JCIT, Noida V. M/s. H- One India Pvt. Ltd., Gautam Budh Nagar

ITA 630/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86601 (ITAT-DELHI)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 06-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL
• Assessee Lawyers: D D BANSAL
• Keywords: Revenue expenditure; Capital expenditure
• Section: 43B; 27

Judgement Text

IN TH E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI GEORGE GEORGE K. , JUDICIAL MEMBER AND SHRI T.S. KAPOOR , ACCOUNTANT MEMBER ITA NO. 630 /DEL/201 2 ASSESSMENT YEAR 200 8 - 09 JCIT, RANGE - 3, VS. M/S. H - ONE INDIA PVT. LTD. AAYAKAR BHAWAN, 2 ND FLOOR, (FORMERLY M/S HONGO INDIA PVT. LTD.) G - BLOCK, SHOPPING COMPLEX, 12, UDYOG VIHAR, SURAJPUR KASNA ROAD SECTOR 20, GREATER NOIDA 201306 NOIDA 201301(U.P.) (PAN AA A C H 3032 L ) ( APPELLANT) (RESPONDENT) APPELLANT BY : SH. ROBIN RAWAL, SR. D.R. RESPONDENT BY: SH. D.D. BANSAL, FCA. ORDER PER SHRI GEORGE GEORGE K , J M : 1. TH IS APPEAL , AT THE INSTANCE OF THE REVENUE , IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 23 . 11 .201 1 . THE RELEVANT ASSESSMENT YEAR IS 2 00 8 - 09 . 2. THE EFFECTIVE GROUNDS RAISED READS AS FOLLOWS: - (1 ) T H E L D . C IT ( A ) HA S E RRED IN LAW AND ON FACTS B Y D E L E TIN G T H E A DD I TI O N OF R S . 4 , 00 , 25 , 949 / - MADE B Y THE ASSESSING OFFICER ON ACCOUNT O F PA Y M E NT OF R O Y ALTY & TE CHNICAL KNOWHOW TO M /S H - ONE COMPAN Y LIMIT E D (F O R M E RL Y KN OW N A S H O N G O C OMPAN Y LIMITED ) , JAPAN B Y TREATING THE EXPENDITUR E A S R EVE NU E IN N A TU RE I N S T E AD OF TH E E XPENDITURE BEING CAPITAL IN NATURE. ( 2 ) T H E L D. C IT ( A ) HA S ERR E D IN LAW AND ON FACT S B Y DEL E T I N G TH E AD DI TION OF R S . 5, 2 7, 71,273 / - MAD E B Y THE A S SES S ING OFFICER ON ACCOUNT OF SA LE S TAX R E C OVE R ED AS TH E ASS E SS E E R E TAINED WITH IT S ELF THE AMOUNT COLLECTED AS SA L ES TAX ON TH E S A L E MA D E B Y IT IN V IE W OF TH E SALE S TAX DEFERMENT S CH E ME OF T H E S T A T E GOVERNMENT . T H E ASSESSE E SHOWED THI S AMOUNT UNDER THE HEAD CURRENT LI A BILITI ES A ND E N JO Y ED A LL TH E BENEFITS OF THI S AMOUNT. ACCORDINGL Y, IT S HOULD B E TR EA T E D AS IN CO M E I N T H E YEA R OF RECEIPT. EVEN OTHERWISE IT SHOULD BE ALLOWABL E IN TH E Y E AR OF P A Y ME N T A S PER THE PROVI S IONS OF S ECTION 43B OF THE LT . ACT, 1961 . IT A NO. 630 /DEL /201 2 2 3. WE SHALL DISPOSE OF THE ISSUES GROUND - WISE AS UNDER: - GROUND NO.1 THE ASSESSEE IS A P RIVATE L IMITED COMPANY. IT IS ENGAGED IN THE MANUFACTURING OF M ETAL SHEET COMPONENT AND DYES. THE ASSESSEE HAD ENTERED INTO LEASE AND TECHNICAL COLLABORATION AGREEMENT WITH M/S HONGO COMPANY LTD. JAPAN (NOW M/S H - ONE COMPANY LTD.), FOR THE MANUFACTURING OF ABOVE PRODUCTS. AS PER THE TERMS AND COND ITION OF LICENSE AND TECHNICAL COLLABORATION AGREEMENT, ASSESSEE DURING THE RELEVANT ASSESSMENT YEAR HAD PAID A SUM OF RS.2,25,69,891/ - AS A ROYALTY AND RS.1,74,56,028/ - AS TECHNICAL SUPERVISION FEES (TOTALING TO RS.4,00,25,949/ - ) TO H ONGO COMPANY JAPAN. THE ASS ESSING OFFICER WHILE CONCLUDING THE SCRUTINY ASSESSMENT U/S 143(3 ) OF THE ACT ( ORDER DATED 29.12.2010) TREATED THE ENTIRE ROYALTY PAYMENT AND TECHNICAL CONSULTANCY EXPENSES AS CAPITAL EXPENDITURE ADDED THE SAME TO THE TAXABLE INCOME OF THE COMPANY. 4. AGG RIEVED THE ASSESSEE, PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR AY 2007 - 08. THE RELEVANT FINDING OF THE CIT(A) READS AS FOLLOWS: - PARA 5.2 T HI S IS S QUARELY COVERED ISSUE IN FAVOUR OF APPELLANT . LAST YEAR, THE U N DER SIGNED HAD UPHELD ADDITION ON THE SAME ISSUE; BUT THE ITAT DEL HI BENCH - C HAS REV ERS ED THE DECISION ON THE GROUND THAT IN EARLIER YEAR ALSO THIS ISSUE HAS B EE N DE C ID ED B Y THE ITA T IN FAVOUR OF APPELLANT AND THE SAID DECISION IS ALREADY S U BJEC T MATTER OF APPEAL BEFORE HON 'BLE HIGH COURT. RESPECTFULLY, FOLLOWING DECISION OF THE ITAT, THIS ISSUE FOR THIS YEAR IS DE C I DED I N FAVOUR OF THE APPELLANT AND ADDITION OF RS. 4,00,25,919 / - REGARDING PAYMENT ROYALTY AND TECHNICAL KNO W - HOW IS HELD AS REVENUE EXPENDITURE. IT A NO. 630 /DEL /201 2 3 5. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. AT THE VERY OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE VARIOUS ORDERS OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR AYS. 200 1 - 02, 2003 - 04 TO 2007 - 08 AND 2009 - 10. THE LD. DR WAS UNABLE TO CONTROVERT THE SUBMISSIONS MADE BY THE LD. AR. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE OF PAYMENT OF ROYALTY AND TECHNICAL SUPERVISION FEES WHETHER IT IS CAPITAL OR REVENUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS ORDERS OF THE TRIBUNAL IN ASSESSEE S OWN CASES . THE DETAILS OF WHICH ARE AS FOLLOWS: - RE.ROYABLTY: APPEAL REF AY DECIDING AUTHORITY ORDER REFERENCE ITA NO.2146(DEL) 2006 2001 - 02 ITAT, DELHI A BENCH . ORDER DATED 04/07/2008 ITA NO. 1 54 (DEL) 20 1 0 2003 - 04 ITAT, DELHI C BENCH . ORDER DATED 29/04/2010 ITA NO. 4 031 (DEL) 20 0 9 200 5 - 0 6 ITAT, DELHI E BENCH . ORDER DATED 0 1 / 1 2 /200 9 ITA NO. 2 613 (DEL) 20 1 1 200 6 - 0 7 ITAT, DELHI C BENCH . ORDER DATED 0 5 /0 8 /20 1 1 ITA NO. 5 984 (DEL) 20 1 2 200 4 - 0 5 ITAT, DELHI C BENCH . ORDER DATED 2 2 /0 2 /20 1 3 ITA NO. 5 985 (DEL) 20 1 2 200 7 - 0 8 ITAT, DELHI C BENCH . ORDER DATED 2 2 /0 2 /20 1 3 ITA NO. 5 986 (DEL) 20 1 2 200 9 - 1 0 ITAT, DELHI C BENCH . ORDER DATED 2 2 /0 2 /20 1 3 RE. TECHNICAL SUPERVISION FEES: APPEAL REF AY DECIDING AUTHORITY ORDER REFERENCE ITA NO. 4 031 (DEL) 200 9 200 5 - 0 6 ITAT, DELHI E BENCH . ORDER DATED 04/ 1 2 /200 9 ITA NO. 5 984 (DEL) 20 1 2 200 4 - 0 5 ITAT, DELHI C BENCH . ORDER DATED 2 2 /0 2 /20 1 3 ITA NO. 5 985 (DEL) 20 1 2 200 7 - 0 8 ITAT, DELHI C BENCH . ORDER DATED 2 2 /0 2 /20 1 3 ITA NO. 5 986 (DEL) 20 1 2 200 9 - 1 0 ITAT, DELHI C BENCH . ORDER DATED 2 2 /0 2 /20 1 3 IT A NO. 630 /DEL /201 2 4 7. IN THE PRESENT CASE, CIT(A) HAD FOLLOWED THE ORDER OF THE TRIBUNAL FOR THE PREVIOUS AS SESSMENT YEAR, NAMELY, AY 2007 - 08. SINCE THE FACTS OF THE INSTANT CASE, A RE IDENTICAL TO THE FACTS CONSIDERED BY THE TRIBUNAL FOR THE AY 2007 - 08 IN ASSESSEE S OWN CASE, WE FIND NO ERROR IN THE ORDER OF THE CIT(A) WARRANTING O UR INTERFER ENCE . THEREFORE, GROUND NO.1 RAISED IN REVENUE S APPEAL IS REJECTED. 8. GROUND NO.2 THE ASSESSEE S COMPANY WAS ELIGIBLE AND AVAILING THE BENEFIT OF SALES TAX DEFERMENT SCHEME I NTRODUCED BY THE U.P. GOVERNMENT. UNDER THE SAID SCHEME, ASSESSEE WAS AUTHORIZED TO COLLECT VAT FROM ITS CUSTOMERS AND PAYMENT OF SAME TO THE GO VERNMENT A CCOUNT WAS D E F E R RED FOR A PERIOD OF FIVE YEARS. THE ENTIRE AMOUNT SO COLLECTED WAS SHOWN BY THE ASSESSEE AS A LIABILITY IN ITS BALANCE SHEET AS ON 31.03.2008. 9. THE AO TREATED T HE ENTIRE AMOUNT OF RS.5,27,71,273/ - VAT COLLECT UNDER T HE SCHEME AS SUBSIDY RECEIVED BY THE ASSESSEE AND ADDED THE SAME TO THE TAXABLE INCOME . 10. THE ASSESSEE BEING AGGRIEVED FILED AN APPEAL BEFORE THE CIT(A). THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE CIT(A) HELD THAT IT IS NOT A CASE OF THE SUBSIDY GIVEN BY THE GOVERNMENT TO THE ASSESSEE. THE CIT(A) WAS OF THE VIEW THAT T HE ASSESSEE O NLY GETS TEMPORARY CASH FLOW BENEFIT BY NOT REQUIRING T O PAY SALES TAX DUE TO THE GOVERNMENT ACCOUNT FOR THE D E F E R RED PERIOD. THE RELEVANT FINDING OF THE CIT(A) IN ALLOWING THE PLEA O F THE ASSESSEE READS AS FOLLOWS: PARA 5.3 R E GARDING ON T HIS ISSUE, THE AO OBSERVES FROM THE AUDIT REPORT THAT THE IT A NO. 630 /DEL /201 2 5 SA LE S TA X RECO V ER E D DURING THE YEAR AMOUNTING TO RS. 5,27,71,273/ - HAS NOT BEEN INCLUDED III P& L A / C. WHEN ASKED , THE APPELLANT EXPLAINED THAT COMPAN Y WAS EN J OYING S ALES TAX DEFE R MENT SCHEM E . T HE A O RESUM E D T H AT TH E SAID AMOUNT WAS A SUBSIDY AND EL ABORATIN G ON THAT E XPENDITURE AND REL Y ING ON VA RIOU S COURT CASES RELE V ANT TO THE IS S U E OF S UBS I DY H E LD THAT THE SAL E S LAX RECOVERED OR RS. 5,27,71,273/ - IS A S UBSIDY IN F O RM OR S A LES TA X EXPENDITURE AND HENCE IS I NCLUDIBLE AS INCOME. THE APP E LLANT HAS PRODUCED ALL THE DOCUMENTARY EVID E N CES A ND A L SO BALANCE SHEET E NTRIES TO PRO V E THAT T H IS AMOUNT IS NO T A T ALL ' SUB SI D Y' OR ANY GRANT '. R A TH E R THIS AMOU N T H AS BEEN WITH HELD BY THE ASSESSEE I.E. N O T DEPOS I T E D W ITH ST A T E GOVERNMENT , S IMPL Y BE C AUSE STATE GOVERNMENT HAD ANNOUNCED T HE SALES TAX DEFERMENT SCHEME. THE AMOUNT WAS PAYABLE TO THE STATE GOVERNMENT B UT ONLY AFTE R CERTAIN LIME L IMIT ( OF 5 Y EARS AS P ER INITIAL ANNOUNCEMENT) . IN EFFE C T OF THIS SCHEME , THE ELIGIBLE INDUSTRIAL UNITS WERE ALLOWED TO RETAIN THE SALES T A X RECOVER Y AMOUNT FOR 5 Y EARS . THUS , IT IS C LEAR THAT THERE IS NO GRANT' OR 'SUBSIDY' RECEIVED BY THE ASSESSEE . THE ASSESSEE ONLY GETS A TEMPORARY CASH FLOW BENEFIT BY NOT REQUIRED TO PAY THE SAL E TA X DUES DURING THE DEFERRED PERIOD . E VEN THIS SCH E ME IS UNDER LITIGAT I ON AN D P E N D ING WITH HIGH COURT FOR D I RECTION. BUT THE FACT OF LITIGATION H A S NO CONNECTI O N WITH THE PRESENT DISPUTE UNDER CONSIDERATION . THE SUM AND SUBSTANCE OF THE MATTER IS THAT THE AO H A S WRONGLY INT E RPR E TED THE SALE S TAX RECOVERY AMOUNT AS 'SUBSIDY ' , WHILE ON FACTUA L VE RIFIC A TION , THIS E X PLANATION OF AO IS FOUND TO BE WRONG. THE AMOUNT REMAINS PAYAB LE, AL THOUGH AFTER CERTAIN TIME PERIOD. AMOUNT HAS IN FACT BEEN SHOWN IN TH E HEAD OF ' CURRENT LIABIL I TY ' IN THE BALAN C E SHEET . 11. THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. THE LD. D.R. STRONGLY RELIED ON THE ASSESSMENT ORDER WHEREAS THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. THE LD. AR HAS ALSO FILED THE PAPER BOOK COMPRISING OF 107 PAGES ENCLOSING COPIES OF THE CASE LAWS AND THE SCHEME FRAMED UNDER THE SALES TAX ACT WITH REFERENCE TO SALES TAX DEFERMENT SCHEME . 12. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS PER THE U.P. GOVERNMENT POLICY WITH REFERENCE TO SALES TAX DEFERMENT SCHEME, WHICH THE ASSESSEE WAS DULY COVERED, THE SALES TAX COLLECTED BY THE ASSESSEE NEED NOT BE PAID TO THE GOVERNMENT ACCOUNT WITHIN THE DUE DATE BUT SAME CAN BE D E FE R RED FOR A PERIOD OF IT A NO. 630 /DEL /201 2 6 FIVE YEARS AS PER THE GOVERNMENT POLICY. THE ELIGIBLE UNIT UNDER THE SCHEME ONLY GETS A TEMPORARY CASH FLOW BY NOT HAVING TO PAY THE SALES TAX DUES DURING THE TAX DEFERMENT PERIOD OF FIVE YEARS. THE LIABILITY OF THE ASSESSEE TO PAY SUCH SALES TAX IS EXISTING AND REAL, AND BY NO STRETCH OF IMAGINATION CAN BE CALLED GRANT OR SU BSIDY . THEREFORE, THE CIT(A) IS CORRECT IN DELETING A SUM OF RS.5,27,71,273/ - ADDED BY THE AO TO THE TAXABLE INCOME OF THE ASSESSEE S COMPANY FOR THE REASON THAT IT IS A GRANT OR A SUBSIDY , GRANTED BY U.P. STATE GOVERNMENT . 13. WHETHER THIS AMOUNT CAN BE DISALLOWED BY INVOKING THE PROVISION OF SECTION 43B OF THE ACT , HAS NOT BEEN CONSIDERED BY THE AO AND CIT(A) . HOWEVER , SINCE THE REVENUE HAD RAISED THE SAID ISSUE IN ITS GROUND OF APPEAL , IT I S IMPERATIVE FOR US TO CONSIDER THE SAME . THE HON BLE MADHYA PRADESH HIGH C OURT IN THE CASE OF CIT VS. KM OIL INDUSTRIES REPORTED IN 226 ITR 547 BY REFERRING TO BOARD CIRCULAR NO. 674 DATED 29.12.1993 H AD HELD THAT THE AMOUNT H ELD BY THE ASSESSEE UNDER THE D E F E R RED PAYMENT SCHEME SHALL BE DEEMED TO BE A PAYMENT MADE BY ASSESSEE TO THE STATE GOVERNM ENT ACCOUNT . THE RELEVANT FINDING OF THE HON BLE HIGH COURT READS AS FOLLOWS: - ( PARA 4 P.B) . THE ASSESSEE ALSO CLAIMED A LIABILITY OF RS . 1 , 49 , 988 TOWARDS PAYMENT OF SALES - TAX WHICH REMAINED UNPAID THROUGHOUT THE PREVIOUS ACCOUNTING PERIOD AND IN THE NEXT , SUCCEEDING PREVIOUS YEAR AS WELL . THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTIO N 43B OF THE ACT AND DISALLOWED THE CLAIM . ON APPEAL BY THE ASSESSEE , THE COMMISSIONER (APPEALS) ALLOWED THE CLAIM AND HELD THAT AS PER CBDT NOTIFICATION NO . 496 , DATED 25 - 9 - 1987 , AN ASSESSEE WHO IS NOTIFIED TO BE ENTITLED TO BENEFIT OF DEFERRED PAYMENT SCHEME , IS ENTITLED TO RETAIN THE SALES TAX COLLECTED FROM CUSTOMERS FOR A PERIOD OF TEN YEARS AND FOR THE PURPOSES OF SALES - TAX ACT AND ALSO FOR THE PURPOSES OF SECTION 43B, THE AMOUNT SHALL BE DEEMED TO HAVE BEEN PAID . THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DIS MI SSED THE DEPARTMENTAL APPEA L . IN VIEW O F THE CIRCULAR OF THE CBDT, IT IS CLARIFIED THAT WHEREVER SUCH AMOUNTS UNDER THE DEFERRED PAYMENT SCHEME ARE THERE IN THE STATE , THE ASSESSEE WILL BE ENTITLED TO THE BENEFIT OF DEDUCTIONS AND THE IT A NO. 630 /DEL /201 2 7 PROVISIONS OF SECTION 43B WILL NOT COME IN THE WAY OF THE ASSESSEE. THEREFORE , THIS QUESTION IS ANSWERED AGAINST T HE REVENUE AND IN FAVOUR OF THE ASSESSEE . 14. IN VIEW OF THE HON BLE MADHYA PRADESH HIGH COURT JUDGMENT AND THE CBDT CIRCULAR REFERRED (SUPRA ) , WE HOLD THE SALES TAX COLLECTED BY THE ASSESSEE S COMPANY UNDER THE D EFERRED PAYMENT SCHEME IS NOT LIABLE FOR DISALLOWANCE BY INVOKING THE PROVISION OF SECTION 43B OF THE ACT. 15. IN VIEW OF AFORESAID REASONING, WE HOLD THAT THE CIT(A) S ORDER IS CORRECT AND N O INTERFERENCE IS CALLED FOR . H ENCE, WE REJECT GROUND NO.2 RAISED. IT IS ORDERED ACCORDINGLY. 16. IN THE RESULT, APPEAL F ILED BY THE REVENUE IS DISMISSED. TH E DECISION WAS PRONOUNCED IN THE OPEN COURT ON 6 TH FEBRUARY , 201 5 . SD/ - SD/ - ( T.S. KAPOOR ) (GEORGE GEORGE K.) A CCOUNTANT MEMBER J UDICIAL MEMBER DATED: 6 T H FEBRUARY , 201 5 . AKS/ - COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST . REGISTRAR, ITAT, NEW DELHI