEE ONLY HAD THE RIGHT TO USE THE TRADEMARK ON NON-EXCLUSIVE BASIS. IN TERMS OF ARTICLE 7.04 AND 7.05, THE ASSESSEE IS ALWAYS EXPOSED TO THE RISK OF PREMATURE TERMINATION OF THE AGREEMENT BY THE LICEN SOR. ON TERMINATION OF THE AGREEMENT, THE ASSESSEE CARRIES THE RISK OF NOT GET TING THE UPGRADED TECHNOLOGY FROM OWNER, I.E. SMC IN THE PRESENT CASE. THE MERE FACT THAT THE AGREEMENT WITH THE LICENSOR DID NOT SPECIFICALLY DEBAR THE AS SESSEE FROM USING THE KNOWLEDGE AFTER THE TERMINATION OF THE AGREEMENT DO ES NOT, THE LD. AR SUBMITTED, MEAN THAT THE ASSESSEE ACQUIRED ANY ADVA NTAGE OF CAPITAL IN NATURE SO AS TO BE TREATED AS CAPITAL EXPENDITURE, CONSIDE RING THE RAPID STRIDE IN TECHNOLOGICAL ADVANCEMENT AND THE FAST TECHNOLOGICA L OBSOLESCENCE. THE ADVANTAGE OF THE CONTINUED UTILIZATION OF THE SPECI AL KNOWLEDGE AND TECHNICAL KNOW-HOW ALONG WITH THE SPECIFIC DRAWINGS, BUSINESS AND OTHER INFORMATION, IN LIGHT OF THE QUICK CHANGING TECHNOLOGY DOES NOT RES ULT IN ANY ENDURING ADVANTAGE IN THE CAPITAL FIELD, APART FROM THE SUBM ISSION MADE EARLIER THAT THE ASSESSEE WAS A MERE LICENSEE, ENTITLED TO USE THE T ECHNICAL KNOWHOW OF SMC. THE LD. AR RELIED UPON THE FOLLOWING JUDICIAL PRONO UNCEMENTS WHEREIN IT HAS BEEN HELD THAT THE ASSESSEES RIGHT TO MAKE USE OF THE TECHNICAL KNOW-HOW AND THE KNOWLEDGE EVEN AFTER THE PERIOD OF THE AGREEMEN T IS OF NO CONSEQUENCE: 112 ITA NO . 467/DEL/2014 CIT V. AVERY INDIA LTD : 207 ITR 813 (CAL) PRAGA TOOLS LTD V. CIT : 123 ITR 773 (FB)(AP) CIT V. TATA ENGINEERING LTD: 123 ITR 538 (BOM) TRIVENI ENGINEERING WORKS LTD. V. CIT: 136 ITR 340 (DEL) ACIT V. SHAMA ENGINE VALVES LTD.: 138 ITR 216 (DEL) SHRIRAM PISTONS AND RINGS LTD.: 219 CTR 228 (DEL.) CIT V. J.K. SYNTHETICS LTD.: 176 TAXMAN 355 (DEL.) CIT V. B. N ELIAS & CO. LTD.: 168 ITR 190 (GUJ) SRP TOOLS LTD. V. CIT: 237 ITR 684 (MAD.) MYSORE KIRLOSKAR LTD.: 114 ITR 443 (KAR) CIT V. POWER BUILD LTD.: 244 ITR 19 (GUJ.) CIT V. GUJARAT CARBON LTD.: 254 ITR 294 (GUJ.) CIT V. KANPUR CIGARETTES (P) LTD.: 287 ITR 485 (ALL .) THE LD. AR FURTHER SUBMITTED THAT THE MODE OF PAYME NT IS IRRELEVANT. UNDER THE AGREEMENT, IN CONSIDERATION OF USE OF KNOW-HOW FOR MANUFACTURING THE VEHICLES/PARTS, THE ASSESSEE IS OBLIGED TO MAKE PAY MENT BY WAY OF (A) LUMPSUM ROYALTY; AND (B) RUNNING ROYALTY. THE LD. AR SUBMIT TED THAT THE AFORESAID PAYMENT OF LUMP SUM ROYALTY IS MADE UNDER THE SAME AGREEMENT AND IS GOVERNED BY THE SAME TERMS. THE OBJECTIVE OF INCURR ENCE OF BOTH THE EXPENSES IS THE SAME AND IS SUBJECT TO THE SAME TERMS AND OB LIGATIONS. IN TERMS OF ARTICLE 6.01 AND 6.02, ROYALTY IS PAID IN LUMPSUM IN THREE INSTALLMENTS ST ARTING FROM THE YEAR OF ENTERING INTO THE LICENSE AGREEMEN T WHILE RUNNING ROYALTY IS PAID EACH YEAR ON THE BASIS OF QUANTUM OF SALE OF E ACH MODEL. THE LD. AR SUBMITTED THAT THE PAYMENT OF RUNNING ROYALTY IS DI RECTLY LINKED AND CORRELATED WITH THE PRODUCTION/ SALES OF CARS AND SPARES BY TH E ASSESSEE COMPANY. IF THERE IS NO PRODUCTION/ SALE OF CARS AND SPARES, TH ERE WILL BE NO ROYALTY PAYABLE BY THE ASSESSEE TO SMC. THE ASSESSEE MERELY GETS A LICENSE TO USE THE VARIOUS ITEMS OF THE INTELLECTUAL PROPERTY OF THE LICENSOR FOR MANUFACTURE OF THE LICENSED PRODUCTS AND PARTS WITHOUT ACQUIRING ANY OWNERSHIP OF SUCH INTELLECTUAL PROPERTY. SUCH LICENSE TO MANUFACTURE HAS BEEN GRAN TED BY THE LICENSOR TO THE ASSESSEE DURING THE VALIDITY OF THE LICENSE AGREEME NT. THE ROYALTY IS PAID BY THE ASSESSEE ON THE NUMBER OF LICENSED PRODUCTS ALREADY MANUFACTURED AND THERE IS NO FUTURE BENEFIT TO BE DERIVED FROM SUCH PAYMEN T. ACCORDINGLY, THERE IS NO 113 ITA NO . 467/DEL/2014 ENDURING BENEFIT OF CAPITAL NATURE TO THE ASSESSEE AND THE EXPENDITURE IS REVENUE IN NATURE. IT HAS BEEN LAID DOWN BY THE HON BLE SUPREME COURT IN CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. 177 ITR 377 AND ALSO IN EMPIRE JUTE CASE 124 ITR 1 (SC) THAT THE TESTS OF ENDURING BENEFIT AND LUMPSUM P AYMENT OR ONCE FOR ALL PAYMENTS ARE IMMATERIAL AND IRRELEVA NT FOR LAYING DOWN WHETHER A PARTICULAR ITEM OF EXPENDITURE IS CAPITAL OR REVENU E. THE LD. AR REFERRED THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF SHR IRAM REFRIGERATION INDUSTRIES LTD. V. CIT: 127 ITR 746. THE ASSESSEE, IN THAT CASE, IN CONSIDERATION OF THE RIGHTS GRANTED FOR USE OF KNOW-HOW AGREED TO PAY LU MP-SUM FEE AND RECURRING ROYALTY. THE REVENUE ALLOWED DEDUCTION FOR THE RECU RRING ROYALTY PAID BUT HELD PAYMENT OF LUMP-SUM FEE TO BE CAPITAL IN NATURE. TH E HIGH COURT, ON AN ANALYSIS OF THE AGREEMENT, CAME TO THE CONCLUSION T HAT THE PAYMENT OF LUMP- SUM FEE NOT BEING FOR ACQUISITION OF ANY OWNERSHIP RIGHTS IN THE KNOW-HOW WAS ALLOWABLE REVENUE EXPENDITURE. THE COURT FURTHER NO TED THAT THE REVENUE HAVING ALLOWED DEDUCTION FOR THE RECURRING ROYALTY PAID, THE LUMP-SUM FEE COULD NOT, EVEN OTHERWISE, BE TREATED DIFFERENTLY. THE LD. AR ALSO MADE REFERENCE TO THE DECISION OF THE DELHI HIGH COURT I N CASE OF CIT V. HERO HONDA MOTORS LTD.: 372 ITR 481 WHEREIN, THE HIGH COURT HELD ROYALTY TO BE IN THE NATURE OF REVENUE EXPENDITURE EVEN THOUGH ROYALTY W AS PAID FOR EXCLUSIVE USE OF TECHNICAL KNOWHOW/ INFORMATION, THE AGREEMENT WA S FOR 10 YEARS AND EXTENDABLE AND THE ASSESSEE WAS PERMITTED TO USE TH E TECHNICAL KNOWHOW AND INFORMATION EVEN AFTER TERMINATION OF THE AGREEMENT . TO THE SAME EFFECT IS THE DECISIONS OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF HERO HONDA MOTORS LTD. VS. DCIT: ITA NO. 5130/DEL/2010 FOR ASSESSMENT YEAR 2006-07. IN VIEW OF THE ABOVE CUMULATIVE REASONS, WHERE THE EXPENDITURE INCURRED BY WAY OF ROYALTY MERELY FACILITATES CARRYING ON OF BUSINESS MORE PROFITABLY AND EFFICIENTLY, WITHOUT ADDITION TO THE CAPITAL APPARATUS, THE ADVA NTAGE OF ENDURING NATURE ENSUING THERE FROM SHALL BE ON REVENUE ACCOUNT ONLY . THE LD. AR RELIED UPON CIRCULAR NO. 21 OF 1969 ISSUED BY CBDT, WHICH CLARIFIES THAT IF IN TERMS OF THE AGREEMENT, ONLY A LICENSE IS OBTAINED FOR USER OF T ECHNICAL KNOWLEDGE FROM A FOREIGN PARTICIPANT FOR A LIMITED PERIOD TOGETHER W ITH OR WITHOUT THE RIGHT TO USE 114 ITA NO . 467/DEL/2014 THE PATENTS AND TRADEMARKS OF THE FOREIGN PARTY, TH E PAYMENT WOULD NOT BRING INTO EXISTENCE AN ASSET OF ENDURING ADVANTAGE TO TH E INDIAN PARTY. FOLLOWING THE AFORESAID CIRCULAR, SIMILAR ROYALTY PAYMENT WAS HELD TO BE ALLOWABLE AS REVENUE DEDUCTION BY THE JURISDICTIONAL DELHI HIGH COURT IN CASE OF CIT V LUMAX INDUSTRIES LIMITED: 173 TAXMAN 390. IT HAS SIMILARLY BEEN HELD IN THE CASE OF CIT V. J.K. SYNTHETICS LIMITED: 309 ITR 371 (DEL). THE ASSESSING OFFICER, IN THE IMPUGNED ORDER, HAS DISALLOWED THE ROYALTY A S CAPITAL EXPENDITURE FOLLOWING THE ASSESSMENT ORDERS FOR THE PRECEDING A SSESSMENT YEARS ON THE FOLLOWING GROUNDS: CAR IS A FAST MOVING CONSUMER PRODUCT WITH A LIF E CYCLE OF 5 YEARS WHEREAS THE LICENSE AGREEMENT IS FOR 10 YEARS, EXTE NDABLE BY 5 YEARS, AND EVEN THEREAFTER THE ASSESSEE CAN PRODUCE THE SAID M ODEL OF CAR, WHICH PROVIDES MORE THAN ENDUING BENEFIT TO THE ASSESSEE . THE LICENSE FEE HAS BEEN PAID TO OBTAIN EXCLUSIVE R IGHT FROM THE PARENT COMPANY FOR MANUFACTURE AND SALE OF THE PRODUCTS IN INDIA. THE LICENSE AGREEMENT LED TO THE SETTING UP OF A NE W FACTORY BASED ON NEW TECHNOLOGY OBTAINED THROUGH THE LICENSE AGREEME NT. THE AFORESAID FINDINGS/ OBSERVATIONS OF THE ASSESSI NG OFFICER ARE ERRONEOUS, BASED ON INCORRECT APPRECIATION OF THE FACTS AND TH E SETTLED LEGAL POSITION, AS POINTED OUT BY THE LD. AR HEREINAFTER. IT WAS CONTE NDED BY THE ASSESSING OFFICER THAT THE LIFE CYCLE OF A CAR IS MUCH LESS T HAN THE TERM OF THE AGREEMENT. IN THIS REGARD, THE LD. AR SUBMITTED THAT EVEN ASSU MING (WITHOUT ADMITTING) THE LIFE CYCLE OF A CAR TO BE SO, STILL THE CONCLUS ION OF THE ASSESSING OFFICER BASED ON THE SO-CALLED LIFE CYCLE OF A CAR VIS-A-VIS TENU RE OF AGREEMENT BEING 10 YEARS IS TOTALLY ERRONEOUS. THE ASSESSING OFFICER, IT IS RESPECTFULLY SUBMITTED, FAILED TO APPRECIATE THAT 10 YEARS IS MERELY THE TENURE OF TH E AGREEMENT AND IF THE ASSESSEE WERE TO MANUFACTURE A PARTICULAR CAR FOR S AY 5 YEARS ONLY, THEN, THE ROYALTY PAYMENT WOULD ACCORDINGLY BE PAYABLE FOR TH AT PERIOD. THUS, THE TENURE 115 ITA NO . 467/DEL/2014 OF AGREEMENT BEING 10 YEARS WAS TOTALLY IRRELEVANT FOR PERIOD. THUS, THE TENURE OF AGREEMENT BEING 10 YEARS WAS TOTALLY IRRELEVANT FOR HOLDING THAT THE AGREEMENT RESULTED IN MORE THAN ENDURING BENEFIT TO THE ASSESSEE. IN ORDER TO DETERMINE THE NATURE OF THE ROYALTY PAYMENT, WHETHE R CAPITAL OR REVENUE, WHAT IS MATERIAL IS THE UNDERLYING PURPOSE FOR WHICH PAY MENT IS MADE AND NOT THE TENURE. IF THE PAYMENT IS FOR USE OF TECHNICAL KNOW HOW SIMPLICIT OR, AS OPPOSED TO ACQUISITION OF PROPRIETARY RIGHTS THEREIN, THEN, THE PAYMENT HAS TO BE REGARDED AS REVENUE, IRRESPECTIVE OF THE TENURE FOR WHICH PERMISSION IS GRANTED FOR SUCH USE. IN THE PRESENT CASE, UNDER THE LICENS E AGREEMENT, THE ASSESSEE WAS, AS STATED ABOVE, MERELY GRANTED PERMISSION/ AC CESS TO THE TECHNICAL KNOWHOW FOR THE LIMITED PURPOSE OF USE IN THE BUSIN ESS OF MANUFACTURING CARS. THE ASSESSEE ONLY HAS THE RIGHT TO USE THE TECHNOLO GY RELATING TO THE NEW MODELS DURING THE CURRENCY OF THE AGREEMENT. THE PR OPRIETARY RIGHTS ON THE KNOW-HOW AND THE INTELLECTUAL PROPERTY RIGHTS IN RE LATION THERETO CONTINUE TO BE OWNED BY SMC. IN VIEW OF THE AFORESAID, THE MERE FA CT THAT AGREEMENT IS FOR 10 YEARS, EXTENDABLE BY 5 YEARS, IS IRRELEVANT FOR DET ERMINING THE NATURE OF ROYALTY PAYMENT. FURTHER, THE ASSESSING OFFICER STATED THAT THE ASSESSEE ACQUIRED AN ENDURING ADVANTAGE AS THE RIGHT TO MANUFACTURE THE PRODUCTS AND PARTS IS AVAILABLE EVEN AFTER THE EXPIRY OF THE TERM OF THE AGREEMENT. IN THIS REGARD, IT IS REITERATED THAT THE COURTS HAVE IN THE FOLLOWING CA SES HELD THAT IN THE ABSENCE OF CLAUSE OF RETURN OF DOCUMENTATION/KNOW-HOW AND T HE FACT THAT THE ASSESSEE WAS ENTITLED TO CARRY ON MANUFACTURING ACTIVITIES W ITH USE OF SUCH KNOW- HOW/DOCUMENTATION EVEN AFTER THE EXPIRY OF THE AGRE EMENT, DID NOT ALTER THE NATURE OF TRANSACTION OR RESULT IN ANY BENEFIT OF E NDURING CHARACTER TO THE ASSESSEE. THE LD. AR RELIED UPON THE FOLLOWING DECI SIONS: PRAGA TOOLS LTD. V. CIT : 123 ITR 773 (AP)(FB) CIT V. TATA ENGINEERING & LOCOMOTIVE CO. PVT. LTD. 123 ITR 538 (BOM) SHRIRAM REFRIGERATION INDUSTRIES LTD. V. CIT: 127 I TR 746 (DEL) TRIVENI ENGINEERING WORKS LTD. V. CIT: 136 ITR 340 (DEL) CIT V. BHAI SUNDER DASS & SONS (P) LTD.: 158 ITR 19 5 (DEL.) 116 ITA NO . 467/DEL/2014 CIT V. HERO HONDA MOTORS LTD.: 372 ITR 481 (DEL.) CIT V. B.N. ELIAS & CO. (P) LTD.: 168 ITR 190 (CAL. ) CIT V. AVERY INDIA LTD.: 207 ITR 813 (CAL.) SRP TOOLS LTD. V CIT: 237 ITR 684(MAD) CIT V. POWER BUILD LTD.: 244 ITR 19 (GUJ.) CIT V. GUJARAT CARBON LTD.: 254 ITR 294 (GUJ.) CIT V. KANPUR CIGARETTES (P) LTD.: 287 ITR 485 (ALL .) SHRIRAM PISTONS AND RINGS LTD.: 219 CTR 228 (DEL.) CIT V. J.K. SYNTHETICS LTD.: 176 TAXMAN 355 (DEL.) FURTHER, THE LD. AR POINTED OUT THAT IT HAS BEEN HE LD IN THE FOLLOWING JUDICIAL PRECEDENTS THAT WHERE THE ASSESSEE CONTINUED TO MAN UFACTURE USING THE TECHNOLOGY OBTAINED EVEN AFTER EXPIRY OF THE AGREEM ENT, THE SAME WAS NOT CONCLUSIVE AND THE EXPENDITURE WOULD BE ALLOWABLE R EVENUE EXPENDITURE, IF ON A CUMULATIVE READING OF THE AGREEMENT, IT APPEARED TH AT THE ASSESSEE DID NOT ACQUIRE ANY ASSET OR ENDURING ADVANTAGE IN THE CAPI TAL FIELD: CIT V. TATA ENGINEERING LTD: 123 ITR 538 (BOM.) (HC ) PRAGA TOOLS LTD. V. CIT: 123 ITR 733 (AP) ACIT V. SHAMA ENGINE VALVES LTD.: 138 ITR 216 (DEL) CIT V. J.K SYNTHETICS : 309 ITR 371 (DEL) CIT V. B. N ELIAS & CO. LTD.: 168 ITR 190 (GUJ) CIT V. AVERY INDIA LTD.: 207 ITR 813 (CAL) SRP TOOLS LTD. V. CIT: 237 ITR 684 (MAD) MYSORE KIRLOSKAR LTD. : 114 ITR 443 THE ASSESSING OFFICER FURTHER STATED THAT THE ASSES SEE OBTAINED AN EXCLUSIVE LICENSE TO MANUFACTURE THE PRODUCTS AND PARTS IN IN DIA IN AS MUCH AS THE LICENSOR (SMC) AGREED NOT TO MANUFACTURE SIMILAR PR ODUCTS IN INDIA NOR TO PROVIDE THE TECHNOLOGY TO ANY OTHER PARTY. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE EXCLUSIVE LICENSE BY ITSELF WOULD NOT, IT IS RESPECTFULLY SUBMITTED, RENDER THE EXPENDITURE BY WAY OF ROYALTY AS CAPITAL IN NATURE ON THE GROUND 117 ITA NO . 467/DEL/2014 THAT SAME HAS RESULTED IN ENDURING BENEFIT. AS ELAB ORATELY DISCUSSED EARLIER, THE EXCLUSIVE LICENSE SEEKS TO PROTECT THE PROFITAB ILITY/MARKET OF THE ASSESSEE FROM/FOR MANUFACTURING AND SELLING THE VEHICLES/CAR S IN INDIA, DURING THE CURRENCY OF THE AGREEMENT, BY ELIMINATING COMPETITI ON FROM ANY OTHER MANUFACTURER(S), WHO MAY SEEK TO MANUFACTURE SIMILA R VEHICLES IN INDIA. THE EXCLUSIVE LICENSE, THUS, MERELY ENABLES THE EXISTIN G BUSINESS OF MANUFACTURE TO BE CARRIED ON MORE EFFICIENTLY AND PROFITABLY, WITH OUT ANY ADDITION TO THE PROFIT EARNING OR CAPITAL APPARATUS. THE ENDURING BENEFIT, IF ANY, IS THUS, ON REVENUE ACCOUNT. THE OBSERVATION OF THE ASSESSING OFFICER T HAT THE LICENSE AGREEMENT LED TO THE ASSESSEE SETTING UP A NEW FACTORY BASED ON N EW TECHNOLOGY IS FACTUALLY INCORRECT. IN THIS REGARD, IT IS PERTINENT TO NOTE THAT NO NEW PLANT/ FACTORY WAS SET UP BY THE ASSESSEE ON THE BASIS OF THE AGREEMEN T ENTERED INTO FOR USE OF TECHNICAL KNOWLEDGE/ INFORMATION. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MAN UFACTURE OF AUTOMOBILES SINCE 1982. THE ASSESSEE IS NOT MAKING PAYMENT IN T HE INITIAL YEAR OF SETTING UP OF THE FACTORY, WHICH IS OPERATIVE AND RUNNING A T THE TIME OF ENTERING INTO THE SUBJECT AGREEMENT. VARIOUS MODELS OF THE CARS I NTRODUCED BY THE ASSESSEE FROM TIME TO TIME ARE NOTHING BUT PART OF THE EXIST ING BUSINESS OF THE ASSESSEE. THEREFORE, THE MERE FACT THAT NEW MODELS/ VARIANTS OF CARS ARE INTRODUCED BY THE ASSESSEE BASED ON THE LICENSE AGREEMENT DOES NO T MEAN THAT AN ALTOGETHER NEW PRODUCT WAS MANUFACTURED. THAT APART, EVEN IF V ARIOUS VARIANTS OF CAR ARE TREATED AS DIFFERENT/ NEW PRODUCTS, STILL, HAVING R EGARD TO THE FACT THAT THE SAME WERE PART OF THE VERY SAME BUSINESS OF THE ASSESSEE OF MANUFACTURING OF CARS, NO NEW BUSINESS WAS SET UP SO AS TO REGARD THE PAYM ENT OF ROYALTY AS RESULTING IN AN ENDURING BENEFIT TO THE ASSESSEE. THE SAID PA YMENT OF ROYALTY THEREFORE DOES NOT RESULT IN ACQUISITION BY THE ASSESSEE OF A NY ASSET OR ADVANTAGE OF ENDURING BENEFIT WHICH IS IN THE CAPITAL FIELD AS EXPLAINED BY THE HONBLE SUPREME COURT IN THE EMPIRE JUTE CASE 124 ITR 1 (SC ), WHICH IS NECESSARY IN ORDER TO CONSIDER THE SAME AS CAPITAL EXPENDITURE. THE PAYMENT OF THE ENTIRE ROYALTY, BOTH LUMPSUM AND RUNNING ROYALTY, THEREFOR E NEEDS TO BE ALLOWED REVENUE DEDUCTION. THE AFORESAID ISSUE HAS BEEN DEC IDED IN FAVOUR OF THE 118 ITA NO . 467/DEL/2014 ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN ASSE SSEES OWN CASE FOR THE AY 2006-07, AY 2007-08 AND AY 2008-09 HOLDING THAT AMO UNT OF ROYALTY CONSIDERED BY THE ASSESSING OFFICER AS CAPITAL EXPE NDITURE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. IN VIEW OF THE AFORESAID, THE ASSESSING OFFICER SHO ULD BE DIRECTED TO ALLOW THE ENTIRE ROYALTY PAYMENT AS ALL OWABLE REVENUE DEDUCTION. 57. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 58. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD IN A.Y. 2008 -09 AS UNDER: GROUND NO 9 TO 9.3 DISALLOWANCE OF EXPENDITURE OF R S. 192.77 CR OUT OF THE TOTAL AMOUNT OF RS.495.15 CR INCURRED ON ACCOUNT OF ROYALTY. 9. INSOFAR AS THE DISALLOWANCE OF RS.192.77 CRORES RO YALTY PAID TO SUZUKI MOTOR CORPORATION, JAPAN (SMC), IS CONCERNED, ACCORDING TO THE ASSESSEE, DURING THE YEAR UNDER CONSIDERATION, THE AS SESSEE PAID ROYALTY OF RS.495,15,40,443/- TO SUZUKI MOTOR CORPO RATION, JAPAN (SMC) FOR USE OF LICENSED INFORMATION FOR THE ENGIN EERING, DESIGN AND DEVELOPMENT, MANUFACTURE, TESTING, QUALITY CONTROL, SALE AND AFTER SALES SERVICE OF PRODUCTS AND PARTS, BUT THE ASSESSING OFF ICER, IN THE IMPUGNED ASSESSMENT ORDER, HAS HELD THAT INASMUCH AS THE LIF E CYCLE OF A CAR IS ONLY 5 YEARS WHEREAS THE LICENCE AGREEMENT IS FOR 1 0 YEARS, EXTENDABLE BY 5 YEARS AND EVEN THEREAFTER THE ASSESSEE CAN PRO DUCE THE SAID MODEL OF CAR, AND THE LICENCE AGREEMENT LED TO THE A SSESSEE SETTING UP A NEW FACTORY BASED ON NEW TECHNOLOGY, AND FOR THESE RE ASONS THE ASSESSEE HAD ENDURING BENEFIT AS SUCH ROYALTY PAID BY THE ASSESSEE WAS CAPITAL IN NATURE, AND CONSEQUENTLY, HELD THAT THE ENTIRE ROYALTY IS DISALLOWABLE. ON THIS PREMISE, BASING ON THE ADJUST MENT OF RS.237.24 119 ITA NO . 467/DEL/2014 CRORES, MADE BY TPO THE ASSESSING OFFICER HAS COMPU TED THE DISALLOWANCE OUT OF ROYALTY PAYMENTS TO A TUNE OF R S. 192.77 CR. 9.1. IT IS THE ARGUMENT OF THE LD. AR THAT THE ASSESSING OFFICER FAILED TO APPRECIATE THE FACT THAT THE NATURE AND PURPOSE F OR WHICH THE ROYALTY HAS BEEN PAID TO SMC IS ONLY THE USE OF LICENSED INF ORMATION FOR THE ENGINEERING, DESIGN AND DEVELOPMENT, MANUFACTURE, TEST ING, QUALITY CONTROL, SALE AND AFTER SALES SERVICE OF PRODUCTS AND PARTS, AND AS PER CLAUSE 7.01 OF THE AGREEMENT THE DURATION OF THE AG REEMENT HAS BEEN SPECIFIED AS 10 YEARS AND VIDE CLAUSE 7.04 OF THE AGR EEMENT IT WAS SUBJECT TO TERMINATION AT EARLIER DATE FOR BREACH. HE SUBMITTED THAT AS EVIDENCED BY CLAUSE 2.02 OF THE AGREEMENT SMC DOES NOT TRANSFER TO MSIL ANY SPECIFIC PATENTS OR COPYRIGHTS OR OTHER SE CRET OR PROTECTED INFORMATION OR KNOWHOW SO AS TO MAKE MSIL A PROPRIE TOR OF THE SAME OR SO AS TO ENABLE MSIL TO EXERCISE PROPRIETARY RIGHTS SUCH AS UNRESTRICTED RIGHTS OF TRANSFER TO THIRD PARTY, EITHER BY WAY OR ASSIGNMENT OR LICENSE. 9.2. ACCORDING TO HIM IN ORDER TO DETERMINE THE NATURE OF THE ROYALTY PAYMENT, WHETHER CAPITAL OR REVENUE, WHAT IS MATERI AL IS THE UNDERLYING PURPOSE FOR WHICH PAYMENT IS MADE AND NOT THE TENUR E OR ITS EXTENDIBILITY OR THE LIFE CYCLE OF THE PRODUCT THAT IS MANUFACTURED WITH THE HELP OF THE TECHNOLOGY THAT IS ACCESSED FROM SMC. IF THE PAYMENT IS FOR USE OF TECHNICAL KNOWHOW, SIMPLICITOR, THEN THE PAYMENT HAS TO BE REGARDED AS REVENUE, IRRESPECTIVE OF THE TENURE FOR WHICH PERMISSION IS GRANTED FOR SUCH USE. SINCE IN THE PRESENT CASE, UND ER THE LICENSE AGREEMENT, THE ASSESSEE WAS MERELY GRANTED PERMISSIO N TO ACCESS THE TECHNICAL KNOWHOW FOR THE LIMITED PURPOSE OF USING THE TECHNOLOGY RELATING TO THE NEW MODELS DURING THE CURRENCY OF TH E AGREEMENT AND THE PROPRIETARY RIGHTS FOR THE KNOW-HOW AND THE INT ELLECTUAL PROPERTY 120 ITA NO . 467/DEL/2014 RIGHTS IN RELATION THERETO CONTINUE TO BE OWNED BY S MC ALONE, THE PAYMENT IS UNDOUBTEDLY REVENUE IN NATURE. 9.3. WHILE PLACING RELIANCE ON CIRCULAR NO. 21 OF 1969 ISSUED BY CBDT, HE ARGUED THAT IF IN TERMS OF THE AGREEMENT, O NLY A LICENSE IS OBTAINED FOR USER OF TECHNICAL KNOWLEDGE FROM A FORE IGN PARTICIPANT FOR A LIMITED PERIOD TOGETHER WITH OR WITHOUT THE RIGHT TO USE THE PATENTS AND TRADEMARKS OF THE FOREIGN PARTY, THE PAYMENT WOULD NOT BRING INTO EXISTENCE AN ASSET OF ENDURING ADVANTAGE TO THE INDI AN PARTY. HE FURTHER SUBMITTED THAT WHILE FOLLOWING THE AFORESAI D CIRCULAR, THE JURISDICTIONAL DELHI HIGH COURT IN CASE OF CIT V LU MAX INDUSTRIES LIMITED: 173 TAXMAN 390 HELD THAT SIMILAR ROYALTY PA YMENT WAS ALLOWABLE AS REVENUE DEDUCTION. 9.4. HE SUBMITTED THAT IN A HOST OF DECISIONS, NAMELY, CI T V. CIBA INDIA LTD: 69 ITR 692 (SC) , ALEMBIC CHEMICAL WORKS C O. LTD. V. CIT: 177 ITR 377 (SC), CIT V. SHRIRAM PISTONS AND RINGS LI MITED -CC 12154/2009 (SC) (DISMISSING THE SLP FILED BY THE REVEN UE AGAINST THE ORDER OF THE DELHI HIGH COURT IN ITA NO. 167/2008), SHRIRAM REFRIGERATION INDUSTRIES LTD. V. CIT: 127 ITR 746(DEL ), TRIVENI ENGINEERING WORKS LTD. V. CIT 136: ITR 340 (DEL), C IT V. SHARDA MOTOR INDUSTRIAL LIMITED: 319 ITR 109 (DEL), CLIMATE SYSTE MS INDIA LIMITED V. CIT: 319 ITR 113 (DEL), SHRIRAM PISTONS AND RINGS LI MITED V. CIT: 307 ITR 363 (DEL), CIT V LUMAX INDUSTRIES LIMITED 173 TAX MAN 390 (DEL), CIT V. J.K. SYNTHETICS LTD. 309 ITR 371 (DEL), CIT V. MUNJAL SHOWA LTD. : 329 ITR 449 (DEL), CIT V. HERO HONDA MOTORS LTD.: 3 72 ITR 481 (DEL.), CIT V. DENSO INDIA P. LTD.: 232 TAXMAN 437 (DEL.) , CITV. MODI REVLON (P) LTD : 210 TAXMAN 161(MAG.) (DEL.), CIT V. PREM H EAVY ENGINEERING WORKS P. LIMITED: 282 ITR 11 (ALL.), CIT V. ARTOS BR EWERIES LTD : [2013] 121 ITA NO . 467/DEL/2014 215 TAXMAN 80 (AP), CIT V. ESSEL PROPACK 325 ITR 18 5 (BOM), CIT V. EICHER MOTORS LTD : 293 ITR 464 (M.P.), ITO V. SHIVAN I LOCKS : 118 TTJ 467 (DEL ITAT), GOODYEAR INDIA LTD. V. ITO : 73 ITD 1 89 (DEL ITAT), HERO MOTOCORP LIMITED V. ACIT : ITA NOS. 5130/DEL/2010 F OR ASSESSMENT YEAR 2006-07 (DEL. ITAT), FENNER (INDIA) LTD V. ACI T : [2012] 139 ITD 406 (CHENNAI), GLAXO SMITHKLINE CONSUMER HEALTHCARE LIMITED : ITA NO. 1324/CHD/2012 (CHD), GLAXOSMITHKLINE CONSUMER HEALTH CARE LTD. V DCIT : 175 TTJ 552 (CHD. TRIB.), THE ISSUE OF ALLOWA BILITY OF ROYALTY PAYMENTS AS REVENUE EXPENDITURE IS COVERED IN FAVOUR OF THE ASSESSEE COMPANY. 9.5. HE FURTHER RELIED UPON THE DECISION OF THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT V. J.K SYNTHETICS: 30 9 ITR 371@ PG 391, WHEREIN WHILE CULLING OUT LEGAL PRINCIPLES BASED ON VARIOUS DECISIONS IT WAS HELD THAT THE FACT THAT ASSESSEE COULD USE THE TE CHNICAL KNOWLEDGE OBTAINED DURING THE TENURE OF THE LICENSE FOR THE PU RPOSES OF ITS BUSINESS AFTER THE AGREEMENT HAS EXPIRED, AND IN THAT SENSE, RESULTING IN AN ENDURING ADVANTAGE, HAS BEEN CATEGORICALLY REJE CTED BY THE COURTS, AND THAT THIS, BY ITSELF, CANNOT BE DECISIV E BECAUSE KNOWLEDGE BY ITSELF MAY LAST FOR A LONG PERIOD EVEN THOUGH DUE TO RAPID CHANGE OF TECHNOLOGY AND HUGE STRIDES MADE IN THE FIELD OF SCIE NCE, THE KNOWLEDGE MAY WITH PASSAGE OF TIME BECOME OBSOLETE. LD. AR DI SPUTED THE FACTUAL CORRECTNESS OF THE OBSERVATION OF THE ASSESSING OFF ICER THAT THE LICENSE AGREEMENT LED TO THE ASSESSEE SETTING UP A NEW FACT ORY BASED ON NEW TECHNOLOGY, AND SUBMITTED THAT NO NEW PLANT/ FACTORY WAS SETUP BY THE ASSESSEE ON THE BASIS OF THE AGREEMENT ENTERED INTO FOR USE OF TECHNICAL KNOWLEDGE/ INFORMATION. ACCORDING TO HIM THE ASSES SING OFFICER FAILED TO APPRECIATE THAT THE ASSESSEE IS ENGAGED IN THE BU SINESS OF MANUFACTURE OF AUTOMOBILES AND VARIOUS MODELS OF THE CARS INTRODUCED 122 ITA NO . 467/DEL/2014 BY THE ASSESSEE FROM TIME TO TIME ARE NOTHING BUT P ART OF THE SAME BUSINESS OF THE ASSESSEE, AS SUCH THE MERE FACT THA T NEW MODELS/ VARIANTS OF CAR ARE INTRODUCED BY THE ASSESSEE BASED ON THE LICENSE AGREEMENT DOES NOT MEAN THAT AN ALTOGETHER NEW PRODUC T WAS MANUFACTURED. HE MADE A REFERENCE TO THE DECISIONS OF THE DELHI HIGH COURT IN CASE OF CIT V. HERO HONDA MOTORS LTD.: 372 ITR 481 AND DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE C ASE OF HERO HONDA MOTORS LIMITED V. DCIT: ITA NO. 5130/DEL/2010 FOR A .Y. 2006-07, AND ALSO TO THE DECISION OF THE DELHI BENCH OF THE TRIB UNAL IN THE CASE OF HERO HONDA MOTORS LIMITED V. DCIT IN ITA NOS. 716 TO 718/DEL/2008 FOR THE ASSESSMENT YEARS 2000-01 TO 2002-03 WHEREIN , A COORDINATE BENCH OF THIS TRIBUNAL, AFTER ANALYZING ALL THE DEC ISIONS, HELD ROYALTY TO BE IN THE NATURE OF REVENUE EXPENDITURE EVEN THOUGH ROYALTY WAS PAID FOR EXCLUSIVE USE OF TECHNICAL KNOWHOW/ INFORMATION , THE AGREEMENT WAS FOR 10 YEARS AND EXTENDABLE, THE ASSESSEE WAS PE RMITTED TO CONTINUE TO MANUFACTURE MOTORCYCLES EVEN AFTER TERM INATION OF THE AGREEMENT. LASTLY HE SUBMITTED THAT THE AFORESAID IS SUE HAS NOW BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY2006-07 AND AY 2007-08 HOLDING THAT AMOUNT OF ROYALTY CONSIDERED BY AO AS CAPITAL EXPENDI TURE SHOULD BE ALLOWED AS REVENUE EXPENDITURE. FOR THESE REASONS HE PRAYED THAT THE ASSESSING OFFICER MAY BE DIRECTED TO ALLOW THE ENTI RE ROYALTY PAYMENT AS ALLOWABLE REVENUE DEDUCTION. 9.6. PER CONTRA, LD. DR VEHEMENTLY DEFENDED THE OBSERVATI ONS OF THE AO, WHILE SUBMITTING THAT IN THE SCENARIO OF A NEW MODEL COMING EVERY 2 ND OR 3 RD YEAR AND THE OLD MODELS GETTING PHASED OUT, LICENSE AGREEMENT IS FOR 10 YEARS, EXTENDABLE BY 5 YEARS AN D EVEN THEREAFTER MSIL CAN PRODUCE THE SAID MODEL OF CAR, IS MORE THAN ENDURING. 123 ITA NO . 467/DEL/2014 FURTHER, THERE HAS BEEN TECHNOLOGY TRANSFER FOR MAN UFACTURING THE PRODUCT, AND THE PERSONNEL OF THE COMPANY HAVE BEEN T ECHNICALLY TRAINED. THE TRANSFER OF TECHNOLOGY IS AS PER THE LI CENSE AGREEMENT BUT THE SKILL WHICH HAS BEEN ACQUIRED YEAR AFTER YEAR DUE TO TRAINING OF THE COMPANIES PERSONNEL HAS BEEN ABSORBED IN THE COMPANY AND CAN BE USED ACROSS THE OTHER PRODUCTS. THIS IS AGAIN AN ENDUR ING BENEFIT. REFERRING TO THE CASES CITED BY THE LD. AR, IT IS TH E ARGUMENT OF THE LD. DR THAT IN ALL THE CASES WHERE THE COURTS HAVE HELD THAT THE ROYALTY PAYMENT IS REVENUE AND NOT CAPITAL ARE THE ONES WHE RE THE LICENSE AGREEMENT WAS ONLY TO APPROACH OR ACCESS THE TECHNO LOGY WITHOUT IMPARTING ANY TRADE SECRETS AND ABOVE ALL THE TIME P ERIOD WAS MUCH SHORT, SAY 5 YEARS OR LESS COUPLED WITH THE FACT TH AT , THE PRODUCT WAS DIFFERENT AND THE RIGHT GIVEN WAS NOT EXCLUSIVE. HE SUBMITTED THAT THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR AY 2007- 08 CANNOT BE RELIED UPON BECAUSE ON THIS ASPECT THE TRIBUNAL WAS SWAYED BY THE ASSESSEE CONTENTION THAT TPO HAS DISALLOWED THE ROYA LTY, BUT AS A MATTER OF FACT, TPO HAD DETERMINED THE VALUE OF THE ALP OF THE CO- BRANDING DONE BY SUZUKI. THE VALUE OF THE SAME IS DET ERMINED BY EQUATING THE TRADE MARK ROYALTY MARUTI WAS PAYING T O SUZUKI FOR ITS BRAND. THE LOGIC IS SIMPLE IF MARUTI WAS PAYING LIC ENSED TRADE NAME ROYALTY TO SUZUKI THEN SUZUKI SHOULD ALSO BE PAYING B ACK THE TRADE NAME ROYALTY TO MARUTI. WHEREAS IT IS A FACT THAT R OYALTY BEING PAID IS A COMPOSITE ROYALTY INCLUDING THE USAGE OF TRADEMARK A ND TECHNICAL INFORMATION. IT IS SUZUKI WHO HAS BEEN CHARGING THI S ROYALTY EVEN IF ITS NAME WAS USED ONLY ON THE REAR OF THE VEHICLE. BUT NOW AFTER TAKING OVER THE MANAGEMENT OF THE COMPANY, IT HAS REPOSITI ONED ITS NAME AND BRAND AND LOGO ON THESE VEHICLES. THE QUESTION IS W HETHER ANY INDEPENDENT PARTY THAT HAD ASSIDUOUSLY OVER THE YEAR S HAVE BUILT UP A 124 ITA NO . 467/DEL/2014 NAME AND REPUTATION WOULD HAVE ALLOWED SO? AND THAT T OO ABSOLUTELY FREE WHEN THE OTHER PARTY HAD BEEN THROUGHOUT CHARG ING IT FOR WHATEVER IT WAS PROVIDING IT BE IT MACHINERY, TECHNOLOGY, SP ARE PARTS, TECHNICAL ASSISTANCE, CORPORATE GUARANTEE, TRADE NAME, TRADE MARK. THAT DOES NOT SEEM TO BE A SITUATION IN NORMAL AND INDEPENDENT CIRC UMSTANCES AND THIS WAS NOT APPRECIATED BY THE TRIBUNAL, AS A CONS EQUENCE OF WHICH THE REVENUE PREFERR3D AN APPEAL ON THIS ISSUE ALSO. ACCORDING TO HIM, THE TRIBUNAL HAD MERELY RELIED ON ITS ORDER FOR EARL IER YEARS WHICH IN TURN RELIED MERELY ON DECISION OF HONBLE DELHI HIGH COURT IN HERO HONDA MOTORS LTD. (2015) 372 ITR 481 (DEL) AND NOT DISCUSSED THE FACTS THAT ARE RECORDED IN THE ASSESSMENT ORDER. IT IS SUBM ITTED THAT ON THE BASIS OF THE FACTS MENTIONED IN THE ASSESSMENT ORDER , THE RATIO DECIDENDI OF THE DELHI HIGH COURT DECISION IN HERO HON DA MOTORS LTD. (SUPRA) WOULD NOT BE APPLICABLE IN THE INSTANT CASE . LASTLY, IT IS ARGUED BY THE LD. DR THAT THESE ARE CONTINUOUS ISSUES FORM ING PART OF THE ASSESSMENT ORDER FOR AY 2005-06, 2006-07 AND 2007-08 ALSO, AND ARE AT PRESENT PENDING ADJUDICATION BEFORE HONBLE DELH I HIGH COURT. 9.7. ON THIS ISSUE, A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-08, VIDE PARA 20.5 AND 20.6 ON PAGE 91-93 OF ORDER, REFERRED TO ORDER FOR AY 2006-07 AND HELD AS U NDER: 8.5. THE LD. DR HAS RELIED ON CERTAIN DECISIONS, W HICH CATEGORIZE PAYMENT FOR USE OF TECHNICAL KNOW-HOW ETC. AS A CAPITAL EXPENDITURE . SIMILARLY, THE LD. AR HAS ALSO RELIED ON CERTAIN DECISION WHICH MARK SUCH PAYMENT AS A REVENUE EXPENSE. IN ALL THESE DECISIONS, THE DIVIDING LINE IS WHETHER THE C ONSIDERATION IS FOR PURCHASE OF TECHNICAL INFORMATION, KNOW-HOW INFORMATION, DESIGN S AND DRAWINGS, ETC., OR FOR ITS USE. IF IT IS FOR USE ALONE, THEN IT IS REVENUE AND VICE VERSA. RECENTLY, THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS. HERO H ONDA MOTORS LTD. (2015) 372 ITR 481 (DEL), ON CONSIDERATION OF THE RELEVANT CLA USES OF THE AGREEMENT BEFORE IT, WHICH CONSIDERABLY MATCH WITH THE AGREEMENT UNDER C ONSIDERATION, HAS HELD THAT THE PAYMENTS MADE FOR MODEL FEE (WHICH IS EQUIVALEN T OF LUMPSUM ROYALTY IN OUR CASE) AND RUNNING ROYALTY ARE REVENUE EXPENSES. IN THIS JUDGMENT, THE HON'BLE 125 ITA NO . 467/DEL/2014 JURISDICTIONAL HIGH COURT HAS CONSIDERED SEVERAL JU DGMENTS OF THE HON'BLE SUPREME COURT AND HON'BLE HIGH COURTS AND ON CONSID ERATION OF THEIR CUMULATIVE EFFECT, IT HAS COME TO THE CONCLUSION THAT BOTH THE AMOUNTS ARE REVENUE IN NATURE. THE HON'BLE DELHI HIGH COURT IN AN EARLIER JUDGMENT IN SHRIRAM REFRIGERATION INDUSTRIES LTD. VS. CIT (1981) 127 ITR 746 (DEL), H AS HELD THAT THE LUMPSUM ROYALTY IS A REVENUE EXPENDITURE. AFTER GOING THROU GH THE RELEVANT CLAUSES OF THE AGREEMENT, WE HAVE NOTED THAT ROYALTY PAID BY THE A SSESSEE IS FOR USE OF LICENSED INFORMATION AND NO PART OF THE SAME IS TOWARDS ITS ACQUISITION AS AN OWNER. IN THE LIGHT OF THE ABOVE DISCUSSION, IT IS ABSOLUTELY CLE AR THAT THE VIEW CANVASSED BY THE AO IN TREATING THIS AMOUNT AS CAPITAL EXPENDITURE, IS NOT SUSTAINABLE. 8.6. OUR ABOVE FINDING DECIDES THE NATURE OF ROYALT Y PAYMENT FOR USE OF LICENSED INFORMATION AS REVENUE EXPENDITURE AND NOT ITS QUAN TUM PART. WE HAVE NOTICED ABOVE THAT THE TRIBUNAL IN ITS ORDER FOR THE IMMEDI ATELY PRECEDING YEAR HAS ALSO GIVEN SOME OBSERVATIONS, WHICH PRIMA FACIE INDICATE THAT THE ENTIRE AMOUNT OF ROYALTY IS FOR THE USE OF LICENSED INFORMATION. SIN CE WE HAVE HELD THE ROYALTY FOR USE OF LICENSED INFORMATION AS REVENUE EXPENDITURE, THE QUANTIFICATION ASPECT BECOMES IRRELEVANT. IT IS SO BECAUSE THE TPO HAS HE LD ROYALTY FOR USE OF LICENSED INFORMATION AT ALP. WE, THEREFORE, HOLD THAT THE AM OUNT OF ROYALTY CONSIDERED BY THE AO AS CAPITAL EXPENDITURE SHOULD BE ALLOWED AS A REVENUE EXPENDITURE. AT THE SAME TIME, DEPRECIATION ALLOWED BY THE AO ON THIS A MOUNT SHOULD BE TAKEN BACK. 9.8. FOLLOWING THE ABOVE DECISION FOR AY 2006-07, WHICH IS ON AN IDENTICAL ISSUE IN THE CASE OF ASSESSEE ITSELF, THIS TRIBUNAL FOR THE AY 2007-08 HOLD THAT THE AMOUNT OF ROYALTY CONSIDERED B Y THE ASSESSING OFFICER AS CAPITAL EXPENDITURE SHOULD BE ALLOWED AS A REVENUE EXPENDITURE, AND AT THE SAME TIME, DEPRECIATION ALLO WED BY THE ASSESSING OFFICER ON THIS AMOUNT SHOULD BE TAKEN BAC K. THIS TRIBUNAL SPECIFICALLY HELD THAT THE TERMS OF THE AGREEMENT C ONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. HERO H ONDA MOTORS LTD. (2015) 372 ITR 481 (DEL), ARE CONSIDERABLY MATCHING WITH THE AGREEMENT UNDER CONSIDERATION. ON THE FACE OF THIS OBSERVATION, WITHOUT THE SAME BEING DISTURBED BY THE HIGHER FORU MS, WE FIND IT DIFFICULT TO COUNTENANCE THE ARGUMENT OF THE LD. DR THAT THE RATIO DECIDENDI OF THE DELHI HIGH COURT DECISION IN HERO HO NDA MOTORS LTD. 126 ITA NO . 467/DEL/2014 (SUPRA) WOULD NOT BE APPLICABLE IN THE FACTS OF THE INSTANT CASE. WE, THEREFORE, RESPECTFULLY FOLLOWING THE SAME HOLD THAT THE AMOUNT OF ROYALTY CONSIDERED BY THE ASSESSING OFFICER AS CAPI TAL EXPENDITURE SHOULD BE ALLOWED AS A REVENUE EXPENDITURE, AND AT T HE SAME TIME, DEPRECIATION ALLOWED BY THE ASSESSING OFFICER ON THIS AMOUNT SHOULD BE TAKEN BACK. GROUNDS NO 9 TO 9.3 ARE, ACCORDINGLY, ALLOWED. THUS, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEAR I.E . A.Y. 2008-09. THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOT ICE BY THE LD. DR AGAINST THE ORDER OF THE TRIBUNAL, WE ALLOW THESE GROUNDS. HENCE GROUND NO. 7 TO 7.3 ARE ALLOWED. 59. IN RESULT, GROUND NO. 7 TO 7.3 ARE ALLOWED 60. GROUND NO. 7.4 TO 7.7 IS REGARDING DISALLOWANCE OF R & D CESS PAID. THE LD. AR STATED THAT DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE CLAIMED NET DEDUCTION OF RS.32,03,13,445/- ON ACCOUNT OF R& D CESS ON ROYALTY. THE ASSESSING OFFICER HAS DISALLOWED THE PAYMENT OF R&D CESS ON GROUND THAT SINCE THE ENTIRE ROYALTY EXPENDITURE IS A CAPITAL EXPENDI TURE, THEREFORE, CESS ON ROYALTY ALSO NEEDS TO BE CAPITALIZED. AT THE OUTSET , IT MAY BE MENTIONED THAT AS PER THE PROVISIONS OF RESEARCH AND DEVELOPMENT CESS ACT, 1986, R&D CESS IS IMPOSED ON IMPORT OF TECHNOLOGY BY THE GOVERNMENT O F INDIA. FURTHER, THE APPLICANT HAS BEEN INSTRUCTED BY THE GOVERNMENT OF INDIA TO PAY R&D CESS ON THE PAYMENT OF ROYALTY. SUCH, R&D CESS, BEING A STA TUTORY PAYMENT, IS GOVERNED BY SECTION 43B OF THE ACT, WHICH IS A SEPA RATE CODE IN ITSELF AND OVERRIDES OTHER PROVISIONS OF THE ACT. IT IS NOT IN DISPUTE THAT THE R&D CESS HAS ACTUALLY BEEN PAID TO THE GOVERNMENT WITHIN THE TIM E LIMITS PRESCRIBED BY SECTION 43 B OF THE ACT. SECTION 43B OF THE ACT ALL OWS PAYMENT OF STATUTORY DUES ON PAYMENT BASIS. ANY EXPENSE WHICH IS LAID OU T OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND WHICH IS NOT IN 127 ITA NO . 467/DEL/2014 THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPEN SES ARE ALLOWABLE UNDER THE ACT. THE ASSESSEE HAS GIVEN DETAILED FACTUAL AND LE GAL ARGUMENTS IN THE EARLIER PART OF THIS SUBMISSION AS TO WHY THE ROYALTY PAYME NT BE CONSIDERED AS REVENUE EXPENDITURE. THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE IS DEPENDENT AND INTERLINKED TO THE ISSUE OF ROYALTY E XPENDITURE, SINCE IF IT IS HELD THAT ROYALTY PAYMENTS BY ASSESSEE IS A REVENUE EXPE NDITURE, THE R&D CESS SHOULD ALSO BE CONSIDERED AS A REVENUE EXPENDITURE. THE AFORESAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2006-07, AY 2007-08 AND AY 2008-09. 61. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 62. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN ASSESSEES OWN CASE FOR A.Y. 2008-09, THE TRIBUNAL HELD AS UNDER: GROUND NO 10 TO 10.2 DISALLOWANCE OF RS.16,93,68,74 1/- ON ACCOUNT OF R&D CESS ON ROYALTY 10. CASE OF ASSESSEE IN RESPECT OF DISALLOWANCE OF R&D CESS PAID, IS THAT AS PER PROVISIONS OF RESEARCH AND DEVELOPME NT CESS ACT, 1986, R&D CESS IS IMPOSED ON IMPORT OF TECHNOLOGY BY THE GOVERNMENT OF INDIA, WHICH IS DEFINITELY NOT A RELATED PARTY OF TH E APPELLANT COMPANY, AND THE ASSESSEE HAS BEEN INSTRUCTED BY THE GOVERNME NT OF INDIAS APPROVAL FOR REMITTANCE OF ROYALTY TO PAY R&D CESS ON THE PAYMENT OF ROYALTY. R&D CESS, BEING A STATUTORY PAYMENT, IS GO VERNED BY SECTION 43B, WHICH IS A SEPARATE CODE IN ITSELF AND OVERRIDE S THE OTHER PROVISIONS OF THE ACT. FURTHER ACCORDING TO THE AS SESSEE, THIS ISSUE IS DEPENDENT AND INTERLINKED TO THE ISSUE OF ROYALTY EXPEN DITURE, AND IF IT IS HELD THAT ROYALTY PAYMENTS BY ASSESSEE ARE REVEN UE EXPENDITURE, THEN THE R&D CESS SHOULD ALSO BE CONSIDERED AS A REV ENUE EXPENDITURE. 128 ITA NO . 467/DEL/2014 LD. DR SUBMITTED THAT THE ISSUE OF R&D CESS PAID BY THE ASSESSEE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2006-07 AND AY 2007-0 8. 10.1. THIS ISSUE IS BASED ON GROUND NO. 9 ABOVE, I. E. CAPITALISATION OF ROYALTY EXPENDITURE. THE ITAT HAS ALSO DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE ON THE BASIS OF ITS DECISION ON GROUND NO. 9. SINCE THE DECISION OF THE ITAT IN GROUND NO. 9 IS NOT ACCEPTABLE, THEREFORE, ITS DECISION ON THIS ISSUE IS ALSO NOT ACCEPTABLE. IT IS FURTHER AVERRED THAT THESE ARE CO NTINUOUS ISSUES FORMING PART OF THE ASSESSMENT ORDER FOR AY 2006-07 AND 2007-08 ALSO, AND ARE AT PRESENT PENDING ADJUDICATION BEFORE HON BLE DELHI HIGH COURT. 10.2. IN THE ORDER FOR THE AY 2007-08, A COORDINATE BENC H OF THIS TRIBUNAL FOUND THAT THIS ISSUE HAS BEEN DECIDED IN TH E CASE OF ASSESSEE ITSELF IN THE APPEAL BEFORE THE ITAT FOR THE ASSESS MENT YEAR 2006-07 AND IN THAT CASE IT WAS HELD THAT: 9. THE NEXT GROUND IS DISALLOWANCE OF R&D CESS PAID AMOUNTING TO RS.9,68,47,294/-. RELEVANT DISCUSSION HAS BEEN MADE BY THE AO ON PAGE 26 OF HIS FINAL ORDER. THE ASSESSEE TREATED THE AMOUNT OF ROYALTY AND CESS ON ROYALTY AS REVENUE EXPENDITURE. THE AO DISALLOWED A SUM OF RS. 9.68 CRORE AFTER PROPORTIONATELY ALLOWING DEDUCTION TO THE EXTENT OF DEPRECIATION ALLOWED BY HIM ON ROYALTY. THERE IS NO DISPUTE ON THE NATURE OF CE SS, WHICH IS ON ROYALTY AND HAS BEEN TREATED BOTH BY THE ASSESSEE AS WELL AS THE AO AS PART AND PARCEL OF ROYALTY AND ACCORDINGLY CLAIMED/DISALLOWED IN LINE WITH THE TREATMENT OF ROYALTY. SINCE WE HAVE ALLOWED DEDUCTION FOR THE ENTIRE AMOUNT OF ROYALTY PAID BY THE ASSESSEE DURING THE YEAR BY DELETING THE TP ADJUSTMENT AND A LSO OVERTURNING THE ACTION OF THE AO IN TREATING THE REMAINING HALF PART AS CAPIT AL EXPENDITURE, THE CONSEQUENTIAL AMOUNT OF CESS ON ROYALTY PAYMENT AUT OMATICALLY BECOMES DEDUCTIBLE. WE, THEREFORE, DIRECT TO ALLOW DEDUCTIO N OF RS.9.68 CRORE. 10.3. THIS TRIBUNAL FOLLOWED THE ABOVE REASONING FOR THE AY 2007- 129 ITA NO . 467/DEL/2014 08 ALSO. SINCE THE RELATED FACTS OF THE PRESENT AS SESSMENT YEAR ARE SIMILAR TO THOSE IN THE ASSESSMENT YEAR 2006- 07 AN D 2007-08 ON AN IDENTICAL ISSUE, WE, WHILE RESPECTFULLY FOLLOWING TH E SAME DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION AS DIRECTED BY THE ITAT IN THE APPEAL FOR THE ASSESSMENT YEAR 2006-07 AND 2007-08 AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUNDS 10 TO 10.2 ARE ALLOWED ACCORDINGLY. THUS, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2008-09. THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOT ICE BY THE LD. DR AGAINST THE ORDER OF THE TRIBUNAL, WE ALLOW THESE GROUNDS. HENCE GROUND NO. 74 TO 7.7 ARE ALLOWED. 63. IN RESULT, GROUND NO. 7.4 TO 7.7 ARE ALLOWED. 64. GROUND NO. 8 TO 8.2 IS REGARDING DISALLOWANCE O N ACCOUNT OF EXPENDITURE ON EXCISE DUTY. THE LD. AR SUBMITTED THAT THE ASSES SEE HAD, DURING THE RELEVANT ASSESSMENT YEAR, PAID EXCISE DUTY OF RS.67 ,00,000/-, BEING PROVISION FOR MODVAT ON QUANTITY DIFFERENCE ON INPUTS DISALLO WED IN EARLIER YEARS NOW CLAIMED ON PAYMENT BASIS U/S 43B OF THE ACT. THE AS SESSING OFFICER DISALLOWED THE AFORESAID CLAIM OF THE ASSESSEE ON THE GROUND T HAT ASSESSEE WOULD NOT HAVE BEEN LIABLE TO MAKE THE AFORESAID PAYMENTS OF RS.67 ,00,000/- TO THE EXCISE DEPARTMENT IF IT HAD BEEN ABLE TO ESTABLISH THAT AL L CONSUMPTIONS CLAIMED BY IT WERE FOR THE PURPOSES OF MANUFACTURING. IN THIS REG ARD, THE LD. AR SUBMITTED THAT THE PAYMENT MADE BY THE ASSESSEE IS CLEARLY IN THE NATURE OF EXCISE DUTY, WHICH IS CLEARLY ADMISSIBLE AS DEDUCTION ON PAYMENT BASIS UNDER SECTION 43B OF THE ACT. IT IS PERTINENT TO NOTE THAT IN THE CON TEXT OF SIMILAR DUTY PAYMENT FOR ASSESSMENT YEAR 2000- 01, THE EXCISE TRIBUNAL (CEST AT) HAS HELD THAT THERE IS NO SHORTAGE OF STOCKS OF RAW MATERIAL AND THE MINOR DISCREPANCY IS THE RESULT OF ACCOUNTING ERROR DUE TO USE OF LARGE QUANTITY OF IN PUTS PROCURED FROM SEVERAL 130 ITA NO . 467/DEL/2014 HUNDRED SUPPLIERS. THE ISSUE IS ALSO COVERED IN FAV OUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE F OR AYS 2000-01, 2001-02, AY 2002-03, AY 2007-08 AND AY 2008- 09. THE ORDERS OF THE TRIBUNAL HAVE BEEN AFFIRMED BY DELHI HIGH COURT FOR ASSESSMENT YEARS 2 000-01 (ITA NO. 976/2005) 2001-02 (ITA NO. 519/2010). 65. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 66. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND THAT IN ASSESSEES OWN CASE FOR A.Y. 2008-09, THE TRIBUNAL HELD AS UNDER: GROUND NOS 13 TO 13.3 DISALLOWANCE RS.58,61,136/- O N ACCOUNT OF EXPENDITURE ON EXCISE DUTY: 13. IN RESPECT OF DISALLOWANCE RS.58,61,136/- ON ACCOUN T OF EXPENDITURE ON EXCISE DUTY, CASE OF THE ASSESSEE IS THAT DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE PAID EXCISE DUTY OF RS.58,61,136/-, BEING PROVISION FOR MODVAT ON QUANT ITY DIFFERENCE ON INPUTS DISALLOWED IN EARLIER YEARS NOW CLAIMED ON P AYMENT BASIS U/S 43B OF THE ACT, BUT THE ASSESSING OFFICER DISALLOWE D THE AFORESAID CLAIM ON THE GROUND THAT ASSESSEE WOULD NOT HAVE BEEN LIABL E TO MAKE THE AFORESAID PAYMENTS OF RS.58,61,136/- TO THE EXCISE DEPARTMENT IF IT HAD BEEN ABLE TO ESTABLISH THAT ALL CONSUMPTIONS CL AIMED BY IT WERE FOR THE PURPOSES OF MANUFACTURING. ASSESSEE SUBMITS TH AT THE PAYMENT MADE BY THEM IS CLEARLY IN THE NATURE OF EXCISE DUT Y, WHICH IS ADMISSIBLE AS DEDUCTION ON PAYMENT BASIS UNDER SECT ION 43B OF THE ACT. 131 ITA NO . 467/DEL/2014 13.1. LD. AR SUBMITS THAT THE ISSUE IS ALSO COVERED IN FA VOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL IN THE ASSESS EES OWN CASE FOR AYS 2000-01, 2001-02, AY 2002-03 AND AY 2007-08. 13.2. PER CONTRA, IT IS THE ARGUMENT OF THE LD. DR THAT T HIS ISSUE IS RELATED TO THE DISALLOWANCE U/S. 43B FOR THE YEAR IM MEDIATELY PRECEDING THE PREVIOUS YEAR, AND THE ITAT HAS ALLOWED THIS EX PENDITURE FOLLOWING THE SAME PRINCIPLE LAID DOWN EARLIER TO ALLOW RELIEF TO THE ASSESSEE ON THE ISSUE OF EXCISE DUTY AND CUSTOMS DUTY. ACCORDING T O THE LD. DR, IF THIS PROPOSITION IS ACCEPTED IN THE CURRENT YEAR, I T SHALL DEFEAT THE VERY PURPOSE OF MAKING THE DISALLOWANCE IN THE PREVIOUS YEAR AND MOREOVER, REVENUE HAS NOT ACCEPTED THE PROPOSITION OF ITAT IN ALLOWING RELIEF TO THE ASSESSEE AND IN THAT SENSE IS A LIVE ISSUE. ACC EPTING THE DECISION OF TRIBUNAL ON THIS ISSUE SHALL GIVE FINALITY TO THIS ISSUE FOR THAT PARTICULAR YEAR ONLY. IT IS FURTHER AVERRED THAT THESE ARE CONT INUOUS ISSUES FORMING PART OF THE ASSESSMENT ORDER FOR AY 2005-06, 2006-0 7 AND 2007-08 ALSO, AND ARE AT PRESENT PENDING ADJUDICATION BEFOR E HONBLE DELHI HIGH COURT. 13.3. ON A PERUSAL OF THE DECISION, WE FIND THAT THIS ISS UE IS SUBSTANTIALLY INVOLVED IN GROUND NOS. 14 TO 14.3 IN THE ASSESSEES APPEAL FOR AY 2007-08, AND ON THIS ASPECT, A COORDIN ATE BENCH OF THIS TRIBUNAL HELD AS UNDER: 27.3 WE FIND THAT IN ITS ORDER DATED 16.10.2012 IN THE CASE OF ASSESSEE ITSELF FOR THE ASSESSMENT YEAR 2002-03, AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT FOLLOWING ITS EA RLIER ORDERS. RELEVANT PARA NO. 50 THEREOF IS BEING REPRODUCED HEREUNDER: 50. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. THI S ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN A SSESSEES OWN CASE FOR ASSESSMENT YEARS 2000-01 AND 2001-02. THE RELEVANT PARA OF THE ORDER FOR ASSESSMENT YEAR 2001-02 IS REPRODUCED HEREUNDER : 132 ITA NO . 467/DEL/2014 22. IN REGARD TO GROUND NO. 9 WHICH IS AGAINST T HE ACTION OF CIT(A) IN DELETING THE DISALLOWANCE OF THE EXCISE D UTY PAID BY THE ASSESSEE REPRESENTING THE REVERSAL OF THE EXCISE MO DVAT AVAILED IN INPUTS ON CLEARANCE OF FINISHED GOODS, IT WAS FA IRLY CONCEDED BY BOTH THE SIDES THAT THIS ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 IN ITA NO. 678/DEL/2004. RESPECTFULLY FOLLOWING THE DECISION F THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000- 01, THE FINDINGS OF THE CIT(A) ON THIS ISSUE STANDS CONFIRMED. 23. IT IS ALSO NOTICED THAT THIS EXCISE DUTY IS PAID AGAINST THE ORDER OF THE SETTLEMENT COMMISSION AND IS IN THE NA TURE OF REVERSAL OF MODVAT AVAILED ON THE INPUTS AND NOT IN THE NATURE OF PENALTY OR FINES. IN THE CIRCUMSTANCES, THE GROUND OF APPEAL AS RAISED BY THE REVENUE ON THIS ISSUE STANDS DISMISSE D. 27.4 IN VIEW OF THE ABOVE FINDING OF THE ITAT ON THE ISSUE AND OF THE EXCISE TRIBUNAL IN THE ASSESSMENT YEAR 2000-01 THAT SHORTAGE OF STOCK OF RAW-MATERIAL AND THE MINOR DISCREPANCY WAS THE RESU LT OF ACCOUNTING ERROR DUE TO USE OF LARGE QUANTITY OF INPUTS PROCURED FRO M SEVERAL HUNDRED SUPPLIERS, WE HOLD THAT THE ASSESSEE WAS JUSTIFIED IN CLAIMING RS.77 LACS ON ACCOUNT OF EXPENDITURE ON EXCISE DUTY ON PAYMENT BASIS UNDER S EC. 43B OF THE ACT. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO ALLOW THE CLAIM. GROUND NOS. 14 TO 14.3 ARE THUS ALLOWED. 13.4. WHEN THE FACTS ARE SIMILAR AND A PARTICULAR VIEW I S TAKEN BY A COORDINATE BENCH OF THIS TRIBUNAL FOR THE EARLIER Y EARS, IT IS NOT DESIRABLE TO DEVIATE FROM THE SAME IN A SUBSEQUENT Y EAR IN THE ABSENCE OF ANY CHANGE OF CIRCUMSTANCES, AS SUCH BY RESPECTF ULLY FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF RS.58,61,136/- REPRESENTING THE EXCISE DUTY PAID BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR. GROUNDS NO 13 TO 13.3 ARE ALLOWED ACCORDINGLY. THUS, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09. THEREFORE, IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE LD. DR AGAINS T THE ORDER OF THE TRIBUNAL, WE ALLOW THESE GROUNDS. HENCE GROUND NO. 8 TO 8.2 A RE ALLOWED 133 ITA NO . 467/DEL/2014 67. IN RESULT, GROUND NO. 8 TO 8.2 ARE ALLOWED. 68. GROUND NO. 9 TO 9.5 IS REGARDING DISALLOWANCE ON ACCOUNT OF PROVISIONAL LIABILITY EXPENDITURE ON ACCOUNT OF FPI-OE COMPONEN TS. THE ASSESSEE HAD ACCOUNTED FOR LIABILITY ON ACCOUNT OF FORESEEN PRIC E INCREASE (FPI) BASED ON SCIENTIFIC ANALYSIS OF INCREASE IN INPUT PRICES, ON PURCHASES ALREADY MADE BY THE COMPANY AT PROVISIONAL PRICES, AND ON WHICH THE FINAL PRICE IS YET TO BE SETTLED WITH THE SUPPLIER. FPI OF RS.36,38,43,197/- WAS DEBITED TO CONSUMPTION OF RAW MATERIAL AND COMPONENTS IN THE PROFIT AND LO SS ACCOUNT IN ACCORDANCE WITH MERCANTILE SYSTEM OF ACCOUNTING. THE SAME WAS CLAIMED AS BUSINESS DEDUCTION IN THE COMPUTATION OF INCOME. VENDOR-WISE DETAILS OF TOTAL PROVISION OF RS.36,38,43,197/- MADE DURING THE RELEVANT YEAR WAS SUBMITTED BEFORE THE ASSESSING OFFICER . THE SAID PRACTICE WAS IN CONSONANCE WITH THE PROVIS IONS OF THE COMPANIES ACT AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND PRACTICES OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. THE ASSESSING OFFICER HOWEVER, DISALLOWED THE AFORESAID CLAIM OF THE ASSESSEE ON T HE GROUND THAT ASSESSEE HAS QUANTIFIED THE LIABILITY WITHOUT ACKNOWLEDGING THE QUANTIFIED LIABILITY TO THE CREDITORS. THE LD. AR SUBMITTED THAT LIABILITY FOR FPI WAS PROVIDED IN THE BOOKS OF ACCOUNTS ON A SCIENTIFIC ANALYSIS OF INCREASE IN PRICE OF COMPONENTS DUE TO CHANGE IN INPUT COST. THE LIABILITY OF FPI WAS ESTI MATED BY THE PURCHASE DEPARTMENT WITH SUBSTANTIAL DEGREE OF ACCURACY AS T HEY ARE IN CONSTANT TOUCH WITH SUPPLIERS AND HAVE KNOWLEDGE OF THE CLAIMS OF SUPPLIERS, TREND OF THE COST OF INPUTS, ETC. THE PERSONNEL IN THE PURCHASE DEPAR TMENT UPDATES THE FORESEEN PRICE OF EACH COMPONENT FOR EACH SUPPLIER AND EFFEC TIVE DATE, BASED ON THEIR INPUT AND AVAILABLE INFORMATION. THE ACCOUNTING OF FPI WAS JUSTIFIED ON ACCOUNT OF FOLLOWING REASONS: (A) THE LIABILITY WAS BOOKED ON ACCOUNT OF MATERIA LS ALREADY SUPPLIED BY SUPPLIERS AND NOT ON AN AD HOC OR ARBITRARY BASIS. 134 ITA NO . 467/DEL/2014 B) THE AMOUNT WAS DETERMINED AND COMPUTED WITH A SU BSTANTIAL DEGREE OF ACCURACY AT THE TIME OF DETERMINING AND BOOKING THE AMOUNT AS PER INFORMATION AVAILABLE TILL DATE OF FINALIZATION OF ACCOUNTS C) THE LIABILITY WAS REQUIRED TO BE BOOKED AS PER A CCRUAL SYSTEM OF ACCOUNTING AS THE GOODS WERE ALREADY RECEIVED. THE LD. AR SUBMITTED THAT FPI IS AN EXISTING LIABIL ITY AS PER THE UNDERSTANDING ARRIVED AT WITH THE SUPPLIERS OF THE COMPONENTS, WH O ARE ORIGINAL MANUFACTURERS OF THE COMPONENTS. IT IS ON THE BASIS OF ANALYSIS OF THE CLAIMS, PRICE TREND, AND CORRESPONDENCES/DISCUSSIONS/NEGOTI ATIONS WITH THE SUPPLIERS DURING THE YEAR AND PAST DEALINGS THAT THE ASSESSEE HAD COMPUTED THE IMPACT OF CHANGE IN PRICE OF COMPONENTS. THE CHANGE IN PRI CE OF THE COMPONENTS TAKES PLACE TO GIVE EFFECT TO THE INCREASE IN THE COST OF THE INPUTS REQUIRED FOR MANUFACTURING OF THE COMPONENTS. THE SAME IS AS PER THE AGREEMENT WITH THE SUPPLIERS TO ENSURE UNINTERRUPTED SUPPLY OF COMPONE NTS, EVEN WHEN THEIR COST HAS BEEN INCREASED. THE LD. AR ALSO SUBMITTED THAT SUCH PRACTICE IS QUITE COMMON IN THE MOTOR VEHICLE INDUSTRY WHICH HAS ALSO BEEN DULY RECOGNIZED IN THE DEPARTMENTAL CLARIFICATION ISSUED BY THE CENTRA L EXCISE DEPARTMENT. THUS, THE LD. AR SUBMITTED THAT IT IS NOT A CASE OF PROVI SIONAL LIABILITY/CONTINGENT LIABILITY INCURRING OF WHICH IS DEPENDENT ON HAPPEN ING OF AN EVENT. THE LIABILITY, IN OUR RESPECTFUL SUBMISSION, IS IN FACT IN RESPECT OF SUCH PURCHASES ALREADY MADE BY THE ASSESSEE AND DULY DEBITED IN THE BOOKS OF ACCOUNTS. THUS, THE AMOUNT OF FPI IS A LIABILITY WHICH ACCRUES SIMULTAN EOUSLY WITH EACH PURCHASE MADE BY ASSESSEE AND IS ALLOWABLE AS DEDUCTION IN D ETERMINING THE INCOME OF THE RELEVANT ASSESSMENT YEAR. THE AFORESAID IS FURT HER IN ACCORDANCE WITH PRACTICE PREVALENT IN MOTOR VEHICLES INDUSTRY. REFE RENCE IN THIS REGARD IS INVITED TO A NOTIFICATION DATED 28.7.2003 ISSUED BY THE EXC ISE AUTHORITIES ON THE SUBJECT OF CHARGING OF INTEREST UNDER SECTION 11AB WHEREIN THE EXCISE AUTHORITIES RECOGNIZED PREVAILING COMMERCIAL PRACTI CE OF SUPPLEMENTARY INVOICES BEING MADE IN ADDITION TO THE ORIGINAL INV OICES . THE LIABILITY ON ACCOUNT 135 ITA NO . 467/DEL/2014 OF FPI WAS AN ASCERTAINED LIABILITY REPRESENTING AD DITIONAL PURCHASE PRICE OF THE GOODS. SINCE THE LIABILITY ACCRUED DURING THE RELEV ANT ASSESSMENT YEAR, EVEN THOUGH WAS FINALLY PAID IN THE FOLLOWING ASSESSMENT YEARS, THE SAME WAS ALLOWABLE DEDUCTION. THE LD. AR RELIED UPON THE FOL LOWING DECISIONS WHEREIN IT HAS BEEN HELD THAT LIABILITY WHICH HAS ARISEN IN TH E RELEVANT ACCOUNTING YEAR IS AN ALLOWABLE DEDUCTION EVEN THOUGH ITS ACTUAL QUANT IFICATION AND DISCHARGE IS DEFERRED TO A FUTURE DATE: A) CALCUTTA DISCOUNT CO. LTD.: 37 ITR 1 (SC) B) METAL BOX (P) LIMITED (1969): 73 ITR 53 (SC) C) UNITED COMMERCIAL BANK V. CIT 240 ITR 355 (SC) D) BHARAT EARTH MOVERS: 245 ITR 428 (SC) E) KELVINATOR OF INDIA LTD. REPORTED IN 256 ITR 1 CONF IRMED BY SC IN 320 ITR 561 F) CIT V VINITEC CORPN. (P) LTD.: 278 ITR 337 (DELHI) G) NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. V. JCIT : 98 ITD 278 (HYD. ITAT) THE HONBLE SUPREME COURT IN THE CASE OF CIT V. WOO DWARD GOVERNOR INDIA (P) LTD. 312 ITR 254 HAS HELD THAT:- G) 21. IN CONCLUSION, WE MAY STATE THAT IN ORDER TO F IND OUT IF AN EXPENDITURE IS DEDUCTIBLE THE FOLLOWING HAVE TO BE TAKEN INTO ACCOUNT (I) WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE AS SESSEE IS MERCANTILE SYSTEM, WHICH BRINGS INTO DEBIT THE EXPENDITURE AMO UNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY D ISBURSED AND BRINGS INTO CREDIT WHAT IS DUE, IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED; (II) WHETHER THE SAME SYSTEM IS FOLLOWED BY THE ASSESSEE FROM THE VERY BEGINNING AND IF THERE WAS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS BONA FIDE; (III) WHETHER THE ASSESSEE HA S GIVEN THE SAME TREATMENT TO LOSSES CLAIMED TO HAVE ACCRUED AND TO THE GAINS THAT MAY ACCRUE TO IT; (IV) WHETHER THE ASSESSEE HAS BEEN CO NSISTENT AND DEFINITE IN 136 ITA NO . 467/DEL/2014 MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF L OSSES AND GAINS; (V) WHETHER THE METHOD ADOPTED BY THE ASSESSEE FOR MAKI NG ENTRIES IN THE BOOKS BOTH IN RESPECT OF LOSSES AND GAINS IS AS PER NATIONALLY ACCEPTED ACCOUNTING STANDARDS; (VI) WHETHER THE SYSTEM ADOPT ED BY THE ASSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCING THE INCIDENCE OF TAXATION. THE LD. AR FURTHER RELIED UPON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. VS CIT: 314 ITR 6 2 WHEREIN IT HAS BEEN HELD THAT:- 17. AT THIS STAGE, WE ONCE AGAIN REITERATE THAT A LIABILITY IS A PRESENT OBLIGATION ARISING FROM PAST EVENTS, THE SETTLEMENT OF WHICH I S EXPECTED TO RESULT IN AN OUTFLOW OF RESOURCES AND IN RESPECT OF WHICH A RELI ABLE ESTIMATE IS POSSIBLE OF THE AMOUNT OF OBLIGATION. THE LD. AR SUBMITTED THAT THE INVOICES, RAISED BY T HE SUPPLIERS, WERE PROVISIONAL AND EACH INVOICE WAS LIABLE TO BE REVIE WED/ AMENDED ONCE THE QUANTUM IS DETERMINED AND THAT THIS QUANTUM OF INCR EASE WOULD APPLY TO RE- COMPUTE THE PRICES PAYABLE BY ASSESSEE ON ALL SUPPL IES MADE BY THE SUPPLIERS DURING THE YEAR. THE AFORESAID METHOD OF ACCOUNTING REGULARLY AND CONSISTENTLY FOLLOWED DOES NOT LEAD TO ANY LOSS OF REVENUE, WHAT SOEVER. THE LIABILITY ESTIMATED IN A PARTICULAR YEAR FINALLY SETTLED IN T HE SUBSEQUENT YEAR GETS REFLECTED IN THE PROFIT & LOSS ACCOUNT. THE INCOME AS WELL AS THE CHARGE ON SETTLEMENT IN THE SUBSEQUENT YEAR IS BROUGHT TO THE INCOME OR EXPENSES STATEMENT OF THE ASSESSEE COMPANY TO THE EXTENT OF VARIATION FROM THE ACTUAL FPI LIABILITY. IT IS WELL SETTLED THAT MERE TIMING DIFFERENCE SHOULD NOT BE USED TO DISTURB THE METHOD OF ACCOUNTING AND BOOKS OF ACCOU NTS OF A TAX PAYER CONSISTENTLY MAINTAINED AND ACCEPTED YEAR AFTER YEA R. THE LD. AR FURTHER SUBMITTED THAT THE AFORESAID METHOD OF ACCOUNTING H AS BEEN REGULARLY FOLLOWED BY ASSESSEE AND CLAIMS WERE ACCORDINGLY MADE WHICH HAS BEEN DULY ACCEPTED BY REVENUE IN ALL THE PRECEDING YEARS EXCEPT IN ASS ESSMENT YEAR AY 2003-04, 137 ITA NO . 467/DEL/2014 AY 2007-08 AND 2008-09. THERE HAS BEEN NO CHANGE IN METHOD OF ACCOUNTING OR ESTIMATION. THE LD. AR SUBMITTED THAT IT IS A WE LL SETTLED POSITION OF LAW THAT WHILE THE PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO THE INCOME-TAX PROCEEDINGS, THE COURTS HAVE EMPHASIZED THERE MUST BE CONSISTENCY IN THE POSITION THAT THE REVENUE TAKES ON AN ISSUE IN DIFF ERENT ASSESSMENT YEARS. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS: CIT VS. EXCEL INDUSTRIES (P) LIMITED: 358 ITR 295 ( SC) RADHASOAMI SATSANG V. CIT 193 ITR 321 (SC) DIT (E) V. APPAREL EXPORT PROMOTION COUNCIL: 244 IT R 734 (DEL) CIT V. NEO POLYPACK (P) LTD: 245 ITR 492 (DEL.) CIT V. GIRISH MOHAN GANERIWALA: 260 ITR 417 (P&H) CIT V. DALMIA PROMOTERS DEVELOPERS (P) LTD: 200 CTR 426 (DEL.) ESCORTS CARDIAC DISEASES HOSPITAL: 300 ITR 75 (DEL) THE LD. AR FURTHER SUBMITTED THAT AGAINST THE TOTAL ACCRUED LIABILITY CLAIMED DURING THE YEAR AMOUNTING TO RS.36.38 CRORES, THE E NTIRE AMOUNT HAS EITHER BEEN PAID OR WRITTEN-BACK AND OFFERED FOR TAX AS PA RT OF HIS CHARGEABLE INCOME IN ASSESSMENT YEAR 2010-11. THE AMOUNT OF WRITE-BAC K COULD, IN LAW, BE TAXED BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2010-11 ONLY IF THE SAME WAS AN ALLOWABLE DEDUCTION FROM THE ASSESSEES ASSESSABLE INCOME IN ASSESSMENT YEAR 2009-10. FURTHER, THE PAYMENT MADE IN NEXT YEAR AGA INST THE LIABILITY FOR FORESEEN PRICE INCREASE OF PREVIOUS YEAR SHOULD BE ALLOWED AS DEDUCTION IN ASSESSMENT YEAR 2010-11. THE ISSUE NOW STANDS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE AS SESSEES OWN CASE FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09, WHEREIN THE T RIBUNAL HELD THAT PROVISION FOR FORESEEN PRICE INCREASE MADE BY THE A SSESSEE REPRESENTED AN ACCRUED/CRYSTALLIZED LIABILITY, WHICH IS AN ALLOWAB LE BUSINESS DEDUCTION. 69. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 138 ITA NO . 467/DEL/2014 70. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND, THE TRIBUNAL IN ASSES SEES OWN CASE FOR A.Y. 2008- 09 HAS HELD AS UNDER: GROUND NO 12 TO 12.5 DISALLOWANCE ON ACCOUNT OF PROVISIONAL LIABILITY RELATING TO EXPENDITURE ON ACCOUNT OF FPI-O E COMPONENTS 12. ON THE ASPECT OF DISALLOWANCE OF RS.32,11,63,153 ON ACCOUNT OF PROVISIONAL LIABILITY RELATING TO EXPENDITURE ON ACCOUNT OF FPI-OE COMPONENTS, CASE OF THE ASSESSEE IS THAT THE ASSESS EE HAD ACCOUNTED FOR LIABILITY ON ACCOUNT FORESEEN PRICE INCREASE (F PI) ON AN ESTIMATE BASIS, THIS FPI OF RS.32,11,63,153 WAS DEBITED TO CO NSUMPTION OF RAW MATERIAL AND COMPONENTS IN THE PROFIT AND LOSS ACCOU NT IN ACCORDANCE WITH MERCANTILE SYSTEM OF ACCOUNTING AND THE SAME W AS CLAIMED AS BUSINESS DEDUCTION IN THE COMPUTATION OF INCOME. GRI EVANCE OF THE ASSESSEE IS THAT THE ASSESSING OFFICER HOWEVER, DIS ALLOWED THE AFORESAID CLAIM OF THE ASSESSEE ON THE GROUND THAT A SSESSEE HAS QUANTIFIED THE LIABILITY WITHOUT ACKNOWLEDGING THE QUANTIFIED LIABILITY TO THE CREDITORS. HOWEVER, ACCORDING TO THE ASSESSEE THE CHANGE IN PRICE OF THE COMPONENTS TAKES PLACE TO GIVE EFFECT TO THE IN CREASE IN THE COST OF THE INPUTS REQUIRED FOR MANUFACTURING OF THE COMPON ENTS. THE SAME IS, AS PER THE AGREEMENT WITH THE SUPPLIERS, TO ENSURE UNINTERRUPTED SUPPLY OF COMPONENTS, EVEN WHEN THEIR COST HAS INCREASED. A CCORDING TO THE ASSESSEE FPI IS AN EXISTING LIABILITY AS PER THE UN DERSTANDING ARRIVED AT WITH THE SUPPLIERS OF THE COMPONENTS, WHO ARE ORIGI NAL MANUFACTURERS OF THE COMPONENTS. IT IS SUBMITTED ON BEHALF OF THE AS SESSEE THAT THE LIABILITY OF FPI WAS ESTIMATED BY THE PURCHASE DEPA RTMENT WITH SUBSTANTIAL DEGREE OF ACCURACY AS THEY ARE IN CONST ANT TOUCH WITH 139 ITA NO . 467/DEL/2014 SUPPLIERS AND HAVE KNOWLEDGE OF THE CLAIMS OF SUPPLI ERS, TREND OF THE COST OF INPUTS, ETC. THE PERSONNEL IN THE PURCHASE DEPARTMENT UPDATES THE FORESEEN PRICE OF EACH COMPONENT FOR EACH SUPPL IER AND EFFECTIVE DATE, BASED ON THEIR INPUT AND AVAILABLE INFORMATION IN COMPUTER SYSTEM REGARDING QUANTITY PURCHASED AND PRICE PAID. THE LIABILITY IN RESPECT OF EACH COMPONENT WAS WORKED OUT CONSIDERING THE WEIGHT OF EACH MATERIAL, THE QUANTITY PROCURED, THE OLD RATE A ND NEW RATE WORKED BY THE ASSESSEE CONSIDERING THE PRICE CHANGES OCCURR ED DURING THE PERIOD. IT IS ON THE BASIS OF ANALYSIS OF THE CLAIM S, PRICE TREND, AND CORRESPONDENCES/ DISCUSSIONS/NEGOTIATIONS WITH THE SUPPLIERS DURING THE YEAR AND PAST DEALINGS THAT THE ASSESSEE HAD COM PUTED THE IMPACT OF CHANGE IN PRICE OF COMPONENTS, AND, THEREFORE, IT IS NOT A CASE OF PROVISIONAL LIABILITY/CONTINGENT LIABILITY, INCURRI NG OF WHICH IS DEPENDENT ON HAPPENING OF AN EVENT, BUT IN FACT IT IS IN RESP ECT OF SUCH PURCHASES ALREADY MADE BY THE ASSESSEE AND DULY DEBITED IN THE B OOKS OF ACCOUNTS RESULTING IN THAT THE AMOUNT OF FPI IS A L IABILITY WHICH ACCRUES SIMULTANEOUSLY WITH EACH PURCHASE MADE BY ASSESSEE AND IS ALLOWABLE AS DEDUCTION IN DETERMINING THE INCOME OF THE RELEVA NT ASSESSMENT YEAR. THE ACCOUNTING OF FPI WAS JUSTIFIED BY THE A SSESSEE ON ACCOUNT OF THE LIABILITY THAT WAS DETERMINED AND COMPUTED WITH A S UBSTANTIAL DEGREE OF ACCURACY ON ACCOUNT OF MATERIALS ALREADY SU PPLIED BY SUPPLIERS, AT THE TIME OF DETERMINING AND BOOKING THE AMOUNT AS PER INFORMATION AVAILABLE TILL DATE OF FINALIZATION OF ACCOUNTS AND SUCH A LIABILITY WAS REQUIRED TO BE BOOKED AS PER ACCRUAL SY STEM OF ACCOUNTING AS THE GOODS WERE ALREADY RECEIVED. ACCORDING TO THE LD. AR THIS PRACTICE OF PROVISION FOR FPI IS IN ACCORDANCE WITH PRACTICE PREVALENT IN MOTOR VEHICLES INDUSTRY. REFERENCE IN THIS REGARD IS INVITED TO A NOTIFICATION DATED 28.7.2003 ISSUED BY THE EXCISE AU THORITIES ON THE 140 ITA NO . 467/DEL/2014 SUBJECT OF CHARGING OF INTEREST UNDER SECTION 11AB WHEREIN THE EXCISE AUTHORITIES RECOGNIZED PREVAILING COMMERCIAL PRACTI CE OF SUPPLEMENTARY INVOICES BEING MADE IN ADDITION TO THE ORIGINAL INV OICES. 12.1. PLACING RELIANCE ON THE DECISION IN ASSESSEES OWN CASE DECIDED IN FAVOUR BY CIT (A) FOR AY 2003-04 AND BY ITA T FOR AY 2007- 08, AND ALSO THE DECISIONS REPORTED IN CALCUTTA DISCO UNT CO. LTD.: 37 ITR 1 (SC), METAL BOX INDIA (P) LIMITED (1969): 73 IT R 53 (SC) , UNITED COMMERCIAL BANK V. CIT 240 ITR 355 (SC), BHARAT EA RTH MOVERS: 245 ITR 428 (SC) , CIT V VINITEC CORPN. (P) LTD.: 278 IT R 337 (DELHI), NATIONAL MINERAL DEVELOPMENT CORPORATION LTD. V JCIT: 98 ITD 278 (HYD. ITAT), LD. AR ARGUED THAT THAT LIABILITY WHICH HAS ARISEN I N THE RELEVANT ACCOUNTING YEAR IS AN ALLOWABLE DEDUCTION EVEN THOUG H ITS ACTUAL QUANTIFICATION AND DISCHARGE IS DEFERRED TO A FUTURE DATE. IN RESPECT OF THE VENDOR-WISE AND ITEM-WISE DETAILS OF TOTAL PROVIS ION OF RS.32,11,63,153 MADE DURING THE RELEVANT YEAR IN THE PAPER BOOK, IT IS SUBMITTED THAT THE SAID DETAILS CONTAIN NAME OF THE VENDOR, THE AMOUNT OF ADDITIONAL VALUE IN RESPECT OF THE COMPONENT, THE INVOICES, RAISED BY THE SUPPLIERS, WERE PROVISIONAL AND EACH INVOICE WA S LIABLE TO BE REVIEWED/ AMENDED ONCE THE QUANTUM IS DETERMINED AND T HAT THIS QUANTUM OF INCREASE WOULD APPLY TO RE-COMPUTE THE PR ICES PAYABLE BY ASSESSEE ON ALL SUPPLIES MADE BY THE SUPPLIERS DURI NG THE YEAR, AND THE LIABILITY FOR FPI WAS PROVIDED IN THE BOOKS OF ACCO UNTS ON A SCIENTIFIC ANALYSIS OF INCREASE IN PRICE OF COMPONENTS DUE TO C HANGE IN INPUT COST, REPRESENTING ADDITIONAL PURCHASE PRICE OF THE GOODS . IT IS SUBMITTED THAT SINCE THE LIABILITY ACCRUED DURING THE RELEVANT ASSES SMENT YEAR, EVEN THOUGH WAS FINALLY PAID IN THE FOLLOWING ASSESSMENT YEARS, THE SAME WAS ALLOWABLE DEDUCTION. 141 ITA NO . 467/DEL/2014 12.2. LD. AR PLACED RELIANCE ON THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF CIT VS WOODWARD GOVERNOR INDIA (P) LTD.: 312 ITR 254 WHEREIN IT IS HELD THAT:- 21. IN CONCLUSION, WE MAY STATE THAT IN ORDER TO F IND OUT IF AN EXPENDITURE IS DEDUCTIBLE THE FOLLOWING HAVE TO BE TAKEN INTO A CCOUNT (I) WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS ME RCANTILE SYSTEM, WHICH BRINGS INTO DEBIT THE EXPENDITURE AMOUNT FOR WHICH A LEGAL LIABILITY HAS BEEN INCURRED BEFORE IT IS ACTUALLY DISBURSED AND B RINGS INTO CREDIT WHAT IS DUE, IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS AC TUALLY RECEIVED; (II) WHETHER THE SAME SYSTEM IS FOLLOWED BY THE ASSESSEE FROM THE VERY BEGINNING AND IF THERE WAS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS BONA FIDE; (III) WHETHER THE ASSESSEE HAS GIVEN THE SAME TREATMENT TO LOSSES CLAIMED TO HAVE ACCRUED AND TO THE GAINS THA T MAY ACCRUE TO IT; (IV) WHETHER THE ASSESSEE HAS BEEN CONSISTENT AND DEFINI TE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES AND GAINS ; (V) WHETHER THE METHOD ADOPTED BY THE ASSESSEE FOR MAKING ENTRIES IN THE B OOKS BOTH IN RESPECT OF LOSSES AND GAINS IS AS PER NATIONALLY ACCEPTED ACCO UNTING STANDARDS; (VI) WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCING THE INCIDENCE OF TAXATION. 12.3. FURTHER RELIANCE IS ALSO PLACED ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. VS CIT: 314 ITR 62 WHEREIN IT HAS BEEN HELD THAT:- 17. AT THIS STAGE, WE ONCE AGAIN REITERATE THAT A LIABILITY IS A PRESENT OBLIGATION ARISING FROM PAST EVENTS, THE SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUTFLOW OF RESOURCES AND IN RESPECT OF WHICH A RELIABLE ESTIMATE IS POSSIBLE OF THE AMOUNT OF OBLIGATION. 12.4. LD. AR SUBMITTED THAT THIS PRACTICE IS IN CONSONANC E WITH THE PROVISIONS OF THE COMPANIES ACT AND GENERALLY ACCEPT ED ACCOUNTING PRINCIPLES AND PRACTICES OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND HAS BEEN REGULARLY FOLLOWED BY ASSESSEE AND CLA IMS WERE ACCORDINGLY MADE WHICH HAS BEEN DULY ACCEPTED BY REV ENUE IN ALL THE PRECEDING YEARS EXCEPT IN ASSESSMENT YEAR AY 2003-0 4 AND AY 2007- 08. THERE HAS BEEN NO CHANGE IN METHOD OF ACCOUNTIN G OR ESTIMATION. IT IS SUBMITTED THAT THIS METHOD OF ACCOUNTING REGULAR LY AND CONSISTENTLY 142 ITA NO . 467/DEL/2014 FOLLOWED DOES NOT LEAD TO ANY LOSS OF REVENUE, WHATSO EVER AND THE LIABILITY ESTIMATED IN A PARTICULAR YEAR FINALLY SE TTLED IN THE SUBSEQUENT YEAR GETS REFLECTED IN THE PROFIT & LOSS ACCOUNT, W HEREBY THE INCOME AS WELL AS THE CHARGE ON SETTLEMENT IN THE SUBSEQUENT YEAR IS BROUGHT TO THE INCOME OR EXPENSES STATEMENT OF THE ASSESSEE CO MPANY TO THE EXTENT OF VARIATION FROM THE ACTUAL FPI LIABILITY. LD. AR ARGUED THAT IT IS WELL SETTLED THAT MERE TIMING DIFFERENCE SHOULD NOT BE USED TO DISTURB THE METHOD OF ACCOUNTING AND BOOKS OF ACCOUNTS OF A TAX PAYER CONSISTENTLY MAINTAINED AND ACCEPTED YEAR AFTER YEA R. IN SUPPORT OF HIS ARGUMENT THAT WHILE THE PRINCIPLE OF RES JUDICATA D OES NOT APPLY TO THE INCOME-TAX PROCEEDINGS, THE COURTS HAVE EMPHASIZED THERE MUST BE CONSISTENCY IN THE POSITION THAT THE REVENUE TAKES ON AN ISSUE IN DIFFERENT ASSESSMENT YEARS, LD. AR CITED THE DECISION S REPORTED IN CIT VS. EXCEL INDUSTRIES (P) LIMITED: 358 ITR 295 (SC), R ADHASOAMI SATSANG V. CIT 193 ITR 321(SC), DIT (E) V. APPAREL EXPORT PR OMOTION COUNCIL: 244 ITR 734 (DEL), CIT V. NEO POLYPACK (P) LTD: 245 ITR 492 (DEL.), CIT V. GIRISH MOHAN GANERIWALA: 260 ITR 417 (P&H), CIT V. DALMIA PROMOTERS DEVELOPERS (P) LTD: 200 CTR 426 (DEL.), ESCORTS CARDIAC DISEASES HOSPITAL: 300 ITR 75 (DEL). SINCE T HE ISSUE NOW STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEE OWN CASE FOR THE ASSESSMENT YEAR 2007-08, WHEREIN THE T RIBUNAL HELD THAT PROVISION FOR FORESEEN PRICE INCREASE MADE BY THE A PPELLANT REPRESENTED AN ACCRUED/CRYSTALLIZED LIABILITY, WHICH IS AN ALLOWA BLE BUSINESS DEDUCTION, LD. AR SUBMITS THAT THE ADDITION ON THIS A CCOUNT MAY BE DELETED. 12.5. PER CONTRA, LD. DR SUBMITTED THAT THE DECISION OF ITA T FOR AY 2007-08 IS NOT ACCEPTABLE BECAUSE THE ASSESSEES ME THODOLOGY IS UNIQUE AND NO CASE LAW APPLIES TO THE MODUS OPERAND I ADOPTED BY THE 143 ITA NO . 467/DEL/2014 ASSESSEE. FURTHER ACCORDING TO HIM ASSESSEES RELI ANCE ON THE CASE OF HONBLE SUPREME COURT IN THE CASE OF RADHA SAOMI SATS ANG V. CIT REPORTED IN 193 ITR 321 AND, BERGER PAINTS V. CIT RE PORTED IN 266 ITR 199, IS ALSO MISPLACED BECAUSE IN THESE CASES HONBL E SUPREME COURT WAS CONSIDERING THE SITUATION WHERE THE LIABILITY W AS CERTAIN, BUT WHAT WAS NOT CERTAIN WAS THE QUANTUM OF SUCH LIABILITY. IN THE CASE OF THE ASSESSEE, THE ASSESSEE HAS QUANTIFIED THE LIABILITY WITHOUT BEING SURE OF THE LIABILITY AND AT THE SAME TIME NOT ACKNOWLED GING THE QUANTIFIED LIABILITY TO THE CREDITORS AND NOT LEAVING ANY NOTE IN THE AUDIT REPORT. HE PLACED RELIANCE ON THE DECISIONS REPORTED IN ITO V S. EMCO TRANSFORMERS LTD. (ITAT, BOM) 32 1TD 260, SRINIVASA COMPUTERS LTD. VS. ACIT (ITAT, CHENNAI) 107 1TD 357, AND CIT VS. ROTORK CONTROLS INDIA LTD. (MAD) 293 ITR 311. ACCORDING TO HIM, L ATER ON THE HONBLE SUPREME COURT HAS LAID DOWN GENERAL PRINCIPLE ON TH IS ISSUE, WHEREIN IT WAS STATED THAT T HE VALUE OF CONTINGENT LIABILITY, LIKE WARRANTY EXPENSE, IF PROPERLY ASCERTAINED AND DISCOUN TED ON ACCRUAL BASIS CAN BE AN ITEM OF DEDUCTION UNDER SECTION 37, TH E PRINCIPLE OF ESTIMATION IS NOT THE NORMAL RULE IT WOULD DEPEND ON THE NATURE OF BUSINESS, NATURE OF SALE, NATURE OF PRODUCT AND SCIE NTIFIC METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE, AND IT WOULD ALS O DEPEND UPON THE HISTORICAL TREND AND NUMBER OF ARTICLES PRODUCED . 12.6. ON A PERUSAL OF THE ORDER OF THE TRIBUNAL FOR THE AY 2007-08 ON THIS ISSUE, WE FIND THAT THIS ISSUE COVERED BY THE GROUND NOS. 13 TO 13.5 AND BY NOTICING THAT SIMILAR DISALLOWANCE WA S DELETED BY THE FIRST APPELLATE AUTHORITY AND REVENUE DID NOT PREFE R ANY APPEAL THEREON, AND THE TRIBUNAL OBSERVED AS FOLLOWS: 26.5 CONSIDERING THE ABOVE SUBMISSIONS, WE FIND THAT SIMILAR DISALLOWANCE WAS MADE IN THE ASSESSMENT YEAR 2003-04 AND THE FIR ST APPELLATE ORDER HAD 144 ITA NO . 467/DEL/2014 DELETED THE DISALLOWANCE WHILE DECIDING THE ISSUE I N FAVOUR OF THE ASSESSEE AGAINST WHICH REVENUE DID NOT PREFER ANY APP EAL BEFORE THE ITAT. THEREAFTER, ONLY DURING THE YEAR UNDER CONSIDERATIO N, SUCH DISALLOWANCE HAS BEEN MADE. OF COURSE, PRINCIPLES OF RES-JUDICATA IS NOT APPLICATION IN THE INCOME- TAX MATTERS BUT RULE OF CONSISTENCY IS APPLICABLE A S PER WHICH UNDER THE SIMILAR FACTS AND CIRCUMSTANCES, DEPARTMENT OUGHT TO FOLLOW SAME APPROACH ON AN ISSUE IN OTHER ASSESSMENT YEARS. IT IS AN ESTABLISHED PRO POSITION OF LAW THAT A METHOD OF ACCOUNTING REGULARLY AND CONSISTENTLY FOLLOWED D OES NOT LEAD TO ANY LOSS OF REVENUE, WHATSOEVER. THE LIABILITY ESTIMATED IN A P ARTICULAR YEAR FINALLY SETTLED IN THE SUBSEQUENT YEAR GETS REFLECTED IN THE PROFIT AND LOSS ACCOUNT. WE THUS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING O FFICER WITH DIRECTION TO DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE AS PER THE FIRST APPELLATE ORDER ON THE ISSUE IN THE ASSES SMENT YEAR 2003-04 AGAINST WHICH NO APPEAL WAS PREFERRED BY THE REVENUE BEFORE THE ITAT. 12.7. WHEN A SIMILAR QUESTION WAS DEALT WITH BY THE FIRST APPELLATE AUTHORITY AND THE REVENUE ACCEPTED THE SAME WITHOUT PREFERRING ANY APPEAL THEREON, IT IS NOT OPEN FOR THE REVENUE NOW TO CONTEND THAT ASSESSEES RELIANCE ON THE CASE OF HONBLE SUPREME C OURT IN THE CASE OF RADHA SAOMI SATSANG V. CIT REPORTED IN 193 ITR 321 A ND, BERGER PAINTS V. CIT REPORTED IN 266 ITR 199, IS ALSO MISPL ACED BECAUSE IN THESE CASES HONBLE SUPREME COURT WAS CONSIDERING THE SITUATION WHERE THE LIABILITY WAS CERTAIN, BUT WHAT WAS NOT C ERTAIN WAS THE QUANTUM OF SUCH LIABILITY. THERE IS NO DISPUTE THA T THE SAME METHOD OF ACCOUNTING IS REGULARLY AND CONSISTENTLY FOLLOWED BY THE ASSESSEE AS SUCH RULE OF CONSISTENCY IS APPLICABLE AS PER WHICH UNDER THE SIMILAR FACTS AND CIRCUMSTANCES, DEPARTMENT OUGHT TO FOLLOW SAME APPROACH ON AN ISSUE IN OTHER ASSESSMENT YEARS. WE, THEREFORE, RESPECTFULLY FOLLOWING THE REASONING ADOPTED BY THE COORDINATE B ENCH OF THIS TRIBINAL FOR THE AY 2007-08, SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO DECIDE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE FIRST APPELLATE ORDER ON THE ISSUE IN THE ASSESSMENT YEAR 2003-04, AS FOLLOWED BY THIS TRIBUNAL FOR THE AY 2007-08 ALSO. GROUNDS 12 TO 12.5 145 ITA NO . 467/DEL/2014 ARE DISPOSED OF ACCORDINGLY. THUS, THE ISSUE IS IDENTICAL IN ASSESSEES OWN CASE FOR A.Y. 2008-09. THEREFORE, WE ARE REMANDING BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTION TO DECIDE THE ISSUE AFRESH AFTER GIV ING OPPORTUNITY OF HEARING TO THE ASSESSEE. HENCE GROUND NO. 9 TO 9.5 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 71. IN RESULT, GROUND NO. 9 TO 9.5 ARE PARTLY ALLOW ED FOR STATISTICAL PURPOSE. 72. GROUND NO. 10 TO 10.3 IS RELATING TO SHARING OF RESOURCES WITH OTHER GROUP COMPANIES/SUBSIDIARY COMPANIES AMOUNTING TO R S. 17,29,22,979/-. DURING THE FINANCIAL YEAR 2008-09, THE SUBSIDIARY C OMPANIES OF THE ASSESSEE WERE OPERATING AS CORPORATE INSURANCE AGENTS OF DIF FERENT INSURANCE COMPANIES. THE LD. AR SUBMITTED THAT IN AN ERA OF I NCREASING COMPETITION AND CONSUMER EXPECTATIONS, IT WAS THE ENDEAVOUR OF THE ASSESSEE TO PROVIDE MAXIMUM SERVICES TO ITS CUSTOMERS UNDER ONE-ROOF TO IMPROVE CUSTOMER EXPERIENCE AND DELIGHT WITH COMPANY PRODUCTS. THE C OMPANY TRANSFORMED ITS DEALERSHIPS TO ONE-STOP SHOP FOR SALE OF ITS PRODUC TS AND PROVIDING ALL RELATED FACILITIES OF FINANCING, INSURANCE, AUTO-CARD, PURC HASE AND SALE OF USED CARS, ETC. ALL THESE ADDED FACILITIES ARE INTEGRALLY LINK ED TO THE MAIN BUSINESS OF THE ASSESSEE COMPANY TO SELL PASSENGER CARS AND ALTHOUG H THE EARNINGS FROM THESE ACTIVITIES PER SE MAY NOT BE VERY SIGNIFICANT, THE ACTIVITIES CONTRIBUTE SIGNIFICANTLY IN GENERATING THE DEMAND FOR THE PROD UCTS OF THE COMPANY. IN INDIA, UNDER THE PROVISIONS OF THE MOTOR VEHICLES A CT, 1988, IT IS MANDATORY THAT EVERY VEHICLE SHOULD HAVE A VALID INSURANCE TO DRIVE ON THE ROAD. ANY VEHICLE USED FOR SOCIAL, DOMESTIC AND PLEASURE PURP OSE AND FOR THE INSURER'S BUSINESS MOTOR PURPOSE SHOULD BE INSURED. THEREFORE , THE CAR BUYER NEEDS TO HAVE A VALID INSURANCE AT THE TIME OF TAKING DELIVE RY ITSELF FROM THE DEALERSHIP TO LEGALLY DRIVE IT ON THE ROAD. FURTHER, UNDER THE GOVERNING INSURANCE LAWS, IT IS NOT PERMISSIBLE FOR THE COMPANY TO OBTAIN INSURA NCE AGENCY. THEREFORE, THE GROUP COMPANIES WERE PROMOTED BY THE COMPANY WITH T HE BUSINESS EXIGENCY OF 146 ITA NO . 467/DEL/2014 PROVIDING INSURANCE SERVICES TO THE CUSTOMERS OF IT S VEHICLES. PROVIDING INSURANCE FACILITY AT THE DEALERSHIPS SHOP SERVES, INTER ALIA, THE FOLLOWING ADVANTAGES TO THE ASSESSEE COMPANY: (A) MSIL IS ABLE TO PROVIDE ONE STOP SHOP FOR THE C OMPANYS PRODUCTS, WHICH ENABLES THE COMPANY TO NOT ONLY PROMOTE SALES BUT A LSO FACE THE EVER INCREASING COMPETITION FROM RIVAL AUTOMOBILE COMPAN IES; B) MSIL IS ABLE TO ENSURE MOOTH AND TIMELY DELIVER Y OF THE VEHICLES; C) MSIL IS ABLE TO PROVIDE SMOOTH AFTER SALE SERV ICES BY TAKING CARE OF POST- SALES INSURANCE NEEDS OF THE CUSTOMERS D) PROMOTING SALE OF SPARE PARTS AND ACCESSORIES E) PROMOTING SERVICE INCOMES OF THE COMPANY AND IT S DEALERS IN VIEW OF THE SIGNIFICANT CONTRIBUTION OF THE INSU RANCE SUBSIDIARIES IN PROMOTING THE COMPANYS PRODUCTS, IT IS IN THE BEST INTERESTS OF THE ASSESSEE TO ENSURE THE SUBSISTENCE AND SMOOTH RUNNING OF THE IN SURANCE SUBSIDIARIES. THE SIMPLISTIC BUSINESS STRUCTURE OF THE INSURANCE COMP ANY REQUIRED NEGLIGIBLE ADMINISTRATIVE AND MANPOWER SUPPORT FOR ITS FUNCTIO NING, WHICH HAS BEEN PROVIDED BY THE EXISTING SET-UP OF THE MSIL. THE AS SESSEE, IT NEEDS TO BE APPRECIATED, PROVIDED THE SUPPORT TO THE INSURANCE SUBSIDIARIES DUE TO ITS BUSINESS EXIGENCY RATHER THAN SUPPORTING THE SAID C OMPANY. THE SHARING OF FACILITIES/SERVICES BY MSIL FOR ITS OWN BUSINESS IN TERESTS AND ACCORDINGLY, THE RELATED COST IS AN ALLOWABLE BUSINESS EXPENDITURE F OR THE COMPANY. FURTHER, IT MAY KINDLY BE APPRECIATED THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS AS USED IN SECTION 37(1) OF THE ACT IS MUCH WIDER THAN FOR THE PURPOSE OF EARNING INCOME. WHAT IS, THEREFORE, IMPORTANT FOR THE PURP OSE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 37(1) OF THE ACT IS THAT TH E EXPENDITURE MUST BE INCURRED FOR THE PURPOSE OF BUSINESS. IT IS NOT NEC ESSARY THAT INCURRING OF EXPENDITURE MUST IMMEDIATELY RESULT IN RECEIPT OF I NCOME AND/OR THERE MUST BE SUBSTANTIAL QUANTUM OF INCOME. THEREFORE, IF EXPEND ITURE IS INCURRED FOR THE PURPOSE OF BUSINESS, SUCH EXPENDITURE IS AN ALLOWAB LE DEDUCTION, EVEN THOUGH 147 ITA NO . 467/DEL/2014 THE SAME DOES NOT RESULT IN EARNING OF INCOME IMMED IATELY. THE LD. AR RELIED UPON THE DECISIONS OF THE SUPREME COURT IN THE CASE OF CIT VS. MALAYALAM PLANTATIONS LTD.: 53 ITR 140. THE APEX COURT REITER ATED THE SAME APPROACH IN THE FOLLOWING CASES: CIT VS. BIRLA COTTON SPINNING. & WEAVING MILLS LTD. : 82 ITR 166 (SC) MADHAV PRASAD JATIA VS. CIT : 1 18 ITR 200 (SC) IN THE PRESENT CASE, SHARING OF MSIL RESOURCES BY G ROUP/ SUBSIDIARY COMPANIES PROVIDING INSURANCE SERVICES WAS ONLY MEANT TO PROM OTE THE PURPOSE OF MSILS BUSINESS AND HENCE THE ENTIRE EXPENDITURE INCURRED BY THE COMPANY WAS ALLOWABLE AS DEDUCTION. THE LD. AR FURTHER SUBMITTE D THAT SINCE THE ENTIRE EXPENDITURE AS INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR PURPOSES OF ITS BUSINESS, ANY INCIDENTAL/ INDIRECT BENEFIT TO T HE GROUP COMPANY(IES), IT IS SETTLED LAW, CANNOT BE THE BASIS FOR DISALLOWING TH E EXPENDITURE IN THE HANDS OF THE ASSESSEE. THE LD. AR FURTHER RELIED UPON THE DE CISIONS REFERRED SUPRA, SOME OF WHICH ARE AS FOLLOWS: SASSOON J. DAVID AND CO. P. LTD. VS. CIT : 118 ITR 261 (SC); CIT V NESTLE INDIA LTD. 337 ITR ITR 103 (DEL. HC) ( AFFIRMED BY THE SUPREME COURT) CIT VS ADIDAS INDIA MARKETING (P) LTD: 195 TAXMAN 2 56 (DEL) CIT VS AGRA BEVERAGES CORPORATION (P) LTD: 200 TAXM AN 43 (DEL. MAG.) (HC); SONY INDIA (P) LTD VS. DY. CIT : 315 ITR 150 (DEL I TAT) STAR INDIA (P) LTD.: 103 ITD 73 TM (MUM.) IN VIEW OF THE AFORESAID, THE LD. AR THAT THE ASSES SING OFFICER ERRED IN DISALLOWING RS. 17,29,22,979/- IN THE IMPUGNED ASSE SSMENT ORDER, WHICH CALLS FOR BEING DELETED IN TOTO. WITHOUT PREJUDICE TO SUB MISSION ABOVE, THE LD. AR SUBMITTED THAT EVEN IF THE COMPANY WERE TO RECOVER THE COST OF CHARGES PROVIDED TO THE INSURANCE SUBSIDIARIES, IT SHALL BE A VERY SMALL AMOUNT COMPARED TO WHAT HAS BEEN CONSIDERED BY THE AO IN T HE IMPUGNED ASSESSMENT 148 ITA NO . 467/DEL/2014 ORDER. THE ANNUAL COST OF SERVICES/FACILITIES PROVI DED TO THE DIFFERENT INSURANCE COMPANIES HAS BEEN ESTIMATED AT RS.1.54 CRORES AS B ELOW: HEAD APPROX. COST (RS.) SALARIES OF EMPLOYEES 1,12,75,000/ - TRAVELLING COST 10,00,000/ - OFFICE INFRASTRUCTURE COST 9,46,800 IT SYSTEM/APPLICATION COST 22,00,000 TOTAL COST 1,54,21,800/ - THAT APART, AND WITHOUT PREJUDICE TO THE ABOVE, THE LD. AR FURTHER SUBMITTED THAT IT IS DISPUTED THE AFORESAID BUSINESS EXPENDIT URE, BEING WILL HAVE TO BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT , EITHER IN THE HANDS OF THE ASSESSEE COMPANY OR TO THE GROUP COMPANIES. THEREFO RE, ON AN OVERALL BASIS, THE ENTIRE EXERCISE OF SEEKING TO TAX THE NORMAL BU SINESS EXPENDITURE IS, IN ANY CASE, REVENUE NEUTRAL. ACCORDINGLY, EVEN ON THIS GR OUND, DEDUCTION IN RESPECT OF SUCH BUSINESS EXPENDITURE SHOULD BE ALLOWED UNDE R SECTION 37(1) OF THE ACT. THE LD. AR RELIED UPON THE FOLLOWING DECISIONS WHE REIN IT HAS BEEN HELD THAT REVENUE SHOULD AGITATE ISSUES OR MAKE ADJUSTMENT ON ISSUES WHICH ARE REVENUE NEUTRAL AND DO NOT AFFECT OVERALL TAXES LIK ELY TO BE COLLECTED BY THE GOVERNMENT. CIT V. EXCEL INDUSTRIES LTD AND MAFATLAL INDUSTRIES (P) LTD.: 358 ITR 295 (SC) CIT V. BILAHARI INVESTMENT P. LTD.: 299 ITR 1 (SC) CIT V. SHRI RAM PISTONS & RINGS LTD.: 220 CTR 404 ( DEL.) CIT V. TRIVENI ENGG. & INDUSTRIES LTD.: 336 ITR 374 (DEL.) CIT V. NAGRI MILLS CO. LTD.: 33 ITR 681 (BOM.) CIT VS. M/S VISHNU INDUSTRIAL GASES: ITA NO. 229/19 88 (DEL.) IN VIEW OF THE AFORESAID, THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER MAY BE DIRECTED TO DELETE THE ARBITRARY DISALLOWANCE BASED ON AN ADHOC PERCENTAGE OF THE TURNOVER MADE IN THE IMPUGNED ASSESSMENT ORDER. THE AFORESAID ISSUE NOW 149 ITA NO . 467/DEL/2014 STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORD ER OF THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2008-09. 73. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 74. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE FIND, THE TRIBUNAL IN ASSES SEES OWN CASE FOR A.Y.2008- 09 HAS HELD AS UNDER: GROUNDS NO 14 TO 14.4 SHARING OF RESOURCES WITH OTH ER GROUP COMPANIES/ SUBSIDIARY COMPANIES 14. SUCCINCTLY STATED FACTS RELATING TO THIS GROUND ARE THAT DURING FY 2007-08, THE SUBSIDIARY COMPANIES OF MSIL WERE O PERATING AS CORPORATE INSURANCE AGENTS OF DIFFERENT INSURANCE CO MPANIES, AND IN AN ERA OF INCREASING COMPETITION AND CONSUMER EXPECTATI ONS, IT WAS THE ENDEAVOUR OF MSIL TO PROVIDE MAXIMUM SERVICES TO ITS CUSTOMERS UNDER ONE-ROOF TO IMPROVE CUSTOMER EXPERIENCE AND DELIGHT WITH COMPANY PRODUCTS. THE COMPANY TRANSFORMED ITS DEALERSHIPS TO ONE-STOP SHOP FOR SALE OF ITS PRODUCTS AND PROVIDING ALL RELATED F ACILITIES OF FINANCING, INSURANCE, AUTO-CARD, PURCHASE AND SALE OF USED CARS, ETC. ASSESSEE SUBMITS THAT ALL THESE ADDED FACILITIES ARE INTEGRA LLY LINKED TO THE MAIN BUSINESS OF THE COMPANY TO SELL PASSENGER CARS AND A LTHOUGH THE EARNINGS FROM THESE ACTIVITIES PER-SE MAY NOT BE VE RY SIGNIFICANT, THE ACTIVITIES CONTRIBUTE SIGNIFICANTLY IN GENERATING T HE DEMAND FOR THE PRODUCTS OF THE COMPANY. LOOKING AT THIS, THE ASSESS ING OFFICER MADE AN AD-HOC DISALLOWANCE OF RS.12,87,88,243 IN THE FINAL ASSESSMENT ORDER HOLDING THE SAME TO BE RELATABLE TO/ TOWARDS SHARIN G OF APPELLANTS RESOURCES WITH OTHER GROUP COMPANIES AND 150 ITA NO . 467/DEL/2014 14.1. LD. AR SUBMITTED THAT IN VIEW OF THE STRINGENT PROVIS IONS OF THE MOTOR VEHICLES ACT, 1988, IT IS MANDATORY THAT EVER Y VEHICLE SHOULD HAVE A VALID INSURANCE TO DRIVE ON THE ROAD AT THE TIME OF TAKING DELIVERY ITSELF FROM THE DEALERSHIP AND UNDER THE GOV ERNING INSURANCE LAWS, IT IS NOT PERMISSIBLE FOR THE COMPANY TO OBTA IN INSURANCE AGENCY, NECESSITATING THE ASSESSEE TO PROMOTE THE GROUP COM PANIES. ACCORDING TO HIM THIS PROMOTES THE ASSESSEE TO PROVIDE ONE STO P SHOP FOR THE COMPANYS PRODUCTS, WHICH ENABLES THE COMPANY TO NOT ONLY PROMOTE SALES BUT ALSO FACE THE EVER INCREASING COMPETITION FROM RIVAL AUTOMOBILE COMPANIES; TO ENSURE SMOOTH AND TIMELY DELIVERY OF THE VEHICLES; TO PROVIDE SMOOTH AFTER SALE SERVICES BY TAKING CARE O F POST-SALES INSURANCE NEEDS OF THE CUSTOMERS; SALE OF SPARE PAR TS AND ACCESSORIES; AND SERVICE INCOMES OF THE COMPANY AND ITS DEALERS. HE FURTHER SUBMITTED THAT THE SIMPLISTIC BUSINESS STRUCTURE OF THE INSURANCE COMPANY REQUIRED NEGLIGIBLE ADMINISTRATIVE AND MANPO WER SUPPORT FOR ITS FUNCTIONING, WHICH HAS BEEN PROVIDED BY THE EXIS TING SET-UP OF MSIL. SINCE THE ASSESSEE PROVIDED THE SUPPORT TO THE INSUR ANCE SUBSIDIARIES DUE TO ITS BUSINESS EXIGENCY THE RELATED COST IS ALLO WABLE BUSINESS EXPENDITURE FOR THE COMPANY, IN VIEW OF THE FACT TH AT THE EXPRESSION FOR THE PURPOSE OF BUSINESS AS USED IN SECTION 37(1) O F THE ACT IS MUCH WIDER THAN FOR THE PURPOSE OF EARNING INCOME. 14.2. HE RELIED ON THE DECISIONS OF THE SUPREME COURT IN T HE CASE OF CIT VS. MALAYALAM PLANTATIONS LTD.:53 ITR 140, WHER EIN IT WAS HELD, THAT THE EXPRESSION ' FOR THE PURPOSE OF THE BUSINESS ' IS WIDER IN SCOPE THAN THE EXPRESSION ' FOR THE PURPOSE OF EARNING PROFITS '. ITS RANGE IS WIDE : IT MAY TAKE IN NOT ONLY THE DAY TO DAY RUNNING OF A BUSINESS BUT A LSO THE RATIONALIZATION OF ITS ADMINISTRATION AND MODERNIZATION OF ITS MACHINERY; IT MAY INCLUDE MEASURES FOR THE PRESERVATION OF THE BUSINESS AND FOR THE PROTEC TION OF ITS ASSETS AND PROPERTY 151 ITA NO . 467/DEL/2014 FROM EXPROPRIATION, COERCIVE PROCESS OR ASSERTION O F HOSTILE TITLE ; IT MAY ALSO COMPREHEND PAYMENT OF STATUTORY DUES AND TAXES IMPO SED AS A PRE-CONDITION TO COMMENCE OR FOR CARRYING ON OF A BUSINESS ; IT MAY COMPREHEND MANY OTHER ACTS INCIDENTAL TO THE CARRYING ON OF A BUSINESS. HOWEVE R WIDE THE MEANING OF THE EXPRESSION MAY BE, ITS LIMITS ARE IMPLICIT IN IT. T HE PURPOSE SHALL BE FOR THE PURPOSE OF THE BUSINESS, THAT IS TO SAY, THE EXPEND ITURE INCURRED SHALL BE FOR THE CARRYING ON OF THE BUSINESS AND THE ASSESSEE SHALL INCUR IT IN HIS CAPACITY AS A PERSON CARRYING ON THE BUSINESS. IT CANNOT INCLUDE SUMS SPENT BY THE ASSESSEE AS AGENT OF A THIRD PARTY, WHETHER THE ORIGIN OF THE A GENCY IS VOLUNTARY OR STATUTORY; IN THAT EVENT, HE PAYS THE AMOUNT ON BEHALF OF ANOT HER AND FOR A PURPOSE UNCONNECTED WITH THE BUSINESS (EMPHASIS SUPPLIED) 14.3. HE SUBMITTED THAT THE SAID APPROACH IS REITERATED BY THE HONBLE APEX COURT IN CIT VS. BIRLA COTTON SPINNING . & WEAVING MILLS LTD.: 82 ITR 166 (SC) AND MADHAV PRASAD JATIA VS. C IT : 118 ITR 200 (SC) ALSO. 14.4. BY PLACING RELIANCE ON THE DECISIONS IN SASSOON J. DAVID AND CO. P. LTD. VS. CIT : 118 ITR 261 (SC); , CIT V NES TLE INDIA LTD. 337 ITR ITR 103 (DEL. HC) (AFFIRMED BY THE SUPREME COURT), C IT VS ADIDAS INDIA MARKETING (P) LTD: 195 TAXMAN 256 (DEL), CIT VS AGR A BEVERAGES CORPORATION (P) LTD: 200 TAXMAN 43 (DEL. MAG.) (HC); , SONY INDIA (P) LTD VS. DY. CIT : 315 ITR 150 (DEL ITAT), STAR INDIA (P ) LTD.: 103 ITD 73 TM (MUM.) HE ARGUED THAT SINCE THE ENTIRE EXPENDITURE AS INCURRED BY THE ASSESSEE WHOLLY AND EXCLUSIVELY FOR PURPOSES OF ITS BUSINESS, ANY INCIDENTAL/ INDIRECT BENEFIT TO THE GROUP COMPANY(I ES), IT IS SETTLED LAW, CANNOT BE THE BASIS FOR DISALLOWING THE EXPENDITURE IN THE HANDS OF THE ASSESSEE. 14.5. AS A MATTER OF FACT, LD. AR SUBMITTED THAT EVEN IF THE COMPANY WERE TO RECOVER THE COST OF CHARGES PROVIDED TO THE INSURANCE SUBSIDIARIES, IT SHALL BE A VERY SMALL AMOUNT COMPA RED TO WHAT HAS BEEN CONSIDERED BY THE AO IN THE IMPUGNED ASSESSMENT ORDER. 152 ITA NO . 467/DEL/2014 ASSESSEE ESTIMATED THE ANNUAL COST OF SERVICES/FACIL ITIES PROVIDED TO THE DIFFERENT INSURANCE COMPANIES AT RS.1.31 CRORES AS BELOW: SALARIES OF EMPLOYEES 10,250,000 TRAVELLING COST 918,000 OFFICE INFRASTRUCTURE COST 946,800 IT SYSTEM/ APPLICATION COST 985,000 TOTAL COST 13,099,800 14.6. HE FURTHER SUBMITTED THAT THE SAID EXPENDITURE BEI NG THE BUSINESS EXPENDITURE, WILL HAVE TO BE ALLOWED AS DEDU CTION UNDER SECTION 37(1) OF THE ACT, EITHER IN THE HANDS OF TH E APPELLANT COMPANY OR TO THE GROUP COMPANIES, IN THAT SENSE THE ENTIRE EX ERCISE OF SEEKING TO TAX THE NORMAL BUSINESS EXPENDITURE IS, IN ANY CASE , REVENUE NEUTRAL AS SUCH IN VIEW OF THE DECISIONS IN CIT V. EXCEL INDUST RIES LTD AND MAFATLAL INDUSTRIES (P) LTD.: 358 ITR 295 (SC), CIT V. BILAHAR I INVESTMENT P. LTD.: 299 ITR 1 (SC), CIT V. SHRI RAM PISTONS & RINGS LTD.: 220 CTR 404 (DEL.), CIT V. TRIVENI ENGG. & INDUSTRIES LTD.: 336 I TR 374 (DEL.), CIT V. NAGRI MILLS CO. LTD.: 33 ITR 681 (BOM.), AND CIT VS. M/S VISHNU INDUSTRIAL GASES: ITA NO. 229/1988 (DEL.) REVENUE S HOULD NOT AGITATE ISSUES OR MAKE ADJUSTMENT ON ISSUES WHICH ARE REVEN UE NEUTRAL AND DO NOT AFFECT OVERALL TAXES LIKELY TO BE COLLECTED BY T HE GOVERNMENT. LD. DR VEHEMENTLY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 14.7. ON A CAREFUL READING OF THE RECORD IN THE LIGHT OF T HE ABOVE ARGUMENTS OF THE LD. COUNSEL, WE FIND THAT THERE IS N O MATERIAL THAT IS BROUGHT ON RECORD TO CONTROVERT THE PLEA OF THE ASSE SSEE THAT THEY HAVE PROVIDED THE SUPPORT TO THE INSURANCE SUBSIDIARIES D UE TO ITS BUSINESS EXIGENCY RATHER THAN SUPPORTING THE SAID COMPANIES A ND IT IS IT IS IN THE BEST INTERESTS OF MSIL TO DO SO FOR MAXIMIZING THEI R PROFITS, AS SUCH THE 153 ITA NO . 467/DEL/2014 RELATED COST IS ALLOWABLE BUSINESS EXPENDITURE FOR T HE COMPANY. IT ALSO FURTHER GOES UNDISPUTED THAT THIS BEING THE BUSINESS EXPENDITURE WILL HAVE TO BE ALLOWED AS DEDUCTION UNDER SECTION 37(1) OF THE ACT, EITHER IN THE HANDS OF THE APPELLANT COMPANY OR TO THE GROUP C OMPANIES. IN THESE CIRCUMSTANCES, WHILE RESPECTFULLY FOLLOWING T HE DECISIONS OF THE HONBLE APEX COURT AND THE JURISDICTIONAL HIGH COURT , WE FIND THAT THE ADDITION ON THIS SCORE CANNOT BE SUSTAINED. ACCORDIN GLY, WHILE ALONG GROUND NOS 14 TO 14.4, WE DIRECT THE LD. AO TO DELET E THE SAME. THE ISSUE IS IDENTICAL WITH THE A.Y. 2008-09 DECIDE D BY THE TRIBUNAL. THEREFORE IT WILL BE APPROPRIATE TO REMAND BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER AND WE DIRECT THE ASSESSING OFFICER TO DELE TE THE DISALLOWANCE BASED ON AN ADHOC PERCENTAGE OF THE TURNOVER MADE IN THE ASS ESSMENT ORDER IN LIGHT OF THE DECISION OF THE TRIBUNAL. NEEDLESS TO SAY THE A SSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF NATURAL JUSTI CE. HENCE GROUND NO. 10 TO 10.3 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 75. IN RESULT, GROUND NOS. 10 TO 10.3 ARE PARTLY AL LOWED FOR STATISTICAL PURPOSE. 76. GROUND NO. 11 TO 11.2 IS RELATING TO DISALLOWAN CE OF EXPENDITURE INCURRED ON CORPORATE SOCIAL RESPONSIBILITY AMOUNTING TO RS. 7,67,00,000/-. THE LD. AR SUBMITTED THAT DURING THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE INCURRED RS.7,67,00,000/- ON CORPORATE SOCIAL RESPONSIBILITY (CSR) ACTIVITIES WHICH WAS CLAIMED AS A BUSINESS DEDUCTION UNDER THE ACT. THE LD. AR SUBMITTED THAT CSR REFERS TO THE OBLIGATIONS OF BUSINESSMEN TO PUR SUE THOSE POLICIES TO MAKE THOSE DECISIONS OR TO FOLLOW THOSE LINES OF RELATIO NS WHICH ARE DESIRABLE IN TERMS OF THE OBJECTIVES AND VALUES OF OUR SOCIETY. AN EXP ENSE INCURRED MERELY FOR DISCHARGING CORPORATE SOCIAL RESPONSIBILITY IS ALSO AN EXPENDITURE INCURRED TO ACHIEVE LONG-TERM GROWTH, CREATE GOODWILL AND SECUR E A SUSTAINABLE COMPETITIVE ADVANTAGE. THE SAID EXPENDITURE HAS BEEN INCURRED F OR BUSINESS PURPOSES ON 154 ITA NO . 467/DEL/2014 THE GROUNDS OF COMMERCIAL EXPEDIENCY AND FOR LONG T ERM SUSTAINABILITY AND THERE IS NO ELEMENT OF ANY PERSONAL BENEFIT BEING G RANTED. THE EXPENDITURE WAS INCURRED BY THE COMPANY WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF PROMOTING ITS BUSINESS AND, THEREFORE, THE EXPENDITURE IS ALL OWABLE. ON THE CONTRARY, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSES SEE ON THE GROUND THAT THE SAME HAD NOT BEEN INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF THE BUSINESS. IN ADDITION, THE ASSESSING OFFICER ALSO A LLEGED THAT THE EXPENDITURE INCURRED BY THE ASSESSING OFFICER RESULTED IN AN EN DURING BENEFIT TO THE ASSESSEE AND THEREFORE WAS CAPITAL IN NATURE. IN TH IS REGARD, IT IS RESPECTFULLY SUBMITTED THAT THE ASSESSEE, SINCE 28 YEARS IS COMM ITTED TO THE PRINCIPLE OF GIVE - A PRINCIPLE THAT HAS BEEN THE BEDROCK OF T HE COMPANYS APPROACH TO SUSTAINABLE BUSINESS. THE ASSESSEE COMPANY HAS FORM ULATED A CORPORATE SOCIAL RESPONSIBILITY POLICY RECOGNIZING ITS RESPONSIBILIT Y TOWARDS ALL ITS STAKEHOLDERS. THE KEY STAKEHOLDERS OF THE ASSESSEE COMPANY ARE IT S EMPLOYEES AND THEIR FAMILIES, CUSTOMERS AND THEIR FAMILIES, SHAREHOLDER S AND INVESTORS, DEALERS, SUPPLIERS AND OTHER BUSINESS PARTNERS, LOCAL COMMUN ITY AND SOCIETY AND ENVIRONMENT AND REGULATORY AUTHORITIES. THE ASSESSE E COMPANY FOLLOWS A PARTNERSHIP APPROACH WITH ITS VARIOUS STAKEHOLDERS, AND BELIEVES THAT THE PROSPERITY AND WELLBEING OF THE STAKEHOLDERS WILL F UEL THE GROWTH OF THE COMPANY IN THE FUTURE. DURING THE RELEVANT ASSESSME NT YEAR, THE ASSESSEE COMPANY HAD INCURRED RS.76.70 MILLIONS TOWARDS CSR ACTIVITIES IN THE FOLLOWING AREAS: (A) MAINTENANCE OF CHILDREN'S PARK NEAR INDIA GATE, NEW DELHI. THIS CHILDRENS PARK SPREAD OVER 10 ACRES AREA HAS BEEN DEVELOPED T O GIVE CLEAN, GREEN AND SAFE PLAYGROUNDS WHERE CHILDREN CAN HAVE FUN TOGETH ER EVEN AS THEY LEARN AND GROW. THE PARK PROMINENTLY DISPLAVS THE BANNER OF T HE ASSESSEE COMPANY AT VARIOUS PLACES WITHIN THE PARK INCLUDING THE ENTRAN CE GATES AND THE TICKET COUNTERS. FURTHER, THE COMPANYS INITIATIVE IN THE TAKING OVER AND DEVELOPING THE CHILDRENS PARK HAS HOGGED LIMELIGHT THROUGH PU BLICITY IN THE PRINT AND SOCIAL MEDIA. IT IS PERTINENT TO NOTE THAT THE ASSE SSEE COMPANY CANNOT BE SAID 155 ITA NO . 467/DEL/2014 TO BE MERELY CARRYING OUT PHILANTHROPIC OBJECTS, RA THER THE CONTRIBUTIONS ARE INDIRECTLY AIMED FOR PROMOTING BUSINESS OF THE ASSE SSEE COMPANY AND ALSO FOR ADVERTISING ITS NAME. (B) NATIONAL ROAD SAFETY MISSION, AS A MARK OF GRAT ITUDE TO THE PEOPLE OF THE COUNTRY, ON THE OCCASION OF COMPLETING 25 YEARS OF SUCCESSFUL OPERATIONS, THE COMPANY LAUNCHED A NATIONAL ROAD SAFETY MISSION TO PROMOTE A CULTURE OF SAFE AND ACCIDENT FREE DRIVING ON INDIAN ROADS. EVEN DUR ING THE SLOW DOWN PERIOD YEAR LIKE F.Y. 08-09, THE MANAGEMENT DEVOTED TIME A ND RESOURCES TO START A NATIONAL ROAD SAFETY PROGRAM TO PROMOTE CONSCIOUSNE SS FOR SAFE DRIVING IN THE COUNTRY. IT IS PERTINENT TO NOTE THAT THE AFORESAID IS NOT IN PRINCIPLE A RANGE OF ADDITIONAL ACTIVITIES THAT THE COMPANY ADOPTS; RATH ER IT IS A WAY OF CARRYING OUT THE CORE ACTIVITY WHICH RECOGNIZES THE COMPANYS RE SPONSIBILITY TOWARDS SOCIETY AS PART OF THE BUSINESS ENVIRONMENT. IT THUS FOLLOW S, THAT CSR CONSIDERATIONS ARE INTEGRATED INTO THE COMPANYS BUSINESS STRATEGY AND CORE PROCESSES. (C) COMMUNITY DEVELOPMENT AND EMPLOYEE VOLUNTEERING AS THE COMPANY CONSIDERS LOCAL COMMUNITY ITS IMPORTANT STAKEHOLDER . THE CSR TEAM ALONG WITH THE NGO PARTNER WORKS WITH THE COMMUNITY IDENTIFIES THEIR NEEDS AND DOES SOCIAL PROJECTS ACCORDINGLY. THESE COMMUNITY INITIA TIVES HAVE HELPED IN DEVELOPING A COHESIVE RELATIONSHIP BETWEEN THE COMM UNITY AND THE COMPANY. THE COMPANY HAS ADOPTED 4 VILLAGES AROUND MANESAR M ANUFACTURING PLANT FOR OVERALL DEVELOPMENT OF THESE VILLAGES AND FOR THE W ELL-BEING OF PEOPLE LIVING IN THESE VILLAGES. THE ASSESSEE COMPANY HAS BEEN STREN GTHENING ITS OWN OPERATIONS BY GAINING THE CO-OPERATION OF THE LOCAL COMMUNITY AND ITS EMPLOYEES. FURTHER, THE COMPANY ENDEAVOURS TO EDUCA TE ITS EMPLOYEES AND WORKERS IN ORDER TO DEVELOP AN EFFECTIVE TWO-WAY CO MMUNICATION TO EDUCATE WORKERS AS TO WHAT IS IN THEIR BEST INTERESTS. SOME TIMES A COMPANY'S POLICIES ARE ALSO VERY ONE-SIDED. WORKERS, USUALLY RECEIVE P OLITICALLY MOTIVATED COMMUNICATIONS FROM OUTSIDE PERSONS, WHO HAVE NO ST AKE IN THE FUTURE OF THE COMPANY, AND WHO ARE LOOKING FOR SHORT-TERM POLITIC AL GAINS. THE MANAGEMENT 156 ITA NO . 467/DEL/2014 NEEDS TO COUNTER THIS BY DEVELOPING AN EDUCATION PR OCESS SO AS TO DEVELOP A LONG TERM SUSTAINED GROWTH FOR ITS BUSINESS. MOREOV ER CSR IS AN EFFICIENT INSTRUMENT OF HOW TO BIND THE WORKERS TO THE COMPAN Y. THIS WOULD ALSO INCLUDE GOOD WORKING CONDITIONS WHICH DIRECTLY HAVE A POSIT IVE IMPACT ON THE PROFIT MAKING STRATEGY OF THE COMPANY. (D) ITI PROJECT FOR WHICH THE GOVERNMENT HAS IDENTI FIED UPGRADATION OF ITIS IN THE COUNTRY TO MEET THE FUTURE REQUIREMENT OF SKILL ED MANPOWER AS PER INDUSTRY REQUIREMENTS. IN ORDER TO SUPPORT THIS INI TIATIVE, THE COMPANY HAS ADOPTED 4 ITIS IN HARYANA IN ASSOCIATION WITH TWO O F ITS SUPPLIERS IN PUBLIC PRIVATE PARTNERSHIP MODE TO DEVELOP THEM AS CENTRE OF EXCELLENCE. UNEMPLOYED EDUCATED YOUTH ARE IDENTIFIED FROM THESE VILLAGES A ND GIVEN VOCATIONAL TRAININGS AT ITI GURGAON AND MARUTI DRIVING SCHOOL, GURGAON. THE COMPANY ALSO FACILITATES THEIR EMPLOYMENT. IT IS ALSO FELT BY TH E COMPANY THAT THIS PROVIDES A POSITIVE PSYCHOLOGICAL IMPACT ON THE MINDS OF THE F UNCTIONARIES OF THE COMPANY. IT WILL BE APPRECIATED THAT WHENEVER AFORESAID CSR ACTIVITIES ARE UNDERTAKEN BY THE COMPANY, THE SAME IS COVERED BY PRINT AND ELECT RONIC MEDIA. THE EXPENDITURES INCURRED BY THE ASSESSEE IN SUCH IDENT IFIED CAUSES, THUS, CREATES GOODWILL AND BRAND IMAGE FOR THE ASSESSEE AND HELPS IN PROMOTING BUSINESS INTERESTS IN LONG RUN. SUCH EXPENDITURE CREATES A P OSITIVE ALL-ROUND BRAND IMAGE, WHICH LEAVES IMPACT ON THE MIND OF EVERYONE AND ULTIMATELY ATTRACTS CUSTOMERS TO THE PRODUCTS AND SERVICES OFFERED BY T HE COMPANY. FOLLOWING ALL LAWS AND CARING FOR THE ENVIRONMENT MAKES GOOD BUSI NESS SENSE, AND HELPS IN IMAGE BUILDING. THE ASSESSEE COMPANY IS UNDERTAKING THE AFORESAID CSR ACTIVITIES WHICH WOULD CUMULATIVELY MAXIMIZE THE PR OBABILITY OF ITS LONG-TERM SURVIVAL AND SUSTAINED GROWTH. CONSIDERED IN THE LI GHT OF THE AFORESAID BACKGROUND, THE LD. AR SUBMITTED, THAT THE CSR EXPE NDITURE IS ALLOWABLE AS A BUSINESS DEDUCTION UNDER THE PROVISIONS OF THE INCO ME TAX ACT (THE ACT). IN THIS REGARD, THE LD. AR POINTED OUT TO PROVISIONS O F SECTION 37(1) OF THE ACT, AND SUBMITTED THAT UNDER SECTION 37(1) OF THE ACT THE F UNDAMENTAL CONDITION FOR ALLOWABILITY IS THAT THE EXPENDITURE MUST BE INCURR ED FOR THE PURPOSE OF 157 ITA NO . 467/DEL/2014 BUSINESS. THE SAID EXPRESSION IS, MUCH WIDER THAN FOR THE PU RPOSE OF EARNING INCOME. FOR ANY EXPENDITURE TO BE ELIGIBLE FOR DED UCTION, SUCH EXPENDITURE MUST BE INCURRED FOR THE PURPOSES OF BUSINESS, IRRE SPECTIVE OF FACT WHETHER INCURRING OF SUCH EXPENDITURE IS VOLUNTARILY AND WI THOUT ANY COMPELLING NECESSITY OR MANDATORY. IT IS, IN THIS REGARD, ALSO RELEVANT TO REFER TO THE LEGISLATIVE HISTORY OF SECTION 37(1) OF THE ACT, WH EREIN THE INCOME TAX BILL OF 1961 INITIALLY PROPOSED TO LAY DOWN THAT NECESSITY OF THE EXPENDITURE WOULD BE A CONDITION FOR CLAIMING DEDUCTION UNDER THAT SE CTION. THE IMPLICATION OF THE AFORESAID IS THAT THE FACT THAT SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEFITTED BY THE INCURRING OF THE EXPENDITURE DOES NOT COME IN THE WAY OF THE EXPENDITURE BEING ALLOWED BY WAY OF DEDUCTION UNDER SECTION 37(1) OF THE ACT. WHAT IS IMPORTANT FOR THE PURPOSE OF ALLOWABILITY O F DEDUCTION UNDER SECTION 37(1) OF THE ACT IS THAT THE EXPENDITURE MUST BE IN CURRED FOR THE PURPOSE OF BUSINESS. AGAIN, THE WORDS, FOR THE PURPOSE OF BUS INESS SHOULD NOT BE LIMITED TO THE MEANING OF EARNING PROFIT ALONE. IT IS ALS O IMPORTANT TO NOTE THAT THE PURPOSE HAS TO BE SEEN FROM THE POINT OF VIEW OF TH E BUSINESSMAN AND SHOULD NOT BE SEEN WITH REFERENCE TO NARROW OBJECTIVE OF E ARNING PROFITS IMMEDIATELY. TO ELABORATE, CERTAIN EXPENDITURE MAY NOT REAP PROF ITS IMMEDIATELY, BUT MAY BE ADVANTAGEOUS IN THE LONG RUN, BY CREATING GOODWILL AND BRAND IMAGE. THE LD. AR FURTHER SUBMITTED THAT CSR EXPENSES ARE ALLOWABL E AS REVENUE EXPENDITURE, AS HAS BEEN HELD IN THE FOLLOWING DECISIONS: I) SRI VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO V. CIT: 223 ITR 101 II) CIT V. RANBAXY LABORATORIES LTD. : ITA NO.743 OF 2008 III) CIT V. MADRAS REFINERIES LTD.: 266 ITR 170 (MA D.) IV) CIT V. RAJASTHAN SPINNING AND WEAVING MILLS LTD .: 281 ITR 408 (RAJ.), THE RAJASTHAN HIGH COURT, WHILE RELYING ON ITS DECI SION IN THE ASSESSEES OWN CASE REPORTED AT 274 ITR 465 DECIDED THE ISSUE IN F AVOUR OF THE ASSESSEE. V) THE BOMBAY HIGH COURT IN THE CASE OF KRISHNA SAH AKARI SAKHAR KARKHANA LTD V. CIT: 229 ITR 577 HELD THAT CONTRIBUTION TO THE EDUCATION FUND UNDER THE MAHARASHTRA COOPERATIVE SOCIETIES ACT, 19 60 WAS ALLOWABLE AS 158 ITA NO . 467/DEL/2014 REVENUE EXPENDITURE. THE CHENNAI HIGH COURT IN THE CASE OF CIT V. CHENNAI PETROLEUM CORPN. LTD: T.C.(A).NO.57 OF 2006, HELD THAT SOCIAL AND WELFARE COMMUNITY EXPENSES ARE DEDUCTIBLE AS BUSINESS EXPEN DITURE. THE GUJARAT HIGH COURT IN THE CASE OF CIT VS JAYENDRAKUMAR HIRALAL: 327 ITR 147. THE KARNATAKA HIGH COURT IN THE CASE OF MYSORE KIRLOSKA R V. CIT: 166 ITR 836, HELD THAT THE CONTRIBUTION MADE FOR COMMON TREATMENT OF EFFLUENTS WAS ALLOWABLE BUSINESS EXPENDITURE UNDER SECTION 37(1) OBSERVED T HAT THE EXPENDITURE INCURRED ON ACCOUNT OF DONATIONS TO CERTAIN FUNDS, CHARITABLE INSTITUTIONS, ETC. IS ALLOWABLE EVEN IF THE DONATION HAS NO NEXUS WITH THE BUSINESS OF THE ASSESSEE AND REGARDLESS OF ANY BUSINESS ACTIVITY OR ANY COMMERCIAL EXPEDIENCY. THE MONEY MAY BE EXPENDED ON GROUNDS OF COMMERCIAL EXPEDIENCY BUT NOT OF NECESSITY AND STILL WOULD BE ALLOWABLE AS A BUSINES S DEDUCTION. THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. KARNATAKA FINANCI AL CORPORATION: 326 ITR 355 HELD THAT EXPENDITURE INCURRED IN SETTING UP M ODEL VILLAGES AT THE INSTANCE OF THE GOVERNMENT IS ALLOWABLE AS DEDUCTIO N. IN THE CASE OF INFOSYS TECHNOLOGIES LTD. V. JCIT: 109 TTJ 631 (BANG.), THE ASSESSEE INCURRED INSTALLED TRAFFIC SIGNALS AT BANNERGHATTA CIRCLE WHERE THE OF FICE OF ASSESSEE WAS SITUATED AS THERE USED TO BE TRAFFIC JAMS RESULTING IN DELAY TO EMPLOYEES IN REACHING THE OFFICE. THE SAME WAS HANDED OVER TO THE GOVERNMENT AFTER INSTALLATION. THE TRIBUNAL HELD THAT INCURRENCE OF SUCH EXPENDITURE W AS PROMPTED SOLELY WITH A VIEW TO BENEFIT ITS EMPLOYEES. IT WAS OBSERVED THAT THE EXPENDITURE BEING INCURRED IN THE CHARACTER AS A TRADER AND WAS PROMP TED BY COMMERCIAL EXPEDIENCY WOULD BE ALLOWABLE AS DEDUCTION. THE LD. AR ALSO RELIED UPON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HINDUST AN PETROLEUM CORP. LTD. V. DCIT: 96 ITD 186. IN THE INSTANT CASE, THE ASSESSEE, A COMPANY OWNED BY GOVERNMENT OF INDIA AND WORKING UNDER ITS CONTROL AND DIRECTIONS, INCURRED SOME EXPENDITURE TOWARDS IMPLEMENTATION OF 20- POINT PROGRAMME AT INSTANCE OF GOVERNMENT AND CLAIMED DEDUCTION OF SAM E UNDER SECTION 37(1) OF THE ACT. THE TRIBUNAL OBSERVED THAT IT WAS IN BUSIN ESS INTEREST OF ASSESSEE TO ABIDE BY DIRECTIONS OF GOVERNMENT OF INDIA WHICH OW NED ASSESSEE AND EXPENDITURE ON 20- POINT PROGRAMME WAS INCURRED IN VIEW OF SPECIFIC DIRECTIONS 159 ITA NO . 467/DEL/2014 OF GOVERNMENT OF INDIA AND ALLOWABLE UNDER SECTION 37(1) OF THE ACT. ATTENTION IS ALSO INVITED TO THE DECISION OF THE MUMBAI TRIBU NAL IN THE CASE OF INDIAN PETROLEUMS VS. DEPARTMENT OF INCOME TAX: ITA NO. 66 4 AND 665/ AHD/2008, WHEREIN THE COURT HELD THAT THE ASSESSEE IS ENTITLE D TO THE DEDUCTION OF EXPENDITURE INCURRED IN THE NATURE OF DONATION / CO NTRIBUTION TOWARDS COMMUNITY DEVELOPMENT WORK. THE LD. AR RELIED UPON THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF LUBR IZOL ADVANCES MATERIALS INDIA P. LTD. V. DCIT: 150 ITD 538. THE LD. AR ALSO RELIED UPON THE FOLLOWING CASES: I) IAC V. NUCHEM PLASTICS LTD.: 35 TTJ 559 (DEL.) II) DCIT V. HERO MOTO CORP. LTD. : ITA NO.L609/DEL/ 2016 (DEL. TRIB.) III) CIT V. D.T.T.D.C LTD.: 350 ITR 1 (DEL) IV) DELHI CLOTH AND GENERAL MILLS COMPANY LTD. V. I TO: ITA NO. 5289/DEL./74-75 V) RANBAXY LABORATORIES LTD.: ITA NO.: 3925/D/02 (D EL.-ITAT) VI) JCIT V. DEVERSONS INDUSTRIES LTD. 290 ITR (AT) 287 (AHD) THE LD. AR ALSO POINTED OUT THAT EXPLANATION 2 HAS BEEN INSERTED IN SECTION 37 OF THE ACT BY THE FINANCE (NO.2) ACT, 2014 W.E.F. 1 .04.2015 TO PROVIDE THAT CSR EXPENSES REFERRED IN SECTION 135 OF THE COMPANIES A CT, 2013 SHALL NOT BE DEEMED TO BE INCURRED FOR THE PURPOSE OF BUSINESS. THE AFORESAID EXPLANATION INSERTED W.E.F. 1.04.2015, THE LD. AR SUBMITTED THA T THE SAME ALSO FORTIFIES THE CLAIM OF THE ASSESSEE THAT PRIOR TO ASSESSMENT YEAR 2015-16, EVEN CSR EXPENDITURE WAS AN ALLOWABLE BUSINESS DEDUCTION. IN VIEW OF THE ABOVE CATENA OF JUDICIAL PRONOUNCEMENTS, THE LD. AR SUBMITTED TH AT, CSR EXPENSES ARE EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND ARE HENCE ALLOWABLE AS A REVENUE DEDUCTION. 77. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSI NG OFFICER. 78. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT T HE LD. AR SUBMITTED BEFORE US THAT THE CSR EXPENDITURE IS ALLOWABLE AS A BUSINESS DEDUCTION UNDER THE 160 ITA NO . 467/DEL/2014 PROVISIONS OF THE INCOME TAX ACT (THE ACT). IN TH IS REGARD, THE LD. AR POINTED OUT TO PROVISIONS OF SECTION 37(1) OF THE ACT, AND SUBMITTED THAT UNDER SECTION 37(1) OF THE ACT THE FUNDAMENTAL CONDITION FOR ALLO WABILITY IS THAT THE EXPENDITURE MUST BE INCURRED FOR THE PURPOSE OF BU SINESS. THE SAID EXPRESSION IS, MUCH WIDER THAN FOR THE PURPOSE OF EARNING INCOME. FOR ANY EXPENDITURE TO BE ELIGIBLE FOR DEDUCTION, SUCH EXPE NDITURE MUST BE INCURRED FOR THE PURPOSES OF BUSINESS, IRRESPECTIVE OF FACT WHET HER INCURRING OF SUCH EXPENDITURE IS VOLUNTARILY AND WITHOUT ANY COMPELLI NG NECESSITY OR MANDATORY. IT IS, IN THIS REGARD, ALSO RELEVANT TO REFER TO TH E LEGISLATIVE HISTORY OF SECTION 37(1) OF THE ACT, WHEREIN THE INCOME TAX BILL OF 19 61 INITIALLY PROPOSED TO LAY DOWN THAT NECESSITY OF THE EXPENDITURE WOULD BE A CONDITION FOR CLAIMING DEDUCTION UNDER THAT SECTION. THE IMPLICATION OF TH E AFORESAID IS THAT THE FACT THAT SOMEBODY OTHER THAN THE ASSESSEE IS ALSO BENEF ITTED BY THE INCURRING OF THE EXPENDITURE DOES NOT COME IN THE WAY OF THE EXPENDI TURE BEING ALLOWED BY WAY OF DEDUCTION UNDER SECTION 37(1) OF THE ACT. WHAT I S IMPORTANT FOR THE PURPOSE OF ALLOWABILITY OF DEDUCTION UNDER SECTION 37(1) OF THE ACT IS THAT THE EXPENDITURE MUST BE INCURRED FOR THE PURPOSE OF BUS INESS. AGAIN, THE WORDS, FOR THE PURPOSE OF BUSINESS SHOULD NOT BE LIMITED TO THE MEANING OF EARNING PROFIT ALONE. IT IS ALSO IMPORTANT TO NOTE THAT TH E PURPOSE HAS TO BE SEEN FROM THE POINT OF VIEW OF THE BUSINESSMAN AND SHOULD NOT BE SEEN WITH REFERENCE TO NARROW OBJECTIVE OF EARNING PROFITS IMMEDIATELY. CE RTAIN EXPENDITURE MAY NOT REAP PROFITS IMMEDIATELY, BUT MAY BE ADVANTAGEOUS I N THE LONG RUN, BY CREATING GOODWILL AND BRAND IMAGE. THESE SUBMISSIONS OF THE LD. AR ARE SUPPORTED BY THE INCOME TAX STATUTE. BUT AT THE SAME TIME, IT CA N BE SEEN THAT EXPLANATION 2 HAS BEEN INSERTED IN SECTION 37 OF THE ACT BY THE FINANCE (NO.2) ACT, 2014 W.E.F. 1.04.2015 TO PROVIDE THAT CSR EXPENSES REFER RED IN SECTION 135 OF THE COMPANIES ACT, 2013 SHALL NOT BE DEEMED TO BE INCUR RED FOR THE PURPOSE OF BUSINESS. THE AFORESAID EXPLANATION INSERTED W.E.F. 1.04.2015. THEREFORE, IN THE PRESENT ASSESSMENT YEAR THE SAID EXPLANATION WILL N OT BE APPLICABLE. HENCE, THE EXPENDITURE HAS TO BE ALLOWED BECAUSE ULTIMATELY TH E ASSESSEE WAS PUBLICIZING ITS PRODUCT AT THE PROMINENT PLACES BY MAINTAINING THEM SUCH AS PARKS AND 161 ITA NO . 467/DEL/2014 THIS HAS DIRECT IMPACT ON THE SALES PROMOTIONS OF T HE ASSESSEE COMPANY. THEREFORE, GROUND NO. 11 TO 11.12 ARE ALLOWED. 79. IN RESULT, GROUND NO. 11 TO 11.2 ARE ALLOWED. 80. GROUND NO. 12 IS RELATING TO DISALLOWANCE OF CL UB EXPENDITURE AMOUNTING TO RS. 6,41,060. THE LD. AR SUBMITTED THAT THE ASSE SSEE COMPANY HAS DEBITED RS.6,41,060/- ON ACCOUNT OF CLUB MEMBERSHIP FEES TO PROFIT & LOSS ACCOUNT. THE SAID EXPENDITURE IS INCURRED ON SUBSCRIPTION TO CLUBS PROVIDED TO VARIOUS EMPLOYEES AND DIRECTORS. THE ASSESSING OFFICER HAS, IN THE IMPUGNED ASSESSMENT ORDER DISALLOWED THE SAID EXPENDITURE OF RS.6,41,060/- BY HOLDING THAT THE SAME CANNOT BE CONSIDERED AS BUSINESS EXPE NDITURE. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE AFORESAID EXPENDITURE HAS BEEN INCURRED FOR BUSINESS PURPOSES ON THE GROUNDS OF COMMERCIAL EXPE DIENCY AND THERE IS NO ELEMENT OF ANY PERSONAL BENEFIT BEING GRANTED EITHE R TO THE EMPLOYEE OR DIRECTOR. THE TAX AUDITORS HAVE AMPLY CLARIFIED THI S POSITION VIDE CLAUSE 17(B) OF THE TAX AUDIT REPORT. THE AFORESAID EXPENDITURE IS, THUS, ALLOWABLE AS DEDUCTION. THE AFORESAID ISSUE IS COVERED BY THE DECISION OF T HE SUPREME COURT IN THE CASE OF SAMTEL COLOR LTD (CIVIL APPEAL NO 64 49/2012) WHEREIN THE COURT DISMISSED THE SLP FILED BY REVENUE AGAINST THE ORDE R OF DR DELHI HIGH COURT (REFERRED INFRA) ALLOWING THE CLAIM FOR DEDUCTION R EPRESENTING 6 EXPENDITURE INCURRED ON CLUB MEMBERSHIP. THE LD. AR RELIED UPON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: NESTLE INDIA LIMITED: 296 ITR 682 (DEL.) CIT V. SAMTEL COLOR LTD.: 326 ITR 425 (DEL.) - SLP FILED BY THE REVENUE DISMISSED IN C.A NO.6449/2012 OTIS ELEVATORS CO. (INDIA) LTD V. CIT 195 ITR 682 (BOM) CIT V. CITIBANK N.A.: 264 ITR 18 (BOM) CIT V. FORCE MOTORS LTD.: ITA NO. 5296 OF 2010 (BOM ) CIT V. SUNDARAM INDUSTRIES LTD 240 ITR 335 (MAD) GUJARAT STATE EXPORT CORPORATION LTD. V. CIT: 209 I TR 649 (GUJ.) CIT V. INFOSYS TECHNOLOGIES LTD.: 205 TAXMAN 59 (KA R) 162 ITA NO . 467/DEL/2014 ASSAM BROOK LTD. V CIT: 267 ITR 121 (CAL) DCIT V. MAX INDIA LTD (2007) 112 TTJ (ASR.) 726 (BO M); AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION V CIT 258 ITR 601. THE LD. AR FURTHER SUBMITTED THAT THE AFORESAID ISS UE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001-02, 2002-03, 2004-O5, 200 5-06, 2006-07, 2007-08 AND 2008-09. 81. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 82. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT I N ASSESSEES OWN CASE FOR A.YS. 2001-02, 2002-03, 2004-O5, 2005-06, 2006-07, 2007-0 8 AND 2008-09, THE TRIBUNAL DECIDED THIS ISSUE IN FAVOUR OF THE ASSESS EE. THE TRIBUNAL HELD AS UNDER: 8. ON THE ASPECT OF DISALLOWANCE OF RS.10,06,470/- EXPENDITURE INCURRED ON CLUB MEMBERSHIP, CASE OF THE ASSESSEE IS THAT THE A SSESSEE COMPANY HAS DEBITED RS.10,06,470/- TO PROFIT & LOSS ACCOUNT, TH E EXPENDITURE WAS INCURRED ON SUBSCRIPTION TO CLUBS PROVIDED TO VARIOUS EMPLOY EES AND DIRECTORS ON ACCOUNT OF CLUB MEMBERSHIP FEES AND THE ASSESSING O FFICER HAS, IN THE IMPUGNED ASSESSMENT ORDER DISALLOWED THE SAID EXPEN DITURE OF RS.10,06,470/- BY HOLDING THAT THE SAME CANNOT BE C ONSIDERED AS BUSINESS EXPENDITURE. LD. AR ARGUED THAT THIS EXPENDITURE HA S BEEN INCURRED FOR BUSINESS PURPOSES ON THE GROUNDS OF COMMERCIAL EXPE DIENCY AND THERE IS NO ELEMENT OF ANY PERSONAL BENEFIT BEING GRANTED EITHE R TO THE EMPLOYEE OR DIRECTOR AND THE TAX AUDITORS HAVE AMPLY CLARIFIED THIS POSITION VIDE CLAUSE 17(B) OF THE TAX AUDIT REPORT. BASING ON THE DECISI ON OF THE SUPREME COURT IN THE CASE OF SAMTEL COLOR LTD. (CIVIL APPEAL NO. 644 9/2012) BY WAY OF WHICH THE HONBLE APEX COURT DISMISSED THE SLP FILED BY R EVENUE AGAINST THE ORDER OF DELHI HIGH COURT IN CIT V. SAMTEL COLOR LTD.: 32 6 ITR 425 (DEL.) ALLOWING THE 163 ITA NO . 467/DEL/2014 CLAIM FOR DEDUCTION REPRESENTING EXPENDITURE INCURR ED ON CLUB MEMBERSHIP, HE ARGUED THAT THIS EXPENDITURE IS ALLOWABLE AS DEDUCT ION. HE SUBMITTED THAT BESIDES BEING COVERED BY THE DECISIONS IN NESTLE IN DIA LIMITED: 296 ITR 682 (DEL.), CIT V. SAMTEL COLOR LTD.: 326 ITR 425 (DEL. ), OTIS ELEVATORS CO. (INDIA) LTD. V. CIT 195 ITR 682 (BOM); AMERICAN EXPRESS INT ERNATIONAL BANKING CORPORATION V. CIT 258 ITR 601 (BOM.); CIT V. CITIB ANK N.A.:264 ITR 18 (BOM), CIT V. FORCE MOTORS LTD.:ITA NO. 5296 OF 2010 (BOM) , CIT V. SUNDHARAM INDUSTRIES LTD. 240 ITR 649 (GUJ.), CIT V. INFOSYS TECHNOLOGIES LTD.: 205 TAXMAN 59 (KAR), ASSAM BROOK LTD. V. CIT: 267 ITR 1 21 (CAL), DCIT V MAX INDIA LTD. (2007) 112 TTJ (ASR.)726, THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE TRIBUNAL IN THE AS SESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001-02, 2002-03, 2004-05, 2005-06 , 2006-07 AND 2007- 08. 8.1 ON THIS ASPECT, THE LD. DR SUBMITTED THAT IN VI EW OF THE DECISION OF HONBLE SUPREME COURT CITED ABOVE, THE DECISION OF THE ITAT WAS ACCEPTED AND FURTHER APPEAL BEFORE THE HONBLE HIGH COURT U/ S 260A WAS NOT PREFERRED ON THIS ISSUE FOR AY 2006-07 AND 2007-08. IN VIEW O F THIS SUBMISSION OF LD. DR THIS GROUND IS ALLOWED AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW A SUM OF RS. 10,06,470/- BEING EXPENDITURE INCURRED O N ACCOUNT OF CLUB MEMBERSHIP FEES. THUS, THIS ISSUE IS SQUARELY COVERED BY THE DECISI ON OF THE TRIBUNAL IN ASSESSEES OWN CASE. HENCE GROUND NO. 12 IS ALLOWED . 83. IN RESULT, GROUND NO. 12 IS ALLOWED. 84. GROUND NOS. 13 AND 15 TO 15.28 IS RELATING TO A DJUSTMENT ON ACCOUNT OF EXCESSIVE AMP EXPENSES. THE LD. AR SUBMITTED THAT P URSUANT TO ORDER PASSED BY THE TPO UNDER SECTION 154 OF THE ACT, THE TRANSF ER PRICING ADJUSTMENT MADE ON ACCOUNT OF AMP EXPENSES WAS DELETED. THE LD. DR DID NOT DISPUTE THE SAID POSITION. 164 ITA NO . 467/DEL/2014 85. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. PURSUANCE TO ORDER PASSED BY T HE TPO U/S 154 OF THE ACT, THE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF AMP EXPENSES WAS DELETED. THEREFORE, THESE GROUNDS BECOME INFRUCTUOUS. GROUND NO. 13 AND 15 TO 15.28 ARE DISMISSED. 86. GROUND NOS. 16 TO 16.14 IS RELATING TO ADJUSTME NT ON ACCOUNT OF PAYMENT OF ROYALTY FOR USE OF BRAND NAME FOR RS. 31 1.75 CRORES. THE LD. AR SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISIO N OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-06 (ITA NO.5237/D EL/2011), A.Y. 2006-07 (ITA NO.5120/DEL/2010), A.Y. 2007-08 (ITA NO.5720/D EL/2011), AND A.Y. 2008-09 (ITA NO.6021/DEL/2012). THE LD. AR SUBMITTE D THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE INTER ALIA ENTE RED INTO THE TRANSACTION OF PAYMENT OF ROYALTY OF RS. 677.68 CRORE TO SUZUKI MO TOR CORPORATION (AE) IN CONSIDERATION FOR THE RIGHT TO MANUFACTURE AND SELL VARIOUS MODELS OF MOTOR CARS. TNMM WAS APPLIED TO BENCHMARK THE AFORESAID T RANSACTION OF PAYMENT OF ROYALTY AND OP/SALES WAS CONSIDERED AS THE PROFIT L EVEL INDICATOR. SINCE THE OPERATING PROFIT MARGIN (OP/SALES) OF THE ASSESSEE AT 6.85% WAS HIGHER THAN THE AVERAGE OF THE OPERATING PROFIT RATIO OF COMPAR ABLE COMPANIES, AT 6.56% THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSE SSEE WERE CONSIDERED AS HAVING BEEN ENTERED AT ARMS LENGTH PRICE, APPLYING TNMM. THE TPO, HOWEVER, DISREGARDED THE BENCHMARKING ANALYSIS UNDERTAKEN BY THE ASSESSEE AND HELD THAT: (I) THE INTERNATIONAL TRANSACTION OF PAYMENT OF ROY ALTY DOES NOT SATISFY THE ARMS LENGTH PRINCIPLE (II) HELD THAT THE ASSESSEE WAS NOT JUSTIFIED IN PA YING ANY ROYALTY TO SMC TOWARDS USE OF SMCS TRADEMARK; 165 ITA NO . 467/DEL/2014 (III) ALLOCATED THE ROYALTY PAID BY THE ASSESSEE IN THE RATIO OF R&D AND AMP EXPENSES INCURRED BY THE ASSOCIATED ENTERPRISE. THE TPO ACCORDINGLY HELD THAT 46% OF THE TOTAL ROYALTY PAID BY THE ASSESSEE IS TO WARDS USE OF TRADEMARK. THE TPO ACCORDINGLY MADE AN ADJUSTMENT OF RS. 311.7 3 CRORES BEING 48% OF THE TOTAL ROYALTY PAID BY THE ASSESSEE. IN THIS REG ARD, THE LD. AR SUBMITTED THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-0 6 (ITA NO. 5237/DEL/2011) AND FOR A.Y. 2006-07 (ITA NO. 5120/DEL/2010) DELETE D SIMILAR ADJUSTMENT ON ACCOUNT OF PAYMENT OF BRAND ROYALTY. FOLLOWING THE ORDER FOR A.Y. 2006-07, THE TRIBUNAL DIRECTED FOR THE DELETION OF TRANSFER PRIC ING ADJUSTMENT ON ACCOUNT OF PAYMENT OF ROYALTY IN A.Y. 2007-08 (ITA NO. 5270/DE L/2011). SIMILARLY, THE TRIBUNAL FOR A.Y. 2008-09 (ITA NO. 6020/DEL/2012) D ELETED THE ADJUSTMENT ON ACCOUNT OF ROYALTY MADE BY THE TPO. SIMILARLY IN TH E CASE OF GOODYEAR INDIA LTD. VS. DCIT (ITA NO. 5650/DEL/2011) HELD THAT PAY MENT OF ROYALTY CANNOT BE DISALLOWED ARBITRARILY ON THE BASIS THAT A BRAND IS WEAK. THE LD. AR SUBMITTED THAT FOLLOWING THE FINDINGS OF THE CO-ORDINATE BENC HES IN THE PRECEDING YEAR, SIMILAR TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF B RAND ROYALTY, AMOUNTING TO RS. 311.73 CRORES CALLS FOR BEING DELETED. 87. THE LD. DR RELIED UPON THE ORDER OF THE TPO/AO. 88. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD THAT THERE I S A DIRECT NEXUS BETWEEN THE REVENUE OF THE TAXPAYER AND THE PAYMENT OF ROYALTY AND THE REVENUE CANNOT CHALLENGE OR DISPUTE THE BENEFIT DERIVED BY THE TAX PAYER FROM PAYMENT OF SUCH ROYALTY. THE TRIBUNAL WHILE DELETING THE ADJUSTMENT MADE BY THE TPO HELD AS UNDER: 12. ANOTHER CONTENTION OF THE TPO THAT THE GOODYEA R BRAND WAS WEAK AND THEREFORE DOES NOT REQUIRE PAYMENT OF ROYALTY, IS NOT BROUGHT OUT FROM THE RECORDS. THE AR OF THE ASSESSEE HAS MADE ELABORATE SUBMISSION AND PLACED EVIDENCE ON RECORD TO SHOW THAT GOODYEAR BRAND IS CONSIDERED TO BE ONE OF THE TOP MOST ACCLAIMED BRAND ACROSS THE GLOBE. THER EFORE, THERE IS NO MERIT IN 166 ITA NO . 467/DEL/2014 THE ALLEGATION OF THE TPO THAT GOODYEAR BRAND HAS N O WORTH AND THEREFORE, THE PAYMENT MADE BY THE ASSESSEE FOR USE OF GOODYEA R BRAND IS UNWARRANTED. .. 16. IN LIGHT OF THE ABOVE, WE CONCLUDE THAT THERE E XISTS A DIRECT NEXUS BETWEEN THE REVENUE EARNED BY THE ASSESSEE AND THE PAYMENT OF ROYALTY MADE TO THE ASSOCIATED ENTERPRISE FOR USING BRAND N AME, AND THEREFORE, IT WOULD BE INCORRECT TO ANALYZE THE TRANSACTION OF PA YMENT OF ROYALTY IN ISOLATION. FURTHER THE LD. DR HAD RAISED A CONTENTI ON THAT THE ASSESSEE HAS NOT DEMONSTRATED HOW THE PAYMENT FOR ROYALTY BENEFI CIAL TO THE TAXPAYER. WE ARE OF THE OPINION THAT, ASCERTAINING WHETHER A SER VICE HAS ACTUALLY BENEFITTED THE ASSESSEE IS NOT WITHIN THE PREROGATIVE OF THE T AX AUTHORITIES. THUS, THE ISSUE IS IDENTICAL WITH THE EARLIER ASSES SMENT YEAR AND IN THE PRESENT YEAR AS WELL, THERE IS A DIRECT NEXUS BETWEEN THE R EVENUE OF THE TAXPAYER AND THE PAYMENT OF ROYALTY. THEREFORE, THE REVENUE CANN OT DISPUTE THE BENEFIT DERIVED BY THE TAXPAYER FROM PAYMENT OF SUCH ROYALT Y. HENCE GROUND NO. 16 TO 16.14 ARE ALLOWED. 89. IN RESULT, GROUND NO. 16 TO 16.14 ARE ALLOWED. 90. GROUND NO. 17 IS GENERAL IN NATURE, HENCE DISMI SSED. 91. GROUND NO. 18 IS RELATING TO NOT ALLOWING CREDI T OF TDS CERTIFICATES. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER BE DIRE CTED TO ALLOW CREDIT OF ADDITIONAL TDS CERTIFICATES RECEIVED AMOUNTING TO R S.3,28,12,444. 92. THE LD. DR DID NOT OBJECT THE SAME. 93. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. THE ASSESSEE HAS SUBMITTED THE TDS CERTIFICATES WHICH HAS TO BE CONSIDERED BY THE ASSESSING OFFICER. THEREFORE, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER AND DIRECT THE ASSESSING OFFICER TO VERIFY THE ADDITIONAL TDS CERTIFICATES PRODUCED BY THE ASSESSEE AND THEREAFTER ALLOW THE C REDIT OF THE SAME. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN THE OPPORTUNITY OF TH E HEARING BY FOLLOWING THE 167 ITA NO . 467/DEL/2014 PRINCIPLES OF THE NATURAL JUSTICE. HENCE, GROUND N O. 18 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 94. IN RESULT, GROUND NO. 18 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 95. AS RELATING TO GROUND NO. 19 TO 19.1, THE SAME IS REGARDING ERROR IN COMPUTATION OF INTEREST U/S 234B OF THE ACT. THE AS SESSING OFFICER HAS COMPUTED INTEREST UNDER SECTION 234B OF THE ACT BY FIRSTLY COMPUTING ON THE ASSESSED INCOME UPTO THE DATE OF PAYMENT OF FIRST S ELF ASSESSMENT TAX PRIOR TO FILING THE ORIGINAL RETURN. AFTER COMPUTING INTERES T AS AFORESAID, SELF ASSESSMENT TAX PAID BY THE ASSESSEE IS FIRST ADJUSTED AGAINST THE INTEREST CALCULATED AS AFORESAID. AS AGAINST THE AFORESAID, ACCORDING TO T HE LD. AR, THE ASSESSING OFFICER ERRED IN FIRST ADJUSTING THE SELF ASSESSMEN T TAX AGAINST THE INTEREST LEVIABLE UNDER SECTION 234B OF THE ACT CALCULATED O N THE BASIS OF ASSESSED INCOME. THE LD. AR SUBMITTED THAT SUCH ADJUSTMENT, UNDER SECTION 140A OF THE ACT IS PERMISSIBLE ONLY WITH REFERENCE TO INTER EST COMPUTED WITH REFERENCE TO THE RETURNED INCOME AND NOT WITH REFERENCE OF TH E ASSESSED INCOME. THE METHOD OF COMPUTATION USED BY THE ASSESSING OFFICER IS CONTRARY TO THE METHOD PRESCRIBED IN CBDT CIRCULAR NO.549 DATED 31.10.1989 : 182 ITR (ST.) 40, WHICH IS BINDING ON THE INCOME TAX DEPARTMENT. THE LD. AR RELIED UPON THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF PATSON TRANSFORMERS LTD. V. DCIT: 103 TTJ 735 WHEREIN THE TRIBUNAL WAS CONSIDERING THE SIMILAR ISSUE REGARDING THE CALCULATION OF INTEREST UNDER S ECTION 234B IN THE LIGHT OF THE EXPLANATION TO SECTION 140A OF THE ACT AND DECI DED THE ISSUE IN FAVOUR OF ASSESSEE. THE LD. AR RELIED UPON THE DECISION OF TH E MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. C.C CHOKSHI AND CO. : ITA NO. 7791/MUM/2004 WHEREIN THE TRIBUNAL WAS ADJUDICATING SIMILAR ISSUE . IN THAT CASE, THE ASSESSING OFFICER SIMILARLY ADJUSTED THE SELF ASSES SMENT TAX FIRSTLY AGAINST THE INTEREST LEVIABLE UNDER SECTION 234B OF THE ACT ON THE BASIS OF THE ASSESSED INCOME. ON THE OTHER HAND, THE ASSESSEE CONTENDED T HAT THE SAME NEEDS TO BE COMPUTED WITH REFERENCE TO THE RETURNED INCOME AND NOT THE ASSESSED INCOME. 168 ITA NO . 467/DEL/2014 ACCEPTING THE CONTENTION OF THE ASSESSEE, THE TRIBU NAL OBSERVED IN C.C CHOKSHI AND CO (SUPRA) AS UNDER: 3.6.2 WE HAVE HEARD BOTH PARTIES PERUSED THE RECOR DS AND CONSIDERED THE MATTER CAREFULLY. THE FACTUAL AND LEGAL BACKGROUND RELATING TO THE ISSUE HAS ALREADY BEEN DISCUSSED IN THE PRECEDING PARAS. THE SECTION 140A PROVIDES THAT IN CASE PAYMENT MADE UNDER THE SAID SECTION FA LLS SHORT OF THE TAX PAYABLE INCLUDING INTEREST UNDER THE SAID SECTION T HEN THE TAX SO PAID SHALL BE FIRST ATTRIBUTED TOWARDS THE INTEREST AND THE BALAN CE AMOUNT SHALL BE ADJUSTED AGAINST THE TAX PAYABLE. IN THIS CASE, THE TAX PAYABLE UNDER SECTION 140A ALSO INCLUDED INTEREST PAYABLE UNDER SECTION 2 34B. THE ISSUE IS WHETHER THE INTEREST PAYABLE UNDER SECTION 234B WHI CH HAS TO BE FIRST ADJUSTED AGAINST THE PAYMENT U/S 140A HAS TO BE CAL CULATED WITH RESPECT TO TOTAL INCOME AS DECLARED IN THE RETURN OR TOTAL INC OME DETERMINED IN THE REGULAR ASSESSMENT. WE FIND THAT THE SECTION 140(1B) PROVIDES THAT INTE REST PAYABLE UNDER SECTION 234B, HAS TO BE COMPUTED ON THE AMOUNT BY WHICH THE ADVANCE PAID FALLS SHORT OF ASSESSED TAX AND THE ASSESSED TAX FOR THE PURPOSE OF THIS SUB-SECTION HAS BEEN DEFINED IN THE EXPLANATION TO MEAN THE TAX ON TOTAL INCOME AS DECLARED IN THE RETURN AS REDUCED BY TAX DEDUCTED/C OLLECTED AT SOURCE ETC. THEREFORE, WE AGREE WITH THE SUBMISSION MADE BY ID. A.R THAT THE INTEREST PAYABLE UNDER SECTION 234 B FOR THE PURPOSE OF ADJU STMENT AGAINST THE TAX PAID UNDER SECTION 140A HAS TO BE COMPUTED WITH RES PECT TO ASSESSED TAX DETERMINED ON THE BASIS OF TOTAL INCOME DECLARED IN THE RETURN. BUT THIS IS ONLY FOR THE LIMITED PURPOSE OF ADIUSTMENT OF PAYMENT MA DE U/S. 140A AGAINST INTEREST PAYABLE UNDER SECTION 234B WHILE MAKING CO MPUTATION OF INTEREST PAYABLE BY THE ASSESSEE UNDER SECTION 234B WHICH HA S TO BE COMPUTED WITH RESPECT TO THE TOTAL INCOME DETERMINED IN REGULAR A SSESSMENT AS PER THE DEFINITION OF ASSESSED TAX GIVEN IN SECTION 234B. T HE ASSESSEE HAS ALSO FOLLOWED THE SAME PROCEDURE WITH WHICH WE AGREE. TH E ORDER OF CIT(A) 169 ITA NO . 467/DEL/2014 CONFIRMING THE METHOD FOLLOWED BY THE AO IS THEREFO RE SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. THE AFORESAID ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-08 AND 2008-09. THE ASSESSING OFFICER SHOULD, THEREFORE, BE DIRECTED TO RECOMPUTE INTEREST UNDER SECTION 234B OF THE ACT, AS AFORESAID. AS PER SECTI ON 234C OF THE ACT, INTEREST IS REQUIRED TO BE CALCULATED ON THE BASIS OF RETURNED INCOME AND NOT ON THE BASIS OF ASSESSED INCOME. THE ASSESSING OFFICER ERRED ON FACTS AND IN V IN CHARGING INTEREST U/S 234C ON ASSESSED INCOME INSTEAD OF RET URNED INCOME AS PER THE PROVISIONS OF ACT. THE AFORESAID ISSUE IS NOW COVER ED IN FAVOUR OF THE ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OW N CASE FOR AY 2007-08 AND 2008-09. THE ASSESSING OFFICER SHOULD, THEREFORE, B E DIRECTED TO RECOMPUTE INTEREST UNDER SECTION 234C OF THE ACT, AS AFORESAI D. 96. THE LD. DR RELIED UPON THE ASSESSMENT ORDER. 97. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. ACCEPTING THE CONTENTION OF TH E ASSESSEE, THE TRIBUNAL OBSERVED AS UNDER: 3.6.2 WE HAVE HEARD BOTH PARTIES PERUSED THE RECOR DS AND CONSIDERED THE MATTER CAREFULLY. THE FACTUAL AND LEGAL BACKGROUND RELATING TO THE ISSUE HAS ALREADY BEEN DISCUSSED IN THE PRECEDING PARAS. THE SECTION 140A PROVIDES THAT IN CASE PAYMENT MADE UNDER THE SAID SECTION FA LLS SHORT OF THE TAX PAYABLE INCLUDING INTEREST UNDER THE SAID SECTION T HEN THE TAX SO PAID SHALL BE FIRST ATTRIBUTED TOWARDS THE INTEREST AND THE BALAN CE AMOUNT SHALL BE ADJUSTED AGAINST THE TAX PAYABLE. IN THIS CASE, THE TAX PAYABLE UNDER SECTION 140A ALSO INCLUDED INTEREST PAYABLE UNDER SECTION 2 34B. THE ISSUE IS WHETHER THE INTEREST PAYABLE UNDER SECTION 234B WHI CH HAS TO BE FIRST ADJUSTED AGAINST THE PAYMENT U/S 140A HAS TO BE CAL CULATED WITH RESPECT TO 170 ITA NO . 467/DEL/2014 TOTAL INCOME AS DECLARED IN THE RETURN OR TOTAL INC OME DETERMINED IN THE REGULAR ASSESSMENT. WE FIND THAT THE SECTION 140(1B) PROVIDES THAT INTE REST PAYABLE UNDER SECTION 234B, HAS TO BE COMPUTED ON THE AMOUNT BY WHICH THE ADVANCE PAID FALLS SHORT OF ASSESSED TAX AND THE ASSESSED TAX FOR THE PURPOSE OF THIS SUB-SECTION HAS BEEN DEFINED IN THE EXPLANATION TO MEAN THE TAX ON TOTAL INCOME AS DECLARED IN THE RETURN AS REDUCED BY TAX DEDUCTED/C OLLECTED AT SOURCE ETC. THEREFORE, WE AGREE WITH THE SUBMISSION MADE BY ID. A.R THAT THE INTEREST PAYABLE UNDER SECTION 234 B FOR THE PURPOSE OF ADJU STMENT AGAINST THE TAX PAID UNDER SECTION 140A HAS TO BE COMPUTED WITH RES PECT TO ASSESSED TAX DETERMINED ON THE BASIS OF TOTAL INCOME DECLARED IN THE RETURN. BUT THIS IS ONLY FOR THE LIMITED PURPOSE OF ADIUSTMENT OF PAYMENT MA DE U/S. 140A AGAINST INTEREST PAYABLE UNDER SECTION 234B WHILE MAKING CO MPUTATION OF INTEREST PAYABLE BY THE ASSESSEE UNDER SECTION 234B WHICH HA S TO BE COMPUTED WITH RESPECT TO THE TOTAL INCOME DETERMINED IN REGULAR A SSESSMENT AS PER THE DEFINITION OF ASSESSED TAX GIVEN IN SECTION 234B. T HE ASSESSEE HAS ALSO FOLLOWED THE SAME PROCEDURE WITH WHICH WE AGREE. TH E ORDER OF CIT(A) CONFIRMING THE METHOD FOLLOWED BY THE AO IS THEREFO RE SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. THE AFORESAID ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-08 AND 2008-09. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO RECOMP UTE INTEREST UNDER SECTION 234B OF THE ACT, AS AFORESAID. AS PER SECTION 234C OF THE ACT, INTEREST IS REQUIRED TO BE CALCULATED ON THE BASIS OF RETURNED INCOME AND NOT ON THE BASIS OF ASSESSED INCOME. THE ASSESSING OFFICER ERRED ON FACTS AND IN V IN CHARGING INTEREST U/S 234C ON ASSESSED INCOME INSTEAD OF RET URNED INCOME AS PER THE PROVISIONS OF ACT. THE AFORESAID ISSUE IS NOW COVER ED IN FAVOUR OF THE ASSESSEE BY THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OW N CASE FOR AY 2007-08 AND 2008-09. THEREFORE, WE REMAND BACK THIS ISSUE TO TH E FILE OF THE ASSESSING 171 ITA NO . 467/DEL/2014 OFFICER AND DIRECT THE ASSESSING OFFICER TO RECOMPU TED INTEREST UNDER SECTION 234C OF THE ACT, AS AFORESAID. NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING BY FOLLOWING PRINCIPLES OF N ATURAL JUSTICE. 98. IN RESULT, GROUND NOS. 19 AND 19.1 ARE PARTLY A LLOWED FOR STATISTICAL PURPOSE. 99. IN RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH OCTOBER, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 17/10/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 172 ITA NO . 467/DEL/2014 DATE 1. DRAFT DICTATED ON PS 2. DRAFT PLACED BEFORE AUTHOR PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS . 10 .2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK . 10 .2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.