Income Tax Appellate Tribunal - Ahmedabad
The Dcit, Gandhinagar Circle,, ... vs M/S. Western Agri Seeds Ltd.,, ... on 30 January, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH
(BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
& SHRI WASEEM AHMED, ACCOUNTANT MEMBER)
ITA. No: 2388/AHD/2017
(Assessment Year: 2014-15)
DCIT, Gandhinagar V/S M/s Western Agri Seeds
Circle, Gandhinagar Ltd., 802/11, Western
House, GIDC Estate,
Sector-28, Gandinagar-
382028
(Appellant) (Respondent)
PAN: AAACW1478P
Appellant by : Shri Samir Tekriwal, CIT/DR
Respondent by : Shri Bandish Soparkar
& S.N. Soparkar, Sr. Adv.
(आदे श)/ORDER
Date of hearing : 28 -01-2020
Date of Pronouncement : 30-01-2020
PER MAHAVIR PRASAD, JUDICIAL MEMBER
1. This appeal filed by the Revenue is directed against the order of the Ld. CIT(A)-Gandhinagar, Ahmedabad dated 31.08.2017 pertaining to A.Y. 2014-15 and following grounds have been taken:
2 ITA No . 2388/Ahd/2017
. A.Y. 2014-15
i) The Ld.CIT(A) has erred in law & on facts in allowing the disallowance of
discount and rate difference of Rs.3,95,38,634/-.
ii) The Ld.CIT(A) has erred in law & on facts in allowing the disallowance of
Rs.23,21,249/- u/s. 40A(2) in respect of purchase of seeds from Green India Seeds Co.
Hi) It is, therefore prayed that the order of the Ld. Commissioner of Income- tax(Appeals) may be set aside and that of the Assessing Officer be restored.
iv) The appellant prays for leave, to amend or alter any ground or add a now ground which may be necessary.
2. Facts of the case are that on verification of details filed, noticed that appellant had claimed RS. 3,95,38,634 /- as rate difference/discount expenses. A specific query was raised in this regard and details were called for. After considering the reply filed, AO contended that the similar disallowance made from AYs 2010- 11 to 2013-14 continuously and considering the fact that the appeal has been filed before the Hon'ble ITAT on the same issue hence the claim of the appellant cannot be allowed. He therefore, made the addition of Rs.3,95,38,634/-.
3. Appellant during the course of appellate proceedings, contended as under:
GROUND NO. 1: The Ld. A.O. erred both in law and on facts in DISALLOWING DISCOUNT AND RATE DIFFERENCE OF Rs. 3,95,38,634/- allowed by the appellant as per Trade practice to the customers:
Your appellant respectfully submits that the disallowance made by the Ld. A.O. ignoring the nature of the appellant's business, past records and the submissions as well as evidences produced in patently wrong and wholly unjustified. The Ld. A.O. has not at all commented upon the detailed submissions and the factum of such expenses being incurred year after year and also allowed in the past. As noted by A.O. in Para 4.1 the discount and rate difference was disallowed. Even that disallowance in earlier year (AY 2013-14) was deleted by the Hon'ble CIT (Appeals). The disallowance is made only on the basis of such erroneous disallowance in AY 2013-14. Detailed submissions are made in n the appeal proceedings in respect of such erroneous disallowance made in AY 2010-
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. A.Y. 2014-15
11 & AY 2011-12. Thus disallowance of Rs. 3,95,38,634/- is patently wrong and against the sanction of law. It be so held-now.
In addition it is submitted that the appellant is regularly filing its income tax returns as per the provisions of law declaring true particulars of its income and is also assessed in the past under scrutiny assessment. The appellant is established with the objective to provide high value research and hybrid seeds to the farmers as a brand name "Western" since last 20 years.
The appellant has furnished comparative figures of rate difference year wise and furnished reply in its letter dated: 28/11/2016, The figures are given for last four years. The same are reproduced by A.O. at Para 4 of the order under appeal. The list of major parties to whom such discount & rate difference is granted is attached and their ledger accounts are enclosed therewith vide Page No. 1 to 48. The expenditure depends on the scheme at relevant year decided by the appellant in its best business interest out of commercial expediency. Thus the discount is being given to the dealers every year as per the policy of the business of the appellant in accordance with trade circulars issued from time to time. As already stated above the discount was allowed by A.O. for AY 2012-13 in its entirety at Rs. 3.75 Crore on Turnover of Rs. 52.51 Crore which amounted to 7.52% of the turnover in terms of percentage and even disallowance of Rs. 3,67,98,650/- made in AY 2013-14 was deleted by your honors in appellate order No. CIT(A)/GNR/505/2016-17 dated: 10/07/2017 by a reasoned order holding that '' based on circulars of schemes of the appellant company issued to the buyers in various states which indicated the discount schemes on bulk purchases for specified period. A Copy of said appeal order for AY 2013-14 is attached herewith Page No.49 to 59. Similar position of offers made were also supported by trade circulars as in the past during the year under appeal. In view of above factual back ground, it is not understood how and for what reasons the entire amount of discount is disallowed by the A.O. on totally untenable grounds without any speaking order on the basis that similar disallowance was made in AY 2010-11, AY 2011-12 and AY 2013-14.
The disallowance is wholly unjustified and against the sanction of law. The genuineness of the discount allowed to various dealers as per the trade practice and the policy of the appellant's business is proved beyond a shadow of doubt and therefore disallowance made by the A.O. without any verification of the submissions and explanations as well as the past history of the appellant's case, on a flimsy ground speaks about the capricious approach of the A.O. The disallowance is uncalled for and deserves to be deleted. It be so held now and disallowance be deleted.
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. A.Y. 2014-15
4. But ld. A.O. was not agreed with the contention of assessee and made addition of Rs. 3,95,38,634/-.
5. Thereafter assessee preferred first statutory appeal before the ld. CIT(A) who confirmed the order of the ld. A.O. on the basis of that in earlier assessment year, matter was pending before the ITAT, he made the disallowance an addition and on the basis of that he confirmed the action of the A.O.
6. Regarding disallowance u/s 40A(2)(b), assessee has made purchases of Rs. 3,59,88,363/- from Green India Seeds Co. an associate concern within the meaning of this section. On this point also, assessee's submission has been perused but not acceptable on the same logic, as has been explained in Para 4.2 of order u/s 143(3) dated 21/03/2016 and following the sequence of decision from A.Y. 2010-11 to 2013-14, 6.45% Gross profit of associate concern, during the current year at Rs. 23,21,249 ( 3,59,88,362 x 6.45%) is taken for disallowance & added back to the returned income.
7. Against the addition made by the assessing officer, assessee preferred first statutory appeal before the ld. CIT(A) who partly allowed the appeal of the assessee.
8. We have gone through the relevant record and heard both the parties. At the outset, ld. A.R. submitted an order of Co-ordinate Bench wherein similar facts and circumstances, Co-ordinate Bench in assessee's own case granted relief to 5 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 the assessee for A.Y. 2010-11 and Assessment Year 2011-12 appeal of the Revenue was dismissed with following observation:
The brief facts leading to this case is this that the assessee company filed its return of income declaring total income of Rs. 51,44,478/- on 01.10.2010 which was processed u/s 143(1) of the Act. The assessee company is carrying on the business of all types of Hybrid seeds; after procuring the same from the farmers packed in bags after grading the same at their processing plant. It also purchases seeds from M/s. Green India Company and associated partnership firm. Upon scrutiny, notice u/s 143(2) dated 27.09.2011 was issued to the assessee followed by another notice dated 29.09.2011 u/s 142(1) of the Act and subsequently dated
06.08.2012 due to change of incumbent along with questionnaire. Since no compliance was made by the assessee, notice u/s 271(1)(b) and 276D of the Act was issued on 24.08.2012 followed by a further notice u/s 142(1) r.w.s. 129 of the Act dated 26.03.2013 due to change of incumbent. It appears from the details that an amount of Rs. 2,17,47,109/- was debited as discount and rate difference. The explanation forwarded by the assessee as asked for was not found suitable and a show-cause dated 14.03.2013 was issued with the following observation:
"(i) Claim of expense of discount & rate difference of Rs.2,17,47,109/-. On careful analysis of the details filed it is revealed that this discount and rate difference entry are created only from May 2009 i.e. from 6.5.2009, which is illegal because if in the normal course of business there is discount & rate difference it should have been during the month of April 2009 also. The very fact that there is not a single difference in the month shows that this is not a normal activity in the business.
(ii) On 10.7.2009 you have claimed discount and rate difference of Rs.1,89,160/- which has been claimed to have been given to Shri. Samrath Baparam Seed Corporation Bhavnagar and it relates to M-46 R/H Bajra Seed Pkt 3840 and given @ 44 poise per pkt, similarly varities of M-45 Bajra seeds pkts 300 given @ 44 Paise per pkt, western 11 Res Till seed pkts 1000 given @ 70 poise per pkt has been claimed to have been given and the entire amount of Rs.189160/- have been claimed as discount and rate difference. Similarly, there are similar items given on discount to different parties in which no percentage have been given and the entire amount have been waived. From this it is clear that no percentage of Rs.189160/- have been given as discount, but the entire 6 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 amount have been waived. Therefore, the assessee's claim that it is discount and Rate difference is not justifiable.
(iii) Assessee is not doing a charity, therefore why this amount has been waived is not mentioned. Actually these are nothing but cash sales the assessee has made and the amount of sales has not been shown in books of accounts and therefore claim as discount and rate difference."
4. In response to the said show-cause details of discount given credit to partly account and debited to discount account as on 10.07.2009 was furnished by the assessee. The assessee particularly stated that it was the business policy of the assessee at that material point of time that if the distributor gives 100% advance payment between 20.05.2009 to 05.09.2009 then the rate shall be Rs.91 per packet instead of MRP of Rs.135/-. Thereby upon fulfillment of such condition Rs.44/- per packet was granted to discount totaling Rs.1,89,160/-. Similarly, 1000 packet Till Seeds sold for Rs.95 per packet totaling to Rs.95,000/-. The dealer has thereby credited payment Rs.7,000/-. The ledger copy of the concerned party together with contra account of the said party namely M/s. Samarth Baparam Seeds Corporation was duly submitted before the Learned AO. The discount rate was not at 44 paise per packet as found by the Learned AO rather Rs.44/- per packet discount was given as also submitted by the assessee before the Learned AO. Since this was not commission the question of percentage as mentioned by the Learned AO is also not correct as contended by the assessee. The discount since deducted from sales and not payment and thus the same is justifiable as per past practice, fully allowable as business expenses.
The assessee further submitted as follows:-
"Further your good self has stated in notice that "the assessee is not doing charity" and "waived" are not tenable in law. The assessee can carry on business at their own policy and calculations. The A.O. cannot sit on chair of the assessee. The A.O. has to verify the claim with evidences only. The facts of the exps to verified properly and must be statistically correct, after considering the nature of business of the assessee. In seeds line other parties also adopted same procedure.
Further your good self has also stated that "Actually these are nothing but cash sales the assessee has made and the amount of sales has not been shown in the books of accounts and therefore claim as discount and rate difference."
7 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 The said observations/ findings are baseless, illogical and surmise bases without evidences thereof. Therefore findings are baseless, illogical and not acceptable to assessee. There were also compulsory to prepare sales invoices of seeds to be sold to farmers. The government take actions for failure under the Seeds Acts. We have to dispose off the stock which become ungerminated. Therefore sales before seeds becomes ungerminated even on break even on breakeven point level is preferred to sold at a lower price to avoid total loss. The work used "charity" on this aspect is baseless, as company is earn profit and no loss. Even though the promoters involves personally in charitable institution. For charity, nobody can restrain doners to donate or not to donate, it acts at own will only.
The evidences enclosed herewith are true and correct and proved the genuineness of transactions.
Further the Ledger Accounts of following parties (Page No. 10 to 49)
1. Choradiya Brothers
2. Bharat Traders
3. Omkar Traders
4. Maheshwari Khad Beej Bhandar
5. Mamde Krishi Seva Kendra
6. Lakshmi Agro Agency
7. Jeetendra S. Gandhi The said Evidences prove the discount/ rate difference are valid expenses during the normal course of business. Therefore there is no question of unaccounted sale.
Further in current year the GP and NP ratio also increased and no material difference, which also clearly show that there were no deviation of stock and/or sales.
Your good self are requested to consider the said facts/evidence and allow the expense fully."
However the contentions made by the assessee was not found acceptable and an amount of Rs. 2,14,47,109/- has been added to the total income of the assessee being fictitious and manifested. The Learned AO came to a conclusion that even at the show-cause stage the assessee has not submitted any new fact by 8 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 adducing evidences and/or details thereof. In appeal, the same was deleted by the Learned CIT(A). Hence the instant appeal before us.
6. At the time of hearing of the instant appeal, the learned counsel appearing for the assessee relied upon the order passed by the Learned CIT(A). It was further argued that discount/rate difference were allowed consistently for A.Y. 2008-09 @6.25% and 7.02% in A.Y. 2009-10 and 6.66% in the year under consideration. Further that, in A.Y. 2009-10 partial disallowance of such expenditure was made by the Learned AO on the ground that there was increase in such expenditure. However, the same was deleted by the Learned CIT(A) in appeal. On the other hand, Learned DR relied upon the order passed by the first appellate authority.
7. We have heard the representative of the respective parties. We have also perused the relevant materials available on record. It appears that the assessee duly submitted the ledger account along with the complete details of the parties which is also part of annexure before us in the paper book the details whereof is also before us at Page No.37 of the Paper Book. The list of the parties and the ledger accounts of those parties are also reflecting from Page 38 to 190 of the Paper Book.
We have gone through the same; the entire payment made by the assessee is reflected in those ledger accounts as on record before us which has not been alleged as non-genuine by the Learned AO. So far as the rate discount of Rs.1,89,160/- paid to M/s. Samarth Baparam Seeds Corporation is concerned the detail submission is also available in this respect made by the assessee at Page 4 & 5 of the assessment order. It appears that sufficient details were submitted by the appellant in support of his claim. Further that while allowing the claim of the assessee by deleting the addition made by the Learned AO the Learned CIT(A) observed as follows:
"On careful consideration of entire facts it is observed that Appellant has established its business to provide high value research and hybrid seeds to farmers as a brand name "Western" since last twenty years. In any business, discount/rate difference is allowed to customers as per policy of the business and for which trade circulars are issued on time to time basis. The entire payment made by Appellant is duly reflected in ledger account of various dealers and supported by evidences. Even AO has not pointed out any defect in such evidences produced by Appellant. During the course of assessment proceedings, 9 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 AO has raised one query relating to discount and rate difference of Rs.1,89,160/- paid to Shri Samarth Baparam Seeds Corporation and said query is reproduced at page No. 3 of the assessment order. Against this query, Appellant has made detailed submission, which is also reproduced on page-4 and 5 of the assessment order. On the basis of such submission, AO has not drawn any adverse inference which is apparent in the assessment order. The issue was raised from the details submitted by appellant, which prove that Appellant has produced evidences in support of its claim. It is pertinent to note that ratio of discount to turnover in A.Y. 2008-09 was 6.25%, 7.02 % in A.Y. 2009-10 and 6.66% in year under consideration, which supports the contention of the Appellant that discount/rate difference are allowed consistently. Further, in AY 2009-10, AO has made partial disallowance of such expenditure on the ground that there was increase in such expenditure, which was deleted by undersigned vide Order dated 10/12/2013 in Appellate Order No. CIT(Appeals)/ GNR/367/2012-13. Further, gross profit ratio of Appellant for the year under, consideration has improved and same is accepted by AO. The AO has not brought out any evidences which can suggest that payment made by Appellant is non-genuine or in fact, not received by dealers and made addition on hypothecation basis. Thus, on holistic consideration of entire facts, addition of Rs.2,14,47,109/- made by the AO is deleted. The grounds of appeal are allowed."
Taking into consideration the entire aspect of the matter we do not find any infirmity in the observation made by the Ld. CIT(A). Hence the ground of appeal preferred by revenue being devoid of merit is hereby dismissed.
8. The second ground relates to deleting of addition made in respect of Distributor's tour expenses.
The appellant claimed foreign tour expenditure of Rs. 21,35,713/-. The same is paid for distributors of the assessee company. It was the case of the assessee that such expenditure was incurred in view of Circular dated 26.04.2018 pursuant to which if certain target is achieved for the period 01.04.2008 to 31.03.2009 the dealers should be entitled to foreign trip. However, such expenditure was disallowed by the Ld. AO on the ground that the same pertains to earlier assessment year. During the course of assessment proceeding the details of payments were provided by the assessee to the Ld. AO. The Ld. AO was of the view that such commission payment to those persons attracts TDS since expenditure is in the nature of some reward/commission. Hence, the entire 10 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 expenditure to the tune of Rs. 21,35,713/- was disallowed u/s. 40(a)(ia) of the Act. In appeal the same was deleted by the Ld. CIT(A). Hence the instant appeal preferred by Revenue.
9. At the time of hearing of the instant appeal the Ld. Senior Counsel appearing for the assessee submitted before us that though the distributors were entitled to such foreign trip on target achieved in Assessment Year 2009-10 but the actual expenditure/bills relating to such expenditure were received by the appellant in the year under consideration and, therefore, the observation made by the Ld. AO that the expenditure incurred by the assessee company pertains to earlier year is incorrect. He further relied upon the order passed by the Ld. CIT(A). On the contrary the Ld. DR relied upon the order passed by the Ld. AO.
Heard the respective parties, perused the relevant materials available on record. It appears from the order passed by the Ld. CIT(A) that the appellant submitted the list of persons to whom foreign tour was accorded along with the vouchers relating to such foreign tours. No discrepancies on this aspect was pointed out by the Ld. AO as also observed by the Ld. CIT(A). Since the bills relating to the expenditure received by the applicant in the year under consideration though relates to foreign trip on target achieved in Assessment Year 2009-10 relying upon the judgment passed by the jurisdictional High Court in the matter of Saurashtra Cement and Chemical Industries Ltd. reported in 213 ITR 263 the Ld. CIT(A) formed his opinion in favour of the assessee's claim. Further that the entire payment since made to travel agent and not to the distributors the said payment cannot be termed as commission but represents business promotion expenditure and therefore the Ld. CIT(A) came to a finding that on the facts and circumstances of the case no TDS liability arises. Ultimately with such observation the disallowance of expenditure made for the reason being prior period expenditure and expenditure inadmissible u/s. 40(a)(ia) has been deleted. In the absence of any infirmity found in the said order we do not hesitate to confirm the same. Hence revenue's appeal is dismissed.
10. The third ground of appeal is directed against the deletion of addition of Rs. 86,39,915/- made u/s. 40(A)(2) of the Act. During the course of assessment proceeding it was found from the details of purchases made by the assessee that the assessee had purchased worth of Rs. 23,67,09,989/- from the associate concern namely M/s. Green India Seeds Company, a person define u/s. 40(A)(2) of the Act. A show-cause notice dated 14.03.2013 was issued to the assessee to 11 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 justify such payment and/or purchases. It was further mentioned in the said show-cause notice that the auditor had not certified the above transaction in the audit report. It was the contention of the Ld. AO that both the entities runs and functions same fashion of business and that too from one premises with almost same managements. The assessee since failed to prove comparable with purchase with other parties the gross profit @ 3.5% shown by associate concern has been considered by the Ld. AO as excess expenditure claim in the profit and loss account. Consequently disallowance to the tune of Rs. 86,39,915/- u/s. 40(A)(2)(a) of the Act was made. In appeal such addition was deleted.
11. At the time of hearing of the instant appeal the Ld. Senior Counsel appearing for the assessee argued before us that the seeds are purchased from associate concern only and not from any outsiders. Parallelly the said party is not selling the similar seeds to outsiders at the same brand. Neither the AO has proved that purchases made by the appellant are excessive and since both the entities are assessed to tax maximum marginal rate disallowance u/s. 40(A)(2)(b) of the Act is not permissible.
On the other hand the Ld. DR relied upon the order passed by the Ld. AO.
12. Heard the Ld. Counsel appearing for the parties, perused the relevant materials available on record. It was an admitted fact that the AO failed to give any instances which can prove that such purchases made by the assessee are excessive, unreasonable and hence disallowance u/s. 40(A)(2)(b) on estimated gross profit is not sustainable in the eye of law. The Ld. CIT(A)A holding the said view relying upon the judgment passed by the Hon'ble Apex Court in the matter of CIT vs. Glaxo Smithkline Asia Pvt. Ltd. reported in 195 Taxman 35 observed as follows in favour of the assessee:
"It is an undisputed fact that appellant and its associated concern are assessed to tax at maximum marginal rate hence even if for sake of argument, it is assumed that appellant has purchased goods at excessive rate, its associated concern has sold goods at such rate and offered higher income and paid higher taxes. The Hon'ble Supreme Court in the case of CIT vs. Glaxo Smithkline Asia Limited 195 Taxman 35 relied upon by appellant has held as under:-
"However, a larger issue was involved n the instant case. The main issue which needed to be addressed was, whether Transfer Pricing Regulations should be 12 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 limited to cross-broker transactions or be extended to domestic transactions. In the case of domestic transactions the under-involving of sales or over-invoicing of expenses ordinarily would be revenue neutral in nature, except in the following two circumstances having tax arbitrage-
(i) If one of the related companies is a loss making company and the other is a profit making company and profit is shifted to the loss making concern; and
(ii) If there are different rates for two related units [on account of different status, area-based incentives, nature of activity, etc.] and if profits is diverted towards the unit on the lower side of the tax arbitrage. For example, sale of goods or services from non-SEZ area, [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less taxable profit and non-taxable division will have a higher profit exemption.[Para 4] As the case of the appellant is snot falling in the exception as provided by Hon'ble Supreme Court, disallowance u/s. 40A(2)(b) made by the AO for Rs. 86,39,915/- is deleted. This ground of appeal is allowed."
We find no infirmity in the observation made by the CIT(A) in holding that in the present facts and circumstances of the case disallowance u/s. 40(A)(2)(b) is not permissible in the absence of any instances and/or observation made by the AO that purchases made by the assessee are excessive unreasonable with that of the fair market value of goods. Hence, the decision arrived at by the Ld. CIT(A) is hereby uphold. Revenue's appeal is thus dismissed.
13. In the result, Revenue's appeal is dismissed.
ITA No. 2796/Ahd/2014 A.Y. 2011-1214. The Revenue has preferred the instant appeal with the following grounds:-
"1. The Ld. CIT(A) has erred in law and on facts in deleting/allowing the addition made on discount and rate difference amounting to Rs. 2,31,95,051/-.
2. The Ld. CIT(A) has erred in law and on facts in allowing the addition made by the AO u/s. 40A(2) amounting to Rs. 1,55,06,080/-.
3. The Ld. CIT(A) has erred in law and on facts in allowing the addition made on sub-license fee amounting to Rs. 27,57,500/-."
13 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 The Revenue has challenged the order in deleting addition made on discount and rate difference amounting to Rs. 2,31,95,051/-. The identical issue has been dealt with by us in revenue's appeal being ITA No. 2795/Ahd/2014 for assessment year 2010-11. Hence relying upon the said order we uphold the order passed by the Ld. CIT(A). Thus, this ground of appeal preferred by Revenue is dismissed.
The second ground of appeal relates to deletion of addition made u/s. 40(A)(2) of the Act to the tune of Rs. 1,55,06,080/-. Identical issue has been dealt with in assessee's own case in ITA No. 2795/Ahd/2014 for Assessment Year 2010-
11. Hence relying upon the said order we uphold the order passed by the Ld. CIT(A). Thus, this ground of appeal preferred by Revenue is dismissed.
15. It appears from the record that the assessee has debited an amount of Rs. 27,57,500/- as sub-license fee expenses. Since the figure was NIL in respect of corresponding period of earlier year the assessee was asked to justify such claim of expenses pursuant to which the copy of the sub-license fee agreement, the ledger account, invoice of ledgers of Mahyco Monsanto Biotech (I) Ltd. were filed by the assessee before the Ld. AO. The Ld. AO was of the view that such expenses was capital in nature and a show-cause dated 24.01.2014 was issued to the assessee as to why such expenses would not be disallowed. Taking into consideration the entire aspect of the matter the Ld. AO made addition of the entire amount of Rs. 27,57,500/- with the following observation :
"7. Sub License Fee Expenses 7.2. However, no specific reply has been filed by the assessee. Hence, the matter is proceeded to be decided based on the material available on record.
a) The invoice dated 21.09.2010 clearly states the description as "Consideration for one time fees as per sub licensee agreement dated 21st September 2010".
b) The sub-license agreement dated 21.09.2010 between Mahyco Monsanto Biotech (India) Ltd and the assessee has been perused.
i. As per Article 2 "Sublicensor hereby grants to Sublicensee, and Sublicensee hereby accepts, on and subject to the terms and conditions of the Agreement, a nonexclusive, nontransferable sublicense to use Monsanto Technology provided to Sublicensee, to test, produce, have produced, and sell Genetically Modified Hybrid Cotton Planting Seed itself in the Territory including a sublicense under applicable Monsanto Patent Rights".
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. A.Y. 2014-15
ii. Clause 1.27 defines "Monsanto Patent Rights" as to mean "all patents that Monsanto owns or controls which will be infringed by un-authorisedly making, using or selling cotton planting seed containing Monsanto Technology". iii. Exhibit D of the agreement further provides for license to use the BOLLGARD Trademark.
c) The amount paid by the assessee is in the form of a "non-refundable upfront fee", pearly underlying the capital nature of payment.
d) As per Appendix I to Income-Tax Rules, "Know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature" falling within the category of "Intangible Assets" is entitled to depreciation @25%.
e) S.32(1)(ii) of the Income-Tax Act provides for depreciation in respect of "know- how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998." The very need of having the specific provision would become redundant if without adhering to or following the specific requirements of the section, the appellant can get the deduction under general provision. The maxim "generalis specialibus non derogant" is regarded as a cardinal principle of interpretation State of Gujarat vs. Ramjibhai AIR 1979 SC 1098. The literal meaning of the expression is that if there is an apparent conflict between two independent provisions of law, the special provision must prevail - Union of India vs. Indian Fisheries (P) Ltd. (1965) 57 ITR 331 (SC).
In view of the above, the claim of Rs. 27,57,500/- is not allowed as revenue expenditure. The same ought to have been capitalized.
7.3 A perusal of clause 3.1 of the agreement shows that the total non-refundable upfront fee is Rs. 50 lakhs out of which Rs. 25 lakhs net of taxes is payable on execution of the agreement and Rs. 25 lakhs net of taxes is to be paid at the time of "commercialization of the technology" by the assessee. Besides, the agreement also provides for payment of "running fee" based on MRP and sales. However, as per the ledger, the assessee has paid only Rs. 27,57,500/- (including taxes) during the year. The balance "non-refundable upfront fee" had not been paid till the completion of the year. Besides, no running fees has been debited to the P&L a/c. Thus, the assessee has not furnished any evidence of the license actually being put to use during the year. Hence, depreciation is not allowed to the assessee in the absence of any evidence regarding "put to use". Thus, the entire sum of Rs. 27,57,500/- is disallowed and added to the income of the 15 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 assessee. Penalty proceedings u/s. 271(1)(c) of the Act are initiated furnishing inaccurate particulars of income."
16. However, such addition was deleted by the Ld. CIT(A).
Heard the respective parties, perused the relevant materials available on record. It appears that the appellant has acquired sub-license for using Monsanto technology and such sub-license is non-transferable. Such license is provided to the assessee to test, produce and sell genetically modified hybrid cotton plant seeds in the territory of the appellant for effectively increasing its business; no asset, however, is created. While holding such expenses as revenue expenditure the Ld. CIT(A) relied upon the judgment passed by the Hon'ble Delhi High Court in the matter of CIT vs. J K Synthetic Ltd. reported at 309 ITR 371 wherein it was held that since under the agreement the assessee has obtained a technical assistance and acquired some technical information which was a know-how related to process of manufacture, then it is not a transfer of the ownership of the know-how and to be treated as revenue expenditure. The judgment passed by the Coordinate Bench in the case of Urja Products Ltd. was also mentioned in the order passed by the Ld. CIT(A) wherein similar issue has been decided in favour of the appellant. The non-refundable up-front fee itself does not mean a capital expenditure but the same is required to be paid for acquiring license from the main company which is used for the purposes of business and hence the entire expenditure incurred by the appellate is treated as revenue expenditure. We, therefore, find no infirmity in the order passed by the Ld. CIT(A) in deleting such addition of Rs. 27,57,500/- as made by the Ld. AO. We, therefore, do not hesitate to confirm the same. So, as to warrant interference. The question is accordingly answered in the affirmative that is in favour of the assessee and against the Revenue. Consequently the appeal fails and is accordingly dismissed.
17. In the result, revenue's appeal is dismissed.
9. Apart from aforesaid ITAT order, ld. A.R. also submitted a copy of Co- ordinate Bench in assessee's own case wherein in similar facts and circumstances, ITAT has granted relief to the assessee and dismissed the appeal of the revenue with following observation:
16 ITA No . 2388/Ahd/2017 . A.Y. 2014-15
5. We have heard both the sides and perused the material on record carefully. With the assistance of ld. representatives, we have gone through the decision of Co-ordinate Bench in the case of the assessee itself vide ITA Nos. 2795 & 2796/Ahd/2016 and noticed that identical issue on similar facts has been adjudicated in favour of the assessee. Relevant part of the decision of aforesaid Co-ordinate Bench is reproduced as under:-
In respect of addition made on account of rate difference, relevant part of decision of Co-ordinate Bench in the aforesaid decision is reproduced as under:- "7. We have heard the representative of the respective parties. We have also perused the relevant materials available on record. It appears that the assessee duly submitted the ledger account along with the complete details of the parties which is also part of annexure before us in the paper book the details whereof is also before us at Page No.37 of the Paper Book. The list of the parties and the ledger accounts of those parties are also reflecting from Page 38 to 190 of the Paper Book.
We have gone through the same; the entire payment made by the assessee is reflected in those ledger accounts as on record before us which has not been alleged as non-genuine by the Learned AO. So far as the rate discount of Rs.1,89,160/- paid to M/s. Samarth Baparam Seeds Corporation is concerned the detail submission is also available in this respect made by the assessee at Page 4 & 5 of the assessment order. It appears that sufficient details were submitted by the appellant in support of his claim. Further that while allowing the claim of the assessee by deleting the addition made by the Learned AO the Learned CIT(A) observed as follows:
"On careful consideration of entire facts it is observed that Appellant has established its business to provide high value research and hybrid seeds to farmers as a brand name "Western" since last twenty years. In any business, discount/rate difference is allowed to customers as per policy of the business and for which trade circulars are issued on time to time basis. The entire payment made by Appellant is duly reflected in ledger account of various dealers and supported by evidences. Even AO has not pointed out any defect in such evidences produced by Appellant. During the course of assessment proceedings, AO has raised one query relating to discount and rate difference of Rs.1,89,160/- paid to Shri Samarth Baparam Seeds Corporation and said query is reproduced at page No. 3 of the assessment order. Against this query, Appellant has made detailed submission, which is also reproduced on page-4 and 5 of the assessment order. On the basis of such submission, AO has not drawn any adverse inference 17 ITA No . 2388/Ahd/2017 . A.Y. 2014-15 which is apparent in the assessment order. The issue was raised from the details submitted by appellant, which prove that Appellant has produced evidences in support of its claim. It is pertinent to note that ratio of discount to turnover in A.Y. 2008-09 was 6.25%, 7.02 % in A.Y. 2009-10 and 6.66% in year under consideration, which supports the contention of the Appellant that discount/rate difference are allowed consistently. Further, in AY 2009-10, AO has made partial disallowance of such expenditure on the ground that there was increase in such expenditure, which was deleted by undersigned vide Order dated 10/12/2013 in Appellate Order No. CIT(Appeals)/ GNR/367/2012-13. Further, gross profit ratio of Appellant for the year under, consideration has improved and same is accepted by AO. The AO has not brought out any evidences which can suggest that payment made by Appellant is non-genuine or in fact, not received by dealers and made addition on hypothecation basis. Thus, on holistic consideration of entire facts, addition of Rs.2,14,47,109/- made by the AO is deleted. The grounds of appeal are allowed."
Taking into consideration the entire aspect of the matter we do not find any infirmity in the observation made by the Ld. CIT(A). Hence the ground of appeal preferred by revenue being devoid of merit is hereby dismissed."
In respect of addition made u/s. 40(A)(2)(b), relevant part of decision of Co- ordinate Bench in the aforesaid decision is reproduced as under:-
"12. Heard the Ld. Counsel appearing for the parties, perused the relevant materials available on record. It was an admitted fact that the AO failed to give any instances which can prove that such purchases made by the assessee are excessive, unreasonable and hence disallowance u/s. 40(A)(2)(b) on estimated gross profit is not sustainable in the eye of law. The Ld. CIT(A)A holding the said view relying upon the judgment passed by the Hon'ble Apex Court in the matter of CIT vs. Glaxo Smithkline Asia Pvt. Ltd. reported in 195 Taxman 35 observed as follows in favour of the assessee:
"It is an undisputed fact that appellant and its associated concern are assessed to tax at maximum marginal rate hence even if for sake of argument, it is assumed that appellant has purchased goods at excessive rate, its associated concern has sold goods at such rate and offered higher income and paid higher taxes. The Hon'ble Supreme Court in the case of CIT vs. Glaxo Smithkline Asia Limited 195 Taxman 35 relied upon by appellant has held as under:-
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. A.Y. 2014-15
"However, a larger issue was involved n the instant case. The main issue which needed to be addressed was, whether Transfer Pricing Regulations should be limited to cross-broker transactions or be extended to domestic transactions. In the case of domestic transactions the under-involving of sales or over-invoicing of expenses ordinarily would be revenue neutral in nature, except in the following two circumstances having tax arbitrage-
(i) If one of the related companies is a loss making company and the other is a profit making company and profit is shifted to the loss making concern; and
(ii) If there are different rates for two related units [on account of different status, area-based incentives, nature of activity, etc.] and if profits is diverted towards the unit on the lower side of the tax arbitrage. For example, sale of goods or services from non-SEZ area, [taxable division] to SEZ unit [non-taxable unit] at a price below the market price so that taxable division will have less taxable profit and non-taxable division will have a higher profit exemption.[Para 4] As the case of the appellant is snot falling in the exception as provided by Hon'ble Supreme Court, disallowance u/s. 40A(2)(b) made by the AO for Rs. 86,39,915/- is deleted. This ground of appeal is allowed."
We find no infirmity in the observation made by the CIT(A) in holding that in the present facts and circumstances of the case disallowance u/s. 40(A)(2)(b) is not permissible in the absence of any instances and/or observation made by the AO that purchases made by the assessee are excessive unreasonable with that of the fair market value of goods. Hence, the decision arrived at by the Ld. CIT(A) is hereby uphold. Revenue's appeal is thus dismissed."
Respectfully relying upon the aforesaid decision of Co-ordinate Bench of the ITAT, we uphold the order of ld. CIT(A), therefore, both the grounds of appeal of the revenue are dismissed.
6. In the result, the appeal of the revenue is dismissed.
10. The ld. D.R. has nothing to controvert arguments of the assessee.
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. A.Y. 2014-15
11. Since both the above said Co-ordinate Benches has dismissed appeal of the Revenue in similar facts and circumstances. Therefore, in parity with the above said Co-ordinate Benches orders, we dismiss the appeal of the Revenue.
12. In the result, appeal filed by the Revenue is dismissed.
Order pronounced in Open Court on 30 - 01- 2020
Sd/- Sd/-
(WASEEM AHMED) (MAHAVIR PRASAD)
ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER
Ahmedabad: Dated 30 /01/2020
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad