DCIT CIR - 8(1), MUMBAI V. M/s. CASTROL INDIA LTD., MUMBAI

ITA 1299/MUM/2007

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5108 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 29-11-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 09-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BIPIN PAWAN; APURVA SHAH SHRI DHANESH BAFNA
• Keywords: Business income; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Bad and doubtful debts; Competent authority; Capital expenditure
• Section: 143(3); 92B; 80IB; 10

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNALK BENCH, MUMB AI . .. . . .. . , ,, , ! ! ! ! , ' ' ' ' # $ % # $ % # $ % # $ %, ,, , & ! & ! & ! & ! ' ' ' ' BEFORE SHRI P.M. JAGTAP, AM AND SHRI AMIT SHUKLA, J M ITA NO. 1292/MUM/2007 ASSESSMENT YEAR-2003-04 M/S CASTROL INDIA LTD. TECHNOPLIS KNOWLEDGE PARK, MAHAKALI CAVES ROAD, CHAKALA, ANDHERI,(E) MUMBAI-400093 ( ( ( ( / VS. ADDL. COMMISSIONER OF INCOME-TAX, RANGE-8(1), AAYKAR BHAVAN, M.K.ROAD, MUMBAI-400020 !) ./ PAN :AAACC4481E ( )* / APPELLANT ) .. ( +,)* / RESPONDENT ) ITA NO. 1299/MUM/2007 ASSESSMENT YEAR-2003-04 ADDL. COMMISSIONER OF INCOME-TAX, RANGE-8(1), AAYKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( ( ( ( / VS. M/S CASTROL INDIA LTD. TECHNOPLIS KNOWLEDGE PARK, MAHAKALI CAVES ROAD, CHAKALA, ANDHERI,(E) MUMBAI-400093 !) ./ PAN :AAACC4481E ( )* / APPELLANT ) .. ( +,)* / RESPONDENT ) ITA NO. 7208/MUM/2010 ASSESSMENT YEAR-2003-04 M/S CASTROL INDIA LTD. TECHNOPLIS KNOWLEDGE PARK, MAHAKALI CAVES ROAD, CHAKALA, ANDHERI,(E) MUMBAI-400093 ( ( ( ( / VS. ADDL. COMMISSIONER OF INCOME-TAX, RANGE-8(1), AAYKAR BHAVAN, M.K.RAOD, MUMBAI-400020 !) ./ PAN :AAACC4481E ( )* / APPELLANT ) .. ( +,)* / RESPONDENT ) ITA NO. 7433/MUM/2010 ASSESSMENT YEAR-2004-05 ADDL. COMMISSIONER OF INCOME- TAX, RANGE-8(1), AAYKAR BHAVAN, M.K.RAOD, MUMBAI-400020 ( ( ( ( / VS. M/S CASTROL INDIA LTD. TECHNOPLIS KNOWLEDGE PARK, MAHAKALI CAVES ROAD, CHAKALA, ANDHERI,(E) MUMBAI-400093 !) ./ PAN :AAACC4481E ( )* / APPELLANT ) .. ( +,)* / RESPONDENT ) ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 2 )* - . / APPELLANT BY : SHRI APURVA SHAH, SHRI DHANESH BAFNA & SHRI BIPIN PAWAN !' - . / REVENUE BY: SHRI RAVI PRAKASH (' - / DATE OF HEARING : 29/11/2013 /01 - / DATE OF PRONOUNCEMENT : 20/12/2013 $ $ $ $ / ORDER PER P.M.JAGTAP, AM :- . .. . . .. . , ,, , ! ! ! ! THESE FOUR APPEALS, TWO FILED BY THE ASSESSEE AND T WO FILED BY THE REVENUE, ARE CROSS APPEALS FOR A.Y. 2003-04 AND 200 4-05 AND SINCE SOME COMMON ISSUES ARE INVOLVED THEREIN, THE SAME HAVE B EEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDE R FOR THE SAKE OF CONVENIENCE. 2. FIRST WE SHALL TAKE UP THE CROSS APPEALS FOR A.Y . 2003-04 BEING ITA NO.1292/MUM/2007 (ASSESSEES APPEAL) AND 1299/MUM/2 007 (REVENUES APPEAL), WHICH ARE DIRECTED AGAINST THE ORDER OF TH E LD. CIT(A)-8, MUMBAI, DATED 30.11.2006. 3. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L FOR THE ASSESSEE HAS NOT PRESSED THE FOLLOWING THREE GROUNDS RAISED BY THE A SSESSEE IN ITS APPEAL. 1 . IN NOT APPRECIATING THAT THE AO HAD NOT GIVEN F ULL AND COMPLETE OPPORTUNITY TO THE APPELLANT TO REPRESENT ITS CASE BEFORE INCORPORATING THE ORDE R UNDER SECTION 92CA(3) OF THE INCOME TAX ACT, 1961 (ACT) OF THE ADDITIONAL COMMISSIONER OF INCO ME TAX, TRANSFER PRICING-I (TPO), IN THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT. 2 . IN NO APPRECIATING THAT THE OPPORTUNITY TO REPR ESENT THE CASE BEFORE THE AO IS AN INDEPENDENT OPPORTUNITY GRANTED TO THE APPELLANT TO SUBMIT REAS ONS WHY THE ARMS LENGTH PRICE DETERMINED BY THE TPO SHOULD NOT BE CONSIDERED AS THE VALUE OF TH E INTERNATIONAL TRANSACTIONS. 4 . IN UPHOLDING THE ADDITION OF THE AO/TPO IN DETE RMINING THE ARMS LENGTH PRICE FOR EXPORT OF LUBRICANTS ON THE BASIS OF PRICE AT WHICH LUBRICANT S WERE SOLD TO UNRELATED PARTIES IN INDIA, DISREGARDING THE EXPLANATIONS PROVIDED BY THE APPEL LANT. THE ABOVE GROUNDS OF THE ASSESSEES APPEAL ARE ACCO RDINGLY DISMISSED AS NOT PRESSED. ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 3 4. THE ISSUE RAISED IN GROUND NO. 3 RELATES TO THE ADDITION OF RS.40,51,486/- MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF TP ADJUSTMENT IN RESPECT OF ROYALTY PAID BY THE ASS ESSEE-COMPANY TO ITS ASSOCIATE ENTERPRISES. 5. THE ASSESSEE IS IN THE PRESENT CASE IS A PUBLIC LIMITED COMPANY INCORPORATED IN INDIA WITH 71% SHARES HELD BY CASTR OL LIMITED UK AND BALANCE SHARES HELD BY INDIAN RESIDENT INDIVIDUALS, FINANCI AL INSTITUTIONS AND FOREIGN INSTITUTIONAL INVESTORS. IT IS ENGAGED IN THE BUSIN ESS OF MANUFACTURING AND DISTRIBUTION OF LUBRICATING OILS, GREASE, BREAK FLU IDS, SPECIALTY PRODUCTS, WOOD PRESERVATIVES ETC. THE RETURN OF INCOME FOR THE YE AR UNDER CONSIDERATION I.E. 2003-04 WAS FILED BY THE ASSESSEE ON 31.10.2003 DEC LARING TOTAL INCOME OF RS.206,65,31,871/-. IN THE SAID RETURN, ROYALTY OF RS.24,46,68,337/- PAID TO ITS ASSOCIATE ENTERPRISES M/S. CASTROL LIMITED U.K. WAS CLAIMED BY THE ASSESSEE AS DEDUCTION. THE SAID ROYALTY WAS CLAIME D TO BE PAID AS PER TECHNICAL COLLABORATION AGREEMENT BETWEEN ASSESSEE- COMPANY AND CASTROL LTD. UK FOR PROVIDING TECHNICAL KNOWHOW ON AN ON GOING B ASIS AND THIS INTERNATIONAL TRANSACTION WITH AE WAS BENCH MARKED BY THE ASSESSEE IN ITS TP REPORT BY FOLLOWING COMPARABLE UNCONTROLLED PRICE ( CUP) METHOD. THIS TRANSACTION INVOLVING PAYMENT OF ROYALTY BY COMPANY TO ITS AE WAS REFERRED BY THE AO ALONGWITH OTHER INTERNATIONAL TRANSACTIONS T O TPO FOR DETERMINING THE ARMS LENGTH PRICE. DURING THE COURSE OF PROCEEDIN GS BEFORE THE TPO, IT WAS SUBMITTED INTER-ALIA ON BEHALF OF THE ASSESSEE THAT THE PAYMENT OF ROYA LTY WAS MADE TO CASTROL LTD. UK AS PER THE AGREEMENT @ 3.5% OF THE NET EX-FACTORY SALE PRICE OF CASTORL INDIAS PRODUCTS MANUFACTURED AND SOLD IN INDIA. IT WAS EXPLAINED THAT THE NET EX-FACTORY SALE PRICE MEANS THE INVOICE VALUE OF THE PRODUCTS SOLD EXCLUDING EXCISE DUTY, COST OF THE ST ANDARD BOUGHT OUT COMPONENTS (BUT EXCLUDING RAW MATERIALS AND ADDITIV ES) BUT INCLUDING OCEAN FREIGHT INSURANCE, CUSTOMS DUTIES, ETC. IT WAS ALS O EXPLAINED THAT THE ROYALTY WAS SO PAYABLE NET OF INDIAN TAXES AND SUBJECT TO M AXIMUM LIMIT OF 10% (7.5% UP TO JUNE 30, 2002) OF BOOK PROFITS OF CASTROL IND IA AS PER THE PROFIT AND LOSS ACCOUNT PREPARED ON THE CALENDAR YEAR BASIS. THE W ORKING OF ROYALTY WAS ALSO FURNISHED BY THE ASSESSEE BEFORE THE TPO AS UNDER:- ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 4 ROYALTY @ 3.5% OF ELIGIBLE SALES APRIL-MARCH 2003 (RS. IN LACS) TURNOVER (NET SALES) LUBRICATING OILS, GREASES ETC 110,903 TRADED ITEMS 2,804,.47 OIL AND USED CONTAINERS 52.39 113,760.23 ROYALTY PAYABLE ON LUBRICATING OILS, GREASES ETC. 110,903.37 LESS: TATA BP SALES 1,579,.84 ELIGIBLE SALES ON WHICH ROYALTY IS PAYABLE 109,323.53 LESS: EXPORTS 87.60 109,235.93 ROYALTY @ 3.5% ON ELIGIBLE SALES 3,823.26 INCLUDES TRADED SALES. ROYALTY BASED ON PROFIT @ 7.5 % (UPTO JUNE 30, 2002 ) /10% THEREAFTER PROFIT BEFORE TAX 23,577.91 ADD: ROYALTY 2,438.73 PROFIT BEFORE TAX AND ROYALTY 25,260.30 ROYALTY BASED ON PROFIT @ 7 .5 % (UPTO JUNE 30, 2002) /10 % THEREAFTER 2,43 8.73 6. IT WAS ALSO BROUGHT TO THE NOTICE OF THE TPO BY THE ASSESSEE THAT THE ROYALTY RATE OF 3.5% WAS APPROVED BY THE SIA. FROM THE COPY OF SIA APPROVAL FILED BY THE ASSESSEE, IT WAS HOWEVER NOTICED BY TH E TPO THAT THE ROYALTY PAYMENT WAS ALLOWED AT THE SPECIFIED RATE OF 3.5% N ET OF TAXES ON INTERNAL SALES AND THERE WAS NO MENTION THAT THE ROYALTY COULD BE PAID EITHER AT 3.5% OF NET SALES OR 10% OF BOOK PROFITS. IT WAS ALSO NOTED BY THE AO THAT THE ROYALTY WAS ALLOWED BY SIA AT 3.5% ON INTERNAL (DOMESTIC) SALES AND NOT ON EXPORTS SALES OR ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 5 OTHER INCOME. SHE THEREFORE HELD THAT THE ROYALTY ON EXPORT AND OTHER INCOME PAID BY THE ASSESSEE WAS NOT ALLOWABLE AS PER THE A PPROVAL OF SIA AND THE ROYALTY TO THE EXTENT OF RS.40,51,486/- ATTRIBUTABL E TO EXPORT SALE AND OTHER INCOME AS WORKED OUT BY THE TPO AS UNDER WAS DISALL OWED BY HER. AMOUNTS(RS) DESCRIPTION ROYALTY DEBITED TO BOOKS (A) 243872670 TOTAL SALES (NET OF EXCISE DUTY) (B) 1137,60,22,557 LESS: TOTAL EXPORT SALE + OTHER INCOME (C ) 18,89,9 1,269 RATIO OF ( C ) TO TURN OVER D= C/ B (D ) 1.66% ROYALTY NOT ALLOWABLE A * D 40,51,486 7. THE DISALLOWANCE MADE IN RESPECT OF ROYALTY PAYM ENT BY THE AO/TPO BY WAY OF TP ADJUSTMENT WAS DISPUTED BY THE ASSESSEE I N THE APPEAL FILED BEFORE THE LD CIT(A) AND ELABORATE SUBMISSIONS WERE MADE O N BEHALF OF THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE WHICH, AS SUMM ARIZED BY THE LD. CIT IN HIS IMPUGNED ORDER, WERE AS UNDER :- A) THAT THE FOREIGN EXCHANGE MANAGEMENT ACT PRESCRIBES REASONABLE RESTRICTIONS APPLICABLE ON THE WITHDRAWAL OF FOREIGN EXCHANGE AN D PRESCRIBES THAT THE RBI WILL ACCORD APPROVAL TO ALL ROYALTY PAYMENTS UNDER FOREI GN TECHNOLOGY COLLABORATION SUBJECT TO THE ROYALTY PAYABLE BEEN LIMITED TO 5% F OR DOMESTIC SALES AND 8% FOR EXPORTS AND THEREFORE NO APPROVAL IS REQUIRED WHERE THE RATE OF ROYALTY IS LOWER THAN THE PERMISSIBLE LIMIT. B) THAT NOT WITH STANDING THE PERMISSIBLE LIMIT THE AP PELLANT HAS SOUGHT S.I.A. TO PAY ROYALTY ONLY UPTO 3.5% OF ITS INTERNAL SALES C) THAT FURTHER UNDER THE TCA, THE APPELLANT AND CLUK HAD FURTHER RESTRICTED THE ROYALTY TO 2% OF THE APPELLANTS PROFITS. D) THAT THE SIA WAS COGNIZANT THAT 10% OF THE APPELLAN TS PROFIT WILL ALWAYS BE LOWER THAN 3.5 % OF ITS INTERNAL SALES AND THEREFOR E THE SIA HAD IMPLICITLY PERMITTED THE APPELLANT TO PAY ROYALTY AT THE RATE OF 10% OF THE APPELLANT PROFITS E) THAT NOWHERE DOES THE APPROVAL MENTIONS THAT THE AP PELLANT CANNOT COMPUTE ROYALTY AT 10% OF THE PROFITS. ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 6 F) THAT THE GOVERNMENT WITH ITS APPROVAL HAS PRESCRIBE D THE UPPER CAP FOR THE ROYALTY PAYMENT AND HAS LEFT IT TO THE APPELLANT TO REMIT A NY AMOUNT UPTO THE PRESCRIBED CAP. G) THAT THE TCA SHOULD NOT BE READ LIKE A STATUTE AND IT IS IMPORTANT TO CONSIDER THE IMPORTANCE OF THE PARTIES, THE CONDUCT OF THE PARTI ES AND THE CIRCUMSTANCES OF THE CASE. H) THAT THE PAYMENT OF ROYALTY @3.5 % OF THE INTERNAL SALES WOULD BE ALMOST 1400 LACS MORE THAN WHAT HAS BEEN ACTUALLY PAID BY THE C OMPANY I) THAT WITHOUT PREJUDICE THE A.O. HAS ERRED IN COMPUT ING THE DISALLOWANCE WHILE APPLYING THE RATION OF (EXPORT SALES + OTHER INCOM E ) / TOTAL SALES TO THE ROYALTY PAYMENT. THE APPELLANT SUBMITS THAT THE SAI D METHODOLOGY ADOPTED BY THE TPO IS ARBITRARY AND INEXACT. 8. THE LD. CIT(A) DID NOT FIND MERIT IN THE SUBMISS IONS MADE BY THE ASSESSEE ON THIS ISSUE AND CONFIRMED THE ADDITION M ADE BY THE AO/TPO ON ACCOUNT TP ADJUSTMENT IN RESPECT OF ROYALTY PAYMENT FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER:- THE ISSUE HAS BEEN CAREFULLY EXAMINED AND THE PLEA OF THE APPELLANT IS REJECTED. IT IS NOT UNDERSTOOD HOW THE APPELLANT IS SUBJECTING THE ENTI RE APPROVAL GRANTED TO IT AND SOUGHT BY THE APPELLANT ON DIFFERENT PARAMETER. THE ENTIRE A TTEMPT OF THE APPELLANT HAS BEEN TO INTERPRET THE APPROVAL GRANTED TO IT SO AS TO SUIT ITS OWN CLAIM MADE REGARDING THE ROYALTY PAYMENT. A CAREFUL PERUSAL OF THE APPROVAL GRANTED BY THE GOVERNMENT OF INDIA DATED 13.11.2002 CLEARLY STATES THAT THE PAYMENT REGARDIN G ROYALTY IS AUTHORIZED AT THE RATE OF 3.5% OF INTERNAL SALES. THE RELEVANT EXTRACT OF TH E APPROVAL IS AS UNDER:- CONSIDERING THAT THE CURRENT TCA EXPIRES ON 30.06.2 002, IN ORDER TO ENSURE THAT IT RETIANS ITS LEADING POSITION IN THE INDIAN LUBRICANT MARKET CIL WOULD NEED CONTINUING TECHNOLOGY SUPPORT FROM CLUK. FURTHER, CIL ALSO WISHES TO HAVE ACCESS TO THE EXPANDED PRODUCT LIST WITH BP BRAN PRODUCTS. HENCE CIL AND CLUK PROPOSE TO ENTER INTO A FRESH TCA WITH CLUK FOR A PERIOD OF 7 YEARS. THE RELEVANT TERMS OF THE AGREEMENT WOULD BE: CLUK SHALL TRANSFER AND IMPART TECHNICAL KNOW-HOW S UBJECT TO THE TERMS OF THE AGREEMENT, ON A CONTINUOUS BASIS FOR PRODUCTS C OVERED UNDER THE AGREEMENT. THE TECHNOLOGY SHALL BE SUCH AS TO ENABLE CIL TO MANUFA CTURE PRODUCTS TO SUBSTANTIALLY THE SAME QUALITY AS ARE MANUFACTURE BY CLUK AND ITS LIC ENSES ELSEWHERE IN THE WORLD. FOR A LIST OF PRODUCTS, REFERENCE MAY BE EXHIBIT-I. CLUK WOULD IN ADDITION TO PROVIDING TECHNICAL KNOW- HOW FOR MANUFACTURE OF CASTROL PRODUCTS ALSO PROVIDE TECHNICAL KNOW-HOW FO R MANUFACTURE OF BP BRAND LUBRICANTS. THE RATE OF ROYALTY SHALL BE 3.5% NET OF INDIAN INC OME-TAX (SUCH TAXES TO BE BORNE AND PAID BY CIL ON SALE OF ALL PRODUCTS. I DO NOT SEE ANY SCOPE OF INTERPRETATION OR AMBIGUI TY IN THE STRAIGHTFORWARD APPROVAL GRANTED BY THE GOVT. OF INDIA. WHAT THE A PPELLANT IS INTENDING TO DO IS THE INTERPRET THE AFORESAID APPROVAL BY BRINGING INTO P ICTURE THE FOREIGN EXCHANGE ACT AND OTHER VARIOUS PARAMETERS INCLUDING THE LIMITS OR RO YALTY PAYMENTS LIMITED TO 5% FOR DOMESTIC SALES AND 8% FOR EXPORT. THE APPELLANT HA S FURTHER IMPUTE VARIOUS ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 7 CONSIDERATION WHICH ACCORDING TO THE APPELLANT, WOU LD HAVE BEEN TAKEN INTO ACCOUNT BY THE GOVERNMENT FOR GRANTING THE APPROVAL. IN THIS REGARD THE LD. COUNSEL STATES THAT THE SIA WAS COGNIZANT OF THE PROFIT PERCENTAGE AND IN FACT HAD IMPLICITLY PERMITTED THE APPELLANT TO PAY ROYALTY AT THE RATE OF 10% OF THE APPELLANTS PROFITS. I FAIL TO UNDERSTAND HOW THE LD. COUNSEL FOR THE APPELLANT HA S GONE BEHIND THE SAID APPROVAL AND HAS ARGUED THAT THE SIA MUST TAKE INTO ACCOUNT VARI OUS PARAMETERS WHICH HAD CULMINATED IN ALLOWING THE APPELLANT ROYALTY @ 10% OF THE APPE LLANTS PROFITS. THE ENTIRE CASE OF THE APPELLANT IS BASED ON HYPOTHESIS AND ON SUCH INTERP RETATION WHICH HAS NOWHERE BEEN INDICATED IN THE SIA APPROVAL. THE FACTS ARE THAT THE PRESCRIBED AUTHORITY WAS APPROACHED BY THE APPELLANT WITH ALL THE NECESSARY DETAILS AS WAS APPLICABLE AND THE PRESCRIBED COMPETENT AUTHORITY HAS CATEGORICALLY AP PROVED AFTER TAKING INTO ACCOUNT THE TCA BETWEEN THE APPELLANT AND CLUK TO ALLOW THE ROY ALTY PAYMENT @ 3.5% OF THE INTERNAL SALES. IF THE APPELLANT CHOSE TO IGNORE T HE ABOVE APPROVAL WHICH CONTAINS SPECIFIC DIRECTION AND CATEGORIZATION AND CHOSE TO PAY THE ROYALTY AS PER ITS OWN CONVENIENCE AND AS PER ITS OWN INTERNAL AGREEMENT, IT IS THE APPELLANT WHO HAS TO UNDERGO THE NECESSARY DISALLOWANCE AS HAD BEEN MADE BY THEA .O./TPO. THE PLEA THAT THE SIA APPROVAL HAD LEFT IT TO THE APPELLANT TO REMIT ANY AMOUNT UPTO THE PRESCRIBED CAP IS COMPLETELY IRRELEVANT AND IS NOWHERE BORNE OUT BY T HE APPROVAL SO GRANTS. THE ARGUMENT THAT A SUM OF RS.1400 LACS MORE WOULD HAVE BEEN PA ID IF THE ROYALTY HAD BEEN COMPUTED @ 3.5$ OF THE INTERNAL SALES IS MOST ILLOGICAL. TH E APPELLANT WAS UNDER A LEGAL STATUTORY OBLIGATION TO ABIDE BY THE DIRECTIONS CONTAINED IN THE APPROVAL WHICH IT FAILED TO DO. I DO NOT SEE ANY ARBITRARINESS AND INEXACTNESS IN THE CO MPUTATION OF DISALLOWANCE MADE BY THE A.O./TPO BY APPLYING THE RATION OF EXPORT SALES PLU S OTHER INCOME/TOTAL SALES TO THE ROYALTY PAYMENT. THE DISALLOWANCE MADE BY THE A.O. AMOUNTING TO RS.50,41,486/- IS THEREFORE UPHELD AND THIS GROUND IS DECIDED AGAINST THE APPELLANT. 9. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PAYMENT OF ROYALTY MADE BY THE ASSESSEE-COMPANY TO ITS AE WAS BENCHMAR KED IN THE TP STUDY REPORT FOLLOWING CUP METHOD. HE INVITED OUT ATTENT ION TO THE RELEVANT PORTION OF TP STUDY REPORT PLACED AT PAGE 325 OF PAPER BOOK TO SHOW THAT THE AVERAGE ROYALTY RATE OF THREE COMPARABLES SELECTED BY THE A SSESSEE WAS 4.67% AS AGAINST THE ROYALTY OF RS.24.38 CRORES PAID BY THE ASSESSEE ON NET SALES OF RS.1093 CRORES GIVING RATE OF 2.23 %. HE SUBMITTED THAT THE TPO NEITHER REJECTED THE COMPARABLES SELECTED BY THE ASSESSEE N OR BROUGHT ON RECORD HER OWN COMPARABLES TO DISPUTE THE BENCHMARKING DONE BY THE ASSESSEE IN RESPECT OF ROYALTY PAYMENT. HE CONTENDED THAT THE TPO DISA LLOWED ROYALTY PAYMENT TO THE EXTENT OF RS.40.51 LAKHS TREATING THE SAME AS A TTRIBUTABLE TO EXPORT SALES AND OTHER INCOME TOTALLY IGNORING THE FACT THAT THE ROYALTY ACTUALLY PAID BY THE ASSESSEE EVEN AS PER THE BASIS TAKEN BY THE TPO WAS AT LOWER RATE THAN THE RATE OF 3.5% APPROVED BY THE SIA. HE CONTENDED THA T THE TP ADJUSTMENT MADE BY THE AO/TPO AND CONFIRMED BY THE LD. CIT(A) IN RE SPECT OF ROYALTY PAYMENT THUS IS NOT SUSTAINABLE AND URGED THAT THE SAME MAY BE DELETED. ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 8 10. THE LD. DR, ON THE OTHER HAND, STRONGLY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW INCLUDING THAT OF TPO IN SUPPORT OF REVENUES CASE ON THIS ISSUE. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE IMPUGN ED ROYALTY WAS PAID BY THE ASSESSEE COMPANY TO ITS AE NAMELY CASTROL LTD. UK A T 3.5 % OF THE NET EX- FACTORY SALE PRICE OF PRODUCTS MANUFACTURED AND SOL D IN INDIA AS PER THE TECHNICAL COLLABORATION AGREEMENT. THIS INTERNATIO NAL TRANSACTION INVOLVING PAYMENT OF ROYALTY TO ITS AE WAS BENCH-MARKED BY TH E ASSESSEE BY FOLLOWING CUP METHOD IN ITS TP STUDY REPORT AND SINCE AVERAGE RATE OF ROYALTY OF THREE COMPARABLES SELECTED BY IT WAS HIGHER AT 4.67% THAN THE RATE AT WHICH ROYALTY WAS PAID BY THE ASSESSEE TO ITS AE, THE TRANSACTION INVOLVING PAYMENT OF ROYALTY WAS CLAIMED TO BE AT ARMS LENGTH. A PERUS AL OF THE ORDER PASSED BY THE TPO U/S 92CA (3) OF THE ACT SHOWS THAT NEITHER THES E COMPARABLES SELECTED BY THE ASSESSEE IN ITS TP STUDY REPORT WERE REJECTED B Y HER NOR ANY NEW COMPARABLES WERE SELECTED BY HER BY MAKING A FRESH SEARCH IN ORDER TO SHOW THAT THE PAYMENT OF ROYALTY BY THE ASSESSEE TO ITS AE WAS NOT AT ARMS LENGTH. SHE SIMPLY RELIED ON THE APPROVAL OF SIA TO HOLD TH AT ANY ROYALTY PAID BY THE ASSESSEE ON EXPORTS AND OTHER INCOME WAS NOT ALLOWA BLE AND DISALLOWED THE ROYALTY PAYMENT TO THE EXTENT OF RS. 40,51,486/- T REATING THE SAME AS THE ROYALTY PAID BY THE ASSESSEE IN RESPECT OF EXPORTS SALE AND OTHER INCOME. WE ARE UNABLE TO AGREE WITH THIS STRANGE METHOD FOLLOW ED BY THE TPO TO MAKE A TP ADJUSTMENT IN RESPECT OF ROYALTY PAYMENT WHICH IS N OT SUSTAINABLE EITHER IN LAW OR ON THE FACTS OF THE CASE. SHE HAS NEITHER REJEC TED THE METHOD FOLLOWED BY THE ASSESSEE TO BENCH-MARK THE TRANSACTION IN RESPE CT OF PAYMENT OF ROYALTY NOR HAS BEEN ADOPTED ANY RECOGNIZED METHOD TO DETER MINE THE ALP OF THE SAID TRANSACTIONS. THE APPROVAL OF SIA ADOPTED BY THE T PO AS BASIS TO MAKE TP ADJUSTMENT IN RESPECT OF ROYALTY PAYMENT WAS UNTENA BLE AND EVEN GOING BY THE SAID BASIS WRONGLY ADOPTED BY THE TPO, NO TP AD JUSTMENT IN RESPECT OF ROYALTY PAYMENT WAS LIABLE TO BE MADE. AS PER THE S AID BASIS, THE NET SALES OF THE ASSESSEE AFTER EXCLUDING EXPORT SALE AND OTHER INCOME WERE TO THE EXTENT OF RS. 1118.70 CRORES AND THE ROYALTY PAID THEREON AT RS. 24.38 CRORE BEING LESS THAN THE RATE OF 3.5% APPROVED BY SIA, THERE WAS NO CASE OF ANY EXCESS ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 9 PAYMENT MADE OF ROYALTY BY ASSESSEE THAN APPROVED B Y SIA TO JUSTIFY ITS DISALLOWANCE BY WAY OF TP ADJUSTMENT. IN OUR OPINI ON, THE LD. CIT (A) COULD NOT APPRECIATE THESE INFIRMITIES IN THE ORDER OF TH E TPO DESPITE THE SAME WERE SPECIFICALLY BROUGHT TO HIS NOTICE ON BEHALF OF THE ASSESSEE AND CONFIRMED THE TP ADJUSTMENT MADE BY THE TPO IN RESPECT OF ROYALTY PAYMENT WHICH WAS TOTALLY UNJUSTIFIED. WE THEREFORE, DELETE THE ADDI TION MADE BY THE AO/TPO AND CONFIRMED BY THE LD. CIT ON ACCOUNT OF TP ADJUSTMEN T IN RESPECT OF ROYALTY PAYMENT AND ALLOW GROUND NO. 3 OF THE ASSESSEES AP PEAL. 12. THE ISSUE RAISED IN GROUND NO. 5 OF THE ASSESSE S APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO/TPO AND CONFIRMED BY TH E LD. CIT(A) BY DETERMINING THE ARMS LENGTH PRICE IN RESPECT OF CO E-3 RELATED EXPENSES AT RS. NIL AS AGAINST 2,06,73,899/- CLAIMED BY THE ASSESSE E. 13. THE ASSESSEE-COMPANY BELONGS TO MULTI-NATIONAL BP GROUP OF COMPANIES AND DURING THE YEAR UNDER CONSIDERATION, IT HAD ENT ERED INTO INTERNATIONAL TRANSACTIONS, INTER ALIA, INVOLVING COST SHARING AN D COST REIMBURSEMENT WITH ASSOCIATED ENTERPRISES. AS SUBMITTED IN THE TP REP ORT FURNISHED BY THE ASSESSEE COMPANY, BP GROUP UNDERTAKES WORLDWIDE INF ORMATION TECHNOLOGY INITIATIVES AND THE ASSESSEE COMPANY BEING A MEMBER OF THE SAID GROUP, RECEIVES INFORMATION TECHNOLOGY SUPPORT FROM ITS AS SOCIATED ENTERPRISES. IT ALSO SHARES THE RELATED COST INCURRED BY THE SAID ENTERP RISES IN PROVIDING SUCH SUPPORT. DURING THE YEAR UNDER CONSIDERATION, SIGN IFICANT IT COSTS WERE INCURRED RELATING TO A COMMON OPERATING ENVIRONMENT SYSTEM (COE-3) DEPLOYED BY THE BP GROUP WORLDWIDE. AS CLAIMED IN THE TP REPORT, COE-3 OFFERED SIGNIFICANT BENEFITS TO THE PARTICIPATING E NTITIES INCLUDING THE ASSESSEE- COMPANY RESULTING INTO EFFICIENT FUNCTIONING OF THE BUSINESS AND REDUCTION IN OPERATION COST. TO IMPLEMENT THE SAID PROJECT, VAR IOUS GROUP ENTITIES INCURRED COSTS WHICH WERE ALLOCATED TO GROUP COMPANIES PARTI CIPATING IN THE SYSTEM ON THE BASIS OF NUMBER OF COE-3 ENABLED COMPUTERS INST ALLED AT EACH ENTITY. IT WAS CLAIMED THAT THE ASSESSEE-COMPANY HAS ALSO REIM BURSED CERTAIN COST TO ITS ASSOCIATED ENTERPRISES AT ACTUAL WHICH CONSTITUTED INTERNATIONAL TRANSACTIONS OF THE ASSESSEE-COMPANY WITH ITS ASSOCIATE ENTERPRI SES WITHIN THE MEANING SECTION 92B R.W.S. 92A. DURING THE COURSE OF ASSES SMENT PROCEEDINGS A ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 10 REFERENCE U/S 92CA(1) WAS MADE BY THE AO TO THE TPO FOR THE COMPUTATION OF ARMS LENGTH PRICE, INTER ALIA, IN RELATION TO THES E INTERNATIONAL TRANSACTIONS. THE TPO ASKED THE ASSESSEE-COMPANY TO FURNISH CERTA IN INFORMATION AND ON THE BASIS OF THE INFORMATION FURNISHED BY THE ASSE SSEE AS WELL AS OTHER SUBMISSIONS MADE FROM TIME TO TIME, HE ACCEPTED CER TAIN INTERNATIONAL TRANSACTIONS AS AT ARMS LENGTH BUT SUGGESTED TP AD JUSTMENT IN RESPECT OF OTHER SUCH INTERNATIONAL TRANSACTIONS BY OBSERVING AS UNDER:- 3.1 GLOBAL DOWN STREAM & LICENSES FOR MICROSOFT PROFESS IONAL 2000 USD 17,280 (RS. 823,869/-). THE ASSESS HAS PAID AN AMOUNT OF RS.823,869/- TO BP INTERNATIONAL LTD., UNITED KINGDOM. THE AMOUNT IN FOREIGN CURRENCY IS GBP 11, 073/-USD 17,280/-. IN SUPPORT, A COPY OF INVOICE DATED OCTOBER 15, 2002 IS FILED. T HE RELEVANT PORTION OF THE INVOICE READS AS GLOBAL & DOWNSTREAM CENTRAL CHARTES FOR COE3 DEPLO YMENT IN TATA BP INDIA LTD. 32 UNIT @ $279 = $8928 REVEX MICROSOFT PRO 2000 LICENSE. BOUGHT CENTRALLY FOR T ATA BP INDIA LTD. 32 UNIT @$261 = 8352 CAPEX THE INVOICE DOES NOT COVEY THE PROPER MEANING REGAR DING THE GLOBAL & DOWNSTREAM CENTRAL CHARGES FOR COE-3 DEPLYMENT OR FOR MICROSOF T PRO 2000 LICENSES BOUGHT CENTRALLY. THE ASSESSEE SUBMITTED NO FURTHER INFORMATION. THE ASSESSEE WAS REQUIRED TO SHOW CAUSE U/S 92C(3) OF THE IT ACT 1961 VIDE LETTER DATED NOVEMBER 23, 2005 WHY THE ALP OF THE SAID EXPENSE B E NOT COMPUTED AS NIL AS THE ASSESSEE HAD NOT SUBMITTED RELEVANT DOCUMENTATION A ND DETAILS FOR CALCULATION OF THE SAID EXPENSES HOWEVER NO FURTHER CLARIFICATION/DETAILS W ERE SUBMITTED BY THE ASSESSEE. ACCORDINGLY, THE ARMS LENGTH PRICE OF THIS TRANSAC TION IS COMPUTED AT NIL, AND RS. 8,23,869/- WILL BE ADDED TO THE ASSESSEES INCOME. 3.2 COST ALLOCATION OF DIGITAL BUSINESS- USD 102, 466 (RS.49,18,036) (COMPRISING OF INVOICES OF USD 27,872 + USD 34,520 + USD 3,174 + USD 33,800 + USD 3,100) PAID TO BP INTERNATIONAL LTD. U.K.:- EACH INVOICE IS DEALT SEPARATELY AS UNDER:- ( I ) QUARTER 1, 2002 DRO INFRASTRUCTURE CHARGES USD 27,872 ~RS. 1.337. 776) THE INVOICE IS DATED MAY 13, 2002 AND THE DETAILS READ AS : QUARTER1, DBO INFRASTRUCTURE CHARGES? THE ASSESSEE FURNISHED THE FOLLOWING DETAILS: THE PURPOSE OF THE DIGITAL AND COMMUNICATION TECHN OLOGY (DCT,) IS TO PROVIDE GROUP- WIDE CONNECTIVITY AND RUN SECURE, COST-EFFECTIVE DI GITAL APPLICATIONS THAT SUPPORT THE PLANS AND OPERATIONS OF THE BUSINESS SEGMENTS AND F UNCTIONS. IN ADDITION, IT ENSURES THAT CASTRO! IS PROPERLY EXPLOITING EXISTING AND EMERGI NG DIGITAL TECHNOLOGY IN ORDER TO SIRNPLFJ5., TRANSFORM AND ADD VALUE TO THE GROUPS BUSNESS PROCESSES THE COST.& RELATING TO DBO INFRASTRUCTURE HAVE BEEN ALLOCATED ON THE BASIS OF NUMBER OF COE3 SEATS. THE ASSESSEE HAS SUBMITTED DETAILS TO SHOW THAT CAS TROL INDIA HAS BEEN CHARGED FOR 268 COE3 SEATS OUT OF 291 COE3 SEATS FOR THE ENTIRE IND IA REGION IN QUARTER I. A FURTHER CLARIFICATION WAS PROVIDED THAT INDIA REGION COMPRI SES OF CASTROL 1NDIA IB INDIA (GAS AND POWER) AND TATA BP SOLAR INDIA ETC. AS THE ASSESSEE HAS SUBMITTED T HE DETAILS AS REQUIRED BY THIS OFFICE, NO ADVERSE INFERENCE IS BEING DRAWN . ( II) QUARTER 2. 2002 DRO INFRASTRUCTURE CHARGES C/SD 34.520 AND USO 3.174 (RS. 1.809.185 ). THE INVOICES OF USD 34,520 AND USD 3,174 DATED JUNE L8, 2002 READ AS FOLLOWS: ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 11 QUARTER .2, 2002 OBO INFRASTRUCTURE CHARGES. THAT ASSESSEE FURNISHED THE FOLLOWING DETAILS : THE COSTS RELATING TO DBO INFRASTRUCTURE HAVE BEEN ALLOCATED ON THE BASIS OF NUMBER OF COE3 SEATS. THE ASSESSEE HAS SUBMITTED DETAILS TO SHOW THAT CASTROL INDIA HAS BEEN CHARGED FOR 280 COE3 SEATS OUT OF 303 C0E3 SEA TS FOR THE ENTIRE INDIA REGION IN QUARTER 2. A FURTHER CLARIFICATION WAS PROVIDED THAT INDIA REGIO N COMPRISES OF CASTROL INDIA, BP INDIA (GAS AND POWER) AND TATA HP SOLAR INDIA ETC. AS THE ASSESSEE HAS SUBMITTED THE DETAILS AS REQUIRED BY THIS OFFICE, NO ADVERSE INFE RENCE IS BEING DRAWN. (III) QUARTER 3, 2002 DBQ INFRASTRUCTURE CHARGES USD 33.800 AND USD) 3,100 (RS. 1.771.075 ) THE INVOICES OF USD 33,800 AND USD 3,100 WERE DATED SEPTEMBER 28, 2002 AND SEPTEMBER 20, 2002 RESPECTIVELY READ AS FOLLOWS: QUARTER 3, 2002 DBO INFRASTRUCTURE CHARGES. NO FURTHER INFORMATION SUCH AS THE BASIS OF ALLOCAT ION AS REQUIRED TO OBTAIN AND MAINTAIN AS PER CLAUSE 5.3 AND 5.4 OF THE AGREEMENT BETWEEN HP INTERNATIONAL AND CAST ROL INDIA WAS SUBMITTED BY THE ASSESSEE. THE ASSESSEE WAS REQ UIRED TO SHOW CAUSE U/S 92C(3) OF THE IT ACT I96~ VIDE LETTER DATED NOVEMBER 23 2005 WHY THE ALP OF THE SAID EXPENSE BE NOT COMPUTED AS NIL AS THE ASSESSEE HAD NOT SUBMITT ED RELEVANT DOCUMENTATION AND DETAILS FOR CALCULATION OF THE SAID EXPENSE HOWEVER NO FURTHER CLARIFICATION / DETAILS WERE SUBMITTED BY THE ASSESSEE. ACCORDINGLY, THE ARMS LENGTH PRICE OF THIS TRANSACTION IS COMPUTED AT NIL AND RS.17,71,075/- WILL BE ADDED TO THE ASSESSEES INCOME. 3.4 AMOUNT OF RS.10639,303 PAID TO BP SINGAPORE PTE LTD . (SINGAPORE DOLLAR 368,670 = 150,474,78 + 132+608 +85,587): THE ASSESSEE SUBMITTED THREE INVOICES PERTAINING TO QUARTER 2,3 AND 4 OF 2002. THE CHARGES AS STATED IN THE INVOICES ARE ELABORATE HER EUNDER- DB REGIONAL COE CHARGES DB REGIONAL DATA CHARGES DB REGIONAL TELECOMMUNICATION/ISL CHARGES DB RPM CHARGES DB PERFORMANCE MANAGEMENT CHARGES THE ASSESSEE SUBMITTED NO FURTHER INFORMATION . THE ASSESSEE WAS REQUIRED TO SHOW CAUSE U/S 92C(3) OF THE IT ACT 1961 VIDE LETTER DATED NOVEMBE R 23 2005 WHY THE ALP OF THE SAID EXPENSE BE NOT COMPUTED AS NIL AS THE ASSESSEE HAD NOT SUBMITT ED RELEVANT DOCUMENTATION ARID DETAILS FOR CALCULATION OF THE SAID EXPENSE. HOWEVER NO FURTHER CLARIFICATION/DETAILS WERE SUBMI TTED BY THE ASSESSEE. ACCORDINGLY, THE ARMS LENGTH PRICE OF THIS TRANSACTION IS COMPUTED AT NIL AND RS 10.639,303 WILL BE ADDED TO THE ASSESSEES INCOME ). 3.8 COST SHARING FOR LEASED LINES (SITA CHARGES) RS .104,782 THE ASSESSEE SUBMITTED THE COPIES OF INVOICES DATED APRIL 25, 2001, OCTOBER 8, 2001 AND JANUARY 30, 2002, WHICH READS AS UNDER:- NUI 1Q CHARGES, NUI 2Q CHARGES, NUI 3Q CHARGES AND EQUANT 4Q 2001 CHARGES RESPECTIVELY. THE ASSESSEE SUBMITTED NO FURTHER INFORMATION . THE ASSESSEE WAS REQUIRED TO HOW CAUSE U/S 92C(3) OF THE IT ACT 1961 VIDE LETTER DATED NO VEMBER 23 2005 WHY THE ALP OF THE SAID EXPENSE BE NOT COMPUTED AS NIL AS THE ASSESSEE HAD NOT SUBMITTED RELEVANT DOCUMENTATION AND DETAILS FOR CALCULATION OF THE SA ID EXPENSE. ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 12 HOWEVER NO FURTHER CLARIFICATION/DETAILS WERE SUBMI TTED BY THE ASSESSEE. ACCORDINGLY, THE ARMS LENGTH PRICE OF THIS TRANSACTION IS COMPU TED AT NIL AND AN AMOUNT OF RS.1,04,782/- WILL BE ADDED TO THE ASSESSEES INCOM E 3.9 THE ASSESSEE WAS ALSO NOT ABLE TO SUBMIT ANY DE TAILS IN RESPECT OF THE FOLLOWING , 1.NAME OF THE A E BRIEF DESCR IPTION OF TRANSACTION AMOUNT IN RS BP INTERNATIONAL LTD, UK . GLOBAL DOWN STREAM & LICENSES FOR MICROSOFT PROFESSIONAL 2000 435,876 BP AUSTRALIA . ALLOCATION OF EXPENSES RELATING TO COE3 (DBO CHARGES) 707,298 BP INTERNATIONAL LTD, UK DBO GROUP PROJECT, IRAS, INFRASTRUCTURE & FEDERAL COSTS 58,54,422 BP CORPORATION NA GLOBAL SOFTWARE LICENSES 318,652 BP MALAYSIA SDN BHD ALLOCATION OF EXPENSES RELATING TO COE3 (REGIONAL MANAGEMENT EXPENSES) 18,622 TOTAL. 7,334,870 IN ABSENCE OF ANY DOCUMENTS THE AIMS LENGTH PRICE OF THESE TRANSACTION IS COMPUTED AT NIL AND THE AMOUNTS DETAILED ABOVE WILL BE ADDED TO THE INCOME OF THE ASSESSEE. 14. THE AO/TPO THUS MADE TP ADJUSTMENT OF RS. 2,06 ,73,899/- IN RESPECT OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE-COMPA NY WITH ITS AE INVOLVING COST SHARING AND COST REIMBURSEMENT BY TREATING ARM S LENGTH PRICE OF THE SAID TRANSACTIONS AT NIL. ON APPEAL, THE LD. CIT(A) CON FIRMED THE SAID TP ADJUSTMENT OBSERVING THAT NO ATTEMPT WAS MADE BY TH E ASSESSEE TO EXPLAIN THE ANOMALIES WHICH HAD BEEN DETECTED BY AO/TPO IN THE RELEVANT INVOICES FILED IN SUPPORT. HE HELD THAT IN THE ABSENCE OF ANY SATISF ACTORY EXPLANATION OFFERED BY THE ASSESSEE IN THIS REGARD ADDITION MADE ON THIS I SSUE ON ACCOUNT OF TP ADJUSTMENT WAS LIABLE TO BE CONFIRMED. 15. AFTER CONSIDERING THE RIVAL SUBMISSIONS & PERUS ING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT SIMILAR ISSUE WAS IN VOLVED IN THE CASE OF THE ASSESSEE FOR A.Y. 2002-03 AND THE SAME WAS RESTORED BY THE TRIBUNAL TO THE FILE OF THE AO/TPO WITH THE FOLLOWING OBSERVATIONS/DIREC TIONS AS CONTAINED IN PARAGRAPH NO.7 OF ITS ORDER DATED 14 TH SEPTEMBER 2012 PASSED IN ITA NO. 3938/MUM/2010. IN SO FAR AS THE ALLOCATION/REIMBURSEMENT OF COE3 EXPENSES TO THE EXTENT OF RS.1,68,80,675/- IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THERE IS NO DISPUTE ABOUT THE FACT THAT SIG NIFICANT COSTS WERE INCURRED RELATED TO COE3 PROJECT DEPLOYED BY THE BP GROUP WORLDWIDE AND THE ASSESSEE COMPANY AS A PART ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 13 OF THE SAID GROUP HAD DERIVED BENEFIT THEREOF. AS S UBMITTED BY HIM, THE DISPUTE IS ABOUT THE BASIS OF ALLOCATION AND WANT OF DETAILS IN THIS REGARD. HE HAS SUBMITTED THAT THE COPIES OF INVOICES RAISED IN THIS REGARD BY THE AES WERE FURNISHED BY THE ASSESSEE ALONG WITH RESPECTIVE ALLOCATION KEYS. KEEPING IN VIEW TH IS SUBMISSION MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS ON PERUSAL OF T HE RELEVANT DETAILS AVAILABLE ON RECORD, WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE IS NO JUSTIFICATION IN THE ACTION OF THE TPO IN IGNORING ALL THESE DETAILS AND TAKING THE ALP OF THE RELEVANT TRANSACTIONS AT NIL. IN OUR OPINION, I T IS INCUMBENT UPON THE TPO TO WORK OUT THE ALP OF THE RELEVANT TRANSACTIONS BY FOLLOWING S OME AUTHORIZED METHOD AND THE ENTIRE COST BORNE BY THE ASSESSEE CANNOT BE DISALLOWED BY TAKING THE ALP AT NIL KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE REL EVANT DETAILS FURNISHED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE IN T HIS REGARD HAS SUBMITTED THAT IN THE SUBSEQUENT YEARS I.E. ASSESSMENT YEARS 2005-06 AND 2006-07, A SIMILAR ISSUE WAS INVOLVED IN THE ASSESSEES CASE AND THE LEARNED CIT (APPEALS) HAS ALLOWED THE EXPENSES ALLOCATED TO THE EXTENT OF 50%. WE HAVE PERUSED THE ORDERS OF THE LEARNED CIT(APPEALS) PASSED IN THE ASSESSEES CASE FOR ASSESSMENT YEARS 2005-06 AND 2006-07. IT IS NOTED THAT NO CONVINCING OR SOUND BASIS HAS BEEN GIVEN BY THE LEARNED CIT(APPEALS) THEREIN IN SUPPORT OF THE 50% COST ALLOCATION ACCEPTED BY HIM AND SUCH ESTIMATE HAS BEEN MADE PURELY ON ADHOC BASIS. IN OUR OPINION, THE EXERCISE OF ASCERTAINING ALPS HAS TO BE DONE BY THE TPO KEEPING IN VIEW THE WELL LAID DOWN SCHEM E IN THE RELEVANT PROVISIONS OF THE ACT AND ADDITION, IF ANY, ON ACCOUNT OF TP ADJUSTME NT, HAS TO BE MADE ONLY AFTER DOING SUCH EXERCISE. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE AO/TPO WITH A DIRECTION TO DO SUCH EXERCISE AND MAKE ADDITION, IF ANY, ON T HIS ISSUE AFTER COMPLETING SUCH EXERCISE IN ACCORDANCE WITH LAW. GROUND NO.2 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 16. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDE RATION I.E. 2003-04 AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2002-03, WE RESPECTFULLY FOLLOW THE ORDER OF THE CO-ORDINATE BE NCH OF THIS TRIBUNAL FOR A.Y. 2002-03 AND RESTORE THIS ISSUE TO THE FILE OF THE A O/TPO FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTIONS AS GIVEN BY THE T RIBUNAL IN A.Y. 2002-03. GROUND NO. 5 OF THE ASSESSEES APPEAL IS ACCORDINGL Y TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 17. THE ISSUE RAISED IN GROUND NO. 6 OF THE ASSESSE ES APPEAL RELATES TO THE ADDITION OF RS.95,12,000/- MADE BY THE AO/TPO AND C ONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF TP ADJUSTMENT IN RESPECT THE I NTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AES INVOLVING SHARING OF COS T OF THE DAVID BECKHAM ADVERTISING CAMPAIGN BY TAKING THE ARMS LENGTH P RICE OF THE SAID TRANSACTION AT NIL. 18. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE-COMPANY HAD REIMBURSED BP SINGAPORE PTE. LTD. A SUM OF RS.95,12 ,000/- TOWARDS IT SHARES OF EXPENDITURE INCURRED ON DAVID BECKHAM ADVERTISIN G CAMPAIGN. IT WAS ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 14 EXPLAINED BY THE ASSESSEE BEFORE THE TPO THAT BP GR OUP WAS NEGOTIATING WITH DAVID BECKHAM IN DECEMBER 2001 TO ENTER INTO COMMER CIAL AGREEMENT TO ENDORSE THE CASTROL BRAND GLOBALLY. AFTER NEGOTIAT ING THE GLOBAL RIGHTS, BP OFFERED OTHER BUSINESS UNITS INCLUDING CASTROL INDI A THE OPPORTUNITY TO UTILIZE THE ENDORSEMENT WITHIN THEIR MARKET FOR AN AGREED C ONSIDERATION AND ACCORDINGLY CASTROL INDIA LTD. WAS CHARGED RS.95,12 ,000/- AS THEIR SHARE OF THIS EXPENDITURE. IT WAS SUBMITTED THAT THE TOTAL PAYMENT PAYABLE TO DAVID BECKHAM FOR THE ADVERTISING CAMPAIGN WAS 25,00,000 /- OUT OF WHICH CASTROL INDIA PAID US DOLLARS 2,00,000/- I.E. ONLY 5.61% OF THE TOTAL COST. IT WAS ALSO SUBMITTED THAT CASTROL INDIA FOR THE AMOUNT SO PAID WAS GRANTED FOLLOWING BENEFITS FOR A PERIOD OF TWO YEARS. CASTROL POWER 1 TVC (TELEVISION COMMERCIAL)-4.5SEC. 30 SEC. 15SEC. CASTROL POWER 1 PRESS ADVERTISEMENTS-VARIOUS DESIGN S. CASTROL POWER 1 POS (PUBLICITY) MATERIAL-VARIOUS DE SIGNS. BECKHAM SOUND BITES CASTROL BECKHAM PHOTO LIBRARY OF VARIOUS IMAGES OF BECKHAM IN AND OUT OF CASTROL WARDROBE-IN GENERAL COMMUNICATION AND LOCAL ADOPTION ACCESS TO ASPAC LUBES EVENTS CREATED TO EXPLOIT THE ENDORSEMENT WITH CONSUMER AND/OR CUSTOMERS. ANY MATERIAL DEVELOPED ON AN ONGOING BASIS TO SUPPO RT THE ENDORSEMENT. 19. IT WAS ALSO SUBMITTED THAT A CONSUMER CONTEST MEET DAVID BECKHAM WAS ORGANIZED IN INDIA AS PART OF THIS AGREEMENT AN D ACCORDINGLY THE WINNER OF THIS CONTEST HAD AN OPPORTUNITY TO MEET DAVID BECKH AM. THE ASSESSEE ALSO FILED A COPY OF THE RELEVANT INVOICE IN SUPPORT OF ITS CLAIM ON THIS ISSUE. AFTER FURNISHING THESE DETAILS AND DOCUMENTS, THE ASSESSE E WAS REQUIRED BY THE TPO TO SHOW-CAUSE AS TO WHY THE ALP OF THIS INTERNATION AL TRANSACTION BE NOT COMPUTED AT NIL AS IT DID NOT SUBMIT RELEVANT DOCUM ENTATION AND DETAILS FOR CALCULATION OF SAID EXPENSES. SINCE NO SATISFACTORY REPLY WAS OFFERED BY THE ASSESSEE AND THE ASSESSEE WAS ALSO UNABLE TO SUBMIT THE BASIS OF ALLOCATION OF THE CONCERNED EXPENDITURE, ARMS LENGTH PRICE OF TH IS TRANSACTION WAS TAKEN BY THE TPO AT NIL AND TP ADJUSTMENT OF RS.95,12,000/- WAS MADE. ON APPEAL, THE LD. CIT(A) CONFIRMED THE TP ADJUSTMENT MADE BY THE AO/TPO ON THIS ISSUE OBSERVING THAT NO DOCUMENTS/DETAILS OTHER THAN THE COPY OF INVOICE AND NEWSPAPER CLIPPING WERE FURNISHED BY THE ASSESSEE T O SHOW THE BASIS OF COST SHARING. ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 15 20. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE-COMPANY WAS CERTAINLY BENEFITED BY THE DAVID BECKHAM ADVERT ISING CAMPAIGN IN TERMS OF ITS BUSINESS VOLUME IN INDIA. HE SUBMITTED THAT ALTHOUGH THERE WAS NO AGREEMENT TO SHARE THE COST OF THE CAMPAIGN, THE A SSESSEE-COMPANY AGREED TO SHARE THE COST OF CAMPAIGN TO THE EXTENT OF RS. 95. 12 LAKHS AFTER NEGOTIATION TAKING INTO CONSIDERATION THE BENEFIT DERIVED BY IT FROM THE SAID CAMPAIGN. HE INVITED OUR ATTENTION TO THE RELEVANT PORTION TO TH E TP STUDY REPORT PLACED AT PAGE NO. 295-297 OF HIS PAPER BOOK TO SHOW THAT THI S TRANSACTION WAS BENCH- MARKED BY THE ASSESSEE BY FOLLOWING TNMM AND SINCE ITS OP/TC AT 22.33% WAS MUCH MORE THAN THE AVERAGE OP/TC OF 4.5% OF CO MPARABLES SELECTED, THE TRANSACTION WAS PROVED TO BE AT ARMS LENGTH. HE CO NTENDED THAT THE TPO HAS NEITHER REJECTED THE METHOD FOLLOWED BY THE ASSESSE E NOR ADOPTED ANY OTHER SPECIFIED METHOD TO DETERMINE THE ALP OF THIS TRANS ACTION AND HAS TAKEN THE SAME AT NIL WHICH IS TOTALLY UNJUSTIFIED. 21. THE LD. DR ON THE OTHER HAND INVITED OUR ATTENT ION TO THE RELEVANT PORTION OF THE TPOS ORDER AT PAGE NO. 256 OF THE P B AND SUBMITTED THAT RELEVANT DETAILS AND DOCUMENTS WERE NOT FURNISHED B Y THE ASSESSEE GIVING THE BASIS OF ALLOCATION OF EXPENDITURE INCURRED ON DAVI D BECKHAM ADVERTISING CAMPAIGN. HE CONTENDED THAT IN THE ABSENCE OF SUCH DETAILS AND DOCUMENTS, THE TPO WAS LEFT WITH NO OPTION BUT TO TAKE ALP OF THIS TRANSACTION AT NIL. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD. IT IS OBSERVED THAT THE ALP OF TRANSACTION INVOLVING COST SHARING BY THE ASSESSEE OF DAVID BECKHAM ADVERTISING CAMPAIGN WAS TAKEN BY THE TPO AT NIL ON THE GROUND THAT THE RELEVANT DOCUMENTS AND DETAI LS SHOWING COMPUTATION OF THE SAID COST AS WELL AS BASIS OF ALLOCATION WER E NOT FURNISHED BY THE ASSESSEE. THE LD. CIT(A) ALSO UPHELD THE ACTION OF THE TPO ON THIS ISSUE FOR THE SAME REASONS AS GIVEN BY THE TPO. IT IS HOWEVER OBS ERVED THAT THE TOTAL COST OF DAVID BECKHAM ADVERTISING CAMPAIGN WAS CLEARLY STAT ED BY THE ASSESSEE IN ITS SUBMISSIONS MADE BEFORE THE TPO AS 25,00,000/- AN D ITS SHARE IN THE SAID COST WAS STATED TO BE USD 2 LAKHS. ALTHOUGH THE BAS IS OF THIS COST ALLOCATION HAS NOT BEEN EXPLAINED BY THE ASSESSEE BY PRODUCING RELEVANT DOCUMENTARY ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 16 EVIDENCE EITHER BEFORE THE AUTHORITIES BELOW AND EV EN BEFORE US AND IT IS CLAIMED THAT THE SAME WAS AGREED AFTER DUE NEGOTIAT ION CONSIDERING THE BENEFITS OF THE CAMPAIGN, THE ONUS IN THIS REGARD I S ON THE ASSESSEE TO PRODUCE THE RELEVANT DOCUMENTARY EVIDENCE TO SUPPORT AND SU BSTANTIATE THE SAID CLAIM. IT IS ALSO INCUMBENT UPON THE TPO TO WORK OUT THE A LP OF THE RELEVANT TRANSACTIONS FOLLOWING SOME SPECIFIED METHOD ON THE BASIS OF DETAILS AND DOCUMENTS AVAILABLE ON RECORD AND THE ENTIRE COST B ORNE BY THE ASSESSEE CANNOT BE DISALLOWED BY SIMPLY TAKING THE ALP AT NI L. IN OUR OPINION, THE EXERCISE OF ASCERTAINING ALP HAS TO BE DONE BY THE TPO KEEPING IN VIEW THE WELL LAID DOWN SCHEME IN THE RELEVANT PROVISIONS OF THE ACT AND ADDITION, IF ANY, ON ACCOUNT OF TP ADJUSTMENT HAS TO BE MADE ONLY AFTER DOING SUCH EXERCISE. WE THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE AO /TPO WITH A DIRECTION TO DO SUCH EXERCISE AFTER GIVING THE ASSESSEE A PROPER AN D SUFFICIENT OPPORTUNITY OF BEING HEARD AND TO MAKE ADDITION ON ACCOUNT OF TP A DJUSTMENT IF ANY, ON THIS ISSUE AFTER COMPLETING SUCH EXERCISE IN ACCORDANCE WITH LAW. GROUND NO. 6 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALL OWED FOR STATISTICAL PURPOSES. 23. GROUND NO. 7 INVOLVING THE ISSUE OF ADDITION MA DE ON ACCOUNT OF BAD DEBTS RECOVERED U/S 41(1) HAS NOT BEEN PRESSED BY T HE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 24. AS REGARDS THE ISSUE RAISED IN GROUND NO. 8 REL ATING TO ADDITION MADE ON ACCOUNT OF MODVAT CREDIT BY INCLUDING THE SAME IN T HE VALUE OF CLOSING STOCK, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGRE ED THAT A SIMILAR ISSUE HAS ALREADY BEEN DECIDED IN ASSESSEES OWN CASE FOR A.Y . 2001-02 WHEREIN THE SAME WAS RESTORED BY THE TRIBUNAL TO THE FILE OF AO VIDE ORDER DATED 30 TH JULY 2009 PASSED IN ITA NO. 2363/MUM/2005 WITH A DIRECTI ON TO MAKE THE ADJUSTMENT ON ACCOUNT OF EXCISE DUTY ALSO TO THE VA LUE OF OPENING STOCK AS WELL AS SALES AND PURCHASE IN ACCORDANCE WITH SECTION 14 5A. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUNAL, WE RESTORE THIS ISS UE TO THE FILE OF AO FOR DECIDING THE SAME AFRESH AS PER SAME DIRECTIONS AS GIVEN BY THE TRIBUNAL IN A.Y. 2001-02. GROUND NO. 8 OF THE ASSESSEES APPEA L IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 17 25. THE ISSUE RAISED IN GROUND NO. 9 RELATES TO THE ASSESSEE-COMPANYS CLAIM FOR DEDUCTION U/S 80IB IN RESPECT OF THE FOL LOWING ITEMS OF OTHER INCOME. 1. OTHER INCOME RELATED TO SILVASSA 9,06,87 2 2. INTEREST RECEIVED 107,25,448 3. MISCELLANEOUS INCOME 2,38,388 4. REVERSAL OF DOUBTFUL DEBTS 21,15,3 6 5. INSURANCE CLAIM 5,39,412 TOTAL 1,45,25,483 26. AT THE TIME OF HEARING, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED BY THE O RDER OF THE TRIBUNAL DATED 14 TH SEPTEMBER(SUPRA) PASSED IN ASSESSEES OWN CASE FOR A.Y. 2002-03 WHEREIN THE DISALLOWANCE MADE ON ACCOUNT OF ASSESSEES CLAI M FOR THE DEDUCTION U/S 80IB IN RESPECT OF FIRST FOUR ITEMS I.E. OTHER INCO ME RELATED TO SILVASA UNIT , INTEREST RECEIVED, MISCELLANEOUS INCOME AND REVERSA L OF EXCESS PROVISION OF DOUBTFUL DEBTS WAS CONFIRMED BY TRIBUNAL, WHEREAS THE CLAIM OF THE ASSESSEE U/S 80IB IN RESPECT OF INSURANCE CLAIM WAS ALLOWED BY THE TRIBUNAL BY OBSERVING AS UNDER:- THE ISSUE RAISED IN GROUND NO. 5 OF THE ASSESSEES APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APP EALS) ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB IN RESPECT OF THE FOLL OWING ITEMS OF OTHER INCOME : 1. OTHER INCOME DIRECTLY LINKED TO SILVASSA UNIT RS . 41,67,815 2. INTEREST RECEIVED (IN RATIO OF SALES VOLUMES) R S. 34,69,135 3. MISCELLANEOUS INCOME (IN RATIO OF SALES VOLUME) RS. 23,61,499 4. REVERSAL OF EXCESS PROVISION OF DOUBTFUL DEBTS (RATIO OF SALES VOLUME) RS.32,75,94 8 5. INSURANCE CLAIM (RATIO OF SALES VOLUME) RS.54,0 2,609 WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND A LSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY LEARNED REPRESENTATIVES OF BOT H THE SIDES, THIS ISSUE TO THE EXTENT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB IN RESPECT OF FIRST FOUR ITEMS IS CONCERNED, THE SAME IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 217 (SC) WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 80IB ARE CO DE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTANTIVE AS WELL AS PROCEDURAL PROVISIONS. THE W ORD DERIVED FROM IS NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCES NOT BEYO ND THE FIRST DEGREE. THE ASSESSEE HAS ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 18 CLAIMED DEDUCTION U/S 80IB IN RESPECT OF RECEIPTS W HICH ARE INCIDENTAL TO THE BUSINESS AND SO BEYOND THE FIRST DEGREE. RESPECTFULLY FOLLOW ING THE SAID DECISION OF HONBLE SUPREME COURT, WE UPHOLD THE ORDER OF THE LEARNED C IT(APPEALS) ON THIS ISSUE CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 80IB IN RESPECT OF FIRST FOUR ITEMS OF OTHER INCOME. 27. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUN AL DATED 14 TH SEPTEMBER 2012(SUPRA) PASSED IN ASSESSEES OWN CASE FOR A.Y. 2002-03, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DIS ALLOWANCE MADE BY THE AO ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80 IB IN RESPECT OF FIRST FOUR ITEMS OF OTHER INCOME AND DELETE THE SAID DISALLOWA NCE TO THE EXTENT IT WAS IN RESPECT OF INCOME FROM INSURANCE CLAIM. GROUND NO. 9 IS OF THE ASSESSEES APPEAL IS PARTLY ALLOWED. 28. THE NEXT ISSUE RAISED IN GROUND NO. 10 RELATES TO THE DISALLOWANCE OF RS.200,000/- MADE BY THE AO ON ACCOUNT OF PROPORTIO NATE MANAGEMENT EXPENSES INCURRED BY THE ASSESSEE TO EARN TAXABLE D IVIDEND INCOME. 27. DURING THE YEAR UNDER CONSIDERATION, DEDUCTION WAS CLAIMED BY THE ASSESSEE U/S 80M ON ACCOUNT OF DIVIDEND INCOME OF R S. 31,15,000/- RECEIVED FROM INDROL CEHMICALS AND SPECIALTIES PVT. LTD. AS HELD BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. UNITED GENERAL TRUST L TD. 200 ITR 488 (SC) PROPORTIONATE MANAGEMENT EXPENDITURE WAS REQUIRED T O BE DEDUCTED FROM THE DIVIDEND INCOME WHILE ALLOWING DEDUCTION U/S 80M. THE AO THEREFORE, ESTIMATED SUCH PROPORTIONATE MANAGEMENT EXPENDITURE INCURRED IN RELATION TO DIVIDEND INCOME AT RS.2,00,000/- AND RESTRICTED THE CLAIM FOR DEDUCTION U/S 80M TO RS.29,15,000/- . 30. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE MATERIAL ON RECORD. IN THE CASE OF CIT VS. CENTRAL BANK OF INDIA 264 ITR 522 (BOM), IT WAS HELD BY THE BOMBAY HIGH COURT THAT DE DUCTION U/S 80M IS ALLOWABLE ON NET DIVIDEND ARRIVED AT AFTER TAKING I NTO ACCOUNT ACTUAL EXPENDITURE INCURRED FOR THE PURPOSES OF EARNING S UCH DIVIDEND AND NOT THE ESTIMATED PROPORTIONATE EXPENDITURE. KEEPING IN VIE W THE SAID DECISION OF THE HONBLE BOMBAY HIGH COURT, WE RESTORE THIS ISSUE TO THE FILE OF AO FOR DECIDING THE SAME AFRESH IN THE LIGHT OF SAID DECISION AFTER GIVING THE ASSESSEE AN ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 19 OPPORTUNITY OF BEING HEARD. GROUND NO. 10 OF THE A SSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSE. 31. AS REGARDS GROUND NO.11, IT IS OBSERVED THAT TH E ISSUE INVOLVED THEREIN RELATING TO THE DISALLOWANCE OF ASSESSEES CLAIM FO R BAD DEBTS ON THE GROUND THAT THE RELEVANT DEBTS HAD NOT ACTUALLY BECOME BAD IN THE YEAR UNDER CONSIDERATION, IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. 3 23 ITR 397 (SC) AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES. RESP ECTFULLY FOLLOWING THE SAID DECISION OF THE HONBLE SUPREME COURT, WE DELETE TH E DISALLOWANCE MADE ON ACCOUNT OF ASSESSEES CLAIM FOR BAD DEBTS WRITTEN O FF AND ALLOW GROUND NO. 11 OF THE ASSESSEES APPEAL. 32. ISSUE RAISED IN GROUND NO. 12 OF THE ASSESSEES APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LD . CIT(A) ON ACCOUNT OF TRAVEL EXPENSES OF SPOUSE OF EMPLOYEES. 33. THE EXPENDITURE INCURRED ON FOREIGN TRIP OF MS S. SHETTY ALONGWITH HER HUSBAND DAYA SHETTY, AN EMPLOYEE OF THE COMPANY, WA S DISALLOWED BY THE AO ON THE GROUND THAT THE SAME WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ASSESSEES BUSINESS. IN THIS REGARD, HE RELIED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF CIT VS SAHIBAG EN TERPRISES PVT. LTD. 1995 TAX LR 133 (GUJ.) AND ALSO ORDERS OF THE TRIBUNAL I N ASSESSEES OWN CASE FOR EARLIER ORDERS WHEREIN THE SIMILAR DISALLOWANCE WAS SUSTAINED. ON APPEAL, THE LD. CIT(A) CONFIRMED THE SAID ALLOWANCE FOLLOWING T HE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE ON THE SIMILAR ISSUE FOR A.Y. 1 997-98 AND 1998-99. 34. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE MATERIAL ON RECORD. ALTHOUGH THE LD. COUNSEL FOR T HE ASSESSEE HAS CONTENDED THAT THE EXPENDITURE ON THE FOREIGN TRIP OF SPOUSE OF THE EMPLOYEE WAS INCURRED AS PER TERMS OF EMPLOYMENT, HE HAS NOT BEEN ABLE TO POINT OUT ANY DISTINGUISHING FEATURE INVOLVED IN THE YEAR UNDER C ONSIDERATION VIS--VIS THE EARLIER YEARS WHEREIN THE SIMILAR DISALLOWANCE WAS CONFIRMED BY THE TRIBUNAL. WE THEREFORE, RESPECTFULLY FOLLOW THE ORDERS OF THE TRIBUNAL ON THE SIMILAR ISSUE ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 20 IN ASSESSEES OWN CASE FOR THE EARLIER YEARS AND CO NFIRM THE DISALLOWANCE MADE ON THIS ISSUE. GROUND NO.12 OF THE ASSESSEES APPE AL IS ACCORDINGLY DISMISSED. 35. AS REGARD THE ISSUE RAISED IN GROUND NO. 13 OF THE ASSESSEES APPEAL RELATING TO DISALLOWANCE OF DEPRECIATION ON THE ASS ETS OF SILVASA UNIT, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE R EVENUE BY THE ORDER OF THE TRIBUNAL DATED 13 TH APRIL 2009 (SUPRA) PASSED IN ASSESSEES OWN CASE F OR A.Y. 2001-02, WHEREIN THE SIMILAR ISSUE WAS DECIDED AGAI NST THE ASSESSEE BY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF SCOPE INDUSTRIES PVT. LTD. 289 ITR 195 AS WELL AS THAT TH E TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2000-01. RESPECTFULLY FOLLOWING THESE JUDICIAL PRONOUNCEMENT , WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND DISMI SSED GROUND NO. 13 OF ITS APPEAL. 36. THE ISSUE INVOLVED IN GROUND NO. 14 OF ASSESSEE S APPEAL RELATES TO ITS CLAIM FOR DEPRECIATION AT HIGHER RATE OF 80% ON ENE RGY SAVING DEVICES WHICH IS ALLOWED AT THE RATE OF ONLY 25%. 37. DEPRECIATION AT HIGHER RATE OF 80% WAS CLAIMED BY THE ASSESSEE ON MICRO PROCESSOR BASED CONTROL SYSTEM PURCHASED DURING THE YEAR UNDER CONSIDERATION CLAIMING THAT THE SAME USED FOR INTEL LIGENT LIGHTING IS ENERGY SAVING DEVICE. ALTHOUGH THE ASSESSEE FURNISHED A CE RTIFICATE OF ENGINEER OF THE VENDOR STATING THAT THE DEPRECIATION AT HIGHER RATE IS ALLOWABLE ON SUCH PRODUCT, HE COULD NOT FURNISH THE RELEVANT DETAILS AND DOCUMENTS REQUIRED BY THE AO IN THE FORM OF CATALOGUE AND A TECHNICAL CER TIFICATE FOR ENERGY SAVING QUALITIES FROM THE COMPETENT AUTHORITIES TO PROVE T HE NATURE AND UTILITY OF THE PRODUCT. THE AO THEREFORE ALLOWED THE DEPRECIATION ON THE SAID ASSET AT NORMAL RATE OF 25%. ON APPEAL, THE LD. CIT(A) CONFIRMED T HE ACTION OF THE AO ON THIS ISSUE FOR THE SAME REASONS AS GIVEN BY THE AO. 38. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE MATERIAL ON RECORD. ALTHOUGH THE LD. C OUNSEL FOR THE ASSESSEE HAS RELIED ON THE COPY OF CERTIFICATE OF THE ENGINEER O F VENDOR PLACED AT PAGE NO. 291 OF HIS PAPER-BOOK IN SUPPORT OF THE ASSESSEES CLAI M FOR HIGHER DEPRECATION AT ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 21 THE RATE OF 80%, WE AGREE WITH AUTHORITIES BELOW TH AT THE SAME IS NOT SUFFICIENT TO ALLOW THE CLAIM OF ASSESSEE AT HIGHER RATE OF 80 %. THE ASSESSEE HAS FAILED TO FURNISH THE PRODUCT CATALOGUE AND CERTIFICATE FROM THE COMPETENT AUTHORITIES TO ESTABLISH THE NATURE AND USE OF THE ASSET TO SHOW T HAT IT IS ENERGY SAVING DEVICE ELIGIBLE FOR DEPRECIATION AT HIGHER RATE OF 80%. THE ASSESSEE HAS ALSO NOT PRODUCED ANY EVIDENCE IN SUPPORT OF ITS ALTERNA TIVE CONTENTION RAISED BEFORE US CLAIMING DEPRECIATION AT THE RATE OF 60% APPLICABLE TO COMPUTER SYSTEMS. WE THEREFORE, FIND NO MERIT IN GROUND NO. 14 RAISED BY THE ASSESSEE IN ITS APPEAL AND DISMISS THE SAME. 39. IN ITS APPEAL FOR A.Y. 2003-04 BEING ITA NO.129 9/MUM/2007, THE REVENUE HAS RAISED THE FOLLOWING TWO GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/ S 35(1)(IV) WITH RESPECT TO CAPITAL EXPENDITURE INCURRED ON COMPUTERS OF RS.5,26,926/- WITHOUT APPR ECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF R S.6,84,225/- ON ACCOUNT OF ADVERTISEMENT EXPENDITURE BY TREATING IT AS CAPITAL EXPENDITURE, WITHOUT APPR ECIATING THE FACTS OF THE CASE. 40. AS REGARDS THE ISSUE RAISED IN GROUND NO. 1 RELATED TO THE ASSESSEES CLAIM FOR DEDUCTION U/S 35(1)(IV), THE LD. REPRESE NTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE SAME IS SQUARELY COVERED IN FA VOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL TAKEN CONSISTENTLY ON THE SIMILAR ISSUE IN THE EARLIER ORDERS. A SIMILAR CLAIM MADE BY THE ASSESSEE WAS I NITIALLY ALLOWED IN A.Y. 1998-99 AND THE SAME WAS FOLLOWED SUBSEQUENTLY IN A .Y. 2001-02 WHILE DECIDING THE SIMILAR ISSUE IN FAVOUR OF THE ASSESSE E BY ITS ORDER DATED 30 TH JULY 2009 (SUPRA). RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL RENDERED ON A SIMILAR ISSUE IN ASSESSEES OWN CASE, WE UPHELD THE IMPUGNED ORDER OF THE LD. CIT(A) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 1 FO THE REVENUES APPEAL. 41. AS REGARDS THE ISSUE RAISED IN GROUND NO. 2 REL ATING TO THE DISALLOWANCE MADE ON ACCOUNT OF ADVERTISEMENT EXPENSES, IT IS OB SERVED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THE TRIBUNAL DATED 30 TH JULY 2009 (SUPRA) FOR A.Y. 2001-02 WHEREIN ORDER O F THE LD. CIT(A) DELETING ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 22 THE SIMILAR DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ADVERTISEMENT EXPENSES TREATING THE SAME AS CAPITAL EXPENDITURE W AS UPHELD BY THE TRIBUNAL FOLLOWING ITS ORDER IN ASSESSEES OWN FOR A.Y. 1998 -99. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE COORDINATE BENCH OF THIS T RIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2000-01, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF ADVER TISEMENT EXPENDITURE AND DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 42. NOW WE SHALL TAKE UP THE CROSS APPEALS FOR A.Y. 2004-05 BEING ITA NO. 7208/MUM/2010 (ASSESSEES APPEAL) AND 7433/MUM/2010 (REVENUES APPEAL) WHICH ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT (A)15, MUMBAI, DATED 04.08.2010. 43. THE FIRST ISSUE RAISED BY THE REVENUE IN ITS AP PEAL FOR A.Y. 2004-05 RELATING TO DELETION BY THE LD. CIT(A) OF THE ADDIT ION MADE BY THE AO/TPO ON ACCOUNT OF TP ADJUSTMENT IN RESPECT OF ROYALTY PAYM ENT IS SIMILAR TO THE ONE INVOLVED IN GROUND NO. 3 OF THE ASSESSEES APPEAL F OR A.Y.2003-04 WHICH HAS ALREADY BEEN DECIDED BY US IN FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2003-04 ON THE SIMILAR ISS UE, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) FOR A.Y. 2004-05 D ELETING THE ADDITION MADE BY THE AO/TPO ON ACCOUNT OF TP ADJUSTMENT IN RESPEC T OF ROYALTY PAYMENT AND DISMISS GROUND NO. 1 OF THE REVENUES APPEAL. 44. GROUND NO. 2 OF THE REVENUES APPEAL AND GROUND NO. 1 OF THE ASSESSEES APPEAL INVOLVE A COMMON ISSUE RELATING TO ADDITION MADE BY THE AO/TPO AND SUSTAINED PARTLY BY THE LD. CIT(A) ON ACCOUNT OF TP ADJUSTMENT MADE IN RESPECT OF THE COST SHARING/REIMBURSEMENT BY THE ASSESSEE O F COE-3 EXPENSES. 45. IT IS OBSERVED THAT THIS ISSUE IS ALSO SIMILAR TO THE ONE INVOLVED IN GROUND NO. 5 OF THE ASSESSEES APPEAL FOR A.Y. 2003-04 WHI CH HAS BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. THE ONLY D IFFERENCE IS THAT OUT OF THE TOTAL ADDITION OF RS.59,30,378/- MADE BY THE AO/TPO , THE LD. CIT(A) DELETED THE DISALLOWANCE MADE ON THIS ISSUE TO EXTENT OF RS . 42,58,981/- AFTER VERIFYING THE DETAILS OF RELEVANT EXPENSES AND BASI S OF ALLOCATION FURNISHED BY THE ASSESSEE AS PER HIS DIRECTION. THE BALANCE DISA LLOWANCE OF RS.16,71,397/- ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 23 HOWEVER WAS SUSTAINED BY HIM ON THE GROUND THAT IN THE ABSENCE OF THE DETAILS OF RELEVANT EXPENSES AND BASIS OF ALLOCATION FURNIS HED BY THE ASSESSEE, THE ARMS LENGTH PRICE OF THIS TRANSACTIONS WAS RIGHTLY TAKEN BY THE AO/TPO AT NIL. IT IS OBSERVED THAT A SIMILAR FACT SITUATION WAS IN VOLVED IN ASSESSEES OWN CASE FOR A.Y. 2002-03 RELATING TO IDENTICAL ISSUE WHEREI N THE TRIBUNAL UPHELD THE ORDER OF THE LD. CIT(A) GRANTING RELIEF TO THE ASSE SSEE TO THE EXTENT THE CLAIM OF THE ASSESSEE WAS DULLY SUPPORTED BY THE RELEVANT DE TAILS AND DOCUMENTS AS WELL AS THE BASIS OF ALLOCATION. AS REGARDS THE DI SALLOWANCE PARTLY SUSTAINED BY THE LD. CIT(A) ON THIS ISSUE FOR WANT OF SUCH DETAI LS AND BASIS OF ALLOCATION, THE ISSUE WAS RESTORED BY THE TRIBUNAL TO THE FILE OF T HE AO/TPO FOR DECIDING THE SAME AFRESH WITH CERTAIN SPECIFIC DIRECTIONS. RESP ECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL FOR A.Y. 2002-03, WE UPHOLD THE IMPUGN ED ORDER OF THE LD. CIT(A) DELETING THE ADDITION MADE BY THE AO ON THIS ISSUE TO THE EXTENT OF RS.4,258,981/-. THE ISSUE RELATING TO THE BALANCE ADDITION OF RS.16,71,397/- WHICH HAS BEEN SUSTAINED BY THE LD. CIT(A), WE REST ORE THE SAME TO THE FILE OF AO/TPO FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTION AS GIVEN IN A.Y. 2002-03. GROUND NO. 2 OF THE REVENUES APPEAL IS A CCORDINGLY DISMISSED WHILE GROUND NO.1 OF THE ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 46. AS REGARDS GROUND NO. 3 OF THE REVENUES APPEAL FOR A.Y. 2004-05, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING T O ADVERTISEMENT FILMS EXPENDITURE IS SIMILAR TO THE ONE INVOLVED IN GROUN D NO. 2 OF THE REVENUES APPEAL FOR A.Y. 2003-04 WHICH HAS BEEN DECIDED BY U S IN THE FOREGOING PORTION OF THIS ORDER IN FAVOUR OF THE ASSESSEE FOLLOWING T HE TRIBUNALS ORDERS IN ASSESSEES OWN CASE FOR EARLIER YEARS I.E. 1998-99, 2001-02. ACCORDINGLY, FOLLOWING THE SAID ORDERS OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR EARLIER YEARS, WE UPHOLD THE IMPUGNED ORDER OF THE LD.CIT(A ) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 3 OF THE REVENUES APPEAL. 47. THE ISSUE RAISED IN GROUND NO. 2 OF THE ASSESSE ES APPEAL FOR A.Y. 2004- 05 RELATES TO THE DISALLOWANCE MADE BY THE AO AND C ONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION 80IB I N RESPECT OF FOLLOWING ITEMS OF OTHER INCOME. ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 24 1. OTHER INCOME DIRECTLY LINKED TO SILVASSA UNIT R S. 1,34,031 2. INTEREST RECEIVED (IN RATIO OF SALES VOLUMES) R S.26,04,522 3. REVERSAL OF EXCESS PROVISION OF DOUBTFUL DEBTS (RATIO OF SALES VOLUME) RS.12,62,111 4. INSURANCE CLAIM (RATION OF SALES VOLUME) RS.22, 40,181 TOTAL RS.62,40,845 48. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THIS ISSUE IS ALSO SIMILAR TO THE ONE INVOLVED IN GROUND NO. 9 OF THE ASSESSEES APPEAL F OR A.Y.2003-04 WHICH HAS BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN A.Y.2003-04, WE CONFIRM THE DIS ALLOWANCE MADE ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB IN RESPECT OF FIRST THREE ITEMS, BUT DELETE THE SAME TO THE EXTENT IT WAS IN RESPECT OF FOURTH ITEM I.E. INSURANCE CLAIM. GROUND NO. 2 OF THE ASSESSEES AP PEAL IS THUS PARTLY ALLOWED. 49. AS REGARDS GROUND NO. 3 OF THE ASSESSEES APPEA L FOR A.Y. 2004-05, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING T O THE DISALLOWANCE MADE ON ACCOUNT OF ASSESSEES CLAIM FOR DEPRECIATION ON THE ASSETS OF SILVASSA UNIT IS SIMILAR TO THE ONE INVOLVED IN GROUND NO. 13 OF THE ASSESSEES APPEAL FOR A.Y. 2003-04 WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2003- 04, WE CONFIRMED THE DISALLOWANCE MADE ON THIS ISSUE AND DISMISS GROUND NO. 3 OF THE ASSESSEES APPEAL. 50. IN GROUND NO. 4 OF ITS APPEAL FOR A.Y. 2004-05, THE ASSESSEE HAS SOUGHT CONSEQUENTIAL RELIEF IN TERMS OF RE-COMPUTATION OF DEPRECIATION ON THE ASSET CLAIMED TO BE ENERGY SAVING DEVICE IN A.Y. 2003-04. WE HAVE ALREADY CONFIRMED THE ACTION OF THE AUTHORITIES BELOW IN DI SALLOWING THE HIGHER CLAIM OF DEPRECIATION MADE BY THE ASSESSEE ON THE ASSET CLAI MED TO BE AN ENERGY SAVING DEVICE. THE AO, ACCORDINGLY IS DIRECTED TO RE-COMPU TE THE DEPRECIATION ALLOWABLE TO THE ASSESSEE ON THE SAID ASSETS FOR A. Y. 2004-05 AFTER TAKING INTO CONSIDERATION OUR DECISION RENDERED FOR A.Y. 2003-0 4. GROUND NO. 4 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. ITA NO.1292/MUM/2010 & OTHER CASES M/S CASTROL INDIA L TD. 25 51. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED WHEREAS THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 / 12/2013 SD/- SD/- AMIT SHUKLA P.M.JAGTAP (JUDICIAL MEMBER) (ACCOUNTANT ME MBER) MUMBAI , 2 ( 2 ( 2 ( 2 ( DATED: 20.12.2013 F{X~{T? P.S. $ - + 431 / COPY OF THE ORDER FORWARDED TO : (1) &( 56 / THE ASSESSEE; (2) !' / THE REVENUE; (3) 7() / THE CIT(A); (4) 7 / THE CIT, MUMBAI CITY CONCERNED; (5) 3': +&&( , , / THE DR, ITAT, MUMBAI; (6) ;5 < / GUARD FILE +& / TRUE COPY $( / BY ORDER = / > / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI