Loading judgment…
Facts
The assessee company filed a return declaring a loss. The case was selected for scrutiny, and notices were issued. International transactions led to a reference to the TPO, who made adjustments. The DRP dismissed objections but allowed 50% depreciation on capitalized service agreement fees.
Held
The Tribunal held that payments of royalty and FTS should be allowed, following the principle of consistency as applied by the Supreme Court and High Court, since there was no change in facts from the previous year. The issue of depreciation allowance was restored to the Assessing Officer for fresh decision.
Key Issues
Whether disallowance of royalty, FTS, and service agreement fees is justified, and if depreciation allowance on service agreement fees should be granted.
Sections Cited
143(3), 142(1), 143(2), 147, 263, 112(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘H’: NEW DELHI
Before: SHRI PRAKASH CHAND YADAV & SHRI BRAJESH KUMAR SINGH
ORDER PER PRAKASH CHAND YADAV, JM
The present appeal of the assessee is arising out of the order of the Ld. Assessing Officer dated 27.11.2017 and relates to Assessment year 2013-14.
Brief facts of the case as coming out of the orders of the authorities below are that the assessee company filed its return of income declaring a loss of Rs.(-)16,09,639/- on 30.11.2013. The return of income filed by the assessee was selected for scrutiny and statutory notices u/s 143(2) and 142(1) were issued to the assessee. Since, international transactions were involved in this case, a reference was made to the Transfer Pricing Officer (in short ‘TPO’) on 04.02.2016. The TPO after making certain adjustments, passed the order. Thereafter, the assessee filed its objection before the learned Dispute Resolution Panel (in short ‘DRP') and assailed the draft assessment order passed by the Assessing Officer. The ld. DRP could not find any force in the submission of the assessee and dismissed the objections of the assessee. However, the ld. DRP allowed 50% depreciation with respect to the service agreement fees capitalised by the assessee in its books of accounts. The Assessing Officer passed the final assessment order.
Aggrieved with the order of the Assessing Officer, the assessee has come up in appeal before us and challenged the orders of the authorities below on merits as well as on legal ground. The assessee has raised the legal issue by way of additional grounds. However, at the time of hearing, the ld. Counsel for the assessee did not press these legal grounds and hence these legal grounds are dismissed as not pressed.
4. So far as the grounds of appeal related to the merits of the case are concerned, the ld. Counsel for the assessee pointed out that basically, three disallowances have been made by the TPO.
A. Disallowance of royalty payments amounting to Rs.49,85,420/- B. Payment of FTS amounting to Rs.17,02,912/- C. Disallowance of Rs.29,93,920/- being service agreement fees.
5. The ld. Counsel for the assessee at the outset, argued that so far as the disallowance of royalty is concerned, the TPO has erred in determining the value of royalty at NIL on the ground that no benefits have been accrued to the assessee as a result of the payments of royalty. Similarly, for the FTS also, the TPO has held that no fruitful results have been obtained by the assessee. The ld. Counsel for the assessee further argued that the assessee has paid royalty in previous year also, assessment of which year has been completed u/s 143(3) of the Act and no action u/s 147 or 263 has ever been taken by the Revenue. The same arguments were raised for FTS also.
The ld. Ld. DR relied upon the orders of the authorities below and contended that each year is a separate year and principle of res-judicata are not applicable to the tax proceedings.
We have heard the rival submissions and perused the materials available on record. It is true that principle of res-judicata is not applicable to the tax proceedings. However, it is equally true that there has to be consistent in the approach of the Revenue. We observe that similar type of payments of royalty and FTS have been made by the assessee in previous year, assessment of which year has been completed u/s 143(3) of the Act.
When the Bench raised a query from the ld. Counsel for the assessee with regard to the term of agreement, in pursuance of which, the royalty and FTS have been paid, the ld. Counsel for the assessee pointed out that the same agreement was there for AY 2012-13 also and admissible for the impugned year. This has not been controverted by the ld. Sr. DR. Therefore, we are of the view that in view of principle of consistence as propounded by the Hon’ble Supreme Court in the case of Radhasoami Satsang Vs Commissioner Of Income reported in 193 ITR 321 (SC).
Similarly, the Hon’ble Delhi High Court in the case of Cairn U.K Holdings Limited vs Director Of Income-Tax reported in 359 ITR 268 (Del.) has held that there has to be consistency, uniformity and certainty in the approach of the Revenue. Relevant observations of the Hon’ble Jurisdictional High Court are extracted below.
“There is another aspect which should be taken into consideration and not ignored. Decision in the case of Timkin France SAS (Supra) was pronounced on 1st October, 2007, which has been followed by AAR in several cases over the last 3-4 years. Several decisions of AAR have been accepted by the Revenue on merits. We are informed that there are six such decisions and only in one case Revenue has challenged the decision of AAR. The decision of AAR in the present case dated 1st August, 2011, taking a diametrically reverse view has brought about an uncertainty in understanding the impact and the effect of the proviso to Section 112(1). Certainty is integral to rule of law. Certainty and stability form the basis foundation of any fiscal laws. Highlighting this fact in Vodafone International Holding B.V. Vs. Union of India, (2012) 341 ITR 0001, the Supreme Court has observed that foreign direct investment flows towards a location with a strong governance infrastructure which includes enforcement of laws and how well the legal system work. There should be consistency and uniformity in interpretation of provisions as uncertainties can disable and harm governance of tax laws. Authority should follow their earlier view, unless there are strong grounds and reasons to take a contrary view, but in the present case there is no compelling justification and reason to override and disturb the earlier view” 5.1 Respectfully following the view of the Jurisdictional High Court, we hold that the payments of royalty and FTS are to be allowed to the assessee as there is no change in facts and circumstances of the case, when compare to previous year.
So far as the last issue i.e. that 50% allowance on depreciation granted by the DRP is concerned, it is the case of the assessee that out of total payment attributable to the project cost, payment of Rs.2,45,00,000/- has been allowed to the assessee in previous year, and the balance payment of Rs 2,39,51,355/- has been disallowed to the assessee and only 50% depreciation attributable to this cost has been given by the DRP. We hereby restore this issue to the file of Assessing Officer for deciding afresh in accordance with law. The Assessing Officer will examine the nature of payment made and decide the issue in accordance with law.
In the result, the appeal of the assessee is allowed as indicated above.
Order pronounced in the open court on 16th May, 2025.