DCIT, New Delhi V. M/s. Metzeler Automotive Profiles India Pvt. Ltd., New Delhi

ITA 5898/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3445 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 13-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 01-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWROOP
• Assessee Lawyers: P N MEHTA
• Keywords: Depreciation; Rule of consistency
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE HONBLE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5898/DEL./2013 (ASSESSMENT YEAR : 2010-11) DCIT, CIRCLE 6 (1), VS. M/S. METZELER AUTOMOTIVE P ROFILES NEW DELHI. PVT. LTD., 301 302, TOLSTOY HOUSE, TOLSTOY MARG, NEW DELHI 110 001. (PAN : AAACW0019N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.N. MEHTA, CA REVENUE BY : MS. SHEFALI SWROOP, CIT DR DATE OF HEARING : 01.11.2017 DATE OF ORDER : 10.11.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 6(1), NEW DELHI (HEREINAFTER REFERRED TO AS THE RE VENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 21.08.2013 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- IX, NEW DELHI QUA THE ASSESSMENT YEAR 2010-11 ON TH E GROUNDS INTER ALIA THAT :- ITA NO.5898DEL./2013 2 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN DELETING THE ADDITIO N OF RS.1,19,35,426/- BY HOLDING ROYALTY PAYMENT AS REVE NUE EXPENDITURE? 1.1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN FOLLOWING THE JUDGME NT OF HON'BLE DELHI HIGH COURT IN THE CASE OF J K SYNTHETICS LTD. 319 ITR 109 AS IN THAT CASE THE EXP ENSE INCURRED FOR ROYALTY PAYMENT WAS FOR EXTENSION OF A N EXISTING BUSINESS AND THUS PAYMENT MADE BY THE ASSESSEE TOWARDS THIS END, WOULD ONLY GO TO INCREAS E THE PROFITABILITY, WHICH IS NOT THE CASE OF THE ASSESSE E? 1.2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN NOT CONSIDERING THE DECISION OF HON'BLE MADRAS HIGH COURT (148 ITR 272) WHICH HAS BEEN AFFIRMED BY THE APEX COURT (232 ITR 359) ON THE IDENTICAL ISSUE? 1.3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) FAILED TO APPRECIATE THAT THE ASSESSEE ENJOYED LONG TERM BENEFITS AS PER THE TERM S OF TECHNICAL LICENSE AGREEMENT DATED 22.08.2005 BECAUS E OF FOLLOWING REASONS: I. THE AGREEMENT HAS BEEN ENTERED FOR FIVE YEARS WHICH WILL BE AUTOMATICALLY RENEWED FOR ONE YEAR AT A TIME. THUS, THE AGREEMENT CAN BE EXTENDED FOR ANY NUMBER OF YEARS. II. THE LICENSOR IS PROVIDING THE TECHNOLOGY, INCLUDING TRADE SECRET AND IMPROVEMENT IN TECHNOLOG Y, AS WELL AS TRAINING FOR MANUFACTURING OF WEATHERSTR IPS BY THE ASSESSEE. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN DELETING THE DISALLO WANCE OF RS.12,039/- BY HOLDING THAT DEPRECIATION @ 60% I S ALLOWABLE ON UPS? 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN HOLDING THAT THE PRO VISION ITA NO.5898DEL./2013 3 OF SECTION 79 WILL NOT APPLY FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S 115JB IN VIEW OF THE FACT THAT THE PROVISION OF SECTION 115JB(5) STATES THAT ALL OTHER PROVISIONS OF THE ACT SHALL APPLY? 3.1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCES AMOUNTING TO RS.43,41,152/-, RS.5,22,462/- AND RS.62,71,950/- ON ACCOUNT OF PROVISIONS FOR GRATUITY, WARRANTY AND EARNED LEAVE RESPECTIVELY BY HOLDING THESE EXPENSES AS ASCERTAIN ED LIABILITIES ON THE BASIS OF ACTUARIAL CERTIFICATES AS ACTUARIAL CERTIFICATES ARE JUST ESTIMATION OF LIABI LITIES?' 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICATION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER CAPITAL IZED THE PAYMENT OF ROYALTY OF RS.1,19,35,426/- IN THE FORM OF TECHNICAL LICENCE FEES ON THE GROUND THAT IT IS OF THE NATURE OF ENDURING BENEFIT. AO ALSO MADE DISALLOWANCE OF RS.12,039/- BY ALLOWING THE DEPRECIATION @ 15% AS AGAINST 60% CLAIMED BY TH E ASSESSEE ON UPS. ASSESSEE COMPANY HAS COMPUTED BOOK PROFIT U/S 115JB AT RS.1,38,19,690/-. HOWEVER, AO BEING DISSATISFIED W ITH THE EXPLANATION FURNISHED BY THE ASSESSEE COMPANY COMPU TED THE BOOK PROFIT OF THE ASSESSEE COMPANY U/S 115JB OF THE INC OME-TAX ACT, 1961 (FOR SHORT THE ACT) AS UNDER :- NET PROFIT AS PER P&L ACCOUNT RS.8,98,57,754 ADD : PROVISIONS FOR GRATUITY RS.43,41,152 ADD : PROVISIONS FOR WARRANTY RS.5,22,462 ADD : PROVISIONS FOR EARNED LEAVE RS,62,71,650 BOOK PROFIT ASSESSED RS.10,09,93,318 ITA NO.5898DEL./2013 4 3. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE LD. CIT (A) WHO HAS DELETED THE ADDITIONS/DISAL LOWANCES BY PARTLY ALLOWING THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF CHALLENGING T HE IMPUGNED ORDER PASSED BY LD. CIT (A) . 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. GROUNDS NO.1 TO 1.3 5. UNDISPUTEDLY, THE ASSESSEE COMPANY HAD PAID ROYA LTY @ 3% TO 5% AND NO LUMP-SUM PAYMENT HAS BEEN MADE. IT IS ALSO NOT IN DISPUTE THAT THE AGREEMENT BETWEEN THE ASSESSEE COM PANY AND TOYODA GOSEI CO. LTD. WAS FOR A SPECIFIED PERIOD AN D THEREAFTER ASSESSEE COMPANY HAS NO RIGHT TO MANUFACTURE ANY PA RT FOR WHICH THE TECHNICAL COLLABORATION HAS BEEN PROVIDED. 6. IN THE BACKDROP OF THE AFORESAID FACTS AND CIRCU MSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT WHEN T HE ROYALTY PAYMENT HAS BEEN MADE IN ACCORDANCE WITH THE AGREEM ENT FOR A SPECIFIED PERIOD @ 3% TO 5% ON THE MANUFACTURED ITE MS AND NO LUMP-SUM PAYMENT HAS BEEN MADE AND AFTER TERMINATIO N OF THE ITA NO.5898DEL./2013 5 AGREEMENT, THE ASSESSEE COMPANY WAS REQUIRED TO RET URN ALL DRAWINGS AND TECHNICAL PAPERS TO ITS COLLABORATORS, NO ENDURING BENEFIT CAN BE ACCRUED TO THE ASSESSEE COMPANY. 7. FURTHERMORE ON THE BASIS OF SAME AGREEMENT ENTER ED INTO BETWEEN THE ASSESSEE COMPANY AND TOYODA GOSEI CO. L TD., SIMILAR DISALLOWANCE OF ROYALTY PAYMENT FOR AYS 2008-09 AND 2009-10 WAS DELETED BY CIT (A), AGAINST WHICH NO APPEAL HAS BEEN FILED BY THE REVENUE BEFORE THE TRIBUNAL AND ALL THESE FACTS HAVE BEEN DULY ELABORATED IN PARA 4.2 OF THE IMPUGNED ORDER. IN T HESE CIRCUMSTANCES, FOLLOWING THE RULE OF CONSISTENCY AL SO, THERE IS NO ILLEGALITY OR PERVERSITY IN THE FINDINGS RETURNED B Y LD. CIT (A) ON THE ISSUE OF ROYALTY PAYMENT, HENCE GROUNDS NO.1 TO 1.3 ARE DETERMINED AGAINST THE REVENUE. GROUND NO.2 8. AO ALLOWED DEPRECIATION @ 15% AS AGAINST 60% ON THE UPS. BUT LD. CIT (A) BY FOLLOWING THE DECISION OF HIS PREDECESSOR FOR AY 2009-10 DELETED THE ADDITION. 9. IDENTICAL ISSUE HAS COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.6088/DEL/2012 FOR AY 2009-10 ORD ER DATED 31.05.2013 WHEREIN ORDER OF CIT (A) DELETING THE SIMILAR ADDI TION WAS UPHELD AND TRIBUNAL BY FOLLOWING THE DECISION R ENDERED BY ITA NO.5898DEL./2013 6 HONBLE DELHI HIGH COURT IN CASE OF CIT VS. M/S. BONANZA PORTFOLIO LTD. 2011-TIOL-555-HC-DEL-IT. SO, FOLLOWING THE DECISION RENDERED BY COORDINATE BENCH OF THE TRIBUN AL AND KEEPING IN VIEW THE FACT THAT THE REVENUE IS REQUIRED TO FO LLOW THE RULE OF CONSISTENCY, GROUND NO.2 IS DETERMINED AGAINST THE REVENUE. GROUNDS NO.3 & 3.1 10. LD. AR FOR THE ASSESSEE COMPANY SUPPORTING THE ORDER PASSED BY LD. CIT (A) CONTENDED THAT THE PROVISIONS CONTAINED U/S 115JB IS A SELF CONTAINED CODE UNDER WHICH THE AMOU NT WHICH IS AS PER THE BOOK PROFIT TO BE REDUCED AND NOT AS PER IN COME-TAX RECORD WHICH HAVE BEEN COMPUTED UNDER THE PROVISIONS OF TH E ACT AND AS PER BOOKS OF ACCOUNT, IT IS ONLY THE LOSS WHICH IS TO BE CONSIDERED AND NOT THE AMOUNT I.E. NOT ALLOWABLE UNDER ANY PRO VISIONS OF THE ACT. 11. IDENTICAL ISSUE HAS COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN AY 2009-10 IN ITA NO.6088/DEL/2012 ORDE R DATED 31.05.2013 DECIDED IN FAVOUR OF THE ASSESSEE BY RETURNING THE FOLLOWING FINDINGS :- 10. LD. COUNSEL SUBMITTED THAT SEC. 79 WHICH DISENTITLES A COMPANY IN WHICH PUBLIC IS NOT SUBSTANTIALLY INTERESTED TO CARRY FORWARD AND SET O F THE LOSSES AGAINST CURRENT YEARS INCOME IN CASE THERE I S CHANGE IN SHAREHOLDING, IS NOT APPLICABLE WHILE COMPUTING BOOK PROFITS U/S 115JB. IN THIS REGARD H E ITA NO.5898DEL./2013 7 SUBMITTED THAT SEC. 79 STARTS WITH THE WORDS NOTWITHSTANDING ANYTHING CONTAINED IN THIS CHAPTER , WHEREAS SEC. 115JB STARTS WITH THE WORDS NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT. HE, THEREFORE, SUBMITTED T HAT APPLICABILITY OF SEC. 79 IS CONFINED TO CHAPTER VI, WHEREAS SECTION 115JB IS A CODE AND, THEREFORE, THE BOOK PROFITS HAVE TO BE COMPUTED AS PER THE PROVISI ONS CONTAINED THEREIN. IN THIS REGARD HE RELIED ON THE DECISION IN THE CASE OF N.J. JOSE & CO. (P) LTD. VS . ASSTT. CIT, 321 ITR 132. 11. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORD OF THE CASE. 12. WE FIND THAT AO HAS NOT DISALLOWED THE ASSESSE ES CLAIM INVOKING SECTION 79 BUT ON ACCOUNT OF NO DETA ILS BEING THERE OF BUSINESS LOSS IN THE RETURN AS WELL AS IN THE COMPUTATION OF INCOME. THEREFORE, WE NEED NOT TO GO INTO THIS ISSUE. 12. THE ASSESSEE HAS BROUGHT ON RECORD THE DETAILS OF CARRY FORWARD PROFIT / LOSS UP TO 31.03.2009 AS PER BOOKS OF ACCOUNT, COPY OF ACTUARIAL VALUATION OF THE EARNED LEAVE LIA BILITY INCLUDING COMPENSATED ABSENCE FOR THE PERIOD FROM 01.04.2009 TO 31.03.2010 AS PER AS-15 (R), COPY OF ACTUARIAL VALUATION OF TH E GRATUITY LIABILITY FOR THE PERIOD FROM 01.04.2009 TO 31.03.2 010 AS PER AS-15 (R) AND COPY OF ANNUAL ACCOUNTS FOR THE PERIOD ENDI NG 31.03.2010, AVAILABLE AT PAGES 46 TO 72 OF THE PAPER BOOK. WE ARE OF THE CONSIDERED VIEW THAT ALL THESE DOCUMENTS ARE REQUIR ED TO BE VERIFIED BY THE AO AS TO THE FIGURES OF BROUGHT FORWARD BUSI NESS LOSS OR DEPRECIATION, ACTUARIAL VALUATION OF THE EARNED LEA VE LIABILITY AND ITA NO.5898DEL./2013 8 ACTUARIAL VALUATION OF THE GRATUITY LIABILITY TO RE COMPUTE THE BOOK PROFIT U/S 115JB. SO, FOLLOWING THE DECISION RENDE RED BY THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009-10 (SUPRA), GROUNDS NO.3 & 3.1 ARE DETERMINED AGAINST THE REVENUE AS PER OBSERVATION MADE HEREIN ABOVE. 13. RESULTANTLY, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 10 TH DAY OF NOVEMBER, 2017. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) PRESIDENT JUDICIAL MEMBER DATED THE 10 TH DAY OF NOVEMBER, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-IX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.