Yum! Restaurants (India) Pvt. Ltd., Gurgaon V. ITO, New Delhi

ITA 965/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3274 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-05-2017
• Assessment Year: 2001-2002
• Appeal Filed On: 15-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Wholly owned subsidiary; Royalty expenses; Notional interest; Reassessment proceedings; Capital expenditure
• Section: 143(3); 32; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D: NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 964/DEL /2013 ASSESSMENT YEAR: 2000-01 ITA NO. 965/DEL /2013 ASSESSMENT YEAR: 2001-02 YUM! RESTAURANTS (INDIA) PVT. LTD., 2 ND FLOOR, TOWER D, GLOBAL BUSINESS PARK, GURGAON-122002 (PAN: AAACY1883F) VS ITO, WARD 18(4), NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 953/DEL /2013 ASSESSMENT YEAR: 2000-01 ITA NO. 955/DEL /2013 ASSESSMENT YEAR: 2001-02 ITO, WARD 18(4), NEW DELHI. VS YUM! RESTAURANTS (INDIA) PVT. LTD., GURGAON-122002 (PAN: AAACY1883F) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SALIL KAPOOR, MS ANANYA KAPOOR,ADV. RESPONDENT BY : SHRI AMIT JAIN, SR.DR DATE OF HEARING: 21.11 .2017 DATE OF PRONOUNCEMENT: 20.02.2018 ORDER PER BENCH: THESE TWO SETS OF CROSS APPEALS PERTAIN TO ASSESSMENT YEARS 2001-02. ITA 964/DEL/2013 IS THE ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 2 ASSESSEES APPEAL FOR ASSESSMENT YEAR 2000-01 AGAIN ST THE ORDER DATED 30.11.2012 PASSED BY THE LD. CIT (A )- XXI, NEW DELHI WHEREAS ITA 953/2013 IS THE DEPARTMENTS CROSS APPEAL. ITA 965/2013 IS THE ASSESSEES APPEAL FOR ASSESSMENT YEARS 2001-02 AND IS PREFERRED AGAINST THE ORDER DATED 30.11.2012 PASSED BY THE LD. CIT(A)-XXI, NEW DELHI WHEREAS ITA 955/DEL/2 013 IS THE DEPARTMENTS CROSS APPEAL. ALL THE FOUR APP EALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROU GH THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . 1.1 WE NOW TAKE UP THE RESPECTIVE ASSESSMENT YEARS ONE BY ONE. ITA 964/2013 AND 953/2013 AY 2000-01 2. THE BRIEF FACTS FOR ASSESSMENT YEAR 2000-01 ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AND IS ENGAGED IN THE BUSINESS OF FRANCHISEE OF PIZZA HUT AND KFC RESTAUR ANTS FOR WHICH IT APPOINTED VARIOUS FRANCHISEES. FOR TH IS PURPOSE, THE ASSESSEE HAS OBTAINED FRANCHISEE RIGHT S FROM KFC INTERNATIONAL HOLDINGS INC. AND PIZZA HUT ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 3 INTERNATIONAL LLC FOR WHICH IT PAYS ROYALTY. FURTHE R, THE ASSESSEE HAS ALSO ENTERED INTO SERVICE AGREEMENT WI TH KFC INTERNATIONAL HOLDINGS AND PIZZA HUT INTERNATIO NAL LLC. THE ASSESSEE IS INTER ALIA REQUIRED TO PROVIDE FRANCHISEE SUPPORT SERVICE AND LIAISONING SUPPORT I N RESPECT OF FRANCHISEES LOCATED IN INDIA AND INDIAN SUB- CONTINENT. FOR THIS, THE ASSESSEE IS REMUNERATED A T AGREED UPON RATES AS PER THE SERVICE AGREEMENT. FU RTHER, THE ASSESSEE HAS ALSO ESTABLISHED A WHOLLY OWNED SUBSIDIARY UNDER THE NAME OF YUM RESTAURANTS MARKETING PRIVATE LIMITED WHICH WAS INCORPORATED WI TH THE SOLE OBJECTIVE OF UNDERTAKING ADVERTISING, MEDI A AND PROMOTIONAL ACTIVITIES EXCLUSIVELY FOR THE ASSESSEE AND ITS FRANCHISEES AT THE NATIONAL AND INTERNATIONAL LEVEL . 2.1 FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING A LOSS OF RS. 99,81, 620/-. THE RETURN WAS INITIALLY PROCESSED U/S 143(1) OF TH E ACT AT THE RETURNED LOSS. SUBSEQUENTLY, FOR ASSESSMENT YEAR 2002-03, SPECIAL AUDIT WAS CONDUCTED UNDER THE PROVISIONS OF SECTION 142(2A) OF THE INCOME TAX ACT , 1961 (HEREINAFTER CALLED THE ACT) WHEREIN SEVERAL ADDI TIONS ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 4 AND DISALLOWANCES WERE MADE. BASED ON THE SPECIAL AUDIT REPORT, REASSESSMENT PROCEEDINGS U/S 147 OF T HE ACT WERE INITIATED BY THE DEPARTMENT AND FINALLY, V IDE ORDER DATED 29.12.2006, THE ASSESSING OFFICER PASSE D ORDER U/S 143(3)/147 OF THE ACT DETERMINING THE TOT AL INCOME OF THE ASSESSEE AT RS. 2,54,61,031/- WHICH W AS THEN SET OFF AGAINST THE BROUGHT FORWARD LOSSES RES ULTING IN NIL TAXABLE INCOME. THE ADDITIONS/DISALLOWANCES/ADJUSTMENTS MADE BY THE ASSESSING OFFICER WERE AS UNDER:- 2.2 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEF ORE THE LEARNED FIRST APPELLATE AUTHORITY WHO PARTLY UP HELD THE DISALLOWANCE OF LEASE RENT PAID ON ACCOUNT OF PROVIDING RENT FREE ACCOMMODATION TO THE MANAGING 1 SERVICE INCOME, TREATED AS 'INCOME FROM OTHER SOURC ES AS AGAINST BUSINESS INCOME DECLARED BY THE ASSES SEE 6,76,02,025 2 DISALLOWANCE OF ROYALTY PAID 1,74,92,008 3 DISALLOWANCE OF LEASE RENT PAID FOR PROVIDING RENT FREE ACCOMMODATION FOR MANAGING DIRECTOR 15,00,000 4 NOTIONAL INTEREST INCOME ON SECURITY DEPOSITS FOR OBTAINING RENT FREE ACCOMMODATION FOR MANAGING DIRECTOR 6,00,000 5 DISALLOWANCE OF DEPRECIATION 1,54,49,696 6 DISALLOWANCE OF PRIOR PERIOD EXPENDITURE 90,812 7 DISALLOWANCE OF PERSONAL EXPENDITURE 45,000 8 DISALLOWANCE OF CAPITAL EXPENDITURE 30,880 9 DISALLOWANCE OF EXCESS PROVISION OF EXPENSES 2,34,256 ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 5 DIRECTOR OF THE COMPANY BY UPHOLDING THE DISALLOWAN CE AMOUNTING TO RS. 1,26,00,000/-. THE LD. COMMISSION ER OF INCOME TAX (A) ALSO UPHELD THE DISALLOWANCE OF BUSINESS EXPENDITURE OF RS. 45,000/- BY HOLDING THE SAME TO BE PERSONAL IN NATURE. THE LD. COMMISSIONE R OF INCOME TAX (A) ALSO UPHELD THE DISALLOWANCE OF BUSI NESS EXPENDITURE AMOUNTING TO RS. 30,880/- BY HOLDING TH E SAME TO BE CAPITAL IN NATURE. HOWEVER, THE LD. COMMISSIONER OF INCOME TAX(A) GAVE RELIEF TO THE ASSESSEE IN RESPECT OF SERVICE INCOME BY DIRECTING THE ASSESSING OFFICER TO ASSESS INCOME EARNED BY THE ASSESSEE BY PROVIDING SERVICES AMOUNTING TO RS. 6,76,02,025/- UNDER THE HEAD INCOME FROM BUSINESS. THE LD. COMMISSIONER OF INCOME TAX (A) ALSO DELETED THE ADDITION OF RS. 1,74,92,008/- PAID AS ROYALTY AND T REATED AS BEING CAPITAL IN NATURE BY THE ASSESSING OFFICER . THE LD. COMMISSIONER OF INCOME TAX(A) ALSO ALLOWED THE ASSESSEES GROUND OF CLAIM OF DEPRECIATION AMOUNTIN G TO RS. 1,54,49,696/-. THE LD. COMMISSIONER OF INCOME TAX (A) ALSO ALLOWED THE ASSESSEES CLAIM BY DELETING A DDITION ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 6 AMOUNTING TO RS. 90,812/- ON ACCOUNT OF PRIOR PERIO D EXPENSES. 2.3 NOW, BOTH THE ASSESSEE AND THE DEPARTMENT ARE BEFORE THE ITAT AND HAVE CHALLENGED THE ACTION OF T HE LD. COMMISSIONER OF INCOME TAX(A) AND THE RESPECTIVE GROUNDS RAISED BY BOTH THE PARTIES ARE AS UNDER:- 2.4 THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESSEE IN ITA NO. 964/D/2013:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) - XXI [LD. CIT(A)] HAS ERRED IN NOT ADJUDICATING TH E GROUND NO. 2 RAISED BY THE APPELLANT CHALLENGING THE VALID ITY OF THE REASSESSMENT PROCEEDINGS UNDER SECTION 148 OF T HE INCOME TAX ACT, 1961 [THE ACT]. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN PARTLY UPHOLDING THE DISALLOWANCE OF LEASE RENT AMOUNTING TO RS. 12,60,0 00 OUT OF THE TOTAL LEASE RENT OF RS. 15,00,000 PAID B Y THE APPELLANT TO M/S MEZBAAN HOTELIERS PVT. LTD. ON ACC OUNT OF RENT FREE ACCOMMODATION OBTAINED FOR ITS MANAGIN G DIRECTOR. IN DOING SO, THE LD. CIT (A) HAS ERRED IN NOT CONSIDERING THE VALUATION CERTIFICATES SUBMITTED BY THE APPELLANT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF BUSINESS EXPENDITURE AMOUNTING TO R S. 45,000 BY HOLDING THE SAME TO BE PERSONAL IN NATURE . 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN UPHOLDING THE ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 7 DISALLOWANCE OF BUSINESS EXPENDITURE AMOUNTING TO R S. 30,880 BY HOLDING THE SAME AS BEING CAPITAL IN NATU RE. IN DOING SO, THE LD. CIT (A) HAS FAILED TO CORRECTLY A PPRECIATE THE NATURE OF EXPENSES. 2.5 THE FOLLOWING GROUNDS HAVE BEEN RAISED BY THE DEPARTMENT IN ITA NO. 953/D/2013:- (I) THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DIRECTING THE AO TO ASSESSEE THE INCOME ERR ED BY THE ASSESSEE BY PROVIDING SERVICES, UNDER THE HEAD INCOME FROM BUSINESS. (II) THE LD CIT(A) ERRED IN LAW AND ON THE FACTS OF TH E CASE IN DELETING THE ADDITION OF RS. 1,74,92,008/- MADE BY THE AO BY TREATING THE ROYALTY EXPENSES AS CAPIT AL IN NATURE. (III) THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN ALLOWING THE APPEAL OF THE ASSESSEE AGAINST THE ADDITION OF RS. 1,54,49,696/- ON ACCOUNT OF CLAIM DEPRECIATION ON THE TRANSFERRED ASSETS. (IV) THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 90,812/- MADE BY THE AO ON ACCOUNTS OF PRIOR PERIOD EXPENSES AS THE ASSE SSEE MAINTAINS ITS ACCOUNTS ON MERCANTILE BASIS. (IV) THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIGHT TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. ITA 965/2013 AND 954/2013 AY 2001-02 3. IN THIS YEAR, THE ASSESSEE HAD FILED ITS RETURN OF INCOME DECLARING A TOTAL TAXABLE INCOME OF RS. 47,32,300/- UNDER THE ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 8 HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE HAD ALSO COMPUTED THE PROFITS UNDER THE HEAD PROFITS AND GA INS OF BUSINESS AND PROFESSION AMOUNTING TO RS. 92,07,745 /- WHICH, AFTER ADJUSTING THE BROUGHT FORWARD LOSSES TO THE E XTENT OF RS. 92,07,745/-, WERE REDUCED TO NIL. THE ASSESSMENT W AS COMPLETED U/S 143(3) OF THE ACT AT RS. 1,81,06,661/- AS AGAIN ST THE RETURNED INCOME DECLARED AT NIL. THIS ASSESSMENT W AS COMPLETED ON 31.03.2004. SUBSEQUENTLY, DUE TO SPECIAL AUDIT BEING ORDERED UNDER THE PROVISIONS OF SECTION 142(2A) OF THE ACT FOR ASSESSMENT YEAR 2002-03, THE ASSESSING OFFICER INITIATED REASS ESSMENT PROCEEDINGS U/S 147 AND CONCLUDED THE REASSESSMENT PROCEEDINGS ON 29.12.2006 BY COMPUTING THE INCOME A T RS. 8,64,96,240/- WHICH WAS THEN SET OFF AGAINST THE BR OUGHT FORWARD BUSINESS LOSSES AND RESULTED IN NIL TAXABLE INCOME. IN THE REASSESSMENT, THE ASSESSING OFFICER MADE THE FOLLOW ING ADJUSTMENTS, ADDITIONS AND DISALLOWANCES:- S.NO. PARTICULARS AMOUNT (RS.) * 1 SERVICE INCOME, TREATED AS INCOME FROM OTHER SOURC ES AS AGAINST BUSINESS INCOME 9,04,27,842 2 DISALLOWANCE OF ROYALTY PAID TO YRAPL 2,33,30,505 3 DISALLOWANCE OF ADMINISTRATIVE EXPENSES BY HYPOTHET ICAL APPORTIONMENT TO SUBSIDIARY COMPANY, I.E. YRMPL 3,30,68,187 4 DISALLOWANCE OF LEASE RENT PAID FOR OBTAINING RENT FREE ACCOMMODATION FOR MANAGING DIRECTOR (MR. SANDEEP KO HLI) 15,00,000 ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 9 5 ADDITION MADE ON ACCOUNT OF NOTIONAL INTEREST INCOM E ON SECURITY DEPOSITS PLACED FOR OBTAINING RENT FREE ACCOMMODATI ON FOR MANAGING DIRECTOR (MR. SANDEEP KOHLI) 6,00,000 6 DISALLOWANCE ON ACCOUNT OF SCM INCOME 7,43,000 7 DISALLOWANCE ON ACCOUNT OF G & A REIMBURSEMENT 23,62,500 8 DISALLOWANCE OF TAX DEPRECIATION CLAIMED UNDER SECT ION 32 OF THE ACT 1,01,98,827 9 DISALLOWANCE ON ACCOUNT OF ALLEGED PRIOR PERIOD EXP ENDITURE 1,03,103 10 DISALLOWANCE ON ACCOUNT OF ALLEGED PERSONAL EXPENDI TURE 7,500 12 DISALLOWANCE ON ACCOUNT OF ALLEGED CAPITAL EXPENDIT URE 1,13,279 13 DISALLOWANCE ON ACCOUNT OF EXCESS PROVISION OF EXPE NSES 4,38,298 3.1 AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFO RE THE LD. CIT (A) WHO PARTLY SUSTAINED THE DISALLOWANCE OF LEASE RENT IN RESPECT OF MDS RENT FREE ACCOMMODATION TO THE TUNE OF RS. 12,60,000/-. THE LD. CIT (A) ALSO UPHELD THE DISALLOWANCE OF RS. 7,500/- ON ACCOUNT OF PERSONAL EXPENDITURE. THE LD. CIT (A) A LSO DISMISSED THE ASSESSEES CHALLENGE TO DISALLOWANCE OF BUSINES S EXPENDITURE AMOUNTING TO RS. 1,13,279/- ON ACCOUNT OF THE EXPEN DITURE BEING CAPITAL IN NATURE. HOWEVER, THE LD. COMMISSIONER O F INCOME TAX (A) DIRECTED THE ASSESSING OFFICER TO TREAT AND TAX THE SERVICE INCOME OF RS. 9,04,727,842/- UNDER THE HEAD INC OME FROM BUSINESS. THE LD. COMMISSIONER OF INCOME TAX (A) ALSO DELETED THE ADDITION OF RS. 23,30,505/- IN RESPECT OF ROYAL TY EXPENSES. THE LD. COMMISSIONER OF INCOME TAX (A) ALSO DELETED THE DISALLOWANCE OF 50% MADE UNDER THE HEAD GENERAL AN D ADMINISTRATIVE EXPENSES. THE LD. COMMISSIONER OF INCOME TAX ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 10 (A) ALSO GAVE RELIEF TO THE ASSESSEE WITH RESPECT T O SUPPLY CHAIN MANAGEMENT FEE AMOUNTING TO RS. 7,43,000/-. AND AL SO DELETED THE ADDITION OF RS. 23,62,500/- PERTAINING TO REIMB URSEMENT OF EXPENSES RECEIVED FROM M/S PIZZA HUT INTERNATIONAL LLC WHICH WERE INCURRED BY THE ASSESSEE IN THE YEAR UND ER CONSIDERATION BUT CREDITED BY THE ASSESSEE IN ITS P ROFIT AND LOSS ACCOUNT IN THE SUBSEQUENT YEAR. THE LD. C IT (A) ALSO ALLOWED THE ASSESSEES CLAIM OF DEPRECIATION AMOUNTING TO RS. 1,01,98,827/-. AND ALSO DIRECTED THE DELETION OF ADDITION OF RS. 1,03,103/- PERTAINING T O PRIOR PERIOD EXPENSES. 3.2 NOW, BOTH THE ASSESSEE AND THE DEPARTMENT ARE BEFORE THE ITAT AND HAVE CHALLENGED THE ACTION OF T HE LD. COMMISSIONER OF INCOME TAX(A) AND THE RESPECTIVE GROUNDS RAISED BY BOTH THE PARTIES ARE AS UNDER:- 3.3 FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSES SEE IN ITA NO. 965/D/2013:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APP EALS) - XXI [LD. CIT(A)] HAS ERRED IN NOT ADJUDICATING THE GROUND NO. 2 RAISED BY THE APPELLANT CHALLENGING TH E VALIDITY OF THE REASSESSMENT PROCEEDINGS UNDER SECT ION 148 OF THE INCOME TAX ACT, 1961 [THE ACT]. ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 11 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN PARTLY UPHOLDING THE DISALLOWANCE OF LEASE RENT AMOUNTING TO RS. 12,60,0 00 OUT OF THE TOTAL LEASE RENT OF RS. 15,00,000 PAID B Y THE APPELLANT TO M/S MEZBAAN HOTELIERS PVT. LTD. ON ACC OUNT OF RENT FREE ACCOMMODATION OBTAINED FOR ITS MANAGIN G DIRECTOR. IN DOING SO, THE LD. CIT (A) HAS ERRED IN NOT CONSIDERING THE VALUATION CERTIFICATES SUBMITTED BY THE APPELLANT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF BUSINESS EXPENDITURE AMOUNTING TO R S. 7,500 BY HOLDING THE SAME TO BE PERSONAL IN NATURE. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C1T(A) HAS ERRED IN UPHOLDING T HE DISALLOWANCE OF BUSINESS EXPENDITURE AMOUNTING TO R S. 1,13,279 BY HOLDING THE SAME AS BEING CAPITAL IN NA TURE. IN DOING SO, THE LD. CIT (A) HAS FAILED TO CORRECTL Y APPRECIATE THE NATURE OF EXPENSES. 3.4 FOLLOWING GROUNDS HAVE BEEN RAISED BY THE DEPARTMENT IN ITA NO. 955/D/2013:- (I) THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF TH E CASE IN DIRECTING THE AO TO ASSESSEE THE INCOME ERRED BY THE ASSESSEE BY PROVIDING SERVICES, UNDER THE HEAD INCO ME FROM BUSINESS. (II) THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DELETING THE ADDITION OF RS.2,33,30,505/- M ADE BY THE AO BY TREATING THE ROYALTY EXPENSES AS CAPITAL IN N ATURE. (III) THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DELETING THE ADDITION MADE BY THE AO ON ACC OUNT OF DISALLOWANCE OF 50% OF ADMINISTRATIVE EXPENSES. ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 12 (IV) THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DELETING THE ADDITION OF RS. 7,43,000/- MAD E BY THE AO ON ACCOUNTS OF SUPPLY CHAIN MANAGEMENT FEE PERTA INING TO THIS YEAR AND DECLARED BY THE ASSESSEE IN THE SU BSEQUENT YEAR. (V) THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DELETING THE ADDITION OF RS.23,62,500/- MAD E BY THE AO ON ACCOUNT OF REIMBURSEMENT OF EXPENSES RECEIVED FROM M/S PIZZA FAST FOOD RESTAURANTS (P) LTD. WHICH WERE INCURRED BY THE ASSESSEE IN THIS YEAR BUT CREDITED BY THE ASSESSEE TO ITS PROFIT & LOSS ACCOUNT IN THE SUBSEQ UENT YEAR. (VI) THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN ALLOWING THE APPEAL OF THE ASSESSES AGAINST THE ADDITION OF RS. 1,01,98,827/- ON ACCOUNT OF CLAIM O F DEPRECIATION ON THE TRANSFERRED ASSETS. (VII) THE LD.CIT(A ) ERRED IN LAW AND ON THE FACTS OF T HE CASE IN DELETING THE ADDITION OF RS. 1,03,103/- MAD E BY THE AO ON ACCOUNT OF PRIOR PERIOD EXPENSES AS THE ASSES SEE MAINTAINS ITS ACCOUNT ON MERCANTILE BASIS. 4. THE LD. AR SUBMITTED THAT AS FAR AS GROUND NO. 1 IN ASSESSEES APPEALS FOR ASSESSMENT YEAR 2000-01 AND 2001-02, WHICH CHALLENGE THE FAILURE OF THE LD. COMMISSIONER OF INCOME TAX (A) IN ADJUDICATING THE ASSESSEES CHALLENGE TO THE VALIDITY OF REASSESSMENT PROCEEDINGS WAS CONCERNED, THE GROUND WAS NOT BEING PRESSED FOR BOTH THE YEARS UNDER CONSIDERATIO N. ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 13 4.1 WITH RESPECT TO GROUND NO.2 FOR BOTH THE APPEAL S OF THE ASSESSEE, WHICH CHALLENGE THE ACTION OF THE LD. COM MISSIONER OF INCOME TAX(A) IN PARTLY UPHOLDING THE DISALLOWANCE OF LEASE RENT AMOUNTING TO RS. 12,60,000/- OUT OF TOTAL LEASE REN T OF RS. 15 LAKH AND PERTAINING TO RENT FREE ACCOMMODATION FOR THE MANAGING DIRECTOR, IT WAS SUBMITTED THAT ITAT DELHI BENCH HA D PARTIALLY ALLOWED THE ISSUE OF LEASE RENTAL IN FAVOUR OF THE ASSESSEE FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2006-07 AND T HE ANNUAL RENT OF RS. 2,40,000/- HAD BEEN ALLOWED AS F AIR RENT OF THE PROPERTY PROVIDED TO THE MANAGING DIRECTOR. THE LD . AR SUBMITTED THAT THIS ACCOMMODATION WAS PROVIDED IN A CCORDANCE WITH THE EMPLOYMENT CONTRACT BETWEEN THE ASSESSEE C OMPANY AND THE MD AND TAX WAS DULY DEDUCTED AT SOURCE ON S UCH PAYMENT ALONG WITH TAXING THE SAME AS PERQUISITE IN THE HANDS OF THE MD. IT WAS ALSO SUBMITTED THAT THE RENT RECOVE RED FROM THE MD WAS DULY ACCOUNTED FOR AS INCOME BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS AND THE SAME WAS EVIDENT FROM THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) FOR ASSESSME NT YEAR 2002-03 AND 2003-04. 4.2 WITH RESPECT TO GROUND NO. 3 IN ASSESSEES APPE ALS FOR ASSESSMENT YEAR 2000-01 AND 2001-02 PERTAINING TO ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 14 DISALLOWANCE OF BUSINESS EXPENDITURE BY HOLDING THE SAME TO BE PERSONAL IN NATURE, IT WAS SUBMITTED THAT THESE EXP ENSES WERE INCURRED TO PROCURE CAR ACCESSORIES FOR AN EMPLOYEE AND THAT THE SAME WERE INCURRED AS PER COMPANYS POLICY AND HAVE BEEN TAXED IN THE HANDS OF THE EMPLOYEE AS PERQUISITE. IT WAS SUBMITTED THAT THESE EXPENSES WERE RELATED TO THE BUSINESS AND WER E IN THE NATURE OF PERQUISITE TO THE EMPLOYEES AND ALSO TAXE D IN THE HANDS OF THE CONCERNED EMPLOYEES BUT THEY WERE NOT DISALL OWABLE IN THE HANDS OF THE ASSESSEE. IT WAS SUBMITTED THAT A SIM ILAR ISSUE HAD ARISEN IN ASSESSMENT YEAR 2003-04 AND THE LD. COMMI SSIONER OF INCOME TAX (A) HAD ALLOWED THE SAME AS DEDUCTIBLE E XPENSES AND THESE WERE FURTHER UPHELD BY THE ITAT. 4.3 WITH RESPECT TO GROUND NO. 4 IN ASSESSEES APPE ALS FOR ASSESSMENT YEAR 2000-01, 2001-02, IT WAS SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX (A) HAD ERRED IN UPHOLDI NG THE DISALLOWANCE OF BUSINESS EXPENDITURE BY HOLDING THE SAME AS BEING CAPITAL IN NATURE WHEREAS THESE WERE IN THE N ATURE OF ROUTINE REPAIRS AND MAINTENANCE EXPENSES LIKE PURCH ASE OF RAM AND HARD DISK, ETC. FOR THE COMPUTERS. IT WAS SUBM ITTED THAT THESE EXPENSES WERE ESSENTIALLY REVENUE IN NATURE A S NO NEW ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 15 ASSET HAD BEEN CREATED BUT WERE INCURRED FOR ESSENT IALLY MAINTAINING THE COMPUTERS IN RUNNING CONDITION. 5. COMING TO THE DEPARTMENTS APPEAL, THE LD. AR SU BMITTED THAT HERE ALSO, GROUND NO. 1 WERE IDENTICAL IN BOTH THE APPEALS AND THE DEPARTMENT WAS CHALLENGING THE ACTION OF TH E LD. COMMISSIONER OF INCOME TAX(A) IN DIRECTING THE ASSE SSING OFFICER TO ASSESS THE SERVICE INCOME UNDER THE HEAD INCOME FROM BUSINESS. IT WAS SUBMITTED THAT THIS ISSUE WAS CO VERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITAT IN ASSESSEES CASE FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2006-07. IT WAS ALSO SUBMITTED THAT ITAT HAD ALSO DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE FOR ASSESSMENT YEARS 2004-05, 2005-06AND 2 008-09 BY RELYING UPON ITS EARLIER ORDERS. IT WAS ALSO SUBMI TTED THAT THE HON'BLE DELHI HIGH COURT HAS ALSO UPHELD THE ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEARS 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 AND 2008-09. 5.1 SIMILARLY, IN RESPECT OF DEPARTMENTS GROUND NO . 2 FOR BOTH THE YEARS UNDER APPEAL CHALLENGING THE ACTION OF TH E LD. COMMISSIONER OF INCOME TAX (A) IN DELETING THE ADDI TIONS PERTAINING TO ROYALTY EXPENSES, THE LD. AR SUBMITTE D THAT THIS ISSUE WAS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 16 THE ITAT FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2006-07. IT WAS FURTHER SUBMITTED THAT THE ITAT FOLLOWED ITS EA RLIER ORDERS IN ASSESSMENT YEARS 2004-05, 2005-06, 2007-08 AND 2008 -09. IT WAS ALSO SUBMITTED THAT THE HON'BLE DELHI HIGH COUR T HAD ALSO UPHELD THE ORDERS OF THE ITAT FOR THESE ASSESSMENT YEARS. 5.2 WITH RESPECT TO GROUND NO. 3 OF THE DEPARTMENT S APPEAL FOR ASSESSMENT YEAR 2000-01 AND GROUND NO. 6 FOR ASSESS MENT YEAR 2001-02 PERTAINING TO DEPRECIATION, THE LD. AR SUBM ITTED THAT THIS ISSUE WAS ALSO COVERED IN FAVOUR OF THE ASSESS EE BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT Y EARS 2002-03, 2003-04 AND 2006-07. IT WAS ALSO SUBMITTED THAT TH E ITAT FOLLOWED ITS EARLIER ORDERS IN ASSESSMENT YEARS 200 4-05, 2005-06, 1999-2000. 5.3 WITH RESPECT TO GROUND NO. 4 IN DEPARTMENTS AP PEAL FOR ASSESSMENT YEAR 2000-01 AND GROUND NO. 7 IN APPEAL FOR ASSESSMENT YEAR 2001-02 PERTAINING TO PRIOR PERIOD EXPENSES, IT WAS SUBMITTED THAT THESE EXPENSES WERE DISALLOWED B ECAUSE AS PER THE ASSESSING OFFICER, THEY DID NOT PERTAIN TO THE ASSESSMENT YEARS UNDER CONSIDERATION. THE LD. AR SUBMITTED TH AT THE INVOICES PERTAINING TO THESE EXPENSES WERE RECEIVED BY THE ASSESSEE IN THE YEARS UNDER CONSIDERATION AND, THER EFORE, THE ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 17 LIABILITY TO PAY CRYSTALLIZED ONLY WHEN THESE INVOI CES WERE RECEIVED BY THE ASSESSEE. THE LD. AR PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF NONSUCH TEA E STATE LIMITED VS. CIT REPORTED IN 98 ITR 189(SC) FOR THE PROPOSITION THAT THE LIABILITY TO PAY CRYSTALLISES ONLY WHEN TH E INVOICES ARE RECEIVED BY THE ASSESSEE. IT WAS ALSO SUBMITTED TH AT FOR AN ALLOWABLE EXPENDITURE THE YEAR OF ALLOWANCE IS NOT RELEVANT WHEN THE TAX RATES ARE CONSTANT, AS IN THE CASE OF A COR PORATE ASSESSEE. FOR THIS PURPOSE, RELIANCE WAS PLACED ON THE JUDGME NT OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS VISHNU INDUS TRIAL GASES IN ITA NO.229/1988. 5.4 WITH RESPECT TO GROUND NO. 3 OF THE DEPARTMENT S APPEAL FOR ASSESSMENT YEAR 2001-02 PERTAINING TO THE DEPARTMEN TS CHALLENGE TO THE ACTION OF THE LD. COMMISSIONER OF INCOME TAX (A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF DISALLOWANCE OF 50% OF ADMINISTRATIVE EXPENSES, THE LD. AR SUBMITTED THAT THIS ISSUE ALSO STOOD COVERED IN FAV OUR OF THE ASSESSEE BY THE ORDER OF THE ITAT FOR ASSESSMENT YE ARS 2002-03, 2003-04 AND 2006-07, 2007-08. IT WAS ALSO SUBMITTE D THAT THE HON'BLE DELHI HIGH COURT HAD ALSO UPHELD THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 18 5.5 WITH RESPECT TO GROUND NOS. 4 AND 5 OF THE DEPA RTMENTS APPEAL FOR ASSESSMENT YEAR 2001-02 WHICH PERTAINED TO SUPPLY CHAIN MANAGEMENT FEE AND REIMBURSEMENT OF EXPENSE R ECEIVED FROM M/S PIZZA HUT INTERNATIONAL LLC, IT WAS SUBMIT TED THAT BOTH THESE ISSUES WERE ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT FOR ASSESSMENT YE AR 2002-03 WHEREIN THE ITAT HAD UPHELD THE ORDER OF TH E LD. CIT (A). 6. IN RESPONSE, THE LD. SR. DR READ OUT EXTENSIVELY FROM THE ASSESSMENT ORDERS AND PLACED RELIANCE ON T HE FINDINGS OF THE ASSESSING OFFICER. ON THE GROUNDS T AKEN BY THE ASSESSEE IN ITS APPEALS, HE ALSO PLACED RELI ANCE ON THE OBSERVATIONS OF THE LD. CIT (A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUND NO. 1 IN ASSESSEES APPEAL FOR BOTH THE YEARS CHALLENGING TH E VALIDITY OF REASSESSMENT PROCEEDINGS IS DISMISSED A S NOT BEING PRESSED BY THE ASSESSEE. 7.1 GROUND NO. 2 IN THE APPEALS OF THE ASSESSEE FOR BOTH THE YEARS CHALLENGE PARTIAL UPHOLDING OF DISALLOWAN CE OF LEASE RENT AMOUNTING TO RS. 12.60 LAKH OUT OF THE T OTAL ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 19 LEASE RENT OF RS. 15 LAKH PAID BY THE ASSESSEE ON A CCOUNT OF RENT FREE ACCOMMODATION FOR ITS MANAGING DIRECTO R. IT IS SEEN THAT THIS ISSUE HAS BEEN PARTIALLY ALLOWED BY THE ITAT IN ITS ORDER FOR ASSESSMENT YEARS 2002-03, 200 3-04 AND 2006-07 IN ITA NO. 3796/DEL/2006, 4154/DEL/2006 , 142/DEL/2007, 482/DEL/2007 AND ITA 5122/DEL/2010 WHEREIN, VIDE ORDER DATED 31.05.2011, COORDINATE BE NCH OF THE ITAT HAS HELD IN PARA 46 THAT THERE WAS NO D ISPUTE THAT THE PAYMENTS IN THIS REGARD HAD BEEN MADE TO PERSONS WHO WERE COVERED UNDER THE PROVISIONS OF SE CTION 40A(2)(B) OF THE ACT. THE ITAT IN THE SAID ORDER H AS NOTED THAT THE ASSESSEE HAS EXTENDED EXTRA PECUNIAR Y BENEFIT TO ITS MD AND, THEREFORE, TAKING INTO CONSIDERATION THE OVERALL EVIDENCE ON RECORD, THE ASSESSING OFFICER WAS DIRECTED TO ALLOW PAYMENT OF RENT TO THE EXTENT OF RS. 20,000/- PER MONTH AND THE BAL ANCE HAD TO BE DISALLOWED. THUS, THE ITAT HAS RULED THA T ONLY A RENT OF RS. 2,40,000/- PER ANNUM WAS ALLOWABLE AS A DEDUCTION IN THE FACTS AND CIRCUMSTANCES OF THE CAS E. WE FIND THAT THE LD. CIT HAS ALLOWED THE ASSESSEE A DEDUCTION OF RS. 2,40,000/- PER ANNUM FOR BOTH THE ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 20 YEARS UNDER CONSIDERATION AND HAS DISALLOWED THE REMAINING AMOUNT I.E. RS. 12.60 LAKH. DURING THE C OURSE OF PROCEEDINGS BEFORE US, THE LD. AR HAS ONLY RELIE D ON THE FINDINGS OF THE ITAT IN ASSESSEES OWN CASE FOR EARLIER YEARS AS AFOREMENTIONED AND HE HAS NOT BROUGHT OUT ANY NEW FACT OR EVIDENCE IN SUPPORT OF HIS CONTENTION F OR ALLOWANCE OF AN AMOUNT EXCEEDING RS. 2,40,000/- PER ANNUM. ACCORDINGLY, WE HOLD THAT AS THE LD. CIT (A ) HAS ALREADY ALLOWED A DEDUCTION OF RS. 2,40,000/- PER A NNUM TO THE ASSESSEE FOR BOTH THE YEARS UNDER CONSIDERAT ION, NO FURTHER RELIEF NEEDS TO BE EXTENDED TO THE ASSES SEE IN THIS REGARD. ACCORDINGLY, WE DISMISS GROUND NO. 2 OF THE ASSESSEES APPEALS FOR BOTH THE YEARS. 7.2 GROUND NO. 3 IN ASSESSEES APPEAL FOR ASSESSMEN T YEAR 2000-01 CHALLENGES THE ACTION OF THE LD. CIT ( A) IN UPHOLDING THE DISALLOWANCE OF BUSINESS EXPENDITURE AMOUNTING TO RS. 45,000/- ON THE GROUND THAT THE SA ME WAS PERSONAL IN NATURE WHEREAS GROUND NO. 3 IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2001-02 CHALLENGES THE UPHOLDING OF DISALLOWANCE OF RS. 7,5 00/- ON THE SAME GROUND. IT HAS BEEN SUBMITTED BY THE L D. ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 21 AR THAT THESE EXPENSES WERE INCURRED FOR BUYING CAR ACCESSORIES FOR AN EMPLOYEE AND THEY WERE INCURRED AS PER THE COMPANYS POLICY. IT WAS SUBMITTED THAT TH ESE EXPENSES WERE RELATED TO THE BUSINESS AND WERE IN T HE NATURE OF PERQUISITE TO THE EMPLOYEES AND TAXED IN THE HANDS OF THE CONCERNED EMPLOYEE AND, THEREFORE, THE DISALLOWANCE COULD NOT BE MADE IN THE HANDS OF THE COMPANY. IT HAS ALSO BEEN SUBMITTED THAT THE ITAT IN ASSESSEES OWN CASE FOR 2003-04 HAD HELD THAT MEDIC AL EXPENSES OF THE DIRECTOR AND EXPENSES INCURRED ON T HE UNIFORM OF A DRIVER OF THE DIRECTOR WERE EXPENSES R ELATING TO DAY TO DAY BUSINESS OF THE ASSESSEE AND ON SIMIL AR GROUND, THESE EXPENSES, BEING CHALLENGED IN THE TWO YEARS UNDER APPEAL, ALSO SHOULD BE ALLOWED. LD. AR HAS ALSO RELIED ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO. VS. CIT REPORTED IN 253 ITR 749 (GUJ) FOR THE PROPOSITI ON THAT THE EXPENDITURE IN MAINTENANCE OF VEHICLES COU LD NOT BE DISALLOWED. HOWEVER, AFTER PERUSING THE MAT ERIAL ON RECORD, WE ARE OF THE CONSIDERED OPINION THAT TH E ASSESSEE HAS NOT BROUGHT ON RECORD ANY POLICY DECIS ION OF ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 22 THE MANAGEMENT WHEREIN IT WAS OBLIGATORY ON THE PAR T OF THE ASSESSEE COMPANY TO MEET THE EXPENSES ON PURCHA SE OF CAR ACCESSORIES FOR AN EMPLOYEE. RELIANCE PLACE D BY THE LD. AR ON THE JUDGMENT OF THE HONBLE GUJARAT H IGH COURT IN THE CASE OF SAYAJI IRON & ENGINEERING CO. VS. CIT (SUPRA) ALSO DOES NOT HELP THE CASE OF THE ASSE SSEE AS IN THIS CASE, THE ISSUE WAS PARTIAL DISALLOWANCE OF EXPENDITURE INCURRED ON THE MAINTENANCE OF VEHICLES USED BY THE DIRECTOR OF THE COMPANY AND THE HON BLE GUJARAT HIGH COURT HAD HELD THAT PARTIAL DISALLOWAN CE WAS NOT SUSTAINABLE EVEN IF THERE WAS ANY PERSONAL USE OF THE VEHICLES BY THE DIRECTOR. HOWEVER, IN THE CASE BEFORE US, THE IMPUGNED EXPENDITURE HAS BEEN INCURRED ON BUYING CAR ACCESSORIES FOR A VEHICLE WHICH IS NOT O WNED BY THE ASSESSEE COMPANY BUT BY THE EMPLOYEE OF THE COMPANY. ACCORDINGLY, WE UPHOLD THE SUSTENANCE OF DISALLOWANCE BY THE LD. CIT (A) IN BOTH THE YEARS U NDER CONSIDERATION AND DISMISS GROUND NO. 3 OF THE ASSES SEES APPEALS FOR BOTH THE YEARS. 7.3 GROUND NO. 4 IN ASSESSEES APPEAL FOR ASSESSMEN T YEAR 2000-01 CHALLENGES THE UPHOLDING OF DISALLOWAN CE OF ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 23 RS. 30,880/- INCURRED ON REPAIR AND MAINTENANCE OF COMPUTERS WHEREAS IN ASSESSMENT YEAR 2001-02 THE AMOUNT IN DISPUTE IS RS.1,13,279/-. IT HAS BEEN SUBMITTED THAT NO NEW ASSET HAS BEEN CREATED IN THI S REGARD AND THE EXPENDITURE INCLUDED AMOUNT SPENT ON PURCHASE OF RAM, HARD DISK, LAPTOP BATTERY ETC. IT IS SEEN THAT THESE EXPENDITURE/S HAVE BEEN DISALLOWED ON THE GROUND THAT THEY WERE CAPITAL IN NATURE. HOWE VER, LOOKING INTO THE FACTS OF THE CASE, WE AGREE WITH T HE AVERMENTS OF THE LD. AR THAT THESE EXPENSES WERE INCURRED TO KEEP THE ASSETS OF THE ASSESSEE-COMPANY IN A RUNNING CONDITION AND THEY WERE ESSENTIALLY IN THE NATURE OF ROUTINE REPAIR AND MAINTENANCE EXPENDITUR E. THE DEPARTMENT HAS ALSO NOT BROUGHT ON RECORD ANY FINDING OF FACT THAT A NEW ASSET HAD BEEN CREATED B Y SPENDING THESE AMOUNTS. THEREFORE, WE ALLOW GROUND NO. 4 OF THE ASSESSEES APPEALS FOR BOTH THE YEARS UNDE R CONSIDERATION AND DIRECT THE ASSESSING OFFICER TO A LLOW DEDUCTION OF THESE EXPENSES. 8. THUS, THE ASSESSEES APPEALS FOR BOTH THE YEARS STAND ALLOWED PARTIALLY. ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 24 9. COMING TO THE DEPARTMENTS GROUND NO. 1 IN BOTH THE YEARS WHICH CHALLENGE THE DIRECTION BY THE LD. CIT (A) TO THE ASSESSING OFFICER TO ASSESS THE INCOME EARNED B Y THE ASSESSEE BY PROVIDING SERVICES UNDER THE HEAD INCOM E FROM BUSINESS, IT IS SEEN THAT THIS ISSUE IS COVERE D IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03, 2 003- 04 AND 2006-07 (SUPRA). THE ISSUE HAS BEEN DISCUSS ED BY THE COORDINATE BENCH OF THE ITAT IN PARA 8 OF TH E SAID ORDER AND APPEARS IN PAGES 9 TO 12. THE ITAT HAS H ELD THAT THE ASSESSING OFFICER HAD MISERABLY FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES. THE ITAT HAS NOTED THAT THE ASSESSEE HAD BEEN OFFERING INCOME FR OM CONSULTANCY ETC. AS A BUSINESS INCOME AND THE SAME HAD BEEN DULY ACCEPTED BY THE DEPARTMENT SINCE 1988-89. THE ITAT HAS FURTHER NOTED THAT THE ASSESSING OFFIC ER, WITHOUT ASSIGNING ANY VALID REASON, CONCLUDED THAT IT WAS INCOME FROM OTHER SOURCES. THE ITAT HAS ALSO N OTED THAT THE ASSESSEE, RIGHT FROM ASSESSMENT YEAR 1988- 89 HAD BEEN PROVIDING VARIOUS TYPES OF SERVICES TO ITS FRANCHISEES IN INDIA AND ALSO TO ITS ASSOCIATED ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 25 ENTERPRISES. THEREAFTER, THE ITAT UPHELD THE ADJUDI CATION OF THE LD. CIT (A) IN HOLDING THAT THE SERVICES INC OME RECEIVED WAS CHARGEABLE AS BUSINESS INCOME. THIS O RDER OF THE ITAT WAS ALSO FOLLOWED BY THE ITAT IN ASSESS MENT YEARS 2004-05, 2005-06, 2007-08 AND 2000-10 AND WAS ALSO UPHELD BY THE HONBLE HIGH COURT OF DELHI. ON IDENTICAL FACTS AND RESPECTFULLY FOLLOWING THE RATI O AS LAID DOWN BY THE COORDINATE BENCH OF THE ITAT AND AS UPH ELD BY THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN C ASE, WE FIND NO REASON TO INTERFERE WITH THE ADJUDICATIO N OF THE LD. CIT (A) ON THIS ISSUE AND WE DISMISS GROUND NO. 1 RAISED BY THE DEPARTMENT IN BOTH THE YEARS UNDER CONSIDERATION. 9.1 GROUND NO. 2 IN BOTH THE DEPARTMENTS APPEALS A RE ALSO IDENTICAL AND CHALLENGE THE ACTION OF THE LD. CIT (A) IN DELETING THE ADDITION ON ACCOUNT OF ROYALTY EXPE NSES. WE FIND THAT THIS ISSUE IS ALSO COVERED IN FAVOUR O F THE ASSESSEE BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS VIZ. 2002-03, 2003-04 AND 2006-07 (SUPRA). THE COORDINATE BENCH OF ITAT HAS DISCUSSED THE ISSUE IN PARA 20 OF THE SAID ORDER WH EREIN ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 26 IT IS NOTED THAT THE ASSESSING OFFICER HAS MISREAD THE APPROVALS GRANTED BY THE GOVT. OF INDIA WHILE ARRIV ING AT THE CONCLUSION THAT THE ASSESSEE HAS NOT BEEN REMIT TING THE PAYMENT AS PER THE APPROVALS. THE ITAT HAS NOTED THAT IN THE APPROVAL, SECRETARIAT OF INDUSTRIAL ASSISTAN CE (SIA), GOVT. OF INDIA HAS USED THE EXPRESSION ROYALTY AS WELL AS FEE FOR TECHNICAL SERVICES LOOSELY AND INTERCHANGEABLY. I T WAS ALSO NOTED BY THE ITAT THAT THESE PAYMENTS WERE DIRECTLY RELAT ED TO THE BUSINESS AND WERE INCURRED WHOLLY AND EXCLUSIVELY F OR RUNNING THE FRANCHISEES WITHIN INDIA. THIS ADJUDICATION BY THE ITAT IN ASSESSEES OWN CASE ALSO FOR ASSESSMENT YEARS 2004- 05, 2005-06, 2007-08 AND WAS ALSO UPHELD BY THE HONBLE DELHI HI GH COURT. DURING THE COURSE OF PROCEEDINGS BEFORE US, DEPARTM ENT COULD NOT POINT OUT ANY LEGAL OR FACTUAL ERROR IN THE ADJ UDICATION SO REACHED BY THE LD. CIT (A). THEREFORE, RESPECTFULL Y APPLYING THE RATIO OF THE COORDINATE BENCH, WHICH WAS LATER UPHE LD BY THE HONBLE DELHI HIGH COURT, IN ASSESSEES OWN CASE, W E FIND NO REASON TO INTERFERE WITH THE FINDING OF THE LD. CIT (A) ON THIS ISSUE ALSO. ACCORDINGLY, WE DISMISS GROUND NO. 2 OF THE DEPARTMENTS APPEALS FOR BOTH THE YEARS. ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 27 9.2 GROUND NO. 3 IN DEPARTMENTS APPEAL FOR ASSESSM ENT YEAR 2000-01 AND GROUND NO. 6 IN DEPARTMENTS APPEAL FOR 2001-02 ARE IDENTICAL AND CHALLENGE THE ACTION OF THE LD. C IT (A) IN ALLOWING THE CLAIM OF DEPRECIATION ON TRANSFERRED A SSETS. THE FACTS SURROUNDING THIS ISSUE ARE THAT DURING THE PR EVIOUS YEAR 1988-89 RELEVANT TO ASSESSMENT YEAR 1989-90, SOME R ESTAURANTS IN DELHI WERE SOLD BY THE ASSESSEE ON AN ITEMIZED S ALE BASIS WHEREIN ALL THE FIXED ASSETS PERTAINING TO THESE OU TLETS STOOD TRANSFERRED TO THE BUYER. THE CONSIDERATION RECEIV ED WAS APPROPRIATED AGAINST THE SECURITY DEPOSIT AND ADVAN CE RENTALS OF THE RESTAURANTS AND ALL FIXED ASSETS WERE TRANSFERR ED AT NIL CONSIDERATION. SINCE NO SEPARATE SALE CONSIDERATIO N WAS RECEIVED IN RESPECT OF FIXED ASSETS, NO REDUCTION WAS MADE O N ACCOUNT OF THE SAME IN THE BLOCK ASSETS AND THE BLOCK OF ASSET S CONTINUED TO EXIST AND, THEREFORE, DEPRECIATION WAS CLAIMED IN R ESPECT OF BLOCK OF ASSETS. THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2006-07 (SUPRA) IN ASSESSEES OWN CASE. THE COORDI NATE BENCH OF THE ITAT HAS DISCUSSED THIS ISSUE IN PARA 25 OF THE SAID ORDER AND HAS ALSO FOLLOWED THIS ORDER IN ASSESSMENT YEAR S 2004-05 AND 2005-06 ALSO. THEREFORE, RESPECTFULLY FOLLOWIN G THE ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 28 ADJUDICATION MADE BY THE COORDINATE BENCH OF THE IT AT IN ASSESSEES OWN CASE (SUPRA) WE DISMISS GROUND NO. 3 OF THE DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2000-01 AND GROUND NO. 6 IN DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 20 01-02. 9.3 GROUND NO. 4 IN DEPARTMENTS APPEAL FOR 2000-01 AND GROUND NO. 7 IN THE APPEAL FOR 2001-02 ARE AGAIN ID ENTICAL AND THEY CHALLENGE THE ACTION OF THE LD. CIT (A) IN DEL ETING THE ADDITION ON ACCOUNT OF PRIOR PERIOD EXPENSES. IT I S THE ASSESSEES CONTENTION THAT THESE EXPENSES WERE CLAIMED DURING THE YEAR UNDER CONSIDERATION BECAUSE THE INVOICES RELATING T O THESE EXPENSES WERE RECEIVED BY THE ASSESSEE DURING THE Y EAR UNDER CONSIDERATION AND, THEREFORE, THE LIABILITY TO PAY THE AMOUNTS CRYSTALLIZED ONLY WHEN THE INVOICES WERE RECEIVED. WE FIND THAT THE LD. CIT (A), WHILE ALLOWING THE CLAIM OF THE AS SESSEE IN BOTH THE YEARS, HAS FOLLOWED HIS ORDERS FOR EARLIER ASSE SSMENT YEARS WHEREIN IN SIMILAR CIRCUMSTANCES, HE HAD ALLOWED ID ENTICAL EXPENSES OF EARLIER YEARS. THE DEPARTMENT COULD NO T BRING ON RECORD ANY EVIDENCE TO DISTINGUISH THE FACTS IN THE SE TWO YEARS FROM THE FACTS IN EARLIER YEARS. THEREFORE, WE FIN D NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A) ON T HIS ISSUE. ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 29 ACCORDINGLY, WE DISMISS GROUND NO. 4 FOR ASSESSMENT YEAR 2000- 01 AND GROUND NO. 7 FOR 2001-02. 9.4 GROUND NO.3 IN DEPARTMENTS APPEAL FOR 2001-02 CHALLENGES THE DELETION OF ADDITION BY THE LD. CIT (A) ON ACCO UNT OF DISALLOWANCE OF 50% OF ADMINISTRATIVE EXPENSES. TH E CONTROVERSY AROSE BECAUSE THE ASSESSEE HAS A WHOLLY OWNED SUBSI DIARY NAMED YUM RESTAURANT INDIA PVT. LTD. WHOSE MAIN JOB WAS TO CARRY OUT MARKETING, ADVERTISING, MEDIA AND PROMOTI ONAL ACTIVITIES. THE ASSESSING OFFICER OBSERVED THAT TH E SUBSIDIARY COMPANY HAD BEEN OPERATING FROM THE PREMISES OF THE ASSESSEE ONLY AND, THEREFORE, ALL THE ADMINISTRATIVE EXPENSE S IN CONNECTION WITH ADVERTISING, PROMOTIONAL ACTIVITIES, MARKETING ETC. SHOULD BE ALLOCATED TO THE COMPANY AND THE ASSESSEE SHOULD NO T BEAR OVERHEAD EXPENSES AT THE HEAD OFFICE. THE ASSESSIN G OFFICER PROCEEDED TO DISALLOW 50% OF THE ADMINISTRATIVE EXP ENSES. HOWEVER, THIS ISSUE HAS ALSO BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2006-07 (SUPR A) AND ALSO FOLLOWED BY ITAT IN ASSESSMENT YEARS 2004-05, 2005-06 AND 2007-08. THE ORDERS OF THE ITAT FOR THESE YEARS WE RE ALSO UPHELD BY THE HONBLE DELHI HIGH COURT. THE ISSUE HAS BEE N DISCUSSED ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 30 IN PARA 21 AND 22 OF THE ITAT ORDER FOR ASSESSMENT YEARS 2002- 03, 2003-04 AND 2006-07 (SUPRA) WHEREIN THE ITAT HA S NOTED THAT THE SUBSIDIARY OF THE ASSESSEE COMPANY WAS INC ORPORATED TO CARRY OUT ADVERTISING, MARKETING AND PROMOTIONAL AC TIVITIES OF THE ASSESSEE AS WELL AS THE VARIOUS FRANCHISEES. IT HA S BEEN FURTHER NOTED THAT THE ASSESSEE HAD ENTERED INTO A TRIPARTI TE AGREEMENT WITH ITS FRANCHISEE AND THE SUBSIDIARY COMPANY WHER EIN IT WAS PROVIDED IN THE TRIPARTITE AGREEMENT THAT THE FRANC HISEE WAS TO PAY ADVERTISEMENT AND PROMOTIONAL CONTRIBUTION AND THE ASSESSEE COMPANY MAY NOT PAY A SEPARATE CONTRIBUTIO N. THE COORDINATE BENCH OF THE ITAT WENT ON TO NOTE THAT T HE SUBSIDIARY WAS TO CARRY OUT ON NO-PROFIT/NO-LOSS BASIS. THE C OORDINATE BENCH OF THE ITAT HELD THAT THE ASSESSING OFFICER H AD DISALLOWED THE EXPENSES ATTRIBUTABLE TO THE SUBSIDIARY BUT THE DISALLOWANCE WAS NOT CORRECT AS ULTIMATELY IT WAS THE ASSESSEE W HO HAD TO CONTRIBUTE ALL THE SUMS AS THE ASSESSEE CAN EITHER BEAR THE COST OF EXPENSES INCURRED BY THE SUBSIDIARY OR SEPARATEL Y REMIT THE AMOUNT TO THE SUBSIDIARY AND, THUS, IT WAS THE ASSE SSEE WHO HAD TO ESSENTIALLY CONTRIBUTE THE AMOUNTS. ON IDENTICA L FACTS AND RESPECTFULLY FOLLOWING THE RATIO OF THE ORDER OF TH E COORDINATE BENCH OF THE ITAT IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 31 YEARS AND AS UPHELD BY THE HONBLE DELHI HIGH COURT , WE DISMISS GROUND NO. 3 OF DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2001- 02. 9.5 GROUND NOS. 4 AND 5 IN THE DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2001-02 ARE RELATED GROUNDS AND CHA LLENGE THE DELETION OF ADDITION MADE ON ACCOUNT OF SUPPLY CHAI N MANAGEMENT AND REIMBURSEMENT OF EXPENSES RECEIVED F ROM M/S PIZZA FAST FOOD PVT. LTD. THIS ISSUE HAS BEEN DISC USSED IN ITATS ORDER FOR ASSESSMENT YEAR 2002-03 WHEREIN, IN PARA 26, 27 AND 28, THE FINDINGS OF THE ITAT HAVE BEEN RECORDED. I N ASSESSMENT YEAR 2002-03, THE DEPARTMENT HAD CONTESTED ACTION O F THE LD. CIT (A) IN INCLUDING AN INCOME OF RS. 3,01,500/- AS TAX ABLE IN ASSESSMENT YEAR 2002-03 WHEREAS AS PER THE DEPARTME NT, IT PERTAINED TO ASSESSMENT YEAR 2001-02. THESE RECEIP TS PERTAINED TO SUPPLY CHAIN MANAGEMENT LOCAL FEES, SUPPLY CHAIN MANAGEMENT INTERNATIONAL FEES AND REIMBURSEMENT OF GENERAL AND ADMINISTRATIVE EXPENSES. THE ISSUE AROSE BECAU SE IN THE SPECIAL AUDIT REPORT, THE AUDITOR HAD POINTED OUT T HAT THREE RECEIPTS ACCOUNTED BY THE ASSESSEE PERTAIN TO EARLI ER ASSESSMENT YEARS. HOWEVER, THE LD. CIT (A) WAS OF THE VIEW TH AT SINCE THE TAX RATE IN BOTH THE ASSESSMENT YEARS WAS THE SAME, IT DID NOT MAKE ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 32 MUCH DIFFERENCE IF THESE RECEIPTS WERE INCLUDED IN ASSESSMENT YEAR 2002-03 AND HE DIRECTED THE ASSESSING OFFICER TO TAX THIS INCOME IN 2002-03 ITSELF. ON APPEAL, THE COORDINAT E BENCH OF THE ITAT HELD THAT THE MAJOR ITEM APPEARED TO BE TAXABL E IN ASSESSMENT YEAR 2002-03 AND FURTHER, THE LD. CIT (A ) HAD HELD THEM TO BE TAXABLE IN ASSESSMENT YEAR 2002-03 ON TH E GROUND OF THE TAX RATE BEING SIMILAR. THE ITAT COORDINATE BE NCH WENT ON TO HOLD THAT IT WOULD CREATE UNNECESSARY COMPLICATIONS BY EXCLUDING THESE RECEIPTS FROM ASSESSMENT YEAR 2002-03 AND INC LUDE THEM IN ASSESSMENT YEAR 2001-02. THUS, IT IS EVIDENT TH AT THE ITAT HAS HELD THAT THE IMPUGNED RECEIPTS ON ACCOUNT OF S UPPLY CHAIN MANAGEMENT AS WELL AS REIMBURSEMENT OF GENERAL AND ADMINISTRATIVE EXPENSES WERE TO BE TAXED IN ASSESSM ENT YEAR 2002-03. ONCE THESE HAVE BEEN TAXED IN ASSESSMENT YEAR 2002- 03, THERE IS NO QUESTION OF BRINGING THEM TO TAX IN ASSESSMENT YEAR 2001-02. ACCORDINGLY, GROUND NOS. 4 AND 5 OF THE DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2001-02 ALS O STAND DISMISSED. 10. IN THE RESULT, BOTH THE DEPARTMENTS APPEAL FO R BOTH THE YEARS STAND DISMISSED. ITA NO. 964, 965/D/2013 ITA 953 & 955/D/2013 33 11. IN THE FINAL RESULT, THE ASSESSEES APPEALS FOR BOTH THE ASSESSMENT YEARS ARE PARTLY ALLOWED AND DEPARTMENT S APPEALS FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 20.02. 2018. SD/- SD/- (G.D. AGRAWAL) (SUDHANSHU SRIVASTAVA) PRESIDENT JUDICIAL MEMBER DATED: 20 TH FEBRUARY, 2018 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER ASSISTANT REGISTRAR