MERCK SPECIALITIES P. LTD, MUMBAI V. DCIT RG 6(3), MUMBAI

ITA 1947/MUM/2014

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4024 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2009-2010
• Appeal Filed On: 21-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BHUPENDRA KUMAR SINGHLD
• Assessee Lawyers: AARTI VISSANJI LD
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Question of law; Wholly owned subsidiary; Commercial expediency; Rule 8D
• Section: 43B; 143(3); 14A

Judgement Text

1 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.1947/MUM/2014 ( / ASSESSMENT YEAR:2009-10) M/S. MERCK SPECIALTIES PVT. LTD. SHIV SAGAR ESTATE A, ANNIE BESANT ROAD WORLI, MUMBAI-400 018. / VS. D CIT - RANGE 6(3) AAYKAR BHAVAN M.K. ROAD MUMBAI. !' ./ ' ./PAN/GIR NO. AAECM-2634-B ( 9: /APPELLANT ) : ( ;<9: / RESPONDENT ) APPELLANT BY : MS. AARTI VISSANJI-LD. AR RESPONDENT BY : SHRI BHUPENDRA KUMAR SINGH-LD.DR / DATE OF HEARING : 17/09/2019 / DATE OF PRONOUNCEMENT : 11/11/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) : - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [IN SHORT REFERRED TO AS AY] 2009-10 CONTEST THE FINAL ASSE SSMENT ORDER DATED 31/01/2014 PASSED BY LD. DY. COMMISSIONER OF INCOME TAX- 6(3), MUMBAI [AO] U/S 143(3) R.W.S 144C(13) PURSUANT TO T HE DIRECTIONS OF LD. DISPUTE RESOLUTION PANEL-I, MUMBAI, [DRP] U/S 144C( 5) DATED 30/12/2013. THE GROUNDS RAISED BY ASSESSEE READS AS UNDER: - 2 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 GROUNDS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED ASSESSING OFFICER (AO) / HON'BLE DISPUTE RESOLUTION PANEL (DRP) / TRANSFER P RICING OFFICER (TPO)(AS THE CASE MAY BE) ERRED IN - 1.1 PASSING THE IMPUGNED ORDER U/S. 143(3) R.W .S. 144C(13) OF THE INCOME TAX ACT, 1961 (THE ACT) MAKING HUGE ADDITIONS, DISALLOWANCES AND MAKING TRANSFER PRICING ADJUSTMENTS BASED ON SURMISES, CONJECTURES, PRESUMP TIONS AND ASSUMPTIONS BY MERELY FOLLOWING THE STAND TAKEN IN THE IMMEDIATELY PRECED ING ASSESSMENT YEAR AND WITHOUT CONSIDERING THE PAPERS AND DOCUMENTS SUBMITTED AS A LSO SUBMISSIONS MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE PROCEEDING S BEFORE THE HON'BLE DISPUTE RESOLUTION PANEL. 1.2 TRANSFER PRICING ISSUES: 1.2.1 ADDITION IN RESPECT OF TECHNICAL KNOW-HOW FEES OF R S. 1,12,36,000 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED TPO ERRED IN PROPOSING AND THE HON'BLE DRP / AO FURTHER ERRED IN CONFIRMING THE ADJUSTMENT OF RS. 1,12,36,000 IN RESPECT OF TECHNICAL CONSULTANCY FEE S PAID BY THE APPELLANT TO ITS AE WITHOUT SPECIFYING ANY METHOD. A) THE LD. DRP AND CONSEQUENTLY THE LD. AO ERRED I N NOT CONSIDERING THE TRANSFER PRICING METHODOLOGY ADOPTED BY THE APPELLANT TO JUSTIFY THE ARM'S LENGTH NATURE OF THE TECHNICAL KNOW-HOW FEES PAID TO THE AE; B) THE LEARNED DRP AND CONSEQUENTLY THE LEARNED AO ERRED IN NOT UNDERSTANDING AND APPRECIATING THE ESSENCE OF THE INTER-COMPANY AGREE MENT, I.E. TECHNICAL AND CONSULTANCY AGREEMENT (THE AGREEMENT) AND WITH PRECONCEIVED NOT ION PROCEEDED TO CONCLUDE THAT THE ARM'S LENGTH PRICE TO BE NIL; C) ERRED IN WRONGLY CONCLUDING WITH A PRECONCEIVED NOTION AND WITHOUT ANY BASIS THAT NO BENEFIT HAS BEEN RECEIVED BY THE APPELLANT EVEN THO UGH VARIOUS DOCUMENTS / PAPERS EVIDENCING THE RECEIPT OF THE TECHNICAL KNOWHOW SER VICES WERE SUBMITTED; D) WITHOUT PREJUDICE, THE LD. DRP AND CONSEQUENTLY THE LD. AO ERRED ON FACTS AND IN LAW IN UPHOLDING THE LD. TRANSFER PRICING OFFICER'S STANCE OF MAKING AN ADJUSTMENT TOWARDS THE SERVICE TAX COMPONENT PAID TO THE GOVERNMENT OF RS. 12,36,000 CHARGED ON RECEIPT OF THE AFORESAID SERVICES ON THE BASIS THAT THE PAYMENT MA DE TOWARDS THE TECHNICAL KNOW-HOW FEES ITSELF HAS BEEN DISALLOWED. 2. OTHER ISSUES: THE LEARNED DRP AND CONSEQUENTLY THE LEARNED AO IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT AND IN LAW, ERRED IN - 2.1 DISALLOWING RS.1,16,197/- U/S.14A OF THE ACT RE AD WITH RULE 8D OF THE INCOME TAX RULES INSTEAD AND IN PLACE OF RS.1,13,793/- AS DETE RMINED BY THE APPELLANT; 2.1.1 NOT DISALLOWED ANY AMOUNT U/S. 14A OF THE AC T AS THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE IN CONNECTION WITH EARNING ANY TAX-FREE INCOME . 2.1.2 NOT RESTRICTING THE DISALLOWANCE U/S. 14A REA D WITH RULE 8D AT RS.1 LAKH. 2.2. DISALLOWING RS.9,24,21,875/- IN RESPECT OF DE PRECIATION ON INTANGIBLE ASSETS PURCHASED BY THE APPELLANT IN THE EARLIER YEAR CALC ULATED AT 25% ON THEIR WRITTEN DOWN VALUE OF RS.36,96,87,500/-; 2.3 APPLYING THE PROVISIONS OF SECTION 145A OF THE ACT, THOUGH HOWEVER, THE APPELLANT FOLLOWS 'NET METHOD OF ACCOUNTING'. 3 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 2.3.1 WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALT ERNATE, MAKING ADJUSTMENT TO THE VALUE OF CLOSING STOCK, SALE, PURCHASES AND OPENING STOCK ON ACCOUNT OF CENVAT CREDIT/ SALES TAX /VAT ,AS THE CASE MAY BE AND DETERMINED THE ADJ USTMENT OF RS. 1,10,43,357/- ACCORDINGLY. 2.4 DISALLOWING RS.57,32,289/- IN RESPECT OF ALLE GED LEAVE SALARY PROVISION U/S.43B(F) OF THE ACT, THOUGH, IT WAS CONTENDED AND EXPLAINED TO THE HON.DRP AND THE LD. AO THAT THE SAID AMOUNT WAS NOT THE PROVISION MADE DURING T HE YEAR AND IN FACT THERE WAS A WRITE BACK OF EXCESS PROVISION OF RS.7,55,000/- MAD E DURING THE YEAR ENDED 31 ST MARCH, 2009 IN RESPECT OF EARLIER YEAR, WHICH WAS N OT LIABLE TO TAX AS HAVING NOT BEEN ALLOWED AS DEDUCTION IN THE EARLIER YEARS. 2.5 CHARGING INTEREST U/S.234B OF THE ACT AMOUNTIN G TO RS.21,87,732.-; 2.6 CHARGING INTEREST OF RS.82,49,678/- U/S.234D OF THE ACT AS THERE WAS NO REFUND ORDER ON THE BASIS OF THE INTIMATION U/S.143(1) OF THE AC T ISSUED IN THE CASE OF THE APPELLANT AS THE REFUND WAS ADJUSTED AGAINST DEMAND AS PER TH E RECORDS OF THE DEPARTMENT WITHOUT ANY INTIMATION TO THE APPELLANT U/S.245 OF THE ACT 2.7 INITIATING PENALTY U/S. 271(L)(C) IN RESPECT OF TRANSFER PRICING ADJUSTMENTS, DISALLOWANCE OF DEPRECIATION IN RESPECT OF INTANGIBLES, ADJUSTME NT U/S. 145A OF THE ACT AND DISALLOWANCE OF LEAVE SALARY U/S. 43B(F) OF THE ACT . 3. IT IS HUMBLY PRAYED THAT THE RELIEFS AS PRAYED F OR HEREINABOVE AND/OR SUCH OTHER RELIEFS AS MAY BE JUSTIFIED BY THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS MAY MEET THE ENDS OF JUSTICE SHOULD BE GRANTED. 2.1 FACTS ON RECORD WOULD REVEAL THAT THE ASSESSEE BEING RESIDENT CORPORATE ENTITY STATED TO BE ENGAGED IN TRADING AN D MANUFACTURING & CHEMICALS WAS ASSESSED FOR YEAR UNDER CONSIDERATION U/S 143(3) R.W.S. 144C(13) ON 31/01/2014 WHEREIN THE INCOME OF THE AS SESSEE WAS DETERMINED AT RS.3327.05 LACS AFTER CERTAIN ADDITIO NS / ADJUSTMENTS AS AGAINST RETURNED INCOME OF RS.2122.69 LACS E-FILED BY THE ASSESSEE ON 30/09/2010. THE ASSESSMENT WAS FRAMED PURSUANT TO T HE DIRECTIONS OF LD. DRP U/S 144C(5) DATED 30/12/2013. AGGRIEVED BY CERTAIN ADDITIONS /ADJUSTMENTS IN FINAL ASSESSMENT ORDER, THE ASSESSE E IS UNDER APPEAL BEFORE US. 2.2 THE LEARNED AUTHORIZED REPRESENTATIVE FOR ASSES SEE (AR), MS. AARTI VISSANJI, AT THE OUTSET, PLACED ON RECORD ISS UE-WISE CHART TO SUBMIT THAT MOST OF THE ISSUES ARE COVERED BY VARIOUS DECI SIONS OF TRIBUNAL 4 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 EITHER IN ASSESSEES OWN CASE OR IN THE CASE OF ITS SISTER CONCERN AND THEREFORE, THE SAME VIEW MAY BE TAKEN IN THE MATTER . THE SAID CHART WAS CONFRONTED TO LD. DR, WHO THOUGH FAIRLY ACQUIESCED TO THE SAME, BUT RELIED ON THE ORDERS OF LOWER AUTHORITIES. IN THE A BOVE BACKGROUND, OUR ADJUDICATION TO VARIOUS ISSUES WOULD BE AS GIVEN IN SUCCEEDING PARAGRAPHS. 3.1 TRANSFER PRICING ADJUSTMENT CERTAIN INTERNATIONAL TRANSACTIONS AS STATED TO BE CARRIED OUT BY ASSESSEE WITH ITS ASSOCIATED CONCERNS (AE) AND AS REPORTED I N FORM NO. 3CEB WERE REFERRED TO LD. TRANSFER PRICING OFFICER-1(3), MUMBAI U/S 92CA(1) FOR DETERMINATION OF THEIR ARMS LENGTH PRICE (ALP) . THE ASSESSEE WAS STATED TO BE INCORPORATED IN APRIL, 2005 AND SUBSID IARY ENTITY OF M/S MERCK HOLDING GMBH, GERMANY WHICH IN TURN WAS STATE D TO BE WHOLLY OWNED SUBSIDIARY OF M/S MERCK KGAA, GERMANY (MKGAA) . THE ASSESSEE WAS STATED TO BE ENGAGED IN TRADING AND MA NUFACTURING OF CHEMICALS AND RELATED PRODUCTS WHICH WERE EXTENSIVE LY USED IN QUALITY CONTROL, RESEARCH AND DEVELOPMENT, PATHOLOGICAL LAB ORATORIES, TESTING OF WATER, FOOD, BEVERAGES ETC. THE MERCK GROUP RANKED AMONGST THE WORLDS LEADING PRODUCER OF HIGH-QUALITY PHARMACEUTICAL AND CHEMICAL PRODUCTS. ALTHOUGH THE ASSESSEE CARRIED OUT 9 DIFFERENT TRANS ACTIONS AGGREGATING TO RS.77.71 CRORES WITH ITS AE, HOWEVER, THE SUBJECT M ATTER OF APPEAL BEFORE US IS PAYMENT OF TECHNICAL FEES OF RS.112.36 LACS BY THE ASSESSEE TO ITS AE NAMELY MKGAA. THIS TRANSACTION W AS BENCHMARKED ON AGGREGATE BASIS UNDER TRADING SEGMENT USING TRANSACTIONAL NET MARGIN METHOD (TNMM). THE ATTENTION WAS DRAWN TO THE FACT THAT THE 5 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 PAYMENT WAS MADE PURSUANT TO CONSULTANCY AGREEMENT DATED 16/03/2008 ENTERED BETWEEN THE ASSESSEE AND ITS AE NAMELY MKGAA. IT WAS ALSO SUBMITTED THAT ITS AE PROVIDED CONSULTANCY SERVICES, INTER-ALIA, IN THE NATURE OF SUPPORT OF ENGINEERING OF PRODUCTI ON AND QUALITY CONTROL WITH REGARD TO TECHNICAL AND ANALYTICAL BACKGROUND, SELECTION OF EQUIPMENT AND SOURCING OF SUPPLIES INTERNATIONALLY, TRAINING OF EMPLOYEES ON ENGINEERING AND SCIENTIFIC TRENDS, ADVISING ON N EW TRENDS IN IT, ASSISTING /ADVISING LAUNCH OF NEW PRODUCTIONS ETC. IT WAS EXPLAINED THAT THE AGREEMENT PROVIDES FOR A PACKAGE OF SERVICES BY VIRTUE OF WHICH ALL THE SERVICES MENTIONED IN THE AGREEMENT WERE MADE A VAILABLE TO THE ASSESSEE ON AS AND WHEN NEED BASIS, FOR WHICH THE OPTION TO AVAIL THE SERVICES LIES WITH THE ASSESSEE. IN EXCHANGE OF SER VICES, THE ASSESSEE AGREED TO PAY FIXED FEES OF RS.112.36 LACS INCLUDIN G TAXES. THE ASSESSEE, IN SUPPORT, OF AVAILING INTRA-GROUP SERVI CES, SUBMITTED VARIOUS DOCUMENTS IN THE SHAPE OF EMAIL COMMUNICATIONS ETC. HOWEVER, NOT CONVINCED WITH ASSESSEES SUBMISSIONS / EXPLANATION S, THE LD. TPO DETERMINED THE ALP OF THESE TRANSACTIONS AS NIL BY OBSERVING AS UNDER: - 7.4 FROM THE DISCUSSION ABOVE IT CAN BE MADE OUT TH AT THE ASSESSEE DID NOT HAVE ANY EVIDENCE TO SUPPORT THE JUSTIFICATIONS FOR PAYM ENT OF RS.1,12,36,000/- TO THE AE FOR THESE TECHNICAL SERVICES. THE ONLY EVIDENCE GIV EN IN SUPPORT OF THESE SERVICES ARE CORRESPONDENCE BETWEEN EMPLOYEES OF THE ASSESSEE CO MPANY WITH THE EMPLOYEES OF OTHER AE. THE ASSESSEE WAS CONFRONTED WITH THESE FACTS VIDE ORDER SHEET DATED 28.12.2012 THAT (I) MOST OF THE EVIDENCE GIVEN IN THE FORM OF MAILS ARE GENERAL MAILS WITHOUT ANY ADVICE OR TECHNICAL OR PROFESSIONAL SUPPORT FROM AE . SOME OF THE MAILS ARE OF THE NATURE OF REPORTING AND OTHER DOCUMENTS ARE BROUCHE RS, WHICH PERTAIN TO SAP, IT POLICIES ETC. THERE IS NO EVIDENCE THAT THE SPECIFI C SERVICE HAS BEEN PROVIDED BY THE AE. (II) SOME OF THE MAILS DO NOT PERTAIN TO THE FINANC IAL YEAR FOR WHICH THE PAYMENT HAVE BEEN MADE. (III) THE REPORTS (EMERALD SAP REPORT AND CORPORATE INFORMATION SERIES) ARE THE SAME WHICH WERE GIVEN IN CASE OF MERCK LTD. THE OTH ER INDIAN COMPANY. 6 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 (IV) WHEREVER A SPECIFIC SERVICE WAS PROVIDED BY TH E OTHER AE, THE ASSESSEE HAS MADE THE PAYMENTS TO THAT AE AND HAS BEEN REFLECTED UNDER THE HEAD REIMBURSEMENTS. FROM THE DOCUMENTS SUBMITTED BY THE ASSESSEE, IT IS SEEN THAT THE MOST OF THE DOCUMENTS ARE IN THE FORM OF MAILS WHICH EITHER DO NOT PERTAIN TO RELEVANT FINANCIAL YEAR OR ARE VERY GENERAL IN NATURE. THESE MAILS ARE INCIDENTAL TO THE NORMAL COURSE OF BUSINESS OR ROUTINE CORRESPONDENCES AND ARE NOT SPE CIFICALLY GIVING ANY SERVICES. THE OTHER DOCUMENTS ARE OF THE NATURE OF AGREEMENTS WHICH PERTAINS TO TRAINING, SAP OR INFORMATION TECHNOLOGY. IT IS IMPORTANT TO NOTE THAT FOR SPECIFIC SERVICES, PAYMENT OF RS. 4,61,94,985/- HAS BEEN MADE TO MERCK KGA, GERMA NY, MERCK PVT LTD., MERCK CHEMICALS, MERCK NEW ZEALAND FOR ADVERTISEMENTS IN ONCOLOGY, EXHIBITIONS, IT, TRADEMARK, SAP, TRAINING. THE DETAILS OF THESE PAYM ENTS ARE GIVEN IN ANNEXURE-5 OF LETTER DATED 28.12.2012. IN SOME OF THESE SERVICES THE AE HAS CHARGED MARKUP OF 5% FROM THE ASSESSEE COMPANY. WHEN ASSESSEE IS CHAR GING FOR SPECIFIC SERVICES, PAYMENT TO THE AE OF RS.1.12 CRORES IN THE FORM OF RETAINERSHIP FOR TECHNICAL ADVISORY SERVICES, IS NOT JUSTIFIED, WHEN THERE ARE NO DETAI LS OF SPECIFIC SERVICES AND DOCUMENTARY EVIDENCES. THE ONCOLOGY PRODUCTS ARE DEVELOPED BY THE GERMAN A E AND NOT BY THE INDIAN COMPANY. THE DOCUMENTS SUBMITTED BY THE ASSESSEE CO MPANY ARE NOT REGARDING DEVELOPMENT OF ANY ONCOLOGY, PRODUCT BUT ON PROMOTI ON AND MARKETING OF THESE ONCOLOGY PRODUCTS. THE EXPENSES INCURRED ON THE PRO MOTION OF THESE PRODUCTS ARE DEBITED IN PROMOTION AND MARKETING EXPENSES. THESE PROMOTION AND MARKETING EXPENSES ARE HELPING THE AES IN BUILDING THE BRAND FOR WHICH THE AE IS CHARGING THE TRADEMARK ROYALTY ALSO. THESE DOCUMENTS DO NOT SUPP ORT THE CASE OF THE ASSESSEE FOR PAYMENT OF RS.1.12 CRORES TO THE AE. WHILE EXAMINING THE ARMS LENGTH NATURE OF INTRA GR OUP SERVICES, IT IS REQUIRED TO BE SEEN WHETHER THE CHARGES PAID BY THE TAXPAYER FOR I NTRA GROUP SERVICES REFLECT THE SAME CHARGES FOR THE SERVICES THAT WOULD HAVE BEEN, OR WOULD REASONABLY BE EXPECTED TO BE, LEVIED BETWEEN INDEPENDENT PARTIES DEALING AT ARMS LENGTH FOR COMPARABLE SERVICES UNDER COMPARABLE CIRCUMSTANCES. AN ARMS LENGTH ENTITY WOULD BE WILLING TO PAY FOR AN ACTIVITY ONLY TO THE EXTEN T THAT THE ACTIVITY CONFERS ON IT A BENEFIT OF ECONOMIC OR COMMERCIAL VALUE. THEREFORE, THE ARMS LENGTH CHARGE IS NOT ONLY A FUNCTION OF THE PRICE AT WHICH A SUPPLIER IS PREPARED TO PERFORM THE SERVICE (OR THE COST OF PROVIDING THE SERVICE), BUT ALSO A FUNC TION OF THE VALUE TO THE RECIPIENT OF THE SERVICE (OR THE WILLINGNESS OF THE RECIPIENT TO PAY FOR SUCH SERVICES). THE DOCUMENTS SUBMITTED BY THE ASSESSEE COULD NOT DEMON STRATE TANGIBLE AND DIRECT BENEFIT IS DERIVED BY THE TAXPAYER IN PAYING THE AB OVE AMOUNTS TO THE AES. THE TAX PAYER COULD NOT PROVE THAT THE PAYMENT MADE BY THE ASSESSEE TO THE AE HAS GIVEN COMMENSURATE BENEFITS. THEREFORE, ADJUSTMENT OF RS. 1,12,36,000/- NEEDS TO BE MADE. IN VIEW OF THE ABOVE, THE TOTAL ADJUSTMENT IN ALP I S AS UNDER: - (II) ON ACCOUNT OF TECHNICAL SERVICES RS.1,12,36,00 0 T O T A L RS.1,12,36,000 IN VIEW OF THE ABOVE, TOTAL ADJUSTMENT OF RS.1,12,3 6,000/- IS PROPOSED IN DETERMINING ALP OF TECHNICAL SERVICES. 7 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 THE STAND OF LD. TPO, UPON CONFIRMATION BY LD. DRP, IS UNDER CHALLENGE BEFORE US. 3.2 UPON DUE CONSIDERATION, WE FIND THAT SIMILAR IS SUE IS COVERED IN ASSESSEES FAVOR BY THE ORDER OF TRIBUNAL RENDERED IN THE CASE OF ITS GROUP CONCERNS VIZ. MERCK LIMITED FOR SAME AY, ITA NO.1946/MUM/2014 ORDER DATED 31/03/2016 WHEREIN THE ADJUSTMENT HAS BEEN DELETED ON IDENTICAL FACTUAL MATRIX BY THE COO RDINATE BENCH BY OBSERVING AS UNDER: - 23. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 24. WE FIND THAT THERE IS A CLEAR CONTRADICTIONS I N THE FINDINGS OF THE AUTHORITIES BELOW. ON ONE HAND, THE STAND OF THE AUTHORITIES BE LOW IS THAT NO SERVICES ARE RENDERED, AND, ON THE OTHER HAND, THERE ARE CATEGOR ICAL FINDINGS THAT THE SERVICES RENDERED ARE SO GENERAL IN NATURE THAT EVEN AN EMPL OYEE OF THE ASSESSEE COULD HAVE RENDERED THE SAME. IN THE EVENT OF NO SERVICES ACTUALLY HAVING BEEN RENDERED, THERE CANNOT BE ANY OCCASION FOR THE SAME SERVICES BEING RENDERED BY A PERSON WITHOUT SPECIALIZED KNOWLEDGE. ON ONE HAND, IT IS HELD THAT ARMS LENGTH PRICE OF THESE SERVICES IS ZERO VALUE, AND, IN THE SAME BREA TH, IT IS HELD THAT THERE WOULD HARDLY BE ANY SUBSTANTIAL PAYMENT FOR THESE SERVIC ES. CLEARLY, SERVICES ARE RENDERED ON THE FACTS OF THE PRESENT CASE. THERE IS SUFFICIENT MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE WAS, UNDER THE AGREEMENT, EN TITLED TO RECEIVE A PACKAGE OF SERVICES ON AS AND WHEN REQUIRED BASIS. THE EMAILS AND OTHER DOCUMENTARY EVIDENCES SHOW THAT THE ASSESSEE WAS IN RECEIPT OF THESE SERVICES. JUST BECAUSE THESE SERVICES WERE TOO GENERAL, IN THE PERCEPTION OF THE AUTHORITIES BELOW, OR JUST BECAUSE THE ASSESSEE DID NOT NEED THESE SERVICES FR OM THE OUTSIDE AGENCIES, CANNOT BE REASON ENOUGH TO HOLD THAT THE SERVICES W ERE NOT RENDERED AT ALL. WE HAVE PERUSED THE MATERIAL BEFORE US, AND, IN OUR CONSIDE RED VIEW, THE ASSESSEE HAS REASONABLY ESTABLISHED RENDITION OF SERVICES. THE A SSESSEE MAY NOT HAVE RECEIVED ALL THE SERVICES UNDER THE AGREEMENT BUT ESSENTIALL Y THE ASSESSEE HAD RIGHT TO RECEIVE ALL THESE SERVICES, AS AND WHEN REQUIRED, U NDER THE AGREEMENT. THE PAYMENT IS MADE FOR THE RIGHTS ACCRUING TO THE ASSESSEE FOR THE BUNDLED SERVICES UNDER THE CONTRACT AND NOT FOR EACH SERVICE ON ALA CARTE BASI S. THE REASON THAT THE ASSESSEE DID NOT USE A PARTICULAR SERVICE CANNOT JUSTIFY HOL DING THAT NO PAYMENT WAS WARRANTED FOR SUCH SERVICES. TO GIVE AN EXAMPLE FROM DAY TO D AY LIFE, IF AN ASSESSEE IS PAYING FOR HAVING RIGHT TO VIEW A BOUQUET OF TELEVISION CH ANNELS, WHICH COME AS A PACKAGE, HE DOES NOT DECLINE TO PAY THE CONSIDERATION FOR TH E BOUQUET OF TELEVISION CHANNELS BECAUSE HE DID NOT VIEW A PARTICULAR TELEVISION CHA NNEL. THE EXAMPLE MAY SEEM TO BE SO SIMPLISTIC BUT IT DOES HAMMER THE MASSAGE, AS WE WOULD LIKE TO, THAT NOT AVAILING A PARTICULAR SERVICE UNDER A CONTRACT DOES NOT MEAN THAT NO PAYMENTS ARE REQUIRED TO BE MADE FOR ALL THE SERVICES BUNDLED UN DER THE CONTRACT. THE OTHER THING 8 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 IS THE BENEFIT TEST. WE DO NOT THINK BENEFIT TEST H AS TOO MUCH RELEVANCE IN THE ARMS LENGTH PRICE ASCERTAINMENT. WHEN EVALUATING THE ALP OF A SERVICE, IT IS WHOLLY IRRELEVANT AS TO WHETHER THE ASSESSEE BENEFITS FROM IT OR NOT; THE REAL QUESTION WHICH IS TO BE DETERMINED IN SUCH CASES IS WHETHER THE PR ICE OF THIS SERVICE IS WHAT AN INDEPENDENT ENTERPRISE WOULD HAVE PAID FOR THE SAME . IN CASE TPO CAN DEMONSTRATE THAT THE CONSIDERATION FOR SIMILAR SERVICES, UNDER THE CUP METHOD, IS NIL, HE CAN VERY WELL DO SO. THATS NOT, HOWEVER, HIS CASE. HE ONLY STATES THAT THESE SERVICES ARE NOT WORTH THE AMOUNT PAID BY THE ASSESSEE. SUCH BAN D STATEMENTS AND SWEEPING GENERALIZATIONS CANNOT HELP THE CASE OF THE REVENUE AUTHORITIES. THE ASSESSEE HAS BENCHMARKED THE TRANSACTION ON TNMM BASIS, AND UNLE SS THE REVENUE AUTHORITIES CAN DEMONSTRATE THAT SOME OTHER METHOD OF ASCERTAIN ING THE ARMS LENGTH PRICE ON THE FACTS OF THIS CASE WILL BE MORE APPROPRIATE A M ETHOD OF ASCERTAINING THE ARMS LENGTH PRICE, THE TNMM CANNOT BE DISCARDED. DEALIN G WITH ALMOST A SIMILAR SITUATION, AS WE ARE IN SEISIN OF, A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF AWB INDIA PVT LTD VS DCIT [(2015) 152 ITD 570 (DEL)], HAS OBS ERVED AS FOLLOWS: 11. IN GROUND NOS. 5 TO 9, WHICH WE WILL TAKE UP TO GETHER, THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: 5. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO HAVE FAILED TO APPRECIATE THE BUSINESS MODEL AND BUSINESS REALITIES OF THE APPELLANT AND ROLE OF ITS AE, WHIL E CONDUCTING THE ECONOMIC ANALYSIS, AND CONCLUDING THAT NO SERVICE I S RECEIVED OR NO BENEFIT, AND/OR SERVICES RECEIVED ARE DUPLICATIVE I N NATURE. 6. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO ERRED IN PRESUMPTIVELY HOLDING THAT THE REVE NUE AUTHORITIES ARE EMPOWERED TO QUESTION THE COMMERCIAL DECISION OF TH E APPELLANT AND IN NOT APPRECIATING THE JURISPRUDENCE THAT THE DRP AND THE AO/TPO CANNOT GO BEYOND THEIR POWERS TO QUESTION THE BUSIN ESS DECISION OF THE COMPANY. 7. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP HAS ERRED IN CONFIRMING THAT THE TPO HAS DISCHARGED HIS STATUTORY ONUS BY ESTABLISHING THE CONDITIONS SPECIFIED IN (A) TO (D) OF SECTION 92C(3) OF THE ACT HAVE BEEN SATISFIED BEFORE DISREGARDING THE ARMS LENGTH PRICE DETERMINED BY THE APPELLANT AND PROCEEDING TO DECIDE THE ARMS LENGTH PRICE HIMSELF. 8. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO HAVE ERRED IN CONDUCTING ECONOMIC ANALYSIS O F THE INTERNATIONAL TRANSACTIONS WITHOUT RELYING ON ANY C OMPARABLE TRANSACTION/COMPANIES USING INAPPROPRIATE METHOD. 9. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DRP AND TPO/AO HAVE ERRED IN DETERMINING THE ARMS LENGTH P RICE OF INTERNATIONAL TRANSACTIONS CONSISTING OF COST AND P ROFIT MARGIN AT NIL. 12. SO FAR AS THESE GRIEVANCES OF THE ASSESSEE ARE CONCERNED, THE RELEVANT MATERIAL FACTS ARE AS FOLLOWS. THE ASSESSEE IS ENGA GED IN THE BUSINESS OF TRADING IN FOOD GRAINS. IT IS A PART OF AWB GROUP A USTRALIA AND ITS 99.999% EQUITY IS HELD BY AWB AUSTRALIA LIMITED AND THE BAL ANCE .001% EQUITY IS HELD BY ANOTHER GROUP COMPANY, NAMELY AWB INVESTMENTS LI MITED. ONE OF THE INTERNATIONAL TRANSACTIONS THAT THE ASSESSEE ENTERE D INTO WITH ITS AES WAS 9 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 PAYMENT OF RS 58,20,571 TOWARDS MANAGEMENT SERVICE S. ON AN ANALYSIS OF THE DETAILS OF THE PAYMENTS MADE UNDER THIS HEAD, T HE TPO WAS OF THE VIEW THAT THE BENEFIT OF SOME OF THE SERVICES AVAILED UN DER THE HEAD MANAGEMENT SERVICES WAS NOT COMMENSURATE WITH THE PAYMENTS MA DE FOR THE SAME. HE WAS ALSO OF THE VIEW THAT AS AGAINST THE USE OF TNM M BY THE ASSESSEE IN BENCHMARKING, THE RIGHT COURSE OF ACTION WILL BE TO FOLLOW CUP METHOD BECAUSE THE VALUE UNDER CUP METHOD WILL BE BEST IND ICATOR OF THE VALUE OF THESE SERVICES. IT WAS IN THIS BACKGROUND THAT THE TPO MADE CERTAIN ADVERSE INFERENCES AGAINST THE ASSESSEE. THE TPO WAS OF THE VIEW THAT WHILE THE ASSESSEE HAS MADE A PAYMENT OF RS 20,35,907 TOWARDS FINANCIAL MANAGEMENT AND REPORTING SERVICES, BUT THE SERVICE S RENDERED ARE NEGLIGIBLE COMPARED TO THE COST INCURRED. THE TPO WAS ALSO OF THE VIEW THAT A MINOR CLARIFICATION OR SEEKING OF CERTAIN GUIDANCE ON VER IFY BASIC ISSUE DOES NOT CALL FOR A PAYMENT OF RS 20 LAKHS. THEREFORE, THE ALP OF THESE SERVICES WAS TAKEN AS NIL. HE FURTHER NOTED THAT WHILE THE ASSESSEE HAS MADE A PAYMENT OF RS 1,23,476 TOWARDS HUMAN RESOURCES SERVICES, THE ASSE SSEE HAS NOT FURNISHED ANY SPECIFIC INPUT ON TRAINING AND DEVELOPMENT OF H UMAN RESOURCES AND IT IS ALSO NOTICED THAT THESE SERVICES ARE OF ROUTINE NAT URE AND DUPLICATE AT BEST. ACCORDINGLY, THE TPO ALSO TREATED ALP OF THESE SERV ICES AS NIL. AS REGARDS THE PAYMENT OF RS 96,355 TOWARDS LEGAL SERVICES, THE TPO DID TAKE NOTE OF THE SERVICES THAT THE ASSESSEE WAS ENTITLED TO UNDE R THESE ARRANGEMENTS BUT AS THERE IS NO EVIDENCE OF ANY SERVICES HAVING BEEN ACTUALLY RENDERED BY THE AE, THE TPO CONCLUDED THAT IT DOES NOT HAVE ANY VAL UE IN AN ARMS LENGTH SITUATION. THE VALUE OF THIS SERVICE WAS ALSO TAKEN AS NIL. THE SAME WAS THE CASE WITH RESPECT TO THE PAYMENTS FOR OTHER SERVICE S. ACCORDINGLY, NO ARMS LENGTH VALUE WAS ASSIGNED TO THESE SERVICES ALSO. I N RESPECT OF THESE CASES TNMM WAS REJECTED AND CUP WAS APPLIED- THOUGH, EVEN UNDER CUP METHOD, VALUE ASSIGNED WAS NIL AS, IN THE OPINION OF THE TP O, THESE SERVICES WERE WORTHLESS. 13. WHEN ASSESSING OFFICER PROPOSED TO MAKE DISALLO WANCE IN RESPECT OF PAYMENTS FOR THE ABOVE SERVICES, ARMS LENGTH VALUE OF WHICH WAS TAKEN AT ZERO, AGGREGATING TO RS 31,23,325, AS AGAINST TOT AL MANAGEMENT FEES OF RS 58,20,571 PAID BY THE ASSESSEE, ASSESSEE CARRIED TH E MATTER BEFORE THE DRP BUT WITHOUT ANY SUCCESS. THE DRP CONFIRMED THE STAN D SO TAKEN BY THE TPO, ACCORDINGLY, AN ALP ADJUSTMENT OF RS 31,23,325 WAS MADE BY THE ASSESSING OFFICER. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFORE US. 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF T HE APPLICABLE LEGAL POSITION. 15. ONE OF THE VERY BASIC PRE CONDITION FOR USE OF CUP METHOD IS AVAILABILITY OF THE PRICE OF THE SAME PRODUCT AND SERVICE IN UNCONT ROLLED CONDITIONS. IT IS ON THIS BASIS THAT ALP OF THE PRODUCT OR SERVICE CAN B E ASCERTAINED. IT CANNOT BE A HYPOTHETICAL OR IMAGINARY VALUE BUT A REAL VALUE ON WHICH SIMILAR TRANSACTIONS HAVE TAKEN PLACE. COMING TO THE FACTS OF THIS CASE, THE APPLICATION OF CUP IS DEPENDENT ON THE MARKET VALUE OF THE ARRANGEMENTS UNDER WHICH THE PRESENT PAYMENTS HAVE BEEN MADE. UN LESS THE TPO CAN IDENTIFY A COMPARABLE UNCONTROLLED CASE IN WHICH SU CH SERVICES, HOWSOEVER TOKEN OR IRRELEVANT SERVICES AS HE MAY CONSIDER THE SE SERVICES TO BE, ARE 10 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 RENDERED AND FIND OUT CONSIDERATION FOR THE SAME, T HE CUP METHOD CANNOT HAVE ANY APPLICATION. HIS PERCEPTION THAT THESE SER VICES ARE WORTHLESS IS OF NO RELEVANCE. IT IS NOT HIS JOB TO DECIDE WHETHER A BU SINESS ENTERPRISE SHOULD HAVE INCURRED A PARTICULAR EXPENSE OR NOT. A BUSINE SS ENTERPRISE INCURS THE EXPENDITURE ON THE BASIS OF WHAT IS COMMERCIALLY EX PEDIENT AND WHAT IS NOT COMMERCIALLY EXPEDIENT. AS HELD BY HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS EKL APPLIANCES LIMITED (345 ITR 241) , EVEN RULE 10B(1)(A) DOES NOT AUTHORISE DISALLOWANCE OF ANY EXPENDITURE ON THE GROUND THAT IT WAS NOT NECESSARY OR PRUDENT FOR THE ASSESSEE TO HAVE I NCURRED THE SAME. 16. THE VERY FOUNDATION OF THE ACTION OF THE TPO IS THUS DEVOID OF LEGALLY SUSTAINABLE MERITS. THERE IS NO DISPUTE THAT THE IM PUGNED PAYMENTS ARE MADE UNDER AN ARRANGEMENT WITH THE AE TO PROVIDE CERTAIN SERVICES. IT IS NOT EVEN THE TPOS CASE THAT THE PAYMENTS FOR THESE SERVICES WERE NOT MADE FOR SPECIFIC SERVICES UNDER THE CONTRACT BUT HE IS OF T HE VIEW THAT EITHER THE SERVICES WERE USELESS OR THERE WAS NO EVIDENCE OF A CTUAL SERVICES HAVING BEEN RENDERED. AS FOR THE SERVICES BEING USELESS, A S WE HAVE NOTED ABOVE, IT IS A CALL TAKEN BY THE ASSESSEE WHETHER THE SERVICE S ARE COMMERCIALLY EXPEDIENT OR NOT AND ALL THAT THE TPO CAN SEE IS AT WHAT PRICE SIMILAR SERVICES, WHATEVER BE THE WORTH OF SUCH SERVICES, ARE ACTUALL Y RENDERED IN THE UNCONTROLLED CONDITIONS. 17. AS FOR THE EVIDENCE FOR EACH OF THE SERVICE STA TED IN THE AGREEMENT, IT IS NOT EVEN NECESSARY THAT EACH OF THE SERVICE, WHICH IS SPECIFICALLY STATED IN THE AGREEMENT, IS RENDERED IN EVERY FINANCIAL PERIOD. T HE ACTUAL USE OF SERVICES DEPENDS ON WHETHER OR NOT USE OF SUCH SERVICES WAS WARRANTED BY THE BUSINESS SITUATIONS WHEREAS PAYMENTS UNDER CONTRACT S ARE MADE FOR ALL SUCH SERVICES AS THE USER MAY REQUIRE DURING THE PERIOD COVERED. AS LONG AS AGREEMENT IS NOT FOUND TO BE A SHAM AGREEMENT, THE VALUE OF THE SERVICES COVERED UNDER THE AGREEMENT CANNOT BE TAKEN AS NIL JUST BECAUSE THESE SERVICES WERE NOT ACTUALLY REQUIRED BY THE ASSESSEE . IN ANY CASE, HAVING PERUSED THE MATERIAL ON RECORD, WE ARE SATISFIED TH AT THE SERVICES WERE ACTUALLY RENDERED UNDER THE AGREEMENT AND THESE SER VICES DID JUSTIFY THE IMPUGNED PAYMENTS. 18. WE ARE ALSO OF THE CONSIDERED VIEW THAT IN THE ABSENCE OF PREREQUISITES FOR APPLICATION OF CUP METHODS BEING ABSENT IN THE PRES ENT CASE, IT WAS NOT OPEN TO THE TPO TO DISREGARD THE TNMM EMPLOYED BY THE AS SESSEE. NO DEFECTS HAVE BEEN POINTED OUT IN APPLICATION OR RELEVANCE O F TNMM IN THIS CASE. UNDER THESE CIRCUMSTANCES, THE TPOS IMPUGNED ACTIO N CANNOT MEET OUR JUDICIAL APPROVAL. 19. FOR THE DETAILED REASONS SET OUT ABOVE, WE UPHO LD THE GRIEVANCE OF THE ASSESSEE AND DIRECT THE AO TO DELETE THE IMPUGNED A LP ADJUSTMENT OF RS.31,23,325. THE ASSESSEE GETS THE RELIEF ACCORDIN GLY. 25. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN T HE VIEW SO TAKEN BY THE COORDINATE BENCH. 26. IN THE PRESENT CASE, THOUGH A FINDING IS GIVEN TO THE EFFECT THAT NO SERVICES ARE RENDERED, IN THE LIGHT OF THE CONTRADICTIONS IN THI S FINDING AND THE OBSERVATIONS ABOVE, IT IS CLEAR THAT IN EFFECT COMMERCIAL EXPEDIENCY OF THIS PAYMENT IS QUESTIONED. THAT EXERCISE, IN OUR CONSIDERED VIEW- PARTICULARLY IN T HE LIGHT OF HONBLE DELHI HIGH 11 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 COURTS JUDGMENT IN THE CASE OF EKL APPLIANCES (SUP RA), CANNOT BE CONDUCTED IN THE COURSE OF ASCERTAINING THE ARMS LENGTH PRICE. 27. IN VIEW OF THE ABOVE DISCUSSIONS, AS ALSO BEAR ING IN MIND ENTIRETY OF THE CIRCUMSTANCE, IT IS CLEAR THAT THE IMPUGNED ALP ADJ USTMENT IS CONTRARY TO THE SCHEME OF THE ACT. THE AUTHORITIES BELOW HAVE BEEN SWAYED BY THE CONSIDERATIONS WHICH WERE NOT GERMANE TO THE ISSUE. WE, THEREFORE, UPHOL D THE GRIEVANCES OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ALP ADJUSTMENTS IN RESPECT OF THE PAYMENT OF FEES FOR TECHNICAL SERVICES. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. ALTHOUGH THE REVENUE CONTESTED THIS DECISION BEFORE HONBLE BOMBAY HIGH COURT VIDE ITA NO. 272 OF 2014 DATED 08/08/201 6 BUT THE HONBLE COURT REFUSED TO ADMIT SUBSTANTIAL QUESTION OF LAW. WE FIND THAT THE FACTS IN THE CASE OF PRESENT ASSESSEE ARE PARI-MATERIA THE SAME AS IN THE CASE OF ITS SISTER CONCERN. NOTHING ON RECORD WOULD SUGG EST THAT AFORESAID RULING IS NOT APPLICABLE TO THE FACTS OF THE PRESEN T CASE. THEREFORE, RESPECTFULLY, FOLLOWING THE SAME, WE DELETE THE IMP UGNED ADDITIONS. THE GROUNDS RAISED, IN THIS RESPECT, ARE ALLOWED. NON-TRANSFER PRICING ISSUES 4.1 DISALLOWANCE U/S 14A IT TRANSPIRED THAT THE ASSESSEE EARNED DIVIDEND INC OME OF RS.13,656/- WHICH WAS CLAIMED TO BE EXEMPT U/S 10(35). THE SAID EXEMPT INCOME, IN THE OPINION OF LD. AO, CALLED FOR DISALLOWANCE U/S 14A R.W.R. 8D. THE ASSESSEE HAD OFFERED SUO-MOTO DISALLOWANCE OF RS.1.13 LACS IN ITS COMPUTATION OF INCOME. IN DEFENSE, THE ASSESSEE SUB MITTED THAT IT DID NOT INCUR ANY EXPENDITURE TO EARN THE SAID INCOME. IN T HE ALTERNATIVE, THE ASSESSEE OFFERED DISALLOWANCE OF RS.1 LACS, BEING P ROPORTIONATE AMOUNT OF SALARY PAID TO AN EMPLOYEE FOR TIME DEVOTED TOWA RDS INVESTMENT ACTIVITIES. HOWEVER, REJECTING THE SAME, LD. AO COM PUTED AGGREGATE 12 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 DISALLOWANCE OF RS.1.16 LACS WHICH COMPRISED-OFF OF INTEREST DISALLOWANCE U/R 8D(2)(II) FOR RS.1.01 LACS AND EXP ENSE DISALLOWANCE U/R 8D(2)(III) FOR RS.0.14 LACS. AFTER ADJUSTING THE S UO-MOTO DISALLOWANCE OF RS.1.13 LACS AS MADE BY THE ASSESSEE, LD. AO PROPOS ED ADDITIONAL DISALLOWANCE OF RS.2,404/-. THE STAND OF LD. AO, UP ON CONFIRMATION BY LD. DRP, IS UNDER CHALLENGE BEFORE US. UPON DUE CONSIDERATION, WE FIND THAT ADDITIONAL DIS ALLOWANCE OF RS.2,404/- AS MADE BY LD. AO WOULD NOT BE SUSTAINAB LE IN VIEW OF THE FACT THAT THE ASSESSEE HAD ALREADY OFFERED SUO-MOTO DISALLOWANCE IN ITS COMPUTATION OF INCOME WHICH FAR EXCEED THE EXEMPT I NCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. T HEREFORE, BY DELETING THE IMPUGNED ADDITION OF RS.2,404/-, WE ALLOW THIS GROUND OF APPEAL. 4.2 DEPRECIATION ON FICTITIOUS ASSETS IT TRANSPIRED THAT THE ASSESSEE CLAIMED DEPRECIATIO N OF RS.924.21 LACS, @25% ON INTANGIBLES ASSETS. SINCE SIMILAR DEPRECIAT ION CLAIMED IN AY 2007-08 & 2008-09 WAS DISALLOWED IN VIEW OF THE FAC T THAT NO ASSETS WERE TRANSFERRED AND THE ASSETS WERE FICTIOUS ASSET S, THE SAID CLAIM WAS DISALLOWED BY LD.AO WHICH WAS CONFIRMED BY LD. DRP. UPON PERUSAL OF CHART, WE FIND THAT THIS ISSUE WOUL D GO BACK TO THE FILE OF LD.AO FOR RE-ADJUDICATION DE-NOVO ON SIMILAR LINES AS DIRECTED BY CO- ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN C ASE FOR AYS 2007-08 & 2008-09, ITA NO. 3943-44/MUM/2013 ORDER DATED 25/ 01/2017. THE LD. AO IS DIRECTED TO RE-ADJUDICATE THE SAME IN THE LIG HT OF STAND TAKEN IN AYS 2007-08 & 2008-09 PURSUANT TO THE AFORESAID DIRECTI ONS OF THE TRIBUNAL. THE GROUND STAND ALLOWED FOR STATISTICAL PURPOSES. 13 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 4.3 DISALLOWANCE U/S 145A THE FINANCIAL DETAILS REVEALED THAT THE ASSESSEE HA D SOME RECEIVABLES ON ACCOUNT OF CENVAT CREDIT. THE LD.AO, INVOKING THE P ROVISIONS OF SECTION 145A WHICH MANDATE INCLUSIVE METHOD OF ACCOUNTING, PROCEEDED TO ADD BACK THE SAME TO THE INCOME OF THE ASSESSEE. THE AS SESSEE DEFENDED THE SAME BY SUBMITTING THAT IT WAS FOLLOWING NET ME THOD OF ACCOUNTING WITH REGARD TO SALES TAX, VAT AND EXCISE DUTY AND T HERE WOULD BE NO OVERALL IMPACT BY FOLLOWING EITHER OF THE METHOD OF ACCOUNTING. HOWEVER, DISREGARDING THE SAME, LD. AO PROPOSED AN ADJUSTMEN T OF RS.110.43 LACS. UPON PERUSAL OF CHART, WE FIND THAT THIS ISSUE WOUL D ALSO GO BACK TO THE FILE OF LD.AO FOR RE-ADJUDICATION DE-NOVO ON SIMILA R LINES AS DIRECTED BY CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OW N CASE FOR AYS 2007- 08 & 2008-09, ITA NO. 3943-44/MUM/2013 ORDER DATED 25/01/2017. THE LD. AO IS DIRECTED TO RE-ADJUDICATE THE SAME IN THE LIGHT OF STAND TAKEN IN AYS 2007-08 & 2008-09 PURSUANT TO THE AFORESAID DIR ECTIONS OF THE TRIBUNAL. THE GROUND STAND ALLOWED FOR STATISTICAL PURPOSES. 4.4 DISALLOWANCE U/S 43B THE ASSESSEE MADE A PROVISION FOR LEAVE ENCASHMENT FOR RS.57.32 LACS, WHICH IN THE OPINION OF LD. AO, WAS NOT ALLOWABLE A S PER THE PROVISIONS OF SEC. 43B. THE LD. DRP REJECTED THE OBJECTIONS RAISE D BY THE ASSESSEE. THE LD. AR, HAD DRAWN ATTENTION TO PARA 12.2 OF THE LD. DRPS ORDER TO SUBMIT THAT THERE WAS ACTUALLY A WRITE-BACK OF RS.7 .55 LACS DURING THE YEAR AND THEREFORE, NO DISALLOWANCE WOULD BE WARRAN TED. THE LD. DRP HAD REJECTED THE SUBMISSIONS FOR WANT OF EVIDENCES. THE LD. DR 14 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 SUBMITTED THAT THE ISSUE MAY BE RESTORED BACK FOR P ROPER APPRECIATION OF FACTS. KEEPING IN VIEW THE SUBMISSIONS MADE, WE DIRECT LD. AO TO RE-ADJUDICATE THE SAME DE-NOVO IN THE LIGHT OF SUBMISSIONS MADE B Y LD. AR. THE GROUND STAND ALLOWED FOR STATISTICAL PURPOSES. 4.5 OTHER GROUNDS THE OTHER GROUNDS RAISED IN THE APPEAL ARE RELATED WITH INTEREST U/S 234 AND INITIATION OF PENALTY. THESE GROUNDS BEING CONS EQUENTIAL, WOULD NOT REQUIRE ANY SPECIFIC ADJUDICATION. THE LD. AO IS DI RECTED TO COMPUTE INTEREST IN ACCORDANCE WITH LAW. 5. FINALLY, THE APPEAL STANDS PARTLY ALLOWED IN TER MS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH NOVEMBER , 2019. SD/- SD/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 11/11/2019 SR.PS, JAISY VARGHESE $ %&'( ' / COPY OF THE ORDER FORWARDED TO : 1. 9: / THE APPELLANT 2. ;<9: / THE RESPONDENT 15 M/S MERCK SPECIALTIES PRIVATE LIMITED ITA NO.1947/MUM/2014 ASSESSMENT YEAR: 2009-10 3. C ( ) / THE CIT(A) 4. C / CIT CONCERNED 5. DE;>F , F , / DR, ITAT, MUMBAI 6. EGHI / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.