TRIGYN TECHNOLOGIES LTD, MUMBAI V. ITO 8(3)3, MUMBAI

ITA 3123/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84495 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 28-11-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 07-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K CHAND; VIVEK PERAMPURNA
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Rule of consistency; Additional evidence; Bad and doubtful debts
• Section: 43B; 92E

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'K' BENCH, MUM BAI , . . , BEFORE SHRI VIJAY PAL RAO, JM & AND SHRI N.K. BILLA IYA, AM ./ ITA NO. 3123 & 3124/MUM/2012 ( / ASSESSMENT YEARS: 2005-06 & 2006-07) M/S. TRIGYN TECHNOLOGIES LTD. / VS. INCOME TAX OFFICER-8(3)-3 UNIT 27A, SDF01, SEEPS ANDHERI (W), MUMBAI 400096 ROOM NO. 217, AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400020 ./ PAN - AAACL2065K / APPELLANT !' / RESPONDENT ./ ITA NO. 3011/MUM/2012 ( / ASSESSMENT YEARS: 2005-06) INCOME TAX OFFICER-8(3)-3 / VS. M/S. TRIGYN TECHNOLOGIES LTD. ROOM NO. 217, AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400020 UNIT 27A, SDF01, SEEPS ANDHERI (W), MUMBAI 400096 ./ PAN - AAACL2065K / APPELLANT !' / RESPONDENT #$%& ' ( / ASSESSEE BY: SHRI VIJAY MEHTA & MR. ANUJ KISNADWALA ' ( / REVENUE BY: S/SHRI M.K. CHAND & VIVEK PERAMPURNA ) * ' &+ / DATE OF HEARING: 28.11.2014 ,-./ ' &+ / DATE OF PRONOUNCEMENT: 03.12.2014 0 / O R D E R PER N.K. BILLAIYA, AM. ITA NO. 3123/MUM/2012 AND ITA NO. 3011/MUM/2012 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE AGAINST THE VERY SAME ORDER OF THE CIT(A)-15, MUMBAI DATED 24.02.2012 FOR AY 2005-06 A ND ITA NO. 3124/MUM/2012 IS APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)- 15, MUMBAI DATED 27.02.2012 FOR AY 2006-07. ALL THE SE APPEALS WERE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR T HE SAKE OF CONVENIENCE. ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 2 ITA NO. 3123/MUM/2012 AY 2005-06 2. ASSESSEE HAS RAISED FIVE SUBSTANTIVE GROUNDS OF APP EAL. GROUND NO. 1 TO 4 RELATE TO THE DISALLOWANCE ON ACCOUNT OF INTER EST PAID TO BANK AMOUNTING TO ` 3.25 CRORES AND GROUND NO. 5 IS ON ACCOUNT OF TRANS FER PRICING ADJUSTMENT OF ` 3,04,96,436/-. 3. ASSESSEE IS IN THE BUSINESS OF DEVELOPING SOFTWARE AND TECHNICAL SERVICES. THE RETURN FOR THE YEAR WAS FILED ON 27.1 0.2005 DECLARING TOTAL INCOME AS NIL. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVE D UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSE E WAS ASKED TO EXPLAIN THE CLAIM OF INTEREST DEBITED IN THE PROFIT & LOSS ACCOUNT VIS-A-VIS SECTION 43B OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HA S AN OUTSTANDING LOAN OF ` 23.34 CRORES. THE LOAN WAS TAKEN IN EARLIER YEARS F ROM GLOBAL TRUST BANK (NOW ORIENTAL BANK OF COMMERCE). THE LOAN WAS TAKEN SOMETIME IN 2001 AND NO FRESH LOANS WERE TAKEN DURING THE YEAR. THE AO FURTHER NOTICES THAT THE ASSESSEE HAS PAID TOTAL INTEREST OF ` 6.78 CRORES. IT WAS CLAIMED BY THE ASSESSEE THAT THE ENTIRE INTEREST IS PAID ON MONIES BORROWED FOR THE PURPOSE OF BUSINESS. THEREFORE THERE IS NO ISSUE OF DISALLO WANCE OF ANY PART OF INTEREST PAID ON TERM LOANS. 4. ON DISALLOWANCE UNDER SECTION 43B OF THE ACT, IT WA S CLAIMED THAT DUE TO THE ARRANGEMENT WITH THE BANK THE INTEREST HAS B EEN PAID IN LIEU OF DIVIDEND. THEREFORE THE INTEREST PAID IS NEITHER ON ACCOUNT OF LOAN NOR ON BORROWINGS. THE AMOUNT IS PAID ON INVESTMENT IN PR EFERENCE SHARES BY THE GLOBAL TRUST BANK (NOW ORIENTAL BANK OF COMMERCE). THEREFORE PROVISIONS OF SECTION 43B ARE NOT APPLICABLE. 5. THE AO EXAMINED THIS SUBMISSION OF THE ASSESSEE AND CAME TO THE CONCLUSION THAT AS PER ASSESSEES OWN ADMISSION THE AMOUNT OF ` 3.25 CRORES IS NOT IN THE NATURE OF INTEREST BUT THE SAID SUM I S PAYABLE IN LIEU OF DIVIDEND ON PREFERENCE SHARES. THUS THE AMOUNT IS I N THE NATURE OF DIVIDEND WHICH IS NOT AN EXPENSE CHARGEABLE TO THE PROFIT BU T THE SAME IS AN APPLICATION OF INCOME THEREFORE NOT ALLOWABLE AS DE DUCTION UNDER SECTION ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 3 36(1)(III) OF THE ACT. THE AO ACCORDINGLY ADDED ` 3.25 CRORES TO THE RETURNED INCOME OF THE ASSESSEE. 6. AGGRIEVED BY THIS THE ASSESSEE CARRIED THE MATTER T O THE CIT(A). ASSESSEE EXPLAINED THE NATURE OF TRANSACTION WITH G LOBAL TRUST BANK (NOW ORIENTAL BANK OF COMMERCE). IT WAS EXPLAINED THAT T HE BANK HAS EXTENDED A SUM OF ` 25 CRORES BY SUBSCRIBING TO THE PREFERENCE SHARES O F THE ASSESSEE. IT WAS AGREED BY BOTH THE PARTIES THAT COMPULSORY PAYM ENT OF INTEREST @13% WILL BE PAID BY THE ASSESSEE IF DIVIDEND IS NOT DEC LARED BY THE ASSESSEE IN ANY YEAR. IT WAS FURTHER EXPLAINED THAT THE DIVIDEN D IS PAID OUT OF THE ACCUMULATED PROFIT AND SINCE THE ASSESSEE DOES NOT HAVE ANY ACCUMULATED PROFIT THE PAYMENT OF 3.25 CRORES CANNOT BE CONSIDE RED AS DIVIDEND. THE CIT(A) WAS CONVINCED THAT THE AMOUNT OF ` 3.5 CRORES PAYABLE IS NOT DIVIDEND BUT INTEREST BUT AT THE SAME TIME THE CIT(A) WAS OF THE OPINION THAT THE LIABILITY OF INTEREST IS TOWARDS THE CAPITAL CONTRI BUTION BY THE BANK AND ACCORDINGLY WOULD FALL UNDER THE REALM OF EXPENSES WHICH IS CAPITAL IN NATURE AND THEREFORE NOT LIABLE TO BE CHARGED AND D EBITED IN THE PROFIT & LOSS ACCOUNT. ON APPLICABILITY OF PROVISIONS OF SEC TION 43B OF THE ACT THE CIT(A) AGREED WITH THE FINDINGS OF THE AO THAT INTE REST HAS NOT BEEN PAID, THEREFORE DISALLOWABLE UNDER SECTION 43B OF THE ACT . 7. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. THE CO UNSEL FOR THE ASSESSEE EXPLAINED THE NATURE OF TRANSACTION AS IT WAS EXPLAINED BEFORE THE LOWER AUTHORITIES. IT IS THE SAY OF THE COUNSEL THA T THE AO HAS GROSSLY ERRED IN TREATING THE LIABILITY OF INTEREST AS DIVIDEND. THE COUNSEL FURTHER STATED THAT PROVISIONS OF SECTION 43B ARE ALSO NOT APPLICA BLE AS THE AMOUNT HAS BEEN BORROWED FROM GLOBAL TRUST BANK, WHICH IS NOT A SCHEDULED BANK WITHIN THE PROVISIONS OF SECTION 43B OF THE ACT. 8. PER CONTRA THE LEARNED D.R. VEHEMENTLY SUBMITTED TH AT EVEN IF THE LIABILITY IS CONSIDERED AS INTEREST THE SAME IS HIT BY THE PROVISIONS OF SECTION 43B OF THE ACT IN AS MUCH AS GLOBAL TRUST BANK HAS BEEN MERGED WITH ORIENTAL BANK OF COMMERCE AND ORIENTAL BANK COMMERC E IS A SCHEDULED BANK. THEREFORE, PROVISIONS OF SECTION 43B OF THE A CT CLEARLY APPLY ON THE FACTS OF THE CASE. ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 4 9. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND CAREFUL LY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS AN UNDISPUTE D FACT THAT THE LOAN FROM GLOBAL TRUST BANK WAS TAKEN SOMETIME IN 2001 AND SI NCE THEN THE ASSESSEE HAS BEEN DEBITING ITS PROFIT & LOSS ACCOUNT BY THE AMOUNT OF INTEREST PAYABLE ON THE BORROWINGS. IT IS ALSO AN UNDISPUTED FACT THAT IN EARLIER YEARS THE LIABILITY HAS BEEN CONSIDERED AND ACCEPTED AS T OWARDS INTEREST. FOR THE FIRST TIME THE AO HAS CHANGED THE CHARACTER OF THE LIABILITY FROM INTEREST TO DIVIDEND WHICH IS AGAINST THE RULE OF CONSISTENCY . THE AO HIMSELF HAS OBSERVED THAT NO FRESH LOANS HAVE BEEN TAKEN DURING THE YEAR UNDER CONSIDERATION. THEREFORE THE AO CANNOT CHANGE THE N ATURE OF LIABILITY DURING THE YEAR UNDER CONSIDERATION. HOWEVER, AT THE SAME TIME WE DO NOT AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE LIABILITY IS NOT TOWARDS A SCHEDULED BANK BECAUSE THE AMOUNT HAS BEEN BORROWED FROM GLOBAL TRUST BANK. IN OUR CONSIDERED OPINION W HEN A BANK IS TAKEN OVER BY SOME OTHER BANK THEN ALL THE BORROWERS OF T HE ERSTWHILE BANK HAVE TO ENTER INTO FRESH LOAN AGREEMENT WITH THE NEW BAN K. THEREFORE, ON THE FACTS OF THE CASE IN HAND ONCE THE GLOBAL TRUST BAN K HAS BEEN MERGED WITH ORIENTAL BANK OF COMMERCE THE BORROWINGS OF THE ASS ESSEE HAS TO BE CONSIDERED AS BORROWINGS FROM ORIENTAL BANK OF COMM ERCE AND IT IS AN UNDISPUTED FACT THAT ORIENTAL BANK OF COMMERCE IS A SCHEDULED BANK, THEREFORE PROVISIONS OF SECTION 43B CLEARLY APPLY O N THE FACTS OF THE CASE. THE DISALLOWANCE OF ` 3.25 CRORES MADE UNDER SECTION 43B OF THE ACT IS HE REBY CONFIRMED. 10. BEFORE PARTING IT WOULD BE PERTINENT TO MENTION HER E THAT IN SUBSEQUENT YEARS, I.E. AY 2007-08 THE BANK HAS WAIV ED THE LOAN AND THE LIABILITY OF INTEREST AND THE ASSESSEE HAS SHOWN TH E SAME AS ITS INCOME IN AY 2007-08. IF THE AO FINDS THAT THE SAME HAS BEEN OFF ERED FOR TAXATION IN AY 2007-08 THEN THE SAME MUST BE CONSIDERED AS PER PRO VISIONS OF LAW. GROUND NO. 1 TO 4 ARE ACCORDINGLY DISMISSED. 11. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO TRANS FER PRICING ADJUSTMENT. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISE: - ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 5 S.NO. NAME OF THE AE NATURE OF TRANSACTION AMOUNT ( RS.) METHOD USED 1 TRIGYN TECHNOLOGIES INC., USA SOFTWARE CONSULTING SERVICES 4,00,75,694 CUP 2 TRIGYN TECHNOLOGIES EUROPE GIMBH GERMANY SOFTWARE CONSULTING SERVICES 17,41,818 CUP 3 TRIGYN TECHNOLOGIES INC, USA REIMBURSEMENT OF TRAVEL AND OTHER EXPENSES (PAYABLE) 23,44,995 - 4 TRIGYN TECHNOLOGIES INC, USA REIMBURSEMENT OF TRAVEL AND OTHER EXPENSES (RECEIVABLE) 78,06,850 - 5 TRIGYN TECHNOLOGIES EUROPE GIMBH GERMANY REIMBURSEMENT OF TRAVEL AND OTHER EXPENSES (PAYABLE) 1,22,385 THE CASE WAS TRANSFERRED TO THE TRANSFER PRICING OF FICER (TPO) UNDER SECTION 92CA OF THE ACT FOR DETERMINATION OF ARMS LENGTH P RICES OF THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE. DURING THE TRANSFER P RICING PROCEEDINGS THE TPO OBSERVED THAT THE CUP METHOD HAS BEEN APPLIED W ITHOUT ANY INTERNAL COMPARABLES AND EXTERNAL THIRD PARTY COMPARABLES. A SSESSEE HAS CONSIDERED ITS ASSOCIATE ENTERPRISE AS THE TESTED PARTY FOR BE NCHMARKING SOFTWARE DEVELOPMENT SERVICES AND CONSIDERING THE AVAILABILI TY OF DATA TNMM SHOULD NOT BE CONSIDERED AS THE MOST APPROPRIATE METHOD. T HE TPO PROVIDED AN ENTIRE SEARCH PROCESS TO THE ASSESSEE AND FINAL SET OF COMPARABLE WITH THE ARITHMETIC MEAN OF 27.31 PERCENT. ASSESSEE MADE A D ETAILED SUBMISSION BEFORE THE TPO. AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE THE TPO CAME TO THE CONCLUSION THAT THE AE WAS PERFORMING M ORE COMPLEX FUNCTIONS THAT THE ASSESSEE. THEREFORE THE AE COULD NOT BE SE LECTED AS TESTED PARTY. THE TPO REJECTED THE CUP METHOD APPLIED BY THE ASSE SSEE AS ACCORDING TO HIM THE CUP METHOD APPLIED BY THE ASSESSEE WAS WITH OUT ANY INTERNAL COMPARABLES AND EXTERNAL THIRD PARTY COMPARABLE. TH E TPO ADOPTED TNMM AS THE MOST APPROPRIATE METHOD. OUT OF THE 19 COMPA RABLES MENTIONED IN THE SHOW CAUSE NOTICE ISSUED BY THE TPO THE FOLLOWI NG COMPARABLES WERE SELECTED: - 1. BODHTREE CONSULTING LTD. 2. AKSHAY SOFTWARE TECHNOLOGIES LTD. 3. LANCO GLOBAL SYSTEMS LTD. 4. EXENSYS SOFTWARE SOLUTIONS LTD. ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 6 5. SANKHYA INFOTECH LTD. 6. SASKEN NETWORK SYSTEMS LTD. 7. GEBBSINFOTECH LTD. 8. VJIL CONSULTING LTD. 9. FOURT SOFT LTD. 10. THIRDWARE SOLUTIONS LTD. 11. COMPULINK SYSTEM LTD. 12. THE TPO FINALLY MADE AN UPWARD ADJUSTMENT OF ` 3,04,96,436/-. ASSESSEE STRONGLY OBJECTED TO THIS ADJUSTMENT BEFOR E THE CIT(A) AND REITERATED ITS CLAIM STATING THAT CUP IS THE MOST A PPROPRIATE METHOD. IT WAS EXPLAINED THAT THE PRICE CHARGED BY THE AE TO THE E ND CUSTOMERS BEING BETWEEN UNCONTROLLED ENTITIES, CAN BE CONSIDERED AS THE UNCONTROLLED PRICE FOR THIS PURPOSE. IT WAS FURTHER CONTENDED THAT THE ASSESSEE IS ALSO ENTITLED TO THE BENEFIT OF THE PROVISO TO SECTION 92C(2) OF THE ACT WHICH CONFERS AN OPTION OF THE ASSESSEE OF +/- 5% FROM THE ARMS LEN GTH PRICE. ACCORDING TO THE ASSESSEE THE ACTUAL MARGIN EARNED BY IT, WHICH IS 80%, IS OUT OF THE +/- 5% OF THE ARMS LENGTH MARGIN OF 82% AS DEMONSTRATE D BY THE ASSESSEE BEFORE THE CIT(A). 13. AFTER CONSIDERING THE FACT AND THE SUBMISSIONS OF T HE ASSESSEE THE CIT(A) WAS OF THE OPINION THAT THE ASSESSEE HAS CLE ARLY MISLED ITSELF IN INTERPRETING AND APPLYING THE CUP METHOD IN THE MAN NER THAT IT HAS APPLIED. THE CIT(A) OBSERVED THE PROVISIONS OF SECT ION 92C(2) OF THE ACT READ WITH RULE 10B(1) AND CAME TO THE CONCLUSION THAT TH E CUP METHOD APPLIED BY THE ASSESSEE IS WITHOUT EXISTENCE OF THE COMPARA BLE UNCONTROLLED TRANSACTIONS AND AS SUCH ERRONEOUS AND THEREFORE SU CH BENCHMARKING CANNOT BE CONSIDERED TO BE PROPER AND ACCEPTABLE. T HE CIT(A) FINALLY CONCLUDED BY ACCEPTING THE VIEW OF THE TPO IN BENCH MARKING INTERNATIONAL TRANSACTIONS OF THE ASSESSEE BY ACCEPTING TNMM AS T HE MOST APPROPRIATE METHOD. 14. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. THE CO UNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. THE COUNSEL ALSO FILED AN APPLICATION FOR ADMISSION OF ADDITIONAL GROUNDS OF ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 7 APPEAL. THE COUNSEL ALSO BROUGHT TO OUT NOTICE THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2004-05 AND STATED TH AT THE ISSUE RELATING TO APPLICABILITY OF MOST APPROPRIATE METHOD HAS BEEN S ET ASIDE BY THE TRIBUNAL. THEREFORE, THE SAME VIEW SHOULD BE TAKEN IN THE YEA R UNDER CONSIDERATION ALSO. 15. PER CONTRA THE LEARNED D.R. STRONGLY OPPOSED TO THE ADMISSION OF ADDITIONAL GROUND OF APPEAL. IT IS THE SAY OF THE L EARNED D.R. THAT ADDITIONAL GROUNDS RAISED BY THE ASSESSEE NEED VERIFICATION OF FACTS, WHICH IS AGAINST THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF NTPC 229 ITR 383. ON MERITS OF THE CASE THE LEARNED D.R. STR ONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 16. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE FINDI NGS OF THE LOWER AUTHORITIES. WE HAVE ALSO THE BENEFIT OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2004-05 IN ITA NO. 4855/ MUM/2009. THE ENTIRE DISPUTE BOILS DOWN TO THE APPLICATION OF MOST APPRO PRIATE METHOD ON THE FACTS OF THE CASE. THE ASSESSEE IS INSISTING ON CUP METHOD WHEREAS THE TPO HAS ADOPTED TNMM AS THE MOST APPROPRIATE METHOD. ON IDENTICAL SET OF FACT THE TRIBUNAL IN ITA NO. 4855/MUM/2009 HAS CONSIDERE D THIS ISSUE QUA GROUND NO. 2 OF THAT APPEAL. THE ORDER OF THE TRIBU NAL READS AS UNDER: - 13. GROUND NO.2 TAKEN BY THE DEPARTMENT IS AS UND ER: 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE BY THE TPO WITHOUT APPRECIATING THE FACTS OF THE CASE' 14. SINCE THE ASSESSEE WAS HAVING TOTAL INTERNATIONAL T RANSACTIONS WITH THE ASSOCIATED ENTERPRISES OF MORE THAN RS.5 C RORES, AO MADE REFERENCE TO TRANSFER PRICING OFFICER U/S 92CA(1) F OR COMPUTATION OF ARM'S LENGTH PRICE (ALP) OF THE INTERNATIONAL TRANS ACTION U/S 92C. ASSESSEE FILED A REPORT U/S 92E IN RESPECT OF INTER NATIONAL TRANSACTION ENTERED INTO WITH THE RELATED PARTIES/ASSOCIATED EN TERPRISES. 15. TRANSFER PRICING OFFICER VIDE HIS ORDER DATED 14.12 .2006 U/S 92CA(3) OF THE ACT PROPOSED ADDITION OF RS.73,92,75 6/- BY CONSIDERING THAT THE TRANSACTIONAL NET MARGIN METHOD (TNMM) IS THE MOST APPROPRIATE METHOD FOR DETERMINING ALP AS AGAINST C OMPARABLE UNCONTROLLED PRICE METHOD (CUP) ADOPTED BY ASSESSEE . 16. IN VIEW OF ABOVE ADJUSTMENT PROPOSED BY TPO, AO MADE ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 8 ADDITION OF RS.73,92,756/-. IT IS RELEVANT TO STATE THAT ASSESSEE FILED ITS OBJECTIONS AGAINST THE PROPOSED ADJUSTMENT BEFORE A O AND STATED THAT TPO HAS ERRONEOUSLY RESORTED TO TNMM METHOD FOR DET ERMINING ALP EVEN THOUGH DIRECT COMPARABLES USING THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD WERE AVAILABLE FOR DETERMINING A LP AND ACCORDINGLY NO ADJUSTMENT SHOULD HAVE BEEN MADE TO THE VALUE OF TRANSACTIONS. IT IS ALSO RELEVANT TO STATE THAT ASS ESSEE ALSO FILED DETAILS OF PRICE CHARGED FROM THE ASSOCIATED CONCERN, BUT W E DO NOT CONSIDER IT RELEVANT TO STATE THE SAME IN DETAIL FOR THE REASON S TO BE MENTIONED HEREINAFTER. THE ASSESSEE DISPUTED THE SAID ADDITIO N MADE BY AO OF RS.73,27,756/- BEFORE ID. CIT(A). 17. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT TPO AD OPTED TNMM AND SELECTED CERTAIN COMPARABLES TO ARRIVE AT ARITHMETIC MEAN OF 9.92 % AS AGAINST CUP METHOD SELECTED BY ASSESSE E FOR DETERMINING ALP. THE SUBMISSIONS AS MADE BY ASSESSEE BEFORE ID. CIT(A) AND THE OPERATIONAL ARRANGEMENT BETWEEN THE ASSESSEE AND IT S ASSOCIATED ENTERPRISES ARE STATED IN PARAS 3.2 TO 3.6 OF THE I MPUGNED ORDER AND ID. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASS ESSEE VIDE PARA 3.8 HAS HELD THAT INTERNATIONAL TRANSACTION OF ASSESSEE WITH ITS ASSOCIATED ENTERPRISES ARE AT ALP AND ACCORDINGLY DELETED THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. HENCE, DEPA RTMENT IS IN APPEAL BEFORE THE TRIBUNAL. 18. AT THE TIME OF HEARING, ID.DR SUBMITTED THAT ASSESS EE DID NOT FURNISH EXTERNAL CUP DATA BEFORE TPO AND THE SAME W ERE FURNISHED BEFORE LD.CIT(A). HE SUBMITTED THAT ID. CIT(A) ACCE PTED ADDITIONAL EVIDENCE WITHOUT REFERRING TO THE TPO. HE SUBMITTED THAT INTERNATIONAL CUP DATA WERE NOT AVAILABLE AT ALL. HE FURTHER SUBM ITTED THAT FOR APPLICATION OF CUP METHOD STANDARD OF COMPARABILITY ARE STRINGENT AND SHOULD BE ACCURATE. ON THE OTHER HAND, ID. AR SUBMI TTED THAT TPO IN HIS ORDER HAS NOT DISCUSSED AS TO WHY CUP METHOD IS NOT APPLICABLE THOUGH THE ID. CIT(A) HAS STATED TO APPLY CUP METHO D. HE FURTHER SUBMITTED THAT THE TPO DID NOT PROVIDE ANY DETAILS AND NAMES OF COMPARABLES TO THE ASSESSEE TO ARRIVE AT ARITHMETIC MEANS AT 9.92%. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD ENTERED IN TO THE TRANSACTIONS WITH ASSOCIATED ENTERPRISES AS WELL AS NON ASSOCIATED ENTERPRISES AND TPO CONSIDERED THE ENTIRE SALES IN DETERMINING ALP OF THE ASSESSEE. THUS, TPO HAS MADE COMPARISON AT ENTI TY LEVEL INSTEAD OF TRANSACTIONAL LEVEL. LD. AR DURING THE COURSE OF HEARING RELIED ON THE DECISIONS OF THE MUMBAI BENCH OF TRIBUNAL IN THE CA SE OF DC1T V/S ANKIT DIAMONDS (2011) 43 SOT 523 AND DCIT V/S STARL ITE (2010) 40 SOT 421 (MUM.) AND SUBMITTED THAT ALP OF INTERNATIO NAL TRANSACTIONAL VALUE HAS TO BE ONLY AT TRANSACTION LEVEL OR AT A L EVEL OF A CLASS OF TRANSACTION. THAT LAW DOES NOT PERMIT DETERMINATION OF ALP OF INTERNATIONAL TRANSACTION, BY COMPARING OPERATING M ARGINS AT ENTITY LEVELS, OR BY TAKING OVERALL INDUSTRY LEVEL AVERAGE S. LD. AR FURTHER SUBMITTED THAT DETAILS OF DATA TO APPLY INTERNAL CU P METHOD WERE ALSO FURNISHED TO AO AND REFERRED PAGES 81 TO 84 OF THE PAPER BOOK BUT AO DID NOT ACCEPT THE SAME. ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 9 19. IN VIEW OF ABOVE, ID. REPRESENTATIVES OF BOTH PARTI ES SUBMITTED THAT THE MATTER COULD GO BACK TO AO TO DECIDE THE I SSUE AFRESH INCLUDING THE APPLICABILITY OF METHOD TO DETERMINE ALP. 20. CONSIDERING THE ABOVE FACTS AND SUBMISSIONS OF ID. REPRESENTATIVES OF BOTH PARTIES, WE AGREE THAT THE ISSUE REQUIRES RECONSIDERATION BY TPO AND THEREFORE MATTER BE REST ORED TO AO TO DETERMINE ALP INCLUDING APPLICABILITY OF METHOD TO BE ADOPTED. HENCE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RE STORE THE MATTER TO THE FILE OF AO TO DETERMINE ALP OF TRANSACTIONS OF THE ASSESSEE WITH ASSOCIATED ENTERPRISES AFRESH AFTER GIVING DUE OPPO RTUNITY OF HEARING TO THE ASSESSEE BY A REASONED ORDER AND IN ACCORDAN CE WITH LAW. HENCE GROUND NO.2 OF THE APPEAL TAKEN BY DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSES. 17. SINCE THE ISSUE OF APPLICATION OF MOST APPROPRIATE METHOD HAS BEEN SET ASIDE BY THE TRIBUNAL FOR RECONSIDERATION, RESP ECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH WE SET ASIDE THE O RDERS OF THE AUTHORITIES BELOW AND RESTORE THE MATTER TO THE FILE OF THE AO TO DETERMINE THE ALP OF TRANSACTIONS AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. THE AO IS ALSO DIRECTED TO CONSIDER ANY OTHER EVIDENCE/DETAIL S FILED BY THE ASSESSEE AND THE AO IS ALSO FREE TO BRING IN OTHER EVIDENCES ON RECORD AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. ITA NO. 3011/MUM/2012 AY 2005-06 18. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A ) ERRED IN ALLOWING THE PROVISION FOR DOUBTFUL DEBTS OF ` 96,11,238/- UNDER SECTION 36(1)(VII) OF THE ACT. 19. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDING S THE AO NOTICED THAT THE ASSESSEE HAS DEBITED ` 96,11,238/- UNDER THE HEAD OTHER COSTS AS BAD DEBTS AND THE PROVISIONS FOR DOUBTFUL DEBTS HAS BEEN SIMULTANEOUSLY CREDITED. THE AO WAS OF THE FIRM BELIEF THAT THE DE DUCTION IS NOT ALLOWABLE AS THE AMOUNT IS IN THE NATURE OF PROVISION. THE AO AC CORDINGLY ADDED ` 96,11,238/- TO THE RETURNED INCOME OF THE ASSESSEE. THE ASSESSEE STRONGLY OBJECTED TO THIS ADDITION BEFORE THE CIT(A). IT WAS EXPLAINED THAT THE ASSESSEE HAS DEBITED TO THE PROFIT & LOSS ACCOUNT TOWARDS PR OVISIONS FOR BAD AND DOUBTFUL DEBTS BUT THE SAME IS ALSO BEEN DEDUCTED F ROM THE DEBTORS AND ONLY THE NET DEBTORS ARE REFLECTED IN THE BALANCE S HEET. IT WAS EXPLAINED THAT ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 10 THE NETTING OF DEBTORS BY THE AMOUNT OF PROVISION O F BAD DEBTS AMOUNTS TO WRITING OFF OF THE DEBTS AND THEREFORE ALLOWABLE AS DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT. RELIANCE WAS PLACED ON THE D ECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT 32 3 ITR 166. 20. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS THE CIT(A) WAS CONVINCED THAT THE RATIO LAID DOWN BY THE HON'BLE S UPREME COURT IN THE CASE OF VIJAYA BANK (SUPRA) SQUARELY APPLY TO THE FACTS OF THE CASE AND DELETED THE ADDITION MADE BY THE AO. 21. AGGRIEVED BY THIS THE REVENUE IS BEFORE US. THE LEA RNED D.R. STRONGLY SUBMITTED THAT THE RATIO OF THE DECISION OF THE HON 'BLE SUPREME COURT IS THAT EACH AND EVERY DEBTORS ACCOUNT SHOULD BE CLOSED BY APPROPRIATE ENTRIES BEFORE CLAIMING BAD DEBT AS PER THE PROVISIONS OF S ECTION 36(1)(VII) OF THE ACT. THE LEARNED D.R. EXPLAINED THE PROVISIONS OF THE RE LEVANT SECTION AND STATED THAT THE FINDINGS OF THE CIT(A) ARE ERRONEOUS. 22. PER CONTRA THE LEARNED COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 23. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORI TIES BELOW. WE HAVE ALSO CONSIDERED THE FINANCIAL STATEMENTS OF TH E ASSESSEE FOR THE YEAR UNDER CONSIDERATION. WE FIND THAT IN SCHEDULED 18 U NDER THE HEAD OTHER COSTS THE ASSESSEE HAS CLAIMED PROVISION FOR DOUBT FUL DEBTS AT ` 96,11,238/- WE ALSO FIND THAT IN SCHEDULE 9 UNDER THE HEAD SUN DRY DEBTORS THE TOTAL DEBTORS OF ` 27,34,33,547/- HAVE BEEN REDUCED BY ` 26,97,26,586/- AND THE NET DEBIT BALANCE OF ` 37,06,961/- HAS BEEN SHOWN UNDER THE HEAD SUNDRY DEBTORS IN THE BALANCE SHEET. THESE FACTUAL FIGURE S CLEARLY DEMONSTRATE THAT THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE DEBTS, WH ICH IS VERY MUCH IN LINE WITH THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF VIJAYA BANK (SUPRA). OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE AS UNDER:- 4 . ON THE QUESTION WHETHER IT WAS IMPERATIVE FOR THE ASSESSEE TO CLOSE EACH AND EVERY INDIVIDUAL ACCOUNT AND ITS DEBTORS I N ITS BOOKS OR A MERE REDUCTION IN THE LOANS AND ADVANCES TO THE EXT ENT OF THE PROVISION FOR BAD AND DOUBTFUL DEBT WAS SUFFICIENT, THE ANSWE R GIVEN BY THE TRIBUNAL WAS THAT, IN VIEW OF THE DECISION OF THE G UJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHANJIBHAI BARDANWALA VS. CIT (1981) 21 CTR ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 11 (GUJ) 190 : (1981) 130 ITR 95 (GUJ), THE CIT(A) WAS RIGHT IN COMING TO THE CONCLUSION THAT, SINCE THE ASSESSEE HAD WRITTEN OFF THE IMPUGNED BAD DEBT IN ITS BOOKS BY WAY OF A DEBIT TO THE P&L A/C SIMULTANEOUSLY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND AD VANCES OR DEBTORS DEPICTED ON THE ASSET SIDE IN THE BALANCE SHEET AT THE CLOSE OF THE YEAR, THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER S. 36( 1)(VII) OF 1961 ACT. THIS VIEW WAS NOT ACCEPTED BY THE HIGH COURT WHICH CAME TO THE CONCLUSION BY PLACING RELIANCE ON A RELIED UPON JUD GMENT IN THE CASE OF CIT & ANR. VS. WIPRO INFOTECH LTD. [REPORTED AT (20 09) 27 DTR (KAR) 102ED.] (SEE P. 5 OF THE PAPER BOOK), THAT, IN VIE W OF THE INSERTION OF THE EXPLANATION VIDE FINANCE ACT, 2001, W.E.F. 1ST APRIL, 1989, THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF V ITHALDAS H. DHANJIBHAI BARDANWALA (SUPRA) NO MORE HELD THE FIEL D AND, CONSEQUENTLY, MERE CREATION OF A PROVISION DID NOT AMOUNT TO ACTUAL WRITE OFF OF BAD DEBTS, HENCE, THESE CIVIL APPEALS. 5. AT THE OUTSET, WE MAY STATE THAT, IN THESE CIVIL APPEALS, BROADLY, TWO QUESTIONS ARISE FOR DETERMINATION. THE FIRST QUESTI ON WHICH ARISES FOR DETERMINATION CONCERNS THE MANNER IN WHICH ACTUAL W RITE OFF TAKES PLACE UNDER THE ACCOUNTING PRINCIPLES. THE SECOND Q UESTION WHICH ARISES FOR DETERMINATION IN THESE CIVIL APPEALS IS, WHETHER IT IS IMPERATIVE FOR THE ASSESSEE-BANK TO CLOSE THE INDIV IDUAL ACCOUNT OF EACH DEBTOR IN ITS BOOKS OR A MERE REDUCTION IN THE 'LOA NS AND ADVANCES ACCOUNT' OR DEBTORS TO THE EXTENT OF THE PROVISION FOR BAD AND DOUBTFUL DEBT IS SUFFICIENT ? 6. THE FIRST QUESTION IS NO MORE RES INTEGRA. RECEN TLY, A DIVISION BENCH OF THIS COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT (2010) 228 CTR (SC) 440 : (2010) 34 DTR (SC) 11 : (2010) 3 20 ITR 577 (SC) [IN WHICH ONE OF US (S.H. KAPADIA, J.) WAS A PARTY] HAD AN OCCASION TO DEAL WITH THE FIRST QUESTION AND IT HAS BEEN ANSWERED, A CCORDINGLY, IN FAVOUR OF THE ASSESSEE VIDE PARA (25), WHICH READS AS UNDE R : 'PRIOR TO 1ST APRIL, 1989, THE LAW, AS IT THEN STOO D, TOOK THE VIEW THAT EVEN IN CASES IN WHICH THE ASSESSEE(S) MAKES ONLY A PROVISION IN ITS ACCOUNTS FOR BAD DEBTS AND INTEREST THEREON AND EVE N THOUGH THE AMOUNT IS NOT ACTUALLY WRITTEN OFF BY DEBITING THE P&L A/C OF THE ASSESSEE AND CREDITING THE AMOUNT TO THE ACCOUNT OF THE DEBTOR, THE ASSESSEE WAS STILL ENTITLED TO DEDUCTION UNDER S. 3 6(1)(VII). [SEE CIT VS. JWALA PRASAD TIWARI (1953) 24 ITR 537 (BOM) AND VIT HALDAS H. DHANJIBHAI BARDANWALA VS. CIT (1981) 21 CTR (GUJ) 1 90 : (1981) 130 ITR 95 (GUJ)]. SUCH STATE OF LAW PREVAILED UPTO AND INCLUDING THE ASST. YR. 1988-89. HOWEVER, BY INSERTION (W.E.F. 1ST APRI L, 1989) OF A NEW EXPLANATION IN S. 36(1)(VII), IT HAS BEEN CLARIFIED THAT ANY BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE WILL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBT MAD E IN THE ACCOUNTS OF THE ASSESSEE. THE SAID AMENDMENT INDICATES THAT BEFORE 1ST APRIL, 1989, EVEN A PROVISION COULD BE TREATED AS A WRITE OFF. HOWEVER, AFTER 1ST APRIL, 1989, A DISTINCT DICHOTOMY IS BROUGHT IN BY WAY OF THE SAID EXPLANATION TO S. 36(1)(VII). CONSEQUENTLY, AFTER 1 ST APRIL, 1989, A MERE ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 12 PROVISION FOR BAD DEBT WOULD NOT BE ENTITLED TO DED UCTION UNDER S. 36(1)(VII). TO UNDERSTAND THE ABOVE DICHOTOMY, ONE MUST UNDERSTAND HOW TO WRITE OFF. IF AN ASSESSEE DEBITS AN AMOUNT OF DOUBTFUL DEBT TO THE P&L A/C AND CREDITS THE ASSET ACCOUNT LIKE SUND RY DEBTORS ACCOUNT, IT WOULD CONSTITUTE A WRITE OFF OF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSEE DEBITS PROVISION FOR DOUBTFUL DEBT TO T HE P&L A/C AND MAKES A CORRESPONDING CREDIT TO THE CURRENT LIABILITIES AND PROVISIONS ON THE LIABILITIES SIDE OF THE BALANCE SHEET, THEN IT WOUL D CONSTITUTE A PROVISION FOR DOUBTFUL DEBT. IN THE LATTER CASE, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION AFTER 1ST APRIL, 1989.' 7. ONE POINT NEEDS TO BE CLARIFIED. ACCORDING TO SH RI BISHWAJIT BHATTACHARYA, LEARNED ADDL. SOLICITOR GENERAL APPEA RING FOR THE DEPARTMENT, THE VIEW EXPRESSED BY THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHANJIBHAI BARDANWALA (SUPRA) WAS P RIOR TO THE INSERTION OF THE EXPLANATION VIDE FINANCE ACT, 2001 , W.E.F. 1ST APRIL, 1989, HENCE, THAT LAW IS NO MORE A GOOD LAW. ACCORD ING TO THE LEARNED COUNSEL, IN VIEW OF THE INSERTION OF THE SAID EXPLA NATION IN S. 36(1)(VII) W.E.F. 1ST APRIL, 1989, A MERE DEBIT OF THE IMPUGNE D AMOUNT OF BAD DEBT TO THE P&L A/C WOULD NOT AMOUNT TO ACTUAL WRITE OFF . ACCORDING TO HIM, THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DICHOTOMY BETWEEN ACTUAL WRITE OFF ON THE ONE HAND AND A PROVISION FO R BAD AND DOUBTFUL DEBT ON THE OTHER. HE SUBMITTED THAT A MERE DEBIT T O THE P&L A/C WOULD CONSTITUTE A PROVISION FOR BAD AND DOUBTFUL DEBT, I T WOULD NOT CONSTITUTE ACTUAL WRITE OFF AND THAT WAS THE VERY REASON WHY T HE EXPLANATION STOOD INSERTED. ACCORDING TO HIM, PRIOR TO FINANCE ACT, 2001, MANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTION UND ER S. 36(1)(VII) OF 1961 ACT BY MERELY DEBITING THE IMPUGNED BAD DEBT T O THE P&L A/C AND, THEREFORE, THE PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT MERE REDUCTION OF PROFITS BY DEBITING THE AMOU NT TO THE P&L A/C PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OFF. TO THIS E XTENT, WE AGREE WITH THE CONTENTIONS OF SHRI BHATTACHARYA. HOWEVER, AS S TATED BY THE TRIBUNAL, IN THE PRESENT CASE, BESIDES DEBITING THE P&L A/C AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE-BANK HAD CORRESPONDINGLY/SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSET SIDE OF THE BALANCE S HEET AND, CONSEQUENTLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR THE DEBTORS ON THE ASSET SIDE OF THE BA LANCE SHEET WAS SHOWN AS NET OF THE PROVISION 'FOR IMPUGNED BAD DEB T'. IN THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHANJIBHAI BARDANWALA (SUPRA), A MERE DEBIT TO THE P&L A/C WAS SUFFICIENT TO CONSTITUTE ACTUAL WRITE OFF WHEREAS, AFTER THE EXPL ANATION, THE ASSESSEE(S) IS NOW REQUIRED NOT ONLY TO DEBIT THE P &L A/C BUT SIMULTANEOUSLY ALSO REDUCE LOANS AND ADVANCES OR TH E DEBTORS FROM THE ASSET SIDE OF THE BALANCE SHEET TO THE EXTENT OF TH E CORRESPONDING AMOUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/ DEBTORS IS SHOWN AS NET OF PROVISIONS FOR IMPUGNED BAD DEBT. THIS ASPECT IS LOST SIGHT OF BY THE HIGH COUR T IN ITS IMPUGNED ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 13 JUDGMENT. IN THE CIRCUMSTANCES, WE HOLD, ON THE FIR ST QUESTION, THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF DEDUCTION U NDER S. 36(1)(VII) OF 1961 ACT AS THERE WAS AN ACTUAL WRITE OFF BY THE AS SESSEE IN ITS BOOKS, AS INDICATED ABOVE. 8. COMING TO THE SECOND QUESTION, WE MAY REITERATE THAT IT IS NOT IN DISPUTE THAT S. 36(1)(VII) OF 1961 ACT APPLIES BOTH TO BANKING AND NON- BANKING BUSINESSES. THE MANNER IN WHICH THE WRITE O FF IS TO BE CARRIED OUT HAS BEEN EXPLAINED HEREINABOVE. IT IS IMPORTANT TO NOTE THAT THE ASSESSEE-BANK HAS NOT ONLY BEEN DEBITING THE P&L A/ C TO THE EXTENT OF THE IMPUGNED BAD DEBT, IT IS SIMULTANEOUSLY REDUCIN G THE AMOUNT OF LOANS AND ADVANCES OR THE DEBTORS AT THE YEAR-END, AS STATED HEREINABOVE. IN OTHER WORDS, THE AMOUNT OF LOANS AN D ADVANCES OR THE DEBTORS AT THE YEAR-END IN THE BALANCE SHEET IS SHO WN AS NET OF THE PROVISIONS FOR IMPUGNED DEBT. HOWEVER, WHAT IS BEIN G INSISTED UPON BY THE AO IS THAT MERE REDUCTION OF THE AMOUNT OF LOAN S AND ADVANCES OR THE DEBTORS AT THE YEAR-END WOULD NOT SUFFICE AND, IN THE INTEREST OF TRANSPARENCY, IT WOULD BE DESIRABLE FOR THE ASSESSE E-BANK TO CLOSE EACH AND EVERY INDIVIDUAL ACCOUNT OF LOANS AND ADVANCES OR DEBTORS AS A PRECONDITION FOR CLAIMING DEDUCTION UNDER S. 36(1)( VII) OF 1961 ACT. THIS VIEW HAS BEEN TAKEN BY THE AO BECAUSE THE AO APPREH ENDED THAT THE ASSESSEE-BANK MIGHT BE TAKING THE BENEFIT OF DEDUCT ION UNDER S. 36(1)(VII) OF 1961 ACT, TWICE OVER. [SEE ORDER OF C IT(A) AT PP. 66, 67 AND 72 OF THE PAPER BOOK, WHICH REFERS TO THE APPREHENS IONS OF THE AO]. IN THIS CONTEXT, IT MAY BE NOTED THAT THERE IS NO FIND ING OF THE AO THAT THE ASSESSEE HAD UNAUTHORISEDLY CLAIMED THE BENEFIT OF DEDUCTION UNDER S. 36(1)(VII), TWICE OVER. THE ORDER OF THE AO IS BASE D ON AN APPREHENSION THAT, IF THE ASSESSEE FAILS TO CLOSE EACH AND EVERY INDIVIDUAL ACCOUNT OF ITS DEBTOR, IT MAY RESULT IN ASSESSEE CLAIMING DEDU CTION TWICE OVER. IN THIS CASE, WE ARE CONCERNED WITH THE INTERPRETATION OF S. 36(1)(VII) OF 1961 ACT. WE CANNOT DECIDE THE MATTER ON THE BASIS OF APPREHENSIONS/DESIRABILITY. IT IS ALWAYS OPEN TO TH E AO TO CALL FOR DETAILS OF INDIVIDUAL DEBTORS ACCOUNT IF THE AO HA S REASONABLE GROUNDS TO BELIEVE THAT ASSESSEE HAS CLAIMED DEDUCTION, TWI CE OVER. IN FACT, THAT EXERCISE HAS BEEN UNDERTAKEN IN SUBSEQUENT YEARS. T HERE IS ALSO A FLIPSIDE TO THE ARGUMENT OF THE DEPARTMENT. ASSESSE E HAS INSTITUTED RECOVERY SUITS IN COURTS AGAINST ITS DEBTORS. IF IN DIVIDUAL ACCOUNTS ARE TO BE CLOSED, THEN THE DEBTOR/DEFENDANT IN EACH OF THO SE SUITS WOULD RELY UPON THE BANK STATEMENT AND CONTEND THAT NO AMOUNT IS DUE AND PAYABLE IN WHICH EVENT THE SUIT WOULD BE DISMISSED. 9. BEFORE CONCLUDING, WE MAY REFER TO AN ARGUMENT A DVANCED ON BEHALF OF THE DEPARTMENT. ACCORDING TO THE DEPARTMENT, IT IS NECESSARY TO SQUARE OFF EACH INDIVIDUAL ACCOUNT FAILING WHICH TH ERE IS LIKELIHOOD OF ESCAPEMENT OF INCOME FROM ASSESSMENT. ACCORDING TO THE DEPARTMENT, IN CASES WHERE A BORROWERS ACCOUNT IS WRITTEN OFF BY DEBITING P&L A/C AND BY CREDITING LOANS AND ADVANCES OR DEBTORS ACCO UNTS ON THE ASSET SIDE OF THE BALANCE SHEET, THEN, AS AND WHEN IN THE SUBSEQUENT YEARS IF THE BORROWER REPAYS THE LOAN, THE ASSESSEE WILL CRE DIT THE REPAID AMOUNT TO THE LOANS AND ADVANCES ACCOUNT AND NOT TO THE P&L A/C ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 14 WHICH WOULD RESULT IN ESCAPEMENT OF INCOME FROM ASS ESSMENT. ON THE OTHER HAND, IF BAD DEBT IS WRITTEN OFF BY CLOSING T HE BORROWERS ACCOUNT INDIVIDUALLY, THEN THE REPAID AMOUNT IN SUBSEQUENT YEARS WILL BE CREDITED TO THE P&L A/C ON WHICH THE ASSESSEE-BANK HAS TO PAY TAX. ALTHOUGH, PRIMA FACIE, THIS ARGUMENT OF THE DEPARTM ENT APPEARS TO BE VALID, ON A DEEPER CONSIDERATION, IT IS NOT SO FOR THREE REASONS. FIRSTLY, THE HEAD OFFICE ACCOUNTS CLEARLY INDICATE, IN THE P RESENT CASE, THAT, ON REPAYMENT IN SUBSEQUENT YEARS, THE AMOUNTS ARE DULY OFFERED FOR TAX. SECONDLY, ONE HAS TO KEEP IN MIND THAT, UNDER THE A CCOUNTING PRACTICE, THE ACCOUNTS OF THE RURAL BRANCHES HAVE TO TALLY WI TH THE ACCOUNTS OF THE HEAD OFFICE. IF THE REPAID AMOUNT IN SUBSEQUENT YEA RS IS NOT CREDITED TO THE P&L A/C OF THE HEAD OFFICE, WHICH IS ULTIMATELY WHAT MATTERS, THEN, THERE WOULD BE A MISMATCH BETWEEN THE RURAL BRANCH ACCOUNTS AND THE HEAD OFFICE ACCOUNTS. LASTLY, IN ANY EVENT, S. 41(4 ) OF 1961 ACT, INTER ALIA, LAYS DOWN THAT, WHERE A DEDUCTION HAS BEEN AL LOWED IN RESPECT OF A BAD DEBT OR A PART THEREOF UNDER S. 36(1)(VII) OF 1961 ACT, THEN, IF THE AMOUNT SUBSEQUENTLY RECOVERED ON ANY SUCH DEBT IS G REATER THAN THE DIFFERENCE BETWEEN THE DEBT AND THE AMOUNT SO ALLOW ED, THE EXCESS SHALL BE DEEMED TO BE PROFITS AND GAINS OF BUSINESS AND, ACCORDINGLY, CHARGEABLE TO INCOME-TAX AS THE INCOME OF THE PREVI OUS YEAR IN WHICH IT IS RECOVERED. IN THE CIRCUMSTANCES, WE ARE OF THE V IEW THAT THE AO IS SUFFICIENTLY EMPOWERED TO TAX SUCH SUBSEQUENT REPAY MENTS UNDER S. 41(4) OF 1961 ACT AND, CONSEQUENTLY, THERE IS NO ME RIT IN THE CONTENTION THAT, IF THE ASSESSEE SUCCEEDS, THEN IT WOULD RESUL T IN ESCAPEMENT OF INCOME FROM ASSESSMENT. 10. FOR THE AFORE-STATED REASON, WE UPHOLD THE JUDG MENT OF THE TRIBUNAL DT. 31ST JULY, 2003, AND SET ASIDE THE IMPUGNED JUD GMENT OF THE HIGH COURT. CONSEQUENTLY, THE ASSESSEES APPEALS STAND A LLOWED WITH NO ORDER AS TO COSTS. 24. AS THE FACTS OF THE CASE IN HAND ARE IDENTICAL TO T HE FACTS CONSIDERED BY THE HON'BLE SUPREME COURT THE CIT(A) HAS RIGHTLY FO LLOWED THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT. THEREFORE NO INT ERFERENCE IS CALLED FOR. APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISMISSE D. ITA NO. 3124/MUM/2012 AY 2006-07 25. IN THIS APPEAL THE ASSESSEE HAS RAISED FOUR SUBSTAN TIVE GROUNDS OF APPEAL. GROUND NO. 1 TO 3 RELATE TO THE DISALLOWANC E OF ` 3.25 CRORES ON ACCOUNT OF INTEREST PAID TO THE BANK AND GROUND NO. 4 RELATES TO THE TRANSFER PRICING ADJUSTMENT OF ` 39,32,900/-. 26. THE ISSUE IN DISPUTE IN THIS APPEAL ARE IDENTICAL T O THE ISSUES CONSIDERED BY US IN ITA 3123/MUM/2012 HEREINABOVE W HERE WE HAVE GIVEN DETAILED FINDINGS. FOR SIMILAR REASONS AND FOR SIMI LAR FINDINGS GROUND NO. 1 ITA NO. 3123/MUM/2012 M/S. TRIGYN TECHNOLOGIES LTD. 15 TO 3 OF THIS APPEAL ARE DISMISSED AND GROUND NO. 4 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES BY RESPECTFULLY FOLLOWING OUR OWN FINDING GIVEN IN ITA NO. 3123/MUM/2012. 27. IN THE RESULT, ITAT NO. 3123 & 3124/MUM/2012 ARE PA RTLY ALLOWED FOR STATISTICAL PURPOSE AND ITA NO. 3011/MUM/2012 IS DI SMISSED. %/&1 #$%& ' 3 ' 4 ' 567 8 80 9 & ' & : / ' 3 % ' & : ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DECEMBER, 2014. 0 ' ,-./ ) 3 ; 1 03.12.2014 - ' <* SD/- SD/- ( VIJAY PAL RAO ) ( N.K. BILLAIYA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ) * MUMBAI, ; DATED: 3 RD DECEMBER, 2014 COPY TO: 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. ) =& ( )/ THE CIT(A) 15, MUMBAI 4. ) =& / THE CIT 8, MUMBAI CITY 5. >< ! & ?# , + ?# / , ) * THE DR, K BENCH, ITAT, MUMBAI 6. <@$ A* / GUARD FILE. 0 ) / BY ORDER '& ! & //TRUE COPY// ASSISTANT REGISTRAR , ) * ITAT, MUMBAI BENCHES, MUMBAI N.P.