M/S. HONDA SIEL POWER PRODUCTS LTD.,GAUTAM BUDH NAGAR vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH ‘I-1’ NEW DELHI BEFORE : SHRI I.C. SUDHIR, JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA No.551/Del./2014 Asstt. Year : 2009-10 Honda Siel Power Product Ltd., vs. D.C.I.T., Circle 11(1) Plot No. 5, Sector 41, Kasna, New Delhi. Greater Noida Indl. Development Area, Gautam Budh Nagar, U.P. [PAN: AAACH8464L] ITA No. 636/Del./2015 Asstt. Year : 2010-11 Honda Siel Power Product Ltd., vs. D.C.I.T., Circle 11(1) Plot No. 5, Sector 41, Kasna, New Delhi. Greater Noida Indl. Development Area, Gautam Budh Nagar, U.P. (Appellant) (Respondent) Appellant by : S/Sh. Neeraj Jain, Adv., Romit Katyal, CA and Ms. Bhavita Kumari, Adv. Respondent by : Sh. Armendra Kumar, CIT/ DR

Date of hearing : 16.02.2016 Date of pronouncement : 13.04.2016 ORDER Per L.P. Sahu, Accountant Member: This appeal has been filed by the assessee against the assessment orders dated 11.12.2013 & 21.11.2014 passed u/s. 143(3) read with section

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144C of the IT Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment year 2009-10 and 2010-11 on the following grounds :

Grounds raised in A.Y. 2009-10: General: 1. That the impugned order of assessment framed by the assessing officer in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as ‘DRP’) under Section 143(3) read with Section 144C of the Income-tax Act, 1961 ( ‘Act’), is bad in law, violative of principles of natural justice and void ab-initio. 1.1. That assessing officer erred on facts and in law in computing the income of the appellant at Rs 39,11,70,920 against the returned total income of Rs.23,08,71,683. Transfer Pricing Issues: 2. That the assessing officer erred on facts and in law in making addition to the income of the appellant to the extent of Rs.5,25,76,004 on account of the alleged difference in the arm’s length price of international transactions. Advertisement, marketing and sales promotion expenses: 3. That the assessing officer erred on facts and in law in making transfer pricing adjustment in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as ‘the AMP expenses’) incurred by the appellant. 3.1. That on the facts and in the circumstances of the case, the DRP erred in law in upholding, in principle, transfer pricing adjustment made by the assessing officer / TPO in respect of expenditure incurred on AMP expenses. 3.2. The Assessing Officer / TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm’s length price (ALP) and the contract or declared price.

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3.3. The DRP erred on facts and in law in not appreciating that the Transfer Pricing adjustment sought to be made by the TPO in the present case was a mere quantitative adjustment, on the footing that the Appellant had incurred an excessive amount of AMP expenditure , and not on the footing that there was a difference between the ALP and the contract or declared price, and that a Transfer Pricing adjustment was not at all permitted or authorized by Chapter X of the Act. 3.4 The DRP erred on facts and in law in not holding that merely because the Indian company has incurred expenditure on product advertisements including the foreign brand and the AMP expenses incurred by the taxpayer, which are proportionately higher than those incurred by comparable cases, it does not lead to the inference of “transaction” between the taxpayer and the foreign AE for creating marketing intangibles on behalf of the later. 3.5. The DRP/TPO erred on facts and in law in holding that expenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 3.6. That the assessing officer erred on facts and in law in not appreciating that the characterization of the appellant being that of a full fledged manufacturer and the sole beneficiary of the AMP expenditure incurred by it, justifies the conduct of the appellant in incurring and bearing the cost of AMP expenditure. 3.7. The DRP erred on facts and in law in not holding that expenditure on advertisement and brand promotion, unilaterally incurred by the appellant, could not be regarded as a ‘transaction’ in the absence of any proved understanding / arrangement between the appellant and the associated enterprise. 3.8. The Assessing Officer/TPO erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an

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international transaction as per section 92B, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act. 3.9. The DRP/TPO erred on facts and in law in not appreciating that in absence of any understanding / arrangement between the appellant and the associated enterprise, the associated enterprise was under no obligation to reimburse AMP expenses incurred by the appellant for sale of its products in India. 3.10. The DRP/TPO erred on facts and in law in not appreciating that the advertisement and marketing expenses were incurred by the appellant wholly and exclusively for purposes of its business and not on behalf of or for the benefit of the AE; any benefit to the AE being only incidental. 3.11 That the assessing officer erred on facts and in law in not appreciate the A&M expenses incurred by the Assessee were towards the products manufactured and owned by the assessee and not towards the brand, per se; 3.12 That the assessing officer erred on facts and in law in not appreciating that the AMP expenses incurred by the appellant, did not result in creation of any marketing intangibles; much less on account of the AE. 3.13 Without prejudice that the assessing officer erred on facts and in law in ignoring the fact that, since the appellant earns return commensurate with other brand owners, the appellant is adequately compensated for its functions and AMP expenses. 3.14 Without prejudice that the assessing officer/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm’s length applying Transactional Net Margin Method (“ TNMM”). 3.15 The Assessing Officer/TPO erred on facts and in law in applying Bright Line Test (“BLT”) for computing adjustment on account of expenditure on advertisement and brand promotion expenses,

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without appreciating that in absence of specific provision in the Transfer Pricing statutory provisions in India., adjustment on account of the arm’s length price of the advertisement and brand promotion expenses could not be made. 3.16 The assessing officer/TPO erred on facts and in law in not appreciating that such a Transfer Pricing adjustment cannot at all be made in law without determining the Arm’s Length Price (“ALP”) by applying one of the methods specified in section 92C of the Act. 3.17. The assessing officer/TPO erred on facts and in law in not appreciating that merely because the net profit rate of the appellant was better than the corresponding net profit rate of comparable companies, would not lead to the conclusion that incurring of AMP expenses for the AE was at arm’s length. 3.18 That the assessing officer/TPO erred on facts and in law in ignoring that “bright line limit” is not a prescribed method under the purview of section 92C of the Act. 3.19 Without prejudice that the assessing officer/TPO erred on facts and in law in not appreciating that for determining whether the AMP expenses incurred by the appellant could be said to be excessive, only the appropriate comparables having similar product / brand profile as the appellant could be considered in terms of Rule 10B(2) of the Income-tax Rules, 1962 read with section 92C of the Act. 3.20 That the assessing officer/TPO erred on facts and in law in failing to appreciate that the appellant has long-term rights to use the trademark/ licensed intangibles and reaps all the benefits of the said AMP expenses and is thus the economic owner of any related marketing intangible. 3.21 That the assessing officer/TPO erred on facts and in law in failing to appreciate that all the key decisions with respect to advertising, marketing, selling and distribution of the products manufactured by the appellant for sale in designated territories are taken by the appellant and consequently, the appellant is responsible / eligible for the related risks and reward.

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3.22 That the assessing officer/TPO erred on facts and in law in holding that the appellant should have earned a mark-up in respect of the AMP expenses, alleged to have incurred for and on behalf of the associated enterprise. 3.23 Without prejudice that, the assessing officer/TPO erred on facts and in law in holding the AMP expenses incurred by the appellant to be “excessive” on the basis of a “bright line limit” arrived at by considering inappropriate comparables, not having similar product/ brand profile as the appellant. 3.24 Without prejudice that the assessing officer/TPO erred on facts and in law in considering selling and distribution expenses for the purpose of calculating alleged AMP expenditure of the appellant. 3.25 Without prejudice that the assessing officer/TPO erred on facts and in law in considering the following companies as comparable for benchmarking advertisement and publicity expenses: Advertisement expenses Companies (% of sales) 1.Jyoti Ltd. 0.02 2.Powerica Ltd. (in lacs). 0.37 3.Shakti Pumps (India) Ltd. 8.16 4.WPIL Ltd. 2.53 5.Elgi Electric &Inds. Ltd. 8.90 6.Jaksons Ltd. 0.90 7.Power Build Ltd. 2.53 Average 3.34 3.26 That the assessing officer/TPO erred on facts and in law in holding that incurring of AMP expenses was a separate transaction and is to be evaluated separately. 3.27 That the assessing officer / TPO erred on facts and in law in holding that the appellant has rendered service to the AEs by incurring the AMP expense and by holding that markup has to be earned by the

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appellant in respect of the AMP expenses, alleged to have incurred for and on behalf of the AE. 3.28 Without prejudice, the assessing officer/TPO erred on facts and in law in not appreciating that markup, if at all, had to be restricted to the value added expenses incurred by the appellant for providing the alleged service in the nature of brand promotion. Royalty in respect of exports made to associated enterprises : 4. That the assessing officer/TPO erred on facts and in law in holding that arm’s length price of international transactions of payment of royalty on exports made to the associated enterprises of Rs.45,67,000 was nil. 4.1 . That the assessing officer/TPO erred on facts and in law in holding that the assessee was acting as a contract manufacturer and hence royalty paid as percentage of sale to the associated enterprises is not at arm’s length as it amounts to collecting royalty on the sale to itself. 4.2. That the assessing officer/TPO erred on facts and in law in holding that where the appellant is making part of its sales to related parties and the benefit of purchasing components is reaped by the associated enterprise, the payment of royalty do not confirm to arm’s length price. 4.3. That the assessing officer/TPO erred in not appreciating that the royalty paid in terms of agreement duly approved by the Central Government, cannot be referred as a non bonafide payment not satisfying the arm’s length test. 4.4. That the assessing officer/TPO erred in not appreciating that payment of royalty is a necessary cost incurred by the appellant for manufacture of goods.

Corporate Tax Issues: 5. That the assessing officer erred on facts and in law in disallowing royalty amounting to Rs.5,08,52,635 and technical guidance fee

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amounting to Rs.1,36,21,453 paid to Honda Motor Company, Japan as per the ‘Technical Collaboration Agreement’ (“TCA”) as capital expenditure incurred for acquisition of intangible asset and instead allowing depreciation @25%. 5.1 Without prejudice, that the assessing officer erred on facts in disallowing technical guidance fee of Rs.1,36,21,453 in place of Rs.1,00,56,950. 5.2. That the assessing officer erred on facts and in law in holding that in terms of the Technical Collaboration Agreement, intellectual property right developed by Honda, Japan has been transferred to the appellant. 5.3. That the assessing officer erred on facts and in law in holding that in terms of TCA, patent for the new developed project has been transferred to the licensor, i.e., appellant. 5.4. That the assessing officer erred on facts and in law in holding the payment of royalty and technical guidance fee to be capital expenditure on the ground that–

(i) In the event of the expiration of the contract, the assessee may continue to use the know-how and the Industrial Property Rights for the purposes of manufacture, assembly, procurement, sale, delivery and service of the products and the parts. (ii) The terms of agreement are quite comprehensive and the whole technical know-how to set up the business of the appellant are provided by Honda. (iii) The assessee has paid the royalty for the acquisition of an indivisible, non-transferable and exclusive license in favour of the appellant to manufacture and assemble the products and the parts in the territory, and to sell and distribute in the territory the products and the parts so manufactured or assembled or procured. (iv) The assessee can grant indivisible and non-transferable sublicenses to use the know-how to Indian persons, companies or other

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legal entities exclusive privilege of manufacturing and selling the products. (v) In the event of the expiration of the contract, the appellant may continue to use the know-how and the Industrial property Rights is capital in nature. 6. That the assessing officer erred on facts and in law in disallowing export commission paid to M/s Honda Motor Co. Ltd. of Japan of Rs.4,32,49,149 invoking section 40 (a) (i) of the Act holding the same to be royalty/fee for technical service on which allegedly the assessee had failed to deduct tax at source as per section 195 of the Act. 6.1. That the assessing officer erred on facts and in law in law in holding that the payments of export commission was towards royalty/fee for technical services as the same was in consideration for (i) right to use trademark, (ii) permission to export and (iii) in lieu of managerial and technical services provided by Honda, and accordingly the appellant was under obligation to deduct tax at source there from as per section 195 of the Act. 6.2. That the assessing officer erred on facts and in law in not appreciating that payment of export commission to Honda does not result in an income accruing or arising in India in terms of section 9(1) of the Act and hence is not liable to tax in India. 6.3 That the assessing officer erred on facts and in law in not appreciating that the payment of export commission was made to Honda in consideration of according consent for ceding overseas territory permitting export of motorcycle and spares by the appellant.

6.4 That the assessing officer erred on facts and in law in not appreciating that services / assistance provided by Honda were incidental to the right for exploiting the foreign territory and were not in the nature of ‘fee for technical services’.

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6.5 That the assessing officer erred on facts and in law in not appreciating that the payment of export commission was not consideration for use of trade mark or provision of technical assistance, for which separate royalty payment was being made on which tax is duly deducted under section 195 of the Act.

6.6. Without prejudice that the assessing officer erred on facts and in law in not appreciating that payment of export commission being for earning income from source outside India, cannot be characterized as royalty or fee for technical service as per section 9(1)(vi)(b) or section 9(1)(vii)(b) of the Act respectively. 7. That the assessing officer erred on facts in not allowing credit for tax deducted at source amounting to Rs.71,407 from the tax payable without assigning any reason thereof. 8. That the assessing officer erred on facts and in law in levying interest under section 234B of the Act.”

Grounds raised in A.Y. 2010-11: “General: 1. That the impugned order of assessment framed by the assessing officer in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as ‘DRP’) under Section 143(3) read with Section 144C of the Income-tax Act, 1961 ( ‘Act’), is bad in law, violative of principles of natural justice and void ab-initio. 1.1 That assessing officer erred on facts and in law in computing the income of the appellant at Rs 43,72,68,200 against the returned total income of Rs.31,80,76,602. Transfer Pricing Issues: 2. That the assessing officer erred on facts and in law in making addition to the income of the appellant to the extent of Rs.11,36,67,464 on account of the alleged difference in the arm’s length price of international transactions.

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Advertisement, marketing and sales promotion expenses: 3. That the assessing officer erred on facts and in law in making transfer pricing adjustment amounting to Rs. 10,98,88,464 in relation to the advertisement, marketing and sales promotion expenses (hereinafter referred to as ‘the AMP expenses’) incurred by the appellant. 3.1 Whether on the facts and in the circumstances of the case, the DRP erred in law in upholding, in principle, transfer pricing adjustment made by the assessing officer / TPO in respect of expenditure incurred on advertising, marketing and publicity (“AMP expenses”)? 3.2 The DRP/TPO erred on facts and in law in not appreciating that the only Transfer Pricing adjustment permitted by Chapter X of the Act was in respect of the difference between the arm’s length price (ALP) and the contract or declared price. 3.3 The DRP erred on facts and in law in not appreciating that the Transfer Pricing adjustment sought to be made by the TPO in the present case was a mere quantitative adjustment, on the footing that the Appellant had incurred an excessive amount of AMP expenditure , and not on the footing that there was a difference between the ALP and the contract or declared price, and that a Transfer Pricing adjustment was not at all permitted or authorized by Chapter X of the Act. 3.4 The DRP erred on facts and in law in not holding that merely because the Indian company has incurred expenditure on product advertisements including the foreign brand and the AMP expenses incurred by the taxpayer, which are proportionately higher than those incurred by comparable cases, it does not lead to the inference of “transaction” between the taxpayer and the foreign AE for creating marketing intangibles on behalf of the later. 3.5 That the DRP/TPO erred on facts and in law in not appreciating that since the appellant was performing the key people/critical decision making functions with regard to advertisement and marketing activity, the risk related to such activity ought to have been borne by the appellant. 3.6 That the DRP/TPO erred on facts and in law in not appreciating the fact that since the appellant was bearing the risk related to the marketing activity and was also entitled to retain the profit attributable to such

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activity, the appellant had rightly borne the expenditure relatable to such marketing function. 3.7 That the DRP/TPO erred on facts and in law in re-characterizing the appellant, a licensed manufacturer, as a limited risk service provider entitled to cost plus remuneration for its marketing efforts. 3.8 The DRP/TPO erred on facts and in law in holding thatexpenditure incurred by the appellant which incidentally resulted in brand building for the foreign AE, was a transaction of creating and improving marketing intangibles for and on behalf of its foreign AE and further that such a transaction was in the nature of provision of a service by the appellant to the AE. 3.9 That the assessing officer erred on facts and in law in not appreciating that the characterization of the appellant being that of a full fledged manufacturer and the sole beneficiary of the AMP expenditure incurred by it, justifies the conduct of the appellant in incurring and bearing the cost of AMP expenditure. 3.10 The DRP erred on facts and in law in not holding that expenditure on advertisement and brand promotion, unilaterally incurred by the appellant, could not be regarded as a ‘transaction’ in the absence of any proved understanding / arrangement between the appellant and the associated enterprise. 3.11 The DRP/TPO erred on facts and in law in not appreciating that the AMP expenses, etc., unilaterally incurred by the appellant in India could not be characterized as an international transaction as per section 92B, in the absence of any proved understanding / arrangement between the appellant and the associated enterprise, so as to invoke the provisions of section 92 of the Act. 3.12 That the DRP/TPO erred on facts and in law in not appreciating that unilaterally incurring of AMP expenses by the appellant does not result in an international transaction in terms of section 92B of the Act, even after its amendment by the Finance Act, 2012. 3.13 The DRP/TPO erred on facts and in law in not appreciating that in absence of any understanding / arrangement between the appellant and

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the associated enterprise, the associated enterprise was under no obligation to reimburse AMP expenses incurred by the appellant for sale of its products in India. 3.14 That the DRP/TPO erred on facts and in law by questioning the commercial expediency of AMP expenditure incurred by the appellant and assuming that benefit has accrued to AE on account of AMP expenses incurred by the appellant in India. 3.15 The DRP/TPO erred on facts and in law in not appreciating that the advertisement and marketing expenses were incurred by the appellant wholly and exclusively for purposes of its business and not on behalf of or for the benefit of the AE; any benefit to the AE being only incidental. 3.16 That the DRP/TPO erred on facts and in law in not appreciating that no adjustment on account of allegedly excess AMP expenditure is warranted in the case of the appellant as such expense have been found to constitute bonafide and deductible business expenditure. 3.17 That the assessing officer erred on facts and in law in not appreciate the A&M expenses incurred by the Assessee were towards the products manufactured and owned by the assessee and not towards the brand, per se; 3.18 That the assessing officer erred on facts and in law in not appreciating that the AMP expenses incurred by the appellant, did not result in creation of any marketing intangibles; much less on account of the AE. 3.19 Without prejudice that the assessing officer erred on facts and in law in ignoring the fact that, since the appellant earns return commensurate with other brand owners, the appellant is adequately compensated for its functions and AMP expenses. 3.20 Without prejudice that the assessing officer erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm’s length applying Transactional Net Margin Method (TNMM). 3.21 The DRP/TPO erred on facts and in law in applying Bright Line Test (“BLT”) for computing adjustment on account of expenditure on

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advertisement and brand promotion expenses, without appreciating that in absence of specific provision in the Transfer Pricing statutory provisions in India., adjustment on account of the arm’s length price of the advertisement and brand promotion expenses could not be made. 3.22 The DRP/TPO erred on facts and in law in not appreciating thatsuch a Transfer Pricing adjustment cannot at all be made in law without determining the Arm’s Length Price (“ALP”) by applying one of the methods specified in section 92C of the Act. 3.23 The DRP/TPO erred on facts and in law in not appreciating that merely because the net profit rate of the appellant was better than the corresponding net profit rate of comparable companies, would not lead to the conclusion that incurring of AMP expenses for the AE was at arm’s length. 3.24 That the assessing officer erred on facts and in law in ignoring that “bright line limit” is not a prescribed method under the purview of section 92C of the Act. 3.25 Without prejudice that the DRP/TPO erred on facts and in law in not appreciating that for determining whether the AMP expenses incurred by the appellant could be said to be excessive, only the appropriate comparables having similar product / brand profile as the appellant could be considered in terms of Rule 10B(2) of the Income-tax Rules, 1962 read with section 92C of the Act. 3.26 That the assessing officer erred on facts and in law in holding that the appellant should have earned a mark-up in respect of the AMP expenses, alleged to have incurred for and on behalf of the associated enterprise. 3.27 Without prejudice that, the assessing officer erred on facts and in law in holding the AMP expenses incurred by the appellant to be “excessive” on the basis of a “bright line limit” arrived at by considering inappropriate comparables, not having similar product/ brand profile as the appellant. 3.28 Without prejudice that the assessing officer erred on facts and in law in considering selling and distribution expenses amounting to Rs. 7,13,41,000 for the purpose of calculating alleged AMP expenditure of the appellant

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3.29 Without prejudice that the assessing officer/TPO erred on facts and in law in considering the following companies as comparable for benchmarking advertisement and publicity expenses: Advertisement expenses Companies (% of sales) 1. Birla Power Solutions Ltd. 1.43% 2. Greaves Cotton Ltd 0.32% 3. Gujarat Forgings Ltd 1.61% 4. Jaksons Ltd 0.60% 5. Kirloskar Brothers Ltd 1.25% 6. Powerica Ltd 0.22% 7. Shakti Pumps Ltd 2.74% 8. Southern Agro Engines Pvt NA Ltd 9. SudhirGensets Ltd 0.28% 10. Supernova Engineers Ltd 0.51% Average 1.00% 3.30 Without prejudice, that on facts and circumstances of the case the DRP/TPO ought to have considered the following companies as comparable for benchmarking the advertisement and publicity expenses: Name of the Company AMP/Sales Kirloskar Brothers Ltd. 4.70% Kirloskar Oil Engines 4.04% Ltd. Best and Crompton 4.42% Engg Ltd Average 4.39% 3.31 Without prejudice that the assessing officer/TPO erred on facts and in law, in not appreciating that the AMP expenses incurred by the appellant was appropriately established to be at arm’s length applying Transactional Net Margin Method (TNMM)..

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3.32 That the assessing officer/TPO erred on facts and in law in holding that incurring of AMP expenses was a separate transaction and is to be evaluated separately.

3.33 That the assessing officer / TPO erred on facts and in law in holding that the appellant has rendered service to the AEs by incurring the AMP expense and by holding that markup has to be earned by the appellant in respect of the AMP expenses, alleged to have incurred for and on behalf of the AE. 3.34 Without prejudice, the assessing officer/TPO erred on facts and in law in not appreciating that markup, if at all, had to be restricted to the value added expenses incurred by the appellant for providing the alleged service in the nature of brand promotion. Royalty in respect of exports made to associated enterprises: 4. That the assessing officer/TPO erred on facts and in law in holding that arm’s length price of international transactions of payment of royalty on exports made to the associated enterprises of Rs.37,79,000 was nil. 4.1 That the assessing officer/TPO erred on facts and in law in holding that the assessee was acting as a contract manufacturer and hence royalty paid as percentage of sale to the associated enterprises is not at arm’s length as it amounts to collecting royalty on the sale to itself. 4.2 That the assessing officer/TPO erred on facts and in law in not appreciating that the transaction of sale of goods by the appellant to associated enterprises was undertaken on a principal to principal basis, wherein the appellant is acting as a licensed manufacturer 4.3 That the assessing officer/TPO erred on facts and in law in arbitrarily holding that “where the assessee company is making a part of its sales to its related parties and the benefit of producing components is reaped by AE, the payment for charges for royalty does not confirm to the arm’s length principle”.

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4.4 That the assessing officer erred on facts and in law in not appreciating that the royalty is paid by the appellant on net sales after deducting the cost of imported components, standard bought out components and export commission. 4.5 That the assessing officer/TPO erred in not appreciating that the royalty paid in terms of agreement duly approved by the Central Government, cannot be referred as a non bonafide payment not satisfying the arm’s length test. 4.6 That the assessing officer/TPO erred in not appreciating that payment of royalty is a necessary cost incurred by the appellant for manufacture of goods. Corporate Issues Re: Disallowance of relocation expenses

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Chartered Accountants of India, to be an unascertained liability, which was not an allowable expense 6.2 Without prejudice, that the assessing officer/DRP erred on facts and in law in making the aforesaid disallowance of the amount of provision for slow moving inventory and not appreciating that the aforesaid disallowance was revenue neutral in nature, because as and when the aforesaid inventory will be sold, the loss relating to the same will not be debited in Profit & Loss statement.” 2. Since both these appeals were heard together and major issues involved in these appeals are common, we deem it appropriate to decide both these appeals simultaneously by this consolidated order for the sake of convenience and brevity.

3.1. On the issue of export commission, the AO found that the export commission is in the nature of royalty/ fees for technical services. As no tax was deducted at source, the payment of Rs. 4,32,49,149 was not allowed as

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deduction by invoking section 40(a)(i) of the Act. Alternately, the AO held that the expenditure in question is purely for the use of license acquired by the assessee, which was for a long period of time and thus would constitute a capital asset. Accordingly, the payment of export commission was disallowed.

3.2. The AO also noticed that the assessee had entered into international transactions during the year under consideration. The TPO in the order dated 14.12.2012 made an adjustment of Rs. 4,80,08,814 on account of the difference in advertisement and promotion expenditure of the assessee company and the arm’s length price of subsidy received from the associated enterprises. The AO further made disallowance of royalty payment of Rs. 45,67,000 on account of sales made to associated enterprises.

3.4. The assessee carried the matter in appeal before the DRP. The DRP-1, New Delhi in it’s order has sustained the various additions/ disallowances made in the assessment order.

4.1 The AO further made addition of Rs. 1,11,47,000 towards relocation expenses towards shifting of factory of the assessee company, on the ground

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that such expenditure was capital in nature and had resulted in benefit of enduring nature to the assessee company. The AO also noted that the amount of Rs. 11,76,382 debited in the profit & loss account of the assessee company towards Provision of Slow Moving Inventory was not to be allowed since such expenditure in the nature of provision.

4.2 The AO further noticed that the assessee had entered into international transactions during the year under consideration. The TPO in the order dated 31.12.2013 made an adjustment of Rs. 10,98,88,464 on account of the difference in advertisement and promotion expenditure of the assessee company and the arm’s length price of subsidy received from the associated enterprises. The AO further made disallowance of royalty payment of Rs. 37,790,00 on account of sales made to associated enterprises.

4.3. The assessee carried the matter in appeal before the DRP. The DRP-I, New Delhi in its order dated 21.11.2014 directed the AO to delete the disallowance of payment of royalty and technical guidance fee by following the order of the Honble ITAT, ‘I’ Bench. Delhi in the assessee’s own case for assessment year 2007-08 in ITA No. 5713/Del/2011 dated 25.07.2014.

4.4 However, the DRP sustained the additions made by the AO/ TPO on all other issues.

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In the Transfer Pricing study report, the international transactions have been benchmarked using Transactional Net Margin Method (“TNMM”) as the most appropriate method with Operating Profit/Operating Revenue (OP/OR) ratio as profit level indicator. For the purpose of selecting comparables the appellant has selected companies engaged in manufacturing of engine and generators and the following filters were used for rejecting non-comparable companies: a. Companies for which sufficient information is not available b. Companies that do not have significant (less than 25%) foreign exchange earnings; c. Companies that have substantial (excess of 25%) related party transactions; d. Companies incurring persistent losses Accordingly, the appellant has analysed the OP/TC ratio of the following 10 comparable companies: S. Company Name OP/OC Economic Activity No. % 1 Birla Power Solutions -3.70% Gensets 2 Greaves Cotton Ltd 10.31% Gensets and Engines 3 Gujarat Forgings Ltd 4.56% Diesel Engines, Pumpsets 4 Jaksons Ltd 6.51% Gensets 5 Kirloskar Bros Ltd 7.65% Industrial and Engineering Pumps 6 Powerica Ltd 12.48% Diesel and gas gensets 7 Shakti Pumps Ltd 12.28% Submersible and booster pumps 8 Southern Agro Engines 4.62% Engines and pumpsets Pvt Ltd 9 SudhirGensets Ltd 16.80% Gensets 10 Supernova Engineers 4.53% Diesel and gas gensets Ltd Average PLI 7.60% Appellant 10.67% Since the operating profit margin of the comparables at 7.60% was less than the operating profit margin of the appellant at 10.67%, the international transactions were stated to be at arm’s length applying TNMM as most appropriate method.

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The benchmarking analysis, as aforesaid, undertaken by the appellant, was not disputed by the TPO and the international transactions have been considered to be at arm’s length. The TPO, however, has proceeded to undertake the benchmarking analysis of advertisement, marketing and sales promotion (AMP) expenses aggregating to Rs.12,62,35,000 incurred by the appellant on the products “Honda” during the relevant previous year, as follows: Particulars Amount (Rs.) Commission on sales 5,02,96,000 Advertisement and publicity 1,76,58,000 Sales Promotion 3,72,36,000 Total 12,62,35,000 The Transfer Pricing Officer (TPO) had undertaken benchmarking analysis of AMP expenses incurred by the appellant allegedly applying the Bright Line Test. The TPO has held that the AMP expenses to that extent were incurred for creating marketing intangible of ‘Honda’ brand which belongs to the associated enterprise and, therefore, requires compensation along with a mark-up for the brand promotion services. For applying bright line test, the TPO compared AMP expenditure of 4.13% (as a percentage of total turnover) incurred by the appellant with average AMP expenditure of 1% of the following comparable companies: Name of company AMP/sales Birla power solutions 1.43% Greaves Cotton 0.32% Gujarat Forgings Ltd 1.61% Jaksons Ltd 0.60% Kirloskar Brother Ltd 1.25% Powerica Ltd 0.22% Shakti Pumps Ltd 2.74% SudhirGensets Ltd 0.28% Supernova Engineers Ltd 0.51%

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Arithmetic Mean 1.00%

The TPO accordingly, held that, since the ratio of AMP expenses as a percentage of sales in case of the appellant at 4.13% was higher than AMP expenses of 1% incurred by the above comparable companies, the appellant had incurred non-routine AMP expenses to the extent of the differential, which resulted in creation of marketing intangibles on account of promotion and development of brand, viz., ‘Honda’ owned by the associated enterprise. The Transfer Pricing Officer, accordingly, in the order passed under section 92CA(3) of the Act made an adjustment of Rs. 10,98,88,464 on account of the alleged difference in advertisement and promotion expenditure incurred by the appellant and the arm’s length price of subsidy received from the associated enterprises (AEs) as follows: Computation of TP adjustment Amount (Rs. in lacs) Value of sales 3,058,005,000 AMP / Sales of the comparables 1% Amount that represents bright line 30,580,000 Expenditure on AMP by assessee 12,62,35,000 Expenditure in excess of bright line 9,56,55,000 Mark-up @ 14.88% 1,42,33,464 Reimbursement that assessee should 10,98,88,464 have received. Adjustment to assessee’s income 10,98,88,464 A Special Bench was constituted in the matter of L.G. Electronics India Pvt. Ltd., to consider the above controversy relating to transfer pricing adjustment in relation to AMP expenses. The Special Bench, vide order dated 23-01-2013 in ITA No. 5140/Del/2011, delivered its decision. Majority of the Special Bench of the Tribunal arrived, inter alia, at the following conclusion: (i) Where the Indian company has incurred expenditure on advertisements of the foreign brand and the AMP expenses incurred by the taxpayer are proportionately higher than those incurred by comparable cases, the same leads to the inference of “transaction” between the taxpayer and the foreign AE for creating marketing intangibles on behalf of the later.

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(ii) The transaction of brand building is a transaction of creating and improving marketing intangibles by the taxpayer for and on behalf of its foreign AE; such transaction is in the nature of provision of service. (iii) The bright line test is used only to ascertain the cost / value of service rendered by the taxpayer to foreign AE towards creation and improvement of marketing intangibles. (iv) The Special Bench accordingly held that AMP expense may result in transaction or international transaction, which may be benchmarked under the Transfer Pricing Regulations. 1. No international transaction The said decision of Special Bench of the Tribunal recently was considered by the Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt. Ltd. Vs. CIT 374 ITR 118. In the said decision the Hon’ble Delhi High Court considered the case of limited risk distributors, i.e., Sony Ericsson, Canon and Reebok, etc., wherein, the existence of international transaction on account of AMP expenditure was admitted and reported. The Delhi High Court in the said decision upheld TP adjustment in respect of AMP expenses only in respect of limited risk distributors and not in respect of full risk manufacturers. The High Court followed and applied para 6.38 of the OECD Transfer Pricing Guidelines. It is of vital importance to note that the Guidelines apply only to limited risk distributors and not to full risk manufacturers like the appellant Further, at para 124 of the order, the Hon’ble High Court has distinguished between the functional profile of a limited risk distributor and a full risk distributor. The Hon’ble High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd (supra) has further held that no transfer pricing adjustment in respect of AMP expense can be made where the assessee (Indian entity) has economic ownership of the brand/logo/trademark in question, in the case of long term right of use of the same. This principle also squarely covers the present case. The appellant has a long term agreement for the use of the trademark ‘Honda’ in India. This clearly evidences the fact that the economic benefit arising out of the alleged promotion of the AE’s logo is being enjoyed by the appellant. There is a clear opportunity and reasonable anticipation for the appellant to benefit from the marketing activities undertaken by it. This is

26 ITA Nos.551/Del./2014 & 636/Del./2015

clearly evidenced by the significantly higher profits made by assessee compared to its industry peers and also the very sizable year on year increase in its turnover. In view of the aforesaid, it is respectfully submitted that the economic ownership of the trademark ‘Honda’ rests with the appellant. The Hon’ble High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT (ITA No 16/2014) disagreed with the finding of the Special Bench that the concept of economic ownership is not recognized under the Act. As held by the Hon’ble Delhi High Court decision in the case of Sony Ericsson Mobile Communications (supra), if the Indian entity is the economic owner of the brand and is incurring AMP expenses for the purpose of promotion of such brand, benefit is only received by the Indian entity. It is respectfully submitted that the economic ownership of the brand rests with the appellant and accordingly, the appellant cannot be expected to seek compensation for the expenditure incurred on the asset economically owned by it. No Transfer Pricing adjustment on account of AMP expenses would be warranted. The aforesaid test is fully satisfied in the case of the appellant and the Transfer Pricing adjustment on account of AMP expenses made by the TPO is liable to be deleted. It is submitted that in case of a Distributor of the products of the AE, the overseas supplier of the goods has a higher potential of repatriating profits from India by way of higher product pricing and squeezing the return left for the Indian distributor. It is pertinent to note that ordinarily for a distributor, who is functionally only a reseller and typically does not add value, the cost of sales (comprising essentially of finished good purchases) to sales is a significant percentage. In case of manufacturer, any expenditure incurred on account of advertisement and marketing expenses are borne by it and the related benefits also accrue to the manufacturer. The functions performed by the manufacturer in India are significant and value adding and accordingly the returns for such functions vests with the Indian manufacturer. With respect to the manufacturing and sales of all the different variants of the product “Honda” (which Trademark is owned by the AE), the following operations are exclusively done/borne by the appellant without any intervention of the AE: - Strategic business planning - Manufacturing and packing operations - Raw material procurement - Specifications of the final product

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- Quality Testing - Technology and legal compliance - Selling and Distribution - Marketing and promotional strategy - Annual advertisement spends - Choice of media - Scope of marketing - Product recall - Risk of product expiry/loss - Consumer complaints - Financial Risks (Working capital, Inventory, Credit risk/bad debt, etc.) - Employment of assets (land, building, plant & machinery, Information technology, Finance, Office equipments, etc.) Hence it would be appreciated that the appellant, being a full-fledged manufacturer and not a distributor, the entire AMP expense is incurred at its own discretion and for its own benefit for sale of Honda products in India. In such circumstances, there does not result an international transaction and the appellant cannot be expected to seek compensation for the allegedly excess AMP expenditure incurred by it. The appellant, being a full-fledged manufacturer and not a distributor, entire AMP expense is incurred at its own discretion and for its own benefit for sale of Honda products in India. In the case of the appellant, the advertisements are aimed at promoting the sales of the product sold under trademark ‘Honda’ manufactured by the appellant and not towards promoting the brand name of the AE. In such circumstances, the alleged excess AMP expenditure does not result in an international transaction and the appellant cannot be expected to seek compensation for such expenses unilaterally incurred by it from the AE. 2. Nature of advertisements: It is submitted that advertisement and selling expenses have been incurred by the assessee only on the products dealt in by the appellant in India. The appellant in the advertisement promotes sale of these products dealt in by the assessee in India and not the brand name of the associated enterprise. The Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications (supra) held that expenditure incurred for promoting products cannot be regarded as expenditure for incurred for development of brand. The Hon’ble Court held as under: ……

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In view of the aforesaid, it is respectfully submitted that since the AMP expenditure incurred by the appellant is restricted to promotion of sale of its products rather than development of brand, the adjustment made by the TPO on the basis that the appellant is developing brand ‘Honda’ on behalf of its associated enterprise is flawed liable to be rejected. The appellant, pursuant to the license agreement, is authorized to manufacture the models/variants of gensetsetc for sale in India. On facts of appellant’s case, apart from advertising only for the products sold in India, no brand name is separately advertised. In view of the aforesaid, it is submitted that in case of a full risk distributor or a full risk manufacturer, running an independent business, no compensation on account of AMP expenses is warranted. 3. Bright Line Test is not the prescribed method: The “Bright Line Test” approved by the Special Bench in the case of LG Electronics India Pvt. Ltd. (ITA No 5140/Del/2011) is not one of the five methods provided under the Act. In other words, while embarking on benchmarking of AMP expenses, none of the five prescribed methods are applied by the Revenue. The Hon’ble High Court in the case of Sony Ericsson Mobile Communications (supra) upheld the aforesaid contention that Bright Line Test has no mandate under the Act. In view of the aforesaid, it is respectfully submitted that the Bright Line Test has no mandate under the Act and accordingly the same cannot be resorted to for the purpose of ascertaining if there exists an international transaction of brand promotion services between the appellant and the associated enterprise. The Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT (ITA No 16/2014) held that if the Indian entity has satisfied Transactional Net Margin Method (TNMM), i.e., as long as the operating margins of the Indian enterprise are higher than the operating margins of comparable companies, no further/separate compensation for AMP expenses is warranted. In the present case, the operating profit margin of the appellant at 10.67% is higher than that of the comparable companies at 7.67% and TNMM has undisputedly been satisfied and accepted by the TPO. Since the operating margins of the appellant are in excess of the selected comparable companies, no adjustment on account of AMP expenses is warranted in the case of the appellant.

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30 ITA Nos.551/Del./2014 & 636/Del./2015

conclude as a transaction in terms of section 92(F)(2) of the Act so as to give rise to an international transaction. It was submitted that Delhi Bench of Tribunal in assessee’s own case for A.Y. 2008-09 in ITA No. 6023/Del./2012 vide order dated 12.12.2014 remitted this issue back to the file of TPO. This order of ITAT was assailed before the Hon’ble Delhi High Court where, the Hon’ble Court has decided the issue in favour of the assessee vide order dated 23.12.2015.

“5.2 It is seen that the Special Bench in L.G. Electronics case in para 17.4 has given certain directions on the basis of which the AMP is to be

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calculated. Para 17.6 further gives specific directions in regard to the comparables. On a consideration thereof, we are of the view that in the peculiar facts and circumstances of the case and the material available on record, it would be appropriate to restore the issue back to the file to the TPO with the direction to pass a speaking order in accordance with law taking into consideration the principles laid down by the Special Bench in L.G. Electronics case and in the eventuality they are modified or substituted by the decision of the Jurisdictional High Court in the case of Canon India Pvt. Ltd., the same shall also necessarily be taken into consideration. In view of the above, Ground No. 3 along with various sub- grounds are allowed for statistical purposes.”

10.1 We further note that the Hon’ble Delhi High Court in the appellant’s appeal against the above order for A.Y. 2008-09 (ITA No 346/2015) has held that AMP expenses unilaterally incurred by the appellant cannot be construed as an international transaction. The relevant observations of Hon’ble Court are reproduced as under for ready reference :

“37. Additionally it was held both in MSIL (supra) as well as Whirlpool of India Limited (supra) that in terms of the law explained by the Supreme Court in CIT v. B.C. Srinivas Setty (1981) 128 ITR 294 (SC) and PNB Finance Limited v. CIT (2008) 307 ITR 75 (SC), in the absence of any machinery provision, bringing an imagined international transaction to tax is fraught with the danger of invalidation. In the present case, in the absence of there being an international transaction involving AMP spend with an ascertainable price, even if such price were to be nil, neither the substantive nor the machinery provision of Chapter X are applicable to the transfer pricing adjustment exercise. 38. The Court is satisfied that in the present case, the Assessee is carrying on business as an independent enterprise and is incurring AMP expenses for its own benefit and not at the behest of the AE. The benefit of creation of marketing intangibles for the foreign AE on account of AMP expenses can at best said to be incidental. The decision in Sony Ericsson (supra) acknowledges that an expenditure

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cannot be disallowed wholly or partly because it incidentally benefits the third party. This was in context of Section 37(1) of the Act. Reference was made to the decision in Sassoon J David & Co Pvt. Ltd. v. CIT (1979) 118 ITR 26 (SC). The Supreme Court in the said decision emphasised that the expression 'wholly and exclusively' used in Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) did not mean 'necessarily1. It said: "The fact that somebody other than the Assessee is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of a deduction under Section 10 (2) (xv) of the Act (Indian Income Tax Act, 1922) if it satisfies otherwise the tests laid down by the law." 39. The OECD Transfer Pricing Guidelines, para 7.13 emphasises that there should not be any automatic inference about an AE receiving an entity group service only because it gets an incidental benefit for being part of a larger concern and not to any specific activity performed. Even paras 133 and 134 of the Sony Ericsson judgment makes it clear that AMP adjustment cannot be made in respect of a full-risk manufacturer. 40. Certain additional facts have been mentioned by the Assessee in its written note of submissions. It is pointed out that during the financial year 2007-2008 relevant to the AY in question, of the total turnover of Rs. 251.06 crore only Rs. 9.57 crore, constituting 3.81 per cent, is towards distribution activity whereas the balance revenue of Rs. 241.48 crore was from the manufacturing activity. Further it is pointed out that the contention of the Revenue that market development in India is the function of the AE is factually incorrect. It is pointed out that para 4.30 of the TP documentation has stated that the Assessee plans and executes its own marketing strategy as it considers necessary and appropriate. Further as an independent manufacturer the Assessee bears all the risks associated with its business of manufacturing and sale of products in India and abroad. The condition in the license agreement that the technology will be used for sale of goods in designated jurisdictions or specified territories is not an unusual arrangement. The question of recharacterising the Assessee as a 'contract manufacturer' was unwarranted. The Court finds that the Revenue has not been able to controvert any of the above submissions.

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10.2 Respectfully following the decision of the Hon’ble Jurisdictional High Court in the appellant’s own case (supra), we decide this issue in favour of assessee and delete the adjustment made by the TPO on account of AMP expenses for both the years under appeal. In view of this decision rendered by Hon’ble jurisdictional High Court in the case of assessee itself, the decisions relied upon by the ld. DR will be of no help to the Revenue on this point.

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The TPO however held that the appellant, while making sales to its associated enterprises, is acting in the capacity of a contract manufacturer and accordingly no royalty should have been paid by the appellant on such sales. In this regard it is respectfully submitted that the TPO has failed to distinguish between the functional profile of a licensed manufacturer and a contract manufacturer. In the case of a licensed manufacturer such as the applicant, the seller is entitled to compensation which includes returns attributable to exploitation of intangibles such technical know- how etc. i.e. market determined prices. On the other hand, in the case of a contact manufacturer, the manufacturer acts in accordance with the instructions of the buyer and is only entitled to routine cost plus returns. It is submitted that the applicant continues to perform various critical functions such as production planning, vendor identification, procurement of raw material etc. irrespective of the fact as to whether the sales are made to third party customers or to the associated enterprises. However, the TPO, disregarding the fact that even with respect to sales made to associated enterprises the applicant is performing all the entrepreneurial functions and is assuming associated risks, arbitrarily characterized the applicant as a contract manufacturer. The difference between the functional profile of a contract manufacturer and an entrepreneur such as the applicant is summarized as under: Particulars Applicant Contract Manufacturer Nature of Principal to Principal and agent relationship Principal Type of Standard Customized to the products requirements of principal Volume of No separate Capacity determined production production capacity on the basis of is earmarked for the principal’s demands AEs Quality As per the standards As per the standards Control of the applicant prescribed by the

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principal Inventory HSPP manages Does not perform management inventory and bears inventory and risk associated risks management and do not bear associated risks Pricing Market determined Routine cost plus prices – includes return return for exploitation of intangible Risks Bears full quality Does not bear control and product quality control or liability risk product liability risk In view of the aforesaid, it is respectfully submitted that even with respect to sales made to associated enterprises, the applicant is acting in the capacity of an entrepreneur/licensed manufacturer and was therefore justified in paying royalty on such sales. Reliance is placed in this regard on the decision of the Hon’ble Delhi Bench of the Tribunal in the case of Hero Motocorp Limited vsAddl CIT (ITA No 5130/Del/2010) wherein the Hon’ble Tribunal held as under: “The further finding of the TPO that the position of the assessee company with regard to export was that of a contract manufacturer, in our opinion, is without any basis and in fact contrary to the facts on record. The raw materials have been purchased by the assessee in its own right. It is not the case of the TPO that the raw materials have been supplied by the AE. The assessee has sold the goods to AE on principal to principal basis and has received the sale consideration. In view of the above, in our opinion, there is no justification for disallowance of the royalty on the export.” Further, the Hon’ble Delhi Bench of the Tribunal in the case of Honda Motorcycle and Scooters India Pvt Ltd vs ACIT (ITA No 132/Del/2013) while deleting a similar adjustment held as under:

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“The finding of the TPO that the position of the assessee with regard to export was that of a contract manufacturer, is without any basis and is contrary to the facts on record. It is evident from the financial results of the assessee that it has independent sales both domestic as well as exports. The assessee has sold the goods to the AEs on principal to principal basis and has received the sales consideration. The royalty is payable on the basis of manufacture of goods. Based on the submissions made before us and also the chart showing the price earned by the assessee from exports of goods to the AEs as well as non-AEs, the assessee has earned a premium which would not be in the case of a contract manufacturer. In case of sister concern of the assessee, identical payment of royalty was held to be allowable by the Tribunal in the case of M/s. Hero MotoCorp Ltd. XXX 13. In view of the above reasoning, we are of the view that there is no justification for disallowance of royalty on the export made to the AEs. Accordingly, the addition made by the AO/TPO by determining the ALP of royalty on exports to the AEs at “nil” is deleted.” Reliance in this regard is also placed on the following decisions of the Tribunal: Applicant’s own case for assessment year 2008-09 (ITA No - 6023/Del/2012) Deputy CIT Vs. SonaOkegawa Precision Forgings Ltd. (ITA No. - 5386/Del/2010) SC Enviro Agro India Ltd Vs DCIT (ITA Nos. 2057 & - 2058/Mumbai/2009) It is further submitted that the TPO has arbitrarily re-characterized the assessee as contract manufacturer in relation to the international transaction of export of goods, without challenging the FAR analysis conducted by the assessee which clearly established that the assessee is acting as a licensed manufacturer/ entrepreneur in respect of all its transactions. It is respectfully submitted that the revenue authorities have no jurisdiction to re-write the transactions entered into by the assessee. Reliance in this regard is placed in this regard on the decision of Hon’ble Delhi Bench of the Tribunal in the case of Sony India (P) Ltd. vs DCIT (ITA No 1189/Del/2005)

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Further reliance in this regard is placed on the decision of the Hon’ble Delhi High Court in the case of CIT vs EKL Appliances (ITA No 1068/2011 & 1070/2011) wherein the Hon’ble High Court held that barring exceptional cases, the revenue authorities cannot restructure/re- characterize the legitimate. In view of the aforesaid, it is respectfully submitted that in the absence of any evidence, the TPO was not justified in arbitrarily re-characterizing the assessee as a contract manufacturer. Further, the TPO in the order has stated that the Hon’ble Tribunal in the case of ACIT vs Sona Okegawa Precision Forging Ltd held that payment made by contract manufacturer on account of royalty is not at arm’s length. However, the Hon’ble Delhi Bench of the Tribunal in the aforesaid case while dismissing the appeal of the department with respect to a similar addition made by the TPO, held as under: “As such, the fee was paid on the sales made to the AE also. There was no material brought by the TPO to demonstrate that the price on sales made to the AE was not at an arm’s length . That being so, it was at market determined prices that the sales were made by the assessee. Moreover, it goes unchallenged that the fees paid under the Technology Agreement comprises an integral part of the cost of production, which was recovered from the sale price. It was thus, that so far as regards the sales made to the AE, the amount of fees paid under the Technology Agreement was recovered by the assessee from the AE as part of sale price. This being so, such fee paid became revenue neutral, that is to say, in case the assessee did not pay the fees on the sales made to the AE, a corresponding reduction in the price charged to the AE would have to be given by the assessee, lest the cost for the sale come down. Such latter methodology was not advisable, for it would create problems in the accounting. Also, the impact on the taxable profits would be nil. 17. It was on taking into consideration all of the above that the ld. CIT(A) deleted the addition wrongly made by the AO. We do not find any reason to record any variance with the well reasoned elaborate findings of fact recorded by the ld. CIT(A). The same are hereby upheld.”

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In the case of the assessee too, it is an admitted fact that the sales were made by the assessee to its associated enterprise at market determined prices. Moreover, the royalty paid under the Technology Agreement comprises an integral part of the cost of production, which has been recovered from the sale price. Accordingly, even applying the criteria laid down by the Hon’ble Tribunal, the assessee is operating as an independent manufacturer even with respect to sales made to AEs. In view of the aforesaid, it is submitted that the contention of the TPO that the assessee, while making sales to its associated enterprises is acting as a contract manufacturer is unfounded and the addition made by the TPO is liable to be deleted. Without prejudice to the submission that with regard to export of goods to the AEs, the assessee was acting as an entrepreneur, it is submitted that even if the assessee had been acting as a contract manufacturer, then under such circumstances the payment of royalty would have been revenue neutral. In other words, if no royalty was paid by the assessee then the price realized by it from its AEs would have been lower as compared to the price actually realized by the assessee (since contract manufacturers are normally compensated on a cost plus basis and the TPO has not challenged the operating profit margin earned by the assessee). Therefore, even under such circumstances, the payment of royalty would have been revenue neutral. Reliance in this regard is placed on decision of the Hon’ble Delhi Bench of the Tribunal in the case of ACIT vs Sona Okegawa Precision Forging Ltd (ITA No: 260/Del/2010) In view of the aforesaid, it is respectfully submitted that the payment of royalty by the assessee to Honda was justified, the same was made on account of commercial expediency and cannot be disputed. The TPO has further stated that since the purchase price of the component bought from the associated enterprises included the return for technology and therefore, no separate royalty was payable. In this regard, it is respectfully submitted that the TPO has failed to appreciate that for the purpose of computing the royalty, the value of imported components and export commission is reduced from the sales price. Accordingly, the payment of royalty is only on the value addition done by the applicant utilizing the technical know provided by the associated enterprises and no royalty is being paid on the cost of components imported from the AEs.

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In view of the aforesaid, it is submitted that the addition made by the TPO is bad in law and is liable to be deleted. Re: Benchmarking of international transactions of payment of royalty applying TNMM: It is submitted that the appellant has applied Transactional Net Margin Method (TNMM) for determining arm’s length price of payment of royalty to HMCL, Japan, being the most appropriate method in the facts and in the circumstances of the case. The aforesaid payments are established to be at arm’s length applying such method. Under the Transfer Pricing regulations contained in sections 92 to 92F of the Act, the mandate of the TPO is to determine the arm’s length price of the international transaction, applying the most appropriate method, out of the five methods prescribed. The law does not empower the Transfer Pricing Officer to question the justification of the payment by disputing the genuineness of the agreement itself. The aforesaid has been clarified by CBDT vide Instruction No. 3 of 2003 dated 20-05-2003 as under: “- - - In order to maintain uniformity of procedure and to ensure that work in this important area proceeds smoothly and effectively, the following guidelines are hereby issued: (i) Reference to Transfer Pricing Officer (TPO): The power to determine arm’s length price in an international transaction is contained in sub-section (3) of section 92C. However section 92CA provides that where the Assessing Officer considers it necessary or expedient so to do, he may refer the computation of arm’s length price in relation to an international transaction to the TPO. Sub- section (3) of section 92CA provides that the TPO after taking into account the material available with him shall, by an order in writing, determine the arm’s length price in accordance with sub-section (3) of section 92C. Sub-section (4) of section 92CA provides that on receipt of the order of the TPO, the Assessing Officer shall proceed to compute the total income of the assessee having regard to the arm’s length price determined by the TPO. Thus, whereas the determination of the arm’s length price, - - - is required to be done by the TPO, - - - the computation of total

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income having regard to the arm’s length price so determined by the TPO is required to be done by the Assessing Officer under sub- section (4) of section 92C read with sub-section (4) of section 92CA. (ii) Role of Transfer Pricing Officer: The role of the TPO begins after a reference is received from the Assessing Officer. In terms of section92CA this role is limited to the determination of arm’s length price in relation to the international transaction(s) referred to him by the Assessing Officer - - - - - - The price has to be determined by any one of the methods stipulated in sub- section (1) of section 92C and by applying the most appropriate method referred to in sub-section (2) thereof.- - - -” (emphasis supplied) Reliance is also placed on the decision of Mumbai Bench of the Tribunal in the case of CA Computer Associates Pvt. Ltd. vs. DCIT (ITA Nos. 5420 and 5421/Mum/2006), wherein, while deleting the adjustment made by the TPO by holding payment of royalty to be unjustified, the Hon’ble Tribunal held as under: “8. The manner in which the A.L.P. is to be determined by any of the method prescribed in Sec. 92C in provided in Rule 10B of the I.T. Rules, 2961. After examining the parameters prescribed in Rule 10B, it can be seen that bad debts written off cannot be factor to determine the arm’s length price of any international transaction. In our opinion, the TPO has exceeded his limitation by following the method which is not authorized under the Act or rules. We, therefore, hold that the Arm’s Length Price determined by the TPO and adopted by the Assessing Officer to the extent of royalty payable to the CA Inc Management, USA is not as per the procedure prescribed and same cannot be sustained. We, therefore, direct the Assessing Officer to adopt the Arm’s Length Price of the royalty payable to CA Inc Management, USA as declared by the assessee in both the years.” The aforesaid decision of the Hon’ble Tribunal has been upheld by the Hon’ble Bombay High Court in CIT vs CA Computer Associates India Pvt Ltd (ITA no 20/2011).

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It is pertinent to note here that the royalty constitutes an essential part of the cost of sales relatable to export of products. Accordingly, since the exports of the appellant to the associated enterprise is based on the rights and licenses provided by Honda, for which royalty is being paid, the royalty payments cannot be separately evaluated. In view of the aforesaid, it would be appreciated that the transaction of payment of royalty on exports to AEs is intrinsically linked with the manufacture of goods exported to the AEs and has therefore been appropriately benchmarked by applying TNMM, at the entity level, as the most appropriate method. Reliance in this regard may be placed on the guidance note issued by the Institute of Chartered Accounts of India which states as under: “5.7 The factors referred to above are to be applied cumulatively in selecting the most appropriate method. The reference therein to the terms ‘best suited’ and ‘most reliable measure’ indicates that the most appropriate method will have to be selected after a meticulous appraisal of the facts and circumstances of the international transaction or specified domestic transaction. Further, the selection of the most appropriate method shall be for each particular international transaction or specified domestic transaction. The term ‘transaction’ itself is defined in rule 10A(d) to include a number of closely linked transactions. Therefore, though the reference is to apply the most appropriate method to each particular transaction, keeping in view, the definition of the term ‘transaction’, the most appropriate method may be chosen for a group of closely linked transactions. Two or more transactions can be said to be linked when these transactions emanate from a common source being an order or a contract or an agreement or an arrangement and the nature, characteristics and terms of these transactions are substantially flowing from the said common source.” It is submitted that the TPO has incorrectly determined the arm’s length price of royalty paid on sales to AEs at Nil without applying any comparable transactions. The appellant has applied TNMM and compared its operating margins with the margins of comparable companies and on that basis arrived at the arm’s length price of transaction of payment of royalty on sales to AEs. However, the TPO, without following any of the methods prescribed under the Act, arbitrarily determined the arm’s length price of royalty on sales to AES at Nil.

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Further, the Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications India Pvt Ltd vs CIT (ITA No 16/2014) held that clubbing of closely linked (including continuous transactions) is permissible in appropriate cases. The assessee, too benchmarked the transaction of payment of royalty applying TNMM and aggregating the same with closely linked transactions. The Hon’ble Court further held that once the Revenue accepts the TNMM as the most appropriate method, then it would be inappropriate for the Revenue to treat a particular expenditure as a separate international transaction. Such an exercise, the Hon’ble Court held, would lead to unusual and absurd results. Reliance is also placed in this regard on the decision of the Hon’ble Pune Bench of the Tribunal in the case of Demag Cranes & Components (India) Pvt. Ltd. Vs. DCIT. Your Honour’s attention is invited to recent decision of the Hon’ble Pune Bench of the Tribunal in the case of Cummins India Ltd vs Addl CIT (ITA No 1616/PN/2011), wherein, interpreting Rule 10A(d) of the Rules, it was held as under: “26. In view of the ratio laid down by Pune Bench of the Tribunal in Demag Cranes & Components (India) Pvt. Ltd. Vs. DCIT (supra), it is held that where number of transactions are closely linked transactions, then the same can be aggregated and construed as a single transaction for the purpose of determining the arm's length price. In case, there is close link exists between the different transactions, the same should be treated as composite transaction and appropriate method should be applied to work out the transfer pricing analysis. Where two or more transactions emanate from common source being an order or contract or an agreement or an arrangement, then such transactions could be said to be closely linked as the nature, characteristic and terms of such transaction substantially flow from the said common source.” In view of the aforesaid, it is submitted that the adjustment made by the TPO to the arm’s length price of international transaction of payment of royalty without applying any of the prescribed methods is unlawful and is liable to be deleted.”

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“8. We have heard the rival submission and perused the material available on record. It is seen that Co-ordinate Bench in the case of the sister concern wherein terms and conditions recorded in the agreements are stated to be identical had decided the issue in following manner:- “92. We have heard both the parties and perused the material placed before us. We have already considered similar issue while considering the disallowance of royalty and the export commission. While considering the disallowance of the export commission, we have noted that the payment of royalty and the export commission are for two different purposes. The assessee is paying royalty as per technical know-how agreement dated 02- 06-2004 with HMCL. As per this agreement, the assessee is entitled to use technical know-how provided by HMCL for manufacture and sale of two wheelers and parts. Royalty is to be paid for the goods manufactured by the assessee, whether sold within India or outside India. It is not in dispute that the motorcycles which were exported by the assessee, were manufactured by using the technical know-how provided by HMCL under the technical know-how agreement dated 02-06-2004. Therefore, royalty is payable on such manufacturing of goods. The contention of the learned TPO that the goods are exported to subsidiaries of the Associated Enterprise, i.e. AE of Honda Japan and the assessee also paid export commission, would be no ground for disallowance of the royalty or determining arm’s length price of the royalty at nil. The assessee is

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exporting goods to AE of Honda on principal to principal basis and the price at which export is made is higher than the domestic price. While discussing the disallowance of export commission, we have discussed this issue at length and have noted that even after reducing the export commission, the assessee derived the benefit of Rs. 13.05 crores by export. At the cost of repetition, we would like to mention that the export sale value was more than the domestic sale rate and the assessee has given a detailed working thereof, which is enclosed with this order in the form of Annexure-I. In the above working, the assessee has reduced the export commission. Therefore, by export to the AE of Honda Japan, the assessee has been benefited and was not at a loss. The further finding of the TPO that the position of the assessee company with regard to export was that of a contract manufacturer, in our opinion, is without any basis and in fact contrary to the facts on record. The raw materials have been purchased by the assessee in its own right. It is not the case of the TPO that the raw materials have been supplied by the AE. The assessee has sold the goods to AE on principal to principal basis and has received the sale consideration. In view of the above, in our opinion, there is no justification for disallowance of the royalty on the export. We may reiterate that the Revenue has disallowed the entire royalty paid even on domestic sale which has been considered at length by us in the earlier paragraph of this order and we have arrived at the conclusion that the payment of royalty was a revenue expenditure, incurred for the purpose of business. Accordingly, the addition made by the TPO by determining arm’s length price of royalty on export at nil is deleted.” 8.1 From a reading of the above it is seen that while coming to the decision before the Co-ordinate Bench a detailed working in numbers and figures in support of its claim was provided by the assessee. The said exercise is found missing in the present case dehors the above fact taking into consideration the submissions of the Revenue, we set aside the orders of the authorities below and direct the TPO to consider the claim of the assessee that the Agreement entered into by the assessee with the AE is similar to the Agreement entered into by the sister concern with the AE inasmuch as the terms and conditions impacting the issue are materially similar and accordingly thereafter considering the decision of the Co- ordinate Bench in the case of sister concern, he shall pass a speaking order in accordance with law after giving the assessee a reasonable opportunity of being heard. The assessee consequently would be at liberty to place relevant facts in support of its claim before the TPO.”

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Following the order of the Co-ordinate bench, the additions on account of Transfer Pricing adjustment of Rs.45,67,000 and Rs. 37,79,000 in A.Yrs. 2009- 10 and 2010-11 are, therefore, set aside to the file of the TPO to consider the claim of the assessee in the light of the findings of the co-ordinate bench in assessment year 2008-09 (supra). These grounds are, therefore, allowed for statistical purposes.

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Co-ordinate bench of the Tribunal in the case of Hero Moto Corp (supra) has been affirmed by the jurisdictional Delhi High Court in the case of CIT v. Hero Moto Corp in 372 ITR 481. It was submitted that the High Court has also held that payment of royalty and technical guidance fee is allowable business deduction. It was further submitted that the DRP in the subsequent assessment year 2010-11 has deleted identical disallowance proposed by the assessing officer on the basis of the order of the Co-ordinate bench of the Tribunal in the assessee’s own case for assessment year 2008-09.

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48 ITA Nos.551/Del./2014 & 636/Del./2015

circumstances has been pointed out, the additions made by applying section 40(a)(i) are directed to be deleted. Accordingly, these grounds of appeal stand allowed. In view of this decision of co-ordinate Bench in the case of assessee, the advance ruling relied on by the ld. DR does not help the revenue, as the said ruling is binding on that applicant and not upon the Tribunal u/s. 245S of the IT Act.

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relocation of factory premises from Rudrapur to Greater Noida for the purposes of consolidation of factory premises and utilization in production. The details of such ‘relocation expenses’ are provided as under: S. Amount Particulars No. (in Rs.) 1. Freight on transfer 13,52,000 of Raw materials 2. Freight on transfer 34,55,000 of machines 3. Travelling and 16,12,000 conveyance 4. Professional 10,24,000 charges 5. Salary cost of 6,38,000 machines 6. Salary cost for 3,07,000 general work 7. Publicity 7,66,000 8. Stores, spares and 6,36,000 tools 9. Repair expenses 4,90,000 10. Joining expenses 4,94,000 11. Miscellaneous 3,73,000 expenses TOTAL 1,11,47,000 Out of the aforesaid, the assessing officer, vide impugned order dated 16.12.2014 disallowed the following expenditure aggregating to Rs. 51,15,000, holding the same to be capital expenditure on the ground that such expenditure had resulted in benefit of enduring nature to the appellant: S. Particulars Amount No. (in Rs.) 1. Freight on transfer 34,55,000 of machines 2. Professional 10,24,000 Charges

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51 ITA Nos.551/Del./2014 & 636/Del./2015

• ChandulalKeshavlal v. CIT: 38 ITR 601(SC) • Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT: 56 ITR 52 (SC) • DevidasVithaldas& Co. v. CIT: 84 ITR 277 (SC) • Chelpark Company Ltd. v. CIT: 191 ITR 249 (Mad.) • K.T.M.T.M. Abdul Kayoom v. CIT: 44 ITR 689 (SC) • Assam Bengal Cement Co. Ltd. v. CIT: 27 ITR 34 (SC) • L.H. Sugar Factory & Oil Mills P. Ltd. v. CIT: 125 ITR 293 (SC) • Dalmia Jain & Co. Ltd. v. CIT: 81 ITR 754 (SC) • M.K. Bros. (P.) Ltd. v. CIT: 86 ITR 38 (SC) • Travancore Sugars & Chemicals Ltd. v. CIT: 62 ITR 566 (SC) • CIT v. B.N. Elias & Co. (P.) Ltd.: 168 ITR 190 (Cal.) • CIT v. Hindustan General Electric Corpn. Ltd.: 81 ITR 243 (Cal.) • Gannon Norton Metal Diamond Dies Ltd. v. CIT: 163 ITR 606 (Bom.) • CIT v. Mehta Transport Co.: 160 ITR 35 (Guj.) • Saraswati Industrial Syndicate Ltd. v. CIT: 137 ITR 886 (Punj. &Har.) • CIT v. Oblum Electrical Industries.: 127 ITR 409 (AP) Further, attention is invited to following decisions wherein it has been held that shifting/ relocation expenses incurred by the assessee in the course of business are allowable revenue expenditure and cannot be treated as capital in nature: • CIT v. Karanpura Development Co. Ltd.: 144 ITR 538 (Cal.) • CIT v. Brakes India Ltd.: 161 Taxman 47 (Chenn.) • CIT v. Loyal Super Fabrics: 304 ITR 78 (Chenn.) • Madura Coats Ltd. v. ITO: 26 ITD 152 (Mad.) • Hindustan Times Ltd. v. ITO: 3 ITD 525 (Del.) • JCIT v. ITC Ltd.: 299 ITR(Trib.) 341 (Kol.)(SB)(AT) The decision in the case of Bimetal Bearings(supra), relied upon by the assessing officer, has been distinguished in the subsequent decision of the Hon’ble Madras High Court in the case of CIT v. Loyal Super Fabrics: 304 ITR 78 (Mad.). Further, it is respectfully submitted that the decision of Bombay High Court in the case of Otis Elevator (supra), also relied upon by the assessing officer, is per incuriam, since the same has been rendered without considering the decision of the apex Court in the case of Empire Jute Co. v. CIT: 124 ITR 1. The decision of the Patna High Court in the case of Jamshedpur Engg. (supra) has also been duly considered and

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distinguished by the Third Member of the Madras bench of the Tribunal in the case of Madura Coats Ltd. v. ITO: 26 ITD 152. (Mad.) In the present case, it is respectfully submitted, the above expenses were incurred on merely reallocation of the factory from Rudrapur to Greater Noida and no new asset has come into existence. Such expenses, therefore, are allowable revenue deduction and cannot be considered as capital in nature for the following cumulative reasons: (i) the expenses were indirect in nature mainly to dismantle, shift and install machines at new location; (ii) no new asset has come into being as a result of shifting expenses; (iii) there was no enhancement in existing manufacturing capacity and expenses were incurred only to shift existing machines from once place to the other.”

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other High Courts to contend that it not every enduring benefit which would be considered as capital in nature and such benefit must be in the capital field. It would be useful to refer to the decision in the case of Empire Jute Co. Ltd. v. CIT: 124 ITR 1 (SC) wherein it has been held that if the expenditure is related to the conduct of the business, it may be regarded as an integral part of the profit making process and would be held as revenue in nature.

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provision, the said provision ought to have been added back to the income of the assessee. In this regard, it is respectfully submitted, that the provision for slow/ non-moving items was made by the assessee as per its internal policy based on industry norms viz., @ 100% of closing stock if inventory is not sold for period of 1 year and 50% of closing stock if inventory is not sold for period of 6 months to 1 year. Such provision was also in accordance with Schedule XIV of the Companies Act, 1956. In fact, neither the statutory nor the tax auditors have found the same to be not ascertainable or a contingent liability. It will be appreciated that in accordance with the Accounting Standard 2 on Valuation of Inventory, prescribed by Institute of Chartered Accountants of India, inventories have to be valued at the cost price or net realizable value, whichever is lower. Reference, in this regard, may be placed on the following cases wherein the aforesaid method of valuing the closing stock at cost or net realizable value, whichever is lower, for the purposes of the Act has been accepted as a recognized method of accounting of inventories: • K. Mohammed Adam Sahib v. CIT: 56 ITR 360 (Mad.) • India Motor Parts and Accessories (P) Ltd v. CIT: 60 ITR 531 (Mad.) • CIT v. Dalmia Cement (Bharat) Ltd: 215 ITR 441 (Del.) • CIT v Indo-Commercial Bank Ltd.: 44 ITR 22 (Del.) • CIT vs. Bharat Commerce & Industries Limited : 240 ITR 256 (Del HC) • IAC v. Consolidated Pneumatic Tool Co. (India) Ltd.: 14 ITD 564 (Bom.) • Wipro Limited vs. DCIT: 96 TTJ 211(Bang.) • Samsung Electronics India Ltd. vs. JCIT (ITA No.3200 & 2344/Del/2000 & ITA No.3734/Del/2002) [Del ITAT] Reliance, is also placed on the following decisions, wherein it has been held that the provision made by the assessee towards obsolete and slow moving items was allowable deduction: • CIT v. British Paints India Ltd.: 188 ITR 44 (SC) • CIT v. Hindustan Zinc Ltd.: 291 ITR 391(SC) • ChainrupSampatram v. CIT: 24 ITR 481 (SC) • Hotline Tele Tube and Components Limited: 175 Taxman 286 (Del. HC) • CIT v. Hughes Communication India Ltd.: 215 Taxman 136 (Del. HC)

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• CIT v Becton Dickinson India (P.) Ltd.: 214 Taxman 636 (Del. HC) • CIT v Bharat Commerce & Industries Ltd.: 107 Taxman 135 (Del. HC) • JetAirways India (P) Ltd. vs CIT (in 4228/M/2000 for assessment year 1997-98 and other years) (Mum. ITAT) • Emersons Process Management India (P) Ltd. vs Addl. CIT: IT Appeal No. 8118 (Mum.) of 2010 (Bom. Trib.) • Digital Equipment India Ltd. vs CIT: ITA No. 6623 and 6624(Bom.)/2008 (Bom. Trib.) • CIT v Nuware India Ltd.: 118 ITD 70 (Del. Trib.) In view of the above, it is respectfully submitted, that the action of the assessing officer in disallowing the aforesaid provision on account of slow moving expenses is erroneous and based on incorrect appreciation of facts and the settled legal principles. That apart, and without prejudice to the aforesaid, it is respectfully submitted that even otherwise no disallowance is warranted under the provisions of the Act inasmuch as the provision for slow moving inventory of Rs. 11,76,382, debited to the profit and loss account for the year under consideration, would be reduced to ‘Nil’ when the inventory is actually written off in the subsequent assessment years.” 30. On the other hand, the Ld. CIT DR relied on the orders of the lower authorities. 31. We have heard the rival submissions and perused the material on record. We find that the aforesaid issue is squarely covered by the decision of the jurisdictional Delhi High Court in the case of Hotline Tele Tube and Components Ltd.: 175 Taxman 286, where the Court has held that provision for diminution in value of stock was allowable as deduction. The relevant findings of the Court read as under:

“5. In the instant case we find that the principle for valuing stock at cost or realizable market price whichever is lower is applicable. The assessee has demonstrated that the stock being obsolete did not move for over three years and also the fact that it could only be sold if at all as scrap. As a matter of fact, the assessee also established that in the event it is sold as

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scrap the burden of excise duty would be much more than what it could realize on sale of the said stock as scrap. The Tribunal has returned this as a finding of fact. In view of these findings, it is quite clear that, all that, the assessee has done by making the provision for diminution in value of stock is to anticipate the loss in the value of stock. 6. In the circumstances, we are of the view that no substantial question of law arises for our consideration. 7. Accordingly, the appeal is dismissed.” 32. It has similarly been held in the decision of Delhi High Court in the case of CIT v. Hughes Communication India Ltd.: 215 Taxman 136. Further, we find merit in the submission of the assessee that where the provision is made on a scientific and reasoned basis year after year and such provision would be reduced completely when the obsolete stock is written off in subsequent years, no disallowance can be made on the assessee company. Respectfully following the decision of the jurisdictional High Court, we hold that the provision for slow moving inventory would be allowed as revenue deduction and therefore, the disallowance made in the assessment order for A.Y. 2010- 11 on this account has to be deleted. 33. Accordingly, the appeal of the assessee for A.Y. 2010-11 also stands partly allowed. 34. In the result, both the appeals of the assessee-company are partly allowed for statistical purposes. Order pronounced in the open court on 13.04.2016. Sd/- Sd/- (I.C. SUDHIR) (L.P. SAHU) Judicial Member Accountant Member Dated : 13.04.2016 *aks/-

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Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant. Registrar Income Tax Appellate Tribunal Delhi Benches, New Delhi

Date Initial 1. Draft dictated on PS 04/5/6.04.16 2. Draft placed before author 07.04.16 PS 3. Draft proposed & placed before JM/AM the second member 4. Draft discussed/approved by JM/AM Second Member. 5. Approved Draft comes to the 18.04.2016 PS/PS Sr.PS/PS 6. Kept for pronouncement on PS 7. File sent to the Bench Clerk 18.04.1016 PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.