Varroc Engineering P.Ltd., Aurangabad V. ACIT, Aurangabad

ITA 2482/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 85327 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 30-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 14-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional depreciation; Bad and doubtful debts; Capital receipt
• Section: 43B; 143(3); 92B; 14A; 115JB; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.2482/PN/2012 (ASSESSMENT YEAR: 2008-09) VARROC ENGINEERING PVT. LTD., E-4, MIDC INDUSTRIAL AREA, WALUJ, AURANGABAD 431136 PAN: AAACV2420J . APPELLANT VS. THE ASST. COMMISSIONER OF INCOME TAX CIRCLE 1, AURANGABAD . RESPONDENT APPELLANT BY : SHRI KISHORE PHADKE RESPONDENT BY : SHRI A.K. MODI DATE OF HEARING : 30-10-2014 DATE OF PRONOUNCEMENT : 30-12-2014 ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF A SST.CIT, CIRCLE 1, AURANGABAD DATED 18.10.2012 RELATING TO ASSESS MENT YEAR 2008-09 PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE I NCOME-TAX ACT. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED AO AND LEARNED DRP ERRED ON FACTS IN CONS IDERING INTEREST RECEIVABLE FROM AE COMPANY AT RS.28,627,089/- INSTEAD OF RS.29,182,060/- (AS PER 3CEB). 2. THE LEARNED AO AND LEARNED DRP ERRED IN LAW AND ON FA CTS IN DETERMINING ARM'S LENGTH PRICE OF INTEREST RECEIVABLE TRANSACTION FROM AE COMPANY OF THE APPELLANT AT RS.73,356 ,721/- (INTEREST RATE 12.25%) INSTEAD OF RS.29,182,060/- (INTER EST RATE 4.75%) THEREBY MAKING AN NET ADDITION OF RS.44,174,661/- TO THE RETURNED INCOME. ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 2 3. THE LEARNED AO AND LEARNED DRP ERRED IN LAW AND ON FA CTS IN DISALLOWING ADDITIONAL DEPRECIATION U/S 32(1)(IIA) ON SOME OF THE ITEMS OF FIXED ASSETS (PLANT AND MACHINERY) AMOU NTING TO RS 2,778,806/-. 4. THE LEARNED AO AND LEARNED DRP ERRED IN LAW AND ON FA CTS IN TREATING 'DISCOUNT ON PRE-PAYMENT OF SALES TAX DEFERRAL LIABILITY' OF RS. 37,362,364/- AS REMISSION / CESSATION OF LIABILITY, CHARGEABLE TO TAX U/S 41(1) OF THE ITA, 1961. 5. THE LEARNED AO AND LEARNED DRP ERRED IN LAW AND ON FA CTS IN RECALCULATING THE BOOK PROFIT OF THE ASSESSEE U/S 11 5JB BY ADDING FOLLOWING ITEMS OF A) DISALLOWANCE OF SEC 14A RS.23,40,102/- B) PROVISION FOR BAD & DOUBTFUL DEBTS RS.1,66,83,405/- C) PROVISION FOR WARRANTY RS.82,80,000/- D) PROVISION FOR DIMINUTION OF ASSETS RS.18,41,037/- 6. THE APPELLANT CRAVES LEAVES TO ADD, MODIFY, ALTER, AME ND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN AN D TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY B E CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING . 3. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE CO MPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF POLYMER ENGINE ERING AND ELECTRICAL GOODS AND WIND POWER GENERATION. DURING THE YE AR UNDER CONSIDERATION, THE ASSESSEE HAD PROPOSED TO TAKE OVER A RUNNING AUTO COMPONENT BUSINESS IN EUROPE. THE SAID BUSINESS WAS CAR RIED ON THROUGH A ITALIAN AND POLAND COMPANY. THE COST OF ACQU ISITION OF THE SAID EUROPEAN BUSINESS WAS TO BE AROUND EURO 64.95 MILLION AND THE LOANS FROM THE OVERSEAS COMPANIES WERE TO THE TUNE OF E URO 46 MILLION AND THE CONTRIBUTION OF THE ASSESSEE WAS TO THE TUNE O F EURO 18.95 MILLION. THE ASSESSEE COMPANY APPLIED FOR PROPER PRIOR APPR OVALS UNDER THE FEMA AND MADE THE APPLICATION TO THE RBI FOR ACQUISITION IN EUROPE. THE ASSESSEE RAISED A LOAN FROM CITI BANK DURING THE YEAR UNDER CONSIDERATION TO THE TUNE OF EURO 11.12 MILLIONS. THE CLAIM OF THE ASSESSEE WAS THAT THE LOAN WAS RAISED FROM CITI BANK FOR PART ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 3 FINANCING THE EUROPEAN BUSINESS ACQUISITION AND THE SAID LOA N WAS RAISED @ INTEREST LIBOR + 1.5% P.A. WHICH RANGES BETWEEN 2 - 2.5% AND THE BALANCE FUNDS WERE FROM ASSESSEES OWN CAPITAL A ND RESERVES OF THE COMPANY. THE SAID FUNDS WERE INTRODUCED IN THE NE THERLAND COMPANY AS ITS OWN SHARE FOR THE EUROPEAN BUSINESS ACQ UISITION. HOWEVER, THE SAID LOAN WAS PARTIALLY CONVERTED INTO A SOFT LOAN FROM THE ASSESSEE COMPANY TO THE NETHERLAND COMPANY. IN V IEW OF THE SAID TRANSACTIONS, THE ASSESSEE ENTERED INTO TRANSACTIONS WIT H ITS AE WITH REGARD TO DISBURSEMENT OF LOAN TO AE AND THE REPAYMENT OF LOAN BY THE AE. FURTHER, INTERNATIONAL TRANSACTIONS ON ACCOUNT OF INTE REST RECEIVABLE FROM AE AND CONVERSION OF SHARE APPLICATION MONE Y INTO MONEY BY THE AE COMPANY WERE THE OTHER TRANSACTIONS CARRIED ON BY THE ASSESSEE WITH ITS AE. THE ASSESSEE BENCHMARKED TH E TRANSACTION BY RESORTING TO CUP METHOD. THE ASSESSEE FURNISHED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.15,14,72,558/-. THE ASS ESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION, TH E ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION FOR OVER 15 CR ORES WITH ITS AE. THE ASSESSING OFFICER AFTER GOING THROUGH THE REPORT IN FORM NO.3CEB WAS OF THE VIEW THAT THE CASE NEEDS TO BE REFE RRED TO THE TRANSFER PRICING OFFICER (IN SHORT TPO) FOR DETERMINING ARMS LENGTH PRICE OF THE SERVICES AVAILED BY THE ASSESSEE COMPANY. C ONSEQUENTLY, REFERENCE WAS MADE UNDER SECTION 92CA OF THE ACT FOR COMPUTING AR MS LENGTH PRICE. 4. THE TPO NOTED THAT THE ASSESSEE HAD UNDERTAKEN T HE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS AE UNDER THE PROVISIONS OF SECTION 92B OF THE ACT. ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 4 SR NO. NATURE OF TRANSACTIONS AMOUNT OF TRANSACTIONS METHOD ADOPTED 1. DISBURSEMENT OF LOAN 7,66,740 CUP 2. REPAYMENT OF LOAN 2,79,10,000 CUP 3. INTEREST RECEIVABLE 2,91,82,060 CUP 4. PART CONVERSION OF CAPITAL INTO LOAN 57,24,00,000 CUP TOTAL 63,02,58,800 5. THE TPO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AS NO TP STUDY REPORT HAD BEEN SUBMITTED BY THE ASSESSEE. FUR THER, TRANSACTION HAD TAKEN PLACE WITH THE AE, UNDER WHICH, PAR T OF THE CAPITAL HAD BEEN CONVERTED INTO LOAN AND THE SOURCE OF S UCH CAPITAL WAS A LOAN OBTAINED FROM CITI BANK. FURTHER, THE INDIAN B ANKS WERE LENDING THE MONEY AT THE BPLR RATES PREVAILING IN INDIA. H OWEVER, THE INTEREST CHARGED BY ASSESSEE TO AE ON SUCH LOAN WAS 4 .75%. THE ASSESSEE WAS SHOW CAUSED AS TO WHY INTEREST AMOUNT COULD NOT BE CHARGED TO AE AT THE INDIAN BPLR RATES AND ACCORDINGL Y, THE TP ADJUSTMENT BE WORKED OUT. SINCE THE ASSESSEE FAILED TO FURNISH ANY REPLY TO THE SAID SHOW CAUSE NOTICE, THE TPO PROCEEDED TO WOR K OUT THE ADDITION ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD. T HE TPO NOTED THAT DURING THE YEAR UNDER CONSIDERATION, INTEREST OF RS.2.91 CRORES HAD ACCRUED TO THE ASSESSEE ON LOAN GRANTED TO THE AE I.E. ON LOAN OF EURO 10 MILLION TO VARROC EUROPEAN HOLDING BV, NET HERLANDS, EURO 1,00,00,000 AND REPAYMENT OF LOAN OF EURO 5,00,000 HEN CE EFFECTIVELY LOAN DURING THE YEAR AMOUNTED TO EURO 96,30,00 0 WHICH WAS EQUIVALENT TO RS.55,21,57,400/-. THE TPO FURTHER NOTE D THAT THE ASSESSEE COMPANY DECIDED THAT THE INTEREST WAS CHARGE D @ 4.75% P.A. HOWEVER, THE RATE PREVAILING AS PER SIX MONTHS LIBOR + 1.5% FOR THE YEAR ENDING 31.03.2008 WAS 6.79%. THE TPO TABULATED TH E TRANSACTIONS IN RESPECT OF LOANS GRANTED AND INTEREST CH ARGED UNDER ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 5 PARA 8 AT PAGE 3 OF THE ORDER UNDER SECTION 92CA(3) OF THE ACT AND PROPOSED AN ADJUSTMENT OF RS.4,41,74,661/-. 6. THE ASSESSEE HAD BENCHMARKED ITS INTERNATIONAL TRANS ACTION TAKING INTEREST RATE CHARGED @ INTERNATIONAL RATE OF THE DISBURSING BANK I.E. CITI BANK. THIS BENCHMARKING WAS ADOPTED AT FOREIG N CURRENCY CITI BANK RATES. THE TPO OBSERVED THAT THE T RANSACTION IN QUESTION WAS NOT OF SIMILAR NATURE. THE LOAN GIVEN TO AE IN THE CURRENCY OF THAT COUNTRY IS NOT A FOREIGN CURRENCY DEMAND WITH AE, BECAUSE THE LOAN GIVEN TO THE AE IS IN FOREIGN CURRE NCY OF THAT COUNTRY AND THUS LOAN IS NOT IN FOREIGN CURRENCY FOR THE AE. FURTHER THE AE CANNOT BE CREDITED TO HAVE THE CREDIBILITY AKIN TO THAT OF NATIONAL BANK OF THAT COUNTRY. ACCORDINGLY BENCHMARKING ADOPTED BY ASSESSEE IS NOT FOUND TO BE ACCEPTABLE. THE ASSESSEE WAS THUS REQUESTED TO SHOW CAUSE AS TO WHY THE LENDING RATE FOR THE PURPOSES OF CO MPARABILITY FOLLOWING CUP METHOD BE NOT TAKEN AT BANKING PRIME LENDING RATE (BPLR), FOR THE YEAR ENDED MARCH 31 ST , 2008. THE ASSESSEE FAILED TO FURNISH ANY REPLY OR FURNISH ANY TP STUDY REPORT. SINCE THE ASSESSEE HAD CONVERTED THE SHARE CAPITAL INTO LOAN TO AE BY PASS ING RESOLUTION ON 25.01.2008, THE TPO OBSERVED THAT THE ASSESSEE ALSO SUBMITTED A TIMELINE AND EVENTS CHART AND THE CALCULATION OF THE INTEREST CHARGED ON 25.08.2011. THE TPO THEREAFTER, VIDE PARA 13 OBSERVED AS UNDER:- 13. THE ISSUE WHICH, CAN BE RAISED HERE IS THAT THE B PLR IS BEING TAKEN FOR THE COMPARISON. IT CAN BE MENTIONED HERE TH AT THE LOANS ARE ADVANCED TO THE COMPANY BY THE BANKS AFTER PROP ER ASSESSMENT OF THE REQUIREMENT OF FUND, QUANTUM OF FU ND, CREDIT WORTHINESS OF THE BORROWER, ECONOMIC ANALYSIS OF THE INDUSTRY IN WHICH THE BORROWER EXISTS AND ALL OTHER RELEVANT PARAM ETERS. THESE FACTORS DO HAVE THEIR BEARING ON THE RISK PER CEPTION ON THE LOANS SO ADVANCED BY THE BANKS. IT IS THE TOTALITIES O F THESE ASPECTS AND FACTORS WHICH ARE DETERMINATIVE OF THE LENDING RATE BY THE BANKS AND THE BPLR THUS SERVES AS GUIDANCE F OR THE ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 6 LENDING RATE. THE OBJECTIVITY AND APPLICABILITY OF BPL R CAN BE TAKEN AS TOPNOTCH COUPLED WITH THE FACTORS ASSOCIATED WITH THE BORROWER AND THE SURROUNDING ECONOMIC CIRCUMSTANCES. 7. THE TPO WAS OF THE VIEW THAT BPLR OR THE LENDING RATES WOULD B E THE CORRECT INDICATOR FACTOR FOR THE DETERMINATION OF THE CHARGE OF INTEREST ON ADVANCE TO THE SUBSIDIARY BECAUSE THE ASSE SSEE WAS NOT A BANKER. THE TPO FURTHER OBSERVED THAT IT WAS A FACT O F THE CASE THAT THE LOAN HAS BEEN ADVANCED BY THE ASSESSEE TO ITS AE AND FOR HAVING ADVANCED SUCH LOAN, INTEREST HAS BEEN PROVIDED IN THE BO OKS OF ACCOUNT. IT IS THIS INTEREST RATE, WHICH HAS BEEN AGREE D TO BE CHARGED BY THE ASSESSEE, WAS TO BE BENCHMARKED TO DETERMINE IT S ARM'S LENGTH PRICE. AS PER TPO, THE LOAN HAS BEEN GIVEN TO COMPANY WHICH HAS NO FINANCIAL LEGS TO RUN ON AND FURTHER, ON ITS OWN IT COULD NO T HAVE ARRANGED FOR THE FUNDS IT REQUIRED THAT THE LOAN HAS BEE N GIVEN BY THE PRINCIPAL TO ITS SUBSIDIARY. IN THE GIVEN FINANCIAL HEALTH OF TH E SUBSIDIARY AND FOR ASSUMING THE RISK PERTAINING TO LOAN IN FOREIGN CURRENCY, RISKS RELATING TO FOREIGN EXCHANGE FLUCTUATION, THE RATE OF INTEREST CHARGED SHOULD ADEQUATELY COMPENSATE THE ASS ESSEE. UNDER THE CIRCUMSTANCES AND IN ARMS LENGTH SITUATION, THE RAT E CHARGED BY THE ASSESSEE SHOULD HAVE BEEN AT LEAST AT BPLR IN INDIA , IF NOT HIGHER, WAS THE VIEW OF TPO. THE TPO IN VIEW THEREOF, HELD AS UNDER:- 17. IN VIEW OF THE FACTS OF THE CASE, DISCUSSION AS ABOVE, THE ARM'S LENGTH PRICE COMPUTED BY THE ASSESSEE IN RESP ECT OF THE INTERNATIONAL TRANSACTION RELATING TO PROVISION OF I NTEREST IS NOT FOUND TO BE ACCEPTABLE. IN THE GIVEN FACTS AND IN TH IRD PARTY SITUATION, THE ASSESSEE WOULD NEVER LEND MONEY TO AN U NRELATED ENTITY END IN ANY SUCH CASE AT THE RATE NOT LESS THAN BPLR. IN NORMAL CIRCUMSTANCES IF SUCH ADVANCE HAS TO BE GIVEN TO ANY UNRELATED ENTITY, THE RATE OF INTEREST CHARGEABLE WOULD BE SIGNIFICANTLY HIGHER THAN THE BPLR. HOWEVER, AS SUCH HIGHER RATE OF INTEREST MORE THAN BPLR IS NEITHER ASCERTAINABLE N OR DETERMINABLE; IT IS CONSIDERED SUITABLE TO BENCHMARK THI S INTERNATIONAL TRANSACTION WITH BENCHMARK RATE OF INT EREST TAKEN AS BPLR. ACCORDINGLY, BASED OR THE RATE OF BPLR OF THE S TATE BANK OF ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 7 INDIA WHICH IS A PREMIER BANK, THE RATE AT 12.25% FOR THE BANK, FOR THE YEAR ENDED 31 ST MARCH, 2008 IS TAKEN AS A BENCHMARK RATE. ACCORDINGLY, THE DIFFERENTIAL QUANTUM OF INTERE ST ON THE LOAN TO ADVANCE TO THE SUBSIDIARIES BY THE ASSESSEE, WORKE D OUT AT RS.4,41,74,661 IS ADDED TO THE VALUE OF INTERNATIONAL TR ANSACTION TOWARDS PROVISION OF INTEREST RECEIVABLE FROM THE AE , TO ARRIVE AT THE ARM'S LENGTH PRICE OF THIS INTERNATIONAL TRANSAC TION. IT MAY ALSO BE NOTED THAT AT LIBOR + RATES OF 6.79%, BENCHMAR KING OF THE ASSESSEE COMPANY IS NOT AT AN ALP. AT THIS RATE THE ASSESSEE SHOULD HAVE CHARGED AT LEAST RS.4,03,52,970, WHEREAS IT HA S CHARGED ONLY RS.2,86,27,089. HOWEVER, IN AS DEMONSTRA TED IN BOTH THE CASES THE ASSESSEE IS NOT AT AN ALP. 8. THE TPO THUS, PROPOSED AN ADJUSTMENT OF RS.4,41,74,66 1/- AS ARM'S LENGTH PRICE OF THE TRANSACTIONS. THE SAID PROPOSA L WAS FORWARDED TO THE ASSESSING OFFICER AND THE SAME WAS CONFR ONTED TO THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AND A DRAFT ASSESSMENT ORDER IN THIS REGARD WAS PROPOSED. THE DISP UTE RESOLUTION PENAL (IN SHORT DRP) UPHELD THE PROPOSITION OF TH E TPO AND CONSEQUENTLY, THE ASSESSING OFFICER MADE AN ADDITION OF RS.4,41,74,661/- BEING THE ARM'S LENGTH PRICE ADJUSTMENT OF THE INTERNATIONAL TRANSACTIONS. 9. THE ASSESSEE IS IN APPEAL AGAINST THE SAID ADJUSTMENT MADE BY THE TPO AND RAISED THE ISSUE VIDE GROUNDS OF APPEAL NOS.1 AND 2. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINT ED OUT THAT INVESTMENT WAS MADE BY THE ASSESSEE TO ITS WHOLLY OWNE D COMPANY NETHERLAND TO BUY STAKE IN ITALIAN COMPANY. THE INVESTME NT MADE BY THE ASSESSEE COMPANY WAS TWOFOLD; I.E. IN THE SHARES OF THE NETHERLANDS COMPANY AND ALSO THE LOAN ADVANCED TO THE SAID COMPANY FOR THE FIRST TWO YEARS, LOAN CONTINUED AT INTERES T RATE OF 4.75%. AS PER THE TPO, THE ASSESSEE SHOULD HAVE APPLIED BPLR RATE. HOWEVER, SINCE THE ASSESSEE WAS MAKING INTERNATIONAL LENDIN G, CHARGED THE INTERNATIONAL RATES AND NOT DOMESTIC RATES. THE ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 8 BORROWINGS FOR THE SAID INVESTMENTS WERE MADE FROM CITI B ANK WHICH IN TURN, CHARGED INTEREST. THE ASSESSEE CLAIMS THAT SUBS TANTIVE PART OF THE DEAL WAS IN CAPITAL INVESTMENT IN WHOLLY OWNED COMPAN Y, IN TURN ACQUISITION OF COMPANY IN ITALY. THE LOAN RECEIVED FROM CITI BANK WAS UTILIZED FOR TWO PURPOSES I.E. ACQUISITION OF SHARE CAPITAL AND ALSO FOR INTERNATIONAL FUNDING. THE LEARNED AUTHORIZED REPRESENTATIV E FOR THE ASSESSEE FURTHER POINTED OUT THAT IT HAD BORROWED ON L IBOR + INTEREST RATES I.E. THE JAPANESE BASE LIBOR+ RATES WHICH WAS LOWE R THAN US LIBOR+ RATES AND ADVANCED THE SAME BY CHARGING LIBOR + RATES. THE CHARGING OF THE INTEREST ON LOANS IN ASSESSMENT YEARS 20 08-09 AND 2009-10 WAS @ 4.75%. HOWEVER, IN ASSESSMENT YEAR 2010- 11, THE WHOLE LOAN WAS CONVERTED INTO SHARE APPLICATION MONEY. FU RTHER PLEA OF THE ASSESSEE WAS THAT IT APPLIED THE INTERNAL CUP METH OD OF BORROWING AT INTERNATIONAL RATE. SO, THERE WAS NO MERIT IN APPLYING DOMESTIC RATES TO COMPUTE THE ARM'S LENGTH PRICE ADJU STMENT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTH ER POINTED OUT THAT THE LENDING WAS MADE AT LIBOR+ RATES. FURTHER, TH E RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. A. SIVA INDUSTRIES & HOLDINGS LTD. V. ACIT, CHENNAI [2011] 11 TAXMANN.COM 404 (CHENNAI) B. TECH MAHINDRA LIMITED [2011] 12 TAXMANN.COM 132 (MUM) C. HINDUJA GLOBAL SOLUTIONS LTD. [2013] 35 TAXMANN.COM 348 (MUMBAI TRIB.) D. WIPRO LTD VS. DCIT ITA NO:624 & 1178/BANG/2007 DATED:31.10.2008 FOR THE AY 2003-04 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE POINTED OUT THAT THE FINDING OF DRP AT PAGE 4 WAS THAT T HE ASSESSEE ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 9 HAD INVESTED ITS OWN FUNDS AND BORROWED FUNDS. FURTHER, IT WAS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE TRANSFER PRICING WAS TO BE DONE WHEN COMPARED WITH THE INTERNATIONAL TRANSACTIONS. IT WAS ARGUED BY THE LEA RNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT NO PE RSON WOULD CHARGE SOMETHING LESS THAN THE COST. OUR ATTENTION WAS DRAWN TO THE PAGE 17 OF THE TPO ORDER WHEREIN, LIBOR + RATES EQUAL T O THE RATE OF 6.79%. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. THE FIRST ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF THE ASSESSEE. T HE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF POLYMER ENGINEERING AN D ELECTRIC GOODS AND WIND POWER GENERATION. THE ASSESSEE WAS A P ART OF VARROC GROUP, CATERED TO THE NEEDS OF INDIAN AUTO COMPONENT I NDUSTRY. DURING THE FINANCIAL YEAR, THE ASSESSEE HAD UNDERTAKEN T HE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES:- SR NO. NATURE OF TRANSACTIONS AMOUNT OF TRANSACTIONS METHOD ADOPTED 1. DISBURSEMENT OF LOAN 7,66,740 CUP 2. REPAYMENT OF LOAN 2,79,10,000 CUP 3. INTEREST RECEIVABLE 2,91,82,060 CUP 4. PART CONVERSION OF CAPITAL INTO LOAN 57,24,00,000 CUP TOTAL 63, 02,58,800 12. THE ASSESSEE HAD PARTLY CONVERTED ITS CAPITAL INVES TED IN THE ASSOCIATED ENTERPRISES INTO LOAN TRANSACTIONS AND THE SO URCE OF THE SAID CAPITAL WAS LOAN OBTAINED FROM CITI BANK. THE TPO NOT ED THAT THE ASSESSEE HAD DIVERTED PART OF THE LOAN RAISED FROM CITI B ANK TO ITS ASSOCIATED ENTERPRISES, FOR RAISING THE LOAN CHARGE HAD BE EN CREATED ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 10 AGAINST THE ASSETS OF THE ASSESSEE COMPANY. AS PER TP O, THE INDIAN BANKS WERE LENDING THE MONEY AT BPLR RATES PREVAILING IN INDIA ON THE SECURITY OF THE ASSETS OF THE COMPANY, WHEREAS THE ASSE SSEE HAD CHARGED INTEREST RATE OF 4.75% TO ITS ASSOCIATED ENTERPR ISES ON SUCH LOAN DISBURSEMENT. 13. DURING THE YEAR UNDER CONSIDERATION, INTEREST OF RS.2,91,82,060/- HAD ACCRUED AS INTEREST ON LOAN GRANTED TO ITS ASSOCIATED ENTERPRISES. THE ASSESSEE HAD GRANTED LOAN TO M/S. VARROC EUROPEAN HOLDING BV NETHERLANDS EURO 1,00,00,000 AND REPAYMEN T OF LOAN OF EURO 5,00,000, HENCE DURING THE YEAR, THE EFFECTIVE LOAN AMOUNTED TO EURO 96,30,000 WHICH WAS EQUIVALENT TO RS.55,21,57,400/-. THE ASSESSEE HAD CHARGED INTEREST @ 4 .75% PER ANNUM. AS PER THE TPO, THE RATE PREVAILING AS PER LIBOR +, FOR THE YEAR ENDING 31.03.2008 WAS 6.79%. THE TPO TABULATED TH E TRANSACTIONS OF GRANTING OF LOAN AND THE INTEREST CHARGED BY THE ASSESSEE AND COMPUTED THE PROPOSED ADJUSTMENT AS UNDER:- (AMT. IN RS.) DESCRIPTION VARROC EUROPEAN HOLDING BV NETHERLANDS [A] LOAN ADVANCED / BALANCE OF LOAN AT THE YEAR ENDING 31.03.2008 RS.59.43 CRS. (FIGURES AS PER THE FINANCIALS) [B] BASE CHARGE ADOPTED BY THE ASSESSEE LIBOR [C] BASE CHARGE ADOPTED BY THE ASSESSEE TO BENCHMARK THE TRANSACTION HOWEVER, RATE CHARGED BY THE ASSESSEE = 4.75% [D] BANK PRIME LENDING RATE (BPLR) OF SBI AS ON 31.03.2008 12.25% [E] RATE CHARGED BY THE ASSESSEE 4.75% [F] INTEREST CHARGED BY THE ASSESSEE RS.2,86,27,089 [G] THE RATE PREVAILING AS PER 6 MONTHS LIBOR FOR THE YEAR ENDED 31.03.2008 WAS 6.79% RS.4,03,52,970 [H] INTEREST @ 12.25% AS PER BPLR OF SBI RS.7,28,00 ,000 [I] DIFFERENCE IN BPLR AND ASSESSEES AMOUNT RS.4,4 1,74,661 [J] PROPOSED ADJUSTMENT RS.4,41,74,661 14. THE ASSESSEE HAD BENCHMARKED ITS INTERNATIONAL TRAN SACTIONS TAKING THE INTEREST RATE CHARGED AT INTERNATIONAL RATES OF THE DISBURSING ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 11 BANK I.E. CITI BANK. HOWEVER, THE TPO WAS OF THE VIEW THAT LOAN GIVEN TO THE ASSOCIATED ENTERPRISES IN THE CURRENCY OF THAT C OUNTRY WAS NOT A FOREIGN CURRENCY DEPOSIT WITH ASSOCIATED ENTERPRISES. ON THE OTHER HAND, THE ASSESSEE HAD BORROWED THE MONEY ON BANKING PRIME LENDING RATES AND WAS SHOW CAUSED BY THE TPO AS TO WHY LENDIN G RATE FOR THE PURPOSE OF COMPARABILITY FOLLOWING CUP METHOD SHOULD NOT BE TAKEN. THE TPO IN VIEW OF THE RELATED DISCUSSION FOUND THAT THE ARM'S LENGTH PRICE COMPUTED BY THE ASSESSEE IN RESPECT OF THE INTERN ATIONAL TRANSACTIONS RELATING TO PROVISION OF INTEREST, WAS NOT ACC EPTABLE. THE VIEW OF THE TPO WAS THAT IN NORMAL CIRCUMSTANCES WHERE A NY ADVANCE HAD TO BE GIVEN TO ANY UNRELATED ENTITY, THEN THE RATE OF INTEREST CHARGEABLE WOULD BE HIGHER THAN THE BPLR. SINCE THE HIGH ER RATE OF INTEREST MORE THAN BPLR WAS NEITHER ASCERTAINABLE NOR D ETERMINABLE, THE TPO CONSIDERED IT SUITABLE TO BENCHMARK THE INTERNAT IONAL TRANSACTIONS WITH BENCHMARK OF INTEREST TAKEN AS BPLR. ACCORDINGLY, RATE OF 12.25% I.E. THE BPLR OF THE SBI WAS TAKEN AS BENC HMARK RATE AND THE DIFFERENTIAL QUANTUM OF INTEREST ON THE LOAN ADVANC ED TO THE SUBSIDIARIES, AMOUNTING TO RS.4,41,74,661/- WAS ADDED TO THE VALUE OF INTERNATIONAL TRANSACTIONS TO ARRIVE AT THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. THE TPO DIS-REGARDED THE LI BOR+ RATE OF 6.75% AS NOT THE BENCHMARK APPLIED BY THE ASSESSEE AS ACCORDING TO THAT RATE, THE INTEREST SHOULD HAVE BEEN CHARGED AT RS .4,03,52,970/- WHEREAS IT HAD ONLY CHARGED RS.2,86,27,089/-. IN VIEW THE REOF, AN ADJUSTMENT OF RS.4,41,74,661/- WAS MADE IN THE HANDS OF T HE ASSESSEE. THE SAID ORDER OF TPO HAS BEEN UPHELD BY DRP. 15. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD ADVANCED MONEY IN THE FORM OF SHARE APPLICATION MONEY WHICH WERE LA TER ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 12 CONVERTED INTO LOAN ON THE ADVICE OF EUROPEAN CONSULTANT S. ON SUCH ADVANCE MADE TO ITS ASSOCIATED ENTERPRISES, THE ASSESSE E HAD CHARGED INTEREST @ 4.75%. WHILE BENCHMARKING THE INTERNATIONAL TRAN SACTIONS WHAT HAS TO BE SEEN IS THE COMPARISON BETWEEN RELATED TRANSACTIONS I.E. WHERE THE ASSESSEE HAS ADVANCED MONEY TO ITS ASSOC IATED ENTERPRISES AND CHARGED INTEREST THEN THE SAID TRANSAC TION IS TO BE COMPARED WITH A TRANSACTION AS TO WHAT RATE THE ASSES SEE WOULD HAVE CHARGED, IF IT HAD EXTENDED THE LOAN TO THE THIRD PARTY IN FOREIGN COUNTRY. ONCE THERE IS A TRANSACTION BETWEEN THE ASS ESSEE AND ITS ASSOCIATED ENTERPRISES IN FOREIGN CURRENCY, THEN THE TRAN SACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIP LES WITH REGARD TO THE INTERNATIONAL TRANSACTIONS. IN THAT CASE, THE INTERNATIONAL RATES FIXED BEING LIBOR+ RATES WOULD HAVE AN APPLICATION AND THE DOMESTIC PRIME LENDING RATES WOULD NOT BE APPLICAB LE. THE ASSESSEE HAS FURTHER EXPLAINED THAT IT HAD RAISED THE LOA N FROM CITI BANK ON INTERNATIONAL RATES FOR THE PURPOSE OF INVESTMENT IN THE SHARE APPLICATION MONEY OF ITS ASSOCIATED ENTERPRISES, WHICH IN TUR N WAS PARTLY CONVERTED FROM CAPITAL INTO LOAN. WHERE THE ASSE SSEE HAD A COMPARABLE OF BORROWING LOAN ON INTERNATIONAL RATES AND AD VANCING TO ITS ASSOCIATED ENTERPRISES, THEN THE SAID COMPARABLE WAS TO BE APPLIED FOR BENCHMARKING THE TRANSACTION OF ADVANCING THE LOAN ON INTEREST TO ITS ASSOCIATED ENTERPRISES. THE ASSESSEE HAD CHARGED IN TEREST RATE OF 4.75% ON THE LOAN ADVANCED TO THE ASSOCIATED ENTERPRISE S. THE ASSESSEE ON THE OTHER HAND, CLAIMS THAT IT HAD BORROWE D THE MONEY ON LIBOR+ RATES I.E. INTERNATIONAL RATES, WHICH WERE JAPANES BASED LIBOR+ RATES WHICH WERE LOWER THAN THE US BASED LIBOR + RATES. THE PLEA OF THE ASSESSEE BEFORE US WAS THAT IT HAD ADVANCED THE LOAN TO ITS ASSOCIATED ENTERPRISES ON LIBOR+ RATES I.E. 4.75%. IN THE TOTALITY OF ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 13 THE FACTS AND CIRCUMSTANCES WHERE THE ASSESSEE HAS TH E INTERNAL CUP OF OPERATING AT INTERNATIONAL RATES AVAILABLE AND SINCE THE SAID LOAN RAISED BY THE ASSESSEE AT INTERNATIONAL RATES WAS ADVAN CED TO ITS ASSOCIATED ENTERPRISES, WE FIND NO MERIT IN THE ORDER OF THE TPO IN APPLYING THE DOMESTIC LOAN RATES I.E. BPLR RATES FOR BENCH MARKING TRANSACTION OF CHARGING OF INTEREST ON THE LOANS ADVANCED TO THE ASSOCIATED ENTERPRISES BY THE ASSESSEE. WHERE THE ASS ESSEE HAD MADE THE BORROWINGS ON LIBOR+ RATES AND ADVANCED THE SAME AT LIBOR+ RATES, THEN THE SAID TRANSACTION IS AT ARM'S LENGTH PRICE AND THERE IS NO MERIT IN ANY ADJUSTMENT TO BE MADE ON THIS ACCOUNT. 16. THE CHENNAI BENCH OF THE TRIBUNAL IN M/S. SIVA INDUSTR IES & HOLDINGS LIMITED VS. ACIT, CHENNAI (2012) 26 TAXMANN.COM 96 (CHENNAI) HAD HELD AS UNDER:- THE ASSESSEE HAD GIVEN THE LOAN TO THE ASSOCIATED EN TERPRISES IN US DOLLARS, AND ASSESSEE WAS ALSO RECEIVING INTEREST F ROM THE ASSOCIATED ENTERPRISES IN INDIAN RUPEES. ONCE THE TRA NSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES WAS IN FOREIGN CURRENCY AND THE TRANSACTION WAS AN INTERNA TIONAL TRANSACTIONS, THEN THE TRANSACTION WOULD HAVE TO BE LO OKED UPON THE APPLYING THE COMMERCIAL PRINCIPLES IN REGARD TO INT ERNATIONAL TRANSACTIONS. IF THAT WAS SO, THEN THE DOMESTIC PRIME LENDING THE RATE WOULD HAVE NO APPLICABILITY AND THE INTERNATIONA L RATE FIXED BEING LIBOR WOULD COME INTO PLAY. IN THE CIRCUMSTANCE S, THE VIEW THAT LIBOR RATE HAD TO BE CONSIDERED WHILE DETE RMINING THE ARM'S LENGTH PRICE INTEREST RATE IN RESPECT OF THE T RANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES WAS TO BE UPHELD. AS IT WAS NOTICED THAT THE AVERAGE OF THE LIB OR RATE FOR 1-4-2005 TO 31-3-2006 IS 4.42 PER CENT AND THE ASSESSEE HAD CHARGED INTEREST AT 6 PER CENT WHICH WAS HIGHER THA N THE LIBOR RATE, NO ADDITION ON THIS ACCOUNT WAS LIABLE TO BE MADE IN THE HANDS OF THE ASSESSEE. IN THE CIRCUMSTANCES, THE ADD ITION MADE BY THE ASSESSING OFFICER ON THIS COUNT WAS DELETED. 17. THE MUMBAI BENCH OF THE TRIBUNAL IN DCIT VS. TECH MA HINDRA LTD. (2011) 12 TAXMANN.COM 132 (MUM.) HELD THAT WHERE THER E IS A CHOICE BETWEEN THE INTEREST RATE OF CURRENCY OTHER THA N THE CURRENCY IN ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 14 WHICH TRANSACTION HAD TAKEN PLACE AND THE INTEREST RATE IN RESPECT OF THE CURRENCY IN WHICH TRANSACTION HAS TAKEN PLACE, THE LATTER SHOULD BE ADOPTED. WHERE THE TRANSACTION IS BETWEEN THE ASSE SSEE AND ITS ASSOCIATED ENTERPRISES IN FOREIGN CURRENCY AND THE TRANS ACTION IS INTERNATIONAL TRANSACTION, THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TRANSACTIONS. 18. SIMILAR PRINCIPLE HAS BEEN LAID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN HINDUJA GLOBAL SOLUTIONS LTD. VS. ACIT (2013) 35 TAXMANN.COM 348 (MUMBAI TRIB.). 19. IN THE ENTIRETY OF THE ABOVE FACTS AND CIRCUMSTANCES , WE HOLD THAT WHERE THE ASSESSEE HAD ENTERED INTO A TRANSACTIO N WITH ITS ASSOCIATED ENTERPRISES IN FOREIGN CURRENCY, AND THE TRANS ACTIONS WERE INTERNATIONAL TRANSACTIONS, THEN THE SAME HAD TO BE LOOKE D INTO BY APPLYING COMMERCIAL PRINCIPLE IN REGARD TO INTERNATIONAL TRAN SACTIONS. IN THE FACTS OF PRESENT CASE, THE ASSESSEE HAD BORROW ED THE LOAN FROM CITI BANK AND ADVANCED THE SAME ON LIBOR+ RATES TO ITS ASSOCIATED ENTERPRISES, THEN THE SAID TRANSACTION WITH ITS ASSOCIATED ENTERPRISES IS WITHIN ARM'S LENGTH PRICE. THE TPO / AO THUS, DIRECTED TO RE-COMPUTE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. ANOTHER ASPECT TO BE KEPT IN MIND IS THE PLEA OF THE ASSESSEE WIT H REGARD TO THE INTEREST RECEIVABLE. THE ASSESSEE HAD ALSO RAISED THE ISS UE THAT THE TPO HAD ADOPTED THE INTEREST RECEIVABLE FROM ASSOCIATED ENTERPRISE COMPANY AT RS.2,86,27,089/- INSTEAD OF RS.2,91,82,060/- WHICH IS DISCLOSED IN THE AUDIT REPORT IN FORM NO.3CEB. THE ASSESS ING OFFICER IS ALSO DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE IN THIS REGARD AND COMPUTE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANS ACTIONS. ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 15 REASONABLE OPPORTUNITY OF BEING HEARD SHALL BE AFFORDED TO THE ASSESSEE BY THE ASSESSING OFFICER / TRANSFER PRICING OFFICER . THE GROUNDS OF APPEAL NOS.1 AND 2 RAISED BY THE ASSESSEE AR E THUS, ALLOWED AS INDICATED ABOVE. 20. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY THE ASSES SEE IS AGAINST THE DISALLOWANCE OF ADDITIONAL DEPRECIATION UNDER SEC TION 32(1)(II)(A) OF THE ACT ON SOME OF THE ITEMS OF FIXED ASSETS AM OUNTING TO RS.27,78,806/-. 21. THE ASSESSING OFFICER ON THE EXAMINATION OF THE BOOKS O F ACCOUNT AND DEPRECIATION CHART, NOTED THAT THE ASSESSE E HAD CLAIMED EXCESS DEPRECIATION UNDER THE BLOCK OF PLANT & MACHINERY AND ALSO CLAIMED ADDITIONAL DEPRECIATION. THE ASSESSING OFFICER FOUND TH AT THE NATURE OF THE ASSETS DID NOT FALL UNDER THE BLOCK PLANT & MACHINERY, BUT PERTAINED TO THE BLOCK OF FURNITURE & FIXTURES, ON W HICH THE DEPRECIATION WAS ALLOWABLE ON LOWER RATES COMPARED TO TH E RATES ON WHICH THE DEPRECIATION WAS ALLOWABLE ON PLANT & MACHINERY. FURTHER, ADDITIONAL DEPRECIATION WAS NOT ALLOWABLE ON THE SAID FURNITU RE & FIXTURE ITEMS. THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN ITS CLAIM AND IN RESPONSE, THE ASSESSEE CONTENDED THAT THEY WERE PA RT OF THE PLANT & MACHINERY. THE ASSESSING OFFICER AT PAGES 4 AND 5 OF THE ASSESSMENT ORDER CONSIDERED EACH OF THE ITEMS AND HELD THAT SINCE T HE ITEMS WERE NOT COVERED UNDER PLANT & MACHINERY, NO ADDITIONAL DEPREC IATION WAS ALLOWABLE ON THE SAME. THE DRP UPHELD THE ORDER OF ASSES SING OFFICER, AGAINST WHICH THE ASSESSEE IS IN APPEAL. 22. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT ITEMS ENLISTED AT PAGE 3 OF THE ASSESSMENT OR DER WERE USED FOR ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 16 THE MANUFACTURING OF ACTIVITIES CARRIED ON BY THE ASSESSEE AND FUNCTIONAL TEST HAD TO BE APPLIED IN ORDER TO DETERMINE TH E NATURE OF THE ASSETS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR T HE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY PUNE BENCH OF TH E TRIBUNAL IN SERUM INSTITUTE OF INDIA LTD. VS. ACIT (2012) 18 TAXMANN .COM 305 (PUNE). 23. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE POINTED OUT THAT THE PERUSAL OF LIST OF ITEMS WOULD REFLECT T HAT NONE OF THESE WERE THE INTEGRAL PART OF THE MANUFACTURING ACTIVITY AND CONSEQUENTLY, WERE NOT TO BE CONSIDERED AS PART OF PLANT & MACHINE RY. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSING OFFICER AT PAGE 3 OF ASSESSMENT ORDER HAS TABULATED THE LIST OF ITEMS WHICH ARE AS UNDER:- SR NO ITEMS 1 RACKS 2 TROLLEY 3 AIR CONDITIONER TABLE 4 DISPENSER 5 COOLER 6 TV MUSIC SYSTEM 7 FREEZE / REFRIGERATOR 8 HANDICAM 9 PROJECTOR 10 SCANNER 11 INDUSTRIAL FAN 12 UPS INVERTER 13 ATTENDANCE CARD READER 14 EPBX SYSTEM 15 ENERGY SAVER 25. AT PAGE 4 OF THE ASSESSMENT ORDER, THE ASSESSING OFFIC ER HAS GIVEN THE BREAK-UP OF THE VALUE OF THE ASSETS, THE DEPRE CIATION AND ADDITIONAL DEPRECIATION CLAIMED AND HAS WORKED OUT THE DEP RECIATION TO BE ALLOWED @ 10%, WHICH IS AS UNDER:- ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 17 SR NO ITEMS VALUE DEPRECIAT ION ADDL. DEPRECIAT ION CLAIMED DEPRECIATI ON ALLOWED @ 10% (B) DIFFEREN CE (DISALLOW ED (A-B) DEPRECIATION DISALLOWED MORE THAN 181 DAYS LESS THAN 181 DAYS 1 RACKS 2016664 359486 329460 439280 219640 109820 439280 2 TROLLEY 1601828 2078828 396184 528246 264123 1320 61 528246 3 AIR CONDITI ONER 1348845 866424 267308 356411 178205 89102 356411 TABLE 1895287 554356 250868 334491 167245 83622 33 4491 4 DISPEN SER 288738 0 43309 57746 38873 14436 57746 5 COOLER 683161 142313 110123 146831 73415 36707 14 6831 6 TV MUSIC SYSTEM 33870 32181 5080 6774 3387 1693 6774 7 FREEZE / REFRIGE RATOR 16640 12267 3415 4554 2277 1138 4554 8 HANDIC AM 111416 66991 21736 28982 14491 7245 28982 9 PROJECT OR 311130 0 46670 62226 31113 15556 62226 10 SCANNE R 3348 0 502 670 335 167 670 11 INDUSTR IAL FAN 59968 0 8995 11994 5997 2998 11994 12 UPS INVERTE R 39257 584724 49743 66324 33162 16581 66324 13 ATTEND ENCE CARD READER 315082 512545 85703 114271 57135 28568 114271 14 EPBX SYSTEM 267363 0 40104 53473 26736 13368 53473 15 ENERGY SAVER 0 107767 8083 10777 5388 2694 10777 TOTAL 1667283 2223050 1111522 555756 2223050 26. THE FIRST ITEM WAS THE RACKS WHICH ARE UTILIZED FOR KEE PING ANY TYPE OF MATERIAL OR GOODS AND CANNOT FORM PART OF THE PLA NT & MACHINERY. WE ARE OF THE VIEW THAT THE RACKS CANNOT BE CONSIDERED AS PART OF BLOCK OF PLANT & MACHINERY AND NO ADDITIONAL DEPRE CIATION IS ALLOWABLE ON THE SAME. FURTHER, DEPRECIATION @ 10% IS TO B E ALLOWED ON SUCH RACKS BEING FURNITURE & FIXTURES. 27. THE NEXT ITEM IS TROLLEY WHICH AS PER THE ASSESSING OFFIC ER IS PART OF THE FURNITURE & FIXTURES AS THE SAME IS USED FO R TRANSFERRING MATERIAL AND GOODS FROM ONE PLACE TO ANOTHER. THE VALUE OF THE TROLLEY IS RS.16.01 LAKHS AND RS.20.78 LAKHS. KEEPING IN MIND THE NAT URE OF ASSET AND FUNCTIONAL TEST, WE FIND NO MERIT IN THE ORDER OF ASSESSING ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 18 OFFICER IN THIS REGARD AND DIRECT THE ASSESSING OFFICER TO CO NSIDER THE SAME WITHIN BLOCK OF PLANT & MACHINERY AND ALLOW THE DEPREC IATION AND ADDITIONAL DEPRECIATION ON THE SAME. 28. THE NEXT ITEMS WERE AIR-CONDITIONER, TV MUSIC SYSTEM A ND INDUSTRIAL FAN. THE AIR-CONDITIONER IS PLANT & MACHINERY ON WHICH THE DEPRECIATION AT HIGHER RATE IS ALLOWABLE. HOWEVER, NO ADDITIO NAL DEPRECIATION ON THE SAME IS ALLOWABLE SINCE THE SAME CANNO T PART TAKE THE MACHINERY USED FOR MANUFACTURING ACTIVITIES. FURTHER, T V MUSIC SYSTEM IS AN ELECTRONIC ITEM ON WHICH HIGHER RATE OF DEPRE CIATION IS ALLOWABLE. HOWEVER, NO ADDITIONAL DEPRECIATION IS ALLOWABLE ON S UCH TV MUSIC SYSTEM. THE INDUSTRIAL FAN BEING UTILIZED AS PAR T OF THE MANUFACTURING ACTIVITY, WAS ENTITLED TO THE CLAIM OF HIGHER DE PRECIATION AND ALSO ADDITIONAL DEPRECIATION ON PLANT & MACHINERY. 29. NEXT ITEMS CONSIDERED BY THE ASSESSING OFFICER WERE T HE WATER COOLER, DISPENSER, REFRIGERATOR, HANDICAM, PROJECTOR AND SCA NNER. ALL THESE ITEMS ARE ELECTRONIC ITEMS AND ARE TO BE CONSIDERE D UNDER THE SAID HEAD. HOWEVER, THE ASSESSEE IS NOT ENTITLED TO CLAIM OF ADDITIONAL DEPRECIATION AS THE SAME WERE NOT PART AND PARCEL OF MA NUFACTURING ACTIVITY CARRIED ON BY THE ASSESSEE. 30. ANOTHER GROUP OF ITEMS WERE UPS, INVERTER, ATTENDANC E CARD READER, EPBX SYSTEM AND ENERGY SAVER, WHICH ARE ELECTRO NIC ITEMS BUT ARE NOT PART AND PARCEL OF PLANT & MACHINERY UTILIZED FOR MANUFACTURING ACTIVITY. THE ASSESSEE WAS NOT ENTITLED TO THE CLAIM OF ADDITIONAL DEPRECIATION ON THE SAME. THUS, GROUND OF APPEA L NO.3 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 19 31. THE ISSUE IN GROUND OF APPEAL NO.4 RAISED BY THE ASSE SSEE IS IN TREATING DISCOUNT ON PRE-PAYMENT OF SALES TAX DEFERRAL LIAB ILITY AS REMISSION / CESSATION OF LIABILITY CHARGEABLE TO TAX UNDER SE CTION 41(1) OF THE ACT. 32. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT, DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER OBSERVED THA T THE ASSESSEE HAD CREDITED UNDER THE HEAD OTHER INCOME A SUM OF RS.3.73 CRORES ON ACCOUNT OF SURPLUS OF PREMATURE PAYMENT OF SA LES TAX DEFERRAL LOAN AND SUBSEQUENTLY, THE SAME WAS REDUCED FR OM THE TOTAL INCOME IN THE COMPUTATION OF INCOME FILED BY THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAID SURPLUS IS TAXABLE UNDER SECTION 41(1)(A) OF THE ACT. THE ASSESSEE HAD PLACE D RELIANCE ON THE RATIO LAID DOWN BY SPECIAL BENCH OF MUMBAI TRIBUNAL IN S ULZER INDIA LTD. VS. JCIT (2010) 42 SOT 457 (MUMBAI). THE ASSESSIN G OFFICER NOTED THAT BEFORE THE SPECIAL BENCH, THE QUESTION W AS MODIFIED DURING THE COURSE OF HEARING AND IT WAS HELD THAT THERE WAS NO REMISSION OF ANY LIABILITY ON THE DIFFERENCE BETWEEN PAYMENT OF NET PERCENT VALUE AGAINST THE FUTURE LIABILITY OF CREDIT BY THE A SSESSEE AND SUCH PAYMENT OF NET PERCENT VALUE OF FUTURE LIABILITY, IN OUR OPINION, CLASSIFIED AS REMISSION OR CESSATION OF LIABILITY SO AS TO ATTR ACT THE PROVISIONS OF SECTION 41(1) OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE, WHICH WAS UPHELD BY THE DRP. 33. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT THE ISSUE WAS SQUARELY COVERED BY THE RATIO LAID DOWN IN SULZER INDIA LTD. VS. JCIT (2010) 42 SOT 457 (MUMBAI). ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 20 34. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE HAD PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. 35. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS WITH REGARD TO THE SALES TAX DEFFERED SCHEME UNDER WHICH, THE ASSESSEE HAD MADE ADVA NCE PAYMENT OF SALES TAX. AS PER THE SCHEME, WHERE THE PAY MENTS WERE MADE IN ADVANCE, THEN THE ASSESSEE WAS TO DEPOSIT A LES SER AMOUNT AS COMPARED TO THE AMOUNT OF SALES TAX COLLECTED, RESULTING I N CREDIT OF RS.3.73 CRORES. THE SAME WAS NOT RECOGNIZED AS INCOME B Y THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SURPLUS ON PREMATURE PAYMENT OF SALES TAX DEFFERED LOAN, WAS TAXABLE UNDER SECTION 41(1) OF THE ACT. 36. WE FIND THAT SIMILAR ISSUE AROSE BEFORE MUMBAI SPECIAL BE NCH OF THE TRIBUNAL IN SULZER INDIA LTD. VS. JCIT REPORTED IN (2010 ) 42 SOT 457 (MUM.) (SB), WHEREIN IT WAS HELD AS UNDER:- HAVING REGARD TO THE LAW LAID DOWN BY THE SUPREME COURT AND BY THE HIGH COURTS IN VARIOUS DECIDED CASES, IT WAS F OUND THAT TO INVOKE THE PROVISIONS OF SECTION 41(1), THE FIRST REQU IREMENT IS AS TO WHETHER IN THE ASSESSMENT OF THE ASSESSEE, AN ALLOWANC E OR DEDUCTION HAS BEEN MADE IN RESPECT OF LOSS, EXPENDIT URE OR THE TRADING LIABILITY INCURRED BY THE ASSESSEE. IN THE CA SE OF THE ASSESSEE THE REVENUES PLEA WAS THAT THE ASSESSEE HAD OBTAINED THE BENEFIT OF DEDUCTION OF SALES TAX LIABILITY UNDER SECTION 43B AS PER THE CBDT'S CIRCULAR NO.496, DATED 25-9-1987. HOWEVE R, IT WAS FOUND THAT IN THE SAID CIRCULAR IT HAD BEEN CLEA RLY STATED VIDE PARA 5 THAT '...THE STATUTORY LIABILITY SHALL BE TREATED TO HAVE BEEN DISCHARGED FOR THE PURPOSES OF SECTION 43B [EMPHASI S SUPPLIED]. THUS, THE BENEFIT OF DEDUCTION WAS ALLOWED FOR THE PUR POSE OF SECTION 43B ONLY AND NOT UNDER ANY OTHER PROVISIONS OF THE ACT. THERE WAS NO DISPUTE THAT THE ASSESSING OFFICER HAD ALSO APPLIED THE AFORESAID BOARD CIRCULAR WHILE GIVING THE BENEFI T OF DEDUCTION UNDER SECTION 43B. IT IS SETTLED LAW THAT THE CIRCULA RS ARE BINDING ON THE DEPARTMENT. IT IS ALSO SETTLED LAW THAT THE COUR T CANNOT ADD WORDS TO STATUTE OR READ WORDS INTO IT WHICH ARE NOT THERE. THIS BEING SO, IT WAS TO BE OPINED THAT THE FIRST REQUIREM ENT OF SECTION 41(1) HAS NOT BEEN FULFILLED IN THE FACTS OF THE CASE. ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 21 THE OTHER REQUIREMENT OF SECTION 41(1) IS THAT THE A SSESSES MUST HAVE SUBSEQUENTLY: (I) OBTAINED ANY AMOUNT IN RESPEC T OF SUCH LOSS AND EXPENDITURE, OR (II) OBTAINED ANY BENEFIT IN RESPECT OF SUCH A TRADING LIABILITIES BY WAY OF REMISSION OR CES SATION THEREOF. IN THE INSTANT CASE, THE SALES TAX COLLECTED BY THE ASS ESSEE DURING THE YEARS 1989-90 TO 2001-02 AMOUNTING TO RS. 752.01 LAKHS WAS TREATED BY THE STATE GOVERNMENT AS A LOAN LIABILITY P AYABLE AFTER 12 YEARS IN SIX ANNUAL/EQUAL INSTALLMENTS. SUBSEQUENTLY , PURSUANT TO THE AMENDMENT MADE TO THE FOURTH PROVIS O TO SECTION 38(4) OF THE BOMBAY SALES TAX ACT, 1959 WHICH PROVIDES THAT WHERE AN ENTITLEMENT CERTIFICATE HAS BEEN GRANTED TO THE ELIGIBLE UNIT FOR AVAILING OF THE INCENTIVES BY WAY OF DEFER MENT OF SALES TAX, ETC., SUCH ELIGIBLE UNIT MAY, IN RESPECT OF THE P ERIODS DURING WHICH THE SAID CERTIFICATE IS VALID, AT ITS OPTION, PREMA TURELY PAY IN PLACE OF THE AMOUNT OF TAX DEFERRED BY IT AN AMOUNT EQUAL TO THE NET PRESENT VALUE OF THE DEFERRED TAX AS MAY BE PRES CRIBED AND ON MAKING SUCH PAYMENTS, IN THE PUBLIC INTEREST, THE DEF ERRED TAX SHALL BE DEEMED TO HAVE BEEN PAID. IN THE INSTANT CASE THE ASSESSEE HAD OPTED FOR THE OFFER OF SICOM, AN IMPLEMEN TING AGENCY OF THE STATE GOVERNMENT AND REPAID AN AMOUNT OF RS. 337.13 LAKHS TO SICOM WHICH ACCORDING TO THE ASSESSE E REPRESENTED THE NPV OF THE FUTURE SUM AS DETERMINED AND PRESCRIBED BY SICOM. THE SAID PAYMENT WAS MADE TO SI COM ON 30-12-2002 AS PER CERTIFICATES DATED 25-8-2003. IT HAS ALR EADY BEEN DEMONSTRATED THAT NPV IS EQUIVALENT TO FUTURE V ALUE OF THE SUM. IN OTHER WORDS, WHAT THE ASSESSEE WAS REQUIRED T O REPAY AFTER 12 YEARS IN SIX ANNUAL/EQUAL INSTALMENTS, THE SAM E WAS REPAID BY THE ASSESSEE, IN THE PUBLIC INTEREST, AS NP V IS EQUIVALENT TO THE FUTURE VALUE OF THE SUM. FURTHER, TH ERE WAS NO IOTA OF EVIDENCE TO SHOW THAT THERE HAD BEEN ANY RE MISSION OR CESSATION OF LIABILITY BY THE STATE GOVERNMENT. THUS, ONE OF THE REQUIREMENTS SPELT OUT FOR THE APPLICABILITY OF SECT ION 41(1)(A) HAD NOT BEEN FULFILLED IN THE FACTS OF THE INSTANT CASE. 37. THE ISSUE ARISING IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE BEFORE THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN SULZER IN DIA LTD. VS. JCIT (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, W E HOLD THAT THE DEFFERED SALES TAX LIABILITY I.E. THE DIFFERENCE BETWEEN THE PAYMENTS OF THE NET PRESENT VALUE AGAINST FUTURE LIABILITY C REDITED BY THE ASSESSEE UNDER THE CAPITAL RESERVE ACCOUNT IN ITS B OOKS OF ACCOUNT, WAS A CAPITAL RECEIPT AND THE SAME COULD NOT BE TERMED AS REMISSION / CESSATION OF LIABILITY, CONSEQUENTLY, NO ADDITION COULD BE MADE UNDER THE PROVISIONS OF SECTION 41(1) OF THE ACT. REVERSING THE O RDER OF ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 22 AUTHORITIES BELOW, WE ALLOW THE CLAIM OF THE ASSESSEE. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 38. THE ISSUE RAISED BY THE ASSESSEE IN GROUND OF APPEA L NO.5 IS AGAINST THE RE-CALCULATION OF BOOK PROFIT UNDER SECTION 115 JB OF THE ACT BY MAKING VARIOUS ADDITIONS. 39. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSE SSEE POINTED OUT THAT IT WAS ONLY PRESSING THE DISALLOWANCE TO SECTION 14A OF THE ACT BEING ADDED BACK TO THE BOOK PROFITS UNDER THE PROVISION S OF SECTION 115JB OF THE ACT AS AN ADJUSTMENT AND WAS NOT PRESSIN G THE OTHER THREE ADDITIONS I.E. ON ACCOUNT OF PROVISION FOR BAD & DOUBT FUL DEBTS, PROVISION FOR WARRANTY AND PROVISION FOR DIMINUTION OF ASSETS. 40. THE LIMITED ISSUE BEFORE US IS WHETHER WHILE COMPUTING T HE BOOK PROFITS UNDER SECTION 115JB OF THE ACT, THE ASSESSING OFFI CER CAN CONSIDER THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AN D ADD THE SAME TO THE PROFITS OF THE BUSINESS IN ORDER TO COMPUTE THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 41. WE FIND SIMILAR ISSUE AROSE BEFORE CHANDIGARH BENCH OF T HE TRIBUNAL IN NAHAR INDUSTRIAL ENTERPRISES LTD., VS. DCIT IN ITA NO.897/CHD/2012 RELATING TO ASSESSMENT YEAR 2008-09, V IDE ORDER DATED 10.09.2014 AND IT WAS HELD AS UNDER:- 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FIND THAT RECOMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT AROSE BEFORE THE TRIBUNAL IN ACIT V S. M/S NAHAR CAPITAL & FINANCIAL SERVICES LTD. AND THE TRIBUNAL IN ITA NO.870/CHD/2013 RELATING TO ASSESSMENT YEAR 2010-11 V IDE ORDER DATED 6.6.2014 HELD AS UNDER: ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 23 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN REL ATION TO COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB. THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFITS H AD ADDED BACK DISALLOWANCE WORKED OUT UNDER SECTION 14A OF THE ACT TO THE NET PROFITS OF THE BUSINESS. THE PLEA OF THE ASSESSEE IN THIS REGARD WAS THAT THE ASSESSEE ITSEL F HAD DISALLOWED SUM OF RS.42,37,722/- ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A OF THE ACT UNDER REGUL AR PROVISIONS AND RS.32,86,397/- UNDER SECTION 115JB PROVISION IN ITS RETURN OF INCOME ON PROPORTIONATE B ASIS. THE ASSESSING OFFICER RECOMPUTED THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT AND THE CIT (APPEALS) DELETED THE SAM E AGAINST WHICH THE REVENUE IS IN APPEAL. 6. WE FIND THAT SIMILAR ISSUE OF COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT IN VIEW OF READJUSTMENT ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A OF THE ACT AROSE BEFORE THE TRIBUNAL IN ASSESSEES OW N CASE RELATING TO ASSESSMENT YEAR 2008-09. THE TRIBUNAL IN ITA NO.1120/CHD/2011 VIDE ORDER DATED 27.7.2012 IN TURN RELYING ON AN EARLIER DECISION OF THE CHANDIGARH BEN CH OF THE TRIBUNAL IN DCIT VS. IND SWIFT LTD. IN ITA NO.729/CHD/2009 RELATING TO ASSESSMENT YEAR 2006-07 DATE OF ORDER 30.11.2009 HELD AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ONLY ISSUE ARISING IN THE PRESENT APPEAL IS IN RESPECT OF COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THE ASSESSING OFFICER WHILE COMPUTING THE SAID BOOK PROFITS HAD ADDED BACK THE DISALLOWANCE WORKED OUT UNDER SECTION 14A OF THE ACT OF THE NET PROFITS OF THE BUSINESS AND COMPUTED THE TAX LIABILITY OF THE ASSESSEE COMPANY THEREAFTER. WE FIND THAT THE ISSUE IN THE PRESENT CASE IS COVERED BY THE ORDER OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN DCIT VS. IND- SWIFT LTD. (SUPRA) WHERE VIDE ORDER DATED 30.11.2009 VIDE PARA 8 IT WAS HELD AS UNDER: 8. THE GROUND 1(IV) RAISED BY THE REVENUE IS AGAINST THE COMPUTATION OF BOOK PROFITS U/S 115 JB OF THE ACT. THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT U/S 115 JB OF THE ACT HAD ADDED BACK THE DISALLOWANCE WORKED U/S 14A OF THE I.T. ACT TO THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT AND COMPUTED THE PROFITS FOR THE YEAR. THE CIT (A) REWORKED THE BOOK PROFITS BY EXCLUDING THE SAID NOTIONAL DISALLOWANCE U/S 115 JB OF THE ACT, IN TURN FOLLOWING THE RATIO LAID DOWN BY THE APEX COURT IN APOLLO TYRES LTD. 255 ITR 273 (SC). WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A). THE ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 24 ADJUSTMENTS, IF ANY, TO BE MADE TO THE PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT, ARE PROVIDED IN THE SECTION 115 JB OF THE ACT ITSELF. THERE IS NO PROVISION IN THE ACT TO MAKE ADJUSTMENT ON ACCOUNT OF NOTIONAL DISALLOWANCE WORKED OUT UNDER SECTION 14A OF THE ACT. THE HON'BLE SUPREME COURT IN APOLLO TYRES LTD. (SUPRA) HELD THAT THE PROFITS OF THE BUSINESS ARE NOT TO BE DISTURBED FOR COMPUTING THE BOOK PROFITS EXCEPT IN THE CIRCUMSTANCES PROVIDED UNDER THE SAID ACT. WE CONFIRM THE ORDER OF CIT IN THIS REGARD AND DISMISS THE GROUND NO.1(IV) RAISED BY THE REVENUE. 6. THE ISSUE ARISING IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE BEFORE THE CHANDIGARH BENCH O F THE TRIBUNAL IN DCIT VS. IND-SWIFT LTD. (SUPRA) AND FOLLOWING THE SAME WE DIRECT THE ASSESSING OFFICER TO ADOPT THE BOOK PROFITS AS PER THE PROFIT & LOSS ACCOUNT AND DO NOT MAKE ADDITION ON ACCOUNT OF DISALLOWANCE WORKED OUT UNDER SECTION 14A OF THE ACT, AS SUCH DISALLOWANCE IS COMPUTED UNDER THE NORMAL PROVISION OF THE ACT, WHICH ARE NOT APPLICABLE FOR DETERMINING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 7. SIMILAR ISSUE WAS AROSE IN ASSESSMENT YEAR 2009-10 IN ASSESSEES OWN CASE IN ITA NO.1353/CHD/2012 ORDER DATED 16.4.2013. FOLLOWING THE PARITY OF REASONING AND ISSUE BEING IDENTICAL WE FIND NO MERIT IN THE AFORESAID ADDITION MADE BY THE ASSESSING OFFICER AND UPHOLDING THE ORDER OF THE CIT (APPEALS) WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 7. THE ISSUE BEFORE US IS IDENTICAL TO THE ISSUE BEF ORE THE TRIBUNAL IN THE CASE OF SISTER CONCERN AND FOLLOWING T HE SAME PARITY OF REASONING WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT, WHILE C OMPUTING THE BOOK PROFITS U/S 115JB OF THE ACT. WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 42. THE ISSUE BEFORE US IS IDENTICAL TO THE ISSUE BEFORE TH E CHANDIGARH BENCH OF THE TRIBUNAL IN NAHAR INDUSTRIAL ENTER PRISES LTD., VS. DCIT (SUPRA) AND FOLLOWING THE SAME PARITY OF REASO NING WE DIRECT THE ASSESSING OFFICER TO EXCLUDE THE DISALLOWANCE MAD E UNDER SECTION 14A OF THE ACT, WHILE COMPUTING THE BOOK PROFITS U /S 115JB OF ITA NO.2482/PN/2012 VARROC ENGG. PVT. LTD. 25 THE ACT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THE GROUN D OF APPEAL NO.5 IS THUS, ALLOWED. 43. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF DECEMBER, 2014. SD/- SD/- (G.S. PANNU) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 30 TH DECEMBER, 2014. GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE DRP, PUNE; 4) THE CONCERNED CIT(A); 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE