JCIT, New Delhi V. M/s. Escorts Ltd., New Delhi

ITA 5363/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 4235 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 14-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: R M MEHTA
• Keywords: Revenue expenditure
• Section: 143(3); 142(1); 115JB

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.5363/DEL/2016 A.Y. : 2011-12 JT. COMMISSIONER OF INCOME TAX, SPECIAL RANGE-3, ROOM NO. G22B, C.R. BUILDING, NEW DELHI VS. M/S ESCORTS LTD., 11, SCINDIA HOUSE, CONNAUGHT PLACE, NEW DELHI (ASSESSEE) (RESPONDENT) REVENUE BY : MS. ASHIMA NEB, SR. DR ASSESSEE BY : SH. R.M. MEHTA, ADV. ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THIS APPEAL AGAINST THE IMPUGN ED ORDER DATED 27.7.2016 OF THE LD. CIT(A)-3, NEW DELHI RELEV ANT TO ASSESSMENT YEAR 2011-12. 2. THE GROUNDS RAISED IN THIS APPEAL READ AS UNDER :- 1. WHETHER THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS. 4,05,54,792/- MADE BY THE AO U/S. 35(2AB) OF THE I.T. ACT? 2. THE APPELLANT CRAVES LEAVE, MODIFY, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED ITS RETURN OF INCOME AT RS. 40,93,80,090/- ON 30.9.2011. THE RETURN WAS PROCESSED U/S. 143(1) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER REFERRED AS THE ACT). THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED. SUBSEQUENTLY ASSESSEE REVISED ITS RETURN OF INCOME AND FILED A RE VISED RETURN ON 28.3.2013 FOR A REDUCE INCOME OF RS. 1,23,93,783/-. THIS REVISION AS PER THE VERSIONS OF THE ASSESSEE WAS NECESSITATED ON ACCOUNT OF THE CLAIM OF DEDUCTION U/S. 35(2AB) OF THE ACT, THE APP ROVAL OF DEPARTMENT OF SCIENTIFIC RESEARCH AND INDUSTRIAL RES EARCH (DSIR) WAS ISSUED ON 24.1.2013, SUBSEQUENT TO FILING OF ORIG INAL RETURN. ACCORDING TO THE APPROVAL OF DSIR, THE ELIGIBLE EXPE NSE U/S. 35(2AB) FOR AY 2011-12 WAS CONSIDERED AT RS. 20,60,6 4,000/-. THE NOTICE U/S. 142(1) OF THE ACT WAS ISSUED ALONGWITH THE Q UESTIONNAIRE AND SERVED ON THE ASSESSEE. IN RESPONSE TO THE SAME, THE AR OF THE ASSESSEE ATTENDED THE PROCEEDINGS AND FILED THE NECE SSARY DETAILS ALONGWITH THE BOOKS OF ACCOUNTS. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALES OF TRACTOR S, RAILWAY EQUIPMENT AND AUTOMOTIVE COMPONENTS ALONGWITH OTHER TRAD ING ACTIVITIES. THE ASSESSEE COMPANY HAD INTERNATIONAL TR ANSACTIONS DURING THE YEAR WITH ITS ASSOCIATED CONCERN FARMTRAC TRACTORS, SP. Z.O.O. LOCATED AT POLAND TO WHOM TRACTORS AND SPARE PARTS HAVE BEEN SOLD. FOR THE PURPOSE OF DETERMINATION OF ARM S LENGTH PRICE, A REFERENCE WAS MADE TO THE TPO. THE TPO VIDE HIS ORDE R DATED 27.11.2014 PASSED U/S. 92CA(3) OF THE ACT HAD NOT D RAWN ANY ADVERSE INFERENCE IN RESPECT OF THE INTERNATIONAL TRAN SACTION UNDERTAKEN BY THE ASSESSEE. ON THE ISSUE OF DISAL LOWANCE OF ROYALTY, THE ASSESSEE COMPANY HAS CLAIMED AN EXPENDI TURE OF RS. 16,32,16,091/- IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF 3 ROYALTY PAID. OUT OF THIS, A SUM OF RS. 16,22,19,167/- HAS BEEN PAID TO M/S HARPARSHAD & COMPANY PVT. LTD. AND AS PER TH E DETAILS AND EXPLANATION FURNISHED BY THE ASSESSEE, THE ROYALTY I S STATED TO HAVE BEEN PAID FOR THE USE OF TRADE NAME ESCORTS OF WH ICH THE SAID HARPARSHAD AND COMPANY LTD. IS THE OWNER. THE ROYAL TY HAS BEEN COMPUTED AS PERCENTAGE OF THE TURNOVER OF THE ASSESSEE COMPANY. ACCORDINGLY, 25% OF THE ROYALTY EXPENDITURE INCURRED FOR PAYMENT OF RS. 16,22,19,167/- TO M/S HARPARSHAD AND COMPANY PVT. LTD. WAS HELD TO BE OF CAPITAL NATURE AND DISALLOWED AND ADDI TION OF RS. 4,05,54,792/- WAS MADE IN THE HANDS OF THE ASSESSEE BY ASSESSING THE TOTAL INCOME OF THE ASSESSEE AT RS. 5,30,03,375/- UNDER NORMAL PROVISIONS AND RS. 75,60,19,447/- U/S. 115JB OF THE ACT VIDE ORDER DATED 20.3.2015 PASSED U/S. 143(3) OF THE ACT. AGAINS T THE AFORESAID ASSESSMENT ORDER, ASSESSEE APPEALED BEFORE THE LD. CIT(A)-3, DELHI, WHO VIDE HIS IMPUGNED ORDER DATED 2 7.07.2016 HAS ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TR IBUNAL. 4. LD. DR RELIED UPON THE ORDER OF THE AO AND REITE RATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL. 5. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE H AS RELIED UPON THE ORDER OF THE LD. CIT(A) AND STATED THAT LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE BY FOLLOWING THE ITAT, B-BENCH, NEW DELHI DECISION DATED 25.2.2010 IN THE CASE OF THE ASSESSEE FOR THE ASSES SMENT YEAR 2004-05. FOR READY REFERENCE, HE PLACED THE COPY BEFORE US O F THE AFORESAID DECISION OF THE ITAT. HENCE, HE REQUESTED THAT BY FOLLOWING THE ITAT ORDER, THE APPEAL OF THE REVENUE MAY BE DISMISSED. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS ESPECIALLY THE TRIBUNALS ORDER DATED 25.2.2010 PASSED IN THE CASE OF THE ASSESEE FOR THE AY 2004-05 IN ITA NO. 2221/DEL/2009. AFTER PERUSING THE 4 AFORESAID DECISION OF THE ITAT, DELHI IN THE CASE O F THE ASSESSEE, WE FIND THAT ITAT HAS DEALT THE SIMILAR AND IDENTICAL ISSUE AND TREATED THE ROYALTY EXPENDITURE AS REVENUE EXPENDITURE BY RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF JK SYNTHETICS LTD. REPORTED IN 309 ITR 371. WE FURTHER FIND THAT LD. C IT(A)-XX, CIT(A)-II AND LD. CIT(A)-44 HAVE DECIDED THE ISSUE FOR THE AS SESSMENT YEARS 2005- 06, 2006-07 AND 2007-08 BY FOLLOWING THE AFORESAID JUDGMENT. THEREFORE, IN OUR CONSIDERED OPINION, THE PRESENT LD. CIT(A) HAS RIGHTLY FOLLOWED THE AFORESAID PRECEDENTS AND DELETED THE A DDITION OF RS. 4,05,54,792/- MADE BY THE AO ON ACCOUNT OF THE ROYALTY EXPENDITURE, W HICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, HEN CE, WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE A ND REJECT THE GROUND RAISED BY THE REVENUE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 05/01/2018. SD/- SD/- [T.S. KAPOOR] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 05/01/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. ASSESSEE - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHE S