ZF Wind Power Coimbatore Private Limited, Coimbatore V. DCIT, Coimbatore

ITA 440/CHNY/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3972 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 24-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 29-02-2016
• Court: TRIBUNAL
• Department Lawyers: VIVEKANANDAN
• Keywords: Transfer pricing; Business expenditure; Double taxation relief; International transaction
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , . ! ' , # '$ % [ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ] ./ I.T.A.NO.440/MDS/2016 / ASSESSMENT YEAR : 2011-12 M/S ZF WIND POWER COIMBATORE PVT. LTD PLOT NO.3, HI TECH ENGINEERING & SERVICE SECTOR SEZ, KARUMATHAMPATTY KITTAMPALAYAM VILLAGE, ANNUR ROAD, COIMBATORE 641 659 VS. THE DY. COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 1 COIMBATORE [PAN AABCH 8089 G] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI SRIRAM SE SHADRI SHRI ASHIK SHAH, CAS /RESPONDENT BY : SHRI VIVEKANANDAN, CIT / DATE OF HEARING : 24 - 10 - 2016 / DATE OF PRONOUNCEMENT : 23 - 1 1 - 2016 * / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEEE IS DIRECTED AGAINS T THE ASSESSMENT ORDER DATED 20.12.2015 PASSED U/S 144C (13) R.W.S 143(3) OF THE INCOME-TAX ACT, 1961 WHICH WAS PASSE D CONSEQUENT TO THE DRPS ORDER DATED 24.11.2015 PASSED U/S 143(3) R.W. SECTION 92CA AND 144C OF THE ACT. ITA NO. 440/16 :- 2 -: 2. FACTS OF THE CASE ARE THAT THE ASSESSEE IS A WHOLL Y OWNED SUBSIDIARY OF HANSEN DRIVES PTE. LTD, SINGAPORE WHI CH IN TURN IS A SUBSIDIARY OF ZF WIND POWER ANTWERPEN N.V., BELGIUM (FORMERLY KNOWN AS HANSEN TRANSMISSIONS INTERNATIONAL N.V) (ZF BEL GIUM). THE ASSESSEE IS PRIMARILY ENGAGED IN THE MANUFACTURE/AS SEMBLY OF GEARBOXES FOR WIND TURBINE GENERATORS. THE ASSESSE E-COMPANY HAS ESTABLISHED ITS MANUFACTURING FACILITY IN A SPECIAL ECONOMIC ZONE AT COIMBATORE AND COMMENCED COMMERCIAL OPERATIONS FRO M SEPTEMBER, 2008. THE COIMBATORE MANUFACTURING FACILITY HAS BE EN MODELED ON ZF BELGIUMS DEDICATED WIND TURBINE GEARBOX FACILITY I N LOMMEL, BELGIUM, AND UTILIZE THE SIMILAR MANUFACTURING MACHINES AND PROCESSES. DURING THE FINANCIAL YEAR 2010-11, THE ASSESSEE-COMPANY HA S ALSO ACTED AS A DISTRIBUTOR IN ORDER TO MEET THE UNEXPECTED DEMAND OF THE END CUSTOMERS. THE ASSESSEE-COMPANY HAS IMPORTED GEARB OXES FROM OVERSEAS AND SUPPLIED TO THE END CUSTOMER AND ACTED PURELY AS AN INTERMEDIARY BETWEEN ENTREPRENEURS AND THE CUSTOMER S. BASED ON THE ABOVE, THE ASSESSEE PERFORMS THE ROLE OF A LICENSE D MANUFACTURER UNDERTAKING MANUFACTURING OF GEARBOXES USED IN WIND TURBINES AND A DISTRIBUTOR, UNDERTAKING SUPPLIES OF GEARBOXES TO I TS END CUSTOMER. CONSEQUENT TO THE DIRECTION OF THE DRP, THE ASSESSI NG OFFICER PASSED FINAL ORDER BY MAKING FOLLOWING ADJUSTMENTS TO THE RETURNED INCOME : ITA NO. 440/16 :- 3 -: (A) DOWNWARD ADJUSTMENT DUE TO MARGIN COMPUTATION ` 8,14,25,822/- (B)PRIOR PERIOD INTEREST PAYMENT ` 10,42,08,970/- ADJUSTMENT DUE ON OVERDUE PAYABLES TOTAL ` 18,56,34,792/- 3. BEFORE US, GROUND NO.1 & 2 WERE NOT PRESSED. ACCOR DINGLY, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 4. GROUND NO.3(A) IS THAT ON THE FACTS AND CIRCUMSTANC ES OF THE CASE, THE ASSESSING OFFICER AND THE DRP ERRED IN CO NSIDERING FOREIGN EXCHANGE LOSS AS OPERATING IN NATURE WHILE COMPUTIN G THE OPERATING PROFIT MARGIN OF THE ASSESSEE. 5. THE ASSESSEE EXCLUDED FOREIGN EXCHANGE LOSS OF ` 20,86,89,706/- WHILE COMPUTING ITS OPERATING MARGIN AS NON-OPERATIVE COST. IN EARLIER YEAR, THE ASSESSEE CONSIDERED TH E ENTIRE GAIN ON FOREIGN EXCHANGE AS OPERATIVE IN NATURE THOUGH CERT AIN PORTION WAS UNREALIZED GAIN AND ACCORDINGLY COMPUTED ITS MARGIN . WHEN IT WAS QUESTIONED BY THE TPO, ASSESSEE REVERSED ITS STAND TO THE EXTENT OF TREATING ONLY THE REALIZABLE LOSS OF ` 2,61,63,474/- AS OPERATIVE IN NATURE AND THE NON-REALIZABLE LOSS OF ` 18,25,26,232/- AS DISCLOSED IN THE CASH FLOW STATEMENT AS NON-OPERATIVE LOSS. THE ASSESSEE HAS NOT FURNISHED THE BIFURCATION OF THE FOREIGN EXCHANGE L OSS. IN THE ABSENCE OF DETAILS AND CONSIDERING THE ASSESSEES STAND FO R THE EARLIER ITA NO. 440/16 :- 4 -: ASSESSMENT YEAR AND ALSO TAKING INTO ACCOUNT THE RI SK PROFILE OF THE ASSESSEE AS DISCLOSED IN THE TRANSFER PRICING DOCUM ENTATION WHICH REMAINS UNCHANGED FOR THIS YEAR, THE ENTIRE LOSS WA S TREATED AS OPERATIVE IN NATURE. ACCORDINGLY, THE TPO REWORKE D THE PLI OF THE ASSESSEE. THIS WAS CONTESTED BY THE AS BEFORE THE DRP. BEFORE THE DRP, THE ASSESSEE SUBMITTED THAT FOREIGN EXCHANGE LOSS/GAIN COMPRISES OF BOTH REALIZED WHICH ARISES AS A RESULT OF BUSINESS OPERATIONS/TRANSACTIONS AND UNREALIZED WHICH ARISES OUT OF REVALUATION OF THE YEAR END FOREIGN CURRENCY DENOMINATED RECEIV ABLE PAYABLES/TRANSLATION ETC. ACCORDINGLY, EVEN IF ONE WERE TO CONSIDER FOREIGN EXCHANGE LOSS/GAIN AS OPERATING IN NATURE, THE REALIZED COMPONENT SHOULD BE CONSIDERED AS NON-OPERATING IN NATURE. THE REALIZABLE COMPONENT CAN ONLY BE CONSIDERED AS PART OF THE OPERATING INCOME/EXPENSES AND THE UNREALIZABLE COMPONENT SHOU LD BE CONSIDERED AS NON-OPERATIVE IN NATURE. THIS CONTEN TION OF THE ASSESSEE WAS REJECTED BY THE DRP AND OBSERVED THAT THE ENTIRE LOSS FORMS PART OF THE EXPENSES OF THE ASSESSEE WHEN T HE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. SO, THE TREATMENT GIVEN BY THE TPO TO FOREIGN EXCHANGE LOSS CANNOT BE FAULTED WITH AND THE DRP CONFIRMED THE VERSION OF THE TPO AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO. 440/16 :- 5 -: 6. WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION, LOSS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IF IT IS RELATING TO TRANSACTIONS OF OPERATING EXPE NSES IT IS IN REVENUE FIELD. ON THE OTHER HAND, IF THE FOREIGN EXCHANGE FLUCTUATION IS RELATING TO THE ACQUISITION OF FIXED ASSET IT SHOULD BE IN CAPITAL FIELD. IN VIEW OF THIS, WE ARE OF THE OPINION THAT IT IS TO BE EXAMIN ED BY THE TPO IN THE LIGHT OF JUDGMENT OF HON'BLE SUPREME COURT IN THE C ASE OF CIT VS WOODWARD GOVERNOR INDIA P. LTD., 312 ITR 254. FUR THER, WE MAKE IT CLEAR THAT THERE IS NO MERIT IN THE ASSESSEES ARG UMENT THAT ONLY REALIZABLE COMPONENT COULD ONLY BE CONSIDERED AS PA RT OF OPERATING INCOME OR EXPENSES. IN OTHER WORDS, BOTH REALIZABL E/UNREALIZABLE PORTION OF FOREIGN EXCHANGE FLUCTUATION RELATING TO THE TRANSACTION/BUSINESS OPERATION OF THE ASSESSEE TO BE CONSIDERED AS REVENUE IN NATURE. ACCORDINGLY, WE REMIT THIS ISSU E TO THE FILE OF THE ASSESSING OFFICER/TPO TO EXAMINE AFRESH. THIS GROU ND IS PARTLY ALLOWED. 7. GROUND NOS.3(B) AND (C) WERE NOT PRESSED, THEREFORE , DISMISSED. 8. GROUND NO.3(D) IS REGARDING ERRONEOUS COMPUTATION O F TRANSFER PRICING ADJUSTMENT FOR MANUFACTURING ACTIV ITY. 9. FACTS RELATING TO THIS ISSUE ARE THAT ACCORDING TO THE ASSESSEE-COMPANY, THE TPO HAS WRONGLY COMPUTED THE TRANSFER PRICING ITA NO. 440/16 :- 6 -: ADJUSTMENT OF MANUFACTURING ACTIVITY BY CONSIDERING THE TOTAL PURCHASES AMOUNTING TO ` 934,341,736/- I.E PURCHASE OF RAW MATERIAL AND COMPONENTS AMOUNTING TO ` 643,186,362/- FOR MANUFACTURING ACTIVITY AND PURCHASE OF GEARBOX AMOUNTING TO ` 291,155,374/- FOR DISTRIBUTION ACTIVITY. HOWEVER, THE TPO ACCEPTED T HE ALP OF THE INTERNATIONAL TRANSACTIONS WITH RESPECT TO THE DIST RIBUTION ACTIVITY AND THE ASSESSEE HAS NOT RAISED ANY OBJECTION AGAINST THE SAME DURING ASSESSMENT PROCEEDINGS. ACCORDING TO THE LD. AR, FO R COMPUTING THE OPERATING MARGIN OF THE MANUFACTURING ACTIVITY, TOT AL COST OF MANUFACTURING ACTIVITY ONLY TO BE CONSIDERED. AS AG AINST THIS, THE TPO CONSIDERED THE TOTAL PURCHASES OF BOTH MANUFACTURIN G ACTIVITY AS WELL A DISTRIBUTION ACTIVITY WHICH IS NOT APPROPRIATE. HE DREW OUR ATTENTION TO THE FINANCIAL INFORMATION FOR THE YEAR ENDED 31.3.2 011 PLACED AT PAGE 426 OF TE PAPER BOOK AND COMPARED THE SAME WITH COM PUTATION OF PROFIT MARGIN IN PARA 8 PAGE 10 OF THE TPOS ORDER. HE SUBMITTED THAT ONLY THE MANUFACTURING ACTIVITY COST TO BE CONSIDER ED. 10. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THE INTERNATIONAL TRANSACTION EXAMINED BY THE TPO FOR T HE PURCHASES OTHER THAN THAT OF FIXED ASSETS MADE BY THE ASSESSEE FRO M AE. NOWHERE IN THE ORDER THE TPO HAS EXTRACTED THE PURCHASES REL ATED TO THE MANUFACTURING ACTIVITY. SO, HE SUBMITTED THAT THE TPO HAS RIGHTLY CALCULATED THE ALP BY ADOPTING THE VALUE OF TOTAL P URCHASES OF ` ITA NO. 440/16 :- 7 -: 934,341,736/-. THE LD. DR SUPPORTED THE ORDERS OF THE DRP AS WELL AS TPO. 11. WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE ORDER O F THE TPO AS WELL AS DRP. THE TPO WHILE CONSIDERING THE TOTAL INCOME , CONSIDERED ONLY THE REVENUE FROM MANUFACTURING ACTIVITY AT ` 322,71,62,066/- AS AGAINST THIS, HE HAS TO CONSIDER ONLY THE TOTAL COS T PERTAINED TO MANUFACTURING ACTIVITY. IF HE HAS CONSIDERED TOTAL COST OF BOTH MANUFACTURING AND DISTRIBUTION ACTIVITY THEN IT IS NOT APPROPRIATE. IT IS NOTED THAT HE HAS CONSIDERED THE TOTAL COST OF MANU FACTURING AND OTHER EXPENSES OF ` 308,11,04,622/- WHILE COMPUTING THE OPERATIVE MAR GIN. IF THIS AMOUNT OF ` 308,11,04,622/- INCLUDES THE COST OF DISTRIBUTION ACTIVITIES IT IS TO BE EXCLUDED AND THE TPO IS DIRE CTED TO CONSIDER THE COST RELATING TO MANUFACTURING ACTIVITY ONLY. ACCO RDINGLY, WE REMIT THIS ISSUE TO THE FILE OF TPO/ASSESSING OFFICER WITH THE ABOVE OBSERVATIONS. 12. THE NEXT GROUND IS WITH REGARD TO REJECTING THE CLA IM OF ASSESSEE OF CHARGING OVERDUE INTEREST ON PAYABLES O N ACCRUAL BASIS BY CHARGING THE ENTIRE OVERDUE INTEREST FOR PAST THR EE YEARS DURING THE FINANCIAL YEAR 2010-11. 13. FACTS OF THIS ISSUE ARE THAT THE ASSESSEE CLAIMED INTEREST ON OVERDUE PAYABLES TO AES. THE INTEREST CHARGES RELA TE BACK OUTSTANDING PAYABLES FOR THE YEAR ENDED 31.3.2008, 31.3.2009 AN D 31.3.2010 AND ITA NO. 440/16 :- 8 -: PART OF 2011 FINANCIAL YEAR. THE INVOICES OF AE RE QUIRE PAYMENT FROM THE ASSESSEE AT 90 DAYS PERIOD FROM THE END OF THE MONTH OF INVOICE. THERE WAS NO STIPULATION IN THE INVOICE THAT INTERE ST ON OVERDUE PAYABLES TO AE WOULD ATTRACT INTEREST AND ALSO THER E IS NO MENTION OF ANY INTEREST RATE. THE TPO OBSERVING THE CHARGING OF OVERDUE INTEREST FOR EARLIER YEARS IN THE YEAR UNDER CONSIDERATION, QUESTIONED THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. TH E ASSESSEE REPLIED THAT IT WAS IN THE INITIAL STAGE OF OPERATI ON AND IT IS IN THE PROCESS OF STABILIZATION. ACCORDINGLY, THE ASSESS EE REQUESTED ITS AE FOR DEFERMENT OF THE INTEREST EXPENSES TO SUBSEQUEN T YEAR AND THUS THE CUMULATIVE INTEREST EXPENSES WAS CHARGED IN THE YEAR UNDER CONSIDERATION. HAD THE ASSESSEE BORROWED FUND LO CALLY FROM ANY BANK OR FINANCIAL INSTITUTION, IT WOULD HAVE INCURR ED INTEREST EXPENDITURE WHICH WAS SUFFERED BY THE ASSESSEE BY WAY OF DEFERMENT AND THE ANNUAL INTEREST CHARGED TO AE WHICH IS BELO W THE EURIBOR RATE AND IT CANNOT BE QUESTIONED BY THE TPO. HOWEVER, B OTH TPO AND DRP HAVE NOT FIND ANY MERIT IN THE CLAIM OF THE ASSESS EE WHICH RESULTED IN UPWARD ADJUSTMENT OF ` 10,42,08,970/- AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 14. THE LD.AR SUBMITTED THAT THE TPO HAS NO JURISDICTIO N TO NULLIFY THE TRANSACTION. ACCORDING TO THE LD. AR, AS LONG AS EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS, IT IS NO CONCERN OF THE TPO ITA NO. 440/16 :- 9 -: TO DISHONOR THE SAME ON ANY EXTRANEOUS REASONING. FOR THIS PURPOSE, HE RELIED ON THE ORDER OF HYDERABAD BENCH OF THIS T RIBUNAL IN THE CASE OF M/S AIR LIQUIDE ENGINEERING INDIA P. LTD IN I.T. A.NO. 1040/HYD/2011 DATED 13.2.2014. HE ALSO RELIED ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF EKL APPLIANCES LTD IN I.T.A.NO.S 106 8/2011 AND 1070/2011 DATED 29.3.2012. 15. THE LD. AR ALSO SUBMITTED THAT THE MADRAS HIGH COUR T IN THE CASE OF CIT VS POLLY CONTAINER INDUSTRIES, 233 ITR 526 OBSERVED THAT WHERE THE ASSESSEE WAS SUB-LESSEE OF A REGULAR TEN ANT AND THERE WAS NO AGREEMENT TO PAY RENT AND THE GOVERNMENT FOR THE FIRST TIME INFORMED THE ASSESSEE BY LETTER DATED 26 TH AUGUST 1975, THAT RENT FROM 1966 TO 1976 WAS PAYABLE BY ASSESSEE, ASSESS EE FOLLOWING MERCANTILE SYSTEM COULD RIGHTLY MAKE A PROVISION FO R THE RENT IN THE ACCOUNTING YEAR ENDING 30 TH SEPTEMBER 1975, RELEVANT TO ASSESSMENT YEAR 1976-77 EVEN THOUGH DEMAND FOR RENT WAS RAISED IN JANUARY 1976. HE ALSO RELIED ON THE JUDGMENT OF MADRAS HIG H COURT IN THE CASE OF CIT VS EGMORE BENEFIT SOCIETY LTD, 237 ITR 606, WHEREIN HELD THAT WHERE BY VIRTUE OF AN AGREEMENT, THE ASSESSEE- COMPANY HAD AGREED TO PAY BONUS IN EXCESS OF 20 PER CENT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1978-79, THE LIABIL ITY TO PAY BONUS HAD ACCRUED TO THE ASSESSEE ONLY DURING THAT PREVIOUS YEAR THOUGH RELATING TO THE EARLIER YEAR; AMOUNT PAID IN EXCESS OF 20 PE R CENT OF SALARY OR ITA NO. 440/16 :- 10 -: WAGES IS ALLOWABLE ON THE BASIS OF COMMERCIAL EXPED IENCY. IN VIEW OF THE ABOVE, HE SUBMITTED THAT THERE WAS NO INTENTION OF THE ASSESSEE TO SHIFT THE PROFIT SINCE THE ASSESSEE IS LOCATED IN STPEZ. FOR THIS PURPOSE, HE LIED ON THE ORDER OF THE HYDERABAD BEN CH OF THIS TRIBUNAL I THE CASE OF IJM INDIA INFRASTRUCTURE LTD, 28 ITR (TRIB) 176. FINALLY HE SUBMITTED THAT THE CLAIM OF INTEREST HAS ARISEN ON ACCOUNT OF THE DIRECTIVES OF THE EUROPEAN PARLIAMENT AND OF THE CO UNCIL DATED 16.2.2011 WHEREIN THEY HAVE NECESSITATED THE PAYMEN T OF INTEREST ON OUTSTANDING OF FOREIGN EXCHANGE. 16. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT INSPIT E OF GIVING AMPLE OPPORTUNITY TO THE ASSESSEE TO PROVE ITS CLAIM THAT IT WAS BOUND BY CERTAIN PRE-EXISTING TERMS AND CONDITIONS TO MAKE SUCH INTEREST PAYMENT TO THE AE, THE ASSESSEE FAILED TO DO SO. THE ASSESSEE HAS NOT PRODUCED ANY DOCUMENTS IN RELATION TO THE ABOVE PAYMENT TO PROVE ITS CLAIM AND CONTROVERT THE FINDI NGS OF THE TPO. THE LD. DR SUBMITTED THAT EVEN BEFORE THE DRP THE ASSESSEE HAS NOT FILED ANY EVIDENCE FOR THE CLAIM OF PRIOR PERIOD IN TEREST IN THE ASSESSMENT YEAR UNDER CONSIDERATION. 17. WE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS NOT DISPUTED THAT THE ASSESSEE HAS CLAIMED PRIOR PERIOD INTEREST PAYMENT AS EXPENDITURE. SO, WHENEVER THE ASSESSEE CLAIMS ANY PAYMENT TO AE, THE TPO IS WITHIN HIS JURISDICTI ON TO QUESTION THE ITA NO. 440/16 :- 11 -: QUANTUM OF EXPENDITURE INCURRED BY THE ASSESSEE AN D THERE IS NO DOUBT REGARDING THIS POWER. THE SAME WAS CONSIDERE D AND CONFIRMED BY THE DELHI HIGH COURT IN THE CASE OF EKL APPLIANC ES LTD (SUPRA). THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELO W: THE QUANTUM OF EXPENDITURE CAN NO DOUBT BE EXAMIN ED BY THE TPO AS PER LAW BUT IN JUDGING THE ALLOWABILITY THEREOF AS BUSINESS EXPENDITURE, HE HAS NO AUTHORITY TO DISALL OW THE ENTIRE EXPENDITURE OR A PART THEREOF ON THE GROUND THAT THE ASSESSEE HAS SUFFERED CONTINUOUS LOSSES. THE FINAN CIAL HEALTH OF ASSESSEE CAN NEVER BE A CRITERION TO JUD GE ALLOWABILITY OF AN EXPENSE; THERE IS CERTAINLY O AU THORITY FOR THAT. 18. BEING SO, THE ARGUMENT OF THE ASSESSEE THAT THE TP O HAS NO JURISDICTION TO QUESTION THE ALLOWABILITY OF EXPEND ITURE IS NOT AS PER THE RATIO LAID DOWN BY THE ABOVE JUDGMENT. IN OUR OPIN ION, THE TPO HAS A RIGHT TO QUESTION THE QUANTUM OF EXPENDITURE WHETHE R IT IS REASONABLE OR NOT. TO THAT EXTENT, WE ARE NOT AGREEING WITH T HE ARGUMENT OF THE LD. AR. FURTHER, THE ASSESSEE WAS FOLLOWING MERCA NTILE SYSTEM OF ACCOUNTING. EACH ASSESSMENT YEAR IS INDEPENDENT AS SESSMENT YEAR AND ASSESSED SEPARATELY. THE EXPENDITURE RELATING TO ONE ASSESSMENT YEAR CANNOT BE CLAIMED IN OTHER ASSESSMENT YEAR. T HE CONTENTION OF THE ASSESSEES A.R IS THAT BECAUSE OF DIRECTIVES O F THE EUROPEAN PARLIAMENT AND OF THE COUNCIL DATED 16.2.2011 THE ASSESSEE WAS FORCED TO PROVIDE THE INTEREST PAYMENT RELATING TO THE EARLIER YEARS IN THE YEAR UNDER CONSIDERATION. IN OUR OPINION, THE DIRECTIVES OF ITA NO. 440/16 :- 12 -: EUROPEAN PARLIAMENT AND OF THE COUNCIL CANNOT BIND THE ASSESSEE AS THE ASSESSEE IS NOT SITUATED IN EUROPE. IF THERE IS ANY DTAA BETWEEN THE COUNTRIES WHERE THE AE IS SITUATED AND THE ASS ESSEE IS IN INDIA THEN IT COULD BE SAID THAT IT IS BINDING. FURTHER, THE ASSESSEE HAS NOT PLACED ANY EVIDENCE THAT THERE EXIST ANY AGREEMENT BETWEEN THE AE AND ASSESSEE TO PAY SUCH INTEREST IN THE ASSESSMEN T YEAR UNDER CONSIDERATION. THEREFORE, WE ARE NOT IN A POSITION TO APPRECIATE THE ARGUMENT OF THE LD. AR OF THE ASSESSEE. ACCORDIN GLY, THE DECISIONS CITED BY THE ASSESSEES LD. AR HAVE NO ASSISTANCE TO THE ASSESSEE. THE GROUND RAISED BY THE ASSESSEE IS REJECTED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 23 RD NOVEMBER, 2016, AT CHENNAI. SD/- SD/- ( . ! ' ) (G. PAVAN KUMAR) # / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER !' / CHENNAI #$ / DATED: 23 RD NOVEMBER, 2016 RD $%&& '(&)( / COPY TO: & 1 . / APPELLANT 3. & *&+, / CIT(A) 5. (-.& / / DR 2. / RESPONDENT 4. & * / CIT 6. .0&1 / GF