Royalty payment and R&D on royalty both allowable as revenue expenditure

Maruti Suzuki India Ltd. Vs DCIT (ITAT Delhi)

ITAT Delhi held that royalty payment and R&D cess on royalty is interlinked. As royalty payment is allowed as revenue expenditure, R&D cess is also allowable as revenue expenditure.

Facts- AO noticed that the assessee had made payment of Royalty amounting to Rs. 1035,49,95,272/- to Suzuki Motor Corporation (“SMC”) in the year under consideration and had paid cess on Royalty amounting to Rs. 43,79,33,132/-.

AO called upon the assessee as to why Royalty payment should not be treated as capital expenditure. In response thereto, the assessee filed its reply which was rejected by the AO on the basis that the benefit derived by the assessee on such royalty payment was of enduring in nature. Thus, he disallowed payment of Rs. 592,57,95,292/- and payment of R&D Cess of Rs. 45,18,78,312/- being capital in nature.

However, the AO granted partial relief of Rs.93,92,54,794/- rectifying the order u/s 154 of the Act qua depreciation allowance. Thus, the AO after allowing relief for depreciation, made addition of Rs. 384,40,00,394/- in respect of royalty payment.

The assessee also challenged the disallowance of R&D cess on royalty holding that the cess also partakes the character of the royalty without appreciating that royalty was paid to SMC wherein R&D cess was paid to the Indian Government.

Conclusion- The identical issue came up for consideration before the Co-ordinate Bench of the Tribunal for AYs 2006-07, 2007-08, 2008-09, 2009-10 in assessee’s own case. Wherein, it was held that the amount of royalty considered by the Assessing Officer as capital expenditure should be allowed as a revenue expenditure, and at the same time, depreciation allowed by the Assessing Officer on this amount should be taken back.

With regard to disallowance of R&D cess on royalty it was held that identical ground was raised in earlier AY, wherein, it was held that the issue is dependent and interlinked to the issue of royalty expenditure, and if it is held that royalty payment by assessee are revenue expenditure, then the R&D cess should be considered as revenue expenditure.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present cross appeals filed by the assessee and the Revenue for the assessment year 2010-11 are directed against the order of Ld. DCIT, Circle-16(1), New Delhi dated 20.01.2015. Both cross-appeals filed by the assessee and the Revenue are being disposed off by way of this consolidated order for the sake of brevity and convenience.

ITA No.961/Del/2015 [Assessment Year : 2010-11]

2. First we take up assessee’s appeal in ITA No. 961/Del/2015 pertaining to Assessment Year 2010-11. The assessee has raised following grounds of appeal:-

1. “That on the facts and circumstances of the case the impugned assessment completed vide order dated 20.01.2015 passed under section 143(3) read with section 144C of the Income-tax Act, 1961 (‘the Act’), is illegal and bad in law.

1.1. That on the facts and circumstances of the case, the impugned assessment having been completed on the basis of directions issued by the Dispute Resolution Panel (“DRP”) under section 144C(5) of the Act without judiciously and independently considering the factual and legal objections to the draft assessment order, is illegal and bad in law.

1.2. That the DRP erred on facts and in law in not interfering with the draft order passed by the assessing officer holding that since appeals have been filed by the appellant and the Department on various issues, there is no warrant to interfere with the proposed additions/ disallowances.

1.3. That the DRP erred on facts and in law in not directing the assessing officer to delete various additions/ disallowance, which were squarely covered in favour of the appellant by the appellate orders for the earlier years.

2. That the assessing officer erred on facts of the case and in law in completing the impugned assessment at an income of 4649,87,40,313/- as against income of Rs.3259,18,58,726/-declared by the appellant.

3. That the Assessing Officer/ DRP erred on facts and in law in not allowing an aggregate claim of deduction of statutory duties/ taxes of Rs.121,82,25,605/-paid under section 43B of the Act.

3.1. That the Assessing Officer erred in making disallowance under section 43B of the Act following the assessment Orders for the earlier assessment years despite admitting that in the earlier year(s) most of the issues have been decided in favour of the appellant.

3.2. That the Assessing Officer erred on facts and in law in holding that the deduction of liability to pay taxes/duties under section 43B is admissible only after such liability has been incurred under the Act.

3.3. That the Assessing Officer failed to appreciate that the assessee having admittedly paid Rs. 16,42,033/- as Excise Duty on vehicles and Rs.5,84,293/- as R& D cess on vehicles in the relevant assessment year, the same were allowable deduction u/s 43 B of the Act.

3.4. That the Assessing Officer has, without any basis or material, erroneously concluded that the aforesaid payments have been made in advance for the stocks still to be manufactured, without appreciating that as on 31.03.10 the appellant had finished stock of vehicles amounting to Rs.379.40 crores, which included accrued liability of excise duty and R&D cess amounting to Rs.23.67 crores and consequently, the same were, in any case, allowable deduction u/s 43B of the Act.

3.5. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs.54,19,86,424/- representing the customs duty paid in respect of inputs imported by the assessee company and, for which the corresponding exports had been made by the year end.

3.6. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs.2,76,77,437/- representing the amount of excise duty actually paid on purchased inputs included in RG 23A Part II.

3.7. That the Assessing Officer failed to appreciate that the aforesaid balances represented the amount of excise duty actually paid by the appellant to the suppliers of raw materials and other inputs for which liability had already been incurred and thus could not be considered as advance payment of excise duty.

3.8. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs.27,29,78,059/- representing custom duty (CVD) paid to be adjusted against excise duty payable on finished products.

3.9. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs6,18,68,222/-representing custom duty in respect of the goods in transit/under inspection.

3.10. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs.30,48,61,320/- representing the custom duty paid and included in valuation o closing stock.

3.11. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 61,76,617/-being Customs Duty paid under protest.

3.12. That the Assessing Officer erred on facts and in law in not allowing deduction under section 43B of the Act for a sum of Rs. 4,51,200/-being Sales Tax paid under protest.

3.13. That the Assessing Officer erred in not following the binding decisions of the High Court and the Tribunal in the appellant’s own case for the earlier assessment years, in gross violation of principles of judicial propriety.

4. That the Assessing Officer/ DRP has erred in law, on facts and in the circumstances of the case in not allowing the claim of the assessee for withdrawal of add back of Rs. 109,72,67,904/- made in the computation of taxable income, being the amounts disallowed in earlier years under section 43 B of the Act.

4.1 That the Assessing Officer has erred in law, on facts and in the circumstances of the case in failing to apply the fundamental rules of taxation that the same income cannot be taxed twice and that the AO is duty bound to determine the true figure of the assessee’s taxable income in accordance with the provisions of the Act.

4.2. That the Assessing Officer has erred in not appreciating that similar withdrawal of add back under section 43B was allowed by the AO himself and confirmed by the DRP in AY 2007-08.

5. That the Assessing Officer erred on facts and in law in making further disallowance of expenses amounting to Rs. 32,57,05,335/-under section 14A of the Act.

5.1 That the assessing officer erred on facts and in law in proceeding to make disallowance under section 14A simply on the basis of method/ formula prescribed in Rule 8D of the I.T. Rules, without appreciating that preconditions for applying the said rule as prescribed in sub-sections (2)/(3) of section 14A of the Act were not satisfied.

5.2 That the Assessing Officer erred on facts and in law in not appreciating that there was no proximate nexus between any expenditure incurred and exempt dividend income.

5.3 That the Assessing Officer erred on facts and in law in holding that suo-motu disallowance of Rs. 1,69,36,938/- made by the appellant in the return of income under section 14A of the Act was incorrect and not backed by the documentary evidence.

5.4. That the assessing officer erred on acts and in law in disregarding the explanation given by the appellant or non-inclusion of interest expenses for the purposes of disallowance under section 14A of the Act.

5.6. Without prejudice, the assessing officer erred in computing the disallowance u/s 14A read with Rule 8D of the Income Tax Rules.

6. That the Assessing Officer/ DRP erred on facts and in law in disallowing expenditure of Rs.444,43,46,454/- (Net of depreciation for the year) incurred on account of royalty (both lumpsum and running), holding the same to be capital expenditure.

6.1. That the Assessing Officer erred, on facts and in law in not appreciating that royalty paid by the appellant to Suzuki Motor Corporation, Japan (hereinafter referred to as “SMC”) was merely for the limited right/license to manufacture and sell the licensed product for a specified duration in India and was therefore, revenue in nature.

6.2. That the Assessing Officer erred on facts and in law in not appreciating that payment of royalty was directly linked and correlated with the production/ sales of cars and spares by the appellant and if there is no production/ sale of cars and spares, there will be no royalty payable to SMC.

6.3. That the Assessing Officer erred on facts and in law in not appreciating that royalty payment (including cess) was held to be revenue expenditure in all the preceeding assessment years till assessment year 2005-06 and that there being no change in facts during the year under consideration, there was no warrant or justification to take a totally contradictory view in holding the same to be capital expenditure.

7. That the Assessing Officer erred on facts and in law in disallowing Rs.33,89,08,734/-(Net of depreciation for the year) on account of R&D cess on royalty, holding that cess also partook the character of royalty, without appreciating that royalty was paid to SMC whereas R&D cess on royalty, being a statutory payment, was paid to the Indian Government.

7.1. That the Assessing Officer erred in failing to appreciate that R&D cess, being a statutory payment, is governed by section 43B of the Act, which is a separate code in itself and overrides other provisions of the Act, and hence the payment of R&D cess is an allowable deduction under that section.

7.2. That the Assessing Officer erred on facts and in law in not appreciating that R&D cess on royalty was always accepted to be revenue expenditure in all the previous assessments till assessment year 2005-06 and that there being no change in facts during the year under consideration, there was no warrant or justification to9 take a totally contradictory view and holding the same to be capital expenditure.

7.3. Without prejudice, the assessing officer erred on facts and in law in not appreciating that the appellant had suo-moto disallowed R&D cess paid on royalty to the extent of Rs. 1,39,45,180/- under section 43B. thereby resulting in a double disallowance to the extent of Rs. 1,39,45,180/-.

7.4. Without prejudice, the assessing officer erred in granting the alternative deduction of depreciation of Rs.93,92,54,794/- instead of Rs.l45,22,90,555/-with respect to Royalty Paid to SMC and R&D Cess thereon resulting in short deduction of Rs.51,30,35,761/-.

8. That the Assessing Officer/ DRP has erred in law and on facts in disallowing deduction of Rs.43,11,000/- representing the excise duty paid by the appellant during the relevant previous year.

8.1 That the Assessing Officer failed to appreciate that the said amount of Rs.43,11,000/- constituted and represented excise duty actually paid by the appellant and was, therefore, allowable deduction under section 43B of the Act.

8.2 That the Assessing Officer/DRP erred on facts and in law in leveling false and baseless allegations of the appellant having, inter alia, hidden true nature of payment of excise duty, without appreciating that aforesaid amount had been paid by the assessee as excise duty and the same was duly certified by the tax auditors in the tax audit report.

9. That the Assessing Officer/ DRP has erred on facts and in law in making disallowance of Rs.33,00,89,403/-, being the expenditure provided on estimated basis on account of foreseen price increase (in short “FPI”), disregarding the consistent and accepted method followed by the appellant for last many years since inception.

9.1 That the Assessing Officer completely failed to appreciate that there was a clear contractual agreement/ understanding between appellant and suppliers under which the appellant was liable to pay additional amount of price for the supplies of various inputs received during the year and accordingly the said liability accrued during or before the end of that year and estimated amount thereof was accordingly allowable as deduction from assessable income.

9.2 That the Assessing officer failed to appreciate that mere fact that the exact amount of additional price payable to suppliers was not quantified until the end of relevant accounting year did not at all mean that there was no accrual of liability in that year.

9.3 That the Assessing officer/ DRP erred on facts and in law in completely disregarding the evidence and material placed on record which conclusively established the existence of agreement/understanding between appellant and suppliers for the payment of additional price to them for supplies made during the accounting year ended on 31st March, 2010.

9.4 That the Assessing Officer erred on facts and in law in not taking cognizance of the fact that the entire amount of liability has either been paid or written back and offered to tax as its income in the succeeding assessment year.

9.5 That the DRP erred on facts and in law in alleging that calculation/ method/ basis of computing and claiming the liability on account of foreseen price increase was not furnished/ explained by the appellant.

9.6 Without prejudice, the Assessing Officer erred on facts and in law in not allowing the deduction of the amount disallowed in the preceding assessment year(s) but actually paid/written back during the year under consideration.

10. That the Assessing Officer/ DRP has erred in law, on facts and in the circumstances of the case in making ad-hoc disallowance of Rs.21,83,04,695/- for alleged sharing of resources by the appellant with other group / subsidiary companies.

10.1 That the assessing officer / DRP erred in observing that the appellant had borne expenses incurred for other corporate entities, failing to appreciate that the entire expenses were incurred by the appellant for the purposes of its business and hence no part of the expenditure incurred ought to be disallowed on account of sharing of resources.

10.2 That the assessing officer/ DRP further failed to appreciate that the disallowance of any part of the expenses incurred was ultimately tax neutral in as much as the expenses disallowed in the hands of the appellant would have to be allowed in the hands of the group/ subsidiary companies.

10.3 Without prejudice to the aforesaid, the quantum of disallowance computed by the assessing officer was very high as compared to expenses of Rs. 1.22 crores that could, if at all, reasonably be attributed towards sharing of expenses.

11. That the Assessing Officer/ DRP erred on facts and in law in disallowing Rs.11,30,00,000/-, being the expenditure incurred on account of discharging corporate social responsibility, without appreciating that such expenditure was incurred wholly and exclusively for the purposes of business.

11.1 That the assessing officer/ DRP erred on facts and in law in holding that the expenditure incurred on corporate social responsibility is, even otherwise, capital in nature on the ground that the same resulted in enduring benefit to the appellant.

11.2 Without prejudice, the assessing officer erred on facts and in law in not allowing depreciation under section 32 of the Act, consistent with his finding that the aforesaid expenditure is capital in nature.

12. That the Assessing officer/ DRP has erred on facts and in law in disallowing a sum of Rs.7,50,017/- being expenditure incurred on account of club membership fees, following the assessment orders for the earlier years, alleging that the appellant failed to justify the said commercial expediency.

13. That the assessing officer/ DRP has erred in law, on facts and in circumstances of the case in treating gains from sale and purchase of mutual funds as “business income” as against the same being declared under the head “capital gains” by the assessee.

13.1. That the assessing officer erred on facts and in law in assessing gain of Rs.125,66,52,966 on transfer of units of mutual fund as business income as against long-term capital loss of Rs.68,16,79,305 declared by the assessee after claiming benefit of indexation.

13.2. That the assessing officer erred on facts and in law in assessing short-term capital gain of Rs.3,32,97,441 as business income.

13.3. That the assessing officer erred on facts and in law in holding that investment in units of mutual funds and shares were made as a systematic business activity, without appreciating that such investments were made on capital account and not as “stock-in-trade”.

13.4. That the assessing officer erred on facts and in law in holding that the assessee had shown/ categorized the purchases of mutual funds as “investment” in the books of account in order to hoodwink the Department and conceal the real nature of the transactions.

13.5. That the DRP erred on facts and in law in holding that the appellant was unable to establish that the holding in shares/ securities were held as investments and not as stock in trade.

14. That the A.O./ DRP has erred in law, on facts and in circumstances of the case in disallowing the deduction of Rs.20,98,82,138/-claimed by assessee in respect of provision for warranty (Inadvertently mentioned in the order as gratuity).

14.1. That the AO erred on facts and in law in holding that the provision for warranty was made on an ad-hoc basis and not based on scientific valuation.

15. That the assessing officer erred on facts and in law in disallowing the purchases to the tune of Rs. 1,95,67,83,751 made by the assessee from SMC, on the ground that the assessee has failed to deduct tax at source from purchases made from SMC, by invoking the provisions of section 40(a)(i) of the Act.

15.1. That on the facts and circumstances of the case and in law the aforesaid disallowance is bad in law and not sustainable having being made in violation of principles of natural justice.

15.2. That the assessing officer erred on facts and in law in holding that SMC had a Permanent Establishment [“PE”] in India in terms of Article 5 of the India-Japan Tax Treaty “Treaty”] and income arising to SMC from sale of goods to the assessee was attributable to the activities of such alleged PE, and was liable to tax in India.

15.3. That the assessing officer erred on facts and in law in alleging that SMC had a place of management in India and hence, a fixed place PE in India in terms of Article 5(1) and 5(2) of the Treaty, on the ground that the executive directors on the board of the assessee who were Japanese nationals nominated (nominee directors) by SMC and held significant influence over the affairs of the assessee were employees of SMC and were deriving salary from SMC.

15.4. That the assessing officer erred on facts and in law in alleging that the nominee directors were looking after the interests of SMC in India and carrying on business of SMC in India.

15.5. That the assessing officer erred on facts and in law in alleging that SMC also had dependent agent PE in India since the nominee directors were taking commercial decisions in the interest of SMC.

15.6. That the assessing officer erred on facts and in law in alleging that the assessee also had service PE in India alleging that the nominee directors were rendering managerial services on behalf of SMC to the assessee.

15.7. Without prejudice, the assessing officer erred on facts and in law in not appreciating that there is no concept of service PE under the Treaty.

15.8. Without prejudice, the assessing officer erred on facts and in law in computing the profits attributable to the alleged PE of SMC in India at Rs. 1,95,67,83,751, and disallowing the same under section 40(a)(i) of the Act.

15.9. That the assessing officer erred on facts and in law by arbitrarily assuming 20% net profit margin on purchases made by assessee from SMC, out of which 50% profits have been alleged to be attributable to the alleged PE of SMC in India.

15.10.That the assessing officer erred on facts and in law in not appreciating that no disallowance under section 40(a)(i) of the Act was warranted as the said provisions were not applicable in view of the provisions of Article 24 of the Treaty.

16. That the assessing officer erred on facts and in law in making transfer pricing adjustment amounting to Rs.442,92,00,000/- on account of the alleged difference in the arm’s length price of international transactions of payment of royalty entered into by the appellant on the basis of the order under section 92CA(3) of the Act.

16.1. That the TPO / DRP erred on facts and in law in holding that the international transaction of payment of royalty does not satisfy the arm’s length principles as envisaged under the Act.

16.2. That the TPO / DRP erred on facts and in law in holding that the assessee was not liable to pay royalty to SMC towards use of SMC’s trademark.

16.3. That the TPO / DRP erred on facts and in law in holding that out of the total royalty paid by the assessee, 46% was attributable to royalty towards payment for use of SMC’s trademark and thereby ought to be disallowed.

16.4. That the TPO / DRP erred on facts and in law in rejecting Transactional Net Margin Method (‘TNMM’) as the most appropriate method for benchmarking the international transaction of payment of royalty.

16.5. That the TPO / DRP erred on facts and in law in not following any of the prescribed method for determination of the arm’s length price of international transaction of payment of royalty.

16.6. That the TPO / DRP erred on facts and in law in failing to appreciate that at the time of entering into the license agreement, the appellant and SMC were unrelated parties.

16.7. That the TPO / DRP erred on facts and in law in not appreciating that brand ‘Maruti Suzuki’ was used by the appellant from its inception.

16.8. That the TPO / DRP erred on facts and in law in not appreciating that the use of brand ‘Suzuki’ was in the commercial interest of the appellant

16.9. That the TPO / DRP erred on facts and in law in holding that ‘Suzuki’ brand has piggybacked the brand ‘Maruti’ owned by the appellant

16.10 .That the TPO / DRP erred on facts and in law in artificially splitting the single and inseverable license agreement entered into by the applicant with Suzuki Motor Corporation, Japan (‘SMC’).

16.11.That the TPO / DRP erred on facts and in law in not appreciating that all rights vested in the license agreement are inseverable and linked to the core right to manufacture and sell licensed products.

16.12.That the TPO / DRP erred on facts and in law in holding that co-branding of “Maruti- Suzuki” has resulted in the reinforcement of value of “Suzuki” brand and simultaneous impairment of “Maruti” trademark.

16.13.That the TPO / DRP erred on facts and in law in holding that “Suzuki brand in India is relatively weak”.

16.14.That the TPO / DRP erred on facts and in law in not following the appellate order passed by the Hon’ble Tribunal for assessment year 2005-06 wherein similar Transfer Pricing adjustment on account of international transaction of payment of royalty was deleted.

16.15.That the TPO / DRP erred on facts and in law in holding, on the basis of conjectures and surmises that, the associated enterprise has charged separate royalty for the use of technology and for use of brand name in the proportion in which it incurs expenditure on R&D and Brand promotion.

16.16.That the TPO / DRP erred on facts and in law in not appreciating that the royalty was the consolidated charge made by the appellant for obtaining right and license to manufacture motor vehicles in India using the technology and brand name of the SMC, Japan.

16.17.Without prejudice, the TPO / DRP erred in considering the consolidated financials of the associated enterprise for the purpose of segregating the payment of royalty for the use of technology and for the use of brand name.

17. That the AO has erred in law, on facts and in the circumstances of the case in allowing TDS credit of Rs.31,95,97,761/- only against Rs. 33,76,81,853/- claimed by the appellant in the revised return of Income and/or before DRP/AO, thereby allowing a short-credit of Rs. 1,80,84,092/-

18. That the assessing officer erred on facts and in law in charging interest under sections 234B and 234C of the Act.

18.1. That the assessing officer grossly erred in computing the interest under section 234B of the Act by first adjusting the interest computed under that section on the basis of the assessed income against the self assessment tax paid by the appellant.

The appellant prays leave to add, amend, alter, delete or forego any of the grounds either before or during the course of hearing.”

3. The Ld. Counsel for the assessee raised an additional ground vide letter dated 20.06.2019 which reads as under:-

“On the facts and circumstances of the case and in law, the assessing officer/CIT(A) ought to have restricted the levy of dividend distribution tax, on the dividend distributed/paid to Suzuki Motor Company, Japan and other the non-resident shareholder(s), to 10% in terms of Article 10 of the double taxation avoidance agreement [DTAA] between India and Japan, in case of dividend paid to Suzuki Motor Co., Japan and the DTAAs with the respective countries in case of other non-resident shareholders instead of 16.60875% charged in terms of section 115-O of the Act.”

BRIEF FACTS OF THE CASE

4. Brief facts of the case are that the assessee is a limited company duly incorporated under the Companies Act and is engaged in the business of manufacture, purchase and sale of automobiles and the other activities related to pre-owned car sales, insurance, fleet management and car financing. The return of income was filed through electronic mode on 11.10.2010 declaring total income of Rs.3255,35,58,940/- and the revised return was filed on 28.03.2012 at an income of Rs.3259,18,58,726/-. The case was processed u/s 143(1) of the Income Tax Act, 1961 (“the Act”). Thereafter, the case was taken up for scrutiny assessment. Having taken into account, the transfer pricing adjustments a draft assessment order u/s 144C of the Act was passed on 29.03.2014 determining income at Rs. 4896,58,43,555/-. Aggrieved against it the assessee company filed its objections against the draft assessment order before Ld. Dispute Resolution Panel (“DRP”)-III, New Delhi who issued certain directions on 08.01.2015 u/s 144C(5) of the Act with regard to transfer pricing adjustments. In pursuance to the direction(s) of Ld. DRP, the Assessing Officer (“AO”) passed impugned assessment order on 20.01.2015 u/s 143(4) r.w.s 144C of the Act. Thereby, he assessed income of assessee company at Rs.4649,87,40,313/-. Thereafter, the AO passed a rectification order u/s 154 of the Act thereby after rectifying the error he assessed income at Rs.4591,24,91,796/-.

5. Pertinently, during the assessment proceedings, the AO noticed that the assessee had claimed deduction of Rs.121,82,25,605/- u/s 43B of the Act. In respect of PLA balance on excise duty on vehicles, PLA balance on R&D Cess on vehicles etc. The AO therefore, considering the incurrence of liability to pay taxes/duties being the condition precedent for claiming deduction, he made disallowance u/s 43B of the Act amounting to Rs.121,82,25,605/-. The AO further made disallowance by invoking the provision of section 14A of the Act, he noticed that the assessee had disclosed exempt dividend income of Rs.156,03,20,325/- u/s 10(34) & 10(35) of the Act. The AO further observed that the assessee incurred interest expenses of Rs.21.7 crores, Rs.10.20 crores in foreign currency and interest on export credits. However, the assessee suo-moto made disallowance u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962 (“the Rules”) amounting to Rs.1,69,36,938/- only. The AO did not accept the disallowance made by the assessee instead he computed the disallowance u/s 14A as prescribed under Rule 8D of the Rules. Thereby, he made disallowance of Rs. 34,26,42,273/- and made addition of Rs.32,57,05,335/- after giving set off of suo-moto disallowance made by the assessee company u/s 14A of the Act read with rule 8D of the Rules. The AO further noticed that the assessee company claimed weighted deduction u/s 35(2AB) of the Act, on account of expenditure on in-house scientific research amounting to Rs.246,65,438,122/-. However, the AO did not make any addition on this issue in pursuance of the directions of the Ld. DRP. The AO further noticed that the assessee had made payment of Royalty amounting to Rs. 1035,49,95,272/- to Suzuki Motor Corporation (“SMC”) in the year under consideration and had paid cess on Royalty amounting to Rs.43,79,33,132/-. The AO called upon the assessee as to why Royalty payment should not be treated as capital expenditure. In response thereto, the assessee filed its reply which was rejected by the AO on the basis that the benefit derived by the assessee on such royalty payment was of enduring in nature. Thus, he disallowed payment of Rs.592,57,95,292/- and payment of R &D Cess of Rs.45,18,78,312/- being capital in nature. However, the AO granted partial relief of Rs.93,92,54,794/- rectifying the order u/s 154 of the Act qua depreciation allowance. Thus, the AO after allowing relief for depreciation, made addition of Rs.384,40,00,394/- in respect of royalty payment. The AO made further addition of Rs.442,92,00,000/- being the income determined by the Ld.TPO on account of royalty adjustment made by computing Arm’s Length Price (“ALP”). The AO further made disallowance of Rs.43,11,000/- being expenditure claimed on account of payment of excise duty. The AO disallowed the provisional liability in respect of FPI as claimed by the assessee and made addition of Rs.33,00,89,403/-. The AO further made addition of Rs.21,83,04,695/- on account of disallowance of expenses on adhoc basis in respect of resources shared by the assessee with other group companies/subsidiary companies. The AO also disallowed the claim of expenditure on account of corporate social responsibility amounting to Rs.11,30,00,000/-. The AO further made disallowance in respect of expenditure debited on account of club membership amounting to Rs.7,50,017/-. Further, the AO in respect of transaction in Mutual Fund by following the direction of Ld.DRP made addition of Rs.128,99,50,407/-treating such transaction as business transaction made by the assessee company. The AO also disallowed the expenditure on account of warranty provision amounting to Rs.20,98,82,138/-. Further, the AO also made addition by invoking the provisions of section 40(i)(a) of the Act of Rs.195,67,83,751/- on account of non-deduction of tax at source on payment amounting to Rs.195,67,83,750/-. Thus, the AO computed the income of the assessee at Rs.4649,88,15,313/- against the income at Rs.3259,18,58,726/-as declared in the revised return of income of the assessee.

6. Aggrieved against this, both the assessee and Revenue have preferred cross appeals before this Tribunal, assailing the assessment order and directions of Ld.DRP.

7. At the outset, Ld. Sr. Counsel Shri Ajay Vohra for the assessee submitted that majority of the issues raised by way of the grounds in assessee’s appeal are covered by the decision of the Co-ordinate Benches of this Tribunal in assessee’s own case pertaining to earlier assessment years. He submitted that Ground Nos. 1 & 2 raised by the assessee are general in nature, would need no separate adjudication. Therefore, considering the submissions of Ld. Senior Counsel being general in nature are not adjudicated separately.

8. Further, Ld. Sr. Counsel for the assessee submitted that Ground Nos. 3 to 3.2 raised by the assessee are against the disallowance made by invoking provisions of section 43B of the Act amounting to Rs.121,82,25,605/-. He contended that the Co-ordinate Bench of Tribunal vide order dated 24.08.2015 in respect of Assessment Year (“AY) 2006-07 in ITA No.5120/Del/2010 deleted the additions and similarly for AYs 2007-08, 2008-09 and 2009-10, the Tribunal vide orders dated 20.05.2016, 09.11.2017 and 17.10.2018 (in ITA Nos. 5720/Del/2011,6021/Del/2012 and ITA No.467/Del/2014) deleted the impugned disallowance made u/s 43B of the Act. He contended that facts are identical therefore, disallowance of Rs.121,82,25,605/- deserves to be deleted. He drew our attention to page Nos.768 to 776, 907 to 909, 1032 to 1034 and 1181 to 1188 of the Paper Book to buttress the contention. He submitted that in the light of binding precedents, the impugned disallowance u/s 43B of the Act deserves to be deleted, as the facts are identical in this year as well.

9. On the other hand, Ld. Special Counsel for the Revenue, Shri G. C. Srivastava supported the order of authorities below. However, he could not controvert the submissions of Ld. Senior Counsel for the Assessee that the majority of the issues are covered in favour of the assessee by the decisions of the Co-ordinate Benches of this Tribunal in assessee’s own case and also the decisions of the Tribunal on majority of issues related to deletion of impugned disallowances are now stood affirmed by the Hon’ble Jurisdictional High Court.

9.1. In re-joinder, Ld.Sr. Counsel for the assessee submitted that in the light of the binding precedents impugned additions made by AO deserve to be deleted.

10. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that the AO had made disallowance of Rs.121,82,25,605/- in respects of different items by invoking the provision of section 43B of the Act and following the decision of his predecessor in the AY 2006-07, it is pointed out by the Ld. Senior Counsel for the assessee that the matter related to disallowance u/s 43B of the Act, the matter was carried in further appeal to the Tribunal and Hon’ble Delhi High Court and has been decided in favour of the assessee. It is contended that the assessee has also taken separate sub-grounds (item-wise) challenging the item wise disallowance. Considering the same we therefore, are not adjudicating this ground separately and the issues related to this ground would be dealt along with the respective sub-grounds as raised by the assessee.

11. Ground Nos. 3.3 to 3.4, 3.5, 3.6 to 3.7, 3.8 to 3.9, 3.10, 3.11 to 3.12 have been separately taken by the assessee which are related to the issues raised in this ground. Therefore, each sub-ground shall be dealt separately for brevity and to avoid repetition.

12. Ground No.3.13 is general in nature, would need no separate adjudication.

13. Ground Nos. 3.3 to 3.4 raised by the assessee is against the disallowance of Excise duty on vehicles and R & D cess amounting to Rs.16,42,033/- and Rs.5,84,295/- respectively on the vehicles.

14. Ld. Sr. Counsel for the assessee submitted that the similar disallowance was made in AY 2009-10 and the Tribunal in ITA No. 467/Del/2014(supra) has been pleased to grant relief to the assessee in that year as well as in earlier years. It is further contended that the orders of the Tribunal have been affirmed by the Hon’ble Jurisdictional High Court. Therefore, he submitted that for the same reasoning, Ground Nos. 3.3 to 3.4 may be allowed. He took us through the consolidated chart of submissions as filed during the course of hearing. He submitted that the assessee had closing stock on 31st march,2010 of manufactured vehicles amounting to Rs. 379.4 Crores which sum included the accrued liability of excise duty and R&D cess amounting to Rs. 23.67 Crores. This amount of accrued liability had been debited in profit and loss account for the relevant assessment years and also included in the valuation of closing stock. He further reiterated the submissions as made in consolidated chart of submissions.

15. Ld. Special Counsel for the Revenue supported the order of authorities below. However, he could not controvert that the issue in question had already been decided by the Co-ordinate Bench of the Tribunal in the earlier assessment year.

16. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that the Co-ordinate Bench of the Tribunal in the earlier assessment year have considered the identical grounds raised by the assesses in respect of the disallowance in respect of excise duty and R & D Cess on vehicles u/s 43B of the Act and granted relief to the assessee. The Revenue has not brought to our notice any other binding precedents contrary to the decisions of the Tribunal in support of the impugned additions. We do not find any good reason to deviate from the decision of the Tribunal. Thus, Ground Nos.3.3 to 3.4 raised by the assessee are allowed and the AO is hereby, directed to delete the impugned disallowance.

17. Ground No. 3.5 raised by the assessee is against the disallowance of Rs.54,19,86,424/- made u/s 43B of the Act in respect of Custom duty paid in respect of inputs imported by the assessee company.

18. Ld. Sr. Counsel for the assessee submitted that the issue is squarely covered by the judgement of Hon’ble High Court in the case of the assessee for AY 1999-2000 in ITA No.250/2005; AY 2005-06 in ITA No.171/2012; AY 2005­06 in ITA No.172/2012 and AY 2006-07 in ITA No.381/2016. Ld. Sr. Counsel for the assessee further contended that the assessee company has been consistently following exclusive method of accounting in respect of custom duty on import of components for export purposes. Accordingly, duties paid on purchase were not included in the cost of purchase and the value of closing stock in the P& L A/c. He contended that the addition of the duty, both in the purchases as well as in the closing stock as per requirement of section 145A of the Act, is tax neutral event in as much as the same amount is both debited as well as credited to the P&L A/c. However, to give effect to the provisions of section 43B of the Act which mandates that duties paid by the assessee are allowable only on the payment basis, the custom duty paid by the assessee on import of components for export purpose whether or not the export against the same had actually taken place during the relevant year or not, is claimed as deduction in the return of the income. The AO however, disallowed the same following the assessment order for the AY 2005-06 wherein it was held that since the assessee is entitled for duty drawback which becomes immediately due on the date of export, the amount of custom duty on import is therefore, revenue neutral. Consequently, no deduction is allowable to the assessee company in respect of the same. He contended that the AO failed to appreciate that duty drawback does not accrue automatically on export of goods since the exporter is required to fulfill various conditions/requirements in order to claim the same. Duty drawback accrues only when the claim of the exporter assessee is sanctioned by the custom authorities. Further, he contended that duty drawback receivable is separately chargeable to tax as income of the assessee under section 28 of the Act. Further, he contended that the receipt of duty drawback is altogether different from allowability of deduction in respect of which duty is paid by the assessee on payment basis under section 43B of the Act. He further contended that without prejudice to the aforesaid, in case the AO’s contentions were to be accepted then duty drawback income amounting to Rs.54,19,86,424/- declared by the assessee itself, being the amount of duty drawback received in the instant year but which allegedly accrued in the previous year, as per the principle adopted by the AO, should not be taxable in the year under consideration. He contended that there is no justification for adopting two different and inconsistent methods while computing the income of the present year. The aforesaid sum was duly declared as the income of the immediately succeeding year on receipt of such amount, a method consistently adopted by the appellant company and accepted by the AO since inception. He contended that this issue has already been decided in favour of the assessee in the AYs 1999-2000, 2000-01, 2001­02, 2002-03, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 by the Tribunal. He further contended that the decisions of the Tribunal have been affirmed by the Hon’ble Delhi High Court in AY 1999-2000 (ITA No.250/2005), 2000-01 (ITA No.976/2005), 2005-06 (ITA nos. 171 and 172/2012) and 2006-07 (ITA No.381/2016). He further contended that the Hon’ble Punjab & Haryana High Court in the case of CIT vs Sriyansh Knitters P.Ltd. 336 ITR 235 affirmed the finding of the Tribunal that duty drawback accrues in the year in which rate is fixed by the competent authority after verification of the claim of the assessee company and amount is quantified and not in the year of export.

19. Ld. Special Counsel for the Revenue supported the order of authorities below. However, he could not controvert that the issue is covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal and affirmed by the Hon’ble Delhi High Court.

20. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. The Revenue has not disputed the fact that the identical issue in earlier years has been decided in favour of the assessee by the Co-ordinate Benches of the Tribunal and the same has been affirmed by the Hon’ble Jurisdictional High Court. The Revenue has not brought any contrary binding precedents in support of its contention. Therefore we do not see any good reason to affirm the finding of lower authorities, the Ground Nos.3.5 raised by the assessee is thus allowed and the AO is hereby directed to delete the impugned disallowance.

21. Ground Nos. 3.6 to 3.7 raised by the assessee are against the disallowance of Rs. 2,76,77,437/- in respect of Excise duty actually paid on purchased inputs included in RG 23A Part II.

22. Ld. Counsel for the assessee submitted the issue is covered by the judgement of Hon’ble Supreme Court in the assessee’s own case for AY 1999­2000 and AY 2000-01 vide order dated 07.02.2020. The Hon’ble High Court had decided the alternate claim in favour of the assessee and held that unutilized MODVAT credit of earlier year to the extent adjusted in the year under consideration shall be allowed as deduction in the relevant year. He contended that this claim was not disputed by the Department before the Hon’ble Supreme Court. He therefore, prayed that assessee may be allowed deduction of unutilized MODVAT credit of earlier AY 2009-10 to the extent adjusted in the assessment year under consideration 2010-11. He further submitted that Hon’ble High Court has further allowed deduction for amount representing additional countervailing duty which has been paid directly to the custom authorities. This claim had also not been contested before the Hon’ble Supreme Court. He therefore, prayed that the AO may be directed to allow deduction for amount forming part of RG 23A balance to the extent it has been directly paid to custom authorities. He further submitted that pursuant to the above orders of Hon’ble Delhi High Court, the Tribunal had restored the said issue to the file of AO to verify the claim as per the directions of Hon’ble High Court and held that deduction be allowed for the amount forming part of RG 23A to the extent it had been directly paid to custom authorities. He placed reliance on the order of Hon’ble Delhi High Court in assessee’s own case in ITA No.31/2005 for AY 2009-10.

23. Ld. Special Counsel for the Revenue supported the order of authorities below.

24. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that under the identical facts, the Co-ordinate Bench of this Tribunal in assessee’s case for the Assessment Year 2009-10 had remanded back the issue to the file of the AO to verify the claim as per direction of the Hon’ble High Court and if found in order deduction be allowed for the amount forming part of RG 23A to the extent, it has been directly paid to custom authorities. The Revenue has not brought to our notice any other contrary binding precedent. Therefore, for the same reasoning, the issue is restored to the file of the AO to verify and give relief of set off of duty forming part of RG 23A balance to the extent duty directly paid to custom authorities in the light of the judgment of Hon’ble High Court. Thus, Ground Nos.3.6 to 3.7 raised by the assessee are allowed for statistical purposes.

25. Ground Nos. 3.8 to 3.9 raised by the assessee are against the disallowance of Rs.27,29,78,059/- in respect of custom duty paid to be adjusted against excise duty payable on finished products and disallowance of Rs.6,18,68,222/- in respect of custom duty of the goods in transit/under inspection u/s 43B of the Act.

26. Ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the various judicial precedents including the Judgement of Hon’ble Supreme Court rendered in the case of the case of Samtel Color Ltd.in Civil Appeal Number 6449 of 2012 . The Reliance was also placed on the Judgement of Hon’ble Supreme Court rendered in the case of Bereger Paints(India Ltd. Vs CIT 266 ITR 99. He contended that this amount represents custom duty/CVD paid by the assessee during the relevant assessment year on import of components/raw material which were in transition on the last date of financial year. He contended that the similar disallowance was made in AYs 2006-07, 2007-08, 2008-09, 2009-10 and the Hon’ble Tribunal vide orders dated 24.08.2015, 12.07.2016, 12.07.2018 and 19.06.2019, allowed the claim of the assessee. He further submitted that the issue is squarely covered in favour of the assessee by the judgement of Hon’ble Supreme Court rendered in the case of Samtel Color Ltd. in SLP Civil Appeal No.6449/2012 affirming the view of Hon’ble Delhi High Court in the case of CIT vs Samtel Color Ltd. 184 Taxman 120 wherein, it has been held that custom duty paid is allowable deduction u/s 43B of the Act.

27. Ld. Special Counsel for the Revenue supported the order of authorities below.

28. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. The similar issues were decided by the Co-ordinate Bench in ITA No.467/Del/2014 for the Assessment Year 2009-10 and also in earlier assessment years. Therefore, respectfully following the binding precedents as relied by the assessee(supra), Ground Nos. 3.8 to 3.9 raised by the assessee are allowed. The AO is hereby directed to delete the impugned disallowance of custom duty.

29. Ground No.3.10 raised by the assessee is against the sustaining the addition made by the AO in respect of disallowance of deduction under section 43B of the Act in respect of custom duty paid and included in valuation of closing stock.

30. Apropos to this Ground, Ld. Sr. Counsel for the assessee submitted that the issue is covered in favour of the assessee by the decision of Hon’ble Delhi High Court for AYs 1999-2000 (ITA No.250/2005), 2000-01 (ITA No.976/2005), 2001-02 (ITA No.519/2010) and also by the other decisions of the Co-ordinate Bench of the Tribunal pertaining to AYs 1999-2000, 2000-01, 2001-02, 2002­03, 2004-05, 2005-06. Ld. Sr. Counsel for the assessee submitted that in respect of custom duty paid on import of raw material/inputs, the assessee company followed inclusive method of accounting. Accordingly, the amount of custom duty paid on imported inputs/raw material is included in the purchase price, which is debited to the P&L Account. The said duty was also included and considered as part of value of closing stock, which was shown in the credit side of the P&L Account. He submitted that the Custom duty of Rs.30,48,61,320/- represented duty on import of raw material which was included in the value of closing stock as per the aforesaid inclusive method of accounting followed by the assessee. He submitted that the said method was also in consonance with the provisions of section 145A of the Act. Inclusion of custom duty, both in the value of purchase as well as in the value of closing stock, is tax neutral in as much as the very same amount is both debited and credited to the P&L Account. However, as per the mandate of Section 43B of the Act, the custom duty so actually paid by the assessee is separately claimed as deduction on payment basis in the return of income. The AO however, disallowed the aforesaid amount holding the same to be merely advance payment, liability in respect of which has not crystallized and therefore, not allowable as deduction u/s 43B of the Act. Ld. Sr. Counsel for the assessee submitted that the Hon’ble Supreme Court in the case of Berger Paints India Ltd. vs CIT 266 ITR 99 had held that customs and excise duties are allowable in the year of payment u/s 43B of the Act, and even if such duties are included in the value of closing stock, they would have to be separately allowed. It was further argued that the issue is also covered by the Judgment of Hon’ble Supreme Court in the case of Samtel Color Ltd. wherein the Hon’ble Court dismissed the SLP in Civil Appeal No.6449/2012 filed by the Department against the order of Hon’ble Delhi High Court reported in 184 Taxman 120 and held that advance customs duty paid is allowable deduction u/s 43B of the Act. He contended that Hon’ble Karnataka High Court in the case of CIT vs NCR Corporation India (P.) Ltd. 240 Taxman 598, reiterated the principle laid down by the Hon’ble Apex Court in the case of Berger Paints (supra) and held that the entire amount of excise duty and customs duty paid by the assessee in a particular year are allowable as deduction irrespective of the fact that such duties were included in the value of closing stock. It was further held that the provisions of section 43B of the Act, while overriding all the other provisions of the Act, also override section 145A of the Act and further that provisions of section 145A does not in any manner dilute or nullify the effect of provisions of section 43B of the Act. Ld. Sr. Counsel for the assessee further submitted that the issue is also covered by the decision of Co-ordinate Bench of the Tribunal in assessee’s own case for AYs 1999-2000, 2000-01, 2001-02, 2002-03, 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 and the decision of the Co-ordinate Bench of the Tribunal have been affirmed by the Hon’ble Delhi High Court. He therefore, contended that impugned disallowance deserved to be deleted.

31. On the other hand, Ld. Special Counsel for the Revenue supported the orders of the authorities below and submitted that the assessee cannot be allowed to take benefit of both the provisions. The intent of section 43B of the Act is clear thereby, the payment is related to a particular year of the statutory dues and then only such payments are allowable.

32. We have heard Ld. Authorized Representatives of the parties and perused the material available on record. The Revenue has not disputed the fact that similar issue also arose for consideration of the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case wherein the Tribunal has respectfully following the binding precedents as cited supra had decided the issue in favour of the assessee. The Revenue has not brought any contrary binding precedents to our notice to take a different view. Therefore, we do not see any reason to deviate from the finding of Co-ordinate Bench of the Tribunal. Thus, respectfully following the bindings precedents, we hereby direct the AO to delete the impugned disallowance. Ground No.3.10 raised by the assessee is allowed.

33. Ground Nos. 3.11 to 3.12 raised by the assessee are related to the custom duty and the sales tax paid under protest.

34. Ld. Sr. Counsel for the assessee submitted that custom duty was paid under protest that represented the duty paid as per the additional demand raised by the statutory authorities, i.e. the Excise Department and the Customs Department. Although, the assessee has disputed such additional demand however, it being in the nature of statutory liability, the same represented accrued/crystallized liability. He contended that in terms of the provision of section 43B of the Act, same deserves to be allowed as a deduction u/s 43B of the Act. The AO rejected the claim of the assessee following the assessment orders of the preceding years on the basis that the assessee had been contesting the validity and levy of such duties. Ld. Counsel for the assessee submitted that the issue is squarely decided in favour of the assessee by the judgement of Hon’ble Delhi High Court in the case of CIT vs Dharampal Satyapal & Sons (P.) Ltd. [2011] 50 DTR 287 and the decision of the Co-ordinate Bench of the Tribunal in the case of Euro RSCG Advertising (P) Ltd. v. ACIT: [2013] 154 TTJ 389 (Mum). He contended that the Co-ordinate Bench of the Tribunal in assessee’s own case for AYs 1999-2000, 2000-01, 2001-02, 2002­03, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10 has decided in favour of the assessee. Further, the Hon’ble Delhi High Court in the appeal for AY 1999­2000 in ITA No.250.2005 allowed the deduction for duty which was paid directly to the Custom Authority. He therefore, prayed that the amount paid in protest would be eligible for deduction u/s 43B of the Act.

35. On the other hand, Ld. Special Counsel for the Revenue opposed these submissions and submitted that the payment of custom duty and sales tax has not attained finality as the assessee itself has admitted the fact that the liability to pay custom duty and sales tax yet to attain finality therefore, the provision of section 43B of the Act, would not come to the rescue of the assessee. As per this provision, the statutory liabilities should have attained finality and paid by the assessee for the relevant assessment year. In the absence of such, the AO would be justified in making the additions.

36. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. There is not dispute with regard to the fact that the assessee has made payment of custom duty of Rs.61,76,617/- and sales tax of Rs.4,51,200/- under protest. Ld. Counsel for the assessee has relied on the judgement of the Hon’ble Delhi High Court in the case of CIT vs Dharampal Satyapal & Sons P.Ltd. (supra) wherein Hon’ble Delhi High Court has held as under:-

8. “Once this aspect is clarified, answer to the problem posed before us is no more liable to be sought. No doubt the Tribunal had directed the assessee to make aforesaid payment by way of pre-deposit for stay of the impugned demand and pre-addition for hearing the appeal. However, as mentioned above, indubitably this direction was given keeping in view the total excise duty demand raised by the adjudication authority under the excise law, therefore, it had direct nexus and co-relation. The fact is that the assessee had made the payment towards excise duty albeit on the direction of the CESTAT as pre-deposit which therefore, would not seize to have the character of excise duty as held in the case of Bharat Carbon & Ribbon Mfg. Co.(P.) Ltd. (supra). The ultimate decision in the appeal will have no bearing on the issue. Before us, the admitted position is that the said amount of Rs.7.5 crores is made against as a part payment against the excise duty demand raised by the excise authorities and since it was a statutory liability on that part, therefore, the conditions stipulated in s.43B of the I T Act are duly fulfilled and thus the assessee was entitled to claim the deduction thereof.”

36.1. The short question that arises in this case is that whether deduction u/s 43B of the Act, is allowable to the assessee even if the statutory dues related to custom duty and sales tax are paid under protest. As per clause (a) of section 43B of the Act, any sum payable by the assessee by way of tax, duty, cess or fee by whatever name called under any law for the time being force shall be allowed (irrespective of the previous year in which the liability to pay, same sum was incurred by the assessee according to the method of accounting regularly implied by him), only in computing the income u/s 28 of the Act of previous year in which such sum is actually paid. Therefore, the provision speaks about the amount actually paid in the previous year would be eligible for deduction irrespective of the previous year such duty is related. There is not dispute that the assessee has paid the statutory dues under protest. Under the identical facts, the Co-ordinate Bench of this Tribunal in the case of Euro RSCG Advertising (P) Ltd. v. ACIT (supra) has held that service tax liability alongwith interest paid on show cause notice issued by Service Tax Authority is allowable deduction u/s 43B of the Act in the year under in which the payment was made irrespective of the fact that such demand was paid under protest and the matter was sub-judiced to the authority. Further, Ld. Counsel for the assessee has pointed out that the Tribunal has decided the issue in favour of the assessee in assessee’s own case related to AYs 1999-2000, 2000-01, 2001­02, 2002-03, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10. The Revenue has not disputed this fact. We therefore, do not see any reason to take a different view. The AO is therefore, directed to allow deduction of the custom duty amounting to Rs.61,76,617/- and sales tax amounting to Rs.4,51,200/-paid under protest by the assessee. Thus, Ground Nos. 3.11 to 3.12 raised by the assessee are allowed.

37. Ground Nos. 4 to 4.2 raised by the assessee are against the disallowing the claim of the assessee for withdrawal of add back of Rs.109,72,67,904/- as made in the computation of taxable income being the amounts disallowed in earlier years u/s 43B of the Act.

38. Ld. Sr. Counsel for the assessee reiterated the submissions as made in the chart. He contended that the appellant in the instant AY 2011-12 had offered an amount of Rs.109,72,67,904/- in its return of income. This amount represented received back/ adjusted the P&L Account which have already been claimed as deduction on payment basis u/s 43B of the Act in the preceding AYs. This amount was offered to tax by the appellant during the AY 2010-11 on the presumption that deduction would be allowed in preceding years on payment basis. He contended that the aforesaid total amount has not been allowed to the appellant on the payment basis in the preceding AYs and the appellant had prayed that it should be allowed the withdrawal of add back of the aforesaid amount. He submitted that by not allowing withdrawal of add back has resulted in the claim not being allowed in any year. He contended that in the light of ratio laid down by the Hon’ble Supreme Court in the case of Berger Paints (supra) to the extent the appellant’s claim under section 43B of the Act, were allowed in the earlier assessment years out of the said amount of Rs.109,72,67,904/-, the same would be liable to be added to the assessable income of the present year. This was specifically and categorically conceded and admitted by the appellant. However, until and unless such amount of deduction u/s 43B of the Act, is actually allowed to the appellant in earlier assessment years, the appellant’s claim for withdrawal of added back amount of Rs.109,72,67,904/- would necessarily have to be allowed in the relevant assessment years he pointed out that such withdrawal of add back has also been allowed by the Co-ordinate Bench of the Tribunal in assessee’s own case for the earlier assessment years. He further pointed out that the Revenue’s appeal in AY 2004-05 on this issue has not been admitted by Hon’ble Delhi High Court vide order dated 28.01.2010. Therefore, he submitted that the authorities below were not justified in not allowing the claim of the assessee.

39. On the other hand, Ld. Special Counsel for the Revenue opposed these submissions and supported the orders of the authorities below.

40. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that the Co-Ordinate Bench of this Tribunal in ITA No. 467/Del/2014 has under identical facts in the appeal for AY 2009-10 has restored the issue to the file of AO by observing as under

44. “……….. Thus, the issue is squarely covered y the decision of the Tribunal in assessee’s own case, therefore, we set aside this issue to the file of the Assessing Officer to decide it afresh as decided by the Tribunal in earlier Assessment Years. Needless to say, the assessee be given opportunity of hearing. Ground No.4 to 4.2 are partly allowed for statistical purposes.”

Therefore, taking a consistent view the issue is hereby restored to AO to decide the issue in the light of directions of the Tribunal in AY 2006-07 in Asseesse’s own case. The grounds of appeal are allowed for statistical purpose.

41. Ground No.5 to 5.6 raised by the assessee are against the disallowance made by AO by invoking the provision of section 14A of the Act r.w.Rule 8D of the Income Tax Rules, 1962 (“the Rules”) amounting to Rs.32,57,05,335/-.

42. Ld. Sr. Counsel for the assessee, Shri Ajay Vohra submitted that during the year under consideration, the assessee had earned dividend income of Rs.156,03,20,325/- which was claimed as exempt from tax u/s 10(34) & 10(35) of the Act. In the income tax return, the assessee had suo-moto offered for disallowance a sum of Rs.1,69,36,938/-. He contended that the sum was computed on a rational and scientific basis. However, the amount which was disallowed suo-moto was not actually incurred by the assessee company for earning of exempt income in view of the fact that the investments were made out of non interest bearing funds and other expenses were not required to be made as the investments were made largely in mutual funds and government securities. Hence, no separate infrastructure was needed. He contended that the AO had mechanically applied Rule 8D of the Rules without recording the requisite satisfaction having regard to the accounts of the assessee. Ld. Counsel for the assessee submitted that legal position is clear in this regard in terms of provision of section 14A of the Act only the expenditure incurred having relation with earning of exempt income, is not allowable as a deduction under the provision of the Act. The phrase “expenditure incurred” used in the aforesaid section refers to actual expenditure, which has proximate nexus with exempt income, and not some imaginary or notional expenses, for the purposes of disallowance under this section. The provisions of section 14A of the Act are applicable only if the AO at the first place finds that the assessee has actually incurred expenses, which have proximate nexus with earning of exempt dividend income and not otherwise. The action of assessing officer should not be based merely on surmises. The surmises cannot be allowed to replace credible evidence. He contended that the burden is on AO to prove proximate nexus of expenses with the earning of exempt before rejecting the claim of the assessee and computing the disallowance in accordance with Rule 8D of the Rules. He contended that the position of law is clear that it is from AY 2008-09, the AO can compute disallowance u/s 14A of the Act in accordance with Rule 8D of the Rules, only if the AO having regard to the accounts of the assessee reaches a finding that the assessee has incurred expenses over and above the expenses suo-moto disallowed by him. In the absence of such finding, the AO would have no power to compute disallowance u/s 14A of the Act as per provision of Rule 8D of the Rules. In support of this, Ld. Counsel for the assessee has placed reliance on following judicial pronouncements:-

[i] CIT vs Walfort Share & Stock Brokers 326 ITR 1 (SC);

[ii] Godrej & Boyce Mfg. Co. Ltd. vs DCIT 328 ITR 81 (Bom.);

[iii] Maxopp Investment Ltd. 203 Taxman 364 (Del.);

[iv] CIT vs Hero Cycles 323 ITR 518 (P&H);

[v] CIT vs Metal man Auto P.Ltd. 336 ITR 434 (P&H);

[vi] CIT vs Reliance Utilities and Power Ltd. 313 ITR 340 (Bom.);

[vii] CIT vs Reliance Industries Ltd. 339 ITR 632 (Bom.); [ix] CIT vs Ms. Sushma Kapoor 319 ITR 299 (Del).

43. Ld. Counsel for the assessee submitted that looking to the facts of the present case, no disallowance u/s 14A of the Act would be warranted. Firstly, the AO has not recorded any satisfaction as mandated u/s 14A of the Act and Secondly, without prejudice to aforesaid, no part of the expenditure incurred by the assessee could be regarded as attributable to earning of income. Ld. Counsel for the assessee further reiterated the submissions as made in the written chart and placed reliance on the case laws refereed therein. In respect of the proposition that no disallowance could be made if the no satisfaction is recorded by the AO. Ld. Counsel for the assessee has placed reliance on the judgement of Hon’ble Madras High Court rendered in the case of CIT vs Chettinad Logistics (P.) Ltd. 248 Taxman 55 (Madras) and Revenue’s SLP dismissed in CIT vs Chettinad Logistics (P) Ltd. 257 Taxman 2 (SC); Judgements of Hon’ble Delhi High Court in the cases of CIT vs DLF Hotels Holding Ltd. in SLP (Civil) No.37851/2017 (SC) and Cheminvest Ltd. vs CIT 378 ITR 33 (Del.). Ld. Counsel for the assessee contended that the only expenditure related to earning of exempt income can be disallowed under any circumstances no imaginary and exorbitant figure can be adopted for such disallowance. Ld. Counsel for the assessee further submitted that the assessee is a cash reach company and had huge interest free funds available much in excess of investment so made. Hence, no interest expenditure could have been disallowed. He contended that the issue is covered in favour of the assessee in assessee’s own case.

44. On the contrary, Ld. Special Counsel for the Revenue reiterated the submissions as made in the written submissions. For the sake of clarity, the relevant paragraphs of the written submission are reproduced as under:-

4. “Ground No.5-5.6 on disallowance under section 14A of the Act