WOCKHARDT LTD, MUMBAI V. ADDL CIT RG 10(1), MUMBAI

ITA 4866/MUM/2013

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2812 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 28-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS ABHA KALA CHANDA
• Assessee Lawyers: HARDIK NIRMAL ARS
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; International transaction; Earning of tax free income; Wholly owned subsidiary; Notional interest; TDS; Rule 8D
• Section: 92C; 14A; 115JB; 40(a)(ia); 80IB; 195; 250; 201; 80IC; 80IC; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH J, MUMBAI BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.4866/MUM/2013 (ASSESSMENT YEAR: 2008-09) M/S WOCKHARDT LTD, WOCKHARDT TOWERS, BANDRA KURLA COMPLEX BANDRA(E), MUMBAI-400051 PAN:AAACW2472M VS ADDITIONAL COMMISSIONER OF INCOME TAX RANGE -10(1), AAYAKAR BHAWAN, M.K. ROAD, MUMBAI -20 APPELLANT RESPONDEDNT ITA NO.5378/MUM/2013(ASSESSMENT YEAR: 2008-09 ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE -10(1), AAYAKAR BHAWAN, M.K. ROAD, MUMBAI -20 VS M/S WOCKHARDT LTD, WOCKHARDT TOWERS, BANDRA KURLA COMPLEX BANDRA(E), MUMBAI-400051 PAN:AAACW2472M APPELLANT RESPONDEDNT ASSESSEE BY SHRI RONAK DOSHI & HARDIK NIRMAL (ARS) REVENUE BY MRS ABHA KALA CHANDA CIT-DR DATE OF HEARING 17-12-2019 DATE OF PRONOUNCEMENT 09-03-2020 O R D E R PER PAWAN SINGH, JUDICIAL MEMEBR : 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF LD CIT(A)-15 MUMBAI DATED 27.05.2013 FOR ASSESSMENT YEAR 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS CO MPANY ENGAGED IN THE BUSINESS OF PHARMACEUTICALS PRODUCT FILED ITS RETUR N OF INCOME FOR THIS 2 ASSESSMENT YEAR 29.09.2008. THE ASSESSEE WHILE FIL ING REPORT REPORTED INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTE RPRISES IN ITS TRANSFER PRICING STUDY REPORT (TPSR). CONSEQUENT ON REPORTING THE I NTERNATIONAL TRANSACTION BY ASSESSEE, THE ASSESSING OFFICER MADE REFERENCE T O THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARMS LENGTH PRICE (ALP). THE TPO SUGGESTED VARIOUS ADJUSTMENTS IN ITS REPORT. ON REC EIPT OF THE REPORT OF TPO THE ASSESSING OFFICER PASSED DRAFT ASSESSMENT ORDER AND SERVED ON THE ASSESSEE. THE ASSESSEE EXERCISED ITS OPTION TO FILE APPEAL BEFORE THE LD CIT (A). ON APPEAL THE LD. CIT (A) GRANTED PARTIAL RELI EF TO THE ASSESSEE. THUS, AGGRIEVED BY THE ORDER OF LD. CIT (A) BOTH THE PART IES HAVE FILED THEIR RESPECTIVE APPEAL BY RAISED THE FOLLOWING GROUNDS O F APPEAL. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL; ITA NO. 4866/MUM/2013 BY ASSESSEE . GROUNDS OF APPEAL BEFORE THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, MUMBAI GROUND NO. I: ADDITION ON ACCOUNT OF ARM'S LENGTH ADJUSTMENT TO INCOME FROM INTEREST ON LOANS ADVANCED TO SUBSIDIARIES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HON'BLE COMMISSIONER OF INCOME TAX (APPEAL) -15, MUMBAI ('C IT(A)') ERRED IN DIRECTING THE ADDITIONAL COMMISSIONER OF INCOME TAX - 10(1), MUMBAI ('THE AO') AND THE ADDITIONAL COMMISSIONER OF INCOME TAX (TP) -11(2) ('THE TPO') TO RECOMPUTE THE ADDITION U/S. 92C OF THE INCOME-TA X ACT, 1961 ('THE ACT') ON 3 ACCOUNT OF LOANS GIVEN TO ASSOCIATE ENTERPRISE ('AE S') BY ADOPTING 6 MONTHS BENCHMARKING AT LIBOR + 150 BASIS POINTS FOR LOANS HAVING MATURITY BETWEEN THREE TO FIVE YEARS AND 6 MONTHS LIBOR + 250 BASIS POINTS FOR LOANS HAVING MATURITY PERIOD BEYOND MORE THAN FIVE YEARS. 2. THE APPELLANT PRAYS THAT IT BE HELD THAT THE T RANSACTION OF LOAN GIVEN TO THE AES ARE AT ARM'S LENGTH AND NO FURTHER ADDITION IS WARRANTED U/S. 92C OF THE ACT. GROUND NO. II: WANT OF NATURAL JUSTICE AS REGARDS TREATING EQUITY INVESTMENT IN OVERSEAS SUBSIDIARY A S AN INTERNATIONAL TRANSACTION: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HON'BLE CIT (A) ERRED IN UPHOLDING THE ACTION OF THE LEARNE D TPO/AO IN PASSING AN ORDER U/S 92CA(3) OF THE ACT TREATING EQUITY INVEST MENT IN EXISTING OVERSEAS SUBSIDIARY AS AN 'INTERNATIONAL TRANSACTION' U/S. 9 2B(L)OF THE ACT. WITHOUT PREJUDICE TO GROUND II: GROUND NO. ILL: RECLASSIFICATION OF SHARE APPLICATI ON MONEY AS 'LOAN 1 FOR THE PERIOD BETWEEN DATE OF REMITTANCE TILL THE DATE OF ALLOTMENT OF EQUITY SHARES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN RECLASSIFYING THE INVESTMENT IN EQU ITY SHARES AS A LOAN, FOR THE TIME PERIOD FROM REMITTING THE MONEY TILL THE DATE OF ALLOTMENT OF SHARES AND DIRECTING THE AO TO CALCULATE INTEREST AT 6 MONTHS LIBOR PLUS 150 BASIS POINTS FOR THE AFORESAID PERIOD. 2. THE APPELLANT PRAYS THAT THE ACTION OF THE HON 'BLE CIT(A) TO RECLASSIFY EQUITY INFUSION IN THE WHOLLY OWNED SUBSIDIARY INTO LOAN BE HELD AS AB-INITIO VOID AND BAD-IN-LAW AND CONSEQUENTLY DIRECTION GIVE N TO THE AO TO MAKE ADDITION BE WITHDRAWN. GROUND NO. IV: DISALLOWANCE OF WEIGHTED DEDUCTION UNDER SECTION 35F2AB) OF THE ACT ON EXPENSES OF RS. 18.81.14.518/-: 4 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN D ISALLOWING WEIGHTED DEDUCTION U/S 35(2AB) OF THE ACT ON EXPENSES OF RS. 18,81,14,518/- ON THE ALLEGED GROUND THAT THESE EXPENSES WERE NOT INCURRE D FOR THE IN-HOUSE RESEARCH BY THE APPELLANT. 2. THE APPELLANT PRAYS THAT THE APPELLANT BE GRAN TED WEIGHTED DEDUCTION U/S 35(2AB) ON EXPENSES OF RS. 18,81,14,518/-. GROUND NO. V: DISALLOWANCE UNDER SECTION 14A OF THE ACT AMOUNTING TO RS. 22.81.641/-: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HON'BLE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN D ISALLOWING A SUM OF RS. 22,81,641/- U/S 14A OF THE ACT R.W.R. 8D OF THE INC OME TAX RULES, 1962 ('THE RULES') AS EXPENSES INCURRED TOWARDS EARNING EXEMPT DIVIDEND INCOME U/S 10(35) OF THE ACT OF RS. 80,000/-. 2. THE APPELLANT HUMBLY PRAYS THAT DISALLOWANCE O F RS. 22,81,641/- SHOULD BE DELETED OR BE APPROPRIATELY REDUCED. ITA NO. 5378/MUM/2013 BY REVENUE . 1. ' ERRED IN DELETING THE ADDITION OF RS. 1,71,04 ,416/- REPRESENTING UPWARD ADJUSTMENTS ON ACCOUNT OF GUARNATEE FEE INCOME RECE IVED IN RELATION TO GUARANTEE PROVIDED ON LOANS TO ITS AE IN UK TO ALP RECOMMENDED BY THE TRANSFER PRICING OFFICER (TPO) WITHOUT APPRECIATING THE FACT THAT THE GUARANTEE COMMISSION IS CHARGED AT THE RATE OF 0.75% OF LOAN AMOUNT BY HSBC, MUMBAI, INDIA.' 2. ERRED IN HOLDING THAT THE BENCHMARKING OF INT EREST RATES ON FOREIGN CURRENCY LOANS WOULD BE LIBOR BASED AND NOT RUPEE LOAN BASED THEREBY OVERLOOKING THE HIGH OPPORTUNITY COST LOST BY THE ASSESSEE COMPANY THROUGH FOREIGN AE LENDING AS AGAINST OTHER COMPETITIVE DOMESTIC LENDING.' 2.1 ' ERRED IN DIRECTING THE AO TO ADOPT THE EXT ERNAL COMMERCIAL BORROWING GUIDELINES OF THE RBI AS A BENCHMARK IGNORING THAT THE ECB GUIDELINES ARE FOR 5 INWARD BORROWING WHEREAS THE CASE FACTS PERTAIN TO OUTWARD LENDING TO ASSESSEE'S AES.' 3. ' ERRED IN DELETING THE IMPUTATION OF NOTIO NAL INTEREST OF RS. 17,82,00,000/- ON INFUSION OF ADDITIONAL FUNDS TO THE WHOLLY OWNED SUBSIDIARY OF THE ASSESSEE.' 3.1 ' ERRED IN ADMITTING AND NOT REMANDING THE A DDITIONAL EVIDENCE FURNISHED BY THE ASSESSEE TO THE AO AND THEREBY VIOLATED THE PROVISIONS OF RULE 46A OF I.T. RULES.' 4. ' ERRED IN HOLDING THAT THE DEDUCTION U/S 80I B & 80IC OF THE ACT AMOUNTING TO RS. 7,30,78,956/- SHOULD BE GRANTED WITHOUT ALLO CATING R & D EXPENSES AND INTEREST EXPENSES TO UNITS ELIGIBLE FOR GRANT OF DE DUCTION IN SPITE OF THE FACT THAT THE ASSESSEE HAS ALLOCATED INTEREST COST TO UNITS O N THE BASIS OF TURNOVER.' 5. ' ERRED IN ALLOWING THE ASSESSEE'S CLAIM OF WE IGHTED DEDUCTION U/S 35(2AB) AMOUNTING TO RS. 65,30,88,285/- WHICH WAS NOT ALLOW ED BY THE AO FOR WANT OF FORM 3CL FROM THE APPROPRIATE AUTHORITY DSIR FOR TH E CURRENT YEAR UNDER REFERENCE.' 6. ' ERRED IN DELETING THE ADDITION MADE BY THE A O U/S 40(A)(I) AMOUNTING TO RS. 6,94,82,067/-WITHOUT APPRECIATING THE FACT THAT THE PAYMENTS WERE MADE BY THE ASSESSEE TO NON-RESIDENTS ON ACCOUNT OF PILOT B IO-STUDY, CLINICAL RESEARCH, WHEREAS PER SECTION 195 OF THE ACT, THE ASSESSEE IS LIABLE TO WITHHOLD TAX ON SUCH PAYMENTS WHICH THE ASSESSEE DID NOT DO SO.' 7. ' ERRED IN DELETING ADDITION OF RS. 51,00,00, 000/- REPRESENTING PROVISION FOR MARKET TO MARKET (MTMS) LOSSES FOR CALCULATION OF B OOK PROFIT U/S 115JB.' 8. ' ERRED IN DELETING ADDITION OF RS. 45,3 9,118/- REPRESENTING PROVISION FOR GRATUITY FOR CALCULATION OF BOOK PROFIT U/S 115JB O F THE ACT.' 9. ' ERRED IN DELETING ADDITION OF RS. 22,81,6 41/- REPRESENTING DISALLOWANCE U/S 14A FOR CALCULATION OF BOOK PROFIT U/S 115JB OF THE ACT.' 3. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED DEPART MENTAL REPRESENTATIVE (LD. DR) FOR THE REVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE (LDAR) FOR THE ASSESSEE AND GONE THROUGH THE ORDERS OF THE LOW ER AUTHORITIES. FIRST WE SHALL TAKE REVENUES APPEAL. 6 4. GROUND NO. 1 RELATES TO DELETING THE UPWARD ADJUSTM ENT ON ACCOUNT OF CORPORATE GUARANTEE COMMISSION. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF TPO/AO. 5. ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE SUBMI TS THAT THE ASSESSEE BENCHMARKED THE TRANSACTION AT .75% AND THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR A Y 2006-07 AND THERE ARE NO VARIATIONS IN THE FACTS FOR THE YEAR UNDER CONSI DERATION. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF THE LOWER AUTHORITIES. WE HAVE SEEN THAT THE ASSESS EE IN ITS TRANSFER PRICING STUDY REPORT (TPSR) REPORTED THAT THEY HAVE CHARGED GUARANTEE COMMISSIONS @.75%. THE TRANSFER PRICING OFFICER (TPO) WORKED OU T AT 2.15% AND SUGGESTED UPWARD ADJUSTMENT OF RS. 1,71,04,416/-. O N APPEAL THE LD CIT(A), THE ORDER OF TPO IN SUGGESTING THE UPWARD ADJUSTME NT WAS DELETED BY FOLLOWING HIS OWN ORDER FOR AY 2006-07 AND 2007-08 . WE HAVE SEEN THAT ON SIMILAR GROUNDS OF ON SIMILAR SET OF FACTS IN AS SESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 1875/MUM/2011 DATED 12.06.2019, THE TRIBUNAL WHILE FOLLOWING ITS ORDER FOR AY 2007-08 PASSED THE FOLL OWING ORDER; 13. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. UNDISPUTEDLY, THE ASSESSEE ITSELF HAS CHARG ED GUARANTEE COMMISSION ON THE CORPORATE GUARANTEE PROVIDED TO THE AE @ 0.7 5%. THE GUARANTEE FEE CHARGED HAS BEEN BENCHMARKED BY THE ASSESSEE BY OBT AINING A QUOTATION FROM HSBC INDIA WHICH HAS BEEN USED AS AN EXTERNAL CUP. IN OUR VIEW, THE 7 METHOD ADOPTED BY THE ASSESSEE TO BENCHMARK THE GUA RANTEE COMMISSION CANNOT BE FAULTED WITH. IT IS NECESSARY TO OBSERVE, WHILE DECIDING THE APPEAL OF THE REVENUE IN ASSESSEE'S OWN CASE IN ASSESSMENT YEAR 2007-08, VIDE ITA NO. 5557/MUM./2012, DATED 5TH JANUARY 2018, THE CO- ORDINATE BENCH HAS HELD THAT GUARANTEE FEE CHARGED @ 0.75% IS AT ARM'S LENGTH. IT IS RELEVANT TO OBSERVE, IN VARIOUS OTHER CASES INVOLVING SIMILAR N ATURE OF DISPUTE NOT ONLY THE TRIBUNAL BUT THE HON'BLE JURISDICTIONAL HIGH CO URT HAS HELD THAT ARM'S LENGTH PRICE OF GUARANTEE FEE CAN REASONABLY BE FIX ED @ 0.5%. IN VIEW OF THE AFORESAID, WE UPHOLD THE DECISION OF LEARNED CO MMISSIONER (APPEALS). THIS GROUND IS DISMISSED. 7. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 AND WHEN NO VARIATIONS IN THE FACTS IS BROUGHT IN OUR NOTICE FOR THE YEAR UNDER CONSIDERATION, THUS WE UPHOLD THE ORDER OF LD CIT(A). IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED. 8. GROUND NO. 2 IN REVENUES APPEAL AND GROUND NO. I IN ASSESSEES APPEAL ARE INTERCONNECTED, WHICH RELATES TO ARMS LENGTH PRIC E ADJUSTMENT TO INCOME FROM INTEREST LOAN ADVANCES TO SUBSIDIARIES. THE LD DR FOR THE REVENUE SUPPORTED THE ORDER OF TPO IN REVENUES APPEAL AND L D CIT(A) IN ASSESSEES APPEAL. ON THE HAND THE LD. AR FOR THE ASSESSEE SU BMITS THAT INTEREST SHOLD BE CHARGED ON THE BASIS OF THE RATE PREVALENT IN THE C OUNTRY IN WHICH LOAN IS RECEIVED. IN SUPPORT OF HIS SUBMISSIONS THE LD AR F OR THE ASSESSEE RELIED ON THE DECISIONS OF BOMBAY HIGH COURT IN CIT VS TATA A UTOCOMP SYSTEM LTD (374 ITR 516 BOM), DELHI HIGH COURT IN CIT VS COTT ON NATURALS (I) PVT LTD (231 TAXMAN 401 DELHI HIGH COURT). IN ALTERNATIVE SUBMISSIONS THE LD AR 8 FOR THE ASSESSEE SUBMITS THAT INTEREST SHOULD BE CH ARGED ON THE BASIS OF LIBOR. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD . REPRESENTATIVES OF THE PARTIES AND PERUSED THE ORDER OF THE LOWER AUTHORIT IES. DURING THE RELEVANT PERIOD FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE IN ITS TPSR REPORTED RECEIPT OF INTEREST OF RS. 6,25,23,143/- R ECEIVED AGAINST LOAN GIVEN TO ITS OVERSEAS SUBSIDIARIES. THE ASSESSEE CHARGED INT EREST @ LIBOR + MARGIN RATES. THE TPO WORKED OUT INTEREST INCOME @ 12.5% A ND WORKS OUT INTEREST OF RS. 10,56,96,252/- AND ACCORDINGLY SUGGESTED UP WARD ADJUSTMENT OF RS. 4,31,73,109/- ( RS. 10,56,96,252/- MINUS RS. 6,25,2 3,143/-) . ON APPEAL BEFORE LD CIT (A), IT WAS DIRECTED THAT IF THE LOAN PERIOD IS THREE YEARS AND UP TO FIVE YEARS THEN THE RATED OF INTEREST BE ADOPTED AS 6 MONTH LIBOR PLUS 150 BASIS POINTS AND IN CASE OF AVERAGE PERIOD OF LOAN IS MORE THAN FIVE YEARS, THE RATE IS 6 MONTH LIBOR PLUS 250 BASIS POINTS MAY BE ADOPTED. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS TATA AUTOCOMP ( SUPRA) HELD THAT WHERE THE ASSESSEE ADVANCES LOANS TO ITS ASSOCIATED ENTER PRISES (AES) SITUATED IN GERMANY, RATE OF INTEREST WAS TO BE DETERMINED ON T HE BASIS OF RATE PREVAILING IN GERMANY WHERE LOAN HAS BEEN CONSUMED. 10. CONSIDERING THE DECISION OF JURISDICTIONAL HIGH COU RT THE AO/TPO IS DIRECTED TO RECOMPUTE THE INTEREST ON THE BASIS OF RATE PREV ALENT IN THE COUNTRIES WHERE 9 LOAN WAS RECEIVED. IN THE RESULT THE GROUND OF APPE AL RAISED BY THE ASSESSEE IS ALLOWED AND RESULTANTLY THE GROUND OF APPEAL RAISED BY THE REVENUE HAS BECOME INFRUCTUOUS. 11. GROUND NO. 3 IN REVENUES APPEAL AND GROUND NO. II & III IN ASSESSEES APPEAL RELATES TO NOTIONAL INTEREST INCOME ON INFUS ION OF ADDITIONAL FUNDS IN WHOLLY OWNED SUBSIDIARY. THE LD AR FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE MADE INVESTMENT IN ITS OVERSEAS SUBSIDIAR Y IN THE FORM OF EQUITY IN WOCKHARDT EU OF RS. 142, 57,00,000/-. IT WAS FURT HER SUBMITTED THAT THERE WAS DELAY IN ALLOTMENT OF SHARES. THE TPO RECLASSIF IED THE INVESTMENT IN EQUITY SHARE AS LOAN AND SUGGESTED ADDITION OF RS. 17,82,00,000/-. THE LD. AR FOR THE ASSESSEE SUBMITS THAT NO INCOME ARISES ON A CCOUNT OF MAKING APPLICATION FOR SHARES AND SUBSCRIBING TO THE CAPIT AL. TO SUPPORT HIS SUBMISSIONS THE LD AR FOR THE ASSESSEE RELIED ON TH E DECISION OF BOMBAY HIGH COURT IN VODAFONE INDIA SERVICES (P) LTD VS AC IT (368 ITR 1BOM). IN ALTERNATIVE SUBMISSIONS THE LD. AR SUBMITS THAT SHA RE APPLICATION MONEY CANNOT BE CLASSIFIED AS LOAN. IN SUPPORT OF HIS SUB MISSIONS THE LD AR FOR THE ASSESSEE RELIED ON THE DECISION OF TRIBUNAL IN ITO VS STERLING OIL RESOURCES (P) LTD [2016] (67 TAXMANN.COM 2 MUM TRIB), ADITYA BIRLA MINACS WORLDWIDE LTD VS JCIT (2016) 75 TAXMANN.COM 79 (MUM BAI TRIB) AND SUN PHARMACEUTICAL INDUSTRIES LTD VS ACIT (2017) 84 TAX MANN.COM 217 10 (AHMEDABAD TRIB). IN OTHER ALTERNATIVE SUBMISSIONS THE LD. AR FOR THE ASSESSEE SUBMITS THAT THERE WAS DELAY IN ALLOTMENT OF SHARES, IF THE SHARE APPLICATION MONEY IS CLASSIFIED AS LOAN THE NOTIO NAL INTEREST COULD NOT EXCEED LIBOR. IN SUPPORT OF HIS SUBMISSIONS HE RELI ED ON DECISION OF BOMBAY HIGH COURT IN CIT VS TATA AUTOCOMP SYSTEM (S UPRA), DELHI HIGH COURT IN CIT VS COTTON NATURALS INDIA PVT LTD (SUPR A). 12. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF TPO. 13. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF THE TAX AUTHORITIES BELOW. DURING THE RELEVANT PERI OD UNDER ASSESSMENT YEAR THE ASSESSEE PAID SHARE APPLICATION MONEY TO ITS AE S. THE ASSESSEE NOT INCLUDED THIS TRANSACTION IN ITS TPSR. THE TPO AFTE R GIVING SHOW CAUSE NOTICE TO THE ASSESSEE TREATED THE SAID SHARE APPLI CATION MONEY AS LOAN TO ITS SUBSIDIARY AND CHARGED INTEREST @ 12.5% AND WORKED OUT THE ADJUSTMENT OF RS. 17,82,00,000/-. BEFORE, LD CIT(A) THE ASSESSEE PLACED DETAILED SUBMISSIONS INCLUDING THE SUBMISSIONS THAT THERE IS NO INTERNATIONAL TRANSACTION ON SUBSCRIBING THE SHARE OF AES. THE A SSESSEE ALSO PLACED VARIOUS ALTERNATIVE SUBMISSIONS WHICH HAVE BEEN REC ORDED BY LD. CIT(A) IN PARA 6 OF HIS ORDER. THE LD CIT(A) AFTER CONSIDERIN G THE SUBMISSIONS OF CONCLUDED THAT THE DELAY IN RECEIPT OF SHARE IS SH ORT AND AS PER CIRCULAR OF RESERVE BANK OF INDIA, THE INTEREST WOULD BE LIBOR PLUS 150 AND DIRECTED 11 THE TPO/AO TO CHARGE INTEREST FOR 6 MONTH AT LIBOR PLUS 150 BASIS POINT FOR THE PERIOD BETWEEN THE DATE OF REMITTANCE AND B Y ADDING 15 DAYS AND THE DATE OF ALLOTMENT OF SHARES. 14. THE COORDINATE BENCH OF THIS TRIBUNAL IN ITO VS ST ERLING OIL RESOURCES (P) LTD (SUPRA) (AUTHORED BY THE SAME COMBINATION) HELD THAT ADJUSTMENT ON ACCOUNT OF NOTIONAL INTEREST ON SHARE APPLICATION M ONEY, WHICH HAD BEEN RECHARACTERISED AS LOAN, MERELY BECAUSE THERE WAS D ELAY IN ALLOTMENT OF SHARE, WAS NOT SUSTAINABLE IN LAW. FURTHER, THIS TRIBUNAL IN ADITYA BIRLA MINACS WORLDWIDE LTD (SUPRA) ALSO TOOK THE SAME VIEW THAT SHARE APPLICATION MONEY CANNOT BE TREATED AS LOAN AMOUNT; MERELY THERE IS D ELAY IN ISSUANCE OF SHARES BY SUBSIDIARY. CONSIDERING THE CONSISTENT VIEW OF T HE TRIBUNAL, WE ARE OF THE VIEW THAT SHARE APPLICATION MONEY CANNOT BE TREATED AS LOAN AMOUNT ONLY BECAUSE OF DELAY IN ISSUANCE OF SHARES BY ITS SUBSI DIARY. 15. IN THE RESULT THE GROUNDS NO. II& III OF THE ASSESS EES APPEAL ARE ALLOWED AND RESULTANTLY THE GROUND OF APPEAL BY REVENUE IS DISM ISSED. SINCE, WE HAVE ACCEPTED THE SECOND CONTENTION OF THE LD. AR FOR TH E ASSESSEE; HENCE, DISCUSSIONS ON OTHER SUBMISSIONS OF THE ASSESSEE HA VE BECOME ACADEMIC. 16. GROUND NO. 4 IN REVENUES APPEAL RELATES TO ALLOCA TION OF R & D EXPENSES TO THE 80IB AND 80IC UNITS. THE LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 12 17. ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE SUBM ITS THAT THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE IN ASSESSEES OWN CASE FOR AY 2001-02 TO 2007-08 BY TH E DECISIONS OF THE TRIBUNAL. THE LD. AR FOR THE ASSESSEE FURNISHED THE COPIES OF THE ORDER OF THE TRIBUNAL FOR ALL THE YEARS. 18. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF THE TAX AUTHORITIES BELOW. DURING THE RELEVANT PERI OD UNDER ASSESSMENT YEAR THE ASSESSEE THE ASSESSEE CLAIMED DEDUCTION UNDER S ECTION 80IB OF RS. 23,36,103/ AND UNDER SECTION 80IC OF RS. 141,65,46, 365/- RESPECTIVELY. ON SHOW CAUSE NOTICE ON THE ISSUE, THE ASSESSEE CONTEN DED THAT SIMILAR DEDUCTION IS ALLOWED IN THE EARLIER YEARS BY TRIBUNAL AND FUR NISHED THE COPY OF THE ORDERS FOR EARLIER YEARS. THE ASSESSING OFFICER TOO K HIS VIEW THAT R&D EXPENDITURE TO THE INDUSTRIAL UNDERTAKING ON WHICH DEDUCTIONS UNDER SECTION 80IB & 80IC ARE CLAIMED, ON WHICH THE EXPENDITURE I S NOT CONTRIBUTED TO THE EARNING OF THE INCOME FOR WHICH DEDUCTION IS CLAIME D. THE ASSESSING OFFICER ALLOCATED INTEREST COST TO THE UNITS ON TURNOVER BA SIS. THE LD CIT(A) GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING THE ORDER OF TH E TRIBUNAL FOR VARIOUS EARLIER YEARS. WE HAVE NOTED THAT ON SIMILAR GROUND OF APPE AL THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2007-07 PASSED THE FOLLO WING ORDER; 13 17. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. THE LEARNED COUNSELS APPEARING FOR THE PARTIES HAVE AGREED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBU NAL IN THE PRECEDING ASSESSMENT YEARS. IT IS NOTICED, IDENTICAL DISPUTE AROSE IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2001- 02, 2002-03, 2003-04 , 2004-05 AND 2005-06. IN THE LATEST ORDER PASSED FOR THE ASSESSMENT YEAR 200 7-08, IN ITA NO.5557/ MUM./2012, DATED 5TH JANUARY 2018, THE TRIBUNAL, FO LLOWING ITS OWN DECISION FOR THE EARLIER ASSESSMENT YEARS, HAS UPHELD THE DE CISION OF LEARNED COMMISSIONER (APPEALS) BY DISMISSING THE GROUND RAI SED BY THE REVENUE. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE C ONSISTENT VIEW OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEARS IN ASSESSEE'S OWN CASE, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) BY DISMI SSING THE GROUND. 19. CONSIDERING THE CONSISTENT VIEW OF THE TRIBUNAL ON IDENTICAL SET OF FACTS AND RESPECTFULLY FOLLOWING THE VIEW OF THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEARS IN ASSESSEE'S OWN CASE, WE UPHOLD THE DECISIO N OF LD. CIT(A). IN THE RESULT THE GROUND OF APPEAL IS DISMISSED. 20. GROUND NO. 5 IN REVENUES APPEAL AND GROUND NO. IV IN ASSESSEES APPEAL RELATES TO WEIGHTED DEDUCTION UNDER SECTION 35(2AB) . THE LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE ASSESSING OFFICE R. 21. ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE SUBM ITS THAT THIS GROUND OF APPEAL IS ALSO COVERED IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE IN ASSESSEES OWN CASE FOR AY 2006-07 BY THE DECISIONS OF THE TRIBUNAL. 22. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF THE TAX AUTHORITIES BELOW. DURING THE RELEVANT PERI OD UNDER ASSESSMENT YEAR 14 THE ASSESSEE THE ASSESSEE CLAIMED WEIGHTED DEDUCTIO N UNDER SECTION 35(2AB). THE ASSESSING OFFICER AFTER ISSUING SHOW CAUSE AND RECEIVING REPLY CONCLUDED THAT ALL THE CLINICAL TRIAL ARE GOT CONDUCTED BY AS SESSEE THROUGH THIRD PARTIES AND THE PAYMENT MADE TO THIRD PARTIES ARE NOT QUALI FIED FOR WEIGHTED DEDUCTION. THE LD CIT(A) FOLLOWED THE ORDER OF TRIB UNAL IN AY 2004-05 AND DISMISSED THE APPEAL OF THE ASSESSEE. HOWEVER, WE H AVE NOTED THAT IN AY 2006-07, THE TRIBUNAL BY FOLLOWING THE ORDER FOR AY 2007-08 RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER BY PASSING T HE FOLLOWING ORDER; 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. ON A PERUSAL OF THE IMPUGNED ORDER OF LEARNED COMMISSION ER (APPEALS) AND, MORE PARTICULARLY, HIS FINDING IN PARA-8 TO 8.4 OF THE I MPUGNED ORDER, IT IS VERY MUCH CLEAR THAT HE HAS FULLY ALLOWED THE CLAIM OF THE AS SESSEE UNDER SECTION 35(2AB) OF THE ACT. THEREFORE, WE FAIL TO UNDERSTAND HOW THE A SSESSEE CAN BE AGGRIEVED WITH THE DECISION OF LEARNED COMMISSIONER (APPEALS). BE THAT AS IT MAY, THE REVENUE HAS ALSO CHALLENGED THE DECISION OF LEARNED COMMISS IONER (APPEALS) ON THE ISSUE OF DEDUCTION CLAIMED UNDER SECTION 35(2AB) OF THE ACT. UNDISPUTEDLY, THE RESEARCH AND DEVELOPMENT ACTIVITY IN RESPECT OF WHICH THE AS SESSEE HAS CLAIMED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT WERE NOT CARRIED OUT IN ASSESSEE'S OWN IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY. THEREFORE, THE I SSUE WHICH ARISES FOR CONSIDERATION IS, WHETHER THE EXPENDITURE INCURRED FOR CARRYING OUT RESEARCH AND DEVELOPMENT ACTIVITY OUTSIDE BY WAY OF OUT SOURCING OR OTHERWISE CAN BE ELIGIBLE FOR DEDUCTION UNDER SECTION 35(2AB) OF THE ACT? AS PER THE PROVISION CONTAINED 15 UNDER SECTION 35(2AB) OF THE ACT, WEIGHTED DEDUCTION CAN BE ALLOWED IN RESPECT OF EXPENDITURE ON SCIENTIFIC RESEARCH CARRIED OUT I N THE IN- HOUSE RESEARCH AND DEVELOPMENT ACTIVITY AS APPROVED BY THE PRESCRIBED AUTHORITY. THEREFORE, GOING BY THE PLAIN MEANING OF THE WORDS USED IN SECTION 35(2AB) OF THE ACT, ONLY THOSE EXPENDITURES WHICH ARE INCURRED IN THE IN-HOUSE RES EARCH AND DEVELOPMENT FACILITY ARE ELIGIBLE FOR DEDUCTION. IN FACT, WHILE DEALING WITH IDENTICAL ISSUE IN ASSESSEE'S OWN CASE IN THE ASSESSMENT YEARS 2002-03 TO 2004-05 IN ITA NO.2522 TO 2524/MUM./ 2009, DATED 13TH APRIL 2012, THE TRIBUNA L DECIDED THE ISSUE AGAINST THE ASSESSEE. HOWEVER, WHILE DECIDING THE SAME ISSU E IN ASSESSEE'S OWN CASE IN ASSESSMENT YEAR 2007-08, IN ITA NO.5557/MUM./ 2012, DATED 5TH JANUARY 2018, THE TRIBUNAL HAS RESTORED THE ISSUE TO THE ASSESSIN G OFFICER FOR FRESH ADJUDICATION KEEPING IN VIEW VARIOUS DECISIONS CITED BY THE ASSE SSEE INCLUDING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN CADILA HEALTHCARE LTD. (SUPRA). THEREFORE, FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSMEN T YEAR 2007-08, WE ARE INCLINED TO RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR D E NOVO ADJUDICATION KEEPING IN VIEW THE RATIO LAID DOWN IN THE DECISIONS TO BE CIT ED BY THE ASSESSEE INCLUDING THE DECISION OF THE HON'BLE GUJARAT HIGH COURT IN CADIL A HEALTHCARE LTD. (SUPRA). WHILE DOING SO, THE ASSESSING OFFICER IS ALSO DIREC TED TO EXAMINE THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN COMMISSIONER O F CUSTOMS V/S DILIP KUMAR & CO. & ORS., VIDE JUDGMENT DATED 30TH JULY 2 018, IN CIVIL APPEAL NO.3327 OF 2007. NEEDLESS TO MENTION, THE ASSESSING OFFICER MUST AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE BEFORE DECIDING THE ISSUE. THESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 16 23. CONSIDERING THE DECISION OF THE TRIBUNAL IN ASSES SMENT YEAR 2006-07, WE RESPECTFULLY FOLLOWING THE SAME WE ARE INCLINED TO RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR ADJUDICATION AFRESH AS PER TH E DIRECTION DATE 12.06.2019 IN ITA NO. 1967/MUM/2011. IN THE RESULT THE GROUND OF APPEAL RAISED BY BOTH THE PARTIES ARE ALLOWED FOR STATISTICAL PURPOSE. 24. GROUND NO. 6 IN REVENUES APPEAL RELATES TO DISALL OWANCE UNDER SECTION 40(A)(IA) FOR WANT OF TDS FOR PAYMENTS MADE TO NON- RESIDENTS ON ACCOUNT FOR PILOT BIO STUDY, CLINICAL RESEARCH . THE LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 25. ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE SUBM ITS THAT THIS GROUND OF APPEAL IS ALSO COVERED IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE IN ASSESSEES OWN CASE FOR AY 2006-07 BY THE DECISIONS OF THE TRIBUNAL. 26. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES A ND PERUSED THE ORDER OF THE TAX AUTHORITIES BELOW. DURING THE ASSESSMENT TH E ASSESSING OFFICER NOTED THAT THE ASSESSEE CLAIMED EXPENSES OF RS. 6,94,82,6 07/- ON PAYMENT TO NON- RESIDENT ON ACCOUNT OF BIO STUDY, CLINICAL RESEARCH WITHOUT DEDUCTING TAX AT SOURCE. THE ASSESSING OFFICER AFTER ISSUING SHOW C AUSE NOTICE DISALLOWED THE EXPENDITURE BY TAKING VIEW THAT SIMILAR EXPENDITURE WAS DISALLOWED IN EARLIER YEARS AS THE ASSESSEE IS LIABLE TO DEDUCT TAX UNDER SECTION 195. THE LD CIT(A) DELETED THE ADDITIONS BY FOLLOWING THE ORDER OF TRI BUNAL IN AY 2007-08, 17 WHEREIN IT WAS PAYMENT TO NON-RESIDENT FOR CONDUCTI NG BIO EQUIVALENCE STUDY ARE NOT TAXABLE IN INDIA AND NOT SUBJECT TO WITHHOL DING TAX UNDER SECTION 195 OF THE ACT. WE HAVE SEEN THAT SIMILAR VIEW WAS TAKE N BY TRIBUNAL IN AY 2006-07 BY FOLLOWING THE ORDER OF TRIBUNAL IN AY 20 07-08. THEREFORE, WE AFFIRM THE ORDER OF LD CIT(A). IN THE RESULT WE DO NOT FIND ANY MERIT IN THE GROUND OF APPEAL RAISED BY THE REVENUE AND THE SAME IS DISMISSED. 27. GROUND NO. 7 RELATES TO DELETING THE ADDITION OF MARKED TO MARKET LOSS FOR CALCULATION OF BOOK PROFIT UNDER SECTION 115JB. THE LD DR FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 28. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUBMIT S THAT THE ADDITIONS/ REDUCTION FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB SHALL ONLY BE AS PER EXPLANATION 1 TO SECTION 115JB(2) AN D RELIED ON THE DECISION OF APOLLO TYRES LTD VS CIT (255 ITR 273 SC). IN ALTERN ATIVE SUBMISSIONS THE LD. AR SUBMITS THAT INCREASE IN LIABILITY ON ACCOUN T OF FLUCTUATION IN FOREIGN EXCHANGE RATE CANNOT BE DISALLOWED. AND RELIED ON T HE DECISION OF CIT VS WOODWARD GOVERNOR INDIA (P) LTD. (312 ITR 254 SC). AND IN THIRD ALTERNATIVE SUBMISSIONS SUBMITS THAT ASCERTAINED LI ABILITY ARE ALLOWABLE IN COMPUTING INCOME AND IN SUPPORT OF HIS SUBMISSIONS RELIED ON BHARAT EARTHMOVERS LTD VS CIT (245 ITR 428 SC). 18 29. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF THE TAX AUTHORITIES BELOW. THE ASSESSING OFFICER WH ILE COMPUTING BOOK PROFIT ADDED BACK PROVISION OF RS, 51 CRORE FOR MARKED TO MARKET LOSS WITHOUT DISCUSSION OR ISSUING SHOW CAUSE NOTICE TO THE ASSE SSEE. DURING THE FIRST APPELLATE STAGE THE ASSESSEE FILED ITS DETAIL SUBMI SSIONS AND RELIED ON THE DECISIONS IN CIT VS WOODWARD GOVERNOR INDIA (P) LTD . (SUPRA) AND APOLLO TYRES LTD VS CIT (SUPRA). THE LD CIT(A) AFTER CONSI DERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT MARKED TO MARKET LOS S ARE ON ACCOUNT OF RESTATEMENT OF TRADING ASSET AND LIABILITY AND ITS ASCERTAINMENT AND COMPUTATION IS NOT DISPUTED BY ASSESSING OFFICER. T HE LD CIT(A) ALSO HELD THAT AFTER THE DECISION IN CIT VS WOODWARD GOVERNOR INDI A (P) LTD. (SUPRA) MARKED TO MARKET LOSS IS ALLOWABLE DEDUCTION. AND I T CANNOT BE TERMED AS UNASCERTAINED LIABILITY AS HAS BEEN PROVIDED IN CLA USE (C) OF EXPLANATION-1 TO SECTION 115JB(2). ACCORDINGLY CANNOT BE ADDED BACK TO THE BOOK PROFIT. NO CONTRARY FACT OR LAW IS BROUGHT TO OUR NOTICE TO AR RIVE ON OTHER FINDING. THEREFORE, WE AFFIRM THE ACTION OF LD CIT(A) AND DI SMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. 30. GROUND NO. 8 RELATES TO DELETING THE ADDITION ON AC COUNT OF PROVISION OF GRATUITY FOR CALCULATION OF BOOK PROFIT UNDER SECTI ON 115JB. THE LD DR FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICE R. 19 31. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUBMIT S THAT THE ADDITIONS/ REDUCTION FOR THE PURPOSE OF COMPUTING BOOK PROFIT UNDER SECTION 115JB SHALL ONLY BE AS PER EXPLANATION 1 TO SECTION 115JB(2) AN D RELIED ON THE DECISION OF APOLLO TYRES LTD VS CIT (SUPRA). IN OTHER ALTERNATI VE SUBMISSIONS THE LD AR SUBMITS THAT LIABILITY ASCERTAINED BY ACTUARY CANNO T BE CONSIDERED AS UNASCERTAINED LIABILITY FOR THE PURPOSE OF BOOK PRO FIT UNDER SECTION 115JB AND RELIED ON DECISION OF ROTORK CONTROLS INDIA (P) LTD (314 ITR 62 SC) AND CIT VS JET AIRWAYS [2016 (2016 TAXMAN 572 BOMBAY)] 32. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES A ND PERUSED THE ORDER OF THE TAX AUTHORITIES BELOW. THE ASSESSING OFFICER WH ILE COMPUTING BOOK PROFIT ADDED BACK PROVISION OF GRATUITY OF RS. 45,39,118/- WITHOUT DISCUSSION OR ISSUING SHOW CAUSE NOTICE TO THE ASSESSEE. DURING T HE FIRST APPELLATE STAGE THE ASSESSEE FILED ITS DETAIL SUBMISSIONS AND RELIED ON THE DECISIONS APOLLO TYRES LTD VS CIT (SUPRA). THE LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED PROVISIONS OF GRATUITY IS BASED ON THE ACTUARIAL VALUATION AND THEREFORE ASCERTAINED LIABILITY. THE ASSESSING OFFICER HAS NOT DISPUTED ACTUARIAL VALUATION AND CANNOT BE TREATED UNASCERTA INED LIABILITY AS HAS BEEN PROVIDED IN CLAUSE (C) OF EXPLANATION-1 TO SECTION 115JB(2). NO CONTRARY FACT OR LAW IS BROUGHT TO OUR NOTICE TO ARRIVE ON OTHER FINDING. THEREFORE, WE 20 AFFIRM THE ACTION OF LD CIT(A) AND DISMISS THE GROU ND OF APPEAL RAISED BY THE REVENUE. 33. GROUND NO. 9 RELATES TO DELETING THE ADDITION OF DI SALLOWANCE UNDER SECTION14A FROM CALCULATION OF BOOK PROFIT UNDER SE CTION115JB. AT THE OUTSET THE LD AR FOR THE ASSESSEE SUBMITS THAT AS P ER DECISION OF SPECIAL BENCH OF DELHI TRIBUNAL IN ACIT VS VIREET INVESTMEN T (P) LTD (ITA NO. 502/DEL/2012) THE COMPUTATION UNDER CLAUSE (F) OF E XPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT RESORTING T O COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D. 34. THE LD. DR FOR THE REVENUE NOT DISPUTED THE DECISI ON OF SPECIAL BENCH, HOWEVER HE RELIED ON THE ORDER OF THE ASSESSING OFF ICER. 35. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES A ND PERUSED THE ORDER OF THE TAX AUTHORITIES BELOW. THE ASSESSING OFFICER WH ILE COMPUTING BOOK PROFIT ADDED BACK THE DISALLOWANCE OF SECTION 14A WITHOUT DISCUSSION OR ISSUING SHOW CAUSE NOTICE TO THE ASSESSEE. DURING THE FIRST APPELLATE STAGE THE ASSESSEE FILED ITS DETAIL SUBMISSIONS AND RELIED ON VARIOUS DECISIONS INCLUDING IN APOLLO TYRES (SUPRA) AND GOETZE INDIA LTD VS CIT (32 SOT 101). THE LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE OBSERVED THE PROVISION OF SECTION 14A CANNOT BE IMPORTED TO CLAU SE (F) OF EXPLANATION 1 TO SECTION 115JA. THE SPECIAL BENCH OF DELHI TRIBUNAL RECENTLY IN ACIT VS. 21 VIREET INVESTMENT (P) LTD (SUPRA) HELD THE COMPUTAT ION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WI THOUT RESORTING TO COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D. THUS, CONSIDERING THE RECENT DECISION OF THE SPECIAL BENC H OF TRIBUNAL WE UPHOLD THE ORDER OF THE LD CIT(A). IN THE RESULT THIS GROU ND OF APPEAL IS DISMISSED. 36. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ITA NO. 4866/MUM/2013 BY ASSESSEE. 37. WE HAVE ALREADY DISCUSSED AND DECIDED THE GROUND N O. I TO IV OF ASSESSEES APPEAL, WHILE DISCUSSING THE VARIOUS GROUNDS OF APP EAL IN REVENUES APPEAL. 38. GROUND NO. V RELATES TO DISALLOWANCE UNDER SECTION 14A. THE LD AR FOR THE ASSESSEE SUBMITS THAT DURING THE YEAR UNDER CONSIDE RATION THE ASSESSEE EARNED EXEMPT INCOME OF RS. 80,000/-. THE ASSESSING OFFICE R INVOKED THE PROVISIONS OF RULE 8D AND DISALLOWED RS. 15,86,540/- UNDER RUL E 8D(2)(II) AND RS. 6,95,100/- UNDER RULE 8D(2)(III), THUS TOTAL OF RS. 22,81,641/-. THE LD. AR FOR THE ASSESSEE MADE ALTERNATIVE SUBMISSION, HOWEVER, ULTIMATELY CONFINED TO THE SUBMISSIONS THAT THE DISALLOWANCE UNDER SECTION 14A SHOULD NOT EXCEED EXEMPT INCOME. IN SUPPORT OF HIS SUBMISSIONS RELIED ON DECISION OF BOMBAY HIGH COURT IN NIRVAD TRADER PVT LTD VS DCIT [ ITA NO. 149 OF 2017] AND PCIT VS HSBC INVEST DIRECT (INDIA) [ITA 1672 OF 201 6 BOMBAY] 22 39. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPP ORTED THE ORDER OF THE TAX AUTHORITY BELOW. 40. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDER OF THE TAX AUTHORITIES BELOW. THE ASSESSING OFFICER NO TED THAT THE ASSESSEE HAS SHOWN EXEMPT INCOME OF RS. 80,000/-. THE ASSESSEE H AS NOT DISALLOWED ANY EXPENDITURE IN RELATION TO EARNING OF EXEMPT INCOME . ON SHOW CAUSE NOTICE THE ASSESSEE SUBMITTED THAT NO DIRECT EXPENDITURE W AS INCURRED AS THERE IS NO SEPARATE DEPARTMENT FOR MAKING SUCH INVESTMENT AND THAT THEY HAVE SUFFICIENT OWN FUNDS. THE CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER INVOKED THE PROVISIONS OF RULE 8D AND DISAL LOWED RS. 15,86,540/- UNDER RULE 8D(2)(II) AND RS. 6,95,100/- UNDER RULE 8D(2)(III), THUS TOTAL OF RS. 22,81,641/-. THE LD CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY TAKING VIEW THAT AS PER THE DECISION OF BOMBAY HIGH COURT IN GODJEJ & BOYCEE MFG CO LTD (ITA NO. 626 OF 2010 ) THE ASSES SING OFFICER IS DUTY BOUND TO WORK OUT DISALLOWANCE UNDER SECTION14A. 41. THE HONBLE BOMBAY HIGH COURT IN NIRVED TRADERS P VT LTD (SUPRA) HELD THAT THE DISALLOWANCE UNDER SECTION 14A BE RESTRICT TO THE EXEMPT INCOME. THUS, RESPECTFULLY FOLLOWING THE ORDER OF THE JURIS DICTIONAL HIGH COURT REFERRED ABOVE, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO 23 THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. IN THE RESULT THIS GROUND OF APPEAL IS PARTLY ALLOWED. 42. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.03.2020. SD/- SD/- (PRAMOD KUMAR) (PAWAN SINGH) VICE PRESIDENT JUDICIALMEMBER MUMBAI, DT : 9 TH MARCH, 2020 SK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI