DCIT, New Delhi V. M/s Honda R & D India (P) Ltd., New Delhi

ITA 4756/DEL/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52735 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-09-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 16-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND; SALIL MISHRA
• Keywords: Depreciation; Transfer pricing; International transaction
• Section: 92C

Judgement Text

ITA NOS. 4771 & 4756/DEL/2009 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4771/DEL/2009 A.Y. : 2004-05 HONDA R&D INDIA PVT. LTD., 118, JP HOUSE, 1 ST FLOOR, SHAHPURJAT, NEW DELHI -110049 (PAN NO. AABCH 3071N) VS. DCIT, CIRCLE 12(1), NEW DELHI AND I.T.A. NO. 4756/DEL/2009 A.Y. 2004-05 DCIT, CIRCLE 12(1), HONDA R&D INDIA PVT. LTD., NEW DELHI 118, JP HOUSE, 1 ST FLOOR, SHAHPURJAT, NEW DELHI -110049 (PAN NO. AABCH 3071N) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. SALIL KAPOOR, ADVOCATE DEPARTMENT BY : SH. N.K. CHAND, SR. D.R. & SH.SALIL MISHRA, SR. D.R. ORDER ORDER ORDER ORDER PER PER PER PER SHAMIM YAHYA : AM SHAMIM YAHYA : AM SHAMIM YAHYA : AM SHAMIM YAHYA : AM THESE ARE THE CROSS APPEALS. THEY ARE DIRECTED AG AINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) DATED 13.10.2009 FOR THE ASSESSMENT YEAR 2005-06. 2. THE GROUNDS OF THESE APPEALS READ AS UNDER:- ITA NOS. 4771 & 4756/DEL/2009 2 ASSEESSEES APPEAL :- (I) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE ADDITION OF ` 12,702,704/- T O THE RETURNED INCOME OF THE APPELLANT COMPANY ON ACCOUNT OF INTERNATIONAL TRANSACTIONS RELATED TO SALE OF SERVI CES TO THE ASSOCIATED ENTERPRISE. (II) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE PASSING OF THE ORDER U/S 92C A(3) FOR THE YEAR UNDER REFERENCE WITHOUT APPRECIATING THE BUSINESS OF THE APPELLANT COMPANY AND THE NATURE OF ACTIVITIES UNDER TAKEN BY THE APPELLANT COMPANY IN I NDIA. (III) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE PASSING OF THE ORDER U/S 92C A(3) FOR THE YEAR UNDER REFERENCE DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELAT ED TO R&D SERVICES RENDERED TO THE PRESENT COMPANY BY THE APPELLANT COMPANY BY ADOPTING THE PROFITABILITY OF F OUR INCOMPARABLE COMPANIES IN A DIFFERENT LINE OF BUSINES S AND FRAMING THE ORDER BASED ON THE PROFITABILITY OF THOSE LIMITED COMPANIES AVAILABLE ON PUBLIC DOMAIN. (IV) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE PASSING OF THE ORDER U/S 92C A(3) FOR THE YEAR UNDER REFERENCE COMPUTING THE NET PROFI T MARGIN ON THE BASIS OF TRANSACTIONAL NET MARGIN METH OD (TNMM) INSTEAD OF COST PLUS METHOD ADOPTED BY THE APPELLANT COMPANY OVER THE YEARS WITHOUT ANY REASON FOR REJECTION OF COST PLUS METHOD OR SUBSTANTIATING THE ITA NOS. 4771 & 4756/DEL/2009 3 REASON FOR APPLYING TRANSACTIONAL NET MARGIN METHOD IN THE CASE OF THE APPELLANT. (V) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE SELECTION OF THE TNMM METHOD F OR VALUATION OF ARMS LENGTH PRICING OF INTERNATIONAL TRANSACTION WITH ASSOCIATED ENTERPRISE IN RESPECT O F SALE OF SERVICES (R&D) ACTIVITY TO JUSTIFY THE ADDITION TO THE RETURNED INCOME AND HAS NOT GIVEN ANY REASON FOR REJECTION OF THE COST PLUS METHOD ADOPTED BY THE APPELLANT COMPANY. (VI) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UNDERSTANDING THE SIGNIFICANCE AND EVALUAT ION OF R&D ACTIVITY OF THE APPELLANT COMPANY AND HAS THEREF ORE MADE AN INCORRECT ADDITION OF ` 12,702,704/- TO THE RETURNED INCOME OF THE APPELLANT COMPANY. (VII) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT THE TRANSFER PRICING OFFICER H AS FOLLOWED ALL THE REQUIRED STEPS IN SELECTING THE COMPARABLES VIZ. VISITING THE PUBLIC DATABASE, USED THE APPROPRIATE FILTERS, MADE A PROPER FAR ANALYSIS AND THERERBY UPHOLDING THE TRANSFER PRICING OFFICER OR DER DETERMINING NET MARGIN OF 4 COMPANIES WHICH ARE FROM TOTALLY DIFFERENT INDUSTRY AND ARE NOT AT ALL COMPAR ABLE EITHER IN ASSET BASE, TYPE OF INDUSTRY, RISK ANALYS IS, FUNCTION ANALYSIS TO THE APPELLANT COMPANY AND THE ADDITION MADE ON ACCOUNT OF ARMS LENGTH PRICING BY ADOPTING THE ARITHMETIC MEAN OF 4 INCOMPARABLE ITA NOS. 4771 & 4756/DEL/2009 4 COMPANIES IS TOTALLY INCORRECT AND AGAINST ENDS OF JUSTICE. (VIII) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE ARMS LENGTH PRICING OF SALE OF SERVICES BY THE APPELLANT COMPANY TO ITS PARENT COMPA NY BY NOT PASSING A SPEAKING ORDER AS TO WHY THE TRANS FER PRICING OFFICER ALSO SHOULD NOT GIVE AN OPPORTUNITY TO APPELLANT COMPANY TO CONTEST THE SELECTION OF 4 INCOMPARABLE COMPANIES DURING THE COURSE OF TRANSFER PRICING REVIEW PROCEEDINGS AND FRAMING OF THE TRANSFER PRICING ORDER FOR THE YEAR UNDER REFERENCE. REVENUES APPEAL:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS WRONG, PERVERSE, ILLEGAL AND AGAINST T HE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERR ED IN DELETING THE DISALLOWANCE OF ` 10,00,000/- MADE ON ACCOUNT OF ESTIMATED ADDITION OF DEPRECIATION CLAIM ED BY THE ASSESSEE AND SIMILAR ADDITION MADE OF ` 15,67,53 7/- HAS BEEN UPHELD BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT BRINGING OUT ANY FACTS ON RECORD WHICH WOULD STATE OTHERWISE. (III) THE APPELLANT CRAVES TO LEAVE, TO ADD, ALTER OR AM END ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HE ARING. ITA NOS. 4771 & 4756/DEL/2009 5 ASSESSEES APPEAL : ASSESSEES APPEAL : ASSESSEES APPEAL : ASSESSEES APPEAL :- -- - 3. IT WAS THE REQUEST OF THE LD. AUTHORISED REPRESE NTATIVE OF THE ASSESSEE THAT WHILE DETERMINING THE ARMS LENGTH PRI CE, THE TPO HAS ADOPTED THE ACTIVITIES OF THE ASSESSEE WHICH ARE D IFFERENT FORM THE ACTIVITIES CARRIED ON BY IT AND ON THE BASIS OF TH AT ARMS LENGTH PRICE HAS BEEN DETERMINED WHICH IS FUNDAMENTALLY WRONG. IT WAS THE CONTENTION OF LD. AUTHORISED REPRESENTATIVE THAT T HIS SPECIFIC GROUND WAS TAKEN BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND ALSO TAKEN BEFORE THE TRIBUNAL AND LD. COMMISSIONER OF INCOME TAX (APPEALS) DID NOT ADJUDICATE THE SAID GROUND IN A SP ECIFIC MANNER WHILE HE HAS UPHELD THE ADDITION MADE BY THE ASSESSING OFF ICER BY ADOPTING THE ARMS LENGTH PRICE DETERMINED BY THE TPO ON THE BA SIS OF THE DIFFERENT ACTIVITY WHICH WAS NEVER CARRIED ON BY TH E ASSESSEE. TO SUBSTANTIATE SUCH CONTENTION LD. AUTHORISED REPRES ENTATIVE DREW OUR ATTENTION TO GROUND NO. 3.2 TAKEN BEFORE THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) WHICH READS AS UNDER:- 3.2 THAT THE TRANSFER PRICING OFFICER HAS ERRED IN PASSING THE ORDER U/S. 92CA(3) FOR THE YEAR UNDER REFERENCE WITHOUT APPRECIATING THE BUSINESS OF THE APPELLANT COMPANY AND THE NATURE OF ACTIVITIES. 3.1 HE SUBMITTED THAT PERUSAL OF THE ORDER OF THE L D. COMMISSIONER OF INCOME TAX (APPEALS) WILL REVEAL THAT HE HAS NOT ADJUDICATED THIS GROUND SPECIFICALLY AND MAIN GRIEVANCE OF THE ASSESS EE IS THAT THE ACTIVITY ON THE BASIS OF WHICH ARMS LENGTH PRICE OF THE ASSESSEE HAS BEEN DETERMINED BY THE TPO, IS DIFFERENT FROM THE ACTI VITY ACTUALLY CARRIED ON BY THE ASSESSEE. HE SUBMITTED THAT ALL THE BASIC FACTS WERE MADE AVAILABLE TO ASSESSING OFFICER AS WELL AS TPO I N THE SHAPE OF ITA NOS. 4771 & 4756/DEL/2009 6 CHART WHICH CLEARLY DESCRIBED THE ACTIVITY CARRIED ON BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND HE IN THIS REGARD REFERRED TO THE COPY OF CHART SUBMITTED AT PAGE NO. 128 OF THE PAPER BOOK WHICH IS IN THE JAPENESE LANGUAGE AND TRANSLATION COPY THERE OF IN ENGLISH LANGUAGE HAS BEEN PLACED AT PAGE NO. 129 OF THE PAP ER BOOK. REFERRING TO THE SAID CHART HE CONTENDED THAT THE A CTIVITY TAKEN BY TPO OF THE ASSESSEE IS RESEARCH AND DEVELOPMENT, WHEREAS THE ACTIVITY DESCRIBED IN THE CHART ARE ENTIRELY DIFFERENT FROM THOSE ACTIVITY. MOREOVER, HE SUBMITTED THAT EVEN RESEARCH AND DEVELOP MENT ACTIVITY TAKEN INTO CONSIDERATION IN THE CASES WHICH HAVE B EEN COMPARED WITH THE ASSESSEES ACTIVITY, ARE NOT RELATED TO AUTOMOBI LE INDUSTRY, WHEREAS EVEN IF IT IS HELD THAT THE ASSESSEE IS ENG AGED IN THE ACTIVITY OF RESEARCH AND DEVELOPMENT, THEN ALSO IT HAS TO BE RE LATED WITH THE AUTOMOBILE INDUSTRY AND THEREFORE, COMPARABLE WHICH HAVE BEEN TAKEN BY THE TPO ARE NOT AT PAR WITH THE ACTIVITY UNDERTA KEN BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. 3.2 IT IS THE FURTHER SUBMISSION OF THE LD. AUTHORIS ED REPRESENTATIVE THAT ON THE BASIS OF SOME ACTIVITIES AND SOME FACTS FOR ASSESSMENT YEAR 2005-06, LD. COMMISSIONER OF INCOME TAX (APPEAL S) HAD CALLED FOR REMAND REPORT FROM THE ASSESSING OFFICER AND IN TH E REMAND REPORT ASSESSING OFFICER HAS SUBMITTED THAT THE ACTIVITIE S OF THE ASSESSEE ARE DIFFERENT FROM RESEARCH AND DEVELOPMENT. HOWEVER, H E SUBMITTED THAT COPY OF THE SAME IS NOT READILY AVAILABLE AND IT CAN NOT BE FURNISHED. AT THIS STAGE, ORDER OF THE LD. COMMISSIONER OF INCOME T AX (APPEALS) IS AWAITED ON THIS ISSUE. HE SUBMITTED THAT ACTIVITI ES OF THE ASSESSEE REMAINED SAME, THOUGH THE YEAR UNDER CONSIDERATION IS THE INITIAL YEAR, BUT IN SUBSEQUENT YEARS ON THE VERY SAME ACTIV ITIES TPO HAS ALSO TAKEN NOTE OF THE FACT THAT ASSESSEE IS NOT INVOLVE D IN THE ACTIVITY OF ITA NOS. 4771 & 4756/DEL/2009 7 THE RESEARCH AND DEVELOPMENT AND TO SUBSTANTIATE SUCH CONTENTION. HE HAS PRODUCED BEFORE US A COPY OF ORDER OF THE DRP IN RESPECT OF THE ASSESSMENT YEAR 2007-08 WHICH IS DATED 12.7.2011 A ND RELEVANT OBSERVATION AS POINTED OUT BY HIM ARE CONTAINED IN PARAGRAPH 4.5 WHICH IS REPRODUCED BELOW FOR THE SAKE OF CONVENIE NCE. 4.5 FACTS ON RECORD SHOW THAT ASSESSEE HAS RESEARCH , SERVICE AGREEMENT WITH ITS AE I.E. HONDA R&D JAPAN. UNDER THE AGREEMENT HRID UNDERTAKES MARKET RESEARCH OF PRODUCT, STYLING MODIFICATION AND TESTING ACTIVITIE S RELATED TO RESEARCH AND DEVELOPMENT OF PRODUCTS TO BE MANUFACTURED BY HONDA MOTORS. THE SHOW CAUSE NOTI CE DATED 10.9.2010 STATES THE FUNCTIONS PERFORMED BY ASSESSEE ARE STRATEGIC MANAGEMENT, CORPORATE SERVIC ES, RESEARCH SERVICES, TESTING SERVICES. AN ANALYSI S OF WORK DONE SHOWS NO HARD CORE R&D. IN OUR VIEW ASSESSE E GATHERS INFORMATION FROM MARKET AND ANALYSES IT FOR FURTHER ACTION BY ITS AE. SO WE FIND THAT THE ASSESSEE IS ENGAGED IN PROVIDING MARKET RESEARCH SERVICES AND TESTING SERVICES WHICH LEAD TO THE DEVELOPMENT OF BETTER PRODUCTS BY THEIR ASSOCIATED ENTERPRISES AND THAT THE ASSESSEE DOES N OT ITSELF DEVELOP OR UNDERTAKE RESEARCH FOR THESE PRODUCTS. IN OUR VIEW, THE TYPE OF R&D BY THE ASSESSEE, CANNOT BE CO MPARED TO PURE SCIENCE R&D WHERE PRODUCT IS DEVELOPED CLI NICALLY TRIED, REFINED AND SOFT MARKETING INTANGIBLES ARE AL SO CREATED. EVEN IF THERE IS NO VERTICAL SEGREGATION A S CLAIMED BY TPO, WE FIND THERE IS MAJOR FUNCTIONAL DIFFERENCE. WHILE ASSESSEE DOES ANALYSIS AND PASSES IT ON TO ITS AE FOR PRODUCT DEVELOPMENT, TCG DEVELOPS THE PRODUCTS ITSE LF. THIS ITA NOS. 4771 & 4756/DEL/2009 8 FUNDAMENTAL FUNCTIONAL DIFFERENCE CANNOT BE IGNORED . TO QUOTE FROM TCGS ANNUAL REPORT FOR FY 2006-07: THE YEAR WAS EVENTFUL FOR THE COMPANY IN SEVERAL WAYS INCLUDING: COMPANY WINNING RECOGNITION AS THE BEST DISCOVERY CHEMISTRY CRO IN ASIA FROM ONE OF THE WORLDS LARGEST PHARMACEUTICAL COMPANIES. PROGRESS TOWARDS WINNING A FULLY INTEGRATED DRUG DISCOVERY RESEARCH PROGRAM FROM A US PHARMACEUTICAL COMPANY. EXPANSION OF SERVICE OFFERINGS. INFRASTRUCTURE: DURING THE YEAR, YOUR COMPANY DECIDED TO EXPAND FACIL ITIES AT KOLKATA BY ADDING A SIX STORIED RESEARCH FACILIT Y TO SUPPORT CHEMISTRY DISCOVERY RESEARCH. THE EARLIER PLANS FOR SETTING UP A GREENFIELD FACILITIES AT PUNE WITH IN THE SEZ AREA HAS BEEN PUT ON HOLD DUE TO DELAYS IN OBTAIN ING SEZ NOTIFICATION BY INTERNATIONAL BIOTECH PARK, THE BIOT ECH PARK AUTHORITIES AT PUNE. IN ADDITION, THE COMPANY DEC IDED TO EXPAND BIOLOGY OPERATIONS BY RENTING SPACE ON THE SECOND FLOOR OF BENGAL INTELLIGENT PARK WHERE THE CURRENT BIOLOGY OPERATIONS ARE LOCATED. THUS, IN OUR VIEW, THERE IS NO BROAD FUNCTIONAL SI MILARITY BETWEEN THE ASSESSEE COMPANY AND TCG LIFESCIENCES. 3.3 THEREFORE, IN THE NUTSHELL, THE BRIEF CASE OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT THE UNLESS IT IS SPECIFICA LLY DETERMINED THAT ITA NOS. 4771 & 4756/DEL/2009 9 WHAT ARE THE NATURE OF ACTIVITIES OF THE ASSESSEE A ND WHETHER THAT ACTIVITY OF THE ASSESSEE CAN BE COMPARED WITH THE C OMPARABLE TAKEN BY THE TPO, THE ISSUE CANNOT BE APPROPRIATELY DECID ED. HE SUBMITTED THAT WHEN SPECIFIC GROUND IS TAKEN BEFORE THE APPE LLATE AUTHORITY, IT IS DUTY BOUND TO GIVE ADJUDICATION ON THAT GROUND AN D THAT HAS NOT BEEN DONE BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS). HE SUBMITTED THAT THE ISSUE RAISED BEFORE HIM GOES TO T HE ROOT OF THE MATTER AND IF IT IS FOUND THAT ACTIVITY WHICH IS DET ERMINED BY THE TPO OF THE ASSESSEE IS DIFFERENT FROM THE ACTIVITY COMPAR ED BY THE TPO, THEN THE WHOLE SCENARIO WILL CHANGE AND CORRECT COMP ARABLE SHOULD BE TAKEN TO DETERMINE THE ARMS LENGTH PRICE. HE THEREF ORE, SUBMITTED THAT THE MATTER MAY BE RESTORED BACK TO THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) WITH THE DIRECTION TO ADJUDICA TE AND DETERMINE THAT WHAT TYPE OF ACTIVITIES HAVE BEEN CARRIED ON B Y THE ASSESSEE AND WHETHER THESE ACTIVITIES CAN BE COMPARED WITH THE C OMPARABLE WHICH HAVE BEEN ADOPTED BY THE TPO TO COMPUTE THE ARMS LE NGTH PRICE. 3.4 ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE VEHEMENTLY OBJECTED TO SUCH REQUEST OF THE LD. AUTHORISED RE PRESENTATIVE. HE SUBMITTED THAT IT HAS NOT BEEN THE CASE OF THE ASSE SSEE THAT ITS ACTIVITIES ARE DIFFERENT, THAN THE ACTIVITIES TAKEN BY THE TPO. HE SUBMITTED THAT AGREEMENT BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE IS VERY WIDE WHICH INCLUDED RESEARCH A ND DEVELOPMENT ACTIVITY. HE SUBMITTED THAT LD. COMMISSIONER OF IN COME TAX (APPEALS) HAS BROADLY DECIDED THE ISSUE AND HAS UPH ELD THE ARMS LENGTH PRICE DETERMINED BY THE TPO AND IN THIS MANNER HE HAS IMPLIEDLY ADJUDICATE THE AFOREMENTIONED GROUND OF TH E ASSESSEE AND THEREFORE, THIS GROUND SHOULD NOT BE RESTORED TO TH E FILE OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). ITA NOS. 4771 & 4756/DEL/2009 10 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS IN LIGHT OF THE MATERIAL PRODUCED BEFORE US. WE HAVE ALSO CA REFULLY GONE THROUGH THE DOCUMENTS. AFTER CAREFUL CONSIDERATION E NTIRETY OF THE MATTER, WE ARE OF THE OPINION THAT IT WILL BE PROPER TO RESTORE THIS APPEAL TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS), AS THE ISSUE SPECIFICALLY RAISED BY THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) WITH REGARD TO DETERMINATION OF ITS ACTIV ITIES VIS-A-VIS COMPARABLE GOES TO THE ROOT OF THE MATTER. MOREOVER, IT HAS BEEN THE CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE TH AT IN SUBSEQUENT YEARS ON THE VERY SAME FACTS, IT HAS BEEN ACCEPTED BY THE DEPARTMENT AND ASSESSING OFFICER IN THE REMAND REPORT AND DRP IN THE AFOREMENTIONED ORDER THAT THE ACTIVITIES OF THE ASSE SSEE DO NOT MUCH INVOLVE ACTIVITIES OF RESEARCH AND DEVELOPMENT. THEREFORE, WE CONSIDER IT JUST AND PROPER TO RESTORE BACK THE EN TIRE FILE TO THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO READJUDICATE AND SPECIFICALLY DETERMINE THE FACT THAT WHETHER THE ACTIVITIES CARR IED ON BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ARE CO MPARABLE WITH THE COMPARABLES WHICH HAVE BEEN ADOPTED TO DETERMINE TH E ARMS LENGTH PRICE. WE MAKE IT CLEAR THAT LD. COMMISSIONER OF INCO ME TAX (APPEALS) IS FREE TO READJUDICATE IN THE MANNER WHIC HEVER, HE THINKS PROPER TO DETERMINE THE ISSUE RAISED BY THE ASSESSEE BEFORE HIM AND ITA NOS. 4771 & 4756/DEL/2009 11 IN THE PROCESS HE CAN OBTAIN REPORT FROM THE ASSESSI NG OFFICER AND HE CAN CALL FOR ANY INFORMATION FROM THE ASSESSEE WHICH THEY WILL BE BOUND TO FURNISH AND AFTER CONSIDERING THE SAME HE WILL READJUDICATE THE APPEAL FILED BY THE ASSESSEE, AS PER PROVISIONS OF LAW. WE DIRECTLY ACCORDINGLY. FOR STATISTICAL PURPOSES, THE APPEAL IS TREATED TO BE ALLOWED IN THE MANNER AFORESAID. REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT W AS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS ACQUI RED ASSETS WHICH WERE PUT TO USE FOR A PERIOD LESS THAN 180 DAYS, SI NCE NO DETAILS WERE FILED INSPITE OF THE OPPORTUNITIES GIVEN, THE ASSES SING OFFICER ACCORDINGLY, ALLOWED 50% OF THE DEPRECIATION INSTE AD OF DEPRECIATION FOR THE WHOLE YEAR. THE DEPRECIATION DISALLOWANCE ON THESE ASSETS WAS TO THE TUNE OF ` 15,67,537/-. APART FROM THE AB OVE DISALLOWANCE, THE ASSESSING OFFICER FURTHER DISALLOWED ` 10 LACS AS DEPRECIATION ON ESTIMATED BASIS ON THE GROUND THAT THERE MAY BE SOME OTHER ASSETS WHICH HAVE NOT BEEN USED FOR A PERIOD MORE THAN 180 DAYS. THUS IN ALL DISALLOWANCE TO THE TUNE OF ` 25,67,537/- WAS MADE. 6. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE ADDITION OF ` 15,67,537/-. HOWEVER, WITH REGARD TO FURTHER DISALLOWANCE MADE BY THE ASSESSING OFFICER, HE HELD THAT ADHOC DISALLOWANCE CANNOT BE SUSTAINED. ACCO RDINGLY, HE DELETED THE DISALLOWANCE OF ` 10 LACS. 7. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. ITA NOS. 4771 & 4756/DEL/2009 12 8. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED. WE FIND THAT DISALLOWANCE OF ` 10 LACS MA DE BY THE ASSESSING OFFICER IS PURELY ON ADHOC BASIS. NO MA TERIAL HAS BEEN BROUGHT BY THE ASSESSING OFFICER ON RECORD BY THE ASSESSING OFFICER ON THE STRENGTH OF THAT IT CAN BE SAID THAT DISALLO WANCE IS WARRANTED. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND HENCE, WE UPHOLD THE SAME. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND APPEAL FILED BY THE REVENU E STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/9/2011. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [ [[ [I.P. BANSAL] I.P. BANSAL] I.P. BANSAL] I.P. BANSAL] (SHAMIM YAHYA) (SHAMIM YAHYA) (SHAMIM YAHYA) (SHAMIM YAHYA) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 16/9/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES