Appeal Details
Counselvise Citation
[2021] 108 COUNSELVISE.COM (IT) 6713 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
1 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
I1
Assessment Year
2015-2016
Appeal Filed On
27-11-2019
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: I-1 NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER & SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO. 9187/DEL/2019 ASSESSMENT YEAR: 2015-16 HERO MOTOCOR P LTD. 34, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, NEW DELHI. PAN - AAACH0812J VS. ACIT CIRCLE-11(1) NEW DELHI. ASSESSEE BY SHRI AJAY VOHRA, SR. ADV. SHRI GAURAV JAIN, ADV. MS. MONISHA SHARMA, ADV. REVENUE BY SHRI SURENDERPAL, CIT DR ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER : THIS APPEAL IS FILED AGAINST THE ASSESSMEN T ORDER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE I NCOME TAX ACT, 1961 (THE ACT) PASSED BY ACIT, CIRCLE-11, NEW DEL HI VIDE ORDER DATED 30/10/2019. DATE OF HEARING 15.01.2021 DATE OF PRONOUNCEMENT 13.04.2021 2 ITA NO.9187/DEL/201 9 HERO MOTOCORP LTD. VS. ACIT 2.0 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN COMPLETING ASSESSMENT UNDER SECTION 143(3) READ WIT H SECTION 144C OF THE INCOME-TAX ACT, 1961 ('THE ACT' ), VIDE ORDER DATED 30.10.2019, AT AN INCOME OF RS. 3146,87,81,016/- UNDER THE NORMAL PROVISIONS AND AT BOOK PROFIT OF RS. 3557,57,46,134 UNDER SECTION 115 JB OF THE ACT. 2. THAT THE ASSESSING OFFICER/ TRANSFER PRICING OFFICE R (TPO) ERRED ON FACTS AND IN LAW IN PARTLY DISALLOWING CLA IM OF DEDUCTION UNDER SECTION 80IC TO THE EXTENT OF RS.1,87,74,679 BY REDUCING PROFITS OF THE ELIGIBLE UNDERTAKING BY MAKING TRANSFER PRICING ADJUSTMENT O N INTER-UNIT TRANSFER PRICE OF GOODS PROCURED BY THE ELIGIBLE UNIT FROM NON-ELIGIBLE UNIT DURING THE RELEVANT PRE VIOUS YEAR. 2.1 THAT THE ASSESSING OFFICER/ TPO ERRED ON FACTS AND IN LAW IN HOLDING THAT THE INTER-UNIT TRANSACTIONS UNDERTA KEN BETWEEN THE ELIGIBLE UNIT AND THE NON-ELIGIBLE UNIT S OF THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR, WERE NO T UNDERTAKEN AT ARMS LENGTH PRICE. 3 ITA NO.9187/DEL/201 9 HERO MOTOCORP LTD. VS. ACIT 2.2 THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND I N LAW IN DETERMINING TRANSFER PRICING ADJUSTMENT OF RS.1,87,74,679, BY APPLYING A MARKUP OF 7.69% AND 7.03%, BEING THE NP OF GURGAON AND DHARUHERA UNITS RESPECTIVELY, TO THE PURCHASES OF RS.17.72 CRORES A ND RS.7.32 CRORES MADE BY ELIGIBLE UNIT FROM THE RESPE CTIVE NON-ELIGIBLE UNITS BY APPLYING THE PROVISIONS OF SE CTION 80IA(8) READ WITH SECTION 80IC(7) OF THE ACT. 2.3 WITHOUT PREJUDICE THAT THE TPO ERRED ON FACTS AND I N LAW IN COMPUTING THE ADJUSTMENT TO TOTAL INCOME ON AN ADHO C BASIS, WITHOUT FOLLOWING ANY ACCEPTABLE METHOD FOR DETERMINING ARMS LENGTH PRICE PRESCRIBED UNDER SEC TION 92C OF THE ACT. 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ENHANCING THE VALUE OF CLOSING INVENTORY OF RAW MATERIALS/COMPONENTS BY RS. 321.25 LACS (NET ADDITI ON OF RS. 156.65 LACS AFTER ADJUSTING OPENING STOCK) IN R ESPECT OF FREIGHT INWARD EXPENSES AND IMPORT CLEARING CHARGES INCURRED IN RELATION TO PROCUREMENT OF RAW- MATERIAL/COMPONENTS AND ATTRIBUTABLE TO THE CLOSING STOCK OF THE AFORESAID GOODS ON THE GROUND THAT THE AFORE SAID COST NEEDS TO BE ADDED TO THE VALUE OF CLOSING STOC K IN ACCORDANCE WITH ACCOUNTING STANDARD-2 READ WITH SEC TION 145A OF THE ACT. 4 ITA NO.9187/DEL/201 9 HERO MOTOCORP LTD. VS. ACIT 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ASSESSING OFFICER FAILED TO APPRECIATE THAT IN ACCO RDANCE WITH THE CONSISTENT, REGULAR AND ACCEPTED METHOD OF VALUATION OF INVENTORY FOLLOWED BY THE APPELLANT, T HE AFORESAID COSTS BEING INCURRED IN EXCEPTIONAL SITUA TIONS, ARE NOT TO BE CONSIDERED FOR THE PURPOSES OF VALUAT ION OF CLOSING INVENTORY. 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ENHANCING THE VALUE OF CLOSING INVENTORY OF FINISHE D GOODS BY AN AMOUNT OF RS. 13.83 LACS (NET DISALLOWANCE OF RS.3.95 LACS (13.83 9.87 LACS)), IN RESPECT OF CO ST OF REJECTION OF SEMI-FINISHED GOODS AND OBSOLETE ITEMS , ON THE GROUND THAT THE AFORESAID COST NEEDS TO BE ADDED TO THE VALUE OF CLOSING STOCK IN ACCORDANCE WITH ACCOUNTIN G STANDARD-2 READ WITH SECTION 145A OF THE ACT. 4.1 THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE AS SESSING OFFICER FAILED TO APPRECIATE THAT THE AFORESAID COS TS WERE ABNORMAL IN NATURE AND, THEREFORE, IN ACCORDANCE WI TH THE CONSISTENT, REGULAR AND ACCEPTED METHOD OF ACCOUNTI NG, WAS NOT CONSIDERED FOR THE PURPOSE OF VALUATION OF CLOSING INVENTORY. 5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN MAKING A DISALLOWANCE OF RS.72,64,48,360, BEING THE PROVISION MADE AT THE END OF THE YEAR TOWARDS INCREASE/DECREASE IN PRICES OF RAW MATERIAL ALREADY SUPPLIED BY THE VENDORS UPTO 31.03.2015. 5 ITA NO.9187/DEL/201 9 HERO MOTOCORP LTD. VS. ACIT 5.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ASSESSING OFFICER ERRED IN OBSERVING THAT AS PER TH E TERMS OF PURCHASE ORDER, RATES NEGOTIATED WITH THE VENDOR S CANNOT BE MODIFIED FROM A PRIOR DATE, THEREBY HOLDI NG THAT PROVISIONS HAVE BEEN INCORRECTLY MADE BY THE ASSESS EE AND ARE NOT ALLOWABLE EXPENDITURE. 5.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ASSESSING OFFICER FAILED TO APPRECIATE THAT THE PRO VISIONS WERE MADE IN ACCORDANCE WITH THE CONSISTENT, REGULA R AND ACCEPTED TRADE PRACTICE FOLLOWED BY THE ASSESSE WHI CH HAS ALWAYS BEEN ACCEPTED AND ALLOWED BY REVENUE IN THE PAST. 5.3 THAT THE ASSESSING OFFICER ERRED IN NOT APPRECIATIN G THAT OUT OF THE TOTAL PROVISION OF RS 72,64,48,360, PROV ISION TO THE EXTENT OF RS. 24,79,00,780 WAS MADE ON THE BASI S OF ACTUAL PRICE REVISIONS APPROVED UPTO THE END OF THE RELEVANT YEAR AND BALANCE PROVISION TO THE EXTENT O F RS. 47,85,47,580 WAS MADE ON THE BASIS OF MANAGEMENTS BEST ESTIMATE, ON A SCIENTIFIC BASIS, WHICH IS AN A LLOWABLE BUSINESS EXPENDITURE, AS PER MERCANTILE SYSTEM OF ACCOUNTING, UNDER SECTION 37(1) OF THE ACT. 5.4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ADDING THE TOTAL PROVISION, AGGREGATING TO RS. 72,64,48,360, MADE AT THE END OF THE YEAR TOWARDS INCREASE/DECREASE IN PRICES OF RAW MATERIAL WHILE 6 ITA NO.9187/DEL/201 9 HERO MOTOCORP LTD. VS. ACIT COMPUTING BOOK PROFIT UNDER SECTION 115JB, HOLDIN G THE SAME TO BE AN UNASCERTAINED LIABILITY. 6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN MAKING AN ADDITION OF RS.3,78,400 BY ESTIMATING THE VALUE OF SCRAP LYING IN STOCK AS AT THE END OF THE RELEVA NT PREVIOUS YEAR, ON HYPOTHETICAL / NOTIONAL BASIS. 7. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN DISALLOWING VARIOUS EXPENSES TO THE EXTENT OF RS. 7,64,31,539 WHICH PERTAINED TO SERVICES AVAILED FRO M VENDORS IN THE IMMEDIATELY PRECEDING YEAR, AND WERE CLAIMED AS DEDUCTION DURING THE YEAR UNDER CONSIDER ATION, SINCE BILLS FOR SUCH EXPENSES WERE RECEIVED OR LIAB ILITIES WERE RECOGNIZED DURING THE YEAR, ALLEGING THE SAME TO BE PRIOR PERIOD EXPENDITURE AND NOT BUSINESS EXPENDITU RE OF THE RELEVANT PREVIOUS YEAR. 7.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN FAILING TO APPRECIATE THAT THE LIABILITY IN RESPECT OF AFORESAID EXPENSES AGGREGATING TO RS. 7,64,31,539 PERTAINING TO SERVICES RENDERED BY VARIOUS VENDORS/CREDITORS IN THE EARLIER YEARS, CRYSTALLIZE D DURING THE RELEVANT YEAR ONLY ON RECEIPT OF BILLS AND ACCE PTANCE OF SAME BY THE APPELLANT AND, THEREFORE, THE SAME DID NOT CONSTITUTE PRIOR PERIOD EXPENDITURE. 7 ITA NO.9187/DEL/201 9 HERO MOTOCORP LTD. VS. ACIT 7.2 WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON F ACTS AND IN LAW IN NOT ALLOWING OR DIRECTING TO ALLOW THE AF ORESAID EXPENSES IN THE RELEVANT PRECEDING YEAR(S). 8. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN DISALLOWING A SUM OF RS.11,79,88,183 IN RESPECT OF PROVISION FOR ADVERTISEMENT EXPENSES INCURRED AT TH E HEAD OFFICE AT END OF THE RELEVANT PREVIOUS YEAR, WHICH WERE REVERSED IN THE SUCCEEDING YEAR, ALLEGING THE SAME TO BE EXCESSIVE. 8.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ALLEGING THAT THE PROVISION FOR EXPENSES AT THE END OF RELEVANT PREVIOUS YEAR WAS NOT MADE ON SCIENTIFIC B ASIS AND WAS NOT A REASONABLE ESTIMATE AND, THEREFORE, CONTINGENT IN NATURE. 8.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN OBSERVING THAT THE APPELLANT FAILED TO SUBSTANTIATE THE METHOD OF CREATING THE AFORESAID PROVISION. 8.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ADDING BACK THE PROVISION FOR ADVERTISEMENT EXPENSE S INCURRED AT HEAD OFFICE, AGGREGATING TO RS. 11,79,8 8,183, WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB, HOLDING THE SAME TO BE AN UNASCERTAINED LIABILITY. 9. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN DISALLOWING PURCHASES TO THE EXTENT OF RS. 29.14 CR ORES (RS. 9.73 CRORES FROM MULTIPLE SOURCE PURCHASES AND RS.19.40 WITH RESPECT TO SINGLE SOURCE PURCHASES) M ADE 8 ITA NO.9187/DEL/201 9 HERO MOTOCORP LTD. VS. ACIT FROM CERTAIN PARTIES RELATED WITH THE APPELLANT, IN TERMS OF ACCOUNTING STANDARD 18 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, ALLEGING THE SAME T O BE EXCESSIVE, WITHOUT APPRECIATING THE COMMERCIAL EXPE DIENCY BEHIND SUCH PURCHASES. 9.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ASSESSING OFFICER FAILED TO APPRECIATE THAT THE EXP ENDITURE WAS INCURRED FOR THE PURPOSES OF BUSINESS AND NO PA RT OF THE SAME WAS EXCESSIVE OR UNREASONABLE. 9.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ASSESSING OFFICER ERRED IN NOT APPRECIATING THAT TH E AFORESAID PARTIES WERE NOT RELATED TO THE APPELLANT IN TERMS OF SECTION 40A(2)(B) OF THE ACT AND HENCE NO DISALL OWANCE OF EXPENSE ON THE GROUND THAT PAYMENT MADE TO SUCH PARTIES WAS EXCESSIVE, COULD BE MADE. 9.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ALLEGING THAT THE APPELLANT HAD MAINTAINED ITS RELA TIONSHIP WITH THE PARTIES IN A MANNER THAT THEY DO NOT QUALI FY FOR BEING RELATED PARTIES AS PER THE PROVISIONS OF SECT ION 40A(2) OF THE ACT. 9.4 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING PURCHASES TO THE EXTENT O F RS. 19.40 CRORES, WITH RESPECT TO PURCHASES FROM AFORES AID RELATED PARTIES (IN TERMS OF AS-18) FOR WHICH NO CO MPARABLE INSTANCE SUPPORTING THE ALLEGATION OF EXCESSIVE PAY MENT, WAS AVAILABLE, ON PURE ESTIMATE BASIS. 9 ITA NO.9187/DEL/201 9 HERO MOTOCORP LTD. VS. ACIT 10. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN MAKING ADDITION OF RS.22,26,00,000 TO THE INCOME OF THE APPELLANT UNDER SECTION 2(22)(E) OF THE ACT ON ACCO UNT OF PAYMENTS GIVEN BY THE CUSTOMERS OF HERO FINCORP LTD . (HFCL) TO THE APPELLANT. 10.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E ASSESSING OFFICER FAILED TO APPRECIATE THAT THE PAY MENT GIVEN BY THE CUSTOMERS OF HFCL TO THE APPELLANT WAS NOT IN THE NATURE OF LOAN OR ADVANCE GIVEN BY HFCL TO APPELLANT SO AS TO CONSTITUTE DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. 10.2 WITHOUT PREJUDICE, THAT ON THE FACTS AND CIRCUMSTAN CES OF THE CASE, THE ASSESSING OFFICER FAILED TO APPRECIAT E THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT WERE NOT APPLICABLE TO THE AFORESAID TRANSACTION, SINCE THE LOAN OR ADV ANCE ALLEGEDLY GIVEN BY HFCL TO THE APPELLANT WAS IN THE ORDINARY COURSE OF BUSINESS OF HFCL. 10.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN OBSERVING THAT THE LOAN WAS NOT ADVANCED BY HFCL IN THE ORDINARY COURSE OF BUSINESS OF MONEY LENDING. 11. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN DISALLOWING EXPENDITURE OF RS.30,25,34,878 (BEING 3 0% OF TOTAL AMOUNT OF RS.1,00,84,49,593) INCURRED TOWARDS QUARTERLY TARGET/TURNOVER DISCOUNT AND TRADE DISCOU NT OF 10 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT RS. 16,05,24,888 (BEING 30% OF TOTAL AMOUNT OF RS.53,50,82,960) GIVEN TO THE DEALERS/CUSTOMERS UND ER SECTION 40(A)(IA) ON THE GROUND THAT THE APPELLANT FAILED TO DEDUCTED TAX AT SOURCE THEREFROM UNDER SECTION 194H OF THE ACT. 11.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN OBSERVING THAT SINCE THE IMPUGNED PAYMENTS WERE NOT IN THE NATURE OF DISCOUNT TO DEALERS, BUT INCENTIVES FOR MEETING TARGETS, THE SAME WAS IN THE NATURE OF COMMISSION, WHICH WAS SUBJECT TO TDS UNDER SECTIO N 194H OF THE ACT. 11.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN NOT APPRECIATING THAT THE AFORESAID DISCOUNTS WERE OFFE RED UNDER CONTRACTS ENTERED INTO WITH THE DEALERS ON A PRINCIPAL TO PRINCIPAL TO BASIS, AND DID NOT CONSTI TUTE COMMISSION AS REFERRED TO IN SECTION 194H OF THE ACT. 11.3 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE APPEL LANT WAS UNDER A BONA FIDE BELIEF THAT NO TAX WAS REQUIR ED TO BE DEDUCTED THEREFROM, NO DISALLOWANCE WAS WARRANTE D UNDER SECTION 40(A)(IA) OF THE ACT. 11.4 WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON F ACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE PAYEES HA D PAID TAX ON THE INCOME RECEIVABLE FROM THE APPELLANT, NO DISALLOWANCE COULD BE MADE UNDER SECTION 40(A)(IA) OF THE 11 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT ACT FOR ALLEGED DEFAULT IN DEDUCTION OF TAX AT SOUR CE BY THE APPELLANT. 12. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN DISALLOWING REIMBURSEMENT OF EXPENSES AGGREGATING T O RS. 1,93,993 (BEING 30% OF THE ENTIRE EXPENDITURE OF RS.6,46,644) UNDER SECTION 40(A)(IA), ON THE GROUND THAT THE APPELLANT FAILED TO DEDUCT TAX AT SOURCE THEREF ROM UNDER SECTION 194J OF THE ACT. 12.1 THAT THE ASSESSING OFFICER ERRED ON FACT AND IN LAW IN NOT ACCEPTING THE INVOICES RAISED BY THE VENDORS FOR REIMBURSEMENT OF EXPENSES ON THE GROUND THAT THE SA ID CLAIMS WERE RAISED ON THE BASIS OF SELF-SERVING VOU CHERS. 12.2 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE APP ELLANT WAS UNDER A BONA FIDE BELIEF THAT NO TAX WAS REQUIR ED TO BE DEDUCTED THEREFROM, NO DISALLOWANCE WAS WARRANTE D UNDER SECTION 40(A)(IA) OF THE ACT. 12.3 WITHOUT PREJUDICE, THE ASSESSING OFFICER ERRED ON F ACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE PAYEES HA D PAID TAX ON THE INCOME RECEIVABLE FROM THE APPELLANT, NO DISALLOWANCE COULD BE MADE UNDER SECTION 40(A)(IA) OF THE ACT FOR ALLEGED DEFAULT IN DEDUCTION OF TAX AT SOUR CE BY THE APPELLANT. 13. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN TREATING GAINS ARISING FROM SALE OF INVESTMENTS MAD E DURING THE YEAR AS BUSINESS INCOME, INSTEAD OF CAP ITAL 12 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT GAINS AS CONSIDERED BY THE APPELLANT AND CONSEQUEN TLY MAKING AN ADDITION OF RS.319,87,41,973 UNDER THE HE AD BUSINESS INCOME, AS OPPOSED TO INCOME OF RS.199,09,31,407 DISCLOSED UNDER THE HEAD CAPITAL GAINS. 13.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN OBSERVING THAT INVESTMENTS WERE MADE BY THE APPELLA NT WITH A VIEW TO EARN PROFIT FROM SELLING THE SAME AT A LATER STAGE AND, THEREFORE, PROFITS WERE TAXABLE UNDER TH E HEAD BUSINESS INCOME. 13.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN OBSERVING THAT THE APPELLANT HAD EARNED SUBSTANTIAL TURNOVER FROM SALE OF INVESTMENTS AND WAS ENGAGED I N DAY TO DAY MONITORING OF INVESTMENTS, THEREFORE, THE AP PELLANT WAS PRIMARILY ENGAGED IN ACTIVITY OF INVESTMENTS, W HICH WAS TO BE REGARDED AS BUSINESS ACTIVITY AND, ACCORD INGLY, INCOME ARISING THEREFOR WAS TAXABLE UNDER THE HEAD BUSINESS INCOME. 14. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN MAKING ADDITIONAL DISALLOWANCE OF RS. 1,65,07,000 U NDER SECTION 14A OF THE ACT, BY APPLYING PROVISIONS OF R ULE 8D OF THE RULES. 14.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN APPLYING PROVISIONS OF RULE 8D OF THE RULES, WITHOU T REACHING A FINDING/RECORDING SATISFACTION AS TO THE 13 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT INCORRECTNESS OF THE SUO MOTO DISALLOWANCE OF EXPEN SES MADE BY THE APPELLANT UNDER SECTION 14A OF THE ACT. 14.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ATTRIBUTING ENTIRE INTEREST EXPENDITURE INCURRED DU RING THE YEAR TOWARDS EARNING OF EXEMPT INCOME BY MECHANICAL LY APPLYING PROVISIONS OF RULE 8D OF THE RULES. 14.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ALTERNATIVELY HOLDING THAT INTEREST EXPENSES TO THE EXTENT OF RS. 41.06 LACS AND HALF PERCENT OF AVERAGE INVESTME NT TO THE EXTENT OF RS.124.01 LACS DISALLOWED UNDER SECTI ON 14A AND CHALLENGED IN GROUND OF GROUND OF APPEAL NO. 14 TO 14.2 SUPRA, ARE EVEN OTHERWISE NOT ALLOWABLE BUSINE SS DEDUCTIONS UNDER SECTION 36(1)(III) AND SECTION 37( 1) OF THE ACT, RESPECTIVELY. 14.4 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN NOT APPRECIATING THAT EXPENSES INCURRED DURING THE YEAR , INCLUDING INTEREST EXPENDITURE, WAS FOR THE PURPOSE OF REGULAR BUSINESS ACTIVITIES AND HAD NO NEXUS WITH INVESTMENTS, AND WERE, THEREFORE, ALLOWABLE BUSINES S DEDUCTION UNDER SECTION 36(1)(III) AND 37(1) OF THE ACT. 14.5 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT INTEREST EXPENDITURE, IF ANY, ATTRIBUTABLE TO INVESTMENTS WAS NOT ALLOWABLE UNDER SECTION 48 OF THE ACT, WITHOUT APPRECIATING THAT SU CH FINDING WAS EXTRANEOUS AND BEYOND JURISDICTION TO T HE ASSESSMENT YEAR UNDER CONSIDERATION INASMUCH AS THE 14 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT SAID ISSUE COULD BE RAISED ONLY IN THE YEAR OF SALE OF INVESTMENT(S). 14.6 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN MAKING UPWARD ADJUSTMENT OF DISALLOWANCE COMPUTED UNDER SECTION 14A, READ WITH RULE 8D, WHILE COMPUTI NG BOOK PROFIT UNDER SECTION 115JB OF THE ACT WITHOU T GIVING ANY REASONING. 14.7 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN NOT APPRECIATING THAT THE DISALLOWANCE COMPUTED UNDER S ECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES DOES NOT REPRESENT ACTUAL EXPENDITURE INCURRED FOR EARNING E XEMPT INCOME AND THE SAME, THEREFORE, CANNOT BE ADDED BAC K WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB O F THE ACT. 15. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN ENHANCING THE VALUE OF CLOSING INVENTORY AND THEREB Y INCOME OF APPELLANT BY RS. 39,50,000 IN RESPECT OF PROPORTIONATE AMOUNT OF DEPRECIATION ON MODEL FEE I NCURRED DURING THE YEAR AND DEBITED TO THE PROFIT AND LOSS ACCOUNT, ALLEGING THE SAME TO BE DIRECTLY RELATED TO MANUFAC TURE OF FINISHED GOODS AND, THEREFORE, ATTRIBUTABLE TO THE CLOSING STOCK OF SUCH GOODS. 16. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN MAKING DISALLOWANCE OF RS.7,38,27,378 (COMPRISING O F RS. 2,28,58,951 IN RESPECT OF DHARUHERA, GURGAON, HARID WAR AND NEEMRANA PLANTS AND RS. 5,09,68,426 IN RESPECT OF 15 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT HEAD OFFICE EXPENSES) OUT OF EXPENDITURE INCURRED T OWARDS RE-IMBURSEMENT OF FOREIGN TRAVEL EXPENSES INCURRED BY EMPLOYEES, ON THE GROUND THAT THE SAME WERE NOT SUPPORTED WITH EVIDENCES/ BILLS OF EXPENDITURE INCU RRED ABROAD. 17. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN HOLDING THAT EXPENDITURE AGGREGATING TO RS. 127,48, 17,707 (NET DISALLOWANCE OF RS. 95,61,13,280 AFTER ALLOWIN G DEPRECIATION @ 25%), INCURRED BY THE APPELLANT DURI NG THE RELEVANT PREVIOUS YEAR ON ACCOUNT OF ROYALTY PAID T O HONDA MOTOR CO., JAPAN, (HONDA) UNDER THE LICENSE AND TECHNICAL ASSISTANCE AGREEMENT (LTAA) WAS CAPITA L IN NATURE AND NOT ALLOWABLE DEDUCTION. 17.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN OBSERVING THAT THE ASSESSEE ACQUIRED CAPITAL ASSETS IN THE NATURE OF INTELLECTUAL PROPERTY RIGHTS AND PATENTS FROM HONDA ON PAYMENT OF ROYALTY AND TECHNICAL GUIDANCE FEES UNDER THE LICENSE B AGREEMENT. 17.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN OBSERVING THAT THE ASSESSEE RECEIVED BENEFIT OF END URING NATURE UNDER THE LICENSE B AGREEMENT, SINCE (I) T HE APPELLANT OBTAINED EXCLUSIVE RIGHT TO MANUFACTURE A ND SELL THE PRODUCTS WITHIN THE TERRITORY OF INDIA AND, (II ) THE LICENSE HAD A DEGREE OF PERPETUITY, AS IT WAS BEING RENEWED AND EXTENDED YEAR AFTER YEAR. 16 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 18. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN DISALLOWING DEDUCTION UNDER SECTION 80IC OF THE ACT BY AN AMOUNT OF RS.173.41 CRORES ON THE GROUND THAT PART OF PROFITS EARNED BY THE ELIGIBLE UNIT SHOULD HAVE BEE N ATTRIBUTED TO ADVERTISEMENT AND MARKETING ACTIVITIE S CARRIED OUT AT HEAD-OFFICE, AND SUCH PROFITS WERE N OT DERIVED FROM THE BUSINESS OF MANUFACTURING, WHICH W ERE ONLY ELIGIBLE FOR DEDUCTION UNDER THE AFORESAID SEC TION. 18.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN HOLDING THAT PART OF EXTRAORDINARY PROFITS EARNED B Y ELIGIBLE UNIT AT HARIDWAR WERE ATTRIBUTABLE TO PROFIT EARNED FROM MARKETING OF PRODUCTS AND BRAND VALUE. 18.2 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN HOLDING THAT SINCE MARKETING ACTIVITIES WERE CARRIE D OUT AT HEAD OFFICE, THEREFORE, THE APPELLANT SHOULD HAVE TRANSFERRED GOODS TO HEAD OFFICE AT COST PLUS REASO NABLE MARGIN AND THE HEAD-OFFICE SHOULD HAVE EARNED HIGHE R PROFIT ON ACCOUNT OF SALES AND MARKETING ACTIVITIES . 18.3 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN HOLDING THAT THE ASSETS, SUCH AS, BRAND VALUE AND MARKETING NETWORK, WERE NOT OWNED BY THE ELIGIBLE UNDERTAKING AT HARIDWAR. 18.4 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN ATTRIBUTING PROFITS TO THE MANUFACTUR ING ACTIVITIES AT HARIDWAR BY APPLYING NET PROFIT RATE OF 6.85%, ON AN ARBITRARY BASIS. 17 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 18.5 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE NET PROFIT RATE OF T HE FIRST YEAR OF OPERATION OF BUSINESS WOULD BE THE RATE OF PROFIT DERIVED SOLELY FROM MANUFACTURING ACTIVITIES. 18.6 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPUTING THE NET PROFIT RATE OF 6.85 % FOR ATTRIBUTING PROFITS TO THE MANUFACTURING ACTIVITY A T HARIDWAR, BY COMPUTING NET PROFIT RATE FOR THE FIRS T YEAR OF OPERATION OF THE APPELLANT COMPANY ON AN ARBITRARY BASIS. 19. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN DISALLOWING DEDUCTION UNDER SECTION 80IC OF THE ACT BY AN AMOUNT OF RS. 1,17,21,822 IN RESPECT OF CERTAIN INC OMES EARNED BY THE ELIGIBLE UNIT, ON THE GROUND THAT SUC H INCOMES WERE NOT DERIVED FROM THE BUSINESS OF MANUFACTURING. 19.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN HOLDING THAT THE OTHER INCOME AGGREGATING TO RS. 1,17,21,822 IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. 20. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN NOT ALLOWING WEIGHTED DEDUCTION OF RS. 74,31,13,902 CLA IMED UNDER SECTION 35(2AB) OF THE ACT WITH RESPECT TO SC IENTIFIC RESEARCH AND DEVELOPMENT EXPENSES INCURRED DURING T HE YEAR ON THE GROUND THAT SUCH EXPENSES WERE NOT CLAI MED 18 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT IN THE ORIGINAL RETURN OF INCOME OR REVISED RETURN OF INCOME PERMITTED UNDER SECTION 139(5) OF THE ACT. 20.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN NOT APPRECIATING THAT SINCE THE AFORESAID CLAIM WAS RAI SED THROUGH NOTES APPENDED TO COMPUTATION OF INCOME, WH ICH FORMED AN INTEGRAL PART OF THE ORIGINAL RETURN OF I NCOME AND, THEREFORE, THE SAID CLAIM WAS RAISED IN THE ORIGINA L RETURN OF INCOME ITSELF. 20.2 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT SINCE THE AFORE SAID CLAIM WAS, IN ANY CASE, PREFERRED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE SAME OUGHT TO HAVE BEEN ENTERTAINED AND ALLOWED BY THE ASSESSING OFFICER AN D COULD NOT HAVE BEEN DENIED MERELY BECAUSE THE SAME WAS NO T CLAIMED IN THE RETURN OF INCOME. 20.3 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE AFORESAID C LAIM WAS A MODIFICATION/ VARIATION OF AN EXISTING CLAIM MADE IN THE RETURN OF INCOME AND NOT A FRESH CLAIM, WHICH COULD HAVE OTHERWISE BEEN RAISED DURING THE COURSE OF ASSESSME NT PROCEEDINGS, WITHOUT REVISION OF RETURN WITHIN PRES CRIBED TIME LIMITS. 21. WITHOUT PREJUDICE, ON THE FACTS AND THE CIRCUMS TANCES OF THE CASE AND IN LAW THE AFORESAID CLAIM OF RS.74,31,13, 902 UNDER SECTION 35(2AB) OF THE ACT CAN EVEN OTHERWISE BE ALLOWED AS ADDITIONAL GROUND BY THE HONBLE TRIBUNA L. 19 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 3.0.0 THE LD. AUTHORISED REPRESEN TATIVE (AR) SUBMITTED THAT GROUND NO. 1 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 4.0.0 WITH RESPECT TO GROUND NOS. 2 TO 2.3, THE LD. AR SUBMITTED THAT THEY RELATED TO TRANSFER PRICING ADJ USTMENT ON THE GROUND THAT THE ASSESSEE COMPANY HAS SHIFTED PROFIT S FROM NON- ELIGIBLE UNIT TO THE ELIGIBLE UNIT IN ORDER TO CLAI M HIGHER DEDUCTION UNDER SECTION 80IC OF THE ACT. IT WAS SUBMITTED THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING TWO-WHEEL ERS AND HAD FOUR MANUFACTURING PLANTS AT GURGAON, DHARUHERA , HARIDWAR AND NEEMRANA. IT WAS FURTHER SUBMITTED THAT THE ASSE SSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 80IC OF THE AC T IN RESPECT OF PROFIT DERIVED FROM THE UNDERTAKING LOCATED AT HARI DWAR. THE LD. AR SUBMITTED THAT FOR THE AFORESAID ACTIVITY, THE ASSE SSEE PURCHASES VARIOUS COMPONENTS REQUIRED TO BE USED IN THE ASSEM BLY OF TWO- WHEELERS, LIKE GEAR BOX, FUEL TANK, ETC., FROM THIRD PARTY VENDORS. IN THE PRESENT TRANSACTION, THE AFORESAID COMPONENTS W ERE FIRST PURCHASED BY NON-ELIGIBLE UNITS AT GURGAON OR DHARU HERA FROM THIRD PARTIES, DUE TO PROXIMITY OF LOCATION OF SUCH UNITS WITH THIRD PARTIES, 20 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT BUSINESS RELATIONSHIP, ETC. AND WERE, THEREAFTER, TR ANSFERRED AT THE SAME PURCHASE PRICE TO THE ELIGIBLE UNIT AT HARIDWA R. THE LD. AR SUBMITTED THAT IN SUCH A TRANSACTION, NO VALUE ADDI TION IN SUCH COMPONENTS WAS CARRIED OUT BY THE NON-ELIGIBLE UNITS . 4.0.1 IT WAS FURTHER SUBMITTED BY T HE LD. AR THAT IN THE BOOKS OF ACCOUNTS OF THE PLANT AT HARIDWAR, WHICH IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT, GOODS AGGR EGATING TO RS. 25.04 CRORES, WERE SHOWN TO HAVE BEEN PROCURED FROM OTHER UNITS, I.E., DHARUHERA AND GURGAON PLANTS. OUT OF THE AGGR EGATE TRANSACTIONS OF RS. 25.04 CRORES: (I) COMPONENTS HA VING VALUE OF RS. 0.73 CRORES WERE SEMI-FINISHED GOODS FOR WHICH NOMIN AL PROCESSING WAS CARRIED OUT AT OTHER UNITS BEFORE TRANSFER TO TH E HARIDWAR PLANT, AND (II) BALANCE COMPONENTS HAVING VALUE OF RS. 24. 31 WERE PROCURED BY THE AFORESAID NON-ELIGIBLE UNITS FROM THIRD PART IES AND WERE TRANSFERRED TO THE ELIGIBLE UNIT AT MATERIAL COST. FREIGHT CHARGES ON TRANSFER OF THE AFORESAID ITEMS WERE ALWAYS BOOKED AT THE RECEIVING UNIT. 4.0.2 THE LD. AR FURTHER SUBMITTE D THAT IN THE TRANSFER PRICING STUDY REPORT, THE ASSESSEE COMPANY BENCHMAR KED THE 21 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT AFORESAID INTER-UNIT TRANSACTION(S) BETWEEN ELIGIBL E AND NON-ELIGIBLE UNITS APPLYING COMPARABLE UNCONTROLLED PRICE (CUP ) METHOD, BEING THE MOST APPROPRIATE AND PREFERRED METHOD IN THE FA CTS OF THE PRESENT CASE. ALTERNATIVELY, THE ASSESSEE ALSO APPL IED TRANSACTIONAL NET MARGIN METHOD (TNMM) CONSIDERING ITSELF TO BE THE TESTED PARTY. IT WAS SUBMITTED THAT SINCE THE OPERATING PROFIT MAR GIN OF THE COMPARABLE COMPANIES AT 9.31% WAS WITHIN +/- 3% OF T HE OPERATING PROFIT MARGIN OF THE ASSESSEE (11.18%), THE TRANSAC TION OF INTER-UNIT TRANSFER WAS CONSIDERED TO BE AT ARMS LENGTH PRICE. 4.0.3 THE LD. AR SUBMITTED THAT THE AO/TPO IGNORED THE CUP METHOD, BEING ONE OF THE METHODS PRESCRIBED UNDER SECTION 92C OF THE ACT, AND HELD THE IMPUGNED INTER-UNIT PU RCHASES TO BE NOT AT ARMS LENGTH PRICE ON THE GROUND THAT THE PR OFIT MARGIN OF THE NON-ELIGIBLE UNITS, VIZ., GURGAON AND DHARUHERA UNI T AT 7.69% AND 7.03% RESPECTIVELY OUGHT TO HAVE BEEN CHARGED ON SU CH TRANSFER OF COMPONENTS/SEMI-FINISHED GOODS. ACCORDINGLY, THE TP O/AO CAME TO THE CONCLUSION THAT THE ASSESSEE HAS SHIFTED PROFIT S FROM NON-ELIGIBLE UNITS TO THE ELIGIBLE UNIT IN ORDER TO CLAIM HIGHER DEDUCTION UNDER SECTION 80IC OF THE ACT WITHOUT BENCHMARKING INTER-U NIT TRANSFER 22 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT PRICE WITH ANY CONTEMPORANEOUS EVIDENCE OR ACCEPTABL E METHOD FOR DETERMINING ARMS LENGTH PRICE. IT WAS SUBMITTED THA T THE TPO/AO WORKED OUT AN ADJUSTMENT OF RS. 1,87,74,679 IN THE F OLLOWING MANNER: S. NO. PARTICULARS OF GOODS VALUE OF SUCH GOODS (IN RS.) MARGIN OF NON- ELIGIBLE UNITS VALUE OF MARK UP OR MARGIN SHOULD HAVE EARNED WHILE TRANSFERRING TO ELIGIBLE UNITS (IN RS.) 1 TRANSFER OF GOODS FROM GURGAON TO HARIDWAR 17,72,17, 650 7.69% 1,36,28,037 2 TRANSFER OF GOODS FROM DHARUHERA TO HARIDWAR 7,32,09,7 04 7.03% 51,46,642 TOTAL 1,87,74,679 4.0.4 THE LD. AR SUBMITTED THAT THE AFORESAI D ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE, BY THE ORDER DATED 24.10.2016 PASSED BY TRIBUNAL IN THE IMMEDIATELY PR ECEDING ASSESSMENT YEARS, I.E. AY 2010-11 AND AY 2011-12 WHE REIN IDENTICAL DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN DELETED. THE TRIBUNAL, IN ALLOWING THE CLAIM OF THE ASSESSEE UNDE R SECTION 80-IC OF THE ACT, HELD THAT FOR THE PURPOSE OF COMPUTING MARKET PRICE OF 23 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT INTER-UNIT TRANSFER OF GOODS, WHEN THE NON-ELIGIBLE UNITS PROCURED GOODS AT MARKET PRICE FROM THIRD PARTY VENDORS AND SUPPLIED THE SAME TO THE ELIGIBLE UNIT AT THE SAME PURCHASE PRIC E AS INCREASED BY THE APPLICABLE FREIGHT COST, NO FURTHER SUBSTITUTIO N OF SUCH PRICE IS WARRANTED IN TERMS OF SECTION 80IA(10) OF THE ACT AN D THE TRANSACTION WAS A GENUINE BUSINESS TRANSACTION BORNE OUT OF COMM ERCIAL EXPEDIENCY. IT WAS FURTHER POINTED OUT BY THE LD. AR THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR AY 2010-11 AND 2011-1 2, THE TRIBUNAL HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSE E IN APPELLATE ORDERS PASSED FOR AY 2009-10, 2012-13 AND 2013-14. 5.0 THE LD. CIT-DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 6.0.0 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS TRIBUNAL, IN ORD ER PASSED FOR A.YS. 2010-11 AND 2011-12, HELD AS UNDER: 140) WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE OBSERVED THAT MERELY BECAUSE THERE WAS INTER-UNIT TRANSFER O F CERTAIN GOODS FROM NON-ELIGIBLE UNIT TO ELIGIBLE UNIT, THE ASSESSING OFFICER AUTOMATICALLY APPLIED THE PROVISIONS OF SECTION 80I A(8) OF THE ACT 24 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT TO HOLD THAT SUCH TRANSFER SHOULD HAVE BEEN AT MARK ET PRICE WITHOUT LOOKING TO THE NATURE OF TRANSFER AND THE F ACTS AND CIRCUMSTANCES OF THE CASE. IT HAS BEEN EXPLAINED BY THE APPELLANT THAT SUBSTANTIVE TRANSFERS WERE MADE ON A CCOUNT OF SOME FINISHED COMPONENTS PROCURED BY THE NON-ELIGIB LE UNIT FROM THIRD PARTY VENDORS, DUE TO PROXIMITY OF LOCATION/R ELATIONSHIP, FOR FURTHER TRANSFER TO THE ELIGIBLE UNIT. THE FREIGHT CHARGES INCURRED IN RELATION TO THE PROCUREMENT AND FURTHER TRANSFER FROM NONELIGIBLE TO ELIGIBLE UNIT HAVE BEEN STATED TO BE BORNE BY THE ELIGIBLE UNIT. WE FIND FORCE IN THE AFORESAID FACTS STATED BY THE APPELLANT, CONSIDERING THAT THE UNIT AT HARIDWAR WA S A NEW UNIT, WHEREAS THE OTHER NON-ELIGIBLE UNITS AT GURGAON AND DHARUHERA WERE OLD, ESTABLISHED WAY BACK IN YEARS 1984 AND 19 97, HAVING UP AND RUNNING OPERATIONS DURING THE YEAR UNDER CON SIDERATION. VARIOUS ANCILLARY UNITS MANUFACTURING COMPONENTS FO R SUCH PLANTS WERE ALSO ESTABLISHED NEAR THE OLD PLANTS, W HICH WERE CONTINUOUSLY SUPPLYING SUCH COMPONENTS TO THE NON-E LIGIBLE UNITS. THERE WAS THUS STRONG BUSINESS/COMMERCIAL RE ASONS FOR SUCH ANCILLARY UNITS TO SUPPLY THE COMPONENTS TO TH E NON-ELIGIBLE UNIT FIRST, BY VIRTUE OF THE EXISTING RELATIONSHIP / PROCESS FOR SUPPLY OF GOODS IN PLACE, WHICH WERE FURTHER TRANSF ERRED AT COST TO THE ELIGIBLE UNIT AT HARIDWAR. WE DO NOT FIND AN Y IN- GENUINENESS IN THE AFORESAID PRACTICE, WHICH IS BAC KED BY STRONG COMMERCIAL REASONS AS, HIGHLIGHTED ABOVE. IN THE SA ID PROCESS, THERE IS NO ADDITIONAL COST BURDEN TO BE BORNE BY T HE NON-ELIGIBLE UNIT. THE AFORESAID TRANSFER ONLY INVOLVES ADDITION AL FREIGHT COST, 25 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT WHICH AS STATED HAS BEEN BORNE BY THE ELIGIBLE UNIT . FURTHER, THE PROVISIONS OF SECTION 80IA(8) AS DISCUSSED IN GROUN D OF APPEAL NO. 26 (SUPRA) PROVIDES FOR INTER UNIT TRANSFER AT MARKET PRICE. THE MARKET PRICE OF THE COMPONENTS PROCURED BY THE NON-ELIGIBLE UNITS FROM THIRD PARTIES/INDEPENDENT VENDORS DO NOT UNDERGO ANY CHANGE AT THE TIME OF FURTHER TRANSFER BY THE N ONELIGIBLE UNIT TO THE ELIGIBLE UNIT. IN OTHER WORDS, THE MARKET PR ICE OF SUCH COMPONENTS AT WHICH THE SAME WAS PROCURED BY NON-EL IGIBLE UNITS REMAINS CONSTANT. ACCORDINGLY, EVEN BY APPLYI NG THE PROVISIONS OF SECTION 80IA(8), IN OUR OPINION, THER E CAN BE NO SUBSTITUTION OF THE PRICE AT WHICH GOODS ARE DEBITE D BY THE ELIGIBLE UNIT IN ITS INDEPENDENT BOOKS OF ACCOUNT. SIMILARLY, WITH RESPECT TO COMPONENTS HAVING VALUE OF RS.6.34 CRORE S, WHICH WERE TRANSFERRED BY THE NON-ELIGIBLE UNIT TO THE EL IGIBLE UNIT AT HARIDWAR AFTER NOMINAL PROCESSING, TOO, IN OUR OPIN ION, DOES NOT RESULT IN ENHANCEMENT OF ANY MARKET PRICE OF SUCH G OODS; IN OTHER WORDS, IN A FREE MARKET CONDITION SUCH GOODS WOULD HAVE ALSO BEEN SOLD AT THE SAME PRICE AT WHICH THEY HAVE BEEN TRANSFERRED BY THE NON-ELIGIBLE UNIT TO THE ELIGIBL E UNIT. IN THAT VIEW OF THE MATTER, WE FIND THAT THE PRESENT ISSUE WAS NOT DECIDED BY THE ASSESSING OFFICER IN CORRECT PERSPEC TIVE AND, THEREFORE, ERRED IN DISALLOWING DEDUCTION UNDER SEC TION 80IC, BY ENHANCING THE PURCHASE PRICE BY ADDING CERTAIN MARK UP THEREON. IN VIEW OF THIS WE ALLOW GROUND NO. 30 OF THE APPEA L OF THE ASSESSEE. 26 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 6.0.1 THEREFORE, THE ISSUE STANDS SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE BY ORDER DATED 24.10.2016 PASSED BY TRIBUNAL IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 201 0-11 AND AY 2011-12 WHEREIN IDENTICAL DISALLOWANCE MADE BY THE AS SESSING OFFICER HAS BEEN DELETED. THE TRIBUNAL, WHILE ALLOWI NG THE CLAIM OF THE ASSESSEE UNDER SECTION 80-IC OF THE ACT, HELD T HAT FOR THE PURPOSE OF COMPUTING MARKET PRICE OF INTER-UNIT TRA NSFER OF GOODS, WHEN THE NON-ELIGIBLE UNITS PROCURED GOODS AT MARKET PRICE FROM THIRD PARTY VENDORS AND SUPPLIED THE SAME TO THE EL IGIBLE UNIT AT THE SAME PURCHASE PRICE AS INCREASED BY THE APPLICABLE FREIGHT COST, NO FURTHER SUBSTITUTION OF SUCH PRICE IS WARRANTED IN T ERMS OF SECTION 80IA(8) OF THE ACT AND THE TRANSACTION WAS A GENUINE BUSINESS TRANSACTION BORNE OUT OF COMMERCIAL EXPEDIENCY. WE ALSO FIND THAT THE TRIBUNAL HAS, IN THE APPEAL FOR THE ASSESSMENT YEARS 2009-10, 2012-13 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASS ESSMENT YEARS 2010-11 AND 2011-12. 6.0.2 THEREFORE, GROUND NOS. 2 TO 2.3 A RE ALLOWED IN FAVOUR OF THE ASSESSEE. 27 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 7.0.0 THE LD. AR SUBMITTED THAT WITH REGA RD TO GROUND NOS. 3 TO 3.1 RELATING TO ADDITION OF FREIGHT INWARD/IMPO RT CLEARING EXPENSES TO COST OF CLOSING INVENTORY AMOUNTING TO RS. 321.25 LACS (NET OF ADDITION OF RS.156.65 LACS AFTER ADJUSTING OPENING STOCK) IT CAN BE SEEN THAT THE ASSESSEE PURCHASES RAW MATERIAL ON CIF BASIS AND HAS INCLUDED THE FREIGHT COST FOR DELIVERY OF G OODS IN PURCHASE PRICE AND THE SAME ARE FACTORED IN THE VALUE OF CLO SING INVENTORY. IN EXCEPTIONAL CIRCUMSTANCES VIZ. MATERIAL SHORTAGE, WH EREIN ASSESSEE HAS TO IMMEDIATELY LIFT MATERIAL, TRANSPORT CHARGES ARE PAID, WHICH ARE NOT INCLUDED TO THE PURCHASE PRICE, BUT ARE SEP ARATELY DEBITED TO PROFIT AND LOSS ACCOUNT, BECAUSE THE INVOICES OF TR ANSPORTERS ARE RECEIVED AFTER CONSUMPTION OF MATERIAL. IT WAS SUBMI TTED THAT SUCH FREIGHT AMOUNT IS NOT INCLUDED IN THE VALUATION OF CLOSING STOCK, AS PER REGULARLY AND CONSISTENTLY FOLLOWED METHOD OF VA LUATION OF STOCK WHICH HAS BEEN ACCEPTED BY THE REVENUE IN THE PAST. THE LD. AR SUBMITTED THAT THE AO/LD. DRP HELD THAT THE ASSESSE ES CONTENTION THAT AS THE METHOD IS REGULARLY FOLLOWED YEAR AFTER YEAR ITS IMPACT WILL BE REVENUE NEUTRAL, CANNOT DETERMINE THE INCOME OF THE ASSESSEE CORRECTLY FOR THE YEAR UNDER CONSIDERATION. THE AO/ LD. DRP FURTHER 28 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT HELD THAT THE REVENUE ASPECT KEEPS ON CHANGING ON Y EAR TO YEAR BASIS. IT WAS SUBMITTED THAT THE ASSESSING OFFICER F URTHER HELD THAT IMPACT ON NON-INCLUSION OF FREIGHT INWARD AND CLEARI NG CHARGES AT RS. 321.25 LACS HAS TO BE ADDED TO THE INCOME OF TH E ASSESSEE. 7.0.1 THE LD. AR SUBMITTED THAT THIS ISS UE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE RECENT CONSOLIDATED O RDER DATED 24.10.2016 PASSED BY THE DELHI BENCH OF THE TRIBUNA L IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2010-11 AND 2011- 12, WHEREIN THE TRIBUNAL, FOLLOWING THE ORDER OF THE COORDINATE BENC HES OF THE TRIBUNAL PASSED IN ASSESSEE'S OWN CASE FOR THE ASSE SSMENT YEARS 2007-08 AND 2008-09, DELETED THE AFORESAID ADDITION ON THE GROUND THAT IN THOSE YEARS IT HAS BEEN HELD THAT THE ASSES SEE WAS FOLLOWING CONSISTENT SYSTEM OF ACCOUNTING, WHICH WAS UNNECESSAR ILY DISTURBED BY THE REVENUE, WITHOUT CHANGE IN FACTS. IT WAS FURTH ER HELD THAT TINKERING WITH THE ACCOUNTING METHOD WAS UNJUSTIFIED WHEN THE EXERCISE DID NOT MATERIALLY ALTER THE PROFITS OF TH E ASSESSEE COMPANY. IT WAS FURTHER POINTED OUT BY THE LD. AR THAT FOLLOWI NG THE ORDER OF THE TRIBUNAL FOR AY 2010-11 AND 2011-12, THE TRIBUN AL HAS ALSO 29 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN APPE LLATE ORDERS PASSED FOR AYS 2009-10, 2012-13 AND 2013-14. 8.0 THE LD. CIT-DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 9.0.0 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN ASSES SEES OWN CASE FOR A.YS. 2010-11 & 2011-12 HELD AS UNDER: 11) WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. THE COMPANY IS A CORPORATE ENTITY THEREFORE IT HAS TO V ALUE ITS CLOSING STOCK ACCORDING TO THE ACCOUNTING STANDARD 2 VALUA TION OF INVENTORIES ISSUED BY THE MINISTRY OF CORPORATE AF FAIRS AND ICAI. ACCORDING TO THAT ACCOUNTING STANDARD THE CLOSING S TOCK OF THE FINISHED GOODS IS REQUIRED TO BE VALUED INCLUDING A LL COST OF THE FINISHED GOODS IS REQUIRED TO BE VALUED INCLUDING A LL COST OF PURCHASES, COST OF CONVERSION AND OTHER COST INCURR ED IN BRINGING THE INVENTORY TO THEIR PRESENT LOCATION AND CONDITI ONS. THE CONTENTIONS OF THE APPELLANT IS THAT THAT ITS ALL PURCHASES ARE ACCOUNTED FOR ON CIF BASIS AND THEREFORE THE SUPPLI ERS ARE REQUIRED TO PROVIDE THE GOODS AT THE FACTORY LOCATI ON AND THEREFORE IN THE CLOSING STOCK OF INVENTORY THERE C ANNOT BE ANY ELEMENT OF FREIGHT ETC., THIS ISSUE HAS BEEN CONSID ERED BY THE 30 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT COORDINATE BENCH IN APPELLANTS OWN CASE FOR A Y 20 07-08 WHERE IN IT HAS BEEN HELD THAT :- 7.13. WE HAVE CONSIDERED THE SUBMISSIONS AND THE MATERIAL FILED BY BOTH THE PARTIES. THE ISSUE IN QU ESTION IS REGARDING METHOD OF VALUATION OF CLOSING STOCK. THE PRIMARY CONTENTION OF THE ASSESSEE IS THAT IT HAD TO MAKE EMERGENCY PURCHASES AND THAT THESE STOCKS SO PURCHA SED WERE IMMEDIATELY CONSUMED. IN SUCH EXCEPTIONAL SITUATIONS, THE ASSESSEE HAS DIRECTLY ACCOUNTED THE FREIGHT AND IMPORT CLEARING CHARGES TO THE PROFIT AND LOSS ACCOUNT. THIS MEANS THAT SUCH RAW MATERIAL STOCKS ARE NOT PA RT OF CLOSING STOCK AT ALL. FURTHER, THIS FACT IS NOT REB UTTED BY THE DR. 7.14 THOUGH TECHNICALLY IT CAN BE ARGUED THAT THE V ALUE OF CLOSING INVENTORY MUST INCLUDE FREIGHT/ IMPORT CLEA RING CHARGES, THE FACTS EXPLAINED BY THE ASSESSEE ARE TH AT THE PURCHASES IN QUESTION ARE DONE UNDER EXCEPTIONAL CIRCUMSTANCES (WHICH ARE WELL KNOWN IN THIS TYPE OF INDUSTRY) FOR IMMEDIATE CONSUMPTION. THEY ARE IN FA CT CONSUMED IMMEDIATELY I.E. AS SOON AS RAW MATERIAL E NTERS THE FACTORY PREMISES WHICH IS NOT DISPUTED BY ASSES SING OFFICER, HENCE THE QUESTION OF SUCH PURCHASES BEING PART OF CLOSING STOCK DOES NOT ARISE AT ALL. IN SUCH A SITU ATION, WHEN FREIGHT/ IMPORT CHARGES ARE DIRECTLY DEBITED T O THE P& L A/C ALONG WITH THE VALUE OF THE PURCHASES, NATURA LLY THE QUESTION OF TREATING THEM AS PART OF CLOSING INVENT ORY DOES NOT ARISE. THE ASSESSEE HAS ACTED AND ACCOUNTED IN A PROPER AND ACCEPTABLE METHOD. THEREFORE, THE RELIEF SHOULD BE GRANTED ON THIS COUNT ALONE. 31 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 7.15 ALTERNATIVELY, THE UNDISPUTED FACT REMAINS THA T THE ASSESSEE HAS CONSISTENTLY FOLLOWING THE SAID METHOD OF ACCOUNTING IN THE LAST MANY YEARS AND THE REVENUE H AS BEEN ACCEPTING THESE FACTS AND METHOD OF ACCOUNTING WITHOUT ANY DEMUR. 7.16 THE CONTENTION OF THE DRP THAT, THE PRINCIPLE OF RES- JUDICATA DOES NOT APPLY IN INCOME TAX PROCEEDINGS A ND THEREFORE, THE ASSESSING OFFICER IS CORRECT TO COME TO INDEPENDENT CONCLUSION AND IS NOT BOUND BY PAST ACCEPTANCE OF A FACTUAL LEGAL POINT BY THE DEPARTME NT IS UNTENABLE. TECHNICALLY THE PRINCIPLE OF RES JUDICAT A MAY NOT APPLY TO THE INCOME TAX PROCEEDINGS AS EACH YEAR IS AN INDEPENDENT YEAR, YET THERE OUGHT TO BE UNIFORMITY IN TREATMENT AND CONSISTENCY AS PROPOUNDED BY HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT 193 ITR 321, WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL. IT IS A JUDICIALLY ACCEPTED PRINCIPLE TH AT WHEN THE FACTS ARE SAME, A UNIFORM VIEW SHOULD BE ADOPTED FO R THE SUBSEQUENT YEARS IN THE INCOME TAX PROCEEDINGS. UNL ESS THERE IS A MATERIAL CHANGE IN THE FACTS, WHICH IS N EITHER DEMONSTRATED BY ASSESSING OFFICER NOR DRP, THE VIEW WHICH IS TAKEN EARLIER, SHOULD NOT BE CHANGED, AS HELD BY VARIOUS COURTS. WE NOW DISCUSS SOME OF THE CASE LAWS. 7.17 THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG (SUPRA), ON THE THEORY OF CONSIS TENCY, HAS HELD AS UNDER: STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A UNIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLLOWING YEAR, WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY 32 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 7.18 THIS VIEW HAS BEEN FOLLOWED BY THE HONBLE DEL HI HIGH COURT IN THE CASE OF CIT VS. NEO PLOY PACK (P) LTD. [2000] 245 ITR 492 AND THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. GOPAL PUROHIT [2011] 336 ITR 28 7. 7.19 FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. REALEST BUILDERS AND SERVICES LIMITED (2008) 30 7 ITR 202 HELD AS: IN CASE WHERE THE DEPARTMENT WANTS TO TAX AN ASSESSEE ON THE GROUND OF THE LIABILITY ARISING IN A PARTICULAR YEAR, IT SHOULD ALWAYS ASCERTAIN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IN TH E PAST AND WHETHER CHANGE IN METHOD OF ACCOUNTING WAS WARRANTED ON THE GROUND THAT PROFIT IS BEING UNDERESTIMATED UNDER THE IMPUGNED METHOD OF ACCOUNTING. IF THE ASSESSING OFFICER COMES TO THE CONCLUSION THAT THERE IS UNDERESTIMATION OF PROFITS , HE MUST GIVE FACTS AND FIGURES IN THAT REGARD AND DEMONSTRATE TO THE COURT THAT THE IMPUGNED METHOD O F ACCOUNTING ADOPTED BY THE ASSESSEE RESULTS IN UNDERESTIMATION OF PROFITS AND IS, THEREFORE, REJEC TED. OTHERWISE, THE PRESUMPTION WOULD BE THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. IN THE INSTANT CASE, T HAT EXERCISE HAD NEVER BEEN UNDERTAKEN. THE ASSESSING OFFICER WAS REQUIRED TO DEMONSTRATE BOTH THE METHODS, ONE ADOPTED BY THE ASSESSEE AND THE OTHER BY THE DEPARTMENT. IN THE CIRCUMSTANCES, THERE WAS NO REASON TO INTERFERE WITH THE CONCLUSION GIVEN BY THE HIGH COURT. 33 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 7.20 THE HONBLE SUPREME COURT IN THE CASE OF CIT V S. BILAHARI INVESTMENT P. LTD. 299 ITR 1 (SC) HELD AS FOLLOWS: EVERY ASSESSEE IS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUNTING, WHICH THE DEPARTMENT HAS EARLIER ACCEPTED. IT IS ONLY IN THOS E CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE METHOD ADOPTED BY THE ASSESSEE RESULTS IN DISTORTION OF PROFITS THAT THE DEPARTMENT CAN INSIS T ON SUBSTITUTION OF THE EXISTING METHOD. 7.21 IN THE CASE OF CIT VS. JAGATJIT INDUSTRIES LTD . (2011) 399 ITR 382 (DEL.), THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD AS FOLLOWS: IF A PARTICULAR ACCOUNTING SYSTEM HAS BEEN FOLLOWE D AND ACCEPTED AND THERE IS NO ACCEPTABLE REASON TO DIFFER WITH IT, THE DOCTRINE OF CONSISTENCY WOULD C OME INTO PLAY. THE METHOD OF ACCOUNTING CANNOT BE REJECTED. THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. ACCORDING TO PAST BUSINESS PRACTICE, THE EXPENDITURE SPILLED OVER THE NEXT YEA R AND WAS DEBITED IN THE SECOND YEAR AND WAS ALLOWED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR IN QUESTION DISALLOWED RS.13,46,299 CLAIMED AS EXPENDITURE OF PRIOR PERIOD ALLOWABLE IN THE CURRENT YEAR. THE COMMISSIONER (APPEALS) DELETE D THE DISALLOWANCE AND THIS WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE HAD CLAIMED PRIOR PERIOD EXPENSES ON THE GROUND THAT TH E VOUCHERS FOR SUCH EXPENSES FROM THE EMPLOYEES/ BRANCH EMPLOYEES WERE RECEIVED AFTER MARCH 31ST OF 34 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THE FINANCIAL YEAR. IT HAD BRANCH OFFICES THROUGHOU T THE COUNTRY. IT DEBITED THE EXPENDITURE SPILL OVER THE SUBSEQUENT YEARS AND THE ASSESSING OFFICER HAD BEEN ALLOWING IT IN THE PAST. THE ACCOUNTING PRACTICE HA D BEEN CONSISTENTLY FOLLOWED BY IT AND ACCEPTED BY TH E REVENUE. NOTHING HAD BEEN BROUGHT ON RECORD TO SHOW THAT THERE HAD BEEN DISTORTION OF PROFITS OR THAT T HE BOOKS OF ACCOUNT DID NOT REFLECT THE CORRECT PICTUR E. IN THE ABSENCE OF ANY REASON WHATSOEVER, THERE WAS NO WARRANT OR JUSTIFICATION TO DEPART FROM THE PREVIOU S ACCOUNTING SYSTEM WHICH WAS ACCEPTED BY THE DEPARTMENT IN RESPECT OF THE PREVIOUS YEARS. 7.22 IN THE PRESENT CASE, THE REVENUE HAS REJECTED THE METHOD OF ACCOUNTING WHICH IS CONSISTENTLY FOLLOWED BY THE ASSESSEE ON THE GROUND THAT THERE MAY BE CHANCE WHE RE IN A PARTICULAR YEAR, THE METHOD ADOPTED BY THE ASSESS EE MAY RESULT IN UNDERESTIMATION OF PROFITS. HOWEVER, THE REVENUE FAILED TO DEMONSTRATE WITH FACTS AND FIGURES THAT T HE IMPUGNED METHOD OF ACCOUNTING MAY RESULT IN MATERIA L UNDERESTIMATION OF PROFITS. ON THE CONTRARY, THE AS SESSEE HAS DEMONSTRATED THAT THE CHANGE IN THE METHOD OF ACCOUNTING FOR YEAR UNDER APPEAL WOULD RESULT IN LO SS TO THE REVENUE AS THE OPENING STOCK WOULD ALSO REQUIRE SIM ILAR ADJUSTMENT AND THE CASCADING EFFECT WILL BE LOSS TO REVENUE. WE OBSERVE THAT IN MANY OF THE ADDITIONS M ADE IN THIS CASE BY THE REVENUE, THE CONSISTENT METHOD OF ACCOUNTING IS UNNECESSARILY DISTURBED, THOUGH IT HA S BEEN ACCEPTED IN MANY YEARS. IN OUR VIEW SUCH TINKERING WITH THE METHOD IS UNJUSTIFIED WHEN THE EXERCISE DOES NO T MATERIALLY ALTER THE PROFITS. THE FACTS AND FIGURES IN MANY ADDITIONS DEMONSTRATE THAT THE ISSUE RAISED IS REVE NUE NEUTRAL IN THE LONG RUN. SUCH PETTY ADDITIONS SHOUL D BE AVOIDED ON THE GROUND OF MATERIALITY, AS AS-1 WHICH TALKS 35 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT ABOUT MATERIALITY, CONSISTENCY, PRUDENCE ETC. IS PA RT OF THE I.T. ACT AFTER IT IS NOTIFIED U/S 145(2). 7.23 IN VIEW OF THE FOREGOING AND PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT AND THE HONBLE HIGH COUR TS, WE ARE OF THE OPINION THAT ADJUSTMENT OF RS. 31.18 LACS MADE TO TOTAL VALUE OF CLOSING STOCK OF RS. 275 CRO RES AND CONSUMPTION OF STOCKS OF RS. 7178 CRORES IS UNCALLE D FOR. IF VALUATION OF CLOSING STOCK IS CHANGED THEN THE VALU E OF OPENING STOCK SHOULD ALSO BE CHANGED ON THE SAME BA SIS OR METHOD. THE CLOSING STOCK OF A PARTICULAR YEAR IS T HE OPENING STOCK OF THE SUBSEQUENT YEAR. IT IS NOT THE CASE OF THE REVENUE THAT THE METHOD OF VALUATION OF CLOSING STOCK IS MATERIALLY AFFECTING THE ACCOUNTS AND PROFITS DISCL OSED BY THE ASSESSEE. THIS ADJUSTMENT SOUGHT TO BE MADE IS REVENUE NEUTRAL AND AT BEST MAY RESULT IN PREPONMEN T OR POSTPONEMENT OF REVENUE. THE ISSUE IS WHETHER SUCH EXERCISE IS AT ALL REQUIRED ON THE GROUND OF MATERI ALITY. MATERIALITY IS A CONCEPT WHICH IS WELL RECOGNIZED B OTH IN ACCOUNTANCY AND LAW. ACCOUNTING STANDARDS NOTIFIED BY THE CBDT U/S 145(2) MANDATE THAT THE CONCEPT OF MATERIA LITY BE TAKEN INTO CONSIDERATION WHEN FINALIZING THE ACC OUNTS OF AN ASSESSEE. 7.24 FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF BERGER PAINTS INDIA LTD. VS. CIT (2004) 266 ITR 99 AT PAGE 103(SC), HAS NOTED WITH APPROVAL, THE OBSERVATIONS OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF INDIAN COMMUNICATION NETWORK PVT. LTD. VS. IAC (1994) 206 ITR (AT) 96 (DELHI). AT PAGE 114 IT OBSERVED THAT: BEFORE WE PART WITH THE GROUND, WE CANNOT HELP FEELING THAT THE LITIGATION BETWEEN THE PARTIES COU LD HAVE BEEN AVOIDED SINCE IT WAS QUITE IMMATERIAL, WHETHER FULL DEDUCTION WAS ALLOWED IN ONE YEAR OR 36 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT PARTLY IN ONE YEAR AND PARTLY IN THE NEXT, SINCE TH E ASSESSEE IS A COMPANY AND RATE OF TAX IS UNIFORM. T HE GAIN TO ONE AND THE LOSS TO THE OTHER IS ILLUSORY S INCE WHAT IS DEFERRED IN ONE YEAR, WOULD HAVE TO BE DISCHARGED IN THE NEXT. IN THAT SENSE, NOBODY HAS WON AND NOBODY HAS LOST. 7.25 EVEN ON THIS PLEA ALSO, THE ASSESSEE SUCCEEDS. WE HAVE DEALT WITH THIS ISSUE ELABORATELY AS, IN A NUM BER OF GROUNDS, THIS ISSUE WOULD BECOME APPLICABLE. IN VIE W OF ABOVE DISCUSSION, WE ALLOW THIS GROUND OF THE ASSES SEE. 9.0.1 THUS, THE ISSUE STANDS SQUARELY CO VERED IN FAVOUR OF THE ASSESSEE BY ORDER DATED 24.10.2016 PASSED BY TR IBUNAL IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 201 0-11 AND AY 2011-12 WHEREIN IDENTICAL ADDITION MADE BY THE ASSES SING OFFICER HAS BEEN DELETED. BEFORE US, THE LD. DEPARTMENTAL R EPRESENTATIVE COULD NOT POINT OUT ANY CHANGES IN THE FACTS AND CI RCUMSTANCES OF THE CASE FOR THIS YEAR COMPARED TO THE YEAR IN WHICH THE TRIBUNAL HAS DECIDED THIS ISSUE. WE ALSO FIND THAT THE TRIB UNAL HAS IN THE APPEALS FOR THE ASSESSMENT YEARS 2009-10, 2012-13 A ND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASSESSMENT YEARS 2010-11 AND 2011-12. 37 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 9.0.2 THEREFORE, GROUND NOS. 3 TO 3.1 A RE ALLOWED IN FAVOUR OF THE ASSESSEE. 10.0.0 WITH RESPECT TO GROUND NOS. 4 TO 4.1 RELATI NG TO ADDITION ON ACCOUNT OF COST OF REJECTION OF SEMI-FI NISHED GOODS AND OBSOLETE ITEMS TO THE VALUE OF CLOSING STOCK AMOUNT ING TO RS. 3.95 LACS (NET OF ADDITION OF RS.13.83 LACS AFTER ADJUST ING OPENING STOCK), IT WAS SUBMITTED THAT THE AFORESAID REJECTIONS COMPR ISED OF ABNORMAL REJECTIONS ARISING IN THE COURSE OF MANUFACTURING, LIKE REJECTIONS ON ACCOUNT OF OBSOLESCENCE, ETC. THE LD. AR SUBMITTED THAT ACCORDING TO PRINCIPLES OF ACCOUNTING (AS-2), AS ALSO THE CON SISTENT, REGULAR AND ACCEPTED METHOD OF ACCOUNTING, THE ASSESSEE ONL Y CONSIDERS NORMAL WASTAGES ARISING IN THE COURSE OF MANUFACTURI NG FOR THE PURPOSES OF ALLOCATION TO CLOSING INVENTORY. SINCE, THE AFORESAID EXPENDITURE COMPRISED OF ABNORMAL WASTAGES, IT WAS NO T PRACTICALLY FEASIBLE TO SEGREGATE NORMAL AND ABNORMAL WASTAGES A ND, THEREFORE, THE ASSESSEE, AS PER THE CONSISTENT METHOD OF ACCOU NTING, DID NOT CONSIDER AFORESAID COSTS FOR PURPOSES OF ALLOCATION TO CLOSING INVENTORY. IT WAS SUBMITTED THAT IT IS NOT PRACTICAL LY POSSIBLE FOR THE ASSESSEE TO SEGREGATE NORMAL AND ABNORMAL WASTAGES E MBEDDED IN 38 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THE AFORESAID COSTS AND, THEREFORE, THE ASSESSEE, A S PER CONSISTENT AND REGULAR METHOD OF ACCOUNTING, WHICH HAS BEEN ACC EPTED BY THE REVENUE AS SUCH IN THE EARLIER YEARS, DID NOT CONSI DER THE AFORESAID EXPENDITURE FOR THE PURPOSES OF VALUATION OF CLOSIN G INVENTORY OF FINISHED GOODS. IT WAS SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THIS EXPENDITURE AND ADDED THE SAME TO T HE INCOME OF THE ASSESSEE. 10.0.1 THE LD. AR SUBMITTED THAT THE AFO RESAID ISSUE STOOD DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE DELHI BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASS ESSMENT YEARS 2007-08 AND 2008-09 WHEREIN SIMILAR ADJUSTMENT MADE IN THAT YEAR WAS DELETED ON THE SAME GROUND. THE LD. AR POINTED OUT THAT THE AFORESAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2010-11 AN D 2011-12 WHEREIN THE TRIBUNAL HAD HELD THAT ONLY NORMAL LOSS IS TO BE LOADED/ADDED TO THE COST OF CLOSING INVENTORY WHICH WAS IN CONSONANCE WITH THE ACCOUNTING STANDARDS ISSUED BY T HE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). IT WAS FUR THER POINTED OUT BY THE LD. AR THAT FOLLOWING THE ORDER OF THE TRIBUN AL FOR AY 2010-11 39 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT AND 2011-12, THE TRIBUNAL HAS ALSO DECIDED THE ISSU E IN FAVOUR OF THE ASSESSEE IN APPELLATE ORDERS PASSED FOR AYS 200 9-10, 2012-13 AND 2013-14. 11.0 THE LD. CIT-DR RELIED ON THE ASSE SSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DEC ISION OF THE TRIBUNAL. 12.0.0 WE HAVE HEARD BOTH THE PARTIES AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS . 2010-11 AND 2011-12 HAS HELD AS UNDER: 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT ION AND HAS ALSO PERUSED THE RELEVANT PROVISIONS OF THE ACCOUNT ING STANDARD 2 WHICH HAS BEEN RELIED BY THE LD. ASSESSING OFFI CER. WE HAVE CAREFULLY PERUSED THE DECISION OF THE COORDINATE BE NCH IN THE APPELLANTS OWN CASE FOR ASSESSMENT YEAR 2007-08 WH EREIN THE IDENTICAL ISSUE IS DEALT WITH AS UNDER:- 8.9 THE ISSUE IN QUESTION IS WHETHER THE COST OF A BNORMAL REJECTIONS HAVE TO BE CONSIDERED FOR THE PURPOSE OF VALUATION OF CLOSING STOCK. THE ASSESSEE RELIED ON ACCOUNTING STANDARD -2- VALUATION OF INVENTORIES WH ICH IS A NOTIFIED ACCOUNTING STANDARD BY THE COMPANIES ACT W HICH STIPULATES THAT ABNORMAL WASTAGES SHOULD NOT BE CONSIDERED FOR VALUATION OF INVENTORY. 40 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 8.10 IT WAS SUBMITTED BY THE LD. AR OF THE ASSESSEE THAT IT IS IN THE MANUFACTURING OF PRECISION AND QUALITY PR ODUCT AND IN CASE OF UNFIT MATERIAL IT HAS BEEN CONSISTEN TLY FOLLOWING THE METHOD OF CHANGING THE ABNORMAL REJEC TION OF MATERIAL TO ITS PROFIT AND LOSS ACCOUNT, WITHOUT AN Y ALLOCATION TO THE VALUE OF CLOSING INVENTORY. 8.11 THE ASSESSING OFFICERS CASE IS THAT COST OF R EJECTIONS NEEDED TO BE INCLUDED IN THE VALUE OF CLOSING STOCK . ASSESSING OFFICER WORKED OUT AN AMOUNT OF RS. 9.24 LACS AS ATTRIBUTABLE TO CLOSING STOCK OUT OF TOTAL EXPENDIT URE OF RS. 12.49 CRORES AND CLOSING STOCK VALUE OF RS. 275 CRO RES. THE ASSESSEE AS A CONSISTENT ACCOUNTING POLICY HAS BEEN CLAIMING THE COST OF ABNORMAL REJECTIONS AS REVENUE EXPENDITURE FOR THE PREVIOUS YEARS AND THIS HAS BEE N REGULARLY ACCEPTED BY DEPARTMENT IN PAST. 8.12 THE AMOUNT OF RS. 9.24 LACS ATTRIBUTED BY THE ASSESSING OFFICER, IN OUR VIEW, IS MATERIALLY INCON SEQUENTIAL SO AS TO WARRANT DISTURBING THE REGULAR METHOD OF V ALUATION OF CLOSING STOCK BEING FOLLOWED BY THE ASSESSEE COM PANY. THE QUANTUM OF THE ADDITION OF RS. 9.24 LACS IS LES S THAN 0.74% OF THE VALUE OF ABNORMAL REJECTIONS. AS A PER CENTAGE OF TOTAL STOCKS / TURN OVER / PROFITS DECLARED, THI S FIGURE IS MINISCULE. 8.13 ACCOUNTING STANDARD-2 STIPULATES THAT ABNORMAL WASTAGES SHOULD NOT BE CONSIDERED FOR VALUATION OF INVENTORY. IT READS AS FOLLOWS: 16. EXAMPLES OF COSTS EXCLUDED FROM THE COST OF INVENTORIES AND RECOGNIZED AS EXPENSES IN THE PERIO D IN WHICH THEY ARE INCURRED ARE: A)ABNORMAL AMOUNTS OF WASTED MATERIALS, LABOUR OR OTHER PRODUCTION COSTS; STORAGE COSTS, UNLESS THOSE 41 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT COSTS ARE NECESSARY IN THE PRODUCTION PROCESS BEFOR E A FURTHER PRODUCTION STAGE; ADMINISTRATIVE OVERHEADS THAT DO NOT CONTRIBUTE TO BRINGING INVENTORIES TO T HEIR PRESENT LOCATION AND CONDITION; AND SELLING COSTS. 8.14 KEEPING IN VIEW THE TREATMENT PRESCRIBED UNDER AS-2 AND THE FACT THAT THE ASSESSEE HAS BEEN REGULARLY F OLLOWING THE SAME METHOD OF ACCOUNTING FOR VALUATION OF CHAR GING SUCH REJECTION TO P&L A/C AND ITS CLOSING INVENTORY , WE ARE OF THE VIEW THE ADDITION IN QUESTION IS UNCALLED FO R. THE ADJUSTMENT IS NOT MATERIAL ADJUSTMENT. FURTHER, FOR THE REASONS STAGED BY US ON THE ISSUE OF CONSISTENCY, W HILE DISPOSING AROUND NO. 2 TO 2.2, WE ALLOW THIS GROUND OF THE ASSESSEE. BOTH THE PARTIES HAVE ADMITTED THAT THERE IS NO DIF FERENCE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLAN T IN THE ASSESSMENT YEAR BEFORE US AS WELL AS THE YEAR FOR W HICH THE ORDER OF THE COORDINATE BENCH PERTAINS TO. ON READI NG OF THE ASSESSMENT ORDER AS WELL AS THE DIRECTION OF THE LD . DISPUTE RESOLUTION PANEL IT WAS NOT FOUND THAT HOW THE LOSS OF THE ASSESSEE WAS FOUND TO BE NORMAL WHEN THE ASSESSEE S UBMITTED THAT IT IS AN ABNORMAL LOSS INCURRED BY IT DURING T HE COURSE OF MANUFACTURING PROCESS. FURTHER THE LD. DISPUTE RESO LUTION PANEL HAS ALSO STATED THAT BOTH THE COST OF NORMAL AND AB NORMAL LOSSES HAVE TO BE LOADED TO THE VALUE OF THE CLOSING STOCK IS DEVOID OF ANY MERIT AS IT IS CONTRARY TO THE ACCOUNTING STAND ARD ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHI CH HAS BEEN MANDATED BY THE MINISTRY OF CORPORATE AFFAIRS, WHIC H ONLY SAYS THAT, ONLY NORMAL LOSSES ARE REQUIRED TO BE INCLUDE D AND 42 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT ABNORMAL LOSSES ARE REQUIRED TO EXCLUDED FOR THE PU RPOSE OF THE VALUATION OF THE CLOSING STOCK OF THE FINISHED GOO DS AND SEMI FINISHED GOODS. IN VIEW OF THE ABOVE, WE RESPECTFUL LY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE APPELLA NTS OWN CASE FOR THE PREVIOUS YEAR ALLOW GROUND NO. 3 OF THE APP EAL OF THE ASSESSEE. 12.0.1 THUS, THIS ISSUE IS SQUARELY COVER ED IN ASSESSEES FAVOUR BY THE ORDER OF EARLIER ASSESSMENT YEARS. WE ALSO FIND THAT THE TRIBUNAL HAS IN THE APPEAL FOR THE ASSESSMENT YEARS 2009-10, 2012- 13 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE A SSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASSESSMENT YEARS 2010-11 AND 2011-12. 12.0.2 THEREFORE, GROUND NOS. 4 - 4.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 13.0.0 WITH RESPECT TO GROUND NOS. 5 TO 5.4, RELATING TO DISALLOWANCE OF PROVISION FOR INCREASE IN PRICE OF M ATERIAL AMOUNTING TO RS.72.64 CRORES, THE LD. AR SUBMITTED THAT IT CA N BE SEEN THAT THE ASSESSEE HAD APPOINTED VARIOUS VENDORS FOR SUPPLY O F MATERIAL TO BE USED IN THE PROCESS OF MANUFACTURING OF VEHICLES. I T WAS SUBMITTED THAT THE ASSESSEE, AT THE TIME OF ISSUING OF PURCHA SE ORDER, NEGOTIATES THE PRICE AT WHICH THE PARTICULAR COMPONE NT/ COMPONENTS 43 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT SHALL BE SUPPLIED BY THE VENDOR. SUBSEQUENTLY, VEND ORS ARE PROVIDED SUPPLY OF COMPONENT SCHEDULE ANNUALLY. IT WAS SUBMIT TED BY THE LD. AR THAT IN THE BUSINESS OF MANUFACTURING VEHICLES, THE ASSESSEE PURCHASES RAW MATERIAL FROM VENDORS WITH THE EXPRESS UNDERSTANDING THAT THE RATES WOULD BE REVISED, IF TH ERE IS SUBSTANTIAL INCREASE/DECREASE IN COST OF MATERIALS, AT THE AGRE ED INTERVAL. IT WAS SUBMITTED THAT IN THE ASSESSMENT ORDER, THE ASSESSI NG OFFICER HELD THAT THE AFORESAID PROVISION OF 72.64 CRORES IS NOT ALLOWABLE BUSINESS EXPENDITURE. THE ASSESSING OFFICER HELD THAT PROVIS IONS EMANATING FROM RETROSPECTIVE PRICE AMENDMENTS ARE CONTINGENT IN NATURE AND THUS, NOT AN ALLOWABLE BUSINESS EXPENDITURE. IT WAS F URTHER SUBMITTED THAT THE ASSESSING OFFICER ALSO ADDED BAC K THE AFORESAID TOTAL PROVISION WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB, HOLDING THE SAME TO BE AN UNASCERTAINED LIABILITY. 13.0.1 THE LD. AR SUBMITTED THAT THE PROVI SION FOR THE MATERIAL IS WORKED OUT AS UNDER:- (1) PROVISION FOR PURCHASE ORDERS ISSUED FOR PRICE AMEN DMENT AS AT 31.3.2015: RS. 24.79 CRORES: THE AFORESAID PROVISIO N WAS MADE ON THE BASIS OF ACTUAL SUPPLIES MADE UP TO THE END OF THE YEAR AS PER PRICE AMENDMENTS ACTUALLY ISSUED AS ON 31.03 .2015. 44 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THEREFORE, THE ASSESSEE HAS MADE PROVISION OF RS. 2 4.79 CRORES ON THE BASIS OF ACTUAL POS ISSUED TO VENDORS FOR TH E CHANGE IN PRICES DURING THE YEAR AND IT INVOLVED NO ESTIMATIO N. (2) PROVISION MADE ON BEST ESTIMATE BASIS OF RS.47.85 C RORES OF WHICH PRICE AMENDMENTS WERE NOT FINALIZED BY THE END OF THE YEAR: THE PROVISION FOR PRICE INCREASE OF RS.47.85 CRORES WAS MADE ON THE BASIS OF PER VEHICLE INCREASE / DECREAS E IN METAL COST DURING 3RD/ 4TH QUARTER MULTIPLIED BY ACTUAL D ISPATCH DURING THE CORRESPONDING PERIOD. 13.0.2 THE LD. AR SUBMITTED THAT IN ASSES SMENT YEAR 2008- 09, THE TRIBUNAL DELETED THE DISALLOWANCE HOLDING T HAT SIMILAR DISALLOWANCE OF PROVISION WAS MADE BY THE ASSESSING O FFICER IN COMPLETE DISREGARD OF THE FINDINGS OF THE ASSESSING OFFICER IN THE PRECEDING ASSESSMENT YEAR, VIZ. ASSESSMENT YEAR 200 7-08 AS ALSO THE CONSISTENT METHOD FOLLOWED BY THE ASSESSEE. IN THAT YEAR, THE DELHI BENCH OF THE TRIBUNAL, VIDE ORDER DATED 13.06 .2014 PASSED IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 WAS PLEASED TO DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICE R KEEPING IN VIEW THE PRINCIPLE OF MATERIALITY AND CONSISTENCY FO LLOWED BY THE ASSESSEE. FURTHER, THE LD. AR SUBMITTED THAT THE DE LHI BENCH OF THE TRIBUNAL, VIDE CONSOLIDATED ORDER DATED 24.10.2016, PASSED IN 45 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 AND 2011-12, HAS DECIDED THE AFORESAID ISSUE IN FAVOUR OF THE ASSESS EE HOLDING THAT THE PROVISION WAS MADE ON SCIENTIFIC BASIS AND THE TRANS ACTION IS REVENUE NEUTRAL. IT WAS FURTHER POINTED OUT BY THE L D. AR THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR AYS 2010-11 AND 2011-12, THE TRIBUNAL HAS ALSO DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE IN APPELLATE ORDERS PASSED FOR AYS 2009-10, 2012-13 AN D 2013-14. FURTHER, IN THE ORDER PASSED FOR ASSESSMENT YEAR 20 09-10, THE TRIBUNAL HAS ALSO HELD THAT THE SINCE THE PROVISION FOR INCREASE IN PRICE OF MATERIAL WAS AN ASCERTAINED LIABILITY MADE ON AN ACTUAL AND SCIENTIFIC BASIS, ASSESSING OFFICER ERRED IN MAKING ADJUSTMENT TO BOOK PROFIT IN ACCORDANCE WITH THE ADJUSTMENTS PROVI DED IN THE EXPLANATION TO SECTION 115JB OF THE ACT. 14.0 THE LD. CIT - DR RELIED UPON TH E ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 15.0.0 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS TRIBUNAL, FOR A. YS. 2010-11 & 2011-12, HAS HELD AS UNDER: 46 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 20) WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS AND ALSO PERUSED ORDER OF THE COORDINATE BENCH IN THE APPELL ANTS OWN CASE FOR EARLIER YEARS. WE HAVE ALSO PERUSED THE PA GE NO. 1130 TO 1140 OF THE PAPER BOOK VOLUME 3 SUBMITTED BY THE ASSESSEE BEFORE THE LD. ASSESSING OFFICER IN PURSUANCE OF DI RECTION OF THE LD. DISPUTE RESOLUTION PANEL. THE PARTIES BEFORE US HAVE CONFIRMED THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR THIS YEAR COMPARED TO THE YEAR FOR WHICH THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE AP PELLANT. THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2007-08 HAS DECIDED THIS ISSUE AS UNDER:- 12.11 THE ADDITION IN QUESTION IS ON ACCOUNT OF PR OVISION FOR INCREASE IN PRICE OF MATERIAL. WHEN THERE IS AN EXCESS PROVISION ON ACCOUNT OF PRICE REVISION MADE DURING THE YEAR, THE ASSESSEE REVERSED THE SAME IN SUBSEQUENT YEAR I .E. WHEN THE ACTUAL FIGURES ARE KNOWN. SIMILARLY, WHEN THERE IS A SHORT PROVISION FOR INCREASE IN PRICE OF RAW M ATERIAL SUPPLIED IN IMMEDIATELY PRECEDING YEAR, THE BALANCE IS RECOGNIZED AS EXPENDITURE DURING THE YEAR. A CLAIM IS MADE BASED ON ASCERTAINMENT OF ACTUAL LIABILITY. THE ASS ESSING OFFICER DISALLOWED THE REVERSALS OF PROVISION ON GR OUND THAT THIS WAS A PRIOR PERIOD EXPENDITURE. 12.12 WHEN PROVISIONS ARE MADE, WHAT IS TO BE SEEN IS WHETHER THE ASSESSEE HAS DONE A BONA FIDE AND GENUI NE EXERCISE TO ESTIMATE ITS LIABILITY WITH REASONABLE CERTAINTY. THE TERM REASONABLE CERTAINTY MEANS THAT THE PROVIS ION IN QUESTION MIGHT BE SLIGHTLY HIGHER OR LOWER THAN THE ACTUAL FIGURE. WHEN THE PROVISION IS HIGHER, IT IS REVERSE D IN SUBSEQUENT YEAR, WHEN THE ACTUAL FIGURES ARE KNOWN. 47 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT SIMILARLY, WHEN THE PROVISION IS LOWER, THE SAME IS CLAIMED IN THE LATTER ASSESSMENT YEAR. IT CANNOT BE SAID TH AT THESE ARE PRIOR PERIOD EXPENDITURE. THE ACTUAL LIABILITY IN QUESTION IS ASCERTAINED ONLY DURING THE YEAR AND HENCE THE L IABILITY CRYSTALLIZES DURING THE YEAR. ESTIMATION OF AN EXPE NSE HAS TO BE CONSIDERED IN CONTRADICTION TO ACTUAL ASCERTA INMENT OF THE EXPENSES. ONCE THE ACTUAL EXPENSE HAS BEEN ASCERTAINED, THE LIABILITY ACCRUES IN THAT YEAR TO THE EXTENT NOT PROVIDED IN THE EARLIER YEAR AND IS TO BE ALLOW ED AS REVENUE EXPENDITURE IN THE YEAR OF CRYSTALLIZATION. CONCEPTS OF GOING CONCERN, ACCRUAL AND CONSISTENCY HAVE TO B E TAKEN INTO ACCOUNT BY THE REVENUE AUTHORITIES WHILE EVALU ATING SUCH PROVISIONS AND MAKING SUCH ADJUSTMENTS. THE ASSESSEE IS DISPUTING THE FIGURES OF DISALLOWANCE A ND THE DRP IS ALSO EXPRESSING ITS INABILITY TO CORRECT THE FIGURES. IN OUR VIEW THE DRP IS NOT HELPLESS AND COULD HAVE DIR ECTED THE ASSESSING OFFICER TO VERIFY THE FIGURES AND COR RECT THE MISTAKES, IF ANY. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THIS GROUND OF ASSESSEE FOR STATISTICAL PURPOSE AND DIRECT THE ASSESSING OFFICER TO PROPERLY VERIFY THE FIGURE S AND ALLOW THE CLAIM OF THE ASSESSEE. SUBSEQUENTLY FOR THE ASSESSMENT YEAR 2008-09 WHEN T HE SIMILAR DISALLOWANCE WAS MADE BY THE LD. ASSESSING OFFICER THE COORDINATE BENCH VIDE ITS ORDER DATED 13.04.2014 HA S HELD DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER KEEPING IN VIEW THE PRINCIPLE OF MATERIALITY AND CONSISTENC Y FOLLOWED BY THE APPELLANT. ON THE GROUND THAT THE MENTION HAS B EEN MADE IN THE PURCHASE ORDER THAT THERE CANNOT BE ANY REVISIO N OF THE PRICES SUBSEQUENTLY AND THE PRICES MENTIONING THE P URCHASE ORDER OF FINAL BASED ON WHICH THE LD. ASSESSING OFF ICER HAS RELIED 48 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT VERY HEAVILY WE ARE OF THE VIEW THAT THAT THESE ARE THE GENERAL TERMS AND CONDITIONS OF THE PURCHASE ORDER CLAIMED BY THE APPELLANT UPON ITS VARIOUS VENDORS AND THERE IS NO PROHIBITION IN THE SAID PURCHASE ORDERS THAT SUBSEQUENTLY THE PRIC ES CANNOT BE REVISED. MANY TIMES THE PRICES ARE DEPENDENT UPON T HE COST OF THE RAW MATERIAL SUCH AS METAL ETC OF THE VENDORS W HICH IS HIGHLY FLUCTUATING, WHICH MAY RESULT INTO SUBSEQUEN T PRICE REVISION. FURTHER WHEN THE ACTUAL PAYMENTS ARE MADE TO THE VENDORS ON THE BASIS OF SUCH RETROSPECTIVE INCREASE IN PRICE OF MATERIAL SUPPLIED, WHICH IS ACCEPTED AND ALLOWED AS REVENUE EXPENDITURE, THE PROVISION MADE FOR SUCH ARE REVENU E NEUTRAL. ACCORDINGLY THERE IS NO JUSTIFICATION IN SUSTAINING THE AFORESAID DISALLOWANCE. ACCORDINGLY, WE REVERSE THE ACTION OF THE ASSESSING OFFICER AND ALLOW THE GROUND NO. 4 OF APP EAL RAISED BY THE APPELLANT. 15.0.1 FOLLOWING THE AFORESAID ORDER, THE TRIBU NAL IN AY 2013-14 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WHILE HO LDING AS UNDER: IT IS OBSERVED THAT IT IS COMMON TRADE PRACTICE TO CONTRACT WITH VENDORS ON SUCH EXPRESS TERMS FOR PAYMENT OF ARREAR S IN THE EVENT OF SUBSTANTIAL INCREASE/ DECREASE IN COST, IN ORDER TO MAINTAIN CONTINUOUS SUPPLY OF RAW MATERIALS WITHOUT BEING AFFECTED BY MARKET FLUCTUATIONS, ESPECIALLY IN LIGH T OF THE VOLUME OF PURCHASES MADE BY THE ASSESSEE. IN THE ABSENCE O F SUCH UNDERSTANDING/ CONTRACT WITH THE VENDORS, THE ASSES SEE WOULD NOT BE ABLE TO OPERATE AND CONTINUE MANUFACTURING O PERATIONS 49 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT WITHOUT DISRUPTION. THIS SAME PROCESS IS FOLLOWED W HEN THERE IS REDUCTION IN COST ELEMENTS OF COMPONENT PRICES, COM PANY INFORMS THE VENDORS FOR REDUCTION IN PRICE OF COMPONENTS. A CCORDINGLY, WHILE PRICE REVISIONS ARE PENDING OR NEGOTIATIONS A RE ON, THE VENDORS KEEP ON SUPPLYING THE MATERIAL PROVISIONALL Y AT THE AGREED RATES, WITH THE UNDERSTANDING THAT PURSUANT TO NEGOTIATIONS BEING FINALIZED, THE ARREARS OF THE AM OUNT DUE TO THEM WOULD BE PAID TO THEM RETROSPECTIVELY. SUCH PR ICE REVISIONS, BEING AN ACCRUED LIABILITY AT THE TIME OF PURCHASE OF RAW MATERIALS, ARE RECORDED IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE. AT THE YEAR END, THE COMPANY ESTIMATES TH E ADDITIONAL LIABILITY ON ACCOUNT OF PRICE REVISION UNDER NEGOTI ATION AND MAKES UPWARD/DOWNWARD PROVISION, AS THE CASE MAY BE , IN RELATION TO MATERIAL SUPPLIED UNTIL THE END OF THE RELEVANT YEAR. THUS, THE ASSESSING OFFICER WAS INCORRECT IN DISALL OWING THIS CLAIM. 15.0.2 WE ALSO FIND THAT THE TRIBUNAL HAS IN THE APPEAL FOR THE ASSESSMENT YEARS 2009-10 DELETED THE ADJUSTMENT BY THE AO UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 BY HOLDIN G AS UNDER: FROM THE RECORDS IT CAN BE SEEN THAT THE PROVISION FOR THE MATERIAL IS WORKED OUT IN RESPECT OF PRICE AMENDMEN TS WHICH WERE ALREADY ISSUED ON 31.03.2009 WHICH WAS MADE ON THE BASIS OF ACTUAL SUPPLIED MADE UPTO THE END OF THE Y EAR AS PER PRICE AMENDMENTS ACTUALLY ISSUED ON 31.03.2009. THE PROVISION WAS MADE ON THE BASIS OF ACTUAL PO ISSUED TO THE VE NDORS FOR 50 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT CHANGE IN THE PRICES DURING THE YEAR AND THUS, DOES NOT INVOLVED ANY ESTIMATION. THEREFORE, THE ASSESSING OFFICER WA S NOT RIGHT IN MAKING ADJUSTMENTS WHICH ARE NOT CONSISTENT WITH TH E EXPLANATION TO SECTION 115JB OF THE INCOME TAX ACT, 1961. IN THE PRESENT ASSESSMENT YEAR ALSO THE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TRIBUNAL FOR A.YS. 2010-11, 2011-12, 2012-13 AND 2013-14. HENCE GROUND NOS. 15 TO 14.3 ARE ALLOWED. 15.0.3 IN THE PRESENT ASSESSMENT YEAR ALSO T HE FACTS ARE SIMILAR AND ARE SQUARELY COVERED WITH THE DECISION OF THE TR IBUNAL FOR A.YS. 2009-10 TO 2013-14. 15.0.4 THEREFORE, GROUND NOS. 5 TO 5.4 ARE ALL OWED IN FAVOUR OF THE ASSESSEE. 16.0.0 THE LD. AR SUBMITTED THAT GROUND NO. 6 IS RELATING TO DISALLOWANCE OF COST OF SCRAP MATERIAL AMOUNTING TO RS.3.78 LACS. IT WAS SUBMITTED THAT IN THE COURSE OF THE BUSINESS OF MANUFACTURING, THE PROCESS GENERATES SOME SCRAP ON ACCOUNT OF REJE CTION OF COMPONENTS, OBSOLESCENCE OF COMPONENTS, ETC. IN THE COURSE OF MANUFACTURING PROCESS, SCRAP IS GENERATED MAINLY ON ACCOUNT OF GRINDING SCRAP IN MACHINING PROCESS OF VARIOUS COMP ONENTS. SUCH 51 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT SCRAP GENERATED IN THE COURSE OF MANUFACTURING IS N OT SEPARATELY DEBITED TO THE PROFIT AND LOSS ACCOUNT BUT IS CLAIM ED AS THE PART OF COST OF MATERIAL CONSUMED IN THE COURSE OF MANUFACT URING. THE LD. AR SUBMITTED THAT THE WASTAGE GENERATED IN THE MANUF ACTURING PROCESS IS NEGLIGIBLE COMPARED TO THE OVERALL CONSU MPTION OF MATERIAL DURING THE YEAR. FURTHER, SUCH WASTAGE IS N ORMAL AND INHERENT IN THE MANUFACTURING PROCESS AND IN ANY CA SE, WITHIN TOLERABLE LIMITS. SCRAP GENERATED IN THE AFORESAID MANNER IS TRANSFERRED TO SCRAP YARD WITH PROPER APPROVAL OF RE SPECTIVE SHOP HEAD' AND 'PROCESS PLANNING & CONTROL DEPARTMENT' I N THE MANUFACTURING UNIT AND IS SOLD AFTER NECESSARY PROC ESSING (E.G. CRUSHING OF COMPONENTS), IF ANY. THE LD. AR FURTHER SUBMITTED THAT THE SALE PROCEEDS FROM SALE OF SCRAP IS DIRECTLY CR EDITED TO THE PROFIT AND LOSS ACCOUNT AND IS SHOWN AS INCOME. IT WAS SUBMI TTED THAT HAVING REGARD TO THE NATURE OF SCRAP/WASTAGE GENERAT ED DURING THE COURSE OF BUSINESS I.E. EMPTY OIL DRUMS, CORRUGATED WOODEN BOXES, PLASTIC BAGS, ETC., IT IS NOT POSSIBLE TO MAINTAIN SCRAP REGISTER AT THE SHOP FLOOR CONTAINING ITEM WISE DETAILS OF SCRAP GEN ERATED. HOWEVER, THE ASSESSEE MAINTAINS RECORD/REGISTER OF EACH ITEM OF SCRAP SOLD 52 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT DURING THE YEAR. THE SALE PROCEEDS FROM SALE OF SCR AP IS DIRECTLY CREDITED TO THE ASSESSEES PROFIT & LOSS A/C AND IS SHOWN AS INCOME. THE LD. AR SUBMITTED THAT THE ASSESSEE REALIZED RS. 22.92 CRORES FROM SALE OF SCRAP GENERATED IN THE COURSE OF MANUF ACTURING, WHICH WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT AND SHOWN AS INCOME. IT WAS SUBMITTED THAT IN THE ASSESSMENT ORDER, THE ASSE SSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS ERRED IN NOT EST IMATING THE VALUE OF SCRAP LYING IN THE FACTORY PREMISES AS ON THE LA ST DATE OF THE PREVIOUS YEAR VIZ. 31.3.2015 WHICH SHOULD HAVE BEEN CREDITED TO PROFIT AND LOSS ACCOUNT AS PART OF THE CLOSING STOC K. THE ASSESSING OFFICER ESTIMATED THE VALUE OF SUCH SCRAP AT AN AMO UNT OF RS.3,78,400/- (COMPUTED ON THE BASIS OF AVERAGE SCR AP SALES IN THE LAST 15 DAYS OF THE RELEVANT YEAR AND FIRST 15 DAYS OF NEXT YEAR, VIS-A- VIS , AFTER REDUCING THE SCRAP SALE AS ON THE LAST DAYS OF THE RELEVANT YEAR) AND MADE ADDITION OF THE SAME TO THE CLOSING STOCK AND CONSEQUENTLY TO THE INCOME OF THE ASSESSEE. 16.0.1 THE LD. AR SUBMITTED THAT THE AFOR ESAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ORDER PAS SED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT Y EARS 2010-11 53 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT AND 2011-12, WHEREIN THE TRIBUNAL ACCEPTED THE METHO D AS FOLLOWED BY THE ASSESSEE OF ACCOUNTING INCOME ON SALE OF SCR AP ON A CONSISTENT BASIS AND DELETED THE IMPUGNED ADDITION ON THE GROUND THAT THE ASSESSEE WAS NOT DEALING IN SCRAP AND/OR HO LDING THE SCRAP AS INVENTORY, AND, THUS, WAS NOT REQUIRED TO VALUE T HE CLOSING STOCK AFTER TAKING INTO ACCOUNT THE VALUE OF SCRAP. THE L D. AR SUBMITTED THAT THE TRIBUNAL, IN COMING TO THE AFORESAID CONCL USION, LAID EMPHASIS ON THE FACT THAT SUCH TRANSACTION WAS REVEN UE-NEUTRAL AND HELD THAT CONSIDERING THE SIZE OF THE ASSESSEE COMP ANY, IT COULD NOT BE EXPECTED TO KEEP QUANTITATIVE TALLY OF MINISCULE ITEMS. THE LD. AR POINTED OUT THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS 2007-08 AND 2008-09 HAD RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO COMPUTE THE VALUE OF CLOSING S TOCK ON CONSISTENT BASIS, AS PER METHOD TO BE FOLLOWED BY THE ASSESSIN G OFFICER IN THE SET-ASIDE ORDER. THE LD. AR SUBMITTED THAT THE ASSE SSEE HAD FILED AN APPEAL AGAINST THE AFORESAID ORDER OF THE TRIBUNAL, WHICH WAS ADMITTED BY THE HIGH COURT VIDE ORDER DATED 19.1.20 15 AS INVOLVING SUBSTANTIAL QUESTION OF LAW. IT WAS FURTHER SUBMITTED THAT THE AO IN THE SET ASIDE PROCEEDINGS FOR AY 2007-08, VIDE ORDE R DATED 54 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 31.10.2014, CONFIRMED SUCH DISALLOWANCE ON AN AD- HOC BASIS BY ESTIMATING THE AVERAGE OF SCRAP LYING IN THE CLOSIN G STOCK AS A PROPORTION OF SCRAP SALES FOR THE LAST 15 DAYS FOR THE ENDED 31.03.20007 AND THE FIRST 15 DAYS OF THE SUBSEQUENT YEAR AND THE LD. CIT (A), VIDE ORDER DATED 01.02.2018, DELETED THE DISALLOWANCE MADE BY THE AO IN THE SET ASIDE ORDER. HOWEVER, THE LD. AR POINTED OUT THAT THE AFORESAID DISALLOWANCE SUSTAINED BY THE TRIBUNAL IN ASSESSMENT YEARS 2007-08 AND 2008-09 HAS BEEN CATEG ORICALLY DISTINGUISHED BY THE ITAT IN THE AY 2010-11 (REFERR ED SUPRA), WHEREIN THE TRIBUNAL HELD THAT THE EARLIER ORDERS WE RE PASSED WITHOUT DUE CONSIDERATION OF AS-2 AND APPLICATION TH EREOF TO SCRAP GENERATED DURING MANUFACTURING PROCESS HAS NOT BEEN EXAMINED. IT WAS FURTHER POINTED OUT BY THE LD. AR THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR AY 2010-11 AND 2011-12, THE TRIBUNAL H AS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN APPELLATE OR DERS PASSED FOR AYS 2012-13 AND 2013-14. 17.0 THE LD. CIT DR RELIED UPON THE AS SESSMENT ORDER AND ORDER OF THE TPO AS WELL AS ON THE TRIBUNALS DECIS ION FOR A.Y. 2007- 08 AND 2008-09. 55 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 18.0.0 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON THE ISSUE UNDER CO NSIDERATION, A CO- ORDINATE BENCH OF THE TRIBUNAL, FOR A.Y.S 2010-11 A ND 2011-12, HAS HELD AS UNDER: 24. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. ACCOUNTING STANDARD 2 NOTIFIED BY THE MINISTRY OF C ORPORATE AFFAIRS IT PROVIDES THAT INVENTORY IS REQUIRED TO B E VALUED AT THE END OF THE YEAR FOR DETERMINING THE TRUE AND FAIR P ROFIT OR LOSS OF THE FINANCIAL PERIOD OF AN ENTERPRISE. ACCORDING TO THAT THE INVENTORY IS REQUIRED TO BE VALUED ACCORDING TO ACC OUNTING STANDARD 2 IN CASE IT IS HELD FOR THE SALE IN THE O RDINARY COURSE OF THE BUSINESS. IN THE PRESENT CASE THE ASSESSEE IS N OT HOLDING SCRAP AS AN INVENTORY IN THE ORDINARY COURSE OF ITS BUSINESS. IT IS ALSO NOT THE DEALER IN SCRAP. THE INVENTORY THAT IT HOLDS IN THE ORDINARY COURSE OF ITS BUSINESS AT THE RAW MATERIAL S SEMI FINISHED GOODS AND THEY FINISHED GOODS OF THE COMPA NY. THEREFORE, IT IS INCORRECT TO HOLD THAT ASSESSEE SH OULD HAVE VALUED THE SCRAP AT THE END OF THE YEAR. FURTHERMOR E THE ACCOUNTING POLICY OF THE COMPANY ALSO STATES THAT T HE SCRAP IS ACCOUNTED FOR AT THE TIME OF ITS DISPOSAL. THEREFOR E, ACCORDING TO US IT IS NOT MANDATORY FOR AN ASSESSEE TO VALUE SCR AP AS AT THE END OF FINANCIAL PERIOD FOR WORKING OUT THE TRUE AN D FAIR PROFIT OR LOSSES OF THE COMPANY. MORE SO AS IN THE PREVIOUS Y EAR THIS ACCOUNTING POLICY OF THE COMPANY HAS BEEN ACCEPTED BY THE 56 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT REVENUE WITHOUT DISTURBING THE PROFIT ON THIS COUNT . FURTHER, WHILE RENDERING OUR DECISION IN THE PRECEDING GROUN D OF APPEAL, FOLLOWING THE DECISION OF HONOURABLE HIGH COURTS AN D SUPREME COURT, WE HAVE HELD THAT ADJUSTMENT SHOULD NOT BE M ADE IN THE ASSESSMENT ORDER ON ISSUES, WHICH ARE REVENUE-NEUTR AL. THE IMPUGNED ADDITION UNDER CONSIDERATION IS PURELY REV ENUE-NEUTRAL IN AS MUCH AS ADDITION OF THE ESTIMATED VALUE OF TH E SCRAP TO CLOSING STOCK WOULD BE DEBITED AS OPENING STOCK IN THE PROFIT AND LOSS ACCOUNT OF IMMEDIATELY SUCCEEDING YEAR. FURTHE R, THE ASSESSING OFFICER WILL NEED TO CARRY OUT THE SIMILA R EXERCISE IN THE LAST YEAR, TO ESTIMATE STOCK OF SCRAP WHICH WOULD B ECOME OPENING STOCK OF THIS YEAR. THERE IS, THUS, NO ESCA PEMENT OF REVENUE ON THE BASIS OF THE IMPUGNED ADDITION MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. WE HAVE ALREADY HELD IN MULTIPLE GROUNDS SUPRA THAT NO ADJUSTMENT SHOULD BE MADE TO RETURNED INCOME ON ISSUES, WHICH ARE REVENUE NEUTRA L. HAVING HELD AS ABOVE, IT IS DIFFICULT TO TAKE ANY DIFFEREN T VIEW FOR THE ISSUE UNDER CONSIDERATION, WHICH IS ALSO PURELY REV ENUE NEUTRAL, ESPECIALLY CONSIDERING THAT IF SIMILAR ADJUSTMENT ( WHICH HAS NOT BEEN CARRIED OUT BY THE ASSESSING OFFICER) IS MADE TO THE OPENING STOCK, NO ADDITIONAL TAX LIABILITY WOULD DELVE UPON THE APPELLANT IT COULD ALSO BE SEEN THAT THE ADDITION OF RS.3.02 LACS IS MINISCULE HAVING REGARD TO THE SIZE OF THE COMPANY, WHICH HAS DECLARED TURNOVER OF RS.16,000 CRORES (APPROX.) DUR ING THE YEAR UNDER CONSIDERATION AND NET PROFIT OF RS.2232 CRORE S. THE AFORESAID RENDERS FORCE IN THE ARGUMENTS TAKEN BY T HE LD. 57 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT COUNSEL THAT AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURING, ESPECIALLY THAT OF THE SIZE OF THE A PPELLANT, CANNOT BE EXPECTED TO KEEP QUANTITATIVE TALLY OF MI NISCULE ITEMS LIKE NUTS AND BOLTS LYING IN THE SCRAP YARD. IN VIE W OF THE AFORESAID, KEEPING IN MIND THE PRINCIPLE OF MATERIA LITY, WE FIND THAT THERE IS NO ERROR IN THE SYSTEM AND REGULAR PR ACTICE FOLLOWED BY THE APPELLANT OF NOT ESTIMATING THE VALUE OF SCR AP LYING IN THE SCRAP YARD AND ACCOUNTING FOR SALE AS AND WHEN SUCH SCRAP IS SOLD AND REMOVED FROM THE FACTORY PREMISES. FOR THE AFORESAID CUMULATIVE REASONS WE DO NOT FIND ANY JUSTIFICATION IN SUSTAINING THE ADDITION OF RS.3.02 LACS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. AS REGARDS THE DECISION OF THE TR IBUNAL IN THE EARLIER TWO ASSESSMENT YEARS, WE DRAW SUPPORT FROM THE VARIOUS DECISIONS, WHEREIN IT HAS BEEN HELD THAT SINCE DOCT RINE OF RES JUDICATA IS NOT APPLICABLE TO INCOME TAX PROCEEDING S, THE TRIBUNAL CAN DEVIATE FROM EARLIER ORDERS PASSED IN THE ASSES SEES OWN CASE AS IN THOSE EARLIER DECISIONS THE PROVISIONS O F THE ACCOUNTING STANDARD A-S TO WITH RESPECT TO VALUATIO N OF INVENTORIES WERE NOT CONSIDERED AND WHETHER THEY AP PLY TO THE SCRAP GENERATED IN A MANUFACTURING PROCESS BY THE C OMPANY. FURTHERMORE THERE IS NO EVIDENCES BROUGHT ON RECORD BY THE LD. ASSESSING OFFICER THAT THE ASSESSEE HAS SOLD SCRAP OUT OF THE BOOKS. FURTHERMORE THE AMOUNT OF ADDITION WORKING O UT BY THE LD. ASSESSING OFFICER WAS ALSO ON THE ESTIMATE BASI S WITHOUT ANY QUANTITATIVE DETAILS OF THE SCRAP. IT IS ALSO NOT T HE CASE OF THE ASSESSEE THAT COMPARED TO THE EARLIER YEARS THE SCR AP SOLD BY 58 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THE ASSESSEE IS LESSER DURING THE YEAR. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE LD. ASSESSING OFFICER ON ACCOU NT OF ESTIMATING THE VALUE OF SCRAP LYING IN CLOSING STOC K AMOUNTING TO RS. 3.02 LAKHS IS DELETED AND GROUND NO. 5 OF APPEA L RAISED BY THE ASSESSEE IS ALLOWED. 18.0.1 IN THE PRESENT ASSESSMENT YEAR ALSO THE ASSESSEE IS NOT DEALING IN SCRAP, AND/OR HOLDING THE SCRAP AS INVEN TORY, AND, THUS, WAS NOT REQUIRED TO VALUE THE CLOSING STOCK AFTER TA KING INTO ACCOUNT THE VALUE OF SCRAP. THIS TRIBUNAL, FOR A.Y.S 2010-1 1 AND 2011-12, WHILE COMING TO THE AFORESAID CONCLUSION, LAID EMPHA SIS ON THE FACT THAT SUCH TRANSACTION WAS REVENUE-NEUTRAL AND HELD T HAT CONSIDERING THE SIZE OF THE ASSESSEE COMPANY, IT CO ULD NOT BE EXPECTED TO KEEP QUANTITATIVE TALLY OF MINISCULE IT EMS. WE ALSO FIND THAT THE TRIBUNAL HAS IN THE APPEAL FOR THE ASSESSM ENT YEARS 2012- 13 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE A SSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASSESSMENT YEARS 2010-11 AND 2011-12. THE FACTS ARE IDENTICAL IN THE PRESENT YEAR AS WELL. 18.0.2 THEREFORE, GROUND NO. 6 IS ALLOWE D IN FAVOUR OF THE ASSESSEE. 59 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 19.0.0 WITH RESPECT TO GROUND NOS. 7 TO 7.2 , RELATING TO DISALLOWANCE OF PRIOR PERIOD EXPENSES AMOUNTING TO R S. 7.64 CRORES, IT WAS THE CONTENTION OF THE LD. AR THAT THE ASSESSE E IS A LARGE SIZE MANUFACTURING COMPANY WHICH RECEIVES SERVICES FROM S EVERAL VENDORS, RUNNING INTO HUNDREDS. THE LD. AR SUBMITTE D THAT THE ASSESSEE HAD MADE REASONABLE ATTEMPT TO QUANTIFY TH E LIABILITY INCURRED TOWARDS EXPENSES DURING THE RELEVANT PREVIO US YEARS AND PROVIDED FOR IT. IT WAS SUBMITTED THAT IT IS NOT HUM ANLY POSSIBLE TO CONSIDER AND PROVIDE FOR ALL EXPENSES, IN ABSENCE O F RELEVANT DETAILS/MATERIAL/INFORMATION FOR VARIOUS REASONS LI KE, NON-RECEIPT OF BILLS/INVOICES FROM THE VENDORS, THE CONTRACT TERMS WITH VENDORS NOT BEING SETTLED, DISPUTES IN RELATION TO BILLS RECEIV ED, SERVICES CONTRACTED BY ZONAL/REGIONAL/BRANCH OFFICERS NOT IN TIMATED TO THE HEAD OFFICE, ETC. ACCORDINGLY, THE ASSESSEE CLAIMED DEDUCTION FOR MISCELLANEOUS EXPENSES AGGREGATING TO 7.64 CRORES P ERTAINING TO PRIOR PERIOD. THE LD. AR SUBMITTED THAT IN THE ASSE SSMENT ORDER, THE ASSESSING OFFICER HAS DISALLOWED THE AFORESAID EXPE NSES, ON THE GROUND THAT SAME PERTAINED TO PRIOR PERIOD AND ARE NOT ALLOWABLE REVENUE EXPENDITURE AGAINST INCOME OF THE RELEVANT YEAR. 60 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 19.0.1 THE LD. AR SUBMITTED THAT THE AFORE SAID ISSUE IS COVERED BY THE ORDER PASSED BY THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2008- 09, WHEREIN, THE TRIB UNAL HAD TAKEN INTO CONSIDERATION THE FINDING OF THE LD. DRP DECID ING THE ISSUE IN FAVOR OF THE ASSESSEE AND REMANDED THE MATTER TO TH E FILE OF THE ASSESSING OFFICER FOR CORRECTING CALCULATION ERRORS . IT WAS FURTHER SUBMITTED THAT THE AFORESAID ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR ASSESSMEN T YEARS2009 TO 2013-14. 20.0 THE LD. CIT-DR RELIED ON THE ASSES SMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DEC ISION OF THE TRIBUNAL. 21.0.0 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS TRIBUNAL, IN A.Y . 2010-11 AND 2011-12, HAS HELD AS UNDER: 201. WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE THAT SIMILAR ISSUE RELATING TO DISALLOWANCE OF PRIOR-PERIOD EXPE NSES WAS DELETED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR ASSESSMENT YEAR 2008-09 ARE AS UNDER: 61 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 5. ON CAREFUL CONSIDERATION OF ABOVE CONTENTION AN D SUBMISSIONS OF BOTH THE PARTIES AND CAREFUL PERUSAL OF THE RECORD PLACED BEFORE US, INTER ALIA DECISION IN ASS ESSEE'S OWN CASE FOR AY 2007-08 (SUPRA), WE OBSERVE THAT TH E SAME ISSUE WAS DECIDED BY COORDINATE BENCH OF THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE WITH FOLLOWING F INDINGS AND CONCLUSIONS:- '61.10. THE ISSUE HEREIN IS YEAR OF DEDUCTIBILITY. ADDITIONAL GROUND OF APPEAL WAS FILED FOR A. Y. 200 6- 07 BEFORE THE TRIBUNAL AND THIS ADDITIONAL GROUND WAS NOT DISPOSED OF MISC. APPLICATION IS PENDING. T HE ASSESSEE'S CONTENTION IS THAT THE CORRECT AMOUNT IS RS. 23.86 LAKHS AND NOT RS. 643.05 LAKHS AS MENTIONED BY THE A.O. DETAILS ARE GIVEN IN THE PAPER BOOK WE FIND THAT THE D.R.P. HAS DIRECTED THE ASSESSING OFF ICER TO VERIFY THE PRICE. THIS WORKING GIVEN BY THE ASSE SSEE IS NOT PROPERLY VERIFIED BY THE A.O. THE AO SHOULD HAVE VERIFIED THE CLAIM OF THE ASSESSEE. WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESS EE. BE IT AS IT MAY, THE GENUINENESS OF THE EXPENDITURE IS NOT IN DOUBT AND AS IT IS A QUESTION OF EXCESS/ SHO RT PROVISION OF DISCOUNT IN RESPECT OF SALES EFFECTED, WE ARE OF THE CONSIDERED OPINION THAT METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE NEED NOT TO BE DISTURBED AS IT IS BEING CONSISTENTLY FOLLOWED OVER THE YEARS AND AS THE REVENUE HAS ACCEPTED THE SAME. THE ASSESSEE'S CLAIM THAT THE AMOUNT OF RS. 23.86 LAKHS IS NOT PRIOR PERIOD EXPENSES IS NOT SERIOUSLY DISPU TED BY THE REVENUE. AS TO THE BALANCE AMOUNT RS. 90,000 UNDER THE FESTIVAL OFFER SCHEME, IT WAS MARGINAL VARIATION THAT AROSE DUE TO ESTIMATION OF LIABILITY TOWARDS SALES DISCOUNT TO BE GIVEN TO DEALERS. THUS THE DISALLOWANCE CANNOT BE SUSTAINED BOTH ON THE GROUNDS OF MATERIALITY AS WELL AS CONSISTENCY. SIMI LAR ISSUES WERE DEALT BY US WHILE DISPOSING OF GROUND 62 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT NOS. 7 AND 7.1. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE ALLOW THIS GROUND OF THE ASSESSEE FOR STATISTICAL PURPOSES. 6. DURING THE ARGUMENT, BOTH THE PARTIES FAIRLY AGR EED THAT THE ASSESSEE CLAIMED DEDUCTION FOR FOLLOWING MISCEL LANEOUS EXPENSES AGGREGATING TO RS.7,09,31,076 BUT IN THE ASSESSMENT ORDER, THE AMOUNT OF RS.7,15,91,826 HAS BEEN INCORRECTLY REPORTED ON ACCOUNT OF TOTALING EXPENSE S. FROM PAGE NO. 14-16 OF DRP ORDER, WE OBSERVE THAT THE DR P HAS ALSO POINTED OUT MISTAKE OF TOTALING. AT THE OUTSET , WE OBSERVE THAT THE ASSESSING OFFICER HAS NOWHERE DISP UTED THE GENUINENESS OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AND IF ASSESSEE IS DENIED DEDUCTION, THEN IT WOULD NEVER GET DEDUCTION FOR SUCH EXPENSES. FROM D RP ORDER, WE ALSO OBSERVED THAT THE DRP HAS FOLLOWED I TS DECISION IN RESPECT OF IMMEDIATELY PRECEDING YEAR. AT THE SAME TIME, WE OBSERVE THAT THE MISTAKE OF TOTALING AND THE WORKING GIVEN BY THE ASSESSEE HAS NOT BEEN PROPERLY VERIFIED AT THE END OF ASSESSING OFFICER AND THE SA ME SHOULD HAVE BEEN VERIFIED BY THE ASSESSING OFFICER. UNDER ABOVE CIRCUMSTANCES, WE HOLD THAT THE ISSUE IS SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HON'BLE ITAT 'C' BENCH IN ASSESSEE'S OWN CASE FOR AY 2007-0 8 (SUPRA) AND WE DIRECT THE ASSESSING OFFICER TO ALLO W THE CLAIM OF THE ASSESSEE AFTER PROPER EXAMINATION AND VERIFICATION. ACCORDINGLY, GOING CONSISTENT WITH TH E VIEW TAKEN BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR T HE IMMEDIATELY PRECEDING YEAR TO THE YEAR UNDER CONSID ERATION IN THIS APPEAL, WE HOLD THAT GROUND NO. 1 OF THE RE VENUE BEING DEVOID OF MERITS DESERVES TO BE DISMISSED AND WE DISMISS THE SAME. 63 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE O F THE APPELLANT AS COMPARED TO THE ASSESSMENT YEAR IN WHI CH THE ABOVE ISSUE IS DECIDED BY THE COORDINATE BENCH. NO OTHER CONTRARY DECISION WAS ALSO POINTED OUT THEREFORE, R ESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN T HE APPELLANTS OWN CASE FOR THE EARLIER YEARS. WE DISMISS GROUND N O. 3 OF THE APPEAL OF THE REVENUE. 21.0.1 IT CAN BE SEEN THAT THE FACTS ARE IDENTICAL IN THE PREVIOUS ASSESSMENT YEARS 2009-10 TO 2013-14 AND SQ UARELY COVERED IN FAVOUR OF THE ASSESSEE. THEREFORE, GROUN D NOS. 7 TO 7.2 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 22.0.0 WITH RESPECT TO GROUND NO. 8 TO 8. 3 RELATING TO PROVISION OF HEAD OFFICE EXPENSE REVERSED IN SUCCEE DING YEAR AMOUNTING TO RS.11.80 CRORES, THE LD. AR SUBMITTED THAT AT THE END OF YEAR, THE ASSESSEE HAD MADE PROVISION FOR VARIOU S EXPENSES INCURRED DURING THE YEAR ON THE BASIS OF REASONABLE ESTIMATE, SINCE IN THE ABSENCE OF RECEIPT OF BILLS/INVOICES FROM TH E VENDORS, WHICH ARE RECEIVED IN THE SUCCEEDING YEAR, THE EXACT AMOU NT PAYABLE THERE AGAINST WAS NOT ASCERTAINABLE. IN THE SUCCEEDING YEA R, ON RECEIPT OF BILLS FROM VENDORS, EXACT AMOUNT PAYABLE TO VENDORS WAS 64 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT ASCERTAINED. THE AMOUNT OF PROVISION IN EXCESS OF A CTUAL AMOUNT PAYABLE WAS REVERSED IN THE BOOKS OF ACCOUNT. IN CAS E OF SHORTFALL, THE PROFIT AND LOSS ACCOUNT WAS DEBITED WITH THE AMOU NT OF SHORTFALL. THE LD. AR SUBMITTED THAT THE AGGREGATE PROVISION F OR ADVERTISEMENT EXPENSES INCURRED AT THE HEAD OFFICE MADE AT THE EN D OF THE RELEVANT PREVIOUS YEAR, WHICH WAS REVERSED IN SUCCEEDING YEAR AMOUNTED TO RS. 11.80 CRORES. IN THE ASSESSMENT ORDER, THE ASSE SSING OFFICER DISALLOWED THE PROVISIONS MADE AT THE END OF THE YE AR OF RS. 11.80 CRORES WHICH WERE REVERSED IN THE SUCCEEDING YEAR ON RECEIPT OF BILLS FROM THE VENDORS ON CONCLUSION OF NEGOTIATIONS WITH THE VENDORS, ON THE GROUND THAT THE PROVISIONS TO THAT EXTENT WERE E XCESSIVE AND REPRESENTED CONTINGENT LIABILITY, WHICH WAS NOT ALLO WABLE DEDUCTION. THAT APART, THE ASSESSING OFFICER ALSO ADDED BACK T HE AFORESAID TOTAL PROVISION WHILE COMPUTING BOOK PROFIT UNDER SECTIO N 115JB, HOLDING THE SAME TO BE AN UNASCERTAINED LIABILITY. 22.0.1 THE LD. AR SUBMITTED THAT THE PROVISI ON FOR ADVERTISEMENT EXPENSES, IN THE YEAR UNDER CONSIDERA TION AS WELL, HAS BEEN MADE ON THE BASIS OF ACTUAL PURCHASE ORDER S AND AGREEMENTS AND, THUS, HAS BEEN MADE ON REASONABLE A ND SCIENTIFIC 65 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT BASIS. DETAIL OF PROVISIONS FOR ADVERTISEMENT WAS SU BMITTED BEFORE THE AUTHORITIES. THE LD. AR SUBMITTED THAT THE TRIB UNAL, IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS, VIZ. AYS 20 10-11 AND 2011-12, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE BY FOLLOWING THE ORDER FOR ASSESSMENT YEAR 2008-09 HOLDING THAT THE PROVISION WAS MADE ON A RATIONAL AND SCIENTIFIC BASIS, AND, TH US, THE SAME WAS TO BE ALLOWED AS BUSINESS DEDUCTION, NOTWITHSTAND ING THAT PART THEREOF WAS REVERSED IN THE SUCCEEDING YEAR. IT WAS S UBMITTED THAT THE TRIBUNAL, IN COMING TO THE AFORESAID CONCLUSION , ALSO HELD THAT THE DISALLOWANCE CANNOT BE MADE ON ISSUES WHICH ARE R EVENUE NEUTRAL. IT WAS FURTHER SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, WHEREIN THE TRIBUNAL REVERSED THE ACTION OF ASSESSING OFFICER IN DISALLO WING PROVISION ON THE GROUND THAT THE AMOUNT REVERSED THERE AGAINST I N THE SUCCEEDING YEAR EXCEEDED 15% OF THE AMOUNT OF PROVISION. THE T RIBUNAL HELD THAT THE SAID APPROACH FOLLOWED BY THE AO HAD NO VA LID BASIS AND WAS PURELY AD-HOC . THE TRIBUNAL ALSO HELD THAT THE ASSESSING OFFICER WAS BOUND TO FOLLOW THE PRACTICE AND STAND TAKEN BY T HE DEPARTMENT 66 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT ON THIS ISSUE IN THE EARLIER YEARS AND, ACCORDINGLY , RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO RECONSIDER THE ISSUE, HAVING REGARD TO THE METHOD OF MAKING PROVIS IONS FOLLOWED BY THE ASSESSEE AND ACCEPTED BY THE REVENUE IN PRECEDI NG YEARS. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSING OFFICER , IN THE SET-ASIDE PROCEEDINGS, VIDE ORDER DATED 26.02.2015, ACCEPTED THE CLAIM OF THE ASSESSEE AND ALLOWED RELIEF ON THE AFOREMENTIONED ID ENTICAL ISSUE BY OBSERVING THAT THE ASSESSEE HAD COMPUTED THE PROVIS ION ON THE BASIS OF ACTUAL PURCHASE ORDERS, WHICH WAS SCIENTIFIC AND L OGICAL IN NATURE. 22.0.2 IT WAS FURTHER POINTED OUT BY THE L D. AR THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR AYS 2010-11 AND 2011- 12, THE TRIBUNAL HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSE E IN APPELLATE ORDERS PASSED FOR AYS 2009-10, 2012-13 AND 2013-14. FURTHER, IN THE ORDER PASSED FOR ASSESSMENT YEAR 2009-10, THE T RIBUNAL ALSO HELD THAT THE PROVISION FOR ADVERTISEMENT EXPENSES WAS ALSO ALLOWABLE WHILE COMPUTING BOOK PROFIT UNDER SECTION 1 15JB OF THE ACT. 67 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 23.0 THE LD. CIT-DR RELIED UPON THE ASSES SMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DEC ISION OF THE TRIBUNAL. 24.0.0 WE HAVE HEARD BOTH THE PARTIES AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. ON THE ISSUE UNDER CO NSIDERATION, THIS TRIBUNAL, IN ITS ORDERS FOR A.YS. 2010-11 AND 2011- 12, HAS HELD AS UNDER: 33. WE HAVE HEARD THE RIVAL CONTENTIONS. WE AGREE W ITH THE SUBMISSIONS OF THE LD. COUNSEL OF THE APPELLANT, WH ICH, IN FACT, HAVE EVEN BEEN AGREED BY THE DRP AND ENDORSED BY TR IBUNAL IN THE ORDER FOR AY 2008-09, THAT A PROVISION MADE FOR EXPENSES ON A SCIENTIFIC AND RATIONAL BASIS IS ALLOWABLE BUSINE SS DEDUCTION. THE PROVISIONS SO MADE CANNOT BE DISALLOWED MERELY BECAUSE; PART THEREOF WAS REVERSED IN THE SUBSEQUENT YEAR AT THE TIME OF ACTUAL QUANTIFICATION OF THE LIABILITIES. WE ALSO F IND THAT THE APPELLANT HAD GIVEN COMPLETE DETAILS IN RESPECT OF THE METHOD FOLLOWED IN CREATING THE AFORESAID PROVISIONS, WHIC H WERE MADE ON THE BASIS OF DETAILS / INFORMATION AVAILABLE WIT H THE COMPANY AS AT THE END OF THE RELEVANT YEAR. WE FURTHER REIT ERATE AND FOLLOW THE FINDING GIVEN IN THE PRECEDING GROUND OF APPEAL THAT THE REVENUE SHOULD NOT MAKE ADJUSTMENT ON THE ISSUE S WHICH ARE REVENUE NEUTRAL, HAVING NO IMPACT ON THE OVERAL L TAX LIABILITY OF AN ASSESSEE. WHILE FOLLOWING THE AFORESAID PRINC IPLES, WE 68 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT OBSERVE THAT THE PRESENT DISALLOWANCE IS ALSO REVEN UE-NEUTRAL, SINCE THE IMPUGNED AMOUNT OF PROVISION, AS ALSO ADM ITTED BY THE ASSESSING OFFICER ITSELF, WAS REVERSED IN THE SUCCE EDING YEAR AND CONSEQUENTIAL OFFERED TO TAX IN THAT YEAR. IF SUCH PROVISION IS DISALLOWED IN THIS YEAR, THE CORRESPONDING REDUCTIO N WOULD NEED TO BE MADE IN THE RETURN OF THE SUCCEEDING YEAR, NE UTRALIZING THE ENTIRE TAX LIABILITY ON THE APPELLANT COMPANY. FOR THE AFORESAID CUMULATIVE REASONS, WE HEREBY DELETE THE DISALLOWAN CE MADE BY THE BY THE LD. ASSESSING OFFICER OF RS. 1 9658 1820 / IN RESPECT OF PROVISION FOR ADVERTISEMENT EXPENSES INCURRED AT THE HEAD OFFICE MADE AT THE END OF THE RELEVANT PREVIOUS YEA R WHICH WERE REVERSED IN THE SUCCEEDING YEAR AND ALLOW THE GROUN D NO. 7 OF APPEAL RAISED BY THE ASSESSEE. 24.0.1 IN THE PRESENT ASSESSMENT YEAR, DETA IL OF PROVISIONS FOR ADVERTISEMENT WAS SUBMITTED BEFORE THE LOWER AUTHORI TIES. FURTHER, THE ASSESSING OFFICER, IN THE SET-ASIDE PROCEEDINGS FOR A.Y. 2008-09, VIDE ORDER DATED 26.02.2015, ACCEPTED THE CLAIM OF THE ASSESSEE AND ALLOWED RELIEF ON THE AFOREMENTIONED IDENTICAL ISSU E BY OBSERVING THAT THE ASSESSEE HAD COMPUTED THE PROVISION ON THE BASIS OF ACTUAL PURCHASE ORDERS, WHICH WAS SCIENTIFIC AND LOGICAL IN NATURE. THUS, THE ASSESSING OFFICER WAS NOT RIGHT IN DISALLOWING TH E SAID EXPENSES AND ALSO ADDING BACK THE SAME WHILE COMPUTING BOOK PROFIT, HOLDING 69 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THE SAME TO BE UNASCERTAINED LIABILITY. THUS, THE I SSUE IS SQUARELY COVERED BY THE ORDERS THE TRIBUNAL IN A.YS. 2008-09 TO 2013-14. 24.0.2 THEREFORE, GROUND NOS. 8 TO 8. 3 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 25.0.0 THE LD. AR SUBMITTED THAT GROUND NOS. 9 TO 9.4 RELATE TO DISALLOWANCE OF ALLEGED EXCESSIVE PURCHAS ES FROM RELATED PARTIES AS PER AS-18 AMOUNTING TO RS. 29.14 CRORES. IT WAS SUBMITTED THAT IN THE COURSE OF BUSINESS OF MANUFAC TURING TWO WHEELERS, THE ASSESSEE, INTER ALIA, PROCURES CERTAIN CRITICAL COMPONENTS LIKE SHOCK ABSORBERS, CARBURETORS, ETC., WHICH ARE FITTED IN THE TWO- WHEELERS MANUFACTURED BY THE ASSESSEE, FR OM A SINGLE VENDOR, HAVING THE REQUISITE TECHNOLOGY TO MANUFACT URE THE SAME, IN ACCORDANCE WITH THE SPECIFICATIONS GIVEN BY THE ASSE SSEE. THE ASSESSEE, DOES NOT PROCURE SUCH COMPONENTS FROM ANY OTHER VENDOR. THE LD. AR SUBMITTED THAT THE PURCHASE PRICE OF COM PONENTS WHICH ARE PURCHASED FROM VARIOUS SUPPLIERS ARE BASED UPON NEGOTIATIONS WITH SUCH VENDORS AND ARE DIFFERENT DUE TO VARIOUS F ACTORS, LIKE LEVEL OF AUTOMATION OF VENDOR, AMOUNT OF INVESTMENT BY VE NDOR, AGE OF THE PLANT, CAPACITY UTILIZATION (IMPACTING FIXED COST R ECOVERY), VOLUME OF 70 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT SUPPLY, GEOGRAPHICAL DIFFERENCES (WHICH COULD IMPAC T COST OF FREIGHT, LABOUR, POWER), LEAD TIME, INDIRECT TAX COSTS (CST VS VAT) ETC. FURTHER, THE ASSESSEE ALSO PREFERS PURCHASING MATER IAL FROM CERTAIN SUPPLIERS, DUE TO BUSINESS/COMMERCIAL EXPEDIENCY, V IZ., DE-RISKING THE SUPPLY CHAIN TO REDUCE DEPENDENCE, INABILITY OF EXISTING SUPPLIER TO MEET DEMAND INCREASE, ETC. THE LD. AR SUBMITTED THAT THE SAID PARTIES ARE NOT RELATED TO ASSESSEE IN TERMS OF THE PROVISIONS OF SECTION 40A (2)(B) OF THE ACT. IN ADDITION TO ABOVE , THE ASSESSEE, IN THE COURSE OF MANUFACTURING TWO WHEELERS, PLACES PURC HASE ORDERS ON VENDORS OF CERTAIN CUSTOMIZED INTERMEDIARY PRODU CTS LIKE WHEEL ASSEMBLY, SEAT ASSEMBLY, ETC. THE ASSESSEE, WHILE PL ACING AFORESAID PURCHASE ORDERS TO THE VENDORS, ALSO SPECIFIES THE SPECIFICATIONS OF THE RAW MATERIALS/COMPONENTS TO BE USED IN MANUFACTU RE OF CUSTOMIZED INTERMEDIARY PRODUCTS AS ALSO THE NAME O F SUPPLIERS FROM WHOM THE FORMER VENDOR WOULD PURCHASE SUCH MATERIALS/COMPONENTS AT PRICES PREDETERMINED BY THE ASSESSEE. IT WAS SUBMITTED THAT THE AO AFTER COMPARING PURCHASE P RICE OF CERTAIN PRODUCTS, WHICH WERE PURCHASED FROM THE AFORESAID REL ATED PARTIES AS ALSO FROM UNRELATED PARTIES, HELD THAT THE PURCH ASE PRICE FROM 71 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT RELATED PARTIES WAS EXCESSIVE IN ORDER TO REDUCE TH E TAXABLE INCOME. THE AO ALSO HELD THAT THE ASSESSEE HAD CONDUCTED IT SELF IN SUCH A MANNER THAT THE PARTIES DO NOT QUALIFY AS RELATED PARTY' UNDER SECTION 40A (2) OF THE ACT, EVEN THOUGH SAID PARTIE S WERE RELATED TO ASSESSEE IN TERMS OF AS- 18. ACCORDINGLY, THE AO CO MPUTED EXCESSIVE PURCHASE PRICE AT RS.9.73 CRORES IN RESPECT OF PURC HASES FROM RELATED PARTIES FOR WHICH INTERNAL COMPARABLE OF SIM ILAR PRODUCTS PURCHASED FROM RELATED PARTIES WERE AVAILABLE. IN R ESPECT OF OTHER CATEGORY OF PURCHASES FROM RELATED PARTIES FOR WHICH NO INTERNAL COMPARABLE WAS AVAILABLE, THE AO WORKED OUT AN AMOUNT OF RS. 19.41 CRORES IN THE SAME PROPORTION AS THAT OF PURC HASES FOR WHICH INTERNAL COMPARABLE WERE AVAILABLE ALLEGING THE SAM E TO BE EXCESSIVE. THUS, THE AO MADE TOTAL DISALLOWANCE OF RS.29.14 CRO RES OUT OF PURCHASES. 25.0.1 THE LD. AR SUBMITTED THAT THE AFORE SAID ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE DELHI BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE F OR ASSESSMENT YEARS 2007-08 AND 2008-09, WHEREIN IDENTICAL DISALLO WANCE MADE IN THAT YEAR WAS DELETED ON THE GROUND THAT SINCE IN TH E FIRST PLACE, THE 72 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT PARTIES WERE NOT RELATED TO THE ASSESSEE COMPANY IN TERMS OF SECTION 40A (2), DISALLOWANCE ON GROUND OF EXCESSIVE PURCHA SE PRICE COULD NOT HAVE BEEN MADE UNDER THAT SECTION. FURTHER, THE TRIBUNAL HELD THAT THE TRANSACTIONS WERE ENTERED BY THE ASSESSEE ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND WHEN THE RECIPIENTS HAD PA ID TAX ON PAYMENTS RECEIVED FROM THE ASSESSEE COMPANY, DISALL OWANCE COULD NOT BE MADE BY APPLYING PROVISIONS OF SECTION 40A ( 2) OF THE ACT. THE LD. AR POINTED OUT THAT SIMILAR DISALLOWANCE MADE IN THE IMMEDIATELY PRECEDING TWO ASSESSMENT YEARS, VIZ. AY 2010-11 AND 2011-12 WAS ALSO REVERSED BY THE TRIBUNAL, FOLLOWING THE AFOREMENTIONED ORDER OF THE TRIBUNAL FOR ASSESSMENT YEARS 2007-08 AND 2008-09. IT WAS FURTHER POINTED OUT BY THE LD. A R THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR AYS 2010-11 AND 2011- 12, THE TRIBUNAL HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSE E IN APPELLATE ORDERS PASSED FOR AYS 2009-10, 2012-13 AND 2013-14. 26.0.0 THE LD. CIT-DR RELIED UPON THE A SSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 73 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 27.0.0 WE HAVE HEARD BOTH THE PARTIES AN D PERUSED THE MATERIAL AVAILABLE ON RECORD. ON IDENTICAL ISSUE, T HIS TRIBUNAL IN ITS ORDER FOR A.YS. 2010-11 AND 2011-12 HAS HELD AS UND ER: 55. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT ION AND PERUSED THE RELEVANT RECORDS PLACED BEFORE US. IT W AS SUBMITTED BY THE PARTIES THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE PRESENT ASSESSMENT YEAR COMPARED TO THE ASSESSMENT YEAR FOR WHICH THE COORD INATE BENCH IS DECIDED THIS ISSUE IN THE FAVOUR OF THE APPELLAN T FOR ASSESSMENT YEAR 2007 08 AND 2008 09 WHEREIN THI S ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH AS UNDER:- 13.14. THE BASIC REQUIREMENT FOR THE APPLICABILITY OF SECTION 40A(2) OF THE ACT IS THAT THE PAYMENT SHOUL D BE MADE TO A RELATED PERSON I.E. TO A PERSON REFERRED TO IN CLAUSE (B), OF SUB-SECTION (2) OF SECTION 40A OF TH E ACT. 13.15. IN THE PRESENT CASE, IT IS AN UNDISPUTED FAC T THAT THE PAYMENTS ARE NOT MADE TO A PERSON MENTIONED IN CLAU SE (B) OF SECTION 40A (2) OF THE ACT. 13.16. CLAUSE (A ) OF SUB-SECTION (2) OF SECTION 40 A OF THE ACT PROVIDES THAT WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CLAUSE (B) OF THE SUB SECTION AND THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REG ARD TO THE FAIR MARKET VALUE OF THE GOODS, SERVICES OR FAC ILITIES FOR WHICH THE PAYMENT IS MADE OR THE LEGITIMATE NEEDS O F THE BUSINESS OR PROFESSION OF THE ASSESSEE OR THE BENEF IT 74 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT DERIVED BY OR ACCRUING TO HIM THERE FROM, SO MUCH O F THE EXPENDITURE AS IT SO CONSIDERED BY HIM TO BE EXCESS IVE OR UNREASONABLE, SHALL NOT BE ALLOWED AS A DEDUCTION. THE OBJECT OF SECTION 40A (2) IS TO PREVENT DIVERSION O F INCOME. AN ASSESSEE WHO HAS LARGE INCOME AND IS LIABLE TO P AY TAX AT THE HIGHEST RATE PRESCRIBED UNDER THE ACT OFTEN SEEKS TO TRANSFER A PART OF HIS INCOME TO A RELATED PERSON W HO IS NOT LIABLE TO PAY TAX AT ALL OR LIABLE TO PAY TAX AT A RATE LOWER THAN THE RATE AT WHICH THE ASSESSEE PAYS THE TAX. I N ORDER TO CURB SUCH TENDENCY OF DIVERSION OF INCOME AND TH EREBY REDUCING THE TAX LIABILITY BY ILLEGITIMATE MEANS, S ECTION 40- A WAS ADDED TO THE ACT BY AN AMENDMENT MADE BY THE FINANCE ACT, 1968. CLAUSE (B) OF SECTION 40A (2) GI VES THE LIST OF RELATED PERSONS. 13.17. IN THE PRESENT CASE, IT IS AN UNDISPUTED FAC T THAT NONE OF THE PARTIES FALL WITHIN THE PERSONS SPECIFI ED AS DEFINED UNDER CLAUSE (B) OF SECTION 40A (2) OF THE ACT. RELATED PARTIES ARE TO BE CONSIDERED IN TERMS OF PR OVISIONS OF SEC. 40A (2) OF THE ACT AND NOT AS MENTIONED IN AS-18 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANT. TH US, WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 40A (2) DO NOT APPLY TO THE PRESENT CASE. FURTHER, THERE IS NO PRO VISION UNDER THE ACT WHICH AUTHORIZES THE ASSESSING OFFICE R TO LIFT THE CORPORATE VEIL AND DISALLOW AN EXPENDITURE ON T HE GROUND OF REASONABLENESS AND COMMERCIAL EXPEDIENCY UNLESS IT IS ESTABLISHED THAT THE TRANSACTION IS PR IMARILY DEVISED TO EVADE TAX. 13.18. IN THE PRESENT CASE, IT WAS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT THE RELATED PARTIES ARE PRO FIT- MAKING COMPANIES AND ARE SUBJECT TO TAX TO AT SOME LESS OR THE SAME RATE OF TAX. THUS, THERE IS NO LOSS OF REV ENUE. THIS SUBMISSION OF THE ASSESSEE HAS NOT BEEN CONTROVERTE D 75 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT BEFORE US BY THE LEARNED DR. TAX BENEFIT ALLEGED IS FACTUALLY WRONG AS THE OTHER COMPARED ASSESSES ARE PROFIT MAKING COMPANIES/ASSESSEES. THERE IS NO LOSS TO THE REVENUE IF ONLY THE EXCESS PAYMENT OF PRICE IS TAKE N, BUT THIS SITUATION IS NOT CONSIDERED BY THE REVENUE. EX CEPT FOR ALLEGATION THAT EXCESS PRICE IS PAID TO REDUCE PROF IT, NO OTHER EVIDENCE IS GATHERED BY ASSESSING OFFICER TO PROVE THAT THE ASSESSEE HAD IN FACT EVADED OR SAVED TAX BY SUCH EX ERCISE. THE ARGUMENT OF THE REVENUE FAILS. THE ALLEGATION T HAT THE ASSESSEE HAS STRUCTURED HIS ASSOCIATE CONCERN SO AS TO AVOID SEC. 40A (2) IS ALSO DEVOID OF MERIT, AS THE REVENUE HAS FAILED TO DEMONSTRATE AS TO HOW IT HAS COME TO SUCH A CONCLUSION. THE ALLEGATION MEANS THAT PROFIT IS TRA NSFERRED TO THIRD PARTIES, WHERE THE SHARE HOLDING OF THE AS SESSEE IS NOT A MAJOR SHARE HOLDING. THE ALLEGATION MEANS THA T THE ASSESSEE IS DISTRIBUTING PROFITS TO COMPANIES WITH MAJORITY HOLDING BY UNRELATED PARTIES FOR THE PURPOSE OF RED UCING TAXES. SUCH WILD ALLEGATION CANNOT BE ENDORSED BY U S. 13.19. THE ASSESSEE DOES NOT DISPUTE THE FACT THAT CERTAIN PURCHASES ARE MADE AT A RATE HIGHER THAN THE RATE P AID TO CERTAIN OTHER PARTIES FOR THE SAME PERIODS. THE ASS ESSEE AT PAGES 1523 TO 1523.18 OF THE PAPER BOOK ALSO FURNIS HED INSTANCES WHERE PURCHASES WERE MADE FROM THESE PART IES AT PRICE LOWER THAN THE PURCHASES MADE FROM UNRELAT ED PARTIES. FURTHER, THE DISALLOWANCE WAS MADE ON ADHO C BASIS WITHOUT SETTING ANY BENCHMARK FOR THE DISALLO WANCE. 13.20. NOTWITHSTANDING THE ABOVE VIEW, EVEN ASSUMIN G FOR A MOMENT THAT THE PROVISIONS OF THE SECTION 40A (2) WOULD APPLY TO THE PRESENT CASE, THEN THE FOLLOWING PROPO SITIONS LAID DOWN BY VARIOUS COURTS HAVE TO BE CONSIDERED. 76 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 13.21. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. INDO SAUDI SERVICES (TRAVEL) (P.) LTD. [2009] 310 I TR 306 RELYING ON CBDT CIRCULAR NO. 6-P, DATED 6-7-1968 HE LD THAT NO DISALLOWANCE SHOULD BE MADE UNDER SECTION 40A(2) OF THE INCOME-TAX ACT IN RESPECT OF THE PAYMENTS MADE TO THE RELATIVES AND SISTER CONCERNS WHERE THERE IS NO ATT EMPT TO EVADE TAX. 13.22. HAVING HELD THAT THE PROVISIONS OF SECTION 4 0A (2) OF THE ACT DOES NOT APPLY TO THE FACTS OF THE CASE. WE NOW PROCEED TO ANSWER WHETHER THE ACTION OF THE ASSESSI NG OFFICER IN DISALLOWING THE EXPENDITURE ON THE GROUN D OF COMMERCIAL EXPEDIENCY IS JUSTIFIED. 13.23. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS WALCHAND & CO [1967] 65 ITR 381 IN THE CONTEXT OF DEDUCTIBILITY OF EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX ACT, 1961 [CORRESPONDING TO SECTION 10(2 )(XV) OF THE INDIAN INCOME-TAX ACT, 1922] HELD AS UNDER: IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE BUSINES S, REASONABLENESS OF THE EXPENDITURE HAS TO BE ADJUDGE D FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT O F THE REVENUE. 13.24. FURTHER, REFERENCE IS ALSO DRAWN TO THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILD ERS LTD. V. CIT (APPEALS) [2007] 288 ITR 1 (SC) , WHERE IN I T WAS HELD AS UNDER: '....THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEX US BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINES S OF THE ASSESSEE ITSELF), THE REVENUE CANNOT JUSTIFI ABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINES SMAN 77 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT OR IN THE POSITION OF THE BOARD OF DIRECTORS AND AS SUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF T HE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. THE INCOME-TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESS MAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POI NT BUT THAT OF A PRUDENT BUSINESSMAN....' 13.25. IT IS A WELL SETTLED PRINCIPLE THAT COMMERCI AL EXPEDIENCY CANNOT BE JUDGED BY THE REVENUE FROM ITS POINT OF VIEW. IN THE PRESENT CASE, WE ARE OF THE VIEW TH AT THE ASSESSING OFFICER HAS MADE THIS DISALLOWANCE BASED ON SURMISES AND CONJECTURES WITHOUT PROPERLY EXAMINING THE FACTS ON RECORD AND WITHOUT BRINGING ANY EVIDENCE T HAT THE PURCHASES WERE MADE AT AN EXCESSIVE PRICE COMPARED TO FAIR MARKET VALUE TO EVADE TAX. 13.26. IN VIEW OF THE ABOVE DISCUSSIONS, AND BEARIN G IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE IMPUGNED DISALLOWANCE WAS INDEED UNCALLED FOR ON THE FACTS OF THIS CASE. HENCE, WE UPHOLD THE GRO UNDS OF THE ASSESSEE. IN VIEW OF THE ABOVE ABOUT DECISION OF THE COORDINA TE BENCH IN APPELLANTS OWN CASE AND FURTHER FAILURE ON PART OF THE REVENUE TO CONTROVERT ANY OF THE FINDINGS IN THE EARLIER OR DER OF THE TRIBUNAL OR POINTING OUT ANY CONTRARY DECISIONS ON THIS ISSUE, THE RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH TO NOT INCLINED TO UPHOLD THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER ON ACCOUNT OF THE PURCHASES OF RS. 7 2.40 C RORES MADE FROM THE PARTIES WHO ARE RELATED PARTIES IN TERMS O F ACCOUNTING STANDARD 18 ISSUED BY THE INSTITUTE OF CHARTERED AC COUNTANTS OF 78 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT INDIA BUT NOT IN TERMS OF PROVISIONS OF SECTION 40A (2) OF THE INCOME TAX ACT. IN THE RESULT GROUND NO. 11 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 27.0.1 ADMITTEDLY, THE ISSUE IS SQUAREL Y COVERED BY THE ORDER OF THE TRIBUNAL FOR A.YS. 2010-11 AND 2011-12. WE A LSO FIND THAT THE TRIBUNAL HAS IN THE APPEALS FOR THE ASSESSMENT YEAR S 2009-10, 2012-13 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASS ESSMENT YEARS 2010-11 AND 2011-12. 27.0.2 THEREFORE, GROUND NOS. 9 TO 9.4 AR E ALLOWED IN FAVOUR OF THE ASSESSEE. 28.0.0 AS REGARDS GROUND NOS. 10 TO 10.3 R ELATING TO PAYMENT RECEIVED ON BEHALF OF HERO HONDA FIN CORP. LTD. (HF CL) DEEMED AS DIVIDEND UNDER SECTION 2(22)(E) AMOUNTING TO RS.22. 26 CRORES, THE LD. AR SUBMITTED THAT HERO FIN CORP. LTD. (HFCL) IS A RELATED COMPANY WHICH IS ENGAGED PRIMARILY IN THE BUSINESS O F FINANCING OF VEHICLES. IT WAS SUBMITTED THAT IN PURSUANCE OF THE SAID BUSINESS HFCL EXTENDS TO THE DEALERS OF THE ASSESSEE COMPANY , FACILITY OF FINANCING VEHICLES PURCHASED BY THE DEALERS FROM TH E ASSESSEE COMPANY. THE DEALERS ON PURCHASE OF VEHICLES FROM T HE ASSESSEE, GET 79 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THE BILL OF PURCHASE RAISED BY THE ASSESSEE, DISCOU NTED FROM HFCL AND REMIT PAYMENT TO THE ASSESSEE. THE DEALERS ARE REQUIRED TO MAKE PAYMENT OF AFORESAID DISCOUNTED BILLS TO HFCL ON MATURITY THEREOF. SUBSEQUENTLY, WHEN PAYMENTS BY DEALERS TO H FCL ARE DUE TO THE DEALERS, DUE TO CONVENIENCE OF FACILITY OF C OLLECTION CENTERS OF THE ASSESSEE AVAILABLE ALL OVER INDIA, MAKE PAYMENT INTO THE ASSESSEE'S BANK ACCOUNT, FOR AND ON BEHALF OF HFCL, WHICH IS IN TURN REMITTED BY THE ASSESSEE TO HFCL IN 2-3 DAYS. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HELD THAT THE AFORESAID AMOUN T RECEIVED BY THE ASSESSEE FROM DEALERS WAS LOAN/ADVANCE GIVEN BY HFC L TO ASSESSEE AND CONSEQUENTLY DEEMED THE SAME AS DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. IT WAS FURTHER OBSERVED THAT TH E AFORESAID ADVANCES WERE NOT GIVEN BY HFCL TO THE ASSESSEE IN T HE ORDINARY COURSE OF BUSINESS SINCE THE AFORESAID PAYMENTS WERE GIVEN BY CUSTOMERS OF HFCL AND NOT BY HFCL DIRECTLY. 28.0.1 THE LD. AR SUBMITTED THAT IN AY 2007-08, THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSE E BY HOLDING THAT ASSESSEES INTENTION DID NOT REFLECT THAT THE AMOUN T WAS RECEIVED AS LOAN OR ADVANCE SO AS TO ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF 80 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THE ACT. THE TRIBUNAL FURTHER HELD THAT THE ASSESSE E WAS HOLDING THE MONEY AS A CUSTODIAN AND THE AMOUNT WOULD BE EXEMPTE D IN TERMS OF CLAUSE (II) SECTION 2(22)(E) SINCE THE AMOUNT WA S GIVEN IN THE ORDINARY COURSE OF BUSINESS. IT WAS ALSO SUBMITTED T HAT IN ASSESSMENT YEARS 2008-09 TO 2013-14, THE TRIBUNAL F OLLOWED THE ORDER FOR ASSESSMENT YEAR 2007-08 AND DELETED THE D ISALLOWANCE. 29.0 THE LD. CIT-DR RELIED UPON THE ASS ESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DEC ISION OF THE TRIBUNAL. 30.0.0 WE HAVE HEARD BOTH THE PARTIES AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-12 HELD AS UNDER: 214) WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE THAT SIMILAR ISSUE RELATING TO ADDITION OF DEEMED DIVIDEND WAS D ELETED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007- 08 WHICH WAS FOLLOWED IN ASSESSMENT YEAR 2008-09. T HE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR ASSESSMEN T YEAR 2007- 08 ARE AS UNDER: 16.27. SECTION 2(22)(E), IS A DEEMING SECTION AND IT IS WELL SETTLED THAT IT SHOULD BE STRICTLY INTERPRETED. IN THE PRESENT CASE, THE INTENTION OF THE PARTIES DID NOT REFLECT THAT IT WAS AN ADVANCE OR LOAN SO AS TO ATTRACT SECTION 2(22)(E ). THE 81 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT ASSESSEE IN THIS CASE WAS HOLDING THE MONEY RECEIVE D FROM DEALERS AS CUSTODIAN OF HHFL. THERE IS NO PRIVITY O F CONTRACT BETWEEN THE ASSESSEE AND HHFL. THERE IS NO POSITIVE ACT OF GRANTING LOAN OR ADVANCE GIVEN BY H HFL TO THE ASSESSEE. THERE IS NEITHER A STIPULATION FOR PA YMENT OF INTEREST OR PERIOD OF REPAYMENT. FURTHER, THE ASSES SEE HAS NOT USED THE FUNDS FOR ITS OWN PURPOSES, AS ADMITTE DLY THE ASSESSEE IS A CASH RICH COMPANY, NOT REQUIRING LOAN S. THIS FACT IS NOT DISPUTED BY THE REVENUE. THE ASSESSEE W AS USED AS CHANNEL FOR REMITTANCE OF MONEY BY THE DEAL ERS TO HHFL FOR THE PURPOSE OF CONVENIENCE AND FROM ASSESS EES A STANDPOINT THIS IS BUSINESS EXPEDIENCY. WE ARE UN ABLE TO APPRECIATE THE CONCLUSIONS DRAWN BY THE ASSESSING O FFICER THAT THIS IS A DEEMED LOAN. IN OUR VIEW, BY NO STRE TCH OF IMAGINATION IT CAN BE SAID THAT THERE WAS ANY AMOUN T OF ADVANCE OR LOAN GIVEN BY HHFL TO THE ASSESSEE. 16.28. EVEN ASSUMING THAT THE TRANSACTION IS IN THE NATURE OF LOAN, WE HAVE TO AGREE WITH THE ARGUMENTS OF THE LD. AR OF THE ASSESSEE THAT THE TRANSACTION CANNOT BE DEEM ED AS DIVIDEND IN TERMS OF EXEMPTION PROVIDED IN CLAUSE ( II) OF SECTION 2(22)(E) OF THE ACT, SINCE THE LOAN WOULD B E CONSIDERED AS GIVEN BY HHFL, WHICH IS ENGAGED IN TH E BUSINESS OF MONEY LENDING, IN THE ORDINARY COURSE O F ITS BUSINESS. THEREFORE, THE AMOUNT CANNOT BE DEEMED AS DIVIDEND IN THE HANDS OF THE ASSESSEE. THE ARGUMENT S OF THE LD. DR THAT SINCE NO INTEREST WAS CHARGED/ CHAR GEABLE THEREON FROM THE ASSESSEE, THE AFORESAID LOAN CANNO T BE SAID TO BE GIVEN IN THE ORDINARY COURSE OF BUSINESS OF HHFL IS TAKEN TO ITS LOGICAL CONCLUSION, SUPPORTING OUR VIEW THAT THIS IS NOT A LOAN OR ADVANCE. 82 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 16.29. CONSIDERING THE DECISION OF THE HONBLE DELH I HIGH COURT AND THE INTENT OF THE LEGISLATURE IN INTRODUC TION OF SECTION 2(22)(E) OF THE ACT, WE ARE OF THE VIEW THA T THE TRANSACTION IN QUESTION WOULD NOT FALL WITHIN THE P ROVISIONS OF SECTION 2(22)(E) OF THE ACT. ACCORDINGLY, THIS G ROUND OF THE ASSESSEE IS ALLOWED. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE O F THE APPELLANT AS COMPARED TO THE ASSESSMENT YEAR IN WHI CH THE ABOVE ISSUE IS DECIDED BY THE COORDINATE BENCH. NO OTHER CONTRARY DECISION WAS ALSO POINTED OUT THEREFORE, R ESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN T HE APPELLANTS OWN CASE FOR THE EARLIER YEARS. WE DISMISS GROUND N O.6 OF THE APPEAL OF THE REVENUE. 30.0.1 THIS ISSUE IS ALSO SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL FOR A.YS. 2010-11 AND 2011-12. WE ALSO FIN D THAT THE TRIBUNAL HAS IN THE APPEALS FOR THE ASSESSMENT YEAR S 2009-10, 2012-13 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASS ESSMENT YEARS 2010-11 AND 2011-12. 30.0.2 THEREFORE, GROUND NOS. 10 TO 10.3 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 83 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 31.0.0 AS REGARDS GROUND NOS. 11 TO 11.4 RELATING TO TDS ON QUARTERLY TARGETS AND TURNOVER DISCOUNT AND SALE S DISCOUNT AMOUNTING TO RS. 46.31 CRORES, IT WAS THE CONTENTION OF THE LD. AR THAT DURING THE RELEVANT YEAR, THE ASSESSEE INCURRE D EXPENDITURE OF RS.154,35,32,553/- ON ACCOUNT OF VARIOUS INCENTIVES /DISCOUNTS OFFERED TO DEALERS UNDER VARIOUS SCHEMES ON PURCHAS E OF SPARE PARTS/VEHICLES FROM THE ASSESSEE. OUT OF THE AFORES AID EXPENDITURE, RS.100,84,49,593/-RELATES TO AMOUNT OF DISCOUNTS OF FERED BY THE COMPANY IN VARIOUS STOCKISTS/DEALERS, ON PURCHASE O F SPARE PARTS MADE BY THE LATTER IN ACCORDANCE WITH SALES INCENTIV E/DISCOUNT SCHEME PREVALENT DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSEE HAS FURTHER GIVEN TRADE DISCOUNT AMOUNTING TO RS.53 ,50,82,960/- TO THE DEALERS ON THE SALES INVOICE AT THE TIME OF SAL ES. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HELD THAT THE ASSESSEE WA S LIABLE TO DEDUCT TAX FROM AFORESAID DISCOUNTS/INCENTIVES UNDER SECTI ON 194H OF THE ACT SINCE THE PAYMENTS MADE WERE ON THE BASIS OF PE RFORMANCE OF DEALERS AND TARGETS ACHIEVED BY DEALERS WHICH WAS NO T IN THE NATURE OF 'DISCOUNT AS THE SAME WAS NOT GIVEN AT THE TIME OF TAKING DELIVERY OF GOODS BY THE DEALERS BUT WAS GIVEN SUBSEQUENTLY. THE ASSESSING 84 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT OFFICER HELD THAT INCENTIVE PAID BY THE ASSESSEE TO DEALERS WAS NOT IN THE NATURE OF DISCOUNT, BUT FELL WITHIN THE MEANING OF THE TERM COMMISSION AS DEFINED IN SECTION 194H OF THE ACT AND, THUS, THE ASSESSING OFFICER DISALLOWED 30% OF THE ENTIRE EXPE NDITURE OF RS. 1,00,84,49,593/- UNDER SECTION 40(A)(IA) OF THE ACT .. FURTHER, THE AO ALSO DISALLOWED 30% OF TOTAL TRADE DISCOUNT OF RS.5 3,50,82,960/- CRORES GIVEN TO DEALERS ON SALES INVOICE AT THE TIM E OF SALE WHILE ALLEGING THAT THE SAME WAS BASED ON ACHIEVEMENT OF T URNOVER TARGETS WHICH REPRESENTED COMMISSION ON WHICH TDS UNDER SECTI ON 194H WAS LIABLE TO BE DEDUCTED. 31.0.1 THE LD. AR SUBMITTED THAT THE TRI BUNAL IN ASSESSMENT YEAR 2007-08 DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE RELYING ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. MOTHER DAIRY LTD. (ITA NO. 1925/2010) AND JAI DRINK S PVT. LTD. (336 ITR 383), HOLDING THAT THE DISCOUNT IN QUESTION IS NOT IN THE NATURE OF COMMISSION BUT AN INCENTIVE FOR HIGHER SALE TARG ETS. THE LD. AR FURTHER SUBMITTED THAT THE AFORESAID FINDING WAS FOL LOWED BY THE TRIBUNAL IN THE AYS 2008-09 TO 2013-14 WHEREIN SIMIL AR DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELETE D. 85 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 32.0 THE LD. CIT-DR RELIED UPON THE ASSES SMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DEC ISION OF THE TRIBUNAL AND THE HONBLE HIGH COURT. 33.0.0 WE HAVE HEARD BOTH THE PARTIES AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS . 2010-11 AND 2011-12 HELD AS UNDER: 75) WE HAVE HEARD THE RIVAL CONTENTIONS. AS DEALER SHIP AGREEMENT ENTERED BETWEEN THE APPELLANT AND DEALERS IS ON A PRINCIPAL-TO-PRINCIPAL BASIS AND DEALERS DO NOT ACT AS AGENTS OF THE APPELLANT WHILE PURCHASING AND FURTHER SELLING THE VEHICLES. ACCORDINGLY, THE INCENTIVES OFFERED AT THE TIME OF PURCHASE OF VEHICLES DO NOT FALL WITHIN THE MEANING OF COMMISSI ON U/S 194H OF THE ACT. FURTHER, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE IN AY 2008-09 WH EREIN FOLLOWING THE ITAT DECISION IN ASSESSEES OWN CASE FOR THE YEAR AY 2007-08, IT WAS OBSERVED AS UNDER 148. FROM THE BARE READING OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-08 (SUPRA), WE O BSERVE THAT AFTER DEALING WITH RIVALS SUBMISSIONS AND CONT ENTIONS OF BOTH THE PARTIES, THE TRIBUNAL REACHED TO THE FO LLOWING FINDING AND CONCLUSION DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT OPERATIVE PART OF THE ORDER OF THE TRIBUNAL FOR AY 2007-08 IN ASSESSEES OWN CASE (SUP RA) READ AS UNDER- 86 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 45.11. THE FACTS OF THIS CASE CLEARLY DEMONSTRATE THAT WHAT IS GIVEN TO THE STOCKIEST/ DEALERS IS DISCOUNT ON THE PURCHASE PRICE AND NOT ANY COMMISSION. THE STOCKIEST/ DEALERS PURCHASE SPARE PARTS/ VEHICLES FROM THE ASSESSEE. THEY ARE NOT COMMISSION AGENTS. SALE CONSIDERATION IS PAID BY THESE PARTIES TO THE ASSESSEE. AS A MATTER OF INCENTIVE FOR HIGHER SALE THE ASSESSEE GRANTS DISCOUNT IF THE STOCKIEST/ DEALERS ACHIEVE A PARTICULAR VOLUME OF TRANSACTION. THUS, I N OUR VIEW THE DISCOUNT IN QUESTION IS NOT IN THE NAT URE OF COMMISSION OR THE BROKERAGE WHICH ATTRACTS SEC. 194H. IN THE CASE OF CIT VS. MOTHER DAIRY LTD. (ITA NO. 1925/2010(DEL) THE HONBLE DELHI HIGH COURT WAS CONSIDERING SIMILAR CASE AND HELD AS FOLLOWS: 3. THE ASSESSEE EXPLAINED IN WRITING THAT IT SOLD THE PRODUCTS TO THE CONCESSIONAIRES ON A PRINCIPAL TO PRINCIPAL BASIS, THAT THE CONCESSIONAIRES BUY THE PRODUCTS AT A GIVEN PRICE AFTER MAKING FULL PAYMENT FOR THE PURCHASES ON DELIVERY, THAT THE MILK AND OTHER PRODUCTS ONCE SOLD TO THE CONCESSIONAIRES BECAME THEIR PROPERTY AND CANNOT BE TAKEN BACK FROM THEM, THAT ANY LOSS ON ACCOUNT OF DAMAGE, PILFERAGE AND WASTAGE IS TO THE ACCOUNT OF THE CONCESSIONAIRES AND THAT IN THESE CIRCUMSTANCES THE PAYMENT MADE TO THE CONCESSIONAIRES CANNOT BE TREATED AS COMMISSION FOR SERVICES RENDERED AND CONSEQUENTLY THERE WAS NO LIABILITY ON THE PART OF THE ASSESSEE TO DEDUCT TAX. IT IS IRRELEVAN T THAT THE CONCESSIONAIRES WERE OPERATING FROM THE BOOTHS OWNED BY THE DAIRY AND WERE ALSO USING THE EQUIPMENT AND FURNITURE PROVIDED BY THE DAIRY. THAT FACT IS NOT DETERMINATIVE OF THE RELATIONSHIP BETWEEN THE DAIRY AND THE CONCESSIONAIRES WITH REGARD TO THE SALE OF THE 87 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT MILK AND OTHER PRODUCTS. THEY WERE LICENSEES OF THE PREMISES AND WERE PERMITTED THE USE OF THE EQUIPMENT AND FURNITURE FOR THE PURPOSE OF SELLING THE MILK AND OTHER PRODUCTS. BUT SO FAR AS THE MILK AND THE OTHER PRODUCTS ARE CONCERNED, THESE ITEMS BECAME THEIR PROPERTY THE MOMENT THEY TOOK DELIVERY OF THEM. THEY WERE SELLING THE MILK AND THE OTHER PRODUCTS IN THEIR OWN RIGHT AS OWNERS. THESE ARE TWO SEPARATE LEGAL RELATIONSHIPS. THE INCOME TAX AUTHORITIES WERE NOT JUSTIFIED OR CORRECT IN LAW IN MIXING UP THE TWO DISTINCT RELATIONSHIPS OR TELESCOPING ONE INTO THE OTHER TO HOLD THAT BECAUSE THE CONCESSIONAIRES WERE SELLING THE MILK AND THE OTHER PRODUCTS FROM THE BOOTHS OWNED BY THE DIARY AND WERE USING THE EQUIPMENT AND FURNITURE IN THE COURSE OF SALE OF THE MILK AND OTHER PRODUCTS, THEY WERE CARRYING ON THE BUSINESS ONLY AS AGENTS OF THE DIARY. 45.12. THE HONBLE HIGH COURT HELD THAT IN SUCH CIRCUMSTANCES S.194H IS NOT ATTRACTED. 45.13. IN THE CASE OF JAI DRINKS (P) LTD. 336 ITR 3 83 (DEL.), THE HONBLE DELHI HIGH COURT HAS HELD AS FOLLOWS: HELD, DISMISSING THE APPEAL, THAT A PERUSAL OF THE AGREEMENT SHOWED THAT THE ASSESSEE HAD PERMITTED THE DISTRIBUTOR TO SELL ITS PRODUCTS IN A SPECIFIED AREA. THE DISTRIBUTOR WAS TO PURCHASE PRODUCTS AT A PRE- DETERMINED PRICE FROM THE ASSESSEE FOR SELLING THEM. BOTH THE ASSESSEE AND THE DISTRIBUTOR HAD BEEN COLLECTING AND PAYING THEIR SALES TAX SEPARATELY. THE CIT(A) 88 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT AND ALSO THE TRIBUNAL RIGHTLY HELD THAT THE PAYMENTS BEING MADE BY THE ASSESSEE TO THE DISTRIBUTOR WERE INCENTIVES AND DISCOUNTS AND NOT COMMISSION. 45.14. RESPECTFULLY FOLLOWING THE PROPOSITIONS LAID DOWN IN THE AFOREMENTIONED CASES WE ALLOW THIS GROUND OF THE ASSESSEE. 76) IN THAT VIEW OF THE MATTER, THE LD. DEPARTMENTA L REPRESENTATIVE COULD NOT POINT OUT ANY DECISION CON TRARY TO THE ABOVE FINDING OF THE COORDINATE BENCH OR CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THEREFORE RESPECTFULLY F OLLOWING THE DECISION OF THE COORDINATE BENCH IN THE APPELLANTS OWN CASE FOR ASSESSMENT YEARS 2007-08 AND 2008-09 DISCUSSED SUPR A, WE DELETE THE DISALLOWANCE MADE BY THE LD. ASSESSING O FFICER ON ACCOUNT OF EXPENDITURE OF RS. 3 6880 2598 TOWARDS T HE QUARTERLY TARGET ON TURNOVER DISCOUNT ON TRADE DISCOUNT OF RS . 2 7744 7608 GIVEN TO THE DEALERS. IN THE RESULT GROUND NO. 15 O F THE APPEAL OF THE ASSESSEE IS ALLOWED. 33.0.1 THUS, THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER FOR A.YS. 2010-11 AN D 2011-12 AS WELL AS THE DECISION OF THE HONBLE HIGH COURT IN CA SE OF MOTHER DAIRY LTD. (SUPRA). WE ALSO FIND THAT THE TRIBUNAL HAS, IN THE APPEALS FOR THE ASSESSMENT YEARS 2009-10, 2012-13 AND 2013- 14, DECIDED 89 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THE ISSUE IN FAVOR OF THE ASSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASSESSMENT YEARS 2010-11 AND 2011- 12. 33.0.2 THEREFORE, GROUND NOS. 11 TO 11.4 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 34.0.0 THE LD. AR SUBMITTED THAT GRO UND NOS. 12 TO 12.3 RELATE TO THE ISSUE OF TDS OF ON LEGAL AND PROFESSI ONAL CHARGES AMOUNTING TO RS.1.94 LACS. IT WAS SUBMITTED THAT DUR ING THE RELEVANT YEAR, THE ASSESSEE HAD INCURRED LEGAL AND PROFESSIO NAL EXPENSES, AMOUNTING TO RS.6,46,644/- ON ACCOUNT OF REIMBURSEM ENT OF ACTUAL EXPENSES TOWARDS CONVEYANCE, AIR FARE, OUT OF POCKET EXPENSES, TAXI CHARGES, LODGING ETC. INCURRED AND CLAIMED BY VARIO US PERSONS ON COST TO COST BASIS. THE DETAILS OF SAID EXPENSES WER E SUBMITTED BEFORE THE AUTHORITIES. THE ASSESSING OFFICER DISAL LOWED 30 % OF THE AFORESAID EXPENSES AMOUNTING TO RS.1.94 LACS, INVOK ING SECTION 40(A)(IA), FOR THE FAILURE OF THE ASSESSEE TO DEDUC T TAX AT SOURCE THERE FROM UNDER SECTION 194J OF THE ACT. 34.0.1 THE LD. AR SUBMITTED THAT THE AFORESAID ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF DELHI BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT 90 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT YEARS 2007-08 AND 2008-09, WHEREIN DISALLOWANCE OF E XPENDITURE ON ACCOUNT OF RE-IMBURSEMENT OF OUT-OF-POCKET EXPENSES INCURRED BY PROFESSIONALS/VENDORS UNDER SECTION 40(A)(IA) WAS DE LETED ON THE GROUND THAT SAME DID NOT HAVE ANY ELEMENT OF INCOME IN THE HANDS OF THE RECIPIENT. IT WOULD ALSO SUBMITTED THAT SIMIL AR DISALLOWANCE MADE IN THE DRAFT ASSESSMENT ORDER, BUT SUBSEQUENTL Y DELETED BY THE LD. DRP, WAS CHALLENGED IN REVENUES APPEAL FOR AY 2 010-11 AND 2011-12. HOWEVER, THE TRIBUNAL UPHELD THE ORDER OF THE LD. DRP AND CONFIRMED THE DELETION OF DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TAX ON REIMBURSEMENT OF EXPENSES FOLLOWING THE OR DER FOR ASSESSMENT YEARS 2007-08 AND 2008-09. IT WAS FURTHER POINTED OUT BY THE LD. AR THAT FOLLOWING THE ORDER OF THE TRIBUN AL FOR AYS 2010- 11 AND 2011-12, THE TRIBUNAL HAS ALSO DECIDED THE I SSUE IN FAVOUR OF THE ASSESSEE IN APPELLATE ORDERS PASSED FOR AYS 200 9-10, 2012-13 AND 2013-14. 35.0 THE LD. CIT - DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 91 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 36.0.0 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL HELD IN A.YS. 2010-11 AND 2011-12 AS UNDER: 222) WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE THAT SIMILAR ISSUE RELATING TO DISALLOWANCE RELATING TO RE-IMBUR SEMENT OF PROFESSIONAL EXPENSES WAS DELETED BY THE TRIBUNAL I N THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 WHI CH WAS FOLLOWED IN ASSESSMENT YEAR 2008-09. THE RELEVANT O BSERVATIONS OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 ARE AS UNDER: 35.8. IT IS THE CASE OF THE ASSESSEE THAT IT HAD R EIMBURSED THE EXPENSES INCURRED BY VARIOUS CONSULTANTS AND VE NDORS ON TRAVELLING AND OUT OF POCKET EXPENSES. IT IS ALS O CLAIMED THAT OUT OF AN AMOUNT OF RS. 10.68 LACS EXPENSES TO THE EXTENT OF RS. 6.01 LACS WERE MADE AFTER VERIFYING T HE SUPPORTING VOUCHERS FOR CLAIMS RAISED BY THE VENDOR S. BALANCE AMOUNT OF RS. 4.66 LACS WERE BASED ON SELF CERTIFICATION. IN OUR VIEW SUCH REIMBURSEMENT OF EXPENDITURE HAS NO ELEMENT OF INCOME EMBODIED IN IT . THUS, WE APPLY THE FOLLOWING DECISIONS WHEREIN IT IS HELD THAT PAYER IS NOT OBLIGED TO DEDUCT TAX AT SOURCE FROM REIMBURSEMENT OF EXPENSES: - UNITED HOTELS LTD. VS. ITO 93 TTJ 822; - KARNAVATI CO-OP. BANK LTD. VS. DCIT 134 TTJ 486 ( AHD.). 35.9. RESPECTFULLY FOLLOWING THE SAME, THE GROUND I S ALLOWED IN FAVOUR OF THE ASSESSEE. 92 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE O F THE APPELLANT AS COMPARED TO THE ASSESSMENT YEAR IN WHI CH THE ABOVE ISSUE IS DECIDED BY THE COORDINATE BENCH. NO OTHER CONTRARY DECISION WAS ALSO POINTED OUT THEREFORE, R ESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN T HE APPELLANTS OWN CASE FOR THE EARLIER YEARS, WE DISMISS GROUND N O.8 OF THE APPEAL OF THE REVENUE. 36.0.1 IN THE PRESENT ASSESSMENT YEAR, T HE ASSESSING OFFICER DISALLOWED THE AFORESAID EXPENSES, INVOKING SECTION 40(A)(IA), FOR THE FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE THE RE FROM UNDER SECTION 194J OF THE ACT. BUT, IT IS PERTINENT TO NO TE HERE THAT THE ASSESSING OFFICER DID NOT DOUBT THAT THE PAYMENT WAS MADE BY ASSESSEE TOWARDS REIMBURSEMENT OF EXPENSES. IT WAS S TILL HELD THAT ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE UNDER S ECTION 194J OF THE ACT. THUS, THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL FOR A.YS. 2010-11 AND 2011-12. WE ALSO FIN D THAT THE TRIBUNAL HAS, IN THE APPEALS FOR THE ASSESSMENT YEA RS 2009-10, 2012-13 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASS ESSMENT YEARS 2010-11 AND 2011-12. 93 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 36.0.2 THEREFORE, GROUND NOS. 12 TO 12 .3 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 37.0.0 WITH RESPECT TO GROUND NOS. 13 TO 13.2 RELATING TO GAINS FROM SALE OF INVESTMENTS INCOME TREATED AS BU SINESS INCOME AMOUNTING TO RS.319.87 CRORES, IT WAS THE SUBMISSION OF THE LD. AR THAT THE ASSESSEE INVESTS SURPLUS FUNDS ARISING IN THE COURSE OF BUSINESS UNDER VARIOUS MODES OF INVESTMENT LIKE MUT UAL FUNDS/PMS, SHARES, ETC. THE GAINS REALIZED FROM SAL E OF SUCH VARIOUS INSTRUMENTS, AMOUNTING TO RS. 319.87 CRORES DURING THE RELEVANT PREVIOUS YEAR, WERE DISCLOSED UNDER THE HEAD CAPITA L GAINS. THE ASSESSING OFFICER HELD THAT, HAVING REGARD TO THE M AGNITUDE/VOLUME OF TOTAL TURNOVER FROM SALE OF INVESTMENTS, THE AFO RESAID INCOME WAS TAXABLE UNDER THE HEAD 'BUSINESS INCOME. 37.0.1 THE LD. AR SUBMITTED THAT THE AFORES AID ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CA SE FOR THE AYS 2007-08 AND 2008-09, WHEREIN AFTER CONSIDERING THE L EGAL POSITION AND INTENTION OF THE ASSESSEE COMPANY, THE TRIBUNAL CAME TO THE CONCLUSION THAT INCOME FROM SALE OF SHARES/MUTUAL F UNDS/PMS ETC. 94 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT WOULD BE TAXABLE AS CAPITAL GAINS, INSTEAD OF BUSINE SS INCOME BROUGHT TO TAX BY THE ASSESSING OFFICER ON THE BASI S THAT THE ASSESSEE (A) WAS NOT A TRADER IN STOCK; (B) HAD NO INTENTION OF HOLDING THE SHARES AS STOCK; (C) SALES WERE EFFECTED BY DELIVER Y (D) THAT THE DEPARTMENT HAD ITSELF IN EARLIER YEARS TAXED SUCH T RANSACTIONS UNDER THE HEAD CAPITAL GAINS. THE LD. AR POINTED OUT THAT THE TRIBUNAL, VIDE ORDER DATED 24/10/2006, PASSED IN THE ASSESSEE S OWN CASE FOR AY 2010-11 AND 2011-12, REVERSED THE ACTION OF AO I N CHANGING THE HEAD OF INCOME AND HELD THAT IN CASES WHERE AN ASSES SEE TREATS INVESTMENTS MADE IN SHARES AS CAPITAL ASSETS, IN VI EW OF CIRCULAR 6/2016 OF THE BOARD, GAINS/PROFITS ON SALE OF SUCH INVESTMENTS SHALL BE TREATED AS CAPITAL GAINS AND NOT INCOME FROM BUSINESS/PROFESSION. IT WAS FURTHER POINTED OUT BY T HE LD. AR THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR AYS 2010-11 AND 2011-12, THE TRIBUNAL HAS ALSO DECIDED THE ISSUE IN FAVOUR O F THE ASSESSEE IN APPELLATE ORDERS PASSED FOR AYS 2009-10, 2012-13 AN D 2013-14. 38.0 THE LD. CIT- DR RELIED UPON THE AS SESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DEC ISION OF THE TRIBUNAL. 95 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 39.0.0 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL FOR A.YS . 2010-11 AND 2011-12 HELD AS UNDER: 99) WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE G ONE THROUGH THE ORDER PASSED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007- 08, WHICH WAS FOLLOWED IN APPEAL ORDER FOR AY 2008- 09. THE TRIBUNAL IN THAT YEAR WENT THROUGH THE ENTIRE FACTS , WHICH ARE SIMILAR TO THE YEAR UNDER CONSIDERATION, AND THE LE GAL POSITION BEFORE COMING TO THE CONCLUSION THAT THE GAINS ARIS ING FROM INVESTMENT OF SURPLUS FUNDS IN SHARES/MUTUAL FUNDS/ PMS AS PART OF CASH MANAGEMENT POLICY CANNOT LEAD TO THE C ONCLUSION THAT THE APPELLANT WAS CARRYING ON BUSINESS TO BRIN G TO TAX SUCH INCOME UNDER THE HEAD BUSINESS AS AGAINST CAPITA L GAINS OFFERED BY THE APPELLANT. THE LD. DEPARTMENTAL REPR ESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIR CUMSTANCES OF THE CASE OF THE CURRENT ASSESSMENT YEAR COMPARED TO THE ASSESSMENT YEAR FOR WHICH THE TRIBUNAL IS DECIDED I N THE APPELLANTS OWN CASE FOR EARLIER YEARS. NO OTHER JU DICIAL PRECEDENT WAS ALSO CITED BY WHICH WE COULD DEVIATE FROM THE ORDER OF THE COORDINATE BENCH IN THE EARLIER YEARS IN THE APPELLANTS OWN CASE. THE RELEVANT OBSERVATIONS IN THE APPEAL ORDER FOR AY 2007-08 ARE AS UNDER: 96 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 65.20. THE ISSUE THAT EMERGES FOR CONSIDERATION IS WHETHER THE GAINS THAT AROSE TO THE ASSESSEE FROM INVESTMEN T IN DEBT MUTUAL FUNDS/PMS/ SHARES ARE TO BE TAXED UNDER THE HEAD BUSINESS INCOME OR UNDER THE HEAD CAPITAL G AINS. .................... 65.28. NOW, WE PROCEED TO ANALYZE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY TH E COURTS (SUPRA) FOR DETERMINING THE NATURE OF THE TRANSACTI ON VIS A VIS CAPITAL GAINS VS. BUSINESS INCOME: INTENTION OF THE ASSESSEE AT THE TIME OF THE PURCHA SE OF SHARES: 65.29. THE BUSINESS OF THE ASSESSEE IS NOT TO DEAL IN SHARES AND SECURITIES. THE INVESTMENT WAS MADE WITH A VIEW TO EARN CAPITAL APPRECIATION AND TO USE THE SP ARE FUND OPTIMALLY INSTEAD OF KEEPING IT IN THE BANKS. FOR T HE YEAR UNDER APPEAL, THE ASSESSEE EARNED DIVIDEND INCOME O F RS.22.61 CRORES FROM INVESTMENTS HELD IN SHARES AND MUTUAL FUNDS. TREATMENT IN THE BOOKS OF ACCOUNTS: 65.30. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE H AD TREATED THE TRANSACTION AS INVESTMENT IN ITS BOOKS OF ACCOUNTS AND NOT AS STOCK IN TRADE. THE ASSESSE HAS SHOWN THE INVESTMENTS IN SHARES BOTH AT THE BEGINNI NG AND CLOSING OF THE YEAR AS AN INVESTMENT ONLY AND NOT A S STOCK IN TRADE. 65.31. THE ASSESSEE HAS VALUED THE INVESTMENTS AT C OST AS PER ACCOUNTING STANDARD 13- ACCOUNTING FOR INVESTME NTS AND NOT IN ACCORDANCE WITH ACCOUNTING STANDARD 2 W HICH DEALS WITH VALUATION OF INVENTORIES. 97 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT 65.32. THE ASSESSEE HAS BEEN HOLDING THE SECURITIES / SHARES AS INVESTMENTS FROM YEAR TO YEAR AND CONSIST ENTLY FOLLOWING THE SAME METHOD OF ACCOUNTING FOR THE PUR POSE OF DISCLOSURE AND VALUATION. THIS TREATMENT BY THE ASS ESSEE WAS ACCEPTED BY THE REVENUE FOR THE PAST YEARS. 65.33. THE ASSESSEE HAD EARNED INCOME FROM BOTH LON G TERM AND SHORT TERM CAPITAL GAINS WHICH MEANS THE ASSESSEE HAS ALSO HELD SHARES FOR A PERIOD OF MORE THAN 12 MONTHS. WHETHER THE INVESTMENTS ARE MADE OUT OF BORROWED FU NDS 65.34. THE INVESTMENTS WERE MADE FROM SURPLUS FUNDS OF THE ASSESSEE AND THERE WERE NO BORROWINGS. THE INVESTMENTS WERE MADE TO OPTIMALLY UTILIZE THE SPAR E FUNDS INSTEAD OF KEEPING THE SAME IDLE IN THE BANK ACCOUN TS. THE INVESTMENTS WERE MADE IN MUTUAL FUNDS (DEBT AND LIQ UID FUNDS) AND THROUGH PORTFOLIO MANAGEMENT SCHEMES/ IP OS. 65.35. THE CO-ORDINATE BENCH OF THE DELHI ITAT IN T HE CASE OF NARENDRA GEHLAUT VS. JCIT [ITA NO 1648/ DEL/ 201 0] HELD THAT DESPITE BORROWING, GAINS ON SHARES ASSESS ABLE AS SHORT TERM CAPITAL GAINS AND NOT BUSINESS PROFITS. THE DECISION IS RENDERED CONSIDERING THE CBDT CIRCULAR NO 4/2007 AND VARIOUS JUDICIAL PRECEDENTS ON THE SUBJE CT. FREQUENCY OF THE TRANSACTIONS 65.36. OUT OF THE TOTAL SALE VALUE OF RS 13,690.84 CRORES REALIZED FROM THE INVESTMENTS, AN AMOUNT OF RS 12,3 30.33 CRORES RELATES TO SALE OF SHORT TERM DEBT MUTUAL FU NDS AND LIQUID FUNDS IN WHICH THE TRANSACTIONS ARE EFFECTED ON DAILY BASIS (I.E. SURPLUS AMOUNTS ARE INVESTED AND THE WITHDRAWALS ARE MADE IN A SHORT SPAN DEPENDING ON T HE 98 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT BUSINESS NEEDS OF THE ASSESSEE). THESE FUNDS WERE INVESTED MAINLY INTO MONEY MARKET INSTRUMENTS, SHOR T-TERM CORPORATE DEPOSITS AND TREASURY. MOST SCHEMES HAVE A LOCK-IN PERIOD OF A MAXIMUM OF THREE DAYS TO PROTEC T AGAINST PROCEDURAL (PRIMARILY BANKING) GLITCHES, AN D OFFER REDEMPTION PROCEEDS WITHIN 24 HOURS. 65.37. THE ASSESSING OFFICER HAS BROUGHT THE TRANSA CTION TO TAX UNDER THE HEAD BUSINESS INCOME MAINLY ON THE GROUND THAT THE VOLUME OF THE TRANSACTION OF SUCH INVESTMENTS WAS HIGH AND THE ASSESSEE IS UNDERTAKIN G THE TRADING OF STOCKS AND MUTUAL FUNDS REGULARLY AND SYSTEMATICALLY. HOWEVER, WE OBSERVE THAT THERE IS N OT MUCH FREQUENCY IN SALE/PURCHASE OF INVESTMENTS, FROM ANA LYSIS CARRIED OUT AT PAGE 526 OF OBJECTIONS IN FORM 35A. IT IS NOT THE CASE THAT THE ASSESSEE HAS INDULGED IN REGULAR TRADING IN SHARES ON DAY TO DAY BASIS. 65.38. THE MUMBAI BENCH OF THE ITAT IN THE CASE OF JANAK S. RANGWALA (11 SOT 627) OBSERVED THAT MERE VOLUME AND MAGNITUDE OF TRANSACTION WILL NOT ALTER THE NATURE OF TRANSACTION IF THE INTENTION WAS TO HOLD THE SHARES AS INVESTMENT AND NOT IN STOCK IN TRADE. INVESTMENTS IN MUTUAL FUNDS 65.39. OUT OF THE TOTAL INCOME EARNED FROM MUTUAL F UNDS, ALMOST 67.34% OF THE TOTAL INCOME EARNED FROM INVES TMENTS MADE IN MUTUAL FUNDS WAS FOR A PERIOD OF MORE THAN ONE YEAR. INVESTMENTS IN SHARES 65.40. INVESTMENT IN SHARES WAS PRIMARILY MADE EITH ER THROUGH PMS OR UNDER INITIAL PUBLIC OFFER. UNDER PM S, THE COMPANY ADVANCES FUNDS TO THE PORTFOLIO MANAGER, WH O IN 99 ITA NO.9187/DEL/20 19 HERO MOTOCORP LTD. VS. ACIT TURN MAKES INVESTMENT IN VARIOUS SHARES. IN SUBSTAN CE THE INVESTMENTS UNDER PMS ARE SIMILAR TO INVESTMENT IN MUTUAL FUNDS. THE ASSESSEE, REITERATED THAT IT IS ONLY INT ERESTED IN THE RETURN ON FUNDS INVESTED AND DOES NOT ACT AS A DEALER/TRADER, SO AS TO BE REGARDED AS BEING ENGAGE D IN BUSINESS ACTIVITY. 65.41. IN VIEW OF THE ABOVE FACTUAL MATRIX IT EMERG ES THAT ASSESSEE IS: (I) NOT A TRADER IN STOCKS (II) INTENTION OF HOLDING THE SHARES AS INVESTMENT/ STOCK IS MANIFEST. (III) SALES ARE EFFECTED BY DELIVERY. (IV) DEPARTMENT HAS ITSELF IN EARLIER YEARS TAXED S UCH TRANSACTIONS UNDER THE HEAD CAPITAL GAINS. 65.42. CONSIDERING THESE FACTS AND APPLICABLE JUDIC IAL PRECEDENTS ON THE ISSUE, WE ARE OF THE CONSIDERED O PINION THAT THE INCOME IN QUESTION CAN BE TAXED ONLY UNDER THE HEAD CAPITAL GAINS AND NOT UNDER THE HEAD BUSINES S INCOME. THIS GROUND OF THE ASSESSEE IS ALLOWED. 100) IN ADDITION TO THE AFORESAID OBSERVATIONS, THE APPELLANT IN THIS YEAR ALSO HAS BENEFIT OF THE RECENT CIRCULAR N O.6 OF 2016 DATED 29.2.2016 ISSUED BY THE CBDT, WHEREIN WITH AN IDEA TO REDUCE LITIGATION ON THIS ISSUE OF CLASSIFICATION O F THE HEAD OF INCOME ARISING FROM SALE OF SHARES / MUTUAL FUNDS, ETC., THE CBDT HAS OPINED THAT GAINS ARISING FROM SALE OF SUC H SHARES/SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS AND SHOWN AS CAPITAL GAINS BY THE ASSESSEE SHOULD NOT B E DISPUTED 100 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT BY THE ASSESSING OFFICER. HAVING REGARD TO THE AFOR ESAID INTENT OF THE CIRCULAR WHERE A CONSISTENT METHOD HAS BEEN FOL LOWED BY AN ASSESSEE TO TREAT THE INVESTMENT AS ON CAPITAL ACCO UNT CORROBORATED WITH DISCLOSURE IN BALANCE SHEET AS IN VESTMENT, THE SAME CONSISTENT STAND SHOULD NOT BE DISPUTED BY THE ASSESSING OFFICER. IT IS ALSO NOT DISPUTED BY THE LD. ASSESSI NG OFFICER THAT THE CAPITAL GAINS ARISING ON THE VARIOUS INVESTMENT S ARE HELD FOR LESS THAN 12 MONTHS AND ARE NOT LONGTERM CAPITAL GA IN. IN VIEW OF THE AFORESAID REASONS ALSO, WHILE RESPECTFULLY F OLLOWING THE APPEAL ORDERS FOR AY 2007-08 AND 2008-09, WE REVERS E THE ACTION OF THE ASSESSING OFFICER IN CHANGING THE HEA D OF INCOME SURPLUS ARISING FROM SALE OF SHARES/MUTUAL FUNDS, E TC. THEREFORE GROUND NO. 20 OF THE APPEAL OF THE ASSESSEE IS ALLO WED. 39.0.1 IN THE YEAR UNDER CONSIDERATION, TH E ISSUE IS IDENTICAL TO THE AYS 2010- 11 AND 2011-12 WHEREIN THE TRIBUNAL AL LOWED THIS ISSUE IN FAVOUR OF THE ASSESSEE. WE ALSO FIND THAT THE TRIBUNAL HAS IN THE APPEALS FOR THE ASSESSMENT YEARS 2009-10, 2012- 13 AND 2013- 14, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE COMP ANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASSESSMENT YEARS 2010-11 AND 2011-12. 39.0.2 THEREFORE, GROUND NO. 13 TO 13.2 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 101 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 40.0.0 THE LD. AR SUBMITTED THAT GROUND NOS. 14 TO 14.7 ARE RELATING TO DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D AMOUNTING TO 1.65 CRORES. IT WAS SUBMITTED THAT DURI NG THE RELEVANT PREVIOUS YEAR, THE ASSESSEE COMPANY HAD EARNED DIVI DEND/INTEREST INCOME OF RS. 14.49 CRORES FROM INVESTMENTS IN SHAR ES, BONDS, AND MUTUAL FUNDS, WHICH WAS EXEMPT UNDER SECTION 10(34)/10(35)/10(15)(IV)(H) OF THE ACT. IN VIEW OF T HE PROVISIONS OF SECTION 14A OF THE ACT, THE ASSESSEE HAD SUO MOTO DISALLOWED RS.66.88 LACS IN THE RETURN OF INCOME, BEING SALARY OF TWO EMPLOYEES OF THE COMPANY WHO WERE INVOLVED IN TREASURY FUNCTIO N ALONG WITH PORTFOLIO MANAGEMENT FEE. IT WAS SUBMITTED THAT IN T HE ASSESSMENT ORDER, THE ASSESSING OFFICER, DID NOT ACCEPT THE ME THOD OF DISALLOWANCE COMPUTED BY THE ASSESSEE UNDER SECTION 14A AND MADE FURTHER DISALLOWANCE OF RS. 1.65 CRORES INVOKING PR OVISIONS OF RULE 8D OF THE RULES AFTER REDUCING THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE IN THE RETURN OF INCOME. IT WAS SUBMIT TED THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER, WHILE COMPU TING `BOOK PROFIT, MADE AN ADJUSTMENT OF RS.1.65 CRORES COMPU TED UNDER 102 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT SECTION 14A READ WITH RULE 8D OF THE RULES, WITHOUT A SSIGNING ANY REASON. 40.0.1 THE LD. AR SUBMITTED THAT AS PER SE CTION 14A(2), DISALLOWANCE UNDER THAT SECTION AS PER RULE 8D CAN B E MADE ONLY IF THE ASSESSING OFFICER RECORDS SATISFACTION/FINDING AS TO THE INCORRECTNESS IN THE METHOD OF DISALLOWANCE FOLLOWED BY THE ASSESSEE. IN THE ABSENCE OF ANY SATISFACTION RECORD ED IN THE ASSESSMENT ORDER, THE DISALLOWANCE AS PER RULE 8D N EEDS TO BE DELETED. RELIANCE IN THIS REGARD WAS PLACED ON THE F OLLOWING DECISIONS: - CIT VS. WALFORT SHARE & STOCK BROKERS 326 ITR 1(SC) - GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT: 394 ITR 449(SC) - MAXOPP INVESTMENT LTD: 347 ITR 272 (DEL.)- AFFIRMED BY THE HONBLE SUPREME COURT IN 402 ITR 640 - CIT V. ESSAR TELEHOLDINGS LTD.: 401 ITR 445 (SC) - PCIT V. VEDANTA LTD.: [2019] 261 TAXMAN 179 (DELHI) - H.T. MEDIA LIMITED V. PCIT: 399 ITR 576 (DEL) - EICHER MOTORS LTD. VS. CIT: 398 ITR 51 (DEL) - PCIT VS. U.K. PAINTS (INDIA) (P.) LTD.: 392 ITR 552 (DEL.) - CIT V. ABHISHEK INDUSTRIES LTD.: 380 ITR 652 (P&H) - CIT VS. I.P. SUPPORT SERVICES INDIA (P) LTD: 378 IT R 240 (DEL) 103 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT - JOINT INVESTMENTS (P.) LTD. V. CIT: 372 ITR 694 (D EL) - CIT V. TAIKISHA ENGG. INDIA LTD.: 370 ITR 338 (DEL. ) 40.0.2 IT WAS FURTHER SUBMITTED BY THE LD. AR THAT EVEN OTHERWISE, THERE IS NO NEXUS OF EXPENSES, LIKE INTER EST EXPENDITURE AND OTHER ADMINISTRATIVE EXPENSES WITH INVESTMENTS, WARRANTING DISALLOWANCE U/S 14A. 40.0.3 ON THE ISSUE OF INTEREST EXPEN DITURE, THE LD. AR SUBMITTED THAT THE ASSESSEE IS A CASH RICH COMPANY, WHICH DOES NOT BORROW FUNDS FOR MAKING INVESTMENT. THE MARGINAL INT EREST EXPENDITURE OF RS. 2.10 CRORES WAS INCURRED ON OTHE R TEMPORARY LOANS/DEALERS DEPOSIT, HAVING NEXUS WITH MAIN BUSINE SS FUNCTION. IT WAS FURTHER ARGUED THAT NO DIRECT NEXUS OF INTEREST EXPENDITURE WITH INVESTMENTS OR EARNING OF DIVIDEND INCOME WAS ESTABL ISHED BY THE ASSESSING OFFICER, FOR WHICH THE INITIAL BURDEN WAS ON THE ASSESSING OFFICER. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD SUBSTANTIAL FREE RESERVES OF RS 2,946.30 CRORES AT THE BEGINNING OF THE RELEVANT PREVIOUS YEAR AND HAD ALSO GENERATED SUBSTANTIAL SU RPLUS/INTEREST FREE FUNDS OF RS. 814.51 CRORES DURING THE YEAR, WHI CH WERE SUFFICIENT TO MAKE NET INVESTMENT OF RS. 669.19 CRO RES DURING THE 104 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT YEAR. IN SUCH CIRCUMSTANCES, IT IS TO BE PRESUMED T HAT ONLY INTEREST FREE FUNDS HAVE BEEN UTILIZED FOR MAKING INVESTMENT S DURING THE YEAR. REFERENCE, IN THIS REGARD, WAS MADE TO THE FOL LOWING DECISIONS: - EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT: 224 IT R 627 (SC) - CIT V. RELIANCE INDUSTRIES LTD.: 410 ITR 466 (SC) - CIT V. UTI BANK LTD.: 215 TAXMAN 8 - THE SUPREME CO URT DISMISSED THE REVENUES SLP IN CIVIL APPEAL NO. 468 /2014 - WOOLCOMBERS OF INDIA LTD. V. CIT: 134 ITR 219 (CAL. ) - PCIT V. BASTI SUGAR MILLS CO. LTD.: ITA NO. 205 OF 2018 (DEL HC) - PCIT V. REEBOK INDIA COMPANY: [2018] 259 TAXMAN 100 (DELHI) - INDIAN EXPLOSIVES LTD. V. CIT: 147 ITR 392 (CAL.) - ALKALI & CHEMICALS CORP OF INDIA LTD. V CIT: 161 ITR 820 (CAL) - CIT V RADICO KHAITAN LTD : 274 ITR 354 (ALL) - CIT V DHAMPUR SUGAR MILLS LTD : 274 ITR 370 (ALL) - CIT V. UNITED COLLIERIES LTD. : 49 TAXMAN 227 (CAL) - CIT V. ENAMOUR INVESTMENT LTD.: 72 TAXMAN 370 (CAL) - CIT V. CAROLINE INVESTMENT LTD.: 87 TAXMAN 238 (CAL ) - CIT V. KANORIA INVESTMENT (P) LTD.: 232 ITR 7 (CAL) - CIT VS. HOTEL SAVERA: 239 ITR 795 (MAD) - SMT. CHANCHAL KATYAL V. CIT: 298 ITR 182 (ALL.) - CIT V. RELIANCE UTILITIES AND POWER LTD.: 313 ITR 3 40 (BOM) - CIT V. HDFC BANK LTD.: 284 CTR 414 (BOM.) - HERO HONDA FINLEASE LTD VS. ACIT: ITA NO. 3726 & 6102/DEL/2012 (DEL) 105 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 40.0.4 RELIANCE WAS ALSO PLACED ON THE F OLLOWING CASES, WHEREIN, THE COURTS HAVE REPEATEDLY HELD THAT INTERE ST EXPENDITURE CANNOT BE DISALLOWED UNDER SECTION 14A OF THE ACT, WHERE THE ASSESSEE HAD SUFFICIENT SURPLUS FUNDS AND THERE WAS NO FINDING BY THE ASSESSING OFFICER OF ANY DIRECT NEXUS OF BORROWE D FUNDS WITH INVESTMENTS: - GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT: 394 ITR 449(SC) - PR. CIT VS. GMM PFAULDER LTD.: ITA NO. 506 OF 2017 DATED 31.07.2017 (GUJ) - CIT V. MAX INDIA LTD.: 388 ITR 81 (P&H) - CIT VS. SUZLON ENERGY LTD.:[2013] 215 TAXMAN 272 (G UJARAT) - CIT VS. M/S. ASHOK COMMERCIAL ENTERPRISES: ITA NO. NO.2985 OF 2009 (BOM) - LUBI SUBMERIBLES LTD.: ITA NO.868 OF 2010 (GUJ) - CIT VS. K. RAHEJA CORPORATION PVT LTD: ITA NO.1260 OF 2009 - GUJARAT STATE FERTILIZERS AND CHEMICALS LTD : TAX A PPEAL NO. 82 OF 2013 (GUJ HC) - HERO HONDA FINLEASE LTD VS. ACIT: ITA NO. 3726/DEL/ 2012 (DEL) - EIMCO ELECON (INDIA) LTD. V. ADDL. CIT: 142 ITD 52 (AHD.) 40.0.5 AS REGARDS ADMINISTRATIVE EXPEN SES, THE LD. AR SUBMITTED THAT ALL THE EXPENSES, OTHER THAN THE SUO-MOTO 106 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT DISALLOWANCE BY THE ASSESSEE, RELATED TO MAIN BUSINE SS FUNCTION OF MANUFACTURING OF VEHICLES. THE LD. AR POINTED OUT T HAT THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 HAD SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH AS PER LAW, HAVING REGARD TO TH E SATISFACTION TO BE RECORDED QUA CORRECTNESS OF THE SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE IN THE RETURN OF INCOME. IT WAS SUBMITT ED THAT THE AO, IN THE SET ASIDE PROCEEDINGS FOR ASSESSMENT YEAR 20 07-08, VIDE ORDER DATED 30.10.2014 PASSED UNDER SECTION 254/143(3) OF THE ACT DID NOT MAKE ANY DISALLOWANCE IN RESPECT OF INTEREST EX PENSES SINCE THERE WAS NO NEXUS BETWEEN THE INCOME AND SUCH EXPEN DITURE. THE AO, HOWEVER, MADE DISALLOWANCE OF SUCH ADMINISTRATI VE EXPENSES UNDER SECTION 14A IN THE PROPORTION THE TOTAL PROFI T BEFORE TAX BEARS TO TAX FREE INCOME, WHICH WAS UPHELD BY THE LD. CIT (A) VIDE ORDER DATED 01.02.2018. THE LD. AR FURTHER SUBMITTED THAT THE TRIBUNAL, VIDE CONSOLIDATED ORDER DATED 24/10/2016 PASSED IN ITA NOS. 1545/DEL/2015 AND 914/DEL/2016, IN ASSESSEE'S OWN CA SE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEARS AY 2010-11 A ND 2011-12, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE ON THE G ROUND THAT THERE 107 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT WAS NO REASON/SATISFACTION RECORDED BY THE ASSESSING OFFICER UNDER SECTION 14A(2)/(3) OF THE ACT WHILE PROCEEDING WITH D ISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. THE TRIBUNAL ALS O HELD THAT THERE WAS NOTHING TO DEMONSTRATE THAT ANY ADDITIONAL EXPEN DITURE HAD BEEN INCURRED BY THE ASSESSEE FOR EARNING EXEMPT IN COME AND THAT THE ASSESSEE HAD SURPLUS FUNDS/IDLE FUNDS FOR MAKIN G INVESTMENT. 40.0.6 IT WAS FURTHER POINTED OUT BY THE LD. AR THAT THE TRIBUNAL, VIDE RECENT ORDER DATED 31.05.2018, WHILE DISMISSING THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006-07, HELD THAT THE ASSESSING OFFICER IS BOUND TO RECORD SATISFACTION QUA THE INCORRECTNESS OF THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE. IT WAS SUBMITTED THAT IN THE RELEVANT ASSESSMENT YEAR A LSO, THE ASSESSING OFFICER FAILED TO RECORD THE MANDATORY SA TISFACTION QUA THE INCORRECTNESS OF THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE IN THE RETURN OF INCOME. 40.0.7 FURTHER, IN ALL FAIRNESS, THE LD. COUNSEL POINTED OUT THAT THE TRIBUNAL, WHILE DECIDING THE ISSUE IN THE A SSESSMENT YEARS 2009-10, 2012-13 AND 2013-14 RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH AFTER TAKING INTO 108 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT CONSIDERATION THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT: 402 ITR 640. 40.0.8 THE LD. AR FURTHER SUBMITTED THAT INSOFAR AS DISALLOWANCE OF RS. 1.67 CORES MADE UNDER SECTION 14 A READ WITH RULE 8D OF THE RULES WAS CONCERNED, IT CANNOT BE ADD ED WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE A CT. IT WAS SUBMITTED THAT SECTION 14A CONTAINED IN CHAPTER IV OF THE ACT BEGINS WITH THE PHRASE FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER.. BEING SO, SECTION 14A HAS APPLICATION ONLY FOR THE PURPOSES OF CHAPTER-IV. IN COME UNDER THE NORMAL PROVISIONS OF THE ACT IS COMPUTED UNDER THE FIVE HEADS SPECIFIED IN SECTION 14 OF THE ACT. PROVISIONS REL ATING TO COMPUTATION OF INCOME UNDER DIFFERENT HEADS ARE CONTAINED IN SE CTIONS 14 TO 59 FORMING PART OF CHAPTER IV OF THE ACT. IN OTHER WOR DS, CHAPTER IV PROVIDES FOR COMPUTATION OF INCOME OF AN ASSESSEE U NDER THE NORMAL PROVISIONS OF THE ACT. IT WAS SUBMITTED THAT AS A NE CESSARY COROLLARY, PROVISIONS OF SECTION 14A CANNOT BE EXTENDED TO ANY CHAPTER, OTHER THAN CHAPTER IV OF THE ACT, I.E., WHILE COMPUTING I NCOME UNDER THE NORMAL PROVISIONS. IT WAS FURTHER SUBMITTED THAT SEC TION 115JB 109 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT FINDS PLACE UNDER CHAPTER XII-B OF THE ACT. BEING S O, PROVISIONS OF SECTION 14A CONTAINED IN CHAPTER IV CANNOT BE IMPOR TED AND INCORPORATED UNDER SECTION 115JB, MORE SO WHEN CLAUS E (F) TO EXPLANATION 1 TO THE SAID SECTION CONTAINS NO REFERENCE TO SECTI ON 14A OF THE ACT. RELIANCE IN THIS REGARD WAS PLACED O N THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PCIT V. BHUSHAN STEEL LTD.: ITA NO. 593/2015, DATED 29.09.2015, WHEREIN, T HE HONBLE COURT UPHELD THE DECISION OF THE TRIBUNAL THAT DISA LLOWANCE UNDER SECTION 14A READ WITH RULE 8D COULD NOT BE ADDED WHIL E COMPUTING BOOK PROFITS AS PER SECTION 115JB AND DECLINED TO F RAME QUESTION OF LAW. FURTHER, RELIANCE WAS ALSO PLACED ON THE DECISIO N OF THE SPECIAL BENCH OF THE DELHI TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS (P.) LTD: 165 ITD 27 (DEL TRIB.), WHEREI N THE TRIBUNAL INTER ALIA , PLACING RELIANCE ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF BHUSHAN STEEL LTD. (SUPRA), LI KEWISE, HELD THAT COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB (2) OF THE ACT IS TO BE MADE WITHOUT RESORTING TO COMPUTATI ON AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D OF THE RULES. THE LD. AR ALSO RELIED UPON THE FOLLOWING DECISIONS: 110 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT - QUIPPO TELECOM INFRASTRUCTURE LTD V. ACIT: ITA NO.4931/DEL/2010 (DEL ITAT) - BEACH MINERALS COMPANY (P.) LTD. V. ACIT: ITA NO. 2110/MDS/2014 (CHENNAI ITAT) - SHRIRAM CAPITAL LTD V. DCIT (ITA. NOS.512 &513 /MDS /2015) (CHENNAI ITAT) - SCOPE PRIVATE LTD. V. ACIT : ITA NO. 8934/MUM./2010 - RELIANCE INDUSTRIAL INFRASTRUCTURE LTD. V. ACIT: IT A NOS. 69 & 70/MUM/2009 - JCIT V. RELIANCE CAPITAL LTD.: ITA NO. 3037/MUM/200 8 - BENGAL FINANCE AND INVESTMENT (P) LTD. V. CIT: ITA NO. 5620/MUM/2010 - ESSAR TELEHOLDINGS LTD V. DCIT : ITA 3850/MUM/2010 - NAHAR CAPITAL AND FINANCIAL V. ACIT: ITA NO. 1120/C HD/2011 - ACIT VS. SPRAY ENGINEERING DEVICES LTD: (2012) 53 S OT 70 (CHD.) (URO.) - GMM PFAUDLER LTD. V. JCIT : ITA NOS. 2627 & 2923/AH D/2008 & 3280/AHD/2010 - CADILA HEALTHCARE LTD. V. ACIT: 21 TAXMANN.COM 483 (AHD.) - RELIANCE PETROPRODUCTS (P) LTD. V. ACIT : ITA NO. 2324/AHD/2009 - JINDAL STEEL AND ALLOY LTD. V. ACIT : ITA NOS. 961 & 962/MUM/2009 111 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 40.0.9 IN VIEW OF THE ABOVE, THE LD. AR SUBM ITTED THAT APPLICABILITY OF PROVISIONS OF SECTION 14A IS CONFI NED TO COMPUTATION OF TAX LIABILITY UNDER THE FIVE HEADS OF INCOME ENU MERATED IN SECTION 4 UNDER NORMAL PROVISIONS CONTAINED IN CHAPTER-IV O F THE ACT. THE SAID SECTION 14A CANNOT BE EXTENDED AND READ INTO S ECTION 115JB FALLING UNDER CHAPTER XII-B OF THE ACT. 41.0 THE LD. CIT - DR RELIED UPON THE A SSESSMENT ORDER AND ORDER OF THE TPO. 42.0.0 WE HAVE HEARD BOTH THE PARTIES AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. THIS TRIBUNAL, IN A.YS. 2010-1 1 AND 2011-12, HAD DELETED THE DISALLOWANCE UNDER SECTION 14A OF TH E ACT ON THE GROUND OF VALID SATISFACTION NOT HAVING BEEN RECORD ED BY THE ASSESSING OFFICER. SIMILARLY, IN ASSESSMENT YEAR 20 06-07 THE DISALLOWANCE WAS DELETED. HOWEVER, WE NOTE THAT THE A FORESAID DECISION WAS NOT FOLLOWED BY THE TRIBUNAL IN THE RE CENT DECISION FOR THE ASSESSMENT YEAR 2013-14, WHEREIN THE ISSUE WAS R ESTORED BACK TO THE FILE OF THE AO TO RECORD SATISFACTION. THE R ELEVANT OBSERVATIONS ARE AS UNDER: IT IS OBSERVED IN THE PRESENT CASE THAT THE ASSESS EE HAS SUO MOTO DISALLOWED EXPENSES UNDER SECTION 14A OF THE A CT. THE 112 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT HONBLE APEX COURT IN CASE OF MAXOPP INVESTMENT LTD . VS. CIT (2018) 402 ITR 640 (SC) HELD THAT: 40) WE NOTE FROM THE FACTS IN THE STATE BANK OF PA TIALA CASES THAT THE AO, WHILE PASSING THE ASSESSMENT ORD ER, HAD ALREADY RESTRICTED THE DISALLOWANCE TO THE AMOU NT WHICH WAS CLAIMED AS EXEMPT INCOME BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE RULES AND HOLDI NG THAT SECTION 14A OF THE ACT WOULD BE APPLICABLE. IN SPIT E OF THIS EXERCISE OF APPORTIONMENT OF EXPENDITURE CARRIED OU T BY THE AO, CIT (A) DISALLOWED THE ENTIRE DEDUCTION OF EXPE NDITURE. THAT VIEW OF THE CIT (A) WAS CLEARLY UNTENABLE AND RIGHTLY SET ASIDE BY THE ITAT. THEREFORE, ON FACTS, THE PUN JAB AND HARYANA HIGH COURT HAS ARRIVED AT A CORRECT CONCLUS ION BY AFFIRMING THE VIEW OF THE ITAT, THOUGH WE ARE NOT SUBSCRIBING TO THE THEORY OF DOMINANT INTENTION APP LIED BY THE HIGH COURT. IT IS TO BE KEPT IN MIND THAT IN TH OSE CASES WHERE SHARES ARE HELD AS STOCK-IN-TRADE, IT BECOM ES A BUSINESS ACTIVITY OF THE ASSESSEE TO DEAL IN THOSE SHARES AS A BUSINESS PROPOSITION. WHETHER DIVIDEND IS EARNED OR NOT BECOMES IMMATERIAL. IN FACT, IT WOULD BE A QUIRK OF FATE THAT WHEN THE INVESTEE COMPANY DECLARED DIVIDEND, THOSE SHARES ARE HELD BY THE ASSESSEE, THOUGH THE ASSESSE E HAS TO ULTIMATELY TRADE THOSE SHARES BY SELLING THEM TO EARN PROFITS. THE SITUATION HERE IS, THEREFORE, DIFFEREN T FROM THE CASE LIKE MAXOPP INVESTMENT LTD. WHERE THE ASSESSEE WOULD CONTINUE TO HOLD THOSE SHARES AS IT WANTS TO RETAIN CONTROL OVER THE INVESTEE COMPANY. IN THAT CASE, WH ENEVER DIVIDEND IS DECLARED BY THE INVESTEE COMPANY THAT W OULD NECESSARILY BE EARNED BY THE ASSESSEE AND THE ASSES SEE ALONE. THEREFORE, EVEN AT THE TIME OF INVESTING INT O THOSE SHARES, THE ASSESSEE KNOWS THAT IT MAY GENERATE DIV IDEND INCOME AS WELL AND AS AND WHEN SUCH DIVIDEND INCOME IS 113 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT GENERATED THAT WOULD BE EARNED BY THE ASSESSEE. IN CONTRAST, WHERE THE SHARES ARE HELD AS STOCK-IN-TRA DE, THIS MAY NOT BE NECESSARILY A SITUATION. THE MAIN PURPOS E IS TO LIQUIDATE THOSE SHARES WHENEVER THE SHARE PRICE GOE S UP IN ORDER TO EARN PROFITS. IN THE RESULT, THE APPEALS F ILED BY THE REVENUE CHALLENGING THE JUDGMENT OF THE PUNJAB AND HARYANA HIGH COURT IN STATE BANK OF PATIALA ALSO FA IL, THOUGH LAW IN THIS RESPECT HAS BEEN CLARIFIED HEREI NABOVE. 41) HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE I T CLEAR THAT BEFORE APPLYING THE THEORY OF APPORTIONMENT, T HE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTIO N 14A WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE TH E ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISFACTIO N TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTIO N, NATURE OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/MAKING THE INVESTMENT IN SHARES IS TO BE EXA MINED BY THE AO. THOUGH THE ASSESSING OFFICER DID NOT ACCEPT THE MET HOD OF DISALLOWANCE COMPUTED BY THE ASSESSEE UNDER SECTION 14A AND MADE FURTHER DISALLOWANCE OF RS. 66,35,000/- INVOKI NG PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 AFTER REDUCING THE SUO MOTO DISALLOWANCE OF RS. 65.23 LAK HS MADE BY THE ASSESSEE IN THE RETURN OF INCOME. BUT THE ASSES SING OFFICER HAS NOT GIVEN THE PROPER CALCULATION TO THAT EFFECT . THEREFORE, THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSIN G OFFICER. WE DIRECT THE ASSESSING OFFICER THAT AFTER TAKING COGN IZANCE OF THE 114 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT THE APEX COURT DECISION, PASS THE APPROPRIATE ORDER . NEEDLESS TO SAY, THE ASSESSEE BE GIVEN OPPORTUNITY OF HEARING B Y FOLLOWING PRINCIPLES OF NATURAL JUSTICE. THEREFORE, GROUND NO . 16 TO 16.7 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. 42.0.2 SIMILARLY, IN ASSESSMENT YEARS 2009- 10 AND 2012-13 THE MATTER WAS SET ASIDE. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ISSUE. AS NOTED ABOVE, THIS TRIBUNAL HAD RES TORED THE ISSUE OF COMPUTATION OF DISALLOWANCE U/S 14A TO THE FILE OF T HE ASSESSING OFFICER IN ASSESSMENT YEARS 2006-07, 2009-2010, 201 2-13 AS WELL AS IN ASSESSMENT YEAR 2013-14 ON IDENTICAL FACTS. T HEREFORE, IT IS OUR CONSIDERED OPINION THAT ENDS OF JUSTICE WOULD BE MET IF IN THIS YEAR ALSO, THE ISSUE IS RE-EXAMINED BY THE ASSESSING OFF ICER IN LIGHT OF JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF M AXOPP INVESTMENT LTD. VS. CIT (SUPRA). ACCORDINGLY, THE M ATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. WE DIRECT THE ASSESSING OFFICER TO PASS APPROPRIATE ORDERS IN ACCORDANCE WITH LAW AFTER DULY CONSIDERING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (SUPRA) AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. 115 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 42.0.3 AS REGARD THE ADDITION OF DI SALLOWANCE OF RS. 1.67 CORES MADE UNDER SECTION 14A READ WITH RULE 8D OF TH E RULES WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE A CT, WE FIND THAT THE SAID ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HONBLE DELHI HIGH COURT IN THE CASE O F PCIT V. BHUSHAN STEEL LTD.: ITA NO. 593/2015 AND BY THE ORDER OF TH E SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS VIREET INVES TMENTS (P.) LTD: 165 ITD 27 (DEL TRIB.), ACCORDINGLY THE ADDITION MA DE IN THIS REGARD IS DELETED. 42.0.4 THEREFORE, GROUND NOS. 14 TO 14.7 ARE ALLOWED FOR STATISTICAL PURPOSES. 43.0.0 IT WAS SUBMITTED BY TH E LD. AR THAT GROUND NO. 15 RELATES TO DEPRECIATION ON MODEL FEE AMOUNTI NG TO RS. 39.5 LACS. IT WAS SUBMITTED THAT THE ASSESSEE MANUFACTURE S TWO-WHEELERS UNDER TECHNICAL COLLABORATION AGREEMENT ENTERED INT O WITH HONDA MOTOR CO. LTD., JAPAN (HONDA). IN ACCORDANCE WITH THE ABOVE COLLABORATION AGREEMENT, THE ASSESSEE PAYS MODEL FE E TO HONDA TO OBTAIN DESIGN/KNOW-HOW TO MANUFACTURE A NEW MODEL OF TWO- WHEELER. THE SAID EXPENDITURE IS INCURRED PRIOR TO C OMMENCEMENT OF 116 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT PRODUCTION OF THE NEW MODEL. IT WAS SUBMITTED THAT TH E ASSESSING OFFICER HELD THAT THE EXPENDITURE INCURRED BY THE A SSESSEE TOWARDS MODEL FEE IS DIRECTLY RELATED TO MANUFACTURE OF NEW MODELS OF TWO- WHEELERS AND. THEREFORE, NEEDS TO BE ATTRIBUTED TO T HE VALUE OF CLOSING STOCK OF FINISHED GOODS OF TWO-WHEELERS. ACCO RDINGLY, THE ASSESSING OFFICER, ON PROPORTIONATE BASIS, WORKED OU T A SUM OF RS.39,50,000/- OUT OF DEPRECIATION ON MODEL FEE DEB ITED TO THE PROFIT AND LOSS ACCOUNT, AS ATTRIBUTABLE TO THE VALUE OF C LOSING STOCK AND MADE ADDITION OF THE SAID AMOUNT TO THE INCOME OF A SSESSEE. 43.0.1 THE LD. AR SUBMITTED THA T THE AFORESAID ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE DELHI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE F OR ASSESSMENT YEARS 2010-11 AND 2011-12 WHEREIN FOLLOWING THE ORDE R FOR ASSESSMENT YEAR 2008-09, SIMILAR DISALLOWANCE OF DE PRECIATION ON MODEL FEE WAS DELETED BY THE TRIBUNAL ON THE GROUND THAT EXPENDITURE WAS INCURRED ON NEW MODEL FEES PRIOR TO C OMMENCEMENT OF PRODUCTION OF NEW MODELS OF TWO WHEELERS, AND EVEN OTHERWISE THIS EXERCISE WOULD BE REVENUE NEUTRAL IN A BROADER PERSPECTIVE AS THE SAME ADJUSTMENT WOULD BE REQUIRED TO BE MADE TO THE OPENING 117 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT STOCK OF FINISHED GOODS FOR THE YEAR UNDER CONSIDER ATION. IT WAS FURTHER POINTED OUT BY THE LD. AR THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR AYS 2010-11 AND 2011-12, THE TRIBUNAL HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN APPE LLATE ORDERS PASSED FOR AYS 2009-10, 2012-13 AND 2013-14. 44.0 THE LD. CIT-DR RELIED UP ON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUI SH THE DECISION OF THE TRIBUNAL. 45.0.0 WE HAVE HEARD BOTH T HE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THIS TRIBUNAL HAD HELD IN A.YS. 2010-11 AND 2011-12 AS UNDER: 112) WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTEN TIONS. IN ABSENCE OF ANY CHANGE IN THE FACTS AND CIRCUMSTANCE S OF THE CASE OR ANY CONTRARY DECISION, WE HAVE HEARD THE RI VAL CONTENTIONS. WE FIND THAT THE SIMILAR ISSUE WAS RAI SED IN THE ASSESSMENT ORDER FOR AY 2008-09, WHICH WAS DECIDED IN FAVOUR OF THE APPELLANT BY THE TRIBUNAL IN APPEAL ORDER FO R THAT YEAR BY OBSERVING AS UNDER- 219. ON CAREFUL CONSIDERATION OF ABOVE SUBMISSIONS OF BOTH THE PARTIES, WE ARE OF THE VIEW THAT IF THE CL OSING STOCK OF THE YEAR UNDER CONSIDERATION IS TO BE VARIED, TH EN SIMILAR ADJUSTMENTS WOULD NEED TO BE MADE IN THE OPENING ST OCK ALSO AND CORRESPONDING ADJUSTMENTS WOULD ALSO NEED TO BE 118 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT CARRIED OUT IN THE OPENING STOCK OF THE SUCCEEDING YEAR AND IF ANY ADDITION IS MADE IN THIS REGARD, WOULD BE RE VENUE NEUTRAL IF SEEN IN A MACRO PERSPECTIVE. FROM THE OR DERS OF THE AUTHORITIES BELOW, WE CLEARLY OBSERVE THAT THE AO HAS NOT DISPUTED THE MODE OF VALUATION OF INVENTORY MAD E BY THE ASSESSEE DURING PRECEDING YEARS AND IF ANY KIND OF ADJUSTMENT IS HELD TO BE ATTRIBUTABLE TO THE VALUE OF FINISHED CLOSING STOCK, THEN THE SAID CORRESPONDING AMOUNT/ADJUSTMENT WOULD NEED TO BE MADE IN THE OPEN ING STOCK OF THE SUCCEEDING YEAR AND IN A BROADER SENSE , SUCH KIND OF ADJUSTMENT/ADDITION WOULD BE REVENUE NEUTRA L. ON SPECIFIC QUERY FROM THE BENCH, THE DR SUBMITTED THA T THE TREATMENT GIVEN BY THE REVENUE AUTHORITIES ON THE I SSUE IN THE PRECEDING YEAR IS NOT KNOWN TO HIM AND IN THIS SITUATION, WE HOLD THAT THE / DEPARTMENT HAS NOT DI SPUTED THE CLAIM OF THE ASSESSEE IN THE PRECEDING YEARS. 220. IT IS WELL ACCEPTED LEGAL PROPOSITION THAT WHE N THE DEPARTMENT HAS TAKEN A PARTICULAR STAND ON A PARTIC ULAR ISSUE, THEN THE DEPARTMENT CANNOT TAKE A DEVIATED S TAND ON THE ISSUE IN THE SUCCEEDING YEAR WITHOUT ANY SOU ND, JUSTIFIABLE AND COGENT REASON. THE DEPARTMENT HAS N OT DISPUTED THE FACT THAT IMPUGNED EXPENDITURE WAS INC URRED PRIOR TO COMMENCEMENT OF PRODUCTION OF NEW MODEL AN D THE SAME WAS NEITHER INCURRED DURING THE MANUFACTURING OF NEW MODEL NOR MODEL FEE EXPENDITURE IS DIRECTLY REL ATED TO MANUFACTURE OF NEW MODELS. IN THIS FACTUAL ASPECT A ND CIRCUMSTANCES, WE HOLD THAT THE ASSESSEE INCURRED EXPENDITURE ON NEW MODEL FEES PRIOR TO COMMENCEMENT OF PRODUCTION OF NEW MODELS OF TWO WHEELERS, EVEN OTHE RWISE THIS EXERCISE WOULD BE REVENUE NEUTRAL IN A BROADER PERSPECTIVE AS THE SAME ADJUSTMENT WOULD BE REQUIRE D TO BE DONE IN THE OPENING STOCK OF FINISHED GOODS FOR THE YEAR UNDER CONSIDERATION. MORE SO, WHEN THE ASSESSEE HAS 119 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT FOLLOWED A PARTICULAR MODE OF ACCOUNTING FOR THIS EXPENDITURE WHICH WAS ACCEPTED BY THE REVENUE, THEN THE DEPARTMENT CANNOT TAKE A DIFFERENT STAND IN THE SUC CEEDING YEAR TO MAKE AN ADDITION IN THIS REGARD. WE ARE UNA BLE TO SEE ANY VALID GROUND TO 'ACCEPT' A DEVIATED STAND O F THE REVENUE ON THE ISSUE, WHICH IN A BROADER SENSE, IS REVENUE NEUTRAL, THEN NO ADJUSTMENT IS CALLED FOR IN THIS R EGARD. WE HOLD THAT FINDINGS OF THE AO ARE NOT SUSTAINABLE AN D WE SET ASIDE THE SAME. HENCE, WE ALLOW GROUND NO.58 TO 58.1 OF THE ASSESSE E. ACCORDINGLY, RESPECTFULLY FOLLOWING THE AFORESAID D ECISION, WE DECIDE THE ISSUE IN FAVOUR OF THE APPELLANT. ACCORD INGLY, THE GROUND NUMBER 23 OF APPEAL STANDS ALLOWED . 45.0.1 THE FACTS OF THE PRESENT ASS ESSMENT YEAR AND THE EARLIER ASSESSMENT YEAR ARE NOT DIFFERENT. IN THE P RESENT YEAR ALSO , THE EXPENDITURE WAS INCURRED ON NEW MODEL FEES PRIOR TO COMMENCEMENT OF PRODUCTION OF NEW MODELS OF TWO WHEELE RS, THUS, THIS ACTION IS REVENUE NEUTRAL IN A BROADER PERSPEC TIVE AS THE SAME ADJUSTMENT WOULD BE REQUIRED TO BE MADE TO THE OPENI NG STOCK OF FINISHED GOODS FOR THE YEAR UNDER CONSIDERATION. TH US, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE TRIBUNAL FOR A.YS. 2010-11 AND 2011-12. WE ALSO FIND THAT THE TR IBUNAL HAS IN THE APPEAL FOR THE ASSESSMENT YEARS 2009-10, 2012-1 3 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE COMPANY FOLLOWING THE 120 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT AFORESAID ORDER PASSED FOR ASSESSMENT YEARS 2010-11 AND 2011-12. 45.0.2 THEREFORE, GROUND NO. 15 IS ALL OWED IN FAVOUR OF THE ASSESSEE. 46.0.0 REGARDING GROUND NO. 16 RELATIN G TO DISALLOWANCE OF REIMBURSEMENT OF FOREIGN TRAVELLING EXPENSES TO DIR ECTORS/EMPLOYEES AMOUNTING TO 7.38 CRORES, THE LD. AR SUBMITTED THAT THE DISALLOWANCE WAS MADE ON THE GROUND OF NON-SUBMISSION OF EVIDENCE/PROOF OF ACTUAL EXPENSES INCURRED BY EMPLO YEES. IT WAS SUBMITTED THAT IN THE COURSE OF DISCHARGE OF OFFICI AL DUTIES, THE EMPLOYEES OF THE COMPANY ARE REQUIRED TO TRAVEL ABR OAD AND INCUR INCIDENTAL EXPENSES IN FOREIGN CURRENCY LIKE LOCAL CONVEYANCE, BOARDING AND LODGING EXPENSES, TELEPHONE EXPENSES E TC. THE ASSESSEE HAD INTRODUCED A POLICY FIXING PER DIEM ALLOWANCE PAYABLE TO EMPLOYEES, DEPENDING UPON THE GRADE/CATEGORY OF THE EMPLOYEES AND THE PLACE/COUNTRY OF TRAVEL. THE EMPLOYEES ARE NOT ENTITLED TO ANY EXTRA ALLOWANCE IN THE EVENT THE ACTUAL EXPENDIT URE INCURRED BY THE EMPLOYEE IS IN EXCESS OF SUCH PER DIEM ALLOWANCE. IT WAS SUBMITTED THAT FOR PAYMENT OF PER DIEM ALLOWANCE, AS PER POLICY, THE ASSESSEE DOES NOT REQUIRE THE EXPENSES TO BE NECESS ARILY SUPPORTED 121 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT /BACKED BY BILLS CONSIDERING THE PRACTICAL DIFFICUL TIES/IMPOSSIBILITIES IN PRODUCING INVOICES FOR PETTY EXPENSES LIKE LOCAL CONVEYANCE, TELEPHONE BILLS, ETC. THE EMPLOYEES ARE ONLY REQUIR ED TO SUBMIT DETAILS OF EXPENDITURE INCURRED IN SPECIFIED FORM, ON BASIS OF WHICH TRAVEL BILL IS SETTLED. IT WAS SUBMITTED THAT IN TH E ASSESSMENT ORDER, THE AO MADE DISALLOWANCE OF RS.7,38,27,378/- (COMPRI SING OF RS. 2,28,58,951/- IN RESPECT OF DHARUHERA, GURGAON, HAR IDWAR AND NEEMRANA PLANTS AND RS. 5,09,68,426/- IN RESPECT OF HEAD OFFICE EXPENSES) OUT OF EXPENDITURE INCURRED TOWARDS RE-IMB URSEMENT OF FOREIGN TRAVEL EXPENSES INCURRED BY EMPLOYEES, ON T HE GROUND THAT DECLARATION FURNISHED BY THE EMPLOYEES WAS NOT A SUF FICIENT EVIDENCE TO ESTABLISH THE INCURRENCE OF ACTUAL EXPENSES, WHIC H WERE REQUIRED TO BE SUPPORTED WITH BILLS/INVOICES OF FACTUAL EXPEN DITURE INCURRED BY THE EMPLOYEES. 46.0.1 THE LD. AR SUBMITTED THAT TH E AFORESAID ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF DELHI BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE AYS 2007- 08 AND 2008-09, WHEREIN THE TRIBUNAL HELD THAT DISAL LOWANCE CANNOT BE MADE MERELY ON THE BASIS THAT VOUCHERS WE RE NOT 122 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT PRODUCED BY THE EMPLOYEES, WHICH HAS BEEN REAFFIRMED BY THE TRIBUNAL IN THE ORDER DATED 24.10.2016 PASSED FOR T HE ASSESSMENT YEARS 2010-11 AND 2011-12. IT WAS FURTHER POINTED O UT BY THE LD. AR THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR AYS 2010-11 AND 2011-12, THE TRIBUNAL HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN APPELLATE ORDERS PASSED FOR AY 2009-10, 2012-13 AND 2013-14. 47.0 THE LD. CIT-DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 48.0.0 WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL, IN ASSESSEES OWN CASE, HAS HELD IN A.YS. 2010-11 AND 2011-12 AS UNDE R:- 226) WE HAVE HEARD THE RIVAL CONTENTIONS. WE NOTE THAT SIMILAR ISSUE RELATING TO DISALLOWANCE RELATING TO RE-IMBUR SEMENT OF FOREIGN TRAVELLING EXPENSES TO DIRECTORS/EMPLOYEES WAS DELETED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSE SSMENT YEAR 2007-08 WHICH WAS FOLLOWED IN ASSESSMENT YEAR 2008- 09. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FOR ASSESSMEN T YEAR 2007- 08 ARE AS UNDER: 123 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 51.15.THE ASSESSING OFFICER IN THIS CASE HAS NOT D OUBTED THE FACT THAT EMPLOYEES/ DIRECTORS OF THE COMPANY T RAVELLED ABROAD AND THE FACT THAT THEY HAVE INCURRED INCIDEN TAL EXPENSES IN FOREIGN CURRENCY. THE REASON FOR DISALL OWANCE IS THAT EMPLOYEES HAVE NOT FURNISHED TO THE ASSESSE E EVIDENCE IN SUPPORT OF THE FACT THAT THEY HAVE INCU RRED CONVEYANCE, BOARDING AND LODGING EXPENSES ETC. WHEN REASONABLE AMOUNT OF DAILY ALLOWANCE IS FIXED AS PE R THE RULES OF THE COMPANY AND WHEN THESE D.A. RULES ARE FOLLOWED BY THE ASSESSEE, IN OUR VIEW, THE INCURRIN G OF EXPENDITURE BY THE EMPLOYEES IS NOT TO BE DOUBTED. EVEN IN CASES WHERE OFFICERS OF THE GOVERNMENT OF INDIA TRA VEL ABROAD, DAILY ALLOWANCE IS GIVEN AND VOUCHERS FOR S UCH EXPENDITURE ARE NOT INSISTED BECAUSE OF PRACTICAL D IFFICULTIES IN SUBMITTING BILLS/ VOUCHERS OF PETTY EXPENSES. IN SUCH CIRCUMSTANCES, WHAT IS TO BE EXAMINED BY THE ASSESS ING OFFICER IS THE REASONABLENESS OF THE EXPENSES INCUR RED AS COMPARED TO THE GENERAL RATES OF EXPENSES AND ALLOW THE SAME. THE ASSESSEE SUBMITS THAT THE FIXED PER DIEM ALLOWANCE PAYABLE TO EMPLOYEES DEPENDING ON THE GRA DE IS REASONABLE. WHEN SUCH RATES ARE REASONABLE THE QUES TION OF DISALLOWANCE DOES NOT ARISE UNLESS THE REVENUE DEMONSTRATES THAT THE RATES ARE EXCESSIVE. IN THIS CASE IT IS NOT THAT THE EXPENSES ARE NOT INCURRED FOR THE STAT ED PURPOSE NOR IS IT THAT THE RATES ARE UNREASONABLE. THE DISALLOWANCE IN QUESTION IN OUR VIEW ON THE SOLE GR OUND THAT VOUCHERS ARE NOT PRODUCED BY THE EMPLOYEES CAN NOT BE SUSTAINED. IN THE RESULT THIS GROUND OF THE ASSESSE E IS ALLOWED. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE O F THE APPELLANT AS COMPARED TO THE ASSESSMENT YEAR IN WHI CH THE 124 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT ABOVE ISSUE IS DECIDED BY THE COORDINATE BENCH. NO OTHER CONTRARY DECISION WAS ALSO POINTED OUT THEREFORE, R ESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN T HE APPELLANTS OWN CASE FOR THE EARLIER YEARS, WE DISMISS GROUND N O. 9 OF THE APPEAL OF THE REVENUE. 48.0.1 THUS, THIS TRIBUNAL IN A.YS. 201 0-11 AND 2011-12 AND EARLIER YEARS HAS HELD THAT DISALLOWANCE CANNOT BE MADE MERELY ON THE BASIS THAT VOUCHERS WERE NOT PRODUCED BY THE EMPLOYEES. WE ALSO FIND THAT THE TRIBUNAL HAS IN THE APPEAL FOR T HE ASSESSMENT YEARS 2009-10, 2012-13 AND 2013-14, DECIDED THE ISS UE IN FAVOR OF THE ASSESSEE COMPANY FOLLOWING THE AFORESAID ORDER P ASSED FOR ASSESSMENT YEARS 2010-11 AND 2011-12. AS, THE FACTS HAVE NOT CHANGED IN THIS YEAR AS WELL, THEREFORE, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL FOR EARLIER ASSESSM ENT YEARS. 48.0.2 THEREFORE, GROUND NO. 16 IS ALLOWED IN FAVOUR OF THE ASSESSEE. 49.0.0 THE LD. AR SUBMITTED THA T GROUND NOS. 17 TO 17.2 RELATE TO DISALLOWANCE OF ROYALTY EXPENDITURE AMOUNTING TO RS.95.61 CRORES ON THE GROUND OF BEING CAPITAL IN N ATURE. IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAS BEEN MANUFA CTURING TWO 125 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT WHEELERS IN INDIA SINCE 1985 ON THE BASIS OF TECHNOL OGY PROVIDED BY M/S. HONDA MOTORS CO. LTD., JAPAN ('HM') AND HAS SO FAR LAUNCHED VARIOUS MODELS OF MOTORCYCLES BY OBTAINING THE TECH NOLOGY PROVIDED BY THAT COMPANY. HOWEVER, DURING AY 2011-12, ON ACC OUNT OF COMMERCIAL CONSIDERATIONS, HM DECIDED TO EXIT THE J OINT VENTURE. CONSEQUENTLY, A MEMORANDUM OF UNDERSTANDING (MOU) DATED 16.12.2010 WAS ENTERED INTO BETWEEN THE ASSESSEE AND HM AND THE LICENSE AGREEMENT WAS MUTUALLY TERMINATED. IT WAS FUR THER SUBMITTED THAT IN TERMS OF THE MOU, TWO NEW LICENSE AGREEMENTS DATED 06.07.2011 AND 08.01.2011, LICENSE 'A' AGREEM ENT AND LICENSE B AGREEMENT, WERE ENTERED INTO BETWEEN THE ASSESSEE AND HM. IT WAS SUBMITTED THAT IN TERMS OF THE LICENSE AG REEMENT FOR LICENSE A PRODUCTS, THE ASSESSEE RECEIVED THE FOL LOWING RIGHTS: (I) RIGHTS TO USE THE TECHNOLOGY, DESIGN AND DRAWINGS FO R MANUFACTURE OF 18 SPECIFIC MODELS OF MOTOR CYCLES T ILL PERPETUITY (II) RIGHT TO MAKE MODIFICATIONS TO THE TECHNOLOGY, DESI GN AND DRAWINGS (III) UNRESTRICTED RIGHT TO EXPORT SUCH PRODUCTS IN THE O VERSEAS MARKETS. 126 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 49.0.1 IT WAS FURTHER SUBMITTED BY THE LD. AR THAT THE ASSESSEE, SUBSEQUENTLY HAD ENTERED INTO A NEW LICENS E AGREEMENT (FOR LICENSE B PRODUCTS) DATED 22.01.2011 FOR THE P URPOSE OF PROVIDING THE ASSESSEE WITH TRANSITIONAL SUPPORT AND UNDER THE SAID AGREEMENT THE ASSESSEE WAS PROVIDED RIGHT TO MANUFAC TURE 4 NEW MODELS (NAMELY (A) PASSION XPRO, (B) IGNITOR, (C) M AESTRO AND D) IMPULSE) USING THE TECHNOLOGY PROVIDED BY HM ON PAY MENT OF LUMP SUM MODEL FEE AND ROYALTY. SINCE THE RIGHT TO MANUF ACTURE THE AFORESAID 4 MODELS OF MOTORCYCLES WAS NOT INCLUDED I N THE LICENSE A AGREEMENT, THEREFORE, IN ORDER TO BE ABLE TO MANUFA CTURE THE SAID MODELS OF MOTORCYCLES THE ASSESSEE HAD TO ENTER INT O SEPARATE AGREEMENT FOR MANUFACTURE OF LICENSE B PRODUCTS. THE LD. AR SUBMITTED THAT THE ASSESSEE, AFTER SEPARATION FROM HONDA MOTORS CORPORATION, JAPAN, WAS NOT IN A POSITION TO INDEPEN DENTLY DEVELOP AND LAUNCH NEW MODELS OF MOTORCYCLES IMMEDIATELY. T HEREFORE, IN ORDER TO SURVIVE IN A HIGHLY COMPETITIVE MARKET, TH E ASSESSEE REQUESTED THE ASSOCIATED ENTERPRISE TO PROVIDE RIGH T AND TECHNOLOGY FOR MANUFACTURE OF FOUR NEW MODELS OF MOTOR CYCLES. ACCORDINGLY, THE ASSESSEE AND THE ASSOCIATED ENTERPRISE ENTERED INTO LICENSE B 127 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT AGREEMENT ALLOWING THE ASSESSEE THE RIGHT TO MANUFAC TURE A) PASSION XPRO, (B) IGNITOR, (C) MAESTRO AND D) IMPULSE MODEL S OF MOTORCYCLES. 49.0.2 IT WAS FURTHER SUB MITTED BY THE LD. AR THAT DURING THE RELEVANT PREVIOUS YEAR, IN TERMS OF THE AFORESAID LICENSE B AGREEMENT, THE ASSESSEE BOOKED RS. 127.48 CRORES AS ROYALTY, TO HONDA, WHICH WAS CLAIMED REVENUE DEDUCTION. THE AFORE SAID PAYMENTS WERE MADE AFTER DEDUCTING TAX AT SOURCE @1 0% BEING THE RATE OF TAX APPLICABLE IN RELATION TO PAYMENT OF RO YALTY AND FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF INDO-JAPAN D TAA. IT WAS FURTHER SUBMITTED THAT THE AO TREATED THE AFORESAID EXPENDITURE INCURRED BY WAY OF ROYALTY PAID TO HONDA AS CAPITAL EXPENDITURE, BY FOLLOWING THE ORDERS FOR THE EARLIER YEAR(S) ON THE GROUND THAT: THE ASSESSEE HAD RECEIVED BENEFIT OF ENDURING NATUR E INASMUCH AS EXCLUSIVE RIGHT WAS AVAILABLE WITH THE ASSESSEE TO MANUFACTURE AND SELL THE PRODUCTS WITHIN THE TERRITORY OF INDIA; THE ASSESSEE WAS ENTITLED TO CONTINUED USE OF INFOR MATION SUPPLIED BY HONDA EVEN AFTER TERMINATION OF AGREEME NT; THE BENEFIT UNDER THE AGREEMENT HAD A DEGREE OF PER PETUITY SINCE THE AGREEMENT WAS RENEWED AND WAS EXTENDED YEAR AFTER YEAR AND DID NOT, THEREFORE, REMAIN A SHORT TERM AGREEMENT. THE ASSESSEE HAD ACQUIRED ASSET IN THE NATURE OF IN TELLECTUAL PROPERTY RIGHTS AND PATENTS FROM HONDA. 128 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 49.0.3 THE LD. AR SUBMITTED THAT THE A SSESSING OFFICER TREATED THE AFORESAID EXPENDITURE INCURRED BY WAY OF ROYALTY PAID TO HONDA AS CAPITAL EXPENDITURE ON THE GROUND THAT THE ASSESSEE HAD RECEIVED BENEFIT OF ENDURING NATURE AND HAD ACCORDI NGLY, DISALLOWED RS. 95.61 CRORES OUT OF TOTAL EXPENDITURE OF RS. 12 7.48 CRORES ON ACCOUNT OF ROYALTY AFTER ALLOWING DEPRECIATION @ 25% THEREOF, AMOUNTING TO RS. 31.87 CRORES. 49.0.4 THE LD. AR SUBMITTED THAT ROYAL TY WAS NOT CAPITAL EXPENDITURE. THERE ARE NO OWNERSHIP RIGHTS BUT ONLY LIMITED RIGHT TO USE IN LICENSE B PRODUCTS AGREEMENT. IT WAS SUBMITTE D THAT DURING THE CURRENCY OF THE AGREEMENT, THE ASSESSEE ONLY HA D A LIMITED RIGHT TO USE THE TECHNOLOGY OF HONDA. OWNERSHIP/PROPRIETAR Y RIGHTS IN THE TECHNICAL KNOW-HOW CONTINUED TO VEST IN HONDA AND TH E ASSESSEE WAS NOT AUTHORIZED TO TRANSFER, ASSIGN OR CONVEY THE KNOW- HOW/TECHNICAL INFORMATION TO ANY THIRD PARTY AS THE ASSESSEE ONLY ACQUIRED LIMITED RIGHT TO USE AND EXPLOIT THE KNOW- HOW. AS REGARDS TO NON-EXCLUSIVE LICENSE, THE LD. AR SUBMITTED THAT THE SAID RIGHT VESTED WITH THE ASSESSEE WAS NOT EXCLUSIVE IN AS MUCH AS, IN TERMS OF ARTICLE 2 AND ARTICLE 9 OF LICENSE B AGREEMENT, HONDA RESERVED THE 129 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT RIGHT TO PROVIDE TECHNOLOGY TO ITS AFFILIATES TO MA NUFACTURE MOTORCYCLES. THE LD. AR FURTHER SUBMITTED THAT AFOR ESAID LIMITED RIGHTS WERE AVAILABLE TO THE ASSESSEE AND THE FACT O F SUCH RIGHTS BEING NOT EXCLUSIVE CAN BE GATHERED FROM THE FOLLOWI NG CLAUSES OF THE AGREEMENT:- I) ARTCLE 2 - GRANT OF LICENSE AND EXCLUSIVITY II) ARTICLE 3-NO SUBLICENSE III) ARTICLE 9 - USE AND DISCLOSURE OF TECHNICAL IN FORMATION IV) ARTICLE 13 - TERMS OF AGREEMENT (UPTO 30.06.200 7) V) ARTICLE 21/22 TERMINATION/EFFECT OF EXPIRY AND TERMINATION VI) ARTICLE 25/26 CERTAIN PROHIBITIONS/MAINTENANCE OF SECRECY 49.0.5 THE LD. AR FURTHER SUBMITTED THAT PAYMENT UNDER THE AGREEMENT IS ALLOWABLE REVENUE EXPENDITURE. IT WAS SU BMITTED THAT AS PER THE VARIOUS CLAUSES OF THE AGREEMENT, IT WOUL D BE APPRECIATED THAT THE ROYALTY PAYABLE TO HONDA IS ONLY FOR THE P URPOSE OF USE OF TECHNICAL ASSISTANCE IN THE MANUFACTURE AND SALE OF PRODUCTS AND THE ASSESSEE HAS NOT ACQUIRED ANY CAPITAL ASSET, MU CH LESS IN THE NATURE OF INTELLECTUAL PROPERTY RIGHTS OR PATENTS B ELONGING TO HONDA, WHICH, IN UNEQUIVOCAL TERMS, AS PROVIDED IN THE AGRE EMENT VESTED IN 130 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT ABSOLUTE OWNERSHIP OF HONDA AT ALL TIMES. FURTHER, O N PERUSAL OF ARTICLE 22 OF THE LICENSE B PRODUCT AGREEMENT, IT WO ULD BE APPRECIATED THAT ON TERMINATION/EXPIRATION OF THE A GREEMENT, THE ASSESSEE WAS REQUIRED TO RETURN ALL THE DOCUMENTS AN D MATERIALS TO HONDA AND PROMPTLY DISCONTINUE THE USE OF TRADEMARK S LICENSED BY HONDA AND THE ASSESSEE DID NOT HAVE ANY RIGHT TO CO NTINUE USING SUCH KNOW-HOW. IT WAS SUBMITTED THAT, THUS, IT IS CLE AR THAT THERE IS NO EXPLICIT OR IMPLIED INTENTION TO TRANSFER OR CRE ATE OWNERSHIP IN THE TECHNICAL KNOWHOW/ TECHNICAL INFORMATION TO THE ASSES SEE. ON THE CONTRARY, IT IS UNEQUIVOCALLY AGREED TO BETWEEN THE PARTIES THAT THE KNOW-HOW SHOULD AT ALL TIMES REMAIN THE PROPERTY OF HONDA. IT WAS FURTHER SUBMITTED THAT THE CONDITIONS IN THE AGREEM ENT AS TO NON- ASSIGNABILITY, CONFIDENTIALITY AND THE SECRECY OF T HE KNOW-HOW ALSO INDICATE THAT THE ASSESSEE HAD MERELY OBTAINED THE RIGHT TO USE THE KNOW-HOW DURING THE CURRENCY OF THE AGREEMENT. RELIA NCE IN THIS REGARD WAS PLACED ON THE FOLLOWING DECISIONS WHEREIN I T HAS BEEN HELD THAT WHERE PAYMENT IS MADE TO SIMPLY USE THE TE CHNICAL KNOW- HOW/KNOWLEDGE PROVIDED BY THE FOREIGN COLLABORATOR AS OPPOSED TO 131 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT ACQUISITION OF OWNERSHIP RIGHTS THEREIN, THE PAYMEN T MADE WOULD BE REGARDED AS REVENUE EXPENDITURE: CIT V. CIBA INDIA LTD.: 69 ITR 692 (SC) CIT VS. BRITISH INDIA CORP. LTD. [1987] 165 ITR 51 (SC) ALEMBIC CHEMICAL WORKS CO. LTD. V. CIT: 177 ITR 37 7 (SC) SHRIRAM REFRIGERATION INDUSTRIES LTD. V. CIT: 127 I TR 746 (DEL HC) TRIVENI ENGINEERING WORKS LTD. VS. CIT : 136 ITR 34 0 (DEL) ADDL. CIT VS. SHAMA ENGINE VALVES LTD. : 138 ITR 21 7 (DEL) CIT VS. BHAI SUNDER DASS & SONS P. LTD. : 158 ITR 1 95 (DEL) CIT VS. LUMAX INDUSTRIES LTD. : 173 TAXMAN 390 (DEL ) SHRIRAM PISTONS & RINGS LTD. VS. CIT : 171 TAXMAN 8 1 (DEL) CIT VS. SHRI RAM PISTONS AND RINGS LTD. : 220 CTR 4 04 (DEL) GOODYEAR INDIA LTD. VS. ITO : 73 ITD 189 (DEL)(TM) ITO VS. SHIVANI LOCKS : 118 TTJ 467 (DEL) CLIMATE SYSTEMS INDIA LTD. VS. CIT: 319 ITR 113 (DE L-HC) CIT VS. SHARDA MOTOR INDUSTRIES LTD: 319 ITR 109 (D EL-HC) CIT VS. ESSEL PROPACK 325 ITR 185 (BOM) CIT V. MODI REVLON (P) LTD: (2012) 9 TMI 48 (DEL.) MAFATLAL DENIM LTD. V. DCIT: 2011 (12) TMI 351 (MUM .) CLIMATE SYSTEMS INDIA LTD. VS. CIT: 319 ITR 113 (DE L-HC) GOODYEAR INDIA LTD. VS. ITO : 73 ITD 189 (DEL)(TM) CIT V. AVERY INDIA LTD. 207 ITR 813 (CAL) CIT V. BHAI SUNDER DASS & SONS P. LTD.:158 ITR 195 (DEL) 132 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT CIT V. DCM LTD.: ITA NO. 87-89/1992 (DEL.)(HC) CIT V. DENSO INDIA P. LTD.: ITA 16/2008 (DEL.) (HC) CIT V. EICHER MOTORS LTD.: 293 ITR 464 (MP)(INDORE BENCH) 49.0.6 THE LD. AR SUBMITTED THAT SINCE NO PROPRIETARY RIGHTS IN THE KNOW-HOW VESTED IN THE ASSESSEE AND THE ASSE SSEE BEING A MERE LICENSEE WITH LIMITED RIGHTS TO USE THE TECHNIC AL ASSISTANCE DURING THE CURRENCY OF THE AGREEMENT, THERE IS NO E XPLICIT OR IMPLIED INTENTION TO TRANSFER OR CREATE OWNERSHIP IN THE TEC HNICAL KNOW-HOW /TECHNICAL INFORMATION IN THE ASSESSEE. IT WAS ARGUE D THAT THE EXPENDITURE BY WAY OF ROYALTY INCURRED BY THE ASSES SEE WAS ALLOWABLE REVENUE DEDUCTION SINCE- PAYMENT WAS MADE FOR LIMITED LICENSE TO USE THE KNOW -HOW PROVIDED BY HONDA, AS THE PROPRIETARY AND OWNERSHIP RIGHTS IN THE SAME CONTINUED TO REMAIN VESTED WITH HONDA AT AL L TIMES AND, THEREFORE, THERE WAS NO ABSOLUTE PARTING OF KNO W-HOW IN FAVOUR OF THE ASSESSEE RESULTING IN ACQUISITION OF ANY ASSET, NO BENEFIT OF ENDURING NATURE IN THE CAPITAL FIELD ACCRUED TO THE ASSESSEE, EVEN IF THE LICENSE TO MANUFACTURE AND SE LL PRODUCTS IN INDIA IS ASSUMED TO BE EXCLUSIVE, EXCEPT FOR GRANT OF LICENSE TO HMSI, 133 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT THE SUBJECT PAYMENT MADE DID NOT COVER CONSIDERATIO N PAID FOR SETTING UP OF THE MANUFACTURING FACILITY IN INDIA, ON TERMINATION OF THE AGREEMENT, THE ASSESSEE WAS RE QUIRED TO RETURN ALL THE DOCUMENTS AND MATERIALS TO HONDA AND PROMPTLY DISCONTINUE THE USE OF TRADEMARKS LICENSED BY HONDA AND THE ASSESSEE DID NOT HAVE ANY RIGHT TO CONTINUE USING S UCH KNOW- HOW. 49.0.7 THE LD. AR FURTHER POINTED O UT THAT THE AFORESAID ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE TRIBUNAL IN ASSESSMENT YEARS 2000-01, 2001-02, 2002 -03, 2006-07, 2007-08, 2008-09, 2009-10 AND 2010-11 WHEREIN THE TR IBUNAL HAS HELD THAT ANNUAL PAYMENT OF ROYALTY WAS ALLOWABLE REV ENUE EXPENDITURE. IT WAS SUBMITTED THAT THE AFORESAID ORD ERS OF THE TRIBUNAL RELATING TO ASSESSMENT YEARS 2000-01 TO 20 02-03 HAVE BEEN AFFIRMED BY THE HONBLE DELHI HIGH COURT IN TH E ASSESSEES OWN CASE REPORTED AS CIT V. HERO HONDA MOTORS LTD.: 372 ITR 481.48. IT WAS ALSO SUBMITTED THAT IN ORDERS PASSED BY THE TRIB UNAL FOR ASSESSMENT YEARS 2011-12 TO 2013-14, THE ROYALTY PA ID IN TERMS OF LICENSE B AGREEMENT HAS BEEN HELD TO BE AN ALLOWABLE REVENUE DEDUCTION. 134 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 50.0 THE LD. CIT - DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO BUT COULD NOT DISTINGUISH THE ORDER OF THE TRIBUNAL FOR A.YS. 2010-11 AND 2011-12. 51.0.0 WE HAVE HEARD BOTH THE PARTIES AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THIS TRIBUNAL, ON IDE NTICAL ISSUE, HAS FOR A.Y.S 2010-11 AND 2011-12 HELD AS UNDER: 95) WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE G ONE THROUGH THE ORDERS IN THE ASSESSEES CASE FOR THE EARLIER A SSESSMENT YEARS AS WAS POINTED OUT BY THE LD. COUNSEL. BOTH T HE PARTIES ADMITTED BEFORE US THAT THERE IS NO CHANGE IN THE F ACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS THE AGREEMENT UNDER WHICH THE PAYMENTS HAVE BEEN MADE BY THE ASSESSEE. THE LD . DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT POINT OU T ANY OTHER JUDICIAL PRECEDENT ON THIS ISSUE OF THE HIGHER FORU M. IN THIS EVENT WE ARE DUTY BOUND TO FOLLOW THE ORDER OF THE COORDI NATE BENCH PASSED IN THE CASE OF THE ASSESSEE FOR THE BEER YEA RS. FOR THE SAKE BREVITY, WE REPRODUCE HEREUNDER THE FINDING IN THE APPEAL ORDER FOR AY 2007-08, WHICH WAS FOLLOWED IN THE ORD ER FOR AY 2008-09 AS UNDER: 57. THE ISSUE WHETHER THE EXPENDITURE IN QUESTION IS IN THE CAPITAL FIELD OR THE REVENUE FIELD HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS 2000-01, 2001-02, 2002-03 AND 2006-07. THE ITAT DELHI BENCH C IN ASSESSEES OWN CASE 135 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT FOR A.Y. 2006-07 IN ITA NO. 5130/DEL/2010 VIDE ORDE R DATED 23- 11-2012 HAS HELD THAT THE ANNUAL PAYMENT OF ROYALTY WAS A REVENUE EXPENDITURE. IN DOING SO THE ITAT HAS RELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS INCLU DING THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE O F CLIMATE SYSTEMS INDIA LTD. AND SHARDA MOTORS INDUSTRIAL LTD . NO CHANGE IN FACTS AND CIRCUMSTANCES HAS BEEN POINTED OUT BY THE LD. DR. THEREFORE, RESPECTFULLY FOLLOWING THE S AME, WE ALLOW THIS GROUND OF THE ASSESSEE. THEREFORE RESPECTFULLY FOLLOWING THE ABOVE DECISION S OF THE TRIBUNAL AND HIGH COURT IN THE ASSESSEES OWN CASE, WE REVERSE THE ORDER OF THE LD. ASSESSING OFFICER IN HOLDING T HE ABOVE 3 PAYMENTS AS CAPITAL EXPENDITURE. IN THE RESULT GROU ND NO. 19 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 51.0.1 WE ALSO FIND THAT THE TRIBUNAL HA S IN THE APPEAL FOR THE ASSESSMENT YEARS 2009-10, 2012-13 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE COMPANY BY FOLLOWING THE AFORESAID ORDER PASSED FOR ASSESSMENT YEARS 2010-11 AND 2011- 12. THE TRIBUNAL, IN ITS ORDER PASSED FOR AY 2012-13, AFTER EXAMINING THE TERMS OF LICENSE B AGREEMENT, HELD THE ROYALTY PAID TO BE AN ALLOWABLE REVENUE DEDUCTION. THE RELEVANT OBSERVATIO NS OF THE CO- ORDINATE BENCH OF THE TRIBUNAL ARE AS UNDER: IT IS PERTINENT TO NOTE THAT NO PROPRIETARY RIGHTS IN THE KNOW HOW VESTED IN THE ASSESSEE, THE ASSESSEE BEING A MERE L ICENSEE WITH 136 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT LIMITED RIGHTS TO USE THE TECHNICAL ASSISTANCE DURI NG THE CURRENCY OF THE AGREEMENT, THERE IS NO EXPLICIT OR IMPLIED I NTENTION TO TRANSFER OR CREATE OWNERSHIP IN THE TECHNICAL KNOW- HOW /TECHNICAL INFORMATION IN THE ASSESSEE. IN VIEW OF THE AFORESAID, EXPENDITURE BY WAY OF ROYALTY, TECHNICAL GUIDANCE F EE AND MODEL FEES INCURRED BY THE ASSESSEE WAS ALLOWABLE REVENUE DEDUCTION AS HELD IN THE DECISION GIVEN BY THE TRIBUNAL FOR A .YS. 2010-11 AND 2011-12. THE ISSUE IS SQUARELY COVERED BY THE S AID DECISION. THEREFORE, GROUND NO. 32 TO 32.6 ARE ALLOWED. 51.0.2 RESPECTFULLY FOLLOWING THE ORDERS PASSED BY THE TRIBUNAL IN EARLIER YEARS, IN ASSESSMENT YEARS 2011 -12 TO 2013-14, THE ROYALTY PAID IN TERMS OF LICENSE B AGREEMENT IS HELD TO BE AN ALLOWABLE REVENUE DEDUCTION. 51.0.3 THEREFORE, GROUND NOS. 17 TO 1 7.2 IS ALLOWED IN FAVOUR OF THE ASSESSEE. 52.0.0 GROUND NOS. 18 TO 18.6 ARE RE LATING TO DISALLOWANCE U/S 80IC ON ACCOUNT OF PROFIT ATTRIBUTABLE TO THE B RAND VALUE AND MARKETING NETWORK AMOUNTING TO RS. 173.41 CRORES. I T WAS SUBMITTED BY THE LD. AR THAT IN THE BUSINESS OF MAN UFACTURING AND SELLING TWO-WHEELERS, INCLUDING GOODS MANUFACTURED AT ELIGIBLE UNIT, THE ASSESSEE WAS REQUIRED TO INCUR MARKETING EXPENSE S. THE SAID 137 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT EXPENSES WERE INCURRED BY THE HEAD OFFICE AT DELHI. THE COMMON EXPENSES, INCLUDING ADVERTISEMENT/BRAND CREATION EX PENSES, ETC. INCURRED AT HEAD OFFICE WERE ALLOCATED TO VARIOUS M ANUFACTURING UNITS OF THE ASSESSEE-COMPANY, INCLUDING THE UNIT E LIGIBLE FOR DEDUCTION UNDER SECTION 80IC, ON A RATIONAL AND SCI ENTIFIC BASIS. THE EXPENSES ON BRAND /ADVERTISEMENT, ETC. INCURRED AT HEAD OFFICE WERE DULY ALLOCATED TO MANUFACTURING UNITS AND HAVE BEEN DEDUCTED, WHILE COMPUTING PROFITS OF THE UNIT ELIGIBLE FOR CLA IM OF DEDUCTION UNDER SECTION 80IC OF THE ACT. IT WAS FURTHER SUBMIT TED THAT THE PRICE REALIZED ON SALE OF THE PRODUCTS, I.E., TWO WHE ELERS, IS CREDITED TO THE PROFIT AND LOSS ACCOUNT AND DIRECT AND INDIR ECT EXPENSES, INCLUDING ADVERTISEMENT EXPENSES, INCURRED IN RELAT ION TO SALE OF THE PRODUCTS ARE REDUCED THERE FROM FOR PURPOSE OF COMP UTING PROFITS OF THE ELIGIBLE UNIT AND CORRESPONDING CLAIM OF DEDUCT ION UNDER SECTION 80IC OF THE ACT. IT WAS SUBMITTED THAT THE AO HELD T HAT PROFITS ARE DERIVED BY THE ASSESSEE-COMPANY ON ACCOUNT OF THREE ASSETS, VIZ., (1) MANUFACTURING ASSETS, (2) BRAND ASSETS AND (3) MARK ETING ASSETS WHEREAS DEDUCTION UNDER SECTION 80IC IS AVAILABLE ON LY ON PROFITS DERIVED FROM BUSINESS OF MANUFACTURING OF SPECIFIED ARTICLES OR 138 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT THINGS. IT WAS FURTHER OBSERVED BY THE AO THAT THE M ANUFACTURING AND MARKETING ACTIVITIES WERE CARRIED OUT AT HEAD O FFICE AND, THEREFORE, THE BRAND DEVELOPED WAS NOT OWNED BY THE ELIGIBLE UNIT, WHICH CAME INTO EXISTENCE MUCH LATER THAN THE EXISTE NCE OF THE ASSESSEE-COMPANY AS A WHOLE. THUS, AS PER THE AO, PA RT OF THE PROFITS EARNED BY ELIGIBLE UNIT SHOULD HAVE BEEN AT TRIBUTED TO ADVERTISEMENT/MARKETING ACTIVITIES CARRIED OUT BY H EAD OFFICE. IN ORDER TO ATTRIBUTE PROFITS TO MARKETING/ADVERTISEME NT ACTIVITIES, THE AO COMPUTED RATE OF NET PROFIT FOR THE FINANCIAL YE AR 1984-85, BEING THE FIRST YEAR OF OPERATIONS OF THE ASSESSEE COMPAN Y, AT 6.85% ON AN ARBITRARY BASIS AND APPLIED THE SAME TO ARRIVE AT T HE PROFIT SOLELY ATTRIBUTABLE TO THE MANUFACTURING ACTIVITY OF HARID WAR UNIT. IT WAS SUBMITTED THAT ON THE BASIS OF ABOVE, THE ASSESSING OFFICER COMPUTED PROFIT ATTRIBUTABLE TO THE MANUFACTURING ACTIVITY A T RS. 213.15 CRORES. ACCORDINGLY, DEDUCTION UNDER SECTION 80IC QUA REMAINING PROFIT OF RS. 173.41 CRORES, ALLEGEDLY ATTRIBUTABLE TO MARKETING AND ADVERTISEMENT ACTIVITY WAS DISALLOWED. 52.0.1 THE LD. AR SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOR OF THE ASSESSEE BY ORDER DATED 24. 10.2016 PASSED 139 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT BY THE TRIBUNAL FOR ASSESSMENT YEARS, I.E. AY 2010- 11 AND AY 2011 - 12, WHEREIN IDENTICAL DISALLOWANCE MADE BY THE AO HA S BEEN DELETED. IT WAS SUBMITTED THAT THE TRIBUNAL, IN COMI NG TO THE AFORESAID DISCUSSION, REITERATED THAT THE HEAD OFFI CE IS NOT A SEPARATE PROFIT CENTRE AND, THEREFORE, NO PROFIT IS TO BE SE PARATELY ATTRIBUTED TO SUCH ACTIVITY. IT FURTHER OBSERVED THAT, FOR THE PU RPOSE OF WORKING OUT ELIGIBLE DEDUCTION UNDER SECTION 80-IC OF THE A CT, ACTUAL EXPENSES INCURRED AT THE HEAD OFFICE ARE TO BE ALLO CATED BETWEEN VARIOUS PROFIT CENTERS ON A RATIONAL AND SCIENTIFIC BASIS. IT WAS FURTHER POINTED OUT BY THE LD. AR THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR AYS 2010-11 AND 2011-12, THE TRIBUNAL HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN APPE LLATE ORDERS PASSED FOR AYS 2009-10, 2012-13 AND 2013-14. 53.0 THE LD. CIT - DR RELIED UPON THE A SSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DEC ISION OF THE TRIBUNAL. 54.0.0 WE HAVE HEARD BOTH THE PARTIES AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-12 HAS HELD AS UNDER: 140 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 154) WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE ALREADY DISCUSSED THE AFORESAID ISSUE AT LENGTH WHILE DISPO SING THE GROUND OF APPEAL NO. 31 TO 31.2 SUPRA, WHEREIN WE H AVE DEALT WITH THAT HEAD OFFICE IS A SEPARATE COST CENTRE AND EXPENSES INCURRED THEREAT NEEDS TO BE ALLOCATED TO VARIOUS P ROFIT CENTERS/MANUFACTURING UNITS ON A RATIONAL AND SCIEN TIFIC BASIS, WITHOUT ANY ELEMENT OF PROFIT/MARKUP. THE ISSUE RAI SED BY THE ASSESSING OFFICER IN THE PRESENT GROUND OF APPEAL I S CATEGORICALLY SIMILAR TO THAT RAISED IN THE AFORESAID GROUND. ACC ORDINGLY FOLLOWING OUR FINDINGS STATED ABOVE, WE REVERSE THE ACTION OF THE ASSESSING OFFICER AND DELETE THE DISALLOWANCE MADE UNDER SECTION 80IC. ACCORDINGLY, THE GROUND NO. 33 OF APP EAL IS ALLOWED. 54.0.1 THUS, THE ISSUE IS SQUARELY CO VERED IN FAVOR OF THE ASSESSEE BY THE ORDER DATED 24.10.2016 PASSED BY TH E TRIBUNAL FOR IMMEDIATELY PRECEDING ASSESSMENT YEARS, I.E. AY 201 0-11 AND AY 2011 -12, WHEREIN IDENTICAL DISALLOWANCE MADE BY THE AO HAS BEEN DELETED. THE TRIBUNAL, IN COMING TO THE AFORESAID D ISCUSSION, REITERATED THAT THE HEAD OFFICE IS NOT A SEPARATE P ROFIT CENTRE AND, THEREFORE, NO PROFIT IS TO BE SEPARATELY ATTRIBUTED TO SUCH ACTIVITY. IT FURTHER OBSERVED THAT, FOR THE PURPOSE OF WORKING O UT ELIGIBLE DEDUCTION UNDER SECTION 80-IC OF THE ACT, ACTUAL EX PENSES INCURRED 141 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT AT THE HEAD OFFICE ARE TO BE ALLOCATED BETWEEN VARI OUS PROFIT CENTERS ON A RATIONAL AND SCIENTIFIC BASIS. WE ALSO FIND T HAT THE TRIBUNAL HAS, IN THE APPEAL FOR THE ASSESSMENT YEARS 2009-10 , 2012-13 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSED FOR ASSESSMENT YEARS 2010-11 AND 2011-12. 54.0.2 THEREFORE, GROUND NOS. 18 TO 18.6 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 55.0.0 GROUND NOS. 19 TO 19.1 ARE RELA TING TO DISALLOWANCE U/S 80IC ON ACCOUNT OF OTHER INCOME AMOUNTING TO 1. 17 CRORES ON THE GROUND THAT SUCH INCOMES WERE NOT DERIVED FROM THE BUSINESS OF MANUFACTURE OF SPECIFIED ARTICLES OR THINGS. DURING THE RELEVANT PREVIOUS YEAR, THE ELIGIBLE UNIT AT HARIDWAR EARNED THE FOLLOWING OTHER INCOMES, WHICH WERE CREDITED IN THE PROFIT AN D LOSS ACCOUNT OF THAT UNIT: 142 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT S.N O NAME /TYPE OF OTHER INCOME AMOUNT (IN RS.) 1 INTEREST ON LOAN GIVEN AT SUBSIDIZED RATES TO THE EMPLOYEES 16,06,615 2 INTEREST ON LOAN PROVIDED FOR WORKING CAPITAL SUPPORT TO VENDORS 1,01,15,207 TOTAL 1,17,21,822 55.0.1 THE LD. AR SUBMITTED THAT IN THE RETURN OF INCOME, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTIO N 80IC ON THE AFORESAID OTHER INCOMES SINCE THE SAID RECEIPTS H AD DIRECT AND IMMEDIATE NEXUS WITH THE BUSINESS OF MANUFACTURING A ND SELLING OF SPECIFIC ARTICLES OR THINGS. THE ASSESSING OFFICER, WITHOUT CONSIDERING THE NATURE OF EACH OF THE AFORESAID RECEIPTS, HELD THAT THE AFORESAID INCOMES WERE NOT DERIVED FROM THE BUSINESS OF MANUF ACTURING OF ARTICLES OR THINGS AND WERE, THEREFORE, TAXABLE UNDE R THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, THE ASSES SING OFFICER DISALLOWED DEDUCTION UNDER SECTION 80IC BY AN AMOUN T OF RS 1,17,21,822/-. 143 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 55.0.2 THE LD. AR SUBMITTED TH AT SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER IN PRECEDING ASSESSME NT YEARS, I.E. AY 2010-11 AND AY 2011-12 HAS BEEN DELETED BY THE TRIB UNAL VIDE CONSOLIDATED ORDER DATED 24.10.2016. THE TRIBUNAL, AFTER EXAMINING THE NATURE OF THE AFORESAID INCOMES, HELD THAT OTHE R INCOMES IN THE NATURE OF INTEREST ON LOAN TO EMPLOYEES, INTEREST O N LOAN TO VENDORS FOR WORKING CAPITAL SUPPORT, FREIGHT RECOVERY, SUNDR Y SALES, CASH DISCOUNTING FROM VENDORS AND EXCHANGE FLUCTUATION G AIN, ETC. EARNED BY A UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT SHALL BE CONSIDERED AS INCIDENTAL TO THE ACTIVITY OF CARR YING OUT MANUFACTURING AND WERE, THUS, ELIGIBLE FOR DEDUCTION UNDER THAT SECTION. IT WAS ACCORDINGLY SUBMITTED THAT THE AFORE SAID ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. IT WAS FURTHER POINTED OUT BY THE LD. AR THAT FOLLOWING THE ORDER OF THE TR IBUNAL FOR AYS 2010-11 AND 2011-12, THE TRIBUNAL HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN APPELLATE ORDERS PASSED F OR AYS 2009-10, 2012-13 AND 2013-14. 144 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 55.0.3 THE LD. CIT - DR RELIED UPON THE ASSESSMENT ORDER AND ORDER OF THE TPO, BUT COULD NOT DISTINGUISH THE DECISION OF THE TRIBUNAL. 56.0.0 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN A.YS. 2010-11 AND 2011-12 HAS HELD AS UNDER: 158) WE HAVE HEARD THE RIVAL CONTENTIONS. OUR FIND INGS ON THE VARIOUS ISSUES RAISED BY THE ASSESSING OFFICER ARE GIVEN IN SERIATIM HEREUNDER: 1. INTEREST ON LOAN GIVEN AT SUBSIDIZED RATES TO EM PLOYEES THE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT: 317 ITR 218, HAS HELD THAT SOURCE OF INCOME BEYOND THE FIRST DEG REE NEXUS WITH THE MANUFACTURING OPERATION CANNOT BE CONSIDER ED AS DERIVED FROM SUCH BUSINESS/ACTIVITY. FOLLOWING THE AFORESAID DECISION, THE COURTS / TRIBUNAL IN CERTAIN CASES HA VE HELD THAT INTEREST INCOME EARNED FROM FIXED DEPOSITS MADE BY THE ELIGIBLE UNIT IS NOT ELIGIBLE FOR DEDUCTION UNDER THE RELEVA NT PROVISIONS OF THE ACT. [REFER: PASWARA ELECTRONICS (P) LTD. V. IT O: ITA NO. 71/D/2011; RECKIT BENCKISER INDIA LTD. V. ADDL. CIT : 231 TAXMAN 585 (CAL.)] HOWEVER, THE FACTS UNDER CONSIDE RATION ARE SLIGHTLY DIFFERENT. THE QUESTION THAT NEEDS TO BE A NSWERED IS WHETHER INTEREST INCOME EARNED FROM LOAN GIVEN AT S UBSIDIZED RATE TO EMPLOYEES HAS FIRST-DEGREE NEXUS WITH THE B USINESS 145 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT OPERATIONS CARRIED ON BY THE ELIGIBLE UNIT. THE APP ELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING TWO-WHEELE RS AND IS NOT ENGAGED IN THE ACTIVITY OF GIVING LOANS AND ADV ANCES TO EARN INTEREST INCOME. IT IS NOT THE CASE OF APPELLANT OR THE ASSESSING OFFICER THAT SURPLUS FUNDS WERE GIVEN TO THE EMPLOY EES TO EARN INTEREST INCOME. THE LOANS/ADVANCES TO EMPLOYEES UN DER CONSIDERATION WAS A MEASURE OF INCENTIVE / PERQUISI TES TO THE EMPLOYEES INVOLVED IN CARRYING ON THE BUSINESS OF MANUFACTURING. THE SOURCE OF SUCH INCOME IS, THUS, NOT THE ACTIVITY OF GIVING LOAN, BUT BENEFIT EXTENDED TO EM PLOYEES ENGAGED IN THE BUSINESS. THE FIRST-DEGREE NEXUS OF SUCH INCOME, IN OUR VIEW, IS THE ELIGIBLE BUSINESS CARRIED ON BY THE APPELLANT. THEREFORE, SUCH INCOME WOULD BE ELIGIBLE FOR DEDUCT ION U/S 80IC OF THE ACT. THE ACTION OF THE ASSESSING OFFICER ON THIS ACCOUNT IS THUS REVERSED. 2. INTEREST ON LOANS PROVIDED FOR MAKING CAPITAL SU PPORT TO VENDORS THE PRESENT ISSUE IS SIMILAR TO THE IMMEDIA TELY PRECEDING ISSUE. IN OUR VIEW, LOAN HAS BEEN GIVEN T O VENDORS TO PROVIDE UNINTERRUPTED SUPPLY OF GOODS TO THE APPELL ANT. THE FIRST- DEGREE NEXUS OF GIVING LOAN IS, THUS, BUSINESS OF MANUFACTURING. ACCORDINGLY FOLLOWING OUR FINDINGS IN THE PRECEDING ISSUE, THE ACTION OF THE ASSESSING OFFICER ON THIS ACCOUNT IS REVERSED. . ACCORDINGLY THE ACTION OF THE ASSESSING OFFICER ON THIS GROUND IS REVERSED AND WE HOLD THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION 146 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT UNDER SECTION 80 IC OF THE INCOME TAX ACT ON INTERE ST ON LOANS GIVEN AT SUBSIDIZED RATES TO THE EMPLOYEES OF RS. 1 62975/, INTEREST ON LOANS PROVIDED FOR WORKING CAPITAL SUPP ORT TO VENDORS RS. 6626854/, FREIGHT RECOVERY FROM CUSTOMER RS. 935418395/, SUNDRY SALES OF RS. 924103150/, CASH DISCOUNT RECEIVED FROM THE VENDOR IS RS.56732831/ AND EXCHA NGE FLUCTUATION OF RS. 24167060/. IN THE RESULT GROUND NO. 34 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 56.0.1 SIMILAR DISALLOWANCE MADE BY TH E ASSESSING OFFICER IN ASSESSMENT YEARS 2010-11 AND 2011-12 HAS BEEN D ELETED BY THE TRIBUNAL VIDE CONSOLIDATED ORDER DATED 24.10.2016. THE TRIBUNAL, AFTER EXAMINING THE NATURE OF THE AFORESAID INCOMES , HELD THAT OTHER INCOMES IN THE NATURE OF INTEREST ON LOAN TO EMPLOY EES, INTEREST ON LOAN TO VENDORS FOR WORKING CAPITAL SUPPORT EARNED B Y A UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC OF THE ACT SHALL B E CONSIDERED AS INCIDENTAL TO THE ACTIVITY OF CARRYING OUT MANUFACT URING AND, THUS, ELIGIBLE FOR DEDUCTION UNDER THAT SECTION. ACCORDIN GLY, THE AFORESAID ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE. WE ALSO FIND THAT THE TRIBUNAL HAS IN THE APPEAL FOR THE AS SESSMENT YEARS 2009-10, 2012-13 AND 2013-14, DECIDED THE ISSUE IN FAVOR OF THE 147 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT ASSESSEE COMPANY FOLLOWING THE AFORESAID ORDER PASSE D FOR ASSESSMENT YEARS 2010-11 AND 2011-12. 56.0.2 THEREFORE, GROUND NOS. 19 TO 19.1 ARE ALLOWED IN FAVOUR OF THE ASSESSEE. 57.0.0 GROUND NOS. 20 TO 20.3 RELATE TO ALLOWABILITY OF WEIGHTED DEDUCTION OF RS.74,31,13,902/- UNDER SECTIO N 35(2AB) OF THE ACT WITH RESPECT TO SCIENTIFIC RESEARCH AND DEVE LOPMENT EXPENSES INCURRED DURING THE YEAR. THE LD. AR SUBMITTED THAT THE AFORESAID CLAIM OF WEIGHTED DEDUCTION HAS BEEN DISALLOWED IN THE ASSESSMENT ORDER ON THE GROUND THAT THE SAID CLAIM WAS NOT RAI SED BY THE ASSESSEE IN THE RETURN OF INCOME FILED FOR THE RELE VANT YEAR, WHICH IS BEING DISPUTED BY THE ASSESSEE. THE LD. AR SUBMITTE D THAT THE FACTS RELATING TO THE AFORESAID CLAIM ARE AS UNDER: 1. THAT THE ASSESSEE HAD SET UP A DEDICATED IN-HOUSE R ESEARCH AND DEVELOPMENT (R&D) CENTRE AT 69 K.M., STONE, D ELHI JAIPUR HIGHWAY, DHARUHERA, REWARI, HARYANA WHICH WAS ESTABLISH ED IN THE YEAR 1987, PURELY FOR THE PURPOSES OF RESEARCH ACTI VITIES. HAVING REGARD TO SUBSTANTIAL INCREASE IN R&D EXPENSES, THE ASSESSEE APPLIED FOR RECOGNITION OF THE SAID R&D CENTRE BEFO RE THE DEPARTMENT 148 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT OF SCIENTIFIC AND INDUSTRIAL RESEARCH (DSIR) VIDE APPLICATION DATED 29.12.2014. THE DSIR, AFTER CONSIDERING THE APPLICA TION AND VERIFYING THE R&D ACTIVITIES CARRIED ON BY THE ASSE SSEE IN THE PAST AND THOSE PROPOSED IN FUTURE, GRANTED RECOGNITION A ND REGISTRATION VIDE LETTER DATED 18.03.2015 FOR THE PERIOD FROM 26 .02.2015 TO 31.03.2017. 2. THAT SUBSEQUENTLY, POST RECEIPT OF THE AFORESAID RECOGNITION/REGISTRATION, THE ASSESSEE VIDE APPLICA TION DATED 30.03.2015 APPLIED FOR OBTAINING APPROVAL FROM DSIR UNDER SECTION 35(2AB) IN FORM 3CK, WHICH WAS GRANTED TO THE ASSESSE E VIDE FORM 3CM DATED 17.07.2015 STATING THE PERIOD OF APPROVAL AS 26.02.2015 TO 31.03.2017. 3. THAT ON THE BASIS OF THE AFORESAID APPROVAL IN FORM 3CM, THE ASSESSEE CLAIMED WEIGHTED DEDUCTION OF RS. 11,69,47, 165/- UNDER SECTION 35(2AB) WITH RESPECT TO R&D EXPENSES (REVENU E AND CAPITAL) INCURRED AT THE CENTRE AFTER 26.02.2015 IN THE RETU RN FORM FILED FOR THE RELEVANT ASSESSMENT YEAR. 4. THAT IT IS THE CONTENTION OF THE ASSESSEE THAT, WHIL E IN THE RETURN FORM ONLY THE UNDISPUTED CLAIM OF RS.11,69,4 7,165/- WAS 149 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT MADE, THE ADDITIONAL CLAIM FOR WEIGHTED DEDUCTION OF RS. 74,31,13,902/- WITH RESPECT TO R&D EXPENDITURE (BOT H REVENUE AND CAPITAL) INCURRED AT THE CENTRE DURING THE PERIOD 0 1.04.2014 TO 25.02.2015, WAS RAISED THROUGH NOTE APPENDED TO THE COMPUTATION OF INCOME, WHICH SHOULD BE DEEMED TO HAVE BEEN FILED ALONGWITH THE RETURN FORM FOR THE RELEVANT YEAR. THE COPY OF ACKN OWLEDGEMENT OF RETURN OF INCOME ALONGWITH COMPUTATION OF INCOME FOR ASSESSMENT YEAR 2015-16 WAS ENCLOSED AT PAGE NOS. 1-4 OF PB. 5. THAT THE NOTE GIVEN IN THE COMPUTATION OF INCOME AP PENDED WITH THE RETURN OF INCOME, AS REPRODUCED IN THE ASSE SSMENT ORDER READS AS UNDER: DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE CO MPANYS IN- HOUSE R&D FACILITY AT DHARUHERA, IN THE STATE OF HA RYANA, WAS APPROVED BY DEPARTMENT OF SCIENTIFIC & INDUSTRIAL R ESEARCH (DSIR) FOR THE PURPOSES OF SECTION 35(2AB) OF THE ACT VIDE FORM 3CM DATED 17.07.2015. ALTHOUGH THERE IS NO REQUIREM ENT IN SECTION 35(2AB) READ WITH PRESCRIBED FORM 3CM TO ST ATE THE PERIOD OF APPROVAL, THE DSIR, HOWEVER, STATED THE P ERIOD OF APPROVAL AS 26.02.2015 TO 31.03.2017. DURING THE RELEVANT YEAR, THE ASSESSEE COMPANY INCU RRED FOLLOWING EXPENSES (BOTH CAPITAL AND REVENUE, OTHER THAN LAND AND BUILDING,) AT THE AFORESAID IN-HOUSE R&D CENTRE : 150 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT PARTICULARS 01.04.14 TO 25.02.15 26.02.15 TO 31.03.15 TOTAL 2014-2015 A. REVENUE EXPENDITURE ELECTRICITY 3,01,89,809 31,01,068 3,32,90,877 CUTTING TOOLS 53,64,864 2,45,096 56,09,960 INDIRECT TOOLS 12,79,201 26,39,080 39,18,281 SALARY - OF TECHNICAL EMPLOYEES 56,99,90,817 6,58, 63,200 63,58,54,017 ANY OTHER EXPENDITURE DIRECTLY RELATED TO R & D 3,55,59,632 1, 77,42,465 5,33,02,09 7 TOTAL A 64,23,84,323 8,95,90,908 73,19,75,231 B. CAPITAL EXPENDITURE DATA PROCESSING EQUIPMENT 2,11,680 20,58,000 22,69,680 EQUIPMENTS 6,73,65,693 1,65,57,341 8,39,23,033 OFFICE EQUIPMENTS 8,65,904 - 8,65,904 SOFTWARES 2,32, 17,580 83,04,475 3,15,22,055 VEHICLES 90,68,722 4,36,441 95,05,163 TOTAL B 10,07,29,579 2,73,56,257 12,80,85,836 GRAND TOTAL A+B 74,31,13,902, 11,69,47,165 86,00,61,067 IN VIEW OF THE APPROVAL IN FORM 3CM GRANTED FROM 26 .02.2015 TO 31.03.2017, THE ASSESSEE HAS CLAIMED WEIGHTED DEDUC TION UNDER SECTION 35{2AB) FOR REVENUE AND CAPITAL EXPEN DITURE INCURRED AT IN-HOUSE R&D CENTRE AFTER 26.02.2015 AM OUNTING TO RS.11,69,47,165. THE ASSESSEE WAS, HOWEVER, LEGALLY ADVISED THAT, NOTWITHSTANDING THE PERIOD OF APPROVAL STATED IN FORM 151 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 3CM, THE COMPANY IS ELIGIBLE FOR WEIGHTED DEDUCTION OF ENTIRE EXPENSES INCURRED AT THE APPROVED R&D CENTRE OF RS. 86,00,61,067, INCLUDING THE EXPENDITURE INCURRED DU RING THE PERIOD FROM 01.04.2014 TO 25.02.2015, AS DETAILED A BOVE. IN VIEW OF THE ABOVE, ALTHOUGH IN THE RETURN OF INC OME THE ASSESSEE HAS CLAIMED WEIGHTED DEDUCTION @ 200% OF RS.11,69,47,165 UNDER SECTION 35(2AB), THE COMPANY, HOWEVER, THROUGH THIS NOTE TO THE RETURN OF INCOME/COMPUTATI ON OF INCOME IS PREFERRING THE ENLARGED CLAIM FOR WEIGHTED DEDUC TION @ 200% OF RS.86,00,61,067 UNDER SECTION 35(2AB) WITH REGAR D TO ENTIRE REVENUE AND CAPITAL EXPENSES INCURRED AT THE APPROV ED IN-HOUSE R&D CENTRE DURING THE YEAR UNDER CONSIDERATION. 6. THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, T HE ASSESSEE VIDE REPLY DATED 18.12.2018 JUSTIFIED THE AFORESAID ADDITIONAL CLAIM OF DEDUCTION OF RS.74,31,13,902 IN CURRED AT APPROVED R&D FACILITY PRIOR TO 26.02.2015, WHICH WAS SUPPORTED WITH THE FOLLOWING DECISIONS, WHEREIN IT WAS HELD THAT WEIGHTED DEDUCTION UNDER SECTION 35(2AB) IS AVAILABLE TO THE CENTRE APPROVED BY DSIR DEHORS THE DATE OF RECOGNITION ACCORDED IN THE APPROVAL: CIT V. CLARIS LIFESCIENCES LTD.: 326 ITR 251(GUJ) - SPECIAL LEAVE PETITION (SLP) FILED BY THE REVENUE AGAINST THE A FORESAID DECISION OF THE GUJARAT HIGH COURT WAS DISMISSED BY THE 152 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT SUPREME COURT VIDE ORDER 4.8.2009, BEARING CC NO.10181/2009 CIT VS SANDAN VIKAS INDIA LTD.: 335 ITR 117 (DEL) SLP DISMISSED BY THE SUPREME COURT VIDE ORDER 09.01.201 2, BEARING CC NO.21706/2011 MARUTI SUZUKI INDIA LTD V. UNION OF INDIA & ANR (39 7 ITR 728) - THE SPECIAL LEAVE PETITION OF THE REVENUE WAS DISMI SSED BY THE HONBLE SUPREME COURT VIDE ORDER DATED 11.05.2018 I N SLP NO. 32458/2017. CIT VS. WHEELS INDIA LTD.: 336 ITR 513 (MAD) BANCO PRODUCTS (INDIA) LTD. VS. DCIT (ITA NO. 1057/ 2017)(GUJ.) DCIT VS. INTERNATIONAL TRACTORS LTD.: ITA NO. 5817/ 6071 OF 2010 (DEL); ACIT VS MECO INSTRUMENTS (P) LTD.: ITA NO. 4246/MUM /2009 (MUM.) DCIT VS. FAMY CARE LTD: 67 SOT 85 (MUM) ACIT VS. WOCKHARDT LIMITED: ITA NO.71/MUM/2007 7. THAT AFTER CONSIDERING THAT THE AFORESAID REPLY OF THE ASSESSEE, THE ASSESSING OFFICER ACCEPTED THE AFORESAID CLAIM OF THE ASSESSEE IN PRINCIPLE, OBSERVING AT PARA 22.3 OF THE FINAL ASSE SSMENT ORDER AS UNDER: 153 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 22.3 THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED AND IS BEING DISCUSSED AS UNDER:- ON GOING THROUGH THE CLAIM OF THE ASSESSEE ALONGWIT H VARIOUS JUDICIAL PRECEDENCE WE HAVE FOUND FORCE IN ASSESSEE ARGUMENT THAT NOTWITHSTANDING THE PERIOD OF APPROVAL STATED IN FORM 3CM, THE COMPANY IS ELIGIBLE FOR WEIGHTED DEDUCTION OF E NTIRE EXPENSES INCURRED AT THE APPROVED R&D CENTRE OF RS. 86,00,61,067, INCLUDING THE EXPENDITURE INCURRED DU RING THE PERIOD FROM 01.04.2014 TO 25.02.2015. HOWEVER, SINC E ASSESSEE HAS NOT CLAIMED DEDUCTION IN ITS RETURN OF INCOME, THEREFORE SAME CANNOT BE ALLOWED IN ASSESSMENT. 8. THAT IN VIEW OF THE ABOVE, IN THE ASSESSMENT ORDER WH ILE THE ASSESSING OFFICER ACCEPTED THE CLAIM IN PRINCIPLE, BUT DENIED THE SAME ON THE GROUND THAT THE SAME WAS NOT MADE IN THE RETURN FORM. THE AFORESAID FINDING WAS ALSO APPROVED BY THE DRP, OBSERVING AS UNDER: 22.5 DRP DIRECTIONS: HAVING CONSIDERED THE SUBMISSION OF THE ASSESSEE AN D THE AO'S DRAFT ORDER (PARA 22), IT IS NOTED THAT THE AO AFTER CONSIDERING THE ASSESSEE'S SUBMISSION NOTED THAT THE ASSESSEE'S ARGUMENT FOR ADDITIONAL WEIGHTED DEDUCTION OF RS. 86,00,61,067/- ON 154 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT ACCOUNT OF EXPENDITURE OF RS. 74,31,13,902/- COULD NOT BE ALLOW AS THE SAME HAS BEEN CLAIMED IN THE RETURN OF INCOME, NOTWITHSTANDING THE PERIOD OF APPROVAL STAT ED IN FORM 3CM. IT HAS ALSO BEEN NOTED BY THE AO THAT THE R&D FACILITY AT DHARUHERA WAS APPROVED BY DSIR FOR THE PURPOSES OF SECTION 35(2AB) IN FORM 3CM DATED 17-07 - 2015 FOR THE PERIOD 26-02-2015 TO 31-03-2017. THE ASSESSEE CLAIMED TO HAVE INCURRED EXPENDITURE OF RS . 74.31 CRORES FROM 01-04-2014 TO 25-02-2015 AND ANOTHER RS . 11.69 CRORES FROM 26.02-2015 TO 31-03-2015. THE ASS ESSEE CLAIMED WEIGHTED DEDUCTION @200% OF THE ENTIRE AMOU NT OF RS. 86.00 CRORES. HAVING CONSIDERED THE SUBMISSION OF THE -ASSES SEE, AND CONSIDERING THE FACT THAT NO DEDUCTION U/S 35(2AB) WAS CLAIMED IN THE RETURN OF INCOME OR BY WAY OF REVISE D VALID RETURN OF INCOME, AO HAS RIGHTLY REJECTED THE CLAIM . ASSESSEE'S OBJECTION IS REJECTED.' 9. THAT THE AFORESAID FINDINGS HAVE BEEN CHALLENGED B Y THE ASSESSEE VIDE GROUND OF APPEAL NO. 20 TO 20.3, CONT ENDING THAT THE CLAIM THROUGH NOTE IN THE COMPUTATION OF INCOME, SH OULD BE CONSIDERED AS RAISED IN THE RETURN FORM. 57.0.1 IT WAS ARGUED BY THE LD. AR THAT N OTES TO COMPUTATION OF INCOME FORM AN INTEGRAL PART OF RETURN OF INCOME AND, THEREFORE, 155 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT ANY CLAIM MADE IN SUCH NOTES IS DEEMED TO HAVE BEEN MADE IN THE RETURN OF INCOME ITSELF. IN THE PRESENT CASE, THE A PPLICANT, IT IS SUBMITTED, CLAIMED DEDUCTION OF RESEARCH AND DEVELO PMENT EXPENSES TO THE EXTENT OF RS.74,31,13,902/- BY WAY OF NOTES TO THE COMPUTATION OF INCOME, WHICH FORMED INTEGRAL PART OF THE RETURN OF INCOME AND THEREFORE, WAS ALLOWABLE UNDER SECTION 35( 2AB) OF THE ACT. RELIANCE FOR THE AFORESAID WAS PLACED ON THE D ECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. NAV SANSAR AGRO PRODUCTS: 392 ITR 399 AND HONBLE PUNJAB AND HARYAN A HIGH COURT IN THE CASE OF AMRITSAR TRANSPORT CO. (P.) LTD. VS. CIT: 272 ITR 403 WHEREIN IT WAS HELD THAT NOTES TO THE COMPUTATION OF INCOME ATTACHED WITH THE RETURN OF INCOME FORMED INTEGRAL P ART OF THE RETURN FORM. 57.0.2 ANALOGY FOR THE AFORESAID PROPOSI TION WAS ALSO DRAWN FROM THE FOLLOWING CASES WHEREIN IT HAS BEEN HELD THA T NOTES TO ACCOUNTS FORMED INTEGRAL PART OF THE ACCOMPANYING F INANCIAL STATEMENTS: 156 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT CIT VS. SAIN PROCESSING & WVG. MILLS (P) LTD.: (201 0) 325 ITR 565 (DEL) CIT VS. KHAITAN CHEMICALS & FERTILIZERS LTD: 307 IT R 150 (DEL) KANOI PAPER INDUSTRIES LTD. VS. CIT: ITA NO. 298 OF 2004 (CAL) K.K. NAG LTD. VS. ACIT: 52 SOT 381(PUNE) HINDUSTAN SHIPYARD LTD. VS. DCIT: 130 TTJ 213(VISHAKHAPATNAM) SHIVALIK VENTURE (P.) LTD. V DCIT: 173 TTJ 238 (MUM ) B & B INFOTECH LTD. V ITO: 155 ITD 1040 (BANG) J.K. LAKSHMI CEMENT LTD. VS. ACIT: ITA NO. 1275/KOL /2010 (KOL) 57.0.3 THE LD. AR ALSO OUR DREW AT TENTION TO RULE 12(2) OF THE RULES WHICH PROVIDES THAT RETURN OF INCOME FI LED ELECTRONICALLY SHOULD NOT BE ACCOMPANIED BY A STATEMENT SHOWING THE COMPUTATION OF THE TAX PAYABLE OR PROOF OF TAX CLAIMED/DEDUCTED/COLLECTED AT SOURCE OR ADVANCE TAX . THUS, COMPUTATION OF INCOME WAS NOT REQUIRED TO BE FILED WI TH THE RETURN OF INCOME AND, THEREFORE, THE SAME WAS TO BE FURNISH ED DURING THE COURSE OF ASSESSMENT PROCEEDINGS. ACCORDINGLY, UNDE R THE SCHEME OF E-FILING OF RETURN OF INCOME, ALL THE ACCOMPANYING DOCUMENTS 157 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT INCLUDING COMPUTATION ARE DEEMED TO BE FILED AT THE TIME OF FILING OF RETURN OF INCOME ITSELF. THE LD. AR POINTED THAT, S ECTION 139(9) PROVIDES THAT IF THE RETURN OF INCOME IS NOT ACCOMP ANIED BY COMPUTATION OF INCOME, TAX AUDIT REPORT, ETC., THE SAME WOULD BE CONSIDERED AS A DEFECTIVE RETURN. ACCORDINGLY, IT WA S ARGUED THAT, IN THE E-FILING SCHEME, BY VIRTUE OF THE SPECIFIC EMBA RGO TO NOT FILE THESE DOCUMENTS, THEY ARE TO BE DEEMED AS FILED ALONG WITH THE RETURN OF INCOME, IF THE SAME ARE FURNISHED SUBSEQUENTLY. IT WAS SUBMITTED THAT IN THE PRESENT CASE, SINCE THESE DOCUMENTS WERE FILED AFTER RECEIVING THE NOTICE, COMPUTATION OF INCOME IS TO B E DEEMED TO BE FILED ALONG WITH RETURN OF INCOME AND NOTES THEREIN ARE TO BE READ AS INTEGRAL PART OF THE RETURN OF INCOME. IT WAS SUBMIT TED THAT THE ASSESSEE WAS TO BE CONSIDERED AS HAVING MADE THE IMP UGNED CLAIM OF WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT IN THE RETURN OF INCOME ITSELF AND NON-GRANT OF CLAIM BY THE ASSE SSING OFFICER WAS COMPLETELY ERRONEOUS IN LAW, WHICH DESERVES TO BE REV ERSED AND CLAIM OUGHT TO BE ALLOWED. 57.0.4 WITHOUT PREJUDICE TO THE ABOVE, THE LD. AR ALSO MADE ADDITIONAL SUBMISSIONS, THAT IF NOTES TO COMPUTATIO N OF INCOME WERE 158 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT NOT TO BE CONSIDERED AS FORMING PART OF THE RETURN, EVEN THEN SINCE ALL THE FACTS RELATING TO THE AFORESAID CLAIM WERE BEFORE THE AO, WHICH WERE ACCEPTED AT PARA 22.3 OF THE ASSESSMENT ORDER, THE IMPUGNED CLAIM WAS NOT A COMPLETELY NEW CLAIM, BUT REVISION/MO DIFICATION OF THE EXISTING CLAIM ALREADY TAKEN IN THE RETURN FORM , FOR WHICH THE AO WAS UNDER A BOUNDEN DUTY TO ALLOW WHILE PASSING THE AS SESSMENT ORDER AS PER MANDATE CONTAINED IN ARTICLE 265 OF TH E CONSTITUTION. RELIANCE IN THIS REGARD WAS PLACED ON THE FOLLOWING D ECISIONS: CHOKSHI METAL REFINERY VS. CIT: 107 ITR 63 (GUJ) CIT VS. GEO INDUSTRIES AND INSECTICIDES (I) PVT LTD : 234 ITR 541 (MAD) SUBHASH CHANDRA SARVESH KUMAR V. CIT: 132 ITR 619 ( ALL.) CIT V SIMON CARVES LTD.: 105 ITR 212 (SC) ANCHOR PRESSINGS (P) LTD. VS. CIT AND ORS.: 161 ITR 159 (SC) CIT V BHARAT GENERAL REINSURANCE: 81 ITR 303 (DEL) CIT VS. HIRANAND: 136 TAXMAN 66 (RAJ) CIT V. AHMEDABAD KEISER-E-HIND MILLS CO. LTD.: 128 ITR 486 (GUJ.) CIT V ARCHANA R. DHANWATAY: 136 ITR 355 (BOM.) SNEH LATA JAIN VS. CIT: 140 TAXMAN 156 (J&K) PCIT V. ORACLE (OFSS) BPO SERVICES LTD.:[2019] 102 TAXMANN.COM 396 (DEL.) CIT V. BHARAT ALUMINIUM CO LTD: 303 ITR 256 (DEL) CIT V. RAMCO INTERNATIONAL : 332 ITR 306 (P&H) 159 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT RAGHAVAN NAIR VS. ACIT: 304 CTR 96 (KER) JCIT V. HERO HONDA FINLEASE LTD.: 115 TTJ 752 (THIR D MEMBER). SNC-LAVALIN ACRES INC.: 110 TTJ 13 (DEL ITAT) ACIT V. PUSHPONS INTERNATIONAL IN ITA NO. 814/DEL/1 998 (DEL ITAT) MIT MOHAN SINGH KAHLON V. DCIT: 61 SOT 93 (URO)/ IT A NO. 57/CHD/2012. (CHD. ITAT) EMERSON NET WORK POWER INDIA (P) LTD. V. ACIT 20091 22 TTJ 67 (MUM ITAT) AISHWARYA RAI: ITA NO. 1159/MUM/04 (ITAT MUM) OGILVY AND MATHER (P) LTD. V. ADDL. CIT: ITA NO. 92 5/MUM/2009 (ITAT MUM) DCIT V. TATA ASSET MANAGEMENT LTD.: ITA NO. 4665/MU M/2010 (ITAT MUM) 57.0.5 IN VIEW OF THE ABOVE, THE LD. AR A RGUED THAT THE ACTION OF THE AO IN NOT ALLOWING THE CLAIM NEEDS TO BE REVE RSED AND THE AO NEEDS TO BE DIRECTED TO ALLOW THE SAID CLAIM. 57.0.6 WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND OF APPEAL VIDE GROUND NO.2 1, TO CONTEND THAT IF THE ACTION OF THE AO IS HELD TO BE CORRECT, THEN THE TRIBUNAL IS EMPOWERED TO ADMIT AND ALLOW THE SAME AS AN ADDITION AL GROUND OF APPEAL, IN VIEW OF PLENARY POWER VESTED IN THE TRIBU NAL, AS PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F NATIONAL 160 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT THERMAL POWER COMPANY: 229 ITR 383 (SC). THE LD. A R ALSO MADE SUBMISSIONS IN SUPPORT OF THE AFORESAID GROUND OF A PPEAL. 58.0 THE LD. CIT - DR REFUTED THE AFORE SAID SUBMISSIONS MADE BY THE ASSESSEE AND SUPPORTED THE ASSESSMENT O RDER. IT WAS ARGUED THAT THE CLAIM MADE BY WAY OF NOTE IN THE CO MPUTATION OF INCOME CANNOT BE CONSIDERED AS A CLAIM MADE IN THE RETURN OF INCOME, SINCE THE TAX LIABILITY IS COMPUTED AND DIS CHARGED AS PER THE CLAIM MADE IN THE RETURN FORM AND NOT ON THE BASIS OF NOTES IN THE COMPUTATION OF INCOME. THE LD. CIT - DR ALSO RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GOETZE (INDIA) LTD. V. CIT: 284 ITR 323, WHEREIN IT WAS HELD THAT TH E AO IS NOT BOUND TO ENTERTAIN A CLAIM MADE BY THE ASSESSEE OTH ERWISE THAN THROUGH RETURN OF INCOME FILED UNDER SECTION 139(1) OR REVISED RETURN OF INCOME UNDER SECTION 139(5) OF THE ACT. THE LD. CIT (DR) ALSO REFERRED TO THE PROVISIONS OF SECTION 80A (5) OF TH E ACT WHICH BARRED THE ASSESSEE TO RAISE ADDITIONAL CLAIM OTHERWISE THA N THROUGH THAT TAKEN IN THE RETURN OF INCOME. AS REGARDS THE ADDIT IONAL GROUND OF APPEAL, THE LD. CIT (DR) ARGUED THAT WHEN THE AO WAS NOT 161 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT EMPOWERED TO ALLOW THE CLAIM, THE TRIBUNAL CANNOT IN DIRECTLY ALLOW THE CLAIM THROUGH ADDITIONAL GROUND OF APPEAL. 59.0 IN THE REJOINDER, THE LD. AR POI NTED OUT THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GOETZE (INDIA) LTD. (SUPRA) RELIED UPON BY THE LD. CIT - DR WAS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE SINCE THE SAME WAS APP LICABLE TO A SITUATION WHERE A CLAIM WAS NOT MADE IN THE RETURN OF INCOME AT ALL AND WAS RAISED FOR THE FIRST TIME DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHEREAS THE PLEA OF THE ASSESSEE HEREIN IS THAT, THE IMPUGNED CLAIM WAS RAISED IN THE RETURN OF INCOME, ALBEIT THROUGH NOTES IN THE COMPUTATION OF INCOME, WHICH CONSTITUTE D INTEGRAL PART OF RETURN OF INCOME. IT WAS ARGUED THAT EVEN OTHERWIS E THE AFORESAID DECISION ONLY BARS COMPLETELY NEW/FRESH CLAIM AND N OT MODIFICATION /ENLARGEMENT OF AN EXISTING CLAIM ALREADY MADE IN T HE RETURN FORM. THUS, ON BOTH THE AFORESAID ACCOUNTS, IT WAS ARGUED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GOETZE INDIA SUPRA WAS NOT APPLICABLE TO FACTS OF ASSESSEES CASE . AS REGARDS SECTION 80A (5) REFERRED BY THE LD. CIT - DR, IT WAS ARGUED THAT THE SAME SHALL NOT APPLICABLE TO THE CLAIM OF DEDUCTION UNDER SECTION 35 162 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT (2AB) AND HAD RESTRICTED SCOPE OF SPECIFIC SECTIONS MENTIONED THEREIN. AS REGARDS THE POWER OF THE TRIBUNAL TO EN TERTAIN THE ADDITIONAL GROUND OF APPEAL, THE LD. COUNSEL ARGUED THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F GOETZE INDIA (SUPRA) ONLY PROHIBITED POWER OF THE AO TO ENTERTAI N A NEW CLAIM AND THERE WAS A SPECIFIC FINDING IN THAT DECISION, THAT THE SAID EMBARGO DOES NOT IMPINGE UPON THE POWER OF THE TRIBUNAL TO ENTERTAIN AN ADDITIONAL GROUND AS LAID DOWN BY THE HONBLE SUPREM E COURT IN THE CASE OF NTPC (SUPRA). FOR THE AFORESAID PROPOSITION THE LD. COUNSEL ALSO RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JAI PARABOLIC SPRINGS LTD: 306 ITR 42 AND THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL IN THE CA SE OF ALLCARGO GLOBAL LOGISTICS LTD VS. DCIT: 137 ITD 26. 60.0.0 WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ENTIRE FACTS RELATING TO THE AFORESAID CLAIM WERE BEFORE THE AO A ND AFTER EXAMINING THE SAME, THE AO DID NOT DISPUTE THE ALLO WABILITY OF CLAIM ON MERITS. THE SOLE ISSUE RAISED BY BOTH THE AO AND THE LD. DRP IS THAT THE SAID CLAIM IS NOT ALLOWABLE, SINCE THE SAME WAS NOT RAISED IN 163 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT THE RETURN FORM WHEREAS THE CONTENTION OF THE ASSESS EE IS THAT A CLAIM THROUGH NOTE IN THE COMPUTATION OF INCOME FOR MS INTEGRAL PART OF RETURN FORM AND, THEREFORE, THE SAME SHOULD HAVE BEEN ENTERTAINED AND ALLOWED BY THE AO. WE FIND THAT THE RETURN OF INCOME IN THE PRESENT CASE WAS FILED THROUGH ELECTRO NIC/DIGITAL MODE. PRIOR TO THE SHIFTING OF PRACTICE OF FILING T HE RETURN OF INCOME TO THE ELECTRONIC MODE, IT WAS AN ACCEPTED PRACTICE THA T THE RETURN FORM BE ACCOMPANIED BY VARIOUS SUPPORTING DOCUMENTS LIKE ACCOUNTS, CHALLANS, TAX AUDIT REPORT ETC. INCLUDING COMPUTATI ON OF INCOME. IN THAT REGIME, IT WAS AN ACCEPTED POSITION THAT NOTES GIVEN IN THE COMPUTATION OF INCOME WAS TO BE READ AS FORMING INT EGRAL PART OF THE RETURN OF INCOME. THE SUPPORT FOR THE AFORESAID ACC EPTED POSITION CAN BE DRAWN FROM THE FOLLOWING DECISIONS BROUGHT TO OUR NOTICE BY THE ASSESSEE: (1) IN THE CASE OF CIT VS. NAV SANSAR AGRO PRODUCTS : 392 ITR 399 (DELHI), THE HONBLE DELHI HIGH COURT HELD THAT NOT ES IN THE COMPUTATION OF INCOME FORMED PART OF THE RETURN OF INCOME. THE RELEVANT OBSERVATIONS OF THE COURT ARE AS UNDER: THIS COURT HAS CONSIDERED THE SUBMISSIONS. THE NOT E APPENDED TO THE COMPUTATION OF INCOME FILE ALONG WITH THE RE TURN BY THE ASSESSEE IN THIS CASE CLEARLY STATED THAT INTEREST AND LEGAL 164 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT CHARGES WERE EXCLUDED ON THE BASIS OF THE INCOME TA X DEPARTMENT'S STAND IN OTHER GROUP CASES THAT THEY C OULD BE INCLUDED IN THE CASE OF LAND AND WERE DONE BY WAY O F 'ABUNDANT CAUTION' AS A DISALLOWANCE. (2) SIMILARLY, THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF AMRITSAR TRANSPORT CO. (P.) LTD. VS. CIT: 2 72 ITR 403, WHILE DEALING WITH THE ISSUE OF JURISDICTION OF ASSESSING OFFICER UNDER SECTION 154 OF THE ACT, HELD THAT NOTES FORMING PAR T OF COMPUTATION OF INCOME FORMED INTEGRAL OF THE RETURN OF INCOME A ND ANY OVERSIGHT THEREOF WHILE FRAMING ASSESSMENT IS RECTIFIABLE UNDE R SECTION 154 OF THE ACT. THE RELEVANT OBSERVATIONS OF THE COURT ARE AS UNDER: 5. AFTER HEARING THE COUNSEL FOR THE PARTIES AND H AVING PERUSED THE ORDERS OF THE AUTHORITIES BELOW, WE ARE SATISFI ED THAT IT IS A CLEAR CASE OF MISTAKE APPARENT FROM THE RECORD WHIC H COULD HAVE BEEN RECTIFIED UNDER SECTION 154 OF THE ACT. THE AS SESSEE ITSELF IN THE COMPUTATION OF INCOME HAD GIVEN THE NOTE REQUES TING THE ASSESSING OFFICER TO CONSIDER THE PAYMENT OF INTERE ST UNDER SECTION 244(1A) OF THE ACT WHICH APPEARS TO HAVE ES CAPED THE NOTICE OF THE ASSESSING OFFICER WHEN HE FRAMED THE ORIGINAL ASSESSMENT. IN VIEW OF THIS MATTER, THERE IS POSSIB LY NO QUESTION OF THIS ISSUE BEING TERMED AS DEBATABLE. 165 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 60.0.1 ON SHIFTING OF THE REGIME OF FILING THE RETURN FORM FROM PHYSICAL MODE TO ELECTRONIC MODE, RULE 12(2) SPECIF ICALLY BARS AN ASSESSEE TO FILE ANY DOCUMENT ALONG WITH THE RETURN OF INCOME. SUCH DOCUMENTS ARE TO BE FILED AFTER RECEIVING THE NOTIC E UNDER SECTION 143(2)/142(1) SELECTING THE RETURN FOR SCRUTINY. TH E COROLLARY OF THE AFORESAID PROCEDURE IS THAT THE ACCOMPANYING DOCUME NTS ARE DEEMED TO HAVE BEEN FILED ALONG WITH THE ELECTRONIC RETURN OF INCOME. IF THAT WAS NOT TO BE THE CASE, THEN THE RETURN OF I NCOME WOULD HAVE BEEN TREATED AS A DEFECTIVE RETURN UNDER SECTION 13 9(9) OF THE ACT. ACCORDINGLY, WHEN THE ASSESSEE RECEIVES NOTICE FOR A SSESSMENT AND IS ASKED TO FILE THE DOCUMENTS IN SUPPORT OF THE RE TURN OF INCOME INCLUDING COMPUTATION OF INCOME, SUCH DOCUMENTS AND COMPUTATION OF INCOME ARE DEEMED TO HAVE BEEN FILED AT THE TIME OF FILING THE ORIGINAL RETURN OF INCOME, RENDERING THE ORIGINAL R ETURN TO BE A VALID RETURN AND NOT A DEFECTIVE RETURN UNDER SECTION 139 (9) OF THE ACT. IN VIEW OF THE SAME, COMPUTATION OF INCOME IS DEEMED TO BE FILED ALONG WITH RETURN OF INCOME AND NOTES OF SUCH COMPUTATION OF INCOME AS PER THE UNDISPUTED PRACTICE AND RATIO LAID DOWN BY T HE AFORESAID DECISIONS ARE TO BE DEEMED AS FORMING INTEGRAL PART OF THE RETURN OF 166 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT INCOME, WHICH ARE REQUIRED TO BE CONSIDERED BY THE A SSESSING OFFICER, WHILE COMPLETING THE ASSESSMENT OF AN ASSESSEE. 60.0.2 IN VIEW OF THE AFORESAID LEGAL POS ITION, ON THE FACTS OF THE PRESENT CASE, ESPECIALLY CONSIDERING THAT THE A O AFTER EXAMINING THE FACTS AND LEGAL POSITION WITH RESPECT TO THE IMP UGNED WEIGHTED CLAIM OF DEDUCTION UNDER SECTION 35(2AB), DID NOT D ISPUTE THE SAME ON MERITS, ERRED IN NOT GRANTING THE BENEFIT TO THE ASSESSEE MERELY ON THE GROUND THAT THE SAME WAS MADE THROUGH NOTE TO COMPUTATION OF INCOME AND NOT IN THE RETURN FORM. ACCORDINGLY, WE REVERSE THE ACTION OF THE AO AND DIRECT HIM TO ALLOW THE WEIGHTE D DEDUCTION TO THE ASSESSEE. CONSIDERING THAT, WE HAVE ALLOWED THE CLAIM ON THE PRINCIPAL CONTENTION RAISED BY THE ASSESSEE, ALTERN ATE CONTENTIONS AS WELL AS THE ADDITIONAL GROUND OF APPEAL ARE RENDERED ACADEMIC IN NATURE. 60.0.3 WE, THEREFORE, ALLOW GROUND OF APP EAL NO. 20 TO 20.3 AND DISMISS GROUND OF APPEAL NO.21 AS BEING ACADEMI C IN NATURE. 61.0.0 THE ASSESSEE HAS ALSO RAISED THE FOL LOWING BY WAY OF ADDITIONAL GROUND OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF TH E CASE, DEPRECIATION @ 25% ON LEASEHOLD RIGHTS ACQUIRED IN LANDS AT 167 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT HARIDWAR (RS.9,79,51,067) AND NEEMRANA (RS.3,27,49, 678), AGGREGATING TO RS.12,42,62,467/- BE ALLOWED UNDER S ECTION 32(1)(II) OF THE ACT IN ACCORDANCE WITH THE ORDERS PASSED BY THE HONBLE TRIBUNAL FOR EARLIER ASSESSMENT YEARS VIZ., AYS 2009-10 TO 2011-12 AND 2013-14. 61.0.1 IN RELATION TO THE AFORESAID ADDITI ONAL GROUND, THE LD. AR SUBMITTED THAT THE ASSESSEE HAD TAKEN CERTAIN LA NDS ON LEASE FOR THE PURPOSES OF CONSTRUCTING FACTORY (IES) AND CARR YING ON BUSINESS OPERATIONS THEREON. THE LAND AT HARIDWAR WAS PURCHAS ED IN THE EARLIER YEAR ON PAYMENT OF PREMIUM. FROM THE ASSESS MENT YEAR 2009-10 I.E., THE YEAR IN WHICH COMMERCIAL PRODUCTIO N BEGUN ON FACTORY CONSTRUCTED ON SAID LAND, THE ASSESSE CLAIM ED DEDUCTION FOR THE PROPORTIONATE AMOUNT OF PREMIUM PAID FOR ACQUIR ING LEASE AS AMORTISED REVENUE EXPENDITURE. IT WAS FURTHER SUBMI TTED THAT IN ASSESSMENT YEARS 2010-11 AND 2011-12 THE ASSESSING OFFICER DISALLOWED THE AFORESAID CLAIM HOLDING THE PREMIUM PAID TO BE CAPITAL EXPENDITURE. ON FURTHER APPEAL, THE TRIBUNA L (ITAT) UPHELD THE AFORESAID ACTION OF THE AO, BUT ACCEPTED ALTERN ATE PLEA OF THE ASSESSEE THAT THE AFORESAID PREMIUM PAID RESULTED I N ACQUISITION OF AN INTANGIBLE ASSET IN NATURE OF A BUSINESS OR COM MERCIAL RIGHTS, 168 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT WHICH IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32( 1)(II) OF THE ACT. IT WAS FURTHER SUBMITTED THAT FOLLOWING THE AFORESAID OR DER OF THE TRIBUNAL, THE CONSEQUENTIAL CLAIM OF DEPRECIATION W AS ALLOWED BY THE LD. DRP/ITAT IN THE ASSESSMENT YEAR 2009-10 AND 201 3-14. 61.0.2 THE LD. AR SUBMITTED THAT IN THE I MPUGNED ASSESSMENT ORDER, THE ASSESSEE INADVERTENTLY FORGOT TO RAISE THE CLAIM IN THE RETURN OF INCOME OR IN THE COURSE OF A SSESSMENT PROCEEDINGS AND HAS, THEREFORE, RAISED THE CONSEQUE NTIAL CLAIM BY WAY OF ADDITIONAL GROUND OF APPEAL. APART FROM THE C LAIM OF DEPRECIATION ON THE PREMIUM PAID ON LAND AT HARIDWAR IN THE EARLIER YEAR, IT IS STATED THAT DURING THE RELEVANT YEAR TH E ASSESSEE HAD PAID ADDITIONAL PREMIUM FOR LAND TAKEN ON LEASE AT NEEMR ANA FOR A PERIOD OF NINETY NINE YEARS FROM RICCO. 61.0.3 THE LD. AR DREW OUR ATTENTIO N TO THE FACTS RELATING TO THE AFORESAID LAND AT NEEMRANA, AS STATED IN THE APPLICATION FOR ADDITIONAL GROUND OF APPEAL. THEY ARE REPRODUCED HE REUNDER: THE ASSESSEE WAS, VIDE ALLOTMENT LETTER DATED 06.07.2005 ALLOTTED LAND AT NEEMRANA BY RAJAS THAN STATE INDUSTRIAL DEVELOPMENT AND INVESTMENT CORPORA TION LTD. 169 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT (RICCO) ON LEASE FOR A PERIOD OF 99 YEARS. THE AFOR ESAID LEASE WAS GRANTED ON PAYMENT OF PREMIUM CUM DEVELOPMENT C HARGES OF RS. 12,34,50,000/-. THE TOTAL AMOUNT CAPITALIZED IN THE BOOKS OF ACCOUNTS WAS RS. 13,09,98,710/- WHICH INCLUDED P REMIUM CUM DEVELOPMENT CHARGES, SECURITY DEPOSIT, REGISTRA TION AND STAMP DUTY AND OTHER MISCELLANEOUS CHARGES. IN ADDI TION, THE ASSESSEE WAS ALSO REQUIRED TO PAY ANNUAL RENT OF RS .19,735 (RS. 237 PER ACRE PER ANNUM). THE INDUSTRIAL UNIT AT NEE MRANA BEGAN COMMERCIAL PRODUCTION ON 25.06.14. THE ASSESSEE SUB MITS THAT AKIN TO THE LEGAL POSITION OF LEASEHOLD RIGHTS IN R ESPECT OF LAND AT HARIDWAR, THE LEASEHOLD RIGHT IN THE LAND AT NEEMRA NA ACQUIRED ON PAYMENT OF PREMIUM CUM DEVELOPMENT CHARGES IS CO VERED WITHIN THE MEANING OF BUSINESS OR COMMERCIAL RIGHT ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE, HOWEVER, INADVERTENTLY, DID NOT CLAIM DEPRECIATION OF RS.3,27,49,678 ON THE AFORESAID AMOUNT OF PREMIUM/DEVELOPMENT CHARGES PAID FOR ACQUIRING LEAS EHOLD RIGHTS IN THE SAID LAND. 61.0.4 IN SUPPORT OF THE AFORESAID GROUND OF APPEAL, THE LD. AR EXPLAINED THE FACTS AND RELIED UPON THE FINDING OF THE TRIBUNAL, IN THE ORDER FOR AY 2010-11 AND 2011-12. 170 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 62.0 THE LD. CIT (DR) POINTED THAT THE DEPARTMENT HAS NOT ACCEPTED THE AFORESAID ORDER HAS CHALLENGED THE SAM E IN FURTHER APPEAL BEFORE THE HIGH COURT. 63.0.0 WE HAVE HEARD BOTH THE PARTIES AND H AVE PERUSED THE MATERIAL AVAILABLE ON RECORD. THOUGH THIS CLAIM WAS NOT MADE BEFORE THE LOWER AUTHORITIES, WE FIND THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE RAISES A PURE QUESTION OF LAW, FACTS FO R THE SAME ARE ON RECORD. WE ACCORDINGLY ADMIT THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE FOLLOWING THE DECISION OF THE HONBL E SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO LTD VS CIT: 229 ITR 383 (SC) . 63.0.1 WE ALSO FIND THAT THE ISSUE ON MERI TS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER DATE D 24.10.2016 PASSED BY TRIBUNAL IN THE PRECEDING ASSESSMENT YEAR S, I.E. AY 2010- 11 AND AY 2011-12 WHEREIN THE TRIBUNAL HELD THAT LEA SE PREMIUM CHARGES WERE NOT ALLOWABLE REVENUE DEDUCTION. HOWEVE R, THE TRIBUNAL ALLOWED THE ALTERNATE PLEA RAISED BY THE A SSESSEE COMPANY AND HELD THE PREMIUM PAID FOR ACQUISITION OF LEASEH OLD RIGHTS TO BE 171 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT AN INTANGIBLE ASSET, INDEPENDENT FROM THE LAND ITSE LF, ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. 63.0.2 ACCORDINGLY, WE HOLD THAT THE ASSESSE E IS ELIGIBLE FOR DEPRECIATION AT 25% ON LEASE HOLD RIGHTS ACQUIRED I N HARIDWAR AND NEEMRANA. AS REGARDS THE LAND AT HARIDWAR, THE AO IS DIRECTED TO ALLOW THE CLAIM OF DEPRECIATION AS PER OPENING WDV CARRY FORWARD FROM THE EARLIER YEARS. IN SO FAR AS THE DEPRECIATI ON OF LAND AT NEEMRANA IS CONCERNED THE SAME SHALL BE ALLOWED AFT ER VERIFICATION OF THE RELEVANT PAYMENTS CLAIMED TO HAVE BEEN MADE BY THE ASSESSEE. 64.0 IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 13/0 4/2021 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 172 ITA NO.9187/DEL/2 019 HERO MOTOCORP LTD. VS. ACIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI
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