Income Tax Appellate Tribunal - Indore
V.A.Tak Hydro India P.Ltd., vs Department Of Income Tax on 13 December, 2011
1
IN THE INCOME TAX APPELLATE TRIBUNAL
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA No.29/Ind/2005
A.Y. 2000-01
DCIT-3(1), Bhopal ... Appellant
Vs
V.A. Techhydro India Pvt. Ltd.,
Mandideep
PAN - AABCV 2466 R ... Respondent
Cross-objection No.39/Ind/2005
(Arising out of ITA No.29/Ind/2005)
A.Y. 2000-01
V.A. Techhydro India Pvt. Ltd.,
Mandideep
PAN - AABCV 2466 R ... Appellant
Vs
DCIT-3(1), Bhopal ... Respondent
2
ITA Nos.253 & 254/Ind/2007
A.Ys. 2001-02 & 2002-03
DCIT-3(1), Bhopal ... Appellant
Vs
V.A. Techhydro India Pvt. Ltd.,
Mandideep
PAN - AABCV 2466 R ... Respondent
Cross-objection Nos.52 & 53/Ind/2007
(Arising out of ITA Nos.253 & 254/Ind/2007)
A.Ys. 2001-02 & 2002-03
V.A. Techhydro India Pvt. Ltd.,
Mandideep
PAN - AABCV 2466 R ... Appellant
Vs
DCIT-3(1), Bhopal ... Respondent
ITA No.255/Ind/2007
A.Y. 2003-04
DCIT-3(1), Bhopal ... Appellant
Vs
V.A. Techhydro India Pvt. Ltd.,
Mandideep
PAN - AABCV 2466 R ... Respondent
3
Appellant by : Shri Anadi Verma, CIT/DR
Respondent by : Shri R.N. Gupta, CA
Date of Hearing : 13.12.2011
Date of Pronouncement : 28.12.2011
O R D E R
PER JOGINDER SINGH Aggrieved by the different orders dated 20.10.2004 & 19.1.2007 of the ld. CIT(A)-II, Bhopal, the Revenue and the assessee are in appeal & cross-objection, respectively. First, we shall take up the appeal of the Revenue for assessment year 2000-01 (ITA No.29/Ind/2005) wherein first ground pertains to granting relief of Rs.4,14,18,313/- representing disallowance of expenditure under the head 'technical design & drawings'. The crux of arguments on behalf of the Revenue is in support to the assessment order whereas the learned counsel for the assessee contended that the impugned issue has already been decided in favour of the assessee by the Tribunal. In reply, the ld. CIT/DR Shri Anadi Varma invited our 4 attention to pages 2 to 5 and para 37 of page 13 of the assessment order.
2. We have considered the rival submissions and perused the material available on file. Since common grounds are involved, therefore, these can be disposed of by this common & consolidated order for the sake of brevity. Without going into much deliberation, we are reproducing hereunder the relevant portion of the order for assessment year 1999-00 to 2002-03 (ITA Nos.112 to 115/Ind/2007), order dated 30.4.2010:
2. The facts, in brief, are that the assessee company is a manufacturer of dydroelectric and turbo-generators for hydel and turbo projects and selling the same in India and abroad. The assessee is a 100% subsidiary of VA TECH HYDRO GmbH Austria from 1.4.2001. VA TECH Hydro is an established name in the world in the field of manufacturing and erection of Hydro and Turbo projects since last about 100 years. The Assessing Officer, on scrutiny of books of accounts of the assessee company and Form No. 27 for the assessment years, in question, found that though the assessee company has spent huge amounts as expenditure on technical drawings and designs on account of payments to parent company, neither the tax was deducted at source, nor the assessee company obtained no deduction certificate from the Assessing Officer. The Assessing Officer, called for the explanations of the assessee and after considering the same, made the following observations :-
"6.1 Arguments of the assessee are hovering around incorrect reasoning that a) it has purchased the design on out right basis as commodity and b) on the dictionary meaning of Royalty. 6.2. Royalty has been given wider meaning both in the Income Tax Act and DTAA, which includes payment for 5 design/drawing. Assessee has relied on judgment in the case of CIT V/s DAVY ASHMORE INDIA LTD. 190 ITR, CIT Vs. Neyveli Lignite Corporation Ltd. 243 ITR 459,etc. However, these cases are distinguishable on facts which are different and not of any support to the assessee. The design purchased by the assessee are not in respect of commissioning of plant but these are in respect of a particular generator which is being manufactured and sold to the customers. Such designs are purchased separately for every generator the assessee has manufactured so far. In these case laws there was an outright purchase of plant along with design through a bid process. Where an Assessee is getting the design prepared for every generator from the parent Austrian Company. Assessee's arguments arebaseless and denying the basic definition of royalty as mentioned in article 12 of DTAA and explanation 2 to section 9(vi) of the I.T. Act, according to which payments in the head of design in reference to assessee's case is within the ambit of the definition of royalty as provided therein. In fact the case Ishikawajima Harima Heavy Industries Company Ltd. In re (AAR) 271 ITR 193 makes the position of taxability clear.
6.3. The non-Resident Austrian Parent company is not marketing 'design' as goods for sale to all. And also the assessee company 'V A Tech India' is not keeping, nor has any intention to keep, the design as goods. It is in fact more like a secret formula. The web site of the assessee company gives the details about the algorithms and the design process (Enclosed as annexure A). That Design is being used by it to manufacture the end product (generator) which is meant for sale after that it is of no use to the assessee. Therefore, design of a generator cannot be equated with software package or any other copy righted articles whose unlimited number can be sold in market.
6.4. No outright sale of designs has taken place. It is only the limited use for manufacturing that the assessee company is holding authority to use design. Assessee company cannot purchase these design from any other third company as the trade name under which assessee company and non-resident Austrian Company are manufacturing and selling the generator is same and both the companies are known for their specific designs of generators. It has specifically been mentioned on the designs that it is the property of the parent Austrian Company. The assessee had right to use a particular design for single time. The assessee has been barred to sale the design as such to another manufacturer by the specific condition and warning printed on the design. When the design cannot be sold as above how it can be termed as outright purchase as claimed by the assessee. Thus, the assessee has only been given the right to use the design.6
6.5. The designs are not purchased through open tender or bid because assessee is manufacturing generators with a unique technology which is possessed by the parent Austrian company only hence the designs are specific to the parent company. Because of this special relationship assessee is bound to purchase the design from its parent Austrian company only. The design is first received through Internet and its hard copy along with bill is received through Customs to justify the payments made to the parent company from the angle of allowability of expenditure.
6.6. There is no agreement/terms and conditions in purchase of the designs from the parent Austrian company. Assessee is just placing the orders for supply of the designs to its parent company and in each case the cost of the design is also determined by the Austrian company on its own parameters.
6.7. The design purchased by the company are not available off the shelf. These designs are prepared and supplied exclusively as per the specification and requirements of the customers which is provided to Austrian company by the assessee. As informed by the assessee these designs are different for each generator assessee has manufactured.
6.8. Income is arising to the parent Austrian company on sale of generators by its 100% subsidiary company in India, orders for which are received in India and being manufactured in India as per designs provided by the parent Austrian company. Assessee company has not obtained the design from anywhere else and it manufactures every generator on the design provided by the parent Austrian company only. Thus the income is accruing/arising in India directly through business connection of Austrian company with its 100% subsidiary company in India as envisaged in section 9(1)(vi) of the Income Tax Act, 1961 and article 12(2) of the DTAA.
6.9. The Legal provisions have been examined in para 2 supra and the DTAA in para 3. The payment made by assessee company is covered in definition of Royalty as per DTAA, which defines Royalty as 'consideration for the use of or the right to use... design or model, plan, secret formula or process... information concerning industrial, commercial or scientific experience.' 6.10. The payment made by assessee company is also covered in definition of Royalty as per IT Act, 1961 explanation 2 section 9(1)(vi); Explanation 2.- For the purpose of this clause "royalty" means .....(ii) the imparting of any information concerning the working of.....design, secret formula or process..."7
6.11. The facts along with the case laws have been examined in para 4 and 5. After the detailed examination of facts and circumstances of the case it is held that VA TECH HYDRO India Pvt. Ltd. has failed to deduct tax on sums paid to the Parent Austrian company which was chargeable to tax within India by virtue of the IT Act, 1961 and as per the provisions of DTAA between India and Austria.
6.12. Assessee company is manufacturing Generator and its accessories i.e. only the electrical part of the complete Turn key Project for generation of electricity. Turbine is manufactured by the VATECH ESCHER VYAS Floval Ltd., Faridabad, which is again Austria 100% subsidiary company of Austria in India. International orders for supply of generators are received through its parent company in Austria for which the assessee company supplies generator and its accessories to its parent Austrian company. Turbine and erection infrastructure is supplied by the Austrian company in such projects. Projects in India are completed by the assessee company with the Turbine supplied by the another 100% subsidiary company i.e. VATECH ESCHER VYAS FLOVAL Ltd., Faridabad. In all the cases design of generator is supplied by the parent Austria company only.
6.13. The 'V Austria Tech India' has stated that its Parent Austrian Company does not have Austria permanent establishment. In fact, there is no need for the Austrian company to have another permanent establishment in India, as they have their 100% subsidiary company in India (VA Tech India') which is acting on their behalf for procuring orders etc. Further the 'VA Tech India' is manufacturing every generator on the basis of design provided by the Austrian company. Thus the assessee company 'VA Tech India' is means for accrual of income to the Austrian company on account of its business activities in India.Moreover, for taxability of Royalty, Permanent Establishment is not an essential criterion. (Also held in Leonhardt Andra Und Partner, Gmbh v. Commissioner of Income Tax; 249 ITR 418 (CAL). In view of the above it is held in the case of 'VA Tech India' that the payment made by the assessee is in the nature of Royalty. However, even if the claim of the assessee is taken up for arguments sake as payment for technical services still the payment shall be taxable @ 10% in India in view of the earlier discussion in this order. 6.14. Generator is designed as per the requirement of the customer therefore its design is an integral part of it, on the basis of which it is manufactured and for that generator the customer making payments. Therefore, providing of the design to the customer cannot be termed as Austria separate sale as claimed by the assessee. Without design generator cannot be manufactured. 8 Hence the price of generator or any plant will always be inclusive of design without which it is of no use. The design of particular generator is specific to that only and is of no use in case of any other generator. Hence the arguments of the assessee that they are selling the design along with generator is simply misleading and not relevant to the issue of taxability.
6.15. As discussed earlier in para 1.9 the drawings and designs are made with the help of sophisticated computer programs and algorithms. (Please see Annexure Austria). The computer program along with the brain of the design engineer is the input in the process and output is certain design and other parameters. These parameters are for the help of detailed design which is prepared in India by the assessee 'VA Tech India. The parent Austrian company has neither given the sophisticated computer programs nor the algorithms to VA Tech India. Only the output of the sophisticated computer programs and algorithms is provided to the assessee 'VA Tech India' which it calls as 'design'. Rights over these designs is with parent Austrian company. The assessee company further prepares detailed designs on the basis of the parameters and designs provided by its parent company. The rights over these detailed designs prepared by the assessee 'VA Tech India' with 'VA Tech India' itself. Thus it is clear that there are two sets of designs, one prepared by the Parent Austrian company for which assessee makes payment and another in house detailed design prepared by 'VA Tech India' based on the original design.
6.16. From the discussion, it is clear that with the design and other parameters supplied by the parent Austrian company, the assessee cannot create another output in Austria different case or even Austria similar case. From all the discussion and case laws cited above, it is beyond doubt that the payments made by the assessee 'VA Tech India' are in the nature of Royalty and are squarely covered by the decision of Royalty both in the DTAA and IT Act, 1961. I hold that the payments made by the assessee 'VA Tech India' are in the nature of Royalty and that the assessee 'VA Tech India' having failed to deduct tax has committed default within the meaning of sec.195(1) read with DTAA between Austria and India and read with sec.9(1)(vi) of the Income Tax Act, 1961." The Assessing Officer, for the reasons mentioned above, finalised the proceedings initiated earlier culminating in the order under section 195(1) read with section 9(1)(vi) and 201(1)/ 201(1A), by holding that the payments made by the assessee company to its parent Austrian company VA TECH Hydro GmbH Austria, for the purchase of design, during the F.Y.2002-03, 2001-02, 2000-01 and 1999-2000, are treated as 'Royalty' within the meaning of Explanation 2 to section 9(1)(vi) and article 12 of the DTA 9 Agreement, on which the assessee has failed to deduct tax at the rate of 10% under section 195 of the Income Tax Act, 1961. The calculation made by the Assessing Officer in this behalf is as under
:-
Default under section 201(1) Rs. 1,16,28,072 Interest under section 201(1A) Rs. 71,28,172 Total Demand payable Rs.1,87,56,244 .
4. Felt aggrieved, the assessee preferred an appeal before the learned Commissioner of Incometax (Appeals) wherein detailed submissions were made. The learned CIT(Austria), after considering the submissions and the legal position explained by the assessee, made the following observations :-
"The entire transaction between the appellant and the non-resident company is of sale and purchase of goods on principal to principal basis. The meaning of 'royalty' has been defined in the DTAA. The Apex Court in the case of Union of India Vs Azadi Bacho Andolan and Another reported in 263 ITR 706 (SC) held that in case of difference between the provisions of the Act and the Agreement, the provisions of the Agreement would prevail over the provisions of the Act, therefore, the definition of 'royalty' is under the domestic law is not applicable for the purpose of understanding the concept of royalty under the Double Taxation Avoidance Agreement between India and Austria and, therefore, the A.O. is not justified in applying the provisions of section 9(1)(vi) of the IT Act. As regards the ownership is concerned, as rightly explained by the learned counsels that the transfer of ownership in the case of movable goods is governed by the Sales of Goods Act. The sale bill issued by the selling party contains the terms and condition on the basis of which the goods are being sold against the price. In the sale bills issued by the non-resident Austrian company, there is no mention that despite the sale of drawings and designs against the price, they have retained the ownership in the drawings and designs. The A.O. has failed to establish as to how the income arising to the non- resident company from the sale of the drawings and designs from outside country to the appellant company is chargeable to tax in India, when the non resident company is not having any permanent establishment in India, is taxable in India and, therefore, in the absence of any concrete finding that such payments are chargeable to tax in India, section 195 has no application. Having regard to the detailed and exhaustive submission and the case laws relied upon by the appellant, I hold that the payments made for the purchase of drawings and designs do not give rise to any income in 10 India and no tax needs to be deducted u/s 295 of the IT Act. The said payments are also not in the nature of royalty as defined in the DTAA entered into between India and Austria. In any case, it is not a case of the A.O. that there is a transfer of copyright by the Austrian company in favour of the appellant company but its is a case of sale of copyrighted articles and therefore also the payments made by the Indian company to non resident company are not in the nature of royalty. Hence the demands raised u/s 201(1A) for interest payable from the date of default in not deducting the tax at source till passing of the order by the A.O. in Financial Years 1999- 2000, 2000-01, 2001-02 & 2002-03 are cancelled."
5. Now, the revenue is in appeal before us.
6. The learned CIT DR submitted that on the hard copy of drawings and designs supplied by the foreign company, it was specifically mentioned that such drawing was the property of that company and it could neither be kept, nor could be used in any other manner, without the written consent of the foreign concern. The learned CIT DR further submitted that it could neither be handed over, nor in any other way could be communicated to a third party, hence, the Assessing Officer logically inferred that the assessee company could not be considered as owner of such designs. The Assessing Officer, according to the learned CIT DR, in the absence of any material brought on record by the assessee company, rightly held that the parent non-resident company had proprietary rights in such drawings. The learned CIT DR thereafter referred to the provisions of section 9(1)(vi) and Explanation 2 thereto and also to the provisions of Article 12 of DTAA with Austria which are reproduced as under for the sake of convenience :-
"Provided that nothing containing contained in this clause shall apply In relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar properlty, if such income is payable in pursuance of an agreement made before the Ist day of April, 1976, and the agreement is approved by the Central Government.
Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer opf all or any rights (including the granting of a licence) in respect of computer software supplied by a non- resident manufacturer along with a computer or compute-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Trading, 1986 of the Government of India.
Explanation 2.- For the purpose of this clause. "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for -
(i) the transfer of all or any rights (including the granting of a license) in respect of a paten, invention, model, design, secret formula or process or 11 trade mark or similar property.
(ii) the imparting of any information concerning the working of, or the use of a patent, invention, model, design, secret formula or process or trade mark or similar property.
(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;
(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;
(iva) the use or right to use any industrial, commercial or scientific equipments but not including the amount referred to in section 44AB
(v) the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or
(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v)"
The term Royalties and fees for Technical Services has been defined in Article 12 of DTAA with Austria which reads as under :-
"Article 12 : royalties and fees for technical services -
(1) Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
(2) However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties and fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed 10% of the gross amount of the royalties and fees for technical services.
(3) The term "royalties" as used in this Article, means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematography films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience."
The learned CIT DR contended that as per the meaning of the term 'royalty', as per both these provisions, the transaction between the assessee company and its parent non-resident company, fell within the realm thereof, hence, the assessee should have deducted the tax at source. The learned CIT DR thereafter also drew our attention to the observations of the Assessing Officer as regard to procurement of the same designs for the same contract, which also indicated that it was a case of royalty and not a case of out-right purchase thereof. The learned CIT DR placed heavy reliance on the conclusions drawn by the Assessing Officer which have already been reproduced hereinbefore. The learned CIT DR, thereafter, 12 contended that the parent company was not selling the designs in the open market i.e. to any other party other than its subsidiaries. Hence, it was not a case of sale of copy righted articles. The learned CIT DR further emphasized on the fact that it was used by the assessee in manufacturing of the turbine/generator and was not sold as such in the open market like purchase and sale of a copy righted book or software, etc. The learned CIR DR further emphasized on the fact that if the view of the assessee was accepted then every transaction would become a case of sale and in that case, provisions relating to royalty would become redundant. At this stage, a question was posed to him that if the view of the revenue is accepted, then every transaction would become a case of royalty, to which the learned CIT DR could not give any effective reply. The learned CIR DR thereafter placed reliance on the order of the Assessing Officer.
7. The learned counsel for the assessee submitted additional evidence as regards the treatment of such transactions in the books of non-resident parent company which was admitted as the learned CIT DR did not object for admission of the same. The learned counsel for the assessee submitted that as per this information, it was abundantly clear that such transactions were treated as transactions of sale and purchase in the books of parent company and had been taxed as business profits and not as a royalty. It was further pointed out that the tax rate on business profit was higher than the tax rate applicable to royalties. The learned counsel for the assessee thereafter contended that the ownership in such drawings was transferred to the assessee company on delivery of drawings by such company to the assessee. However, as per the condition of such sale transaction, the assessee could not reproduce it on its own or could use it in a manner not being permitted by the seller. Thus, the sale transaction was subject to certain condition and which was a normal condition in the case of purchase of all copy-righted articles/goods. Hence, such transaction was a case of out-right purchase for a specified purpose. The learned counsel for the assessee further submitted that the assessee delivered these drawings to the buyers of plant and machinery and such condition also restricted such buyers from using such drawings for commercial manner benefits. The learned counsel for the assessed, thereafter, contended that these were subject to the custom duty and refund of custom duty had also not been claimed which was generally a case in respect of an item received for a limited use or for a limited period. It was also specifically pointed out that such designs were procured for specific projects on a single user basis as the same had to be given to the buyer of plant and machinery manufactured by the assessee company. The learned counsel for the assessee thereafter controverted the factual findings of the Assessing Officer, particularly in regard to the Assessing Officer's contention that the assessee had paid money 13 for the same drawing three times and referred to the various pages of the paper book in this regard. The learned counsel for the assessee also submitted that the action of the Assessing Officer was a case of change of opinion in respect of the same transaction which had been found to be of the nature of purchases, both in the course of proceedings under section 144A as well as under section 92CA of the Act. Hence, for this reason also, the action of the Assessing Officer was not justified. The learned counsel for the assessee thereafter contended that it was a settled law that the sale transaction did not result in royalty and in this regard again submitted that the transfer of such designs by the assessee to the buyers of generators in an unbridled manner established this fact. The learned counsel for the assessee further reiterated the submissions made before the learned Commissioner of Incometax (Appeals), particularly in respect of drawings being goods and the acquisition of drawings on out-right purchase basis could not be considered as a transaction of the nature of royalty. The learned counsel for the assessee further submitted that the provisions of DTAA were to supercede the provisions of the Income Tax Act and for this proposition the learned CIT DR also did not disagree. The learned counsel for the assessee thereafter placed reliance on the decision of the Hon'ble Calcutta High Court in the case of Davy Ashmore India Limited v. CIT; 190 ITR 626, wherein the Hon'ble High Court had pointed out that the transferor retained the proprietary right in the designs and allowed the use of such rights, the consideration received for such user was in the nature of royalty. However, in the present case, the assessee company was not allowed to use such right i.e. to make similar designs at its level and to sell the same to third parties and to pay consideration out of such sales to the parent company as it was an undisputed fact that such design was used for a specified project and had been handed over to the buyer of the plant and machinery for their reference, if the situation so required. He further contended that the decision of the Hon'ble Calcutta High Court in the case of Leonhardt Andhra UND Partner,GMBH v. CIT; 249 ITR 418 was not applicable as in that case the royalty was not defined in DTAA between India and Germany and in the absence of such definition, the statutory definition as contained in section 9(1)(vi) was applied, whereas in the present case, article 12(3) existed between two countries and as per that definition, consideration paid was not towards right to use but it was for the use of designs as such and, therefore, the aforesaid decision of the Hon'ble High Court was not applicable. The learned counsel for the assessee thereafter referred to the ruling of the learned Commissioner of Incometax (Appeals) for advance ruling in the case of Pre-quip Corporation v. CIT, as reported in 255 ITR 354 (pages 140 to 150 of the paper book) wherein it has been opined that transaction of sale of engineering drawings and designs by US Company to Indian Company did not amount to a transaction resulting into payment of royalty. The learned counsel for the assessee submitted that the facts of this 14 case are identical with the facts of the present case before the Tribunal and the royalty as per article 12(3) of Indo US DTAA was also similar. Hence, the ratio laid down in this case is squarely applicable to the present case. The learned counsel for the assessed, thereafter, referred to the decision of the Tribunal in the case of Lucent Technologies Hindustan Limited v. ITO as reported in 270 ITR 62 (AT) wherein the assessee had acquired hardware and software and the department bifurcated the transaction as one of supply of hardware and the other of the software, treating the software part as royalty, the Tribunal held that the assessee's transaction with the non-resident company was for the purchase of integrated equipment which consisted hardware as well as software and it was inseparable and having regard to the nature of agreement, what the assessee had purchased was a copy righted article and not copy right of the rights and similar was the position here, hence, this decision of the Tribunal also supported the claim of the assessee. The learned counsel for the assessee thereafter referred to the decision of the Tribunal in the case of Indian Hotels Co. Ltd. v. ITO in ITA No.553/Mum/00 (refer pages 163 to 167 of the paper book),wherein Indian Oil had obtained the services of a foreign company to prepare the interior design which had to be used by the Indian company for the purpose of re-designing or renovating the interiors of Taj Mahal Hotel at Mumbai and the design supplied by the foreign company became the property of Indian Hotel Company Limited (assessee) and in that background, the Tribunal held that the assessee company had purchased and acquired interior design on a principal to principal basis i.e. as a buyer and in that view of the matter, the payment by that company did not amount to royalty. The learned counsel for the assessee relied upon the decision of the Tribunal in the case of Wipro Limited v. ITO as reported in 94 ITD 9 for the proposition that where the payment was for obtaining the data and use it the way the assessee wanted to use it, it was the use of a copy-righted article and not a case of transfer of right in the copy-right of that article and similar was the case here wherein the assessee company got the right to use of a copy-righted article and no right in the copy- right of the drawings/designs and the note on the hard copy of such designs confirmed this position i.e. the assessee had no right in the copy right of these drawings/designs i.e. the assessee had no right in the copy right of these drawings/designs and it could use only as per the terms and conditions of the agreement with its parent company for its own purposes in the capacity of the owner thereof. Thereafter, the learned counsel for the assessee referred to the decision of the Tribunal in the case of DCIT v. Finolex Pipes Limited as reported in 106 TTJ (Pune) 741 wherein the Tribunal had held that fee payment for design documentation to German company by the assessee Indian company for out-right sale of such documentation was not royalty as per DTAA. The learned counsel for the assessee also relied upon the decision of the Hon'ble Karnataka High Court in the case of Jindal Thermal Power 15 Company Limited v. DCIT (2009) 225 CTR (Kar) 220.
8. The learned CIT DR, in the rejoinder, contended that in the case of Pro-quip Corporation v. CIT (supra), the language of article 12(3) of DTAA was materially different and the said decision was based on such language, hence, not applicable to the facts of the case. The learned CIT DR further submitted that the other decisions relied upon by the assessee were factually different as in those cases, the assessee was the ultimate user of those designs/drawings along with the plant and machinery, whereas in the present case, the assessee manufactured turbine/generator and sold such turbine/generators. The CIT DR further submitted that the decision of the Tribunal in the case of Lucent Technoligies Hindustan Limited (supra) rather supported the case of the revenue. The CIT Departmental Representative further submitted that the basic design obtained by the assessee company was further modified and such modified design was given to the buyer of the turbine/generator and not basic design, as contended by the learned counsel for the assessed.
9. We have considered the submissions made by both the sides, material on record and the orders of the authorities below. It is noted that the assessee is engaged in manufacturing of turbine/generator as per the specifications/requirements of its customers. For this purpose, the assessee procures basic design from its parent company and accordingly manufactures such plant and machinery. It is also noted that such basic design is also given to the buyer of plant and machinery by the assessee company. The dispute before us is regarding the nature of payment made by the assessee company to its parent non-resident company for obtaining such designs. The conclusions of the Assessing Officer as well as the findings of the learned Commissioner of Incometax (Appeals) have already been reproduced which contain details of judicial decisions relied upon by both the sides. In our opinion, if the view of the Assessing Officer is accepted, then there will not be any transaction of sale and purchase in such situations and every transaction would come within the meaning of term 'royalty'. Further, in our opinion, the basic distinction between a transaction of 'royalty' and of out-right sale and purchase is transfer of ownership to the buyer and this distinction has been maintained even in the provisions of section 9(1)(vi) as well as of DTAA. We have also perused the note on the hard copy of such designs. In our opinion, substance of such note is nothing but an indication that such product is sold only for specific use and no right in copy-right thereof has been given to the buyer by the transferor/seller, meaning thereby that such article/goods in the form of designs could be used for specific purposes and cannot be used for other commercial gains by the buyer. This can be put in different words i.e. it is a case of purchase of copy righted article and not of copy rights therein. Thus, on this very fact, we do not consider any necessity to go into the issue further and deal with the judicial 16 decisions cited by both the sides. However, before parting, we consider it appropriate to observe that if the view of the revenue that copy righted article could only be a trading item or of the nature of finished goods only, then a transaction of sale and purchase of such drawings/designs would necessarily be considered as a transaction of payment of 'royalty', which cannot be correct as even the software has been judicially classified as goods. We also do not agree with the contention of the revenue that when the goods are acquired for self-consumption, that would amount only to use of such items, resulting into 'royalty' because items for self- consumption for use in intermediate process are also acquired on principal to principal basis by way of purchase. It is also to be noted that in the hands of non-parent company, such transactions have been accepted by the revenue authorities of that country as of the nature of business profits resulting from the sale of such drawings. Hence, when the same provisions of DTAA are applicable then this action of such revenue authorities also supports the claims of the assessee. To sum up, even at the cost of repetition, we state that it is a case of purchase of a copy-righted article on principal to principal basis and not a case of payment for transfer of right in the copy right of such designs. In this view of the matter, we confirm the findings of the learned Commissioner of Incometax (Appeals).
10. In the result, all the appeals of the revenue fail and are dismissed.
Order pronounced in open Court on 30th April, 2010."
3. In the aforesaid order, an elaborate discussion has been made by the Tribunal. If the aforesaid facts are kept in juxtaposition with the facts of the appeal in hand, we find that the assessee purchases technical drawings and design for Rs.4,14,18,313/- from its Austrian Joint Venture Company i.e. VA Space Tech Elin, Austria and the said expenditure was directly claimed to be manufacturing expenses and was claimed in its P & L account under the head 'manufacturing 17 expenses' which were disallowed by the ld. Assessing Officer doubting the genuineness of the expenses. Admittedly, the audited accounts, Trading and P & L Account and details of technical drawings expenses were duly furnished by the assessee before the Assessing Officer as well as before the ld. CIT(A). The stand of the assessee before the Revenue authorities as well as before us is that the expenses were incurred for purchase of technical drawings and design from its joint venture company for business expediency. Uncontrovertedly, the impugned expenditure was fully supported by bill of entries, custom clearance, shipping agents documents, payments through banking channel with compliance of rules and regulation of Foreign Regulation Act (at the relevant time). All these documents were not disputed by the Assessing Officer and were duly examined by the ld. CIT(A), meaning thereby, the expenses were claimed to be genuine business expenditure. There is categorical finding in the impugned order that the genuineness of the expenses for incurring the technical drawings and design was duly 18 established as the copies of the invoices, purchase orders were duly produced right from assessment stage. Even otherwise, the ld. Assessing Officer has nowhere mentioned in the assessment order that the payments for the impugned expenses were not made. The suspicion of the ld. Assessing Officer is that the transactions relating to drawings & design expenses are nothing but an afterthought. However, noting concrete has been brought on record by the Assessing Officer in support of his suspicion as to how the purchase orders are not genuine. The assessee has furnished various documents to establish the genuineness of such expenses and the technical design was purchased as a matter of business expediency to implement the project, therefore, we find no infirmity in the stand of the ld. CIT(A) on this issue. Consequently, affirmed. Our conclusion will cover ground no.1 of ITA No.253/Ind/2007 (Assessment Year 2001-02) and ground no.2 of ITA No.255/Ind/2007 (Assessment Year 2003-04) also.
4. The next ground pertains to granting relief of Rs.7,31,541/- out of the total addition of Rs.9,06,541/- made 19 under the head 'foreign travelling expenses'. The crux of arguments on behalf of the ld. CIT/DR is that these expenses were incurred for non-business purposes only whereas the learned counsel for the assessee defended the impugned order by submitting that the expenses were duly incurred for business expediency.
5. We have considered the rival submissions and perused the material available on file. The facts, in brief, are that in its P & L account, the assessee claimed Rs.9,06,541/- as foreign travelling expenses, which were disallowed by the ld. Assessing Officer on the plea that the assessee did not procure contract from foreign agency and the contracts are sub- contracted by its parent company in Austria by further observing that the assessee did not travel outside India for realisation of debts as the invoices of sales were also made in favour of parent company in Austria, therefore, he doubted the genuineness of these expenses. However, we find that the assessee was regularly getting export orders from its Austrian joint venture company and the assessee was getting orders for 20 specific items at predetermined prices, that too, under the specified terms & conditions as agreed upon. Admittedly, for smooth functioning of business, there may be hundreds of reasons like finalisation of accounts, procurement of contracts to check the quality of the implements and other business needs for which the employees and the directors are supposed to travel abroad. The ld. Assessing Officer has not brought on record any evidence establishing that the foreign travel was a pleasure trip. Even otherwise, the supervision and erection work at the sites by the Engineers was the business expediency. The necessary documents, bills and vouchers were duly furnished before the ld. Assessing Officer wherein nothing objectionable was pointed out, therefore, the ld. CIT(A) rightly concluded that these expenses are allowable expenses which were wholly & exclusively incurred for business purposes. Even otherwise, there is uncontroverted finding in the impugned order that at the first appellate stage, the necessary details of foreign travel expenses were furnished and the same were examined. It is further seen that wherever 21 the ld. CIT(A) found the expenses for non-business purposes, the part disallowance was made, therefore, the stand of ld. CIT(A), on this issue, is affirmed. This conclusion will also cover ground no.5 of ITA No.253/Ind/2007 (assessment year 2001-
02) also.
6. The next ground pertains to granting relief amounting to Rs.78,75,385/- out of the addition of Rs.81,00,385/- made on account of 'training expenses'. The ld. CIT/DR defended the impugned order by submitting that the training expenses are nothing but a colourable device, adopted by the assessee. On the other hand, the learned counsel for the assessee defended the impugned order.
7. We have considered the rival submissions and perused the material available on file. We find that the assessee claimed to have incurred Rs.81,00,365/- for the training of its employees and debited the expenses in its P & L account. The claim was disallowed by the Assessing Officer on the plea that such training was not for the legitimate need of the business and the 22 company was not under obligation to incur such a huge expenditure on the training of workers/employees. Pursuant to this observation, a detailed questionnaire was issued by him against which the assessee filed its clarification/explanation to each and every observation/point along with copy of accounts and necessary bills and vouchers were also produced. No specific defect was pointed out by the Assessing Officer in these bills/vouchers. So far as the observation of legitimate need is concerned, it has to be decided by the assessee as the assessee is the best judge of its business. The Assessing Officer is not expected to sit as an armchair philosopher in the needs of business expediency. The periodical training of the workers/employees rather fortifies their skills in enhancing more productivity. Therefore, we find no infirmity in the stand of the ld. CIT(A). This will cover ground no.4 of ITA No.253/Ind/2007 (assessment year 2001-02) and ground no.3 of ITA No.254/Ind/2007 (assessment year 2002-03) also.
8. The last ground in ITA No.29/Ind/2005 pertains to deleting the addition of Rs.5 lacs under the head 'vehicle hire 23 expenses'. The ld. CIT/DR defended the disallowance whereas the learned counsel for the assessee supported the impugned order. We have perused the record and find that the assessee claimed Rs.23,25,134/- towards vehicle hire charges out of which ld. Assessing Officer disallowed Rs.5 lacs on presumptive basis that the same were incurred for non- business purposes. Detailed questionnaire was issued to the assessee to which the assessee filed its explanation on each point along with the copy of P & L account and necessary bills/vouchers. However, an adhoc disallowance was made on the plea that all expenses were not established that the same relate to business. The stand of the assessee is that no specific defect was pointed out in its bills and vouchers, therefore, no adhoc disallowance is permitted. There is a specific finding in the impugned order that before the ld. CIT(A), the details of vehicle hire charges along with letter from Swarthi Travels & Lala Travels was filed as a proof of incurring such expenses. This finding of the ld. CIT(A) was not controverted by the Revenue by bringing any contrary evidence. Therefore, the 24 stand of the ld. CIT(A) is affirmed. Our conclusion will cover ground no.7 of ITA No.254/Ind/2007 (assessment year 2002-
03) and ground no.6 of ITA No.253/Ind/2007 (assessment year 2001-02) also.
9. Now, we shall take the remaining grounds of ITA No.253/Ind/2007 (assessment year 2001-02). The Revenue is also aggrieved by the observation of the ld. CIT(A) that the provisions of Section 145 are not applicable to the facts of the present appeal. The ld. CIT/DR defended the assessment order whereas the learned counsel for the assessee supported the impugned order. We find that the assessee challenged the applicability of Section 145 of the Act and disallowance of expenditure of Rs.4,97,13,082/- incurred on purchase of technical drawings & design without considering the cost of technical drawings & design in the value of work-in-progress on the ground that similar disallowance was made by the Assessing Officer for assessment year 2000-01, therefore, based on the same reasoning, such disallowance was made by the Assessing Officer. Admittedly, the assessee is in the 25 business of manufacturing and sale of generators, heavy electrical equipments such as hydro generators, turbo generators, monitoring system, excitation equipments and plant engineering for hydro power plants. The claim of the assessee is that the amount of Rs.4,97,13,087/- was incurred for purchasing technical drawings & designs from the Austrian company and the expenses were incurred in relation to execution of the projects, therefore, the cost of the same forms part & parcel of the cost of project. We further find that the Assessing Officer has not pinpointed any single item which is of non-verifiable nature and there is also no material omission or suppression of recording the increase by the assessee in its accounts. Even otherwise, we have also affirmed the stand of the ld. CIT(A) (supra) with regard to expenditure incurred by the assessee on technical drawings & designs which forms part of the cost of the manufacturing, therefore, we find no infirmity in the impugned order wherein it was held that the provisions of the Section 145 of the Act are not applicable to the facts of the present appeal, consequently, this ground of appeal of the 26 Revenue is also having no merit. Our view will cover ground no.1 of ITA No.254/Ind/2007 (assessment year 2002-03) also.
10. The next ground pertains to allowing relief of Rs.81,72,801/- made on sale of Bhandar Dhara Project. The learned counsel for the Revenue supported the assessment order whereas the learned counsel for the assessee defended the impugned order.
11. On perusal of record and after hearing the rival submissions, we find that the Assessing Officer estimated net profit on the Bhandar Dhara Project and the invoice value stood at Rs.4.10 crore as has been discussed by the ld. Assessing Officer at page 6 (para 3) (d) wherein it has been recorded that the cost of the project, as arrived in calculations, showed nominal profit, consequently, the Assessing Officer applied net profit rate of 10% on the sale of this project which resulted into addition of Rs.81,72,801/- to the total income of the assessee. It is further found that the Assessing Officer has not substantiated it findings with evidence and addition has been 27 made merely on presumptive basis, ignoring overall sales and net result, appearing in the P & L account which was audited one. Admittedly, the books of account, vouchers, bills and other necessary documents were filed by the assessee during assessment proceedings, without pinpointing as to how the sales and the net profit was not verifiable. We are in agreement with the finding of the ld. CIT(A) that the presumptive estimation made by the Assessing Officer is not based upon any material, consequently, the stand of the ld. CIT(A) is affirmed.
12. Through ground no.7, the Revenue has also challenged deletion of disallowance of Rs.5,03,508/- made on account of provision for accrued unpaid interest. The ld. CIT/DR supported the assessment order whereas the learned counsel for the assessee defended the impugned order. We find that assessee made provision of interest at Rs.5,53,508/- on foreign currency loan, obtained from City Bank and State Bank of India, Bahrin. The stand of the assessee is that the State Bank of India is an Indian Bank and the foreign currency loan was arranged by the bank through its Bahrin Branch and further it was arranged with 28 due permission and approval from Reserve Bank of India. The details of interest provisions were also filed by the assessee and the provision of the accrued interest was made. Since the assessee was following mercantile system of accounting, therefore, it is an allowable deduction u/s 36(1)(iii) of the Act. There is a categorical finding in the impugned order that the payment of interest to the said bank, after close of the accounting year, but before due date of return were also filed by the assessee during assessment proceedings along with copy of exemption from withholding tax on payment of interest from City Bank, Bahrin. These details were also filed during first appellate stage, consequently, we find no infirmity in the stand of the ld. CIT(A). It is affirmed.
13. The last ground (in ITA No.253/Ind/2007) pertains to deleting the addition of Rs.43,00,800/- and Rs.70,85,625/- made on account of, being net profit on despatch of turbo generator and on sale item of compensation of high cost. The ld. CIT/DR supported the assessment order by inviting our attention to the relevant portion from assessment as well as 29 from impugned order whereas learned counsel for the assessee defended the impugned order. We find that the ld. Assessing Officer has discussed the addition in para 9 & 10 of the assessment order. The following table shows the breakup of the sales:
Sales as parts & components 56760601
Renovation of excitation 2346000
Compensation for high cost 24000000
Design of Turbo generator 4300800
87407401
The relevant portion from the impugned order is reproduced hereunder:
"The counsel of the appellant submitted before me has also drawn my attention to the audited profit & loss account of the assessee and submitted that in the relevant year, the aggregate turnover shown is Rs.261915153 which included the foreign sales of Rs.87407401. It is further submitted by the counsel that the foreign sales include the receipts of Rs.24000000 for the compensation for high cost & Rs.4300800 for the sale of design of turbo generator. The counsel then also drawn my attention on the cost of material and the manufacturing expenses incurred during the year, the details of which are 30 in Schedule-10 & Shedule-11 of the profit & loss account. The aggregate of these two expenditure is Rs.194333622 (126036826 + 68296796). The counsel thus submitted that the operating profit in the relevant year was of Rs.67581531 (261915153 - 194333622) and the said operating profit included the profit arisen on the two receipts i.e. compensation for high cost and sale of design of turbo generator. It has been further submitted by the appellant that all expenditures incurred during the year have been shown on the debit side of the profit & loss account and all the revenue receipts have been truly and properly reflected on the credit side of the profit & loss account and, therefore, the net result shown in the profit & loss account needs to be accepted. The counsel submitted that the A.O. wholly erred in separately taxing the income on the above two receipts over and above shown and included in the operating profit. The A.O. has also not given any basis of his estimation. The entire addition of the A.O. is based on the assumptions and presumptions. The A.O. has not pointed out any specific defect in the account books and in any of the expenditure appearing in the profit & loss account. The learned counsel submitted that the detailed working of the value of the work-in-progress has also been submitted before the A.O. and he has also not disputed the 31 correctness of the same and, therefore, the addition made at Rs.43008300 for the income from sale of designs and another addition of Rs.7085625 for the compensation for high cost are wholly unjustified and warrants deletion. It has been further pointed out by the learned counsel by referring a letter dated 7.12.2000, in which the appellant had claimed that due to the cost escalation the manufacturing cost of the item supplied substantially increased and, therefore, requested the customer to compensate for the escalated cost. This receipt, the counsel said, is also a part of the turnover of the assessee so also the amount received for the sale of designs and whatever the income arisen on such receipts has already formed a part of the total operating profit and, therefore, separate addition on assumptions is not justified."
If the aforesaid finding of the ld. CIT(A) and the submissions of the assessee along with facts are analysed, admittedly, no defect has been pinpointed by the Assessing Officer in the accounts of the assessee. Even otherwise, no basis has been given in the assessment order in arriving at a conclusion, therefore, we affirmed the stand of the ld. CIT(A). 32
14. The remaining grounds in ITA No.255/Ind/2007 (2003-04) pertain to deleting the disallowance of Rs.15,88,080/- made on account of warrant expenses. The CIT/DR supported the assessment order whereas the contention on behalf of the assessee is that for executing a loan contract of substantial value and also in terms of the contract, the warrant clauses are business necessity. It was also submitted that as per accounting standards, notified under sub-section 2 of Section 145, vide notification no.9949 dated 25.1.1996, provision is to be made for all loan liabilities and losses even though the amount cannot be determined with a certainty and only represents a best estimate, on the basis of available information, therefore, the provision in the account was made of the impugned amount.
15. We have considered the rival submissions and perused the material available on file. We find that the following provision was made of the warranty claim in the accounts of the assessee:
33
Project Name Total Cost Provision Warranty Period incurred (in Rs.) @1% (in Rs.) Bhandardhara 53230000 532300 18 months from Test Run Triveni Sugars 12000000 120000 2 crushing seasons Vajra 6550000 65500 18 months from supply Chaskaman 7550000 75500 18 months from supply Rana Sugars 5190000 51900 2 crushing seasons Triveni Turbo 4915000 49150 24 months from supply HPCL 6600000 66000 24 months from supply Renuka Sugars 9150000 91500 2 crushing seasons Na Loi 25450000 254500 24 months/8 hrs. of operation Pan Africa 9028000 90280 18 months from commissioning Shri Ram 5315000 53150 18 months from commissioning Koradi 1630000 16300 12 months from commissioning West Coast 12200000 122000 24 months from operation Total 15,88,080 The details of warranty provision and its reversals are reproduced hereunder:
S.No. Assessment Year Warranty Warranty
provision created provision of
during the period earlier years
(in Rs.) reversed during
the period (in Rs.)
1 2003-04 1588080 -
2 2004-05 3024128 680100
3 2005-06 6954871 529718
4 2006-07 6810422 487755
5 2007-08 6572822 2872949
TOTAL: 24950323 45701522
If the totality of the facts are analysed, warranty claimed is inbuilt in the sale mechanism and the warrant provision was made due to contractual liability which can be based upon 34 estimated liability which is otherwise eligible for deduction u/s 37 of the Act. Incurring of liability is certainty whereas the quantification depends upon certain business exigency and at the same time, exact quantification may not be possible when such provision is estimated, which is to be discharged at a future date, therefore, it is lawfully deductible. Our view is supported by the ratio laid down in decisions from Hon'ble Apex Court in Bharat Earth Movers Ltd. vs. CIT (245 ITR 428) (SC), CIT vs. Vinitec Corporation Pvt. Ltd. (278 ITR 337) (Del) and CIT vs. Majestic Auto Ltd. (204 ITR (AT) 14) (Chd). Therefore, the stand of the ld. CIT(A) is affirmed.
16. So far as deleting the disallowance of Rs.20,21,688/- made on account of payment for excise duty and sales tax (ITA No.254/Ind/2007) are concerned, the ld. CIT/DR supported the assessment order whereas the learned counsel for the assessee defended the impugned order. We find that for the Shiva Project, the amount of Rs.15,67,200/- was paid in the form of excise duty whereas the amount of Rs.4,54,488/- was paid as sales tax. There is a finding in the impugned order, as 35 claimed by the assessee, that the assessee received an order for supply of ten generators from Visveswarayya Vidyut Nigam Ltd., the crane carrying the generators broke down and the generators ran into Kaveri River and destroyed. The assessee received the claim of the accident which was duly accounted for in the books. In turn, the assessee manufactured new generator and paid extra excise duty and sales tax thereon which was claimed as business expenditure, therefore, we are in agreement with the finding of the ld. CIT(A) that it is an allowable expenditure u/s 37 r.w. Section 43B of the Act, especially when it is an undisputed fact that the excise duty and the sales tax were paid by the assessee to the customers, consequently, it is an allowable deduction. We, therefore, affirm the stand of the ld. CIT(A).
17. The Revenue is also aggrieved in deleting the adhoc disallowance of Rs.10 lacs made by the Assessing Officer. After hearing the rival submissions, we find that identical disallowance was made for assessment year 2001-02 and the same was affirmed, therefore, in view of uncontroverted factual 36 position, we find no infirmity in the stand of the ld. CIT(A). Even otherwise, in the absence of any infirmity in the books of account, no adhoc disallowance is required, that too, without pinpointing any defect in the audited books of account.
18. The last ground pertains to deleting the disallowance of Rs.1,91,487/- on account of bed debts. The submission of ld. CIT/DR is in support to the assessment order whereas the contention on behalf of the assessee is that during the previous year relevant to the impugned assessment year, the assessee written off the impugned amount in its account due to rejection of goods from vendors and were debited to the P & L account which were disallowed by the Assessing Officer on the plea that no efforts were made by the assessee to recover the amount. We are of the view that after 1.4.1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable, it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. Effect of amendment to Section 36 (1) (vii) r.w. Section 36 (2) of the Act is very clear. Therefore, we find no infirmity in the stand of the 37 ld. CIT(A). Our view is further supported by the decisions in TRF Ltd. vs. CIT (323 ITR 397) (SC), CIT vs. Kohli Bros. Colour Lab P. Ltd. (186 Taxman 62) (All), CIT vs. Auto Meters Ltd. (292 ITR 345) (Del) and DIT vs. Oman International Bank Saog (184 Taxman 314) (Bom).
19. Now, we shall take up the cross-objections raised by the assessee. In CO No.52/Ind/2007 (assessment year 2001-02), the assessee has disputed disallowance of Rs.1,25,000/- out of training expenses and Rs.50,000/- out of donation. On perusal of record and after hearing the rival submissions, since we have affirmed the stand of the ld. CIT(A), therefore, we find no justification in this ground of CO of the assessee. So far as the donation is concerned, there is no justification in these expenses incurred by the assessee, that too, without business exigency, consequently, both the grounds of CO No.52/Ind/2007 are dismissed.
20. In CO No.53/Ind/2007 (assessment year 2002-03), the assessee has challenged sustainance of disallowance of Rs.1 38 lac out of foreign travelling expenses, Rs.1,23,389/- for loss on scrap asset and Rs.37,631/- for provision of cost risk. No substantial reasons have been adduced before us debiting from the conclusion arrived at in the impugned order. Wherever the ld. CIT(A) finds any justification in sustainance of the disallowance, that has been done, in which, no infirmity was pinpointed, therefore, we find no justification to interfere with the impugned order, consequently, these grounds of the CO No.53/Ind/2007 are also dismissed.
21. The last Cross-objection raised through CO No.39/Ind/2005 pertains to sustaining the disallowance of Rs.1,75,000/- out of travelling expenses and Rs.2,25,000/- out of training expenses are concerned, we find that wherever the ld. CIT(A) found the travelling expenses for non-business purposes or excessive or without support of proper bills or vouchers, the same were disallowed. Similar is the position for training expenses. Consequently, we find no merit in the claim of the assessee, resulting into dismissal of both the grounds of the CO No.39/Ind/2005).
39
Finally, the appeals of the Revenue and Cross-objections of the assessee are dismissed.
This order was pronounced in the open Court on 28TH December, 2011.
SD SD (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 28 .12.2011
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File !vys!