Tyco Valves & Controls (India) Pvt. Ltd., Baroda V. The ACIT, Circle- 4, Baroda

ITA 2799/AHD/2012

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8359 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 15-10-2019
• Assessment Year: 2006-2007
• Appeal Filed On: 11-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Assessee Lawyers: PAR
• Keywords: Related party transaction; Transfer pricing; International transaction; Arm length price; Set aside
• Section: 92C; 80HHC; 10B; 13

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER 1. ./ITA NO.2779/AHD/2012 2. ./ITA NO.2799/AHD/2012 ( / ASSESSMENT YEAR : 2006-07) 1. THE ACIT CIRCLE-4 BARODA 2. M/S.TYCO VALVES & CONTROLS(I)P. LTD.,BARODA-7 / VS. 1. M/S.TYCO VALVES & CONTROLS (I) P.LTD. 302-A, IVORY TERRACE RC DUTT ROAD ALKAPURI,BARODA-390007 2. THE ACIT CIRCLE-4 BARODA ./ ./ PAN/GIR NO. : AAACK 8809 L ( / APPELLANTS ) .. ( / RESPONDENTS ) REVENUE BY : SHRI MAHESH SHAH, CIT-DR ASSESSEE BY : SHRI S.N. SOPARKAR, SR.ADV., MS.URVASHI SHODHAN & SHRI PARIN SHAH, ARS / DATE OF HEARING 21/01/2020 !' / DATE OF PRONOUNCEMENT 22/01/2020 / O R D E R PER BENCH: THE CROSS-APPEALS HAVE BEEN FILED AT THE INSTANCE O F THE REVENUE AND ASSESSEE AGAINST THE COMMON ORDER OF T HE COMMISSIONER OF INCOME TAX (APPEALS)III, BARODA [CIT(A) IN SHORT] VIDE APPEAL NO.CAB/III-227/11-12 DATED 27/09/2012 ARISING I N THE ASSESSMENT ORDER ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 2 - PASSED UNDER S.143(3) R.W.S.147 R.W.S.92CA R.W.S.14 4C(4) OF THE INCOME TAX ACT, 1961(HEREINAFTER REFERRED TO AS 'THE ACT') DATED 27/09/2012 RELEVANT TO ASSESSMENT YEAR (AY) 2006-07. 2. FIRST WE TAKE UP ASSESSEES APPEAL IN ITA NO. 2799/AHD/2012 FOR AY 2006-07, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) III, BARODA [CIT(A)] ERRED IN CONFIRMING THE ADDITION OF RS.2,16,03,797 MADE BY THE ASSESSING OFFICER (ASSE SSING OFFICER) IN RELATION TO THE ARMS LENGTH PRICE OF THE APPELLANTS INTERNATIONAL TRANSACTION AS FOLLOWS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] ERRED IN CONFIRMING THE ADDITION OF RS.1,91,90,781 IN RELATION TO DETERMINATION OF ARMS LENGTH PRICE REL ATING TO THE APPELLANTS INTERNATIONAL TRANSACTION OF ENGINEERING DESIGN SERVICES; 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.17,15,967 IN RELATION TO DETERMINATION F ARMS LENGTH PRICE RELATING TO THE APPELLANTS INTERNATIONAL TRANSACTI ON OF REIMBURSEMENT OF MANAGEMENT FEE EXPENSES; 3. ON THE FACETS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.6,97,049 IN RELATION TO DETERMINATION OF ARMS LENGTH PRICE RELATING TO THE APPELLANTS INTERNATIONAL TRANSACTI ON OF REIMBURSEMENT OF INSURANCE PREMIUM; 4. THE LEARNED ASSESSING OFFICER BE DIRECTED TO GRANT (+/-) 5% BENEFIT AS AVAILABLE UNDER PROVISO TO SECTION 92C(2) OF THE ACT. IT IS PRAYED THAT THE LEARNED ASSESSING OFFICER BE DIRECTED TO CONSIDER THE INTERNATIONAL TRANSACTIONS OF THE APPELLANT AS ARMS LENGTH AND A CCORDINGLY THE TOTAL TRANSFER PRICING ADJUSTMENT OF RS.2,16,03,797 SHOULD BE DELETED. 2.1. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO 1 IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ALP ADJUSTMENT OF RS . 1,91,90,781/- IN RELATION TO ENGINEERING DESIGN SERVICE. ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 3 - 3. AT THE OUTSET WE NOTE THAT, THE ASSESSEE HAS RAISED THE SIMILAR ISSUE IN ITA 2993 FOR THE ASSESSMENT YEAR 2007-08. THE FA CTS OF THE DISPUTE FOR THE YEAR UNDER CONSIDERATION VIZ A VIZ IN ITA NO. 2 993 ARE IDENTICAL. MOREOVER, THE TPO IN HIS ORDER HAS ALSO MADE REFERE NCE TO HIS ORDER FRAMED FOR THE ASSESSMENT YEAR 2007-08 FOR MAKING T HE DISALLOWANCE/ADDITION FOR THE YEAR UNDER CONSIDERAT ION. THEREFORE, WE ARE NOT INCLINED TO REPEAT THE FACTS OF THE DISPUTE FOR THE YEAR UNDER CONSIDERATION FOR THE SAKE OF BREVITY. 3.1. WE FURTHER NOTE THAT THE ISSUE RAISED BY T HE ASSESSEE IS LIMITED TO THE EXTENT OF THE ADJUDICATION SO AS TO WHETHER CER TAIN COMPARABLES SHOULD BE INCLUDED WHILE DETERMINING THE ARM LENGTH PRICE OF THE INTERNATIONAL TRANSACTION CARRIED OUT BY THE ASSESS EE WITH ITS ASSOCIATED ENTERPRISES. IN THIS REGARD, WE ALSO FIND THAT SIMI LAR ISSUE WAS ALSO RAISED IN THE ASSESSMENT YEAR 2007-08, THEREFORE WE PROCEE D TO ADJUDICATE THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN THE GROU ND OF APPEAL. 3.2. THE CONTROVERSY ARISES WHILE DETERMINING T HE ARM LENGTH PRICE FOR THE ENGINEERING SERVICES RENDERED BY THE ASSESSEE T O ITS AE WHETHER THE FOLLOWING COMPANIES/COMPARABLE TO BE INCLUDED/REJEC TED AS THE CASE MAY BE. ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 4 - 1. ROLTA INDIA (ENGINEERING DESIGN SEGMENT) TO BE REJ ECTED 3.3. AT THE OUTSET, WE NOTE THAT THE ABOVE COMPAR ABLE HAS BEEN REJECTED BY US IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 29 93/AHD/2011. THE RELEVANT EXTRACT OF THE ORDER REPRODUCED AS UNDER: REGARDING THE COMPARABLE NAMELY ROLTA, WE NOTE THA T IT IS A GROUP OF COMPANIES COMPRISING 7 ASSOCIATED ENTERPRISES AND OPERATING I N DIFFERENT PARTS OF WORLD AS DETAILED UNDER: NAME OF THE ENTITY COUNTRY OF INCORPORATIO N EFFECTIVE GROUP SHAREHOLDING(%) ROLTA INTERNATIONAL INC. (RUS) USA 100 ROLTA SAUDI ARABIA LIMITED (RSA) SOUTH ARABIA 75 ROLTA MIDDLE EAST (FZ LLC (RME) UAE 100 ROLTA UK LIMITED (RUK) UK 100 ROLTA BENEULX B.V. NEHTERLANDS 100 ROLTA CANADA LIMITED CANADA 100 ROLTA DEUTSCHLAND GMBH GERMANY 100 10.3. THE FINANCIAL STATEMENT OF ROLTA INDIA LT D WAS FOR THE ENTIRE GROUP WHICH WAS USED AS COMPARABLE OF THE ASSESSEE COMPANY. IN OUR CONSIDERED VIEW THE CONSOLIDATED FINANCIAL STATEMENTS CANNOT BE COMPARE D WITH THE ASSESSEE BEFORE US. IT IS BECAUSE THE CONSOLIDATED FINANCIAL STATEMENT OF ROLTA INDIA LTD. ALSO CONTAIN THE INFORMATION/FINANCIAL RESULT OF THE ENTIRE GROUP. A S SUCH, THE PROVISIONS OF THE ACT REQUIRES THAT ONLY THE INDIAN COMPANY OF ROLTA CAN BE CONSIDERED AS 1 OF THE COMPARABLE FOR WORKING OUT THE ALP OF THE ASSESSEE. THE CONSOLIDATED FINANCIAL STATEMENTS OF ROLTA ARE PLACED ON PAGE NO 603 OF TH E PAPER BOOK. 10.4. IN HOLDING SO WE ALSO DRAW SUPPORT AND GU IDANCE FROM THE ORDER OF HONBLE MUMBAI TRIBUNAL IN THE CASE OF CAPGEMINI INDIA PRIV ATE LIMITED, ITA NO 7861/MUM/2011 DATED 28-02-2013 WHEREIN IT WAS HELD AS UNDER: 5.3.3 WE FIRST DEAL WITH THE PLEAS RAISED BY THE L D. SR. COUNSEL FOR USING CONSOLIDATED RESULTS FOR THE PURPOSE OF COMPARISON OF MARGINS. THE LD. CIT-DR HAS POINTED OUT THAT THE FOUR COMPARABLES HAVING SUBSTA NTIAL RELATED PARTY TRANSACTIONS I.E., CG-VAK, MASCON GLOBAL LIMITED, MASTEK LTD. AN D PATNI COMPUTER SYSTEMS LTD. HAVE SUBSTANTIAL REVENUE'S FROM OVERSEAS MARKET AND , THEREFORE, THE CONSOLIDATED RESULTS WHICH HAVE PROFIT FROM DIFFERENT MARKETS WI LL NOT BE COMPARABLE. IT WAS POINTED OUT IN CASE OF MASCON GLOBAL LIMITED, 75% O F THE REVENUE CAME FROM USA, ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 5 - MOSCOW AND UK AND IN CASE OF CG-VAK 75% OF THE REVE NUE CAME FROM OTHER JURISDICTIONS. IN CASE OF PATNI COMPUTER SYSTEMS LT D., 61% OF THE REVENUE CAME FROM USA, UK, GERMANY AND BRAZIL WHEREAS IN CASE OF MAST EK LTD. SUBSTANTIAL PART OF THE REVENUE CAME FROM OTHER COUNTRIES. THESE CLAIMS OF LD. CIT-(DR) WHICH WERE BASED ON THE ANNUAL REPORTS OF THE COMPANIES WHICH WERE P LACED ON RECORD WERE NOT DISPUTED BY THE LD. SR. COUNSEL. UNDER THE PROVISIO NS OF RULE 10B(2)(D), COMPARABILITY OF TRANSACTIONS HAS TO BE CONSIDERED AFTER TAKING INTO ACCOUNT THE PREVAILING MARKET CONDITIONS INCLUDING GEOGRAPHICAL LOCATIONS, SIZE OF MARKET AND COST OF CAPITAL AND LABOUR ETC. THEREFORE, WE AGREE WITH THE LD. CIT-(DR) THAT THE CONSOLIDATED RESULTS WHICH INCLUDE PROFIT FROM DIFF ERENT OVERSEAS JURISDICTIONS HAVING DIFFERENT GEOGRAPHICAL AND MARKETING CONDITIONS WIL L NOT BE COMPARABLE. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSEE TO SHOW THAT ANY OF THE COMPARABLES WERE HAVING BRANCHES ABROAD IN ADDITION TO SUBSIDIA RIES. WE ALSO NOTE THAT IN CASE OF AMERICAN EXPRESS (INDIA) PVT. LTD. (SUPRA), THE TPO HAD TAKEN CONSOLIDATED RESULTS TO NULLIFY THE RESULTS OF AY .07-08 RELATED PARTY T RANSACTIONS BUT THE TRIBUNAL IN A SIMILAR SITUATION HAD NOT ALLOWED THE SAME ON THE G ROUND THAT SUBSTANTIAL REVENUE CAME FROM OTHER MARKETS WHICH WERE NOT COMPARABLE. WE, THEREFORE, UPHOLD THE VIEW TAKEN BY THE AUTHORITIES BELOW TO ADOPT STANDALONE RESULTS FOR THE PURPOSE OF COMPARISON OF MARGINS. CONSEQUENTLY WE ALSO UPHOLD THE ORDER OF TPO FOR REJECTING THE ABOVE MENTIONED FOUR COMPARABLES WHICH HAVE SUB STANTIAL RELATED PARTY TRANSACTIONS BECAUSE THE TRANSACTIONS IN THESE CASE S COULD NOT BE CONSIDERED AS FULLY UNCONTROLLED. 10.5. IN VIEW OF THE ABOVE, WE HOLD THAT THE COM PANY NAMELY ROLTA INDIA LTD. CANNOT BE CONSIDERED AS COMPARABLE. ACCORDINGLY, WE REVERSE THE FINDING OF THE LEARNED DRP AND DIRECT THE TPO NOT TREAT THIS COMPA NY AS THE COMPARABLE FOR THE PURPOSE OF WORKING OUT THE ALP OF THE ASSESSEE WITH RESPECT TO THE TRANSACTIONS CARRIED OUT WITH ITS ASSOCIATED ENTERPRISES. AS, WE HAVE REJECTED ROLTA INDIA LTD AS 1 OF THE CO MPARABLE, WE DO NOT FIND ANY REASON TO ADJUDICATE THE ISSUE FOR THE INCLUSION OF GEOMETRIC. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 3.4. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOW ING THE SAME, WE DIRECT THE TPO NOT CONSIDER ROLTA INDIA LTD. AS THE COMPAR ABLE FOR DETERMINING THE ALP. 2. POWER SOFT TO BE REJECTED ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 6 - AT THE OUTSET, WE NOTE THAT THE LEARNED DRP IN THE ASSESSMENT YEAR 2007- 08 HAS EXCLUDED THIS COMPANY FROM THE LIST OF COMPA RABLE BY OBSERVING AS UNDER: 37. IN THE CASE OF THE OBJECTION PERTAINING TO ENGINEERING DESIGN SERVICES, THE PANEL DECIDED TO CONSIDER THE FOLLOWI NG COMPARABLES AS GIVEN IN THE TPOS SELECTION: SR.NO. COMPANY NAME OP/TC 1. ACE SOFTWARE EXPORTS LTD. 16.32% 2. KLG SYSTEL LTD. 22.25% 3. POWERSOFT GLOBAL SOLUTIONS LTD. 15.35% 4. ROLTA INDIA LTD. 38.79% MEAN 23.18% IN THE ABOVE SET OF COMPARABLES, THE ASSESSEE STATE S THAT POWERSOFT GLOBAL SOLUTIONS WAS A SOFTWARE DEVELOPMENT AND NOT A SERVICE COMPANY USING CAD/CAM. THE PANEL DECIDED TO EXCLUD E THIS FROM THE SET. ACCORDINGLY, THE PANEL DECIDED TO HAVE THE FO LLOWING COMPANIES IN THE SET: 1. ACE SOFTWARE EXPORTS LTD. 16.32% 2. KLG SYSTEL LTD. 22.25% 3. ROLTA INDIA LTD. 38.79% MEAN 25.79% THE PANEL DECIDED TO ADOPT THE ABOVE AVERAGE PLIS A ND DIRECTS THE TPO/ASSESSING OFFICER TO COMPUTE THE ALPS AND THE C OMPUTE TP ADJUSTMENTS. 3.5. THE ABOVE ORDER OF THE LEARNED DRP WAS NOT CHA LLENGED BY THE REVENUE. MOREOVER, THE TPO HAS CONSIDERED THIS COMP ANY AS ONE OF THE COMPARABLE BY OBSERVING THAT THE SAME COMPANY WAS C ONSIDERED AS ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 7 - COMPARABLE IN THE ASSESSMENT YEAR 2007-08. THUS, IT IS TRANSPIRED THAT THE ENTIRE BASIS FOR CHOOSING THIS COMPANY AS COMPARABL E WAS THE ORDER FOR THE ASSESSMENT YEAR 2007-08. AS SUCH, THE FINDING O F THE LEARNED DRP HAS REACHED TO ITS FINALITY. ACCORDINGLY, WE DIRECT THE AO NOT CONSIDER THIS COMPANY AS THE COMPARABLE FOR DETERMINING THE ALP. 3. ACE SOFTWARE TO BE INCLUDED 3.6. AT THE OUTSET, WE NOTE THAT THE ABOVE COMPAR ABLE HAS BEEN INCLUDED IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 2993/AHD /2011. THE RELEVANT EXTRACT OF THE ORDER REPRODUCED AS UNDER: 10.1. REGARDING THE QUESTION NO. 1, WE FIND THA T THE ISSUE IS FACTUAL IN NATURE AND ACCORDINGLY WE SET ASIDE TO THE FILE OF THE TPO TO WORK OUT THE ACTUAL MARGIN OF ACE SOFTWARE . 3.6. IN VIEW OF THE ABOVE, IT IS CLEAR THAT THE TPO HAS CONSIDERED THIS COMPANY AS ONE OF THE COMPARABLE BY OBSERVING THAT THE SAME COMPANY WAS CONSIDERED AS COMPARABLE IN THE ASSESSMENT YEAR 2007-08. THUS, IT IS TRANSPIRED THAT THE ENTIRE BASIS FOR CHOOSING THIS COMPANY AS COMPARABLE WAS THE ORDER FOR THE ASSESSMENT YEAR 2007-08. THER EFORE RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE TPO TO CONSIDER T HIS COMPARABLE FOR DETERMINING THE ALP. IN VIEW OF THE ABOVE, THE GROU ND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 8 - 3.7. THE ISSUE RAISED BY THE ASSESSEE IN GROUND N O. 2 IS THAT THE LD. CIT (A) ERRED IN CONFIRMING THE ALP ADJUSTMENT OF RS. 1 7,15,967/- IN RELATION TO REIMBURSEMENT OF MANAGEMENT FEES EXPENSES. 3.8 AT THE OUTSET, WE NOTE THAT THE IDENTICAL I SSUE IN THE OWN CASE OF THE ASSESSEE HAS BEEN DECIDED IN ITS FAVOR OF ASSESSEE IN ITA NO. 2993/AHD/2011 THE RELEVANT EXTRACT OF THE ORDER REP RODUCED AS UNDER: REGARDING THE AD HOC DISALLOWANCE OF MANAGEMENT FE E EXPENSES, WE NOTE THAT THERE IS NO POWER UNDER THE PROVISIONS OF THE ACT WHICH A LLOWS TO THE TPO TO MAKE THE DISALLOWANCE ON AD HOC BASIS. AS SUCH THE LAW IS FA IRLY CLEAR AND REQUIRES THE TPO TO DETERMINE THE ARM LENGTH PRICE OF THE INTERNATIONAL TRANSACTION WITH THE AE. AS SUCH THERE IS NO POWER AVAILABLE TO THE TPO TO MAKE THE AD HOC DISALLOWANCE WHILE COMPUTING THE INCOME UNDER THE HEAD BUSINESS AND PR OFESSION. IN THIS REGARD WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE M UMBAI TRIBUNAL IN CASE DCIT VS. FLAKT (INDIA) LTD. REPORTED IN 76 TAXMANN.COM 2 09 WHERE IN IT WAS HELD AS UNDER: ANOTHER ASPECT WHICH EMERGES FROM THE ORDER OF THE TPO IS AS FOLLOWS. AFTER CONSIDERING THE FACTUAL MATRIX, THE TPO HAS PROCEED ED TO DETERMINE THE ARM'S LENGTH PRICE FOR THE SERVICE CHARGES AT 10% OF THE EXPENSE S RECOVERED. OSTENSIBLY, THE INCOME ARISING FROM AN INTERNATIONAL TRANSACTION IS LIABLE TO BE COMPUTED, HAVING REGARD TO THE ARM'S LENGTH PRICE AS MANDATED IN SEC TION 92(1) OF THE ACT. SECTION 92C PRESCRIBES THE MANNER OF DETERMINATION OF THE ARM'S LENGTH PRICE AND SUB-SECTION (1) THEREOF SPECIFICALLY LAYS DOWN VARIOUS METHODS BY W HICH THE DETERMINATION OF ARM'S LENGTH PRICE HAS TO BE MADE. IT IS QUITE CLEAR THAT THERE IS NO ADHOCISM PERMISSIBLE IN THE MANNER OF COMPUTATION OF ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION, WHEREAS THE ACTION OF THE TRANSFER PRICING OFFICER IN CONSIDERING THE ARM'S LENGTH PRICE @10% OF THE EXPENSES RECOVERED IS NOT ONLY AD HOC BUT IT ALSO DOES NOT CONFORM TO ANY OF THE METHODS PRESCRIBED IN SECTION 92C(1) OF THE ACT. ON THIS COUNT ITSELF, THE ACTION OF THE TPO IS SUSPECT, EVEN IF, IT IS TO BE UNDERSTOOD THAT THE IMPUGNED TRANSACTION WAS AN INTERNATIONAL TRANSACTION REQUIR ING COMPUTATION OF INCOME HAVING REGARD TO ITS ARM'S LENGTH PRICE. 12.3. IN VIEW OF THE ABOVE, WE HOLD THAT THE TPO HAS ERRED BY MAKING THE DISALLOWANCE ON AD HOC BASIS. ACCORDINGLY WE DELETE THE ADDITION MADE BY THE AUTHORITIES BELOW. ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 9 - 3.9. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDE R OF THE LEARNED CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HI M. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 4. THE ASSESSEE DURING THE YEAR HAS REIMBURSED TH E INSURANCE PREMIUM OF RS. 6,97,049/- TO ITS AE IN VIOLATION OF THE INS URANCE ACT. ACCORDINGLY THE TPO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL B EFORE THE LD. CIT(A) WHO CONFIRMED THE ORDER OF THE TPO BY OBSERVING AS UNDER: 8. VIDE GROUND NO.2 OF APPEAL, THE APPELLANT HAD CHALLENGED THE ACTION OF TPO IN MAKING AN ADJUSTMENT OF RS.17,15,967/- IN RELATION TO DETERMINATION OF ALP RELATING TO APPELLANTS INTERNATIONAL TRANSACTIONS OF REIMBU RSEMENT OF MANAGEMENT FEE EXPENSES. THIS ISSUE IS ALSO COVERED AGAINST APPEL LANT BY THE APPELLANT ORDER IN ITS OWN CASE FOR AY 2008-09 REFERRED TO AS ABOVE AND FO LLOWING THE SAME, THIS GROUND OF APPEAL IS ALSO DISMISSED: BEING AGGRIEVED BY THE ORDER OF THE LEARNED CIT (A) , THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LEARNED AR BEFORE US SUBMITTED THAT THE R OLE OF THE TPO IS LIMITED TO THE EXTENT OF DECIDING THE ARM LENGTH PR ICE OF THE INTERNATIONAL TRANSACTION. AS SUCH HE HAS NO JURISDICTION TO VERI FY THE ALLOWABILITY OF ANY EXPENSES INCURRED IN THE COURSE OF THE BUSINESS . ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 10 - 6.1. THE LEARNED AR ALSO SUBMITTED THAT SIMILAR EXPENSES WAS ALSO INCURRED BY THE ASSESSEE IN THE ASSESSMENT YEAR 200 8-09 BUT THE TPO HAS NOT MADE ANY DISALLOWANCE. 7. ON THE OTHER HAND THE LEARNED DR BEFORE US SU BMITTED THAT THE PAYMENT OF THE INSURANCE PREMIUM TO THE FOREIGN COM PANY IS PROHIBITED. THEREFORE THE ASSESSEE CANNOT BE ALLOWED FOR SUCH D EDUCTION ON ACCOUNT OF REIMBURSEMENT OF INTEREST EXPENSES TO ITS AE. TH E LEARNED DR VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHORITIES B ELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. FROM THE PRECEDING DISCUSSION WE NOTE THAT THE TPO HAS MADE THE DISALLOWANCE OF THE INSURANCE EXPENSES CLAIMED BY THE ASSESSEE FOR THE REASONS AS DETAILED UNDER: I. THE PAYMENT OF INSURANCE PREMIUM TO A FOREIGN COMPA NY IS PROHIBITED UNDER THE INSURANCE ACT. II. THE ASSESSEE HAS DERIVED NO BENEFIT OUT OF THIS EXP ENSE. 8.1. ADMITTEDLY, THERE IS NO POWER AVAILABLE TO THE TPO TO VERIFY THE ALLOWABILITY OF ANY BUSINESS EXPENSE. AS SUCH THE R OLE OF THE TPO IS LIMITED TO THE EXTENT OF DETERMINING THE ARM LENGTH PRICE OF THE TRANSACTION CARRIED OUT BY THE ASSESSEE WITH THE AE . HOWEVER IN THE CASE ON HAND, THE TPO WITHOUT DETERMINING THE ARM LENGTH PRICE OF THE INSURANCE EXPENSES CLAIMED BY THE ASSESSEE HAS DISA LLOWED SUCH EXPENSES ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 11 - BY OBSERVING THAT THE SAME IS PROHIBITED UNDER THE INSURANCE THAT. ADMITTEDLY, SUCH EXPENSES ARE PROHIBITED UNDER THE INSURANCE ACT. BUT THE CONTROVERSY ARISES WHETHER SUCH EXPENSES CAN BE DISALLOWED BY THE TPO IN THE GIVEN FACTS AND CIRCUMSTANCES. IN THIS R EGARD WE NOTE THAT THE ROLE OF THE TPO IS TO DETERMINE THE ARM LENGTH PRIC E OF THE TRANSACTIONS OF INSURANCE PREMIUM AS THE IMPUGNED PAYMENT WAS PROHI BITED, THEREFORE THE TPO HAS MADE THE DISALLOWANCE AFTER CONSIDERING THE FACT THAT THERE WAS NO BENEFIT DERIVED BY THE ASSESSEE OUT OF SUCH EXPENSES. 8.2. THE LEARNED AR ALSO BEFORE US HAS NOT BROUG HT ANYTHING ON RECORD SUGGESTING THAT THE ASSESSEE HAS DERIVED ANY BENEFI T AGAINST SUCH EXPENSES. THUS, WE FEEL THAT THE ASSESSEE FAILS IN THE BENEFIT TEST FOR SUCH EXPENSES. HENCE, WE DO NOT FIND ANY REASON TO INTER FERE IN THE ORDER OF THE AUTHORITIES BELOW. THUS THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 9. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GRO UND NO 4 IS THAT LD. CIT (A) ERRED IN DENYING THE BENEFIT OF RANGE (+/-5%) T O THE ASSESSEE. 9.1. AT THE OUTSET, WE NOTE THAT THE IDENTICAL ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN ITS OWN CASE IN ITA NO. 299 3/AHD/ OF THIS ORDER. THE RELEVANT EXTRACT OF THE ORDER REPRODUCED AS UND ER: WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PA RTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT DURING THE COURSE OF HEARING OF THIS APPEAL, NEITHER THE LD. COUNSEL FOR THE ASSESSEE NOR THE LD. D.R. F OR THE REVENUE HAVE BEEN ABLE TO ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 12 - POINT OUT ANY BASIS OR MATERIAL OR CRITERIA TO CONT ROVERT OR TO REBUT THE FINDINGS AND CONCLUSION ARRIVED AT BY THE LD. DRP. THOUGH THE LD . COUNSEL FOR THE ASSESSEE MADE A SPECIFIC GROUND OF APPEAL FOR THE BENEFIT OF ADJUST MENT OF + 5% TO BE GIVEN WHILE DETERMINING THE ARM LENGTH PRICE, THE LD. COUNSEL F OR THE ASSESSEE HAS NOT BEEN POINT OUT AS TO HOW AND IN WHAT MANNER, THE ORDER OF LD. DRP IN REJECTING THIS CLAIM OF THE ASSESSEE IS IMPROPER AND UNJUSTIFIED. SINCE BOTH TH E PARTIES HAVE NOT BEEN ABLE TO CONTROVERT THE FINDINGS RECORDED BY THE LD DRP OR P OINT OUT ANY MATERIAL TO ENABLE US TO TAKE A VIEW OTHER THAN VIEW TAKEN BY THE LD. DRP , WE DO NOT WANT TO INTERFERE IN THE ORDER OF THE LD. DRP. 16.1 WE ALSO DRAW OUR SUPPORT AND GUIDANCE FROM THE JUDGMENT HONBLE DELHI ITAT BENCH IN THE CASE OF GLOBLE VENTEDGE PVT LTD V /S DCIT REPORTED IN 37 SOT 1 WHERE IN IT WAS HELD AS UNDER: DURING THE COURSE OF HEARING OF THIS APPEAL, NEITHE R THE LD. COUNSEL FOR THE ASSESSEE NOR THE LD. D.R. FOR THE REVENUE HAVE BEEN ABLE TO POINT OUT ANY BASIS OR MATERIAL OR CRITERIA TO CONTROVERT OR TO REBUT THE FINDINGS AND CONCLUSION ARRIVED AT BY THE LD. CIT(A) EXCEPT BY RELYING UPON THEIR RESPECTIVE STAN D TAKEN BEFORE THE LD. CIT(A). THOUGH THE LD. COUNSEL FOR THE ASSESSEE MADE A SPEC IFIC SUBMISSION ABOUT THE BENEFIT OF ADJUSTMENT OF + 5% TO BE GIVEN WHILE DETERMINING THE ARMS LENGTH PRICE, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN POINT OUT AS TO HOW AND IN WHAT MANNER, THE ORDER OF LD. CIT(A) IN REJECTING THIS CLAIM OF THE ASSESSEE IS IMPROPER AND UNJUSTIFIED. SINCE BOTH THE PARTIES HAVE NOT BEEN ABLE TO CONTRO VERT THE FINDINGS RECORDED BY THE LD CIT(A) OR POINT OUT ANY MATERIAL TO ENABLE US TO TAKE A VIEW OTHER THAN VIEW TAKEN BY THE LD. CIT(A), WE ARE INCLINED TO UPHOLD THE OR DER OF LD. CIT(A) ON THE POINT OF DETERMINATION OF ARMS LENGTH PRICE IN RESPECT OF TH E TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES, NAMELY, RC S CENTRE CORP. THEREFORE, THE ORDER OF LD. CIT(A) IS UPHELD, AND THE GROUNDS RAIS ED BY THE ASSESSEE AS WELL AS BY THE REVENUE ON THIS ISSUE ARE REJECTED. IN VIEW OF THE ABOVE WE DO NOT ANY REASON TO INTERF ERE IN THE FINDING OF THE DRP AND ACCORDINGLY UPHOLD THE ORDER OF THE AO. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 9.2. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOW ING THE ORDER AS DISCUSSED ABOVE, WE ARE INCLINED TO CONFIRM THE ORD ER OF THE LD. CIT(A). HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS DISM ISSED. NOW COMING TO REVENUES APPEAL IN ITA NO 2779/AHD/2012 ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 13 - 10. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE DEDUCTION OF 14,63,59,948/- CLAIMED U/S.10B OF THE ACT WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE DID NOT FULFILL THE BASIC CONDITIONS FOR CLAIMING DEDUCTION U/S.10B OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALT ER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT( A) ON THE ISSUES RAISED IN THE AFORESAID GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 10.1. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.1 IS THAT THE LD.CIT (A) ERRED IN ALLOWING THE DEDUCTION U/S 10B OF THE ACT FOR RS. 14,63,59,948/- IN RESPECT OF PROFIT OF CHENNAI UNIT . 11. AT THE OUTSET, WE NOTE THAT THE IDENTICAL ISS UE IN THE OWN CASE OF THE ASSESSEE HAS BEEN DECIDED IN ITS FAVOR OF ASSESSEE IN ITA NO. 2993/AHD/2011. THE RELEVANT EXTRACT OF THE ORDER RE PRODUCED AS UNDER: 19. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOT E THAT THE IMPUGNED ISSUE HAS ALREADY BEEN DECIDED IN FAVOR OF THE ASSESSEE IN IT S OWN CASE (SUPRA). THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE ALSO PERUSED THE ORDERS REFERRED BEFORE US. BEFORE WE APPRECIATE THE FACTS OF THE CASE, WE MAY LIKE TO PLACE ON RECORD THE SCOPE OF THE INTRODUCTI ON OF SECTION 10B IN THE STATUTE. UNDER THE PROVISIONS OF SECTION 10A OF THE INCOME-TAX ACT, A FIVE YEAR TAX HOLIDAY IS ALLOWED TO INDUSTRIAL UNDERTAKI NGS MANUFACTURING OR PRODUCING ARTICLES OR THINGS IN A FREE TRADE ZONE S UBJECT TO CERTAIN CONDITIONS. THE EXEMPTION IS AVAILABLE TO INDUSTRIA L UNDERTAKINGS WHICH HAVE ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 14 - BEGUN OR BEGIN TO MANUFACTURE OR PRODUCE ARTICLES O R THINGS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON OR AFTER APRIL 1, 1981. THE TAX HOLIDAY IS AT THE OPTION OF THE AS SESSEE FOR FIVE CONSECUTIVE ASSESSMENT YEARS FALLING WITHIN THE BLOCK OF EIGHT YEARS BEGINNING WITHIN THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS. THE TERM 'MANUFACTURE' INCLUDES PROCESSING OR ASSEMBLING OR RECORDING OF PROGRAMMES ON ANY DISC, TAPE, PERFORATED MEDIA OR O THER INFORMATION STORAGE DEVICE. THE ABOVE TAX HOLIDAY WAS NOT AVAIL ABLE TO A HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKING. SUCH UNDERTAKINGS WERE ELIGIBLE ONLY FOR DEDUCTION OUT OF THEIR EXPORT PROFITS UNDER SECTION 80HHC OF THE INCOME-TAX WITH A VIEW TO PROVIDING FURTHER INCENTIVE FOR EARN ING FOREIGN EXCHANGE, A NEW SECTION 10B HAS BEEN INSERTED BY THE ACT, SO AS TO SECURE THAT THE INCOME OF A HUNDRED PER CENT, EXPORT-ORIENTED UNDERTAKING SHALL BE EXEMPT FROM TAX FOR A PERIOD OF FIVE CONSECUTIVE ASSESSMENT YEAR FA LLING WITHIN THE BLOCK OF EIGHT ASSESSMENT YEARS. THE EXEMPTION PROVIDED UNDE R THE NEW SECTION IS SIMILAR TO THE ONE PROVIDED TO INDUSTRIAL UNDERTAKI NGS OPERATING IN FREE TRADE ZONES. THE EXEMPTION UNDER THE NEW PROVISIONS WILL BE SUBJECT TO THE FOLLOWING CONDITIONS:- (I) THAT THE UNIT MANUFACTURES OR PRODUCES ANY ARTI CLES OR THINGS. THE TERM 'MANUFACTURE' WILL INCLUDE ANY PROCESSING OR ASSEMB LING OR RECORDING OF PROGRAMMES ON DISC, TAPE, PERFORATED, MEDIA OR OTHE R INFORMATION STORAGE DEVICE; (II) THAT THE UNIT HAS NOT BEEN FORMED BY THE SPLIT TING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS; (III) THAT IT HAS NOT BEEN FORMED BY THE TRANSFER T O A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. UNLIKE THE PROVISIONS OF SECTION 10A OF THE INCOME-TAX ACT, EVEN THE EXISTING HUNDRED PER CENT EXPORT-ORIENTED UNDERTAKINGS WILL BE ELIGIBLE TO AVAIL OF THE TAX HOLIDAY FOR A FULL PERIOD OF FIVE ASSESSMENT YE ARS IN A BLOCK OF EIGHT YEARS. THEREFORE, THE START POINT OF THE LIMITATION FOR CL AIMING THE BENEFIT FLOWING FROM SECTION 10B WOULD COMMENCE FROM THE YEAR OF MANUFACTURE OR PRODUCTION OF THE UNDERTAKING. IF THE CONDITIONS PR ESCRIBED IN THE SECTION ARE NOT SATISFIED IN THE YEAR OF COMMENCEMENT OF PRODUC TION, IT WOULD NOT BE ABLE TO CLAIM SUCH DEDUCTION IN THE SUBSEQUENT YEARS, UN LESS THE SAID INITIAL TEST ON THE DATE OF THE STARTING POINT HAS BEEN SATISFIE D. SECTION 10B THEREFORE DO NOT GIVE ANY INDICATION THAT IN EACH YEAR OF CLAIM IT'S ELIGIBILITY SHOULD BE NEWLY ESTABLISHED; BECAUSE THE RELEVANCE OF THE PHR ASE 'NEWLY ESTABLISHED UNDERTAKING' IS ONLY TO IDENTIFY INITIAL YEAR OF PE RIOD FOR WHICH ASSESSEE IS ELIGIBLE FOR CLAIM OF EXEMPTION U/S.10 B OF IT ACT . THEREFORE, AT THE OUTSET, IT IS JUSTIFIABLE TO CONCENTRATE ON THE FACT THAT WHET HER THE CHENNAI UNIT WAS ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 15 - ESTABLISHED IN THE YEAR UNDER CONSIDERATION OR NOT. ON EXAMINATION OF THE FACTS RECORDED BY THE AO, IT WAS NOTICED THAT THE C HENNAI UNIT WAS ESTABLISHED/ACQUIRED IN THE YEAR 2000-01. THIS FACT WAS RATHER NOTED BY THE HON'BLE GUJARAT HIGH COURT IN THE AFORECITED DECISI ON DATED 11.4.2008 AND MADE AN OBSERVATION THAT THE YEAR 2001-02 WAS FOUND TO BE THE FIRST YEAR OF THE CLAIM OF DEDUCTION U/S.10 B OF IT ACT . DUE TO THIS REASON, RELIANCE CAN BE PLACED ON SAURASHTRA CEMENT & CHEMICAL INDUSTRIES 1 23 ITR 669 (GUJ.) AND THUS WE HOLD THAT IN THE ABSENCE OF ANY DISTURBANCE IN RESPECT OF RELIEF GRANTED IN INITIAL YEAR, THERE WAS NO LEGAL JUSTIFI CATION TO DISTURB THE CONTINUOUS DEDUCTION OF SECTION 10B IN ANY OF THE SUBSEQUENT ASSESSMENT YEAR. THE FIRST YEAR IS THE YEAR IN WHICH THE INQUI RY ABOUT THE FORMATION OF THE UNDERTAKING IS REQUIRED TO BE MADE BY THE AO. A LTHOUGH IT IS POSSIBLE, AS IN THE PRESENT CASE, THAT IN ANY OF THE SUBSEQUENT YEARS THE ASSESSEE HAD ACQUIRED NEW PLANT & MACHINERY, MAY BE OF SUBSTANTI AL VALUE, AS ALSO MAY BE INCREASE THE TURNOVER OR EFFICIENCY, NONETHELESS THE ACT SUBSCRIBES THAT THE UNDERTAKING MUST NOT BE FORMED BY THE SPLITTING UP OR THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. THE ACT ALSO SUBSCRIBES THAT THE PROFITS SHALL NOT TO BE INCLUDED IN THE TOTAL INCOME IN RESPECT O F THE PRESCRIBED CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR S UNDERTAKING BEGINS TO MANUFACTURE AN ARTICLE. THEREFORE, THE INITIAL YEAR IS THE YEAR TO ESTABLISH THE ELIGIBILITY OF THE CLAIM. EVEN THE AHMEDABAD BENCHE S ARE ALSO CONSISTENTLY SUBSCRIBING THIS VIEW AS HELD IN THE CASE OF GATEWA Y TECHNOLABS PVT.LTD., ITAT 'C' BENCH AHMEDABAD (IN ITA NO.2473 & 2519/AHD /2006 - AY 2003- 04) ORDER DATED 4.9.2009. 6.1. AS FAR AS THE QUESTION OF ALLEGED PURCHASE OF THE MACHINERY IN QUESTION IS CONCERNED, THERE ARE FEW FACTS WHICH INDICATE TH AT THE AO HAS WRONGLY HELD THAT IT WAS AN OUTRIGHT PURCHASE BY THE CHENNA I UNIT. IN THIS REGARD, THE FIRST APPELLATE AUTHORITY HAS GIVEN A FINDING OF FA CT THAT IT WAS NOT EVIDENT FROM THE RECORDS THAT THE TRANSACTION RELATING TO T HE MACHINERY CONSTITUTED OUTRIGHT SALE. LIKEWISE, AS ALSO SIMULTANEOUSLY IN THE CASE OF M/S.SAKHI RAIMONDI THE FIRST APPELLATE AUTHORITY HAS GIVEN A CLEAR-CUT FINDING THAT LEASE-RENTALS WERE RECEIVED, RELEVANT ORDER OF LD.C IT(A) HAS ALREADY BEEN REFERRED SUPRA. BECAUSE OF THESE FACTS AND OTHER EV IDENCES, SUCH AS THE AGREEMENT, ETC. WE HEREBY HOLD THAT THE AO HAS WRON GLY PRESUMED THAT THE TRANSACTION IN QUESTION WAS A PURCHASE OF MACHINERY BY CHENNAI UNIT. BECAUSE OF THIS FINDING ON FACTS A CONCLUSION CAN B E DRAWN THAT THE REJECTION OF DEDUCTION U/S.10B WAS BAD IN LAW. 6.2. AN ALTERNATE PLEA HAS ALSO BEEN RAISED BY LD.A R THAT THE MACHINERY WHICH WAS TAKEN ON HIRE HAD COSTED LESS THAN THE 20 % OF THE TOTAL VALUE OF THE MACHINERY, THEREFORE THE IMPUGNED RESTRICTIVE C LAUSE OF SECTION 10(B) WAS OTHERWISE INCORRECTLY INVOKED BY THE AO. FOR THIS P ROPOSITION CASE LAWS CITED WAS CIT VS. NAYYARS MINERALS EXPORTS PVT.LTD . 231 ITR 864 (H.P.). A CALCULATION IN THIS REGARD HAS ALSO BEEN FURNISHED; HOWEVER, AT THIS STAGE OF SECOND APPEAL NO VERIFICATION ABOUT THE CORRECTNESS OF THE SAID CALCULATION IS ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 16 - POSSIBLE. LET IT BE AS IT IS; NOTWITHSTANDING THIS ALTERNATE PLEA DO NOT SURVIVE ANYMORE BECAUSE WE HAVE ALREADY TAKEN A VIEW IN ASS ESSEE'S FAVOUR AS DISCUSSED IN ABOVE PARAS. IN THE RESULT, WE HEREBY CONFIRM THE FINDINGS OF LD.CIT(A), THEREFORE THE CLAIM OF DEDUCTION U/S.10B IS DIRECTED TO BE ALLOWED. 19.1. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY R EASON TO UPHOLD THE FINDING OF THE LEARNED DRP. ACCORDINGLY, WE SET ASIDE THE O RDER OF THE LEARNED DRP AND DIRECT THE AO TO ALLOW THE BENEFIT TO THE ASSES SEE FOR THE DEDUCTION UNDER SECTION 10B OF THE ACT. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 12. IN VIEW OF THE ABOVE, AND RESPECTFULLY FOLLOWI NG THE ORDER AS DISCUSSED ABOVE, WE ARE INCLINED TO CONFIRM THE ORD ER OF THE LD. CIT(A) AND DIRECT THE AO TO DELETE THE ADDITION MADE BY HI M. HENCE, THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 13. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED WHEREAS APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 22/01/2020 SD/- SD/- (MS. MADHUMITA ROY) (W ASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 22 /01/2020 %.., .'.. / T.C. NAIR, SR. PS ITA NO.2779/AHD/2012 (BY REVENUE), ITA NO.2799/AHD/2012 (BY ASSESSEE)& ACIT VS. M/S.TYCO VALVES & CONTROLS (I) PVT.LTD. ASST. YEAR - 2006-07 - 17 - !'#' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ()* + / CONCERNED CIT 4. + ( ) / THE CIT(A)-III, BARODA. 5. ./0 '')* , )*' , ( / DR, ITAT, AHMEDABAD 6. 034 5 / GUARD FILE. / BY ORDER, . ' //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION 21.1.2020 ( WORD PROCESSED BY HONBLE AM IN HIS COMPUTER BY DRA GON ) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 21.1.2020 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.22.1.2020 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 22.1.2020 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER