Hubergroup India Pvt. Ltd. (Formerly known as Micro Inks Pvt. Ltd.), Vapi V. The ACIT, Vapi Circle, Vapi

ITA 234/AHD/2016

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1995 (ITAT-SURAT)
• Duration Of Justice: 6 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Next Hearing Date: 07-06-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 31-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Double taxation relief; International transaction; Period of limitation; Wholly owned subsidiary; Revenue expenditure
• Section: 263; 90; 154; 143(3); 92B; 80IB; 37(1); 10B; 143(1); 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 234/AHD/2016 (AY 2011-12) (Hearing in Virtual Court) HUBER GROUP INDIA PVT. LTD. (formerly known as Micro Inks Pvt.Ltd.) Bilakhia House, Muktanand Marg, Chala, Vapi-396191 PAN : AAACH 7063 F Vs Assistant Commissioner of Income Tax, Vapi, Circle, Shivam Commercial Complex, National High Way No.8 Vapi Appellant / assessee Respondent / Revenue Assessee by Shri A. Gopalakrishnan, CA/AR Revenue by Shri H.P.Meena, CIT–DR Date of hearing 08.06.2022 Date of pronouncement 15.06.2022 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the assessment order passed under section 144C (13) r.w.s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 04.12.2015, passed in pursuance of direction of ld. Dispute Resolution Panel-2, Mumbai (for short to as “DRP”) involving proceedings under section 144C(5) dated 29.10.2015 for assessment year (AY) 2011-12. The assessee has raised the following grounds of appeal:- ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 2 “1. The order of assessment is contrary to the facts, provision of law and prejudicial to the assessee. On the facts and in the circumstances of the case and in law, the learned Transfer Pricing Officer (TPO) and the Learned Assistant Commissioner of Income tax (hereinafter referred to as "The Learned AO" or "AO" collectively or individually as the case may be) erred in proposing, and the Hon'ble Dispute Resolution Panel ('DRP') has erred in confirming the actions of AO: Transfer pricing Adjustments: 2. On the facts and circumstances of the case and in law, the AO has erred in making an upward adjustment of Rs.89,18,000/- to Appellant's total income on account of Guarantee fee. 2.1 On the facts and circumstances of the case and in law, the AO has erred in not appreciating the fact that the transaction of issuance of a corporate guarantee by the Appellant Company in favor of its AE does not constitute an "international transaction" as per Section 92B of the Act. 2.2 The Learned AO has also erred in not appreciating the fact that provision of Guarantee by Appellant is in the nature of quasi- equity and shareholder's activities and incorrectly equated the transaction of providing guarantee by the Appellant to its wholly owned subsidiary to a regular service offered by Banks and Financial Institutions. Without prejudice to the above: 2.3 The Learned AO has also erred in adopting an ad hoc methodology for determining the Guarantee fee ignoring the fact that the benefit of providing guarantee was shared by both the assessee and its associated enterprise. 2.4 The Learned AO has also erred in determining the amount of transfer pricing adjustment by considering the arm's length on the total guarantee provided during the year and not on the outstanding balance of guarantee. 2.5 The Learned AO has also erred in not considering the search undertaken by the Appellant. 2.6 The Learned AO also erred in not allocating the interest rate differential between the Appellant and its subsidiary in accordance with the principles laid down in the ruling of ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 3 Canadian Tax Court in the case of General Electric Canada Company and Hon'ble Chandigarh ITAT in the case of DSM Sinochem Pharmaceuticals India Private Limited vs. The Addl. CIT Range-1, Chandigarh (ITA No. 1290/Chd/2012) 3 On the facts and circumstances of the case and in law, the Learned AO has erred in making an upward adjustment of Rs.15,42,01,392/- to Appellant's Total Income on account of payment of Royalty towards the use of technical know-how, trademarks and brand-names. 3.1 The Learned AO has not appreciated the fact that TNMM is the most appropriate method to benchmark the royalty payment as no appropriate Comparable Uncontrolled Transaction ('CUP') could be identified and has therefore, erred in adopting CUP method as the most appropriate method 3.2 The Learned AO has also erred by not appreciating that the margins earned by the Appellant even after payment of royalty are higher than the margins of comparable companies and hence, the payment of royalty is at arm's length price. Without prejudice to the above: 3.3 The Learned AO has erred in selecting the agreement of Altair Technology as CUP without appreciating that the technology licensed in the agreement of Altair Technology pertains to extraction of titanium dioxide from mineral ore whereas the technology licensed to Appellant pertains to manufacturing of inks. If at all the CUP is found to be the most appropriate method, the agreement of Nocopi Technology should be adopted as CUP as the same pertains to license of ink manufacturing technology. 3.4 The Learned AO has also failed to appreciate that the agreement of Altair Technology provides for increase in royalty rates at periodic levels and therefore such rates ought to be applied. 3.5 The Learned AO has also erred in not giving an adjustment for rate of royalty for brand name and Trade-mark. The Appellant has been provided license to use the brand name and trademarks in addition to the technology but the agreement with Altair Nanotechnology only provide for the transfer of technology. 3.6 The Learned AO has also failed to appreciate that the payment made by the Appellant to its AE is within the prescribed ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 4 limits as laid down by the RBI under the Automatic Approval route and hence the rate of royalty be implied to be at Arm's Length Price. Each of the above grounds are independent, separate/alternative and without prejudice to one another. Corporate Tax Matters: 4 Confirming the action of the AO in not accepting the profits of various units as declared by the appellant company by reducing the eligible profit of Silvassa - 2 unit (industrial undertaking) and EOU to the tune of Rs. 26,24,863/- and Rs. 12,82,921/- respectively on account of inter division transfer while granting deduction U/s, 80IB and 10B of the Act. 5 Excluding the Income by way of 'scrap sales' to the tune of Rs.2,68,36,625/- from the profit of EOU Unit while granting deduction U/s. 10B. 6 Excluding the Income by way of 'scrap sales' to the tune of Rs.45,49,512/- from the profit of Silvassa - Unit 2 while granting deduction U/s. 80IB. 7 Confirming the action of the AO in rejecting the assessee company's claim during the course of assessment proceedings that only net amount of export benefit to be excluded for the purpose of calculating profit eligible for deduction U/s. 80IB of the Act. 8 Confirming the action of the AO in making disallowance of Rs.6,05,115/- in respect of foreign currency fluctuation loss arising out of Revaluation and/or Repayment of Foreign Currency Term Loan. 9. Confirming the action of the AO in making addition to the tune of Rs.8,26,042/- by treating interest on income tax refund as taxable income. 10. The additions made by the Learned AO based on the direction of the Hon'ble DRP are contrary to the facts and law and deserve to be deleted. 11. The appellant craves to add, amend, modify or alter the above grounds of appeal at any stage of appellate proceedings.” ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 5 2. Further vide application dated 23.11.2020, the assessee has raised following additional grounds of appeal:- “1.On appreciation of the facts and circumstances of the case and law, the Learned Assessing Officer has erred in not correctly determined, computed and assessed the Dividend Distribution Tax (DDT) at lower rate for dividend paid to MHM Holding GmbH, Germany, a foreign company and a resident of Germany in accordance with DTAA entered into by India with Germany. 2. On appreciation of the facts and circumstances of the case and law, the Learned Assessing Officer ought to have determined, computed and assessed the Dividend Distribution Tax (DDT) at the rate of 10% in respect of dividend paid to MHM Holding GmbH, Germany, a foreign company and a resident of Germany correctly as per section 90 of the Income Tax Act, 1961, read with Article 10 of DTAA entered into by India with Germany as against 16.60875% (i.e. Basic Rate 15% + 7.5% surcharge + 3% Cess of Basic and Surcharge) paid by the appellant company. 3.On appreciation of the facts and circumstances of the case and law, the learned assessing officer has erred in not granting deduction u/s 37(1) of the Income Tax Act for Education Cess and Secondary & Higher Education Cess paid / payable by the appellant company during the year.” 3. Brief facts of the case are that assessee is a wholly owned subsidiary of MHM Holding GmbH, Germany, which hold substantial shares of assessee-company. The assessee is having trading subsidiary in China and Hong Kong. The assessee is engaged in the business of manufacturing and sales of printing ink and other intermediates and allied ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 6 products. The assessee has five manufacturing units located at Vapi, Daman, Silvassa-I, Silvassa-II and 100% Export Oriented Unit (for short as to “EOU”). The assessee filed its return of income for assessment year 2011-12 on 25.11.2011. The assessee along with its return of income furnished Audit report under Form-3CEB reporting various international transactions with its Associates Enterprise (for short as to “AE”). The assessee claimed deduction under section 80IB (4) @ 30% for its Unit at Silvassa-II and claimed deduction under section 10B at 100% in EOU. Since the assessee reported international transactions of more than prescribed limit, therefore assessing officer made a reference under section 92CA(1) for computation of Arm’s Length Price (for short as to “ALP”) to Transfer Pricing Officer (for short as to “TPO”). The TPO examined various international transactions reported in assessee’s audit reporting in Form- 3CEB and out of 44 transactions reported by assessee, the TPO selected two transactions i.e., Corporate guarantee and Royalty payment transaction to its AE for computation of their APL’s. The TPO after giving show cause notice, ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 7 considering the reply of assessee suggested upward adjustment of Rs.15.42 crores on account of payment of royalty. The TPO further suggested upward adjustment of Rs.89.18 lakhs on account of corporate guarantee fees. The TPO furnished his report / order under section 92CA(3) vide order dated 28.11.2014. 4. The Assessing Officer on receipt of report of TPO passed draft assessment order dated 23.02.2015. The Assessing Officer besides the addition of upward adjustment on account of corporate guarantees fees and adjustment of royalty payment made further addition on account of inter division transfer while granting deduction under section 80IB and 10B of the Act by reducing Rs.26,24,863/- and Rs.12,82,921/- on account of inter division transfer respectively. The Assessing Officer also excluded the income by way of scrap sale of Rs.26,83,662/- from the profit of EOU unit while granting deduction under section 10B of the Act and scrap sale of Rs.45,49,512/- from the profit of Silvassa-II unit while granting deduction under section 80IB of the Act. The Assessing Officer further made addition of ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 8 Rs.6,05,115/- on account of foreign currency fluctuation loss arising out revaluation / repayment of foreign currency term loan and addition of Rs.8,62,042/- on income tax refund as taxable income. 5. The Assessing Officer after making upward adjustment additions suggested by TPO and including other additions/ disallowances passed the draft assessment order on 23.02.2015. The draft assessment order was served upon assessee. The assessee exercised its option to file objection before Dispute Resolution Penal (Ld. DRP). The assessee before Ld. DRP objected the upward adjustment on account of corporate guarantee and royalty payment suggested by TPO as well as various other additions /disallowances made by assessing officer 6. The Ld. DRP vide their order dated 29.10.2015 passed under section 144C(5) dismissed all the objections raised by assessee. On receipt of order / direction of Ld. DRP, the Assessing Officer passed the final assessment order under section 143(3) rws 144C(13) dated 04.12.2015 in consonance with the direction of Ld. DRP dated 29.10.2015. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 9 Aggrieved by the various additions / disallowances and upward adjustment on account of corporate guarantee and royalty payment, assessee has filed present appeal before this Tribunal. 7. We have heard the submission of Ld. Authorized Representative (AR) for the assessee and Ld. Commissioner of Income-tax-Departmental Representative (CIT-DR) for the Revenue and have gone through the orders of lower authorities carefully. At the outset of hearing, Ld. AR for the assessee submits that he has raised additional grounds of appeal vide application dated 23.11.2020 submitted on 15.03.2021. The Ld. AR for the assessee further submits that in support of additional grounds of appeal, he has also filed separate application on 04.10.2020. The Ld. AR of the assessee submits that at this stage he is not pressing additional ground No.3, which relates to deduction of education cess and higher education cess under section 37(1) of the Act. Considering the submission of Ld. AR for the assessee, the additional ground No.3 is dismissed as “not pressed”. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 10 8. With regard to additional ground No.1 and 2, the ld. AR for the assessee submits that assessee has raised legal issue which were not raised before the lower authorities. The additional grounds No.1 and 2 are purely legal in nature and facts for adjudication of those additional grounds of appeal are available on record. The additional grounds of appeal is based on the judicial decisions in those issues (addition grounds). The Ld. AR for the assessee submits in the interest of natural justice and fair play, the additional grounds of appeal may be admitted and adjudicated in view of the discretion conferred on Tribunal under Rule11 of Income Tax (Appellate) Tribunal Rules, 1963. To support his submission, Ld. AR of the assessee relied upon the decision of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1988) 29 ITR 383 (SC). 9. On the other hand, Ld. CIT-DR for the Revenue submits that both the additional grounds relate to determination, computation and assessment of dividend distribution tax at lower rate for dividend paid to holding companies / Associate Enterprises. The Ld. CIT-DR submits that the ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 11 Assessing Officer or DRP has not given any findings in his assessment order nor the assessee raised any objection before DRP. Thus, the facts relating to the adjudication of the additional grounds of appeals are not emanating from the order of lower authorities. Therefore, both additional grounds raised by assessee at this stage are not permissible. The assessee can raise the factual / legal issue, if facts related to those issues are emanating from the order of lower authorities. Since no facts are emanated from the order of lower authorities thus the assessee cannot raise new plea, facts related to which is not available on record. 10. We have considered the rival submissions of both the parties and seen the contents of the orders of the lower authorities. We find that the facts related to the additional grounds of appeal raised by assessee were not subject-matter, directly or indirectly, in the draft assessment order or not subject- matter of objections before Ld. DRP. The facts related to additional grounds No.1 & 2 are not emanating from the order of lower authorities. Therefore, in our view, the additional ground of appeal raised by assessee is not ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 12 admissible at this stage. Thus, additional ground No.1 & 2 are dismissed. 11. Now adverting to the adjudication of original grounds of appeal raised by assessee. Ground No.1 is general in nature and need no specific adjudication. Thus, Ground No.1 of assessee’s appeal is also dismissed. 12. Ground No.2 relates to upward adjustment of Rs.89.18 lakhs on account of Corporate guarantee fees. 13. Brief facts related with this issue are that during the relevant period, the assessee has given corporate guarantee on behalf of USA subsidiary (AE) so as to able it raise fund in USA. This guarantee were provided to bank on behalf of USA subsidiary. As per the information provided by assessee, the assessee extended bank guarantee to Bank of India for an amount of 10 Million US dollar. The assessee in its transfer pricing documentation claimed that US subsidiary has been set-up to sale its product in USA. Had the subsidiary not been there, the assessee would not have been able to sell its products in USA market. The assessee claimed that extending of guarantee is not international transactions. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 13 Thus, no guarantee was charged by the AE from assessee. Thus, no benchmarking of such transaction was conducted by the assessee. In alternative submissions the assessee submitted that wherein AE has taken credit rating, study has been conducted with the average rate of interest on the loan taken without guarantee by corporation of similar credit rating. The assessee arrived at arm’s length rate of Libor + 308 basis points. As the assessee has obtained loan at interest rate of Libor +120 bps and Libor + 280 bps. Thus average spread of 188 bps can be attributed to the guarantee given by the assessee. The contention of the assessee was not accepted by TPO by taking view that by the transaction the AE has been benefited hence, it should be benchmarked. The TPO accordingly issued show cause notice was issued to assessee. In reply to show cause notice, assessee filed its reply dated 13.11.2014 and reiterated its stand that guarantee is provided as a part of corporate function in the form of quasi equity and shareholder activities. In alternative, the assessee stated that it would have to infuse in the additional fund in the company which would have ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 14 resulted in blocking of additional funds for the assessee itself. The contention of assessee was not accepted by TPO. The TPO’s benchmarked the transaction of guarantee at 2% of amount of guarantee and computed adjustment of Rs.89.18 lakhs. The objection of the assessee was rejected by ld. DRP by taking view that their predecessor, upheld the similar adjustment in earlier assessment year (AY 2010-11). 14. Before us Ld. AR for the assessee fairly agreed that in view of the decision of Hon'ble Bombay High Court in the case of Commissioner of Income-tax, Mumbai Vs. Everest Kento Cylinders Ltd. [2015] 58 taxmann.com 254 (Bom) the adjustment may be restricted to .5% rate of guarantee commission. The ld AR for the assessee further submits that though in earlier years the order of Tribunal is in favour of the assessee that the extending guarantee is not an international transaction. However, the ld AR for the assessee agreed that some of the units of the assessee falls in the Jurisdictional territory of Bombay High Court, hence he has no abjection if the order of Bombay High Court is followed. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 15 15. On the other hand, Ld. CIT-DR for the Revenue supported the orders of lower authorities. 16. We have considered the rival submission of both the parties and perused the order of authorities below and cited case law carefully. We find that in appeal of the assessee for AY 2010-11, the assessment order was quashed by Tribunal by taking view that the final assessment order was not passed within the time period prescribed under the Act. We find that Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd. (supra) held upheld the order of Mumbai Tribunal for directing the adjustment @ .5% of guarantee commission. Therefore, following the decision of Hon'ble Bombay High Court in the case of Everest Kento Cylinders Ltd. (supra), the Assessing Officer / TPO is directed to restrict / compute the upward corporate adjustment guarantee addition to the extent of 0.5% only. We order accordingly. In the result, this ground of appeal is partly allowed. 17. Ground No.3 relates to upward adjustment of royalty paid to AE. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 16 18. Brief facts of the case related with the issue are that during the transfer pricing adjustment, the TPO found that the assessee has clubbed transactions of royalty with other trading and manufacturing transaction for the purpose of benchmarking by adopting the transactions with Transaction Net Margin Method (for short as to “TNMM”). The assessee used operating margin as profit level indicator (PLI). The TPO noted that clubbing of transactions is not correct as TNMM and need to be benchmarked by using Comparable Uncontrolled Price (for short as to “CUP) method. When data is not available to make benchmark the transactions separately clubbing be resorted to. This is not the position in the facts of the present case. Accordingly, the TPO benchmark the payment of royalty separately. 19. The TPO noted that during the period under consideration, the assessee has paid royalty to its AEs holding company i.e., Michel Huber Munchen GmbH (MH) of Rs.25.70 crores. The assessee claimed the payment of royalty at ALP by adopting TNMM as most appropriate method while benchmarking the transaction. The assessee has claimed ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 17 that royalty was paid for technical know-how, brand and trade. The assessee claimed that they have not paid any other royalty to any other party during the year and not charged any royalty from any other party in India. The assessee claimed that no external CUP available to be adopted for comparison purpose. Thus, in absence of external or internal CUP, the transaction of royalty payment had been clubbed with other transactions and was benchmarked by adopting the TNMM and entity level. The assessee used operating margin as profit level in better that MIL. The assessee selected two comparable and found that the operating better margin as PLI of tested party at 12.24% as against 6.73% of comparable and claimed the transactions at ALP. 20. As noted above, TPO disregarded the manner of benchmarking adopted by assessee. The assessee was asked to fix royalty rate and lump sum consideration. The TPO recorded that assessee could not provide basis of fixing the above payment except claiming that they have used TNMM for benchmarking. The TPO recorded that issue of ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 18 benchmark royalty was erroneously examined in assessment years 2007-08 & 2008-09 respectively. However, assessee claimed that there no res judicata is not applicable in tax proceedings. Hence, a deviation could be made. The contention of assessee was not accepted by TPO taking view that no new facts relating to the transactions of comparable have been brought to his notice. The assessee further explained that by the technical by guidance of its parent company, the assessee improved its business. The parent company placed major role in helping the assessee with its better technical guidance and to better service line. Accordingly, assessee increased its top line. The assessee also pleaded that royalty payment is not for rendering service to its subsidiary. Rendering service to its parent company is a responsibility of with Germany subsidiary and the assessee has neither responsibility nor followed to make payment on behalf of its AE. The explanation of assessee in increasing the royalty payment was not accepted. The TPO after issuing show cause notice adopted CUP as most appropriate method. The assessee in its reply also objected ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 19 for CUP as appropriate method. The reply of the assessee was not accepted by TPO and also rejected the comparable Nocopi Technology as comparable. The TPO directed the assessee to conduct a search, the assessee selected Nocopi technology Inc being manufacturing of printing inks as a comparable. The TPO selected Altair technology as a comparable with the assessee. The assessee claimed that Altair Nano Technologies uses a slight amount of TiO 2 (titanium oxide) and hence this technology is not comparable with the technology transfer from Altair Technology, the objection of assessee was not accepted by TPO. The TPO held that the Altair Technology paying royalty at 1%. The TPO further noted that royalty has been increased from 4% to 5% and 8% comparative to preceding year. The technology given by parent company and based on experience of Germany Company. It is more in nature of trade mark and royalty and less in technology. The TPO pass following order:- “5.15 In view of above discussion, royalty rate as provided in agreement No.3 i.e. Altair nanotechnologies income. Has been taken as CUP benchmark for comparing royalty transaction of the ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 20 ae. A running royalty of 2% has been provided in this agreement. Same is being allowed in the assessee’s case. 5.16 The total royalty payment during the year is Rs.25,70,02,319/-. Detailed computation of royalty has not be submitted by the ae company. Since most of the export sales are made to related parties, it is assumed that the entire royalty has been paid at 5%. The arm‘s length rate is 2%. The adjusted arms length royalty is arrived at 2% or Rs.19,28,00,927/-.Hence, an upward adjustment to the income of the assessee to the extent of Rs.15,42,01,392/- is required to be made on account of payment of excess royalty.” 21. On receipt of the direction form TPO, the assessing officer included/ made the addition in the draft assessment order, against which the assessee filed its objection before DRP. The Ld. DRP rejected the objection of assessee and held that TPO relied on the agreement Altair Technology and on the basis of agreement held that royalty rate should be charged @ 2% of net sales revenue. Further held that in assessee’s own case similar adjustment was upheld in AY 2010-11. Thus, by following the earlier year order, the adjustment suggested by TPO was upheld. 22. We have heard the submissions of both the parties. Before us the Ld. AR for the assessee submits that TPO wrongly rejected the TNMM as most appropriate method. The TPO ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 21 adopted CUP method as appropriate method, which is not in accordance with Rule 10B (2) of the ITAT Rules, 1963. The assessee is in the manufacturing of Ink. The Altair Technology is an extraction and related product. The assessee’s parent company has name and trade mark included, however, in case of Altair Nanotechnology has name and trade-name are not included. There is geographical difference as per agreement of assessee. The assessee has agreement in India and rest of the world other than USA. The Altair Nanotechnology has agreement for USA. Altair Nanotechnology is not in manufacturing of printing. The Ld. AR for the assessee further submits when exact comparable is not available for benchmarking royalty, CUP is not most appropriate method. It has been held so by Mumbai Tribunal in the case of Cabot Indi Ltd. Vs. DCIT, in ITA No.6622/Mum/2009 dated 31.05.2011 and Pune Tribunal in the case of Kirloskar Ebara Pumps Ltd. vs. DCIT (2011) 12 taxmann.com 241 (Pune-Trib.) and Mumbai Tribunal in the case of DCIT-LTU vs. CLSA India Ltd. (2013) 33 taxmann.com 260 (Mumbai-Trib.). The Ld. AR for the ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 22 assessee further submits that TNMM is the most appropriate method for benchmarking royalty as held by Jaipur Bench in the case of ACIT, Circle-2, Alwar vs. Sakata Inx (India) Ltd. (2015) 54 taxmann.com 106 (Jaipur-Trib.). 23. In alternative submission, the Ld. AR for the assessee submits that amount of royalty paid during the year is within permissible limit under Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) guidelines and hence the same be considered as valid comparison as per CUP method. The assessee has paid royalty @ 5% on domestic sales and 8% to third party domestic and export sales, which is within the RBI permitted rate as per RBI Circular No.5/2003 dated 21.07.2003 and AP(DIR Series) No.76 dated 24.02.2007. The Kolkata Tribunal in the case of DCIT Vs DIC India (2019) 106 taxmann.com 404 (Kolkata-Trib) held that where foreign company provided technical know-how for manufacturing printing ink, if royalty paid was within range approved by Department of Industrial Policy & Promotion as well as by SIA and FIPA. The said rate was at arm’s length. The ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 23 Kolkata Tribunal relied on the decision of Hon'ble Bombay High Court in the case of CIT Vs SGC India (P.) Ltd. (ITA No.1807/2013 dated 18.11.2013). 24. The Ld. AR for the assessee further submits that various other Benches of Tribunal in following cases also held that the approval rate of royalty by RBI implies that payment and royalty and no adjustment needs to be made;  DCIT, Circle-9(1) vs. Sona Okegawa Precision Forgings Ltd. (2012) 17 taxmann.com 98/(49 SOT 520 Delhi),  Thyssen Krup Industries India Ltd Vs Add CIT (2013) 33 taxmann.com 107 (Mum-Trib)  Abhisek Auto Industries Vs DCIT (2011) 9 taxmann.com 27 Delhi. 25. The Ld. AR for the assessee submits that if all submissions are not acceptable Nocopi Technology should be considered as a valid comparable instead of Altair technology. 26. On the other hand, the Ld. CIT-DR for the Revenue supported the order of lower authorities. The ld DR for the revenue further submits that the TPO after detail discussions and deliberation held that the TNNM method adopted by the assessee was not the correct method for ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 24 benchmarking the ALP. The TPO rejected the TNNM method and applied CUP method and gave his categorical finding the Atair Technology was the comparable company. the ld DR for the revenue prayed to upheld the order of TPO/ DRP 27. We considered the rival submissions of both the parties and have gone through the orders of the lower authorities. We have also deliberated on the various case laws relied by the ld AR for the assessee. We find that TPO rejected TNMM by valid reason and the assessee has mixed up other transactions by making benchmarking royalty payment. The TPO held CUP method is the most appropriate method for benchmark of royalty payment. We find TPO selected Altair technology as good comparable for benchmarking of royalty payment. The TPO made upward adjustment by taking view that most of the export sales are made to related parties, it is assumed that the entire royalty has been paid at 5%. The arm‘s length rate is 2%. The adjusted arm’s length royalty is arrived at 2% or Rs.19,28,00,927/- and upward adjustment to the income of the assessee to the extent of Rs.15,42,01,392/-. On objections, the Ld. DRP upheld the ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 25 order of TPO by taking view that similar adjustment was upheld in assessment year 2010-11. Thus, no interference is considered for the year under consideration. 28. Before us Ld. AR for the assessee made various alternative submission including that assessee paid royalty @5% on domestic sales and 8% of third party domestic and export sale, which is within the RBI permissible rate as per Circular No.5/2003 dated 21.07.2003 and that by following the Circular various benches of Tribunal accepted the payment of royalty which was in consonance with the RBI Circular at ALP. We find that co-ordinate Bench of Kolkata in the case of DCIT, Circle10(1) Kolkata vs. DIC India Ltd. (supra) on considering the similar submissions that when royalty payment was made in accordance with RBI Circular No.5/2003 the addition / adjustment suggested by Assessing Officer / TPO is not sustainable. We find that the co-ordinate Bench of Kolkata (supra) while referring and relying upon the decision of Hon'ble Bombay High Court in the case of GS India (P.) Ltd. (supra), passed the following order:- ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 26 “22.We also take note of the fact that the rates at which the royalty was paid was pursuant I agreement approved by the Dept. of Industrial Policy & Promotion, Ministry of Commerce & Ind Such rates were also within the rates prescribed by S1A & FIPB in respect of the technical collaboration agreements between residents of India and the non-residents under the automatic route i.e. 5% & respect of domestic sales & export sales respectively. In view of the foregoing facts we hold that t' of royalty adopted by the assessee for making royalty payments were within the prescribed para and therefore at arm's length. In the circumstances therefore we do not find any infirmity in the Ld. CIT(A)'s order in granting relief. In this regard, we find support from the decision of the co-ordinate Bench of this Tribunal in the ease of Asstt. CIT v. Dow Agrosciences India (P.) Lid. [2016] 76 taxmann.com 124 (Mum. Trib.) wherein on analogous facts the Tribunal had held as follows: "7.1 In order to appreciate the aforesaid, the following discussion is relevant. The royalty the assessee to its associated enterprise i.e. Dow Netherlands has been approved by the Se of Industrial Approval (SIA), Ministry of Industry (Government of India) vide communication dated 07/09/1996 and also by the Reserve Bank of India dated 11/03/1997. Before us, a reference has also been made to Paper Book, wherein the aforesaid communications have been placed as also a communication SIA dated 22/1/1997, which is in continuation to its earlier appro- 17/09/1996. In terms of such approvals, assessee is permitted to pay its foreign collaborator i.e. Dow Netherlands, royalty @ 5% on domestic sales and 8% on export sales. In this background, before the TPO assessee asserted that since royalty was paid in terms of the approvals by the Central Government, the payment of royalty was at arm's length rate. In other words, the rate of ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 27 royalty approved by the Central Government was used as a reliable data for benchmarking the transaction of payment of royalty. In this manner, assessee adopted the Comparable Uncontrolled Price (CUP) method as the most appropriate method to benchmark its international transaction of royalty and the rate approved by the Central Government was used as a reliable CUP data. Similar was the position taken by the assessee in assessment year 2003-04. Apart there-from, assessee had also canvassed that even after application of the Transactional Net Margin Method (TNMM) to test the arm's length nature of its transaction of payment of royalty, no adjustment was necessitated. Be that as it may. the TPO noted that another associate enterprise of the assessee namely UK King Lynns Plant (in short 'Dow UK’) was also paying royalty to Dow Netherlands, which was at lower rates. Based on the above, the TPO determined that the royalty paid by Dow UK was a comparable transaction and accordingly determined the arm's length royalty payment at 3% for domestic as well as 5% for gross export sale, which were the rates at which royalty was paid by DOW UK to DOW Netherlands. In assessment year 2003-04 as also in the instant assessment year, assessee had challenged the aforesaid action of the Transfer Pricing Officer. Firstly, it was canvassed that the rate of royalty payments having been approved by the Government of India, such rates constitute a valid CUP data and no further adjustment was required to the stated value of the royalties paid. Secondly, Ld. Representative for the assessee also pointed out that the comparable transaction adopted by the Transfer Pricing Officer i.e. payment of royalty by Dow UK to Dow Netherlands was a wrong approach inasmuch as comparison could be made only with an uncontrolled transaction, whereas in the case of Dow ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 28 UK and Dow Netherlands, both were associate enterprises and, therefore, payment of royalty by DOW UK to DOW Netherlands was a controlled transaction and accordingly, the same could not be considered as a valid CUP data. In so far as the latter plea of adoption of controlled transaction was concerned, the CIT(A) in assessment year 2002-03 has accepted the plea of the assessee. However, with regard to the plea of the assessee based on the rate of royalty approved by the Central Government is concerned, the CIT(A) rejected the same as according to him, such rates could not be considered as valid CUP data. The CIT(A) had however, allowed relief by benchmarking royalty payment under the TNMM whereby, the margins from the manufacturing activities of the assessee were found to be favourable vis-a-vis those of the comparables concerns. The Tribunal in assessment year 2003-04 upheld the ultimate conclusion of the CIT(A) to delete the addition on the ground that the basis on which the royalty was paid by the Dow UK to Dow Netherlands was different than that was paid by assessee to Dow Netherlands in as much as Dow UK was paying royalty as a percentage of gross sales, whereas assessee was paying royalty at net sales, in accordance with Foreign Exchange Control Regulations. The Tribunal found that if the royalty payable was calculated by adopting the same basis, then the royalty being paid by Dow UK was higher than what has been paid by assessee company to Dow Netherlands and, thus, the royalty paid by the assessee was at an arm's length rate, and no adjustment was required. On this basis, the Tribunal affirmed the order of the CIT(A) deleting the addition in assessment year 2003-04. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 29 7.2 Now in the present year, the case of the assessee is that the plea that rate of royalty approved by the Central Government as also by the Reserve Bank of India constitutes a valid CUP data has been affirmed by the Hon'ble Bombay High Court in the case of CIT v. SGS India (P.) Ltd. [IT Appeal No. 1807 of 2013. dated 18-11-2015]. In this context, the Ld. Representative for the assessee pointed out that before the Hon'ble High Court, the Revenue had relied upon Press Note No.9 (2000 series) issued by Central Government for adopting the rates of royalty prescribed therein for benchmarking royalty payable. In this context, reference was made to para 8 of the order of the Hon'ble High Court, wherein clause (IV) of the Press Note was specifically noted, which provided for payment of royalty upto 8% on export sales and 5% on domestic sales. The Ld. Representative for the assessee explained that though clause (IV) of Press Note No.9 (2000 series) considered by the Hon'ble High Court related to payment of royalty by a wholly owned subsidiary to its offshore parent company, but similar treatment has been extended even to other entities also vide A.P. (DIR Series) Circular No.5 dated 21/7/2003 issued by Reserve Bank of India. Exchange Control Department. Central Office. Mumbai, a copy of which has been placed on record. The Ld. Representative for the assessee pointed out that before the Hon'ble High Court, Revenue stated the Press Note No.9 (2000 series) dated 8/9/2000 was applicable to examine the reasonableness of the royalty paid while computing the arm's length price. 7.3 On the basis of aforesaid it is canvassed that the royalties paid by the assessee are in terms of the approval granted by SIA as also in terms of Circular No.5 dated 21/7/2003 (supra) of the Reserve Bank of India and. therefore, the royalties paid @ 8% on export and 5% on domestic sales are to be considered at arm's length rate. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 30 7.4 Although the Ld. Departmental Representative did not dispute the factual matrix, but he has merely relied upon the order of the TPO in support of the case of the Revenue. 7.5 In our considered opinion, following the judgment of the Hon'ble Bombay High Court in the case of SGS India Ltd. (supra), the payment of royalty by the assessee to its associated enterprise. Dow Netherlands @ 5% on domestic sales and 8% on export sales is liable to be consider as at an arm’s length rate in view of the Circular No.5 dated 21/7/2003 (supra). Therefore, the addition made by the Assessing Officer on this count is unsustainable. In the ultimate analysis, we uphold the action of the CIT(A) in deleting the addition, albeit, on account of different ground” 29. We further find that co-ordinate Bench of Delhi Tribunal in the case of DCIT Vs Sona Okegawa Precision Forgings Ltd (supra). while considering the similar submission and relying upon RBI Circular dated 30.04.1993 pass the following order; “8. We have duly considered the rival contentions and gone through the record carefully. To our min there are two aspects. The first aspect is whether the royalty paid by the assessee @ 3% is excessive and not computed at arm's length price. We find that the assessee has placed on record copy of the letter dated 30.4.1993 written by the RBI, Exchange Control Department to M/s. Sona Steering System Ltd. wherein royalty @" 3% on domestic sales subject to taxes for a period of five years was ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 31 allowed to be paid. There are similar other correspondence which have been placed on the paper book. Similarly, on page 51 of the paper book, a press note issued in 2003 issued by the Government of India, Ministry Commerce & Industries, Department of Industrial Policy and Promotion has been placed. In this press release, royalty payment at 8% on export and 5% on domestic sales has been referred as a reasons payment for processing the cases for approval. Thus, learned TPO failed to bring any material on record which can suggests that payment of royalty @ 3% was excessive, one and not at arm's length price. The other aspect is whether assessee has made the sales to the A.E at arm's length price or not? This issue has not been considered by the learned TPO in detail. He was unable to collect any material indicating that sales price charges by the assessee was not at arm's length. In a way. he accepted sales made by the assessee to Assessing Officer are on arm's length. Learned First Appellate Authority has considered this aspect also in the finding extracted above. Learned TPO further not brought any material indicating the fact that asse is a contract manufacturer. He only draws inference in this regard. In assessment year 2004-05. ITAT has consider this aspect and has upheld the order of the Learned CIT (Appeals) deleting such addition. Thus, after taking into consideration the facts and circumstances and the findings of the Learned CIT (Appeals) extracted supra, we do not find any merit in this appeal, it is dismissed.” 30. We further find that co-ordinate Bench in the case of Thyssen Krupp Industries Indi Ltd. vs. Addl. CIT (supra) while considering the adjustment of royalty payment held that when the rate of royalty is approved or deemed to be approved by RBI, then such payments has to be considered at APL. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 32 31. Considering the aforesaid factual and legal submission, we find that the payment of royalty by assessee to its holding company / AE is in consonance with the approved Circular of RBI, then such payment has to be considered at ALP. Thus, in view of the aforesaid discussion, we direct the Assessing Officer /TPO to delete the upward adjustment of Rs.15.44 crores. As we have allowed this ground of appeal on the second alternative submissions of the ld AR for the assessee, thus, other alternative submissions made by him has become academic. In the result, this ground of appeal is allowed. 32. Ground No.4 relates to disallowance out of inter-division transfer while granting deduction under section 80IB & 10A of the Act. The Ld. AR for the assessee submits that this ground of assessee’s appeal is covered by the decision of Tribunal in assessee’s own case for assessment year 2006- 07 reported in (2015) 63 taxmann.com 353 (Ahmedabad- Trib.) copy of which is filed on record. 33. On the other hand, Ld. CIT-DR for the Revenue supported the order of lower authorities. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 33 34. We have considered the submission of both the parties and find that on similar disallowance in assessee’s own case in assessment year 2006-06 (supra), the Tribunal while allowing the ground of assessee passed following order: “52. In ground No.4, the ae has raised the grievance that the Assessing Officer has erred in not accepting the profits of various units as declared by the appellant company by reducing certain items as adjustments for inter division transfer and adjusting the same to the business income of various units as under while granting deduction u/s 80-IB and 10B. 53. Learned Representatives fairly agree that the issue is covered in favour of these, by the orders of the co-ordinate bench in assessee’s own cases for assessment years 2002-2003 and 2005-06, to the extent that the matter is required to be remitted to the file of Assessing Officer for fresh adjudication in the light of the directions set out in those orders. We are, thus, urged to remit the matter to the file of the Assessing Officer for fresh adjudication in the light of Tribunal’s order for the assessment years 2002-03 and 2005-06, even as learned. Departmental Representative dutifully relied upon the stand of the Assessing Officer. 54. We see no reasons to take any other view of the mater than the view taken by the co-ordinate benches. Respectfully following these vies, we remit the matter to the file of the Assessing Officer with the direction to adjudicate the matter afresh in the light of, inter alia, the directions given for the assessment years 2002-03 which has been followed in Assessment Year 2005-06 as well. Ordered, accordingly. 55. Ground No.4 is thus allowed for statistical purposes in the terms indicated above.” ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 34 35. Considering the consistency decision of co-ordinate bench of Ahmedabad Tribunal in assessee’s own case (supra) for earlier year and respectfully the same, we remit the matter back to the file of TPO for fresh adjudication in terms of decision of Tribunal (supra). This ground of assessee’s appeal is allowed for statistical purposes in above terms. 36.Ground No.5 relates to excluding income by way of scrap sales to the tune of Rs.2,68,36,625/-. The Ld. AR for the assessee submits that this ground of assessee’s appeal is covered by the decision of Tribunal in assessee’s own case for assessment year 2006-07 reported in (2015) 63 taxmann.com 353 (Ahmedabad-Trib.) copy of which is filed on record. 37. On the other hand the ld CIT-DR for the revenue supported the order of lower authorities. 38. We have considered the rival submissions of the parties and perused the order of the lower authorities. We find that in AY 2005-06 in ITA 501 & 699/Ahd/2009, the coordinate bench of Tribunal while following the order of Karnataka High Court in GE BEE (P) Ltd Vs ACIT (49 tax,mann.com 148) wherein, the Hon’ble court held that when the assessee undertakes ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 35 manufacturing or production activities and in the process it results any scrap, since said scrap attract nexus between profit & gains derive from export business, income arises from sale of it is eligible for section 10B of the Act. 39. Considering the consistency decision of co-ordinate bench of Ahmedabad Tribunal in assessee’s own case (supra), we direct the Assessing Officer to include the income by way of scrap sale from profit of EOU unit in computation of deduction under section 80IB of the Act. This ground of assessee’s appeal is allowed. 40. Ground No.6 relates to scrap sales to the tune of Rs.45,49,512/- under section 80IB. The Ld. AR for the assessee submits that this ground of assessee’s appeal is covered by the decision of Tribunal in assessee’s own case for assessment year 2006-07 reported in (2015) 63 taxmann.com 353 (Ahmedabad-Trib.), copy of which is filed on record. 41. On the other hand, the Ld. CIT-DR for the Revenue relied on the order of lower authorities. 42. We have considered the submissions of both the parties and find that in assessee’s own case for assessment year 2006-07 ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 36 similar issue was restored back to the file of Assessing Officer with the direction given in assessment years 2002-03, which has been followed in assessment year 2005-06 and further in assessment year 2006-07. Therefore, considering the consistency decision of co-ordinate bench of Ahmedabad Tribunal in assessee’s own case (supra), we remit the matter back to the file of TPO to include the same in computation of deduction under section 80IB of the Act to adjudicate the matter afresh in the light of direction of co-ordinate bench in assessee’s own case (supra) by way of a speaking order. This ground of assessee’s appeal is also allowed for statistical purposes. 43. Ground No.7 relates to net amount of export benefit to be excluded for the purpose of calculating profit eligible for deduction under section 80IB of the Act. The Ld. AR for the assessee submits that this ground of assessee’s appeal is covered by the decision of Tribunal in assessee’s own case for assessment year 2006-07 reported in (2015) 63 taxmann.com 353 (Ahmedabad-Trib.) copy of which is filed on record. ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 37 44. On the other hand, Ld. CIT-DR for the Revenue supported the order of lower authorities. 45. Considering the consistency decision of co-ordinate bench of Ahmedabad Tribunal in assessee’s own case (supra), we remit the matter back to the file of TPO to include the same in computation of deduction under section 80IB of the Act to adjudicate the matter afresh in the light of direction of co- ordinate bench in assessee’s own case (supra) by way of a speaking order. This ground of assessee’s appeal is also allowed for statistical purposes. 46. Ground No.8 relates to foreign currency fluctuation loss arising out of revaluation of repayment of foreign currency term loan. The Ld. AR for the assessee submits that assessee borrowed term loans in foreign currency and the outstanding balance of such foreign currency loans was re-stated and revalued as per the Accounting Standards (AS-11). The expenditure / income under this head was furnished before the Assessing Officer. The assessee recorded the revaluation of gain of Rs.8,38,298/- and loss of Rs.14,43,413/-, claiming in net loss of Rs.6,05,115/- which was disallowed by ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 38 Assessing Officer and approved by DRP. (The ld AR submits that figure of gain and loss are incorrectly recorded by assessing officer). The current loan is for acquisition of capital assets and foreign exchange loss under consideration is also a capital in nature. The capital expenditure per se is not allowable as revenue expenses as per section 43A of the Act. The Ld. AR for the assessee submits that in case of CIT vs. Woodward Governor India (P.) Ltd.312 ITR 254 (SC) held that increase or decrease in liability for repayment of foreign loan in respect of acquisition of assets has to be taken into account for modifying the figures of actual cost. The assessee before the lower authorities contended that Section 43A is not applicable where machinery has been purchased from within India. The Assessing Officer and DRP not accepted the contention of assessee and held that once capital asset is purchased irrespective of whether it imported from abroad or purchased from within India Section 43A is applicable to the assessee. The Ld. AR for the assessee that the decision of CIT vs. Woodward Governor India (P.) Ltd (supra) is not applicable to the facts of assessee’s case as the Apex Court emphasise the ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 39 sanctity of the Accounting Standard pertaining to assessment year 1998-99 which is before the amendment in AS-11 in the year 2003. As per the amendment, in AS-11, the Forex loss on mark-to-market has to be written as an expenditure in the profit and loss account irrespective of the fact as to whether the foreign exchange loss has been availed for the purpose of capital asset or not. The Apex Court only held that loss on the account of Forex loss is a revenue expenditure or nor has to be considered on the basis of Accounting Standards. The issue for assessment year 1998-99 was adjudicated by Apex Court on the basis of AS-11 and Section 43A of the Act is applicable for the year. The assessee has not borrowed said term loan is specifically for the purpose of acquisition of any assets from country outside India, and hence, amended provision of section 43A is not applicable. To support his contention, the Ld. AR for the assessee relied upon the decisions in the case of Cooper Corporation (P.) Ltd.69 taxman.com 244 (2016), and CIT vs. Tata Iron and Steel Co. Ltd. (1998) 231 ITR 285/98 Taxman 459 and Cochin ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 40 Tribunal in the case of Baby Memorial Hospital Ltd. (2019) 111 taxmann.com 189 (Cochin-Trib). 47. On the other hand, Ld. CIT-DR for the Revenue supported the order of Assessing Officer as well as Ld. DRP. The Ld. CIT-DR submits that admittedly the assessee availed loan for acquisition of capital assets and Forex loss suffered on such loan is nothing but capital loss. 48. We have considered the rival submissions of both the parties and perused the order of lower authorities carefully. We find that the Assessing Officer treated the foreign exchange fluctuation loss as capital loss as the term loan was availed for acquisition of capital assets and the foreign exchange loss is also of capital in nature. The Assessing Officer also placed reliance on the decision of Sutlej Cotton Mills vs. CIT 116 ITR 1 (SC), wherein it was held that if a foreign exchange currency is used for capital assets or as fixed capital, such profit or loss would of capital in nature. The Ld. DRP upheld the order of Assessing Officer by following the decision of DRP in assessee’s own case for A.Y 2010-11, wherein similar issue was held against the assessee. We find that appeal of ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 41 the assessee for A.Y 2010-11 was allowed for technical reason that assessment order was not passed within the prescribed period of limitation. Thus, there is no finding / adjudication of Tribunal on this issue. 49. Before us the Ld. AR for the assessee vehemently submitted that the decision of Woodward Governor (P.) Ltd. (supra) is applicable on the facts of the present case, as the Hon’ble court has adjudicated the issue pertaining to A.Y 1998-99, which is before the amendment in AS-11, in the year 2003, we are not in agreement with the submission of Ld. AR of the assessee. As the assessee not only before the Assessing Officer but before us, as well admitted that term loan was availed for acquisition of capital assets. In our view, item of expenditure, though wholly and exclusively incurred for the purpose of business, is nevertheless in admissible as an allowance if it is of capital in nature. Further, capital expenditure is deductible only when Income Tax Act, expressly so provides. The ratio of case laws relied by the ld AR for the assessee is not applicable on the facts of the present case. In Cooper Corporation (P) Ltd (supra), the loan ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 42 was availed by that assessee in Indian Currency. The loan was converted into foreign currency loan to take the benefit of lower rate of interest. Wherein the assessee suffered. As conversion in foreign currency loans which led to impugned loss, was dictated by revenue considerations towards saving interest costs, etc., loss being on revenue account was an allowable expenditure under section 37(1). 50. Further in Baby Memorial hospital Ltd (supra), the primary finding of the coordinate bench is on the validity of order passed under section 263 of Income Tax Act. It was also held that section 43A is only relating to the foreign exchange rate fluctuation in respect of assets acquired from a country outside India by using foreign currency loans. Further, the Revised Standard supersedes AS 11 (1994), except that in respect of accounting for transactions in foreign currencies entered into by the assessee before the date of AS-11 (2004) comes into effect, AS-11 (1994) will continue to be applicable. 51. We find that in a recent decision in case of Continuum Wind Energy (India) (P.) Ltd. [2020] 122 Taxmann.com 102 ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 43 (Madras) held that when the assessee had availed loan in Indian currency for purpose of purchase of capital assets namely plant and machinery, the said loan was converted into foreign currency loan with a view to save interest, the assessee suffered loss due to foreign exchange fluctuation on such foreign loan and claimed it as business loss. The assessing officer disallowed same holding that such loss was of capital nature. The impugned loss due to foreign exchange fluctuation on loan was required to be capitalized because loan was utilised by assessee for purpose of acquiring fixed asset namely plant and machinery. In a subsequent decision Madras High Court in CIT Vs Continuum Wind Energy (India) (P) Ltd (2020) 122 taxmann.com 118 (Mad) held that where the assessee converted Indian currency loan availed for acquisition of fixed asset, the fluctuation on such foreign loan was to be adjusted against the cost of concerned capital asset in term of section 43A and the assessee will be eligible for depreciation. Thus following the latest decision of Madras High Court we direct the assessing officer to treat the said ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 44 fluctuation loss as capital loss and adjust against the value of asset acquired by the assessee on availing the impugned loan and allow depreciation on such asset in accordance with law. We are conscious of the fact that the case in hand relates to the assessment year 2011-12, and the treatment of capital or revenue loss by this time have become revenue natural as even if the depreciation is allowed by adding such capital loss in the asset, it would have been exhausted by this time. In the result, this ground of appeal is dismissed. 52. In the result, this ground of assessee’s appeal is dismissed. 53. Ground No.9 relates addition to the tune of Rs.8,26,042/- by treating interest on income tax refund as taxable income. The Ld. AR for the assessee submits that during the year, assessee received Rs.8,26,042/- by way of interest on Income Tax refund pertaining to A.Y. 2007-08, consequent to the order under section 154 dated 18.01.2010, served on assessee on 24.04.2010, rectifying the mistake in the intimation under section 143(1) dated 12.03.2009. Subsequently, the assessment order was passed under ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 45 section 143(3) of the Act dated 25.10.2011, wherein no refund was found due and the interest given by way of order under section 154 dated 24.04.2010 was withdrawn by Department. In substance, the assessee has not received any interest as interest income was withdrawn. The interest received during the year was a contingent, not liable for levy of tax. The issue has not attained finality, thus, interest cannot be considered accrued during the year and not taxable. 54. On the other hand, Ld. CIT-DR submits that this fact may be verified by the Assessing Officer and suitable direction may be given to the Assessing Officer. 55. We have considered the submission of both the parties. Considering the fact that consequent to the order under section 154 dated 18.01.2010, the interest on income tax refund was withdrawn. Thus, no income was actually accrued to the assessee. Unless such income is not accrued, the same cannot be taxed in the year under consideration. Hence, considering the contention of both the parties, the Assessing Officer is directed to verify the facts and if no ITA No.234/AHD/2016 (A.Y.11-12) Huber Group India Pvt. Ltd. 46 interest on income tax refund was withdrawn, thus, no receipt of such interest be included in the total income of the assessee. This ground of assessee’s appeal is also allowed for statistical purposes. 56. In the result, the appeal of the assessee is partly allowed. Order pronounced on 15/06/2022 and the result was also placed on the Notice Board. Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 15/06/2022 Dkp. Out Sourcing Sr. P.S Copy to: 1. Appellant- 2. Respondent- 3. CIT(A)-Surat- 4. CIT 5. DR 6. Guard File True copy/ By order Assistant Registrar/Sr.Private Secretary, ITAT, Surat True copy/