M/s GlaxoSmithKline Consumer Healthcare Ltd., Gurgaon V. JCIT, Chandigarh

ITA 290/CHANDI/2014

• Counselvise Citation: 29021514 RSA 2014
• Duration Of Justice: 1 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 24-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AJAY SHARMA
• Assessee Lawyers: ABHISHEK AGGARWAL; NEERAJ JAIN ROHIT JAIN
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Earning of tax free income; Question of law; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 37; 90; 43B; 143(3); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.290/CHD/2014 (ASSESSMENT YEAR : 2009-10) M/S GLAXOSMITHKLINE CONSUMER VS. THE J.C.I.T., HEALTHCARE LTD., DLF PLAZA TOWERS, RANGE-IV, DLF CITY, PHASE-I, CHANDIGARH. GURGAON. PAN: AACCS0144E AND ITA NO.208/CHD/2015 (ASSESSMENT YEAR : 2010-11) M/S GLAXOSMITHKLINE CONSUMER VS. THE D.C.I.T., HEALTHCARE LTD., DLF PLAZA TOWERS, CIRCEL 4(1), DLF CITY, PHASE-I, CHANDIGARH. GURGAON. PAN: AACCS0144E (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI NEERAJ JAIN, ROHIT JAIN & ABHISHEK AGGARWAL RESPONDENT BY : SHRI AJAY SHARMA, DR DATE OF HEARING : 01.10.2015 DATE OF PRONOUNCEMENT : 06.11.2015 O R D E R PER RANO JAIN, A.M . : THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE SEPARATE ORDERS OF ASSESSING OFFICER, C HANDIGARH MADE UNDER SECTION 143(3) READ WITH SECTION 144C OF THE 2 INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 28. 1.2014 AND 30.1.2015 RESPECTIVELY FOR ASSESSMENT YEARS 200 9-10 AND 2010-11. ITA NO.290/CHD/2014 : 2. THE GROUND NO.1 IS GENERAL, THEREFORE NEEDS NO ADJUDICATION. 3. THE GROUND NO.2 READS AS UNDER : TRANSFER PRICING ISSUES: 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING ADDITION OF RS.126,87,00,171 ON ACCOUNT OF A RM'S LENGTH PRICE OF ALLEGED INTERNATIONAL TRANSACTIONS R ESULTING FROM ADVERTISEMENT, MARKETING AND SALES PROMOTION EXPENS ES ('AMP EXPENSES') INCURRED BY THE APPELLANT ON THE BASIS O F THE ORDER PASSED BY THE TPO UNDER SECTION 92CA(3) OF THE ACT. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASS ESSEE DID DETAILED TRANSFER PRICING STUDY RELATING TO EXP ORT OF MANUFACTURED MALTED FOOD BISCUITS, EXPORT OF RAW MA TERIAL, IT SERVICES RECEIVED AND COST REIMBURSEMENT TO AND FROM GROUP COMPANY, DURING THE YEAR UNDER CONSIDERATION. THE SAID STUDY WAS NOT DISPUTED BY THE TPO AND ALL THES E INTERNATIONAL TRANSACTIONS WERE TREATED AT ARMS LE NGTH. HOWEVER, THE TPO UNDERTOOK THE BENCH MARKING ANALYS IS OF ADVERTISEMENT, MARKETING AND SALES PRODUCTION (AMP) EXPENSES AGGREGATING TO RS.12847.66 LACS INCURRED B Y THE ASSESSEE ON PRODUCT HORLICKS DURING THE YEAR. T HE BENCH MARKING WAS DONE APPLYING THE BRIGHT LINE TEST. THE TPO 3 WAS OF THE VIEW THAT THE AMP EXPENSES TO THE EXTENT INCURRED FOR CREATING MARKETING INTANGIBLES OF HOR LICKS BRAND WHICH BELONGS TO THE ASSOCIATED ENTERPRISE (A E), REQUIRES CONSIDERATION ALONG WITH A MARK UP FOR THE BRAND PROMOTION SERVICES. FOR APPLYING BRIGHT LINE TEST, THE TPO COMPARED AMP EXPENDITURE OF THE ASSESSEE, BEING 7.0 76% OF TOTAL TURNOVER WITH AVERAGE EXPENDITURE OF 1% OF TH E THREE COMPARABLES, VIZ. HERMAN MILK FOODS, MILK SPECIALTI ES LTD. AND MOHAN DAIRIES LTD. IN THIS WAY, IN ORDER PASS ED UNDER SECTION 92CA(3) OF THE ACT, THE TPO PROPOSED AN ADJ USTMENT OF RS.1,26,87,00,171/-. 5. THE SAID ADJUSTMENT WAS ALSO PROPOSED BY THE ASSESSING OFFICER IN ITS DRAFT ORDER AND ON OBJECTI ON RAISED BY THE ASSESSEE BEFORE THE DRP, THIS ADJUSTMENT WAS GOT CONFIRMED. THIS WAY AND ADDITION OF RS.1,26,87,00 ,171/- WAS MADE FOR ADJUSTMENT ON ACCOUNT OF ARMS LENGTH PRICE OF THE AMP ACTIVITIES. 6. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE FACT THAT ON THE SIMILAR ISSUE OF AD JUSTMENT ON ACCOUNT OF AMP EXPENDITURE, SPECIAL BENCH OF THE TRIBUNAL WAS CONSTITUTED IN THE CASE OF L.G. ELECTR ONICS INDIA PVT. LTD., 140 ITD 41 (DEL)(SB), WHERE THE AS SESSEE ALSO INTERVENED IN ITS CASE FOR A PRECEDING ASSESSM ENT YEAR, I.E. ASSESSMENT YEAR 2007-08. THOUGH THE FACTS OF THE ASSESSEE, BEING AN INTERVENER, WERE NOT CONSIDERED BY THE SPECIAL BENCH, THE BENCH LAID DOWN CERTAIN CRITERIO N TO COMPUTE THE ADJUSTMENT TO BE MADE, HOLDING THAT THE AMP 4 EXPENDITURE MAY RESULT IN INTERNATIONAL TRANSACTION . THE CASE OF THE ASSESSEE FOR ASSESSMENT YEARS 2007-08 A ND 2008-09 WAS, THUS, SENT BACK TO THE FILE OF THE TPO TO DECIDE THE ISSUE AS PER THE DIRECTIONS LAID DOWN BY THE SPECIAL BENCH, BY THE CHANDIGARH BENCH OF THE TRIBU NAL. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT THE SAID ORD ER OF THE SPECIAL BENCH OF THE I.T.A.T. WAS CONSIDERED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBI LE COMMUNICATION INDIA PVT. LTD. VS. CIT (2015) 374 IT R 118 (DEL), WHEREBY IN THE CASE OF LIMITED RISK DISTRIB UTORS, THE EXISTENCE OF INTERNATIONAL TRANSACTION ON ACCOUNT O F AMP EXPENDITURE WAS ADMITTED AND IT WAS HELD THAT ADJUS TMENT ON ACCOUNT OF TP CAN BE MADE. HOWEVER, IT WAS ALSO HELD THAT ADJUSTMENT IN THE CASE OF FULL RISK ASSUMING MANUFACTURER HAS TO BE CONSIDERED IN A DIFFERENT PERSPECTIVE. IN VIEW OF THIS, IT WAS FURTHER SUBM ITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSES SEE BEING A FULL-FLEDGED MANUFACTURER AND NOT A DISTRIBUTOR, THE ENTIRE EXPENDITURE ON AMP IS INCURRED AT ITS OWN DISCRETIO N AND FOR ITS OWN BENEFITS FOR SALE OF HORLICKS PRODUCTS IN INDIA. IN SUCH CIRCUMSTANCES, THE ACTIVITY DOES NOT RESULT IN INTERNATIONAL TRANSACTION AND THE ASSESSEE IS NOT E XPECTED TO SEEK COMPENSATION FOR THE ALLEGEDLY EXCESS AMP EXPENDITURE INCURRED BY IT. THEREFORE, NO SUCH AD JUSTMENT ON ACCOUNT OF AMP ACTIVITY SHOULD BE MADE. 7. THE LEARNED D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. HOWEVER, HE DID NOT CONTROVERT THE 5 FINDINGS GIVEN BY THE HON'BLE DELHI HIGH COURT IN S ONY ERICSSON MOBILE COMMUNICATION INDIA PVT. LTD. (SUPR A), AS SUMMARIZED BY THE LEARNED COUNSEL FOR THE ASSESSEE. FURTHER, HE ALSO DID NOT CONTROVERT THE FACT THAT T HE ASSESSEE IS A FULL-FLEDGED MANUFACTURER. TO ASSIST THE BENCH, HE FILED BEFORE US A COPY OF THE ORDER OF TH E DELHI BENCH OF THE I.T.A.T. IN THE CASE OF PERFECT VAN MELLE INDIA PVT. LTD. VS. DCIT, ITA NO.407/DEL/2015, DATED 2.6. 2015, WHICH WAS THE CASE OF MANUFACTURER. THE CASE WAS SENT BACK TO THE TPO TO FOLLOW THE JUDGMENT OF THE HON'B LE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDIA PVT. LTD. (SUPRA). IN THIS BACKGROUND, HE PRAYED TO SEND THIS CASE ALSO BACK T O THE FILE OF THE TPO. 8. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. IN VIEW OF THE DEVELOPMENTS HAPPENING AFTER THE ORDER OF THE S PECIAL BENCH IN THE CASE OF L.G. ELECTRONICS INDIA PVT. L TD. (SUPRA), AS STATED BY THE COUNSELS APPEARING BEFORE US, WE ARE IN AGREEMENT THAT SINCE THE ORDER OF THE HON'BL E HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNIC ATION INDIA PVT. LTD. (SUPRA) WAS NOT AVAILABLE AT THE TI ME OF THE ORDER FOR ASSESSMENT YEARS 2007-08 AND 2008-09 IN CASE OF THE ASSESSEE, THE SAME CANNOT BE FOLLOWED AS SUCH. 9. SINCE THE ISSUE IS NOW TO BE DECIDED IN THE BACKGROUND OF THE DECISION OF THE HON'BLE DELHI HIG H COURT 6 IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION I NDIA PVT. LTD. (SUPRA), WE HAVE VERY CAREFULLY GONE THRO UGH THE SAID JUDGMENT. WE WOULD LIKE TO QUOTE CERTAIN OBS ERVATIONS MADE IN THE SAID JUDGMENT, WHICH ARE VITAL TO DECID E THE PRESENT ISSUE IN QUESTION. 10. FIRSTLY, AT PARAS 133 AND 134 OF THE SAID JUDGMENT, THE HON'BLE HIGH COURT HAS QUOTED PARA 6. 36 TO 6.38 OF THE OECD, TRANSFER PRICING GUIDELINES ON TH E APPLICABILITY OF TP PROVISIONS FOR AMP ACTIVITIES T O LIMITED RISK DISTRIBUTORS AND TO FULL RISK DISTRIBUTOR : 133. TRANSFER PRICING OFFICERS HAVE REFERRED TO PAR AGRAPHS 6.36 TO 6.39. FOR THE SAKE OF COMPLETENESS, WE WOULD QUOTE T HE SAID PARAGRAPHS FROM THE OECD TRANSFER PRICING GUIDELINE S, WHICH READ:- 6.36 DIFFICULT TRANSFER PRICING PROBLEMS CAN ARISE WH EN MARKETING ACTIVITIES ARE UNDERTAKEN BY ENTERPRISES THAT DO NOT OWN THE TRADEMARKS OR TRADENAMES THAT THEY ARE PROM OTING (SUCH AS A DISTRIBUTOR OF BRANDED GOODS). IN SUCH A C ASE, IT IS NECESSARY TO DETERMINE HOW THE MARKETER SHOULD BE COMPENSATED FOR THOSE ACTIVITIES. THE ISSUE IS WHETHE R THE MARKETER SHOULD BE COMPENSATED AS A SERVICE PROVIDER , I.E., FOR PROVIDING PROMOTIONAL SERVICES, OR WHETHER THERE ARE ANY CASES IN WHICH THE MARKETER SHOULD SHARE IN ANY ADDITIONAL R ETURN ATTRIBUTABLE TO THE MARKETING INTANGIBLES. A RELATED Q UESTION IS HOW THE RETURN ATTRIBUTABLE TO THE MARKETING INTANGIB LES CAN BE IDENTIFIED. 6.37 AS REGARDS THE FIRST ISSUE- WHETHER THE MARKETER IS ENTITLED TO A RETURN ON THE MARKETING INTANGIBLES ABOVE A NOR MAL RETURN ON MARKETING ACTIVITIES- THE ANALYSIS REQUIRES AN ASSE SSMENT OF THE OBLIGATIONS AND RIGHTS IMPLIED BY THE AGREEMENT BETWEEN THE PARTIES. IT WILL OFTEN BE THE CASE THAT THE RETURN ON MARKETING ACTIVITIES WILL BE SUFFICIENT AND APPROPRIATE. ONE RELA TIVELY CLEAR CASE IS WHERE A DISTRIBUTOR ACTS MERELY AS AN AGENT, BEING REIMBURSED FOR ITS PROMOTIONAL EXPENDITURES BY THE OWN ER OF THE MARKETING INTANGIBLE. IN THAT CASE, THE DISTRIBUTOR W OULD BE ENTITLED TO COMPENSATION APPROPRIATE TO ITS AGENCY ACT IVITIES ALONE AND WOULD NOT BE ENTITLED TO SHARE IN ANY RETURN ATTRIBUTABLE TO THE MARKETING INTANGIBLE. 6.38 WHERE THE DISTRIBUTOR ACTUALLY BEARS THE COST OF ITS MARKETING ACTIVITIES (I.E. THERE IS NO ARRANGEMENT FOR THE OWNER TO 7 REIMBURSE THE EXPENDITURES), THE ISSUE IS THE EXTENT TO WHICH THE DISTRIBUTOR IS ABLE TO SHARE IN THE POTENTIAL BENEFITS FROM THOSE ACTIVITIES. IN GENERAL, IN ARM'S LENGTH TRANSACTIONS TH E ABILITY OF A PARTY THAT IS NOT THE LEGAL OWNER OF A MARKETING INTA NGIBLE TO OBTAIN THE FUTURE BENEFITS OF MARKETING ACTIVITIES T HAT INCREASE THE VALUE OF THAT INTANGIBLE WILL DEPEND PRINCIPALLY ON THE SUBSTANCE OF THE RIGHTS OF THAT PARTY. FOR EXAMPLE, A DISTRIBUTOR MAY HAVE THE ABILITY TO OBTAIN BENEFITS FROM ITS INVE STMENTS IN DEVELOPING THE VALUE OF A TRADEMARK FROM ITS TURNOVER AND MARKET SHARE WHERE IT HAS A LONG-TERM CONTRACT OF SO LE DISTRIBUTION RIGHTS FOR THE TRADEMARKED PRODUCT. IN SUCH CASES, THE DISTRIBUTOR'S SHARE OF BENEFITS SHOULD BE DETER MINED BASED ON WHAT AN INDEPENDENT DISTRIBUTOR WOULD OBTAIN IN COMPARABLE CIRCUMSTANCES. IN SOME CASES, A DISTRIBUTOR MAY BEAR EXTRAORDINARY MARKETING EXPENDITURES BEYOND WHAT AN INDEPENDENT DISTRIBUTOR WITH SIMILAR RIGHTS MIGHT INC UR FOR THE BENEFIT OF ITS OWN DISTRIBUTION ACTIVITIES. AN INDEPE NDENT DISTRIBUTOR IN SUCH A CASE MIGHT OBTAIN AN ADDITIONA L RETURN FROM THE OWNER OF THE TRADEMARK, PERHAPS THROUGH A DECREA SE IN THE PURCHASE PRICE OF THE PRODUCT OR A REDUCTION IN ROYALTY R ATE. 6.39 THE OTHER QUESTION IS HOW THE RETURN ATTRIBUTAB LE TO MARKETING ACTIVITIES CAN BE IDENTIFIED. A MARKETING I NTANGIBLE MAY OBTAIN VALUE AS A CONSEQUENCE OF ADVERTISING AND OTHER PROMOTIONAL EXPENDITURES, WHICH CAN BE IMPORTANT TO MAI NTAIN THE VALUE OF THE TRADEMARK. HOWEVER, IT CAN BE DIFFIC ULT TO DETERMINE WHAT THESE EXPENDITURES HAVE CONTRIBUTED TO THE SUCCESS OF A PRODUCT. FOR INSTANCE, IT CAN BE DIFFICU LT TO DETERMINE WHAT ADVERTISING AND MARKETING EXPENDITURES HAVE CO NTRIBUTED TO THE PRODUCTION OR REVENUE, AND TO WHAT DEGREE. IT IS ALSO POSSIBLE THAT A NEW TRADEMARK OR ONE NEWLY INTRODUCE D INTO A PARTICULAR MARKET MAY HAVE NO VALUE OR LITTLE VALUE IN THAT MARKET AND ITS VALUE MAY CHANGE OVER THE YEARS AS IT M AKES AN IMPRESSION ON THE MARKET (OR PERHAPS LOSES ITS IMPACT). A DOMINANT MARKET SHARE MAY TO SOME EXTENT BE ATTRIBU TABLE TO MARKETING EFFORTS OF A DISTRIBUTOR. THE VALUE AND ANY CHANGES WILL DEPEND TO AN EXTENT ON HOW EFFECTIVELY THE TRADEMA RK IS PROMOTED IN THE PARTICULAR MARKET. MORE FUNDAMENTALLY , IN MANY CASES HIGHER RETURNS DERIVED FROM THE SALE OF TRADEM ARKED PRODUCTS MAY BE DUE AS MUCH TO THE UNIQUE CHARACTER ISTICS OF THE PRODUCT OR ITS HIGH QUALITY AS TO THE SUCCESS OF A DVERTISING AND OTHER PROMOTIONAL EXPENDITURES. THE ACTUAL CONDUCT OF THE PARTIES OVER A PERIOD OF YEARS SHOULD BE GIVEN SIGNI FICANT WEIGHT IN EVALUATING THE RETURN ATTRIBUTABLE TO MARKETING AC TIVITIES. SEE PARAGRAPHS 3.75-3.79 (MULTIPLE YEAR DATA). 134. THE AFORESAID PARAGRAPHS DO NOT SUPPORT THE REV ENUE'S SUBMISSION, BUT STIPULATE THE REQUIREMENT THAT THE O WNER OF THE MARKETING INTANGIBLE SHOULD ADEQUATELY COMPENSATE THE DOMESTIC AE INCURRING COSTS TOWARDS MARKETING ACTIVIT IES BY REIMBURSEMENT OF EXPENSES OR BY SUFFICIENT AND APPRO PRIATE RETURN. WHERE THE DOMESTIC AE IS ENTITLED TO COMPENSAT ION AS A PURE DISTRIBUTOR, IT WOULD NOT BE ENTITLED TO SHARE IN ANY RETURN ATTRIBUTABLE TO THE MARKETING INTANGIBLE, NOT BEING T HE LEGAL OWNER. THE POSITION MAY BE DIFFERENT WHERE THERE IS A LONG-TERM CONTRACT OF SOLE DISTRIBUTION RIGHTS OF THE TRADE MAR KED PRODUCTS, 8 THEREBY ACQUIRING ECONOMIC OWNERSHIP BENEFIT. IN SOME CASES, WHERE THE DISTRIBUTOR BEARS EXTRAORDINARY MARKETING EXPENSES, HE WOULD BE ENTITLED TO ADDITIONAL OR HIGHER RETURN, THRO UGH DECREASED PRICE OR REDUCTION OF ROYALTY RATE. THE DI FFICULTY IN ATTRIBUTING ADVERTISEMENT AND OTHER PROMOTIONAL EXPE NDITURES TOWARDS TRADEMARK VALUATION OR TOWARDS MARKETING ACT IVITIES, I.E. CONTRIBUTING TO MANUFACTURE AND CURRENT INCOME A ND THE IMPRACTICABILITY OF DIVISION IN THE CASE OF SUCH ATTR IBUTION IS HIGHLIGHTED IN PARAGRAPH 6.39. 11. IT IS CLEAR FROM THE ABOVE THAT THE CASE OF AN ENTITY HAVING ECONOMIC OWNERSHIP BENEFIT IS ON A DI FFERENT FOOTING AS THERE IS A LONG TERM CONTRACT OF SOLE DI STRIBUTION RIGHT OF THE TRADE MARK PRODUCTS. FURTHER, ON THE BASIS OF ABOVE STATED PARA 134, THE HON'BLE HIGH COURT HAS H ELD IN PARAS 151 TO 153 THAT THE CONCEPT OF ECONOMIC OWNER SHIP BEING NOT RECOGNIZED UNDER THE ACT, IS NOT A CORREC T FINDING AS RECORDED BY THE SPECIAL BENCH IN THE CASE OF L. G. ELECTRONICS INDIA PVT. LTD. (SUPRA). 12. IN PARA 124 OF THE ORDER, THE HON'BLE HIGH COU RT DISTINGUISH BETWEEN FUNCTIONAL PROFILE OF A LIMITED RISK DISTRIBUTOR, THE FINDING READS AS UNDER : 124. THERE IS A DIFFERENCE BETWEEN A PURE AND A SIMP LE INDEPENDENT DISTRIBUTOR AND A DISTRIBUTOR WITH MARKE TING RIGHTS. AN INDEPENDENT DISTRIBUTOR WITH A FULL MARKETING RIGH T IS A PERSON OR AN ENTITY LEGALLY INDEPENDENT OF THE MANUFACTUR ER, WHO PURCHASES GOODS FROM THE MANUFACTURER FOR RE-SALE ON ITS OWN ACCOUNTS. THE TRANSACTION BETWEEN THE TWO IS A STRAI GHTFORWARD SALE IN WHICH THE DISTRIBUTOR TAKES ALL ECONOMIC RISK OF PRODUCT DISTRIBUTION AND ULTIMATELY GAINS OR MAKES LOSS DEPEN DING UPON MARKET AND OTHER CONDITIONS. THE MANUFACTURER IS NOT CONCERNED. IN CASE OF A LOW OR NO RISK DISTRIBUTOR AND HE VIRTU ALLY ACTS AS AN AGENT FOR THE LOSS AND GAIN IS THAT OF THE MANUFACTU RER. THERE IS NO ECONOMIC RISK ON DISTRIBUTION OF PROFITS. HE IS, T HEREFORE, 9 ENTITLED TO FIXED REMUNERATION FOR THE SELF EFFORTS, I.E., RELATING TO THE TASK OR FUNCTION OF DISTRIBUTION. SIMILAR WILL BE THE POSITION OF A LOW RISK DISTRIBUTOR WITH MARKETING FUNCTIONS, EXCEP T THAT THE SAID DISTRIBUTOR SHOULD BE COMPENSATED FOR THE MARKE TING, INCLUDING AMP FUNCTION. 13. THEREFORE, IT IS QUITE CLEAR FROM THE OBSERVAT IONS MADE BY THE HON'BLE HIGH COURT, THAT THOUGH THE HON 'BLE COURT WAS IN FACT DEALING WITH THE ASSESSEE, WHO WA S A DISTRIBUTOR, HOWEVER, IT HAS VERY CATEGORICALLY DIS TINGUISHED BETWEEN THE APPROACH TO BE ADOPTED IN THE CASE OF MANUFACTURER AND THAT IN THE CASE OF A DISTRIBUTOR . CERTAIN GUIDELINES HAVE ALSO BEEN CULLED OUT BY TH E HON'BLE COURT TO BE CONSIDERED EXCLUSIVELY IN CASE OF A MANUFACTURER. PARA 92 OF THE JUDGMENT OF THE HON' BLE HIGH COURT PROVIDES US A VALUABLE GUIDANCE IN THIS REGAR D : 92. THE MAJORITY JUDGMENT REFERS TO AN EXAMPLE WHERE THE INDIAN AE MAY HAVE EARNED ACTUAL PROFIT OF RS.140/-, BUT RETURNED REDUCED NET PROFIT OF RS.120/- AS THE INDIAN AE HAD INCURRED BRAND BUILDING EXPENSES TO THE TUNE OF RS.20 /- FOR THE FOREIGN AE, WHEREAS THE NET PROFIT ON SALES DECLARED BY COMPARABLE UNCONTROLLED TRANSACTIONS WAS RS.100/- ONLY. T HUS, IT WAS OBSERVED THAT THE COSTS INCLUDING AMP EXPENSES ARE INDEPENDENT OF COST OF IMPORTED RAW MATERIAL/FINISHED PRODUCTS HAVING SOME CORRELATION WITH OVERALL PROFIT. THE EXAM PLE HIGHLIGHTS THE WEAKNESS OF THE TNM METHOD. THE REAS ONING WOULD BE EQUALLY VALID, WHERE NO AMP OR BRAND BUILDING' EXPENSES ARE INCURRED. (SEE PARAGRAPH 21.8 TO 22.10 OF THE MAJORITY DECISION). THE NET PROFIT MARGINS CAN BE AFFE CTED BY VARIATION OF OPERATING EXPENSES. THUS, THE REQUIREMENT TO SELECT APPROPRIATE COMPARABLE AND ADJUSTMENT. IT WOULD BE INAPPROPRIATE AND UNSOUND TO ACCEPT COMPARABLES, WITH OR WITHOUT ADJUSTMENT AND APPLY TNM METHOD, AND YET CON JECTURISE 10 AND MISTRUST THE ARM'S LENGTH PRICE. TNM METHOD WOULD NOT BE THE MOST APPROPRIATE METHOD WHEN THERE ARE CONSIDERA BLE VALUE ADDITIONS BY THE SUBSIDIARY AES. IN PARAGRAPH 22.9, THE MAJORITY DECISION HAS OBSERVED THAT ALL COSTS INCLUDING THE AMP EXPENSES ARE INDEPENDENT OF COST OF MATERIAL. THIS INDICATES TH AT THE OBSERVATIONS HAVE BEEN MADE WITH REFERENCE TO MANUFA CTURING ACTIVITIES. IT WOULD NOT BE APPROPRIATE AND PROPER TO AP PLY THE TNM METHOD IN CASE THE INDIAN ASSESSED IS ENGAGED IN MANUFACTURING ACTIVITIES AND DISTRIBUTION AND MARKETI NG OF IMPORTED AND MANUFACTURED PRODUCTS, AS INTERCONNECTED TRANSACTIONS. IMPORT OF RAW MATERIAL FOR MANUFACTURE WO ULD POSSIBLY BE AN INDEPENDENT INTERNATIONAL TRANSACTION VIZ. MARKETING AND DISTRIBUTION ACTIVITIES OR FUNCTIONS. W E HAVE EARLIER USED THE TERM PLAIN VANILLA DISTRIBUTOR. WH EN WE USE THE WORDS PLAIN VANILLA DISTRIBUTOR WE DO NOT MEAN PLA IN VANILLA SITUATIONS, BUT VALUE ADDITIONS AND EACH PARTY MAKING VALUABLE UNIQUE CONTRIBUTION. FROM THE PERUSAL OF ABOVE, IT IS QUITE EVIDENT THA T TNM METHOD IS NOT AT ALL AN APPROPRIATE METHOD FOR COMP UTING ALP OF AMP ACTIVITIES. 14. FROM THE OVERALL READING OF THE JUDGMENT, THE PROPOSITION LAID DOWN BY THE HON'BLE COURT CAN BE SUMMARIZED IN SIMPLE TERMS TO THE EFFECT THAT IN CA SE OF A MANUFACTURER, THERE ARE TWO ACTIVITIES, WHICH ARE T O BE SEGREGATED, ONE IS PRIME MANUFACTURING ACTIVITY AND THE OTHER RELATING TO AMP. FURTHER, FOR A MANUFACTURE R, TNMM IS NOT AN APPROPRIATE METHOD. THEREFORE, IN THE RE SULT, THE ALP OF THE AMP ACTIVITY HAS TO BE COMPUTED BY USING ANY OTHER SUITABLE METHOD. HOWEVER, IT IS TO BE TAKEN CARE THAT IF COST PLUS METHOD IS USED, THE SELLING EXPENSES ARE TO BE EXCLUDED FROM THE TOTAL AMP EXPENSE, WHICH HAS BEEN HELD 11 BY THE HON'BLE HIGH COURT ELSEWHERE IN THIS ORDER. THIS IS ALSO ONE OF THE OBSERVATIONS OF THE SPECIAL BENCH I N THE CASE OF L.G. ELECTRONICS INDIA PVT. LTD. (SUPRA) WHICH HAS BEEN AFFIRMED BY THE DELHI HIGH COURT. 15. SINCE IT WAS ADMITTED AT BAR THAT THE PRESENT CASE IS THAT OF A MANUFACTURER AND THIS FACT WAS NOT CON TROVERTED BY THE LEARNED D.R. ALSO, WE FIND IT PROPER TO SET ASIDE THE MATTER TO THE FILE OF THE TPO/ASSESSING OFFICER TO DECIDE THE ISSUE OF AMP AFRESH AS PER LAW LAID DOWN BY THE HON 'BLE DELHI HIGH COURT IN THE CASE OF SONY ERICSSON MOBIL E COMMUNICATION INDIA PVT. LTD. (SUPRA) AND ALSO THE ANALYSIS MADE BY US HEREINABOVE. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN A FAIR AND ADEQUATE OPPORTUNITY OF BEING HEARD. THE ASSESSEE IS FREE TO ADDUCE ANY EVIDENC E IN THIS REGARD. 16. THE GROUND NO.3 RAISED BY THE ASSESSEE READS A S UNDER : 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN NOT ALLOWING DEDUCTION TOWARDS THE CLOSING BALANCE AMOUNTI NG TO RS. 27,12,737 LYING IN PLA CLAIMED UNDER SECTION 43 B OF THE ACT. 3.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN REDUCING THE RETURNED INCOME BY AN AMOUNT OF RS. 5,50,049/-, WITHOUT APPRECIATING THAT THE ASSESSEE HAD CLAIMED A DEDUCTION OF THE CLOSING BALANCE LYING IN PLA AS ON 31.03.2009 AMOUNTING TO RS.27,12,737 AND CONSEQUENTLY ADDED BACK THE OPENING BALANCE LYING I N 12 PLA AMOUNTING TO RS. 32,62,786 RESULTING IN A NET ADDITION OF RS.5,50,049. 17. BRIEFLY, THE FACTS OF THE CASE ARE THAT ON PER USAL OF THE RETURN FILED BY THE ASSESSEE THE ASSESSING OFF ICER NOTED THAT THE ASSESSEE HAS CALCULATED AN AMOUNT OF RS.5,50,049/- BY ARRIVING AT THE DIFFERENCE BETWEEN THE FIGURES OF 31.3.2008 RS.32,62,786/- AND AS ON 31.3. 2009 RS.27,12,737/- ON ACCOUNT OF EXCISE DUTY. THE ASS ESSEE HAD ADDED THIS AMOUNT FROM THE BOOK PROFIT BEFORE T AXATION. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE HAD IN FACT, ADDED THIS AMOUNT OF RS.5,50, 049/- IN ITS RETURN OF INCOME. SINCE THE SAME ISSUE WAS AL SO THERE IN ASSESSMENT YEAR 2008-09, THE ASSESSING OFFICER W AS OF THE VIEW THAT SINCE SUCH CLAIM FOR DEDUCTION WAS NO T ACCEPTED IN THE PREVIOUS YEAR, IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY IN THE STAND TAKEN BY THE DEPARTMENT IN EARLIER YEARS IN ASSESSEES OWN CASE, THE ADDITION OF RS.5, 50,049/- IS NOT CALLED FOR IN THE CURRENT ASSESSMENT YEAR AL SO. ACCORDINGLY, HE PROPOSED TO LESSEN THE RETURNED INC OME BY THE SAID AMOUNT. FOLLOWING THE ORDER OF THE DRP IN ASSESSMENT YEARS 2007-08 AND 2008-09, THE DRP IN IT S ORDER ALSO CONFIRMED THE ACTION OF THE ASSESSING OF FICER. 18. THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US EXPLAINED THAT THE DEDUCTION OF CLOSING BALANCE OF EXCISE DEPOSIT AMOUNTING TO RS.27,12,737/- BEING BALANCE I N PLA AS ON 31.3.2009 UNDER SECTION 43B OF THE ACT WAS CL AIMED BY THE ASSESSEE. CORRESPONDINGLY, AN AMOUNT OF 13 RS.32,62,786/- REPRESENTING THE OPENING BALANCE OF EXCISE DEPOSIT LYING IN PLA, WHICH WAS CLAIMED AS DEDUCTIO N IN THE RETURN OF INCOME IN THE PRECEDING ASSESSMENT YEAR 2 008-09 WAS ADDED BACK. THE ASSESSEE IN FACT, HAS OFFERED TO TAX AN AMOUNT OF RS.5,50,049/- AS PART OF ITS TAXABLE INCO ME BEING DECREMENTAL DIFFERENCE BETWEEN THE EXCISE DEPOSITS WITH THE EXCISE DEPARTMENT. FURTHER IT WAS SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE IN I TS OWN CASE BY THE SPECIAL BENCH OF THE TRIBUNAL IN ASSESS MENT YEAR 2001-2002, REPORTED IN 107 ITD 343. IT WAS A LSO EXPLAINED THAT SIMILAR ISSUE HAS ARISEN IN A NUMBER OF YEARS PRECEDING THE RELEVANT ASSESSMENT YEAR, WHEREBY THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ALL T HE YEARS STARTING FROM 1998-99 TO ASSESSMENT YEAR 2008-09. 19. THE LEARNED D.R. RELIED UPON THE ORDERS OF THE ASSESSING OFFICER AND THAT OF THE DRP. 20. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF THE ORDER OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008- 09, WE OBSERVE THAT ON SIMILAR ISSUE THE TRIBUNAL H AD HELD AS UNDER : WE FIND THAT IDENTICAL ISSUE AROSE BEFORE THE TRIB UNAL IN ASSESSEES OWN CASE IN EARLIER YEAR WHEREIN CONTENT ION OF THE ASSESSEE WAS AS UNDER: 14 36. THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2001-02, REPORTED IN 107 ITD 343 (CHD)(SB). THE LEARNED A.R. FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL IN ASSESSMENT YEARS 1998-99 TO 2000-01 AND 2002-03 TO 2006-07 HAD FOLLOWED THE ORDER OF THE SPECIAL BENCH OF TRIBUNAL AND ALLOWED THE RELIEF TO THE ASSESSEE. FURTHER RELIANCE WAS PLACED IN CIT VS. RAJ & SANDEEPS LTD. [293 ITR 12 (P&H)], CIT VS. MODIPON LTD. [334 ITR 106 (DEL)] AND CIT VS. MARUTI SUZUKI INDIA LTD. [250 CTR 140 (DEL)]. THE LEARNED A.R. FOR THE ASSESSEE FURTHER POINTED OUT THAT THE HON'BLE SUPREME COURT IN CIT VS. SHRI RAM HONDA POWER EQUIPMENT CORPORATION IN CIVIL APPEAL NO.5721 OF 2012 VIDE JUDGMENT DATED 19.9.2012 HAD LAID DOWN THAT THE CREDIT OF THE EXCISE DUTY PAID WAS TO BE ALLOWED. THE LEARNED A.R. FOR THE ASSESSEE FURTHER REFERRED TO THE RATIO LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN CIT VS. MARUTI SUZUKI INDIA LTD. (SUPRA) AND POINTED OUT THAT THE ONLY ISSUE RAISED WAS IN CONNECTION WITH THE EXCESS PAYMENT MADE ON ACCOUNT OF EXCISE DUTY, WHICH WAS LYING IN THE PLA ACCOUNT . 42. THE TRIBUNAL VIDE PARAS 38 TO 42 HELD AS UNDER: 38. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING VIDE GROUND OF APPEAL NO.3 IS AGAINST DISALLOWANCE MADE UNDER SECTION 43B OF THE ACT ON ACCOUNT OF EXCESS PAYMENT MADE ON ACCOUNT OF EXCISE DUTY. THE ASSESSEE DURIN G THE YEAR UNDER CONSIDERATION HAD CLAIMED EXPENDITURE OF RS.36,87,481/- BEING THE DIFFERENCE BETWEEN THE EXCISE DEPOSIT WITH THE EXCISE DEPARTME NT I.E. THE BALANCE IN THE CENTRAL EXCISE LYING IN PLA ACCOUNT AS ON 31.3.2007 AND AS ON 31.3.2006. THE SAID SUM OF RS.36,87,481/- REPRESENTS THE EXCESS PAYMENT MADE TO THE EXCISE AUTHORITIES, WHICH AS PE R THE ASSESSEE COULD BE USED TO OFFSET THE PAYMENT OF EXCISE DUTY ON THE FINAL PRODUCTS. THE DIFFERENCE IN THE TOTAL BALANCE OF TWO ACCOUNTS I.E. ON 31.3.2007 AND 31.3.2006 OF RS.36,87,481/- WAS CLAIMED BY THE ASSESSEE AS A DEDUCTION UNDER THE PROVISIONS OF SECTION 43B OF THE ACT. THE PRESENT ISSUE RAISED V IDE GROUND NO.3 STANDS COVERED IN FAVOUR OF THE ASSESSE E BY THE ORDER OF THE SPECIAL BENCH OF THE CHANDIGARH TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2001-02, REPORTED IN 107 ITR 343 (CHD)(SB) (SUPRA). THE SAID DEDUCTION HAD BEEN CONSISTENTLY ALLOWED IN THE CASE OF THE ASSESSEE I. E. 15 IN THE PRECEDING YEARS 1998-99 TO 2000-01 AND THEREAFTER IN ASSESSMENT YEARS 2002-03 TO 2006-07. THE TRIBUNAL IN ITA NO.1238/CHD/2010 RELATING TO ASSESSMENT YEAR 2006-07 ORDER DATED 25.1.2012 VIDE PARA 49 ALLOWED THE CLAIM OF THE ASSESSEE IN TURN FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. RAJ & SANDEEPS LTD. (SUPRA) OBSERVING AS UNDER: 49. THE PRESENT ISSUE IS COVERED BY THE DECISION OF SPECIAL BENCH IN THE CASE OF THE ASSESSEE ITSELF. FURTHER THE JURISDICTIONAL HIGH COURT IN RAJ & SAN DEEPS LTD. (SUPRA) HAS HELD THAT WHERE THE ASSESSEE HAD DEPOSITED THE EXCISE DUTY PAYABLE IN ADVANCE IN ACCOUNT- CURRENT, AFTER THE GOODS WERE MANUFACTURED, SUCH AMOUNT WAS DEDUCTIBLE. FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE IN RESPECT OF INCREMENTAL BALANCE AMOUNTING TO RS.25,23,710/- LYING IN PLA ACCOUNT, UNDER SECTION 43B OF THE ACT. THE GROUND NO.4 IS ALLOWED. 39. THE HONBLE PUNJAB & HARYANA HIGH COURT IN RAN & SANDEEPS LTD. (SUPRA) HELD AS UNDER: HELD, THAT IT WAS FOUND AS A FACT BY THE TRIBUNAL T HAT DUTY AS PER THE STATUTORY PROVISIONS BECAME PAYABLE, THE MOMENT GOODS WERE MANUFACTURED AND THE ASSESSEE WAS UNDER AN OBLIGATION TO DEPOSIT THAT AMOUNT IN THE ACCOUNT-CURRENT AND THE AMOUNT SO DEPOSITED IN TH E ACCOUNT-CURRENT BEING NON REFUNDABLE, THERE WAS N O REASON FOR THE REVENUE TO DENY THE BENEFIT OF DEDUC TION IN THE YEAR IN QUESTION WHEN THE GOODS WERE MANUFACTUR ED AND THE AMOUNT WAS DEPOSITED IN THE ACCOUNT-CURREN T. THE EXPENSE WOULD CERTAINLY RELATE TO THE YEAR IN W HICH THE GOODS WERE MANUFACTURED AND THE AMOUNT WAS DEPOSITED, WHICH THE GOODS WERE MANUFACTURED AND TH E AMOUNT WAS DEPOSITED, WHICH COULD NOT POSSIBLE BE TREATED AS AN ADVANCE. THE AMOUNT WAS DEDUCTIBLE. 40. FURTHER THE DELHI HIGH COURT IN CIT VS. MODIPON LTD. (SUPRA) HAD ALLOWED SIMILAR CLAIM OF EXCISE DUTY PAID IN ADVANCE UNDER THE PROVISIONS OF SECTION 43B OF THE ACT AND HELD AS UNDER: (II) THAT WITH REGARD TO THE DEDUCTION OF RS. 14,71,387/- ON ACCOUNT OF EXCISE DUTY PAID IN ADVAN CE AS BUSINESS EXPENDITURE, THE PROCEDURE ENVISAGED FOR PAYMENT OF EXCISE DUTY ENVISAGES SUCH DUTY TO BE DEPOSITED IN ADVANCE WITH THE TREASURY BEFORE THE G OODS WERE REMOVED FROM THE FACTORY PREMISES. THE DUTY, T HUS, ALREADY STOOD DEPOSITED IN THE ACCOUNTS OF THE ASSE SSEE MAINTAINED WITH THE TREASURY AND THE AMOUNT, THUS, STOOD PAID TO THE STATE. THE SUBMISSION OF THE DEPARTMENT THAT IT WAS ONLY ON REMOVAL OF THE GOODS THAT THE AMOUNT CREDITED TO THE PERSONAL LEDGER ACCOUNT COULD BE CL AIMED AS DEDUCTIBLE UNDER SECTION 43B OF THE INCOME TAX A CT, 1961, COULD NOT BE ACCEPTED. 16 41. FURTHER THE HON'BLE DELHI HIGH COURT IN CIT VS. MARUTI SUZUKI INDIA LTD. (SUPRA) ALSO DELIBERATED U PON THE PAYMENT MADE TOWARDS EXCISE DUTY IN PERSONAL LEDGER ACCOUNT AND CONSEQUENT ALLOWANCE UNDER SECTION 43B OF THE ACT AND HELD AS UNDER: A PLAIN READING OF S. 43B CLARIFIES THAT : (A) DEDUCTION CLAIMED BY THE ASSESSEE MUST BE 'OTHERWIS E' ALLOWABLE UNDER THE OTHER PROVISIONS OF THE ACT; (B ) THE DEDUCTION MUST RELATE TO ANY SUM PAYABLE BY WAY OF TAX, DUTY, CESS OR FEE; (C) THE ASSESSEE MUST HAVE INCUR RED LIABILITY IN RESPECT OF SUCH TAX, DUTY, ETC. ON FUL FILLING THESE CONDITIONS, THE ASSESSEE'S CLAIM CAN BE ALLOW ED IN THE YEAR IN WHICH ACTUAL PAYMENT IS MADE, NOTWITHSTANDING THE YEAR IN WHICH LIABILITY IS INCU RRED. THE TERM 'LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE' TOGETHER WITH THE WORDS 'A SUM FOR WHICH THE ASSESSEE INCURRED LIABILITY' IN EXPLN. 2 UNDERLINE THAT PAYMENT MUST RELATE TO THE INCURRED LIABILITY TO BE CALLED 'ANY SUM PAYABLE'. IN THE PRESENT CASE, THE ASSESSE E HAD NO OPTION, BUT TO KEEP THE ACCOUNT, IN RESPECT OF E ACH EXCISABLE PRODUCT (EVIDENT FROM THE MANDATE IN R. 1 73G THAT IT 'SHALL KEEP AN ACCOUNT CURRENT'). THE LATTE R PART OF THE MAIN RULE MAKES IT CLEAR BEYOND ANY DOUBT THAT THE ASSESSEE HAS NO CHOICE IN THE OBLIGATION, AND CANNO T REMOVE THE GOODS MANUFACTURED BY IT, UNLESS SUFFICI ENT AMOUNTS ARE KEPT IN CREDIT. THE REVENUE'S CONTENTIO N THAT THE AMOUNTS IN CREDIT ALSO RELATE TO GOODS NOT MANUFACTURED, AND THEREFORE, NOT RELATABLE TO ANY 'LIABILITY INCURRED IS WITHOUT ANY BASIS.. THE ARRANGEMENT PRESCRIBED BY THE RULE IS BOTH A COLLEC TION MECHANISM DICTATED BY CONVENIENCE, AS WELL 'AS MANDATORY. IT IS CONVENIENT, FOR THE REASON, THAT I F THE ASSESSEE WERE TO BE ASKED TO PAY THE EXACT AMOUNT, THROUGH SOME OTHER METHOD, BY DEPOSIT, AS A PRECOND ITION FOR CLEARANCE, THAT WOULD HAVE BEEN CUMBERSOME TO I T AS WELL AS THE REVENUE; IT WOULD ALSO HAVE LED TO PROB LEMS OF STORAGE OF GOODS AND SLOW DOWN THEIR SUPPLY AND DISTRIBUTION. THE RULE-MAKERS PRAGMATICALLY DIRECTE D THAT 'SUFFICIENT' AMOUNTS OUGHT TO BE MAINTAINED IN THE ACCOUNT, TO COVER THE REMOVALS. THEREFORE, AT ANY G IVEN POINT OF TIME, THERE HAD TO BE AN EXCESS IN THE ACC OUNT, IF THE ASSESSEE WERE TO REMOVE THE GOODS. EACH CLEARAN CE MENTIONS THE- QUANTUM OF GOODS AND THE DUTY AMOUNT, WHICH IS APPARENTLY RECONCILED AT THE END OF THE PE RIOD, AND SHORTFALLS IF ANY ARE APPROPRIATED FROM THE ACC OUNT. THE EXCESS CREDIT IS LIKEWISE ADJUSTED FOR THE NEXT DAY'S CLEARANCES. THE POINT TO BE UNDERLINED, IS THAT THE RE IS NO CHOICE, AND THE AMOUNTS RELATE TO THE ASSESSEE'S DU TY LIABILITY, FALLING WITHIN THE DESCRIPTION UNDER S. 43B. THE TRIBUNAL WAS THEREFORE JUSTIFIED IN HOLDING THAT TH E AMOUNTS DEPOSITED BY THE ASSESSEE IN THE EXCISE PER SONAL LEDGER ACCOUNT COULD NOT BE DISALLOWED UNDER S. 43B . CIT VS. SHRI RAM HONDA POWER EQUIPMENT CORPORATION (CIVIL APPEAL NO. 5721 OF.2012, DT. 19TH SEPT., 201 2) FOLLOWED; CIT VS. C.L GUPTA & SONS (2003) 180 CTR ( ALL) 530 : (2003) 259 ITR 513 (ALL) CONCURRED WITH. 42. THE HON'BLE DELHI HIGH COURT IN CIT VS. MARUTI SUZUKI INDIA LTD. (SUPRA) IN TURN RELIED UPON THE R ATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CIT VS. SHRI R AM 17 HONDA POWER EQUIPMENT CORPORATION (SUPRA), WHEREIN IT HAS BEEN LAID DOWN THAT THE PLA CREDIT WAS EXCISE D UTY PAID. THE SAID OBSERVATION WAS MADE WHERE THE ASSE SSEE WAS FOLLOWING NET METHOD OF VALUATION OF CLOSING ST OCK. IN VIEW OF THE ABOVE SAID RATIO LAID DOWN BY THE HON'B LE DELHI HIGH COURT IN CIT VS. MARUTI SUZUKI INDIA LTD . (SUPRA), CIT VS. MODIPON LTD. (SUPRA), HON'BLE PUNJ AB & HARYANA HIGH COURT IN RAJ & SAN DEEPS LTD. (SUPRA) AND ALSO THE SPECIAL BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF EXPENDITURE OF RS.36,87,481/- CLAIMED UNDER THE PRO VISIONS OF SECTION 43B OF THE ACT. THE GROUND NO.3 RAISED BY THE ASSESSEE IS THUS ALLOWED. 43. FOLLOWING THE ABOVE SAID PARITY OF REASONING WE DIRECT THE ASSESSING OFFICER TO ALLOW EXPENDITURE O F RS.32,62,786/-. FURTHER THE SECOND PLEA OF THE ASS ESSEE IN RESPECT OF THE ADDITION OF RS.1,70,88,165/- IS NOT WARRANTED. HOWEVER, THE ASSESSING OFFICER SHALL VE RIFY THE CLAIM OF THE ASSESSEE IN THIS REGARD AND AFTER AFFO RDING REASONABLE OPPORTUNITY OF HEARING SHALL WORK OUT TH E CONSEQUENTIAL EFFECT. THE GROUND NO.4 RAISED BY T HE ASSESSEE IS ALLOWED AND GROUND NO.4.1 IS ALLOWED FO R STATISTICAL PURPOSES. 21. SINCE NO DISTINGUISHING FACTS WERE BROUGHT TO OUR NOTICE DURING THE COURSE OF HEARING, RESPECTFULLY F OLLOWING THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL, WE ALSO SEND BACK THE ISSUE TO THE FILE OF THE ASSESSING OF FICER TO DECIDE IT AS PER THE DIRECTION OF THE I.T.A.T. IN E ARLIER YEAR. 22. THE GROUND NO.4 RAISED BY THE ASSESSEE READS A S UNDER : 18 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING MARKET RESEARCH EXPENSES OF RS. 10,14,3 6,000/- UNDER SECTION 37(1) OF THE ACT ALLEGING THE SAME TO BE CAPITAL IN NATURE. 23. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AS SESSEE HAS CLAIMED AN AMOUNT OF RS.10,14,36,000/- IN THE P ROFIT & LOSS ACCOUNT ON ACCOUNT OF MARKET RESEARCH EXPENSES . THE DETAILS OF THESE EXPENSES WERE FILED BEFORE THE ASS ESSING OFFICER. AFTER ANALYZING THE DETAILS GIVEN BY TH E ASSESSEE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE CONS UMER, PRODUCT RESEARCH EXPENSES ON EXISTING AND NEW PRODU CTS ARE CAPITAL IN NATURE. IT WAS ALSO OBSERVED BY THE ASS ESSING OFFICER THAT THE ASSESSEE IN THE PRECEDING YEAR I.E . ASSESSMENT YEAR 2008-09 ON THE SIMILAR ISSUE RAISED AN OBJECTION BEFORE THE DRP, WHEREBY THE DRP CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN TREATING THE EXP ENSES TO BE CAPITAL IN NATURE. IN THIS WAY, HE PROPOSED TO ADD THIS AMOUNT OF RS.10,14,36,000/- IN THE INCOME OF THE AS SESSEE. 24. BEFORE THE DRP, DETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE. HOWEVER, RELYING ON THE ORDER OF THE DRP FOR ASSESSMENT YEARS 2007-08 AND 2008-09, THE ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE DRP. 25. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E SUBMITTED THAT THE ASSESSEE DURING ITS BUSINESS OPE RATION INCURRED EXPENSES FOR CARRYING OUT THE CONSUMER SUR VEYS, MARKET RESEARCH AND CONSUMER ANALYSIS, DATA ANALYSI S, PRODUCT DESIGNING, PROMOTIONAL SAMPLES OF MANUFACTU RED 19 AND TRADED GOODS, ETC. THE SAID EXPENDITURE WAS I NCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE EXIS TING BUSINESS OF THE ASSESSEE AND DID NOT RESULT IN ACQU ISITION OF ANY ASSET. IT WAS SUBMITTED THAT THE ISSUE IS CO VERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNA L IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1998-99 TO 2008- 09, WHEREIN THE TRIBUNAL ALLOWED THE CLAIM HOLDING IT TO BE REVENUE IN NATURE. WITHOUT PREJUDICE, IT WAS PRAY ED THAT THE ASSESSING OFFICER HAS MADE TRANSFER PRICING ADJ USTMENT TO THE TOTAL AMP EXPENSES, WHICH INCLUDES MARKET RE SEARCH EXPENSES ALSO. ACCORDINGLY, THE DISALLOWANCE OF MARKET RESEARCH EXPENSES OF RS.7,19,98,000/- BY TREATING T HE SAME TO BE CAPITAL EXPENDITURE AS WELL AS THE ENTIRE AD JUSTMENT OF AMP EXPENSES AS TRANSFER PRICING ADDITION, HAS R ESULTED IN DOUBLE DISALLOWANCE AND ADJUSTMENT. 26. THE LEARNED D.R. RELIED UPON THE ORDERS OF THE ASSESSING OFFICER AS WELL AS THE DRP. 27. ON PERUSAL OF THE ORDER OF THE I.T.A.T. FOR ASSESSMENT YEAR 2008-09 I.E. THE PRECEDING YEAR, WE FIND THE ISSUE HAS BEEN DISCUSSED AS UNDER : 31. WE FIND THAT SIMILAR ISSUE AROSE BEFORE THE TR IBUNAL IN ASSESSMENT YEAR 2007-08 AND THE TRIBUNAL VIDE PA RAS 26 TO 29 OBSERVED AS UNDER: 26. THE NEXT SET OF GROUNDS OF APPEAL ARE GROUND NOS.2.14 TO 2.16 WHEREIN THE ASSESSEE HAS RAISED TH E ISSUE THAT THE EXPENDITURE RELATING TO MARKET RESEARCH SE RVICE CHARGES PAID TO SELLING AGENTS AND DISCOUNT ON SALE S ARE TO BE EXCLUDED FROM THE ALLEGED AMP EXPENDITURE AS BEI NG NOT RELATABLE TO ADVERTISEMENT AND MARKETING EXPENDITUR E. THE CLAIM OF THE LEARNED A.R. FOR THE ASSESSEE IS THAT THE SAID 20 ISSUE IS ALSO COVERED BY THE DECISION OF SPECIAL BE NCH OF THE TRIBUNAL (MAJORITY VIEW) IN M/S L.G. ELECTRONI CS INDIA (P) LTD. VS. ACIT (SUPRA) VIDE PARAS 18.5 AND 18.6 OF THE DECISION. THE RELEVANT PARAS ARE AS UNDER: 18.5. WE DO NOT FIND ANY FORCE IN THE CONTENTION OF THE LEARNED DR MADE IN THIS REGARD. THE LOGIC IN THE EXERCISE OF F INDING OUT THE AMP EXPENSES TOWARDS CREATION OF MARKETING INTANGIBLES FOR THE FOREIGN AE STARTS WITH THE EXPENSES WHICH ARE OTHERWISE IN THE NATURE OF ADVERTISEMENT, MARKETING AND PROMOTION. IF AN EXPEN DITURE ITSELF IS NOT IN THE NATURE OF ADVERTISING, MARKETING OR PROM OTION, THAT OUGHT TO BE EXCLUDED AT THE VERY OUTSET. WE, THEREFORE, REJE CT THIS CONTENTION RAISED BY THE LEARNED DR. 18.6. AS WE ARE PRESENTLY CONSIDERING THE TERM `ADV ERTISEMENT MARKETING AND PROMOTION EXPENSES', WHICH IS ANALOGO US TO, IF NOT LESSER IN SCOPE THAN THE TERM `ADVERTISEMENT, PUBLI CITY AND SALES PROMOTION' AS EMPLOYED IN THE ERSTWHILE SUB-SEC. (3 B) OF SEC. 37, ALL THE JUDGMENTS RENDERED IN THE CONTEXT OF SUB-SEC. ( 3A) & (3B) OF SEC. 37 WILL SQUARELY APPLY TO THE INTERPRETATION OF THE SCOPE OF AMP EXPENSES. WE, THEREFORE, HOLD THAT THE EXPENSES IN CONNECTION WITH THE SALES WHICH DO NOT LEAD TO BRAND PROMOTION CANNOT B E BROUGHT WITHIN THE AMBIT OF ADVERTISEMENT, MARKETING AND PROMOTIO N EXPENSES FOR DETERMINING THE COST/VALUE OF THE INTERNATIONAL TRA NSACTION. 27. THE PLEA OF THE ASSESSEE BEFORE US WAS THAT EXP ENSES AGGREGATING RS.5500.86 LACS ARE EXPENSES INCURRED IN CONNECTION WITH SALE AND DO NOT LEAD TO BRAND PROMO TION AS HELD BY THE SPECIAL BENCH. AFTER EXCLUDING THE AFO RESAID SELLING EXPENSES AGGREGATING TO RS.5500.86 LACS, TH E REMAINING EXPENSES OF RS.8679.75 LACS (CONSTITUTING 6.87% OF THE TOTAL SALES) ONLY IS REQUIRED TO BE CONSIDER ED FOR THE PURPOSE OF BENCHMARKING ANALYSIS AS UNDERTAKEN BY THE TPO. THE LEARNED D.R. FOR THE REVENUE PLACED RELIA NCE ON THE ORDERS OF THE AUTHORITIES BELOW. 28. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE CLAIM OF THE ASSESSEE IS THAT THE TO TAL AMP EXPENDITURE CONSIDERED BY THE TPO WHILE DETERMINING THE ALP INCLUDED CERTAIN EXPENSES WHICH ARE IN RELATION TO THE SALES MADE BY THE ASSESSEE AND ARE NOT RELATED TO THE BRAND PROMOTION. THE CLAIM OF THE ASSESSEE IS WITH REGARD TO THE EXPENSES TOTALING RS.5500.86 LACS AS TABULAT ED BELOW: S.NO. NAME OF EXPENSES AMOUNT (RS.LACS) 1. DISCOUNT SALES 60.52 2. MARKET RESEARCH 664.24 3. SALES PROMOTION 3939.90 4. SELLING AND DISTRIBUTION 826.17 5. SERVICE CHARGES PAID TO SELLING AGENT 10.03 TOTAL 5500.86 29. WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL (MAJORITY VIEW) IN M/S L.G. ELECTRONICS INDIA (P) LTD. VS. 21 ACIT (SUPRA) HELD THAT THE EXPENSES IN CONNECTION W ITH THE SALES DO NOT LEAD TO BRAND PROMOTION AND THUS CANNO T BE BROUGHT WITHIN THE AMBIT OF ADVERTISEMENT, MARKETIN G AND PROMOTION EXPENSES FOR DETERMINING THE COST/VALUE O F THE INTERNATIONAL TRANSACTION. IN VIEW THEREOF, WE DIR ECT THE ASSESSING OFFICER TO EXCLUDE THE EXPENSES INCURRED BY THE ASSESSEE IN CONNECTION WITH THE SALES TOTALING RS.5 500.86 LACS AS THE SAME DO NOT FALL WITHIN THE AMBIT OF AM P EXPENSES AND HENCE NOT TO BE CONSIDERED FOR COMPUTI NG THE COST/VALUE OF INTERNATIONAL TRANSACTION. THE ASSES SEE VIDE GROUND NO.4 HAD RAISED THE ISSUE AGAINST DISALLOWAN CE OF CONSUMER MARKET RESEARCH EXPENSES OF RS.567.49 LACS . IN VIEW OF OUR DECISION IN ALLOWING THE CLAIM OF THE A SSESSEE BEING RELATABLE TO SALES PROMOTION EXPENSES, THIS G ROUND OF APPEAL IS THUS ALLOWED. THE GROUND NOS.2.14 TO 2.1 6 AND GROUND NO.4 ARE THUS ALLOWED. 32. THE ISSUE BEFORE US IS IDENTICAL TO THE ISSUE A RISING BEFORE THE TRIBUNAL IN EARLIER YEAR AND FOLLOWING THE SAME PARITY OF REASONING WE DIRECT THE ASSESSING OFFICER TO EXCLUD E THE FOLLOWING EXPENDITURE AS THE SAME DO NOT FALL WITHI N THE AMP EXPENDITURE AND THUS THESE ARE NOT TO BE CONSIDERED FOR COMPUTING THE COST/VALUE OF INTERNATIONAL TRANSACTI ONS. THE EXPENDITURE ARE AS UNDER: NATURE AMOUNT (RS.LACS) AMOUNT (RS.LACS) MARKET RESEARCH SALES PROMOTION (RS.4460.21 RS.1167.35) SELLING & DISTRIBUTION EXPENSES RS. 969.16 RS.3292.86 RS.1067.50 3292.86 33. THE ASSESSEE VIDE GROUND NO.3 HAS RAISED THE IS SUE AGAINST DISALLOWANCE OF CONSUMER MARKET RESEARCH EX PENSES OF RS.969.16 LACS IN VIEW OF OUR DECISION IN ALLOWING THE CLAIM OF THE ASSESSEE BEING RELATABLE TO SALES PROMOTION EXP ENSES THIS GROUND OF APPEAL IS THUS ALLOWED. THE GROUND NOS.2 .23 AND 3 ARE THUS ALLOWED. 28. FROM THE PERUSAL OF ABOVE ORDER OF THE I.T.A.T , WE INFER THAT THE GROUND WAS RAISED TOGETHER WITH THE ISSUE OF ADJUSTMENT ON ACCOUNT OF ALP OF AMP EXPENDITURE AND SINCE THE REQUEST OF ASSESSEE TO ENLARGE THE GROUND SO RAISED , THE HON'BLE BENCH DISCUSSED THE ISSUE OF MARKET RESEARCH EXPEND ITURES 22 TOGETHER WITH THE TP ISSUE. SINCE NO DISTINGUISHIN G FEATURES WERE BROUGHT TO OUR NOTICE, RESPECTFULLY FOLLOWING THE O RDER OF THE COORDINATE BENCH OF THE TRIBUNAL, THE CLAIM OF THE ASSESSEE IS ALLOWED. THE GROUND OF APPEAL RAISED BY THE ASSES SEE IS DECIDED IN ITS FAVOUR. WE MAY ALSO CLARIFY HERE HAT THE I SSUE OF EXCLUDING THIS EXPENSES FOR THE PURPOSE OF COMPUTING ALP WITH RESPECT TO AMP ACTIVITY, WE HAVE ALREADY DEALT WITH WHILE ADJU DICATING GROUND NO.2 OF APPEAL. 29. THE GROUND NO.5 RAISED BY THE ASSESSEE READS A S UNDER: 5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING DISALLOWANCE OF RS.5,97,00,000, CLAIMED IN RE SPECT OF LIABILITY FOR POST RETIREMENT MEDICAL BENEFITS TO EMPLOYEES ON THE BASIS OF ACTUARIAL VALUATION, IN ACCORDANCE WITH THE REVISED ACCOUNTING STANDARD 15, RELATING TO ACCOUNT ING OF EMPLOYEE BENEFITS, ON THE GROUND THAT SAME IS AN UNASCERTAINED LIABILITY. 5.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN OBSERVING THAT THE AFORESAID PROVISION MADE FOR POS T RETIREMENT MEDICAL BENEFITS TO EMPLOYEES HAS RESULT ED IN DOUBLE DEDUCTION TO EMPLOYEES AND THAT THE PROVISIO N HAS BEEN MADE BY DEBITING THE GENERAL RESERVES. 30. BRIEFLY, THE FACTS OF THE CASE ARE THAT IN THE PROFIT & LOSS ACCOUNT THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.5.97 CROES ON ACCOUNT OF MEDICAL REIMBURSEMENT L IABILITY FOR EX-EMPLOYEES. THE ASSESSEE FILED DETAILED REP LY TOGETHER WITH THE ACTUARIAL VALUATION CERTIFICATE ON THE BAS IS OF WHICH THE LIABILITY WAS SHOWN IN THE PROFIT & LOSS ACCOUN T. THE ASSESSING OFFICER WAS OF THE VIEW THAT READING OF T HIS VALUATION CERTIFICATE REVEALS THAT THE PURPOSE OF T HIS VALUATION IS TO MAKE INCREMENTAL PROVISIONS IN THE BOOKS OF 23 ACCOUNT AS REQUIRED UNDER AS-15 ON AN ONGOING BASIS . HE WAS OF THE VIEW THAT THE ACTUARY HAS CALCULATED/EST IMATED LIABILITY OF THE COMPANY TOWARDS POST RETIREMENT ME DICAL ASSISTANCE TO THE RETIRED EMPLOYEES OVER A PERIOD O F TIME TO COMPLY WITH THE REVISED AS-15. THIS PROVISION HAS BEEN MADE BY DEBITING THE GENERAL RESERVES OF COMPANY FR OM THE POINT OF VIEW OF TRANSPARENT ACCOUNTING PRACTICES F OR THE BENEFIT OF THE SHARE HOLDERS OF THE COMPANY AND ITS OTHER STAKE HOLDERS. AS PER THE ASSESSING OFFICER, THIS LIABILITY IS TOTALLY UNASCERTAINED AND CANNOT BE ALLOWED TO BE S ET OFF AGAINST THE TAXABLE INCOME OF THE ASSESSEE. IN TH IS WAY, THE ASSESSING OFFICER PROPOSED TO DISALLOW THE SAID EXPENDITURE. 31. BEFORE THE DRP DETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE. HOWEVER, REJECTING THE OBJECTION RA ISED BY THE ASSESSEE, THE DRP HELD THAT SINCE THE ISSUE HAS ALSO COME UP EARLIER FOR THE CONSIDERATION OF THE DRP IN ASSESSEES CASE FOR ASSESSMENT YEARS 2007-08 AND 20 08-09 AND THE SAME WAS REJECTED BY THE DRP FOR THE REASON S THAT THE ELEMENT OF UNCERTAINTY IN RESPECT OF THIS LIABI LITY IS VERY HIGH, THUS FOLLOWING THE DIRECTION OF THE DRP FOR A SSESSMENT YEARS 2007-08 AND 2008-09, THE OBJECTION WAS REJECT ED BY THE DRP. IN THIS WAY, THE DISALLOWANCE WAS CONFIR MED BY THE ASSESSING OFFICER. 32. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE COMPANY PROVIDES BENEFI T OF MEDICAL ASSISTANCE AND REIMBURSEMENT OF MEDIAL EXPE NSES 24 TO EMPLOYEES POST RETIREMENT. IN PURSUANCE TO TH E ISSUANCE OF REVISED AS-15 BY THE INSTITUTE OF CHAR TERED ACCOUNTANTS OF INDIA, THE ASSESSEE GOT THE INCREMEN TAL LIABILITY ON ACCOUNT OF POST RETIREMENT MEDICAL BEN EFITS, DETERMINED ON ACTUARIAL BASIS AND ACCOUNTED FOR THE SAME IN THE BOOKS OF ACCOUNT. IN THIS WAY, PROVISION OF RS.5.97 CRORES WAS MADE IN THE BOOKS OF THE ASSESSEE. IT WAS BROUGHT TO OUR NOTICE THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE CHANDIGARH BENCH OF THE I.T.A.T. FOR ASSESSMENT YEARS 2007-08 AND 2008-09. 33. THE LEARNED D.R. RELIED UPON THE ORDERS OF THE ASSESSING OFFICER AND DRP. 34. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF THE ORDER OF THE I.T.A.T., CHANDIGARH BE NCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08, WE OBSERVE THAT SIMILAR DISALLOWANCE MADE BY THE ASSES SING OFFICER WAS DELETED BY THE TRIBUNAL OBSERVING AS UN DER : 51. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ASSESSEE WAS PROVIDING BENEFIT OF MEDI CAL ASSISTANCE/REIMBURSEMENT OF MEDICAL EXPENSES TO THE EMPLOYEES POST RETIREMENT. THE SAID BENEFIT WAS BE ING ALLOWED BY THE ASSESSEE IN TERMS OF THE EMPLOYMENT AGREED UPON BETWEEN THE COMPANY AND THE EMPLOYEES AT THE T IME OF THEIR APPOINTMENT. IN ORDER TO MEET THE SAID LIABI LITY OF PROVIDING MEDICAL BENEFITS/ASSISTANCE TO ITS EMPLOY EES POST RETIREMENT, THE ASSESSEE WAS CONTRIBUTING TOWARDS T HE INSURANCE POLICY TAKEN FOR THE SAID PURPOSE. THE A SSESSEE PRIOR TO THE YEAR UNDER CONSIDERATION HAD CLAIMED A ND WAS ALLOWED DEDUCTION IN RESPECT OF THE PREMIUM PAID FO R KEEPING AFLOAT THE MEDICAL INSURANCE POLICY TAKEN F OR THE BENEFIT OF EMPLOYEES FROM YEAR TO YEAR. SUCH MEDI- CLAIM INSURANCE POLICIES WERE TAKEN BY THE ASSESSEE IN OR DER TO 25 PROVIDE MEDICAL ASSISTANCE POST RETIREMENT TO THE EMPLOYEES. HOWEVER, DURING THE YEAR UNDER CONSIDER ATION THE INSTITUTE OF CHARTERED ACCOUNTANTS REVISED THE ACCOUNTING STANDARD-15 WHICH IS REPRODUCED AT PAGES 29 TO 31 OF THE ASSESSMENT ORDER UNDER WHICH THE INSTI TUTE ISSUED REVISED ACCOUNTING STANDARD FOR ACCOUNTING T HE EMPLOYEES MEDICAL BENEFIT POST RETIREMENT. AS PER THE ASSESSEE, THE ICAI MADE THE SAID ACCOUNTING STANDAR D TO BE FOLLOWED COMPULSORILY W.E.F. 1.4.2006 I.E. ASSES SMENT YEAR 2007-08 I.E. THE YEAR UNDER APPEAL. THE GIST OF THE REVISED ACCOUNTING STANDARD-15 IS REPRODUCED AT PAG ES 29 TO 31 OF THE ASSESSMENT ORDER. HOWEVER, THE COPY O F THE ACCOUNTING STANDARD-15 IS ENCLOSED AT PAGES 836 TO 902 OF THE PAPER BOOK. THE OBJECTIVE OF THE REVISED ACCOU NTING STANDARD-15 IS TO PRESCRIBE THE ACCOUNTING AND DISC LOSURE FOR EMPLOYEE BENEFITS. THE STANDARD REQUIRES AN ENTERPRISE TO RECOGNIZE: (A) ALLOWABILITY WHEN AN EMPLOYEE HAS PROVIDED SERVICE IN EXCHANGE FOR EMPLOYEE BENEFITS TO BE PAI D IN THE FUTURE; AND (B) AN EXPENSES WHEN THE ENTERPRISE CONSUMES THE ECONOMIC BENEFIT ARISING FROM SERVICE PROVIDED BY A N EMPLOYEE IN EXCHANGE FOR EMPLOYEE BENEFITS. 52. THE SCOPE OF THE SAID ACCOUNTING STANDARD-15 WA S MANDATORILY TO BE APPLIED BY AN EMPLOYER IN ACCOUNT ING FOR ALL EMPLOYEE BENEFITS, EXCEPT EMPLOYEE SHARE-BASED PAYMENT. CLAUSE-4 DEFINES EMPLOYEE BENEFITS INCLUDE: (A) SHORT-TERM EMPLOYEE BENEFITS, SUCH AS WAGES, SALARIES AND SOCIAL SECURITY CONTRIBUTIONS (E.G., CONTRIBUTION TO AN INSURANCE COMPANY BY AN EMPLOYER TO PAY FOR MEDICAL CARE OF ITS EMPLOYEES), PAID ANNUAL LEAVE, PROFIT-SHARING AND BONUSES (IF PAYABL E WITHIN TWELVE MONTHS OF THE END OF THE PERIOD) AND NON-MONETARY BENEFITS (SUCH AS MEDICAL CARE, HOUSING, CARS AND FREE OR SUBSIDIZED GOODS OR SERVICES) FOR CURRENT EMPLOYEES; (B) POST-EMPLOYMENT BENEFITS SUCH AS GRATUITY, PENSION, OTHER RETIREMENT BENEFITS, POST-EMPLOYMENT LIFE INSURANCE AND POST-EMPLOYMENT MEDICAL CARE; (C) OTHER LONG-TERM EMPLOYEE BENEFITS, INCLUDING LONG-SERVICE LEAVE OR SABBATICAL LEAVE, JUBILEE OR OTHER LONG-SERVICE BENEFITS, LONG-TERM DISABILITY BENEFITS AND, IF THEY ARE NOT PAYABLE WHOLLY WITHIN TWELVE MONTHS AFTER THE END OF THE PERIOD, PROFIT- SHARING, BONUSES AND DEFERRED COMPENSATION . 26 53. CLAUSE 7.3 OF REVISED AS-15 DEFINES THAT POST- EMPLOYMENT BENEFITS ARE EMPLOYEE BENEFITS (OTHER TH AN TERMINATION BENEFITS) WHICH ARE PAYABLE AFTER THE COMPLETION OF EMPLOYMENT . CLAUSE 24 OF REVISED AS-15 PROVIDES POST-EMPLOYMENT BENEFITS INCLUDE: (A) RETIREMENT BENEFITS, E.G., GRATUITY AND PENSION ; AND (B) OTHER BENEFITS, E.G., POST-EMPLOYMENT LIFE INSURANCE AND POST-EMPLOYMENT MEDICAL CARE. ARRANGEMENTS WHEREBY AN ENTERPRISES PROVIDES POST- EMPLOYMENT BENEFITS ARE POST-EMPLOYMENT BENEFIT PLANS. AN ENTERPRISES APPLIES THIS STANDARD TO ALL SUCH ARRANGEMENTS WHETHER OR NOT THEY INVOLVE THE ESTABLISHMENT OF A SEPARATE ENTITY TO RECEIVE CONTRIBUTIONS AND TO PAY BENEFITS. 54. UNDER CLAUSE 73 OF REVISED AS-15 IT HAS BEEN LA ID DOWN THAT ACTUARIAL ASSUMPTIONS ARE TO BE WORKED OUT AND SHOULD BE MORE THAN UNBIASED AND MUTUALLY COMPATIBL E. FURTHER THE METHOD OF WORKING ACTUARIAL BENEFITS IS TO BE LAID DOWN UNDER ACCOUNTING STANDARD-15. FURTHER IN RESPECT OF TERMINATION BENEFITS, AS PER CLAUSE 133 IT IS PROVIDED THAT THE TERMINATION BENEFITS ARE TO BE TR EATED SEPARATELY FROM OTHER EMPLOYEE BENEFITS AS THE EVEN T WHICH GAVE RISE TO THE OBLIGATION IS THE TERMINATION RATH ER THAN EMPLOYEE SERVICE . UNDER CLAUSE 134 IT IS LAID DOWN THAT AN ENTERPRISE SHOULD RECOGNIZE TERMINATION BENEFITS AS A LIABILITY AND AN EXPENSE WHEN, AND ONLY WHEN: (A) THE ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES EMBODYING ECONOMIC BENEFITS WILL BE REQUIRED TO SETTLE THE OBLIGATION; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. 55. CLAUSE 137 OF REVISED AS-15 PROVIDES THAT TERMINATION BENEFITS ARE RECOGNIZED AS AN EXPENSES IMMEDIATELY . UNDER CLAUSE 138 IT IS PROVIDED THAT WHERE AN ENTERPRISE RECOGNIZES TERMINATION BENEFITS, THE ENTERPRISE MAY ALSO HAVE TO ACCOUNT FOR A CURTAILME NT OF RETIREMENT BENEFITS OR OTHER EMPLOYEE BENEFITS . 56. THE ASSESSEE ADMITTEDLY FOLLOWED THE REVISED ACCOUNTING STANDARD-15. IN VIEW THEREOF THE ASSESSE E OBTAINED AN ACTUARIAL VALUATION CERTIFICATE WHICH R EADS AS UNDER: ACTUARIAL VALUATION CERTIFICATE MEDICAL 27 REF:ACTVAL/M/GSK_0307 GLAXOSMITHKLINE CONSUMER HEALTHCARE LIMITED. RE: ACTUARIAL VALUATION - POST RETIREMENT MEDICAL A SSISTANCE AS ON 31.03.2007. THE ACTUARIAL VALUE OF LIABILITY OF THE COMPANY TOW ARDS POST RETIREMENT MEDICAL ASSISTANCE TO THE RETIRED /RETIRING OFFICER S AS PER THE COMPANY'S SCHEME UPTO THE DATE OF VALUATION MENTIONED ABOVE H AS BEEN CALCULATED AND THE RESULTS OF VALUATION ARE AS GIVEN BELOW: 1. BASIS: (A) DISCOUNT RATE - 8.00 % P.A. (B) MORTALITY - L.I.C. (1994-96) ULT. (C) RATE OF WITHDRAWAL - AS APPLICABLE TO THE GROUP. (D) PROJECTED UNIT CREDIT METHOD ADOPTED. 2. DETAILS OF STAFF: THE INDIVIDUAL DETAILS IN RESPECT OF 366 OFFICERS C OVERED BY THESE BENEFITS & 140 RETIRED OFFICERS HAVE BEEN MADE AVAILABLE FOR T HE PURPOSE. 3. BENEFITS: THE MEDICAL ASSISTANCE IS GRANTED FOR DUE TO ACCIDE NT OR SICKNESS AND IS LIMITED AS UNDER: DIRECTORS: RS1,50,000 PER YEAR MANAGERS: RS.1,50,0 00 PER YEAR EXECUTIVES: RS.1,00,000 PER YEAR THE COMPANY HAS ASSURED THE BENEFITS WITH NATIONAL INSURANCE COMPANY AND PAYS PREMIUM ANNUALLY. SUCH PREMIUM AND ANY INCREAS E OF THE SAME HAS BEEN DULY CONSIDERED. 4. VALUATION RESULTS: THIS IS TO CERTIFY THAT AS PER THE ACTUARIAL VALUAT ION THE TOTAL VALUE OF THE POST RETIREMENT MEDICAL ASSISTANCE BEN EFIT UNDER THE ABOVE ASSUMPTIONS WORKS OUT TO:- RS. 11,73,99,623.00P. 5. THE PURPOSE OF THIS VALUATION IS TO MAKE INCRE MENTAL PROVISION IN THE BOOKS OF ACCOUNT. THE VALUATION HAS BEEN CARRIED OU T KEEPING IN VIEW THE PROVISIONS OF AS-15 ( R ) AS AN ON GOING CONCERN BA SIS. (A.D.GUPTA) 57. THE AUDITORS VIDE NOTES TO THE ACCOUNTS VIDE NO TE NO.6 HAD REPORTED AS UNDER: 6. (A) THE COMPANY HAS DURING THE YEAR ADOPTED ACCOUNTING STANDARD 15 (REVISED 2005) EMPLOYEES BENEFITS. ACCORDINGLY, THE TRANSITIONAL ADJUSTMENT AGGREGATING TO RS.11,37.19 LAKHS (NET OF DEFERRED T AX ASSET RSNIL) HAS BEEN CHARGED AGAINST THE OPENING 28 GENERAL RESERVES. THE DETAILS OF THE TRANSITIONAL ADJUSTMENT IS AS FOLLOWS -POST EMPLOYMENT MEDICAL ASSISTANCE SCHEME RS.11,09.90 LAKHS -LEAVE ENCASHMENT/COMPENSATED RS.27.29 LAKHS ABSENCES FOR WORKERS (EARNED/SICK LEAVE)(ALSO REFER SCHEME 2) 58. THE ASSESSEE ACCORDINGLY MADE A PROVISION OF RS.1636.20 LACS ON ACCOUNT OF EMPLOYEES BENEFITS WH ICH INCLUDED THE PROVISIONS FOR POST RETIREMENT MEDICAL BENEFITS TO EMPLOYEES AT RS.11.09 CRORES. THE ABOV E SAID AMOUNT WAS BOOKED AS AN EXPENDITURE FOR COMPUTATION OF INCOME IN COMPLIANCE TO THE MANDATORY REVISED ACCOU NTING STANDARD-15. THE CLAIM OF THE ASSESSEE IN RESPECT OF THE ABOVE SAID EXPENDITURE WAS AS UNDER: (A) THE SAID DEDUCTION HAS BEEN CLAIMED FOR THE FIRST TIME DURING THE RELEVANT ASSESSMENT YEAR, IN VIEW OF COMPLIANCE OF MANDATORY REVISED ACCOUNTING STANDARD-15. (B) SINCE THE PROVISION WAS MADE BY THE ASSESSEE ON THE BASIS OF ACTUARIAL VALUATION IN RESPECT OF A N ACCRUED LIABILITY FOR THE ENTITLEMENT EARNED BY THE EMPLOYEES WHILE IN SERVICE, THE SAME WAS CLEARLY ALLOWABLE AS DEDUCTION. (C) UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, DEDUCTION OF EXPENDITURE IS ALLOWABLE IN THE YEAR I N WHICH LIABILITY IS QUANTIFIED AND ACCRUED, NOTWITHSTANDING THAT THE SAME HAS TO BE DISCHARGED AT A LATER DATE. (D) FURTHER, THE AFORESAID LIABILITY INCURRED TOWARDS MEDICAL BENEFITS WAS ONLY AN INCREMENTAL LIABILITY AFTER CONSIDERING/REDUCING THE AMOUNT OF MEDICAL INSURANCE PREMIUM PAID TO INSURANCE COMPANIES. THE SAID LIABILITY INCURRED, THUS, DID NOT INCLUDE THE AMOUNT OF PREMIUM PAID FOR WHICH DEDUCTION WAS ALREADY CLAIMED. (E) THE DEDUCTION WAS CLAIMED BECAUSE OF CHANGE IN THE METHOD OF ACCOUNTING AND WHERE THERE IS A BONAFIDE CHANGE IN THE METHOD OF ACCOUNTING, THE CLAIMS ON THE BASIS OF THE CHANGED METHOD, EVEN IF PERTAINING TO EARLIER YEARS, WOULD BE ALLOWABLE DEDUCTION IN THE YEAR OF CHANGE, MORE SO SINCE THE LIABILITY IN REGARD THERETO HAS NOT BEEN CLAIMED DEDUCTION IN SUCH EARLIER YEARS. (F) SINCE THE LIABILITY ON ACCOUNT OF MEDICAL ASSISTANCE PERTAINING TO SERVICES RENDERED IN THE EARLIER YEARS HAS BEEN ACCOUNTED OR CLAIMED IN THE 29 RELEVANT YEAR FOR THE FIRST TIME, IN VIEW OF THE BONAFIDE CHANGE IN THE METHOD OF ACCOUNTING (PURSUANT TO MANDATORY AS-15 (REVISED), FOR WHICH NO DEDUCTION WAS CLAIMED IN THE EARLIER YEARS NOR WOULD BE CLAIMED AGAIN IN THE YEAR OF PAYMENT, THE SAID LIABILITY IS ALLOWABLE DEDUCTION IN THE RELEVA NT YEAR ITSELF. THE DEDUCTION ON ACCOUNT OF LIABILITY TOWARDS MEDICAL REIMBURSEMENT EXPENSES AGGREGATING TO RS.11.09 CRORES BEING ACTUARIAL VALUATION IN RESPEC T OF SUBSISTING LIABILITY HAS BEEN CORRECTLY CLAIMED BY THE APPELLANT. (G) THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM OF THE ASSESSEE OBSERVING THAT; (A) THE AMOUNT OF LIABILITY, WHICH WAS INCURRED ON THE BASIS OF ACTUARIAL VALUATION, WAS MADE ON THE BASIS OF CERTAIN ASSUMPTION AND, THUS, THE SAME CANNOT BE SAID TO BE ASCERTAINED LIABILITY. (B) THE ASSESSEE HAS CLAIMED DOUBLE DEDUCTION IN RESPECT OF SAME LIABILITY, VIZ., ONCE AT THE TIME O F PAYMENT OF PREMIUM OF INSURANCE COMPANIES AND SECONDLY, AT THE TIME OF CREATING THE IMPUGNED PROVISION FOR MEDICAL BENEFITS. 59. THE FIRST ASPECT OF THE ISSUE RAISED BEFORE US IS WHETHER THE RECOGNITION OF THE LIABILITY IN VIEW OF THE REVISED ACCOUNTING STANDARD-15 WHICH IS A NOTIFIED ACCOUNTING STANDARD BY THE ICAI IS TO BE RECOGNIZED WHILE COMPUTING THE INCOME OF THE ASSESSEE IN LINE WITH T HE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSE SSEE. THE SECOND ASPECT OF THE ISSUE IS WHETHER SUCH EXPE NDITURE IS TO BE ALLOWED AS A DEDUCTION THOUGH THE LIABILIT Y HAS BEEN RECOGNIZED IN THE YEAR UNDER CONSIDERATION BUT THE SAME HAS TO BE INCURRED IN THE SUCCEEDING YEAR. 60. THEIR LORDSHIP OF HONBLE SUPREME COURT IN BHAR AT EARTH MOVERS VS. CIT (SUPRA) HELD THAT THE PROVISIO N MADE FOR MEETING LIABILITY OF LEAVE ENCASHMENT SCHEME IS TO BE ALLOWED AS DEDUCTION, OBSERVING AS UNDER: THE LAW IS SETTLED : IF A BUSINESS LIABILITY HAS DE FINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED AL THOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIAB ILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTA INTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. TH E LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. 30 IN METAL BOX COMPANY OF INDIA LTD. VS THEIR WORKMEN ( 1969 ) 73 ITR 53 ( SC ), THE APPELLANT-COMPANY ESTIMATED ITS LIABILITY UNDER TWO GRATUITY SCHEMES FRAMED BY THE COMPANY AND THE AMOU NT OF LIABILITY WAS DEDUCTED FROM THE GROSS RECEIPTS IN THE PROFIT AND LOSS ACCOUNT. THE COMPANY HAD WORKED OUT ON AN ACTUARIAL VALUATIO N ITS ESTIMATED LIABILITY AND MADE PROVISION FOR SUCH LIABILITY NOT ALL AT ONCE BUT SPREAD OVER A NUMBER OF YEARS. THE PRACTICE FOLLOWE D BY THE COMPANY WAS THAT EVERY YEAR THE COMPANY WORKED OUT THE ADDI TIONAL LIABILITY INCURRED BY IT ON THE EMPLOYEES PUTTING IN EVERY AD DITIONAL YEAR OF SERVICE. THE GRATUITY WAS PAYABLE ON THE TERMINATIO N OF AN EMPLOYEE'S SERVICE EITHER DUE TO RETIREMENT, DEATH OR TERMINAT ION OF SERVICE - THE EXACT TIME OF OCCURRENCE OF THE LATTER TWO EVENTS B EING NOT DETERMINABLE WITH EXACTITUDE BEFORE HAND. A FEW PRI NCIPLES WERE LAID DOWN BY THIS COURT, THE RELEVANT OF WHICH FOR OUR P URPOSE ARE EXTRACTED AND REPRODUCED AS UNDER : (I) FOR AN ASSESSEE MAINTAINING HIS ACCOUNTS ON THE MERCANTILE SYSTEM, A LIABILITY ALREADY ACCRUED, THOUGH TO BE D ISCHARGED AT A FUTURE DATE, WOULD BE A PROPER DEDUCTION WHILE WORK ING OUT THE PROFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO THE ACCEPTED PRINCIPLES OF COMMERCIAL PRACTICE AND ACCOUNTANCY. IT IS NOT AS IF SUCH DEDUCTION IS PERMISSIBLE ONLY IN THE CASE OF AMOUNT S ACTUALLY EXPENDED OR PAID; (II) JUST AS RECEIPTS, THOUGH NOT ACTUAL RECEIPTS B UT ACCRUED DUE ARE BROUGHT IN FOR INCOME-TAX ASSESSMENT, SO ALSO LIABI LITIES ACCRUED DUE WOULD BE TAKEN INTO ACCOUNT WHILE WORKING OUT THE P ROFITS AND GAINS OF THE BUSINESS; (III) A CONDITION SUBSEQUENT, THE FULFILMENT OF WHI CH MAY RESULT IN THE REDUCTION OR EVEN EXTINCTION OF THE LIABILITY, WOUL D NOT HAVE THE EFFECT OF CONVERTING THAT LIABILITY INTO A CONTINGENT LIAB ILITY; (IV) A TRADER COMPUTING HIS TAXABLE PROFITS FOR A P ARTICULAR YEAR MAY PROPERLY DEDUCT NOT ONLY THE PAYMENTS ACTUALLY MADE TO HIS EMPLOYEES BUT ALSO THE PRESENT VALUE OF ANY PAYMENTS IN RESPE CT OF THEIR SERVICES IN THAT YEAR TO BE MADE IN A SUBSEQUENT YEAR IF IT CAN BE SATISFACTORILY ESTIMATED. SO IS THE VIEW TAKEN IN CALCUTTA CO. LTD. VS CIT ( 1959 ) 37 ITR 1 ( SC ) WHEREIN THIS COURT HAS HELD THAT THE LIABILITY ON THE ASSESSEE HAVING BEEN IMPORTED, THE LIABILITY WOULD BE AN ACCRUED LI ABILITY AND WOULD NOT CONVERT INTO A CONDITIONAL ONE MERELY BECAUSE T HE LIABILITY WAS TO BE DISCHARGED AT A FUTURE DATE. THERE MAY BE SOME D IFFICULTY IN THE ESTIMATION THEREOF BUT THAT WOULD NOT CONVERT THE A CCRUED LIABILITY INTO A CONDITIONAL ONE; IT WAS ALWAYS OPEN TO THE TAX AU THORITIES CONCERNED TO ARRIVE AT A PROPER ESTIMATE OF THE LIABILITY HAV ING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE. APPLYING THE ABOVESAID SETTLED PRINCIPLES TO THE FA CTS OF THE CASE AT HAND WE ARE SATISFIED THAT THE PROVISION MADE BY TH E APPELLANT- COMPANY FOR MEETING THE LIABILITY INCURRED BY IT UN DER THE LEAVE ENCASHMENT SCHEME PROPORTIONATE WITH THE ENTITLEMEN T EARNED BY EMPLOYEES OF THE COMPANY, INCLUSIVE OF THE OFFICERS AND THE STAFF, SUBJECT TO THE CEILING ON ACCUMULATION AS APPLICABL E ON THE RELEVANT DATE, IS ENTITLED TO DEDUCTION OUT OF THE GROSS REC EIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVISION IS MADE FOR THE LIABILITY. 31 THE LIABILITY IS NOT A CONTINGENT LIABILITY. THE HI GH COURT WAS NOT RIGHT IN TAKING THE VIEW TO THE CONTRARY. THE APPEAL IS ALLOWED. THE JUDGMENT UNDER APPEAL IS SET ASIDE. THE QUESTION REFERRED BY THE TRIBUNAL TO THE HIGH COURT IS ANSWERED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AG AINST THE REVENUE. 61. IN THE FACTS OF THE PRESENT CASE BEFORE US THE ASSESSEE HAD RECOGNIZED AND ACCOUNTED FOR THE POST RETIREMEN T BENEFIT DUE TO ITS EMPLOYEES, IN TERMS OF THE SCHEM E OF EMPLOYMENT AND ALSO IN TERMS OF THE REVISED/CHANGE IN ACCOUNTING STANDARD-15 ISSUED BY ICAI WHICH WAS TO BE FOLLOWED DURING THE YEAR, IS AN ALLOWABLE DEDUCTION IN THE HANDS OF THE ASSESSEE. THE SAID CLAIM BEING BASED ON THE VALUATION OF THE ACTUARY IS BOTH SCIENTIFIC AND ONE OF THE RECOGNIZED METHOD OF ACCOUNTING AND QUANTIFYING THE SAID POST RETIREMENTAL MEDICAL BENEFITS. IN SUCH CASES THOUGH ACTUAL AND EXACT QUANTIFICATION MAY NOT BE POSSIBLE , HOWEVER, THE LIABILITY SO RECOGNIZED BY THE ASSESSE E COULD NOT BE SAID TO BE UNASCERTAINED AND CONTINGENT. TH E ASSESSEE HAVING FOLLOWED THE MERCANTILE SYSTEM OF ACCOUNTING WAS COMPULSORILY REQUIRED TO ACCOUNT FOR THE SAID POST RETIREMENT MEDICAL BENEFITS AS THE SAME W AS QUANTIFIED AND HAD ACCRUED DURING THE YEAR. THE CL AIM OF THE ASSESSEE WAS THUS ALLOWABLE IRRESPECTIVE OF THE FACT THAT THE ASSESSEE HAD MADE A PROVISION IN THE BOOKS OF ACCOUNT BUT HAD CLAIMED THE SAID DEDUCTION IN THE COMPUTATION OF INCOME. IT IS WELL SETTLED PROPOSIT ION THAT THE WAY IN WHICH ENTRIES ARE MADE BY THE ASSESSEE I N ITS BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTI ON WHETHER THE ASSESSEE HAD EARNED ANY PROFIT OR SUFFE RED ANY LOSS AS HELD BY THE HONBLE APEX COURT IN SUTLEJ CO TTON MILLS LTD. VS. CIT (SUPRA). IT WAS FURTHER HELD B Y THE HONBLE APEX COURT THAT WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF TRANSACTION AND WH ETHER IN FACT IT HAS RESULTED IN PROFIT OR LOSS TO THE ASSES SEE. FURTHER THE SAID DEDUCTION WAS CLAIMED DURING THE Y EAR UNDER CONSIDERATION AND THE CLAIM BEING BONAFIDE IS TO BE ALLOWED IN THE YEAR IN WHICH THE SAME ACCRUES THOUG H THE SAID LIABILITY IS TO BE DISCHARGED AT A LATER DATE. 62. IDENTICAL ISSUE AROSE IN BOKARO POWER SUPPLY CO . (P) LTD. VS DCIT (SUPRA) OF ALLOWABILITY OF CLAIM OF DE DUCTION OF POST RETIREMENT MEDICAL BENEFITS ON THE BASIS OF ACTUARIAL VALUATION AND THE SAME WAS HELD TO BE NOT AN UNASCERTAINED LIABILITY AND WAS HELD AS ALLOWABLE, OBSERVING AS UNDER: 5. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE HA VE ALSO PERUSED THE ORDER OF AUTHORITIES BELOW. THE ASSESSE E COMPANY OF WAS LIABLE TO PAY FOR MEDICAL EXPENSES OF ITS RETIRED E MPLOYEES IN ACCORDANCE WITH THE TERMS OF EMPLOYMENT. PRIOR TO THIS YEAR, T HE ASSESSEE WAS CLAIMING THESE EXPENSES IN THE YEAR OF EXPENDITURE. DUE TO THE CHANGE IN THE ACCOUNTING STANDARD IN RESPECT OF THE ACCOUNTIN G OF POST RETIREMENT BENEFITS, THE ASSESSEE GOT DONE THE ACTU ARIAL VALUATION OF THESE LIABILITIES AND STARTED CLAIMING THE SAME ON THAT BASIS. IT IS 32 CLAIMED IN VIEW OF THE ACCOUNTING STANDARD,AS-15.TH ISCLAIMWAS BASED ON THE VALUATION OF LIABILITY ON ACTUARIAL AND SCIE NTIFIC BASIS. IN SUCH CASES, THE ACTUAL AND EXACT QUANTIFICATION MAY NOT BE POSSIBLE , HOWEVER, LIABILITY CANNOT BE SAID TO BE A CONTINGENT ONE. SINCE THE PR OVISION HAS BEEN MADE ON SCIENTIFIC BASIS AND THE ASSESSEE IS FOLLOWING M ERCANTILE SYSTEM OF ACCOUNTING, THEREFORE, IN OUR CONSIDERED VIEW, THE CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION WHILE DECIDING ITA NO.149/DEL /2012. A LIABILITY WHICH HAS ALREADY ACCRUED THOUGH DISCHARGED ON A FU TURE DATE WOULD BE ENTITLED FOR DEDUCTION. WHILE WORKING OUT THE PROFI T & GAIN OF THE BUSINESS THE ACCRUED RECEIPTS ARE BROUGHT TO THE TA X, SIMILARLY, ACCRUED LIABILITIES DUE WOULD ALSO BE ENTITLED FOR DEDUCTIO N WHILE WORKING OUT THE PROFIT AND GAIN OF THE BUSINESS OF THE YEAR. CO MPUTATION OF TAXABLE PROFIT FOR A PARTICULAR YEAR CAN BE WORKED OUT ONLY BY DEDUCTING THE ACTUAL PAYMENTS MADE TO THE EMPLOYEES AND PRESENT V ALUE OF ANY PAYMENT IN RESPECT OF THE SERVICES IN THAT PARTICULAR YEAR TO BE MADE IN SUBSEQUENT YEAR. IN VIEW OF THIS, WE FIND THE ORDER OF CIT (A) IN ITA NO.149/DEL/2012 IN ORDER. WE SET ASIDE THE ORDER OF CIT (A) IN ITA NO.4921/DEL/2010. FOR DOING SO, WE ALSO GET SUPPORT FROM THE FOLLOWING DE CISIONS OF HON'BLE SUPREME COURT AND HON'BLE DELHI HIGH COURT. 5.1 HON 'BLE SUPREME COURT IN THE CASE OF METAL BOX COMPANY OF INDIA LTD. VS. THEIR WORKMEN - 73 ITR 53 HAS HELD AS UNDER :- ' CONTINGENT LIABILITIES DISCOUNTED AND VALUED AS N ECESSARY, CAN BE TAKEN INTO ACCOUNT AS TRADING EXPENSES IF THEY ARE SUFFICIENTL Y CERTAIN TO BE CAPABLE OF VALUATION AND IF PROFITS CANNOT BE PROPERLY ESTIMAT ED WITHOUT TAKING THEM INTO CONSIDERATION. AN ESTIMATED LIABILITY UNDER A SCHEME OF GRATUITY, IF PROPERTY ASCERTAINABLE AND ITS PRESENT VALUE IS DIS COUNTED, IS DEDUCTIBLE FROM THE GROSS RECEIPTS WHILE PREPARING THE PROFIT AND LOSS ACCOUNT. THIS IS RECOGNISED IN TRADE CIRCLES AND THERE IS NOTHING IN THE BONUS ACT WHICH PROHIBITS SUCH A PRACTICE. SUCH A PROVISION PROVIDE S FOR A KNOWN LIABILITY OF WHICH THE AMOUNT CAN BE DETERMINED WITH SUBSTANT IAL ACCURACY. IT CANNOT, THEREFORE, BE TERMED A 'RESERVE'. THEREFORE, THE ES TIMATED LIABILITY FOR THE YEAR ON ACCOUNT OF A SCHEME OF GRATUITY SHOULD BE A LLOWED TO BE DEDUCTED FROM THE GROSS PROFITS. THE ALLOWANCE IS NOT RESTRI CTED TO THE ACTUAL PAYMENT OF GRATUITY DURING THE YEAR. WHERE THE FIXED ASSETS ARE REVALUED AND THE DIFFERENCE BETWEEN ITS COST AND THE VALUE FIXED ON SUCH REVALUATION IS CREDITED TO THE CAPITAL RESERVE, UNLESS THE TRIBUNA L FINDS THAT THE REVALUATION IS MALA FIDE, THE INTEREST ON THE AMOUNT OF THE RES ERVE SHOULD BE ALLOWED AS A DEDUCTION FROM THE GROSS PROFITS. FROM THE PROVISIONS OF SECTION 6(C) AND SECTION 7 O F THE BONUS ACT, IT IS EVIDENT THAT THE TRIBUNAL MUST FIRST ESTIMATE THE A MOUNT OF DIRECT TAXES ON THE BALANCE OF GROSS PROFITS AS WORKED OUT UNDER SE CTIONS 4 AND 6, BUT WITHOUT DEDUCTION BONUS, THEN WORK OUT THE QUANTUM OF TAXES THEREON AT RATES APPLICABLE DURING THE YEAR TO THE INCOME, PRO FITS AND GAINS OF THE EMPLOYER AND, AFTER DEDUCTING THE AMOUNT OF TAXES S O WORKED OUT, ARRIVE AT THE AVAILABLE SURPLUS. THIS WILL BE CONSISTENT W ITH THE RULE LAID DOWN BY COURTS AND TRIBUNALS BEFORE THE ACT WAS ENACTED, THAT THE BONUS AMOUNT SHOULD BE CALCULATED AFTER PROVISION FOR TAX WAS MA DE AND NOT BEFORE, FROM WHICH PARLIAMENT DOES NOT APPEAR TO HAVE MADE A DEPARTURE.' HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH M OVERS LIMITED VS. CIT - 245 ITR 428 = (2002-TIOL-123-SCRM HAS HELD AS UNDER :- 'HELD, REVERSING THE DECISION OF THE HIGH COURT, TH AT THE PROVISIONS MADE BY THE ASSESSEE-COMPANY FOR MEETING THE LIABILITY I NCURRED BY IT UNDER THE LEAVE ENCASHMENT SCHEME PROPORTIONATE WITH THE ENTI TLEMENT EARNED BY THE EMPLOYEES OF THE COMPANY, INCLUSIVE OF THE OFFICERS AND THE STAFF, SUBJECT TO THE CEILING ON ACCUMULATION AS APPLICABLE ON THE RE LEVANT DATE, WAS 33 ENTITLED TO DEDUCTION OUT OF THE GROSS RECEIPTS FOR THE ACCOUNTING YEAR DURING WHICH THE PROVISION IS MADE FOR THE LIABILIT Y. THE LIABILITY IS NOT A CONTINGENT LIABILITY.' HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. INS ILCO LIMITED - 197 TAXMAN 55 HAS HELD AS UNDER :- 'SIMILARLY IT WAS HELD BY THE HON'BLE DELHI HIGH CO URT IN THE CASE OF CIT VS. INSILCO LTD. THAT WHERE THE PROVISIONS WERE EST IMATED ON THE BASIS OF ACTUARIAL CALCULATIONS, THE DEDUCTION CLAIMED BY TH E ASSESSEE HAS TO BE ALLOWED. THE RELEVANT EXTRACTS OF THE DECISION IS R EPRODUCED BELOW FOR READY REFERENCE:- '6. IN THE CASE OF SHREE SAJJAN M ILLS LTD (SUPRA), THE SUPREME COURT WAS EXAMINING THE PROVISION-MADE BY T HE ASSESSEE TOWARDS GRATUITY UNDER THE INCOME TAX ACT, 1961. TH E SUPREME COURT, AFTER NOTICING THE JUDGMENT IN METAL BOX COMPANY (S UPRA), CRYSTALLIZED ITS ANALYSIS AT PAGE 599 AND MADE THE FOLLOWING OBSERVA TIONS:- 'IT WOULD THUS BE APPARENT FROM THE ANALYSIS AFORESAID THAT T HE POSITION TILL THE PROVISIONS OF SECTION 40A(7) WERE INSERTED IN THE A CT IN 1973 WAS AS FOLLOWS:- 1 XXXX 2 XXXX 3 XXXX 4 XXXX 5. PROVISION MADE IN THE PROFIT AND LOSS ACCOUNT FOR THE ESTIMATED PRESENT VALUE OF THE CONTINGENT LIABILITY PROPERLY ASCERTAINED AND DISCOUNTED ON AN ACCRUED B ASIS AS FALLING ON THE ASSESSEE IN THE YEAR OF ACCOUNT COULD BE DEDUCT IBLE EITHER UNDER SECTION 28 OR SECTION 37 OF THE ACT.' ITA 873/2008 & 1156/2008 PAGE 6 OF 25 7. THE DIVISION BENCH OF THIS COURT, WHILE CONSIDER ING DEDUCTIBILITY OF A PROVISION FOR WARRANTIES MADE BY AN ASSESSEE, WHICH DEALT IN COMPUTERS IN THE CASE OF CIT VS HEWLETT PACKARD INDIA (P) LTD, B Y ITS JUDGMENT PASSED IN APPEAL NO. ITA 486/2006 DATED 31.03.2008, UPHELD THE DEDUCTIBILITY OF THE PROVISION FOR WARRANTY ON THE GROUND THAT IT WAS MADE ON THE BASIS OF ACTUARIAL VALUATION BEING COVERED BY THE P RINCIPLE SET OUT IN METAL BOX COMPANY (SUPRA). IN VIEW OF THE AFORESAID DECISIONS AND GIVEN THE FACT THAT THE PROVISION WAS ESTIMATED BAS ED ON ACTUARIAL CALCULATIONS, WE ARE OF THE OPINION THAT THE DEDUCT ION CLAIMED BY THE ASSESSEE HAD TO BE ALLOWED. WE FIND NO FAULT WITH T HE REASONING OF THE TRIBUNAL. NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION. ' 5.2 CONSIDERING THE FACTS OF THE ASSESSEE'S CASE AND AL SO THE DECISION OF HON'BLE SUPREME COURT AND HON'BLE JURISDICTIONAL HI GH COURT, WE SUSTAIN THE ORDER OF CIT (A) IN ITA NO.149/DEL/2012 ON THIS ISSUE. WE ALLOW ITA NO. 4921'/DEL/2010 AND DISMISS REVENUE'S APPEAL ON THIS GROUND. 63. IN VIEW THEREOF, WE DIRECT THE ASSESSING OFFICE R TO ALLOW THE DEDUCTION OF RS.11.09 CRORES ON ACCOUNT O F POST RETIREMENT MEDICAL BENEFITS. THE GROUND NOS.5 AND 6 RAISED BY THE ASSESSEE ARE THUS ALLOWED. 35. RELYING ON THE SAID ORDER OF THE CHANDIGARH BE NCH OF THE I.T.A.T. FOR ASSESSMENT YEAR 2007-08, SIMILA R DISALLOWANCE MADE BY THE ASSESSING OFFICER IN ASSES SMENT YEAR 2008-09 WAS ALSO DELETED BY THE CHANDIGARH BEN CH OF THE I.T.A.T. IN ASSESSEES OWN CASE. SINCE NO DIST INGUISHING FACTS WERE BROUGHT TO OUR NOTICE, RESPECTFULLY FOLL OWING 34 ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL, THE CLAIM OF THE ASSESSEE IS ALLOWED. THE GROUND OF APPEAL RAI SED BY THE ASSESSEE IS DECIDED IN ITS FAVOUR. 36. THE GROUND NO.6 RAISED BY THE ASSESSEE READS A S UNDER : 6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING EXPENDITURE AGGREGATING TO RS.61,67,79,00 0 INCURRED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR ON ACCOUNT OF ROYALTY, HOLDING THE SAME TO BE CAPIT AL IN NATURE. 37. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AS SESSEE HAD PAID ROYALTY OF RS.6167.79 LACS TO M/S GLAXO SM ITHKLINE ASIA PVT. LTD. FOR USE OF TRADE MARK HORLICKS. THE ASSESSEE IS PAYING EVERY YEAR ROYALTY @ 5% OF THE N ET SALES OF THE PRODUCTS BEARING THE TRADEMARK HORLICKS AN D CLAIMING IT AS REVENUE EXPENDITURE. ON A QUERY RA ISED BY THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT IT HAS BEEN PAYING ROYALTY IN TERMS OF AN AGREEMENT WITH M /S GLAXO SMITHKLINE ASIA PVT. LTD. DATED 7.2.1997, WHI CH HAS ALWAYS BEEN ADMITTED IN ALL THE EARLIER ASSESSMENT YEARS TREATING IT AS REVENUE IN NATURE. HOWEVER, IN ASS ESSMENT YEAR 2008-09, THE ASSESSING OFFICER DISALLOWED THE SAID EXPENSES HOLDING THE SAME TO BE CAPITAL IN NATURE S IMPLY ON THE GROUND THAT SIMILAR ISSUE HAS BEEN RAISED BY TH E REVENUE IN THE CASE OF SWARAJ ENGINES LTD., 309 IT R 443 (SC), WHEREIN THE MATTER HAS BEEN REMITTED BACK TO THE PUNJAB & HARYANA HIGH COURT. UPON FILING OF OBJEC TION 35 BEFORE THE DRP IN ASSESSMENT YEAR 2008-09, THE DRP HAD DIRECTED THE ASSESSING OFFICER TO REDETERMINE THE I SSUE OF ALLOWABILITY OF ROYALTY AFTER VERIFICATION OF FACTS WITH REFERENCE TO THE AGREEMENT ENTERED INTO BY THE ASSE SSEE WITH M/S GLAXO SMITHKLINE ASIA PVT. LTD. IN VIEW OF THE DIRECTION OF THE HON'BLE SUPREME COURT IN THE CASE OF SWARAJ ENGINES LTD. (SUPRA). CONSIDERING THE REPLY OF THE ASSESSE E, HOLDING THAT THE DEPARTMENT IS ALREADY BEFORE THE HON'BLE P UNJAB & HARYANA HIGH COURT IN THE CASE OF SWARAJ ENGINES L TD. (SUPRA) AND ISSUE IS PENDING FOR DECISION BEFORE TH E HON'BLE COURT, HENCE THE CLAIM OF THE ASSESSEE TO TREAT THI S EXPENDITURE AS REVENUE CANNOT BE ENTERTAINED. IN THIS WAY, AN EXPENDITURE OF RS.6167.79 LACS WAS PROPOSED TO B E TREATED AS CAPITAL EXPENDITURE AND DEPRECIATION WAS PROPOSED TO BE ACCORDINGLY ALLOWED. 38. BEFORE THE DRP ALSO, THE DETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE. HOWEVER, THE DRP CONFIR MED THE ACTION OF THE ASSESSING OFFICER. IN THIS WAY, THE ASSESSING OFFICER MADE A DISALLOWANCE OF RS.6167.79 LACS. HOWEVER, THE BENEFIT OF DEPRECIATION @ 25% WAS GIVE N TO THE ASSESSEE. 39. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AS WELL AS THE DRP. IN ADDITION TO THAT, IT WAS BROUGHT TO OUR NOTICE THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE CHANDIGARH BENCH O F THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008- 36 09. FURTHER, IT WAS SUBMITTED THAT THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF SWARAJ ENGINE S LTD. (SUPRA) AS REFERRED TO BY THE ASSESSING OFFICER, IT IS HELD THAT THE PROVISIONS OF SECTION 35AB ARE NOT ATTRACT ED AS THE SAME WERE APPLICABLE TILL ASSESSMENT YEAR 1997-98. THEREFORE, THE SAID DECISION IS NOT APPLICABLE TO T HE FACTS OF THE CASE. 40. THE LEARNED D.R. RELIED UPON THE ORDERS OF THE ASSESSING OFFICER AS WELL AS THE DRP. 41. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. ON PERUSAL OF THE ORDER OF THE I.T.A.T. FOR ASSESSMENT YEAR 2008-09, WE OBSERVE THAT ON SIMILAR ISSUE THE I.T.A .T. DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF ROYALTY PAID TO M/S GLAXO SMITHKLINE ASI A PVT. LTD. IN THE FOLLOWING WORDS : 53. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ISSUE ARISING VIDE THE ABOVE SAID GROU ND OF APPEAL NOS.6 AND 6.1 IS IN RELATION TO THE EXPENDIT URE CLAIMED BY THE ASSESSEE ON ACCOUNT OF PAYMENT OF RO YALTY TO THE GSKAP. ADMITTEDLY THE ASSESSEE WAS PAYING T HE SAID ROYALTY FROM YEAR TO YEAR AS PER THE TERMS OF AGREEMENT DATED 7.2.1997. AS PER THE TERMS OF THE SAID AGREEMENT THE PAYMENT WAS MADE FOR THE LICENCE/RIGH TS TO USE TRADE MARK PROVIDED BY GSKAP. THE COPY OF THE AGREEMENT IS PLACED AT PAGES 1 TO 17 OF THE PAPER B OOK AND AS PER CLAUSE-12 IT IS PROVIDED AS UNDER: 37 12. IN CONSIDERATION OF THE RIGHT TO USE THE TRADE MARKS GRANTED HEREIN, SBCH SHALL PAY TO SB ASIA A ROYALTY OF UPTO FIVE (5) PERCENT OF THE NET SALES VALUE O F THE CONTRACT PRODUCTS SOLD UNDER THE TRADE MARKS. NET SALES VALUE FOR THE PURPOSE OF THIS CLAUSE SHALL MEAN SALES NET OF RETURNS/ALLOWANCES AND NET OF EXCISE DUTY. 54. THE ISSUE ARISING IN THE PRESENT APPEAL IS WHET HER SUCH ROYALTY PAID BY THE ASSESSEE IS IN THE NATURE OF CAPITAL OR REVENUE EXPENDITURE. THE ASSESSING OFFI CER AND DRP HAD CONSIDERED THE ALLOWABILITY OF THE EXPENDIT URE IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT I N THE CASE OF CIT VS. SWARAJ ENGINES LTD. (SUPRA) WHEREIN THE ISSUE WAS THE APPLICABILITY OF SECTION 35AB OF THE ACT IN THE CONTEXT OF ROYALTY PAID AS PERCENTAGE OF THE N ET SALE PRICE BEING REVENUE AND CAPITAL IN NATURE. THE HON 'BLE SUPREME COURT HELD THAT AFTER INSERTION OF SECTION 35AB OF THE ACT, PROVIDING FOR ALLOWANCE OF EXPENDITURE ON KNOW- HOW AS REVENUE OR CAPITAL, WOULD BE A SUBSTANTIAL Q UESTION OF LAW AND THE ISSUE WAS SET ASIDE TO THE HON'BLE H IGH COURT FOR FRESH CONSIDERATION. THE APPEAL BEFORE T HE HON'BLE SUPREME COURT RELATED TO THE ASSESSMENT YEA R AS ON 30.12.1991. HOWEVER, THE PROVISIONS OF SECTION 35AB OF THE ACT WERE APPLICABLE TILL ASSESSMENT YEAR 1997-9 8 AND ARE NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION I.E. THE ASSESSMENT YEAR 2008-09. IN VIEW THEREOF, RATIO LA ID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. SWARAJ ENGINES LTD. (SUPRA) IS NOT APPLICABLE TO TH E FACTS OF THE PRESENT CASE. WE FIND NO MERIT IN THE ORDER OF THE ASSESSING OFFICER IN THIS REGARD. 55. NOW COMING TO THE ASSESSABILITY OF EXPENDITURE OF ROYALTY INCURRED BY THE ASSESSEE, THE PERUSAL OF TH E REPORT OF THE TPO ALSO REFLECTS THAT BOTH TPO AND ASSESSIN G OFFICER HAD NOTED THAT THE SAID PAYMENTS HAD BEEN M ADE IN THE EARLIER YEARS. THE AGREEMENT ENTERED INTO BY T HE ASSESSEE IS DATED 7.2.1997 AND FOLLOWING THE PRINCI PLE OF CONSISTENCY WHERE THE SAID EXPENDITURE HAS BEEN ALL OWED IN THE HANDS OF THE ASSESSEE FROM YEAR TO YEAR, THE SA ME MERITS TO BE ALLOWED IN THE YEAR UNDER CONSIDERATIO N ALSO. 38 56. FURTHER THE EXPENDITURE HAS BEEN INCURRED FOR T HE RIGHT TO USE THE TRADE MARK WHICH DOES NOT RESULT I NTO ACQUISITION OF ANY RIGHTS OF ENDURING NATURE AND TH E SAME CANNOT BE HELD TO BE AN EXPENDITURE OF CAPITAL IN N ATURE. THE ASSESSEE HAD NOT ACQUIRED TITLE TO THE SAID TRA DE MARK AS IS APPARENT FROM THE PERUSAL OF THE TERMS OF AGR EEMENT ENTERED BETWEEN THE ASSESSEE AND GSKAP. THE ROYALT Y WAS BEING PAID AT PRESCRIBED PERCENTAGE OF THE NET SALE VALUE OF THE CONTRACTED PRODUCT AND HENCE WAS LINKED TO T HE SALES MADE BY THE ASSESSEE. THE SAID EXPENDITURE WAS DUL Y ALLOWABLE IN THE HANDS OF THE ASSESSEE. RELIANCE I S PLACED ON THE RATIO LAID DOWN BY THE DELHI HIGH COURT IN S HARDA MOTOR INDUSTRIAL LTD. [319 ITR 109 (DEL)] WHEREIN I T WAS HELD THAT ROYALTY PAID ON THE BASIS OF RATE PER UNIT OF PRODUCTION IS REVENUE EXPENDITURE AND COULD NOT BE CONSIDERED AS CAPITAL EXPENDITURE . ANOTHER ASPECT TO BE KEPT IN MIND IS THAT THE ISSUE OF PAYMENT OF ROYALT Y WAS ALSO REFERRED TO THE TPO DURING THE YEAR UNDER CONSIDERATION, BEING DEEMED INTERNATIONAL TRANSACTI ON AND AFTER FULLY SCRUTINIZING THE TRANSACTION, THE TPO H AS ACCEPTED THE ARMS LENGTH PRICE OF THE TRANSACTION FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF ROYALTY PAI D AT RS.5556.64 LACS. THE GROUND NOS.6 AND 6.1 RAISED B Y THE ASSESSEE ARE THUS ALLOWED. 42. SINCE NO DISTINGUISHING FEATURES WERE BROUGHT TO OUR NOTICE, RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL, THE CLAIM OF THE ASSESSEE IS ALLOWED. THE GROUND OF APPEAL NO.6 RAISED BY THE ASSESSEE IS DECIDED IN ITS FAVOUR. 43. THE GROUND OF APPEAL NO.7 RAISED BY THE ASSESS EE READS AS UNDER : 39 7. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING INTEREST OF RS.2,03,16,000 AS CAPITAL EXPENDITURE IN TERMS OF PROVISO TO SECTION 36(L)(III ) OF THE ACT ALLEGING THE SAME TO HAVE BEEN INCURRED FOR INVESTME NT MADE IN CAPITAL WORK IN PROGRESS ('CWIP'). 7.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LA W IN PROCEEDING ON A FACTUALLY INCORRECT PREMISE THAT THE APPELLANT HA D BORROWED FUNDS AND IN HOLDING/ OBSERVING THAT THE APPELLANT FAILED TO FURNISH COMPLETE DETAILS IN RESPECT OF LOAN FUNDS. 7.2 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION (IN THE YEAR OF CA PITALIZATION OF THE CWIP) ON INTEREST EXPENSES OF RS.2,03,16,000/- HELD TO BE CAPITAL IN NATURE. 44. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN CL OSING CAPITAL WORK-IN-PROGRESS AMOUNTING TO RS.1573.86 LA CS AND OPENING CAPITAL WORK-IN-PROGRESS AMOUNTING TO RS.18 12.21. FURTHER, IT WAS OBSERVED BY THE ASSESSING OFFICER T HAT AN AMOUNT OF RS.541.19 LACS WERE INCURRED BY THE ASSES SEE ON ACCOUNT OF INTEREST EXPENSES BEING INTEREST ON DEPO SITS FROM DEALERS, WHOLESALERS, INTEREST ON CHEQUE DISCOUNTIN G WITH BANKS, DIFFERENTIAL INTEREST ON HOUSING LOAN TO EMP LOYEES AND INTEREST ON OTHERS. THE ASSESSING OFFICER OBS ERVED THAT THE VALUE OF CAPITAL WORK-IN-PROGRESS HAS DECREASED FROM RS.1812.21 LACS TO RS.1573.86 LACS AND NO INTEREST HAS BEEN CAPITALIZED DURING THE YEAR. ON QUESTIONING ABOUT THE DISALLOWANCE OF INTEREST UNDER THE PROVISIONS OF SE CTION 36(1)(III) OF THE ACT, THE ASSESSEE SUBMITTED THAT AS PER ASSESSEES ACCOUNTING POLICY, INTEREST ON BORROWING S FOR CAPITAL ASSETS, IF ANY, IS CAPITALIZED TILL THE DAT E OF 40 COMMENCEMENT OF COMMERCIAL USE OF THE ASSET. IT W AS ALSO SUBMITTED THAT THE ASSESSEE IS A DEBT FREE COMPANY HAVING NO BORROWINGS AT ALL AND THERE IS NO INCREASE IN CA PITAL WORK-IN-PROGRESS DURING THE YEAR UNDER CONSIDERATIO N. SINCE THE ASSESSEE HAS NOT BORROWED ANY FUNDS FOR T HE ASSETS PURCHASED OR LYING IN CAPITAL WORK-IN-PROGRE SS, THEREFORE, THERE WAS NO LONG TERM OR SHORT TERM LOA N APPEARING IN THE BALANCE SHEET. HENCE, THERE WAS NO INTEREST PAID OR PAYABLE ON ACCOUNT OF BORROWED FUN DS FOR ASSETS PURCHASED OR LYING IN CAPITAL WORK-IN-PROGRE SS. FURTHER, IT WAS SUBMITTED THAT FROM THE DETAILS OF INTEREST EXPENDITURE, IT MAY BE APPRECIATED THAT NO INTEREST WAS RELATABLE TO ANY LOAN TAKEN DURING THE RELEVANT YEA R. THE INTEREST ON DEPOSITS FROM DEALERS AND WHOLESALERS W AS PAID IN THE COURSE OF RUNNING OF THE BUSINESS. THE INT EREST TO BANKS WAS PAID FOR VARIOUS BANKING SERVICES ALSO IN THE REGULAR COURSE OF RUNNING THE BUSINESS. THE DIFFE RENTIAL INTEREST ON HOUSING LOANS TO EMPLOYEES WAS ALSO IN CURRED IN THE REGULAR BUSINESS OF THE ASSESSEE. SINCE NO PA RT OF THE BUSINESS CLAIMED UNDER THE ACT HAVING BEEN INCURRED FOR THE PURPOSES OF BUSINESS WAS ATTRIBUTABLE TOWARDS ACQUI RING ANY CAPITAL ASSETS AND THUS, NO DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT CAN BE MADE. REJECTING THE SUBMISSIONS OF THE ASSESSEE AND MAKING HIS OWN CALCULATION, THE ASSESSING OFFICER PROPOSED TO CAPI TALIZE AN AMOUNT OF RS.203.16 LACS. 41 45. BEFORE THE DRP, DETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE. HOWEVER, REJECTING THE SAME AND R ELYING ON THE ORDER OF THE DRP FOR ASSESSMENT YEAR 2008-09, T HE OBJECTION RAISED BY THE ASSESSEE WAS REJECTED BY TH E DRP. IN THIS WAY, AN ADDITION OF RS.203.16 LACS WAS MADE BY THE ASSESSING OFFICER. 46. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AS WELL AS THE DRP. THE SUBMISSIONS WERE B ASICALLY TWO FOLD, FIRSTLY, IT WAS SUBMITTED THAT THE ASSESS EE IS A DEBT FREE COMPANY HAVING NO BORROWINGS AT ALL. THEREFO RE, NO DISALLOWANCE ON ACCOUNT OF INTEREST CAN BE MADE. S ECONDLY, IT WAS SUBMITTED THAT ALL THE HEADS OF INTEREST EXP ENDITURE ON ACCOUNT OF WHICH THE SAID ADDITION HAS BEEN COMP UTED PERTAIN TO THE REGULAR BUSINESS OF THE ASSESSEE AND HAS BEEN MADE ON ACCOUNT OF BUSINESS EXPEDIENCY ONLY. THER EFORE, NO SUCH DISALLOWANCE CAN BE MADE. 47. FURTHER, IT WAS SUBMITTED THAT SIMILAR DISALLOWANCE HAS BEEN DELETED BY THE CHANDIGARH BEN CH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. 48. THE LEARNED D.R. RELIED UPON ON THE ORDERS OF THE ASSESSING OFFICER AS WELL AS THE DRP. 49. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. ON 42 PERUSAL OF THE ORDER OF THE TRIBUNAL IS ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 ON SIMILAR DISALLOWANCE BEING MADE BY THE I.T.A.T., DELETED THE SAME IN FOLLOWING WORDS : 62. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDE RATION HAD MADE INVESTMENT IN FIXED ASSETS WHICH WERE REFL ECTED AS CWIP IN ITS BALANCE SHEET. THE CLOSING BALANCE AS ON 31.3.2008 WAS RS.1812.21 LACS AS AGAINST CLOSING BA LANCE AS ON 31.3.2007 REFLECTED AT RS.767.17 LACS. IN VI EW OF THE INCREASE IN THE CLOSING CWIP BALANCE AND IN VIEW OF THE ASSESSEE HAVING INCURRED INTEREST EXPENDITURE OF RS .474.07 LACS , THE ASSESSING OFFICER WAS OF THE VIEW THAT T HE INTEREST RELATABLE TO THE ASSETS WHICH HAVE NOT BEE N PUT TO USE AS THE AMOUNT HAD BEEN SHOWN AS CWIP, MERITS TO BE DISALLOWED IN VIEW OF THE PROVISIONS OF PROVISO TO SECTION 36(1)(III) OF THE ACT. THE ASSESSEE HAD FURNISHED DETAILS OF INTEREST EXPENDITURE TOTALING RS.474.07 LACS WHICH IS AS UNDER: DETAILS OF INTEREST EXPENSE RS.IN LACS INTEREST ON DEPOSITS FROM DEALERS/WHOLESALERS 290.0 6 INTEREST ON CHEQUE DISCOUNTING WITH BANKS 83.71 DIFFERENTIAL INTEREST ON HOUSING LOAN TO EMPLOYEES 96.95 INTEREST ON OTHERS 3.35 TOTAL 474.07 63. OUT OF THE ABOVE SAID LIST OF INTEREST PAID, TH E DIFFERENTIAL INTEREST ON HOUSING LOAN TO EMPLOYEES AT RS.96.95 LACS HAD BEEN EXCLUDED ON THE INSTRUCTIONS OF THE DRP BY THE ASSESSING OFFICER. HOWEVER, AS THE NET INTEREST EXPENDITURE PAID BY THE ASSESSEE WAS OVER AND ABOVE THE INTEREST RELATABLE TO CWIP BALANCE AS ON 31.3.2008, THE DISALLOWANCE OF RS.154.76 LACS WAS MADE BY THE ASSE SSING OFFICER. 64. THE ASSESSEE COMPANY DURING THE YEAR UNDER CONSIDERATION HAD SHOWN SALES OF RS.1389 CRORES, NE T OF 43 EXCISE DUTY. FURTHER THE ASSESSEE HAD DEPOSITS WIT H BANK AT RS.5750.00 LACS AS AGAINST RS.1650.00 LACS ALONG WITH RESERVES AND SURPLUS AT RS.66248.2 LACS. THE ASSES SEE HAD SHOWN INCOME OF INTEREST EARNED BY IT DURING THE YE AR AT RS.608.44 LACS. THE PERUSAL OF THE INTEREST EXPEND ITURE INCURRED BY THE ASSESSEE REFLECTS THAT THE MAJOR PO RTION AS ON INTEREST ON DEPOSITS FROM DEALERS/WHOLESALERS AT RS.290.06 LACS, WHICH IS BEING PAID BY THE ASSESSEE DUE TO THE BUSINESS COMPULSION. NO FRESH DEPOSIT HAS BEEN RECEIVED DURING THE YEAR. FURTHER INTEREST WAS PAI D TO THE BANK ON CHEQUE DISCOUNTING AT RS.83.71 LACS AND SUC H INTEREST CANNOT BE SAID TO HAVE BEEN INCURRED ON SU CH BORROWED FUNDS WHICH IN TURN COULD BE PRESUMED TO H AVE BEEN PARKED AS INVESTMENT IN CWIP. THE BALANCE INT EREST IS PAID TO OTHER AT RS.3.35 LACS. IN THE TOTALITY OF THE ABOVE SAID FACTS AND IN VIEW OF THE ASSESSEE HAVING EARNED INTEREST INCOME OF RS.608.44 LACS AS AGAINST THE IN TEREST EXPENDITURE OF RS.474.70 LACS AND IN THE ABSENCE OF ANY BORROWINGS MADE BY THE ASSESSEE FOR RUNNING THE BUS INESS, WE FIND NO MERIT IN THE DISALLOWANCE MADE BY THE AS SESSING OFFICER UNDER THE PROVISO TO SECTION 36(1)(III) OF THE ACT. THE BASIC CONDITION FOR APPLYING THE PROVISIONS OF PROVISO TO SECTION 36(1)(III) OF THE ACT IS THAT MONEY SHOU LD HAVE BEEN BORROWED FOR THE PURPOSES OF INVESTMENT IN CAP ITAL ASSETS ON WHICH INTEREST HAD BEEN PAID BY THE ASSES SEE, THEN SUCH INTEREST AS RELATABLE TO THE INVESTMENT I N CAPITAL ASSETS IS TO BE DISALLOWED. HOWEVER, IN THE ABSENC E OF ANY BORROWINGS MADE BY THE ASSESSEE, WE FIND NO MERIT I N THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER TH E PROVISO TO SECTION 36(1)(III) OF THE ACT. ACCORDIN GLY, WE DELETE THE ADDITION OF RS.154.76 LACS. THE GROUND NOS.7 TO 7.2 RAISED BY THE ASSESSEE ARE THUS ALLOWED. 50. FROM THE PERUSAL OF THE ABOVE ORDER, WE SEE TH AT EXACTLY THE SAME CIRCUMSTANCES ARE IN THE CURRENT Y EAR ALSO AS THE HEAD OF INTEREST EXPENDITURE ARE IDENTICAL I N BOTH THE YEARS AND NO DISTINGUISHING FACTS WERE BROUGHT TO OUR 44 NOTICE, RESPECTFULLY FOLLOWING THE ORDER OF THE COO RDINATE BENCH OF THE TRIBUNAL, THE CLAIM OF THE ASSESSEE IS ALLOWED. THE GROUND OF APPEAL NO.7 RAISED BY THE ASSESSEE IS DECIDED IN ITS FAVOUR. 51. THE GROUND NO.8 RAISED BY THE ASSESSEE READS A S UNDER : 8. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING FURTHER DISALLOWANCE OF RS. 1,62,30,000 UNDER SECTION 14A OF THE ACT, BEING THE DIFFERENCE BETWEE N DISALLOWANCE COMPUTED AS PER METHOD PROVIDED IN RUL E 8D OF THE INCOME TAX RULES, 1962 ('THE RULES') AND THE AMOUNT SUO MOM DISALLOWED BY THE APPELLANT. 8.1 THAT THE DRP ERRED ON FACTS AND IN LAW IN HOLDING THAT THE APPELLANT HAD NOT SUBMITTED ANY COMPUTATION AND JUSTIFICATION FOR THE DISALLOWANCE OF RS.6,38,000 M ADE BY THE APPELLANT, SUO MOTU, IN THE RETURN OF INCOME UN DER SECTION 14A OF THE ACT. 52. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE INVESTMENTS IN SHARES AMOUNTING TO RS.0.05 LACS. THE ASSESSEE HAS EARNED DIVIDEND INCOME AMOUNTING TO RS.1265.21 LACS AND CLAIMED THAT IT INCURRED EXPENS ES AMOUNTING TO RS.6,38,304/- FOR EARNING THE SAID INC OME. THE ASSESSEE HAS ALLOCATED THE SALARY OF EMPLOYEES DIRECTLY AND INDIRECTLY INVOLVED AND ALSO ADDED COMMUNICATIO N EXPENSES, AUDIT FEES AND TAXATION FEES TO ARRIVE AT THIS FIGURE OF RS.6,38,304/-. THE ASSESSING OFFICER WA S OF THE VIEW THAT THE ASSESSEE HAS NOT JUSTIFIED THE NOMINA L EXPENSES OF RS.6.38 LACS AGAINST THE HUGE INCOME OF 45 RS.1265.21 LACS. THEREFORE, NOT SATISFYING WITH THE CORRECTNESS OF THE EXPENSES SO CLAIMED BY THE ASSES SEE, THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTIO N 14A OF THE ACT MADE THE DISALLOWANCE COMPUTED UNDER RULE 8 D OF THE INCOME TAX RULES. IN THIS WAY, A DISALLOWANCE OF RS.162.30 LACS WAS PROPOSED. 53. BEFORE THE DRP, DETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE. HOWEVER, REJECTING ALL THE SUBMI SSIONS MADE BY THE ASSESSEE, THE DRP FOUND NO FAULT IN THE ACTION OF THE ASSESSING OFFICER. THEREFORE, THE ASSESSING OFFICER MADE A DISALLOWANCE OF RS.162.30 LACS. 54. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE HAD SUO MOTO DISALLOWED EXPENSES OF RS.6,38,304/- COMPUTED ON THE BASIS OF SALARY AND OVER HEADS OF CERTAIN EMPLOYEES INVOLVED IN INV ESTMENT ACTIVITY, ADMINISTRATION AND OTHER EXPENSES TO BE A TTRIBUTED TO EARNING OF EXEMPT INCOME. THE DETAILS OF SUO M OTO DISALLOWANCE WERE ALSO PLACED IN THE PAPER BOOK. THE SUBMISSIONS WERE MADE BEFORE US TO THE EFFECT THAT RULE 8D OF THE INCOME TAX RULES CANNOT BE APPLIED MECHANICA LLY. FURTHER, IT WAS REITERATED THAT THE ASSESSEE IS A D EBT FREE COMPANY AND IN THE BUSINESS OF ANY BORROWINGS MADE BY THE ASSESSEE, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D CAN BE MADE ON ACCOUNT OF INTEREST EXPENDITURE. IN SO FAR AS THE DISALLOWANCE OF ADMI NISTRATION EXPENSES IS CONCERNED, IT WAS SUBMITTED THAT NO PAR T OF THE EXPENDITURE HAS ACTUALLY INCURRED FOR EARNING DIVID END 46 INCOME. STILL THE ASSESSEE HAS MADE SUO MOTO DISAL LOWANCE OF RS.6,38,504/- ON A SCIENTIFIC AND RATIONAL BASIS TO COVER THE EXPENDITURE. FURTHER THE ASSESSING OFFICER HA S NOT BEEN ABLE TO PINPOINT ANY ERROR ON THE SAID SUO MOT O DISALLOWANCE MADE BY THE ASSESSEE. CERTAIN ERROR WERE ALSO POINTED OUT IN THE COMPUTATION MADE BY THE ASSESSIN G OFFICER UNDER RULE 8D OF THE INCOME TAX RULES. RE LIANCE WAS PLACED ON A NUMBER OF JUDICIAL PRONOUNCEMENTS B Y VARIOUS HIGH COURTS AND VARIOUS BENCHES OF THE I.T. A.T. ON ALL THE ISSUES RAISED BEFORE US. OUR ATTENTION WA S ALSO INVITED TO THE ORDER OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09, WHEREIN THE TRIBUNAL HAS HELD THAT IN THE ABSENCE O F ANY BORROWINGS MADE BY THE ASSESSEE NO DISALLOWANCE ON ACCOUNT OF INTEREST CAN BE MADE. FOR DISALLOWANCE MADE UNDER RULE 8D (III) OF THE INCOME TAX RULES, THE I. T.A.T. HAD DIRECTED THE ASSESSING OFFICER TO REDUCE THE AMOUNT SUO MOTO DISALLOWED BY THE ASSESSEE. 55. THE LEARNED D.R. RELIED UPON THE ORDERS OF THE ASSESSING OFFICER AND THE DRP. 56. ON PERUSAL OF THE ORDER OF THE I.T.A.T. IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09, WE OBSERVE THAT IN THE BACKGROUND OF SIMILAR FACTS, TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, THE I.T.A.T. DELETED THE SAME BY OBSERVING AS UNDER : 47 68. AFTER HEARING BOTH THE AUTHORIZED REPRESENTATI VES AND AFTER PERUSING THE RECORD, THE FIRST ASPECT OF THE ISSUE IS WHETHER THE PROVISIONS OF SECTION 14A OF THE ACT RE AD WITH RULE 8D OF INCOME TAX RULES ARE APPLICABLE? THE AS SESSEE DURING THE YEAR UNDER CONSIDERATION HAD RECEIVED DI VIDEND ON MUTUAL FUNDS AMOUNTING TO RS.1954.70 LACS. THE ASSESSEE ON ITS OWN MOTION HAD DISALLOWED EXPENDITU RE OF RS.6,06,977/- BEING RELATABLE TO EARNING OF THE EXE MPT INCOME. IN OTHER WORDS, THE ASSESSEE HAD ADMITTED THAT IT HAD INCURRED CERTAIN EXPENDITURE FOR EARNING THE SA ID EXEMPT INCOME. THE CLAIM OF THE ASSESSEE IS THAT I T HAD WORKED OUT ALL THE DISALLOWANCE IN A SCIENTIFIC MAN NER BY MAKING DISALLOWANCE OUT OF SALARIES AND OTHER HEADS INVOLVED IN THE INVESTMENT ACTIVITY AND ALSO OUT OF ADMINISTRATION AND OTHER EXPENSES. THE SECOND ASPE CT OF THE ISSUE WAS THAT NO BORROWED FUNDS WERE AVAILABLE WITH THE ASSESSEE COMPANY. THERE WAS NO MERIT IN THE DISALLOWANCE UNDER RULE 8D(II) OF INCOME TAX RULES ON ACCOUNT OF SUCH INTEREST EXPENDITURE. IN VIEW OF O UR DECISION IN THE PARAS HEREINABOVE IN RELATION TO TH E DISALLOWANCE OF INTEREST UNDER PROVISO TO SECTION 3 6(1)(III) OF THE ACT, WE HOLD THAT NO DISALLOWANCE OF INTERES T EXPENDITURE BEING RELATABLE TO THE INVESTMENT IN SU CH FUNDS ON WHICH THE ASSESSEE HAD EARNED TAX FREE INCOME, I S MERITED. ACCORDINGLY, WE DIRECT THE ASSESSING OFF ICER TO DELETE THE DISALLOWANCE COMPUTED UNDER RULE 8D(II) OF INCOME TAX RULES. THE SECOND ASPECT OF THE ISSUE I S DISALLOWANCE UNDER RULE 8D(III) OF INCOME TAX RULES ON ACCOUNT OF ADMINISTRATIVE EXPENSES. ADMITTEDLY, T HE ASSESSEE IS NOT MAINTAINING SEPARATE ACCOUNTS IN RE SPECT OF ITS INVESTMENT ACTIVITY AND IN VIEW THEREOF THE PRO VISIONS OF RULE 8D OF INCOME TAX RULES ARE SQUARELY APPLICABLE AND DISALLOWANCE IS TO BE COMPUTED IN ACCORDANCE WITH THE SAID PROVISIONS OF RULE 8D OF INCOME TAX RULES FOR WORKING OUT DISALLOWANCE UNDER SECTION 14A OF THE A CT. ACCORDINGLY, WE UPHOLD THE ORDER OF THE ASSESSING O FFICER IN THIS REGARD. HOWEVER, THE ASSESSEE IS ENTITLED TO THE SET OFF OF THE AMOUNT SURRENDERED AT RS.6,06,977/-. IN VIEW 48 THEREOF, GROUND NOS.8 TO 8.4 RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. IT IS SEEN FROM THE PERUSAL OF THE BALANCE SHEET T HAT NO NEW INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE DURI NG THE YEAR AS TOTAL INVESTMENTS HAVE REDUCED FROM 33,221. 23 LACS ON 31.3.2008 TO RS.0.05 LACS AS ON 31.3.2009. FUR THER, IN THE ORDER OF THE EARLIER YEARS, I.T.A.T. HAS HELD T HAT NO INTEREST BEARING FUNDS ARE USED FOR THE PURPOSES OF INVESTMENTS, NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE CAN BE MADE UNDER SECTION 14A OF THE AC T. 57. WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE MAD E UNDER RULE 8D OF THE INCOME TAX AND AS REGARDS THE ADMINISTRATION EXPENSES, WE DIRECT THE ASSESSING OF FICER TO SET OFF THE SUO MOTO DISALLOWANCE MADE BY THE ASSES SEE ON THIS ACCOUNT. 58. THE GROUND NO.9 READS AS UNDER : 9. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING DISALLOWANCE OF RS. 1,58,96,000 CLAIMED IN RES PECT OF PROVISION TOWARDS LONG TERM INCENTIVE PLAN HOLDI NG THE SAME TO BE AN UNASCERTAINED LIABILITY, OBSERVING THA T THE LIABILITY HAS NOT BEEN COMPUTED ON A SCIENTIFIC BASIS. 55. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.158.96 LACS IN THE PROFIT & LOSS ACCOUNT TOWARDS LONG 49 TERM INCENTIVE PLAN,. ON A QUERY RAISED BY THE AS SESSING OFFICER, IT WAS SUBMITTED THAT THE ASSESSEE HAD INI TIATED A LONG TERM INCENTIVE PLAN TO MAINTAIN ITS COMPETITIV ENESS IN ATTRACTING AND RETAINING SENIOR GRADE MANAGER. IN TERMS OF THE SAID PLAN, THE OPTION GRANTED TO THE EMPLOYEES WAS VALUED AT THE PREVAILING MARKET PRICE OF THE SHARES OF THE PARENT COMPANY OF THE ASSESSEE. THIS AMOUNT IS CO NVERTED INTO INDIAN RUPEE AND LIABILITY IS PROVIDED BY THE ASSESSEE, WHICH IS RE-VALUED EVERY QUARTER FOR BOTH SHARE VAL UE AND THE EXCHANGE VALUE. THE EMPLOYEE RECEIVES CASH EQ UIVALENT OF THE MARKET PRICE OF THE SHARES GRANTED UNDER THE OPTION AS ON THE DATE OF EXERCISE OF THE OPTION AFTER THE EXPIRY OF THREE YEARS FROM THE DATE OF GRANT OF THE OPTION PR OVIDED THE EMPLOYEE IS IN CONTINUOUS EMPLOYMENT TILL SUCH DATE . THE PAYMENT IS MADE TO THE EMPLOYEE WHICH IS EQUIVALENT TO MARKET PRICE OF THE SHARES ON THE DATE OF EXERCISE OF THE OPTION. IN THIS BACKGROUND, THE ASSESSEE HAD MADE A PROVISION OF RS.158.96 LACS FOR PROPORTIONATE LIABI LITY OF THE RELEVANT YEAR IN RESPECT OF THE AMOUNT PAYABLE TO T HE EMPLOYEES RELATABLE TO SERVICES RENDERED BY THE EMP LOYEES UNTIL THE END OF THE RELEVANT YEAR. THE SAID AMOUN T REPRESENTS THE VALUE OF OPTIONS GRANTED DURING THE CURRENT YEAR AS WELL AS THE DIFFERENTIAL AMOUNT ON REVALUI NG THE OPTIONS GRANTED IN EARLIER YEARS BY APPLYING THE SH ARE VALUE AS WELL AS THE EXCHANGE RATE AS AT THE END OF THE Y EAR. IT WAS SUBMITTED THAT UNDER THE MERCANTILE SYSTEM OF ACCOUNTING DEDUCTION OF EXPENDITURE IS ALLOWABLE IN THE YEAR IN WHICH LIABILITY IS QUANTIFIED AND ACCRUED NOTWIT HSTANDING 50 THAT THE SAME HAS TO BE DISCHARGED AT A LATER DATE. SINCE THE LIABILITY IS IN RESPECT OF SUBSISTING LIABILITY OF INCENTIVE PAYABLE TO EMPLOYEES IN RELATION TO SERVICES RENDER ED UNTIL THE END OF THE RELEVANT YEAR, WHICH GOT ACCRUED DUR ING SUCH YEAR, THE SAME IS ALLOWABLE AS BUSINESS DEDUCTION I N ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING . FURTHER, IT WAS ALSO SUBMITTED THAT IN ASSESSMENT Y EAR 2005-06, IT WAS THE FIRST YEAR OF ITS INCENTIVE PLA N AND IN ALL THE SUBSEQUENT ASSESSMENT YEARS COMPLETED W.E.F . ASSESSMENT YEARS 2006-07 TO 2008-09, THE SAID ISSUE WAS DISCUSSED DURING THE ASSESSMENT PROCEEDINGS BUT NO DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER. R EJECTING THE CONTENTION OF THE ASSESSEE, THE ASSESSING OFFIC ER FORMED A VIEW THAT IN RESPECT OF AN AMOUNT PAYABLE TO THE EMPLOYEE RELATABLE TO THE SERVICES RENDERED BY HIM UNTIL THE END OF THE RELEVANT YEAR, THE ASSESSEE HAS MADE A PROVISIO N FOR PROPORTIONATE LIABILITY. HOWEVER, THE AMOUNT IS A CTUALLY PAYABLE TO THE EMPLOYEE AS ON THE DATE OF EXERCISE OF OPTION I.E. AFTER EXPIRY OF THREE YEARS FROM THE DATE OF G RANT OF THE OPTION, THAT TOO ON A CONDITION THAT THE EMPLOYEE R ETAINS HIMSELF IN SERVICE TILL SUCH DATE. THEREFORE, THE LIABILITY IN CASE OF AN EMPLOYEE CAN NEVER BE ASCERTAINED REASON ABLY AS ANY EMPLOYEE CAN LEAVE AT ANY TIME BEFORE THE SCHEM E MATURES. IT IS IMPROBABLE THAT ANY EMPLOYEE OF TH E COMPANY WILL LEAVE HIS JOB ONLY AFTER THE SCHEME GE TS FINAL. THE ASSESSEE HAS NO EXPLANATION ABOUT ANY SCIENTIFI C APPROACH ADOPTED BY IT TO SETTLE THE UNABSORBED FUN DS UNDER THE PROVISION AND BRING THAT TO TAX. IN THI S VIEW, THE 51 ASSESSING OFFICER HELD THAT THE PROVISION SO CREATE D UNDER THE SCHEME IS TOTALLY AN UNASCERTAINED LIABILITY AN D CANNOT BE ALLOWED AGAINST THE TAXABLE PROFITS OF THE ASSES SEE COMPANY. 56. BEFORE THE DRP DETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE. HOWEVER, REJECTING ALL THESE, THE DR P CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 57. BEFORE US, THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AS WELL AS THE DRP WERE REITERATE D WITH FULL FORCE. IN ADDITION TO THAT, THE LEARNED COUNS EL FOR THE ASSESSEE SUBMITTED THAT IN THE RELEVANT ASSESSMENT YEAR FOR THE FIRST TIME THE SAID EXPENDITURE HAS BEEN DISALL OWED BY THE ASSESSING OFFICER HOLDING THE SAME TO BE CONTIN GENT LIABILITY. FURTHER, IT WAS EXPLAINED THAT THE AMO UNT REPRESENTS THE VALUE OF OPTION GRANTED DURING THE C URRENT YEAR AS WELL AS THE DIFFERENTIAL AMOUNT ON REVALUIN G THE OPTIONS GRANTED IN EARLIER YEARS BY APPLYING THE SH ARE VALUE AS WELL THE EXCHANGE RATE AS AT THE END OF THE YEAR . THE METHOD ALSO TAKES INTO ACCOUNT REVERSAL OF THE PROV ISION MADE IN EARLIER YEARS IN RESPECT OF EMPLOYEES WHO L EFT OR CEASED TO BE ELIGIBLE FOR THE BENEFIT. THE PROVIS IONS REVERSED DURING THE YEAR ARE ACCORDINGLY CREDITED T O THE PROFIT & LOSS ACCOUNT AND DULY OFFERED TO TAX. TH E COMPUTATION PART WAS EXPLAINED WITH THE HELP OF A C HART FILED. IN VIEW OF THE SAME, IT WAS SUBMITTED THAT THE PROVISION OF INCENTIVE PAYABLE TO EMPLOYEES IS IN R ESPECT OF SERVICES RENDERED BY EMPLOYEES UNTIL THE END OF THE RELEVANT 52 YEAR AND THE SAME ACCRUED OR CRYSTALLIZED INTO A LI ABILITY DURING THE RELEVANT YEAR ON GRANT OF THE OPTION TO THE EMPLOYEE. THEREFORE, IT IS NECESSARY TO THE ASSES SEE TO MAKE PROVISION OF SUCH ACCRUED OR CRYSTALLIZED LIAB ILITY UNDER THE MERCANTILE SYSTEM OF ACCOUNTING MANDATORI LY TO BE FOLLOWED. RELIANCE WAS HEAVILY PLACED ON THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF B IOCON LIMITED VS. DCIT, 155 TTJ 649 (SB), COPY OF WHICH W AS PLACED BEFORE THE BENCH, WHEREIN IT HAS BEEN HELD T HAT THE SAID DISCOUNT WAS AN ASCERTAINED LIABILITY SINCE TH E EMPLOYER INCURS OBLIGATION TO COMPENSATE THE EMPLOY EE OVER THE VESTING PERIOD NOTWITHSTANDING THE FACT THAT TH E EXACT AMOUNT OF DISCOUNT IS QUANTIFIED ONLY AT THE TIME O F EXERCISING THE OPTIONS. FURTHER, IT HAS BEEN HELD IN THE SAME ORDER THAT INCURRING OF LIABILITY AND THE RESU LTANT DEDUCTION CANNOT BE MARRED BY MERE REASON OF SOME DIFFICULTY IN PROPER QUANTIFICATION OF SUCH LIABILI TY AT THAT STAGE. THE VERY POINT OF INCURRING THE LIABILITY ENABLES THE ASSESSEE TO CLAIM DEDUCTION UNDER MERCANTILE SYSTEM OF ACCOUNTING. THE RELIANCE WAS PLACED ON THE JUDGMEN T OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. M /S PVP VENTURES LTD., 211 TAXMAN 554 AND THAT OF THE CHENN AI BENCH OF THE TRIBUNAL IN THE CASE OF SSI LTD. VS. DCIT, 85 TJ 1049. IN VIEW OF THE ABOVE, IT WAS PRAYED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BE DELET ED. 58. THE LEARNED D.R. RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 53 59. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THIS IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS CREATED LIABI LITY IN RESPECT OF LONG TERM INCENTIVES PLAN OF RS.158.96 L ACS DURING THE YEAR. IT IS ALSO A FACT THAT THE ASSES SEE HAS ADOPTED A STANDARD METHOD TO VALUE THE SAID PROVISI ON YEAR AFTER YEAR. THE ONLY CONTENTION OF THE ASSESSING OFFICER TO MAKE THE DISALLOWANCE SEEMS THE FACT THAT THERE IS NO CERTAINTY OF THE PAYMENT ON ACCOUNT OF THIS INCENTI VE PLAN, WHICH WAS DEPENDENT ON A NUMBER OF UNFORESEEABLE CONDITIONS. THE EXISTENCE OF VARIABLES DEFINITELY MADE THE QUANTIFICATION OF THE INCENTIVE CLAIM UNCERTAIN. IN VIEW OF THE SAME, THE ONLY ISSUE TO BE DECIDED BY US IS WHE THER THE PROVISION FOR INVESTMENT PLAN MADE BY THE ASSESSEE DURING THE YEAR IS ALLOWABLE IN THIS YEAR OR NOT. WE HAV E TO SEE WHETHER THE SAID PROVISION COME UNDER THE AMBIT OF DEDUCTIBLE EXPENDITURE UNDER SECTION 37(1) OF THE A CT OR NOT. THE CONTENTION OF THE ASSESSING OFFICER SEEMS THAT HE IS CONSIDERING THE SAID LIABILITY TO BE CONTINGENT AS AT VARIOUS PLACES IN HIS ORDER, HE HAS MENTIONED THAT THERE IS UNCERTAINTY AS TO THE QUANTUM OF EXPENSES TO BE INC URRED IN ANY PARTICULAR YEAR. IT IS A KNOWN FACT THAT IN TH IS TYPE OF INCENTIVE SCHEME, OPTIONS ARE REVERSED DUE TO NON-E XERCISE OR UNDER VESTED OPTION THAT GET CANCELLED DUE TO LE AVING OF OFFICE BY ANY OF THE EMPLOYEES. THIS FACT WEIGHED VERY HEAVILY IN THE MIND OF THE ASSESSING OFFICER WHILE MAKING THIS DISALLOWANCE. NOW THE ISSUE ARISES WHETHER TH E 54 LIABILITY IN QUESTION IS CONTINGENT LIABILITY OR AN UNASCERTAINED LIABILITY. IT IS A TRITE LAW THAT T HE LIABILITY WHICH IS ASCERTAINED DURING THE YEAR IS AN ALLOWABL E EXPENDITURE, WHILE CONTINGENT LIABILITY IS NOT. I T IS ALSO A SETTLED LAW THAT AN UNASCERTAINED LIABILITY HAS TO BE ALLOWED EVEN IF THE SAME IS QUANTIFIED ON A FUTURE DATE. T HE INCENTIVE PLAN SO FORMULATED BY THE ASSESSEE IS A V ERY COMMON FORM OF SCHEME FORMED BY MANY OF THE COMPANI ES POPULARLY KNOWN AS ESOP SCHEME. THE TERMS AND CONDITIONS OF THE INVESTMENT PLAN OF THE ASSESSEE A RE SAME AS IN ANY GENERAL SCHEME OF ESOP. THE QUESTION OF LIABILITY OF THIS TYPE OF PROVISION CAME BEFORE THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF BIOCON LIMITED (SUPRA) . THE BASIC QUESTION IN THAT CASE ALSO WAS WHETHER THE PR OVISION MADE FOR ESOP DURING THE YEAR IS AN ASCERTAINED LIA BILITY UNDER SECTION 37(1) OF THE ACT. THE SPECIAL BENCH DEALING WITH THE ISSUE HELD THAT THE DISCOUNT IN RELATION T O OPTIONS LAPSING DURING THE YEAR CANNOT BE HELD AS CONTINGEN T LIABILITY AND SUCH EXPENDITURE IS ON ACCOUNT OF AN ASCERTAINED LIABILITY IN FOLLOWING TERMS : AS REGARDS THE CONTENTION OF THE REVENUE ABOUT THE CONTINGENT LIABILITY ARISING ON ACCOUNT OF THE OPTION S LAPSING DURING THE VESTING PERIOD OR THE EMPLOYEES NOT CHOOS ING TO EXERCISE THE OPTION, IT WAS FOUND THAT NORMALLY IT WAS P ROVIDED IN THE SCHEMES OF ESOP THAT THE VESTED OPTIONS THAT LA PSE DUE TO NON-EXERCISE AND/OR UNVESTED OPTIONS THAT GET CANCELLE D DUE TO RESIGNATION OF THE EMPLOYEES OR OTHERWISE, WOULD BE AVAILA BLE FOR GRANT AT A FUTURE DATE OR WOULD BE AVAILABLE FOR BEING RE-GRANTED AT A FUTURE DATE. IF IT IS CONSIDERED AT MICRO LEVEL Q UA EACH INDIVIDUAL EMPLOYEE, IT MAY SOUND CONTINGENT, BUT IF IT IS 55 VIEWED AT MACRO LEVEL QUA THE GROUP OF EMPLOYEES AS A WHOLE, IT LOSES THE TAG OF 'CONTINGENT' BECAUSE SUCH LAPSIN G OPTIONS ARE UP FOR GRABS TO THE OTHER ELIGIBLE EMPLOYEES. IN ANY CASE, IF SOME OF THE OPTIONS REMAIN UNVESTED OR ARE NOT EXERCISED , THE DISCOUNT HITHERTO CLAIMED AS DEDUCTION IS REQUIRED TO BE REVER SED AND OFFERED FOR TAXATION IN SUCH LATER YEAR. THEREFORE, THE DISCOUNT IN RELATION TO OPTIONS VESTING DURING THE YEAR CANNOT BE HELD AS A CONTINGENT LIABILITY. PROVISIONS TO SECTION 115WB CON TEMPLATES THAT THE DISCOUNT ON PREMIUM UNDER ESOP AS A BENEFI T PROVIDED BY THE EMPLOYER TO ITS EMPLOYEES DURING THE COURSE OF SERVICE. IT WAS HELD THAT IF THE LEGISLATURE CONSIDERS SUCH DISCOU NTED PREMIUM TO THE EMPLOYEES AS A FRINGE BENEFIT OR 'ANY CONSIDERATION FOR EMPLOYMENT', IT WAS NOT OPEN TO ARG UE CONTRARY. ONCE IT WAS HELD AS A CONSIDERATION FOR EMP LOYMENT, THE NATURAL COROLLARY WHICH FOLLOWS IS THAT SUCH DISCO UNT IS AN EXPENDITURE; SUCH EXPENDITURE IS ON ACCOUNT OF AN ASCERTAINED (NOT CONTINGENT) LIABILITY AND IT CANNO T BE TREATED AS A SHORT CAPITAL RECEIPT. IN VIEW OF THE FORGOING DISCUSSION, IT WAS HELD THAT DISCOUNT ON SHARES UNDER THE ESOP IS AN ALLOWABLE DEDUCTION. 60. SINCE RELIANCE WAS PLACED ON THIS JUDGMENT AND OTHER JUDGMENTS OF VARIOUS BENCHES OF THE TRIBUNAL, WHO HAD IN TURN RELIED UPON THE SPECIAL BENCH, DURING T HE COURSE OF HEARING AND NO DISTINGUISHING FACTS WERE BROUGHT TO OUR NOTICE BY THE LEARNED D.R., RESPECTFULLY FOL LOWING THE ORDER OF THE SPECIAL BENCH, WE ALSO HOLD THAT THE P ROVISION ON ACCOUNT OF INCENTIVE PLAN MADE BY THE ASSESSEE D URING THE YEAR IS AN ASCERTAINED LIABILITY. FURTHER, WE SEE THAT THE ASSESSING OFFICER HAS NOWHERE OBJECTED TO THE M ETHOD OF QUANTIFYING THE SAID PROVISION BY THE ASSESSEE. T HE GROUND OF APPEAL NO.9 RAISED BY THE ASSESSEE IS ALLOWED. 56 61. THE GROUND NO.10 RAISED BY THE ASSESSEE READS AS UNDER : 10. THUS THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING CREDIT OF TDS AMOUNTING TO RS.58,817 WHILE FIN ALLY COMPUTING THE INCOME TAX LIABILITY ALTHOUGH THE SAME WAS ALLOWED AS PER THE ASSESSMENT ORDER. 62. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CREDIT OF TDS AMOUNTING TO RS.58,717/- WHILE COMPUT ING THE INCOME TAX LIABILITY. 63. THE GROUND NO.11 RAISED BY THE ASSESSEE READS AS UNDER : 11. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING THE RELIEF OF RS.2,69,492 CLAIMED UNDER SECT ION 90 OF THE ACT IN THE RETURN OF INCOME ALTHOUGH THE SAME WAS ALLOWED AS PER THE DRAFT ORDER PASSED UNDER SECTION 143(3)/144C OF THE ACT. 64. IT IS SEEN THAT RELIEF OF RS.2,69,492/- CLAIME D UNDER SECTION 90 OF THE ACT BY THE ASSESSEE IN ITS RETURN OF INCOME WAS ALLOWED BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER PASSED UNDER SECTION 143(3)/144 OF THE ACT. HOWEVER, WHILE MAKING THE FINAL COMPUTATION, THE SAID RELIEF WAS NOT ALLOWED. WE HEREBY DIRECT THE ASSES SING OFFICER TO GRANT THE SAID RELIEF TO THE ASSESSEE. 65. THE GROUND NO.12 IS CONSEQUENTIAL IN NATURE, HENCE NEEDS NOT ADJUDICATION. 57 66. THE APPEAL OF THE ASSESSEE IN ITA NO.290/CHD/2014 IS PARTLY ALLOWED. ITA NO.208/CHD/2015 : 67. THE GROUND NO.1 IS GENERAL, THEREFORE NEEDS NO ADJUDICATION. 68. THE GROUND NO.2 RAISED BY THE ASSESSEE IN THIS APPEAL READS AS UNDER : 2. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING ADDITION OF RS.218.47.61.575 ON ACCOUNT OF ARM'S LENGTH PRICE OF ALLEGED INTERNATIONAL TRANSACTI ONS RESULTING FROM ADVERTISEMENT, MARKETING AND SALES PROMOTION EXPENSES ( AMP EXPENSES') INCURRED BY THE APPELLANT ON THE BASIS OF THE ORDER PASSED BY THE TPO UNDER SECTION 92CA(3) OF THE ACT. 69. IT IS RELEVANT TO OBSERVE HERE THAT THE ISSUE IN THIS GROUND IS SIMILAR TO THE ISSUE IN GROUND NO.2 RAISE D BY THE ASSESSEE IN ITA NO.290/CHD/2014 AND THE FINDINGS GI VEN IN ITA NO.290/CHD/2014 SHALL APPLY TO THIS CASE ALSO W ITH EQUAL FORCE. 70. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESS EE READS AS UNDER : 3. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING CONSUMER MARKET RESEARCH EXPENSES OF RS. 19,39,45,000/- UNDER SECTION 37(1) OF THE ACT, ALLEGING THE SAME TO BE CAPITAL IN NATURE. 58 71. THE ISSUE IN THIS GROUND IS SIMILAR TO THE ISS UE IN GROUND NO.4 RAISED BY THE ASSESSEE IN ITA NO.290/CH D/2014 AND THE FINDINGS GIVEN IN ITA NO.290/CHD/2014 SHALL APPLY TO THIS CASE MUTATIS MUTANDIS. 72. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESS EE READS AS UNDER : 4. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEDUCTION TOWARDS THE CLOSING BALANCE AMOUNTING TO RS.24,09,591/- LYING IN PROFIT & LOSS ACCO UNT CLAIMED UNDER SECTION 43 B OF THE ACT. 4.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN REDUCING THE RETURNED INCOME BY AN AMOUNT OF RS.3, 03,1 46/-, WITHOUT APPRECIATING THAT THE ASSESSEE HAD CL AIMED DEDUCTION OF THE CLOSING BALANCE LYING IN PLA AMOUNTING TO RS.24,09,591/- AND ADDED BACK THE OPEN ING BALANCE LYING IN PLA AMOUNTING TO RS.27, 12,737/- ( CLAIMED AS DEDUCTION U/S 43B BY THE APPELLANT IN THE RETURN OF THE IMMEDIATELY PRECEDING ASSESSMENT YEAR), RESULTING I N A NET ADDITION OF RS.3,03,146/-. 73. THE ISSUE IN THIS GROUND IS SIMILAR TO THE ISS UE IN GROUND NO.3 RAISED BY THE ASSESSEE IN ITA NO.290/CH D/2014 AND THE FINDINGS GIVEN IN ITA NO.290/CHD/2014 SHALL APPLY TO THIS CASE ALSO WITH EQUAL FORCE. 74. THE GROUND OF APPEAL NO.5 RAISED BY THE ASSESS EE READS AS UNDER : 5. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN MAKING DISALLOWANCE OF RS.2,10,00,000/-, CLAIMED IN RESPECT OF LIABILITY FOR POST RETIREMENT MEDICAL 59 BENEFITS TO THE EMPLOYEES, HOLDING THE SAME TO BE A N UNASCERTAINED LIABILITY. 5.1 THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN OBSERVING THAT THE PROVISION HAS BEEN MADE BY DEBIT ING THE GENERAL RESERVES, WITHOUT APPRECIATING THAT THE SAI D PROVISION WAS MADE BY DEBITING THE PROFIT AND LOSS AC COUNT. 75. IT IS RELEVANT TO OBSERVE HERE THAT THE ISSUE IN THIS GROUND IS SIMILAR TO THE ISSUE IN GROUND NO.5 RAISE D BY THE ASSESSEE IN ITA NO.290/CHD/2014 AND THE FINDINGS GI VEN IN ITA NO.290/CHD/2014 SHALL APPLY TO THIS CASE ALSO W ITH EQUAL FORCE. 76. THE GROUND OF APPEAL NO.6 RAISED BY THE ASSESS EE READS AS UNDER : 6. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN DISALLOWING EXPENDITURE AGGREGATING TO RS.73.31,80,000 . INCURRED BY THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR ON ACCOUNT OF ROYALTY, HOLDING THE SAM E TO BE CAPITAL IN NATURE. 77. THE ISSUE IN THIS GROUND IS SIMILAR TO THE ISS UE IN GROUND NO.6 RAISED BY THE ASSESSEE IN ITA NO.290/CH D/2014 AND THE FINDINGS GIVEN IN ITA NO.290/CHD/2014 SHALL APPLY TO THIS CASE ALSO WITH EQUAL FORCE. 78. THE GROUND OF APPEAL NO.7 RAISED BY THE ASSESS EE READS AS UNDER : 7. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN DISALLOWING INTEREST OF RS.3,08,24,000/- AS CAPITAL EXPENDITURE IN TERMS OF PROVISO TO SECTION 36(L)(II I) OF 60 THE ACT ALLEGING THE SAME TO HAVE BEEN INCURRED FOR INVESTMENT MADE IN CAPITAL WORK IN PROGRESS ('CWIP'). 7.1 THAT THE ASSESSING OFFICER ERRED IN PROCEEDING ON A FACTUALLY INCORRECT PREMISE THAT THE APPELLANT HAD BORROWED F UNDS WHICH HAD BEEN UTILIZED FOR MAKING INVESTMENT IN CWIP, WITHOUT APPRECIATING THAT THE APPELLANT HA D NO BORROWED FUNDS AT ALL. 7.2 WITHOUT PREJUDICE, THAT THE ASSESSING OFFICER ER RED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION (IN T HE YEAR OF CAPITALIZATION OF THE CWIP) ON INTEREST EXPENSES OF RS. 308,24,000/- HELD TO BE CAPITAL IN NATURE. 79. IT IS RELEVANT TO OBSERVE HERE THAT THE ISSUE IN THIS GROUND IS SIMILAR TO THE ISSUE IN GROUND NO.7 RAISE D BY THE ASSESSEE IN ITA NO.290/CHD/2014 AND THE FINDINGS GI VEN IN ITA NO.290/CHD/2014 SHALL APPLY TO THIS CASE ALSO W ITH EQUAL FORCE. 80. THE GROUND OF APPEAL NO.8 RAISED BY THE ASSESS EE READS AS UNDER : 8. THAT THE ASSESSING OFFICER ERRED ON FACTS AND I N LAW IN MAKING DISALLOWANCE OF RS.3,39,06,000/-, CLAIMED IN RESPECT OF PROVISION TOWARDS LONG TERM INCENTIVE PLAN H OLDING THE SAME TO BE AN UNASCERTAINED LIABILITY, OBSERVING THAT THE LIABILITY HAS NOT BEEN COMPUTED ON A SCIENTIFIC BASI S. 81. THE ISSUE IN THIS GROUND IS SIMILAR TO THE ISS UE IN GROUND NO.9 RAISED BY THE ASSESSEE IN ITA NO.290/CH D/2014 AND THE FINDINGS GIVEN IN ITA NO.290/CHD/2014 SHALL APPLY TO THIS CASE ALSO WITH EQUAL FORCE. 61 82. THE GROUND NO.9 RAISED BY THE ASSESSEE IN THIS APPEAL IS CONSEQUENTIAL IN NATURE, HENCE NEEDS NOT ADJUDICATION. 83. THE APPEAL OF THE ASSESSEE IN ITA NO.208/CHD/2015 IS PARTLY ALLOWED. 84. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSE E ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF NOVEMBER, 2015. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACOUNTANT MEMBER DATED : 6 TH NOVEMBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH