DCIT, New Delhi V. M/s. Hero MotoCorp Ltd., New Delhi

ITA 5529/DEL/2014

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6642 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-06-2017
• Assessment Year: 2004-2005
• Appeal Filed On: 10-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Keywords: Business income; Transfer pricing; International transaction; Earning of tax free income; Revenue expenditure; Rule 8D; Set aside
• Section: 143(3); 14A; 37(1); 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-1NEW DLEHI BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER I.T.A.NO.5529/DEL/2014 ASSESSMENT YEAR: 2004-05 DCIT, CIRCLE-12(1), VS HERO MOTOCORP. LTD., NEW DELHI. 34, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, NEW DELHI. PAN: AAACH0812J I.T.A.NO.5202/DEL/2014 ASSESSMENT YEAR: 2004-05 HERO MOTOCORP. LTD., VS DCIT, CIRCLE-12(1), 34, COMMUNITY CENTRE, NEW DELHI. BASANT LOK, VASANT VIHAR, NEW DELHI. PAN: AAACH0812J (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI GAURAV JAIN , ADVOCATE MS DEEPIKA AGGARWAL, ADVOCATE DEPARTMENT BY: SHRI SANJAY I. BARA, CIT- DR DATE OF HEARING:22/7/2019 DATE OF ORDER :31/7/2019 ORDER PER K. NARASIMHA CHARY, J.M. AGGRIEVED BY THE ORDER DATED 23.7.2014 IN APPEAL NO.96/2013-14 OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XX, NEW DELHI {FOR SHORT 2 LD. CIT(A)}, BOTH THE ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US. FOR THE SAKE OF CONVENIENCE, WE DISPOSE OF THESE APPEALS BY A CONSOLIDATED ORDER AS UNDER: 2. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF MOTORCYCLES. FOR THE ASSESSMENT YEAR 2004-05, THEY HAVE FILED THEIR RETURN OF INCOME ON 22.6.2005 DECLARING AN INCOME OF RS.980,08,49,030/-. ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) WAS COMPLETE BY ORDER DATED 28.12.2006 AT RS.10,19,27,82,174/-AFTER MAKING SEVERAL ADDITIONS INCLUDING ADDITION UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES OF RS.6,64,63,360/-, ADDITION OF INTEREST WHILE COMPUTING THE INCOME UNDER SECTION 80 HHC OF RS.2,30,12,554/-, ADDITION BY DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80 IA OF THE ACT OF RS.1,59,37,450/- TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTION OF IMPORT OF COMPONENTS TO THE TUNE OF RS.7,05,334/-, DISALLOWANCE OF EXPENDITURE INCURRED ON ACCOUNT OF ROYALTY ON THE GROUND OF BEING CAPITAL IN NATURE TO THE TUNE OF RS.22,50,93,565/-, DISALLOWANCE OF EXPENDITURE INCURRED ON ACCOUNT OF MODEL FEE ON THE GROUND OF BEING CAPITAL IN NATURE OF RS.5,79,70,090/-AND DISALLOWANCE OF PROVISION FOR WARRANTY MADE IN RESPECT OF SALES MADE DURING THE YEAR TO THE TUNE OF RS.1,79,00,000/-. 3. IN APPEAL, LD. CIT(A) UPHELD THE ADDITION ON ACCOUNT OF 14A OF THE ACT READ WITH RULE 8D OF THE RULES, TREATMENT OF INTEREST FOR THE 3 PURPOSE OF DEDUCTION UNDER SECTION 80 HHC OF THE ACT, DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 80 IA OF THE ACT AND WAS ADJUSTMENT. LD. CIT(A), HOWEVER, DELETED THE DISALLOWANCE OF EXPENDITURE INCURRED ON ACCOUNT OF ROYALTY, MODEL AND THE PROVISION FOR WARRANTY MADE IN RESPECT OF SALES. AGGRIEVED BY THE ADDITIONS SUSTAINED, ASSESSEE FILED ITA 5202/DEL/2014 WHEREAS CHALLENGING THE DELETIONS; REVENUE FILED ITA 5529/DEL/2014. ITA NO.5202/DEL/2014 : 4. FIRSTLY, COMING TO THE APPEAL OF THE ASSESSEE, IT COULD BE SEEN THAT THERE ARE FOUR ISSUES INVOLVED IN IT. THE FIRST ISSUE IS IN RESPECT OF THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT. 5. DURING THE FINANCIAL YEAR 2003-04, THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.26,58,53,441/- AND THE LD. AO MADE AN AD HOC DISALLOWANCE OF RS.6.65 CRORES, BEING 25% OF THE DIVIDEND INCOME. ACCORDING TO THE ASSESSEE, LEARNED AO IS BOUND TO RECORD SATISFACTION QUA INCURRING OF EXPENSES FOR EARNING EXEMPT INCOME BEFORE MAKING DISALLOWANCE U/S 14A OF THE ACT EVEN IN CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENSES HAS BEEN INCURRED. HE PLACED RELIANCE ON VARIOUS DECISIONS INCLUDING THE DECISION OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT, 394 ITR 449(SC); H.T. MEDIA LTD. VS PCIT, 399 ITR 576 (DEL); AND EICHER MOTORS LTD. VS CIT, 398 ITR 51 (DEL) FOR SUCH PROPOSITION. 6. ACCORDING TO THE LEARNED DR, THE REASONS RECORDED BY THE LEARNED AO ARE SUFFICIENT TO COMPLY WITH THE REQUIREMENT OF SECTION 14A AND IN 4 VIEW OF THE DECISION OF DELHI HIGH COURT IN THE CASE OF INDIA BULLS FINANCIAL SERVICES LTD. VS DCIT (2017) 395 ITR 242 (DEL),NO PARTICULAR FORMAT IS REQUIRED FOR SUCH DISSATISFACTION. 7. WE HAVE GONE THROUGH THE RECORD. AT PARA 4.5, LEARNED AO RECORDED THAT THE ASSESSEE HAD SIMPLY STATED THAT NO EXPENDITURE WAS INCURRED ON EARNING THE EXEMPT INCOME AND THE SAME CANNOT BE ACCEPTED BECAUSE FOR EARNING THE EXEMPT INCOME, THERE ARE VARIOUS ADMINISTRATIVE EXPENSES INVOLVED LIKE TAKING THE DECISION OF INVESTMENT, EXPENSES RELATED TO PURCHASE/SALE OF INVESTMENT LIKE THE DEMAT FEE, COLLECTION EXPENSES, TELEPHONE EXPENSES ETC. AND OTHER ADMINISTRATIVE EXPENSES. MOREOVER, KEEPING THE INVESTMENT ALSO INVOLVES THE INTEREST COST OF MAINTAINING THE INVESTMENT PORTFOLIO. LEARNED AO FURTHER RECORDED THAT THERE IS NO SEGREGATION OF EXPENSES RELATED TO INVESTMENT/EARNING OF DIVIDEND INCOME, THE EXPENDITURE RELATING TO EARNING THE EXEMPT INCOME WAS TO BE ESTIMATED AT 25% OF THE EXEMPT INCOME. 8. HAD THE ASSESSEE FURNISHED ANY DISALLOWANCE DETAILS HEAD WISE, IT WOULD HAVE BEEN POSSIBLE FOR THE LD. AO TO TAKE A VIEW ITEM WISE AND IN THE ABSENCE OF ANY SUCH DETAIL, THE REASONS RECORDED BY THE LEARNED AO REFERRED TO ABOVE CONSTITUTE PROPER COMPLIANCE WITH THE REQUIREMENT OF SECTION 14A OF THE ACT. IN UNEQUIVOCAL TERMS, LD. AO HELD THAT EARNING EXEMPT INCOME INVOLVES SO MANY ADMINISTRATIVE EXPENSES UNDER SEVERAL HEADS AND IT IS NOT POSSIBLE TO BELIEVE THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE WHATSOEVER. IN VIEW OF THIS FACTUAL 5 POSITION, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO VIOLATION OF THE REQUIREMENT OF RECORDING OF REASONS BY LD. AO. 9. IT IS SUBMITTED BY THE LD. AR THAT FOR THE EARLIER ASSESSMENT YEAR 2002-03, UNDER SIMILAR SET OF CIRCUMSTANCES, LD. AO DISALLOWED 25% OF THE DIVIDEND INCOME U/S 14A OF THE ACT AND IT WAS DIRECTED TO BE RE- ASSESSED BY LD. CIT(A) BY APPLYING RULE 8D OF THE RULES BUT THE TRIBUNAL REMANDED THE MATTER TO THE FILE OF LD. AO FOR RECONSIDERATION TAKING INTO ACCOUNT THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD., 347 ITR 272 (DEL). WE FIND SUCH AN ORDER AT PAGE NOS. 11 TO 59 OF THE PAPER BOOK ON THIS ISSUE AND AT PAGE NO.7 OF SUCH ORDER, THE TRIBUNAL REACHED A CONCLUSION THAT THE MATTER NEEDS TO BE SET ASIDE TO THE FILE OF THE AO FOR RECONSIDERATION KEEPING IN MIND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP. INVESTMENT LTD. (SUPRA). WHILE RESPECTFULLY FOLLOWING THE SAME, WE REMAND THE ISSUE TO THE FILE OF THE LD. AO TO COMPLY WITH THE SAID DIRECTIONS. 10. SECOND ISSUE INVOLVES THE INTEREST INCOME OF RS.2,30,12,554/- ADDED BY THE LEARNED ASSESSING OFFICER, IT COMPRISES OF THE INTEREST FROM THREE SOURCES, NAMELY, INTEREST ON ICD, FD ETC TO THE TUNE OF RS.68,36,692/-, INTEREST ON BILL DISCOUNTING ETC TO THE TUNE OF RS.57,86,817/-AND INTEREST ON EMPLOYEES LOANS AND ADVANCES TO THE TUNE OF RS.1,03,89,045/-. WE SHALL DEAL WITH THESE HEADS AND THEIR ADMISSIBILITY SEPARATELY. 6 11. IN RESPECT OF INTEREST ON ICD, FD ETC., LD. AR SUBMITTED THAT THE DEPLOYMENT OF TEMPORARY SURPLUS BUSINESS FUNDS IN THE FORM OF ICDS AND COMMERCIAL PAPERS WAS INEXTRICABLY LINKED WITH THE MAIN BUSINESS AS IT AROSE OUT OF THE SAID BUSINESS. ACCORDING TO HIM DEPOSITS WERE PLACED WITH THE BANK FOR OBTAINING THE BANK GUARANTEE AND ALSO LC MARGIN MONEY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND THE SURPLUS BUSINESS FUNDS WERE ALSO KEPT IN THE FORM OF DEPOSITS AS A MATTER OF COMMERCIAL PRUDENCE TO EARN INTEREST TO OFFSET THE BORROWING COST. HE FURTHER SUBMITTED THAT THE INTENTION OF THE ASSESSEE WAS NOT TO MERELY EARN INTEREST BUT THE DEPOSITS WERE MADE IN THE NORMAL COURSE OF BUSINESS HAVING DIRECT AND PROXIMATE NEXUS WITH THE RUNNING OF THE BUSINESS. 12. THOUGH IT IS UNDERSTANDABLE THAT THE DEPOSITS FOR THE PURPOSE OF OBTAINING THE BANK GUARANTEE ETC HAVE NEXUS WITH THE CONDUCT OF BUSINESS BY THE ASSESSEE AND ARE ALLOWABLE, SUBJECT TO THE VERIFICATION OF SUCH BUSINESS NEXUS, AS EXPENDITURE. HOWEVER, WE DO NOT FIND ANY SUCH PROBABILITY OR CONVINCING REASONS GIVEN BY THE ASSESSEE IN RESPECT OF THE ICDS. WE ARE, THEREFORE, OF THE CONSIDERED OPINION THAT THE TREATMENT OF INTEREST DERIVED FROM ICDS CANNOT BE TAKEN AS BUSINESS INCOME AND THE LEARNED ASSESSING OFFICER RIGHTLY TREATED IT AS INCOME FROM OTHER SOURCES. HOWEVER, IN RESPECT OF THE INTEREST ON FD STANDS ON A DIFFERENT FOOTING AND IF THE ASSESSEE IS ABLE TO ESTABLISH THE NEXUS BETWEEN THE FD AND THE BUSINESS, THE INTEREST DERIVED FROM THE TRANSACTION HAS TO BE TREATED AS BUSINESS INCOME FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 HHC OF THE ACT. WE, THEREFORE, SET ASIDE THE 7 FINDINGS OF THE LD. CIT(A) ON THIS ISSUE AND REMAND THE SAME TO THE FILE OF LEARNED ASSESSING OFFICER FOR VERIFICATION OF THE NEXUS BETWEEN THE FD AND THE BUSINESS AND IF SUCH NEXUS IS ESTABLISHED, TO CONSIDER THE SAME AS BUSINESS INCOME FOR THE PURPOSE OF SECTION 80 HHC OF THE ACT. GROUNDS ARE ANSWERED ACCORDINGLY. 13. IN RESPECT OF THE INTEREST ON BILLS DISCOUNTING, IT IS SUBMITTED THAT SUCH A TRANSACTION IS INEXTRICABLY LINKED TO THE BUSINESS OF THE ASSESSEE AND CONSTITUTE BUSINESS INCOME. IT IS EXPLAINED THAT THE ASSESSEE IS GIVEN A CREDIT PERIOD OF 30 TO 45 DAYS BY THE SUPPLIERS, BUT IF THE SUPPLIER WANTS IMMEDIATE PAYMENT OR A SHORTER CREDIT PERIOD, THE ASSESSEE DEDUCTS A CERTAIN AMOUNT BASED ON THE INVOICE VALUE WHICH IS TERMED AS DISCOUNT; THAT SIMILARLY FOR MEETING THE INCREASING DEMAND OF SUPPLIES FROM VENDORS/SUPPLIERS THE ASSESSEE MAKES PAYMENTS AGAINST ORDERS IN ADVANCE FOR WHICH THEY CHARGE INTEREST. LD. AR, THEREFORE, SUBMITS THAT THIS WAY OF TRANSACTIONS CLEARLY ARISES FROM THE NORMAL BUSINESS TRANSACTIONS OF THE ASSESSEE AND THE RESULTANT INTEREST CONSTITUTES BUSINESS INCOME. 14. RELIANCE IS PLACED ON THE DECISION OF HONBLE ORISSA HIGH COURT IN THE CASE OF TATA SPONGE IRON LTD VS CIT, 292 ITR 175 FOR THE PRINCIPLE THAT INTEREST EARNED BY THE ASSESSEE FROM ITS CUSTOMERS FOR DELAYED PAYMENT AND FOR BILLS DISCOUNTING, SUCH INTEREST INCOME HAS BEEN A DIRECT AND IMMEDIATE NEXUS WITH THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE AND, THEREFORE, INTEREST EARNED FROM CUSTOMERS, FOR DELAYED PAYMENT AND BILL DISCOUNTING, ARE HELD TO BE INCOME DERIVED FROM THE 8 ASSESSEES INDUSTRIAL UNDERTAKING AND THEREFORE, ENTITLED FOR RELIEF UNDER SECTION 80 HH. 15. FACTS GO UNDISPUTED AND WHILE CONSIDERING THE SAME IN THE CONTEXT OF THE BUSINESS OF THE ASSESSEE AND ALSO THE SETTLED POSITION OF LAW IN THE CASE OF TATA SPONGE IRON (SUPRA), WE ARE OF THE CONSIDERED OPINION THAT THE INTEREST INCOME DERIVED BY THE ASSESSEE IN RESPECT OF THE BILL DISCOUNTING ETC BEARS DIRECT AND IMMEDIATE CONNECTIONS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE AND WOULD QUALIFY TO BE COVERED UNDER SECTION 80 HHC OF THE ACT, BUT NOT THE INCOME FROM OTHER SOURCES. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO TAKE THIS RECEIPT AS BUSINESS INCOME BUT NOT AS THE INCOME FROM OTHER SOURCES. 16. IN RESPECT OF THE INTEREST ON LOANS PROVIDED TO EMPLOYEES, WHILE PLACING RELIANCE ON THE DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011-12, LD. AR SUBMITTED THAT THIS IS ALSO INEXTRICABLY LINKED TO THE BUSINESS OF THE ASSESSEE AND CONSTITUTE BUSINESS INCOME. 17. WE HAVE GONE THROUGH THE ORDER IN ITA NO. 1545/DEL/2015 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 AND FIND THAT A COORDINATE BENCH OF THIS TRIBUNAL ANALYSED THE FACTS IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT, 317 ITR 218 TO REACH A CONCLUSION THAT SINCE THE ASSESSEE HAD GIVEN THE SURPLUS FUNDS TO EMPLOYEES AS A MEASURE OF INCENTIVE/PERQUISITE, SUCH AN ACTIVITY COMPRISES OF THE BUSINESS ACTIVITY; THAT THE SOURCE OF SUCH INCOME IS NOT ACTIVITY OF GIVING LOAN, BUT THE BENEFIT EXTENDED TO 9 EMPLOYEES ENGAGED IN THE BUSINESS. THE TRIBUNAL OBSERVED THAT THE FIRST DEGREE NEXUS OF SUCH INCOME IS THE ELIGIBLE BUSINESS CARRIED ON BY THE ASSESSEE. 18. SINCE FACTS ARE SIMILAR, AND IN THE ABSENCE OF ANY EXPLANATION AS TO WHY AND HOW THE DECISION UNDER SIMILAR CIRCUMSTANCES IN ASSESSEES OWN CASE HAS NO APPLICATION TO THE FACTS OF THIS YEAR, WE FIND IT DIFFICULT TO TAKE A DIFFERENT VIEW AND WHILE RESPECTFULLY FOLLOWING THE REASONING GIVEN BY THE TRIBUNAL IN ITA NO.1547/DEL/2015, WE CONCLUDE THAT THE INTEREST DERIVED BY THE ASSESSEE ON THE LOANS PROVIDED TO EMPLOYEES IS INEXTRICABLY LINKED TO THE BUSINESS OF THE ASSESSEE AND CONSTITUTE BUSINESS INCOME FOR CONSIDERATION UNDER SECTION 80 HHC OF THE ACT. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO CONSIDER THE SAME ACCORDINGLY. 19. THIRD HEAD OF ADDITION WHICH WAS CONFIRMED BY THE LD. CIT(A) AND CHALLENGED BY THE ASSESSEE IS IN RESPECT OF DEDUCTION OF RS.1,59,37,415/- CLAIMED U/S 80IA OF THE ACT IN RESPECT OF CAPTIVE POWER GENERATING UNIT OF THE ASSESSEE SITUATED AT GURGAON. ON THIS ASPECT, THE SUBMISSION OF THE ASSESSEE IS THAT IN THE AREA OF ASSESSEES UNDERTAKING THE HARYANA STATE ELECTRICITY BOARD(HSEB) WAS UNABLE TO MEET THE DEMAND OF INDUSTRIAL CONSUMPTION FOR SUPPLY OF ELECTRICITY NECESSARY FOR RUNNING THE INDUSTRIAL UNITS AND, THEREFORE, THE ASSESSEE HAD TO SET UP A POWER PLANT NEAR THE MANUFACTURING FACILITY TO MEET THE CAPTIVE CONSUMPTION OF REQUIREMENT OF POWERS AND ON THAT SCORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80IA OF THE ACT. 10 20. IT IS SUBMITTED THAT FOR THE PURPOSE OR COMPUTATION OF DEDUCTION U/S 80IA BY ADOPTING THE TRANSFER PRICE OF POWER, CAPTIVELY CONSUMED, WITH MARK UP OF 15% ON THE COST OF GENERATION AT RS.5.79 CERTIFIED IN THE COST AUDIT REPORT, THE ASSESSEE ADOPTED THE PRICE AT RS.6.66. 21. LEARNED AO BASED ON THE ASSESSMENT ORDERS FOR THE ASSTT. YEARS 2002-03 AND 2003-04 HELD THAT THE INDUSTRIAL UNIT TRANSFER OF POWER FROM THE POWER PLANT SHOULD HAVE BEEN AT THE PRICE AT WHICH HSEB IS SUPPLYING I.E. RS.3.99 PER UNIT AND ON THAT SCORE DID NOT ALLOW ANY DEDUCTION U/S 80IA OF THE ACT. 22. FOR THE ASSTT. YEAR 2006-07, THE TRIBUNAL ON A MISTAKEN IMPRESSION RELATING TO THE SUPPLY OF POWER BY MARUTI UDYOG LTD., DECIDED THE ISSUE AGAINST THE ASSESSEE BUT RECTIFIED THE SAME BY ORDER DATED 6.9.2013 SUBSTITUTING THE WORDS ASSOCIATE ENTERPRISES TO ANCILLARY UNITS. IT IS SUBMITTED THAT FOLLOWING THE SAID DECISION, THE TRIBUNAL DECIDED THE ISSUE AGAINST THE ASSESSEE FOR THE ASSESSMENT YEARS 2002-03, 2007-08 AND 2008-09 IN RESPECT OF WHICH THE APPEAL BEFORE THE HONBLE DELHI HIGH COURT WAS ADMITTED AND THE MATTERS ARE PENDING. 23. LEARNED AR, HOWEVER, FURTHER SUBMITTED FOR THE ASSTT. YEARS 2010-11 AND 2011-12 AFTER TAKING INTO CONSIDERATION ALL THE MATERIAL FACTS AND EVIDENCES THAT ASSESSEE PLACED ON RECORD, A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE HELD THAT FOR THE PURPOSE OF DETERMINATION OF MARKET PRICE OF POWER U/S 80IA(4) READ WITH 80IA(8) OF THE ACT, WHERE MULTIPLE OPTIONS OF POWER OR PRODUCT ARE AVAILABLE THEN 11 THE PRICE, WHICH IS MOST FAVOURABLE TO THE ASSESSEE NEEDS TO BE ADOPTED AND ON THAT PREMISE ANSWERED THE ISSUE IN FAVOUR OF THE ASSESSEE. LEARNED AR FURTHER SUBMITTED THAT IN THAT PROCESS, THE TRIBUNAL DISTINGUISHED THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL FOR EARLIER YEARS AND HELD THAT THE PRICE OF POWER BORROWED BY THE STATE ELECTRICITY BOARD IS NOT REFLECTIVE OF MARKET PRICE FOR COMPUTING DEDUCTION U/S 80IA(4) OF THE ACT. HE FURTHER SUBMITTED THAT FOLLOWING THE ORDER FOR THE ASSTT. YEARS 2010-11 AND 2011-12, THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE ASSTT. YEAR 2009-10 ALSO BY ORDER DATED 23.4.2019. 24. WE HAVE GONE THROUGH THE RECORD. THOUGH BY ORDER DATED 23.11.2012, THE TRIBUNAL DECIDED THE ISSUE AGAINST THE ASSESSEE, SUBSEQUENTLY IT WAS RECTIFIED BY ORDER DATED 6.9.2013. IN THE ORDER FOR ASSTT. YEARS 2010-11 AND 2011-12, THE TRIBUNAL NOTICED THE SAID MISTAKE AND RECTIFICATION DONE. WHILE REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VEGETABLE PRODUCTS, 88 ITR 192, AND THE TRIBUNAL HELD AS FOLLOWS: IN THE PRESENT CASE ALSO THERE ARE THREE RATES, (I) RATES AT WHICH POWER IS PURCHASED FROM STATE ELECTRICITY BOARD, (II) THE COST OF PRODUCTION OF THE POWER BY THE LEGIBLE UNIT OF THE ASSESSEE AND MARK UP THEREON (III) THE RATES AT WHICH POWER IS SUPPLIED BY INDEPENDENT PARTY TO ITS ANCILLARY UNIT. THEREFORE, THERE ARE MULTIPLE BASKED OF THE MARKET RATES. AS HELD IN ABOVE DECISION THAT THE MULTIPLE OPTIONS FOR THE PRICE OF A PRODUCT ARE AVAILABLE, THEN THE OPTION WHICH IS MOST FAVOURABLE TO ASSESSEE NEEDS TO BE ADOPTED FOR THE PURPOSES OF DETERMINING INTER-UNIT TRANSFER PRICE U/S 80IA(8) OF THE ACT. FURTHER, IT IS NOT THE CASE OF THE REVENUE THAT THE POWER COST INCURRED BY THE ASSESSEE IS 12 INFLATED OR INCORRECT. IN THAT VIEW OF THE MATTER, IN THE PRESENT CASE, CONSIDERING THAT THREE DIFFERENT PRICES FOR SUPPLY OF POWER ARE AVAILABLE IN THE MARKET, THE METHOD ADOPTED BY THE APPELLANT TO COMPUTE INTER-UNIT TRANSFER PRICE BY IMPUTING A REASONABLE MARK-UP ON ITS COST OF PRODUCTION I.E. RS.8.75, WHICH WAS LESS THAN THE RATE OF RS.9.84 CHARGED BY MARUTI, WAS QUITE A REASONABLE FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 80IA(4) OF THE ACT. THEREFORE, WE REVERSE THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF DEDUCTION OF RS.807.76 LACS U/S 80IA, IN RELATION TO THE GENERATION OF POWER. 25. IN VIEW OF THE LATEST ORDER OF THE TRIBUNAL WHEREIN THIS ISSUE HAS BEEN DEALT WITH IN DETAIL AND WHILE RESPECTFULLY FOLLOWING THE SAME, WE HOLD THIS ISSUE IN FAVOUR OF THE ASSESSEE AND ANSWER THAT THE DISALLOWANCE MADE BY THE LD. AO U/S 80IA OF THE ACT IN RELATION TO THE GENERATION OF POWER CANNOT BE SUSTAINED. WE ACCORDINGLY ALLOW THIS GROUND. 26. LASTLY, THE ASSESSEE CHALLENGED THE TRANSFER PRICE ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TRANSACTION OF IMPORT OF COMPONENTS VIDE GROUND NOS.4 TO 4.4. FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTION OF IMPORT OF COMPONENTS AGGREGATING TO RS.182.57 CRORES FROM HONDA TRADING, JAPAN AND HONDA TRADING, THAILAND AND BENCHMARKED THE SAID TRANSACTION BY ADOPTING THE TNMM METHOD. LD. TPO, HOWEVER, PROPOSED TP ADJUSTMENTS AT RS.7,05,334/- APPLYING CUP METHOD BY COMPARING THE PRICES OF IMPORT OF SUCH COMPONENTS FROM THE ASSOCIATED ENTERPRISES WITH THOSE OF THE COMPONENTS SOLD IN DOMESTIC MARKET AFTER THEIR INDIGENIZATION. 13 27. IT IS THE SUBMISSION ON BEHALF OF THE ASSESSEE THAT DURING THE RELEVANT PREVIOUS YEAR, HE IMPORTED ONLY THOSE COMPONENTS/SPARE PARTS FROM THE ASSOCIATED ENTERPRISES WHERE SUCH PRODUCTS WERE NOT AVAILABLE IN THE DOMESTIC MARKET OR COULD NOT BE SUPPLIED BY THE DOMESTIC VENDORS IN DESIRED QUANTITY AND QUALITY. IT IS FURTHER SUBMITTED THAT THE PRICE PAID TO THE LOCAL VENDORS COULD NOT BE REGARDED AS BENCHMARK TO DETERMINE THE ARMS LENGTH PRICE FOR PRODUCTS IMPORTED FROM THE ASSOCIATED ENTERPRISES UNDER THESE CIRCUMSTANCES. IT IS SUBMITTED THAT THE DOMESTIC VENDORS HAD LIMITED CAPACITY TO SUPPLY PRODUCTS/COMPO- NENTS WHICH FELL SHORT OF THE ASSESSEES REQUIREMENTS, WHEREAS THE ASSOCIATED ENTERPRISE WAS IN A POSITION TO CATER TO THE ASSESSEES COMPLETE REQUIREMENTS OF SUCH PRODUCTS/COMPONENTS. LD. AR FURTHER SUBMITTED THAT THE PRICE PAID TO THE LOCAL VENDORS FOR PART SUPPLY (FOR WANT OF DOMESTIC VENDOR(S) NOT BEING ABLE TO SUPPLY THE COMPLETE QUANTITY) COULD NOT BE COMPARED WITH THE PRICE PAID TO THE ASSOCIATED ENTERPRISES FOR THE BALANCE QUANTITY SECURED. 28. HE FURTHER SUBMITTED THAT FOR THE AYS 2002-03 AND 2003-04 ALSO, THE MATTER WAS SET ASIDE TO THE FILE OF THE LD.TPO/AO WITH SIMILAR DIRECTIONS AND THE LD. TPO WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL FOR AY 2006-07 DELETED THE TRANSFER PRICING ADJUSTMENT OBSERVING THAT THE ASSESSEE MADE PURCHASE OF ONLY RS.81 CRORE FROM ITS AES OUT OF THE TOTAL PURCHASE OF RS.5911 CRORES AND THE PROCESS OF INDIGENISATION WAS STEADILY PROGRESSING AND THE ASSESSEE HAD SUBSEQUENTLY STOPPED PURCHASING THESE COMPONENTS WHEN SUCH PARTS 14 ARE AVAILABLE INDIGENOUSLY AS PER THE DESIRED QUALITY IN SUFFICIENT QUANTITY. 29. ON A CAREFUL CONSIDERATION OF THE MATTER, WE FIND THAT OUT OF THE TOTAL PURCHASES OF RS.20,46,58,682/- FROM THE DOMESTIC MARKET, THE ASSESSEE IMPORTED FROM ASSOCIATED ENTERPRISES THE COMPONENTS WORTH RS.22,83,666/- WHICH DOES NOT CONSTITUTE ANY SIGNIFICANT PORTION THEREOF. WE, THEREFORE, HAVING REGARD TO THE DIRECTIONS GIVEN BY THE TRIBUNAL FOR EARLIER YEARS AND THE APPROACH ADOPTED BY THE LD. AO WHILE DELETING THE ADDITION ON THIS SCORE, HOLD THAT THE TRANSFER PRICING ADJUSTMENT TO THE TUNE OF RS.7,05,334/- MADE BY THE TPO CANNOT BE SUSTAINED AND ACCORDINGLY WHILE ALLOWING THE GROUND DELETE THE SAME. ITA NO.5529/DEL/2014 30. REVENUE CHALLENGED THE DELETION BY THE LD. CIT(A) OF THE EXPENDITURE INCURRED ON ACCOUNT OF ROYALTY, MODEL FEE AND PROVISION FOR WARRANTY IN RESPECT OF THE SALES. 31. THE ASSESSEE HAS BEEN MANUFACTURING TWO WHEELERS IN INDIA SINCE 1985 ON THE BASIS OF TECHNOLOGY PROVIDED BY M/S HONDA MOTORS CO. LTD., JAPAN (HM) AND PURSUANT TO THE AGREEMENT DATED 2.06.2004 PAID ROYALTY OF RS.89,64,39,331/-, TECHNICAL GUIDANCE FEE OF RS.39,34,922/- AND MODEL FEE OF RS.22,08,78,278/- TO HONDA. OUT OF THIS THE AO DISALLOWED THE ROYALTY PAID TO THE EXTENT OF RS.22,50,93,565/- CONSTITUTING 25% OF THE TOTAL, TREATING THE SAME AS CAPITAL IN NATURE. LEARNED CIT(A) DELETED THE SAME FOLLOWING THE APPELLATE ORDERS FOR THE 15 EARLIER ASSESSMENT YEARS. LEARNED AR BROUGHT TO OUR NOTICE THAT A COORDINATE BENCH OF THIS TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE AYS 2000-01, TO 2003-04, 2006-07 TO 2008-09, 2010-11 AND 2011-12 BY HOLDING THAT THE ANNUAL PAYMENT OF ROYALTY/TECHNICAL GUIDANCE FEE WAS ALLOWABLE AS REVENUE EXPENDITURE. SIMILAR APPROACH WAS ADOPTED BY THE REVENUE FOR THE AYS 2010-11, 2011-12, 2012-13 AND 2013-14 ALSO. LEARNED AR SUBMITTED THAT THE ORDER OF THE TRIBUNAL RELATING TO THE AY 2002-03 IS CONFIRMED BY THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE REPORTED AS CIT VS HERO HONDA, 372 ITR 481. EVEN SUBSEQUENTLY BY ORDER DATED 23.4.2019, THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE AY 2009-10. 32. IN VIEW OF THE FACT THAT THE ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF THE ASSESSEE FOR MORE THAN 13 YEARS AND ALSO UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT, THE SAME APPROACH HAS TO BE ADOPTED IN THIS CASE ALSO AND, THEREFORE, WHILE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL AND APPROVED BY THE HONBLE HIGH COURT, WE UPHOLD THE FINDING OF THE LEARNED CIT(A). 33. LEARNED AO DISALLOWED MODEL FEE TO THE EXTENT OF RS.5,79,70,090/- AT 25% OF RS.23,18,80,363/- PAID DURING THE YEAR ON THE GROUND OF IT BEING CAPITAL IN NATURE. FOLLOWING THE APPELLATE ORDERS FOR THE EARLIER YEARS, LD. CIT(A) DELETED THE SAME. 32. IN ASSESSEES OWN CASE FOR THE AY 1996-97, THE TRIBUNAL TOOK THE VIEW THAT THE MODEL FEE PAID BY THE ASSESSEE TO HONDA IS ALLOWABLE U/S 37(1) OF THE ACT AS REVENUE EXPENDITURE ON THE GROUND THAT THE 16 PAYMENT WAS ONLY FOR RIGHT TO USE THE TECHNOLOGY KNOW-HOW AND THERE WAS NO OWNERSHIP OF THE INTELLECTUAL PROPERTY WHICH REMAINS TO BE WITH THE HONDA. THIS VIEW OF THE TRIBUNAL WAS CHALLENGED BY THE REVENUE BUT THE HONBLE DELHI HIGH COURT DECLINE TO ENTERTAIN THE APPEAL AND SLP AGAINST THE SAME WAS ALSO DISMISSED. 33. IT IS BROUGHT TO OUR NOTICE THAT SUBSEQUENTLY THE SAME VIEW IS UPHELD BY THE TRIBUNAL AND THE HONBLE HIGH COURT AFFIRMED THE SAME. HONBLE SUPREME COURT ALSO DECLINED TO INTERFERE WITH THE SAME. BY LATEST ORDER DATED 23.4.2019 FOR THE ASSTT. YEAR 2009-10, THE TRIBUNAL REAFFIRMED THE SAID VIEW. 34. IT IS, THEREFORE, CLEAR THAT FOR QUITE A LONG TIME THERE IS CONSIST- ENCY IN THE VIEW TAKEN BY THE TRIBUNAL AS UPHELD BY THE HONBLE JURISDICTIONAL HIGH COURT AND HONBLE APEX COURT. THEREFORE, THE ISSUE IS NO LONGER RES INTEGRA AND IS IN FAVOUR OF THE ASSESSEE. WE UPHOLD THE FINDINGS OF THE LD. CIT(A). 35. LASTLY, TURNING TO THE DISALLOWANCE ON ACCOUNT OF PROVISION FOR WARRANTY MADE IN RESPECT OF SALES DURING THE YEAR, THE ASSESSEE CLAIMED THE DEDUCTION AT RS.1.79 CRORES ON ACCOUNT OF PROVISION FOR WARRANTY ON MOTORCYCLES SOLD BY THE ASSESSEE DURING THE YEAR AND SUCH DEDUCTION HAS BEEN CLAIMED ON MERCANTILE BASIS, ON THE BASIS WEIGHTED AVERAGE COST OF THE ACTUAL CLAIMS RECEIVED IN THE PAST YEARS. BASED ON THE ORDER FOR ASSTT. YEAR 2003-04, LD. AO MADE THE DISALLOWANCE AND THE LD. CIT(A) VIDE ORDER DATED 31.1.2011 DELETED THE SAME. LD. AR SUBMITTED THAT REVENUE ACCEPTED THE SAID STAND WITHOUT PREFERRING ANY APPEAL. 17 36. EVEN FOR THE ASSTT. YEAR 2002-03, WHILE FOLLOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA LTD. VS CIT, 314 ITR 62, THE TRIBUNAL DELETED THE ADDITION AND SUBSEQUENTLY, SIMILAR ADDITION WAS DISALLOWED IN RESPECT OF ASSTT. YEARS 1999-2000, 1996-97, 1997-98, 2006-07, 2007-08 TO 2009-10 BY SEVERAL ORDERS OF THE TRIBUNAL, WHICH ARE TO BE FOUND PLACE IN THE PAPER BOOK. ON A READING OF THESE ORDERS, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE IS FAIRLY SETTLED AND THERE IS NO NEED TO REOPEN THE SAME FOR TAKING FRESH VIEW. LEARNED CIT(A) DELETED THE ADDITION BY FOLLOWING THE APPELLATE ORDERS AND, THEREFORE, WE DO NOT FIND ANY PERVERSITY IN SUCH FINDING. WE UPHOLD THE ORDER OF LD. CIT(A). 37. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31 ST JULY, 2019. SD/- SD/- (PRAMOD KUMAR) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER DATED: 31 ST JULY, 2019 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 18 DRAFT DICTATED 30.07.2019 DRAFT PLACED BEFORE AUTHOR 31 .07.2019 APPROVED DRAFT COMES TO THE SR.PS/PS ORDER SIGNED AND PRONOUNCED ON FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER. DATE OF UPLOADING ON THE WEBSITE