Zuari Cement Limited, Kadapa V. Dy.Commissioner of Income Tax, Circle-2(1), Tirupathi

ITA 471/HYD/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0328 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 20-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Gift; Depreciation; Transfer pricing; Business expenditure; International transaction; Wholly owned subsidiary; Scheme of amalgamation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 471/HYD/2014 ASSESSMENT YEAR: 2009-10 ZUARI CEMENT LIMITED, YERRAGUNTLA, KADAPA DIST. [PAN: AAACZ1270E] VS DY. COMMISSIONER OF INCOME TAX , CIRCLE-2(1), TIRUPATI (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.R.VASUDEVAN, AR FOR REVENUE : SMT. G. APARNA RAO, DR DATE OF HEARING : 09 - 0 2 - 201 5 DATE OF PRONOUNCEMENT : 17 - 04 - 2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS APPEAL BY ASSESSEE IS FILED AGAINST THE ORDER OF THE ASSESSING OFFICER (AO), DEPUTY COMMISSIONER OF INCOME TAX, CI RCLE-2(1), TIRUPATI U/S.144C OF THE INCOME TAX ACT [ACT] READ WITH THE DIRECTIONS FROM DISPUTE RESOLUTION PANEL [DRP], HYDERABAD U/S.144C( 5) DT.25-11-2013. ASSESSEE IS CONTESTING VARIOUS ADDITIONS MADE UNDER TRANSFER PRICING PROVISIONS AND DISALLOWANCES MADE UNDER THE CORPORA TE TAX ISSUES. I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 2 -: 2. BRIEFLY STATED, ASSESSEE IS ENGAGED IN THE BUSIN ESS OF PRODUCTION AND SALE OF PORTLAND CEMENT AND HAS CEMENT MANUFACT URING FACILITIES IN SITAPURAM AND YERRAGUNTLA IN AP. AS SEEN FROM THE ORDER OF TRANSFER PRICING OFFICER [TPO], ITALCEMENTI GROUP MADE ITS D EBUT IN INDIA IN JANUARY, 2001 THROUGH PARTIAL ACQUISITION OF 2.1 MI LLION TONNE YERRAGUNTLA CEMENT PLANT IN ANDHRA PRADESH. THIS I NVESTMENT WAS INITIALLY MADE THROUGH 50:50 JOINT VENTURE WITH K.K .BIRLA GROUP IN THE FINANCIAL YEAR [FY] 2000-01. ASSESSEE, ZUARI CEMEN T LTD., WAS HIVED OFF FROM ZUARI INDUSTRIES LTD., AND WAS OPERATING BETWE EN 2001 TO 2006 AS A JOINT VENTURE COMPANY. IN MAY, 2006, ITALCEMENTI GROUP ACQUIRED FULL CONTROL OF ASSESSEE THROUGH CIMENTS FRANCAIS S.A., AS IMMEDIATE HOLDING COMPANY. WHILE ASSESSEE-COMPANY WAS IN JOINT VENTU RE, IT ACQUIRED ANOTHER COMPANY SRI VISHNU CEMENT LIMITED [SVCL], W HOSE 1.3 MILLION TONNE PLANT IS SITUATED AT SITAPURAM IN ANDHRA PRAD ESH AS A SICK COMPANY. AFTER ACQUIRING THE COMPANY BY INFUSION O F FRESH CAPITAL AND TECHNOLOGY, THE SAID COMPANY WAS TURNED AROUND, WHI CH WAS OPERATING AS A SUBSIDIARY COMPANY OF ASSESSEE-COMPANY. PURSUA NT TO THE SCHEME OF AMALGAMATION SANCTIONED BY THE HON'BLE HIGH COUR T OF ANDHRA PRADESH ON 29-06-2007, SVCL STOOD MERGED WITH ASSES SEE-COMPANY W.E.F. 01-01-2007. THE TPO ACKNOWLEDGES THAT FROM A MODEST 0.5 MILLION TONNE CAPACITY IN 1995, ZUARI HAS GROWN TO A 3.5 MILLION TONNE CAPACITY TODAY. DURING THE YEAR, ASSESSEE FILED RE TURN OF INCOME ADMITTING TOTAL INCOME OF RS.389.75 CRORES, THE RET URN WAS TAKEN FOR SCRUTINY AND EVENTUALLY THE FINAL ASSESSMENT WAS CO MPLETED ASSESSING TOTAL INCOME AT RS.485,23,81,680/-, CONSEQUENT TO V ARIOUS ADDITIONS AS UNDER: I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 3 -: (RS) TP ADJUSTMENTS 94,30,82,932 DISALLOWANCE OF C OMMUNITY DEVELOPMENT EXPENSES 76,36,096 DISALLOWANCE OF GIVEAWAYS 14,06,559 DISALLOWANCE OF CONTRIBUTION TO ZUARI SCHOOL 13,43,496 3. IN THE APPEAL PREFERRED BEFORE US, ASSESSEE HAS RAISED 16 GROUNDS AND VARIOUS SUB-GROUNDS. GROUND NO.1 & 2 ARE GENER AL IN NATURE. WHILE GROUND NO.3 & 4 ARE WITH REFERENCE TO THE MET HOD BEING ADOPTED BY THE TPO FOR TP ANALYSIS, GROUND NO.5 TO 12 ARE ON VARIOUS PAYMENTS MADE TO ASSOCIATED ENTERPRISES [AES] WHICH WERE CON SIDERED UNDER TP ANALYSIS. THEREFORE, GROUND NO.2 TO 12 PERTAIN TO TP ISSUES. UNDER THE CORPORATE TAX ADJUSTMENTS GROUND NO.13, 14 & 15 ARE ON THE THREE DISALLOWANCES LISTED ABOVE. GROUND NO.16 PERTAINS TO LEVY OF INTEREST U/S.234B & 234C. IN THE COURSE OF PRESENT PROCEEDI NGS, ASSESSEE HAS RAISED AN ADDITIONAL GROUND. PURSUANT TO THE SCHEM E OF AMALGAMATION SANCTIONED BY THE ANDHRA PRADESH HIGH COURT ON 29-0 6-2007, THE ADDITIONAL GROUND IS ON CLAIM OF DEPRECIATION ON TH E GOODWILL AMOUNTING TO RS.17,991.99 LAKHS, THAT AROSE AS A RESULT OF TH E AMALGAMATION. THIS ISSUE IS CONSIDERED AT A LATER PART OF ORDER. BEFO RE ADVERTING TO THE TP ISSUES, IT WOULD BE BETTER TO DECIDE THE CORPORATE TAX ISSUES FIRST. CORPORATE TAX ISSUES: 4. AS BRIEFLY STATED, THERE ARE THREE EXPENDITURES WHICH WERE DISALLOWED BY AO BEING CONTESTED BY ASSESSEE IN THI S APPEAL, WHEREAS OTHER DISALLOWANCES MADE BY AO ARE NOT OBJECTED. A MONG THEM, THE FIRST ONE IS DISALLOWANCE OF COMMUNITY DEVELOPMENT EXPENS ES OF RS.76,36,096/- BEING CONTESTED IN GROUND NO.13. I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 4 -: 4.1 ASSESSEE-COMPANY HAD INCURRED EXPENSES OF THE A BOVE AMOUNT TOWARDS SPECIAL ACTIVITIES LIKE MEDICAL CAMPS, INST ALLING WATER BORES AND BORE-WELLS AND CARRYING OUT INFRASTRUCTURE DEVELOPM ENT IN VILLAGES ETC. AO DISALLOWED THE ENTIRE EXPENDITURE ON THE REASON THAT: A) THE EXPENDITURES WERE NOT SUPPORTED BY ANY CONCRETE EVIDENCE; B) THE BUSINESS NECESSITY WAS ALSO NOT PROVED BEYOND D OUBT; C) IDENTITY OF PAYEE WAS NOT ESTABLISHED. 4.2 IT WAS SUBMITTED THAT ABOVE EXPENDITURE HAS BEE N INCURRED FOR THE WELFARE OF THE EMPLOYEES AND PEOPLE IN NEARBY VILLA GES AND THESE ARE PART OF 'CORPORATE SOCIAL RESPONSIBILITY' EXPENDITU RE OF THE COMPANY. IT WAS SUBMITTED THAT ASSESSEE EMPLOYS EMPLOYEES FROM NEARBY VILLAGES AND THESE EXPENDITURES ARE NECESSARY TO RETAIN SUCH EMPLOYEES AND MOTIVATE THEM TO WORK WITH THE COMPANY FOR A LONGER TERM BY PROVIDING NECESSARY AMENITIES IN THE VILLAGES. THESE EXPENDI TURES ARE ESSENTIAL FOR SMOOTH OPERATIONS AND ARE INCURRED WHOLLY AND EXCLU SIVELY FOR THE PURPOSE OF BUSINESS. IT WAS FURTHER SUBMITTED THAT ASSESSEE HAS MAINTAINED PROPER BILLS AND DOCUMENTATION IN SUPPOR T OF THE EXPENDITURES AND AO HAS INCORRECTLY DISREGARDED SAM PLE VOUCHER COPIES SUBMITTED. ASSESSEE PLACES RELIANCE ON THE FOLLOWI NG JUDICIAL PRECEDENTS WHEREIN IT HAS BEEN HELD THAT EXPENDITURE INCURRED ON VARIOUS 'CORPORATE SOCIAL RESPONSIBILITY' IS ALLOWED AS BUSINESS EXPEN DITURE. I. CIT VS. MADRAS REFINERIES LTD., [266 ITR 170 (MADRA S)] II. CIT VS. JAYENDRAKUMAR HIRALAL [327 ITR 147 (GUJARAT HC)] III. CIT & ANR. VS. KARNATAKA FINANCIAL CORPORATION [326 ITR 355] [(KAR. HC)] IV. CIT VS. INFOSYS TECHNOLOGIES LIMITED [360 ITR 714 ( KARNATAKA)] I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 5 -: ASSESSEE ALSO RELIED ON VARIOUS ITAT DECISIONS IN S UPPORT OF THE CONTENTION. 4.3 DRP HOWEVER, ACCEPTED THAT THIS EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS WHICH SHOULD BE ALLOWED U/S.37( 1) OF THE ACT. HOWEVER, SINCE AO HAS OBSERVED THAT NO BILLS AND VO UCHERS WERE PRODUCED BEFORE HIM, IT DIRECTED ASSESSEE TO PRODUC E BOOKS OF ACCOUNTS INCLUDING BILLS AND VOUCHERS AND AO IS DIRECTED TO DECIDE THE ISSUE ON THE BASIS OF EXAMINATION OF THE BOOKS OF ACCOUNTS. 4.4 AS SEEN FROM THE ORDER, AO HAS EXAMINED FEW OF THE VOUCHERS AND CAME TO CONCLUSION THAT IT DOES NOT CONTAIN PROPER INVOICES OR VOUCHERS AND PAYEE DETAILS ARE NOT AVAILABLE AND IN ONE CASE , EVEN THE AMOUNT OF RS.5 LAKHS WAS PAID TO KADAPA RATNALU TRUST. AO WAS OF THE OPINION THAT THE TRUST WAS NOT RECOGNIZED U/S.12AA. WHAT I S REQUIRED TO BE EXAMINED BY AO IS WHETHER AMOUNT WAS SPENT BY ASSES SEE FOR PROVIDING NECESSARY FACILITIES TO THE VILLAGES/VILLAGERS UNDE R THE 'CORPORATE SOCIAL RESPONSIBILITY' CONCEPT. IT IS NOT PROPER TO DISAL LOW THE ENTIRE AMOUNT ON THE BASIS OF NON-AVAILABILITY OF FEW VOUCHERS EVEN THOUGH ASSESSEE HAS PROVIDED EVIDENCE BY WAY OF LEDGER ACCOUNTS AND PAY MENT DETAILS. AO DOES NOT HAVE ANY RIGHT TO DISALLOW THE AMOUNT STAT ING THAT BUSINESS NECESSITY WAS ALSO NOT PROVED BEYOND DOUBT. THIS I SSUE WAS ALSO DECIDED BY THE DRP, SO AO CANNOT AGAIN COME TO THE SAME POINT WHICH WAS HELD IN FAVOUR OF ASSESSEE. IN VIEW OF THIS, W E IN THE INTEREST OF JUSTICE, RESTORE THE ISSUE TO THE FILE OF AO TO EXA MINE THE VOUCHERS ONLY ALONG WITH OTHER BOOKS OF ACCOUNTS AND OTHER DETAIL S TO VERIFY WHETHER THE EXPENDITURE WAS SPENT FOR THE PURPOSE OF 'CORPO RATE SOCIAL RESPONSIBILITY' OF ASSESSEE-COMPANY WHICH WAS ALLOW ED AS A BUSINESS EXPENDITURE U/S.37(1) BY THE DRP ITSELF. THE GROUN D IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 6 -: GIVEAWAYS: 5. THE NEXT ITEM OF DISALLOWANCE IS 'GIVEAWAYS' TO THE TUNE OF RS.14,06,559/-. UNDER THIS HEAD, AO DISALLOWED AN AMOUNT OF RS.14,06,559/- STATING THAT THIS EXPENDITURE WAS NO T WARRANTED AND HAD NO NEXUS WITH THE BUSINESS AND NOT SUPPORTED BY CON CRETE EVIDENCE AND ALSO NO IDENTITY OF RECEIVERS. WE ARE UNABLE TO UN DERSTAND THE ABOVE FOUR REASONS GIVEN BY AO. IF WE PURSUE THE ORDERS, IT IS VERY CLEAR THAT EXPENDITURE WAS INCURRED FOR PURCHASE OF GIFTS TO A DVOCATES MARRIAGES, PURCHASE OF COOLERS GIFTED TO JOINT DIRECTOR (MINES ), PURCHASE OF GIFTS TO M.V.MYSOORA REDDY'S SON'S MARRIAGE FUNCTION, PURCHA SE OF SILVER PLATE GIFTED TO INSPECTOR OF FACTORIES, PURCHASE OF GIFTS TO RAILWAY EMPLOYEES, PURCHASE OF GIFT FOR ESI OFFICIAL DAUGHTER'S MARRIA GE, PURCHASE OF GIFTS TO OTHER GOVT. EMPLOYEES ETC. EXCEPT THE PURCHASE OF GOLD COINS FROM CORPORATION BANK, BANGALORE ON 16-02-2008 FOR RS.3, 85,166/- VIDE INVOICE NO.120 FOR WHICH NO DETAILS WERE FURNISHED, REST OF THE EXPENDITURE HAS SAME IDENTITY ETC. SINCE THE BUSIN ESS NECESSITY WAS ALREADY DECIDED BY THE DRP, AO'S DUTY IS ONLY TO EX AMINE THE VOUCHERS. IN OUR OPINION, EXCEPT THE AMOUNT OF RS.3,85,166/- FOR WHICH DETAILS WERE NOT AVAILABLE, REST OF THE EXPENDITURE CANNOT BE DISALLOWED ON THE REASONS STATED BY AO. WE THEREFORE, DIRECT THE AO TO ALLOW THE EXPENDITURE, EXCEPT THE AMOUNT OF RS.3,85,166/-. T HIS GROUND IS PARTLY ALLOWED. CONTRIBUTION TO ZUARI SCHOOL : 6. THE LAST ITEM IS THE EXPENDITURE INCURRED IN THE NA TURE OF CONTRIBUTION TO ZUARI SCHOOL AMOUNTING TO RS.13,43, 496/-. AS PER THE COPY OF THE MOU ENTERED BETWEEN ASSESSEE AND DAV CO LLEGE TRUST AND MANAGEMENT SOCIETY, NEW DELHI, ASSESSEE-COMPANY WAS REQUIRED TO REIMBURSE THE EXPENDITURE ON RUNNING THE SCHOOL AFT ER DEDUCTING THE INCOME REALIZED AS FEES ETC., FROM THE STUDENTS. A O, HOWEVER, NOTICED I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 7 -: THAT 'SCHOOL' WAS NOT DEFINED IN THE MOU AND DISALL OWED THE EXPENDITURE STATING THAT THERE IS NO CLARITY IN THE MOU ITSELF. WE WERE SURPRISED ABOUT THE REASONING GIVEN BY THE AO. HE WAS DIRECT ED BY THE DRP ONLY TO EXAMINE THE NECESSARY VOUCHERS, AO SHOULD NOT QU ESTION THE WISDOM OF THE DRP IN ALLOWING THE EXPENDITURE U/S.37(1), S UBJECT TO VERIFICATION OF THE AVAILABILITY OF VOUCHERS. IN OUR OPINION, A O EXCEEDED HIS JURISDICTION IN EXAMINING THE MOU ITSELF. NOT ONLY THAT, ASSESSEE ALSO MADE CONTRIBUTIONS TO ANOTHER SCHOOL AT SITAPURAM. THIS WAS BEING CONTRIBUTED EARLIER BY SVCL WHICH WAS LATER MERGED WITH ASSESSEE- COMPANY. IN BOTH THE PLACES OF YERRAGUNTLA AND SIT APURAM, THE SCHOOL IS BEING RUN MAINLY FOR THE BENEFIT OF EMPLOYEES. SINCE, THE DRP ALREADY DECIDED TO ALLOW THE EXPENDITURE U/S.37(1) AND ASSE SSEE FURNISHED THE VOUCHERS, THE REASONS ASSIGNED BY AO TO DISALLOW TH E EXPENDITURE CANNOT BE ACCEPTED. WE DIRECT THE AO TO ALLOW THE EXPENDITURE. IN THE RESULT, THIS GROUND IS ALLOWED. TRANSFER PRICING ISSUES : 7. ASSESSEE BEING A WHOLLY OWNED SUBSIDIARY OF A FOREIGN COMPANY, HAS VARIOUS TRANSACTIONS WITH ITS AES WHICH WERE RE PORTED AS THE INTERNATIONAL TRANSACTIONS IN 3CEB REPORT. THE TPO NOTED THEM IN PAGE 2 OF THE ORDER AND AFTER EXCLUDING NON-OPERATING IT EMS, BOTH REVENUE AND EXPENDITURE, ARRIVED AT (OPERATING COST / OPERATING REVENUES) AT 27.12%, WHEREAS (OPERATING PROFITS / OPERATING COST) WAS AR RIVED AT 33.37%. ASSESSEE IN ITS 3CEB REPORT CLAIMED TRANSACTION NET MARGIN METHOD [TNMM] AS THE MOST APPROPRIATE METHOD, ANALYSED ITS TRANSACTIONS AND COMPARED TWO SETS OF COMPARABLE COMPANIES. UNDER T HE FIRST SET OF COMPARABLES AS NOTED DOWN BY TPO IN PAGE 4 OF THE O RDER, IT COMPARED 11 COMPANIES WHICH ARE IN CEMENT BUSINESS WHOSE AVE RAGE OPERATING PROFIT/OPERATING COST WAS AT 18.59% AS AGAINST ASSE SSEE'S OPERATING MARGIN 29.36%. IT ALSO HAD ANOTHER SET OF COMPARAB LES WHEREIN THE I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 8 -: AVERAGE NET MARGIN ON SALE WAS AT 21.67% AS AGAINST ASSESSEE'S MARGIN OF 29.36%. ASSESSEE'S TP STUDY WAS REJECTED BY TPO STATING THAT JUST BECAUSE THE OPERATING MARGIN OF THE TAXPAYER IS COM PARABLE WITH THE OPERATING MARGIN OF CERTAIN COMPARABLES, IT CANNOT BE SAID THAT ALL THE TRANSACTIONS WERE TRANSACTED AT ARM'S LENGTH. RELY ING ON THE PRINCIPLE OF 'SUBSTANCE OVER FORM' AS HELD BY HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. GOSALIA SHIPPING P. LTD., [113 I TR 307 (SC)], AO REJECTED THE METHOD OF TNMM, CONSEQUENTLY, THE TP S TUDY CONDUCTED BY THE TAXPAYER. HE ALSO HELD THAT AGGREGATION OF TRA NSACTIONS WERE NOT ALLOWED AND RELIED ON THE DECISIONS OF THE CO-ORDIN ATE BENCH IN THE CASE OF STAR INDIA P. LTD., VS. ACIT [2008-TIOL-426-ITAT -MUM] AND ALSO UCB INDIA PVT. LTD., [317 ITR 292 (AT) (MUM)], TO COME TO A CONCLUSION THAT ANY TRANSACTION THAT HAS BEARING ON PROFITS CAN BE ANALYSED SEPARATELY. THEREAFTER, HE ANALYSED VARIOUS INTERNATIONAL TRANS ACTIONS, MOSTLY UNDER THE COMPARABLE UNCONTROLLED PRICE (CUP) METHOD FOR ANALYZING THE ARM'S LENGTH NATURE OF PAYMENTS TO ITS AES. HE FURTHER H ELD THAT FEES FOR TECHNICAL KNOW-HOW, FEES FOR USE OF TRADE MARK AND FEES FOR PROCUREMENT ETC., ARE A SEPARATE CLASS OF TRANSACTIONS, THEREFO RE, THEY HAVE TO BE ANALYSED SEPARATELY, AS EACH TRANSACTION HAS A BEAR ING ON PROFITS. ACCORDINGLY, THE TRANSACTIONS ENTERED INTO BY AND B ETWEEN THE TAXPAYER AND ITS AES ARE CONSIDERED SEPARATELY FOR THE PURPO SE OF TRANSFER PRICING ANALYSIS. LD.TPO NOTICED THAT ASSESSEE PAID AN AMO UNT OF RS.12,53,26,000/- TO CIMENTS FRANCAIS S.A., AS TECH NICAL KNOW-HOW AND RESEARCH AND OTHER SERVICE FEE. THIS PAYMENT WAS P AID ON AN AGREEMENT DT.02-08-2000 FOR GETTING TECHNICAL KNOW-HOW FOR A PERIOD OF THREE CALENDAR YEARS FROM THAT EFFECT DATE. AS PER RENEWA L OF CLAUSE AT 12.2 IT IS MENTIONED THAT AGREEMENT WAS AUTOMATICALLY BE RENEW ED SUBJECT TO GOVERNMENT/STATUTORY APPROVAL FOR A PERIOD OF ONE C ALENDAR YEAR AT A TIME IN SUPPORT OF THE TRANSACTION. ASSESSEE HAS F URNISHED A COPY OF AGREEMENT DT.06-06-2007 EFFECTIVE FROM 01-01-2007 F OR PAYMENT OF I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 9 -: ROYALTY @ 2% ON SALES MADE TO OUTSIDE PARTIES AND 1 % ON SALE TO GROUP COMPANIES. EVEN THOUGH ASSESSEE JUSTIFIED THE PAYM ENT, LD.TPO HOWEVER, CONSIDERED THAT THERE IS NO ADDITION OF NE W TECHNICAL KNOW-HOW AND COMPARED WITH FINANCIAL RESULTS OF SRI VISHNU C EMENTS LTD., UNDER THE CUP METHOD, TO HOLD THAT THERE IS NO JUSTIFICAT ION FOR PAYMENT OF ROYALTY. ACCORDINGLY HE CAME TO THE CONCLUSION THA T THERE IS NO NEED TO PAY ANY AMOUNT. NOT ONLY THAT, HE ALSO COMPARED SO ME EXTERNAL COMPARABLES AND CAME TO THE CONCLUSION THAT AVERAGE PAY OUT ON ACCOUNT OF TECHNICAL SERVICES BY THOSE COMPARABLE C OMPANIES WAS AT 0.91% OF NET SALES. THEREFORE, BASED ON THESE TWO INTERNAL AND EXTERNAL CUP ANALYSIS, TPO DETERMINED THE PAYABLE ROYALTY AT 0.91% WHICH COMES TO RS.10.87 CRORES. THE ADDITIONAL AMOUNT OF RS.1,65,64,219/- WAS DISALLOWED AS AN EXCESS PAYMENT AND WAS ADJUSTE D U/S.92CA. 8. NEXT ITEM ANALYSED BY TPO WAS WITH REFERENCE TO PAYMENT OF RS.6,26,62,000/- TO CIMENTS FRANCAIS S.A., TOWARDS SUB-LICENSE AGREEMENT. CIMENTS FRANCAIS S.A., AN AFFILIATED CO MPANY OF ITALCEMENTI GROUP IS HAVING SUB-LICENSE AGREEMENT TO USE THE TR ADE MARK. AS PER THE AGREEMENT, ROYALTY AT 1% OF NET SALES OF LICENS ED PRODUCTS HAS TO BE PAID TO CIMENTS FRANCAIS S.A., ON QUARTERLY BASIS. AO ANALYSED THE SAME UNDER THE CUP METHOD AND NOTICED THAT THERE IS NO NEED FOR PAYING ANY AMOUNT TO ITALCEMENTI GROUP FOR USE OF T RADE MARK AS ASSESSEE'S OWN TRADE MARK OF ZCL WAS WELL ESTABLISH ED. HE ANALYSED THE EVOLUTION OF ZCL BRAND EQUITY AND NOTICED THAT ASSE SSEE ITSELF HAD ENTERED INTO AN AGREEMENT WITH M/S. JINDAL VIJAYANA GAR LTD., FOR A FIXED LICENSE OF RS.1,00/- PER METRIC TONNE FOR USING THE TRADE MARK AND ACCORDINGLY, ASSESSEE HAS RECEIVED AMOUNTS. THEREF ORE, COMMERCIAL EXPLOITATION OF THE TRADE MARK AIDED BY THE MARKETI NG AND ADVERTISING EFFORTS OF ZCL, RESULTED IN CREATION OF VALUABLE IN TANGIBLE ASSETS IN INDIA. THEREAFTER, ANALYZING THE BENEFIT TEST, THE TPO CAM E TO THE CONCLUSION I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 10 -: THAT NEW TRADE MARK LICENSED TO THE TAX PAYER DOES NOT HAVE ANY VALUE AND THEREFORE NO LICENSE FEE SHOULD BE CHARGEABLE F OR ITS USE. THEREAFTER, HE HAS DISALLOWED THE ENTIRE AMOUNT OF SUB-LICENSE FEE PAID UNDER THE PROVISIONS OF SECTION 92CA. NOT ONLY THAT HE FURTH ER ANALYSED THE CO- BRANDING OF ZCL AND 'ITALCEMENTI' GROUP AND CAME TO THE CONCLUSION THAT ITALCEMENTI GROUP GOT BENEFIT BY PIGGY RIDING ON ZCL BRAND, WHICH HAS TREMENDOUS VALUE IN THE MARKET AND THEREFORE, T HE SAME REQUIRES TO BE COMPENSATED AT ARM'S LENGTH. HE TOOK THE 10% OF ALP EXPENSES BETWEEN 2001 AND 2008 AND ARRIVED AT THE COMPENSATI ON PAYABLE TO ZCL, FOR USE OF ITS TRADE MARK AT RS.41,60,00,000/- AND MADE THE ADJUSTMENT OF THE ABOVE IN THE IMPUGNED YEAR. 9. IN ADDITION, TPO ALSO ANALYSED THE PAYMENTS FROM THE INTRA GROUP SERVICES OF PROCUREMENT FEE OF RS.7,11,82,000/-. C ONSIDERING THAT THERE IS NO NEED FOR ANY SERVICES, HE DISALLOWED THE ENTI RE AMOUNT. LIKEWISE, CONSULTANCY FEES PAID OF RS.38,10,000/- TO BRAVO CO NSULTANCY SPA AND RS.42,10,94,000/- TO CTG SPA WERE ALSO CONSIDERED A ND DISALLOWED THE SAME REASON AND ON THE BASIS OF THE BENEFIT TEST, I N ITS ENTIRETY. ASSESSEE'S OBJECTIONS WERE REJECTED AND THE ABOVE A MOUNTS WERE DISALLOWED. ANOTHER DISALLOWANCE MADE BY THE AO WA S WITH REFERENCE TO REIMBURSEMENT OF EXPENSES UNDER VARIOUS HEADS TOTAL ING TO RS.51,72,995/-. THUS, IN ALL, AN AMOUNT OF RS.99,6 4,85,214/- WAS TREATED AS ADJUSTMENT U/S. 92CA. ASSESSEE FILED VA RIOUS OBJECTIONS BEFORE THE DRP BUT MORE OR LESS CONCURRED WITH TPO VIDE ITS ORDER DT.25- 11-2013. ASSESSEE IS AGGRIEVED. 10. ASSESSEE'S OBJECTIONS ARE MULTI-FOLD. GROUND N O.1 & 2 ARE GENERAL IN NATURE. GROUND NO.3 & 4, IS THE METHOD ADOPTED BY THE TPO AND GROUND NO.5 TO 12 ARE ON VARIOUS DISALLOWANCES MADE BY THE TPO OUT OF I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 11 -: VARIOUS PAYMENTS MADE TO AE. EACH GROUND HAS SUB G ROUNDS WHICH ARE MORE OR LESS IN THE FORM OF SUBMISSIONS. 11. LD.AR SUBMITTED THAT TPO ERRED IN REJECTING THE TRANSFER PRICING DOCUMENTATION AS WELL AS TNMM AS MOST APPROPRIATE M ETHOD. IT WAS THE OBJECTION THAT THERE IS NO PUBLICLY AVAILABLE INFOR MATION ON PRICES CHARGED IN INDEPENDENT TRANSACTIONS WHICH ARE SIMIL AR OR IDENTICAL IN NATURE THAT REFLECTS THE CHARACTERISTICS OF THE SER VICES PROVIDED BY THE AES TO THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT NEITHER ASSESSEE NOR AES PROVIDE SIMILAR SERVICES UNDER COMPARABLE CIRCU MSTANCES TO ANY INDEPENDENT THIRD PARTY. THEREFORE, APPLICATION OF CUP METHOD IS NOT TENABLE AND GIVEN THE FACTS OF THE CASE WILL NOT GI VE RELIABLE RESULTS. ASSESSEE RELIED ON THE ORDERS OF THE ITAT IN AIR LI QAUIDE ENGINEERING INDIA PVT. LTD., IN ITA NO.1040/H/2011 AND LUMAX IN DUSTRIES IN ITA NO.7408 AND 7641/MUM/2010. WITH REFERENCE TO THE T .P. ADJUSTMENT OF RS.1,65,64,219/- RELATING TO FEE PAID FOR TECHNICAL SERVICES, IT WAS CONTENDED THAT SVCL I.E., SRI VISHNU CEMENTS LTD., WAS A SUBSIDIARY OF ASSESSEE, AS A PART OF BIFR PACKAGE FROM FY.2002-03 . BEFORE THAT, IT WAS INDEPENDENT SICK COMPANY AND HAVING ACQUIRED BY THE COMPANY, BEING SICK, NO ROYALTY WAS CHARGED TO SVCL DURING T HE PERIOD 2002-03 TO 2006-07 W.E.F. JANUARY 2007. THE SAID SVCL WAS MER GED WITH ASSESSEE- COMPANY UNDER THE ORDER OF HON'BLE HIGH COURT OF AP . THEREFORE, COMPARING WITH COSTS OCCURRED ABOUT THREE YEARS PRI OR TO THE IMPUGNED PERIOD, WAS ALSO NOT CORRECT. FURTHER, IT WAS CONT ENDED THAT TPO HAS TAKEN A WRONG INFORMATION AND IGNORED CERTAIN DATA IN BETWEEN WHICH COMPARING ANNUAL EARNINGS AS CAN BE SEEN FROM THE T ABLE ITSELF EXTRACTED IN THE ORDER. SINCE TPO HAS NOT BASED HIS ULTIMATE DECISION OF SVCL, LD.COUNSEL ALSO REFERRED TO THE THREE COMPANIES TAK EN AS EXTERNAL COMPARABLES, IN ARRIVING AT 0.91% OF ROYALTY RATE. IT WAS SUBMITTED THAT THE TECHNICAL FEE PAID INCLUDED IN THEIR ANNUAL REP ORT IS NOT THE ROYALTY I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 12 -: ON SALES, BUT EXPENSES LIKE ROYALTY ON LIME STONE, OTHER FEES PAID TO GOVERNMENT AUTHORITIES WHICH CANNOT BE CONSIDERED A S ROYALTY PAYMENT ON SALES. HE REFERRED TO THE ORDER OF THE TPO AND BALANCE SHEET OF VARIOUS COMPANIES TO SUBMIT THAT THE BASIS ITSELF I S NOT CORRECT. WITH REFERENCE TO SUB-LICENSE FEE OF RS.6,26,62,000/-, I T WAS SUBMITTED THAT THIS AGREEMENT WAS ENTERED IN THE YEAR 2007 AND OBJ ECTED TO THE METHOD ADOPTED BY THE TPO STATING THAT THE TRANSACTION IS INEXTRICABLY LINKED WITH THE MANUFACTURING OPERATION, THEREBY AGGREGATI ON OF TRANSACTION WITH APPLICATION OF TNMM AS A MAM CANNOT BE IGNORED . IT WAS FURTHER CONTENDED THAT THERE WERE NO COGENT REASONS AS TO W HY CUP SHOULD BE ADOPTED AND BOTH TPO AND DRP ERRED IN DETERMINING T HE ALP AT NIL. IT WAS THE SUBMISSION THAT USE OF TRADE MARK IS A BUSI NESS DECISION AND THERE ARE BENEFITS TO ASSESSEE FOR USE OF ITALCEMEN TI GROUP TRADE MARK AND DEMONSTRATED BY THE SUPPORT OF GROWTH IN SALES VOLUME OVER A FIVE YEAR PERIOD AND INCREASE IN CUSTOMER BASE IN THE FI VE YEARS AND FURNISHED THE COPIES OF EVIDENCES FURNISHED TO THE TPO, IN SUPPORT OF THE SUBMISSIONS. IT WAS FURTHER SUBMITTED THAT A PUBLI CLY AVAILABLE INFORMATION ANALYSIS WAS UNDERTAKEN BY ASSESSEE ON THE RATE OF ROYALTY BEING CHARGED BY LICENSOR TO A LICENSEE AND THAT AN ALYSIS CAME TO THE RANGE OF 1.93%. THEREFORE, THE PAYMENT MADE BY ZCL @ 1% ON SALE WAS TO BE CONSIDERED AS ARM'S LENGTH AND TPO'S DETERMIN ATION AT NIL CANNOT BE SUPPORTED, IN VIEW OF THE DECISION OF THE HON'BL E HIGH COURT OF DELHI IN THE CASE OF CIT VS. EKL APPLIANCES LTD., 11.1 COMING TO THE ALLEGED TRANSFER OF ECONOMIC VAL UE OF ZUARI TRADE MARK TO ITALCEMENTI GROUP TRADE MARK, IT WAS CONTEN DED THAT THERE WAS NO MIGRATION OF ECONOMIC VALUE AS THE ZUARI BRAND W AS OWNED BY THE COMPANY AND IS BEING USED IN ALL THE SALES. IT WAS FURTHER CONTENDED THAT AE HAS NOT USED 'ZUARI' BRAND ANYWHERE IN THE WORLD FOR ITS OPERATIONS TO GET ANY BENEFIT AS ALLEGED BY THE TPO . FURTHER, IT WAS I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 13 -: CONTENDED THAT ITALCEMENTI GROUP TRADE MARK WAS BEI NG USED FROM AY.2006-07 ONWARDS AND THEREFORE, AO WAS WRONG IN T AKING THE MARKET EXPENSES AFTER THAT PERIOD ALSO. WITH REFERENCE TO THE INCORRECT METHODOLOGY FOR VALUATION OF ZUARI TRADE MARK, IT W AS FURTHER CONTENDED THAT TRANSFER OF TRADE MARK WILL NOT HAPPEN YEAR AF TER YEAR AND TPO/ DRP HAS MADE A SIMILAR APPROACH IN AY.2008-09 AND M ADE THE ADJUSTMENT OF RS.31.74 CRORES AND IN AY.2009-10, TH E ADJUSTMENT WAS RS.41.60 CRORES. THEREFORE, THE ACTION OF THE TPO/ DRP IS IRRATIONAL ON THE REASON THAT PROPOSING THE TRANSFER PRICING ADJU STMENT FOR TRANSFER OF ZUARI TRADE MARK YEAR AFTER HAS NO BASIS, WITHOUT A PPRECIATING THE FACT THAT THE TRANSFER CAN TAKE PLACE ONLY ONCE. WITH R EFERENCE TO THE CONSULTANCY FEES FOR MANUFACTURING A NEW PLANT, FIR ST OBJECTION WAS THAT THE AMOUNT WAS NOT CLAIMED AS EXPENDITURE IN THE P& L A/C AND WAS CAPITALIZED. WHILE SUPPORTING THE PAYMENT BY WAY O F SERVICES BEING PROVIDED BY THE AE IN PROCURING THE EQUIPMENT FOR T HE NEW PLANT AND ALSO THE NECESSITY FOR TAKING VARIOUS PROCUREMENT S ERVICES FOR A FEE, IT WAS THE SUBMISSION THAT TPO ERRED IN IGNORING THE E VIDENCES AND DETERMINING THE ALP AT NIL. LIKEWISE, PAYMENT OF C ONSULTANCY FEE TO BRAVO CONSULTANCY SPA FOR USE OF 'EASY SUPPLY' PORT AL AND THE EVIDENCES FURNISHED IN THIS REGARD WERE TOTALLY IGNORED AND W RONGLY DETERMINED THE ALP AT NIL. LIKEWISE, THE LD.COUNSEL MADE DETAILED SUBMISSIONS ON REIMBURSEMENT OF EXPENSES AND OTHER VARIOUS DISALL OWANCES MADE BY THE TPO. DETAILED SUBMISSIONS WERE FILED ISSUE- WIS E. 12. LD.DR FURTHER REFERRED TO VARIOUS OBSERVATIONS OF THE TPO AND FINDINGS OF THE DRP TO SUBMIT THAT THE ADJUSTMENTS MADE ARE WARRANTED ON THE FACTS OF THE CASES. HE SUPPORTED THE ORDERS OF THE TPO/DRP. 13. WE HAVE CONSIDERED THE ISSUE AND PURSUED THE EV IDENCES ON RECORD, INCLUDING THE DOCUMENTS PLACED ON THE PAPER BOOKS. WE ARE OF I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 14 -: THE OPINION THAT THE APPROACH OF THE TPO IS NOT COR RECT. EVEN THOUGH THE PAYMENTS MADE BY ASSESSEE TO THE AES ARE JUST A FRACTION OF THE TOTAL TURNOVER OF ASSESSEE, THESE TRANSACTIONS ARE INVARI ABLY INTER-LINKED TO THE MANUFACTURING AND TRADING OF CEMENT BY THE ASSESSEE -COMPANY. THEREFORE, THE APPROACH OF THE TPO IN CONSIDERING T HE CUP METHOD FOR ANALYZING INDEPENDENT TRANSACTIONS IS NOT FULLY JUS TIFIABLE. APART FROM THAT, THE METHODOLOGY USED IN VARIOUS ANALYSIS IS A LSO FAULTY. AS FAR AS THE ROYALTY PAYMENT ON SALES IS CONCERNED, AS RIGHT LY POINTED OUT BY THE LD.COUNSEL, THERE ARE NO COMPARABLE COMPANIES WHICH ARE OFFERING SIMILAR SERVICES. THE TPO'S COMPARISON ON TRANSACT IONS OF ASSESSEE SUBSIDIARY COMPANY MUCH PRIOR TO THE YEAR UNDER CON SIDERATION CANNOT BE JUSTIFIED. THEREFORE, ON THAT BASIS ITSELF, THE COMPARISON CANNOT BE CONSIDERED AS AN INTERNAL CUP. MOREOVER, THE NEED FOR NOT CHARGING ROYALTY FROM SVCL WAS ALSO EXPLAINED AS THE SUBSIDI ARY COMPANY WAS A SICK COMPANY AND IN THE PROCESS OF REVIVING THE COM PANY, ASSESSEE HAS NOT CHARGED ANY ROYALTY TO ITS SUBSIDIARY COMPANY. THEREFORE, ON FAR ANALYSIS, SVSL'S PAST RECORD WITH THAT OF PRESENT T RANSACTIONS OF ASSESSEE-COMPANY IS NOT CORRECT. THEN, COMING TO E XTERNAL COMPARABLES, WE WERE SURPRISED TO NOTE THAT THE TPO CONSIDERED T HE TECHNICAL FEE PAYMENTS WITHOUT ANALYZING THE NATURE OF THE PAYMEN TS. IN SOME CASES, IT IS ROYALTY FOR ACQUIRING THE LIME STONE FROM GOV T., WHICH IS NOT A 'ROYALTY' FOR GETTING THE TECHNOLOGY FROM FOREIGN A E. THERE IS FOREIGN EXCHANGE EXPENDITURE ALSO CONSIDERED AS 'TECHNICAL KNOW-HOW FEE'. A DETAILED OBJECTIONS OF THE ASSESSEE WERE NOT EVEN C ONSIDERED OR DISCUSSED EITHER BY THE TPO OR BY THE DRP. THEREFORE, ON THE BASIS OF AN EXTERNAL CUP ALP OF 0.91% ITSELF IS NOT CORRECT. THEREFORE, THE ENTIRE EXERCISE UNDERTAKEN BY THE TPO ON THIS ISSUE IS ERRONEOUS AN D CANNOT BE JUSTIFIED. I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 15 -: 14. LEAVE ALONE THAT AMOUNT, EVEN THE SUB LICENSE F EE FOR THE USE OF TRADE MARK IS ALSO FAULTY. UNDER THE GUISE OF TPO PROVISIONS, THE TPO CANNOT DETERMINE THE ALP AT NIL AS HELD BY THE HON' BLE DELHI HIGH COURT IN THE CASE OF CIT VS. EKL APPLICANCES LTD., (SUPRA ). THEREFORE, REJECTING THE ENTIRE PAYMENT WITHOUT THERE BEING ANY ANALYSIS ON THE CUP METHOD CANNOT BE ACCEPTED. IN THE GUISE OF ANALYZING THE TRANSACTIONS IN THE CUP METHOD, THE TPO HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO REJECT THE 1% PAYMENT MADE TO ITALCEMENTI GROUP. MOREOVER , WHILE DETERMINING THE PRICE AT NIL ON THE ISSUE, THE TPO SURPRISINGLY HOLDS THAT ASSESSEE HAS TRANSFERRED ITS 'ZUARI BRAND' TO 'ITALCEMENTI GROUP'. WE ARE UNABLE TO UNDERSTAND THIS LOGIC. ITALCEMENTI GROUP NEVER OBTAINED, ACQUIRED OR USED ZUARI BRAND ANYWHERE IN THE WORLD, SO THAT THIS CANNOT BE CONSIDERED FOR TRANSFER PRICING ANAL YSIS. IT IS THE ITALCEMENTI GROUP BRAND WHICH IS USED BY ASSESSEE-C OMPANY. THE TPO'S ANALYSIS OF AMP EXPENSES ARE ALSO NOT CORRECT . EVEN THOUGH ITALCEMENTI GROUP WAS BEING USED FROM EARLIER YEARS , AMP EXPENSES OF CURRENT YEAR ALSO INCLUDED IN THIS, WHICH IS NOT CO RRECT. MOREOVER, ITALCEMENTI GROUP ITSELF IS A 50% SHAREHOLDER IN TH E ASSESSEE-COMPANY FROM THE BEGINNING. THEREFORE, IT CANNOT BE STATED THAT 'ZUARI CEMENTS' IS EXCLUSIVE BRAND OWNER OF THE BIRLA GROUP IN EXCL USION OF ITALCEMENTI GROUP. THE ENTIRE APPROACH BY THE TPO IS BIASED AN D CANNOT BE JUSTIFIED ON THE FACTS OF THE CASE. THEREFORE, WE ARE NOT IN A POSITION TO UPHOLD ANY OF THE CONTENTIONS RAISED BY TPO IN HIS ORDER. LIKEWISE, THE DISALLOWANCE OF VARIOUS SERVICE FEES INCLUDING REIM BURSEMENTS MADE BY ASSESSEE TO AE. SINCE WE DO NOT FIND ANY VALID REA SON FOR TPO TO DISALLOW THESE EXPENDITURES, WE HAVE NO OTHER GO TH AN TO SET ASIDE THE ENTIRE ORDER OF THE TPO WHICH IS BASED ON WRONG PRE SUMPTIONS AND PROPOSITIONS. DRP UNFORTUNATELY, EVEN THOUGH CONSI STED OF THREE SENIOR OFFICERS, DID NOT APPLY ITS MIND TO THE VALID OBJEC TIONS RAISED BY ASSESSEE. IN VIEW OF THIS, WITHOUT DECIDING THE MERITS OF VAR IOUS ISSUES, WE SET I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 16 -: ASIDE THE ORDERS AND DIRECT THE TPO TO RE-CONSIDER THE ENTIRE ORDER AND ANALYSE THEM IN FRESH, FIRST BY DETERMINING THE MOS T APPROPRIATE METHOD AND THEN ANALYZING THE TRANSACTIONS UNDER THE PROVI SIONS OF THE TP. THE ORDERS OF THE TPO/DRP ON THE TP ISSUES ARE THEREFOR E SET ASIDE AND THE ENTIRE ISSUE ON TP ANALYSIS IS RESTORED TO THE FILE OF AO FOR FRESH CONSIDERATION. THE GROUNDS RAISED ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ADDITIONAL GROUND: 15. PURSUANT TO SCHEME OF AMALGAMATION SANCTIONED BY TH E HONBLE HIGH COURT OF A.P. ON 29-06-2007, ENTIRE BUSINESS A ND ALL ASSETS AND LIABILITIES AT RE-VALUED VALUES OF THE ERSTWHILE SV CL STOOD MERGED WITH ASSESSEE W.E.F. 01-07-2007. ACCORDINGLY IT WAS SUBM ITTED THAT GOODWILL AMOUNTING TO RS.17,991.98 LAKHS AROSE AS A RESULT O F AMALGAMATION. ASSESSEE SUBMITTED THAT THOUGH GOODWILL HAS BEEN DU LY RECOGNISED IN THE BOOKS OF ACCOUNTS AND DEPRECIATION ON THE SAME WAS ALSO SHOWN IN THE BOOKS, THE DEPRECIATION WAS NOT CONSIDERED FOR THE COMPUTATION OF INCOME TAX PURPOSES. AS THERE WAS NO LEGAL CLARITY ON THE ISSUE OF ALLOWABILITY OF DEPRECIATION OF GOODWILL, THE APPEL LANT DID NOT CLAIM DEPRECIATION ON GOODWILL AS A DEDUCTIBLE EXPENDITUR E FOR COMPUTING TAXABLE INCOME. HOWEVER, THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF SMIFS SECURITIES VS. CIT [348 ITR 302] HAS CONCLUSIVELY SETTLED IN THE ISSUE THAT DEPRECIATION ON GOODWILL IS AN ALLOW ABLE EXPENDITURE FOR TAX PURPOSES. SINCE THE LAW IS SETTLED, ASSESSEE H AS PREFERRED TO RAISE ADDITIONAL GROUND. 15.1 ASSESSEE RELIED ON VARIOUS PRECEDENTS, THAT OF : I. JUTE CORPORATION OF INDIA VS. CIT [187 ITR 688 (SC)] II. NATIONAL THERMAL POWER CO. LTD., VS. CIT [229 ITR 383 (SC)] I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 17 -: III. CIT VS. PRUTHVI BROKERS & SHAREHOLDERS [349 ITR 336 (BOMBAY HC)] FOR THE PROPOSITION THAT ASSESSEE SHALL NOT BE DEBA RRED IN RAISING ADDITIONAL GROUND OF APPEAL AND THERE IS NO PROVISI ON IN THE ACT PLACING RESTRICTION ON THE POWER OF APPELLATE AUTHORITY IN ENTERTAINING THE ADDITIONAL GROUND IN APPEAL. 15.2 WE HAVE TO ACCEPT THAT JUDICIAL PRINCIPLES REL IED ON BY ASSESSEE ARE VERY CLEAR THAT ASSESSEE CAN RAISE ANY ADDITIONAL G ROUND ON LEGAL MATTERS, HOWEVER, RIDER IS THAT THE FACTS SHOULD BE AVAILABLE ON RECORD. ASSESSEE SUBMITTED THAT THE MERGER TOOK PLACE W.E.F . 01-01-2007 I.E., IN A.Y.2007-08. WE ARE CONSIDERING APPEAL IN AY.2009- 10. HOW, THE GOODWILL AROSE WHAT IS THE AMOUNT AND WHY ASSESSEE HAS NOT CLAIMED DEPRECIATION AND OTHER ISSUES REQUIRE EXAMINATION I N AY.2007-08. IN AY.2009-10, IF A DEPRECIATION WAS ALLOWED ON AN ASS ET WHICH IS IN THE BLOCK OF ASSETS IN EARLIER YEAR, ONLY CONSEQUENTIAL DEPRECIATION CAN BE ALLOWED. SINCE ASSESSEE IS CLAIMING FRESH DEPRECI ATION ON THE GOODWILL, WHICH AROSE IN AY.2007-08, WE CANNOT ALLOW THE GROU ND IN THIS ASSESSMENT YEAR. AS RIGHTLY HELD BY THE HONBLE SU PREME COURT IN THE CASE OF S.A. BUILDERS LTD., [289 ITR 26 (SC)], ADDI TIONAL GROUND CANNOT BE CONSIDERED, IN THE ABSENCE OF ANY FACTS ON RECORD. 15.3 IN VIEW OF THIS, SINCE THE ISSUE DID NOT ARISE IN THE YEAR UNDER CONSIDERATION AND THE FACTS PERTAINING TO THE QUANT IFICATION OF THE CLAIM ARE NOT ON RECORD, WE CANNOT ENTERTAIN THE ADDITION AL GROUND, JUST BECAUSE LAW ON THIS WAS SETTLED ON LEGAL PRINCIPLES . IF AT ALL ASSESSEE'S CLAIM TO DEPRECIATION WAS ALLOWED IN AY.2007-08, TH EN, ASSESSEE CAN CLAIM CONSEQUENTIAL DEPRECIATION IN THIS ASSESSMENT YEAR, BEFORE THE AO, THE ADDITIONAL GROUND IS ACCORDINGLY REJECTED. I.T.A. NO. 471/HYD/2014 ZUARI CEMENT LTD., :- 18 -: 16. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 17 TH APRIL, 2015 SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMA KOTAIAH) JUDICIAL MEMBER ACC OUNTANT MEMBER HYDERABAD, DATED 17 TH APRIL, 2015 TNMM COPY TO : 1. ZUARI CEMENT LIMITED, KRISHNA NAGAR, YERRAGUNTLA, K ADAPA DIST-516 311. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2( 1), TIRUPATI. 3. DISPUTE RESOLUTION PANEL (DRP), HYDERABAD. 4. DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, INCOME TAX TOWERS, 10-2-3, A.C.GUARDS, HYDERABAD. 5. ADDL. COMMISSIONER OF INCOME TAX (TRANSFER PRICI NG), HYDERABAD. 6. D.R. ITAT, HYDERABAD.