Piaggio Vehicles Pvt. Ltd., Pune V. Asst. Comm. of Income-tax, Pune

ITA 1614/PUN/2011

• Counselvise Citation: 161424514 RSA 2011
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional depreciation; Services rendered outside India
• Section: 234B; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K.PANDA, ACCOUNTANT MEMBER. ITA.NO.1614/PN/2011 (ASSTT. YEAR : 2007-08) PIAGGIO VEHICLES PVT. LTD., E-2, MIDC AREA, BARAMATI, DIST. PUNE 413133. .. APPELLANT PAN: AABCP1225G VS. ACIT, CIRCLE-4, PUNE. .. RESPONDENT ASSESSEE BY : SHRI M.P.LOHIA & SHRI RAJENDRA AGIWAL DEPARTMENT BY : SHRI AJIT KORDE DATE OF HEARING : 22-5-2013 DATE OF PRONOUNCEMENT : 28.06.2013 ORDER PER SHAILENDRA KUMAR YADAV, JM : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE ON FOLL OWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP AND CONSEQUENTIALLY THE LEARNED AO HAVE: GROUND NO 1 - ERRED IN MAKING TRANSFER PRICING ADJUSTMENT AMOUNTING TO RS 6,86,47,189 TO THE VALUE OF INTERNA TIONAL TRANSACTION BY REJECTING THE ANALYSIS UNDERTAKEN BY THE APPELLANT TO DETERMINE ARM'S LENGTH PRICE FOR ITS I NTERNATIONAL TRANSACTION PERTAINING TO EXPORT OF SPARE PARTS AND COMPONENTS TO THE ASSOCIATED ENTERPRISE. GROUND NO 2 - ERRED IN REJECTING THE EXTERNAL TNMM APPROACH ADOPTED BY THE ASSESSEE AND INAPPROPRIATELY APPLYIN G INTERNAL TNMM FOR DETERMINING THE ARM'S LENGTH PRICE FOR THE INTERNATIONAL TRANSACTION OF EXPORT OF SPARES, PART S AND COMPONENTS. GROUND NO 3 - ERRED IN DISALLOWING APPELLANT'S CLAIM OF ADDITIONAL DEPRECIATION OF RS 10,45,544 IN RESPECT OF COMPUTERS INSTALLED IN FACTORY. 2 GROUND NO 4(A) - HON'BLE DRP ERRED IN DIRECTING THE LEARNED AO TO DISMISS THE ASSESSEE'S CLAIM OF DEPRECATION O N GOODWILL RELYING ON THE DECISION OF THE HON'BLE SUPREME COUR T (SC) IN THE CASE OF GOEZTE (INDIA) LTD VS CIT (284 ITR 323) GROUND NO 4(B) - ERRED IN DISALLOWING APPELLANT'S CLAIM OF DEPRECIATION ON THE AMOUNT OF RS 4,30,00,000 ACCOUN TED FOR AS GOODWILL BY THE APPELLANT IN ITS BOOKS OF ACCOUNTS. GROUND NO 5(A) - HON'BLE DRP ERRED IN DIRECTING THE LEARNED AO TO DISMISS THE ASSESSEE'S CLAIM OF DEPRECIATION ON LEASE HOLD RIGHTS OR ALTERNATE CLAIM TO ALLOW DEDUCTION OVER T HE PERIOD OF LEASE OF 89 YEARS RELYING ON THE DECISION OF THE HO N'BLE SC IN THE CASE OF GOEZTE (INDIA) LTD (SUPRA) GROUND NO 5(B) - ERRED IN DISALLOWING CLAIM OF DEPRECIATION IN RESPECT OF LEASE HOLD RIGHTS ON LAND. GROUND NO 5(C) - WITHOUT PREJUDICE TO GROUND 5(B), ERRED IN DISALLOWING CLAIM OF DEDUCTION FOR LEASE RENTALS PA ID IN ADVANCE FOR OBTAINING LEASE HOLD RIGHTS OVER THE LEASE PERI OD OF 89 YEARS. GROUND NO 6 - ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(L)(C) OF THE ACT AND LEVYING INTEREST U NDER SECTION 234B AND 234C OF THE ACT. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY FORMERLY K NOWN AS PIAGGIO GREAVES PRIVATE LIMITED, WAS INCORPORATED IN INDIA ON 17.02.1998 UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AS A JOINT VENTURE BETWEEN GREAVES LIMITED AND PIAGGIO CS SPA (HEREINAFTER REFERRED TO AS 'PIAGGIO ITALY). THE JOI NT VENTURE STARTED MANUFACTURING THREE WHEELED MOTOR VEHICLES BY TAKING OVER ON 30.08.2001 THE AUTO DIVISION OF GREAVES LIMITED SITU ATED AT BARAMATI, AND PIAGGIO ITALY ACQUIRED THE ENTIRE SHAR ES OF THE ASSESSEE. THE ASSESSEE IS PRIMARILY ENGAGED IN THE MANUFACTURING AND SALE OF THREE WHEELER AND LIGHT COMMERCIAL MOTOR V EHICLES AND IS ALSO INVOLVED IN SALE OF SPARES, PARTS AND COMPONENTS . TAXABLE INCOME OF THE ASSESSEE IS RS.188,74,45,239/-. DURIN G THE YEAR, THE ASSESSEE HAD ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AES: SR. NO PARTICULARS AMOUNT (RS) 1. EXPORT OF THREE WHEELED MOTOR VEHICLES 7,52,06,366 2. EXPORT OF PARTS AN D COMPONENTS OF THREE/FOUR WHEELED MOTOR VEHICLES 14,29,36,609 3 3 . IMPORT OF PARTS AND COMPONENTS OF FOUR- WHEELED VEHICLES FOR MANUFACTURE PROTOTYPES 98,85,837 4. IMPORT OF PARTS AND COMPONENTS FOR USE IN MANUFACTURE OF VEHICLES EXPORTED TO AE 2,67,87,810 5 . ROYALTY PAID/ PAYABLE FOR USE OF TECHNOLOGY 25,78,96,064 6. TECHNICAL KNOW - HOW FEES 2,70,54,217 7 . SALE OF FIXED ASSETS AND 30,13,806 8. REIMBURSEMENT OF EXPENSES 12,31,389 SUMMARY OF ADJUSTMENTS MADE TO THE INCOME OF THE ASSESS EE IS AS BELOW: ______________________________________________ PARTICULARS AMOUNT (ITS) ______________________________________________ TOTAL INCOME AS PER RETURN 1,88,74,45,239 ______________________________________________ ADD: CLAIM OF ADDITIONAL DEPRECIATION 12,89,353 ADJUSTMENT MADE BY TPO 6,86,47,189 ______________________________________________ TOTAL INCOME 195,73,81,781 ______________________________________________ 3. WE FIND THAT TRIBUNAL IN SIMILAR SET OF FACTS IN ASSESSEES OWN CASE FOR A.Y. 2006-07 IN ITA.NO.1480/PN/2010 FOLLOWING EARLIER YEARS DECISION ON THIS ISSUE, HAS HELD AS UNDER: 9. ON THIS ASPECT, WE HAVE CAREFULLY CONSIDERED THE RIVAL STANDS. IT IS A WELL-SETTLED PROPOSITION THAT WHILE CARRYING OUT THE TRANSFER PRICING STUDY OF AN INTERNATIONAL TRANSA CTION, IT IS IMPERATIVE THAT A COMPARISON IS MADE WITH THE SIMIL ARLY PLACED TRANSACTIONS, AS FAR AS POSSIBLE. IN THE PRE SENT CASE, AS NOTED EARLIER, THE ASSESSEE BENCHMARKED ITS INTERNAT IONAL TRANSACTION OF EXPORT OF SPARES AND COMPONENTS TO ITS AE ON THE BASIS OF TNM METHOD BY RELYING ON EXTERNAL COMPARA BLE COMPANIES. SO, HOWEVER, THE INCOME-TAX AUTHORITIES HAVE APPLIED AN INTERNAL TNMM MECHANISM IN ORDER TO BENCHM ARK THE IMPUGNED INTERNATIONAL TRANSACTION. THE TPO ANALY ZED THE PROFITABILITY OF EXPORTS OF SPARES AND COMPONENTS TO AES ON ONE HAND, AND COMPARED IT TO THE PROFITABILITY OF EXPORT OF 4 SPARES AND COMPONENTS MADE BY THE ASSESSEE TO THIRD PA RTIES (I.E. NON-AES). AT THE THRESHOLD, THE ASSESSEE HAS AS SAILED THE USE OF INTERNAL TNMM MECHANISM AS INAPPROPRIATE AND H AS POINTED OUT THAT THE USE OF TNMM MECHANISM BASED ON EXTERNAL COMPARABLE IS MORE APPROPRIATE. INITIALLY, WE DO NOT TAKE UP THIS CONTROVERSY, WHICH WE SHALL DEAL WITH A LITTLE LATER. HOWEVER, ANOTHER PERTINENT PLEA OF THE ASSESSEE IS TO THE EFFECT THAT EVEN THE INTERNAL TNMM MECHANISM APPLIED BY TH E INCOME-TAX AUTHORITIES IS QUITE INAPPROPRIATE AND, TH EREFORE, THE SAME HAS RESULTED IN AN UNJUSTIFIED ADJUSTMENT TO IMPUGNED INTERNATIONAL TRANSACTION. THIS ASPECT OF TH E MATTER IS BEING ADDRESSED AT THIS STAGE. THE ASSESSEE UNDE RTAKES THREE CATEGORIES OF TRANSACTIONS IN THE COURSE OF THE S ALE OF SPARES AND COMPONENTS. THE THREE CATEGORIES HAVE BEEN NOTED BY US IN THE EARLIER PART OF THE ORDER AND TO BRIEFLY RECAPITULATE, THE SAME ARE AS FOLLOWS: CATEGORY A TRANSACTION REPR ESENTS SALE OF SPARES BY THE ASSESSEE TO THIRD PARTY DISTRI BUTORS AS WELL AS TO THE AES OF SUCH SPARES/COMPONENTS WHICH ARE REQUIRED FOR THE PURPOSE OF SERVICING THE VEHICLES SOL D BY THE ASSESSEE COMPANY. CATEGORY B TRANSACTIONS REPRESENT SOURCING OF COMPONENTS REQUIRED BY THE OVERSEAS AES FOR MANUFACTURE OF 2/3 WHEELERS, AND CATEGORY C TRANSAC TIONS REPRESENT SOURCING OF COMPONENTS REQUIRED BY THE OVERS EAS AES FOR MANUFACTURE OF 4 WHEELERS, NAMELY, NEW QUADRA CYCLE POKER. ON THE BASIS OF SUBMISSIONS AND MATERIAL PUT-F ORTH, IT IS SOUGHT TO BE EXPLAINED THAT THE CATEGORY B AND C ATEGORY C TRANSACTIONS INVOLVE SUPPLY TO AES (SITUATED IN ITALY ) OF SUCH PARTS AND COMPONENTS WHICH ARE USED BY THE AE IN THE MANUFACTURE OF VEHICLES ABROAD. IT IS SOUGHT TO BE MADE OUT THAT THE SOURCE EVALUATION, PRICING AND PROCUREMENT TE STS ARE THE PREROGATIVE OF THE AE AND THAT THE ASSESSEE COMPA NY BASED IN INDIA MERELY ASSISTS IN LOGISTIC, CO-ORDINAT ION AND FACILITATION/SUPPORT SERVICES IN RESPECT OF SOURCING OF SUCH COMPONENTS. ON THE OTHER HAND, WITH REGARD TO THE CATE GORY A TRANSACTIONS, IT INVOLVES SUPPLIES TO THIRD PARTIES AS WELL AS AES OF THE SPARES AND COMPONENTS WHICH ARE REQUIRED F OR THE PURPOSES OF SERVICING THE VEHICLES MANUFACTURED AND SOLD BY THE ASSESSEE COMPANY. IN THIS CATEGORY, THE SPARES A ND COMPONENTS SUPPLIED ARE MANUFACTURED TO THE SPECIFICA TIONS PRESCRIBED THE ASSESSEE COMPANY AND AS PER THE DESIG NS, DIES, QUALITY, PACKAGING, ETC., AS MANDATED BY THE ASSESS EE COMPANY. ON THIS BASIS, THE ASSESSEE HAS ATTEMPTED T O POINT OUT THAT THE MARGINS IN CATEGORY A TRANSACTIONS CANN OT BE COMPARED WITH THE TRANSACTIONS OF CATEGORY B AND C, INASMUCH AS IT INVOLVES FUNCTIONAL AND ECONOMIC DIFFERE NCES. IT IS SOUGHT TO BE MADE OUT THAT WITH REGARD TO CATEGORY B AND C TRANSACTIONS, THE ASSESSEE DOES NOT EARN THE KIND OF MARGINS AS IT CAN EARN BY UNDERTAKING TRANSACTIONS OF CATEGORY A. 5 10. IN OUR CONSIDERED OPINION, THE NET PROFIT MARGIN IN ANY PARTICULAR KIND OF ACTIVITY IS INDEED EFFECTED BY VA RIOUS FACTORS WHICH ARE INDUSTRY-SPECIFIC AND CAN ALSO BE UNIT-SPE CIFIC HAVING REGARD TO THE DEGREE OF BUSINESS EXPERIENCE E NJOYED BY AN ENTITY. THE FACTORS WHICH CAN BE INDUSTRY-SPECIFI C, FOR EXAMPLE CAN BE IN THE FIELD OF COMPETITIVENESS, NEW ENTRANTS, PRODUCT DIFFERENTIATION AND OTHER GOVERNMENT REGULATI ONS, ETC. IT IS THEREFORE QUITE IMPERATIVE THAT WHILE UNDERTAK ING TRANSFER PRICING ANALYSIS ONE MUST EXAMINE THE TRANSACTIONS UNDERTAKEN WITH REGARD TO THE RELEVANT FACTORS EFFECT ING SUCH TRANSACTIONS VIS--VIS TRANSACTIONS SOUGHT TO BE COMPA RED. IN THIS CONTEXT, WE MAY NOW APPRECIATE THE DISTINCTION BEING SET- UP BY THE ASSESSEE IN RELATION TO TRANSACTIONS OF CATEG ORY B AND C ON ONE HAND AND THE TRANSACTIONS OF CATEGORY A ON THE OTHER. WITH REGARD TO THE TRANSACTIONS OF CATEGORY B A ND C, WHICH IS IN THE REALM OF SOURCING OF COMPONENTS, QUITE C LEARLY THE SAME IS IN THE NATURE OF INDUSTRIAL SUPPLIES, WH ICH ARE IN- TURN, USED BY THE BUYER IN MANUFACTURING OF VEHICLES AND THE SERVICES BEING RENDERED BY ASSESSEE IS MERELY LOGIST IC SERVICE EQUIVALENT. ON THE OTHER HAND, THE NATURE OF TRANSACT IONS IN CATEGORY A EFFECTUATED BY THE ASSESSEE TO ITS AE AB ROAD AS WELL AS THIRD PARTY DISTRIBUTORS INVOLVE SUPPLY OF SER VICING SPARES AND ARE PURELY IN THE REALM OF AFTER-SALE DIS TRIBUTION. THE ASSESSEE WHICH MANUFACTURES VEHICLES AND SELLS THE SAME, ALSO UNDERTAKES SUPPLY OF SPARES AND COMPONENTS REQUIR ED FOR SERVICING OF SUCH VEHICLES SOLD BY IT. QUITE CLEARLY, THE SUPPLIES SO UNDERTAKEN ARE FROM ALREADY FIRMED-UP SOURCES, INA SMUCH AS THE ASSESSEE IS THE MANUFACTURER OF VEHICLES IN WHICH SUCH COMPONENTS ARE USED, AND AT THE TIME OF PROCUREMENT FOR MANUFACTURING THE ASSESSEE HAS MANDATED THE DIES, D ESIGN, QUALITY, WARRANTIES, ETC. THUS, SUPPLY OF SPARE-PART S AND COMPONENTS AS PURELY AFTER-SALES DISTRIBUTION RESULTS IN HIGHER MARGINS. IN CONTRAST, THE SOURCING OF PRODUCTS FOR OVER SEAS AE ENTAILING CATEGORY B AND C TRANSACTIONS, THE ASSE SSEE HAS VERY LIMITED ROLE TO PLAY, WHICH IS AKIN TO LOGISTICS S UPPORT SERVICE PROVIDER. 11. IN THIS BACKGROUND, WE THEREFORE DEEM IT PROPER TO CONCLUDE THAT EVEN ACCORDING TO THE INTERNAL TNMM MECHANISM SOUGHT TO BE APPLIED, THE COMPARISON OF MAR GIN OF TRANSACTIONS OF CATEGORY B AND C UNDERTAKEN WITH T HE AES IS INCOMPARABLE WITH THE TRANSACTIONS UNDERTAKEN WITH TH E THIRD PARTIES (I.E. NON-AES) WHICH ARE PURELY IN THE NATUR E OF CATEGORY A. OSTENSIBLY, THE TRANSACTIONS OF CATEGORY B AND C ARE NOT UNDERTAKEN WITH THIRD PARTIES (I.E. NON-A ES). 12. SO, HOWEVER, IN SO FAR AS THE TRANSACTIONS OF CATEG ORY A REPRESENTING EXPORT OF SPARES AND COMPONENTS WHICH ARE REQUIRED FOR THE PURPOSE OF SERVICING OF VEHICLES SOLD BY THE ASSESSEE COMPANY, THE TRANSACTIONS UNDERTAKEN WITH TH IRD PARTY DISTRIBUTORS (I.E. NON-AES) ARE COMPARABLE TO TH E 6 TRANSACTION WITH THE AES. ON THIS ASPECT, IT IS EVID ENT ON THE BASIS OF THE TABULATION IN PARA 7 THAT THE PROFIT MARG IN (ON COST) IN RELATION TO EXPORT TO AES IS 67% AND ON TRANSACT IONS OF EXPORTS TO THIRD PARTY DISTRIBUTORS (I.E. NON-AES) IS 56.58% AND THE SAME CLEARLY DEPICTS THAT THE TRANSACTION U NDERTAKEN BY THE ASSESSEE OF CATEGORY A WITH ITS AES, NAMELY , EXPORT OF SPARES AND COMPONENTS WHICH ARE REQUIRED FOR THE PURPO SE OF SERVICING OF VEHICLES SOLD BY THE ASSESSEE HAVE BEEN UNDERTAKEN AT AN ARMS LENGTH PRICE AND THE SAME DO ES NOT REQUIRE ANY TRANSFER PRICING ADJUSTMENT AS DONE BY THE INCOME-TAX AUTHORITIES. 13. NOW, WE ARE LEFT WITH THE TRANSACTIONS OF CATEGORY B AND C WHICH HAVE BEEN UNDERTAKEN BY THE ASSESSEE WITH ITS AE. IN SO FAR AS SUCH TRANSACTIONS ARE CONCERNED, THERE IS NO INTERNAL COMPARABLE TRANSACTION, INASMUCH AS SUCH LIK E TRANSACTIONS HAVE NOT BEEN CARRIED OUT WITH NON-AES. T HE TRANSACTIONS OF SUCH NATURE INVOLVING SOURCING OF SPARE S AND COMPONENTS USED IN THE MANUFACTURE OF VEHICLES UNDERTA KEN BY THE AE ABROAD HAVE NOT BEEN UNDERTAKEN BY THE ASS ESSEE WITH NON-AES. THEREFORE, IN THE ABSENCE OF ANY INTERNA L TRANSACTIONS WITH THIRD PARTIES WITH SIMILAR FUNCTION S AND ECONOMIC SCENARIO, BENCHMARKING OF TRANSACTIONS OF CATEGOR Y B AND C UNDERTAKEN WITH AES, CANNOT BE DONE APPRO PRIATELY BY INVOKING THE INTERNAL TNMM MECHANISM. IN THIS CON TEXT, THE ASSESSEE POINTED OUT THAT FOR BENCHMARKING THE TRANSACTIONS BETWEEN THE ASSESSEE AND THE AES IN RES PECT OF SUCH ACTIVITIES, THE ASSESSEE HAS UNDERTAKEN COMPAR ISON WITH OPERATING MARGINS EARNED BY THIRD PARTY SUPPORT SER VICE PROVIDERS IN INDIA AND TABULATION IN THIS REGARD HAS BEEN PLACED IN PAGE 223 OF THE PAPER BOOK NO. II. IT IS SOU GHT TO BE MADE OUT THAT THE MARGINS DECLARED BY THE ASSESSEE ON SUCH ACTIVITY AT 11.05% COMPARE FAVOURABLY WITH THE AVERA GE OPERATING MARGINS EARNED BY THIRD PARTY SUPPORT SERVI CE PROVIDER COMPANIES IN INDIA WHICH WORKED OUT TO 5.1%. IN OUR CONSIDERED OPINION, THE AFORESAID PLEA OF THE ASSESSEE IS LIABLE TO BE EXAMINED WITH RESPECT TO ITS FACTUAL ASPECTS. F OR THE STATED PURPOSE, WE THEREFORE REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL CARRY OUT THE REQUI SITE VERIFICATION EXERCISE AND AFTER BEING SATISFIED, HE SHALL PASS AN APPROPRIATE ORDER IN ACCORDANCE WITH LAW ON THIS ASPEC T. 14. APART FROM THE AFORESAID, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE BENEFIT OF +/-5% AS ENVI SAGED IN THE PROVISO TO SECTION 92C(2) OF THE ACT HAS NOT BEEN GRA NTED TO THE ASSESSEE AND IN SUPPORT, RELIANCE HAS BEEN PLA CED ON VARIOUS TRIBUNAL DECISIONS AS UNDER: I) BINDVIEW INDIA P. LTD. V. DCIT VIDE ITA NO 1386/PN/10 (PUNE) II) SKODA AUTO INDIA P. LTD. V ACIT 122 TTJ 699; 7 III) POLICY NETWORK P. LTD, ITA NO 5504/DEL/10; IV) M/S SAP LABS INDIA P. LTD V ACIT, ITA NO 398/BANG/08; V) DEVELOPMENT CONSULTANTS (P) LTD V. DCIT 115 TTJ 577; VI) SONY INDIA (P) LTD V. CBST 288 ITR 52; VII) ELECTROBUG TECHNOLOGIES LTD. V. ACIT 37 SOT 270; VIII) ABODE SYSTEMS INDIA (P) LTD V. ACIT, ITA NO 5043/DEL/10; AND, IX) HAWORTH (I) P.LTD V. DCIT, ITA NO 5341/DEL/10 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE, WITH R EGARD TO THE BENEFIT OF +/-5% SOUGHT BY THE ASSESSEE IN TERMS OF PROVISO TO SECTION 92C(2) OF THE ACT, SUBMITTED THAT IN TERMS OF THE AMENDED PROVISO TO SECTION 92C(2) WITH EFFECT FROM 1.1 0.2009 THE CLAIM OF THE ASSESSEE WAS NOT JUSTIFIED AS THE AM ENDMENT WAS ALSO APPLICABLE TO THE ASSESSMENT YEAR IN QUESTION . ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE BENEFIT OF +/-5% INTENDED BY THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT WAS NOT AVAILABLE TO THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. ONE OF THE ISSUES RAISED BY THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO THE CLAIM SEEKING BENEFIT OF THE OPTION AVA ILABLE UNDER THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE AC T, WHICH ALLOWS THE ASSESSEE AN OPTION FOR ADJUSTMENT OF +/-5% VARIATION FOR THE PURPOSE OF COMPUTING ALP. SUCH AN IS SUE HAS BEEN A SUBJECT-MATTER OF CONSIDERATION BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF STARENT NETWORKS (INDIA ) P. LTD. IN ITA NO. 1350/PN/10 DATED 03.10.2011, WHEREBY FOL LOWING DISCUSSION IS RELEVANT: 20. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN THIS CASE, A PERTINENT ISSUE WHICH HAS BEEN VEHE MENTLY AGITATED BY THE APPELLANT IS WITH REGARD TO ITS CLA IM OF SEEKING BENEFIT OF THE OPTION AVAILABLE UNDER THE E RSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT. THE ERSTWHILE PROVISO WHICH WAS INSERTED BY FINANCE ACT, 2002 WITH EFFECT FROM 1.4.2002 READ AS UNDER: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES, OR, AT THE OPTION OF THE ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING FIVE PERCENT OF SUCH ARITHMETICAL MEAN. 8 AS PER THE SAID PROVISO, AN OPTION IS AVAILABLE TO THE ASSESSEE FOR ADJUSTMENT OF +/-5% VARIATION FOR THE PURPOSES OF COMPUTING ALP. AS PER THE PROVISO, WHER E MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPRO PRIATE METHOD, THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES OR AT THE OPTION O F THE ASSESSEE, A PRICE WHICH MAY VARY FROM THE ARITHMETI CAL MEAN BY AN AMOUNT NOT EXCEEDING 5% OF SUCH ARITHMET ICAL MEAN. THE POINT MADE OUT BY THE ASSESSEE IS BASED O N THE LATTER PART OF THE PROVISO WHEREBY AN OPTION IS GIV EN TO THE ASSESSEE TO TAKE AN ALP WHICH MAY VARY FROM THE ARITHMETICAL MEAN BY AN AMOUNT NOT EXCEEDING 5% OF SUCH ARITHMETICAL MEAN. FIRSTLY, THE CLAIM OF THE REVENU E IS THAT SUCH BENEFIT IS NOT AVAILABLE TO THE PRESENT ASSESS EE, BECAUSE THE PRICE OF INTERNATIONAL TRANSACTION DISC LOSED BY THE ASSESSEE EXCEEDS THE MARGIN PROVIDED IN THE PRO VISO. THIS ASPECT OF THE CONTROVERSY, IN OUR VIEW, IS NO LONGER GERMANE IN VIEW OF THE PLETHORA OF DECISIONS OF OUR CO- ORDINATE BENCHES, NAMELY, SONY INDIA (P) LTD. (SUPR A); ELECTROBUG TECHNOLOGIES LTD. (SUPRA), AND DEVELOPM ENT CONSULTANT P LTD V DCIT 115 TTJ 577 (KOL.) WHEREIN IT HAS BEEN OBSERVED THAT THE BENEFIT OF THE OPTION CONTAI NED IN THE LATTER PART OF THE PROVISO TO SECTION 92C(2) IS AVAILABLE TO ALL ASSESSEES, IRRESPECTIVE OF THE FACT THAT PRI CE OF THE INTERNATIONAL TRANSACTION DISCLOSED BY THEM EXCEEDS THE MARGIN PRESCRIBED IN THE PROVISO. 21. SO, HOWEVER, THE OTHER ARGUMENT SET UP BY THE REVENUE AND WHICH HAS BEEN MORE POTENTLY ARGUED IS TO THE EFFECT THAT THE BENEFIT OF SUCH PROVISO IS NOT AVAILABLE TO THE ASSESSEE IN THE INSTANT CASE, BECAUSE THE SA ID PROVISO HAS BEEN AMENDED BY THE FINANCE (NO 2) ACT, 2009 WITH EFFECT FROM 1.10.2009 WHICH READS AS UNDER: PROVIDED THAT WHERE MORE THAN ONE PRICE IS DETERMINED BY THE MOST APPROPRIATE METHOD, THE ARMS LENGTH PRICE SHALL BE TAKEN TO BE THE ARITHMETICAL MEAN OF SUCH PRICES: PROVIDED FURTHER THAT IF THE VARIATION BETWEEN THE ARMS LENGTH PRICE SO DETERMINED AND PRICE AT WHICH THE INTERNATIONAL TRANSACTION HAS ACTUALLY BEEN UNDERTAKEN DOES NOT EXCEED FIVE PER CENT OF THE LAT TER, THE PRICE AT WHICH THE INTERNATIONAL TRANSACTION HA S ACTUALLY BEEN UNDERTAKEN SHALL BE DEEMED TO BE THE ARMS LENGTH PRICE. THE CASE SET UP BY THE REVENUE IS THAT THE AMENDED PROVISO SHALL GOVERN THE DETERMINATION OF ALP IN TH E PRESENT CASE, INASMUCH AS THE AMENDED PROVISIONS WE RE ON STATUTE WHEN THE PROCEEDINGS WERE CARRIED ON BY THE 9 TRANSFER PRICING OFFICER (TPO). AS PER THE REVENUE, THE AMENDED PROVISO WOULD HAVE A RETROSPECTIVE OPERATIO N AND IN ANY CASE, WOULD BE APPLICABLE TO THE PROCEED INGS WHICH ARE PENDING BEFORE THE TPO ON INSERTION OF TH E AMENDED PROVISO, WHICH HAS BEEN INSERTED BY THE FIN ANCE (NO. 2) ACT, 2009 WITH EFFECT FROM 1.10.2009 AND, I N THIS CASE, THE TPO HAS PASSED HIS ORDER ON 30.10.2009. T HE LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO REFERR ED TO THE CBDT CIRCULAR NO 5/2010 (SUPRA) READ WITH CORRIGENDUM DATED 30.9.2010 ISSUED BY THE CBDT IN T HIS REGARD. PER CONTRA, THE STAND OF THE ASSESSEE IS TH AT THE AMENDED PROVISO WOULD BE APPLICABLE PROSPECTIVELY A ND WOULD NOT APPLY IN RESPECT OF THE STATED ASSESSMENT YEAR, WHICH IS PRIOR TO THE INSERTION OF THE AMENDED PROV ISO WITH EFFECT FROM 1.10.2009. 22. WE HAVE CAREFULLY EXAMINED THE RIVAL STANDS ON THIS ASPECT. THE AMENDED PROVISO HAS BEEN BROUGHT ON TH E STATUTE BY THE FINANCE (NO. 2) ACT, 2009 WITH EFFEC T FROM 1.10.2009. THE EXPLANATORY NOTES TO THE PROVISIONS OF FINANCE (NO 2) ACT, 2009 CONTAINED IN CIRCULAR NO 5 OF 2010 (SUPRA) PROVIDES THE OBJECTIVE BEHIND THE AMENDMENT OF THE PROVISO. THE LEGISLATURE NOTICED THE CONFLICTI NG INTERPRETATION OF THE ERSTWHILE PROVISO BY THE ASSE SSEE AND THE INCOME-TAX DEPARTMENT. THE ASSESSEES VIEW WAS THAT THE ARITHMETICAL MEAN SHOULD BE ADJUSTED BY 5% TO A RRIVE AT ALP, WHEREAS THE DEPARTMENTAL VIEW WAS THAT NO S UCH ADJUSTMENT IS REQUIRED TO BE MADE IF THE VARIATION BETWEEN THE TRANSFER PRICE AND THE ARITHMETICAL MEAN IS MOR E THAN 5% OF THE ARITHMETICAL MEAN. WITH A VIEW TO RESOLVI NG THIS CONTROVERSY, THE LEGISLATURE SOUGHT TO AMEND THE PR OVISO TO SECTION 92C(2), WHICH HAS BEEN REPRODUCED BY US IN THE EARLIER PART OF THIS ORDER. IN THE SAID CIRCULAR, I T HAS ALSO BEEN ELABORATED THAT THE ABOVE AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1.4.2009 AND WILL ACCORDINGLY APPLY IN RESPECT OF ASSESSMENT YEAR 200 9-10 AND SUBSEQUENT YEARS. IN ANY CASE, THE PROVISO CONT AINS A PRESCRIPTION TO DETERMINE THE ALP AND QUITE CLEARLY IT IS A SUBSTANTIVE PROVISION ENCOMPASSING THE EVENTUAL DETERMINATION OF AN ASSESSEES TAX LIABILITY. THUS, IT CAN BE SAID THAT THE PROVISO IS NOT A PROCEDURAL PIECE OF LEGISLATION AND THEREFORE, UNLESS IT IS SO CLEARLY INTENDED, TH E NEWLY AMENDED PROVISO CANNOT BE UNDERSTOOD TO BE RETROSPE CTIVE IN NATURE. IN FACT, IT IS A WELL-SETTLED PROPOSITIO N THAT THE STATUTORY PROVISIONS AS THEY STAND ON THE FIRST DAY OF APRIL OF THE ASSESSMENT YEAR MUST APPLY TO THE ASSESSMENT OF THE YEAR AND THE MODIFICATION OF THE PROVISIONS DUR ING THE PENDENCY OF ASSESSMENT WOULD NOT GENERALLY PREJUDIC E THE RIGHTS OF THE ASSESSEE. FURTHERMORE, WE ARE FORTIFI ED BY THE INTENTION OF THE LEGISLATURE AS FOUND FROM CIRCULAR NO 5 OF 2010 (SUPRA) WHEREBY IN PARA 37.5, THE APPLICABILI TY OF 10 THE ABOVE AMENDMENT HAS BEEN STATED TO BE WITH EFFE CT FROM 1.4.2009 SO AS TO APPLY IN RESPECT OF ASSESSME NT YEAR 2009-10 AND SUBSEQUENT YEARS. IN THIS REGARD, WE ALSO FIND THAT THE DELHI BENCH OF THE TRIBUNAL IN T HE CASE OF ACIT V UE TRADE CORPORATION INDIA (P) LTD. VIDE IT A NO 4405(DEL)/2009 DT 24.12.2010 HAS OBSERVED THAT THE PROVISO INSERTED BY THE FINANCE (NO 2) ACT, 2009 WO ULD NOT APPLY TO AN ASSESSMENT YEAR PRIOR TO ITS INSERTION. IN THIS VIEW OF THE MATTER, WE THEREFORE FIND NO JUSTIFICAT ION TO DENY THE BENEFIT OF +/-5% TO THE ASSESSEE IN TERMS OF THE ERSTWHILE PROVISO FOR THE PURPOSES OF COMPUTING THE ALP. 23. HOWEVER, BEFORE PARTING WE MAY ALSO REFER TO A CORRIGENDUM DATED 30.9.2010 BY THE CBDT BY WAY OF WHICH PARA 37.5 OF THE CIRCULAR NO 5/2010 (SUPRA) H AS BEEN SOUGHT TO BE MODIFIED. THE CORRIGENDUM READS A S UNDER: CORRIGENDUM IN PARTIAL MODIFICATION OF CIRCULAR NO. 5/2010 DATE D 03.6.2010, (I) IN PARA 37.5 OF THE SAID CIRCULAR, FOR THE LINES THE ABOVE AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1 ST APRIL, 2009 AND WILL ACCORDINGLY APPLY IN RESPECT OF ASSESSMENT YEAR 2009-10 AND SUBSEQUENT YEARS. THE FOLLOWING LINES SHALL BE READ; THE ABOVE AMENDMENT HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1 ST OCTOBER, 2009 AND SHALL ACCORDINGLY APPLY IN RELATION TO ALL CASES IN WHICH PROCEEDINGS RE PENDING BEFORE THE TRANSFER PRICING OFFICER (TPO) ON OR AFTER SUCH DATE. (II) IN PARA 38.3, FOR THE DATE 1 ST OCTOBER, 2009, THE FOLLOWING DATE SHALL BE READ: 1 ST APRIL, 2009. IN TERMS THEREOF, IT IS CANVASSED THAT THE AMENDED PROVISO HAS BEEN MADE APPLICABLE WITH EFFECT FROM 1.10.2009 AND SHALL APPLY EVEN TO CASES WHERE PROCEEDINGS WERE PE NDING BEFORE THE TPO ON OR AFTER SUCH DATE, IRRESPECTIVE OF THE ASSESSMENT YEAR INVOLVED AND, THEREFORE, IN THE INS TANT CASE THE BENEFIT OF THE ERSTWHILE PROVISO CANNOT BE EXTENDED TO THE ASSESSEE. WE HAVE CAREFULLY PONDERE D OVER THE ASSERTION MADE BY THE APPELLANT THAT THE CORRIGENDUM IS UNTENABLE IN THE EYES OF LAW. FIRSTL Y, THE SAID CORRIGENDUM DOES NOT BRING OUT ANY PREAMBLE SO AS TO 11 THROW LIGHT ON THE CIRCUMSTANCES AND THE BACKGROUND IN WHICH THE SAME HAS BEEN ISSUED. SECONDLY, IT IS WE LL UNDERSTOOD THAT THE EXPLANATORY NOTES TO THE PROVIS IONS OF A FINANCE ACT PASSED BY THE PARLIAMENT SEEKS TO EXP LAIN THE SUBSTANCE OF THE PROVISIONS OF THE ACT AS INTEN DED BY THE LEGISLATURE. IN FACT, THE HONBLE SUPREME COURT IN THE CASE OF K.P VARGHESE V ITO 131 ITR 597 (KER) EMPHASIZED THE SANCTITY OF THE STATEMENTS CONTAINED IN THE EXPLANATORY NOTES OF THE PROVISIONS AND STATED THAT THE INTERPRETATION PLACED IN SUCH DOCUMENTS IS BINDING INTERPRETATION OF LAW. THE CONTENTS OF THE CORRIGE NDUM ARE QUITE INEXPLICABLE. NOTWITHSTANDING THE AFORESAID A ND WITHOUT GOING INTO THE VALIDITY OF THE CORRIGENDUM DATED 30.9.2010 (SUPRA), WE ARE OF THE VIEW THAT THE SAME WOULD NOT OPERATE TO THE DETRIMENT OF THE ASSESSEE SINCE AT THE RELEVANT POINT OF TIME THE CONTENTS OF THE CIRCULAR NO 5/2010 (SUPRA) WERE IN OPERATION. IN OTHER WORDS, T HE WITHDRAWAL OF THE INTERPRETATION PLACED IN CIRCULA R NO 5 /2010 (SUPRA) ON THE APPLICABILITY OF THE AMENDED P ROVISO IS SOUGHT TO BE DONE AWAY BY THE CORRIGENDUM DATED 30.9.2010 AND, THEREFORE, SUCH WITHDRAWAL SHALL BE EFFECTIVE ONLY AFTER 30.9.2010, EVEN IF SUCH CORRIG ENDUM IS ACCEPTED AS VALID. WE MAY NOTE HERE THAT THE APPELL ANT HAS ASSAILED THE VALIDITY OF THE CORRIGENDUM ITSELF ON WHICH WE HAVE NOT MADE ANY DETERMINATION. THEREFORE , THE CORRIGENDUM DATED 30.9.2010, IN OUR CONSIDERED OPINION, HAS NO BEARING SO AS TO DIS-ENTITLE THE AS SESSEE FROM ITS CLAIM OF THE BENEFIT OF +/-5% IN TERMS OF THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT. IN COMING TO THE AFORESAID, WE HAVE BEEN GUIDED BY THE PARITY OF REASONING LAID DOWN IN THE JUDGMENTS OF THE HONBLE BOMBAY HIGH COURT IN THE CASES OF BASF (INDIA) LTD. V CIT 280 ITR 136 (BOM); SHAKTI RAJ FILMS DISTRIBUTORS V CIT 213 ITR 20 (BOM); AND, UNIT TRUST OF INDIA & ANRS. V ITO 249 ITR 612 (BOM). THE HONBLE HIGH COURT HAS OPINE D IN THE CASE OF BASF (INDIA) LTD. (SUPRA) THAT THE CIRC ULARS WHICH ARE IN FORCE DURING THE RELEVANT PERIOD ARE T O BE APPLIED AND THE SUBSEQUENT CIRCULARS EITHER WITHDRA WING OR MODIFYING THE EARLIER CIRCULARS HAVE NO APPLICAT ION. MOREOVER, THE CIRCULARS IN THE NATURE OF CONCESSION CAN BE WITHDRAWN PROSPECTIVELY ONLY AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF STATE BANK OF TRAVANCO RE V CIT 50 CTR 102 (SC). CONSIDERING ALL THESE ASPECTS, WE THEREFORE FIND NO JUSTIFICATION IN THE ACTION OF TH E LOWER AUTHORITIES IN DISENTITLING THE ASSESSEE FROM ITS C LAIM FOR THE BENEFIT OF +/-5% TO COMPUTE ALP IN TERMS OF THE ERSTWHILE PROVISO TO SECTION 92C(2) OF THE ACT. WE ORDER ACCORDINGLY. 12 17. IN VIEW OF THE PRECEDENT, THE STAND OF THE REVENU E IN THE PRESENT CASE TO DENY THE ASSESSEE BENEFIT FOR ADJUST MENT OF +/- 5% VARIATION WHILE COMPUTING ALP IS NOT JUSTIFIED. AS PER THE TRIBUNAL, THOUGH THE AMENDED PROVISO TO SECTION 92C(2) WAS APPLICABLE WITH EFFECT FROM 1.10.2009, SO HOWEVER, FOR THE REASONS CONTAINED THEREIN, IT WOULD NOT COVER SUCH LIKE CASES AS IS THE CASE BEFORE US. IN PARA 22 OF THE ORDER, WHI CH HAS BEEN REPRODUCED ABOVE, IT HAS BEEN OBSERVED THAT THE APPLICABILITY OF AMENDMENT IS TO BE EFFECTIVE IN RES PECT OF ASSESSMENT YEARS 2009-10 AND SUBSEQUENT YEARS AND S UCH INFERENCE WAS FOUND TO BE FORTIFIED BY THE DECISION OF THE DELHI BENCH IN THE CASE OF ACIT V UE TRADE CORPORATION INDIA (P) LTD. VIDE ITA NO 4405(DEL)/2009 DT 24.12.2010. APAR T FROM THE AFORESAID PRECEDENT, THE ASSESSEE HAS ALSO REFERR ED TO CERTAIN TRIBUNAL DECISIONS, WHICH ARE ON SIMILAR LINE S. IN VIEW OF THE AFORESAID DISCUSSION, WE FIND NO JUSTIFICATION IN THE ACTION OF THE LOWER AUTHORITIES FROM DISENTITLING THE ASSESSEE FROM ITS CLAIM OF +/-5% WHILE COMPUTING ALP IN TERMS OF ERSTWHILE PROVISO TO SECTION 92C(2)OF THE ACT. ON THIS ASPECT, WE UPHOLD THE PLEA OF THE ASSESSEE. HOWEVER, AS WE H AVE REMANDED THE MATTER TO THE FILE OF THE ASSESSING OFF ICER WITH REGARD TO THE BENCHMARKING OF TRANSACTIONS OF CATEGORY B AND C UNDERTAKEN BY THE ASSESSEE WITH ITS AES, ON THE INSTANT ASPECT ALSO, THE ASSESSING OFFICER SHALL PASS AN ORD ER AFRESH CONSIDERING THE AFORESAID PRECEDENT AND THE CONCURRENT LEGAL POSITION PREVAILING ON THIS SUBJECT. 18. IN THE RESULT, WE THEREFORE RESTORE THE ISSUE REL ATING TO ADDITION OF RS 5,68,14,644/- MADE BY THE ASSESSING OF FICER ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT BACK TO THE FIL E OF THE ASSESSING OFFICER TO RE-DETERMINE THE ALP OF THE IMPU GNED INTERNATIONAL TRANSACTION AS PER AFORESAID OBSERVATIONS AND DIRECTIONS. THUS, THE ASSESSEE SUCCEEDS ON GROUND NOS . 1 TO 3 FOR STATISTICAL PURPOSES. 4. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE ON BEH ALF OF REVENUE. IN THIS BACKGROUND WE FIND THAT ASSESSEE HAS UNDERTAKEN THREE CATEGORY OF TRANSACTION IN THE COURSE OF SALE AND SPARES AND COMPONENTS. CATEGORY (A) TRANSACTIONS REPRESENT SALE OF SPARE BY ASSESSEE TO THIRD PARTY AS WELL AS TO AE WHICH ARE RE QUIRED FOR THE PURPOSE OF SERVICING VEHICLES SOLD BY ASSESSEE. CAT EGORY (B) TRANSACTIONS REPRESENT SOURCING OF COMPONENTS REQUIRED B Y OVERSEAS AE FOR MANUFACTURE OF TWO/THREE WHEELERS. CAT EGORY (C) TRANSACTIONS REPRESENT SOURCING OF COMPONENTS REQUIRED B Y OVERSEAS AE FOR MANUFACTURING OF FOUR WHEELERS NAMELY QUADRACYCLE POKER. IN SO FAR AS THE TRANSACTIONS OF CATEGORY (A) 13 REPRESENTING EXPORT OF SPARE AND COMPONENTS WHICH ARE REQUIRED FOR THE PURPOSE OF SERVING VEHICLES SOLD BY THE ASSESSEE C OMPANY, TRANSACTIONS UNDERTAKING WITH THIRD PARTIES DISTRIBU TOR, I.E. (NON AES) ARE COMPARABLE TO TRANSACTION WITH AE. FURTH ER ITAT IN ABOVE SAID ORDER FOR A.Y. 2006-07 HELD THAT SINCE MARGIN EA RNED BY ASSESSEE FROM EXPORT OF SERVICE SPARES (CATEGORY A) TO AE (67%) IS HIGHER THAN THAT OF MARGIN EARNED FROM EXPORT TO NON-AE 56.58%, THE TRANSACTION PERTAINING TO EXPORT OF SERVICE SPARE MEET TO ARMS LENGTH TEST FOR FROM INDIAN TRANSFER PRICING PERSPECT IVE. IN ABSENCE OF ANY INTERNAL TRANSACTION WITH THIRD PARTIES WITH S IMILAR FUNCTION AND ECONOMIC BACKGROUND, BENCH MARKING OF TRANSACTION OF CATEGORY B AND C UNDERTAKING WITH AE CANNOT BE DONE APPROPRIATELY BY INVOLVING INTERNAL TNMM MECHANISM. IN THIS REGARD ASSESSEE POINTED OUT THAT FOR THE BENCHMARKING TRANSACTION BETWEEN ASSESSEE AND AES IN RESPECT OF SUCH ACTIVITI ES ASSESSEE HAS UNDERTAKEN COMPARISON WITH OPERATING MARGINS EARNED BY THIRD PARTY SUPPORT SERVICE PROVIDER IN INDIA AND TABULATION IN THIS REGARD WAS PLACED IN THE RELEVANT RECORD. IT WAS SOUGHT TO B E MADE OUT THAT MARGINS DECLARED BY ASSESSEE ON SUCH ACTIVITY A T 11.05% COMPARE FAVOURABLY WITH AVERAGE OPERATING MARGINS EAR NED BY THIRD PARTY SERVICE PROVIDER COMPANY IN INDIA WHICH WORKED OUT TO 5.1%. IN THIS BACKGROUND TRIBUNAL IN A.Y. 2006-07 IN ASSE SSEES OWN CASE HELD THAT AFORESAID PLEA OF ASSESSEE WAS LIABLE TO EXA MINED WITH RESPECT TO ITS FACTUAL ASPECTS. FOR REASONS STATED A BOVE TRIBUNAL REMANDED THE ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO CARRY OUT THE REQUISITE VERIFICATION EXERCISE AND AFT ER BEING SATISFIED HE WILL PASS APPROPRIATE ORDER IN ACCORDANCE WITH LAW IN THIS ASPECT HELD BY THE TRIBUNAL. SIMILARITY OF FACTS HAS NOT BE EN DISPUTED ON BEHALF OF THE REVENUE. FACTS BEING SIMILAR SO FOLLOWI NG THE SAME REASONING WE ARE OF THE VIEW THAT CASE OF ASSESSEE IS LIABLE TO BE EXAMINED IN THE LIGHT OF ITS FACTUAL ASPECTS. SO WE REMAND THIS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION TO CA RRY OUT REQUISITE VERIFICATION AFTER PROVIDING OPPORTUNITY OF HEARING TO THE ASSESSEE AND HAVING DONE SO PASS APPROPRIATE ORDER IN ACCORDANCE 14 WITH FACTS AS WELL AS LAW AVAILABLE AT RELEVANT POI NT OF TIME. ACCORDINGLY, THIS ISSUE IS ALLOWED FOR STATISTICAL PU RPOSES. 5. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF DEPR ECIATION ON AMOUNTS FOR AS GOODWILL BY ASSESSEE IN ITS BOOKS OF ACC OUNTS. WE FIND THAT ITAT HAS DISCUSSED THE ISSUE AT PARA NOS. 19 TO 23 OF ITS ORDER FOLLOWING EARLIER YEARS DECISION ON THIS ISSUE IN A.Y. 2006-07 AND HAS HELD AS UNDER : 19. IN GROUND NO 4, THE PLEA OF THE ASSESSEE IS THAT THE INCOME-TAX AUTHORITIES HAVE WRONGLY DENIED THE CLAIM OF DEPRECIATION OF RS 20,08,933/- ON THE AMOUNT OF RS 4,30,00,000/- ACCOUNTED FOR AS GOODWILL BY THE ASSESS EE IN ITS BOOKS OF ACCOUNT. 20. IN THIS REGARD, THE BRIEF FACTS ARE THAT ASSESS EE HAD ENTERED INTO AN AGREEMENT WITH M/S GREAVES INDIA LTD ON 4.9.98 WHEREBY IT ACQUIRED THE LATTERS 3-WHEELER MANUFACTURING PLANT SITUATED AT BARAMATI. OUT OF TH E TOTAL PURCHASE CONSIDERATION, A SUM OF RS 4,30,00,000/ - WAS STATED AS GOODWILL IN THE ACCOUNT BOOKS AND DEPRECIATION ON THE SAME WAS CLAIMED IN THE RETURN OF INCOME FILED. THE CLAIM HAS BEEN DENIED BY THE INCOME - TAX AUTHORITIES IN THIS YEAR FOR THE SIMILAR REASONS AS ADOPTED BY THE REVENUE IN THE PAST. THE BACKGROUND IS THAT THE DISPUTE REGARDING DEPRECIATION ON THE GOODWIL L AROSE FOR THE FIRST TIME IN THE ASSESSMENT YEAR 2002- 03 WHEREIN THE TRIBUNAL HAS RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTIONS TO VERIF Y THE TRUE NATURE OF THE INTANGIBLE ASSETS ACQUIRED BY THE ASSESSEE AND THEREAFTER, DECIDE THE ISSUE AFRESH. SUBSEQUENTLY, THE TRIBUNAL FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 VIDE ITS ORDER IN ITA NOS 965, 96 6 & 1203/PN/09 DATED 6.4.2011 CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE REMAND PROCEEDINGS OF THE ASSESSMENT YEAR 2002-03 AND UPON NOTICING THE DECISION OF THE VISHAKHAPATNAM BENCH OF THE TRIBUNAL IN THE CASE OF JEYPORE SUGAR CO LTD V A CIT 2011 9 TAXMAN.COM.122 (VISAKH.), AGAIN RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINATION AFRESH IN THE LIGHT OF SUCH DECISION. 21. IN THIS BACKGROUND, THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUPPORTED THE CLAIM OF THE ASSESSEE IN PRINCIPLE, ON THE BASIS OF A SUBSEQUENT DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF A.P. PAPER MILLS LTD. V. ACIT 33 DTR 148 (HYD). 15 22. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE, APPEARING FOR THE REVENUE, HAS NOT CONTESTED THE AFORESAID FACTUAL MATRIX BROUGHT OUT BY THE LEARNED COUNSEL ON BEHALF OF THE APPELLANT. 23. HAVING REGARD TO THE PRECEDENTS, WHERE THE MATT ER HAS BEEN RESTORED FOR RE-ADJUDICATION BY THE ASSESSING OFFICER IN THE PAST YEARS, IN THE INSTANT YEAR ALSO WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE IN THE LIGHT OF THE OBSERVATIONS OF THE TRIBUNAL IN THE ASSESSEES OWN CAS E FOR THE PAST YEARS AND ALSO ON THE BASIS OF ANY FURTHER SUBMISSIONS THAT THE ASSESSEE MAY DEEM PROPER TO RAI SE BEFORE HIM IN THE ENSURING REMAND PROCEEDINGS. ACCORDINGLY, GROUND NO. 4 IN THE APPEAL OF THE ASSESSE E STANDS ALLOWED FOR STATISTICAL PURPOSES. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE. FACTS B EING SIMILAR, SO FOLLOWING THE SAME REASONING WE RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE ISS UE IN THE LIGHT OF OUR OBSERVATIONS OF TRIBUNAL AND DECIDE THE SAME AFTER PROVIDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND ALSO ON TH E BASIS OF FURTHER SUBMISSIONS THE ASSESSEE MAY DEEM PROPER TO R AISE BEFORE HIM IN REMAND PROCEEDINGS. ACCORDINGLY, THIS GROUND I S ALLOWED FOR STATISTICAL PURPOSES. 6. NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF ADD ITIONAL DEPRECIATION OF RS.10,45,554/- IN RESPECT OF COMPUTERS INSTALLED IN FACTORY. WE FIND THAT TRIBUNAL IN ASSESSEES OWN CA SE FOR A.Y. 2006- 07 AT PARA NOS. 24 AND 25 FOLLOWING EARLIER YEARS D ECISION HAS HELD AS UNDER : 24. IN SO FAR AS GROUND NO. 5 IS CONCERNED, IT RELATE S TO THE DISALLOWANCE OF ASSESSEES CLAIM FOR ADDITIONAL DEPRECIATION AMOUNTING TO RS 15,01,754/- IN RESPECT OF COMPUTERS INSTALLED IN ITS FACTORY AT BARAMATI. 25. IN THIS CONTEXT, IT WAS A COMMON GROUND BETWEEN THE PARTIES THAT SIMILAR ISSUE WAS A SUBJECT MATTER OF CONSIDERATION OF THE TRIBUNAL IN THE ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 2004-05 WHILE CONSIDERING REVENUE S APPEAL VIDE ITA NO 1203/PN/09 DATED 6.4.2011. THE DEPARTMENT HAS NOT RAISED ANY OBJECTION TO THE ASSERTI ON BY THE ASSESSEE THAT THE PRECEDENT BY WAY OF THE ORD ER OF 16 THE TRIBUNAL DATED 6.4.2011 (SUPRA) ON THIS ASPECT CONTINUES TO HOLD THE FIELD AND HAS NOT BEEN ALTERED BY ANY HIGHER AUTHORITY. AS A RESULT THEREOF, FOLLOWING T HE PRECEDENT WE ALLOW ASSESSEES CLAIM OF ADDITIONAL DEPRECIATION OF RS 15,01,754/- ON COMPUTERS INSTALLED I N ITS FACTORY. RESULTANTLY, THE ORDER OF THE COMMISSIONE R OF INCOME-TAX (APPEALS) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSE E. THUS, GROUND NO. 5 IN THE APPEAL OF THE ASSESSEE STA NDS ALLOWED. WE FIND THAT TRIBUNAL UNDER SIMILAR FACTS SET OF FAC TS IN A.Y. 2006- 07 HELD THAT SINCE NO OBJECTIONS WERE RAISED BY THE D EPARTMENT IN SAID CONTEXT, THE SAID PRECEDENT BY WAY OF THE ORDER OF TRIBUNAL ON THE ISSUE IS APPLICABLE TO THE FACTS BEFORE US AND SA ME SHOULD BE ALLOWED. FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING ASSESSEES CLAIM OF ADDITIONAL DEPRECIATION ON COMPUTER S INSTALLED IN FACTORY IS ALLOWED. AO IS DIRECTED ACCORDINGLY. 7. NEXT ISSUE IS WITH REGARDS TO DISALLOWANCE OF DEPR ECIATION IN RESPECT OF LEASEHOLD RIGHTS IN LAND. WE FIND THAT IT AT IN ASSESSEES OWN CASE FOR A.Y. 2006-07 AT PARA 26 TO 30 FOLLOWING E ARLIER YEARS DECISION ON THE ISSUE, HAS OBSERVED AS UNDER : 26. IN RESPECT OF GROUND NO. 6, THE GRIEVANCE OF THE ASSESSEE IS THAT THE INCOME-TAX AUTHORITIES HAVE ERRE D IN DISALLOWING THE ASSESSEES CLAIM OF DEPRECIATION IN R ESPECT OF LEASE HOLD RIGHTS IN LAND. ALTERNATIVELY BY WAY OF GROUND NO 7 THE PLEA OF THE ASSESSEE IS THAT IT BE AL LOWED DEDUCTION FOR LEASE RENTALS PAID IN ADVANCE FOR OBTAINI NG LEASE HOLD RIGHTS OVER THE PERIOD OF LEASE OF 89 YEARS. 27. THE BRIEF BACKGROUND IS THAT ASSESSEE PAID A TOTA L CONSIDERATION OF RS 19,00,60,195/- FOR ACQUIRING LEASE- HOLD RIGHTS OF LAND. THE ASSESSEE HAD ACQUIRED LEASE HOLD RIGHTS FROM GREAVES INDIA LTD IN RESPECT OF ASSIGNMEN T OF RIGHTS BY MIDC FOR A TOTAL CONSIDERATION OF RS 1,57,76,570/- VIDE ASSIGNMENT DEED DATED 10.7.1998. SIMILARLY, IT HAD PAID BALANCE CONSIDERATION OF RS 17,42,83,623/- WHEN THE SCHEME OF MERGER WAS APPROVED BY THE HONBLE BOMBAY HIGH COURT ON 1.2.2002. IT HAD BEEN EXPLAINED BY THE APPELLANT TH AT THE ASSESSEE HAD STAKED ITS CLAIM OF DEPRECIATION IN RESP ECT OF THE LEASE HOLD RIGHTS, BEING INTANGIBLE ASSETS, BY WAY OF NOTES TO THE RETURN OF INCOME FILED FOR THE STATED 17 ASSESSMENT YEAR AND THE SAME WAS PRESSED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER DECLINED THE CLAI M OF THE ASSESSEE BY PLACING RELIANCE ON THE JUDGMENT OF T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. TECHN O SHARES & STOCKS LTD. 323 ITR 69 (BOM). IT HAS BEEN POINTED OUT THAT SUBSEQUENTLY THE SAID DECISION OF HONBLE BOMBAY HIGH COURT HAS BEEN OVERRULED BY THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCKS LTD. V. CIT REPORTED AT 327 ITR 323 (SC). APAR T THEREFROM, IT HAS BEEN POINTED OUT THAT ON SIMILAR ISSU E FOR ASSESSMENT YEARS 2003-04 AND 2004-05 THE TRIBUNA L IN ITS ORDER DATED 6.4.2011 (SUPRA) HAS RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE WHETHER LEASE HOLD RIGHTS ACQUIRED FOR THE PURPOSE OF BUSINESS ARE IN THE NATURE OF COMMERCIAL OR BUSINESS RIGHTS AS CONTEMPLATED IN SECTION 32(1)(II) OF THE ACT . IN VIEW OF THE AFORESAID, ON THE ASPECT OF ASSESSEES CLAI M FOR DEPRECIATION ON LEASE HOLD RIGHTS, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER BACK TO THE FILE OF ASSESS ING OFFICER TO BE DECIDED IN THE LIGHT OF THE OBSERVATIONS OF THE TRIBUNAL CONTAINED IN THE ORDER DATED 6.4.2011 (SUPRA) AS ALSO ON THE BASIS OF ANY FURTHER SUBMISSION S THAT MAY BE SOUGHT TO BE RAISED BY THE ASSESSEE IN TH E ENSURING REMAND PROCEEDINGS. 28. IN SO FAR AS THE ALTERNATIVE CLAIM OF THE ASSES SEE FOR ALLOWING PROPORTIONATE DEDUCTION FOR THE PREMIUM PAID TO MIDC OVER THE PERIOD OF LEASE IS CONCERNED, THE LEARNE D COUNSEL POINTED OUT THAT THE SAME IS SUPPORTED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DCIT V. SUN PHARMACEUTICAL INDIA LTD. 329 ITR 479 A ND SLP FILED BY THE DEPARTMENT AGAINST THE SAID DECISI ON BEFORE THE HONBLE SUPREME COURT ALSO STANDS DISMISSED AS REPORTED IN 325 ITR (ST) 6. THE LEARNED COUNSEL A LSO POINTED OUT THAT FOLLOWING THE AFORESAID DECISIONS, THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF EMERSON NETWORK POWER INDIA PVT. LTD. (ITA 118/MUM/10 DATED 25.3.2011) HAS ALLOWED DEDUCTION FOR THE LEASE HOLD PREMIUM PAID TO MIDC FOR ACQUIRING LEASE HOLD RIGHTS OVER THE PERIOD OF LEASE, AND A COPY OF SUCH DECISION W AS PLACED ON RECORD. HOWEVER, IT HAS ALSO BEEN BROUGHT OUT THAT SUCH ALTERNATIVE PLEA HAS OTHERWISE BEEN DECID ED AGAINST THE ASSESSEE BY THE TRIBUNAL IN THE ASSESSE ES OWN CASE FOR ASSESSMENT YEARS 1997-98 AND 1998-99. 29. IN VIEW OF THE AFORESAID BACKGROUND OF THE DISPUTE , IN OUR VIEW, IT WOULD BE APPROPRIATE THAT THE SUBSEQU ENT LEGAL POSITION RESULTING ON ACCOUNT OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SUN PHARMACEUTICAL INDIA LTD (SUPRA) OUGHT TO BE CONSIDERE D 18 WHEN IT COMES TO ADJUDICATING THE ALTERNATIVE CLAIM OF THE ASSESSEE CONTAINED IN GROUND NO. 7 BEFORE US. AS THE SUBSTANTIVE PLEA OF THE ASSESSEE IS ON ACCOUNT OF DEPRECIATION ON LEASE HOLD RIGHTS, WHICH HAS BEEN SET ASI1DE TO THE FILE OF THE ASSESSING OFFICER IN TERMS OF GROUND NO 6 ABOVE, THE IMPUGNED ALTERNATIVE PLEA THEREFORE IS ALSO SET ASIDE TO THE FILE OF THE ASSESSI NG OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF ABOVE OBSERVATIONS AS WELL AS ON THE BASIS OF ANY FURTHER SUBMISSIONS THAT MAY BE SOUGHT TO BE RAISED BY THE ASSESSEE IN THE ENSURING REMAND PROCEEDINGS. THUS, GROUND NO. 6 &7 IN THE APPEAL OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 30. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. NOTHING CONTRARY HAS BEEN BROUGHT TO OUR KNOWLEDGE. T HUS, FACTS BEING SIMILAR SO FOLLOWING SAME REASONING WE SET-ASIDE THE ISSUE IN QUESTION AND REMAND THE MATTER TO THE FILE OF THE AO W ITH A DIRECTION TO DECIDE THE SAME AS PER FACT AND LAW IN T HE LIGHT OF ASSESSEES OWN CASE FOR EARLIER YEAR AND AFTER PROVID ING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF JUNE, 2013. SD/- SD/- ( R.K.PANDA ) ( SHAILENDRA KUMAR YAD AV ) ACCOUNTANT MEMBER JUDICIAL MEMBER GSPS PUNE, DATED THE 28 TH JUNE, 2013 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE ITO, WARD- 3. THE CIT(A)- 4. THE CIT CONCERNED. 5. THE DR B BENCH, PUNE. 6. GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.