Appeal Details
Counselvise Citation
[2021] 108 COUNSELVISE.COM (IT) 6710 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 4 month(s) 16 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
13-04-2021
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
I
Assessment Year
2005-2006
Appeal Filed On
27-11-2015
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER & SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO. 6282/DEL/2015 ASSESSMENT YEAR: 2005-06 HERO MOTOCORP LTD. 34, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, NEW DELHI. PAN NO. AAACH0812J VS ADDL. CIT RANGE-12, NEW DELHI. & ITA NO. 6302/DEL/2015 ASSESSMENT YEAR: 2005-06 DCIT CIRCLE 11(1) NEW DELHI. VS HERO HONDA MOTORS LTD. 34, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, NEW DELHI. PAN NO. AAACH0812J ASSESSEE BY SHRI GAURAV JAIN, ADV. MS. MONISHA SHARMA, ADV. REVENUE BY SHRI SURENDERPAL, CIT DR DATE OF HEARING 15.01.2021 DATE OF PRONOUNCEMENT 13.01.2021 2 ITA NOS.62 82 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE LD. COMMISSIONER O F INCOME TAX (APPEALS)-44, NEW DELHI {CIT (A)} VIDE ORDER DATED 2 8.08.2015 FOR ASSESSMENT YEAR 2005-06. ITA 6282/DEL/2015 IS THE A PPEAL FILED BY THE ASSESSEE WHEREAS ITA 6302/DEL/2015 IS THE APPEAL OF THE DEPARTMENT. 2.0 THE RESPECTIVE GROUNDS RAISED BY THE PARTIES A RE AS UNDER: 2.1 ITA NO. 6282/DEL/2015 (ASSESSEE APPEA L): 1. THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN S USTAINING THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS. 3,26,03,500 INVOKING T HE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT) ALLEGING THE SAME TO HAVE BEEN INCURRED FOR EARNING EXEMPT DIVID END INCOME. 1.1 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN A FFIRMING THE ACTION OF THE ASSESSING OFFICER IN COMPUTING DISALL OWANCE OF ADMINISTRATIVE EXPENSES, BY ALLOCATING 0.5% OF THE TOTAL INVESTMENTS MADE BY THE APPELLANT DURING THE RELEVA NT PREVIOUS YEAR, ON THE ASSUMPTION THAT CERTAIN ADMINISTRATIVE EXPENSES MUST HAVE BEEN INCURRED TO EARN THE EXEMPT INCOME W ITHOUT APPRECIATING THAT ONLY EXPENSES HAVING PROXIMATE NE XUS WITH THE EARNING OF EXEMPT INCOME COULD HAVE BEEN DISALL OWED UNDER SECTION 14A OF THE ACT. 3 ITA NOS.62 82 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 1.2 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN N OT DELETING THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 78, 55,100 MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE A CT. 1.3 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN D IRECTING THE ASSESSING OFFICER TO DISALLOW INTEREST EXPENDITURE INCURRED ON BORROWED FUNDS UTILIZED FOR MAKING INVESTMENT IN SH ARES/MUTUAL FUNDS ON THE BASIS OF BANK STATEMENT UNDER SECTION 14A, WITHOUT APPRECIATING THAT THE APPELLANT HAD MIXED P OOL OF FUNDS WHEREIN SURPLUS FUNDS WERE SUFFICIENT FOR MAKING IN VESTMENTS IN SHARES/ MUTUAL FUNDS. 2. THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN S USTAINING THE DISALLOWANCE OF DEDUCTION OF RS. 2,30,53,828/- CLAI MED BY THE APPELLANT UNDER SECTION 80IA OF THE ACT IN RESPECT OF CAPTIVE POWER GENERATING UNIT SITUATED AT GURGAON. 2.1 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN A FFIRMING THE ACTION OF THE ASSESSING OFFICER IN COMPUTING INCOME OF THE POWER GENERATING UNIT BY CONSIDERING THE RATE OF RS. 3.99 PER UNIT, AT WHICH POWER WAS SUPPLIED BY HARYANA STATE ELECTRICI TY BOARD (HSEB), AS THE MARKET PRICE OF THE POWER, AS AG AINST RATE OF RS. 6.30 PER UNIT (COST OF GENERATION OF POWER AT R S. 5.48 PER UNIT + MARK-UP OF 15%) ADOPTED BY THE APPELLANT. 2.2 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THE PRICE AT WHICH ELECTRICITY WA S SUPPLIED BY HSEB WAS NOT REFLECTIVE OF MARKET PRICE SINCE ELE CTRICITY SUPPLY WAS NOT ADEQUATELY AVAILABLE FROM HSEB AT GURGAON A S PER THE APPELLANTS REQUIREMENT AND OTHER MANUFACTURERS IN THE VICINITY WERE PROCURING POWER FROM THE PRIME SUPPLIER, VIZ., MARUTI AT A HIGHER PRICE. 4 ITA NOS.62 82 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 3. THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN NO T DELETING THE DISALLOWANCE OF ADDITIONAL DEPRECIATION OF RS. 14.93 CRORES CLAIMED BY THE APPELLANT UNDER SECTION 32(1)(IIA) O F THE ACT WITH RESPECT TO PLANT AND MACHINERY ACQUIRED DURING THE YEAR. 3.1 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN H OLDING THAT NEW PLANT AND MACHINERY MUST DIRECTLY RESULT IN INC REASE IN INSTALLED CAPACITY OF THE MANUFACTURING PLANT FOR T HE PURPOSES OF CLAIMING ADDITIONAL DEPRECIATION THEREON UNDER SECT ION 32(1)(IIA) OF THE ACT, WITHOUT APPRECIATING THAT NO SUCH CONDI TION EXISTED IN THE SAID SECTION FOR ENTITLING ADDITIONAL DEPRECIAT ION. 4. THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN SU STAINING DISALLOWANCE OF PORTFOLIO MANAGEMENT EXPENDITURE OF RS. 27,68,039 ON THE GROUND THAT THE SAME RELATED TO IN VESTMENT ACTIVITY OF THE APPELLANT. 4.1 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN N OT ALLOWING THE ALTERNATE CLAIM OF THE APPELLANT FOR DEDUCTION OF PORTFOLIO MANAGEMENT CHARGES AGAINST INCOME UNDER THE HEAD C APITAL GAINS ON THE GROUND THAT THE SAID EXPENDITURE WAS RELATABLE TO EARNING OF EXEMPT INCOME. 5. THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN SU STAINING DISALLOWANCE OF PROFESSIONAL FEE OF RS. 14.74 PAID TO PROF. TARUN KHANNA, A NON-RESIDENT, FOR RENDERING CONSULTANCY S ERVICES FOR SCENARIO PLANNING EXERCISES OF THE APPELLANT, UNDER SECTION 40(A)(I) FOR ALLEGED FAILURE ON THE PART OF APPELLA NT IN NOT DEDUCTING TAX AT SOURCE THEREFROM. 5.1 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN H OLDING THAT THE SKILLS/ EXPERIENCE UTILIZED BY THE CONSULTANT F OR RENDERING 5 ITA NOS.62 82 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT SERVICES WOULD AMOUNT TO MAKE AVAILABLE WITHIN TH E MEANING OF ARTICLE 12(4) OF THE INDIA-USA DTAA. 6. THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN U PHOLDING THE ACTION OF THE ASSESSING OFFICER / TPO IN MAKING ADD ITION TO THE EXTENT OF RS.6,57,195/- ON ACCOUNT OF ALLEGED DIFFE RENCE IN ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION OF IMPORT OF COMPONENTS, SPARE PARTS ETC., APPLYING CUP METHOD INSTEAD OF TN MM APPLIED BY THE APPELLANT AS THE MOST APPROPRIATE METHOD. 6.1 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN N OT HOLDING THAT HAVING REGARD TO NATURE AND CLASS OF THE INTER NATIONAL TRANSACTIONS OF PURCHASE OF SPARE PARTS AND COMPONE NTS, TNMM WAS CORRECTLY APPLIED AS THE MOST APPROPRIATE METHO D, AS PER SECTION 92C OF THE ACT. 6.2 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN H OLDING THAT FOR DETERMINING THE ARMS LENGTH PRICE OF INTERNATI ONAL TRANSACTION OF PURCHASE OF SPARE PARTS AND COMPONEN TS, CUP METHOD WOULD BE THE MOST APPROPRIATE METHOD. 6.3 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT SINCE OPERATING PROFIT MARGIN OF THE APPELLANT WAS WITHIN AN ACCEPTABLE RANGE VIS-A-VIS UNRELATED PARTIES, NO FURTHER ADJUSTMENT OF ARMS LENGTH PRICE OF ANY OTH ER INTERNATIONAL TRANSACTION, INCLUDING THE IMPUGNED I MPORT OF COMPONENTS, WAS WARRANTED. 6.4 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN S USTAINING THE ORDER OF THE TPO / ASSESSING OFFICER IN APPLYING CU P METHOD IN RESPECT OF INTERNATIONAL TRANSACTION OF IMPORT OF C OMPONENTS FROM THE AE BY COMPARING INCOMPARABLE TRANSACTIONS, VIZ. , PRICE OF THE 6 ITA NOS.62 82 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT INTERNATIONAL TRANSACTION WITH PRICES OF PURCHASE O F SIMILAR COMPONENTS FROM THE DOMESTIC VENDORS. 6.5 THAT THE CIT (A) ERRED ON FACTS AND IN LAW IN N OT APPRECIATING THAT THE TPO IN THE SUCCEEDING ASSESSM ENT YEAR(S) HAD ACCEPTED THAT PRICE FOR IMPORT OF COMPONENTS IN THE FACTS OF THE APPELLANTS CASE CANNOT BE COMPARED WITH PRICE FOR PROCUREMENT OF SIMILAR COMPONENTS FROM THE DOMESTIC VENDORS. 2.2 ITA 6302/DEL/2015 (DEPARTMENTS APPEAL: 1. WHETHER ON THE FACTS & THAT CIRCUMSTANCES OF TH E CASE, LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 12507 73885 ON ACCOUNT OF DISALLOWANCE OF ROYALTY AND TECHNICAL GU IDANCE FEE? 2. WHETHER ON THE FACTS & THAT CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 198530762 ON ACCOUNT OF DISALLOWANCE OF MODEL FEE? 3. WHETHER ON THE FACTS & THAT CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 86926848 ON ACCOUNT OF DISALLOWANCE OF EXPORT COMMISSION DUE TO NON DEDUCT ION OF TDS? 4. WHETHER ON THE FACTS & THAT CIRCUMSTANCES OF THE CASE, LD. CIT (A) ERRED IN DELETING THE ADDITION OF RS. 51800000 ON ACCOUNT OF DISALLOWANCE OF WARRANTY PROVISIONS? 3.0.0 ARGUING FOR THE APPEAL FILED B Y THE ASSESSEE, THE LD. AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT GROU ND NOS. 1 TO 1.3 ARE RELATING TO DISALLOWANCE UNDER SECTION 14A OF T HE INCOME TAX ACT, 1961 (THE ACT) READ WITH RULE 8D OF THE INCOM E TAX RULES, 7 ITA NOS.62 82 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 1962 (THE RULES) AMOUNTING TO RS.3,26,03,500/- IT WAS SUBMITTED BY THE LEARNED AR THAT IN THE RETURN OF INCOME, THE ASSESSEE HAD SHOWN TO HAVE EARNED EXEMPT DIVIDEND INCOME OF RS.14 ,41,51,497/- FROM INVESTMENTS HELD IN SHARES AND MUTUAL FUNDS, A S UNDER: PARTICULARS AMOUNT (IN CRORES) DIVIDEND ON SHARES OF HERO HONDA FINLEASE LTD. 1.49 DIVIDEND ON OTHER SHARES 1.14 DIVIDEND FROM INVESTMENT IN MUTUAL FUNDS 11.78 TOTAL 14.41 3.0.1 IT WAS FURTHER SUBMITTED THAT THE ASS ESSING OFFICER COMPUTED DISALLOWANCE OF RS. 4,04,58,600/- BY APPLYI NG RULE 8D OF IN THE FOLLOWING MANNER: - EXPENDITURE DIRECTLY RELATING TO EXEMPT INCOME N IL - INTEREST EXPENDITURE APPORTIONED IN THE RATIO OF AVERAGE INVESTMENTS 78,55,100 TO AVERAGE TOTAL ASSETS - 0.5% OF AVERAGE INVESTMENTS 3,26,03,500 TOTAL DISALLOWANCE 4,04,58,600 3.0.2 IT WAS SUBMITTED BY THE LD. AR THAT THE LD. CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER UNDER SECTION 14A OF THE ACT TO THE EXTENT OF RS.3,26,03, 500/- BEING 0.5% OF THE TOTAL INVESTMENTS ON THE ASSUMPTION THAT CER TAIN 8 ITA NOS.62 82 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ADMINISTRATIVE EXPENSES MUST HAVE BEEN INCURRED TO EARN EXEMPT INCOME. IT WAS POINTED OUT THAT FURTHER, THE LD. CIT (A) REMANDED THE DISALLOWANCE TO THE EXTENT OF RS. 78,55,100/- ON ACCOUNT OF INTEREST EXPENDITURE TO THE ASSESSING OFFICER WHO, V IDE SET ASIDE ORDER DATED 31.03.2017, DELETED THE DISALLOWANCE MADE UNDE R SECTION 14A OF THE ACT TO THE EXTENT OF RS.78,55,100/-. 3.0.3 THE LD. AR SUBMITTED THAT THE DISALLOWANCE O F RS. 3,26,03,500/- WHICH WAS SUSTAINED BY THE LD. CIT (A) DESERVES TO BE DELETED AT THE THRESHOLD ITSELF SINCE DISALLOWANCE U NDER SECTION 14A OF THE ACT CANNOT BE MADE BY APPLYING THE PROVISION S OF RULE 8D SINCE THE PROVISIONS OF SAID RULE ARE PROSPECTIVE I N NATURE AND ARE, THUS, APPLICABLE FROM ASSESSMENT YEAR 2008-09 ONWARD S AND WERE NOT APPLICABLE DURING THE RELEVANT ASSESSMENT YEAR 2005-06. THE LD. COUNSEL RELIED ON THE FOLLOWING DECISIONS: - CIT V. ESSAR TELEHOLDINGS LTD: 401 ITR 445 (SC) - MAXXOP INVESTMENT LTD. V. CIT: 402 ITR 640 (SC) 3.0.4 THE LD. AR FOR THE ASSESSEE FURTH ER SUBMITTED THAT THE ASSESSING OFFICER MADE AN AD HOC DISALLOWANCE OF 0.5% OF THE AVERAGE 9 ITA NOS.62 82 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT INVESTMENT BY APPLYING RULE 8D AUTOMATICALLY, WITHOU T POINTING OUT ANY SPECIFIC EXPENDITURE HAVING BEING INCURRED BY T HE ASSESSEE TO EARN DIVIDEND INCOME. IT WAS SUBMITTED THAT THE ASS ESSING OFFICER, THUS, FAILED TO RECORD ANY SATISFACTION IN THE ASSE SSMENT ORDER REGARDING CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. THE LD. AR FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS WHEREI N THE HONBLE COURTS HAVE REPEATEDLY HELD THAT THE ASSESSING OFFI CER IS BOUND TO RECORD SATISFACTION QUA INCURRENCE OF THE EXPENDITURE FOR EARNING EXEMPT INCOME BEFORE MAKING DISALLOWANCE UNDER SECTI ON 14A OF THE ACT EVEN IN CASE WHERE THE ASSESSEE CLAIMS THAT NO E XPENDITURE HAS BEEN INCURRED: - GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT: 394 ITR 449(SC) - H.T. MEDIA LIMITED V. PCIT: 399 ITR 576 (DEL) - EICHER MOTORS LTD. VS. CIT: 398 ITR 51(DEL) 3.0.5 IT WAS FURTHER SUBMITTED THAT T HE ONUS IS ON THE REVENUE TO ESTABLISH THAT THE ADMINISTRATIVE EXPENS ES ARE INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME AND AD HOC DISALLOWANCE OF ADMINISTRATIVE EXPENSES CANNOT BE MADE UNDER SEC TION 14A OF THE 10 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ACT. FOR THE AFORESAID ARGUMENT, THE LD. AR RELIED ON THE FOLLOWING DECISIONS: - MAXXOP INVESTMENT LTD. V. CIT: 402 ITR 640 (SC) - DLF LTD. VS. CIT: 27 SOT 22 (DEL. ITAT) AFFIRMED BY DELHI HIGH COURT (350 ITR 555) - IMPULSE (INDIA) (P.) LTD. VS. ACIT: 22 SOT 368 (DEL . ITAT) - MINDA INVESTMENTS LTD. VS. DCIT: 48 SOT 169 (DEL. I TAT) - PUKHRAJCHUNILALBAFNA VS. DCIT: 65 SOT 187 (MUM. ITA T) - DCIT VS. SMITA CONDUCTORS LTD.: 16 SOT 251 (MUM. IT AT) - DCIT VS. JAMMU AND KASHMIR BANK LTD: 152 TTJ 522 (A MR. ITAT) - CIT V. CATHOLIC SYRIAN BANK LTD.:237 CTR 164/207 TA XMAN 2 (KAR.) 3.0.6 THE LD. AR SUBMITTED THAT IN TH E PRESENT CASE, NO EXPENDITURE WAS INCURRED TO EARN EXEMPT INCOME. THE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT PERTAINED TO MAIN BUSINESS ACTIVITY OF MANUFACTURING TWO WHEELERS AND WERE UNRELA TED TO EARNING OF DIVIDEND INCOME. FURTHER, IT WAS SUBMITTE D THAT THE REVENUE EARNED FROM MANUFACTURING ACTIVITY DURING T HE RELEVANT PREVIOUS YEAR WAS RS. 8,596.81 CRORES AS AGAINST DIV IDEND INCOME OF RS. 14.41 CRORES BEING 0.16% OF TOTAL REVENUE. IT WA S ALSO POINTED 11 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT OUT THAT OUT OF THE TOTAL INCOME OF RS. 14.41 CRORE S, A SUM OF RS. 12.24 CRORES WAS EARNED FROM THE FOLLOWING TWO INVESTM ENTS THAT WERE QUITE OLD, REQUIRING NO ADMINISTRATIVE/MANAGEME NT EFFORT OR ANY OTHER COST IN EARNING THE SAME: INCOME FROM UTIS UNIT 64 RS. 10.75 CRORES DIVIDEND FROM HERO HONDA FINLEASE LTD. RS. 1. 49 CRORES RS. 12.24 CRORES 3.0.7 IT WAS FURTHER SUBMITTED THAT EVEN FOR THE BALANCE DIVIDEND OF RS. 2.17 CRORES EARNED FROM INVESTMENT IN MUTUAL FUNDS AND INVESTMENT IN SHARES, THESE TREASURY ACTIVITIES WERE LOOKED AFTER BY TWO STAFF MEMBERS OF THE FINANCE DEPARTMENT, OUT OF TOTAL STRENGTH OF 70 EMPLOYEES. IT WAS SUBMITTED THAT THE TREASURY FUNCTION CARRIED OUT BY THESE TWO PERSONS COMPRISED OF FOUR ACTIVITIES, I.E., FUNDS MOBILIZATION (BORROWING), WOR KING CAPITAL MANAGEMENT, FINANCIAL RISK MANAGEMENT AND FUNDS DEP LOYMENT (INVESTMENTS). INVESTMENT IS ONLY ONE OF THE FUNCTI ONS PERFORMED BY THEM. THE LD. AR SUBMITTED THAT THE AFORESAID INVES TMENTS DID NOT INVOLVE ANY EXPENDITURE ON ACCOUNT OF ADMINISTRATIV E OR OTHER MANAGERIAL EXPENSES AND THAT ANY PORTION OF SUCH EX PENSES, IF AT ALL, 12 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT IS TO BE ATTRIBUTED TO MAKING OR HANDLING OF SUCH I NVESTMENT, WOULD BE MINUSCULE OR INSIGNIFICANT, WHICH HAS NOT BEEN PO INTED BY THE ASSESSING OFFICER. 3.0.8 WITHOUT PREJUDICE TO THE ABOVE, THE LD. AR SUBMITTED THAT DISALLOWANCE, IF ANY, HAS TO BE RESTRICTED TO T HE PROPORTIONATE AMOUNT OF SALARY PAID TO THE SAID EMPLOYEES. IT WAS POINTED OUT THAT THE ASSESSEE HAD SUO MOTU , OUT OF ABUNDANT CAUTION, STARTED DISALLOWING PROPORTIONATE SALARY OF EMPLOYEES IN THE SUBSEQUENT ASSESSMENT YEAR, I.E., AY 2006-07 AND ONWARDS, WHICH WAS AFFIRMED BY THE TRIBUNAL IN ORDER DATED 24.10.2016 FOR THE A SSESSMENT YEAR 2010-11 AND 2011-12 AND ORDER DATED 31.05.2018 FOR THE ASSESSMENT YEAR 2006-07. 4.0 THE LEARNED DR, ON THE OTHER HAND PLACED RELIANCE ON THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA), AND SUB MITTED THAT THIS ISSUE SHOULD BE SET ASIDE TO THE FILE OF THE ASSESS ING OFFICER. 5.0 WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT YEAR, THE ASSESSING OFFICER HAS MADE DISALLOWANCE UNDER SECTION 14A BY INVOKING PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 . SINCE RULE 8D 13 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT IS NOT RETROSPECTIVE, THE SAME IS NOT APPLICABLE IN THE PRESENT ASSESSMENT YEAR AND ACCORDINGLY, WE HOLD THAT THE AS SESSING ORDER ERRED IN INVOKING THE PROVISIONS OF RULE 8D OF THE RULES. WE FIND THAT THE ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING A METHOD OF DISALLOWANCE IN THE SUCCEEDING YEARS COMMENCING FROM AY 2006-07 ONWARDS. THE SAID METHOD HAS BEEN ACCEPTED BY THE TR IBUNAL IN AY 2010-11, 2011-12 AND 2006-07 (SET ASIDE PROCEEDINGS ) IN THE ABSENCE OF ANY DISSATISFACTION BY THE AO QUA INACCU RACY OF THE SAME. WE HAVE ALSO UPHELD THE SAID METHOD IN THE AP PEAL FOR AY 2015-16, IN THE ABSENCE OF ANY DISSATISFACTION BY T HE AO. WE ACCORDINGLY RESTORE THE MATTER BACK TO THE FILE OF THE AO TO COMPUTE DISALLOWANCE ON THE SAME BASIS IN THE YEAR UNDER CON SIDERATION AFTER TAKING REQUISITE DETAILS FROM THE ASSESSEE AND GIVI NG OPPORTUNITY OF HEARING BY FOLLOWING THE PRINCIPLE OF NATURAL JUSTI CE. THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 6.0.0 WITH RESPECT TO GROUND NO. 2 TO 2.2, THE LD. AR SUBMITTED THAT THE SAME RELATED TO DISALLOWANCE OF D EDUCTION OF RS. 2,30,53,828/- CLAIMED UNDER SECTION 80IA OF THE ACT IN RESPECT OF CAPTIVE POWER GENERATING UNIT SITUATED AT GURGAON. AT THE TIME OF 14 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT HEARING BEFORE US, IT WAS SUBMITTED BY THE LEARNED C OUNSEL THAT IN VIEW OF THE POWER SUPPLY CONSTRAINTS IN THE AREA OF GURGAON, HARYANA, THE ASSESSEE HAD SET UP POWER PLANT IN ORD ER TO MEET THE REQUIREMENT OF POWER OF ITS MANUFACTURING UNIT AT G URGAON. THE ASSESSEE CLAIMED DEDUCTION OF RS. 2,30,53,826/- UND ER SECTION 80IA OF THE ACT IN RESPECT OF THE POWER GENERATED AT THE AFORESAID UNIT AND CAPTIVELY CONSUMED BY THE ASSESSEE. THE DEDUCTION C LAIMED WAS DULY SUPPORTED BY CHARTERED ACCOUNTANTS REPORT. IT WAS SUBMITTED THAT FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 80IA, THE ASSESSEE ADOPTED TRANSFER PRICE OF POWER, CAPTI VELY CONSUMED, AT THE COST OF GENERATION OF POWER PER UNIT WITH MARK-U P OF 15%. THE COST OF GENERATION OF POWER WAS ADOPTED AT RS.5.48, WHICH WAS BASED ON COST CERTIFIED IN THE COST AUDIT REPORT. A CCORDINGLY, THE ASSESSEE ADOPTED THE RATE OF TRANSFER OF POWER @ RS . 6.30 PER UNIT (RS.5.48 + 15% OF RS.5.48). IT WAS SUBMITTED THAT T HE ASSESSING OFFICER, IN THE ASSESSMENT ORDER, RELYING ON THE AS SESSMENT ORDER FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 HELD THAT THE INTER-UNIT TRANSFER PRICE OF POWER FROM THE POWER PLANT SHOULD HAVE BEEN AT THE PRICE AT WHICH HSEB IS SUPPLYING, I.E. RS.3.99 PER U NIT. SINCE THE 15 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT COST OF GENERATION WAS MORE THAN THE MARKET VALUE TA KEN BY THE ASSESSING OFFICER, THERE WAS NO PROFIT FROM THE GENE RATION OF POWER AS PER THE ASSESSING OFFICER ELIGIBLE FOR DEDUCTION UN DER SECTION 80 IA OF THE ACT. IT WAS FURTHER SUBMITTED BY THE LD. AR T HAT THE LD. CIT (A), RELYING ON THE ORDER PASSED BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2006-07, UPHELD THE DISALLOWANCE MADE BY THE AS SESSING OFFICER. 6.0.1 THE LD. AR FOR THE ASSESSEE SUBMIT TED THAT THE TRIBUNAL, IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEARS 2010- 11 AND 2011-12, AFTER DULY TAKING INTO CONSIDERATIO N THE MATERIAL FACTS/EVIDENCES PLACED ON RECORD, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, HOLDING THAT FOR THE PURPOSE OF DETERMINA TION OF MARKET PRICE OF POWER UNDER SECTION 80IA(4) READ WITH 80IA (8) OF THE ACT, WHERE MULTIPLE OPTIONS OF PRICE OF A PRODUCT ARE AVA ILABLE, THEN THE PRICE WHICH IS MOST FAVORABLE TO THE ASSESSEE NEEDS TO BE ADOPTED. THE TRIBUNAL, WHILE DISTINGUISHING THE DECISION OF D ELHI BENCH OF THE TRIBUNAL IN THE EARLIER YEARS, ALSO HELD THAT PRICE OF POWER CHARGED BY STATE ELECTRICITY BOARD IS NOT REFLECTIVE OF MAR KET PRICE FOR COMPUTING DEDUCTION UNDER SECTION 80IA(4) OF THE AC T. IT WAS 16 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT SUBMITTED THAT THE DECISION OF THE TRIBUNAL IN ASSE SSMENT YEAR 2006-07 WAS DISTINGUISHED BY THE TRIBUNAL ON THE BA SIS OF RECTIFICATION ORDER DATED 06.09.2013 PASSED BY THE TRIBUNAL IN MA NO 1/DEL/2013, WHILE DECIDING THE ISSUE IN FAVOUR TH E ASSESSEE IN ASSESSMENT YEARS 2010-11 AND 2011-12. THE LD. AR PO INTED OUT THAT FOLLOWING THE ORDER FOR THE ASSESSMENT YEARS 20 10-11 AND 2011- 12, THE TRIBUNAL DELETED THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER IN ASSESSMENT YEARS 2009-10 AND 2004-05. 7.0 THE LD. DR RELIED ON THE ORDE R OF THE AO. 8.0.0 WE HAVE GONE THROUGH THE RECORDS. T HOUGH BY ORDER DATED 23.11.2012 PASSED BY THE TRIBUNAL FOR ASSESSM ENT YEAR 2006- 07, THE TRIBUNAL HAD DECIDED THE ISSUE AGAINST THE ASSESSEE, SUBSEQUENTLY, THE SAID ORDER WAS RECTIFIED BY THE TR IBUNAL VIDE ORDER DATED 6.9.2013. IN THE ORDER FOR ASSESSMENT YEARS 2 010-11 AND 2011-12, THE TRIBUNAL AFTER CONSIDERING THE AFORESA ID, HELD AS UNDER: 124. WE FIND THAT THE EXPRESSION MARKET VALUE INT ER-UNIT TRANSFER HAS BEEN DEFINED UNDER EXPLANATION TO SECTION 80IA OF THE ACT AS FOLLOWS: EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, MARKET VALUE , IN RELATION TO ANY GOODS OR SERVICES, MEANS (I) THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN 17 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT MARKET; OR (II) THE ARMS LENGTH PRICE AS DEFINED I N CLAUSE (II) OF SECTION 92F, WHERE THE TRANSFER OF SUCH GOODS OR SE RVICES IS A SPECIFIED DOMESTIC TRANSACTION REFERRED TO IN SECTI ON 92BA. THE AFORESAID DEFINITION ENDORSES THE MEANING OF MA RKET PRICE EXPLAINED BY THE COURTS IN SEVERAL DECISIONS, I.E., THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN TH E OPEN MARKET. IN THE PRESENT CASE, WE NOTE THAT THERE ARE TWO PRICES AVAILABLE AT WHICH BUYERS ARE PAYING PRICE FOR PROCUREMENT OF PO WER, I.E., THE RATE AT WHICH POWER IS SUPPLIED BY HSEB AND THE RAT E AT WHICH POWER IS SUPPLIED BY THE PRIVATE ENTITY, I.E., MARU TI UDYOG LTD. THE ISSUE, THUS, ARISES IS WHAT SHOULD BE THE MARKET PR ICE OF POWER? THE MARKET RATE (OR 'GOING RATE') FOR GOODS OR SERV ICES IS THE USUAL PRICE CHARGED FOR THEM IN A FREE MARKET. IF DEMAND GOES UP, MANUFACTURERS AND LABORERS WILL TEND TO RESPOND BY INCREASING THE PRICE THEY REQUIRE, THUS SETTING A HIGHER MARKET RA TE. HAD POWER BEEN PROVIDED BY HSEB IN ABUNDANT QUANTITY TO MEET THE NEEDS OF CONSUMERS, ESPECIALLY MANUFACTURING ENTITIES, THERE WAS NO OCCASION FOR ANY OTHER PLAYER TO SUPPLY THE POWER A T HIGHER RATES. IN SUCH A SITUATION, THE FREE MARKET CONDITIONS WOU LD HAVE FORCED A PRIVATE PLAYER TO SUPPLY THE POWER AT THE SAME RATE AT WHICH POWER IS SUPPLIED BY HSEB OR AT A LOWER RATE. BUT SINCE T HE ACTUAL FACTS ARE REVERSE INASMUCH AS HSEB IS NOT ABLE TO MEET TH E POWER REQUIREMENT OF THE CONSUMERS, PRIVATE ENTITIES ARE FORCED TO GENERATE POWER FOR SELF-CONSUMPTION, AS IN THE CASE OF APPELLANT, OR SUPPLY IN THE MARKET LIKE MARUTI UDYOG AT A HIGHER PRICE. THE CONSUMERS IN THE FREE MARKET CONDITIONS ARE, THEREF ORE, WILLING TO 18 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT PAY HIGHER PRICE TO MEET THEIR POWER CONSUMPTION NE EDS. IN SUCH A SITUATION, UNDER AN ARMS LENGTH CONDITION, IF THE APPELLANT, TOO, LIKE MARUTI WAS TO SUPPLY POWER TO THIRD PARTY LOCATED I N ITS VICINITY, THE APPELLANT COULD HAVE ALSO CHARGED PRICE HIGHER THAN THAT CHARGED BY HSEB. THE AFORESAID DISCUSSION LEADS TO THE CONC LUSION THAT THE PRICE CHARGED BY HSEB, AT BEST UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND LOOKING TO THE POWER SITUATION AT H ARYANA, CANNOT BE SAID TO BE MARKET PRICE WITHIN THE MEANING OF EXPLANATION TO SECTION 80IA(8) OF THE ACT. WE FIND THAT THE TRIBUN AL IN APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2006-07 DISMISSED THE AFORESAID CLAIM ON A MISTAKEN BELIEF THAT THE RATE AT WHICH P OWER WAS SUPPLIED BY MARUTI WAS NOT A PROPER BENCHMARK, SINC E MARUTI WAS SUPPLYING POWER TO ITS ASSOCIATED ENTERPRISES. THE AFORESAID MISTAKE WAS ALSO RECTIFIED BY THE TRIBUNAL PURSUANT TO MISCELLANEOUS APPLICATION FILED BY THE APPELLANT WH EREBY THE WORDS ASSOCIATED ENTERPRISES WERE REPLACED WITH ANCILLARY UNITS. CONSIDERING THAT THE ORIGINAL DECISION WAS TAKEN ON A MISTAKEN BELIEF, IT WAS NOT A CORRECT DECISION AND, THUS, CA NNOT BE FOLLOWED. IN THE GIVEN FACTS, WHERE DIFFERENT RATES FOR SUPPL Y OF POWER ARE AVAILABLE, WE AGREE WITH THE DECISION OF JAIPUR BEN CH OF TRIBUNAL IN THE CASE OF SRI CEMENT LTD. (SUPRA), WHEREIN WHILE APPLYING THE DECISION OF SUPREME COURT IN THE CASE OF VEGETABLE PRODUCTS LTD.: 88 ITR 192 IT WAS HELD AS UNDER :- 12. ON PERUSAL OF THE ABOVE, IT COULD BE CLEARLY S EEN THAT THE STATUTE PROVIDES THAT THE ASSESSEE MUST ADOPT 'MARK ET VALUE' AS THE TRANSFER PRICE. IN THE OPEN MARKET, WHERE A BAS KET OF 'MARKET 19 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT VALUES' [SAY LIKE, INDEPENDENT THIRD PARTY TRANSACT IONS, GRID PRICE (AVERAGE ANNUAL LANDED COST AT WHICH GRID HAS SOLD POWER TO THE ASSESSEE), POWER EXCHANGE PRICE FOR THE RELEVANT PE RIOD ETC.] ARE AVAILABLE, THE LAW DOES NOT PUT ANY RESTRICTION ON THE ASSESSEE AS TO WHICH 'MARKET VALUE' IT HAS TO ADOPT, IT IS P URELY ASSESSEE'S DISCRETION. SO LONG AS THE ASSESSEE HAS ADOPTED A ' MARKET VALUE' AS THE TRANSFER PRICE THAT IS SUFFICIENT COMPLIANCE OF LAW. AO CAN ADOPT A DIFFERENT VALUE ONLY WHERE THE VALUE ADOPTE D BY ASSESSEE DOES NOT CORRESPOND TO THE 'MARKET VALUE'. EVEN IF ASSESSEE'S CEMENT UNIT HAS PURCHASED POWER ALSO FRO M THE GRID OR THAT ASSESSEE'S POWER UNIT HAS ALSO PARTLY SOLD ITS POWER TO GRID OR THIRD PARTIES THAT BY ITSELF, DOES NOT COMP EL THE ASSESSEE OR PERMIT THE REVENUE TO ADOPT ONLY THE 'GRID PRICE ' OR THE PRICE AT WHICH THE ELIGIBLE UNIT HAS PARTLY SOLD ITS POWER T O GRID OR THIRD PARTIES, AS THE 'MARKET VALUE' FOR CAPTIVE CONSUMPT ION OF POWER TO COMPUTE THE PROFITS OF THE ELIGIBLE UNIT. ANY SUCH ATTEMPT IS CLEARLY BEYOND THE EXPLICIT PROVISIONS OF S. 80-IA( 8) OF THE ACT. UNDERLYING PRINCIPLES FORMING THE BASIS OF OUR FIND INGS GIVEN HEREINBEFORE IN THIS ORDER ARE ALSO SUPPORTED BY TH E DECISION OF SPECIAL BENCH OF HON'BLE BANGALORE TRIBUNAL IN AZTE C SOFTWARE & TECHNOLOGY SERVICES LTD. V. ASSTT. CIT [2007] 107 I TD 141/15 SOT 49/162 TAXMAN 119 (BANG.) (SB) AS WELL AS MUMBA I TRIBUNAL DECISION IN THE CASE OF ASSTT. CIT V. MAER SK GLOBAL SERVICE CENTER (INDIA)(P.) LTD. [2011] 133 ITD 543/ 16 TAXMANN.COM 47 (MUM.) WHEREIN WHILE INTERPRETING TH E TRANSFER PRICING PROVISIONS, THE COURTS HAVE HELD THAT IT IS THE ASSESSEE WHO IS THE BEST JUDGE TO KNOW THE TRANSACTIONS UNDE RTAKEN AND THUS FINDING OUT THE COMPARABLE CASES FROM THE VAST DATABASE AVAILABLE IN THE PUBLIC DOMAIN. ONCE THE ASSESSEE H AS ADOPTED THE SAME, THE AO HAS TO EXAMINE WHETHER THE SAME IS MARKET PRICE OR NOT. AO HAS THE POWER TO ADOPT THE MARKET PRICE ONLY WHEN THE PRICE ADOPTED BY THE ASSESSEE DOES NOT COR RESPOND TO MARKET VALUE. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE HAS 20 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ADOPTED A RATE AT WHICH ACTUAL TRANSACTIONS HAVE BE EN UNDERTAKEN BY UNRELATED ENTITIES. THE VOLUMES OF TR ANSACTION AS RELIED UPON ARE ALSO SUBSTANTIAL AND HENCE IT CANNO T BE SAID THAT THE ASSESSEE HAS HANDPICKED SOME TRANSACTIONS, WHIC H ARE BENEFICIAL TO IT. THE DEPARTMENTAL REPRESENTATIVE S UBMITTED THAT SINCE THE ASSESSEE HAS ITSELF DRAWN POWER FROM THE GRID, THE GRID RATE REPRESENTS THE 'BEST MARKET VALUE' AND HENCE T HE SAME SHOULD ONLY BE ADOPTED. WE ARE NOT AGREEABLE TO THE ABOVE CONTENTION OF THE DEPARTMENT. NO DOUBT THE GRID RAT E IS MARKET VALUE BUT THERE IS NO CONCEPT OF 'BEST' MARKET VALU E IN LAW. IF BY USING THE SAID ADJECTIVE, REVENUE SEEKS TO INFER TH AT GRID RATE IS THE ONLY MARKET VALUE IN THE PRESENT CONTEXT, SUCH INFERENCE IS ALSO CLEARLY NOT TENABLE FURTHER, IN CASE THERE ARE OPTIONS THE OPTION FAVORABLE TO THE ASSESSEE IS TO BE ADOPTED. THIS IS A WELL- SETTLED PRINCIPLE OF LAW LAID DOWN BY COURTS TIME A ND AGAIN INCLUDING SUPREME COURT IN THE CASE OF VEGETABLE PR ODUCTS LTD. (SUPRA) AND OTHER HIGH COURTS AS POINTED OUT BY THE AUTHORISED REPRESENTATIVE. 13. IN THE LIGHT OF THE AFORESAID, WE HOLD THAT: (A) THE VALUE ADOPTED BY THE ASSESSEE BE IT VALUE A S PER INDEPENDENT THIRD PARTY TRADING TRANSACTIONS OR AS PER POWER EXCHANGE (IEX ETC.) OR ANY OTHER INDEPENDENT TRANSA CTION (FOR THE RELEVANT PERIOD AND WHICH HAS TAKEN PLACE IN THE RE LEVANT AREA WHERE THE ELIGIBLE UNIT IS LOCATED) CONSTITUTE 'MAR KET VALUE' IN TERMS OF EXPLANATION TO S. 80-IA(8); (B) THE VALUE AT WHICH STATE GRID HAS SOLD POWER TO THE CEMENT UNIT OF THE ASSESSEE (AVERAGE ANNUAL LANDED COST) A LSO CONSTITUTE 'MARKET VALUE' IN TERMS OF EXPLANATION TO S. 80-IA( 8) BUT THE VALUE AT WHICH STATE GRID OR THIRD PARTY HAS PURCHASED PO WER FROM THE POWER UNIT OF THE ASSESSEE, WHICH REPRESENTS ITS PO WER WHICH IS SOLD WHEN NOT REQUIRED BY THE CEMENT UNIT, DOES NOT CONSTITUTE 21 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 'MARKET VALUE' IN TERMS OF EXPLANATION TO S. 80-IA( 8). IT IS THE 'PRINCIPLE' AND NOT THE 'QUANTUM' WHICH IS DECIDING FACTOR; (C) WHERE A BASKET OF 'MARKET VALUES' ARE AVAILABLE FOR THE RELEVANT PERIOD AND RELEVANT GEOGRAPHICAL AREA WHER E THE ELIGIBLE UNIT IS SITUATED, THE ASSESSEE HAS DISCRETION TO AD OPT ANY ONE OF THEM AS MARKET VALUE; AND (D) IF THE VALUE ADOPTED BY THE ASSESSEE IS 'MARKET VALUE' AS EXPLAINED ABOVE, IT IS NOT PERMISSIBLE FOR REVENUE TO RECOMPUTE THE PROFITS AND GAINS OF THE ELIGIBLE UNIT BY SUBST ITUTING THE SAID VALUE (AS ADOPTED BY THE ASSESSEE) BY ANY OTHER 'MA RKET VALUE'. 14. ACCORDINGLY, WE DELETE THE DISALLOWANCE AS MADE BY THE AO IN ORDER UNDER S. 143(3) ON ACCOUNT OF DEDUCTION UN DER S. 80-IA OF THE ACT AND HENCE THE GROUNDS 1 AND 2 ARE ACCORD INGLY DECIDED IN FAVOUR OF THE ASSESSEE. 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 BASKET OF THE MARKET RATES. AS HELD IN ABOVE DECISI ON THAT WHERE MULTIPLE OPTIONS FOR THE PRICE OF A PRODUCT ARE AVA ILABLE, THEN THE OPTION WHICH IS MOST FAVORABLE TO ASSESSE NEEDS TO BE ADOPTED FOR THE PURPOSES OF DETERMINING INTER-UNIT TRANSFER PRI CE U/S 80 IA(8) OF THE ACT. FURTHER IT IS NOT THE CASE OF THE REVENUE THAT THE POWER COST INCURRED BY THE ASSESSEE IS 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, TH E METHOD 22 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ADOPTED BY THE APPELLANT TO COMPUTE INTER-UNIT TRAN SFER PRICE BY IMPUTING A REASONABLE MARK-UP ON ITS COST OF PRODUC TION, I.E., RS.8.75, WHICH WAS LESS THAN THE RATE OF RS. 9.84 C HARGED BY MARUTI, WAS QUITE A REASONABLE FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 80IA(4) OF THE ACT. THEREFORE WE REVE RSE THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER OF D EDUCTION OF RS. 8 0 7.76 LACS UNDER SECTION 80 IA, IN RELATION TO T HE GENERATION OF POWER .ACCORDINGLY, THE GROUND NO. 26 OF APPEAL STA NDS ALLOWED. 8.0.1 WE FIND THAT FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, THE TRIBUNAL DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEARS 2009-10 AND 2 004-05. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER (AO) UNDER 80IA OF THE ACT IN RELATION TO THE GENERATION OF POWER CANNOT BE SUSTAINED. WE, ACCORD INGLY, ALLOW THIS GROUND OF APPEAL RAISED BY THE ASSESSEE. 9.0.0 GROUNDS OF APPEAL NOS. 3 TO 3.1 P ERTAIN TO DISALLOWANCE OF THE CLAIM OF ADDITIONAL DEPRECIATION UNDER SECTI ON 32(1)(IIA) OF THE ACT MADE BY THE ASSESSEE. IT WAS SUBMITTED BY THE L D. AR THAT IN TERMS OF SECTION 32(1)(IIA), ADDITIONAL DEPRECIATIO N ON NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED DURING THE YEAR IS AVAILABLE, 23 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT SUBJECT TO CONDITION OF INCREASE IN INSTALLED CAPAC ITY OF THE RELEVANT INDUSTRIAL UNDERTAKING. IT WAS SUBMITTED THAT THE AS SESSEE CLAIMS TO HAVE INCREASED ITS INSTALLED CAPACITY DURING THE YE AR, THEREBY ENTITLING IT TO ADDITIONAL DEPRECIATION UNDER THE A FORESAID SECTION, WHEREAS THE CLAIM OF THE AO IS THAT THE RELEVANT PLA NT AND MACHINERY INSTALLED DURING THE YEAR DID NOT ENHANCE THE PRODUCTION OF THE ASSESSEE AND, THEREFORE, THE SAME HAD NO NEX US/CO-RELATION WITH THE INCREASE IN INSTALLED CAPACITY. LD. AR SUBM ITTED THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE INVESTED R S. 105.8 CRORES AND RS.79.57 CRORES IN PLANT AND MACHINERY IN GURGA ON AND DARUHERA UNITS RESPECTIVELY. DUE TO THE SAID INVEST MENT, THE INSTALLED CAPACITY INCREASED BY 75% IN GURGAON PLAN T (FROM 8,00,000 TO 14,00,000 UNITS) AND BY 43.75% IN DHARUHERA PLAN T (FROM 8,00,000 UNITS TO 11,50,000 UNITS) FROM 31.03.2002 TO 31.03.2005. THE LD. AR SUBMITTED THAT IN TERMS OF SECTION 32(1) (IIA) OF THE ACT, ADDITIONAL DEPRECIATION OF RS. 14.93 CRORES WAS CLAI MED BY THE ASSESSEE IN RESPECT OF PLANT AND MACHINERY INSTALLE D IN FACTORY PREMISES IN THE AFORESAID PLANTS BUT THE ASSESSING OFFICER, DISALLOWED THE AFORESAID CLAIM OF ADDITIONAL DEPRECIATION HOLD ING THAT THERE WAS 24 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT NO CORRELATION BETWEEN INSTALLED CAPACITY AND INSTAL LATION OF MACHINE BY OBSERVING AS UNDER: AS PER ASSESSEE THERE HAS BEEN INCREASE IN INSTALL ED CAPACITY AS COMPARED TO LAST YEAR OF 12% AND 15% IN RESPECT OF ITS TWO PLANTS. THE RECORDS OF THE ASSESSEE INDICATES THE C LAIMED INCREASE IN INSTALLED CAPACITY AS UNDER: INSTALLED CAPACITY PLANT WISE AY 2005-06 AS ON GGN DHR TOTAL 31.03.2002 800000 800000 1600000 31.03.2005 1400000 1150000 2550000 INCREASE 75.00% 43.75% 59.38% 31.03.2004 1250000 1000000 2250000 LAST YEAR 12.00% 15.00% 13.33% 8.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS VARIOUS RECORDS OF THE ASSESSEE AND BREAKUP OF PRODUCTION W ERE CALLED FOR AND EXAMINED SO AS TO VERIFY THE CLAIM OF THE A SSESSEE THAT IT IS DUE TO NEW MACHINERY BEING ADDED THAT THERE HAS BEEN INCREASED IN INSTALLED CAPACITY. THE ANALYSES OF PR ODUCTION DETAILS SUBMITTED BY THE ASSESSEE REVEALS THE FOLLO WING POSITION. ADDITION OF MACHINERY UPTO OCTOBER (IN CRORES) AFTER OCTOBER (IN CRORES) GGN 37.57 68.23 DHR 4.3 36.57 8.3 NOW THIS ADDITION TO THE PLANT AND MACHINER Y IS MAPPED ON THE ACTUAL PRODUCTION DONE BY THE ASSESSEE IN TH E CORRESPONDING PERIOD TO ARRIVE AT THE CONCLUSION AS TO WHETHER REALLY THERE HAS BEEN INCREASED IN INSTALLED CAPACI TY BY VIRTUE OF 25 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ADDITION OF PLANT AND MACHINERY OR IT IS ONLY A MAT TER OF DEMAND AND SUPPLY WHICH GOVERNS THE PRODUCTION OF MOTOR CY CLES WITH INHERENT CAPACITY ALREADY BEEN THERE. ACTUAL PRODUCTION (NO.) UPTO OCTOBER AFTER OCTOBER DIFFERENCE GGN 609354 719502 110148 DHR 625222 670952 45730 8.4 THIS TABLE WOULD REVEAL THAT IN DHARUHERA P LANT WHERE THE MACHINERY HAS BEEN ADDED AFTER OCTOBER 2005 OF RS. 36.57 CRORES THE INCREASE IN PRODUCTION IS OF ONLY 45730 OVER A PERIOD OF 151 DAYS WHEREAS IN THE FIRST HALF OF THE YEAR W HERE THE ADDITION TO MACHINERY IS VERY SMALL ALMOST SIMILAR QUANTITY IS BEEN PRODUCED. THIS IMPLIES THAT ADDITION OF MACHIN ERY HAD EITHER NO EFFECT OR VERY MINIMUM EFFECT ON THE PROD UCTION CAPACITY. IT APPEARS THAT MORE PRODUCTION IS LINKED TO THE DEMAND AND SUPPLY POSITION RATHER THAN INCREASE IN THE CAPACITY. THIS FACT GETS FURTHER REINFORCED THAT TH E PEAK PRODUCTION IN RESPECT OF BOTH THE PLANTS OF 123351 UNITS IN GURGAON AND 117000 UNITS IN DHARUHERA HAD SIMULTANE OUSLY TAKEN PLACE IN THE MONTH OF OCTOBER 2004. THIS FACT OR CLEARLY ESTABLISHES THE FACT THAT THE MACHINERY ACQUIRED BY THE ASSESSEE WAS MORE RELATED TO THE CHANGE IN THE TECHNOLOGY FO R PRODUCING A NEWER ENGINE I.E. CORE 1 TECHNOLOGY RATHER THAN ADD ITION TO THE INSTALLED CAPACITY. EVEN IN CASE OF GURGAON PLANT W HERE AN ARGUMENT COULD BE RAISED THAT THERE HAS BEEN INVEST MENT OF RS. 37.57 CRORES BEFORE OCTOBER AND THAT HAD RESULTED D UE TO THE INCREASED PRODUCTION. HOWEVER, THAT ALSO DOESN'T AP PEAR TO BE A CORRECT VIEW BECAUSE IN THE MONTH OF MAY, 2004 WHEN THERE HAS NOT BEEN LARGE INVESTMENT THE PRODUCTION HAS BEEN O F 103535 UNITS WHEREAS IN THE MONTH OF JUNE AND AUGUST THE PRODUCTION HAS BEEN OF 98273 AND 92781 UNITS RESPECTIVELY. THE REFORE, THE CORRELATION BETWEEN INSTALLED CAPACITY AND INSTALLA TION OF MACHINE IS NOT ESTABLISHED AND IN ANY CASE IF DHARU HERA IS AN INDICATOR THE ADDITION TO PLANT AND MACHINERY HAS B EEN ALMOST NEUTRAL SO FAR AS INSTALLED CAPACITY IS CONCERNED. THE REASON VERY CLEARLY LIES IN THE FACT THAT THE IN ASSESSMEN T YEAR 2004-05 I.E. THE IMMEDIATELY PRECEDING YEAR THERE HAS BEEN A HUGE 26 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ADDITION IN PLANT AND MACHINERY AND EVEN BY ASSESSE E'S ADMISSION THERE HAS BEEN INCREASED IN CAPACITY BY A LMOST 45% TO 50% OVER THAT AS ON 31/03/2002. APPARENTLY IN TH IS CASE SINCE MAJOR INCREASE IN CAPACITY TOOK PLACE IN THE IMMEDIATELY PRECEDING YEAR IT APPEARS THAT THERE REMAINED A HIG HER CAPACITY OF PRODUCTION INHERENT IN THE EXPANSION MADE IN THE EARLIER YEAR AND THE SAME GOT REFLECTED DUE TO DEMAND AND SUPPLY POSITION IN THE CURRENT YEAR. THEREFORE THERE HAS BEEN NO RE AL INCREASE IN INSTALLED CAPACITY DUE TO ACQUISITION IN PLANT AND MACHINERY. 9.0.1 THE LD. AR SUBMITTED THAT THE LD. CIT (A) UPHELD THE AFORESAID ACTION OF THE ASSESSING OFFICER, WITH THE DIRECTION TO THE ASSESSEE TO ESTABLISH NEXUS OF INVESTMENT WITH I NCREASE IN INSTALLED CAPACITY OF THE ASSESSEE COMPANY AS A WHOL E BY HOLDING AS UNDER: THE APPELLANT HAS NOT DEMONSTRATED THAT INVESTMENT IN PLANT AND MACHINERY DURING THE IMPU GNED ASSESSMENT YEAR HAS EFFECT OF INCREASE IN INSTAL LED CAPACITY AND NOT AS A PART OF EXPANSION PROGRAMME OF INSTALLED CAPACITY UNDERTAKEN FOR THE FINANCIA L YEAR ENDING ON 31.03.2004. THEREFORE, I DIRECT THE AO TO VERIFY AS TO WHETHER INVESTMENT IN PLANT AND MACHINERY D URING THE IMPUGNED ASSESSMENT YEAR IS AT STAND ALONE MODE W HICH HAS INCREASED THE INSTALLED CAPACITY TO GURG AON AND DARUHERA PLANT. IN CASE, THIS FACT IS PROVED T HAT DUE TO INVESTMENT IN PLANT AND MACHINERY DURING THIS YEA R THE CAPACITY HAS INCREASE IRRESPECTIVE OF EXPANSION PLANT 27 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT UNDERTAKEN DURING THE IMMEDIATE PRECEDING YEAR THE ADDITIONAL DEPRECIATION IS ALLOWABLE. 9.0.2 THE LD. AR FOR THE ASSESSEE INVITED A TTENTION TO THE PROVISION OF SECTION 32(1)(IIA) OF THE ACT, AS AMEN DED BY FINANCE (NO.2) ACT, 2004, W.E.F. 01.04.2005 AND APPLICABLE F OR THE YEAR UNDER CONSIDERATION, WHICH READS AS UNDER: 32. IN RESPECT OF DEPRECIATION OF . (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (O THER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLE D AFTER THE 31ST DAY OF MARCH, 2002, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING, A FURTHER SUM EQUAL TO FIFTEEN PER CENT OF THE ACTU AL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTI ON UNDER CLAUSE (II) : PROVIDED THAT SUCH FURTHER DEDUCTION OF FIFTEEN PER CENT SHALL BE ALLOWED TO (A)A NEW INDUSTRIAL UNDERTAKING DURING ANY PRE VIOUS YEAR IN WHICH SUCH UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING ON OR AFTER THE 1ST DAY OF APR IL, 2002; OR (B)ANY INDUSTRIAL UNDERTAKING EXISTING BEFORE THE 1ST DAY OF APRIL, 2002, DURING ANY PREVIOUS YEAR IN WHICH IT A CHIEVES THE SUBSTANTIAL EXPANSION BY WAY OF INCREASE IN INSTALL ED CAPACITY BY NOT LESS THAN TEN PER CENT: PROVIDED FURTHER THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF 28 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATI ON BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA B Y ANY OTHER PERSON; OR B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREM ISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODAT ION IN THE NATURE OF A GUEST HOUSE; OR C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; O R D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COS T OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHER-WISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO-FITS AND GAINS OF BU SINESS OR PROFESSION' OF ANY ONE PREVIOUS YEAR: PROVIDED ALSO THAT NO DEDUCTION SHALL BE A LLOWED UNDER CLAUSE (A) OR, AS THE CASE MAY BE, CLAUSE (B) , OF THE FIRST PROVISO UNLESS THE ASSESSEE FURNISHES THE DETAILS O F MACHINERY OR PLANT AND INCREASE IN THE INSTALLED CA PACITY OF PRODUCTION IN SUCH FORM, AS MAY BE PRESCRIBED ALONG WITH THE RETURN OF INCOME, AND THE REPORT OF AN ACCOUNTANT, AS DEFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288 CERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTL Y CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS CLAUSE. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, XXX (2) 'INSTALLED CAPACITY' MEANS THE CAPACITY O F PRODUCTION AS EXISTING ON THE 31ST DAY OF MARCH, 2002 9.0.3 IT WAS ARGUED BY THE LD. AR THAT THE LANGUAGE OF THE AFORESAID SECTION IS PLAIN AND UNAMBIGUOUS AND PROV IDES THAT ADDITIONAL DEPRECIATION OF 15% SHALL BE AVAILABLE O N THE COST OF 29 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT NEW PLANT & MACHINERY ACQUIRED AND INSTALLED AFTER 3 1.03.2002, INTER ALIA IN CASE OF A UNDERTAKING EXISTING BEFORE 01.04.200 2, DURING ANY PREVIOUS YEAR IN WHICH SUCH UNDERTAKING A CHIEVES THE SUBSTANTIAL EXPANSION BY WAY OF INCREASE IN INSTALLE D CAPACITY BY NOT LESS THAN 10%. ON THE BASIS OF THE AFORESAID LA NGUAGE OF THE AFORESAID SECTION, IT WAS ARGUED THAT THE SAME DID N OT CONTAIN ANY CONDITION OF THE NEXUS OF PLANT AND MACHINERY WITH I NCREASE IN INSTALLED CAPACITY OF THE RELEVANT INDUSTRIAL UNDER TAKING. IF THERE WAS INCREASE IN INSTALLED CAPACITY, ADDITIONAL DEPRE CIATION WAS ADMISSIBLE ON COST OF NEW PLANT AND MACHINERY ACQUIR ED AND INSTALLED DURING THE YEAR. 9.0.4 THE LD. AR FURTHER INVITED OUR ATTENT ION TO SECTION 32(1)(IIA) AS AMENDED BY THE FINANCE ACT, 2005, W.E. F. 01.04.2006, WHEREBY THE AFORESAID CONDITION OF INCRE ASE IN INSTALLED CAPACITY WAS REMOVED AND ADDITIONAL DEPREC IATION WAS AVAILABLE ON ANY NEW PLANT AND MACHINERY ACQUIRED OR INSTALLED AFTER 31.03.2005 BY AN ASSESSEE ENGAGED IN THE BUSI NESS OF INTER ALIA MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. IT WAS ARGUED THAT THE INTENTION OF THE LEGISLATURE WAS TO GIVE INCENTIVE TO 30 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT INVESTMENT IN NEW PLANT AND MACHINERY DE HORS ACTUAL INCREASE IN PRODUCTION FROM SUCH INSTALLATION. IT WAS ARGUED THA T THE INTENTION OF THE AMENDMENT WAS NOT TO DISCRIMINATE I NCENTIVES ON INVESTMENTS MADE PRE AND POST 31.03.2005, BUT TO SI MPLIFY AND REMOVE HARDSHIP IN THE PROVISIONS, IN ORDER TO EXTE ND THE BENEFIT OF ADDITIONAL DEPRECIATION ON NEW INVESTMENTS IN PLA NT AND MACHINERY WITHOUT ANY FURTHER CONDITION. 9.0.5 IT WAS FURTHER ARGUED THAT, EVEN OTHERWIS E THE AO AND THE LD. CIT (A) HAVE ERRED IN DENYING THE AFORESAID CLAIM OF DEDUCTION, SINCE WHAT THEY WERE COMPARING WAS THE NEXU S OF INCREASE IN PRODUCTION WITH INSTALLATION OF RELEVANT PLANT AND MACHINERY, WHEREAS THE REQUIREMENT OF LAW WAS ONLY INC REASE IN OVERALL INSTALLED CAPACITY OF THE RELEVANT INDUSTRI AL UNDERTAKING. 9.0.6 THE LD. AR, THEREAFTER, INVITED OU R ATTENTION TO THE DETAILS OF THE INSTALLED CAPACITY AT THE RELEVANT G URGAON AND DHARUHERA PLANTS, WHICH WAS UNDISPUTED BY THE LOWER A UTHORITIES TO CONTEND THAT THE RELEVANT PLANTS SATISFIED THE C ONDITION OF INCREASE IN INSTALLED CAPACITY OF MORE THAN 10%, AS PER THE TABLE BELOW: 31 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT GURGAON PLANT DARUHERA PLANT TOTAL INSTALLED CAPACITY AS ON 31.03.2002 8,00,000 8,00,000 16,00,000 INSTALLED CAPACITY AS ON 31.03.2004 12,50,000 10,00,000 22,50,000 INSTALLED CAPACITY AS ON 31.03.2005 14,00,000 11,50,000 25,50,000 %AGE INCREASE IN INSTALLED CAPACITY ON 31.3.2005 VIS-- VIS 31.3.2002 75.00% 43.75% 59.38% % AGE INCREASE IN INSTALLED CAPACITY ON 31.3.2005 VIS-- VIS 31.3.2004 12% 15% 13.33% % AGE INCREASE OF DIFFERENTIAL OF INSTALLED CAPACITY FOR YEAR ENDING 31.3.2005 (I.E. 31.3.2005 31.3.2004) VIS-- VIS 31.3.2002 18.75% 18.75% 18.75% 9.0.7 THE LD. AR SUBMITTED THAT THE CLAIM OF THE ASSESSEE WAS FURTHER SUPPORTED BY THE REPORT OF CHAR TERED ACCOUNTANT IN FORM 3AA WHEREIN THE AUDITORS HAVE CER TIFIED THE NEW INVESTMENT MADE BY THE ASSESSEE IN THE PLANT AND MA CHINERY AND INCREASE IN THE INSTALLED CAPACITY. (PAGE NO 124-19 8 OF PB- SUPPLEMENTARY). IT WAS SUBMITTED THAT IN THE NOTES T O ACCOUNTS FORMING PART OF AUDITED ANNUAL ACCOUNTS FOR THE YEA R ENDING 31.03.2005, THE STATUTORY AUDITORS TOO HAVE DISCLOS ED THE DETAILS REGARDING THE LICENSED, INSTALLED AND ACTUAL PRODUC TION CAPACITY FOR THE RELEVANT PREVIOUS YEAR AND PRECEDING PREVIOUS Y EAR. (PAGE NO. 25 OF PB) AS UNDER: 32 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 9.0.8 IT WAS ARGUED THAT, SINCE THE ASSESSEE SATISFIED THE RELEVANT CONDITIONS FOR CLAIM OF ADDITIONAL DEPRECI ATION UNDER SECTION 32(1)(IIA), THE DISALLOWANCE MADE BY THE AO DESERVED TO BE DELETED. 9.0.9 RELIANCE WAS ALSO PLACED ON THE FOLLOWIN G DECISIONS WHEREIN IT HAS BEEN HELD THAT THERE IS NO REQUIREMEN T UNDER SECTION 32(1)(IIA) OF THE ACT TO ESTABLISH OPERATIONAL CONN ECTIVITY OF THE ELIGIBLE PLANT AND MACHINERY WITH THE ARTICLE AND TH ING MANUFACTURED BY THE ASSESSEE: CIT V. VTM LTD: 319 ITR 336 (MAD) CIT V. HINDUSTAN NEWSPRINT LTD.: 183 TAXMAN 257 (KER ) CIT V. HI TECH ARAI LTD: 321 ITR 477 (MAD): CIT V. TEXMO PRECISION CASTINGS: 321 ITR 481 (MAD) CIT VS. DIAMINES & CHEMICALS LTD.: 271 CTR 98 (GUJ) NRB BEARINGS LTD. VS. DCIT: 133 ITD 306 (MUM ITAT) 10.0 ON THE OTHER HAND, THE LD. CIT (DR) RE FUTED THE CONTENTIONS OF THE ASSESSEES COUNSEL. THE LD. CIT (DR) HEAVILY RELIED UPON THE FINDINGS CONTAINED IN THE ASSESSMENT ORDER . IT WAS ARGUED 33 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT THAT, THERE WAS AMBIGUITY IN THE LANGUAGE OF SECTION 32(1)(IIA) AND THAT THE PRESENCE OF THE CONDITION OF INCREASE IN I NSTALLED CAPACITY ONLY AMPLIFIED THAT THE INCREASE IN SUCH INVESTMENT WAS CONCOMITANT OF THE ELIGIBLE PLANT AND MACHINERY. IT WAS FURTHER ARGUED THAT, THE ASSESSEE HAD ERRED IN FILING THE PRESENT GROUND OF APPEAL, SINCE THERE WAS NO GRIEVANCE TO THE ASSESSEE FROM THE ORDER OF C IT (A), IN AS MUCH AS THE CIT (A) HAD ONLY REMITTED THE MATTER BA CK TO THE AO FOR VERIFICATION. 11.0 IN THE REJOINDER THE LD. COUNSEL FO R THE ASSESSEE ONLY MADE AN ADDITIONAL ARGUMENT THAT THE GROUND OF APPE AL FILED BY THE ASSESSEE WAS VALID, SINCE IF THE PROVISIONS OF SECTI ON 32(1)(IIA) ARE TO BE UNDERSTOOD IN THE RIGHT SPIRIT, THEN THERE WAS NO NEED FOR THE VERIFICATION DIRECTED TO BE CARRIED OUT BY THE LD. CIT (A). 12.0.0 WE HAVE HEARD BOTH THE PARTIES AND FIND SUBSTANTIAL FORCE IN THE CONTENTIONS OF THE ASSESSEE COMPANY. W E FIND THAT THE LANGUAGE OF SECTION 32(1)(IIA) REPRODUCED SUPRA, IS PLAIN AND UNAMBIGUOUS. ON A PLAIN AND LITERAL READING OF THE SAID SECTION, WE FIND NO CONDITION REQUIRING NEXUS OF THE RELEVANT P LANT AND MACHINERY ACQUIRED AND INSTALLED DURING THE YEAR WIT H THE INCREASE 34 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT IN INSTALLED CAPACITY OF THE RELEVANT INDUSTRIAL UN DERTAKINGS DURING THE YEAR. AS PER OUR READING, THE REQUIREMENT OF TH E SECTION IS THAT IN CASE OF AN EXISTING INDUSTRIAL UNDERTAKING, ADDI TIONAL DEPRECIATION SHALL BE AVAILABLE ON NEW PLANT AND MACHINERY ACQUIR ED AND INSTALLED DURING THE PREVIOUS YEAR, IF SUCH INDUSTR IAL UNDERTAKING ACHIEVES SUBSTANTIAL EXPANSION BY WAY OF INCREASE IN INSTALLED CAPACITY BY NOT LESS THAN 10%. ACCORDINGLY, IF THER E IS AN INCREASE IN INSTALLED CAPACITY OF THE RELEVANT INDUSTRIAL UNDER TAKING, THE NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED DURING S UCH YEAR SHALL BE ELIGIBLE FOR ADDITIONAL DEPRECIATION AT THE RATE PRESCRIBED IN THAT SECTION. THERE IS NO FURTHER CONDITION OF DRAWING OP ERATIONAL NEXUS OF SUCH PLANT AND MACHINERY WITH INCREASE IN INSTALL ED CAPACITY. WE ALSO FIND THAT THE SAID CONDITION, HAS EVEN BEEN RE MOVED IN SECTION 32(1)(IIA) BY THE FINANCE ACT, 2005, W.E.F. 01.04.20 06, ALTHOUGH SAID AMENDMENT IS NOT APPLICABLE DURING THE YEAR UNDER C ONSIDERATION, BUT RE-ENFORCES THE INTENT OF THE LEGISLATURE, THAT THE SAME WAS NOT RELEVANT EVEN IN THE EARLIER YEAR, WARRANTING NEXUS OF PLANT & MACHINERY WITH INCREASE IN INSTALLED CAPACITY. NEVER THELESS, THERE IS NO CONDITION OF THE RELEVANT PLANT AND MACHINERY RE SULTING IN THE 35 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT INCREASE IN PRODUCTION OF THE RELEVANT INDUSTRIAL U NDERTAKING. WHAT THE AO AND THE LD. CIT (A) HAVE HELD IN THE IMPUGNE D ORDER(S), IS DRAWING NEXUS OF THE INSTALLED PLANT AND MACHINERY WI TH INCREASE IN PRODUCTION FROM SUCH MACHINERY, WHICH IS CLEARLY NOT THE REQUIREMENT IN LAW. IN VIEW OF THE SAME, WE FIND THAT, THE AO AND THE LD. CIT (A) HAVE TRAVELLED TO AN EXTRANEOUS TER RITORY, WHILE EXAMINING AND DISALLOWING THE AFORESAID CLAIM OF ADD ITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT. W E ALSO DRAW SUPPORT FOR THE AFORESAID REASONING FROM THE FOLLOWI NG DECISIONS REFERRED BY THE LD. COUNSEL FOR THE ASSESSEE: CIT V. VTM LTD: 319 ITR 336 (MAD): 5. IN THE CASE ON HAND, THE ASSESSEE IS STATED TO HAVE SET UP A WIND MILL AT A COST OF RS. 5,85,60,000. IT IS TRUE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MA NUFACTURE OF TEXTILE GOODS. AS FAR AS APPLICATION OF SECTION 32(1)( IIA) OF THE ACT, IS CONCERNED, WHAT IS REQUIRED TO BE SATIS FIED IN ORDER TO CLAIM THE ADDITIONAL DEPRECIATION IS THAT THE SETTI NG UP OF A NEW MACHINERY OR PLANT SHOULD HAVE BEEN ACQUIRED AND IN STALLED AFTER 31-3-2002 BY AN ASSESSEE, WHO WAS ALREADY ENG AGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY AR TICLE OR THING. THE SAID PROVISION DOES NOT STATE THAT THE SETTING UP OF A NEW MACHINERY OR PLANT, WHICH WAS ACQUIRED AND INSTALLE D UP TO (SIC. 36 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT AFTER) 31-3-2002 SHOULD HAVE ANY OPERATIONAL CONNEC TIVITY TO THE ARTICLE OR THING THAT WAS ALREADY BEING MANUFACTURE D BY THE ASSESSEE. THEREFORE, THE CONTENTION THAT THE SETTIN G UP OF A WIND MILL HAS NOTHING TO DO WITH THE POWER INDUSTRY, NAM ELY, MANUFACTURE OF OIL SEEDS ETC. IS TOTALLY NOT GERMAN E TO THE SPECIFIC PROVISION CONTAINED IN SECTION 32(1)( IIA) OF THE ACT. 6. IN SUCH CIRCUMSTANCES, WE ARE NOT ABLE TO APPREC IATE THE CONTENTION OF THE LEARNED STANDING COUNSEL FOR THE APPELLANT ON THE GROUND THAT THE ORDER OF THE COMMISSIONER OF IN COME-TAX (APPEALS) AS CONFIRMED BY THE TRIBUNAL SHOULD BE IN TERFERED WITH. IT CANNOT ALSO BE SAID THAT SETTING UP OF A WINDMIL L WILL NOT FALL WITHIN THE EXPRESSION SETTING UP OF A NEW MACHINERY OR PLANT. WE DO NOT FIND ANY ERROR IN THE CONCLUSION OF THE TRIB UNAL IN CONFIRMING THE ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS). WE, THEREFORE, DO NOT FIND ANY QUESTION OF LAW MUCH LESS SUBSTANTIAL QUESTION OF LAW TO ENTERTAIN THIS APPEAL. THE APPEAL FAILS AND THE SAME IS DISMISSED. NO COSTS. CIT V. HINDUSTAN NEWSPRINT LTD.: 183 TAXMAN 257 (KER ): THE ABOVE PROVISION WAS LATER MODIFIED DISPENSING WITH THE REQUIREMENT OF INCREASE IN INSTALLED CAPACITY AS A CONDITION FOR ELIGIBILITY FOR ADDITIONAL DEPRECIATION. IN THIS CA SE THE CONTENTION OF THE REVENUE IS THAT THE INSTALLED CAPACITY OF TH E FINAL PRODUCT OF THE COMPANY VIZ., NEWSPRINT REMAINS UNALTERED EV EN AFTER INSTALLATION OF THE DE-INKING MACHINERY IN RESPECT OF WHICH ADDITIONAL DEPRECIATION WAS CLAIMED. HOWEVER THE AS SESSEE'S 37 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT CASE AS IS CLEAR FROM THE ORDERS OF THE AUTHORITIES BELOW INCLUDING THE INCOME-TAX TRIBUNAL IS THAT THERE IS INCREASE IN INSTALLED CAPACITY OF PULP AND PULP THOUGH AN INTER MEDIARY PRODUCT ALSO IS MARKETABLE AND HENCE ASSESSEE IS EN TITLED TO ADDITIONAL DEPRECIATION UNDER THE ABOVE PROVISION. STANDING COUNSEL FOR THE REVENUE CONTENDED THAT INSTALLED CA PACITY OF AN INDUSTRY SHOULD ALWAYS BE UNDERSTOOD WITH REFERENCE TO THE FINAL PRODUCT MANUFACTURED AND SOLD BY IT. EVEN THOUGH TH ERE CANNOT BE ANY DOUBT ON THIS PROPOSITION THERE IS NOTHING T O INDICATE THAT THE RESPONDENT-ASSESSEE CANNOT SELL PULP AS A PRODU CT. THE FACT THAT PULP IS AN INTERMEDIARY PRODUCT AND IS GENERAL LY CONSUMED CAPTIVELY IN THE MANUFACTURE OF NEWSPRINT DOES NOT MEAN THAT PULP IS NOT A PRODUCT THAT CANNOT BE MARKETED BY TH E RESPONDENT AS AND WHEN THEY DESIRE. THERE IS NO DISPUTE THAT P ULP IS A MARKETABLE COMMODITY. IF THERE IS REDUCTION IN THE MANUFACTURE OF FINAL PRODUCT ON ACCOUNT OF ANY REASON, NECESSAR ILY RESPONDENT WILL HAVE TO MARKET THE EXCESS PULP PROD UCED. SO MUCH SO WE AGREE WITH THE VIEW OF THE TRIBUNAL THAT PULP BEING A MARKETABLE COMMODITY PRODUCED BY THE RESPONDENT, TH E INCREASE IN THE INSTALLED CAPACITY OF THE PULP PLANT ON ACCO UNT OF THE INSTALLATION OF THE DE-INKING MACHINERY WILL ENTITL E THE RESPONDENT FOR THE BENEFIT OF ADDITIONAL DEPRECIATION. THE FIN DING OF THE TRIBUNAL THAT THERE HAS BEEN INCREASE IN THE INSTAL LED CAPACITY OF THE PRODUCTION OF PULP IN TERMS OF THE REQUIREMENT OF THE PROVISION IN THE STATUTE IS NOT DISPUTED IN THE APP EAL FILED BY THE REVENUE. ON THE OTHER HAND THEIR CONTENTION IS THAT THE INSTALLED 38 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT CAPACITY SHOULD HAVE REFERENCE TO ONLY FINAL PRODUC T THAT IS NEWSPRINT. WE ARE UNABLE TO UPHOLD THIS CONTENTION OF THE REVENUE AND WE FEEL THAT THE INTERMEDIARY PRODUCT V IZ., PULP PRODUCED BY THE COMPANY BEING A MARKETABLE COMMODIT Y THE INCREASE IN THE INSTALLED CAPACITY FOR CLAIMING BEN EFIT OF ADDITIONAL DEPRECIATION UNDER THE ABOVE PROVISION C AN BE IN THE PRODUCTION OF INTERMEDIARY VIZ., PULP. WE THEREFORE AGREE WITH THE FINDING OF THE TRIBUNAL AND DISMISS THE DEPARTM ENT APPEAL. CIT V. HI TECH ARAI LTD: 321 ITR 477 (MAD) CIT V. TEXMO PRECISION CASTINGS: 321 ITR 481 (MAD) 12.0.1 THE RATIO EMANATING FROM THE AFORES AID DECISIONS SQUARELY SUPPORTS THE AFORESAID INTERPRETATION OF S ECTION 32(1)(IIA) OF THE ACT. AS REGARDS THE CONDITION OF INCREASE I N INSTALLED CAPACITY, WE HAVE SEEN THE FACTS AND THERE IS NO DI SPUTE BY THE AO/LD. CIT (A) AS WELL ON THE INCREASE IN INSTALLED CAPACITY OF ASSESSEE. THE SAME IS CERTIFIED BY AUDITORS AND ALS O REPORTED IN NOTES TO AUDITED ACCOUNTS REPRODUCED SUPRA. IN VIEW OF THE ABOVE, WE DELETE THE DISALLOWANCE MADE BY THE AO AND HENCE T HE GROUND OF APPEAL IS ALLOWED. 39 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 13.0.0 THE LD. AR SUBMITTED THAT GROUNDS OF APPEAL NOS. 4 4.1 RELATE TO DISALLOWANCE OF PORTFOLIO MANAGEMENT E XPENDITURE OF RS. 27,68,039/- CLAIMED BY THE ASSESSEE AS DEDUCTIO N AGAINST BUSINESS INCOME. IT WAS SUBMITTED THAT DURING THE R ELEVANT PREVIOUS YEAR, THE ASSESSEE HAD INCURRED EXPENDITURE OF RS.2 7,68,039/- TOWARDS PORTFOLIO MANAGEMENT FEE AND THAT THE ASSESS ING OFFICER HAD DISALLOWED THE SAME ON THE GROUND THAT THE SAME REL ATED TO THE INVESTMENT ACTIVITY OF THE ASSESSEE AND THEREFORE N OT AN ALLOWABLE DEDUCTION AGAINST BUSINESS INCOME. IT WAS FURTHER SU BMITTED THAT ON FURTHER APPEAL, THE DISALLOWANCE WAS SUSTAINED BY TH E LD. CIT (A) BY HOLDING THAT THE ISSUE IS DECIDED AGAINST THE ASSES SEE BY THE TRIBUNAL IN THE ASSESSMENT YEAR 2008-09. IT WAS SUBM ITTED BY THE LD. AR THAT BEFORE THE LD. CIT (A), THE ASSESSEE HA D RAISED WITHOUT PREJUDICE AND AN ALTERNATE CONDITION, THAT IF THE A FORESAID EXPENDITURE WAS TO BE CONSIDERED AS HAVING NEXUS WITH INVESTMENT ACTIVITY, THE SAME MAY BE DIRECTED TO BE ALLOWED AS DEDUCTION UNDER SECTION 48 AGAINST INCOME FROM CAPITAL GAINS. IT WAS SUBMITTED THAT THE AFORESAID ALTERNATE CLAIM WAS DENIED BY THE LD. CIT (A), HOLDING 40 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT THAT SUCH FEE HAD NEXUS WITH EARNING EXEMPT INCOME F ROM INVESTMENT ACTIVITY AND, THEREFORE, WAS NOT ALLOWABL E. 13.0.1 IN SUPPORT OF THE GROUNDS OF APPEAL, TH E LD. COUNSEL REPEATED THE ARGUMENTS TAKEN BEFORE THE LOWER AUTHO RITIES THAT THE AFORESAID EXPENDITURE WAS INCURRED FOR PROPER ADMINI STRATION AND MANAGEMENT OF SURPLUS FUNDS ARISING IN THE COURSE O F BUSINESS AND, THEREFORE, THE SAID EXPENDITURE SATISFIES THE TEST OF COMMERCIAL EXPEDIENCY AND PURPOSE OF BUSINESS CONTAINED IN SEC TION 37(1) OF THE ACT; AND THEREFORE THE SAME OUGHT TO BE ALLOWED AS BUSINESS DEDUCTION. 13.0.2 WITHOUT PREJUDICE TO THE ABOVE, I T WAS FURTHER ARGUED THAT IF THE SAID EXPENDITURE WAS NOT TO BE TREATED A S FOR THE PURPOSE OF BUSINESS, BUT HAVING RELATION WITH INVESTMENT AC TIVITY, THEN THIS EXPENDITURE NEEDS TO BE ALTERNATIVELY ALLOWED AGAIN ST INCOME ARISING FROM INVESTMENT ACTIVITY I.E. CAPITAL GAINS. IN THI S CONNECTION, THE LD. AR ALSO INVITED OUR ATTENTION TO THE DECISION OF DE LHI BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSME NT YEAR 2008- 09, WHEREIN WHILE THE TRIBUNAL REJECTED THE FIRST ARG UMENT OF ALLOWANCE OF THE AFORESAID EXPENDITURE AS BUSINESS D EDUCTION, BUT 41 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ACCEPTED THE ALTERNATE CLAIM OF THE SAID EXPENDITUR E TO BE DEDUCTIBLE AGAINST INCOME UNDER THE HEAD CAPITAL GAINS. 13.0.3 THE LD. COUNSEL FURTHER RELIED UPO N THE DECISION OF PUNE BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. KRA HOLDING & TRADING (P.) LTD.: 54 SOT 493 WHEREIN PORTFOLIO MANA GEMENT FEE PAID BY THE ASSESSEE WAS HELD TO BE ALLOWABLE AS DEDUCTIO N UNDER SECTION 48 WHILE COMPUTING CAPITAL GAINS ARISING FROM SALE O F SHARES. IT WAS THE PLEA OF THE LD. AR THAT SECTION 48 ALLOWS DEDUC TION OF - (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNE CTION WITH TRANSFER OF CAPITAL ASSET OR (II) COST OF ACQUISITI ON OF ASSET, WHICH ARE REDUCED FROM THE SALE CONSIDERATION AT THE TIME OF COMPUTING CAPITAL GAINS UNDER SECTION 45 OF THE ACT. IT WAS ARGUED THA T IF THE PORTFOLIO MANAGEMENT EXPENDITURE IS NOT TO BE CONSIDERED AS B USINESS EXPENDITURE, THEN THE ONLY NEXUS OF SUCH EXPENDITUR E IS EITHER WITH PURCHASE OR SALE OF RELEVANT INSTRUMENT, WHICH IS CL EARLY ALLOWABLE DEDUCTION UNDER EITHER CLAUSE (I) OR CLAUSE (II) OF SECTION 48 OF THE ACT. 13.0.4 AS REGARDS THE FINDING OF THE LD. CIT (A), THAT THE SAID EXPENDITURE IS RELATED TO EARNING OF EXEMPT INCOME, THE LD. COUNSEL 42 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ARGUED THAT THE EXPENDITURE WAS INCURRED TO MAKE INV ESTMENT AND EARN CAPITAL APPRECIATION THERE FROM, BUT NOT DIVID END INCOME AND, THEREFORE, THE SAID EXPENDITURE CANNOT BE ATTRIBUTE D TO EARING OF EXEMPT INCOME. 13.0.5 WITHOUT PREJUDICE, IT WAS SUBMITTED THAT IF AT ALL DISALLOWANCE IS TO BE MADE FOR NEXUS WITH EXEMPT INCO ME, THEN ONLY PROPORTIONATE EXPENDITURE IN THE RATIO OF DIVIDEND INCOME TO CAPITAL GAINS SHOULD BE MADE. 14.0 THE LD. DR DEFENDED THE FINDINGS IN T HE ASSESSMENT ORDER. IT WAS ARGUED THAT WHEN THE ASSESSEE IS CLAIMI NG INCOME FROM INVESTMENTS UNDER THE HEAD CAPITAL GAINS AND NOT BU SINESS INCOME, THEN SUCH EXPENDITURE CANNOT BE ALLOWED AS DEDUCTIO N AGAINST BUSINESS INCOME. THE LD. DR RELIED UPON THE ORDER O F DELHI BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSME NT YEAR 2008- 09 FOR THE AFORESAID PROPOSITION. AS REGARDS THE AL TERNATE PLEA OF THE ASSESSEE REGARDING ALLOWANCE OF DEDUCTION UNDER SECT ION 48, THE LD. DR CONTENDED THAT THE AFORESAID EXPENDITURE IS TO B E CONSIDERED AS HAVING RELATION WITH EXEMPT INCOME AND FOR THAT REA SON SHOULD NOT BE ALLOWED AS DEDUCTION. 43 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 15.0.0 WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES. WE FIND THAT THE AFORESAID ISSUE HAS BEEN DECIDED AGAI NST THE ASSESSEE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A SSESSMENT YEAR 2008-09, WHEREIN IT HAS BEEN HELD THAT THE PORTFOLIO MANAGEMENT EXPENDITURE IS NOT ALLOWABLE AS BUSINESS EXPENDITURE . THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR THAT YEAR ARE AS U NDER: 197. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSION S, WE HOLD THAT ON GROUND NO. 51 AND 51, THE ASSESSEE VEH EMENTLY CONTENDED THAT THE GAINS REALIZED FROM SALE OF SUCH VARIOUS INSTRUMENTS IS INCOME UNDER THE HEAD OF CAPITAL GAI NS AND THE AO WRONGLY HELD THAT EH AFORESAID INCOME WAS TAXABL E UNDER THE HEAD OF BUSINESS INCOME. AT THE SAME TIME WHILE ARGUING FOR GROUND NO.52, THE ASSESSEES SUBMISSIONS ARE THAT T HE EXPENDITURE INCURRED FOR THE ADMINISTRATION AND MAN AGEMENT OF FUNDS IN THE COURSE OF BUSINESS BEING TOWARDS CASH MANAGEMENT/OPTIMUM UTILIZATION OF BUSINESS FUNDS SH OULD BE CONSIDERED AS EXPENDITURE FOR THE PURPOSE OF BUSINE SS AND HENCE THE SAME MAY BE ALLOWED AS BUSINESS DEDUCTION . ALTERNATIVELY, LD. COUNSEL OF THE ASSESSEE HAS ALSO SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, IF THE TRIBUNAL HOLDS THAT THE AFORESAID PMS EXPENSES AND PMS FEE A RE NOT ALLOWABLE AS BUSINESS EXPENDITURE, THEN THE AO MAY BE DIRECTED TO ALLOW THE SAME AS DEDUCTION FROM INCOME FROM CAP ITAL GAINS. 44 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 198. SINCE WHILE ADJUDICATING GROUND NO. 50 OF THE ASSESSEE, WE HAVE COME TO THE CONCLUSION THAT THE INCOME FROM SA LE OF SHARES/MUTUAL FUNDS/PMS ETC. IS TAXABLE AS CAPITAL GAINS INSTEAD OF BUSINESS INCOME, THEN EXPENSES INCURRED TOWARDS PORTFOLIO MANAGEMENT FEE AND ENTRY LOAD PMS FEE IN RESPECT OF INVESTMENT MADE IN SHARES/MUTUAL FUNDS ARE NOT ALLO WABLE AS BUSINESS EXPENDITURE AND THE SAME DESERVE TO BE ALL OWED AS DEDUCTION FROM INCOME FROM CAPITAL GAINS AS PER PRO VISIONS OF THE ACT. THUS, GROUND NO. 52 OF THE ASSESSEE IS ALLOWED BY ACCEPTING ALTERNATE SUBMISSION OF THE ASSESSE AND AO IS DIREC TED TO ALLOW THE IMPUGNED EXPENDITURE INCURRED BY THE ASSESSEE T OWARDS PORTFOLIO MANAGEMENT FEE AND ENTRY LOAD PMS FEE FRO M THE INCOME UNDER THE HEAD OF CAPITAL GAINS IN ACCORDANC E WITH RELEVANT PROVISIONS OF THE ACT. FINALLY, GROUND NO. 52 OF THE ASSESSEE IS ALLOWED. 15.0.1 WE RESPECTFULLY AGREE WITH THE AFORE SAID FINDINGS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL. WE ALSO FIND THA T IF THE EXPENDITURE IS NOT ALLOWED AS BUSINESS DEDUCTION, T HEN THE SAME OUGHT TO BE ALLOWED AS DEDUCTION UNDER EITHER CLAUS E (I) OR CLAUSE (II) OF SECTION 48 OF THE ACT WHILE COMPUTING INCOME ARIS ING FROM INVESTMENTS UNDER THE HEAD CAPITAL GAINS. THE TRIBU NAL IN THE AFORESAID ORDER HAS ALSO ACCEPTED THE AFORESAID ALT ERNATE PLEA OF THE 45 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ASSESSEE. WE, HOWEVER, FURTHER FIND THAT THE NEXUS O F THE AFORESAID EXPENDITURE WITH EARNING OF EXEMPT DIVIDEND CANNOT B E COMPLETELY RULED OUT. ACCORDINGLY, WE ACCEPT THE ALTERNATE CON TENTION OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DISALL OW PART OF THE AFORESAID EXPENDITURE IN THE RATIO OF DIVIDEND INCO ME TO CAPITAL GAINS UNDER SECTION 14A AND THE BALANCE EXPENDITURE TO BE ALLOWED AS DEDUCTION UNDER SECTION 48 FROM INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD CAPITAL GAINS. SUCH EXPENDITURE CAN BE FURTHER APPORTIONED BY THE ASSESSING OFFICER IN THE RATIO O F SHORT TERM OR LONG TERM CAPITAL GAIN DECLARED BY THE ASSESSEE. 15.0.2 AS A RESULT THE AFORESAID GROUND OF APPEAL IS PARTLY ALLOWED. 16.0.0 GROUNDS OF APPEAL NOS.5-5.1 ARE AGAINST THE DISALLOWANCE OF PROFESSIONAL FEE OF RS.14.74 LACS PA ID TO RESIDENT OF USA FOR WANT OF TDS OR ALTERNATIVELY AS CAPITAL EXPE NDITURE. IT WAS SUBMITTED BY THE LD. AR THAT DURING THE RELEVANT AS SESSMENT YEAR, THE ASSESSEE MADE A PAYMENT OF RS 14.74 LAKHS TO SH RI TARUN KHANNA, PROFESSOR FROM HARVARD UNIVERSITY AND A RES IDENT OF USA, TOWARDS CONSULTANCY CHARGES FOR THE SERVICE RENDERED IN THE SCENARIO 46 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT PLANNING EXERCISE INITIATED BY THE ASSESSEE COMPANY . SCENARIO PLANNING EXERCISE WAS AIMED AT IDENTIFYING THE KEY V ARIABLES IMPACTING THE TWO-WHEELER INDUSTRY AND ESTABLISHING T HE EARLY WARNING SIGNAL. IT WAS SUBMITTED THAT SHRI KHANNA, AF TER STUDYING THE TWO WHEELER INDUSTRY, HAD GIVEN ADVICE TO THE ASS ESSEE COMPANY RELATING TO FUTURE PROSPECTS. THE AFORESAID PAYMEN T WAS, HOWEVER, REMITTED WITHOUT TAKING ANY TAX AT SOURCE IN INDIA. IT WAS FURTHER SUBMITTED THAT IN THE ASSESSMENT ORDER, THE AO INVO KED THE PROVISION OF SECTION 40(A)(I) AND MADE THE DISALLOWA NCE ON THE GROUND THAT THE ASSESSEE HAD FAILED TO DEDUCT TAX A T SOURCE FROM AFORESAID PAYMENT, WHICH WAS TAXABLE IN INDIA AS FEE FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT. ALTER NATIVELY, THE ASSESSING OFFICER HELD THAT THE AFORESAID EXPENDITU RE RESULTED IN ENDURING BENEFIT TO THE ASSESSEE THROUGH THE STUDY CONDUCTED BY THE VENDOR AND, THEREFORE, THE EXPENDITURE WAS A CAPITAL EXPENDITURE, WHICH WAS NOT ALLOWABLE AS REVENUE DEDUCTION UNDER SEC TION 37(1) OF THE ACT. THE LD. AR FURTHER SUBMITTED THAT ON F URTHER APPEAL BEFORE THE LD. CIT (A), THE ASSESSEE ARGUED EXEMPTI ON FROM DEDUCTION OF TAX AT SOURCE UNDER INDO-USA DTAA WHERE IN IT WAS 47 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ARGUED THAT THE PAYMENT WAS NOT TAXABLE IN INDIA, WHI CH OVERRODE THE PROVISIONS OF THE ACT INCLUDING SECTION 9(1)(VI I). THE LD. CIT (A), HOWEVER, DID NOT AGREE TO CONTENTIONS OF THE ASSESS EE AND UPHELD THE DISALLOWANCE. IT WAS SUBMITTED THAT THE LD. CIT (A) D ID NOT ALLOW THE BENEFIT OF TREATY ON THE GROUND THAT THERE WAS NO E XEMPTION AVAILABLE IN AS MUCH AS THE VENDOR HAD MADE AVAILA BLE ADVICE TO THE ASSESEE, WHICH WAS NOT EXEMPT UNDER THE RELEVANT PROVISION OF TREATY. IT WAS SUBMITTED THAT THE LD. CIT (A), HOWEV ER, DID NOT GIVE ANY FINDING ON THE ALTERNATE CONTENTION OF THE AO R EGARDING THE EXPENDITURE TO BE CAPITAL OR REVENUE IN NATURE. 16.0.1 IN SUPPORT OF THE GROUNDS OF APP EAL, THE LD. AR ARGUED THAT IT IS NOW SETTLED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF G.E. INDIA TECHNOLOGY CENTRE ( P) LTD. VS. CIT: 327 ITR 456, THAT IF THE PAYMENT IS NOT TAXABLE IN INDIA AS PER THE PROVISIONS OF TREATY, THEN THE PAYER-ASSESSEE IS NO T LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. IT WAS A RGUED THAT THE AFORESAID PAYMENT WAS NOT TAXABLE IN INDIA AS PER AR TICLE 12 OF INDO- USA DTAA WHICH WAS APPLICABLE TO INCOME EARNED BY NON -RESIDENT IN THE NATURE OF FEES FOR INCLUDED SERVICES. THE LD. AR SUBMITTED 48 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT THAT, AS PER THE SAID DEFINITION, INCOME IS TAXABLE IN INDIA ONLY IF THE RECIPIENT MAKES AVAILABLE ITS TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW TO THE RESIDENT PAYER WHICH ENABLES THE LATT ER TO APPLY THE TECHNOLOGY CONTAINED THEREIN. IF THE RECIPIENT ONLY ENJOY THE SERVICES, BUT IS UNABLE TO APPLY KNOW-HOW BEHIND THE SERVICE, THEN THE INCOME WOULD NOT SATISFY THE TEST OF MAKE AVAILABLE . RELIANCE FOR THE AFORESAID MEANING WAS PLACED ON THE FOLLOWING DEC ISIONS: CIT VS. DE BEERS INDIA MINERALS (P) LTD: 346 ITR 46 7 (KARNATAKA) DIT VS. GUY CARPENTER & CO LTD: 346 ITR 504 (DEL-HC ) RAYMOND LTD V. DCIT: 86 ITD 791 (MUMBAI) ERNST & YOUNG INDIA: 323 ITR 184 (AAR) ICICI BANK LTD. V. DCIT: (2008) 20 SOT 453 (MUM) BHARTI AXA: 326 ITR 477 (AAR) WORLEY PARSONS SERVICES PTY LTD (AAR NO. 750 OF 200 7) 16.0.2 IT WAS ARGUED THAT THE ASSESSEE HA D ENGAGED THE SERVICES OF SHRI TARUN KHANNA MERELY FOR PROVIDING SERVICES IN THE SCENARIO PLANNING EXERCISE, WHEREIN THE LATTER WAS RE QUIRED TO ADVISE ON THE KEY VARIABLES OF THE TWO WHEELER INDUSTRY. IN NO CASE AND NO CIRCUMSTANCES, DID SHRI TARUN KHANNA REVEAL OR PROV IDE THE DETAILS OF RESEARCHES TO THE ASSESSEE, IN ORDER TO ENABLE T HE LATTER TO CARRY 49 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT OUT AND UNDERTAKE SUCH SERVICES IN FUTURE ON ITS OWN ACCORD WITHOUT AVAILING SERVICES FROM HIM. IT WAS SUBMITTED THAT TH E ROLE AND SERVICES PROVIDED BY SHRI TARUN KHANNA WERE ON PRINC IPAL-TO- PRINCIPAL BASIS AND DID NOT LEAD TO ANY TRANSFER OF SPECIALISED KNOWLEDGE/KNOW-HOW. IT WAS SUBMITTED THAT SINCE THE CO NSULTANCY SERVICES PROVIDED BY SHRI TARUN KHANNA DID NOT INVO LVE MAKING AVAILABLE OF ANY TECHNOLOGY OR TECHNICAL KNOWLEDGE T O THE ASSESSEE, THE SAME CANNOT BE CHARACTERIZED AS FTS, WITHIN THE MEANING OF ARTICLE 12 (4) OF THE DTAA AND, THEREFORE, NOT CHAR GEABLE TO TAX IN INDIA. IT WAS ARGUED THAT THE PAYMENT WAS EXEMPT FROM TAX IN INDIA AS PER THE ARTICLE 12 OF TREATY AND IN THE ABSENCE OF ANY PERMANENT ESTABLISHMENT OR PLACE OF BUSINESS OF THE FOREIGN N ATIONAL IN INDIA, THE PAYMENT WAS COMPLETELY EXEMPT AND NOT TAXABLE IN INDIA. 16.0.3 AS REGARDS THE ALTERNATE CONTENT ION OF THE ASSESSING OFFICER, IT WAS ARGUED THAT THE PAYMENT MADE BY THE ASSESSEE COMPANY TO SHRI TARUN KHANNA WAS CAPITAL EXPENDITUR E RESULTING IN ENDURING BENEFIT IS ALSO NOT CORRECT, SINCE THE CON SULTANCY SERVICES OF SHRI KHANNA DID NOT RESULT IN ACQUISITION OF ANY ASSET/INTANGIBLE RIGHT IN THE NATURE OF A CAPITAL ASSET, OR ENDURING BENEFIT INCREASING 50 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT THE PROFIT EARNING APPARATUS OF THE COMPANY. THE SE RVICES WERE RENDERED IN CONNECTION WITH THE EXISTING BUSINESS OF THE ASSESSEE COMPANY AND, THEREFORE, BENEFIT, IF ANY, DERIVED, F ORMED INTEGRAL PART OF THE EXISTING BUSINESS/APPARATUS AND NOT FOR ADDI TION THERETO. THUS, THE FEES PAID BY THE ASSESSEE TO SHRI TARUN K HANNA CANNOT BE CHARACTERIZED AS CAPITAL ASSET. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CA SE, REPORTED AT 372 ITR 481 WHEREIN DISALLOWANCE OF ROYALTY PAID TO F OREIGN JV PARTNER ON THE SIMILAR ISSUE WAS DELETED ON THE GROU ND THAT PAYMENT OF ROYALTY DOES NOT RESULT IN ENDURING BENEFIT IN T HE CAPITAL FIELD TO BE TREATED AS CAPITAL EXPENDITURE. IT WAS SUBMITTED THA T THE DISALLOWANCE OF FEE PAID BY THE ASSESSEE TO SHRI TAR UN KHANNA ON THE ALTERNATE GROUND OF BEING CAPITAL EXPENDITURE A LSO DESERVES TO BE DELETED. 17.0 THE LD. CIT (DR) HEAVILY RELIED UPO N BY THE ORDERS PASSED BY THE AO AND THE LD. CIT (A). 18.0.0 WE HAVE HEARD THE RIVAL CONTENTIO NS. WE AGREE WITH THE CONTENTIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT THE IMPUGNED PAYMENT DID NOT MAKE AVAILABLE TECHNICAL KNOW-HOW/ 51 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT KNOWLEDGE OF THE FOREIGN NATIONAL TO THE ASSESSEE IN INDIA. THE FOREIGN NATIONAL HAD ONLY MADE AVAILABLE ITS FINDIN GS OF THE SCENARIO PLANNING EXERCISES CONDUCTED BY HIM AS A PROFESSION AL, BUT DID NOT MAKE AVAILABLE HIS KNOWLEDGE, WHICH WAS USED FOR CONDU CTING THE AFORESAID EXERCISE.THE LEGAL POSITION IN THIS REGAR D IS NO LONGER RES INTEGRA AND IS SETTLED BY CATENA OF DECISIONS REFERRED TO BY THE LD. COUNSEL OF THE ASSESSEE SUPRA WITH REGARD TO THE MEA NING OF EXPRESSION MAKE AVAILABLE USED IN THE TREATY. US EFUL REFERENCE CAN BE MADE TO THE DECISION OF THE HONBLE DELHI HI GH COURT IN THE CASE OF DIT VS GUY CARPENTER & CO LTD: 346 ITR 504 (DEL) REFERRED SUPRA. ACCORDINGLY, THE IMPUGNED PAYMENT MADE WAS NOT TAXABLE IN INDIA. ACCORDINGLY, THE ASSESSEE DID NOT COMMIT ANY ERROR IN NOT DEDUCTING TAX AT SOURCE WHILE MAKING THE REMITTANCE AND, THEREFORE, THE SAME DID NOT WARRANT ANY DISALLOWANCE UNDER SECTI ON 40(A)(I) OF THE ACT. 18.0.1 WE ALSO DO NOT FIND IN FORCE IN THE ALTERNATE CONTENTION OF THE ASSESSING OFFICER TO TREAT THE SAID PAYMENT AS CAPITAL EXPENDITURE. THE ASSESSEE IS A LARGE SIZED COMPANY ALREADY EXISTING IN THE BUSINESS OF MANUFACTURING TWO WHEELERS SINCE P AST SEVERAL 52 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT YEARS. THE IMPUGNED EXPENDITURE CONSTITUTES A MINIS CULE PART OF THE TOTAL EXPENSES INCURRED BY THE ASSESSEE IN THE COUR SE OF CARRYING ON THE SAID BUSINESS. THE AFORESAID EXPENDITURE DID NO T RESULT IN PROVIDING ANY BENEFIT OF ENDURING NATURE LEAVE ALON E THE BENEFIT BY WAY OF ACCRETION TO THE PROFIT EARNING APERTURES OR IN THE CAPITAL FIELD. THE SAID EXPENDITURE IS PART AND PARCEL OF T HE EXISTING BUSINESS, INCURRED TO GAIN SOME INSIGHT OF THE FUTU RE OUTLOOK OF THE TWO-WHEELER INDUSTRY AND, THEREFORE, THE SAME FORMED INTEGRAL PART OF THE EXISTING BUSINESS, WHICH CANNOT, IN OUR VIEW, BE SOUGHT TO BE CAPITAL IN NATURE. 18.0.2 ACCORDINGLY, THE DISALLOWANCE MADE BY THE AO ON BOTH THE AFOREMENTIONED ACCOUNTS WAS WRONG IN LAW AND IS, T HEREFORE, DELETED. THE GROUNDS OF APPEAL 5-5.1 STAND ALLOWED. 19.0.0 AS REGARDS GROUND NO. 6 TO 6.5, TH E SAME RELATE TO TRANSFER PRICING ADJUSTMENT OF RS.7,05,334/- ON ACC OUNT OF INTERNATIONAL TRANSACTION OF IMPORT OF COMPONENTS. DURING THE ACCOUNTING YEAR, THE ASSESSEE, INTER ALIA, ENTERED INTO THE INTERNATIONAL TRANSACTION OF IMPORT OF COMPONENTS A GGREGATING TO RS. 177.35 CRORES. IN THE TRANSFER PRICING STUDY, THE A SSESSEE APPLIED 53 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT TNMM FOR THE PURPOSE OF BENCHMARKING. THE TPO, HOWE VER, MADE A TRANSFER PRICING ADJUSTMENT OF RS.6,57,195/- APPLYI NG CUP METHOD BY COMPARING THE PRICES OF IMPORT OF TWO COMPONENTS, VIZ., SPROCKET TIMING AND SPROCKET CAMP, FROM THE ASSOCIATED ENTER PRISES WITH THAT OF THE PRICES OF COMPONENTS SOURCED LOCALLY FROM DO MESTIC SUPPLIERS, AFTER THEIR INDIGENIZATION. THE LD. CIT (A) UPHELD THE TRANSFER PRICING ADJUSTMENT HOLDING THAT THE ASSOCIATED ENTERPRISE C HARGED EXCESSIVELY HIGH PRICE FOR THE TWO COMPONENTS WHICH C ANNOT BE ATTRIBUTED TO GEOGRAPHICAL VARIATION. 19.0.1 THE LD. AR SUBMITTED THAT TH E ASSESSEE IMPORTED ONLY THOSE COMPONENTS/SPARE PARTS FROM THE ASSOCIAT ED ENTERPRISE WHERE SUCH PRODUCTS WERE NOT AVAILABLE IN THE DOMESTI C MARKET (THROUGHOUT THE RELEVANT PREVIOUS YEAR) OR COULD NO T BE SUPPLIED BY THE DOMESTIC VENDORS IN DESIRED QUANTITY AND QUALIT Y. THE PRICE PAID TO THE LOCAL VENDOR(S), CANNOT, IN SUCH CIRCUMSTANC ES, BE REGARDED AS BENCHMARK TO DETERMINE THE ARMS LENGTH PRICE FOR P RODUCTS IMPORTED FROM THE ASSOCIATED ENTERPRISE. IT WAS SUBM ITTED THAT IT NEEDS TO BE APPRECIATED THAT THE DOMESTIC VENDOR(S) HAD LIMITED CAPACITY TO SUPPLY PRODUCTS/COMPONENTS, WHICH FELL S HORT OF THE 54 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ASSESSEES REQUIREMENTS. THE ASSOCIATED ENTERPRISE, ON THE OTHER HAND, WAS IN A POSITION TO CATER TO THE ASSESSEES C OMPLETE REQUIREMENT OF SUCH PRODUCTS/COMPONENTS. THE PRICE PAID TO THE LOCAL VENDOR(S) FOR PART SUPPLY (FOR WANT OF DOMESTI C VENDOR(S) NOT BEING ABLE TO SUPPLY THE COMPLETE QUANTITY) COULD N OT BE COMPARED WITH THE PRICE PAID TO THE ASSOCIATED ENTERPRISE FOR THE BALANCE QUANTITY SECURED. IT WAS ALSO POINTED OUT BY THE LD. AR THAT THE AFORESAID ISSUE IS COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2006-07. IT WAS SUBMITTED THAT THE TRIBUNAL HAD HELD THAT IF THE GOODS WERE NOT AVA ILABLE INDIGENOUSLY, THEN NATURALLY THE RATE OF INDIGENOUS GOODS CANNOT BE APPLIED FOR DETERMINING THE ALP AND HAD RESTORED BA CK THE MATTER BACK TO ASSESSING OFFICER TO RE-ADJUDICATE THE ISSU E IN THE LIGHT OF THE EVIDENCE TO BE SUBMITTED BY THE ASSESSEE THAT GOODS WERE NOT INDIGENOUSLY AVAILABLE AND THE ADJUSTMENT IS LIABLE TO BE DELETED. IT WAS POINTED OUT THAT SIMILAR DIRECTIONS WERE GIVEN B Y THE TRIBUNAL IN THE ASSESSMENT YEARS 2002-AND 2003-04, WHILE SETTING ASIDE THE MATTER TO THE AO/TPO. 55 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 19.0.2 IT WAS FURTHER POINTED OUT THAT T HE TPO, WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07, HAD DELETED THE TRANSFER PRICING ADJUSTMENT BY HOLDING AS UNDER: 5. DURING THE PROCEEDINGS, IT WAS GATHERED THAT TH E ASSESSEE MADE PURCHASE OF ONLY RS. 81 CRORES FROM ITS AE OUT OF THE TOTAL PURCHASE OF RS. 5911 CRORES. THE PROCESS OF INDIGEN IZATION WAS STEADILY PROGRESSING AND THE ASSESSEE HAS SUBSEQUEN TLY STOPPED PURCHASING THESE COMPONENTS WHEN SUCH PARTS WERE AV AILABLE INDIGENOUSLY AS PER THE DESIRED QUALITY IN SUFFICIE NT QUANTITY. 6. IN VIEW OF THE ABOVE, NO ADVERSE INFERENCE IS DR AWN ON THE PURCHASE OF THE RAW MATERIAL, SPARE PARTS AND COMPO NENTS OF RS. 81,10,78,331/- FROM ITS AE. 19.0.3 THE LD. AR ALSO RELIED ON THE ORDER PASSED BY THE TRIBUNAL IN ASSESSMENT YEAR 2004-05, WHEREIN THE TRI BUNAL AFTER TAKING INTO CONSIDERATION THE ORDERS FOR THE EARLIE R YEARS AND THE APPROACH ADOPTED BY THE TPO, HAD DELETED SIMILAR TR ANSFER PRICING ADJUSTMENT. 20.0 THE LD. CIT DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 56 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 21.0.0 WE HAVE GONE THROUGH THE R ECORDS. CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSMENT YEAR 2004-05 HA S HELD AS UNDER: ON A CAREFUL CONSIDERATION OF THE MATTER, WE FIND THAT OUT OF THE TOTAL PURCHASES OF RS.20,46,58,682/- FROM THE DOMES TIC MARKET, THE ASSESSEE IMPORTED FROM ASSOCIATED ENTERPRISES T HE COMPONENTS WORTH RS.22,83,666/- WHICH DOES NOT CONS TITUTE 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 A DDITION ON THIS SCORE, HOLD THAT THE TRANSFER PRICING ADJUSTME NT TO THE TUNE OF RS.7,05,334/- MADE BY THE TPO CANNOT BE SUSTAINE D AND ACCORDINGLY WHILE ALLOWING THE GROUND DELETE THE SA ME. 21.0.1 IN VIEW OF THE LATEST ORDER OF THE TRIBU NAL WHEREIN THIS ISSUE HAS BEEN DEALT WITH IN DETAIL, WHICH WE RESPECTF ULLY FOLLOW, WE HOLD THIS ISSUE IN FAVOUR OF THE ASSESSEE AND HOLD THAT THE TRANSFER PRICING ADJUSTMENT TO THE TUNE OF RS.7,05,334/- MAD E BY THE TPO CANNOT BE SUSTAINED AND ACCORDINGLY WHILE ALLOWING TH E GROUNDS DELETE THE SAME. 22.0 IN THE RESULT, THE APPEA L OF THE ASSESSEE STANDS PARTLY ALLOWED. 57 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 6302/DEL/2015 (DEPARTMENTAL APPEAL): 23.0.0 WE NOW TAKE UP THE APPEAL FILED BY THE REVENUE. GROUND NO. 1 RELATES TO DISALLOWANCE OF NET EXPENDIT URE OF RS. 12507.73 LACS ON ACCOUNT OF ROYALTY AND TECHNICAL G UIDANCE FEE BY HOLDING THE SAME TO BE CAPITAL IN NATURE AFTER ALLO WING DEPRECIATION @ 25%. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS B EEN MANUFACTURING TWO WHEELERS IN INDIA SINCE 1985 ON THE BASIS OF TECHNOLOGY PROVIDED BY M/S HONDA MOTORS CO. LTD., J APAN (HONDA) AND PURSUANT TO THE AGREEMENT DATED 2.06.2004 PAID ROYALTY AND TECHNICAL GUIDANCE FEE AGGREGATING TO RS. 16676.98 LACS TO HONDA. THE ASSESSING OFFICER HELD THE SAME TO BE CAPITAL I N NATURE AND MADE NET DISALLOWANCE OF ROYALTY AND TECHNICAL GUIDANCE FEE OF RS.12507.73 LACS AFTER ALLOWING DEPRECIATION @ 25%. IT WAS FURTHER SUBMITTED THAT ON APPEAL, THE LD. CIT (A) DELETED T HE SAME FOLLOWING THE APPELLATE ORDERS FOR THE EARLIER ASSESSMENT YEA RS. 23.0.1 THE LD COUNSEL FOR THE ASSES SEE BROUGHT TO OUR NOTICE THAT COORDINATE BENCH OF THIS TRIBUNAL DECID ED 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 AN NUAL PAYMENT 58 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT OF ROYALTY/TECHNICAL GUIDANCE FEE WAS ALLOWABLE AS RE VENUE EXPENDITURE. SIMILAR APPROACH WAS ADOPTED BY THE REV ENUE FOR THE AYS 2009-10, 2010-11, 2011-12, 2012-13 AND 2013-14 ALSO. THE LEARNED AR SUBMITTED THAT THE ORDER OF THE TRIBUNAL RELATING TO THE AY 2002-03 HAS BEEN CONFIRMED BY THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE REPORTED AS CIT VS. HERO HONDA, 372 ITR 481. IT WAS FURTHER SUBMITTED THAT EVEN SUBSEQUENTLY BY ORDE R DATED 31.07.2019, THE TRIBUNAL DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE FOR THE AY 2004-05. 24.0 THE LD. CIT DR RELIED ON THE ASSESSMENT ORDER. 25.0 WE HAVE PERUSED THE RECORD. IN VIEW OF THE FACT THAT THE ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR O F THE ASSESSEE FOR MORE THAN 13 YEARS WHICH ALSO STANDS UPHELD BY THE H ONBLE JURISDICTIONAL HIGH COURT, THE SAME APPROACH HAS TO BE ADOPTED IN THIS CASE ALSO AND, THEREFORE, RESPECTFULLY FOLLOWIN G THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL AND APPROVED BY THE HONB LE HIGH COURT, WE UPHOLD THE FINDINGS OF THE LEARNED CIT (A). ACCOR DINGLY, WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 59 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 26.0.0 GROUND NO. 2 RELATES TO DISALLO WANCE OF NET EXPENDITURE OF RS.19,85,30,762/- INCURRED ON ACCOUN T OF MODEL FEE BY HOLDING THE SAME TO BE CAPITAL IN NATURE AFTER A LLOWING DEPRECIATION @ 25%. IT WAS SUBMITTED THAT THE ASSESS EE HAS BEEN MANUFACTURING TWO WHEELERS IN INDIA SINCE 1985 ON THE BASIS OF TECHNOLOGY PROVIDED BY M/S HONDA MOTORS CO. LTD., J APAN (HONDA) AND PURSUANT TO THE AGREEMENT DATED 2.06.2004 HAD P AID MODEL FEE OF RS. 26,47,07,683/- TO HONDA. THE ASSESSING OFFIC ER HELD THE SAME TO BE CAPITAL IN NATURE AND MADE A NET DISALLOWANCE OF RS.19,85,30,762/- AFTER ALLOWING DEPRECIATION @ 25% . IT WAS FURTHER SUBMITTED THAT FOLLOWING THE APPELLATE ORDER S FOR THE EARLIER YEARS, THE LD. CIT (A) HAD DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 26.0.1 THE LD. COUNSEL FOR THE ASSESSE E POINTED OUT THAT 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 GROU ND THAT THE PAYMENT WAS ONLY FOR RIGHT TO USE THE TECHNOLOGY/KNO W-HOW AND THERE WAS NO OWNERSHIP OF THE INTELLECTUAL PROPERTY WHICH REMAINED 60 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT TO BE WITH HONDA. THIS VIEW OF THE TRIBUNAL WAS CHALL ENGED BY THE REVENUE BUT THE HONBLE DELHI HIGH COURT DECLINED T O ENTERTAIN THE APPEAL. THE DECISION OF THE HONBLE HIGH COURT WAS A CCEPTED BY THE DEPARTMENT AND HAS BECOME FINAL, AS NO SLP HAS BEEN FILED THERE AGAINST. THE LD. COUNSEL FURTHER POINTED OUT THAT I N THE ASSESSEES OWN CASE FOR A.Y.1996-97, THE TRIBUNAL WAS PLEASED TO ALLOW MODEL FEE PAID TO HONDA UNDER SECTION 37(1) OF THE ACT AS REVENUE EXPENDITURE. THE SAID DECISION IS REPORTED AS HERO HONDA MOTORS LTD. V. JCIT: 95 TTJ 782 (DEL). THE HONBLE DELHI H IGH COURT DID NOT ENTERTAIN THE APPEAL FILED BY THE DEPARTMENT ON THE SAID ISSUE. THE DECISION OF THE HIGH COURT WAS ACCEPTED BY THE DEPAR TMENT AND HAS BECOME FINAL, AS NO SLP HAS BEEN FILED THERE AGAINS T. IT WAS FURTHER SUBMITTED THAT THE TRIBUNAL IN THE ASSESSMENT YEARS 1997-98 AND 1999-2000 ALLOWED SIMILAR EXPENDITURE ON PAYMENT OF MODEL FEE, FOLLOWING THE DECISION OF THE TRIBUNAL FOR ASSESSMEN T YEAR 1996-97. THE REVENUES APPEAL AGAINST THE SAID ORDERS HAS BE EN DISMISSED BY THE HIGH COURT. IT WAS ALSO SUBMITTED THAT IN ASSESS MENT YEAR 1999- 2000, APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE HIGH COURT HAS BEEN DISMISSED BY THE HONBLE SUPREME COU RT. IT WAS 61 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT FURTHER SUBMITTED THAT THE TRIBUNAL IN ASSESSEES C ASE FOR ASSESSMENT YEAR 2001-02, VIDE ORDER DATED 27.03.200 9 IN ITA NO. 2067/DEL/2006, ALLOWED THE PAYMENT OF MODEL FEE FOL LOWING THE SAME ORDER FOR ASSESSMENT YEAR 1996-97 AND THAT THE SAME TREATMENT HAS BEEN GIVEN BY ITAT IN RESPECT OF AY 2 006-07, AY 2007-08, AY 2008-09, 2010-11 AND 2011-12. IT WAS FUR THER SUBMITTED THAT THE HONBLE HIGH COURT HAS AFFIRMED THE ORDER PASSED BY THE TRIBUNAL IN ASSESSMENT YEAR 2000-01 T O 2002-03 IN 372 ITR 481. THE LD. AR FURTHER SUBMITTED THAT THE TRIBUNAL DELETED SIMILAR DISALLOWANCE OF PAYMENT OF MODEL FEE IN AYS 2012-13, 2013- 14 AND THAT VIDE RECENT ORDER DATED 31.07.2019, THE TRIBUNAL IN ASSESSMENT YEAR 2004-05, DISMISSED THE APPEAL OF TH E REVENUE HOLDING THAT THE ISSUE HAS BEEN DECIDED IN FAVOR OF THE ASSESSEE COMPANY IN THE EARLIER YEARS BY THE TRIBUNAL WHICH H AS BEEN UPHELD BY THE HONBLE HIGH COURT AND SUPREME COURT. IT WAS FURTHER SUBMITTED THAT SUBSEQUENTLY THE SAME VIEW WAS UPHELD BY THE TRIBUNAL AND THE HONBLE HIGH COURT AFFIRMED THE SA ME AND THAT THE HONBLE SUPREME COURT ALSO DECLINED TO INTERFERE WIT H THE SAME. THE LD. AR ALSO SUBMITTED THAT VIDE ORDER DATED 23.4.20 19 FOR THE 62 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ASSESSMENT YEAR 2009-10, THE TRIBUNAL REAFFIRMED TH E SAID VIEW. LD. 27.0 THE LD. CIT-DR RELIED ON THE AS SESSMENT ORDER. 28.0.0 WE HAVE PERUSED THE RECORD. IT IS , CLEAR THAT FOR QUITE A LONG TIME THERE IS CONSISTENCY 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). ACCORDINGLY, WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENU E. 29.0.0 GROUND NO. 3 RELATES TO DISALLOWANCE OF EXPORT COMMISSION OF RS. 8,69,26,848/- PAID TO HONDA MOTOR COMPANY LTD. (HONDA), JAPAN UNDER SECTION 40(A)(I) ON GROUN D THAT THE SAME CONSTITUTED ROYALTY/FEE FOR TECHNICAL SERVICES ON WH ICH THE ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE UNDER SECTION 19 5 OF THE ACT. ALTERNATIVELY, THE AO DISALLOWED THE AFORESAID AMOU NT ON THE FOLLOWING GROUNDS: (I) THE EXPORT AGREEMENT WAS FOR THE BENEFIT OF HONDA AN D NOT THE ASSESSEE COMPANY, THEREFORE, THE PAYMENT OF EXPORT COMMISSION WAS HELD TO BE NOT ALLOWABLE UNDER SECTION 37(1) (II) THE EXPORT AGREEMENT WAS IN THE NATURE OF LICENSE AC QUIRED BY THE ASSESSEE FOR THE PURPOSE OF MAKING EXPORT TO OT HER COUNTRIES WHERE HONDA HAD EXCLUSIVE PRIVILEGE TO OPE RATE. THE 63 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT LICENSE WAS FOR A LONGER PERIOD OF TIME AND, THEREFO RE, IT CONSTITUTES AN INTANGIBLE ASSET. ACCORDINGLY, THE E XPENDITURE WAS HELD TO BE A CAPITAL EXPENDITURE. 29.0.1 ON APPEAL, THE LD. CIT (A) DELETED THE DISALLOWANCE MADE BY THE AO BY RELYING ON THE ORDERS PASSED BY T HE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2006-07 TO 2008-09. 29.0.2 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN AY 2006-07 WHEREIN THE TRIBUNAL HAD HELD THAT BY WAY OF EXPORT A GREEMENT, HONDA HAD ONLY PERMITTED THE ASSESSEE TO EXPORT THE SPECIFIED GOODS TO THE SPECIFIED COUNTRIES AND THE THAT ASSESSEE DI D NOT ACQUIRE ANY ASSET/INTANGIBLE RIGHT IN THE NATURE OF A CAPITAL A SSET. FURTHER, THE TRIBUNAL HELD THAT NO MANAGERIAL, TECHNICAL OR CONS ULTANCY SERVICES HAD BEEN PROVIDED WHICH WERE TAXABLE IN INDIA AND, TH EREFORE, NO TDS WAS LIABLE TO BE DEDUCTED. THE LD. AR SUBMITTED THAT THE AFORESAID ORDER OF THE TRIBUNAL HAS BEEN AFFIRMED B Y THE HONBLE HIGH COURT VIDE ORDER DATED 08.05.2017, PASSED IN I TA NO. 923/2015. THE LD. COUNSEL ALSO POINTED OUT THAT THE TRIBUNAL 64 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT FOLLOWING THE AFORESAID ORDER FOR THE ASSESSMENT YEA R 2006-07, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE IN THE A SSESSMENT YEAR 2007-08. 30.0 THE LD. CIT DR RELIED ON THE OR DER OF THE AO. 31.0.0 WE HAVE PERUSED THE RECORD. WE FIN D THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER PASSED BY THE TRIBUNAL IN AY 2006-07 WHEREIN THE TRIBUNAL HAS HELD AS UNDER: 71. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WH ILE CONSIDERING THE ADJUSTMENT MADE BY THE TPO IN RESPE CT OF EXPORT AGREEMENT, WE HAVE DISCUSSED BOTH THESE AGREEMENTS. THE TECHNICAL KNOW-HOW AGREEMENT WAS ENTERED INTO BETWE EN THE ASSESSEE AND HMCL IN THE YEAR 1984 WHICH WAS RENEWE D IN THE YEAR 1994 AND THEN IN 2004. UNDER THE TECHNICAL KNO W-HOW AGREEMENT, THE ASSESSEE WAS PERMITTED TO MANUFACTUR E, ASSEMBLE, SELL AND DISTRIBUTE THE PRODUCTS WITHIN T HE TERRITORY WHICH WAS DEFINED AS REPUBLIC OF INDIA. THUS, SINCE 1984 TO 2004, THE ASSESSEE WAS NOT ALLOWED TO EXPORT ANY PR ODUCT. THE EXPORT AGREEMENT WAS ENTERED INTO WITH HMCL ONLY ON 21ST JUNE, 2004 BY WHICH HMCL GAVE ITS CONSENT FOR EXPOR T OF THE GOODS TO THE DESIGNATED COUNTRIES ON THE PAYMENT OF EXPORT COMMISSION. THEREFORE, THE CONTENTION OF THE REVENU E THAT CUMULATIVE EFFECT OF THE TWO AGREEMENTS IS TO BE CO NSIDERED 65 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT CANNOT BE ACCEPTED. BOTH THE AGREEMENTS WERE ENTERE D INTO IN DIFFERENT PARTS OF TIME, ONE IN THE YEAR 1984 AND, THE OTHER IN THE YEAR 2004 AND BOTH THE AGREEMENTS OPERATE UNDER DIF FERENT FIELDS. BY THE FIRST AGREEMENT, HMCL PROVIDED TECHN ICAL KNOW- HOW FOR MANUFACTURE AND SALE OF TWO WHEELERS WITHIN THE TERRITORY OF INDIA. BY THE EXPORT AGREEMENT, HMCL P ERMITTED THE ASSESSEE TO EXPORT THE DESIGNATED GOODS TO THE DESI GNATED COUNTRIES OUTSIDE INDIA. THEREFORE, BOTH THE AGREEM ENTS ARE TO BE INTERPRETED INDEPENDENTLY. ON THE PERUSAL OF THE EX PORT AGREEMENT, WE ARE UNABLE TO AGREE WITH THE REVENUE THAT THE EXPORT AGREEMENT IS IN THE NATURE OF ROYALTY OR FEE S FOR TECHNICAL SERVICES. WE FIND THAT THE AUTHORITY FOR ADVANCE RU LING HAS CONSIDERED THE ISSUE OF TDS ON THE EXPORT COMMISSIO N IN THE CASE OF SPAHI PROJECT P.LTD. (SUPRA). .. 73. SIMILARLY, FEE FOR TECHNICAL SERVICES HAS BEE N DEFINED BY WAY OF EXPLANATION-2 AFTER SECTION 9(1)(VII) OF THE INCOME-TAX ACT. FROM A PLAIN READING OF THE ABOVE DEFINITIONS OF R OYALTY AS WELL AS FEE FOR TECHNICAL SERVICES, IT WOULD BE EVIDEN T THAT THE PAYMENT OF EXPORT COMMISSION WOULD NOT FALL IN ANY OF THE ABOVE DEFINITIONS. BY WAY OF TECHNICAL AGREEMENT, THE ASS ESSEE RECEIVED THE TECHNICAL KNOW-HOW TO MANUFACTURE, ASS EMBLE, SELL AND DISTRIBUTE THE TWO WHEELERS WITHIN THE TERRITOR Y OF INDIA. THE PAYMENT MADE IN PURSUANCE TO SUCH AGREEMENT WAS ROY ALTY AND HAS BEEN TREATED BY THE ASSESSEE ITSELF AS ROYALTY. BY WAY OF SECOND AGREEMENT I.E. EXPORT AGREEMENT, HMCL PERMIT TED THE 66 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ASSESSEE TO EXPORT THE SPECIFIED TWO WHEELERS TO TH E SPECIFIED COUNTRIES. THEREFORE, BY EXPORT AGREEMENT, THE ASSE SSEE HAS NOT BEEN TRANSFERRED OR PERMITTED TO USE ANY PATENT, IN VENTION, MODEL, DESIGN OR SECRET FORMULA. SIMILARLY, HMCL, B Y WAY OF EXPORT AGREEMENT, HAS NOT RENDERED ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. IN VIEW OF THE ABOVE, WE HOLD THAT EXPORT COMMISSION WAS NEITHER ROYALTY NOR FEE FOR TECHNICA L SERVICES AND, THEREFORE, THE ASSESSEE WAS NOT REQUIRED TO DE DUCT TAX AT SOURCE ON THE PAYMENT OF EXPORT FEE. ONCE THE ASSES SEE WAS NOT REQUIRED TO DEDUCT THE TAX AT SOURCE, IT CANNOT BE SAID THAT THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE SO AS TO AP PLY SECTION 40(A)(IA). 74. WHILE CONSIDERING THE DISALLOWANCE MADE BY THE TPO BY WAY OF TRANSFER PRICING ADJUSTMENT, WE HAVE DISCUSSED A T LENGTH AND HAVE ARRIVED AT THE CONCLUSION THAT THE EXPORT AGRE EMENT WAS FOR THE BENEFIT OF THE ASSESSEE AND NOT DETRIMENTAL TO THE ASSESSEE. THEREFORE, THE FINDING OF THE ASSESSING OFFICER THA T THE EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF EXPO RT AGREEMENT WAS NOT INCURRED FOR THE PURPOSE OF BUSIN ESS OF THE ASSESSEE CANNOT BE UPHELD. WE HOLD THAT THE EXPORT COMMISSION PAID BY THE ASSESSEE WAS FOR THE PURPOSE OF ASSESSE ES BUSINESS. 75. THE ASSESSING OFFICER HAS ALTERNATIVELY HELD TH E PAYMENT OF EXPORT COMMISSION TO BE CAPITAL EXPENDITURE. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES AND THE FACTS OF TH E CASE, WE ARE UNABLE TO ACCEPT THIS VIEW OF THE ASSESSING OFFICER . BY WAY OF 67 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT EXPORT AGREEMENT, HMCL HAS ONLY PERMITTED THE ASSES SEE TO EXPORT THE SPECIFIED GOODS TO THE SPECIFIED COUNTRI ES, THAT TOO, SUBJECT TO RUNNING PAYMENT OF THE EXPORT COMMISSION . THE ASSESSEE HAS NOT ACQUIRED ANY ASSET OR EVEN THE INT ANGIBLE RIGHT IN THE NATURE OF A CAPITAL ASSET. THE ASSESSING OFF ICER HAS DISALLOWED THE ROYALTY PAYMENT PAID BY THE ASSESSEE BY WAY OF TECHNICAL KNOW-HOW AGREEMENT HOLDING THE SAME TO BE CAPITAL EXPENDITURE. FROM PARAGRAPH NO.7 TO PARAGRAPH NO.29 , WE HAVE DISCUSSED AT LENGTH AND HAVE COME TO THE CONCLUSION THAT THE PAYMENT OF RUNNING ROYALTY CANNOT BE SAID TO BE CAP ITAL EXPENDITURE. WHILE DOING SO, WE HAVE ALSO RELIED UP ON SEVERAL DECISIONS OF HONBLE JURISDICTIONAL HIGH COURTS AT PAGES 17 TO 24. FOR THE SAKE OF BREVITY, WE ARE NOT REPRODUCING THE SAME AGAIN BUT, WE REITERATE THAT THE RATIO OF THOSE DEC ISIONS IN THE CASES OF LUMAX INDUSTRIES LTD. (SUPRA), SHRIRAM PIS TONS & RINGS LTD. (SUPRA), SHARDA MOTOR INDUSTRIAL LTD. (SUPRA), J. K. SYNTHETICS LTD. (SUPRA), CLIMATE SYSTEMS INDIA LTD. (SUPRA) AND MUNJAL SHOWA LTD. (SUPRA) WOULD ALSO BE APPLICABLE SO AS TO ARRIVE AT THE CONCLUSION THAT THE PAYMENT OF RUNNIN G EXPORT COMMISSION PAID AS A PERCENTAGE OF EXPORT AMOUNT EV ERY YEAR CANNOT BE SAID TO BE CAPITAL EXPENDITURE. IN VIEW O F THE ABOVE, WE DELETE THE DISALLOWANCE OF EXPORT COMMISSION MAD E BY WAY OF TRANSFER PRICING ADJUSTMENT AND ALSO BY WAY OF G ENERAL PROVISIONS OF THE INCOME-TAX ACT. 68 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT 31.0.1 THE AFORESAID ORDER PASSED BY T HE TRIBUNAL IN AY 2006-07 HAS FURTHER BEEN AFFIRMED BY THE HONBLE DE LHI HIGH COURT IN ITA NO. 923/2015. CONSIDERING THE AFORESAID, WE FIND THAT THE ORDER PASSED BY THE LD. CIT (A) IS CORRECT IN LAW. W E ACCORDINGLY UPHOLD THE ORDER OF THE LD. CIT (A) AND DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 32.0.0 GROUND NO. 4 RELATES TO DISALLOWA NCE OF RS.5,18,00,000/- BEING PROVISION FOR WARRANTY MADE I N RESPECT OF SALES MADE DURING THE YEAR. THE LD. AR SUBMITTED TH AT DURING THE YEAR, THE ASSESSEE HAD CLAIMED THE DEDUCTION OF RS. 5.18 CRORES ON ACCOUNT OF PROVISION FOR WARRANTY ON MOTORCYCLES SOL D BY THE ASSESSEE DURING THE YEAR AND SUCH DEDUCTION HAD BEE N CLAIMED ON MERCANTILE BASIS, ON THE BASIS WEIGHTED AVERAGE COST OF THE ACTUAL CLAIMS RECEIVED IN THE PAST YEARS. IT WAS FURTHER SU BMITTED THAT BASED ON THE ORDER FOR AY 2004-05, THE AO DISALLOWED THE AFORESAID PROVISION HOLDING THE SAME TO BE AN UNASCERTAINED L IABILITY. THE LD. AR FURTHER SUBMITTED THAT ON APPEAL, THE LD. CIT (A ), VIDE THE IMPUGNED ORDER, DELETED THE SAME HOLDING THAT THE I SSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY ORDER PASSED B Y THE TRIBUNAL IN 69 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT ASSESSEES OWN CASE FOR VARIOUS ASSESSMENT YEARS AND THAT THE APPEAL FILED BY THE REVENUE HAS NOT BEEN ADMITTED B Y THE HIGH COURT. 32.0.1 THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING ORDERS PASSED IN ASSESSEES OWN CASE: - THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2002-03 FOLLOWING THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF ROTORK CONTROLS INDIA LTD. VS. CIT REPO RTED IN 314 ITR 62, DELETED THE SIMILAR DISALLOWANCE OF PROVISI ON OF WARRANTY MADE IN THAT YEAR. - SIMILAR DISALLOWANCE WAS ALSO MADE BY THE ASSESSING O FFICER IN ASSESSMENT YEAR 2003-04. ON FURTHER APPEAL, THE DIS ALLOWANCE WAS DELETED BY THE LD. CIT ( A) VIDE ORDER DATED 31. 01.2011 AND THE DEPARTMENT DID NOT FILE AN APPEAL CHALLENGING T HE AFORESAID ACTION OF THE LD. CIT (A). - THE TRIBUNAL, FOLLOWING THE ORDERS FOR THE ASSESSMEN T YEARS 1999-2000 (ITA NO. 5511/DEL/2003), 1996-97 (ITA NO. 3093/DEL/2000) AND 1997-98 (ITA NO. 4028/DEL/2003), DELETED SIMILAR DISALLOWANCE IN ASSESSMENT YEAR 200 6-07. NO QUESTION OF LAW WAS FRAMED BY THE HONBLE DELHI HIGH COURT IN RELATION TO THE APPEAL PREFERRED BY THE REVENUE AGA INST THE ORDER OF THE HONBLE TRIBUNAL FOR THE ASSESSMENT YE AR 1996-97. 70 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT - FURTHER, THE DISALLOWANCE OF PROVISION MADE FOR WARRA NTY WAS ALSO DELETED BY THE TRIBUNAL IN AY 2004-05, 2007-08 AND 2008- 09. 33.0 THE LD. CIT -DR RELIED ON THE ORDER OF THE AO. 34.0.0 WE HAVE PERUSED THE RECORD. WE F IND THAT THE TRIBUNAL, VIDE RECENT ORDER DATED 31.07.2019 PASSED IN ASSESSMENT YEAR 2004-05, DISMISSED THE APPEAL OF THE REVENUE H OLDING AS UNDER: 36. EVEN FOR THE ASSTT. YEAR 2002-03, WHILE FOLLOW ING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF R OTORK CONTROLS INDIA LTD. VS CIT, 314 ITR 62, THE TRIBUNAL DELETED THE ADDITION AND SUBSEQUENTLY, SIMILAR ADDITION WAS DISALLOWED I N RESPECT OF ASSTT. YEARS 1999-2000, 1996-97, 1997-98, 2006-07, 2007-08 TO 2009-10 BY SEVERAL ORDERS OF THE TRIBUNAL, WHICH AR E TO BE FOUND PLACE IN THE PAPER BOOK. ON A READING OF THESE ORDE RS, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE IS FAIRLY SET TLED AND THERE IS NO NEED TO REOPEN THE SAME FOR TAKING FRESH VIEW. L EARNED CIT (A) DELETED THE ADDITION BY FOLLOWING THE APPELLATE ORDERS AND, THEREFORE, WE DO NOT FIND ANY PERVERSITY IN SUCH FI NDING. WE UPHOLD THE ORDER OF LD. CIT (A). 34.0.1 IN VIEW OF THE AFORESAID, WE FIN D THAT THE ISSUE HAS BEEN DECIDED IN FAVOR OF THE ASSESSEE COMPANY BY OR DER PASSED BY 71 ITA NOS.6 282 & 6302 HERO M OTORCORP LTD. VS. ACIT & DCIT THE TRIBUNAL IN THE EARLIER YEARS AND SINCE APPEAL FILED BY THE REVENUE HAS NOT BEEN ADMITTED BY THE HIGH COURT, TH E ISSUE HAS ATTAINED FINALITY. WE FIND THAT THE ORDER PASSED BY THE CIT (A) IS CORRECT IN LAW. WE ACCORDINGLY UPHOLD THE ORDER OF T HE LD. CIT (A) AND DISMISS THE GROUND OF APPEAL RAISED BY THE REVE NUE. 35.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. 36.0 IN THE FINAL RESULT, THE APPEAL OF THE AS SESSEE IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE DEPARTMENT IS DISM ISSED. ORDER PRONOUNCED ON 13 TH APRIL, 2021. SD/- SD/- (O.P. KANT) (SUDHANSHU SRI VASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13.04.2021 *DRAGON COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI
Other Referred Cases
-
Laws Referred To
-
Consultation on Entity Formation
₹0
1:1 Consultation on Business Development
₹1
1:1 Consultation on SME Listing
₹0
Rectification Letter - Application for rectification of mistake under Section 154 of I.T. Act
Mehul₹0
CRM Implementation Plan
₹0
Budget 2026: 5 Major Personal Tax Changes Every Taxpayer Must Know
Team Counselvise - February 05, 2026
Why Lacoste Won a 20-Year Trademark Battle Against Crocodile ?
Team Counselvise - March 10, 2026
When Global Talent Meets GST: The Huawei Secondment Ruling explained
Team Counselvise - March 09, 2026