Bilcare Limited, Pune V. Assistant Commissioner of Income-tax, Central Circle - 2(2), Pune

ITA 2720/PUN/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2992 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-10-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 21-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Retrospective amendment; Set aside
• Section: 144C; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NO.2720/PUN/2017 / ASSESSMENT YEAR : 2013-14 BILCARE LIMITED, 6 TH FLOOR, B-WING, ICC TRADE TOWER, SENAPATI BAPAT ROAD, PUNE 411 016, MAHARASHTRA PAN : AABCB2242F VS. ACIT, CENTRAL CIRCLE-2(2), PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 18-10-2017 PASSED BY THE ASSESS ING OFFICER (AO) U/S.143(3) R.W.S. 144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMEN T YEAR 2013-14. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE DISALLOWA NCE OF WRITE OFF OF OBSOLETE STOCK OF RS.23,12,46,000/-. BRIE FLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND TRADING OF PHARMA PACKAGING PRODUCTS. I T FILED ITS RETURN DECLARING TOTAL LOSS AT RS.11,28,91,379/-. CERTAIN ASSESSEE BY SHRI KISHOR PHADKE REVENUE BY SMT. DIVYA BAJPAI DATE OF HEARING 25-10-2021 DATE OF PRONOUNCEMENT 26-10-2021 ITA NO.2720/PUN/2017 BILCARE LIMITED 2 INTERNATIONAL TRANSACTIONS OF FURNISHING CORPORATE GUARANTEE W ERE GIVEN IN FORM NO. 3CEB, WHICH ISSUE WILL BE DEALT WITH LATER ON. THE AO NOTIFIED THE DRAFT ORDER WITH TOTAL INCOME AT RS.1,52,57,620/-. AGGRIEVED THEREBY, THE ASSESSEE APPR OACHED THE DISPUTE RESOLUTION PANEL (DRP), WHICH FOUND THE NOTES ON FINANCIAL STATEMENTS THAT THE ASSESSEE WROTE OFF INVENTORY OF RS.2312.46 LAKH. AFTER COMPARING THE FIGURE OF INVENTORY GIVEN IN THE BALANCE SHEET AT RS.138.72 CRORE WITH THAT GIVEN TO THE BA NK, FOR AVAILING CREDIT FACILITIES, AT RS.185.43 CRORE, THE DRP CALLED UP ON THE ASSESSEE TO EXPLAIN THE DIFFERENCE. THE ASSESSEE TENDE RED A RECONCILIATION EXPLAINING THAT A SUM OF RS.23.58 CRORE WAS RE DUCED FROM THE VALUE OF STOCK GIVEN TO BANK ON ACCOUNT OF EXCISE DUTY AND ANOTHER SUM OF RS.23.12 CRORE WAS REDUCED TOWARDS OBS OLETE AND NON-MOVING INVENTORY WRITTEN OFF AS EXTRAORDINARY ITEM SO A S TO REACH THE FIGURE OF INVENTORY IN THE BALANCE SHEET. TO JU STIFY THE WRITE OFF OF OBSOLETE AND NON- MOVING INVENTORY, THE ASSESS EE STATED THAT IT WAS VALUING THE STOCK AS PER THE METHOD `COST OR NET REALIZABLE VALUE, WHICHEVER IS LESS. THE VALUE OF OBSOLESCE NCE OF STOCK TO THE ABOVE TUNE WAS REFLECTED IN THE BALANCE SHEET, SIGNED ON 28-05-2013. THE LD. DRP OBSERVED THAT SINCE THE WRITE OFF ACTUALLY HAPPENED IN THE F.Y. 2013-14, THERE WAS NO JUSTIFICATION IN ITA NO.2720/PUN/2017 BILCARE LIMITED 3 ALLOWING CLAIM OF WRITE OFF IN THE F.Y. 2012-13 RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, EVEN THOUGH THE AUD ITED ACCOUNTS WERE SIGNED ON 28-05-2013. THAT IS HOW, THE D RP DIRECTED THE AO TO MAKE ENHANCEMENT BY RS.23.12 CRORE. THE AO MADE THE ENHANCEMENT IN THE FINAL ASSESSMENT ORDER. APART F ROM THE CHALLENGING THE MAKING OF THE ADDITION ON MERITS, THE ASSESSEE HAS ALSO ASSAILED THE DIRECTION GIVEN BY THE DRP FOR ENHANCEMENT O N A PRELIMINARY LEGAL ISSUE OF JURISDICTION. 3. AT THIS JUNCTURE, IT IS PERTINENT TO MENTION THAT THIS APPEAL WAS EARLIER FIXED FOR HEARING BEFORE A DIFFERENT COMBINATION OF THE DIVISION BENCH, WHEREIN THE LD. AR ARGUED THAT THE DRP HAD N O POWER TO TAKE UP THE ISSUE OF STOCK WRITE OFF. IT WAS PUT F ORTH THAT THE AO DID NOT CONSIDER THE ISSUE OF STOCK WRITE OFF IN THE DRA FT ORDER AND HENCE, THE DRP LACKED JURISDICTION TO DIRECT ENHANCEMENT O N THIS SCORE. TO SUPPORT THIS CONTENTION, THE LD. AR RELIED ON CERTAIN TRIBUNAL ORDERS. THE BENCH WAS NOT CONVINCED WITH THE AS SESSEES SUBMISSION IN VIEW OF CERTAIN OTHER DECISIONS EMPOWERING THE DRP TO MAKE ENHANCEMENT IN THE SITUATION AS IS OBTAINING IN THE INSTAN T CASE. THE MATTER WAS ADJOURNED AT THE REQUEST OF THE LD. AR, WHO REQUESTED FOR THE CONSTITUTION OF A SPECIAL BENCH ON THIS ISSUE . ON SUCH REQUEST, THE HONBLE PRESIDENT SOUGHT THE COMMENTS OF ITA NO.2720/PUN/2017 BILCARE LIMITED 4 DIVISION BENCH (DB). THE MATTER WAS FIXED FOR HEARING BEFO RE THE DB ONLY FOR THE LIMITED PURPOSE OF CONSIDERING THE ASSESS EES SUBMISSION AS TO WHETHER THE DRP WAS JUSTIFIED IN DIRECTING ENHANCEMENT ON AN ISSUE WHICH WAS NOT THERE IN THE DRAFT OR DER AND THE CONSEQUENTIAL SETTING UP OF A SPECIAL BENCH. VIDE ITS ORDE R DATED 27.07.2021, A COPY OF WHICH HAS ALREADY BEEN SUPPLIED TO BOTH THE ASSESSEE AS WELL AS THE REVENUE, THE BENCH REJECTED THE AS SESSEES CONTENTION BY TAKING NOTE OF EXPLANATION TO SECTION 144C(8) INSERTED BY THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FRO M 01- 04-2009 PROVIDING THAT THE POWER OF THE DRP TO ENHANCE THE VARIATION SHALL INCLUDE AND SHALL BE DEEMED ALWAYS TO HAVE INC LUDED THE POWER TO CONSIDER ANY MATTER ARISING OUT OF THE ASSESSME NT PROCEEDINGS RELATING TO A DRAFT ORDER NOTWITHSTANDING THAT SU CH MATTER WAS RAISED OR NOT BY THE ELIGIBLE ASSESSEE . RELEVANT DISCUSSION HAS BEEN MADE BY THE DB IN PARAS 5 TO 9 OF ITS INTERIM ORDER, WHICH READ AS UNDER : 5. BEING AGGRIEVED BY THE FINAL ASSESSMENT ORDER, THE AP PELLANT FILED AN APPEAL BEFORE THIS TRIBUNAL CONTESTING INTER-ALIA IN RE SPECT OF ADDITION ON ACCOUNT OF OBSOLETE AND SLOW MOVING INVENTO RY ITEMS WRITTEN OFF, AND THAT THE LD.D.R.P. HAS NO POWER TO MAKE AN Y ADDITION WHICH IS NOT A PART OF ANY VARIATIONS PROPOSED B Y THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER. IN THIS C ONNECTION, HE RELIED ON THE DECISION IN THE CASE OF SAVA HEALTHCARE L TD., VS. ACIT (ITA NOS.1062 TO 1068/PUN/2017) REPORTED IN (2019) 1 07 TAXMANN.COM 226 WHEREIN IT WAS HELD AS UNDER : 114.. BUT WHERE THE TPO HAS NOT EXERCISED HIS JURISDICTION, THE DRP IN EXERCISE OF HIS POWERS CANNOT BENCHMARK NEW TRANSACTION THOUGH REPORTED BY THE ASSESSEE, IN THE HANDS OF AS SESSEE. ITA NO.2720/PUN/2017 BILCARE LIMITED 5 6. IT IS ALSO BROUGHT TO OUR NOTICE THAT THE CO-ORDINAT E BENCH OF DELHI TRIBUNAL IN THE CASE OF BAUSCH & LOMB INDIA PVT LTD ., VS. ACIT (ITA NO.1399/DEL/2017 DT.25.08.2017) REPORTED IN (2017 ) 85 TAXMANN. COM 163 (DELHI TRIB) UPHELD OF POWER OF DRP TO MA KE ADDITION EVEN IN RESPECT OF ITEMS WHICH IS NOT SUBJECT MA TTER OF VARIATIONS PROPOSED BY THE ASSESSING OFFICER BY HOLDING AS UNDER : 10. IT IS CLEAR FROM THE MANDATE OF SUB-SECTION (8 ) THAT THE DRP IS EMPOWERED, INTER ALIA, TO ENHANCE THE VARIATIONS PR OPOSED IN THE DRAFT ORDER. THE EXPLANATION TO THIS SUB-SECTION IN SERTED RETROSPECTIVELY FROM 1.4.2000 CLARIFIES THAT THE PO WER OF THE DRP TO ENHANCE THE VARIATION SHALL INCLUDE THE POWER TO CO NSIDER ANY MATTER ARISING OUT OF THE ASSESSMENT PROCEEDINGS RELATING TO THE DRAFT ORDER, NOTWITHSTANDING THAT SUCH MATTER WAS NOT RAISED BY THE ASSESSEE. WHEN WE CONSIDER THE LANGUAGE OF SUB-SECTION (8) IN CONJUNCTION WITH THE EXPLANATION, IT CLEARLY EMERGES THAT THE DRP HA S A POWER TO ENHANCE VARIATIONS PROPOSED IN THE DRAFT ORDER ON A N INTERNATIONAL TRANSACTION, EVEN IF IT WAS NOT RAISED BY THE ASSES SEE. `ENHANCE THE VARIATIONS INCLUDE NOT ONLY INCREASING THE AMOUNT OF TRANSFER PRICING ADJUSTMENT ALREADY PROPOSED, BUT ALSO MAKING A NEW TRANSFER PRICING ADJUSTMENT, WHICH WAS OMITTED TO BE PROPOSED/MADE B Y THE AO/TPO. THERE IS NO DOUBT AND CANNOT BE THAT THE PO WER OF THE DRP IS CO-TERMINUS WITH THAT OF THE AO/TPO. IN OTHER WO RDS, THE DRP CAN ALSO DO ALL SUCH THINGS, WHICH THE AUTHORITIES COUL D HAVE DONE BUT OMITTED TO DO. IF THE LANGUAGE OF THE PROVISION IS READ AS DISABLING THE DRP TO EXERCISE THE POWER OF ENHANCEMENT IN THE CIR CUMSTANCES AS ARE OBTAINING IN THE INSTANT CASE, AS HAS BEEN CANV ASSED ON BEHALF OF THE ASSESSEE, IT WOULD AMOUNT TO DILUTING THE POWER , WHICH THE STATUTE HAS EXPRESSLY GRANTED. 7. ON NOTICING THE DIVERGENT VIEWS TAKEN BY THE CO-ORD INATE BENCHES OF THE TRIBUNALS OF DELHI AND PUNE BENCHES IN THE CASES OF BAUSCH & LOMB INDIA PVT. LTD. (SUPRA) AND SAVA HEALTHCAR E LTD. (SUPRA), RESPECTIVELY, THE ASSESSEE COMPANY MADE THE PRE SENT APPLICATION SEEKING CONSTITUTION OF SPECIAL BENCH TO RESOLVE THE CONFLICT IN THE VIEWS OF THE ABOVE SAID CO-ORDINATE BENCHES . IT IS FURTHER SUBMITTED THAT THE DECISION OF HONBLE DELHI HIGH C OURT IN THE CASE OF LAHMEYER HOLDING GMBH VS. DDIT REPORTED IN 3 76 ITR 0070 (DEL) HAS NO APPLICATION TO THE FACTS OF THE PRESENT C ASE, IN AS MUCH AS, IT IS A CASE WHERE THE ISSUE, WHICH IS THE SUBJ ECT MATTER OF ADDITION PROPOSED BY THE LD.D.R.P WAS NOT PROCESSED AND E XAMINED BY THE ASSESSING OFFICER. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND THE RELEVANT PROVISIONS OF STATUTE GOVERNING THE POWERS OF LD.D.R.P. IN TERMS OF SECTION 144C(8) OF THE AN D THE EXPLANATION APPENDED THERETO. THE EXPLANATION WAS INTROD UCED BY THE PARLIAMENT BY THE FINANCE ACT, 2012 WITH RETROSPECTIV E EFFECT FROM 01.04.2009. THE SAID PROVISIONS HAVE COME UP BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF LAHMEYER HOLDING GM BH VS. DDIT REPORTED IN 376 ITR 0070 (SUPRA) FOR INTERPRETA TION WHEREIN THE HON'BLE HIGH COURT HELD AS FOLLOWS : ITA NO.2720/PUN/2017 BILCARE LIMITED 6 24. READING THE EXPLANATION WITH SUB-SECTION 144C (8), IT IS EVIDENT THAT THE DISPUTE RESOLUTION PANEL COULD EXAMINE THE ISS UES ARISING OUT OF THE ASSESSMENT PROCEEDINGS EVEN THOUGH SUCH ISSUES WERE NOT PART OF THE SUBJECT MATTER OF THE VARIATIONS SUGGESTED BY THE A SSESSING OFFICER. 9. IT MUST BE NOTED THAT THE EXPLANATION WAS INSERTED TO PROVISIONS OF SUB-SECTION (8) OF SEC.144C TO OVER-RULE THE D ECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF G.E. ELECTRIC ALS LTD., VS. CIT REPORTED IN 338 ITR 416 WHEREIN THE HON'BLE HIG H COURT HELD THAT THE JURISDICTION OF THE DRP WOULD BE CONFINED TO DECI DE THE VARIATIONS THAT HAVE BEEN PROPOSED IN THE DRAFT ASSESS MENT ORDER AND CONTESTED BEFORE IT. THUS, IT IS CLEAR THAT THE EXPLANATION WAS INSERTED BY THE FINANCE ACT 2012 WITH RETROSPECT EFFECT FROM 01.04.2009 SO AS TO EMPOWER THE LD. D.R.P. TO CONSIDER AN Y ISSUE ARISING OUT OF THE DRAFT ASSESSMENT ORDER EVEN IF IT IS NOT IN DISPUTE. IT IS ALSO EQUALLY SETTLED POSITION OF LAW THAT THE WORD A SSESSMENT INCLUDES THE RETURN OF INCOME FILED BY THE ASSESSEE. WE DO NOT FIND ANY CONTRARY DECISION FROM ANY OTHER HONBLE HIGH COU RT. THEREFORE, NOW THE ISSUE THAT BOILS DOWN TO SINGLE POINT I.E . WHETHER THE DECISION OF NON-JURISDICTIONAL HIGH COURT SHALL PREVAIL OVE R THE DECISION OF THE SPECIAL BENCH. 4. FROM THE ABOVE EXTRACTS OF THE INTERIM ORDER PASSED BY THE DB REJECTING THE ASSESSEES REQUEST FOR CONSTITUTION OF A SPECIAL B ENCH ON THE ISSUE OF POWER OF THE DRP TO MAKE ENHANCEMENT ON AN ISSUE WHICH WAS NOT A PART OF THE DRAFT ORDER, IT IS VIVID THAT THE BE NCH CATEGORICALLY HELD AGAINST THE ASSESSEE BY HOLDING: ` THUS, IT IS CLEAR THAT THE EXPLANATION WAS INSERTED BY THE FINANCE ACT 2012 WITH RETROSPECT EFFECT FROM 01.04.2009 SO AS TO EMPOWER THE LD. D .R.P. TO CONSIDER ANY ISSUE ARISING OUT OF THE DRAFT ASSESSMENT ORDER EVEN IF IT IS NOT IN DISPUTE. IT IS ALSO EQUALLY SETTLED POSITION OF LAW THAT TH E WORD ASSESSMENT INCLUDES THE RETURN OF INCOME FILED BY THE ASSESSEE. WE DO NOT FIND ANY CONTRARY DECISION FROM ANY OTHER HONBLE HIGH COURT. THE LD. AR, IN THE EXTANT PROCEEDINGS, ITA NO.2720/PUN/2017 BILCARE LIMITED 7 VENTURED TO RE-ARGUE THE SAME ISSUE WITH AN ATTEMPT TO PERSUA DE US TO HIS LINE OF THINKING THAT THE DRP CANNOT TAKE COGNIZANCE OF A NEW ISSUE WHICH IS NOT PART OF THE DRAFT ORDER. WE DO NOT FIND ANY RATIONALE IN PERMITTING THE PARTIES TO RE-ARGUE THE SAME ISSUE A S HAS ALREADY BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL BY ME ANS OF AN INTERIM ORDER PASSED IN COLLATERAL PROCEEDINGS OF THE SAME C ASE. IT IS NOT A CASE WHERE THE DB SIMPLY DISCARDED THE REQUEST OF TH E ASSESSEE FOR CONSTITUTION OF SPECIAL BENCH WITHOUT DELVING INTO THE ISSUE. RATHER, THE BENCH HAVING INITIALLY EXPRESSED ITS PRIMA FACIE OPINION ON NOT ACCEPTING THE PROPOSITION, GAVE AMPLE OPPORTUN ITY OF HEARING TO BOTH THE SIDES ON MERITS OF THE ISSUE AND TH EREAFTER PASSED A WELL REASONED SPEAKING ORDER REJECTING THE CONTEN TION ON MERITS AND ALSO THE CONSEQUENTIAL PROPOSAL FOR CONSTITUTION OF SPECIAL BENCH. THE INSTANT SITUATION IS NOT AKIN TO LETTERS PATENT APPEAL WHEREIN THE AGGRIEVED PARTY CAN ONCE AGAIN APPROA CH THE DB TO HAVE A SECOND CALL ON THE MATTER. WE ARE CONCERNED W ITH A SITUATION IN WHICH THE DB HAS ALREADY DECIDED THE ISSUE ON MER ITS BY MEANS OF ITS INTERIM ORDER. ONCE THE DECISION OF THE DB IS AVAILABLE ON MERITS IN THE INTERIM ORDER, IT IS NOT OPEN TO RE-AGITATE THE S AME ISSUE BEFORE THE DB IN THE PROCEEDINGS FOR FINAL DISPOSAL O F THE APPEAL U/S 254(1) OF THE ACT. ITA NO.2720/PUN/2017 BILCARE LIMITED 8 5. NOTWITHSTANDING THE FOREGOING, WE CONSIDER IT OUR DUTY TO RECORD THE SUBMISSION OF THE LD. AR THAT THE ISSUE HAS BEEN DECIDED BY THE HONBLE MADRAS HIGH COURT IN M/S DELPHI-TVS DIESEL SYSTEMS LTD. VS., ITO(OSD)/SECRETARY, DRP (W.P. NO. 26313 OF 2017), WHICH JUDGMENT DATED 17.8.2021 WAS DELIVERED AFTER THE PASSING OF THE INTERIM ORDER BY THE DB OF THE TRIBUNAL. RE LYING ON THIS JUDGMENT, HE CONTENDED THAT THE DRP WAS WHOLLY UNJUSTIFIED IN MAKING THE ENHANCEMENT ON ACCOUNT OF STOCK WRITTEN OFF WHICH ISSUE WAS NOT SUBJECT MATTER OF THE DRAFT ORDER. 6. WE HAVE PERUSED THE JUDGMENT OF THE HONBLE MADRA S HIGH COURT. IN THAT CASE, THE DRAFT ORDER WAS NOTIFIED ON CERTAIN OTHER ISSUES BUT WITHOUT ANY DISALLOWANCE OF EXPENDITURE U/S.40(A )(I) OF THE ACT ON EMPLOYEES SECONDMENT CHARGES AND REIMBURSEME NT OF EXPENSES. THE ASSESSEE CHALLENGED THE DRAFT ORDER BEF ORE THE DRP. THE DRP ISSUED ENHANCEMENT NOTICE IN RESPECT OF DISALLOWANCE U/S.40(A)(I) ON EMPLOYEES SECONDMENT CHARGES AND REIMBUR SEMENT OF EXPENSES. AFTER ENTERTAINING THE OBJECTIONS, THE DRP DIRECTE D THE AO TO MAKE THE DISALLOWANCE U/S.40(A)(I). THE ASSESSEE FILE D WRIT PETITION NO.26313 OF 2017 SEEKING TO QUASH THE DIRECTION OF TH E DRP ON THE ENHANCEMENT BY URGING THAT THE DRP HAD NO POWER TO ISSUE NOTICE FOR ENHANCEMENT AS THAT ISSUE WAS NOT CONSIDER ED BY THE ITA NO.2720/PUN/2017 BILCARE LIMITED 9 AO IN THE DRAFT ORDER. THE HONBLE HIGH COURT CONSIDERED THE SCOPE OF THE EXPLANATION APPENDED TO SECTION 144C(8) OF TH E ACT AND REJECTED THE ASSESSEES WRIT PETITION BY OBSERVING THAT: THUS, THERE IS NO IMPEDIMENT AS SUCH FOR THE DISPUTE RESOLUTION P ANEL TO CONSIDER ANY MATTER ARISING OUT OF THE ASSESSMENT PROCEEDIN GS RELATING TO THE DRAFT ASSESSMENT ORDER AND NO MATTER, SUCH AN ISSUE WAS DISCUSSED IN THE DRAFT ASSESSMENT ORDER OR NOT , BUT IT SHOULD NOT BE TOTALLY UNCONNECTED WITH THE ASSESSMENT PROCEEDINGS OR THE DRAFT ASSESSMENT ORDER. THEREAFTER, IT OBSERVED THAT THE: PROPOSED NOTICE ISSUED TO THE WRIT PETITIONER IS RELATABLE TO THE ASSESSMENT PROCEEDINGS AND TO THE DRAFT ASSESSMENT ORDER . THUS, THERE IS NO INFIRMITY IN RESPECT OF EXERCISE OF POWERS BY TH E DISPUTE RESOLUTION PANEL AND THE NOTICE ISSUED FOR ENHANCEMENT. IT IS EMPHATICALLY CLEAR THAT EVEN THOUGH THE QUESTION OF DISALLOWANCE U/S.40(A)(I) OF THE ACT ON EMPLOYEES SECONDMENT CHARGES A ND REIMBURSEMENT OF EXPENSES WAS NOT SUBJECT MATTER OF THE DR AFT ORDER, STILL THE HONBLE HIGH COURT, CONSIDERING THE AMBIT OF TH E EXPLANATION TO SECTION 144C(8), HELD THAT THE DRP RIGHTLY DIRECTED ENHANCEMENT ON IT BECAUSE IT WAS RELATABLE TO THE ASSESSMENT PROCEEDINGS AND TO THE DRAFT ASSESSMENT ORDER. ON A CARE FUL CIRCUMSPECTION OF THE RATIO DECIDENDI LAID DOWN BY THE HONBLE ITA NO.2720/PUN/2017 BILCARE LIMITED 10 MADRAS HIGH COURT IN THE BACKDROP OF THE FACTUAL POSITION PREVAILING IN THAT CASE, THERE REMAINS NO DOUBT WHATSOEVER THA T RATHER THAN JUSTIFYING THE STAND OF THE ASSESSEE, THIS JUDGMEN T FORTIFIES THE VIEW TAKEN BY THE DB IN ITS INTERIM ORDER, REJECTIN G THE ASSESSEES CONTENTION THAT THE DRP WAS NOT EMPOWERED TO CONS IDER THE STOCK WRITE OFF AT RS.23.12 CRORE WHICH ITEM WAS NOT CO NSIDERED BY THE AO IN THE DRAFT ORDER. RESPECTFULLY FOLLOWING THE INTERIM ORDER PASSED BY THE DB, WE JETTISON THE ASSESSEES CONTE NTION ON THE PRELIMINARY JURISDICTIONAL LEGAL ISSUE AND HOLD THAT THE DRP WAS INTRA VIRES TO ESPOUSE THE ISSUE OF STOCK WRITE OFF BY MEANS OF ENHANCEMENT NOTICE. 7. NOW WE TURN TO THE MERITS OF THE ISSUE. THE AUDITED FINAN CIAL STATEMENTS OF THE ASSESSEE FOR THE YEAR CONTAINED NOTE NO.4 3 WITH THE CAPTION EXTRAORDINARY ITEMS READING: DURING THE YEAR, TH E COMPANY HAS WRITTEN OFF OBSOLETE ( SIC ABSOLUTE) AND NON-MOVING INVENTORY TO THE EXTENT OF RS.2312.46 LAKH. THE FIGURE O F INVENTORY GIVEN IN THE BALANCE SHEET AT RS.13872.53 LAKH WAS DETERMIN ED AFTER REDUCING, INTER ALIA, RS.23.12 CORE ON ACCOUNT OF WRITE OFF OF OBSOLETE AND NON-MOVING INVENTORY. THE DRP, AFTER ENTERTA INING OBJECTIONS FROM THE ASSESSEE, DECIDED THE ISSUE BY GIVING F OLLOWING DIRECTION IN PARA 9.3, AS UNDER : ITA NO.2720/PUN/2017 BILCARE LIMITED 11 9.3 FROM THE ABOVE, WE FIND THAT IN THE AUDITED ACCOUNTS THE ASSESSEE HAS UNDER REPORTED THE VALUE OF CLOSING STOCK V IS--VIS THE STATEMENT FILED BEFORE THE BANK AS ON 31/3/2013. THE DIFFERENCE BETWEEN THE TWO HAS BEEN EXPLAINED TO BE ON ACCOUNT OF CONSIDERING THE EXCISE DUTY ALSO AS PART OF CLOSIN G STOCK WHICH WAS SHOWN SEPARATELY IN THE BALANCE SHEET AND TH E DIFFERENCE ON ACCOUNT OF OBSOLETE AND NON-MOVING INVENTORY OF RS.23.12 CRS. THE ASSESSEE HAS EXPLAINED THAT THIS SLOW MOVING INVENTORY WAS INFORMED TO THE BANK IN THE MONTH OF APRIL TO JUNE, 2013 AND AS THE AUDITED ACCOUNT WERE SIGNED ON 28-05-2013 ( SIC 2017), THE ASSESSEE HAD CONSIDERED THE WRITE- OFF IN THE AUDITED ACCOUNTS FOR THE FY 2012-13 ITSELF. AS P ER THE RECORD THE WRITE-OFF HAS HAPPENED IN FY 2013-14. HA VING CONSIDERED THE REASONS GIVEN BY THE ASSESSEE WE DO NOT F IND ANY JUSTIFICATION IN CLAIM OF WRITE-OFF IN FY 2012-13 AS EVEN THOUGH THE AUDITED ACCOUNTS WERE SIGNED ON 28/5/2013 THE SAME PERTAINED TO F.Y.2012-13 CLOSING ON 31/3/2013. THE EVENT AS IN THE PRESENT CASE OF VALUATION OF NON-MOVING OBSOLETE INVENTORY AND WRITE OFF OF RS.23.12 CR. OCCURRED ON LY DURING F.Y. 2013-14. IN LIGHT OF THE ABOVE THE CLAIM OF WRITE OFF OF RS.23.12 CR IN FY 2012-13 IS INCORRECT AND IS BEEN DISALLOWED. THE AO IS DIRECTED TO INCORPORATE THE SAME WHILE FINALIZING THE ASSESSMENT. THIS WILL RESULT IN ENHANCEMENT OF RS.23.12 CR. THE AO IS DIRECTED TO INITIATE PENALTY U/S.271(1)(C) FOR FILING INACCURATE PARTICULARS OF INCOME. 8. IT IS MANIFESTED ON GOING THROUGH THE ABOVE EXTRACTED DIR ECTION THAT: AS PER THE RECORD THE WRITE OFF HAS HAPPENED IN F.Y . 2013-14. HAVING CONSIDERED THE REASONS GIVEN BY THE ASSESSEE WE D O NOT FIND ANY JUSTIFICATION IN CLAIM OF WRITE OFF IN F.Y. 2012-13 AS EVE N THOUGH THE AUDITED ACCOUNTS WERE SIGNED ON 28-05-2013 THE SAME PERTAINED TO F.Y. 2012-13 CLOSING ON 31-03-2013. THE EVE NT AS IN THE PRESENT CASE OF VALUATION OF NON-MOVING INVENTORY AND W RITE OFF ITA NO.2720/PUN/2017 BILCARE LIMITED 12 OF RS.23.12 CRORE OCCURRED DURING F.Y. 2013-14. TWO THINGS EMERGE FROM THE DIRECTION GIVEN BY THE DRP. FIRST, THAT THE BONA FIDE AND THE VALUE OF LOSS ON ACCOUNT OF OBSOLESCENCE OF INV ENTORY HAVE BEEN ACCEPTED AS CORRECT; AND SECOND, THAT THE DISPU TE IS ONLY ABOUT THE YEAR IN WHICH SUCH OBSOLESCENCE IN THE INVENTORY VALUE SHOULD BE WRITTEN OFF. TO BE MORE PRECISE, THE ONLY DIFFERE NCE OF OPINION IS AS TO WHETHER SUCH OBSOLESCENCE IN STOCK VALUE S HOULD BE WRITTEN OFF IN THE YEAR UNDER CONSIDERATION OR IN THE NEXT YE AR. WHEREAS THE ASSESSEE WROTE OFF THE LOSS OF RS.23.12 CR ORE IN ITS ACCOUNTS ON THE GROUND THAT THE LOSS PERTAINED TO THE VALUE OF INVENTORY AS ON 31-03-2013, THE DRP ESPOUSED THE VIEW THA T SINCE LOSS WAS QUANTIFIED AFTER 31-03-2013, THE SAME SHOULD HAV E BEEN WRITTEN OFF IN THE F.Y. 2013-14. 9. AT THIS STAGE, IT IS IMPERATIVE TO MENTION THAT THE ASSESSE E IS VALUING ITS INVENTORY AT: `COST OR NET REALIZABLE VALUE, WHICHE VER IS LESS. UNDER THIS METHOD, THE INVENTORY IS VALUED IN BALANCE SHEET AT ITS NET REALIZABLE VALUE, IF SUCH VALUE IS LESS THAN THE COST PRIC E. NET REALIZABLE VALUE IS DETERMINED BY ASCERTAINING THE AMOUNT THAT THE INVENTORY WILL FETCH IF SOLD IN THE OPEN MARKET ON THE BALANCE SHEET DATE. IF THE INVENTORY HAS BECOME OBSOLETE OR HAS CEASED TO BE MARKETABLE, FULLY OR PARTLY, THE EXTENT OF SUCH OBSOLESCENC E NEEDS TO ITA NO.2720/PUN/2017 BILCARE LIMITED 13 BE REFLECTED IN THE INVENTORY VALUE BY APPROPRIATELY REDUCING THE COST PRICE SO AS TO BRING IT TO THE NET REALIZABLE VALUE. IT IS THIS DIMINUTION IN THE VALUE OF INVENTORY DUE TO OBSOLESCENCE AS ON 31.3.2013, WHICH HAS BEEN QUANTIFIED BY THE AUDITOR AT RS.23,12,46,650/- BY MEANS OF A CERTIFICATE DATED 02-04- 2013, A COPY OF WHICH HAS BEEN PLACED AT PAGES 203 ONWARDS OF THE PAPER BOOK. THE AUDITOR HAS CERTIFIED: THAT THE VALUE OF TOTAL OBSOLE TE AND NON-MOVING INVENTORY, WHICH NEEDS TO BE WRITTEN OFF AS ON 31-03- 2013, IS TO THE TUNE OF RS.23,12,45,650/- AS DETAILED OUT IN THE ANNEXURE ENCLOSED. THEN, THERE IS THE ANNEXURE RUNNING INTO FEW PAGES GIVING ITEM-WISE WRITE OFF IN QUANTITY AS WELL AS VALUE. I T IS ON THE BASIS OF THIS CERTIFICATE ISSUED BY THE AUDITOR ON 02-0 4-2013 THAT THE ASSESSEE, WHILE FINALIZING ITS BALANCE SHEET ON 28.5.20 13, GAVE EFFECT TO THE METHOD OF STOCK VALUATION CONSISTENTLY FOLLO WED AND REDUCED THE VALUE OF INVENTORY AS SHOWN ON 31.3.20 13 BY THE AMOUNT OF SUCH OBSOLESCENCE TO BRING IT AT NET REALIZABLE VA LUE. 10. FROM THE ABOVE DISCUSSION, IT CLEARLY TRANSPIRES THAT THE OBSOLESCENCE IN THE INVENTORY WAS QUA THE VALUE OF STOCK AS ON 31- 03-2013 AND THE ASSESSEE INCORPORATED THE EFFECT OF SUCH REDUCTION IN THE VALUE OF INVENTORY BY GIVING AN APPROPRIATE NOTE AS AN EXTRAORDINARY EVENT. THE REDUCTION HAS THE EFFECT OF REP RESENTING ITA NO.2720/PUN/2017 BILCARE LIMITED 14 THE CONDITION OF STOCK EXISTING AS ON 31-03-2013 AT ITS REALIZAB LE VALUE. IT IS NOT AS IF THERE WAS SOME DEPLETION IN THE VALUE OF INVENTORY TAKING PLACE AFTER 31-03-2013 WHICH THE ASSESSEE ACCOUNTED FOR IN ITS ANNUAL ACCOUNTS FOR THE YEAR ENDING 31-03-2013. RATHER IT IS A CASE OF THE EXISTING CONDITION OF DIMINUTION IN TH E VALUE OF INVENTORY AS ON 31-03-2013. AS THE EXERCISE O F VALUING THE OBSOLESCENCE IN STOCK TOOK PLACE AFTER CLOSE OF THE YEAR BU T BEFORE THE SIGNING OF THE BALANCE SHEET ON 28.5.2013, THE ASSES SEE DEPICTED IT AS AN EXTRAORDINARY ITEM BY WAY OF A NOTE TO ACCOUNTS AND REDUCED THE VALUE OF CLOSING STOCK ACCORDINGLY. IN VIEW OF THE FA CT THAT THE OBSOLESCENCE AFFECTS THE VALUE OF INVENTORY AS ON 31-03-2 013, THE SAME WAS REQUIRED TO BE TAKEN INTO CONSIDERATION FOR REFLEC TING TRUE AND FAIR STATE OF AFFAIRS OF THE COMPANY AS ON THE BALANC E SHEET DATE. THE DIRECTION OF THE DRP THAT THE LOSS SHOULD BE WRITTEN OFF IN THE F.Y. 2013-14 ON THE RAISON D`ETRE THAT IT WAS QUANTIFIED AFTER 31-03- 2013, CANNOT BE COUNTENANCED. THE RELEVANT FACTOR TO BE CONSIDERED IS THE DATE WITH REFERENCE TO WHICH THE VALUE OF STOCK IS DETER MINED AND NOT THE DATE WHEN THE EXERCISE OF SUCH VALUE DETERMINA TION IS CARRIED OUT. HAD IT BEEN A CASE OF THE ASSESSEE VALUING ITS INVENTORY ON ANY DATE AFTER 31-03-2013 BUT GIVING EFFECT IN THE BALANC E SHEET AS ON 31.3.2013, THAT WOULD HAVE WARRANTED ADDITION. AU CONTRAIRE , ITA NO.2720/PUN/2017 BILCARE LIMITED 15 WE ARE CONFRONTED WITH A SITUATION IN WHICH DEPLETION HAS TAKEN PLACE WITH REFERENCE TO THE VALUE OF INVENTORY ON 31-03-201 3. WE, THEREFORE, HOLD THAT THE AO WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.23,12,46,000/- IN THE IMPUGNED ORDER. THE SAME IS, ERGO, DIRECTED TO BE DELETED. 11. THE NEXT ISSUE RAISED IN THE APPEAL IS AGAINST THE TRANSF ER PRICING ADDITION AMOUNTING TO RS.12,81,49,000/- ON ACCOUNT O F CORPORATE GUARANTEE. 12. WE HAVE NOTED ABOVE THAT THE ASSESSEE GAVE CORPORATE GUARANTEE FOR ITS ASSOCIATED ENTERPRISE, WHICH WAS ALBEIT REP ORTED IN FORM NO.3CEB BUT NEITHER ANY DETAILS WERE PROVIDED NOR THE BENCHMARKING WAS DONE. ON BEING CALLED UPON TO FURNISH TH E DETAILS, THE ASSESSEE GAVE REQUISITE INFORMATION IN RESPECT OF CORPORATE GUARANTEE GIVEN TO CERTAIN BANKS IN RESPECT OF ITS AES FOR A TOTAL SUM OF RS.1,06,270.04 LAKHS. IN RESPECT OF THE FIRST TRANSACTION OF GUARANTEE TO SBIIFB, PUNE FOR 5,50,00,000 EU ROS IN FAVOUR OF BILCARE AG, THE ASSESSEE INCURRED A SUM OF RS .291.93 LAKHS, WHICH WAS RECOVERED FROM ITS AE. HOWEVER, NO GU ARANTEE FEES WAS RECOVERED FOR ANY OF THE FIVE TRANSACTIONS. T HE TPO BENCHMARKED THESE TRANSACTIONS BY ADOPTING ARMS LENGTH RA TE AT 1.75% AS CORPORATE GUARANTEE FEE AND WORKED OUT THE N ET TRANSFER ITA NO.2720/PUN/2017 BILCARE LIMITED 16 PRICING ADJUSTMENT AT RS.12,81,40,000/-, AFTER REDUCING RS.291.93 LAKHS INCURRED IN EXTENDING GUARANTEE AND RECOVERED BY THE ASSESSEE FROM ITS AE. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE DRP, AS A RESULT OF WHICH THE AO MADE THE ADDITION OF RS.12.81 C RORE IN THE FINAL ASSESSMENT ORDER. THE ASSESSEE HAS COME UP IN APPEAL BEFORE THE TRIBUNAL ON THIS ISSUE. 13. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE R ELEVANT MATERIAL ON RECORD. AT THE OUTSET, THE LD. AR CONTENDED THAT S IMILAR ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL IN ITS ORDER FOR THE ASSESSMENT YEAR 2014-15. A COPY OF SUCH ORDE R DATED 26-03- 2021 PASSED IN ITA NO.1693/PUN/2018 AND OTHER WAS PLACED ON RECORD. WE HAVE GONE THROUGH THE ORDER. THE DECISION O N THE ISSUE OF CORPORATE GUARANTEE FEE HAS BEEN INCORPORATED IN PARA S 7.17 AND 7.18 OF THE ORDER. AFTER CONSIDERING THE ENTIRE GAMUT OF MATERIAL, THE TRIBUNAL DETERMINED THE ARMS LENGTH FEE FROM FURNISHING OF THE CORPORATE GUARANTEE AT 0.5% AS FURTHER INCREASED BY A NY EXPENDITURE ACTUALLY INCURRED BY THE ASSESSEE IN FURNISHING THE GUARANTEE. THE LD. DR WAS FAIR ENOUGH TO CONCEDE THE P OSITION IN THIS REGARD. HAVING REGARD TO THE RIVAL BUT COMMON SUBMIS SIONS AND RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL FOR THE IMMED IATELY SUCCEEDING ASSESSMENT YEAR, WE SET ASIDE THE IMPUGNED O RDER ON ITA NO.2720/PUN/2017 BILCARE LIMITED 17 THIS SCORE AND REMIT THE MATTER TO THE FILE OF AO/TPO FOR RE- COMPUTING THE ALP OF THE TRANSACTION. IN DOING SO, HE WILL FIRST ASCERTAIN THE AMOUNT OF EXPENDITURE ACTUALLY INCURRED BY THE ASSESSEE IN FURNISHING THE FIVE CORPORATE GUARANTEES AND TH EREAFTER ADD 0.5% AS THE SERVICE FEE FOR FURNISHING THE GUARANTE E. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING IN THIS REGARD. 14. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER, 2021. SD/- SD/- ( PARTHA SARATHI CHAUDHURY ) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 26 TH OCTOBER, 2021 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PR.CIT-V, PUNE , , / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NO.2720/PUN/2017 BILCARE LIMITED 18 DATE 1. DRAFT DICTATED ON 25-10-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 26-10-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *