M/s. STRIDES ARCOLAB LTD., NAVI MUMBAI V. ADDL. CIT Rg. - 10(3), MUMBAI

ITA 1727/MUM/2006

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1928 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 12-05-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 13-03-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Depreciation; Transfer pricing; International transaction; Proportionate interest; Question of law; Competent authority
• Section: 43B; 143(3); 80HHC; 14A; 80IB; 15

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K, MUMBAI , , , BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.1727/MUM/2006 ASSESSMENT YEAR: 2002-03 M/S. STRIDES ARCOLAB LTD., 201, DEVAVRATA, SECTOR-17, VASHI, NAVI MUMBAI-400703 / VS. A CIT RG 10 (3) AAYAKAR BHAVAN, MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AADCS8104 P ITA NO.1605/MUM/2006 ASSESSMENT YEAR: 2002-03 ACIT RG 10(3) AAYAKAR BHAVAN, MUMBAI-400020 / VS. M/S. STRIDES ARCOLAB LTD., 201, DEVAVRATA, SECTOR-17, VASHI, NAVI MUMBAI-400703 (REVENUE ) (RESPONDENT) P.A. NO. AADCS8104P APPELLANT BY SHRI NITESH JOSHI (AR) RESPONDENT BY SHRI N.K. CHAND ( CIT - DR) / DATE OF HEARING: 06/10/2015 / DATE OF ORDER: 16/12/2015 STRIDES ARCOLAB LTD. 2 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE CROSS APPEALS HAVE BEEN FILED AGAINST THE ORD ER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) -X, MUMBAI {IN SHORT, CIT(A)}, BOTH FOR THE ASSESSMENT YEAR 2002 -03 DATED 10.01.2006, PASSED AGAINST THE ASSESSMENT ORDER PAS SED BY THE ASSESSING OFFICER (IN SHORT AO) U/S 143(3) OF THE ACT. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI NITESH JOSHI (LD. COUNSEL) ON BEHALF OF THE AS SESSEE AND BY SHRI N.K. CHAND, DEPARTMENTAL REPRESENTATIVE (LD . CIT- DR), ON BEHALF OF THE REVENUE. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA NO.1727/M/2006: 3 . GROUND NO.1: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOW ANCE OF RS.1,86,63,256/- MADE BY THE ASSESSING OFFICER AS E XCESS DEDUCTION CLAIMED U/S 35(2AB) OF THE IT ACT. 3.1. THE ISSUE INVOLVED HERE IS THAT IN THIS CASE DEDUC TION WAS DENIED BY THE AO AS WELL AS LD. CIT(A) ON THE GROUN D THAT RECOGNITION U/S 35(2AB) FROM THE DSIR ( DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH) HAS BEEN RECEIV ED AFTER END OF THE ASSESSMENT YEAR, AND THAT AGREEMENT AS CONTE MPLATED BY SECTION 35(2AB) HAS NOT BEEN ENTERED INTO. STRIDES ARCOLAB LTD. 3 3.2. IN THIS REGARD, IT WAS SUBMITTED BY THE LD. COUNSE L THAT THE POSITION OF LAW IS NOW CLEAR. THE AFORESAID DED UCTION CANNOT BE DENIED MERELY BECAUSE APPROVAL IS GRANTED BY THE COMPETENT AUTHORITY AT A LATER DATE. RELIANCE WAS P LACED IN THIS REGARD ON THE FOLLOWING JUDGMENTS:- CIT VS. CLARIS LIFESCIENCES LTD. 326 ITR 251(GUJ) CIT VS. SANDAN VIKAS(INDIA) LTD. 335 ITR 117(DEL) CIT VS. WHEELS INDIA LTD. 336 ITR 513(MAD.) IT WAS FURTHER SUBMITTED THAT DEDUCTION U/S 35(2AB) SHOULD BE ALLOWED IN A CASE WHERE APPROVAL IS RECEIVED THO UGH NO AGREEMENT IS ENTERED INTO, AS WAS HELD IN ACIT V. M ECO INSTRUMENTS ITA NO.4246/M/2009 DATED 20.08.2010 AND SRI BIOTECH LABORATORIES INDIA LTD. V. ACIT 36 ITR 88(H YD.)(TRI.). 3.3. ON THE OTHER HAND, LD. CIT-DR HAS SUBMITTED THAT CONDITIONS PRESCRIBED IN THE SECTION, AS ALSO REFER RED TO BY THE AO, CANNOT BE TERMED AS MERELY PROCEDURAL AND THERE FORE, DECISION RELIED UPON BY THE LD. COUNSEL WERE DISTIN GUISHABLE. IT WAS FURTHER SUBMITTED THAT THESE PROVISIONS SHOU LD BE STRICTLY CONSTRUED, AND THE PURPOSE CANNOT BE READ INTO THE SECTION. HE SUBMITTED THAT DEDUCTION HAS BEEN RIGHT LY REFUSED BY THE LOWER AUTHORITIES AND THEIR ORDERS SHOULD BE UPHELD. 3.4. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AS WELL AS FACTS OF THE CASE AND THE POSITION OF LAW EMERGING OUT FROM THE DECISIONS RELIED UPON BY THE PARTIES STRIDES ARCOLAB LTD. 4 BEFORE US. THE BRIEF FACTS ARE THAT DEDUCTION U/S 3 5(2AB) WAS CLAIMED BY THE ASSESSEE IN RESPECT OF RESEARCH AND DEVELOPMENT EXPENSES INCURRED AT NEW MANGALORE AND KRS GARDENS RESEARCH CENTRE. APPLICATION WAS MADE WITH DSIR DATED 28.03.2001, COPY OF WHICH IS ENCLOSED AT PAGE S 37 TO 68 OF THE PAPER BOOK. THE RECOGNITION OF THE RESEARCH UNIT WAS GRANTED BY THE DSIR VIDE ITS LETTER DATED 03.07.200 2 FOR NEW MANGALORE UNIT (COPY AVAILABLE AT P.B. 68) AND LETT ER DATED 04.12.2002 FOR KRS GARDENS RESEARCH UNIT ( COPY AVA ILABLE AT PAGE NO.69 OF THE PAPER BOOK). IN VIEW OF THESE FAC TS, IT CLEARLY EMERGES OUT THAT ASSESSEE HAD MADE THE APPLICATIONS WELL IN TIME. THEREAFTER, GRANTING OF APPROVAL BY THE COMPE TENT AUTHORITY WAS NOT IN THE CONTROL OF THE ASSESSEE. I T HAS BEEN FURTHER BROUGHT TO OUR NOTICE THAT THERE WAS NO DEL AY ON THE PART OF THE ASSESSEE IN SUPPLYING ANY INFORMATION T O THE APPROVAL AUTHORITY, IF AND WHEN ASKED BY IT. IN OTH ER WORDS, THE DELAY, IN THE GIVEN FACTS, CANNOT BE ATTRIBUTED TO THE ASSESSEE. IN FACT, THE ASSESSEE HAD NO SAY IN THIS REGARD. IT IS FURTHER NOTED BY US THAT THE APPROVAL HAS BEEN GRAN TED BY THE COMPETENT AUTHORITY AFTER TAKING THE APPLICATION OF THE ASSESSEE AS A BASE. IN OUR CONSIDERED VIEW, UNDER T HESE CIRCUMSTANCES, THE APPROVAL WOULD RELATE BACK TO TH E DATE OF THE APPLICATION. IN OTHER WORDS, UNDER THESE CIRCUM STANCES, IT CAN BE TAKEN AS IF THE APPROVAL WAS GRANTED ON 28.0 3.2001 I.E. THE DATE OF APPLICATION MADE BY THE ASSESSEE. THUS, IN OUR VIEW, THE GRIEVANCE RAISED BY THE REVENUE ON THIS I SSUE IS NOT SUSTAINABLE. IT IS FURTHER NOTED BY US THAT THIS IS SUE IS NO MORE RES-INTEGRA . WE CAN TAKE HELP OF JUDGMENT OF HONBLE DELHI STRIDES ARCOLAB LTD. 5 HIGH COURT IN THE CASE OF CIT VS. SANDAN VIKAS (IND IA), (SUPRA) WHEREIN THEIR LORDSHIPS HAVE HELD, FOLLOWING THE JU DGMENTS OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. C LARIS LIFESCIENCES LTD. (SUPRA), THAT ASSESSEE WOULD BE E LIGIBLE FOR DEDUCTION EVEN IF THE APPROVAL IS GRANTED BY THE CO MPETENT AUTHORITY SUBSEQUENT TO THE EXPIRY OF THE PREVIOUS YEAR. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELO W: THE ASSESSING OFFICER, HOWEVER, REFUSED TO ACCORD THE BENEFIT OF THE AFORESAID PROVISIONS OF WEIGHTED DED UCTION TO THE ASSESSEE ON THE GROUND THAT RECOGNITION AND APP ROVAL WAS GIVEN BY THE DSIR IN FEBRUARY/SEPTEMBER 2006, I .E., IN THE NEXT ASSESSMENT YEAR AND, THEREFORE, THE ASS ESSEE WAS NOT ENTITLED TO THE BENEFIT. THE CIT(APPEAL) AC CEPTED THIS VIEW OF THE ASSESSING OFFICER AND DISMISSED TH E APPEAL, HOWEVER, THE INCOME TAX APPELLATE TRIBUNAL (HEREINAFTER REFERRED TO AS 'THE TRIBUNAL') HAS COM E TO THE CONCLUSION THAT THE ASSESSEE WOULD BE ENTITLED TO W EIGHTED DEDUCTIONS OF THE AFORESAID EXPENDITURE INCURRED BY THE ASSESSEE IN TERMS OF THE SECTION 35(2AB) OF THE ACT AND IN COMING TO THIS CONCLUSION, THE TRIBUNAL HAS RELIED UPON THE JUDGMENT OF GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX V. CLARIS LIFESCIENCES LTD ., 326 ITR 251(GUJ). WE HAVE GONE THROUGH THE AFORESAID JUDGMENT OF THE GUJARAT HIGH COURT AND FIND THAT GUJARAT HIGH COURT DETAILED IN NO- UNCERTAIN TERMS THAT THE CUT-OFF DATE MENTIONED IN THE CERTIFICATE ISSUED BY THE DSIR WOULD BE OF NO RELEV ANCE. WHAT IS TO BE SEEN IS THAT THE ASSESSEE WAS IN INDU LGING IN STRIDES ARCOLAB LTD. 6 R&D ACTIVITY AND HAD INCURRED THE EXPENDITURE THERE UPON. ONCE A CERTIFICATE BY DSIR IS ISSUED, THAT WOULD BE SUFFICIENT TO HOLD THAT THE ASSESSEE FULFILS THE CO NDITIONS LAID DOWN IN THE AFORESAID PROVISIONS. THE DISCUSSI ON, WHICH IS UNDERTAKEN BY THE GUJARAT HIGH COURT WHIL E INTERPRETING THE AFORESAID PROVISIONS, IS EXTRACTED BELOW: '7. .........THE LOWER AUTHORITIES ARE READING MORE THAN WHAT IS PROVIDED BY LAW. A PLAIN AND SIMPLE READING OF T HE ACT PROVIDES THAT ON APPROVAL OF THE RESEARCH AND DEVEL OPMENT FACILITY, EXPENDITURE SO INCURRED IS ELIGIBLE FOR W EIGHTED DEDUCTION. 8. THE TRIBUNAL HAS CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND TOOK THE VIEW THAT SECTI ON SPEAKS OF: (I) DEVELOPMENT OF FACILITY; (II) INCURRING OF EXPENDITURE BY THE ASSESSEE FOR DEVELOPMENT OF SUCH FACILITY; (III) APPROVAL OF THE FACILITY BY THE PRESCRIBED AU THORITY, WHICH IS DSIR; AND (IV) ALLOWANCE OF WEIGHTED DEDUCTION ON THE EXPENDI TURE SO INCURRED BY THE ASSESSEE. 9. THE PROVISIONS NOWHERE SUGGEST OR IMPLY THAT RES EARCH AND DEVELOPMENT FACILITY IS TO BE APPROVED FROM A PARTICULAR DATE AND, IN OTHER WORDS, IT IS NOWHERE SUGGESTED THAT DATE OF APPROVAL ONLY WILL BE CUT-OF F DATE FOR ELIGIBILITY OF WEIGHTED DEDUCTION ON THE EXPENS ES INCURRED FROM THAT DATE ONWARDS. A PLAIN READING CL EARLY MANIFESTS THAT THE ASSESSEE HAS TO DEVELOP FACILITY , WHICH PRESUPPOSES INCURRING EXPENDITURE IN THIS BEHALF, APPLICATION TO THE PRESCRIBED AUTHORITY, WHO AFTER FOLLOWING PROPER PROCEDURE WILL APPROVE THE FACILITY OR OTHER WISE AND THE ASSESSEE WILL BE ENTITLED TO WEIGHTED DEDUCTION OF ANY AND ALL EXPENDITURE SO INCURRED. THE TRIBUNAL HAS, THEREFORE, COME TO THE CONCLUSION THAT ON PLAIN REA DING OF STRIDES ARCOLAB LTD. 7 SECTION ITSELF, THE ASSESSEE IS ENTITLED TO WEIGHTE D DEDUCTION ON EXPENDITURE SO INCURRED BY THE ASSESSE E FOR DEVELOPMENT OF FACILITY. THE TRIBUNAL HAS ALSO CONS IDERED RULE 6(5A) AND FORM NO. 3CM AND COME TO THE CONCLUS ION THAT A PLAIN AND HARMONIOUS READING OF RULE AND FOR M CLEARLY SUGGESTS THAT ONCE FACILITY IS APPROVED, TH E ENTIRE EXPENDITURE SO INCURRED ON DEVELOPMENT OF R&D FACI LITY HAS TO BE ALLOWED FOR WEIGHTED DEDUCTION AS PROVIDE D BY SECTION 35(2AB). THE TRIBUNAL HAS ALSO CONSIDERED T HE LEGISLATIVE INTENTION BEHIND ABOVE ENACTMENT AND OB SERVED THAT TO BOOST UP RESEARCH AND DEVELOPMENT FACILITY IN INDIA, THE LEGISLATURE HAS PROVIDED THIS PROVISION TO ENCO URAGE THE DEVELOPMENT OF THE FACILITY BY PROVIDING DEDUCTION OF WEIGHTED EXPENDITURE. SINCE WHAT IS STATED TO BE PR OMOTED WAS DEVELOPMENT OF FACILITY, INTENTION OF THE LEGIS LATURE BY MAKING ABOVE AMENDMENT IS VERY CLEAR THAT THE ENTIR E EXPENDITURE INCURRED BY THE ASSESSEE ON DEVELOPMENT OF FACILITY, IF APPROVED, HAS TO BE ALLOWED FOR THE PU RPOSE OF WEIGHTED DEDUCTION. 10. WE ARE IN FULL AGREEMENT WITH THE REASONING GIV EN BY THE TRIBUNAL AND WE ARE OF THE VIEW THAT THERE IS N O SCOPE FOR ANY OTHER INTERPRETATION AND SINCE THE APPROVAL IS GRANTED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION, WE ARE OF THE VIEW THA T THE ASSESSEE IS ENTITLED TO CLAIM WEIGHTED DEDUCTION IN RESPECT OF THE ENTIRE EXPENDITURE INCURRED UNDER SECTION 35 (2AB) OF THE ACT BY THE ASSESSEE.' 3. WE ARE IN FULL AGREEMENT WITH THE AFORESAID APPR OACH OF THE GUJARAT HIGH COURT. NO SUBSTANTIAL QUESTION OF LAW, THEREFORE, ARISES. THE APPEAL IS DISMISSED. 3.5. IT IS NOTED BY US THAT SIMILAR VIEW HAS BEEN TAKEN BY HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. WH EELS INDIA LTD. (SUPRA). THUS, KEEPING IN VIEW THE CLEAR POSIT ION OF LAW AND THE FACTS OF THIS CASE, STAND OF THE REVENUE ON THIS ISSUE IS STRIDES ARCOLAB LTD. 8 REJECTED. THE OTHER ISSUE RAISED BY THE AO IN DISAL LOWING THE DEDUCTION WAS THAT NO AGREEMENT HAS BEEN ENTERED AS CONTEMPLATED BY SECTION 35(2AB). IN THIS REGARD ALS O WE HAVE NOTED THAT THE ASSESSEE HAS MADE REQUISITE COMPLIAN CE AS HAS BEEN REQUIRED BY THE PRESCRIBED COMPETENT AUTHORITY AND COMPLIANCE OF ALL THE PROCEDURAL REQUIREMENTS HAS B EEN EXAMINED BY THE COMPETENT AUTHORITY WHILE GRANTING APPROVAL. IN OUR CONSIDERED VIEW, WE SHOULD LOOK SUBSTANTIVE COMPLIANCE OF THE PROVISIONS. DOCUMENTATION IN ANY PARTICULAR FORMAT AND ITS APPROVAL IN A PARTICULAR MANNER IS NOT OBJECT O F THIS ACTION. IN ANY CASE, ALL THESE ASPECTS HAVE BEEN EXAMINED B Y THE COMPETENT AUTHORITY WHILE GRANTING APPROVAL, THUS T HE AO SHOULD NOT HAVE DENIED BENEFIT OF DEDUCTION ON HIS WHIMS AND FANCIES. WE FIND THAT THE ASSESSEE HAS RIGHTLY PLAC ED RELIANCE ON THE JUDGMENT OF COORDINATE BENCH IN THE CASE OF ACIT VS. MECO INSTRUMENTS (SUPRA) AND SRI BIOTECH LABORATORI ES INDIA LTD., SUPRA, IN SUPPORT OF HIS CLAIM. 3.6. THUS, TAKING INTO ACCOUNTS ALL THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS AFORESAID JUDG MENTS, WE FIND THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/ S 35(2AB) AND THE SAME WAS WRONGLY DENIED TO THE ASSESSEE, AND TH EREFORE, WE DIRECT THE AO TO GRANT THE BENEFIT OF DEDUCTION U/S 35(2AB). GROUND NO.1 OF THE ASSESSEES APPEAL IS ALLOWED. 4. GROUND NO.2: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN MAKING THE DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A OF THE ACT. STRIDES ARCOLAB LTD. 9 4.1. DURING THE HEARING, IT HAS BEEN SUBMITTED BY THE L D. COUNSEL OF THE ASSESSEE THAT ONLY INTEREST HAS BEEN DISALLOWED. IN A.Y.2001-02 ALSO, SIMILAR ISSUE CAME UP BEFORE T HE HONBLE TRIBUNAL WHEREIN IT HAS BEEN HELD THAT NO DISALLOWA NCE OF INTEREST IS CALLED FOR. IT HAS BEEN FURTHER SUBMITT ED THAT NO FRESH INVESTMENT HAS BEEN MADE DURING THE YEAR AND THEREFORE THIS ISSUE STANDS COVERED WITH THE JUDGMENT OF HON BLE TRIBUNAL OF EARLIER YEAR. ON THE OTHER HAND, LD. CI T, DR HAS PLACED RELIANCE ON THE ORDER OF THE AO ON THIS ISSU E. 4.2. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHO RITIES AND SUBMISSIONS MADE BEFORE US BY BOTH THE SIDES. T HE BRIEF FACTS ARE THAT DURING THE ASSESSMENT PROCEEDINGS IT WAS POINTED OUT BY THE AO THAT THE ASSESSEE HAS INVESTE D INTO SHARES OF INDIA COMPANY AGGREGATING TO RS.10,77,58, 817/-. IN RESPONSE, THE ASSESSEE TRIED TO EXPLAIN THAT NO BOR ROWED CAPITAL WAS USED FOR PURPOSE OF INVESTMENT IN SUCH SHARES BUT AO WAS NOT SATISFIED AND HE DISALLOWED THE PROPORTI ONATE INTEREST AMOUNTING TO RS.1,46,87,526/-. 4.3. BEING AGGRIEVED, THE ASSESSEE CONTESTED THE MATTER BEFORE THE LD. CIT(A), WHEREIN RELYING UPON HIS EARLIER OR DER FOR A.Y. 2001-02, THE LD. CIT(A) CONFIRMED PART DISALLOWANCE OF THE PROPORTIONATE INTEREST AS PER THE WORKING GIVEN IN THE ORDER FOR A.Y.2001-02. STRIDES ARCOLAB LTD. 10 4.4. BEING AGGRIEVED, THE ASSESSEE HAS CONTESTED APPEAL BEFORE THE TRIBUNAL ON THIS ISSUE. IT IS NOTED BY US THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN A.Y. 2001-02, I N ITA NO.6487/04 DATED 03.08.2012. THE RELEVANT PARA OF T HE TRIBUNALS ORDER IS REPRODUCED HEREUNDER FOR THE SA KE OF READY REFERENCE: 4. COMING TO THE ASSESSEES OBJECTION ABOUT THE SUSTAINABILITY OF PART OF DISALLOWANCE U/S 14A, WE OBSERVE FROM PAGE 3 OF THE IMPUGNED ORDER THAT TOTAL INVEST MENTS MADE IN THE SHARES OF DOMESTIC COMPANY IS TO THE TU NE OF RS.2.84 CRORE. IT IS PALPABLE THAT THE ASSESSEE MAD E INVESTMENTS IN SHARES OF DENA BANK IN FINANCIAL YEA R 1996-1997. INVESTMENT IN KOTHARI PIONEER INFOTECH A ND KOTHARI PIONEER BLUE CHIP FUND WAS MADE IN THE PREV IOUS YEAR ENDING 31.03.2000. IT SHOWS THAT NO FRESH INVE STMENT WAS MADE BY THE ASSESSEE DURING THE CURRENT YEAR IN THE SHARES OF THESE COMPANIES. THE ASSESSEES ANNUAL ACCOUNTS FOR THE CURRENT AND ALSO THE EARLIER RELEV ANT YEARS ARE AVAILABLE IN THE PAPER BOOK. PAGE 11 IS COPY OF PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.03.2001 AS WELL AS 31.03.2000. OUT OF THE TOTAL INVESTMENTS OF RS.2 .84 CRORE, THE ASSESSEE HAD MADE INVESTMENT IN SHARES O F DENA BANK TO THE TUNE OF RS.12.57 LAKH, THEREBY LEA VING REMAINING INVESTMENT OF RS.2.72 CRORE MADE IN THE Y EAR ENDING 31.03.2000 IN THE SHARES OF KOTHARI PIONEER INFOTECH AND KOTHARI PIONEER BLUE CHIP FUND. A CLOS E LOOK AT THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE-COMP ANY FOR STRIDES ARCOLAB LTD. 11 THE CORRESPONDING DATE OF 31.03.2000 DIVULGES THAT THE ASSESSEE EARNED PROFIT FOR THE SAID YEAR AMOUNTING TO RS.24.56 CRORE. THE AMOUNT OF DEPRECIATION ITSELF F OR THAT YEAR STANDS AT RS.6.07 CRORE WHICH IS A NON-CASH IT EM. WHEN WE CONSIDER THE MAGNITUDE OF PROFIT WITH THE COMPANY AND THE INVESTMENTS MADE IN THESE SHARES OF KOTHARI GROUP, IT CAN BE EASILY NOTICED THAT THE PR OFIT FOR THE RELEVANT YEAR ITSELF WAS MUCH MORE THAN THE AMO UNT OF INVESTMENT. COMING TO THE INVESTMENTS IN THE SHARES OF DENA BANK IN FINANCIAL YEAR 1996-1997 IT IS OBSERVE D THAT THE SHARE CAPITAL OF THE COMPANY FAR EXCEEDS THE AM OUNT OF INVESTMENT IN SHARES AS AT THE END OF SUCH FINAN CIAL YEAR. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. [(2009) 31 3 ITR 340 (BOM.)] HAS HELD THAT IF THERE BE INTEREST FREE FUNDS AVAILABLE TO THE ASSESSEE SUFFICIENT TO MEET ITS IN VESTMENTS AND AT THE SAME TIME LOAN HAS BEEN RAISED, IT CAN B E PRESUMED THAT THE INVESTMENTS WERE MADE FROM INTERE ST FREE FUNDS. WHILE REACHING THIS CONCLUSION THE HON BLE JURISDICTIONAL HIGH COURT CONSIDERED THE JUDGMENT O F THE HONBLE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT [(1997) 224 ITR 6 27 (SC)]. IN VIEW OF THE AFORESAID PRECEDENT OF THE HO NBLE JURISDICTIONAL HIGH COURT, IT IS APPARENT THAT NO I NTEREST BEARING FUNDS CAN BE SAID TO HAVE BEEN DEPLOYED BY THE ASSESSEE FOR THE PURPOSES OF MAKING INVESTMENT IN T HE SHARES OF THESE THREE COMPANIES, FROM WHICH EXEMPT DIVIDEND INCOME WAS EARNED. IT IS AXIOMATIC THAT WH ERE STRIDES ARCOLAB LTD. 12 INVESTMENT IS MADE OUT OF ASSESSEES OWN FUNDS AND NOT OUT OF BORROWED FUNDS, THERE CAN BE NO DISALLOWANCE U/S 14A. OUR VIEW IS FORTIFIED BY THE JUDGMENT OF THE H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. K. RAHEJA CORPORATION PVT. LTD., A COPY OF THIS JUDGMENT DATE D 8 TH OCTOBER, 2011, HAS BEEN PLACED ON RECORD. IN VIEW O F THE FOREGOING DISCUSSION, WE ARE OF THE CONSIDERED OPIN ION THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE AT RS.17.65 LAKH U/S 14A IN RESPECT OF THE INVESTMENTS MADE BY THE ASSESSEE IN THE SHARES OF T HREE DOMESTIC COMPANIES. THE GROUND RAISED BY THE ASSESS EE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. FROM THE ABOVE, IT IS NOTED THAT IT HAS BEEN HELD B Y THE HONBLE TRIBUNAL THAT THE INVESTMENT HAS BEEN MADE BY THE ASSESSEE OUT OF HIS OWN FUNDS AND NOT OUT OF BORROW ED FUNDS. 4.5. IT HAS BEEN SUBMITTED THAT IN THIS YEAR NO FRESH INVESTMENT HAS BEEN MADE. OUR ATTENTION HAS BEEN DR AWN ON INVESTMENT SCHEDULE OF THE BALANCE SHEET AVAILABLE AT PAGES 22 TO 23 OF THE PAPER BOOK. IT IS NOTED FROM THE PERUS AL OF THE SAID SCHEDULE THAT THERE IS NO FRESH INVESTMENT TOWARDS INVESTMENT OF DOMESTIC COMPANIES. ONLY ONE ENTRY IS APPEARING IN THE NAME OF ADDITION OF SHARES OF BDH INDUSTRIES LTD. F OR AN AMOUNT OF RS. 2,25,220/-. IT HAS BEEN BROUGHT TO OUR NOTICE THAT DURING THE YEAR, THE ASSESSEE HAS ACQUIRED SHA RES OF THIS COMPANY AT BOOK VALUE ON ACCOUNT OF AMALGAMATION OF BOMBAY DRUGS & PHARMA LTD. INTO ITSELF. IT IS FURTH ER BROUGHT STRIDES ARCOLAB LTD. 13 TO OUR NOTICE THAT NO CASH OUTFLOW WAS REQUIRED FOR ACQUIRING THESE SHARES. THUS, IN FACT NO AMOUNT HAS BEEN INVE STED FOR MAKING ANY FRESH INVESTMENT DURING THE YEAR. THUS, THE FACTS REMAIN IDENTICAL TO THE ASSESSMENT YEAR 2001-02, AN D THEREFORE, THE BENEFIT OF DECISION TAKEN BY THE TRI BUNAL IN AFORESAID YEAR SHALL ALSO BE AVAILABLE IN THE IMPUG NED YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGMENT OF T HE TRIBUNAL IN A.Y. 2001-02, WE ALLOW GROUND NO.2 OF ASSESSEES APPEAL, DELETING THE DISALLOWANCE MADE BY THE AO IN TOTO . 5. GROUND NO.3: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOW ANCE RELATING TO PAYMENTS MADE BEYOND THE GRACE PERIOD FOR PROVID ENT FUND AND ESI U/S 36(1)(VA) READ WITH SECTION 2(24)(X) O F THE ACT. 5.1. IT HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. COUNS EL THAT DUE DATE OF FILING OF RETURN WAS 31.10.2002 AND THE DELAY IN MAKING CONTRIBUTION BEYOND GRACE PERIOD RANGES FROM 1 TO 9 DAYS, AND THE ENTIRE PAYMENT HAS BEEN MADE BEFORE 31.10.2002. THESE DETAILS HAVE BEEN GIVEN AT PAGE N O.15 AND 16 OF THE ASSESSMENT ORDER. IT IS FURTHER SUBMITTED THAT SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN A.Y. 2001-02, WHEREIN DISALLOWANCE HAS BEEN DELETED. 5.1. ON THE OTHER HAND, LD. CIT-DR HAS RELIED UPON THE JUDGMENT IN THE CASE OF GUJARAT STATE ROAD TRANSPOR T CORPORATION [2014] 41 TAXMANN.COM 100 (GUJARAT-HC) AND STRIDES ARCOLAB LTD. 14 CONTENDED THAT WITH REGARD TO EMPLOYEES SHARE, THI S JUDGMENT IS AGAINST THE ASSESSEE. 5.2. WE HAVE GONE THROUGH THE FACTS OF THE CASE. THE UNDISPUTED FACTS ARE THAT THE ENTIRE PAYMENT HAS BE EN MADE BEFORE THE DUE DATE OF FILING THE RETURN. SIMILAR I SSUE CAME BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2001-02, WHEREIN HONBLE TRIBUNAL HAS ALLOWED RELIEF TO THE ASSESSEE, RELEVANT PARA OF THE TRIBUNALS ORDER IS REPRODUCED BELOW: 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE HO NBLE SUPREME COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD. [(2009) 319 ITR 306 (SC)] HAS HELD THAT THE AMENDME NT TO FIRST PROVISO AND THE OMISSION OF THE SECOND PROVIS O TO SECTION 43B BY THE FINANCE ACT, 2003 IS RETROSPECTI VE. IN THAT VIEW OF THE MATTER ANY AMOUNT REFERRED TO IN S ECTION 43B, BEING THE SUM PAYABLE BY THE EMPLOYER SHALL BE ALLOWED AS DEDUCTION IF IT IS PAID BEFORE THE DUE D ATE OF FILING OF THE RETURN. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. AIMIL LTD. [(2010) 321 ITR 508 (DEL. )] HAS HELD THAT IF EMPLOYEES SHARE IS DEPOSITED BEFORE T HE DUE DATE THEN NO DISALLOWANCE IS CALLED FOR. IN REACHIN G THIS CONCLUSION, THE HONBLE DELHI HIGH COURT RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F CIT V. VINAY CEMENT LTD. [(2007) 213 CTR (SC) 268] IN W HICH IT WAS HELD THAT THE AMOUNT OF EMPLOYEES CONTRIBUTION ETC. DEPOSITED BEFORE THE FILING OF RETURN, CANNOT BE DI SALLOWED STRIDES ARCOLAB LTD. 15 U/S 43B. IN VIEW OF THE ABOVE DISCUSSION, THE GRIEV ANCE OF THE ASSESSEE IS ACCEPTED AND OBJECTION OF THE REVEN UE IS OVERRULED. 5.3. IT IS NOTED FROM THE ABOVE, THE TRIBUNAL HAS RELIE D UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE O F ALOM EXTRUSIONS LTD. AND VINAY CEMENT LTD. FOR ALLOWING RELIEF TO THE ASSESSEE. RESPECTFULLY FOLLOWING THESE JUDGMENT S AND THE JUDGMENTS OF TRIBUNAL IN ASSESSEES OWN CASE, WE DE LETE THE DISALLOWANCE MADE IN THIS REGARD. ACCORDINGLY GROUN D NO.3 OF ASSESSEES APPEAL IS ALLOWED. 6. GROUND NO.4: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DIRECTING THE AO TO RED UCE 30% OF THE EXPORT PROFITS OF UNIT ELIGIBLE FOR DEDUCTION U /S 80IB BEFORE CLAIMING AMOUNT OF DEDUCTION U/S 80HHC OF THE ACT. 6.1. IT HAS BEEN SUBMITTED AT THE OUTSET BY THE LD. COU NSEL THAT SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN A .Y. 2001-02 WHEREIN THE TRIBUNAL, RELYING UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF ASSOCIATED CAPSULES PV T. LTD. VS. DCIT 332 ITR 42, HAS HELD THAT NO PART OF THE P ROFIT ELIGIBLE FOR DEDUCTION U/S 80-IB IS TO BE REDUCED WHILE COMP UTING THE PROFITS ELIGIBLE FOR DEDUCTION U/S.80HHC. ON THE OT HER HAND, LD. CIT-DR HAS RELIED UPON THE JUDGMENTS WHICH ARE AGAINST THE ASSESSEE, AS HAVE BEEN MENTIONED IN PARA 19 OF THE JUDGMENT OF ASSOCIATED CAPSULES PVT. LTD., (SUPRA). STRIDES ARCOLAB LTD. 16 6.2. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BEFORE US BY BOTH THE SIDES AS WELL AS THE JUDGMENT OF THE TR IBUNAL AND OF HONBLE BOMBAY HIGH COURT. THE BRIEF FACTS ARE T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS HELD B Y THE LD. AO THAT PROVISIONS OF SECTION 80-IB(9), WHILE COMPU TING DEDUCTION U/S 80HHC HAVE BEEN IGNORED AND THEREFORE DOUBLE DEDUCTION HAS BEEN PROVIDED U/S 80HHC. IT IS NOTED BY US THAT SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN A .Y. 2001- 02, WHEREIN THE STAND OF THE REVENUE WAS REJECTED B Y MAKING FOLLOWING JOBSERVATIONS: 10. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD WE FIND THAT THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES PVT. LTD. V. DCIT & ANR. 332 ITR 42 (BOM) IN WHICH IT HAS BEEN HELD THAT RESTRICTION U/S 80-IA(9 ) IS NOT APPLICABLE AT THE STAGE OF COMPUTING DEDUCTION U/S 80HHC BUT ONLY AT THE STAGE OF ALLOWING DEDUCTION U/S 80H HC. IN VIEW OF THE ABOVE JUDGMENT OF THE HONBLE HIGH COUR T, IT BECOMES APPARENT THAT THE ACTION OF THE ASSESSING O FFICER IN ENTIRETY CANNOT BE SUSTAINED. THE IMPUGNED ORDER TO THE EXTENT IT IS AGAINST THE ASSESSEE IS VACATED AND TO THE EXTENT IT IS AGAINST THE REVENUE IS UPHELD. THE ASS ESSEES GROUND IS ALLOWED AND REVENUES GROUND IS DISMISSED . 6.3. WE ARE BOUND BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT AS WELL AS COORDINATE BENCH OF THE TRIBUNAL P ASSED IN STRIDES ARCOLAB LTD. 17 ASSESSEES OWN CASE, AND THEREFORE, WE ALLOW GROUND NO. 4 OF ASSESSEES APPEAL. 7. GROUND NO.5: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN REJECTING THE PRAYER OF THE ASSESSEE FOR REDUCTION OF INDIRECT COSTS BY 10% OF EXPORT IN CENTIVES FOR THE PURPOSE OF COMPUTING PROFITS FROM TRADING EXPOR TS U/S 80HHC OF THE ACT. 7.1. IT IS NOTED BY US THAT SIMILAR ISSUE CAME UP BEFOR E THE TRIBUNAL IN A.Y.2001-02, WHEREIN THE TRIBUNAL HAS U PHELD THE CLAIM OF THE ASSESSEE BY RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF HERO EXPORTS VS CIT 29 5 ITR 454, BY MAKING FOLLOWING OBSERVATIONS: 16. GROUND NO.9 IS AGAINST THE DIRECTION OF THE LE ARNED CIT(A) TO REDUCE 10% EXPORT INCENTIVES FROM THE GRO SS INDIRECT COST BY CONSIDERING THE SAME AS INDIRECT EXPENDITURE INCURRED IN EARNING SUCH INCIDENCE. HAV ING HEARD THE RIVAL SUBMISSIONS IT IS NOTED THAT THIS G ROUND IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGM ENT OF THE HONBLE SUPREME COURT IN THE CASE OF HERO EXPOR TS V. CIT [295 ITR 454 (SC)]. IN THIS CASE IT HAS BEEN HE LD THAT THE PRINCIPLE OF ATTRIBUTION IS APPLICABLE TO CASES FALLING U/S 80HHC(3)(B) AND THEREFORE, PART OF INDIRECT COST HA S TO BE APPORTIONED TO EXPENSES INCURRED FOR EARNING EXPORT INCENTIVES. 10% OF TOTAL INCOME HAS BEEN HELD AS FA IR ESTIMATE IN THIS CASE. AS THE VIEW TAKEN BY THE LEA RNED STRIDES ARCOLAB LTD. 18 CIT(A) MATCHES WITH THAT OF THE HONBLE SUPREME COU RT IN THE AFORENOTED CASE, WE ARE OF THE CONSIDERED OPINI ON THAT NO INTERFERENCE CAN BE MADE IN THE IMPUGNED ORDER O N THIS ISSUE. 7.2. THUS, RESPECTFULLY FOLLOWING THE JUDGMENT OF HONB LE SUPREME COURT AS WELL AS COORDINATE BENCH OF TRIBUN AL, WE ALLOW THIS GROUND IN FAVOUR OF THE ASSESSEE. 8. GROUND NO.6: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DIRECTING THE AO FOR TR EATING A SUM OF RS.2,17,810/- BEING FOREIGN EXCHANGE FLUCTUATION GAIN AS INCOME FROM OTHER SOURCES AS AGAINST THE ASSESSEE S CLAIM THAT THE SAME SHOULD HAVE BEEN ASSESSED AS BUSINES S INCOME. 8.1. IT WAS SUBMITTED BY THE LD. COUNSEL THAT LD. CIT(A ) HAS IN PRINCIPLE ACCEPTED THE SAME, BUT FOR THIS PARTICULA R AMOUNT HE DENIED BENEFIT OF THE DEDUCTION. WORKING SHEET HAS BEEN FILED BY HIM SHOWING THAT SUM OF RS.2,17,810/- WAS BY MIS TAKE GOT CLASSIFIED UNDER THE HEAD MISCELLANEOUS INCOME, BUT ACTUALLY IT IS FOREIGN EXCHANGE GAIN. ON THE OTHER HAND, LD. CIT-DR HAS SUBMITTED THAT THIS ISSUE REQUIRES EXAMINATION OF F ACTS. 8.2. WE HAVE GONE THROUGH ORDERS OF THE LOWER AUTHORITI ES AND SHOWING AND FIND THAT A SUM OF RS. 2,17,810/- MARKE D AS FOREIGN EXCHANGE FLUCTUATION HAS BEEN PUT UNDER THE HEAD MISCELLANEOUS INCOME. THUS IN ALL FAIRNESS, WE SEND THIS ISSUE STRIDES ARCOLAB LTD. 19 BACK TO THE FILE OF LD. CIT(A) TO RE-ADJUDICATE THE SAME AFTER GIVING ADEQUATE OPPORTUNITY HEARING TO THE ASSESSEE . THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.7: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION O F AO IN CONSIDERING THE SCRAP SALES AS PART OF TOTAL TURNOV ER FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80HHC OF THE ACT. 9.1. DURING THE COURSE OF HEARING IT HAS BEEN SUBMITTED BY THE LD. COUNSEL THAT SCRAP SALES OUGHT TO HAVE BEEN RED UCED FROM THE COST OF PRODUCTION AND SHOULD NOT HAVE BEEN INC LUDED IN THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DED UCTION U/S 80HHC. IT HAS BEEN FURTHER STATED BY HIM FAIRLY THA T IT WAS HELD BY THE TRIBUNAL IN A.Y.2001-02 THAT SCRAPE SAL ES WOULD FORM PART OF TOTAL TURNOVER. HOWEVER, SUBSEQUENTLY, HONBLE SUPREME COURT IN CIT VS. PUNJAB STAINLESS STEEL IND USTRIES 364 ITR 144 HAS HELD THAT SCRAP SALES CANNOT BE REG ARDED AS PART OF TOTAL TURNOVER. IT WAS SUBMITTED THAT AO HA S INCLUDED THE SAME IN ITS TURNOVER. THE AOS ACTION IS CONTRA RY TO THE JUDGMENT OF HONBLE SUPREME COURT, AND THEREFORE, A CTION SHOULD BE REVERSED AND CLAIM OF THE ASSESSEE SHOULD BE ALLOWED, IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT. ON THE OTHER HAND, LD. CIT-DR SUBMITTED THAT ONLY PROF ITS SHOULD BE REDUCED WHILE GRANTING BENEFIT OF DEDUCTION U/S 80HHC. 9.2. WE HAVE GONE THROUGH THE FACTS OF THE CASE AS WELL AS JUDGMENT OF HONBLE SUPREME COURT. IT IS NOTED THAT THE STRIDES ARCOLAB LTD. 20 TRIBUNAL HAD DECIDED THIS ISSUE AGAINST THE ASSESSE E BY OBSERVING AS UNDER: 20. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE LE ARNED CIT(A) SUSTAINED THE INCLUSION OF `SCRAP SALE WITH IN THE `TOTAL TURNOVER. THE ASSESSEES CONTENTION THAT TH E AMOUNT OF REALIZATION FROM SALE OF SCRAP SHOULD BE REDUCED FROM THE DIRECT COST OF EXPORTS IS NOT ACCEPTABLE IN VIE W OF THE FACT THAT THERE IS NO MATERIAL ON RECORD TO INDICAT E THAT THE SCRAP WAS GENERATED FROM THE MATERIAL DIRECTLY USED FOR MANUFACTURE OF GOODS EXPORTED HAVING NO ELEMENT OF PROFIT. THE HONBLE PUNJAB & HARYANA HIGH COURT IN CIT V. BICYCLE WHEELS (INDIA) [(2011) 335 ITR 384 (P&H)] H AS HELD THAT THE SALE OF SCRAP CANNOT BE EXCLUDED FROM `TOT AL TURNOVER WHICH SHALL INCREASE THE DENOMINATOR OF F ORMULA FOR DETERMINING THE EXTENT OF BENEFIT ADMISSIBLE TO AN ASSESSEE U/S80HHC OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CA SE OF M/S.ALBRIGHT & WILSON CHEMICALS INDIA LIMITED VS. D CIT IN ITA NO. 4362/M/2003. IN OUR CONSIDERED OPINION T HE LEARNED CIT(A) WAS JUSTIFIED IN DECIDING ACCORDINGL Y. THIS GROUND OF C.O. IS NOT ALLOWED. 9.2. IT IS BROUGHT TO OUR NOTICE THAT SUBSEQUENTLY HON BLE SUPREME COURT HAS DECIDED THIS ISSUE IN FAVOUR OF T HE ASSESSEE IN CIT VS. PUNJAB STAINLESS STEEL INDUSTRI ES (SUPRA) WHEREIN IT HAS BEEN CLEARLY HELD THAT SALE PROCEEDS GENERATED FROM SALE OF SCRAP WOULD NOT BE INCLUDED IN TOTAL T URNOVER. STRIDES ARCOLAB LTD. 21 THUS, RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBL E SUPREME COURT, WE DIRECT THE AO TO EXCLUDE THE AMOUNT OF SA LE PROCEEDS OF SCRAP SALES, FROM AMOUNT OF TOTAL TURNO VER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC. THUS, GRO UND NO.7 OF THE ASSESSEES APPEAL IS ALLOWED. 10. AS A RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.1605/MUM/2006 (REVENUES APPEAL) 11. GROUND NOS. 1 & 2: IN THESE GROUNDS, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DIRECTING TH E AO TO ALLOW THE INTEREST AMOUNTING TO RS.9,58,28,163/- U/S 57(I II) OF THE ACT. 11.2. IN THIS REGARD, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE COMPANY HAD MADE INVEST MENT IN ITS SUBSIDIARY COMPANIES AND THEREFORE, DEDUCTION O F INTEREST FOR FUNDS BORROWED FOR MAKING SUCH INVESTMENT SHOUL D BE ALLOWED U/S 36(1)(III) OF THE ACT. HE RELIED UPON T HE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PH IL CORPORATION LIMITED 244 CTR 226 (BOM) AND CIT VS. S RISHTI SECURITIES (PRIVATE) LIMITED 321 ITR 498 (BOM). IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAS BUSINESS TRANSACTIONS ALSO, WITH ITS SUBSIDIARIES AS COULD B E SEEN FROM PAGE 35 OF THE PAPER BOOK AND ALSO EVIDENT FROM THE FORM 3CEB. ALTERNATIVELY, IT IS AN UNDISPUTED FACT THAT DIVIDEND RECEIVED BY THE ASSESSEE FROM THE FOREIGN COMPANIES WOULD BE STRIDES ARCOLAB LTD. 22 CHARGEABLE TO TAX UNDER THE ACT. THEREFORE, INTERES T ON FUNDS USED FOR THE PURPOSES OF MAKING INVESTMENT IN SHARE S OF FOREIGN COMPANIES SHOULD BE ALLOWED AS DEDUCTION AN D RELIANCE WAS PLACED IN THIS REGARD ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJENDRA PRASA D MOODY 115 ITR 519 (SC). 11.3. ON THE OTHER HAND, LD. CIT-DR PLACED RELIANCE ON T HE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. AMRITABEN R. SHAH REPORTED 238 ITR 777 FOR THE PROP OSITION THAT INVESTMENT IS NOT ALLOWABLE U/S 57(III). 11.4. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH TH E SIDES AS WELL AS ORDER OF THE LOWER AUTHORITIES. TH E BRIEF FACTS ARE THAT DURING THE ASSESSMENT PROCEEDINGS IT WAS O BSERVED BY AO THAT ASSESSEE COMPANY HAS INVESTED INTO SHARES O F SUBSIDIARY COMPANIES/JOINT VENTURE COMPANIES AND OV ERSEAS COMPANIES OUT OF BORROWED FUNDS, AS PER DETAILS GIV EN IN THE ASSESSMENT ORDER IN PARA 4.1 TO 4.16. IT WAS EXPLAI NED BY THE ASSESSEE THAT INVESTMENT WAS MADE FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE, AND IT WAS MADE OUT OF CA PITAL AND FREE RESERVES OF THE ASSESSEE, AND THAT PART OF SUC H INVESTMENT WAS MADE OUT OF EXPORTS PROCEEDS KEPT IN EEFC ACCOU NT AND HENCE NO DISALLOWANCE WAS WARRANTED. BUT THE AO WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE AO AND HE DIS ALLOWED THE INTEREST TO THE TUNE OF RS.9,58,28,163/- AS PER DET AILS GIVEN IN THE ASSESSMENT ORDER IN RESPECT OF EACH OF THE INVE STMENTS. STRIDES ARCOLAB LTD. 23 11.3. BEING AGGRIEVED, THE ASSESSEE CONTESTED THE MATTER BEFORE LD. CIT(A). IT WAS SUBMITTED THAT ASSESSEE H AD SUBMITTED GROSS SUMMARY OF CASH FLOW SHOWING THAT T HE ASSESSEE HAD INTEREST-FREE FUNDS AMOUNTING TO RS.12 0.44 CRORES OUT OF WHICH RS.4.70 CRORES WAS USED FOR INC REASING INVESTMENT, AND THUS NO BORROWED FUNDS WERE USED FO R MAKING INVESTMENT IN SUBSIDIARIES, AND HENCE NO PART OF IN TEREST SHOULD HAVE BEEN DISALLOWED. IT WAS ALSO SUBMITTED THAT ASSESSEE HAD DONE BUSINESS WITH SUBSIDIARIES AND TH EREFORE, IT COULD BE SAID THAT THE ASSESSEE COMPANY HAD INVESTE D INTO SHARES OF THE SUBSIDIARIES TO INCREASE THE BUSINESS OF THE ASSESSEE COMPANY, AND THEREFORE, IT COULD BE SAID T HAT FUNDS WERE USED FOR THE PURPOSE OF THE BUSINESS. RELIANCE WAS PLACED ON VARIOUS JUDGMENTS IN THIS REGARD. IT WAS ALSO ALTERNATIVELY SUBMITTED THAT IF THE AMOUNT IS DISAL LOWED U/S 36(1)(III), THEN APPROPRIATE RELIEF SHOULD BE GIVEN U/S 57(III) OF THE ACT. AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSEE, LD. CIT(A) GRANTED RELIEF TO THE ASSESSEE U/S 57(III) OF THE ACT, BUT REJECTED THE CLAIM OF THE ASSESSEE U/S 36(1)(III). DETAILED FINDINGS OF LD. CIT(A) ARE REPRODUCED HERE UNDER: I HAVE GONE THROUGH THE CONTENTION OF THE APPELLAN T AS WELL AS THAT OF THE AO. I HAVE ALSO PERUSED THE WOR KING SUBMITTED BY THE APPELLANT AS WELL AS THAT OF AO APPEARING IN PARA 4 OF THE ORDER. AS REGARD THE APP ELLANTS CLAIM IS CONCERNED IT IS SEEN THAT THE APPELLANT HAS MERELY SUBMITTED THE GROSS SUMMARY OF FUNDS FLOW IN ITS SU PPORT TO SHOW THAT THE APPELLANT COMPANY HAD SUFFICIENT INTEREST STRIDES ARCOLAB LTD. 24 FREE FUNDS TO INVEST HOWEVER AT NO STAGE THE APPELL ANT HAS REFUTED THE FINDINGS OF THE AO AS REFERRED TO IN PA RA 4 THAT THE APPELLANT HAD IN FACT USED THE BORROWED CAPITAL FOR THE PURPOSE OF INVESTMENT IN SUCH SHARES OF OVERSEA S COMPANIES. THUS WHEN THE AO HAS CATEGORICALLY FOUND THAT THE AMOUNT OF BORROWED CAPITAL WAS USED IN SUC H INVESTMENTS WHICH IS NOT REFUTED BY THE APPELLANT I AM UNABLE TO ACCEPT THE ARGUMENT OF THE APPELLANT THAT THE INTEREST FREE FUNDS WERE USED FOR SUCH INVESTMENT A ND ON THIS GROUNDS THE APPELLANT'S ARGUMENTS ARE REJEC TED. AS REGARD RELIANCE PLACED BY THE APPELLANT ON VARIO US JUDGMENTS IT IS SEEN THAT THE SAME DOES NOT SUPPORT THE APPELLANT'S CLAIM AS IN ALL THOSE JUDGMENT IT HAS H ELD THAT THE APPELLANT SHOULD HAVE USED THE BORROWED CA PITAL FOR THE PURPOSE OF BUSINESS WHERE AS IN THE INSTANT CASE THE APPELLANT COMPANY HAD USED BORROWED FUNDS NOT F OR THE PURPOSE OF THE BUSINESS BUT FOR THE PURPOSE OF INVESTMENTS ABROAD IN SHARES OF SUBSIDIARY COMPANIE S. FURTHER APPELLANT HAS THOUGH CLAIMED THAT INVESTMEN TS IN SUBSIDIARIES WERE MADE TO FURTHER THE BUSINESS O F THE APPELLANT COMPANY IT HAS NOT DEMONSTRATED BY EVIDEN CE AS TO HOW SUCH INVESTMENTS IN SUBSIDIARIES WERE FURTHERING THE BUSINESS OF THE APPELLANT COMPANY. MERELY BECAUSE THE APPELLANT HAD MADE SOME ACTIVITI ES WITH THE SUBSIDIARIES WOULD NOT MEAN THAT THE INVESTMENTS MADE IN SUBSIDIARY HAD AN EFFECT OF FURTHERING THE BUSINESS OF THE APPELLANT COMPANY. T HUS CONSIDERING THE FACTS OF THE CASE I AM IN AGREEMENT WITH STRIDES ARCOLAB LTD. 25 THE AO THAT THE APPELLANT COMPANY HAD NOT USED THE BORROWED CAPITAL FOR THE PURPOSE OF THE BUSINESS AN D ACCORDINGLY DISALLOWANCE MADE BY HIM IS CONFIRMED HOWEVER IT IS EQUALLY TRUE THAT THE INCOME FROM SUC H SUBSIDIARIES EVEN IN THE FORM OF DIVIDEND IS TAXABL E AS INCOME FROM OTHER SOURCES AND THEREFORE CONSIDERING THE FACT THAT INCOME THERE FROM IS TAXABLE, INTEREST WO ULD BE ELIGIBLE FOR DEDUCTION U/S 57(III) OF THE ACT AND ACCORDINGLY THE AO IS DIRECTED TO ALLOW THE EXPENSE S U/S 57(III) OF THE ACT. 11.4. BEFORE US, IT HAS BEEN SUBMITTED BY THE LD. COUNSE L THAT ASSESSEE WOULD BE SATISFIED IF CLAIM IS ALLOWED U/S 57(III). WE FIND FORCE IN THE ALTERNATIVE SUBMISSIONS OF THE LD . COUNSEL. LD. CIT(A) HAS RIGHTLY ALLOWED THE CLAIM U/S 57 OF THE ACT, THEREFORE, WE UPHOLD THE ORDER OF LD. CIT(A) ON THI S GROUND AND THEREFORE, GROUND NOS. 1 & 2 OF REVENUES APPEA L ARE DISMISSED. 12. GROUND NO.3: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE PART RELIEF GIVEN BY THE LD. CIT(A) OUT OF DISA LLOWANCE OF RS.1,46,87,526/- MADE BY THE AO ON ACCOUNT OF INTER EST. 12.1. IT IS NOTED BY US THAT THIS ISSUE IS IDENTICAL TO THE ISSUE INVOLVED IN GROUND NO.2 OF ASSESSEES APPEAL AND TH EREFORE, WE DIRECT THE AO TO FOLLOW OUR ORDER OF ASSESSEES APP EAL IN GROUND NO.2 ABOVE. THUS, GROUND NO.3 IS DISMISSED. STRIDES ARCOLAB LTD. 26 13. GROUND NO.4: IN THIS GROUND, THE DISALLOWANCE OF DELAYED PAYMENT OF EMPLOYERS CONTRIBUTION TOWARDS PF AND E SIC WAS MADE. IT IS NOTED THAT THIS ISSUE STANDS COVERED WI TH GROUND NO. 3 OF ASSESSEES APPEAL, AND THEREFORE, AO IS DI RECTED TO FOLLOW OUR ORDER AS GIVEN IN GROUND NO.3 OF ASSESSE ES APPEAL. THUS, GROUND NO. 4 IS DISMISSED. 14. GROUND NO.5: THIS GROUND DEALS WITH DEDUCTION OF PROFIT ELIGIBLE FOR DEDUCTION U/S.80HHC BY 30% OF THE EXPO RT PROFITS OF UNIT ELIGIBLE FOR DEDUCTION U/S 80-IB. IT IS NOT ED THAT THIS ISSUE IS CONNECTED WITH GROUND NO.4 OF ASSESSEES A PPEAL AND THEREFORE, WE DIRECT THE AO TO FOLLOW OUR ORDER ON THIS ISSUE AS HAS BEEN DECIDED US IN GROUND NO.4 OF ASSESSEES AP PEAL. THUS, GROUND NO.5 IS DISMISSED. 15. GROUND NO.6: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DIRECTING THE AO TO MAK E NETTING OFF OF INTEREST RECEIPTS OF RS.1,31,6,636/- AGAINST INT EREST PAYMENT OF RS.24.22 CRORES AND APPLY THE EXPLANATIO N (BAA) OF SECTION 80HHC ONLY IN RESPECT OF NET AMOUNT OF INTE REST. 15.1. IT HAS BEEN ARGUED BY THE LD. COUNSEL OF THE ASSES SEE THAT THIS ISSUE IS COVERED IN ITS FAVOUR BY THE DEC ISION GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2001-0 2 FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN ASSOCIATED CAPSULES PVT. LTD. VS. CIT 343 ITR 89, HOLDING THAT BENEFIT OF THE NETTING OFF WOULD BE AVAILABLE. STRIDES ARCOLAB LTD. 27 15.2. WE HAVE GONE THROUGH THE ORDER OF EARLIER YEAR AND SUBMISSIONS MADE BEFORE US. THIS ISSUE CAME UP BEFO RE TRIBUNAL IN A.Y. 2001-02 WHEREIN CLAIM OF THE ASSES SEE WAS ALLOWED BY MAKING FOLLOWING OBSERVATIONS: 11. GROUND NO.6 OF THE REVENUES APPEAL IS AGAINST NETTING OF INTEREST RECEIPTS FOR THE PURPOSE OF DED UCTION U/S 80HHC. THE ASSESSING OFFICER, WHILE COMPUTING DEDUC TION U/S 80HHC CONSIDERED THE GROSS AMOUNT OF INTEREST. THE LEARNED CIT(A), HOWEVER, OVERTURNED THIS FINDING BY HOLDING THAT ONLY THE NET AMOUNT OF INTEREST WAS TO BE CONSIDERED. HAVING HEARD THE RIVAL SUBMISSIONS IT I S NOTICED THAT THIS ISSUE HAS BEEN SETTLED BY THE HON BLE SUPREME COURT IN ASSOCIATED CAPSULES PVT. LTD. V. C IT [(2012) 343 ITR 89 (SC)] BY HOLDING THAT NETTING OF INTEREST IS PERMISSIBLE. THE RELIANCE OF THE LD. DR ON THE J UDGMENT IN THE CASE OF CIT VS ASIAN STAR CO. LTD. (2010) 32 6 ITR 56 (BOM) IS MISCONCEIVED AS THE SAME HAS BEEN REVERSED BY THE HONBLE SUPREME COURT IN THE AFORE-NOTED CASE. AS SUCH NO FAULT CAN BE FOUND WITH THE IMPUGNED ORDER ON THIS SCORE. THIS GROUND IS NOT ALLOWED. 15.3. NO CONTRARY DECISION HAS BEEN BROUGHT BEFORE US AN D THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN EARLIER YEAR AND JUDGMENT OF HONBLE SUPREME COURT, WE FIND NO SUBSTANCE IN THE GROUND RAISED BY THE REVENUE AN D THE SAME IS DISMISSED. STRIDES ARCOLAB LTD. 28 16. GROUND NO.7: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DIRECTING THE AO FOR EX CLUSION OF EXCISE DUTY AMOUNTING TO RS.9,02,76,893/- FROM THE TOTAL TURNOVER FOR THE PURPOSE COMPUTATION OF DEDUCTION U /S 80HHC OF THE SAID ACT. 16.1. IT HAS BEEN BROUGHT TO OUR NOTICE THAT THIS ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL OF ASSESSMENT YEAR 2001- 02, WHEREIN RELYING UPON THE SUPREME COURT DECISION IN CIT VS. LAXMI MACHINE WORKS 290 ITR 667, IT HAS BEEN HE LD THAT EXCISE DUTY SHOULD BE EXCLUDED FROM THE TOTAL TURNO VER FOR THE PURPOSES OF SECTION 80HHC. RELEVANT OBSERVATIONS OF THE TRIBUNALS ORDER ARE REPRODUCED BELOW: 12. GROUND NO.7 OF THE REVENUES APPEAL IS AGAINST THE DIRECTION OF THE LEARNED CIT(A) TO EXCLUDE THE AMOU NT OF EXCISE DUTY ON RS.8.92 CRORE FROM `TOTAL TURNOVER FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 80HHC. THE ASSESSING OFFICER INCLUDED THE AMOUNT OF EXCISE DUT Y IN `TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S 80HH C. THE LEARNED CIT(A) OVERTURNED THE ASSESSMENT ORDER ON THIS POINT. 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THIS I SSUE HAS ALSO BEEN SETTLED BY THE HONBLE SUPREME COURT IN T HE CASE OF CIT V. LAXMI MACHINE WORKS [(2007) 290 ITR 667 ( SC)] HOLDING THAT THE EXCISE DUTY IS NOT INCLUDIBLE IN THE `TOTAL TURNOVER IN THE FORMULA CONTAINED IN SECTION 80HH C. THE STRIDES ARCOLAB LTD. 29 IMPUGNED ORDER ON THIS ISSUE, BEING IN CONFORMITY W ITH THE VIEW TAKEN BY THE HONBLE SUPREME COURT, DOES NOT WARRANT ANY INTERFERENCE. THIS GROUND IS NOT ALLOWE D. 16.2. NO CONTRARY JUDGMENT HAS BEEN PLACED BEFORE US, AN D THEREFORE, RESPECTFULLY FOLLOWING JUDGMENT OF TRIBUN AL AND THAT OF HONBLE SUPREME COURT, WE DECIDE THIS ISSUE IN F AVOUR OF THE ASSESSEE AND THEREFORE GROUND NO. 7 OF THE REVENUE S APPEAL IS DISMISSED. 17. GROUND NO.8: IN THIS GROUND, THE REVENUE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN HOLDING THAT PRICE CHAR GED BY THE ASSESSEE COMPANY TO ITS AE WAS REASONABLE AND DID N OT REQUIRE ANY UPWARD REVISION AND FURTHER CHALLENGED HIS ACTION IN DELETING THE ADDITION MADE BY THE AO OF RS.51,97 ,891/- AND DETERMINATION OF ARMS LENGTH PRICE. 17.1. BRIEF FACTS ARE THAT THE ASSESSEE EXPORTED PHARMACEUTICAL PRODUCTS MANUFACTURED BY IT TO ITS A E I.E. M/S STRIDES INC., USA, AND COMPARED IT WITH SALES MADE BY IT TO UNRELATED PARTY I.E. CELLOPHARM, BRAZIL, TO DEMONST RATE THAT TRANSACTIONS WITH AE WAS AT ARMS LENGTH PRICE. THE DIFFERENCE PERTAINING TO PROFIT MARGIN EARNED FORM SALES MADE TO AE AND CELLOPHARM WAS EXPLAINED BASED ON CERTAIN FACTORS W HICH WERE NARRATED IN DETAILS IN THE TRANSFER PRICING DOCUMEN TATION. HOWEVER THE TPO USED THE SAME COMPARABLE FOR MAKING AN UPWARD ADJUSTMENT IN RESPECT OF EXPORTS SALES MADE BY IT TO ITS AE. STRIDES ARCOLAB LTD. 30 17.2 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHEREIN DETAILED SUBMISSIONS WERE MA DE BY THE ASSESSEE SHOWING THAT THE ADJUSTMENT WAS UNCALLED F OR AS PER LAW AND FACTS AND DETAILED ANALYSIS WERE MADE TO CO UNTER ACTION OF THE AO/TPO. THE LD. CIT(A) CONSIDERED DET AILED SUBMISSIONS OF THE ASSESSEE AND WITHOUT FOLLOWING T HE MECHANISM PROVIDED UNDER THE PROVISIONS RELATING TO TRANSFER PRICING, IT WAS HELD BY HIM THAT PRICE CHARGED BY T HE ASSESSEE COMPANY TO ITS AE WAS REASONABLE AND THUS, THERE WA S NO TRANSFER OF PROFIT, AND THEREFORE, THERE WAS NO REQ UIREMENT OF UPWARD REVISION AND THEREFORE, ADDITION MADE BY THE AO/TPO WAS DELETED. 17.3. BEING AGGRIEVED, THE REVENUE HAS CONTESTED THIS MA TTER BEFORE US. THE LD. CIT-DR HAS VEHEMENTLY OPPOSED RE ASONING GIVEN BY LD. CIT(A) FOR DELETING THE ADDITION MADE BY THE AO. IT HAS BEEN SUBMITTED BY HIM THAT LD. CIT(A) HAS NOT F OLLOWED THE MECHANISM AS HAS BEEN PROVIDED IN THE JURISPRUD ENCE OF TRANSFER PRICING. IT WAS SUBMITTED BY HIM THAT FACT ORS LIKE MOTIVE, LOSSES, EVASION OF TAXES OR NON-TRANSFER OF PROFIT ETC ARE NOT RELEVANT IN TRANSFER PRICING JURISPRUDENCE. IT WAS FURTHER SUBMITTED BY HIM THAT THE ASSESSEE DID NOT PROPERLY SUPPLY REQUISITE DATA AND LD. CIT(A) HAS GONE ALTOGETHER T ANGENT, AND THEREFORE THE ORDER OF LD CIT(A) WAS CONTRARY TO LA W AND FACTS AND DESERVES TO BE REVERSED. IN HIS SUPPORT, HE PLA CED RELIANCE ON THE FOLLOWING JUDGMENTS: (I) AZTECH SOFTWARE TECHNOLOGY VS. ACIT (107 ITD 141) STRIDES ARCOLAB LTD. 31 (II) SONI INDIA (P) LTD. 288 ITR 52 (III) COCA COLA INDIA INC. VS. ACIT 309 ITR 194 THESE JUDGMENTS WERE RELIED BY THE LD. CIT-DR IN SU PPORT OF THE PROPOSITION THAT TAX EVASION WAS NOT REQUIRED T O BE PROVED FOR INVOKING PROVISIONS OF CHAPTER X. IF INTERNATI ONAL TRANSACTIONS ARE THERE, IN VIEW OF PLAIN AND UNAMBI GUOUS LANGUAGE, ALP HAS TO BE DETERMINED AND THAT THERE W AS NO REQUIREMENT OF PROVING SHIFTING OF PROFITS OR EVASI ON OF TAX ETC., BEFORE INVOKING PROVISIONS OF CHAPTER X. HE SUMMED UP HIS ARGUMENTS BY SUGGESTING THAT THE APPROACH FOLLOWED BY THE LD. CIT(A) IN DECIDING THIS ISSUE WAS NOT PERMISSIBLE U NDER THE LAW. 17.4. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED THAT INCORRECT ANALYSES WERE MADE BY THE TPO. IT WAS SUBMITTED THAT TPOS ORDER WAS ERRONEOUS FOR TH E FOLLOWING REASONS: A. ASSESSEE SOLD NUTRITIONAL PRODUCTS TO STRIDES I NC. USA WHILE IT SOLD PHARMACEUTICALS PRODUCTS TO CELLOPHARM IN BRAZIL. SINCE THE PRODUCT CATEGORY IS DIFFERENT, THE TRANSACTIONS AND CONSEQUENTLY THE MARGINS TO BE EARNED ARE NOT COMPARABLE. B. USA WAS A DEVELOPED MARKET IN SO FAR AS NUTRITIO NAL PRODUCTS ARE CONCERNED WITH SEVERAL PLAYERS. THEREFORE, IT WAS INCUMBENT ON THE ASSESSEE TO CHAR GE STRIDES INC. COMPETITIVE RATES. ON THE OTHER HAND, STRIDES ARCOLAB LTD. 32 BRAZIL WAS A DEVELOPING MARKET WHERE THE ASSESSEE WAS ABLE TO EARN COMPARATIVELY HIGHER MARGINS. C. WHILE THE ASSESSEE/ ITS AE HAD TO ESTABLISH ITS PRESENCE IN THE USA AND SATES/ OPERATIONS IN USA WE RE VERY MUCH IN START-UP STAGE, THE ASSESSEE HAD ITS PRESENCE IN BRAZIL FOR QUITE SOME TIME, BESIDES BRA ZIL HAD LIMITED PHARMACEUTICAL PLAYERS. D. FURTHER, SALES TO STRIDES INC. WERE IN BULK WHIC H REQUIRED FURTHER PACKING/RE-PACKING INTO SMALLER PACKS BEFORE SELLING IT TO THE ULTIMATE CUSTOMER IN USA. THIS ENTAILED PACKAGING COSTS BEING INCURRED B Y THE AE IN USA. ON THE OTHER HAND, SALES TO THE NON- AE IN BRAZIL WERE IN SMALL PACKS (SPECIFICALLY BLISTER PACKING) WHICH COULD BE READILY MARKETED/SOLD TO TH E CUSTOMER. PRICE THAT COULD BE REALISED FOR SMALL PA CKS IS COMPARATIVELY HIGHER THAN PRICE REALIZED FOR SALES MADE IN BULK. 17.5. IN ADDITION TO THE ABOVE, IT WAS SUBMITTED BY THE LD. COUNSEL THAT THE ASSESSEE HAD URGED THAT TNMM MUST BE REGARDED AS MOST APPROPRIATE METHOD (MAM). BUT WITH OUT LOOKING INTO SUBMISSIONS, THE TPO MADE UNREASONABLE ADDITIONS. IN VIEW OF THESE FACTS, IT WAS REQUESTED THAT IN CASE, THIS ISSUE IS TO BE SENT BACK, THEN IT SHOULD BE SE NT BACK TO THE TPO WITH A DIRECTION TO FOLLOW TNMM METHOD. 17.6. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH THE SIDES AS WELL AS ORDERS OF THE LOWER AUTHORITIE S. IT IS NOTED STRIDES ARCOLAB LTD. 33 BY US THAT LD. CIT-DR IS FACTUALLY CORRECT IN SUBMI TTING THAT CIT(A) HAS DELETED THE ADDITION WITHOUT FOLLOWING T HE CORRECT APPROACH. THE ISSUES WITH REGARD TO TRANSFER PRICIN G ADJUSTMENT HAVE TO BE RESOLVED FOLLOWING A MECHANIS M AND COMPLYING WITH THE PROVISIONS AS CONTAINED IN CHAPE R X, DEALING WITH THE TRANSFER PRICING ISSUES AS CONTAIN ED IN SECTIONS 92-92F AND CONNECTED RULES AS CONTAINED IN RULES 10A,10B,10C,10D AND 10E OF INCOME TAX RULES 1962. T HESE SECTIONS AND RULES PRESCRIBE VARIOUS METHODS THAT M AY BE EMPLOYED TO ESTABLISH ARMS LENGTH PRICE, EXPLAININ G APPLICABILITY OF EACH METHOD, THE DOCUMENTATION REQ UIRED TO BE MAINTAINED AND FORM OF THE CERTIFICATE TO BE ISSUED BY AUDITORS IN THIS REGARD. THESE REGULATIONS PROVIDE THAT ANY INCOME ARISING FROM THE INTERNATIONAL TRANSACTIONS SHALL B E DETERMINED HAVING REGARD TO THE ARMS LENGTH PRICE. THIS ISSUE HAS NOW BEEN DECIDED IN VARIOUS COURTS THAT WHERE INTERNATI ONAL TRANSACTIONS ARE INVOLVED WITH AE, THEN ARMS LENGT H PRICE HAS TO BE DETERMINED IN LINE WITH THE AFORESAID PROVISI ONS. IT IS NOTED BY US THAT LD. CIT(A) HAS DECIDED THIS ISSUE WITHOUT TAKING INTO ACCOUNT THE EFFECT OF THESE PROVISIONS. THEREFORE, IN OUR CONSIDERED VIEW, THIS ISSUE NEEDS TO BE SENT BA CK. ON THE OTHER HAND, THE ASSESSEE HAS ALSO MADE A GRIEVANCE THAT THE TPO HAS NOT MADE PROPER ANALYSES WHILE BENCH MARKIN G THE TRANSACTIONS TO COMPUTE ARMS LENGTH PRICE. IT HAS BEEN FURTHER SUGGESTED THAT TNMM METHOD WILL BE MOST APPROPRIATE METHOD. NO OBJECTION HAS BEEN RAISED BY THE LD. CIT -DR, IN THIS REGARD. THEREFORE, KEEPING IN VIEW ALL THE FAC TS AND CIRCUMSTANCES OF THIS CASE, WE DEEM IT APPROPRIATE TO SEND THIS STRIDES ARCOLAB LTD. 34 ISSUE BACK TO THE FILE OF THE TPO WHO SHALL CARRY O UT AFRESH SEARCH AND MAKE FRESH ANALYSIS AND SHALL ALSO KEEP IN VIEW THE AFORESAID OBJECTIONS RAISED BY THE ASSESSEE. THE TP O SHALL ALSO GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSE E TO SUBMIT REQUIRED DETAILS AND DOCUMENTS, AS PER LAW, BEFORE DECIDING THIS ISSUE AFRESH. THUS, WITH THESE DIRECTIONS, THI S ISSUE IS SENT BACK TO THE FILE OF AO/TPO. THUS GROUND NO. 8 OF REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. 18. GROUND NOS. 9 & 10: THESE GROUNDS ARE GENERAL AND DO NOT NEED ANY SPECIFIC ADJUDICATION AND THEREFORE, D ISMISSED. 19. IN THE RESULT, BOTH APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DECEMBER, 2015. SD/- (AMIT SHUKLA ) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER MUMBAI; # DATED :16 /12/2015 CTX? P.S/. .. #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. % &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. * * ( % ) / THE CIT, MUMBAI. 4. * * / CIT(A)- , MUMBAI 5. -./ (01 , * % 012 , / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. STRIDES ARCOLAB LTD. 35 / BY ORDER, )-% ( //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI