TCS-e-SERVE LTD ( EARLIER KNOWN AS e-SEREVE INTERNAIONTAL LTD), MUMBAI V. DCIT RG 9(1), MUMBAI

ITA 5089/MUM/2010

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8538 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: H
• Assessment Year: 2003-2004
• Appeal Filed On: 17-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P.J. PARDIWALLALD. COUNSEL
• Keywords: Depreciation; Reassessment proceedings; Set aside
• Section: 271(1)(c); 144; 43B; 143(3); 143(1); 113; 9(1); 9(1); 9(1); 13

Judgement Text

1 आयकर अपीलीय अधिकरण “एच” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL “H” BENCH, MUMBAI माननीय श्री शक्तिजीत दे, न्याययक सदस्य एवुं माननीय श्री मनोज कु मार अग्रवाल ,लेखा सदस्य के समक्ष। BEFORE HON’BLE SHRI SAKTIJIT DEY, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM (Hearing Through Video Conferencing Mode) 1. आयकरअपील सं./ I.T.A. No.5089/ Mum /2010 (धििाारण वर्ा / Asses sm ent Yea r: 2003-04) & 2. आयकरअपील सं./ I.T.A. No.5090/ Mum /2010 (धििाारण वर्ा / Asses sm ent Yea r: 2004-05) Tata Consultancy Services Limited (Upon merger of TCS e-Serve Ltd with Tata Consultancy Services Ltd) 9 th Floor, Nirmal Building Nariman Point, Mumbai-400 021 बिाम / Vs. DCIT- 9(1) / 9(3) Aaykar Bhawan M.K.Road Mumbai-400 020 स्थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACC-4480-F (अपीलाथी/Appellant) : (प्रत्यथी / Respondent) & 3. आयकरअपील सं./ I.T.A. No.4928/ Mum /2010 (धििाारण वर्ा / Asses sm ent Yea r: 2003-04) & 4. आयकरअपील सं./ I.T.A. No.4929/ Mum /2010 (धििाारण वर्ा / Asses sm ent Yea r: 2004-05) & 5. आयकरअपील सं./ I.T.A. No.5478/ Mum /2014 (धििाारण वर्ा / Asses sm ent Yea r: 2010-11) & 6. आयकरअपील सं./ I.T.A. No.7446/ Mum /2010 (धििाारण वर्ा / Asses sm ent Yea r: 2003-04) & 7. आयकरअपील सं./ I.T.A. No.7447/ Mum /2010 (धििाारण वर्ा / Asses sm ent Yea r: 2004-05) ACIT, Range-9(3) / Circle-9(3) Aaykar Bhawan, M.K.Road Mumbai-400 020 बिाम / Vs. Tata Consultancy Services Limited (Upon merger of TCS e-Serve Ltd with Tata Consultancy Services Ltd) 9 th Floor, Nirmal Building Nariman Point, Mumbai-400 021 स्थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACC-4480-F (अपीलाथी/Appellant) : (प्रत्यथी / Respondent) 2 Assessee by : Shri P.J. Pardiwalla-Ld. Sr.Counsel Revenue by : Shri Vinay Sinha – Ld. CIT-DR & Shri Gurbinder Singh-Ld. Sr. DR सुनवाई की तारीख/ Date of Heari ng : 01/10/2021 घोषणा की तारीख / Date of P ro nou nc ement : 15/11/2021 आदेश / O R D E R Per Bench 1.1 The captioned appeals are cross-appeals for Assessment Years (AY) 2003-04 and 2004-05. The revenue is also contesting deletion of penalty u/s 271(1)(c) for these two years. One more appeal by revenue is for AY 2010-11. However, it is admitted position that facts as well as issues are quite identical in all the years and adjudication in any year shall substantially apply to other years also. For the purpose of adjudication, cross-appeals for AY 2003-04 are taken up first. Both the parties have filed revised Form No.36 which is found in order. 1.2 The cross-appeals for AY 2003-04 arises out of order of Ld. Commissioner of Income Tax (Appeals)-19, Mumbai [CIT(A)], Appeal No.CIT(A)19/9(1)/IT.5/05-06 order dated 15/03/2010. The assessment for the year under consideration was framed by Ld. Assessing Officer u/s 143(3) vide order dated 24/01/2006 wherein the returned income of Rs.2157.17 Lacs was determined at Rs.4756.61 Lacs after certain additions / adjustments / disallowances, few of which are subject matter of dispute before us. 3 Upon further appeal, Ld. CIT(A) has granted partial relief to the assessee which has given rise to cross-appeals before us. 1.3 The erstwhile assessee namely M/s E-serve International Ltd. (in whose name the assessment has been framed) being a resident corporate assessee was stated to be engaged in providing information technology enabled services and leasing services during the year under consideration. The name of an entity namely Citicorp Securities & Investments Limited was changed first to M/s E-Serve International Ltd. then to M/s Citigroup Global Services Ltd. and thereafter to TCS e-Serve Limited. M/s TCS e-Serve Limited got merged into Tata Consultancy Services Limited w.e.f. 01/04/2013. Accordingly, respective appeal Form Nos. 36 has been revised reflecting aforesaid changes. 1.4 The grounds urged by the revenue read as under (a). On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in allowing deduction u/s. 10A without appreciating the fact that the assessee company had not fulfilled all the conditions u/s. 10A in respect of its STPI business. 1(b). On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in allowing deduction u/s.10A without appreciating the fact that the assessee company was formed by splitting up as well as reconstruction of business which was already in existence. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that profit from the activity of technical services of software testing performed in India is neither in the nature of support centre not amounting to export of software, was eligible for deduction u/s.10A and alternatively u/s.80HHE. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the interest u/s.234D when the provisions of this section are attracted in assessee's case. 4. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored. 1.5 The grounds urged by the assessee read as under (1)a. The Commissioner of Income-tax (Appeals) - 19, Mumbai [CIT(A)] ought to have directed the Assistant Commissioner of Income-tax, Range 9(3), Mumbai (AO), that in the event, the disallowance of deduction for the bad debt of Rs.1,98,43,434 and business loss of Rs.2,12,00,000 relating to NEPC Micon Ltd. is upheld by any of 4 the higher appellate authority in the assessment year 1998-99 or any other year, the same be allowed in the year under appeal. b. The CIT(A) ought to have directed the AO, that in the event the notional amount of Rs.1,76,49,426, pertaining to lease rentals due from NEPC Micon Ltd. which had stopped accruing, are held to be taxable in the assessment year 1998-99 by any of the higher appellate authority, to allow a deduction for the same in the year under appeal. (2) The CIT(A) ought to have directed the AO, that in the event, the disallowance of deduction for bad debt of Rs.1,18,65,034 and the business loss of Rs.2,43,62,520 relating to Prakash Industries Ltd., is upheld any of the higher appellate authority in the assessment year 1999-2000 or any other year, the same be allowed in the year under appeal. 3)a. The CIT(A) ought to have held that the transactions undertaken by the appellants, with respect to leasing of cars, computers, Plant &Machinery and furniture are in the nature of operating lease and not financing transactions and thereby ought to have directed the AO to allow depreciation of Rs.3,18,78,864 thereon. b. Without prejudice to the above, the CIT(A) ought to have held that once an asset enters the block on which depreciation has been allowed in the past, depreciation thereon cannot be denied and thereby ought to have directed the AO to allow depreciation on the assets which entered the block upto and including the assessment year 1998-99. (4) The CIT(A) ought to have held that cars which were purchased after 1/10/1998 were covered by the definition of Commercial Vehicles' and are therefore eligible for depreciation @ 40%. The CIT(A) ought to have held that cars are covered by the definition of 'commercial vehicles' and depreciation is allowable in accordance with sub item 3(iii) of item III of Appendix I to the Income-tax Rules, 1962 and also in accordance with the third proviso to section 32(l)(ii) of the Act. (5)a. The CIT(A) erred in upholding the action of the AO in not including in the export turnover for the purpose of deduction under section 80HHE, the export turnover of the 10A units. b. Without prejudice to the above, the CIT(A) ought have directed the AO, that in the event the claim for deduction under section 10A is denied by any higher appellate authority, to include the turnover of 10A units in the export turnover for the purpose of computing the deduction under section 80HHE. (6)a. The CIT(A) erred in upholding the action of the AO in reducing 90% of the interest component of Rs.2,17,85,672 included in lease rentals by invoking Explanation (d) to section 80HHE in computing the profits of the business for the purposes of section 80HHE. b. Without prejudice, the CIT(A) ought to have directed the AO to reduce 90% of the net interest income embedded in lease rentals. c.i) Without prejudice, the CIT(A) ought to have directed the AO, that in the event the lease transaction are held to be operating leases by any higher appellate authority, 90% of the lease rentals of Rs.7,10,26,871 should not be reduced from the profits of the business for the purpose of computing deduction under section 80HHE. ii) Without prejudice, with respect to (i) above the CIT(A) ought to have directed the AO, that in the event the lease transaction are held to be operating leases by any higher appellate authority, to reduce 90% of the net income from lease rentals. 5 (7) The CIT(A) ought have held that no separate report under section 80HHE is required to be filed for the old and the new unit and that the report already filed by the appellants in Form 10CCAF was adequate compliance of the provisions of section 80HHE. Further, the CIT(A) ought to have directed the AO, that in the event the claim for deduction under section 10A is denied by any higher appellate authority, to re- compute deduction under section 80HHE by taking into account the export turnover of the new unit in respect of which the appellants claim for deduction under section 10A has been denied. (8) The CIT(A) ought to have held that the profits from the activity of technical services was eligible for exemption under section 10A and alternatively under section 80HHE. 2. Shri Percy J. Pardiwala, Ld. Sr. Counsel made submissions and placed on record decision of Tribunal in assessee’s own case for AYs 2001-02 & 2002-03, ITA Nos.4092/Mum/2010 & ors., common order dated 24/01/2018 in support of submissions. The Ld. Sr. Counsel submitted that substantial issues are covered by earlier orders of the Tribunal. The learned Departmental Representatives also made submissions. 3. We have carefully heard the rival submissions and perused relevant material on record including orders of lower authorities and cited decision of Tribunal in assessee’s own case. The various judicial pronouncements as cited during the course of hearing have duly been deliberated upon. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. 4.1 At the outset, for ease of convenience, the grounds urged by assessee could be tabulated in following manner: - Ground Nos. Nature of Addition 1. & 2. Disallowance of Bad Debts and Business Loss; Taxability of lease rentals 3. Depreciation on leased assets 4. Depreciation on Commercial Vehicles 5. Export Turnover for the purpose of Sec.80HHE / 10A 6. to 8. Reduction of interest component for the purpose of Sec.80HHE; Alternative claim of deduction 6 4.2 Similarly, the issues arising out of revenue’s appeal may be tabulated in following manner: - Ground No. Nature of Addition 1. Deduction u/s 10A 2. Nature of technical services for the purpose of deduction u/s 80HHE /10A 3. Interest u/s 234D 5. The Ld. Sr. Counsel, submitted that Ground nos. 1 & 2 of assessee’s appeal would become infructuous for the time being in view of the fact that deduction of these claims has already been allowed to the assessee in earlier years and there is no grievance of the assessee, on these issues. However, the issues would require adjudication in case of reversal of relief due to subsequent decision of higher authorities. The Ld. CIT-DR submitted that these grounds have become infructuous since the assessee has already got relief in earlier years. Concurring with the same, we dismiss these grounds as infructuous for the time being and find no fruitful reasons to delve into the same, at this stage. These grounds stands dismissed. Assessee’s Appeal for AY 2003-04, ITA No.5089/Mum/2010 6. Depreciation on leased assets 6.1 In earlier assessment years, the assessee’s leasing transactions were held to be finance transactions and accordingly, the claim of depreciation was denied and the principle component out of lease rental was excluded from taxable income. Following the same methodology, the depreciation claimed in this year was disallowed but the taxable income was reduced by total principal 7 component of Rs.401.55 Lacs as included in the lease rentals of non-As-19 assets. 6.2 In respect of assets leased after 01/04/2001 (referred to as AS-19 assets), no depreciation was claimed by the assessee and only the interest component was credited to Profit & Loss Account. However, in the computation of income, depreciation was claimed and the entire lease rentals have been treated as income. The principal component was Rs.90.85 Lacs whereas interest component was Rs.47.64 Lacs. In earlier years, similar transactions were held to be finance transactions and only the finance income was charged to tax without allowing depreciation. Following the same view, principal component of Rs.90.85 Lacs was allowed to be reduced from taxable income and the claim of depreciation was denied to the assessee. 6.3 In other words, depreciation of Rs.318.78 Lacs as claimed on leased assets (non-AS 19 assets + AS-19 assets) was disallowed whereas principal component of Rs.492.41 Lacs was allowed to be reduced from total income of the assessee. The Ld. CIT(A) confirmed the stand of Ld. AO by following the findings of earlier years. Aggrieved, the assessee is in further appeal before us. 6.4 We find that this issue is covered in assessee’s favor by the decision of Tribunal in assessee’s own case for AYs 1999-2000 to 2002-03, ITA Nos.3570/Mum/2012 & ors. common order dated 30/09/2015. The bench, in para-17 of the order, held that the assessee was entitled to claim the depreciation on leased assets. This order has subsequently been followed in AY 2002-03, ITA Nos.4092/Mum/2010 & ors. common order dated 24/01/2018 (para 8 23). Therefore, we direct Ld. AO to allow depreciation of Rs.318.78 Lacs and increase the income by principal component of Rs.492.41 Lacs. Ground No. 3(a) stand allowed which render alternative ground 3(b) infructuous. 7. Depreciation on Commercial Vehicles 7.1 In ground no.4, the assessee is aggrieved by the fact that depreciation on motor cars has been allowed at lesser rates. The assessee claimed depreciation on cars which were purchased after 01/10/1998 @40% claiming the same to be commercial vehicles. The claim was made in respect of vehicles given on lease as well as vehicles used for own purposes. The depreciation on leased car was denied by Ld. AO since these transactions were held to be financing transactions whereas depreciation on self-used vehicles was allowed @20%. The Ld. CIT(A) confirmed the stand of Ld. AO by following the findings of earlier years. Aggrieved, the assessee is in further appeal before us. 7.2 We find that this issue is covered in assessee’s favor by the decision of Tribunal in ITA Nos.3570/Mum/2012 & ors. common order dated 30/09/2015 (para 24) for AY 1999-2000 which has subsequently been followed in ITA Nos.4092/Mum/2010 for AY 2002-03 order dated 24/01/2018 (paras-29 & 30). Respectfully following the same, we direct Ld. AO to allow depreciation on leased assets as well as self-used assets @40%. Ground No.4 of assessee’s appeal stand allowed. 8. Claim of Deduction u/s 80HHE 8.1 In ground no.5, the assessee is aggrieved by the fact that the export turnover of Sec.10A units has not been included for the 9 purpose of computing deduction u/s 80HHE. It transpired that the assessee claimed deduction u/s 80HHE for Rs.413.25 Lacs. In computation, the assessee included export turnover of 10A units in the figures of export turnover as per the decision of Delhi Tribunal in the case of Jindal Exports Pvt. Ltd. (31 ITD 217) which was not acceptable to Ld. AO. The Ld. AO held that export turnover as well as total turnover would exclude the turnover of 10A units. Accordingly, the deduction was restricted to Rs.52.48 Lacs. The Ld. CIT(A), relying upon appellate findings for AY 2002-03, confirmed the stand of Ld. AO. Aggrieved, the assessee is in further appeal before us. 8.2 We find that this issue has been adjudicated by Tribunal in para nos.43 of ITA No.4092/Mum/2010 for AY 2003-03 wherein the matter has been restored back to the file of Ld. AO for fresh adjudication since the orders of lower authorities were found to be non-speaking order. Since appellate order for this year follows first appellate order for AY 2002-03, to maintain consistency, we remit the matter back to the file of Ld. AO for fresh adjudication on similar lines. Ground No. 5 stand allowed for statistical purposes. 9. Treatment of Interest component for the purpose of computing deduction u/s Sec.80HHE 9.1 While computing profits of the business for the purpose of Sec.80HHE, 90% of finance income of Rs.217.85 Lacs was reduced by Ld. AO in terms of Explanation (d) to Sec. 80HHE. The same resulted into lower deduction to the assessee. The action of Ld. AO, upon confirmation by Ld. CIT(A), is in further challenge before us. 10 9.2 We find that this issue has been dealt with by Tribunal at para-50 & 51 of ITA No.4092/Mum/2010 for AY 2002-03. The bench, while confirming the stand of Ld. AO, has directed Ld. AO to apply the ratio laid down by Hon’ble Supreme Court in the case of ACG Associated Capsules Private Ltd. (343 ITR 89) and re- compute the deduction. Respectfully following the same, we direct Ld. AO to compute the deduction on similar lines as done in earlier years pursuant to the aforesaid directions of the Tribunal. Ground No. 6(a) stand dismissed whereas Ground No. 6(b) & (c) stand allowed for statistical purposes. 9.3 The remaining ground nos. 7 & 8 of assessee’s appeal are connected with revenue’s grounds and therefore, the same are adjudicated along with revenue’s appeal as given in succeeding paragraphs. Revenue’s Appeal for AY 2003-04, ITA No.4928/Mum/2010 10. Deduction u/s 10A 10.1 The assessee claimed deduction u/s 10A for Rs.2486.98 Lacs with respect to three business undertakings. The business carried out in these undertakings was predominantly of transaction processing and the business grew multifold over the years. The Ld. AO proceeded to deny the deduction on the allegation that the new units were formed by splitting-up or reconstruction of existing units and the prescribed conditions were violated by the assessee in this regard. Though the assessee refuted the allegations of Ld. AO, however, following assessment finding of AY 2002-03, Ld. AO denied the deduction as claimed by the assessee u/s 10A. The assessee’s alternative claim u/s 80HHE was also denied since the 11 assessee would be required to file Form 10CCF to avail the said deduction. In the absence of said form, the claim could not be examined. The Ld. AO also rendered without prejudice findings that the activity of software testing would not be in the nature of support centre nor would it amount to export of software. Therefore, aforesaid activity would otherwise be ineligible for deduction u/s 80HHE or 10A. Upon further appeal, Ld. CIT(A), following first appellate order for AY 2001-02, directed Ld. AO to grant the deduction. Aggrieved, the revenue is in further appeal before us. 10.2 We find that deduction u/s 10A was allowed to the assessee in AY 2001-02 while framing an assessment u/s 143(3). However, based on scrutiny assessment proceedings of AY 2002- 03, the case was reopened to disallow deduction u/s 10A on the ground that these units were formed by reconstruction / splitting-up of existing business. Accordingly, the deduction was denied to the assessee. However, this reassessment proceedings were quashed by Tribunal in ITA No.3725/Mum/2010 order dated 24/01/2018 (para 8 & 9). This issue again came up for challenge before Tribunal by the revenue for AY 2002-03, ITA No.3927/Mum/2010 order dated 24/01/2018 wherein deduction was denied to the assessee on identical facts. The learned first appellate authority reversed the action of Ld. AO by observing that there was no evidence brought on record by Ld. AO to establish that the new unit was set up by splitting up or reconstruction of an existing business. Upon further appeal by revenue, Tribunal confirmed the appellate order in para-63 of the order by holding that the department miserably failed to controvert the facts brought on record by the 12 assessee as well as the factual findings of learned first appellate authority. The relevant observations were as under: - 63. We have considered rival contentions and perused material on record including the written submissions filed by the learned Departmental Representative. We have also applied our mind to the decisions relied upon. It is evident, the Assessing Officer has disallowed assessee’s claim of deduction under section 10A primarily on the reasoning that the new units were formed by splitting–up or re–construction of a business already in existence. While coming to such conclusion, the Assessing Officer has observed that the new units are functioning in the same premises as old units. The employees are same in both the units. Business of old and new units are same. Client base of both the units are same. There is transfer of plant and machinery of old unit to the new unit. However, the facts and evidences brought on record as well as the findings recorded by the first appellate authority clearly establish that the new units (10A units) though are located in the same building where the old units are also functioning, however, the new units are in separately identifiable custom bonded areas located at different floors of the building. It is also a fact on record, though, the old units and new units are in the business of data processing, however, the old units cater to the domestic client, whereas, the new units cater to overseas client. The agreement with the clients for both the units are separate. It is also evident that the assessee has infused capital for acquiring new plant and machinery, fixtures and other assets worth Rs5.50 crore in the new unit. It is also evident, though, the turnover of the new unit increase by ` 10.77 crore, however, in the relevant period, the turnover of old units also increase to ` 88.06 crore with addition of assets to the tune of ` 32.78 crore which indicated overall growth in both the old units and new units. It is also a fact on record that none of the contracts entered into by the old units were transferred to the new unit. Further, though, there were some old employees at the initial stage of setting–up of the new unit, however, by end of 31 st March 2001, about 270 new employees have been added to the manpower of the new units. Thus, when the new units have been set up with the approval of the prescribed authority under the STP scheme and they are separately identifiable independent units and there is nothing brought on record by the Assessing Officer to factually establish that the new units are formed by splitting–up or re–construction of a business already in existence, more so, when the assessee has brought enough supporting evidence on record to establish the independent character of the new units, in our view, assessee’s claim of exemption under section 10A of the Act cannot be denied as the Department has miserably failed to controvert the facts brought on record by the assessee as well as the factual findings of the learned Commissioner (Appeals).So far as the decisions relied upon by the learned Departmental Representative are concerned, on a careful analysis we have found those decisions to be factually distinguishable, hence, not relevant for deciding the issue in this appeal. Therefore, we do not find any reason to interfere with the decision of the first appellate authority on this issue. Grounds raised are dismissed. In view of the aforesaid decision, ground no.7(b) of assessee’s appeal having become infructuous is also dismissed. 13 Thus, the issue of deduction u/s 10A stood covered in assessee’s favor by the aforesaid decision of the Tribunal and we see no reason to deviate from the same. So far as the alternative observation of Ld.AO that the activity of software testing would not be eligible for deduction, is concerned, we find that there is no substantial change in the activities being carried out by the assessee in this year vis-à-vis activities carried out in preceding years. Further, the aforesaid activity, as per Notification No.S.O.890(E) dated 26/09/2020, would fall under clause (xiv) as support centres services. Therefore, we confirm the stand of Ld. CIT(A) and dismiss ground no.1 & 2 of revenue’s appeal. Ground No.7 of assessee’s appeal has been rendered infructuous. Ground No.8 stand partly allowed since the assessee would be eligible for deduction u/s 10A. The assessee’s appeal stand partly allowed. 11. Interest u/s 234D 11.1 The last ground in revenue’s appeal is with respect to deletion of interest u/s 234D. The Ld. CIT(A) relying upon the order of Special Bench of Delhi Tribunal in Ekta Promoters Pvt. Ltd. (2008; 131 ITD 719) held that the provisions of Sec.234D as inserted w.e.f. 01/06/2003 would not have retrospective operation and would apply only from AY 2004-05. Therefore, no interest could be charged u/s 234D. Aggrieved, the revenue is in further appeal before us. 11.2 We find that the issue of applicability of the provisions of Sec.234D stood covered against the assessee by the decision of Hon’ble Bombay High Court in CIT V/s Indian Oil Corp. Ltd. (25 Taxmann.com 284) wherein Hon'ble Court has negated the view 14 of Delhi Tribunal (SB) in ITO V/s Ekta Promoters P. Ltd. (113 ITD 719) and held as under: - 22. It must be borne in mind that refund which is granted under section 143(1) of the Act to an assessee is qua an assessment proceeding for a particular assessment year. The refund granted is qua an assessment year. The refund emanates from assessment proceedings for a particular assessment year. The refund granted cannot be divorced from the assessment year or the assessment proceeding. Consequently to hold that interest on such refund would only run from 1/06/2003 would be to curtail the plain meaning of Explanation 2 to Section 234D. 23. Section 143(4) also supports our view. It reads as under :- "Section 143 - Assessment – ** ** ** (4) Where a regular assessment under sub-section (3) of this section or section 144 is made,- (a) any tax or interest paid by the assessee under sub-section (1) shall be deemed to have been paid towards such regular assessment; (b) if no refund is due on regular assessment or the amount refunded under subsection (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly". It is clear therefore, that excess refund determined under section 143(3) of the Act is deemed to be tax payable by the assessee. However, as there was no provision of interest on the grant of refund under Section 143(1) of the Act it became necessary to provide for the same by having a charging provision. This was done by section 234D of the Act in respect of all pending assessments in which refund was given. Thus even if, a refund has already been granted the same would be subject to the provisions of section 234D of the Act. Under section 234D(1) where the refund under section 143(1) is in excess of the amounts refundable on regular assessment, interest on the excess amount would be payable. In any case after the introduction of Explanation 2 there can be no doubt that even where refund is granted prior to 1/06/2003 the same would carry interest provided the proceedings for assessment are completed after 1/06/2003. The respondent has not contended that the Explanation 2 to section 234D of the Act is not retrospective. Their only contention is that it would not apply to refunds granted prior to 1/06/2003 even in respect of assessments completed after the cut-off date of 1/06/2003. This submission ignores the fact that Explanation 2 which is declaratory in nature clarifies that the section would apply to an assessment year even before 1/06/2003 provided the proceedings in respect of such assessment years are not completed by the cut off date i.e. 1/06/2003. 24. Mr. Murlidhar further submitted that even if section 234D is applicable to all refunds paid prior to 1/06/2003 in respect of assessments completed post 1/06/2003 interest payable on such refund would commence only from 1/06/2003 15 onwards. He relied upon the decision of Kerala High Court in CITv. Kerala Chemicals & Proteins Ltd. [2011] 9 taxmann.com 295. 25. The aforesaid decision was rendered prior to the introduction of Explanation-2 to section 234D of the Act. The Kerala High Court which had no occasion to consider Explanation 2 held that as the provision of interest is not introduced with reference to any assessment year, it must be taken to apply only with effect from 1/06/2003. This submission of the respondent-assessee would require limiting the clear words of a declaratory amendment in an Explanation 2 to section 234D of the Act which specifically provides that it shall also apply to an assessment year commencing before 1/06/2003. The only qualifying criterion is that proceedings in respect of such assessment is completed after 1/06/2003. Once the Explanation is held to be retrospective in relation to the assessment years commencing before 1/6/2003 it would not be open to restrict the operation of section 234D of the Act only with effect from 1/6/2003. 26. A statute could be retrospective in operation being expressly stated or by necessary implication. The case of the revenue is that section 234D as introduced on 1st June, 2003 was retrospective in operation by necessary implication. However, as doubts were raised about its retrospectivity, the same was clarified by adding an Explanation to section 234D by Finance Act, 2012. Under the Act what is brought to tax is not the income of the assessee in the assessment year but the income of the assessee in the previous year. The liability to tax arises on account of the Finance Act which fixes the rate at which the tax is to be paid. The law to be applied is as existing on the 1st day of April of the previous year. In support the Counsel for the respondent relied upon the decision of the Supreme Court in Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 , Maharajah of Pithapuram v. CIT [1945] 13 ITR 221 (PC) and CIT v. Scindia Steam Navigation Co. Ltd, f 1961142 ITR 589 (SO. The aforesaid decisions are not relevant for our purpose particularly, in view of the fact that Explanation 2 to section 234D of the Act as introduced by the Finance Act,2012 being declaratory in nature would be retrospective. This amendment make it cleat that it shall apply assessment years even prior to 1/06/2003. 27. In view of the above, we hold that the decision of the Tribunal in /TO v. Ekta Promoters (P.) Ltd. [2008] 113 ITD 719 (Delhi) (SB) which has been followed in the impugned order by the Tribunal is not correct. One more aspect of the matter which must be borne in mind is that till such time as the assessment proceedings are completed in respect of any assessment year, the amendment made to the Act would be applicable even in case of pending proceedings. It is not the case of the respondent that the proceeding in regard to refund which has been granted under section-143(1) of the Act are concluded and final. The refund which has been granted under section 143(1) of the Act is provisional, to be finally determined when final assessment order is passed under section 143(3) of the Act. Explanation-2 to section 234D of the Act makes it clear that it would be applicable to pending proceedings i.e. where assessments in respect of such assessment year is not completed on 1/6/2003. 28. Mr. Suresh Kumar submitted that as an assessee is entitled to interest where there is any delay in making the refund, it is only fair that an assessee who has enjoyed the benefit of excess refund granted to it must refund the same along with interest from the date of receipt of refund to the date of final assessment. The Apex Court in Sandvik Asia Ltd. v. C/Tr2006] 150 Taxman 591 granted interest on delayed payment of interest by the revenue to the assessee. 16 Considering the view we have taken, it is not necessary to decide this question based on equitable grounds. 29. In view of the above, the question of law is answered in the negative i.e. in favour of the appellant-revenue and against the respondent-assessee. It has been held by Hon'ble Court that the provisions of Sec.234D would apply to pending proceedings also. Further, it would not be open to restrict the operation of Section 234D with effect from 01/06/2003. Respectfully following the same, we would hold that the provisions of Sec.234D would apply to the assessee. The interest would run from the date of grant of refund u/s 143(1). Similar view has been taken by Tribunal in revenue’s appeal ITA No.3927/Mum/2010 for AY 2002-03 (para-66). Accordingly, Ground No.3 of revenue’s appeal stand allowed. Resultantly, the revenue’s appeal stand partly allowed. 12. In other words, the appeal of the revenue as well as the appeal of the assessee stands partly allowed. Revenue’s Penalty Appeal for AY 2003-04, ITA No.7446/Mum/2010 13.1 In this appeal, the revenue is aggrieved by deletion of penalty u/s 271(1)(c). Based on various additions made in quantum assessment order passed u/s 143(3) on 24/01/2006 and another assessment order passed u/s 143(3) r.w.s. 147 on 29/10/2009, Ld. AO imposed penalty of Rs.3233.87 Lacs u/s 271(1)(c) vide order dated 18/01/2010. The penalty was levied against disallowance of depreciation on leased assets, disallowance of deduction u/s 10A, disallowance of deduction u/s 80HHE and disallowance of depreciation on motor cars as made in assessment order dated 24/01/2006. The penalty was also levied on disallowance u/s 43B 17 for Rs.179 Lacs as made in assessment order dated 29/10/2009. Upon further appeal, Ld. CIT(A), vide order dated 24/08/2010, deleted the penalty by observing that the assessee had filed all particulars. There was no finding by Ld. AO that the particulars were inaccurate, incorrect, erroneous or false. The assessee made various claims, which in the opinion of Ld. AO, were not admissible deductions. Therefore, the penalty was to be cancelled. Aggrieved, the revenue is in further appeal before us. 13.2 We find that in the quantum cross-appeals, we have reversed the stand of Ld. AO qua disallowance of depreciation on leased assets, disallowance of deduction u/s 10A & disallowance of depreciation on motor cars. The issue of deduction u/s 80HHE has been restored back for fresh adjudication. Therefore, apart from the observations of Ld. CIT(A) in the impugned order, the penalty levied on such disallowances would otherwise not survive. The penalty against disallowance u/s 43B would not survive in view of the fact that disallowance u/s 43B was statutory disallowance and it could not be said that the assessee had furnished inaccurate particulars of income or concealed its income. Therefore, finding no reason to interfere in the impugned order, we dismiss the revenue’s appeal. Cross-Appeals for AY 2004-05, ITA No.5090/Mum/2010 & ITA No.4929/Mum/2010 14. It is admitted position that facts as well as issues are quite identical in this year. An assessment has been framed for the year u/s 143(3) on 06/12/2006 making similar adjustments / disallowances. The appellate order is on similar lines and has 18 granted partial relief to the assessee which has given rise to cross- appeals before us. The only grievance of the revenue is grant of deduction u/s 10A. The grievance of the assessee is disallowance of depreciation on leased assets, disallowance of depreciation on commercial vehicles, computation of deduction u/s 80HHE, reduction of interest component for the purpose of Sec.80HHE and deduction u/s 10A. Since facts as well as issues are pari-materia the same as in cross-appeal for AY 2003-04, our findings as well as adjudication as contained therein (to the extent applicable), shall mutatis-mutandis apply to cross-appeals for AY 2004-05. The Ld. AO is directed to compute correct interest u/s 234D. The assessee’s appeal stand partly allowed whereas revenue’s appeal stand dismissed since the only issue in revenue’s appeal is deduction u/s 10A. Revenue’s Penalty Appeal for AY 2004-05, ITA No.7447/Mum/2010 15. The revenue is aggrieved by deletion of penalty of Rs.4430.55 Lacs in the impugned order. The penalty has been levied on similar set of facts and the impugned order is on similar lines. Thus, our adjudication as in ITA No.7446/Mum/2010 shall mutatis-mutandis apply to this appeal. The appeal stand dismissed. Revenue’s quantum Appeal for AY 2010-11, ITA No.5478/Mum/2014 16. An assessment has been framed for the year u/s 143(3) on 12/03/2013 denying claim of deduction u/s 10A. The learned first appellate authority, relying upon orders of earlier years starting from AY 2001-02, allowed the claim. Aggrieved, the revenue is in 19 further appeal before us. Since the facts as well as issue is quite identical as in AYs 2003-04 & 2004-05, our findings as well as adjudication as contained therein (to the extent applicable), shall mutatis-mutandis apply to this year also. The assessee would be eligible for deduction u/s 10A. Resultantly, the revenue’s appeal stand dismissed. Conclusion 17. To sum up, assessee’s appeals ITA No.5089/Mum/2010, ITA No.5090/Mum/2010 as well as revenue’s appeal ITA No.4928/Mum/2010 stand partly allowed. The revenue’s appeals ITA No.4929/Mum/2010, ITA No.5478/Mum/2014, ITA No.7446/Mum/2010 & ITA No.7447/Mum/2010 stand dismissed. Order pronounced on15th November, 2021. Sd/- Sd/- (Saktijit Dey) (Manoj Kumar Aggarwal) न्याययक सदस्य /Judicial Member लेखा सदस्य /Accountant Member मुंबई Mumbai; यदनांक Dated :15/11/2021 Sr.PS, Dhananjay आदेशकीप्रधिधलधपअग्रेधर्ि/Copy of the Order forwarded to : 1. अपीलाथी/ The Appellant 2. प्रत्यथी/ The Respondent 3. आयकरआयुि(अपील) / The CIT(A) 4. आयकरआयुि/ CIT– concerned 5. यवभागीयप्रयतयनयध, आयकरअपीलीयअयधकरण, मुंबई/ DR, ITAT, Mumbai 6. गार्डफाईल / Guard File 20 आदेशाि सार/ BY ORDER, उप/सहायक पुंजीकार (Dy./Asstt.Registrar) आयकरअपीलीयअधिकरण, मुंबई / ITAT, Mumbai.