Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S Krishna Maruti Limited,, New Delhi on 14 March, 2018
1
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI 'D' BENCH,
NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER, AND
SHRI B.P. JAIN, ACCOUNTANT MEMBER,
ITA No. ITA No.2097/DEL/2009, A.Y 2005-06
ITA No. ITA No 3253/DEL/2009 A.Y 2006-07
The Dy. C.I.T. Vs. M/s Krishna Maruti Ltd
Circle - 5(1) 40, K.M. NH -8
New Delhi Delhi Jaipur Highway
Village Narsinghpur
Gurugram, Haryana
PAN : AAACT 4726 B
ITA No. ITA No 4327/DEL/2010 A.Y 2007-08
M/s Krishna Maruti Ltd Vs. The Dy. C.I.T.
40, K.M. NH -8 Circle - 5(1)
Delhi Jaipur Highway New Delhi
Village narsinghpur
Gurugram, Haryana
PAN : AAACT 4726 B
[Appellant] [Respondent]
Date of Hearing : 09.03.2018
Date of Pronouncement : 14.03.2018
Assessee by : Shri Gautam Jain
Shri Lalit Mohan, CA
Revenue by : Shri Amit Jain, Sr.DR
2
ORDER
PER B.P. JAIN, ACCOUNTANT MEMBER,
These are three appeals - two by revenue and one by assessee, pertain to assessment years 2005-06, 2006-07 and 2007-08. These three appeals were taken up pursuant to recall of order dated 8.8.2017. The learned counsel for the assessee urged that the main appeals be also heard and, decided, on the basis of the submissions and, contentions raised in miscellaneous applications. The revenue did not object to the aforesaid prayer and, hence these appeals were also heard. Since identical issues are involved in all three appeals, these are being therefore disposed of by this common order for the sake of convenience and brevity.
ITA No. 2097/Del/20092. The present appeal of the revenue arises from the order dated 09.03.2009 passed by CIT(A) for AY 2005-06.
3. Briefly stated the facts of the case are that assessee is a company engaged in the business of manufacture, development, 3 import, buying selling and otherwise deal in seats for automobile and other similar articles and devices. The assessee filed a return of income declaring an income of Rs. 8,45,12,800/- on 28.10.2005. The assessment was completed by order dated 31.12.2007 and the income was assessed at Rs. 19,02,15,112/-
4. Aggrieved by the order dated 31.12.2007, the assessee preferred appeal before the CIT(A) vide impugned order dated 09.03.2009 partly allowed the appeal of the assessee.
5 The revenue in the present appeal has raised the following grounds of appeal:
"1 The order of the learned CIT (Appeals) is erroneous & contrary to facts & law.
2. On the facts and in the circumstances of the case, the learned CIT (Appeals) has erred in allowing relief of Rs. 2,35,54,141/- as to capital expenditure on research activities.
(a) Ignoring that the assessee has claimed the capital expenditure as to Plant & Machinery @ 100% and Revenue Expenditure @ 150% in the computation of income & deliberately only sec 35 was mentioned and sub sec, 2AB was not 4 mentioned.
(b) without appreciating t hat this is the only section in the Act under which 100% capital expenditure and 150% of the Revenue Expenditure ca be allowed if the assessee satisfies that the expenditure has been incurred on scientific research approved by the prescribed authority i.e . the Secretary, Department of Science and Industrial Research, Government of India in Form 3C It is relevant to point out that the automobile industries were entitled for such exemptions w.e.f. 21.09.2004 subject to the approval of the prescribed authority. In this light the assessee was asked produce the relevant certificate for claiming revenue expenditure @ 150% and capital expenditure @ 100% on research activities which assessee has failed to produce.
As a result the assessee has surrendered the revenue expenditure @ 150% which was claimed u/s. 35(2AB) but made the wrongful claim at appellate stage that this should be allowed u/s. 35.
(c) Without verifying the fact that these machines were utilized for manufacturing purposes, as mentioned by AO in the assessment order after detailed discussion. The CIT(A) has deleted the addition relaying on a certificate of the Head of R&D certifying that both the machines were used for R & D purposes only and not for commercial purposes. This fresh evidence was given for comments in the remand report and the AO has given detailed reply why this should be rejected. The Ld CIT (A) has not discussed t he reply of the AO which was given in the remand 5 report and without rebutting on it and any cogent reason held that the claim of the appellant is justified u/s. 35(1) (iv) of the Act relying on a self serving document.
3 On the facts and in the circumstances of the case, the learned CIT (Appeals ) has erred in allowing relief of Rs. 4,93,03,427/- on account of depreciation on moulding dies on the ground that ICICI ltd. is the real owner of the machinery relying on the decision of 254 ITR 98 & 231 ITR 308 (SC) . The case laws are distinguishable on the facts and circumstances of the case. Both these cases are related to the claim of depreciation by the lessor and not by the lessee i.e. the assessee company. All these cases laws were distinguished in the remand report by the AO which Ld. CIT (A) has failed to make any comment and simply deleted the addition.
4. On the facts and in the circumstances of the case, in respect of the disallowance made u/s. 14A the Ld. CIT (A) has erred in directing the AO to verify the facts & figures & also if the assessee had applied provision of Section 14A as the AO has rightly disallowed Rs. 1,75,48,428/- u/s. 14A on the basis of the peak credit calculated by the assessee at the time of the assessment. The CIT (A) relied on the amendment of Rule 8D(2) but directed the AO to take the amount of interest for the purpose of applicability of Rule 8D(ii) only Rs. 23,22,562/- the CIT (A) has erred in giving direction as AO has given in Remand report that under the finance charges the assessee has shown payment of lease rent of Rs. 7,24,34,964/-. /while deleting the 6 addition of depreciation the Ld .CIT(A) has taken the stand that payment of lease is a revenue expenditure but payment of lease rental shown under the head "finance charges paid" by the assessee itself in the balance sheet. Such direction of the CIT (A) is contradictory.
5. On the facts and in the circumstances of the case, the learned CIT (Appeals) has erred in allowing relief of Rs. 25,00,000/- on account of deduction u/s. 80G without appreciating that the AO has added this amount on the ground that this amount was made for some consideration i.e. the membership of this company hence not eligible under the head donation which is voluntary and without any consideration. The Ld .CIT(A) has granted the relief on the ground that such contribution given for the consideration of membership is allowable u/s. 80G. This direction is not in conformity with the law."
6 Ground 1 is general and therefore, rejected.
7. Ground 2(a), 2(b) and 2(c) relate to relief of Rs. 2,35,54,141/- on account of deduction allowed in respect of capital expenditure incurred on research activities by the assessee company. The factual matrix in brief is that assessee claimed deduction on account of capital expenditure incurred on research activities amounting to Rs.
3,41,60,592/- during the instant year. According to the Assessing 7 Officer, such expenditure incurred on plant and machinery was not eligible expenditure incurred on research and development as the same was not used for research but was used for normal business activities. He also held that in absence of approval of prescribed authority, claim made by the assessee was not maintainable under section 35(2AB) of the Act. He however alternatively held that appellant is entitled to depreciation on the plant and machinery aggregating to Rs. 2,65,16,377/- of Rs. 1,06,06,550/- and therefore, made an effective disallowance of Rs. 2,73,76,149/-out of aggregate claim of deduction of Rs. 3,79,82,700/- being capital expenditure incurred on research activities in the instant year.
8. Before CIT(A), the appellant contended that the claim was not under section 35(2AB) of the Act and it was under section 35(1)(iv) of the Act and therefore, 100% of the expenditure incurred on acquisition of plant and machinery for research and development was eligible for deduction. It was pointed out that there is no requirement of obtaining an approval for claim of expenditure under section 35(1)(iv) of the Act.
It was pointed out that Madras High Court in the case of CIT vs. Sundaram Fasteners Ltd. 223 ITR 455 has held that assessee is entitled to deduction under section 35(1)(iv) of the Act on the WDV even if the 8 existing machinery from the manufacturing unit has been transferred to the scientific research cell. The CIT(A) obtained comments of the Assessing Officer on the written submission furnished by the appellant and appellant also furnished rejoinder submissions. Having considered the factual matrix and submissions made by the Assessing Officer and the assessee, the learned CIT(A) proceeded to hold that out of expenditure claimed of Rs. 3,79,82,700/-, appellant is eligible for deduction of Rs. 3,41,60,592/- under section 35(1)(iv) of the Act and balance claim of Rs. 38,22,107/- is not maintainable.
9. Having considered the rival submissions and, perused the material on record, we find that, the revenue in support of the grounds contended that assessee had claimed deduction of capital expenditure incurred on plant and machinery at the rate of 100% and revenue expenditure @ 150% in the computation of income and deliberately only section 35 was mentioned and section 35(2AB) was not mentioned.
It has been pointed out that under section 35(2AB) of the Act, deduction can only be claimed if the expenditure on scientific research is provided by the prescribed authority namely Secretary, Department of Scientific & Research, Government of India and in absence of approval, the claim is not maintainable. We take note that from the 9 grounds, there is no issue as to claim of deduction on revenue expenditure incurred on scientific research and development. It is noted that appellant had claimed deduction of Rs. 70,38,750/- under section 35(2AB) of the Act on account of revenue expenditure incurred on scientific research and development though the expenditure incurred was of Rs. 46,92,400/- being 150% of the expenditure incurred on scientific research and development. The Assessing Officer allowed deduction of Rs. 46,92,500/- under section 37(1) of the Act and balance sum of Rs. 23,46,250/- was disallowed. The CIT(A) however allowed the claim of Rs. 46,92,500/- which is equivalent to the sum allowed by the Assessing Officer but not under section 37(1) of the Act instead under section 35(1)(iv) of the Act and sustained the amount disallowed by the Assessing Officer of Rs. 23,46,250/-. The assessee had preferred an appeal, confirming the disallowance of Rs.
23,46,250/- in ITA No. 169/2009. However, the said issue was not pressed. Infact, it is to be noted that in the said appeal even the disallowance sustained of Rs. 38,22,107/- out of capital expenditure incurred on research and development had also not been pressed. As a result of order of coordinate Bench in ITA No. 1695/D/09 for assessment year 2005-06, disallowance sustained by the CIT(A) of Rs.
38,22,107/- out of capital expenditure on research and development 10 and Rs. 23,46,250/- out of revenue expenditure stood confirmed and appeal of the assessee stood dismissed.
10. Thus, the issue in the present appeal is confined to the deduction allowed by the CIT(A) of Rs. 3,41,60,592/- out of capital expenditure incurred on scientific research and development. The revenue's case has been that in absence of approval, no deduction can be allowed of capital expenditure incurred on scientific and research development and as such, in absence of approval, even section 35(1)(i) is not applicable. This aspect has been examined by the CIT(A) in the impugned order and it has been held as under:
"3.3 The matter of the claim of the expenditure of research and development was carefully seen. It is noticed by me that the auditors had mentioned the status of claim under section 35 of the Act, without reference to any specific sub-section thereof. However, the amounts of deduction on this account shown in the computation of total income enclosed with the return of income indicated some inconsistency due to 150% of the deduction claimed on revenue expenditure as compared to the amount incurred/expanded. I have further seen that the appellant company reiterated its claim of deduction u/s 35 of the Act in its submission dated 28.12.2007 to the AO; but the AO has considered that the claim made by the appellant is under 11 sub-section (2AB) of section 35, probably due to the claim of weighted deduction on revue expenditure.
Be that as it may, the AO is under obligation to allow a deduction even if not claimed by the appellant and if it is otherwise allowable on the facts and circumstances of case as held by the Courts including in the case of Nathmal Bankatlal Parikh & Co. v.CIT 122 ITR 168 (AP) (FB) and CIT v. Ganesh Fire Works Industries 147 ITR 781 (Mad). But the AO allowed depreciation on some items of machinery by considering the domain of the appellant's claim under sub-section (2AB) of section 35 and without any cognizance to the sub-section (1) of section 35; particularly when both these sub-sections operate in distinct and separate spheres and involve different stipulations to be fulfilled. In any case, the claim of the appellant as per its submission before the AO as well as during the present proceedings is u./s 35 per-se rather than under sub section (2AB) of section 35. Thus, logically speaking it is necessary to evaluate the appellant's claim of deduction u/s 35.
3.4 In this backdrop, the claim of the appellant is now evaluated under sub-section (1)of section 35. According to the provisions of the said sub-section, revenue expenditure is covered u/s 35(1)(i) while capital expenditure is covered u/s 35(1)(iv). I have perused the relevant provisions of the Act and also the necessary condition which shall be satisfied claim the said deduction. The section 35 allows deduction o n both types of expenditure incurred by an appellant on research and 12 development - be it capital or revenue. For claim of deduction u/s 35(1)(i) or 35(1)(iv), the approval of prescribed authority is not stipulated. However, the assessee has to establish that the expenditure and equipment on which relief is sought has been utilized for R & D activities. Section 35(1)(i) stipulate that the expenditure of revenue nature shall be expended on scientific research "related to the business". Likewise section 35(1)(iv) stipulate that the capital expenditure on scientific research shall be "related to the business carried on by the assessee'. Thus, both the relevant provisions clearly provide that the scientific research hall be related to the business' of the assessee and if it is so, the assessee shall be eligible for the benefit of claim of claim of deduction under section 35(2)(ia) read with section 35(1)(iv). The expression : scientific research related to the business" appearing in section 35 (1) and section 35(1)(iv) has been defined in section 43(4)(iii) of the Act and reads as under ;
"references to scientific research related to a business or class of business include ---
(a) Any specific research which may lead to or facilitate an extension of that or, as the case may be, all business of that class;
(b) Any scientific research of a medical nature which has a special relation to the welfare of workers employed in that business or, as the case may be, all business of that class."13
Thus, an expenditure which may lead to or facilitate an extension of that business would fall within the ambit of such expenditure on scientific research. Furthermore, the said definition is "inclusive' in nature and therefore, would cover expenditure of like nature in wider perspective and the claim made cannot be construed in restrictive manner. In this backdrop the expenditure claimed by the appellant is to be considered.
3.5 To ascertain it, the appellant was asked to furnish relevant documents to justify that it carried out the R&D activities from both machines namely Injection Moulding machine-X (650T) and Injection Moulding Machine -VIII(1000T). The appellant submitted a certificate from the head of R & D unit certifying that both the machines mentioned above were used for R&D purposes only and not for commercial purposes. The aid certificate is supported by certain sample records in form of trial reports giving the statues of product developed during particulars hour of a day, the status of pieces produced, those found correct and pieces rejected alongwith reasons thereof. The appellant has submitted that the final product is developed through trial and error using these machines and accordingly, the claim has not be seen.
The AO was afforded to offer her comments on the appellant's submissions vide this office letter dated 14.10.l2008. The gist from the comments of the AO dated 4.2.2009 have already been itemized in para 2.3 above. Considering that the appellant has 14 submitted a certificate of the R & D units along with sample sheets which evidence that both the machines were used for R & D purposes only, I hold that the claim of the appellant for deduction is justified in terms of provisions of section 35(1) (iv) of the Act for these machines."
11. Having regard to the aforesaid cogent findings, we do not find any merit in the ground raised by the revenue. The only requirement is that a capital expenditure on scientific research shall be related to the business carried out by the assessee and there is no requirement for any approval as is the case under section 35(2AB) of the Act. In such circumstances, grounds raised by the revenue are not maintainable and therefore, rejected.
12. Another related ground raised by the revenue is Ground 2(c) which projects the grievance that the learned CIT(A) allowed the deduction without verifying the fact that machinery was utilized for manufacturing purposes and the CIT(A) has deleted the addition by relying on a certificate of the Head of R&D certifying that both the machines were used for research and development purposes only and not for commercial purposes. It has been urged that this fresh evidence was given for comments in the remand report and the AO has given detailed reply why this should be rejected; and the learned 15 CIT(A) has not discussed the reply of the AO which was given in the remand report and therefore, claim of the appellant is not maintainable.
13. We find that the CIT(A) in the impugned order has noted that aggregate deduction claimed by the assessee on account of capital expenditure in research and development is of Rs. 3,41,60,592/-
pertains to three machineries which are as under:
(a) Injection Moulding Machine - X (650T) Rs.1,14,65,592/-
(b) Injection Moulding Machine - VIII(1000T) Rs.1,50,60,785/-
(c) R & D Equipment Rs. 76,44,215/-
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Total Rs.3,41,60,592/-
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14. It is noted that before CIT(A), the assessee submitted a certificate from Head of R&D unit certifying that injection Moulding machines (1000 T) and Injection Moulding Machines (650T) were used for Research & Development purposes. This was supported by certain sample records in the form of trial reports giving the status of products developed during particulars hour of a day, the status of pieces produced, those found correct and pieces rejected accordingly. A 16 remand report was obtained from the Assessing Officer on the above evidence furnished and according to the CIT(A) as in the remand report, the Assessing Officer did not raise any specific objection and had only contended that these machineries are same machineries which are used for the manufacturing purposes and therefore, these are not eligible machineries for deduction under section 35(1)(iv) of the Act. The CIT(A) therefore, having regard to the aforesaid, proceeded to examine the above basis adopted by the Assessing Officer and found the same to be not tenable and held as under:
"3.6 It is seen from the assessment order and facts mentioned above, that the appellant was using Injection Moulding Machine of different models for manufacturing activities and therefore, the AO had founded an opinion that a machine used for R & D purposes should not be used at all for manufacturing purposes. In the remand report dated 4.2.2009, the AO has mentioned that there is no independent machine for Scientific Research Cell. Thus, it is necessary to ascertain the factual status of such machines.
On perusal of the Fixed Assets Chart containing the Schedule of the Plant and Machinery, it is seen by me that the appellant had a number of the Injection Moulding Machines. At the beginning of the year, the appellant had two such machines marked as Injection Moulding Machine-I and Injection Moulding Machine-II.17
The appellant purchased 4 more such machines of different specifications during the year concerned; on which the appellant claimed depreciation (which has been allowed as such by the AO); the particulars of which are as under:
Injection Moulding Machine - V (800T) Injection Moulding Machines-VI (450T) Injection Moulding Machine-VII (1000T) Injection Moulding Machine-IX (450T) The appellant company purchased two more such machines, on which it claimed the deduction u/s 35, the particulars of which are as under :-
Injection Moulding Machine -VIII (1000T) Injection Moulding Machine - X (650T) Thus, it is evident that the machines on which the claim of 100% of deduction u/s 35(1) is claimed are separate and distinct from the machines which the appellant has used for the purposes of manufacturing operations.
3.7 So far as the claim of deduction of Rs.1,14,66,322 on the balance miscellaneous R &D equipment of the investment value of Rs.76,44,215/- is concerned, the said expenditure is also on acquisition of the machineries which have been put to use for the purposes of R & D activities. In view of the actual aspects of 18 the case and the position of law/ relevant provisions discussed above, I hold that it is also eligible for the deduction u/s 35(1)(iv) rather than UI/s 35(2AB). It is clarified and held by me in para 3.9 below that the appellant company does not satisfy the prescribed conditions of section 35 (2AB) of the Act."
15. No material has been placed on record to rebut the abovesaid finding of the CIT(A). No remand report has been placed on record which is apparent from the records of the Tribunal which shows that Assessing Officer had made specific submissions vis-a-vis the certificate and sample reports furnished before the CIT(A) to support the claim of expenditure by the appellant.
16. We further also find that as regards Rs. 76,44,215/-, the Assessing Officer has given no specific reasons to deny the claim of expenditure and the same is otherwise shown as an independent machinery even in the financial statements and therefore, the claim on the same is absolutely maintainable. We therefore, find no merit in the grounds raised by the revenue in this appeal and therefore, the same are rejected. Grounds 2(a) to 2(c) are thus rejected.
17. Taking up Ground 3 of Grounds of Appeal raised by the revenue relates to relief of Rs. 4,93,03,427/- on account of depreciation on 19 moulding dies on the ground that ICICI Ltd. is the real owner of the machinery, by relying on the decision of CIT v. Maharashtra Apex Corpn. Ltd. 254 ITR 98 (SC) and CIT v. Shaan Finance (P) Ltd. 231 ITR 308 (SC).
18. The factual matrix as noted from the order of CIT(A) is that during the instant year, the appellant paid a sum of Rs. 7,24,34,964/-
as lease rent paid to ICICI Bank under a tripartite agreement dated 10.2.2000 between ICICI Bank (Lessor), the appellant (lessee) and Maruti Udyog Ltd. (co-lessee). The Assessing Officer denied the claim of lease charges on the ground that assessee company is the absolute owner. It has been held that the purchase order was placed by the assessee company with specification as clearly mentioned in the document submitted by the assessee and therefore, the assessee was actual owner and ICICI Bank is only a defacto owner. It is held that lease agreement was made in the manner that both the parties should be benefited under the Act. The CIT(A) however after consideration of the order of ITAT (Mumbai Bench) in the case of ICICI Ltd. vs. JCIT 115 ITD 25, which had decided the issue of depreciation on items leased out by ICICI for assessment year 1995-96 and held it to be entitled to claim depreciation concluded that there can be no case to deny the 20 claim of deduction to the assessee and allow depreciation to the appellant. Before us, the revenue relied upon the lease agreement to contend that such expenditure is not allowable and Assessing Officer was justified in allowing depreciation on the capital expenditure. The learned AR on the contrary, contended that agreement was entered in assessment year 2001-02 and such expenditure has been consistently held as eligible expenditure and therefore, there was no justification to deny the claim. It was submitted that alternatively, assuming it is held that claim is not maintainable then it was held that the assessee is entitled to depreciation of Rs. 11,69,71,331/- which would exceed the deduction of lease rent of Rs. 7,24,34,964/- and thus, the CIT(A) was far more justified in accepting the claim of lease charges in the instant year.
19. We have considered the rival submissions and perused the material on record. The fact of the matter is that this lease agreement was entered in assessment year 2001-02 and lease charges as claimed by the assessee stand allowed in assessment year 2001-02, 2002-03, 2003-04 and 2004-05 both in assessments under section 143(1) and 143(3) of the Act. For the instant assessment year namely 2005-06, case of the revenue is that instead of lease rent, appellant is entitled 21 to depreciation. The effect of the abovesaid approach is that appellant is owner of the asset and therefore, is entitled to depreciation and not deduction of lease charges. The case of the assessee is that if the argument of revenue is accepted then too it would be inconsistent with the position which stood accepted in the preceding years and apart thereform, in any case, in addition to deprecation, assessee be allowed deduction of finance charges being the funds made available by ICICI Bank Ltd. on the assets acquired by the assessee. We find merit in the claim of the assessee that once a claim has been accepted in the preceding year, there was no justification to deviate from the same in the instant year. The primary basis adopted by the Assessing Officer to deviate from the aforesaid position has been that the Assessing Officer in the case of ICICI Bank Ltd. had denied claim of depreciation. An enquiry made from Additional CIT, Range 3, Mumbai revealed that claim of depreciation has been disallowed in the case of ICICI Ltd. since assessment year 1995-96. The CIT(A) however has noted that ITAT (Mumbai) in the case of ICICI Ltd.
vs. JCIT reported in 115 ITD 25 had decided the issue of depreciation on items leased out by ICICI and has held that ICICI is entitled to depreciation and thus, the only fresh fact which emerged has also been found to be not maintainable. The CIT(A) while examining the claim 22 has recorded cogent findings to determine the nature of relationship between the two parties. It has been specifically held as under:
"5.2. The first issue revolves around the determination of the 'right of ownership' and as to which of the parties enjoys ownership over the said assets, on the strength of which depreciation u/s32 could be claimed? In order to claim ownership, the following rights of ownership are stated under Black's LAW Dictionary, which are required to be satisfied:
(a) Jus Utendi : The right to use of a thing.
(b) Jus Possident : The right to possessa thing.
(c ) Jus Abutendi : The right to consume or destroy a
thing
(d) Jus Dispendi Vel Transferendi : The right to dispose
of a thing or transfer it as by sale, gift, exchange, etc.
(e) Jus Sibi Habendi : The right to hold a thing in oneself.
(f) Jus Prohibendi : The right to exclude others from its use.
When the assets are leased, aforesaid Rights of Ownership can be exercised in the following manner:-
(a) Jus Utendi : Right to use of a thing: The ` right to use the assets' can be utilized by the act of leasing such assets to the lessee.23
(b) Jus Possidendi : Right to possess a thing can be acquired on the purchase of the assets.However, while leasing the assets the said rights are temporarily detached.
(c ) Jus Abutendi : Right to consume or destroy a thing, the lessor has the full right to Consume or destroy the assets leased and not the lessee.
(d) Jus Disponendi Vel Transferendi : Right to dispose a thing or transfer it as by sale, gift, Exchange, etc. All rights of sale, exchange, gift are retained by the lesser.
(e) Jus Sibi Habendi : Right to hold a thing in oneself:
This right is defined as the right to have thing, the right to put in actual possession of a thing. These rights vest with the lesser when he acquires the assets.
(f) Jus Prohibendi : Right to exclude others from the use.
5.5 The factual aspect in the case of appellant needs analysis with reference to the above attributes, which is made in the table below:
Sl. The Observation in the case of the appellant with attributes respect to the lease deed between ICICI and No. the appellant.
1. Right to use a The lessor has permitted the appellant to use the machinery during the period of the lease.
thing Various clauses of the agreement such as clause 4.9, 4.11, 4.12, 4.13.4.15.6.6 and 8.2.3. clearly indicate that the lessor is the owner of the assets and enjoys the right to 24 use these assets for the business of the lessor and has allowed lease of the assets to the lessee.
2 Right to The lessor has allowed the lessee to posses possess a the assets under its control but the lessee is things burdened with certain covenants as contained in Part IV of the agreement. Thus, the right to possess the assets is encumbered with conditions about putting up name plate indentifying sole and exclusive ownership of the lessor ( Clause 4.2), hold the assets as bailee of the lessor (clause 4.4), get the assets insured (clause 4.7), maintain the assets in proper working condition, not to transfer or assign etc. the assets(clause 4.12) or the property in which the such assets are installed (Clause 4.15) etc. These covenants cannot be said to be superficial, as stated by the AI, particularly when the lessee i.e.. the assessee company has been specifically debarred to create any charge and debarred to transfer in any manner as outlines in clause 4.12.
3 Right to The lessee's covenant in Para IV of the agreement and various other clause including consume or clause 2.11, 3.4, 6.6 etc., make it evident Destroy a that the right over the assets are exclusively 25 thing with the lessor. Clause 4.9 of the agreement clearly stipulates that in case of irreparable loss or damage, the lessor shall be entitled not only to terminate the agreement but also to retain the insurance proceeds.
Furthermore, vide clause 4.12 and 4.15 the lessee has been debarred to create any charge or otherwise dispose off either the assets or the premises concerned in which the asset is installed.
Thus, right to consume or destroy actually remains with the lessor and not with the lessee i.e. the appellant company.
4. Right to During the subsistence of the lease, the dispose of a lessee is allowed to use the assets against thing/or fulfillment of the stipulated conditions. transfer it by However, vide clause 2.11 the lessor is sale, gift etc. entitled to get the delivery of assets from the lessee (appellant company) upon termination of the agreement by efflux of time or otherwise. Thus, the lessee does not enjoy any right over of the assets other than to use it but the lessor has the remaining rights with it including right of repossession from the lessee. Moreover, vide clause 9.1 the lessor has exclusive right to assign to any person any of the right under the agreement.
5 Right to The lessor has permitted the lessee only to 26 exclude use the assets. According to clause 4.12 lessee others from can not transfer, assign,dispose of, sub-lease, its use mortgage, sale, hypothecate, pledge, hire, licence or otherwise in any manner part-with the possession of equipment or use thereof.
Thus, the lessor has retained with itself the right to exclude others from the use of the assets.
6 Right to hold As discussed in various items above, all the rights are vested with the lessor. According to a thing clause 7.2 the lessee is burdened with the In oneself payment of tax against the transfer of right to use the said assets.
Moreover, according to clause 8.2,3, in the event of termination of agreement, the lessor is entitled to sell, release, or otherwise dispose off the assets in such manner as it thinks fit.
7 Transfer of When lessor obtains the right to sue for arrear ownership of installment but no right to recovery of asset, The asset. lessee becomes owner.
According to clause 8.2.2, in case of any default the lessor is entitled to remove and repossess the assets and also entitled to recover from the lessee the entire amount of rental for the fix period of lease, cost of 27 repair and maintains of the said assets and all other sums payable by the lessee under the agreement. Thus, all the rights are vested in the lessor including recovery of assets.
8 Whether Neither of the two a per the agreement. As equipment per the item No.5 of Schedule to the shall become agreement, the lease may be renewed at the eventually option of the lessee for three years. However, the property no right to purchase is accorded in the of the lessee agreement.
or merely
confer on it
an option to
purchase the
equipment
5.6 Apart from the above the various other clauses referred to by the appellant in its written submissions more specifically. to a fix the name plate on the equipment identifying the sole and exclusive ownership of lessor.
to keep the equipment under the control of the lessee and not remove the same without the prior written permission of the lessor.
to keep the equipment under the control of the lessee and not remove the same without the prior written permission of the lessor, to keep the equipment as the bailee of the lessor, not to contest the lessor's sole and exclusive ownership, 28 Insurance with the lessor's name as the owner of equipment and handing over of any receipt on account of claim arising under any insurance, Not to create any charge/mortgage sub lease, hypothecation etc, Not to change the condition without prior written consent of the lessor, Not to claim any relief by way of deduction/allowance etc.which is available to the lessor under any rule/statute, No option with the appellant to purchase the assets at any time either during the lease or thereafter.
Further establish that the ownership over the equipment was with the lessor namely ICICI Ltd rather than with the appellant. 5.7 The AO's observations for vesting ownership with appellant on account of the fact that the purchase order was placed by the appellant with specifications does not change the nature of transaction as clauses 2.3 and 6.2 of the Lease Agreement lays down that purchase order has to be placed by the lessor and lessee can only ensure that the purchase order so placed conforms to the specification given by it. As per clause 5.2, the cost will have to be borne by the assessee in case of any mismatch between the specifications desired by the lessee for its use and the actual. In any case, the invoice is issued in the name of ICICI Bank, which clearly shows that the lessor is the owner of the assets.
So far as the other objection of the AO that sales tax is paid by the appellant is concerned, it is seen that prior to the introduction of VAT, sales tax was paid. But since VAT Act 29 became applicable, as per the clause (ze)(iv) of the Haryana VAT Act,2003 `sale' includes such lease transactions and therefore, VAT is payable by the appellant. The amount paid as VAT by the appellant has already been allowed by the AO.
The other observations of the AO regarding the arrangement between the two parties and treatment of taxability by the department in the case of ICICI Bank gets amply clarified by the ITAT's order reported in 115 ITD 25 and, therefore, this basis also does not survive. In this recent decision, the ITAT has made a through analysis of the various decisions on the subject and observed in Para 36.1 of that order that " Department has not brought a single case on record where the parties who paid lease rentals has not brought a single case on record where the parties who paid lease rentals has not shown / claimed the deduction on account of lease rental but has claimed deduction of interest paid to the assessee bank." Thus, the ICICI Bank was held entitled to the benefits of depreciation allowance claimed by it on all the transactions.
The other case laws; which are listed in para 4.3 above; lay down a ratio about the entitlement of claim of depreciation or other benefits to the lessor/"owner" in similar circumstances and therefore, are relevant to the extent of applying their ratio decidendi to the impugned transaction between the ICICI Bank Ltd and the appellant.
5.8. In the light of the overwhelming nature of the factual aspects in favour of the appellant and position of law on the subject, I hold that the ICICI Bank is the real owner of the machinery taken on lease and the appellant is only the user of 30 the said assets. Thus, the action of AO in allowing only depreciation to the appellant on the said assets on notional WDV is incorrect and the appellant company is entitled for the lease rental as claimed by it in the return of income. The AO directed to do the needful into the matter while giving effect to this order.
5.9. The alternative arguments of the appellant are not relevant in the light of the decision arrived at above and so these are not discussed."
20. Moreover, it is also to be noted that disallowance was made in assessment year 2007-08 which stood deleted by CIT(A). The appeal filed by the revenue for the said year stood dismissed. In nutshell, the position is that disallowance has been made only for assessment year 2005-06 and 2006-07 which too has been deleted by CIT(A) and is subject matter of present appeals. Thus, even applying the rule of consistency, the claim of assessee deserves to succeed as has been held in the case of CIT vs. CIT vs. Excel Industries Ltd. 358 ITR 295 (SC) as under:
"29. In Radhasoami Satsang Saomi Bagh v. Commissioner of Income Tax, [1992] 193 ITR 321 (SC) this Court did not think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same "fundamental aspect"
permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage 31 from Hoystead v. Commissioner of Taxation, 1926 AC 155 (PC) wherein it was said:
"Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken."
30. Reference was also made to Parashuram Pottery Works Ltd. v. Income Tax Officer, [1977] 106 ITR 1 (SC) and then it was held:
"We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been 32 found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.
"On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter - and if there was no change it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken."
31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it."
21. In light of the above factual aspect, for the reasons stated above, grounds raised by the revenue are rejected.
3322. Ground 4 relates to disallowance of 1,75,48,428/- under section 14A of the Act read with Rule 8D of the Rules. The factual matrix as noted by the CIT(A) is that Assessing Officer disallowed the sum of Rs.
1,75,48,428/- under section 14A of the Act as expenditure incurred to earn dividend income of Rs. 98,87,834/- by adopting the interest rate of 12% on peak investment of Rs. 14,62,36,908/-. The CIT(A) for the reasons stated in the order applied Rule 8D of the Rules and computed the disallowance at Rs. 8,22,342/- under Rule 8D(ii) of the Rules and Rs. 18,86,917/- under Rule 8D(iii) of the Rules. The revenue has thus preferred the instant appeal.
23. We have considered the facts and perused the material on record. The issue is no longer resintegra. The assessee had also preferred an appeal challenging the disallowance sustained by the CIT(A) under section 14A of the Act read with Rule 8D of the Rules. In an order dated 17.8.2009 in ITA No. 1695/D/2009, the Tribunal had restored this issue to the file of AO by holding as under:
"3. Ground no. 3 is regarding the disallowance made u/s 14A at Rs. 8,22,342/- by invoking the provision contained in Rule 8D(2)(ii) and Rs. 18,86,917/- by invoking the provision contained in Rule 8D(2)(iii). It is mentioned that sub-sections (2) and (3) of 34 section 14A were inserted in the Act with effect from 1.4.2007 and, therefore, these provisions were not applicable to assessment year 2005-06. It is further mentioned that the learned CIT(Appeals) ought to have invoked these provisions as they stood on 1.4.2005. it is also mentioned that Rule 8D notified under sub-sections (2) and (3) of section 14A could not have been invoked for assessment years 2005-06. It is also mentioned that no disallowance could have been made under Rule 8D(2)(ii)as net income by way of dividends amounted to Rs. 15,01,414/-. It is also mentioned that only net interest expenditure could have been considered by netting the amounts of interest received and interest paid.
3.1 The case of the ld. Counsel before us was that the provisions contained in sub-sections (2)and (3) could be invoked only it the AO having regard to the accounts of the assessee, is not satisfied with the claim of the assessee in respect of the expenditure incurred in earning the income which does not form part of the total income. No such finding was recorded by the AO when he disallowed interest amounting to Rs. 1,75,48,428/- by resorting to the estimate. No such finding was also recorded by the learned CIT(Appeals). However he proceeded to apply the order of Special Bench of Income-tax. Appellate Tribunal, Mumbai, in the case of ITO vs. Daga Capital Management (P) Ltd. 26 SOT 603 (Mum), which could not have been done without satisfying the pre-requisite of recording the satisfaction that the claim made by the assessee was not correct in this behalf. In reply, the learned DR submitted that the learned CIT(Appeal) 35 relied on the order of the ITAT in the case of Daga Capital Management (F) Ltd. (supra). It was implicit that there was a satisfaction on the part of the AO and the learned CIT(Appeal) that the claim made by the assessee was not correct as mentioned in sub-section (2). In the rejoinder, the ld. counsel for the assessee submitted that the retrospective aspect of the applicability of Rule 8D has been referred a larger bench and thus, the order in the case of Daga Capital Management (P) Ltd. (supra) is not final in this behalf. We have considered the facts of the case and submissions made before us. None of the parties could enlighten us about the reference number by which the retrospective aspect of the applicability of Rule 8D had been referred to a larger Bench of the Tribunal. It is another matter that this order is under challenge before the Hon'ble Mumbai High Court. However, if does become clear to us that the AO has to examine the accounts of the assessee and satisfy himself in the first place about the correctness of the claim of the assessee in respect of the expenditure, which has not been done.
Therefore, we think it fit to restore this ground to the file of the AO with a view to record explicitly his satisfaction about the correctness or otherwise of the claim of the assessee having regard to the accounts maintained by it. In case the claim is not found to be correct, he may proceed to decide the quantum of disallowance as per law after granting a reasonable opportunity of being heard to the assessee. Thus, this ground is treated as allowed for statistical purpose.
3624. Having regard to the aforesaid binding decision, we direct that the issue be decided in conformity with the aforesaid order of the Hon'ble Tribunal and ground raised is allowed for statistical purposes.
25. Ground 5 relates to relief of Rs. 25,00,000/- on account of deduction under section 80G of the Act. The CIT(A) deleted the same and hence this appeal. We have considered the rival submissions and perused the material on record. The CIT(A) while allowing the claim of the assessee has held as under:
"10.6 I have perused the assessment order, rival submission, receipt dated 18.5.2004 of Maruti Centre for excellence and the rules AND REGULATIOJNS OF Maruti Centre for Excellence. The said receipt dated 18.5.2004 reads AS UNDER :
"Received with thanks from M/s. Krishna Maruti Limited a sum of Rs.25,00,000/- (Rupees Twenty Five Lacs Only) through cheque No.751240 dated 12.5.2004 drawn on Bank of Tokyo towards final payment for corpus membership."
According to the Rule 7 of Maruti Centre for Excellence, the membership fee has been fixed at Rs.25,00,000/- towards admission to the society. Thus, it appears that the appellant paid Rs.25 lacs to obtain the membership of Maruti Centre for 37 Excellence and claimed deduction under section 80G on the said amount. The AO has considered that the payment is not voluntary donation, being not without consideration and thereby held that it cannot be called a donation, which is eligible for deduction u/s 80G.
10.7 Section 80G Allows deduction on the sums "in relation to donation made after 31.3.1992" if the institution or fund is approved by the Commissioner. The appellant has submitted copy of the certificate issued by the DIT (Exemption), New Delhi granting such permission to the recipient for the period 1.4.2004 to 31.3.2007. The expression `donation' has not been defined in the Act and therefore, natural meaning has to ascribed to it. In normal parlance, a person donating anything does not enjoy any rights to dictate the terms as to how the money parted can be used by Maruti Centre for Excellence. Even by becoming the member of the said society, the appellant does not get any such right. Thus even if the said payment has an element of benefit of membership upon the appellant yet it can not deprive him from seeking the benefit of deduction which is otherwise available to it under the statute. Section 80G does not exclude the benefit of deduction on such payments and therefore, it can be said that so long as the legislature has not desired the denial of benefits, the deduction sought by the appellant u/s 80G can not be disallowed, Bombay High Court in CIT Vs, Ram Niwas Karwa 112 ITR 43 has held that donation made even for creation of a fund are eligible for the benefits of the deduction given by the status. Thus, I direct the AO to allow the deduction u/s 80G 38 on the sum of Rs.25 lacs @50% as claimed by the appellant.
26. In view of above, cogent findings recorded by the Assessing Officer and in absence of any material to the contrary to arrive at the different opinion, we reject the claim of the revenue. Ground raised is therefore, dismissed
27. In the result, appeal filed by the revenue is partly allowed.
ITA No. 3253/D/2009 for AY 2006-07:28. This appeal of the revenue arises from the order passed by the CIT(A) dated 15.05.2009 for AY: 2006-07. The revenue has raised the following grounds of appeal:
"1. The order of the learned CIT (Appeal) is erroneous & contrary to facts and law .
2. On the facts and in the circumstances of the case, the learned CIT(Appeals) has erred in allowing relief of Rs. 13,86,938/- by treating it as revenue expenditure being the capital expenditure on research activities .39
2.1 Without verifying the fact that these machines were utilized for manufacturing purposes, as mentioned by AO in the assessment order after detailed discussion. The CIT (A) has deleted the addition relying on a certificate of the Head of R & D. Certifying that both the machines were used for R &D purpose only and not for commercial purpose This fresh evidence was given for comments in the remand report and the AO has given detailed reply why this should be rejected. The Ld. CIT (A) has not discussed the reply of the AO which was given in the remand report and without rebutting on it and any cogent reason held that the claim of the appellant is justified u/s. 35(1) (iv) of the Act relying on a self serving document.
3. On the facts and in the circumstances of the case, the learned CIT(Appeals) has erred in allowing relief of Rs. 2,05,98,700/- on account of depreciation on mouldign dies on the ground that ICICI Ltd. is the real owner of the machinery relying on the decision of 254TR 98 & 308 (SC). The case laws are distinguishable on the facts and circumstances of the case. Both these cases are.
4. On the facts and in the circumstances of the case, in respect of the disallowance made under Section 14A the Ld. CIT (A) has erred in directing the AO to verify the facts & figures & also if the assessee had applied provision of section 14A as the AO has rightly disallowed Rs. 37,82,447/- under Section 14A on the basis of the peak credit calculated by the assessee at the time of the assessment. The CIT(A) relied on the amendment of 40 Rule 8D(2) but directed the AO to take t he amount of interest for the purpose of applicability of Rule 8D(ii) only Rs.
1,11,43,922 as against the sum of Rs. 1,56,80,359/- t he CIT (A) has erred in excluding the sum of Rs. 43,56,437/- being the bank charges from total sum for calculating the disallowance Rule 8D of I.T. Rules. While deleting t he addition of depreciation of the Ld CIT(A) has taken the stand that payment of lease is a revenue expenditure but while calculating the interest under Rule 8D(2) the Ld. CIT (A) has excluded the payment of lease rental shown under the head "finance charges paid" by the assessee itself in the balance sheet. Such direction of CIT (A) is contradictory."
29. Ground 1 is general.
30. Grounds 2 to 2.1 of the appeal of revenue for AY 2006-07 is identical to Grounds 2 of appeal by the revenue for assessment year 2005-06 in ITA No. 2097/D/2009.
31. We have already held while disposing off the said issue that such ground is not maintainable. Therefore, following the said findings, we also reject this grounds raised by the revenue in the instant year.
4132. Ground 3 of Grounds of Appeal relate to relief of deduction on account of lease charges of machinery leased by ICICI Bank Ltd. to the assessee. The instant ground is also identical to Ground 3 as raised by revenue in ITA No. 2097/Del/2009 for assessment year 2005-06. Having regard to the findings and for the reasons stated thereon while disposing off the aforesaid ground in ITA No. 2097/Del/2009, the instant Ground is also rejected.
33. Ground 4 of the Grounds of Appeal relate to disallowance under section 14A of the Act.
34. This issue had come up before the Tribunal in ITA No. 3163/D/2009 in the cross-appeal filed by the assessee arising from order of CIT(A) for the instant assessment year. The Coordinate Bench of the Tribunal in order dated 15.10.2010 while deciding identical issue held as under:
"3. We have heard both the parties on this issue. Recently the decision of Hon'ble Bombay High Court has come in the case of Godrej and Boyce Manufacturing P. Ltd. 43 DTR 177 in which it has been held that rule 8D is not retrospective. Hence cannot be made applicable in AY 2006-07. Thus, to that extant the decision of Spl. Bench in the case of Daga Capital management P. Ltd. (26 SOT (SB) 603) has been over ruled. The Tribunal now is taking 42 consistent view and restoring matter back to the file of AO to reconsider the disallowance as aforementioned decision of Bombay High Court in the case of Godrej and Boyce Manufacturing P. Ltd. (supra).Recently on 4th April, 2010 similar issue was restored back to the file of AO in ITA No. 215/Del/10 in the case of Kahan International P. Ltd. vs. ITO vide para 5 of the said order in which (both of us are party):-
"5. We have heard the submissions of the Ld. DR of the revenue and have gone through the orders of the authorities below. The only grievance of the assessee is regarding disallowance made by the Assessing Officer of Rs. 2,33,540/- and this disallowance has been made on the basis that the assessee company did not havew any business income and had income on account of capital gains and interest only. Being aggrieved, the assesee carried the matter in appeal before Ld CIT(A) who has held that disallowance in this case has to be made in accordance with the provisions of section 14A read with Rule 8D of the IT Rules, 1962 and he directed the Assessing Officer to work out the disallowance in terms of Rule 8D while giving effect to his order. It is also held by Ld CIT(A) that disallowance to be made by the Assessing Officer as per his direction would result into enhancement. Ld CIT(A) has followed the decision of the Special Bench of the Tribunal rendered in the case of ITO v. Daga Capital Management Pvt. Ltd. as reported in 26 SOT (SB) 603. This disallowance has been confirmed by the Ld. CIT(A) on the basis of provisions of section 14A of the Income Tax Act, 1961 and Rule 8D of the IT Rules, 1962, since the assessee had divided 43 income also and therefore, it was held that the provisions of section 14A are applicable but as per the recent judgment of Hon'ble Bombay High Court rendered in the case of Godrej & Boyce Mfg. Pvt. Ltd. as reported in 43 DTR 177 (Bom.). Rule 8D is not retrospective and hence it cannot be made applicable in the assessment year 2006-07 as in the present case but still disallowance has to be made by the Assessing Officer on reasonable basis. We feel that this matter should go back to the file of the Assessing Officer for a fresh decision on this issue in the light of th ejudgment of Hon'ble Bombay High Court rendered in the case of Godrej Boyce Mfg. Co. (supra). We, therefore, set aside the order of Ld CIT(A) and restore the matter back to the file of the Assessing Officer for a fresh decision in the light of this judgment of Hon'ble Bombay High Court rendered in the case of Godrej Boyce Mfg. Co. (supra). The Assessing Officer should pass necessary order as per law as per above discussion after providing adequate opportunity of being heard to the assessee."
4. Following the aforementioned order, we restore this issue to the file of AO with similar directions. Ground no. 1 of the assessee shall be treated to be allowed for statistical purposes in the manner aforesaid."
35. Therefore, having regard to the above finding, Ground raised is allowed for statistical purposes.
4436. In the result, appeal filed by the revenue is partly allowed.
ITA No. 4327/Del/2010 for AY 2007-08:37. This appeal by the assessee arises from the order passed by the CIT(A) dated 28.7.2010 for AY: 2007-08. The assessee has raised the following grounds of appeal:
"1. The Ld. CIT (A) has grossly erred on facts as well as in law in confirming disallowance of Rs. 14,01,893/- u/s. 14A without appreciating the facts of the case especially the following:-
a) No expenditure was incurred in earning dividend income of Rs. 71,74,811/- & long term capital gain of Rs. 3,50,292/-
b) Rule 8D has been inserted w.e.f. 24.03.2008 and therefore, not applicable to AY: 2007-08
c) There is net interest income and not expenditure and therefore, no disallowance could be sustained u/r 8D(2)(ii).
d) There is no nexus between the exempt income and the impugned expenditure 45
e) Huge interest free funds are available to the extent of Rs.
76.62 crore as against peak investment of Rs. 25.25 crore.
2. The Ld. CIT (A) has grossly erred on facts as well as I law in confirming disallowance of Rs. 11,61,079/- after adjusting depreciation of Rs. 3,87,026/- from Rs. 15,48,105/- being 25% of technical know how fees inspite of the fact that it was revenue expenditure and no part of it was related to any capital expenditure.
3. Similarly the Ld. CIT (A) grossly erred on facts as well as in law in confirming disabling of Rs. 22,01,705/- being 25% of royalty subject to allowing of depreciation."
38. Ground 1 relates to disallowance of Rs. 14,01,893/- under section 14A of the Act. The identical issue had come up before us in Ground 4 of Grounds of Appeal for assessment year 2005-06 in appeal preferred by the revenue in ITA No. 2097/D/09 . While disposing off the said Ground, we have followed the order of Coordinate Bench of Tribunal in the case of assessee for assessment year 2005-06 in ITA No. 169/09 dated 17.8.2009 whereby the issue stood restored to the file of Assessing Officer in terms of directions stated therein.
39. Thus, following the said finding, instant Ground is also allowed for statistical purposes.
4640. Ground No. 2 relate to the confirmation of disallowance of Rs.
11,61,079/- after adjusting depreciation of Rs. 3,87,026/- from Rs.
15,48,105/- being 25% of technical know how fees inspite of the fact that it was revenue expenditure and no part of it was related to any capital expenditure.
41. We have heard the rival submissions. Article 15 of the agreement does not bar the assessee company to use the technical inputs provided by SNIC even after the expiration of the agreement.
The same can be utilized after the conclusion of the agreement. The clearly shows that the assessee had become the owner of the same and the assessee has derived a benefit of an enduring nature in terms of the judgment of the Hon'ble Supreme Court in the case of Southern Switch Gear Ltd. The AO has correctly disallowed only 25% of such expenditure. In view thereof, ground no. 2 raised by the assessee is dismissed.
42. Ground 3 is not pressed and is disposed of accordingly.
43. According, appeal filed by the assessee is partly allowed.
4744. In the result, both the appeals of the revenue as well as the appeal of the assessee are partly allowed.
The order is pronounced in the open court on 14.03.2018.
Sd/- Sd/-
[H.S. SIDHU] [B.P. JAIN]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 14th March, 2018
VL/
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar,
ITAT, New Delhi