M/s. Hella India Lighting Ltd., New Delhi V. DCIT, New Delhi

ITA 1109/DEL/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7176 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 25-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY I BARA
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; Principle of natural justice; International transaction; Retrospective amendment; Permanent establishment; Question of law; Bad and doubtful debts; Notional interest; Revenue expenditure; TDS
• Section: 143(3); 92B; 40(a)(ia); 37(1); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : I-1 : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.1109/DEL/2015 ASSESSMENT YEAR: 2010-11 HELLA INDIA LIGHTING LTD., B-13, BADARPUR EXTENSION, NEW DELHI. PAN: AAACJ0101G VS DCIT, CIRCLE-11(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. RAKESH GUPTA, ADVOCATE & SHRI SOMIL AGGARWAL, ADVOCATE REVENUE BY : SHRI SANJAY I BARA, CIT, DR DATE OF HEARING : 16.05.2019 DATE OF PRONOUNCEMENT : 29.07.2019 ORDER PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 23 RD DECEMBER, 2014 PASSED BY THE DCIT, CIRCLE 11(1), NE W DELHI U/S 143(3) READ WITH SECTION 144C OF THE IT ACT, 1961 FOR ASSESSMENT YEA R 2010-11. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTOMOBILE COMPONENTS INCLUDING HEAD LAMPS, TAIL LAMPS, HORNS SWITCHES, BULBS, SUNDRY LAMPS, WIPER A RMS AND WIPER BLADES. IT FILED ITS ITA NO.1109/DEL/2015 2 RETURN OF INCOME ON 5 TH OCTOBER, 2010 DECLARING A LOSS OF RS.1,46,71,148/- . SINCE THE ASSESSEE HAS UNDERTAKEN INTERNATIONAL TRANSACTIONS WITH ITS AE, THE ASSESSING OFFICER REFERRED THE MATTER TO THE TPO FOR DETERMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTIONS. THE TPO, DURING THE TP ASSESSMENT PR OCEEDINGS, OBSERVED THAT THE ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATION AL TRANSACTIONS WITH ITS AE:- S.NO NATURE OF INTERNATIONAL TRANSACTION AMOUNT (INR) SEGMENT MOST APPROPRIATE METHOD 1 EXPORT OF FINISHED GOODS 56,601,655 CONTRACT MANUFACTURING FUNCTION TRANSACTIONAL NET MARGIN METHOD ('TNMM') 2 PURCHASE OF RAW MATERIALS FOR MANUFACTURING 13,070,917 3 PURCHASE OF CAPITAL ASSETS 135,900 4 PAYMENT OF NETWORKING CHARGES 2,090,737 5 PURCHASE OF FINISHED GOODS FOR DISTRIBUTION 10,111,803 DISTRIBUTION FUNCTION TNMM 6 INTEREST ON FOREIGN CURRENCY LOAN 1,013,423 - COMPARABLE UNCONTROLLED PRICE METHOD (CUP') 7 RECOVERY OF SALES PROMOTION EXPENSES 394,579 - COST TO COST 8 ISSUE OF PREFERENCE SHARE CAPITAL 60,363,000 - BENCHMARKING NOT REQUIRED 9 REIMBURSEMENT OF EXPENSES 22,44,668 - COST- TO- COST 10 GUARANTEE CHARGES 1,267,311 - COST- TO- COST 3. AFTER CONSIDERING VARIOUS OBJECTIONS FILED BY TH E ASSESSEE DURING THE COURSE OF TP ASSESSMENT PROCEEDINGS, THE TPO MADE AN UPWARD A DJUSTMENT OF RS.62,82,128/- WHICH CONSISTED OF TWO ADJUSTMENTS I.E., (A) ON ACC OUNT OF TRANSACTIONS RELATED TO CONTRACT MANUFACTURING FUNCTIONS RS.49,46,985/-; AND (B) ON ACCOUNT OF INTEREST RECEIVABLE FROM DEBTORS RS.13,35,143/-. THE ASSE SSEE APPROACHED THE DRP WHO ITA NO.1109/DEL/2015 3 GAVE PART RELIEF TO THE ASSESSEE OUT OF THE ADJUSTM ENT ON ACCOUNT OF TRANSACTIONS RELATED TO CONTRACT MANUFACTURING FUNCTIONS WHEREIN THEY RE STRICTED THE SAME TO RS.22,07,465/- AS AGAINST RS.49,46,985/- MADE BY THE ASSESSING OFF ICER/TPO. SO FAR AS THE ADJUSTMENT ON ACCOUNT OF RECEIVABLES FROM DEBTORS I S CONCERNED, THE DRP UPHELD THE SAME. THERE WERE CERTAIN OTHER ADDITIONS MADE BY T HE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER SUCH AS DISALLOWANCE ON ACCOUNT OF NON-DEDUCTION OF TDS ON GUARANTEE CHARGES AND NETWORKING CHARGES, ADDITION ON ACCOUNT OF ADVANCES WRITTEN OFF AND CAPITALIZATION OF INTEREST EXPENSES WHICH A RE UPHELD BY THE DRP. THE ASSESSING OFFICER, IN THE FINAL ASSESSMENT ORDER, A CCORDINGLY DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.34,50,020/-. 4. AGGRIEVED WITH SUCH ORDER OF THE A.O./TPO/DRP, T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUND S:- 1. THAT THE APPELLANT DENIES ITS LIABILITY TO BE A SSESSED AT TOTAL LOSS OF RS.34,50,020/- WHEREAS ASSESSEE COMPANY HAS DECLARE D LOSS OF RS.1,46,71,148/- FOR THE YEAR UNDER CONSIDERATION. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. DRP HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACT ION OF LD. AO IN ASSUMING JURISDICTION AND IN MAKING REFERENCE TO LD. TPO FOR DETERMINING ARMS LENGTH PRICE. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. DRP HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACT ION OF LD. AO IN MAKING AN AGGREGATE ADDITION OF RS.35,42,608/- ON ACCOUNT OF ARMS LENGTH PRICE ON ACCOUNT OF TRANSACTIONS RELATED OF CONTRACT MANUFAC TURING AND ON ACCOUNT OF INTEREST ON RECEIVABLES. 4. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. DRP IN CONFIRMING THE ACTION OF LD. AO IN MAKING AN AGGREG ATE ADDITION OF RS.35,42,608/- ON ACCOUNT OF ARMS LENGTH PRICE ON ACCOUNT OF TRANSACTIONS RELATED OF CONTRACT MANUFACTURING AND ON ACCOUNT OF INTEREST ON RECEIVABLES IS BAD ITA NO.1109/DEL/2015 4 IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF T HE CASE AND THE SAME HAS BEEN MADE IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. DRP HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACT ION OF LD. AO IN MAKING DISALLOWANCE OF RS.33,58,048/- BEING NETWORKING CHA RGES AND GUARANTEE CHARGES AND THAT TOO U/S 40A(IA) BY RECORDING INCORRECT FAC TS AND FINDINGS. 6. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. DRP IN CONFIRMING THE ACTION OF LD. AO IN MAKING DISALLOWA NCE OF RS.33,58,0487- BEING NETWORKING CHARGES AND GUARANTEE CHARGES IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SAME HAS BEEN MAD E IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND WITHOUT GIVING ADEQUATE OPPO RTUNITY OF HEARING. 7. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. DRP HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACT ION OF LD. AO IN DISALLOWING A SUM OF RS.7,26,566/- ON ACCOUNT OF ADVANCES WRITTEN OFF. 8. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. DRP IN CONFIRMING THE ACTION OF LD. AO IN MAKING DISALLOWA NCE A SUM OF RS.7,26,566/- ON ACCOUNT OF ADVANCES WRITTEN OFF IS BAD IN LAW AN D AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SAME HAS BEEN MAD E IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND WITHOUT GIVING ADEQUATE OPPO RTUNITY OF HEARING. 9. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. DRP HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACT ION OF LD. AO IN DISALLOWING A SUM OF RS.35,93,908/- ON ACCOUNT OF CAPITALIZATION OF INTEREST EXPENSES. 10. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. DRP IN CONFIRMING THE ACTION OF LD. AO IN MAKING DISALLOWA NCE A SUM OF RS.35,93,908/- ON ACCOUNT OF CAPITALIZATION OF INTEREST EXPENSES I S BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE SAME HA S BEEN MADE IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE AND WITHOUT GIVING AD EQUATE OPPORTUNITY OF HEARING. 11. THAT THE TRANSFER PRICING ORDER DATED 20-01-201 4 PASSED U/S 92CA(3) IS BAD IN LAW, CONTRARY TO FACTS, ILLEGAL AND IS NOT S USTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS. 12. THAT THE DRAFT ORDER DATED 28-02-2014 IS ALSO I LLEGAL AND IS NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS. 13. THAT THE ORDER PASSED BY HONBLE DISPUTE RESOLU TION SYSTEM U/S 144C(5) DATED 12-11-2014 IS ALSO ILLEGAL AND THE SA ME IS NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS AND THE DIRECTION S ISSUED THEREIN ARE ALSO CONTRARY TO LAW AND FACTS. ITA NO.1109/DEL/2015 5 14. THAT THE ORDER PASSED U/S 143(3)/144C DATED 23- 12-2014 IS ILLEGAL, CONTRARY TO LAW AND FACTS, BARRED BY LIMITATION AND THE SAME IS NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS AND THE ADDITIONS MADE THEREIN ARE ALSO BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. THAT THE APPELLANT CRAVES THE LEAVE TO ADD, MODIFY, AMEND OR DELETE ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING AND ALL TH E ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. 5. GROUNDS OF APPEAL NO.1 AND 2 BEING GENERAL IN NA TURE ARE DISMISSED. 6. GROUNDS OF APPEAL NO.3 AND 4 RELATES TO THE ORDE R OF THE DRP IN CONFIRMING THE UPWARD ADJUSTMENT OF RS.35,42,608/- ON ACCOUNT OF A LP OF TRANSACTIONS RELATED TO CONTRACT MANUFACTURING AND ON ACCOUNT OF INTEREST R ECEIVABLE. SO FAR AS THE UPWARD ADJUSTMENT OF RS.13,35,143/- ON ACCOUNT OF RECEIVAB LES IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE, REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. KUSUM HEALTHCARE PVT. LTD., 398 ITR 66 , SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD THAT WHERE THE ASSESSEE HAS ALREADY FACTORED THE IMPACT OF RECEIVABLES OF WORKING CAPITAL AND THEREB Y ON ITS PRICING/PROFITABILITY VIS-- VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF OUTSTANDING RECEIVABLES WILL DISTRACT THE PICTURE AND RE-CHARAC TERIZE THE TRANSACTION. REFERRING TO THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER/T PO DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO PAPER BOOK PAGES 582 TO 584 AND SUBMITTED THAT THE ASSESSEE DURING T HE COURSE OF PROCEEDINGS BEFORE THE TPO HAD SUBMITTED BILL-WISE REALIZATION OF EXPORT P ROCEEDS DUE FROM AE WITH AN ANALYSIS OF THE DELAYED PERIOD WHICH WAS NOT MAJOR. HE SUBMITTED THAT THE ASSESSEE GENERALLY GRANTS 60 DAYS CREDIT LIMIT TO THE AE WHE REAS THE CREDIT LIMIT GRANTED TO NON- ITA NO.1109/DEL/2015 6 AES WAS FOR A PERIOD OF 90 DAYS. REFERRING TO VARI OUS PAGES OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO THE NUMBER OF DA YS WHICH VARIES FROM 122 TO 180 DAYS IN CASE OF NON-AE VENDORS FOR COLLECTION OF RE CEIVABLES. EVEN IN CERTAIN CASES THE RECEIVABLES DUE FROM NON-AE WAS OUTSTANDING FOR MOR E THAN 180 DAYS. HE SUBMITTED THAT THE ASSESSEE COMPANY ENJOYED GOOD MARGIN ON SA LES MADE TO AE IN COMPARISON WITH SALES MADE TO NON-AE. FURTHER, THERE WAS NO R ISK OF ANY BAD DEBTS OR NON- RECOVERY OR SHORT RECOVERY IN RESPECT OF DEBTS RECE IVABLES FROM AE WHEREAS THE TRANSACTION WITH NON-AES ARE ALWAYS SUBJECT TO THE RISK OF DISPUTE. THEREFORE, IT IS NOT CORRECT FOR THE A.O./TPO/DRP TO IMPOSE THE NOTIONAL INTEREST COST. HE SUBMITTED THAT THE COORDINATE BENCHES OF THE TRIBUNAL, FOLLOWING T HE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KUSUM HEALTHCARE PVT. LTD . ARE DELETING THE ADJUSTMENTS ON ACCOUNT OF RECEIVABLES FROM DEBTORS. HE ACCORDINGL Y SUBMITTED THAT THE ADJUSTMENT ON ACCOUNT OF RECEIVABLES SHOULD BE DELETED. 6.1 SO FAR AS THE ADDITION OF RS.22,07,465/- SUSTAI NED BY THE DRP OUT OF THE ADDITIONS OF RS.49,46,985/- BEING ADJUSTMENT ON ACC OUNT OF TRANSACTIONS RELATED TO CONTRACT MANUFACTURING FUNCTIONS ARE CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE, REFERRING TO PAGE 182 OF THE PAPER BOOK, DREW THE A TTENTION OF THE BENCH TO THE SEGMENTAL PROFIT AND LOSS GIVEN BY THE ASSESSEE. W HILE EXPLAINING THE REASONS FOR INCURRING LOSS FROM NON-AE IS CONCERNED, HE SUBMITT ED THAT THE SELLING RATE TO NON-AES REMAINED STATIC FOR YEARS TOGETHER WHEREAS THE PROF IT MARGIN FROM THE AES IS GOOD. REFERRING TO PAGE 368 OF THE PAPER BOOK, THE LD. CO UNSEL DREW THE ATTENTION OF THE BENCH TO THE REPLY GIVEN TO THE TPO WHEREIN THE DET AILED ANALYSIS OF COST ALLOCATED ITA NO.1109/DEL/2015 7 BETWEEN AES AND NON-AES, SUPPLY AS WELL AS MANUFACT URING AND DISTRIBUTION OPERATION WAS GIVEN. PAGE 371 OF THE PAPER BOOK IS THE SAMPL E INVOICE DATED 2 ND FEBRUARY, 2005 RAISED AGAINST ASHOK LEYLAND LTD., CHENNAI WHEREAS THE PRICE CHARGED WAS RS.156 FOR A UNIT OF TAIL LIGHT 24 V. REFERRING TO PAPER BOOK 574 AND 575, HE DREW THE ATTENTION OF THE BENCH TO THE REPLY GIVEN BEFORE THE TPO, A PART OF WHICH READS AS UNDER:- 3. ASSESSEE COMPANY SELL UNDER THE MANUFACTURING S EGMENT TO: (I) OEM WITHIN INDIA I.E. TATA MOTORS, ASHOK LEYLAN D ETC (II) EXPORT SALE TO ASSOCIATED ENTERPRISES. IN CASE OF EXPORT SALE TO AE COMPANY MANUFACTURED SPECIFIED PARTS LIKE (LAMP, SWITCHES A ND PLUG SOCKET) WHICH RELATE TO MERCEDES, BMW, AND NISSAN WHICH ARE THE PREMIUM CLASS PRODUCTS. IT IS PERTINENT TO MENTION THAT COMPANY HAD NOT RECEIVED ANY PRICING INCREASE SINCE LAST THREE OR FOUR YEARS FROM THE OEM CUSTOMERS I.E . TATA MOTORS, ASHOK LEYLAND ETC IN RESPECT OF GOOD SOLD TO THEM WHEREAS COST OF RAW MATERIAL AS WELL AS OTHER MANUFACTURING COST HAD BEEN GONE UP CONSID ERABLY. IN ORDER SUBSTANTIATE THE SAID FACTS WE ARE ENCLOSING HEREWITH AN ANALYSI S OF THE SELLING PRICE OF MAJOR PRODUCTS TO OEM IN INDIA FOR THE YEAR 2006-07 TO 20 09-10 AS ANNEXURE 1 ALONG WITH THE SAMPLE COPIES OF THE INVOICES/ PURCHASE OR DERS WHICH DULY ESTABLISHED THAT SELLING PRICE OF THE PRODUCTS SOLD TO OEM IN I NDIA UNDER MANUFACTURING SEGMENT WAS STATIC OR THE SAME AND THERE WERE NO AN Y INCREASE IN THE SELLING PRICE. THE SAME INFORMATION WAS DULY SUBMITTED BEFO RE THE LD. TPO ALSO. 7. HE SUBMITTED THAT THE ASSESSEE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE A.O./TPO WITH A DIRECTION TO VERIFY THE FACTUAL ASPECT AND TAKE APPROPRIATE DECISION. 8. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTE D THE ORDER OF THE A.O./TPO/DRP. SO FAR AS THE ADJUSTMENT ON ACCOUNT OF RECEIVABLES IS CONCERNED, HE SUBMITTED THAT THE LD. DRP WHILE SUSTAINING THE ADJ USTMENT MADE BY THE A.O./TPO HAS CORRECTLY ADJUDICATED THE ISSUE AND HAS SUSTAINED T HE UPWARD ADJUSTMENT. SO FAR AS THE ISSUE RELATING TO MANUFACTURING SEGMENT IS CONCERNE D, HE SUBMITTED THAT HE HAS NO ITA NO.1109/DEL/2015 8 OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF A.O./TPO FOR FRESH ADJUDICATION IN THE LIGHT OF THE VARIOUS INVOICES FILED BY THE ASSESSEE IN THE PAPER BOOK. 9. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE A.O./TPO/DRP AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BY BOTH THE SIDES. WE FIND THE ASSESSING OFFICER IN THE INSTANT CASE, MADE AN UPWA RD ADJUSTMENT OF RS.62,82,128/- ON ACCOUNT OF TRANSACTIONS RELATED TO CONTRACT MANUFAC TURING FUNCTIONS AND ON ACCOUNT OF NOTIONAL INTEREST ON AMOUNTS RECEIVABLE. SO FAR AS THE UPWARD ADJUSTMENT ON ACCOUNT OF TRANSACTIONS RELATED TO CONTRACT MANUFACTURING F UNCTIONS IS CONCERNED, THE DRP RESTRICTED THE SAME TO RS.22,07,465/- WHEREAS THE D RP UPHELD THE UPWARD ADJUSTMENT OF RS.13,35,143/- ON ACCOUNT OF INTEREST ON RECEIVA BLES. SO FAR AS THE ADJUSTMENT ON ACCOUNT OF CONTRACT MANUFACTURING SEGMENT IS CONCER NED, IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS MATTER SHOULD BE RESTORED TO THE FILE OF THE A.O./TPO FOR FRESH ADJUDICATION FOR WHICH THE LD. DR HAS NO OBJECTION. WE, THEREFORE, DEEM IT PROPER TO RESTORE THE ISSUE RELATING TO ADJUSTMENT ON ACCOUNT OF MANUFACTURING SEGMENT FOR FRESH ADJUDICATION BY THE A.O./TPO WHO SHALL DE CIDE THE ISSUE AS PER FACT AND LAW, AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SO FAR AS THE ADJUSTMENT ON ACCOUNT OF RECEIVABLES IS CONCERNED, WE FIND FROM V ARIOUS PAGES OF THE PAPER BOOK FILED BY THE ASSESSEE THAT THERE IS CONSIDERABLE DE LAY EVEN FROM THE NON-AES WHICH SOME TIMES IS MORE THAN THE DELAY FROM THE AES. WE , THEREFORE, FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE THAT W HEN THE ASSESSEE IS NOT CHARGING ANY ITA NO.1109/DEL/2015 9 INTEREST ON RECEIVABLES FROM THE NON-AES IT IS NOT JUSTIFIED TO MAKE ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST ON RECEIVABLES FROM T HE AES. WE FIND THE HON'BLE DELHI HIGH COURT IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. (SUPRA) WHILE DEALING WITH AN IDENTICAL ISSUE HAS OBSERVED AS UNDER:- 10. THE COURT IS UNABLE TO AGREE WITH THE ABOV E SUBMISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EX PRESSION RECEIVABLES DOES NOT MEAN THAT DE HORS THE CONTEXT EVERY ITEM OF R ECEIVABLES APPEARING IN THE ACCOUNTS OF AN ENTITY, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WOULD AUTOMATICALLY BE CHARACTERISED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EV EN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF FACTORS WHICH WILL HAVE TO BE I NVESTIGATED ON A CASE TO CASE BASIS. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON T HE WORKING CAPITAL OF THE ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS, T HERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANALYSING THE STATISTICS OVER A PERIO D OF TIME TO DISCERN A PATTERN WHICH WOULD INDICATE THAT VIS--VIS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECTS AN INTERNATIONAL TRANS ACTION INTENDED TO BENEFIT THE AE IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CAN HA RDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDING THAT THE FIGURE OF RECEIVA BLES BEYOND 180 DAYS CONSTITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES O N THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITABILITY VIS--VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTANDING REC EIVABLES WOULD HAVE DISTORTED THE PICTURE AND RE-CHARACTERISED THE TRANSACTION. T HIS WAS CLEARLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIA NCES LTD. (2012) 345 ITR 241 (DELHI). 12. CONSEQUENTLY, THE COURT IS UNABLE TO FIND ANY E RROR IN THE IMPUGNED ORDER OF THE ITAT GIVING RISE TO ANY SUBSTANTIAL QUESTION OF LAW FOR DETERMINATION. THE APPEAL IS, ACCORDINGLY, DISMISSED. 10. THE VARIOUS OTHER DECISIONS RELIED ON BY THE LD . COUNSEL TO THE PROPOSITION THAT NO ADJUSTMENT IS REQUIRED ON ACCOUNT OF RECEIVABLES FROM AES WHEN THE ASSESSEE IS NOT CHARGING ANY INTEREST ON RECEIVABLES FROM NON-AES A LSO SUPPORT HIS CASE. IN VIEW OF THE ABOVE, WE DIRECT THE ASSESSING OFFICER TO DELET E THE ADDITION ON ACCOUNT OF NOTIONAL ITA NO.1109/DEL/2015 10 INTEREST ON RECEIVABLES. GROUNDS NO.3 AND 4 BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 11. IN GROUNDS 5 AND 6, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE DRP IN SUSTAINING THE ADDITION OF RS.33,58,048/- MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 12. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, OBSERVED THAT THE ASSESSEE COMPANY HAS DEBITED AN AMOUNT OF RS.12,37,311/- TOWARDS GUARANTEE CHARGES AND RS.20, 90,737/- TOWARDS NETWORKING CHARGES TO FOREIGN COMPANIES WITHOUT DEDUCTING TDS ON THEM. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THESE EXPENSES SH OULD NOT BE DISALLOWED. IT WAS SUBMITTED BY THE ASSESSEE THAT DEDUCTION OF TDS ON NETWORKING CHARGES OF RS.20,90,737/- UNDER SECTION 195 IS NOT APPLICABLE SINCE THEY ARE MAKING REIMBURSEMENT OF COST INCURRED BY THE FOREIGN COMPA NY FOR USE OF NETWORKING. THERE IS NO ELEMENT OF PROFIT. REFERRING TO THE DECISION OF THE AAR, NEW DELHI IN THE CASE OF DANFOSS INDUSTRIES LTD., 138 TAXMAN 280, IT WAS ARGUED THAT TO APPLY SECTION 195, THE AMOUNT IN QUESTION SHOULD BE INCOME OF PAY EE AND NOT A MERE REIMBURSEMENT OF COST INCURRED BY THE PAYEE. IT WAS ACCORDINGLY A RGUED THAT NO TDS IS REQUIRED ON ACCOUNT OF REIMBURSEMENT OF NETWORKING CHARGES. SO FAR AS THE GUARANTEE CHARGES OF RS.12,67,311/- IS CONCERNED, IT WAS SUBMITTED THAT THE ASSESSEE HAS PAID GUARANTEE CHARGES TO HELLA, GERMANY WHICH HAS BEEN CHARGED TO HELLA INDIA LIGHTING ON COST TO COST BASIS WITHOUT ANY MARK UP. HENCE, TDS U/S 195 IS NOT APPLICABLE. THE DECISION ITA NO.1109/DEL/2015 11 IN THE CASE OF DANFOSS INDUSTRIES PVT. LTD. (SUPRA) WAS RELIED UPON. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE ARGUME NTS ADVANCED BY THE ASSESSEE AND HELD THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX F ROM THE PAYMENTS MADE TO THE FOREIGN COMPANIES. EVEN OTHERWISE ALSO HE HELD THA T THE PROVISIONS OF SECTION 9(1)(VII) WOULD APPLY TO THE ASSESSEE AND, THEREFORE, THE NET WORKING CHARGES AND GUARANTEE CHARGES PAID TO NON-RESIDENTS IS INCOME DEEMED TO A CCRUE OR ARISE IN INDIA WITHIN THE MEANING OF SECTION 9 OF THE INCOME-TAX ACT AND THE ASSESSEE IS LIABLE TO DEDUCT TDS ON THE EXPENDITURE OF NETWORKING CHARGES AND GUARAN TEE CHARGES PAID TO NON-RESIDENTS. THE LD. DRP UPHELD THE ACTION OF THE ASSESSING OFFI CER. 13. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALL ENGED THE ORDER OF THE DRP/A.O. IN DISALLOWING GUARANTEE CHARGES AND NETWORKING CHA RGES U/S 40(A)(IA) FOR NON- DEDUCTION OF TAX. HE SUBMITTED THAT THE GUARANTEE CHARGES WILL CONSTITUTE BUSINESS INCOME OF THE AE AND SINCE THE AE HAS NO PE IN INDI A AND IT IS MERELY A REIMBURSEMENT, THEREFORE, THE ASSESSEE IS NOT REQUI RED TO DEDUCT ANY TDS. REFERRING TO PAGE 729 OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE DATE-WISE REIMBURSEMENT OF SUCH EXPENS ES OF RS.20,90,737/-. SO FAR AS THE NETWORKING CHARGES IS CONCERNED, THE LD. COUNSE L FOR THE ASSESSEE, REFERRING TO PAGE 729 OF THE PAPER BOOK, DREW THE ATTENTION OF THE BE NCH TO THE MONTHLY CHARGES OF REIMBURSEMENT OF NETWORKING CHARGES OF RS.20,90,737 /-. REFERRING TO PAGE 738 TO 746 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BEN CH TO THE VARIOUS CLAUSES OF THE AGREEMENT AND SUBMITTED THAT SINCE BOTH THE AMOUNTS ARE ON ACCOUNT OF ITA NO.1109/DEL/2015 12 REIMBURSEMENT, THEREFORE, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE AND THE ASSESSEE IS NOT REQUIRED TO DEDUCT ANY TAX FROM SUC H PAYMENT. IN HIS ALTERNATE ARGUMENT, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE PAYMENT OF ROYALTY CHARGES AND NETWORKING CHARGES IS NOT INCOME CHARGE ABLE TO TAX IN INDIA AT LEAST WHEN THE RETURN WAS FILED. REFERRING TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD. VS. DIT, 288 ITR 408 , HE SUBMITTED THAT THE HON'BLE SUPREME COURT IN THE SAI D DECISION HAS HELD THAT THE FEES FOR SERVICES TO A NON-RESIDENT IS NOT TAXABLE IN IN DIA MERELY BECAUSE NON-RESIDENT HAS PERMANENT ESTABLISHMENT IN INDIA. IT HAS BEEN HELD THAT IF SERVICES ARE UTILIZED IN INDIA AND THEY ARE RENDERED IN INDIA THEN ONLY THE PROVIS IONS OF SECTION 9(1)(VII) ARE ATTRACTED. REFERRING TO THE DECISION OF THE AGRA B ENCH IN THE CASE OF DCIT VS. VIROLA INTERNATIONAL REPORTED IN 147 ITD 519, HE SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT RETROSPECTIVE AMENDMENT IN L AW DOES CHANGE THE TAX LIABILITY IN RESPECT OF AN INCOME WITH RETROSPECTIVE EFFECT, BUT , IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY WITH RETROSPECTIVE EFFECT. I N THE SAID DECISION, IT HAS FURTHER BEEN HELD THAT THE AMENDMENT TO SECTION 9(1)(VII), EXPLA NATION 2 IS APPLICABLE FROM 08.05.2010 AND ONWARDS AND NOT PRIOR TO THAT. HE A CCORDINGLY SUBMITTED THAT THE ASSESSEE DOES NOT HAVE ANY TAX WITHHOLDING LIABILIT IES FROM THE FOREIGN REMITTANCE AND, THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 40(A)(IA ). HE FURTHER SUBMITTED THAT THE GUARANTEE CHARGES AND NETWORKING CHARGES PAID TO TH E FOREIGN COMPANIES IS ALSO NOT CHARGEABLE TO TAX AS FTS SINCE THE AE DOES NOT HAVE ANY PE IN INDIA. FOR THE ABOVE PROPOSITION, HE RELIED ON THE DECISION OF THE HON'B LE SUPREME COURT IN THE CASE OF DIT ITA NO.1109/DEL/2015 13 (INTERNATIONAL TAXATION) VS. A.P. MOLLER MAERSK AS REPORTED IN 392 ITR 186. THE LD. DR, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE A.O./TPO/DRP. 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE A.O./TPO/DRP AND THE PAPER BOOK F ILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER, IN THE INSTANT CASE, MADE ADDITION OF RS.3 3,58,048/- ON ACCOUNT OF NETWORKING CHARGES OF RS.20,90,737/- AND GUARANTEE CHARGES OF RS.12,67,311/- PAID TO FOREIGN COMPANIES WITHOUT DEDUCTING TDS THEREON WHICH WAS U PHELD BY THE DRP. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THERE IS NO ELEMENT OF PROFIT ON ACCOUNT OF PAYMENT OF NETWORKING CHARGES SINCE IT I S MERELY A REIMBURSEMENT OF EXPENSES. FROM THE VARIOUS PAGES OF THE PAPER BOOK , WE FIND THE LD. COUNSEL FOR THE ASSESSEE HAS DEMONSTRATED BEFORE US THAT THE NETWOR KING CHARGES OF RS.20,90,737/- IS MERELY A REIMBURSEMENT OF EXPENSES AND, THEREFORE, WE FIND MERIT IN HIS ARGUMENT THAT THERE IS NO ELEMENT OF PROFIT AND, THEREFORE, DEDUC TION OF TAX AT SOURCE IS NOT REQUIRED. SIMILARLY, IN THE CASE OF GUARANTEE CHARGES OF RS.1 2,67,311/- WE FIND THE ASSESSEE DURING THE COURSE OF HEARING BEFORE THE ASSESSING O FFICER HAD GIVEN THE FOLLOWING EXPLANATION:- GUARANTEE CHARGES RS.12,67,311 HELL GERMANY HAS GIVEN CORPORATE GUARANTEE TO DEUTS CHE BANK IN SUPPORT OF OVERDRAFT LIMIT OF HELLA INDIA LIGHTING WITH THE BA NK. DURING F. Y. 2009-2010. HELL INDIA HAS PAID GUARANTEE CHARGES TO HELLA GERM ANY OF RS. 12,67,311 WHICH HAS BEEN CHARGED TO HELLA INDIA LIGHTING ON COST TO COST BASIS WITHOUT ANY MARK UP. HENCE TDS U/S 195 IS NOT APPLICABLE. IN SUPPORT OF IT WE ARE ENCLOSING HEREWITH OPINION OF CHORDIYA AND CO. IN ADDITION TO LEGAL OPINION IT WAS DECIDED ITA NO.1109/DEL/2015 14 BY AAR NEW DELHI IN CASE OF DANFOSS INDUSTRIES PRIV ATE LIMITED. 138 TAXMAN 280 THAT TO APPLY SECTION 195 AMOUNT IN QUES TION SHOULD BE INCOME OF PAYEE AND NOT A MERE REIMBURSEMENT OF COST INCURRED BY PAYEE. THEREFORE TDS IS NOT REQUIRED TO BE DEDUCTED ON REIMBURSEMENT OF GUA RANTEE CHARGES OF RS.12,67,311 HENCE SUCH EXPENDITURE SHOULD BE ALLOW ED AS BUSINESS EXPENDITURE. 15. SINCE THIS IS ALSO A REIMBURSEMENT WITHOUT ANY ELEMENT OF PROFIT, WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL THAT NO TAX IS REQUIRED TO BE DEDUCTED FROM SUCH PAYMENT TO THE FOREIGN COMPANY. IN VIEW OF THE ABO VE DISCUSSION, SINCE BOTH THE PAYMENTS MADE TO FOREIGN COMPANIES ARE REIMBURSEMEN T OF EXPENSES, WE HOLD THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT TAX FROM THE REMIT TANCES SO MADE. GROUNDS NO.5 AND 6 ARE ACCORDINGLY ALLOWED. 16. IN GROUNDS NO.7 AND 8, THE ASSESSEE HAS CHALLEN GED THE ORDER OF THE DRP IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER AND DISALLOWING A SUM OF RS.7,26,566/- ON ACCOUNT OF ADVANCES WRITTEN OFF. 17. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMP ANY HAS WRITTEN OFF ADVANCES OF RS.7,26,566/- IN THE P&L ACCOUNT. ON BEING QUESTIO NED BY THE ASSESSING OFFICER, IT WAS EXPLAINED THAT SUCH ADVANCES HAVE BEEN GIVEN FO R NEW CAPITAL PROJECT OF FARIDABAD UNIT. THE COMPANY WAS CONSTRUCTING A NEW MANUFACTU RING PLANT AT FARIDABAD. IN THE LIGHT OF THE GLOBAL ECONOMIC SHUT DOWN AND ITS IMPA CT ON THE EXPECTED FUTURE DEMAND, THE MANAGEMENT HAS DECIDED TO CEASE THE CONSTRUCTIO N OF THE PLANT AT FARIDABAD. SINCE THE SUPPLY OF THE MATERIAL WAS NOT REQUIRED AND THE SUPPLIER HAS NOT REFUNDED THE ITA NO.1109/DEL/2015 15 ADVANCE GIVEN TO THEM, THE COMPANY WROTE OFF SUCH A DVANCES U/S 37(1) AS BUSINESS EXPENDITURE. VARIOUS DECISIONS WERE ALSO BROUGHT T O THE NOTICE OF THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER DID NOT AG REE WITH THE PLEA OF THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE COMPANY HAS MADE THES E ADVANCES TO THE SUPPLIERS DURING F.Y. 2008-09 AND PRIOR AMOUNTING TO RS.7,26, 566/-, THEREFORE, THESE ARE CAPITAL EXPENSES WHICH THE ASSESSEE HAS TREATED NOW AS REVE NUE EXPENDITURE WHICH IS CONTRARY TO THE PROVISIONS OF THE ACT. HE, THEREFORE, MADE THE ADDITION OF RS.7,26,566/- TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. DRP UPHELD T HE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE FAILED TO DEMONSTRA TE THAT WHETHER OR NOT THE FARIDABAD UNIT IS FOR THE NEW BUSINESS OR OTHERWISE. 18. AGGRIEVED WITH SUCH ORDER OF THE DRP, THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. 19. THE LD. COUNSEL FOR THE ASSESSEE, REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDO RAMA SYNTHETICS VS. CIT, 333 ITR 18 , SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HELD TH AT THE PROJECT RELATED EXPENSES ARE REVENUE IN NATURE WHEN AN AMOUNT IS SPENT FOR EXPAN SION OF BUSINESS AND SUCH EXPANSION WAS ABANDONED, THE AMOUNT SPENT SHALL BE ALLOWED AS REVENUE EXPENDITURE. 20. THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DER OF THE A.O./TPO/DR. 21. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THE A SSESSING OFFICER MADE ADDITION OF ITA NO.1109/DEL/2015 16 RS.7,26,566/- BEING THE AMOUNT WRITTEN OFF AS ADVAN CES IN THE P & L ACCOUNT ON THE GROUND THAT THESE ARE CAPITAL IN NATURE. WE FIND T HE DRP UPHELD THE ACTION OF THE ASSESSING OFFICER. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SINCE SUCH ADVANCES WERE GIVEN FOR NEW CAPITAL PROJECT OF FARIDABAD UNIT AND THE PROJECT WAS ABANDONED DUE TO THE GLOBAL ECONOMIC SHUT DOWN AND ITS IMPACT ON THE EXPECTED FUTURE DEMAND AND SINCE THE SUPPLIERS DID NOT REFUND THE A MOUNT, THEREFORE, SUCH ADVANCES WERE WRITTEN OFF AND CLAIMED AS BUSINESS EXPENDITUR E U/S 37(1) OF THE IT ACT. WE FIND THE HON'BLE DELHI HIGH COURT IN THE CASE OF INDO RA MA SYNTHETICS (SUPRA) HAS HELD THAT WHERE THE ASSESSEE HAS INCURRED CERTAIN EXPEND ITURE FOR EXPANSION OF BUSINESS WHICH WAS SUBSEQUENTLY ABANDONED, THE AMOUNT SO SPE NT WAS ALLOWABLE AS REVENUE EXPENDITURE. IT HAS FURTHER BEEN HELD IN THE SAID DECISION THAT SINCE THE PROJECT WAS ABANDONED NO NEW ASSET CAME TO BE CREATED AND IT WA S ACCORDINGLY HELD THAT THE EXPENDITURE WAS DEDUCTIBLE. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT CITED, SUPRA, WE HOLD THAT THE AMOUNT IN QUESTION HAS TO BE ALLO WED AS A REVENUE EXPENDITURE. THE GROUNDS RAISED BY THE ASSE SSEE ON THIS ISSUE ARE ACCORDINGLY ALLOWED. 22. GROUNDS OF APPEAL NO.9 AND 10 BY THE ASSESSEE R ELATE TO THE ORDER OF THE DRP IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N DISALLOWING THE AMOUNT OF RS.35,93,908/- ON ACCOUNT OF CAPITALIZATION OF INTE REST EXPENSES. ITA NO.1109/DEL/2015 17 23. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMP ANY HAS DEBITED AN AMOUNT OF RS.1,84,76,547/- IN THE P&L ACCOUNT UNDER THE HEAD INTEREST. FROM THE DETAILS FILED BY THE ASSESSEE COMPANY, HE NOTED THAT THERE ARE CA PITAL WORK-IN-PROGRESS AMOUNTING TO RS.14,17,89,689/- IN THE DEPRECIATION CHART OF T HE FIXED ASSETS. HE, THEREFORE, ASKED THE ASSESSEE TO FURNISH THE DETAILS OF CAPITAL WORK -IN-PROGRESS. FROM THE DETAILS SO FURNISHED BY THE ASSESSEE, HE NOTED THAT THE TOTAL CAPITAL WORK-IN-PROGRESS AS ON 01.04.2009 WAS AT RS.16,23,02,696/- AND AFTER CERTA IN ADDITIONS, SALES CAPITALIZATION DURING THE YEAR, THE SAME WAS REDUCED TO RS.13,97,2 9,807/-. HE FURTHER NOTED THAT OUT OF THE AMOUNT OF RS.2,99,49,229/- CAPITALIZED DURIN G THE YEAR UNDER CONSIDERATION, AN AMOUNT OF RS.2,86,04,165/- WERE CAPITALIZED FOR NEW PROJECT ACCOUNT, RS.11,05,500/- OF WORK-IN-PROGRESS CIVIL PLANT, RS.62,364/- FOR WI P ELECTRICAL AND RS.1,77,200/- AS ADVANCES PAID FOR JEEP. HE OBSERVED FROM THE DETAIL S SO FILED BY THE ASSESSEE THAT NO CAPITALIZATION OF THE INTEREST EXPENSES WAS MADE. A FTER CONSIDERING THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE FROM TIME TO TIME AND INVOKING THE PROVISIONS OF SECTION 36(1)(III) AND EXPLANATION 8 TO SECTION 43( 1), THE ASSESSING OFFICER MADE ADDITION OF RS.35,93,908/- BEING INTEREST @ 12% OF THE INTEREST EXPENSES OF CLOSING WORK-IN-PROGRESS OF RS.2,99,49,229/-. THE DRP UPHE LD THE ACTION OF THE ASSESSING OFFICER. 24. AGGRIEVED WITH SUCH ORDER OF THE A.O./TPO/DRP, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.1109/DEL/2015 18 25. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALL ENGED THE ORDER OF THE A.O./TPO/DRP IN DISALLOWING THE AMOUNT. REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DD INDUSTRI ES LTD., HE SUBMITTED THAT WHEN THE ASSESSEE IS POSSESSED OF MIXED FUNDS WHICH INCL UDE ITS OWN FUNDS IN SUFFICIENT QUANTITY, THE PRESUMPTION THAT ITS OWN FUNDS WERE U TILIZED FOR THE ADVANCES IS TO BE DRAWN. REFERRING TO VARIOUS PAGES OF THE PAPER BOO K AND THE P & L ACCOUNT, COPY OF WHICH IS PLACED AT PAGE 317 OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE NATURE OF INTEREST IS ON ACCOUNT OF CASH CREDIT AND OVERDRAFT. FURTHER, THE ENTIRE AMOUNT IN THE BANK ACCOUNT CONT AINS THE COMMON KITTY WHERE THE SALE PROCEEDS ARE ALSO DEPOSITED. RELYING ON VARIO US OTHER DECISIONS, HE SUBMITTED THAT THE DISALLOWANCE OF INTEREST U/S 36(1)(III) IS NOT JUSTIFIED. HE ALSO RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS. GIVO LTD. AND VARIOUS OTHER DECISIONS FILED IN THE CASE LAW COMPILATION. HE ALSO RELIED ON THE FOLLOWING DECISIONS:- I) 192 ITR 165 (KAR.); II) 295 CTR 448 (P&H); III) 134 ITR 219 (CAL); AND IV) 135 ITR 698. 26. THE LD. DR, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE A.O./TPO/DRP. ITA NO.1109/DEL/2015 19 27. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES AND PERUSED THE ORDERS OF THE A.O. AND DRP. WE FIND THE ASSESS ING OFFICER, IN THE INSTANT CASE, INVOKING THE PROVISIONS OF SECTION 36(1)(III) AND E XPLANATION 8 TO SECTION 43(1), MADE AN ADDITION OF RS.35,93,908/- ON THE GROUND THAT TH E ASSESSEE COMPANY WAS REQUIRED TO CAPITALIZE THE ACTUAL INTEREST EXPENSES INCURRED FO R ADDITIONS MADE IN THE CLOSING WORK- IN-PROGRESS. THE DRP UPHELD THE ACTION OF THE ASSE SSING OFFICER. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESS EE HAD SUFFICIENT FUNDS OF ITS OWN FOR MEETING THE CAPITAL WORK-IN-PROGRESS AND FURTHER, T HE NATURE OF INTEREST RELATES TO THE INTEREST OF CASH CREDIT AND OVERDRAFT ACCOUNT AND N O PART OF THE SAME HAS BEEN UTILIZED FOR FINANCING THE CAPITAL WORK-IN-PROGRESS. HE ALS O RELIED ON VARIOUS DECISIONS. IN OUR OPINION, THIS MATTER REQUIRES FRESH ADJUDICATION BE FORE THE ASSESSING OFFICER IN THE LIGHT OF THE VARIOUS DECISIONS RELIED ON BY THE LD. COUNSEL AND ALSO TO FIND OUT AS TO WHETHER THE ASSESSEE HAS, IN FACT, SUFFICIENT FUNDS OF ITS OWN AND THAT NO PART OF THE AMOUNT FROM THE CC OR OD ACCOUNT HAS BEEN UTILIZED FOR THE PURPOSE OF MEETING THE COST OF SUCH CAPITAL WORK-IN-PROGRESS. WE, THEREFO RE, RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ADJUDICAT E THE ISSUE AFRESH AND IN ACCORDANCE WITH THE LAW, AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUNDS ON THIS ISSUE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1109/DEL/2015 20 28. GROUNDS NO.11 TO 14 BEING GENERAL IN NATURE AR E DISMISSED. 29. IN THE RESULT, THE APPEAL FILED BY THE AS SESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 9.07.2019. SD/- SD/- (SUDHANSHU SRIVASTAVA) (R.K. PANDA) JUDICIAL MEMBER ACC OUNTANT MEMFBER DATED:29 TH JULY, 2019 DK COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI