Lear Automotive India (p) Ltd., New Delhi V. DCIT, New Delhi

ITA 5256/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97181 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 15-07-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 12-10-2012
• Court: TRIBUNAL
• Department Lawyers: SULEKHA VERMA
• Assessee Lawyers: RAVI SHARMA CAS; SSH KANCHAN KAUSHAL
• Keywords: Capital asset; Depreciation; Additional evidence; Difference of opinion; Assessment record; Tax effect; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 234B; 37(1); 147; 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO . 5256 /DEL/201 2 ASSESSMENT YEAR: 2005 - 06 LEAR AUTOMOTIVE INDIA (P) LTD. VS. THE DEPUTY COMMISSIONER OF C/0 - SUCHETA BHAWAN (GATE NO. 2), INCOME TAX, CIRCLE - 4(1), 1 ST FLOOR, VISHNU DIGAMBER MARG, NEW DELHI NEW DELHI (PAN: AAACL1978K ) (APPELLANT) (RESPONDENT) APPELLANT BY : S/SH. KANCHAN KAUSHAL & RAVI SHARMA, CAS RESPONDENT BY : MS. SULEKHA VERMA, SR. DR DATE OF HEARING: 15.07.2015 DATE OF PRONOUNCEMENT: 09.09.2015 ORDER PER INTURI RAMA RAO, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A), DATED 02.08.2012 PASSED FOR THE ASSESSMENT YEAR 2005 - 06. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) GROSSLY ERRED IN UPHOLDING THE ACTION OF THE LD. AO IN INITIATING AND COMPLETING ASSESSMENT PROCEEDINGS UNDER SECTION 147/ 148 OF THE ACT ON MERE CHANGE OF OPINION AS HELD BY THE HONOURABLE SUPREME COURT IN 'CIT V. KELVINATOR OF INDIA LTD.' [201 0], 228 CTR 488' AS THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT WHEREIN THE ISSUE REGARDING ALLOWABILITY OF PAYMENT BY THE APPELLANT ON ACCOUNT OF EXCLUSIVE VENDOR STATUS WAS DULY EXAMINED AND ALLOWED BY THE THEN ASSESSING OFFICER . 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF THE LD. AO IN COMPUTING THE TOTAL INCOME 2 OF THE APPELLANT AT INR 389,408,700 BY MAKING A DISALLOWANCE OF INR 140,899,500 (INR 18,78,66,000 LESS 25% DEP. ON INR 187,866,000) ON THE PURPORTED GROUND THAT THE SAME IS IN THE NATURE OF CAPITAL EXPENDITURE WITHOUT APPRECIATING THAT THE SAID AMOUNTS WERE IN THE NATURE OF NORMAL TRADE/ VOLUME DISCOUNT ALLOWED BY THE APPELLANT TO ITS CUSTOMERS DURING THE N ORMAL COURSE OF BUSINESS AND IS THEREFORE FULLY ALLOWABLE UNDER SECTION 37(1) READ WITH SECTION 28 OF THE ACT. 3. A. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN REJECTING THE CONTENTION O F THE APPELLANT THAT IN COMPUTING THE DISALLOWANCE AT INR 140,899,500 (INR 187,866,000 LESS 25% DEP. ON INR 187,866,000) THE LD. AO HAS NOT APPRECIATED THAT THE TOTAL EXPENSE INCURRED AND CLAIMED AS AN EXPENDITURE IN THE YEAR UNDER APPEAL BY THE APPELLANT TOWARDS SUCH TRADE/VOLUME DISCOUNT IS ONLY INR 92,323,607 B. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN REJECTING THE ADDITIONAL EVIDENCE IN THE SHAPE OF AN AUDITORS CERTIFICATE FILED BY APPELLANT TO FURTHER SUBSTANTIAT E THE FACTS ALREADY ON RECORD 4. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF LD. AO IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 5. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OFLD. AO IN LEVYING INTEREST UNDER SECTION 234D OF THE AC T. 6. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF LD. AO IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271 (L)( C) OF THE ACT FOR FU RNISHING INACCURATE PARTICULARS OF INCOME. THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHE R. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER, AMEND O R WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING/ASSEMBLING OF AUTOMOTIVE SEATING SYSTEMS (I.E. SEATS AND SEAT TRIMS) AND OTHER INTERIOR PARTS AS WELL AS DESIGN AND DEVELOPMENT OF AUTOMOTIVE SEATING SYSTEMS AND INTERIORS FOR THE AUTOMOTIVE INDUSTRY CUSTOMERS AND/OR ITS GROUP COMPANIES. DURI NG THE YEAR UNDER CONSIDERATION, THE APPELLANT FILED ITS RETURN OF INCOME ON 28 TH OCTOBER, 2005 DECLARING TOTAL INCOME OF RS. 3 23 , 03 , 25 , 050/ - . THE CASE OF THE APPELLANT WAS SELECTED FOR SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) . THE ASSESSMENT WAS COMPLETED UNDER SECTION 143( 3) OF THE ACT VIDE ORDER DATED 2 4 TH DECEMBER, 2008 AT A TOTAL INCOME OF RS. 24,85,09,200/ - . SUBSEQUENTLY, A NOTICE UNDER SECTION 148 OF THE ACT, DATED 19 TH JANUARY, 2010 WAS ISSUED BY TH E DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 4(1), NEW DELHI, PROPOSING TO REASSESS THE INCOME. THE REASONS RECORDED FOR ISSUANCE OF SAID NOTICE ARE AS UNDER: REASONS RECORDED UNDER SECTION 147 OF THE ACT. 01. ASSESSMENT IN THIS WAS COMPLETED UNDER SECTION 14 3(3) ON 24.12.2008 AT AN INCOME OF RS. 24,85,09,200/ - AS AGAINST THE RETURNED INCOME OF RS. 23,03,25,050/ - . SCRUTINY OF INCOME TAX ASSESSMENT RECORDS REVEALED : - A. T HAT THE ASSESSEE HAD DEDUCTED AN AMOUNT OF RS. 1,15,04,000/ - ON ACCOUNT OF AMOUNT COLLECTED TO WARDS TOOLS SUBSIDY FROM THE SALES IN THE P&L ACCOUNT. THE AMOUNT COMES UNDER THE DEFINITION OF INCOME. THE MISTAKE RESULTED IN UNDER ASSESSMENT OF INCOME OF RS. 1,15,04,000/ - INVOLVING TAX EFFECT OF RS. 61,03,921/ - B. T HAT AS PER THE NOTES TO ACCOUNTS ASSESSEE HAD PAID AN AMOUNT OF RS. 18,78,66,000/ - TO OBTAIN EXCLUSIVE VENDOR STATUS AND THIS AMOUNT WAS SET OFF AGAINST SALES OF CURRENT FINANCIAL YEAR. AS THE EXPENSES INCURRED ON EXCLUSIVE COMMERCIAL RIGHTS AND COVERED UNDER INTANGIBLE ASSETS, THEREFORE, IT NEEDED TO BE CAPITALIZED. ONLY DEPRECIATION @ 25% WAS ALLOWABLE ON SUCH CAPITALIZED AMOUNTS. THUS, DEPRECIATION OF R S. 4,69,66,500/ - WAS ONLY ALLOWABLE IN THE CURRENT FINANCIAL YEAR OUT OF TOTAL CLAIM OF THE ASSESSEE AMOUNTING TO RS. 18,78,66,000/ - . TH E MISTAKEN RESULTED IN UNDER ASSESSMENT OF INCOME OF RS. 14,08,99,500/ - INVOLVING TAX EFFECT OF RS. 7,47,60,042/ - . C. T HAT AS PER SCHEDULE - IV ATTACHED TO FORM 3CD REPORT ASSESSEE HAD PURCHASED SOFTWARE OF RS. 1,26,92,880/ - AND DEBITED THIS AMOUNT IN THE P&L A CCOUNT UNDER THE HEAD SOFTWARE USAGE EXPENSES. AS THE EXPENSES INCURRED ON PURCHASE OF SOFTWARE ARE COVERED UNDER INTANGIBLE ASSETS, THEREFORE, IT NEEDED TO BE CAPITALIZED. ONLY DEPRECIATION @ 25% WAS ALLOWABLE ON SUCH CAPITALIZED AMOUNTS. THUS, DEPRECIATI ON OF RS. 31,73,220/ - WAS ONLY ALLOWABLE IN THE CURRENT FINANCIAL YEAR OUT OF TOTAL CLAIM OF THE ASSESSEE AMOUNTING TO RS. 1,26,92,880/ - . FURTHER AS PER THE DEPRECIATION CHART OF THE INCOME TAX THE ASSESEE HAD CLAIMED AND ALLOWED DEPRECIATION OF RS. 55,57, 163/ - @ 60% ON INTANGIBLES (COMPUTER 4 SOFTWARE) INSTEAD OF RS. 23,15,485/ - AT THE APPLICABLE RATE OF 25%. THUS, THE ASSESSEE WAS ALLOWED EXCESS DEPRECIATION OF RS. 32,41,678/ - (RS. 55,57,163 RS. 23,15,485/ - ). THE MISTAKEN RESULTED IN UNDER ASSESSMENT OF I NCOME OF RS. 1,27,61,338/ - (RS. 95,19,660+ RS. 32,41,678) INVOLVING TAX EFFECT TO RS. 67,71,802/ - . D. T HAT INTEREST UNDER SECTION 234B WAS LEVIED AT RS. 42,52,802/ - AS AGAINST THE ACTUAL INTEREST LEVIABLE AT RS. 58,01,218/ - . THE MISTAKE RESULTED IN SHORT LEVY OF INTEREST OF RS. 10,04,787/ - . 02. IN VIEW OF THE ABOVE, I HAVE REASONS TO BELIEVE THAT THE INCOME OF RS. 1,15,04,000/ - , RS. 14,08,99,500/ - , & RS. 1,27,61,338/ - AGGREGATING TO RS. 16,51,64,838/ - CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING TO SECTION 147/148 OF THE INCOME TAX ACT, 1961 AND INTEREST OF RS. 10,04,787/ - WAS UNDER CHARGED ON THE INCOME ASSESSED. 2.1 THEREAFTER, THE REASSESSMENT WAS COMPLETED VIDE ORDER DATED 14 TH DECEMBER, 2010 BY DISALLOWING A SUM OF RS. 18,78,66,000/ - PAID TO M/S MAHINDRA & MAHINDRA FOR OBTAINING THE EXCLUSIVE VENDOR STATUS HOLDING IT TO BE IN THE NATURE OF CAPITAL EXPENDITURE. HOWEVER, DEPRECIATION THEREON @ 25% WAS ALLOWED TREATING AS INTANGIBLE ASSETS . BEING AGGRIEVED, AN APPEAL WAS FILED BY THE ASSESSEE COM PANY BEFORE THE CIT(A) WHO VIDE ORDER DATED 02.08.2012 DISMISSED THE APPEAL. HENCE , THE ASSESSEE COMPANY IS BEFORE US WITH THE PRESENT APPEAL. 3. F IRST WE SHALL NOW DEAL WITH GROUND NO. 1 , SINCE IT GOES TO THE ROOT OF THE MATTER. THIS GROUND CHALLENGES THE VALIDITY O F THE REASSESSMENT PROCEEDINGS. 3.1 IT WAS ARGUED BEFORE US THAT THE ISSUE OF PAYMENT MADE TO M/S MAHINDRA & MAHINDRA FOR THE PURPOSE OF OBTAINING EXCLUSIVE VENDOR STATUS WAS CONSIDERED AT THE TIME OF ORIGINAL ASSESSMENTS BY THE ASSESSING OFFICER. HE INVITED OUR ATTENTION TO PAGE NO. 91 OF THE PAPER BOOK WHERE THE EXPLANATION WAS FURNISHED REGARDING THE QUERIES RAISED BY THE ASSESSING OFFICER DURING THE COURSE OF 5 ASSESSMENT PROCEEDINGS. THEREFORE, HE SUBMITTED BEFORE US THAT IT AM OUNTS TO CHANGE OF OPINION ON ACCOUNT OF WHICH NO REASSESSMENT PROCEEDINGS CAN BE INITIATED. RELIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISIONS: I. ARONI COMMERCIALS LTD. VS. DCIT [362 ITR 403 (BOM)] II. MICROSOFT CORPORATION (I) P. LTD. VS. DCIT [357 ITR 50 (DEL)] III. MARUTI SUZUKI INDIA LTD. VS. DCIT [356 ITR 209(DEL)] IV. MOSER BAER INDIA LTD. VS. DCIT [WP (C) NO. 1004 OF 2013 (DEL.)] V. CARTINI INDIA LTD. VS. ACIT [21 DTR 281 (BOM.)] VI. M.J. PHARMACEUTICALS LTD. VS. DCIT [297 ITR 119 (BOM.)] VII. GARDEN SILK MILLS (P.) LTD. VS. DCIT, [237 ITR 668 (GUJ.)] VIII. CIT VS. EICHER LTD. [294 ITR 310 (DEL.)] IX. JAL HOTELS CO. LTD. VS. ADIT [24 DTR 37 (DEL.)] X. ITO VS. OBJECT CONNECT INDIA PVT. LTD. [1277 & 1278/HYD/2011 (HYD.)] XI. USHA INTERNATIONAL LTD. [ITA NO. 2026/2010] - DELHI HIGH CO URT 3.2 ON THE OTHER HAND, LEARNED SR. DR PLACED RELIANCE ON THE ORDERS OF THE CIT(A). 3.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE CONTENTION OF THE APPELLANT IS THAT SINCE THE VERY SAME ISSUED WAS CONSIDERED BY THE ASSES SING OFFICER AT THE TIME OF FRAMING ORIGINAL ASSESSMENT PROCEEDINGS, THE PRESENT REASSESSMENT PROCEEDINGS ON THIS ISSUE ARE NOT VALID IN LAW SINCE PROMPTED BY MERE CHANGE OF OPINION. FROM THE EXPLANATION FURNISHED DURING THE COURSE OF ORIGINAL ASSESSMENTS, IT IS CLEAR THAT THE ASSESSEE COMPANY WAS HARPING ON THAT IT IS NOTHING BUT VOLUME DISCOUNT BY THE APPELLANT TO THE M/S MAHINDRA AND MAHINDRA. THERE IS NO EVIDENCE ON RECORD TO INDICATE THAT THE AGREEMENT ENTERED INTO BY THE ASSESSEE COMPANY WITH M/S MAHI NDRA & MAHINDRA, DATED 11 TH JANUARY, 1998 WAS FILED BEFORE THE ASSESSING OFFICER. THEREFORE, THE ASSESSING OFFICER HAD NO OPPORTUNITY TO PERUSE AND DRAW ANY KIND OF INFERENCE 6 ABOUT THE NATURE OF AGREEMENT OR THE RIGHT ACQUIRED PURSUANT TO THAT AGREEMENT. H ENCE, IT CANNOT BE SAID THAT THE ASSESSING OFFICER AT THE TIME OF FRAMING THE ORIGINAL ASSESSMENT FORMED ANY OPINION ON THIS ISSUE. THEREFORE, THE CONTENTIONS RAISED BY THE APPELLANT THAT THE REASSESSMENT PROCEEDINGS WERE INITIATED BASED ON THE MERE CHANGE OF OPINION, IS DEVOID OF MERIT. THE CASE - LAWS RELIED UPON BY THE APPELLANT DO NOT COME TO THE RESCUE OF THE APPELLANT AS THE RATIO LAID DOWN ON THOSE CASES ARE THAT THE REASSESSMENT PROCEEDINGS ARE IN VALID IN LAW, WHEN PROMPTED BY A CHANGE OF OPINION. ACC ORDINGLY, WE HOLD THAT THE REASSESSMENT PROCEEDINGS INITIATED BY THE ASSESSING OFFICER ARE VALID IN LAW. THE REASONING GIVEN BY THE CIT(A) WHILE UPHOLDING THE VALIDITY OF REASSESSMENT PROCEEDINGS, CANNOT BE FOUND FAULT WITH. HENCE, GROUND NO. 1 IS DISMISSE D. 4 . NOW WE SHALL DEAL WITH GROUND NO. 2. GROUND NO. 2 RELATES TO THE CHALLENGE OF DISALLOWANCE OF R S. 14,08,99 , 500/ - ON THE GROUND THAT THE EXPENDITURE INCURRED TO OBTAIN EXCLUSIVE VENDOR STATUS WAS IN THE NATURE OF CAPITAL EXPENDITURE. FROM THE AGREEMENT FILED THE BRIEF FACTS REVOLVING AROUND THIS ISSUE ARE AS UNDER: 4 .1 THE APPELLANT HAD ENTERED AN AGREEMENT ON 11 TH DAY OF JANUARY, 1998 WITH M/S. M & M LTD. WHEREBY THE APPELLANT WAS APPOINTED AS EXCLUSIVE SUPPLIER OF SEATING SYSTEMS IN INDIA. T HE CONSIDERATION OF USD 60,000/ - W AS AGREED TO BE PAID . IT WAS AGREED THAT THE SAID CONSIDERATION TO BE DISCHARGED BY WAY OF REDUCTION FROM THE VALUE INVOICES RAISED BY THE APPELLANT COMPANY. THIS TRANSACTION WAS REFLECTED IN ITS FINANCIAL ACCOUNTS AS A RE DUCTION FROM THE INVOICE 7 VALUE AND A NOTE NO. 12 IN THE NOT E TO ACCOUNTS INCLUDED IN SCHEDULE - XXI OF THE BALANCE - SHEET IS REFLECTED AS UNDER: 12. IN MARCH, 2003, UNDER AN AGREEMENT, A TOTAL CONSIDERATION OF USD 6,000 WAS AGREED WITH CUSTOMER TO OBTAIN EX CLUSIVE VENDOR STATUS. THIS CONSIDERATION BEING SET OFF AGAINST SALES BASED ON PRE - AGREED RATES/QUANTITIES ARE APPROPRIATE RECORDED AS VOLUME DISCOUNT. USD 4,124 (EQUIVALENT OF RS. 187,866/ - ) HAS BEEN ADJUSTED TOWARDS ABOVE TILL END OF THIS FINANCIAL YEAR. THE TOTAL CONSIDERATION WILL BE PAID OFF BY THE END OF THE NEXT FINANCIAL YEAR. 4 .2 DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, THE APPELLANT FURNISHED FOLLOWING EXPLANATION ON THIS ISSUE AS UNDER : LEAR INDIA IS A MANUFACTURER AND SUPPLIER OF SPECIALIZED CAR SEATING SYSTEMS. AS LEAR INDIA IS NOT ITSELF A CAR AUTOMOBILE MANUFACTURER, ITS BUSINESS CAN BE UNDERSTOOD TO BE ANCILLARY SUPPLIER OF KEY COMPONENTS TO A MAJOR AUTOMOBILE MANUFACTURE. IN OTHER WORDS, LEAR INDIA CAN ALSO BE UNDERSTOOD TO BE A CONTRACT MANUFACTURER SPECIFIC COMMISSIONED CARS SEATING SYSTEMS AT THE BEHEST OF INDEPENDENT CAR MANUFACTURERS LIKE GENERAL MOTORS, MAHINDRA & MAHINDRA LTD. (M&M) ETC. IT IS A COMMON KNOWLEDGE THAT INDIA AUTOMOBILE MARKET FOR PASSENGER CAR IS HIGHLY PRICE COMPETITIVE AND DOMESTIC MANUFACTURERS LIKE TATA MOTORS, GENERAL MOTORS, HYUNDAI ARE UNDER A SIGNIFICANT PRESSURE TO BRING DOWN COSTS TO MAKE THEIR CARS MORE AFFORDABLE TO AN AVERAGE INDIA. ACCORDINGLY, I N THE EXPERIENCE OF LEAR INDIA SUCH COST PRESSURE ARE PUSHED TO THE DOWNSTREAM ANCILLARY UNIT/SUPPLIERS. IT MAY BE NOTED THAT AS MUCH AS LEAR INDIA PROFESSES TO SUPPLY TO ITS CUSTOMERS HIGH PERFORMANCE INTERIOR AND SEATING SYSTEMS, IT IS NOT THE SOLE SUPPL IER OF SUCH COMPONENTS IN THE INDIA MARKET AND IT COMPETES WITH OTHER SUPPLIERS LIKE TATA JOHNSON CONTROL, KRISHNA MARUTI, BHARAT SEATS, TOYOTA - BUSHOKO, ARACO, VIJAYJYOT, FOR SUCH CONTRACT MANUFACTURING JOBS FROM MAJOR AUTOMOBILE COMPANIES LIKE M&M. THEREFORE, AS A PART OF NORMAL INDUSTRY P RACTICE, IN CASE THE COMPANY WISHES TO BECOME A SOLE SUPPLIER OF A PARTICULAR COMPANY, IT IS REQUIRED TO COMMIT UPFRONT TO ITS CUSTOMER AN OVERRIDING VOLUME DISCOUNT MEASURED ON A PER PIECE BASIS BASED ON TOTAL VOLU ME COMMITTED TO LEAR INDIA BY THE CUSTOMER OVER A DEFINED TIME FRAME. IT MAY BE MENTIONED THAT THE VOLUME COMMITMENT IS A SIMPLY PRE - AGREED VOLUME DISCOUNT AND HAS THE EFFECT OF REDUCING INDIVIDUAL SYSTEM COST FOR AUTOMOBILE MANUFACTURE ON A UNIT BY UNIT B ASIS. NO AMOUNT WAS ACTUALLY PAID IN CASH AT ANY GIVEN POINT OF TIME 8 LEAR INDIA TO M&M UNDER THE EXCLUSIVE VENDOR STATUS ARRANGEMENT OTHER THAN WHAT WAS ACTUALLY GETTING PASS THROUGH THE VOLUME DISCOUNT, BEING NETTED OFF IN THE SELLING PRICE ITSELF. THIS I S MERE A COMMERCIAL ARRANGEMENT ENTERED INTO BETWEEN THE MANAGEMENTS OF BOTH THE COMPANIES, PROVIDING FOR A COMMITTED OVERRIDING VOLUME DISCOUNT BY LEAR INDIA TO M&M. 4 . 3 THE COPY OF THE AGREEMENT WAS NEVER FURNISHED BEFORE THE ASSESSING OFFICER. HOWE VER, NO ADDITION WAS MADE AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS; IT WAS ONLY WHEN THE AUDIT PARTY RAISED THE OBJECTION ON THIS ISSUE. THE ASSESSING OFFICER EXAMINED THE ISSUE INDEPENDENTLY AND CAME TO THE CONCLUSION THAT THE IMPUGNED PAYMENT IS NO THING BUT CAPITAL EXPENDITURE AND MADE DISALLOWANCE OF RS. 14,08,99,500/ - AND DEPRECIATION @ 25% WAS ALLOWED . THE CIT(A) DISMISSED THE GROUND BY HOLDING AS UNDER: PERUSAL OF THE FACTS ON RECORD SHOWS THAT THE APPELLANT HAD OBTAINED 'EXCLUSIVE VEND OR STATUS' FROM MAHINDRA AND MAH INDRA LTD. FOR WHICH IT HAD BEEN AGREED THAT A TOTAL PAYMENT OF 6 MILLION USD WOULD BE MADE BY THE APPELLANT. PERUSAL OF THE AGREEMENT FILED BY THE APPELLANT SHOWS THAT THE APPELLANT HAD OBTAINED EXCLUSIVE VENDOR STATUS BY VIRT UE OF THE AGREEMENT WHICH MEANS THAT ONLY THE APPELLANT WAS TO SUPPLY THE GOODS TO M/S. MAHINDRA AND MAHINDRA LTD. 4 .4 FROM THE PERUSAL OF THE AGREEMENT, IT IS CLEAR THAT THE ASSESSEE OBTAINED AN EXCLUSIVE RIGHT OF SUPPLYING THE SEATING SYSTEMS TO THE M/ S MAHINDRA & MAHINDRA. NOW THE ISSUE THAT CROPS UP FOR OUR CONSIDERATION IS WHETHER IT CONSTITUTES CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. TO DECIDE THIS ISSUE, IN OUR CONSIDERED OPINION, THE PRINCIPLES LAID DOWN BY THE HON BLE SUPREME COURT IN THE CAS E OF ASSAM BENGAL CEMENT VS. CIT, 27 ITR 34, SHOULD BE APPLIED. THE RELEVANT PORTION OF THE AFORESAID CASE ARE AS FOLLOWS: .. UNDER CLAUSE 4 OF THE DEED THE LESSORS UNDERTOOK NOT TO GRANT ANY LEASE, PERMIT OR PROSPECTING LICENCE REGARDING LIMESTONE TO ANY OTHER 9 PARTY IN RESPECT OF THE GROUP OF QUARRIES CALLED THE DURGASIL AREA WITHOUT A CONDITION THEREIN THAT NO LIMESTONE SHALL BE USED FOR THE MANUFACTURE OF CEMENT. THE CONSIDERATION OF RS. 5,000 PER ANNUM WAS TO BE PAID BY THE COMPANY TO THE LESSOR DUR ING THE WHOLE PERIOD OF THE LEASE AND THIS ADVANTAGE OR BENEFIT WAS TO ENURE FOR THE WHOLE PERIOD OF THE LEASE. IT WAS AN ENDURING BENEFIT FOR THE BENEFIT OF THE WHOLE OF THE BUSINESS OF THE COMPANY AND CAME WELL WITHIN THE TEST LAID DOWN BY VISCOUNT CAVE. IT WAS NOT A LUMP SUM PAYMENT BUT WAS SPREAD OVER THE WHOLE PERIOD OF THE LEASE AND IT COULD BE URGED THAT IT WAS A RECURRING PAYMENT. THE FACT HOWEVER THAT IT WAS A RECURRING PAYMENT WAS IMMATERIAL, BECAUSE ONE HAD GOT TO LOOK TO THE NATURE OF THE PAYMEN T WHICH IN ITS TURN WAS DETERMINED BY THE NATURE OF THE ASSET WHICH THE COMPANY HAD ACQUIRED. THE ASSET WHICH THE COMPANY HAD ACQUIRED IN CONSIDERATION OF THIS RECURRING PAYMENT WAS IN THE NATURE OF A CAPITAL ASSET, THE RIGHT TO CARRY ON ITS BUSINESS UNFET TERED BY ANY COMPETITION FROM OUTSIDERS WITHIN THE AREA. IT WAS A PROTECTION ACQUIRED BY THE COMPANY FOR ITS BUSINESS AS A WHOLE. IT WAS NOT A PART OF THE WORKING OF THE BUSINESS BUT WENT TO APPRECIATE THE WHOLE OF THE CAPITAL ASSET AND MAKE IT MORE PROFIT YIELDING. THE EXPENDITURE MADE BY THE COMPANY IN ACQUIRING THIS ADVANTAGE WHICH WAS CERTAINLY AN ENDURING ADVANTAGE WAS THUS OF THE NATURE OF CAPITAL EXPENDITURE AND WAS NOT AN ALLOWABLE DEDUCTION UNDER SECTION 10(2)( XV ) OF THE INCOME - TAX ACT. 4 .5 APPLYING THE ABOVE PRINCIPLES TO THE FACTS OF THE CASE ON HAND, IN THIS CASE ALSO THE ASSESSEE COMPANY ACQUIRED A RIGHT TO CARRY ON ITS BUSINESS UNFETTERED BY ANY COMPETITION FROM OUTSIDERS WITHIN INDIA. IT WAS A PROTECTION ACQUIRED BY THE COMPANY FOR ITS BUSINESS AS A WHOLE. AS A RESULT OF THIS, THE CAPITAL VALUE OF THE BUSINESS GOES TO APPRECIATE AND MAKE IT MORE PROFIT YIELDING. THEREFORE, THE EXPENDITURE INCURRED IN ACQUIRING THIS RIGHT IS NOTHING BUT A CAPITAL EXPENDITURE WHICH CANNOT BE ALLOWED AS A D E DUCTION UNDER SECTION 37(1) OF THE ACT . THE FACT THAT THE APPELLANT COMPANY PAID CONSIDERATION BY WAY OF REDUCTION FROM THE INVOICE VALUE DOES NOT MAK E ANY DIFFERENCE BECAUSE WHAT HAS TO BE LOOKED TO IS THE CHARACTER OF THE PAYMENT. A CAPITAL EXPENDITURE MAY AS WELL BE SPREAD OVER FOR A NUMBER OF YEARS AND HAD RETAINED HIS CHARACTER AS A CAPITAL EXPENDITURE. WE 10 PLACE RELIANCE ON THE DECISION OF CIT VS. PIGGOT CHAMPMAN & CO., (1949) 17 ITR 317 AND FURTHER THE FACT THAT IN THE BOOKS OF ACCOUNT THIS ITEM WAS TREATED AS A VOLUME TRADE DISCOUNT CANNOT DETERMINE THE TRUE NATURE OF THE TRANSACTION. NOMENCLATURE OF A TRANSACTION IS IMMATERIAL WHILE DECIDING THE TRUE NATURE OF THE TRANSACTION. 4 .6 HAVING REGARD TO THESE PRINCIPLES, WE HAVE NO HESITATION TO HOLD TH AT THE EX PENDITURE INCURRED BY THE ASSESSEE COMPANY IN ACQUIRING EXCLUSIVE VENDOR STATUS IN TERMS OF THE AGREEMENT ENTERED INTO BY IT IS NOTHING BUT CAPITAL EXPENDITURE AND HENCE THIS GROUND OF APPEAL IS ALSO DISMISSED. 5 . THE GROUND NO. 3 IS REGARDING THE CONTENTION OF THE ASSESSEE THAT THE ASSESSING OFFICER HAD ERRED IN COMPUTING THE DISALLOWANCE AT RS. 14,08,99,500/ - WITHOUT APPRECIATING THE FACT THAT DURING THE YEAR THE TOTAL EXPENDITURE INCURRED AND CLAIM ED ON ACCOUNT OF TRADE/VOLUME DISCOUNT WAS ON LY RS. 9,23,23,607/ - . WE , IN THE ABOVE PARAGRAPHS, HE LD THAT THE ENTIRE EXPENDITURE IS CAPITAL IN NATURE AND MERE FACT THAT THE CAPITAL EXPENDITURE IS SPREAD OVER PERIOD OF TIME, DOES NOT MAKE ANY DIFFERENCE. THEREFORE, THE ARGUMENT THAT THE EXPENDITURE IN CURRED DURING THE YEAR UNDER CONSIDERATION WAS ONLY RS. 9,23,23,607/ - , DOES NOT HOLD ANY WATER. FURTHERMORE, THIS ADDITION AL GROUND BEFORE THE CIT(A) WHO HAD NOT ADMITTED FOR THE REASONS MENTIONED ABOVE GIVEN HIS FINDINGS, WHICH IS REPRODUCD AS UNDER: I H AVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE REPORT OF THE AO. THE CASE OF THE APPELLANT IS NOT COVERED BY ANY OF THE EXCEPTIONS PROVIDE UNDER RULE 46A. THERE WAS NO SUFFICIENT CAUSE FOR NOT FILING THE ADDITION AL EVIDENCES SUBMITTED DURING THE A PPELLATE PROCEEDINGS BEFORE THE 11 AO. IN VIEW OF THE FACTS ABOVE, THE ADDITIONAL EVIDENCE IS NOT ADMITTED. THE COPY OF ACCOUNTS SUBMITTED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS SHOW THAT THE EXPENDITURE INCURRED TO OBTAIN EXCLUSIVE VENDOR STATUS WAS RS. 8,78,66,000/ - . IN VIEW OF THE FACTS DISCUSSED ABOVE THE DISALLOWANCE MADE BY THE A.O. IS AS PER LAW. THIS GROUND OF APPEAL IS DISMISSED. THERE ARE NO GROUNDS BEFORE US CHALLENGING THE ABOVE FINDINGS OF THE CIT(A). HENCE, THIS GROUND OF APPEAL IS ALSO DISMISSED. 6 . GROUND NOS. 4, 5 & 6 ARE CONSEQUENTIAL IN NATURE, WHICH DO NOT REQUIRE ANY ADJUDICATION. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. THE DECISION IS PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER , 2015. SD/ - SD/ - ( I.C. SUDHIR ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 9 TH SEPTEMBER , 2015. RK/ - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI