ACIT, CHENNAI V. M/s. Zylog Systems Ltd., CHENNAI

ITA 1312/CHNY/2012

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0061 (ITAT-CHENNAI)
• Duration Of Justice: 6 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-05-2018
• Assessment Year: 2009-2010
• Appeal Filed On: 15-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Double taxation relief; Cost of acquisition; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 143(3); 14A; 10B; 205; 90

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , . , [BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] !' ./I.T.A. NOS.1263/CHNY/2012 #$% &$ / ASSESSMENT YEAR : 2009-2010. M/S. ZYLOG SYSTEMS LIMITED, NO.155, THIRUVALLUVAR SALAI, KUMARAN NAGAR, CHENNAI 600 119. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III (3) CHENNAI 600 034. !' ./I.T.A. NO.1312/CHNY/2012 #$% &$ / ASSESSMENT YEAR : 2009-2010. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III (3) CHENNAI 600 034. VS. M/S. ZYLOG SYSTEMS LIMITED, NO.155, THIRUVALLUVAR SALAI, KUMARAN NAGAR, CHENNAI 600 119. [PAN AAACZ 1086G] ( / APPELLANT) ( /RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI. SAILENDRA MAMIDI, PCIT. # ' ( ) /DATE OF HEARING : 08-05-2019 *+&% ( ) /DATE OF PRONOUNCEMENT : 30-05-2019 / O R D E R PER INTURI RAMA RAO , ACCOUNTANT MEMBER:- THESE ARE APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME TAX ITA NOS.1263 & 1312/2012 :- 2 -: (APPEALS)-III, CHENNAI (HEREINAFTER CALLED AS CIT( A)) DATED 23.03.2012 FOR THE ASSESSMENT YEAR (AY) 2009-2010. 2. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT NAMELY M/S. ZYLOG SYSTEMS LIMITED IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF SOFTWARE ANALYSIS, DESIG N AND DEVELOPMENT. THE RETURN OF INCOME FOR THE AY 2009-10 WAS FILED O N 30.09.2009 DISCLOSING TOTAL INCOME OF RS. 26,08,26,080/-, AFTE R CLAIMING EXEMPTION OF RS.19,15,52,125/- U/S.10B OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT). AGAINST THE SAID RETURN OF INCOME, TH E ASSESSMENT WAS COMPLETED BY THE ASSISTANT COMMISSIONER OF INCOME T AX, COMPANY CIRCLE III(3) CHENNAI (HEREINAFTER CALLED AO) VID E ORDER DATED 29.12.2011 PASSED U/S. 143(3) OF THE INCOME TAX ACT , 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF RS. 1,08,96,06,223/. WHILE DOING SO, THE AO MADE THE FOLLOWING DISALLOWANCES. (I) DENIAL OF CLAIM FOR DEDUCTION U/S.10B OF THE AC T FOR RS.19,15,52,125/-. (II) ADDITION ON ACCOUNT OF GAIN ON FOREIGN EXCHA NGE FLUCTUATION OF RS.51,62,01,391/-. (III) DISALLOWANCE U/S.14A OF THE ACT OF RS.28,63,240/-. ITA NOS.1263 & 1312/2012 :- 3 -: (IV) DISALLOWANCE OF NON COMPETE FEE HOLDING THAT ASSESS EES CAPITAL EXPENDITURE IS RS.5,11,86,806/-. 3. BEING AGGRIEVED BY THE ABOVE ADDITIONS, AN APPEAL W AS PREFERRED BEFORE LD. CIT(A), WHO VIDE IMPUGNED ORDE R PARTLY ALLOWED THE APPEAL BY GRANTING RELIEF U/S.10B OF THE ACT BY DELETING THE ADDITION UNDER RULE 8D(2)(II) OF RS.19,15,52,125/-, DELETING AN ADDITION ON ACCOUNT OF NON COMPETE FEES OF RS.5,11,86,806/- AND DIRECTED THE AO TO GRANT RELIEF U/S.90 OF THE ACT TO THE EXTENT OF RS.51,62,01,391/- UNDER DOUBLE TAXATION AVOIDANCE AGREEMENT (IN SHORT DTAA) BETWEEN INDIA AND USA AND OTHER ADDITIONS WERE CONF IRMED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 4. THE ASSESSEE IS IN APPEAL BEFORE US BEING AGGRIEVE D BY THE CONFIRMATION OF DISALLOWANCE, ORDER OF THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) IN ITA NO.1263/CHNY/2012, SIM ILARLY THE REVENUE IS IN APPEAL IN ITA NO.1312/CHNY/2012 ON TH E GROUNDS WHICH ARE DECIDED IN FAVOUR OF THE ASSESSEE. 5. NOW WE TAKE UP APPEAL OF THE ASSESSEE IN ITA NO.1263/CHNY/2012, FOR ASSESSMENT YEAR 2009-10 FOR ADJUDICATION. 6. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL . ITA NOS.1263 & 1312/2012 :- 4 -: I. THE ORDER OF THE LEARNED CIT APPEALS (III) CHENNAI, DATED 23.03.2012, SERVED ON THE APPELLANT ON 11.04.2012 TO THE EXTENT IT IS AGAINST THE APPELLANT IS CONTRARY TO LAW, FACTS OF THE CASE AND MATERIALS AVAILABLE ON THE RECORDS. II. IN THE FACTS AND CIRCUMSTANCE OF THE CASE THE LEARNED CIT APPEALS SHOULD HAVE BEEN PLEASED TO ACCEPT THE INCOME RETURNED BY THE APPELLANT IN TOTO FOR ALL THE REASONS CANVASSED AND SUBMISSIONS MADE BEFORE HIM. III. THE LEARNED CIT APPEALS SHOULD HAVE BEEN PLEASED TO ALLOW ALL THE CLAIMS MADE BY THE APPELLANT AND SHOULD HAVE FURTHER DELETED ALL THE ADDITIONS MADE BY THE ASSESSING OFFICER. IV. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT APPEALS SHOULD HAVE STRAIGHT AWAY GRANTED RELIEF TO THE APPELLANT BY DELETING THE REDUCTION.OF THE CLAIM RS.80,06,879/- FROM THE TOTAL CLAIM OF DEDUCTION UNDER SECTION LOB INSTEAD OF REMITTING THE MATTER TO THE ASSESSING OFFICER WHEN FACTS ARE VERY CLEAR THAT THE ASSESSING OFFICER HAS ERRONEOUSLY ASSUMED THE APPELLANT HAD CLUBBED THE SUM OF RS.80,06,879/- ALONG WITH THE INCOME DERIVED FROM THE DEVELOPMENT OF COMPUTER SOFTWARE AND CLAIMED DEDUCTION U/S. LOB, A CONTENTION BY THE ASSESSING OFFICER WHICH IS FACTUALLY WRONG. V. A) IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT APPEALS SHOULD HAVE DELETED THE ADDITIO N OF RS.51,62,01,391/- BEING FOREIGN CURRENCY APPRECIATION ESPECIALLY WHEN THE APPRECIATION WAS I N THE CAPITAL FIELD. B) THE LEARNED CIT APPEALS ERRED IN NOT APPRECIATIN G THE FACT THAT FROM THE ASSESSMENT YEAR 2009-10 THE APPELLANT HAD CONSISTENTLY FOLLOWED THE PRACTICE OF NOT CLAIMING FOREX LOSS AS DEDUCTION OR OFFERING ITA NOS.1263 & 1312/2012 :- 5 -: FOREX GAIN AS INCOME PARTICULARLY IN THE VIEW OF PROVISIONS OF S145 OF THE IT ACT 1961. VI. IN ANY EVENT THE LEARNED CIT APPEALS SHOULD HA VE DIRECTED THE ASSESSING OFFICER TO GRANT LOB RELIEF O N THE SUM OF RS.51,62,01,391/- ON THE BASIS OF JUDGMENT CITED NAMELY 205 TAXMANN 59/18 KARNATAKA IN THE CASE OF CIT VS. INFOSYS TECHNOLOGIES LTD. VII. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT APPEALS SHOULD HAVE BEEN PLEASED TO COMPLETELY DELETE THE ENTIRE SUM OF RS.28,63,240/- DISALLOWED U/S. 14A AND HAD ERRED IN SUSTAINING THE SUM OF RS.8,97,074/- ESPECIALLY WHEN THE APPELLANTS CASE IS IDENTICAL IN ALL RESPECTS TO THE CASE RENDE RED IN THE CASE OF RELIANCE INDUSTRIES LIMITED REPORTED IN 339 ITR 632. VIII. THE LEARNED CIT APPEALS SHOULD HAVE BEEN PLEASED TO DIRECT ASSESSING OFFICER TO GRANT RELIEF UNDER SECTION 90 AND DOUBLE TAXATION AVOIDANCE AGREEMENT IN THE SUM OF RS.11,16,44,863/- ESPECIALLY WHEN THE LEARNED CIT APPEALS ACCEPTED THE RATIO OF THE DECISION RENDERED IN THE CASE OF AISHWARAYA RAI REPORTED IN 127 LTD 204. IX. IN THE FACTS AND CIRCUMSTANCE OF THE CASE THE LEARNED CIT APPEALS SHOULD HAVE BEEN PLEASED TO DIRECT ASSESSING OFFICER TO GRANT TAX RELIEF ON THE US BRANCH PROFIT OF RS.77,17,78,103 WHICH INCLUDED A SUM OF RS.51,62,01,391 BEING FOREIGN EXCHANGE GAIN FOR PURPOSE OF GRANTING DOUBLE TAXATION REBATE. X. FOR THE ABOVE GROUNDS AND SUCH OTHER GROUNDS AS MAY BE SUBMITTED BEFORE OR AT THE TIME OF THE HEARING OF THE APPEAL, THE APPELLANT PRAYS THAT THE HONBLE ITAT MAY BE PLEASED TO ALLOW THE APPEAL AS PRAYED. ITA NOS.1263 & 1312/2012 :- 6 -: 7. ON THE DATE OF HEARING OF APPEALS, NONE APPEARED O N BEHALF OF THE ASSESSEE DESPITE DUE SERVICE OF NOTICE, ONE SHRI. V.S. MANOJ, ADVOCATE SUBMITTED THAT THERE IS NO AUTHORIZATION FOR HIM TO REPRESENT THE MATTER FROM THE OFFICIAL LIQUIDATOR OF THE COM PANY. IN THE CIRCUMSTANCES, WE PROCEED TO DISPOSE THE APPEALS O N MERIT AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATIVE. 8. GROUNDS 1, 2, 3 AND 10 ARE GENERAL IN NATURE, NEEDI NG NO SPECIFIC ADJUDICATION. 9. GROUND NO.4, CHALLENGES THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN REMANDING T HE ISSUE TO THE ASSESSING OFFICER TO EXAMINE THE ELIGIBILITY OF TH E ASSESSEE FOR RELIEF U/S.10B OF THE ACT. FROM THE PERUSAL OF THE ORDE R OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AT PARA 4.8, I T IS CLEAR THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD RENDERED C ATEGORICAL FINDING THAT THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U/S.10B OF THE ACT. THE ISSUE HAS NOT BEEN RESTORED TO THE FILE OF TH E ASSESSING OFFICER. ACCORDINGLY, RELIEF SOUGHT BY THE ASSESSEE VIDE GRO UND NO.4 DOES NOT SURVIVE, THEREFORE GROUND OF APPEAL 4 FILED BY TH E ASSESSEE IS DISMISSED. 10. GROUND NO.5, CHALLENGES THE DECISION OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE ADDITION ON ITA NOS.1263 & 1312/2012 :- 7 -: ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION. THE ASSES SING OFFICER/ LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD RENDERED CATEGORICAL FINDING THAT FLUCTUATION IN FOREIGN EXCHANGE RATE H AD OCCURRED ON CAPITAL ITEMS AND THERE IS NO MATERIAL ON RECORD TO SHOW THAT IT IS AN REVENUE ITEMS. THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF SUTLEJ COTTON MILLS LTD VS. CIT, 116 ITR 1 IS SQUARELY APPLICABLE. THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THUS, GROUND OF APPEAL NO.5 FILED BY THE ASSESSEE IS DISMISSED. 11. GROUND NO.6 CHALLENGES THE DECISION OF THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) SEEKING RELIEF U/S.10B OF THE ACT IN RESPECT OF FOREIGN EXCHANGE GAIN OF J51,62,01,391/-. IN TH E ABSENCES OF ANY MATERIAL ON RECORD DEMONSTRATING THE NEXUS BETWEEN THE GAIN ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION AND SECTI ON 10B OF THE ACT, THE RELIEF CLAIMED BY THE ASSESSEE COMPANY CANNOT B E GRANTED. MOREOVER THIS GROUND WAS NOT RAISED BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ADDITIONAL GROUND OF APPEAL CANNOT BE ADMITTED, IN THE ABSENCES OF ANY APPLICATION AS TO WHY THE ADDITIONAL GROUND OF APPEAL SHOULD BE ADMITTED. THUS, GROUND N O.6 FILED BY THE ASSESSEE IS DISMISSED. ITA NOS.1263 & 1312/2012 :- 8 -: 12. GROUND NO.7 CHALLENGES THE DECISION OF THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) CONFIRMING THE ADDITION U/S .14A OF THE ACT R.W.R. 8D(2)(III). THE REASONING OF THE LD. COMMISS IONER OF INCOME TAX (APPEALS) IS BASED ON THE PROPER ANALYSIS OF THE FA CTS AND THE APPRECIATION OF SPIRIT BEHIND THE INTRODUCTION OF S UB RULE (III) OF RULE 8D(2). THEREFORE WE DO NOT FIND ANY MERIT IN THE G ROUND OF APPEAL FILED BY THE ASSESSEE. HENCE, WE DISMISS THE GROUN D OF APPEAL NO.7 FILED BY THE ASSESSEE. 13. GROUNDS 8 & 9 RELATES TO THE GRANT OF RELIEF ON DO UBLE TAXATION AVOIDANCE AGREEMENT. ON PERUSAL OF THE ORD ER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), WE DO NOT FI ND ANY INFIRMITY IN THE FINDINGS OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS). ACCORDINGLY GROUNDS 8 & 9 OF THE ASSESSEE ARE DISMI SSED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 15. NOW WE TAKE UP APPEAL OF THE REVENUE IN ITA NO.1312/CHNY/2012, FOR ASSESSMENT YEAR 2009-2010 FO R ADJUDICATION. 16. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEAL . 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. ITA NOS.1263 & 1312/2012 :- 9 -: 2. THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) HAS ERRED IN ALLOWING THE CLAIM OF DEDUCTION U/S 10B ON THE GROUND THAT THE ASSESSEE COMPANY HAS SATISFIED ALL THE CONDITIONS LAID DOWN IN THE SECTI ON, WHICH IS CONTRARY TO THE FACT WHICH HAS BEEN WELL BROUGHT OUT IN THE ASSESSMENT ORDER. 3. THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) HAS ERRED IN ALLOWING THE ASSESSEES CLAIM TO INCLU DE THE EXPENDITURE INCURRED IN FOREIGN CURRENCY FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA FROM EXPORT TURNOVER BASED ON THE DECISION OF THE HON'BLE ITAT IN THE ASSESSEES OWN CASE FOR OTHER ASST YEARS. THE DEPARTMENT HAS NOT ACCEPTED THE TRIBUNALS DECISION AND HAS PREFERRED FURTHER APPEA L. FURTHER, EXPLANATION 2(III) TO SECTION 10B CLEARLY DEFINES EXCLUSION OF EXPENDITURE INCURRED IN FOREIGN EXCHANGE FOR PROVIDING TECHNICAL SERVICES OUTSIDE INDIA FOR WORKING OUT DEDUCTION U/S 10B. RELIANCE IS ALSO PLACED ON THE HON'BLE MADRAS BENCH IN THE CASE OF POLARIS SOTWARE 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) PLACING RELIANCE ON BOMBAY HIGH COURTS DECISION IN THE CASE OF RELIANCE UTILITIES & POWER LTD (313 ITR 340) HAS DELETED THE DISALLOWANCE MADE U/S 14A. THE RATIO OF THE CASE CITED IS NOT APPLICABLE TO TH E, INSTANT CASE AND THAT THE ASSESSEE ITSELF, DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, HAD ACCEPTED TO ADOPT RULE 8D CALCULATIONS, SINCE IT COULD NOT ATTRIBUTE ANY DIRECT EXPENDITURE INCURRED TO EARN THE DIVIDEND INCOME. 5. THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) HAS NOT CONSIDERED THE FACT THAT THE ASSESSEE IS NO T A MANUFACTURING CONCERN AND HENCE THE SCRAP PERTAINS TO FIXED ASSETS AND LOSS ARISING THEREOF CANNOT BE TREATED AS REVENUE LOSS. 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS WRONGLY HAS ALLOWED COST OF ACQUISITION OF ITA NOS.1263 & 1312/2012 :- 10 -: CONTRACTS INCLUDING NON COMPETE FEE AS REVENUE EXPENDITURE EVEN THOUGH THE SAME IS OF CAPITAL IN NATURE AND CANNOT BE ALLOWED UNDER AMORTIZATION OF REVENUE EXPENDITURE. IN THE ASSESSEES OWN CASE FOR OTHER ASST YEARS APPEALS HAVE BEEN PREFERRED BEFORE THE ITAT AND THE SAME ARE PENDING. 7. THE LEARNED COMMISSIONER OF INCOME TAX (A) WHILE REJECTING THE ASSESSEES CLAIM UNDER DTAA RELIEF HAS DIRECTED TO TAKE IN TO ACCOUNT THE TRANSLATION FOREX GAINED BY THE ASSESSEE WHILE COMPUTING-TAX RELIEF U/S 90. RELIEF U/S 90 CANNOT BE GIVEN AS THE ASSESSEE HAS NEITHER FURNISHED THE DECLARATION OF TRANSLATION FOREX GAIN NOR PAID THE TAX BEFORE US AUTHORITIES. 8. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING. IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 17. GROUNDS 1 AND 8 ARE GENERAL IN NATURE, NEEDING NO SPECIFIC ADJUDICATION. 18. GROUNDS 2 & 3 CHALLENGES THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) THAT THE ASS ESSEE UNIT IS ELIGIBLE FOR EXEMPTION U/S.10B OF THE ACT. LD. DEP ARTMENTAL REPRESENTATIVE CONTENDED THAT THE FINDING OF THE L D. COMMISSIONER OF INCOME TAX (APPEALS) IS FACTUALLY INCORRECT, IN A S MUCH AS, ASSESSEE HAD CONVERTED EXISTING UNIT AT CIT NAGAR TO SHOLING ANALLUR UNIT AND THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT NOT HAVE GRANTED ITA NOS.1263 & 1312/2012 :- 11 -: EXEMPTION. THE FINDING OF THE ASSESSING OFFICER WHI LE DENYING THE CLAIM FOR EXEMPTION U/S. 10B OF THE ACT ARE AS UNDE R:- ON VERIFICATION OF RECORDS IN THE CASE OF ASSESSEE COMPANY, IT IS ASCERTAINED THAT IT HAD STARTED ITS BUSINESS ACTIVITY IN SEPTEMBER, 1997. THE SAID UNIT WAS INITIALLY OPERATING AT NO. 57/1, THIRUMALAI PILLA I ROAD, T NAGAR, CHENNAI AND CLAIMING EXEMPTION / DEDUCTION U/S 8OHHE FOR ASST YEARS 1998-99 AND 1999-2000. SUBSEQUENTLY, NEW UNITS WERE STARTED AT NO. 40, CIT NAGAR, 1 ST MAIN ROAD, CHENNAI (HEREINAFTER REFERRED AS CIT NAGAR UNIT) AND AT AISHWARYA COMPLEX, WEST CIT NAGAR AND OPERATED AS 100% EOU WITH THE APPROVAL OF STPI. THE ASSESSEE HAS STARTED CLAIMING ITS 10B DEDUCTION FROM ASST YEAR 2000-2001 ONWARDS. THEREFORE, ASSESSEE COMMENCED ITS BUSINESS AS DTA UNIT IN SEPTEMBER, 1997, SUBSEQUENTLY CONVERTED INTO 100% EOU. IN THESE CIRCUMSTANCES, AS PER THE PROVISIONS OF 10B AS WELL AS CLARIFICATION ISSUED BY THE BOARD IN CIRCULA R 1 OF 2005 DT. JANUARY 6, 2005, THE DEDUCTION WILL BE AVAILABLE ONLY FROM THE YEAR IN WHICH IT GOT THE APPROVAL AS 100% EOU. FURTHER DEDUCTION WILL BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF 10 CONSECUTIVE YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLE OR THING OR COMPUTER SOFTWARE AS DTA UNIT. HENCE, HERE THE PERIOD OF 10 YEARS TAX HOLIDAY HAS ALREADY EXPIRED. ON PERUSAL OF ORDER THE LD. COMMISSIONER OF INCOME TAX (APPEALS), IT IS CLEAR THAT LD. COMMISSIONER OF INCOME TAX (APPEA LS) HAD NOT MET REASONING OF THE ASSESSING OFFICER, WE REVERSE THE FINDINGS OF THE LD. ITA NOS.1263 & 1312/2012 :- 12 -: COMMISSIONER OF INCOME TAX (APPEALS) AND GROUNDS OF APPEAL 2 & 3 FILED BY THE REVENUE ARE ALLOWED. 19. GROUND NO. 4 CHALLENGES THE DECISION OF LD. COMMISS IONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION UNDE R RULE 8D (2)(II) OF THE ACT PLACING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD, 313 ITR 340 . FROM THE PERUSAL OF THE ORDER OF THE LD. COMMISSION ER OF INCOME TAX (APPEALS), IT IS CLEAR THAT THE LD. COMMISSIONER O F INCOME TAX (APPEALS) HAD RECORDED A CATEGORICAL FINDING THAT I NVESTMENT OF J33,00,00,000/ WAS MADE OUT OF INTEREST FREE FUNDS OF J407,00,00,000/-. THEREFORE THE RATIO OF THE DECISI ON OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD (SUPRA) IS SQUARELY APPLICABLE. THUS, WE DO NOT F IND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). HENCE, GROUND OF APPEAL NO.4 FILED BY T HE REVENUE IS DISMISSED. 20. GROUND NO.5 CHALLENGES THE DECISION OF THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) IN ALLOWING LOSS OF SALE OF ASSETS OF J41,78,380/- AS REVENUE EXPENDITURE. ADMITTEDLY, THE LOSS OF J41,78,380/- WAS INCURRED BY THE ASSESSEE ON ACCOU NT OF SALE OF FIXED ITA NOS.1263 & 1312/2012 :- 13 -: ASSETS AND SALE PROCEEDS OF THE FIXED ASSETS SHOULD ONLY GO TO COST OF THE FIXED ASSETS AND SAME CANNOT BE ALLOWED AS REVE NUE EXPENDITURE. THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) CANNOT BE SUSTAINED AND WE REVERSE THE FINDINGS OF THE LD . COMMISSIONER OF INCOME TAX (APPEALS). GROUND NO.5 FILED BY THE REVE NUE IS ALLOWED. 21. GROUND NO.6, CHALLENGES THE DISALLOWANCE OF NON COM PETE FEES OF J5,11,86,806/- AS REVENUE EXPENDITURE PLACI NG RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF ALACRITY HOUSING LTD VS. CIT, 341 ITR 264. THE LAW IS SETTLE D TO THE EXTENT THAT NON COMPETE FEES IS ONLY IN THE NATURE OF CAPITAL E XPENDITURE AND IT CANNOT BE TREATED AS REVENUE EXPENDITURE. ACCORDING LY, THE FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CON TRARY TO THE SETTLED PROPOSITION OF LAW, HENCE WE REVERSE THE FI NDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND ALLOW GROU ND OF APPEAL NO.6 FILED BY THE REVENUE. 22. GROUND NO.7, CHALLENGES THE DECISION OF ALLOWING RE LIEF U/S.90 OF THE ACT IN RESPECT OF FOREIGN EXCHANGE GAIN OF J 51,62,01,391/-. THERE IS NO EVIDENCE ON RECORD TO SHOW THAT TAX HAS BEEN PAID IN USA IN RESPECT OF FOREIGN EXCHANGE GAIN OF J51,62,01,39 1/- AND THEREFORE OUGHT NOT HAVE GRANTED RELIEF U/S.90/90A OF THE ACT . THE GROUND OF APPEAL NO.7 FILED BY THE REVENUE IS ALLOWED. ITA NOS.1263 & 1312/2012 :- 14 -: 23. IN THE RESULT, APPEAL FILED BY THE REVENUE IS PARTL Y ALLOWED. 24. TO SUMMARIZE THE RESULTS, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED WHEREAS THE APPEAL FILED BY THE REVENU E IS PARTLY ALLOWED. ORDER PRONOUNCED ON 30TH DAY OF MAY, 2019, AT CHEN NAI. SD/- SD/- ( . ! ) (DUVVURU RL REDDY) ' # /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER . #' / CHENNAI /# / DATED:30 TH MAY, 2019. KV 0 ( 1)2 3' !4 3&) / COPY TO: 1 . !' 56 / APPELLANT 3. 7) (!' ) / CIT(A) 5. 3 89 1)#: / DR 2. 1;56 / RESPONDENT 4. 7) / CIT 6. 9$ <' / GF