The DCIT(OSD)Range-1, Ahmedabad V. Dishman Pharmaceuticals & Chemicals Ltd., Ahmedabad

ITA 386/AHD/2013

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8098 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 20-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 08-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; Double taxation relief; International transaction; Earning of tax free income; Permanent establishment; Question of law; Wholly owned subsidiary; Non-deduction of tax; Bad and doubtful debts; Deemed dividend; Revenue expenditure
• Section: 92B; 80HHC; 14A; 115JB; 37(1); 80G; 10B; 201(1); 37; 92

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SR. NO. ITA NO. AND ASSTT.YEAR APPELLANT RESPONDENT 1 . 955/AHD/2012 ASSTT.YEAR 2007-08 DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. PAN : AAACD 4164 D DCIT(OSD), RANGE - 1 AHMEDABAD 2 . 1043/AHD/2012 ASSTT.YEAR 2007-08 DCIT(OSD), RANGE - 1 AHMEDABAD DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. 3 . 262/AHD/2013 ASSTT.YEAR 2008-09 DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. DCIT(OSD), RANGE - 1 AHMEDABAD 4 . 386/AHD/2013 ASSTT.YEAR 2008-09 DCIT(OSD), RANGE - 1 AHMEDABAD DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. 5 . 2958 /AHD/201 3 ASSTT.YEAR 2009-10 DCIT(OSD), RANGE - 1 AHMEDABAD DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. 6 . 3087/AHD/2013 ASSTT.YEAR 2009-10 DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. DCIT(OSD), RANGE - 1 AHMEDABAD ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 2 REVENUE BY : SHRI VASUNDHARA UPMANYU, CIT - DR SHRI R.P. MAURYA, SR.DR ASSESSEE BY : SHRI T.P. HEMANI, AR WITH SHRI PARIMAL PARMAR, AR / DATE OF HEARING : 22/03/2018 / DATE OF PRONOUNCEMENT: 20/06/2018 ! / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: IN THIS BUNCH OF APPEALS, ORDERS OF THE LD.CIT(A) D ATED 2.3.2012, 16.11.2012 AND 31.10.2013 PASSED ON THE APPEALS OF THE ASSESSEE IN ASSESSMENT YEAR 2007-08 TO 2009-10 ARE BEING IMPUGN ED BY THE ASSESSEE AS WELL AS REVENUE IN CROSS APPEALS. 2. FIRST MAJOR COMMON ISSUE IN ALL THESE APPEALS RE LATES DETERMINATION OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION UND ERTAKEN BY THE ASSESSEE WITH ITS AE IN THESE THREE YEARS. THE LD.TPO RECOMM ENDED UPWARD ADJUSTMENTS IN THE VALUE OF INTERNATIONAL TRANSACTI ONS IN HIS ORDERS PASSED UNDER SECTION 92CA(3) OF THE INCOME TAX ACT, 1961 I N ALL THESE THREE YEARS. ON APPEAL, THE LD.CIT(A) PARTLY UPHELD SUCH ADJUSTM ENT AND PARTLY DELETED. THEREFORE, BOTH THE PARTIES ARE IMPUGNING ORDERS OF THE LD.CIT(A) ON THIS ISSUE. WE DEEM IT APPROPRIATE TO TAKE THIS ISSUE T OGETHER RAISED IN ALL THESE THREE YEARS. 3. BRIEF FACTS OF THE CASE ARE THAT RETURNS OF INCO ME FOR THE ASSESSMENT YEARS 2007-08 TO 2009-10 WERE FILED ON 31.10.2007, 30.9.2008 AND 29.9.2009 DECLARING LOSS AT (-)46,78,40,252/-, RS.1 8,53,52,406/- AND RS.2,54,05,015/- RESPECTIVELY FOR THE ASSESSMENT YE ARS 2007-08 TO 2009-09. THERE IS NO DISPUTE BETWEEN PARTIES THAT CASES OF T HE ASSESSEE FOR ALL THESE YEARS WERE TAKEN UP FOR SCRUTINY ASSESSMENT AND DUE NOTICE UNDER SECTIONS 143(2)/142(1) WERE ISSUED AND SERVED UPON THE ASSES SEE. SINCE THERE WERE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS AE, THEREFORE REFERENCE UNDER SECTION 92CA(1) WERE SENT BY THE AO TO THE TP O IN ALL THESE YEARS. THE LD.TPO HAS PASSED ORDERS UNDER SECTION 92CA(3) OF T HE ACT ON 20.10.2010, 28.10.2011 AND 22.1.2013 RESPECTIVELY. THE INTERNA TIONAL TRANSACTIONS ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 3 UNDERTAKEN BY THE ASSESSEE WITH ITS AE IN THESE YEA RS WERE TAKEN NOTE BY THE LD.TPO, AND THE SAME READS AS UNDER: ASSESSMENT YEAR : 2007-08 ASSESSMENT YEAR : 2008-09 ASSESSMENT YEAR : 2009-10 SR. NO. AE NAME NATUR E OF TRANSACTIONS VALUE OF TRANSACTION (RS.) 1. DISHMAN EUROPE LIMITED, UK SALE OF VARIOUS PRODUCTS 1716354499 2. DISHMAN EUROPE LIMITED, UK MACHINERY PURCHASED BY DEL 23066442 3. DISHMAN EUROPE LIMITED, UK PROCUREMENT OF RAW MATERIAL AVAILED TO FROM THE AE 36941047 4. DISHMAN FZE, DUBAI SHORT TERM LOAN GIVEN 932800 2. TOTAL 177,72,94,788 SR. NO. AE NAME NATURE OF TRANSACTIONS VALUE OF TRANSACTION (RS.) 1. DISHMAN EUROPE LIMITED, UK APPORTIONMENT OF EXPENSES 79,19,759 2. CAD KMIDDLE EAST PHARMA INDUSTRIAL SHARE APPLICATION MONIES, PENDING ALLOTMENT OF SHARES 3,33,08,000 3. DISHMAN EUROPE LIMITED, UK SALE OF 13,55,333 KGS. OF VARIOUS PRODUCTS 1,90,12,96,933 4. DISHMAN, USA 5. DISHMAN SWITZERLAND LIMITED 6. CARBOGEN AMICS AG. 7. DISHMAN INTERNATIONAL TRADING (SHANGHAI) CO. LTD. 8. INNOVATIVE OZONE SERVICES INC. LTD. 9. DISHMAN JAPAN LTD. TOTAL : 1,94,25,24,692 ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 4 4. LET US FIRST TAKE THE FACTS IN THE ASSESSMENT YE AR 2007-08 ON THIS ISSUE. IT IS PERTINENT TO NOTE THAT IN THE VALUE OF INTERN ATIONAL TRANSACTIONS OF RS.177,72,94,788/- EXTRACTED ABOVE, THE LD.TPO RECO MMENDED UPWARD SR. NO. NAME OF THE ASSOCIATED ENTERPRISES DESCRIPTION OF TRANSACTION AMOUNT PAID OR PAYABLE AS PER BOOKS OF ACCOUNT METHOD USED FOR DETERMINING THE ARMS LENGTH PRICE 1. CARBOGEN AMICIS AG SALES OF VARIOUS PRODUCTS 3,84,60,250 TNMM 2. DISHMAN AUSTRALASIA PTY LTD. SALES OF VARIOUS PRODUCTS 18,90,441 TNMM 3. DISHMAN EUROPE LIMITED SALES OF VARIOUS PRODUCTS 2,18,76,07,93 4 TNMM 4. DISHMAN INTL TRADE (SHANGHAI) CO. LTD. SALES OF VARIOUS PRODUCTS 14,81,069 TNMM 5. DISHMAN JAPAN LTD. SALES OF VARIOUS PRODUCTS 96,95,265 TNMM 6. DISHMAN USA, INC. SALES OF VARIOUS PRODUCTS 23,39,44,585 TNMM 7. DISHMAN NETHERLAND BV PURCHASE OF VARIOUS PRODUCTS 1,40,700 TNMM 8. DISHMAN EUROPE LTD. PURCHASE OF VARIOUS PRODUCTS 3,90,315 TNMM 9. CAD MIDDLE EAST PHARMA IND. LLC.DISHMAN JAPAN LTD. TECHNICAL AND ENGINEERING SERVICES 4,27,19,300 TNMM 10. DISHMAN EUROPE LTD. CONTRACT RESEARCH SERVICES 3,64,21,109 TNMM 11. DISHMAN USA, INC CONTRACT RESEARCH SERVICE 2,06,84,000 TNMM 12. DISHMAN EUROPE LTD. APPORTIONMENT OF INSURANCE PREMIUM 11,78,932 TNMM 13. DISHMAN EUROPE LTD. REIMBURS E MENT OF EXPENSES 1,84,13,221 TNMM 14. DISHMAN AUSTRALASIA PTY LTD. SHORT TERM LOAN 1,05,51,694 TNMM 15. DISHMAN PHARMA & CHEMICALS (SHANGHAI) CO. LTD. SHORT TERM LOAN 10,05,10,000 TNMM 16. DISHMAN EUROPE LIMITED SHORT TERM LOAN 22,74,113 TNMM ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 5 ADJUSTMENT OF RS.11,12,88,512/-. THE ADJUSTMENTS W ERE MADE QUA FOUR COMPONENTS VIZ. (A) ADJUSTMENT IN SALE PRICE OF RS. 4,78,99,891/-; (B) INTEREST ON LOAN OF RS.87,19,932/-; (C) GUARANTEE FEES OF RS .5,18,22,200/- AND INSURANCE OF RS.28,46,489/-. THE LD.CIT(A) HAS GON E INTO ALL THESE TRANSACTIONS AND DELETED ADJUSTMENT RECOMMENDED QUA SALE PRICE, GUARANTEE FEES, BUT UPHELD ADJUSTMENT QUA INSURANCE AND INTEREST ON LOAN. HOWEVER, WITH REGARD TO THE ISSUE OF INTEREST ON LOAN, THE L D.CIT(A) HAS ACCEPTED ALTERNATIVE CONTENTIONS OF THE ASSESSEE THAT INTERE ST CHARGED BY IT OUGHT TO BE GIVEN SET OFF AGAINST ULTIMATE INTEREST COMPUTED BY THE TPO, REQUIRED TO BE CHARGED BY THE ASSESSEE FROM ITS AE FROM INTERNATIO NAL TRANSACTIONS. IN OTHER WORDS, THE ASSESSEE HAS CHARGED INTEREST AT THE RAT E OF LIBOR PLUS 1%. CREDIT OF THIS INTEREST HAS BEEN ALLOWED TO THE ASSESSEE. THE FINDING OF THE LD.CIT(A) IN THE ASSESSMENT YEAR 2007-08 IS WORTH TO NOTE ON THIS ISSUE, BECAUSE THEY ARE REPETITION OF SUBSEQUENT TWO YEARS. IT READS A S UNDER: 2.3-L HAVE CONSIDERED THE FACTS OF THE CASE: TPO'S ORDER AND APPELLANT'S SUBMISSION. THERE ARE FOUR COMPONENTS O F TRANSFER PRICING ADJUSTMENTS ARROU6TING; TO RS.11,12,88,512/ - AS UNDER: S.NO. PARTICULARS AMOUNT IN RS. (A) ADJUSTMENT IN SALES PRIDE 41,78,99,891/- (B) INTEREST ON LOAN 87,19,932/- (C) GUARANTEE FEES 5,18,22,200/- (D) INSURANCE 28,46,489/- ALL THE ABOVE TRANSFER PRICING ADJUSTMENTS ARE SEPA RATELY DISCUSSED AND ADJUDICATED IN THE FOLLOWING PARAS- (A) ADJUSTMENT IN SALES PRICE APPELLANT HAD VARIOUS INTERNATIONAL TRANSACTIONS WI TH ASSOCIATED ENTERPRISES (AES) DURING THE YEAR. TPO MADE ADJUSTM ENTS WITH REGARD TO 16 TRANSACTIONS. APPELLANT FOLLOWED TNMM METHOD FOR CALCULATING ARMS LENGTHPRICE WHICH WAS CHANGED BY T HE ASSESSING OFFICER TO CUP METHOD AND THEN WORKED OUT VARIATION AS ADJUSTMENTS, AS REGARDS CHANGE OF METHOD FROM TNMM TO CUP, THE ISSUE IS SQUARELY COVERED BY THE ORDERS OF CIT( A) FOR ASSESSMENT YEARS 2002 -03, 2003-04, 2004-05,2005-06 AND 2006-07 (COVERING ALL APPEALS PRIOR TO THIS ASSESSM ENT YEAR) AND ALSO ITAT ORDER FOR A Y 2004-05: ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 6 THE ARGUMENTS GIVEN BY FHB TPO ARE SIMILAR IN AN TH E YEARS AND THEREFORE THIS ISSUE IS COVERED BY THE EA RLIER APPELLATE DECISION IN THE APPELLANT'S OWN CASE IN THE SIMILAR FACTS AND CIRCUMSTANCES. APPELLANT ALSO SUBMITTED DECISION OF ITAT AHMEDABAD IN THE CASE OF SCHUTZ DISHMAN BIOTECH PRI VATE LTD (A SISTER CONCERNS IN THE SIMILAR LINE OF BUSINESS) FO R ASSESSMENT YEAR 2002-03 IN ITA NUMBER 554/AHD/2006 DATED 15 FE BRUARY 2008. THE RELEVANT PART OF THE DECISION IS QUOTED B ELOW- WE FIND NO FAULT WITH THE TNMM METHOD ADOPTED BY THE ASSESSEE ON THE ABOVE FACTS OF THE CASE. EVEN THE HONOURABLE APEX COURT IN THE CASE OF MORGAN STANLEY & CO. HAS CLEARLY UPHELD THE ADOPTION OF TNMM METHOD AS M OST APPROPRIATE METHOD AND THE RELEVANT PARTICULAR LINE FROM THE JUDGEMENT READS AS UNDER- TI 'AS REGARDS INCOME ATTRIBUTABLE TO THE P E, WE HOLD THAT THE TRANSACTIONAL NET MARGIN METHOD WAS THE APPROPRIATE METHOD FOR DETERMINING THE ARM'S LENGTH PRICE IN RE SPECT OF TRANSACTIONS BETWEEN MORGAN STANLEY & CO AND MSAS. EVEN THE HONOURABLESPECIAL BENCH OF THIS TRIBUNAL I N THE CASE OF AZTEC SOFTWARE AND TECHNOLOGY SERVICES LTD HAS HELD, THAT THE COMPUTATION OF ARMS LENGTH PRICE IS EFFECT TO EXERCISE. EACH CASE DEPENDS ON ITS OWN FACTS AND CIRCUMSTANCES. IN MANY CASES WHERE IDENTICAL OR ALM OST SIMILAR UNCONTROLLED TRANSACTIONS ARE AVAILABLE FOR COMPARISON, DETERMINATION OF ARMS LENGTH- AN EASY T ASK. BUT IT IS NOT SO IN MOST OF THE TRANSACTIONS RARELY ONE IS ABLE TO LOCATE THE IDENTICAL TRANSACTION. IN SUCH C ASES ARMS LENGTH PRICE IS DETERMINED BY TAKING THE COMPARABLE TRANSACTION IN: COMPARABLE CIRCUMSTANCES AND MAKE SUITABLE ADJUSTMENT FOR THE DIFFERENCES. SIMILARLY IN THE PRESENT CASE ALSO THE PBIT OF THE ASSESSEE COMPANY IS EXACTLY SIMILAR OR NEARBY WITH THAT OF THE OTHER UNCONTROLLED TRANSACTIONS OF UNCONNECT ED ENTERPRISES. THE PBIT OF THE EXPORTS IS AS HIGH AS 23.02% AS AGAINST THE OVERALL PBIT OF THE ASSESSEE COMPANY AT 20.04%,EVEN IF THE ASSESSEE HAS COMPARED THAT PBIT OF OTHER INDEPENDENT ENTITIES WITH THAT O F THE ASSESSEE AND DEMONSTRATED THE APPLICATION OF TNMM METHOD CORRECTLY. ACCORDINGLY WE UPHOLD THE TNMM METHOD ADOPTED BY THE ASSESSEE AND REVERSE THE CUP METHOD ADOPTED BY THE REVENUE.' APPELLANT ALSO SUBMIT THAT ITAT'S ORDER IN ITS OWN CASE FOR ASSESSMENT YEAR 2004-05 IN ITA NUMBER 154/AHD/2007 DATED 18TH FEBRUARY 2011 IN WHICH AFORESAID DECISION WAS FOLLOWED IN APPELLANT'S CASE ALSO. RELEVANT EXTRACT OF THIS ORDER IS QUOTED BELOW- ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 7 '37- AFTER GOING THROUGH THE FACTS IN ENTIRETY, WE ARE OF THE VIEW THAT THE FACTS IN THE PRESENT APPEALS ARE EXACTLY IDENTICAL TO THE CASE OF SCHUTZ DISHMAN BIOTECH PRI VATE LTD IN ITA NUMBER 554 /AHD /2006 AND THIS ISSUE WAS ANSWERED AGAINST THE REVENUE BY THIS TRIBUNAL. IN A NY CASE EVEN IN THE CASE OF ASSOCIATE CONCERN VIZ SCHU LZ DISHMAN (SUPRA) THIS TRIBUNAL HAS UPHELD THE VERY S AME REASONS GIVEN BY THE ASSESSEE FOR NON-APPLICATION O F CUP METHOD OF AMP AND ACCORDINGLY, FOLLOWING THE TRIBUN AL'S DECISION, WE ALLOW THE CLAIM OF THE ASSESSEE, UPHOL DING THE ORDER OF CIT (A) ON THIS COMMON ISSUE OF THE REVENUES APPEAL.' RESPECTFULLY FOLLOWING THE DECISIONS OF JURISDICTIO NAL ITAT ON THE ISSUE OF CHANGE OF METHOD FROM TNMM TO CUP I N THE CASE OF APPELLANT IN EARLIER YEARS HAVING IDENT ICAL, FACTS, ASSESSING OFFICER IS DIRECTED TO ACCEPT TNMM METHOD AS AGAINST CUP METHOD TAKEN UP BY TPO. IN TNMM METHOD, APPELLANT'S MARGIN IS HIGHER THAN AVER AGE MARGIN OF COMPARABLE ENTITIES AND THEREFORE NO ADJUSTMENT CAN BE MADE ON THE ISSUE OF SAFES MADE T O ASSOCIATED ENTERPRISES. (B) INTEREST ON LOAN- DURING THE YEAR, THE APPELLANT EXTENDED FOREIGN CURRENCY LOAN ON WHICH TOTAL INTER EST CHARGED WAS RS 40,93,995.TPO FOUND THAT APPELLANT CHARGED INTEREST AT THE RATE OF LIBOR + 1% HOWEVER ONE OF THE AES HAVE OBTAINED BORROWINGS FROM EUROPEAN B ANK AT THE RATE OF EURIBOR + 3.75%. SINCE APPELLANT CHA RGED INTEREST AT A LOW RATE, TRANSFER PRICING WAS JUSTIF IED IN MAKING ADJUSTMENT IN RESPECT OF INTEREST. IT IS ONL Y BECAUSE TRANSACTION WAS WITH AE, THE LOW RATE OF IN TEREST WAS CHARGED. THE REASONS GIVEN BY THE APPELLANT DO NOT EXPLAIN THE CHARGE OF INTEREST AT THE LOW RATE. IN VIEW OF THE DETAILED REASONS AND JUDICIAL DECISION GIVEN BY THE TPO WHICH IS QUOTED EARLIER, THE ADJUSTMENT IN RESP ECT OF INTEREST MADE BY THE TPO IS CONFIRMED. - HOWEVER, WHILE MAKING ADJUSTMENT IN RESPECT OF INTE REST, TPO DID NOT ALLOW SET OFF OF INTEREST ALREADY CHARG ED BY THE APPELLANT. SINCE THE INTEREST WORKED OUT BY THE THIS IS TOTAL INTEREST WHICH SHOULD'VE BEEN CHARGED AT A LP, OBVIOUSLY INTEREST ALREADY CHARGED BY THE APPELLANT HAS TO BE REDUCED MAKING TP ADJUSTMENT. ACCORDINGLY ASSESSING OFFICER IS DIRECTED TO REDUCE INTEREST AL READY CHARGED BY THE APPELLANT FROM THE TOTAL INTEREST CHARGEABLE FROM THE AES. THE ADJUSTMENT OF SUCH NET AMOUNT COMPUTED IS CONFIRMED, (C) GUARANTEE FEES- TPO MADE THE ADJUSTMENT ON ACCOUNT OF COMMISSION IN RESPECT OF CORPORATE GUARA NTEE PROVIDED BY THE APPELLANT TO ITS AE. APPLICANT SUBM ITTED ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 8 THAT CORPORATE GUARANTEE DOES NOT COME UNDER THE PURVIEW OF TP ADJUSTMENTS. APPELLANT RELIED UPON TH E DECISION OF ITAT HYDERABAD IN WHICH IT IS HELD THAT FOR PROVIDING CORPORATE GUARANTEE IN OBTAINING LOANS BY AE, NO ADJUSTMENT CAN BE MADE. ITAT IN THE CASE OF FOUR SOFT LTD. VS. DCIT,CIRCLE - 1(3), HYDERABAD :(1TA N O. 495/HYD/10) DATED 09-09-2011 HELD AS UNDER: '27. WE HAVE, 'CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE TP LEGISLATION PROVIDES FOR COMPUTATION OF INCO ME FROM INTERNATIONAL TRANSACTION AS PER SECTION 92B O F THE ACT. THE CORPORATE- GUARANTEE PROVIDED BY THE ASSES SEE COMPANY DOES NOT FALL WITHIN THE DEFINITION OF INTERNATIONAL TRANSACTION. THE TP LEGISLATION DOES NOT STIPULATE ANY GUIDANCE IN RESPECT TO GUARANTEE TRANSACTIONS. IN ABSENCE OF ANY CHARGING PROVISION, THE LOWER AUTHORITIES ARE NOT CORRECT IN BRINGING AFORE SAID TRANSACTION IN THE.TP-STUDY. IN OUR CONSIDERED VIEW , THE CORPORATE GUARANTEE IS VERY MUCH INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND HENCE, THE SAME CANNOT BE COMPARED. TO A BANK GUARANTEE TRANSACTION OF THE BA NK OR FINANCIAL INSTITUTION. IN VIEW OF THIS MATTER, W E HOLD THAT NO TP ADJUSTMENT IS REQUIRED IN RESPECT OF COR PORATE GUARANTEE TRANSACTION DONE BY THE ASSESSEE COMPANY. HENCE, WE ANSWER THIS QUESTION IN FAVOUR OF THE ASS ESSEE AND ALLOW THE GROUNDS RAISED BY THE ASSESSEE ON THI S ISSUE.' FROM THE ABOVE IT IS CLEAR THAT APPELLANT'S CASE IS COVERED BY THE AFORESAID DECISION. THEREFORE, THE ADJUSTMENT M ADE BY THE TPO IN RESPECT OF GUARANTEE COMMISSION IS NOT SUSTA INABLE. ACCORDINGLY ADJUSTMENT ON ACCOUNT OF GUARANTEE COMM ISSION MADE BY THE ASSESSING OFFICER BASED ON THE TPO'S-OR DER IS DELETED. (D)INSURANCE-APPELLANT MADE THE PAYMENT TO ITS AE O N ACCOUNT OF INSURANCE HOWEVER TPO FOUND THAT THIS PAYMENT WA S MADE FIRST TIME BY THE ASSESSEE COMPANY AND PREVIOUSLY THERE W AS NO SUCH PAYMENT. AS PER INSURANCE ACT, INDIA COMPANIES CANN OT TAKE AND MAKE PAYMENT TO FOREIGN INSURER. BUT FOR RELATION W ITH THE FOREIGN MULTINATION, THE ASSESSEE WOULD NOT HAVE TAKEN ANY POLICY WITH FOREIGN INSURER OR ANY OTHER DOMESTIC PARTY IN SIMI LAR SITUATION WOULD NOT HAVE BEEN ABLE TO TAKE SUCH INSURANCE FRO M FOREIGN INSURER, THEREFORE THE PAYMENT ON ACCOUNT OF INSURA NCE BY THE APPELLANT TO ITS AE IS FOR NO SERVICES OR BUSINESS CONSIDERATION AND ACCORDINGLY THE ALP OF THIS TRANSACTION IS NIL. SIN CE APPELLANT MADE PAYMENTS TO ITS AE, THE SAME WAS CLEARLY WITHI N THE PURVIEW OF PRICING REGULATION. APPELLANT COULD NOT EXPLAIN THE BUSINESS CONSIDERATION AND THE PURPOSE OF MAKING PA YMENT ON ACCOUNT OF INSURANCE EVEN WHEN IT CANNOT TAKE ANY I NSURANCE ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 9 FROM FOREIGN INSURER. IN VIEW OF THIS, THE ADJUSTM ENT MADE BY THE TPO IS JUSTIFIED AND ADDITION IS ACCORDINGLY DI SMISSED. 5. IN THE ASSESSMENT YEAR 2008-09, THE LD.TPO HAS R ECOMMENDED UPWARD ADJUSTMENT IN THE VALUE OF INTERNATIONAL TRANSACTIO NS AT RS.11,99,88,464/-. HE HAS RECOMMENDED SUCH ADJUSTMENTS ON THREE ACCOUNTS VIZ. (A) ADJUSTMENT IN SALE PRICE OF RS.5,05,24,457/-; (B) INTEREST ON LOA N OF RS.1,02,58,808/- AND (C) GUARANTEE FEES OF RS.5,92,05,199/-. ON APPEAL, THE LD.CIT(A) HAS DELETED ADJUSTMENT QUA ITEM NO.(A) AND (C) I.E. ADJUSTMENT IN SALE PRICE AND GUARANTEE FEES. THE LD.CIT(A) CONFIRMED ADJUSTMENT RECOMMENDED FOR CHARGING OF INTEREST ON LOAN PARTLY. IN THIS YEAR, THE LD.CIT(A) HAS NOT RECORDED ANY INDEPENDENT FINDING RATHER FOLLOWED HE R PREDECESSORS ORDER IN THE ASSESSMENT YEAR 2007-08. THIS FACT HAS NOT ONL Y BEEN NOTED BY THE LD.CIT(A) IN THE IMPUGNED ORDER, RATHER THE FINDING OF THE LD.CIT(A) RECORDED IN THE ASSESSMENT YEAR 2007-08 HAS BEEN REPRODUCED. 6. THE FACTS IN THE ASSESSMENT YEARS 2009-10: IN T HIS ASSESSMENT YEAR, THE LD.TPO HAS RECOMMENDED UPWARD ADJUSTMENT OF RS. 14,94,92,409/- IN THE VALUE OF INTERNATIONAL TRANSACTIONS EXTRACTED (SUPR A). HE COMMENDED ADJUSTMENT ON THREE COUNTS VIZ. (A) ADJUSTMENT IN S ALE PRICE OF RS.1,55,86,834/-; (B) INTEREST ON LOAN OF 34,86,035 /- AND (C) GUARANTEE FEES OF RS.13,04,19,540/-. ON APPEAL, THE LD.CIT(A) HAS FOLLOWED THE FINDING OF THE LD.CIT(A) IN THE ASSESSMENT YEARS 2007-08 AND 2008- 09. THE LD.CIT(A) HAS DELETED THE RECOMMENDATION MADE QUA ADJUSTMENT IN SALE PRICE AND GUARANTEE FEES. WITH REGARD TO THE INTEREST ON LOA N, THE LD.CIT(A) HAS ACCEPTED THE RECOMMENDATION MADE BY THE TPO IN PRIN CIPLE, BUT DIRECTED THE TPO TO GIVE CREDIT OF THE INTEREST ALREADY CHARGED BY THE ASSESSEE FROM THE AE ON THE LOAN. 7. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, W E HAVE GONE THROUGH THE RECORD CAREFULLY. FIRST INTERNATIONAL TRANSACTION QUA WHICH UPWARD ADJUSTMENT WAS RECOMMENDED BY THE TPO IS IN THE SALE PRICE OF VARIOUS PRODUCTS MADE TO FOREIGN AES. IT IS PERTINENT TO OBSERVE THAT ASSES SEE HAS SUBMITTED TP REPORT IN FORM NO.3CEB. IT HAS ANALYZED ITS INTERNATIONAL TRANSACTIONS AND DEMONSTRATED SUCH TRANSACTIONS AT ARMS LENGTH PRIC E BY SELECTING TRANSACTIONAL NET MARGIN METHOD (TNMM) AS MOST APPR OPRIATE METHOD. IT HAS ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 10 SELECTED ITSELF AS A TESTED PARTY AND WORKED OUT PL I BY DIVIDING OPERATIVE MARGIN WITH OPERATING COST I.E. OP/OC. THE LD.TPO D ID NOT ACCEPT THE TNMM ADOPTED BY THE ASSESSEE FOR BENCHMARKING OF ITS TRA NSACTIONS WITH ITS AE. ACCORDING TO THE LD.TPO NET PROFIT MARGIN OF ENTERP RISE AS A WHOLE HAS BEEN COMPARED BY THE ASSESSEE WITH NET MARGIN EARNED BY ORGANIC CHEMICAL MANUFACTURING COMPANIES. ACCORDING TO HIM THE ASSE SSEE HAS AGGREGATED ALL THE TRANSACTIONS AND HAS NOT GIVEN ANY REASON FOR S UCH AGGREGATION AND COMPUTED NET MARGIN OF ITS ENTIRE SALE, WHEREAS TNM M REQUIRES COMPUTATION OF NET MARGIN OF EACH TRANSACTION OR AGGREGATION OF SIMILAR TRANSACTIONS. THE LD.TPO FURTHER OBSERVED THAT SELECTION OF THIS METH OD AND COMPUTING NET PROFIT ON ENTIRE SALE OF THE COMPANY BECOMES MORE IRRELEVA NT WHEN INTERNAL CUP DATA SHOWS THAT CERTAIN FINE CHEMICALS/PHARMACEUTIC ALS, THE ASSESSEE HAS CHARGED CONSIDERABLY HIGH PRICE IN DOMESTIC MARKET AS COMPARED TO EXPORT PRICE TO ITS AE. THUS, THE LD.TPO HAS CHANGED METH OD FROM TNMM TO CUP METHOD AND THEREAFTER RECOMMENDED ADJUSTMENT. BEFO RE THE LD.CIT(A) IT WAS CONTENDED BY THE ASSESEE THAT RIGHT FROM THE ASSESS MENT YEAR 2003-04, IT HAS BEEN FOLLOWING TNM METHOD. THE LD.CIT(A)HAS ACCEPT ED THE TNM METHOD IN THE ASSESSMENT YEARS 2003-04 TO 2006-07. ORDERS OF THE LD.CIT(A) IN THE ASSESSMENT YEARS 2003-04 AND 2004-05 HAVE BEEN UPHE LD BY THE ITAT. THE LD.CIT(A) HAS CONSIDERED THIS ASPECTS AND THEREAFTE R HELD THAT IN THE CASE OF ASSESSEE TNMM IS THE RIGHT METHOD. 8. ON DUE CONSIDERATION OF ORDER OF THE LD.CIT(A), WE ARE OF THE VIEW THAT ALONG WITH THESE APPEALS, WE HAVE HEARD APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07, WHERE SIMILAR ISSUE WAS INVOLVED. WE HAVE TAKEN NOTE OF THE ORDER OF THE LD.CIT(A) PA SSED IN THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IN ITS SUBMISSIONS HAS PREPARED A COMPARATIVE TABLE EXHIBITING PROFIT, ARMS LENGTH PRICE ADJUSTM ENTS AND WHY COMPARISON MADE BY THE TPO WAS NOT PROPER. IN OTHER WORDS, TH E ASSESSEE HAS HIGHLIGHTED FACTORS RESPONSIBLE FOR NOT APPLYING CU P METHOD ON ITS TRANSACTIONS. AFTER MAKING ANALYSIS OF SUCH DETAIL S AND FOLLOWING THE ORDERS OF EARLIER YEARS, WE HAVE UPHELD THE ORDER OF THE LD.C IT(A) AND THE FINDING RECORDED BY US IN THE ASSESSMENT YEAR 2005-06 IN AS SESSEES OWN CASE ON THIS ISSUE READS AS UNDER: ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 11 9. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD. THE LD.TPO HAS NOT POINTED OUT DEFECTS IN TNMM APPLIED BY THE ASSESSEE FOR DEMONSTRATING ALP OF ITS INTERNATIONAL TRANSACTIONS. WITHOUT ANY REASONS, HE SIMPLY CHANGED METHOD AND H ELD THAT CUP METHOD IS MORE APPROPRIATE METHOD FOR DETERMINING A LP OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS A ES. WE FIND THAT IN THE ASSTT.YEARS 2003-04 AND 2004-05, THE TRIBUNAL H AS ACCEPTED THAT TNMM IS THE MOST APPROPRIATE METHOD FOR DETERMINING ALP OF ASSESSEES TRANSACTIONS WITH ITS AE. IN THE PRESENT ASSESSMEN T YEAR, THE ASSESSEE HAS COMPILED THE DETAILS IN TABULAR FORM SUBMITTING AS TO WHY CUP IS NOT APPROPRIATE METHOD. SUCH DETAILS HAVE BEEN REPRODU CED BY THE LD.CIT(A) AND THEY READ AS UNDER: SR. NO. PRODUCT ALP ADJUSTMENT IN RS. REASONS WHY COMPARISON IS NOT PROPER 1 AMMONIUM TRIBUTYLE AMMONIUM CHLORIDE 10,70,529/- THE APPELLANT HAS SOLD 9,800 KGS AT AVERAGE RATE OF RS.144.51 TO DISHMAN USA AE. THE LD. TPO HAS COMPILED THE IDENTICAL PRODUCTS SOLD TO VARIOUS CUSTOMERS IN RESPECTIVE COUNTRIES AND HAS ADOPTED THEIR AVERAGE RATE OF RS.253.47. DETAILS OF WHICH GIVEN ON PAGE NO. OF PAPER BOOK. REASONS FOR NON-COMPARABLE ARE AS UNDER : (A) FUNCTION PERFORMED, RISK ASSUMED AND ASSETS EMPLOYED I.E FAR FACTORS ARE NOT TAKEN INTO CONSIDERATION WHILE COMPARING PRICES CHARGED TO AE WITH NON-AE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO SO FAR AS QUANTITY IS CONCERNED ARE AT ALL NOT COMPARABLE, EXCEPT ONE, AS THE APPELLANT HAS SOLD USE QUANTITY OF 9800 KGS, WHEREAS COMPARABLE QUANTITY IS RANGING FROM 22 KGS TO 1950 KGS. THE ONLY COMPARABLE INSTANCE COULD BE IMPUGNED PRODUCT SOLD TO DDC FINE CHEMICALS N.V. SITUATED ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 12 AT BELGIUM QUANTITY IS 10,000 KGS IS AT AVERAGE RATE OF RS. 200.97. HOWEVER, THIS IS ALSO NOT COMPARABLE FOR THE REASON OF GEOGRAPHICAL FACTOR AND FUNCTION PERFORMED, EMPLOYMENT OF ASSETS AND RISK ASSUMPTION BY AE. HENCE, THIS IS ALSO NOT COMPARABLE INSTANCE. (C) GEOGRAPHICAL FACTOR :NON AES ARE SITUATED AT DIFFERENT GEOGRAPHICAL AREA AND THEREFORE ALSO THEY ARE NOT COMPARABLE. BECAUSE OF THE DIFFERENT GEOGRAPHICAL LOCATIONS EVEN THE POLITIC RISKS ALSO VARY SO ALSO THE CURRENCY FLUCTUATION RISK. (D) REGULARITY OF TRANSACTION : THE APPELLANT SUBMITS THAT EVEN WHEN INTERNAL COMPARISON IS APPLIED, WHAT CAN BE COMPARED FOR THE PURPOSE OF DETERMINING THE ALP ARE THE REGULAR TRANSACTIONS AND NOT THE SOLITARY OR ISOLATED TRANSACTION WITH ANY OTHER THIRD NON-EE PARTY. TRANSACTION CAN EITHER THE ARENA OF COMPARISON ONLY IF ITS A TRANSACTION WHICH IS A REGULAR TRANSACTION. IN THE FACTS OF THE PRESENT CASE, TRANSACTION SELECTED BY LD. TPO ARE SUCH ISOLATED OR SOLITARY TRANSACTIONS AND THEREFORE THE VERY COMPARISON IS ERRONEOUS OR MISCONCEIVED. 2 & 3 CETRIMIDE BP 98,250 AND 92,800 NO COMMENTS FOR THE SMALLNESS OF AMOUNT. 4 PHENYLETRIMETHYLE AMMONIUM CHLORIDE 5,87,523/- THE APPELLANT WOULD LIKE TO POINT OUT THAT THERE IS A MISTAKE ON THE PART OF LD. TPO IN TAKING AVERAGE ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 13 PRICE AT RS. 299.27 INSTEAD OF RS. 246.10. SUMMARISED TABLE OF QUANTITY SOLD TO NON AES AND AVERAGE PRICE THEREOF IS GIVEN HEREUNDER FOR READY REFERENCE TO CLARIFY THE ISSUE: COUNTRY QTY. AVG. RATE ARGENTINA 600 535.67 AUSTRALIA 11558 272.49 BELGIUM 81000 242.42 IRAN 16000 228.63 JAPAN 1600 303.52 TAIWAN 24 459.30 UK 5 694.35 TOTAL 110787 246.10 AE EUROPE 11,100 246.34 FROM THE ABOVE GIVEN TABLE, IT IS VERY MUCH CLEAR THAT THE APPELLANT HAS CHARGED PRICE AT RS. 246.34 TO THE AE THAN THE AVERAGE PRICE CHARGED AT RS. 246.10 TO NON-AE. HENCE, THERE IS NO QUESTION OF MAKING TRANSFER PRICING ADJUSTMENTS. 5 PHENYLETRIMETHYLE AMMONIUM CHLORIDE 5,48,053/- THE APPELLANT WOULD LIKE TO POINT OUT THAT THERE IS A MISTAKE ON PART OF LD. TPO IN TAKING AVERAGE PRICE AT RS. 299.27 INSTEAD OF RS. 246.10. SUMMARISE TABLE OF QUANTITY SOLD TO NON-AES AND AVERAGE PRICE THEREOF IS GIVEN HEREUNDER FOR READY REFERENCE TO CLARIFY THE ISSUE : COUNTRY QTY. AVG. RATE ARGENTINA 600 535.67 AUSTRALIA 11558 272.49 BELGIUM 81000 242.42 IRAN 16000 228.63 ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 14 JAPAN 1600 303.52 TAIWAN 24 459.30 UK 5 694.35 TOTAL 110787 246.10 AE USA 8280 233.08 IN THE GIVEN CASE, THE APPELLANT HAS CHARGED AVERAGE PRICE RS.233.08 TO AE WHEREAS AVERAGE PRICE TO NON-AE WORK OUT TO BE TO RS. 246.10 WHICH IS CERTAINLY WITHIN LIMIT OF 5% AND THEREFORE AS PER 2 ND PROVISO S. 92C(2)OF THE ACT NO TRANSFER PRICING ADJUSTMENT IS REQUIRED TO BE MADE. WITHOUT PREJUDICE TO ABOVE, THE APPELLANT SUBMITS THAT IN ANY CASE THE INSTANCES ARE NOT COMPARABLE AT ALL DUE TO QUANTITY AND GEOGRAPHICAL FACTORS 6 SODIUM PICOSUMLPHAT 78,713/- NO COMMENTS FOR THE SMALLNESS OF AMOUNT. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 15 7 TETRABUTYL AMMONIUM BROMIDE 31,81,642/- (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES IS TAKEN BY THE LD. TPO IS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE ISREAL 28800 215.82 JAPAN 4300 280.63 KOREA 3500 433.95 NETHERLAND 1000 810.60 USA 10200 240.67 TOTAL 47800 255.36 AE- EUROPE 49054 190.50 ALL FIVE INSTANCES ARE NOT COMPARABLE AS THERE IS HUGE DIFFERENCE IN QUANTITY OF THE PRODUCT SOLD TO AE AND NON-AE. EVEN IF THE NEAR QUANTITY I.E 20,800 TAKEN INTO CONSIDERATION THEN ALSO AVERAGE RATE IS RS. 215.82, WHICH IS ALSO FOR THE REQUIRED TO BE DISCOUNTED CONSIDERING THE QUANTITY FACTOR I.E 28,800 KGS TO NON-AE AGAINST 49,054 KGS. TO AE AS WELL AS GRAPHICAL FACTORS AND CERTAINLY FAR. (C) GEOGRAPHICAL FACTORS : AS ABOVE. (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 8 TETRA BUTYLE AMMONIUM BROMIDE 1,05,040/- FOR THE SMALLNESS OF AMOUNT IT IS NOT CONSIDERED. 9 TETRA BUTYLE AMMONIUM BROMIDE 55,21,061/ (A) FUNCTION PERFORMED, RISK ASSUMED AND ASSETS EMPLOYED I.E FAR FACTORS ARE NOT TAKEN INTO CONSIDERATION WHILE ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 16 COMPARING PRICES CHARGED TO AE WITH NON-AE. DETAILED FAR ANALYSIS IS GIVEN BELOW TABLE. (B) QUANTITY FACTORS . THE INSTANCES TAKEN BY THE LD. TPO IS SUMMARISED AS UNDER. COUNTRY QTY. AVG. RATE ISREAL 16900 234.02 JAPAN 7040 251.84 KOREA 2000 435.60 TOTAL 25,940 254.40 AE- EUROPE 1,04,625 201.63 ALL THREE INSTANCES ARE NOT COMPARABLE AS THERE IS HUGE DIFFERENCES IN QUANTITY OF THE PRODUCT SOLD TO AE AND NON-AE. EVEN IF THE NEAR QUANTITY I.E.16,900 TAKEN INTO CONSIDERATION THAT ALSO AVERAGE RATE IS RS. 234.02, WHICH IS ALSO FOR THE REQUIRED TO BE DISCOUNTED CONSIDERING QUANTITY FACTOR I.E.16,900KGS. TO NON-AE AGAINST 1,04,625 KGS. TOAE AS WELL AS GEOGRAPHICAL FACTORS AND CERTAINLY FAR FACTORS. (C) GEOGRAPHICAL FACTORS. NON- AES ARESITUATEAT DIFFERENT GEOGRAPHICAL AREA AND THEREFORE ALSO THEY ARE NOT COMPARABLE. (D) REGULARITY OF TRANSACTION : AS ABOVE (1). ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 17 10 TETRA BUTYLE AMMONIUM FLUORIDE THIHYDERATE 6,63,789/- (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : ONLY ONE INSTANCE HAS BEEN TAKEN INTO CONSIDERATION BY THE LD. TPO I.E ONLY 10 KGS SOLD TO CUSTOMER IN BRAZIL, WHEREAS THE APPELLANT HAS SOLD 400 KGS. TO AE. CERTAINLY THIS INSTANCE IS NOT COMPARABLE LOOKING INTO HUGE DIFFERENCE IN QUANTITY AS WELL AS ONLY ONE TRANSACTION HAS BEEN ENTERED INTO BY THE APPELLANT WITH SUCH NON AE. (C) GEOGRAPHICAL FACTORS : AS (1) ABOVE. (D) REGULARITY OF TRANSACTION : AS (1) ABOVE. 11 TETRA BUTYLE AMMONIUM HYDROGEN SULPHATE 47,18,827 (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE GERMANY 500 663.84 JAPAN 600 630.00 NETHERLAND 1000 762.65 USA 100 962.50 TOTAL 2,200 713.10 AE- EUROPE 17306 440.43 ALL THREE INSTANCES ARE NOT COMPARABLE AS THERE IS HUGE DIFFERENCE IN QUANTITY OF THE PRODUCT SOLD TO AE AND NON-AES. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 12 TETRA BUTYLE AMMONIUM 24,931 FOR THE SMALLNESS OF AMOUNT IT IS NOT CONSIDERED. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 18 HYDROGEN SULPHATE 13 TETRA ETHYLE AMMONIUM BROMIDE 1,35,57,000/- (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE BRAZIL 63 608.86 JAPAN 100 650.70 MALAYSIA 25 437.80 USA 3000 252.02 TOTAL 3,188 273.04 AE- EUROPE 1,50,000 182.66 ALL FOUR INSTANCES ARE NOT COMPARABLE IS THERE IS HUGE DIFFERENCE IN QUANTITY OF THE PRODUCT SOLD AE AND NON-AES. EVEN IF NEARER QUANTITY IS TAKEN INTO CONSIDERATION I.E 3000 AT AVERAGE RATE OFRS. 252.02, THEN ALSO IT IS FOR THE REQUIRED TO BE DISCOUNTED CONSIDERING HUGE DIFFERENCE OF QUANTITY SOLD TO NON AE AND AE I.E 3000 KGS. TO NON- AE AGAINST 1,50,000, AS WELL AS GEOGRAPHICAL FACTORS AND FAR ANALYSIS. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 14 TETRA ETHYLE AMMONIUM BROMIDE 1,05,475/- FOR THE SMALLNESS OF AMOUNT IT IS NOT CONSIDERED. 15 LIDOCAIN 3,22,720/- (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 19 CHINA 1000 594.68 800 701.24 KOREA 200 688.51 THAILAND 25 657.28 TOTAL 2025 646.81 AE- EUROPE 4000 566.13 ALL FOUR INSTANCES ARE NOT COMPARABLE IS THERE IS HUGE DIFFERENCE IN QUANTITY OF THE PRODUCT SOLD AE AND NON-AES. EVEN IF NEARER QUANTITY IS TAKEN INTO CONSIDERATION I.E 1000 AT AVERAGE RATE OF RS. 594.68, THEN ALSO IT IS FOR THE REQUIRED TO BE DISCOUNTED CONSIDERING HUGE DIFFERENCE OF QUANTITY SOLD TO NON AE AND AE I.E 1000 KGS. TO NON- AE AGAINST 4,000 TO AE, AS WELL AS GEOGRAPHICAL FACTORS AND FAR ANALYSIS. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 16 TETRA BUTYLEAMM. HY. 13,69,800 (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE GERMANY 500 743.52 JAPAN 300 635.04 NETHERLAND 2000 766.50 TOTAL 2800 748.31 AE- EUROPE 3000 291.71 THE APPELLANT HAS ENTERED INTO ONLY ONE TRANSACTION WITH ABOVE MENTIONED NON-AE AND THEREFORE THEY CAN NEVER BE COMPARED WITH THE PRICE CHARGED AND IN ANY CASE ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 20 THERE DUE TO QUANTITY, GEOGRAPHICAL DIFFERENCE, COMPARISON CANNOT MAKE TRANSFER PRICING ADJUSTMENTS. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 17 TETRA BUTYLEAMM. HY. 3,53,418 (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE GERMANY 500 743.52 JAPAN 300 635.04 NETHERLAND 2000 766.50 TOTAL 2800 748.31 AE- USA 1300 291.71 THE APPELLANT HAS ENTERED INTO ONLY ONE TRANSACTION WITH ABOVE MENTIONED NON-AE AND THEREFORE THEY CAN NEVER BE COMPARED WITH THE PRICE CHARGED AND IN ANY CASE THERE DUE TO QUANTITY, GEOGRAPHICAL DIFFERENCE, COMPARISON CANNOT MAKE TRANSFER PRICING ADJUSTMENTS. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 18 MYRISTYL DBA CHLORIDE POWDER 59,71,613 (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : ONLY ONE INSTANCE HAS BEEN TAKEN INTO CONSIDERATION BY THE LD. TPO I.E ONLY 25 KGS SOLD TO CUSTOMER IN EGYPT, WHEREAS THE APPELLANT HAS SOLD 24,494.40 KGS. TO AE. CERTAINLY THIS INSTANCE IS NOT COMPARABLE LOOKING INTO HUGE DIFFERENCE IN QUANTITY AS WELL AS ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 21 ONLY SINGLE TRANSACTION HAS BEEN ENTERED INTO BY THE APPELLANT WITH SUCH NON AE. (C) GEOGRAPHICAL FACTORS : AS (1) ABOVE. (D) REGULARITY OF TRANSACTION : AS (1) ABOVE. UPWARD ADJUSTMENT OF RS.4,68,04,255/- IN RESPECT OF CONTRACT RESEARCH RECEIPTS : AT THE OUTSET THE APPELLANT MOST RESPECTFULLY SUBMI TS THAT IN RESPECT OF UPWARD ADJUSTMENT IN WITH REGARDS TO TRANSACTION IN THE N ATURE OF CONTRACT RESEARCH RECEIPT FROM DISHMAN USA INC IS AMOUNTING TO RS.2,96,26,763 /- IS CONCERNED, THE SAME IS NOT AT ALL TENABLE AS THE TOTAL CONTACTS RESEARCH R ECEIPT WITH THE SAID ENTITY IS ONLY IN THE SUM OF RS. 87,38,550/-. THE FOLLOWING TABLE WOU LD CLARIFY THIS ASPECT : NATURE OF TRANSACTIONS AMOUNT IN RS. TRANSACTIONS WITH DISHMAN USA INC. IN RESPECT OF SALES OF GOODS (REF. PAGE ___ OF P/B) 23,00,00,469/- TRANSACTIONS WITH DISHMAN USA INC. IN RESPECT OF SALES OF SERVICES (CONTRACT RESEARCH RECEIPTS) (REF. PAGE ___ OF P/B) 87,38,550/- RATE DIFFERENCE 23,87,897/- TOTAL TRANSACTIONS WITH DISHMAN USA INC. IN RESPECT OF SALES OF GOODS AND SERVICES 24,11,26,916/- THE APPELLANT SUBMITS THAT WHEN THE TOTAL TRANSACT IONS IN THE RESPECT OF CONTRACT RESEARCH ARE TO THE TUNE OF RS. 87.38 LACS, THE QUE STION OF MAKING ADJUSTMENT BEYOND THIS GROSS FIGURE OF RECEIPT CANNOT RISE AND NO ADJUSTMENT IN THIS SUM OF RS.296.26 LAKHS CAN BE MADE. THE APPELLANT SUBMITS THAT LD. TPO HAS ALREADY MADE ADJUSTMENTS IN RESPECT OF TRANSACTION OF SALES OF G OODS BY APPLYING THE CUP METHOD AND THE SAME HAS BEEN THE SUBJECT MATTER OF CHALLEN GE IN THE EARLIER GROUNDS. HAVING DONE THAT, IT IS NOT OPEN TO LD. TPO TO ONCE AGAIN APPLY THE GROSS MARK UP METHOD AND MAKE ONE MORE ADDITION ON THIS SAME SET OF SALES WITH THE SAME AE.IF THE TPO HAS CHOSEN A PARTICULAR METHOD FOR DETERMIN ING ALP, THE SAME HAS TO BE APPLIED UNIFORMLY TO ALL THE TRANSACTIONS. IT IS TH EN NOT OPEN TO THE TPO TO SAY THAT IF A PARTICULAR TRANSACTION IS AT ALP IN THE FIRST CHOSEN METHOD THE SAME HAS TO BE REALIGNED AND READJUSTED BY APPLYING A DIFFERENT ME THOD FOR DETER MINING ALP. ONCE THE TRANSACTION IS AT ALP UNDER A PARTICULAR M ETHOD THE SAID TRANSACTION HAS TO BE ACCEPTED AS A TRANSACTION ENTERED INTO AT ALP AND THE SAME CANNOT BE DISTURBED THEREAFTER BY APPLYING A DIFFERENT METHOD FOR DETERMINING THE ALP. 10. IN THE WRITTEN SUBMISSIONS, THE LD.TPO HAS REIT ERATED OBSERVATION MADE IN THE ORDER PASSED UNDER SECTION 92CA DATED 2 1.10.2008. APART FROM THE OBSERVATION OF THE TPO, IT HAS BEEN CONTEN DED IN THE WRITTEN SUBMISSIONS THAT THE ASSESSEE HAS CARRIED OUT COMPA RABILITY UNDER TNMM AT ENTITY LEVEL AND NOT AT TRANSACTIONAL LEVEL . HE CONTENDED THAT THE ASSESSEE HAS USED TNMM ON ENTITY BASIS FOR COMP UTATION OF ALP FOR ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 22 ITS SALES TO ITS SUBSIDIARIES. ACCORDING TO THE LD .DR, THE ASSESSEE OUGHT TO HAVE ADOPTED NET TRANSACTIONAL METHOD INSTEAD OF PROFIT MARGIN OF ENTERPRISE AS A WHOLE. A REFERENCE TO THE ORDER OF THE ITAT MUMBAI IN THE CASE OF UCB INDIA P.LTD. VS. ACIT, 121 ITD 13 1 (MUMBAI) HAS BEEN MADE. 11. WE HAVE GONE THROUGH THESE SUBMISSIONS AS WELL AS FINDING OF THE LD.CIT(A). IT IS PERTINENT TO OBSERVE THAT THE LD. TPO IN THE ORDER DATED 21.10.2008 HAS NOT MADE ANY SUCH ANALYSIS. HE HAS NOT POINTED OUT THE ALLEGED DEFECT AS CONTENDED IN THE WRITTEN SUBM ISSIONS. THE ANALOGY ADOPTED BY THE TPO IN THE ORDER PASSED UNDE R SECTION 92CA IS THAT CUP METHOD IS FAR BETTER METHOD THAN TNMM. H OW, TNMM IS NOT APPLICABLE ON THE GIVEN SET OF FACTS HAS NOWHERE BE EN DISCUSSED BY THE TPO IN THE IMPUGNED ORDER. THEREFORE, THE LD.DR CA NNOT IMPROVE THE CASE OF THE TPO AT THIS LEVEL. MORE SO WHEN, CONSI STENTLY FROM THE ASSTT.YEAR 2002-03, IT HAS BEEN HELD THAT METHOD AD OPTED BY THE ASSESSEE IS AN APPROPRIATE METHOD. IN THE ASSESSEE S OWN CASE, THIS ASPECT HAS BEEN ACCEPTED UPTO THE LEVEL OF ITAT. T HERE IS NO JUSTIFICATION FOR DISTURBING OF THAT METHOD BY TAKI NG DIFFERENT OPINION FROM ORDER OF THE ITAT PASSED IN SIMILAR FACTS OF T HE SAME ASSESSEES. TAKING INTO CONSIDERATION EARLIER ORDERS OF ITAT PA SSED IN ASSESSEES CASE FOR THE ASSTT.YEAR 2002-03 TO 2004-05, WE ARE OF THE OPINION THAT THE LD.CIT(A) HAS BASED HIS FINDING ON THE ORDERS O F PREDECESSOR. THERE IS NO INDEPENDENT DISCUSSION IN THIS ORDER. THUS, THE FINDINGS HAVE BEEN UPHELD BY THE ITAT, AND THEREFORE, WE DO NOT SEE AN Y REASONS TO DEVIATE OURSELVES FROM THOSE FINDING. RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL IN EARLIER YEARS, WE DO NOT FIND AN Y MERIT IN THIS GROUND OF APPEAL RAISED BY THE REVENUE. ACCORDINGLY, FIRS T GROUND OF APPEAL IS REJECTED. 9. THERE IS NO DISPARITY ON FACTS FROM THOSE YEARS TO THESE YEARS. THE LIST OF PRODUCTS ON WHICH ADJUSTMENTS HAVE BEEN MADE BY THE LD.TPO ARE AVAILABLE IN PARA 7.3 OF THE TPO ORDER WHICH HAS BEEN REPROD UCED BY THE LD.CIT(A) ON PAGE NO.4 AND 5 OF THE IMPUGNED ORDER IN THE ASSESS MENT YEAR 2007-08. IN OTHER WORDS, ALMOST ALL THE PRODUCTS WHICH HAVE BEE N NOTICED IN THE ASSESSMENT YEAR 2005-06 HAVE BEEN SOLD IN THESE YEA RS TO DIFFERENT AES IN DIFFERENT GEOGRAPHICAL LOCATIONS. IF ON SALE OF TH ESE PRODUCTS CUP METHOD WAS NOT UPHELD IN EARLIER YEARS, THEN WE DO NOT SEE ANY REASONS TO APPLY THAT VERY METHOD IN THIS YEAR AS WELL. THEREFORE, RESPECTFUL LY FOLLOWING THE ORDERS OF THE ITAT IN THE ASSESSMENT YEAR 2003-04 TO 2006-07 ON T HIS ISSUE, WE DO NOT FIND ANY ERROR IN THE FINDING OF THE LD.CIT(A). THE BEN CHMARKING ON SALE PRICE OF VARIOUS PRODUCTS TO AES IS TO BE TESTED BY FOLLOWIN G TNM METHOD AND IF THAT METHOD IS BEING FOLLOWED THEN, IT WOULD REVEAL THAT THE ASSESSEE HAS RIGHTLY JUSTIFIED ITS TRANSACTIONS AT ARMS LENGTH, BECAUSE THE MARGIN SHOWN BY IT ARE ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 23 HIGHER THAN THE AVERAGE MARGIN SHOWN BY THE COMPARA BLE ENTITIES, AND THEREFORE NO ADJUSTMENT CAN BE MADE. THE LD.CIT(A) HAS RIGHTLY DELETED SUCH ADJUSTMENT IN THIS YEAR, AND THE ORDER OF THE LD.CI T(A) IS UPHELD QUA FIRST ISSUE. 10. NEXT COMMON ITEM IN ALL THESE THREE YEARS IS AD JUSTMENT RECOMMENDED IN ALP OF INTEREST RATE REQUIRED TO BE CHARGED BY T HE ASSESSEE FROM ITS AE ON THE LOANS GIVEN BY IT. 11. BRIEF FACTS OF THE CASE ARE THAT IN THE ASSESSM ENT YEAR 2007-08, HE ASSESSEE HAS EXTENDED FOREIGN CURRENCY LOAN AMOUNTI NG TO RS.24,50,70,500/- TO DISHMAN EUROPE LTD., AND RS.5,36,70,000/- TO DIS HMAN PHARMA SOLUTION AG. THE ASSESSEE HAS CHARGED TOTAL INTEREST OF RS. 40,93,995/- AT THE RATE OF LIBOR PLUS 1%. THE LD.TPO HAS OBSERVED THAT ONE OF THE AES. BORROWED FUNDS FROM EUROPEAN BANK AT THE RATE OF EURIBOR PLUS 3.75 %. THE LD.TPO CONFRONTED THE ASSESSEE AS TO WHY THIS RATE BE NOT TAKEN FOR BENCHMARKING RATE OF INTEREST REQUIRED TO BE CHARGED BY THE ASSE SSEE. IN RESPONSE TO THE QUERY OF THE AO, IT WAS CONTENDED BY THE ASSESSEE T HAT LOAN HAD BEEN GRANTED TO THE AE IN ORDER TO CREATE INFRASTRUCTURE FACILIT IES FOR THE SMOOTH OPERATION OF THE AE AND THIS IS NEEDED TO SUSTAIN, SURVIVE AND G ROW IN MOST COMPETITIVE MARKET. THE ASSESSEE FURTHER SUBMITTED THAT BASIS OF CHARGING OF INTEREST WAS COST OF FUNDS TO THE ASSESSEE, AS IT HAD RAISED THE FUNDS BY ISSUING FCCB AT NOMINAL COST 0.5% TO 1%. IT HAS ALSO STATED THAT I N ANY CASE THE ASSESSEE HAS CHARGED INTEREST AT THE RATE OF LIBOR PLUS 1%, WHICH IS ACCORDING TO THE MARKET CONDITIONS. THE LD.TPO REJECTED THE CONTENT IONS OF THE ASSESSEE AND OBSERVED THAT IT WAS NOT GRANTED FOR CREATING INFRA STRUCTURE FACILITIES. ACCORDING TO THE LD.TPO ONE OF THE AES. HAD BORROWE D MONEY FROM EUROPEAN MARKET AT THE RATE OF EURIBOR PLUS 3.75% WHICH COUL D BE APPLIED ON THE LOANS GRANTED TO ITS AE. ACCORDINGLY THE LD.TPO HAS MADE ADJUSTMENT OF RS.87,19,932/- IN THE ASSESSMENT YEAR 2007-08. ON SAME PRINCIPLE, ADJUSTMENTS HAVE BEEN RECOMMENDED IN THE SUBSEQUENT TWO YEARS. THE LD.CIT(A) HAS APPRECIATED THE CONTROVERSY BUT CONCU RRED BY THE LD.TPO. FURTHER, THE LD.CIT(A) HAS ACCEPTED ALTERNATIVE CON TENTIONS OF THE ASSESSEE. A CREDIT OF RS.40,93,995/- CHARGED BY THE ASSESSEE AS INTEREST IN THE ASSESSMENT YEAR 2007-08 HAS BEEN GIVEN AGAINST THE ADJUSTMENT ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 24 RECOMMENDED BY THE LD.TPO. ON SIMILAR LINES, INTER EST WHICH HAS BEEN CHARGED BY THE ASSESSEE FROM ITS AE HAS BEEN ALLOWE D AS SET OFF AGAINST ULTIMATE INTEREST COMPUTED BY THE TPO BY ADOPTING T HE RATE OF EURIBOR PLUS 3.75%. 12. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE RECORD CAREFULLY. IT IS PERTINENT TO OBSERVE THAT THE ASSESSEE WAS HA VING CASH CREDIT ACCOUNT IN DOLLAR DENOMINATION WITH ICICI BANK, SINGAPORE BRAN CH AND BOI. IT HAS GIVEN A LOAN IN DOLLAR DENOMINATION FROM THESE ACCOUNTS T O ITS AE, DISHMAN EUROPE LTD. SIMILARLY, IT WAS HAVING CASH CREDIT ACCOUNT WITH CORPORATION BANK AND GIVEN LOAN FROM THESE ACCOUNTS TO DISHMAN PHARMA SO LUTION. THE ASSESSEE HAS GIVEN LOANS IN DOLLAR. THESE LOANS HAVE BEEN G IVEN FROM SINGAPORE BRANCH. THE QUESTION BEFORE US IS WHETHER THE INTE REST RATE CHARGED BY THE ASSESSEE AT LIBOR PLUS 1% IS AT MARKET RATE OR IT H AS GIVEN SOME UNDUE BENEFIT TO ITS AES AND THUS, ITS RATE COULD NOT BE CONSIDERED AS ARMS LENGTH PRICE. THE LD.TPO HAS NOT MADE MUCH DISCUSSION ON THIS ASPECT. HE HARBOURED A BELIEF THAT SINCE ONE OF THE AES. BORRO WED FUNDS FROM EUROPEAN BANK AND PAID HIGHER RATE OF INTEREST, THUS FUNDS G IVEN BY THE ASSESSEE SHOULD ALSO CARRY THAT VERY RATE OF INTEREST. IN OUR OPIN ION, THE LD.TPO FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE IS THE TESTED PARTY AND NOT THE AE. THE FACTUM OF BUSINESS REQUIREMENT IN A FOREIGN COUNTRY AT WHAT RATE OF INTEREST FUNDS ARE BEING BORROWED BY THE AE IS TOTALLY IRREL EVANT ASPECTS. THE QUESTION BEFORE THE TPO WAS AT WHAT RATE AN INDIAN CONCERN S HOULD PROVIDE LOANS IN DOLLAR DENOMINATION TO AN UNRELATED PARTY FROM INDI A. THE AE HAS OBTAINED LOANS FROM EUROPEAN MARKET, WHICH IS ALTOGETHER A D IFFERENT CURRENCY AND THE REQUIREMENT OF AE COULD BE DIFFERENT FOR THAT. THE RE MAY BE HIGHER RATE OF INTEREST PREVAILING FOR BORROWING FUNDS, BUT AT WHA T RATE THE LOAN COULD BE MADE FROM INDIA IN DOLLAR DENOMINATION ?. THE ASSE SSEE HAS POINTED OUT THAT LIBOR IS THE PREVAILING RATE AND IT HAS CHARGED LIB OR PLUS 1%. NO DEFECT HAS BEEN POINTED OUT IN THIS RATE. ONLY THING IS THAT ONE OF THE AES HAS OBTAINED LOAN FROM EUROPEAN MARKET, THEREFORE, THE LD.TPO HA S APPLIED THAT RATE. TO OUR MIND THIS ACTION OF THE LD.TPO COULD BE JUSTIFI ED IF HE HAS POINTED OUT THAT A TESTED PARTY IN INDIA HAS GRANTED LOAN TO ITS AE IN DOLLAR DENOMINATION AT A HIGHER RATE THAN THE LIBOR PLUS 1%. IT IS ALSO PER TINENT TO NOTE THE COST OF THE FUNDS TO THE ASSESSEE. THE ASSESSEE HAS CONTEN DED THAT IT HAS RAISED ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 25 FUNDS BY ISSUING OF FCCB AT NOMINAL COST 0.5% TO 1% AND IT HAS GIVEN THESE FUNDS TO ITS AE. THUS, THE ASSESSEE HAS DEMONSTRAT ED THAT THE RATE CHARGED BY IT WAS AT A MARKET RATE AND ITS TRANSACTIONS WER E AT ARMS LENGTH. NO ADJUSTMENT CAN BE MADE IN THE RATE OF INTEREST CHAR GED BY THE ASSESSEE FROM ITS AE ON PROVIDING LOANS IN DOLLAR DENOMINATION. WE ALLOW THE APPEAL OF THE ASSESSEE ON THIS ASPECT, AND DELETE ADJUSTMENT RECO MMENDED BY THE LD.TPO. 13. THE NEXT ITEM WHICH IS COMMON IN THESE YEARS RE LATES TO ADJUSTMENT RECOMMENDED BY THE AO ON THE GUARANTEE PROVIDED BY THE ASSESSEE. 14. BRIEF FACTS OF THE CASE IN THE ASSESSMENT YEAR 2007-08 ARE THAT THE ASSESSEE GIVEN CORPORATE GUARANTEE FOR DISHMAN EURO PE LTD. OF RS.541.01 LAKHS AND RS.2170.13 LAKHS. IT HAS FURTHER GIVEN G UARANTEE ON BEHALF OF ITS AE, M/S. DISHMAN PHARMA SOLUTION FOR A SUM OF RS.23 199.96 LAKHS. ACCORDING TO THE LD.TPO WHENEVER A GUARANTEE IS BEING EXTENDE D THEN THE BANK IN INDIA USED TO CHARGE GUARANTEE FEE AT 2% OF THE GUARANTEE D MONEY. SINCE THE ASSESSEE HAS NOT CHARGED ANYTHING FROM ITS GUARANTE E, THEREFORE, LD.TPO HAS RECOMMENDED AN UPWARD ADJUSTMENT OF RS.5,18,22,200/ - IN THE ASSESSMENT YEAR 2007-08 ON ACCOUNT OF GUARANTEE FEE. 15. DISSATISFIED WITH THE ADJUSTMENT ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE STAND OF THE ASSESSEE BE FORE THE LD.CIT(A) WAS THAT IT HAS NOT CHARGED ANY GUARANTEE FEES TO ITS AE. I T WAS ALSO CONTENDED THAT PROVIDING CORPORATE GUARANTEE TO THE AE IS NOT A IN TERNATIONAL TRANSACTIONS WITHIN THE PURVIEW OF TRANSFER PRICING PROVISIONS, AND THEREFORE, NO ADDITION CAN BE MADE IN RESPECT THEREOF, INASMUCH AS CORPORA TE GUARANTEE WAS GIVEN TO THE AE FOR SMOOTH FUNCTIONING OF THE BUSINESS OF THE ASSESSEE. ON THE STRENGTH OF ITAT, HYDERABAD BENCH ORDER PASSED IN I TA NO.1405/AHD/2010 IN THE CASE OF FOUR SOFT LTD. VS. DCIT, THE ASSESSEE H AS CONTENDED THAT FOLLOWING ASPECTS ARE REQUIRED IN ORDER TO IDENTIFY WHETHER T RANSACTIONS WITHIN THE AMBIT OF INTERNATIONAL TRANSACTIONS PROVIDED IN SECTION 9 2B OF THE INCOME TAX ACT. THE LD.CIT(A) HAS REPRODUCED THE SUBMISSIONS OF THE ASSESSEE. THE RELEVANT PART READS AS UNDER: 5.4 THE APPELLANT MOST RESPECTFULLY SUBMITS THA T TO INVOKE TRANSFER PRICING PROVISIONS IN THE HANDS OF THE ASS ESSEE, THREE ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 26 BASIC CONDITIONS ARE REQUIRED TO BE SATISFIED CUMUL ATIVELY, WHICH ARE AS UNDER: (A) INCOME ARISING FROM; (B) INTERNATIONAL TRANSACTION AND (C) ENTERED INTO WITH THE ASSOCIATE ENTERPRISE. 5.5 SO FAR AS CONDITION (C) IS CONCERNED, IF IS ADMITTED FACTS THAT THE DEL AND DPS ARE WHOLLY OWNED SUBSIDIARY COMPANI ES OF THE APPELLANT AND THEREFORE THEY ARE ASSOCIATE ENTERPRI SE OF THE APPELLANT AS PER THE PROVISIONS OF S.92A OF THE ACT . THE APPELLANT MOST RESPECTFULLY SUBMITS THAT PROVID ING BANK GUARANTEE IS ADMITTEDLY (A) NOT A PURCHASE OF PURCH ASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY; (B) NOT A PROVISION OF SERVICE AS THE APPELLANT IS NOT ENGAGED INFO BUSINE SS OF PROVIDING GUARANTEE; (C) NOT A LENDING OR BORROWING MONEY; (D ) NOT ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS, INCOME, LOSSES OR ASSETS OR (D) NOT AN ALLOCATION OR APPORTIONMENT OF ANY EXPENDITURE. HENCE, THE APPELLANT MOST RESPECTFULLY SUBMITS THAT CORPORATE GUARANTEE IS NOT COVERED BY ANY OF THE TR ANSACTIONS AS DEFINED U/S 92B OF THE ACT AND THEREFORE IT IS OUT OF THE PURVIEW OF THE TRANSFER PRICING PROVISIONS. ONCE, IF IS EST ABLISHED THAT PROVIDING CORPORATE GUARANTEE TO THE BANKS IS NOT A N INTERNATIONAL TRANSACTION, NO TRANSFER PRICING ADJUSTMENT CAN BE MADE IN RESPECT THERETO. RELIANCE IS PLACED ON THE DECISION OF THE HYDERABAD TRIBUNAL IN THE CASE OF FOUR SOFT LFD. VS . DCFF' BEARING ITA NO.L495/H/2010. COPY OF WHICH IS ENCLOSED ON PA GE NOS.207 TO 227 OF TP P/B. 5.6 NOW THE THIRD CONDITION (A) INCOME ARISING F ROM THE INTERNATIONAL TRANSACTION IS CONCERNED, THE APPELLA NT WITHOUT PREJUDICE TO ABOVE SUBMITS THAT EVEN IF IT IS PRESU MED THAT THE CORPORATE GUARANTEE IS AN INTERNATIONAL TRANSACTION , THEN ALSO, NO UPWARD ADJUSTMENT CAN BE MADE FOR THE REASON THAT T HERE IS NO INCOME ELEMENT EMBEDDED IN SUCH ALLEGED INTERNATION AL TRANSACTION. PROVISIONS OF S.92(1) IS VERY MUCH CLE AR THAT SUBJECT MATTER OF INTERNATIONAL TRANSACTION CAN BE COMPUTED WITH THE ALP ONLY IF THE INCOME IS ARISING FROM SUCH INTERNATION AL TRANSACTION. THE WORD 'INCOME ARISING FROM' MEANS THE INCOME SHO ULD ACTUALLY HAVE BEEN ARISEN FROM THE INTERNATIONAL TR ANSACTION. IN THE FACTS OF THE PRESENT CASE, SINCE MERELY PROVIDI NG GUARANTEE ADMITTEDLY DOES NOT INVOLVE ANY PROFIT ELEMENT THE VERY PROVISIONS OF SECTION 92 OF THE ACT, CANNOT BE INVO KED. EVEN THE BOARD CIRCULAR AS WELL AS MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BILL 2002, SUPPORT THIS CONTENTION. THE RELEVANT EXTRACT OF THE SAID CIRCULARS AND MEMORANDUM ARE REPRODUCED HEREINBELOW FOR READY REFERENCE: CIRCULAR NO. 14/200 7 : FINANCE ACT. 2001 - EXPLANA TORY NOTES ON PROVISIONS RELATING TO DIRECT TAXES - DATE: 22-17-2 00 7 ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 27 MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2002. PROVISIONS RELATING TO DIRECT TAXES - DATE: 28-02-2 002 CIRCULAR NO. 8/2002 - FINANCE ACT. 2002 - EXPLANATO RY NOTES ON PROVISIONS RELATING TO DIRECT TAXES. DATE: 27-08-20 02. 16. THE LD.CIT(A) HAS ACCEPTED THIS CONTENTION OF T HE ASSESSEE AND HELD THAT PROVIDING A CORPORATE GUARANTEE WAS NOT INTERN ATIONAL TRANSACTION, HENCE, NO ADJUSTMENT ON ACCOUNT OF GUARANTEE COMMISSION SH OULD BE MADE. HE DELETED THE ADDITION. SIMILAR ARGUMENTS HAVE BEEN ADVANCED IN THE ASSESSMENT YEAR 2008-09 AND 2009-10. BECAUSE THE F INDING OF THE LD.CIT(A) EXTRACTED (SUPRA) IN THE ASSESSMENT YEAR 2007-08 HA S BEEN FOLLOWED BY THE LD.REVENUE AUTHORITIES IN THE ASSESSMENT YEAR 2008- 09 AND 2009-10. 17. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. TE LD.COUNSEL FOR THE ASSESSEE R ELIED UPON THE ORDER OF THE ITAT, AHMEDABAD BENCH IN THE CASE OF MICRO INK LTD. VS. ACIT, 63 TAXMANN.COM 353 WHEREIN IT HAS BEEN HELD THAT CORPO RATE GUARANTEE GIVEN BY THE ASSESSEE ON BEHALF OF ITS SUBSIDIARY COMPANY IS THE NATURE OF QUASI-CAPITAL OR SHAREHOLDING ACTIVITY AND NOT IN THE NATURE OF PROVISION OF SERVICE, AND THEREFORE, SUCH TRANSACTIONS IS TO BE EXCLUDED FROM THE SCOPE OF INTERNATIONAL TRANSACTIONS UNDER SECTION 92B. 18. ON THE OTHER HAND, THE LD.DR RELIED UPON THE OR DER OF THE TPO. IT WAS FURTHER CONTENDED THAT THE BY FINANCE ACT, 2012 A R ETROSPECTIVE AMENDMENT HAS BEEN EFFECTED IN SECTION 92B WHEREIN CORPORATE GUARANTEE IS NOW INCLUDED IN THE DEFINITION OF INTERNATIONAL TRANSACTION. 19. ON DUE CONSIDERATION OF THE ABOVE FACTS AND CIR CUMSTANCES, WE ARE OF THE VIEW THAT CONSISTENTLY IT HAS BEEN HELD THAT PR OVIDING OF CORPORATE GUARANTEE DOES NOT FALL WITHIN THE AMBIT OF INTERNA TIONAL TRANSACTIONS. FOR BUTTRESSING OURSELVES, WE WOULD LIKE TO MAKE REFERE NCE TO THE FOLLOWING DECISIONS: I) SUZLON ENERGY LTD. VS. ACIT, 81 TAXMANN.COM 190; II) DR. REDDYS LABORATORIES LTD. ACIT, 81 TAXMANN.COM 398 (HYD); III) ABAN OFFSHORE LTD. DCIT,76 TAXMANN.COM 147 (CHENNAI -TRIB) IV) BARTRONICS INDIA LTD. VS. DCIT, 86 TAXMANN.COM 254 (HYD.TRIB.) ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 28 V) CADILA PHARMACEUTICALS LTD. VS. DCIT, 85 TAXMAN.COM 354 (AHD.- TRIB) 20. RESPECTFULLY FOLLOWING THE ORDERS OF THE ITAT A CROSS THE COUNTRY, WE DO NOT SEE ANY REASONS TO INTERFERE ORDER OF THE LD.CI T(A) ON THIS ISSUE. 21. IN THE ASSESSMENT YEAR 2007-08, THERE IS ONE MO RE ADJUSTMENT RECOMMENDED BY THE LD.TPO AND THAT ADJUSTMENT HAS B EEN UPHELD BY THE LD.CIT(A). ASSESSEE IS IN APPEAL. ACCORDING TO TH E TPO, THE ASSESSEE HAS PAID A SUM OF RS.28,46,489/- TO ITS AE. THE ASSESSEE CO NTENDED THAT IT IS REIMBURSEMENT OF THE EXPENDITURE TO THE AE ON THE I NSURANCE TAKEN BY THE AO FOR THE ENTIRE GROUP. THE LD.TPO MADE ADDITION OF THIS AMOUNT. ON APPEAL, THE LD.CIT(A) CONSIDERED IT AND HELD THAT AS PER IN SURANCE ACT, INDIAN COMPANIES CANNOT TAKE OR MAKE PAYMENT TO FOREIGN IN SURERS. SINCE THE ASSESSEE HAD MADE PAYMENT TO ITS AE, THE SAME WAS C LEARLY WITHIN THE PURVIEW OF TRANSFER PRICING REGULATIONS, BECAUSE IT COULD NOT EXPLAIN THE BUSINESS CONSIDERATION AND PURPOSE OF MAKING PAYMEN T ON ACCOUNT OF INSURANCE, AN EVEN IT COULD NOT TAKE ANY INSURANCE FROM FOREIGN INSURER. AFTER GOING THROUGH THE ORDER OF THE LD.CIT(A), WE DO NOT SEE ANY REASONS TO INTERFERENCE THE ORDER OF THE LD.CIT(A) ON THIS ISS UE. HENCE, GROUND NOS.4 AND 5 RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 200 7-08 ARE REJECTED. 22. GROUND NO.6 AND 7 (ASSTT.YEAR 2007-08), GROUND NOS.5 AND 6 (ASSTT.YEAR 2008-09) AND GROUND NOS.5 AND 6 (ASSTT. YEAR 2009-10): 23. ALL THESE GROUNDS OF APPEAL ARE INTER-CONNECTED WITH EACH OTHER. THE ISSUE INVOLVED IN THESE GROUNDS OF APPEAL IS WHETHE R PRIOR PERIOD EXPENDITURE CRYSTALISED DURING THIS YEAR COULD BE SET OFF AGAIN ST THE PRIOR PERIOD INCOME AND ONLY NET INCOME OR LOSS IS TO BE GIVEN EFFECT I N THE COMPUTATION OF INCOME. THE ISSUE HAS BEEN DISCUSSED BY THE LD.CIT(A) IN TH E ASSESSMENT YEAR 2007- 08 AND IN OTHER TWO YEARS, THE LD.CIT(A) HAS FOLLOW ED ORDERS OF THE LD.CIT(A). THE ASSESSEE HAD ACCOUNTED FOR INCOME OF RS.40,11,9 72/- PERTAINING TO PRIOR PERIOD IN THE ASSESSMENT YEAR 2007-08. IT HAS CLAI MED EXPENDITURE OF RS.47,34,697/- AND NET DIFFERENT AMOUNT OF RS.7,22, 725/- HAS BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 29 IN THE ASSESSMENT YEAR 2008-09, IT HAS RS.29,69,575 /- PRIOR PERIOD INCOME AND IT ADJUSTED PRIOR PERIOD EXPENDITURE OF RS.38,93,319/-. SIMILARLY, IN THE ASSESSMENT YEAR 2009-2010, THE ASSESSEE HAS INCOME OF RS.1,30,352/- AND CLAIMED EXPENDITURE OF RS.13,36,441/-. 24. THE CASE OF THE REVENUE IS THAT THE INCOME PERT AINING TO ANY PERIOD HAS TO BE ACCOUNTED FOR EITHER ON RECEIPT BASIS OR ACCR UAL BASIS. ONCE THE ASSESSEE HAS SHOWN INCOME, IT IS TO BE TAXED. BUT EXPENDITU RE COULD BE ALLOWED IF THE ASSESSEE IS ABLE TO DEMONSTRATE THAT SUCH EXPENDITU RE WAS INCURRED FOR EARNING OF SUCH INCOME. ACCORDING TO THE LD.REVENU E AUTHORITIES, THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT THIS EXPENDITURE WAS INCURRED FOR EARNING SUCH PRIOR PERIOD INCOME. ACCORDINGLY, THE LD.AO DID NO T ALLOW SET OFF EXPENDITURE AGAINST PRIOR PERIOD INCOME. 25. WITH THE ASSISTANCE OF LD.REPRESENTATIVES, WE H AVE GONE THROUGH THE RECORD CAREFULLY. IT IS PERTINENT TO NOTE THAT ALO NG WITH THIS APPEAL, WE HAVE HEARD APPEALS FOR THE ASSESSMENT YEAR 2005-06 AND 2 006-07. IN THE ASSESSMENT YEAR 2006-07, THE ASSESSEE HAS PRIOR PER IOD INCOME AT RS.46,50,648/- AND IT HAS DEBITED PRIOR PERIOD EXPE NDITURE OF RS.43,11,114/-. THE NET DIFFERENTIAL AMOUNT OF RS.3,39,534/- HAS BE EN CREDITED TO PROFIT & LOSS ACCOUNT AND OFFERED FOR TAXATION. THE AO DID NOT A LLOW SET OFF PRIOR PERIOD EXPENDITURE AND TAXED THE GROSS INCOME. THE ISSUE CAME UP BEFORE THE TRIBUNAL. WE HAVE UPHELD TAXABILITY OF NET DIFFERE NTIAL AMOUNT. THE TRIBUNAL OBSERVED THAT ONCE THE ASSESSEE HAS BEEN OFFERING I NCOME OF PRIOR PERIOD AS AN ENTITY, THEN ITS PRIOR PERIOD EXPENDITURE CANNOT BE DISALLOWED SIMPLY BY OBSERVING THAT IT IS NOT ASCERTAINABLE WHETHER THIS EXPENDITURE WERE INCURRED FOR EARNING A PARTICULAR RECEIPTS OFFERED UNDER THE HEAD PRIOR PERIOD INCOME. ACCORDING TO THE TRIBUNAL, IF AN ASSESSEE IS OFFERI NG PRIOR PERIOD INCOME, THEN THE EXPENDITURE WHICH WERE INCURRED UNDER DIFFERENT HEADS AND CRYSTALILISED IN THIS YEAR OUGHT TO BE SET OFF AGAINST HAT INCOME. CONSIDERING OUR FINDING IN THE ASSESSMENT YEAR 2006-07, WE PARTLY ALLOW ALL TH E GROUNDS AND DIRECT THE AO TO TAX ONLY NET DIFFERENTIAL AMOUNT. IN OTHER W ORDS, IN ANY PARTICULAR YEAR, IF THERE IS A NEGATIVE INCOME, THEN THAT AMOUNT IS TO BE DEBITED TO THE PROFIT & LOSS ACCOUNT. IN OTHER WORDS, SAY, IN THE ASSESSME NT YEAR 2007-08, THE ASSESSEE HAS INCOME OF RS.41,11,972/- AND EXPENDITU RE OF RS.47,34,697/-; ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 30 THERE IS A NEGATIVE AMOUNT OF RS.7,22,725/-. THIS NET AMOUNT IS TO BE ALLOWED AS EXPENDITURE TO THE ASSESSEE. ON SAME PRINCIPLE, THE INCOME OF THE ASSESSEE BE COMPUTED IN REST OF TWO YEARS. THUS, T HESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 26. GROUND NO.8 IN THE ASSESSMENT YEAR 2007-08: 27. IN THIS GROUND, THE ASSESSEE HAS PLEADED THAT T HE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF BUSINESS EXPENDITURE AMOUNTING TO RS.9,23,882/-. 28. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS MADE THE FOLLOWING DONATIONS: I) SURAT MUNICIPAL CORPORATION : RS.7,62,128/- II) SURAT DIAMOND ASSOCIATION : RS.1,01,618/- III) ISKON AHMEDABAD : RS.1,01,618/- IV) AHMEDABAD MUNICIPAL CORPN : RS. 16,939/- TOTAL RS.9,23,882/- 29. ORIGINALLY, IT CLAIMED DEDUCTION UNDER SECTION 80G OF THE INCOME TAX ACT BUT FAILED TO PRODUCE RELEVANT MATERIAL, THEREFORE, IT CLAIMED DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE LD.AO DID NOT ALLOW DEDUCTION TO THE ASSESSEE AND THE ORDER OF THE AO HAS BEEN CONFIRMED BY THE L D.CIT(A). 30. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD. THIS EXPENDITURE WAS INCURRED BY THE ASSESSEE IN OR DER TO PERFORM ITS CORPORATE SOCIAL RESPONSIBILITY. EXPENDITURE WAS G IVEN TO MUNICIPAL CORPORATION, SURAT AND AHMEDABAD AND SURAT DIAMOND ASSOCIATION. ACCORDING TO THE ASSESSEE THERE WERE HEAVY RAINS AN D REQUEST CAME FROM MUNICIPAL CORPORATION. IN ORDER TO FULFILL THE SOC IAL RESPONSIBILITY, IT HAS GIVEN THE AMOUNTS. ON DUE CONSIDERATION OF THE FACTS, WE ARE OF THE VIEW THAT THERE CANNOT BE ANY DOUBT ABOUT THE GENUINENESS OF THE PA YMENT. THE PAYMENT WAS MADE TO MUNICIPAL CORPORATION TOWARDS CORPORATE SOCIAL RESPONSIBILITY. THIS IS AN ESSENTIAL EXPENDITURE FOR KEEPING RELATI ONSHIP SMOOTH AND THE SOCIETY AT LARGE. THIS EXPENDITURE DESERVES TO BE ALLOWED TO THE ASSESSEE. THEREFORE, WE ALLOW THIS EXPENDITURE AND DELETE DIS ALLOWANCE. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 31 31. GROUND NO.9 (ASSESSMENT YEAR 2007-08), GROUND N OS.4 AND 5 (ASSESSMENT YEAR 2008-09) AND GROUND NO.3 (ASSESSME NT YEAR 2007-08 : DEPARTMENTS APPEAL). 32. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS DEBITED THE FOLLOWING EXPENDITURE IN THE ASSESSMENT YEAR 2007-08: A) LIBRARY BOOKS : RS.14,84,530/- B) CLUB MEMBERSHIP FEES : RS. 7,20,000/- C) R&D EXPENSES : RS. 2,20,003/- D) DEFERRED REVENUE EXPS. : RS. 7,55,689/- TOTAL RS.31,80,222/- 33. ACCORDING TO THE AO, THE ASSESSEE FAILED TO PRO DUCE ANY DETAIL WITH REGARD TO THIS EXPENDITURE, HENCE, HE DISALLOWED CL AIM OF THE ASSESSEE. SIMILAR CLAIM HAS BEEN MADE IN THE ASSESSMENT YEAR 2008-09, WHICH WAS ALSO DISMISSED. ON APPEAL, THE LD.CIT(A) RESTRICTED SUC H DISALLOWANCE AT RS.25 LAKHS AND DELETED THE REMAINING AMOUNT. THE ASSESS EE IS IMPUGNING THE CONFIRMATION OF DISALLOWANCE OF RS.25 LAKHS WHEREAS THE REVENUE IS IMPUGNING PART DELETION MADE BY THE LD.CIT(A). 34. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD. SUCH DISALLOWANCE HAS COME UP FOR CONSIDER ATION FOR THE ASSESSMENT YEAR 2005-06 AND 2006-07. THE AO MADE DISALLOWANCE OF RS.18,10,423/- IN THE ASSESSMENT YEAR 2006-07. ON APPEAL, THELD.CIT( A) CONFIRMED DISALLOWANCE AT RS.15 LAKHS AND DELETED BALANCE. W HILE CONSIDERING THIS ISSUE, WE HAVE OBSERVED THAT THE ASSESSEE FAILED TO GIVE A NY EVIDENCE DEMONSTRATING NATURE OF EXPENDITURE ETC. HOWEVER, CONSIDERING VO LUME OF EXPENDITURE AND PART DETAILS SUBMITTED BY THE ASSESSEE I.E. INCURRE D TOWARDS LIBRARY BOOKS, R&D, DEFERRED REVENUE EXPENSES ETC. WE HAVE CONFIRM ED THE EXPENDITURE ON ADHOC BASIS AT RS.10 LAKHS. THE LD.AO SHALL GIVE NECESS ARY EFFECT IN THESE YEARS ALSO. THIS WILL MEET ENDS OF JUSTICE. 35. GROUND NO.10 (ASSESSMENT YEAR 2007-08): IN THI S GROUND OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERR ED IN CONFIRMING ADDITION OF RS.10,52,773/-. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 32 36. BRIEF FACTS OF THE CASE THAT THE ASSESSEE HAS M ADE PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO RS.10,52,773/- ALLEGED TO BE OUT STANDING AGAINST THREE PARTIES VIZ. RANBAXY LABORATORIES LTD. RS.3,72,431/ -, PERFECT PROTENE RS.65,245/- AND DR.REDDYS LABORATORIES RS.6,15,097 /-. THE LD.AO DISALLOWED CLAIM OF THE ASSESSEE BY OBSERVING THAT PROVISION O F BAD AND DOUBTFUL DEBTS IS NOT ALLOWABLE. THE ASSESSEE OUGHT TO HAVE WRITTEN OFF THIS AMOUNT IN ITS BOOKS OF ACCOUNTS. BEFORE THE LD.CIT(A), THE ASSESSEE PU T RELIANCE UPON THE DECISION IN THE CASE OF VIJAY BANK VS. CIT REPORTED IN 190 T AXMAN 257 (SC). AFTER CONSIDERING THE CASE OF THE ASSESSEE, THE LD.CIT(A) HAS UPHELD DISALLOWANCE BY OBSERVING AS UNDER: 6.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSES SMENT ORDER AND APPELLANT'S SUBMISSION. APPELLANT CLAIMED PROVISION FOR BAD AND DOUBTFUL DEBTS AS ALLOWABLE DEDUCTION WHICH WAS REJECTED BY THE ASSESSING OFFICER SINCE SECTION 36 (1) (VII) DOES NOT ALLOW PROVISION S FOR BAD DEBTS. THE REPLY OF THE APPELLANT WAS QUOTED IN THE ASSESSMENT ORDER AND AS PER THAT APPELLANT CLEARLY STATED THAT ONLY PROVISION W AS CREATED IN THE CASES OF DOUBTFUL DEBTS. SINCE THE DEDUCTION IS SPECIFICA LLY EXCLUDED FOR THE PROVISION FOR BAD AND DOUBTFUL DEBTS BY AMENDMENT T O THIS SECTION, APPELLANT CANNOT CLAIM SUCH DEDUCTION. APPELLANT RE LIED UPON THE DECISION OF VIJAYA BANK FOR WHICH DIFFERENT PROVISI ONS ARE APPLICABLE. IN THE CASE OF BANK, THE DEDUCTION IS ALLOWABLE EVEN I N RESPECT OF PROVISIONS. WHEN STATUTE IS VERY CLEAR THAT PROVISI ON FOR BAD AND DOUBTFUL DEBTS ARE NOT ALLOWABLE AS DEDUCTION, THER E IS NO QUESTION OF ALLOWING SUCH CLAIM TO THE APPELLANT. ACCORDINGLY T HE DISALLOWANCE MADE BY THE AO IS CONFIRMED. 37. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT THE LD.CIT(A) HAS C ONSIDERED JUDGMENT OF THE HONBLE SUPREME COURT AND OBSERVED THAT IT IS DISTI NGUISHABLE ON FACTS. THE ASSESSEE HAS NOT ACTUALLY WRITTEN OFF DEBTS, AND TH EREFORE, ITS CLAIM CANNOT BE ALLOWED. THE LD.CIT(A) HAS RIGHTLY UPHELD THE DISA LLOWANCE. WE DO NOT FIND ANY ERROR IN THIS GROUND OF APPEAL, HENCE IT IS REJ ECTED. 38. GROUND NO.11 (ASSESSMENT YEAR 2007-08); GROUND NO.6 (ASSESSMENT YEAR 2008-09) AND GROUND NO.7 (ASSESSMENT YEAR 2009 -10). IN THESE GROUNDS OF APPEAL, THE ASSESSEE HAS PLEADED THAT TH E LD.REVENUE AUTHORITIES ERRED IN CONFIRMING DISALLOWANCE OF DEPRECIATION AM OUNTING TO RS.56,096/-, RS.2,27,399/- AND RS.8,502/- IN THE ASSESSMENT YEAR S 2007-08 TO 2009-10. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 33 THE LD.COUNSEL FOR THE ASSESSEE DID NOT PRESS THESE GROUNDS, HENCE, THEY ARE REJECTED. 39. IN THIS GROUND OF APPEAL, GRIEVANCE OF THE ASSE SSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF RS.86,77,00 0/-. 40. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS GIVEN LOANS TO ITS FOREIGN SUBSIDIARY AND MADE INVESTMENT ABROAD IN TH E FOREIGN CURRENCIES. IT HAS DEBITED A SUM OF RS.86,77,000/- ON ACCOUNT OF F LUCTUATIONS IN THE FOREIGN EXCHANGE RATE. THE LD.AO DID NOT ALLOW THIS CLAIM OF THE ASSESSEE. DISSATISFIED WITH THE ACTION OF THE AO, ASSESSEE CA RRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). ASSESSEE MADE FOLLOWING WRIT TEN SUBMISSIONS BEFORE THE LD.CIT(A): 'THE ASSESSEE HAS DEBITED AN AMOUNT OF * 86.77,0001 - AS FOREX RATE DIFFERENCE ON ADVANCES. THE ASSESSEE WAS ASKED TO E XPLAIN ALLOWABILITY OF THE SAME. THE ASSESSEE HAS FURNISHED ITS WRITTEN REPLY DATED 23/12/2010 AS UNDER- 'WE GIVE BELOW THE DETAILS OF THE ABOVE EXPENSES. 01/04/06 LOAN TO DISHMAN - DUBAI 1082800 01/04/06 SHANKAI CHEMICA L INDUSTRIES PARK 144000 01/04/06 CHINA PROJECT 14840 31/03/07 DISHMAN DUBAI 37400 31/03/07 DISHMAN PHARMA - SOLUTION AG LOAN 2977500 31/03/07 CHINA PROJECT 6820 31/03/07 LOON TO DISHMAN EUROPE LTD. 4413640 TOTAL 8677000 AS CON BE SEEN FROM THE ABOVE TABLE/ ALL THE ENTRIE S ARE IN RESPECT OF FOREIGN EXCHANGE LOSS ON TRANSLATION OF FOREIGN CUR RENCY ON ACCOUNT OF LOANS / INVESTMENTS. AS PER THE INDIAN COMPANY'S ACT WE-HAVE TO PREPARE OUR BOOKS OF ACCOUNT AS PROVIDED IN THE PROVISIONS OF THE-COMPAN Y'S ACT. THE COMPANY'S ACT ALSO MAKES IT MANDATORY FOR ALL THE C OMPANIES TO FOLLOW ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 34 THE ACCOUNTING STANDARDS PRESCRIBED BY THE INSTITUT E OF CHARTERED ACCOUNTANTS OF INDIA. AS PER ACCOUNTING STANDARD AS11 OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, EVERY COMPANY IS REQUIRED TO RESTATE ALL ITS FOREIGN EXCHANGE ASSET AND LIABILITIES INCLUDING LOANS AND ADVANCES GIVEN, TAKEN, RECEIVABLES, PAYABLES ETC; ARE REQUIRED TO B E STATED AT-THE EXCHANGE RATE PREVAILING AS ON THE DATE OF THE BALA NCE SHEET. THE GAIN OR LOSS ARISING ON TRANSLATION OF FOREIGN CURRENCY ASSETS AS ON THE DATE OF THE BALANCE SHEET ARE CHARGED TO REVENUE I.E. DEBIT ED OR CREDITED TO PROFIT AND LOSS ACCOUNT. THE ABOVE ENTRIES ARE THE ENTRIES-OF THE NATURE STA TED IN THE PARAGRAPHS ABOVE. WE HEREBY REQUEST YOU NOT TO DISALLOW THE SA ME AS THESE ARE THE EXPENSES WHOLLY AN EXCLUSIVELY INCURRED FOR THE PUR POSE OF BUSINESS, IT IS NOT OF THE PERSONAL OR CAPITAL NATURE. THE ENTRI ES HAVE TO BE PASSED IN ORDER TO SHOW THE TRUE AND FAIR VIEW OF THE RESULTS OF THE COMPANY AND THE ASSETS AND 'AT .THE OUTSET, THE APPELLANT SUBMITS THAT NOW THI S ISSUE IS COVERED BY THE SERIES- OF DECISIONS OF THE SUPREME COURT, WHIC H ARE RELIED UPON AND EXTRACT- OF WHICH IS REPRODUCED HEREUNDER FOR READY REFERENCE: OIL & NATURAL GAS CROP.LTD, VS. CIT322ITR 180 (SC) CIT VS. WOODWARD GOVERNOR INDIA IP.) LTD. 312 ITR 254 ISO IT IS MOST, RESPECTFULLY SUBMITTED THAT THE APPELLA NT HAS SATISFIED THE TEST LAID DOWN BY THE SUPREME COURT OF INDIA IN THE CASE OF WOODWARD (SUPRA), AND THEREFORE THE FOREIGN EXCHANGE LOSS IN CURRED DURING THE YEAR UNDER CONSIDERATION IS ALLOWABLE TO THE APPELL ANT. THE APPELLANT DEMONSTRATES HOW THE TEST LAID DOWN BY THE APEX COU RT IS SATISFIED: (D) WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BV TH E ASSESSEE IS MERCANTILE SYSTEM, WHICH BRINGS INTO DEBIT THE EXPE NDITURE AMOUNT FOR WHICH A LEGAL LIABILITY FIGS BEEN INCURRED BEFORE I T IS ACTUALLY DISBURSED AND BRINGS INTO: CREDIT WHAT IS DUE, IMMEDIATELY IT BECOMES DUE AND BEFORE IT IS ACTUALLY RECEIVED: ADMITTEDLY, THE1 APPELLANT IS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING AND THAT IS IN FACT NOT DENIED BY THE ID . AO. (E) WHETHER THE SAME SYSTEM IS FOLLOWED BY THE ASSE SSEE FROM THE VERY BEGINNING AND IF THERE WAS A CHANGE IN THE SYSTEM, WHETHER THE CHANGE WAS BONATIDE; AGAIN ADMITTEDLY, -FROM THE BEGINNING THE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THERE IS NOT CH ANGED IN IT. (F) WHETHER THE ASSESSEE HAS GIVEN THE SAME TREATME NT TO LOSSES CLAIMED TO HAVE ACCRUED AND TO THE GAINS THAT MAY A CCRUE TO IT; ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 35 YES. IN THE IMMEDIATE PRECEDING A.Y.2006-07, THE AP PELLANT HAS EARNED FOREIGN EXCHANGE GAIN AMOUNTING TO RS. 12,41,640/-( COMPRISING OF RS. 10,82,800/- + RS. 1,44,000/- + RS. 14,8401- )WHICH HAS BEEN OFFERED FOR TAXATION AS INCOME IN A.Y.2006-07. (PL. REFER C OPY OF GROUPING OF OTHER INCOME FOR A.Y.2006-07 ATTACHED HEREWITH ON P AGE NOS.67 TO 72 OF WRITTEN SUBMISSION). SIMILARLY, THE FOREIGN EXCH ANGE LOSS AMOUNTING TO RS.74,35,540/- (COMPRISING OF RS.37,400 + RS.29, 77,5001- + RS.6,820/- + RS.44, 13,640/-) CLAIMED ON 31/03/2007 HAS BEEN REVERSED ON 01/04/2007 AND THE SAME HAS BEEN OFFERE D FOR TAXATION IN THE NEXT YEAR A.Y.2008-09. (PI. REFER COPY OF GROUP ING OF OTHER INCOME FOR A.Y.0809 ATTACHED HEREWITH ON PAGE NOS.73 TO 75 OF WRITTEN SUBMISSION). IT IS ALSO TO BE POINTED OUT THAT THE SAID AMOUNT W AS REVERSED ON 01/04/2006, WHICH IS ALSO THE SUBJECT MATTER OF ADD ITION DURING THE YEAR UNDER CONSIDERATION. HENCE, THERE IS DOUBLE TAXATIO N, ONCE THE SAME HAS BEEN TAXED AS INCOME IN A.Y.2006-07 AND TWICE WHEN THE SAME HAS BEEN DISALLOWED DURING THE YEAR UNDER CONSIDERATION .' (G) WHETHER THE ASSESSEE HAS BEEN CONSISTENT AND DE FINITE IN MAKING ENTRIES IN THE ACCOUNT BOOKS IN RESPECT OF LOSSES A ND GAINS YES. AS IT IS DISCUSSED IN ABOVE POINT THE APPELLANT HAS DECLARED FOREIGN EXCHANGE GAIN IN A.Y.2006.-07, THE APPELLANT IS CONSISTENT A ND DEFINITE IN MAKING ENTRIES IN THE BOOKS IN RESPECT OF LOSSES AND GAINS AS THE CASE MAY BE. (H) WHETHER 'THE METHOD 'ADOPTED BY THE ASSESSEE FO R MAKING ENTRIES IN THE BOOKS BOTH IN RESPECT OF LOSSES AND GAINS IS AS PER NATIONALLY ACCEPTED ACCOUNTING STANDARDS: YES. THE APPELLANT HAS FOLLOWING ACCOUNTING STANDA RD AS - 11 ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. (J) WHETHER THE SYSTEM ADOPTED BY THE ASSESSEE IS FAIR AND REASONABLE OR IS ADOPTED ONLY WITH A VIEW TO REDUCING THE INCI DENCE OF TAXATION THE SYSTEM ADOPTED BY THE APPELLANT IS FAIR AND REA SONABLE AND IS NOT ADOPTED WITH A VIEW TO REDUCE THE INCIDENCE OF TAXA TION. IN FACT THE RULE 115 OF THE INCOME TAX RULES PROVIDES THAT THAT ALL THE ASSESSEE SHOULD CONVERT THEIR FOREIGN EXCHANGE ASSETS INTO INDIAN R UPEES-ON THE LAST .DAY OF THE PREVIOUS YEAR. IN CIT VS. R. B. CONSTRU CTION 202JTR 222 (AP)(FB), IT HAS BEEN HELD THAT IF RULE IS NOT CONS IDERED, THE DECISION BECOMES PER INCURAM. IN AS MUCH AS THE APPELLANT HA S FOLLOWING THE ACCOUNTING TREATMENT WHICH IS IN CONFORMITY WITH AC COUNTING STANDARD 11 ISSUED BY THE ICAI. VARIOUS AUTHORITIES HAVE HEL D THAT WHILE DETERMINING ALOWABILITY OF AN EXPENDITURE, ACCOUNTI NG STANDARD HAS A GREAT PERSUASIVE VALUE. CHALLQPALII SUGARS LTD. VS. CIT (1975) (98I.T.R. 167), FURTHER FOLLOWING AUTHORITIES HAVE HELD TH AT FOREIGN EXCHANGE FLUCTUATION LOSS SUFFERED ON ACCOUNT OF CIRCULATIN G CAPITAL OR REVENUE ACCOUNT SHOULD BE TREATED AS REVENUE EXPENDITURE IN THE YEAR IN WHICH THE DEVALUATION TAKES PLACE WHEN THE METHOD OF AC COUNTING FOLLOWED IS MERCANTILE. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 36 116 ITR 1 (SC) 154 ITR 460(CAL) 90 ITR 323 (KER) 97/TO 125 (AHD) (TM) @ 151 PARA 8.28 ACCORDINGLY, THIS ITSELF ESTABLISHES THAT THE APPEL LANT HAS ADOPTED THE SYSTEM OF ACCOUNTING WHICH IS FAIR AND REASONABLE A ND SUPPORTED BY THE ACCOUNTING STANDARD AS-11, RULE 115 AND VARIOUS AUT HORITIES AND NOT ADOPTED TO AVOID INCIDENCE OF INCOME TAX. AND IN AN Y CASE, AS SUBMITTED BY THE APPELLANT, IN EARLIER A.Y.2006-07 THE APPELL ANT HAS EARNED FOREIGN EXCHANGE GAIN WHICH HAS BEEN OFFERED FOR TA XATION, WHICH ITSELF SHOWS THAT THE SYSTEM ADOPTED BY THE APPELLANT IS C ONSISTENT, FAIR AND REASONABLE. 10.2 THEREFORE, THE APPELLANT MOST RESPECTFULLY SUBMITS THAT FOREIGN EXCHANGE -LOSS INCURRED, BY THE APPELLANT SHOULD BE ALLOWED AND DISALLOWANCE MADE BY THE LD. AO IS REQUIRED TO BE D ELETED IN VIEW OF ABOVE MADE SUBMISSION AND THE APEX COURT DECISIONS. 41. THE LD.FIRST APPELLATE AUTHORITY HAS GONE THROU GH THESE SUBMISSIONS OF THE ASSESSEE BUT DID NOT CONCUR. ACCORDING TO THE LD.CIT(A), THE LOANS/INVESTMENTS IN FOREIGN SUBSIDIARIES IS ON CAP ITAL ACCOUNT AND LOSS ON ACCOUNT OF CAPITAL ASSETS OUGHT NOT TO BE ALLOWED U NDER SECTION 37 OF THE INCOME TAX ACT. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ISSUE IN DISPUTE IS COVERED IN FAVOUR OF THE ASSESS EE BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOODWA RD GOVERNOR INDIA PVT LIMITED, 312 ITR 254. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE LD.CIT(A). 42. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. ASSESSMENT ORDER AS WELL AS ORDER OF TH E LD.CIT(A) ARE SILENT ON THE SUBMISSIONS MADE BY THE ASSESSEE. THE ASSESSEE HA S CONTENDED THAT BEING COMPANY, IT IS REQUIRED TO PREPARE ITS ACCOUNTS BY FOLLOWING ACCOUNTING STANDARD AS-11 WHERE IT IS REQUIRED TO RESTATE ALL ITS FOREIGN EXCHANGE ASSETS AND LIABILITIES INCLUDING LOANS AND ADVANCES GIVEN, TAKEN, RECEIVABLES, PAYABLES ETC. GAIN OR LOSS ARISING ON TRANSACTIONS OF FOREI GN CURRENCY ASSETS AS ON THE DATE OF BALANCE SHEET ARE CHARGED TO THE REVENUE I. E. DEBITED OR CREDITED TO THE PROFIT & LOSS ACCOUNT. IT IS ALSO PERTINENT TO MENTION THAT THE ASSESSEE HAS POINTED OUT THAT IN ASSESSMENT YEAR 2006-07 IT HAS A GAIN OF RS.12,41,640/- WHICH WAS OFFERED FOR TAXATION. SIMILARLY, FOREIGN EXCHANGE LOAN LOSS AMOUNTING TO RS.74,35,540/- DETERMINED AS ON 31.3.2 007 AND CLAIM HAS BEEN ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 37 REVERSED ON 1.4.2007. THIS HAS BEEN OFFERED FOR TA XATION IN THE NEXT ASSESSMENT YEAR I.E. A.Y.2008-09. IF THE LD.REVENU E AUTHORITIES ARE ACCEPTING THE GAINS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIO NS AS TAXABLE THEN HOW AND WHY THE LOSS COULD BE DENIED TO THE ASSESSEE ? NO S PECIFIC FINDING HAS BEEN RECORDED ABOUT THE NATURE OF LOANS AND HOW SUCH LOS SES ON ACCOUNT OF FLUCTUATIONS LOSS COULD BE DISALLOWED. THEREFORE, TAKING INTO CONSIDERATION ALL THE FACTS THAT LD.REVENUE AUTHORITIES HAVE FAILED T O EXAMINE THE ISSUE BY KEEPING IN MIND TAXATION OF GAINS IN EARLIER AND SU BSEQUENT YEARS ON THE SAME LOANS, AND FAILED TO RECORD ANY SPECIFIC FINDING AS TO HOW IN SUCH CIRCUMSTANCES THE LOSS COULD BE DENIED, WE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR RE-ADJUDICATION. THE LD.AO SHAL L TAKE INTO CONSIDERATION THE SPECIFIC PLEADINGS MADE BY THE ASSESSEE POINTING OU T TAXATION OF GAIN IN THE ASSESSMENT YEAR 2006-07 AND 2008-09, AND THEN DECID E THE ISSUE IN THE LIGHT OF HONBLE SUPREME COURTS JUDGMENT CITED (SUPRA). WE SET ASIDE THIS ISSUE ON THE GROUND THAT, ABOUT TAXABILITY OF GAIN HAS NO T BEEN EXAMINED BY THE AO. THUS, VERACITY OF THIS FACT NEEDS TO BE VERIFIED. ON ACCOUNT OF THIS REASON, THE ISSUE IS BEING SET ASIDE TO THE FILE OF THE AO FOR RE-ADJUDICATION AFRESH IN ACCORDANCE WITH LAW. 43. GROUND NO.13 (ASSESSMENT YEAR 2007-08); GROUND NO.8 (ASSESSMENT YEAR 2008-09) AND GROUND NO.9 (ASSESSMENT YEAR 2009 -10). IN THIS GROUND THE ASSESSEE HAS PRAYED THAT THE LD.CIT(A) HAS ERRE D IN CONFIRMING DISALLOWANCE OF RS.3,93,000/-, RS.69,552/- AND RS.1 ,21,423/- WHICH WERE DISALLOWED BY THE AO WITH THE AID OF SECTION 14A R. W.S RULE 8D OF THE INCOME TAX ACT, 1961 AND INCOME TAX RULES, 1962. 44. BRIEF FACTS OF THE CASE IN THE ASSESSMENT YEAR 2007-08 ARE THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF RS.2,44,60,69 1/- WHICH HAS BEEN CLAIMED AS EXEMPT INCOME UNDER SECTION 10(34) OF TH E ACT. ACCORDING TO THE LD.AO, NO EXPENDITURE WAS OFFERED BY THE ASSESSEE B EING ATTRIBUTABLE TO EARNING OF SUCH EXEMPT INCOME. THEREFORE, HE ISSUE D A SHOW CAUSE NOTICE INVITING THE EXPLANATION OF THE ASSESSEE AS TO WHY EXPENDITURE OUGHT NOT TO BE DISALLOWED WITH HELP OF RULE 8D. THE ASSESSEE FILE D DETAILED REPLY, AND AFTER CONSIDERING THE CASE OF THE ASSESSEE, THE LD.AO HAS WORKED OUT ADMINISTRATIVE COST AT 0.5% OF AVERAGE INVESTMENT OF RS.1.36 LAKHS AND PARTLY INTEREST ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 38 EXPENDITURE HE MADE AN ESTIMATED DISALLOWANCE IN WA Y AT RS.3,93,000/- IN THE ASSESSMENT YEAR 2007-08. UNDER SIMILAR LINES, HE H AS MADE DISALLOWANCE IN OTHER TWO YEARS. 45. BEFORE THE LD.CIT(A), IT WAS CONTENDED THAT RUL E 8D IS NOT APPLICABLE IN THE ASSESSMENT YEAR 2007-08 BECAUSE IT HAS BEEN BRO UGHT IN THE STATUTE BOOK W.E.F. ASSESSMENT YEAR 2008-09. THE LD.CIT(A) TOOK COGNIZANCE OF THIS FACT, BUT MADE DISALLOWANCE AT THE SAME AMOUNT ON AN ADHOC BASIS. 46. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS DEMONSTRATED INTEREST FREE FUNDS AVAILABLE WITH IT. IT WAS PLEADED BEFOR E THE LD.CIT(A) THAT SHAREHOLDERS FUND IS OUTSTANDING AT RS.26,960.66 LA KHS AS ON 31.3.2007, WHEREAS THE INVESTMENT WAS AT RS.13,129.22 LACS. IT WAS ALSO POINTED OUT THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF CAD MIDDLE EAST PHARMACEUTICALS INDUSTRIES LLC OF RS.177.10 LAKHS; DISHMAN PHARMA SOLUTIONS AG, SWITZERLAND OF RS.10,507.50 LAKHS, DISHMAN PHAR MACEUTICALS & CHE. (SHANGHAI) CO. LTD. OF RS.1,469.07 LAKHS. THE DIVI DEND INCOME OF THESE COMPANIES WAS TAXABLE, AND THEY CANNOT BE CONSIDERE D FOR RULE 8D. IT WAS ALSO BROUGHT TO OUR NOTICE OF THE LD.CIT(A) THAT TH E ASSESSEE HAS NET PROFIT OF RS.6,190.974 LAKHS HENCE, IT WAS DEMONSTRATED THAT THE ASSESSEE WAS HAVING MORE FUNDS THAN THE INVESTMENT AND NO INTEREST EXPE NDITURE IS TO BE ATTRIBUTABLE FOR EARNING SUCH DIVIDEND INCOME. THE LD.CIT(A) CONSIDERED THIS ASPECT BUT ON AN ESTIMATED BASIS CONFIRMED THE ADHOC DISALLOWANCE. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE MADE REFERENCE TO THE FOLLOWING DECISIONS: A) CIT VS. TORRENT POWER LTD., 363 ITR 474 (GUJ); B) CIT VS. SUZLON ENERGY LTD., 354 ITR 630 (GUJ) C) CIT VS. GUJARAT POWER CORPORATION LTD., 352 ITR 583 (GUJ) D) CIT VS. HITACHI HOME & LIFE SOLUTIONS (I) LTD., 41 TAXMMANN.COM 540 (GUJ); E) CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM) F) MUNJAL SALES CORPORATION VS. CIT, 298 ITR 298 (SC); AND SUBMITTED THAT NO DISALLOWANCE UNDER SECTION 1 4A OF THE ACT TO BE MADE. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 39 47. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. AN IDENTICAL ISSUE CAME UP BEFORE US IN THE ASSESSMENT YEAR 2006- 07 ALSO. NO DOUBT THE ASSESSEE IS HAVING SUFFICIENT INTEREST FREE FUNDS AND ACCORDING TO THE PROPOSITION IN THE DECISIONS REFER RED ABOVE, IF AN ASSESSEE HAS INTEREST FREE FUNDS MORE THAN THE INVESTMENT THEN N O DISALLOWANCE FOR INTEREST EXPENDITURE IN MAKING INVESTMENT, WHICH WOULD RESUL T IN EXEMPT INCOME BE MADE. HOWEVER, IN THE ASSESSMENT YEAR 2006-07, WE HAVE CONFIRMED THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENDITU RE AND OTHER ISSUES AT RS.3.00 LAKHS. CONSIDERING OF OUR FINDING IN THE A SSESSMENT YEAR 2006-07 AND OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE CON FIRM THE ADHOC DISALLOWANCE OF RS.3 LAKHS IN THE ASSESSMENT YEAR 2 007-08 AND EQUIVALENT TO THE AMOUNT CONFIRMED BY THE LD.CIT(A) IN THE ASSESS MENT YEARS 2008-09 AND 2009-10. IN OTHER WORDS, GROUNDS OF APPEAL OF THE ASSESSEE IN THE ASSESSMENT YEAR 2007-08 ARE PARTLY ALLOWED, WHEREAS GROUNDS IN THE ASSESSMENT YEAR 2008-09 AND 2009-10 ARE REJECTED. 48. GROUND NOS.14 TO 21 IN THE ASSTT.YEAR 2007-08; GROUND NOS.12 TO 15 IN THE ASSTT.YEAR 2008-09 AND GROUND NOS.10 TO 13 IN T HE ASSESSMENT YEAR 2009- 10: IN THESE GROUNDS OF APPEAL, ASSESSEE IS AGGRIE VED BY THE ACTION OF THE REVENUE AUTHORITIES IN CONFIRMING DISALLOWANCE OF R S.1,56,69,776 (ASSTT.YEAR 2007-08), RS.82,92,297/- (ASSTT.YEAR 2008-09) AND R S.44,58,072/- (ASSTT.YEAR 2009-10) UNDER SECTION 40(A)(I) OF THE ACT AND DISALLOWANCE OF RS.25,78,986 OUT OF REIMBURSEMENT OF ADMINISTRATIVE EXPENDITURE. 49. THOUGH FACTS ON VITAL POINTS ARE COMMON IN ALL THREE YEARS ON THIS ISSUE, WE ARE TAKING FACTS FROM ASSTT.YEAR 2007-08 FOR THE PURPOSE OF REFERENCE. THE AO ON PERUSAL OF THE DETAILS NOTICED THAT ASSESSEE HAS DEBITED FOLLOWING EXPENDITURE SR. NO. PARTICULARS AMOUNT A) REIMBURSEMENT OF ADMINISTRATIVE SERVICES TO DISHMAN EUROPE LTD. 1,47,37,061/ - B) ADVERTISEMENT EXPENSES 7,71,512/ - C) CONFERENCE CHARGES 1,32,282/ - ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 40 D) LIST FEES 28,921/ - TOTAL 1,56,69,776/ - 50. THE LD.AO WAS OF THE VIEW THAT THE ASSESSEE HAS REMITTED THE ABOVE AMOUNT TO NON-RESIDENT WITHOUT DEDUCTING TDS UNDER SECTION 195 OF THE ACT, WHICH ACCORDING TO THE ASSESSEE, IT WAS NOT SUPPOSE D TO DO SO IN VIEW OF SECTION 195 R.W. DTAA OF THOSE COUNTRIES. THE LD.A O DID NOT ACCEPT THIS SUBMISSIONS OF THE ASSESSEE AND DISALLOWED AN AMOUN T OF RS.1,56,69,776/- UNDER SECTION 40(A)(IA) OF THE ACT, WHICH WAS CONFI RMED BY THE LD.CIT(A). 51. IT HAS BEEN BROUGHT TO OUR NOTICE THAT SIMILAR ISSUE HAS ALREADY AGITATED IN THE ASSESSMENT YEAR 2006-07 BEFORE THE TRIBUNAL. ACCORDINGLY, BOTH THE PARTIES REITERATED THEIR RESPECTIVE SUBMIS SIONS AS WERE MADE FOR THE ASSESSMENT YEAR 2006-07. 52. AFTER HEARING BOTH THE SIDES, WE FIND THAT SIMI LAR ISSUE AROSE IN THE CASE OF ASSESSEE IN THE ASSESSMENT YEAR 2006-07 AND THE TRIBUNAL IN ITA NO.773/AHD/2011 ORDER DATED 23-5-2018 ALLOWED THE C LAIM OF THE ASSESSEE. BOTH THE PARTIES BEFORE US AGREED THAT FACTS IN THE PRESENT CASE ALSO SIMILAR TO THE ASSESSMENT YEAR 2006-07. THEREFORE, WE DEEM I T APPROPRIATE TO TAKE NOTE OF THE FINDING OF THE TRIBUNAL IN THE ASSESSME NT YEAR 2006-07. IT READS AS UNDER: 80.WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD. A PERUSAL OF THE BREAKUP OF THIS EXPENDITU RE WOULD INDICATE THAT EXPENDITURE INCURRED BY THE ASSESSEE COULD BE DIVID ED INTO THREE CATEGORIES VIZ. (A) PAYMENTS TOWARDS PROFESSIONAL S ERVICE CHARGES, (B) REIMBURSEMENT OF ADMINISTRATIVE SERVICES TO DISHMAN EUROPE LTD., AND (C) REIMBURSEMENT OF INSURANCE AND FOREIGN RAVEL EX PENDITURE TO DISHMAN EUROPE LTD. BEFORE MAKING AN ANALYSIS OF T HIS EXPENDITURE, WE WOULD LIKE TO TAKE INTO CONSIDERATION DECISION OF H ONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY (SUPRA). HONBL E SUPREME COURT HAS PROPOUNDED IN THIS DECISION THAT A PERSON CAN BE HE LD LIABLE TO DEDUCT TDS WHILE MAKING PAYMENT TO A NON-RESIDENT IF THE P AYMENTS MADE BY HIM CONSISTS OF SOME ELEMENT OF INCOME CHARGEABLE T O TAX UNDER THE PROVISIONS OF INCOME TAX ACT, 1961. THE LD.REVENUE AUTHORITIES WERE OF THE VIEW THAT IF THE ASSESSEE HAS BEEN MAKING PAYME NT TO A NON- RESIDENT THEN EITHER IT SHOULD TAKE A CERTIFICATE F ROM THE AO UNDER SECTION 195(2) OR DEDUCT TDS ON SUCH PAYMENTS. FOR THIS VIEW, THEY ARE HARPING UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS (SUPRA). HOWEVER, THE HONBLE SUPREME ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 41 COURT DID NOT CONCUR WITH THIS VIEW OF HONBLE HIGH COURT AND OBSERVED THAT EXPRESSION CHARGEABLE UNDER THE PROVISIONS OF THE ACT IS BEING EMPLOYED UNDER SECTION 195(1) AND IF ELEMENT OF INC OME IS INVOLVED IN THE PAYMENTS MADE BY THE ASSESSEE ONLY THEN THE TDS HAS TO BE DEDUCTED. KEEPING IN VIEW THIS DECISION IN MIND, L ET US EXAMINE THE NATURE OF PAYMENT MADE BY THE ASSESSEE. 81. LET US TAKE FIRST CATEGORY OF PAYMENT MADE TOWA RDS PROFESSIONAL CHARGES. ACCORDING TO THE ASSESSEE, NON-RESIDENT WA S NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA OR ANY BUSINESS CO NNECTION. THUS, SUCH SUM IS NOT TAXABLE IN INDIA AND NO QUESTION OF DEDUCTING TDS WOULD ARISE. REFERENCE TO CIRCULAR NO.786 DATED 7. 2.2000 IS BEING MADE. THE AO FAILED TO BRING ON RECORD ANY MATERIA L SHOWING THAT RECIPIENT IS TAXABLE IN INDIA. WITH REGARD TO OTHE R TWO ITEMS I.E. REIMBURSEMENT OF ADMINISTRATIVE CHARGES AND REIMBUR SEMENT OF INSURANCE AND FOREIGN TRAVEL EXPENSES ARE CONCERNED , THESE EXPENSES HAVE BEEN REIMBURSED TO DR.HENK PLUIM WHO WAS RESPO NSIBLE FOR PROCUREMENT, CHEMICAL DEVELOPMENT AND TECHNOLOGICAL UPGRADATION ETC. THESE AMOUNTS HAVE BEEN CALCULATED ON THE BASIS OF SERVICES RENDERED AND TIME DEVOTED BY HIM TO THREE CONCERNS VIZ. DISH MAN UK, DISHMAN INDIA AND DISHMAN USA. THE AO WAS OF THE VIEW THAT ALLOCATION OF EXPENDITURE WAS ON HIGHER SIDE. HE ALSO OBSERVED T HAT IN SUBSEQUENT YEAR SUCH EXPENSES HAVE BEEN ALLOCATED AMONGST THES E CONCERNS IN THE RATIO OF 40:40:20 BASED ON ADVICE GIVEN BY THE GROU P CHAIRMAN. ON THE BASIS OF THAT RATIO, THE LD.AO HAS ALLOCATED THIS E XPENDITURE IN THIS YEAR ALSO AND WORKED OUT ALLOWANCE EXPENDITURE OUT OF RS .81,02,622/- DEBITED UNDER THE HEAD ADMINISTRATIVE SERVICES. HE OBSERVED THAT IT SHOULD BE ALLOWED AT RS.49,89,517/-. A PERUSAL OF THE ASSESSMENT ORDER WOULD INDICATE THAT THE LD.AO HAS ASSIGNED TW O REASONS FOR MAKING DISALLOWANCE, VIZ. (I) NON-DEDUCTION OF TAX, AND (II) HIGHER ALLOCATION OF EXPENDITURE IN THE HANDS OF THE ASSES SEE WHICH WERE INCURRED ON DR.HENK PLUIM. AS FAR AS FIRST PARTY IS CONCERNED, THESE ARE SIMPLY REIMBURSEMENT OF ADMINISTRATIVE EXPENSES INC URRED BY DR.HENK PLUIM OUTSIDE INDIA. THEY DID NOT INVOLVE ANY ELEM ENT OF INCOME AND TDS WAS NOT REQUIRED TO BE DEDUCTED. AS FAR AS SEC OND PARTY IS CONCERNED, THE LD.AO FAILED TO BRING ANY MATERIAL O N RECORD TO JUSTIFY THE ADMINISTRATIVE EXPENSES REQUIRED TO BE INCURRED FOR AVAILING SERVICES OF DR.HENK. IT IS TOTALLY IN THE DOMAIN OF THE BUSINE SSMAN AND THE AO CANNOT DICTATE TERMS HOW MUCH SALARY AND OTHER EXPE NSES ARE NECESSARY FOR AVAILING THE SERVICES. THIS DISALLOW ANCE MADE BY THE AO IS NOT SUSTAINABLE. THE LD.CIT(A) OUGHT TO HAVE NO T CONFIRMED DISALLOWANCE MADE BY THE AO. WE ALLOW THIS GROUND OF APPEAL AND DELETE ADDITION OF RS.1,12,01,869/-. 53. SINCE NO DISPARITY OF THE FACTS HAVE BEEN POINT ED OUT BY THE LD.DR ON THIS ISSUE, WE FOLLOWING THE ORDER OF THE TRIBUNAL CITED SUPRA FOR THE ASSESSMENT YEAR 2006-07, DELETE THE IMPUGNED ADDITI ONS AND ALLOW THE GROUNDS OF APPEALS OF THE ASSESSEE. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 42 54. GROUND NO.22 TO 24 OF THE ASSESSEES APPEAL IS AGAINST CONFIRMATION OF ADDITION OF RS.3,10,08,567/- OUT OF TOTAL ADDITION OF RS.3,82,47,265/- MADE UNDER SECTION 2(22)(E) OF THE INCOME TAX ACT. SIM ILARLY, IN GROUND NO.4 IN THE REVENUES APPEAL FOR THE ASSESSMENT YEAR 2007-0 8, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.72,38,698/- ADDED BY THE AO WITH HELP OF SECTION 2(22)(E) FOR THE LOAN TAKEN FROM THE B.R. LABORATORIES. 55. BRIEF FACTS IN THIS REGARD ARE THAT THE AO NOTI CED THAT THE ASSESSEE HAS SUBSTANTIAL INTEREST IN M/S.BHADRA RAJ HOLDINGS P.L TD., AND THE B.R LABORATORIES LTD. BY WAY OF SHAREHOLDING. AO ALSO NOTICED THAT ASSESSEE COMPANY HAS ALSO INDULGED IN MONETARY TRANSACTIONS IN THE FORMS OF LOANS AND ADVANCES WITH THESE TWO COMPANIES. THE AO NOTICED THAT THE ASSESSEE HAS TAKEN LOAN OF RS.11,25,268/- ON 14.12.2006 AND RS.1 ,19,87,744/- ON 21.2.2007 FROM B.R. LABORATORIES LTD., AND THE BALA NCE SHEET OF B.R. LABORATORIES LTD. SHOWED RESERVE OF RS.72,38,698/- AS ON 31.3.2007. THEREFORE, THE AO TREATED THE ENTIRE RESERVE FUND O F RS.72,38,698/- AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE UNDER SECTION 2(22)(E) OF THE ACT. SIMILARLY, THE AO ALSO OBSERVED THAT A LOAN OF RS.15,75,00,000/- BEING GIVEN TO THE ASSESSEE COMPANY BY THE B.R. HOLDING P .LTD. IN THE BALANCE SHEET OF THIS COMPANY SHOWED A RESERVE FUND OF RS.3,10,08 ,567/- AS ON 31.3.2007, WHICH THE AO TREATED AS DEEMED DIVIDEND IN THE HAND S OF THE ASSESSEE. ASSESSEE CONTENDED THAT ASSESSEE IS NOT A REGISTERE D SHAREHOLDER OF B.R. LABORATORIES, AND THERE WAS NO QUESTION OF DEEMED D IVIDEND IN THE CASE OF THE ASSESSEE. TO THIS, THE ASSESSEE PLACED RELIANCE UP ON THE DECISION OF ACIT VS. BHAUMIK COLOUR P.LTD., 118 ITD 1 (MUM)(SB). AS RE GARDS FUNDS RECEIVED FROM BHADRA RAJ HOLDINGS P.LTD. WAS CONCERNED, IT W AS CONTENDED BEFORE THE AO THAT TRANSACTIONS WITH THIS HOLDING COMPANY WERE IN THE NATURE OF CURRENT ACCOMMODATION ADJUSTMENT ENTRIES AS WAS EVIDENT FRO M THE ASSESSEES LEDGER IN THE BOOKS OF BHADRA RAJ HOLDINGS PVT., AND THERE FORE, NO ADDITION CAN BE MADE. RELIANCE WAS PLACED ON THE JUDGMENT OF HONB LE GUJARAT HIGH COURT THE CASE OF SCHUTZ DISHMAN BIO-TECH P.LTD., TAX APPEAL NO.958 & 959 OF 2015 (GUJ). IT WAS FURTHER CONTENDED THAT IN THE CASE OF BHADRAJ RAJ HOLDINGS P. LTD. DIVIDEND WAS ALREADY DISTRIBUTED AND ADJUSTMENT OF THE SAME BE GIVEN. HOWEVER, THE LD.AO DID NOT ACCEPT THIS EXPLANATION OF THE ASSESSEE, AND ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 43 TREATED BOTH THESE AMOUNTS I.E. RS.72,38,698/- AND RS.3,10,08,567/- STANDING AS RESERVE FUNDS IN THE ACCOUNTS OF B.R. LABORATORI ES AND BHADRAJ HOLDINGS PVT. LTD AS DEEMED DIVIDEND INCOME. DISSATISFIED W ITH THE ADDITION, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD .CIT(A). THE LD.CIT(A) HOWEVER DELETED ADDITION IN RESPECT OF DEEMED DIVID END ON ACCOUNT OF LOAN TAKEN FROM B.R. LABORATORIES AND CONFIRMED THE ADDI TION IN THE CASE OF THE LOAN TAKEN FROM BHADRA RAJ HOLDINGS P.LTD. 56. BOTH THE ASSESSEE AND REVENUE ARE BEFORE US CHA LLENGING RESPECTIVE ADDITIONS/DELETIONS I.E. REVENUE IS CHALLENGING DEL ETION OF LOAN OF RS.72,38,698/- RECEIVED FROM B.R. LABORATORIES AND THE ASSESSEE IS CHALLENGING CONFIRMATION OF ADDITION MADE BY THE AO OF RS.3,10,08,567/- RECEIVED FROM BHADRA RAJ HOLDINGS PVT.LTD. 57. SO FAR AS GROUND NO.5 OF REVENUES APPEAL IS CO NCERNED, WE FIND THAT SIMILAR ISSUE HAS BEEN EXAMINED IN THE ASSESSMENT Y EAR 2005-06 WHEREIN WE HAVE FOLLOWED THE ORDERS OF THE ITAT IN EARLIER YEA RS IN THE CASE OF SDBL. EVEN THE HONBLE HIGH COURT HAS CONFIRMED THE ORDER OF THE ITAT IN TAX APPEAL NO.958 AND 959 OF 2015. IT IS NECESSARY TO TAKE NO TE OF THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL ON THIS ISSUE. IT REA DS AS UNDER: 18. BRIEF FACTS OF THE CASE ARE THE AO HAS OBSERVE D THAT DURING THE ASSESSMENT PROCEEDINGS OF A.Y 2006-07, IT WAS SEEN THAT SCHUTZ DISHMAN BIO-TECH P.LTD. (SDBPL FOR SHORT) HAS GIV EN LOANS TO THE ASSESEE. ASSESSEE HOLDS 22.3% SHARE HOLDING OF SDB PL. THUS, THE LD.AO WAS OF THE VIEW THAT LOANS GIVEN TO THE ASSES SEE DESERVES TO BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) O F THE ACT. SIMILARLY, THE ASSESSEE HAS RECEIVED LOAN FROM B.R. LABS P.LTD. AMOUNTING TO RS.16,03,933/-. BOTH THESE LOANS WERE TREATED BY THE AO AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE AND ADDITION OF RS.2,41,04,933/- WAS MADE UNDER SECTION 2(22)(E) OF THE ACT IN REASSESSMENT ORDER. DISSATISFIED WITH THE ADDITION , THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). 19. IT CONTENDED THAT SIMILAR ISSUE WAS TAKEN IN TH E HANDS OF SDBPL. DISPUTE TRAVELLED UPTO THE ITAT, AND IT WAS HELD TH AT ASSESSEE AND SDBPL WERE MAINTAINING CURRENT ACCOUNTS. THESE WER E NOT IN THE NATURE OF LOANS WHICH COULD BE TREATED AS DEEMED DI VIDEND. WITH REGARD BR LABORATORY, IT WAS CONTENDED THAT IT IS N OT A REGISTERED SHARE HOLDER OF BR LABORATORY, AND THEREFORE, IN VIEW OF SPECIAL BENCH DECISION OF THE ITAT IN THE CASE OF ACIT VS. BHAUMI K COLOR P.LTD., 118 ITD 1 (MUM)(SB) SUCH LOANS ARE NOT TO BE TREATED AS DEEMED DIVIDEND. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 44 THE LD.CONSEL FOR THE ASSESSEE SUBMITTED THAT IN TH E CASE OF SDBPL ISSUE TRAVELLED TO THE HONBLE HIGH COURT IN TAX APPEAL N O.958 OF 2015 WHEREIN HONBLE HIGH COURT UPHELD ORDER OF THE ITAT BY OBSERVING THAT THE TRIBUNAL HAS RIGHTLY HELD THAT THERE ARE LARGE NUMBER OF ADJUSTMENT ENTRY IN THE ACCOUNTS BETWEEN TWO ENTITIES; THE AMO UNTS WERE NOT IN THE NATURE OF DEPOSITS, BUT MERELY ADJUSTMENTS AND SECT ION 2(22)(E) OF THE ACT WOULD NOT BE APPLICABLE. THE LD.COUNSEL FOR TH E ASSESSEE FURTHER DREW OUR ATTENTION TOWARDS THE ORDER OF THE ITAT PA SSED IN THE ASSESSEES OWN CASE FOR THE ASSTT.YEAR 2003-04 AND 2040-05. HE PLACED ON RECORD COPY OF THE TRIBUNALS ORDER IN IT A NO.2015 & 2125/AHD/2012. IT APPEARS THAT IN THESE ASSESSMENT YEARS ALSO THERE MUST BE SOME REOPENING THAT IS WHY SECOND ROUND OF LITIGATION IS THERE. THE LD.DR ON THE OTHER HAND RELIED UPON ORDER OF TH E AO. HE FAILED TO CONTROVERT SUBMISSION MADE BY THE LD.COUNSEL FOR TH E ASSESSEE. 20. WE FIND THAT IN THE ASSTT.YEARS 2003-04 AND 200 4-05, THE TRIBUNAL HAS CONSIDERED IDENTICAL ISSUE IN ASSESSEE S OWN CASE. FOLLOWING FINDING OF THE TRIBUNAL DESERVES TO BE NO TED: 7. THE ID. CIT(A) WAS CONVINCED AFTER VERIFICATION THAT THE ISSUE IS COVERED BY THE DECISION OF THE FIRST APPELLATE AUTH ORITY. THE RELEVANT FINDINGS OF THE ID. CIT(A) FOR A.Y. 2003-04 READS A S UNDER:- 'IT IS NOT IN DISPUTE THAT APPELLANT HAD LOT OF BUS INESS TRANSACTIONS WITH M/S SCHUTZ DISHMAN BIOTECH LTD. THERE WERE TRA NSACTIONS OF PURCHASE OF RAW MATERIAL AS WELL AS TEMPORARY ACCOM MODATION DEPOSITS. ASSESSING OFFICER OF M/S SCHUTZ DISHMAN B IOTECH LTD INITIATED ACTION UNDER SECTION 201 (1) BY TREATING THE TRANSACTION WITH APPELLANT COMPANY AS DEEMED DIVIDEND AND THE S AID COMPANY WAS TREATED AS ASSESSEE IN DEFAULT FOR NOT DEDUCTING TDS IN ASSESSMENT YEAR 2004-05 AND 2005-06. IN BOTH THE YEARS, CIT(A)-XXL, AHMEDABAD BY ORDER DATED 28-09-2010 HEL D THAT TRANSACTIONS ENTERED INTO BY THE APPELLANT WHICH IT S ASSOCIATE CONCERN WOULD NOT ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. AND ACCORDINGLY THERE WOULD NOT BE ANY OBL IGATION TO DEDUCT TAX UNDER SECTION 194 AND THEREFORE THE ASSE SSEE CANNOT BE TREATED AS THE ASSESSEE IN DEFAULT WITHIN THE ME ANING OF SECTION 201(1) OF IT ACT. THE RELEVANT EXTRACT OF T HE SAID APPEAL ORDER IN PARA-SIX IS QUOTED BELOW- 'THERE IS LARGE NUMBER OF DEBIT AND CREDIT TRANSACT IONS. MEANING THEREBY, THE APPELLANT HAS GIVEN AND RECEIVED FUNDS AS AND WHEN REQUIRED TO AND FROM ITS ASSOCIATE CONCERN. IT IS N OT ON ACCOUNT WHEREBY LOANS AND ADVANCES HAVE BEEN GIVEN TO THE A SSOCIATE CONCERN. IT IS ON ACCOUNT PAYMENTS IN THE NATURE OF CURRENT ADJUSTMENT ACCOMMODATION ACCOUNT WHEREIN THERE IS A MOVEMENT OF FUNDS BOTH WAYS, ON THE BASIS. UNLIKE TRANSACTIO NS OF LOAN AND ADVANCES, THE MOVEMENT FUNDS IS BOTH WAYS AND THE S AME IS MORE IN THE NATURE OF CURRENT ACCOUNT RATHER THAN A LOAN ACCOUNT. TRANSACTIONS IN THE NATURE OF LOANS AND ADVANCES AR E USUALLY VERY FEW AND FOR A LONGER DURATION. IN THE FACTS OF THE PRESENT CASE, ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 45 THE NATURE OF THE TRANSACTION AS IN THE FORM OF CUR RENT ACCOMMODATION, ADJUSTMENT ACCOUNT AND THEREFORE THE SAME IS NOT A TRANSACTION IN THE NATURE OF LOANS AND ADVANC ES. IN ABSENCE OF ANY LOANS AND ADVANCES, THE PROVISIONS OF SECTIO N 2 (22) (E) OF THE ACT IN RESPECT OF DEEMED DIVIDEND ARE NOT ATTRA CTED AND THEREFORE THE QUESTION OF DEDUCTION OF TAX AT SOURC E ALSO WOULD NOT ARISE.' SINCE THESE TRANSACTIONS BETWEEN APPELLANT AND ITS ASSOCIATE CONCERN M/S SCHUTZ DISHMAN BIOTECH LTD WAS THERE SI NCE ASSESSMENT YEAR 2004-05 ONWARDS AND DURING THE YEAR THE DEBIT BALANCE IN THE APPELLANT'S ACCOUNT WAS SUBSTANTIALL Y REDUCED. SINCE CIT (A) DID NOT FIND THE TRANSACTIONS BETWEEN APPELLANT AND ITS ASSOCIATE CONCERN AS LOANS AND ADVANCES GIVEN, LOGICALLY THE SAME CANNOT BE LOANS AND ADVANCES RECEIVED BY THE A PPELLANT. IT IS NOT IN DISPUTE THAT IN THE BOOKS OF THE ASSOC IATE CONCERN, THERE ARE FIVE ACCOUNTS RELATING TO VARIOUS TRANSAC TIONS IN THE NAME OF APPELLANT AND SIX ACCOUNTS IN THE NAME OF A SSOCIATE CONCERN IN THE BOOKS OF APPELLANT. IN THESE MANY AC COUNTS WHERE A LARGE NUMBER OF DEBIT AND CREDIT ENTRIES INVOLVIN G DIFFERENT BUSINESS TRANSACTIONS. APART FROM THIS, THERE ARE C ERTAIN FINANCIAL . TRANSACTIONS ALSO IN THESE ACCOUNTS. THE MOVEMENT OF FUNDS WAS NOT FOR ANY PERIOD BUT WAS FREQUENT AND IN BOTH WAY S. RESPECTFULLY FOLLOWING THE DECISION OF ID CIJ (APPE AL) IN THE CASE OF ASSOCIATE CONCERN HOLDING THAT TRANSACTIONS ARE NOT IN THE NATURE OF LOAN AND ALSO DECISIONS OF JURISDICTIONAL ITAJ RELIED UPON BY THE APPELLANT, THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND CANNOT SURVIVE IN THIS YEAR.' FACTS RELATING TO THE FINANCIAL TRANSACTIONS WITH S DBPL ARE IDENTICAL TO THE AFORESAID ASSESSMENT YEAR IN WHICH THE ISSUE IS DECIDED IN FAVOUR OF THE APPELLANT. IN VIEW OF THIS , BY FOLLOWING THE APPEAL ORDER IN ASSESSMENT YEAR 2006-07, ADDITI ON ON ACCOUNT OF DEEMED DIVIDEND IN RESPECT OF FINANCIAL TRANSACTIONS WITH SDBPL MADE BY THE ASSESSING OFFICER IS NOT CON FIRMED. 8. A PERUSAL OF THE AFOREMENTIONED FINDINGS OF THE ID. CIT(A) SHOWS THAT HE HAS FOLLOWED THE FINDINGS GIVEN IN A.Y. 2006-07 WHEREIN THE FIRST APPELLATE AUTHORITY HAS FOLLOWED THE DECISION TAKEN IN THE CASE OF SDBPL. WE FIND THAT THE APPEAL OF SDBPL TRAVELLED U P TO THE HON'BLE JURISDICTIONAL HIGH COURT OF GUJARAT WHEREIN THE HO N'BLE HIGH COURT WAS SEIZED WITH THE FOLLOWING QUESTION OF LAW FOR CONSI DERATION;- 'WHETHER ON FACTS AND IN LAW THE ITAT WAX RIGHT IN CANCELLING THE ORDER PASSED U/S 201(1) AND 201 (A) OF THE ACT, WIT HOUT APPRECIATING THAT THE AMOUNT ADVANCED WAS IN THE NA TURE OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT'.'' 9. AND THE RELEVANT FINDINGS OF THE HON'BLE HIGH CO URT READS AS UNDER:- ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 46 4. IT CAN THUS BE SEEN THAT THE COMMISSIONER AS A M ATTER OF FACT FOUND THAT THE PAYMENTS WERE NOT IN THE NATURE OF CURRENT ADJUSTMENT. THERE WAS MOVEMENT OF FUND BOTH WAYS ON NEED BASIS. THE T RANSACTIONS IN THE NATURE OF LOANS AND ADVANCES ARE USUALLY VERY FEW I N NUMBER WHEREAS IN THE PRESENT CASE, SUCH TRANSACTIONS ARE IN THE FORM OF CURRENT ACCOMMODATION ADJUSTMENT ENTRIES. THE COMMISSIONER THEREFORE, HELD THAT THE TRANSACTIONS WERE NOT IN THE NATURE OF LOA NS AND ADVANCES. THE REVENUE CARRIED THE MATTER IN APPEAL. THE TRIBUNAL CONCURRED WITH THE VIEW OF THE. CIT (APPEALS) AND HELD THAT THE AMOUNT S WERE NOT IN THE NATURE OF INTER CORPORATE DEPOSITS AND WERE THEREFO RE, NOT TO BE TREATED AS LOANS OR ADVANCES AS CONTEMPLATED IN SECTION 2(2 2)(E) OF THE ACT. 5. THE ISSUE IS SUBSTANTIALLY ONE OF APPRECIATION O F FACTS. WHEN THE CIT(APPEALS) AS WELL AS TRIBUNAL CONCURRENTLY HELD THAT LOOKING TO LARGE NUMBER OF ADJUSTMENT ENTRIES IN THE ACCOUNTS BETWEE N TWO ENTITIES, THE AMOUNTS WERE NOT IN THE NATURE OF LOAN OR DEPOSIT, BUT MERELY ADJUSTMENTS, APPLICATION OF SECTION 2(22)(E) OF THE ACT WOULD NOT ARISE. CONSEQUENTLY, NO QUESTION OF LAW ARISES. TAX APPEAL S ARE DISMISSED. 21. RESPECTFULLY FOLLOWING ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY MERIT IN THIS APPEAL. IT IS REJECTED. ACCORDING TO THIS FINDING, SECTION 2(22)(E) OF THE ACT IS NOT APPLICABLE ON THE TRANSACTIONS BETWEEN THESE TWO PARTIES. CONSIDERIN G OUR FINDING IN THE ASSTT.YEAR 2005-06, WE DO NOT FIND ANY MERIT IN THI S GROUND OF APPEAL OF REVENUE. IT IS REJECTED. 58. SO FAR AS GROUNDS OF ASSESSEE ARE CONCERNED, TH E LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT INTER CORPORATE DEPOSITS MA DE BY THE ASSESSEE- COMPANY AND THE BHADRAJA HOLDINGS P.LTD. ARE IN THE NATURE OF CURRENT ACCOMMODATION ADJUSTMENT ENTRIES NOT IN THE NATURE OF LOANS AND ADVANCES SO AS TO ATTRACT PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE ASSESSEE WAS MAINTAINING A SORT OF CURRENT ACCOUNT WITH M/S.BHAD RA RAJ HOLDINGS P.LTD. AND THE ASSESSEE HAS NOT TAKEN ANY LOANS AND DEPOSITS F ROM ITS SISTER CONCERN DURING THE YEAR. IT IS THEREFORE PRAYED THAT NO AD DITION BE MADE UNDER SECTION 2(22)(E) OF THE ACT. ALTERNATIVELY, IT IS PLEADED THAT AT THE MOST WHAT COULD BE ADDED WAS ONLY THE ACCUMULATED AMOUNT OF PROFIT & L OSS ACCOUNT OF THE PAYER COMPANY AND NOT THE ENTIRE AMOUNT OF ALLEGED LOAN O R ADVANCES. IT IS SUBMITTED THAT M/S.BHADRA RAJ HOLDINGS P.LTD. HAS A LREADY DECLARED AND DISTRIBUTED DIVIDEND OF RS.6,90,00,000/- AND THEREF ORE WHILE MAKING ADDITION UNDER SECTION 2(22)(E) OF THE ACT IN THE HANDS OF T HE ASSESSEE, ADJUSTMENT AGAINST ACTUAL DISTRIBUTION OF DIVIDEND IS REQUIRED TO BE GIVEN AND ONLY NET ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 47 AMOUNT OF DEEMED DIVIDEND COULD BE ADDED. IF THIS IS THE POSITION, THEN AS PER CLAUSE (III) OF SECTION 2(22)(E) OF THE ACT SET OFF OF THE SAID SUM BE GRANTED, CONSEQUENTLY, NO ADDITION SURVIVES UNDER S ECTION 2(22) OF THE ACT. 59. ON THE OTHER HAND, THE LD.DR SUBMITTED THAT THE ASSESSEE-COMPANY IS HAVING 40% SHAREHOLDING IN THE BHADRA RAJ HOLDINGS P.LTD. NATURE OF ACCOUNTS SHOWED THAT IT WAS NOT A RUNNING ACCOUNT AS THE FUN DS MOVED FROM ONE DIRECTION ONLY I.E. THE ASSESSEE WAS GETTING FUNDS FROM 1 ST APRIL, 2006 TILL 5 TH SEPTEMBER, 2006 AND THEREAFTER FROM 5 TH SEPTEMBER, 2006 THERE WERE CASH OUTFLOW IN THE FORM OF REPAYMENT TILL 27 TH MARCH 2007. THEREFORE, IT SHOWED THAT TRANSACTIONS ARE NOTHING BUT LOAN TRANSACTIONS AND CANNOT BE TREATED AS INTER-CORPORATE DEPOSITS OR CURRENT ACCOUNT WITH AS SOCIATE CONCERN. HE RELIED ON ORDERS OF THE REVENUE AUTHORITIES. 60. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE RECORD. WE FIND THAT IN THE ASSTT.YEAR 2006-07, WE HAVE CONSIDERED SIMILAR TRANSACTIONS BETWEEN THE ASSESSEE AND THE SDBPL. WHEN THE ISSUE TRAVELLED TO THE HONBLE HIGH COURT IN EARLIER YEAR, THEN IT WAS POINTED OUT THAT THESE WERE NOT SIMPLICITOR LOAN TRANSACTIONS, RATHER THESE ARE THE BUSINESS T RANSACTIONS WHEREBY THE CURRENT AMOUNT IS BEING MAINTAINED. BO TH PARTIES HAVE GIVEN AMOUNTS TO EACH OTHER AND THESE ARE ADJUSTMENT ENTR IES. CONSIDERING THE CURRENT ACCOUNT AND NUMBER OF TRANSACTIONS, AND SIN CE THE HONBLE HIGH COURT HAS UPHELD THE FINDING OF THE TRIBUNAL IN EARLIER Y EARS THAT THESE ARE NOT LOANS, WHICH COULD BE BROUGHT IN THE AMBIT OF SECTION 2(22 )(E) OF THE ACT FOR THE PURPOSE OF TREATING IT AS DEEMED DIVIDEND, WE RESPE CTFULLY FOLLOWING THE ORDER OF THE ITAT IN THE ASSESSMENT YEAR 2006-07 AS WELL AS JUDGMENT OF THE HONBLE HIGH COURT IN EARLIER YEARS, ARE OF THE VIE W THAT ADVANCE GIVEN TO M/S.BHADRA RAJ HOLDINGS P.LTD. CANNOT BE TREATED AS DEEMED DIVIDEND. WE ALLOW THIS GROUND OF APPEAL. 61. GROUND NOS.25 TO 27, GROUND NO.16 TO 19 AND 14 TO 16 (ASSESSEES APPEALS); GROUND NO.5 TO 8, GROUND NO.4 TO 6 AND GR OUND NO.2 (IN REVENUES APPEAL) FOR THE ASSESSMENT YEARS 2007-08 TO 2009-1 0 RESPECTIVELY. THE ISSUE AGITATED IN ALL THESE YEARS AND ALL THESE GROUNDS R ELATES TO DETERMINATION OF ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 48 CORRECT AMOUNT FOR GRANT OF DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961. 62. AFTER HEARING BOTH THE SIDES, WE FIND THAT THIS ISSUE IS SIMILAR TO ISSUE RAISED IN ASSESSMENT YEAR 2006-07, WHEREIN WE ALLOW ED THE CLAIM OF THE ASSESSEE. RELEVANT PARAGRAPHS OF THE ORDER OF THE TRIBUNAL FOR ASSTT.YEAR 2006-07 READS AS UNDER: 46. BRIEF FACTS OF THE CASE ARE THAT IN THE RETURN OF INCOME, THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT AT RS.33,19,35,229/- IN RESPECT OF EOU UNITS AT BAVLA AND NARODA. THE ASSESSEE HAS SUBMITTED AUDIT REPORT INFORM NO.56G O F THE ACT. ON ANALYSIS OF THE RETURNS AND DOCUMENTS, THE LD.AO AS OF THE VIEW THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION UNDER SECTIO N 10B ON SOME OF THE ITEMS. ACCORDINGLY, HE MADE ADJUSTMENTS AND REDUCE D DEDUCTION BY A SUM OF RS.10,21,60,135/-. IN OTHER WORDS, THE LD.A O HAS COMPUTED THE DEDUCTION AT RS.22,97,75,094/-. SIX POINTS WHICH H AVE BEEN CONSIDERED BY THE AO FOR MAKING ADJUSTMENT IN THE COMPUTATION OF DEDUCTION ARE AS UNDER: I) UNREALISED EXPORT EXCLUDED FROM THE EXPORT TURNOVER ; II) OTHER INCOME NOT CONSIDERED FOR ELIGIBLE DEDUCTION U/S 10B ; III) CUSTOM DUTY ALLOCATED ON THE BASIS OF RAW MATERIAL IMPORTS IN EOUS AND NON-EOU ; IV) PACKING EXPENSES AND PACKING MATERIAL EXPENSES ALLO CATED IN PROPORTION TO QUANTUM OF SALES IN EOUS AND NON-EOU ; V) CLEARING AND FORWARDING EXPORTS EXPENSES ALLOCATED IN PROPORTION TO QUANTUM OF SALES IN EOUS AND NON-EOU ; VI) ALLOCATION OF ADMINISTRATIVE AND INTEREST EXPENSES IN PROPORTION TO. TOTAL SALES IN EOUS AND NON-EOU. 47. OUT OF THE ABOVE SIX POINTS, THE ASSESSEE IS CH ALLENGING ORDER OF THE LD.CIT(A) ON ISSUE NO.1 AND 2 WHEREAS REVENUE I S CHALLENGING ORDER OF THE CIT(A) ON ISSUE NOS.3 TO 6. 48. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT ASSESSEE IS ENTITLED FOR GRANT OF DEDUCTION UNDER SECTION 10B OF THE ACT. THE DISPUTE RELATES TO QUANTIFICAT ION OF THE DEDUCTION. FIRST WE TAKE THE ISSUE AGITATED BY THE REVENUE IN ITS GROUNDS OF APPEAL. IN THE FIRST FOLD OF GRIEVANCE, THE REVENUE HAS CON TENDED THAT THE AO HAS RIGHTLY ALLOCATED CUSTOM DUTY ON THE BASIS OF R AW-MATERIAL IMPORTS IN EOU AND NON-EOU UNITS. THE AO WAS OF THE VIEW T HAT CUSTOM DUTY PAID BY THE ASSESSEE AND DEBITED IN THE ACCOUNTS OU GHT TO BE ALLOCATED ON THE IMPORTS MADE FOR THE EOU UNITS. THE LD.CIT( A) AFTER MAKING A DETAILED ANALYSIS HELD THAT THERE WAS NO CUSTOM DUT Y ON THE IMPORTS MADE REQUIRED TO BE CONSUMED IN EOU UNITS. IF THAT BE A FACT, THEN HOW THE AO COULD ALLOCATE SUCH AMOUNT TO SUCH UNITS ? THE ASSESSEE HAS ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 49 BEEN MAINTAINING SEPARATE BOOKS OF ACCOUNTS AND DEB ITED ACTUAL EXPENDITURE IN EACH UNIT. THEREFORE, THE LD.CIT(A) IS JUSTIFIED IN HOLDING THAT CUSTOM DUTY WHICH IS NOT INCURRED BY THE ASSES SEE ON THE IMPORTS OF RAW-MATERIAL MEANT FOR EOU UNITS CANNOT BE ALLOC ATED. WE DO NOT ANY MERIT IN THIS FOLD GRIEVANCE RAISED BY THE REVE NUE. IT IS REJECTED. 49. NEXT THREE FOLD GRIEVANCES ARE COMMON. THE GRI EVANCE OF THE REVENUE IN THESE FOLDS OF GRIEVANCES RELATES TO ALL OCATION OF EXPENDITURE INCURRED TOWARDS PACKING MATERIAL, CLEARING AND FOR WARDING EXPENSES, ADMINISTRATIVE AND INTEREST EXPENSES. IT IS PERTIN ENT TO OBSERVE THAT WHERE MIXED ACCOUNTS AND COMMON MANAGEMENT IS THERE , THEN CERTAIN OVERHEAD EXPENSES REQUIRED TO BE ALLOCATED AT THE L EVEL OF HO, BUT IF AN ASSESSEE IS MAINTAINING SEPARATE BOOKS ACCOUNTS AND DEMONSTRATE ALL EXPENDITURE INCURRED BY IT; IDENTIFIABLE AND ALLOCA TABLE, THEN ON ESTIMATE BASIS SUCH EXPENDITURE CANNOT BE ALLOCATED ON THE B ASIS OF TURNOVER OR QUANTUM OF SALES. THE LD.CIT(A) HAS OBSERVED THAT ACCOUNTS OF THE ASSESSEE WERE AUDITED. IT HAS MAINTAINED SEPARATE ACCOUNTS. THE AO DID NOT PIN-POINT SPECIFIC DEFECTS IN THE EXPENDITU RE DEBITED BY THE ASSESSEE. IN OTHER WORDS, IF THE AO IS ABLE TO LAY HIS HAND ON A PARTICULAR EXPENDITURE, WHICH IS MEANT FOR EOU UNIT S, BUT DEBITED EITHER TO THE HO OR IN NON-EOU UNITS, THEN PROBABLY HE WOU LD BE JUSTIFIED IN ALLOCATING EXPENDITURE ON ESTIMATED BASIS. BUT NO SUCH EXERCISE HAS BEEN CARRIED OUT BY THE AO, THEREFORE, WE DO NOT FI ND ANY MERIT IN THIS GROUND OF APPEAL. GROUNDS OF APPEAL RAISED BY THE REVENUE IN THIS CONNECTION ARE REJECTED. 50. AS FAR AS FIRST FOLD GRIEVANCE OF THE ASSESSEE IS CONCERNED, THE LD.AO HAS EXCLUDED UNREALIZED EXPORTS FROM EXPORT T URNOVER. THE LD.CIT(A) CONFIRMED HIS ACTION. 51. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO DOUBT UNREALIZED EXPORT HAS BEEN EXCLUDED FROM THE EXPORT TURNOVER, THEN SIMULTANEOUSLY THESE AMOUNT SHOULD BE EXCLUDED FROM THE TOTAL TURNOVER WHILE COMPUTING THE ELIGIBLE AMOUNT FOR GR ANT OF DEDUCTION UNDER SECTION 10B. 52 WE FIND FORCE IN THIS CONTENTION, BECAUSE IF AN ITEM DOES NOT FALL IN EXPORT TURNOVER, THEN IT IS TO BE EXCLUDED FROM TOTAL TURNOVER ALSO. WE DIRECT THE AO TO EXCLUDE UNREALIZED EXPORTS FROM THE EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER FOR COMPUTI NG DEDUCTION ADMISSIBLE UNDER SECTION10B OF THE ACT. 53. IN THE NEXT FOLD GRIEVANCE, ASSESSEE HAS PLEAD ED THAT THE LD.CIT(A) HAS ERRED IN NOT INCLUDING OTHER INCOME I N THE ELIGIBLE PROFIT FOR DEDUCTION UNDER SECTION 10B. THE LD.COUNSEL FOR TH E ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THIS ISSUE IS SQUARELY C OVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF SPECIAL BENCH OF THE I TAT IN THE CASE OF MARAL OVERSEAS LTD. VS. CIT, 136 ITD 177. HE FURTH ER CONTENDED THAT ITAT, AHMEDABAD HAS FOLLOWED THIS DECISION IN THE C ASE OF SONIC TECHNOLOGY P.LTD. RENDERED IN ITA NO.2665 & 2720/AH D/2011. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDERS OF THE LD.CIT(A). ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 50 54. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND G ONE THROUGH THE RECORD. WE FIND THAT SPECIAL BENCH OF ITAT IN THE CASE OF MARAL OVERSEAS LTD. (SUPRA) HAS CONSIDERED THIS ISSUE. T HE LD.AO HAS BEEN HARPING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. VS.CIT, 317 ITR 218 IN COMING TO THE CONCLUSION THAT OTHER INCOMES VIZ. SALE OF SCRAP ETC. ARE NOT TO BE CONSIDERED AS DERIVED FROM EXPORT ACTIVITIES. IT IS PERTINENT TO OBSERVE THAT IN THE CASE OF SONIC TECHNOLOGY P.LTD. THE ASSESSEE HAS CLAIMED DE DUCTION AFTER INCLUDING INTEREST INCOME, SALE OF SCRAP, SUNDRY BA LANCE WRITTEN OFF, EXCHANGE RATE FLUCTUATIONS AND INCREMENTAL TURNOVER AND DISBURSEMENT OF SUBSIDY FROM THE GOVERNMENT. THESE ITEMS WERE H ELD TO BE ELIGIBLE FOR GRANT OF DEDUCTION UNDER SECTION10B OF THE ACT. THE ITAT IN THE CASE OF SONIC TECHNOLOGY HAS FURTHER OBSERVED THAT ORDER OF THE SPECIAL BENCH INDORE BENCH HAS BEEN UPHELD BY THE HONBLE D ELHI HIGH COURT. DISCUSSION MADE BY THE ITAT QUA THIS ISSUE READS AS UNDER: 11. WE ALSO FIND THAT THE DECISION OF SPECIAL BEN CH OF TRIBUNAL IN THE CASE OF MARAL OVERSEAS LTD. (SUPRA) WAS UPHELD BY H ON'BLE DELHI HIGH COURT IN THE CASE OF HRITNIK EXPORT PVT. LTD.(ITA NO. 219 /2014 & 239/2014 ORDER DATED 13.11.2014) WHEREIN HON'BLE HIGH COURT DISMIS SED THE APPEAL OF REVENUE BY HOLDING AS UNDER:- BY WAY OF THESE APPEALS, THE REVENUE HAS CHALLENGED THE ORDERS PASSED BY INCOME TAX APPELLATE TRIBUNAL (TRIBUNAL, FOR SHORT) DATED 11TH SEPTEMBER, 2013 AND 24TH OCTOBER, 2013 RELATING TO ASSESSMENT YEARS 2008-09 AND 2009-10, RESPECTIVELY. TRIBUNAL HAS FOLLOWED THE DE CISION OF THEIR SPECIAL BENCH IN THE CASE OF MARAL OVERSEAS LTD. VERSUS ADD ITIONAL COMMISSIONER OF INCOME TAX DECIDED ON 20TH MARCH, 2012, IN WHICH IT HAS BEEN HELD:- '78. SECTION 10B SUB-SECTION (1) ALLOWS DEDUCTION IN RESPECT OF PRO FITS AND GAINS AS ARE DERIVED BY A 100% EOU. SECTION 10B(4) LAYS DOWN SPECIAL FORMULA FOR COMPUTING THE PROFITS DERIVED BY THE UN DERTAKING FROM EXPORT. THE FORMULA IS AS UNDER :- PROFIT OF THE BUSINESS OF THE UNDERTAKING X EXPORT TURNOVER TOTAL TURNOVER OF BUSINESS CARRIED OUT BY THE UNDE RTAKING 79. THUS, SUB-SECTION (4) OF SECTION 10B STIPULATED THAT DEDUCTION UNDER THAT SECTION SHALL BE COMPUTED BY APPORTIONING THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN THE RATIO OF TURNOVER TO THE TOTAL TURNOVER. THUS, NOT- WITH-STANDING THE FACT THAT SUB-SECTION (1) OF SECTION 10B REFERS THE PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU, YET THE MANNER OF DETERMINING SUCH ELIGIBLE PROFITS HAS BEEN STATUTOR ILY DEFINED IN SUB-SECTION (4) OF SECTION 10B OF THE ACT. AS PER THE FORMULA STATED ABOVE, THE E NTIRE PROFITS OF THE BUSINESS ARE TO BE TAKEN WHICH ARE M ULTIPLIED BY THE RATIO OF THE EXPORT TURNOVER TO THE TOTAL TURNOVER OF THE BU SINESS. SUB-SECTION (4) DOES NOT REQUIRE AN ASSESSEE TO ESTABLISH A DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING AND ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE UNDERTAKING, THE SAME WOULD BE INCLUDED IN THE PROF ITS OF THE BUSINESS OF THE UNDERTAKING. THUS, ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 51 ELIGIBLE UNDERTAKING, THERE IS NO FURTHER MANDATE I N THE PROVISIONS OF SECTION 10B TO EXCLUDE THE SAME FROM THE ELIGIBLE PROFITS. THE MODE OF DETERMINING THE ELIGIBLE DEDUCTION U/S 10B IS SIMIL AR TO THE PROVISIONS OF SECTION 80HHC INASMUCH AS BOTH THE SECTIONS MANDATES DETERMINATI ON OF ELIGIBLE PROFITS AS PER THE FORMULA CONTAINED TH EREIN. THE ONLY DIFFERENCE IS THAT SECTION 80HHC CONTAINS A FURTHER MANDATE IN TERMS OF EXPLANATION (BAA) FOR EXCLUSION OF CERTAIN INCOME FROM THE ''PR OFITS OF THE BUSINESS'' WHICH IS, HOWEVER, CONSPICUOUS BY ITS ABSENCE IN SECTION 10B . ON THE BASIS OF THE AFORESAID DISTINCTION, SUB- SECTION (4 ) OF SECTION 10A / 10B OF THE ACT IS A COMPLETE CODE PROVIDING THE MECHANISM FOR COMPUTING THE ''PROFITS OF THE BUSINESS'' ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE INCOME OF THE ELIGIBLE UNDERTAKING OF THE ASSESSEE, THE SAME CANNOT BE EXCLUDED FROM T HE ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B OF THE A CT. AS PER THE COMPUTATION MADE BY THE ASSESSING OFFICER HIMSELF, THERE IS NO DISPUTE THAT BOTH THESE INCOMES HAVE BEEN TREATED BY THE ASSESSI NG OFFICER AS BUSINESS INCOME. THE CBDT CIRCULAR NO. 564 DATED 5TH JULY, 1 990 REPORTED IN 184 ITR (ST.) 137 EXPLAINED THE SCOPE AND AMBIT OF SECTION 80HHC AND THE MODE OF DETERMINATION OF PROFITS DERIVED BY AN ASSE SSEE FROM THE EXPORT OF GOODS. I.T.A.T., SPECIAL BENCH IN THE CASE OF INTER NATIONAL RESEARCH PARK LABORATORIES V. ACIT, 212 ITR (AT) 1, AFTER FOLLOWI NG THE AFORESAID CIRCULAR, HELD THAT STRAIGHT JACKET FORMULA GIVEN IN SUB-SECT ION (3) HAS TO BE FOLLOWED TO DETERMINE THE ELIGIBLE DEDUCTION. THE HON'BLE SU PREME COURT IN THE CASE OF P.R. PRABHAKAR; 284 ITR 584 HAD APPROVED THE . A .Y. 2007-08 PRINCIPLE LAID DOWN IN THE SPECIAL BENCH DECISION IN INTERNAT IONAL RESERARCH PARK LABORATORIES V. ACIT (SUPRA). IN THE ASSES SEE'S OW N CASE THE I.T.A.T. IN THE PRECEDING YEARS, AFTER CONSIDERING THE DECISION IN THE CASE OF LIBERTY INDIA HELD THAT PROVISIONS OF SECTION 10B ARE DIFFERENT FROM THE PROVISIONS OF SECTION 80IA WHEREIN NO FORMULA HAS BEEN LAID DOWN FOR COMPUTIN G THE ELIGIBLE BUSINESS PROFIT. 80. IN VIEW OF THE ABOVE DISCUSSION, QUESTION NO. 2 IS ANSWERED IN AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. ACCORDIN GLY, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION ON EXPORT INCENTIVE RECEIVED BY IT IN TERMS OF PROVISIONS OF SECTION 10B ( 1) READ WITH SECTION 10B(4) OF THE ACT.' THE AFORESAID VIEW IS IN CONSONANCE WITH THE DECISI ON OF THIS COURT DATED 1ST SEPTEMBER, 2014 PASSED IN ITA 438/2014, COMMISS IONER OF INCOME TAX-VII VERSUS XLNC FASHIONS IN WHICH THIS COURT HA S HELD AS UNDER :- 'DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961 (ACT, IN SHORT) IS TO BE MADE AS PER THE FORMULA PRESCRIBED BY SUB- SECTION (4), WHICH READS AS UNDER: '10B. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLI SHED HUNDRED PER CENT EXPORT- ORIENTED UNDERTAKINGS- ......... ........... ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 52 (4) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFIT S DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE TH E AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THIN GS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING'. SUB-SECTION (4), THEREFORE, IS THE SPECIAL PROVISIO N WHICH ENABLES THE ASSESSEE TO COMPUTE THE PROFITS DERIVED FROM THE EX PORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. WE DO NOT SEE ANY CONF LICT BETWEEN SUB- SECTION (1) AND SUB-SECTION (4) TO SECTION 10B , AS SUB- SECTION (1) STATES THAT DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DER IVED BY A HUNDRED PERCENT EXPORT-ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR SOFTWARE WOULD BE ELIGIBLE UNDER THE SAID SECTION. SUB- SECTION (1) IS A GENERAL PROVISION AND IDENTIFIES THE INCOME WHICH I S EXEMPT AND HAS TO BE READ IN HARMONY WITH SUB-SECTION (4) WHICH IS THE F ORMULA FOR FINDING OUT OR COMPUTING WHAT IS ELIGIBLE FOR DEDUCTION UNDER SUB- SECTION (1). NEITHER OF THE TWO PROVISIONS SHOULD BE MADE IRRELEVANT AND BO TH HAVE TO BE APPLIED WITHOUT NEGATING THE OTHER. IN OTHER WORDS, THE MAN NER OF COMPUTING PROFITS DERIVED FROM EXPORTS UNDER SUB-SECTION (1), HAS TO BE DETERMINED AS PER THE FORMULA STIPULATED IN SUB-SECTION (4), O THERWISE SUB-SECTION (4) WOULD BECOME OTISE AND IRRELEVANT. THE ISSUE IN QUESTION IN THIS APPEAL WHICH PERTAINS TO THE ASSESSMENT YEAR 2009-10, RELATES TO DUTY DRAW BACK IN THE FORM OF D EPB BENEFITS. AS PER SECTION 28 , CLAUSE (III-C), . A.Y. 2007-08 ANY DUTY OF CUSTOM S OR EXCISE REPAID OR REPAYABLE AS DRAWBACK TO A PERSON AGAINST EXPORTS UNDER CUSTOMS AND CENTRAL EXCISE DUTIES DRAW BACK RULES, 1971 IS DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE SA ID PROVISION HAS TO BE GIVEN FULL EFFECT TO AND THIS MEANS AND IMPLIES THA T THE DUTY DRAW BACK OR DUTY BENEFITS WOULD BE DEEMED TO BE A PART OF THE B USINESS INCOME. THUS, WILL BE TREATED AS PROFIT DERIVED FROM BUSINESS OF THE UNDERTAKING. THESE CANNOT BE EXCLUDED. EVEN OTHERWISE, WHEN WE APPLY SUB-SECTION (4) TO SECTION 10B , THE ENTIRE AMOUNT RECEIVED BY WAY OF DUTY DRAW BACK WOULD NOT BECOME ELIGIBLE FOR DEDUCTION/EXEMPTION. THE AMOUNT QUANTIFIED AS PER T HE FORMULA WOULD BE ELIGIBLE AND QUALIFY FOR DEDUCTION/EXEMPTION. THE P OSITION IS SOMEWHAT AKIN OR CLOSE TO SECTION 80HHC OF THE ACT, WHICH ALSO PRESCRIBES A FORMULA FOR COMPUTATION OF DEDUCTION IN RESPECT OF EXPORTS. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY MERIT IN THE PRESENT APPEAL AND THE SAME IS DISMISSED.' KARNATAKA HIGH COURT IN COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE VERSUS MOTOROLA INDIA ELECTRONICS (P) LTD., ITA NO. 428/20 07, DECIDED ON 11.12.2013, REPORTED AS [2014] 46 TAXMANN.COM 167 ( KARNATAKA) HAS ALSO TAKEN A SIMILAR VIEW, WHEREIN IT HAS BEEN HELD:- 'BY FINANCE, ACT, 2001, WITH EFFECT FROM 01.04.2001 , THE PRESENT SUB- SECTION (4) IS SUBSTITUTED IN THE PLACE OF OLD SUB- SECTION (4). NO DOUBT SUB- SECTION 10(B) SPEAKS ABOUT DEDUCTION OF SUCH PROFITS AND GAINS A S DERIVED FROM 100% EOU FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 53 THEREFORE, IT EXCLUDES PROFIT AND GAINS FROM EXPORT OF ARTICLES. BUT SUB- SECTION (4) EXPLAINS WHAT IS SAYS THAT PROFITS DERI VED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE ACCOUNT WHICH BARES TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING AND NOT THE PROFITS AND GAINS FROM EXPORT OF ARTICLES. THEREFORE, PROFITS AND GAI NS DERIVED FROM EXPORT OF ARTICLES IS DIFFERENT FROM THE INCOME DERIVED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THE PROFITS OF THE BUSINESS OF THE UNDERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF THE ARTICLES A S WELL AS ALL OTHER INCIDENTAL INCOMES DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IT IS INTERESTING TO NOTE THAT SIMILAR PROVISIONS ARE NOT THERE WHILE DEALING WITH COMPUTATION OF INCOME UNDER SECTION 80HHC . ON THE CONTRARY THERE IS SPECIFIC PROVISIONS LIKE SECTION 80HHB WHICH EXPRESSLY EXCLUDES THIS TYPE OF INCOMES. THEREFORE, IN VIEW OF THE AFORESAID PRO VISIONS, IT IS CLEAR THAT, WHAT IS EXEMPTED IS NOT MERELY THE PROFITS AND GAIN S FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF T HE UNDERTAKING.' IN VIEW OF THE AFORESAID POSITION, THE APPEALS HAVE TO BE DISMISSED. WE ORDER ACCORDINGLY. 12. WE THUS FIND THAT THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN THE CASE OF MARAL OVERSEAS (SUPRA) WHEREIN THE RATIO THAT ON CE ON INCOME FORMS PART OF THE BUSINESS OF THE INCOME OF THE ELIGIBLE UNDER TAKING OF THE ASSESSEE, THE . A.Y. 2007-08 SAME CANNOT BE EXCLUDED FROM THE ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 10B OF THE ACT, HAS BEEN UPHELD BY HON'BLE DELHI & KARNATAKA HIGH COURTS IN THE CASE O F HRITNIK EXPORTS PVT. LTD. & MOTOROLA INDIA ELECTRONICS PVT. LTD. 55. RESPECTFULLY FOLLOWING THE ABOVE, WE ALLOW SECO ND FOLD OF GRIEVANCE RAISED BY THE ASSESSEE IN ITS GROUND NO.2 7 AND DIRECT THE AO TO INCLUDE THIS OTHER INCOME IN THE ELIGIBLE PROFIT FOR THE PURPOSE OF GRANT OF DEDUCTION UNDER SECTION 10B OF THE ACT. 56. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. IT IS DISMISSED. 63. BEFORE US NO DISPARITY OF THE FACTS HAS BEEN PO INTED OUT BY THE LD.DR IN THESE YEARS IN THIS BEHALF. THEREFORE, FOLLOWING O UR ORDER FOR THE ASSESSMENT YEAR 2006-0 IN ASSESSEES OWN CASE WE DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE UNDER SECTION 10B IN ACCORDANCE WITH OUR D IRECTIONS CONTAINED IN ORDER FOR THE ASSESSMENT YEAR 2006-07. ACCORDINGLY , WE ALLOW THE GROUNDS OF APPEALS OF THE ASSESSEE AND REJECT THAT OF THE REVE NUE. 64. IN GROUND NO.28 FOR THE ASSESSMENT YEAR 2007-08 THE ASSESSEE IS CHALLENGING CONFIRMATION OF ADDITION UNDER SECTION 14A WHILE COMPUTING BOOK PROFIT. ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 54 65. BRIEF FACTS IN THIS BEHALF ARE THAT ASSESSEE HA S SHOWN DIVIDEND INCOME OF RS.2,44,60,691/- WHICH WAS CLAIMED AS EXEMPT INCOME UNDER SECTION 10(34) OF THE ACT. HOWEVER, ASSESSEE HAS NOT DISALLOWED A NY EXPENDITURE FOR EARNING SUCH INCOME. ASSESSEE EXPLAINED SINCE BUSINESS OF THE ASSESSEE IS INDIVISIBLE EXPENDITURE INCURRED COULD NOT BE APPORTIONED AND T HEREFORE CANNOT BE DISALLOWED. THE LD.AO HELD THAT THIS WAS AGAINST T HE PROVISIONS OF SECTION 14A, AND HE ACCORDINGLY CALCULATED DISALLOWANCE UNDER SE CTION 14A READ WITH RULE 8D AT RS.3,93,000/-. THEREAFTER, WHILE CALCULATING BOOK PROFIT UNDER SECTION 115JB OF THE ACT, THE LD.AO INCREASED THE BOOK PROF IT BY RS.3,93,000/-. THE ASSESSEE HAS CHALLENGED INCLUDING THIS DISALLOWANCE UNDER SECTION 14A IN THE BOOK PROFIT BEFORE THE LD.CIT(A), BUT DID NOT SUCCE ED. ISSUE IS NOW AGITATED BEFORE US. 66. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT DISALLOWANCE UNDER SECTION 14A CANNOT BE ADDED TO BOOK PROFIT UNDER SE CTION 115JB IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. SU ZLON ENERGY LTD., ITA NO.901/AHD/2011 WHEREIN THE TRIBUNAL HAS FOLLOWED O RDERS OF THE CO-ORDINATE BENCH IN THE CASE OF CADILA PHARMACEUTICALS LTD. VS . ACIT, ITA NO.1146 AND 1518/AHD/2011 AND ATUL LTD. VS. ACIT, ITA NO.8/AHD/ 2013. HE FURTHER SUBMITTED THAT IT IS SETTLED POSITION THAT CALCULAT ION OF BOOK PROFIT UNDER MAT PROVISIONS SHOULD BE WITHOUT RESORTING TO CALCULATI ON MADE UNDER SECTION 14A READ WITH RULE 8D. THEREFORE, IT IS SUBMITTED BY T HE LD.COUNSEL THAT NO ADJUSTMENT IS CALLED FOR IN RESPECT OF DISALLOWANCE UNDER SECTION 14A WHILE WORKING OUT BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 67. ON THE OTHER HAND, THE LD.DR WHILE SUPPORTING T HE ORDERS OF BOTH THE REVENUE AUTHORITIES CONTENDED THAT PROVISIONS OF SE CTION 14A READ WITH RULE 8D ARE APPLICABLE FOR CALCULATION OF PROFITS BOTH U NDER MAT AND NORMAL PROVISIONS, AND THEREFORE, BOTH THE AUTHORITIES BEL OW INCLUDED DISALLOWANCE UNDER SECTION 14A IN THE BOOK PROFIT OF THE ASSESSE E. 68. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE T HROUGH THE RECORD. WE FIND THAT SIMILAR ISSUE CAME UP BEFORE THE SPECIAL BENCH, ITAT, DELHI IN THE CASE OF ACIT VS. VIREET INVESTMENT P. LTD., ITA NO. 502/D/2012. ISSUE BEFORE THE SPECIAL BENCH IS DIRECTLY ON POINT I.E. WHETHER THE EXPENDITURE INCURRED TO ITA NO.955 /AHD/2012 AND OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS LTD. & OTHERS 55 EARN EXEMPT INCOME COMPUTED UNDER SECTION 14A COULD NOT BE ADDED WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT. THE SPE CIAL BENCH AFTER DISCUSSING THE ISSUE IN DETAIL AND CONSIDERING VARIOUS AUTHORI TATIVE PRONOUNCEMENTS ANSWERED IN FAVOUR OF THE ASSESSEE BY HOLDING THAT SCOPE OF SECTION 14A COULD NOT BE EXTENDED TO THE PROVISIONS OF SECTION 115JB, AND COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB IS TO BE MADE WITHOUT R ESORTING TO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE ACT. T HEREFORE, FOLLOWING THE JUDGMENT OF THE SPECIAL BENCH IN THE CASE OF VIREET INVESTMENT P. LTD. (SUPRA) WE DIRECT THE AO TO RECOMPUTE THE BOOK PROFIT BY EX CLUDING DISALLOWANCE UNDER SECTION 14A AND WE ALLOW THIS GROUND OF APPEAL OF T HE ASSESSEE. 69. GROUNDS NO.29 TO 31 OF APPEAL OF THE ASSESSEE A RE GENERAL GROUNDS OF APPEAL, WHICH DO NOT REQUIRE SPECIFIC ADJUDICATION, HENCE, REJECTED. 70. IN COMBINED RESULT, ALL APPEALS OF THE ASSESSEE ARE ALLOWED AND THAT OF REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 20 TH JUNE, 2018 AT AHMEDABAD. SD/- SD/- ( AMARJIT SINGH ) ACCOUNTANT MEMBER ( RAJPAL YADAV) JUDICIAL MEMBER