The DCIT, Circle-8, Ahmedabad V. Schutz Dishman Biotech Ltd., Ahmedabad

ITA 1909/AHD/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7848 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 26-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VINOD JALWANI
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Deemed to accrue or arise in india; Arm length price; Unabsorbed depreciation
• Section: 92C; 115JB; 10B; 145; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER 1. ./ITA NO.1909/AHD/2015 2. ./ITA NO.1947/AHD/2015 ( / ASSESSMENT YEAR : 2010-11) 1.THE DCIT CIRCE-8, AHMEDABAD 2. SCHUTZ DISHMAN BIOTECH LTD. BHADRARAJ CHAMBERS NR.SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD / VS. 1. SCHUTZ DISMAN BIOTECH LTD. AHMEDABAD 2. THE DCIT CIRCLE-8 AHMEDABAD ./ ./ PAN/GIR NO. : AACCS 0988C ( / APPELLANTS ) .. ( / RESPONDENTS ) ASSESSEE BY : SHRI TUSHAR HEMANI & SHRI PARIMAL PARMAR, AR RE VENUE BY : SHRI VINOD JALWANI, SR.DR / DATE OF HEARING 02/11/2018 !' / DATE OF PRONOUNCEMENT 01 /01/2019 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE ASSESSEE, AND THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)8, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A)-XIV/523/13-14 DATED 01/04/2015 ARISING I N THE ASSESSMENT ORDER PASSED UNDER S.143(3) R.W.S.144C OF THE INCOM E TAX ACT, ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 2 - 1961(HEREINAFTER REFERRED TO AS 'THE ACT') DATED 14/03/2014 RELEVANT TO ASSESSMENT YEAR (AY) 2010-11. ITA NO.1947/AHD/2015 AY 2010-11 (ASSESSEES APPEA L) 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FAC TS OF THE CASE IN CONFIRMING THE ACTION OF AO IN MAKING AN AD DITION OF RS.38,565/- U/S.36(1)(VA) OF THE ACT ON ACCOUNT OF ALLEGED LATE PAYMENT OF EMPLOYEES CONTRIBUTION TOWARDS SUPERANN UATION FUND. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF AO IN NOT ALLOWING SETT-OFF OF BROUGHT FORWARDS LOSSES/UNABSORBED DEPRECIATION OF RS.11,02,365/- OF EARLIER YEARS AGAINST THE INCOME OF CURRENT YEARS OR TO BE CARRIED FORWARD TO THE SUCCEEDING AS SESSMENT YEARS. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF AO IN ADDING PRIOR PERIOD INCOME OF RS.4,29,490/- TO THE TOTAL INCOME OF THE APPELLANT AFTER TREATING THE SAME AS TAXABLE U/S 41 OF THE AC T. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S IN NOT APPRECIATING THE FACT THAT PRIOR PERIOD INCOME AMOU NTS TO RS.3,76,358/- INSTEAD OF RS.4,29,490/- AND IN ANY C ASE THE FORMER SHOULD HAVE BEEN ADDED TO THE TOTAL INCOME. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S IN CONFIRMING THE ACTION OF AO IN NOT ALLOWING PRIOR P ERIOD EXPENDITURE OF RS.18,79,653/-. 6. ALTERNATIVELY LEARNED CIT(A) OUGHT TO HAVE CONFINED THE DISALLOWANCE ONLY TO THE EXTENT OF NET PRIOR PERIOD EXPENDITURE, AFTER REDUCING THE PRIOR PERIOD INCOME OF RS.3,76,3 58/-, AMOUNTING TO RS.15,03,295/-. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 3 - 7. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF LEARNED AO IN NOT DETERMINING BOOK PROFIT AS PER THE MECHANISM PROVIDED U/S.115JB OF THE ACT. 8. THE LEARNED CIT(A) HAS RED IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING THE ACTION OF AO IN NOT ALLOWING MAT CREDIT OF RS.17,26,221/- ON TAX LIABILITY CALCULATED ON BOOK PROFIT U/S.115JB OF THE ACT. 9. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF AO IN ADDING RS.2, 33,75,788/- TOWARDS ADJUSTMENT IN ARMS LENGTH PRICE WITHOUT TH ERE BEING ANY JURISDICTION AS WELL AS LEGAL AND FACTUAL BASIS FOR THE SAME. 10. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN NOT FOLLOWING THE ORDER OF HIS PREDECESSOR FOR AYS 2006- 07 & 2007-08 INVOLVING IDENTICAL ISSUE IN THE CASE OF THE VERY APPELLANT. LD. CIT(A) FURTHER ERRED IN NOT GIVING A SINGLE REASON AS TO HOW THE ORDERS OF EARLIER YEARS ARE NO T REQUIRED TO BE FOLLOWING. THIS ACTION OF LD. CIT(A) IS IN GROS S VIOLATION OF THE HIERARCHICAL JUDICIAL SYSTEM AND THE SETTLED LE GAL PRINCIPLES. 11. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF AO IN SELECTING CO MPARABLE COMPANIES WHOSE TURNOVER WERE NOT WITHIN THE COMPAR ABLE RANGE OF THE APPELLANT. LD. CIT(A) FURTHER ERRED I N NOT ADOPTING RANGE OF 50% IN THE FIGURE OF TURNOVER AS HELD IN A.Y. 2006-07 & 2007-08 IN THE CASE OF THE APPELLANT. 12. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN NOT ALLOWING BENEFIT OF SHORTFALL WITHIN TH E RANGE OF 5% AS PROVIDED IN THE PROVISO TO S.92C(2) OF THE ACT. 13. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF AO IN SELECTING CO MPARABLE COMPANIES EARNING SUPER PROFITS AND COMPARED THE SA ME WITH THE APPELLANTS PROFITS. 14. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF AO IN INVOKING THE PROVISIONS OF CHAPTER X WITHOUT PRIMA FACIE DEMONSTRATING THAT THERE WAS SOME TAX AVOIDANCE. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 4 - 15. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF AO IN REFERRING T HE CASE TO TPO WITHOUT RECORDING AS TO HOW INTERFERENCE WAS NE CESSARY ON ACCOUNT OF PRICING ADOPTED BY THE APPELLANT AND WITHOUT PROVIDING AN OPPORTUNITY OF BEING HEARD TO THE APPE LLANT PRIOR TO SUCH REFERENCE. 16. IN ANY CASE THE WHOLE REFERENCE U/S.92CA(1) OF THE ACT AND CONSEQUENT ORDER ARE BAD AND ILLEGAL AND HENCE DESE RVES TO BE QUASHED. 17. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF AO IN NOT ALLOWING DEDUCTI ON OF RS.19,02,690 U/S.10B OF THE ACT ON ACCOUNT FOREIGN EXCHANGE GAIN EARNED BY ELIGIBLE UNITS. 18. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON THE FACT S OF THE CASE IN CONFIRMING THE ACTION OF LEARNED AO IN NOT GRANTING DEDUCTION U/S.10B OF THE ACT ON REVISED GROSS TOTAL INCOME. 19. BOTH LOWER AUTHORITIES HAVE PASSED THE ORDERS WITHO UT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHER ERRED I N GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATIONS AND INFO RMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IMPUGNED OR DER. THIS ACTION OF THE LOWER AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVE S TO BE QUASHED. 20. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE LD.AO IN LEVYING INTEREST U/S.234A/B/C OF THE ACT. 21. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE LD.AO IN INITIATING PENALT Y U/S.271(1)(C) OF THE ACT. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT T HE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER OF RS. 38,565/- ON ACCOUNT OF LATE PAYMENT OF EMPLOYEES C ONTRIBUTION TOWARDS SUPERANNUATION FUND U/S.36(1)(VA) OF THE ACT. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 5 - 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IN TH E PRESENT CASE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANU FACTURING OF PHARMACEUTICALS AND FINE CHEMICALS. THE ASSESSEE I N THE YEAR UNDER CONSIDERATION HAS DEPOSITED EMPLOYEES CONTRIBUTION TOWARDS PF AND ESI, ETC., AFTER THE DUE DATE AS PRESCRIBED UNDER THE RE LEVANT ACT. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE SAME UNDER THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFOR E THE LD. CIT(A) WHO HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICE R. 6. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR BEFORE US CONCEDED THE FACT THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GSTRC REPORTED IN 41 TAXMANN.COM 10 0. HOWEVER, THE LD. AR BEFORE US FURTHER SUBMITTED THAT THE DUE DAT E FOR THE DEPOSITING THE AMOUNT OF EMPLOYEES CONTRIBUTION TOWARDS PF/ESI IS TO BE SEEN FROM THE RELEVANT MONTH, IN WHICH SALARY WAS PAID TO THE EMP LOYEES AND NOT FROM THE MONTH IN WHICH SALARY BECAME DUE. THE LD. AR IN SUPPORT OF HIS CLAIM RELIED ON THE ORDER OF THIS JURISDICTIONAL TR IBUNAL IN THE CASE OF SUZLON ENERGY LTD. VS. DCIT REPORTED IN 764 & 765/A HD/2018 VIDE ORDER DATED 27.06.2018, WHEREIN IT WAS HELD AS UNDER: WE MAY, HOWEVER, ADD THAT A CO-ORDINATE BENCH OF T HIS TRIBUNAL, IN THE CASE OF RAJJRATNA METAL INDUSTRIES LTD VS. ACIT (IT A NO.940/AHD/2015; ORDER DATED 22.09.2017), HAS OBSERVED AS FOLLOWS:- ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 6 - '3. ASSESSEE'S LATTER SUBSTANTIVE GROUND CHALLENGE S CORRECTNESS OF BOTH THE LOWER AUTHORITIES' ACTION DISALLOWING/ADDING A SUM OF RS.3,85,810/- U/S. 36(1 )(VA) R.W.S. 2(24) OF THE ACT ON ACCOUNT LATE PAYMENT OF EMPLOYE ES' CONTRIBUTION TO PF & ESI IN QUESTION. THERE IS NO D ISPUTE THAT HON'BLE JURISDICTIONAL HIGH COURT'S DECISION IN CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION (2014) 366 ITR 170 (GUJ) UPHOLDS SUCH A DISALLOWANCE IN PRINCIPLE. THE ASSES SEE'S CASE HOWEVER IS THAT RELEVANT DUE DATE HAS TO BE SEEN NO T FROM THE RELEVANT MONTH OF SALARY BUT THE ONE PERTAINING TO ITS PAYMENT. HE THEN FILES A COMPUTATION CHART INDICATING IT TO HAVE PAID ABOVE EMPLOYEES' PF/ESI CONTRIBUTIONS ON 22.05.2009 AND 28.05.2009 AS AGAINST THE DUE DATES THEREOF FOLLOWI NG ON 20.06.2009. THE REVENUE FAILS TO DISPUTE THIS FACTU AL POSITION. WE THEREFORE QUOTE THIS TRIBUNAL'S CO-ORDINATE BENCH D ECISION IN KANOI PAPER & INDUSTRIES LTD. VS. ACIT 75 TTJ 448 T HAT THE RELEVANT DATE IN SUCH CASE IS THAT OF MONTH OF THE ACTUAL PAYMENT OF WAGES/SALARIES. WE THEREFORE RELY ON THE ABOVE C O-ORDINATE BENCH DECISION AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE AS WELL. 4. IN EFFECT THUS WHILE ANY DELAYED DEPOSIT OF PF/ ESI IS TO BE DISALLOWED, IN TERMS OF HON'BLE GUJARAT HIGH COURT' S JUDGMENT IN THE CASE OF GUJARAT STATE ROAD TRANSPORT CORPORATION (S UPRA), THE QUESTION AS TO WHETHER THERE IS A DELAY OR NOT MAY BE DECIDE D BY THE ASSESSING OFFICER IN THE LIGHT OF ABOVE OBSERVATIONS BY THE C OORDINATE BENCH. THE ASSESSEE WILL GET RELIEF, IF FOUND ADMISSIBLE, ON T HAT BASIS. 5. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALL OWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT TODAY ON THE 27 TH JUNE, 2018. BECAUSE OF THE ABOVE, THE AR FOR THE ASSESSEE BEFOR E US SUBMITTED THAT THE MATTER COULD BE RESTORED TO THE FILE OF AO FOR FRESH ADJUDICATION REGARDING THE ABOVE. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF AUT HORITIES BELOW. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 7 - 6.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSES SEE HAS DELAYED IN THE PAYMENT OF EMPLOYEES CONTRIBUTION OF PF/ ESI AS SP ECIFIED UNDER THE RELEVANT ACT. THEREFORE, THE DISALLOWANCE WAS MADE BY THE AO U/S 36(1)(VA) R.W.S. 2(24)(X) OF THE ACT. THE LD CIT-A SUBSEQUENTLY CONFIRMED THE VIEW TAKEN BY THE AO. THE LD. AR BEFO RE US HAS NOT CHALLENGED THE PROPOSITION LAID DOWN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GSRTC (SUPRA), WHEREIN IT WA S HELD AS UNDER: IN VIEW OF THE ABOVE AND FOR THE REASONS STATED AB OVE, AND CONSIDERING SECTION 36(1)(VA) OF THE INCOME TAX ACT, 1961 READ WITH SUB-CLAUSE (X) OF CLAUSE 24 OF SECTION 2, IT IS HELD THAT WITH RES PECT TO THE SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEES TO WHICH PROVISIONS OF SUB- CLAUSE (X) OF CLAUSE (24) OF SECTION (2) APPLIES, T HE ASSESSEE SHALL BE ENTITLED TO DEDUCTION IN COMPUTING THE INCOME REFER RED TO IN SECTION 28 WITH RESPECT TO SUCH SUM CREDITED BY THE ASSESSEE T O THE EMPLOYEES' ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE 'DUE DATE' MENTIONED IN EXPLANATION TO SECTION 36(1)(VA). CONS EQUENTLY, IT IS HELD THAT THE LEARNED TRIBUNAL HAS ERRED IN DELETING RES PECTIVE DISALLOWANCES BEING EMPLOYEES' CONTRIBUTION TO PF ACCOUNT / ESI A CCOUNT MADE BY THE AO AS, AS SUCH, SUCH SUMS WERE NOT CREDITED BY THE RESPECTIVE ASSESSEE TO THE EMPLOYEES' ACCOUNTS IN THE RELEVANT FUND OR FUNDS (IN THE PRESENT CASE PROVIDENT FUND AND/OR ESI FUND ON OR BEFORE TH E DUE DATE AS PER THE EXPLANATION TO SECTION 36(1)(VA) OF THE ACT I.E . DATE BY WHICH THE CONCERNED ASSESSEE WAS REQUIRED AS AN EMPLOYER TO C REDIT EMPLOYEES' CONTRIBUTION TO THE EMPLOYEES' ACCOUNT IN THE PROVI DENT FUND UNDER THE PROVIDENT FUND ACT AND/OR IN THE ESI FUND UNDER THE ESI ACT. HOWEVER, THE LD. AR BEFORE US HAS SUBMITTED THAT TH E DUE DATE FOR DEPOSITING THE EMPLOYEES CONTRIBUTION TOWARDS PF/E SI SHOULD BE SEEN FROM THE DATE OF THE PAYMENT AND NOT FROM THE DUE D ATE. IN THIS REGARD, ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 8 - WE NOTE THAT THE JURISDICTIONAL TRIBUNAL IN THE IDE NTICAL FACTS AND CIRCUMSTANCE IN THE CASE OF SUZLON ENERGY LTD.(SUP RA) HAS RESTORED THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION. THEREFORE, RESPECTFULLY FOLLOWING THE SAME WE ARE INCLINED TO RESTORE THE I SSUE ON HAND TO THE FILE OF AO FOR FRESH ADJUDICATION AND IN ACCORDANCE TO T HE PROVISION OF LAW AS WELL AS AFTER CONSIDERING THE ORDER OF THIS TRIBUNA L IN THE CASE OF SUZLON ENERGY LTD. (SUPRA). THUS, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 6.2 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER BY NOT ALLOWING THE SET OFF OF THE BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATI ON AMOUNTING TO RS. 11,02,365/- AGAINST THE CURRENT YEAR INCOME AS WELL AS NOT ALLOWING THE SAME TO BE CARRIED FORWARD TO THE SUCCEEDING ASSESS MENT YEARS. THE ASSESSEE DURING THE YEAR HAS SET OFF OF PREVIOU S YEARS LOSSES OF RS. 11,02,365/- AGAINST THE CURRENT YEAR INCOME AS MENT IONED IN THE STATEMENT OF THE TOTAL INCOME. HOWEVER, THE ASSESS ING OFFICER DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THERE ARE NO B ROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION IN THE ORDER PASSED U/S 154 OF THE ACT FOR THE AY 2008-09 AND 2009-10. THEREFORE, THE ASSESSI NG OFFICER WAS OF THE VIEW THAT THERE WAS NO BROUGHT FORWARD LOSSES/U NABSORBED ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 9 - DEPRECIATION CARRIED FORWARD FROM THE EARLIER YEARS . ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 8. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFOR E THE LD.CIT(A). THE ASSESSEE BEFORE THE LD.CIT(A) SUBMITTED AS UNDE R: 6.2. IN THIS CONNECTION, THE WORKING FOR CARRIED F ORWARD LOSSES/UNABSORBED DEPRECIATION FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS IS ENCLOSED HEREWITH MARKED AS ANNEXURE-A. PLEASE REFER LAST COLUMN FOR AY 2008-09 AND 2009-10 . THIS WOULD SHOW THAT LOSS OF RS.1,35,35,021/- FOR AY 2006-07 WAS SE T-OFF IN AY 2008-09 (CONSIDERING THE ORDER GIVING EFFECT TO THE CIT(A) ORDER FOR AY 2008-09) AND IN THE ASSESSMENT ORDER FOR AY 2009-10 AS PER T HE RECORDS OF THE DEPARTMENT. THEREFORE, IT WAS THE OBSERVATION OF T HE LD. AO THAT THERE WAS NO BROUGHT FORWARD LOSS IN THE YEAR UNDER CONSI DERATION FOR SET-OFF AGAINST THE INCOME OF CURRENT YEAR. AT THIS JUNCTU RE, IT IS PERTINENT TO NOTE THAT WHEN THE IMPUGNED ASSESSMENT ORDER FOR AY 2010-11 WAS PASSED ON 14/03/2014, THE FIRST APPELLATE ORDER FOR AY 2009-10 WAS NOT PASSED BY YOUR HONOUR. THE SAME CAME TO BE PASSED ON 15/12/2014 ONLY. PLS. REFER PG NO.216 OF THE COMPILATION OF O RDERS. IN THE SAID APPELLATE ORDER, YOUR HONOUR HAS GIVEN PART RELIEF TO THE APPELLANT, WHICH WOULD HAVE EFFECT ON THE TOTAL INCOME FOR AY 2009-10, AND IN RESULT, IT WOULD GIVE EFFECT FOR THE COMPUTATION OF SET-OFF OF BROUGHT FORWARD LOSSES OF EARLIER YEAR AGAINST THE INCOME O F THE CURRENT YEAR. THEREFORE, YOUR HONOUR IS REQUESTED TO GIVE DIRECTI ON TO THE LD.AO TO ALLOW SET-OFF OF BROUGHT FORWARD LOSSES OF EARLIER YEAR AGAINST THE CURRENT YEAR AFTER GIVING EFFECT TO THE ORDER OF YO UR HONOUR FOR AY 2009-10. 9. THE COPY OF THE ANNEXURE SHOWING BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATION IS PLACED ON PAGES 239 & 24 0 OF THE PAPER-BOOK. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBS ERVING AS UNDER: ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 10 - 4.2. THE SUBMISSIONS OF APPELLANT ARE CONSIDERED. I AM OF THE VIEW THAT ISSUES RELATED TO LOSSES/UNABSORBED DEPRE CIATION, SO FAR AS, THEIR DETERMINATION IS CONCERNED, IS TO BE DONE AS PER RECORDS OF THE EARLIER YEARS AND IN THOSE YEARS ONLY. IT I S NOT THE CASE OF APPELLANT THAT LOSSES PROPERLY DETERMINED IN THE EA RLIER YEARS HAVE NOT BEEN ALLOWED DURING THE CURRENT YEAR. THE ISSU E OF DETERMINATION OF LOSSES OF EARLIER YEARS CANNOT BE AGITATED DURING THE CURRENT YEAR. THE GROUND OF APPEAL IS DISMISSE D. 10. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 11. THE LD.AR BEFORE US SUBMITTED THAT ASSESSEE IS ELIGIBLE FOR SET-OFF OF BROUGHT FORWARD LOSSES AND UNABSORBED DEPRECIATI ON. HENCE, A DIRECTION MAY BE GIVEN TO ASSESSING OFFICER TO COMP UTE CORRECT AMOUNT OF BROUGHT FORWARD BUSINESS LOSS AND UNABSORBED DEP RECIATION FOLLOWING THE LAW AFTER TAKING INTO ACCOUNT THE ORDERS PASSED BY HONBLE APPELLATE TRIBUNAL AUTHORITIES IN ASSESSEES CASE. 12. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ER OF THE AUTHORITIES BELOW. 13. WE HAVE HEARD THE LD. REPRESENTATIVES APPEARED FOR THE RESPECTIVE PARTIES. WE HAVE PERUSED THE RELEVANT MATERIALS AV AILABLE ON RECORD. AT THE OUTSET, WE NOTE THAT THE LD. CIT-A REJECTED THE GROUND OF APPEAL OF THE ASSESSEE BY OBSERVING THAT THE ISSUE OF DETERMI NATION OF LOSSES OF THE EARLIER YEARS CANNOT BE AGITATED DURING THE CURRENT YEAR. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 11 - 13. HOWEVER, ON PERUSAL OF THE SUBMISSION AS DISCUS SED ABOVE, WE NOTE THAT THE ASSESSEE NEVER AGITATED FOR THE DETER MINATION OF THE LOSSES/UNABSORBED DEPRECIATION OF EARLIER YEARS AS HELD BY THE LD. CIT(A). THE ONLY PLEA OF THE ASSESSEE WAS THAT THE RE ARE BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION WHICH NEED TO BE SET OFF IN THE YEAR UNDER CONSIDERATION. WE ALSO FIND THAT THE ASSESSEE HAS FILED AN ANNEXURE PLACED ON PAGE NOS. 239 & 240 OF THE PAPER-BOOK DEP ICTING THE LOSSES PERTAINING TO THE EARLIER YEARS WHICH WERE CARRIED FORWARD IN THE YEAR UNDER CONSIDERATION. THERE WAS NO DEFECT POINTED OUT BY THE AUTHORITIES BELOW ON THE SUBMISSION OF THE ASSESSEE. THEREFORE , WE ARE OF THE VIEW THAT THE MATTER NEEDS TO BE ADJUDICATED AFRESH BY T HE ASSESSING OFFICER AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION TO ALLOW THE BROUGHT FORWARD LOSSES/U NABSORBED DEPRECIATION OF THE EARLIER YEAR AGAINST THE CURRENT YEAR INCOME AS WELL AS TO CARRY FORWARD SUCH LOSSES/UNABSORBED DEPRECIATION TO THE SUCCEEDING ASSESSMENT YEARS AS PER THE PROVISIONS OF LAW. HEN CE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 14. THE NEXT ISSUES RAISED BY THE ASSESSEE IN GROUN D NOS.3, 4, 5 & 6 ARE THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ORDE R OF THE ASSESSING OFFICER BY SUSTAINING THE ADDITION OF PRIOR PERIOD INCOME OF RS. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 12 - 4,29,490/- UNDER THE PROVISIONS OF SECTION 41 OF TH E ACT. THE ASSESSEE ALSO AGITATED THE AMOUNT OF INCOME IN THE GROUND OF APPEAL. 15. AS PER THE ASSESSEE, THE CORRECT AMOUNT OF PRIO R PERIOD INCOME IS OF RS. 3,76,358/- ONLY. THE ASSESSING OFFICER DURI NG THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAD SHOWN PR IOR PERIOD INCOME OF RS. 4,29,490/- IN ITS TAX AUDIT REPORT IN FORM NO.3 CD IN THE CLAUSE (II)(B) OF FORM NO.3CD WHICH WAS REDUCED FROM THE STATEMENT OF INCOME. ACCORDINGLY, A QUERY WAS RAISED BY THE ASSESSING OF FICER VIDE ORDER- SHEET ENTRY DATED 06.02.2014 FOR AN EXPLANATION REG ARDING THE DEDUCTION OF PRIOR PERIOD INCOME FROM THE STATEMENT OF INCOME . 16. THE ASSESSEE IN COMPLIANCE TO IT SUBMITTED THAT PRIOR PERIOD EXPENSES AMOUNTING TO RS. 18,79,653/- WERE DEBITED TO THE PROFIT & LOSS ACCOUNT AFTER ADJUSTING THE PRIOR PERIOD INCOME OF RS. 3,76,358/- ONLY. THUS, IN EFFECT THE BALANCE AMOUNT OF RS. 15,03,295 /- (RS. 18,79,653 RS. 3,76,358) WAS DEBITED IN THE P&L ACCOUNT. AS PER THE ASSESSEE, THE PRIOR PERIOD EXPENSES SHOULD BE TREATED IN THE MANN ER OF PRIOR PERIOD INCOME. 16.1. HOWEVER, THE ASSESSING OFFICER DISREGARDED TH E SUBMISSION OF THE ASSESSEE BY OBSERVING THAT THERE IS NO PROVISION FO R ALLOWING THE PRIOR PERIOD EXPENSES FROM THE TOTAL INCOME OF THE ASSESS EE. HOWEVER, THERE IS PROVISION FOR CHARGING THE PRIOR PERIOD INCOME U/S 41(1) OF THE ACT. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 13 - THEREFORE, THE ASSESSING OFFICER DISALLOWED THE SAM E AND ADDED THE SUM OF RS. 4,29,490/- TO THE TOTAL INCOME OF THE ASSESS EE. 17. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO T HE LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE A DJUSTMENT ON ACCOUNT OF PRIOR PERIOD INCOME AND EXPENSES IS REPRESENTING THE ACTUAL EXPENSES INCURRED BY THE ASSESSEE FOR THE BUSINESS. THEREFOR E, THE CLAIM OF THE ASSESSEE IS LEGITIMATE. ACCORDINGLY, THE ASSESSEE REQUESTED THE LD. CIT(A) TO ALLOW THE ADJUSTMENT OF PRIOR PERIOD INCO ME WITH THE PRIOR PERIOD EXPENSES. 17.1. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTE NTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE ASSESSING O FFICER BY OBSERVING AS UNDER: 5.3. THE SUBMISSIONS ARE CONSIDERED IT IS SEEN THA T THERE IS A SPECIFIC SECTION AVAILABLE UNDER THE ACT, NAMELY, S EC 41, UNDER WHICH INCOME OF PRIOR YEAR CAN BE TAXED. HENCE THE ACTION OF ASSESSING OFFICER IN TAXING THE INCOME OF EARLIER Y EAR WAS PROPER AND IS CONFIRMED. HOWEVER, THERE IS NO CORRESPONDI NG SECTION FOR ALLOWING DEDUCTION OF EXPENSES PERTAINING TO EARLIE R YEAR. THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT HAS TO BE SEEN FOR ALLOWING ANY CHARGEABLE UNDER SECTION 28 TO 44DB. SECTION 145 CLEARLY PROVIDES THAT INCOME CHARGEABLE UNDER THE HEAD BUSINESS WILL HAVE TO BE ALLOWED AS PER RECOGNIZED SYSTEM OF ACCOUNTING WHICH IS TO BE EITHER MERCANTILE SYSTEM OR THE CASH SYSTEM. ADMITTEDLY, THE APPELLANT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. SINCE UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, PR IOR PERIOD EXPENSES ARE NOT ALLOWED, THE PLEA OF THE APPELLANT TO ALLOW PRIOR PERIOD EXPENSES IS REJECTED. SO FAR AS THE REQUEST FOR ADJUSTMENT OF PRIOR PERIOD EXPENSES TO PRIOR PERIOD INCOME IS CON CERNED, THE ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 14 - SAME CAN ONLY BE DONE WHEN THERE IS ONE-TO-ONE CORR ESPONDENCE BETWEEN THE INCOME AND EXPENDITURE. NO SUCH RELATI ONSHIP HAS BEEN SHOWN. EVEN THE NATURE AND DETAILS OF PRIOR P ERIOD INCOME AND EXPENSES ARE NOT FURNISHED. IN VIEW OF THIS, E XTERNAL THE ASSESSING OFFICER IS CONFIRMED AND THE GROUNDS OF A PPEAL NUMBER 5 TO 7 ARE DISMISSED. 18. THE LD. AR BEFORE US SUBMITTED THAT THE ASSESSE E HAD EARNED PRIOR PERIOD INCOME OF RS. 3,76,358/- AND INCURRE D PRIOR PERIOD EXPENSES OF RS. 18,79,653/-. ACCORDINGLY, NET E XPENSES OF RS. 15,03,295/- (I.E. RS. 18,79,653 RS. 3,76,358) WER E DEBITED TO P&L A/C. HE SUBMITTED THAT ASSESSING OFFICER WAS OF THE VIEW THAT PRIOR PERIOD EXPENSES ARE NOT ALLOWABLE AND PRIOR PERIOD INCOM E IS TO BE TAXED AS INCOME. ACCORDINGLY, ASSESSING OFFICER MADE THE AD DITION OF RS. 4,29,490/- (CORRECT AMOUNT BEING RS. 3,76,358/-) IN RESPECT OF PRIOR PERIOD INCOME. THE SAID VIEW CAME TO BE CONFIRMED BY LD. CIT(A) AS WELL. FURTHER, IT IS SETTLED LAW THAT ONCE PRIOR PERIOD INCOME IS TAXED; THERE IS NO REASON TO DISALLOW PRIOR PERIOD EXPENS ES BEING A PART OF PRIOR PERIOD ADJUSTMENT, I.E., SET OFF OF PRIOR PER IOD EXPENSES MUST BE ALLOWED AGAINST PRIOR PERIOD INCOME. RELIANCE IS P LACED ON DCIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS IN ITA NO.692/A HD/2011 & OTHERS. 19. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ERS OF THE AUTHORITIES BELOW. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 15 - 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. 21. AT THE OUTSET, WE FIND THAT THE HONBLE TRIBUNA L AHMEDABAD IN THE IDENTICAL FACTS AND CIRCUMSTANCES IN THE CASE OF DC IT VS. DISHMAN PHARMACEUTICALS & CHEMICALS IN ITA NO.692/AHD/2011 & OTHERS HAVE DECIDED THE ISSUE IN FAVOR OF THE ASSESSEE FOR AY 2 005-06 & OTHERS DATED 23/05/2018. THE RELEVANT EXTRACT OF THE ORDER IS R EPRODUCED AS UNDER: 59. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD.AO WHILE ASSE SSING PRIOR PERIOD INCOME OF RS.46,50,648/- HAS OBSERVED THAT SINCE IT IS TAXABLE INCOME OFFERED BY THE ASSESSEE ITSELF, AN ITEM HAS TO BE I NCLUDED IN THE TOTAL INCOME OF THE ASSESSEE ON THE PRINCIPLES OF TAXABIL ITY ON ACCRUAL OR RECEIPT BASIS. THIS HAS BEEN OFFERED BY THE ASSESS EE ON RECEIPT BASIS. THEREFORE, IT IS TO BE TAXED, WITH REGARD TO THE AL LOWANCE OF PRIOR PERIOD EXPENDITURE, THE LD.AO HAS OBSERVED THAT SUCH ITEM CANNOT BE ALLOWED BECAUSE IT IS NOT ASCERTAINABLE WHETHER THIS EXPEND ITURE HAS BEEN CRYSTALLIZED IN THE CURRENT YEAR OR NOT. ACCORDING TO THE AO, BILLS AND VOUCHERS WERE NOT PRODUCED BY THE ASSESSEE. ON APP EAL, THE LD.CIT(A) CONFIRMED THE VIEW POINT OF THE AO BY OBSERVING THA T SET OFF PRIOR PERIOD EXPENDITURE AGAINST PRIOR PERIOD INCOME COULD BE GR ANTED IF THE SUCH EXPENDITURE WAS INCURRED FOR EARNING SUCH INCOME. IN THIS WAY, THE LD.CIT(A) CONCURRED WITH THE AO. THE LD.COUNSEL FO R THE ASSESSEE IN SUPPORT OF ITS CONTENTIONS RELIED UPON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CHEMICALS REPO RTED IN 213 ITR 523 (GUJ). HE ALSO RELIED UPON THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD., 358 I TR 295 (SC). ON THE STRENGTH OF THE HONBLE SUPREME COURTS DECISION, I T WAS CONTENDED THAT IN EVERY YEAR THE ASSESSEE HAS PRIOR PERIOD EXPENDI TURE AS WELL AS INCOME BECAUSE IN SUCH A BIG ORGANIZATION QUANTIFIC ATION OF CERTAIN EXPENDITURE AND THEIR CRYSTALLIZATION ALWAYS REMAIN ED DEPENDED UPON MANY CIRCUMSTANCES, AND SOMETIME THEY CRYSTALLISED IN THE SUBSEQUENT PERIOD. THE AO OUGHT TO HAVE FOLLOWED THE PRINCIPL E OF CONSISTENCY AND ALLOWED THE DEDUCTION OF SUCH PRIOR PERIOD EXPENDIT URE. ON THE OTHER ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 16 - HAND, THE LD.DR RELIED UPON THE ORDERS OF THE REVEN UE AUTHORITIES BELOW. 60. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS. WE FIND THAT INCOME OF THE ASSESSEE IS BEING ASSESSED AT ENTITY LEVEL. ALL THE EXPENDITURE DEBITED UNDER DIFFERENT HEADS CANNOT BE DECIDED QUA A SPECIFIC RECEIPT. ONCE THE ASSESSEE HAS BEEN OFFERING INCOME OF PRIOR PERIOD AS AN ENTITY, THEN ITS PRIOR PERIOD EXPENDITURE CANNOT BE DISALLO WED SIMPLY BY OBSERVING THAT IT IS NOT ASCERTAINABLE WHETHER THIS EXPENDITURE WAS INCURRED FOR EARNING A PARTICULAR RECEIPTS OFFERED UNDER THE HEAD PRIOR PERIOD INCOME. TO OUR MIND, IF AN ASSESSEE IS OFFE RING PRIOR PERIOD INCOME, THEN THE EXPENDITURE WHICH WAS INCURRED UND ER DIFFERENT HEADS OUGHT TO BE SET OFF AGAINST THAT INCOME. THEREFORE , WE ARE OF THE VIEW THAT NET DIFFERENTIAL AMOUNT OF RS.3,39,534/- OUGHT TO BE ASSESSED AS INCOME OF THE ASSESSEE. WE ALLOW BOTH THESE GROUND S OF APPEAL FOR STATISTICAL PURPOSE AND DIRECT THE AO TO ALLOW SET OFF PRIOR PERIOD EXPENDITURE AGAINST PRIOR PERIOD INCOME AND ONLY NE T INCOME IS TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 22. THE FACTS OF THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, I.E., IN ITA NO.692/AHD/2011. THE REFORE, RESPECTFULLY FOLLOWING THE SAME, WE ARE INCLINED TO REVERSE THE ORDERS OF THE AUTHORITIES BELOW. ACCORDINGLY, WE SET ASIDE THE O RDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDI TION MADE BY HIM. HENCE, THE GROUNDS OF APPEAL OF THE ASSESSEE ARE AL LOWED. 23. THE NEXT ISSUES RAISED BY THE ASSESSEE IN GROUN D NOS.7 & 8 ARE THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASS ESSING OFFICER BY NOT ALLOWING THE MAT CREDIT OF RS. 17,26,221/- U/S 115 JAA OF THE ACT. 23.1. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS REDUCED MAT CREDIT FROM THE BOOK PROFIT DETERMINED U/S 115JB OF THE ACT. HOWEVER, ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 17 - THE ASSESSING OFFICER WAS OF THE VIEW THAT NO SUCH MAT CREDIT IS ALLOWABLE AGAINST THE INCOME DETERMINED U/S 115JB O F THE ACT. ACCORDINGLY, THE ASSESSING OFFICER SOUGHT AN EXPLAN ATION FROM THE ASSESSEE VIDE ORDER-SHEET ENTRY DATED 10/12/2013. THE ASSESSEE DID NOT MAKE ANY REPLY TO THE QUERY RAISED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE S AME AND ADDED TO THE INCOME DETERMINED U/S 115JB OF THE ACT. 24. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO T HE LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT IT IS VERY MUCH ENTITLED TO THE CREDIT OF THE MAT AMOUNT PAID IN THE EARLIER AN D CURRENT YEAR AGAINST THE INCOME COMPUTED UNDER THE NORMAL PROVISIONS OF THE ACT. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTION OF THE AS SESSEE AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING AS UNDER:- 6.3. THE SUBMISSIONS ARE CONSIDERED. GROUND NUMB ER 8 IS RELATED TO ALLOWING TAX CREDIT FOR MAT, EVEN WHILE COMPUTING TAX LIABILITY ON BOOK PROFIT UNDER SECTION 115JB. THE STAND OF THE APPELLANT IS NOT SUPPORTED BY ANY LAW AND SO GROUND NUMBER 8 IS DISMISSED. 25. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN THE SECOND APPEAL BEFORE US. 26. THE LD.AR BEFORE US SUBMITTED AS UNDER:- ASSESSING OFFICER HAS ERRED IN NOT DETERMINING BOO K-PROFIT IN ACCORDANCE WITH THE SCHEME OF THE ACT AS PRESCRIBED U/S.115JB. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 18 - ASSESSING OFFICER HAS FURTHER ERRED IN NOT ALLOWING MAT CREDIT OF RS.17,26,221/- ON TAX LIABILITY CALCULATED ON BOOK- PROFIT U/S.115B. CIT(A) ALSO CONFIRMED SUCH ACTIONS OF ASSESSING OFF ICER. A DIRECTION MAY BE GIVEN TO ASSESSING OFFICER TO CO MPUTE CORRECT AMOUNT OF BOOK PROFIT AND MAT CREDIT IN ACCORD ANCE WITH LAW AFTER TAKING INTO ACCOUNT THE ORDERS PASSED BY HONBLE THE ITAT IN ASSESSEES OWN CASE. 27. ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUPPOR TED THE ORDERS OF THE AUTHORITIES BELOW. 28. WE HAVE HEARD THE LD. REPRESENTATIVES APPEARING FOR THE RESPECTIVE PARTIES. WE HAVE PERUSED THE RELEVANT M ATERIALS AVAILABLE ON RECORD. 29. FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE ASSESSING OFFICER REJECTED THE CREDIT OF MAT AS CLAIMED BY THE ASSESS EE ON THE GROUND THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM THE CREDIT OF TAXES PAID UNDER MAT IN THE EARLIER YEARS WHILE DETERMINING THE INCOME UNDE R THE HEAD MAT. FROM THE ORDER OF THE ASSESSING OFFICER, IT IS TRAN SPIRED THAT THE ASSESSEE WAS CLAIMING THE CREDIT OF TAX PAID UNDER MAT IN TH E EARLIER YEARS AGAINST THE INCOME DETERMINED UNDER MAT PROVISIONS FOR THE CURRENT YEAR. HOWEVER, THE SUBMISSION OF THE ASSESSEE REVE ALS THAT IT HAS CLAIMED THE CREDIT OF TAX PAID UNDER MAT AGAINST THE COMPUT ATION OF INCOME UNDER THE NORMAL PROVISIONS. FROM THE ABOVE DETAIL S, WE NOTE MISMATCH ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 19 - BETWEEN THE FINDING OF THE ASSESSING OFFICER VIS-A- VIS SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LD. CIT(A). 30. HOWEVER, WE NOTE THAT THE ASSESSEE IS VERY MUCH ENTITLED TO CLAIM THE CREDIT OF TAX PAID UNDER MAT AGAINST THE INCOME COMPUTED UNDER THE NORMAL PROVISIONS UNDER SECTION 115JAA OF THE ACT, WHICH READS AS UNDER: 75 [ TAX CREDIT IN RESPECT OF TAX PAID ON DEEMED INCOME RELATING TO CERTAIN COMPANIES. 76 115JAA. (1) WHERE ANY AMOUNT OF TAX IS PAID UNDER SUB-SECT ION (1) OF SECTION 115JA BY AN ASSESSEE BEING A COMPANY FOR ANY ASSESSMENT YEAR, THEN, CREDIT IN RESPECT OF TAX SO PAID SHALL BE ALL OWED TO HIM IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. 77 [(1A) WHERE ANY AMOUNT OF TAX IS PAID UNDER SUB-SEC TION (1) OF SECTION 115JB BY AN ASSESSEE, BEING A COMPANY FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 2006 AND ANY SUBSEQUENT AS SESSMENT YEAR, THEN, CREDIT IN RESPECT OF TAX SO PAID SHALL BE ALLOWED T O HIM IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION.] 78 [(2) THE TAX CREDIT TO BE ALLOWED UNDER SUB-SECTION (1) SHALL BE THE DIFFERENCE OF THE TAX PAID FOR ANY ASSESSMENT YEAR UNDER SUB-SECTION (1) OF SECTION 115JA AND THE AMOUNT OF TAX PAYABLE BY THE ASSESSEE ON H IS TOTAL INCOME COMPUTED IN ACCORDANCE WITH THE OTHER PROVIS IONS OF THIS ACT: 31. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT T HE ENTIRE MATTER NEEDS RE-EXAMINATION AFRESH BY THE ASSESSING OFFICE R. ACCORDINGLY, WE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFFICE R FOR FRESH ADJUDICATION FOLLOWING THE PROVISIONS OF LAW. HENCE, GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 20 - 32. THE INTER-CONNECTED ISSUE RAISED BY THE ASS ESSEE IN GROUND NO. 9 TO 16 IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE A DJUSTMENT MADE BY THE AO FOR RS. 2,33,75,788.00 ON ACCOUNT OF UPWARD TRAN SFER PRICING ADJUSTMENT. 33. THE ASSESSEE DURING THE YEAR HAS MADE VAR IOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES INCLUD ING THE TRANSACTIONS AS DETAILED UNDER: SL.NO. DESCRIPTION METHOD USED BY THE ASSESSEE AMOUNT IN (RS.) 1. PURCHASE OF RAW MATERIAL TNMM 24887354 2. PURCHASE OF ASSETS TNMM 365800 3. SALE OF VARIOUS PRODUCTS TNMM 145720725 34. THE ASSESSEE IN RESPECT OF THE ABOVE TRANS ACTIONS USED THE TNMM METHOD FOR DETERMINING THE ARM LENGTH PRICE. THE AS SESSEE HAS DETERMINED THE MARGIN IN RESPECT OF THE INTERNATION AL TRANSACTIONS AS DISCUSSED ABOVE AT THE RATE OF 18.37% USING PBDIT A S THE PERCENTAGE OF THE SALE. 35. THE ASSESSEE WORKED OUT THE MARGIN OF THE COMPARABLE COMPANIES AT THE RATE OF 10.55% USING PBDIT AS THE PERCENTAGE OF THE SALE. ACCORDINGLY, THE ASSESSEE CLAIMED THAT IT HAS CARRI ED OUT ITS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES AT ALP AND ACCORDINGLY ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 21 - SUBMITTED THAT THERE SHOULD NOT BE ANY ADJUSTMENT I N THE ALP DECLARED BY IT. 36. THE ASSESSEE HAS SELECTED 17 COMPANIES FOR C OMPARABLES. THE DETAILS OF SUCH COMPANIES ARE RECORDED ON PAGE 12 O F TPO ORDER. 37. HOWEVER, THE TPO WAS NOT SATISFIED WITH THE COMPARABLES SELECTED BY THE ASSESSEE AND THE PLI, I.E., PBDIT USED IN DE TERMINING THE ALP. ACCORDINGLY, THE AO PROPOSED TO SELECT CERTAIN COMP ANIES FOR THE COMPARABLES AND USE THE PLI BY OPERATING PROFIT/ OP ERATING COST. 38. THE ASSESSEE ALTERNATIVELY SUBMITTED THAT TH ERE WILL NOT BE ANY CHANGE EVEN THE PLI IS DETERMINED BY OPERATING PROF IT/ OPERATING COST. AS PER THE ASSESSEE, THE AVERAGE OP/OC WORKS OUT AT 8. 63% OF THE COMPARABLE COMPANIES WHEREAS ITS MARGIN WORKS OUT @ 10.35% OF OP/OC. 39. HOWEVER, THE TPO DISAGREED WITH THE SUBMISS ION OF THE ASSESSEE AND WORKED OUT THE AVERAGE PLI AFTER SELECTING 5 CO MPANIES. THE NECESSARY DETAILS OF THE COMPANIES SELECTED AND THE WORKING OF PLI OF SUCH COMPANIES STAND AS UNDER: SR. NO. COMPANY OPERATING REVENUES IN RS.CR. OPERATING COST RS.CR. OPERATING PROFIT IN RS.CR. OP/COST % 1. EMBIO LTD. 77.05 64.21 12.84 19.99689 2. HARMAN FINOCHEM LTD. 131.78 91.4 40.38 44.17943 ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 22 - 3. MALLADI DRUGS & PHARMACEUTICALS LTD. 192.53 166.8 25.73 15.42566 4. SHILPA MEDIARE LTD. 240.67 172.07 68.6 39.8675 5. TONIRA PHARMA LTD. [MERGED] 37.02 33.19 3.83 11.53962 AVERAGE 26.20% 40. IN VIEW OF ABOVE THE TPO MADE RS. 2,33,75,7 87/- ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT AS DETAILED UNDER : DESCRIPTION AMOUNT IN RS. OPERATING COST AS PER BOOKS (COMPUTED IN PARA 5.1 OF SHOW CAUSE NOTICE) 14,74,60,808.00 PROFIT AT ARMS LENGTH PRICE (ALP) @ 26.20% OF OPERATING COST 3,86,34,731.70 OPERATING REVENUE (AT ALP)(A) 18,60,95,539.70 OPERATING REVENUE (PRICE) RECEIVED AS PER BOOKS (COMPUTED IN PARA 5.1 OF SHOW CAUSE NOTICE) (B) 16,27,19,752.00 SHORTFALL BEING ADJUSTMENT U/S.92CA (C=A-B) 2,33,7 5,787.70 5% OF THE PRICE SHOWN IN THE BOOKS (I.E. INTERNATIONAL TRANSACTION IN COST AMOUNTING TO RS.17,06,08,079/- (SALE AND PURCHASES) 85,30,404/- ACCORDINGLY, THE AO ADDED THE SUM OF RS. 2,33,75,78 7.00 THE TOTAL INCOME OF THE ASSESSEE. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 23 - 41. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO T HE LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE C OMPARABLE COMPANIES HAVING TURNOVER WITHIN THE RANGE OF 50% OF ITS TURN OVER SHOULD HAVE BEEN TAKEN FOR DETERMINING THE ALP. THE ASSESSEE ALSO SU BMITTED THAT THE LD CIT-A SELECTED THE COMPARABLE COMPANIES IN THE RANG E OF 50% IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 20 06-07 AND 2007-08. 42. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE ALSO SUBMITTED THAT THERE IS A SINGLE COMPANY COMPARABLE TO ASSESSEE CO MPANY IN THE COMPANIES SELECTED BY THE TPO WHICH IS HAVING TURNO VER NEAREST TO THE ASSESSEE COMPANY, I.E. TONIRA PHARMA LTD. IF SUCH C OMPANY IS CONSIDERED AS COMPARABLE, THEN THE CASE OF THE ASSESSEE IS FAL LING WITHIN THE RANGE OF VARIATION OF 5%. THEREFORE THERE CANNOT BE ANY ADJU STMENT ON ACCOUNT OF THE TRANSFER PRICE. 43. THE ASSESSEE ALSO SUBMITTED THAT THE COMPARA BLE COMPANIES HAVING SUPERNORMAL PROFIT SHOULD BE EXCLUDED TO DETERMINE THE ALP. AS PER THE ASSESSEE, THE COMPANY NAMELY HERMAN FINOCHEM LTD AN D SHILPA MEDICARE LTD ARE HAVING SUPER PROFIT. THEREFORE THE SE CANNOT BE CONSIDERED FOR COMPARABLES. THE ASSESSEE ALSO CLAIM ED THAT IF REMAINING 3 COMPANIES ARE USED FOR COMPARISON, THEN THE CASE OF THE ASSESSEE IS FALLING WITHIN THE RANGE OF 5% OF THE VARIATION. AC CORDINGLY, THE ASSESSEE CLAIMED THAT THERE SHOULD NOT BE ANY ADJUSTMENT ON ACCOUNT OF TRANSFER PRICING. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 24 - 44. HOWEVER, THE LD. CIT(A) DISREGARDED THE CON TENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE TPO/ AO BY OBSERVING AS UNDER: 7.5. THE CONTENTIONS RAISED BY THE APPELLANT CAN BE SUMMARIZED AS BELOW: -IN THE EARLIER YEARS IN APPEAL, THE ADDITION IS DELETED. -THE COMPARABLES BE SELECTED WITHIN THE RANGE OF 50 PERCENT OF THE TURNOVER -THE COMPANIES WITH SUPER NORMAL PROFITS SHOULD B E EXCLUDED 7.6. AS EACH ASSESSMENT YEAR IS A SEPARATE ASSESSME NT YEAR AND THIS MAXIM APPLIES MORE TO THE TRANSFER PRICING BECAUSE OF DIF FERENCE IN FACTS AND COMPARABLES IN EACH OF THE YEARS, THE SUBMISSION MA DE IS NOT ACCEPTABLE. IN ANY CASE, THE EARLIER DECISIONS DO NOT HAVE PRECEDE NCE VALUE UNLESS THE FACTS ARE SAME. FURTHER, THESE DECISIONS ARE NOT BINDING. IT IS FURTHER NOTED THAT APPELLANT HAS NOT POINTED OUT ANY DIFFERENCES IN TH E FUNCTIONS, ASSETS OR THE RISK PROFILE OF THE COMPARABLES ADOPTED BY THE TPO, THIS HAS TO BE KEPT IN VIEW WHILE CONSIDERING THE DECISION IN RESPECT OF ALL TH E ABOVE CONTENTIONS RAISED BY THE APPELLANT. ] 7.7. WITH REFERENCE TO DIFFERENCE IN PROFIT RATES, THE ISSUE WAS ALSO RAISED BEFORE THE TRANSFER PRICING OFFICER AS DISCUSSED BY HIM IN PARA 6.7. AFTER CONSIDERING THE DISCUSSION MADE BY THE TRANSFER PRI CING OFFICER IN PARA 6.7 WHERE TPO HAS ALSO POINTED OUT VARIOUS JUDICIAL PRO NOUNCEMENTS, I AM OF THE CONSIDERED OPINION THAT UNDER INDIAN TRANSFER PRICI NG SYSTEM, WHAT IS REQUIRED TO BE SEEN IS THE REASONS FOR SUPERNORMAL PROFIT AND IF THERE ARE SOME SPECIFIC REASONS, FOR SUPERNORMAL PROFITS, THEN THE PROFIT RATIO OF SUCH COMPARABLE IS REQUIRED TO BE SUITABLY MODIFIED TO N ULLIFY THE EFFECT OF REASON RESULTING IN SUCH SUPERNORMAL PROFIT. FOLLOWING JU DICIAL PRONOUNCEMENTS IS ALSO IMPORTANT: TRILOGII E-BUSINESS SOFTWARE INDIA VS. DCLT (LTAT B ANGALORE) [140 ITD 540] : (DATE OF PRONOUNCEMENT) 23. 11.2012, AY 2007-08 TRANSFER PRICING: COMPARABLES CANNOT BE IGNORED ON GROUND OF ABNORMAL PROFITS/LOSSES IF THEY ARE FUNCTIONALLY CO MPARABLE THE ASSESSEE PROVIDED SOFTWARE RESEARCH & DEVELOPME NT SERVICES TO ITS' USA BASED AE AND WAS REMUNERATED ON A 'COST PLUS' B ASIS. THE ASSESSEE CLAIMED THAT APPLYING THE TNMM AND USING OPERATING PROFITS TO COST AS THE PROFIT LEVEL INDICATOR ('PLI'), ITS PLI OF 9.98 % WAS AT ARMS LENGTH. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 25 - THE TPO & DRP REJECTED THE>ASSESSEE'S CLAIM AND COM PUTED THE ALP AT 24.35% AND MADE AN ADJUSTMENT OF RS. 6.20 CRORES . THE TRIBUNAL HAD TO CONSIDER THE FOLLOWING ISSUES: (I) WHETHER JN SE LECTING A COMPARABLE, A TURNOVER FILTER HAS TO BE ADOPTED, (II) WHETHER C OMPANIES WITH ABNORMAL 'MARGINS CAN BE REGARDED AS COMPARABLE, (I II) WHETHER A FILTER CAN BE APPLIED TO DISTINGUISH BETWEEN COMPANIES EAR NING REVENUE FROM RENDERING 'ONSITE SERVICES' AS COMPARED TO THOSE RE NDERING 'OFFSHORE SERVICES' EVEN THOUGH THERE IS NO FUNCTIONAL DIFFER ENCE BETWEEN THE TWO ACTIVITIES & (IV) WHETHER THE TPO IS CONFINED TO IN FORMATION IN PUBLIC DOMAIN OR HE CAN COLLECT INFORMATION U/S 133(6). HE LD BY THE TRIBUNAL: . (II) U/S 92C & RULE 10B(2), THERE IS NO BAR TO CONS IDERING COMPANIES WITH EITHER ABNORMAL PROFITS OR ABNORMAL LOSSES AS COMPARABLE TO THE TESTED PARTY, AS LONG AS THEY ARE FUNCTIONALLY COMP ARABLE. THIS ISSUE DOES NOT ARISE IN THE OECD GUIDELINES AND THE US TP REGULATIONS BECAUSE THEY ADVOCATE THE QUARTILE METHOD FOR DETER MINING ALP UNDER WHICH COMPANIES THAT FALL IN THE EXTREME QUARTILES GET EXCLUDED AND ONLY THOSE THAT FALL IN'THE MIDDLE QUARTILES ARE RECKONE D FOR COMPARABILITY. CASES OF EITHER ABNORMAL PROFITS OR LOSSES (REFERRE D TO AS OUTLINERS) GET AUTOMATICALLY EXCLUDED. HOWEVER, INDIAN REGULATIONS SPECIFICALLY DEVIATE FROM OECD GUIDELINES AND PROVIDE ARITHMETIC MEAN METHOD FOR DETERMINING ALP. IN THE ARITHMETIC MEAN METHOD,, AL L COMPANIES THAT ARE IN THE SAMPLE ARE CONSIDERED, WITHOUT EXCEPTION AND THE AVERAGE OF ALL THE COMPANIES IS CONSIDERED AS THE ALP. HENCE, WHILE THE GENERAL RULE THAT COMPANIES WITH ABNORMAL PROFITS SHOULD BE EXCLUDED MAY BE IN TUNE WITH THE OECD GUIDELINES, IT IS NOT IN.TUNE WI TH INDIAN TP REGULATIONS. HOWEVER, IF THERE ARE SPECIFIC REASONS FOR ABNORMAL PROFITS OR LOSSES OR OTHER GENERAL REASON'S AS TO WHY THEY SHOULD NOT BE REGARDED AS COMPARABLES, IHEN THEY CAN BE EXCLUDED- FOR COMPARABILITY. IT IS FOR THE ASSESSEE TO DEMONSTRATE EXISTENCE OF ABNORMAL FACTORS. ON FACTS, AS THE ASSESSEE HAS NOT SHOWN ANY FACTORS FO R ABNORMAL PROFITS, NO COMPARABLE CAN BE EXCLUDED FOR THAT REASON (CONTRA VIEW IN QUARK SYSTEMS & SAP LABS NOTED); UNLESS SUCH SPECIFIC REASONS ARE SHOWN BY THE APPEL LANT, THERE IS NO REASON TO EXCLUDE ANY FUNCTIONALLY COMPARABLE COMPA NY FROM THE LIST OF COMPARABLES AND HENCE, CONSIDERING THE DISCUSSION M ADE BY THE TPO, ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 26 - AND IN THE LIGHT OF DISCUSSION ABOVE, THIS GROUND T AKEN BY THE APPELLATE IS REJECTED. 7.8. NOW THE ISSUES RELATED TO EXCLUSION OF COMPANI ES HAVING TURNOVER DIFFERENCE IS CONSIDERED. THE APPELLANT WANTS THAT ONLY COMPARABLES TURNOVER WITHIN THE RANGE OF 50 PERCENT TURNOVER SH OULD BE CONSIDERED. THERE IS NO REASON GIVEN FOR THIS. DOES A DIFFERENC E IN TURNOVER RESULT INTO HIGH PROFITS? IS IT NECESSARY SO IN THE INDUST RY OR IN THE MARKET IN WHICH THE APPELLANT IS WORKING? NO SUCH EXAMPLES AR E SHOWN BY THE APPELLANT. DOES A BIG SIZE RESULT INTO ONLY THE ECO NOMIES? IT IS NOW SAID THAT THERE ARE MORE DISECONOMIES RATHER THAN ECONOM IES RESULTING FROM A BIG SIZE. IT IS RIGHTLY SAID THAT ' SMALL IS;BEAU TIFUL'. 7.9. COMING TO THE JUDICIAL DECISIONS ON THE ISSUE, SOME OF THE JUDICIAL FINDINGS WITH THE CASE REFERENCES ARE AS BELOW: 7.V.J.TRILOGY E-BUSINESS SOFTWARE INDIA US. DCIT (I TAT BANGALORE) [140 ITD 540) NOVEMBER 23, 2012 (DATE OF PRONOUNCEMENT), AY :2007 -08. TRANSFER PRICING: TURNOVER FILTER IS AN IMPORTANT CRITERIA IN CHOOSIN G COMPARABLES (I) PARA 12: THE ICAI TP GUIDELINES NOTE ON THIS AS PECT LAY DOWN IN PARA 15.4 THAT A TRANSACTION ENTERED INTO BY A RS. 1,000 CRORE COMPANY CANNOT BE COMPARED WITH THE TRANSACTION ENTERED INT O BY A RS. 10 CRORE COMPANY. THE TWO MOST OBVIOUS REASONS ARE THE SIZE OF THE T WO COMPANIES AND THE RELATIVE ECONOMIES OF SCALE UNDER WHICH THEY OPERATE. THE FACT THAT THEY OPERATE IN THE SAME MAR KET MAY NOT MAKE THEM COMPARABLE ENTERPRISES. I 14. REFERENCE WAS MADE TO THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT . LTD. V. DCIT, ITA NO. 1231/BANG/2010, WHEREIN RELYING ON DUN AND BRAD STREET'S ANALYSIS, THE TURNOVER OF Q 1 CRORE TO Q 200 CRORES WAS HELD TO BE PROPER. THE FOLLOWING RELEVANT OBSERVATIONS WERE BROUGHT TO OUR NOTICE:- '9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS AND ALSO THE JUDICIAL PRECEDENTS ON THE ISSUE, WE FIND THAT ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 27 - THE TPO HIMSELF HAS REJECTED THE COMPANIES WHICH .I RE (SIC) MAKING LOSSES AS COMPARABLES. THIS SHOWS THAT THERE IS A L IMIT FOR THE LOWER END FOR IDENTIFYING THE COMPARABLES. IN SUCH A SITUATIO N, WE ARE UNABLE TO UNDERSTAND AS TO WHY THERE SHOULD NOT BE AN UPPER L IMIT ALSO. WHAT SHOULD BE UPPER LIMIT IS ANOTHER FACTOR TO BE CONSI DERED. WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSELFOR THE ASSESS EE THAT THE SIZE MATTERS IN BUSINESS. A BIG COMPANY WOULD BE IN A PO SITION TO BARGAIN THE PRICE AND ALSO ATTRACT MORE CUSTOMERS. IT WOULD ALSO HAVE A BROAD BASE OF SKILLED EMPLOYEES WHO ARE ABLE TO GIVE BETT ER OUTPUT. A SMALL COMPANY MAY NOT HAVE THESE BENEFITS AND THEREFORE, THE TURNOVER ALSO WOULD COME DOWN REDUCING PRO/IT MARGIN. THUS, AS HELD BY THE VARIOUS BENCHES OF THE TRIBUNA L, WHEN COMPANIES WHICH ARE LOSS MAKING ARE EXCLUDED FROM COMPARABLES , THEN THE SUPER PROFIT MAKING COMPANIES SHOULD ALSO BE EXCLUDED. FO R THE PURPOSE OF CLASSIFICATION OF COMPANIES ON THE BASIS OF NET SAL ES OR TURNOVER, WE FIND THAT A REASONABLE CLASSIFICATION HCIS TO BE MADE. D UN & BRADSTREET & BRADSTREET AND NASSCOM HAVE GIVEN DIFFERENT RANGES. TAKING THE INDIAN SCENARIO INTO CONSIDERATION, WE FEEL THAT TH E CLASSIFICATION MADE BY DUN & BRADSTREET IS MORE SUITABLE AND REASONABLE . IN VIEW OF THE SAME, WE HOLD THAT THE TURNOVER FILTER IS VERY IMPO RTANT AND THE COMPANIES HAVING A TURNOVER OF RS. 1.00 CRORE TO 20 0 CRORES HAVE TO BE TAKEN AS A PARTICULAR RANGE AND THE ASSESSEE BEING IN THAT RANGE HAVING TURNOVER OF 8.15 CRORES, THE COMPANIES WHICH ALSO H AVE TURNOVER OF 1.00 TO 200.00 CRORES ONLY SHOULD BE TAKEN INTO; CONSIDERATION FOR THE PURPOSE OF MAKING TP STUDY. ' (II) PARA 19: A READING OF THE PROVISIONS OF RUL E 10B(2) OF THE RULES SHOWS THAT UNCONTROLLED TRANSACTION HAS TO BE COMPA RED WITH INTERNATIONAL TRANSACTION HAVING REGARD TO THE FACT ORS SET OUT THEREIN. BEFORE US THERE IS NO DISPUTE THAT ,THE TNMM IS THE MOST APPROPRIATE METHOD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION. THE DISPUTES ARE ..WITH REGARD TO THE COMPARABILITY OF THE COMPARABLE RELIED UPON BY THE TPO. (III) IN THIS REGARD WE FIND THAT THE PROVISIONS OF LAW AS THE DECISIONS CLEARLY LAY DOWN THE PRINCIPLE THAT THE TURNOVER ; FILTER IS AN IMPORTANT CRITERIA IN CHOOSING THE COMPARABLES. THE ASSESSEE' S TURNOVER IS RS. 47,46,66,638. IT WOULD THEREFORE FALL WITHIN THE CA TEGORY OF COMPANIES ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 28 - IN THE RANGE OF TURNOVER BETWEEN 1 CRORE AND 200 CR ORES (AS LAID DOWN IN THE CASE OF GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD, V. DCIT, ITA NO.1231/BANQ/2010). THUS, COMPANIES HAVING TURN OVER OF MORE THAN 200 CRORES HAVE TO BE ELIMINATED FROM THE LIST OF COMPARABLES AS LAID DOWN IN SEVERAL DECISIONS REFERRED TO BY THE I D. COUNSEL FOR THE ASSESSEE. THUS THE RANGE OF TURNOVER OF ICRORE AND 200 CRORES WAS HELD JUSTIFIED FOR THE COMPANY . HAVING TURNOVER OF RS. 47.5 CRORE S. THUS EVEN A COMPANY HAVING 1/50 TIMES LESS TURNOVER WAS CONSIDE RED WITHIN THE ACCEPTABLE RANGE. FURTHER., IN ANOTHER CASE REFERRE D ABOVE GENESIS INTEGRATING SYSTEMS (INDIA) PVT. LTD. V. DCIT, ITA NO.L231/BANG/2010 THE TURNOVER RANGE UP TO 200 CROR E WHICH WAS 25 TIMES OF TURNOVER OF 8.15 CRORE WAS HELD TO BE JUST IFIED AS COMPARABLE. ; 7.9.2 [2015] 54 TAXMANN.COM 53 (DELHI - TRIB.) IN THE ITA J DELHI BENCH I' CALIBRATED HEALTHCARE SYSTEMS INDIA (P.) L TD. COMPANY WITH MARKED DIFFERENCES AS REGARDS RISK PRO FILE, NATURE OF SERVICES, OWNERSHIP OF IP RIGHTS, EXPENDITURE ON R& D ETC. CANNOT BE SELECTED AS COMPARABLE COMPANY IN THIS CASE, THE FACTORS RELATED TO THIS PROFILE, NATURE OF SERVICES ETC WERE CONSIDERED MORE IMPORTANT THAN THE TURNOVER DI FFERENCES. 7.9.3. SYMANTEE SOFTIVARE SOLUTIONS PVT LTD VS. AC IT (LTAT MUMBAI') JUNE 21, 2011 DATE OF PRONOUNCEMENT: 31/05/2011, AY. 2006-07 TRANSFER PRICING PRINCIPLES ON USE OF MULTI-YEAR DA TA, TURNOVER FILTER, RISK ADJUSTMENT & +/- 5% ADJUSTMENT THE ASSESSEE'S APPEAL RAISED THE ISSUES WHETHER (I) THE TPO COULD CONSIDER FINANCIAL INFORMATION OF COMPARABLES NOT A VAILABLE AT THE TIME OF TP STUDY, (II) MULTI-YEAR DATA OF COMPARABLES CO ULD BE CONSIDERED, (III) A TURNOVER FILTER HAD TO BE APPLIED FOR IDENT IFICATION OF COMPARABLE COMPANIES, (IV) AN ADJUSTMENT FOR DIFFERENCE IN FUN CTIONAL AND RISK PROFILE OF COMPARABLE COMPANIES VIS-A-VIS OF THE AS SESSEE HAD TO BE ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 29 - RNADE AND (V) THE AMENDMENT OF +/-5% VARIATION LAW WAS RETROSPECTIVE. HELD BY THE TRIBUNAL: (I) THE BURDEN OF PROVING THAT THE TRANSACTIONS WIT H THE AE IS AT ARMS' LENGTH IS ON THE ASSESSEE. IF THE TRANSACTIONAI NET MARGIN METHOD ('TNMM') IS ADOPTED, THE COMPARISON HAS TO BE MADE BETWEEN THE NET MARGIN REALISED FROM THE OPERATION OF THE UNCONTROL LED PARTIES' TRANSACTION AND NET MARGIN DERIVED BY THE ASSESSEE ON SIMILAR INTERNATIONAL TRANSACTIONS. THE COMPARISON SHOULD B E BETWEEN THE NET MARGINS ON TRANSACTION BASIS AND NOT AT ENTERPRISE LEVEL; (II) U/S 92CA(3), THE TPO IS ENTITLED TO CONSIDER M ATERIAL IN PUBLIC DOMAIN WHICH, THOUGH NOT AVAILABLE TO THE ASSESSEE AT THE TIME OF THE TP STUDY, IS RELEVANT FOR THE FINANCIAL YEAR; (III) ORDINARILY ONLY THE DATA PERTAINING TO THE FI NANCIAL YEAR OF THE TRANSACTION CAN BE CONSIDERED. THE PROVISO TO RULE 10B (4) WHICH PERMITS THE USE O F DATA RELATING TO OTHER THAN THE FINANCIAL YEAR IN WHICH THE INTERNAT IONAL TRANSACTION HAS BEEN ENTERED INTO; BEING NOT MORE THAN TWO YEARS PR IOR TO SUCH FINANCIAL YEAR DOES NOT MEAN THAT ONE CAN INSIST ON THE USE O F MULTI-YEAR DATA BUT IT HAS A LIMITED ROLE ONLY WHEN THE DATA OF EARLIER YEARS REVEAL FACTS WHICH COULD HAVE INFLUENCED ON DETERMINATION OF THE TP IN RELATION TO THE TRANSACTION BEING COMPARED. AS THE ASSESSEE HAS NOT MADE OUT A CASE THAT TAKING THE DATA FOR ONLY THE CURRENT FINA NCIAL YEAR WILL NOT PRESENT THE CORRECT AND FAIR FINANCIAL RESULT OF TH E COMPARABLES, THE CLAIM FOR MULTI-YEAR DATA CANNOT BE ENTERTAINED; (IV) WHILE IN PRINCIPLE, COMPARABLES HAVING AN ABNO RMAL DIFFERENCE OF TURNOVER AND DISTORTED OPERATING PROFITS HAVE TO BE EXCLUDED FOR DETERMINING THE ALP, THE CLAIM THAT AS THE ASSESSEE REVENUE IS ABOUT RS. 20 CRORES, COMPARABLES HAVING MORE THAN 50 CRORES A ND LESS THAN 5 CRORES OF TURNOVER SHOULD BE EXCLUDED IS NOT ACCEPT ABLE BECAUSE NO SPECIFIC FACT HAS BEEN BROUGHT ON RECORD TO SHOW TH AT DUE TO THE DIFFERENCE IN TURNOVER THE COMPARABLES BECOME NON-C OMPARABLES. IT IS ACCEPTED ECONOMIC PRINCIPLE AND COMMERCIAL PRACTICE THAT IN HIGHLY COMPETITIVE MARKET CONDITION, ONE CAN SURVIVE AND S USTAIN ONLY BY KEEPING LOW MARGIN BUT HIGH TURNOVER. THUS, HIGH TU RNOVER AND LOW MARGIN ARE NECESSITY OF THE HIGHLY COMPETITIVE MARK ET TO SURVIVE. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 30 - SIMILARLY, LOW TURNOVER DOES NOT NECESSARILY MEAN H IGH MARGIN IN COMPETITIVE MARKET CONDITION. THEREFORE, UNLESS AND UNTIL IT IS BROUGHT ON RECORD THAT THE TURNOVER OF SUCH COMPARABLES HAS UNDUE INFLUENCE ON THE MARGINS, IT IS NOT THE GENERAL RULE TO EXCLUDE THE SAME THAT TOO WHEN THE COMPARABLES ARE SELECTED BY THE ASSESSEE ITSELF ; (V) THE ARGUMENT THAT AN ADJUSTMENT SHOULD BE MADE FOR DIFFERENCE IN FUNCTION AND RISK LEVEL IS NOT ACCEPTABLE BECAUSE T HE ASSESSEE HAS NOT BROUGHT ON RECORD HOW SUCH FUNCTIONAL DIFFERENCE AN D RISK HAS INFLUENCED THE RESULT OF THE COMPARABLES WITH QUANT IFIED DATA. FURTHER, THE +1-5% ADJUSTMENT AS THE 2ND PROVISO TO S. 92C IS INTENDED TO ADJUST FOR SUCH DI FFERENCES; (VI) THE DEPARTMENT'S ARGUMENT THAT THE AMENDMENT B Y FA 2009 W.E.F. 1. 10.2009 TO THE 2ND PROVIO TO S. 92C WITH REGARD TO THE +/- 5% VARIATION FROM THEI ARITHMETIC MEAN OF THE ALP IS C LARIFICATORY AND PROCEDURAL AND SO RETROSPECTIVE IS NOT CORRECT. THUS IT WAS CLEARLY HELD IN THIS CASE THAT ASSESSEE WILL HAVE TO BRING SPECIFIC FACTS ON RECORD TO SHOW THAT DUE TO DIFFER ENCES IN THE TURNOVER, THE COMPARABLES BECOME NON-COMPARABLES. 7.10. THUS THE CONCLUSION DRAWN FROM THE ABOVE IS THAT IN GENERAL, DUE TO ONLY THE DIFFERENCE IN TURNOVER, A COMPARABLE CA NNOT BE REJECTED. IT HAS TO BE SEEN WHETHER DUE TO DIFFERENCE IN TURNOVE R, THERE IS CHANGE IN THE RISK PROFILE AND PROFITABILITY OF THE COMPANY. FURTHER, THE TURNOVER DIFFERENCES IS TO BE SEEN ON LOG SCALE. THAT IS A C OMPANY HAVING 10 TIMES TURNOVER OR 10 PERCENT OF THE TURNOVER CAN BE EASILY INCLUDED AMONG THE COMPARABLES WHILE A COMPANY WITH DIFFEREN CES MORE THAN HUNDRED TIMES TURNOVER OR LESS THAN ONE PERCENT TUR NOVER WILL HAVE TO BE EXCLUDED. 7.11. IN THE PRESENT CASE, IT IS SEEN THAT OPERAT ING REVENUE OF THE APPELLANT AS PER BOOKS IS 16.3 CRORES. THE COMPANIE S WHICH ARE CHOOSING FOR COMPARABILITY HAVE THE TURNOVER RANGE OF 37 CRORES TO 240CRORES. THUS THE HIGHEST TURNOVER COMPANY IS HAV ING TURNOVER OF ONLY 14.8 TIMES. IN FACT THE COMPANY HAVING A TURNO VER LOWER THAN THIS PARTICULAR COMPARABLE IS HAVING HIGHER PROFIT MARGI N. IN VIEW OF THIS, I DO NOT FIND ANY REASON TO REJECT ANY OF THE COMPARA BLE AND HENCE ADDITION MADE BY THE ASSESSING OFFICER/TRANSFER PRI CING OFFICER IS BEING ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 31 - CONFIRMED. FOR THE REASONS DISCUSSED ABOVE, I DO NO T FIND ANY LOGIC THAT ONLY TURNOVER RANGE OF 50 PERCENT SHOULD BE CONSIDE RED. THUS THE GROUNDS OF APPEAL RELATED TO TRANSFER PRICING ADJUS TMENT ARE DISMISSED. 45. BEING AGGRIEVED BY THE ORDER OF THE LD. CI T(A) ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR BEFORE US FILED A PAPE R BOOK RUNNING FROM THE PAGE OF 1 TO 284, AND ANNEXURE A TO F AND SUBMI TTED AS UNDER: AT THE OUTSET, THE ISSUE IS COVERED BY THE DECISIO N OF ITAT IN ASSESSEES OWN CASE FOR EARLIER YEARS AS FOLLOWS WH EREIN APPLICATION OF TURNOVER FILTER HAS BEEN UPHELD: - SCHUTZ DISHMAN BIOTECH P.LTD. VS. DCIT ITA 954/AH D/2012 ASST.YEAR 2007-08 (ANNEXUREB) - DCIT VS. SCHUTZ DISMAN BIOTECH PVT.LTD. ITA 2060/ AHD/09 AND OTHERS ASST.YEAR 2006-07 (ANNEXUREE); IN VIEW OF ORDERS OF EARLIER YEARS AS ABOVE, TURNO VER FILTER OUGHT TO HAVE BEEN APPLIED BY TPO. ACCORDINGLY, RA NGE OF 50% BASED ON ASSESSEES TURNOVER WILL BE RS.24,40,79,62 8/- ON THE HIGHER SIDE. HONBLE ITAT, IN ASSESSEES OWN CASE FOR AY 2007- 08, HAS APPROVED THE APPLICATION OF TURNOVER FILTE R IN THE RANGE OF +/- 50%. - ASSESSEE SUBMITTED EVEN BEFORE THE LEARNED CIT(A) T O FOLLOW HIS OWN ORDER FOR THE AY 06-07 AND 07-08 BUT HE CHOSE N OT TO FOLLOW THE SAME BY OBSERVING THAT EACH YEAR IS SEPA RATE. - HONBLE APEX COURT, IN THE CASE OF BHARAT SANCHAR NIGAM LTD. AND ANOTHER VS. UOI AND OTHERS 282 ITR 273 ( SC) (RELEVANT @ PG. 286, PARA 20, HAS HELD THAT WHERE FACTS AND LAW IN A SUBSEQUENT ASSESSMENT YEAR ARE THE SAME, N O AUTHORITY WHETHER QUASI-JUDICIAL OR JUDICIAL, CAN GENERALLY B E PERMITTED TO TAKE A DIFFERENT VIEW EXCEPT WHEN THE EARLIER DE CISION IS PER ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 32 - INCURIAM. IN THIS CASE, TURNOVER FILTER HAS RIGH TLY BEEN APPLIED BY HONBLE CIT(A) AND ITAT IN EARLIER YEARS . HENCE, IN VIEW OF THE RATIO LAID DOWN BY HONBLE APEX COUR T ORDERS OF EARLIER YEARS PASSED BY HONBLE ITAT MAY BE FOLLOWE D IN THE LARGER INTEREST OF JUSTICE. - IN FACT, IT IS WORTH APPRECIATING THAT CIT(A) HAS H IMSELF, FOLLOWING HONBLE ITATS ORDER FOR AY 06-07, ACCEPT ED APPLICATION OF TURNOVER FILTER WITHIN THE VERY SA ME RANGE, AS APPROVED BY HONBLE THE ITAT, FOR THE AY 2011-12 AN D 2013- 14. COPY OF SUCH ORDERS IS PLACED AT ANNEXUREC (C OLLY.). - TURNOVER OF NONE OF THE FIVE COMPARABLES SELECTED B Y TPO (PG.46 OF TPOS ORDER) FALLS WITHIN THE ABOVE STATE D RANGE. HENCE, ON THIS SHORT COUNT, ALL FIVE COMPARABLES SE LECTED BY TPO DESERVES TO BE EXCLUDED AND CONSEQUENTLY, ENTIR E TP ADJUSTMENT DESERVES TO BE DELETED. - AT BEST, EVEN IF THE TURNOVER RANGE IS SLIGHTLY REL AXED, THE ONLY COMPARABLE SELECTED BY TPO WHICH IS CLOSEST TO THE ABOVE STATED RANGE IS TONIRA PHARMA LTD. (PG. 46 OF TPO S ORDER) HAVING TURNOVER OF RS.37.02 CRORE. IT IS A SETTLED LAW THAT ONLY ONE COMPARABLE IS ALSO A GOOD COMPARABLE. ACCORDIN GLY, EVEN IF ALP IS DETERMINED TAKING THAT COMPANY AS A BASE, THEN ALSO THE SHORTFALL WOULD BE WITHIN THE RANGE OF 5% (PG.2 27 OF P/B), AS AVAILABLE TO THE ASSESSEE AS PER THE PROVISO TO S.92C(2). HENCE, EVEN ON THAT SCORE, NO TP ADJUSTMENT IS WARR ANGED. HENCE, IMPUGNED ADDITION DESERVES TO BE DELETED. - SECONDLY, SUPER-NORMAL PROFIT MAKING COMPANIES ARE ALSO REQUIRED TO BE EXCLUDED FROM THE COMPARISON AS THE SAME WOULD GIVE DISTORTED PICTURE OF ALP COMPARISON. RELIANCE IS PLACED ON: - PCIT VS. BARCLAYS TECHNOLOGY CENTRE INDIA (P.) LTD. (23018) 95 TAXMANN.COM 170 (BOM) (ANNEXURE F). - GOOGLE INDIA (P.) LTD. VS. DCIT 55 SOT 489 (BANG) (ANNEXURE D). ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 33 - 46. ON THE OTHER HAND, THE LD. DR RELIED ON T HE ORDER OF THE AUTHORITIES BELOW. 47. WE HAVE HEARD THE RIVAL CONTENTIONS AND PER USED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ISSUE RELATES TO THE SELECTION OF COMPANIES SELECTED BY THE TPO FOR COMPARABLES. T HE ASSESSEE CLAIMS THAT THE COMPARABLE COMPANIES HAVING TURNOVER WITHI N THE RANGE OF 50% OF THE ASSESSEE COMPANY SHOULD BE SELECTED FOR COMP ARABLES TO DETERMINE THE ALP. IN THIS REGARD, WE FIND THAT THE HONBLE I TAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 954/AHD/2012 FOR AY 2007-08 VIDE ORDER DATED 05.06.2018 HAS UPHELD THE SELECTION OF COMPANIES WI THIN THE RANGE OF 50% OF THE TURNOVER OF THE ASSESSEE COMPANY. THE RE LEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 8. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD. AS OBSERVED EARLIER, THE REVENUE AND THE ASSESSEE H AVE NOT DISPUTED SELECTION OF APPROPRIATE METHOD I.E. TNMM; SELECTION OF TEST ED PARTY I.E. ASSESSEE; SELECTION OF PROFIT LEVEL INDICATOR I.E. OPERATIVE PROFIT/OPERATIVE COST. THEY ARE ONLY DISPUTING ON SELECTION OF COMPARABLES. THE AS SESSEE HAS SELECTED FOUR COMPARABLES VIZ. ADVIK LABORATORIES LTD., GUJARAT TERCE LABORATORIES LTD., ZYDEN GENTC LD., AND WELCURE DRUG & PHARMACEUTICALS LTD. ALL THESE COMPARABLES WERE NOT ACCEPTED BY THE TPO BECAUSE AC CORDING TO HIM, THEY WERE NOT ENGAGED IN MANUFACTURING BULK DRUG, RATHER THEY ARE MANUFACTURING FORMULATIONS I.E. TABLETS, CAPSULES, SYRUPS ETC. T HUS, THE LD.TPO SELECTED COMPARABLES WHICH WERE ENGAGED IN MANUFACTURING OF BULK DRUGS. THE COMPARABLES SELECTED BY THE TPO AND WORKING OF THEI R PLI READS AS UNDER: NAME OF COMPANY ECONOMIC ACTIVITY SALES CR. EXPORT CR. EXPORT % OF THE TOTAL SALES ADVIK LABORATORIES LTD. DRUG FORMULATIONS 9.74 0.0 0% ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 34 - GUJARAT TERCE LABORATORIES LTD. DRUG FORMULATIONS 11.22 0.04 0.36% ZYDEN GENTEC LTD. DRUG FORMULATIONS 7.12 1.2 16.85% WELCURE DRUG & PHARMACEUTICAL LTD. DRUG FORMULATIONS 18.79 0.07 0.37% 9. ON THE BASIS OF ABOVE PLI, THE LD.TPO HAS WORKED OUT ADJUSTMENT REQUIRED TO BE MADE IN THE VALUE OF INTERNATIONAL T RANSACTIONS ENTERED BY THE ASSESSEE WITH ITS AE. THE FIRST QUESTION FOR OUR D ETERMINATION IS WHETHER TURNOVER FILTER IS TO BE APPLIED OR NOT. ACCORDING TO THE LD.DR, THIS FILTER OUGHT NOT TO BE APPLIED. SHE MADE REFERENCE TO THE DECIS ION OF ITAT, MUMBAI. HOWEVER, WE ARE OF THE VIEW THAT IN LARGE NUMBER OF DECISIONS, IT HAS BEEN HELD THAT TURNOVER FILTER IS ONE OF THE ESSENTIAL FILTER IN ORDER TO SELECT COMPARABLES WHEN ACTED IN SAME ATMOSPHERE. IT IS PERTINENT TO OBSERVE THAT WHILE CONDUCTING TRANSFER PRICE ANALYSIS AN EFFORT IS BEI NG MADE TO COMPARE RELATED PARTY TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH THE UNCONTROLLED TRANSACTIONS UNDERTAKEN BY THE COMPARABLE, AND THUS ARRIVE AT A CONCLUSION AS TO WHETHER TRANSACTION BENCH MARK IS AT ARMS LENGT H OR NOT. FOR EXAMPLE, A CHOSEN COMPANY, THOUGH FUNCTIONALLY COMPARABLE HAS ENTERED INTERNATIONAL TRANSACTIONS BEYOND A PERCENTAGE WITH RELATED PARTI ES, IT IS QUITE POSSIBLE THAT ITS OVERALL PROFIT MAY HAVE DISTORTED DUE TO SUCH T RANSACTION RENDERING IT AS UN- COMPARABLE. THERE ARE SO MANY OTHER CIRCUMSTANCES WHICH ARE REQUIRED TO BE EXAMINED UNDER FAR ANALYSIS, AND DUE TO THIS, ADJUD ICATOR IS REQUIRED TO APPLY APPROPRIATE FILTER IN ORDER TO WORK OUT COMPARABLES WHICH HAVE NOT UNDER ANY INFLUENCE OF THE RELATED PARTY TRANSACTIONS. HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PENTAIR WATER INDIA (P.) LTD., 381 ITR 216 CONCLUDED THAT TURNOVER IS OBVIOUSLY A RELEVANT FACTOR TO BE CONSI DERED FOR COMPARABILITY. HONBLE HIGH COURT HAS RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AGNITY INDIA TECHNOLOGIES (P .) LTD., (2013) 36 TAXMANN.COM 289. THUS, THERE ARE CONFLICTING DECI SIONS IN FAVOUR OR AGAINST THE APPLICATION OF TURNOVER FILTER. HOWEVER, THE L D.REVENUE AUTHORITIES HAVE NOT BROUGHT TO OUR NOTICE OF ANY JUDGMENT OF THE HO NBLE JURISDICTIONAL HIGH COURT WHICH PROHIBITS APPLICATION OF TURNOVER FILTE R. THEREFORE, WE ARE OF THE VIEW THAT THE LD.CIT(A) HAS RIGHTLY MADE AN ANALYSI S THAT SMALLER COMPANIES HAVING TURNOVER OF RS.3 CRORES COULD NOT BE CONSIDE RED AS COMPARABLE WITH THE ASSESSEE WHO HAS TURNOVER OF RS.15.84 CRORES. SIMI LARLY, THE COMPANY WHO HAS TURNOVER OF MORE THAN RS.30 CRORES COULD NOT BE COM PARED WITH THE ASSESSEE. THUS, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A) ON THIS ASPECT, AND IF WE UPHOLD THE TURNOVER FILTER THEN THE GROUND OF APPEAL RAISED BY THE ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 35 - REVENUE IS REQUIRED TO BE REJECTED. ACCORDINGLY, W E REJECT THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 10. SO FAR AS ADJUSTMENTS CONFIRMED BY THE LD.CIT(A ) IS CONCERNED, WE FIND THAT THE ASSESSEE HAS DEMONSTRATED THAT WELCURE DRU G & PHARMACEUTICALS LTD. WAS ENGAGED IN THE MANUFACTURING OF BULK DRUGS. HE NCE, IT WAS A COMPARABLE. IT HAS BEEN EXCLUDED BY THE TPO AS WELL AS NO REASO N HAS BEEN ASSIGNED BY THE LD.CIT(A) IN THE IMPUGNED ORDER. WORKING MADE BY T HE LD.COUNSEL FOR THE ASSESSEE IN THE SYNOPSIS READS AS UNDER: PARTICULARS GENNEX WELCURE TOTAL SALES 10.98 18.79 29.77 OPERATING COST 9.70 21.21 30.91 OPERATING PROFIT 1.28 -2.42 -1.14 OP/OC (%) 13.20 - 11.41 - 3.69 11. SALES OF WELCURE DRUG & PHARMACEUTICALS LTD. AR E LESS THAN THE TURNOVER FILTER OF RS.23 CRORES. THUS, IT FALLS IN THE CRITERIA OF CONSIDERATION AND OUGHT TO BE INCLUDED IN THE LIST OF COMPARABLE. ONCE IT IS INCLUDED IN THE LIST OF COMPARABLE, THEN THE PROFIT LEVEL INDICATOR WOULD BE (-) 3.69% AND NO ADJUSTMENT WOULD BE REQUIRED IN THE VALUE OF INTERN ATIONAL TRANSACTION AS PER SECTION 92(3) OF THE ACT, BECAUSE IT WILL GO TO RED UCE THE VALUE OF THE INTERNATIONAL TRANSACTION AS DECLARED BY THE ASSESS EE. CONSIDERING THIS ASPECT, WE ALLOW APPEAL OF THE ASSESSEE AND DELETE ADJUSTME NT MADE IN THE VALUE OF INTERNATIONAL TRANSACTIONS. 48. WE ALSO NOTE THAT THE LD. CIT(A) IN THE OW N CASE OF THE ASSESSEE PERTAINING TO THE ASSESSMENT YEAR 2011-12 AND 2013- 14 AFTER HAVING A RELIANCE ON THE ORDER OF THIS TRIBUNAL IN THE OWN C ASE OF THE ASSESSEE ( SUPRA) DELETED THE ADDITION MADE BY THE TPO. THE ORDERS O F THE LD. CIT(A) ARE PLACED ON RECORD IN ANNEXURE C. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 36 - 49. THE LD. DR BEFORE US HAS NOT BROUGHT ANYTHI NG ON RECORDS SUGGESTING THAT THE REVENUE HAS PREFERRED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A). 50. BECAUSE OF THE ABOVE, WE DO NOT WANT TO DEV IATE FROM THE FINDING OF THE HONBLE ITAT IN THE OWN CASE OF THE ASSESSEE AS DISCUSSED ABOVE. THEREFORE WE DIRECT THE AO/ TPO TO SELECT COMPARABL E COMPANIES HAVING THE NEAREST TURNOVER TO THE ASSESSEE COMPANY. IN TH E INSTANT CASE, WE NOTE THAT THERE IS A SINGLE COMPANY AS DISCUSSED ABOVE H AVING THE NEAREST TURNOVER TO THE ASSESSEE COMPANY. THEREFORE WE DIRE CT THE AO/TPO TO SELECT THAT COMPANY AND MAKE SUITABLE ADJUSTMENTS W ITHIN THE PROVISIONS OF LAW. 51. FROM THE ABOVE, WE NOTE THAT THE ASSESSEE SUCCEEDS IN ITS APPEAL BY TURNOVER CRITERIA AS DIRECTED ABOVE FOR THE SELE CTION OF COMPARABLE COMPANIES. THEREFORE WE REFRAIN OURSELVES FROM ADJU DICATING THE ISSUE OF SUPER PROFIT AS INDICATED BY THE ASSESSEE. THUS THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ALLOWED. 52. THE NEXT ISSUE RAISED BY THE ASSESSEE IN THIS A PPEAL IS THAT LD.CIT(A) ERRED IN NOT ALLOWING DEDUCTION OF RS.19, 02,690/- U/S.10B OF THE ACT ON ACCOUNT OF FOREIGN EXCHANGE GAIN. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 37 - 53. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S SHOWN AN INCOME OF RS.13,60,598/- ON ACCOUNT OF FLUCTUATION IN FORE IGN EXCHANGE. THE ASSESSEE IN RESPECT OF SUCH INCOME CLAIMED THE DEDU CTION U/S 10B OF THE ACT. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIE W THAT THE INCOME REPRESENTED BY FOREIGN CURRENCY FLUCTUATION IS NOT ARISING FROM THE EXPORT ACTIVITY AS AMENDED U/S.10B OF THE ACT. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE DEDUCTION U/S 10B OF THE ACT IN RESP ECT OF SUCH INCOME OF RS.13,60598/- ONLY AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 54. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO T HE LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT THE I NCOME ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION WAS DIRECTLY LINKED WI TH THE EXPORT BUSINESS OF THE ASSESSEE. THEREFORE, THE SAME SHOULD BE ALLO WED AS DEDUCTION U/S.10B OF THE ACT. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBS ERVING AS UNDER:- 8.3. THE SUBMISSIONS ARE CONSIDERED. IT IS SEEN TH AT ON SALE OF GOODS THE INVOICES ARE RAISED IN FOREIGN CURRENCY AND THE SAME IS ACCOUNTED IN THE INDIAN CURRENCY BY TAKING INTO ACCOUNT THE EXCH ANGE RATE PREVAILING ON THE DATE OF SALE. HOWEVER ON THE DATE OF REALISA TION OF MONEY EVEN THOUGH IN FOREIGN CURRENCY, THE AMOUNT REMAINS SAME , IN THE INDIAN CURRENCY IT IS CHANGED DUE TO VARIATION IN THE RATE OF FOREIGN CURRENCY. THUS THERE IS CONSIDERABLE TIME GAP BETWEEN THE ACC OUNTING OF FOREIGN CURRENCY VARIATION/FLUCTUATION AND THE ACTUAL SALE OF GOODS. THE SOURCE OF FOREIGN CURRENCY VARIATION LIES IN THE GAIN/LOSS HAPPENING DUE TO EXCHANGE RATE FLUCTUATION IN THE INTERNATIONAL MARK ET. THIS HAS GOT NOTHING TO DO WITH THE ACTUAL SALE. IN FACT, IF THE AMOUNT IS LEFT IN THE ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 38 - FOREIGN CURRENCY ACCOUNT, THERE WILL BE VARIATION I N THE INDIAN CURRENCY IF DATE OF REALISATION AND THE DATE OF WITHDRAWAL F ROM FOREIGN CURRENCY ACCOUNT ARE DIFFERENT. NOW CAN THIS PARTICULAR EXCH ANGE VARIATION BE ALSO TERMED AS RELATED TO EXPORT OF GOODS? THE ANSW ER IS NO. THIS ASPECT WAS NOT CONSIDERED IN ITAT CASE RELIED UPON AND SO DUE TO DIFFERENCE IN FACTS , IT CANNOT BE FOLLOWED. THE CASE OF PRIYANK A GEMS [367 ITR 575 (GUJ)] DEALT WITH ISSUE OF EXCLUSION IN CLAUSE (BA A) TO EXPLANATION OF SEC. 80HHC, AND THAT HAS GOT NOTHING TO DO WITH PRO VISION OF SEC.10B AND SO, THAT ARGUMENT IS REJECTED. 8.4. THE AMOUNT WHICH IS ALLOWABLE TO AN ASSESSEE A S A DEDUCTION UNDER S. 10B IS PROFITS AND GAINS DERIVED BY THE ASSESSEE FROM 100 PER CENT EOU. THUS, THE AMOUNT WHICH QUALIFIES FOR DEDUCTION SHOULD BE PROFITS AND GAINS DIRECTLY ARISING FROM THE ACTIVITY OF CON DUCTING THE BUSINESS OF THE EOU. THE INCOME WHICH ACCRUES TO AN ASSESSEE FR OM AN ACTIVITY WHICH IS NOT DIRECTLY FROM THE CONDUCT OF BUSINESS OF THE EOU MAY BE AN INCOME INCIDENTAL TO THE BUSINESS OF EOU BUT THE SA ME CANNOT BE HELD TO BE AN INCOME DERIVED FROM THE EOU. IN THE INSTAN T CASE, THE ASSESSEE HAS DERIVED THE INCOME IN QUESTION BECAUSE OF HIS M AKING AN INVESTMENT IN EEFC ACCOUNT. TO MAKE A DEPOSIT IN EEFC ACCOUNT IS NOT AN ACTIVITY OF ACTUAL CONDUCT OF THE BUSINESS OF THE EOU. IT IS A STEP REMOVED FROM THE ACTUAL CONDUCT OF THE BUSINESS OF THE EOU. HENC E, THE SAID INCOME CANNOT BE HELD TO BE A PROFIT ACTUALLY DERIVED FROM EOU AS THE SAME IS DUE TO THE VARIATION IN VALUE OF FOREIGN CURRENCY A ND NOT THE VALUE OF GOODS EXPORTED. THE VIEW IS SUPPORTED BY THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT (2003) 183 CTR (SC) 99 : (2003) 262 ITR 278 (SC) AND LIBER TY INDIA VS. CIT [2009] 317 ITR 218. THEREFORE, IT IS HELD THAT EXCH ANGE FLUCTUATION GAIN IS NOT AN INCOME DERIVED FROM THE QUALIFIED ACTIVIT Y GIVEN IN SECTION 10B AND SO THE ACTION OF ASSESSING OFFICER IN NOT ALLOW ING DEDUCTION UNDER SECTION 10B BASED ON THE REASONS GIVEN BY HIM IN PA RA 9 OF THE ASSESSMENT ORDER (WHICH ARE NOT REPEATED HERE) ARE UPHELD. 8.5. HOWEVER, SO FAR AS THE COMPUTATION OF DISALLOW ANCE OF DEDUCTION UNDER SECTION 10B IS CONCERNED, THE ASSESSING OFFIC ER SHOULD VERIFY WHETHER THE EXPORT TURNOVER INCLUDES EXCHANGE RATE FLUCTUATION GAIN OR NOT AND IF IT IS FOUND THAT THE SAME IS NOT INCLUDE D HERE THEN THE ASSESSING OFFICER SHOULD RECOMPUTE THE DISALLOWANCE MADE ON ACCOUNT OF DISALLOWING DEDUCTION UNDER SECTION 10B ON EXCHA NGE RATE ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 39 - FLUCTUATION GAIN, THE GROUND OF APPEAL NUMBER 15 IS THUS PARTLY ALLOWED. 8.6. AS FAR AS GROUND NUMBER 16 RELATED TO DEDUCTIO N UNDER SECTION 10 B ON REVISED GROSS TOTAL INCOME IS CONCERNED, IT IS SEEN THAT APPELLANT HAS NOT POINTED OUT THE ADDITIONS MADE IN THE ASSES SMENT ORDER AND THEIR RELATIONSHIP TO THE BUSINESS OF EXPORT UNDERT AKING. IN THE ABSENCE OF SUCH DETAILS THE GROUND-RAISED BY THE APPELLANT IN GROUND NUMBER 16 IS DISMISSED. 55. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 56. THE LD.AR SUBMITTED THAT THE ASSESSING OFFICER DENIED DEDUCTION U/S 10B ON FOREIGN EXCHANGE FLUCTUATION GAIN ARISIN G ON ACCOUNT OF RATE DIFFERENCE AND SUCH ACTION WAS CONFIRMED BY CIT(A). HE FURTHER SUBMITTED THAT ASSESSING OFFICER AND CIT(A) FAILED TO APPRECIATE THAT EXCHANGE RATE FLUCTUATION WAS DIRECTLY RELATED TO E XPORTS AND HENCE, ANY GAIN ARISING ON ACCOUNT OF FLUCTUATIONS IN FOREIGN EXCHANGE RATES FORMS PART OF INCOME DERIVED FROM THE ELIGIBLE UNDERTAKIN G. ACCORDINGLY, SUCH GAIN IS ELIGIBLE FOR DEDUCTION U/S.10B. RELIANCE I S PLACED ON FOLLOWINGS: 1. DCIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS ITA NO.692/AHD/2011 & OTHERS. 2. CIT VS. PRIYANKA GEMS TAX APPEAL NO.1468 OF 20 06 AND OTHERS. 3. CIT VS. ALPS CHEMICALS LTD. TAX APPEAL NO.6 77 OF 2007. 4. ITO VS. BANYAN CHEMICALS P.LTD. 117 ITD 376 (A HD)(TM). 56.1. THE LD.AR SUBMITTED THAT ACCORDINGLY, THE DEDUCTION U/10B SHOULD BE ALLOWED ON FOREIGN EXCHANGE GAIN. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 40 - 57. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF TH E AUTHORITIES BELOW. 58. WE HAVE HEARD THE LD. REPRESENTATIVES APPEARING FOR THE RESPECTIVE PARTIES. WE HAVE PERUSED THE RELEVANT M ATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT THE HONBLE AH MEDABAD TRIBUNAL IN THE IDENTICAL FACTS AND CIRCUMSTANCES HAS DECIDED T HE ISSUE IN FAVOR OF ASSESSEE IN THE CASE OF ITO VS. BANYAN CHEMICALS P. LTD. 117 ITD 376 (AHD)(TM). THE RELEVANT EXTRACT OF THE ORDER IS RE PRODUCED HEREUNDER: 18. ON A PERUSAL OF THIS CHART, WE FIND THAT THE RECEI PT OF RS. 15,51,239 INCLUDES RS. 15,31,518 AS THE GAIN ON THE SALES REA LIZATION IN US DOLLAR ON THE DATE OF ITS RECEIPT AND DEPOSIT IN EEFC ACCOUNT AND BALANCE RS. 19,721 IS WITH REGARD TO EXCHANGE GAIN ON IMPORT PAYMENT. THE REFORE, THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION UNDER SECTION 10 B WITH REGARD TO EXCHANGE GAIN OF RS. 15,31,518 ONLY WHICH IS THE GAIN ON THE DAY OF DEPOSIT OF US$ IN THE EEFC ACCOUNT. IN MY OPINION, THEREFORE, THE ASS ESSEE SHOULD BE GRANTED DEDUCTION UNDER SECTION 10B OF THE ACT WITH REGARD TO EXCHANGE GAIN OF RS. 15,31,518. I HOLD ACCORDINGLY. 59. SINCE THE FACTS ARE IDENTICAL TO THE FACTS OF T HE CASE REPORTED IN 117 ITD 376 IN THE CASE OF BANYAN CHEMICALS P.LTD.(SUPR A), THE GROUND OF THE ASSESSEES APPEAL IS ALLOWED. 60. THE LAST ISSUE RAISED BY THE ASSESSEE IN GROUND NO.18 IS THAT THE LD. CIT(A) ERRED IN NOT GRANTING DEDUCTION U/S.10B OF THE ACT ON THE REVISED GROSS TOTAL INCOME. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 41 - 61. AT THE OUTSET, WE NOTE THAT IT IS A SETTLED LAW THAT WHATEVER DISALLOWANCES WILL BE MADE IN RESPECT OF THEIR UNIT /UNDERTAKING/COMPANY ELIGIBLE FOR DEDUCTION U/S.10B OF THE ACT, THEN THE DEDUCTION WILL BE CLAIMED BY THE ASSESSEE WILL BE ENHANCED BY THE AMO UNT OF THE DISALLOWANCES. IN THIS REGARD, WE FIND RELEVANT TO REFER THE NECESSARY PORTION OF CIRCULAR NO.37 OF 2016 ISSUED BY CBDT DA TED 02.11.2016 WHICH IS REPRODUCED BELOW:- 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED TH E SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A )(IA), 40A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, R ELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION H AS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF THE ELIGIBL E BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE P ROFITS SO ENHANCED BY THE DISALLOWANCE. 61.1. IN VIEW OF THE ABOVE CIRCULAR, WE HOLD THAT T HE DEDUCTION U/S.10B OF THE ACT WILL BE ENHANCED BY THE DISALLOWANCES MA DE BY THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS. THUS, WE DIR ECT ACCORDINGLY. HENCE, THE GROUND OF APPEAL IS ALLOWED. COMING TO REVENUES APPEAL IN ITA NO.1909/AHD/2015 62. THE ONLY ISSUE RAISED BY THE REVENUE IS THAT TH E LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFI CER FOR RS. 2,20,10,405/- U/S.69 OF THE ACT. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 42 - 63. AT THE OUTSET, WE NOTE THAT THE REVENUE RAISED THE IDENTICAL ISSUE IN THE OWN CASE OF THE ASSESSEE IN ITA NO.525/AHD/2015 PERTAINING TO THE AY 2009-10 WHICH HAS BEEN DECIDED BY THIS TRIBUNAL IN FAVOR OF THE ASSESSEE AND AGAINST THE REVENUE. THE RELEVANT EXT RACT OF THE ORDER IS REPRODUCED BELOW: 8. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE NO TE THAT THE IDENTICAL ISSUE WAS DECIDED BY THIS TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITA 1229/AHD/2012 FOR THE AY 2007-08 VI DE ORDER DATED 5 TH JUNE 2018. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: 13. BRIEF FACTS IN THIS REGARD ARE THAT THE ID.AO NOTICED THAT THERE WAS A VARIATION IN ACTUAL CONSUMPTION OF RAW- MATERIAL AND STANDARD CONSUMPTION OF MATERIAL. TO THE SHOW CAUSE , ASSESS,-E EXPLAINED REASONS FOR THE VARIATIONS IN THE CONSUMP TION OF THE RAW MATERIAL AS ALSO EXTENT OF AND HOW THE VARIATIO NS ARISEN. HOWEVER, THE LD. AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND BUSING HIS EARLIER ORDER FOR THE ASSES SMENT YEAR 2002-03 TO 2006-07, AN ADDITION OF RS.62,63.591/- O N ACCOUNT OF ITEMS CONSUMED LESS THAN THE STANDARD NORMS AND FUR THER ADDITION OF RS. 1,43,79,263/- ON ACCOUNT OF ITEMS C ONSUMED MORE THAN THE STANDARD NORMS WERE MADE. THESE TWO ADDITI ONS WERE CHALLENGED BEFORE THE LD. FIRST APPELLATE AUTHORITY , WHO FOLLOIWNG HIS ORDER OF THE ASSESSMENT YEAR 2006-07 WHILE FOLLOWING THE ORDER IF THE TRIBUNAL IN THE CASE OF ASSESSEE FOR THE ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05 DELET ED THE IMPUGNED ADDITIONS. 14. AT THE OUTSET. LD. COUNSEL FOR THE ASSESSEE HA S PLACED ON RECORD COPY OF THE ORDER OF THE TRIBUNAL PASSED IN THE ASSESSMENT ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 43 - YEAR 2005-06 AN 2006-07 IN ITA NO.2060/AHD/2009 AND 3L41/AHD/2011 WHEREIN SIMILAR ADDITION HAS BEEN DEL ETED. THE LD. FIRST APPELLATE AUTHORITY HAS FOLLOWED THE ORDE R OF THE TRIBUNAL PASSED IN THE ASSESSMENT YEARS 2002-03, 20 03-04 AND 2004-05. THE RELEVANT OBSERVATION OF THE LD.CIT(A) READS AS UNDER: '4.3 DECISION: I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND T HE SUBMISSIONS GIVEN BY THE APPELLANT. THE ADDITION WA S MADE BY THE A. O. BY FOLLOWING THE ORDER OF THE A.O. FOR A. Y. 2002-03. THE SIMILAR ADDITION WAS ALSO MADE BY THE A.O. FOR A. Y. 2006-07 WHILE DECIDING OF THE APPELLANT FOR THAT YEAR. THE ADDITION HAVE BEEN DELETED BY ME BY FOLLOWING THE ORDER OF THE IT AT, AHMEDABAD IN THE CASE OF THE APPELLANT FOR A. YS. 2 002-03, 2003- 04 & 2004-05. ACCORDINGLY, THE ADDITION MADE BY THE A. O. IN THIS YEAR IS ALSO DIRECTED TO BE DELETED. THEREFORE , THE ADDITIONS OF RS.1,43,79,263/- ON ACCOUNT OF INFLATION OF PURC HASE OF RAW MATERIALS AND RS.62,63,591/- U/S. 69 OF THE ACT IS DIRECTED TO BE DELETED. THE GROUNDS OF APPEAL ARE ACCORDINGL Y ALLOWED.' 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE THROUGH THE RECORD. WE FIND DIAL THE TRIBUNAL HAS DISCUSSED THIS ISSUE FROM PARA 4 TO 4.1 IN THE ASSESSMENT YEAR 2005-06 A ND IN PARA 9 IN ASSESSMENT YEAR 2006-07. BASICALLY, THE TRIBUNAL HAS FOLLOWED ORDER PASSED IN THE ASSESSMENT YEAR 2003-04 AND 200 5-06 ON THIS ISSUE AND CONFIRMED THE ORDER OF THE LD.CIT(A) . CONSIDERING THE SIMILARITY OF THE ISSUE, WE DO NOT FIND ANY ERR OR IN THE ORDER OF THE LD.CIT(A). THIS GROUND OF APPEAL OF THE REVE NUE IS REJECTED. 8.1 WE FURTHER FIND THAT THE HONBLE GUJARAT HIGH C OURT IN THE CASE OF THE ASSESSEE HAS ALSO DECIDED THE ISSUE IN ITS FAVOR IN TAX APPEAL NO.1182 OF 2008 PERTAINING TO THE A.Y. 2002- 03 VIDE ORDER DATED 12.08.2016. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW: ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 44 - 7. WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES. IN VIEW OF THE OBSERVATIONS MADE BY THE TRIBUNAL, WE ARE OF TH E OPINION, THAT THE ASSESSEE WAS MANUFACTURING PHARMACEUTICAL, MEDICINES, WHICH ARE BEING EXPORTED. THE ASSESSEE WAS MAINTAINING THE NORMS WHICH ARE PRESCRIBED BY THE GOVERNMENT OF INDIA FOR A PARTICULAR PHARMACEUTICAL MEDICINE WHICH IS TO BE E XPORTED. SINCE THERE WAS A VARIATION IN THE RATIO, THE ASSES SING OFFICER MADE ADDITION BASED ON THE STATEMENT OF THE GENERAL MANAGER, IN-CHARGE PRODUCTION. IN OUR VIEW, THE ASSESSING OF FICER HAS BASED HIS ADDITION ON THE BASIS OF THE DOCUMENTS WH ICH ARE NOT AVAILABLE ON THE RECORD AND BASED ON THE STATEMENT OF THE GENERAL MANAGER, IN-CHARGE PRODUCTION. WHETHER THE ASSESSEE HAS FOLLOWED THE PRESCRIBED NORMS IS NOT WITHIN THE PURVIEW OF THE INCOME-TAX AUTHORITY, IN OUR VIEW, THE TRIBUNAL HAS RIGHTLY HELD THAT THE CIT(A) WAS WRONG IN RELYING ON THE IN PUT OUT CONSUMPTION RATIO. IN OUR VIEW, THE ASSESSING OFFIC ER AND THE COMMISSIONER OF INCOME-TAX (APPEALS) HAVE GONE ON D IFFERENT DIRECTIONS. THEREFORE, THE VIEW TAKEN BY THE TRIBUN AL IS REQUIRED TO BE ACCEPTED. IN THAT VIEW OF THE MATTER, WE ANSW ER ISSUE NO. 1 IN TAX APPEAL NO.1182 OF 2008 IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN VIEW OF THE ABOVE, AND RESPECTFULLY FOLLOWING TH E SAME, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 64. SINCE THE FACTS OF THE CASE ON HAND ARE IDENTIC AL TO THE FACTS OF THE CASE IN ITA NO 525/AHD/2015, ACCORDINGLY, RESPECTFU LLY FOLLOWING THE SAME WE DISMISS THE GROUND OF APPEAL OF THE REVENUE . IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. ITA NO.1947/AHD/2015(BY ASSESSEE) & ITA NO.1909/AHD/2015 (BY REVENUE) SCHUTZ DISHMAN BIOTECH LTD. VS. DCIT ASST .YEAR - 2010-11 - 45 - 65. WE SUMMARIZE THE RESULT AS UNDER: A. ASSESSEES APPEAL IN ITA NO.1947/AHD/2015 (I) GROUND NOS.1,2, 7 & 8 ARE ALLOWED FOR STATISTI CAL PURPOSES. (II) GROUND NOS.3 TO 6 AND 9 TO 16 & 17, 18 ARE AL LOWED. B. REVENUES APPEAL IN ITA NO.1909/AHD/2015 (I) APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 01/01/2019 SD/- SD/- (MS.MADHUMITA ROY) (WASEEM AH MED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 01/01/2019 %.., .'.. / T.C. NAIR, SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ()* + / CONCERNED CIT 4. + ( ) / THE CIT(A)-8, AHMEDABAD 5. ./0 '')* , )*' , ( / DR, ITAT, AHMEDABAD 6. 034 5 / GUARD FILE. / BY ORDER, . ' //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION 26.11.2018 (DICTATION PAD 37- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.12.2018 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.4.1.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 4.1.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER