Honda Siel Power Products Ltd., Gautam Budh Nagar V. DCIT, New Delhi

ITA 6023/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7573 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 13-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 04-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: YOGESH VERMA
• Keywords: Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; Principle of natural justice; International transaction; Revenue expenditure; Capital expenditure
• Section: 92C; 143(3); 142(1); 37(1); 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. B.C.MEENA, ACCOUNTANT MEMBER I.T.A .NO. - 6023 /DEL/201 2 (ASSESSMENT YEAR - 2 008 - 09 ) HONDA SIEL POWER PRODUCTS LTD., PLOT NO. - 5, SECTOR - 41 (KASNA), GREATER NOIDA INDUSTRIAL DEVELOPMENT AREA, DIST. - GAUTAM BUDH NAGAR. PAN - AAACH8464L (APPELLANT) VS DCIT , CIRCLE - 12(1), NEW DELHI. (RESPONDENT) APPELLANT BY SH. AJAY VOHRA, SR. ADV., SH. NEERAJ JAIN, ADV., MS. SHAILY GUPTA, CA & MR. ABHISHEK AGARWAL, CA RESPONDENT BY SH. YOGESH VERMA, CIT DR ORDER PER DIVA SINGH, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ASSESSMENT ORDER DATED 31.10.2012 PASSED U/S 143(3) R.W.S 144C IN PURSUANCE TO THE DRP S ORDER U/S 144C(5) DATED 24.09.2012. 2. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE DECLARED AN INCOME OF RS.37,15,72,026/ - WHICH AFTER BEING PROCESSED U/S 143(1) WAS SELECTED FOR SCRUTINY ON THE ISSUANCE OF NOTICE U/S 143(2) AND 142(1) ALON GWITH QUESTIONNAIRE ETC. THE ASSESSEE COMPANY AS PER RECORD IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PORTABLE GENERATING SETS, I.C. ENGINES, WATER PUMPING SETS AND MANUFACTURE AND PROCESSING OF PRESSURE DIE CASTING PARTS. AS A RESULT OF THE ADDITIO NS MADE THE INCOME WAS ASSESSED AT RS.55,57,99,420/ - . 2 I.T.A .NO. - 60 2 3/DEL/2012 3. AGGRIEVED BY THE ADDITIONS THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS BEFORE US: - GENERAL: 1. THAT THE IMPUGNED ORDER OF ASSESSMENT FRAMED BY THE ASSESSING OFFICER IN PURSUANCE OF THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS 'DRP') UNDER SECTION 143(3) READ WITH SECTION 144C OF THE INCOME - TAX ACT, 1961 ( 'ACT'), IS BAD IN LAW, VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE AND VOID AB - INITIO. 1.1 THAT ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPUTING THE INCOME OF THE APPELLANT AT RS 55,57,99,420 AGAINST THE RETURNED TOTAL INCOME OF RS.37,15,72,026. TRANSFER PRI CING ISSUES: 2.THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING ADDITION TO THE INCOME OF THE APPELLANT TO THE EXTENT OF RS.9,81, 11,429 ON ACCOUNT OF THE ALLEGED DIFFERENCE IN THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. ADVERTISE MENT, MARKETING AND SALES PROMOTION EXPENSES: 3.THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS. 8,27,61,669 IN RELATION TO THE ADVERTISEMENT, MARKETING AND SALES PROMOTION EXPENSES (HEREINAFTER R EFERRED TO AS 'THE AMP EXPENSES') INCURRED BY THE APPELLANT. 3.1.THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT EXPENDITURE ON ADVERTISEMENT AND BRAND PROMOTION, UNILATERALLY INCURRED BY THE APPELLANT, COULD NOT BE REGAR DED AS A 'TRANSACTION' IN THE ABSENCE OF ANY UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE. 3.2.THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE AMP EXPENSES, ETC., INCURRED BY THE APPELLANT IN INDIA CANNOT BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION AS PER SECTION 92 B , SO AS TO INVOKE THE PROVISIONS OF SECTION 92 OF THE ACT. 3.3.THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT IN THE ABSENCE OF ANY UNDERSTANDING / ARRANGEMENT BETWEEN THE APPELLANT AND THE ASSOCIATED ENTERPRISE, THE ASSOCIATED ENTERPRISE WAS UNDER NO OBLIGATION TO REIMBURSE THE AMP EXPENSES INCURRED BY THE APPELLANT FOR SALE OF ITS PRODUCTS. 3.4 THAT THE ASSESSING OFFICER/DRP ERRE D ON FACTS AND IN LAW IN HOLDING THAT AMP EXPENSES INCURRED BY THE APPELLANT RESULTED IN PROMOTION OF BRAND OWNED BY THE ASSOCIATED ENTERPRISE, THEREBY CREATING MARKETING INTANGIBLES WHOSE ULTIMATE BENEFIT INURED TO THE ASSOCIATED ENTERPRISE. 3.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT HAD DEVELOPED MARKETING INTANGIBLES FOR THE ASSOCIATED ENTERPRISE IN INDIA BY PERFORMING ALL FUNCTIONS AND BY BEARING ALL ECONOMIC COSTS AND RISKS. 3.6 THAT THE ASSESSING OFFICER E RRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT ADVERTISEMENT AND MARKETING EXPENSES WAS NOT INCURRED BY THE APPELLANT ON BEHALF OF OR FOR THE BENEFIT OF THE AE, AND THE BENEFIT TO THE AE, IF ANY, IS ONLY INCIDENTAL. 3 I.T.A .NO. - 60 2 3/DEL/2012 3.7 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE AMP EXPENSES INCURRED BY THE APPELLANT, DID NOT RESULT IN CREATION OF ANY MARKETING INTANGIBLES; MUCH LESS ON ACCOUNT OF THE AE. 3.8 THAT THE DISPUTE RESOLUTION PANEL ERRED ON FACTS AND IN LAW IN CONFIRMIN G THE ADJUSTMENT MADE BY THE TPO WITH REGARD TO THE AMP EXPENSES HOLDING THAT (1) NO INDEPENDENT PERSON, PARTICULARLY IN A LONG TERM ARRANGEMENT, WOULD FOREGO THE COMPENSATION FOR THE ADDITIONAL MARKETING ACTIVITIES UNDERTAKEN BY THE APPELLANT. (II) THE A E NEEDS TO COMPENSATE THE APPELLANT AS IT HAD BEEN FOUND THAT THE APPELLANT HAD INCURRED EXCESSIVE AMP EXPENSES, AND DEVELOPMENT AND PROMOTION OF A BRAND IN INDIA DIRECTLY BENEFITT ED THE AE ALSO. 3.9 THAT THE ASSESSING OFFICER/DRP ERRED IN DEEMING AN INTE RNATIONAL TRANSACTION OF PROVISION OF SERVICE ALLEGEDLY APPLYING BRIGHT LINE TEST (BLT) HOLDING THAT THE AMP/SALES RATIO OF THE APPELLANT ALLEGEDLY EXCEEDS THE AMP/SALES RATIO OF COMPARABLE COMPANIES: 3.10 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT 'BRIGHT LINE LIMIT' IS NOT A PRESCRIBED METHOD UNDER THE PURVIEW OF SECTION 92C OF THE ACT. 3.11 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE POWER OF THE TPO IS RESTRICTED TO THE DETERMINA TION OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS BY APPLYING ANY OF THE PRESCRIBED METHOD AND NOT TO MAKE DISALLOWANCE OF BUSINESS EXPENSES INCURRED BY THE APPELLANT. 3.12 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING TH AT IN ABSENCE OF SPECIFIC PROVISION UNDER THE TRANSFER PRICING REGULATIONS IN INDIA, ADJUSTMENT ON ACCOUNT OF THE ARM'S LENGTH PRICE OF ADVERTISEMENT AND BRAND PROMOTION EXPENSES COULD NOT BE MADE BY APPLYING BL T. 3.13 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE AE HAS INDEPENDENTLY INCURRED SUBSTANTIAL EXPENDITURE ON AMP, TO ADVERTISE AND PROMOTE THE BRAND IN THE OVERSEAS MARKET WHICH MUST HAVE ALSO BENEFITED THE APPELLANT. 3.14 THAT THE ASSESSING OFFICER ERRED ON FA CTS AND IN LAW IN RELYING UPON THE DECISION OF THE CASE OF DHL INCORPORATED AND SUBSIDIARIES VS. COMMISSIONER OF INTERNAL REVENUE TAX COURT, TCM 1998 - 461, AFF'D IN PART, REV'D IN PART 285F.3D.1285. 89AFTR2D 2002 - 1978 (CA - 9,2002); AND GLAXO SMITH KLINE HOL DING (AMERICAS) INC. VS. COMMISSIONER, T.C. NO. 5750 - 04 AND T.C. NO. 6959 - 05, WHICH WERE RENDERED IN THE CONTEXT OF SPECIFIC PROVISION UNDER THE TRANSFER PRICING REGULATIONS OF UNITED STATES OF AMERICA. 3.15 WITHOUT PREJUDICE THAT THE ASSESSING OFFICER ER RED ON FACTS AND IN LAW IN CONSIDERING SELLING AND DISTRIBUTION EXPENSES AMOUNTING TO RS 6,13,00,000 FOR THE PURPOSE OF CALCULATING ALLEGED AMP EXPENDITURE OF THE APPELLANT. 3.16 WITHOUT PREJUDICE THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN CON SIDERING THE FOLLOWING COMPANIES AS COMPARABLE FOR BENCHMARKING ADVERTISEMENT AND PUBLICITY EXPENSES: COMPANIES ADVERTISEMENT NT EXPENSES (% OF SALES) 4 I.T.A .NO. - 60 2 3/DEL/2012 HAVELLS INDIA LIMITED 10.04% LUMINOUS POWER TECHNOLOGIES PVT. LTD. 16.51% S - KAM POWER SYSTEMS LTD. 10.52% INTEX TECHNOLOGIES (INDIA) PVT. LTD. 8.04% MICROTECH INTERNATIONAL PVT. LTD. 9.93% AVERAGE 10.93% 3.17 WITHOUT PREJUDICE THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW, IN NOT APPRECIATING THAT THE AMP EXPENSES INCURRED BY THE APPELLANT WAS APPROPRIATELY ESTABLISHED TO BE AT ARM'S LENGTH APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) ON ENTITY - WIDE BASIS. 3.18 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT INCURRING OF AMP EXPENSES WAS A SEPARATE TRANSACTION AND IS TO BE EVALUATED SEPARATELY. 3.19.THAT THE ASSESSING OFFICER / DRP ERRED IN NOT APPRECIATING THAT NO ROYALTY IS BEING PAID BY THE APPELLANT FOR THE USE OF BRAND NAME 'HONDA'. 3.20.THAT THE ASSESSING OFFICER / DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT TH E APPELLANT HAS RENDERED SERVICE TO THE AES BY INCURRING THE AMP EXPENSE AND BY HOLDING THAT MARKUP HAS TO BE EARNED BY THE APPELLANT IN RESPECT OF THE AMP EXPENSES, ALLEGED TO HAVE INCURRED FOR AND ON BEHALF OF THE AE. 3.21 WITHOUT PREJUDICE, THE ASSESSING OFFICER/DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT MARKUP, IF AT ALL, HAD TO BE RESTRICTED TO THE VALUE ADDED EXPENSES INCURRED BY THE APPELLANT FOR PROVIDING THE ALLEGED SERVICE IN THE NATURE OF BRAND PROM OTION. ROYALTY IN RESPECT OF EXPORTS MADE TO ASSOCIATED ENTERPRISES: 4.THAT THE TRANSFER PRICING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS OF PAYMENT OF ROYALTY ON EXPORTS MADE TO THE ASSOCIATED EN TERPRISES OF RS.53,34, 000 WAS NIL. 4.1 THAT THE TRANSFER PRICING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE ASSESSEE WAS ACTING AS A CONTRACT MANUFACTURER AND HENCE ROYALTY PAID AS PERCENTAGE OF SALE TO THE ASSOCIATED ENTERPRISES IS NOT AT ARM' S LENGTH AS IT AMOUNTS TO COLLECTING ROYALTY ON THE SALE TO ITSELF. 4.2 THAT THE TRANSFER PRICING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT WHERE THE APPELLANT IS MAKING PART OF ITS SALES TO RELATED PARTIES AND THE BENEFIT OF PURCHASING COMPONENTS IS REAPED BY THE ASSOCIATED ENTERPRISE, THE PAYMENT OF ROYALTY DO NOT CONFIRM TO ARM'S LENGTH PRICE. 4.3 THAT THE TPO/DRP ERRED IN DISREGARDING THE COMPARABLE UNCONTROLLED TRANSACTIONS OF PAYMENT OF ROYALTY PLACED ON RECORD BY THE APPELLANT. 4.4.THAT T HE ASSESSING OFFICER/DRP ERRED IN NOT APPRECIATING THAT THE ROYALTY PAID IN TERMS OF AGREEMENT DULY APPROVED BY THE CENTRAL GOVERNMENT, CANNOT BE REFERRED AS A NON BONAFIDE PAYMENT NOT SATISFYING THE ARM'S LENGTH TEST. 4.5.THAT THE ASSESSING OFFICER ERRED IN NOT APPRECIATING THAT PAYMENT OF ROYALTY IS A NECESSARY COST INCURRED BY THE APPELLANT FOR MANUFACTURE OF GOODS. 4.6 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT FOLLOWING THE ORDER PASSED BY THE TRANSFER PRICING OFFI CER UNDER 5 I.T.A .NO. - 60 2 3/DEL/2012 SECTION 154 OF THE ACT R.W.S. 92CA(5) WHEREIN THE TPO HAS RESTRICTED THE ADJUSTMENT O F RS 53,34,000 AS AGAINST THE ADDITION OF RS 1,53,49,760 MADE BY THE ASSESSING OFFICER . CORPORATE TAX ISSUES: 5.THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING ROYALTY AMOUNTING TO RS.6,57,85,691 AND TECHNICAL GUIDANCE FEE AMOUNTING TO RS.1 ,30,98,000 PAID TO HONDA MOTOR COMPANY, JAPAN AS PER THE TECHNICAL COLLABORATION AGREEMENT' ('TCA') AS CAP ITAL EXPENDITURE INCURRED FOR ACQUISITION OF INTANGIBLE ASSET AND INSTEAD ALLOWING DEPRECIATION @25%. 5.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT IN TERMS OF THE TECHNICAL COLLABORATION AGREEMENT, INTELLECTUAL PROPERTY RIGHT D EVELOPED BY HONDA, JAPAN HAS BEEN TRANSFERRED TO THE ASSESSEE. 5.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT IN TERMS OF TCA, PATENT FOR THE NEW DEVELOPED PROJECT HAS BEEN TRANSFERRED TO THE LICENSOR, I.E., APPELLANT. 5.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT IN TERMS OF TCA, THE ASSESSEE HAD PAID ROYALTY AND TECHNICAL GUIDANCE FEE FOR THE ACQUISITION OF INTELLECTUAL PROPERTY RIGHTS AND PATENTS. 5.4.THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THE PAYMENT OF ROYALTY AND TECHNICAL GUIDANCE FEE TO BE CAPITAL EXPENDITURE ON THE GROUND THAT - (I) IN THE EVENT OF THE EXPIRATION OF THE CONTRACT, THE ASSESSEE MAY CONTINUE TO USE THE KNOW - HEW AND THE INDUSTRIAL PROPERTY RIGHTS FOR THE PURPOSES OF MANUFACTURE, ASSEMBLY, PROCUREMENT, SALE, DELIVERY AND SERVICE OF THE PRODUCTS AND THE PARTS. (II) THE TERMS OF AGREEMENT ARE QUITE COMPREHENSIVE AND THE WHOLE TECHNICAL KNOW - HOW TO SET UP THE BUSINESS OF THE APPELLANT ARE PROVIDED BY HONDA. (III) THE ASSESSEE HAS PAID THE ROYALTY FOR THE ACQUISITION OF AN INDIVISIBLE, NON - TRANSFERABLE AND EXCLUSIVE LICENSE IN FAVOUR OF THE APPELLANT TO MANUFACTURE AND ASSEMBLE THE PRODUCTS AND THE PARTS IN THE TERRITORY, AND TO SELL AND DISTRIBUTE IN THE TER RITORY THE PRODUCTS AND THE PARTS SO MANUFACTURED OR ASSEMBLED OR PROCURED. (IV) THE ASSESSEE CAN GRANT INDIVISIBLE AND NON - TRANSFERABLE SUBLICENSES TO USE THE KNOW - HOW TO INDIAN PERSONS, COMPANIES OR OTHER LEGAL ENTITIES EXCLUSIVE PRIVILEGE OF MANUFACTURI NG AND SELLING THE PRODUCTS. (V) IN THE EVENT OF THE EXPIRATION OF THE CONTRACT, THE APPELLANT MAY CONTINUE TO USE THE KNOW - HOW AND THE INDUSTRIAL PROPERTY RIGHTS IS CAPITAL IN NATURE. 6.THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWI NG EXPORT COMMISSION PAID TO M/S HONDA MOTOR CO. LTD. OF JAPAN OF RS.5,19,96,673 INVOKING SECTION 40 (A) (I) OF THE ACT HOLDING THE SAME TO BE ROYALTY/FEE FOR TECHNICAL SERVICE ON WHICH ALLEGEDLY THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE AS PER SECTI ON 195 OF THE ACT. 6 I.T.A .NO. - 60 2 3/DEL/2012 6.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LAW IN HOLDING THAT THE PAYMENTS OF EXPORT COMMISSION WAS TOWARDS ROYALTY/FEE FOR TECHNICAL SERVICES AS THE SAME WAS IN CONSIDERATION FOR (I) RIGHT TO USE TRADEMARK, (II) PERMI SSION TO EXPORT AND (III) IN LIEU OF MANAGERIAL AND TECHNICAL SERVICES PROVIDED BY HONDA, AND ACCORDINGLY THE APPELLANT WAS UNDER OBLIGATION TO DEDUCT TAX AT SOURCE THERE FROM AS PER SECTION 195 OF THE ACT. 6.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT PAYMENT OF EXPORT COMMISSION TO HONDA DOES NOT RESULT IN AN INCOME ACCRUING OR ARISING IN INDIA IN TERMS OF SECTION 9(1) OF THE ACT AND HENCE IS NOT LIABLE TO TAX IN INDIA. 6.3 THAT THE ASSESSING OFFICER ERRED ON FACTS A ND IN LAW IN NOT APPRECIATING THAT THE PAYMENT OF EXPORT COMMISSION WAS MADE TO HONDA IN CONSIDERATION OF ACCORDING CONSENT/FOR CEDING OVERSEAS TERRITORY PERMITTING EXPORT OF MOTORCYCLE AND SPARES BY THE ASSESSEE. 6.4 THAT THE ASSESSING OFFICER ERRED ON F ACTS AND IN LAW IN NOT APPRECIATING THAT PAYMENT OF EXPORT COMMISSION WAS NOT FOR RIGHT TO USE ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILMS AND FILMS OR TAPES FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADEMARK , DESIGN AND, THEREFORE, WAS NOT IN THE NATURE OF ROYALTY. 6.5 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SERVICES/ASSISTANCE PROVIDED BY HONDA WERE INCIDENTAL TO THE RIGHT FOR EXPLOITING THE FOREIGN TERRITORY AND WERE N OT IN THE NATURE OF 'FEE FOR TECHNICAL SERVICES'. 6.6 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE PAYMENT OF EXPORT COMMISSION WAS NOT CONSIDERATION FOR USE OF TRADE MARK OR PROVISION OF TECHNICAL ASSISTANCE, FOR WHIC H SEPARATE ROYALTY PAYMENT WAS BEING MADE ON WHICH TAX IS DULY DEDUCTED UNDER SECTION 195 OF THE ACT. 6.7 WITHOUT PREJUDICE THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT PAYMENT OF EXPORT COMMISSION BEING FOR EARNING INCOME FROM SOURCE OUTSIDE INDIA, CANNOT BE CHARACTERIZED AS ROYALTY OR FEE FOR TECH NICAL SERVICE AS PER SECTION 9(1 )(VI)(B) OR SECTION 9(1 )(VII)(B) OF THE ACT RESPECTIVELY. 6.8 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALTERNATIVELY HOLDING PAYME NT OF EXPORT COMMISSION TO BE IN THE NATURE OF CAPITAL EXPENDITURE NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT ON THE GROUND THAT THE SAME WAS INCURRED FOR ACQUIRING PERMISSION / LICENSE FOR MAKING EXPORT. 7.THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTION 234 B AND SECTION 234C OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR VARY, ANY OF THE AFORESAID GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL AND CONSIDER EACH OF THE GROUNDS AS W ITHOUT PREJUDICE TO THE OTHER GROUNDS OF APPEAL. 3.1. ADDRESSING THE GROUNDS, LD. AR SUBMITTED THAT GROUND NOS. - 1 & 2 MAY BE TREATED AS GENERAL GROUNDS. ADDRESSING GROUND NO. - 3 WHEREIN TRANSFER 7 I.T.A .NO. - 60 2 3/DEL/2012 PRICING ISSUES HAVE BEEN RAISED IT WAS SUBMITTED THAT THE ASSESSEE HAD CLAIMED THE AMP EXPENSES WHICH WERE DISALLOWED AND ADJUSTMENT TO THE EXTENT OF RS.8,27,61,669/ - HAS BEEN MADE. THE SAID GROUND ALONGWITH THE VARIOUS SUB - GROUNDS IT WAS SUBMITTED MAY BE RESTORED TO THE FILE OF THE TPO AS NEITHER THE TPO NOR TH E DRP HAVE HAD THE BENEFIT OF CONSIDERING THE DECISION OF THE SPECIAL BENCH IN THE CASE OF L.G. ELECTRONICS WHICH AS PER JUDICIAL PRECEDENT IS BOUND TO BE CONSIDERED. 3.2. IT WAS FURTHER ELABORATED THAT COMMISSION ON SALES, SALES DISCOUNT AND SALES PROM OTION EXPENSES NEED TO BE EXCLUDED FROM THE AMP BASKET OF EXPENSES. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: - GLAXOSMITHKLINE CONSUMER HEALTHCARE INDIA LTD. VS ADDL CIT (ITA NO 1148/CHD/2011) CANON INDIA PVT. LTD. VS DCIT (ITA NO.4602/DEL/2010) DIAGEO INDIA PRIVATE LIMITED VS DCIT (ITA NO. - 7932/MUM/2011) REEBOK INDIA CO. VS. ACIT (ITA NO. - 5857/DEL/2012) HAIER APPLIANCES INDIA (P.) LTD VS DCIT (ITA NOS.4680/DEL/2010) SONY INDIA PVT. LTD. VS ACIT (ITA NOS. 4978/DEL/2011 AND 6389/DEL/2012) FORD INDI A PVT. LTD. VS DCIT (ITA NO.2089/MDS/2011) PANASONIC SALES & SERVICES INDIA PVT. LTD. VS ACIT (1911/MDS/2011) WHIRLPOOL OF INDIA LIMITED VS DCIT (ITA NO.426/DEL/2013) AMADEUS INDIA PVT. LTD. VS ACIT (ITA NO.4584/DEL/2011) 3.3. IT WAS SUBMITTED THAT ONCE THE AMP IS REDUCED BY THE ABOVE EXPENSES WHICH FOLLOWING THE JUDICIAL PRECEDENT HAS TO BE ALLOWED THEN ONLY AN EXPENDITURE OF RS. 6.26 CRORE COULD BE SAID TO HAVE BEEN SPENT ON BRAND BUILDING WHICH WOULD AMOUNT TO ONLY 2.25% OF THE TOTAL SALES. 3.4. FOR THE SAKE OF COMPLETENESS IT WAS CONTENDED THAT THE ASSESSEE HAS ALSO ASSAILED THE COMPARABLES TAKEN FOR BENCH - MARKING THE AMP EXPENDITURE ON WHICH BRIGHT LINE HAS BEEN CALCULATED AND REFERRING TO PARA 17.6 OF THE ORDER OF THE SPECIAL BENCH IT WAS S U B M I T T E D THAT T H E O R D E R MANDATES THAT IN ORDER TO MAKE A MEANINGFUL COMPARISON IT IS N E C E S S A R Y THAT COMPARABLES SO SELECTED SHOULD NOT BE USING THE FOREIGN BRAND. THIS EXERCISE IT WAS SUBMITTED NEEDS TO BE DONE. REFERRING TO THE COMPARABLES GIVE N BY THE ASSESSEE FOUND MENTIONED AT 8 I.T.A .NO. - 60 2 3/DEL/2012 PAGE 41 OF THE TPO S ORDER IT WAS SUBMITTED THAT THE AMP EXPENSES OF THE COMPARABLES AT 10.93% OF SALES WAS HIGHER THAN 4.46% OF THE SALES BY THE ASSESSEE AND EVEN ON THIS GROUND THE ADJUSTMENT WAS NOT WARRANTED ON FA CTS. 3.5. ACCORDINGLY IT WAS HIS SUBMISSION THAT THE ISSUE HAS TO BE RESTORED TO THE TPO FOR APPLYING THE PRINCIPLE LAID DOWN BY THE SPECIAL BENCH IN LG. ELECTRONICS CASE. IT WAS ALSO HIS SUBMISSION THAT THE TPO MAY ALSO BE DIRECTED TO PASS AN ORDER IN A CCORDANCE WITH DECISION OF THE HON BLE HIGH COURT IN THE CASE OF THE CANON INDIA PVT. LTD. WHEREIN THE HEARING HAS CONCLUDED AND THE JUDGEMENT IS RESERVED AS TO THE EXTENT THE HON BLE HIGH COURT DECIDES THE ISSUE THE APPLICATION OF THE DECISION OF THE SP ECIAL BENCH IN L.G. ELECTRONICS CASE MAY NEED TO BE MODIFIED. 4. THE LD. CIT DR, SH. YOGESH VERMA SUBMITTED THAT HE HAS NO OBJECTION IF THE ISSUE IS RESTORED TO BE DECIDED IN TERMS OF THE DECISION OF THE SPECIAL BENCH. IT WAS FURTHER STATED BY HIM THAT T HE TPO NECESSARILY WOULD ALSO TAKE INTO CONSIDERATION WHATEVER OTHER DECISIONS ARE AVAILABLE EITHER OF THE TRIBUNAL OR OF TH E HON BLE HIGH COURT AS SUCH IT NEED NOT BE SPECIFICALLY SO DIRECTED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE RECORD SHOWS THAT IN THE YEAR UNDER CONSIDERATION THE ASSESSEE INCURRED AN EXPENDITURE OF RS.12,39,19,327/ - . AS PER THE ASSESSEE S CLAIM IT WAS 4.46% OF THE SALES. THE FOLLOWING BREAK UP OF EXPENSES WAS PROVIDED: - S.NO. NA ME OF EXPENSES AMOUNT (RS. THOUSANDS) 1. COMMISSION ON SALES 1,22,95,327 2. ADVERTISEMENT AND PUBLICITY 6,26,52,000 3. SALES PROMOTION 3,42,80,000 4. SALES DISCOUNT 1,46,92,000 TOTAL 12,39,19,327 5.1 . THE TPO CONSIDERING THE 6 COMPANIES WAS OF THE VIEW THAT THE EXPENDITURE WAS IN EXCESS OF THE BRIGHT LINE BY 1.87% WHICH WAS CONSIDERED TO BE FOR PROMOTION OF BRAND/TRADE NAME WHICH WAS OWNED BY THE AE FOR WHICH SUITABLE THE ASSESSEE WAS REQUIRED TO BE C OMPENSAT ED BY THE AE , ACCORDINGLY A 9 I.T.A .NO. - 60 2 3/DEL/2012 MARKUP OF 15% WAS APPLIED . THIS RESULTED IN AN ADJUSTMENT OF RS.8,27,61,669/ - . THE ACTION WAS UPHELD BY THE DRP. 5.2 . IT IS SEEN THAT THE SPECIAL BENCH IN L.G. ELECTRONICS CASE IN PARA 17.4 HAS GIVEN CERTAIN DIRECTI ONS ON THE BASIS OF WHICH THE AMP IS TO BE CALCULATED. PARA 17.6 FURTHER GIVES SPECIFIC DIRECTIONS IN REGARD TO THE COMPARABLES. ON A CONSIDERATION THEREOF, WE ARE OF THE VIEW THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AND THE MATERIAL AVAIL ABLE ON RECORD , IT WOULD BE APPROPRIATE TO RESTORE THE ISSUE BACK TO THE FILE TO THE TPO WITH THE DIRECTION TO PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW TAKING INTO CONSIDERATION THE PRINCIPLES LAID DOWN BY THE SPECIAL BENCH IN L.G. ELECTRONICS CASE AN D IN THE EVENTUALITY THEY ARE MODIFIED OR SUBSTITUTED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CANON INDIA PVT. LTD. , TH E SAME SHALL ALSO NECESSARILY BE TAKEN INTO CONSIDERATION. IN VIEW OF THE ABOVE, GROUND NO. - 3 ALONGWITH VARIOUS SUB - GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 6. ADDRESSING THE NEXT ISSUE AGITATED BY THE ASSESSEE VIDE GROUND NO. - 4 TO 4.6 IT WAS SUBMITTED BY THE LD. AR THAT THERE IS A SIMILARITY OF TERMS AND CONDITIONS AND AGREEMENTS WITH THE ASSESSEE AND ITS S ISTER GROUP IN THE CASE OF M/S HERO MOTOR CORP LTD. VS ACIT (ITA NO. - 5130/DEL/2010) WHEREIN THE CO - ORDINATE BENCH WAS PLEASED TO HOLD AS UNDER: - THEREFORE, BY EXPORT TO THE AE OF HONDA JAPAN, THE ASSESSEE HAS BEEN BENEFITED AND WAS NOT AT A LOSS. THE FUR THER FINDING OF THE TPO THAT THE POSITION OF THE ASSESSEE COMPANY WITH REGARD TO EXPORT WAS THAT OF A CONTRACT MANUFACTURER, IN OUR OPINION, IS WITHOUT ANY BASIS AND IN FACT CONTRARY TO THE FACTS ON RECORD. THE RAW MATERIALS HAVE BEEN PURCHASED BY THE ASS ESSEE IN ITS OWN RIGHT. IT IS NOT THE CASE OF THE TPO THAT THE RAW MATERIALS HAVE BEEN SUPPLIED BY THE AE. THE ASSESSEE HAS SOLD THE GOODS TO AE ON PRINCIPAL TO PRINCIPAL BASIS AND HAS RECEIVED THE SALE CONSIDERATION. IN VIEW OF THE ABOVE, IN OUT OPINIO N, THERE IS NO JUSTIFICATION FOR DISALLOWANCE OF THE ROYALTY ON THE EXPORT. 6.1. IT WAS HIS SUBMISSION THAT THE PAYMENT OF ROYALTY HAS BEEN MADE IN TERMS OF TECHNICAL KNOWHOW AGREEMENT WHICH HAS DUE APPROVALS OF GOVERNMENT OF INDIA IN CONSIDERATION FOR P ROVIDING OF TECHNICAL KNOWHOW AND TECHNICAL 10 I.T.A .NO. - 60 2 3/DEL/2012 INFORMATION, ASSISTANCE ETC. FOR MANUFACTURE OF FINISHED PRODUCTS WHICH IN THE CASE OF THE ASSESSEE GENSETS AS OPPOSED TO TWO WHEELERS BY THE SISTER CONCERN WHICH WAS THE ONLY DIFFERENCE OTHERWISE ALL TERMS AND A RGUMENTS ARE PARI MATERIA WITH THE ASSESSEE S TERMS AND AGREEMENTS WITH ITS AE. IT WAS SUBMITTED THAT THE ASSESSEE HAS WRONGLY BEEN CONSIDERED A CONTRACT MANUFACTURER BY THE REVENUE AND IS INFACT IN REGARD TO THE SALES TO THE AE IS ACTING ON A PRINCIPAL TO PRINCIPAL BASIS WHEREIN THE PRICE IS AGREED UPON BY THE PARTIES. IN THE FACTS OF THE PRESENT CASE IT WAS SUBMITTED THE TPO HAS ARBITRARILY CHARACTERIZED THE ASSESSEE AS A CONTRACT MANUFACTURER WITHOUT CHALLENGING FAR ANALYSIS CONDUCTED WHICH WOULD C LEARLY ESTABLISH THAT THE ASSESSEE IS ACTING AS AN ENTREPRENEUR IN RESPECT OF ITS TRANSACTIONS AND THE VERY FACT THAT ROYALTY IS A PART OF INPUT OF SALE WHICH IS RECOVERED WHEN THE FINISHED PRODUCTS SOLD TO AE OR THE NON - AE FOR THAT MATTER WOULD DEMONSTRAT E THIS FACT. THE RELIANCE PLACED UPON THE DECISION OF SONA OKEGAWA PRECISION FORGINGS LTD. VS ACIT BY THE TPO. I T WAS SUBMITTED IS INCORRECT AND INFACT THE SAID DECISION OPERATES IN ASSESSEE S FAVOUR. DRAWING A COMPARISON WITH ITS SISTER GROUP AND READI NG FROM THE ORDER OF THE CO - ORDINATE BENCH, IT WAS HIS SUBMISSION THAT ON ACCOUNT OF THE SIMILARITY OF AGREEMENTS IN THE CASE OF SISTER CONCERN THE VIEW TAKEN BY THE CO - ORDINATE BENCH DESERVES TO BE FOLLOWED. RELYING UPON ANOTHER DECISION OF THE CO - ORD INATE BENCH IN THE CASE OF BHARTI AIRTEL LIMITED VS ACIT IN ITA NO. - 5816/DEL/2012 IT WAS HIS SUBMISSION THAT RE - CHARACTERISATION OF THE TRANSACTION CAN BE DONE ONLY IF THE TRANSACTION IS FOUND TO BE SHAM OR BOGUS AND OR SUBSTANTIALLY AT VARIANCE WITH THE STATED FORM. IN THE FACTS OF THE PRESENT CASE IT WAS SUBMITTED THERE IS NO SUCH DISCUSSION. 6.2. WITHOUT PREJUDICE TO THE ARGUMENTS SO ADVANCED IT WAS ALSO HIS SUBMISSION THAT EVEN IF FOR A MOMENT IT IS CONSIDERED THAT THE ASSESSEE IS A CONTRACT MANUFAC TURER THEN UNDER SUCH CIRCUMSTANCES THE PAYMENT OF ROYALTY WOULD HAVE BEEN REVENUE NEUTRAL BECAUSE IF NO ROYALTY HAD BEEN PAID BY THE ASSESSEE THAN THE PRICE REALIZED BY IT FROM ITS AE WOULD HAVE BEEN LOWER AS 11 I.T.A .NO. - 60 2 3/DEL/2012 COMPARED TO THE PRICE ACTUALLY REALIZED WHICH INCLUDES THE ROYALTY COST AS CONTRACT MANUFACTURER ARE NORMALLY COMPENSATED ON A COST PLUS BASIS AND THE TPO HAD NOT CHALLENGED THE OPERATING PROFIT MARGIN EARNED BY THE ASSESSEE. 7. THE LD. CIT DR THOUGH PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW SUBMITTED THAT HE WOULD HAVE NO OBJECTION IF THE ISSUES ALSO GOES BACK TO THE FILE TO THE TPO TO SPECIFICALLY TAKE INTO CONSIDERATION THE SPECIFIC TERMS OF THE AGREEMENT WHICH ARE STATED TO BE SIMILAR TO THE ORDER OF THE SISTER CONCERN IN HERO MOTOR CORP VS ACIT AS NO SUCH CLAIM WAS MADE BEFORE THE AUTHORITIES AND THE ISSUE HAS NOT BEEN EXAMINED. 8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT CO - ORDINATE BENCH IN THE CASE OF THE SISTER CONCERN WH EREIN TERMS AND CONDITIONS RECORDED IN THE AGREEMENTS ARE STATED TO BE IDENTICAL HAD DECIDED THE ISSUE IN FOLLOWING MANNER: - 92. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. WE HAVE ALREADY CONSIDERED SIMILAR ISSUE WHILE CONSIDERING THE DISALLOWANCE OF ROYALTY AND THE EXPORT COMMISSION. WHILE CONSIDERING THE DISALLOWANCE OF THE EXPORT COMMISSION, WE HAVE NOTED THAT THE PAYMENT OF ROYALTY AND THE EXPORT COMMISSION ARE FOR TWO DIFFERENT PURPOSES. THE ASSESSEE IS PAYING ROYALTY AS PER TECHNICAL KNOW - HOW AGREEMENT DATED 02.06.2004 WITH HMCL. AS PER THIS AGREEMENT, THE ASSESSEE IS ENTITLED TO USE TECHNICA L KNOW - HOW PROVIDED BY HMCL FOR MANUFACTURE AND SALE OF TWO WHEELERS AND PARTS. ROYALTY IS TO BE PAID FOR THE GOODS MANUFACTURED BY THE ASSESSEE, WHETHER SOLD WITHIN INDIA OR OUTSIDE INDIA. IT IS NOT IN DISPUTE THAT THE MOTORCYCLES WHICH WERE EXPORTED BY T HE ASSESSEE, WERE MANUFACTURED BY USING THE TECHNICAL KNOW - HOW PROVIDED BY HMCL UNDER THE TECHNICAL KNOW - HOW AGREEMENT DATED 02.06.2004. THEREFORE, ROYALTY IS PAYABLE ON SUCH MANUFACTURING OF GOODS. THE CONTENTION OF THE LEARNED TPO THAT THE GOODS ARE EXPO RTED TO SUBSIDIARIES OF THE ASSOCIATE ENTERPRISE I.E. AE OF HONDA JAPAN AND THE ASSESSEE ALSO PAID EXPORT COMMISSION, WOULD BE NO GROUND FOR DISALLOWANCE OF THE ROYALTY OR DETERMINING ARM S LENGTH PRICE OF THE ROYALTY AT NIL. THE ASSESSEE IS EXPORTING GOOD S TO AE OF HONDA ON PRINCIPAL TO PRINCIPAL BASIS AND THE PRICE AT WHICH EXPORT IS MADE IS HIGHER THAN THE DOMESTIC PRICE. WHILE DISCUSSING THE DISALLOWANCE OF EXPORT COMMISSION, WE HAVE DISCUSSED THIS ISSUE AT LENGTH AND HAVE NOTED THAT EVEN AFTER REDUCING THE EXPORT COMMISSION, THE ASSESSEE DERIVED THE BENEFIT OF RS.13.05 CRORES BY EXPORT. AT THE COST OF REPETITION, WE WOULD LIKE TO MENTION THAT THE EXPORT SALE VALUE WAS MORE THAN THE DOMESTIC SALE RATE AND THE ASSESSEE HAS GIVEN A DETAILED WORKING THEREOF , WHICH IS ENCLOSED WITH THIS ORDER IN THE FORM OF ANNEXURE - I. IN THE ABOVE WORKING, THE ASSESSEE HAS REDUCED THE 12 I.T.A .NO. - 60 2 3/DEL/2012 EXPORT COMMISSION. THEREFORE, BY EXPORT TO THE AE OF HONDA JAPAN, THE ASSESSEE HAS BEEN BENEFITED AND WAS NOT AT A LOSS. THE FURTHER FINDING O F THE TPO THAT THE POSITION OF THE ASSESSEE COMPANY WITH REGARD TO EXPORT WAS THAT OF A CONTRACT MANUFACTURER, IN OUR OPINION, IS WITHOUT ANY BASIS AND IN FACT CONTRARY TO THE FACTS ON RECORD. THE RAW MATERIALS HAVE BEEN PURCHASED BY THE ASSESSEE IN ITS OW N RIGHT. IT IS NOT THE CASE OF THE TPO THAT THE RAW MATERIALS HAVE BEEN SUPPLIED BY THE AE. THE ASSESSEE HAS SOLD THE GOODS TO AE ON PRINCIPAL TO PRINCIPAL BASIS AND HAS RECEIVED THE SALE CONSIDERATION. IN VIEW OF THE ABOVE, IN OUR OPINION, THERE IS NO JUS TIFICATION FOR DISALLOWANCE OF THE ROYALTY ON THE EXPORT. WE MAY REITERATE THAT THE REVENUE HAS DISALLOWED THE ENTIRE ROYALTY PAID EVEN ON DOMESTIC SALE WHICH HAS BEEN CONSIDERED AT LENGTH BY US IN THE EARLIER PARAGRAPH OF THIS ORDER AND WE HAVE ARRIVED AT THE CONCLUSION THAT THE PAYMENT OR ROYALTY WAS A REVENUE EXPENDITURE, INCURRED FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, THE ADDITION MADE BY THE TPO BY DETERMINING ARM S LENGTH PRICE OF ROYALTY ON EXPORT AT NIL IS DELETED. (EMPHASIS BY THE BENCH) 8.1 . FROM A READING OF THE ABOVE IT IS SEEN THAT WHILE COMING TO THE DECISION BEFORE THE CO - ORDINATE BENCH A DETAILED WORKING IN NUMBERS AND FIGURES IN SUPPORT OF ITS CLAIM WAS PROVIDED BY THE ASSESSEE. THE SAID EXERCISE IS FOUND MISSING IN THE PRESENT CAS E DEHORS THE ABOVE FACT TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE REVENUE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE TPO TO CONSIDER THE CLAIM OF THE ASSESSEE THAT THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THE AE IS SIMI LAR TO THE AGREEMENT ENTERED INTO BY THE SISTER CONCERN WITH THE AE IN ASMUCH AS THE TERMS AND CONDITIONS IMPA C TING THE ISSUE ARE MATERIALLY SIMILAR AND ACCORDINGLY THEREAFTER CONSIDERING THE DECISION OF THE CO - ORDINATE BENCH IN THE CASE OF SISTER CONCERN , HE SHALL PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. THE ASSESSEE CONSEQUENTLY WOULD BE AT LIBERTY TO PLACE RELEVANT FACTS IN SUPPORT OF ITS CLAIM BEFORE THE TPO. 8.2. IN VIEW OF THE ABOVE, GROUND NO. - 4 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9. THE NEXT ISSUE AGITATED BY THE ASSESSEE VIDE GROUND NO. - 5 TO 5.4 IS FOUND DISCUSSED IN THE DRAFT ASSESSMENT ORDER AT PAGES 3 TO 13 AND IN THE DRP S ORDER AT PAGE 7 PARA 5.1. THE R ELEVANT FACTS ARE THAT THE ASSESSEE PAID ROYALTY OF 13 I.T.A .NO. - 60 2 3/DEL/2012 RS.8,77,14,255/ - AND TECHNICAL GROUNDED FEE OF RS.1,74,64,000/ - TO M/S HONDA MOTOR COMPANY, JAPAN. THE AO HELD THE EXPENDITURE TO BE CAPITAL EXPENDITURE AND DISALLOWED THE SAME. THE ASSESSEE BEFORE THE DRP PLACED RELIANCE UPON SIMILAR TREATMENT GIVEN BY THE AO IN 2007 - 08 ASSESSMENT YEAR WHERE HE HAD DISALLOWED 25% OF THE EXPENDITURE ON SIMILAR FACTS AND CIRCUMSTANCES. THE EXPENDITURE WAS CLAIMED TO BE REVENUE IN NATURE AND NO PORTION OF WHICH IT WAS S UBMITTED COULD BE CAPITALIZED. THE CASE LAW RELIED UPON BY THE AO WAS DISTINGUISHED. HOWEVER IN VIEW OF THE FACT THAT THE DISPUTE WAS COMING FROM THE EARLIER YEARS THE DRP DECLINED TO INTERFERE. 10. THE LD. AR RELIED UPON THE DECISION OF THE CO - ORDINAT E BENCH IN ASSESSEE S OWN CASE RENDERED BY THE CO - ORDINATE BENCH IN 2007 - 08 ASSESSMENT YEAR IN ITA NO. - 5713/DEL/2011 WHEREIN THE CO - ORDINATE BENCH AFTER CONSIDERING THE DECISION RENDERED IN THE CASE OF THE SISTER CONCERN I.E HERO HONDA MOTORS LTD. VS DCIT IN ITA NO. - 716/DEL/2008 AND AFTER MAKING A COMPARISON WITH THE VARIOUS CLAUSES OF THE AGREEMENT WAS PLEASED TO DELETE THE ADDITION MADE. IN THE FACTS OF THE PRESENT CASE IT WAS SUBMITTED THAT THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES AND THE GROUN D OF THE ASSESSEE DESERVES TO BE ALLOWED. COPY OF THE DECISION OF THE CO - ORDINATE BENCH DATED 25.07.2014 WAS FILED IN THE COURT AND SPECIFIC ATTENTION WAS INVITED TO PARA 7.4 WHICH ADDRESSES THE ISSUE AND THE STAND OF THE ASSESSEE THAT THE TERMS AND CONDITIONS BEING PARI MATERIA TO THE FACTS AND CIRCUMSTANCES TO THE TERMS AND CONDITIONS IN THE CASE OF THE SISTER CONCERN IN ITA NO. - 5130/DEL/2010 DECISIONS RENDERED FOR 2006 - 07 ASSESSMENT YEAR. THE DETAILED COMPARISON IT WAS STATED HAS BEEN DISCUSS ED IN PARA 7.5 BY THE CO - ORDINATE BENCH. THE DEPARTMENTAL STAND THAT THERE WAS NO SIMILARITY ON FACTS AND CIRCUMSTANCES WITH THE SISTER CONCERN IT WAS SUBMITTED HAS ALSO BEEN CONSIDERED IN PARA 7.6. CONSIDERING WHICH IT WAS SUBMITTED THE CO - ORDINATE BENC H HAS HELD THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY HEAVY RELIANCE WAS PLACED ON THE ORDER IN ITS OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. 14 I.T.A .NO. - 60 2 3/DEL/2012 11. THE LD. CIT DR PLACED RELIANCE UPON THE ASSESSMENT ORDER AND THE ORDER OF THE DRP. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE RECORD WOULD SHOW THAT THE DRP REFUSED TO INTERFERE ON THE REASONING THAT THE ISSUE WAS STILL ALIVE AS A RESULT THEREOF THE RELIEF GRANTED IN APPEAL IN 2 007 - 08 ASSESSMENT YEAR BY THE FIRST APPELLATE AUTHORITY WAS NOT FOLLOWED. THE LD. AR HAS PLACED COPY OF THE ORDER IN ASSESSEE S OWN CASE FOR 2007 - 08 ASSESSMENT YEAR WHEREIN ITA NO. - 5713/DEL/2011 THE CO - ORDINATE BENCH FOLLOWING THE VIEW TAKEN IN M/S HERO M OTOR CORP LTD. VS ACIT ORDER DATED 23.11.2012 IN ITA NO. - 5130/DEL/2010 RENDERED BY THE DELHI C BENCH OF THE TRIBUNAL BY DETAILED FINDING IN PARAS 7.4 TO 7.7 PAGES 22 TO 40 CONFIRMED THE RELIEF GRANTED BY THE CIT(A) HOLDING THAT THE COMPARATIVE CLAUSES B ASED ON THE AGREEMENT IN THE CASE OF THE ASSESSEE AND ITS SISTER CONCERN WERE PARI MATERIA AND CONSEQUENTLY THE PAYMENTS WERE REVENUE IN NATURE. RESPECTFULLY FOLLOWING THE ORDER OF THE CO - ORDINATE BENCH IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, GROUND NOS. - 5 TO 5.4 ARE ALLOWED. 13. THE NEXT ISSUE AGITATED BY THE ASSESSEE IN THE PRESENT A PPEAL IS ADDRESSED BY GROUND NOS. - 6 TO 6.8. A PERUSAL OF THE RECORD SHOWS THAT THE PAYMENT OF RS.5,19,96,673/ - PAID TO M/S HONDA MOTORS COMPANY, JAPAN WAS DISALLOWED BY THE AO WHO HELD IT TO BE IN THE NATURE OF ROYALTY AND AS SUCH A DISALLOWANCE OF THE A BOVE AMOUNT WAS MADE AS TDS THEREON WAS NOT DEDUCTED. THE ISSUE CHALLENGED BEFORE THE DRP WAS CONFIRMED ON THE REASONING THAT IT HAS NOT BEEN FINALLY SETTLED AS SUCH IT WAS CONSIDERED NOT APPROPRIATE TO INTERFERE. THE LD. AR RELIES UPON THE ORDER OF THE C O - ORDINATE BENCH IN ASSESSEE S OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR CITED SUPRA. THE LD. CIT DR HAS PLACED RELIANCE UPON THE ORDERS OF THE AUTHORITIES BELOW HOWEVER NO CONTRARY FACT OR JUDGEMENT WAS RELIED UPON SO AS TO CANVASS THAT THE V IEW OF THE CO - ORDINATE BENCH IN ASSESSEE S OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR BE NOT FOLLOWED. 15 I.T.A .NO. - 60 2 3/DEL/2012 14. IN THE AFORE - MENTIONED PECULIAR FACTS AND CIRCUMSTANCES WHEREIN IT IS SEEN THAT THE CO - ORDINATE BENCH IN THE AFORE - MENTIONED ORDER DATED 25.07.2014 (CITED SUPRA) HAS DISCUSSED THE ISSUE VIDE PARA 7.8 TO PARA 8 AT PAGES 40 TO 44 WHEREIN REFERRING TO THE EAR LIER DETAILED FINDINGS THAT THE TECHNICAL COLLABORATION AGREEMENT ARE PARI MATERIA IN THE CASE OF THE ASSESSEE AND THE SISTER CONCERN THE CO - ORDINATE BENCH WAS PLEASED TO HOLD THAT THE EXPORT COMMISSION WAS NEITHER ROYALTY NOR FEES FOR TECHNICAL SERVICES A ND AS SUCH THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE PAYMENT OF EXPORT FEE AND THUS ONCE THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX AT SOURCE THE OCCASION TO CONSIDER FAILURE TO DEDUCT THE SAME DOES NOT ARISE. IT HAS ALSO BEEN HELD THAT THE EXPORT COMMISSION HAS BEEN PAID FOR THE BUSINESS PURPOSES OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ORDER OF THE CO - ORDINATE BENCH IN ASSESSEE S OWN CASE WHERE NO CHANGE IN FACTS OR CIRCUMSTANCES HAS BEEN POINTED OUT BY THE REVENUE, THE ADDITIONS M ADE BY WAY OF APPLYING SECTION 40(A)(I) IS DIRECTED TO BE DELETED. 15. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 1 2 T H OF DECEM BER 2014. S D / - S D / - ( B.C.MEENA ) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 2 / 12 /2014 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI