Fabindia Overseas Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5316/DEL/2015

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 5364 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2011-2012
• Appeal Filed On: 27-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K TEWARI SENIOR
• Assessee Lawyers: RITU THERAJA
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Cost of acquisition; Initiation of penalty proceedings
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.5316/DEL./2015 (ASSESSMENT YEAR : 2011-12) FABINDIA OVERSEAS PVT. LTD., VS. DCIT, CIRCLE 11 ( 1), 14, N BLOCK MARKET, NEW DELHI. GREATER KAILASH PART 1, NEW DELHI 110 001. (PAN : AAACF0782H) (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. RITU THERAJA, CA REVENUE BY : SHRI K. TEWARI, SENIOR DR DATE OF HEARING : 24.09.2018 DATE OF ORDER : 08.10.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, FABINDIA OVERSEAS PVT. LTD. (HEREINA FTER REFERRED TO AS THE ASSESSEE) BY FILING THE PRESE NT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 17.06.2015 PASSE D BY LD. CIT (APPEALS)-3, NEW DELHI QUA THE ASSESSMENT YEAR 2011 -12 ON THE GROUNDS INTER ALIA THAT :- 1.1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN SUSTAIN ING THE DISALLOWANCE AMOUNTING TO RS. 39,55,078/- MADE BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1) , ITA NO.5316/DEL./2015 2 NEW DELHI ('LD. AO') IN RESPECT OF DEPRECIATION CLAIMED UNDER SECTION 32 OF THE ACT DURING THE RELE VANT PREVIOUS YEAR, RELATABLE TO A TRADEMARK ACQUIRED BY THE APPELLANT IN THE FINANCIAL YEAR 2006-07; 1.2. THAT THE HON'BLE CIT(A) IN AN ARBITRARY AND MECHANICAL MANNER, SUSTAINED THE AFORESAID DISALLOWANCE OF DEPRECIATION, PURELY ON THE BASIS O F CONJECTURES AND SURMISES AND HENCE, THE INSTANT DISALLOWANCE IS BAD IN LAW; 1.2.1 THAT WHILE SUSTAINING THE INSTANT DISALLOWANC E OF DEPRECIATION, THE HON'BLE CIT(A) HAS GROSSLY ERRED IN OBSERVING THE FOLLOWING AT PARAGRAPH 3.1 OF THE IMPUGNED ORDER: 3.1 I HAVE CAREFULLY PERUSED THE FACTS OF THE CASE AND THE SUBMISSION MADE BY THE APPELLANT. THE ASSESSING OFFICER HAS DISALLOWED THE DEPRECIATION OF RS.39,55,078/- CLAIMED ON THE TRADEMARK. THE C/T(A)-XIII NEW DELHI VIDE ORDER DATED 31.03.2013 ITA NO. 48/2011-12 FOR THE A. Y. 2007-08 HELD THAT THE TRANSACTIONS OF PURCHASE OF TRADEMARK WAS NOT AT ARM'S LENGTH AND THE ORDER PASSED BY THE TRANSFER PRICING OFFICER WITH REGARD TO THE PURCHASE OF THE TRADEMARK WAS UPHELD. THE APPELLANT HAD CAPITALIZED THE PURCHASE OF THE TRADEMARK AND CLAIMED THE DEPRECIATION. THE VALUE OF THE INTERNATIONAL TRANSACTION INVOLVING THE PURCHASE OF THE TRADEMARK WAS HELD AT 'NIL'. IN VIEW OF THIS, THE ASSESSING OFFICER IS JUSTIFIED IN REJECTING THE CLAIM OF THE DEPRECIATION DURING THE YEAR. THE GROUND OF APPEAL RAISED BY THE APPELLANT IS THEREFORE, DISMISSED. ' 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A) HAS ERRED IN DISMISS ING THE GROUND ASSAILED BY THE APPELLANT IN RESPECT OF INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. ITA NO.5316/DEL./2015 3 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER FOLLOWI NG ASSESSMENT YEAR 2007-08 VIDE WHICH TPO VIDE HER ORDER DATED 15 .10.2010 HAS PROPOSED THAT THE DEPRECIATION CLAIMED BY THE ASSES SEE ON TRADEMARK IS REQUIRED TO BE DISALLOWED ON THE GROUN D THAT THE COST OF ACQUISITION OF TRADEMARK HAS BEEN DETERMINED AT NIL AND CONSEQUENTLY DEPRECIATION CLAIMED BY THE ASSESSEE A T THE PRESCRIBED RATE WAS DISALLOWED. DURING THE YEAR UNDER ASSESSM ENT, THE ASSESSEE CLAIMED DEPRECIATION @ 25% ON WDV OF THE T RADEMARK TO THE TUNE OF RS.5,29,82,100/- WHICH HAS BEEN DISALLO WED BY THE AO BY FOLLOWING THE ORDER PASSED BY THE TPO IN AY 2007 -08 AND THEREBY MADE AN ADDITION OF RS.39,55,078/-. 3. ASSESSEE CARRIED THE MATTER BY WAY OF APPEAL BEF ORE THE LD. CIT (A) WHO HAS PARTLY ALLOWED THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. UNDISPUTEDLY, REFERENCE WAS NOT MADE BY THE AO T O THE TPO TO DETERMINE THE ARMS LENGTH PRICE QUA THE INTERNA TIONAL ITA NO.5316/DEL./2015 4 TRANSACTIONS ENTERED INTO BY THE ASSESSEE RATHER PA SSED THE ASSESSMENT ORDER BY FOLLOWING TPO ORDER DATED 15.10 .2010 PASSED IN AY 2007-08. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS CLAIMED DEPRECIATION @ 25% @ WDV OF THE TRADEMARK A MOUNTING TO RS.5,29,82,100/-. 6. AT THE VERY OUTSET, IT IS BROUGHT TO OUR NOTICE BY THE LD. AR FOR THE ASSESSEE THAT THE ISSUE IN CONTROVERSY HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE COORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DATED 13.06.2016 PASSED IN ITS OWN CASE ITA NOS.2244/DEL/2013 & 2245/DEL/2013 FOR AYS 2007-08 & 2009-10 AND DREW OUR ATTENTION TOWARDS PARA 23 AT PAGE 37 O F THE ORDER (SUPRA), OPERATIVE PARA 23 THEREOF IS EXTRACTED AS UNDER :- 23. THEREFORE, ON AN OVERALL CONSIDERATION OF THE FACTS OF THE CASE AND THE JUDICIAL PRECEDENTS AVAIL ABLE, IT IS OUR CONSIDERED OPINION THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT ANY LEGITIMATE EXPENDITURE INCURRED BY HIM WAS ALSO INCURRED OUT OF NECESSITY. IT IS ALSO NOT NECESSARY FOR THE ASSESSEE TO SHOW THAT AN Y EXPENDITURE INCURRED BY HIM FOR THE PURPOSE OF BUSI NESS CARRIED ON BY HIM HAS ACTUALLY RESULTED IN PROFIT O R INCOME EITHER IN THE SAME YEAR OR IN ANY OF THE SUBSEQUENT YEARS. THE ONLY CONDITION IS THAT THE EXPENDITURE SHOULD HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND NOTHIN G MORE. IT IS THIS PRINCIPLE THAT INTER ALIA FINDS EX PRESSION IN THE OECD GUIDELINES. AS FAR AS THE OBJECTION OF THE LD. TPO THAT WHETHER THERE IS ANY NEED FOR PURCHASE OF SUCH INTANGIBLE OR NOT IS CONCERNED, WE ARE OF THE VIEW THAT WHAT IS TO PURCHASE AND WHAT NOT TO PURCHASE I S NOT IN THE DOMAIN OF THE TPO/AO, BECAUSE IT IS A BUSINE SS DECISION OF THE ASSESSEE COMPANY AND ACCORDINGLY, ITA NO.5316/DEL./2015 5 WHEN ASSESSEE PURCHASED AN INTANGIBLE ASSET, WHAT I S REQUIRED UNDER THE LAW IS TO EXAMINE WHETHER THE PR ICE PAID BY THE ASSESSEE IS ARMS LENGTH PRICE OR NOT. T HE TPO HAS NO ROLE TO PLAY IN EXAMINING THE DECISION O F COMMERCIAL NATURE. UNDER THE GUISE OF TPO PROVISION S, THE TPO CANNOT DETERMINE THE ALP AT NIL AS HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES LTD., {SUPRA}. THEREFORE, REJECTING THE ENTIRE PAYMENT WITHOUT THERE BEING ANY ANALYSIS ON THE CUP METHOD CANNOT BE ACCEPTED. IN THE GUISE OF ANALYZIN G THE TRANSACTIONS IN THE CUP METHOD, THE TPO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO REJECT THE PAYMEN T MADE TO FAB INDIA INC. IN THE INSTANT CASE, THE TPO DID NOT EXAMINE THE ARMS LENGTH PRICE OF THE IMPUGNED ROYALTY PAYMENT IN ACCORDANCE WITH THE PROVISIONS O F SEC.92C OF THE ACT. ACCORDINGLY, WE ARE OF THE OPIN ION THAT THE ALP OF THE IMPUGNED PAYMENT FOR TRADEMARK AND THE ISSUE RELATING TO THE DEPRECIATION ON TRADE MARK NEED TO BE EXAMINED AFRESH. ACCORDINGLY WE SET ASID E THE ORDER OF ASSESSING OFFICER/TPO/CIT (A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE TPO F OR EXAMINATION OF THE SAME AFRESH IN ACCORDANCE WITH T HE LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD. IN THE RESULT, GROUND NOS. 1 & 2 OF THE ASSE SSEES APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 7. BARE PERUSAL OF THE OPERATIVE PART OF THE ORDER PASSED IN ASSESSEES OWN CASE FOR AYS 2007-08 AND 2009-10 BY THE COORDINATE BENCH OF THE TRIBUNAL GOES TO PROVE THAT DISALLOWANCE OF DEPRECIATION CLAIM BY THE ASSESSEE U/S 32 OF THE ACT QUA TRADEMARK ACQUIRED IN FY 2006-07 IS NOT SUSTAINABLE AS THE TPO IS NOT TO DECIDE THE BUSINESS EXPEDIENCY OF ANY INTANG IBLE ASSETS PURCHASED BY THE ASSESSEE BY SITTING ON THE ARMCHAI R OF A BUSINESSMAN. MOREOVER, WHEN THE DECISION RENDERED BY THE TPO ITA NO.5316/DEL./2015 6 FOR AY 2007-08 HAS BEEN SET ASIDE BY THE COORDINATE BENCH OF THE TRIBUNAL TO THE TPO, THE PRESENT ASSESSMENT ORDER P ASSED BY FOLLOWING THE SAID ORDER IS ALSO NOT SUSTAINABLE. SIMILARLY IDENTICAL ISSUE IN AY 2010-11 IN ITA NO.5629/DEL/2014 ORDER D ATED 30.06.2017 IN ASSESSEES OWN CASE HAS ALSO BEEN SET ASIDE BY THE TRIBUNAL TO THE TPO FOR DETERMINING THE ARMS LENGT H PRICE OF INTERNATIONAL TRANSACTION QUA PURCHASE OF INTANGIBL ES. 8. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, ISSUE IN CONTROVERSY IS ALSO REMANDED BACK TO THE TPO/AO TO DECIDE AFRESH AFTER PROVIDING AN OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE IN VIEW OF THE CASE LAWS DISCUSSED BY THE COORDINATE B ENCH OF THE TRIBUNAL IN AYS 2007-08 AND 2009-10 (SUPRA). CONSE QUENTLY, APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 8 TH DAY OF OCTOBER, 2018. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 8 TH DAY OF OCTOBER , 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-3, NEW DELHI 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.