DCIT 14(1)(1), MUMBAI V. ATOS INDIA P.LTD, MUMBAI

ITA 4707/MUM/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6984 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Assessment Year: 2008-2009
• Appeal Filed On: 19-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Question of law; Notional interest
• Section: 143(3); 92B; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 4707 / MUM/ 20 1 5 ( / ASSESSMENT YEAR S: 2008 - 09 ) DCIT - 14(1)(1) ROOM NO. 460, 4 TH FLOOR, AAYAK AR BHAVAN, MARASHI KARVE ROAD, MUMBAI - 400020. / VS. M/S. ATOS INDIA P. LTD. GODREJ PHIROJSHANAGAR, LBS MARG, VIKHROLI (W), MUMBAI - 400079. / I.T.A. NO. 4815 / MUM/ 2015 ( / ASSESSMENT YEARS: 2008 - 09 ) ATOS INDIA P. LTD. GODREJ & BOYCE COMPLEX, PLANT 5, PIROJSHANAGAR, LBS MARG, VIKHROLI (W), MUMBAI - 400079 . / VS. ADDL. CIT, RANGE - 8(1) (NOW, THE CURRENT ASSESSING OFFICER IS DCIT - 14(1)(1)) ./ ./ PAN/GIR NO. : AAACO 2461 J ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 10 . 10 .201 8 / DATE OF P RONOUNCEMENT : 02.0 1.2019 / O R D E R PER AMARJIT SINGH, J M: THE REVENUE AS WELL AS ASSESSEE HA VE FILED THE ABOVE MENTIONED APPEAL S AGAINST THE ORDER DATED 30.03.2015 PASSED BY THE REVENUE BY: S HRI JAYANT KUMAR (DR) ASSESSEE BY : SHRI ALIASGER RAMPURAWALA ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 2 COMMISSIONER OF INCOME TAX (APPEALS) - 55 , MUMBAI [HEREINAF TER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE AY . 2008 - 09 . ITA. NO. 4815 /M/201 5 THE ASSESSEE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 30 . 03.2015 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 55 , MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO THE AY. 20 08 - 09 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - I. GROUND NO. I TRANSFER PRICING ('TP') ADJUSTMENT IN RELATION TO INTEREST ON OVERDUE DEBTORS .I ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) CIT(A) ERRED IN UPHOLDING THE ADJUSTMENT OF RS. 7,52,43.065 ON ACCOUNT OF NOTIONAL INTEREST ON THE ALLEGED OVERDUE RECEIVABLES FROM ITS ASSOCIATED ENTERPRISES. THE APPELLANT PRAYS THAT THE ABOVE AD JUSTMENT BE DELETED. 2 GROUND NO.2 - TP ADJUSTMENT IN RELATION TO COMMUNICATION / NETWORK RELATED SERVICES AND IT INFRASTRUCTURE CHARGES. 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN UPHOLDING THE ADJU STMENT OF RS.3,13,63.547 AND RS. 2,39,40,297 IN RELATION TO COMMUNICATION / NETWORK RELATED SERVICES AND IT INFRASTRUCTURE CHARGES INCURRED BY THE APPELLANT. THE APPELLANT PRAYS THAT T HE ABOVE ADJUSTMENT BE DELETED 3. GROUND NO. I - DISALLOWANCE OF PR OJECT RISK EXPENSES 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CITCA) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ('THE AO') OF RS.60,57,241 IN RESPECT OF PROJECT RISK EXPENSES INCURRE D BY THE APPELLANT. ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 3 THE APPELLANT PRAYS THAT THE DISALLOWANCE OF PROJECT RISK EXPENSES BE DELETED. 3.2 WITHOUT PREJUDICE TO GROUND NO. 3,1 ABOVE, THE APPELLANT PRAYS THAT THE AO TO BE DIRECTED TO GRANT A DEDUCTION OF THE AFORESAID EXPENSES IN THE YEAR OF ACTUAL PAYMENT/SETTLEMENT . 4. GROUND NO. 4 DENIAL OF DEDUCTION U/S 10A IN RESPECT OF BANGALORE UNIT ACQUIRED ON SLUMP SALE. 4.1 ON THE FACTS UND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT ) ERRED IN CONFIRMING THE STAND ADO PTED BY THE AO FOR DENIAL OF DEDUCTION UNDER SECTION 10A OF THE ACT AMOUNTING TO RS.83,87,740 IN RESPECT OF UNIT ACQUIRED ON SLUMP SALE. THE APPELLANT PRAYS THAT THE DEDUCTION UNDER SECTION 10A BE GRANTED. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND , TO SUBSTITUTE, TO WITHDRAW, TO MODIFY, TO ALTER AND/ OR RE - INSTATE THE FOREGOING GROUND OF THE APPEAL ON OR BEFORE THE TIME OF HEARING. 3 . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEVELOPMENT AND MAINTENANCE OF COMPUTER SOFTWARE, SALE AND EXPORT OF SOFT WARE SERVICES AND PROVISION OF TECHNICAL CONSULTANCY. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.09.2008 DECLARING TOTAL INCOME TO THE TUNE OF RS.24,35,64,925/ - . THEREAFTER, THE ASSESSMENT OF THE ASSESSEE WAS COMPLETED BY ASSESSING THE TOTAL INCOME TO THE TUNE OF RS.45,93,71,270/ - . THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS AS DEFINED IN SECTION 92B OF THE ACT, WITH ITS AES DURING F.Y. 2007 - 08. THE APPELLANTS MAIN INTERNATIONAL TRANSACTION WITH ITS AES WAS THE PROVISION OF SOFTWARE DE VELOPMENT SERVICES. APART FROM THE ABOVE TRANSACTION, THE APPELLANT HAD CERTAIN INCIDENTAL ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 4 INTERNATIONAL TRANSACTION S WITH ITS AES VIZ. RECEIPT OF SOFTWARE DEVELOPMENT SERVICES, RECEIPT OF COMMUNICATION AND NETWORK RELATED SERVICES, ALLOCATION OF IT INFRAS TRUCTURE CHARGES, REIMBURSEMENT OF VARIOUS EXPENSES AND PAYMENT OF SOFTWARE LICENSE . UNDER SECTION 92CA OF THE ACT, THE CASE WAS REFERRED TO THE TPO . AT THE TIME OF TRANSFER PRICING PROCEEDINGS, THE ASSESSEE SUBMITTED ITS TP STUDY REPORT TO THE TPO VIDE I TS SUBMISSION DATED 10.08.2010. THE ASSESSEE S TP STUDY DETERMINED THE ARMS LENGTH PRICE OF ITS INTERNATIONAL TRANSACTION BY SELECTING TNMM AS THE MOST APPROPRIATE METHOD AND OPERATING PROFIT/TOTAL COST (OP/TC) AS THE PROFIT LEVEL INDICATOR (PLI). THE APP ELLANT OP/TC MARGIN OF 20.41% WAS HIGHER THAN THE AVERAGE OP/TC MARGIN OF COMPARABLE COMPANIES OF 11.66% AS DOCUMENTED IN THE TP STUDY REPORT. 3. THEREAFTER, THE TPO CONCLUDED THE PROCEEDING AND PASSED THE ORDER U/S 92CA(3) OF THE ACT MADE AN AGGREGATE ADD ITION OF RS.13,05,46,910/ - TO THE RETURNED INCOME ON ACCOUNT OF NON - CHARGING OF INTEREST ON OVERDUE PAYMENTS FROM ASSOCIATED ENTERPRISES (AES) OF RS.7,52,43,065/ - AND (II) ADJUSTMENT OF RS.3,13,63, 547/ - AND RS.2,39,40,297/ - IN RESPECT OF COMMUNICATION & NE TWORK RELATED SERVICE CHARGES AND IT INFRASTRUCTURE CHARGES RESPECTIVELY, ON ACCOUNT OF ARMS LENGTH PRICE BEING TREATED AS NIL. THEREAFTER, THE DRAFT ASSESSMENT ORDER U/S 144C(1) R.W. SECTION 143(3) OF THE ACT WAS PASSED ASSESSING THE TOTAL INCOME OF THE ASSESSEE TO THE TUNE OF ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 5 RS.45,93,71,270/ - AFTER PROPOSING TO MAKE THE FOLLOWING ADDITIONS/DISALLOWANCES - (I) ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT AGGREGATING TO RS.13,05,46,910/ - . (II) ADDITION TOWARDS THE CLAIM OF EXPENDITURE OF RS.60,57,241 / - ON ACCOUNT OF LIQUIDATED DAMAGES. (II) TREATING INTEREST INCOME AMOUNTING TO RS.7,45,08,800/ - AS IN COME FROM OTHER SOURCES (III) GRANT OF LESSER DEDUCTION U/S 10A OF THE ACT (AKRUTI SOFTECH, PRISM TOWER AND GODREJ AND BOYCE COMPLEX) TO THE EXTENT OF RS. 5,97,88,447/ - AND DENIAL OF DEDUCTION OF RS.83,87,740/ - U/S 10A OF THE ACT WITH RESPECT TO THE BANGALORE UNIT. THE APPELLANT DECIDED TO FOLLOW THE NORMAL APPELLATE PROCEDURE , HENCE, THE APPELLANT DID NOT FILE THE OBJECTION BEFORE THE DRP AND CHOOSE FOR FIL ING THE APPEAL AND THEREAFTER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) WHO PARTLY ALLOWED THE CLAIM OF THE ASSESSEE BUT THE ASSESSEE WAS NOT SATISFIED ON THE GROUND WHICH HAS BEEN RAISED ABOVE, THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BE FORE US. ISSUE NO. 1 4. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE TRANSFER PRICING ADJUSTMENT IN RELA TION TO THE INTEREST ON OVERDUE DEBTORS. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE NOTIONAL INTEREST FOR OVERDUE RECEIVABLES IS NOT THE INTERNATIONAL TRANSACTION UNDER THE ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 6 TP REGULATE BECAUSE THE M AIN INTERNATIONAL TRANSACTION ENTERED INTO BY APPELLANT IS THE FEE RECEIVED BY IT FOR PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND AS A RESULT OF THIS TRANSACTION AND THE CREDIT PERIOD EXT ENDED BY THE APPELLANT FOR PAYMENT OF THESE SERVICES, DEB I T BALANCE STAND AGAINST TH E NAME OF THE AES. H ENCE, A CONTINUING DEBIT BALANCE ONLY REFLECT S THAT THE PAYMENT IS STILL TO BE RECEIVED FROM THE AES. IT IS ALSO ARGUED THAT THE APPELLANT IS A ZERO DEB T COMPANY AND DID NOT RECEIVE BORROWINGS FROM EXTERNAL SOURCES TO FINANCE ITS WORKING CAPITAL REQUIREMENTS. THEREFORE, ON ACCOUNT OF DELAY OF PAYMENT BY AES NO INTEREST COST IS LIABLE TO BE ASSESSED. IT IS ALSO ARGUED THAT THE APPELLANT AND ITS OVERSEAS GR OUP NOWHERE CONTENDED ANY CONTAIN A CLAUSE FOR CHARGING OF INTEREST ON OVERDUE RECEIVABLES AND THE APPELLANT ALSO NOWHERE CHARGE INTER EST OF INFORMATION ABOUT PARTY CUSTOMER, THEREFORE, THE SAID ASSESSMENT IS WRONG AGAINST LAW AND FACTS. IT IS ALSO CONTEND ED THAT THE ISSUE IS SPECIFICAL LY COVERED BY THE ORDER OF THE HONBLE I TAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2007 - 08 & 2009 - 10. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS REFUTED THE SAID CONTENTION. THE COPY OF ORDER OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2007 - 08 ITA. NO.1778/M/2012 DATED 13.01.2016 IS ON THE FILE IN WHICH WE NOTICED THAT THE MATTER OF CONTROVERSY HAS BEEN ADJUDICATION IN FAVOUR OF THE ASSESSEE . THE RELEVANT FINDING HAS BEEN GIVEN I N PARA NO. 3.3 WHICH IS HEREBY REPRODUCED AS UNDER.: - ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 7 3.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE RECOMMENDING UPWARD ADJUSTMENT FOR CHARGING INTEREST FOR THE DELAYED RECEIPTS THE TPO HAD CONSIDERED THE T ERMS AND CONDITIONS OF THE AGREEMENT ENTERED IN TO BY THE ASSESSEE WITH ITS AE.S.,THAT THE AGREEMENT STIPULATES THAT FOR DELAYED PAYMENT(BEYOND A PERIOD OF ONE MONTH)THE AE.S.HAD TO PAY INTEREST @2%,THAT THE AO HAD CALLED FOR DETAILS IN THAT REGARD ABOUT T HE PERIOD OF DELAY AND AS PER THE AO THE ASSESSEE DID NOT PROVIDE THE NECESSARY INFORMATION,THAT AS PER THE DIRECTION OF THE AO THE ASSESSEE HAD CALCULATED THE INTEREST AMOUNT FOR THE DELAYED RECEIPTS FROM ITS AE.S.IN OUR OPINION,THE TRANSACTION IN QUESTIO N IS AN INTERNATIONAL TRANSACTION AND NOT A RESULT OF A TRANSACTION AS ARGUED BY THE AR.THE ASSESSEE HAD PROVIDED SPECIFIC SERVICES TO ITS AE.S.THEREFORE THE SERIES OF EVENTS CANNOT BE TERMED A RESULT OF INTERNATIONAL TRANSACTION.ONCE IT HAS BEEN DECIDED T HAT ISSUE BEFORE US IS A TRANSFER PRICING ISSUE THEN THE VALUE OF THE TRANSACTION HAS TO BE DETERMINED.IT IS A CASE WHERE THE TPO HAS RELIED UPON ON THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH ITS AE AND HAS TREATED IT AS A BENCHMARK.WE FIND THAT NO IN DEPENDENT SOURCE WAS SEARCHED OR RELIED UPON BY THE HIM.IT IS A FACT THAT THE AGREEMENTS WITH THE THIRD PARTIES DID NOT CONTAIN ANY CLAUSE FOR CHARGING INTEREST FOR DELAYED PAYMENT.THUS,THE MATTER HAS ITS OWN PECULIARITIES.THE ASSESSEE HAS ENTERED IN TO AG REEMENT WITH THE AE.S.AND VALUE OF THE TRANSACTION WILL HAVE TO BE DECIDED.THE ARGUMENTS OF FACTORING OF DELAYED PAYMENT IN THE VALUE OF SERVICE CANNOT BE BRUSHED ASIDE ESPECIALLY WHEN IT IS FOUND THAT THE OPTC MARGIN EARNED BY THE ASSESSEE WAS 29.41 % AND IT WAS QUITE HIGHER THAN THE PARTIES COMPARED WITH I.E.APP.15%.THE TPO HAD NOT CONSIDERED THESE VITAL ISSUES AND HAD APPLIED THE FLAT RATE OF 2%,AS MENTIONED IN THE AGREEMENT.IN OUR,OPINION THE ALTERNATE ARGUMENT ADVANCED BY THE ASSESSEE OF ADOPTING LIBOR RATE IS WORTH CONSIDERING,IF THE FACTS OF THE CASE UNDER APPEAL ARE DELIBERATED UPON.WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE INTEREST RATE SHOULD BE FIXED AT LIBOR+200 POINTS FOR THE DELAYED PAYMENTS RECEIVED BY THE ASSESSEE FROM ITS AE.S.FO R THE PERIOD AS MENTIONED IN THE AGREEMENTS.AO IS DIRECTED TO RECALCULATE THE INTEREST AMOUNT ACCORDINGLY.GROUND NO.4 - 5 ARE DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. 5. IN THE ANOTHER CASE IN ITA. NO.1467/M/2014 FOR THE A.Y. 2009 - 10 THE SAME FINDING HAS BEEN FOLLOWED AND THE MATTER OF CONTROVERSY WAS RESTORED TO THE AO/TPO WITH THE DIRECTION TO THE FOLLOW OF THE ORDER FOR THE A.Y. 2007 - 08 AND TO COMPUTE UPWARD ADJUSTMENT TO THE ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 8 MADE ACCORDINGLY ON ACCOUNT OF INTEREST. ACCORDINGLY, WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE AND RESTORED THE MATTER BEFORE THE AO TO DECIDE THE MATTER OF CONTROVERSY AFRESH ON SIMILAR LINES. ACCORDINGLY, WE DECID E THE ISSUE IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSE . ISSUE NO. 2 5. UNDER THIS ISSUE THE ASSESSE E HAS CHALLENGED THE TP ADJUSTMENT IN RELATION TO COMMUNICATION/NETWORK RELATED SERVICES AND IT INFRASTRUCTURE CHARGES. IT IS ALSO ARGUED BY THE LD. REPRESENTATIVE OF THE ASSESSEE IS THAT THE CIT(A) IS WRONG IN UPHOLDING THE ADJUSTMENT OF RS.3,13,63,547/ - AND RS.2,39,40,297/ - INCURRED BY APPELLANT, IN RELATION TO COMMUNICATION/NETWORK RELATED SERVICES AND IT INFRASTRUCTURE CHARGES RESPECTIVELY. AT THE VERY OUTSET, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THIS ISSUE HAS ALSO BEEN COVERED BY THE ORDER OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2007 - 08 IN ITA. NO.1778/M/2012 DATED 13.01.2016. THE RELEVANT FINDING IN PARA NO. 4.3 IS HEREBY REPRODUCED AS UNDER .: - 4.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEF ORE US. WE FIND THAT THE ASSESSEE HAD FILED INVOICES AND THE BASIS OF PAYMENTS MADE UNDER THE HEADS COMMUNICATION AND NETWORK RELATED SERVICES AND IT INFRASTRUCTURE SERVICE CHARGE (PAGE - 418 - 425 OF THE PB). IT IS FOUND THAT ASSESSEE HAD MADE SUBMISSION IN THAT REGARD BEFORE FAA AND HAD PRODUCED GROUP IT SERVICE AGREEMENT. WE FIND THAT SAME WERE NOT PROPERLY ANALYSED BY THE TPO/ FAA. WE ARE OF THE OPINION THAT ISSUE NEEDS FURTHER VERIFICATION AND INVESTIGATIONS. THEREFORE, IN THE INTEREST OF JUSTICE WE ARE R EMITTING BACK THE MATTER TO THE TPO FOR FRESH ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 9 ADJUDICATION WHO WILL DECIDE THE ISSUE AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSEE IS DIRECTED TO PRODUCE ALL THE NECESSARY DOCUMENTS RELATED TO COMMUNICATION AND NETWORK R ELATED SERVICES AND IT INFRASTRUCTURE SERVICE CHARGE TO THE TPO. GROUND NO.6 IS DECIDED IN FAVOUR OF THE ASSESSEE ,IN PART. 6. IN VIEW OF THE ABOVE MENTIONED FINDING, WE REMAND THIS ISSUE BEFORE THE TPO/FAA TO RE - EXAMINE THE MATTER AFTER GIVING AN OPPORTU NITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH LAW ON SIMILAR LINE. ACCORDINGLY, THIS ISSUE IS BEING DECIDED IN FAVOUR OF THE ASSESSEE FOR STATISTICAL PURPOSE . ISSUE NO. 3 7. ISSUE NO. 3 IS IN CONNECTION WITH THE DISALLOWANCE OF PROJECT RISK EXPENS ES. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE CIT(A) IS WRONG IN CONFIRMATION THE DISALLOWANCE MADE BY THE AO OF RS.60,57,241/ - IN RESPECT OF PROJECT RISK EXPENSES INCURRED BY THE APPELLANT. IT IS SPECIFICALLY ARGUED BY THE LD. REPRESENTA TIVE OF THE ASSESSEE THAT THIS ISSUE HAS ALREADY BEEN COVERED BY THE DECISION OF HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2007 - 08 IN ITA. NO. 1778/M/2012 DATED 13.01.2016. THE RELEVANT FINDING HAS BEEN GIVEN IN PARA NO. 2.3 WHICH IS HEREBY REPR ODUCED AS UNDER.: - 2.3.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD CLAIMED LIQUIDATED DAMAGES OF RS.2,38,83,772/ - AS PRE, THAT IT HAD ENTERED INTO CERTAIN AGREEMENTS WITH PARTIES INCLUDING HPCL, T HAT THE CLAIM WAS MADE FOR RS.1.26 CRORES FOR THE FIRST PHASE TO BE CARRIED OUT FOR HPCL, THAT FURTHER A CLAIM OF RS.81.00 LACS WAS MADE FOR PHASE - II OF THE WORK ASSIGNED BY HPCL,THAT RS.31.83 ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 10 LACS WAS RELATABLE TO 10A UNITS, THAT AS PER THE AGREEMENT ENTE RED INTO WITH HPCL FOR BOTH THE PHASES THE ASSESSEE WAS TO PAY LIQUIDATED DAMAGES @ 0.5% - 5% FOR THE PERIOD OF DELAY, THAT THE FIRST PHASE WAS COMPLETED BELATEDLY I.E.IN MAY 2007,THAT THE SECOND PHASE WAS ALSO DELAYED,THAT AS PER THE AGREEMENT THE HPCL WA S ENTITLED TO DEDUCT THE DAMAGE AMOUNT FROM THE AMOUNT DUE TO THE ASSESSEE, THAT THE ASSESSEE WHILE FINALIZING THE ACCOUNT HAD CONSIDERED THE LIQUIDATED DAMAGES, THAT THE AO AND THE FAA HAD REJECTED THE CLAIM MADE BY THE ASSESSEE. IN OUR OPINION AS PER T HE CONDITIONS OF THE AGREEMENT ENTERED BY THE ASSESSEE WITH THE HPCL, ASSESSEE HAD TO COMPENSATE HPCL FOR DELAY IN EXECUTING THE PROJECT, THAT THE FACTUM OF DELAY IS NOT IN DISPUTE. THEREFO RE, IN OUR OPINION THE ISSUE IS DIRECTLY COVERED BY THE DECISION OF KCP LTD. (SUPRA). IN THAT CASE THE FACTS WERE AS UNDER : THE ASSESSEE WAS A PUBLIC LIMITED COMPANY ENGAGED IN THE MANUFACTURE OF SUGAR, CEMENT, MACHINERY, ETC. THE DISPUTE RELATED TO THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS. 21,47, 801/ - WHICH WAS A P ROVISION MADE IN THE ACCOUNTS FOR PAYMENT OF LIQUIDATED DAMAGES IN RESPECT OF CONTRACTS OF THE ASSESSEE TO SUPPLY MACHINERY MANUFACTURED BY THE ASSESSEE. THE ASSESSEES CLAIM WAS THAT TIME WAS THE ESSENCE OF THE CONTRACT FOR THE SUPPLY OF THE MACHINERY AND A SPECIFIC CLAUSE HAS BEEN INCORPORATED IN THE AGREEMENTS THAT IN CASE OF DELAY, LIQUIDATED DAMAGES AT A PERCENTAGE OF THE TOTAL VALUE OF THE CONTRACT HAD TO BE PAID AND, THEREFORE, SINCE ADMITTEDLY THERE WAS A BREACH OF CONTRACT BY REASON OF THE DELAY, T HE ASSESSEE HAD COMPUTED THE DAMAGES PAYABLE FOR THE PERIOD OF THE DELAY FALLING WITHIN THE PREVIOUS YEAR AND HAD MADE A PROVISION IN THE ACCOUNT. THE AO, WAS OF THE VIEW THAT IN RESPECT OF ONE OF THE CONTRACTS, THE DELIVERY DATE WAS BEYOND THE PREVIOUS YE AR AND IN THE CASE OF THE OTHER CONTRACTS SUCH DAMAGES OCCUR ONLY WHEN THE DELIVERY WAS ACTUALLY COMPLETED WHICH WAS ALSO BEYOND THE PREVIOUS YEAR AND THEREFORE, THE DEDUCTION CLAIMED COULD NOT BE ALLOWED. HE ALSO NOTED THAT FOR THE EARLIER AY., THE DEDUCT ION HAD BEEN ALLOWED ONLY AFTER THE DELIVERY OF THE MACHINERY. HE WAS OF THE FURTHER OPINION THAT THE CALCULATION OF THE DAMAGES ALSO DEPENDED UPON NEGOTIATION AND HENCE THE AMOUNT CLAIMED COULD NOT BE REGARDED AS ACCRUED LIABILITY.ON APPEAL,THE FAA CONFIR MED THE ORDER OF THE AO.IN THE APPELLATE PROCEEDINGS BEFORE THE TRIBUNAL,IT WAS ARGUED THAT IN TERMS OF THE AGREEMENTS LIABILITY TO PAY DAMAGES AROSE NO SOONER THAN THERE WAS A BREACH AND THE ASSESSEE HAD ONLY PROVIDED FOR THE ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 11 LIQUIDATED DAMAGES PERTAINING TO THE PERIOD OF DELAY FALLING WITHIN THE PREVIOUS YEAR IN ORDER TO ARRIVE AT THE TRUE INCOME OF THE ASSESSEE PARTICULARLY WHEN THE ASSESSEE WAS ACCOUNTING FOR RECEIPTS ATTRIBUTABLE TO THE PREVIOUS YEAR. IT WAS SUBMITTED THAT THIS WAS THE CONSISTENT METHO D OF ACCOUNTING 1778/12 &2134/12 - ATOS 4 FOLLOWED BY THE ASSESSEE AND THERE WAS NO REASON TO DEPART FROM IT. ON THE OTHER HAND, IT WAS CONTENDED BY THE DR THAT THERE COULD NOT BE A UNILATERAL LIABILITY FOR DAMAGES AND THAT SUCH A LIABILITY WAS CONTINGENT ON THE PURCHASER MAKING A CLAIM THEREFORE WHICH COULD ARISE ONLY AFTER THE COMPLETION OF THE CONTRACT. THE SPECIAL BENCH OF THE TRIBUNAL,WHILE DECIDING THE ISSUE,HELD AS UNDER : IT IS NOT IN DISPUTE THAT IN TERMS OF THE AGREEMENTS OF THE ASSESSEE FOR THE SU PPLY OF GOODS, TIME WAS THE ESSENCE OF THE CONTRACT AND ANY DELAY IN THE DELIVERY OF THE GOODS WOULD RESULT IN THE LIABILITY TO PAY DAMAGES. THAT THE PARTIES MEANT IT SERIOUSLY IS PROVED BY THE FACT OF PROVISION FOR BANK GUARANTEE UP TO THE MAXIMUM VALUE O F LIQUIDATED DAMAGES. THE STIPULATION IN THE CONTRACT CLEARLY SHOWS THAT THE LIABILITY FOR LIQUIDATED DAMAGES IS CERTAIN, ACCRUED AND IS NOT TO DEPEND UPON THE HAPPENING OF ANY EVENT OTHER THAN DELAY IN DELIVERIES. THE ONLY POINT IN DISPUTE IN THE PRESENT CASE IS WHETHER THE LIABILITY FOR PAYMENT OF DAMAGES SHOULD BE TAKEN AT THE POINT OF TIME WHEN THE BREACH OCCURRED OR AT THE POINT OF TIME WHEN THE ASSESSEE DELIVERED THE GOODS AND RAISED THE BILL. THE CLAUSE IN THE AGREEMENT EXTRACTED ABOVE DOES CLEARLY P ROVIDE FOR THE PAYMENT OF LIQUIDATED DAMAGES NO SOONER THAN THE DELAY TAKES PLACE AND AS A GUARANTEE FOR PAYMENT OF LIQUIDATED DAMAGES BANK GUARANTEE WAS TO BE GIVEN FOR THE FULL AMOUNT OF LIQUIDATED DAMAGES. THERE MAY BE A POSSIBILITY FOR THE DEDUCTION OF LIQUIDATED DAMAGES ON NEGOTIATION. BUT THAT IS NOT TO SAY THAT THE LIABILITY TO PAY LIQUIDATED DAMAGES DID NOT ACCRUE. NOR DOES IT STAND TO REASON BECAUSE THE DELAY IN THE DELIVERY OF THE GOODS UNDER THE TERMS OF THE AGREEMENTS IN QUESTION CONSTITUTED BRE ACH, IT DOES NOT DISCHARGE THE CONTRACT AS SUCH, BECAUSE ADMITTEDLY THE CONTRACTS HAVE NOT BEEN AVOIDED BY THE OTHER SIDE AT ALL. THE REASON IS THAT THEY WERE CONTINUING CONTRACTS FOR MANUFACTURING OF ARTICLES TO THE SPECIFICATION OF THE PURCHASER AND TIME WAS STIPULATED AS THE ESSENCE OF THE CONTRACT; NONETHELESS IT WOULD HAVE SERVED NO PURPOSE IF THE PURCHASER HAD CANCELLED THE CONTRACTS WHEN THE WORK ON THE MANUFACTURE OF THE MACHINERY HAD PROGRESSED PERHAPS A VERY LARGE EXTENT ANY PAYMENTS WERE MADE IN THE MEAN TIME AS PER THE TERMS OF CONTRACT. THAT WAS THE REASON WHY PENALTIES HAVE ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 12 BEEN PROVIDED IN THE AGREEMENT ITSELF DEPENDING IN THE PERIOD OF DELAY WHICH IS INTENDED TO ACT AS A DETERRENT AGAINST DELAYS IN DELIVERIES AND THIS IS TO AVOID FUTURE LITIG ATION AS TO THE QUANTUM OF DAMAGES. SEC. 74 OF THE CONTRACT ACT, 1872 SHOWS THAT THE CLAIM FOR DAMAGES ARISES AT THE POINT OF BREACH BUT THE QUANTIFICATION OF DAMAGES IS SUBJECT TO NEGOTIATION, THOUGH THE CEILING OF THE AMOUNT IS STIPULATED IN THE CONTRACT . AS FAR AS THE ASSESSEE IS CONCERNED, THE LIABILITY TO PAY DAMAGES AROSE AT THE POINT OF TIME WHEN THE BREACH OCCURRED I.E., WHEN IT FAILED TO DELIVER ON THE DUE DATE, AND AT THAT POINT OF TIME THE LIABILITY ACCRUED WHICH AS A PRUDENT TRADER IT COULD QUAN TIFY AND TAKE INTO ACCOUNT BY MEANS OF A PROVISION. SINCE THE AGREEMENTS HAVE ALREADY STIPULATED THE AMOUNT, THERE WAS NOTHING WRONG IN ADOPTING THE SAME FORMULA FOR COMPUTING THE AMOUNT. ALL THAT HAS HAPPENED IS SINCE THE DELAY STRETCHED BEYOND THE PREVIO US YEAR, THE ASSESSEE HAS APPORTIONED THE DAMAGES AND HAS TAKEN INTO ACCOUNT ONLY THAT AMOUNT WHICH IS RELATABLE TO THE DELAY THAT HAS OCCURRED IN THE PREVIOUS YEAR IN QUESTION. THIS IS PERHAPS PROPER AND RATIONAL AND THERE IS NOTHING WRONG IN THIS METHOD OF ACCOUNTING EITHER IN LAW OR AS A MATTER OF METHOD OF ACCOUNTING WHICH HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE, TO WHICH NO OBJECTION WAS TAKE BY THE REGULAR AUDIT AS WELL AS BY THE TAX AUDIT. THE DEPARTMENT DOES NOT EITHER DISPUTE THE ACCRUAL OF LIABILITY TO PAY LIQUIDATED DAMAGES, BUT IN FACT IT ACTUALLY ALLOWED THE WHOLE AMOUNT IN THE YEAR IN WHICH DELIVERIES WERE GIVEN. THE CONTRACT DOES NOT PROVIDE FOR SUCH A SITUATION, NOR DOES THE LIABILITY TO PAY THE LIQUIDATED DAMAGES ARISE ON DELIVERY. CL AIMING THE LIQUIDATED DAMAGES AS AND WHEN DELAYS TAKE PLACE IS AN EASIER METHOD, AND SHOULD THERE BE ANY DIFFICULTY IN CALCULATIONS OR QUANTIFICATION, THAT MAY RENDER THE AMOUNT PROVIDED AS DAMAGES INCORRECT BUT THAT DOES NOT POSTPONE THE ACCRUAL OF LIABIL ITY. WE FIND THAT IN THE CASE OF BHARAT EARTH MOVERS (SUPRA)THE HON'BLE SUPREME COURT HAS ALSO LAID DOWN CERTAIN PRINCIPLES ABOUT QUANTIFICATION OF LIABILITIES.RESPECTFULLY FOLLOWING THE ABOVE, WE HOLD THAT LIQUIDATED DAMAGES FOR BREACH OF CONTRACT FOR DEL AY IN SUPPLY OF GOODS ARE ALLOWABLE DEDUCTION IN THE ASSESSMENT YEAR RELEVANT TO THE POINT OF TIME WHEN THE BREACH OCCURRED AND NOT THE POINT OF DELIVERY OF GOODS AND RAISING OF BILLS.GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE FOR THE TWO AMOUNTS I.E . RS.1.26 CRORES AND RS.81.00 LACS.AS FAR AS RS.31.83 LACS IS CONCERNED WE ARE OF THE OPINION THAT AO SHOULD ADD BACK THE PRE WHILE COMPUTING DEDUCTION 1778/12 &2134/12 - ATOS 5 ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 13 U/S. 10A/B IN VIEW OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT DELIVERE D IN THE CASE OF GEM PLUS JEWELLERY (SUPRA). GROUND NO.1.3 IS DECIDED IN FAVOUR OF THE ASSESSEE IN PART. 8. IN VIEW OF THE SAID DECISION , THE CLAIM OF THE ASSESSEE IS HEREBY ALLOWED ON SIMILAR LINES . ISSUE NO. 4 9. ISSUE NO. 4 IS IN CONNECTION WITH THE DE NIAL OF DEDUCTION U/S 10A OF THE ACT IN RESPECT OF BANGALORE UNIT ACQUIRED ON SLUMP SALE. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED TH AT THIS ISSUE HAS ALREADY BEEN COVERED BY THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2009 - 10. THE RELEVANT FINDING HAS BEEN GIVEN IN PARA NO. 12.3 WHICH IS HEREBY REPRODUCED AS UNDER.: - 12.3. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS SUBMISSIONS MADE BY BOTH THE SIDES BEFORE US. IN OUR VIEW, THE RELATIONSHIP BE TWEEN THE UNDERTAKING AND THE DEDUCTION CAN BE COMPARED WITH THE RELATIONSHIP BETWEEN THE MOTHER AND BABY THAT IS TO SAY THAT WHEREVER MOTHER GOES THE BABY FOLLOWS. IN OTHER WORDS, THE BENEFIT OF DEDUCTION IS AVAILABLE TO THE UNDERTAKING IF THE UNDERTAKI NG IS TAKEN OVER BY ANOTHER ASSESSEE WITH ALL THE ASSETS AND LIABILITIES AND ITS BUSINESS REMAINS THE SAME. THE BENEFIT OF DEDUCTION ALLOWABLE TO THE UNDERTAKING FOR THE REMAINING PERIOD WOULD BE ALLOWABLE TO THE PERSON WHO HAS ACQUIRED THE UNDERTAKING, PR OVIDED OTHER PRESCRIBED CONDITIONS ARE ALSO FULFILLED. IN THIS REGARD, IT HAS BEEN CLARIFIED BY THE BOARD IN ITS CIRCULAR DATED 17.01.2013 WHICH HAS BEEN RELIED UPON BY THE LD. COUNSEL BEFORE US. THE RELEVANT PORTION OF THE SAID CIRCULAR IS REPRODUCED HERE IN FOR THE SAKE OF READY REFERENCE: (IV)WHETHER TAX BENEFIT UNDER SECTION 10A, 10AA, AND 10B WOULD CONTINUE TO REMAIN AVAILABLE IN CASE OF SLUMP SALE OF A UNIT/UNDERTAKING. THE VITAL FACTOR IN DETERMINING THE ABOVE ISSUE WOULD BE FACTS SUCH AS HOW A SLUMP SALE IS MADE AND WHAT IS ITS NATURE. IT WILL ALSO BE IMPORTANT TO ENSURE THAT THE SLUMP SALE WOULD NOT RESULT INTO ANY SPLITTING OR RECONSTRUCTION OF EXISTING BUSINESS. THESE ARE FACTUAL ISSUES ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 14 REQUIRING VERIFICATION OF FACTS. IT IS, HOWEVER, CLARIFIED TH AT ON THE SOLE GROUND OF CHANGE IN OWNERSHIP OF AN UNDERTAKING, AND THE TAX HOLIDAY CAN BE AVAILED OF FOR THE UNEXPIRED PERIOD AT THE RATES AS APPLICABLE FOR THE REMAINING YEARS, SUBJECT TO FULFILLMENT OF PRESCRIBED CONDITIONS. 12.4. IN ADDITION TO THE AB OVE, THIS ISSUE ALSO CAME UP BEFORE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. SONATA SOFTWARE LTD, (SUPRA). THE RELEVANT PORTION CONTAINING USEFUL OBSERVATIONS OF HONBLE HIGH COURT IS REPRODUCED HEREUNDER: 11. THE TRIBUNAL IN THE PRESENT CASE HAS C OME TO THE CONCLUSION THAT WHERE A RUNNING BUSINESS IS TRANSFERRED LOCK, STOCK AND BARREL BY ONE ASSESSEE TO ANOTHER ASSESSEE THE PRINCIPLE OF RECONSTRUCTION, SPLITTING UP AND TRANSFER OF PLANT AND MACHINERY CANNOT BE APPLIED. ACCORDING TO THE TRIBUNAL THE BENEFIT OF SECTION 10A ATTACHES TO THE UNDERTAKING AND NOT TO THE ASSESSEE WHICH OWNS THE UNDERTAKING. THE BENEFIT OF SECTION 10A WAS HELD TO HAVE ATTACHED ITSELF TO THE STP UNIT OF THE SOFTWARE DIVISION WHICH WAS OWNED BY IOCL TILL 19 OCTOBER 1994 AND IT WAS OWNED BY THE ASSESSEE SUBSEQUENT TO THAT DATE. WHAT IS MATERIAL, ACCORDING TO THE TRIBUNAL, IS NOT WHO OWNS THE UNDERTAKING BUT WHETHER THE UNDERTAKING IS ENTITLED TO THE BENEFIT AVAILABLE UNDER SECTION 10A. AS REGARDS THE ISSUE OF TRANSFER BY IOCL TO THE ASSESSEE, THE TRIBUNAL NOTED THAT SECTION 10A(9)WAS SUBSTITUTED BY THE FINANCE ACT 2000 WITH EFFECT FROM 1 APRIL 2002. SECTION 10A(9) PROVIDED THAT WHERE 33 ATOS INDIA P. LTD. DURING ANY PREVIOUS YEAR THE OWNERSHIP OR BENEFICIAL INTEREST IN AN UNDERTA KING OF THE BUSINESS IS ITXAL - 311 - 2004 TRANSFERRED BY ANY MEANS, THE DEDUCTION UNDER SUBSECTION (1) SHALL NOT BE ALLOWED TO THE ASSESSEE FOR THE ASSESSMENT YEAR RELEVANT TO SUCH PREVIOUS YEAR AND THE SUBSEQUENT YEARS. THE TRIBUNAL NOTED THAT IF A TRANSFER BETWEEN IOCL AND THE ASSESSEE WERE TO BE EFFECTED AFTER 1 APRIL 2001, THAT WOULD RESULT IN THE UNDERTAKING BEING DISENTITLED TO THE BENEFIT UNDER SECTION 10A. THIS WAS A POINTER TO THE FACT THAT PRIOR TO THE SUBSTITUTION A TRANSFER OF OWNERSHIP OR BENEFIC IAL INTEREST IN THE UNDERTAKING WOULD NOT DISENTITLE AN ASSESSEE TO THE BENEFIT OF SECTION 10A. (AS A MATTER OF FACT IT MAY ALSO BE NOTED THAT THE PROVISIONS OF SECTION 10A(9) WERE OMITTED BY THE FINANCE ACT 2003 WITH EFFECT FROM 1 APRIL 2004). 12. THE JUD GMENT OF THE DIVISION BENCH OF THIS COURT IN GAEKWAR FOAM EXPLAINS THAT THE CONCEPT OF A RECONSTRUCTION OF A BUSINESS IMPLIES THAT THE ORIGINAL BUSINESS IS NOT TO CEASE FUNCTIONING AND ITS IDENTITY IS NOT LOST. RECONSTRUCTION IS OF A BUSINESS ALREADY IN EX ISTENCE AND THERE MUST BE A CONTINUATION OF THE ACTIVITIES AND BUSINESS OF THE SAME INDUSTRIAL UNDERTAKING. WHERE THE OWNERSHIP OF A BUSINESS OR UNDERTAKING CHANGES HANDS THAT WOULD NOT BE REGARDED AS RECONSTRUCTION. THIS JUDGMENT HAS SPECIFICALLY BEEN APP ROVED BY THE SUPREME COURT IN ITXAL - 311 - 2004 TEXTILE MACHINERY ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 15 CORPORATION (SUPRA). AS REGARDS THE SPLITTING UP OF A BUSINESS, THE RELEVANT TEST IS WHETHER AN UNDERTAKING IS FORMED BY SPLITTING UP OF A BUSINESS ALREADY IN EXISTENCE. UNLESS THE FORMATION OF THE UNDERTAKING TAKES PLACE BY THE SPLITTING UP OF A BUSINESS ALREADY IN EXISTENCE, THE NEGATIVE PROHIBITION WOULD NOT BE ATTRACTED. IN THE PRESENT CASE, THE ENTIRE BUSINESS OF THE SOFTWARE UNDERTAKING WAS TRANSFERRED TO THE ASSESSEE. THE UNDERTAKING OF T HE ASSESSEE WAS NOT FORMED BY THE SPLITTING UP OF THE BUSINESS. 13. FOR THE AFORESAID REASONS, THE FIRST QUESTION OF LAW WOULD HAVE TO BE ANSWERED IN THE AFFIRMATIVE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 12.5. THUS, THE POSITION OF LAW IS VERY CLEAR THE BENEFIT OF DEDUCTION SHALL NOT BE DENIED TO THE ASSESSEE MERELY BECAUSE 34 ATOS INDIA P. LTD. THE UNDERTAKING WAS ACQUIRED BY THE SLUMP SALE. THE DEDUCTION IS ATTACHED TO THE UNDERTAKING AND THEREFORE SHOULD BE ALLOWED TO THE ASSESSEE PROVIDED O THER PRESCRIBED CONDITIONS ARE FULFILLED. BUT THERE HAS BEEN SOME CONFUSION WITH REGARD TO APPRECIATION OF FACTUAL EVIDENCES. IT HAS BEEN SHOWN TO US THAT COMPLETE EVIDENCES INCLUDING AGREEMENT AND OTHER VARIOUS EVIDENCES WERE AVAILABLE. BUT AO HAS MENTION ED IN THE ASSESSMENT ORDER THAT THE AGREEMENT FILED WITH THE AO WAS NOT ELIGIBLE AND IT WAS NOT PROPERLY STAMPED. NO PROPER DISCUSSION HAS BEEN MADE BY THE DRP ALSO IN ITS ORDER. UNDER THESE CIRCUMSTANCES, WE FIND IT APPROPRIATE TO SEND THIS ISSUE BACK TO THE FILE OF THE AO TO ENABLE HIM TO MAKE PROPER VERIFICATION OF FACTS AND EVIDENCES TO ANALYZE THE OTHER PRESCRIBED CONDITIONS. THE DEDUCTION CANNOT BE DENIED MERELY ON THE GROUND THAT THE UNIT WAS ACQUIRED UNDER SLUMP SALE. THE AO SHALL GIVE ADEQUATE OPPO RTUNITY OF HEARING TO THE ASSESSEE BEFORE DECIDING THIS ISSUE AFRESH. THUS, WITH THESE DIRECTIONS THIS ISSUE IS SENT BACK TO THE FILE OF THE AO WITH THE DIRECTIONS GIVEN ABOVE. 10. IN VIEW OF THE SAID DECISION, THE ISSUE IS REMANDED TO BEFORE THE AO TO DE CIDE THE ISSUE ON MERIT BY GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH LAW AND BY FOLLOW ING THE SIMILAR DIRECTION AS MADE BY HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2009 - 10. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAV OUR OF THE ASSESSEE FOR STATISTICAL PURPOSE . ITA. NO. 4707 /M/201 5 ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 16 7 . THE FACTS OF THE PRESENT CASE ARE THAT QUITE SIMILAR TO THE FACTS OF THE CASE AS NARRATED ABOVE IN THE APPEAL BEARING NO. 4815 /M/201 5 . THEREFORE, THERE IS NO NEED TO REPEAT THE SAME. 11. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE TPO TO WORK OUT THE INTEREST AT FD RATE, INSPITE OF, HOLDING UPWARD ADJUSTMENT MADE BY THE TPO IS C OMPLETE, JUSTIFIED AND CORRECT.' 1.1 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A) ERRED IN REJECTING THE FINDINGS OF THE TPO THAT THE AGREEMENT UNDER CONSIDERATION WERE ENTERED AFTER THE ELAPSE OF THE FINANCIAL YEAR OR DU RING MID YEAR AND THE AGREEMENT WITH THE 'US AEM/S - ATOS ORIGIN INC. WAS ENTERED INTO ON 22.07.200S, AND THAT TOO RETROSPECTIVELY FROM 01,04.2007 AND WITH THE FRENCH AE, THE AGREEMENT WAS ENTERED INTO ON 08.10.2007, THAT TOO RETROSPECTIVELY W.E.F. 01,04.20 07.' 1.2 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C1T(A) ERRED IN REJECTING THE TPO'S FINDING THAT THE AES WERE ENJOYING HEAVY CREDIT PERIOD AND THE SAME IS EVIDENT FROM SCHEDULE 13 OF THE ASSESSES ANNUAL REPORT' 1.3 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C1T(A) ERRED IN NOT APPRECIATING THE FINDINGS OF THE TPO THAT THE PERIOD OF 30 DAYS OF CREDIT AND INTEREST RATE OF 2% WAS OBTAINABLE FROM THE ASSESSED OWN AGREEMENT AND THE ASSESSE HAS DELI BERATELY REMOVED THE CLAUSE FOR 2% INTEREST ON DELAYED PAYMENT AND ENHANCED THE CREDIT PERIOD FROM 30 DAYS TO BEYOND 65 DAYS.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING ENTIRE DEDUCTION AS CLAIME D BY THE ASSESSEE U/S.L0A IRRESPECTIVE OF THE FACT THAT THE EXPENSES INCURRED IN FOREIGN CURRENCY NEEDS TO BE DEDUCTED FROM THE EXPORT TURNOVER OF THE UNDERTAKING CLAIMING DEDUCTION U/S.10A.' 2.1 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE DECISION OF HONBLE BOMBAY HIGH COURT IN ASSESSEE'S OWN CASE FOR A.Y, 2002 - 03 AND IN THE CASE OF M/S. GEM PLUS JEWELLERY INDIA PVT. ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 17 LTD., IS PENDING FOR ADJUDICATION BEFORE THE HONBLE SUPREME COURT 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 4.THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED. I SSUE NO . 1 : - 8 . UNDER THIS ISSUE THE REVENUE HAS CHALLENGED THE FINDING OF THE HONBLE CIT(A) IN WHICH NECESSARY DIRECTION HAS BEEN GIVEN TO TPO TO WORK OUT THE INTEREST AT F.D. RATE. BEFORE GOING FURTHER, WE DEEMD IT NECESSA RY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD.: - 2.3 I HAVE CONSIDERED AOS ORDER AS WELL AS APPELLANT ARS SUBMISSION. I HAVE ALSO TAKEN NOTE TO THE TPOS ORDER DATED 27.10.2011. HAVING TAKEN NOTE TO THE SAME, I FIND THAT THE REASONS ASSIGNED BY THE TPO IN PARA 4.1 OF THE ORDER ARE WELL REASONED WHEREIN THE TPO ASSIGNED SPECIFIC REASONS FOR MAKING UPWARD ADJUSTMENT GIVEN IN PARA 7F & 7G OF THE TPOS ORDER. IN VIEW OF THE SAME, I CONSIDERED IT PROPER AND APPROPRIATE TO HOLD THAT THE UPWARD ADJUSTMENT M ADE BY THE TPO IS COMPLETELY JUSTIFIED AND CORRECT. HOWEVER, IN RESPECT OF GROUND NO.3 IN RELATION TO APPLYING THE RATE OF INTEREST AT 2% P.M WHEREAS IN THE APPELLANTS OWN CASE FOR A.YS. 2009 - 10 AND 2 0 10 - 11, THE TPO HIMSELF HAS APPLIED THE FD RATE AS PER PARA 1.2.7 OF THE ORDER DATED 27.1.2014. THE APPELLANTS AR ALSO SUBMITTED THAT THE DRP HAS CONFIRMED THE OBSERVATION MADE BY THE AO FOR A.Y. 2009 - 10 FOR APPLYING FD INTEREST RATE FOR WORKING OUT THE INTEREST ON SUCH INTERNATIONAL TRANSACTION. IN VIEW OF T HE SAME, I CONSIDER IT PROPER AND APPROPRIATE TO DIRECT THE AO/TPO TO WORK OUT INTEREST IN THE SIMILAR MANNER AS IT HAS BEEN CONFIRMED BY THE DRP, MUMBAI, IN APPELLANTS OWN CASE IN A.Y. 2009 - 10. THUS, WITH THIS OBSERVATION, THE APPELLANTS THIS GROUND OF APPEAL IS ADJUDICATED. ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 18 9 . ON APPRAISAL OF THE FINDING OF THE CIT(A), WE NOTICED THAT THE CIT(A) HAS GIVEN THE DIRECTION ON THE BASIS OF DECISION IN APPELLANTS OWN CASE FOR THE A.Y. 2009 - 10. THE SAID FINDING HAS NOT BEEN CHALLENGED. THEREFORE, WE NOWHERE FOUND ANY ILLEGALITY AND INFIRMITY IN THE ORDER PASSED BY THE CIT(A) ON THIS ISSUE. ACCORDINGLY, WE AFFIRM THE FINDING OF THE CIT(A) ON THIS ISSUE AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO. 2 1 0 . UNDER THIS ISSUE THE REV ENUE HAS CHALLENGED THE DEDUCTION OF EXPENSES INCURRED IN FOREIGN CURRENCY FROM TOTAL TURNOVER. THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY RELYING UPON THE DECISION OF THE BOMBAY HIGH COURT IN THE ASSESSEE S OWN CASE FOR THE A.Y. 200 2 - 03 AND 200 6 - 07 . THE CIT(A) HAS GIVEN THE FINDING IN PARA NO. 6.3 WHICH IS HEREBY REPRODUCED AS UNDER.: - 6.3 I HAVE CONSIDERED THE AOS ORDER AS WELL AS APPELLANT ARS SUBMISSION. DURING THE APPELLATE PROCEEDINGS, THE AR HAS BROUGHT TO MY NOTICE THAT THE DRP IN A.Y. 2009 - 10 AND 2010 - 11 HAS DENIED SIMILAR CLAIM OF THE APPELLANT VIDE ORDER DATED 18.11.2013 AND 20.10.2014 RESPECTIVELY. HOWEVER, THE LD. AR ALSO BROUGHT THIS FACT TO MY NOTICE THAT THE ISSUE INVOLVED IN THIS GROUND HAS BEEN ALLOWED BY JURISDICTIONA L BOMBAY HIGH COURT FOR A.Y. 2002 - 03 AND 2006 - 07. IN THESE FACTS OF THE APPELLANTS CASE, I AM IN DISAGREE WITH THE FINDINGS OF THE DRP GIVEN IN JUST PRECEDENT A.Y. 2009 - 10 AND 2010 - 11. I CONSIDER IT PROPER AND APPROPRIATE TO DIRECT THE AO TO VERIFY FROM T HE CASE RECORDS THAT WHEN THE ISSUE INVOLVED IN THIS GROUND OF THE AO TO VERIFY FROM THE CASE RECORDS THAT WHEN THE ISSUE INVOLVED IN THIS GROUND OF APPEAL IS SIMILAR AND IDENTICAL AS IT HAS BEEN ADJUDICATED BY THE ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 19 JURISDICTIONAL BOMBAY HIGH COURT IN APPEL LANTS OWN CASE FOR A.Y. 2002 - 03 AND 2006 - 07 THEN THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE APPELLANT RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL BOMBAY HIGH COURT IN THE APPELLANTS OWN CASE. WITH THIS OBSERVATION, THE APPELLANTS THIS GROUND IS ADJUDICATED. 1 3. ON APPRAISAL OF THE ORDER, WE NOTICED THAT THE ISSUE HAS DULY BEEN COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2002 - 03 & 2006 - 07 . T HIS ISSUE HAS ALSO BEEN COVERED BY THE DECISION OF THE HONB LE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y. 2007 - 08 AND 2009 - 10. ACCORDINGLY, WE ARE OF THE VIEW THAT THE CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APPELLATE STAGE. ACCORDINGLY, WE DECIDE THI S ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE ASSESSEE. 12 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HERE BY ORDERED TO BE DISMISSED AND APPEAL FILED BY THE ASSESSEE IS HEREBY ORDERED TO BE ALLOWED , IN PART IN TERMS INDICATED HEREINABOVE. ORDER PRO NOUNCED IN THE OPEN COURT ON 02.01 .2019 SD/ - SD/ - ( R. C. SHARMA ) (AMARJIT SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED : 02. 01.2019 V IJAY ITA. NO. 4815 TO 4707 /M/20 1 5 A.Y. 2008 - 09 20 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI