IN INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G , NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No. 2587/Del/2013 Assessment Year: 2004-05 DEPUTY COMMISSIONER OF VS. M/S SHARDA MOTOR INDUSTRIES LTD. INCOME TAX (LTU), vs. D-188, OKHLA INDUSTRIES AREA, NBCC PLAZA, PUSHP VIHAR PHASE-I, NEW DELHI 110 020 SECTOR-III, (PAN: AAACS6855J) NEW DELHI 17 (APPELLANT) (RESPONDENT) Department by : SH. N.K. BANSAL, SR. DR Assessee by : SH. S.R. DINODIA, CA Date of Hearing : 22-09-2016 Date of Order : 03-10-2016 ORDER PER H.S. SIDHU, J.M. Department has filed Appeal against impugned order dated 28.2.2013 of Ld. CIT(A)-LTU, New Delhi pertaining to assessment year 2004-05. grounds raised in revenue s appeal reads as under:- 1. On facts and circumstances of case and in law, Ld. CIT(A) has erred in deleting addition of Rs. 65,14,891/- made by AO on account of disallowance of Technical Fees being Capital Expenditure. 2. On facts and circumstances of case and in law, Ld. CIT(A) has erred in deleting addition 2 of excess claim of deduction u/s. 80IB amounting to Rs. 3,56,046/- made by AO. 3. appellant craves leave to add, to alter, amend or vary from above grounds of appeal at or before time of hearing. 2. brief facts of case are that assessee had filed original Return of Income on 27.10.2006 on total income of Rs. 17,98,53,230/-. Later on, AO issued notice under section 148 dated 21.3.2011 and in respect of which reasons were provided to assessee on 4.10.2011. objections raised by assessee vide letter dated 15.10.2011 were disposed of by AO vide his order dated 1.11.2011. Thereafter, AO proceeded to complete re-assessment proceedings and assessed income of assessee at Rs. 17,57,16,599/- and made additions vide his order dated 22.12.2011 passed u/s. 147/143(3) of I.T. Act, 1961. 3. Aggrieved with aforesaid order, assessee preferred appeal before Ld. CIT(A), who vide his impugned order dated 22.12.2011 has statistically allowed appeal of assessee. 4. Now Revenue is aggrieved against impugned order and filed present appeal before Tribunal. 5. Ld. Counsel of Assessee has relied upon order of Ld. CIT(A). He further stated that since Ld. CIT(A) has held reassessment as bad in law, but Revenue has not challenged same in present appeal. He further stated that Ld. CIT(A) 3 has passed well reasoned order which does not need any interference on our part, hence, same may be upheld and accordingly, appeal of Revenue may be dismissed. 6. We have heard both parties and perused records, especially impugned order passed by Ld. CIT(A). We find that Ld. First Appellate Authority has elaborately discussed issues in dispute by considering submissions of assessee and adjudicated issues vide para no. 6 to 7 of impugned order. said relevant paras are reproduced as under:- 6. I have carefully considered facts of case in light of submission made by appellant and applicable law in this regard. Accordingly, my decision on various grounds of appeal is as under:- Ground No. 1 to 3 : On careful consideration, I find that AO has reopened assessment proceedings by observing that appellant had claimed excess deduction under section 80IB by amount of Rs. 3,56,046/- and that technical fee/ consultancy fee of Rs. 94,93,491/- for designing Exhaust System gave it benefit of enduring nature and should have been capitalized. I find that appellant had furnished explanation in respect of above queries to AO during course of original assessment proceedings. to Ld. AO during course of original assessment proceedings. I find that vide letter dated 21.09.2006 during. course of original assessment proceedings, appellant, in response to Ld. AO's queries during 4 hearing, informed that all corporate office expenses including director's remuneration are allocated on basis of sale of company. Further, details of other manufacturing expenses were furnished vide letter dated 05.09.2006, in which Annexure-X gave details of technical fee paid by appellant company, in which were accepted by Ld. AO as revenue in nature. In view of this, it is evident that appellant had disclosed all material facts before Ld. AO during original assessment proceedings and therefore, it cannot be said that appellant had failed to disclose all material facts fully and truly before Ld. AO that should call for invoking first proviso to section 147. In view of this, since notice under section 148 was clearly beyond period of 4 years, re- assessment proceedings are held as bad in law, as notice under section 148 was issued beyond prescribed period. Moreover, clearly under these circumstances, such action is held as 'change of opinion' by A.O., Further, issue whether particular receipt is revenue or capital in nature, is not simple and straightforward one and it requires appreciation of all relevant facts including various judicial decisions to arrive at conclusion in this regard. second issue of allocating head office expenses to various units requires decision as to whether thumb-rule adopted by appellant was correct or not. Like any thumb-rule, such computation is also subjective and in absence of any specific legal provision in statute, one 5 could not state with accuracy that computation of appellant was correct or not. Thus both issues are debatable and reopening assessment in respect of same was therefore not justified. 6.2 Regarding Ground No.4 of appeal relating to treatment of technical fees paid to M/s Mahindra & Mahindra for use of design, drawing production tooling for manufacturing of Independent front suspension for Scorpio Car as capital in nature, appellant claims that above expenses were revenue in nature, which were incurred for purpose of developing prototype tooling by M/s Samlip. In this regard, my attention was drawn to Tripartite agreement dated 21 March 1998 amongst appellant {Then called as "Korin"), Mis Samlip and Mis Mahindra & Mahindra. clause (is) of same, reads as under:- 15. TOOLINGS Subject to provisions of this Agreement, prototype toolings developed and manufactured by Samlip and Production Toofings developed and manufactured y Korin, for purpose of this Agreement, shall become sole and exclusive property of M&M. If so desired by M&M, Samlip shall deliver to M&M prototype tooling developed and manufactured by Samlip. M&M shall bear cost of transportation of such toolings. Further, immediately upon expiration or termination, whichever is earlier of this Agreement, Korin shall, at no cost to M&M, deliver 6 to M&M, complete set of Production Toofings required for manufacture of Products of same quality, and related documentation and information. cost of production Toolings required for manufacture of Products is estimated at Rs.4,OO,OO,OOO/- (Rupees Four Crore only). M&M shall pay to Korin as advance, at time of placement of order for such Production Toolinqs. Rs.4,OO,OO,OOO/-or actual cost, whichever is lower. Korin shall manufacture oc arrange to manufacture Production Toolings. It is agreed between Parties that full amount paid by M&M towards such Development drawing shall be recoverable by M&M from Kerin, and for purpose, Korin shall deduct amount arrived at by dividing total amount actually paid by M&M by 500,OOO from supply price of each IFS System in respect of first 500,OOO numbers of IFS System supplied to M&MJ pursuant to this Agreement." Clause (21) of said agreement relating to intellectual property right arising from said agreement reads as under: "21. INTELLECTUAL PROPERTY TITTLE design data, drawings and other technical information generated/developed/ obtained by Samlip pursuant to this Agreement shall become sole and exclusive property of Samlip till payment by M&M of KWO 3,521,00O,000/-. On payment of full amount of KWO 3,521,OOO,OOO/- by M&M to Sarnlip, Samlip's rights and title in such design data, drawings and other 7 technical information shall automatically stand transferred to M&M solely and exclusively. Samlip and Korin shall not use/transfer to any third party, such design, data, drawings and other technical information at any time for any purpose other than purpose of this agreement." I find that appellant has been making such payments from AY 1999-2000 onwards which have been accepted as revenue in nature by department except during assessment proceedings for A.Y. 2009-10, when such payment was treated as capital in nature by Ld. AO. On same ground, re- assessment proceeding was initiated in current year as well. Perusal of Agreement dated 21 March, 1998 clearly shows that. development of drawing, which is main product of prototype agreement is clearly held to be property of M/s Mahindra & Mahindra (M&M). Further, agreement clearly provides that in terms of agreement, design and drawing taken into manufacturing of products, and related documents shall be handed over to M/s Mahindra & Mahindra on termination of agreement. Keeping in view same, it is evident that appellant company was given only limited rights to use prototype tooling and drawing developed by M/s Samlip by M&M (for which purpose payment was paid by M/s M&M to said MIs Samlip) in lieu of which payment of technical fee to M/s Mahindra & Mahindra was made for purpose of manufacturing IFS system for MIs Mahindra & Mahindra. It is obvious that appellant company, being auto part manufacturer for MIs Mahindra & Mahindra is solely dependent upon business given to it by M/s Mahindra & Mahindra. In 8 view of required modernization in IFS system, said MIs Mahindra & Mahindra made payment to Korean company, M/s Samlip for developing prototype tooling and allowed appellant to use same for manufacturing IFS components as per requirement of M/s Mahindra & Mahindra on payment of technical fee. Clearly in such case, M/s Mahindra & Mahindra got ownership over asset and appellant was granted limited rights to use same by Mahindra & Mahindra to Manufacture IFS System, in accordance with their requirement, on payment of Technical fees. In view of same, payment is held to be revenue in nature, which was rightly claimed by appellant and rightly allowed by AO in original assessment proceedings. Accordingly, this ground is decided in favour of appellant. 6.3 Regarding Ground No.5 of appeal relating to reducing amount of deduction under section 80lB, I find explanation of appellant on merit as well, satisfactory. Various undertaking of appellant had aggregate turnover of Rs.1,83,44,93,675/-, however, out of this, amount of Rs.7,55,38,858/- relating to inter-unit transfer, was excluded for calculating 'total turnover' of appellant in view of provision of Companies Act, 1956. However, it is understandable that actual manufacturing resulted into turnover of Rs.183.44 crores and appellant reduced amount of Rs.7,55,38,858/- from its turnover, relating to inter- unit transfer in view of provision of Companies Act 1956. There ore, basis of allocation of head office expenses by taking actual amount of turnover was justified and which has been followed by appellant 9 consistently in earlier years and has not been challenged by Department either. Moreover, allocation of "head office expenses" for purpose of computation of deduction 80lB on basis of ratio of eligible sale to total sales, is only in nature of thumb-Rule for practical ease for such allocation. However, there is no specific provision in Income Tax Act, 1961, to provide that head office expense should be apportioned in particular ratio and in particular manner only. Therefore, merely for invoking thumb-Rule, proceeding under section 147 should not have been initiated, since there will always be more than one opinion while adopting any thumb-Rule. Furthermore, principle of consistency is also important one for purpose of computation of taxable income as was held by Supreme Court in case of M/s Radhasoamy Satsang vs. (IT 193 ITR 321 (SC). On other hand, appellant's claim under section 80lB is duly supported by Auditors and which also, on examination, was found acceptable by Ld. AO in original assessment proceedings. In view thereof, addition made on this ground is liable to be deleted. 7. Statistically appeal stands allowed. 7.1 After going through findings of Ld.CIT(A), as aforesaid, with regard to deletion of addition of Rs. 65,14,891/- on 10 account of disallowance of Technical Fees being Capital Expenditure is concerned, we find that assessee has been making such payments from AY 1999-2000 onwards which have been accepted as revenue in nature by Department except during assessment proceedings for A.Y. 2009-10, when such payment was treated as capital in nature by Ld. AO. On same ground, re-assessment proceeding was initiated in current year as well. Perusal of Agreement dated 21 March, 1998 clearly shows that development of drawing, which is main product of prototype agreement is clearly held to be property of M/s Mahindra & Mahindra (M&M). Further, agreement clearly provides that in terms of agreement, design and drawing taken into manufacturing of products, and related documents shall be handed over to M/s Mahindra & Mahindra on termination of agreement. Keeping in view same, it is evident that assessee company was given only limited rights to use prototype tooling and drawing developed by M/s Samlip by M&M (for which purpose payment was paid by M/s M&M to said MIs Samlip) in lieu of which payment of technical fee to M/s Mahindra & Mahindra was made for purpose of manufacturing IFS system for MIs Mahindra & Mahindra. It is obvious that assessee company, being auto part manufacturer for M/s Mahindra & Mahindra is solely dependent upon business given to it by M/s Mahindra & Mahindra. In view of required modernization in IFS system, said M/s Mahindra & Mahindra made payment to 11 Korean company, M/s Samlip for developing prototype tooling and allowed assessee to use same for manufacturing IFS components as per requirement of M/s Mahindra & Mahindra on payment of technical fee. Clearly in such case, M/s Mahindra & Mahindra got ownership over asset and assessee was granted limited rights to use same by Mahindra & Mahindra to Manufacture IFS System, in accordance with their requirement, on payment of Technical fees. In view of same, payment was rightly held to be revenue in nature by Ld. CIT(A), which was rightly claimed by assessee and also rightly allowed by AO in original assessment proceedings. Accordingly, we are of view that Ld. CIT(A) has passed well reasoned order, which does not need any interference on our part, hence, we uphold order of Ld. CIT(A) on issue in dispute. Accordingly, issue in dispute is decided against Revenue. 7.2 With regard to deletion of addition of Rs. 65,14,891/- on account of excess claim of deduction u/s. 80IB amounting to Rs. 3,56,046/- is concerned, we find that Various undertaking of assessee had aggregated turnover of Rs.1,83,44,93,675/-, however, out of this, amount of Rs.7,55,38,858/- relating to inter-unit transfer, was excluded for calculating 'total turnover' of assessee in view of provision of Companies Act, 1956. However, it is understandable that actual manufacturing resulted into turnover of Rs.183.44 crores and assessee 12 reduced amount of Rs.7,55,38,858/- from its turnover, relating to inter-unit transfer in view of provision of Companies Act 1956. Therefore, basis of allocation of head office expenses by taking actual amount of turnover was justified and which has been followed by assessee consistently in earlier years and has not been challenged by Department either. Moreover, allocation of "head office expenses" for purpose of computation of deduction 80lB on basis of ratio of eligible sale to total sales, is only in nature of thumb-Rule for practical ease for such allocation. However, there is no specific provision in Income Tax Act, 1961, to provide that head office expense should be apportioned in particular ratio and in particular manner only. Therefore, merely for invoking thumb-Rule, proceeding under section 147 should not have been initiated, since there will always be more than one opinion while adopting any thumb-Rule. Furthermore, we find that principle of consistency is also important one for purpose of computation of taxable income as was held by Supreme Court in case of M/s Radhasoamy Satsang vs. (IT 193 ITR 321 (SC). On other hand, assessee s claim under section 80lB is duly supported by Auditors and which also, on examination, was found acceptable by AO in original assessment proceedings. In view thereof, addition made on this ground was rightly deleted by Ld. CIT(A). In view of above, we are of view that Ld. CIT(A) has passed well reasoned order on issue in dispute, which does not need any interference on our part, 13 hence, we uphold order of Ld. CIT(A) on issue in dispute. Accordingly, issue in dispute is decided against Revenue. 8. In result, appeal of Revenue is dismissed. Order pronounced in Open Court on 03/10/2016. Sd/- Sd/- (O.P. KANT) (H.S. SIDHU) (ACCOUNTANT MEMBER) JUDICIAL MEMBER Dated: 03/10/2016 *SR BHATNAGAR* Copy forwarded to: - 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY By Order, ASSISTANT REGISTRAR Deputy Commissioner of Income-tax (Ltu), New Delhi v. M/s Sharda Motor Industries Ltd