M/s. Tamilnadu Petroproducts Limited, CHENNAI V. DCIT, CHENNAI

CO 103/CHNY/2011

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 1902 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 7 month(s) 1 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 24-11-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 20-06-2011
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL
• Assessee Lawyers: R VIJAYARAGHVAN
• Keywords: Reopening of assessment; Business income; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Cost of acquisition; Wholly owned subsidiary; Tangible material; Wrong claim; Bad and doubtful debts; Difference of opinion; Capital receipt; Reason to believe; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 92F; 80HHC; 37(1); 10B; 148; 37; 15; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NOS. 459/MDS/2010 & 904/MDS/2011 / ASSESSMENT YEARS : 2005-06 & 2001-02 AND C.O.NO.103/MDS/2011 (IN ITA NO.904/MDS/2011) THE ASSISTANT COMMISSIONER OF INCOME-TAX, LARGE TAXPAYER UNIT, CHENNAI 600 101. (/ APPELLANT) V. M/S. TAMILNADU PETROPRODUCTS LTD., 9, MANALI EXPRESS ROAD, MANALI, CHENNAI 600 068. PAN AAACT1295M (RESPONDENT/CROSS OBJECTOR) ./ ITA NO. 1999/MDS/2010 / ASSESSMENT YEAR : 2006-07 M/S. TAMILNADU PETROPRODUCTS LTD., V. THE DEPUTY COMMISSIONER CHENNAI-600068. OF INCOME-TAX, LARGE TAXPAYER UNIT, CHENNAI. (/ APPELLANT) (23/ RESPONDENT) DEPARTMENT BY : DR. B. NISCHAL, JCIT ASSESSEE BY : SHRI R. VIJAYARAGHVAN, ADVOCATE 6 7 8 9:; / DATE OF HEARING : 24.11.2015 <= 8 9:; / DATE OF PRONOUNCEMENT: 22 .01.2016 ITA 459, 1999/10, 904 & CO 103/11 2 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE REVENUE AS WELL AS THE APPEAL AND THE CROSS-OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSION ER OF INCOME-TAX(APPEALS) FOR THE ASSESSMENT YEARS 2001-0 2, 2005-06 AND 2006-07. THE ASSESSEE HAS ALSO FILED C ROSS OBJECTION. SINCE, THE ISSUES INVOLVED IN THESE APP EALS ARE COMMON, THEY ARE CLUBBED TOGETHER, HEARD TOGETHER A ND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE REVENUES APPEAL IN ITA NO.459/MDS/2010. THE FIRST GROUND IN THIS APPEAL I S WITH REGARD TO DELETING THE ADDITION MADE BY THE ASSESSI NG OFFICER REPRESENTING EXCESS DEPRECIATION CLAIMED IN THE PAST. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSING OF FICER STATED THAT VARIOUS ASSETS WERE ADDED TO THE FIXED ASSETS DURING THE YEARS 1999 TO 2002 AND DEPRECIATION WAS ITA 459, 1999/10, 904 & CO 103/11 3 CLAIMED IN THE CONCERNED ASSESSMENT YEARS AS PER TH E IT RULES. SUBSEQUENTLY, WHEN IT WAS NOTICED THAT AN A MOUNT OF ` 43,88,000/- WAS FOUND TO BE EXCESS, THE SAME WAS REVERED BY THE ASSESSEE DURING THE CURRENT YEAR. I T WAS ALSO NOTICED BY THE AO FROM THE STATEMENT FILED BY THE ASSESSEE THAT AN AMOUNT OF ` 23,92,470/- WAS CLAIMED AS DEPRECIATION ON THE ABOVE VALUE OF ` 43,88,000/- UPTO THE ASSESSMENT YEAR 2004-05. SINCE THE ABOVE PROVISIO N WAS WITHDRAWN DURING THE CURRENT YEAR, THE CORRESPONDIN G DEPRECIATION CLAIMED BY THE ASSESSEE IN THE EARLIER YEARS TO THE EXTENT OF ` 23,92,470/- WAS ADDED BACK U/S.41(1) OF THE ACT BY THE ASSESSING OFFICER TO THE TOTAL INCOME. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS) . 4. ON APPEAL, THE COMMISSIONER OF INCOME- TAX(APPEALS) OBSERVED THAT THE ASSESSEE HAS REVERSE D ` 43,88,000/- BEING THE ASSET CAPITALIZED EARLIER, WH ICH IS REFLECTED IN ANNEXURE-4A CONTAINING FIXED ASSETS ADDITION 2004-05 PLANT & MACHINERY. IN VIEW OF THE REV ERSAL, THE TOTAL AMOUNT HAS BEEN REDUCED TO ` 13,77,75,925/- AS AGAINST ` 14,21,63,925/-. THIS WOULD CONSEQUENTLY REDUCE ITA 459, 1999/10, 904 & CO 103/11 4 THE QUANTUM OF DEPRECIATION. THE COMMISSIONER OF INCOME-TAX(APPEALS) FURTHER OBSERVED THAT AFTER THE INTRODUCTION OF THE CONCEPT OF BLOCK OF ASSETS TH E ARGUMENT PLACED BY THE REPRESENTATIVE IS CORRECT WHICH IS AL SO SUPPORTED BY THE SUPREME COURT IN THE CASE OF NECTA R BEVERAGES PVT. LTD.(314 ITR 314), WHEREIN IT WAS HE LD THAT IN ITS VERY NATURE, DEPRECIATION IS NEITHER A LOSS , NOR AN EXPENDITURE, NOR A TRADING LIABILITY REFERRED TO IN SEC.41(1). ACCORDINGLY, THE COMMISSIONER OF INCOME-TAX(APPEALS ) DIRECTED THE AO TO DELETE THE SAME. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 5. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS REDUC ED THE ENTIRE COST AND NOT THE WDV FROM THE BLOCK OF PLANT & MACHINERY. AS LONG AS THE THEORY OF BLOCK ASSET I S PREVALENT, ANY DELETION OR ADJUSTMENT CAN BE DONE T O THE BLOCK ONLY. UNLESS AND UNTIL THE BLOCK IS WIPED OU T, THE SHORT-TERM CAPITAL GAIN/LOSS ARISING FROM THE BLOCK CANNOT BE OFFERED AS INCOME. HENCE, THE LD. AR SUBMITTED THA T THE QUESTION OF ADDITION U/S.41(1) OF THE ACT DOES NOT ARISE SINCE ANY CHANGE CAN BE EFFECTED ONLY IN THE BLOCK. THE ENTIRE ITA 459, 1999/10, 904 & CO 103/11 5 AMOUNT REVERSED WILL GO TO REDUCE COST AND LESSER DEPRECIATION WILL BE CLAIMED TO THAT EXTENT IN FUTU RE. IT IS ALSO EXPLAINED THAT, SO FAR AS THE DEPRECIATION IS CONCERNED, WHICH HAS ALREADY BEEN CHARGED IN THE P&L ACCOUNT I S NEITHER A LOSS NOR AN EXPENSES NOR A TRADING LIABIL ITY AS CONTEMPLATED U/S.41(1) OF THE ACT. FOR THIS PURPOS E, HE RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF NECTAR BEVERAGES PVT. LTD. V. DCIT (314 ITR 314). 6. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF THE CIT(APPEALS). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE HAD OBTAINED THE BENEFIT OF DEPRECIATION TO THE TUNE OF ` 23,92,470/- IN EARLIER YEARS. HENCE, WHEN THE ASSET WAS WRITTEN O FF BY REDUCING THE WRITTEN DOWN VALUE OF THE ASSETS, THE ASSESSEE WAS NOT ENTITLED FOR THE DEPRECIATION BENEFIT WHICH WAS GRANTED EARLIER. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE ENTIRE BLOCK OF ASS ETS WRITTEN DOWN VALUE FROM THE YEAR OF ACQUISITION OF THE ASSETS AND IT WAS ALREADY ALLOWED BY THE DEPARTMENT. WHEN , IT ITA 459, 1999/10, 904 & CO 103/11 6 WAS NOTICED THAT AN AMOUNT OF ` 43,88,000/- FOUND TO BE EXCESS IN THE VALUE OF THE ASSETS, THE SAME WAS REV ERSED BY THE ASSESSEE DURING THE CURRENT YEAR AND DEPRECI ATION ALLOWED ON THAT AMOUNT ON EARLIER OCCASION HAS TO B E WITHDRAWN AND TO BE ADDED BACK IN THIS YEAR, AS OTH ERWISE, THE ASSESSEE COMPANY WILL GET DOUBLE BENEFIT, WHICH IS NOT JUSTIFIED. IN VIEW OF THIS, WE HOLD THAT THE DEPRE CIATION CLAIMED BY THE ASSESSEE ON THE ABOVE VALUE OF ` 43,88,000/- IN EARLIER YEAR, WHICH THE ASSESSEE IS NOT ENTITLED, NEED TO BE BROUGHT BACK TO TAX U/S.28(IV) OF THE ACT AS THE VALUE OF BENEFIT IS ARISING FROM THE BUSINES S OF THE ASSESSEE. AFTER REDUCING THE SAID AMOUNT OF DEPREC IATION GRANTED EARLIER FROM THE AMOUNT OF ` 43,88,000/-, THE BALANCE AMOUNT IS TO BE REDUCED FROM THE CLOSING WR ITTEN DOWN VALUE OF BLOCK OF ASSETS. ACCORDINGLY, WE DIR ECT THE AO TO BRING BACK TO TAX, THE AMOUNT OF DEPRECIATION GRANTED TO THE ASSESSEE IN THE EARLIER YEARS ON THE ALLEGED AMOUNT OF ` 43,88,000/- U/S.28(IV) OF THE ACT AND RE-DETERMINE THE CLOSING WRITTEN DOWN VALUE OF BLOCK OF ASSETS IN TH E YEAR UNDER CONSIDERATION. THIS GROUND OF APPEAL OF THE REVENUE ITA 459, 1999/10, 904 & CO 103/11 7 IS ALLOWED. 8. THE NEXT GROUND IN THIS APPEAL IS WITH REGARD TO DELETING THE DISALLOWANCE OF EXPENSES OF ` 6,75,53,000/- INCURRED TOWARDS PREMIUM OF PREMATURE REDEMPTION OF DEBENTURES. 9. THE FACTS OF THE CASE ARE THAT WHILE DISALLOWING THE ABOVE SUM THE ASSESSING OFFICER HAS STATED THAT TH E ABOVE SUM IS NOT ALLOWABLE AS BUSINESS EXPENDITURE SINCE THE SAME HAS BEEN PAID FOR INFRACTION OF LAW AS CONTEMP LATED IN EXPLANATION TO SEC. 37 (1) OF THE ACT. HE ALSO STAT ED THAT THE ABOVE SUM IS A CAPITAL EXPENDITURE AND THEREFORE NO T TO BE ALLOWED AS DEDUCTION. HE STATED THAT THE ASSESSEE P AID THE ABOVE AMOUNT OF ` 675.53 LAKHS AS A COMPENSATION OR AS A MONETARY PENALTY FOR PREMATURE REDEMPTION OF DEBENT URES TO VARIOUS FINANCIAL INSTITUTIONS. IN OTHER WORDS, HE HELD THAT THE PAYMENT WAS NOTHING BUT THE FORECLOSURE CHARGES PAID BY THE ASSESSEE FOR REDEMPTION OF DEBENTURES. ACCOR DING TO THE ASSESSING OFFICER, THE AMOUNT PAID ON PREMATURE REDEMPTION OF DEBENTURE CANNOT BE CONSIDERED AS DIS COUNT OR INTEREST PAID BY THE ASSESSEE AS IN THE CASE OF MADRAS ITA 459, 1999/10, 904 & CO 103/11 8 INDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT [225 ITR 802 (SC)] BUT CAN BE CONSIDERED AS MONETARY PENALTY PAI D BY THE ASSESSEE TO RESPECTIVE LENDERS. HE DISALLOWED T HE ABOVE EXPENDITURE IN TERMS OF EXPLANATION TO 37(1) OF THE ACT (THOUGH EXPLANATION IS NOT EXPLICITLY MENTIONED IN THE ORDER). HE HAS ALSO STATED THAT EXPENDITURE WOULD B E OF CAPITAL NATURE SINCE IT WOULD PROVIDE ENDURING BUSI NESS ADVANTAGE BY WAY OF REDUCED INTEREST PAYMENTS IN FU TURE YEARS. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER B EFORE THE CIT(APPEALS). 10. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT THE ASSESSING OFFICER IS NOT CORRECT IN TREATING THE AB OVE PAYMENT AS AN EXPENDITURE COVERED UNDER THE EXPLANA TION TO SECTION U/S 37 (1) OF THE ACT. AS PER THE PROVIS IONS OF THE EXPLANATION TO SECTION 37(1) OF THE ACT, THE EXPEND ITURE INCURRED FOR ANY PURPOSES WHICH IS AN OFFENCE OR WH ICH IS PROHIBITED BY LAW CANNOT BE ALLOWED AS A DEDUCTION. THIS EXPLANATION WAS INTRODUCED TO REITERATE THE VIEW AD OPTED BY VARIOUS COURTS THAT ANY EXPENDITURE INCURRED FOR IN FRACTION OF LAW IS NOT AN ALLOWABLE DEDUCTION. THE CIT (APPEAL S) ITA 459, 1999/10, 904 & CO 103/11 9 FURTHER OBSERVED THAT IN HAZI AZIZ AND ABDUL SHAKOO R BROS. V.S CIT [41 ITR 350], THE SUPREME COURT HELD THAT N O ITEM OF EXPENDITURE WHICH IS PAID BY WAY OF PENALTY FOR THE BREACH OF LAW COULD BE ALLOWED AS IT CANNOT BE SAID THAT THE AMOUNT WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IF IT IS ESTABLISHED THAT THE PENALTY IS NOT FOR BREACH OF ANY LAW BUT IS COMPENSATORY IN NATURE, TH EN IT CAN BE CLAIMED AS REVENUE EXPENDITURE. THE CIT(APPEALS ) PLACED RELIANCE IN CIT V. J.K. COTTON SPINNING & WEAVING MILLS CC. [123 ITR 911], WHEREIN THE ALLHABAD HIGH COURT HELD THAT PAYMENT OF DAMAGES MAY BE WRONGLY TERMED AS PENALTY, BUT IT IS QUITE DIFFERENT AND DISTINCT FRO M IMPOSITION OF PENALTY FOR INFRACTION OF LAW. THE FORMER IS AN ORDINARY INCIDENT OF BUSINESS AND MAY BE ALLOWABLE AS A BUSINESS LOSS OR EXPENDITURE BUT THE LATER ARISES ON A WRONGFUL ACT AND IS NOT ALLOWABLE. THE PREMIUM PAID FOR PREMATUR E REDEMPTION OF DEBENTURE IS NEITHER AN OFFENCE NOR I S PROHIBITED UNDER THE LAW SO AS TO BE CONSIDERED FOR DISALLOWANCE AS PER EXPLANATION TO SEC. 37(1) OF TH E ACT. IN THE PRESENT CASE, IT IS ONLY A MUTATION OF CONTRACT AND FOR ITA 459, 1999/10, 904 & CO 103/11 10 SUCH CHANGES IN CONTRACT,. THE AMOUNT PAID AS COMPENSATION IS A LIABILITY WHICH HAS ARISEN IN THE COURSE OF BUSINESS. IN FACT, THE NET SAVING IN INTEREST COST TO ASSESSEE DUE TO THIS SWAPPING IS ` 5.32 CRORES. HENCE, THE CIT(APPEALS) HELD THAT THE ASSESSING OFFICER WRONGLY INVOKED PROVISIONS OF EXPLANATION TO SEC, 37(1) OF THE ACT. 10.1 ACCORDING TO THE CIT(APPEALS), THE VIEW OF TH E ASSESSING OFFICER THAT IT IS ALSO A CAPITAL EXPENDITURE SINCE THE EXPENDITURE GIVES AN ENDURING BUSINESS ADVANTAG E IN THE F ORM OF REDUCED INTEREST COST IN FUTURE YEARS IS CONCERNED, THE LEARNED AR ARGUED THAT IT IS NOT A CAPITAL EXPENDITURE AS HELD IN THE CASE OF TUBE INVESTMENTS INDIA LTD'S CASE REPORTED IN 261 ITR 753. THE ABOVE SUM IS AN EXPENDITURE INCURRED AND ALLOWABLE AS REVENUE EXPEN DITURE. SINCE IT IS A PREMIUM PAID FOR PRE-CLOSURE OF THE ENTIRE LOAN, THERE IS NO QUESTION OF ALLOWING THE EXPENDITURE ON PRO-RATA BASIS ANNUALLY AS CONTEMPLATED IN MADRAS INDUSTRIAL INVESTMENTS CORPORATION LTD. VS CIT (225 ITR 802)(SC). IT IS AN ALLOWABLE REVENUE EXPENDITUR E AS THE ABOVE SUM HAS BEEN PAID AT THE TIME OF CLOSURE OF L OAN. THE ITA 459, 1999/10, 904 & CO 103/11 11 CHENNAI TRIBUNAL IN THE CASE OF M/S.OVERSEAS SANMAR FINANCIAL LTD V, JCIT REPORTED IN 86 ITD 602, ON IDENTICAL FACTS, HAS HELD THAT DEDUCTION OF FORECLOSURE PREMI UM PAID ON LOAN TAKEN IN EARLIER YEAR WHICH WAS REPAID PREM ATURELY IN FULL IN PREVIOUS YEAR IS ALLOWABLE AS BUSINESS E XPENDITURE UNDER SECTION 37(1) OF THE INCOME TAX ACT. 1961. 10.2 THE CIT(APPEALS) OBSERVED THAT THE ASSESSEES CASE IS IDENTICAL TO THE FACTS OF OVERSEAS SANMAR FINANCIAL LTD. CITED SUPRA, AFTER DISCUSSING THE FACTS OF THE CASE AND THE RULINGS OF THE APEX COURT IN MADRAS INDUSTR IAL INVESTMENT CORPORATION LTD. [225 ITR 802 (SC)], CIT V. SIVAKAMI MILLS LTD. [227 ITR 465 (SC)] AND CIT V. M ADRAS AUTO SERVICES (P) LTD. [233 ITR 469 (SC)], THE ITA T, CHENNAI HELD AS UNDER: 'REDUCTION IN THE RATE OF INTEREST FOR FRESH LOANS TO BE ADVANCED BY THE FINANCIAL INSTITUTIONS LED THE ASSESSEE-COMPANY TO PAYOFF THE ENTIRE LOAN THAT CARRIED THE BURDEN OF HIGHER RATE OF INTEREST. THE ASSESSEE APPARENTLY CALCULATED THE AMOUNT OF INTEREST THAT IT WOULD BE PAYING OVER THE YEARS AT THE AGREED RATE OF INTEREST AND COMPARED IT WITH TH E FORECLOSURE PREMIUM TOGETHER WITH THE INTEREST THAT IT WOULD PAY ON THE REVISED RATE BASIS AND FOUND IT TO BE ADVANTAGEOUS TO THE COMPANY BY PAYING THE FORECLOSURE PREMIUM. THE ADVANTAGE THE COMPANY WANTED TO BENEFIT FROM WAS CLEARLY WELL-JUDGED ITA 459, 1999/10, 904 & CO 103/11 12 BUSINESS DECISION AND, THEREFORE, IT WAS LAID OUT WHOLLY FOR THE PURPOSES OF ITS BUSINESS. THAT ITSEL F WAS SUFFICIENT FOR ALLOWING THE CLAIM IN FULL IN TH E YEAR IN WHICH IT WAS INCURRED'. FOLLOWING THE ABOVE DECISION, THE CIT(APPEALS) HEL D THAT THE EXPENDITURE INCURRED TOWARDS PREMIUM ON PRE-CLO SURE OF LOAN PAID DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06 IS REVENUE IN NATURE AND HA S TO BE FULLY ALLOWED. ACCORDINGLY, HE DIRECTED THE ASSE SSING OFFICER TO DELETE THE ADDITION. AGAINST THIS, THE R EVENUE IS IN APPEAL BEFORE US. 11. THE LD. DR RELIED ON THE ORDER OF THE AO. HE H AS ALSO PLACED RELIANCE ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORA TION LTD. V. CIT (225 ITR 802) AND IN THE CASE OF TUBE INVEST MENTS INDIA LTD. (261 ITR 753). 12.1 ON THE OTHER HAND, THE LD. AR RELIED ON THE DE CISION OF THE TRIBUNAL IN THE CASE OF OVERSEAS SANMAR OVER SEAS FINANCIAL LTD. V. JCIT (86 ITD 602) AND SUBMITTED T HAT IT IS A CAPITAL EXPENDITURE. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE HA S RAISED ITA 459, 1999/10, 904 & CO 103/11 13 AN AMOUNT OF ` 100 CRORES BY ISSUE OF REDEEMABLE NON- CONVERTIBLE DEBENTURES AT THE RATE OF 12% WITH FAC E VALUE OF ` 10 LAKH PER DEBENTURE AT PAR VALUE FOR ` 50 CRORES WITH AN OPTION TO RETAIN OVERSUBSCRIPTION UPTO ` 50 CRORES FOR A TENURE OF 8 YEARS WITH REDEMPTION CONDITION OF 23 Q UARTERLY INSTALMENTS STARTING AT THE END OF 30 TH MONTH FROM THE DATE OF ALLOTMENT. HOWEVER, CONSIDERING THE HIGH COST OF DEBENTURES, THE ASSESSEE PREMATURELY REDEEMED THE 1 2% NON-CONVERTIBLE DEBENTURES OF ` 100 CRORES DURING THE YEAR ENDED 31.3.2005. FOR THIS PURPOSE, THE ASSESSEE HA S AVAILED TERM LOAN OF ` 75 CRORES AT THE RATE OF 8.5% FROM IDBI AND ` 25 CRORES FROM PUNJAB & NATIONAL BANK. DUE TO THE ABOVE, THE SAVINGS IN INTEREST WOULD BE TO THE EXTENT OF ` 3.5 CRORES PER ANNUM. THIS WAS REDEEMED BY PRE-PAY MENT CLOSURE AND AGREED FOR A PREMIUM AT THE RATE OF 10% TOTALLING TO ` 675.53 LAKHS AND CLAIMED IT AS A REVENUE EXPENDITURE U/S.37(1). THIS LIABILITY INCURRED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE. IN OUR OPINION, THE SAME VIEW WAS TAKEN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. M/S. FIRST LEASING COMPANY OF INDIA LTD. IN ITA 459, 1999/10, 904 & CO 103/11 14 TC(APPEAL) NO.209 OF 2006 AND TC(APPEALS) NO.1099 O F 2004. VIDE JUDGMENT DATED 22.2.2006, THEIR LORDSHI PS OBSERVED AS FOLLOWS: 2. IT IS APT TO REFER SECTION 37 OF THE INCOME TAX ACT, WHICH READS AS FOLLOWS: 37. (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION.' 5.1. THE QUESTIONS WHETHER THE DISCOUNT ON DEBENTURE IS THE REVENUE EXPENDITURE OR CAPITAL EXPENDITURE AND THE SAME COULD BE SPREAD OVER AND THAT WHETHER THE EXPENDITURE INCURRED FOR THE ISSUE OF DEBENTURE IN EARLIER YEARS HAS TO BE SPREAD OVER AND OWED AS A DEDUCTION IN FUTURE YEARS CAME FOR CONSIDERATION BEFORE THE APEX COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. COMMISSIONER OF INCOME TAX REPORTED IN 225 ITR 802, WHEREIN THE APEX COURT OBSERVED THAT WHEN A COMPANY ISSUE S DEBENTURES AT A DISCOUNT, IT INCURS A LIABILITY TO PAY A LARGER AMOUNT THAN WHAT IS BORROWED. THE LIABILITY TO PAY THE DISCOUNTED AMOUNT OVER AND ABOVE THE AMOUNT RECEIVED FOR THE DEBENTURES, IS A LIABILITY WHICH HAS BEEN INCURRED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS IN ORDER TO GENERATE FUNDS FOR ITS BUSINESS ACTIVITIES. THE ITA 459, 1999/10, 904 & CO 103/11 15 AMOUNTS SO OBTAINED BY ISSUE OF DEBENTURES ARE USED BY THE COMPANY FOR THE PURPOSES OF ITS BUSINESS. HENCE, THE LIABILITY TO PAY THE DISCOUNT WOULD THEREFORE BE A RE VENUE EXPENDITURE. 5.2. THE ISSUE WHETHER A PARTICULAR EXPENDITURE SHOULD BE TREATED AS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS MUST BE DETERMINED ON CONSIDERATION OF ALL FACTS AND CIRCUMSTANCES OF THE CASE AND BY APPLICATION O E PRINCIPLES OF COMMERCIAL TRADING, IN THE CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. IF THE OUTGOING OR EXPENDITURE IS SO RELATED TO THE CARRYING ON, OR CONDUCT OF THE BUSINESS, THAT IT MAY BE REGARDED AS AN INTEGRAL PART OF THE PROFIT-MAKING PROCESS AND NOT FOR ACQUISITION OF AN ASSET OR A RIGHT OF A PERMANENT CHARACTER, THE POSSESSION OF WHICH IS A CONDITION OF THE CARRYING ON OF THE BUSINESS, THE EXPENDITURE MAY BE REGARDED AS REVENUE EXPENDITURE. ANY LIABILITY INCURRED FOR THE BUSINES S OF OBTAINING A LOAN WOULD BE REVENUE EXPENDITURE. 6. THEN THE QUESTION ARISES WHETHER THE DEDUCTION OF SUCH REVENUE EXPENDITURE COULD BE SPREAD OVER. THE REVENUE EXPENDITURE, WHICH IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, MUST BE ALLOWED IN ITS ENTIRETY IN THE YEAR IN WHICH IS INCURRED AND IT CANNOT BE SPREAD OVER A NUMBER OF YEARS, EVEN IF THE ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS OVER A PERIOD OF YEARS, BUT IT WAS HELD BY THE APEX COURT IN THE DECISION CITED SUPRA THAT ISSUING DEBENTURES IS AN INSTANCE WHERE, ALTHOUGH THE ASSESSEE HAS INCURRED THE LIABILITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF ITA 459, 1999/10, 904 & CO 103/11 16 DEBENTURES, THE PAYMENT IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS, THERE IS A CONTINUING BENEFIT TO THE BUSINESS OF THE COMPANY OVER THE ENTIRE PERIOD, AND THE LIABILITY SHOULD, THEREFORE, BE SPREAD OVER THE PERIOD OF THE DEBENTURES. 7. IN THE INSTANT CASE, THE ISSUE IS WITH REFERENCE TO THE ALLOWABILITY OF PREMIUM PAYABLE ON ACTUAL REDEMPTION OF DEBENTURES AS DEDUCTION IN FUTURE YEARS. 8. A DIVISION BENCH OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. TUBE INVESTMENTS OF (INDIA) LTD . REPORTED IN 261 ITR 753, HELD THAT PRO-RATA ANNUAL ALLOCATION OF PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES ALLOWED BY THE TRIBUNAL IS IN ACCORDANCE WITH THE LAW LAID DOWN BY THE APEX COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. COMMISSIONER OF INCOME TAX REPORTED IN 225 ITR 802. 9. SIMILAR VIEW WAS ALSO TAKEN BY THE CALCUTTA HIGH COURT IN THE CASE OF NATIONAL ENGINEERING INDUSTRIES LTD., V. C.I.T . REPORTED IN 236 ITR 577, WHEREIN IT HAS BEEN HELD AS FOLLOWS: THERE IS NO DISTINCTION BETWEEN A DISCOUNT AND A PREMIUM. THE RESULT IN BOTH IS THAT SOMETHING OVER AND ABOVE THE FACE VALUE AND THE SPECIFIED INTEREST IS PAID, THE ACCOUNTING PROCEDURE IN ONE CASE BEING BY WAY OF A PRELIMINARY DEDUCTION FROM THE M ONED AMOUNT, AND THE ACCOUNTING PROCEDURE IS THE OTHER CASE BEING AN ADDITION AT THE END OVER THE PRESCRIBED AND MENTIONED FACE VALUE AMOUNT. THE EXTRA PREMIUM IS TO BE SPREAD ITA 459, 1999/10, 904 & CO 103/11 17 OVER ALL THE YEARS WHICH ARE OCCUPIED BETWEEN THE DATE OF ISSUE AND THE DATE OF ULTIMATE REDEMPTION. (EMPHASIS SUPPLIED) 10. APPLYING THE RATIO LAID DOWN IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. COMMISSIONER OF INCOME TAX REPORTED IN 225 ITR 802 AND IN THE CONTEXT OF THE RATIO LAID DOWN IN TH E CASE OF NATIONAL ENGINEERING INDUSTRIES LTD., V. C . REPORTED IN 236 ITR 577, WHERE UNDER IT IS HELD THAT THERE IS NO DISTINCTION BETWEEN DISCOUNT AND PREMIUM, THE DISCOUNT ON DEBENTURES AS WELL AS THE PREMIUM PAYABLE ON ACTUAL REDEMPTION ON DEBENTURES IN FUTURE YEARS AND THE EXPENDITURE INCURRED FOR ISSUE OF SUCH DEBENTURES ARE ALL HELD TO BE THE REVENUE EXPENDITURE, ENTITLED TO BE SPREAD OVER THE PERIOD OF DEBENTURES AND CONSEQUENTLY, ALLOWABLE AS DEDUCTION IN A PARTICULAR ASSESSMENT YEAR. ACCORDINGLY, WE ARE OF THE OPINION THAT THE ABOVE EXPENDITURE IS A REVENUE EXPENDITURE AND THIS GROUN D OF APPEAL OF THE REVENUE IS DISMISSED. 14. THE NEXT GROUND IN THIS APPEAL IS WITH REGARD TO DELETING THE ADDITION MADE ON ACCOUNT OF DIFFERENCE IN ARMS LENGTH UNDER TRANSFER PRICING ON A SUM OF ` 12,66,160/-. ITA 459, 1999/10, 904 & CO 103/11 18 15. THE FACTS ARE THAT THE TRANSFER PRICING OFFICE R HAS REFUSED TO CONSIDER THE VARIATION OF 5% BETWEEN THE PRICES ADMITTED BY THE ASSESSEE AND PRICE AS FIXED BY THE TRANSFER PRICING OFFICER AND ADDED THE DIFFERENCE IN PRICE T O THE EXTENT OF ` 12,66,160/-. THE LEARNED AR HAS PLACED RELIANCE ON THE PROVISIONS OF SEC. 92 C (2) WHICH READS AS F OLLOWS: 11 PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARM'S LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES. PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARM'S LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED FIVE PERCENT OF THE LATTER, THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN SHALL BE DEEMED TO BE THE ARM'S LENGTH PRICE.' THE LEARNED AR FURTHER ARGUED THAT THE SEC. 92 C (2 ) MAKES IT CLEAR THAT THE TRANSFER PRICING OFFICER HAS TO C HOOSE THE MOST APPROPRIATE METHOD AND HAVING CHOSEN THE METHO D, IF THERE ARE MORE THAN ONE ARMS LENGTH PRICE THEN AN ARITHMETICAL MEANS HAS TO BE TAKEN. HE HAS ALSO POI NTED OUT THAT AS PER SECOND. PROVISO, THE ASSESSEE IS ALWAYS ENTITLED TO A DIFFERENCE OF 5% BETWEEN THE ARMS LENGTH PRICE ITA 459, 1999/10, 904 & CO 103/11 19 DETERMINED BY THE TRANSFER PRICING OFFICER AND THE PRICES REPORTED BY IT. AGAINST THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS). 16. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT T HE TRANSFER POLICY LEGISLATION REQUIRES A TAX PAYER TO DETERMINE AN ARM'S-LENGTH PRICE OF THEIR INTERNATIONAL TRANSA CTIONS. THE EXPRESSION 'ARM'S- LENGTH PRICE' IS DEFINED BY SEC. 92F OF THE ACT TO MEAN A PRICE THAT IS APPLIED OR PROPOSED TO BE APPLIED TO TRANSACTIONS BETWEEN PERSONS OTHER THAN ASSOCIATED ENTERPRISES IN UNCONTROLLED CONDITIONS. FURTHER, HE OBSERVED THAT THE SECTION PROVIDES THAT WHERE M ORE THAN ONE ARM'S- LENGTH PRICE IS DETERMINED BY APPLYING T HE MOST APPROPRIATE TP METHOD, THE ARITHMETICAL MEAN OF SUC H PRICES SHALL BE CONSIDERED AS THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION. THOUGH THE TP LEGISLATIO N DOES NOT RECOGNIZE THE CONCEPT OF AN 'ARM'S-LENGTH RANGE', I T PROVIDES A LIMITED SAFE HARBOUR TO THE TAX PAYERS I N THE FORM OF A (+) / ( -) 5% RANGE. THE TP LEGISLATION PROVIDES AN OPTION TO THE ASSESSEE TO ADOPT AS ARM'S-LENGTH PRI CE ANY PRICE WHICH FALL WITHIN (+) / ( -) 5% OF THE ARITHMETIC MEAN OF ITA 459, 1999/10, 904 & CO 103/11 20 THE MULTIPLE PRICES DISCUSSED ABOVE. THE CIT(APPEAL S) ALSO OBSERVED THAT THE ARMS LENGTH PRICES DETERMINED BY HER IS NOT MORE THAN 5% OF THE RATE PAID BY THE APPELLANT. THIS IS EVIDENT BECAUSE FOR THE ITEM NO. 1, THE DIFFERENCE IN RATE IS US $ 23.39 AND WHEREAS THE AMOUNT PAID BY THE APPELLANT IS US$ 796.17; AND FOR ITEM NO.2 DIFFEREN CE IN THE RATE IS $ 3.78 AND WHEREAS THE PRICE PAID BY THE AP PELLANT IS $ 1492.617. THUS, IN BOTH THE CASES THE DIFFERENCE IN PRICE IS LESS THAN 5% AND HENCE NO ADDITION ON THIS ACCOUNT CAN BE MADE TO THE TRANSFER PRICE IN VIEW O F THE SECOND PROVISO OF SEC. 92 C (2). HENCE, ACCORDING T O THE CIT(APPEALS), THE ADDITION MADE BY THE ASSESSING O FFICER IS NOT AS PER LAW AND HE DIRECTED THE AO TO DELETE THE ADDITION OF ` 12,66,160/-. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. SIMILAR ISSUE CAME FOR CONSIDER ATION BEFORE THE TRIBUNAL IN ITA NO.63/MDS/2008 IN THE CA SE OF M/S. COASTAL ENERGY PVT. LTD. AND THE TRIBUNAL VIDE ITS ORDER DATED 28.10.2015 FOR THE ASST. YEAR 2004-05 HELD A S UNDER: ITA 459, 1999/10, 904 & CO 103/11 21 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE MAIN CONTENTION OF THE LD. AR IS THAT ARITHMETICAL MEAN IN RESPECT OF SEVEN SHIPMENTS SHOULD BE ARRIVED AT DETERMINING THE ALP AND IF IT IS VARIATI ON IS BELOW 5%, THERE COULD NOT BE ANY TP ADJUSTMENT IN VIEW OF SEC.92(C) OF THE ACT. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT TRANSACTIONS CAN BE CONSIDERED AS ONE UNIT ONLY IF THEY ARE CLOSELY LINKED. WE HAVE GONE THROUGH RULE 10A(D) AND 10B OF THE I.T. RULES. ON A COMBINED READING OF THESE TWO RULES, A NUMBER OF TRANSACTIONS CAN BE AGGREGATED AND CONSTRUED AS A SINGLE TRANSACTION FOR THE PURPOSES OF DETERMINING THE ALP PROVIDED THAT SUCH TRANSACTIONS ARE CLOSELY LINKED. OSTENSIBLY THE RATIONALE OF AGGREGATING CLOSELY LINKED TRANSACTIONS TO FACILITATE DETERMINATION OF ALP ENVISAGED A SITUATION WHERE IT WOULD BE INAPPROPRIATE TO ANALYSIS THE TRANSACTIONS INDIVIDUALLY. THE PROPOSITION THAT A NUMBER OF INDIVIDUAL TRANSACTIONS CAN BE AGGREGATED AND CONSTRUED AS A COMPOSITE TRANSACTION IN ORDER TO COMPUTE ALP ALSO FINDS AN ECHO IN THE OECD GUIDELINES UNDER CHAPTER III. CONSIDERING THE LEGISLATIVE INTENT MANIFESTED BY WAY OF RULE 10A(D) R.W. RULE 10B OF THE RULES, IT CLEARLY EMERGES THAT IN APPROPRIATE CIRCUMSTANCES WHERE CLOSELY LINKED TRANSACTIONS EXIST, THE SAME SHOULD BE TREATED AS ONE COMPOSITE TRANSACTION AND A COMMON TRANSFER PRICING ANALYSIS BE PERFORMED FOR SUCH TRANSACTIONS BY ADOPTING THE MOST APPROPRIATE METHOD. IN OTHER WORDS, IN A GIVEN CASE WHERE A NUMBER OF CLOSELY LINKED TRANSACTIONS ARE SOUGHT TO BE AGGREGATED FOR THE PURPOSES OF BENCH MARKING WITH UNCONTROLLED TRANSACTIONS, SUCH AN APPROACH CAN BE SAID TO BE WELL ESTABLISHED IN THE TRANSFER PRICING REGULATION HAVING REGARD TO RULE 10A(D) OF THE RULES. ITA 459, 1999/10, 904 & CO 103/11 22 THOUGH IT IS NOT FEASIBLE TO DEFINE THE PARAMETERS IN A WATER TIGHT COMPARTMENT AS TO WHAT TRANSACTIONS CAN BE CONSIDERED AS CLOSELY LINKED, SINCE THE SAME WOULD DEPEND ON FACTS AND CIRCUMSTANCES OF EACH CASE. SO, HOWEVER, AS PER AN EXAMPLE NOTED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, IN ITS GUIDANCE NOTES ON TRANSFER PRICING, IT IS STATED THAT TWO OR MORE TRANSACTIONS CAN BE SAID TO BE CLOSELY LINKED, IF THEY EMANATE FROM A COMMON SOURCE, BEING AN ORDER OR CONTRACT OR AN AGREEMENT OR AN ARRANGEMENT, AND THE NATURE, CHARACTERISTIC AND TERMS OF SUCH TRANSACTIONS SUBSTANTIALLY FLOW FROM THE SAID COMMON SOURCE. 6. CONSIDERING THE FACTS OF THE PRESENT CASE, WE FIND THAT ALL THE SEVEN SETS OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE CANNOT BE CONSIDERED AS CLOSELY LINKED. WE, THEREFORE, REFUSE TO ACCEPT THE CONTENTION OF THE ASSESSEES COUNSEL. BEING SO, WE FIND THAT THE JUDGMENT RELIED ON BY THE LD. DR IN THE CASE OF DEVELOPMENT CONSULTANTS (P) LTD. V. DCIT (23 SOT 455), WHEREIN IT WAS HELD THAT THE ALP SHOULD BE DETERMINED ON A TRANSACTION-BY- TRANSACTION BASIS AND NOT ON AN AGGREGATE BASIS AS ARGUED BY THE ASSESSEES COUNSEL. THE SAME VIEW WAS TAKEN BY THE TRIBUNAL IN THE CASE OF ACIT V. UE TRADE CORPORATION (INDIA) (P.) LTD., 44 SOT 457 (DELHI), WHEREIN IT WAS HELD THAT THE ASSESSING OFFICER WAS WITHIN HIS JURISDICTION FOR THE PURPOSE OF DETERMINING OF ALP BY EXAMINING EACH TRANSACTION SEPARATELY. 7. FURTHER, IN THIS CASE, PRICE VARIATION IS MORE THAN 5%, ASSESSING OFFICER IS JUSTIFIED IN MAKING ADJUSTMENT OF ALP DETERMINED BY THE TAX PAYER AND THE PROVISO TO SEC.92C PROVIDES THAT WHERE MORE THAN ONE PRICE MAY BE DETERMINED BY THE MOST APPROPRIATE METHOD, THE ALP SHALL BE TAKEN ITA 459, 1999/10, 904 & CO 103/11 23 TO BE THE ARITHMETICAL MEAN OF SUCH PRICES. IN THE INSTANT CASE ONLY ONE PRICE HAS BEEN DETERMINED UNDER MOST APPROPRIATE METHOD, THE QUESTION OF APPLICATION OF THE PROVISO DOES NOT ARISE. THIS VIEW IS SUPPORTED BY THE DECISION RELIED ON BY THE LD. DR IN THE CASE OF ACIT V. M/S. ESSAR STEEL LTD. IN ITA NO.228 OF 2008 DATED 25.1.2011[VISAKHAPATNAM). ACCORDINGLY, THE ASSESSEE IS NOT ENTITLED FOR CONCESSION AS PRESCRIBED IN THE PROVISO TO SEC.92C(2) OF THE ACT. IN VIEW OF THE ABOVE, THE ALP SHOULD BE DETERMINED ON A TRANSACTION BY TRANSACTION BASIS AND NOT ON AN AGGR EGATE BASIS AS ARGUED BY THE LD. AR. HENCE, WE REVERSE T HE ORDER OF THE CIT(APPEALS) AND RESTORE THAT OF THE AO. TH IS GROUND OF APPEAL BY THE REVENUE IS ALLOWED. IN THE RESULT , THE APPEAL OF THE REVENUE IN ITA NO.459/MDS/2010 IS PAR TLY ALLOWED. 18. NOW, WE TAKE UP THE APPEAL OF THE REVENUE IN ITA NO.904/MDS/2011. THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(APPEALS) IS ERRED IN HOLDING THAT T HE REOPENING OF THE ASSESSMENT MADE IN THIS CASE IS INVALID. 19. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT O F ITA 459, 1999/10, 904 & CO 103/11 24 LINEAR ALKYL BENZENE AND EPICHLOROHYDRIN (ECH). FOR A . Y . 2001-02 FILED RETURN OF INCOME ON 31.10.2001 DECLARING A TOTAL INCOME O F ` 57 , 36,72,000 / . THE RETURN WAS PROCESSED U / S . 143(L) ON 22 03 2003 . SUBSEQUENTLY, THE AO REOPENED THE ASSESSMENT BY ISSUING NOTICE U / S . 148 ON 03 09 2004 . THE REASON GIVEN FOR REOPENING WAS THAT THE ASSESSEE HAD WRONGLY CL AIMED A SUM OF ` 8,56 , 47,000 / AS REVENUE E X PENDITURE INSTEAD OF TREATING IT AS C APITAL E X PENDITURE . THE ASSESSMENT WAS COMPLETED U / S 143(3) R . W . S 147 ON 13 0 2 2006 WHEREIN NO ADDITION WAS MADE ON THE ISSUE ON WHICH THE A SSESSMENT WA S R E O P EN ED . HOWEVER , THE AO DISALLOWED THE PROVISION FOR BAD AND DOUBTFUL DEBTS , RE C OMPUT E D THE DEDUCTION U / S 80HHC AND DENIED DEDUCTION U / S . 80IA . THE ID . CIT(A ) VID E ORDER IN ITA NO . 669 / 200506 DATED 01122006 ANNULLED THE REASSESSMENT AS BAD IN LAW . THE AO ONCE AGAIN REOPENED THE ASSESSMENT BY ISSUING NOTICE U / S 148 ON 03082007 MAINLY BASED ON THE LETTER DATED 27022007 FROM TH E CIT , MUMBAI . THE A SSESSEE HAD REQUESTED THE AO TO FURNISH THE REASONS FOR REOPENING WHICH WAS DULY COMMUNI C AT E D ITA 459, 1999/10, 904 & CO 103/11 25 TO IT . THE OBJECTION OF THE ASSESSEE TO THE REOPENING WAS REJECTED BY TH E A O VIDE LETTER DATED 1911 2008 . THEREAFTER , THE ASSESSEE HAD FILED TWO WRIT PETITIONS BEFORE THE MADRAS HIGH COURT CHALLENGING THE NOTICE U / S 148 ISSUED ON 0308 2007 AND THE ORDER REJECTING THE OBJECTIONS DATED 19112008 . THE WRIT P E TITION S WE R E ADMITTED AND STAY WAS GRANTED . SUBSEQUENTLY, THEY WERE DISPOSED OFF ON 17 092010 DIRECTING THE ASSESSEE TO PRODUCE THE RECOR DS AND SATISFY THE AO THAT TH E RE WAS N O NE C ESSITY FOR RE- ASSESSMENT IN THE LIGHT OF THE RATIO LAID DOWN IN T H E D E CISION O F TH E H O N ' BLE SUPREME COURT IN THE CASE OF CIT V. KELV I NATOR INDIA LT D , 320 ITR 56L . A CC ORDINGLY , THE AO ISSUED NOTICE DATED 22102010 AND HEARD TH E C A SE . H E F I N A LLY PASSED THE REASSESSMENT ORDER DETERMINING THE TOTAL INCOME AT ` 123,22,54 , 400/- BY MAKING VARIOUS ADDITIONS I DISALLOWANCES. AGGRIEVED BY THE ABOVE , THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(APPEALS). 20. REGARDING THE REOPENING, THE LD. AR SUBMITTED BEFORE THE CIT(APPEALS) THAT THE RE-ASSESSMENT IS BASED ON CHANGE OF OPINION. I T IS ALSO STATED THAT ITA 459, 1999/10, 904 & CO 103/11 26 ASSUMPTION OF JURISDICTION U / S 147 ON THE BASIS OF OPINION OF ANOTHER AO (AT MUMBAI) IS BAD IN LAW . IT IS FURTHER STATED THAT THE AO WAS NOT CORRECT IN HOLDING THAT NO ASSE SSMENT WAS EXISTING AT THE TIME OF REOPENING THE ASSESSMEN T . IN TH I S CASE NO ASSESSMENT ORDER WAS PASSED U/S 143(3). T HE RE-ASSESSMENT ORDER U/S 143(3) R . W . S . 147 WAS PASSED ON 13022006. THIS ORDER WAS ANNULLED BY THE CIT IN I TA NO.669 / 200506 DATED 01122006 . THEREAFTER, THE AO HAS AGAIN REOPENED THE ASSESSMENT BY ISSUING NOTICE U/S 148 ON 03082007 WHICH IS UNDER PRESENT APPEAL. THE ASSESSEE HAD REQUESTED THE AO TO TREAT THE ORIGINAL RETURN FILED BY IT ON 31102001 AS THE RETURN FILED IN RE SPONSE TO NOTICE U/S 148 . AFTER COMMUN I CATING THE REASONS FOR REOPENING AND AFTER REJECTING THE OBJECTION OF THE ASSESSEE TO REOPEN THE ASSESSMENT , THE AO HELD THE INITIATION OF THE RE-ASSESSMENT PROCEEDINGS AS VALID FOR THE FOLLOWIN G REASONS: 1. ORIGINAL ASSESSMENT PASSED ON 13-02-2006 WAS ANNULLED BY THE CIT(A) VIDE HIS ORDER DATED 01-12-2006. SINCE THERE WAS NO ASSESSMENT EXISTS AT THE TIME OF REOPENING OF THE ASSESSMENT THE PROVISO TO SECTION 147 OF THE ACT WILL NOT APPLICABLE IN THIS CASE. ITA 459, 1999/10, 904 & CO 103/11 27 2. NOTWITHSTANDING TO THE ABOVE IT IS IMPORTANT TO NOTE THAT THE ASSESSMENT HAS BEEN REOPENED BY THE ASSESSING OFFICER MAINLY UPON THE RECEIPT OF FRESH MATERIAL E VIDENCES VIDE LETTER DATED 27.02.2007 FROM THE COMMISSIONER OF INCOME - TAX, MUMBAI WHO IS HAVING JURISDICTION OVER M/S CIBA INDIA PRIVATE LTD . THE RELEVANT PART OF THE INFORMATION RECEIVED IS BEING REPRODUCED AS UNDER: IT IS OBSERVED FROM THE ABOVE MATERIAL EVIDENCE COLLECTED THAT IN THE PROFIT AND LOSS ACCOUNT OF M/S CIBA INDIA PRIVATE LIMITED AN AMOUNT OF RS.8,28,862,000I- WERE SHOWN AS EXPENDITURE UNDER THE HEAD 'OPERATING EXPENDITURE'. THE SCHEDULE-16 O F THE PROFIT AND L OSS ACCOUNT GIVING DETAILS OF OPERATING EXPENDITURE OF RS.8,28,862,000I- INCLUDES COMPENSATION PAID TO M/S TAMILNADU PETRO PRODUCTS LIMITED FOR THE PURPOSE OF TERMINATION OF SUPPLY AGREEMENT OF RS.63,02,47,5931-. THEREFORE. THE SAME HAS BEEN CLAIMED AS A REVENUE EXPENDITURE IN THE HANDS OF M/S CIBA INDIA PRIVATE LIMITED SINCE IT IS BEING RELATED TO THE SUPPLY OF THE RAW MATERIAL AND THE SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER VID E ASSESSMENT ORDER PASSED U/S 143(3) BY THE ITO 9(1)(3), MUMBAI VIDE ORDER DATED 29 . 3.2004. BASED ON THE ABOVE FACTS, IT IS CLEAR THAT THE ASSESSEE HAS NOT DISCLOSED ALL THE MATERIAL FACTS FULLY AND TRULY BEFORE THE ASSESSING OFFICER IN THE RETURN OF INCOME EVEN THOUGH THE PAYMENT OF ` 63,02 . 47,893/- IS PURELY RELATED TO THE TERMINATION OF SUPPLY AGREEMENT OF RAW MATERIAL AND ONLY ` 071 - WAS RELATED TO THE COMPENSATION PAID FOR THE FIRST REFUSAL OF THE SHARES. THEREFORE THE CONTENTI ON OF THE ASSESSEE THAT THE ENTIRE MATERIAL FACTS WERE AVAILABLE IN THE RETURN OF INCOME IS COMPLETE L Y WRONG & MISLEADING THE DEPARTMENT AND THE SAME CANNOT BE ACCEPTED. ' THE AO HAS FURTHER STATED THAT THE MADRAS HIGH COU RT HAS TAKEN INTO COGNIZANCE ALL THE FACTS AND LEGA L POSITIONS ITA 459, 1999/10, 904 & CO 103/11 28 SUBMITTED BY THE ASSESSEE AND HAS APPRECIATED THE PROCEDURE FOLLOWED BY THE ASSESSING AUTHORITY. HE A LSO STATED THAT IT IS EVIDENT FROM THE AGREEMENT WITH M /S CIBA INDIA PVT . LTD . (CIBA) AND M/S CIBA SPECIALITY CHEMICALS INC. THAT ALMOST THE ENTIRE PAYMENT IS RELATED TO T ERMINATION OF THE SUPPLY AGREEMENT OF RAW MATERIAL . HE, THEREFORE, STATED THAT THE ASSESSEE HAD MISREPRESENTED THE FAC TS IN THE ORIGINAL RETURN OF INCOME AND ITS SUBSEQUENT RE PLY WHICH TANTAMOUNTED TO NON DISC L OSURE A LL MATERIAL FACTS FULLY AND TRULY . HE HAS ALSO RELIED ON THE FOLLOWING DECISIONS: (I) CONSOLIDATED PHOTO AND FINVEST LTD V . CIT, 281 ITR 394 (DEL); (II) ACIT V.RAJESH JHAVERI STOCK BROKERS P L TD, 291 ITR 500 (SC); (III)DIWAKAR ENGINEERS LTD V . ITO, 187 TAXMAN 327 (DEL); AND (IV) COASTAL CORPN LTD V. J CIT, 118 TT J 563 (VIZAG). 21. THE CIT(APPEALS) OBSERVED THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY THE MATERIAL FACTS NECESSARY FOR THE REASSESS MENT ON THE FIRST OCCASION AND, THEREFORE REOPENING OF T HE ASSESSMENT, WHICH IS AFTER FOUR YEARS IS BASED ON ITA 459, 1999/10, 904 & CO 103/11 29 CHANGE OF OPINION IS BAD IN LAW. ACCORDING TO THE CIT(APPEALS), THE PRIMARY CONDITION TO ATTRACT PROV ISO TO SEC.147 IS THAT AN ASSESSMENT U/S.143(3) OR 147 SHOULD HAVE BEEN MADE. JUST BECAUSE, THE ORIGINAL REASSESSMENT ORDER WAS ANNULLED BY THE CIT(APPEALS) IN THE APPELLATE PROCEEDINGS, IT DOES NOT MEAN NO ASSESSMENT HAS BEEN MADE AT ALL. HE FURTHER OBSERVED THAT THE DEPARTMENT IS AT LIBERTY TO FILE SECOND APPEAL BEFORE THE HIGHER FORUM AND HE ANNULLED THE REASSESSMENT ORDER WITHOUT GOING TO TH E OTHER ISSUES RAISED BY THE ASSESSEE WITH REGARD TO TAXABILITY OF COMPENSATION AS REVENUE RECEIPT, DISALLOWANCE OF PROVISION FOR BAD AND DOUBTFUL DEBT S, EXCLUSION OF INTEREST FOR COMPUTING DEDUCTION U/S.80HHC, DENIAL OF DEDUCTION U/S.80IA AND LEVY OF INTEREST U/S.234B OF THE ACT. THE REVENUE IS IN AP PEAL AGAINST THE ANNULLING OF THE REASSESSMENT ORDER. 22. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT DISCLOSED FULLY AND TRULY THE FACTS NECESSARY FOR T HE ASSESSMENT. HENCE, REOPENING IS VALID IN LAW. THE M OST ITA 459, 1999/10, 904 & CO 103/11 30 MATERIAL PART WHICH WAS ARGUED BY THE LD.AR IS REGA RDING THE TIME LAG WHICH IS PROVIDED IN FIRST PROVISO TO SECTION 147 WHICH STATES THAT WHERE AN ASSESSMENT U/S SUB-SECTI ON(3) OF SECTION 143 HAS BEEN MADE FOR THE RELEVANT ASSES SMENT YEAR, WHICH IS 2001-02, IN THIS CASE, NO ACTION SHA LL BE TAKEN U/S 147 AFTER THE EXPIRY OF FOUR YEARS FROM T HE END OF THE RELEVANT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY THE REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERI AL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YE AR. ONE HAS TO SEE AS TO WHAT FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS SIGNIFY . IT IS TRUE THAT EVERY DISCLOSURE IS NOT AND CANNOT BE TREATED TO BE A TRUE AND FULL DISCLOSURE. A DISCLOSURE CAN BE EVEN FALSE OR TRUE. IT MAY BE A FULL DISCLOSURE OR IT MAY NOT BE A FULL ON E. A PART DISCLOSURE MANY A TIMES MAY BE MISLEADING ONE. WHAT IS REQUIRED UNDER THE LAW IS A FULL AND TRUE DISCLOSUR E OF ALL MATERIAL FACTS NECESSARY FOR MAKING ASSESSMENT FOR THAT YEAR. THIS LAW WAS LAID DOWN BY THE HON'BLE SUPREME COURT ITA 459, 1999/10, 904 & CO 103/11 31 IN THE CASE OF SRI KRISHNA PVT. LTD ETC VS ITO & OT HERS, 221 ITR 538. THE WORDS OMISSION OR FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT F OR THAT YEAR POSTULATES A FAILURE OF THE ASSESSEE TO DISCLO SE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS AS SESSMENT. WHAT FACTS ARE MATERIAL AND NECESSARY FOR ASSES SMENT WILL DIFFER FROM CASE TO CASE. THE MATERIAL SHOULD NOT ONLY BE FULL BUT ALSO BE TRUE. IF SOME MATERIAL FOUND IN TH E EVIDENCE PRODUCED BEFORE THE ASSESSING OFFICER WHICH THE ASS ESSING OFFICER COULD HAVE UNCOVERED BUT DID NOT, THEN IT I S THE DUTY OF THE ASSESSEE TO BRING IT TO THE NOTICE OF THE AS SESSING AUTHORITY. THIS OMISSION OR FAILURE MAY BE EITHER D ELIBERATE, OR EVEN INADVERTENT, THAT IS IMMATERIAL, BUT IN CAS E THERE IS OMISSION TO DISCLOSE THE MATERIAL FACTS THEN SUBJEC T TO THE OTHER CONDITIONS JURISDICTION TO REOPEN IS ATTRACTE D. FURTHER, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE J UDGMENT OF KERALA HIGH COURT IN THE CASE OF CIT VS. SMT. R. SUNANDA BAI 344 ITR 271 WHEREIN IT WAS HELD THAT SUPPRESSIO N OF FACTS, THE ASSESSING OFFICER IS AT LIBERTY TO REOPE N THE ASSESSMENT THOUGH ASSESSMENT WAS COMPLETED U/S143(3 ) ITA 459, 1999/10, 904 & CO 103/11 32 OF THE ACT. THE LD. DEPARTMENTAL REPRESENTATIVE ALS O RELIED ON THE JUDGMENT OF HIGH COURT OF RAJASTHAN IN THE C ASE OF PUSHTIKAR LAGHU VYAPARIK PRATISHTHAN BACHAT EVAM SA KH SAHKARI SAMITI LTD VS. UNION OF INDIA, 249 CTR 73 ( RAJ). FURTHER, HE RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S. MRF LTD VS. DCIT IN ITA NOS. 1374 TO 1377/MDS/ 2010 FOR THE ASSESSMENT YEARS 2002-03, 2004-05, 2006-07 & 2007-09, DATED 11.03.2011. 23. ON THE OTHER HAND, THE LD. AR SUBMITTED THAT TH E ASSESSMENT WAS REOPENED TO CONSIDER THE COMPENSATIO N RECEIVED BY THE ASSESSEE AS A REVENUE RECEIPT AND D ISALLOW EXCESS CLAIM OF DEDUCTION U/S.80HHC OF THE ACT. AC CORDING TO HIM, THIS ASSESSMENT IS BEYOND FOUR YEARS FROM T HE END OF THE RELEVANT ASSESSMENT YEAR AND THERE IS NO FAI LURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRUL Y ALL MATERIAL FACTS FOR THE PURPOSE OF THE ASSESSMENT. HE SUBMITTED THAT THE ASSESSEE HAS FURNISHED AUDITED P ROFIT AND LOSS ACCOUNT, BALANCE SHEET AND TAX AUDIT REPOR T U/S.44AB AND ALONG WITH THE SAID REPORT, IT WAS DIS CLOSED THEREIN BY WAY OF NOTE NO.3 THAT AN AMOUNT OF ITA 459, 1999/10, 904 & CO 103/11 33 ` 63,02,48,000/- AS AN EXTRA-ORDINARY ITEM WHICH WAS APPEARED BELOW PROFIT AFTER TAXATION BUT BEFORE EXTRAORDINARY ITEM. HE DREW OUR ATTENTION TO THE PROFIT AND LOSS ACCOUNT AND NOTES THEREON. ACCORDING TO THE LD. AR, THE ASSESSEE HAS DULY DISCLOSED ALL MATERIAL FACTS FOR THE PURPOSE OF ASSESSMENT AND THE REOPENI NG OF ASSESSMENT IS BAD IN LAW. THE LD. AR RELIED ON THE FOLLOWING JUDGMENTS: I) RAJASTHAN SYNTEX LTD. 313 ITR 231 (SC) S LP DISMISSED-313 ITR 27(ST.) II) SFIL STOCK BROKING LTD. 325 ITR 285(DEL.) III) PRASHANT JOSHI 324 ITR 154(BOM) IV) CORPORATION BANK 254 ITR 791(SC) V) TNTDFC 306 ITR 136 (MAD.) VI) FENNER INDIA 241 ITR 672(MAD.) VII) MIHIR TEXTILES 239 CTR 95 (GUJ.) VIII)HIND SYNTEX 331 ITR 36(MP) IX) KELVINATOR OF INDIA 320 ITR 561(SC) X) A.V.THOMAS EXPORTS LTD. 296 ITR 603(MAD.) XI) HARYANA ACRYLIC MFG. CO. 308 ITR 38(DEL.) XII)EMPIRE JUTE 124 ITR 1(SC) XIII) GD NAIDU 165 ITR 63 (MAD.) XIV) SESHASAYEE BROTHERS 239 ITR 471(SC) XV) OBEROI HOTEL P. LTD. 236 ITR 903(SC) XVI) GODREJ & CO. 37 ITR 381(SC) XVII)GUFFIC CHEM P. LTD. 332 ITR 602(SC) XVIII) BAER SHOES (INDIA) LTD. 331 ITR 435 (MAD. ) XIX) SRI MOOKAMBIGAI SPINNING TC(A) NO.2611 OF 200 6 DT. 27.11.2006 ITA 459, 1999/10, 904 & CO 103/11 34 24. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE CONTENTION OF THE ASSESSEE COUNSEL IS THAT THE NOTICE FOR RE-ASSESSME NT HAS BEEN ISSUED BEYOND FOUR YEARS FROM THE END OF THE R ELEVANT ASSESSMENT YEAR AND BECAUSE THE ASSESSEE HAD PROVID ED ALL MATERIAL FACTS IN THE RETURNS FILED, THE REVISI ON DONE ONLY ON THE BASIS OF SOME FACTS WITHOUT THE AVAILABILITY OF FRESH MATERIAL WOULD AMOUNT TO CHANGE OF OPINION WHICH CA NNOT BE MADE A GROUND FOR REOPENING. AFTER ARGUING ON TH E REASONS RECORDED FOR THE REOPENING, TO SUBSTANTIATE HE PLACED RELIANCE ON SOME DECISIONS WHICH ARE KEPT ON RECORD. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE A.O.S FINDINGS A ND HAS ALSO PLACED RELIANCE ON SOME DECISIONS IN FAVOUR OF THE REVENUE. IN THIS CASE ASSESSMENT WAS REOPENED BY RECORDING THE REASON AS FOLLOWS:- VERIFICATION OF THE RECORDS OF CIBA LIMITED FOR HE IMPUGNED ASSESSMENT YEAR SHOWED THAT THEY HAVE PAID COMPENSATION OF ` 63.02 CRORES TO THE ASSESSEE ONLY FOR THE TERMINATION OF SUPPLY AGREEMENT. THE NOTES TO THE ACCOUNTS STATES THIS AMOUNT HAS BEEN PAID AS COMPENSATION TO TPL FOR TERMINATING THE SUPPLY AGREEMENT ENTERED BY ITA 459, 1999/10, 904 & CO 103/11 35 TPL WITH M/S. PETRO ARALDITE PVT. LTD. (PAPL) DATED 22.1.1998 FOR SUPPLY OF EPICHLOROLYDICIN AND AND ENTERING INTO SUPPLY AGREEMENT DATED 22.3.2001. THERE IS NO MENTION OF ANY AMOUNT HAVING BEEN PAID FOR SURRENDER OF RIGHT OF FIRST REFUSAL TO THE SALE OF SHARES TO PAPL. THUS,, THE ASSESSEES CLAIM THAT PART OF THE CONSIDERATION AS NOT RIGHT OF FIRST REFUSAL IS NOT CORRECT. THE ASSESSEE COMPANY HAS CLAIMED THAT THE RECEIPT OF ` 6302.48 LAKHS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02 AS COMPENSATION FOR PREMATURE TERMINATION OF THE CONTRACT RELATING TO M/S. PETRO ARALDITE PVT. LTD. BY RELEASING M/S. CIBA INDIA PVT. LTD. (CIPL) AND FOR SURRENDER OF RIGHTS FOR THE SHARES TO BE SOLD. THOUGH THE ASSESSEE COMPANY HAS CLAIMED THAT THE ENTIRE AMOUNT OF ` 63.02 CRORES IS CAPITAL RECEIPT THE FACTS GATHERED SHOW THAT AT LEAST A PAR T OF IT SHOULD BE ON REVENUE ACCOUNT. M/S. PETRO ARALDITE IS JOINT VENTURE OF M/S. CIBA INDIA (PVT.) LTD. AND THE ASSESSEE, FOR MANUFACTURE OF BASIC LIQUID RESINS WITH 76.24 SHARE (24% FOR THE ASSESSEE) CIBA INDIA LTD. HAVE SOLD THE ENTIRE SHARES HELD BY THEM TO M/S. VATICO PERFORMANCE & POLYMERS FOR ` 40 CRORES AND PAYMENT, IF ANY, FOR SURRENDER OF RIGHT OF FIRST REFUSAL WOULD ONLY BE SMALL PORTION OF ` 63.02 CRORES PAID TO THE ASSESSEE. THEREFORE, THE ENTIRE SUM OF ` 63.02 CRORES COULD NOT HAVE BEEN PAID TO THE ASSESSEE FOR SURRENDERING ITS FIRST RIGHT OF PURCHASE OF CIBAS SHARES. THE ASSESSEE COMPANY CONTINUED TO HAVE ITS SHARES IN PETRO ARALDITE. THE SUBSTANTIAL PART OF ` 63.02 CRORES SHOULD BE IN RELATION TO COMPENSATION FOR ALLEGED TERMINATION OF CONTRACTS AND IT SHOULD BE TREATED AS A REVENUE RECEIPT. FURTHER, IT HAS BEEN JUDICIALLY HELD IN T HE CASE OF SHRI RAI BAHADUR JAIRAM VALJI V. CIT REPORTED IN 35 ITR 148(SC) THAT ANY AMOUNT OF ITA 459, 1999/10, 904 & CO 103/11 36 COMPENSATION RECEIVED FOR CANCELLATION OF SUPPLY AGREEMENT IS ONLY A BUSINESS INCOME. FURTHER, ANY WAIVER OF RIGHT OF SHARES IS A SHORT TERM CAPITAL GAIN AS THE COST OF ACQUISITION HAS TO BE TAKEN AS NIL IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF MS. BHUN DADABAI KAPADIA V. CIT REPORTED IN 63 ITR 651. FURTHER, THE ASSESSEE COMPANY HAS MADE A WRONG CLAIM U/S.80HHC TREATING THE INTEREST RECEIPTS AS EXPORT INCENTIVE. IN THESE CIRCUMSTANCES, I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT IN VIEW OF FAILURE ON THE PART OF THE ASSESSEE COMPANY TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS AS REQUIRED BY THE PROVISO TO SECTION 147 IN NOT OFFERING THE COMPENSATION RECEIVED AS REVENUE RECEIPTS AND ALSO HAS MADE A WRONG CLAIM OF DEDUCTION U/S 80HHC BY TREATING THE INTEREST RECEIPTS AS EXPORT INCENTIVES. IT IS A SETTLED LAW THAT ON THE BASIS OF MATERIAL, PRIMA FACIE, AVAILABLE BEFORE THE ASSESSING OFFICER, OPINED THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT CAN BE FOR MED. THE WORD REASON IN THE PHRASE REASON TO BELIEVE WOULD MEAN CAUSE OR JUSTIFICATION. IN CASE THE ASSESSING OFFICER HAS A CAUSE OR JUSTIFICATION TO KNOW OR SUPPOSE THA T INCOME HAS ESCAPED ASSESSMENT , ACTION U/S 148 CAN BE TAKE N. BUT OBVIOUSLY, THERE SHOULD BE RELEVANT MATERIAL ON WHI CH A REASONABLE MAN COULD HAVE FORMED A REQUISITE BELIEF . ITA 459, 1999/10, 904 & CO 103/11 37 WHETHER THIS MATERIAL(S) WOULD CONCLUSIVELY PROVE T HE ESCAPEMENT OF INCOME IS NOT THE CONCERN AT THAT PAR TICULAR STAGE. SO WHAT IS REQUIRED IS THE SUBJECTIVE SATISF ACTION OF THE ASSESSING OFFICER BASED ON OBJECTIVE MATERIAL E VIDENCE. IN THE GIVEN CASE, ASSESSMENT WAS COMPLETED ON 13.2 .2006 U/S.143(3) R.W.SEC.147 OF THE ACT. THE REASON WAS R ECORDED AS DISCUSSED ABOVE. THE ARGUMENT OF THE LD.AR IS TH AT U/S 147 IN CASE THE ASSESSMENT ORDER IS COMPLETED U/S 1 43(3), AS HAS BEEN DONE IN THIS CASE, NO ACTION COULD BE T AKEN AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS THE ASSESSEE HAS DISCLOSED F ULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSE SSMENT FOR THAT ASSESSMENT YEAR, INTER ALIA. 25. AS SEEN FROM THE REASONS RECORDED, GIVE A CLEA R PICTURE THAT THE ASSESSING OFFICER HAS GOT MATERIAL EVIDENCE TO FORM HIS OPINION FOR TAKING RECOURSE TO SECTION 147 R.W.S 148 OF THE ACT. THERE CANNOT BE TWO OPINIONS. THE P OINT OF TIME WHEN THE REASONS ARE RECORDED AFTER FORMING OP INION OF ESCAPEMENT OF INCOME IS ONLY RELEVANT. HENCE, THI S PLEA OF THE LD.AR IS NOT TENABLE IN THE EYES OF LAW. IT IS TRUE THAT U/S ITA 459, 1999/10, 904 & CO 103/11 38 147, THE ASSESSING OFFICER CAN EITHER ASSESS OR RE- ASSESS BUT FOR TAKING ACTION THEREUNDER, HE HAS TO RECORD REASONS THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMEN T . IT IS ALSO MANDATED BY SECTION 148(2) TO RECORD REASON S IN WRITING. THE REASSESSMENT PROCEEDINGS U/S 147 ARE F URTHER SUBJECT TO SECTIONS 148,149,150,151,152 AND 153. BU T IN THE PRESENT CASE, WE ARE REQUIRED TO DECIDE THE LIMITED ISSUE REGARDING THE VALIDITY OF PROCEEDINGS UNDERTAKEN AF TER FOUR YEARS OF THE ASSESSMENT YEAR IN QUESTION. THE ASSES SING OFFICER IS REQUIRED TO SEE IF THE CONDITIONS LAID I N EXPLANATION 2(C) BECAUSE IN THIS CASE THE ASSESSMENT WAS COMPLE TED U/S 143(3) ARE SATISFIED OR NOT. IN CASE, (I) INCOM E CHARGEABLE TO TAX HAS BEEN UNDER ASSESSED; OR (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW RATE; OR(III) S UCH INCOME HAS BEEN MADE THE SUBJECTIVE OF EXCESS RELIE F UNDER THIS ACT; OR (IV) EXCESSIVE LOSS OR DEPRECIATION AL LOWANCE OR ANY OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTE D, THE ASSESSING OFFICER WOULD HAVE VALID COGNIZANCE U/S 1 47 OF THE ACT. THE REASONS RECORDED BY THE ASSESSING OFFI CER CLEARLY SPEAK FOR THE UNDER ASSESSMENT OF TAX HENCE , THE ITA 459, 1999/10, 904 & CO 103/11 39 CONDITIONS LAID ABOVE STAND FULFILLED IN SO FAR AS RE- ASSESSMENT PROCEEDINGS ARE CONCERNED. IN SO FAR AS THE REASONS RECORDED, EXTRACTED IN THE ABOVE PORTION OF THIS ORDER, WE ARE SATISFIED THAT THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSM ENT. THIS FACT CONFERS JURISDICTION ON HIM TO REOPEN THE ASSESSMENT. THE POWER TO RE-ASSESS POST 1ST APRIL, 1989 ARE MUCH WIDER THAN THESE USED TO BE BEFORE. BUT ST ILL THE SCHEMATIC INTERPRETATION OF THE WORDS REASON TO BE LIEVE FAILING WHICH SECTION 147 WOULD GIVE ARBITRARILY PO WERS TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT ON THE B ASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE, PER SE A R EASON TO REOPEN THE CASE. THE ACT HAS NOT GIVEN POWER TO THE ASSESSING OFFICER TO REVIEW BUT HAS ONLY GIVEN POWE R TO RE- ASSESS. THERE IS A CONCEPTUAL DIFFERENCE BETWEEN TH E TWO ASPECTS AS THE ASSESSING OFFICER HAS NO POWER AT AL L TO REVIEW THE ASSESSMENT. THE REASSESSMENT, AS STATED ABOVE, HAS TO BE BASED ON FULFILLMENT OF CERTAIN PR E- CONDITIONS BUT THE CONCEPT CHANGE OF OPINION HAS TO BE TAKEN INTO CONSIDERATION OTHERWISE IT MAY GIVE UNBR IDLED ITA 459, 1999/10, 904 & CO 103/11 40 POWER TO AN ASSESSING OFFICER TO REOPEN ANY AND EVE RY ASSESSMENT ORDER WHICH WOULD SIMPLY AMOUNT TO A REV IEW. THE CONCEPT CHANGE OF OPINION IS AN IN-BUILT TEST TO CHECK THE ABUSE OF POWER BY THE ASSESSING OFFICER. SO, NO W ONLY WHEN THE ASSESSING OFFICER HAS A TANGIBLE MATERIAL TO BASE HIS CONCLUSION THAT THERE IS AN ESCAPEMENT OF INCOM E FROM ASSESSMENT AND THE REASONS RECORDED HAVE A LINK WIT H THE FORMATION OF HIS BELIEF, HE HAS THE POWER U/S 147 O F THE ACT. 26. NOW THE MOST MATERIAL PART WHICH WAS ARGUED BY THE LD.AR IS REGARDING THE TIME LAG WHICH IS PROVIDED I N FIRST PROVISO TO SECTION 147 WHICH STATES THAT WHERE AN ASSESSMENT U/S SUB-SECTION(3) OF SECTION 143 HAS BE EN MADE FOR THE RELEVANT ASSESSMENT YEAR, WHICH IS 200 1- 02, IN THIS CASE, NO ACTION SHALL BE TAKEN U/S 147 AFTE R THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSME NT YEAR UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY THE REASON O F THE FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ITA 459, 1999/10, 904 & CO 103/11 41 ASSESSMENT YEAR. THERE ARE TWO OTHER CONDITIONS WHI CH ARE NOT RELEVANT FOR DECIDING THE LEGAL ISSUE UNDER APP EAL. WE HAVE TO SEE AS TO WHAT FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS SIGNIFY. THE EXP RESSION FAILURE TO DISCLOSE MATERIAL FACTS HAS BEEN EXPLA INED IN THE TAXMANS DIRECT TAXES MANUAL VOLUME 3. IT IS TRUE T HAT EVERY DISCLOSURE IS NOT AND CANNOT BE TREATED TO BE A TRUE AND FULL DISCLOSURE. A DISCLOSURE CAN BE EVEN FALSE OR TRUE. IT MAY BE A FULL DISCLOSURE OR IT MAY NOT BE A FULL ON E. A PART DISCLOSURE MANY A TIMES MAY BE MISLEADING ONE. WHAT IS REQUIRED UNDER THE LAW IS A FULL AND TRUE DISCLOSUR E OF ALL MATERIAL FACTS NECESSARY FOR MAKING ASSESSMENT FOR THAT YEAR. THIS LAW WAS LAID DOWN BY THE HON'BLE SUPREM E COURT IN THE CASE OF SRI KRISHNA PVT. LTD ETC VS IT O & OTHERS, 221 ITR 538. THE WORDS OMISSION OR FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSA RY FOR ASSESSMENT FOR THAT YEAR POSTULATES A FAILURE OF TH E ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT. WHAT FACTS ARE MATE RIAL AND NECESSARY FOR ASSESSMENT WILL DIFFER FROM CASE TO CASE. ITA 459, 1999/10, 904 & CO 103/11 42 THE MATERIAL SHOULD NOT ONLY BE FULL BUT ALSO BE TR UE. IF SOME MATERIAL FOUND IN THE EVIDENCE PRODUCED BEFORE THE ASSESSING OFFICER WHICH THE ASSESSING OFFICER COULD HAVE UNCOVERED BUT DID NOT, THEN IT IS THE DUTY OF THE A SSESSEE TO BRING IT TO THE NOTICE OF THE ASSESSING AUTHORITY. THIS OMISSION OR FAILURE MAY BE EITHER DELIBERATE, OR EV EN INADVERTENT, THAT IS IMMATERIAL, BUT IN CASE THERE IS OMISSION TO DISCLOSE THE MATERIAL FACTS THEN SUBJECT TO THE OTHER CONDITIONS JURISDICTION TO REOPEN IS ATTRACTED. 27. IN THE PRESENT CASE, A COPY OF THE REPORT DATE D 6.2.2007 RECEIVED FROM ITO 9(1)(3), MUMBAI IN THE C ASE OF M/S. CIBA INDIA PRIVATE LIMITED SHOWS THAT IT HAS P AID ` 63,02,48,000/- TO THE PRESENT ASSESSEE AS COMPENSAT ION FOR TERMINATION OF SUPPLY AGREEMENT AND M/S. CIBA I NDIA PRIVATE LIMITED WAS SHOWN AS AN EXPENDITURE OF ` 8,28,862/- UNDER THE HEAD OPERATING EXPENSES. IT INCLUDES COMPENSATION PAID TO THE PRESENT ASSESSEE FOR THE P URPOSE OF TERMINATION OF SUPPLY AGREEMENT OF ` 63,02,48,000/-. IT WAS CLAIMED BY M/S. CIBA INDIA PRIVATE LIMITED AS R EVENUE EXPENDITURE AND THE SAME WAS ALLOWED IN THE HANDS O F M/S. ITA 459, 1999/10, 904 & CO 103/11 43 CIBA INDIA PRIVATE LIMITED. IN VIEW OF THE ABOVE FACTS, IT IS TO BE CONSIDERED THAT THE ASSESSEE HAS NOT DISCLOSE D ALL THE MATERIAL FACTS FULLY AND TRULY TO THE ASSESSING OFF ICER IN ITS RETURN OF INCOME. THEREFORE, IT IS NECESSARY TO RE OPEN THE ASSESSMENT TO BRING THIS ESCAPED INCOME FOR TAXATIO N. 27.1 EXPLANATION 1 TO SECTION 147 OF THE INCOME TAX ACT WHICH READS AS UNDER: PRODUCTION BEFORE THE ASSESSING OFFICER OF ACCOUNTS BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE FOREGOING PROVISO. IT IS POSSIBLE THAT WITH DUE DILIGENCE THE ASSESSIN G OFFICER WOULD HAVE ASCERTAINED THIS FAT AT THE TIME OF ORIG INAL ASSESSMENT ALSO, BUT IN VIEW OF THE EXPLANATION (1) IT DOES NOT MEAN THAT THERE WAS NO DEFAULT ON THE PART OF T HE ASSESSEE. HENCE, REOPENING U/S.147 IS HELD TO BE VA LID. THE ASSESSEE HAS TRIED TO TAKE SHELTER UNDER THE EXCEPT ION PROVIDED BY THE ABOVE STATED PROVISO WHERE AN ASSES SMENT UNDER SUB-SECTION (3) OF SECTION 143 HAS BEEN COMPL ETED, NO ACTION AFTER THE EXPIRY OF FOUR YEARS FROM THE E ND OF THE ASSESSMENT YEAR CAN BE TAKEN. BUT AS STATED ABOVE, WHEN ITA 459, 1999/10, 904 & CO 103/11 44 THE ASSESSEE HAS NOT DISCLOSED FULLY AND TRULY THE FACTS NECESSARY FOR THE ASSESSMENT , THIS PROVISO WILL NO T COME TO ITS RESCUE. SAME IS APPLICABLE TO OTHER REASONS RE CORDS FOR REOPENING OF ASSESSMENT. CONSEQUENTLY, WE HOLD THAT THE ENTIRE REASSESSMENT PROCEEDING IN THIS CASE IS VALI D AND THEREFORE, THE ACTION OF THE ASSESSING OFFICER IS U PHELD. THE ASSESSEE FAILS ON THIS LEGAL ISSUE. 28. THE ASSESSEE COMPANY CLAIMED THAT THE RECEIPT O F ` 6302.48 LAKHS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02 AS COMPENSATION FOR PREMATU RE TERMINATION OF THE CONTRACT RELATING TO M/S. PETRO ARALDITE PVT. LTD. BY RELEASING M/S. CIBA INDIA PVT. LTD. (C IPL) AND FOR SURRENDER OF RIGHTS FOR THE SHARES TO BE SOLD A ND TREATED THE SAME AS CAPITAL RECEIPT. 28.1. THOUGH THE ASSESSEE COMPANY CLAIMED THAT THE ENTIRE AMOUNT OF ` 63.02 CRORES IS CAPITAL RECEIPT, THE FACT GATHERED SHOW THAT AT LEAST A PART OF IT SHOULD BE ON REVENUE ACCOUNT. M/S. PETRO ARALDITE IS JOINT VENTURE OF M /S. CIBA INDIA (PVT.) LTD. AND THE ASSESSEE, FOR MANUFACTURE OF BASIC LIQUID R ESINS WITH 76 . 24 SHARE (24% FOR THE ASSESSEE) CIBA INDIA LTD. HAVE SOLD THE ENTIRE SHARES HELD BY TH E M TO M/S. ITA 459, 1999/10, 904 & CO 103/11 45 V A T ICO PERFORMANCE & POLYMERS FOR ` 40 CRORES AND PAYMENT, IF ANY , FOR SURRENDER OF RI GHT OF FIR S T REFU SAL WOUL D ONLY BE SMA L L PORT I ON OF ` 63 . 02 CRORES PA I D TO THE ASSESSEE . THEREFORE , TH E EN TI R E SUM O F ` 6 3 . 0 2 C RO RES COULD NOT HAVE BEEN PA I D TO THE ASSESSEE FOR SURRENDER I NG I TS F I RST R I GHT OF PURCHA SE O F CI BA 'S S H A R ES . THE ASSESSEE COMPANY CONT I NUED TO HAVE ITS SHARES I N PETRO ARALDITE . THE SUB S T AN TI AL P A RT OF ` 63 . 02 CRORES SHOULD BE I N RELATION TO COMPENSATION FOR ALLEGED TERMINATION OF CONT R ACT S AN D IT SH OU LD BE TREATED AS A REVENUE RECE I PT. FURTHER, IT HAS BEEN HELD IN THE CASE OF S HRI RAI BA H A D UR J AI RAM VALJ I VS CIT REPOR T ED I N 35 ITR 148 (SC) THAT ANY AMOUNT OF COMPENSAT I ON RECE I VED FOR C AN CE LL AT IO N OF SUPPLY AGREEMENT I S ON L Y A BUS I NESS I NCOME . FURTHER , ANY WA I VER OF RIGHTS OF S HARE S I S A SH O RT TERM CAP I TAL GA I N AS THE COST OF ACQU I S I T I ON HAS TO BE TAKEN AS NIL IN VIEW OF THE SUPREME COUR T D E CISI O N IN THE CASE OF MS . DHUN DADABOI KAPADIA VS CIT REPORTED IN 63 ITR 651 . 28.2 F UR THER, THE ASSESSEE COMPANY HAS MADE A WRONG C L AIM U/S 80HHC TREAT I NG THE I NT E REST ITA 459, 1999/10, 904 & CO 103/11 46 RECE I PTS AS EXPORT I NCENT IV E . IN THESE CIRCUMSTANCES , WE HAVE REASON TO BE LI EVE THAT THE I NCOME CHARGEAB L E TO TAX HA S ESCAPED ASSESSMENT IN V I EW OF FA I LURE ON THE PART OF THE ASSESSEE COMPANY TO DISCLOSE TRULY AND FULLY A L L M A T E RIAL FACTS AS REQUIRED BY THE PROVISO TO SECTION 147 IN NOT OFFERING THE COMPENSATION RECE I VED AS REVEN U E RE C EIP T S AN D AL SO HAS MADE A W RONG CLA I M OF DEDUCT I ON U/S 80HHC B Y TREAT I NG THE I NTEREST RECEIPTS AS EXPORT INCENTIVES. ACCORDINGLY, WE RE VERSE THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE AND DIRECT THE CIT(APPEALS), TO DECIDE THE OTHER ISSUE RAISED BY T HE ASSESSEE ON MERITS. IN THE RESULT , THE APPEAL OF THE REVENUE IS ALLOWED. 29. SINCE, WE HAVE REVERSED THE FINDINGS OF THE CIT(APPEALS) ON REOPENING OF ASSESSMENT AND UPHELD THE REASSESSMENT, THE CROSS OBJECTION OF THE ASSESSEE I S DISMISSED. 30. NOW, WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.1999/MDS/2010. THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS IN THIS APPEAL : ITA 459, 1999/10, 904 & CO 103/11 47 2 . THE DEPUTY COMMISSIONER OF INCOME TAX ERRED IN A DDING A S U M OF ` 68,20,124/- TO THE TOTAL INCOME AS REPRESENTING THE DIFFERENCE IN TR AN SFE R PRICE AND ARMS LENGTH PRICE . 3 . THE DEPUTY COMMISSIONER OF INCOME TAX ERRED IN MAK I NG ADJUSTMENT ONLY IN RESPECT OF THE INVOICE DATED 08-05-2005 WHEREIN APPELLANT HAD ADOPTED THE TRANSFER PRICE OF US$919 . 23/- . 4 . THE DEPUTY COMMISSIONER OF INCOME TAX FAILED TO APPRECIATE THAT IF THE AVERAGE OF ALL THE TRANSACTIONS CONCLUDED BY THE ASSESSEE DURING THE YEAR IS TAKEN AS A WHOLE THEN THERE IS NO SIGNIFICANT DIFFERENCE INVITING ADJUSTMENT . 5. THE DEPUTY COMMISSIONER OF INCOME TAX OUGHT TO HAVE T A KEN THE RAT E MENTIONED IN THE INVOICE DATED 19-05-2005 BEING US$ 955 . 83/MT A S COMPARISON AS IT IS NEARER TO THE EXPORT INVOICE DATED 08-05-2005 INSTEAD OF AVERAGING ALL THE TRANSACTIONS ENTERED DURING THE YEAR . 6. THE DEPUTY COMMISSIONER OF INCOME TAX FAILED TO APPRECIATE THAT IF TH E TRANSACTIONS IN MAY MONTH ALONE IS TO BE TAKEN FOR COMPARISON THEN , THE TRANSACTION RATE OF U8$ 919.23/MT IS WELL WITHIN THE 5 % VARIATION OF THE RATE OF US$965/MT BEING THE WEIGHTED AVERAGE RATE OF THE 5 COMPARABLES INVOICES FO R THE MONTH OF MAY AS ALP AND HENCE REQUIRES NO DISTURBANCE. 7. IN ANY EVENT, THE DEPUTY COMMISSIONER OF INCOME TAX OUGHT TO HA VE GRANTED ADJUSTMENT OF 5 % BEFORE COMPUTING THE ADJUSTMENTS TO THE TRANS FER PRICING. 31. THE FACTS OF THE CASE ARE THAT THE JCIT, TPO-III, CHENNAI MADE ADJUSTMENTS TO THE ITA 459, 1999/10, 904 & CO 103/11 48 ASSESSEES RETURNED INCOME U/S.92CA(3) OF THE ACT, VIDE ORDER DATED 14.9.2009. THE ORDER WAS MADE IN PURSUANCE OF A REFERENCE U/S.92CA OF THE ACT BY THE AO. THE AO I.E. DCIT, LTU, CHENNAI, AFTER FURNISHING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, FRAMED DRAFT ASSESSMENT ORDER UNDER REFERENCE. HE HAD MADE ADDITION ON ACCOUNT OF ADJUSTMENTS IN CARRIED FORWARD LOSS OF A.Y. 2005- 06 FOR ` 2,34,76,000/- AND THE ADJUSTMENT OF ` 68,20,124/- AS RECOMMENDED BY TRANSFER PRICING OFFICER. THE ONLY POINT OF DISPUTE AROSE FROM ADJUSTMENT OF ` 68,20,124/- ARISING OUT OF ORDER OF TPO AS DISCUSSED ABOVE. 31.1. FURTHER, IT IS SEEN THAT THE ASSESSEE COMPANY HAD MADE EXPORT OF ONLY ONE ITEM, I.E. LINEAR ALKYL BENZENE (LAB) TO ITS ASSOCIATE VIZ., CERTUS INVESTMENT AND TRADING (S) PVT. LTD. WHICH IS WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE COMPANY. THE INFORMATION PROVIDED VIDE FROM NO.35A SHOWS THAT THE ASSESSEE HAD MADE ITA 459, 1999/10, 904 & CO 103/11 49 EXPORTS THROUGHOUT THE ACCOUNTING YEAR UNDER CONSIDERATION. 31.2 THE TPO HAS POINTED OUT THAT IN THE TRANSACTION, THERE IS VARIATION BETWEEN THE TRANSFE R PRICE AND ALP WHICH FALLS BEYOND TOLERANCE LIMIT OF +/- 5%. THE TPO FOR REASONS DISCUSSED IN DETAIL IN HER ORDER, ADDED ` 68,20,124.38 ARISING FROM SUCH DIFFERENCE. THE DATA SHOWS THAT THE ASSESSEE HAD ADOPTED CUP METHOD FOR MAKING COMPARISONS. THE ASSESSEE HAD ALSO ADOPTED THE SAME METHOD. SO, THERE IS NO DIFFERENCE SO FAR AS METHODOLOGY IS CONCERNED. 31.3 HOWEVER, WHEN POINTED OUT OF SUCH DISCREPANCY BY TPO, THE ASSESSEE FURNISHED SOME EXTERNAL COMPARABLES AND CLAIMED THAT THE ALP SHOULD BE COMPUTED ON THE BASIS OF SUCH EXTERNAL COMPARABLES FURNISHED BY IT. HOWEVER, THE TPO DID NOT ACCEPT THE ASSESSEES ARGUMENT. 32. THE LD. AR SUBMITTED THAT THE OBJECTIONS ITA 459, 1999/10, 904 & CO 103/11 50 EMANATED BECAUSE OF DIFFERENCE BETWEEN THE ASSESSEE AND THE TPO DUE TO DIFFERENT APPROACH ON COMPARABLES. 33. THE LD. DR SUBMITTED THAT THE TPO HAS APPLIED THE PROVISIONS OF SEC.92CA ONLY IN RESPECT OF TRANSACTION MENTIONED AGAINST SL.NO.2 OF PARA 4 OF DRP ORDER. THE TPO HAS ALSO RELIED UPON THE CORRECTNESS OF FIGURES MENTIONED BY THE ASSESSEE IN THIS ACCOUNT WHICH HAS BEEN AUDITED AND DULY CERTIF IED BY THE AUDITOR. IT IS ON THE BASIS OF ASSUMPTION THAT THESE FIGURES ARE CORRECT THAT THE DIFFERENCE IN TP AND ALP HAS BEEN WORKED OUT BY THE TPO. TH E PROVISION OF SECTION 92CA HAS NOT BEEN APPLIED WITH REGARD TO OTHER TRAN SACTION. THE AR IN HIS LETTER DATED 30.08.2010 CLAIMED BEFOR E THE AO THAT RATE OF USD 1050 PER MT PREVAILED IN MARCH 2005 AND HENCE THE SAME SHOULD NOT BE ACCEPTED AS ALV ON 08.05.2010. BUT SUCH CLAIM IS IN CONTRADICTION TO INFORMATION FURNISHED IN ASSESSEE'S OWN AUDITED ACC OUNTS. SO FAR AS ASSEESSEE'S CLAIM THAT RESULT OF ACCOUNTS SHOULD BE ACCEPTED IN ENTIRETY IS CONCERNED, IT MAY BE MEN TIONED ITA 459, 1999/10, 904 & CO 103/11 51 THAT THE CERTIFICATE BY CHARTERED ACCOUNTANT IN FOR M NO.3CD DOES NOT CONSTITUTE A BAR FOR APPLICATION OF PROVISIONS OF IT BY THE REVENUE. 33.1 THE LD. DR ALSO SUBMITTED THAT AS DISCUSSED IN THE PRECEDING PARA THE ASSESSEE'S CLAIM OF ADOPTION OF ALP AT USD 965/MT HAD BEEN RIGHTLY NOT ACCEPTED BY TPO AND HENCE THE ARGUMENTS OF THE LD. AR THAT VARIATION BE TWEEN TP AND ALP IS WITHIN ACCEPTED RANGE OF 5%, IS NOT C ORRECT . 34 . WE HAVE DISCUSSED THIS ISSUE IN ITA NO.459/MDS/2010 AND PLACED RELIANCE ON THE EARLIER ORDER OF THE TRIBUNAL IN ITA NO.63/MDS/2008 IN THE CASE O F M/S. COASTAL ENERGY PVT. LTD., WHEREIN IT WAS OBSERVED A S UNDER: 7. FURTHER, IN THIS CASE, PRICE VARIATION IS MORE THAN 5%, ASSESSING OFFICER IS JUSTIFIED IN MAKING ADJUSTMENT OF ALP DETERMINED BY THE TAX PAYER AND THE PROVISO TO SEC.92C PROVIDES THAT WHERE MORE THAN ONE PRICE MAY BE DETERMINED BY THE MOST APPROPRIATE METHOD, THE ALP SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES. IN THE INSTANT CASE ONLY ONE PRICE HAS BEEN DETERMINED UNDER MOST APPROPRIATE METHOD, THE QUESTION OF APPLICATION OF THE PROVISO DOES NOT ARISE. THIS VIEW IS SUPPORTED BY THE DECISION RELIED ON BY THE LD. DR IN THE CASE OF ACIT V. M/S. ESSAR STEEL LTD. IN ITA NO.228 OF 2008 DATED 25.1.2011[VISAKHAPATNAM). ACCORDINGLY, THE ITA 459, 1999/10, 904 & CO 103/11 52 ASSESSEE IS NOT ENTITLED FOR CONCESSION AS PRESCRIBED IN THE PROVISO TO SEC.92C(2) OF THE ACT. IN VIEW OF THE ABOVE, WE ARE INCLINED TO DISMISS THIS GROUND OF APPEAL. 35. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.459/MDS/2015 IS PARTLY ALLOWED, ITA NO.904/MDS/2 011 IS ALLOWED AND THE APPEAL OF THE ASSESSEE IN ITA NO.1999/MDS/2010 AND THE CROSS-OBJECTION IN CO NO. 103/MDS/2011 ARE DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 22 ND OF JAN., 2016 AT CHENNAI. SD/- SD/- ( 6 > 6 ? . @ ABC ) ( D E F G: ) ( DUVVURU RL REDDY ) (CHANDRA POOJARI) L MN /JUDICIAL MEMBER A; MN/ACCOUNTANT MEMBER DAL 7 /CHENNAI, RM /DATED, THE 22 ND JAN., 2016. MPO* MAS 8 2 9TU VAU9 /COPY TO: 1. /APPELLANT 2. 23 /RESPONDENT 3. 6 W9 () /CIT(A) 4. 6 W9 /CIT 5. UXY 2 9 Z /DR 6. YC [7 /GF.