DCIT 5(2), MUMBAI V. JOHNSON & JOHNSON LTD, MUMBAI

ITA 5869/MUM/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70852 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 02-09-2013
• Assessment Year: 2002-2003
• Appeal Filed On: 04-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI ! ! ! ! !'##%&' ( ) ) ) ) BEFORE SHRI VIJAY PAL RAO, JM AND SHRI N.K.BILLAIYA , AM ./ I.T.A. NO. 5869 /MUM/2009 ( ' * ' * ' * ' * +* +* +* +* / ASSESSMENT YEAR : 2002-03) DY. COMMISSIONER OF INCOME-TAX,5(2), ROOM NO. 571, 5 TH FLOOR, AAYAKAR BHABAN, M.K.ROAD, MUMBAI-400020 ' ' ' ' / VS. M/S. JOHNSON & JOHNSON LTD. 30,FORJETT STREET, MUMBAI-400036 , ( ./ PAN : AAACJ0866E ( ,- / APPELLANT ) .. ( ./,- / RESPONDENT ) ,- 0 1 / APPELLANT BY : SHRI O.P.SINGH ./,- 0 1 / RESPONDENT BY : SHRI M.P.LOHIA & MR. NIKHIL TIWARI ' 0 2( / DATE OF HEARING : 02-09-2013 34+ 0 2( / DATE OF PRONOUNCEMENT : 02 -09-2013 5 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-XIX, MUMBAI, DATED 21.08.2009, PERTAINING TO A.Y. 2002-03. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) ER RED IN DELETING THE PENALTY U/S. 271(1)(C) OF THE ACT, LEVIED BY THE TH E AO. A PERUSAL OF THE PENALTY ORDER DATED 21.08.2009 SHOWS THAT THE AO HA D LEVIED PENALTY IN RESPECT OF FOLLOWING DISALLOWANCES. 2 ITA NO.5869/MUM/2009 M/S. JOHNSON & JOHNSON LTD. 1) ENHANCEMENT OF RS.3,74,00,000/- MADE BY THE LD. CIT (A) IN RESPECT OF BRAND ROYALTY PAID BY THE ASSESSEE. 2) ADDITION OF RS.60,00,000/- MADE BY THE AO PURSUANT TO THE ORDER OF THE TPO AND CONFIRMED BY THE LD. CIT(A). 2. AT THE VERY OUTSET, THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT BOTH THESE ISSUES HAVE BEEN DECIDED IN FAVOUR OF TH E ASSESSEE BY THE TRIBUNAL IN ITA NO.4092/MUM/2007, ORDER IS DATED 28 .08.2013. THE LD. DR FAIRLY CONCEDED THAT THE ADDITIONS HAVE BEEN DEL ETED BY THE TRIBUNAL VIDE ORDER (SUPRA). 3. WE HAVE CAREFULLY, PERUSED THE PEANLTY ORDER AND THE ORDER OF THE TRIBUNAL REFERRED TO BY THE LD. COUNSEL. WE FIND T HAT THE IMPUGNED ADDITIONS ON WHICH THE PENALTY HAS BEEN IMPOSED HAV E BEEN DECIDED BY THE TRIBUNAL VIDE GROUND NO. 13 AND 14 OF ITS ORDER . 4. THE TRIBUNAL HAS DELETED THE ADDITION OF RS.60, 00,000/-AS PER ITS FINDING ON PARA 34 AT PAGE 13 OF ITS ORDER WHICH IS AS UNDER:- WE FIND THAT THE APPLICATION MADE BY THE ASSESSEE T O RBI FOR BRAND USAGE AGREEMENT SPECIFICALLY MENTIONS THAT THE ROYALTY TO BE REMITTED IS NET OF TAXES. FURTHER, THE APPROVAL WAS RECEIVED FROM THE RBI TO REMIT THE ROYALTY ON BRAND USAGE BY THE ASSESSEE @ 1% NET OF TAXES. CONSIDERING THE BRAND USAGE AGREEMENT VIS--VIS THE APPROVAL GR ANTED BY RBI, IT CAN BE SAFELY INFERRED THAT TAXES WERE LIABILITY OF J&J INDIA UNDER THE TERMS OF AGREEMENT. THE ASSESSEE HAS ENTERED INTO A COMMERCI AL ARRANGEMENT WITH J&J US AND IT HAS BEEN SO ARRANGED THAT THE PAYMENT OF TAXES HAVE TO BE BORNE BY THE ASSESSEE BEING A COMMERCIAL ARRANGEMEN T, THE SAME SHOULD NOT BE QUESTIONED WHILE CALCULATING ARMS LENGTH PR ICE. RELIANCE BY THE ASSESSEE ON THE DECISION OF THE TRIBUNAL IN THE CAS E OF DRESSER RAND INDIA PVT. LTD. IN ITA NO. 3509/M/08 IS WELL FOUNDED. CON SIDERING THE ENTIRE FACTS IN TOTALITY IN THE LIGHT OF THE BRAND USAGE A GREEMENT AND THE APPROVAL OF THE RBI, THE FINDINGS OF THE LD. CIT(A) IS SET A SIDE. THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 60,00,000/-. GROUND N O. 13 IS ALLOWED. 3 ITA NO.5869/MUM/2009 M/S. JOHNSON & JOHNSON LTD. 5. FURTHER WE FIND THAT THE ADDITION OF RS.3.74 CRORES HAS BEEN DELETED BY THE TRIBUNAL. THE FINDING OF THE TRIBUN AL ARE AT PARA 39 PAGE 14 AND 15 OF ITS ORDER WHICH IS AS UNDER:- THE ASSESSEE RECEIVED APPROVAL FROM THE RBI ON 20. 11.2001 AND AFTER RECEIVING THE APPROVAL FROM THE RBI, THE ASSESSEE E NTERED INTO THE BRAND USAGE ROYALTY AGREEMENT WITH J&J US BY WHICH IT WAS AGREED TO PAY THE ROYALTY FROM 1ST JULY, 2001. THE DATE BEING THE SAM E, AS AGREED IN THE DRAFT AGREEMENT FILED WITH THE APPLICATION MADE TO RBI, THEREFORE, THE OBSERVATIONS MADE BY THE LD. CIT(A) THAT THERE WAS NO TACIT AGREEMENT DOES NOT HOLD ANY WATER. ASSUMING YET NOT ACCEPTING THAT THERE WAS NO AGREEMENT, PAYMENTS MADE HAVING REGARD TO THE COMME RCIAL EXPEDIENCY NEED NOT NECESSARILY HAVE THEIR ORIGIN IN CONTRACTU AL OBLIGATION. IF THE ASSESSEE, WHICH CARRIES ON A BUSINESS FIND THAT IT IS COMMERCIALLY EXPEDIENT TO INCUR CERTAIN EXPENDITURE DIRECTLY OR INDIRECTLY, IT WOULD BE OPEN TO SUCH AN ASSESSEE TO DO SO NOTWITHSTANDING T HE FACT THAT A FORMAL DEED DOES NOT PRECEDE THE INCURRING OF SUCH EXPENDI TURE. FOR THIS PROPOSITION, WE DRAW SUPPORT FROM THE DECISION OF T HE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS ASSOCIATED ELECTRI CAL AGENCIES 266 ITR 63. CONSIDERING THE FACTS IN TOTALITY IN THE LIGHT OF THE DECISION CITED HEREINABOVE, WE DO NOT FIND ANY MERIT IN THE ENHANC EMENT MADE BY THE LD. CIT(A). WE, ACCORDINGLY SET ASIDE THE FINDINGS OF T HE LD. CIT(A). THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY THE LD. CIT(A). GROUND NO. 14 IS ACCORDINGLY ALLOWED. 6. AS BOTH THE ADDITIONS HAVE BEEN DELETED BY THE T RIBUNAL, WE DO NOT FIND ANY REASON FOR THE LEVY OF PENALTY. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY I. E. 02/09/2013 5 0 34+ ( 6' 02/09/2013 , 4 0 7 SD/- (VIJAY PAL RAO) SD/- (N.K.BILLAIYA) / JUDICIAL MEMBER ( / ACCOUNTANT MEMBER 4 ITA NO.5869/MUM/2009 M/S. JOHNSON & JOHNSON LTD. MUMBAI; 6' /DATED : 2 ND SEPTEMBER, 2013. SHEKHAR 5 5 5 5 0 00 0 .28 .28 .28 .28 9+2 9+2 9+2 9+2 / COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. : ( ) / THE CIT- , MUMBAI. 4. : / CIT(A)- , MUMBAI 5. ;7 .2' , , / DR, ITAT, MUMBAI 6. 7<* = / GUARD FILE. 5' 5' 5' 5' / BY ORDER, /2 .2 //TRUE COPY// > >> > / ? ? ? ? (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI