Dy. CIT, Circle-4, Pune V. M/s. Patni Computer Systems Ltd., Pune

ITA 342/PUN/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93756 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-11-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 01-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Opportunity of being heard; International transaction; Retrospective amendment
• Section: 143(3); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND M S . SUSHMA CHOWLA , JUDICIAL MEMBER ITA NO. 2504 /PN/201 2 ASSESSMENT YEAR: 200 5 - 0 6 IGATE COMPUTER SYSTEMS LTD., (FORMERLY KNOWN AS PATNI COMPUTER SYST EMS LIMITED) LEVEL I, II, V & VI, TOWER 3, CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE 411013 . APPELLANT PAN: AABCP6219N VS. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE - 4, PUNE . RESPONDENT ITA NO. 34 2/PN/201 3 ASSESSMENT YEAR: 2005 - 06 THE ADDL. COMMISSIONER OF INCOME TAX, RANGE - 4, PUNE . APPELLANT VS. IGATE COMPUTER SYSTEMS LTD., (FORMERLY KNOWN AS PATNI COMPUTER SYSTEMS LIMITED) LEVEL I, II, V & VI, TOWER 3, CYBERCITY, MAGARPATTA CITY, HADAPSAR, PUNE 411013 . RESPOND ENT PAN: AABCP6219N ASSESSEE BY : SHRI C.H. NANIWADEKAR ASSESSEE BY : SHRI C.H. NANIWADEKAR REVENUE BY : SHRI NARENDRA KUMAR, CIT DATE OF HEARING : 2 3 - 03 - 201 5 DATE OF PRONOUNCEMENT : 27 - 0 5 - 201 5 ORDER PER SUSHMA CHOWLA, J.M : THE CROSS APPEALS FIL ED BY THE ASSESSEE AND REVENUE ARE AGAINST THE THE CROSS APPEALS FIL ED BY THE ASSESSEE AND REVENUE ARE AGAINST THE ORDER OF CIT(A) - I T/TP , PUNE, DATED 2 6 . 11 .201 2 RELATING TO ASSESSMENT YEAR 2005 - 06 PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 2 2. THE CROSS APPEALS RELATING TO THE SAME ASSESSEE WERE HEARD TOGETH ER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE IN ITA NO. 2504 /PN/2012 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - IN THE FACT AND THE CIRCUMSTANCES OF CASE, AND IN LAW, THE LEARNED COMMISSIONER OF INC OME - LAX (APPEALS) IT/TP, PUNE, ERRED: 1. IN RESPECT OF ADJUSTMENT UNDER TRANSFER PRICING ON ACCOUNT OF DELAYED RECOVERIES FROM ASSOCIATED ENTERPRISES: A) IN HOLDING THAT THE ADJUSTMENT MADE BY THE TPO IS CORRECT IN PRINCIPLE B) IN CONFIRMING THE AMOUNT OF ADJU STMENT OF RS.3,12,52,083 / - ON ACCOUNT OF DELAYED RECOVERIES FROM ASSOCIATED ENTERPRISES C) IN HOLDING THAT THE TPO HAS APPLIED EXTERNAL CUP OF INTERNATIONAL BANK RATE D) IN NOT APPRECIATING THAT THERE IS NO INDUSTRY PRACTICE TO CHARGE INTEREST ON DELAYED RECOV ERIES FROM CUSTOMERS AND THE APPELLANT ALSO HAS NOT CHARGED INTEREST ON DELAYED RECOVERIES FROM NON - ASSOCIATED ENTERPRISES E) WITHOUT PREJUDICE TO ABOVE, IN HOLDING THAT THE AMOUNT OF ADJUSTMENT IS REQUIRED T O BE COMPUTED @ 7% BEING THE PREVAILING RA T E ON SH ORT T ERM DEPOSIT S OF 90 DAYS 2. THE APPELLANT CRAVES LEAVE TO ADD, MODIFY OR WITHDRAW ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING . 4 . THE REVENUE IN ITA NO. 34 2/PN/201 3 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1) THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS) ERRED IN HOLDING THAT T HERE WAS NO SPLITTING OF THE EXISTING BUSINESS AND THE BUSINESS IS NOT INTEGRAL PART OF THE ORIGINAL UNDERTAKING SINCE 1980, COMMONALITY OF BUSINESS UTILIZATION OF CERTAIN RESOURCES AND ALLOCATION OF COMMON EXPENSES E TC. DOES NOT IN ANY WAY COME IN THE WAY TO DECIDE THE ELIGIBILITY OF DEDUCTION U/S.10A AND, THEREFORE, ALL THE UNDERTAKINGS OF THE ASSESSEE ARE ELIGIBLE FOR CLAIM OF DEDUCTION U/S 10A OF THE INCOME TAX ACT, 1961 . 2 ) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING DEDUCTION U/S.10A IN RESPECT OF 3 UNITS AT CHINCHWAD AKRUDI AND MILLENIUM BUSINESS PARK WITHOUT APPRECIATING THAT THE APPROVING AUTHORITY I . E. SOFTWARE TECHNOLOGY PARK OF INDIA (STPI) HAD APPROVED T HE ABOVE THREE UNITS AS EXPANS ION OF T HE EXISTING UNITS ON THE BASIS OF THE ASSESSEE'S APPLICATION STATING T HESE UNITS T O BE EXPANSION OF THE EXISTING UNITS. THEREBY, NOT FULFILLING THE CONDITION LAID DOWN U/S.10A(2) OF THE ACT . 3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONCLUDING THAT CHINCHWAD UNIT, AKRUDI UNIT AND MILLENIUM BUSINESS PA R K WERE NOT FORMED BY SPLITTING OR RECONSTRUCTION OF THE EXISTING BUSINESSES AND THEREFORE, THESE ARE NEW UNITS. ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 3 4) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING DEDU CTION U/S.1 0 A TO THE ASSESSEE IN RESPECT OF NEW UNIT AT BANGALORE WITHOUT APPRECIATING THAT THE UNIT WAS ESTABLISHED BY SPLITTING UP OF THE EXISTING BUSINESS, THERE IS INTER - LACING, INTER - DEPENDENCE AND INTER - CONNECTION WITH DIFFERENT UNITS AND ASSESSEE HAS DELIBERATELY DIVERTED ITS BUSINESS TO THE UNITS WHICH CLAIM DEDUCTION U/S.10A. 5) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING DEDUCTION U/S.10A TO THE ASSESSEE IN RESPECT OF ITS NEW UNIT SPZ 47 WHEN THE UNIT IS BASICALLY A SYSTEM H UB, A SERVER UNIT PROVIDING SUPPORT JO BUSINESS OPERATION OF OTHER UNITS OF THE ASSESSEE 6) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING DEDUCTION U/S.10A TO THE ASSESSEE IN RESPECT OF OTHER 8 UNITS WITHOUT APPRECIATING THAT WHEN THE TA SKS OR PROJECTS ARE DISTRIBUTED TO VARIOUS UNITS FORMED, IT AMOUNTS TO SPLITTING OF THE EXISTING BUSINESS AND NOT NEW BUSINESS ESPECIALLY WHEN THERE IS INTER - LACING, INTER - DEPENDENCE AND INTER - CONNECTION WITH DIFFERENT UNITS AND ASSESSEE HAS DELIBERATELY D IVERTED ITS BUSINESS TO THE UNITS WHICH CLAIM DEDUCTION U/S.10A . 7) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALLOWING SET OFF OF LOSSES OF UNITS ELIGIBLE FOR DEDUCTION U/S. 10A OF THE ACT AGAINST THE BUSINESS PROFIT CONTRAVENING THE SPECIFIC PROVISION OF SUB SECTION (6) OF SECTION 10A WHICH PROVIDES FOR SET OFF OF SUCH LOSSES ONLY AFTER THE EXPIRY OF THE RELEVANT ASSESSMENT YEAR. 8) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN ALL OWING SET OFF OF THE 10A UNIT LOSSES AGAINST THE BUS INESS PROFIT EVEN THOUGH THE ASSESSEE HAD NOT EXERCISED THE OPTION UNDER SUB SECTION (8) OF SECTION 10A OF NOT TO AVAIL THE BENEFIT OF SECTION 10A. 5. FIRST, WE SHALL TAKE UP THE APPEAL FILED BY THE REVENUE, UNDER WHICH THE ISSUE IN GROUND OF APPEAL NO.1 IS AGAINST THE ALLOWANCE OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF ALL THE UNDERTAKINGS OF THE ASSESSEE. THE REVENUE VIDE GROUND OF APPEAL NO.1 IS AGGRIEVED BY THE ORDER OF CIT(A) IN ALLOWING DEDUCTION UNDER SECTION 10A OF THE ACT TO THE ASS ESSEE IN RESPECT OF ITS 13 UNITS. THE REVENUE VIDE GROUNDS OF APPEAL NO.2 AND 3 IS AGGRIEVED BY THE ORDER OF CIT(A) IN ALLOWING THE DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THREE UNITS I.E. CHINCHWAD, AKURDI AND MILLEN N IUM BUSINESS PARK. FURT HER, THE REVENUE IS IN APPEAL AGAINST THE ALLOWANCE OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF NEW UNIT AT BANGALORE AND SPZ 47 VIDE GROUNDS OF APPEAL NOS.4 AND 5. ANOTHER ISSUE RAISED BY THE REVENUE VIDE GROUND OF APPEAL NO.6 IS AGAINST ALLO WANCE OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF OTHER 8 UNITS. THE REVENUE VIDE GROUNDS OF APPEAL NO.7 AND 8 IS AGGRIEVED AGAINST THE ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 4 ALLOWANCE OF SET OFF OF LOSSES OF UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT AGAINST THE BUSI NESS PROFIT IN CONTRAVENTION OF PROVISIONS OF THE ACT. 6. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE ORDER S OF TRIBUNAL IN EARLIER YEARS. 7. THE LEARN ED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 8. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT BOTH ON - SITE AND OFF - SHORE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD 14 UNITS, INCOME OF WHICH WAS CLAIMED TO BE EXEMPT UNDER THE PROVISIONS OF SECTION 10A OF THE ACT. THE FIRST UNIT I.E. BPO UNDERTAKING AT NDA - 58 , NOIDA, U.P. W AS FOUND TO BE ELIGIBLE FOR THE CLAIM OF DEDUCTION UNDER S ECTION 10A OF THE ACT , AS IN THE PAST . THE ASSESSEE HAD THEREAFTER, ESTABLISHED VARIOUS INDEPENDENT UNITS , WHICH WERE STATED TO BE OPERATING IN RESPECTIVE YEARS AS NEW UNITS AND WERE CLAIMED TO BE COMPLYING WITH THE CONDITIONS OF THE PROVISIONS MAKING IT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. HOWEVER, THE ASSESSING OFFICER HELD PROFITS OF THE SUBSEQUENT UNITS / UNDERTAKINGS NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 10A OF THE ACT. THE ASSESSEE UPTO ASSESSMENT YEAR 2004 - 05 HAD ESTABLISHED 12 UNDERTAKINGS AND DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ESTABLISHED TWO UNDERTAKINGS I.E. ONE UNIT AT BANGALORE AT UNIT - II , BLOCK 3 - 4 , NO.43, ELECTRICITY CITY PHASE - II, HOSUR ROAD , BANGALORE, WHICH WAS APPROVED BY THE STPI AND HAD COMMENCED BUSINESS FROM AUGUST, 2004. THE ASSESSEE CLAIMED THAT THE CONDITIONS LAID DOWN IN SECTION 10A(2) OF THE ACT WERE FULFILLED AND HENCE, WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. ANOTHER UNIT NAMED SPZ 47 LOCATED AT UNIT NO.47, SDF - II , SEEPZ, SEZ, ANDHERI(E), MUMBAI HAD COMMENCED ITS BUSINESS FROM NOVEMBER, 2004. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT EACH OF THE UNITS W ERE SEPARATE ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 5 UNDERTAKING ELIGIBLE FOR EXEMPTION UNDER SECTION 10A OF THE ACT , AS IT WAS SEPARATELY S ET UP AT SEPARATE LOCATIONS, WITH SEPARATE STPI LICENSE, WITH SEPARATE PLANT & MACHINERY, SKILLED STAFF, PREMISES AND INFRASTRUCTURE AND THE PROFITS EARNED WERE CLEARLY ATTRIBUTABLE TO THE RESPECTIVE UNITS. THE ASSESSING OFFICER AFTER CONSIDERING THE PROV ISIONS OF SECTION 10A OF THE ACT NOTED THAT THE COSTING AND PRICING OF THE SOFTWARE DEVELOPMENT / PRODUCT WAS BASED ON THE NUMBER OF PERSONS / ENGINEERS REQUIRED FOR A GIVEN PERIOD TO COMPLETE THE GIVEN PROJECT. THEREFORE, MANPOWER WAS THE MAIN YARDSTICK TO ASCERTAIN THE INDEPENDENCE OF UNITS . S O FAR AS THE DEPLOYMENT OF CAPITAL AND MANPOWER AND SPLITTING OF THE BUSINESS AND PRODUCTION ON SUCH UNITS WAS CONCERNED , T HE ASSESSING OFFICER NOTED THAT IN THE ASSESSEES LINE OF BUSINESS, SOFTWARE ENGINEERS WERE THE MAIN CAPITAL AND ASSET WHICH WERE NOT FIXED TO GROUND OR PLACE, BUT THEY WERE HIGHLY MOBILE AND TRANSFERRABLE AND EVEN THE WORK THEY DID WAS TRANSFERRABLE FROM ONE PLACE TO OTHER. IN LINE THEREOF, THE ASSESSING OFFICER MADE ENQUIRIES AS TO WHETHER IN THE NEW UNIT, SUBSTANTIALLY SAME PERSONS WERE MADE ENQUIRIES AS TO WHETHER IN THE NEW UNIT, SUBSTANTIALLY SAME PERSONS WERE CARRYING ON THE SAME BUSINESS OR NOT. IN THE CASE OF THE BANGALORE UNIT, MORE THAN 28% OF THE SOFTWARE ENGINEERS WERE OLD EMPLOYEES OF THE COMPANY , WORKING IN VARIOUS EXISTING UNITS AND HAD BEEN TRANSFERRED / SHIFTED FROM SUCH OLD UNIT S, DURING THE FIRST YEAR OF OPERATION AND THE NEW UNIT AS SUCH, WAS CARRYING ON THE SAME BUSINESS OF SOFTWARE DEVELOPMENT. AS PER THE ASSESSING OFFICER, THE UNIT WAS CLEARLY FOUND BY SPLITTING AND RECONSTRUCTION OF THE EXISTING BUSINESS, AS PROVIDED IN SECTION 10A(2)(II) OF THE ACT. SINCE THE ASSESSEE HAD NOT GIVEN ANY DETAILS OF THE WORK ORDER OR CLIENTS OF THE NEW UNIT TO SHOW THAT THE UNIT WAS GIVEN ANY FRESH WORK ORDER OR OTHERWISE CARRYING ON ANY BUSINESS DIFFERENT FROM THE EXISTING BUSINESS, AND HENCE WAS AN INDEPENDENT UNIT ON ITS OWN, WAS HELD TO BE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. 9 . IN RESPECT OF SPZ - 47, MUMBAI, THE ASSESSING OFFICER NOTED THAT THE UNIT WAS BASICALLY A SYSTEM HUB, A SERVER UNI T , PROVIDING SUPPORT TO BUSINESS OPERATIONS BY OTHER UNITS. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE FACT ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 6 THAT THE ASSESSEE HAS TWO OLD SOFTWARE UNITS IN CLOSE PROXIMITY TO THE NEW ONE , AND THE RATIO OF DESKTOP COMPUTERS TO THE ENGINEERS TO THE ENG INEERS DEPLOYED IS LOW, AND THERE IS ACTUALLY NO SOFTWARE ENGINEER EMPLOYED IN THIS UNIT SUGGESTS THAT THIS UNITS IS NOT A SEPARATE UNIT FOR THE SOFTWARE DEVELOPMENT, BUT ONLY PROVIDING LOGISTICAL SUPPORT TO THE EXISTING UNITS AND THEIR BUSINESS. ASSESSEE HAS NOT GIVEN ANY DETAILS OF THE WORK ORDER OR THE CLIENTS OF THE NEW UNIT TO SHOW THAT THE UNIT WAS GIVEN ANY FRESH WORK ORDER OR OTHERWISE CARRYING ANY BUSINESS, DIFFERENT FROM THE EXISTING BUSINESS CARRIED OUT BY OTHER UNITS, AND WAS A VIABLE AND INDEP ENDENT UNIT ON ITS OWN. IT IS THEREFORE, HELD THAT THE SPZ - 47, MUMBAI UNIT IS NOT ELIGIBLE FOR DEDUCTION U/S.10A . IN RESPECT OF THE REMAINING 1 1 UNITS, THE ASSESSING OFFICER OBSERVED THAT THESE WERE HELD TO BE FO RMED BY SPLITTING OF THE ASSESSEES EXISTI NG BUSINESS , HENCE NOT ELIGIBLE FOR EXEMPTION UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFICER NOTED THAT IN THE ASSESSMENT FOR ASSESSMENT YEAR 2004 - 05 , THOUGH THE CIT(A) HAD ALLOWED THE CLAIM OF THE ASSESSEE, BUT THE DEPARTMENT HAD NOT ACCEPTED THE OR DER OF CIT(A). IN VIEW THEREOF, THE ASSESSING DEPARTMENT HAD NOT ACCEPTED THE OR DER OF CIT(A). IN VIEW THEREOF, THE ASSESSING OFFICER DENIED THE EXEMPTION UNDER SECTION 10A OF THE ACT ON THE PROFITS OF THE SAID 1 1 UNITS ALSO. 10 . THE CIT(A) NOTED THAT THE ASSESSING OFFICER HAD ALLOWED THE DEDUCTION UNDER SECTION 10A OF THE ACT ON PR OFITS OF NDA - 58 , NOIDA, UP UNIT AND FURTHER OUT OF REMAINING 13 UNITS, THE TRIBUNAL VIDE ORDER DATED 30.06.2011, HAD GIVEN RELIEF TO THE ASSESSEE WITH RESPECT TO THREE UNITS LOCATED AT CHINCHWAD, AKURDI AND MILLENNIUM BUSINESS PARK. IN VIEW THEREOF, THE A SSESSEE WAS HELD TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THREE UNITS. THE CIT(A) FURTHER NOTED THAT HIS PREDECESSOR GIVEN RELIEF FOR 11 UNITS. OUT OF REMAINING 11 UNITS IN THE EARLIER ASSESSMENT YEARS, THE TRIBUNAL HAD GIV EN RELIEF TO THE ASSESSEE WITH RESPECT TO ONLY TO THREE UNITS, BUT SINCE NO MISCELLANEOUS PETITION WAS FILED BY THE DEPARTMENT, THEN HE WAS OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION IN RESPECT OF BALANCE UNITS. FURTHER, HE CONSID ERED THE CLAIM OF THE ASSESSEE IN RESPECT OF TWO UNITS ESTABLISHED DURING THE YEAR AND ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 7 AFTER DELIBERATING UPON THE ISSUE, HELD THAT CARRYING ON OF NEW BUSINESS WAS NOT NECESSARY TO AVAIL THE DEDUCTION UNDER SECTION 10A OF THE ACT. IN RESPECT OF SPZ - 47 UNI T, THE CIT(A) OBSERVED THAT THE ASSESSING OFFICER HAD DENIED THE DEDUCTION AS THE SAID UNIT WAS A SYSTEM HUB, BUT AS PER THE ASSESSEE, THE SAID UNIT WAS NOT A SYSTEM HUB AND IT USED SOFTWARE TECHNOLOGY WITH WHICH IT COULD CARRY OUT THE WORK OF DE - BUGGING, PATCH - WORK AND OTHER SOFTWARE WRITING FROM INDIA TO THE CLIENTS LOCATION IN A FOREIGN COUNTRY. THE CIT(A) THUS, HELD THAT THE OBJECTION RAISED BY THE ASSESSING OFFICER WAS MIS - CONCEIVED. THE CIT(A) FURTHER HELD THAT SINCE THERE WAS NO CASE OF SPLITTING UP OF EXISTING BUSINESS, THE ASSESSEE WAS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF BANGALORE UNIT AND SPZ - 47. 1 1 . THE REVENUE IS IN APPEAL AGAINST THE SAID ORDER OF CIT(A). 1 2 . THE ISSUE RAISED BY THE REVENUE VIDE I TS GROUNDS OF APPEAL IS AGAINST THE STAND OF CIT(A) IN HOLDING THE ASSESSEE TO BE ELIGIBLE FOR THE CLAIM OF DEDUCTION STAND OF CIT(A) IN HOLDING THE ASSESSEE TO BE ELIGIBLE FOR THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF 13 UNITS, OUT OF WHICH TWO NEW UNITS WERE ESTABLISHED DURING THE YEAR UNDER CONSIDERATION. AS FAR AS GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE REVENUE ARE IN RELATION TO THE THREE UNITS I.E. CHINCHWAD, AKURDI AND MILLENNIUM BUSINESS PARK, WE FIND THAT THE TRIBUNAL IN ITA NOS.476/PN/2008 AND 1087/PN/2008, RE LATING TO ASSESSMENT YEAR 2004 - 05 VIDE OR DER DATED 12.06.2012 HAD VIDE PARA 10 CONSIDERED THE ISSUE OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THREE UNDERTAKINGS LOCATED AT CHINCHWAD, AKURDI AND MILLENNIUM BUSINESS PARK. THE ASSESSING OFFICER HAD DENIED THE SAID DEDUCTION UNDER SECT ION 10A OF THE ACT BY TREATING THE AFORESAID UNITS AS MERE EXPANSION OF THE EXISTING UNITS ON THE BASIS OF APPROVAL LETTERS RECEIVED FROM SOFTWARE TECHNOLOGY PARK OF INDIA (STPI). THE TRIBUNAL IN TURN, RELYING ON THE RATIO LAID DOWN BY THE CO - ORDINATE BEN CH IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002 - 03 AND 2003 - 04, HELD AS UNDER: - 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE STANDS FULLY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 8 DECISION OF OU R CO - ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2002 - 03 AND 2003 - 04. FOR THE SAKE OF BREVITY, WE EXTRACT THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL HEREINBELOW: 34 IN THIS APPEAL OF THE REVENUE, GROUND NO. 1 RELATES TO THE ACT ION OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IN HOLDING THAT THE THREE UNITS AT CHINCHWAD, AKRUTI AND MILLENNIUM BUSINESS PARK WERE NEW UNITS AND NOT EXPANSION OF THE EXISTING UNITS AND, THEREFORE, THE PERIOD OF ELIGIBILITY OF DEDUCTION UNDER SECTION 10 A OF THE ACT IS LIABLE TO BE CONSIDERED FROM THE YEAR OF SETTING UP OF SUCH UNITS AND NOT FROM THE POINT OF TIME WHEN THE ORIGINAL UNIT WERE SET UP. 35. BRIEFLY STATED THE FACTS ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HELD THAT THE THREE SECTION 10A ELIGIBLE UNITS AT CHINCHWAD, AKRUTI AND MILLENNIUM BUSINESS PARK WERE NOT NEW UNITS BUT ONLY EXPANSION OF THE EXISTING UNITS. AS PER THE ASSESSING OFFICER, CHINCHWAD UNIT WAS AN EXPANSION OF SOFTWARE AND CONVERSION UNIT; AKR UTI UNIT WAS CONSIDERED AS EXPANSION OF SIGMA UNIT AND MILLENNIUM BUSINESS PARK UNIT WAS CONSIDERED AS EXPANSION OF TTC UNIT. THE ASSESSING OFFICER TREATED THE AFORESAID UNITS AS MERE EXPANSIONS OF THE EXISTING UNITS ON THE BASIS OF THE APPROVAL LETTERS RE CEIVED FROM THE SOFTWARE TECHNOLOGY PARK OF INDIA (IN SHORT STPI). ACCORDINGLY, THE ASSESSING OFFICER NOTED THAT THE PROFITABILITY OF THE AFORESAID THREE UNITS WAS LIABLE TO BE COMBINED WITH THAT OF THE CORRESPONDING OLD UNITS. SIMILARLY, THE ASSESSING O FFICER ALSO CONCLUDED THAT THE ELIGIBLE PERIOD FOR DEDUCTION UNDER SECTION 10A OF THE ACT WITH RESPECT TO THE SAID THREE UNITS WOULD ALSO BE RECKONED FROM THE FIRST YEAR OF THE ELIGIBILITY OF THE CORRESPONDING OLD UNITS. AGGRIEVED WITH THE AFORESAID STAND OF THE ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE COMMISSIONER OF INCOME - TAX (APPEALS). 36. IN APPEAL, ASSESSEE CONTENDED THAT THE ACTION OF THE ASSESSING 36. IN APPEAL, ASSESSEE CONTENDED THAT THE ACTION OF THE ASSESSING OFFICER WAS BAD IN LAW AND ON FACTS. IT WAS POINTED OUT THAT ALL THE THREE UNDERTAKINGS HAVE BEEN ESTABLISHED IN SOFTWARE TECHNOLOGY PARK AND ARE REGISTERED WITH THE STPI; IT WAS ASSERTED THAT ALL THE THREE UNITS SATISFIED THE PRESCRIBED CONDITIONS UNDER SECTION 10A(2) OF THE ACT. IN RESPECT OF ALL THE THREE UNITS, IT WAS SUBMIT TED THAT THEY WERE SEPARATE AND DISTINCT FROM THE EXISTING UNDERTAKINGS. IT WAS POINTED OUT THAT THE NEW 6 UNITS ARE LOCATED AT LOCATIONS DIFFERENT FROM THEIR CORRESPONDING OLD UNITS; THAT THERE ARE SUBSTANTIAL INVESTMENTS IN LAND, BUILDING AND MACHINERY I N ALL THE THREE UNITS AS DISTINCT FROM THE OLD UNITS. IT WAS ALSO SUBMITTED THAT THERE ARE SEPARATE PERMISSION FOR CUSTOM BONDED WAREHOUSES AND ALSO SEPARATE SHOP & ESTABLISHMENT LICENSES FOR THE THREE UNITS. THE COMMISSIONER OF INCOME - TAX (APPEALS) HAS SI NCE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. AS PER THE COMMISSIONER OF INCOME - TAX (APPEALS), THE ASSESSEE FULFILLED ALL THE CONDITIONS PRESCRIBED UNDER SECTION 10A(2) OF THE ACT. ACCORDING TO HIM, MERELY BECAUSE THE APPROVAL LETTER RECEIVED FROM STPI S TATED THE SETTING UP OF THE THREE UNITS AS AN EXPANSION OF THE CORRESPONDING UNITS, CANNOT BE FATAL TO THE PLEA SET UP BY THE ASSESSEE THAT THE THREE UNITS IN QUESTION ARE INDEPENDENT AND DISTINCT UNITS LIABLE FOR AN INDEPENDENT CLAIM OF DEDUCTION UNDER SE CTION 10A, SINCE ALL THE PRESCRIBED CONDITIONS HAVE BEEN FULFILLED. THE FOLLOWING DISCUSSION OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IN PARA 3.2 OF THE ORDER IS WORTHY OF NOTICE: 3.2 (C) SECTION 10A(2) REQUIRES THE APPELLANT TO FULFILL THREE CONDITI ONS. THE CONDITIONS CONTAINED UNDER SUB - CLAUSE (I) & (IA) OF SECTION 10A(2) ARE POSITIVE RELATING TO MANUFACTURING OR PRODUCTION OF ARTICLE OR THING AND SUB - CLAUSE (II) & (III) OF SECTION 10A(2) SAY THAT SUCH UNDERTAKING IS NOT FORMED BY SPLITTING UP OR RE CONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE OR IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OR MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. AS IS CLEAR FROM THE DETAILS SUBMITTED BY THE APPELLANT, THE THREE UNITS WHICH ARE SUBJECT MATTER O F APPEAL, ARE NOT ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 9 FORMED BY THE TRANSFER OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. IN FACT ALL THE THREE UNITS ARE HAVING THEIR OWN PLANT AND MACHINERY HAVING SUBSTANTIAL INVESTMENT AND SUBSTANTIAL TURNOVER AND ARE LOCATED IN DIFFERENT PREMISE S, AS IS CLEAR FROM THE MATERIAL ON RECORD. THE ONLY POINT TO BE SEEN IN THE PRESENT CASE IS WHETHER THE THREE UNITS CAN BE SAID TO BE FORMED BY SPLITTING UP OR RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE AND IN THIS REGARD RESPECTFULLY FOLLOWING THE R ATIO DECIDENDI OF HONBLE SUPREME COURT DECISION IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD V CIT QUOTED SUPRA, I AM OF THE CONSIDERED VIEW THAT IT CANNOT BE SAID THAT THE THREE UNITS ARE FORMED BY THE SPLITTING UP OR RECONSTRUCTION OF BUSINESS ALREA DY IN EXISTENCE. IT MAY ALSO BE MENTIONED THAT THE HONBLE SUPREME COURT HELD THAT BENEFIT OF SECTION 15C SHALL BE APPLICABLE EVEN IN CASE OF EXPANSION OF BUSINESS AND THE RELEVANT PORTION OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF TEXTILE MACHINE RY CORPORATION AS CONTAINED IN PAGE 203 & 204 IN 107 ITR IS REPRODUCED AS UNDER: THERE IS GREAT SCOPE OF EXPANSION OF TRADE & INDUSTRY. THE FACT THAT AN ASSESSEE BY ESTABLISHMENT OF NEW INDUSTRIAL UNDERTAKING EXPANDS HIS EXISTING BUSINESS, WHICH HE CERT AINLY DOES, WOULD NOT, ON THAT SCORE, DEPRIVE HIM OF THE BENEFIT U/S 15C. EVERY NEW CREATION IN BUSINESS IS SOME KIND OF EXPANSION AND ADVANCEMENT. THE TRUE TEST IS NOT WHETHER THE NEW INDUSTRIAL UNDERTAKING CONNOTES EXPANSION OF THE EXISTING BUSINESS OF T HE ASSESSEE BUT WHETHER IT IS ALL THE SAME A NE AND IDENTIFIABLE UNDERTAKING SEPARATE AND DISTINCT FROM THE EXISTING BUSINESS. SINCE THE PROVISIONS OF LAW AS CONTAINED IN SECTION 15C(2)(I) AND 10A(2)(II) & (III) ARE IN EFFECT AND IN SUBSTANCE IN PARI MA TERIA AS REGARDS THE POINT IN ISSUE INVOLVED IN THIS APPEAL, I AM OF THE CONSIDERED VIEW THAT THE RATIO OF HONBLE SUPREME COURT DECISION IN CASE OF TEXTILE MACHINERY CORPORATION LTD. QUOTED SUPRA WHICH HAS BEEN FOLLOWED WITH RESPECT IN CORPORATION LTD. QUOTED SUPRA WHICH HAS BEEN FOLLOWED WITH RESPECT IN SEVERAL DECISIONS, APPLIES TO THE LAW AS CONTAINED IN SECTION 10A(2)(II) AND (III) OF THE INCOME - TAX ACT, 1961. IN VIEW OF THE FOREGOING DISCUSSION, TAKING INTO ACCOUNT THE SUBMISSION OF THE APPELLANT AND MATERIAL ON RECORD, IT IS HELD THAT THE THREE UNITS AT CHINCHWAD, AK RUTI AND MILLENNIUM BUSINESS PARK FULFILL THE CONDITION LAID DOWN U/S 10A(2) OF THE INCOMETAX ACT, 1961 AND, THEREFORE, THE AOS CONCLUSION TO THE CONTRARY IN THIS REGARD, ARE HELD TO BE UNJUSTIFIED ON FACTS AND NOT IN ACCORDANCE WITH LAW. 37. BEFORE US , THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS PRIMARILY REITERATED THE STAND OF THE ASSESSING OFFICER IN SUPPORT OF THE CASE OF THE REVENUE. AS PER THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE APPROVAL FOR SETTING UP OF THE THREE UNITS CLEARLY BRING OUT TH E FACT THAT THE NEW UNITS ARE MERE EXPANSION OF THE EXISTING UNITS AND THEY CANNOT BE TREATED AS INDEPENDENT UNITS. IN THIS MANNER, THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IS SOUGHT TO BE ASSAILED. 38. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY POINTED OUT THAT THE COMMISSIONER OF INCOME - TAX (APPEALS) HAS FACTUALLY APPRECIATED THAT ALL THE THREE UNITS ARE PHYSICALLY LOCATED AT DIFFERENT LOCATIONS AND THAT THEY ARE INDEPENDENT WITH SUBSTANTIAL INVESTMENTS. IT HAS A LSO BEEN POINTED OUT THAT MERELY BECAUSE THE GOVERNMENT APPROVAL REFERS TO THE NEW UNITS AS AN EXPANSION OF THE EXISTING UNITS CANNOT BE CONSTRUED AS NON - FULFILLMENT OF THE CONDITIONS PRESCRIBED 7 UNDER SECTION 10A(2) OF THE ACT. IT IS POINTED OUT THAT IT IS NOT A CASE OF EXPANSION OF AN EXISTING UNIT, BUT CERTAINLY A CASE OF EXPANSION OF THE BUSINESS OF THE COMPANY AND THE SAME CANNOT LEAD TO DENIAL OF DEDUCTION UNDER SECTION 10A, ESPECIALLY WHEN THE THREE UNITS OTHERWISE FULFILL THE CONDITIONS PRESCRIBED UNDER SECTION 10A OF THE ACT. THE LEARNED COUNSEL HAS ALSO REFERRED TO THE DECISION OF THE MUMBAI BENCH OF THE ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 10 TRIBUNAL IN THE CASE OF JAYANT AGRO ORGANICS LTD AKHANDANAD, MUMBAI V JT.CIT IN ITA NO 5439/MUM/01 DATED 3.3.2006 WHEREIN SIMILAR ARGUMENT SET UP BY THE REVENUE WAS NOT FOUND COGENT TO DENY THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. 39. IN THE ABOVE BACKGROUND, WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. NOTABLY, THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF DEVELOPMENT A ND EXPORT OF COMPUTER SOFTWARE. IT HAS BEEN EXPLAINED BEFORE THE LOWER AUTHORITIES THAT THE BUSINESS OF THE ASSESSEE IS ON AN INCREASING SCALE. IT HAS EXPANDED ITS BUSINESS BY ESTABLISHING NEW UNDERTAKINGS AT DIFFERENT LOCATIONS. IT IS EXPLAINED THAT THE T URNOVER OF THE COMPANY HAS SUBSTANTIALLY INCREASED OVER A PERIOD OF TIME WITH THE INCREASE IN THE NUMBER OF EMPLOYEES, ETC. AS ALSO NUMBER OF LOCATIONS AT WHICH IT OPERATES THROUGH DIFFERENT UNITS. IN THIS CONTEXT, THE ASSESSING OFFICER NOTED THAT THE ASSE SSEE HAD TREATED THREE UNITS, NAMELY, CHINCHWAD UNIT, AKRUTI UNIT AND MILLENNIUM BUSINESS PARK UNIT AS SEPARATE INDEPENDENT UNITS FOR THE PURPOSES OF DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFICER NOTED THAT APPROVAL RECEIVED FROM STPL FOR C HINCHWAD UNIT REFLECTED IT AS AN EXPANSION OF SOFTWARE CONVERSION UNIT. SIMILARLY, APPROVAL FOR AKRUTI UNIT AND MILLENNIUM BUSINESS PARK UNIT REFLECTED THEM AS EXPANSIONS OF SIGMA UNIT AND TTC UNIT RESPECTIVELY. ON THIS SINGULAR BASIS, THE ASSESSING OFFICE R TREATED THE THREE UNITS AS MERE EXPANSIONS AND NOT INDEPENDENT UNITS. AS A RESULT THEREOF, THE ELIGIBILITY PERIOD FOR CLAIM OF DEDUCTION UNDER SECTION 10A WAS ALSO RECKONED FROM THE FIRST YEAR OF THE ELIGIBILITY OF THE CORRESPONDING OLD UNITS. THE COMMIS SIONER OF INCOME - TAX (APPEALS) HAS, HOWEVER, APPRECIATED THE PLEA OF THE ASSESSEE AND HAS HELD THAT THE THREE UNITS FULFILLED THE CONDITIONS LAID DOWN UNDER SECTION 10A(2) OF THE ACT AND ARE ACCORDINGLY ELIGIBLE FOR THE CLAIM OF BENEFITS UNDER SECTION 10A INDEPENDENT OF THE OLD UNITS. 40. SECTION 10A OF THE ACT PROVIDES FOR A DEDUCTION IN RESPECT OF PROFITS 40. SECTION 10A OF THE ACT PROVIDES FOR A DEDUCTION IN RESPECT OF PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM EXPORT OF COMPUTER SOFTWARE, ETC. FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS, SUBJECT OF - COURSE T O FULFILLMENT OF THE CONDITIONS SPECIFIED BY SUB - SECTION (2) OF SECTION 10A OF THE ACT. THE CONDITIONS PRESCRIBED IN SUB - SECTION (2) OF SECTION 10 HAVE BEEN NOTICED BY THE COMMISSIONER OF INCOME - TAX (APPEALS), NAMELY, THAT THE UNDERTAKING HAS TO BEGIN MANU FACTURE OR PRODUCE COMPUTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE FIRST DAY OF APRIL, 1994 IN ANY SOFTWARE TECHNOLOGY PARK; AND THAT THE UNDERTAKING IS NOT FORMED BY SPLITTING UP OR RECONSTRUCTION OF T HE BUSINESS ALREADY IN EXISTENCE; AND, THAT THE UNDERTAKING IS NOT FORMED BY TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. WE HAVE CAREFULLY PERUSED THE RELEVANT CONDITIONS AND FIND THAT THE COMMISSIONER OF INCOME - TAX (A PPEALS) HAS RIGHTLY CONCLUDED THAT ALL THE THREE ASPECTS ARE FULFILLED BY THE THREE UNITS IN QUESTION. THE COMMISSIONER OF INCOME - TAX (APPEALS) HAS DISCUSSED THE PHYSICAL LOCATION OF EACH UNIT, THE INVESTMENT IN FIXED ASSETS OF EACH UNIT AS WELL AS THE TUR NOVER OF EACH UNIT AND ON SUCH FACTUAL ANALYSIS, IT HAS BEEN CONCLUDED THAT THE THREE UNITS ARE SEPARATE AND DISTINCT FROM THE EXISTING UNITS REFERRED BY THE ASSESSING OFFICER. ON THESE FACTUAL ASPECTS, WE FIND THAT THERE IS NO COGENT MATERIAL BROUGHT OUT BY THE REVENUE TO NEGATE THE FINDINGS OF THE COMMISSIONER OF INCOME - TAX (APPEALS). 41. THE ONLY PLEA OF THE REVENUE IS THAT IN THE APPROVALS GRANTED BY THE STPI, THE THREE UNITS HAVE BEEN REFERRED TO AS AN EXPANSION OF THE CORRESPONDING OLD UNITS. THE MO OT QUESTION IS AS TO WHETHER SUCH A PLEA OF THE REVENUE IS POTENT TO EFFECT THE ASSESSEES ENTITLEMENT FOR DEDUCTION UNDER SECTION 10A OF THE ACT. SIMILAR PLEA OF THE REVENUE IN THE CONTEXT OF SECTION 10B OF THE ACT WAS A SUBJECT MATTER OF CONSIDERATION BY OUR CO - ORDINATE BENCH IN THE CASE OF JAYANT AGRO ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 11 ORGANICS LTD. AKHANDANAD, (SUPRA) WHEREIN FOLLOWING DISCUSSION IS WORTHY OF NOTICE: 8. REVENUE HAS VEHEMENTLY CONTENDED THAT THERE IS NO INDEPENDENT GOVERNMENT APPROVAL OF THE NEW UNIT AND ALL THAT THE G OVERNMENT HAS PERMITTED IS ENHANCEMENT IN CAPACITY OF THE EXISTING UNIT. AS EVIDENT FROM THE LAND ALLOTMENT LETTER DATED 19TH JULY, 1995 ISSUED BY THE GUJARAT INDUSTRIAL DEVELOPMENT CORP. LTD. IT IS CLEAR THAT THE LAND ALLOTTED FOR THE NEW UNIT IS PLOT #62 4/1 AND 2, AND 625 TO 627 WHEREAS THE EXISTING PLANT WAS IN PLOT 3 602. THE PRODUCTION OF 12 HYDROXY STEARIC ACID IS AUTHORIZED BY THE LETTER DT 27TH JANUARY 1995 WHICH STATES THAT THE GOVERNMENT HAS TAKEN NOTE OF ASSESSEES WISH TO MANUFACTURE HYDROXY STE ARIC ACID ALSO BY WAY OF FORWARD INTEGRATION AND AMENDED THE LETTER OF PERMISSION TO INCLUDE 12 HYDROXY STEARIC ACID OF 12,000 MT IN THE VERY NEXT SENTENCE. IT IS OBSERVED THAT GOVT ALSO APPROVES OF YOUR 8 REQUEST FOR THE IMPORT OF ADDITIONAL CAPITAL GOOD S WORTH RS 550 LAKHS FOR THE PROJECT. THAT CLEARLY DEMONSTRATES THAT THE PRODUCTION OF HYDROXY STEARIC ACID OF 12,000 MT WAS VIEWED BY THE GOVERNMENT AS AN INDEPENDENT PROJECT. IT WAS NOT A CASE FOR PURCHASE OF ADDITION CAPITAL GOODS FOR THE EXISTING PROJ ECT. THE ASSESSEE IS IRRESPECTIVE OF THE NUMBER OF UNITS, IS ONE OF ARTIFICIAL JURIDICAL PERSON. THEREFORE, A COMBINED PERMISSION, WHICH INVOLVES SETTING UP FOR DIFFERENT UNITS, IS QUITE IN ORDER. THE FACT OF AMENDMENT OF EARLIER PERMISSION OR OF GRANT OF SEPARATE PERMISSIONS, IS NOT REALLY RELEVANT. WHAT IS REALLY TO BE EXAMINED IS WHETHER THE UNITS ARE INDEPENDENT OF UNIT AND WHETHER THE UNITS ARE COVERED BY THE PERMISSION OR NOT. IN OUR HUMBLE UNDERSTANDING IT MEETS BOTH THE TESTS. WE HAVE ALSO NOTED THA T IT IS NOT AN STATUTORY REQUIREMENT THAT THERE HAS TO BE SEPARATE PERMISSION FOR EACH UNIT AND THEREFORE JUST BECAUSE THE PERMISSION IS GRANTED BY THE GOVERNMENT BY WAY OF AMENDING THE ORIGINAL PERMISSION LETTER DOES NOT AFFECT THE ELIGIBILITY FOR DEDUCTI ON U/S 10B IN ANY MANNER. 42. FROM THE AFORESAID, IT IS QUITE CLEAR THAT THE MANNER IN WHICH THE 42. FROM THE AFORESAID, IT IS QUITE CLEAR THAT THE MANNER IN WHICH THE APPROVAL HAS BEEN GRANTED IS NOT RELEVANT TO EXAMINE THE ASSESSEES CASE FOR CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT WITH RESPECT TO THE THREE UNITS . WHAT IS REALLY TO BE EXAMINED IS AS TO WHETHER THE THREE UNITS ARE INDEPENDENT UNITS AND THAT THEY FULFILL THE CONDITIONS PRESCRIBED UNDER SECTION 10A(2) OF THE ACT. THERE IS NO PROHIBITION THAT AN EXPANSION IN THE SAME LINE OF BUSINESS ACHIEVED BY SETTI NG UP A NEW INDEPENDENT UNIT WOULD LEAD TO DENIAL OF DEDUCTION UNDER SECTION 10A OF THE ACT. IN THIS BACKGROUND, IN THE EARLIER PART OF THIS ORDER WE HAVE ALREADY NOTED WITH APPROVAL THE FACTUAL FINDINGS OF THE COMMISSIONER OF INCOME - TAX (APPEALS) THAT THE THREE UNITS ARE SEPARATE AND INDEPENDENT PRODUCTION UNITS AND THE SAME CANNOT BE TREATED AS MERE EXPANSIONS OF THE EXISTING UNDERTAKINGS. THEREFORE, THE MERE FACT THAT THE REQUISITE PERMISSIONS FROM STPI REFER THEM AS EXPANSIONS OF THE EXISTING UNITS, WOU LD NOT DIS - ENTITLE THE ASSESSEE FROM THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. IN THIS VIEW OF THE MATTER, WE FIND NO ERROR IN THE APPROACH OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IN HAVING ALLOWED THE CLAIM OF ASSESSEE FOR THE BENEFITS UNDE R SECTION 10A OF THE ACT ON THE THREE UNITS TREATING THE SAME AS INDEPENDENT UNITS. THUS, GROUND NOS 1 & 2 OF THE APPEAL OF THE REVENUE ARE DISMISSED. 13. THERE BEING NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, ON THE ABOVE PARITY OF REASONING , WE FIND NO ERROR IN THE APPROACH OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IN HAVING ALLOWED THE CLAIM OF ASSESSEE FOR THE BENEFITS UNDER SECTION 10A OF THE ACT ON THE THREE UNITS TREATING THE SAME AS INDEPENDENT UNITS. THUS, GROUND NOS 1 TO 4 OF THE A PPEAL OF THE REVENUE ARE DISMISSED. 1 3 . FURTHER THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL (L) NO.1820/2012 VIDE JUDGMENT DATED 28.02.2013 HAD DISMISSED THE APPEAL OF THE ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 12 REVENUE AGAINST THE ORDER OF TRIBUNAL, IN TURN FOLLOWING THE RATIO LAID DOW N BY THE HONBLE HIGH COURT IN INCOME TAX APPEAL NO.1148/2012 RELATING TO ASSESSMENT YEAR 2002 - 03, JUDGMENT DATED 28.02.2013. 1 4 . THE ISSUE ARISING IN THE GROUNDS OF APPEAL NO.2 AND 3 IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE EARLIER YEARS AND SINCE THERE IS NO CHANGE IN FACTUAL ASPECTS, WE UPHOLD THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF THREE UNITS I.E. CHINCHWAD, AKURDI AND MILLENNIUM BUSINESS PARK AS THE SAME WERE INDEPENDENT UNITS. THE GROUNDS OF APPEAL NO.2 AND 3 RAISED BY THE REVENUE IN THIS REGARD ARE DISMISSED. 1 5 . THE REVENUE VIDE GROUND OF APPEAL NO.6 IS AGGRIEVED BY THE ORDER OF CIT(A) IN HOLDING THE ASSESSEE ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF TH E ACT IN RESPECT OF 8 OLD UNDERTAKINGS. 1 6 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL IN ASSESSMENT YEARS 2002 - 03 AND 2003 - 04 AND ALSO IN ASSESSMENT YEAR 2004 - 05 HAD ALLOWED THE CLAIM OF ASSESSEE IN RESPECT OF BALANCE SAID UNITS, WHICH WERE ESTABLISHED UP TO ASSESSMENT YEAR 2004 - 05. 17. FOLLOWING THE SAME PARITY OF REASONING, WE FIND NO MERIT IN THE GROUND OF APPEAL NO.6 RAISED BY THE REVENUE IN RELATION TO THE ELIGIBILITY OF DEDUCTION UNDER SECTION 10A OF THE ACT VIS - - VIS INDEPENDENT UNITS ESTABLISHED IN EARLIER YEARS BY THE ASSESSEE. THE GROUND OF APPEAL NO.6 RAISED BY THE REVENUE IS THUS, DISMISSED. 18. NOW, COMING TO THE GROUNDS OF APPEAL NO.4 AND 5 RAISED BY THE REVENUE IN RESPECT OF TWO NEW UNITS ESTABL ISHED AT BANGALOR E AND SPZ 47 ESTABLISHED AT MUMBAI. THE CONTENTION OF THE ASSESSEE BEFORE US WAS THAT THE SAID UNITS HAVE BEEN ESTABLISHED BY THE ASSESSEE AS A SEPARATE UNDERTAKING WHERE THE ACTIVITY CARRIED ON BY THE ASSESSEE IS IN RELATION TO THE DIFFE RENT PROJECTS. THE PROFITS OF ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 13 THE SAID UNITS BEING SEPARATE, INDEPENDENT UNDERTAKINGS WERE CLAIMED TO BE ELIGIBLE FOR EXEMPTION UNDER SECTION 10A OF THE ACT. THE CASE OF THE ASSESSEE BEFORE US IS THAT FRESH STPI APPROVAL WAS TAKEN BY THE ASSESSEE, COPY O F WHICH IS PLACED AT PAGES 135 TO 139 OF THE PAPER BOOK AND REGISTRATION UNDER CUSTOM BONDING AND SHOP ACT WAS ALSO DONE . SIMILARLY, IN RESPECT OF SPZ 47 UNIT, THE ASSESSEE OBTAINED THE STPI APPROVAL AND ALSO THE REGISTRATION UN DER CUSTOM BONDING AND SHOP ACT. THE EMPLOYEES WORKING UNDER EACH OF THE UNITS WERE SEPARATE. IT WAS ADMITTED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THOUGH SOME OF OLD EMPLOYEES WERE TRANSFERRED TO THE NEW UNIT ESTABLISHED BY THE ASSESSEE, BUT THE PERCENTAG E OF TRANSFERRED EMPLOYEES VIS - - VIS TOTAL EMPLOYEES WAS WITHIN CRITERIA LAID DOWN BY THE CBDT. SECTION 10A(2)(III) OF THE ACT PROHIBITS FORMATION OF NEW UNITS BY WAY OF TRANSFER OF PREVIOUSLY USED PLANT & MACHINERY TO THE NEW UNIT. HOWEVER, THE EXPLANAT ORY MEMORANDUM TO THE SAID SECTION DOES NOT EXPRESS ADDITIONAL OBJECTIVE OF EMPLOYMENT GENERATION. THERE IS NO LEGAL REQUIREMENT OF HAVING CERTAIN PERCENTAGE OF NEW EMPLOYEES IN THERE IS NO LEGAL REQUIREMENT OF HAVING CERTAIN PERCENTAGE OF NEW EMPLOYEES IN THE NEW UNIT IN SECTION 10A OF THE ACT. HOWEVER, CBDT HAS CLARIFIED VIDE CIR CULAR NO.14/2014, DATED 08.10.2014 THAT TRANSFER OR RE - DEPLOYMENT OF TECHNICAL MANPOWER FROM THE EXISTING UNITS TO THE NEW UNITS LOCATED AT SEZ IN THE FIRST YEAR OF COMMENCEMENT OF BUSINESS, SHALL NOT CONSTRUE AS TO SPLITTING UP OR RE - CONSTRU CTION OF THE E XISTING BUSINESS, PROVIDED THE NUMBER OF TECHNICAL MANPOWER SO TRANSFERRED AT THE END OF THE FINANCIAL YEAR DOES NOT EXCEED 50% OF THE TOTAL TECHNICAL MANPOWER ACTUALLY ENGAGED IN THE DEVELOPMENT OF SOFTWARE OR IT ENABLED PROJECTS IN THE NEW UNIT. AS PER DETAILS FURNISHED BY THE ASSESSEE IN THE NEW UNIT AT BANGALORE, THE NEW EMPLOYEES EMPLOYED WERE 289 AND THE TRANSFERRED EMPLOYEES WERE 112 I.E. TOTAL EMPLOYEES 40 1 PERCENTAGE AND PERCENTAGE OF TRANSFERRED EMPLOYEES TO THE TOTAL EMPLOYEES WAS 27.93%. IN RE SPECT OF UNIT AT SP Z 47 , THE NEW EMPLOYEES TOTALED TO 65 ALONG WITH TRANSFERRED EMPLOYEES OF 6 , RESULTING IN TOTAL EMPLOYEES OF 71 PERCENTAGE AND THE PERCENTAGE OF TRANSFERRED EMPLOYEES TO THE TOTAL EMPLOYEES WAS 8.45% . H ENCE ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 14 FOR BOTH THE UNITS EVEN IF WE CONSIDER THE TRANSFERRED EMPLOYEES, BUT THE SAME IS WITHIN THE PARAMETERS LAID DOWN BY THE CBDT VIDE CIRCULAR DATED 08.10.2014 AND HENCE TRANSFER OF OLD EMPLOYEES TO THE NEW UNITS CANNOT BE CONSTRUED AS SPLITTING UP OR RE - CONSTRUCTION OF EXISTING BUSINESS . ANOTHER OBJECTION RAISED BY THE ASSESSING OFFICER IN RESPECT OF UNIT AT SPZ 47 WAS THAT IT WAS A SYSTEM HUB. HOWEVER, THE PLEA OF THE ASSESSEE BEFORE US AND THE CIT(A) WAS THAT IT WAS ENGAGED IN PROVIDING REMOTE INFRASTRUCTURE MANAGEMENT THROUGH TECH NO LOGY SOFTWARE AND EQUIPMENT AND WITH THE SAID SOFTWARE, THE ASSESSEE COULD DIRECTLY ACCESS FROM INDIA THE SOFTWARE AND SYSTEMS AT CLIENTS LOCATION AND CARRIED OUT NECESSARY DE - BUGGING, PATCH - WORK AND ALSO PROVIDING SOFTWARE SUPPORT. THE UNIT WA S ENGAGED I N THE DEVELOPMENT AND MAINTENANCE OF THE SYSTEM SOFTWARE. THE CONCLUSION OF THE CIT(A) WAS THAT THE SYSTEM WAS ENGAGED IN DIFFERENT LINE OF SOFTWARE BUSINESS AND WAS NOT A SYSTEM HUB OR SERVER UNIT PROVIDING SUPPORT TO THE BUSINESS OPERATIONS BY OTHER UNI TS. THE SAID FINDING OF THE CIT(A) HAS NOT BEEN CONTROVERTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE BEEN CONTROVERTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE AND IN VIEW THEREOF, WE FIND NO MERIT IN THE OBSERVATIONS OF THE ASSESSING OFFICER IN THIS REGARD. FURTHER, THE ASSESSEE HAD ALSO FUR NISHED ON RECORD THE INVESTMENT MADE IN PLANT & MACHINERY IN BOTH THE UNDERTAKINGS WHERE BOTH THE UNITS HAVE COMPLIED WITH THE CONDITIONS PRESCRIBED UNDER SECTION 10A OF THE ACT AND ARE INDEPENDENT AND SEPARATE UNDERTAKINGS WORKING FROM DIFFERENT LOCATIONS WITH NEW PLANT & MACHINERY , HAVING ADEQUATE SKILLED STAFF TO CARRY OUT ITS OPERATIONS AND ARE INDEPENDENTLY VIABLE UNDERTAKINGS EARNING PROFITS / LOSSES , WHICH ARE ATTRIBUTABLE TO THE BUSINESS CARRIED ON BY THE ASSESSEE IN THE SEPARATE UNITS . T HE SAID UN ITS ARE ELIGIBLE FOR CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT SINCE THE SAME WE RE NOT FO RMED BY SPLITTING UP OR RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. FURTHER, THE TRIBUNAL IN ASSESSEES OWN CASE FROM ASSESSMENT YEAR 2002 - 03 ONWARDS HAS B EEN GRANTING THE DEDUCTION UNDER SECTION 10A OF THE ACT TO EACH OF THE UNITS ESTABLISHED BY THE ASSESSEE FROM YEAR TO YEAR HOLDING THE SAME TO BE A SEPARATE UNIT. FOLLOWING THE SAME LINE OF ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 15 REASONING, WE UPHOLD THE ORDER OF CIT(A) IN HOLDING THE ASSESSEE TO BE ELIGIBLE FOR THE DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF ITS BANGALORE UNIT AND THE UNIT AT SPZ 47, MUMBAI. THE GROUNDS OF APPEAL NO.4 AND 5 RAISED BY THE REVENUE ARE THUS, DISMISSED. 19. NOW, COMING TO THE GROUNDS OF APPEAL NO.7 AND 8 RAISED BY THE REVENUE. THE ISSUE IS WITH REGARD TO THE SET OFF OF LOSSES OF UNITS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT AGAINST BUSINESS INCOME OF THE UNDERTAKING. THE SAID ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE RELATING TO ASSESSMENT YEAR 2004 - 05 , WHICH IN TURN HAD FOLLOWED THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2002 - 03 OBSERVING AS UNDER: - 14. IN GROUND NO. 5, THE DISPUTE RELATES TO THE ACTION OF THE ASSESSING OFFICER IN ADDING BACK L OSSES SUFFERED BY THE SECTION 10A ELIGIBLE UNITS WHILE COMPUTING INCOME OF THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE ACT. SIMILAR ISSUE HAS BEEN CONSIDERED BY OUR CO - ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002 - 03 AND 2003 - 04 (SUPR A), WHEREIN THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) HAS BEEN SET ASIDE WITH DIRECTIONS TO THE ASSESSING OFFICER TO ALLOW SET - OFF OF THE LOSSES OF THE SECTION 10A ELIGIBLE UNITS AGAINST THE NORMAL BUSINESS INCOME OF THE ASSESSEE WHILE 9 COMPUT ING INCOME AGAINST THE NORMAL BUSINESS INCOME OF THE ASSESSEE WHILE 9 COMPUT ING INCOME AS PER NORMAL PROVISIONS OF THE ACT. THE RELEVANT FINDINGS OF THE TRIBUNAL AS CONTAINED IN PARAS 3 TO 5 OF ITS ORDER ARE REPRODUCED HEREINBELOW FOR THE SAKE OF BREVITY: '3. IN THE FIRST GROUND, DISPUTE RELATES TO THE ACTION OF THE ASSESSING OF FICER IN ADDING BACK LOSSES SUFFERED BY THE SECTION 10A ELIGIBLE UNITS WHILE COMPUTING INCOME OF THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE ACT. 4. IN THIS CONNECTION, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE HAS BEEN ADJUDICATED BY THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2001 - 02 VIDE ITA NO 274/PN/2005 DATED 29.5.2009 IN FAVOUR OF THE ASSESSEE. APART THEREFROM, IT HAS BEEN POINTED OUT BY THE LEARNED REPRESENTATIVE FOR TH E ASSESSEE THAT THE ISSUE HAS ALSO BEEN DEALT WITH BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD V DCIT 38 DTR 91 (BOM.) AFFIRMING THE STAND OF THE ASSESSEE. 5. IN THE ABOVE BACKGROUND, WE FIND AMPLE MERIT IN THE GROUND O F APPEAL RAISED BY THE ASSESSEE. THE ASSESSING OFFICER, WHILE COMPUTING THE INCOME DID NOT ALLOW THE CLAIM FOR THE LOSS SUFFERED IN THE UNITS WHICH WERE OTHERWISE ELIGIBLE FOR BENEFITS OF SECTION 10A OF THE ACT. THE ASSESSING OFFICER PROCEEDED ON THE ASSUM PTION THAT SECTION 10A PROVIDED FOR AN EXEMPTION FROM TAXATION AND, THEREFORE, THE LOSS OF SUCH AN ENTITY COULD NOT BE SET OFF AGAINST THE NORMAL BUSINESS INCOME OF THE ASSESSEE. THE HONBLE HIGH COURT IN THE CASE OF HINDUSTAN UNILEVER LTD. (SUPRA) WAS EXA MINING A SIMILAR PROPOSITION, THOUGH IN THE CONTEXT OF SECTION 10B OF THE ACT. THE PROVISIONS OF SECTION 10B OF THE ACT ARE PARI MATERIA TO THOSE OF SECTION 10A WHICH IS THE SUBJECT MATTER OF CONTROVERSY BEFORE US. IT HAS BEEN NOTED THAT SUBSEQUENT TO THE AMENDMENT WITH EFFECT FROM 1.4.2001, THE PROVISION PROVIDES FOR A DEDUCTION OF SUCH PROFITS AND GAINS ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 16 AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THING OR COMPUTER SOFTWARE DULY ESTABLISHED IN FREE TRADE ZONES, ETC. CONSEQUENTLY, IT HAS TO BE UNDERSTOOD THAT THE PROVISION, AS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, IS NOT IN THE NATURE OF AN EXEMPTION. THEREFORE, THE ASSESSEE WAS ENTITLED TO SET - OFF OF LOSSES SUSTAINED BY THE 10A ELIGIBLE UNITS AGAINST THE NORMAL BUSINESS INCOME. IN THIS VIEW OF THE MATTER, WE THEREFORE FIND NO REASON TO UPHOLD THE ORDERS OF THE AUTHORITIES BELOW ON THE IMPUGNED ASPECT. AS A RESULT, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW SET - OFF OF THE LOSSES OF THE SECTION 10A ELIGIBLE UNITS AGAINST THE NORMAL BUSINESS INCOME OF THE ASSESSEE WHILE COMPUTING INCOME AS PER NORMAL PROVISIONS OF THE ACT. AS A RESULT THEREOF, GROUND OF APPEAL NO .1 RAISED BY THE ASSESSEE STANDS ALLOWED. TH E LEARNED COUNSEL FOR THE ASSESSEE ALSO FILED A COPY OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE (SUPRA) FOR THE ASSESSMENT YEAR 2001 - 02 WHEREIN THE CLAIM OF THE ASSESSEE RELATING TO THE SET OFF OF THE LOSSES AGAINST THE OTHER B USINESS PROFITS WAS APPROVED BY THE HONBLE HIGH COURT. IN VIEW OF THIS, WE ACCORDINGLY AFFIRM THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) AND THUS DISMISS THE GROUND OF APPEAL OF THE REVENUE. 20. WE FURTHER FIND THAT THE REVENUE IN AN APPEAL F ILED BEFORE THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO.1148/2012 RELATING TO ASSESSMENT YEAR 2002 - 03 HAD RAISED THE ISSUE VIDE GROUND OF APPEAL A & B IN RESPECT OF SET OFF OF LOSSES AGAINST THE BUSINESS PROFITS INCLUDING THE SPECIFIC PROVISIONS OF SECTION 10A(6) OF THE ACT AND ALSO TAKING NOTE OF THE PROVISIONS OF SECTION 10A(8) SECTION 10A(6) OF THE ACT AND ALSO TAKING NOTE OF THE PROVISIONS OF SECTION 10A(8) OF THE ACT . T HE HONBLE BOMBAY HIGH COURT VIDE JUDGMENT DATED 28.02.2013 HELD THAT BOTH THE ISSUES WERE COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE IN LIN E WITH THE RATIO LAID DOWN BY IT IN ASSESSEES OWN CASE IN INCOME TAX APPEAL NO.2177/2012 RENDERED ON 01.07.2011. THE HONBLE BOMBAY HIGH COURT HAD ALSO IN THE APPEAL FILED BY THE REVENUE RELATING TO ASSESSMENT YEAR 2004 - 05 IN INCOME TAX APPEAL (L) NO. 182 0/2012 VIDE JUDGMENT DATED 28.02.2013 HAD DISMISSED THE SIMILAR ISSUE RAISED BY THE REVENUE . FOLLOWING THE SAME PARITY OF REASONING, WE FIND NO MERIT IN THE GROUNDS OF APPEAL NO.7 AND 8 RAISED BY THE REVENUE AND SAME ARE DISMISSED. 21. THE ASSESSEE IN IT S APPEAL HAS RAISED THE ISSUE OF ADJUSTMENT ON ACCOUNT OF INTEREST ON DELAYED RECOVERY OF DEBTORS BALANCE FROM ASSOCIATED ENTERPRISES UNDER TRANSFER PRICING ADJUSTMENT. ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 17 22. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSING OFFICER MADE A REFE RENCE UNDER SECTION 92CA(1) OF THE ACT FOR DETERMINING A RM S LENGTH PRICE WITH REFERENCE TO THE TRANSACTION REPORTED IN FORM NO.3CEB FILED BY THE ASSESSEE. THOUGH THERE WERE VARIOUS INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS AES DURI NG THE YEAR UNDER CONSIDERATION, BUT THE ISSUE RAISED IN THE PRESENT APPEAL IS IN RELATION TO THE INTEREST RECEIVED ON DELAYED PAYMENT DUE FROM AES . THE ASSESSEE CLAIMED TO HAVE RECEIVED RS.3.12 CRORES, WHICH WAS HELD TO BE AT ARM S LENGTH PRICE BY APPLYI NG TNNM METHOD. THE TPO NOTED THAT ABOUT 85.87% OF THE BUSINESS OF THE ASSESSEE WAS EXECUTED THROUGH ITS ASSOCIATED ENTITIES AND THERE WAS NEED TO EVALUATE THE CREDIT TERMS PROVIDED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES. FROM THE DETAILS SUBMITTE D DURING THE COURSE OF PROCEEDINGS, THE TPO NOTED THAT THE INTEREST RECEIVED ON DELAYED PAYMENT OF RS.3.12 CRORES PERTAIN ED TO THREE ASSESSMENT YEARS I.E. ASSESSMENT YEARS2003 - 04 TO 2005 - 06 AMOUNTING TO RS.62,81,020/ - , RS.95,69,292/ - AND RS.1,53,77,716/ - R ESPECTIVELY. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS IN RS.1,53,77,716/ - R ESPECTIVELY. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS IN RESPECT OF EACH OF THE AES SHOWING THE AVERAGE NUMBER OF DAYS TAKEN FOR REALIZATION OF THE SALE PROCEEDS FROM THEM AS AGAINST THE CREDIT PERIOD PROVIDED UNDER THE RESPECTIVE CONTRACTS FOR DIFFE RENT ASSESSMENT YEARS. ON EXAMINATION OF DETAILS PROVIDED BY THE ASSESSEE, THE TPO NOTED THAT THERE WAS SUBSTANTIAL DELAY IN RECEIPT OF PAYMENTS FROM AES AS AGAINST DUES FROM THIRD PARTIES. THE TABULATED DETAILS RELATING TO THE YEAR UNDER CONSIDERATION A RE AVAILABLE AT PAGE 2 OF THE ORDER PASSED BY THE TPO UNDER SECTION 92CA(3) OF THE ACT . THE WEIGHTED AVERAGE NUMBER OF DAYS DELAYS IN RESPECT OF AES WAS 39 AND IN RELATION TO NON - AES WAS 25 FOR THE YEAR UNDER APPEAL. 23. THE ASSESSEE FOR THE YEAR UNDE R CONSIDERATION HAD RECEIVED INTEREST OF RS.3.34 CRORES ON ITS BANK DEPOSITS, LOAN TO EMPLOYEES AND OTHERS AS PER TABULATED DETAILS AVAILABLE AT PAGE 6 OF THE ORDER OF TPO. THE PLEA OF THE ASSESSEE BE FO R E THE TPO WAS THAT AS GENERAL BUSINESS PRACTICE IN T HE SOFTWARE INDUSTRY, NO INTEREST WAS CHARGED ON THE DELAYED RECEIPT FROM CUSTOMERS. THE ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 18 TPO CONSIDERED THE COPIES OF COMMUNICATION VIS - - VIS THE RATES OF INTEREST AS MIGHT HAVE BEEN CHARGEABLE FROM THE ASSESSEE AND / OR FROM AES FOR FOREIGN CURRENCY LOAN S AND DETERMINED THE ARMS LENGTH PRICE OF INTEREST CHARGED BY THE ASSESSEE FROM ITS AES @ 7.25% I.E. 2.25% BEING RATE OF INTEREST AT LIBOR + 3% AND GUARANTEE COST THEREUPON @ 12%. ACCORDINGLY, THE TPO DETERMINED THE ARMS LENGTH PRICE OF EXCESS CREDIT PE RIOD ALLOWED TO THE AES AT RS.4,82,95,149/ - AND AFTER GIVING CREDIT OF THE INTEREST RECOVERED BY THE ASSESSEE FROM ITS AES AT RS.1,53,77,716/ - PROPOSED ADJUSTMENT OF RS.3,29,17,433/ - . SIMILAR ADJUSTMENT WAS PROPOSED FOR ASSESSMENT YEARS 2003 - 04 AND 2004 - 0 5 BY THE TPO VIDE ITS ORDER DATED 29.08.2008. THE ASSESSING OFFICER VIDE ORDER PASSED UNDER SECTION 143(3) OF THE ACT ADDED THE SAID ADJUSTMENT ON ACCOUNT OF INTEREST UNDER SECTION 92C(4) OF THE ACT AT RS.3,29,17,433/ - . THE CIT(A) DIRECTED THE ASSESSING OFFICER TO COMPUTE THE ARMS LENGTH PRICE ADJUSTMENT BY CHARGING INTEREST @ 7% I.E. THE PREVAILING INTEREST ON SHORT TERM DEPOSITS OF 90 DAYS IN ASSESSMENT YEAR 2005 - 06, ON THE AMOUNT RECEIVED AFTER T HE STIPULATED CREDIT PERIOD, AGAINST WHICH THE 06, ON THE AMOUNT RECEIVED AFTER T HE STIPULATED CREDIT PERIOD, AGAINST WHICH THE ASSESSEE IS IN APPEAL . 2 4 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER HAD NOT CHARGED INTEREST FROM AES AND NON - AES AND THERE IS A DELAY OF 14 DAYS BETWEEN THE CREDIT PERIOD ALLOWED TO AES AND NON - AES AS OBSERVED BY THE TPO, ON WHICH INTEREST AT LIBOR RATES IS TO BE CHARGED. HOWEVER, THE TPO HAS CHARGED THE INTEREST RATE AT LIBOR PLUS 300 PLUS 200 . ON THE OTHER HAND, THE CIT(A) HAD APPLIED THE BANK RATES I.E. THE RATES RELATING TO INDIAN PRIME LENDING R ATES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT AVERAGE OF 2.25% IS TO BE APPLIED FOR DELAY OF DIFFERENT DAYS I.E. AFTER GIVING CREDIT OF 25 DAYS I.E. PERIOD GIVEN TO NON - AES. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE PUNE BEN CH OF TRIBUNAL IN VARROC ENGINEERING (P) LTD. VS ACIT (2015) 168 TTJ (PUNE) 514 FOR APPLICATION OF LIBOR RATES AND MUMBAI BENCH OF TRIBUNAL IN DCIT VS. INDIAN HOTELS CO. LTD. (2014) 150 ITD 792 (MUMBAI TRIB) . ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 19 2 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE F OR THE REVENUE POINTED OUT THAT THE CIT(A) HAD APPLIED THE REVERSE OF WORKING CAPITAL AND SINCE THE ASSESSEE HAS LOST 7% BECAUS E OF THE OPPORTUNITY COST WEIGH TAGE , DELAYS COULD NOT BE APPLIED, BUT INTEREST HAD TO BE CHARGED FOR EACH DAY OF DELAY. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY DELHI BENCH OF TRIBUNAL IN CHEIL INDIA (P.) LTD. VS. DCIT (2014) 46 TAXMANN.COM 90 (DELHI TRIB) . 2 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ASPECT OF THE ISSUE IS THAT ADMITTEDLY, THE TRANSACTION OF CHARGING INTEREST FROM AES EXCEEDING CREDIT PERIOD AMOUNTS TO INTERNATIONAL TRANSACTION UNDER SECTION 92B(1) OF THE ACT. THE HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2002 - 03 IN INCOME TAX APPEAL NO.1148/ 2012 VIDE JUDGMENT DATED 28.02.2013 HAS HELD THAT IN VIEW OF THE AMENDMENT BY FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.04.2002 , THE SAID TRANSACTION OF CHARGING OF INTEREST FROM THE AES IS COVERED UNDER THE AMENDED PROVISIONS OF SECTION 92B(1) O F THE ACT. THE SECOND ASPECT OF THE ISSUE ARISING BEFORE US IS WHETHER INTEREST CHARGED BY THE ASSESSEE FROM ITS AES WAS AT ARM S LENGTH PRICE. THE ASSESSEE WAS CARRYING ON ITS BUSINESS THROUGH ITS AES AND HAD SETTLED SOME CREDIT TERMS WITH ITS AES VIS - - VIS THE PAYMENTS TO BE RECEIVED BY IT. IN THE FORM NO.3CEB , THE ASSESSEE HAD DECLARED THE TRANSACTION OF INTEREST RECEIVED ON DELAYED PAYMENTS WITH ITS AES AS AN INTERNATIONAL TRANSACTION, UNDER WHICH IT HAD RECEIVED RS.3.12 CRORES. HOWEVER, DURING THE PROCEEDING BEFORE THE TPO, IT WAS NOTED THAT THERE WAS DELAY IN REALIZATION OF AMOUNT DUE FROM AES BEYOND CREDIT PERIOD IN RESPECT OF ASSOCIATE ENTITIES AS UNDER: - STATUS AES INVOICE AMOUNT TOTAL REALIZED INVOICE X NO OF DAYS DELAY WEIGHTED AVERAGE NO. OF DAYS DELAYS PATNI INC, USA 592,33,38,933 580,83,75,342 199,37,97,33,476 34 PATI UK 31,51,88,988 30,81,78,039 34,97,56,88,595 111 PATNI GMBH 708,59,602 692,33,110 878,56,93,667 124 TOTAL NO. OF WEIGHTED AVERAGE FOR AES 630,93,87,523 618,57,86, 491 243,14,10,95,738 39 ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 20 2 7 . HOWEVER, IN RESPECT OF NON - AE S, THE DELAY OF 25 DAYS AS TABULATED BY THE TPO WAS AS UNDER: - STATUS AES INVOICE AMOUNT TOTAL REALIZED INVOICE X NO OF DAYS DELAY WEIGHTED AVERAGE NO. OF DAYS DELAYS OTHER [NON - AES] 75 , 09 , 7 2 , 178 72 , 88 , 22 , 867 18 , 87 , 31 , 35 , 331 25 TOTAL NO. OF WEIGHTED AVERAGE FOR AES 75 , 09 , 72 , 178 72 , 88 , 22 , 867 18 , 87 , 31 , 35 , 331 25 2 8 . THE ASSESSEE HAD APPLIED TNNM METHOD IN HOLDING THAT IT S INTERNATIONAL TRANSACTIONS WERE AT ARMS LENGTH PRICE, WHEREAS THE TP O COMPUTED THE MARGINS ON THE BASIS OF CUP METHOD IN VIEW OF THE TRANSACTIONS OF THE ASSESSEE WITH THE AES AND ALSO WITH THE NON - AES. THEREAFTER, THE TPO APPLIED LIBOR PLUS RATES AND THE COST OF GUARANTEE COST IN ORDER TO DETERMINE THE ARMS LENGTH PRICE OF THE INTEREST OF EXCESS CREDIT PERIOD ALLOWED TO THE AES. THE CIT(A) ON THE OTHER HAND, APPLIED THE INDIAN PRIME LENDING RATES IN ORDER TO COMPUTE WHETHER THE SAID TRANSACTION WAS AT ARMS LENGTH PRICE. THE LEARNED AUTHORIZED SAID TRANSACTION WAS AT ARMS LENGTH PRICE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASS ESSEE BEFORE US HAS FAIRLY CONSIDERED THAT LIBOR RATES HAVE TO BE APPLIED SINCE THE TRANSACTION BETWEEN THE ASSESSEE AND ITS AES IS AN INTERNATIONAL TRANSACTION AND THERE IS NO MERIT IN THE ORDER OF CIT(A) IN APPLYING THE INDIAN PLR RATES. 2 9 . THE ISSUE ARISING BEFORE US IS IN RELATION TO THE ARM'S LENGTH PRICE OF INTEREST CHARGED BY THE ASSESSEE COMPANY TO ITS AES ON THE AMOUNTS OUTSTANDING. THE MUMBAI BENCH OF TRIBUNAL IN HINDUJA GLOBAL SOLUTIONS LTD. VS. ADDL. CIT (2013) 145 ITD 361 (MUM) HAD HELD THA T CUP METHOD WAS THE MOST APPROPRIATE METHOD TO DETERMINE THE ARMS LENGTH RATE OF INTEREST OF THE INTERNATIONAL TRANSACTION INVOLVING LENDING OF THE MONEY BY ASSESSEE IN FOREIGN CURRENCY TO ITS AES AND LIBOR BEING INTER - BANK RATE FIXED FOR INTERNATIONAL T RANSACTION HAD TO BE ADOPTED AS ARMS LENGTH RATE. THE MUMBAI BENCH OF TRIBUNAL FURTHER IN DCIT VS. INDIAN HOTELS CO. LTD. (SUPRA) HAS APPLIED THE SAID ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 21 PRINCIPLE IN BENCHMARKING THE INTERNATIONAL TRANSACTION INVOLVING INTEREST CHARGED BY THE ASSESSEE ON O UTSTANDING LOAN FROM ITS AES. 30. FU R THER, PUNE BENCH OF TRIBUNAL IN VARROC ENGINEERING (P) LTD. VS ACIT (SUPRA) HAD OBSERVED AS UNDER: - 15.. W HILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS WHAT HAS TO BE SEEN IS THE COMPARISON BETWEEN RELATED TRAN SACTIONS I.E. WHERE THE ASSESSEE HAS ADVANCED MONEY TO ITS ASSOCIATED ENTERPRISES AND CHARGED INTEREST THEN THE SAID TRANSACTION IS TO BE COMPARED WITH A TRANSACTION AS TO WHAT RATE THE ASSESSEE WOULD HAVE CHARGED, IF IT HAD EXTENDED THE LOAN TO THE THIRD PARTY IN FOREIGN COUNTRY. ONCE THERE IS A TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES IN FOREIGN CURRENCY, THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIPLES WITH REGARD TO THE INTERNATIONAL TRANSAC TIONS. IN THAT CASE, THE INTERNATIONAL RATES FIXED BEING LIBOR+ RATES WOULD HAVE AN APPLICATION AND THE DOMESTIC PRIME LENDING RATES WOULD NOT BE APPLICABLE. THE ASSESSEE HAS FURTHER EXPLAINED THAT IT HAD RAISED THE LOAN FROM CITI BANK ON INTERNATIONAL R ATES FOR THE PURPOSE OF INVESTMENT IN THE SHARE APPLICATION MONEY OF ITS ASSOCIATED ENTERPRISES, WHICH IN TURN WAS PARTLY CONVERTED FROM CAPITAL INTO LOAN. WHERE THE ASSESSEE HAD A COMPARABLE OF BORROWING LOAN ON INTERNATIONAL RATES AND ADVANCING TO ITS A SSOCIATED ENTERPRISES, THEN THE SAID COMPARABLE WAS TO BE APPLIED FOR BENCHMARKING THE TRANSACTION OF ADVANCING THE LOAN ON INTEREST TO ITS ASSOCIATED ENTERPRISES. THE ASSESSEE HAD CHARGED INTEREST RATE OF 4.75% ON THE LOAN ADVANCED TO THE ASSOCIATED ENTE RPRISES. THE ASSESSEE ON THE OTHER HAND, CLAIMS THAT IT HAD BORROWED THE MONEY ON LIBOR+ RATES I.E. INTERNATIONAL RATES, WHICH WERE JAPANES BASED LIBOR+ RATES WHICH WERE LOWER THAN THE US BASED LIBOR+ RATES. THE PLEA OF LIBOR+ RATES WHICH WERE LOWER THAN THE US BASED LIBOR+ RATES. THE PLEA OF THE ASSESSEE BEFORE US WAS THAT IT HAD ADVANCED THE LOAN TO ITS ASSOCIATED ENTERPRISES ON LIBOR+ RATES I.E. 4.75%. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES WHERE THE ASSESSEE HAS THE INTERNAL CUP OF OPERATING AT INTERNATIONAL RATES AVAILABLE AND SINCE THE SAID LOAN RAISED BY THE ASS ESSEE AT INTERNATIONAL RATES WAS ADVANCED TO ITS ASSOCIATED ENTERPRISES, WE FIND NO MERIT IN THE ORDER OF THE TPO IN APPLYING THE DOMESTIC LOAN RATES I.E. BPLR RATES FOR BENCHMARKING TRANSACTION OF CHARGING OF INTEREST ON THE LOANS ADVANCED TO THE ASSOCIAT ED ENTERPRISES BY THE ASSESSEE. WHERE THE ASSESSEE HAD MADE THE BORROWINGS ON LIBOR+ RATES AND ADVANCED THE SAME AT LIBOR+ RATES, THEN THE SAID TRANSACTION IS AT ARM'S LENGTH PRICE AND THERE IS NO MERIT IN ANY ADJUSTMENT TO BE MADE ON THIS ACCOUNT. 16. T HE CHENNAI BENCH OF THE TRIBUNAL IN M/S. SIVA INDUSTRIES & HOLDINGS LIMITED VS. ACIT, CHENNAI (2012) 26 TAXMANN.COM 96 (CHENNAI) HAD HELD AS UNDER: - THE ASSESSEE HAD GIVEN THE LOAN TO THE ASSOCIATED ENTERPRISES IN US DOLLARS, AND ASSESSEE WAS ALSO RECEIV ING INTEREST FROM THE ASSOCIATED ENTERPRISES IN INDIAN RUPEES. ONCE THE TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES WAS IN FOREIGN CURRENCY AND THE TRANSACTION WAS AN INTERNATIONAL TRANSACTIONS, THEN THE TRANSACTION WOULD HAVE TO BE LO OKED UPON THE APPLYING THE COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TRANSACTIONS. IF THAT WAS SO, THEN THE DOMESTIC PRIME LENDING THE RATE WOULD HAVE NO APPLICABILITY AND THE INTERNATIONAL RATE FIXED BEING LIBOR WOULD COME INTO PLAY. IN THE CIRCU MSTANCES, THE VIEW THAT LIBOR RATE HAD TO BE CONSIDERED WHILE DETERMINING THE ARM'S LENGTH PRICE INTEREST RATE IN RESPECT OF THE TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES WAS TO BE UPHELD. AS IT WAS NOTICED THAT THE AVERAGE OF THE LI BOR RATE FOR 1 - 4 - 2005 TO 31 - 3 - 2006 IS 4.42 PER CENT AND THE ASSESSEE HAD CHARGED INTEREST AT 6 PER CENT WHICH WAS HIGHER THAN THE LIBOR RATE, NO ADDITION ON THIS ACCOUNT WAS LIABLE TO BE MADE IN THE ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 22 HANDS OF THE ASSESSEE. IN THE CIRCUMSTANCES, THE ADDITIO N MADE BY THE ASSESSING OFFICER ON THIS COUNT WAS DELETED. 17. THE MUMBAI BENCH OF THE TRIBUNAL IN DCIT VS. TECH MAHINDRA LTD. (2011) 12 TAXMANN.COM 132 (MUM.) HELD THAT WHERE THERE IS A CHOICE BETWEEN THE INTEREST RATE OF CURRENCY OTHER THAN THE CURREN CY IN WHICH TRANSACTION HAD TAKEN PLACE AND THE INTEREST RATE IN RESPECT OF THE CURRENCY IN WHICH TRANSACTION HAS TAKEN PLACE, THE LATTER SHOULD BE ADOPTED. WHERE THE TRANSACTION IS BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES IN FOREIGN CURRENCY A ND THE TRANSACTION IS INTERNATIONAL TRANSACTION, THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TRANSACTIONS. 18. SIMILAR PRINCIPLE HAS BEEN LAID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN HINDUJA GLOBAL SOLUTIONS LTD. VS. ACIT (2013) 35 TAXMANN.COM 348 (MUMBAI TRIB.). 19. IN THE ENTIRETY OF THE ABOVE FACTS AND CIRCUMSTANCES, WE HOLD THAT WHERE THE ASSESSEE HAD ENTERED INTO A TRANSACTION WITH ITS ASSOCIATED ENTERPRISES IN FOREIGN CURRENC Y, AND THE TRANSACTIONS WERE INTERNATIONAL TRANSACTIONS, THEN THE SAME HAD TO BE LOOKED INTO BY APPLYING COMMERCIAL PRINCIPLE IN REGARD TO INTERNATIONAL TRANSACTIONS. IN THE FACTS OF PRESENT CASE, THE ASSESSEE HAD BORROWED THE LOAN FROM CITI BANK AND ADVA NCED THE SAME ON LIBOR+ RATES TO ITS ASSOCIATED ENTERPRISES, THEN THE SAID TRANSACTION WITH ITS ASSOCIATED ENTERPRISES IS WITHIN ARM'S LENGTH PRICE. THE TPO / AO THUS, DIRECTED TO RE - COMPUTE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. ANOTH ER ASPECT TO BE KEPT IN MIND IS THE PLEA OF THE ASSESSEE WITH REGARD TO THE INTEREST RECEIVABLE. THE ASSESSEE HAD ALSO RAISED THE ISSUE THAT THE TPO HAD ADOPTED THE INTEREST RECEIVABLE FROM ASSOCIATED ENTERPRISE COMPANY AT RS.2,86,27,089/ - INSTEAD OF RS.2 ,91,82,060/ - WHICH IS DISCLOSED IN THE AUDIT REPORT IN FORM NO.3CEB. THE ASSESSING OFFICER IS ALSO DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE IN THIS REGARD AND COMPUTE THE ALSO DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE IN THIS REGARD AND COMPUTE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. REASONABLE OPPORTUNITY OF BEING HEARD SHALL BE AFFORDED TO THE ASSESSEE BY THE ASSESSING OFFICER / TRANSFER PRICING OFFICER. THE GROUNDS OF APPEAL NOS.1 AND 2 RAISED BY THE ASSESSEE ARE THUS, ALLOWED AS INDICATED ABOVE. 31. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENU E PLACED RELIANCE ON THE RATIO LAID DOWN BY THE DELHI BENCH OF TRIBUNAL IN CHEIL INDIA (P.) LTD. VS. DCIT (SUPRA). WE FIND NO MERIT IN THE SAID RELIANCE PLACED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE WHERE IT WAS DIRECTED THAT THE INTEREST SHOULD BE COMPUTED ON THE BASIS OF SBI BASE RATE PLUS 150 BASIS POINTS ON THE AMOUNT OUTSTANDING FROM THE DEBTORS. ON THE OTHER HAND, PUNE BENCH OF TRIBUNAL IN VARROC ENGINEERING (P) LTD. VS ACIT (SUPRA) AND OTHER BENCHES OF THE TRIBUNAL HAVE UPH ELD THE APPLICATION OF INTERNATIONAL RATES OF INTEREST TO BE APPLIED FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS. 3 2 . THE ASSESSEE IN THE PRESENT SET OF FACTS WAS CARRYING ON ITS BUSINESS WITH ITS AES AND THE MAJORITY OF BUSINESS RECEIPTS WERE RECEIVA BLE FROM THE AES. ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 23 ONCE THE TRANSACTION BETWEEN THE ASSESSEE AND ITS AES WAS IN FOREIGN CURRENCY, THEN THE SAME PART TAKES THE NATURE OF INTERNATIONAL TRANSACTION AND THE SAID TRANSACTIONS HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIPLES WITH R EGARD TO AN INTERNATIONAL TRANSACTION . IF THAT IS SO, THEN THE DOMESTIC LENDING RATES CANNOT BE APPLIED IN ORDER TO BENCHMARK THE TRANSACTION OF THE ASSESSEE WITH ITS AES AND THE INTERNATIONAL RATES FIXED BY LIBOR WOULD COME INTO PLAY. THERE WAS SUBSTANT IAL DELAY IN RECEIPT OF PAYMENT FROM AES AND SUBSTANTIAL AMOUNT STOOD UNRECOVERED FROM THE AES BEYOND THE STIPULATED PERIODS. THE ASSESSEE INITIALLY DID NOT CHARGE INTEREST FROM THE AES AND SUBSEQUENTLY, CHARGED INTEREST FROM AES AT AFR I.E. AMERICA N FEDE RAL RATE @ 2.98%. THE AMOUNT IS IN THE CHARACTER OF LOAN OR BORROWING AFTER THE STIPULATED CREDIT PERIOD AND CONSEQUENTLY, SUCH RECOVERY OF DUES IN THE INTERNATIONAL TRANSACTION WITH ITS AES IS TO BE BENCHMARKED BY APPLYING CUP METHOD OF INTERNATIONAL BAN K RATES. ACCORDINGLY, WE HOLD THAT LIBOR PLUS RATES HAVE TO BE APPLIED TO THE AMOUNTS DUE FROM THE AES BEYOND THE PERIOD OF 25 DAYS, WHICH WAS THE WEIGHTED AVERAGE DUE FROM THE AES BEYOND THE PERIOD OF 25 DAYS, WHICH WAS THE WEIGHTED AVERAGE NUMBER OF DAYS DELAY ALLOWED TO THE THIRD PARTIES . A FTER EXCLUDING THE PERIOD OF 25 DAYS , INTEREST IS TO BE CHARGED ON THE BALANCE NUMBER OF DAYS OF DELAY BY APPLYING LIBOR PLUS RATES. WE FIND THAT THE TPO HAD APPLIED AVERAGE RATE OF LIBOR PLUS 300 BASIS POINTS AS THE REASONABLE RATE OF INTEREST, WHICH THE ASSESSEE SHOULD HAVE CHARGED TO ITS A ES. THE TPO HAD ALSO CHARGED PLUS 200 BASIS POINTS AS GUARANTEED COMMISSION. THE CIT(A) HAS GIVEN A FINDING THAT IN THE ABSENCE OF ANY EXPENDITURE HAVING BEEN INCURRED BY THE ASSESSEE ON SUCH GUARANTEED COMMISSION, THERE WAS NO MERIT IN INCLUDING THE SAM E. THE REVENUE IS NOT IN APPEAL AGAINST THE SAID FINDING OF THE CIT(A) AND IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WHERE IT HAS NOT BEEN ESTABLISHED THAT THE ASSESSEE HAS NOT PAID ANY COMMISSION, THERE WAS NO MERIT IN CHARGING PLUS 200 BASIS AS GUARA NTEED COMMISSION. HOWEVER, WE UPHOLD THE ORDER OF TPO IN BENCHMARKING THE TRANSACTION OF INTEREST DUE ON AMOUNTS OUTSTANDING FROM ITS AES AT LIBOR PLUS 300 BASIS POINTS. THE ASSESSING OFFICER / TPO SHALL ITA NO . 2504 /PN/201 2 ITA NO.342 /PN/2013 IGATE COMPUTERS SYSTEMS LTD 24 DETERMINE THE ADJUSTMENT, IF ANY, TO BE MADE IN THE HANDS OF ASSESSEE ON ACCOUNT OF INTEREST CHARGEABLE ON THE AMOUNTS DUE FROM ITS AES BEYOND THE CREDIT PERIOD OF 25 DAYS AFTER ALLOWING THE BENEFIT OF INTEREST RECOVERED BY THE ASSESSEE FROM ITS AES. THE GROUNDS OF APPEAL RAISED BY THE ASSE SSEE ARE THUS, PARTLY ALLOWED. 3 3 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER P RONOUNCED ON THIS 27 TH DAY OF MA Y , 201 5 . SD/ - SD/ - ( G.S. PANNU ) ( SUSHMA CHOWL A ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 27 TH MA Y , 201 5 . GCVSR COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A) - IT/TP , PUNE ; 4) THE CIT - IT/TP , PUNE ; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// //TRUE COPY// A SSISTANT REGISTRAR I.T.A.T., PUNE