M/s. Paharpur Cooling Towers Ltd., , Kolkata V. DCIT, Central Circle - 2(1), Kolkata , Kolkata

CO 95/KOL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3293 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 07-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Business income; Depreciation; Transfer pricing; International transaction; Additional depreciation; Earning of tax free income; Deemed to accrue or arise in india; Proportionate interest; Retrospective amendment; Question of law; Corroborative evidences; Notional interest; Commercial expediency; TDS; Rule 8D; Liquidation; FORM 26AS
• Section: 143(3); 92B; 14A; 115JB; 40(a)(ia); 32(1)(iia); 37(1); 208; 64; 43; 194A; 72; 13; 22; 32; 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L.SAINI, ACCOUNTANT MEMBER ITA NO. 217 TO 219 / KOL / 20 18 & C.O NO.94-96/KOL/2018 ( A/O ITA NO.217-219/KOL/2018 ) ASSESSMENT YEARS :2011-12 TO 2013-14 DCIT, CENTRAL CRICLE-2(1), 3 RD FLOOR, AAYAKAR BHAWAN, POORVA E.M. BYE PASS, 110, SHANTI PALLY, KOLKATA-107 M/S PAHARPUR COOLING TOWERS LTD., 8/1/B, DIAMOND HARBOUR ROAD, KOLKATA-700 027 [ PAN NO.AABCP 8017 C ] V/S . M/S PAHARPUR COOLING TOWERS LTD., 81N. DIAMAOND HARBOUR ROAD, KOLKATA-700 027 DCIT, CENTRAL CIRCLE- 2(1), 3 RD FLOOR, AAYAKAR BHAWAN, POORVA E.M. BYE PASS, 110, SHANTI PALLY, KOLKATA-700 017 / APPELLANT / /CO-OBJECTOR .. / RESPONDENT ! /BY ASSESSEE SHRI NITISH AGARWAL, ACA $ ! /BY RESPONDENT SHRI VIJAY SHANKAR, CIT-DR ! /DATE OF HEARING 24-02-2020 ! /DATE OF PRONOUNCEMENT 28-02-2020 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THESE THREE REVENUES APPEALS AND ASSESSEES CROSS OBJECTION(S) (CO) ITA NOS. 217 TO 219/KOL/2018 WITH CO NOS.94 TO 96/KOL/2018 FOR ASSESSMENT YEAR(S) 2011-12 TO 2013-14, ARISE AGAINS T THE COMMISSIONER OF INCOME TAX (APPEALS)-22 KOLKATAS SEPARATE ORDER(S) ; ALL DATED 07.11.2017 ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 2 PASSED IN CASE NOS. 30, 31, & 32/ CIT(A)-22/11-12/1 5-16/KOL (ASSESSMENT YEAR-WISE) RESPECTIVELY, INVOLVING PROCEEDINGS U/S 143(3) R.W.S SEC. 144C(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. HEARD BOTH THE PARTIES. CASE FILE(S) / PAPER BOOKS FORMING PART OF RECORDS STAND PERUSED. IT TRANSPIRES AT THE OUTSET THAT THESE CASES INVOLVED ALMOST IDENTICAL ISSUE(S). THE SAME ARE TH EREFORE DISPOSED OF VIDE OUR IDEAL COMMON ADJUDICATION. 2. COMING TO REVENUES THREE APPEALS ITA NO.217 TO 219/KOL/2018, WE NOTICE THAT ITS FIRST AND FOREMOST IDENTICAL SUBSTA NTIVE GRIEVANCE SEEKS TO REVERSE THE CIT(A)S ACTION ALLOWING LEAVE ENCASHME NT CLAIM(S) PAYMENT BASIS OF 46,11,027/- EACH IN FORMER TWO AND 28,64,737/- IN LAST ASSESSMENT YEAR 2013-14 OUT OF THE ALLEGED DISALLOWANCE FIGURE OF 13,98,000/-, 87,41,000/- AND 1,30,76,000/-; RESPECTIVELY. THE REVENUES ONLY CAS E IS THAT THE CIT(A) HAS GRANTED EXCESS RELIEF EXCEEDING AMOUNT OF DISAL LOWANCE MADE BY THE ASSESSING OFFICER. LEARNED CIT-DR FAILS TO DISPUTE THE CIT(A)S IDENTICAL LOWER APPELLATE DISCUSSION IN THESE THREE ASSESSMENT YEAR (S) HAS GONE BY ACTUAL PAYMENTS ONLY U/S 43B(F) OF THE ACT. THE CIT(A) HAS ALSO TAKEN NOTE OF THE HON'BLE JURISDICTIONAL HIGH COURTS DECISION IN EXIDE INDUSTRIES LTD. VS. UNION OF INDIA (2007) 292 ITR 470 (CAL) QUASHING FOREGOING STATUT ORY PROVISION ITSELF AS ULTRA VIRES AND ITS OPERATION STAYED IN HON'BLE APEX COURTS T O CONCLUDE THAT ASSESSEES MERE PROVISION OF LEAVE ENCASHMENT DOES NOT DESERVE TO BE ACCEPTED. WE FIND NEITHER ANY LEGALITY NOR IRREGULA RITY IN THE CIT(A)S ACTION UNDER CHALLENGE. THE REVENUES IDENTICAL FIRST SUBS TANTIVE GRIEVANCE IN THESE THREE ASSESSMENT YEAR(S) FAILS THEREFORE. 3. THE REVENUES SECOND IDENTICAL SUBSTANTIVE GRIEV ANCE IN THESE THREE APPEAL(S) SEEK TO REVERSE THE CIT(A)S ACTION RESTR ICTING THE ASSESSING OFFICERS ACTIONS MAKING SEC.14A / RULE 8D DISALLOW ANCE(S) OF 467,75,000/-, 332,31,619/- & 332,29,730/- TO 30,33,603, 36,13,143 AND 41,63,130; APPEAL-WISE, RESPECTIVELY @ 3% OF THE DIVIDEND INCO ME ONLY, GOING BY THE ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 3 INCOME TAX SETTLEMENT COMMISSIONS ORDER PERTAINING TO THE ASSESSMENT YEAR(S) 2008-09 TO 2010-11 AS UNDER:- 14. DECISION: 1. I HAVE CAREFULLY EXAMINED THE CONTENTIONS OF THE LD. ARS AND PERUSED THE IMPUGNED ORDER PASSED BY THE LD. AO. FROM THE ASSES SMENT ORDER IT TRANSPIRES THAT IN THE COMPUTATION OF INCOME FILED WITH THE RETURN, THE APPELLANT HAD SUO MOTO OFFERED DISALLOWANCE OF RS.11,10,201/- UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. ALTHOUGH IN THE GROUND OF APPEAL THE APPELLANT HAS OBJECTED TO THE DISALLOWANCE OF RS4,67,75,000/-; I NOTE THAT BY AN ORDER U/S 154, T HE LD. AO RECTIFIED THE MISTAKE IN ADOPTING THE WRONG FIGURE OF THE AMOUNT DISALLOWABL E AND THE SCALED DOWN THE AMOUNT DISALLOWED TO RS.2,55,60,000/- WHICH INTER ALIA INCLUDED THE FOLLOWING: RULE 8D(2)(I) : RS.10,1L,201/- RULE 8D(2)(II) : RS.53,56,000/- RULE 8D(2)(III) : RS.2,02,04,000/- TOTAL : RS.2,65,71,201/- LESS: ALREADY DISALLOWED RS. 10,11,201/- AMOUNT DISALLOWED : RS. 2,55,60,000/- 2. FROM THE P&L ALE OF THE ASSESSEE, THE LD. AO NOT ED THAT DURING THE RELEVANT YEAR THE ASSESSEE EARNED DIVIDEND OF RS.1011.20 LACS IN RESPECT OF WHICH EXEMPTION WAS CLAIMED. THE LD. AO REQUIRED THE-ASSESSEE TO PROVID E THE DETAILS AS TO HOW THE DISALLOWANCE U/S 14A OFFERED IN THE RETURN OF INCOM E WAS ARRIVED AT. THE APPELLANT FURNISHED ITS REPLY DATED 23.02.2015. THE CONTENTIO NS OF THE ASSESSEE HOWEVER DID NOT CONVINCE THE LD. AO AND THEREFORE THE LD. AO PR OCEEDED TO MAKE THE DISALLOWANCE BY INVOKING RULE 8D(2) OF THE I.T. RUL ES, 1962. 3. THE LD AO DISALLOWED RS.10.11 LACS BY INVOKING R ULE 8D(2)(I) BEING THE AMOUNT WHICH THE APPELLANT HAD SUO MOTO DISALLOWED IN THE COMPUTATION OF INCOME. HE FURTHER NOTED THAT GROSS INTEREST EXPENDITURE DURIN G THE RELEVANT YEAR WAS RS.203.77 LACS WHICH WAS LIABLE TO BE CONSIDERED FOR MAKING D ISALLOWANCE UNDER RULE 8D(2)(II). ACCORDINGLY IN TERMS OF THE FORMULA PRESCRIBED IN R ULE 8D(2)(II), THE AO WORKED OUT INTEREST DISALLOWABLE AT RS.53.56 LACS. THE LD. AO ALSO MADE DISALLOWANCE OUT OF BUSINESS ADMINISTRATIVE EXPENSES AT 0.5% OF THE AVE RAGE COST OF INVESTMENTS, AND THEREBY DISALLOWED RS.202.04 LACS IN TERMS OF RULE 8D(2)(III). 4. IN THEIR ORAL AND WRITTEN SUBMISSIONS, THE LD. A .RS HAVE STRONGLY CONTESTED THE INVOCATION OF RULE 80(2) BY THE LD. AO IN THE IMPUG NED ORDER. THE LD. AR SUBMITTED THAT ALTHOUGH THE LD. AO DISALLOWED A SUM OF RS.I0. 12 LACS UNDER RULE 8D(2)(I), NOWHERE IN THE ASSESSMENT ORDER THE AO HAD IDENTIFI ED EVEN A SINGLE SPECIFIC ITEM OF EXPENDITURE WHICH WAS DIRECTLY INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. IN ALL THE PAST ASSESSMENTS THE APPELLANT HAD SUO MOTO DIS ALLOWED 1% OF THE DIVIDEND INCOME EARNED AS THE AMOUNT DISALLOWABLE UNDER SECT ION 14A OF THE ACT. THE DISALLOWANCE OFFERED AT THE RATE OF 1% REPRESENTED ALLOCATION OF COMMON ADMINISTRATIVE OVERHEADS WHICH MIGHT HAVE BEEN INCU RRED BY THE APPELLANT IN RELATION TO EARNING OF DIVIDEND. THE APPELLANT'S OFFER TO MA KE DISALLOWANCE U/S 14A AT THE RATE OF 1% OF THE GROSS DIVIDEND INCOME WAS IN CONFORMIT Y WITH THE DECISIONS RENDERED BY THE HON'BLE ITAT, KOLKATA BENCHES. IT IS THE LD. AR 'S SUBMISSION THAT NO PARTICULAR ITEM OF EXPENDITURE WAS DIRECTLY RELATABLE TO EARNI NG OF TAX FREE INCOME AND THEREFORE ON FAIR & EQUITABLE BASIS THE APPELLANT HAD SUO MOTO DISALLOWED SUM OF RS.10.11 LACS OUT OF ABUNDANT CAUTION AND THE AMOUNT DISALLOWED WAS OUT OF HOST OF INDIRECT ESTABLISHMENT EXPENSES INCURRED BY TILE APPELLANT W HICH MIGHT HAVE HAD SOME ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 4 CORRELATION WITH EARNING OF DIVIDEND INCOME. THE ME RE FACT THAT THE APPELLANT HAD OFFERED DISALLOWANCE OF RS.10.11 LACS IN ITS COMPUT ATION OF INCOME FILED, DID NOT IN ANY MANNER SUGGEST LET ALONE PROVE THAT SUCH EXPEND ITURE WAS DIRECTLY RELATABLE TO EARNING OF TAX FREE INCOME AND THEREFORE QUALIFIED FOR DISALLOWANCE UNDER RULE 8D(2)(I). 5. ON DUE CONSIDERATION OF THE SUBMISSIONS, I FIND MERIT IN THE LD. AR'S ARGUMENTS. FROM THE PLAIN READING OF THE ASSESSMENT ORDER, IT IS APPARENT THAT THE AO HAS NOT SPELT OUT ANY SINGLE OR SPECIFIC ITEM OF EXPENDITUR E DEBITED IN P&L A/C WHICH HAD DIRECT NEXUS OR PROXIMATE CAUSE WITH EARNING OF TAX FREE DIVIDEND. MERELY BECAUSE THE APPELLANT BY FOLLOWING THE PRECEDENT ESTABLISHE D IN EARLIER YEARS OFFERED DISALLOWANCE OF RS.10.11 LACS BEING 1% OF THE GROSS DIVIDEND RECEIVED DID NOT IPSO FACTO PROVE THAT SUCH AMOUNT WAS ACTUALLY INCURRED AND H AD DIRECT CORRELATION WITH EARNING OF DIVIDEND. THE AMOUNT DISALLOWED WAS OUT OF ADMINISTRATIVE EXPENSES AND THE DISALLOWANCE WAS BASED ON FAIR ESTIMATE BASIS A ND THEREFORE IN MY OPINION THE SUO MOTO DISALLOWANCE OFFERED BY THE APPELLANT IN I TS RETURN COULD NOT BE CONSIDERED AS ' DIRECT EXPENSES ' DISALLOWABLE UNDER RULE 8D(2)(I). ACCORDINGLY THE DISALLOWANCE MADE UNDER RULE 8D(2)(I) IS DIRECTED TO BE DELETED . 6. AS REGARDS DISALLOWANCE UNDER RULE 80(2)(II), I OBSERVE THAT THE APPELLANT HAS CONSISTENTLY BEEN INVESTING ITS SURPLUS FUNDS IN AC QUIRING SHARES, SECURITIES & UNITS OF MUTUAL FUNDS FROM WHICH IT HAS BEEN EARNING DIVIDEN D INCOME. I FURTHER FIND THAT AS ON 31.03.2011, INVESTMENTS CAPABLE OF YIELDING EXEMPT INCOME WAS RS.39,543.13 LACS. I ALSO FIND THAT THE APPELLANT'S OWN FUNDS AS ON 31.0 3.2011 WERE TO THE ORDER OF RS.1,04,014.24 LACS. THE APPELLANT'S OWN FUNDS IN F ORM OF CAPITAL & RESERVES WERE THUS SUBSTANTIALLY MORE THAN THE INVESTMENTS CAPABL E OF YIELDING DIVIDEND INCOME AND THEREFORE PRESUMPTION THAT HAD TO BE APPLIED ON THE FACTS OF THE APPELLANT'S CASE IS THAT THE INVESTMENTS, YIELDING TAX FREE INCOME WERE MADE OR ACQUIRED OUT OF APPELLANT'S OWN FUNDS. THE APPELLANT'S RELIANCE ON THE RECENT JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS RASOI LTD ( ITA NO. 109 OF 2016 ) DATED 15.02.2017 APPEARED TO BE VERY RELEVANT. IN THIS JU DGMENT THE JURISDICTIONAL CALCUTTA HIGH COURT HAD BENEFIT OF CONSIDERING THE EARLIER J UDGMENT OF THE SAME COURT IN THE CASE OF DHANUKA & SONS ( 339 ITR 319 ) AS ALSO THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK (383 ITR 529 ). IN THE CASE OF RASOI LTD (SUPRA), THE HIGH COURT FOUND THAT ASSESSEE'S OWN F UNDS WERE HIGHER THAN THE INVESTMENTS IN TAX FREE SECURITIES AND IN THAT VIEW OF THE MATTER, THE INTEREST DISALLOWANCE MADE U/S 14A READ WITH RULE 8D(2)(II) WHICH WAS DELETED BY THE ITAT WAS UPHELD BY THE CALCUTTA HIGH COURT. THE RELEVANT FINDINGS OF THE HON'BLE CALCUTTA HIGH COURT WAS AS FOLLOWS: 'IT APPEARS FOR BOTH THE ASSESSMENT YEARS THE APPEL LATE AUTHORITY HELD THAT THERE WAS NO FINDING OF DIRECT NEXUS BETWEEN THE BO RROWED FUND AND INVESTMENT IN SHARES. THE ASSESSEE'S OWN FUNDS WERE FAR IN EXCESS OF THE AVERAGE TOTAL INVESTMENTS. THERE COULD NOT BE ANY P RESUMPTION OF UTILIZATION OF BORROWED FUNDS. HENCE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 80(2)(II)WAS DELETED WHILE DISALLOWANCE OF INDIRECT EXPENSES OF RS.1,82,346/- BY APPLICATION OF RULE 8D(2)(III) UPHELD WITH THE D IRECTION TO ALLOW RELIEF OF THE SUM ALREADY DISALLOWED BY THE APPELLANT ITSELF. ON APPEAL PREFERRED BY THE REVENUE THE TRIBUNAL H ELD AS FOLLOWS:- 'WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH F ACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT NOW THE REV ENUE COULD NOT ESTABLISH THAT THE INVESTMENTS MADE IN SHARES GIVIN G EXEMPTED INCOME IS OUT OF BORROWED FUNDS ON WHICH INTEREST I S PAID BY ASSESSEE. THERE IS NO NEXUS WHATSOEVER. ON SPECIFIC QUERY LD. SR. ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 5 DR COULD NOT CONTROVERT THAT THE ASSESSEE HAS MADE IN INVESTMENT IN SHARES GIVING EXEMPT INCOME OUT OF OWN FUNDS WHICH IS AT ABOUT 2429 LACS AND INVESTMENT IS AT RS.365 LACS ONLY. ONCE TH IS FACT HAS NOT BEEN DENIED AND C!T(A) HAS CATEGORICALLY OBSERVED T HAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OUT OF ITS OWN FUNDS NO DISALLOWANCE CAN BE ATTRIBUTED QUA THE INTEREST PAID ON BORROWED FUNDS FOR INVESTING THE SAME IN INTEREST FREE FUNDS, IN VIEW OF THE ABO VE, WE CONFIRM THE ORDER OF CIT( A) ON THE COMMON ISSUE .. ' .. . .' .. ' WE FIND THAT THIS CASE HAS YIELDED CONCURRENT FINDI NG OF FACTS REGARDING EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOS E OF EARNING THE EXEMPT INCOME, BY THE APPELLATE AUTHORITY AND THE TRIBUNAL , AS SUCH THERE IS NO SCOPE FOR INTERFERENCE WITH SUCH CONCURRENT FINDING S OF FACTS. WE, THEREFORE, ARE NOT SATISFIED THAT THE CASE INVOLVES ANY SUBSTA NTIAL QUESTION OF LAW. THE APPLICATION AND APPEAL ARE THUS DISMISSED .' I FIND THAT THE ABOVE DECISION OF THE HON'BLE JURIS DICTIONAL HIGH COURT SQUARELY APPLIED TO THE APPELLANT'S FACTS AS WELL. I THEREFORE FIND SUFFICIENT MERIT IN THE LD. AR'S CONTENTION THAT SINCE THE APPELLANT'S OWN SURPLUS F UNDS WERE SUFFICIENT TO MEET THE COST OF INVESTMENTS; THE INTEREST; DISALLOWANCE U/S 14A WAS NOT CALLED FOR. 7. I ALSO NOTE THAT THE ISSUE OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D WAS SUBJECT MATTER OF DISPUTE IN THE APPELLANT'S OW N CASE IN THE PRECEDING YEARS AS WELL. IT WAS THE APPELLANT'S CASE BEFORE THE ASSESS ING OFFICER THAT THE BORROWINGS OF THE APPELLANT WERE MADE FOR SPECIFIC BUSINESS PURPO SES. WITH REFERENCE TO THE EVIDENCED BROUGHT ON RECORD, THE APPELLANT HAD DEMO NSTRATED THAT THE BORROWINGS WERE MADE FOR SPECIFIC END USES AND THE BORROWED FU NDS WERE UTILIZED ENTIRELY FOR BUSINESS PURPOSES AND NOT FOR THE PURPOSES OF MAKIN G INVESTMENT IN SHARES WHICH YIELDED TAX FREE DIVIDEND INCOME. IT WAS ALSO THE P LEADING OF THE APPELLANT THAT THE APPELLANT'S OWN FUNDS IN THE FORM OF CAPITAL & FREE RESERVES WERE SUFFICIENTLY LARGE TO MEET THE COST OF INVESTMENTS AND THEREFORE NO INTER EST DISALLOWANCE UNDER RULE 8D(2)(II) WAS CALLED FOR. I FIND THAT THE INCOME-TA X ASSESSMENTS OF THE APPELLANT FOR AYS 2008-09 TO 2010-11 WERE SUBJECTED TO PROCEEDING S BEFORE THE HON'BLE SETTLEMENT COMMISSION AND THE HON'BLE SETTLEMENT CO MMISSION BY ITS ORDER IN APPLICATION NO. WB/KOL/CENTRAL-III/2011-12/9/IT DATED 07.05.2012 UPHELD THE CONTENTION PUT FORTH BY THE APPELLANT. IN OTHER WOR DS, I FIND THAT THE HON'BLE SETTLEMENT COMMISSION HAD ACCEPTED THE ASSESSEE'S P LEADING THAT THE LOAN FUNDS WERE UTILIZED BY THE APPELLANT FOR THE SPECIFIC BUS INESS PURPOSES FOR WHICH THE LOANS WERE OBTAINED AND BORROWED FUNDS WERE NOT UTILIZED FOR MAKING INVESTMENTS IN SHARES AND UNITS OF MUTUAL FUNDS OR OTHER SECURITIE S CAPABLE OF YIELDING TAX FREE INCOME. THE HON'BLE SETTLEMENT COMMISSION HAD ALSO ACCEPTED THAT THAT APPELLANT'S OWN FUNDS WERE SUFFICIENTLY LARGE TO MEET THE COST OF INVESTMENTS AND THEREFORE INTEREST DISALLOWANCE UNDER RULE 8D(2)(II) WAS NOT WARRANTED. IN THE CIRCUMSTANCES THEREFORE I FIND THAT IN APPELLANT'S OWN CASE, THE HON'BLE SETTLEMENT COMMISSION ILL ITS ORDER FOR AYS 2008-09 TO 2010-11 HAD IN PRINCIPLE A CCEPTED AND APPLIED THE RATIO LAID DOWN BY THE JURISDICTIONAL CALCUTTA HIGH COURT IN T HE CASE OF CIT VS RASOI LTD (SUPRA). IT IS MATERIAL TO NOTE THAT THE DECISION OF THE HON 'BLE SETTLEMENT COMMISSION PERTAINED TO AYS 2008-09 TO 2010-11 DURING WHICH RULE 8D WAS IN FORCE AND DESPITE THE SAME THE HON'BLE SETTLEMENT COMMISSION HAD DECL INED TO APPLY THE RELEVANT RULE ON BEING SATISFIED THAT APPELLANT'S OWN FUNDS WERE SUFFICIENT TO MEET THE COST OF INVESTMENTS. HAVING REGARD TO THESE FACTS AND CIRCU MSTANCES THEREFORE, I HOLD THAT THE LD. AO WAS NOT JUSTIFIED IN DISALLOWING INTERES T EXPENSE OF RS.53,56,000/- BY INVOKING RULE 8D(2)(II). THE DISALLOWANCE IS ACCORD INGLY DELETED . ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 6 8. AS REGARDS DISALLOWANCE OF RS.2,02,40,000/- MADE RULE 8D(2)(III), I NOTE THAT THE SAID DISALLOWANCE HAS BEEN MADE BY THE LD. AO BY AP PLYING THE RATE OF 0.5%TO THE ENTIRE COST OF INVESTMENTS WHICH WERE CAPABLE OF YI ELDING TAX FREE INCOME. I NOTE THAT THE APPELLANT HAD SUO MOTO OFFERED DISALLOWANCE OF RS.10,11,201/- AT THE TIME OF FILING OF RETURN. IN THE COURSE OF ASSESSMENT TILE APPELLANT HAD SUBSTANTIATED THE BASIS ADOPTED FOR OFFERING THE DISALLOWANCE U/S 14A OF TH E ACT. I ALSO NOTE THAT THE METHODOLOGY ADOPTED BY THE APPELLANT FOR DISALLOWIN G ADMINISTRATIVE EXPENSES U/S 14A WAS CONSISTENTLY FOLLOWED AND ACCEPTED IN THE A PPELLANT'S REGULAR ASSESSMENTS UPTO AY 2007-08. ON PERUSAL OF THE ASSESSMENT ORDER , I FIND THAT THE LD. AO DID NOT OBJECTIVELY DEAL WITH THE EXPLANATION FURNISHED IN SUPPORT OF THE BASIS ADOPTED BY THE APPELLANT IN OFFERING AMOUNT DISALLOWED OUT OF ADMI NISTRATIVE EXPENSES. IN FACT I FIND THAT THE LD. AO REJECTED THE APPELLANT'S EXPLANATIO NS BY PASSING A NON-SPEAKING ORDER IN A PERFUNCTORY MANNER. 9. I FIND THAT THE BASIS ADOPTED BY THE APPELLANT I N OFFERING THE DISALLOWANCE U/S 14A AT THE RATE OF 1% OF THE GROSS DIVIDEND WAS FOLLOWE D BY THE APPELLANT AND ACCEPTED BY THE REVENUE UPTO AY 2007-08, BUT FROM AY 2008-09 ONWARDS, THE LD. AO REJECTED TILE SAID BASIS AND SOUGHT TO MAKE THE DIS ALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III). THIS MANNER OF MAKING DISALLO WANCE WAS OBJECTED BY THE APPELLANT IN THE PROCEEDINGS BEFORE THE HON'BLE SET TLEMENT COMMISSION FOR AYS 2008-09 TO 2010-11. IN ITS ORDER DATED 07.05.2012, THE HON'BLE SETTLEMENT COMMISSION RECORDED FOLLOWING MATERIAL FINDINGS WIT H REGARD TO DISALLOWANCE TO BE MADE OUT OF ADMINISTRATIVE EXPENSES: '9.3 HAVING SAID AS ABOVE, WHEN THIS BENCH OBSERVED THAT SINCE THE COMMISSION HAS EXCLUSIVE JURISDICTION OVER THE YEAR S COVERED BY THE APPLICATION AS POINTED BY THE REVENUE AND HENCE FOR AY 2008-09 TO 2010-11, IT HAS TO BE SATISFIED ABOUT THE CORRECTNESS OF THE . APPLICANT'S CLAIM OF EXPENDITURE TO BE ADDED BACK IN TERMS OF SECTION 14 A(2) READ WITH RULE 8D, THE AR REPLIED THAT THE EXPENSES ALLOCATED BY THE A PPLICANT AS PER WORKING STATEMENT FILED IS ACTUALLY LESS THAT THE AMOUNT OF FERED ON THE BASIS FOLLOWED BY THE AO IN EARLIER YEARS AS AFORESAID, AND HENCE THE QUESTION OF ' DISSATISFACTION ' IS RULED OUT IN THE PRESENT CASE BUT NONE THE LES S, IN THE SPIRIT OF SETTLEMENT, IT AGREED TO OTTER EXPENSES Q UANTIFIED AT APPROX, 3% OF THE EXEMPT INCOME INSTEAD OF 1% THEREOF SO THAT THERE M AY NOT BE DOUBT OR QUESTION WHATSOEVER ON THE FAIRNESS ARID CORRECTNES S OF THE QUANTUM OFFERED BY THE APPLICANT. ACCORDINGLY THE APPLICANT OFFERED TOTAL EXPENDITURE TO THE TUNE OF RS.19.29 LACS, 37.26 LACS AND RS.34.56 LACS RESPECTIVELY AS DISALLOWABLE FOR THE AY 2008-09 TO 2010-11 AND THIS WOULD RESULT IN FURTHER ADDITION OF RS.12.86 LEES, 24.84 LACS & RS.23.24 LA CS RESPECTIVELY OVER AND ABOVE THE AMOUNT INITIALLY OFFERED. FOR AY 2010-11, THE ABOVE ADDITION OF RS.23.24 LACS IS TO BE ADDED IN COMPUTING BOOK PROF IT U/S 115J8 AS WELL. 10. FROM THE FOREGOING IT IS APPARENT THAT ON THE S AME SET OF FACTS, THE HON'BLE SETTLEMENT COMMISSION IN ITS ORDER FOR AYS 2008-09 TO 2010-11 , UPHELD THE APPELLANT'S CONTENTION THAT HAVING REGARD TO FACTS OF THE APPELLANTS CASE AS IT PERMEATED THROUGH THE YEARS, THE DISALLOWANCE AS PE R RULE 8D(2)(III) WAS NOT PERMISSIBLE AS IT LED TO DISTORTED FINDINGS. HAVING REGARD TO THE PAST HISTORY OF THE APPELLANT AND ALSO HAVING REGARD TO THE FACT THAT T HE FACTUAL MATRIX OF THE APPELLANT'S CASE IN THE YEAR UNDER CONSIDERATION IS SAME, RESPE CTFULLY FOLLOWING THE DECISION OF THE HON'BLE SETTLEMENT COMMISSION IN THE APPELLANT' S OWN CASE FOR THE PRECEDING YEARS, I DIRECT THE LD. AQ. TO MAKE THE DISALLOWANC E AT THE RATE OF 3% OF GROSS DIVIDEND INCOME WHICH WORKS TO RS.30,33,603/- ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 7 11.IN VIEW OF THE ABOVE AND FOR THE REASONS DISCUSS ED IN THE FOREGOING THEREFORE, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE U/S 14A TO RS.30,33,603/- IN COMPUTING TOTAL INCOME AS PER THE COMPUTATIONAL PROVISIONS AS ALSO IN COMPUTING BOOK PROFIT U/S 115JB. GROUND NO. 4 IS THEREFORE PARTLY ALLOWED . 4. LEARNED CIT-DR VEHEMENTLY CONTENDS THAT THE CIT( A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE IMPUGNED DISALLOWAN CE TO THAT @ 3% OF DIVIDEND INCOME ONLY DESPITE THE STATUTORY FORMULA IN RULE 8 D(2)(II) OF THE INCOME TAX RULES, 1962. HIS FURTHER CASE IS THAT ALTHOUGH SETT LEMENT COMMISSION PROCEEDINGS FOR ASSESSMENT YEAR(S) 2008-09 TO 2010- 11 ARE NOT IN DISPUTE, THE FACT ALSO REMAINS THAT THE SAME DO NOT ACQUIRE THE CHARACTER OF A BINDING JUDICIAL PRECEDENT SINCE RESTRICTED TO THE ASSESSEE S VOLUNTARY DISCLOSURE ONLY. 5. LEARNED AUTHORIZED REPRESENTATIVE HAS TAKEN PAIN S TO FILE ON RECORD DETAILED WRITTEN SUBMISSIONS IN SUPPORT OF THE CIT( A)A ACTION. HIS FIRST AND FOREMOST CASE IS THAT THE ASSESSING OFFICER HAS EXE RCISED HIS RECTIFICATION JURISDICTION TO CORRECT THE CORRESPONDING SUM(S) IN VOLVED HEREIN (SUPRA). HE CLARIFIED THAT CASE LAW OF HON'BLE PATNA HIGH COURT IN NARENDRA PRASAD VS. COMMISSIONER OF INCOME TAX (2010) 322 ITR 171 (PAT) HOLDS THAT THE ISSUE DECIDED BY THE SETTLEMENT COMMISSION IS A SETTLED S TATE OF AFFAIR WHICH COULD NOT BE DISTURBED UNLESS THERE IS CHANGE IN FACTS AN D CIRCUMSTANCES. LEARNED COUNSEL THEN INVITES OUR ATTENTION TO THE ASSESSEE S MULTI-FOLDED ARGUMENTS THAT THE IMPUGNED DISALLOWANCE WAS NOT AT ALL WARRA NTED SINCE IT HAD NOT INCURRED ANY SUCH EXPENDITURE. THE ASSESSING OFFICE R HAD ALSO NOT RECORDED ANY COGENT SATISFACTION REGARDING ASSESSEES BOOKS OF ACCOUNT BEFORE INVOKING RULE 8D DISALLOWANCE OF THE INCOME TAX RUL ES, 1962. ITS INTEREST FREE FUNDS EXCEED THE INTEREST BEARING ONES IN ALL THESE ASSESSMENT YEAR(S). ITS LAST PLEA WITHOUT PREJUDICE TO ALL THE FOREGOING AR GUMENTS IS THAT ONLY NET INTEREST EXPENDITURE AND INVESTMENT YIELDING EXEMPT INCOME(S) HAVE TO BE CONSIDERED FOR THE PURPOSE OF COMPUTING THE IMPUGNE D DISALLOWANCE. 6. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RI VAL PLEADINGS AGAINST AND IN SUPPORT OF THE CIT(A)S ACTION PARTLY RESTRI CTING ASSESSING OFFICERS ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 8 ACTION BY INVOKING SEC. 14A R.W.S. 8D DISALLOWANCE @ 3% OF THE DIVIDEND INCOME ONLY. THERE IS HARDLY ANY DISPUTE THAT THE R ULE 8D OF THE INCOME TAX RULES COMES INTO PLAY FOR THE PURPOSE OF QUANTIFICA TION OF DISALLOWANCE OF EXPENDITURE PERTAINING TO AN ASSESSEES EXEMPT INCO ME. THE SAME APPLIES FROM ASSESSMENT YEAR(S) 2008-09 ONWARDS AS HELD IN GODREJ & BOYEE MANUFACTURING CO. LTD. VS. DCIT (2017) 394 ITR 449 (SC) UPHOLDING HON'BLE BOMBAY HIGH COURTS DECISION TO THIS EFFECT. COMING TO ASSESSEES DIVIDEND INCOME, CASE FILE(S) SUGGESTS THAT IT HAD DECLARED SUO MOTU EXPENSES OF 10.11, 12.04 & 15.07 (LAKHS); ASSESSMENT YEAR-WISE RESPECT IVELY. THE ASSESSING OFFICERS CORRESPONDING REGULAR ASSESSMEN T DISALLOWED PROPORTIONATE INTEREST AS WELL AS ADMINISTRATIVE EX PENSES UNDER RULE 8D(2)(II)(III). WE PROCEED IN THIS BACKDROP AND OBS ERVE THAT SINCE THE ASSESSEE COULD NEITHER EXPLAIN CORRECTNESS OF ITS SUO MOTU EXPENSE; WHETHER FALLING UNDER ANY OR ALL THREE HEAD(S) NOR THERE WAS ANY IN DICATION THAT THE CORRESPONDING ADMINISTRATIVE EXPENDITURE INDIRECT I N NATURE STATED INCLUDED QUA THE EXEMPT INCOME YIELDING INVESTMENTS OR NOT. WE MAKE IT CLEAR THAT THIS TRIBUNALS CO-ORDINATE BENCHS DECISION IN REI AGRO LTD. VS. DCIT (2013) 144 ITD 141 (KOL) HOLDS THAT THE IMPUGNED ADMINISTRATIV E DISALLOWANCE HAS TO BE COMPUTED GOING BY THE EXEMPT INCOME YIELDING INVEST MENTS ONLY. WE THEREFORE DECLINE THE ASSESSEES ARGUMENTS THAT THE ASSESSING OFFICERS ACTION INVOKING SEC. 14A / 8D DISALLOWANCE WAS WITHOUT REC ORDING ANY SATISFACTION. 7. NEXT COMES THE ASSESSEES CASE THAT THE CIT(A) H AD RIGHTLY GONE BY JUDICIAL CONSISTENCY KEEPING IN MIND THE SETTLEMENT COMMISSIONS ADJUDICATION RESTRICTING THE IMPUGNED DISALLOWANCE TO THAT @ 3% OF THE GROSS DIVIDEND INCOME (SUPRA). WE FIND NO MERIT IN ITS INSTANT PLE A SEEKING TO ADOPT JUDICIAL CONSISTENCY GOING BY HON'BLE PATNA HIGH COURTS JUD GMENT (SUPRA). THEIR LORDSHIPS HAVE MADE IT CLEAR IN PARA-9 THEREOF THAT THE DEPARTMENTAL AUTHORITIES CAN TAKE A DIFFERENT VIEW THAN SETTLES STATE OF AFFAIRS IN VIEW OF EXTRA-ORDINARY REASONS AVAILABLE. KEEPING IN VIEW T HE FACT THAT THE LEGISLATURE HAS ITSELF PROVIDED FOR COMPUTATION OF THE IMPUGNED DISALLOWANCE GOING BY THE ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 9 THREE HEAD(S) OF DIRECT , PROPORTIONATE INTERESTS A ND ADMINISTRATIVE EXPENDITURES UNDER RULE 8D(2)(II)(III) OF THE INCOM E TAX RULES W.E.F. ASSESSMENT YEAR 2008-09 ONWARDS, WE ARE OF THE OPIN ION THAT THE INCOME TAX SETTLEMENT COMMISSIONS ADJUDICATION IN THE SAID PR ECEDING THREE ASSESSMENT YEAR(S) RESTRICTING THE IMPUGNED DISALLOWANCE PERTA INING TO THREE AYS OF EXEMPT INCOME DOES NOT FORM A BINDING PRECEDENT BEI NG PER INCARIUM AS PER CIT VS. B.R. CONSTRUCTIONS (1993) 202 ITR 222 (AP) (FB). WE THUS REVERSE THE CIT(A)S ABOVE LOWER APPELLATE FINDINGS TO THIS EFFECT. 8. NEXT COMES EQUALLY IMPORTANT ASPECT OF QUANTIFIC ATION OF THE IMPUGNED DISALLOWANCE UNDER THESE THREE HEAD(S) OF DIRECT, P ROPORTIONATE INTEREST AND ADMINISTRATIVE EXPENDITURE. THE ASSESSEES SUO MOTU DISALLOWANCE FIGURE(S) OF 10.1, 12.04 AND 15.97 (IN LAKHS) FALLING UNDER THE FIRST CATEGORY OF DIRECT EXPENSES ONLY. WE THUS, UPHOLD THE SAME SINCE REVEN UE HAS ALSO FAILED TO REBUT CORRECTNESS THEREOF. 9. WE NEXT PROCEED TO THE SECOND LIMB OF PROPORTION ATE INTEREST EXPENDITURE, UNDER RULE 8D(2)(II) AND NOTICE THAT T HE ASSESSEES CORRESPONDING FIGURES OF INTEREST INCOME INCLUDES 11.38 CRORES AGAINST INTEREST EXPENDITURE OF 2.04 CRORES IN ASSESSMENT YEAR 2011-12, 9.17 CRORES AS AGAINST 6.01 CRORES IN ASSESSMENT YEAR 2012-13 AND 16.36 CRORES AGAINST 8.10 CRORES IN ASSESSMENT YEAR 2013-14 ( GOING BY ITS BALANCE- SHEET(S) FORMING PART OF RECORDS ); RESPECTIVELY. THIS TRIBUNALS CO-ORDINATE BENCHS DECISION IN DCIT VS. TRADE APARTMENT LTD. ITA NO.1277/KOL/2011 DECIDED ON 30.03.2012 AS WELL AS HON'BLE JURISDICTI ONAL HIGH COURTS DECISION IN COMMISSIONER OF INCOME TAX VS. RASOI LTD. ( ITA NO. 109 OF 2016 DATED 15.02.2017 ) HOLD THAT THE INSTANT HEAD OF PROPORTIONATE INTER EST EXPENDITURE DOES NOT COME INTO PLAY IN CASE OF AN ASSESSEES IN TEREST FREE FUNDS EXCEEDING INTEREST BEARING ONES. WE ADOPT THE SAID REASONING MUTATIS MUTANDIS AND HOLD THAT THE REVENUE ENDEAVOUR TO REVIVE THE IMPUGNED ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 10 PROPORTIONATE INTEREST EXPENDITURE IN ALL THESE THR EE ASSESSMENT YEAR(S) INVOLVING ASSESSEES POSITIVE NET INTEREST INCOME D ESERVES TO BE DECLINED. 10. COMING TO THE THIRD LIMBS OF INDIRECT HEAD OF A DMINISTRATIVE EXPENDITURE @ 0.5% OF AVERAGE VALUE OF INVESTMENT UNDER RULE 8D (2)(III) OF THE ACT, THIS TRIBUNALS YET ANOTHER CO-ORDINATE BENCHS DECISION IN REI AGRO LTD. (SUPRA) AS UPHELD IN HON'BLE JURISDICTIONAL HIGH COURTS DECIS ION IN REVENUES APPEAL ITA NO.161/KOL/2013 DATED 23.12.2013 HOLDS THAT ONLY EXEMPT INCOME YIE LDING INVESTMENTS DESERVE TO BE INCLUDED FOR THE PURPOSE OF DETERMINING THE CORRESPONDING FIGURES. WE THEREFORE RESTORE THE REV ENUES INSTANT SECOND SUBSTANTIVE GRIEVANCE TO THE EXTENT OF RULE 8D ADMI NISTRATIVE DISALLOWANCE COMPUTATION BACK TO THE ASSESSING OFFICER. 11. LASTLY COMES THE ISSUE OF SEC. 115JB MAT COMPUT ATION QUA THE IMPUGNED SEC. 14A READ WITH RULE 8D DISALLOWANCE. T HIS TRIBUNALS SPECIAL BENCH IN (2017) 82 TAXMANN.COM 415 (DELHI) (SB) HAS STAYED REVENUES IDENTICAL ARGUMENT. WE THUS PARTLY ACCEPT REVENUES INSTANT SECOND SUBSTANTIVE GRIEVANCE FOR STATISTICAL PURPOSES. 12. THE REVENUES IDENTICAL THIRD SUBSTANTIVE GRIEV ANCE IN ALL THESE THREE ASSESSMENT YEAR(S) IS THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITIONAL DEPRECIATION DISALLOWANCE(S) AMOUNTING T O 4,13,89,820/-, 7,93,98,262/- AND 2,67,59,194/-; RESPECTIVELY MADE IN THE COURSE OF CORRESPONDING AS MANY ASSESSMENTS. THE CIT(A)S DIS CUSSION TO THIS EFFECT READS AS UNDER:- 26. DECISION: 1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF T HE LEARNED. ARS IN LIGHT OF THE FACTS AVAILABLE ON RECORD. I FIND THAT IN THE RETUR N OF INCOME FOR THE RELEVANT AY 2011- 12, THE APPELLANT HAD CLAIMED AGGREGATE DEPRECIATIO N OF RS.1,31,14,64,051/- WHICH COMPRISED OF ADDITIONAL DEPRECIATION OF RS.17,64,56 ,401/- ON THE NEW ASSETS WHICH WERE ACQUIRE DURING THE RELEVANT YEAR. IN THE PRESE NT APPEAL, THE APPELLANT HAS NOW RAISED A CLAIM THAT IN RESPECT OF ACTUAL COST OF MA CHINERY INSTALLED BUT PUT TO USE FOR PERIOD LESS THAN 180 DAYS IN THE PRECEDING FY 2009 -10, ON WHICH THE ADDITIONAL DEPRECIATION WAS ALLOWED AT THE REDUCED RATE OF 10% IN THE COMPUTATION OF INCOME FOR AY 2010-11; THAT IN THE RELEVANT AY 2011-12, THE REMAINING 10% OF THE ADDITIONAL ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 11 DEPRECIATION FOR WHICH DEDUCTION WAS NOT ALLOWED IN THE EARLIER YEAR, SHOULD BE ALLOWED UNDER SECTION 32(1)(IIA) OF THE ACT. 2. THE LD. ARS OF THE APPELLANT HAVE CLAIMED THAT T HE ABOVE CLAIM IS LEGAL IN NATURE AND SUBMITTED THAT THE FIRST APPELLATE AUTHORITY HA S THE POWER TO ENTERTAIN NEW CLAIM IF THE GROUNDS RAISED ARE BONA FIDE. IN SUPPORT OF THI S PROPOSITION THE ID. AR RELIED ON PLETHORA OF JUDGMENTS INCLUDING THE DECISION OF SUP REME COURT IN THE CASES OF NATIONAL THERMAL POWER CO. LTD VS CIT ( 229 ITR 383 )& JUTE CORPORATION OF INDIA LTD. V. CIT ( 187 ITR 688 )AND BOMBAY HIGH COURT IN THE CASE OF CIT VS PRUTHV I BROKERS & SHAREHOLDERS PRIVATE LIMITED ( 252 CTR 151 )AND THE DELHI HIGH COURT IN THE CASE OF CIT VS JAI PARABOLIC SPRINGS LIMITED ( 306 ITR 42 ).THE LD. AR FURTHER TOOK RECOURSE TO EXPLANATION 5 TO SECTION 32 WHICH PUTS THE QUESTION OF ALLOWING DEPRECIATION BEYOND ANY DOUBT AND MAKES THE DEDUCTI ON UNDER SECTION 32 MANDATORY. AS REGARDS THE MERITS OF THE CLAIM, THE ID. AR OF THE APPELLANT PLACED RELIANCE ON THE FOLLOWING JUDGMENTS WHEREIN IT HAS BEEN HELD THAT WHERE THE ADDITIONAL DEPRECIATION ON THE NEWLY ACQUIRED ASSET S WAS ALLOWED AT REDUCED RATE OF 10% IN THE EARLIER YEAR SINCE THEY WERE ACQUIRED AF TER 180 DAYS, THE REMAINING ADDITIONAL DEPRECIATION AT THE RATE OF 10% SHALL BE ALLOWED IN THE SUBSEQUENT YEAR . - DCIT VS COSMOS FILMS LTD ( 139 ITD 628 ) (ITAT DELHI) - CENTURY ENKA LTD VS DCIT ( 154 ITD 426 ) (ITAT KOLKATA) - UNIVERSAL CABLES LTD VS DCIT ( 68 SOT 307 ) (ITAT KOLKATA) - BIRLA CORPORATION LTD VS DCIT ( 69 SOT 217 ) (ITAT KOLKATA) - ACIT VS SIL INVESTMENT LTD ( 54 SOT 54 ) (ITAT CHENNAI) - ASHOK LEYLAND LTD VS DCIT (67 TAXMANN.COM 48) (IT AT CHENNAI) APART FROM THE ABOVE THE APPELLANT ALSO REFERRED TO THE SECOND PROVISO TO SEC 32(1) WHICH ALSO LAID DOWN THE ABOVE PROPOSITION AND CLAR IFIED IT BEYOND DOUBT. 3. UPON GIVING DUE CONSIDERATION TO THE SUBMISSION S MADE BY THE APPELLANT AND HAVING REGARD TO THE FACTS AVAILABLE ON RECORD, I A M OF THE CONSIDERED VIEW THAT DEPRECIATION IS A STATUTORY ALLOWANCE GRANTED UNDER SECTION 32 OF THE ACT. I AGREE WITH THE ID. AR'S CONTENTION THAT POST INTRODUCTION OF EXPLANATION 5 IN SECTION 32 BY FINANCE ACT, 2001; THAT THERE IS NO OPTION EITHER T O THE AO OR THE ASSESSEE IN CLAIMING OR ALLOWING DEPRECIATION AND FROM AY 2001- 02 AND ONWARDS THE DEPRECIATION IS A MANDATORY ALLOWANCE. IN THE CIRCUMSTANCES EVEN IF THE APPELLANT DID NOT RAISE THE CLAIM OF DEPRECIATION IN THE RETURN OF INCOME, THEN ALSO IT IS INCUMBENT UPON THE DEPARTMENT TO CALCULATE AND ALLOW THE MANDATORY DEP RECIATION AS PER LAW. IN LIGHT OF THE EXPLANATION 5 TO SECTION 32 AND ALSO THE DECISI ONS OF SUPREME COURT IN THE CASES OF NATIONAL THERMAL POWER CO. LTD VS CIT (SUP RA), I AM OF THE CONSIDERED VIEW THAT THE FURTHER CLAIM OF ADDITIONAL DEPRECIATION O F RS.13,39,47,637/- BEING BONA FIDE THE CLAIM MADE FOR THE FIRST TIME IN APPELLATE PROC EEDINGS IS ADMISSIBLE FOR ADJUDICATION. 4. NOW PROCEEDING TO THE MERIT OF THE APPELLANT'S CLAIM, I FIND THAT THE ASSESSEE HAD PURCHASED AND INSTALLED NEW PLANT AND MACHINERY FOR ITS MANUFACTURING UNIT AND PUT TO USE FOR A PERIOD OF LESS THAN I.E. 180 DAYS, DUR ING THE FINANCIAL YEAR 2009-10 AND CLAIMED 50 PER CENT ADDITIONAL DEPRECIATION UNDER S ECTION 32(1)(IIA) IN VIEW OF THE SECOND PROVISO TO SECTION 32(1)(II). THE BALANCE 50 PER CENT OF ADDITIONAL DEPRECIATION ON SUCH PLANT AND MACHINERY HAS BEEN CLAIMED BY THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION I.E. FY 2010-11. BARE READ ING OF CLAUSE (IIA) OF SECTION 32(1) APPLICABLE WITH EFFECT FROM THE ASSESSMENT YE AR 2006-07, PROVIDES FOR ALLOWANCE OF ADDITIONAL DEPRECIATION EQUAL TO 20 PE R CENT OF ACTUAL COST OF NEW PLANT AND MACHINERY ACQUIRED AND INSTALLED AFTER 31-3-200 5 BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY AR TICLE OR THING. SUCH ADDITIONAL ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 12 DEPRECIATION IS TO BE ALLOWED AS DEDUCTION UNDER SE CTION 32(1)(IIA) BUT SECOND PROVISO TO SECTION 32(1)(II) RESTRICTS THE ALLOWANC E OF DEPRECIATION AT 50 PER CENT, IF THE PLANT AND MACHINERY IS ACQUIRED DURING THE PREV IOUS YEAR IS PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS IN THAT PREVIOUS YEAR. IT IS BECAUSE OF THE SECOND PROVISO THAT THE ASSESSEE CLAIMED ONLY 50 PER CENT ADDITION AL DEPRECIATION IN THE ASSESSMENT YEAR 2010-11 AND ACCORDINGLY, CLAIMED THE BALANCE A MOUNT OF ADDITIONAL DEPRECIATION IN THE IMMEDIATELY SUBSEQUENT YEAR I.E. THE YEAR UN DER CONSIDERATION AY 2011-12. 5. I FIND MERIT IN THE LD. AR'S SUBMISSIONS THAT TH ERE IS NO RESTRICTIVE CONDITION IN THE SECTION 32(1)(IIA) FOR THE ELIGIBILITY OF THE ASSES SEE TO CLAIM REMAINING ADDITIONAL DEPRECIATION IN THE SUBSEQUENT YEAR. I FIND SUFFICI ENT FORCE IN THE APPELLANT'S SUBMISSIONS THAT THE BENEFITS CONFERRED BY WAY OF I NCENTIVE PROVISION AND WHEN THE SECOND PROVISO TO SECTION 32(1)(II) DOES NOT EXPRES SLY PROHIBIT THE ALLOWANCE OF THE BALANCE 50 PER CENT DEPRECIATION IN THE SUBSEQUENT YEAR, THEN IMPLIEDLY THE APPELLANT IS LEGALLY ENTITLED TO REMAINING 50% OF THE ADDITIO NAL DEPRECIATION, BECAUSE IN THE YEAR IN WHICH THE MACHINERY WAS FIRST PUT TO USE THE ASS ESSEE CLAIMED ONLY 50 PER CENT OF ADDITIONAL DEPRECIATION. I FIND THAT THIS PROPOSITI ON IS SUPPORTED BY THE JUDGMENTS OF THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL, KOLKATA IN THE CASES OF CENTURY ENKA LTD VS DCIT (154 ITD 426), UNIVERSAL CABLES LTD VS DCIT (68 SOT 307) & BIRIA CORPORATION LTD VS DCIT (69 SOT 217) . IN ALL THESE JUDGMENTS, IDENTICAL VIEW HAS BEEN ENDORSED BY THE JURISDICTIONAL ITAT, KOLKATA T HAT IN RESPECT OF ACTUAL COST OF MACHINERY INSTALLED BUT PUT TO USE FOR PERIOD LESS THAN 180 DAYS, ADDITIONAL DEPRECIATION WAS ALLOWED AT THE REDUCED RATE OF 10% IN THE EARLIER YEAR, THEN THE ASSESSEE IS LEGALLY ENTITLED TO ALLOWANCE OF THE RE MAINING 10% OF THE ADDITIONAL DEPRECIATION FOR WHICH DEDUCTION WAS NOT ALLOWED IN THE EARLIER YEAR, IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR. 6. FOR THE REASONS SET OUT IN THE FOREGOING AND RE SPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL ITAT, KOLKATA; AND HAVING REGARD TO THE DETAILS ON RECORD, I HEREBY DIRECT TO THE ID. AO TO ALLOW THE BALANCE 10% OF TH E ADDITIONAL DEPRECIATION AMOUNTING TO RS.13,39,47,637/- IN TERMS OF SEC.32(1)(IIA) IN THE RELEVANT AY 2011-12 ON THE ASSETS WHICH WERE PUT TO USE IN THE PRECEDING AY 20 10-11 FOR LESS THAN 180 DAYS. THE ID. AO SHALL ALSO ACCORDINGLY RE-COMPUTE THE CL OSING WDV OF THE BLOCK OF ASSETS FOR THE RELEVANT YEAR WHICH IS TO BE CARRIED FORWAR D TO THE SUBSEQUENT YEARS. GROUND NO. 8 THEREFORE STANDS ALLOWED . 13. LEARNED CIT-DRS ONLY CASE DURING THE COURSE OF HEARING IS THAT THE ASSESSING OFFICER HAD RIGHTLY DISALLOWED THE ASSESS EES ADDITIONAL DEPRECIATION CLAIM @ 10% U/S 32(1)(IIA) SINCE IT HA D PUT ITS CORRESPONDING FIXED ASSETS TO USE IN EARLIER ASSESSMENT YEAR(S) T HAN INSTALLATION THEREOF IN THE RELEVANT PREVIOUS YEAR ONLY MR. SHANKAR REFERS TO THIS TRIBUNALS RECENT DECISION IN WELSPUN CORPORATION VS. DCIT AND VICE VERSA ITA NO.5370 & 5722/MUM/2015 DATED 13.12.2019 ACCEPTING THE REVENUES IDENTICAL PLEA. WE FIND NO MERIT EITHER IN REVENUES FOREGOING ARGU MENTS. THIS TRIBUNALS YET ANOTHER CO-ORDINATE BENCH DECIDING THE VERY ISSUE I N REVENUES FAVOUR (2017) 82 TAXMANN.COM 238 (CHENNAI) BRAKES INDIA LTD. VS. ACIT DECLINING ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 13 SIMULTANEOUS ADDITIONAL DEPRECIATION CLAIM STANDS R EVERSED BYHON'BLE MADRAS HIGH COURT IN TCA NO.55/2017 DATED 14.03.2017. THEIR LORDSHIPS HAVE MADE IT CLEAR THAT SUCH A DEDUCTION CLAIM IS ALLOWABLE E VEN IF IN CASE THAN FIXED ASSETS HAD BEEN PUT TO USE IN EARLIER ASSESSMENT YE ARS. WE THUS AFFIRM THE CIT(A)S IDENTICAL DETAILED REASONING EXTRACTED HER EINABOVE IN ALL THESE THREE ASSESSMENT YEAR(S). THE REVENUE FAILS IN ITS IDENTI CAL THIRD SUBSTANTIVE GRIEVANCE. 14. THE REVENUES 4 TH TO 6 TH , 7 TH TO 9 TH AND 9 TH TO 12 TH SUBSTANTIVE GRIEVANCES IN ASSESSMENT YEAR-WISE; RESPECTIVELY PL EAD THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ARMS LEN GTH PRICE (ALP FOR SHORT) OF CORPORATE GUARANTEE(S) AMOUNTING TO 15,45,000/-, 147,97,045 & 175,39,089/- IN THE THREE ASSESSMENT YEAR(S). THE C IT(A) HOLDS THAT A CORPORATE GUARANTEE DOES NOT AMOUNT TO AN INTERNATI ONAL TRANSACTION AS UNDER:- 23. DECISION : 1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF T HE APPELLANT-COMPANY IN THE LIGHT OF THE ADJUSTMENTS MADE BY THE LD. TPO / AO. THE LD. AO HA S CONCLUDED THAT RS.1,50,45,000/- IS TO BE CONSIDERED AS INCOME IN THE HANDS OF THE APPELLA NT-ASSESSEE. I HAVE ALSO CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT-COMPANY MADE BEFORE THE LD. AO / TPO AS WELL AS DURING THE APPEAL PROCEEDINGS. 2. HOWEVER, IT HAS ALSO TO BE EXAMINED WHETHER THE CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION AT ALL, AND AMENABLE TO BENCHMARKING. I FIND THAT THERE HAS BEEN A CERTAIN PRESUMPTION ON THE PART OF THE LD. ASSESSING OFFICE R / TPO IN SO FAR AS OBSERVING THAT THE CORPORATE GUARANTEE PROVIDES A CERTAIN BENEFIT TO T HE AE AND BEING IN THE NATURE OF A SERVICE IT CONSTITUTES AN INTERNATIONAL TRANSACTION. IT IS ALSO TO BE SAID THAT AS HAS BEEN PLEADED BY THE APPELLANT, HON'BLE COURTS HAVE HELD THAT CORPORATE GUARANTEES DO NOT FALL WITHIN THE PURVIEW OF INTERNATIONAL TRANSACTIONS. THE MAIN REASONS FOR ADVANCING SUCH ARGUMENT BY THE APPELLANT IS THAT THERE ARE NO COSTS TO THE ASSESSEE IN ISSUI NG OF CORPORATE GUARANTEE, ESPECIALLY IN A SITUATION WHERE THE ASSESSEE COULD NOT HAVE REALIZE D ANY MONEY BY GIVING THE SAME TO SOME OTHER ASSESSEE DURING THE COURSE OF BUSINESS, AND T HAT SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON THE PROFITS / LOSSES O R ASSETS AND AS SUCH WOULD NOT FALL WITHIN THE AMBIT OF ANY INTERNATIONAL TRANSACTION U/S 92B. IT HAS BEEN ARGUED THAT A ' BARE BENEFIT ' DOES NOT TANTAMOUNT TO AN INTERNATIONAL TRANSACTION , AS SUCH. IT HAS BEEN ARGUED THAT THE TRANSACTIONS HAVE NO BEARING OR IMPACT UPON THE PRO FITS, INCOME, LOSS OR ASSETS OF THE AE, AND THAT EVEN AFTER THE LAW WAS AMENDED WITH RETROSPECT IVE EFFECT THE EFFECT SHOULD ALSO BE SUCH AS TO HAVE A BEARING ON PROFITS, INCOMES. LOSSES OR AS SETS OF THE ENTERPRISE. IT HAS ALSO BEEN ARGUED THAT THE IMPACT OF THE IMPUGNED CORPORATE GU ARANTEE SHOULD BE ON A REAL BASIS AND NOT ON ANY CONTINGENT OR HYPOTHETICAL BASIS, AND TH AT THE ONUS IS UPON THE LD. AO TO ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 14 DEMONSTRATE THAT THAT THE TRANSACTION HAS A BEARING ON THE PROFITS, INCOME, LOSS OR ASSETS OF THE ENTERPRISE, AND THAT THERE HAS TO BE COGENT MAT ERIAL ON RECORD TO INDICATE THAT INTRA AE INTERNATIONAL TRANSACTION HAS SOME IMPACT ON THE PR OFITS, INCOMES, LOSSES OR ASSETS. MOST IMPORTANTLY, IT HAS BEEN ARGUED THAT THE HON'BLE IT AT, DELHI, IN A RULING IN THE CASE OF M/S. BHARTI AIRTEL LIMITED VS ADDL. CIT[2014] 64 SOT 50 (URO) / 43 TAXMANN.COM 50 (DELHI) ADJUDICATED ON TRANSFER PRICING ISSUES ARISING FROM THE ISSUANCE OF A CORPORATE GUARANTEE TO ASSOCIATED ENTERPRISES AMONG OTHERS IN THIS CASE, T HE TAXPAYER, AN INDIAN COMPANY, PROVIDED A GUARANTEE TO A THIRD-PARTY BANK ON BEHALF OF ITS FOREIGN SUBSIDIARY FOR WHICH IT DID NOT CHARGE A FEE. THE TAXPAYER CONTENDED AS IT DID NOT INCUR ANY COSTS IN PROVIDING THE GUARANTEE, THERE WAS NO REQUIREMENT FOR IT TO CHARGE A FEE TO THE SUBSIDIARY UNDER THE TRANSFER' PRICING PROVISIONS. DURING ASSESSMENT PROCEEDINGS, THE AO I MPUTED AN ARM'S LENGTH GUARANTEE FEE BY APPLYING THE CUP METHOD AND CONSIDERED THE COMMISSI ON CHARGED BY INDEPENDENT BANKS AS A BENCHMARK, THE HON'BLE ITAT, CONSIDERING THE FACTS OF THE CASE, HELD THAT THE CORPORATE GUARANTEE PROVIDED BY THE TAXPAYER, WHICH DOES NOT INVOLVE COST TO THE TAXPAYER, DOES NOT HAVE A BEARING ON PROFITS, INCOMES, LOSSES OR ASSET S OF THE TAXPAYER AND HENCE THE TRANSACTION DOES NOT FALL WITHIN THE AMBIT OF THE AMENDED DEFIN ITION OF ' INTERNATIONAL TRANSACTION '. IT WOULD BE SIGNIFICANT TO NOTE THAT, THE HON'BLE ITAT TOOK COGNIZANCE OF VARIATIONS BROUGHT IN UNDER THE AMENDED DEFINITION AND HELD THAT THE PREC ONDITION OF A TRANSACTION HAVING BEARING ON PROFIT, LOSSES OR ASSETS OF AN ENTERPRISE CANNOT BE DISPENSED WITH EVEN AFTER THE EXPLANATION WAS ADDED TO THE DEFINITION OF THE INTERNATIONAL TR ANSACTION BY THE FINANCE ACT OF 2012 SINCE SUCH EXPLANATION WAS MERELY A CLARIFICATION. THE HO N'BLE TRIBUNAL FURTHER HELD THAT THE ONUS WAS ON THE INCOME TAX AUTHORITIES TO DEMONSTRATE TH E TRANSACTION HAS A ' BEARING ON PROFITS, INCOME, LOSSES OR ASSETS ' OF THE ENTERPRISE. SUCH AN IMPACT ON PROFITS, INC OME, LOSSES OR ASSETS HAS TO BE ALL A REAL BASIS, WHETHER IN THE PRESENT OR' ILL THE FUTURE, AND NOT ON A CONTINGENT OR HYPOTHETICAL BASIS. FURTHERMORE, THERE HAS TO BE SO ME EVIDENCE ON RECORD TO INDICATE, EVEN IF NOT TO FULLY ESTABLISH, THAT AN INTERNATIONAL TRANS ACTION HAS SOME IMPACT ON PROFITS, INCOME, LOSSES OR ASSETS. TAKING INTO CONSIDERATION THE FAC TS OF THE CASE, THE HON'BLE TRIBUNAL HELD THAT' SUCH CONDITIONS WERE NOT SATISFIED. THE HON'B LE ITAT ACCORDINGLY RULED THAT UNDER THE FACTS OF. THE CASE, TRANSFER PRICING PROVISIONS DID NOT APPLY TO THE PR OVISION OF GUARANTEE AND THEREFORE THE TP ADJUSTMENT IMPUTING AN ARM'S LENGT H GUARANTEE FEE IS NOT WARRANTED. THIS JUDGEMENT SEEMS TO BE A DEPARTURE FROM THE OECD'S A PPROACH IN THE SENSE THAT THE SHAREHOLDER INCURRING A COST WOULD NOT NORMALLY BE CONSIDERED IN DETERMINING WHETHER A SERVICE HAS BEEN PROVIDED OR NOT. THE FACT THAT WOU LD NEED TO BE CONSIDERED IS WHETHER THE ACTIVITY PROVIDES A RESPECTIVE GROUP MEMBER WITH EC ONOMIC OR COMMERCIAL VALUE TO ENHANCE ITS COMMERCIAL POSITION. THIS CAN BE DETERMINED BY CONSIDERING WHETHER AN INDEPENDENT ENTERPRISE IN COMPARABLE CIRCUMSTANCES WOULD HAVE B EEN WILLING TO PAY FOR THE ACTIVITY IF PERFORMED FOR IT BY AN INDEPENDENT ENTERPRISE OR WO ULD HAVE PERFORMED THE ACTIVITY IN-HOUSE FOR ITSELF. THEREFORE, FROM THE PERSPECTIVE OF THE RECIPIENT, IF IT WERE NOT SOMETHING THAT HE WOULD HAVE PAID FOR, THE ACTIVITY SHOULD NORMALLY N OT BE CONSIDERED AS AN INTRA-GROUP SERVICE UNDER THE ARM'S LENGTH PRINCIPLE. GIVEN THAT INDIAN TP LAW DIFFERS FROM THE OECD'S APPROACH IN CERTAIN ASPECTS WITH RESPECT TO THE APPLICATION OF THE ARM'S LENGTH PRINCIPLE, IT WOULD NOT BE OUT OF PLACE TO STATE THAT THIS JUDGMENT HIGHLIGHTS ONE OF THEM. 3. BE THE CASE, AS IT MAY, IT HAS TO BE SAID THAT T HE HON'BLE JURISDICTIONAL ITAT IN THE CASE OF M/S TEGA INDUSTRIES VS DCIT IN ITA NO. 1912/KOL/2012 [REPORTED AS [2016] 76 TAXMANN.COM(KOLKATA-TRIB)] HAS ADJUDICATED THE MATT ER' AND HELD THAT WHERE THE ASSESSEE HAS PROVIDED CORPORATE GUARANTEE TO THE BANK TO FUND IT S SUBSIDIARY FOR ACQUIRING A COMPANY(IES) ON BEHALF OF THE ASSESSEE, SINCE THE ASSESSEE'S EXP ECTATION FROM LOAN WAS THAT OF A SHAREHOLDER, AND THE INTENTION WAS TO PROTECT ITS I NVESTMENT INTEREST, NO T.P ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE WAS TO BE MADE. IN T HIS CASE, THE HON'BLE ITAT, BASED ON THE FACTS OF THE CASE HAS ADJUDICATED THAT IF THE INTEN TION OF THE ASSESSEE IS NOT TO EARN INTEREST OR GUARANTEE FEES BY PROVIDING LOAN OR GUARANTEE, NO T P ADJUSTMENTS COULD BE MADE. THE FACTS OF THE CASE WERE THAT THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF MANUFACTURING AND SPECIALIZING IN THE DESIGNS, PRODUCTION AND APPLICA TION OF WATER RESISTANT RUBBER LINING. DURING FY 2006-07, THE ASSESSEE HAD SET UP AN AE/SU BSIDIARY AS A SPECIAL PURPOSE VEHICLE IN ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 15 BAHAMAS FOR ACQUIRING TWO SOUTH AFRICA BASED COMPAN IES. THE ASSESSEE HAD PROVIDED INTEREST-FREE LOAN AND CORPORATE GUARANTEE TO ITS A E, AND USED COMPARABLE UNCONTROLLED PRICE (' CUP ') AS THE MOST APPROPRIATE METHOD FOR MEASURING THE TRANSACTION AT ALP. THE ASSESSEE HAD SUO-MOTTO OFFERED INTEREST ON SUCH LOAN AT LIBO R+ 100 BPS. HOWEVER, THE LD. TPO DISREGARDED THE CONTENTIONS OF THE ASSESSEE, PREFER RED COST PLUS METHOD (' CPM ') AND MADE UPWARD ADJUSTMENTS FOR THE SAME. AGGRIEVED BY THE O RDER, THE ASSESSEE FILED AN APPLICATION BEFORE THE LD. DISPUTE RESOLUTION PANEL (' DRP '), WHICH CONFIRMED TILE ORDER OF THE LD. TPO. FURTHER AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEF ORE THE HON'BLE TRIBUNAL. THE HON'BLE ITAT INTER- ALIA DECIDED THAT THE ASSESSEE HAD INJE CTED LOAN TO ITS SUBSIDIARY AND PROVIDED GUARANTEE FOR COMMERCIAL EXPEDIENCY AS THE ASSESSEE HAD MERGED TO EXPAND ITS FOREIGN OPERATIONS; THUS, THE LOAN INJECTED BY THE ASSESSEE WAS A KIND OF A QUASI-EQUITY I.E. IN THE FORM OF EQUITY. FURTHER, THE HON'BLE TRIBUNAL PREFERRED INTERNAL CUP OR EXTERNAL CUP AS THE MOST APPROPRIATE METHOD FOR APPLYING IN SUCH TRANSACTION S. IT MAY BE RELEVANT TO QUOTE THE NECESSARY PORTION OF THE ORDER OF THE HON'BLE ITAT AS FOLLOWS : ' AS THE ASSESSEE'S EXPECTATION FROM PROVISION OF LOA N AND GUARANTEE ARE NOT THAT OF A LENDER OR GUARANTOR I.E. TO EARN A MARKET SHAR E OF INTEREST OR GUARANTEE FEE, RATHER, THE EXPECTATION WAS THAT OF A SHAREHOLDER - TO PROTECT ITS INVESTMENT INTEREST, HELP IT TO ACHIEVE ACQUISITION OF TEGABRU CE FOR FURTHERANCE OF ITS OWN BUSINESS AND GET RETURNS IN TERMS OF APPRECIATION O F VALUE AND DIVIDENDS THEREFORE IN THE PRESENT CASE THE GUARANTEE IS A SH AREHOLDER ACTIVITY HENCE NO TP ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE SHOULD BE REQUIRED. ACCORDINGLY, WE DIRECT THE LD. DRP/ TPO TO DELETE THE ADDITION. ' IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTION AL !TAT, IT HAS TO BE SAID THAT THERE IS STRENGTH IN THE CONTENTION OF THE APPELLANT-COMPANY THAT IN THE FACTS EMANATING IN THE CASE, THERE MAY NOT HAVE BEEN ANY REAL JUSTIFICATION ON T HE PART OF THE LD. AO TO TREAT THE CORPORATE GUARANTEE GIVEN BY THE APPELLANT TO THE AE AS AN IN TERNATIONAL TRANSACTION. 4. I HAVE ALSO CAREFULLY CONSIDERED OTHER SUPPLEMEN TARY ARGUMENTS OF THE LD. A.RS FOR THE APPELLANT-COMPANY IN THE MATTER REBUTTING AND CHALL ENGING THE ACTION OF THE LD. AO/TPO. THE APPELLANT HAS BEEN ABLE TO DRAW AND DEMONSTRATE SIM ILARITY IN THE FACTUAL AND LEGAL MATRIX IN THE CASE OF TEGA INDUSTRIES AND ITS OWN CASE. IT HA S BEEN PLEADED THAT THE CONTENTION OF TEGA INDUSTRIES LTD IS SIMILAR TO THAT OF THE APPELLANT. THE OBJECTIVE OF PAHARPUR COOLING TOWERS LTD, I.E, THE APPELLANT TO SET UP PNRL & SFPL WAS T O UNDERTAKE THE EXPANSION OF APPELLANT'S OPERATIONS IN SOUTH AFRICA. TILE APPELLANT HAD SET UP OPERATING SUBSIDIARIES TO WITH THE SOLE INTENT & PURPOSE OF VERTICALLY INTEGRATING ITS CORE BUSINESS ACTIVITY BY CONDUCTING FOREST OPERATIONS, PLANTATIONS FOR MANUFACTURE & SUPPLY OF TIMBER, WHICH IS THE PRIMARY INGREDIENT IN CONSTRUCTING COOLING TOWERS. THE SUBSIDIARIES TH US REPRESENTED AN EXTENDED ARM OF THE APPELLANT COMPANY ITSELF IN SOUTH AFRICA. I FURTHER FIND MERIT IN THE CONTENTION OF THE APPELLANT THAT IN THE COURSE OF RAISING FUNDS FOR INVESTMENT VIA THE EQUITY/QUASI-EQUITY ROUTE, AN ARRANGEMENT WAS EMPLOYED TILL THE TIME SUCH ARRANGE MENT WOULD BE SUBSEQUENTLY REPLACED BY EQUITY FUNDS GENERATED BY PAHARPUR. THE STAND OF TH E APPELLANT IS THAT THE LOANS MAY HAVE BEEN GRANTED TO AES BY THE BANKS, BUT THE SAME WAS IN SUBSTANCE A LOAN GRANTED TO PAHARPUR FOR ENABLING IT TO EXPAND OPERATIONS BY SETTING UP SUBSIDIARIES ABROAD. IN FACT I NOTE THAT EVEN THE ID. TPO HAS ALSO IN PRINCIPLE AGREED WITH THIS CONTENTION OF THE APPELLANT AND STATED THAT THE LOANS AVAILED BY THE AES WHICH WERE GUARANTEED BY THE APPELLANT, WERE IN SUM & SUBSTANCE OBTAINED BY THE APPELLANT AND THAT THE AP PELLANT WAS ACTUALLY THE PRINCIPAL -DEBTOR. I THEREFORE FIND SUBSTANTIAL FORCE IN THE ID, AR'S SUBMISSION THAT THE ASSESSEE'S EXPECTATION FROM THE GUARANTEE PROVIDED FOR THE THIRD-PARTY BOR ROWINGS OF AES, WAS NEVER TO EARN A GUARANTEE FEE. THIS, ACCORDING TO THE APPELLANT IS EVIDENT AS IN A THIRD PARTY SCENARIO NO ENTITY WOULD HAVE LENT ANY FUNDS TO AES GIVEN THEIR SKEWED DEBT - EQUITY RATIO EVIDENT FROM ITS BALANCE SHEET, AND THAT ON THE OTHER HAND, AES COUL D NOT HAVE TAKEN THE LOAN FROM ANY THIRD PARTY LENDER ON A STANDALONE BASIS HAD THE APPELLAN T NOT BEEN PROVIDED THE CORPORATE GUARANTEE FOR THE SAME. THUS IT IS CLEAR THAT THE I NTENTION OF THE APPELLANT FOR GUARANTEEING ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 16 THE AES WAS THAT OF AN INVESTOR AND NOT A GUARANTOR , IN LIGHT OF THE SAME, IT WOULD BE APPROPRIATE TO CLASSIFY THE GUARANTEE PROVIDED TO I NFUSE THIRD PARTY FUNDS AS A SHAREHOLDER SERVICE MERITING NO MONETARY CONSIDERATION. THEREFO RE, IN VIEW OF THE JUDGMENT OF THE ITAT, THERE IS LEGAL MERIT IN THE CONTENTION OF THE APPEL LANT THAT THE INTERNATIONAL TRANSACTION PERTAINING TO THE PROVISION OF CORPORATE GUARANTEE ON BEHALF OF THE AE IS A PURE SHAREHOLDER SERVICE AND HENCE MERITS NO CHARGE. 5. THERE IS NO GAINSAYING THAT IN THE FACTUAL MATRI X PRESENT IN THE CASE, THE CORPORATE GUARANTEE TANTAMOUNT TO THE FUNCTIONS OF A SHAREHOL DER. THEREFORE, I FIND MYSELF IN AGREEMENT WITH THE CONTENTION THAT THERE CAN BE NO ELEMENT OF SERVICE IN A SHAREHOLDER'S FUNCTION AS THERE IS NO BENEFIT DERIVED BY THE SHAREHOLDER IN T HE SAID BUSINESS, EXCEPT THAT OF EARNING MORE DIVIDEND INCOME, WHICH IN ANY CASE WAS TAXABLE IN THE HANDS OF THE SAID SHAREHOLDER, 6. I FURTHER NOTE THAT THE ID, AR HAS ALSO FORCEFUL LY ARGUED THAT EVEN IN CASE THE ISSUANCE OF CORPORATE GUARANTEE IS HELD TO BE AN ' INTERNATIONAL TRANSACTION ', THEN APPROPRIATE INTERNAL CUP WAS AVAILABLE TO BENCHMARK THE CORPORATE GUARAN TEE. THE LD. AR SUBMITTED THAT THE APPELLANT HAD ALSO OBTAINED GUARANTEES FROM EXTERNA L BANKS/FIS TO WHOM GUARANTEE COMMISSION IN RANGE OF 0.35% TO 0.5% WAS PAID. IN V IEW OF THE JUDGMENT RENDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS EVEREST KANTO CYLINDER LTD (358 ITR 57) RENDERED ON THIS SPECIFIC ISSUE, THE ID, AR ALTERNA TIVELY CLAIMED THAT THE GUARANTEE COMMISSION FEE OF 0.35%-0,5% ACTUALLY PAID BY THE C OMPANY TO THE BANK WAS A FAIR & REASONABLE PARAMETER AND THE MOST APPROPRIATE BENCH MARK FOR DETERMINING ALP OF CORPORATE GUARANTEES ISSUED TO AES. I HAVE TAKEN NOTE OF THE FOREGOING ARGUMENT, BUT IN LIGHT OF THE FINDINGS SET OUT IN THE EARLIER PARAGRAPHS WHEREIN THE ISSUANCE OF CORPORATE GUARANTEES BY APPELLANT TO AES HAS BEEN HELD TO BE A SHAREHOLDER ACTIVITY NOT MERITING ANY ADJUSTMENT, I AM NOT INCLINED TO ADJUDICATE ON THIS ASPECT AS THIS I S NOW ONLY OF ACADEMIC IMPORTANCE. OVERALL CONSIDERING THE FACTS AND CIRCUMSTANCES, AN D FOR THE REASONS SET OUT ABOVE, IMPUGNED ORDER FIND THAT THE LD. AO /TPO WAS NOT J USTIFIED IN WORKING OUT THE TOTAL GUARANTEE COMMISSION AT RS.1,50,45,000/-. THE SAID ADJUSTMENT OF RS.1,50,45,000/- IS ACCORDINGLY ORDERED TO BE DELETED. GROUND NO.7 OF A PPEAL THEREFORE STANDS ALLOWED . 15. MR. SHANKAR VEHEMENTLY CONTENDS DURING THE COUR SE OF HEARING THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THA T A CORPORATE GUARANTEE DOES NOT AMOUNT TO AN INTERNATIONAL TRANSACTIONS U/ S 92B OF THE ACT. HE REFERS THE LEGISLATIVES AMENDMENT IN SEC. 92B BY WAY OF E XPLANATION INSERTED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT 01.04.2 012. HIS FURTHER CASE; WITHOUT PREJUDICE TO EARLIER STAND, IS THAT EVEN IF THE SAID FOREGOING AMENDMENT IS HELD AS CARRYING PROSPECTIVE EFFECTIVE ONLY, THE IMPUGNED ALP ADJUSTMENT IS LIABLE TO BE UPHELD AT LEAST QUA THE LAST ASSESSMEN T YEARS INVOLVED HEREIN I.E. 2013-14. WE FIND NO MERIT IN EITHER OF THE REVENUE S ARGUMENTS. THIS TRIBUNALS CO-ORDINATE BENCHS DECISION TAKES NOTE THE VERY AMENDMENT IN ITA NO.1958KOL/2017 ACIT CIRCLE-6(2) KOLKATA VS. M/S EMAMI LTD . DATED ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 17 03.04.2019 TO HOLD THAT SUCH A CORPORATE GUARANTEE DOES NOT AMOUNT TO AN INTERNATIONAL TRANSACTIONS EVEN IN ASSESSMENT YEAR 2013-14 AS UNDER:- 8. GROUND NO. 2 TO 4 RELATE TO CORPORATE GUARANTEE FEE EXTENDED BY THE ASSESSEE COMPANY TO ITS ASSOCIATE ENTERPRISE (AE). 9. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO THE SUBMISSION OF THE PARTIES AND PERUSING THE JUDICIAL DECISIONS RELIED UPON BY THE LD. AR, WE FIND THAT THE ISSUE INVOLVED, IN RESPECT TO CORPORATE GUARANTEE, IN THE PRESENT APPEAL IS NO LONGER RES INTEGRA. WE NOTE THAT FINANCIAL GUARANTEE IS A PROM ISE MADE BY A PERSON (THE GUARANTOR) TO A LENDER(GUARANTEED PARTY) PROMISING TO PAY THE LENDER THE MONEY OWED TO IT BY THE BORROWER (OBLIGOR) ON WHOSE BEHAL F THE GUARANTEE IS GIVEN, IF THE BORROWER FAILS TO PAY BACK THE DEBT DUE TO THE LEND ER. A GUARANTEE TO A LENDER THAT A LOAN WILL BE REPAID, GUARANTEED BY A COMPANY OTHE R THAN THE ONE WHO TOOK THE LOAN, IS CALLED A CORPORATE GUARANTEE. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT EXTENDING CORPORATE GUARANTEE FOR BORROWINGS BY SUBSIDIARIES WAS A SHAR EHOLDER ACTIVITY, THAT IT WAS NOT AN INTERNATIONAL TRANSACTION, THAT NO FEE WAS WARRA NTED SINCE NO COST WAS INCURRED, AND THAT BANK GUARANTEES WERE NOT COMPARABLE TO COR PORATE GUARANTEES SINCE THE BUSINESS OF THE BANK WAS DIFFERENT FROM THAT OF A C ORPORATE. BEFORE US, LD DR FOR THE REVENUE SUBMITTED THAT THE RE ARE PLETHORA OF JUDICIAL PRONOUNCEMENTS WHEREIN IT HAS BEEN HELD THAT THE CO RPORATE GUARANTEE IS IN THE NATURE OF SERVICE PROVIDED BY THE TAXPAYER TO ITS A SSOCIATE ENTERPRISES (AES) AND HENCE SHOULD BEAR A CHARGE. THE JUDGMENTS HAVE EXPL ICITLY HELD THAT AFTER THE INCOME TAX ACT,1961 WAS AMENDED BY THE FINANCE ACT, 2012 T O INCLUDE 'GUARANTEE' WITHIN THE DEFINITION OF 'INTERNATIONAL TRANSACTION' WITH RETROSPECTIVE EFFECT FROM 01.04.2002, THE CORPORATE GUARANTEE SHOULD BE BENCHMARKED FROM ARMS LENGTH PERSPECTIVE. 10. HOWEVER, AFTER HEARING BOTH THE PARTIES, WE NOT E THAT THERE ARE PLETHORA OF JUDICIAL PRONOUNCEMENTS WHEREIN IT HAS BEEN HELD THAT CORPOR ATE GUARANTEE DOES NOT CONSTITUTE AN INTERNATIONAL TRANSACTION AND ACCORDI NGLY THERE SHOULD NOT BE A CHARGE. WE NOTE THAT IN ASSESSEES CASE UNDER CONSIDERATION , THE ASSESSEE, IN ORDER TO AVOID PROTRACTED LITIGATION MADE AN ESTIMATED ADJUSTMENT OF RS.51,50,327/- @ 1% OF THE CORPORATE GUARANTEE AMOUNT AS FEES FOR CORPORATE GU ARANTEE, FOR INCOME TAX PURPOSES. HOWEVER, THE TPO REJECTED THE METHOD ADOP TED BY THE ASSESSEE AND RECOMPUTED THE ARMS LENGTH PRICE BY MAKING UPWARD ADJUSTMENT. WE NOTE THAT THE ASSESSEE HAS EXTENDED THIS CORPORA TE GUARANTEE AS A SHAREHOLDER ACTIVITY HENCE THE ADJUSTMENT SHOULD NOT BE MADE. T HE PRIMARY OBJECT OF THE ASSESSEE IS TO HELP THE SUBSIDIARY COMPANY AND PROT ECT ITS INTEREST AND THERE IS NO OBJECT OF THE ASSESSEE COMPANY TO EARN THE INTEREST INCOME BY FURNISHING THE CORPORATE GUARANTEE TO THE ASSOCIATED ENTERPRISES. WE NOTE THAT IN THE JUDGMENT OF THE CO-ORDINATE BENCH OF ITAT AHMADABAD, IN THE CAS E OF MICRO LINK LIMITED VS. ACIT [ TS-568-ITAT-2015 ] (AHD) WHEREIN THE CO-ORDINATE BENCH HAS HELD THAT CORPORATE GUARANTEE DOES NOT CONSTITUTE INTERNATION AL TRANSACTION AS PER SECTION 92B OF THE ACT AS AMENDED BY THE FINANCE ACT, 2012. THE RELEVANT EXTRACTS OF THE JUDGMENT IS REPRODUCED AS UNDER: ON A CONCEPTUAL NOTE, THUS, THERE IS A VALID SCHOO L OF THOUGHT THAT THE CORPORATE GUARANTEES CAN INDEED BE A MODE OF OWNERS HIP CONTRIBUTION, PARTICULARLY WHEN AS IS OFTEN THE CASE, WHERE SUCH A GUARANTEE IS GIVEN, IT ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 18 COMPENSATES FOR THE INADEQUACY IN THE FINANCIAL POS ITION OF THE BORROWER; SPECIFICALLY THE FACT THAT THE SUBSIDIARY DOES NOT HAVE ENOUGH SHAREHOLDERS FUNDS. THERE CAN BE NUMBER OF REASONS, INCLUDING RE GULATORY ISSUES AND MARKET CONDITIONS IN THE RELATED JURISDICTIONS, IN WHICH SUCH A CONTRIBUTION, BY WAY OF A GUARANTEE, WOULD JUSTIFY TO BE A MORE APPR OPRIATE AND PREFERRED MODE OF CONTRIBUTION VIS-A-VIS EQUITY CONTRIBUTION ... ' ' ... IN OTHER WORDS, THESE GUARANTEES WERE SPECIFI CALLY STATED TO BE IN THE NATURE OF SHAREHOLDER ACTIVITIES. THE ASSESSEE'S CL AIM OF THE GUARANTEES BEING IN THE NATURE OF QUASI CAPITAL, AND THUS BEING IN T HE NATURE OF A SHAREHOLDER'S ACTIVITY, IS NOT REJECTED EITHER. THE CONCEPT OF IS SUANCE OF CORPORATE GUARANTEES AS A SHAREHOLDER ACTIVITY IS NOT ALIEN T O THE TRANSFER PRICING LITERATURE IN GENERAL.. '.... WE HAVE NOTICED THAT THE ' OECD TRANSFER PRICING GUIDELINES FOR MULTINATIONAL ENTERPRISES AND TAX ADMINISTRATIONS S PECIFICALLY RECOGNIZES THAT AN ACTIVITY IN THE NATURE OF SHAREHOLDER ACTIVITY, WHICH IS SOLELY BECAUSE OF OWNERSHIP INTEREST IN ONE OR MORE OF THE GROUP MEMB ERS, I.E. IN THE CAPACITY AS SHAREHOLDER ' WOULD NOT JUSTIFY A CHARGE TO THE RECIPIENT COMPANI ES '. IT IS THUS CLEAR THAT A SHAREHOLDER ACTIVITY, IN ISSUA NCE OF CORPORATE GUARANTEES, IS TAKEN OUT OF AMBIT OF THE GROUP SERVICES. CLEARL Y, THEREFORE, AS LONG AS A GUARANTEE IS ON ACCOUNT OF, WHAT CAN BE TERMED AS ' SHAREHOLDER'S ACTIVITIES ', EVEN ON THE FIRST PRINCIPLES, IT IS OUTSIDE THE AMB IT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF ARM'S LENGTH PRICE. ' ' .... WE ARE IN AGREEMENT WITH THESE VIEWS. THERE CAN THUS BE ACTIVITIES WHICH BENEFIT THE GROUP ENTITIES BUT THESE ACTIVITIES NEE D NOT NECESSARILY BE ' PROVISION FOR SERVICES '. THE FACT THAT THE OECD CONSIDERS SUCH ACTIVITIES IN THE SERVICES SEGMENT DOES NOT ALTER THE CHARACTER O F THE ACTIVITIES. WHILE THE GROUP ENTITY IS THUS INDEED BENEFITED BY THE SHAREH OLDER ACTIVITIES, THESE ACTIVITIES DO NOT NECESSARILY CONSTITUTE SERVICES . .. ' ' .... THE ISSUANCE OF FINANCIAL GUARANTEE IN FAVOU R OF AN ENTITY, WHICH DOES NOT HAVE ADEQUATE STRENGTH OF ITS OWN TO MEET SUCH OBLI GATIONS, WILL RARELY BE DONE. THE VERY COMPARISON, BETWEEN THE CONSIDERATIO N FOR WHICH BANKS ISSUE FINANCIAL GUARANTEES ON BEHALF OF ITS CLIENTS WITH THE CONSIDERATION FOR WHICH THE CORPORATE ISSUE GUARANTEES FOR THEIR SUBSIDIARI ES, IS ILL CONCEIVED. ... THESE GUARANTEES DO NOT HAVE ANY IMPACT ON IN COME, PROFITS, LOSSES OR ASSETS OF THE ASSESSEE. THERE CAN BE A HYPOTHETICAL SITUATION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND, THEREFORE, THE E NTERPRISE MAY HAVE TO PAY THE GUARANTEE AMOUNTS BUT SUCH A SITUATION, EVEN IF THAT BE SO, IS ONLY A HYPOTHETICAL SITUATION, WHICH ARE, AS DISCUSSED ABO VE, EXCLUDED. WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED EN TERPRISE, WHICH DOES NOT COST ANYTHING TO THE ASSESSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEONE ELS E DURING THE COURSE OF ITS NORMAL BUSINESS, SUCH AN ASSISTANCE OR ACCOMMODATIO N DOES NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, A ND, THEREFORE, IT IS OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTIO N 92B (1) OF THE ACT .... ' 11. WE RELY ON THE JUDGMENT OF THE CO-ORDINATE BENC H OF ITAT, DELHI IN THE CASE OF BHARTI AIRTEL LTD. VS. ACIT IN I.T.A. NO. 5816/KOL/2012 , WHEREIN THE DEFINITION OF INTERNATIONAL TRANSACTION IN VIEW OF THE AMENDMENTS , VIDE FINANCE ACT, 2012, HAD BEEN DISCUSSED AND IT WAS HELD THAT THE PROVISION O F CORPORATE GUARANTEE IS NOT AN ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 19 INTERNATIONAL TRANSACTION. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED AS UNDER: PARA 23 .... THE ISSUE WHETHER GIVING A CORPORATE GUARANTE E AMOUNTS TO AN INTERNATIONAL TRANSACTION' HAS NOT BEEN RAISED OR DISCUSSED IN THE CASES WHERE ALP ADJUSTMENTS HAVE BEEN UPHELD AND THEREFOR E THOSE DECISIONS CANNOT BE PUT AGAINST THE TAXPAYER ..... ' ' PARA 27 .... THE EXPLANATION INSERTED VIDE FINANCE ACT 2012 IS TO BE READ IN CONJUNCTION WITH THE MAIN PROVISION AND IN HARMONY WITH THE SCHEME OF PROVISION UNDER SECTION 92B OF THE ACT. IT IS ESSEN TIAL THAT IN ORDER TO BE AN 'INTERNATIONAL TRANSACTION' PROVIDING CORPORATE GUA RANTEE SHOULD HAVE A BEARING ON THE PROFITS, INCOME LOSSES OR ASSETS OF THE ENTERPRISE ...:' ' PARA 31 . THE CONTENTS OF THE EXPLANATION FORTIFIES, RATHER THAN MITIGATES, THE SIGNIFICANCE OF EXPRESSION 'HAVING A BEARING ON PROFITS, INCOME, LOSSES OR ASSETS' APPEARING IN SECTION 92B( 1) OF THE ACT ... ' ' PARA 33 .... THE ONUS IS ON THE TAX AUTHORITIES TO DEMONST RATE THAT THE TRANSACTION IS OF SUCH NATURE AS TO HAVE 'BEARING O N PROFITS, INCOME, LOSSES OR ASSETS OF THE ENTERPRISE' AND HAS TO BE ON REAL BAS IS EVEN IF IN PRESENT OR IN FUTURE, AND NOT ON CONTINGENT OR HYPOTHETICAL BASIS ....' PARA 32 .... THERE CAN BE A SITUATION IN WHICH A GUARANTEE DEFAULT TAKES PLACE AND THEREFORE, THE ENTERPRISE MAY HAVE TO PAY THE G UARANTEE AMOUNT BUT SUCH A SITUATION EVEN IF THAT BE SO IS ONLY A HYPOTHETIC AL SITUATION .....' ' PARA 32 ..... WHEN AN ASSESSEE EXTENDS AN ASSISTANCE TO THE ASSOCIATED ENTERPRISE WHICH DOES NOT COST ANYTHING TO THE ASSE SSEE AND PARTICULARLY FOR WHICH THE ASSESSEE COULD NOT HAVE REALIZED MONEY BY GIVING IT TO SOMEONE ELSE DURING THE COURSE OF ITS NORMAL BUSINESS, SUCH AN ASSISTANCE OR ACCOMMODATION DOES NOT HAVE ANY BEARING ON ITS PROF ITS, INCOME, LOSSES OR ASSETS AND THEREFORE IT IS OUTSIDE THE AMBIT OF INT ERNATIONAL TRANSACTION UNDER SECTION 92B(1) OF THE ACT. ...' ' PARA 35 .... IN THE CASE OF GE CAPITAL CANADA -VS- THE QUE EN, THE TAX COURT OF CANADA HAS INDEED DEALT WITH ALP DETERMINATION O F THE GUARANTEE FEES, BUT THEN IT WAS DONE IN THE LIGHT OF THEIR DOMESTIC LAW PROVISIONS WHICH ARE QUITE AT VARIANCE WITH THE INDIAN TRANSFER PRICING LEGISLATI ON .....' SIMILAR VIEWS HAVE BEEN HELD BY VARIOUS COORDINATE BENCHES, INCLUDING JURISDICTIONAL AS UNDER: I) TEGA INDUSTRIES LTD. VS. DCIT [I.T.A. NO. 912/2 012 DATED. 03.08.2016, [KOL TRIB.] II) MARICO LTD. VS. ACIT [TS-411-ITAT-2016 (MUM)-TP ] III) TVS LOGISTICS SERVICES LTD. [TS-324-ITAT-2016 (CHNY)-TP] IV) MANUGRAPH INDIA LTD. [TS 324-ITAT 2016 (MUM)-TP ] V) SIRO CLINPHARM PVT. LTD. VS. DCIT [ITS-185- ITAT 2016 (MUM)-TP] VI) APOLLO HEALTH STREET LTD. VS. DCIT [TS-184- ITA T 2014 (HYD)-TP] THEREFORE, BASED ON THE ABOVE MENTIONED PRECEDENTS, WE NOTE THAT THE PROVISION OF CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSAC TION. HENCE, RESPECTFULLY FOLLOWING ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 20 THE JUDGMENT OF THE CO-ORDINATE BENCHES CITED ABOVE , WE CONFIRM THE FINDINGS OF THE LD. CIT(A) . 16. WE ADOPT FOREGOING DETAILED REASONING MUTATIS MUTANDIS TO AFFIRM THE CIT(A)S IDENTICAL FINDINGS UNDER CHALLENGE HOLDING A CORPORATE GUARANTEE AS NOT AMOUNTING TO AN INTERNATIONAL TRANSACTIONS U/S. 92B OF THE ACT. ALL THESE CORRESPONDING GROUNDS FAIL THEREFORE. 17. THE REVENUES 8 TH TO 9 TH AND 11 TH TO 12 TH SUBSTANTIVE GROUNDS IN ALL THESE THREE APPEAL(S) SEEK TO REVIVE THE TPOS PROPOSED A CTION AND ASSESSING OFFICERS ALP ADJUSTMENT OF INTEREST AMOUNT OF 83,71,497/-, 279,79,306 AND 170,64,590/-; RESPECTIVELY AS DELETED IN THE CIT(A) S IDENTICAL DETAILED DISCUSSION. THE SAME READS AS UNDER:- 20. DECISION : 1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF T HE APPELLANT-COMPANY IN THE LIGHT OF THE ADJUSTMENTS MADE BY THE LD. TPO/ AO. THE QUE STION INVOLVED ILL THE PRESENT GROUND IS THE DETERMINATION OF THE ALP OF THE LOANS / ADVANCES GIVEN BY THE APPELLANT TO ITS AES, PML & SFPL WHICH WAS DENOMINATED IN USD & RAND CURRENCY RESPECTIVELY. THE DETAILS OF TILE LOANS & ADVANCES IN QUESTION ARE AS FOLLOWS: NAME OF AE NATURE OF TRANSACTION AMOUNT PAHARPUR MAURITIUS LTD. LOAN GIVEN 13,65,96,573 SAFIND FOREST PRODUCTS LTD LOAN GIVEN 36,29,946 SAFIND FOREST PRODUCTS LTD. ADVANCE FOR PURCHASE OF TIMBER 45,95,630 2. FROM THE TP STUDY REPORT, I FIND THAT THE APPELL ANT HAS BENCHMARKED THE TRANSACTIONS AT SI NO. (A) & (B) ABOVE, BY APPLYING INTERNAL CUP METHOD. FROM THE ECONOMIC ANALYSIS I FIND THAT THE APPELLANT CONSIDE RED THE ACTUAL INTEREST RATE OF 3.6% PAID BY IT ON THE EXTERNAL COMMERCIAL BORROWIN GS PROCURED IN US DENOMINATED CURRENCY TO BE MOST APPROPRIATE PARAMETER TO BENCHM ARK THE INTEREST RATE ON THE LOANS ADVANCED TO THE AES. THE APPELLANT HAD THEREF ORE SUO MOTO OFFERED INTEREST INCOME COMPUTED WITH REFERENCE TO THE ALP INTEREST RATE OF 3.6% DETERMINED ON THE LOANS ADVANCED TO THE AES. WITH REGARD THE ADVANCES MENTIONED AT SI. NO. (C) ABOVE, IT WAS THE APPELLANT'S CASE THAT THE SUM OF RS.45.95 LACS WAS IN THE NATURE OF TRADE ADVANCE GIVEN TO SFPL IN THE COURSE OF BUSINE SS FOR PURCHASE OF TIMBER AND THEREFORE THE SAME COULD NOT BE EQUATED WITH A 'LOA N' AND HENCE NO BENCHMARKING EXERCISE WAS CARRIED OUT IN THIS REGARD. 3. ON EXAMINATION OF THE TRANSFER PRICING ORDER, I FIND THAT THE LD. TPO WAS NOT IN AGREEMENT WITH THE ASSESSEE'S CONTENTIONS AND THE T P STUDY OF THE APPELLANT. FROM THE SHOW CAUSE NOTICE CSCN') ISSUED BY THE LD. TPO, IT APPEARS THAT ACCORDING TO HIM THE LOANS SHOULD HAVE BEEN BENCH MARKED AT THE PROBABLE COST OF LOAN IF THE AES HAD INDEPENDENTLY OBTAINED SUCH LOANS FROM FOREIGN MARKETS AND THAT SUCH INTEREST ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 21 SHOULD BE APPROPRIATELY ADJUSTED IN VIEW OF THE FAC TORS NORMALLY GOVERNING INTEREST ON LOAN PREVAILING IN FOREIGN MARKETS. ACCORDING TO TH E SCN OF LD. TPO, THE INTEREST RATES PAID BY AES TO BANKS WAS ALSO NOT THE APPROPR IATE PARAMETER SINCE WHILE ADVANCING THE LOAN & DETERMINING THE INTEREST RATE, THE BANK DID NOT CONSIDER THE CREDIT RATING OF THE AE ON STAND-ALONE BASIS BUT FO R THE GROUP AS A WHOLE. THE LD. TPO THEREAFTER ELABORATED IN HIS SCN THE DIFFERENT PARAMETERS FOR ASCERTAINMENT OF CREDIT RATING SET OUT BY STANDARD & POOR IN 2002-20 04 BOOKLET AND ALSO AS TO HOW THE CUP ANALYSIS SHOULD BE PERFORMED BASED ON THE CREDI T RATING & MARKET INFORMATION. AFTER ANALYZING THE FINANCIALS OF THE AES AND HAVIN G REGARD TO THE PARAMETERS SET OUT BY S&P IN THEIR BOOKLET FOR 2002-2004, THE TPO CONC LUDED THAT BOTH THE AES WERE HIGHLY VULNERABLE TO RISK AND THEREFORE ANY BANK WO ULD COMMAND SIGNIFICANTLY HIGH INTEREST RATE IN ORDER TO ADVANCE LOAN TO THE AES, IF THE SAME IS CONSIDERED ON STAND- ALONE BASIS. WITH REGARD TO THE TRADE ADVANCES GIVE N BY THE APPELLANT TO SFPL, THE TPO WAS OF THE VIEW THAT IT WAS IN THE NATURE OF 'I NTEREST FREE LOAN' AND THAT THE SAME WAS ALSO REQUIRED TO BE BENCHMARKED ALONG WITH THE LOANS ADVANCED BY THE APPELLANT TO ITS AES. 4. I HOWEVER NOTE THAT AFTER ELABORATELY DISCUSSING THE ABOVE METHODOLOGY OF ASCERTAINING THE INTEREST RATE ON LOAN AT THE PROBA BLE COST OF LOAN IF THE AES HAD INDEPENDENTLY OBTAINED SUCH LOANS FROM FOREIGN MARK ETS, THE LD. TPO SUDDENLY SHIFTED HIS TRACK AND MOVED ON TO PROPOSE AN ALTOGE THER NEW METHODOLOGY TO BENCHMARK THE TRANSACTION IN THE SAME SCN. THE LD. TPO THEREAFTER STATED THAT THE INTEREST RATE ON THE LOANS ADVANCED TO THE AE SHOUL D BE PRICED AT THE COST OF FUNDS IN THE HANDS OF THE APPELLANT. FOR DETERMINATION OF CO ST OF FUNDS, THE LD. TPO WAS OF THE VIEW THAT THE RETURN ON CAPITAL EMPLOYED (' ROCE ') WAS THE MOST APPROPRIATE METHOD. ACCORDING TO LD. TPO THE COST OF FUNDS REPR ESENTED THE RETURN FOREGONE BY THE APPELLANT BY DECIDING TO ADVANCE LOANS TO AES. AS PER THE ID. TPO, ROCE WAS A FUNCTION OF PROFIT BEFORE INTEREST & TAX ( PBIT ') TO CAPITAL EMPLOYED AND THUS WORKED OUT THE ROCE AT 28.39% IN HIS SCN. THE LD. TPO ACCO RDINGLY SHOW CAUSED THE APPELLANT TO EXPLAIN AS TO WHY THE LOANS / ADVANCES GIVEN TO AES SHOULD NOT BE BENCHMARKED AT THE RATE OF 28.39%. 5. IN THE PAPER BOOK FURNISHED, THE APPELLANT HAS E NCLOSED THE EXPLANATION FURNISHED IN RESPONSE TO THE SCN ISSUED BY THE LD. TPO. I FIN D THAT IN ITS SUBMISSIONS THE APPELLANT SUBSTANTIATED THE APPLICATION OF INTERNAL CUP AND DETERMINATION OF ALP OF LOANS AT 3.6%. THE APPELLANT FURTHER SUBMITTED THE DETAILS OF LOANS SUBSEQUENTLY OBTAINED BY ITS AES FROM EXTERNAL PARTIES WHICH RAN GED BETWEEN 2.25% TO 2.6% TO SHOW THAT THE ALP OF 3.6% DETERMINED BY IT WAS FAIR & REASONABLE. THE APPELLANT POINTED OUT THE SPECIFIC DEFECTS & FALLACIES IN THE METHODOLOGY PUT FORTH BY THE LD. TPO IN THE SHOW CAUSE NOTICE. THE APPELLANT ALSO EX PLAINED THE INHERENT FALLACIES IN THE LD. TPO'S DETERMINATION OF COST OF FUNDS AND AL SO APPLICATION OF ROCE METHOD. THE APPELLANT ALSO BROUGHT ON RECORD SEVERAL JUDGME NTS OF THE COORDINATE BENCHES OF THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL WHEREIN I T HAS BEEN HELD THAT THE RELEVANT CURRENCY RELATED LIBOR RATE WAS THE MOST APPROPRIATE BENCHMARK FOR ARRIVIN G AT ALP OF INTER-CORPORATE LOANS. 6. FROM THE IMPUGNED ORDER, I FIND THAT HAVING CONS IDERED THE OBJECTIONS RAISED BY THE APPELLANT TO THE SCN, THE LD. TPO HIMSELF ABAND ONED THE METHODOLOGY PROPOUNDED BY HIM IN THE SCN AND ALTOGETHER SHIFTED HIS STANCE BY ADOPTING AN ALTOGETHER DIFFERENT METHODOLOGY FOR DETERMINATION OF ALP, WHICH DID NOT HAVE SANCTION OR SUPPORT OF THE FIVE METHODS SET OUT IN RULE 10B. I FURTHER NOTE THAT ALTHOUGH IN TILE ORDER U/S 92CA(3), THE AO FORSAKE TILE METHODOLOGY PROPOSED IN SCN AND ADOPTED ALTOGETHER NEW METHODOLOGY FOR DETERMIN ATION OF ALP, NO OPPORTUNITY OF HEARING WAS AFFORDED TO THE APPELLANT RESULTING IN MISCARRIAGE OF JUSTICE. IN MY CONSIDERED OPINION, IT WAS INCUMBENT ON THE LD. TPO NOT ONLY TO SET FORTH THE REASONS ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 22 AS TO WHY INTERNAL CUP ADOPTED BY THE APPELLANT WAS NOT ACCEPTABLE BUT IT WAS ALSO INCUMBENT ON HIM TO DISCLOSE TO THE APPELLANT THE N EW METHODOLOGY WHICH HE HAD ADOPTED TO DETERMINE ALP. MOREOVER WHEN THE METHODO LOGY ADOPTED BY ID. TPO WAS NOT IN CONFORMITY WITH ANY OF THE FIVE METHODS PRES CRIBED IN RULE 10B, IT WAS OBLIGATORY ON HIS PART TO GRANT OPPORTUNITY OF HEAR ING TO THE APPELLANT. 7. ON PERUSAL OF THE IMPUGNED ORDER, I FURTHER NOTE THAT THE LD. TPO DID NOT BRING ON RECORD ANY COGENT REASON OR EXPLANATION AS TO WHY T HE APPLICATION OF INTERNAL CUP BY THE APPELLANT WAS NOT THE MOST APPROPRIATE BENCH MA RKING EXERCISE, PARTICULARLY WHEN THE INTEREST RATE ADOPTED BY TILE APPELLANT WA S THAT OF A FOREIGN CURRENCY DENOMINATED BORROWINGS WHICH WAS ACTUALLY AVAILED A T ARM'S LENGTH BY THE APPELLANT ITSELF FROM AN UNRELATED PARTY. INSTEAD IT IS NOTED THAT THE LD. TPO CALCULATED THE ALP AS A FUNCTION OF COST OF FUNDS AND AN APPROPRIATE C REDIT SPREAD THEREON. ACCORDING TO LD. TPO, THE COST OF FUNDS WAS NOW A FUNCTION OF TH E RETURN ON INVESTMENTS AND THE COST OF DEBT IN THE HANDS OF THE APPELLANT. THE LD. TPO AGGREGATED THE VARIOUS RETURNS IN FORM OF INTEREST, DIVIDEND, CAPITAL APPR ECIATION ETC. DERIVED BY THE APPELLANT FROM ITS RANGE OF INVESTMENTS AND STATED THAT SUCH RETURN WHICH IT DERIVED FROM THE INVESTMENTS WAS THE COST OF THE FUNDS SINCE THIS RE TURN REPRESENT THE RETURN WHICH THE APPELLANT HAD FOREGONE ON THE SUMS ADVANCED TO AES. MEANING THEREBY, ACCORDING TO ID. TPO, THE RETURN ON INVESTMENT OF 14.83% CALC ULATED BY HIM, REPRESENTED THE OPPORTUNITY RETURN WHICH THE APPELLANT COULD HAVE E ARNED, HAD IT NOT LENT MONIES TO AES. THE ID. TPO ALSO CALCULATED THE COST OF DEBT A T 5.61%. THE ID. TPO THEREAFTER STATED THAT SINCE THE LOANS/ADVANCES GIVEN TO AES W ERE OUT OF MIXED POOL OF FUNDS, HE CONSIDERED THE WEIGHTED AVERAGE OF RETURN ON INV ESTMENTS AND COST OF DEBT, WHICH WORKED OUT TO 11.68%, TO BE THE COST OF FUNDS OF TH E APPELLANT. 8. AFTER DETERMINING THE ABOVE COST OF FUNDS, THE L D. TPO WAS OF THE VIEW THAT SUCH COST OF FUNDS OF SHOULD BE FURTHER INCREASED BY AN APPROPRIATE SPREAD TO COVER THE RISKS INVOLVED FOR LENDING TO SUCH VULNERABLE & LOW RATED AES. THIS SPREAD WAS DETERMINED BY THE ID. TPO AT 600 BPS. HOWEVER HOW D ID THE ID. TPO DERIVE SUCH SPREAD OF 600 BPS OR WHAT WAS THE BASIS OF ASCERTAI NMENT OF CREDIT SPREAD HAS NOWHERE BEEN SPELT OUT IN THE IMPUGNED ORDER. THE I D. TPO HAS ONLY REFERRED TO A LOAN CONNECTOR SHEET OF A SINGAPORE COMPANY FOR THE YEAR 2007 WHEREIN THE SAID SINGAPORE COMPANY IS STATED TO HAVE OBTAINED A LOAN FACILITY OF USD 200 MILLION AT 12.25% TO INFER THAT THE SPREAD THAT SHOULD BE CHAR GED BY THE APPELLANT WAS 600 BPS. HOWEVER HOW DID THE ID. TPO CONNECT THESE DOTS BETW EEN THE AFORESAID LOAN CONNECTOR SHEET OF SINGAPORE AND THE LOANS ADVANCED BY THE APPELLANT TO ITS AES IN SOUTH AFRICA & MAURITIUS IS NOWHERE DISCERNIBLE FRO M THE IMPUGNED ORDER. NEVERTHELESS, THE LD. TPO AGGREGATED THE COST OF FU NDS AND CREDIT SPREAD AND DETERMINED THE ALP INTEREST RATE AT 17.68% WHICH FA R EXCEEDED THE ALP INTEREST RATE OF 3.6% DETERMINED BY THE APPELLANT. ACCORDINGLY TH E ID. TPO PROPOSED UPWARD ADJUSTMENT OF RS.83,71,497/- WITH REFERENCE TO THE LOANS/ADVANCES GIVEN BY THE APPELLANT TO ITS AES. 9. ON EXAMINATION OF APPELLANT'S SUBMISSIONS AND TP O'S ORDER, I FIND THAT THE OBSERVATIONS MADE BY THE LD. TPO IN THE IMPUGNED TR ANSFER PRICING ORDER SUFFERED FROM APPARENT INFIRMITIES & CONTRADICTIONS. IN THE IMPUGNED TPO'S ORDER, HE HAS TAKEN INTO ACCOUNT RETURN ON INVESTMENT TO BE INTEGRAL PA RT OF COST OF FUNDS FOR DETERMINING ALP OF THE LOAN TRANSACTION. IN MY OPINION, THERE I S A FUNDAMENTAL FALLACY IN THE LD. TPO'S WORKING IN AS MUCH AS WHAT THE RETURNS THE AP PELLANT OBTAINED FROM THE INVESTMENTS MADE IN SHARES, SECURITIES, MUTUAL FUND S, LOANS & DEPOSITS ETC. HAD APPARENTLY NO BEARING ON DETERMINING THE COST OF FU NDS. ONCE ELL INVESTMENT IS MADE BY AN INVESTOR, WHAT WOULD BE THE RETURN ON SUCH IN VESTMENTS DEPENDS ON HOST OF ECONOMIC FACTORS AFFECTING THE BUSINESS OF THE INVE STEE COMPANY AND THERE CANNOT BE CORRELATION BETWEEN THE RETURN IN THE FORM OF DI VIDEND ON INVESTMENTS WITH COST OF ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 23 FUNDS. SIMILARLY INCOME BY WAY OF CAPITAL APPRECIAT ION CAN VARY FROM YEAR TO YEAR DEPENDING ON THE DECISION TO ENCASH SUCH APPRECIATI ON IN A GIVEN YEAR. IN SUCH CIRCUMSTANCES, CAPITAL APPRECIATION REALIZED IN ANY ONE GIVEN YEAR CANNOT BE TAKEN INTO ACCOUNT IN DETERMINING THE COST OF FUNDS BECAU SE REALIZATION OF CAPITAL APPRECIATION CAN VARY SUBSTANTIALLY FROM YEAR ON YE AR BASIS. MOREOVER REALIZATION IN FORM OF DIVIDEND, CAPITAL APPRECIATION, INTEREST ET C. HAS INBUILT ELEMENT OF RISK TAKEN BY AN INVESTORS AND THAT BEING THE CASE APPROPRIATE RI SK ADJUSTMENTS WAS THEN REQUIRED TO BE MADE WITH REFERENCE TO EACH OF THE INVESTMENT MADE, DEPENDING UPON THE NATURE, PERIODICALLY, ECONOMIC ACTIVITY, RISK OF TH E INSTRUMENT ETC. TO ARRIVE AT THE COST OF FUNDS. IT IS NOTED THAT NO SUCH ANALYSIS WAS CON DUCTED BY THE LD. TPO BUT HE MERELY TOOK INTO ACCOUNT THE FIGURES OF INVESTMENTS AND THE INCOME DERIVED FROM SUCH INVESTMENTS AND NO RISK ADJUSTMENT WAS MADE TO THE RETURNS DERIVED FROM THE INVESTMENTS. MOREOVER THE INCOME WHICH THE APPELLAN T HAD DERIVED WAS FROM INVESTMENTS MADE IN THE BODIES CORPORATE FUNCTIONIN G IN INDIA WHERE ECONOMIC & COUNTRY FACTORS PREVALENT WERE FAR DIFFERENT FROM S OUTH AFRICA &. MAURITIUS WHERE THE FUNDS WERE ADVANCED IN FOREIGN CURRENCY AND NOT IN INDIAN CURRENCY. IN THE CIRCUMSTANCES THE RETURN ON INVESTMENT IN INDIA COU LD NOT BE THE BASIS FOR DETERMINING ALP OF AN INTERNATIONAL TRANSACTION WHI CH WAS ADMITTEDLY CARRIED OUT IN FAR DIFFERENT ECONOMIC CIRCUMSTANCES AND THAT TOO I N FOREIGN CURRENCY TERMS I.E. USD & SA RAND. EVEN WITH REGARD TO CREDIT SPREAD OF 600 BPS ADDED TO THE COST OF FUNDS, I FIND FORCE IN THE LD AR'S SUBMISSIONS SUCH INCLUS ION WAS UNWARRANTED AND WITHOUT ANY BASIS. 10. I ALSO FIND CONSIDERABLE FORCE IN THE ID. AR'S SUBMISSIONS THAT IN DETERMINING THE ALP OF THE FUNDS BORROWED BY AES, THE RETURN ON INV ESTMENT EARNED BY THE APPELLANT COULD NOT BE TAKEN INTO CONSIDERATION AS THE RELEVA NT FACTOR. MORE SO SUCH ' RETURN ON INVESTMENT ' COULD NOT HAVE BEEN TAKEN INTO ACCOUNT BY THE LD. TPO TO DETERMINE THE ' COST OF FUNDS '. IT IS APPARENT FROM THE APPELLANT'S BALANCE SHEE T THAT SUBSTANTIAL PORTION OF ITS OWN SURPLUS FUNDS HAVE BEEN DEPLOYED IN MAKING INVESTMENTS IN SHARES OF OTHER BODIES CORPORATE AS ALSO LOANS AND DEPOSIT S. THE RETURNS DERIVED FROM THE RANGE OF INVESTMENTS REPRESENT THE EFFICACY OF THE APPELLANT'S INVESTMENT DECISIONS AND AS SUCH IT DOES NOT REFLECT THE COST OF FUNDS T O THE APPELLANT. THE ' COST OF FUNDS ' IS WHAT AN INDEPENDENTLY LENDER WOULD REQUIRE THE A PPELLANT FOR USING ITS FUNDS IN THE APPELLANT'S BUSINESS. FURTHER ONE ALSO NEEDS TO FAC TOR IN THE CURRENCY IN WHICH THE FUNDS WERE BORROWED OR FUNDS WERE LENT, SO AS TO RE MOVE THE DISSIMILARITIES. IN THE PRESENT CASE THE APPELLANT HAD DEMONSTRATED THAT BE SIDES MAKING BORROWINGS IN INDIAN CURRENCY, IT HAD ALSO BORROWED THE FUNDS FOR ITS BUSINESS PURPOSES IN US DENOMINATED SOURCES WHERE THE INTEREST WAS PAID AT THE RATE OF 3.6%. SIMILARLY THE APPELLANT HAD LENT THE FUNDS TO ITS AES IN US DENOM INATED TERMS. IN THE CIRCUMSTANCES THE COST OF FUNDS PROCURED BY THE APP ELLANT IN US DENOMINATED TERMS WAS PROPERLY DEMONSTRATED TO BE 3.6% WHICH ALONE TO BE TAKEN INTO ACCOUNT AS THE COST OF FUNDS. 11. FOR THE REASONS SET OUT ABOVE, I AGREE WITH THE APPELLANT'S CONTENTION THAT THE METHODOLOGY ADOPTED BY THE LD. TPO SUFFERED FROM NU MEROUS INFIRMITIES IN AS MUCH AS THE PREMISES ON WHICH THE WORKING OF COST OF FUN DS WAS MADE WAS INHERENTLY INAPPROPRIATE AND INCORRECT. MOREOVER THE METHODOLO GY ADOPTED AND THE WORKING MADE WAS IN CONFORMITY WITH THE METHODS PRESCRIBED IN RULE 10B. IN THE CIRCUMSTANCES THEREFORE I UPHOLD THE APPELLANT'S OB JECTION THAT THE DETERMINATION OF ALP AS MADE BY THE LD. TPO IN HIS ORDER U/S 92CA(3) COULD NOT BE UPHELD . 12. 1 FURTHER FIND IN THE LD. AR'S SUBMISSIONS THAT HAVING REGARD TO THE FACT THE APPELLANT HAD ITSELF HAD MADE THE BORROWINGS IN USD DENOMINATED TERMS BY PAYING INTEREST WITH REFERENCE TO FOREIGN LIBOR RATE; READ Y INFORMATION WAS AVAILABLE ON THE BASIS OF WHICH THE LOANS/ADVANCES GIVEN TO AE COULD BE APPROPRIATELY BENCHMARKED ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 24 BY FOLLOWING INTERNAL CUP METHOD. IN MY CONSIDERED VIEW THEREFORE, THE APPELLANT'S APPLICATION OF INTERNAL CUP AND ADOPTING ALP INTERE ST OF 3.6% WAS THE MOST APPROPRIATE & REASONABLE METHOD. 13. IT MAY BE ALSO RELEVANT TO ADD THAT THE QUESTIO N OF MANNER & METHODOLOGY OF BENCHMARKING INTER-CORPORATE LOANS IS A VEXED ISSUE AND HAS BEEN DEBATED BY VARIOUS HIGH COURTS & BENCHES OF THE INCOME-TAX TRI BUNAL. FROM THE JUDICIAL PRECEDENTS WHICH ARE AVAILABLE IN THE PUBLIC DOMAIN , I FIND THAT THE SETTLED VIEW IS THAT THE FOREIGN CURRENCY DENOMINATED LOANS ADVANCED TO AES SHOULD BE BENCHMARKED AGAINST THE RELEVANT CURRENCY DENOMINATED LIBOR RAT E. THE RELEVANT JUDICIAL PRECEDENTS IN THIS REGARD ARE AS FOLLOWS: COTTON NATURALS (I) PVT. LTD. [TS-117-HC-2015 (DEL )-TP] TATA AUTOCOMP SYSTEMS LTD. (TS-45-HC-2015(BOM)-TP) BHANSALI & CO. (TS-451-ITAT-2010(MUM)-TP) M/S FOUR SOFT LTD. VS. DCIT (ITA NO.1495/HYD/2010) DCIT VS. TECH MAHINDRA LTD. (ITA NO.1176/MUM/2010) MAHINDRA & MAHINDRA LTD. VS. DCIT (ITA NO.7999/MUM /2011) COTTON NATURALS (I) PVT. LTD. VS. DCIT, CIRCLE-3(1 ), (ITA NO.5855/DEL/2012) TATA AUTOCOMP SYSTEMS LTD. VS. ASSISTANT COMMISSIO NER OF INCOME TAX, (2012-(052)-SOT-0048-TBOM) HINDUJA GLOBAL SOLUTIONS LTD. VS. ADDL.CIT, (ITA N O.254/MUM/2013) AURINOPRO SOLUTIONS LTD., VS. ADDL. COMMISSIONER O F INCOME TAX (ITA NO.7872/MUM/2011) VVF LTD. VS. DCIT (2010-TIOL-55-ITAT-MUM) M/S AITHENT TECHNOLOGIES PVT. LTD. V/S ITO (2010-T II-134-ITAT-DEL-TP) 14. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE JUDGMENTS OF THE HIGH COURTS & INCOME-TAX APPELLATE TRIBUNAL, I HOLD THAT THE AL P DETERMINED BY THE TPO IN HIS ORDER U/S 92CA(3) WAS WHOLLY INAPPROPRIATE AND EXCE SSIVE. I FURTHER HOLD THAT THE MOST APPROPRIATE METHOD TO BE ADOPTED IN THE FACTS & CIRCUMSTANCES OF THE APPELLANT'S CASE WAS INTERNAL CUP BASED ON THE INTE REST WHICH THE APPELLANT HAD ON ITS OWN FOREIGN CURRENCY DENOMINATED BORROWINGS. AC CORDINGLY, THE LD. AO/TPO IS DIRECTED TO COMPUTE THE ALP OF LOANS AS WELL AS THE ADVANCES TOTALING TO RS.14,48,22,149/- AT THE RATE OF 3.6% PER ANNUM. A CCORDINGLY THE LD. AO/TPO SHALL RECOMPUTED SUCH INTEREST INCOME AT THE RATE OF 3.6% AFTER GIVING CREDIT FOR THE INCOME SUO MOTO OFFERED BY THE APPELLANT IN THE RETURN OF INCOME. GROUND NO. 6 IS THEREFORE PARTLY ALLOWED. MR. SHANKARS CASE DURING THE COURSE OF HEARING THA T THE TPOS ORDER HAD RIGHTLY PROPOSED THE IMPUGNED ALP ADJUSTMENT(S) IN THE NATURE OF INTEREST PERTAINING TO ASSESSEES ALLEGED INTEREST FREE ADVA NCE TO ITS OVERSEAS ASSOCIATE (AE) ENTERPRISES KEEPING IN MIND THE FACT THAT THE CORRESPONDING INTEREST RATE WHICH THE ASSOCIATE ENTERPRISE(S) WOU LD HAVE OBTAIN LOANS HAVE TO BE KEPT IN MIND. WE FIND NO MERIT IN REVENUES I NSTANT GRIEVANCE. THE FACT REMAINS THAT THIS TRIBUNALS VARIOUS CO-ORDINATE BE NCHES DECISION HAVE ALREADY ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 25 HELD THAT THE RELEVANT BENCHMARK IN CASE OF LOANS A ND ADVANCES PERTAINING TO AE HAS TO BE THE RELEVANT LOCAL CURRENCYS LIBRO R ATE (SUPRA). WE NOTICE THAT THE TPOS PROCEEDINGS IN ALL THESE THREE ASSESSMENT YEAR(S) HAD NOWHERE FOLLOWED THE SAME WHILST PROPOSING THE IMPUGNED ADJ USTMENT. 18. CASE FILE(S) FURTHER INDICATES THAT THE ASSESS EE HAD ALREADY BENCHMARKED ITS INTEREST @ 3.6% AS AGAINST THAT INV OLVING ITS VERY AE AND THIRD PARTIES @ RATES OF 2.25% TO 2.6%. MEANING THE REBY THAT THE ASSESSEE HAD ALREADY CHARGED EXCESS OF THE INTEREST RATES IN VOLVING THIRD PARTY COMPARABLES. ALL THESE CLINCHING ASPECTS HAVE GONE UNREBUTTED FROM THE REVENUE SIDE. WE THUS QUOTE HON'BLE APEX COURTS JU DGMENT IN COMMISSIONER OF INCOME TAX VS. K.Y. PILLIAH AND SONS (1967) 411 (SC) THAT THE CIT(A)S FINDINGS UNDER CHALLENGE ARE LIABLE TO BE AFFIRMED WITHOUT GOING MUCH DEEPER IN THE RELEVANT MATERIAL MATRIX ON ALL THESE COUNTS . THIS IDENTICAL SUBSTANTIAL GRIEVANCE IN ALL THREE YEARS FAILS. REVENUES FIRST APPEAL ITA NO.217/KOL/2018 RAISING THE FOREGOING GROUNDS ONLY IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES IN ABOVE TERMS. 19. WE NOW PROCEED TO DEAL WITH THE REVENUES REMAI NING APPEAL(S) ITA NOS.218 AND 219/KOL/2018 FOR LATTER TWO ASSESSMENT YEAR(S) 2012-13 & 2013-14; RESPECTIVELY. ITS IDENTICAL 4 TH SUBSTANTIVE GROUND IN BOTH THESE APPEAL(S) SEEK TO REVIVE DISALLOWANCE OF PROVISION OF FORESEEABLE LOSS IN CONTRACT REVENUE(S) AMOUNTING TO 6,85,60, 000/- AND 2,41,72,439/- (ASSESSMENT YEAR-WISE); RESPECTIVELY MADE BY THE AS SESSING OFFICER. THE CIT(A)S IDENTICAL DETAILED DISCUSSION IN ASSESSEE S FAVOUR DELETING THE SAME READS AS FOLLOWS:- 23. DECISION : 1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF T HE LD. ARS IN THE LIGHT OF THE FACTS AVAILABLE ON RECORD. FROM THE IMPUGNED ORDER I FIND THAT THE LD. AO HAD SHOW CAUSED THE APPELLANT TO EXPLAIN AS TO WHY THE FORES EEABLE LOSSES PROVIDED IN THE BOOKS OF ACCOUNTS AGAINST THE CONTRACTED REVENUES S HOULD NOT BE DISALLOWED WHILE COMPUTING THE TAXABLE INCOME FOR THE YEAR. IN RESPO NSE THE APPELLANT EXPLAINED THAT THE FORESEEABLE LOSSES WERE PROVIDED IN TERMS OF MA NDATORY ACCOUNTING STANDARDS, AS-7, NOTIFIED BY THE INSTITUTE OF CHARTERED ACCOUN TANTS OF INDIA ON A FAIR & ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 26 REASONABLE BASIS AND FOLLOWING THE ESTABLISHED DOCT RINE OF PRUDENCE. THE LD. AO HOWEVER NOT BEING AGREEABLE TO THE EXPLANATION FURN ISHED BY THE APPELLANT DISALLOWED THE FORESEEABLE LOSSES PROVIDED IN THE BOOKS CHARAC TERIZING IT TO BE CONTINGENT LOSS. 2. THE MATERIAL FACTS ON RECORD THUS SHOW THAT THE LD. AO NEITHER DISPUTED NOR DISBELIEVED THE BASIS AND WORKING OF THE PROVISION FOR FORESEEABLE LOSS WHICH THE APPELLANT MADE IN ITS BOOKS OF ACCOUNTS. IT WAS FOU ND BY THE APPELLANT THAT IT HAD OBLIGATION TO EXECUTE CERTAIN CONTRACTS WHICH IT HA D OBTAINED IN THE ORDINARY COURSE OF BUSINESS HAVING NO ESCALATION CLAUSES. IN THE CIRCU MSTANCES AT THE TIME WHEN THE APPELLANT RE-COMMENCED THE WORK ON THE CONTRACTS EA RLIER SUSPENDED, THE ASSESSEE HAD REASONABLY ADVANCED KNOWLEDGE THAT IT IS GOING TO INCUR LOSS FROM EXECUTION OF THESE CONTRACTS. IN THE CIRCUMSTANCES ON THE PRINCI PLE OF PRUDENCE, WHICH IS ONE OF THE FUNDAMENTAL ACCOUNTING PRINCIPLES AND WHICH HAS ALSO BEEN ACCEPTED UNDER SECTION 145 OF THE ACT, AS ALSO REQUIRED BY MANDATO RY AS-7, THE APPELLANT WAS OBLIGED TO CREATE PROVISION FOR SUCH LOSSES IN ITS BOOKS OF ACCOUNTS SO AS TO DECLARE TRUE, CORRECT & FAIR PROFITS IN ITS BOOKS. THE PROV ISION FOR FORESEEABLE LOSSES WAS CREATED BY THE APPELLANT IN ACCORDANCE AND CONFORMI TY WITH AS-7 WHICH WAS REGULARLY FOLLOWED BY THE APPELLANT IN THE PAST AND THEREFORE IN TERMS OF THEREOF SUCH PROVISION FOR CREATED IN FY 2011-12. THE LD. AO HAS NOT BROUG HT ON RECORD ANY SPECIFIC PROVISION OF SECTION 30 TO 44 OF THE INCOME-TAX ACT , 1961 WHICH PROHIBITED THE APPELLANT FROM CLAIMING THE DEDUCTION FOR FORESEEAB LE LOSSES DEBITED IN P&L A/C ON FAIR, EQUITABLE AND SCIENTIFIC BASIS. THE MERE FACT THE LOSS WAS TO BE INCURRED BY THE APPELLANT OVER A PERIOD OF EXECUTION OF CONTRACT AN D SUCH PERIOD SPREAD OVER MORE THAN ONE ACCOUNTING YEAR, WAS NOT REASON ENOUGH FOR THE ID. AO TO TERM SUCH LOSS AS CONTINGENT ONE. I ALSO FIND THAT IN THE SUBSEQUENT ASSESSMENT YEAR THE APPELLANT ACTUALLY EXECUTED THESE CONTRACTS WHEN SUCH LOSSES WERE INCURRED. I FIND THAT IN THE SUBSEQUENT YEAR WHEN THE LOSS WAS INCURRED, THE PRO VISION CREATED BY THE APPELLANT IN THE YEAR UNDER CONSIDERATION WAS WRITTEN BACK AN D THE LOSSES ACTUALLY INCURRED WERE ACCOUNTED IN THE BOOKS. IN THE INCOME-TAX ASSE SSMENT FOR AY 2014-15, THE AO ALLOWED THE DEDUCTION FOR THE LOSSES SO INCURRED ON BEING SATISFIED THAT THE LOSSES WERE IN FACT INCURRED AND MOREOVER THE PROVISION TH EREOF WAS DISALLOWED IN AY 2014- 15. FROM THESE FACTS THEREFORE I NOTE THAT THE APPE LLANT HAD IN FACT DEMONSTRATED THAT THE PROVISION FOR FORESEEABLE LOSS WAS NOT ONLY MAD E ON THE PRINCIPLE OF PRUDENCE AS ALSO IN CONFORMITY WITH AS-7, BUT IN FACT THE APPEL LANT INCURRED SUCH LOSSES ON EXECUTION OF CONTRACTS IN THE SUBSEQUENT YEARS AND IN SUCH YEAR NO DEDUCTION WAS CLAIMED IN THE RETURN TO THE EXTENT THE LOSSES WERE COVERED BY THE PROVISION MADE IN AY 2012-13. THESE FACTS THEREFORE LEAD TO THE CONCL USION THAT THE PROVISION FOR LOSS CREATED BY THE APPELLANT WAS NOT ONLY SCIENTIFIC BA SIS BUT THE SAME WAS PROVIDED HAVING REGARD TO THE FACTS & CIRCUMSTANCES OF THE C ASE WHICH THE APPELLANT WAS ABLE TO DEMONSTRATE IN REALITY IN THE SUBSEQUENT YEAR. 3. I ALSO OBSERVE THAT THE APPELLANT'S CLAIM FOR DE DUCTION OF FORESEEABLE LOSSES IN EXECUTION OF CONTRACTS IS AN ALLOWABLE DEDUCTION IS SUPPORTED BY THE FOLLOWING JUDGMENTS: MAZAGON DOCK PVT LTD VS DCIT (29 SOT 356) (ITAT MUM BAI ) 'THE QUESTION THAT CAME UP FOR CONSIDERATION WAS AS TO WHETHER THE ANTICIPATED LOSS ON THE VALUATION OF FIXED PRICE CO NTRACT, IN VIEW OF THE MANDATORY REQUIREMENTS OF THE AS-7, WAS TO BE ALLOW ED IN THE YEAR IN WHICH THE CONTRACT HAD BEEN ENTERED INTO OR IT WAS TO BE SPREAD OVER A PERIOD OF CONTRACT, AS WAS DONE BY THE ASSESSEE IN EARLIER YE ARS. AS FAR AS THE CHANGE IN THE METHOD OF VALUATION OF WORK-IN-PROGRESS WAS CONCERNED, IT COULD NOT BE DISPUTED THAT IN VIEW OF MANDATORY REQUIREMENTS OF THE AS-7, IT WAS A BONA FIDE CHANGE IN THE METHOD OF VALUATION OF WORK-IN-P ROGRESS, PARTICULARLY IN VIEW OF THE QUALIFICATION MADE IN THIS REGARD BY STATUTO RY AUDITORS AS WELL AS BY THE ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 27 COMPTROLLER & AUDITOR GENERAL OF INDIA. THEREFORE, THE OBSERVATION OF THE COMMISSIONER (APPEALS) THAT THE ASSESSEE HAD BOOKED BOGUS LOSS WAS NOT CORRECT. AS FAR AS THE BASIS OF ESTIMATION WAS CONC ERNED, THE SAME WAS DONE ON TECHNICAL ESTIMATION BASIS AND, THEREFORE, MEREL Y BECAUSE THERE WERE SOME VARIATIONS IN THE FIGURES FURNISHED BY THE ASS ESSEE AT DIFFERENT STAGES, IT COULD NOT BE SAID THAT THE ESTIMATED LOSS WAS NOT A LLOWABLE. IT WAS NOT DISPUTED THAT THE DEPARTMENT IN EARLIER YEARS HAD A LLOWED THE LOSS ON ESTIMATED BASIS HAVING REGARD TO THE EXPENDITURE AC TUALLY INCURRED IN VARIOUS YEARS. THEREFORE, IN PRINCIPLE, IT WAS NOT DISPUTED THAT THE ESTIMATED 1055 UNDER THE PRESENT CIRCUMSTANCES WAS AN ALLOWABLE DE DUCTION. HOWEVER, MERELY BECAUSE THE CHANGE IN METHOD OF ACCOUNTING W AS BONA FIDE, IT COULD NOT LEAD TO THE INFERENCE THAT THE INCOME WAS ALSO DEDUCIBLE PROPERLY UNDER THE ACT. THIS ASPECT IS VERY EVIDENT FROM THE FIRST PROVISO TO SECTION 145 AS IT STOOD PRIOR TO THE AMENDMENT BY THE FINANCE ACT, 19 95 WITH EFFECT FROM 1-4- 1997. IT COULD NOT BE DISPUTED THAT FROM THE METHOD ADOPTED BY THE ASSESSEE, THE ASSESSEE'S INCOME COULD NOT BE DEDUCED PROPERLY IN THE YEAR IN WHICH THE LOSS HAD BEEN ANTICIPATED. AS A MATTER OF FACT THIS ASPECT WAS NOT DISPUTED BY THE ASSESSING OFFICER ALSO. HE HAD SWAYED MORE BY T HE REVENUE LOSS THAN BY THE CORRECT PRINCIPLE TO BE APPLIED. THE MATCHING P RINCIPLE OF ACCOUNTING WAS NOT OF MUCH SIGNIFICANCE IN THE PRESENT CONTEXT BEC AUSE IF THE LOSS HAD BEEN PROPERLY ESTIMATED IN THE YEAR IN WHICH THE CONTRAC T HAD BEEN ENTERED INTO, THEN IT HAD TO BE ALLOWED IN THAT VERY YEAR AND COU LD NOT BE SPREAD OVER THE PERIOD OF CONTRACT. THE MATCHING PRINCIPLE IS OF RE LEVANCE WHERE INCOME AND EXPENDITURE, BOTH ARE TO BE CONSIDERED TOGETHER. HO WEVER, IN THE INSTANT EASEL THE EFFECT OF VALUATION OF WIP WOULD AUTOMATICALLY AFFECT THE PROFITS OF SUBSEQUENT YEARS ACCORDINGLY. THEREFORE, THERE WAS NO REASON FOR NOT ACCEPTING IN PRINCIPLE THE ASSESSEE'S CLAIM AS BEIN G ALLOWABLE . ASST.CIT VS ITD CEMENTATION PVT LTD (146 ITD 59) (I TAT MUMBAI ) '14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE A/SO THE BENEFIT OF GOIN G THROUGH THE AS-7 ISSUED BY ICAI. AT THE VERY OUTSET, IT WOULD NOT BE OUT OF PLACE TO CONSIDER THE PROVISIONS OF S. 145 OF THE ACT. SEC. 145(2) OF THE ACT PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZET TE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. IT IS A FACT THAT AS-7 HAS NOT BEEN NOTIFIED BY THE CENTRAL GOVERNMENT. THIS DOES NOT MEAN THAT THE ASS ESSEE IS PRECLUDED FROM FOLLOWING AS-7. A PERUSAL OF THE PROVISIONS OF S.14 5 SHOW THAT ACCOUNTING STANDARDS WHICH HAVE BEEN NOTIFIED BY THE CENTRAL G OVERNMENT HAVE TO BE MANDATORILY FOLLOWED BY THE ASSESSEE. BUT THIS DOES NOT MEAN THAT THE ASSESSEE CANNOT FOLLOW THE OTHER ACCOUNTING STANDAR DS ISSUED BY ICAI. ICAI BEING THE HIGHEST ACCOUNTING BODY OF THE COUNTRY, C REATED BY AN ACT OF PERMANENT, ACCOUNTING STANDARDS ISSUED BY IT CANNOT BE BRUSHED ASIDE LIGHTLY. ON THE CONTRARY, IF AN ASSESSEE IS FOLLOWI NG THE ACCOUNTING STANDARDS ISSUED BY ICAI, IT WOULD GIVE MORE CREDIBILITY AND AUTHENTICITY TO ITS ACCOUNT. AS -71 INTER ALIA PROVIDES: 'WHEN THE OUTCOME OF A CONSTRUCTION CONTRACT CANNOT BE ESTIMATED RELIABLY: REVENUE SHOULD BE RECOGNIZED ONLY TO THE EXTENT OF CONTRACT COSTS INCURRED OF WHICH RECOVERY IS PROBABLE, AND CONTRAC T COSTS SHOULD BE RECOGNIZED AS AN EXPENSE IN THE PERIOD IN WHICH THE Y ARE INCURRED. ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 28 AN EXPECTED LOSS ON THE CONSTRUCTION CONTRACT SHOUL D BE RECOGNIZED AS AN EXPENSE IMMEDIATELY IN ACCORDANCE WITH PARA 3 5. 15. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS EXECU TING FIXED PRICE CONTRACT WHICH MEANS THAT THE CONTRACTOR HAS AGREED TO A FIX ED CONTRACT PRICE OR RATE IN SOME CASES SUBJECT TO COST ESCALATION PRICES. AS PE R AS-7, THE ASSESSEE IS ENTITLED TO MAKE PROVISION FOR FORESEEABLE LOSSES. 16. A PERUSAL OF THE ACCOUNTING STATEMENT OF THE AS SESSEE FOR THE YEAR UNDER CONSIDERATION SHOWS THAT AT PARA 1.6 TO THE NOTES TO THE FINANCIAL STATEMENT, THE AUDITORS HAVE PROVIDED AS UNDER: 'REVENUE RECOGNITION ON CONTRACTS CONTRACT PRICES ARE EITHER FIXED OR SUBJECT TO PRIC E ESCALATION CLAUSE. REVENUE FROM CONTRACTS IS RECOGNIZED ON THE BASIS O F PERCENTAGE COMPLETION METHOD, AND THE LEVEL OF COMPLETION DEPE NDS ON THE NATURE AND TYPE OF EACH CONTRACT INCLUDING: UNBILLED WORK-IN-PROGRESS VALUED AT LOWER OF COST A ND NET REALIZABLE VALUE UPTO THE STAGE OF COMPLETION. COST INCLUDES D IRECT MATERIAL, LABOUR COST AND APPROPRIATE OVERHEADS; AND AMOUNTS DUE IN RESPECT OF THE PRICE AND OTHER ESCAL ATION, BONUS CLAIMS AND/OR VARIATION IN CONTRACT WORK APPROVED B Y THE CUSTOMER/THIRD PARTIES ETC. WHERE THE CONTRACT ALLO WS FOR SUCH CLAIMS OR VARIATIONS AND THERE IS EVIDENCE THAT THE CUSTOMER/ THIRD PARTY HAS ACCEPTED IT. IN ADDITION, IF IT IS EXPECTED THAT THE CONTRACT WI LL MAKE A LOSS, THE ESTIMATED LOSS IS PROVIDED FOR IN THE BOOKS OF ACCO UNT. CONTRACTUAL LIQUIDATED DAMAGES, PAYABLE FOR DELAYS IN COMPLETION OF CONTRACT WORK OR FOR OTHER CAUSES, ARE ACCOUNTED FO R AS COSTS WHEN SUCH DELAYS AND CAUSES ARE ATTRIBUTABLE TO THE COMP ANY OR WHEN DEDUCTED BY THE CLIENT. ' 17. A SIMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIB UNAL IN THE CASE OF MAZAGON DOCK LTD. V. JT. CIT (SUPRA) WHEREIN THE TR IBUNAL HAS HELD AS UNDER: THE QUESTION THAT CAME UP FOR CONSIDERATION WAS AS TO WHETHER THE ANTICIPATED LOSS ON THE VALUATION OF FIXED PRICE CO NTRACT IN VIEW OF THE MANDATORY REQUIREMENTS OF THE AS-7, WAS TO BE ALLOW ED IN THE YEAR IN WHICH THE CONTRACT HAD BEEN ENTERED INTO OR IT WAS TO BE SPREAD OVER A PERIOD OF CONTRACT, AS WAS DONE BY THE ASSESSEE IN EARLIER YEARS. AS FAR AS THE CHANGE IN THE METHOD OF VALUATION OF WOR K-IN-PROGRESS WAS CONCERNED, IT COULD NOT BE DISPUTED THAT IN VIEW OF MANDATORY REQUIREMENTS OF THE AS-7, IT WAS A BONA FIDE CHANGE IN THE METHOD OF VALUATION OF WORK-IN-PROGRESS, PARTICULARLY IN VIEW OF THE QUALIFICATION MADE IN THIS REGARD BY STATUTORY AUDITORS AS WELL A S BY THE COMPTROLLER & AUDITOR GENERAL OF INDIA. THEREFORE, THE OBSERVAT ION OF THE CIT(A) THAT THE ASSESSEE HAD BOOKED BOGUS LOSS WAS NOT COR RECT. AS FAR AS THE BASIS OF ESTIMATION WAS CONCERNED, THE SAME WAS DONE ON TECHNICAL ESTIMATION BASIS AND, THEREFORE, MERELY B ECAUSE THERE WERE SOME VARIATIONS IN THE FIGURES FURNISHED BY THE ASS ESSEE AT DIFFERENT STAGES, IT COULD NOT BE SAID THAT THE ESTIMATED LOS S WAS NOT ALLOWABLE. IT WAS NOT DISPUTED THAT THE DEPARTMENT IN EARLIER YEARS HAD ALLOWED ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 29 THE LOSS ON ESTIMATED BASIS HAVING REGARD TO THE EX PENDITURE ACTUALLY INCURRED IN VARIOUS YEARS. THEREFORE, IN PRINCIPLE, IT WAS NOT DISPUTED THAT THE ESTIMATED LOSS UNDER THE PRESENT CIRCUMSTA NCES WAS AN ALLOWABLE DEDUCTION. HOWEVER, MERELY BECAUSE THE CH ANGE IN METHOD OF ACCOUNTING WAS BONA FIDE, IT COULD NOT LEAD TO T HE INFERENCE THAT THE INCOME WAS ALSO DEDUCIBLE PROPERTY UNDER THE ACT. T HIS ASPECT IS VERY EVIDENT FROM THE FIRST PROVISO TO S. 145 AS IT STOO D PRIOR TO THE AMENDMENT BY THE FINANCE ACT, 1995 W. E. F. 1ST APR IL, 1997 IT COULD NOT BE DISPUTE FROM THE METHOD ADOPTED BY ASSESSEE, THE ASSESSEE'S INCOME COULD NOT BE DEDUCTED PROPERLY IN THE YEAR I N WHICH THE LOSS HAD BEEN ANTICIPATED. AS A MATTER OF FACT THIS ASPE CT WAS NOT DISPUTED BY THE AO ALSO. HE HAD SWAYED MORE BY THE REVENUE L OSS THAN BY THE CORRECT PRINCIPLE TO BE APPLIED. THE MATCHING PRINC IPLE OF ACCOUNTING WAS NOT OF MUCH SIGNIFICANCE IN THE PRESENT CONTEXT BECAUSE IF THE LOSS HAD BEEN PROPERLY ESTIMATED IN THE YEAR IN WHICH TH E CONTRACT HAD BEEN ENTERED INTO, THEN IT HAD TO BE ALLOWED IN THA T VERY YEAR AND COULD NOT BE SPREAD OVER THE PERIOD OF CONTRACT THE MATCH ING PRINCIPLE IS OF RELEVANCE WHERE INCOME AND EXPENDITURE, BOTH ARE TO BE CONSIDERED TOGETHER. HOWEVER, IN THE INSTANT CASE, THE EFFECT OF VALUATION OF WIP WOULD AUTOMATICALLY AFFECT THE PROFITS OF SUBSEQUEN T YEARS ACCORDINGLY. THEREFORE, THERE WAS NO REASON FOR NOT ACCEPTING IN PRINCIPLE THE ASSESSEE'S CLAIM AS BEING ALLOWABLE . 18. A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL I N THE CASE OF JACOBS ENGINEERING INDIA (P.) LTD. V. ASSTT. CIT (SUPRA) W HEREIN THE ASSESSEE'S CLAIMS OF FORESEEABLE LOSSES WERE ALLOWED IRRESPECT IVE OF METHOD OF ACCOUNTING IN TERMS OF AS-7. IN THE CASE OF DREDGIN G INTERNATIONAL (SUPRA), THE ISSUE BEFORE THE TRIBUNAL WAS WHETHER UNDER S. 37(1 ) OF THE ACT- PROVISION FOR FORESEEABLE LOSS MADE IN ACCORDANCE WITH GUIDELINES OF AS-7 AND DULY DEBITED IN AUDITED ACCOUNTS OF COMPANY IS AN ALLOWA BLE EXPENDITURE. THE TRIBUNAL DECIDED THE CASE IN FAVOUR OF THE ASSESSEE AND HELD THAT ' YES ' IT IS AN ALLOWABLE EXPENDITURE. THE TRIBUNAL WHILE DECIDING THIS ISSUE HAS ALSO CONSIDERED THE DECISION OF MAZAGON DOCK LTD. V. JT. CIT (SUPRA). 19. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE ACCOUNTING STANDARDS AND THE DECISIONS OF THE TRIBUNAL (SUPRA), AND AS N O DISTINGUISHING CASES HAVE BEEN BROUGHT ON RECORDS BY THE REVENUE, REVERS ING THE FINDINGS OF THE LEARNED CIT(A) , WE DIRECT THE AO TO RECOMPUTE THE BUSINESS PROFITS BY ALLOWING THE LOSSES PROVIDED BY THE ASSESSEE IN ITS BOOKS. THE APPEAL FILED BY THE ASSESSEE IS ALLOWED ASST.CIT VS ASHOK BUILDCON PVT LTD (170 TTJ 19) (IT AT MUMBAI ) 8 . AT THE TIME OF HEARING, THE LEARNED REPRESENTATIV E SUBMITTED THAT A SIMILAR SITUATION HAD ARISEN BEFORE THE MUMBAI BENC H OF THE TRIBUNAL IN THE CASE OF ASSTT. CIT V, ITD CEMENTATION INDIA LTD. [2014] 146 ITD 59/[2013] 36 TAXMANN.COM 74 (MUMBAI) WHEREIN A PROVISION MADE FOR FORESEEABLE LOSSES WAS ALLOWED AS A DEDUCTION. APAR T THEREFROM, RELIANCE HAS ALSO BEEN PLACED ON THE DECISION OF TH E MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MAZAGON DOCK LTD. V. JT . CIT [2009] 29 SOT 356 IN SUPPORT OF THE CASE OF THE ASSESSEE. IN THE COUR SE OF HEARING, REFERENCE HAS ALSO BEEN MADE TO THE FOLLOW ING DECISIONS: (I) JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CALCUTTA CO. LTD. (SUPRA) (II) BHARAT EARTH MOVERS V, CIT [20007 245 ITR 428/112 TAXMAN 61 (SC) AND, (III) ROTORK CONTROLS INDIA (P. ) LTD. V. CIT [20097314 ITR 62/180 TAXMAN 422 (SC). ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 30 9 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. THE RESPONDENT- ASSESSEE IS ENGAGED IN THE EXECUTION OF AN INFRASTRUCTURE DEVELOPMENT PROJECT WHICH WAS AWARDED BY THE TNRDC. THE WORK RELATED TO IMPROVEMENT OF WORK AND ITS MAINTENANCE FOR A PERIOD OF FIVE YEARS. THE JOB HAS BEEN DONE ON A CONTRACTUAL BASIS. FACTUALLY SPEAKING, THE CONTRACT FOR IMPROVEMENT OF THE ROAD AND ITS MAINTENANCE FOR A PERIOD OF FIVE YEARS IS A COMPOSI TE CONTRACT. THE AO, HOWEVER, HAS OBSERVED THAT TNRDC HAS AWARDED SE PARATE CONTRACTS, I.E. ONE FOR CONSTRUCTION OF ROAD AND SE COND FOR ITS MAINTENANCE FOR A SPECIFIED PERIOD. THE AO HAS OBSE RVED SO ON THE GROUND THAT TNRDC HAS SPECIFICALLY QUANTIFIED THE A MOUNT PAYABLE FOR THE TWO COMPONENTS OF THE WORK SEPARATELY. FOR THIS REASON, THE AO HELD THAT THE IMPUGNED LOSSES CALCULATED BY THE ASS ESSEE ARE ONLY RELATING TO THE MAINTENANCE PORTION OF THE WORK AND THEREFORE, MAINTENANCE EXPENSES SHOULD BE ALLOWED ONLY TO BE C ONSIDERED IN THE PERIOD CORRESPONDING TO THE PERIOD FOR WHICH MAINTE NANCE IS BEING EFFECTED. 11. THE AO HAS DISALLOWED THE IMPUGNED PROVISION ON TH E GROUND THAT IT IS LIABLE TO BE ALLOWED IN THE YEAR WHEN IT IS ACTUALL Y INCURRED, AND BECAUSE ASSESSEE HAD SHOWN THE TOTAL INCOME OF RS.41,92,05, 032 FROM TNRDC FOR ROAD CONSTRUCTION ON RECEIPT BASIS. THIS ASPECT OF THE MATTER HAS BEEN CHALLENGED BEFORE THE CIT(A), WHO HELD THAT THE AO WAS WRONG IN INFERRING THAT THE ASSESSEE HAS OFFERED INCOME ON RECEIPT BAS IS. THE CIT(A) HAS RECORDED IN PARA 12 (II) OF HIS ORDER THAT ASSESSEE COMPANY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IS RECOGNIZING INCOME FROM CONTRACTS ON PERCENTAGE OF COMPLETION METHOD. IN OUR CONSIDERED OPINION, THERE IS NOTHING TO DISAGREE WITH THE CIT(A) ON THIS ASPECT OF THE M ATTER. IN FACT, THE FINANCIAL STATEMENTS OF THE ASSESSEE COMPANY WHICH ARE PLACED AT PP. 206 TO 220 OF THE PAPER BOOK ALSO POINT OUT THAT THE ASSESSEE COM PANY IS MAINTAINING ITS ACCOUNTS ON A MERCANTILE SYSTEM. IN SO FAR AS THE I SSUE OF ALLOWABILITY OF FUTURE FORESEEABLE LOSSES IS CONCERNED, A SIMILAR S ITUATION HAD COME UP BEFORE THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITD CEMENTATION INDIA LTD. (SUPRA). IN THE CASE BEFORE THE MUMBAI B ENCH, ASSESSEE WAS CARRYING ON THE BUSINESS OF INFRASTRUCTURE DEVELOPM ENT AND THE WORK WAS EXECUTED ON A CONTRACTUAL BASIS. THE ASSESSEE THERE IN WAS EXECUTING A FIXED PRICE CONTRACT AND IN TERMS OF AS-7 ISSUED BY INSTI TUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) MADE A PROVISION FOR FU TURE FORESEEABLE LOSSES AND CLAIMED DEDUCTION OF SUCH A PROVISION. THE REVE NUE DISALLOWED THE PROVISION MADE FOR SUCH FORESEEABLE LOSSES. THE TRI BUNAL CONCURRED WITH THE STAND OF THE ASSESSEE THAT SUCH A PROVISION WAS AN ALLOWABLE DEDUCTION. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IS RE PRODUCED AS UNDER: 12 . TO THE SIMILAR EFFECT IS THE DECISION OF THE MUMB AI BENCH OF THE TRIBUNAL IN THE CASE OF MAZAGAON DOCK (SUPRA) WHICH HAS ALSO BE EN RELIED UPON BY THE TRIBUNAL IN THE CASE OF ITD CEMENTATION INDIE LTD. (SUPRA). THEREFORE, IN VIEW OF THE AFORESAID PRECEDENTS IN PRINCIPLE, IT HAS TO BE INFERRED THAT WHERE AN ASSESSEE IS EXECUTING AN INFRASTRUCTURE DEVELOPMENT FIXED PRICE CONTRACT, THE FORESEEABLE LOSSES OF FUTURE YEARS CAN BE RECOGNIZE D FOLLOWING THE RATIONALE OF AS-7 ISSUED BY LCAI AND SUCH A PROVISION IS AN A LLOWABLE DEDUCTION. 4. RESPECTFULLY RELYING ON THE FOREGOING JUDICIAL DECISIONS AND ALSO HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE DISCUSSED I N TILE FOREGOING I DIRECT THE LD. AO TO ALLOW THE DEDUCTION FOR PROVISION FOR FORESEEABL E LOSSES IN ARRIVING AT THE TOTAL ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 31 INCOME OF THE APPELLANT AS PER COMPUTATIONAL PROVIS IONS AS ALSO IN ASSESSING BOOK PROFIT U/S 115J8 OF THE ACT. SINCE THE ASSESSEE'S C LAIM OF PROVISION FOR FORESEEABLE LOSSES HAS BEEN ALLOWED TO BE DEDUCTED IN AY 2012-1 3, THE LD. AO MAY ALSO TAKE NECESSARY REMEDIAL MEASURES FOR WITHDRAWING THE REL IEF ALLOWED BY HIM IN RESPECT OF SUCH AMOUNT IN AY 2014-15. GROUND NO. 7 IS THEREFORE ALLOWED . 20. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO R IVAL PLEADINGS AGAINST AND IN SUPPORT OF THE CIT(A)S ABOVE EXTRACTED DISC USSION DELETING THE IMPUGNED DISALLOWANCE. THE ASSESSEE HAD ADMITTEDLY DEBITED THESE SUM(S) TO ITS PROFIT AND LOSS ACCOUNT IN RELATION TO PROVISION FOR FORESEEABLE LOSS IN CONTRACT REVENUE FOR THE PURPOSE OF NORMAL AS WELL AS MAT COMPUTATION. THE ASSESSING OFFICER DISALLOWED THE SAME AS A CONTINGE NT LIABILITY SINCE NOT CRYSTALLIZED IN THE RELEVANT PREVIOUS YEAR. LEARNED COUNSEL INVITED OUR ATTENTION TO PAGES-12 & 13 IN THE ASSESSMENT ORDER CONTAINING TABULATIONS OF THE CORRESPONDING PROJECTS JOB DETAILS. THE ASSESS ING OFFICER WAS OF THE VIEW THAT THE ALLEGED PROJECT QUA FORESEEABLE LOSS IN CONTRACT REVENUE; HAD BEEN SUBSTANTIALLY COMPLETED AND REVENUE THEREFROM ALSO STOOD RECOGNIZED DURING EARLIER YEARS. HE THUS HELD THAT THE ASSESSEES PRO VISION WAS AGAINST A LIABILITY WHICH MIGHT ARISE IN FUTURE DUE TO ANY DEFECT IN TH E PROJECTS AND LIABILITIES INCURRED BY REMOVING THOSE DEFECTS. AND THAT IN SUC H A LIABILITY WHICH WAS TO BE INCURRED BY A FUTURE RATE WAS IN THE NATURE OF A CONTINGENT LIABILITY DISALLOWABLE U/S 37(1) OF THE ACT. HE INCLUDED IT I N BOOK PROFITS COMPUTATION U/S. 115JB EXPLAATION-1 (C) OF THE ACT. HE LASTLY C ONCLUDED THAT IF AT ALL THE ASSESSEE HAD TO MAKE ANY SUCH PROVISION OF LIABILIT Y TO BE INCURRED IN FUTURE, THE SAME THEREFORE AMOUNTED TO A CONTINGENT LIABILI TY ONLY NOT ALLOWABLE U/S 37(1) OF THE ACT WHICH DESERVED TO BE INCLUDED IN B OOK PROFITS COMPUTATION AS WELL. THE CIT(A) HAS ADMITTEDLY REVERSED THE ASSESS ING OFFICERS ACTION IN ABOVE EXTRACTED DETAILED DISCUSSION. 21. IT IS IN THIS BACKDROPS OF FACTS THAT WE NOTICE THAT THIS ASSESSEE; ENGAGED IN REAL ESTATE BUSINESS AS WELL, HAD CLAIME D THE IMPUGNED LIABILITY PROVISION BASED ON SCIENTIFIC ESTIMATION GOING BY T HE CORRESPONDING TABULATION IN PAGE-122 OF THE ASSESSMENT ORDER IN ASSESSMENT Y EAR 2012-13 AND THE ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 32 VERY BASIS STOOD ADOPTED IN THE LATTER ASSESSMENT Y EAR 2013-14. LEARNED DEPARTMENTAL REPRESENTATIVE FAILS TO DISPUTE THAT T HE ASSESSEES IMPUGNED PROVISION ALSO CONFIRMS AS-7 APPLICABLE ACCOUNTING FOR CONSTRUCTION CONTRACTS AS PER VARIOUS JUDICIAL PRECEDENTS TAKEN NOTE OF THE CIT(A)S DISCUSSION. HON'BLE APEX COURTS LANDMARK JUDGMENT IN COMMISSIONER OF INCOME TAX VS. CHAINRUP SAMPATRAM (1953) 24 ITR 481 (SC) HELD LONG BACK THAT ALTHOUGH THE PRINCIPLES OF CONSERVATISM AND PR UDENCE IN ACCOUNTING REQUIRE THAT NO ANTICIPATED PROFITS ARE TO BE RECOR DED AS INCOME UNTIL REALISED, THE CONVERSE IS NOT TRUE REGARDING ANTICIPATED LOSS ES WHICH COULD BE BOOKED AT THE FIRST SIGN OF REASONABLE PROBABILITY. WE CONCLU DE IN VIEW OF ALL THESE FOREGOING FACTS THAT THE ASSESSEE WAS VERY WELL JUS TIFIED IN CLAIMING THE IMPUGNED FORESEEABLE LIABILITY PROVISION IN THESE T WO ASSESSMENT YEAR(S) REGARDING ITS PROJECT WORKS BY IN COMPLIANCE OF AS- 7 OF THE ACT. THE REVENUES INSTANT SUBSTANTIVE GRIEVANCE FAILS THERE FORE. 22. THE REVENUES IDENTICAL 5 TH SUBSTANTIVE GRIEVANCE PLEADED IN BOTH THESE APPEAL(S) SEEKS TO REVIVE THE ASSESSING OFFICERS A CTION DISALLOWING ASSESSEES EMPLOYEES CONTRIBUTION TO PF & ESI AMOUN TING TO 1,05,19,532/- AND 67,36,892/-; RESPECTIVELY BY INVOKING SEC. 36(1)(VI A) OF THE ACT SINCE THE SAME HAD NOT BEEN PAID WITHIN THE DUE DATE AS PRESC RIBED IN THE SPECIFIC ACTS. SUFFICE TO SAY, HON'BLE JURISDICTIONAL HIGH COURT I N COMMISSIONER OF INCOME TAX VS. M/S VIJAY SHREE LTD. ITAT 245 OF 2011 G.A NO. 2607 OF 2011 DATED 07.11.2011 HOLDS THAT SUCH A DISALLOWANCE DESERVES TO BE DELETED IN CASE THE ASSESSEE HAS DEPOSITED THE ESI / PF CONTRIBUTION IN QUESTION BEFORE THE DUE DATE OF FILING OF ITS RETURN OF INCOME WHICH IS NOT IN DISPUTE BEFORE US. WE THUS AFFIRM THE CIT(A)S ACTION DELETING THE IMPUGNED DI SALLOWANCE ON THIS COUNT ALONE. THE REVENUES CORRESPONDING IDENTICAL SUBSTA NTIVE 5 TH GRIEVANCE IN THESE TWO ASSESSMENT YEAR(S) FAILS ACCORDINGLY. ITS SECOND APPEAL ITA NO. 218/KOL/2018 IS ALSO PARTLY ALLOWED ON STATISTICAL PURPOSES IN ABOVE TERMS. ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 33 23. NOW WE PROCEED TO DEAL WITH THE REVENUES REMAI NING GRIEVANCES IN ITS LAST APPEAL ITA NO. 219/KOL/2018 ITS 6 TH SUBSTANTIVE GROUND AVERS THAT THE CIT(A) HAS ERRED ON FACTS AND IN LAW ALLOWING PROVI SION OF MARKET-TO-MARKET LOSS AMOUNTING TO 117,86,272/- DERIVED FROM THE DERIVATIVE TRANSACTIO NS. THE CIT(A)S DETAILED DISCUSSION TO THIS EFFECT READS A S UNDER:- 29. DECISION : 1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF T HE LD. ARS IN LIGHT OF THE FACTS AVAILABLE ON RECORD. I HAVE ALSO PERUSED THE IMPUGN ED ORDER PASSED BY THE LD. AO. FROM THE DISCUSSION IN THE ASSESSMENT ORDER, IT IS NOTED THAT THE DISALLOWANCE OF MTM LOSS OF RS.1,17,86,000/- WAS JUSTIFIED BY THE L D. AO ON THE GROUND THAT THE LIABILITY HAD NOT CRYSTALLIZED DURING THE YEAR UNDE R CONSIDERATION AND THE AMOUNT DEBITED WAS MERE PROVISION WHICH COULD NOT BE ALLOW ED UNDER SECTION 37(1) AS IT WAS CONTINGENT IN NATURE. THE LD. AO IN SUPPORT OF THE IMPUGNED DISALLOWANCE RELIED ON CBDT'S INSTRUCTION NO. 3/2010 DATED 28.09.2010 WHICH INTER ALIA PROVIDED THAT LOSSES ON FOREX DERIVATIVES ACCOUNTED ON THE BASIS OF EXCHANGE RATE PREVAILING ON THE BALANCE SHEET DATE WAS NOTIONAL IN NATURE AND THERE FORE NOT ALLOWABLE IN COMPUTING THE TAXABLE INCOME, FOR THE SAME REASONS THE LD. AO ADDED SUCH MTM LOSS IN ARRIVING AT THE BOOK PROFIT OF THE APPELLANT UNDER SECTION 115JB OF THE ACT BY PLACING RELIANCE OF CLAUSE (E) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT. 2. THE FINDINGS OF THE LD. AO ARE N COMPARED WITH T HE FACTS AS ARE BROUGHT ON RECORD BY THE LD. ARS OF THE APPELLANT-COMPANY, I NOTE THA T THE DISALLOWANCE MADE ILL THE IMPUGNED ORDER WAS MISCONCEIVED BOTH ON FACTS AND I N LAW. IT APPEARS, IN MY CONSIDERED OBSERVATION THAT THE LD. AO DID NOT BRIN G ON RECORD ALL FACTS AS ARE NECESSARY TO APPRECIATE THE CONTROVERSY AT HAND. FR OM THE MATERIAL FACTS ON RECORD, I FIND THAT THE APPELLANT HAD AVAILED LOAN IN FOREIGN CURRENCY TO PART FINANCE ITS WORKING CAPITAL AND AT THE TIME OF TAKING THE LOAN IT HAD N EGOTIATED FOR PAYMENT OF INTEREST WHICH WAS AT FLOATING LIBOR RATE PLUS 230 BPS. AS S UCH THE APPELLANT WAS EXPOSED TO RISK OF UNFAVORABLE MOVEMENTS IN LIBOR RATE AND THEREFORE ANY INCREASE IN LIBOR WOULD HAVE ADVERSELY IMPACTED THE EFFECTIVE RATE OF INTEREST FOR THE APPELLANT. IN THE CIRCUMSTANCES TO HEDGE AGAINST THE PROBABLE LOSSES THAT WOULD BE CAUSED BY ANY UNFAVORABLE MOVEMENT IN LIBOR, THE APPELLANT ENTERE D INTO INTEREST SWAP ARRANGEMENT WHERE UNDER THE ASSESSEE SWAPPED ITS FL OATING RATE LOAN TO A FIXED RATE LOAN OF 3.35%. CONSEQUENT TO SUCH SWAP ARRANGEMENT, THE APPELLANT HAD TO RE-STATE ITS LIABILITIES EXPRESSED IN FOREIGN CURRENCY AS ON THE BALANCE SHEET DATE WHICH RESULTED IN A LOSS. I THEREFORE FIND THAT THE ARRAN GEMENT PUT IN PLACE BY THE APPELLANT WAS INTENDED TO CAUSE SAVING IN THE EFFECTIVE INTER EST OUT GO. I NOTE THAT THE LD. AO HAS NOT DISPUTED THE BASIC PREMISE THAT THE LOAN WA S AVAILABLE BY THE APPELLANT TO MEET WORKING CAPITAL NEEDS AND INTEREST PAYABLE ON THE SAID LOAN WAS ALLOWABLE IN COMPUTING BUSINESS PROFITS OF THE APPELLANT. 3. IN THE FOREGOING BACKGROUND THEREFORE THE INTERE ST RATE SWAP DERIVATIVE ENTERED INTO BY THE APPELLANT WAS ALSO CONNECTED WITH THE R EVENUE ITEM AND THEREFORE ANY GAIN OR LOSS ARISING FROM SUCH AN ARRANGEMENT WAS I N THE REVENUE FIELD. THE ONLY QUESTION TO BE DECIDED THEREFORE IS WHETHER THE LOS S PROVIDED FOR IN THE APPELLANT'S BOOKS AS ON THE BALANCE SHEET DATE ON ACCOUNT OF RE -STATEMENT OF FOREIGN EXCHANGE TRANSACTIONS WAS CONTINGENT! NOTIONAL OR WHETHER IT WAS REAL LOSS LIABLE TO BE ALLOWED IN COMPUTING BUSINESS INCOME. IN THE LD. AO'S OPINI ON, THE LOSS PROVIDED IN THE BOOKS WAS MERE NOTIONAL LOSS ACCOUNTED ON THE BASIS OF EXCHANGE RATE PREVAILING ON THE LAST DATE OF PREVIOUS YEAR. IN THIS REGARD I NO TE THAT THE PROVISION MADE BY THE APPELLANT IN ITS BOOKS TOWARDS MTM LOSS WAS IN CONF ORMITY WITH ACCOUNTING STANDARD- ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 34 11 PRESCRIBED BY THE ICAI AND THERE WAS NO CONTRARY PROVISION IN THE IT. ACT, 1961 WHICH PROVIDED FOR MAKING DISALLOWANCE OF SUCH MTM LOSS. IN FACT I FIND THAT THE VERY ISSUE AS TO WHETHER THE LOSS ARISING ON RE-STATEMEN T OF OUTSTANDING FOREIGN CURRENCY TRANSACTIONS IS ALLOWABLE AS REAL LOSS OR A NOTIONA L LOSS WAS ADJUDICATED BY TILE SUPREME COURT IN ITS JUDGMENTS IN THE CASES OF CIT VS WOODWARD GOVERNOR INDIA P. LTD (312 ITR 2S4)&OIL & NATURAL GAS CORPN. LIMIT ED VS CIT (322 ITR 180) . IN BOTH THESE JUDGMENTS, THE HON'BLE SUPREME COURT TOO K DUE NOTE OF AS-11, AND HELD THAT ANY LOSS OR GAIN ARISING FROM RE-STATEMENT OF OUTSTANDING FOREIGN CURRENCY TRANSACTIONS INCLUDING BORROWINGS/PAYABLES REPRESEN TS ACTUAL OR REAL LOSS / GAIN AND THE SAME DOES NOT CONSTITUTE NOTIONAL/CONTINGENT LO SS. 4. AS REGARDS THE REFERENCE MADE BY THE LD. AO TO I NSTRUCTION NO. 3/2010, I FIND THAT THE SAID CIRCULAR WAS CONSIDERED BY THE SPECIAL BEN CH OF ITAT, MUMBAI IN THE CASE OF DCIT VS. BANK OF BAHRAIN & KUWAIT (41 SOT 290) A ND ITAT, DELHI THE CASE OF BECHTEL INDIA PVT. LTD VS. ADD!. CIT (32 TAXMANN.CO M 123) AS ALSO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS WOODWARD GO VERNOR INDIA P. LTD (SUPRA) WAS CONSIDERED BY THE ITAT. HAVING CONSIDERED BOTH, THE TRIBUNAL HELD THAT THE VIEW CANVASSED BY THE CBOT IN ITS INSTRUCTION NO.3/2010 WAS CONTRARY TO THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CI T VS WOODWARD GOVERNOR INDIA P. LTD (SUPRA) AND THEREFORE DID NOT REPRESENT THE CORRECT, DECIDED AND ACCEPTED LEGAL VIEW AND ACCORDINGLY IT WAS HELD BY THE HON'B LE TRIBUNAL THAT THE MTM LOSS PROVIDED IN THE BOOKS BY FOLLOWING AS-11 IS NOT CON TINGENT OR NOTIONAL LOSS BUT REAL LOSS WHICH IS REQUIRED TO BE ALLOWED IN COMPUTING T HE BUSINESS INCOME OF AN APPELLANT. SINCE THE FACTS OF THE APPELLANT'S CASE SQUARELY COME WITHIN THE PARAMETERS LAID DOWN IN THE FOREGOING DECISIONS, I HOLD THAT THE LD. AO WAS NOT JUSTIFIED IN DISALLOWING RS.1,17,86,000/-, BEING MT M LOSS ON DERIVATIVES HOLDING IT TO BE NOTIONAL OR CONTINGENT. SINCE I HAVE OBSERVED TH AT THE MTM LOSS IS REAL LOSS, THE LD AO IS DIRECTED TO ALLOWED THE DEDUCTION THEREFOR E IN COMPUTING INCOME BOTH AS PER NORMAL COMPUTATION PROVISIONS AS WELL AS BOOK PROFI T U/S 115JB OF TILE ACT. GROUNDS NOS. 15 & 16 ARE THEREFORE ALLOWED . 24. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO R IVAL CONTENTIONS AGAINST AND IN SUPPORT OF CIT(A)S ACTION DELETING THE IMPU GNED MARKET-TO-MARKET LOSSES PROVISION PERTAINING TO DERIVATIVE TRANSACTI ONS. THERE IS NO DISPUTE THAT THIS ASSESSEE HAD DEBITED THE IMPUGNED SUM TO ITS P ROFIT AND LOSS ACCOUNT WITH REFERENCE TO INTEREST RATE DERIVATIVES IN ORDE R TO HEDGE INTEREST CASE PAYABLE ON COMMERCIAL BORROWINGS. THE ASSESSING OFF ICER DISALLOWED THE SAME UNDER NORMAL COMPUTATION AS WELL AS FOR SEC. 1 15JB BOOK PROFIT COMPUTATION FOR THE REASON THAT THIS SUM REPRESENTE D ONLY A NOTIONAL LOSS CONTINGENT IN NATURE AS PER CBDT INSTRUCTION NO. 3/ 2010 DATED 28.09.2010. THE CIT(A) ON THE OTHER HAND HAS REVERSED THE SAID FINDINGS BY HOLDING THAT SUCH A LOSS IS NEITHER CONTINGENT NOR NOTIONAL SINC E RELATED TO HEDGING OF INTEREST COST PAYABLE ON EXTERNAL COMMERCIAL BORRO WING IN THE REGULAR COURSE ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 35 OF BUSINESS. THE CIT(A) HAS ADMITTEDLY TAKEN NOTE O F VARIOUS JUDICIAL PRECEDENTS I.E. WOODWARD GOVERNOR INDIA P. LTD. (SUPRA) THAT THE IMPUGNED MARK-TO-MARKET LOSS IS ALLOWABLE TO BE RECOGNIZED I N RESPECT OF THE OUTSTANDING DERIVATIVE CONTRACTS PERTAINING TO REGU LAR COURSE OF BUSINESS. HON'BLE APEX COURTS DECISION IN CIT VS. INDRA INDUSTRIES (2010) 248 ITR 338 (SC) ALSO HOLDS THAT BOARDS CIRCULAR ARE BINDING O NLY ON THE DEPARTMENTAL AUTHORITIES. 25. COMING TO SEC. 115JB COMPUTATION RELEVANT TO T HE IMPUGNED MAT LOSS, TRIBUNALS CO-ORDINATE BENCH IN HIMADRI CHEMICALS & INDUSTRIES LTD. VS. PCIT ITA NO.813/KOL/2018 DATED 05.09.2018 HOLDS THAT SUCH A PROVISION IS NO T A CONTINGENT LIABILITY AND NOT LIABLE TO BE INCLUDED THEREFORE. THE CIT(A)S FINDINGS ARE AFFIRMED THEREFORE. 26. NEXT COMES DISALLOWANCE OF 34,01,811/- ON ACCOUNT OF ASSESSEES PAYMENT MADE TO M/S RAJSHILA NIRMAN PVT. LTD. FOR M ANAGEMENT CONSULTANCY SERVICES MADE BY THE ASSESSING OFFICER AFTER HOLDIN G THAT THE SAID PAYEE WAS A BOGUS ENTITY ALREADY STRUCK OFF FROM THE MUSTER D ATA. THE CIT(A) HAS REVERSED THE ASSESSING OFFICERS ACTION AS FOLLOWS: - 32. DECISION : 1. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF T HE LD. ARS AS AGAINST THE OBSERVATIONS MADE BY THE ID. AO IN THE IMPUGNED ORD ER. IN THE ASSESSMENT ORDER THE ID. AO OBSERVED THAT DURING THE RELEVANT YEAR THE A PPELLANT HAD MADE CONTRACTUAL PAYMENT OF RS.34,01,811/- TO M/S RAJSHILA NIRMAN PV T LTD. (RNPL). HE FURTHER OBSERVED THAT INFORMATION WAS RECEIVED BY HIM FROM THE AO OF THE PAYEE COMPANY THAT THE PAYEE WAS A SHELL COMPANY AND WAS NOT IN E XISTENCE WAS ALSO REPORTED THAT THE PAYEE HAD NEITHER EXPERTISE NOR THE INFRASTRUCT URE PROVIDE THE SERVICES CLAIMED IN THE AUDITED ACCOUNTS AND THERE WAS NO COMPLIANCE ON BEHALF OF THE PAYEE COMPANY. ON THESE FACTS, THE ID. AO OF THE PAYEE REPORTED T HAT THE PAYEE WAS USED FOR ROUTING UNACCOUNTED MONIES. ACCORDING TO LD. AO THE PAYEE H AD RECEIVED CHEQUES FROM THE BENEFICIARIES AND SUBSEQUENTLY EQUIVALENT AMOUNT WA S RETURNED BACK TO THE BROKER BEHALF OF THE BENEFICIARY COMPANIES AFTER COMPLETIN G WEB OF TRANSACTIONS BUT MULTI- LAYERING OF FUNDS. THE ID. AO OBSERVED THAT THE PAY EE HAD SUB-CONTRACTED THE WORK TO OTHER FICTITIOUS CONCERNS FOR THE PURPOSES OF LAYER ING OF THE FUNDS AND THEREFORE ADDITION ON PROTECTIVE BASIS WERE MADE IN THE HANDS OF PAYEES. THE EXPLANATIONS PUT FORTH BY THE APPELLANT AND THE EVIDENCES PRODUCED W ERE REJECTED BY THE ID AO ON THE GROUND THAT THE INSPECTOR AFTER CONDUCTING ENQUIRY DID NOT FIND EXISTENCE OF RNPL AT THE GIVEN ADDRESS. ON VERIFICATION OF COMPANY'S MAS TER DATA OF MCA DATABASE, THE ID. AO FOUND THAT THE STATUS OF THE PAYEE WAS SHOWN TO BE ' STRIKE-OFF '. THE ID. AO THEREFORE CONCLUDED THAT THE APPELLANT DID NOT PROV E THE GENUINENESS OF THE ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 36 TRANSACTIONS NOR COULD PROVE THAT THE EXPENSES WERE MADE WHOLLY & EXCLUSIVELY FOR THE BUSINESS PURPOSES AND TREATING THE AMOUNT PAID AS BOGUS EXPENDITURE THE DISALLOWANCE WAS MADE. 2. ON CAREFUL CONSIDERATION OF THE SUBMISSIONS OF T HE LD. AR AND TRANSACTIONAL DOCUMENTS FURNISHED, I FIND THAT IN THE COURSE OF A SSESSMENT THE APPELLANT HAD PRODUCED BEFORE THE LD. AO ALL MATERIAL DOCUMENTS W HICH IT WAS EXPECTED TO MAINTAIN IN THE ORDINARY COURSE OF BUSINESS. IT WAS SUBMITTED BEFORE THE LD. AO THAT IN CONNECTION WITH THE CONTRACT AWARDED BY BHEL, TH E APPELLANT HAD AVAILED THE CONSULTANCY SERVICES OF RNPL. IN SUPPORT OF THE SER VICES RENDERED, AN INVOICE WAS RAISED ON THE APPELLANT, COPY WHEREOF WAS FILED BEF ORE THE LD. AO. IT APPEARED FROM THAT THE PAYEE WAS REGISTERED WITH SERVICE TAX DEPA RTMENT AND THE ASSESSEE NUMBER UNDER THE SERVICE TAX WAS DULY MENTIONED. THE APPEL LANT HAD ALSO FURNISHED BEFORE THE LD. AO, THE ST REGISTRATION CERTIFICATE WHICH P ROVED THAT THE PAYEE WAS ASSESSED UNDER SERVICE TAX. THE APPELLANT HAD DISCHARGED THE PAYMENT OF SERVICE TAX AND CREDIT THEREFORE WAS ALLOWED IN THE INDIRECT TAX PR OCEEDINGS WITHOUT THERE BEING ANY ADVERSE INFERENCE. IT IS FURTHER NOTED THAT THE PAY EE COMPANY WAS ISSUED A CERTIFICATE U/S 197 OF THE ACT BY THE DY. CIT CIRCLE 59 (TDS), KOLKATA WHICH SHOWED THAT NOT ONLY THE EXISTENCE OF THE PAYEE COMPANY WAS KNOWN T O THE INCOME-TAX DEPARTMENT BUT THE LD. AO HAD ISSUED CERTIFICATE U/S 197 ON BE ING SATISFIED THAT THE PAYEE WOULD NOT HAVE ANY LIABILITY TO PAY TAX FOR THE RELEVANT YEAR. 3. IN THE LIGHT OF THE ABOVE DOCUMENTARY EVIDENCES, IT IS DIFFICULT TO ACCEPT THE LD. AO'S CONTENTION THAT THE EXISTENCE OF RNPL REMAINED UNPR OVED OR THAT IT WAS A NON- EXISTENT COMPANY. IT IS ALSO NOTED THAT THE PAYEE W AS ASSESSED TO TAX AND FOR THE RELEVANT YEAR THE RETURN OF INCOME WAS FILED BY THE PAYEE. IT MAY BE SO THAT IN THE ASSESSMENT PROCEEDINGS, THERE WERE NON-COMPLIANCES BY THE PAYEE COMPANY, FOR WHICH ADVERSE INFERENCE COULD NOT BE DRAWN AGAINST THE APPELLANT PARTICULARLY WHEN THE APPELLANT'S TRANSACTIONS WERE SUPPORTED BY PROP ER DOCUMENTARY EVIDENCES WHICH ARE REQUIRED TO BE MAINTAINED IN THE ORDINARY COURS E OF BUSINESS. AS ADMITTED BY THE ID. AO OF THE PAYEE COMPANY, THE GROSS CONTRACTUAL RECEIPTS FOR FY 2012-13 WERE TO THE OR.DER OF RS.6716.69 LACS WHEREAS THE AMOUNT BI LLED TO THE APPELLANT WAS ONLY RS.34.01 LACS. IN PERCENTAGE TERMS THE AMOUNT BILLE D TO THE APPELLANT DID NOT EVEN CONSTITUTE 0.5% OF THE CONTRACTUAL RECEIPTS OF THE PAYEE COMPANY. I ALSO FIND THAT THE PAYMENTS WERE MADE BY THE APPELLANT BY ACCOUNT PAYE E CHEQUES AND THE PAYMENTS WERE CLEARED THROUGH PROPER BANKING CHANNEL AND DOC UMENTARY EVIDENCE IN SUPPORT THEREOF WAS FILED BEFORE THE LD. AO. THE PAYMENTS M ADE INTER ALIA INCLUDED THE SERVICE TAX LEVIED BY THE PAYEE ON THE INVOICED VAL UE AND THE PAYEE WAS DULY REGISTERED WITH THE SERVICE TAX DEPARTMENT. IN THE CIRCUMSTANCES THE PRIMARY ONUS CAST ON THE APPELLANT OF SUBSTANTIATING THE TRANSAC TIONS WAS DISCHARGED BY THE APPELLANT. IN THE ASSESSMENT ORDER THE LD. AO HAS O BSERVED THAT INSPECTOR DEPUTED TO CONDUCT ENQUIRIES FROM THE PAYEE COULD NOT LOCAT E THE SAID COMPANY AT THE GIVEN ADDRESS AND THIS WAS THE REASON WHICH PROMPTED THE ID. AO TO DRAW ADVERSE INFERENCE. HOWEVER I NOTE THAT THE REASON FOR NOT F INDING THE PAYEE AT THE GIVEN ADDRESS HAS BEEN PROVIDED BY THE LD. AO HIMSELF WHE N HE OBSERVED THAT AS PER MCA DATA THE PAYEE COMPANY'S NAME WAS STRUCK OFF FR OM THE ROC, MEANING THEREBY THE COMPANY WAS WOUND UP. THE TRANSACTIONS OF THE A PPELLANT WERE CONDUCTED IN FY 2012-13 WHEREAS THE ENQUIRY ABOUT THE TRANSACTION W AS CONDUCTED IN FY 2016-17. IN THE CIRCUMSTANCES IF IN THE INTERVENING PERIOD, THE PAYEE COMPANY HAD GONE INTO LIQUIDATION, THEN FOR SUCH CIRCUMSTANCES THE APPELL ANT COULD NOT BE HELD RESPONSIBLE AND FOR THE REASON THAT THE COMPANY WAS FOUND LIQUI DATED, INFERENCE COULD NOT BE DRAWN THAT THE APPELLANT'S TRANSACTION WAS BOGUS. I N SUPPORT OF THIS INFERENCE, REFERENCE IS INVITED TO THE JUDGMENT OF THE CALCUTT A HIGH COURT IN THE CASE OF CIT, KOLKATA-I VS. INBUILT MERCHANT PVT LTD (G.A. NO. 38 25 OF 2013 ).THE RELEVANT FINDINGS OF THE HIGH COURT WERE AS FOLLOWS: ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 37 'THE VIEWS EXPRESSED BY THE ASSESSING OFFICER ARE E RRONEOUS IN LAW. THE ASSESSING OFFICER HAS OVERLOOKED THE IMPORTANCE OF THE BOOKS OF ACCOUNTS MAINTAINED IN THE ORDINARY COURSE OF BUSINESS. REFE RENCE IN THIS REGARD MAY BE MADE TO SUB-SECTION (2) OF SECTION 32 OF THE IND IAN EVIDENCE ACT, 1872. THE BOOKS OF ACCOUNTS MAINTAINED IN THE ORDINARY CO URSE OF BUSINESS ARE RELEVANT AND THEY CANNOT BE DISCARDED IN THE ABSENC E OF APPROPRIATE REASONS. THE MERE FACT THAT RECIPIENT DID NOT REPLY IN SOME CASES OR THEY WERE NOT FOUND AT THE ADDRESS FURNISHED BY THE ASSESSEE DOES NOT IN THE LEAST PROVE THE FACT THAT THEY WERE NON EXISTENT OR THAT THE PA YMENTS SHOWN TO HAVE BEEN MADE BY THE ASSESSEE WERE IMAGINARY. WITH THE ADVAN CEMENT OF TECHNOLOGY, IT HAS BECOME POSSIBLE TO SELL GOODS THROUGHOUT THE COUNTRY THROUGH THE INTERN ET. FOR THAT PURPOSE, AGENTS ARE REQUIRED THROUGHOU T THE COUNTRY. THE MECHANISM IN THAT REGARD HAS BEEN DISCLOSED BY THE ASSESSEE AND HAS BEEN RECORDED IN THE ORDER OF THE CIT (APPEALS). FOR THE PURPOSE OF CARRYING ON ITS BUSINESS, THE ASSESSEE HAS TO RECRUIT THE AGENTS. I T MAY NOT BE POSSIBLE FOR THE ASSESSEE TO KNOW THEM PERSONALLY. WHATEVER ADDR ESS WAS FURNISHED TO THE ASSESSEE, HAS BEEN DISCLOSED TO THE INCOME-TAX DEPARTMENT. PAYMENTS WERE ADMITTEDLY MADE BY CHEQUE AFTER DEDUCTION OF T AX. THE TAX DEDUCTED AS SOURCE HAS DULY BEEN DEPOSITED. THE JUDGMENT IN THE CASE OF CIT VS. PRECISION FINANCE PVT. LTD. REPORTED IN 208 ITR 465 RELIED UPON BY MR. BHOWMICK DOES NOT REALLY ASSIST HIM. THE AFORESAID JUDGMENT IS AN AUTHORITY FOR THE PROPOSITION THAT MERE PAYMENT BY ACCOUNT PA YEE CHEQUE CANNOT ESTABLISH THAT THE TRANSACTION WAS GENUINE, BUT IN THE CASE BEFORE US, BESIDES THE FACT THAT PAYMENT WAS MADE BY CHEGUE, THERE ARE OTHER PIECES OF EVIDENCE AVAILABLE WHICH ARE AS FOLLOWS : A) BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS; B) DEDUCTION OF TAX AT SOURCE ; C) DEPOSIT OF THE MONEY DEDUCTED AT SOURCE : D) PARTICULARS OF THE RECIPIENT WERE DULY FURNISH ED ; WE ARE, AS SUCH, OF THE OPINION THAT THE VIEWS EXPR ESSED BY THE LEARNED TRIBUNAL ARE UNEXCEPTIONABLE. WE, THEREFORE REFUSE TO ADMIT THE APPEAL. THE APPEAL IS THUS DISMISSED. 4. SIMILAR VIEW WAS TAKEN BY THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. NANGALIA FABRICS PVT. LTD (40 TAXMANN.COM 206) INVOLVING SIMILAR CIRCUMSTANCES, THE RELEVANT EXTRACTS THEREOF ARE AS FOLLOWS: 'THE SECOND QUESTION PERTAINS TO BROKERAGE COMMISSI ON OF RS.72,37,808/- DISALLOWED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER DISALLOWED THE COMMISSION ON THE GROUND THAT M/S. SHREE SHANTINATH SILK INDUSTRIES DID NOT MAINTAIN ITS RECORD AND ITS NAME DID NOT APPEAR ON SALE BILL. WHEN IT WAS CHALLENGED BEFORE THE CIT(A) IT WAS OF THE OPINION THAT THE ONLY ONE PARTY HAD BEEN EXAMINED BY THE ASSESSING OFFICER AND THE PERS ON EXAMINED FOR AND ON BEHALF OF SUCH PARTY IN FACT WAS NOT DEALING WITH S ALES, AND THEREFORE, WOULD NOT BE HAVING ANY KNOWLEDGE OF THE BROKERAGE. AFTER DEALING WITH THE ISSUE AT LENGTH, IT SUSTAINED ADDITION OF RS. 36.18 LACS (RO UNDED OFF). 6. WHEN CIT( A)'S ORDER WAS CHALLENGED BEFORE THE T RIBUNAL, THE TRIBUNAL DELETED THE ENTIRE ADDITION BY OBSERVING THUS: ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 38 '23. WE HAVE HEARD THE RIVAL SUBMISSIONS AND THE MA TERIALS PLACED ON RECORD. WE ARE INCLINED TO AGREE WITH THE SUBMISSIO N MADE ON BEHALF OF THE ASSESSEE AND FIND THAT NO EVIDENCE, HAD BEEN PLACED ON RECORD THAT THE COMMISSION EXPENSE IS BOGUS. ASSESSEE MADE PAYMENT OF COMMISSION EXPENSES IS BOGUS. ASSESSEE MADE PAYMENT OF COMMISSION THROUGH ACCOUNT PAYEE CHEQUES FOR SALES CANVASSED BY THE PARTY AND ALSO IN CONSIDERATION OF THE COLLECTI ON RECOVERED FROM PURCHASER. PAYMENTS CANNOT BE UNREASONABLE PARTICUL ARLY WHEN M/S. SHREE SHANTINATH SILK INDUSTRIES IS NOT RELATED TO THE ASSESSEE AND SO EVEN DISALLOWANCE MADE BY CIT(A) IS NOT PROPER. WE THEREFORE DELETE THE FULL DISALLOWANCE OF RS.72137,808/- MADE BY THE ASSESSING OFFICER. HENCE ASSESSEE'S GROUND OF APPEAL IS ALLOWED AND RE VENUE'S GROUND OF APPEAL IS ALLOWED AND REVENUE'S GROUND OF APPEAL IS DISMISSED. 7. THIS ISSUE IS AGAIN BASED ON FACTS. ESSENTIALLY THE TRIBUNAL TIES, WITH COGENT REASONS DEALT WITH THE ISSUE, NO QUESTION OF LAW, M UCH LESS ANY SUBSTANTIAL QUESTION OF LAW ARISES. THE TAX APPEAL IS RESULTANT LY, DISMISSED ' 5. APPLYING THE RATIO LAID DOWN IN THESE DECISIONS TO THE FACTS OF THE CASE, I FIND THAT THE APPELLANT HAD PRODUCED BEFORE THE ID. AO; ALL T HE RELEVANT DOCUMENTS TO SUBSTANTIATE ITS TRANSACTIONS WITH RNPL. THE LD. AO DID NOT PROVE ANY SPECIFIC FALSITY OR INFIRMITY IN THESE DOCUMENTS. EVEN THOUGH IN THE IMPUGNED ORDER THE LD. AO ALLEGED THAT THE PAYMENTS MADE BY ACCOUNT PAYEE CHE QUES WERE RETURNED BACK TO THE APPELLANT THROUGH MULTI-LAYERING OF THE TRANSAC TION, NO SUPPORTING EVIDENCE TO SUBSTANTIATE SUCH ALLEGATION WAS BROUGHT ON RECORD. EVEN THE CAUSE FOR NON- EXISTENCE OF THE COMPANY AT THE GIVEN ADDRESS WAS E XPLAINED BY THE LD. AO TO THE EFFECT THAT COMPANY HAD BEEN WOUND UP AT THE TIME W HEN ENQUIRY WAS CONDUCTED. IN VIEW OF THESE FACTS THEREFORE, I HOLD THAT THERE WA S NO VALID FOR THE LD. AO TO MAKE DISALLOWANCE OF RS.34,01,811/- AND THE SAME IS ACCO RDINGLY DELETED. GROUND NO. 17 IS THEREFORE ALLOWED. 27. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO R IVAL PLEADINGS SUPPORTING AND CONTESTING THE IMPUGNED DISALLOWANCE . THE ASSESSING OFFICER HAD ADMITTEDLY INVOKED THE IMPUGNED DISALLOWANCE MA INLY ON THE GROUND THAT THE PAYEE HEREIN ALLEGED TO HAVE PROVIDED CONSULTAN CY SERVICES TO THE ASSESSEES TURNED OUT TO A SHELL ENTRY IN MERE ACCO MMODATION ENTRY BUSINESS. LEARNED CIT-DR FAILS TO DISPUTE THAT THE ASSESSEE H AD PLACED ON RECORD ALL THE RELEVANT EVIDENCE OF THE SAID RECIPIENT. HON'BL E JURISDICTIONAL HIGH COURTS DECISION IN INBUILT MERCHANT PVT. LTD. (SUPRA) HAS ALREADY SET IDENTICAL ISSUE TO TREAT THAT SUCH A COMPLIANCE BY WAY OF ALL DETAILED EVIDENCE FORMS SUFFICIENT REASON TO PROVE RENDERING OF THE SERVICES AS WELL A S GENUINENESS OF PAYMENTS. WE THUS AFFIRM THE CIT(A)S FINDINGS DELE TING THE IMPUGNED MANAGEMENT CONSULTANCY SERVICES DISALLOWANCE AS WEL L. ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 39 28. LASTLY COMES THE REVENUES 8 TH SUBSTANTIVE GRIEVANCE THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING NOTIONAL INTEREST INCOME ADDITION OF 10,23,81,896/- RECEIVED / RECEIVABLE FROM M/S SPL F OR LOANS PROVIDED. THE CIT(A)S DETAILED DISCUSSION DELETING THE IMPUGNED ADDITION READS AS UNDER:- 35. DECISION : 1 . I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E LD. ARS. I HAVE ALSO PERUSED THE IMPUGNED ISSUE AS EMANATING FROM THE AS SESSMENT ORDER. I HAVE ALSO CONSIDERED THE LOAN AGREEMENT AND THE SUPPLEME NTARY DEED BETWEEN THE APPELLANT & SPL. IN THE IMPUGNED ORDER THE LD. AO N OTED THAT FROM PERUSAL OF FORM 26AS OF THE AST SYSTEM, HE FOUND THAT SPL HAS DEDUCTED TAX OF RS.1,17,22,859/- U/S 194A IN RESPECT OF SUM OF RS.1 1,72,28,588/-; WHEREAS IN THE APPELLANT'S BOOKS AS ALSO IN THE RETURN OF INCO ME, THE INTEREST INCOME OFFERED BY THE APPELLANT IN RESPECT OF THE SAID PAY ER WAS ONLY RS.1,48,76,697/- . THE ID. AO ALSO NOTED THAT THE APPELLANT HAD CLAI MED TDS OF RS.11,44,428/- IN RESPECT OF TAX DEDUCTED BY SPL ALTHOUGH AS PER S TATEMENT OF FORM 26AS, THE TAX DEDUCTED WAS RS.1,17,22,859/-. THE APPELLAN T WAS ACCORDINGLY DIRECTED TO EXPLAIN THE DISCREPANCY. BEFORE THE ID. AO IT WAS EXPLAINED THAT THE APPELLANT COMPANY HAD GRANTED LOAN TO SPL ON TH E TERMS EVIDENCED BY THE LOAN AGREEMENT DATED 01.12.2007 AND IN TERMS TH EREOF THE INTEREST AT THE RATES PRESCRIBED AMOUNTING TO RS.1,48,46,692/- WAS OFFERED TO TAX. THE SAID AGREEMENT ALSO PROVIDED FOR CHARGING OF PENAL INTER EST BY WAY OF LIQUIDATED DAMAGES IN THE EVENT THERE WAS DEFAULT ON THE PART OF THE BORROWER TO PAY INTEREST AND RE-PAY PRINCIPAL. IT WAS EXPLAINED THA T IN FY 2012-13, SPL UNILATERALLY MADE A PROVISION FOR PENAL INTEREST FO R THE ENTIRE PERIOD OF DEFAULT STARTING FROM 2007 AMOUNTING TO RS.10,57,86,112/- A ND DEDUCTED THEREON AT THE RATE OF 10%. IT WAS THE APPELLANT'S CONTENTION THAT IT HAD NEVER ENFORCED THE PENAL INTEREST CLAUSE DEMANDING LIQUIDATED DAMA GES AT ANY TIME DURING THE CURRENCY OF LOAN AGREEMENT AND SPL HAS UNILATER ALLY MADE PROVISION FOR SUCH PENAL INTEREST IN ITS BOOKS WITHOUT MAKING ACT UAL PAYMENT. IN FACT IN THE IMMEDIATELY SUCCEEDING YEAR, SPL HAD PASSED NECESSA RY ENTRIES REVERSING SUCH PENAL INTEREST PURSUANT TO THE ADDENDUM EXECUT ED BETWEEN THE PARTIES. THE EXPLANATION PUT FORTH BY THE APPELLANT WAS HOWE VER FOUND UNACCEPTABLE. ACCORDING TO LD. AO THE APPELLANT MAINTAINED ITS BO OKS OF ACCOUNTS BY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THERE FORE THE INCOME ACCRUED TO THE APPELLANT SINCE THE LOAN-DEBTOR' HAD PROVIDE D INTEREST IN ITS BOOKS AND TAX WAS ALSO DEDUCTED FROM THE INTEREST AMOUNT IN T HE YEAR UNDER CONSIDERATION. ACCORDINGLY THE LD. AO MADE ADDITION OF RS.10,23,81,896/ -. 2 . ON CAREFUL PERUSAL OF THE LD. AO'S OBSERVATIONS, I FIND THAT THE CONCLUSIONS DRAWN BY THE LD. AO SUFFER FROM SEVERAL INFIRMITIES , LEGAL AS WELL AS FACTUAL. THE APPELLANT HAD ENTERED INTO A LOAN AGREEMENT DAT ED 01.12.2007 WITH M/S SPL, IN TERMS OF WHICH THE ASSESSEE HAD GIVEN LOAN OF RS.15 CRORES CARRYING INTEREST RATE OF SBI PLR ( SUBJECT TO MINIMUM OF 12% ). THE INTEREST WAS PAYABLE AT QUARTERLY RESTS. CLAUSE 3.07 OF THE LOAN AGREEMENT PROVIDED FOR CHARGING OF PENAL INTEREST IN THE FORM OF LIQUIDATE D DAMAGES, WHERE THE BORROWER COMMITTED DEFAULT IN ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 40 3 . FROM THE FOREGOING FACTS AND THE SEQUENCE OF EVEN TS, I NOTE THAT THE ENTIRE ADDITION AS MADE IN THE IMPUGNED ORDER WAS SIMPLY B ASED ON BOOK ENTRIES PASSED BY THE LOAN DEBTOR IN ITS BOOKS WITHOUT THER E BEING ANY INTENTION ON ITS PART TO MAKE PAYMENT OF PENAL INTEREST AT ANY TIME. I NOTE THAT IN THE IMPUGNED ORDER THE LD. AO HAS JUSTIFIED THE ADDITIO N SOLELY ON THE GROUND THAT THE APPELLANT FOLLOWED MERCANTILE SYSTEM OF ACCOUNT ING AND THEREFORE APPELLANT WAS OBLIGED TO RECOGNIZE THE INCOME IN TH E SAME YEAR IN WHICH CORRESPONDING PROVISION FOR INTEREST PAYMENT WAS MA DE BY THE LOAN-DEBTOR. I FIND THAT THE REASONING PUT FORTH BY THE ID. AO IS DEVOID OF ANY MERIT AND ADDITION CANNOT BE SUSTAINED ON SUCH REASON. ADMITT EDLY THE INTEREST OF RS.10,23,81,896/- DID NOT PERTAIN TO FY 2012-13 BEI NG RELEVANT AY 2013-14 ALONE. THE PROVISION FOR PENAL INTEREST TO THE ENTI RE PERIOD OF DEFAULT COMMENCING FROM DECEMBER 2007 WHEN THE LOAN WAS TAK EN BY SPL. IN THE CIRCUMSTANCES THE INTEREST INCLUDING PENAL INTEREST FOR THE PERIOD PRIOR TO 1ST APRIL 2012 COULD NOT HAVE BEEN CONSIDERED BY THE ID . AO AS APPELLANT'S INCOME FOR AY 2013-14 EVEN UNDER MERCANTILE SYSTEM OF ACCOUNTING. WHERE THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTI NG, THEN IT WAS WHOLLY IMMATERIAL WHETHER- OR NOT THE DEBTOR OR THE APPELL ANT HAD PASSED ACCOUNTING ENTRIES IN THEIR BOOKS IN RESPECT OF SUCH INTEREST. HOWEVER THE FACTS & THE ASSESSEE'S ACTION DEMONSTRATE BEYOND ANY DOUBT THAT ASSESSEE HAD NEVER INVOKED PENAL CLAUSE OF ARTICLE 3.07 OF THE AGREEME NT AND HAD NEVER DEMANDED FROM THE BORROWER PAYMENT OF LIQUIDATED DA MAGES. EVEN THOUGH IN THE PAST ASSESSMENTS, THE APPELLANT HAD FOLLOWED ME RCANTILE SYSTEM OF ACCOUNTING, THE ID. AO HAD NOT MADE OUT A CASE THAT PENAL INTEREST WAS ALSO ASSESSABLE AS INCOME BECAUSE THE APPELLANT FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. IN THE CIRCUMSTANCES I FIND THAT EVEN I N THE REGULAR ASSESSMENTS OF EARLIER YEARS, THE AO ACCEPTED THAT PENAL INTERE ST DID NOT ACCRUE TO THE ASSESSEE AS INCOME AND ON THAT FOOTING NO ADDITION WAS MADE, THERE WAS NO LEGAL JUSTIFICATION FOR THE ID. AO TO ASSESS TIRE E NTIRE ARREARS OF PENAL INTEREST IN AY 2013-14 MERELY BECAUSE AN ENTRY IN THE BOOKS OF ACCOUNTS WAS PASSED BY THE BORROWER AND THAT TOO THERE BEING NO DEMAND FOR PAYMENT OF LIQUIDATED DAMAGES FROM THE APPELLANT'S SIDE. I THEREFORE FIND MERIT IN THE LD. ARS' SUBMISSIONS THAT PENAL INTEREST, IF ANY, FOR PERIOD 1ST APRIL 2012 COULD NOT HAVE BEEN ASSESSED AS INCOME OF THE APPELLANT IN AY 2013-14, MERELY ON THE BASIS OF PROVISION MADE THEREFORE IN THE BOOKS OF D EBTOR. 4. EVEN WITH REGARD TO THE PENAL INTEREST ALLEGEDLY PERTAINING TO FY 2012-13, I FIND MERIT IN THE ID. ARS' SUBMISSIONS THAT SUCH IN TEREST DID NOT REPRESENT ANY REAL INCOME ' ASSESSABLE TO TAX IN THE APPELLANT'S HANDS. FROM THE CONDUCT OF THE PARTIES, IT IS NOTED THAT THE APPELLANT HAD GRA NTED LOAN OF RS.15 CRORES IN DECEMBER 2007. THE AGREEMENT PRESCRIBED FOR PAYMENT OF INTEREST EQUAL TO SBI PRIME LENDING RATE OR 12%, WHICHEVER IS HIGHER. THE SAID AGREEMENT ALSO CONTAINED CLAUSE FOR PAYMENT OF LIQUIDATED DAM AGES IN THE EVENT THE BORROWER COMMITTED DEFAULT IN PAYMENT OF INTEREST. IT WAS A PENAL CLAUSE INCORPORATED IN THE AGREEMENT TO PROTECT THE INTERE ST OF LENDER AND TO FORCE THE BORROWER TO PAY WITHOUT COMMITTING ANY DEFAULT. HOW EVER' SUCH PENAL CLAUSE WAS NEVER INVOKED BY THE APPELLANT AND NO DEMAND WA S EVER RAISED ON THE BORROWER TILL 31 ST MARCH 2013. I ALSO NOTE THAT SPL WAS DECLARED AS A SICK INDUSTRIAL COMPANY AND REFERRED TO BIFR. ACCORDINGL Y THE BORROWER ENJOYED STATUTORY PROTECTIONS FROM THE CREDITORS SUCH AS AP PELLANT WHO COULD NOT HAVE ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 41 INSTITUTED ANY LEGAL PROCEEDINGS FOR RECOVERY OF LO AN AMOUNTS. IN SUCH BACKGROUND THEREFORE, I FIND MERIT IN THE AR'S SUBM ISSIONS THAT THE GROUND REALITIES WERE SUCH EVEN THE RECOVERY OF PRINCIPAL WAS IN SERIOUS QUESTION AND THEREFORE MERELY BECAUSE THE AGREEMENT CONTAINED A CLAUSE FOR PAYMENT OF LIQUIDATED DAMAGES, INCOME IN FORM OF PENAL INTERES T DID NOT ACCRUE OR ARISE, GIVING RISE TO ACCRUAL OF ' REAL INCOME '. THE FACT THAT NO INCOME IN THE FORM OF LIQUIDATED DAMAGES WERE ACTUALLY EARNED OR RECEIVED IS FURTHER FORTIFIED FROM THE FACT THAT IN THE IMMEDIATELY SUCCEEDING YEAR, T HE APPELLANT ENTERED INTO AN ADDENDUM WHERE UNDER THE FACT THE APPELLANT HAD NEV ER DEMANDED PAYMENT OF PENAL INTEREST OR LIQUIDATED DAMAGES WAS RECOGNI ZED BY THE PARTIES IN WRITING. PURSUANT TO EXECUTION OF SUCH ADDENDUM, SP L HAD PASSED ENTRIES IN ITS BOOKS OF ACCOUNTS R REVERSING THE PROVISION MAD E FOR PAYMENT OF PENAL INTEREST. A CONFIRMATION OF THESE FACTS ISSUED BY S PL WAS ALSO FURNISHED BEFORE THE LD. AO IN THE COURSE OF ASSESSMENT. THE FOREGOING FACTS AND DOCUMENTS THEREFORE PROVE BEYOND DOUBT THAT SAVE & EXCEPT PASSING TILE ENTRIES BOOKS OF ACCOUNTS FOR FY 2012-13, SPL HAD NEVER ACTED UPON THESE ENTRIES AND PAYMENT OF PENAL INTEREST NEVER MATERIA LIZED AND THE ASSESSEE DID NOT RECEIVE ANY PART OF SUCH PENAL INTEREST. IN FACT I NOTE THAT SINCE THE APPELLANT HAD NOT DEMANDED PAYMENT OF LIQUIDATED DA MAGES NOT ONLY THE APPELLANT DID NOT ACCOUNT FOR SUCH PENAL INTEREST B UT ALSO DID NOT CLAIM CREDIT FOR THE TAX WHICH WAS UNILATERALLY BY SPL FROM THE AMOUNT OF PENAL INTEREST. THESE FACTS THEREFORE CUMULATIVELY SHOW THAT THE AP PELLANT HAD NEVER MADE ANY DEMAND FOR PAYMENT OF LIQUIDATED DAMAGES FROM S PL EVEN THOUGH THE APPELLANT FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING BUT ACCOUNTED ONLY THE INCOME IN THE FORM OF NORMAL INTEREST. 5. THE LD. AO HAS JUSTIFIED THE ASSESSMENT OF PENAL INTEREST OR LIQUIDATED DAMAGES SOLELY ON THE GROUND THAT THE APPELLANT FOL LOWED MERCANTILE SYSTEM OF ACCOUNTING. THE ISSUE AS TO WHETHER A FICTIONAL INCOME OR HYPOTHETICAL INCOME CALL BE ASSESSED TO TAX, IN THE HANDS OF ASS ESSEES, FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING HAS BEEN ADJUDICATE D BY NUMEROUS JUDICIAL AUTHORITIES INCLUDING THE APEX COURT. THE AUTHORITA TIVE JUDGMENT ON THE SUBJECT WAS RENDERED BY THE SUPREME COURT IN THE CA SE OF CIT VS. SHOORJI VALLABHDAS (46 ITR 144) WHEREIN IT WAS HELD AS FOLLOWS: 'INCOME-TAX IS A LEVY ON INCOME. NO DOUBT! THE INCO ME-TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABIL ITY TO TAX IS ATTRACTED, VLZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A ' HYPOTHETICAL INCOME ', WHICH DOES NOT MATERIALISE. WHERE INCOME HAS, IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIV EN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE REC IPIENT EVEN THOUGH GIVEN UP THE TAX MAY BE PAYABLE. WHERE, HOWEVER, TH E INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSL Y NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFF ECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOU NT . THIS WAS EXACTLY WHAT HAD HAPPENED IN INSTANT CASE. HERE THE AGREEMENTS WITHIN THE PREVIOUS YEAR REPLACED THE EARLIER AGREE MENTS, AND ALTERED THE RATE IN SUCH A WAY AS TO MAKE THE INCOME DIFFER ENT FROM WHAT HAD ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 42 BEEN ENTERED IN THE BOOKS OF ACCOUNT. A MERE BOOK-K EEPING ENTRY CANNOT BE INCOME, UNLESS INCOME HAS ACTUALLY RESULT ED, AND IN THE INSTANT CASE, BY THE CHANGE OF THE TERMS THE INCOME WHICH ACCRUED AND WAS RECEIVED CONSISTED OF THE LESSER AMOUNTS AND NO T THE LARGER . THIS WAS NOT A GIFT BY THE ASSESSEE FIRM TO THE MANAGED COMPANIES. THE REDUCTION WAS A PART OF THE AGREEMENT ENTERED INTO BY THE ASSESSEE FIRM TO SECURE A LONG-TERM MANAGING AGENCY ARRANGEM ENT FOR THE TWO COMPANIES WHICH IT HAD FLOATED. 6. THE SAME WAS ONCE AGAIN EXPRESSED BY THE HON'BLE APEX COURT IN ITS DECISION IN THE CASE OF GODRA ELECTRICITY CO. LTD VS. CIT (225 ITR 746) . THE RELEVANT EXTRACTS OF TILE JUDGMENT IS AS FOLLOWS: 'UNDER THE ACT INCOME CHARGED TO TAX IS THE INCOME THAT IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN THE PREVIOUS Y EAR RELEVANT TO THE YEAR FOR WHICH ASSESSMENT IS MADE OR ON THE INCOME THAT ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE IN INDIA DUR ING SUCH YEAR. THE COMPUTATION OF SUCH INCOME IS TO BE MADE IN ACCORDA NCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSEE. IT MAY BE EITHER THE CASH SYSTEM WHERE ENTRIES ARE MADE ON TH E BASIS OF ACTUAL RECEIPTS AND ACTUAL OUTGOINGS OR DISBURSEMENTS OR I T MAY BE THE MERCANTILE SYSTEM WHERE ENTRIES ARE MADE ON ACCRUAL BASIS I.E., ACCRUAL OF THE RIGHT TO RECEIVE PAYMENT AND THE ACC RUAL OF THE LIABILITY TO DISBURSE OR PAY . IN THE INSTANT CASE EVEN THOUGH T HE ASSESSEE- COMPANY WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCO UNTING AND HAD MADE ENTRIES IN THE BOOKS REGARDING ENHANCED CHARGE S FOR THE SUPL2IY- MADE TO THE CONSUMERS, NO REAL INCOME HAD ACCRUED T O THE ASSESSEE- COMPANY IN RESPECT OF THOSE ENHANCED CHARGES IN VIEW OR THE FACT THAT SOON AFTER THE ASSESSEE-COMPANY DECIDED TO ENHANCE THE RATES IN 1963 REPRESENTATIVE SUITS WERE FILED BY THE CONSUME RS WHICH WERE DECREED BY THE TRIAL COURT AND WHICH DECREE WAS AFF IRMED BY THE APPELLATE COURT AND THE HIGH COURT AND IT WAS ONLY ON 3-10-1968 THAT THE LETTERS PATENT APPEALS FILED BY THE ASSESSEE-CO MPANY WERE ALLOWED BY THE DIVISION BENCH OF THE HIGH COURT AND THE SAI D SUITS WERE DISMISSED BUT APPEALS WERE FILED AGAINST THE SAID J UDGMENT BY THE CONSUMERS IN THE SUPREME COURT AND THE SAME WERE DI SMISSED BY THE JUDGMENT OF THE SUPREME COURT DATED 26-2-1969. SHOR TLY THEREAFTER, ON 19-3-1969, THE UNDER SECRETARY TO THE GOVERNMENT OF GUJARAT WROTE A LETTER ADVISING THE ASSESSEE-COMPANY TO MAINTAIN TH E STATUS QUO FOR THE RATES TO THE CONSUMERS FOR AT LEAST- SIX MONTHS. NO DOUBT, THE LETTER ADDRESSED BY THE UNDER SECRETARY TO THE GOVERNMENT OF GUJARAT TO THE ASSESSEE-COMPANY, HAD NO IEGALLY BINDING EFFECT BUT ONE HAS TO LOOK AT THINGS FROM PRACTICAL POINT OF VIEW THAT THE ASSESS EE - COMPANY, BEING A LICENSEE, COULD NOT IGNORE THE DIRECTION OF THE S TATE GOVERNMENT WHICH WAS COUCHED IN THE FORM OF AN ADVICE, WHEREBY THE ASSESSEE- COMPANY WAS ASKED TO MAINTAIN THE STATUS QUO FOR AT LEAST SIX MONTHS AND NOT TO TAKE STEPS TO RECOVER THE DUES TOWARDS E NHANCED CHARGES FROM THE CONSUMERS DURING THIS PERIOD BEFORE THE EX PIRY OF THE PERIOD OF SIX MONTHS THE SUBSEQUENT SUIT HAD BEEN FILED BY TH E CONSUMERS AND ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 43 DURING THE PENDENCY OF THE SAID SUIT THE UNDERTAKIN G OF THE ASSESSEE- COMPANY WAS TAKEN OVER BY THE GOVERNMENT OF GUJARAT UNDER THE DEFENCE OF INDIA RULES, AND SUBSEQUENTLY, IT WAS TR ANSFERRED TO THE GUJARAT STATE ELECTRICITY BOARD AND, AS A RESULT, T HE ASSESSEE-COMPANY WAS NOT IN A POSITION TO TAKE STEPS TO RECOVER THE ENHANCED CHARGES. IN SUBSEQUENT REPRESENTATIVE SUIT THE CONSUMERS WER E CHALLENGING THE ENHANCEMENT IN CHARGES MADE IN 1963 AND HAD SOUGHT A DECLARATION THAT THE ASSESSEE-COMPANY WAS NOT ENTITLED TO RECOV ER MORE THAN 31 PAISE PER UNIT FOR LIGHT AND FANS AND 20 PAISE PER UNIT FOR MOTIVE POWER AND THE TRIAL COURT, WHILE DECREEING THE SAID SUIT HAD GIVEN A DECLARATION IN THESE TERMS. HENCE, THE SAID DECLARATION WAS NOT CONFINED TO THE PERIOD SUBSEQUENT TO 31-3-1969. THE QUESTION WHETHE R THERE WAS REAL ACCRUAL OF INCOME TO THE ASSESSEE-COMPANY IN RESPEC T OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY HAD TO BE CONSIDE RED BY TAKING THE PROBABILITY OR IMPROBABILITY OF REALISATION IN A RE ALISTIC MANNER. IF THE MATTER WAS CONSIDERED IN THIS LIGHT IT WAS NOT POSS IBLE TO HOLD THAT THERE WAS REAL ACCRUAL OF INCOME TO THE ASSESSEE-COMPANY IN RESPECT OF THE ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY WHICH WE RE ADDED BY THE AO WHILE PASSING THE ASSESSMENT ORDERS IN RESPECT OF T HE ASSESSMENT YEARS UNDER CONSIDERATION. THE TRIBUNAL, THEREFORE, HAD RIGHTLY HELD THAT THE CLAIM AT THE INCREASED RATES AS MADE BY THE ASS ESSEE-COMPANY ON THE BASIS OF WHICH NECESSARY ENTRIES WERE MADE REPR ESENTED ONLY HYPOTHETICAL INCOME AND THE IMPUGNED AMOUNTS AS BRO UGHT TO TAX BY THE ASSESSING OFFICER DID NOT REPRESENT THE INCOME WHICH HAD REALLY ACCRUED TO THE ASSESSEE-COMPANY DURING THE RELEVANT PREVIOUS YEARS . 7. APPLYING THE SAME RATIO, THE JURISDICTIONAL CALC UTTA HIGH COURT IN THE CASE OF SRI KEWAL CHAND BAGRI VS CIT (183 ITR 207); HAD HELD AS FOLLOWS: 'THE MERCANTILE SYSTEM OF ACCOUNTING IS RELEVANT ON LY TO DETERMINE THE POINT OF TIME AT WHICH TAX LIABILITY IS ATTRACTED A ND WHETHER THE INCOME HAS ACCRUED OR NOT. IT CANNOT BE RELIED ON TO DETER MINE WHETHER THE INCOME HAS, IN FACT, RESULTED OR MATERIALISED IN FA VOR OF THE ASSESSEE. IN THE INSTANT CASE, IT WAS TRUE THAT THE ASSESSEE HAD BEEN MAINTAINING HIS ACCOUNTS ON THE BASIS OF MERCANTILE SYSTEM OF ACCOU NTING. THE INTEREST INCOME MIGHT HAVE ACCRUED ACCORDING TO THE MERCANTI LE SYSTEM, BUT THE ISSUE HAD TO BE VIEWED IN THE CONTEXT OF COMMERCIAL AND BUSINESS REALITIES OF THE SITUATION. THE FACT REMAINED THAT FROM THE YEAR 1970 ONWARDS THE ASSESSEE DID NOT RECEIVE ANY INTEREST A S THE DEBTOR WAS UNABLE TO PAY ANY INTEREST; INCOME BY WAY OF INTERE ST WAS NOT, IN FACT, REALISED BY THE ASSESSEE AND HAD NOT BECOME HIS INC OME IN THE REAL SENSE . THE ASSESSEE WAS NOT ABLE TO RECOVER THE PRINCIPA L, AND, ACCORDINGLY, THE CHARGE OF INTEREST IN SUCH A CASE WOULD HAVE ON LY INFLATED THE ASSESSEE'S INCOME AND THE ASSESSEE WOULD HAVE BEEN LIABLE TO P AY TAX ON SUCH HYPOTHETICAL INCOME, WHEN IT WAS NOT THE REAL INCOM E OF THE ASSESSEE AND WHEN IT REALLY WAS NOT REFLECTED IN THE ACCOUNTS OF THE ASSESSEE. HENCE, THE ITO WAS NOT RIGHT IN ESTIMATING THE INTEREST INCOME OF THE ASSESSEE. ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 44 8. BESIDES THE FOREGOING JUDGMENTS, THE ID. AR OF T HE APPELLANT HAD RELIED UPON SEVERAL OTHER JUDGMENTS WHEREIN THE SAME LEGAL PRINCIPLE HAS BEEN STATED BY THE JUDICIAL AUTHORITIES AND THEREFORE FO R THE SAKE OF AVOIDING THE REPETITION, THESE JUDICIAL DECISIONS ARE NOT DISCUS SED HEREIN. SUFFICE TO SAY, THAT IT HAS BEEN JUDICIALLY HELD THAT SUBJECT MATTE R OF TAXATION IS AND HAS ALWAYS BEEN THE ' REAL INCOME ' AND NOT HYPOTHETICAL INCOME OR NOTIONAL INCOME AND THEREFORE UNLESS IN REALITY THE INCOME A CCRUES TO AN ASSESSEE, THERE CANNOT BE ANY CHARGE OF TAX IRRESPECTIVE OF E NTRIES MADE IN THE BOOKS OF ACCOUNTS OR LACK OF ENTRIES IN THE BOOKS. HAVING RE GARD TO THE FACTS INVOLVED IN THE PRESENT CASE, I FIND THAT SPL IN DEFAULT SINCE INCEPTION OF THE LOAN TRANSACTION AND BEING A BIFR DECLARED SICK COMPANY, THE REALIZATION OF THE PRINCIPAL ITSELF WAS IN SERIOUS DOUBT. IN THE CIRCU MSTANCES MERELY BECAUSE THE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING, THE AO COULD NOT BRING TO TAX INCOME IN THE FORM OF LIQUIDATED DAMAGES ALTHOU GH A CLAUSE IN THE AGREEMENT PROVIDED FOR PAYMENT OF SUCH LIQUIDATED D AMAGES. I ALSO FIND THAT A UNILATERAL ENTRY MADE BY THE BORROWER IN FY 2012-13 WAS IMMEDIATELY REVERSED IN THE BOOKS OF THE BORROWERS IN THE IMMED IATELY SUCCEEDING YEAR AND NO PART OF THE PENAL INTEREST WAS RECEIVED BY T HE APPELLANT AT ANY TIME. ON THESE FACTS THEREFORE I HAVE NO HESITATION IN HO LDING THAT NO INCOME IN ' REAL TERMS ' ACCRUED TO THE APPELLANT AND THEREFORE THE ADDITI ON OF RS.I0,23,81,896/- WAS LEGALLY AS WELL AS FACTUALLY UNSUSTAINABLE AND SAME IS ORDERED TO BE DELETED. GROUND NO. 18 IS THEREFORE ALLOWED . 29. WE HAVE HEARD RIVAL CONTENTIONS. THE FACTUAL PO SITION, AS IT IS EVIDENT FROM THE CASE FILE(S) IS THAT THE ASSESSEE HAD ADMI TTEDLY ADVANCE A LOAN OF 15 CRORES TO M/S SPL LTD. VIDE AGREEMENT DATED 01.1 2.2007. THE SAID ENTITY APPEARS TO HAVE BEEN DEFAULTING CONSISTENTLY SINCE THEN. COMING TO THE RELEVANT FINANCIAL YEAR, THE BORROWER CONCERNED ACC OUNTED FOR PENAL INTEREST EXPENDITURE AS WELL FROM THE INCEPTION OF THE ABOVE STATED LOAN AGREEMENT. LEARNED COUNSEL CLARIFIES THAT ASSESSEE THEREAFTER ENTERED INTO AN ADDENDUM DATED 06.03.2014 CONTENDING DELAY ON THE SAID ENTIT Y PART. THESE TWO PARTIES RESOLVED NOT TO ENFORCE THE DAMAGES CLAUSE IN THE O RIGINAL AGREEMENT. WE ARE INFORMED THAT THE ASSESSING OFFICER WENT BY THE SAI D CLAUSE ONLY IN ADDING THE IMPUGNED SUM. THERE IS NO EVIDENCE ABOUT THE ASSESS EE HAVING RECEIVED ANY SUCH AMOUNT SINCE WE ARE DEALING WITH AN INSTANCE O F NOTIONAL INTEREST INCOME ONLY. THAT BEING THE CASE, WE FIND NO FAULT IN THE CIT(A)S ACTION GOING ONLY BY REAL INCOME PRINCIPLE IN VIEW OF THE VARIOUS JUDICI AL PRECEDENTS THAT SUCH A NOTIONAL INCOME IN CASE OF DEFAULTING ENTITY A NPA DOES NOT LEAD TO ASSESSMENT OF TAXABLE INCOME. TRIBUNALS CO-ORDINAT E BENCHS DECISION IN ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 45 YASH CORPORATION VS. INCOME TAX OFFICER WARD-5(2)(4 ) AHMEDABAD ITA NO.95/AHD/2017 DATED 01.01.2019 AND TOYO ENGINEERING INDIA VS. J CIT (2006) SOT 616 (MUM) ALSO HOLD THAT THE DEPARTMENT COULD NOT ADD A NY NOTIONAL INCOME IN AN ASSESSEES HANDS JUST BECAUSE A PAYER HAD DEPOSITED TDS QUA THE SAME. WE WISH TO RE-EMPHASIS HERE THAT THERE I S MATERIAL WHATSOEVER WHICH COULD SUGGEST PAYMENT CREDIT OF AN Y INTEREST INCOME IN ASSESSEES BOOKS. WE THUS UPHOLD THE CIT(A)S FINDI NGS UNDER CHALLENGE. THIS REVENUES INSTANT LAST APPEAL ITA NO.219/KOL/2018 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES THEREFORE. 30. THIS LEAVES US WITH ASSESSEES AS MANY CROSS OB JECTIONS CO NO.94 TO 96/KOL/2018 FILED IN REVENUES THREE APPEAL(S) RAISING SOLE SU BSTANTIVE GROUND CHALLENGING CORRECTNESS OF BOTH THE LOWER AU THORITIES ACTION DISALLOWING / ADDING EDUCATIONAL CESS AMOUNTS OF 1,66,54,761/-, 1,54,89,712/- & 2,24,58,912/- BY QUOTING US 40(A)(II) OF THE ACT. 31. IT TRANSPIRES AT THE OUTSET THAT ALL THESE THRE E CROSS OBJECTION(S) SUFFER FROM 166 DAYS IDENTICAL DELAY STATED TO BE ATTRIBU TABLE TO COMMUNICATION GAP AND COMPILATION OF RECORDS GOING BY ITS CONDONATION AVERMENTS. ITS EXECUTIVE OFFICER IS ALLEGED TO HAVE SUFFERED FROM SERIOUS HE ALTH AILMENTS. HON'BLE HON'BLE APEX COURTS LANDMARK JUDGMENT COLLECTOR, LAND ACQUISITION VS. MST. KATIJI (1987) 167 ITR 471 (SC) HOLDS THAT ALL TECHNICAL A SPECTS MUST MAKE WAY FOR THE CAUSE OF SUBSTANTIAL JUSTICE. WE A CCORDINGLY CONDONE THE IMPUGNED DELAY OF 166 DAYS IN FILING OF ASSESSEES CROSS OBJECTIONS ON MERITS. 32. COMING TO MERITS, WE FIND THAT THIS ISSUE OF ED UCATIONAL CESS DISALLOWANCE U/S 40(A)(IA) IS NO MORE RES INTEGRA AS HON'BLE RAJASTHAN HIGH COURTS JUDGMENT IN D.B. TAX APPEAL NO. 52 OF 2018 CHEMBAL FERTILIZERS & CHEMICALS LTD. HOLDS THAT THE RELEVANT STATUTORY PROVISION TO THI S EFFECT AS WELL AS THE CBDTS CIRCULAR ISSUED WAY BACK ON 18.05.196 7 DO NOT INCLUDE CESS . LEARNED CO-ORDINATE BENCHS DECISION IN ITC LTD. CA SE ITA NO.685/KOL/2014 ITA NO.217-219/K/18 & CO 94-96/K/18 A.Y.S 1 1-12 TO 13-14 DCIT, CC-2(1), KOL. VS. M/S PAHARPUR COOLING TOWERS LTD. PAGE 46 DATED 27.11.2018 ALSO DECIDED THE VERY ISSUE IN ASS ESSEES FAVOUR. HON'BLE JURISDICTIONAL HIGH COURTS SREI INFRASTRUCTURES FI NANCE LTD. VS. PCIT ITAT 121 OF 2019 DATED 08.08.2019 HAS ALSO REVERSED THIS TRI BUNALS CO-ORDINATE BENCHS DECISION DATED 27.02.2019 DECIDING THE ISSUE IN REV ENUES FAVOUR. LEARNED CIT-DR AT THIS STAGE QUOTED (2016) 72 TAXMANN.COM 2 38 (CAL) SREI INFRASTRUCTURES FINANCE LTD. VS. DCIT THAT A SURCHARGE IS NOT ANYTHING ELSE OTHER THAN INCOME TAX QUA MAT CREDIT UNDER SEC.115J AA OF THE ACT. WE CONCLUDE IN THIS BACKDROP OF FACT THAT SINCE THEIR LORDSHIPS LATTER DECISION SPECIFICALLY DELETING WITH SEC. 40(A)(II) OF THE AC T HAS GONE IN ASSESSEES FAVOUR, WE DIRECT THE ASSESSING AUTHORITY TO FINALI SE CORRESPONDING COMPUTATION AFTER DELETING THE IMPUGNED DISALLOWANCE. THESE THR EE CROSS OBJECTIONS CO NOS. 94 TO 96/KOL/2018 ARE ACCEPTED. 33. THE REVENUES INSTANT THREE APPEAL(S) ITA NOS. 217 TO 219/KOL/2018 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS ASSESSEES THREE CROSS OBJECTION(S) CO NOS.94 TO 96/KOL/2018 ARE ALLOWED. A COPY OF THE INSTANT COMMON ORDER BE PLACED IN THE RESPECTIVE CASE FILE( S) . ORDER PRONOUNCED IN THE OPEN COURT 28/02/2020 SD/- SD/- ( $) (, $) (DR.A.L.SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP, SR.P.S -- 28 / 02 /20 20 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-M/S PAHARPUR COOLING TOWERS LTD., 8/1/B, DIAMOND HARBOUR RD. KOLKATA-27 2. $ /REVENUE-DCIT, CC-2(1), 3 RD FLOOR, AAYAKAR BHAWAN, POORVA E.M. BYE PASS 110, SHANTI PALLY, K OLKATA-107 3. 7 8 / CONCERNED CIT KOLKATA 4. 8- / CIT (A) KOLKATA 5. ; ,,7, 7, / DR, ITAT, KOLKATA 6. @ / GUARD FILE. BY ORDER/ , /TRUE COPY/ 7,