ACIT 8(3), MUMBAI V. TRIGYN TECHNOLOGIES LTD ( EARLIER KNOWN AS LEADING EDGE SYSTEMS LTD), MUMBAI

ITA 3012/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4037 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 12-03-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 03-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Capital asset; Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Capital receipt; Commercial expediency; Unabsorbed depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 92B; 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 1986/MUM/2012 (ASSESSMENT YEAR : 2005-06) M/S. TRIGYN TECHNOLOGIES LIMITED, UNIT 27A, SDF-1,SEEPZ, ANDHERI (E), MUMBAI 400 096 PAN:AAACL2065K ... APPELLANT VS. THE ACIT 11(3)(1), ROOM NO.427, 4 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI. .... RESPONDENT ITA NO. 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) THE ACIT 11(3)(1), ROOM NO.427, 4 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI. ...... APPELLANT VS. M/S. TRIGYN TECHNOLOGIES LIMITED, UNIT 27A, SDF-1,SEEPZ, ANDHERI (E), MUMBAI 400 096 PAN:AAACL2065K ....RESPONDENT ASSESSEE BY : SHRI VIJAY MEHTA REVENUE BY : SHRI N.K.CHAND DATE OF HEARING : 30/03/2016 DATE OF PRONOUNCEMENT : 20/04/2016 2 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) ORDER PER G.S. PANNU,AM: THE CAPTIONED CROSS-APPEALS FILED BY THE ASSESSEE AND REVENUE PERTAINING TO A.Y. 2005-06 ARE DIRECTED AGAINST AN ORDER PASSED BY LD. CIT(A)-15, MUMBAI DATED 27/02/2012, WHICH IN TURN A RISES OUT OF AN ORDER PASSED BY ASSESSING OFFICER UNDER SECTION 1 43(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 05/01/2011 . 2. INSOFAR AS THE APPEAL OF THE ASSESSEE IS CONCERN ED, THE GROUNDS OF APPEAL RAISED READ AS UNDER : FOLLOWING GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.50,50,800/- MADE BY THE ASSESSING OFFICER TR EATING THE SAME AS CAPITAL EXPENDITURE. THE ID. CIT(A) OUGHT TO HAVE DELETED T HE SAID DISALLOWANCE AS THE EXPENSES WERE INCURRED FOR OBTAINING ADVISORY SERVI CES SO AS TO FACILITATE THE RESTRUCTURE OF BANK DEBTS AND, THEREFORE, FOR THE P URPOSES OF THE BUSINESS. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS.10,00,000/- INCURRED BY THE APPELLANT IN CONN ECTION WITH ISSUANCE OF SHARES AND, AS SUCH, CLAIMED AS SHARE ISSUE EXPENSE S. 3. WITHOUT PREJUDICE TO THE ABOVE, THE ID. CIT(A) OUGH T TO HAVE DIRECTED THE ASSESSING OFFICER TO ALLOW THE AFORESAID EXPENDITUR E OF RS. 10,00,000/ - U/S. 35D OF THE ACT. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING THE ADDITION OF RS.15,35,03,849/- U/S. 28(IV) OF THE ACT, REPRESENT ING THE WAIVER OF THE OUTSTANDING PRINCIPAL AMOUNT OF LOAN. THE ID. CIT ( A) OUGHT TO HAVE CONSIDERED THAT THE LOAN WAS OBTAINED AND UTILIZED FOR ACQUISI TION OF CAPITAL ASSETS AND, THEREFORE, NOT LIABLE TO BE TAXED EITHER U/S. 28(IV ) OR U/ S. 41(1) OF THE ACT. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRM THE ADDITION OF RS.3,25,00,000/- OUT OF THE AMOUNT OF INTEREST WAIV ED. 6. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS I N UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN BRINGING TO TAX RS. 34,61,28,8 50/- AS BOOK PROFIT U/S. 115JB OF THE ACT BY HOLDING THAT AMOUNT OF WAIVER OF PRIN CIPAL AND INTEREST ON LOAN ARE NOT INCOME GENERATED OUT OF SEZ BUSINESS ACTIVITY. 7. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS I N SUSTAINING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING THE BENEFIT OF SE T OFF OF UNABSORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES. 3 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) 8. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS I N CONFIRMING THE TNMM METHOD ADOPTED BY THE TPO/AO IN PREFERENCE TO THE B ENCHMARKING DONE BY THE APPELLANT FOLLOWING CUP METHOD AND IN VIRTUALLY APP ROVING THE COMPUTATION OF ALP MADE BY THE TPO / AO SUBJECT TO EXCLUSION OF TH REE COMPANIES. 3. FURTHER, THE GROUND OF APPEAL RAISED IN THE CROS S APPEAL BY THE REVENUE READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN ALLOWING THE BENEFIT OF -5% RELIEF TO THE ASSESSEE AS PER PROVISO TO SEC.92C(2) OF THE INCOME TAX ACT, 1961, WITHOUT APP RECIATING THAT THE SAME IS NOT A STANDARD DEDUCTION TO ALL THE ASSESSES UND ER THE INCOME TAX ACT, 1961 4. BEFORE PROCEEDING TO ADJUDICATE THE RESPECTIVE G ROUNDS OF APPEAL, IT WOULD BE APPROPRIATE TO NOTE THE BACKGRO UND OF THE CASE. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PR OVISIONS OF THE COMPANIES ACT, 1956 AND IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND RENDERING TECHNICAL SERVICES OUTSID E INDIA IN THE FIELD OF COMPUTER SOFTWARE. FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION, ASSESSEE COMPANY FILED A RETURN OF INCOME DECLARING AN INCOME OF RS.8,43,41,285/- WHICH WAS SET-OFF AGAINST BROUGHT FORWARD BUSINESS LOSSES AND ULTIMATELY THE TAXABLE INCOME WAS DECLAR ED AT NIL. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD ALSO ENT ERED INTO CERTAIN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISE ABROAD WITHIN THE MEANING OF SEC. 92B OF THE ACT AND CONSEQUENTLY THE ASSESSING OFFICER ALSO TOOK INTO CONSIDERATION THE DETERMINAT ION OF ARMS LENGTH PRICE OF SUCH INTERNATIONAL TRANSACTIONS DETERMINED BY THE TPO IN AN ORDER PASSED U/S 92CA(3) OF THE ACT. IN THE ASSESS MENT FINALIZED U/S 143(3) OF THE ACT, THE ASSESSING OFFICER DETERMINED THE TOTAL INCOME AT RS.31,17,15,420/- UNDER THE NORMAL PROVISIONS OF TH E ACT, AFTER MAKING CERTAIN ADDITIONS/DISALLOWANCES. ASSESSEE-COMPANY CARRIED SUCH 4 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) ADDITIONS/DISALLOWANCES IN APPEAL BEFORE THE CIT(A) WHO ALLOWED PARTIAL RELIEF. ASSESSEE IS IN FURTHER APPEAL BEFORE US ON THE AFORESTATED GROUNDS OF APPEAL IN RESPECT OF THE RELIEFS NOT GRA NTED BY THE CIT(A) WHEREAS REVENUE IN ITS APPEAL HAS ASSAILED SOME OF THE RELIEFS ALLOWED BY THE CIT(A). 5. IN THIS BACKGROUND, THE RIVAL COUNSELS HAVE BEEN HEARD AND THE RELEVANT MATERIAL PERUSED. WE MAY FIRST TAKE UP TH E GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN SERIATIM . BY WAY OF GROUND OF APPEAL NO. 1, ASSESSEE-COMPANY HAS ASSAILED THE ACTION OF THE CIT (A) IN SUSTAINING A DISALLOWANCE OF RS. 50,50,800/- REPRESENTING EXPEND ITURE INCURRED BY THE ASSESSEE FOR OBTAINING ADVISORY SERVICES IN CON NECTION WITH THE RESTRUCTURING OF BANK DEBTS. SUCH EXPENDITURE WAS CLAIMED AS A REVENUE EXPENDITURE WHICH HAS BEEN DISALLOWED BY TH E ASSESSING OFFICER TREATING THE SAME AS CAPITAL EXPENDITURE. 6. IN THIS CONTEXT, RELEVANT FACTS ARE THAT ASSESSE E PAID A SUM OF RS.50,50,800/- TO M/S. QUARTET FINANCIAL SERVICES P VT. LTD. IN RESPECT OF ADVISORY SERVICES RENDERED BY THEM WITH RESPECT TO RESTRUCTURING OF BANK DEBT, IDENTIFICATION OF INVESTOR, RAISING EQUI TY CAPITAL AND STRUCTURING OF SUCH TRANSACTIONS. JUSTIFYING THE P AYMENT AS REVENUE EXPENDITURE, THE STAND OF THE ASSESSEE BEFORE US AS WELL AS BEFORE THE LOWER AUTHORITIES IS ON THE FOLLOWING LINES. IT HA S BEEN EXPLAINED THAT ASSESSEE HAD AN OUTSTANDING LOAN LIABILITY FROM GLO BAL TRUST BANK CARRYING HEAVY INTEREST COST WHICH WAS AFFECTING IT S PROFITABILITY ADVERSELY. WITH A VIEW TO REDUCING INTEREST COST, ASSESSEE-COMPANY MADE A DECISION TO RESTRUCTURE THE DEBTS OR IDENTIF Y A STRATEGIC INVESTOR 5 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) WHO COULD TAKE OVER THE DEBTS OF THE ASSESSEE-COMPA NY. FOR THE SAID PURPOSE, QUARTET FINANCIAL SERVICES PVT. LTD. WAS A PPOINTED TO COME UP WITH PROPOSALS WHICH WOULD ENABLE ASSESSEE TO ACHIE VE THE SAID PURPOSE AND ACCORDINGLY, A FEE OF RS.50,50,800/- WA S PAID. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT BEFORE US THAT IT WAS BECAUSE OF THE PROPOSALS GIVEN BY THE SAID CONSULTA NT THAT ASSESSEE WAS ABLE TO RESTRUCTURE ITS INTEREST BEARING DEBTS WHIC H RESULTED IN REDUCED INTEREST COSTS. 7. THE REVENUE, ON THE OTHER HAND, POINTED OUT THAT THE EXPENDITURE HAS BEEN INCURRED ON ACCOUNT OF CAPITAL RESTRUCTURING AND THEREFORE SUCH EXPENDITURE WAS TO BE CONSIDERED AS A CAPITAL EXPENDITURE FOLLOWING THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF BROOKE BOND (INDIA) LT D. VS. CIT,225 ITR 798 (SC). 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. INSOFAR AS THE FACT-SITUATION IS CONCERNED, THE INVOICE RAISED BY QUARTET FINANCIAL SERVICES PVT. LTD., A COPY OF WHICH IS PLACED AT PG . 1 OF THE PAPER BOOK, REVEALS THAT FEE OF RS.50,50,800/- WAS PAID FOR SER VICES IN CONNECTION WITH ADVICE ON THE RESTRUCTURING OF BANK DEBTS, IDE NTIFICATION OF INVESTOR, RAISING EQUITY CAPITAL IN THE COMPANY AND STRUCTURING OF SUCH TRANSACTIONS. AT PAGES 14 TO 17 OF THE PAPER BOOK IS PLACED A COPY OF THE MANDATE LETTER OF THE SAID CONSULTANT, WHICH RE VEALS THE SCOPE AND METHODOLOGY OF THE SERVICES PROVIDED TO THE ASSESSE E. THE AFORESAID MATERIAL BRINGS OUT THAT THE FEE HAS BEEN PAID TO T HE SAID CONSULTANT PRIMARILY FOR RENDERING ADVICE TO REDUCE THE INTERE ST BURDEN OF THE 6 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) ASSESSEE-COMPANY BY, INTER ALIA, EXPLORING THE POSSIBILITY OF IDENTIFYING A STRATEGIC INVESTOR/LENDER. IT IS A SETTLED PROPOSI TION THAT PAYMENTS MADE TO CONSULTANTS FOR OBTAINING PROFESSIONAL SERV ICES IN CONNECTION WITH DEBT RESTRUCTURING WITH BANKS, ETC. IS A REVEN UE EXPENDITURE WITHIN THE MEANING OF SEC. 37(1) OF THE ACT AND SUCH PROPO SITION IS SUPPORTED BY THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT I N THE CASE OF CIT VS. GUJARAT STATE FERTILIZERS & CHEMICALS LTD.,358 ITR 323 (GUJ), A DECISION WHICH WAS RELIED UPON BY THE LD. REPRESENTATIVE FOR THE ASSESSEE IN THE COURSE OF THE HEARING. HOWEVER, THE LD. REPRESENTA TIVE FOR THE ASSESSEE, QUITE FAIRLY CONCEDED THAT INSOFAR AS THE PROPORTION OF FEE RELATABLE TO THE RESTRUCTURING AND RAISING OF EQUIT Y SHARE CAPITAL WAS CONCERNED, SUCH EXPENSE WOULD FALL FOR DISALLOWANCE AS PER THE RATIO OF BROOKE BOND (INDIA) LTD. (SUPRA). IN THIS CONTEXT, HAVING REGARD TO THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, IT WOULD BE IN FITNESS OF THINGS THAT 10% OF THE EXPENDITURE, I .E. RS.5,05,080/- BE DISALLOWED AND BALANCE OF THE EXPENSE BE ALLOWED AS A REVENUE EXPENDITURE. IN OUR CONSIDERED OPINION, THE AFORES AID CONCLUSION IS QUITE JUSTIFIED INASMUCH AS THE ENTIRETY OF THE EXP ENDITURE CANNOT BE CONSIDERED AS A CAPITAL EXPENDITURE BY APPLYING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF BROOK BOND IND IA LTD. (SUPRA) BECAUSE FACTUALLY SPEAKING THE FEE IS PAID PRIMARIL Y FOR RESTRUCTURING OF BANK DEBTS AND NOT ENTIRELY FOR RAISING OF THE EQU ITY. THEREFORE, WE SET- ASIDE THE ORDER OF CIT(A) AND DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO RS.5,05,080/- AND DELETE THE BALANC E. AS A CONSEQUENCE, INSOFAR AS GROUND OF APPEAL NO. 1 IS C ONCERNED, ASSESSEE PARTLY SUCCEEDS. 7 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) 9. BY WAY OF GROUND OF APPEAL NOS. 2 & 3, ASSESSEE- COMPANY HAS ASSAILED THE DISALLOWANCE OF RS. 10,00,000/- INCURR ED IN CONNECTION WITH ISSUANCE OF SHARES. THE FACTS WHICH EMERGE FROM TH E PERUSAL OF THE ORDERS OF AUTHORITIES BELOW REVEAL THAT THE IMPUGNE D EXPENDITURE HAS BEEN INCURRED IN CONNECTION WITH INCREASE IN AUTHOR ISED SHARE CAPITAL OF THE ASSESSEE-COMPANY AND RAISING OF SHARE CAPITAL. THE SAID EXPENDITURE, IN OUR VIEW, HAS BEEN RIGHTLY DISALLOW ED FOLLOWING THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF BROOK BOND INDIA LTD. (SUPRA). SUCH EXPENDITURE IS ALSO NOT COVERED IN THE SCOPE OF SEC. 35D OF THE ACT, AS FAIRLY CONCEDED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE. THUS, ASSESSEE HA S TO FAIL INSOFAR AS GROUND OF APPEALS NOS. 2 & 3 ARE CONCERNED. WE HOL D SO. 10. THE NEXT ISSUE IS BY WAY OF GROUND OF APPEAL NO . 4 WHICH RELATES TO THE ACTION OF THE CIT(A) IN SUSTAINING THE ADDIT ION OF RS. 15,35,03,849/- U/S. 28(IV) OF THE ACT REPRESENTING WAIVER OF THE OUTSTANDING PRINCIPAL AMOUNT OF LOAN. IN THIS CONT EXT, THE BRIEF FACTS ARE THAT IN AN EARLIER FINANCIAL YEAR OF 2000-01 ASSESS EE HAD OBTAINED CREDIT FACILITIES FROM GLOBAL TRUST BANKS LTD., WHICH INTE R-ALIA, INCLUDED RAISING OF TERM LOANS OF RS.15 CRORES AND RS.24 CRORES TOT ALLING TO RS.39 CRORES. UPTO THE YEAR UNDER CONSIDERATION ASSESSEE HAD REPA ID CERTAIN AMOUNTS IN RESPECT OF THE ABOVE LOANS ON ACCOUNT OF PRINCIP AL AS WELL AS INTEREST THEREOF. DURING THE PERIOD UNDER CONSIDERATION, TH E TOTAL PRINCIPAL AMOUNT OF LOAN OUTSTANDING WAS RS.26.60 CRORES COMP RISING OF RS.21.60 CRORES ON ACCOUNT OF TERM LOANS AND RS.5 CRORES IN RESPECT OF THE REDEEMABLE PREFERENCE SHARE CAPITAL. FURTHER, CUMU LATIVE INTEREST AMOUNT OUTSTANDING WAS RS.19.26 CRORES. ASSESSEE-C OMPANY ENTERED 8 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) INTO A ONE TIME SETTLEMENT (OTS) WITH THE LENDING B ANK WHEREBY IT PAID A SUM OF RS.11.25 CRORES REPRESENTING REPAYMENT OF TERM LOAN OF RS. 6.25 CRORES AND REDEMPTION OF PREFERENCE SHARE CAPI TAL OF RS. 5 CRORES. THE BALANCE OF RS.34.61 CRORES COMPRISING OF RS.15. 35 CRORES ON ACCOUNT OF OUTSTANDING PRINCIPAL AMOUNT OF LOAN AND RS.19.26 CRORES ON ACCOUNT OF OUTSTANDING INTEREST WAS WAIVED BY THE B ANK. INSOFAR AS THE WAIVER OF OUTSTANDING INTEREST AMOUNT OF RS. 19.26 CRORES IS CONCERNED, THERE IS NO DISPUTE AS AN SUCH AMOUNT WAS OFFERED FOR TAXATION BY WAY OF CREDIT IN THE PROFIT AND LOSS ACCOUNT. THE OTHE R SUM OF RS. 15.35 CRORES REPRESENTING WAIVER OF THE OUTSTANDING PRINC IPAL AMOUNT OF LOAN IS CONCERNED, ASSESSEE ASSERTED THAT SUCH AN AMOUNT WAS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX. THE DISPUTE PERTAIN S TO THE AFORESAID STAND OF THE ASSESSEE INASMUCH AS ACCORDING TO THE ASSESSING OFFICER THE ENTIRE AMOUNT OF WAIVER OF THE OUTSTANDING PRIN CIPAL LOAN AMOUNT OF RS.15.35 CRORES REPRESENTS A CESSATION OF AN EX ISTING LIABILITY AND ACCORDINGLY SUCH AMOUNT WAS TREATED AS A BENEFIT CHARGEABLE TO TAX IN TERMS OF SEC. 28(IV) OF THE ACT. THE AFORESAID STA ND OF THE ASSESSING OFFICER HAS BEEN FURTHER AFFIRMED BY THE CIT(A) ON THE GROUND THAT THE WAIVER OF PRINCIPAL AMOUNT OF LOAN AMOUNTING TO RS. 15.35 CRORES WAS REVENUE IN NATURE AND THUS ASSESSABLE IN TERMS OF SEC. 28(IV) OF THE ACT. IN THIS BACKGROUND, THE RIVAL COUNSELS HAVE MADE THEIR SUBMISSIONS BEFORE US. 11. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE HAS VEHEMENTLY POINTED OUT THAT BOTH THE AUTHORITIES BELOW HAVE ERRED IN DENYING THE CLAIM OF THE ASSESSEE BY RELYING ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SOLID CONT AINERS LIMITED VS. 9 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) CIT, 308 ITR 417(BOM), WHICH IS NOT APPLICABLE TO T HE FACTS OF THE PRESENT CASE. THE PLEA SET UP BY THE ASSESSEE IS T HAT THE PRINCIPAL AMOUNT OF LOAN WHICH HAS BEEN WAIVED BY THE BANK WA S INDEED UTILIZED FOR ACQUISITION OF A CAPITAL ASSET AND, THEREFORE, SUCH WAIVER OF DEBT IS TO BE SEEN IN THE CAPITAL FIELD AND NOT IN THE REVENUE FIELD SO AS TO BE TAXED UNDER SECTION 28(IV) OF THE ACT. IT WAS, THEREFORE , CONTENDED THAT THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THOSE IN THE CASE OF MAHINDRA AND MAHINDRA LTD. VS. CIT, 261 ITR 501(BOM) AND THU S THE ACTION OF THE LOWER AUTHORITIES IN RELYING UPON THE JUDGMENT IN T HE CASE OF SOLID CONTAINERS LTD. (SUPRA) IS LIABLE TO BE SET-ASIDE. IN SUPPORT OF THE CONTENTION THAT THE TERM LOANS RAISED FROM THE GLOB AL TRUST BANK HAVE BEEN UTILIZED FOR ACQUISITION OF A CAPITAL ASSET, OUR ATTENTION WAS INVITED TO THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES , WHICH ARE CONTAINED IN THE RESPECTIVE ORDERS. APART THEREFRO M, OUR ATTENTION HAS ALSO BEEN INVITED TO THE PAPER BOOK, WHEREBY IT IS SOUGHT TO BE EXPLAINED THAT ON RECEIPT OF TERM LOAN OF RS. 36.00 CRORES ON 01/01/2001, AN AMOUNT OF RS.34.95 CRORES WAS REMITT ED TOWARDS ACQUISITION OF SHARES OF APPLISOFT INC. A COMPANY B ASED ABROAD. OUR ATTENTION HAS ALSO BEEN INVITED TO COPIES OF THE FO REIGN REMITTANCE CERTIFICATES EVIDENCING THE AFORESAID REMITTANCES, WHICH HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 3 & 4. LD. REPRE SENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE AFORESAID FACTUAL MAT RIX HAS NOT DISPUTED BY THE LOWER AUTHORITIES. 12. IN THIS CONTEXT, THE LD. DEPARTMENTAL REPRESENT ATIVE FOR THE REVENUE REITERATED THE STAND OF THE INCOME-TAX AUTH ORITIES BY POINTING OUT THAT THE LOAN SANCTION LETTER OF THE BANK, A C OPY OF WHICH IS PLACED AT PAGE 26 OF THE PAPER BOOK, BRINGS OUT THAT THE P URPOSE OF THE LOAN 10 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) WAS FOR UTILIZATION TOWARDS WORKING CAPITAL/ ACQUI SITION OF SHARES AND, THEREFORE, IT COULD NOT BE SAID THAT THE ENTIRE PUR POSE OF THE LOAN WAS FOR ACQUIRING A CAPITAL ASSET. ON THIS BASIS, THE L D. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS JUSTIFIED THE AC TION OF THE LOWER AUTHORITIES IN DECIDING THE ISSUE AGAINST THE ASSES SEE BY APPLYING THE RATIO OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF SOLID CONTAINERS LIMITED (SUPRA). 13. IN REPLY, THE LD. REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT THOUGH THE LOAN SANCTION LETTER OF THE BANK RE FLECTS THE PURPOSE OF THE TERM LOAN AS WORKING CAPITAL/FOR ACQUISITION, BUT ULTIMATELY IT IS THE UTILIZATION OF THE LOAN PROCEEDS WHICH SHOW T HAT THE SAME HAS BEEN UTILIZED FOR ACQUISITION OF A CAPITAL ASSET, AND IT HAS NOT BEEN USED IN TRADING OPERATION. LD. REPRESENTATIVE FOR THE AS SESSEE ALSO RELIED UPON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE C ASE OF ISKRAEMECO REGENT LTD. VS. 331 ITR 317(MAD) AS ALSO A SUBSEQUE NT JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF LOGITRONI CS P.LTD. VS.CIT, 333 ITR 386 (DEL) IN SUPPORT OF HIS SUBMISSIONS THAT TH E WAIVER OF LOAN IN THE PRESENT CASE IS NOT TAXABLE UNDER SECTION. 28(IV) OF THE ACT. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE CRUX OF THE CONTROVERSY BEFORE US ARISES FROM A ONE TIME SE TTLEMENT(OTS) ENTERED BY THE ASSESSEE WITH ITS BANK, WHEREBY UPON PAYMENT OF CERTAIN AMOUNT, ASSESSEE HAS BEEN ALLOWED WAIVER OF A PORTION OF THE PRINCIPAL AMOUNT OF LOAN OUTSTANDING AND INTEREST T HEREOF. THE ISSUE REGARDING THE TAXABILITY OF WAIVER OF INTEREST IS N OT IN DISPUTE BEFORE US AND THE ONLY ISSUE BEFORE US RELATES TO THE TAXABIL ITY OF A SUM OF RS.15,35,03,849/-, WHICH REPRESENTED THE PRINCIPAL AMOUNT OF THE LOAN 11 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) OUTSTANDING, WAIVED BY THE BANK. IN PRINCIPLE WE A RE IN AGREEMENT WITH THE PROPOSITION THAT IN THE CONTEXT OF WAIVER OF LO AN AMOUNT, WHERE LOAN WAS RAISED FOR ACQUIRING A CAPITAL ASSET, THE WAIVER THEREOF CANNOT BE CONSTRUED ON REVENUE ACCOUNT AND IN A SITUATION WHERE THE LOAN WAS FOR TRADING PURPOSE THE WAIVER THEREOF IS LIABLE TO BE TREATED AS A REVENUE RECEIPT CHARGEABLE TO TAX. IN FACT, THE AF ORESAID PREMISE CLEARLY EMERGES FROM THE JUDGMENTS OF THE HONBLE BOMBAY HI GH COURT IN THE CASE OF SOLID CONTAINERS LIMITED (SUPRA) AND MAHIND RA & MAHINDRA LTD. (SUPRA). IN THE CASE OF MAHINDRA & MAHINDRA LTD. ( SUPRA), THE ASSESSEE HAD UTILIZED THE LOAN PROCEEDS FOR IMPORTING CAPITA L ASSETS. SUBSEQUENTLY, THE LENDER WAIVED THE RECOVERY OF SUC H LOAN, WHICH WAS INTERPRETED BY THE ASSESSING OFFICER TO BE CESSATIO N OF LIABILITY TOWARDS THE LENDER AS A BENEFIT TAXABLE UNDER SECTION 28(IV ) OF THE ACT. THE CIT(A)UPHELD THE AFORESAID STAND AND ADDITIONALLY H ELD THAT WAIVER OF LOAN AMOUNTED OF REMISSION OF A TRADING LIABILITY TAXABLE UNDER SECTION41(1) OF THE ACT ALSO. THE HONBLE BOMBAY H IGH COURT, IN THIS BACKGROUND HELD THAT WAIVER OF LOAN REPAYMENT DID N OT GIVE RISE TO A BENEFIT REFERRED TO IN SECTION 28(IV) OF THE ACT IN ASMUCH AS THE LOAN WAS UTILIZED FOR CAPITAL ASSETS. EVEN SECTION 41(1) OF THE ACT WAS HELD NOT APPLICABLE. IN THE CASE OF SOLID CONTAINERS LTD. (SUPRA), THE FACT SITUATION WAS THAT THE WAIVER RELATED TO A LOAN WHI CH WAS TAKEN FOR TRADING ACTIVITY. ACCORDING TO THE HONBLE HIGH CO URT, SINCE THE LOAN AMOUNT WAS FOR TRADING ACTIVITY WAIVER THEREOF WAS ASSESSABLE AS INCOME. THE HONBLE HIGH COURT FURTHER REFERRED TO ITS EARLIER JUDGMENT IN THE CASE OF MAHINDRA & MAHINDRA LTD.(SUPRA) AND NOTED THAT THE SAME OPERATED IN A DIFFERENT FACT SITUATION INASMUC H AS IN THE EARLIER JUDGMENT, THE LOAN FUNDS WERE UTILIZED FOR MEETING THE COST OF IMPORT OF 12 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) PLANT AND MACHINERY AND, THEREFORE, WAIVER OF SUCH LOAN DID NOT CONSTITUTE BUSINESS. WHAT FOLLOWS FROM THE AFORESA ID TWO JUDGMENTS IS THAT THE TAXABILITY OF WAIVER OF LOAN AMOUNT WOULD DEPEND UPON THE PURPOSE FOR WHICH THE LOAN WAS PUT TO USE. IF THE LOAN WAS FOR ACQUIRING A CAPITAL ASSET, WAIVER THEREOF WOULD NOT CONSTITUT E INCOME WHEREAS, IN A CASE WHERE LOAN WAS FOR TRADING ACTIVITY, ITS WAIVER WOULD CONSTITUTE INCOME CHARGEABLE TO TAX. TO THE SIMILAR EFFECT IS THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF ISKRAEMEC O REGENT LTD. (SUPRA) AND ALSO THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF LOGITRONICS P.LTD. (SUPRA), WHICH HAVE BEEN RELIED UPON BY THE ASSESSEE BEFORE US. 15. IN THE ABOVE BACKGROUND, WE MAY NOW COME BACK T O THE FACTS OF THE PRESENT CASE. IN THE INSTANT CASE, IT IS QUITE EVIDENT AS PER THE BANK SANCTION LETTER DATED 29/11/2000, COPY OF WHICH IS PLACED AT PAGE-26 OF THE PAPER BOOK, THAT THE TERM LOANS OF RS.39.00 CRO RES (I.E. 15.00 CRORES + RS.24.00 CRORES) WERE SANCTIONED FOR THE PURPOSE OF WORKING CAPITAL/FOR ACQUISITION. THE ASSESSEE HAS BEEN CO NSISTENTLY ASSERTING RIGHT FROM THE LEVEL OF THE ASSESSING OFFICER THAT UPON DISBURSEMENT OF LOAN, THE LOAN PROCEEDS HAVE BEEN UTILIZED FOR ACQU IRING SHARES IN M/S. APPLISOFT INC. AND IN THIS CONTEXT OUR ATTENTION HA S ALSO BEEN INVITED TO THE BANK STATEMENT FOR THE RELEVANT PERIOD PLACED I N THE PAPER BOOK AT PAGE-2 AND ALSO THE FOREIGN REMITTANCE CERTIFICATE PLACED AT PAGES 3 & 4 OF THE PAPER BOOK. IT IS QUITE EVIDENT THAT A SUM OF RS.34.95 CRORES HAS BEEN TRANSFERRED AFTER RECEIPT FROM THE BANK FOR AC QUIRING THE SHARES IN M/S.APPLISOFT INC. SUCH FACT-SITUATION IS NOT DISP UTED BY THE LOWER AUTHORITIES. HOWEVER, THE PLEA SET UP BY THE INCOM E-TAX AUTHORITIES IS THAT SINCE THE PURPOSE OF THE LOAN INCLUDED USAGE F OR WORKING CAPITAL, 13 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) THEREFORE, IT COULD NOT BE SAID THAT THE LOAN WAS F OR ACQUIRING CAPITAL ASSET. IN OUR CONSIDERED OPINION, WHAT IS MORE IMP ORTANT IS TO CONSIDER THE ACTUAL UTILIZATION OF LOAN FUNDS AND NOT MERELY THE PURPOSE OF THE LOAN, THOUGH IT MAY BE AN IMPORTANT INGREDIENT. I N THE PRESENT CASE, LOAN SANCTION LETTER DOES NOT PRESCRIBE THAT THE LO AN PROCEEDS ARE TO BE USED ONLY FOR WORKING CAPITAL REQUIREMENTS. MOREOV ER AS THE BANK STATEMENT OF THE ASSESSEE REVEALS, UPON DISBURSAL OF THE LOAN OF RS.36.00 CORES ON 01/01/2001, AN AMOUNT OF RS.34.94 CRORES WAS REMITTED TOWARDS ACQUISITION OF SHARES OF M/S. APPL ISOFT INC. THEREFORE, THE UTILIZATION OF LOAN FUNDS FOR SUCH PURPOSE IS Q UITE EVIDENT FROM RECORD. 16. IN THE COURSE OF HEARING IT WAS POINTED OUT TO THE LD. REPRESENTATIVE THAT AS THE TERM LOAN RAISED FROM THE BANK AMOUNTED TO RS.39.00 CRORES, WHEREAS THE AMOUNT CLAIMED TO H AVE BEEN SPENT FOR ACQUISITION OF SHARES I.E. ON CAPITAL ASSET WAS ONL Y RS.34.99 CRORES, THE BALANCE OF RS.4.01 CRORES CANNOT BE SAID TO HAVE BE EN SPENT FOR ACQUIRING A CAPITAL ASSET. IN THIS CONTEXT, LD. RE PRESENTATIVE FOR THE ASSESSEE QUITE FAIRLY CONCEDED THE ABOVE SITUATION THAT THE TOTAL AMOUNT INVESTED FOR ACQUISITION OF SHARES WAS RS.34 .50 CRORES WHICH WAS LOWER THAN THE TOTAL LOAN RAISED OF RS.39.00 CR ORES, BUT, IT HAS BEEN ARGUED THAT THE ISSUE IN QUESTION RELATES TO ONLY T HE PRINCIPAL AMOUNT OF RS.15.35 CRORES WHICH HAS BEEN WAIVED, THEREFORE, THE WAIVER OF RS.15.35 CRORES IS TO BE UNDERSTOOD AS OUT OF THE A MOUNT OF RS.34.50 CRORES, WHICH HAS BEEN UTILIZED FOR ACQUIRING CAPIT AL ASSET. IN OUR CONSIDERED OPINION, THE ONUS IN THIS REGARD IS ON T HE ASSESSEE TO DEMONSTRATE THAT THE ENTIRE AMOUNT OF LOAN HAS BEEN UTILIZED FOR ACQUIRING CAPITAL ASSET AND IN THE ABSENCE OF ANY C LINCHING MATERIAL ON 14 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) RECORD, IT HAS TO BE HELD THAT THE AMOUNT OF LOAN SAID TO HAVE BEEN UTILIZED FOR ACQUIRING CAPITAL ASSET IS ONLY TO THE EXTENT OF THE AMOUNT USED FOR PURCHASE OF SHARES OF M/S. APPLISOFT INC. AS PER A WORKING PROVIDED BY THE LD. REPRESENTATIVE FOR THE ASSESSEE SUCH AMOUNT IS CRYSTALLIZED AT RS.34.99 CRORES AND THE BALANCE OF RS.4.01 CRORES IS CONSIDERED AS BEING USED FOR TRADING OPERATIONS. THEREFORE, HAVING REGARD TO THE FACTS OF THE PRESENT CASE, THE WAIVER OF LOAN CAN BE SAID TO BE RELATABLE TO ACQUISITION OF CAPITAL ASSET TO THE EXTENT OF THE PROPORTION IN WHICH THE LOAN PROCEEDS WERE UTILIZED FOR ACQUISITION OF CAPITAL ASSET. AT THE TIME OF HEARING, WHEN THE A FORESAID WAS PUT ACROSS TO THE ASSESSEE A WORKING THEREOF WAS FURNIS HED WHEREBY IT WAS SUBMITTED THAT AN AMOUNT OF RS.1.57 CRORES OUT OF T HE TOTAL WAIVER OF RS.15.35 CRORES CAN ONLY BE CONSIDERED TO FALL WITH IN THE SCOPE OF SECTION 28(IV) OF THE ACT FOR THE REASON THAT THE S AME RELATED TO LOAN FUNDS USED FOR THE PURPOSES OF TRADING/BUSINESS. Q UITE CLEARLY, THE BALANCE OF THE WAIVER IS RELATABLE TO THE PROPORTIO N OF LOAN FUNDS UTILIZED FOR ACQUISITION OF THE SHARES OF M/S. APPL ISOFT INC. AND ON THIS ASPECT THE RATIO OF THE JUDGEMENT OF THE HONBLE BO MBAY HIGH COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD.(SUPRA) CLEAR LY SUPPORTS THE PLEA OF THE ASSESSEE. IN THIS BACKGROUND OF THE MA TTER, WE, THEREFORE, CONCLUDE THAT SO FAR AS THE AMOUNT USED FOR THE PUR CHASE OF CAPITAL ASSET IS CONCERNED, THE WAIVER THEREOF IS A CAPITAL RECEIPT NOT CHARGEABLE TO TAX UNDER SECTION 28(IV) OF THE ACT, WHICH FOLLOWS THAT THE ASSESSING OFFICER IS REQUIRED TO RESTRICT THE DISALLOWANCE UNDER SECTION 28(IV) OF THE ACT TO THE EXTENT OF RS.1.57 CRORES ONLY, BEING THE LOAN WAIVER WHICH HAS BEEN USED FOR TRADING ACTIVIT Y. WE HOLD SO. THUS, ON THIS ISSUE ASSESSEE PARTLY SUCCEEDS. 15 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) 17. IN SO FAR AS GROUND OF APPEAL NO.5 WHICH RELA TES TO ADDITION OF RS.3.25 CRORES OUT OF INTEREST WAIVER IS CONCERNED, THE SAME WAS NOT PRESSED AT THE TIME OF HEARING AND IS ACCORDINGLY D ISMISSED AS NOT PRESSED. 18. THE ISSUE IN GROUND OF APPEAL NO.6 RELATES TO T HE ACTION OF THE INCOME-TAX AUTHORITIES IN BRINING TO TAX A SUM OF R S.34,61,28,850/- FOR THE PURPOSES OF SECTION 115JB OF THE ACT. THE AFOR ESAID AMOUNT REPRESENTED THE AMOUNT OF WAIVER OF PRINCIPAL AND I NTEREST ON BANK LOAN. THE PLEA OF THE ASSESSEE WAS THAT THE AFORES AID AMOUNT CONSTITUTED INCOME ARISING FROM BUSINESS CARRIED O N IN SPECIAL ECONOMIC ZONE UNIT (SEZ UNIT)AND, THEREFORE, THE SA ME WOULD NOT FALL FOR CONSIDERATION UNDER SECTION 115JB OF THE ACT IN VIEW OF THE SPECIFIC PROVISION OF SUB-SECTION(6) OF SECTION 115JB OF THE ACT. 18.1 THE AFORESAID STAND OF THE ASSESSEE HAS NOT FO UND FAVOUR WITH THE ASSESSING OFFICER OR THE CIT(APPEALS) ON THE GROUND THAT THE AFORESAID INCOME HAS ACCRUED TO THE ASSESSEE ON ACCOUNT OF O NE TIME SETTLEMENT WITH THE BANK AND IS NOT ON ACCOUNT OF RENDERING OF SERVICES OF SOFTWARE DEVELOPMENT BY THE ASSESSEE AND THUS, THE PROVISIONS OF SUB-SECTION (6) OF SECTION 115JB OF THE ACT DO NOT HELP THE ASSESSEE. AGAINST THE DECISION OF THE INCOME-TAX AUTHORITIES IN INCLUDING THE AFORESAID AMOUNT AS PART OF BOOK PROFIT FOR THE PUR POSES OF SECTION 115JB OF THE ACT, ASSESSEE IS IN FURTHER APPEAL BEF ORE US. 18.2 BEFORE US THE LD. REPRESENTATIVE FOR THE ASSES SEE VEHEMENTLY POINTED OUT THAT THE ONLY BUSINESS ACTIVITY OF THE ASSESSEE WAS IN SEZ UNIT AND THAT ASSESSEE HAS NO OTHER PLACE OF BUSINE SS OR OFFICE. REFERRING TO THE ANNUAL REPORT FOR THE INSTANT YEAR , THE LD. 16 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT AS SESSEE HAD ONLY ONE OFFICE I.E. IN SEZ UNIT, FROM WHERE IT WAS CARRYIN G OUT ALL ITS BUSINESS ACTIVITIES AND, THEREFORE, THE AFORESAID INCOME HAS ALSO TO BE CONSIDERED AS INCOME FROM THE BUSINESS CARRIED ON IN THE SEZ U NIT. 18.3 WITH REGARD TO THE PLEA THAT THE INCOME ON ACC OUNT OF LOAN WAIVER WAS NOT GENERATED OUT OF THE SERVICES BEING RENDERED BY SEZ UNIT, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINT ED OUT THAT THE LOAN WAS USED TO MAKE INVESTMENT FOR ACQUIRING THE SHARE S OF APPLISOFT INC., WHICH WAS FOR THE PURPOSE OF BUSINESS AND GENERATI NG HIGHER REVENUES. IN THIS CONTEXT, ATTENTION WAS INVITED TO THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2004-05 VID E ITA NO.4855/MUM/2009 DATED 21/8/2013, WHEREIN ASSESSEE HAD EXPLAINED THAT THE INVESTMENT IN THE SHARES OF APPLISOFT INC . WAS FOR THE PURPOSE OF BUSINESS AND OUT OF COMMERCIAL EXPEDIENCY, AND T HIS PLEA WAS ACCEPTED BY THE TRIBUNAL, THOUGH IN A DIFFERENT CON TEXT RELATING TO ALLOWABILITY OF INTEREST EXPENDITURE UNDER SECTION 36(1)(III) OF THE ACT. FOR THE AFORESAID REASONS, IT HAS BEEN POINTED OUT THAT THE IMPUGNED INCOME ON ACCOUNT OF WAIVER HAS TO BE CONSIDERED A S INCOME FROM BUSINESS CARRIED OUT IN SEZ UNIT, WHICH IS LIABLE F OR EXCLUSION AS PER PROVISIONS OF SUB-SECTION (6) OF SECTION 115JB OF T HE ACT. 18.4 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRES ENTATIVE FOR THE REVENUE HAS REITERATED THE REASON ADOPTED BY THE LO WER AUTHORITIES IN SUPPORT OF THE CASE OF THE REVENUE, WHICH WE HAVE A LREADY NOTED IN EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 18.5 THE DISPUTE ESSENTIALLY REVOLVES AROUND THE PR OVISIONS OF SUB- SECTION(6) OF SECTION 115JB OF THE ACT, WHICH PRESC RIBES THAT THE SECTION 17 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) WOULD NOT APPLY TO THE INCOME ACCRUED OR ARISING F ROM ANY BUSINESS CARRIED ON OR SERVICES RENDERED BY AN ENTREPRENEUR OR A DEVELOPER IN SEZ UNIT, AS THE CASE MAY BE. IN THE PRESENT CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND RENDERING OF TECHNICAL SERVICES OUTSIDE INDIA IN THE FIELD OF CO MPUTER SOFTWARE. THE BUSINESS OF THE ASSESSEE IS BEING CARRIED ON IN A UNIT LOCATED IN SEZ. FACTUALLY SPEAKING, THERE IS NO DISPUTE TO THE AFOR ESAID POSITION. ON THE STRENGTH OF THE BUSINESS BEING CARRIED OUT IN THE S EZ UNIT, ASSESSEE CLAIMED THAT THE PROVISIONS OF SECTION 115JB OF THE ACT DO NOT APPLY TO THE INCOME ACCRUED OR ARISING FROM THE BUSINESS SO CARRIED ON IN THE SEZ UNIT. THE DIFFERENCE BETWEEN THE ASSESSEE AND THE REVENUE ON THE APPLICATION OF SUB-SECTION(6) OF SECTION 115JB OF T HE ACT RELATES TO THE WAIVER OF OUTSTANDING PRINCIPAL AMOUNT OF LOAN AND INTEREST THEREOF. THE STAND OF THE REVENUE IS THAT SUCH INCOME IS NOT GENERATED OUT OF THE SERVICES RENDERED BY THE ASSESSEE BUT IS ON ACC OUNT OF A ONE TIME SETTLEMENT WITH THE BANK AND, THEREFORE, IT DOES NO T FALL IN THE EXCLUSION CONTAINED IN THE SUB-SECTION(6) OF SECTION 115JB OF THE ACT . THE PHRASEOLOGY OF SUB-SECTION (6) OF SECTION 115JB OF THE ACT PRESCRIBES THAT THE INCOME REFERRED THERETO MAY ARISE OUT FROM THE SERVICES RENDERED OR FROM THE BUSINESS CARRIED ON BY THE UNIT. THE CONCEPT OF INCOME ARISING FROM SERVICES RENDERED IS NARROW ER THAN THE INCOME ARISING FROM ANY BUSINESS CARRIED ON AND VIEWED I N THAT LIGHT IN OUR VIEW, THE IMPUGNED INCOME CAN DEFINITELY BE SAID T O BE FALLING WITHIN THE EXPRESSION ARISING FROM ANY BUSINESS CARRIED O N IN SEZ UNIT. THEREFORE, IN OUR VIEW, THE ASSESSEE HAS TO SUCCEED ON ITS PLEA SEEKING EXCLUSION OF THE IMPUGNED SUM FROM THE PURVIEW OF S ECTION 115JB OF 18 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) THE ACT ON ACCOUNT OF SUB-SECTION (6) THEREOF. WE HOLD SO. THUS, ON THIS ASPECT, THE ASSESSEE SUCCEEDS. 19. THE NEXT GROUND RELATES TO THE ACTION OF THE LO WER AUTHORITIES IN NOT ALLOWING THE BENEFIT OF SET OFF OF UNABSORBED D EPRECIATION AGAINST INCOME FROM OTHER SOURCES. ON THIS ASPECT, THE FAC TS ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED BENEFIT OF SET-OFF OF BROUGHT-FORWARD BUSINESS LOSS AND UNABSORBED DEPREC IATION AGAINST INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER H ELD THAT ASSESSEE WAS NOT ENTITLED TO SET-OFF OF CARRIED FORWARD BUS INESS LOSS AGAINST INCOME FROM OTHER SOURCES. BEFORE THE CIT(APPEALS) , THE ASSESSEE FAIRLY ADMITTED THAT THE CLAIM OF SET-OFF OF CARRI ED FORWARD BUSINESS LOSS AGAINST INCOME FROM OTHER SOURCES WAS NOT CORRECT BUT IT WAS CONTENDED THAT THE CLAIM FOR SET OFF OF UNABSORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES WAS QUITE JUSTIFIED. BEF ORE THE CIT(APPEALS), THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF VIRMANI INDUSTRIES PVT. LTD., 216 ITR 607(SC). THE CIT(APPEALS) DISAGREED WITH THE ASSESSEE AND ACCORD INGLY ASSESSEE IS IN FURTHER APPEAL BEFORE US. 19.1 BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSE SSEE POINTED OUT THAT HAVING REGARD TO THE EXPRESS PROVISIONS OF SEC TION 32(2) OF THE ACT, THE DEPRECIATION ALLOWANCE OF EARLIER YEARS IS DEEM ED TO BE THE ALLOWANCE OF THE SUCCEEDING YEAR AND HENCE THE UNAB SORBED DEPRECIATION IS LIABLE TO BE SET-OFF AGAINST THE IN COME FROM OTHER SOURCES IN SUCH SUCCEEDING YEAR. IT HAS ALSO BEE N CONTENDED THAT THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F VIRMANI INDUSTRIES PVT. LTD. (SUPRA) SUPPORTS THE PLEA THAT UNABSORBED 19 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) DEPRECIATION CAN BE CARRIED FORWARD AND SET-OFF AGA INST THE INCOME OF SUBSEQUENT YEARS. LD. REPRESENTATIVE FOR THE ASSES SEE CONTENDED THAT ASSESSEE WOULD BE SATISFIED, IF THE MATTER BE SENT BACK TO THE FILE OF THE ASSESSING OFFICER FOR ALLOWING APPROPRIATE SET-OFF OF UNABSORBED DEPRECIATION AGAINST INCOME FROM OTHER SOURCES. 19.2 THOUGH THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAS NOT OPPOSED THE PRAYER OF THE ASSESSEE FOR SETTING- ASIDE THE MATTER BACK TO THE FILE OF ASSESSING OFFICER, YET THE ORDE RS OF THE AUTHORITIES BELOW HAS BEEN SOUGHT TO BE DEFENDED. 19.3 IN OUR CONSIDERED OPINION, IN THE PRESENT CAS E, THE ONLY ISSUE AGITATED BY THE ASSESSEE IS IN RELATION TO SET-OFF OF CLAIM OF UNABSORBED DEPRECIATION, WHICH IN OUR VIEW, IS QUITE WELL-FOUN DED IN TERMS OF SECTION 32(2) OF THE ACT. TO THE AFORESAID EXTENT, WE SET-ASIDE THE ORDER OF CIT(APPEALS) AND DIRECT THE ASSESSING OFFICER TO REVISIT THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW, AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. THUS ON THI S ASPECT ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 20. IN GROUND OF APPEAL NO.8, THE PLEA OF THE ASSES SEE IS THAT THE CIT(APPEALS) HAS ERRED IN CONFIRMING THE ADOPTION OF TRANSACTIONAL NET MARGIN METHOD (TNMM) SELECTED BY THE TRANSFER PRICI NG OFFICER/ASSESSING OFFICER IN PREFERENCE TO THE CUP METHOD ADOPTED BY THE ASSESSEE FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS ENTERED WITH ITS ASSOCIA TED ENTERPRISE ABROAD. THE PRIMARY DISPUTE IN THIS GROUND RELATES TO THE APPLICATION OF CUP METHOD SELECTED BY THE ASSESSEE TO BENCHMARK ITS INTERNATIONAL TRANSACTION FOR THE PURPOSE OF DETERMINING THEIR AR M'S LENGTH PRICE. THE 20 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) INCOME-TAX AUTHORITIES HAVE APPLIED THE TNMM WHIC H HAS LEAD TO AN ADJUSTMENT OF RS.90,42,380/- TO THE RETURNED INCOME IN ORDER TO BRING THE STATED VALUE OF THE INTERNATIONAL TRANSACTION T O ITS ARM'S LENGTH PRICE. THE CIT(A) HAS AFFIRMED THE APPLICATION OF T NMM METHOD, THOUGH HE HAS ALLOWED PART RELIEF BY EXCLUDING CERTAIN CO NCERNS FROM THE LIST OF COMPARABLES. 20.1 ON THE SAID ISSUE, IT WAS A COMMON POINT BETW EEN THE PARTIES THAT SIMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIBU NAL IN ASSESSMENT YEAR 2004-05 VIDE ITA NO.4855/MUM/2009 DATED 21/08/ 2013 AND ALSO IN ASSESSMENT YEARS 2005-06 AND 2006-07 IN A COMBI NED ORDER IN ITA NOS.3123 & 3124/MUM/2012 DATED 3/12/2014. COPIES OF SUCH ORDERS HAVE BEEN PLACED ON RECORD AND IT IS POINTED OUT TH AT THE ISSUE HAS BEEN SENT BACK TO THE FILE OF THE ASSESSING OFFICER FOR DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION AFRESH IN CLUDING THE SELECTION OF THE MOST APPROPRIATE METHOD FOR CARRYING OUT COM PARABILITY ANALYSIS. FOLLOWING THE AFORESAID PRECEDENTS AND IN THE ABSEN CE OF ANY VARIATION IN FACTS IN THIS YEAR , THE IMPUGNED ISSUE IS ALSO SENT BACK TO THE FILE OF THE ASSESSING OFFICER TO REDETERMINE THE ARM'S LENG TH PRICE OF THE INTERNATIONAL TRANSACTIONS, KEEPING IN MIND THE DIR ECTIONS OF THE TRIBUNAL FOR EARLIER ASSESSMENT YEARS VIDE ORDERS D ATED 21/08/2013(SUPRA) AND 3/12/2014(SUPRA). THUS, ON T HIS ASPECT THE ASSESSEE SUCCEEDS. 20.2 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. 21 ITA NO.1986& 3012/MUM/2012 (ASSESSMENT YEAR : 2005-06) 21. IN SO FAR AS THE CROSS APPEAL OF THE REVENUE IS CONCERNED, THE ONLY ISSUE RAISED BY THE REVENUE RELATES TO THE DET ERMINATION OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. SINCE THE MATTER RELATING TO THE TRANSFER PRICING ADJUSTMENT HAS BEEN SENT BACK TO THE FILE OF THE ASSESSING OFFICER BY US WHILE DISPOSING OF GROUND O F APPEAL NO.8 IN THE CROSS APPEAL OF THE ASSESSEE, THE AFORESAID GROUND IS ALSO LIABLE TO BE DISPOSED OF ACCORDINGLY. THUS, ON THIS ASPECT, THE GROUND OF APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL P URPOSES. 22. RESULTANTLY, THE APPEALS OF THE ASSESSEE AND R EVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH APRIL , 2016. SD/- SD/- (AMIT SHUKLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 20 /04/2016 VM , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI