HONDA MOTORCYCLE AND SCOOTER INDIA PVT. LTD., GURGAON V. DCIT, CIRCLE- 2(1), GURGAON

ITA 7714/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7716 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2012-2013
• Appeal Filed On: 22-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; International transaction; Royalty expenses; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 37(1); 80G; 201; 64; 43; 73; 13; 22; 32; 37; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI , ! ! . . $%& '() BEFORE MS. SUSHMA CHOWLA, VP & SHRI N.K.BILLAIYA, AM * / ITA NO.7714/DEL/2017 + , , /ASSESSMENT YEAR 2012-13 HONDA MOTORCYCLE AND SCOOTER INDIA PVT.LTD., PLOT NO.S 1 & 2, SECTOR-3, IMT. MANESAR, GURGAON-122050. PAN-AAACH7467D .......... -. /APPELLANT VS THE DCIT, CIRCLE-2(1), GURGAON. . /0-. / RESPONDENT -.12 / APPELLANT BY : SH.AJAY VOHRA, SR.ADV., SH. GAURAV JAIN, ADV. & SH. KARAN JAIN, CA /0-.12 / RESPONDENT BY : SH.A.K.SAROHA, CIT DR MRS. SUNITA SINGH, SR.DR 13( / DATE OF HEARING : 07.08.2020 45 13( / DATE OF PRONOUNCEMENT: 31.08.2020 6 /ORDER PER SUSHMA CHOWLA,VP THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST O RDER OF DCIT, CIRCLE- 2(1), GURGAON DATED 28.11.2017 RELATING TO ASSESSME NT YEAR 2012-13 AGAINST THE ORDER PASSED UNDER SECTION 143(3)/144C OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. THAT THE ASSESSING OFFICER (AO) ERRED ON FACTS AND IN LAW IN COMPLETING THE ASSESSMENT UNDER SECTION 143(3)/144C OF THE INCOME TAX ACT, 1961 ('THE ACT') AT AN INCOME OF RS 594,22,74, 340 AS AGAINST THE INCOME OF RS 517,18,00,950 RETURNED BY THE APPELLAN T. 2. THAT THE DISPUTE RESOLUTION PANEL (DRP)/ AO ERRE D ON FACTS AND IN LAW IN DISALLOWING UNREALIZED FOREIGN EXCHANGE LOSS RELATING TO CAPITAL ASSETS, TO THE EXTENT OF RS.53,05,919, UNDER SECTIO N 43A OF THE ACT, WHICH WAS NETTED AGAINST UNREALIZED GAIN OF THE EQUIVALEN T AMOUNT ARISING FROM FOREIGN CURRENCY FLUCTUATION RELATING TO CAPITAL WO RK IN PROGRESS. 2.1 THAT THAT THE AO ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT DID NOT PROVIDE DETAILS I DOCUMENTARY EVI DENCE FOR THE AFORESAID GAIN OF RS.53,05,919/-. 2.2. THAT THE AO ERRED ON FACTS AND IN LAW IN FAIL ING TO APPRECIATE THAT THE AMOUNT OF RS. 53,05,919 WAS A CAPITAL RECEIPT N OT CHARGEABLE TO TAX AND COMPLETE DETAILS IN THIS REGARD WERE SUBMITTED BEFORE THE AO VIDE SUBMISSION DATED 06.11.2017. 3. THAT THE DRP/AO ERRED ON FACTS AND IN LAW IN DIS ALLOWING EXPENDITURE OF RS.10,45,249, WHICH WAS DEBITED UNDE R THE HEAD OF CORPORATE SOCIAL RESPONSIBILITY (CSR) IN BOOKS ON T HE GROUND THAT THE SAME WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS. 3.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN HOLDING THAT THE EXPENSES WERE NOT INCURRED FOR THE PURPOSE OF B USINESS, MORE SO SINCE THE SAME WERE DEBITED UNDER THE HEAD OF CSR AND NOT THE OTHER HEADS OF BUSINESS EXPENSES IN BOOKS. 3.2. THAT THE ASSESSING OFFICER ERRED ON FACTS AN D IN LAW IN HOLDING THAT INSERTION OF EXPLANATION 2 TO SECTION 37 OF THE ACT BY FINANCE ACT, 2014 WITH EFFECT FROM 01.04.2015 WAS CLARIFICATORY IN NA TURE AND WAS APPLICABLE TO THE ASSESSMENT YEAR 2012- 13, FAILING TO APPRECI ATE THAT THE SAID SUBSTANTIVE AMENDMENT WAS PROSPECTIVE IN NATURE AND NOT APPLICABLE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. 3.3.. WITHOUT PREJUDICE, THAT THE AO ERRED ON FACT S AND IN LAW IN NOT APPRECIATING THAT, EVEN OTHERWISE THE NEWLY INSERTE D PROVISIONS OF EXPLANATION 2 TO SECTION 37 WERE NOT APPLICABLE TO THE EXPENSES UNDER CONSIDERATION. 3 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 4. THAT THE DRP/AO ERRED ON FACTS AND IN LAW IN LA W IN DISALLOWING COMPOSITION FEE AMOUNTING TO RS. 22,36,130 PAID TO REGULARIZE NAURANGPUR BUILDING BY HOLDING THAT THE SAID AMOUNT IS PENAL I N NATURE COVERED WITHIN THE SCOPE OF EXPLANATION TO SECTION 37(1) OF THE AC T. 5. THAT THE AO/ DRP ERRED ON FACTS AND IN LAW IN M AKING NET DISALLOWANCE OF RS. 1,73,72,080 AFTER ALLOWING DEPR ECIATION ON TOTAL EXPENDITURE OF RS.1,92,48,229 INCURRED BY THE APPEL LANT TOWARDS REPAIR AND MAINTENANCE/REPLACEMENT OF EXISTING ASSETS, HOL DING THAT THE SAID EXPENSES WERE CAPITAL IN NATURE. 5.1. THAT THE AO/ DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ABOVE GROSS EXPENSES AGGREGATING TO RS. 1,92,48 ,229 WERE INCURRED ON ROUTINE REPAIRS AND MAINTENANCE, WHICH DID NOT RESU LT IN CREATION OF CAPITAL ASSET AND WERE, THEREFORE, ALLOWABLE AS REVENUE EXP ENDITURE. 6. THAT THE AO/ DRP ERRED ON FACTS AND IN LAW IN DI SALLOWING EXPENDITURE INCURRED BY THE APPELLANT ON ACCOUNT OF SIGNAGES INSTALLED AT THE PREMISES OF DEALERS/ SUB DEALERS AMOUNTING TO R S. 89,03,053 HOLDING THAT THE SAID EXPENDITURE RESULTED IN ENDURING BENE FIT AND WERE CAPITAL IN NATURE. 6.1. THAT THE AO/ DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ABOVE EXPENSES AGGREGATING TO RS. 89,03,053 WER E RECURRING EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS AND DID NOT RE SULT IN CREATION OF CAPITAL ASSET IN THE HANDS OF APPELLANT OR IMPARTIN G ANY ENDURING BENEFIT OF CAPITAL NATURE, AND WERE, THEREFORE, ALLOWABLE AS R EVENUE EXPENDITURE. 6.2. WITHOUT PREJUDICE, THE AO/ DRP ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION ON THE AFORESAID AMOUNT UNDER SECTION 32 OF THE ACT 7. THAT THE AO/ DRP ERRED ON FACTS AND IN LAW IN D ISALLOWING SALES TOOL EXPENSES AMOUNTING TO RS. 2,72,32,757 BY ALLEGING T HAT THE APPELLANT WAS UNDER NO OBLIGATION, LEGAL OR CONTRACTUAL, TO INCUR SALES TOOL EXPENSES AS BUSINESS EXPENSES. 7.1. THAT THE AO/ DRP ERRED ON FACTS AND IN LAW IN FAILING TO APPRECIATE THAT THE SAID EXPENSES WERE ALLOWABLE DEDUCTION UND ER SECTION 37 OF THE ACT SINCE THE SAME WAS INCURRED FOR THE PURPOSE OF BUSINESS, VIZ., TO MAINTAIN PRESCRIBED STANDARDS AND UNIFORMITY IN ADV ERTISING APPELLANT'S BRAND EFFECTIVELY ACROSS INDIA. 8. THAT THE AO/ DRP ERRED ON FACTS AND IN LAW IN H OLDING THAT 25 PERCENT OF THE TOTAL ROYALTY EXPENSES AMOUNTING TO RS. 94,45,04,266, INCURRED BY THE ASSESSEE DURING THE RELEVANT PREVIO US YEAR IN LIEU OF GRANTING LICENSE / RIGHT TO USE THE IPR/KNOW-HOW UN DER 'ROYALTY AND 4 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 TECHNICAL KNOWHOW AGREEMENT WAS CAPITAL IN NATURE, RESULTING IN ENDURING BENEFIT TO THE APPELLANT AND THEREBY MAKIN G A NET DISALLOWANCE OF RS.70,83,78,200 AFTER ALLOWING 25% DEPRECIATION THEREON. 8.1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE ASSESSEE RECEIVED BENEFIT OF ENDURING NATURE UN DER THE ROYALTY AGREEMENT, SINCE THE APPELLANT OBTAINED EXCLUSIVE R IGHT TO MANUFACTURE AND SELL THE PRODUCTS WITHIN THE TERRITORY OF INDIA . 8.2. THAT THE AO/DRP ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE ROYALTY AGREEMENT IS THE EXTENSION OF PAYMENT TOWAR DS TECHNICAL KNOW- HOW AND SINCE THE APPELLANT HAS CAPITALIZED PAYMENT S TOWARDS TECHNICAL KNOW, THEREFORE, THE ROYALTY PAYMENTS MUST ALSO BE CAPITALIZED . 8.3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN FAILING TO APPRECIATE THAT THE ROYALTY PAID WAS A RUNNING ROYA LTY ALLOWABLE AS REVENUE DEDUCTION. 8.4. WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION OF 75% OF THE TOTAL E XPENDITURE INCURRED TOWARDS KNOW-HOW TO BE REVENUE EXPENDITURE ON PARIT Y OF TREATMENT WITH RUNNING ROYALTY. 8.5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALLEGING THAT SINCE THE SHARES OF THE APPELLANT WERE PREDOMINANTL Y HELD BY HMCL, JAPAN, THE FORMER WAS AN ESTABLISHMENT OF A FOREIGN COMPANY ITSELF IN INDIA AND THERE IS NO DIFFERENCE BETWEEN HMCL, JAPA N AND THE APPELLANT. 8.6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ALLEGING THAT THE ENTIRE ROYALTY PAYMENT WAS MADE TO THE PARENT C OMPANY TO REDUCE INDIAN TAX LIABILITY, WITHOUT GIVING ANY COGENT REA SONS. 8.7. THAT THE AO/DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE IMPUGNED EXPENDITURE SHALL NOT BE ALLOWED ON DEDUCT ION EVEN ON PRINCIPLES OF CONSISTENCY. 9. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE TECHNICAL KNOWHOW EXPENSES AMOUNTING TO RS. 110,45,71,000 INC URRED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR IN LIEU OF GRANTING TECHNICAL GUIDANCE/ KNOWHOW UNDER 'TECHNICAL KNOWHOW AGREEMEN T' WAS REVENUE IN NATURE, AND THEREFORE, OUGHT TO BE ALLOWED AS DE DUCTION WHILE COMPUTING THE TAXABLE INCOME OF THE APPELLANT. 10 THAT THE AO/ DRP ERRED ON FACTS AND IN LAW IN L EVYING INTEREST UNDER SECTION 234D OF THE ACT. 5 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 3. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE FO R THE YEAR UNDER CONSIDERATION HAD FURNISHED RETURN OF INCOME DECLAR ING INCOME OF RS. 5,17,18,00,950/-. THE ASSESSEE WAS A SUBSIDIAR Y OF HONDA MOTOR CO. LTD., JAPAN (HONDA) GROUP AND IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF MOTORCYCLE AND SCOOTERS. AS PER ASSESSEE, HONDA IS ONE OF THE WORLD LEADERS IN MANUFACTURE AND DISTRIBUTION OF AUTOMOBILES, MOT ORCYCLE AND POWER PRODUCTS AND HAS SUBSTANTIAL EXPERTISE, TECHNICAL K NOW-HOW, BRAND EQUITY, WORLDWIDE MARKETING NETWORK IN THE ABOVE FIELD. DUR ING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO VARIOU S INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISE (IN SHORT AE). RE FERENCE U/S 92CA(1) OF THE ACT WAS MADE AND THE TPO PROPOSED CERTAIN UPWARD ADJUST MENT WHICH AFTER THE DIRECTIONS OF THE DRP WERE REDUCED TO NIL. THE ASS ESSING OFFICER IN THE DRAFT ASSESSMENT ORDER ON THE PERUSAL OF THE FINANCIAL ST ATEMENT NOTED THAT THE ASSESSEE HAD CLAIMED EXPENDITURE AMOUNTING TO RS.2, 16,47,192/- FOR FOREIGN FLUCTUATION LOSS IN RESPECT OF FIXED ASSETS. IT IS FURTHER NOTICED THAT THE ASSESSEE HAD DISALLOWED THE AMOUNT OF RS.1,63,41,27 3/- ONLY OUT OF RS.2,16,47,192/- WHILE COMPUTING THE TOTAL INCOME O F THE CONCERNED ASSESSMENT YEAR. IN RESPECT OF THE SAME, THE ASSES SEE WAS ASKED TO EXPLAIN THE DIFFERENCE OF RS.53,05,919/- (RS.2,16,47,192/- - RS .1,63,41,273/-). THE ASSESSEE IN REPLY EXPLAINED THAT AN AMOUNT OF RS.2,16,47,192/- IS ADJUSTED IN COMPUTING THE ACTUAL COST OF ASSETS FOR COMPUTING I NCOME TAX DEPRECIATION ON ASSETS, AS PER PROVISION OF SECTION 43A OF THE ACT. YOUR GOODSELF WOULD APPRECIATE THAT THE ASSESSEE HAS VOLUNTARILY DISALL OWED THE AMOUNT ARISING ON 6 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 LOSS OF FOREIGN EXCHANGE AND NO FURTHER DISALLOWANC E IS TO BE MADE IN THE COMPUTATION OF INCOME. 4. IN THE DRAFT ASSESSMENT ORDER, THE ASSESSING OFF ICER PROPOSED THAT IF THE FIXED ASSETS HAS BEEN BOUGHT BY TAKING THE LOAN IN FOREIGN CURRENCY THAN ANY LOSS/EXPENSES ARISES ON ACCOUNT OF PAYMENT OF SUCH LOAN SHALL BE ADJUSTED TO THE COST OF FIXED ASSETS RATHER IT IS TREATED AS A REVENUE EXPENDITURE. IT IS FURTHER NOTICED THAT SUCH FOREIGN FLUCTUATION LOSS/GAIN SHALL NOT BE AL LOWED IN RESPECT OF REINSTATEMENT OF LOAN. IN THE GIVEN CAS E, THE ASSESSEE HAD ONLY REINSTATE THE FOREIGN LOAN IN ITS BOOKS OF ACCOUNT AND DEBITED THE SUM OF RS.2,16,47,192/- IN ITS PROFIT & LOSS ACCOUNT ON AC COUNT OF SUCH REINSTATEMENT. HOWEVER, SUCH EXPENSES ARE REQUIRED TO BE ADDED WH ILE COMPUTING THE TOTAL INCOME HAVING REGARD TO THE PROVISION OF SECTION 43 A OF THE ACT BUT THE ASSESSEE WHILE COMPUTING THE TOTAL INCOME HAS ADDED ONLY RS. 1,63,41,273/-. THEREFORE, THE DIFFERENCE OF RS.53,05,919/- IS REQUIRED TO BE ADDED TO THE INCOME OF THE ASSESSEE. OBJECTIONS WERE FILED BEFORE THE DRP WHO DIRECTED THE ASSESSING OFFICER TO EXAMINE THE DOCUMENTS AND PASS THE ORDER ON THE ISSUE. IN THE FINAL ASSESSMENT, THE ASSESSING OFFICER HELD AS UNDER:- 5.5. AS PER THE DIRECTIONS OF THE HONBLE DRP, THE ASSESSEE HAS BEEN PROVIDED AN OPPORTUNITY VIDE NOTICE DATED 30.10.201 7 TO FILE THE SUBMISSION TO PRODUCE DOCUMENTARY EVIDENCE IN SUPPO RT OF ITS CONTENTION. THE ASSESSEE HAS SUBMITTED THAT DIFFERENCE OF RS.53 ,05,919/- WAS ON ACCOUNT OF FOREIGN EXCHANGE GAIN ON CAPITAL WORK IN PROGRESS WHICH IS BEING CAPITAL RECEIPT IN NATURE NOT CHARGEABLE TO T AX. THUS, THE RECEIPT WAS NOT OFF FROM FOREIGN EXCHANGE CAPITAL LOSS OF RS.2, 16,47,192/- AND ACCORDINGLY, BALANCE RS.1,63,41,273/- WAS ADDED BAC K TO THE INCOME OF THE ASSESSEE. HOWEVER, NO DOCUMENTARY EVIDENCE IN SUPPORT OF THE 7 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 AFOREMENTIONED CLAIM THAT THE SAID AMOUNT PERTAINS TO CAPITAL WORK IN PROGRESS HAS BEEN PROVIDED BY THE ASSESSEE. IN VIE W OF ABOVE FACTS, AMOUNT OF RS.53,05,919/- IS DISALLOWED AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE. 5. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF T HE ASSESSING OFFICER. 6. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT GROU ND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS GENERAL IN NATURE. HE FU RTHER STATED THAT GROUND OF APPEAL NOS. 2 TO 2.2 RAISED BY THE ASSESSEE ARE AGA INST THE DISALLOWANCE OF FOREIGN EXCHANGE FLUCTUATION LOSS OF RS.53,05,919/- . IT WAS POINTED OUT BY THE LD.AR FOR THE ASSESSEE THAT THE TOTAL LOSS ON CAPI TAL ACCOUNT WAS RS.2.16 CRORES (APPROX.) AND THE GAIN ON ACCOUNT OF CAPITAL ACCOUNT WAS RS.53,05,919/-. THE NET SUM OF RS.1.63 CRORES (APP ROX.) WAS ADDED BACK TO THE COMPUTATION OF INCOME AND OFFERED TO TAX AGAINS T WHICH THERE IS NO DISPUTE. THE LD.AR FOR THE ASSESSEE STRESSED THAT IN VIEW OF THE PROVISION OF SECTION 43A OF THE ACT, REALIZED LOSS OF RS.2.16 CR ORES (APPROX.) AND REALIZED GAIN OF RS.53,05,919/- WAS ON ACCOUNT OF CAPITAL AS SETS, THE SAME WERE NOT ALLOWABLE AS REVENUE EXPENDITURE BUT WERE LIABLE TO BE ADDED TO/REDUCED FROM COST OF RELEVANT ASSETS IN THE YEAR IN WHICH THE LI ABILITY IN FOREIGN CURRENCY IS DISCHARGED AS PER THE PROVISIONS OF SECTION 43A OF THE ACT. ACCORDINGLY, LOSS OF RS.2.16 CRORES (APPROX.) WAS ADDED BACK AND GAIN OF RS.53,05,919/- WAS REDUCED FROM THE TAXABLE INCOME IN THE COMPUTATION OF INCOME BY WAY OF ADDING BACK NET AMOUNT OF RS.1.63 CRORES (APPROX.). IT WAS ALSO POINTED OUT THAT THE AMOUNT WAS DISALLOWED IN THE ABSENCE OF DO CUMENTARY EVIDENCE BY THE ASSESSING OFFICER BUT PURSUANT TO THE DIRECTION S OF THE DRP, RECONCILIATION 8 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 AS WELL AS THE EVIDENCES SUBSTANTIATING THE AFORES AID GAIN OF RS.53.05 LAKHS HAS BEEN FILED WHICH HAS BEEN COMPLETELY IGNORED IN THE FINAL ASSESSMENT ORDER. OUR ATTENTION WAS DRAWN TO SUPPLEMENTARY PA PERBOOK AT PAGE 28 IN THIS REGARD. 7. THE LD. DR FOR THE REVENUE IN REPLY SUBMITTED TH AT THE EVIDENCES BE EXAMINED BY THE ASSESSING OFFICER TO DECIDE THE ALL OWANCE OF AFORESAID EXPENDITURE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES VIDE GROUND OF APPEAL NOS. 2 TO 2.2 IS AGAINST THE DISALLOWANCE OF RS.53,05,919/-. THE AFORESAID SUM OF RS.53,05,919/ - IS THE FOREIGN EXCHANGE GAIN AGAINST THE CAPITAL WORK IN PROGRESS (IN SHORT CWIP). THE ASSESSEE HAD DISCLOSED FOREIGN EXCHANGE LOSS ON ACQUISITION OF F IXED ASSETS AT RS.2.16 CRORES (APPROX.) AGAINST WHICH THE FOREIGN EXCHANGE GAIN O F RS.53,05,919/- AGAINST CWIP WAS ADJUSTED AND THE BALANCE OF RS.1.63 CRORES (APPROX.) WAS ADDED BACK IN THE COMPUTATION OF INCOME. ADMITTEDLY THE FOREI GN EXCHANGE LOSS ON ACQUISITION OF FIXED ASSETS TOTALING TO RS.1.63 CRO RES (APPROX.) IS NOT ALLOWABLE AS AN EXPENDITURE IN VIEW OF THE SECTION 43A OF THE ACT. FURTHER, FOREIGN EXCHANGE GAIN OF RS.53,05,919/- IS TO BE ADJUSTED AGAINST THE AFORESAID LOAN AND NET AMOUNT OF RS.1.63 CRORES (APPROX.) HAVING B EEN OFFERED TO TAX, WARRANTS NO FURTHER DISALLOWANCE IN THE HANDS OF TH E ASSESSEE. ACCORDINGLY, WE HOLD SO AND THE ISSUE RAISED IN GROUND OF APPEAL NO S. 2 TO 2.2 IS THUS ALLOWED. 9 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 9. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.3 TO 3 .3 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWING EXPENDITURE OF RS.10,45, 249/- WHICH WAS DEBITED UNDER THE HEAD CORPORATE SOCIAL RESPONSIBILITY (IN SHORT CSR) IN BOOKS OF ACCOUNTS, ON THE GROUND THAT THE SAME WERE NOT INCU RRED FOR THE PURPOSE OF BUSINESS. 10. BRIEFLY THE FACTS OF THE CASE RELATING TO THE I SSUE ARE THAT THE ASSESSEE HAD INCURRED EXPENDITURE TOTALING RS.10,45,249/- TO WARDS GRANT TO SCHOOLS FOR EMPLOYEES WELFARE, REFRESHMENT EXPENSES FOR LABOUR WELFARE, SPORTS, LAYING OF PIPE LINES IN GOVERNMENT SENIOR SECONDARY (IN SHORT GSS) SCHOOL, COTTON BAGS WITH COMPANY LOGO OF DISTRIBUTION IN SCHOOLS AND CO MMUNITY, FLEX BANNER PRINTING FOR BLOOD DONATION CAMP, RENOVATION WORK F OR TRAINING CENTER AT MOHINDERGARH, DONATION FOR GANESH MAHOTSAV, MISCELL ANEOUS PUBLICITY EXPENSE, ETC. WHICH WERE CLASSIFIED UNDER THE HEAD CORPORATE SOCIAL RESPONSIBILITY IN THE BOOKS OF ACCOUNT. THE ASSES SING OFFICER DISALLOWED THE AFORESAID EXPENDITURE ON THE GROUND THAT THE EXPEND ITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PUR POSE OF BUSINESS. THE ASSESSING OFFICER FURTHER ALLEGED THAT EXPLANATION (2) TO SECTION 37 OF THE ACT INSERTED BY FINANCE ACT, 2014 W.E.F. 01.04.2015, WHICH PROVIDES THAT CS R EXPENSES SHALL NOT BE DEEMED TO BE INCURRED FOR THE PURPOSE OF THE BUSINE SS, IS CLARIFACTORY IN NATURE AND IS APPLICABLE TO ASSESSMENT YEAR 2012-13 AS WEL L. 11. THE ASSESSEE IS IN APPEAL AGAINST THE SAID DISA LLOWANCE MADE BY THE ASSESSING OFFICER. THE LD.AR FOR THE ASSESSEE DREW OUR ATTENTION TO THE 10 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 DOCUMENTS PLACED IN THE PAPERBOOK FROM PAGE 734 TO 861 AND POINTED OUT THAT THE SAME WERE TREATED AS CSR EXPENSES. IT WAS ALLE GED THAT THE SAME WERE INCURRED WITH A VIEW TO SECURE ADVANTAGE TO THE AS SESSEES BUSINESS AND COULD NOT BE TREATED AS NOT INCURRED FOR THE PURPOSE OF B USINESS. IT WAS FURTHER POINTED OUT THAT EXPLANATION 2 TO SECTION 37 OF THE ACT HAS BEEN HELD TO BE PROSPECTIVE BY DIFFERENT BENCHES OF THE TRIBUNAL, W ITH SPECIAL REFERENCE TO THE DECISION OF RAIPUR TRIBUNAL IN JINDAL POWER LTD. [I TA NO.99/BLPR/2012] AND DELHI TRIBUNAL IN NATIONAL SMALL INDUSTRIES CORPN. LTD. VS DCIT (175 ITD 601). OUR ATTENTION WAS DRAWN TO THE LIST OF EXPENSES TAB ULATED FOR THE PURPOSE AND IT WAS VEHEMENTLY STATED THAT THE EXPENDITURE INCU RRED WERE FOR THE BENEFIT OF THE BUSINESS OF THE ASSESSEE AND PART OF EXPENSES R ELATED TO ITEMS ON WHICH THE NAME/LOGO OF THE ASSESSEE COMPANY WAS PRINTED WAS D ISTRIBUTED TO PUBLIC. 12. THE LD.DR FOR THE REVENUE STRESSED THAT THE TES T OF EXPENSES BEING INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS NEEDS TO BE FULFILLED. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS AGAINST THE A LLOWABILITY OF EXPENDITURE INCURRED BY THE ASSESSEE UNDER THE HEAD CSR EXPENDI TURE. THE ASSESSEE CLAIMED THAT THE EXPENDITURE HAS BEEN INCURRED TOWA RDS MAINTENANCE CHARGES OF GSS, GURGAON FOR THE BENEFIT OF THE CHILDREN OF THE EMPLOYEES OF THE ASSESSEE COMPANY. THE ASSESSEE HAS PLACED ON RECORD THE LIS T OF THE EXPENDITURE BEFORE US. THE PERUSAL OF THE SAME REFLECTS THE EXPENDITU RE ON CERTAIN RENOVATION 11 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 WORK AT MOHINDERGARH INCLUDING PROVIDING CHAIRS AND TABLES BY THE ASSESSEE. FURTHER EXPENSES ARE DEBITED ON ACCOUNT OF TOOLS FO R HONDA TRAINING CENTER LAB- MOHINDERGARH. ALL THE SAID EXPENSES ARE INCUR RED FOR EFFICIENTLY CARRYING OUT THE BUSINESS OF THE ASSESSEE AND THUS FULFILL T HE CONDITION OF WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. FURTHER, THE DONATION TO BRAHMA KUMARIS MERITS TO BE DISALLOWED IN THE HANDS OF THE ASSESSEE, AS IT IS CASE OF CHARITY. THE SAME MAY BE LOOKED INTO AS PER THE PR OVISION OF SECTION 80G OF THE ACT. FURTHER, EXPENDITURE INCURRED TOWARDS DIS PLAY OF NAME/LOGO OF THE ASSESSEE ON VARIOUS ITEMS IS UNDOUBTEDLY FOR THE PR OMOTION OF THE BUSINESS OF THE ASSESSEE AS IT PROMOTES GOODWILL. HENCE, THE E XPENDITURE IS TO BE ALLOWED AS REVENUE EXPENDITURE. 14. BEFORE PARTING, WE MAY ALSO REFER TO THE ALTERN ATE OBSERVATIONS OF THE ASSESSING OFFICER THAT THE EXPLANATION (2) TO SECTI ON 37(1) WHICH HAS BEEN INTRODUCED W.E.F. 01.04.2015 IS TO BE APPLIED RETRO SPECTIVELY. WE FIND THAT THE RAIPUR BENCH OF TRIBUNAL IN JINDAL POWER LTD. (SUPR A) AND DELHI TRIBUNAL IN NATIONAL SMALL INDUSTRIES CORPN. LTD. VS DCIT (SUPR A) HAVE HELD THAT THE SAID EXPLANATION IS PROSPECTIVE IN NATURE. CONSEQUENTLY , WE FIND NO MERIT IN THE STAND OF THE ASSESSING OFFICER IN THIS REGARD EXCEP T EXPENDITURE OF RS.50,000/-, THE BALANCE EXPENDITURE IS ALLOWED IN THE HANDS OF THE ASSESSEE. THUS, GROUND OF APPEAL NOS. 3 TO 3.3 ARE PARTLY ALL OWED. 15. NOW, COMING TO THE NEXT GROUND OF APPEAL NO.4 R AISED BY THE ASSESSEE I.E. DISALLOWANCE OF COMPOSITION FEE AMOUNTING TO R S.22,36,130/-. 12 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 16. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE H AD PAID THE AFORESAID AMOUNT OF RS.22,36,130/- FOR REGULARIZING DEVIATION S IN BUILDING STRUCTURE WITHIN THE PERMISSIBLE LIMITS. THE ASSESSING OFFIC ER WAS OF THE VIEW THAT THE SAID EXPENDITURE WAS IN THE NATURE OF PENALTY AND I S HIT BY EXPLANATION 37(1) OF THE ACT. AFTER HEARING BOTH THE COUNSELS AND PERUS ING THE DETAILS OF COMPOSITION FEE AND EVIDENCES PLACED AT PAGE 731 OF THE PAPERBOOK, THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE TOWAR DS COMPOSITION FEE FOR REGULARIZING THE NAURANGPUR BUILDING AND ISSUANCE O F OCCUPANCY CERTIFICATE. THE REGULARIZING UNDOUBTEDLY WOULD BE WITHIN THE PE RMISSIBLE LIMITS AND IN CASE OF IRREGULARITY, THE STRUCTURE HAS TO BE BROKE N DOWN. SO, WE FIND NO MERIT IN THE STAND OF THE ASSESSING OFFICER IN THIS REGAR D. WE FURTHER FIND THAT THE HONBLE SUPREME COURT IN PRAKASH COTTON MILLS VS CI T 201 ITR 684 (SC) HAD OBSERVED AS UNDER:- THEREFORE, WHENEVER ANY STATUTORY IMPOST PAID BY A N ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST IS CLAIMED AS AN ALL OWABLE EXPENDITURE UNDER SECTION 37(1) OF THE INCOME TAX ACT, THE ASSE SSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF PROVISIONS OF THE RELEVANT STATUE PROVIDING FOR PAYMENT OF SUCH IMPOST NOTWITHSTANDIN G THE NOMENCLATURE OF THE IMPOST AS GIVEN BY THE STATUE, TO FIND WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCT ION UNDER SECTION 37(1) OF THE INCOME TAX ACT, WHEREVER SUCH EXAMINATION RE VEALS THE CONCERNED IMPOST TO BE PURELY COMPENSATORY IN NATURE. 17. FURTHER, THE HONBLE DELHI HIGH COURT IN CIT VS LOK ENATH & CO. 147 ITR 624 (DEL.) ON SIMILAR FACTS HELD THAT ON SIMILAR FACTS WHEREIN THE ASSESSEE HAS CONSTRUCTED A MULTI-STOREYED BUILDING AND IN VIEW OF EXCESS CONSTRUCTION ON ONE OF THE FLOOR, IT SUBMITTED A FRESH PLAN AND WHERE T HE REVISED PLAN WAS APPROVED, 13 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 SUBJECT TO PAYMENT ON ADHOC COMPOSITION FEE, THE HO NBLE HIGH COURT HELD THAT THE MANDATE OF THE LEGISLATURE IS THAT ON THE ACCE PTANCE OF THE COMPENSATION, THERE IS CONDONATION OF THE DISOBEDIENCE OF A PROCE DURAL REQUIREMENT. THIS COMPENSATION WAS NOT A PENALTY PAYMENT, TO SAVE THE ASSESSEE FROM CRIMINAL LIABILITY OR CRIMINAL PROSECUTION OR TO COMPOUND A NY OFFENCE COMMITTED BY THE ASSESSEE. THUS, THE TRIBUNAL WAS JUSTIFIED AND THE IMPUGNED SUM WAS ADMISSIBLE AS BUSINESS EXPENDITURE UNDER SECTION 37 (1) OF THE ACT. 18. FOLLOWING THE SAID DICTATE OF THE HONBLE HIGH COURT, WE HOLD THAT THE COMPOSITION FEE OF RS.22,36,130/- PAID BY THE ASSES SEE MERITS TO BE ALLOWED AS BUSINESS EXPENDITURE. THUS, GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS ALLOWED. 19. NOW COMING TO THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE OF DISALLOWANCE OF RS.1,73,72,080/- I.E. EXPENDITURE I NCURRED ON REPAIR AND MAINTENANCE/REPLACEMENT OF EXISTING ASSETS. THE AS SESSING OFFICER WAS OF THE VIEW THAT THE AFORESAID EXPENDITURE INCURRED BY THE ASSESSEE BOOKED UNDER THE HEAD REPAIR AND MAINTENANCE IS CAPITAL IN NATURE AND HENCE, DISALLOWED THE SAME AFTER ALLOWING THE DEPRECIATION ON THE TOTAL E XPENDITURE. THE ASSESSEE IS IN APPEAL AGAINST THE SAME. 20. OUR ATTENTION WAS DRAWN TO THE LIST OF EXPENDIT URE PLACED AT PAGES 596 & 597 OF THE PAPERBOOK. THE LD.AR FOR THE ASSESSEE S UBMITTED THAT EXPENSES WERE INCURRED ON REPAIR AND MAINTENANCE OF EXISTING SHOP FLOOR LIGHT, RELINING OF MELTING FURNACE USED IN CASTING, GENERAL ELECTRICAL WORK IN CKD AREA, 14 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 DEMOLITION WORK OF TECHNICAL ENTER SITE, REPLACEMEN T OF EXISTING FURNITURE ETC. IT WAS STRESSED THAT THE EXPENSES WERE INCURRED FOR R EPAIR/REPLACEMENT OF EXISTING ASSETS, WHICH DID NOT RESULT IN ACQUISITIO N OF ANY NEW ASSET OR ENHANCEMENT IN THE EXISTING PROFIT EARNING APPARATU S OF THE ASSESSEE COMPANY. THEREFORE, THE SAID EXPENDITURE INCURRED ON REPAIRS WAS ALLOWABLE AS DEDUCTION U/S 31(1) OR SECTION 37(1) OF THE ACT. HE PLACED R ELIANCE ON THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN CIT VS SARAVANA SPINNIN G MILLS (P.) LTD. 293 ITR 201 (SC) AND MANY OTHER CASES AND STRESSED THAT SIM ILAR EXPENDITURE ON REPAIRS OF EXISTING ASSETS/BUILDING/MACHINES HAD BE EN INCURRED BY THE ASSESSEE IN THE EARLIER YEARS ALSO, WHICH HAS ALWAY S BEEN ALLOWED AS DEDUCTION BY THE DEPARTMENT, IN ALL THE EARLIER ASSESSMENT YE ARS. 21. THE LD.DR FOR THE REVENUE ON THE OTHER HAND PLA CED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ISSUE WHICH ARISES IN THE PRESENT APPEAL IS WHETHER THE EXPENDITURE WHICH HAS BEEN INCURRED BY THE ASSESSEE ON THE REPAIR/REPLACE MENT OF EXISTING ASSETS, CAN THE SAME BE ALLOWED IN THE HANDS OF THE ASSESSE E. THE HONBLE SUPREME COURT IN CIT VS SARAVANA SPINNING MILLS (P.) LTD. (SUPRA) HAS LAID DOWN THAT IN CASE THE EXPENDITURE IS INCURRED FOR CURRENT REPAIR S, THEN IT REPLACES PART OF THE EXISTING PLANT & MACHINERY AND THE SAME IS TO BE AL LOWED AS BUSINESS EXPENDITURE IN THE HANDS OF THE ASSESSEE U/S 31(1) OF THE ACT. WE HAVE PERUSED THE DETAILS FILED BY THE ASSESSEE. THE LI ST AT PAGE 596 OF THE 15 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 PAPERBOOK IS IN RESPECT OF REPAIR AND MAINTENANCE O F EXISTING STRUCTURE AND IS TO BE ALLOWED AS AN EXPENDITURE IN THE HANDS OF THE ASSESSEE. HOWEVER, THE EXPENDITURE INCURRED ON ACQUISITION OF CHAIRS, WHIC H ARE DETAILED AT PAGE 597 OF THE PAPERBOOK IS CAPITAL IN NATURE AND AMOUNT TOTAL ING TO RS.10,97,122/- NEEDS TO BE CAPITALIZED IN THE HANDS OF THE ASSESSE E. THE SAID EXPENDITURE IS BOOKED UNDER THE HEAD FURNISHING FURNITURE. ACCORD INGLY, WE UPHOLD THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD BUT DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE INCURRED ON REPAIRS OF PLANT & MACH INERY IN ENTIRETY. THUS, GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS PAR TLY ALLOWED. 23. NOW COMING TO THE GROUND OF APPEAL NO.6 RAISED BY THE ASSESSEE I.E THE EXPENDITURE INCURRED ON SIGNAGES INSTALLED AT THE P REMISES OF DEALERS/SUB DEALERS AMOUNTING TO RS.89,03,053/-. 24. BRIEFLY IN THE FACTS RELATING TO THE ISSUE, THE ASSESSEE HAD DEBITED EXPENDITURE OF GLOW SIGN BOARD/SIGNAGES WHICH WERE DISPLAYED AT THE LOCATION OF THE DEALERS OF THE ASSESSEE AND THE ASSESSING OF FICER WAS OF THE VIEW THAT THE EXPENDITURE WAS OF ENDURING BENEFIT AND HENCE CAPIT AL IN NATURE. THE LD.AR FOR THE ASSESSEE BEFORE US POINTED OUT THAT THE EXP ENDITURE WAS REVENUE EXPENDITURE WHICH MERITS TO BE ALLOWED, AS THOUGH T HE SIGNAGES WERE AT DEALERS PLACES BUT THE EXPENDITURE WAS FOR THE BEN EFIT OF THE BUSINESS OF ASSESSEE COMPANY. IN THIS REGARD, RELIANCE WAS PLA CED ON THE DECISION OF HONBLE DELHI HIGH COURT IN CIT VS ORIENT CERAMICS & INDS LTD. 11 TAXMANN.COM 418 (DEL.HC) AND THE DECISION OF PUNJAB & HARYANA HIGH COURT 16 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 IN CIT VS LIBERTY GROUP MARKETING DIVISION [2008] 1 73 TAXMAN 439 (P&H HC). FURTHER, RELIANCE WAS PLACED ON THE DECISION OF DEL HI HIGH COURT IN CIT VS HONDA SIEL POWER PRODUCTS LTD. 300 ITR 56 (DEL.). THE LD.AR FOR THE ASSESSEE FURTHER POINTED OUT THAT THE ASSESSEE HAD PURELY TR EATED THE EXPENDITURE AS CAPITAL BUT THERE IS NO ESTOPPEL IN LAW AND HENCE THE EXPENDITURE INCURRED MERITS TO BE ALLOWED IN ENTIRETY. IT WAS ALSO POIN TED OUT THAT NO SUCH DISALLOWANCE WAS MADE IN THE HANDS OF THE ASSESSEE IN THE EARLIER YEARS. 25. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDERS OF AUTHORITIES BELOW. 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE EXPENDITURE WAS INCURRED ON SIGNAGE FOR DISPLAY OF THE NAME OF THE ASSESSEE AT THE DEALERS PREMISES. HOWEVER, ONCE THE SAME IS F IXED AT DEALERS SITE THEN THE COURTS HAVE HELD THAT IT DOES NOT SATISFY THE TEST OF OWNERSHIP WITH THE ASSESSEE AND THE EXPENDITURE IS TO BE ALLOWED AS RE VENUE EXPENDITURE. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HONBLE DEL HI HIGH COURT IN CIT VS HONDA SIEL POWER PRODUCTS LTD.(SUPRA). THUS, WE AR E OF THE VIEW THAT THE EXPENDITURE TO THE EXTENT CLAIMED BY THE ASSESSEE I S TO BE ALLOWED IN THE HANDS OF THE ASSESSEE AND NOT THE ENTIRE EXPENDITURE. GR OUND OF APPEAL NO.6 IS THUS PARTLY ALLOWED. 27. NOW COMING TO THE GROUND OF APPEAL NO.7 RAISED BY THE ASSESSEE AGAINST THE DISALLOWANCE OF SALES TOOLS EXPENSES OF RS.2,72 ,32,757/-. 17 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 28. BRIEFLY IN THE FACTS OF THE CASE, THE ASSESSEE INCURRED THE SAID EXPENDITURE ON SALES TOOLS EXPENSES. THE ASSESSEE EXPLAINED THAT IT REQUIRED ITS AUTHORIZED DEALERS TO USE SPECIFIED QUALITY OF SALES TOOLS. FIXTURES AT THEIR SHOWROOMS WHICH WAS TO ENSURE THAT SUCH EXCLUSIVE A UTHORIZED DEALERS MAINTAIN UNIFORMITY IN ADVERTISING ASSESSEES BRAND EFFECTIVELY ACROSS INDIA AND MAINTAINING THE HIGH PRESCRIBED STANDARDS. THE ASS ESSING OFFICER WAS OF THE VIEW THAT THE THERE WAS NO OBLIGATION TO INCUR THE SAID EXPENSES; HENCE, THE SAME WERE DISALLOWED IN THE HANDS OF THE ASSESSE. 29. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE EXPENDITURE WERE INCURRED IN ORDER TO MAKE THE SHOWROOMS OF THE DEA LER LOOK ALIKE AND THE ASSESSEE INCURRED 50% OF THE EXPENSES. THE ASSESSE E DURING THE COURSE OF HEARING WAS ASKED TO FILE COPY OF AGREEMENT ENTERED INTO WITH THE DEALER/S AND ALSO THE NO. OF DEALER APPOINTED BY IT. THE LD.AR FOR THE ASSESSEE DULY FILED THE SAME AND POINTED OUT THAT THE TURNOVER OF THE ASSES SEE HAD INCREASED FROM RS. 64 CRORES IN THE PRECEDING YEAR TO RS. 8,539 CRORES DURING THE YEAR. 30. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE EXPENDITURE INCURRED BY THE ASSESSEE ON SALES TOOLS /FIXTURES WHICH ARE PLACED AT DEALERS OUTLETS ARE SPECIFICALLY MANUFACTURED B Y THIRD PARTY MANUFACTURERS IN ACCORDANCE WITH THE SPECIFICATIONS PROVIDED BY THE ASSESSEE. AS PER THE TERMS OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE THIRD PARTY MANUFACTURERS, 50% OF THE PRICE OF THE SALES TOOLS IS DIRECTLY PAID BY THE ASSESSEE AS ADVANCE TO THE THIRD PARTY MANUFACTURER AT THE TIME OF PLACEMENT 18 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 OF ORDER AND BALANCE 50% IS PAID BY THE AUTHORIZED DEALERS, POST INSPECTION AND APPROVAL OF THE ORDERED ITEMS BY THE INSPECTIN G OFFICER OF THE ASSESSEE BEFORE DELIVERY AT DEALERS OUTLET. SUCH SALES TOO LS/ FIXTURES INTER-ALIA INCLUDES THE FOLLOWING:- RECEPTION COUNTER; CUSTOMER LOUNGE PARTITION WITH MONITOR STAND; SHELF PARTITION FOR PARTS AND ACCESSORIES; FROST GLASS PARTITION; DIGITAL GRAPHIC PANEL; SPECIFICATIONS PANEL; TWO-WHEELER DISPLAY BASE (WINDOW); TWO-WHEELER DISPLAY BASE (CORNER); SING RING; CATALOGUE STAND. 31. THE QUESTION WHICH ARISES IS WHETHER THE ASSESS EE IS INCURRING EXPENDITURE TO MAINTAIN STANDARD FORMAT OF DISPLAY ING ITS PRODUCTS ALL OVER INDIA IN ORDER TO INDUCE PROSPECTIVE CUSTOMERS TO C LEARLY IDENTIFY THE EXCLUSIVE DEALERS OF ASSESSEES PRODUCTS IN INDIA AND EXPEND ITURE INCURRED WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF HIS BUSINESS. 32. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON T HE ORDERS OF THE AUTHORITIES BELOW. 33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE HAVE PERUSED THE AGREEMENT BETWEEN THE ASSESSEE AND ITS DEALER AND ARTICLE 11.2 OF THE DEALERSHIP AGREEMENT READS AS UNDER:- 11.2. THE COMPANY SHALL PROVIDE THE NECESSARY INFO RMATION, MATERIALS AND SUCH OTHER ASSISTANCE FROM TIME TO TIME AT THE DEALERS COST AND EXPENSE, WHEREVER APPLICABLE, WHICH SUPPORT THE DEA LERS ADVERTISING AND 19 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 SALES PROMOTION EFFORTS FOR THE PRODUCTS, IN ACCORD ANCE WITH THE PROVISIONS OF THE POLICY, GUIDELINES, AND OPERATIONS STANDARDS WITH REGARD TO ADVERTISING ISSUED BY THE COMPANY FROM TIME TO TIME . THE COMPANY MAY AT DISCRETION, PROVIDE SUBSIDY ON THE ADVERTISING M ATERIAL. 34. CLAUSE 7.2 OF THE DEALERSHIP AGREEMENT STATES A S FOLLOWS:- 7.2. THE DEALER AGREES TO COMPLY AT ALL TIMES DURI NG THE VALIDITY OF THIS AGREEMENT WITH THE MINIMUM REQUIREMENTS CONCERNING THE DEALERSHIP PREMISES INCLUDING INTERALIA SALES OFFICE, SHOWROOM , WORKSHOP, SPARE PARTS AND ACCESSORIES SHOP AND OTHER NECESSARY EQUIPMENT, MACHINERY, TOOLS SPECIFIED BY THE COMPANY FROM TIME TO TIME. THE LI ST OF EQUIPMENTS, MACHINERY AND TOOLS WITH DETAILED SPECIFICATIONS AN D QUANTITIES BASED ON DEALERS SALES/SERVICE CAPACITY WILL BE ISSUED BY T HE COMPANY TO THE DEALER FROM TIME TO TIME ALONGWITH GUIDELINES AND P ROCEDURES FOR PROCURING THE SAME. THIS MAY INCLUDE RECOMMENDED PURCHASE PR ICES FOR SUCH EQUIPMENTS, MACHINERY AND TOOLS BASED ON ARRANGEMEN T FOR BULK PURCHASES/QUANTITY DISCOUNTS ETC. WITH THE SUPPLIER S AND ON TRAINING, AFTER SALES SERVICE INFRASTRUCTURE/SUPPORT ETC. PROVIDED BY THE SUPPLIER. 35. IN VIEW OF THE AFORESAID, WE ARE OF THE VIEW TH AT THE EXPENDITURE INCURRED ON SIGNAGES EXPENSES WAS IN THE NATURE OF ADVERTISE MENT EXPENDITURE, WHICH ARE RECURRING IN NATURE, INCURRED FOR THE PURPOSE O F BUSINESS AND IN THE ABSENCE OF ANY CAPITAL ASSET BEING ACQUIRED/OWNED B Y THE ASSESSEE, THE SAME WAS ALLOWABLE AS BUSINESS DEDUCTION UNDER SECTION 3 7(1) OF THE ACT. 36. THE ASSESSING OFFICER WHILE DISALLOWING THE CLA IM OF THE ASSESSEE HAS STRONGLY PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN HONDA SIEL CARS INDIA LTD. VS CIT [395 ITR 713] (SC). HO WEVER, THE FACTS OF THE SAID CASE ARE DISTINCT AS IN THE FACTS OF THE SAID CASE EXPENDITURE WAS ON ACCOUNT OF SETTING UP OF MANUFACTURING FACILITY AND WAS NOT FO R RUNNING OF THE BUSINESS. THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 WHILE DECIDING THE ISSUE IN APPEAL FILED AGAINST THE ORDE R PASSED U/S 263 OF THE ACT 20 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 HAD DISTINGUISHED THE SAID DECISION AND ALLOWED THE CLAIM OF THE ASSESSEE. HENCE, GROUND OF APPEAL NO.7 RAISED BY THE ASSESSEE IS ALLOWED. 37. NOW COMING TO GROUND OF APPEAL NO.8 RAISED BY T HE ASSESSEE UNDER WHICH THE ASSESSEE IS AGGRIEVED BY THE ORDERS OF TH E AUTHORITIES BELOW IN DISALLOWING 25% OF ROYALTY EXPENSES. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT GROUND OF APPEAL NO.9(A) WHICH IS THE ADDITION AL GROUND OF APPEAL RAISED BY THE ASSESSEE MAY BE TAKEN UP ALONGWITH THIS GROU ND OF APPEAL. 38. BRIEFLY IN THE FACTS OF THE CASE RELATING TO TH E ISSUE, THE ASSESSEE HAS CLAIMED EXPENSES ON TECHNICAL KNOWHOW FEES AND ROYA LTY DURING THE YEAR AMOUNTING TO RS.488.65 CRORES (APPROX.). THE SAID AMOUNT WAS PAID TO THE FOREIGN COMPANY I.E. HONDA MOTOR COMPANY, JAPAN, IN VIEW OF TECHNICAL KNOW- HOW AND TECHNOLOGY ASSISTANCE RECEIVED FROM THEM, T HE ASSESSEE CLAIMED IT TO BE REVENUE EXPENDITURE IN ITS HAND. THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY OF THE ASSESSEE WAS OF THE VIEW THAT THE AGRE EMENT EXECUTED BETWEEN THE ASSESSEE AND HONDA MOTOR COMPANY, JAPAN FOR THE PU RPOSE OF TRANSFERRING OF TECHNICAL KNOW-HOW AND TECHNOLOGY REFLECTS THAT THE PAYMENT IN LUMPSUM AS WELL AS VARIABLE WAS PAID FOR ACQUIRING ASSET OF EN DURING BENEFIT. THE PLEA OF THE ASSESSEE WAS THAT THE AFORESAID PAYMENT WAS IN RESPECT OF INFORMATION OF PRODUCTION PROCESS OF PRODUCT WHICH INCLUDED THE PL ANNING SHEET OF PRODUCTION, CONTROL SHEET OF QUALITY, FLOW CHART OF THE PRODUCTION PROCESS AND DRAWINGS, CONCEPT DRAWINGS BROCHURES, JIGS, ASSEMBL E AND INSPECTION TOOLS, INFORMATION FOR QUALITY CONTROL OF THE PRODUCTS ETC . THE ASSESSING OFFICER WAS OF 21 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 THE VIEW THAT THE KIND OF KNOWLEDGE WHICH WAS SHARE D BY HONDA MOTOR COMPANY, JAPAN COMPRISES THE LIFE CYCLE OF THE PROD UCT I.E. STARTING FROM PRODUCTION PROCESS TILL THE OUTPUT OF THE FINAL PRO DUCT. HE FURTHER OBSERVED THAT THIS NOT ONLY INCREASES THE GOODWILL OF THE AS SESSEE COMPANY IN THE MARKET BUT ALSO OTHER INTANGIBLES, THROUGH WHICH THE ASSES SEE COMPANY GOT ENDURING BENEFIT. VIDE PARA 13.5 AT PAGE 35 OF THE ASSESSME NT ORDER, THE ASSESSING OFFICER HAS ENLISTED THE BENEFITS ARISING TO THE AS SESSEE AS ASSESSING OFFICER HAD SHOW CAUSED THE ASSESSEE WITH REGARD TO LUMPSU M PAYMENT OF RS.110.45 CRORES (APPROX.) AND ROYALTY OF RS.378.20 CRORES (A PPROX.) TOTALING TO RS.488.65 CRORES (APPROX.). RELYING ON THE FINDINGS OF THE E ARLIER YEAR, IT WAS PROPOSED BY ASSESSING OFFICER THAT THE SAID AMOUNT IS DISALLOWE D IN THE HANDS OF THE ASSESSEE. 39. THE DRP DIRECTED THE ASSESSING OFFICER TO PROVI DE AN OPPORTUNITY TO THE ASSESSEE TO FILE SUBMISSIONS IN THIS REGARD. IN TH E FINAL ASSESSMENT ORDER AT PAGE 37, THE ASSESSING OFFICER NOTES THAT OUT OF TO TAL TECHNICAL KNOWHOW OF RS.110.45 CRORES (APPROX.), THE ASSESSEE HAD ALREA DY CAPITALIZED SUM OF RS.75.58 CRORES (APPROX.) AND REST WAS SHOWN AS INT ANGIBLE ASSETS AND NOT CLAIMED AS AN EXPENSE DURING THE YEAR. SO, THE CON TENTION OF THE ASSESSEE WITH REGARD TO TECHNICAL KNOW-HOW EXPENSES WAS NOT ACCEP TED. IN RELATION TO THE ROYALTY EXPENSES INCURRED DURING THE YEAR, AGAINST WHICH THE ASSESSEE FILED ELABORATE SUBMISSIONS BEFORE THE ASSESSING OFFICER, THE ASSESSING OFFICER NOTED THAT THE ARGUMENTS OF THE ASSESSEE THAT THIS WAS RU NNING ROYALTY, THEREFORE, IT 22 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 WAS TREATED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER ON PERUSAL OF THE TECHNICAL KNOW-HOW AND ROYALTY AGREEMENT CAME TO A FINDING THAT THE ROYALTY AGREEMENT WAS EXTENSION OF PAYMENT TOWARDS TECHNICA L KNOW-HOW. HE THUS OBSERVED THAT ANY PAYMENT WHICH HAS BEEN MADE ON ACCOUNT OF TECH NICAL KNOW-HOW AND ROYALTY SHOULD BE READ INTO ONE AND CA NNOT BE BIFURCATED AS THE ASSESSEE HAS DONE. IT IS FURTHER NOTED THAT THE RO YALTY WITHOUT TECHNICAL KNOW- HOW DO NOT HAVE ANY EXISTENCE PER SE. THEREFORE TH E SAME IS INEXTRICABLE FROM THE TECHNICAL KNOW-HOW. THE ASSESSEE CLAIMED THAT THE ROYALTY PAID WAS A RUNNING ROYALTY THEREFORE THE SAME WOULD BE ALLOWAB LE EXPENDITURE HOWEVER IT FAILED TO ACKNOWLEDGE THE FACT THAT THE ROYALTY WAS CONJOINT WITH THE TECHNICAL KNOW-HOW AND WITHOUT WHICH THE SAME DID NOT HAVE AN Y EXISTENCE THEREFORE, THE SAME SHOULD BE TREATED AS CAPITAL IN NATURE. 40. THE ASSESSING OFFICER DID NOT ACCEPT THE PLEA O F THE ASSESSEE THAT THE SAME ROYALTY BEING PAID FOR MORE THAN 15 YEARS AND BEING ALLOWED IN THE HANDS OF THE ASSESSEE, WAS NOT ACCEPTED IN VIEW OF THE DECISIONS OF HONBLE SUPREME COURT AND HONBLE ALLAHABAD HIGH COURT AND 25% OF THE ROYALTY EXPENDITURE OF RS.378.20 CRORES (APPROX.), WHICH WO RKED TO RS.94,45,04,266/- WAS TREATED AS CAPITAL EXPENDITURE BEING SPENT TOWA RDS ACQUISITION OF CAPITAL ASSETS. DEPRECIATION ON THE SAME WAS ALLOWED AND B ALANCE SUM OF RS.70,83,78,200/- WAS ADDED IN THE HANDS OF THE ASS ESSEE. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE ASSESSING OFFICER. 23 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 41. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT UND ER SAME AGREEMENT, THE ASSESSEE HAD PAID TO HONDA MOTOR COMPANY, JAPAN TWO CONSIDERATIONS I.E. ONE WAS THE LUMPSUM ROYALTY ON ACCOUNT OF MODEL FEE AND SECOND WAS THE RECURRING ROYALTY. HE FURTHER POINTED OUT THAT BOT H THE PAYMENTS FLOWED FROM THE SAME AGREEMENT AND THE PLEA OF THE ASSESSEE WAS THAT THERE WAS NO ENDURING BENEFIT TO THE ASSESSEE VIS-A-VIS THE RECU RRING ROYALTY. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT IN EARLIER YEARS, THE SAME WAS ALLOWED AS REVENUE EXPENDITURE AND ONLY IN THE YEAR UNDER CONSIDERATIO N, THE SAME WAS DISALLOWED. HE REFERRED TO THE ORDER OF ASSESSING OFFICER AND WHO IN TURN RELIED ON THE DECISION OF HONBLE SUPREME COURT IN HONDA S IEL CARS INDIA LTD. VS CIT [395 ITR 713] (SC) TO DISALLOW 25% OF THE EXPENSES. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT IN THE CASE OF HONDA SIEL CARS IND IA LTD. VS CIT (SUPRA) ITSELF, IN LATER YEARS TRIBUNAL HAS ALLOWED ENTIRE ROYALTY EXPENSES AS REVENUE AFTER CONSIDERING THE DECISION OF HONBLE SUPREME COURT ( SUPRA), ON THE GROUND THAT THE ROYALTY PAYMENT WAS FOR AVAILING KNOW-HOW FOR NEW MODELS. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT IN ASSESSEES OW N CASE RELATING TO ASSESSMENT YEAR 2011-12, THE COMMISSIONER INVOKED T HE PROVISION OF SECTION 263 OF THE ACT TO DISALLOW 25% OF ROYALTY EXPENDITU RE FOR SIMILAR REASONS. HE REFERRED TO THE DECISION OF TRIBUNAL PLACED AT PAGE 458 AND POINTED OUT THAT THE ORDER U/S 263 OF THE ACT,, WAS QUASHED AFTER CONSID ERING THE DECISION OF HONBLE SUPREME COURT IN HONDA SIEL CARS INDIA LTD . VS CIT (SUPRA) IN LATER DECISION OF THE TRIBUNAL IN SAID CASE ITSELF. HE F URTHER POINTED OUT THAT UNDER THE SAID AGREEMENT, LIMITED RIGHT TO USE THE KNOW-H OW WITHOUT ANY OWNERSHIP 24 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 RIGHT WAS ACQUIRED AND AS THE KNOW-HOW WAS USED IN EXISTING BUSINESS OF MANUFACTURING THROUGH DEALERS, THE EXPENSES WAS INC URRED FOR THE PURPOSE OF BUSINESS. HE FAIRLY POINTED OUT THAT THE LUMPSUM F EE PAID OF RS.110 CRORES WAS CAPITALIZED IN THE BOOKS OF ACCOUNTS AS WELL AS FOR INCOME TAX PURPOSE AND THE ASSESSEE WAS CLAIMING DEPRECIATION ON THE SAME. BUT BY WAY OF ADDITIONAL GROUND OF APPEAL NO.9(A), THE SAME IS BEING CLAIMED AS REVENUE EXPENDITURE. THE LD.AR FOR THE ASSESSEE STRESSED THAT WHERE THE ASSESSEE HAD ACQUIRED ONLY LIMITED RIGHTS IN THE AGREEMENT, THEN SAME REASONS ARE APPLICABLE FOR RUNNING ROYALTY, AND LUMPSUM ROYALTY PAYMENT SHOULD ALSO BE ALLOWED AS EXPENSES. IN THIS REGARD, RELIANCE WAS PLACED ON THE FOLLOWIN G DECISIONS:- [I] CIT V. HERO HONDA MOTORS LTD. 372 ITR 481 (DEL.HC) [II] CIT V. MUNJAL SHOWA LTD. 329 ITR 449 (DEL.HC) [III] MARUTI SUZUKI INDIA LTD. VS ADDL. CIT (ITA N O.6021/DEL/2012) [ASSESSMENT YEAR 2008-09] 42. THE LD.AR FOR THE ASSESSEE FURTHER POINTED OUT THAT THIS WAS A LEGAL ISSUE RAISED BY THE ASSESSEE WHERE THE FACTS WERE A LREADY ON RECORD AND IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN N ATIONAL THERMAL POWER CO.LTD. VS CIT [1998] 229 ITR 383 (SC), THE ADDITIO NAL GROUND TO BE ADMITTED AND CLAIM TO BE ALLOWED. HE FURTHER STRESSED THAT THERE IS NO ESTOPPEL IN LAW FOR RAISING THE SAID ISSUE; IN VIEW OF CORRECT LEGA L POSITION IN THE EYES OF LAW. 25 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 43. THE LD.DR FOR THE REVENUE STRONGLY OPPOSED THE ADMISSION OF THE ADDITIONAL GROUND OF APPEAL. HE STRESSED THAT THE DISCRETION OF COURT CAN BE EXERCISED ONLY IN EXTRAORDINARY CIRCUMSTANCES. HE STRESSED THAT THE ASSESSEE HAD CLAIMED IT TO BE CAPITAL EXPENDITURE SO THE DEP ARTMENT WAS STOPPED FROM MAKING INVESTIGATION AND IT WAS POINTED OUT THAT IT WAS INVESTIGATION INTO FACTS. OUR ATTENTION WAS DRAWN TO THE AGREEMENT PLACED AT PAGES 44 ONWARDS OF THE PAPERBOOK AND HE POINTED OUT THAT THE PARENT COMPAN Y WAS JAPANESE COMPANY AND 99% HOLDING OF THE ASSESSEE WAS WITH J APANESE COMPANY. HE OBJECTED TO THE LD.ARS STATEMENT THAT THE FACTS W ERE ON RECORD AND POINTED OUT THAT ALL THE FACTS WERE NOT ON RECORD. HE ALSO STATED THAT THE PLEA OF NO KNOWLEDGE WAS VERY MUCH WEAK WHERE BEST LEGAL MINDS WERE AVAILABLE TO THE ASSESSEE. HE RELIED ON THE DECISION OF HONBLE DE LHI HIGH COURT IN MANISH BUILD WELL (P.) LTD. [2011] 16 TAXMANN.COM 27 (DELH I) AND THE DECISION OF HONBLE SUPREME COURT IN KESHAV MILLS CO.LTD. VS C IT [1965] 56 ITR 365 (SC). 44. THE LD.AR FOR THE ASSESSEE ALSO POINTED OUT THA T THE ISSUE STANDS COVERED BY THE DECISION OF HONBLE SUPREME COURT AND STRONG RELIANCE WAS PLACED ON THE OBSERVATIONS OF THE ASSESSING OFFICER IN THIS R EGARD. THE LD.AR FOR THE ASSESSEE IN RE-JOINDER POINTED OUT THAT THE SOLE AR GUMENT OF THE LD.DR FOR THE REVENUE WAS PLACING RELIANCE ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF HONDA SIEL CARS INDIA LTD. VS CIT (SUPRA), WHEREIN THE FACTS WERE DIFFERENT AND HENCE THAT DECISION WAS NOT APPLICABL E TO THE FACTS OF THE PRESENT CASE. ON AN WITHOUT PREJUDICE BASIS, IT WAS POINTE D OUT THAT EVEN IF THERE WAS 26 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 SOME CONSIDERATION FOR MANUFACTURING IN EARLIER YEA RS THEN IN THE PRESENT YEARS, THE KNOWHOW WAS ONLY IMPARTED FOR THE NEWER MODELS. HE AGAIN PLACED RELIANCE IN THE LATER DECISION OF HONBLE DELHI HIG H COURT IN CIT VS HERO HONDA MOTORS LTD. (ITA NOS. 694, 696, 698, 699 OF 2011 A ND 625 AND 633 OF 2012) RELATING TO ASSESSMENT YEAR 2000-01 TO 2002-03 VIDE ORDER DATED 03.02.2015. 45. THE APPEAL WAS FIXED FOR CLARIFICATION AND THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE DECISION OF THE HONBLE SUPREM E COURT IN HONDA SIEL CARS INDIA LTD. VS CIT (SUPRA) WAS WITH REGARD TO THE EX PENDITURE IN FIRST YEAR WHEREIN HONBLE APEX COURT HELD THAT SINCE THE INFO RMATION WAS PASSED FOR ESTABLISHING THE MANUFACTURING FACILITIES, THE SAME WAS CAPITAL IN NATURE. THE LD.AR FOR THE ASSESSEE STRESSED THAT UNDER GROUND O F APPEAL NO.8, THE CLAIM WAS MADE IN RESPECT OF RECURRING ROYALTY WHICH IS A LWAYS BEEN ALLOWED AS REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE. GROUND NO.9A WAS AGAISNT ALLOWANCE OF TECHNICAL KNOW-HOW PAID FOR NEW MODELS , WHICH COME INTO THE MARKET AND THIS LUMPSUM ROYALTY WHICH IN TURN IS MO DEL FEE HAS BEEN ALLOWED AS AN EXPENDITURE IN THE CASE OF THE CIT VS HERO H ONDA MOTORS LTD. (SUPRA). THE SLP AGAINST THE ORDER OF HONBLE DELHI HIGH COU RT HAS BEEN DISMISSED. THE LD.AR FOR THE ASSESSEE ALSO POINTED OUT THAT TH E AMOUNT HAS BEEN PAID IN RESPECT OF THE NEW MODELS INTRODUCED DURING THE YEA R. 46. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE HAD ENTERED INTO A TECHNICAL KNOW-HOW AGRE EMENT WITH HONDA MOTORS COMPANY, JAPAN UNDER WHICH IT WAS PAYING LUMPSUM FE E WHICH WAS THE 27 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 AMOUNT IN CONNECTION WITH THE NEW MODELS INTRODUCED IN A YEAR. THE TOTAL AMOUNT PAID DURING THE YEAR WAS RS.110.45 CRORES (A PPROX.) WHICH WAS CAPITALIZED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT S AND ALSO IN THE P&L A/C. THE ASSESSEE ALSO PAID RUNNING ROYALTY WHICH WAS PA ID FOR GRANT OF THE RIGHT TO LICENSE AND MANUFACTURING OF TWO-WHEELERS IN INDIA. THE TOTAL RUNNING ROYALTY PAID WAS RS.378.20 CRORES (APPROX.). THE SAID ROYA LTY WHICH IS THE RECURRING ROYALTY PAID BY THE ASSESSEE FROM YEAR TO YEAR HAD BEEN ALLOWED AS REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE IN THE PRE CEDING YEARS. WE FIND NO MERIT IN THE SAID EXERCISE CARRIED OUT BY THE ASSES SING OFFICER AND ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO ALLOW THE RUNNIN G ROYALTY AS BUSINESS EXPENDITURE IN ENTIRETY. GROUND OF APPEAL NO.8 RA ISED BY THE ASSESSEE IS THUS ALLOWED. 47. NOW COMING TO THE NEXT ISSUE RAISED WHICH IS B Y WAY OF ADDITIONAL GROUND OF APPEAL. SINCE IT IS LEGAL ISSUE, IT IS A DMITTED FOR ADJUDICATION. THE ASSESSEE FAIRLY POINTED OUT THAT THE LUMPSUM ROYALT Y WAS CAPITALIZED IN ITS BOOKS OF ACCOUNTS AND ALSO NOT CLAIMED AS AN EXPEND ITURE IN THE RETURN OF INCOME. HOWEVER, BECAUSE OF THE SETTLED POSITION B Y WAY OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN CIT V. HERO HONDA MOTO RS LTD. (SUPRA), THE SAME IS BEING CLAIMED AS BUSINESS EXPENDITURE. THE RELE VANT FINDINGS ARE AS UNDER:- THE HONBLE ITAT IN THE APPELLANTS OWN CASE FOR A SSESSMENT YEAR 2011- 12 REITERATED THAT THE FACTS IN THE CASE OF THE APP ELLANT DIFFER FROM THE FACTS OF HONDA SIEL CARS LTD. (SUPRA) BECAUSE THE AMOUNT EXPENDED IS IN RELATION TO THE RUNNING ROYALTY AND NOT FOR THE PURPOSE OF S ETTING UP OF PLANT. 28 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 FURTHER, REFERENCE IS ALSO MADE TO THE DECISION OF THE DELHI TRIBUNAL IN THE CASE OF HONDA CARDS INDIA LTD.VS DCIT : ITA NO.4491/DEL/2014 DATED 18.08.2017 (PAGES 414-457 OF THE CLPB) AND AL SO CONFIRMED BY HONBLE DELHI HIGH COURT IN ITA NO.45/2019 VIDE ORD ER DATED 13.05.2019 (REFER PAGES 457A-457F OF THE CLPB), WHEREIN THE TR IBUNAL AFTER REFERRING TO THE DECISION OF THE SUPREME COURT IN THE CASE OF HONDA SIEL CARS (SUPRA) OBSERVED THAT THE SUPREME COURT HAS CARVED OUT THE DISTINCTION BETWEEN THE PAYMENTS AT THE TIME OF SETTING UP OF T HE MANUFACTURING FACILITY AND THE PAYMENTS MADE ONCE THE MANUFACTURI NG PROCESS HAS ALREADY BEGAN. IN THE FORMER CASE, ROYALTY EXPENDI TURE FOR SETTING UP THE MANUFACTURING FACILITY IS CAPITAL IN NATURE WHILE IN THE LATTER CASE, THE ROYALTY EXPENSE IS REVENUE IN NATURE. 48. THE SLP FILED AGAINST THE SAID DECISION HAS BEE N DISMISSED BY THE HONBLE SUPREME COURT. APPLYING THE SAID RATIO, WE ARE OF THE VIEW THAT THE ASSESSEE WAS ENTITLED TO CLAIM THE AFORESAID EXPEND ITURE AS REVENUE EXPENDITURE IN THE HANDS OF THE ASSESSEE. 49. COMING TO THE STAND OF THE REVENUE THAT WHERE T HE ASSESSEE ITSELF HAD NOT CLAIMED AS DEDUCTIBLE IN ITS HANDS, THEN THE SA ME CANNOT BE ALLOWED BY THE ADDITIONAL GROUND OF APPEAL. WE FIND NO MERIT IN T HE STAND OF THE LD.DR FOR THE REVENUE AS THERE IS NO ESTOPPEL IN LAW; ESPECIALLY WHERE THE ISSUE HAS BEEN DECIDED BY THE JURISDICTIONAL HIGH COURT ON SIMILAR FACTS. ACCORDINGLY, WE ALLOW THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE. 50. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2020. SD/- SD/- (N.K.BILLAIYA) ( SUSHMA CHOWLA) () / ACCOUNTANT MEMBER / VICE PRESIDENT / DATED : 31 ST AUGUST, 2020 *AMIT KUMAR* 29 ITA NO.7714/DEL/2017 ASSESSMENT YEAR 2012-13 61/+378983: COPY OF THE ORDER IS FORWARDED TO : 1. -. / THE APPELLANT 2. /0-. / THE RESPONDENT 3. ;3 < = / THE CIT(A) 4. > ;3 / THE PR. CIT 5. 6. / DR, ITAT, DELHI ?@,A: GUARD FILE. 6 / BY ORDER , 083/+3 // TRUE COPY // ASSISTANT REGISTRAR, ITAT, DELHI