Income Tax Appellate Tribunal - Delhi
Shri Ram Pistons & Rings Ltd.,, vs Assessee on 20 April, 2006
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E': NEW DELHI
BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND
SHRI K.D. RANJAN, ACCOUNTANT MEMBER
I.T.A.Nos.1761, 1762/Del/2004, 934 & 4005/Del/2006
Assessment Years : 2000-01, 2001-02, 2002-03 & 2003-04
Shriram Pistons & Rings Ltd., Dy. Commissioner of Income-tax,
23, Kasturba Gandhi Marg, Vs. Circle 18(1), New Delhi. &
New Delhi. Addl. CIT, Range-8, New Delhi.
I.T.A. No.3951/Del/2006
Assessment Year : 2003-04
Dy. Commissioner of Income-tax, M/s. Shriram Piston & Rings Ltd.,
Circle 18(1), New Delhi. Vs. 23, K.G. Marg, New Delhi.
PAN: AAACS0229G
(Appellants) (Respondents)
Assessee by : Shri Pradeep Dinodia, FCA &
Shri R.K. Kapoor, FCA.
Department by6 : Smt. Sangeeta Gupta, CIT-DR.
ORDER
PER C.L. SETHI, JUDICIAL MEMBER.
These are the appeals, filed by the assessee as well by the revenue, pertain to the Assessment Years 2000-01, 2001-02. 2002-03 and 2003-04. ITA No.1761/Del/2004
2. We shall first take the appeal filed by the assessee, pertaining to the Assessment Year 2000-01.
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3. In this appeal, ground No.1(a) & (b) taken by the assessee is directed against the CIT(A)'s order in confirming the Assessing Officer's action of disallowing expenses on account of commission payments to various agents amounting to Rs.26,61,214/-.
4. The assessee company was incorporated in 1963. The assessee is in the trade of manufacture and sale of automotive components, namely piston, piston rings, pins and engine valves. The sales being made by the assessee can be categorized mainly into four major sectors:-
(a) Original equipment manufacturer (vehicle manufacturers),
(b) After market through distributors,
(c) State Transport Undertakings &
(d) Exports.
During the course of assessment proceedings, it was noticed by the AO that the assessee had incurred a commission of Rs.3.42 crore and discount of Rs.7.76 crores and claimed the same as deduction during the year under consideration. Out of the total commission paid, the assessee paid commission of Rs.26,61,214/- to various agents in respect of sales made to State Transport Undertakings/Vehicle Factory, Jabalpur/D.G.S. & D. The AO has taken a view that this payment of commission indicates that the assessee has spent the amount on account of procuring orders from State Transport Undertaking and Vehicle Factory, Jabalpur. The Assessing Officer further stated that these undertakings are all Government 3 Undertakings having fixed set of rules for placing of orders which are on the basis of rules framed by such undertakings and there could be no reason of any services which could have been rendered by the assessee's agent for procuring the orders. The AO further stated that it may be true that the assessee made certain payments to certain persons but the question whether these expenses were incurred wholly and exclusively for the purpose of business, has not been established. The AO further stated that it may be true that in case of supplies to the original equipment manufacturers and even for replacement market, the agent could have done some canvassing and obtained order for the replacement market or even for the original equipment manufacturers. Further, in a situation of profit to the manufacturer, the canvassing could have its role to be played in obtaining the order and, therefore, it is not possible to examine if and when the expenditure was incurred exclusively for the purpose of business and, therefore, to that extent, the assessee may have a justification to claim these expenses, but when it comes to procure order from State Transport Undertaking and Vehicle Factory, Jabalpur and even for DGS&D, it was not understandable, how these expenses could have helped the assessee in procuring the orders. The AO therefore, disallowed the payment of commission paid to various 4 agents in connection with the sales effected to the State Transport Corporation and Vehicle Factory, Jabalpur and DGS&D.
5. Being aggrieved, the assessee preferred an appeal before the learned CIT(A).
6. After considering the assessee's submissions and AO's order, the CIT(A) confirmed the AO's action by giving the similar reasons as given by the AO. While confirming the AO's action, the CIT(A) further stated that the canvassing or exercising influence on the officials of the Government Office or Government Undertaking is illegal and amounts to an offence prohibited under law, and, therefore, payment of commission to the agents for the purpose of procuring orders from State Undertaking cannot be allowed u/s 37 of the Income-tax Act. The CIT(A) therefore, confirmed the AO's order on this point.
7. Hence, the assessee is in further appeal before us.
8. We have considered the rival contentions of both the parties and have perused the material on record. We have gone through the various papers/documents placed in the Paper Book filed by the assessee. The assessee has submitted before us a chart giving complete details of commission paid to various agents. The assessee has also furnished the sample copies of agreements and renewals thereof entered into with Agents. 5 In the chart of details of commission paid to agents on sale made to State Undertaking, the assessee has given the names and addresses of the agents and the amount of sales on which the commission was paid. The assessee has also specified the rate of commission paid to commission agent with reference to sales. From the chart, it is also seen that certain payments were made on account of reimbursement of freight expenses or other expenses incurred by the agent for and on behalf of the assessee. Additional commission has also been paid on achievement of sales target. From the chart, it is seen that the agents have been appointed in respect of the business of sales of various parts to State Road/Municipal Transport Corporation/Undertakings in the State of Andhra Pradesh, Tamil Nadu, Jammu, Karnataka, Gujarat, Mumbai, Uttar Pradesh, Madhya Pradesh, Punjab, Haryana etc. The names of the commission agents to whom commission has been paid are, inter alia, following:-
(1) Jai Motors Ltd. of Hyderabad, Chennai, Ernakulam etc. (2) National Trading of Jammu.
(3) Upper India Trading of Bangalore.
(4) Reema Industrial Agency of Ahmedabad.
(5) B.M. Agencies of Mumbai.
(6) Adam Consultant of Kanpur.
(7) Cupid Corporation of Bhopal.
(8) Ess Emm Enterprises of Punjab.
(9) Anand Auto Industries, Gurgaon (Haryana). (10) Universal Agencies of Mumbai.
(11) Shiv Agencies of Delhi.
(12) Bhardwaj Associates of New Delhi.6
(13) Pragati Sales of Lucknow.
(14) Found & International of Delhi.
We have perused the sample agreement of payment of commission entered into with M/s. Jai Motors Ltd. In this agreement, the services to be rendered by agent are specified as under:-
(i) To procure orders from State Road/Municipal Transport Corporation/Undertakings as per price and terms already determined.
(ii) To commit delivery schedule on receipt of confirmation in writing from the assessee.
(iii) To provide regular feed back on competitor's activities.
(iv) To complete follow-up till realization of full payment as under:-
(a) Realization of payment within 60 days from the date of bills.
(b) Realization of all debit note for price difference/excise duty etc. within 120 days from the date of debit notes.
(v) To submit a brief monthly report.
In this agreement, the rate of commission has been specified on the value of the bills raised by the assessee excluding excise duty and sales-tax against orders procured by the agent.
8.1 The identical agreement has been entered into with other agents of various places in various states with variation of rate of commission on the value of bills raised by the assessee.
78.2 From the various details including the copy of the agreement and correspondences filed by the assessee, it is clear to us that the assessee has effected sales to State Transport Undertaking or Municipal Corporation through agents. The assessee has also effected sales to private sector enterprises through the agents. The assessee has been paying commission to the agents for effecting sales in private sector enterprises as well as public sector enterprises. The commission paid to these agents for effecting sales effected in private sector enterprises as well as in public sector enterprises is for rendering services in connection with procuring orders at company's pre- determined prices and terms and commit a delivery schedule on receipt of confirmation in writing that the orders procured, provide regular feed back of competitors' activities, prices and supplies, completely following up with the buyers till realization of full payment of bills raised and submit monthly reports. The payments have been made to agents directly and not to Government agencies or Undertakings or to the officers of the State Government Undertakings. The payment has been made to business enterprises for the aforesaid services rendered to the assessee company. The company has engaged these agents for performing the aforesaid activities in consideration thereof the assessee has paid commission to agents. No illegal gratification has been paid to any officer of the State Government 8 Undertaking or any public department. In the present case, the agents have been employed to procure orders from the State Undertaking on predetermined prices and to ensure proper delivery of goods and realization of full payment of the bills raised. The agent has also provided regular feed back about competitors' activities, prices and supplies. We further find that the assessee had received rate contract approval from Association of State Road Transport Undertaking, the body which allots rate contracts for supplies to all State Transport Undertaking, wherein names of agents have been incorporated by Association of State Road Transport undertakings for dealing with State Transport Undertaking business. A letter dated 20.04.2006 of Association of State Road Transport Undertakings is placed at Pages 47 to 58 of the compilation filed by the assessee. This letter is with reference to the contract for supply of piston assembly and ring sets with the assessee company i.e. M/s. Shriram Pistons & Rings Ltd. A reference has been made to National Competitive Bids Agency and Minutes of Committee etc. In this letter, it has been stated that the assessee has participated in the national competitive bids for supply of items specified therein, which was considered by the Standing Committee, and the Standing Committee had accepted for the supply of these items at the rates as enclosed therewith and on the standard terms and conditions contingent to bid documents. The 9 names of the agents have also been approved by the State Transport Undertaking for the purpose of rendering various services in the course of completing the sales of various goods by the assessee to the State Transport Undertaking. This makes it clear that the goods have been supplied at the pre-determined rate accepted by the Standing Committee of Association of State Transport Undertakings. In this letter of the Members of the Association, State Transport Undertakings were advised to enter into contract for the purpose of their requirements from the assessee firm during the concerned period. Therefore, it is not a case where the order has been procured by the agents by making their own influence on any officers of the State Government Undertakings, but orders were procured at the rate at which the goods were to be supplied as per price/rate pre-fixed by the Association of State Road Transport Undertakings, and agent had only to follow up other matters and to do paper work, which is necessary for completing the sales to undertakings. It is common knowledge that apart from getting orders from the State Road Transport Undertakings, there are lot of other dealings or works or paper work which had to be done to complete the sales and realize the price thereof. Therefore, the payment made to commission agent cannot be said to be in contravention of any provisions of law of the land. From the various evidences and documents 10 filed by the assessee, which are placed in the Paper Book, it appears to us that the Association of State Transport Undertaking was a body formed, which floats tenders on behalf of the State Transport Undertaking and approves rate contract. After this approval by Association of State Transport Undertaking, the transaction for supply of parts by approved parties or suppliers was done directly with the concerned State Transport Undertaking. Therefore, the role of association was broadly to approve the rates and suppliers. The submission of tender, delivery of goods and realization of prices is not a simple one day work or matter where a particular item was sold at the spot and the payment was collected. It is continuous process where orders were placed by different suppliers approved by Association of Road Transport Undertaking as per the demand of the concerned State Transport Undertaking. Supply of required parts to State Transport Undertaking had to be ensured by the supplier. Any problem arising with the time schedule, item verification and quality of product had to be discussed and deliberated upon on regular basis with the officers of the State Transport Undertaking by the assessee/supplier or its agent. It is not in dispute that in the market, there were more than one supplier for the same product, which needed to keep watch on the performance and activity of rival companies. The company having its office at one place cannot be 11 expected to attend day-today work and requirement in different cities and places. The assessee could have done these works by appointing its own employees but it was not found advisable to have its own employees visiting regularly from company's office to different places or cities across India. Therefore, the appointment of commission agents was found to be prudent and the commission agents were appointed in order to provide various coordinating services on behalf of the assessee. The commission has not been paid merely for procuring orders but has been paid in respect of various services rendered by agent to the assessee company as already noted above. We, therefore, hold that the payment of commission to commission agents has been incurred wholly and exclusively for the purpose of business and is not with regard to any offence prohibited by law, and the AO's view that it has been made against public policy is not justified.
9. We have examined the rate of commission paid by the assessee to various agents, which varies from agent to agent, but it is mostly within the range of 4 to 5%. The agents are not related or connected to the assessee but are independent party and the payment has been made on arm's length. The rate of commission paid to the parties in between 4 to 5% cannot be said to be excessive. It has not been proved and established by the AO that the amount of commission paid to commission agents has been flown back to 12 the assessee's coffers. The genuineness of the payment of commission by the assessee to commission agents is not in doubt. We, therefore, hold that the assessee's claim of payment of commission to various agents for rendering various services by them to the assessee in the course of supplying various goods to the State Road Transport Undertaking or other enterprises is an allowable deduction while computing the assessee's profit from business. We therefore, direct the Assessing Officer to allow the assessee's claim. The orders of the authorities below on this point are reversed and the issue is decided in favour of the assessee.
10. In the course of hearing of these appeals, the learned CIT-DR representing for the department has relied upon the various decisions as under:-
(i) Swadeshi Cotton Mills vs. CIT (1967) 63 ITR 56 (SC).
(ii) Laxminarayan Madanlal vs. CIT (1972) 86 ITR 439 (SC).
(iii) CIT vs. Premiere Breweries Ltd. (2005) 279 ITR 51 (Kerala).
(iv) Precision Electronics Ltd. Vs. DCIT (2006)-TIOL-38 ITAT-Del.
(v) M/s. Precision Electronics Ltd. Vs. DCIT (2007)-TIOL-245-HC.
(vi) Saga Departmental Stores Ltd. Vs. CIT in ITA No.162/2009 dated 10.8.2009 (Delhi High Court).
(vii) Schneider Electric India Ltd. Vs. CIT, 304 ITR 360 (Del).
(viii) M/s. Nuware India Ltd. Vs. DCIT (2009) 118 ITD 70 (Del).
11. We have gone through these decisions and analyzed the same in the light of the facts of the present case. There is no quarrel as to the proposition that merely because of the existence of an agreement between 13 the assessee and his agents for payment of certain commission, and fact of the actual payment, the Assessing Officer is not bound to hold that the payment was made exclusively and wholly for the purpose of assessee's business. Although there might be such an agreement in existence and the payments might have been made, it is still open to the Assessing Officer to consider all the relevant factors and determine for himself whether the commission paid to the agent or any portion thereof is properly deductible under the provisions of the Act. In the present case, the assessee has not merely relied upon an agreement and the fact of the actual payment, but has also furnished various evidences establishing and explaining the nature of services being actually rendered by its various agents at various places throughout India in respect of the sales effected to State Transport Undertaking etc. The Assessing Officer has not brought any material on record to rebut the various evidences filed by the assessee. The various evidences placed at Pages 104 to 136 of the Paper Book pertaining to the Assessment Year 2003-04 clearly show that the State Road Transport Undertaking were interacting with the assessee's agents also and, these agents were del-credit agents i.e. commission was paid only on realization of full payment against the bills raised by the assessee. It has also been established by the assessee that all these agents were exiting all along and in 14 fact Association of State Transport Undertaking has officially recognized the existence of these local agents in their approval dated 20.04.2006 placed at Pages 47 to 58 of the Paper Book pertaining to the Assessment Year 2000-
01. We further find that the following facts are undisputed:-
(1) None of the agents are related to the assessee.
(2) Payments have actually been made by account payee cheques.
(3) Most of the agents were working for the assessee for the last so many years and rendering similar services. These agents are Income-tax assessees.
(4) These agents were recognized by the Association of State Road Transport Undertaking.
(5) The AO has not brought any evidence on record to show and establish that the payment made by the assessee to commission agents for rendering various services to the assessee is prohibited by law or is an office or is against the public policy.
The AO has stated so merely on his assumptions and presumptions without considering the various services rendered by the commission agents to the assessee since last so many years.
(6) It is not the case where commission has been paid for procuring only orders from the State Transport Undertaking but has been paid for rendering various services as noted above.
12. In support of the view we have taken above a reference may be made to a decision of coordinate Bench of Tribunal, Delhi `I' Bench in the case of ACIT vs. Jindal Saw Pipes Ltd. Reported in (2008) 118 TTJ (Del) 228, where the Tribunal after applying the decisions in the cases of Dhirajlal 15 Girdharilal vs. CIT (1954) 26 ITR 736 (SC), Omar Salay Mohamed Sait vs. CIT 1959) 37 ITR 151 (SC), Dhakeshwari Cotton Mills Ltd. Vs. CIT (1954) 26 ITR 775 (SC) and Lalchand Bhagat Ambica Ram vs. CIT (1959) 37 ITR 288 (SC) has held and observed as under:-
"5(vii) The Board's Circular No. 772, reproduced above, clearly explains the legislative intent, purposes and object and targeted expenditure, covered under the said Explanation. The Speech of the Finance Minister, as extracted and reproduced above, also highlights the legislative intent, for insertion of the said Explanation. The Revenue has failed to justify applicability of the said Explanation to the fact-situation of the said case, by leading reliable, cogent and corroborative evidences. The clear and unambiguous language of the said Explanation, rules out the applicability of the same, to the present case, as held by the learned CIT(A).
5(viii) The CIT(A) after considering assessment order and submissions made before him passed speaking and detailed order and categorically held, the AO invoked the Explanation to s. 37(1) of the Act, purely on surmises and suspicion and no cogent material brought on record to justify the validity of such approach adopted in the assessment order. The CIT(A) specifically held that the AO failed to adduce material evidence to establish that the payment of such commission is an offence or such payment is prohibited by law. Mere assertion without any corroboration cannot be substitute for credible evidence leading to invocation of the said Explanation by the AO. It remains to be demonstrated by plausible justification that the payment of commission to identifiable parties, through account payee cheques who are assessed to tax, for the services rendered as defined in the agreement, in the absence of colorable or collusive nature of transactions, payments made for the purpose of business, cannot be termed as against public policy, as construed by the AO. No evidence has been placed by the Revenue before the CIT(A) or before the Bench establishing any violation of public policy or provisions of any 16 statute. It is well-settled legal proposition that Revenue cannot decide on an issue without proper facts supporting its decision. A decision based on the foundation of mere assertion or surmises or suspicion is liable to be quashed by higher Court. The decision must be supported by concrete facts and cogent evidences. This is a fundamental rule of justice. The Supreme Court has often frowned upon such tendency of the AO to frame the assessment order, on mere surmises and set aside these cases. This view has been held by the Supreme Court in the cases of Dhairajlal Girdharilal vs. CIT (1954) 26 ITR 736 (SC), Omar Salay Mohamed Sait vs. CIT (1959) 37 ITR 151 (SC), Dhakeshwari Cotton Mills Ltd. Vs. CIT (1954) 26 ITR 775 (SC) and Lalchand Bhagat Ambica Ram vs. CIT (1959) a37 ITR 288 (SC). Thus, in a given fact-situation of the instant case, the Revenue has f ailed to justify invocation of the said Explanation and consequent addition, as the parties to whom commission was paid, mode of payment through account payee cheques, quantum of commission, for the purpose of business and for the services rendered by the parties, remained undisputed facts, emanating from the assessment order, CIT(A)'s order and submissions. Having regard to the above legal and factual discussions, there is no reason and justification to warrant any interference with the findings of the CIT(A), based on proper appreciation of the legal and factual position of the case, as discussed in detail in the impugned appellate order.
Consequently, the order of the CIT(A), on this ground, is upheld."
13. Ground No.2 raised in Assessment Year 2000-01 is directed against the CIT(A)'s order in confirming the disallowance of cash payment of Rs.18,515/- made by the company.
14. We have heard both the parties and perused the material on record. The assessee had claimed expenses of Rs.1,13,790/- which were paid in cash. The assessee has given a reason for making the payment in cash that 17 the assessee was having no bank account in Delhi, Mumbai, Lucknow and Patiala where the payment was made to payees. Applying the provisions of sec. 40A(3), the Assessing Officer disallowed 20% of the total payment. Thus, the AO disallowed Rs.22,758/- being 20% of the expenses of Rs.1,13,790/- paid in cash.
15. Being aggrieved, the assessee objected only to the disallowance of Rs.18,515/- being 20% of the cash payment of Rs.92,575/-, which were paid in excess of Rs.20,000/-, on the ground that the said payments have been made to parties located at the places where the assessee company does not have any bank account and the outstation parties did not accept outstation cheques. After considering the assessee's submissions and the reasons given by the AO, the CIT(A) upheld the AO's action.
16. After hearing both the parties and having regard to the provisions of sec. 40A(3) as applicable in the Assessment Year 2000-01, we are of the considered opinion that reason of not having any bank account by the assessee at the station where the payment was made by the assessee, cannot be considered to be a reason for not applying the provisions of sec. 40A(3) of the Act. The assessee has not been able to point out any reason which is permitted under the law so as to exclude the payment made in cash in excess of Rs.20,000/- for the purpose of disallowance u/s 40A(3) of the Act. We 18 therefore, confirm the CIT(A)'s order n this issue and reject the ground taken by the assessee.
17. Ground No.3 is directed against the AO's action in including other income except interest on bank deposits and securities in total turnover for the purpose of computing deduction u/s 80HHC of the Act.
18. We have heard both the parties and perused the orders of the authorities below. In the course of hearing of this appeal, the learned counsel for the assessee has submitted that this issue has arisen in the assessee's own case for the Assessment Year 1998-99 where the Tribunal ahs taken a view that excise duty and other income are to be excluded from the total turnover for the purpose of computing deduction u/s 80HHC of the Act. It has further been clarified that the order of the Tribunal for the Assessment Year 2000-01 taking an identical view, has been confirmed by the Hon'ble High Court of Delhi in ITR No.167/2008 where they have decided this issue in favour of the assessee in view of the Hon'ble Supreme Court decision in the case of CIT vs. Laxmi Machine Works, 290 ITR 667. The learned DR has admitted the position. In the light of this submission of the assessee, we allow this ground with a direction to the Assessing Officer to exclude other income from the total turnover for the purpose of computing deduction u/s 80HHC of the Act after following the Hon'ble 19 Delhi High Court decision in the assessee's own case for the Assessment Year 2000-01.
ITA No.1762/Del/2004
19. Now, we shall come to appeal pertaining to the Assessment Year 2001-02.
20. Ground No.1(a) & 1(b) relating to the disallowance of payment of commission to various agents amounting to Rs.35,36,377/- is identical and similar to the ground raised in the Assessment Year 2000-01.
21. Facts and circumstances relating to this ground in this Assessment Year are totally identical to that of the Assessment Year 2000-01. This position has also been conceded to by both the parties. Therefore, following our order on this issue in the Assessment Year 2000-01, we delete the disallowance of payment of commission to various agents. In other words, the AO shall allow the assessee's claim of deduction on account of commission payment to various agents and modify the assessment order accordingly.
22. Ground No.2(a) and 2(b) is directed against the CIT(A)'s order in confirming the disallowance of employees' contribution to PF/ESI account amounting to Rs.12,70,070/- due in the month of March, 2001 but paid in the month of April, 2001.
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23. This issue is squarely covered by the decision of Hon'ble Supreme Court in the case of CIT vs. Vinay Cement, 213 CTR 2, where it has been held that the deletion of second Proviso to sec. 43B is retrospective in nature and therefore, the payment of PF and ESI contribution even if it is paid within due date of filing of return of income applicable to the assessee's case, is to be allowed as deduction. Identical view has been taken by the Hon'ble Delhi High Court in the case of CIT vs. Emil Ltd. (2010) 321 ITR 508 (Del).
24. In this view of the matter, we therefore, allow this ground of the assessee and direct the Assessing Officer to allow the assessee's claim on account of payment of contribution of PF and ESI due in the month of March, 2001 and paid in the month of April, 2001 inasmuch as the same has been paid within due date of filing the return of income applicable to the assessee's case.
25. Ground No.3(a) and 3(b) is regarding inclusion of other income except interest on bank deposits/security deposits in total turnover for the purpose of computing deduction u/s 80HHC of the Act.
26. In the light of our order on ground No.3(a) and 3(b) in Assessment Year 2000-01, we allow this ground of the assessee and direct the AO to exclude other income from the total turnover for the purpose of computing 21 deduction u/s 80HHC of the Act. The AO shall modify the deduction available under sec. 80HHC of the Act.
27. Ground No. 4(a) and 4(b) is regarding exclusion of export incentive from total turnover for the purpose of computing deduction under sec.80- HHC of the Act.
28. In the light of our decision regarding ground No. 3(a) and 3(b) and applying the same principle, we direct the Assessing Officer to exclude the export incentive from the total turnover for the purpose of computing deduction under sec.80HHC of the Act. We order accordingly. ITA No.934/Del/2006
29. Now, we shall come to the appeal pertaining to the Assessment Year 2002-03.
30. Ground No.1(a) and 1(b) regarding disallowance of payment of commission to various agents amounting to Rs.20,64,204/- is identical to the ground No.1(a) and 1(b) taken in the Assessment Years 2000-01 and 2001-
02. Respectfully following our order for the Assessment Year 2000-01, we delete the disallowance and direct the AO to allow the assessee's claim and modify the assessment order accordingly.
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31. Ground No.2(a) and 2(b) is with regard to the disallowance of unpaid employer's contribution of PF/ESI of Rs.10,68,100/- due in the month of March, 2002 to pay in the month of April, 2002.
32. In the light of our order on the identical point in the Assessment Year 2001-02, where this issue has been decided in favour of the assessee after following the Hon'ble Supreme Court in the case of CIT vs. Vinay Cement (supra) and Hon'ble Delhi High Court decision in the case of Emil Ltd. (supra), we delete this disallowance and direct the AO to allow the assessee's claim of payment of employer's contribution of PF/ESI amounting to Rs.10,68,100/- inasmuch as the same has been paid within due date of the filing of return of income.
33. Ground No.3(a) and 3(b) regarding inclusion of other income except interest on bank deposits and security deposits in the total turnover for the purpose of computing deduction under sec. 80HHC is identical to the ground No.3(a) and 3(b) in the Assessment Years 2000-01 and 2001-02. In the light of our this order pertaining to the Assessment Years 2000-01 and 2001-02, we allow this ground of the assessee with direction to the AO to exclude other income from the total turnover for the purpose of computing deduction u/s 80HHC of the Act. The AO shall modify the assessment order accordingly.
23ITA Nos.4005 & 3951/Del/2006
34. Now, we shall come to the cross appeal filed by the assessee and the revenue for the Assessment Year 2003-04.
ITA No.3951/Del/2006
35. We shall first take the appeal filed by the revenue.
36. Ground No.1 raised by the revenue is directed against the CIT(A)'s order in deleting the addition of Rs.94,12,788/- made by the Assessing Officer on account of royalty payment.
37. As per the stand taken by the AO in earlier years, the AO disallowed 25% of royalty expenses by treating the same to be of capital in nature.
38. On an appeal, the learned CIT(A) has deleted the addition in the light of the decision of Tribunal passed in earlier years. The CIT(A) also mentioned that his predecessor in Assessment Years 1999-2000 to 2002-03 has deleted the addition after following the decision of Tribunal in assessee's own case on the same issue.
39. In the course of hearing of this appeal, the learned counsel for the assessee pointed out that this issue is fully covered in favour of the assessee in assessee's own case by the decision of Tribunal pertaining to the Assessment Year 1998-99 in ITA No.480/Del/2003. He further pointed out that the Hon'ble Delhi High Court has affirmed the Tribunal's decision after 24 following its earlier decision in assessee's own case in ITR 70 of 1988. The decision of Hon'ble High Court is reported in 307 ITR 363. It was further pointed out that the Special Leave Petition filed by the revenue against the High Court's order has also been dismissed by the Hon'ble Supreme Court. This position has not been disputed by the learned Departmental Representative. We, therefore, uphold the order of the CIT(A) in deleting the disallowance out of royalty expenses. Thus, this ground No.1 raised by the revenue is rejected.
40. Ground No.2 is directed against the CIT(A)'s order in deleting the addition of Rs.4,00,590/- made by the AO on account of foreign technicians fee. This issue is also covered by the earlier decision of Hon'ble High Court in earlier years and the Hon'ble High Court's order has been finalized on dismissal of departmental SLP filed by the revenue. The CIT(A) has also deleted this addition after following the Tribunal's order passed in Assessment Year 1998-99, that was followed in Assessment Year 2000-01. Since the issue is covered by the earlier decision of Tribunal which has been affirmed by the Hon'ble High Court, we reject this ground raised by the revenue.
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41. Ground No.3 is directed against the CIT(A)'s order in deleting the addition of Rs.1,56,16,310 made by the AO on account of research and development expenses.
42. The assessee has claimed deduction of Rs.1,87,53,790/- in respect of expenditure incurred on Research & Development. The AO disallowed the expenses to the extent of Rs.1,56,16,310/- by treating the same to be of capital in nature.
43. In the course of hearing of this appeal, it was pointed out that similar disallowance made by the AO was deleted by the Tribunal in assessee's own case for the Assessment Year 1998-99 which has been affirmed by the Hon'ble High Court by not admitting any reference as according to the Hon'ble High Court, no substantial question of law arose. Reference made by the department was again rejected in Assessment Year 2000-01 by the Hon'ble High Court on this issue. The learned CIT(A) has deleted the addition by following the Tribunal's decision in assessee's own case in the Assessment Year 1998-99 which was followed in subsequent years. In the light of the fact that the decision of Tribunal in Assessment Year 1998-99 has become final and also been followed in subsequent Assessment Years 1999-2000 to 2002-03, we do not find any justification to interfere with the order of the CIT(A) in deleting the addition.
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44. Ground No.4 is with regard to the disallowance of Rs.39,33,803 on account of repairs and maintenance, which had been deleted by the CIT(A) after following the decision of Tribunal in the assessee's own case in the Assessment Year 1998-99 against which, the Hon'ble High Court did not admit any reference as according to the Hon'ble High Court, no substantial question of law arose. The Hon'ble High Court again rejected the reference in the Assessment Year 2000-01 as no question of law arose. The fact that this issue is covered by the decision of Tribunal in earlier years is not in dispute. Therefore, following the Tribunal's order in Assessment Year 1998-99, we uphold the order of the learned CIT(A) in deleting the addition on account of repair and maintenance.
45. Ground No.6 is directed against the CIT(A)'s order in directing the AO to exclude Excise Duty in the total turnover for the purpose of computing deduction under sec. 80HHC of the Act. This issue is fully covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of Laxmi Machine Works (supra) where it has been held that the Excise Duty shall not form part of the total turnover as well as export turnover for the purpose of computing deduction u/s 80HHC of the Act. The order of the CIT(A) on this issue is thus upheld.
27
46. Ground No.5 is directed against the CIT(A)'s order in directing the AO to allow expenses of commission payment to the extent of 4.5% paid to various agents in respect of the supply of goods to the State Road Transport Undertakings. The assessee is also in appeal on this issue raising a ground No.1 that the CIT(A) has erred in restricting the payment of commission to agents at the rate of 4.5% as against the actual amount paid.
47. We have heard both the parties and perused the material on record. This issue regarding allowability of payment of commission to various agents has been decided upon by us in this common order in earlier Assessment Years 2000-01 to 2002-03. Respectfully following our order, we direct the AO to allow the total payment of commission paid by the assessee to various agents and not to restrict the same to the extent of 4.5%. Thus, this ground raised by the assessee is allowed and that of the revenue is rejected.
ITA No.4005/Del/2006
48. In the assessee's appeal, ground No.2(a) and 2(b) is taken against the CIT(A)'s order in confirming the AO's action in including other income in total turnover for the purpose of computing deduction u/s 80HHC of the Act. This issue is decided in favour of the assessee in the light of this common order pertaining to the Assessment Years 2000-01 to 2002-03. We, 28 therefore, direct the AO to exclude other income from the total turnover for the purpose of computing deduction under sec. 80HHC.
49. Ground No.3 is directed against CIT(A)'s order in confirming the disallowance of software expenses for purchase of computer software of Rs.29,11,506/- by treating the same to be of capital in nature.
50. We have heard both the parties and perused the material on record. This issue has to be examined afresh by the AO in the light of the proposition laid down by the Special Bench of Tribunal in the case of M/s. Amway India Enterprises vs. DCIT reported in 114 TTJ 476. The AO shall decide the matter afresh after providing reasonable opportunity of being heard to the assessee. The assessee shall be at liberty to furnish all the details before the AO in order to enable him to determine the issue in the light of the proposition laid down by the Tribunal in the case of Amway India Enterprises (supra). We order accordingly.
51. Last ground No.4 raised by the assessee is directed against the CIT(A)'s order in directing the AO to withdraw DEPB benefit for the purpose of computing deduction under sec. 80HHC of the Act.
52. On this issue, various propositions has been laid down by the Hon'ble Bombay High Court in the case of M/s. Kalpataru Colours & Chemicals vs. CIT, 328 ITR 451. The matter has not been examined by the AO from the 29 light of the various propositions laid down by the Hon'ble Bombay High Court in the case of M/s. Kalpataru Colours & Chemicals (supra). We, therefore, restore the matter back to the file of the Assessing Officer for his fresh adjudication in the light of the decision of the Hon'ble Bombay High Court in the case of M/s. Kalpataru Colours & Chemicals (supra). The AO shall provide reasonable opportunity of being heard to the assessee.
53. In the result, the appeals filed by the assessee are partly allowed in the manner as indicated above and that of the revenue is dismissed.
54. This decision is pronounced in the Open Court on 25th February, 2011.
Sd/- Sd/-
(K.D. RANJAN) (C.L. SETHI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 25th February, 2011.
Copy of the order forwarded to:-
1. Appellant
2. Respondent
3. CIT(A)
4. CIT
5. DR
By Order
*mg Deputy Registrar, ITAT.