ACIT, CIRCLE- 1, LTU, NEW DELHI vs. HERO MOTORS LTD., NEW DELHI

PER KULDIP SINGH, JUDICIAL MEMBER : Since common questions of facts and law have been raised in the aforesaid appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition (Rs.31,74,044/- & Rs.37,68,570/- for AYs 2013-14 & 2014-15 respectively) made by AO on the ground that the payment of expenses made to M/s Hero Global Design Ltd. were not incurred in ordinary course of business.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition on payment (Rs.31,74,044/- & Rs.37,68,570/- for AYs 2013-14 & 2014-15 respectively) to M/s Hero Global Design Ltd., without giving any finding in his appellate order whether the same expenses were incurred wholly and exclusively for the purpose of business.”

GROUDNS NO.1 & 2 IN ITA NO.5580/DEL/20117

Rather ld. CIT (A) has confused the entire controversy sought to be decided by the assessee by partly following his own order passed in the assessee. Thus, the entire findings are cryptic and incomprehensible. In these circumstances, we are of the considered view that the issue has not been examined by ld. CIT(A) by thrashing the facts in the light of the law applicable thereto. Consequently, this issue is remitted back to the ld. CIT(A) to decide afresh in the light of the decisions rendered by Hon’ble Delhi High Court in the cases of as Joint Investments (P.) Ltd. vs. CIT 372 ITR 694 and Maxopp Investment Ltd. vs. CIT – (2012) 347 ITR 272 (Del.) by providing an opportunity of being heard to the assessee. So, Grounds No.1 & 2 in & 5580/Del/2017 are determined in favour of the Revenue for statistical purposes.

GROUDNS NO.1 & 2 IN ITA NO.5580/DEL/20117 8. Disallowance of Rs.31,74,044/- & Rs.37,68,570/- for AYs 2013-14 & 2014-15 respectively made by the AO being the amount paid to M/s. Hero Global Design Limited on ground of not incurring the same wholly and exclusively for the purpose of business, has been deleted by the ld. CIT (A) by returning following findings :-

6 ITA No.5579/Del./2017 ITA No.5580/Del./2017 (AY 2014-15) “Ground No.1(c) pertains to a payment to M/s. Hero Global Design Limited. This issue discovered in favour of appellant by the decision of the undersigned for AY 12-13 in the case of the appellant in appeal no.14/15-16/CIT(1)-22, dated 02nd November 2016. Therefore, ground no.1(c) of the appeal is allowed and the corresponding addition is deleted.” ITA NO.5580/DEL/2017 (AY 2014-15) “Ground No.3 pertains to a payment to M/s. Hero Global Design Limited. This issue discovered in favour of appellant by the decision of the undersigned for AY 12-13 in the case of the appellant in appeal no.14/15-16/CIT(1)-22, dated 02nd November 2016. Therefore, ground no.3 of the appeal is allowed and the corresponding addition is deleted.”

9. It is brought to our notice by the ld. AR for the assessee that aforesaid findings returned by the ld. CIT (A) being based upon his own order for AY 2012-13 have been confirmed by the coordinate Bench of the Tribunal in assessee’s own case in for AY 2012-13 order dated 26.02.2020.

“8. It was submitted before the revenue authorities that M/s Hero Global Design Ltd. rendered Engineering Consultancy, CAD/CAM designing which are professional services technically called Re-Engineering Services using special ized software by which the fragmentation of drawings supplied by the customers of assessee into sub-parts is done to facilitate manufacturing and costing. Three diploma engineers and one ./2017 ITA No.5580/Del./2017 ITI is the total staff of M/s Hero Global Design Ltd. and the total salary of these persons in the books of M/s Hero Global Design Ltd is Rs.26.49 lakhs, while the total employee benefit expenses are Rs.28.22 lakhs. The billing is on man hour basis and the payment made by the assessee almost equals the salary cost of above four persons being employees of M/s Hero Global Design Ltd.

10. The ld. CIT (A) held that it is a fact that M/s Hero Global Design Ltd is located in the same premises as assessee and is a lessee of the assessee. It was doing the work of only the assessee and is running in losses mainly because of the interest and software cost/amortization/depreciation. The finance has also been provided by the assessee. There is no written agreement between the assessee and M/s Hero Global Design Ltd and the nature of services claimed are also of very basic nature as the basic designs are received from clients and the product is to be manufactured as per the said designs. The nature of services can at best be called a bridge with the ancillary suppliers/manufactures. The qualifications of the persons employed also do not establish any specialized technical services as none of them is even a graduate engineer. The quantum of payment is very small considering the turnover of the assessee. Moreover, once the sample production is approved, the same product is manufactured and supplied to the client in large numbers without any further payment to M/s Hero Global Design Ltd. The work done by M/s Hero Global Design Ltd could have been done by a small section in the assessee company within the very same premises by the same four employees. However, even then the assessee would have been required to pay salary to those four persons. Though the services have been rendered through M/s Hero Global Design Ltd, the payment made by the assessee to M/s Hero Global Design Ltd just matches the employee cost of M/s Hero Global Design Ltd, which would have been incurred even if those persons had been employed by the assessee. Consequently, the ld. CIT (A) held that the expenditure incurred is allowable u/s 37(1).