CASTROL INDIA LTD, MUMBAI V. ACIT RG 8(1), MUMBAI

ITA 3938/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9014 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 12-07-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 14-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: BIPIN PAWAR
• Keywords: Depreciation; Transfer pricing; Business expenditure; International transaction; Additional evidence; Bad and doubtful debts
• Section: 143(3); 92B; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER. I.T.A. NO. 3938/MUM/2010 ASSESS MENT YEAR :2002-03. M/S CASTROL INDIA LTD., ASSTT. COMMISSIONER OF TECHNOPOLIS KNOWLEDGE PARK, VS. INCOME-TAX, MAHAKALI CAVES ROAD, CHAKALA, RANGE-8(1), MUMBAI. ANDHERI (E), MUMBAI-40000093. PAN AAACC4481E APPELLANT RESPONDENT. I.T.A. NO.4413/MUM/2010 AS SESSMENT YEAR : 2002-03. ASSTT. COMMISSIONER OF INCOME-TAX, M/S CASTROL INDIA LTD. 8(1), MUMBAI. VS. MUMBAI. APPELLANT. RESPONDENT ASSESSEE BY : SHRI BIPIN PAWAR & SHRI APURVA SHAH. DEPARTMENT BY : SHRI AJIT KUMAR JAIN. DATE OF HEARING : 12-07-2012. DATE OF PRONOUNCEMENT : -09-2012. O R D E R PER P.M. JAGTAP, A.M. THESE TWO APPEALS BEING ITA NO. 3938/MUM/2010 AND ITA NO. 4413/MUM/2010 ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS)-15, MUMBAI DATED 7-03-2010. 2 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 2. GROUND NO.1 RAISED BY THE ASSESSEE IN ITS APPEAL DISPUTING THE ADDITION OF RS.5,40,294/- MADE BY THE AO AND CONFIRMED BY THE L EARNED CIT(APPEALS) ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT O F TRANSACTIONS WITH AE INVOLVING EXPORT OF LUBRICANTS IS NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 3. GROUND NO. 2 OF THE ASSESSEES APPEAL AND THE SO LITARY GROUND RAISED IN THE REVENUES APPEAL INVOLVE A COMMON ISSUE RELATING TO ADDITION OF RS.3,99,63,865/- MADE BY THE AO ON ACCOUNT OF TP ADJUSTMENTS IN RESP ECT OF REIMBURSEMENT/ALLOCATION OF COE3 RELATED EXPENSES W HICH HAS BEEN SUSTAINED BY THE LEARNED CIT(APPEALS) TO THE EXTENT OF RS.1,68,8 0,675/-. 4. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DISTRIBUTION OF LUBRI CANT OILS, GREASES, BRAKE FLUIDS AND OTHER SPECIALITY PRODUCTS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31-10-2002 DECLARI NG TOTAL INCOME OF RS.138,63,51,510/-. THE ASSESSEE BELONGS TO MULTI-N ATIONAL BP GROUP OF COMPANIES AND DURING THE YEAR UNDER CONSIDERATION, IT HAD ENT ERED INTO INTERNATIONAL TRANSACTIONS, INTER ALIA, INVOLVING COST SHARING AN D COST REIMBURSEMENT WITH ASSOCIATED ENTERPRISES. AS SUBMITTED IN THE TP REPO RT FURNISHED BY THE ASSESSEE COMPANY, BP GROUP UNDERTAKES WORLDWIDE INFORMATION TECHNOLOGY INITIATIVES AND THE ASSESSEE COMPANY BEING A MEMBER OF THE SAID GRO UP, RECEIVES INFORMATION TECHNOLOGY SUPPORT FROM ITS ASSOCIATED ENTERPRISES. IT ALSO SHARES THE RELATED COST INCURRED BY THE SAID ENTERPRISES IN PROVIDING SUCH SUPPORT. DURING THE YEAR UNDER CONSIDERATION, SIGNIFICANT IT COSTS WERE INCURRED R ELATING TO A COMMON OPERATING ENVIRONMENT SYSTEM (COE3) DEPLOYED BY THE BP GROUP WORLDWIDE. AS CLAIMED IN THE TP RETURN, COE3 OFFERED SIGNIFICANT BENEFITS TO THE PARTICIPATING ENTITIES INCLUDING THE ASSESSEE COMPANY RESULTING INTO EFFIC IENT FUNCTIONING OF THE BUSINESS 3 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 AND REDUCTION IN OPERATION COST. TO IMPLEMENT THE S AID PROJECT, VARIOUS GROUP ENTITIES INCURRED COST WHICH WERE ALLOCATED TO GROU P COMPANIES PARTICIPATING IN THE SYSTEM ON THE BASIS OF NUMBER OF COE3 ENABLED COMPU TERS INSTALLED AT EACH ENTITY. IT WAS CLAIMED THAT THE ASSESSEE COMPANY HAS ALSO R EIMBURSED CERTAIN COST TO ITS ASSOCIATED ENTERPRISES AT ACTUAL WHICH CONSTITUTE D INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS ASSOCIATED ENTERPRISES WI THIN THE MEANING OF SECTION 92B READ WITH SECTION 92A. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, A REFERENCE U/S 92CA(1) WAS MADE BY THE AO TO THE TPO FOR THE COMPUTATION OF ARMS LENGTH PRICE, INTER ALIA, IN RELATION TO THES E INTERNATIONAL TRANSACTIONS. THE TPO ASKED THE ASSESSEE COMPANY TO FURNISH CERTAIN I NFORMATION AND ON THE BASIS OF THE INFORMATION FURNISHED BY THE ASSESSEE AS WELL A S OTHER SUBMISSIONS MADE FROM TIME TO TIME, HE PROCEEDED TO DETERMINE THE ALP OF INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY WITH ITS AE INVOLVING COST SHA RING AND COST REIMBURSEMENT AS UNDER : 5.3.1 GLOBAL DOWN STREAM & LICENSES FOR MICROSOFT P ROFESSIONAL 2000 RS.9,632,295/ : THE ASSESSEE HAS PAID/PAYABLE AN AMOUNT OF RS.9,632 ,295/- TO BP INTERNATIONAL LTD., UNITED KINGDOM. THE AMOUNT IN FOREIGN CURRENCY IS GBP 131, 197. IN THE SUPPORT, A COPY A INVOICE DATED 9.12.,2001 IS FILED. THE RELEVANT PORTION OF THE INVOICE READS AS: GLOBA! & DOWNSTREAM CENTRAL CHARGES FOR COE3 DEPLO YMENT IN CASTROL INDIA 345 UNITS @ $279 = $96255 REX MICROSOFT PRO 2000 LI CENSES. BOUGHT CENTRALLY 345 UNITS @$261 .= $90045 C4PEX THIS INVOICE DOES NOT CONVEY THE PROPER MEANING REG ARDING THE CAPITAL EXPENSE PERTAINING TO LICENSES BOUGHT AND ALSO THE CENTRAL CHARGES FOR COE3 DEPLOYMENT. THE INVOICE IS DATED 19.12.2001, INDICA TING THAT, THIS COST PERTAINS TO PERIOD ENDING NOVEMBER/DECEMBER, 2001. FROM THE DETAILS FILED BY THE ASSESSEE ON 05.10.2004, REGARDING PROJECT REQUEST ( ROW OB CASTROL INTEGRATION PROJECT INDIA CASTROL INTEGRATION PRO JECT). THIS DOCUMENT IS DATED 30.04.2001 AND THE NAME OF THE PROJECT I PHASE 2 I NDIA COE. AS PER THE CONCEPTUAL PROJECT PLAN, THE INDIA PHASE 2 WAS TO S TART ON 10.03.2001 AND WAS 4 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 TO GET OVER BY 27.08.2001. THE PLAN AND DOCUMENTATI ON FOR PHASE 3 WAS TO START ON 02.07.2001 AND THE BUSINESS APPROVAL WAS T O BE OBTAINED FOR THIS PHASE 3 ON 16.07.2001. CONSIDERING THESE FACTS, IT CAN BE STATED THAT, DURING THE YEAR 2001, COE3 WAS NOT IMPLEMENTED, AND // THE ASSESSEE DID NOT SUBMIT ANY DOCUMENT, AS REQUIRED VIDE THIS OFFICE LETTER D ATED 16.08.2004. NO SUPPORTING DOCUMENTS FOR THIS INVOICE ARE FILED. CO NSIDERING THESE FACTS, THE ARMS LENGTH PRICE OF THIS TRANSACTION IS COMPUTED AT NIL. 5.3.2 COST ALLOCATION OF DIGITAL BUSINESS RS.4,22 5,647/- PAID/PAYABLE TO BP INTERNATIONAL LTD., U.K. THE AMOUNT IN FOREIGN CURRENCY IS US$ 86,589. THIS IS INVOICE DATED 23.03.2002 AND THE DETAILS READ AS : 1Q02 D8O INFR ASTRUCTURE CHARGES. AS DISCUSSED EARLIER, THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS AND BASIS OF ALLOCATION, WHICH IS NOT SUBMITTED. THESE DOCUMENTS , IT WAS REQUIRED TO OBTAIN AND MAINTAIN AS PER CLAUSE 5.3 AND 5.4 OF THE AGREE MENT. IN ABSENCE OF THESE DOCUMENTS, THE ARMS LENGTH PRICE OF THE TRANSACTIO N IS COMPUTED AT NIL. 5.3.3 COST ALLOCATION OF GLOBAL LICENSES CHARGES RS.1,269,885/- PAID/PAYABLE TO BP INTERNATIONAL LTD., U.K. :, THE CORRESPONDING AMOUNT IN US$ IS 26,022. A COPY O F E-MAIL DATED 25.03.2002 IS SUBMITTED AND THE RELEVANT PORTION OF THE SAME READS AS: FURTHER TO MY EMAIL BELOW AND OUR LAST DISCUSSION, WE WILL A/SO BE RAISING A CORRESPONDING IN VOICE FOR THE DBO GLOBAL SOFIWARE LICENCE CHARGES, THE BREAKDOWN OF WHICH IS AS FOLLOWS: 2001: 3 RD QUARTER 2001:201 PCS AT $128/ANNUM ($32/QUARTER) /PC.= $6,432. . 4 TH QUARTER 2001 : 369 PCS AT $128/ANNUM ($32/QUARTER )/PC = $11,808 2002 1 QUARTER 2002 : 389 PCS AT $118/ANNUM ($30 IN 1 Q )/PC $11,670 TOTAL = $29,910 THESE ARE GLOBAL SOFTWARE LICENSES CHARGES AND AS P ER THE AGREEMENT, SHOULD BE PASS THROUGH. COSTS. - AS THE INVOICE IS FOR GLOBAL SOFTWARE LICENSE CHARGES, THEREFORE, NO ADJUSTMENT IS MADE TO THE TR ANSACTION VALUE RECORDED IN THE ACCOUNTS BY THE ASESSEE. 5 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 5.3.4 ALLOCATION OF FEDERAL CHARGES ON ACCOUNT OF DIGITAL BUSINESS OF RS.2,295345/- TO BP INTERNATIONAL LTD., UNITED KING DOM THE ASSESSEE SUBMITTED A COPY OF INVOICE DATED 10.0 4.2002 ISSUED BY BP INTERNATIONAL LTD., UNITED KINGDOM, FOR THE SHARE O F FEDERAL COSTS 2001, FOR GBP 18,754.51. THE SUPPORTING DOCUMENTS, AS REQUIRE D BY CLAUSE 5.3 AND 5.4 OF THE SERVICE AGREEMENT ARE NOT SUBMITTED, OTHERWI SE ALSO, THE TRANSACTION VALUE IN EQUIVALENT INR WILL BE RS.1,302,875/- ONLY . IN ABSENCE OF THE NATURE OF EXPENSES, BASIS OF ALLOCATION AND THE BENEFIT TO CA STROL INDIA, THE ARMS LENGTH PRICE OF THE TRANSACTION IS COMPUTED AT NIL. 5.3.5 . ALLOCATION OF DOWNSTREAM GROUP PROJECT COST OF RS.5 075,190/- PAID/PAYABLE TO BP INTERNATIONAL LTD., UNITED KINGD OM: ON THE ISSUE, A COPY OF INVOICE DATED 10.04.2002 IS SUED BY BP INTERNATIONAL LTD., UNITED KINGDOM PERTAINING TO SH ARE OF GROUP PROJECT COSTS IS SUBMITTED. THE AMOUNT IS GBP 73,037.09. IT IS NOT K NOWN WHAT ARE THE TOTAL GROUP PROJECT COSTS, HOW THE SAME ARE ALLOCATED, AN D WHAT IS THE BASIS OF ALLOCATION. NO DOCUMENT TO DEMONSTRATE THE NATURE O F EXPENSE IS SUBMITTED. IT IS ALSO NOT KNOWN, WHETHER THE ALLOCATION IS FOR FU LL YEAR OR FOR PART OF THE YEAR, BECAUSE, AS PER DETAILS FILED ON 05.10.2004 BY THE COMPANY, THE COE PHASE 2 OF THE PROJECT, WAS SCHEDULED (PLANNED) TO START ON 27 .08.200 1. CONSIDERING THIS FACT, NOT ONLY THIS EXPENSE BUT ALL THE EXPENSES RE LATING TO THE SOFTWARE LICENSING, MAINTENANCE AND OTHER DIGITAL BUSINESS E XPENSES WERE REQUIRED TO BE ALLOCATED FOR PART OF THE YEAR ONLY. IN ABSENCE OF THESE DETAILS, THE ARMS LENGTH PRICE OF THIS TRANSACTION IS ALSO COMPUTED AT NIL. 5. 3.6 THE AMOUNTS PAID! PAYABLE TO BP SINGAPORE PTE LTD., ACCOUNT OF THE FOLLOWING : (I) COST ALLOCATION OF DIGITAL BUSINESS EXPENSES RS.2,923,472/- (II) ALLOCATION OF TECHNICAL EXPENSES RS. 647,110/- (III) REIMBURSEMENT OF LEASED LINE CHARGES RS.1,33,098/- (IV) ALLOCATION OF EXPENSES RELATING TO COE3 PROJEC T RS.1,580,822/- (V) ALLOCATION OF DIGITAL BUSINESS PERFORMANCE MANAGEMENT CHARGES RS. 214,443/- 6 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 FOR SUPPORTING THESE EXPENSES, AN INVOICE FOR SINGA PORE DOLLAR 168,561 IS FILED. THE CHARGES FOR DIGITAL BUSINESS COE CHAR GE OUT, DATA CHARGE OUT, TELEPHONE/ISL CHARGE OUT, HR CHARGE OUT, HSSE CHARG E OUT, DIGITAL BUSINESS ROM CHARGE OUT ARE MENTIONED IN THE INVOIC E. HOWEVER, THE DOCUMENTS AS MENTIONED IN THE CLAUSE 5.3,AND 54 OF THE AGREEMENT I.E. WHETHER THESE ARE THE EXPENSES INCURRED BY THE BP SINGAPORE PTE LTD. OR RE ASS THRO H EXPENSES, ARE NOT SUBMITTED. IN ABSENCE OF T HESE EXPENSES, THE ARMS LENGTH PRICE ON THIS ALLOCATION IS ALSO COMPUTED AT NIL. THIS WILL RESULT IN DISALLOWANCE OF EXPENSE BY THE ASSESSING OFFICER OF RS.6,498,957 5.3.7 ALLOCATION BY/REIMBURSEMENT TO BP AUSTRALIA LTD.: THE EXPENSES MENTIONED IN THE EXHIBIT-5 OF THE TP R EPORT ARE DISCUSSED BELOW: (I) ALLOCATION OF TECHNICAL SERVICES FEES - RS.1 ,459,681/- THE ASSESSEE NEITHER SUBMITTED THE INVOICE NOR SUPP ORTING DOCUMENTS, THEREFORE, THE ARMS LENGTH PRICE OF THIS TRANSACTI ON IS COMPUTED AT NIL. (II) ALLOCATION OF MANAGEMENT COST OF DIGITAL BUSINESS-R S.374, 1751- A COPY OF DEBIT NOTE DATED MARCH, 2002 IS FLIED WHI CH MENTIONS THAT BILLING FOR THE 2001 ROW REGIONAL MANAGEMENT COSTS SITTING IN ANZ BOOKS AS PER A/LOCATION PROVIDED BY JOESPHINE TAN FROM SEA. THIS IS FOR AUSTRALIAN DOLLAR (AUD) FOR 14,880.72. THIS EQUALS TO US$ 7,66 8.07. THE BIFURCATION OF USD 7,668.07 IS AS BELOW SHARE OF ROW REGIONAL MANAGEMENT COSTS - 7,133.09 7.5% TRANSFER PRICING - 534.98 IT IS NOT KNOWN, WHETHER THE SERVICES ARE PROVIDED BY BP AUSTRALIA LTD. OR ARE PASS THROUGH COSTS. IN CASE OF PASS THROUGH COS .S, NO SERVICE CHARGE IS TO BE LEVIED AS PER THE GROUP POLICY. THEREFORE, THOUG H, BP AUSTRALIA IS CHARGING SERVICE CHARGE, BECAUSE OF SAFE HARBOUR PROVISION, IT IS NOT ALLOWABLE TO THE INDIAN ENTITY, IF IT IS A PASS THROUGH COST, FOR W HICH, DETAILS ARE NOT FILED. IN ABSENCE OF THESE DETAILS, TH ARMS LENGTH PRICE OF THE TRANSACTION IS ALSO DETERMINED AT NIL. (III) REIMBURSEMENT OF COST OF TRAINING AND TRAVEL RS.3 58,L32/: FOR THIS, THE ASSESSEE SUBMITTED TWO DEBIT NOTES RA ISED BY BP AUSTRAHA LTD. DATED MARCH, 2002. THE RELEVANT PORTION READS AS: 7 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 DIGITAL BUSINESS PROJECTS RECOVELY NOVEMBER, 2001 CVP TRAINING PROVIDED BY 4 WAYNE GEJ4RQN 4 DAYS @$2,OOO. 00 PER DAY - 7,333.33 7.5% TRANSFER PRICING - 399.19 CVP TRAINING TRAVEL - 5,993.00 75% TRANSFER PRICING - 469.19 IT APPEARS THAT, WAYEN GEARON, VISITED CASTROL INDI A FOR TRAINING, FOR WHICH, CHARGES @ $2,000.00 PER DAY AND THE TRAVEL E XPENSES ARE RECOVERED. FOR THE TRAINING, AUD 2,000 PER DAY, ITSELF, WILL BE TH E MARKET PRICE, THEREFORE, THERE IS NO BASIS FOR CHARGING SURCHARGE ON THE SAME. THE BASIS FOR AUD 2,000,PER DAY IS NOT SUBMITTED. SIMILARLY, TRAVEL COST IS A P ASS THROUGH COST, THEREFORE, NO SERVICE CHARGE IS ALLOWABLE ON THESE EXPENSES. CONS IDERING THIS, THE BILLING FOR TRANSFER PRICING OF AUD 868.38 IS NOT AN ALLOWABLE EXPENSE. THIS WILL RESULT INTO DISALLOWANCE OF RS.21,214/- OUT OF THE EXPENSES ON THIS ACCOUNT CLAIMED BY THE ASSESSEE. (IV) ALLOCATION OF TECHNICAL SERVICES FEES RS.854,868/ - FOR THIS EXPENSE ALSO, A DEBIT NOTE DATED MARCH, 20 02 BY BP AUSTRALIA LTD. IS FILED AND THE RELEVANT PORTION READS AS: DIGITAL BUSINESS PROJECT RECOVERY SEPTEMBER, 2001 BASE COSTS - US$15,076. 65 75% TRANSFER PRICING - US$ 1,130.75 FOR SUPPORTING THE TOT BASE COSTS AND BASIS OF ALLO CATION, NO DOCUMENTS ARE FLIED AS REQUIRED BY CLAUSE 5.3 AND 5.4 OF THE SERVICE AGREEMENT, THEREFORE, THE ARMS LENGTH PRICE OF THIS TRANSACTION IS COMPU TED AT NIL. (V) COST ALLOCATION OF DIGITAL BUSINESS EXPENSES RS.8 ,526,505/- / FOR THIS EXPENSE ALSO, A DEBIT NOTE DATED FEB, 20 02 IS FILED .THE RELEVANT PORTION OF THIS READS AS: .. DIGITAL BUSINESS PROJECT RECOVERY SEPTEMBER, 2001 BASE COSTS - US$ 162,545.12 8 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 7.5% TRANSFER PRICING - US$ 12,190.88 --------------------- TOTAL - US$ 174,736.00 -------------------- FOR THIS DEBIT NOTE ALSO, NO DOCUMENTS ARE SUBMITTE D AS REQUIRED BY CLAUSE 5.3 AND 5.4 OF THE SERVICE AGREEMENT. IT IS ALSO NOT KNOWN WHETHER THE BASE COSTS CONSISTS OF HE COSTS INCURRED BY THE PRO VIDING PARTY OR THE THIRD PARTY COSTS. IN ABSENCE OF THESE DETAILS, IT IS NOT KNOWN, WHETHER, THE SERVICE CHARGE (MARK-UP TO COSTS) ARE ALLOWABLE AS EXPENSES IN THE HANDS OF CASTROL INDIA OR NOT. FROM THE CONTENTS OF DEBIT NOTES, AS DISCUSSED IN THIS PARA AND ALSO PRECEEDING PARAS, IT IS SEEN THAT, THE BP AUST RALIA LTD. RAISED TWO DEBIT NOTES FOR THE SAME MONTH I.E. SEPTEMBER, 2001 IN TH E MONTHS OF FEBRUARY, 2002 AND MARCH, 2002. THE REASONS FOR THE SAME ARE NOT KNOWN. CONSIDERING THIS, THE ARMS LENGTH PRICE OF THIS TRANSACTION IS ALSO COMPUTED AT NIL. ON THE BASIS OF ALPS OF THE INTERNATIONAL TRANSACTI ONS COMPUTED BY HIM AS ABOVE, THE TPO PROPOSED ADDITION OF RS.3,89,63,865/- TO TH E INCOME OF THE ASSESSEE BY WAY OF TP ADJUSTMENT ON ACCOUNT OF INTERNATIONAL TR ANSACTIONS WITH AES INVOLVING REIMBURSEMENT/ALLOCATION OF COST. ACCORDINGLY ON TH E BASIS OF TPOS ORDER PASSED U/S 92CA(3), THE SAID ADDITION WAS MADE BY THE AO T O THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED U/S 143(3) VID E AN ORDER DATED 23-01-2005. 5. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) CHALLE NGING THEREIN, INTER ALIA, THE ADDITION OF RS.3.99 CRORES MADE BY WAY OF TP ADJUST MENT. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(APPEAL S), THE ASSESSEE FURNISHED CERTAIN ADDITIONAL DETAILS RELATING TO BASIS OF AL LOCATION OF COE3 EXPENSES WHICH WERE NOT SUBMITTED BEFORE THE TPO/AO. THE LEARNED C IT(APPEALS), THEREFORE, SOUGHT REMAND REPORT FROM THE AO/TPO ON THESE ADDIT IONAL DETAILS FURNISHED BY 9 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 THE ASSESSEE. THE TPO EXAMINED THE MATTER AFRESH IN THE LIGHT OF ADDITIONAL DETAILS FURNISHED BY THE ASSESSEE AND OFFERED HIS COMMENTS IN RESPECT OF EACH ITEM IN THE REMAND REPORT AS UNDER : SR. NO. ITEM OF DISCUSSION IN COE3 AMOUNT DETAILS SUBMITTED ACTION POINT IN TPOS ORDER ADDITIONAL EVIDENCE SUBMITTED REMARKS. 1. GLOBAL DOWNSTREAM CHARGES & LICENSES FOR MICROSOFT PROFESSIONAL 2000 RS. 96,32,295/- GBP 131,197 FILED COPY OF INVOICE DTD. 19/12/01 ALP DETERMINED AS NIL. NO SUPPORTING DOCUMENTS SUBMITTED FOR THE INVOICE OF GBP 131,197 FILED. ADDITIONAL DETAILS FILED- BASIS ALLOCATION GLOBAL AND CENTRAL DOWNSTREAM ARE ALLOCATED AT USD 139 (GLOBAL TEAM CHARGES) + USD 140 (DOWNSTREAM TEAM CHARGES) THE BASIS OF ALLOCATION FOR MICROSOFT LICENSE CHARGES IS USD 261 PER SEAT. THE BASIS FOR ALLOCATION IS PROVIDED WHICH IS FOLLOWED UNIFORMLY THROUGHOUT THE GROUP. 2. COST ALLOCATION DIGITAL BUSINESS RS. 42,25,647/- USD 86,589 FILED COPY OF INVOICE DTD 23/03/02 ALP DETERMINED AS NIL. NO DETAILS & BASIS OF ALLOCATION SUBMITTED. ADDITIONAL DETAILS FILED BASIS OF ALLOCATION THE AMOUNT CALCULATED FOR CASTROL INDIA LTD. IS BASED ON THE NUMBER OF TOTAL SEATS [396] FOR THE ENTIRE INDIA REGION. THE BASIS FOR ALLOCATION IS PROVIDED WHICH IS FOLLOWED UNIFORMLY THROUGHOUT THE GROUP. 3. ALLOCATION OF FEDERAL CHARGE ON ACCOUNT OF DIGITAL BUSINESS. RS. 9,91,456/- USD 20,316 INVOICE DTD 10.4.02 ALP DETERMINED AS NIL. NO SUPPORTING DOCUMENTS OF SERVICE AGREEMENT SUBMITTED ADDITIONAL DETAILS FILED BASIS OF ALLOCATION THESE CHARGES ARE ALLOCATED TO INDIA SITE BASED ON THE COE SEAT COUNT. INDIAS SHARE IS 0.26% OF THE TOTAL CHARGE. THE AMOUNT CHARGED BY THE AE PERTAINS TO INDIA, WHICH COMPRISE OF VARIOUS LEGAL ENTITIES. THUS, THE AMOUNT CALCULATED FOR CASTROL INDIA LTD. IS BASED ON THE NUMBER OF TOTAL SEATS [800] FOR THE ENTIRE INDIA REGION. THE BASIS FOR ALLOCATION IS PROVIDED WHICH IS FOLLOWED UNIFORMLY THROUGH THE GROUP. 4. ALLOCATION OF FEDERAL CHARGE ON ACCOUNT OF INI 1!3,03,889/- SAME AS ABOVE SAME AS ABOVE SAME AS ABOVE SAME AS POINT NO. 3 ABO VE. 10 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 DIGITAL BUSINESS GBP 18,764.51 5. DOWNSTREAM GROUP PROJECT COST RS. 50,75,190/- GBP 73,037.09 INVOICE DTD 10.4.02 PERTAINING TO SHARE OF GROUP PROJECT COST ALP DETERMINED AS NIL. NO SUPPORTING DOCUMENTS FILED. ADDITIONAL DETAILS FILED- BASIS OF ALLOCATION SAME AS POINT NO. 3 ABOVE. 6. COST ALLOCATION OF DIGITAL BUSINESS EXP. ALLOCATION OF TECH EXP. REIMBURSEMENT OF LEASED TRIAL CHARGES. ALLOCATION OF EXPENSES RELATING TO COE3 PROJECT. ALLOCATION OF DIGITAL BUSINESS PERFORMANCE RS.854,710/- SINGAPORE $ 32,289.77 ALP DETERMINED AS NIL. NO SUPPORTING DOCUMENTS OF THE SERVICE AGREEMENT SUBMITTED. ADDITIONAL DETAILS FILED. CASTROL INDIA HAD BEEN CHARGED WITH AN AMOUNT OF USD 32,289.77 OUT OF A TOTAL CHARGE OF USD 37,232.19. THE BASIS FOR ALLOCATION IS PROVIDED WHICH IS FOLLOWED UNIFORMLY THROUGHOUT THE GROUP. ON THE BASIS OF HIS COMMENTS/REMARKS GIVEN IN THE R EMAND REPORT AS ABOVE, THE TPO AGREED THAT THE ALLOCATION OF COE3 EXPENSES TO THE EXTENT OF RS.2,20,83,188/- WAS IN ORDER. AS REGARDS THE ALLOCATION OF BALANCE AMOUNT OF RS.1,68,80,675/-, HE STATED THAT THE REQUIRED BACK-UP/EVIDENCE WAS NOT S UBMITTED BY THE ASSESSEE AND ADDITION MADE TO THAT EXTENT, THEREFORE, WAS REQUI RED TO BE SUSTAINED. KEEPING IN VIEW THESE COMMENTS/REMARKS OFFERED BY THE TPO IN T HE REMAND REPORT, THE LEARNED CIT(APPEALS) RESTRICTED THE ADDITION OF RS.3,99,63, 865/- MADE BY THE AO ON THIS ISSUE TO RS.1,68,80,675/- THEREBY ALLOWING A RELIEF OF RS.2,20,83,188/- TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (APPEALS) ON THIS ISSUE, THE ASSESSEE AND REVENUE BOTH HAVE RAISED THEIR GRIEVAN CE IN THE PRESENT APPEALS FILED BEFORE THE TRIBUNAL. 11 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IN SO FAR AS THE A LLOCATION/REIMBURSEMENT OF COE3 EXPENSES TO THE EXTENT OF RS.2,20,83,188/- IS CONCE RNED, IT IS OBSERVED THAT FRESH DETAILS WERE FURNISHED BY THE ASSESSEE FOR THE FIRS T TIME BEFORE THE LEARNED CIT(APPEALS) GIVING COMPLETE DETAILS OF THE SAID EX PENSES AS WELL AS THE BASIS OF ALLOCATION THEREOF. THE SAID DETAILS WERE FORWARDED BY THE LEARNED CIT(APPEALS) TO THE AO/TPO AND ON VERIFICATION OF THE SAME, THE TPO ACCEPTED IN HIS REMAND REPORT THAT ALLOCATION/REIMBURSEMENT OF COE3 EXPENS ES TO THE EXTENT OF RS.2,20,83,188/- WAS IN ORDER. KEEPING IN VIEW THIS FINDING RECORDED BY THE TPO IN THE REMAND REPORT, THE ADDITION MADE ON THIS ISS UE TO THE EXTENT OF RS.2,20,83,188/- HAS BEEN DELETED BY THE LEARNED CI T(APPEALS) AND, IN OUR OPINION, QUITE RIGHTLY SO. WE, THEREFORE, FIND NO MERIT IN T HE SOLITARY GROUND RAISED BY THE REVENUE IN ITS APPEAL ON THIS ISSUE AND DISMISS THE SAME. 7. IN SO FAR AS THE ALLOCATION/REIMBURSEMENT OF COE 3 EXPENSES TO THE EXTENT OF RS.1,68,80,675/- IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THERE IS NO DISPUTE ABOUT THE FACT T HAT SIGNIFICANT COSTS WERE INCURRED RELATED TO COE3 PROJECT DEPLOYED BY THE BP GROUP WO RLDWIDE AND THE ASSESSEE COMPANY AS A PART OF THE SAID GROUP HAD DERIVED BE NEFIT THEREOF. AS SUBMITTED BY HIM, THE DISPUTE IS ABOUT THE BASIS OF ALLOCATION A ND WANT OF DETAILS IN THIS REGARD. HE HAS SUBMITTED THAT THE COPIES OF INVOICES RAISED IN THIS REGARD BY THE AES WERE FURNISHED BY THE ASSESSEE ALONG WITH RESPECTIVE ALL OCATION KEYS. KEEPING IN VIEW THIS SUBMISSION MADE BY THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS ON PERUSAL OF THE RELEVANT DETAILS AVAILABLE ON RECORD, WE AGR EE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE IS NO J USTIFICATION IN THE ACTION OF THE TPO IN IGNORING ALL THESE DETAILS AND TAKING THE AL P OF THE RELEVANT TRANSACTIONS AT NIL. IN OUR OPINION, IT IS INCUMBENT UPON THE TPO TO WORK OUT THE ALP OF THE 12 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 RELEVANT TRANSACTIONS BY FOLLOWING SOME AUTHORIZED METHOD AND THE ENTIRE COST BORNE BY THE ASSESSEE CANNOT BE DISALLOWED BY TAKIN G THE ALP AT NIL KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE CASE AND TH E RELEVANT DETAILS FURNISHED BY THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD HAS SUBMITTED THAT IN THE SUBSEQUENT YEARS I.E. ASSESSMENT YEARS 2005- 06 AND 2006-07, A SIMILAR ISSUE WAS INVOLVED IN THE ASSESSEES CASE AND THE LEARNED CIT(APPEALS) HAS ALLOWED THE EXPENSES ALLOCATED TO THE EXTENT OF 50%. WE HAVE PE RUSED THE ORDERS OF THE LEARNED CIT(APPEALS) PASSED IN THE ASSESSEES CASE FOR ASSE SSMENT YEARS 2005-06 AND 2006-07. IT IS NOTED THAT NO CONVINCING OR SOUND BA SIS HAS BEEN GIVEN BY THE LEARNED CIT(APPEALS) THEREIN IN SUPPORT OF THE 50% COST ALLOCATION ACCEPTED BY HIM AND SUCH ESTIMATE HAS BEEN MADE PURELY ON ADHOC BASIS. IN OUR OPINION, THE EXERCISE OF ASCERTAINING ALPS HAS TO BE DONE BY THE TPO KEEPING IN VIEW THE WELL LAID DOWN SCHEME IN THE RELEVANT PROVISIONS OF THE ACT AND ADDITION, IF ANY, ON ACCOUNT OF TP ADJUSTMENT, HAS TO BE MADE ONLY AFTER DOING SUCH EXERCISE. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE AO /TPO WITH A DIRECTION TO DO SUCH EXERCISE AND MAKE ADDITION, IF ANY, ON THIS ISSUE A FTER COMPLETING SUCH EXERCISE IN ACCORDANCE WITH LAW. GROUND NO.2 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. THE ISSUE RAISED IN GROUND NO.3 OF THE ASSESSEE S APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE L EARNED CIT(APPEALS) ON ACCOUNT OF DEPRECIATION OF RS.9,70,65,909/- IN RESP ECT OF UNIT LOCATED AT SILVASSA. 9. THE ASSESSEE IN THE EARLIER YEARS HAD NOT CLAIME D DEPRECIATION ON THE ASSETS OF SILVASSA UNIT. IN THE YEAR UNDER CONSIDERATION, DEPRECIATION ON THE SAID ASSETS WAS CLAIMED BY THE ASSESSEE AT RS.15,84,40,030/-. T HE SAID AMOUNT OF DEPRECIATION WAS WORKED OUT BY THE ASSESSEE ON THE WRITTEN DOWN VALUE OF ASSETS OF SILVASSA UNIT WITHOUT TAKING INTO CONSIDERATION DEPRECIATION FOR THE EARLIER YEARS AS NO SUCH 13 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 DEPRECIATION IN THE EARLIER YEARS WAS CLAIMED BY TH E ASSESSEE. SINCE THE DEPRECIATION ON THE ASSETS OF SILVASSA UNIT WAS ALL OWED BY THE AO IN THE EARLIER YEARS, HE WORKED OUT THE WRITTEN DOWN VALUE OF THE ASSETS OF SILVASA UNIT AFTER DEDUCTING THE DEPRECIATION SO ALLOWED IN THE EARLIE R YEARS AND RECOMPUTED THE DEPRECIATION ALLOWABLE TO THE ASSESSEE AT RS.6,13,7 4,121/- ON THE WRITTEN DOWN VALUE SO WORKED OUT. THIS RESULTED IN THE DISALLOWA NCE OF DEPRECIATION TO THE EXTENT OF RS.9,70,65,909/-. ON APPEAL, THE LEARNED CIT(APP EALS) CONFIRMED THE SAID DISALLOWANCE MADE BY THE AO RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PLASTIBLENDS LTD. VS. ADDL. C IT 318 ITR 352. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED EVEN BY THE LEARNED C OUNSEL FOR THE ASSESSEE, THE ISSUE RAISED IN GROUND NO. 3 OF THE ASSESSEES APPE AL IS SQUARELY COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DE CISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PLASTIBLENDS LTD. VS. ADD L. CIT (SUPRA). RESPECTFULLY FOLLOWING THE SAID DECISION OF HONBLE JURISDICTIO NAL HIGH COURT, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) CONFIRMI NG THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE AND DISMISS GROUND NO. 3 OF TH E ASSESSEES APPEAL. 11. GROUND NO. 4 RAISED BY THE ASSESSEE IN THIS APP EAL HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 12. THE ISSUE RAISED IN GROUND NO. 5 OF THE ASSESSE ES APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LE ARNED CIT(APPEALS) ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB IN RESPECT OF THE FOLLOWING ITEMS OF OTHER INCOME : 14 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 1. OTHER INCOME DIRECTLY LINKED TO SILVASSA UNIT RS. 41,67,815 2. INTEREST RECEIVED (IN RATIO OF SALES VOLUMES) RS. 34,69,135 3. MISCELLANEOUS INCOME (IN RATIO OF SALES VOLUME) RS. 23,61,499 4. REVERSAL OF EXCESS PROVISION OF DOUBTFUL DEBTS (RATIO OF SALES VOLUME) RS.32,75 ,948 5. INSURANCE CLAIM (RATIO OF SALES VOLUME) RS.54, 02,609 13. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY LEARNED REPRESENTA TIVES OF BOTH THE SIDES, THIS ISSUE TO THE EXTENT OF ASSESSEES CLAIM FOR DEDUCTI ON U/S 80IB IN RESPECT OF FIRST FOUR ITEMS IS CONCERNED, THE SAME IS COVERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS. CIT 317 ITR 217 (SC) WHEREIN IT WAS HELD THAT T HE PROVISIONS OF SECTION 80IB ARE CODE BY THEMSELVES AS THEY CONTAIN BOTH SUBSTAN TIVE AS WELL AS PROCEDURAL PROVISIONS. THE WORD DERIVED FROM IS NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. BY USING THE EXPRESSION D ERIVED FROM PARLIAMENT INTENDED TO COVER SOURCES NOT BEYOND THE FIRST DEGREE. THE A SSESSEE HAS CLAIMED DEDUCTION U/S 80IB IN RESPECT OF RECEIPTS WHICH ARE INCIDENTA L TO THE BUSINESS AND SO BEYOND THE FIRST DEGREE. RESPECTFULLY FOLLOWING THE SAID DECISION OF HONBLE SUPREME COURT, WE UPHOLD THE ORDER OF THE LEARNED CIT(APPEA LS) ON THIS ISSUE CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 80IB IN RESPEC T OF FIRST FOUR ITEMS OF OTHER INCOME. 15 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 14. IN SO FAR AS THE CLAIM OF THE ASSESSEE FOR DEDU CTION U/S 80IB IN RESPECT OF INSURANCE CLAIM OF RS.54,02,609/- IS CONCERNED, IT IS OBSERVED THAT THE SAME IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F COORDINATE BENCH OF THIS TRIBUNAL AT DELHI IN THE CASE OF J.K. ALUMINUM CO. VS. ITO RENDERED VIDE ITS ORDER DATED 29-04-2011 PASSED IN ITA NO. 3303/DEL/2010. I N THE SAID DECISION, THE COORDINATE BENCH OF THIS TRIBUNAL HAS HELD THAT REF UND OF EXCISE DUTY BEING REFUND OF ASSESSEES OWN MONEY CANNOT BE REGARDED AS SEPAR ATE INCOME AT ALL AND THE AO, THEREFORE, WAS NOT JUSTIFIED IN DENYING THE RELIEF U/S 80IB ON THAT AMOUNT. WHILE RENDERING THIS DECISION, THE TRIBUNAL HAS TAKEN IN TO CONSIDERATION THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA). IN OUR OPINION, THE DECISION OF THE TRIBUNAL IN THE CASE OF J.K. ALUMIN I CO. (SUPRA) IS APPLICABLE IN RESPECT OF INSURANCE CLAIM RECEIVED BY THE ASSESSEE INASMUCH AS THE SAME BEING REIMBURSEMENT/RECOVERY OF EXPENSES ACTUALLY INCURRE D BY THE ASSESSEE, IT HAS NO EFFECT ON THE FINAL INCOME OF THE ASSESSEE SO AS T O WARRANT EXCLUSION THEREOF WHILE COMPUTING DEDUCTION U/S 80IB. ACCORDINGLY, WE ALLOW GROUND NO. 5 OF THE ASSESSEES APPEAL PARTLY. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 14 TH DAY OF SEPT., 2012. SD/- (VIVEK VARMA) JUDICIAL MEMBER SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER DATED : 14 TH SEPT., 2012 16 ITA NO.3938/MUM/2010 & ITA NO. 4413/MUM/2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI WAKODE