DCIT - 9(2), MUMBAI V. M/s. HAZARIA CRYOGENIC ENGG. & CONST. MANAGEMENT P. LTD., MUMBAI

ITA 2124/MUM/2007

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1010 (ITAT-MUMBAI)
• Duration Of Justice: 10 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 16-02-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 14-03-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANT KUMAR
• Keywords: Transfer pricing; Retrospective amendment

Judgement Text

INCOME-TAX APPELLATE TRIBUNAL KBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAVISH SOOD, JUDICIAL MEMBER ./I.T.A./2124/MUM/2007, /ASSESSMENT YEAR: 2002-03 D.C.I.T-9(2), ROOM NO.218, 2 ND FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI- 400 020. VS. M/S.HAZARIA CRYOGENIC ENGINEERING AND CONSTRUCTION MANAGEMENT PVT. LTD., TECHNIMONT, ICB HOUSE, CHINCHOLI BUNDER,PLOT NO.504, LINK ROAD,MALAD(W),MUMBAI-400 064. PAN: AABCH0272M ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI JAYANT KUMAR, DR ASSESSEE BY: SHRI KETAN VED / DATE OF HEARING: 10/10/2017 / DATE OF PRONOUNCEMENT: 03/01/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER,DATED 12/12/2006,OF THE CIT ( A)-IX, MUMBAI, THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.ASSESSEE-COMPANY,ENGAG ED IN BUSINESS OF MANAGEMENT SERVICES, FILED ITS RETURN OF INCOME ON 31/10/2002,DECLARING TOTAL INCOME OF RS.1.32 CRORE.THE AO COMPLET -ED THE ASSESSMENT,ON30/03/2005,U/S.143(3)OF THE AC T,DETERMINING ITS INCOME AT RS.11.65 CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT DELETING THE DISALL OWANCE MADE BY THE AO U/S.40(A)(I) OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO OBSERV ED THAT THE ASSESSEE HAD PAID TECHNICAL SERVICE FEES TO BOUYHUES OFFSHORE,PARIS (BOP)WITHOU T PAYING THE TAX DEDUCTED AT SOURCE ON SUCH PAYMENTS.REFERRING TO THE PROVISIONS OF SECTION 40( A)(I), THE AO HELD THAT PAYMENTS WERE MADE OUTSIDE INDIA FOR TECHNICAL SERVICE FEES,THAT TAX W AS NOT CREATE ON SUCH PAYMENT, THAT THE PAYMENT MADE BY THE ASSESSEE WAS NOT ALLOWABLE FOR THE PURP OSE OF COMPUTING THE TAXABLE INCOME. FINALLY,HE MADE A DISALLOWANCE OF RS. 10.33 CRORE. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSIONS IN THA T REGARD. IT ALSO RELIED UPON CERTAIN CASE LAWS AND THE ORDER OF THE TRIBUNAL IN THE CASE OF H AZIRA MARINE ENGINEERING AND CONSTRUCTION MANAGEMENT PRIVATE LTD. FOR THE AY. 2002-03,WHEREIN SIMILAR ISSUE WAS DELIBERATED UPON.AFTER CONSIDERING THE AVAILABLE MATERIAL,THE FAA HELD THA T THE ASSESSEE HAD DEDUCTED TAX ON SUCH TECHNICAL SERVICE OUT OF WHICH PART PAYMENT OF SUCH TAX WAS DEPOSITED WITHIN THE TIME ALLOWED M/S.HAZARIA CRYOGENIC ENGINEERING AND CONSTRUCTION MANAGEMENT PVT. LTD., 2 U/S. 200 OF THE ACT, THAT THE AO HAD HELD THAT ENTI RE TAX WAS NOT PAID BY THE ASSESSEE AND THAT AMOUNT IN QUESTION WAS NOT DEDUCTIBLE. HE REFERRED TO PROVISO TO THE SECTION 40(A)(I) AND HELD THAT SAME WOULD NOT BE APPLICABLE IF THE ASSESSEE W OULD EITHER DEDUCT TAX OR WOULD BE SUCH TAX,THAT EVEN IF ONE CONDITION WAS FULFILLED NO DIS ALLOWANCE COULD BE MADE,THAT THE PROVISO ALSO SUPPORTED THE SAME PROPOSITION, THAT IT REFERRED TO EITHER PAYMENT FOR DEDUCTION, THAT IF THE ASSESSEE WOULD NOT DEDUCT OR PAY THE AMOUNT DURING ANY PRECEDING YEAR AND SUBSEQUENTLY IF IT WOULD DEDUCT SUCH SUM IN SUBSEQUENT YEAR THEN IN SU CH CASES EXPENSES WOULD BE ALLOWED TO BE DEDUCTED IN SUCH SUBSEQUENT YEAR,THAT DEDUCTION OF TAX ON PAYMENT OF SUCH TAX DEDUCTED AT SOURCE PRIOR TO THE AMENDMENT WERE INDEPENDENT, THA T IF ONE OF THE CONDITION WAS SATISFIED NO DISALLOWANCE WAS CALLED FOR, THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURCE, THAT NO DISALLOWANCE WAS CALLED FOR.HE FURTHER OBSERVED THAT THE AO HAD RAISED SERIOUS DOUBTS REGARDING THE DEDUCTION OF TAX ITSELF, THAT HE HAD MADE A REFERENCE TO THE BALANCE SHEET OF THE ASSESSEE WHEREIN THERE WAS NO ENTRY OF OUTSTANDING TAX DEDUCTED AT SOURCE, THA T HE HAD HELD THAT TAX WAS DEDUCTED ON SUCH PAYMENTS. CONSIDERING THE OBSERVATIONS OF THE AO, T HE FAA DIRECTED HIM TO VERIFY THE CLAIM MADE BY THE ASSESSEE THAT TAX WAS DEDUCTED AT SOURC E AND WAS CREDITED IN THE BOOKS OF ACCOUNTS. HE FURTHER DIRECTED THAT IF IT WAS FOUND THAT NO TA X WAS DEDUCTED AT SOURCE AND TAX WAS FOUND TO BE OUTSTANDING THEN THE DISALLOWANCE MADE WOULD STA ND CONFIRMED. 2.2. DURING THE COURSE OF HEARING BEFORE US,THE DEPARTME NTAL REPRESENTATIVE (DR) ARGUED THAT THE ASSESSEE PAID THE TAXES IN THE SUBSEQUENT AY.AFTER ABOUT TWO MONTHS,THAT PAYMENT WAS NOT MADE IN TIME,THAT THE PROVISO TALKED OF PAYMENT OR DEDUC TION, THAT THE FAA DID NOT TAKE NOTICE OF THE CONDITIONS PROVIDED IN THE PROVISO. HE REFERRED TO THE CASE OF PUTHUTHOTAM ESTATES(1943)LTD. (127 ITR 481).THE AUTHORISED REPRESENTATIVE (AR) RE FERRED TO THE DEMAND NOTICE ISSUED BY THE AO U/S. 156 OF THE ACT AND TO THE ORDER GIVING EFFE CT TO THE ORDER OF THE FAA. HE ALSO RELIED UPON THE CASES OF MODI OLIVETTI LTD(263 CTR 28) OF THE H ONORABLE ALLAHABAD HIGH COURT AND HAZIRA MARINE ENGINEERING AND CONSTRUCTION MANAGEMENT PRIV ATE LTD.(ITA/7512/MUM/2005,AY.2002 -03,DATED 31/05/2006). 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THE AO HAD MADE THE DISALLOWANCE U/S.40(A)(I) OF THE ACT,THAT HE HELD THAT ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE FOR THE PAYMENTS MADE TO THE NON-RESIDENT EN TITY.THE FAA HAS GIVEN A FINDING OF FACT THAT ASSESSEE HAD MADE PART PAYMENT OF THE TAXES DEDUCTE D AT SOURCE DURING THE YEAR UNDER CONSIDERA - M/S.HAZARIA CRYOGENIC ENGINEERING AND CONSTRUCTION MANAGEMENT PVT. LTD., 3 TION,THAT THE AO HAD ALSO ADMITTED THE FACT OF PART PAYMENT.HE HAD DIRECTED THE AO TO VERIFY THE FACT ABOUT THE CLAIM MADE BY THE ASSESSEE THAT TAX WAS DEDUCTED AT SOURCE AND WAS CREDITED IN THE BOOKS OF ACCOUNTS.HE HAD GIVEN A CLEAR DIRECTION TH AT IF THE CLAIM WAS NOT FOUND GENUINE ABOUT DIRECTING THE TAX AND CREDITING IN THE BOOKS OF ACC OUNTS THE AO COULD DISALLOW THE CLAIM.THUS,THE FAA HAS NOT ALLOWED THE EXPENDITURE INCURRED BY THE ASSESSEE-HE HAD DIRECTED THE AO TO MAKE NECESSARY VERIFICATION.WHILE GIVING EFFECT TO THE O RDER OF THE FAA,THE AO HAS NOT MADE ANY DISALLOWANCE.THIS CLEARLY SHOWS THAT THE ASSESSEE H AD MADE NECESSARY ENTRIES IN ITS BOOKS ABOUT THE DEDUCTION OF TAX AT SOURCE.IT APPEARS THAT WHIL E FILING THE APPEAL,THE THEN AO HAD NOT VERIFIED THE FACTS NOR DID HE READ THE ORDER OF THE FAA IN R IGHT PERSPECTIVE.AND THAT IN A VERY ROUTINE AND CASUAL MANNER HE HAS FILED THE APPEAL. HERE,WE WOULD LIKE TO MENTION THAT IN THE CASE OF M ODI OLIVETTI LTD.(SUPRA),THE HONBLE ALLAHABAD HIGH COURT HAS DEAL WITH THE ISSUE AT LEN GTH.THE DEPARTMENT HAS RAISED FOLLOWING QUESTION BEFORE THE HONBLE COURT: (3) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL HAVE ERRED IN LAW IN DELETING THE DDISALLOWANCE'S OF RS.49,37,042/- ON A CCOUNT OF PROVISIONS FOR ROYALTY, IGNORING THE PROVISIONS OF SECTION 40(A)(I) OF THE INCOME TAX AC T, 1961? THE HONBLE COURT DISCUSSED THE ISSUE AS UNDER: 12. THE ASSESSING OFFICER DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE RS.49,37,042/- ON ACCOUNT OF ROYALTY AS UNASCERTAINED LIABILITY. T HE ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE. THE PROVISION FOR ROYALTY WAS MADE AT RS.47,70,089/- WHICH IS EXCLUSIVE R&D CESS OF RS.1,66,953/-. THE AGGREGATE OF BOTH THE AMOUNT IS RS.49,37,042/- IS SHOWN IN THE BALANCE SHEET. THE CIT(A) UPHELD THE ADDITION MADE BY THE A SSESSING OFFICER. THE ITAT FOUND THAT IN THE BOOKS OF ACCOUNT RELEVANT TO THE ASSESSMENT YEAR 19 91-92, THE ASSESSEE HAD MADE A PROVISION FOR ROYALTY PAYABLE FOR THE PERIOD 1.1.1990 TO 31.3.199 1 AT RS.47,70,089/- AND R&D CESS AT RS.1,66,953/-. THE TAX DEDUCTIBLE ON THIS PAYMENT A MOUNTING TO RS.14,31,028/- WAS DULY SHOWN AS DEDUCTION IN THE BOOKS OF ACCOUNT ON 31.3.1991. LAT ER ON, THE ACTUAL AMOUNT PAYABLE TO THE COLLABORATOR IN TERMS OF THE COLLABORATION AGREEMEN T WAS WORKED OUT AT RS.44,77,151/- AND R&D CESS AT RS.1,56,700/-. THIS AMOUNT WAS PAID IN THE PREVIOUS YEAR RELEVANT TO THE A.Y. 1992-93 I.E. IN NOVEMBER, 1991. AT THE TIME OF MAKING PAYMENT, T AX DEDUCTIBLE ON THIS PAYMENT NAMELY A SUM OF RS. 13,43,145/- WAS DULY DEPOSITED TO THE CREDIT OF THE CENTRAL GOVERNMENT WITHIN THE TIME SPECIFIED UNDER THE PROVISIONS TO CHAPTER XVII B OF THE ACT. AFTER CONSIDERING THE FACTS OF THE CASE AND THE PROVISION OF SECTION 40(A)(I) OF THE ACT AS IT EXISTED AT THE RELEVANT POINT OF TIME, THE ITAT CAME TO THE CONCLUSION THAT AS PER PROVISIONS OF SE CTION 40(A)(I) THE TAX HAS TO BE DEDUCTED OR PAID UNDER CHAPTER XVII-B AND ONLY THEN THE DEDUCTI ON CAN BE CLAIMED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION WHICH STANDS SATISFIED IN THE PRESENT CASE INASMUCH AS THE LIABILITY TO PA Y ROYALTY HAD ACCRUED AND IT WAS NOT CONTINGENT AS HELD BY THE ASSESSING OFFICER. THE QUANTIFICATIO N HAD TAKEN PLACE AT A LATER POINT OF TIME. WHILE MAKING SUCH PROVISION THE ASSESSEE ALSO MADE BOOK E NTIRES IN RESPECT OF TAX DEDUCTIBLE AND THUS SATISFIED THE CONDITION OF DEDUCTION AND ACCORDINGL Y ALLOWED THE CLAIM OF THE ASSESSEE WITH REGARD TO ROYALTY. M/S.HAZARIA CRYOGENIC ENGINEERING AND CONSTRUCTION MANAGEMENT PVT. LTD., 4 13. LEARNED COUNSEL FOR THE APPELLANT SUBMITS THAT THE PROVISION OF SECTION 40(A)(I) OF THE ACT HAS NOT BEEN COMPLIED WITH BY THE RESPONDENT-ASSESSEE A ND AS SUCH THE TRIBUNAL HAS ERRED IN SETTING ASIDE THE ADDITION IN RESPECT OF ROYALTY AS MADE BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A). 14. WE HAVE CONSIDERED THE ARGUMENTS RAISED BY LEARNED COUNSEL FOR THE APPELLANTS AND FIND THAT SECTION 40(A)(I) OF THE ACT PROVIDES THAT ROYALTY P AYABLE OUT SIDE INDIA SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION ON WHICH TAX HAS NOT BEEN PAID OR DEDUCTED UNDER CH APTER XIII B. FROM THE FINDINGS OF THE FACT RECORDED BY THE ITAT IN PARAGRAPH 26 OF THE ORDER I MPUGNED, IT IS EVIDENT THAT THE LIABILITY TO PAY ROYALTY HAD ACCRUED AND WAS NOT CONTINGENT HAS HELD BY THE ASSESSING OFFICER, WHILE MAKING THE PROVISION THE ASSESSEE HAD ALSO MADE BOOK ENTRIES I N RESPECT OF TAX DEDUCTIBLE. THUS, OUT OF TWO CONDITIONS AS MENTIONED IN SECTION 40(A)(I), NAMELY , TAX HAS NOT BEEN PAID OR DEDUCTED, ONE CONDITION, NAMELY, NOT DEDUCTED DO NOT EXIST INAS MUCH AS THE TAX HAS BEEN DEDUCTED AND THEREFORE, THE PROVISION OF SECTION 40(A)(I) WILL N OT BE ATTRACTED. THE AFORESAID INTERPRETATION IS ALSO SUPPORTED BY THE PROVISO TO SECTION 40(A)(I) W HICH PROVIDES THAT WHERE THE TAX HAS BEEN PAID OR DEDUCTED IN ANY SUBSEQUENT YEAR THEN THE AMOUNT OF ROYALTY SHALL BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME OF PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID OR DEDUCTED. THUS, THE USE OF TWO WORDS, NAMELY, PAID OR DEDUCTED DO N OT CARRY THE SAME MEANING. 15. IN THE PRESENT CASE THE TAX HAS BEEN DEDUCTED AND T HUS IN THAT EVENT THE PROVISION OF SECTION 40(A)(I) STANDS SATISFIED. THIS PROVISION OF SECTIO N 40(A)(I) WAS SUBSTITUTED BY FINANCE ACT (NO.2), OF 2004 WHICH PUTS THE CONDITION THAT WHERE TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII B, AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCT ION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY O F THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200, THEN THE ROYALTY SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OF PROFESSION. THUS, SUBSEQUENT AMENDMENT MAKING SPECIFIC PROVISION OF DEDUCTION AND PAYMENT THEREOF IN THE P REVIOUS YEAR OR IN THE SUBSEQUENT YEAR WAS NOT AVAILABLE UNDER SECTION 40(A)(I) AS IT EXISTED DURING THE RELEVANT ASSESSMENT YEAR I.E. ASSESSMENT YEAR 1991-92. FOR CONVENIENCE OF INTERPR ETATION THE PROVISION OF SECTION 40(A)(I) AS EXISTED AT THE RELEVANT POINT OF TIME I.E. DURING T HE ASSESSMENT YEAR 1991-92 AND AS SUBSTITUTED BY FINANCE ( NO.2) ACT , 2004 ARE REPRODUCED BELOW : - SECTION 40(A)(I) AS EXISTED DURING THE A.Y. 1991-92 :- 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SEC TION 30 TO [38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION:,- (A) IN THE CASE OF ANY ASSESSEE- [(I) ANY INTEREST ( NOT BEING INTEREST ON A LOAN IS SUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE OUTSIDE INDIA, ON WHICH TAX HAS NOT BEEN PA ID OR DEDUCTED UNDER CHAPTER XVII-B: PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN PAID OR DEDUCTED UNDER CHAPTER XVII-B IN ANY SUBSEQUENT YEAR, SUCH SUM SHALL BE AL LOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS B EEN PAID OR DEDUCTED. EXPLANATION : FOR THE PURPOSES OF THIS SUB-CLAUSE,- (A) ROYALTY SHALL HAVE THE SAME MEANING AS IN EXP LANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (B) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9; ]. SECTION 40(A)(I) AS SUBSTITUTED BY FINANCE (NO.2) A CT, 2004:- NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIO NS 30 TO (38), THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION,- M/S.HAZARIA CRYOGENIC ENGINEERING AND CONSTRUCTION MANAGEMENT PVT. LTD., 5 (I) ANY INTEREST ( NOT BEING INTEREST ON A LOAN ISS UED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE, - (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DUR ING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200; PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCTED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 20 0, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION.- FOR THE PURPOSES OF THIS SUB-CLAUSE,- (A) ROYALTY SHALL HAVE THE SAME MEANING AS IN EXP LANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (B) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9. 16. IN VIEW OF THE DISCUSSION MADE ABOVE WE ARE OF THE VIEW THAT SINCE THE ASSESSEE HAS DEDUCTED THE TAX DURING THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR IN QUESTION I.E. A.Y. 1991-92, THE CONDITIONALITY OF SECTION 40(A)(I) STANDS SATISFIED . THE FINDING OF THE ASSESSING OFFICER THAT THE ROYALTY AS CLAIMED BY THE ASSESSEE- RESPONDENT WAS UNASCERTAINED LIABILITY, HAS BEEN FOUND TO BE INCORRECT BY THE ITAT. UNDER THE CIRCUMSTANCES, WE FIND NO ERROR IN THE IMPUGNED ORDER OF THE ITAT. IN RESULT THE QUESTION NO. 3 IS ANSWERED IN N EGATIVE I.E. IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. WE ALSO FIND THAT IN THE CASE OF HAZIRA MARINE ENGI NEERING AND CONSTRUCTION MANAGEMENT PRIVATE LTD.(SUPRA),THE TRIBUNAL HAS ADJUDICATED TH E SIMILAR ISSUE IN FAVOUR THE ASSESSEE. CONSIDERING THE ABOVE,WE HOLD THAT THE PROVISO TO S ECTION 40(A)(I)IS NOT HAVING RETROSPECTIVE EFFECT AND IS NOT APPLICABLE FOR THE YEAR UNDER APP EAL,THAT THERE WAS NO DEFAULT ON BEHALF OF THE ASSESSEE IN DEDUCTING OR PAYING THE TAX AS PER THE PROVISIONS PREVALENT AT THAT POINT OF TIME.AS FAR AS CASES RELIED UPON BY THE DR IS CONCERNED,WE WOUL D LIKE TO MENTION THAT THEY LAY DOWN GENERAL PRINCIPLES,THEY DO NOT DEAL WITH THE ISSUE ON HAND. WORDS OR AS WELL AS AND CAN HAVE TWO DIFFERENT MEANINGS.BUT,DO DECIDE THE MATTER BEFORE US,THE CASE OF PUTHUTHOTAM ESTATES(1943)LTD. (SUPRA),CITED BY THE DR IS OF NO HELP.CONSIDERING T HESE FACTS,WE DECIDE GROUND NO.1 AGAINST THE AO. 3. NEXT GROUND OF APPEAL IS ABOUT DELETING THE DISALLO WANCE OF RS.2.70 CRORES.DURING THE ASSESS - MENT PROCEEDINGS,A REFERENCE WAS MADE TO THE TRANSF ER PRICING OFFICER(TPO)TO DETERMINE THE ARMS LENGTH PRICE (ALP) OF THE PROFESSIONAL FEES PA ID TO BOS.VIDE HIS ORDER DATED 24.05.005,THE TPO DETERMINED THE ACCESS CLAIM OF EXPENSES TO THE EXTENT OF RS.2,70,85,337/- .THE AO DIRECTED THE ASSESSEE TO FILE SUBMISSIONS WITH REGARD TO ORD ER OF THE TPO.HOWEVER,AS PER THE AO,IT DID M/S.HAZARIA CRYOGENIC ENGINEERING AND CONSTRUCTION MANAGEMENT PVT. LTD., 6 NOT FURNISH ANY EXPLANATION.AS A RESULT, THE AO MAD E AN ADDITION OF RS.2.70 CRORES HOLDING THAT THE SAME WAS ALLOWABLE IN THE SUBSEQUENT YEARS. 3.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE MADE ELABORATE SUBMISSIONS BEFORE THE FAA. AFTER CONSIDERING AVAILABLE MATERIAL,HE HELD THAT T HE ONLY REASON FOR DISALLOWANCE WAS THAT THE INCOME IN RESPECT OF PRE/FINAL-INVESTMENT-DECISION( PRE-FID)WAS THAT THE CONTRACT ABOUT THE TRANSACTION WAS RECOGNISED LATER,THAT THE ASSESSEE HAS ENTERED INTO TWO INDEPENDENT AGREEMENTS, THAT INCOME RECEIVABLE FROM HAZIRA LNG PRIVATE LTD. (HLPL)AGAINST ITS INVOICE WOULD NOT ALTER ITS LIABILITY INCURRED IN RESPECT OF BOS,THAT THE T PO HAD TO DECIDE THE ISSUE OF ARMS LENGTH PRICE OF THE TRANSACTION,THAT HE HAD TO CONSIDER AS TO WH ETHER THE CONTRACT WAS AS PER THE PREVAILING UNCONTROLLED TRANSACTIONS OR NOT,THAT HE WAS NOT JU STIFIED IN MAKING THE DISALLOWANCE,THAT THE ASSESSEE WAS FOLLOWING PERCENTAGE COMPLETION METHOD OF ACCOUNTING,THAT IN THAT METHOD PROPORTI -ONATE ESTIMATE OF INCOME AS WELL AS EXPENSES HAS T O BE MADE,THAT THE CONTRACT WITH THE ASSOCIATED ENTERPRISE(AE)WAS AT ARMS LENGTH.FINALL Y,HE DELETED THE ADDITION MADE BY THE AO. 3.2. DURING THE COURSE OF HEARING BEFORE US,THE DR RELIE D UPON THE ORDER OF THE AO AND ARGUED THAT THE EXPENSES SHOULD BE RESTRICTED TO THE INCOM E OFFERED FOR TAXATION,THAT THE TPO HAD REJECTED THE TRANSFER PRICING STUDY OF THE ASSESSEE ,THAT THE ORDER OF THE FAA WAS NON-SPEAKING. THE AR STATED THAT THE ROLE OF THE TPO WAS TO DETER MINE THE ALP OF THE INTERNATIONAL TRANSAC- TIONS,THAT HE HAD NOT PASSED ANY ORDER IN THAT REGA RD, THAT ORDER PASSED BY HIM WAS NOT A VALID ORDER,THAT THE ASSESSEE HAS ENTERED INTO TWO DIFFER ENT AGREEMENTS,THAT THE ASSESSEE WAS AWARDED A CONTRACT BY HLPL,THAT HLPL WAS CONSTRUCTING A PLANT CONSISTING OF LNG TANK AND TERMINAL,THAT HLPL HAD ENTERED INTO A CONTRACT WITH THE ASSESSEE ON 22/02/2002, THAT THE ASSESSEE HAD TO RENDER THE MANAGEMENT CONTRACT SERVICES AS PER THE AGREEMENT, THAT MANAGEMENT FEE UNDER THE MANAGEMENT CONTRACT WOULD BE EARNED BY THE ASSESSEE BY WAY OF PROGRESSIVE MONTHLY PAYMENT, THAT FOR EXECUTING THE PROJECT THE ASSESSEE HAD ENT ERED INTO AGREEMENT WITH BOS, THAT DURING THE NEGOTIATION HLPL REQUESTED THE ASSESSEE TO START WO RK PRE-FINAL INVESTMENT DECISION IN ORDER TO COMMENCE THE PROJECT, THAT PRE-FID ACTIVITIES WERE CARRIED OUT FROM OCTOBER 2001 TO JANUARY 2002, THAT THE ACTIVITY WERE PARTLY CARRIED OUT OUT SIDE INDIA BY BOS,THAT AN INVOICE OF RS.5.36 CRORES WAS RAISED BY BOS FOR THE SERVICES RENDERED TO THE ASSESSEE,LATER ON A NEW ENTITY WAS CAME INTO EXISTENCE, ON INCORPORATION OF THE APPELL ANT COMPANY SERVICES RENDERED BY BOS WERE RATIFIED,THAT THE PRE-FID EXPENSES FLEW IN TO THE V ALUE OF EXPENSES RENDERED UNDER THE MANAGE - M/S.HAZARIA CRYOGENIC ENGINEERING AND CONSTRUCTION MANAGEMENT PVT. LTD., 7 MENT CONTRACT,THAT THE EXPENSE WAS PART AND PARCEL OF THE TOTAL COST OF PROJECT,THAT PRE-FID INCOME AND PRE-FID EXPENSES WERE TWO INDEPENDENT EV ENTS, THAT PRE-FID INCOME WAS JUST A MILE - STONE/POINT IN TIME SPECIFIED FOR THAT PURPOSE OF RAISING THE INVOICE,THAT IT WAS INDEPENDENT OF THE EXPENSES INCURRED, THAT IT WAS NOT A REIMBURSEMENT OF PRE-FID EXPENSES,THAT PRE-FID EXPENSES WERE PART OF THE TOTAL COST OF CONTRACT, THAT EQUAT ING THESE INDEPENDENT TRANSACTIONS WAS NOT IN LINE WITH THE PRINCIPLES OF TP,THAT THE ASSESSEE HA D OFFERED THE INCOME FOR TAX PURPOSES AS FOR THE PROPORTIONATE COMPLETION METHOD OF ACCOUNTING,THAT IT HAD RECOGNIZED INCOME OF RS.12.53 CRORES IN THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER A PPEAL,THAT THE INCOME WAS RECOGNIZED BY APPLYING THE PERCENTAGE OF PROFIT MARGIN RATIO ON T OTAL ESTIMATED COST OF CONTRACT TO TOTAL COST INCURRED DURING THE YEAR,THAT THE RECEIPT OF RS.2.1 3 CRORES FOR THE ENTIRE PROJECT WAS KNOWN IN ADVANCE,THAT THE EXPENSES FOR THE PROJECT WERE ESTI MATED AT RS.1,89,75,78,697/-,THAT PROFIT MARGIN RATIO WAS PROFIT/TOTAL EXPENDITURE(I.E.11.79%),THAT THE TOTAL EXPENDITURE OF RS.11,20,86,256/- INCLUDED THE EXPENSES OF RS.5.36 CRORES,THAT THE IN COME CORRESPONDING TO THE PRE-FID EXPENDI - TURE WAS ALREADY OFFERED FOR TAXATION,THAT THE MARK UP OF 11.79 % ON COST WAS AT ARMS LENGTH, THAT THE ASSESSEE HAS BENCHMARKED THE TRANSACTION WITH THE RESULT OF EXTERNAL COMPARABLES,THAT THE TPO HAD ACCEPTED THE MARK UP,THAT THERE WAS NO JUSTIFICATION TO RESTRICT THE CLAIM OF EXPENSES IN PROPORTION TO THE EXTENT OF INCOME (I.E.2.65 CRO RES), THAT THE WHOLE SUM OF RS.5.36 CRORES OF PRE-FID EXPENSES ALONG WITH 11.79 % OF MARK UP HAD BEEN OFFERED FOR TAX. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD ENTERED IN TO TWO SEPARATE CONTRACTS,T HAT ONE CONTRACT WAS ABOUT FEES TO BE RECEIVED BY IT,THAT THE OTHER ONE WAS ABOUT EXPENSES TO BE I NCURRED,THAT THE AO MIXED THOSE TWO CONTRACTS THAT HE HAD NOT DOUBTED THE INCURRING OF EXPENDITUR E,THAT HE WAS OF THE OPINION THAT EXPENDITURE WAS TO BE ALLOWED IN THE NEXT ASSESSMENT YEAR,THAT TPO HAD NOT FOUND ANY DEFECT IN THE METHOD OF DETERMINING THE ALP OF THE INTERNATIONAL TRANSAC TION(IT)ENTERED IN TO BY THE ASSESSEE,THAT MARK UP OF 11.79% HAS NOT BE DOUBTED BY HIM.IT APPEARS T HAT THE TPO,WHILE PASSING ORDER U/S.92 OF THE ACT,TOOK OVER THE ROLE OF THE AO.AS PER THE PRO VISIONS OF THE ACT THE ONLY ROLE ASSIGNED TO THE TPO IS TO FIND OUT AS TO WHETHER THE IT IS AT A RMS LENGTH OR NOT.HE IS NOT SUPPOSED TO TAKE DECISION ABOUT ACCOUNTING POLICY TO BE FOLLOWED BY THE ASSESSEE,NOR HE SHOULD COMMENT UPON AS HOW TO COMPUTE INCOME IF AN ASSESSEE FOLLOWS A PART ICULAR METHOD OF ACCOUNTING.IN THE CASE BEFORE US,THE ASSESSEE IS FOLLOWING PROJECT COMPLET ION METHOD AND SHOWING THE INCOME FROM THE PROJECT ACCORDINGLY.EXPENDITURE INCURRED BY IT HAVE TO CONSIDERED FOR ARRIVING AT THE TAXABLE M/S.HAZARIA CRYOGENIC ENGINEERING AND CONSTRUCTION MANAGEMENT PVT. LTD., 8 INCOME OF THE YEAR UNDER APPEAL.THERE IN NOTHING ON RECORD TO NEGATE THE FINDING OF FACT GIVEN BY THE FAA THAT INCOME CORRESPONDING TO THE PRE-FID EX PENDITURE WAS OFFERED FOR TAXATION.SO,IN OUR OPINION,THERE IS NO NEED TO INTERFERE WITH HIS ORDER.CONFIRMING THE SAME,WE DECIDE SECOND GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JANUARY, 2018. 03 ,2018 SD/- SD/- /RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 03 .01.2018. S.GANGADHARA RAO, SR.PS./JV, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.