CIBA INDIA LTD, MUMBAI V. JCIT (OSD) RG 8(1), MUMBAI

ITA 4210/MUM/2014

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 1697 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 11-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NYRICA TRIKANNAD
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Corroborative evidences; Capital expenditure; Rule 8D
• Section: 43B; 14A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT AND SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO. 4210 /MUM. /201 4 ( ASSESSMENT YEAR : 20 08 09 ) CIBA INDIA LTD. (THROUGH THEIR SUCCESSORS BASF INDIA LTD.) VIBGYOR TOWERS, UNIT NO.101, 1 ST FLOOR BLOCK C 62, BANDRA KURLA COMPLEX BANDRA (E), MUMBAI 400 051 PAN AAACC4147P . APPELLANT V/S JT . COMMISSIONER OF INCOME TAX (OSD) RANGE 8(1), MUMBAI . RESPONDENT ASSESSEE BY : SHRI MADHUR AGRAWAL A/W SHRI MILIN THAK KAR AND MS. NYRICA TRIKANNAD REVENUE BY : SHRI ANAND MOHAN DATE OF HEARING 03 .1 2 .2020 DATE OF ORDER 16.02.2021 O R D E R PER SAKTIJIT DEY. J.M. CAPTIONED APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 30 TH DECEMBER 2013, PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 10, MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 2008 09. 2 CIBA INDIA LTD. 2. IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED THE ADDITION OF ` 3 , 72,46,953, ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 3. BRIEF FACTS ARE, AS STATED BY THE TRANSFER PRICING OFFICER , THE ASSESSEE , A RESIDENT COMPANY , IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN A WIDE RANGE OF SPECIALTY CHEMICALS WHICH ARE SOLD BOTH IN DOMESTIC AS WELL AS EXPORT MAR KET. THE ASSESSEE IS A PART OF CIBA GROUP , A LEADING GLOBAL SPECIALTY CHEMICAL COMPANY , HAVING ITS HEADQUARTERS AT BASEL IN SWITZERLAND. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTION S WITH ITS ASSOCIAT ED E NTERPRISES (AES), O NE AMONGST THEM BEING PAYMENT OF ` 3,72,43,953, TOWARDS COST ALLOCATION OF ERP SYSTEM IMPLEMENTED BY THE A E. WHILE EXAMINING THE ARM'S LENGTH NATURE OF PAYMENT MADE TOWARDS INTEGRATED ENTERPRISE SOURCE PLANNING SOFTWARE MANUFACTURED BY S A P AG (IN SHORT SAP ERP ), H E FOUND THAT THE ASSES SEE HAD BENCH MARKED THE TRANSACTION BY APPLYING TRANSACTIONAL NET MARGIN METHOD (TNMM) AND CLAIMED IT TO BE AT ARM'S LENGTH. THE TRANSFER PRICING OFFICER, HOWEVER, WAS NOT CONVINCED WITH ASSESSEES CLAIM. ACCORDINGLY, HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN WHY THE ARM'S LENGTH PRICE OF SUCH COST RECHARGE SHOULD NOT BE TREATED AS NIL , OR , TO THE EXTENT THE ASSESSEE ESTABLISHES THE BENEFIT RECEIVED FROM SUCH PAYMENT. FURTHER, THE TRAN SFER PRICING OFFICER ALSO CALLED UPON THE ASSESSEE TO FURNISH 3 CIBA INDIA LTD. DOCUMENTARY EVIDENCES FOR COST ALLOCATION TOWARDS ERP SERVICES. IN RESPONSE TO THE QUERY RAISED, THE ASSESSEE FURNISHED ITS REPLY ALONG WITH SUPPORTING DOCUMENTARY EVIDE NCES INCLUDING AGREEMENT WITH AE FOR ERP SERVICES TERMED AS ERP SYSTEMS COST SHARING AGREEMENT EXECUTED ON 7 TH NOVEMBER 2005. ON A PERUSAL OF THE SAID AGREEMENT, THE TRANSFER PRICING OFFICER FOUND THAT THE AGREEMENT FOR SAP ERP IMPLEMENTATION WAS FOR A PERIOD OF FOUR YEARS AND A LLOCATION KEY FOR COST IS NET SALES. IN THE SUBMISSIONS MADE, IT WAS SUBMITTED BY THE ASSESSEE THAT THE SAP ERP LICENCES WERE IMPLEMENTED IN INDIA ON 31 ST MARCH 2008. THE TRANSFER PRICING OFFICER OBSERVED , AS PER ASSESSEE S CLAIM THE COST SHARING FOR IMPLE MENTATION OF ERP SYSTEM WAS BETWEEN THE ENTIRE GROUP AND IT HAS BEEN ALLOCATED TO 51 GROUP ENTITIES INCLUDING THE PRESENT ASSESSEE. THUS, THE COST WAS ALLOCATED TO ALL THE GROUP ENTITIES WITHOUT ANY MARK UP. THEREFORE, THE ASSESSEE APPLIED COMPARABLE UNCON TROLLED PRICE (CUP) METHOD AS PRICE CHARGED TO OTHER GROUP COMPANIES WAS AVAILABLE AS INTERNAL CUP. THE TRANSFER PRICING OFFICER, HOWEVER, DID NOT ACCEPT THE CLAIM OF THE ASSESSEE. HE OBSERVED , THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO ESTABLISH THAT THE SERVICES WERE ACTUALLY RECEIVED OR EVEN IF SUCH SERVICES WERE RECEIVED , ANY TANGIBLE BENEFIT WAS DERIVED BY THE ASSESSEE. HAVING HELD SO, THE TRANSFER PRICING OFFICER PROCEEDED TO DETERMINE THE ARM'S LENGTH PRICE BY USING EXTERNAL CUP BY WAY OF COMPARABLES AVAILABLE IN 4 CIBA INDIA LTD. A PARTICULAR DATA BASE. THUS, ULTIMATELY, THE TRANSFER PRICING OFFICER CONCLUDED THAT SINCE THE ASSESSEE HAS FAILED TO ESTABLISH THE BENEFIT D ERIVED BY IMPLEMENTING THE SAP ER P SYSTEM THE ARM'S LENGTH PRICE OF THE TRANSACTION HAS TO BE DETERMINED AT NIL. THEREFORE, THE ENTIRE PAYMENT MADE OF ` 3,72,46,953, WAS PROPOSED AS ADJUSTMENT AND ADDED BACK TO THE INCOME OF THE ASSESSEE IN THE ASSESSMENT ORDER. 4. THE ASSESSEE CONTESTED TH E AFORESAID ADJUSTMENT BEFOR E THE FIRST APPELLATE AUTHORITY. HOWEVER , LEARNED COMMISSIONER (APPEALS) CONCURRED WITH THE VIEW EXPRESSED BY THE TRANSFER PRICING OFFICER. 5. THE LEA R NED COUNSEL FOR THE ASSESSEE , DRAWING OUR ATTENTION TO T HE AGREEMENT ENTERED WI TH THE AE FOR SAP ERP IMPLEMENTATION SUBMITTED , THE ASSESSEE HAD ENTERED INTO THE AGREEMENT FOR REPLACING THE EXISTING FRAGMENTED SYSTEM OF VARIOUS CIBA GROUP ENTITIES BY IMPLEMENTING A SINGLE NEW ERP SYSTEM SPANNING OVER A PERIOD OF FOUR YEARS. HE SUBMITTED , SIMILAR AGREEMENT FOR IMPLEMENTING OF SAP E RP WAS ENTERED BY ALL CIBA GROUP ENTITIES WITH THE HEAD OFFICE. HE SUBMITTED , AS PER THE TERM S OF THE AGREEMENT, THE ASSESSEE HAS TO PAY COST FOR ERP ON THE BASIS OF ACTUAL COST INCURRED BY THE HEAD OFFICE WITHOUT ANY MARK UP. HE SUBMITTED , SURMISING THAT THE ASSESSEE HAS NOT DERIVED ANY BENEFIT FROM IMPLEMENTATION OF ERP SYSTEM, THE TRANSFER PRICING OFFICER HAS TREATED THE ARM'S LENGTH PRICE AS NIL. HE 5 CIBA INDIA LTD. SUBMITTED , BY IMPLEMENTING THE ERP SYSTEM THE ASSESSEE HAS AVAILED KEY BENEFIT S BY WAY OF REDUCED OPERATI NG COST, BETTER ACCESSIBILITY , MAINTAINING THE BUDGET AND VARIATION WITH THE BUDGET, BETTER INVENTORY, MANAGEMENT, ETC. HE SUBMITTED , THE SPECIFIC BENEFIT S DERIVED BY THE ASSESSEE WERE SUBMITTED BEFORE THE TRANSFER PRICING OFFICER VIDE LETTER DATED 25 TH OC TOBER 2011. HE SUBMITTED , THE AE HAS ENGAGED EXTERNAL SOFTWARE AND ADVISORY FIRM AND HAS DELEGATED A NUMBER OF HIGHLY QUALIFIED STAFF TO IMPLEMENT THE PROJECT ON A FULL TIME BASIS FOR A FOUR YEAR DEVELOPMENT PERIOD TO ENSURE THAT THE ERP SYSTEM MEET S THE S PECIFIC NEED OF ALL THE G ROUP ENTITIES INCLUDING THE ASSESSEE. HE SUBMITTED , THE DEPARTMENTAL AUTHORITIES FAILED TO APPRECIATE THAT THE ERP SYSTEM WAS IMPLEMENTED IN A SPAN OF FOUR YEARS AND EVERY YEAR THE ASSESSEE HAD TO PAY FOR THE MODULES IMPLEMENTED OR UPGRADED. THEREFORE, THE PAYMENT MADE FOR FOUR YEARS IS FOR GRADUAL IMPLEMENTATION OF VARIOUS MODULE S . HE SUBMITTED , APART FROM FURNISHING THE COST SHARING AGREEMENT, THE ASSESSEE HAS FURNISHED VARIOUS OTHER DOCUMENTS INCLUDING THE CERTIFICATE FROM INDEPE NDENT AUDITOR S TO ESTABLISH THAT COST FOR IMPLEMENTATION OF ERP S YSTEM WAS ALLOCATED TO ALL THE G ROUP ENTITIES WITHOUT ANY MARK UP. HE SUBMITTED , THE DEBIT NOTE ISSUED BY THE AE WAS ALSO FURNISHED BEFORE THE TRANSFER PRICING OFFICER. HE SUBMITTED , WITHOUT PROPERLY VERIFYING THE DOCUMENTARY EVIDENCE S , THE TRANSFER PRICING OFFICER HAS 6 CIBA INDIA LTD. DETERMINED THE ALP AT NIL . HE SUBMITTED , THE RELIANCE PLACED BY THE TRANSFER PRICI NG OFFICER ON A PARTICULAR DATABASE IS WHOLLY MISCONCEIVED AS THE SAID DATABASE IS A INDEPENDENT TECHNOLOGY AND SERVICE PROFESSIONAL PROVIDING SAP END USER S TRAINING TO THE PERSONNEL TO HELP THEM IN BUILDING SKILLS REQUIRED FOR JOB PROFILES INVOLVING DAY TO DAY ACTIVITIES LIKE POSTING OF INVOICES, CREATION OF MASTER RECORD S AND GENERATING OF REPORTS. IT ALSO PROVIDES SERVICES FOR END USER JOBS IN E NTITIES THAT HAVE IMPLEMENTED SA P ERP. HE SUBMITTED , WHILE THE ASSESSEE HAS IMPLEMENTED AN ADVANCE VERSION OF SAP ERP SYSTEM, THE TRANSFER PRICING OFFICER HAS CONSIDERED COMPARABLES IMPLEMENTING OLDER VERSION S . FURTHER, T HE DATA OF CO MPARABLES IS NOT CONTEMPORANEOUS AND RANGES FROM 2001 TO 2006. HE SUBMITTED , WHILE THE ASSESSEE HAS PROVIDED THE DETAILS OF COST CHARGED TO CIL , WHICH RELATES TO COST OF SOFTWARE, HARDWARE AND I NFRASTRUCTURE INCLUDING PERSONNEL COST , NO SUCH DATA RELATING TO THE COMPARABLES WAS PROVIDED BY THE T RANSFER PRICING OFFICER. I N THIS CONTEXT HE DREW OUR ATTENTION TO VARIOUS DISTINGUISHING FEATURE S AS FURNISHED IN THE CHART. HE SUBMITTED , AS PER THE TRANSFER PRICING PROVISIONS , THE TRANSFER PRICING OFFICER IS REQUIRED ONLY TO DETERMINE THE ARM'S LENGTH PRICE OF A PARTICUL AR TRANSACTION. IT IS NOT HIS DUTY TO EX AMINE WHETHER THE TRANSACTION WAS ACTUALLY REQUIRED TO BE UNDERTAKEN OR THE NATURE OF BENEFIT RECEIVED FROM SUCH TRANSA CTION. HE SUBMITTED , WITHOUT FOLLOWING ANY SPECIFIC 7 CIBA INDIA LTD. METHOD TO DETERMINE THE ARM'S LENGTH PRICE HE HAS PERFUNCTORILY DETERMINED THE ARM'S LENGTH PRICE AT NIL BY APPLYING THE BENEFIT TEST. THUS, HE SUBMITTED , THE ADJUSTMENT MADE HAS TO BE DELETED. IN SUPPORT OF SUCH CONTENTION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED UPON THE FOLLOWING DECISIONS: 1. DCIT V DANISCO (INDIA) (P.) LTD. (63 TAXMANN.COM 174)(ITAT DELHI) 2. AKZO NOBEL INDIA LTD. V DCIT (81 TAXMANN.COM 366)(ITAT KOLKATA) 3. DCIT V DIEBOLD SOFTWARE SERVICES (P.) LTD. (48 TAXMANN.COM 26 (MUM.) 4. FESTO CONTROLS PRIVATE LTD. V DCIT (30 TAXMANN.COM 16)(BANG.) 5. MERCK LTD. V/S DCIT (37 TAXMANN.COM 433)(ITAT MUMBAI) 6. TRUMPF INDIA PRIVATE LIMITED VS. DCIT (ITA NO. 977/MUM./2014 7. CIT V EKL APPLIANCES LTD. (345_ ITR 241)(DELHI) 8. SAFRAN AEROSPACE INDIA PVT. LTD. V DCIT (ITA NO.1261/BANG/2010) 9. DAIKIN AIRCONDITIONING INDIA (P) LTD V DCIT (92 TAXMANN.COM 112 (DEL.) 10 SCHNEIDER ELECTRIC INDIA (P.) LTD. V DCIT (82 TAXMANN.COM 364 11 CORNING SAS - INDIA BRANCH OFFICE V DDIT(82 TAXMANN.COM 444 (DEL.) 12. HONDA MOTOR INDIA (P.) LTD. VDCIT (88 TAXMANN.COM 137)(ITAT DEL.) 13. TNS INDIA (P.) LTD. V ACIT (48 TAXMANN.COM 128)(ITAT HYDERABAD) 14. INGERSOLL RAND (INDIA) LTD. V DCIT (67 TAXMANN.COM 328) ITAT BANGALORE 15. DRESSER - RAND INDIA PVT. LTD. V ADDL. CIT (13 TAXMANN.COM 82 (MUM.) 16. CASTROL INDIA LTD. V ACIT (ITA NO.3938 4413/M/2010)(MUM.) 17. CIT V EXCEL INDUSTRIES LTD. (358 ITR 295)(SC) 18. CIT V ARTHUR ANDRSON & CO. (318 ITR 229)(BOM) 19. CLARIANT CHEMICALS (INDIA) LTD. V JCIT (44 TAXMANN.COM 421)MUM. 20. THOMAS COOK (INDIA) LTD. V DCIT (70 TAXMANN.COM 322) 21. BENETTON INDIA (P.) LTD. V DCIT (87 TAXMANN.COM 241) (DEL.) 22. QUAL CORE LOGIC LTD V DCIT (22 TAXMANN.COM 4) (HYD.) 23. ACIT V MSS INDIA (P) LTD (32 SOT 132) (PUNE) 24. MCCANN ERICKSON INDIA PVT. LTD. V A CIT (24 TAXMANN.COM 21 (DEL.) 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE , STRONGLY RELYING UPON THE OBSERVATIONS OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS) SUBMITTED , THE ASSESSEE HAS TO PROVE THROUGH SUPPORTING EVIDENCE THAT ANY INTERNATIONAL TRANSACTION CONDUCTED WITH THE AE IS AT ARM'S LENGTH. HE SUBM ITTED , IN THE PRESENT CASE, THERE ARE 8 CIBA INDIA LTD. CONCURRENT FINDING S OF THE TRANSFER PRICING OFFICER AND LEARNED COMMISSIONER (APPEALS) THAT THE ASSESSEE HAS FAILED TO FURNISH ANY SUPPORTING EVIDENCE TO PROVE THE BENEFIT DERIVED FOR IMPLEMENTATION OF SAP ERP. THEREFORE, THE ADJUSTMENT MADE IS PROPER. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS IN THE LIGHT OF THE DECISIONS RELIED UPON AND PERUSED TH E MATERIAL ON RECORD. ON A PERUSAL OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER, WE FIND THAT IN THE COURSE OF THE PROCEEDINGS, THE ASSESSEE HAD FURNISHED T HE AGREEMENT ENTERED WITH THE AE FOR IMPLEMENTATION OF SAP ERP SYSTEM AS WELL AS VARIOUS OTHE R DOCUMENTARY EVIDENCES INCLUDING THE DEBIT NOTE RAISED BY THE A E TOWARDS ALLOCATION OF COS T. IT IS ALSO A FACT THAT THE AE HAS ENTERED INTO SIMILAR AGREEMENT WITH 51 OTHER GROUP ENTITIES TOWARDS COST ALLOCATION FOR IMPLEMENTING SAP ERP SYSTEM. THEREFO RE, THE COST CHARGED TO OTHER A ES IN THE GROUP IS CERTAINLY AVAILABLE WITH THE ASSESSEE AS CUP FOR COMPA RING THE TRANSACTION WITH THE A E. IT IS ALSO A FACT THAT ERP IMPLEMENTATION HAS STARTED FROM PR ECEDING YEAR S AND SPANNED OVER A PERIOD OF FOUR YEARS. THE PA YMENT MADE BY THE ASSESSEE TOWARDS IMPLEMENTATION OF SAP ERP SYSTEM IN THE PRECEDING ASSESSMENT YEAR S HA S BEEN ACCEPTED BY THE TRANSFER PRICING OFFICER TO BE AT ARM'S LENGTH . IT IS ALSO EVIDENT FROM THE ORDER OF THE TRANSFER PRICING OFFICER, HE HAS N OT DIS PUTED THE FACT THAT THE AE HAS IMPLEMENTED SAP ERP SYSTEM FOR ASSESSEES BUSINESS IN INDIA. THAT BEING THE CASE, THE COST 9 CIBA INDIA LTD. PAID BY THE ASSESSEE FOR IMPLEMENTATION OF SAP ERP SYSTEM WITHOUT ANY MARK UP CANNOT BE TREATED AS NIL BY APPLYING THE BENEFIT TEST. I T IS FOR THE ASSESSEE TO DECIDE WHETHER A PARTICULAR SYSTEM OR INVESTMENT WOULD BE BENEFICIAL TO HIM OR NOT. THE TRANSFER PRICING OFFICER CERTAINLY CANNOT STEP INTO THE SHOES OF THE ASSESSEE OR THE ASSESSING OFFICER TO EVALUATE THE BUSINESS EXPEDIENCY OF A COST INCURRED FOR BUSINESS PURPOSE AND THE BENEFIT DERIVED. HIS JOB IS TO DETERMINE THE ARM'S LENGTH PRICE BY ADOPTING ANY ONE OF THE PRESCRIBED METHOD S . IN THE FACTS OF THE PRESENT CASE, THOUGH , THE TRANSFER PRICING OFFICER HAS STATED THAT HE HAS ADOPTED CUP METHOD FOR DETERMINING THE ARM'S LENGTH PRICE, HOWEVER, IN REALITY , HE HAS DETERMINED THE ARM'S LENGTH PRICE AT NIL ON PURELY AD HOC BASIS BY STATING THAT THE ASSESSEE HAS NOT DERIVED ANY B ENEFIT. MOREOVER, THE ALLEGATIONS OF THE TRANSFER PRICING OFFI CER AND LEARNED COMMISSIONER (APPEALS) THAT THE ASSESSEE HAS FAILED TO FURNISH SUPPORTING EVIDENCE TO ESTABLISH ITS CLAIM IS FOUND TO BE BASELESS AS THE ASSESSEE HAS FURNISHED SUFFICIENT DOCUMENTARY EVIDENCE S NOT ONLY TO PROVE THE IMPLEMENTATION OF SAP ERP SYSTEM BUT ALSO THE BENEFIT DERIVED BY IT FROM SUCH SYSTEM. MOREOVER, WHEN THE TRANSFER PRICING OFFICER HAS ACCEPTED THE PAYMENT MADE TOWARDS SAP ERP IMPLEMENTATION IN THE EARLIER YEARS , THERE IS NO REASON TO DENY THE SAME IN THE CURRENT YEAR BY DETERMINI NG THE ARM'S LENGTH PRICE AT NIL. IN ANY CASE OF THE MATTER, IT IS A FACT ON RECORD THAT THE ASSESSEE HAS 10 CIBA INDIA LTD. IMPLEMENTED THE SAP ERP SYSTEM AND IS UTILIZING IT FOR ITS BUSINESS PURPOSE. THE TRANSFER PRICING OFFICER HAS ALSO STATED THAT SAP ERP SYSTEM IS A NECESSARY TOOL FOR CARRYING OUT BUSINESS WORKS. THAT BEING THE CASE, THE DETERMINATION OF ARM'S LENGTH PRICE AT NIL , THAT TOO, ON AD HOC BASIS IS UNSUSTAINABLE. ACCORDINGLY, WE HAVE NO HESITATION IN DELETING THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. THIS GROUND IS ALLOWED. 8. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` 43,96,080, UNDER SECTION 14A OF THE ACT. 9. BRIEF FACTS ARE, DU RING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO ` 34,76,240. WHEREAS, IT HAS NOT DISALLOWED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. WHEN CALLED UPON TO EXPL AIN , THE ASSESSEE SUBMITTED THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER, HOWEVER, WAS NOT CONVINCED AND PROCEEDED TO COMPUTE THE DISALLOWANCE AT ` 68,21,468, BY APPLYING RULE 8D. 10. THOUGH , THE ASSESSEE CONT ESTED THE AFO RESAID DISALLOWANCE, HOWEVER, IT WAS UNSUCCESSFUL. 11 CIBA INDIA LTD. 11. THE LEA R NED COUNSEL FOR THE ASSESSEE SUBMITTED , SINCE THE ASSESSEE HAD SUFFICIENT SURPLUS FUND AVAILABLE WITH IT , NO DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II ) CAN BE MADE . TO IMPRESS UPON THE FACT THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND S , THE LEA R NED COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO PAGE 25 OF LEARNED COMMISSIONER (APPEALS)S ORDER. AS REGARDS THE DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III), THE LEA R NED COUNSEL FOR THE ASSESSEE SUBMITTED , ONLY THOSE INVESTMENT S WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR SHOULD BE CONSIDERED FOR COMPUTING DISALLOWANCE . IN THIS REGARD, HE DREW OUR ATTENTION TO A CHART SHOWING DISALLOWANCE COMPU TED AT ` 3,91,961. 79. 12. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS REGARDS THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II ), THE CONTENTION OF THE LEA R NED COUNSEL FOR THE ASSESSEE IS TWOFOLD . FIRSTLY, NO INTERES T DISALLOWANCE SHOULD BE MADE WHEN THE ASSESSEE HAS SURPLUS INTEREST FREE FUND AVAILABLE WITH IT. SECONDLY, ONLY THOSE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(III). ON A PERUSAL O F IMPUGNED ORDER OF LEARNED COMMISSIONER (APPEALS), WE FIND THAT THE ASSESSEE HAD MADE A SUBMISSION THAT AS AGAINST THE INTEREST FREE SURPLUS FUNDS AVAILABLE OF ` 281,90,44,000, INVESTMENT STOOD AT ` 150,85,55,000. THUS , FROM THE AFORESAID SUBMISSION , IT I S EVIDENT THAT 12 CIBA INDIA LTD. THE ASSESSEE HAD SUFFICIENT INTEREST FREE F UND AVAILABLE WITH IT TO TAKE CARE OF THE INVESTMENT. THEREFORE, AS PER THE SETTLED LEGAL PRINCIPLE S , NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE UNDER RULE 8D(2)(II). HENCE, THE DISALLOWANC E MADE UNDER RULE 8D(2)(II) HAS TO BE DELETED. AS REGARDS DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE UNDER RULE 8D(2)(III), WE DIRECT THE ASSESSING OFFICER TO COMPUTE SUCH DISALLOWANCE BY TAKING INTO ACCOUNT ONLY THOSE INVESTMENT S WHICH HAVE YIELDED DIVIDE ND INCOME DURING THE YEAR. IN THIS REGARD, THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CORRECTNESS OF DISALLOWANCE COMPUTED BY THE ASSESSEE AT ` 3,91,961. 79. THIS GROUND IS DISPOSED OFF ACCORDINGLY. 13. IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` 14,94,029, UNDER SECTION 43B OF THE ACT. 14. IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF ` 14,94,029, ON ACCOUNT OF LEAVE ENCAS HMENT PAID BY HUNTSMAN INTERNATIONAL INDIA PVT. LTD. RELYING UPON THE ASSESSMENT ORDER PASSED FOR ASSESSMENT YEAR 2007 08, WHEREIN , SIMILAR CLAIM MADE BY THE ASSESSEE WAS DISALLOWED PURSUANT TO THE DIRECTION S OF THE DRP, HE DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE. 15. L EARNED COMMISSIONER (APPEALS) ALSO SUSTAINED THE DISALLOWANCE. 13 CIBA INDIA LTD. 16. THE LEA R NED COUNSEL FOR THE ASSESSEE SUBMITTED , WHILE DECIDING IDENTICAL ISSUE IN ASSESSMENT YEAR 2007 08, THE TRIBUNAL HAS RESTORED IT BACK TO THE ASSESSING OFFICER. THERE FORE, HE SUBMITTED, LET IT BE RESTORED IN THE IMPUGNED YEAR AS WELL. 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO AGREED FOR RESTORATION OF THE ISSUE. 18. HAVING CONSIDERED RIVAL SUBMISSIONS, WE FIND THAT WHILE DECIDING THE ISSUE IN ASSESSEES OWN CASE FOR T HE ASSESSMENT YEAR 2007 08, THE TRIBUNAL IN ITA NO.759/MUM./2012 HAS RESTORED THE ISSUE TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. FACTS BEING IDENTICAL, FOLLOWING THE AFORESAID DECISION OF THE CO ORDINATE BENCH, WE RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 19. IN GROUND NO.4, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF DEPRECIATION CLAIMED ON THE WDV OF THE ROYALTY EXPENDITURE. 20. THE LEA R NED COUNSEL FOR THE ASSESSEE SUBMITTED , IN TH E ASSESSMENT YEAR 2001 02, THE ASSESSEE HAD CLAIMED CERTAIN AMOUNT TOWARDS EXPENDITURE FOR PAYMENT OF ROYALTY WHICH WAS DISALLOWED BY THE ASSESSING OFFICER AND THE FIRST APPELLATE AUTHORITY AS CAPITAL EXPENDITURE. HE SUBMITTED , WHILE DECIDING THE ISSUE, TH E TRIBUNAL , 14 CIBA INDIA LTD. THOUGH , WAS OF THE VIEW THAT THE EXPENDITURE CLAIMED IS CAPITAL IN NATURE, HOWEVER, DEPRECIATION WAS ALLOWED ON SUCH EXPENDITURE. THUS, HE SUBMITTED , BY VIRTUE OF SUCH DECISION OF THE TRIBUNAL CONSEQUENTIAL BENEFIT HAS TO BE GIVEN TO THE ASSESS EE. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , IF THE TRIBUNAL HAS ALLOWED DEPRECIATION TO THE ASSESSEE IN PRECEDING ASSESSMENT YEAR S, CONSEQUENTIAL BENEFIT CAN BE GIVEN TO THE ASSESSEE. 22. HAVING CONSIDERED RIVAL SUBMISSIONS, WE FIND THAT THE ROYALTY EXPENDITURE INCURRED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2001 02 WAS HELD TO BE OF CAPITAL IN NATURE. HOWEVER , THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON SUCH EXPEND ITURE. THEREFORE, WHEN DEPRECIATION HAS BEEN ALLOWED TO THE ASSESSEE ON THE EXPENDITURE INCURRED ON ROYALTY IN THE PRECEDING ASSESSMENT YEAR S, CONSEQUENTIAL BENEFIT OF DEPRECIATION HAS TO BE ALLOWED TO THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR AS WELL. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 23. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.02.2021 SD/ - PRAMOD KUMAR VICE PRESIDENT SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 16.02.2021 15 CIBA INDIA LTD. COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, ITAT, MUMBAI; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ASSISTANT REGISTRAR ITAT, MUMBAI