M/s Contitech India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 5222/DEL/2011

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2737 (ITAT-DELHI)
• Duration Of Justice: 9 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 23-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Earning of tax free income; Capital expenditure; Rule 8D; Set aside
• Section: 271(1)(c); 143(3); 14A; 37(1); 144C; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1, NEW DELHI BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. KULDIP SINGH, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCING) ITA NO.5088/DEL/2010 (FOR ASSESSMENT YEAR : 2006-07) ITA NO.5222/DEL/2011 (FOR ASSESSMENT YEAR : 2007-08) M/S CONTITECH INDIA PVT. LTD., (FORMERLY KNOWN AS ROULUNS CODAN (INDIA) LTD.), 301, HIMLAND HOUSE, NAJAFGARH ROAD COMPLEX, OPP. MILAN CINEMA, KARAMPUR, NEW DELHI-15 PAN : AABCR 6921 P VS. DCIT CIRCLE 3(1), NEW DELHI (APPELLANT) (RESPONDENT) A SSESSEE BY SHRI NEERAJ JAIN, ADV. SHRI KARAN JAIN, CA RE VENUE BY SHRI ARUN KUMAR YADAV, SR. D.R. DATE OF HEARING: 30 /0 3 /202 1 DATE OF PRONOUNCEMENT: 22 / 06 /202 1 ORDER PER ANIL CHATURVEDI , AM : THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX, CIRCLE-I, II & XI, NEW DELHI UNDER SECTION 144C OF THE ACT PURSUANT TO THE DIRECTION OF 2 DISPUTE RESOLUTION PANEL (DRP) I, NEW DELHI ORDER DATED 30.08.2010 & 15.09.2011 FOR ASSESSMENT YEARS 2006-07 & 2007- 08. 2. WE FIRST PROCEED WITH A.Y. 2006-07: 3. THE RELEVANT FACTS AS CULLED FROM THE MATERIAL ON RECORDS ARE AS UNDER: 4. ASSESSEE IS A COMPANY WHICH IS STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF WRAPPED & RAW EDGE V BELTS, HOSES AND ITS TRADING. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2006-07 ON 21.11.2006 DECLARING TOTAL INCOME AT RS.5,65,68,372/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) R.W.S 144C OF THE I.T. ACT VIDE ORDER DATED 29.09.2010 AND THE TOTAL INCOME WAS DETERMINED AT RS.9,07,46,710/-. AGGRIEVED WITH THE ORDER OF AO, ASSESSEE IS NOW BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS: GROUND NO.1 THE ASSESSING OFFICER HAD ERRED BOTH ON THE LAW AS WELL AS ON THE FACTS IN HOLDING THAT THE ROYALTY PAYMENT MADE BY THE APPELLANT COMPANY AMOUNTED TO RS.23,215,000/- AS CAPITAL EXPENDITURE BY IGNORING THE FACTS THAT NO ASSET OF ENDURING NATURE WAS ACQUIRED BY THE APPELLANT COMPANY. FURTHER IN ASSESSMENT ORDER AT PAGE NO.7 PARA 4, THE AO MENTIONED THAT ONLY 25% WILL BE TREATED AS CAPITAL EXPENDITURE I.E. RS.5,803,750/- AFTER FOLLOWING THE HONBLE SC DECISION OF SOUTHERN SWITCH GEAR LTD. VS CIT 232 ITR 359. HOWEVER, WHILE CALCULATING TOTAL ADDITIONS AT PAGE NO.14 OF THE ORDER, TOTAL ROYALTY AMOUNT OF RS.23,215,000/- WAS DISALLOWED. 3 GROUND NO.2 THE ASSESSING OFFICER HAD ERRED BOTH ON THE LAW AS WELL AS ON THE FACTS WHILE MAKING DISALLOWANCE OF RS.757,345/- UNDER SECTION 14A OF THE ACT IN ACCORDANCE WITH RULE 8D AS PER NOTIFICATION NO.45/2008 DATED 24.03.2008 BY IGNORING THE FACT THAT THE NOTIFICATION IS NOT APPLICABLE TO THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION. GROUND NO.3 THE ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE WHILE MAKING ADDITION OF RS.9,237,617/- PERTAINING TO ROYALTY PAYMENT WHILE DETERMINING THE ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THAT THE APPELLANT HAS ENTERED THE INTERNATIONAL TRANSACTION AT ARMS LENGTH PRINCIPLE. GROUND NO.4 THE AO HAS GROSSLY ERRED IN LAW BY DISALLOWING THE SAME ROYALTY EXPENDITURE UNDER NORMAL PROVISIONS OF THE ACT AS WELL UNDER TP REGULATIONS. THERE SHOULD NOT BE DOUBLY DISALLOWANCE TO THE ONE & ONLY ONE EXPENDITURE OF ROYALTY DEBITED TO P&L ACCOUNT BY THE APPELLANT COMPANY. GROUND NO.5 THE ASSESSING OFFICER HAD ERRED BOTH ON THE LAW AS WELL AS ON THE FACTS IN TREATING THE TRANSPORTATION EXPENSES AMOUNTED RS.1,000,000/- ON ADHOC BASIS AS CAPITAL EXPENSES AND DISALLOWED RS.850,000/- AFTER PROVIDING DEPRECIATION AT THE RATE OF 15% ON THE PLEA THAT SAME HAS BEEN INCURRED FOR TRANSPORTATION OF PLANT AND MACHINERY BY IGNORING THE FACT THAT THE APPELLANT COMPANY ON ITS OWN HAD CAPITALIZED THE TRANSPORTATION EXPENSE RELATED TO PLANT AND MACHINERY. GROUND NO.6 THE ASSESSING OFFICER HAD ERRED BOTH ON THE LAW AS WELL AS ON THE FACTS IN TREATING THE COMPUTER PERIPHERALS AND ACCESSORIES I.E. PRINTERS AS NOT PART OF THE COMPUTERS AND ALLOWED THE DEPRECIATION AT THE RATE OF 15% INSTEAD OF 60% AND DISALLOWED THE DEPRECIATION AMOUNTED TO RS.118,378/-. 4 THE ABOVE GROUND ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT PRAYS THAT IT MAY BE ALLOWED TO ADD, ALTER, OR FOREGO ANY OF THE GROUND AT THE TIME OF HEARING IN THE INTEREST OF PRINCIPLE OF NATURAL JUSTICE. 5. AS FAR AS A.Y. 2007-08 IS CONCERNED, ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2007 DECLARING TOTAL INCOME AT RS.6,58,58,618/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S 143(3) R.W.S 144C OF THE ACT AND THE TOTAL INCOME WAS DETERMINED AT RS.7,42,06,840/-. AGGRIEVED BY THE AFORESAID ORDER, ASSESSEE IS NOW BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS: GROUND NO.1 THE ASSESSING OFFICER/ TRANSFER PRICING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE BY MAKING ADDITION OF RS.8,090,359/- PERTAINING TO ROYALTY PAYMENT WHILE DETERMINING THE ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THAT THE APPELLANT HAS ENTERED THE INTERNATIONAL TRANSACTION AT ARMS LENGTH PRINCIPLE AND THE MARGINS EARNED BY THE APPELLANT ARE COMPARABLE WITH THE INDUSTRYS MARGIN. GROUND NO.2 THE ASSESSING OFFICER HAD ERRED BOTH ON THE LAW AS WELL AS ON THE FACTS WHILE MAKING DISALLOWANCE OF RS.257,860/- UNDER SECTION 14A OF THE ACT ON THE BASIS OF CERTAIN EXPENDITURE BY IGNORING THE FACT THAT THE NO EXPENDITURE DIRECTLY INCURRED BY THE APPELLANT COMPANY DURING THE YEAR UNDER CONSIDERATION FOR EARNING THE DIVIDEND INCOME. FURTHER THE AO HAS IGNORED THE FACT THAT AS PER NOTIFICATION NO. 45/2008 DATED 24.03.2008 THAT THE RULE 8D IS NOT APPLICABLE TO THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION. GROUND NO.3 5 THE ASSESSING OFFICER HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN INITIATING THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE ABOVE GROUND ARE INDEPENDENT AND WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT PRAYS THAT IT MAY BE ALLOWED TO ADD, ALTER, OR FOREGO ANY OF THE GROUND AT THE TIME OF HEARING IN THE INTEREST OF PRINCIPLE OF NATURE JUSTICE. 6. GROUND NO.1 IS WITH RESPECT TO THE ISSUE OF TREATMENT OF ROYALTY PAYMENT OF RS.23,215,000/- AS CAPITAL EXPENDITURE. 7. AO NOTICED THAT ASSESSEE HAD PAID ROYALTY OF RS.23,215,000/- TO ROULUNDS FABRIKER, DENMARK (RFDK) AND THE ENTIRE AMOUNT WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED AS EXPENDITURE. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE AMOUNT SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE TO WHICH ASSESSEE MADE THE SUBMISSIONS AND ALSO RELIED UPON CERTAIN CASE LAWS TO SUPPORT ITS CONTENTIONS. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO AO. AO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE AGREEMENT PURSUANT TO WHICH THE PAYMENT WAS MADE, CAME TO THE CONCLUSION THAT THE KNOW-HOW WAS PROVIDED BEFORE THE COMMENCEMENT OF COMMERCIAL PRODUCTION IN APRIL, 1993 AND THEREFORE THE DISCLOSURE OF THE KNOW-HOW AND OTHER RIGHTS GRANTED WERE IN PART CAPITAL IN NATURE AND IT PROVIDED ENDURING ADVANTAGE TO THE ASSESSEE WHICH COULD PRODUCE INDUSTRIAL AGRICULTURAL AND AUTOMOTIVE WRAPPED AND RAW EDGE V BELTS OF INTERNATIONAL STANDARDS. HE THEREFORE HELD 25% OF THE PAYMENT 6 MADE TO BE CAPITAL EXPENDITURE AND ACCORDINGLY DISALLOWED RS.58,03,750/-. AGGRIEVED BY THE ADDITION MADE IN THE DRAFT ORDER, ASSESSEE FILED OBJECTIONS BEFORE THE DRP. DRP NOTED THAT IN EARLIER ASSESSMENT ALSO SIMILAR DISALLOWANCES WERE MADE AND THE APPEAL WAS PENDING BEFORE THE APPELLATE AUTHORITIES. IT ACCORDINGLY DID NOT INTERFERE WITH THE ADDITION PROPOSED BY THE AO IN THE DRAFT ASSESSMENT ORDER. AO THEREAFTER IN THE ASSESSMENT ORDER PURSUANT TO THE DIRECTION OF DRP DISALLOWED THE PAYMENT OF RS.2,32,15,000/- TO ROULUNDS FABRIKER, DENMARK. ASSESSEE IS THEREFORE NOW BEFORE US. 8. BEFORE US, LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT AO HAD FOLLOWED THE ORDER OF HIS PREDECESSOR FOR THE IMMEDIATELY PRECEDING YEARS AND DRP WHILE NOTING THE FINDINGS OF AO HAS ALSO NOTED THAT SIMILAR DISALLOWANCE WAS MADE IN THE PRECEDING YEARS AND THE APPEAL WAS PENDING BEFORE THE APPELLATE AUTHORITIES. THE DRP THEREFORE FOLLOWING THE ORDER OF EARLIER YEARS DIRECTED THE DISALLOWANCE BE MADE IN THE YEAR UNDER CONSIDERATION. HE SUBMITTED THAT FOR A.Y. 2001-02 & 2002-03, HONBLE TRIBUNAL VIDE ORDER DATED 22.04.2009 AND ORDER DATED 31.08.2010 FOR A.Y. 2005-06 HAS HELD THAT PAYMENT WAS NOT FOR ACQUIRING ANY ASSET OF ENDURING NATURE NOR ANY ASSET HAS BEEN ACQUIRED BY THE ASSESSEE BY MAKING THIS PAYMENT. HE FURTHER SUBMITTED THAT THE HONBLE TRIBUNAL HAS FURTHER HELD THAT ASSESSEE HAD ONLY RIGHT AND EXCLUSIVE LICENSE TO USE THE KNOW-HOW TO SELL PRODUCT IN INDIA AND OUTSIDE INDIA WHICH CANNOT BE A GROUND FOR HOLDING THAT IT WAS AN 7 EXPENDITURE ON CAPITAL ACCOUNT. HE SUBMITTED THAT THE ORDERS OF TRIBUNAL WAS CHALLENGED BY THE REVENUE BEFORE THE HONBLE HIGH COURT AND THE HONBLE HIGH COURT HAS DISMISSED THE APPEALS OF THE REVENUE. HE FURTHER SUBMITTED THAT FOR A.Y.2007-08 DISALLOWANCE PROPOSED TO BE MADE BY THE AO WAS DELETED BY THE DRP AND FROM A.Y. 2008-09 ONWARDS, THE AO HAS ACCEPTED THE ROYALTY EXPENSE CLAIMED BY THE ASSESSEE AND HAS NOT MADE ANY DISALLOWANCE. HE POINTED TO THE COPY OF ORDER PLACED IN THE PAPER BOOK AT PAGE 83 TO 85 AND THE ORDER OF HIGH COURT UPHOLDING THE ORDER OF TRIBUNAL AT PAGE 85A OF THE PAPER BOOK. HE THEREFORE SUBMITTED THAT EXPENDITURE BY WAY OF LICENSE FEE INCURRED BY THE ASSESSEE WAS ALLOWABLE REVENUE DEDUCTION. HE THEREFORE SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO IS LIABLE TO BE DELETED. 9. BEFORE US, LEARNED AR FURTHER SUBMITTED THAT THE GROUND NO.1 RAISED IN A.Y. 2007-08 IS IDENTICAL TO GROUND NO.3 RAISED IN A.Y. 2006-07. 10. LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF LOWER AUTHORITIES. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO THE DISALLOWANCE MADE ON LICENSE FEE BY HOLDING IT TO BE CAPITAL EXPENDITURE. WE FIND THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y. 2001-02 & 2002-03 AND THE CO- 8 ORDINATE BENCH OF TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 4. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT IT IS RUNNING AGREEMENT UNDER WHICH THE ROYALTY OF FIXED RATE OF 1.8% OF THE TOTAL SALE IS MADE BY THE ASSESSEE. THE CASE OF THE ASSESSEE, IN OUR OPINION, IS DIRECTLY COVERED BY THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF (1) CIT VS. CIBA OF INDIA, 68 ITR 692 AND ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT, 177 ITR 377 (SC); AND THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF PRAGA TOOLS LTD. VS CIT, 123 ITR 773(AP). THE PAYMENT IS NOT FOR ACQUIRING ANY ASSET OF ENDURING NATURE NOR ANY ASSET HAS BEEN ACQUIRED BY THE ASSESSEE BY MAKING THIS PAYMENT. IT HAD ONLY TRANSFERRED THE RIGHT AND EXCLUSIVE LICENSE TO USE THE KNOW-HOW TO SELL PRODUCT IN INDIA AND OUTSIDE INDIA EXCEPT EUROPEAN COUNTRIES. THAT IN OUR OPINION, CANNOT BE A GROUND FOR HOLDING THAT IT WAS AN EXPENDITURE ON CAPITAL ACCOUNT. THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCHGEAR LTD. VS CIT (SUPRA) WAS FOR A PAYMENT OF LUMP SUM AMOUNT IN CONNECTION WITH SETTING UP OF THE FACTORY AND 25% THEREOF WAS HELD TO BE CAPITAL IN NATURE, AND THEREFORE, THERE WAS A TRANSFER OF OWNERSHIP OF TECHNICAL INFORMATION IN THAT CASE. THEREFORE, THE SAID DECISION WITH NOT APPLY TO A RUNNING ROYALTY AND WOULD BE ALLOWABLE EXPENDITURE AND, IN OUR OPINION, THE CIT(A) WAS JUSTIFIED IN ALLOWING THE SAME. HIS ORDER DOES NOT CALL FOR ANY INTERFERENCE AND IS ACCORDINGLY UPHELD. 12. WE FURTHER FIND THAT AGAINST THE ORDER OF TRIBUNAL THE MATTER WAS CARRIED BY THE REVENUE BEFORE THE HONBLE HIGH COURT AND HONBLE HIGH COURT HAS BEEN UPHELD IN ITA NO.1249 & 1251 OF 2010, ORDER DATED 30.08.2010 COPY OF WHICH IS PLACED AT PAGE 85 OF THE PAPER BOOK. 13. WE FURTHER FIND THAT IN A.Y. 2005-06, IDENTICAL ISSUE AROSE BEFORE THE CO-ORDINATE BENCH OF TRIBUNAL AND THE CO-ORDINATE BENCH OF TRIBUNAL IN ITA NO. 3188/DEL/2010 ORDER DATED 9 31.08.2010 HAS UPHELD THE CONTENTION OF THE ASSESSEE AND DISMISSED THE APPEAL OF REVENUE BY OBSERVING AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT ASSESSEE ENTERED INTO AN AGREEMENT FOR USE OF TECHNICAL KNOW-HOW. UNDER THE SAID AGREEMENT, THE NON-TRANSFERABLE AND EXCLUSIVE LICENSE TO TECHNICAL KNOW-HOW IN INDIA WAS ACQUIRED BY THE ASSESSEE. IN TERMS OF THE AGREEMENT, ASSESSEE WAS PAYING ROYALTY AT THE RATE OF 1.8% OF THE NET OF SELLING PRICE OF THE PRODUCTS SOLD BY THE COMPANY. THE AO DISALLOWED 25% OF SUCH ROYALTY PAYMENT BY OBSERVING THAT IT WAS ON CAPITAL ACCOUNT. UNDER SIMILAR FACTS AND CIRCUMSTANCES FOR THE AY 2001- 02 & 2002-03, AGAINST THE DELETION OF DISALLOWANCE OF SUCH 25% OF ROYALTY PAYMENT, THE TRIBUNAL AFFIRMED THE ORDER OF THE CIT(A) AFTER HAVING THE FOLLOWING OBSERVATIONS:- 4. WE HAVE HEARD THE PARTIES AND CONSIDERED THE RIVAL SUBMISSIONS. IT IS NOT IN DISPUTE THAT IT IS RUNNING AGREEMENT UNDER WHICH THE ROYALTY OF FIXED RATE OF 1.8% OF THE TOTAL SALE IS MADE BY THE ASSESSEE. THE CASE OF THE ASSESSEE, IN OUR OPINION, IS DIRECTLY COVERED BY THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF (1) CIT VS. CIBA OF INDIA, 68 ITR 692 AND ALEMBIC CHEMICAL WORKS CO.LTD. VS. CIT, 177 ITR 377 (SC); AND THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF PRAGA TOOLS LTD. VS. CIT, 123 ITR 773 (AP). THE PAYMENT IS NOT FOR ACQUIRING ANY ASSET OF ENDURING NATURE NOR ANY ASSET HAS BEEN ACQUIRED BY THE ASSESSEE BY MAKING THIS PAYMENT. IT HAD ONLY TRANSFERRED THE RIGHT AND EXCLUSIVE LICENSE TO USE THE KNOW-HOW TO SELL PRODUCT IN INDIA AND OUTSIDE INDIA EXCEPT EUROPEAN COUNTRIES. THAT, IN OUR OPINION, CANNOT BE A GROUND FOR HOLDING THAT IT WAS AN EXPENDITURE ON CAPITAL ACCOUNT. THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN SWITCHGEAR LTD. VS. CIT (SUPRA) WAS FOR A PAYMENT OF LUMP SUM AMOUNT IN CONNECTION WITH SETTING UP OF THE FACTORY AND 25% THEREOF WAS HELD TO BE CAPITAL IN NATURE, AND THEREFORE, THERE WAS A TRANSFER OF OWNERSHIP OF TECHNICAL INFORMATION IN THAT CASE. THEREFORE, THE SAID DECISION WILL NOT APPLY TO A RUNNING ROYALTY AND WOULD BE ALLOWABLE EXPENDITURE AND, IN OUR OPINION, THE CIT(A) WAS JUSTIFIED IN ALLOWING THE SAME. HIS ORDER DOES NOT CALL FOR ANY INTERFERENCE AND IS ACCORDINGLY UPHELD. 10 6. DURING THE YEAR UNDER CONSIDERATION ALSO, THE DISALLOWANCE OF ROYALTY PAYMENT WAS WITH RESPECT TO THE SAME AGREEMENT, WHICH WAS CONSIDERED BY THE TRIBUNAL. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE IN PARI-MATERIA, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AS REFERRED ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A). 14. BEFORE US, REVENUE HAS NOT PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE ORDERS OF TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS HAS BEEN SET ASIDE/OVERRULED OR STAYED BY HIGHER JUDICIAL FORUM. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE PAYMENT OF LICENSE FEES ON AD HOC BASIS BY HOLDING IT TO BE CAPITAL EXPENDITURE. WE THEREFORE DIRECT THE DELETION OF THE ADDITION MADE BY AO. THUS THE GROUND NO.1 IN A.Y. 2006-07 & 2007-08 OF THE ASSESSEE ARE ALLOWED. 15. GROUND NO.2 IS WITH RESPECT TO THE DISALLOWANCE U/S 14A OF THE ACT. 16. AO NOTED THAT ASSESSEE HAD CLAIMED DIVIDEND OF RS.40,91,269/- TO BE EXEMPT INCOME. THE ASSESSEE WAS THEREFORE ASKED TO SHOW-CAUSE AS TO WHY DISALLOWANCE U/S 14A NOT BE MADE AS PER RULE 8D TO WHICH THE ASSESSEE MADE THE SUBMISSIONS WHICH WERE NOT FOUND ACCEPTABLE TO AO. AO THEREAFTER BY FOLLOWING THE PROCEDURE PRESCRIBED UNDER RULE 8D OF THE I. T. RULES WORKED OUT THE DISALLOWANCE U/S 14A AT RS.7,57,345/- AND MADE ITS ADDITION. WHEN THE MATTER WAS CARRIED BEFORE THE DRP BY THE ASSESSEE, DRP FOLLOWING THE DECISION OF ITAT SPECIAL BENCH, MUMBAI IN THE CASE OF ITO VS. 11 DAGA CAPITAL MANAGEMENT (P) LTD. (2009) 117 ITD 169 (MUM. S. B.) HELD THAT RULE 8D WAS APPLICABLE RETROSPECTIVELY AND ACCORDINGLY UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF AO PURSUANT TO THE DIRECTION OF DRP, ASSESSEE IS NOW BEFORE US. 17. BEFORE US, LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND DRP AND FURTHER SUBMITTED THAT MAJORITY OF THE DIVIDEND YIELDING INVESTMENTS HAD BEEN BROUGHT FORWARD FROM EARLIER YEARS AND NO FRESH INVESTMENTS WHICH YIELDED DIVIDEND WAS MADE IN THE YEAR UNDER CONSIDERATION. HE FURTHER SUBMITTED THAT INVESTMENT MADE IN MUTUAL FUNDS IN THE PRECEDING YEARS AND DURING THE RELEVANT PREVIOUS YEAR WERE MADE OUT OF OWN SURPLUS FUND. HE FURTHER SUBMITTED THAT ASSESSEE HAD SUFFICIENT OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS AND THEREFORE IN SUCH A SITUATION NO DISALLOWANCE OF INTEREST IS CALLED FOR. 18. AS FAR AS THE INCOME FROM MUTUAL FUNDS IS CONCERNED, HE SUBMITTED THAT MUTUAL FUNDS CHARGES FUND MANAGEMENT CHARGES, AS PERMITTED BY SEBI UNDER THE SCHEME AND OUT OF THE INCOME EARNED BY THE FUND, FUND MANAGEMENT CHARGES ARE DEDUCTED AND NET INCOME IS AVAILABLE FOR DISTRIBUTION TO UNIT HOLDERS AND ONLY THE NET INCOME OF RS.40,91,269/- WAS RECEIVED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE PROVISION OF RULE 8D ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION AS IT HAS BEEN HELD THAT PROVISION OF SECTION 14A R.W. RULE 8D ARE APPLICABLE FROM FOR 12 A.Y. 2008-09 ONWARDS. HE THEREFORE SUBMITTED THAT THE ADDITION MADE BY THE AO BE DELETED. 19. LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF AO. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO THE DISALLOWANCE U/S 14A. IT IS AN UNDISPUTED FACT THAT YEAR UNDER CONSIDERATION IS 2006-07 AND THE AO HAS PROCEEDED TO DISALLOW THE EXPENSES BY FOLLOWING THE METHODOLOGY PRESCRIBED UNDER RULE 8D OF THE I.T. RULES. WE FIND THAT PROVISION OF RULE 8D FOR INVOKING THE DISALLOWANCE UNDER RULE 14A COULD NOT BE APPLIED TO THE YEAR UNDER CONSIDERATION IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO. LTD VS. DCIT (2010) 328 ITR 81 (BOM) WHEREIN THE HONBLE HIGH COURT HAS HELD THAT SINCE RULE 8D WERE NOTIFIED ON 24 TH MARCH 2008, IT WOULD APPLY FROM A.Y. 2008-09. FOLLOWING THE AFORESAID DECISION OF HONBLE BOMBAY HIGH COURT, WE ARE OF THE VIEW THAT NO ADDITION IS CALLED FOR IN THE PRESENT CASE. WE THEREFORE SET ASIDE THE ADDITION MADE BY THE AO THUS THE GROUND OF THE ASSESSEE IS ALLOWED. 21. GROUND NO.3 & 4 ARE INTERCONNECTED AND IT IS WITH RESPECT TO THE ADDITION OF RS.92,37,617/- PERTAINING TO ROYALTY PAYMENT IN RESPECT OF INTERNATIONAL TRANSACTION. 13 22. TPO NOTED THAT ASSESSEE HAD PAID ROYALTY AMOUNTING TO RS.2,32,15,000/- TO M/S ROULUNDS FABRIKER, DENMARK (RF) AT 5% ON DOMESTIC SALES AND 8% ON EXPORT SALES OF NET TOTAL SALES OF THE COMPANY. AO NOTED THAT THE PAYMENT OF ROYALTY WAS NOT BENCHMARKED BY THE ASSESSEE NOR ANY COMPARABLES WAS FURNISHED BY THE ASSESSEE TO BENCHMARK THE PAYMENT OF ROYALTY AND HOW THE PAYMENT OF ROYALTY WAS COVERED BY THE TNMM. THE ASSESSEE WAS THEREFORE ASKED TO FURNISH THE COMPUTATION OF ROYALTY SHOWING THE DETAILS OF ROYALTY ON DOMESTIC SALES TO WHICH ASSESSEE MADE THE SUBMISSIONS. ON THE BASIS OF THE SUBMISSIONS AND INFORMATION FURNISHED BY THE ASSESSEE, IT WAS NOTED BY THE AO THAT ASSESSEE HAD PAID ROYALTY OF RS.92,37,617/- ON THE DOMESTIC SALES AND EXPORT SALES. AO/TPO NOTED THAT ASSESSEE WAS PAYING ROYALTY TO ROULUNDS RUBBER A/S DENMARK, THE EXPORT WERE MADE TO THE ROULUNDS RUBBER A/S DENMARK AND OTHER AES AND IT WAS PAYING ROYALTY TO ROULUNDS RUBBER A/S DENMARK FOR THE EXPORT TO ITS OTHER AES. TPO WAS OF THE VIEW THAT THE PAYMENT OF ROYALTY TO THE AE FOR THE EXPORTS MADE TO AES WAS IN THE NATURE OF PRICE REDUCTION FOR THE PRODUCTS SOLD TO AES. HE WAS FURTHER OF THE VIEW THAT ASSESSEE WAS IN FACT WORKING AS A CONTRACT MANUFACTURE FOR THE LIMITED PURPOSE OF EXPORT MADE TO THE AES. HE ALSO NOTED THAT THE TECHNOLOGY WAS TAKEN BY THE ASSESSEE FROM THE AES, THE RAW MATERIAL WAS PURCHASED FROM THE AES, THE GOODS WERE SOLD TO THE AES AND ON SUCH SALE OF GOODS TO AES ROYALTY WAS ALSO PAID BY THE ASSESSEE TO THE AES. THE ASSESSEE WAS THEREFORE ASKED TO JUSTIFY THE PAYMENT OF ROYALTY. ON THE BASIS OF SUBMISSIONS MADE BY THE ASSESSEE, TPO CONCLUDED THAT THE 14 ROYALTY PAID AS A PERCENTAGE OF SALES TO ITS ASSOCIATED ENTERPRISE WAS NOT AT ARMS LENGTH BECAUSE IT AMOUNTS TO COLLECTING ROYALTY ON THE SALES TO ITSELF. HE FURTHER NOTED THAT THOUGHT IT APPEARS THAT THE TECHNICAL KNOWHOW IS COMMERCIALLY EXPLOITED IN INDIA, IN REALITY THE PRICE FOR THESE ACTIVITIES WERE NOT FIXED BY MARKET FORCES AND THAT THE RISK AND REWARD ARE LIKE A CONTRACT MANUFACTURER AND ACCORDING TO HIM NO CONTRACT MANUFACTURER WOULD LIKE TO MAKE THE TYPE OF TRANSACTIONS ENTERED BY THE ASSESSEE WITH INDEPENDENT THIRD PARTY. HE ACCORDINGLY CONCLUDED THAT SINCE ASSESSEE WAS MAKING ITS MAJOR SALES TO ITS RELATED PARTIES AND THE BENEFIT OF PRODUCING COMPONENTS WAS REAPED BY AE, THE PAYMENT OF CHARGES FOR ROYALTY DID NOT CONFIRM TO ARMS LENGTH PRINCIPLE. HE ACCORDINGLY CONSIDERED RS.92,37,617/- TO BE A PAYMENTS AGAINST SERVICES HAVING ARMS LENGTH VALUE AT RS. NIL. HE ACCORDINGLY DIRECTED THE AO TO ENHANCE THE TOTAL INCOME BY RS.92,37,617/-. WHEN THE ASSESSEE CARRIED THE MATTER BEFORE THE DRP, DRP UPHELD THE ORDER OF TPO. AGGRIEVED BY THE ORDER OF TPO, ASSESSEE IS NOW BEFORE US. 23. BEFORE US, LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT IDENTICAL ISSUE AROSE IN A.Y. 2009-10 & THE HONBLE TRIBUNAL WHILE DECIDING THE ISSUE IN ITA NO.455/DEL/2014, REMITTED THE MATTER BACK TO THE AO FOR THE REASON THAT WHILE MAKING THE TRANSFER PRICING ADJUSTMENT, THE TPO HAVE ACTED IN CONTRADICTION TO THE RATIO LAID DOWN IN CUSHMAN & WAKEFIELD 367 ITR 730. HE SUBMITTED THAT THE MATTER WAS REMITTED TO THE FILE OF AO TO DECIDE THE ISSUE 15 AFRESH IN VIEW OF THE LAW LAID DOWN BY THE HONBLE HIGH COURT IN THE CASE OF CUSHMAN & WAKEFIELD (SUPRA). HE FURTHER SUBMITTED THAT FOLLOWING THE ORDER FOR A.Y. 2009-10, THE CO-ORDINATE BENCH OF TRIBUNAL WHILE DECIDING THE ISSUE IN ITA NO.370/DEL/2015 FOR A.Y. 2010-11, ITA NO. 3443/DEL/2016 FOR A.Y. 2011-12 AND 698/DEL/2017 FOR A.Y. 2013-14 HAD REMITTED THE MATTER TO THE AO. HE SUBMITTED THAT TPO WHILE GIVING EFFECT TO THE ORDER OF THE HONBLE TRIBUNAL IN THE AFORESAID YEARS HAD DELETED THE ADJUSTMENT ON ACCOUNT OF ROYALTY. HE POINTED TO THE ORDER OF TPO AT PAGE 62 TO 65 OF THE PAPER BOOK. HE THEREFORE SUBMITTED THAT FACTS BEING IDENTICAL IN THE YEAR UNDER CONSIDERATION TO THAT OF 2009-10, 2010-11 & 2011-12, THE ISSUE BE DECIDED IN SIMILAR MANNER. 24. LEARNED DR ON THE OTHER HAND DID NOT CONTROVERT THE SUBMISSIONS OF LEARNED AR BUT HOWEVER SUPPORTED THE ORDER OF LOWER AUTHORITIES. 25. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO THE ACTION OF TPO IN TREATING THE PAYMENT OF ROYALTY AT NIL. WE FIND THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y. 2009-10 AND THE CO-ORDINATE BENCH OF TRIBUNAL WHILE DECIDING THE ISSUE IN ITA NO. 455/DEL/2014 HELD AS UNDER: 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE TPO HAS COMPUTED ALP OF THE INTERNATIONAL TRANSACTION OF `PAYMENT OF ROYALTY AT NIL BY HOLDING THAT THE ASSESSEE DID NOT AVAIL ANY BENEFIT AND THE SERVICES PROVIDED BY THE FOREIGN AES WERE UNWARRANTED. IN DOING 16 SO, HE REJECTED THE ASSESSEES ADOPTION OF TNMM AS THE MOST APPROPRIATE METHOD AND FOLLOWED THE CUP METHOD. THAT IS HOW, HE COMPUTED ALP OF THIS INTERNATIONAL TRANSACTION AT NIL. THE AO IN HIS ORDER HAS SIMPLY INCORPORATED THE CONCLUSION OF THE TPO IN DETERMINING THE ALP OF THIS INTERNATIONAL TRANSACTION AT NIL WITHOUT CARRYING OUT ANY INDEPENDENT ANALYSIS OR EVALUATION AS TO WHETHER OR NOT SUCH USE OF TECHNICAL KNOW-HOW WAS REQUIRED/AVAILED BY THE ASSESSEE IN TERMS OF SECTION 37(1) OF THE ACT. THE LD. AR FAIRLY ADMITTED THAT THERE IS NO INDEPENDENT DISCUSSION IN THE ASSESSMENT ORDER ABOUT THE DISALLOWANCE OF ROYALTY PAYMENT, EXCEPT FOR REPRODUCTION OF THE RELEVANT PARTS FROM THE ORDER OF THE TPO. 9. THE HON'BLE DELHI HIGH COURT IN CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (2014) 367 ITR 730(DEL) HAS HELD THAT THE AUTHORITY OF THE TPO IS LIMITED TO CONDUCTING TRANSFER PRICING ANALYSIS FOR DETERMINING THE ALP OF AN INTERNATIONAL TRANSACTION AND NOT TO DECIDE IF SUCH SERVICES EXIST OR BENEFITS DID ACCRUE TO THE ASSESSEE. SUCH LATER ASPECTS HAVE BEEN HELD TO BE FALLING IN THE EXCLUSIVE DOMAIN OF THE AO. IN THAT CASE, IT WAS OBSERVED THAT THE E-MAILS CONSIDERED BY TRIBUNAL FROM MR. BRAGANZA AND MR. CHOUDHARY DEALT WITH SPECIFIC INTERACTION AND RELATED TO BENEFITS OBTAINED BY ASSESSEE, PROVIDING A SUFFICIENT BASIS TO HOLD THAT BENEFIT ACCRUED TO ASSESSEE. SINCE THE DETAILS OF SPECIFIC ACTIVITIES FOR WHICH COST WAS INCURRED BY BOTH AES (FOR ACTIVITIES OF MR. BRAGANZA AND MR. CHOUDHARY), AND ATTENDANT BENEFITS TO ASSESSEE WERE NOT CONSIDERED, THE HON'BLE HIGH COURT REMANDED THE MATTER TO FILE OF CONCERNED AO FOR AN ALP ASSESSMENT BY TPO, FOLLOWED BY AO'S ASSESSMENT ORDER IN ACCORDANCE WITH LAW CONSIDERING THE DEDUCTIBILITY OR OTHERWISE AS PER SECTION 37(1) OF THE ACT. 10. WHEN WE ADVERT TO THE FACTS OF THE INSTANT CASE, IT TURNS OUT THAT THE TPO PROPOSED THE TRANSFER PRICING ADJUSTMENT WITH NIL ALP OF THE INTERNATIONAL TRANSACTION OF `PAYMENT OF ROYALTY ON THE GROUND THAT NO SUCH PAYMENT WAS WARRANTED AND FURTHER NO COST BENEFIT ANALYSIS ON THIS COUNT WAS BROUGHT TO HIS NOTICE AND AS SUCH THE PAYMENT OF ROYALTY WAS NOT REQUIRED. THE AO IN HIS FINAL ASSESSMENT ORDER DATED 26.12.2013 HAS TAKEN THE ALP AT NIL ON THE BASIS OF RECOMMENDATION OF THE TPO WITHOUT CARRYING OUT ANY INDEPENDENT INVESTIGATION IN TERMS OF THE DEDUCTIBILITY OR OTHERWISE OF SUCH PAYMENT IN TERMS OF SECTION 37(1) OF THE ACT. AS PER THE RATIO DECIDENDI OF CUSHMAN & WAKEFIELD INDIA (P.) LTD. (SUPRA), THE TPO WAS REQUIRED TO SIMPLY DETERMINE THE ALP OF THIS TRANSACTION UNCONCERNED WITH THE FACT, IF ANY BENEFIT ACCRUED TO THE ASSESSEE 17 AND THEREAFTER, IT WAS FOR THE AO TO DECIDE THE DEDUCTIBILITY OF THIS AMOUNT U/S 37(1) OF THE ACT. 11. SINCE THE AUTHORITIES BELOW HAVE ACTED IN CONTRADICTION TO THE RATIO LAID DOWN IN CUSHMAN & WAKEFIELD (SUPRA), WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR DECIDING IT IN CONFORMITY WITH THE LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (SUPRA). 12. BEFORE PARTING WITH THIS ISSUE, WE WANT TO CLARIFY THAT WE HAVE DESISTED FROM EXAMINING THE CORRECTNESS OF ANY ASPECT OF THIS INTERNATIONAL TRANSACTION, BE IT THE CALCULATION OF THE AMOUNT PAID AS ROYALTY OR DETERMINATION OF ALP OF THIS INTERNATIONAL TRANSACTION, SUCH AS, THE MOST APPROPRIATE METHOD AND COMPARABLES ETC. BECAUSE THE MATTER IS BEING SENT TO THE AO/TPO FOR REDOING IN ACCORDANCE WITH THE JUDGMENT IN THE CASE OF CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (SUPRA). IT IS FURTHER SEEN THAT THE TPO HAS ALSO RECOMMENDED THE TRANSFER PRICING ADJUSTMENT OF THE FULL AMOUNT OF ROYALTY PAYMENT, WITHOUT CHECKING THE VERACITY OF THE CALCULATION OF ROYALTY PAYMENT IN TERMS OF RATE(S) AS GIVEN IN THE AGREEMENTS WITH BOTH THE AES. NOW THE BALL IS IN THE COURT OF THE LOWER AUTHORITIES TO INDEPENDENTLY DO THE NEEDFUL. 26. WE FURTHER FIND THAT THE CO-ORDINATE BENCH OF TRIBUNAL WHILE DECIDING THE APPEAL FOR A.Y. 2010-11 (ITA NO.370/DEL/2015 ORDER DATED 17.10.2016) FOLLOWING THE ITAT ORDER FOR A.Y. 2009-10, HAD REMITTED THE ISSUE TO AO/TPO. WE FURTHER FIND THAT TRIBUNAL WHILE DECIDING THE ISSUE IN 2011-12 & 2013-14 HAD ALSO REMITTED THE MATTER TO THE AO TO DECIDE THE ISSUE AFRESH BY FOLLOWING THE ITAT ORDER FOR A.Y. 2009-10. WE FURTHER FIND THAT TPO PURSUANT TO THE DIRECTIONS OF ITAT HAD DELETED THE ADDITION IN ORDER GIVING EFFECT TO APPEAL. SINCE FACTS IN THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THAT OF 2009-10, 2010-11 & 2011-12, WE ARE OF THE VIEW THAT NO ADDITION IS CALLED FOR IN THE YEAR UNDER CONSIDERATION, WE THEREFORE DIRECT ITS DELETION. THUS THE GROUND OF ASSESSEE IS ALLOWED. 18 27. GROUND NO.5 IS WITH RESPECT TO THE AD HOC DISALLOWANCE OF RS.1,00,000/-. 28. AO NOTED THAT ASSESSEE HAD MADE PURCHASE OF PLANT & MACHINERY AMOUNTING TO RS.7.78 CRORES (ROUNDED OFF). THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE TRANSPORT CHARGES/ FREIGHT PAID FOR TRANSPORTATION OF MACHINERY WHICH IS CLAIMED AS EXPENDITURE NOT BE DISALLOWED. ASSESSEE INTER ALIA SUBMITTED THAT TO THE EXTENT THE TRANSPORATION WAS WITH RESPECT TO THE PURCHASE OF MACHINERY, THE SAME WAS CAPITALIZED AND WAS NOT CLAIMED AS REVENUE EXPENSES. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO AO. AO THEREAFTER CONSIDERED RS.10 LACS TO HAVE BEEN INCURRED FOR FREIGHT/ TRANSPORTATION OF MACHINERY & ACCORDINGLY TREATED IT AS CAPITAL EXPENDITURE. HE HOWEVER ALLOWED DEPRECIATION @ 15% ON THE SAME AND THEREBY MADE A NET DISALLOWANCE OF RS.8,50,000/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE DRP. DRP DIRECTED THE AO TO VERIFY THE FACTUAL POSITION AND THEREAFTER PASS THE ORDER. PURSUANT TO THE DIRECTIONS OF DRP, AO FOLLOWING HIS OBSERVATIONS IN THE DRAFT ORDER, MADE ADDITION OF RS.8,50,000/-. AGGRIEVED BY THE ORDER OF AO PURSUANT TO THE DIRECTION OF DRP, ASSESSEE IS NOW BEFORE US. 29. BEFORE US, LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT WHENEVER THE EXPENDITURE PERTAINED TO THE TRANSPORATION OF MACHINERY, THE 19 SAME WAS CAPITALIZED AND THAT THERE IS NO EXPENDITURE WHICH RELATES TO THE TRANSPORATION OF MACHINERY WHICH HAS BEEN CAPITALIZED. HE FURTHER SUBMITTED THAT THE ADDITION HAS BEEN MADE ON ADHOC BASIS AND THEREFORE IT BE DELETED. LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF LOWER AUTHORITIES. 30. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH RESPECT TO THE DISALLOWED OF RS.8,50,000/-. WE FIND THAT THE DISALLOWANCE OF TRANSPORTATION IS MADE FOR THE REASON THAT THE TRANSPORATION WAS FOR THE TRANSPORTATION OF MACHINERY AND THEREFORE REQUIRED CAPITALIZATION. 31. WE FIND THAT THE DISALLOWANCE HAS BEEN MADE BY AO ON ADHOC BASIS WITHOUT BRINGING ANY MATERIAL ON RECORD TO SUPPORT HIS VIEWS. IN SUCH A SITUATION, WE ARE OF THE VIEW THAT THE ADDITION MADE BY AO WAS NOT JUSTIFIED. WE THEREFORE DIRECT ITS DELETION. THUS THE GROUND OF ASSESSEE IS ALLOWED. 32. GROUND NO.6 IS WITH RESPECT TO DENYING THE CLAIM OF DEPRECIATION OF PRINTERS @ 60%. 33. AO NOTED THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD MADE PURCHASE OF COMPUTER ACCESSORIES AND PERIPHERALS AMOUNTING TO RS. 3,15,259/- AND HAD CLAIMED DEPRECIATION OF THE SAME @ 60%. THE ASSESSEE WAS ASKED TO SHOW-CAUSE AS TO WHY 20 THE DEPRECIATION NOT BE RESTRICTED TO 15%. ASSESSEE INTER ALIA SUBMITTED THAT THE AMOUNT SPENT WAS TOWARDS THE PURCHASE OF PRINTERS AND IT BEING OUTPUT DEVISE OF THE COMPUTER SYSTEM, IT WAS AN INTEGRAL PART OF COMPUTER AND THEREFORE ELIGIBLE FOR 60% DEPRECIATION. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO AO. AO WAS OF THE VIEW THAT 60% DEPRECIATION COULD BE CLAIMED ONLY FOR COMPUTERS AND COMPUTER SOFTWARE. HE ACCORDINGLY TREATED IT TO BE NORMAL PLANT AND MACHINERY AND ALLOWED DEPRECIATION @ 15%. THEREBY DISALLOWING THE EXCESS CLAIM OF DEPRECIATION OF RS.1,18,378/-. WHEN THE MATTER WAS CARRIED BEFORE THE DRP, IT UPHELD THE ORDER OF AO. AGGRIEVED BY THE ORDER OF AO, ASSESSEE IS NOW BEFORE US. 34. BEFORE US, LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND FURTHER SUBMITTED THAT FOR A.Y. 2007- 08 SIMILAR DISALLOWANCE WAS PROPOSED BY AO BUT WAS DELETED BY DRP AND FURTHER FROM A.Y. 2008-09 ONWARDS THE AO HAS ACCEPTED THE CLAIM OF ASSESSEE AND NO DISALLOWANCE HAS BEEN MADE. HE FURTHER SUBMITTED THAT HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BSES YAMUNA POWER LTD. (2013) 358 ITR 47 (DEL) HAS HELD THAT ASSESSEE IS ENTITLED TO 60% DEPRECIATION OF COMPUTER ACCESSORIES AND PERIPHERALS. HE THEREFORE SUBMITTED THAT THE ADDITION BY AO BE DELETED. LEARNED DR ON THE OTHER HAND SUPPORTED THE ORDER OF LOWER AUTHORITIES. 35. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT GROUND IS 21 WITH RESPECT TO THE CORRECT RATE OF DEPRECIATION ON COMPUTER ACCESSORIES AND PERIPHERALS. IT IS THE CLAIM OF ASSESSEE THAT IT BEING AN INTEGRAL PART OF COMPUTER SYSTEM, DEPRECIATION @60% IS ALLOWABLE. ON THE OTHER HAND, IT IS THE CASE OF REVENUE THAT IT IS ELIGIBLE FOR DEPRECIATION @ 15% BEING THE RATE APPLICABLE TO GENERAL PLANT AND MACHINERY. WE FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BSES YAMUNA POWERS LTD. (SUPRA) HAS HELD THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANNERS AND SERVERS FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM AND THEY CANNOT BE USED WITHOUT THE COMPUTER AND THEREFORE THEY ARE PART OF COMPUTER SYSTEM AND THEREFORE ELIGIBLE FOR DEPRECIATION @ 60%. 36. BEFORE US, REVENUE HAS NOT PLACED ANY CONTRARY BINDING DECISION IN ITS SUPPORT. WE THEREFORE FOLLOWING THE AFORESAID DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF BSES YAMUNA (SUPRA) HOLD THAT AO WAS NOT JUSTIFIED IN RESTRICTING THE DEPRECIATION @ 15%. WE THEREFORE SET ASIDE THE ORDER OF AO ON THIS ISSUE. THUS THE GROUND OF ASSESSEE IS ALLOWED. 37. AS FAR AS THE APPEAL FOR A.Y. 2007-08 IS CONCERNED. BEFORE US, LEARNED AR SUBMITTED THAT THE ISSUES RAISED IN THE YEAR ARE IDENTICAL TO THAT OF A.Y. 2006-07. THE AFORESAID CONTENTION OF LEARNED AR WAS NOT CONTROVERTED BY ASSESSEE. 22 38. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. CONSIDERING THE AFORESAID SUBMISSIONS OF BOTH THE PARTIES, THE ISSUE RAISED BEING IDENTICAL TO THAT OF A.Y. 2006-07 AND SINCE WE HAVE HEREINABOVE WHILE DECIDING THE APPEAL FOR A.Y. 2006-07 HAVE ALLOWED THE GROUNDS IN FAVOUR OF ASSESSEE. WE THEREFORE FOR SIMILAR REASONS ALLOW THE GROUNDS OF ASSESSEE. THUS THE GROUNDS OF ASSESSEE ARE ALLOWED. 39 . THUS THE APPEAL OF THE ASSESSEE IS ALLOWED. 40. IN THE COMBINED RESULT, BOTH THE APPEALS OF ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 .06.2021 SD/- SD/- (KULDIP SINGH) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE:- 22.06.2021 PY* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI