DCIT, New Delhi V. M/s. Avantha Power & Infrastructure Ltd., New Delhi

ITA 5713/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3827 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 07-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MUKUL BAGLA
• Keywords: Rule of consistency; Royalty expenses; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH , JUDICIAL MEMBER ITA NO. 5713/DEL/2016 : ASSTT. YEAR : 2011-12 DCIT CIRCLE-14(1) NEW DELHI VS PRECISION PIPES & PROFILES CO. LTD. 54, OKHLA INDUSTRIAL AREA, OKHLA PHASE-II NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACP5144P ASSESSEE BY : SH. MUKUL BAGLA, CA REVENUE BY : SH. ATIQ AHMAD, SR . DR DATE OF HEARING : 21.09.2017 DATE OF PRONOUNCEMENT : 26 .10.2017 ORDER PER N. K. SAINI, AM: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORD ER DATED 28.07.2014 OF LD. CIT(A)-17, NEW DELHI. 2. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPE AL READS AS UNDER :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 52,08,153/- ON ACCOUNT OF 25% OF RS. 2,08,32,612/- PERTAINING TO ROYALTY EXPENSES TREATED AS CAPITAL I N NATURE MADE BY THE AO BY FOLLOWING THE ITATS DECISION IN ASSESSEES OWN CA SE IN EARLIER YEARS IGNORING THE FACT THAT THE DEPARTMENT HAS ALREADY FILED A REVIEW PETITION IN HONBLE HIGH COURT FOR A.Y. 2005-06 AN HENCE THE MATTER HAS NOT ATTAIN ED ITS FINALITY. ITA NO. 5713/DEL/2014 (PRECISION PIPES & PROFILES CO. LTD.) 2 3. DURING THE COURSE OF HEARING, THE LD. COUN SEL FOR THE ASSESSEE AT THE VERY OUTSET, SUBMITTED THAT THIS ISSUE IS SQUARELY COVER ED VIDE ORDER DATED 12.10.2012 IN ITA NO. 4257 AND 4258/DEL/2012 FOR THE ASSESSMENT Y EARS 2006-07 AND 2008-09 IN ASSESSEES OWN CASE WHEREIN THE EARLIER ORDER DATED 30.4.2010 IN ITA NO. 374/DEL/2009 FOR THE ASSESSMENT YEAR 2005-06 IN AS SESSEES OWN CASE DELIVERED BY THIS BENCH OF THE ITAT HAS BEEN FOLLOWED. IT WAS STATED THAT THE SAID ORDER DATED 12.10.2012 HAS BEEN FOLLOWED IN THE ASSESSMENT YEA R 2009-10 AND 2007-08 IN ITA NO. 5276 AND 5275/DEL/2013 ORDER DATED 10/10/2014 A ND IN ITA NO. 5331/DEL/2014 FOR THE ASSESSMENT YEAR 2010-11 VIDE ORDER DATED 4. 7.2017 COPIES OF THE SAID ORDERS WERE FURNISHED WHICH ARE PLACED ON RECORD. THE LD. DR ALTHOUGH SUPPORTED THE ORDER OF THE AO BUT COULD NOT CONTROVERT THE AFORES AID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED B Y THIS BENCH OF THE ITAT IN ASSESSEES OWN CASE VIDE ORDER DATED 12.10.2012 IN ITA NO. 4257 AND 4258/DEL/2012 FOR THE ASSESSMENT YEAR 2006-07 AND 2 008-09. THE RELEVANT FINDINGS HAS BEEN GIVEN IN PARA 5 TO 7 OF THE SAID ORDER WHI CH READ AS UNDER :- 5. DR SUPPORTED THE ORDER OF ASSESSING OFFICER AN D SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER BY WAY OF DISALLOWANCE OF 25% PAYMENT OF ROYALTY. THE ASSESSEES REPRESENTATIVE VEHEMENTLY CONTENDED THE ABOVE SUBMISSIONS AND SUBMITTED A COPY OF THE JUDGMENT DATED 30.4.2010 OF IT AT DELHI F BENCH IN ASSESSEE OWN CASE IN ITA NO.374/DEL/2009 FOR AY 200 5-06 (IMMEDIATELY PRECEDING TO THE ASSESSMENT YEAR UNDER CONSIDERATIO N IN THESE APPEALS). THE AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(A) DE LETED THE ADDITION MADE BY THE ASSESSING OFFICER IN AY 2005-06, THEREFORE, IN, THE ABSENCE OF ANY OTHER SUBSTANTIAL EVIDENCE OR CIRCUMSTANCE, PRINCIPLE OF CONSISTENCY SHOULD BE FOLLOWED. HE SUPPORTED THE IMPUGNED ORDER AND REQUE STED THAT THIS APPEAL IS DEVOID OF MERITS AS THE ISSUE IS COVERED BY THE ABO VE JUDGMENT OF ITAT F BENCH. ITA NO. 5713/DEL/2014 (PRECISION PIPES & PROFILES CO. LTD.) 3 6. THE OPERATIVE PARA OF JUDGMENT OF ITAT F BE NCH IN ITA NO.374/DEL/2009 IS BEING REPRODUCED AS UNDER:- WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE TERMS AND CONDITIONS OF THE AGREEMENT- ENTERED INTO BY TH E ASSESSEE. WE FOUND THAT ASSESSEE WAS REQUIRED TO PAY ANNUALLY RO YALTY AT THE RATE OF 2% OF THE ITEMS MANUFACTURED UNDER THIS AGREEMENT A ND SOLD DURING THE TERM OF THE SAID AGREEMENT. SUCH ROYALTY TO BE COMPUTED ON HALF YEARLY BASIS. AS THE ROYALTY PAYMENT IS DETERMINED ANNUALLY ON THE BASIS OF QUANTITY AND VALUE OF PRODUCTION, THE EXPE NDITURE SO INCURRED BY THE ASSESSEE IS ESSENTIALLY RECURRING AND REVENU E IN NATURE. HOWEVER THE AO HAS TREATED 25% OF SUCH PAYMENT AS C APITAL IN NATURE. THE EXPENDITURE SO CLAIMED IS CHARGED ON TH E PRODUCTS MANUFACTURED BY THE ASSESSEE COMPANY AND THE SAME I S NOT INCURRED FOR. ACQUIRING A PROCESSOR DESIGN OR TECHNOLOGY WHI CH CAN BE UTILIZED BY THE ASSESSEE FOR YEARS TO COME SO AS TO CATEGORI ZE SUCH EXPENDITURE, AS CAPITAL IN NATURE, NOTHING WAS BROUGHT ON RECORD BY THE LEARNED DR TO CONTROVERT THE FINDINGS OF THE C1T(A) RECORDE D AT PAGES 5 & 6 OF APPELLATE ORDER. WE THEREFORE DO NOT FIND ANY REASO N TO INTERFERE IN THE ORDER OF CIT(A) FOR ALLOWING THE ENTIRE PAYMENT OF ROYALTY AS REVENUE EXPENDITURE, 7. IN VIEW OF ABOVE, WE OBSERVE THAT IN EARLIER JU DGEMENT OF TRIBUNAL IN ASSESSEES OWN CASE, IT HAS BEEN OBSERVED THAT THE ASSESSEE WAS REQUIRED TO PAY ROYALTY @2% OF THE ITEMS MANUFACTURED AND SOLD UNDE R THE AGREEMENT. SUCH ROYALTY PAYMENT WAS DETERMINED ON THE BASIS OF QUAN TITY AND VALUE OF THE PRODUCTION. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE COMPANY WAS ESSENTIALLY OF RECURRING AND REVENUE IN NATURE. WE ALSO OBSERVE THAT THE ASSESSING OFFICER TREATED 25% OF SUCH PAYMENT AS CA PITAL IN NATURE BUT THESE FINDINGS ARE NOT JUSTIFIED AS THE ASSESSEE COMPANY WAS NOT DERIVING ANY BENEFIT OF ENDURING NATURE. ACCORDINGLY, WE HOLD THAT THE E XPENDITURE OF ROYALTY SO CLAIMED BY THE ASSESSEE COMPANY ON THE PRODUCTS MAN UFACTURED BY IT WAS RELATED AND COMPUTED AT 2% OF NET EX FACTORY SALE PRICE ON HALF YEARLY BASIS UNDER THE AGREEMENT.. ADMITTEDLY, THE ASSESSEE COMPANY DID NO T MAKE PAYMENT OF ROYALTY FOR ACQUIRING PROCESS OR DESIGN OR TECHNOLOGY WHICH CAN BE UTILIZED BY THE ASSESSEE IN THE YEARS TO COME AND THE ASSESSEE COMP ANY WAS NOT DERIVING ANY BENEFIT OF ENDURING NATURE. ACCORDINGLY, SUCH EXPEN DITURE DOES NOT FALL IN THE AMBIT OF CAPITAL IN NATURE. WE ALSO OBSERVE THAT TH E LD. DR HAS NOT BROUGHT ANY SUBSTANTIAL CAUSE TO CONTROVERT THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (A) RECORDED IN THE IMPUGNED ORDER IN THIS REGARD. 5. SO, RESPECTFULLY FOLLOWING THE AFORESAID RE FERRED TO ORDER DATED 12.10.2012 IN ASSESSEES OWN CASE IN ITA NO. 4257 A ND 4258.DEL.2012 FOR THE ASSESSMENT YEAR 2006-07 AND 2008-09. WE DO NOT SEE ANY MERIT ITA NO. 5713/DEL/2014 (PRECISION PIPES & PROFILES CO. LTD.) 4 IN THIS APPEAL OF THE DEPARTMENT. 6. IN THE RESULT APPEAL OF THE DEPARTMENT IS DISMI SSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 26/10/2017) SD/- SD/- (KULDIP SINGH) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26/10/2017 *BINITA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO. 5713/DEL/2014 (PRECISION PIPES & PROFILES CO. LTD.) 5 DATE INITIAL 1. DRAFT DICTATED ON 25 /10/2017 2. DRAFT PLACED BEFORE AUTHOR 26/10/2017 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.