Bartronics India Ltd., Hyderabad, Hyderabad V. DCIT, Circle-1(2), Hyderabad, Hyderabad

ITA 259/HYD/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2610 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-09-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 17-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S MOURANA
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Related party transaction; Business income; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Retrospective amendment; Initiation of penalty proceedings; Commercial expediency; Unabsorbed depreciation
• Section: 143(3); 92B; 115JB; 10B; 145; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 259/HYD/2017 ASSESSMENT YEAR: 2012-13 BARTRONICS INDIA LTD., HYDERABAD. PAN AAACB 8231 F VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SMT. S. MOURANA DATE OF HEARING 12-09-2017 DATE OF PRONOUNCEMENT 27-09-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER PASSED U/S 143(3) R.W.S. 144C OF THE INCOME TAX ACT , 1961 (IN SHORT ACT) DATED 16/01/2017 RELATING TO AY 2012-13. 2. BRIEF FACTS OF THE CASE ARE, ASSESSEE COMPANY E NGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND TRADING OF BIO METRIC AND E- CODING EQUIPMENTS, E-FILED ITS ORIGINAL RETURN OF INCOME FOR THE AY 2012-13 ON 29/11/12 ADMITTING A BUSINESS INCOME AT NIL UNDER NORMAL PROVISIONS AND (-) RS. 6,98,08,245/- UNDER THE PROV ISIONS OF SECTION 115JB . ASSESSEE HAD ALSO FURNISHED A REPORT IN FOR M NO. 3CEB IN ACCORDANCE WITH PROVISIONS OF SECTION 92E. AS PER T HE SAID REPORT, ASSESSEE HAD INTERNATIONAL TRANSACTIONS WITH ITS AS SOCIATE ENTERPRISES WHICH NECESSITATED REFERENCE TO THE TRANSFER PRICIN G OFFICER (TPO) AS 2 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. PER THE PROVISIONS OF SECTION 92CA FOR DETERMINATIO N OF ARMS LENGTH PRICE. ACCORDINGLY, THE CASE WAS REFERRED TO THE TP O ON 25/03/2015 FOR DETERMINATION OF ARMS LENGTH PRICE WITH THE PR IOR APPROVAL OF THE CIT-I, HYDERABAD. 2.1 ASSESSEES PROFILE: M/S BATRONICS INDIA LTD. IS FORMED IN THE YEAR OF 1 990 AND IT HAS BEEN ENGAGED IN INTRODUCING NEWER TECHNOLOGIES AND SOLUT IONS IN INDIA BASED ON BIOMETRICS, RFID, POS, EAS, AND SMART CARD S ETC. 2.2 INTERNATIONAL TRANSACTIONS: AS PER 3CEB REPORT/TP DOCUMENT SUBMITTED, THE INTER NATIONAL TRANSACTIONS ARE AS UNDER: AE NATURE OF TRANSACTION AMOUNT (RS.) BARTRONICS MIDDLE EAST FZE RENDERING OF SOFTWARE SERVICES 11,38,06,700 BARTRONICS ASIA PTE LTD. RENDERING OF SOFTWARE SERVICES 3,42,126 2.3 EXAMINATION OF TP STUDY CONDUCTED BY ASSESSEE: THE ASSESSEE HAS CARRIED OUT THE ECONOMIC ANALYSIS AND HAS SUMMARIZED IT AS UNDER: NATURE OF INTERNATIONAL TRANSACTION AMOUNT (RS.) MAM PLI MARGIN OF ASSESSEE MARGIN OF COMPALRABLE PROVISION OF SOFTWARE DEVELOPMENT AND CONSULTING SERVICES 1141488261 TNMM OP/OC 23.57 16.17 THE TPO NOTED THAT THE ASSESSEE COMPANY HAD DISCUSS ED IN BRIEF THE SEARCH PROCEDURE ADOPTED BY IT IN SEARCH FOR COMPAR ABLES IN ITS TP DOCUMENTATION. IT HAD USED PROWESS AND CAPITALINE P LUS DATA BASE IN 3 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. SEARCH FOR COMPARABLE COMPANIES. FOR SOFTWARE DEVEL OPMENT SERVICES, AFTER APPLYING CERTAIN FILTERS, ASSESSEE COMPANY HAD SHORT- LISTED 3 COMPARABLES AND THEIR ARITHMETIC MEAN PLI (OP/OC) IS COMPUTED AT 16.17% AS AGAINST ITS PLI OF 23.57%. AS THE ABOVE TRANSACTIONS ARE ABOVE THE +/- 5% RANGE, THE ASSESS EE HELD THE TRANSACTIONS TO BE WITHIN ARMS LENGTH. 2.4 ANALYSIS OF THE TRANSACTION: AS PER THE AUDITED STATEMENT OF ACCOUNTS THE FINAN CIALS OF THE ASSESSEE ARE AS UNDER: DESCRIPTION AMOUNT (IN RS.) OPERATING REVENUE 5790564000 OPERATING COST 4515336000 OPERATING PROFIT 1275228000 OP/OR (%) 22.02 OP/OC 28.24 2.5 THE TPO NOTICED FROM THE TP DOCUMENTATION THAT THE COMPANY HAD THE FOLLOWING TRANSACTION, WHICH WAS NOT REPORT ED IN FORM 3CEB: NATURE OF TRANSACTIONS AMOUNT (IN RS.) AMOUNT RECEIVABLES 31,86,96,000 CORPORATE GUARANTEE 67,92,81,000 3. ECONOMIC ANALYSIS 3.1 SOFTWARE DEVELOPMENT SERVICES: THE TPO OBSERVED THAT THE ASSESSEE HAD USED THREE YEARS DATA TO FIND COMPARABLES WHICH IS NOT AS PER THE PROVISI ONS OF SECTION 10B. THIS HAD LED TO THE SELECTION OF 3 COMPARABLES OUT OF WHICH SOME COMPARABLES DO NOT HAVE THE CONTEMPORANEOUS DATA. T HIS RENDERS THE SET OF COMPARABLES PROPOSED BY THE ASSESSEE AS INVA LID. THEREFORE, AN INDEPENDENT SEARCH WAS CONDUCTED BY THE TPO USIN G PROWESS AND CAPITALINE DATABASE AND USING CONTEMPORANEOUS DATA AS PROVIDED IN RULE 10B AND AGGREGATING THE TRANSACTIONS. AFTER AP PLYING CERTAIN 4 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. FILTERS A SET OF COMPARABLES HAVE BEEN ARRIVED AT. THE TPO HELD THAT THE +5% OF THE PRICE RECEIVED, AND AFTER ALLOWING W CA, IS WITHIN THE AVERAGE MARGIN OF THE COMPARABLES AND, THEREFORE, N O ADJUSTMENT WAS MADE. 3.2. OUTSTANDING RECEIVABLES. THE TPO OBSERVED THAT THE ASSESSEE HAS RECEIVABLES OF RS. 31,86,96,000/- WHICH WERE NOT REPORTED IN FORM 3CEB OF THE YEAR. THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF RAI SING THE INVOICE AND SUBSEQUENT RECEIPT. THE ASSESSEE SUBMITTED THE DETAILS AS UNDER: THE OUTSTANDING RECEIVABLE AS ON 31.02.2012 OF RS. 16.48 LAKHS FROM BARTRONICS ASIA PTE LTD AND RS. 3170.48 LAKHS FROM BATRONICS MIDDLE EAST FZE ARE OUT OF THE SALE MADE TO THE AE. THE ASSESSEE HAS ALSO RECEIVED CERTAIN ADVANCE FROM AE ON WHICH NO INTEREST IS CHARGED BY AE. ONE OF THE MOST APPROPRIATE METHOD TO COMPUTE ALP IS CUP AND THEREFORE, WHEN TH ERE EXISTS AN INTERNAL CUP IT SHOULD BE CONSIDERED FOR DETERMINING ALP OF THE TRANSACTIONS. THE ASSESSEE DID NOT CHARG E ANY INTEREST ON ANY DELAYED PAYMENT IRRESPECTIVE OF WHE THER THE SALE ARE MADE TO UNRELATED CUSTOMERS OR AE DURING T HE YEAR UNDER CONSIDERATION ON ANY DELAYED PAYMENT IRRESPEC TIVE OF WHETHER THE SALES ARE MADE TO UNRELATED CUSTOMERS O R AE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE P LACED RELIANCE ON THE FOLLOWING CASE LAWS: 1. CIT VS INDO AMERICAN JEWELLERY LTD(ITA NO. 1053 OF 2012 2. LINTAS INDIA P. LTD VS ACIT (2013)152 TTJ 706(M UM) 3. MASTEK LTD. VS ACIT(ITA NO. 3120/AHD/2010) 4. EVONIK DEGUSSA INDIA PVT LTD VS ACIT (2013) 55 SOT 566(MUM) 5. M/S. NIMBUS COMMUNICATIONS LTD VS. ACIT(2013)14 5 ITD 582(MUM - TRIB) 3.3 COMMENTS OF TPO WERE AS UNDER: AFTER CONSIDERING THE ASSESSEES SUBMISSION, TPO CO NCLUDED THAT IN AN ARM'S LENGTH SITUATION ANY INDEPENDENT PARTY WOU LD LIKE TO RECEIVE ITS FUNDS WITHIN THE CREDIT PERIOD ALLOWED, AND IF NOT, WOULD NORMALLY CHARGE INTEREST. RELIANCE WAS PLACED ON THE CASE OF LOGIX MICRO SYSTEMS LTD. 42 SOT 525, WHEREIN THE TRIBUNAL HELD THAT A REASONABLE PERIOD SHOULD BE PROVIDED AS 'INTEREST-FREE' PERIOD AND NO INTEREST 5 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. SHOULD BE CALCULATED FOR SUCH PERIOD. RELIANCE WAS PLACED ON CHIEL INDIA PVT. LTD [TS-145-ITAT-2014(DEL)-TP], WHICH AL SO TOOK INTO ACCOUNT JUDGMENT DATED 07-10-2010 OF ITAT BANGALORE BENCH IN THE CASE OF M/S LOGIX MICRO SYSTEMS LTD. VS. ACIT (ITA NO. 524/BANG/2009). FURTHER, TPO OBSERVED THAT THE RECEIVABLES OUTSTAND ING PARTAKE THE NATURE OF ADVANCES. THE ADVANCE FROM INDIA AND INDI AN CURRENCY HAS BEEN SUBSEQUENTLY CONVERTED INTO THE CURRENCY OF TH E GEOGRAPHIC LOCATION OF THE AE THE PLR OF THE INDIAN BANKS OUGH T TO BE APPLIED AS THE EXTERNAL CUP AND NOT THE LIBOR. THUS THE OUTBOU ND LOANS ARE EFFECTIVELY RUPEE LOANS. IN CASE OF A RUPEE SOURCED LENDING TRANSACTION, THE LENDER IN ORDER TO MAXIMIZE ITS PR OFITS WOULD TRY TO BENCHMARK ITS RETURNS WITH THE DOMESTIC INTEREST RA TE RATHER THAN LIBOR. THE IDEAL INTEREST RATE ON OUTBOUND INTRA-GR OUP LOANS WOULD BE THAT INTEREST RATE WHICH WOULD HAVE BEEN CHARGED BY INDEPENDENT PARTIES DEALING IN SIMILAR CIRCUMSTANCES AND DURING THE SAME PERIOD OF TIME. RBI DOES NOT PERMIT INDIAN ENTITIES TO LEND L OANS TO ANY ENTITY OTHER THAN THEIR WHOLLY OWNED SUBSIDIARIES AND THER EFORE THERE IS NO UNCONTROLLED TRANSACTION AVAILABLE. FURTHER THE INT EREST RATE EXPECTED BY THE LENDER IS EQUIVALENT TO THE OPPORTUNITY COST OF SUCH FUNDS. AS A HYPOTHETICAL CUP WOULD BE WHERE THE INDIAN ENTITY I NVESTS IN BANK DEPOSITS, STOCKS, MUTUAL FUNDS OR REAL ESTATE, THE CORRESPONDING RETURN WOULD STILL BE THE EFFECTIVE INDIAN INTEREST RATE. THUS PLR IS AN APPROPRIATE CUP. TPO FURTHER OBSERVED THAT THE ASSESSEE HAS NOT SUBM ITTED THE DETAILS OF DATE OF INVOICE AND ACTUAL DATE OF REALIZATION. THE ASSESSEE SUBMITTED 18 MONTHS (I.E. 01-04-2011 TO 30-09-2012) FINANCIAL STATEMENTS AND RELATED PARTY TRANSACTION SCHEDULE. AS PER THIS SCHEDULE ALSO, THE ENTIRE R ECEIVABLES ARE OUTSTANDING AS ON 30.09.2012 HENCE, THE TPO PROCEEDED WITH LEVYING O F INTEREST ON THE OUTSTANDING RECEIVABLES FOR 18 MONTHS @ PLR 14.75% . WORKING OF THE INTEREST IS AS UNDER: RS. 31,86,96,000 X 14.75 X 18/12 X 100 = RS. 7,05, 11,490/- THUS, THE ARMS LENGTH PRICE INTEREST ON RECEIVABLE S IS RS. 7,05,11,490/- AND THE SHORTFALL OF RS. 7,05,11,490/ - WAS TREATED AS ADJUSTMENT U/S 92CA OF IT AT AND THE TOTAL INCOME O F THE ASSESSEE WAS ENHANCED ACCORDINGLY U/S 92CA(3) OF THE ACT. 3.4 CORPORATE GUARANTEE: THE TPO NOTICED FROM THE FINANCIAL STATEMENT THAT THE ASSESSEE HAD GIVEN CORPORATE GUARANTEE TO THE AE FOR THE AMOUNT OF RS. 6 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. 67,92,81,000/- WHICH WERE NOT REPORTED IN FORM 3CEB OF THE YEAR. WHEN THE ASSESSEE WAS SHOW CAUSED TO SUBMIT THE DE TAILS OF THE SAME, IT WAS SUBMITTED THAT BENCHMARK PROPOSED BY T PO @ 2% FOR THE CORPORATE GUARANTEE TRANSACTION IS NOT REQUIRED AS IT IS NOT BASED ON ANY SCIENTIFIC EXTERNAL OR INTERNAL COMPARABLE R ATE FOR THE FOLLOWING REASONS: A) THE ASSESSEE COMPANY HAS PROVIDED A CORPORATE GU ARANTEE OF $15 MILLION ON 08.04.2011 WHICH WAS EQUIVALENT T O RS.6792.81LAKHS KEEPING IN VIEW OF THE GROWTH AND I NTEREST OF THE COMPANY AND WELL BEING OF ITS SUBSIDIARIES. B) CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRAN SACTION BASED ON THE FOLLOWING JUDGEMENTS: I) HONBLE ITAT, AHMEDABAD IN THE CASE OF MICRO INK LTD. (ITA NO. 2873/AHD/10). II) VIDEOCON INDUSTRIES LTD. VS. ADDL. CIT RANGE-3( 3), MUMBAI, (2012). III) BHARTI AIRTEL LIMITED VS. ACIT,ITA NO.5816/DEL /2012. IV) REDINGTON INDIA LTD. VS. JCIT,ITA NO.513/MDS/20 14. V) M/S. FOUR SOFT LTD VS. DCIT, ITA NO 1495/HYD/20 10. C) A LIABILITY COULD ARISE FOR THE GUARANTOR IF A D EFAULT TOOK PLACE, HOWEVER, THIS WAS HYPOTHETICAL SITUATION. THE CORPO RATE GUARANTEE IS PROVIDED TO AE FOR COMMERCIAL AND BUSI NESS EXPEDIENCY. THE ASSESSEE HAS NOT INCURRED ANY COST FOR PROVIDING SUCH GUARANTEE. D) CREDIT RATING OF THE AE IS MUCH HIGHER THAN THE CREDIT RATING OF THE ASSESSEE. E) IT IS PART OF PROCEDURAL COMPLIANCE. 3.5 THE TPO, AFTER CONSIDERING THE SUBMISSIONS OF T HE ASSESSEE AND MADE ELABORATE COMMENTS ON THE ISSUE AS WELL A S COLLECTED INFORMATION FROM VARIOUS WEBSITES OF THE BANKS REGA RDING HOW THE CORPORATE GUARANTEE FEE IS COMPUTED AND REFERRED TO THE GOVERNMENT GUARANTEE POLICY OF THE MINISTRY OF FINANCE, GOVT. OF INDIA, SEPTEMBER, 2010, OBSERVED THAT THE BANKS CHARGE COR PORATE GUARANTEE FEE UPFRONT AT THE TIME OF ISSUE OF THE G UARANTEE ITSELF AND 7 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. IN CASE OF GUARANTEES COVERING MORE THAN ONE FINANC IAL YEAR, THE FEE IS CHARGED BY THE BANKS AT THE BEGINNING OF THE FI NANCIAL YEAR ON THE OUTSTANDING AMOUNT. THEREFORE, THE TPO HAD ADOPTED THE SAME METHOD OF COMPUTATION ACCORDINGLY, THE ALP OF CORPO RATE GUARANTEE FEE WAS COMPUTED AS UNDER: LOAN OUTSTANDING AS ON 08/04/2011 (AS THE DATE NOT MENTIONED IN THE FINANCIALS OR TP DOCUMENTS) 67,92,81,000 ALP OF THE FEE FOR CORPORATE GUARANTEE GIVEN BY THE ASSESSEE TO THE LENDING BANKS AGAINST THE LOAN TAKEN BY THE AE COMPUTED @ 2% OF THE OUTSTANDING AMOUNT 1,35,85,620 ACTUAL FEE CHARGED ON THE CORPORATE GUARANTEE NIL SHORTFALL ON ACCOUNT OF THE CORPORATE GUARANTEE FEE 1,35,85,620 THUS THE ARMS LENGTH PRICE OF CORPORATE GUARANTEE IS RS. 1,35,85,620/- AND THE SHORTFALL OF THE SAME AMOUNT WAS TREATED AS AN ADJUSTMENT U/S 92CA OF THE ACT. 3.6 ADVANCES TO THE AE THE TPO NOTED THAT THE ASSESSEE HAD ADVANCED TO AE AS ON 01/04/2011 OF RS. 3,26,11,97,000/-, HOWEVER, BY THE END OF THE YEAR THE SAME WAS NIL. WHEN THE TPO WAS PROPOSED TO CHAR GE INTEREST @ 14.75% AS WAS DONE EARLIER, THE ASSESSEE OBJECTED T O THE SAME STATING THAT THE TPO IS NOT LEGALLY JUSTIFIED IN PR OPOSING AN ADJUSTMENT @ 14.75% ON INTEREST AT PLR AS THE ADVANCE WAS GIVE N FOR BUSINESS DEVELOPMENT. SINCE THE ASSESSEE HAS NOT FILED ANY D ETAILS CALLED FOR NOR RAISED ANY FURTHER OBJECTION, OTHER THAN THE SA ID STATEMENT, TPO CHARGED THE INTEREST @ 14.75%, WHICH WAS PREVALENT IN INDIA DURING FY 2011-12 AND COMPUTED THE INTEREST FROM 01/04/201 1 TO 31/03/2012 AS UNDER: RS. 3,26,11,97,000 X 14.75%/100 = RS. 48,10,26,558 /-. 8 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. THUS, THE ARMS LENGTH PRICE OF INTEREST ON ADVANCE WAS RS. 40,10,26,558/- AND THE SHORTFALL OF RS. 48,10,26,55 8/- WAS TREATED AS ADJUSTMENT U/S 92CA OF THE ACT AND ENHANCED THE TOT AL INCOME OF THE ASSESSEE ACCORDINGLY U/S 92CA(3) OF THE ACT. 4. AGGRIEVED BY THE ORDER OF THE TPO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE DRP. 5. AS REGARDS THE OBJECTION RELATING TO INVALID TRA NSFER PRICING PROCEEDINGS, THE DRP WAS, INTER-ALIA OBSERVED THAT THE REFERENCE TO THE TPO AS PER THE CBDT GUIDELINES IS PART OF THE S CHEME OF VERIFICATION OF CERTAIN ASPECTS OF THE RETURNS FILE D BY THE ASSESSEE FOR SCRUTINY/TP ALP VERIFICATION TO CROSS CHECK THE ACC URACY OF THE CONTENTS. THIS CANNOT BE ASSUMED TO BE HURTING THE ASSESSEE OR ADVERSARIAL. THEREFORE, THE VERY REFERENCE TO THE T PO PER SE HAS NO HARM OR DAMAGE TO THE ASSESSEE. FURTHER, THE DRP OB SERVED THAT THE SOVEREIGN GOVERNMENT AS A MATTER OF SCHEME OF FILIN G OF RETURNS IS DUTY BOUND TO VERIFY AND ENSURE THAT THE IT RETURNS FILED BY THE CITIZENS ARE PROPER AND AS PER THE LAW. HOWEVER, CO NSIDERING THE SHORTAGE OF RESOURCES AND TO EASE SOME HARDSHIP TO TAX PAYERS IN ATTENDING TO THE REQUIREMENT OF TAX AUDIT/TP PROCEE DINGS, THE GOVERNMENT OVER THE PERIOD OF TIME, HAVE BROUGHT DO WN THE PERCENTAGE OF SCRUTINY OF IT RETURNS FROM 100%(PRE- 1990) TO LESSER PERCENTAGE OF THE TOTAL RETURNS FILED OVER A PERIOD OF TIME. THEREFORE, THE DRP HELD THAT THE MERE FACT OF INITIATING SCRUT INY OF RETURNS/ ALP BY THE TPO/AO CANNOT BE CONSIDERED AS ILLEGAL AND D ENIAL OF THE NATURAL JUSTICE. ACCORDINGLY, THE OBJECTION RAISED BY THE ASSESSEE IS REJECTED. 6. AS REGARDS THE OBJECTION RELATING TO FRESH SEARC H APPLIED BY THE TPO, THE ASSESSEE CONTENDED BEFORE THE DRP THAT THE TPO ERRED IN MAKING INDEPENDENT SEARCH FOR THE COMPARABLES ON TH E GROUND THAT THE ASSESSEE HAS USED THREE YEARS DATA WITHOUT APPR ECIATING THAT ASSESSEE HAS USED ONLY SINGLE YEAR DATA FOR THE PUR POSE OF 9 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. BENCHMARKING THE TRANSACTION AND OUGHT TO HAVE GIVE N THE DETAILS OF INDEPENDENT ANALYSIS CARRIED OUT BY HIM. 6.1 AFTER CONSIDERING THE CONTENTION OF THE ASSESSE E, THE DRP OBSERVED THAT AS PER RULE 10B(4) FINANCIAL DATA REL ATING TO THE FINANCIAL YEAR IN WHICH INTERNATIONAL TRANSACTIONS WERE UNDERTAKEN HAS TO BE USED AS PER RULE 10B(4) OF THE INCOME TAX RUL ES, UNLESS IT IS ESTABLISHED THAT THE USE OF DATA OF THE EARLIER FIN ANCIAL YEARS WILL RESULT IN MORE RELIABLE RESULTS, WHICH THE ASSESSEE FAILED TO ESTABLISH. THE VIEW FINDS SUPPORT FROM THE VARIOUS JUDICIAL PR ONOUNCEMENTS INCLUDING THE DECISION OF THE HON'BLE DELHI HIGH CO URT IN THE CASE OF CHRYS CAPITAL INVESTMENT ADVISORS (INDIA) PVT. LTD VS. DCIT (ITA N0.417/2014) IN WHICH IN PARAGRAPH 35 OF THE DECISI ON, THE HON'BLE HIGH COURT HELD THAT 'THIS COURT IS OF THE OPINION THAT THE GENERAL RULE AS PRESCRIBED IN RULE 10B(4) MANDATES THE TAX AUTHO RITIES TO TAKE INTO ACCOUNT ONLY THE RELEVANT ASSESSMENT YEARS DATA'. A CCORDINGLY, THE OBJECTION IS NOT FOUND ACCEPTABLE. 7. AS REGARD THE OBJECTION RELATING TO ARMS LENGTH PRICE ADJUSTMENT OF RS. 1,35,85,620/- TOWARDS CORPORATE G UARANTEE, THE DRP OBSERVED AS UNDER: HAVING CONSIDERED THE FACTS ON THIS ISSUE OF RATE O F GUARANTEE FEE TO BE CHARGED, WE ARE OF THE VIEW THAT THIS DEP ENDS ON THE INTERNAL BENCHMARK IF ANY AVAILABLE OR ELSE IT HAS TO BE ADOPTED TAKING INTO ACCOUNT THE FEE CHARGED BY THE COMMERCI AL BANKS. THUS, THERE CANNOT BE A STANDARD FIXED RATE OF FEE TO BE ADOPTED IN ALL THE CASES AND THAT TO FOR ALL THE YEARS. THE REFORE, IT DEPENDS ON THE ASSESSEE TO ASSESSEE AND YEAR TO YEA R, BASED ON THE PREVAILING CIRCUMSTANCES. IN THE PRESENT CAS E, THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO COMPARE T HE FEE BY WAY OF INTERNAL BENCHMARK OR EXTERNAL BENCHMARK IN THE FORM OF GUARANTEE FEE CHARGED BY THE COMMERCIAL BANKS, BEFO RE THE TPO. CONSIDERING THE REASONING GIVEN BY THE TPO IN THE TP ORDER, THE ASSESSEE SHOULD HAVE PRODUCED THE EVIDEN CE AT LEAST BEFORE US, WHICH HE FAILED TO DO SO. THE TPO HAS ADOPTED THE GUARANTEE FEES OF 2% BY CON SIDERING THE RATE OF MONTHLY BANK GUARANTEE CHARGES INDICAED BY SBI FOR FACILITATING THE LOANS TO ITS CUSTOMERS AS BENCHMAR K FOR DETERMINING THE ALP OF CORPORATE GUARANTEE GIVEN BY THE 10 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. ASSESSEE TO ITS AE(PARA 2 PAGE II OF TP ORDER). CON SIDERING THE FACTS OF THE MATTER, WHEN THERE IS NO INTERNAL BENC HMARK AND ALSO CONSIDERING THE FACT THAT THE JUDICIAL PRONOUN CEMENTS CONFIRMED THE FEE IN THE RANGE OF 0.25% TO 3.0% YEA R ON YEAR, WE ARE OF THE VIEW, THAT FOR THE CURRENT FY, THE SB I RATE WHICH IS 1.8% PER ANNUM FOR THE RELEVANT YEAR IS REASONABLE AND ACCORDINGLY, DIRECT THE TPO/AO TO ADOPT THE SAME, I N PLACE OF 2%. 8. AS REGARDS THE OBJECTION RELATING TO ADJUSTMENT OF RS. 48,10,26,558/- TOWARDS CHARGING INTEREST @ 14.75% O N ADVANCES OF RS. 326,11,97,000/-, THE DRP FOLLOWING THE DECISION OF ITAT, D BENCH, CHENNAI IN THE CASE OF M/S TVS LOGISTIC SERV ICES LTD., IN ITA NO. 458/MDS/2016, DATED 09/06/2016, HAS HELD AS UND ER: IN THE PRESENT CASE, FOR THE PURPOSE OF BENCHMARK ING THE RATE OF INTEREST TO BE LEVIED IT IS ESSENTIAL TO DETERMI NE THE POTENTIAL LOSS, FOR THIS PURPOSE, WE HAVE EXAMINED THE AUDITE D FINANCIAL STATEMENTS SUBMITTED BY THE ASSESSEE. IT IS ALSO NO TICED FROM THE P & L A/C THAT THE ASSESSEE HAS DEBITED RS. 6,8 44.35 LAKHS TOWARDS INTEREST EXPENSES AND THE BALANCE SHEET REV EALED THAT THE ASSESSEE HAD THE FOLLOWING LONG TERM BORROWINGS FROM BANKS ETC. AS ON 31-3-21012: TERM LOAN FROM BANKS O F 1,604.10 LAKHS-; FROM FINANCIAL INSTITUTIONS 1,429.20 LAKHS: AND LOAN FROM OTHERS RS. 542.11 LAKHS. FROM THIS IT IS VERY CLEAR THAT THE ASSESSEE DID NOT HAVE ANY SPARE FUNDS AND WAS RUNNI NG ON BORROWINGS. THUS, THE ADVANCES GIVEN TO THE AE HAVE A DEFINITE COST IN THE HANDS OF THE ASSESSEE. FURTHER, WE ARE NOT IN AGREEMENT WITH THE REQUEST O F THE ASSESSEE THAT ON THE ABOVE SAID ADVANCES, THE AE'S HAD ALLOTTED SHARES TO THE ASSESSEE COMPANY ON 30.09.20 12, HENCE NO INTEREST CAN BE CHARGED. THE ALLOTMENT OF SHARES WAS NOT COMPLETED IN TIME BEFORE 31-03-2012. THE SHARES WER E ALLOTTED DURING THE SUBSEQUENT FY ON 30.09.2012. HENCE, THE SAME CANNOT COME TO THE RESCUE OF THE ASSESSEE. 8.1 IN VIEW OF THE ABOVE OBSERVATIONS, THE DRP HELD THAT THE TPO IS JUSTIFIED IN MAKING THE ADJUSTMENT ON THIS ACCOUNT AND CONFIRMED THE ACTION OF THE TPO IN CHARGING THE INTEREST ON ADVAN CES. 9. AS REGARDS THE OBJECTION RELATING TO ARMS LENGT H PRICE ADJUSTMENT OF RS. 7,05,11,490/- TOWARDS OUTSTANDING RECEIVABLES OF RS. 31,86,96,000/-, THE DRP WAS, INTER-ALIA, OBSERV ED AS UNDER: 11 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT THE C HARGING OF INTEREST CAN BE RESTRICTED TO THE ACTUAL DUE IN RES PECT OF EACH INVOICE RAISED DURING THE YEAR INCLUDING THE BALANC E AMOUNT DUE IN RESPECT OF INVOICES RAISED DURING THE EARLIER YE ARS, PROVIDED COMPLETE DETAILS OF AMOUNT DUE INVOICE WISE IS FURN ISHED BY THE ASSESSEE. HOWEVER, IT IS NOTICED BY US THAT THE TPO , IN THE ORDER PASSED UNDER SECTION 92CA(3), HAS CHARGED FOR THE DELAY IN RECEIPT OF AMOUNTS FROM AES IN RESPECT OF THE AM OUNT OUTSTANDING FOR THE PERIOD 01.04.2011 TO 30.09.2012 STATING THAT THE ASSESSEE HAD NOT PROVIDED THE DETAILS OF DATE O F INVOICE AND ACTUAL DATE OF REALISATION. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RES TRICT THE ADJUSTMENT FOR DELAY IN PAYMENT TILL THE END OF THE FINANCIAL YEAR IN RESPECT OF THE ENTIRE RECEIVABLE, PROVIDED THE A SSESSEE FURNISHES THE COMPLETE DETAILS OF AMOUNT DUE DATE W ISE IN RESPECT OF EACH INVOICE RAISED DURING THE CURRENT Y EAR INCLUDING THE BALANCE AMOUNT DUE IN RESPECT OF INVOICES RAISE D DURING THE EARLIER YEARS, IF THE ASSESSEE FURNISHES THE NECESS ARY DETAILS WITHIN 15 DAYS OF RECEIPT OF THIS ORDER. HOWEVER, I F THE ASSESSEE .FAILS TO FURNISH SUCH INFORMATION AND THE INFORMAT ION RELATING TO THE INTEREST COST DISCUSSED ABOVE, WITHIN THE SPECI FIED TIME, THE OBJECTION MAY BE TREATED AS REJECTED. 10. AFTER TAKING INTO CONSIDERATION THE DIRECTIONS OF THE DRP, THE AO PASSED FINAL ASSESSMENT ORDER ON 16/01/2017, AS UND ER: 1. AS PER THE DIRECTIONS OF THE DRP, THE AO ADOPTED CORPORATE GUARANTEE FEE OF 1.8% IN PLACE OF 2%. HENCE, THE AR MS LENGTH PRICE WITH RESPECT TO CORPORATE GUARANTEE WAS RS. 1,22,27,058/-. 2. AS REGARDS THE INTEREST ON LOAN AND ADVANCES GI VEN TO AE AND THE INTEREST ON RECEIVABLES, THE ASSESSEE HAS N OT FURNISHED INFORMATION WITHIN 15 DAYS OF THE RECEIPT OF THE DR P ORDER. THE DRP GAVE SPECIFIC DIRECTION THAT IN CASE, INFORMATI ON IS NOT SUBMITTED WITHIN 15 DAYS OF THE RECEIPT OF THE DRP ORDER, THE OBJECTION MAY BE TREATED AS REJECTED. FOLLOWING THE DIRECTIONS OF THE DRP, THE ADJUSTMENT OF RS. 55,15,30,048/- THESE TWO TRANSACTIONS AS DETERMINED BY THE TPO ARE CONSIDERE D AS FINAL AND HENCE ARE BEING ADDED TO THE RETURN OF INCOME. 12 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. 3. THE TOTAL INCOME OF THE ASSESSEE WAS COMPUTED AS UNDER: INCOME AS PER RETURN RS. 17,96,39,133 ADDITION IN TP ADJUSTMENT U/S 92CA RS. 56,37,65 ,106 TOTAL INCOME RS. 74,34,04,240/-. ============== 11. AGGRIEVED BY THE SAID ORDER, THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: BASED ON THE FACTS AND THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED ASSESSING OFFICER (AO), LEARNED TR ANSFER PRICING OFFICER (TPO) AND THE HONOURABLE DISPUTE RE SOLUTION PANEL (DRP) RESPECTIVELY - INVALID TRANSFER PRICING PROCEEDINGS: 1. OUGHT TO HAVE APPRECIATED THAT THE REFERENCE MAD E BY THE AO SUFFERS FROM JURISDICTIONAL ERROR AS THE AO DID NOT RECORD ANY REASONS IN THE DRAFT ASSESSMENT ORDER BASED ON WHIC H HE REACHED THE CONCLUSION THAT IT WAS 'EXPEDIENT AND N ECESSARY' TO REFER THE MATTER TO THE TPO FOR COMPUTATION OF THE ARM'S LENGTH PRICE, AS IS REQUIRED UNDER SECTION 92CA(1) OF THE ACT. INVALID DRAFT ASSESSMENT ORDER: 2. ERRED IN NOT FOLLOWING THE PROCEDURE LAID DOWN U / S 144C(1) OF THE ACT, BY ISSUING NOTICE OF DEMAND U/S 156 OF THE ACT & PENALTY NOTICES U/S 271BA, 271AA & 271CC OF THE ACT ALONG WITH ASSESSMENT ORDER DATED 22.03.2016, WHICH TANTA MOUNT TO PASSING OF FINAL ASSESSMENT ORDER. 3. ADDITION OF RS. 1,22,27,058/- IN RESPECT OF CORP ORATE GUARANTEE PROVIDED TO ASSOCIATE ENTERPRISE: A. ERRED IN MAKING AN ADDITION OF RS. 1,22,27,058/- U/S 92CA OF THE IT ACT, 1961 BY COMPUTING THE INTEREST @ 1.8% O N CORPORATE GUARANTEE PROVIDED TO AE (M/S.VENETA HOLD INGS) WITHOUT APPRECIATING THAT CORPORATE GUARANTEE IS OU TSIDE THE PURVIEW OF TRANSFER PRICING AS PER THE PROVISIONS O F THE ACT READ WITH THE RULES. B. OUGHT TO HAVE APPRECIATED THE FACT THAT THE APPE LLANT PROVIDED THE CORPORATE GUARANTEE FOR ITS OWN INVEST MENT AND BENEFIT, AS A PARENTAL ACT/ OBLIGATION TO ITS NEWLY CREATED AES AND WAS A PROCEDURAL COMPLIANCE FOR AVAILING THE LO AN. C. ERRED IN NOT CONSIDERING THE FACT THAT THE AMEND MENT TO SECTION 92B RELATING TO INTERNATIONAL TRANSACTION O F ISSUANCE OF CORPORATE GUARANTEE IS EFFECTIVE FROM 01.04.2012 AN D IS PROSPECTIVE IN NATURE. 13 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. D. OUGHT TO HAVE APPRECIATED THE FACT THAT WHEN TWO DIVERGENT VIEWS ARE POSSIBLE, THE VIEW WHICH IS FAVOURABLE TO ASSESSEE SHOULD BE ADOPTED E. OUGHT TO HAVE APPRECIATED THAT THE CORPORATE GUA RANTEE WAS ON ACCOUNT OF COMMERCIAL EXPEDIENCY AS SUCH DOES NO T HAVE ANY BEARING ON THE PROFITS/ INCOME OF THE APPELLANT / AE. F. ERRED IN USING BANK RATES (SBI) FOR CHARGING COR PORATE GUARANTEE FEE WHICH IS NOT A SUITABLE CUP AS IT IS ONLY A QUOTATION BUT NOT AN ACTUAL UNCONTROLLED TRANSACTIO N. G. OUGHT TO HAVE APPRECIATED THE FACT THAT BANK GUA RANTEES ARE DIFFERENT FROM CORPORATE GUARANTEES AS THE FORMER I S HIGHLY SECURED THAN THE LATTER. 4. ADDITION OF RS. 48,10,26,558/- TOWARDS INTEREST ON ADVANCES GIVEN TO AE: A. ERRED IN MAKING AN ADDITION OF RS. 48,10,26,558/ - U/ S.92CA OF THE IT ACT, 1961 BY COMPUTING THE INTEREST @ 14. 75% ON ADVANCES MADE TOWARDS INVESTMENT IN BARTRONICS ASIA PTE LTD - SINGAPORE, BARTRONICS AMERICA INC USA AND BARTRONIC S MIDDLE EAST FZE. B. OUGHT TO HAVE APPRECIATED THE FACT THAT THE INVE STMENT IS MADE OUT OF THE INTERNAL ACCRUALS AND EQUITY RAISED BY THE ASSESSEE COMPANY FOR WHICH NO COST HAS BEEN INCURRE D AND THAT NO INTEREST CAN BE CHARGED ON SUCH ADVANCE MADE. C. OUGHT TO HAVE APPRECIATED THE FACT THAT THE AE'S HAD ALREADY ALLOTTED SHARES TO THE ASSESSEE COMPANY IN RESPECT OF THE ADVANCES MADE TO BARTRONICS ASIA PTE LTD, BARTRONIC S AMERICA INC- USA AND BARTRONICS MIDDLE EAST FZE AND HENCE N O INTEREST CAN BE CHARGED ON THE SAME. D. OUGHT TO HAVE APPRECIATED THAT THE PROVISIONS OF TRANSFER PRICING ARE NOT APPLICABLE TO THE TRANSACTION OF IN VESTMENT IN SUBSIDIARIES ON THE GROUND THAT THERE IS NO INCOME GENERATED. E. WITHOUT PREJUDICE TO THE ABOVE, ERRED IN EQUATIN G EQUITY INVESTMENT IN AE WITH THE AVERAGE COST OF BORROWING S AND ADOPTING RATE OF 14.75% WITHOUT APPRECIATING THE F ACT THAT THE TRANSACTIONS WERE ENTERED INTO BY THE ASSESSEE IN F OREIGN CURRENCY IN RESPECT OF WHICH THE INTEREST RATES AS APPLICABLE TO THE LOANS ADVANCED IN THE INTERNATIONAL FINANCE MAR KETS ARE TO BE ADOPTED. 14 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. F. ERRED IN MERELY STATING THAT THE ADVANCES MADE T O AE IS OUT OF BORROWED FUNDS WITHOUT FINDING ANY MATERIAL EVID ENCE THEREOF AND CHARGING INTEREST ON ADVANCES GIVEN TO AE. G. ERRED IN CONSIDERING THE AVERAGE COST OF THE BOR ROWED FUNDS WITHOUT APPRECIATING THE FACT THAT NO COST IS INCUR RED BY ASSESSEE IN PROVIDING ADVANCES TO ASSOCIATE ENTERPR ISES. 5. ADDITION OF RS. 7,05,11,490/- TOWARDS INTEREST O N RECEIVABLES: A. ERRED IN MAKING ADDITION OF RS. 7,05,11,4901 - B Y CHARGING INTEREST @ 14.75% ON OUTSTANDING RECEIVABLES FROM A SSOCIATE ENTERPRISE U/S 92B OF THE ACT. B. ERRED IN RE-CHARACTERIZING THE NATURE OF TRANSAC TION FROM 'RECEIVABLE' TO 'LOAN' WHICH IS NOT PERMISSIBLE U/S 145 OF THE ACT. C. OUGHT TO HAVE APPRECIATING THE FACT THAT THE ASS ESSEE HAS NOT CHARGED ANY INTEREST ON ANY DELAYED PAYMENTS IRRESP ECTIVE OF WHETHER THE SERVICES RENDERED ARE MADE TO UNRELATED CUSTOMERS OR AE. D. OUGHT TO HAVE APPRECIATED THE FACT THAT TRANSACT IONS WERE ENTERED INTO IN FOREIGN CURRENCY IN RESPECT OF WHIC H INTERNATIONAL FINANCE MARKETS ARE TO BE ADOPTED. INITIATION OF PENALTY PROCEEDINGS: 6. ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SE CTION 271 (L)(C), 271AA AND 271BA OF THE INCOME TAX ACT, 1961 . 7. THE ASSESSEE MAY ADD, ALTER OR MODIFY ANY OTHER POINT TO THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 11.1 THE ASSESSEE HAS FILED THE FOLLOWING ADDITIONA L GROUNDS OF APPEAL RELYING ON THE JUDGMENT OF THE HONBLE SUPR EME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD., VS. CIT, 2 29 ITR 383.: 8. THE LD. AO IN HIS FINAL ASSESSMENT ORDER HAS ER RED IN NOT ALLOWING THE BENEFIT OF SET OFF OF UNABSORBED DEPRE CIATION LOSS, WITHOUT GIVING ANY PRIOR NOTICE TO THE ASSESSEE IN THE DRAFT ASSESSMENT ORDER U/S 143(3) R.W.S 144C(1) OF THE I. T. ACT, 1961. 9. THE LD. AO OUGHT TO HAVE GIVEN AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE REGARDING THE DISALLOWANCE OF UNABSORBED DEPRECIATION LOSS TO BE SET OFF AGAINST THE CURRENT YEAR'S PROFIT IN HIS DRAFT ASSESSMENT ORDER THEREBY ALLOWING THE 15 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. ASSESSEE TO OBJECT THE SAME BEFORE THE DISPUTE RESO LUTION PANEL (DRP). 10. WITHOUT PREJUDICE TO THE ABOVE, THE ACTION OF T HE AO IN NOT ALLOWING THE BENEFIT OF SET OFF OF UNABSORBED DEPRE CIATION LOSS AGAINST CURRENT YEAR'S PROFIT IS INCORRECT. 11. FURTHERMORE THE AO WHILE MAKING THE ASSESSMENT OF THE EARLIER YEARS HAS NOT MADE ANY ADJUSTMENT TO THE IN COME UNDER NORMAL PROVISIONS, SO ACCORDINGLY THE UNABSORBED DE PRECIATION LOSS IS AVAILABLE FOR SET OFF AGAINST THE PROFITS O F THE YEAR UNDER CONSIDERATION. 12. AS REGARDS GROUND NOS. 1 & 2 REGARDING INVALID TRANSFER PRICING PROCEEDINGS AND INVALID DRAFT ASSESSMENT ORDER, THE LD. AR SUBMITTED THAT THE AO ERRED IN NOT ISSUINTG DRAFT ASSESSMENT ORDER AS PER PROCEDURE LAID DOWN U/S 144C(1) OF THE ACT BY ISSUI NG THE NOTICE OF DEMAND U/S 156 OF THE ACT AND PENALTY NOTICES U/S 2 71AA AND 271BA ALONG WITH DRAFT ASSESSMENT ORDER DATED 23/12/2016, WHICH TANTAMOUNT TO PASSING OF FINAL ASSESSMENT ORDER. TH E LD. AR RELIED ON THE FOLLOWING CASES: 1. VIJAY TELEVISION PVT. LTD. VS. DRP, [2014] 369 I TR 113 (MAD.) 2. LIONBRIDGE TECHNOLOGIES PVT. LTD. VS. DCIT, ITA NO. 1041/MUM/2015 3. CAPSUGEL HEALTHCARE LTD. VS. ACIT, ITA NO. 1356/ DEL/2012 4. INTERNATIONAL AIR TRANSPORT ASSOCIATION VS. DCIT , [2016] 68 TAXMANN.COM 246 5. ACIT VS. GETRAG HI TECH GEARS PVT. LTD., ITA NO. 823/CHD/2012. 13. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES AND FURTHER SUBMITTED THAT THE CASE LAW S RELIED UPON BY THE ASSESSEE ARE NOT RELEVANT TO THE PRESENT CASE. 14. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. BEFORE US, ASSESSEE RAISED THE GROUND NO . 2 AND DID NOT MAKE ANY SUBMISSION RELATING TO GROUND NO. 1, ACCOR DINGLY, THE SAME 16 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. IS DISMISSED. WITH REGARD TO INVALID DRAFT ASSESSME NT ORDER, HE SUBMITTED THAT THE DRAFT ASSESSMENT WAS COMPLETED W ITH DEMAND NOTICE U/S 156 AND PENALTY NOTICES U/S 271. BY ISSU ING SUCH NOTICES, THE ASSESSMENT ORDER BECOMES FINAL. VARIOUS COURTS HAVE HELD THAT SUCH ASSESSMENT ORDERS TO BE NULL AND VOID AB-INITI O. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION AND CASE LAWS R ELIED. IN ALL THE CASE LAWS RELIED ON BY THE ASSESSEE, THE COMMON MIS TAKE MADE BY THE AO IN THOSE ASSESSMENTS WERE THAT AO PASSED THE FINAL ASSESSMENT ORDER INSTEAD OF DRAFT ASSESSMENT ORDER, THE COURTS HAVE HELD THAT AS PER SECTION 144C(1), THE AO HAS NO RIG HT TO PASS FINAL ORDER PURSUANT TO THE RECOMMENDATIONS MADE BY THE T PO. ACCORDINGLY, THE ORDER PASSED BY THE AO, THUS, LACK S JURISDICTION. 14.1 IN THE LIGHT OF THE ABOVE, IN THE PRESENT CASE , THE AO HAS PASSED THE DRAFT ASSESSMENT BUT SENT DEMAND NOTIC E AND PENALTY NOTICES ALONG WITH THE DRAFT ASSESSMENT ORDER. SINC E THE FACTS ARE NOT IDENTICAL TO THE FACTS OF THE CASE LAWS RELIED ON B Y THE ASSESSEE, MOREOVER, THE AO HAS TO PASS DRAFT ASSESSMENT ORDER AS PER PROVISION AND WAS ACCORDINGLY PASSED BY HIM. THE AC COMPANYING NOTICES ALONG WITH THE DRAFT ASSESSMENT ORDER ARE O NLY PROCEDURAL MISTAKES, IT CANNOT TANTAMOUNT TO PASSING OF FINAL ASSESSMENT ORDER. ACCORDINGLY GROUND RAISED BY THE ASSESSEE IS DISMIS SED. 15. AS REGARDS GROUND NO. 3 REGARDING ADDITION OF R S. 1,22,27,058/- IN RESPECT OF CORPORATE GUARANTEE PROVIDED TO AE, L D. AR SUBMITTED THAT THE CORPORATE GUARANTEE GIVEN TO AE DOES NOT F ALL WITHIN THE SCOPE OF INTERNATIONAL TRANSACTION U/S 92B. HE SUBM ITTED THAT THE CORPORATE GUARANTEE IS PROVIDED TO AE FOR COMMERCIA L AND BUSINESS EXPEDIENCY AND THE ASSESSEE HAS NOT INCURRED ANY CO ST FOR PROVIDING SUCH GUARANTEE. 15.1 WITHOUT PREJUDICE TO THE ABOVE, LD. AR SUBMITT ED THAT THE CORPORATE GUARANTEE WAS BROUGHT UNDER SECTION 92B U NDER FINANCE ACT, 2012 W.E.F. AY 2013-14. IT IS NOT APPLICABLE T O THE CURRENT AY. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING CA SES: 17 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. 1. DR. REDDYS LABORATORIES, ITA NO. 294/HYD/2014 & ITA NO. 458/HYD/2015. 2. SIRO CLINPHARM PVT. LTD. VS. DCIT, ITA NO. 2876/ MUM/2014 3. BHARATI AIRTEL LTD. VS. ACIT, ITA NO. 5816/DEL/2 012 4. ASIAN PAINTS LTD. VS. ACIT, ITA NO. 7801/MUM/201 0 5. LANCO INFRATECH LTD. VS. DCIT, ITA NO. 450/HYD/2 016 16. LD. DR, ON THE OTHER HAND, SUBMITTED THAT EVEN THOUGH THE AMENDED SECTION IS INTRODUCED IN FINANCE ACT, 2012, BUT, IT IS INTRODUCED WITH RETROSPECTIVE EFFECT FROM 01/04/200 2. ACCORDINGLY, HE SUPPORTED THE FINDINGS OF REVENUE AUTHORITIES. 17. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD AS WELL AS VARIOUS CASE LAWS SUBMITTED BY THE ASSESSEE. ASSESSEE HAS PROVIDED CORPORATE GUARANTEE TO ITS AE IN THE CURRENT AY WITHOUT CHARGING ANY FEES FOR THE SAME. THE TERM GUARANTEE WAS INSERTED IN THE DEFINITION OF INTERNATIONAL TRANSAC TION BY INSERTING AN EXPLANATION IN THE FINANCE ACT, 2012 WITH RETROSPEC TIVE EFFECT FROM 01/04/2002. THERE IS NO DISPUTE THAT THE CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION AND DIFFERENT ASSESSEES A RE ADOPTING DIFFERENT METHODS OF TREATMENT. SOME ASSESSEES CHAR GES NOMINAL RATE TO THE AES, WHEREAS OTHER ASSESSEES ARE TREATING TH IS AS SHAREHOLDER SERVICE. HERE, THE ASSESSEE HAS OBJECTED TO INCLUDE THIS TRANSACTION AS INTERNATIONAL TRANSACTION FOR THE REASON THAT TH E FINANCE ACT, 2012, WHICH HAS INSERTED AN EXPLANATION, WHICH WILL BE AP PLICABLE PROSPECTIVELY FROM AY 2013-14 AND THE CORPORATE GUA RANTEE TRANSACTION WILL NOT BE APPLICABLE TO THE CURRENT A Y. THE SAME VIEW WAS UPHELD BY THE COORDINATE BENCH IN THE CASE OF D R. REDDY LABORATORIES AND OTHER BENCHES OF TRIBUNAL. THE FIN DINGS GIVEN BY THE COORDINATE BENCH IN THE CASE OF DR. REDDY LABORATOR IES (SUPRA) ARE EXTRACTED BELOW: 29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. THE ITAT, DELHI BENCH IN THE CA SE OF 18 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. BHARATI AIRTEL LTD. (SUPRA) HAS CONSIDERED AN IDENT ICAL ISSUE WHICH WAS RE-AFFIRMED IN THE CASE OF SIRO CLINPHARM A PVT. LTD., VS. DCIT (ORDER DATED 31 ST MARCH, 2016). THE BENCH OBSERVED THAT TRANSFER PRICING IS A LEGISLATION SEEKING THE TAX-PAYERS TO ORGANISE THEIR AFFAIRS IN A MANNER COMPLIANT WITH T HE NORMS SET- OUT. IN SHORT, IT IS AN ANTI ABUSE LEGISLATION WHIC H TELLS YOU AS TO WHAT IS THE ACCEPTABLE BEHAVIOUR BUT IT DOES NOT TR IGGER LEVY OF TAX IN A RETROSPECTIVE MANNER BECAUSE NO PARTY CAN BE ASKED TO DO AN IMPOSSIBILITY.. ANALYSING FURTHER THE BENCH O BSERVED THAT THOUGH EXPLANATION TO SECTION 92B IS STATED TO BE C 1ARIFICATORY, IT HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM THE A.Y. 2013- 2014 AND IN THIS REGARD, RELIED UPON THE OBSERVATIO NS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF SKIES SATEL LITE. WE HAVE ALSO ANALYSED THE CASE LAW RELIED UPON BY THE LD. D .R. AND ALSO THE PROVISIONS OF THE ACT. IN OUR CONSIDERED OPINIO N, THE VIEW TAKEN BY THE DELHI BENCH OF ITAT IN THE CASE OF BHA RATI AIRTEL LTD., (SUPRA) IS ONE OF THE POSSIBLE VIEWS ON THE M ATTER AND SO LONG AS THERE IS NO BINDING DECISION OF ANY OTHER H IGHER FORUM TAKING A CONTRARY VIEW, THE ONE WHICH IS FAVOURABLE TO THE ASSESSEE HAS TO BE ADOPTED EVEN THOUGH OTHER BENCHE S HAVE TAKEN A DIFFERENT VIEW. WE, THEREFORE, HOLD THAT TH E EXPLANATION TO SECTION 92B CANNOT BE APPLIED RETROSPECTIVELY AN D FOR THE YEARS UNDER CONSIDERATION THE ASSESSEE HAVING NOT I NCURRED ANY COSTS IN PROVIDING CORPORATE GUARANTEE IT WOULD NOT CONSTITUTE 'INTERNATIONAL TRANSACTION' WITHIN THE MEANING OF S ECTION 92B OF THE ACT AND CONSEQUENTLY, ALP ADJUSTMENT IS NOT WAR RANTED ON THIS ASPECT. RESPECTFULLY FOLLOWING THE ABOVE DECISION, WE REJEC T THE TREATMENT OF CORPORATE GUARANTEE AS INTERNATIONAL TRANSACTION AN D CONSEQUENTLY, ALP ADJUSTMENT IS NOT WARRANTED ON THIS ASPECT. ACC ORDINGLY, THE GROUND RAISED BY ASSESSEE IS ALLOWED. 18. AS REGARDS ADDITION OF RS. 48,10,26,558/- TOWAR DS INTEREST ON ADVANCES GIVEN TO AE, LD. AR SUBMITTED THAT THE TPO ERRED IN RECHARACTERIZING THE NATURE OF TRANSACTIONS FROM IN VESTMENT TO LOAN WHICH IS NOT PERMISSIBLE U/S 145 OF THE ACT. HE SUB MITTED THAT IF THE AMOUNT IS ADVANCED AS THE SHARE CAPITAL, THE SAME W OULD ALSO BE SHOWN AS SHARE APPLICATION MONEY IN THE HANDS OF SU BSIDIARY. HE SUBMITTED THAT TRANSACTION OF INVESTMENT IS NOT INT ERNATIONAL TRANSACTION U/S 92B OF THE ACT AND HENCE NO INTERES T CAN BE CHARGED ON SUCH INVESTMENT. HE RELIED ON THE FOLLOWING CASE S: 19 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. 1. CIT VS. EKL APPLIANCES LTD., ITA NO. 1068/2011 2. M/S VIJAY ELECTRICALS LTD., VS. ADDITIONAL CIT, ITA NO. 842/HYD/2012, ORDER DATED 31/05/2013. 3. GSS INFOTECH LTD. VS. ACIT, HYD. ITA NO. 497/HYD /2015 4. KAR THERAPEUTICS & ESTATES PVT. LTD., VS. DCIT, ITA NO. 86/HYD/2016. 5. TOPSGRUP ELECTRONICS SYSTEMS LTD. VS. ITO, 67 TA XMANN.COM 310 (MUM.) 6. MYLAN LABORATORIES LTD. VS. ACIT, [2015] 63 TAXM ANN.COM 179 (HYD.) 19. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES AND SUBMITTED THAT THIS TRANSACTION IS RECORDED IN THE BOOKS OF ACCOUNT AS LOAN AND NOT AS INVESTMENT. HE REFERRED TO PAGE 203 OF PAPER BOOK TO SUBMIT THAT IT IS CLASSIFIED A S LOANS & ADVANCES. HE FURTHER SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS ONLY AN AFTER THOUGHT. 20. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. ASSESSEE HAS TRANSFERRED FUNDS TO ITS AE AS INVESTMENT AND THE SAME WAS CLASSIFIED IN THE BALANCE SHEET AS LOANS AND ADVANCES. HOWEVER, IT IS ONLY A CLASSIFICATION OF A CCOUNTING ENTRY IN THE BOOKS, BUT, WHAT IS RELEVANT AND IMPORTANT IS W HETHER SUCH TRANSFER OF FUNDS WERE DULY TREATED AS INVESTMENT A ND ACCORDINGLY SHARES WERE ALLOTTED IN THE SUBSEQUENT AY. ASSESSEE HAS SUBMITTED SHARE ALLOTMENT CERTIFICATE AS EVIDENCE. SINCE THE TRANSFER OF FUNDS WERE DULY ACCOUNTED BY THE AE AND THERE IS NO RESTR ICTION ON THE PART OF THE AE TO ALLOT SHARES IN THE SAME AY OF RECEIPT OF FUNDS, AS LONG AS THE SHARES ALLOTTED, IT GIVES TRUE NATURE OF THE TRANSACTION. IN THE GIVEN CASE, EVEN THERE IS NO OUTSTANDING BALANCE IN THE BOOKS OF ASSESSEE AS LOANS AND ADVANCES, THE SAME TRANSACTIO N WAS DULY JUSTIFIED BY RECEIVING ALLOTTED SHARES IN THE SUBSE QUENT AY. IN OUR CONSIDERED VIEW, THERE IS NO ELEMENT OF PROFIT IN T HE ABOVE TRANSACTION. MOREOVER CHARGING OF INTEREST IS DEPEN DING UPON THE CONTRACTUAL OBLIGATIONS BETWEEN THE PARTIES. IN THE GIVEN CASE, 20 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. ASSESSEE HAS TRANSFERRED FUNDS WITH AN INTENTION TO MAKE INVESTMENT, IT CANNOT BE TREATED AS INTERNATIONAL TRANSACTION A S HELD BY VARIOUS COURTS, PARTICULARLY, IN THE CASE OF KAR THERAPEUT ICS & ESTATES PVT. LTD. (SUPRA) WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 9. CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORITIES. THERE IS NO DISPUTE THAT THE A SSESSEE HAD REMITTED $ 3387182 TOWARDS INVESTMENT IN SHARE CAPI TAL. THE SHARES WERE ALLOTTED TO THE EXTENT OF $ 2654797 IN THE SAME AY. THE SUBSIDIARY COMPANY HAS TREATED THE BALANCE REMI TTANCE AS INTEREST FREE UNSECURED LOAN AND REPAYABLE ON DEMAN D IN THEIR FINANCIAL STATEMENT. IN THE NEXT AY, THE SUBSIDIARY COMPANY HAS ALLOTTED THE SHARES ON 15/03/2012. NOW, CAN THESE T RANSACTIONS BE TREATED AS INTERNATIONAL TRANSACTION, WHICH QUAL IFIES FOR ALP ADJUSTMENT. IN OUR CONSIDERED VIEW, THE AMOUNT $ 7 32.385 IS TOWARDS INVESTMENT IN SHARE CAPITAL OF THE SUBSIDIA RY OUTSIDE INDIA AND THE TRANSACTIONS ARE NOT IN THE NATURE OF INTERNATIONAL TRANSACTION REFERRED TO SECTION 92-B OF THE IT ACT AND TRANSFER PRICING PROVISIONS ARE NOT APPLICABLE AS THERE IS N O INCOME AS WELL AS THERE IS NO MUTUAL AGREEMENT BETWEEN THE CO MPANIES FOR SUCH PAYMENT OF INTEREST. MOREOVER, THE SUBSIDIARY COMPANY ALSO DISCLOSED AS INTEREST FREE. MOREOVER, IN THE SIMIL AR SITUATION WITH UNCONTROLLED TRANSACTION, THE ALLOTTEE COMPANY IN N ORMAL COURSE OF TRANSACTION WILL NOT BE EXPECTED TO RECEIVE ANY INTEREST LEAVE AWAY THE INTERNATIONAL TRANSACTION. WITHOUT ANY CER TAINTY OR ANY AGREEMENT ON RECEIVING ANY INTEREST BUT MERELY RELY ING ON THE ACCOUNTING METHOD AND DISCLOSURE OF THE SUBSIDIARY IN THEIR FINANCIAL STATEMENT CANNOT LEAD TO THIS TRANSACTION AS INTERNATIONAL TRANSACTION WHICH REQUIRE ALP ADJUSTM ENT. ASSESSEE HAD RELIED ON THE CASE OF PRITHVI INFORMAT ION SOLUTIONS LTD. (SUPRA) WHEREIN ON THE SIMILAR SET OF FACTS AN D CIRCUMSTANCES, THE COORDINATE BENCH OF THIS TRIBUNA L HAS HELD AS BELOW: 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PER USED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS DECISIONS CITED. IN OU R OPINION, THE AMOUNT REPRESENTING 2118.84 IS TOWARDS INVESTME NT IN SHARE CAPITAL OF THE SUBSIDIARIES OUTSIDE INDIA AS THE TRANSACTIONS ARE NOT IN THE NATURE OF TRANSACTIONS REFERRED TO SECTION 92-B OF THE IT ACT AND THE TRANSFER PRICING PROVISIONS ARE NOT APPLICABLE AS THERE IS NO INCOME. ACCORDING LY, WE SET ASIDE THE ORDER PASSED BY THE CIT U/S 263 AND T HAT OF THE AO IS RESTORED AND THE GROUNDS RAISED BY THE AS SESSEE IN THIS REGARD ARE ALLOWED. 21 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. AS HELD IN THE ABOVE, WE ARE INCLINED TO TREAT THE ABOVE TRANSACTION AS NOT AN INTERNATIONAL TRANSACTION AND ACCORDINGLY GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. SINCE WE H AVE ADJUDICATED GROUND NO. 1 AS ALLOWED, THE GROUND NOS . 2 & 3 ARE ONLY ACADEMIC IN NATURE AND ACCORDINGLY, DISMISSED. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH IN THE SAID CASE, WE ARE INCLINED TO TREAT THE ABOVE TRANSACTIO N AS NOT AN INTERNATIONAL TRANSACTION AND ACCORDINGLY THE GROUN D RAISED ON THIS ISSUE IS ALLOWED. 21. AS REGARDS THE ADDITION OF RS. 7,05,11,490/- TO WARDS INTEREST ON RECEIVABLES, THE LD. AR SUBMITTED THAT CHANGE OF NA TURE FROM MOBILIZATION ADVANCES TO RECEIVABLES IS NOT WARRANT ED. HE SUBMITTED THAT AS THE CASE OF NON-CHARGING OF INTEREST IN THE CONTROLLED TRANSACTIONS IS NOT COMPARABLE WITH THAT OF NON CHA RGING FROM THE INTERNATIONAL TRANSACTIONS, NO TRANSFER PRICING ADJ USTMENT CAN BE MADE ON THIS COUNT. HE SUBMITTED THAT SINCE ASSESSEE COM PANY IS NOT PAYING ANY INTEREST ON THE AMOUNTS RECEIVED BY IT F ROM THE CONTRACTOR, THIS ADJUSTMENT IS NOT WARRANTED. HE SUBMITTED THAT NO INTEREST CAN BE CHARGED ON RECEIVABLES AS ASSESSEE IS NOT CHARGING INTEREST FROM BOTH AE AND NON AE FOR DELAYED PAYMENTS. HE RELIED ON TH E FOLLOWING CASES: 1. EKL APPLIANCES LTD. VS. CIT, DELHI HIGH COURT, I TA NO. 1068/2011 2. CIT VS. INDO AMERICAN JEWELLERY LTD., ITA NO. 10 53 OF 2012 3. GSS INFOTECH LTD., VS. ACIT, HYD., ITA NO. 497/H YD/2015 4. LANCO INFRATECH LTD. VS. DCIT, ITA NO. 450/HYD/2 016 22. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES AND FURTHER SUBMITTED THAT ASSESSEE HAS NOT SUBMITTED ANY DETAILS OF OUTSTANDING BEFORE THE TPO. 23. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THIS ISSUE IS SQUARELY COVERED BY THE DE CISION OF THE COORDINATE BENCHES OF ITAT, HYDERABAD. IN THE CASE OF GSS INFOTECH LTD. (SUPRA), THE COORDINATE BENCH HAS HELD AS UNDE R: 22 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. 11. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE CONTENTIONS. AS SEEN FROM ASSESSEE'S CONTENTIONS, A SSESSEE IS NEITHER CHARGING INTEREST ON ANY OF THE RECEIVABLES OUTSTANDING. THERE IS ALSO NO BASIS FOR ADOPTING ONLY TWO MONTHS AS CREDIT PERIOD. RBI ITSELF ALLOWS AN YEAR FOR THE AMOUNTS T O BE REALISED, IF THEY ARE IN FOREIGN EXCHANGE. WHETHER IT IS AE O R NON-AE, IT IS IN THE INTEREST OF BUSINESS THAT ASSESSEE RECEIVES THE FOREIGN EXCHANGE EARLY SO THAT IT CAN CLAIM DEDUCTION U/S. 10A. THEREFORE, IN OUR VIEW, PUTTING A LIMIT OF TWO MONT HS OF CREDIT PERIOD ITSELF IS ARBITRARY. MOREOVER, AS SEEN FROM THE CALCULATION PROVIDED IN PAGE 7 OF THE ASSESSMENT ORDER, THE DAT E OF REALIZATION WAS SHOWN AS 02-02-2011 AND INTEREST WA S LEVIED FROM 01-04-2010 TO 02-02-2011 WHICH IS NOT PERTAINI NG TO THE YEAR UNDER CONSIDERATION. AS FAR AS THIS YEAR IS CO NCERNED, THE INVOICES RAISED ON 31-12-2009 WERE OUTSTANDING ONLY FOR A PERIOD OF THREE MONTHS BY THE END OF THE ACCOUNTING YEAR. WE ARE OF THE OPINION THAT THIS PERIOD IS REASONABLE A ND SO NO INTEREST CAN BE LEVIED, JUST BECAUSE AMOUNTS ARE SH OWN AS OUTSTANDING. ACCORDINGLY, WE CANCEL THE INTEREST LE VIED AND ALLOW ASSESSEE'S CONTENTIONS. GROUNDS ARE CONSIDERE D ALLOWED. 23.1 IN THE CASE OF LANCO INFRATECH LTD. VS. DCIT (SUPRA), THE COORDINATE BENCH HAS HELD AS UNDER: 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. IT IS WELL ACCEPTED PRACTICE THAT THE CONSTRUCTION INDUSTRY PAY ADVANCE S AT A CERTAIN PERCENTAGE OF THE CONTRACT VALUE TO MOBILISE VARIOU S RESOURCES FOR THE EXECUTION OF CONTRACT AND THESE ADVANCES AR E GIVEN IN THE REGULAR COURSE OF BUSINESS. AS SEEN FROM THE FA CTS OF ASSESSEE'S CASE, ASSESSEE IS UNDERTAKING AN EPC CON TRACT AND HAS RECEIVED MOBILIZATION ADVANCES AS PART OF THAT. LIKE-WISE, ASSESSEE HAS GIVEN SOME WORKS TO OTHER PARTIES ON S UB- CONTRACT BASIS AND NECESSARILY IT HAS TO PROVIDE MO BILIZATION ADVANCES TO THE PARTIES. IT IS ALSO NOTICED THAT AS SESSEE HAS ADVANCED MOBILIZATION ADVANCES TO BOTH AES AND NON -AES ARID NO INTEREST HAS BEEN CHARGED FROM EITHER PARTY. NOT ONLY THAT ASSESSEE IS ALSO NOT REQUIRED TO PAY ANY INTEREST O N THE MOBILIZATION ADVANCES RECEIVED, WHICH ARE IN FACT M ORE THAN THE AMOUNTS ADVANCED BY ASSESSEE. THUS, THERE IS COMPLE TE UNIFORMITY IN THE ACT OF ASSESSEE' IN NOT CHARGING INTEREST FROM BOTH AE AND NON-ALI; AND ALSO NOT PAYING INTEREST/C LAIMING INTEREST FOR THE ADVANCES RECEIVED. FOLLOWING THE P RINCIPLES LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF INDO AMERICAN JEWELLERY LTD. VS. CIT, HON'BLE BOMBAY HIG H COURT (ITA NO. 1053 OF 2012), WE ARE OF THE VIEW THAT THE RE IS NO NEED FOR CHARGING ANY INTEREST ON THE AMOUNTS ADVANCED A S RECEIVABLES. SINCE THIS AMOUNT IS PART OF CONTRACT WORK, IN OUR VIEW IT DOES NOT ATTRACT ANY ADJUSTMENT UNDER TP PR OVISIONS. MOREOVER, ADVANCES GIVEN AS PART OF CONTRACT WORK D OES NOT 23 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. REQUIRE ANY SPECIAL ADDITION, WHEN THE TPO WAS ALRE ADY EXAMINED AND HELD THAT THE TRANSACTION RELATING TO 'WORK CONTRACT EXPENSES' ARE WITHIN THE ALP DURING THE YE AR. THUS, WHEN THE WHOLE WORK CONTRACT IS CONSIDERED WITHIN T HE ALP, WE ARE OF THE OPINION THAT THE ADVANCES GIVEN IN THE C OURSE OF CONTRACT DOES NOT CALL FOR SPECIAL ADJUSTMENT. MOREOVER, THESE BUSINESS ADVANCES CANNOT BE CATEGOR IZED AS 'LOANS AND ADVANCES' SO AS TO CONSIDER THEM FOR ADJ USTMENT. RELYING ON THE VARIOUS CASE LAW RELIED UPON BY THE LD. COUNSEL, WE ARE OF THE OPINION THAT SINCE ASSESSEE-COMPANY I S NOT CHARGING ANY INTEREST FROM THE AES AND NON-AES AND ALSO NOT PAYING ANY INTEREST ON THE AMOUNTS RECEIVED BY IT F ROM THE MAIN CONTRACTOR, THIS ADJUSTMENT IS NOT WARRANTED. RESPE CTFULLY FOLLOWING THE PRINCIPLES LAID DOWN IN VARIOUS CASE LAW RELIED UPON BY ASSESSEE ABOVE, WE HAVE NO HESITATION IN DE LETING THE ABOVE ADJUSTMENT. AS SEEN FROM THE ORDER OF THE TPO IN THE NEXT YEAR AY 2013-14, HE HAS CONSIDERED THE SAME- I SSUE AND HAS NOT MADE -ANY ADJUSTMENT BY STATING AS UNDER: 7.5 RECEIVABLES: WITH REGARD TO RECEIVABLES IT IS NOTICED FROM THE INFORMATION FILED THAT THE COMPANY IS NOT EXPORTING AND SUPPLYING ANY GOODS OR SERVICES TO AE S .. THE BALANCES APPEARING IN THE BALANCE SHEET ARE MOBILIZATION ADVANCES WHICH ARE TO BE ADJUSTED AGAI NST FUTURE SUPPLY BILLS AND HENCE NO ADVERSE INFERENCE IS DRAWN. SINCE THE TPO ORDER IS IN TUNE WITH THE PROVISIONS OF THE ACT AND THE PRINCIPLES LAID DOWN ON THIS ISSUE, WE ARE OF THE OPINION THAT NO ADJUSTMENT IS REQUIRED ON THE ISSUE OF MOBI LIZATION ADVANCES DURING THE IMPUGNED YEAR ALSO. ACCORDINGLY , GROUNDS RAISED BY ASSESSEE INCLUDING ADDITIONAL GROUNDS ARE ALLOWED. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCHES IN THE ABOVE CASES, WE CANCEL THE INTEREST LEVIED AND ALLO W THE GROUND OF ASSESSEE. 24. AS REGARDS GROUND NO. 6 REGARDING INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C), 271AA AND 271BA OF THE A CT, THIS GROUND IS PREMATURE IN NATURE, THEREFORE, NEED NO ADJUDICA TION. 25. AS REGARDS ADDITIONAL GROUND NOS. 8 TO 11 REGAR DING UNABSORBED DEPRECIATION LOSS, WE ADMIT THE ADDITION AL GROUNDS RAISED BY THE ASSESSEE DUE TO THE FACT THAT ASSESSEE WAS N OT GIVEN PROPER OPPORTUNITY BY THE AO BEFORE COMPLETING THE FINAL A SSESSMENT ORDER. 24 ITA NO. 259 /HYD/2017 BARTRONICS INDIA LTD., HYD.. IT IS THE DUTY OF THE AO TO CONSIDER THE OUTSTANDIN G UNABSORBED DEPRECIATION BEFORE COMPLETING THE FINAL ASSESSMENT . IT IS THE LAWFUL RIGHT OF THE ASSESSEE. HENCE, WE REMIT THIS MATTER BACK TO THE AO TO VERIFY THE LAWFUL CLAIM OF THE ASSESSEE AND ALLOW T HE UNABSORBED DEPRECIATION IN CASE IT IS FOUND THAT THE CLAIM OF THE ASSESSEE IS PROPER AFTER GIVING PROPER OPPORTUNITY OF BEING HEA RD. 26. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2017 SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 27 TH SEPTEMBER, 2017 KV COPY TO:- 1) M/S BARTRONICS INDIA LTD., C/O P. MURALI & CO., CAS., 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500 082 2) DCIT, CIRCLE 1(2), HYD. 3) DRP, BENGALURU 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 5) GUARD FILE