GHARDA CHEMICALS LTD, MUMBAI V. ADDL CIT 9(1), MUMBAI

ITA 5348/MUM/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3698 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 12-01-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 18-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DEBASHISH CHANDRA
• Assessee Lawyers: GOPAL BOHRA
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Additional evidence; Wholly owned subsidiary; Fair market value; Avoidance of tax; Valuation report; Deemed dividend
• Section: 80HHC; 145; 28; 92

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -KBENCH MUMBAI , . . , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND C.N. PRASAD,JUDICIAL MEMBER ./ITA/5474/MUM/2009, /ASSESSMENT YEAR: 2004-05 DCIT, CIRCLE-9(1) CHURCHGATE,MUMBAI-400 020. VS. GHARDA CHEMICALS LIMITED 5/6, JER MANSION, W.P. VARDE MARG, OFF TURNER ROAD, BANDRA (W), MUMBAI-50. PAN: AAACG 1255 E ./ITA/5348/MUM/2009, /ASSESSMENT YEAR: 2004-05 GHARDA CHEMICALS LIMITED MUMBAI-400 050. VS. DCIT, CIRCLE-9(1) AAYAKAR BHAVAN, MUMBAI-400020. ./ITA/8376/MUM/2010 , ,, , /ASSESSMENT YEAR: 2005-06 GHARDA CHEMICALS LIMITED BANDRA (W),MUMBAI-50. VS. DCIT, CIRCLE-9(1) AAYAKAR BHAVAN, MUMBAI-400020. ./ITA/8758/MUM/2010 , ,, , /ASSESSMENT YEAR: 2005-06 DCIT, CIRCLE-9(1) CHURCHGATE,MUMBAI-400 020. VS. M/S.GHARDA CHEMICALS LIMITED MUMBAI-400 018. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI DEBASHISH CHANDRA ASSESSEE BY: MS. VASANTI PATEL & SHRI GOPAL BOHRA / DATE OF HEARING: 13.04.2016 / DATE OF PRONOUNCEMENT: 29.04.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) !' PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 23.07.2009 AND 14.10.20 10, OF THE CIT(A)-14 AND CIT(A)-15,MUMBAI,THE ASSESSING OFFICERS (AO.S)AND T HE ASSESSEE HAVE FILED THE CROSS-APPEALS FOR THE YEARS UNDER CONSIDERATION ,RAISING VARIOUS GROUNDS OF APPEAL.ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PESTICIDES AND INSECTICIDES, WEEDICIDES,VETERINARY- DRUGS AND POLYMERS AND SALE GHARDA CHEMICALS-(05-06) 2 OF PESTICIDES,INSECTICIDES ETC.THE DETAILS OF FILIN G OF RETURNS,RETRUNED INCOMES ETC.FOR BOTH THE YEARS CAN BE SUMMARISED AS UNDER: A.Y. ROI FILED ON RETURNED INCOME(RS.) ASSESSMENT DT. ASSESSED INCOME(RS.) 2004-05 01.11.2004 48,08,34,392/- 27.12.2006 60,31, 96,429/- 2005-06 31.10.2005 77,28,70,724/- 26.12.2008 178,30 ,01,600/- I.T.A./5474/MUM/2009-AY.200405: 2. THE FIRST EFFECTIVE GROUND(GOA-1&2)OF APPEAL,RAISED BY THE AO,IS ABOUT DELETION OF DISALLOWANCE OF INTEREST AMOUNTING TO R S.1.76CRORES.DURING THE ASSESSMENT PROCEEDINGS,THE AO OBSERVED THAT AN AMOU NT OF RS.11.78 CRORES WERE SHOWN AS CAPITAL WORK IN PROGRESS (CWIP)AS ON 31/03/ 2004,THAT THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE OF RS.15. 80 CRORES.HE DIRECTED THE ASSESSEE TO SHOW CAUSE AS TO WHY PROPORTIONATE INTE REST RELATABLE TO CWIP SHOULD NOT BE DISALLOWED.AFTER CONSIDERING THE SUBM ISSION OF THE ASSESSEE, THE AO DISALLOWED THE SUM OF RS.1,76, 81,096/-OUT OF T HE INTEREST EXPENDITURE, AS INTEREST RELATABLE TO CWIP.HE COMPUTED THE DISALLOW ANCE AT THE RATE OF 15% OF THE AMOUNT OF CWIP. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).AFTER CONSIDERIN G THE SUBMISSION OF THE ASSESSEE, HE HELD THAT THE ISSUE HAD BEEN DECIDED I N FAVOUR OF THE ASSESSEE BY HIS PREDECESSOR IN THE IMMEDIATELY PRECEDING YEAR, THAT THE APPEALS FILED BY THE DEPARTMENT AGAINST THE ORDER OF HIS PREDECESSOR FOR THE AY.S.2000-01 AND 2001- 02 HAD BEEN DISMISSED BY THE TRIBUNAL , THAT THERE WAS NO CHANGE IN FACTS DURING THE YEAR AS COMPARED TO THE FACTS IN THE EARLIER YE ARS.THEREFORE,HE DIRECTED THE AO TO DELETE THE DISALLOWANCE OF INTEREST RELATABLE TO CWIP. 2.2. DURING THE COURSE OF HEARING BEFORE US,AUTHORISED R EPRESENTATIVE(AR)AND DEPARTMENTAL REPRESENTATIVE(DR)AGREED THAT THE ISSU E STANDS DECIDED IN FAVOUR GHARDA CHEMICALS-(05-06) 3 OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL FOR THE AY.S2000-01,2001-02 AND 2003-04.WE WOULD LIKE TO RE-PRODUCE THE RELEVANT PO RTION OF THE ORDER OF THE TRIBUNAL DEALING WITH THE ISSUE DEALT WITH IN THE A PPEAL FOR THE AY.2003-04 (ITA/4405&4246/MUM/2007-DTD.16.01.2015)AND SAME REA DS AS UNDER: 9.2. BEFORE US,REPRESENTATIVES OF BOTH THE SIDES AGREED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL FOR THE EARLIER YEARS.(ITA/21 46-47/M/2007/-DATED 12.12.2008,AY.2000-01,2001-02.).WE HAVE HEARD THE R IVAL SUBMISSION.WE FIND THAT IN THE EARLIER YEARS IDENTICAL ISSUE HAD ARISEN IN THE APPEAL FILED BY THE AO AND THE TRIBUNAL HAD HELD AS UNDER: 6.WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD.WE FIND THAT THE ISSUE IS SQUARE LY COVERED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE O F CORE HEALTH LTD. (SUPRA),ON WHICH THE ASSESSEE HAS PLACED RELIA NCE. WE RESPECTFULLY FOLLOW THE LAW LAID DOWN BY THE HON'BE SUPREME COURT IN THE SAID CASE AND IN THE LIGHT OF THAT WE CONFIRM T HE ORDERS OF THE CIT(A) IN BOTH THE ASSESSMENT YEARS 2000-01 AND 200 1- 02. RESPECTFULLY FOLLOWING THE ABOVE,WE DE CIDE GROUND.NO.1-3 AGAINST THE AO. FOLLOWING THE ABOVE MENTIONED ORDERS OF THE TRIBUNA L,WE DECIDE THE FIRST EFFECTIVE GROUND OF APPEAL AGAINST THE AO. 3. NEXT GROUND OF APPEAL IS ABOUT DELETING THE ADDITIO N OF RS.RS.3.14CRORES ON ACCOUNT OF UNUTILISED MODVAT CREDIT.DURING THE ASSE SSMENT PROCEEDINGS,THE AO OBSERVED THAT ASSESSEE WAS ACCOUNTING FOR PURCHASE ON NET OF MODERATE CREDIT, THE UNUTILISED MODVAT CREDIT BALANCE AS ON 31/03/20 05 WAS RS.4.51 CRORES,THAT THE AMOUNT WAS NOT INCLUDED IN THE VALUATION OF CLO SING STOCK OF RAW MATERIAL AND WORK IN PROGRESS AS PER SECTION 145A OF THE ACT . ACCORDINGLY HE ADDED THE AMOUNT IN QUESTION TO THE VALUE OF CLOSING STOCK AN D CONSEQUENTLY TO THE TOTAL INCOME OF THE ASSESSEE. 3.1. DURING THE COURSE OF HEARING BEFORE US,REPRESENTATI VES OF BOTH THE SIDES AGREED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF T HE ASSESSEE BY THE ORDER OF THE GHARDA CHEMICALS-(05-06) 4 TRIBUNAL FOR THE EARLIER YEARS. THE AR FURTHER REL IED UPON THE CASES OF INDO NIPPON CHEMICALS LTD.(261ITR275)AND MAHALAXMI GLASS WORKS PRIVATE LTD. (318ITR116).WE FIND THAT THE TRIBUNAL VIDE ITS ORD ER DATED 30/11/ 2009, IN THE ASSESSEES OWN CASE FOR THE AY. 2002-03 HAD RESTORE D THE MATTER TO THE FILE OF THE AO FOR GIVING EFFECT TO THE PROVISIONS OF SECTI ON 145A IN ENTIRETY AND NOT RESTRICTING ITS OPERATION TO THE VALUE OF CLOSING S TOCK ALONE, THAT IN THE SET ASIDE MATTER, THE AO DID NOT GRANT ANY RELIEF, THAT THE F AA GRANTED RELIEF TO THE ASSESSEE HOLDING THAT NO ADDITION WAS REQUIRED IF O NE STRICTLY FOLLOWED THE PROVISIONS OF SECTION 145 A OF THE ACT,THAT THE AO FILED AN APPEAL BEFORE THE TRIBUNAL CHALLENGING THE ORDER OF THE FAA,THAT THE TRIBUNAL VIDE ITS ORDER DATED TO 2/05/2013 DISMISSED THE APPEAL, FILED BY T HE AO.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE AY.2003-04(SUPRA)HAS HE LD AS UNDER: 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR)STATED THAT THE TRIBUNAL VIDE ORDER DATED 30.11.2009 (ITA2242/MUM/2006/-AY.2002-03)HAD RESTORED BACK THE MATTER TO THE FILE OF THE AO,THAT THE AO DID NOT GIVE EFFECT TO THE ORDER OF THE TRIBUNAL IN THE MANNER IT WAS ARGUED,THAT THE ASSESSEE HAD APPROACH ED THE FAA,THAT HE ALLOWED THE RELIEF SOUGHT FOR,THAT THE AO HAD CHALLENGED THE OR DER OF THE FAA BEFORE THE TRIBUNAL,THAT THE TRIBUNAL HAD DISMISSED THE APPEAL OF THE AO ON 22. 05.2013,THAT MATTER COULD BE RESTORED TO THE FILE OF THE AO FOR THE YEAR UNDER APPEAL ALSO.HE RELIED UPON THE DECISION OF JURISDICTIONAL HIGH COURT DELI VERED IN THE CASE OF MAHALAKSHMI GLASS WORKS(P)LTD.(381ITR116).HE REFERRED TO PAGE N O.1 TO 4 OF THE PAPER BOOK.DEPARTMENTAL REPRESENTATIVE(DR)STATED THAT HE HAD NO OBJECTION IF THE MATTER WAS SENT BACK TO THE AO. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT AT PAGE NO.4 OF THE PAPER BOOK, THE ASSESSEE H AS GIVEN THE IMPACT OF THE ADJUSTMENT OF MODVAT CREDIT TO THE PROFIT & LOSS AC COUNT FOR THE YEAR UNDER CONSIDERATION.IN OUR OPINION, IN THE INTEREST OF JU STICE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO DECIDE THE ISSUE AFTER CONSIDERING THE ORDER OF THE TRIBUNAL DATED 22.05.2 013 AND THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF MA HALAKSHMI GLASS WORKS (P) LTD.(SUPRA). GROUND NO.1 IS DECIDED IN FAVOUR OF TH E ASSESSEE, IN PART. GHARDA CHEMICALS-(05-06) 5 3. SECOND GROUND OF APPEAL ALSO DEALS WITH UNUTILISED MODVAT CREDIT AS ON 31.03.2002.BEFORE US,THE AR STATED THAT IF THE GROU ND NO.1 IS RESTORED BACK TO THE FILE OF THE AO,GROUND NO.2 WOULD BECOME INFRUCTUOUS.AS W E HAVE ALREADY REMITTED THE ISSUE RAISED IN GROUND NO.1 TO THE FILE OF THE ASSE SSEE,SO,WE ARE DISMISSING GROUND NO.2 AS INFRUCTUOUS. CONSIDERING THE ABOVE,ISSUE RESTORED BACK TO THE FI LE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO DECIDE THE ISSUE AS PER THE DIRECTIONS GIVEN IN THE ORDER FOR THE AY.2003-04.GROUND NO.3 IS DECIDED IN FAVOUR OF THE AO,IN PART. 4. GROUND NO.4 PERTAINS TO EXCISE DUTY TO CLOSING STO CK RELATED TO GROUND NO.3,AMOUNTING TO RS.13.66 CRORES. 4.1. BEFORE US,THE AR ARGUED THAT THE CLOSING STOCK OF F INISHED GOODS INCLUDED EXCISE DUTY,THAT FURTHER ADDITION WOULD RESULT IN D ISALLOWANCE OF THE SAME AMOUNT ALREADY CONSIDERED IN THE CLOSING STOCK.WHIL E DECIDING THE GROUND NO.3,WE HAVE RESTORED BACK THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION.FOLLOWING THE SAME THE ISSUE OF EXCISE DUTY ON CLOSING STOCK IS ALSO REMITTED BACK TO THE FILE OF THE AO.HE WOULD DECIDE THE ISSUE AFTER HEARING THE ASSESSEE.GROUND NO.4 IS DECIDED IN FAVOUR OF THE AS SESSEE,IN PART. 5. FIFTH GROUND OF APPEAL IS ABOUT EXCLUSION OF 90% O F THE CERTAIN BUSINESS RECEIPTS FROM THE PROFIT OF THE BUSINESS FOR THE PU RPOSE OF COMPUTING DEDUCTION U/S. 80 HHC OF THE ACT.WHILE COMPUTING THE DEDUCTIO N AVAILABLE 80HHC OF THE ACT,THE AO EXCLUDED INSURANCE CLAIM(RS. 24.11 LAKHS ),SALES OF CHEMICALS AND SCRAP(RS.1.33 CRORES),SALES TAX SET OFF(RS.67.04 LA KHS), REGISTRATION CHARGES WRITTEN BACK(RS.5.53 CRORES)AND SALES TAX REFUND(RS .43.69 LAKHS).THE FAA DELETED THE EXCLUSIONS MADE BY THE AO. GHARDA CHEMICALS-(05-06) 6 5.1. BEFORE US,DR STATED THAT THE MATTER COULD BE DECIDE D ON MERITS.THE AR STATED THAT ISSUES REGARDING THE INSURANCE CLAIM AN D SALE OF CHEMICALS AND SCRAP WAS DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PFIZER LIMITED(330 ITR62).SHE ALSO REFERRED TO THE CASE OF SONY INDIA (P.)LTD. (118TTJ865).WITH REGARD TO SALES TAX REFUND AND SAL ES TAX SET OFF SHE RELIED UPON THE CASE OF ALFA LAVEL (INDIA)LTD.(295ITR451). FOR REGISTRATION CHARGES WRITTEN BACK THE AR RELIED UPON THE CASES OF BISAZZ A INDIA LTD.(ITA NO.1027 OF 2010)AND EXTRUSION PROCESS PRIVATE LTD.(106ITD336). 5.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE HONBLE BOMBAY HIGH COURT HAS DISCUSS ED THE ISSUE OF EXCLUSION OF INSURANCE CLAIM IN THE MATTER OF PFIZER LIMITED( SUPRA)AS UNDER: A CONTRACT OF INSURANCE WAS A CONTRACT OF INDEMNITY . THE INSURANCE CLAIM IN ESSENCE INDEMNIFIES THE ASSESSEE FOR THE LOSS OF THE STOCK- IN-TRADE. THE INDEMNIFICATION THAT WAS MADE TO THE ASSESSEE MUST STAND ON THE SAME FOO TING AS THE INCOME THAT WOULD HAVE BEEN REALIZED BY THE ASSESSEE ON THE SALE OF T HE STOCK-IN-TRADE. IN THESE CIRCUMSTANCES, THE INSURANCE CLAIM ON ACCOUNT OF TH E STOCK-IN-TRADE DID NOT CONSTITUTE AN INDEPENDENT INCOME OR A RECEIPT OF A NATURE SIMI LAR TO BROKERAGE, COMMISSION, INTEREST, RENT OR CHARGES. HENCE, SUCH A RECEIPT WO ULD NOT BE SUBJECT TO A DEDUCTION OF NINETY PER CENT. UNDER CLAUSE (1) OF EXPLANATION (B AA). IN DETERMINING THE PROFITS OF THE BUSINESS FOR THE PURPOSES OF EXPLANATION (BAA), THE INCOMES WHICH WERE SUSCEPTIBLE TO A REDUCTION OF NINETY PER CENT. WERE THOSE INCOMES REFERRED TO IN CLAUSES (IIIA), (IIIB) AND (IIIC) OF SECTION 28 AND RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR RECEIPTS OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS. THEREFORE, BEFORE A RECEIPT WAS LIABLE TO BE EXCLUDED TO THE EXTENT OF NINETY PER CENT., IT MUST BE A RECEIPT OF A NATURE SIMILAR TO BROKERAGE, COMMISSION, INTEREST, RENT OR CHARGES. THEREFORE THE CLAIM ON ACCOUNT OF INSURANCE FOR THE STOCK-IN-TRADE DID NOT CONSTITUTE A RECEIPT OF A SIMILAR NATURE WI THIN THE MEANING OF EXPLANATION (BAA) AND WAS THEREFORE NOT LIABLE TO BE REDUCED TO THE EXTENT OF NINETY PER CENT. RESPECTFULLY,FOLLOWING THE ABOVE WE UPHOLD THE ORDE R OF THE FAA WITH REGARD TO INSURANCE CLAIM. GHARDA CHEMICALS-(05-06) 7 IT IS FOUND THAT ISSUE OF SALES TAX REFUND AND SALE S TAX SET OFF HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE APEX COURT IN THE CASE OF ALFA LAVEL (INDIA) LTD.(SUPRA) IN FOLLOWING MANNER: .INTEREST FROM CUSTOMERS AND SALES TAX SET OFF RE CEIVED BY THE ASSESSEE, BEING PROFITS OF THE BUSINESS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, COULD NOT BE EXCLUDED WHILE CALCULATING THE DEDUCTI ON UNDER SECTION 80HHC. RESPECTFULLY,FOLLOWING THE ABOVE JUDGMENT WE DECIDE THE ISSUE OF SALES TAX SET OFF AGAINST THE AO. AS FAR AS EXCLUSION OF SALE OF SCRAP IS CONCERNED I T IS FOUND THAT IN THE CASE OF SONY INDIA PVT.LTD.(SUPRA)THE ISSUE HAS BEEN DISCUS SED AS UNDER: 7. AS REGARDS THE OTHER ISSUE RAISED IN GROUND NO. 2 OF THE REVENUE'S APPEAL RELATING TO THE INCLUSION OF MISCELLANEOUS INCOME OF RS. 2,1 6,97,607 IN PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER S. 80H HC, IT IS OBSERVED THAT WHILE COMPUTING THE DEDUCTION ALLOWABLE TO THE TAXPAYER C OMPANY UNDER S. 80HHC, THE MISCELLANEOUS INCOME OF RS. 2,16,97,607 WAS EXCLUDE D BY THE AO FROM THE PROFITS OF THE BUSINESS RELYING ON EXPLN. (BAA) BELOW S. 80HHC . BEFORE THE LEARNED CIT(A), IT WAS CONTENDED ON BEHALF OF THE TAXPAYER COMPANY THA T THE MISCELLANEOUS INCOME RECEIVED BY IT DID NOT CONSTITUTE ANY RECEIPTS OF A NATURE SIMILAR TO THE ITEMS GIVEN IN EXPLN. (BAA). IT WAS CONTENDED THAT THE SAID INCOME WAS COMPRISED OF RECEIPTS BY WAY OF SALE OF SCRAP, AMOUNTS WRITTEN BACK, SALE OF SPA RE PARTS, ETC. AND THE SAME BEING DERIVED DIRECTLY FROM THE BUSINESS ACTIVITIES OF TH E TAXPAYER COMPANY, THEY COULD NOT BE EXCLUDED FROM THE PROFITS OF THE BUSINESS FOR TH E PURPOSE OF COMPUTING DEDUCTION UNDER S. 80HHC. RELIANCE IN SUPPORT OF THIS CONTENT ION WAS PLACED ON BEHALF OF THE TAXPAYER COMPANY ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. BANGALORE CLOTHING CO. (2003) 180 CTR (BOM) 127 . IN THE SAID DECISION, IT WAS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THIS CONTE XT THAT IF ANY RECEIPT FORMS PART OF THE OPERATIONAL INCOME OF THE TAXPAYER HAVING RE GARD TO ITS DOMINANT BUSINESS, THE SAME WOULD BE ENTITLED TO BE INCLUDED IN THE PROFIT S OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER S. 80HHC. ACCORDING TO TH E LEARNED CIT(A), ALL THE RECEIPTS I.E. SALE OF SCRAP, AMOUNTS WRITTEN BACK A ND SALE PROCEEDS OF SPARE PARTS INCLUDED IN THE MISCELLANEOUS INCOME OF THE TAXPAYE R COMPANY WERE DIRECTLY RELATED TO ITS DOMINANT BUSINESS. HE, THEREFORE, HELD THAT THE SAME FORMING PART OF ITS GHARDA CHEMICALS-(05-06) 8 OPERATIONAL INCOME WAS LIABLE TO BE INCLUDED IN THE 'PROFITS OF THE BUSINESS' FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER S. 80HHC. 8.AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUS ING THE RELEVANT MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LEARNED CIT(A) HOLDING THAT THE MISCELLANEOUS INCOME OF THE TAXPAYER WAS ELIGIB LE FOR INCLUSION IN THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER S. 80HHC. AS RIGHTLY HELD BY HIM, THE SAID INCOME COMPRISING OF SALE OF SCRAP, AMOUNTS WRITTEN BACK AND SALE PROCEEDS OF SPARE PARTS WAS DIRECTLY RELATED TO THE DOMINANT BUSINESS OF THE TAXPAYER COMPANY AND THE SAME, THEREFORE, REPRESENTED ITS OP ERATIONAL INCOME WHICH, AS HELD BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF BANGALO RE CLOTHING CO. (SUPRA) WAS ENTITLED FOR INCLUSION IN THE PROFITS OF THE BUSINE SS FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER S. 80HHC. THE SAID DECISION OF HON' BLE BOMBAY HIGH COURT THUS CLEARLY SUPPORTS THE TAXPAYER'S CASE ON THIS ISSUE AND THE LEARNED CIT(A), IN OUR OPINION, WAS FULLY JUSTIFIED IN DECIDING THE SAME I N FAVOUR OF THE TAXPAYER RELYING THEREON. HIS IMPUGNED ORDER ON THIS ISSUE IS THEREF ORE UPHELD AND GROUND NO. 2 OF THE REVENUE'S APPEAL IS ACCORDINGLY DISMISSED. WE FIND THAT THE ISSUE OF REGISTRATION CHARGES WRIT TEN BACK WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL WHILE DECIDING THE CASE OF EXTRUSION PROCESS PRIVATE LTD.(SUPRA). CONSIDERING THE ABOVE WE HOLD THAT THERE IS NO LEGA L INFIRMITY IN THE ORDER OF THE FAA.SO,CONFIRMING THE SAME,WE DECIDE GROUND NO.5 AG AINST THE AO. 6. GROUND NO.6 AND 7 REGARDING PROFIT AFTER REDUCING U NABSORBED DEPRECIATION. BEFORE US,THE AR FAIRLY CONCEDED THAT THE ISSUE STA ND DECIDED AGAINST THE ORDER OF THE TRIBUNAL FOR THE AY.2003-04,DATED 16.01.2015 (SUPRA).WE FIND THAT THE TRIBUNAL HAD DEALT THE ISSUE AS UNDER: 4. GROUND NO.3 IS ABOUT DISALLOWANCE OF DEDUCTION U/S. 80HHC OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESS EE HAD MADE CLAIMED DEDUCTION U/S.80HHCOF RS.10,22, 55,280/-AGAINST THE GROSS TOT AL INCOME OF RS.34,59,62,609/- ,THAT IT HAD ALSO MADE A CLAIM OF BROUGHT FORWARD L OSSES AND DEPRECIATION OF RS.93,08,73,001/-,THAT THE GROSS TOTAL INCOME HAD B EEN CONSIDERED BEFORE THE SET OFF OF BROUGHT FORWARD LOSSES AND DEPRECIATION. AS PER THE AO IT WAS AN INCORRECT GHARDA CHEMICALS-(05-06) 9 METHOD,THAT THE ASSESSEE WAS REQUIRED TO SET OFF TH E BROUGHT FORWARD LOSSES AND DEPRECIATION FROM THE GROSS TOTAL INCOME BEFORE THE CLAIM OF DEDUCTION UNDER CHAPTER VIA IN VIEW OF PROVISIONS OF SECTION 32(2) R.W.S.72 (2)OF THE ACT,WHEREIN THE SAME WAS TO BE CONSIDERED FIRST BEFORE ALLOWING ANY DEDUCTIO N U/S.80HHC.HE REFERRED TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F IPCA LABORATORIES LIMITED(266 ITR 521)AND HELD THAT WHILE COMPUTING DEDUCTION U/S .80HHC BROUGHT FORWARD LOSS IS TO BE REDUCED BEFORE CLAIMING DEDUCTION,THAT THE AS SESSEE'S INCOME BECAME NIL AFTER CONSIDERING THE UNABSORBED BROUGHT FORWARD DEPRECIA TION IT WOULD NOT BE ENTITLED TO ANY DEDUCTION U/S. 80HHC.IN SHORT,THE CLAIM OF DEDU CTION U/S 80HHC WAS DISALLOWED.HE FURTHER HELD THAT THE EXPORTERS HAVIN G EXPORT TURNOVER EXCEEDING RS. 10 CRORES DURING THE PREVIOUS YEAR HAD AN OPTION TO CH OOSE EITHER DUTY DRAW BACK OR DUTY FREE REPLENISHME CERTIFICATE BEING DUTY REMISS ION SCHEME,THAT THE ASSESSEE'S EXPORT TURNOVER EXCEEDED RS.10 CRORES,THAT IT DID N OT FULFILL THE ABOVE MENTIONED CONDITIONS,THAT DEPB BENEFIT COULD NOT BE CONSIDERE D FOR WORKING OUT DEDUCTION U/S. 80HHC.AS SUCH IN VIEW OF NIL PROFIT AS DISCUSSED AB OVE THE ASSESSEE COMPANY IS NOT ENTITLED FOR DEDUCTION U/S. 80HHC. 4.1. IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT IN L IGHT OF THE JUDGMENT OF IPCA LABORATORIES LTD.(SUPRA),ORDER OF THE AO HAD TO BE UPHELD. 4.2. BEFORE US,THE AR FAIRLY CONCEDED THAT THE ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 30.11.2009(SUPRA).W E FIND THAT THE TRIBUNAL HAS,AT PAGE 2 PARA 4 OF THE ORDER, HELD AS UNDER: 4.GROUND NO.2 IS AGAINST CONFIRMATION OF DISALLOWAN CE OF DEDUCTON UNDER SECTION 80HHC. AT THE VERY OUTSET,THE LD.COUNSEL FOR THE ASSESSEE FAIRLY CONCEDED THAT IN THE ABSENCE OF ANY PROFIT AVAILABLE TO THE ASSESSEE FROM EXPORTS,THE BENEFIT OF DEDUCTION UNDER SECTION80 HHC WAS RIGHTLY NOT AV AILABLE.IN OUR CONSIDERED OPINION THE LD CIT(A)WAS JUSTIFIED IN REJECTING THE GROUND OF THE ASSESSEE ON THE CLAIM OF DEDUCTION UNDER SECTION 80HHC IN TH E ABSENCE OF ANY EHGIHLE PROFIT.THIS GROUND IS THEREFORE,NOT ALLOWED . RESPECTFULLY,FOLLOWING THE ABOVE,WE DISMISS THE GRO UND NO.3 AGAINST THE ASSESSEE. GROUND NO.6-7 ARE DECIDED IN FAVOUR OF THE AO. GHARDA CHEMICALS-(05-06) 10 7 .GROUND NO.8 IS ABOUT DISALLOWANCE OF RS. 6.94 LAKH S.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD MADE CERTAIN PURCHASES FROM A SISTER CONCERN, NAMELY GUJARAT INSECTICIDES LTD (GI L). HE CALLED FOR THE RELEVANT DETAILS OF PURCHASES AND EXAMINED THE SAME.THE AO O BSERVED THAT ASSESSEE HAD PURCHASED 27, 392 CASES OF A PRODUCT NAMELY PHASE T RANSFER CATAL (PTC) AT THE RATE OF RS.126.67PER KG.,AGGREGATING TO RS.34.70 LA KHS FROM GIL.IN ORDER TO JUSTIFY THE REASONABLENESS OF THE PRICE PAID FOR PU RCHASE OF PTC,THE ASSESSEE FILED A COPY OF INVOICE IN RESPECT OF PURCHASE OF S AME MATERIAL FROM AN UNRELATED PARTY NAMELY TATVA CHINTAN(TC).THE AO FO UND THAT THE NAME OF THE PRODUCT IN THE BILL ISSUED BY TC,WAS TRIETHYL BENZ YL AMMONIUM CHLORIDE. AS THE NAME OF THE PRODUCT PURCHASED BY THE ASSESSEE F ROM GIL AND THE NAME MENTION IN THE INVOICE OF TC DID NOT MATCH,THE AO H ELD THAT THE ASSESSEE HAD FAILED TO PROVIDE THE NECESSARY AND COMPARABLE EVID ENCE RELEVANT TO PURCHASE OF PTC FROM ITS SISTER CONCERN.HE, ACCORDINGLY,DISALLO WED 20% OF THE PURCHASE VALUE I.E. RS.6.94 LAKHS INVOKING THE PROVISIONS OF SECTION 40A(2)(B) OF THE ACT. 7.1. DURING THE APPELLATE PROCEEDINGS,BEFORE THE FAA,THE ASSESSEE SUBMITTED THAT PRODUCT NAME PTC AND TRIETHYL BENZYL AMMONIUM CHLORIDE WAS ONE AND THE SAME PRODUCT,THAT THE AO WAS FACTUALLY WRONG IN STATING THAT ASSESSEE DID NOT PROVIDE THE NECESSARY AND COMPARABLE EVIDENCE W ITH REGARD TO PURCHASE FROM A SISTER CONCERN.THE ASSESSEE FILED A COPY OF A CERTIFICATE ISSUED BY TC BEFORE THE FAA,WHEREIN IT WAS CERTIFIED THAT THE FI RST WAS THE COMMON NAME WHEREAS THE SECOND WAS SPECIFIC NAME OF THE PRODUCT .AS PER THE ASSESSEE, THAT THE SAID EVIDENCE WAS MADE AVAILABLE TO THE AO.AFTE R CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER ,THE FAA HELD THAT THE DISALLOWANCE HAD BEEN MADE BY THE AO ON THE PREMISE S THAT THE ASSESSEE DID NOT PRODUCE THE NECESSARY AND COMPARABLE EVIDENCE,T HAT FROM THE COPY OF CERTIFICATE ISSUED BY TC IT WAS CLEAR THAT THE NECE SSARY AND COMPARABLE EVIDENCE WAS FURNISHED TO THE AO. GHARDA CHEMICALS-(05-06) 11 7.2. THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENC H. THE AR SUPPORTED THE ORDER OF THE FAA. WE HAVE HEARD THE RIVAL SUBMISSIONS.WE FIND THAT TH E ASSESSEE HAD PRODUCED A RELIABLE EVIDENCE IN FORM OF A CERTIFICATE ISSUED B Y TC,THAT THE AO DID NOT DISCUSS ANYTHING ABOUT IT AND MADE THE DISALLOWANCE .IN OUR OPINION, THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL I NFIRMITY.HE HAD DECIDED THE ISSUE AFTER CONSIDERING THE CERTIFICATE THAT WAS RE LEVANT TO DECIDE THE ISSUE.THEREFORE UPHOLDING HIS ORDER,WE DECIDE GROUN D NO.8 AGAINST THE AO. 8. GROUND 9 RELATES TO ADJUSTMENT U/S.92CA FOR RS.2,6 0,75,487/-.DURING THE YEAR THE ASSESEE HAD EXPORTED 4.62 LAKHS KGS.OF DIC AMBA TO ITS AE AT A TOTAL CONSIDERATION OF RS.30.38 CRORES.IT JUSTIFIED THE T RANSACTION ON THE BASIS OF TNMM.HOWEVER,THE TPO USED COMPARABLE UNCONTROLLED P RICE(CUP)METHOD BY COMPARING THE DICAMBA SOLD TO NON-AES WITH AVERA GE SALE PRICE CHARGED TO ITS AE,AND PROPOSED ADJUSTMENT OF RS.2,60,75,487-/. BASED ON THE ORDER OF THE TPO,THE AO MADE AN ADDITION OF RS. 2.60 CRORES ON A CCOUNT OF SALE OF GOODS TO AE. 8.1. AGGREIVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA.IT WAS ARGUED BEFORE HIM THAT GHARADA-USA(G -USA) HAD INCURRED LOSSES OUT OF TRANSACTIONS WITH THE ASSESSEE,THAT T HERE WAS NO SHIFTING PROFITS,THAT PROVISIONS OF CHAPTER OF THE ACT SHOULD NOT BE APPL IED FOR THE TRANSACTIONS IN QUESTION,THAT THE ALP SHOULD HAVE BEEN DETERMINED U SING RPM,THAT FOR APPLYING RPM THE AE WAS TREATED AS TESTED PARTY,THA T IF THE TRANSFER PRICING OF G-USAS PROSPECTIVE WAS AT ARMS LENGTH THAN AS A C OROLLARY THE PRICES CHARGED BY THE ASSESSEE SHOULD BE REGARDED AT ARMS LENGTH, THAT THE CUSTOMS AUTHORITIES IN THE USA HAD ACCEPTED THE ASSESSEES EXPORT PRICE AS THE ALP,THAT SAME CONSTITUTED AN APPROPRIATE BENCHMARK FOR INDIAN TP REGULATIONS.THE ASSESSEE GHARDA CHEMICALS-(05-06) 12 ALSO OBJECTED TO USE OF CUP METHOD AND CONTENDED TH AT THERE WERE VARIOUS DIFFERENCES BETWEEN THE TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS AE AND THAT ENTERED WITH UNRELATED ENTITY VIZ. DIFFERENCE IN GEOGRAPHICAL MARKETS DIFFERENCE ON ACCOUNT OF RESELLER VERSUS END-USER, THAT OUT OF TOTAL VOLUME SOLD 74% OF THE VOLUME WAS SOLD TO G-USA,THAT REMAINING EXPORT WAS MADE TO THE NON-AE ENTITIES. ALTERNATIVELY,IT WAS SUBMITTED THAT IN CASE PARTY W ISE COMPUTATION OF PRICE/KG. OF DIACAMBA SOLD TO NON-AE.S WAS TO BE CONSIDERED T HEN ONLY THOSE PARTIES SHOULD HAVE BEEN CONSIDERED TO WHOM MORE THAN 5000 KG.S OF DIACAMBA WAS SOLD, THAT IN SUCH A CASE THE AVERAGE PRICE CHARGED TO NON-AE.S WAS USD 14.64 PER KG.,THAT THE AVERAGE PRICE CHARGED BY THE ASSES SEE TO G-USA WAS USD 14. 11,THAT IT WOULD MEET THE ARMS LENGTH PRINCIPLE BY EXERCISING THE PROVISION TO SECTION 92C(2),THAT THE TPO HAD NOT MADE ADJUSTMENT IN THE PRICE FOR CERTAIN DIFFERENCES SUCH AS CUSTOM DUTY REGISTRATION,COST S ELLING AND DISTRIBUTION EXPENSES,THAT THE ASSESSEE HAD INCURRED EXPENSES LI KE COMMISSION FREIGHT AND WAREHOUSING,WHILE MAKING SALES TO NON-USA MARKET, T HAT USA AND NON-USA MARKET WERE COMPLETELY DIFFERENT, THAT WHILE DETERM INING THE ALP,FOR THE YEAR 2002-03,THE TPO HAD ALLOWED THE ADJUSTMENT FOR THE SAME EXPENSES INCURRED BY THE ASSESSEE IN RESPECT OF SALES OF DIACAMBA,THAT T HE ADJUSTMENT OF SELLING AND DISTRIBUTION EXPENSES OF USD 0.65 PER KG.TO THE AVE RAGE SALE. 8.2. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ORDER OF THE TPO, THE FAA HELD THAT THE ASSESSEE WAS BASICALLY AN IND IAN COMPANY, THAT IT HAD SET UP AN AE IN USA,THAT FROM THE LOCAL REGISTRATION PR OSPECTIVE IT WAS ESSENTIAL FOR THE ASSESSEE TO HAVE A USA ENTITY, THAT ACCORDINGLY G-USA WAS SET UP TO CARRY OUT REGISTRATION MARKETING AND DISTRIBUTION FUNCTIO NS, THAT THE AE WAS BASED IN USA WHERE THE MARGINAL RATES WERE HIGHER THAN THAT OF INDIA, THE AE AT USA HAD SUFFERED A LOSS,THERE WOULD NOT BE ANY SAVING O R AVOIDANCE OF TAX BY THE ASSESSEE BY SHIFTING PROFITS TO USA,THAT FROM THE R ISK METRICS POINT OF VIEW IT GHARDA CHEMICALS-(05-06) 13 WAS A VERY LOW-RISK OR NO RISK CASE, THAT THE TPO H AD MADE ADJUSTMENT USING CUP METHOD WITHOUT CONSIDERING THE VARIOUS FACTORS THAT WOULD AFFECT THE CUP, THAT THE TPO IGNORED THE PROVISIONS OF RULE 10B/10C OF THE RULES,THAT THE SALE OF DIACAMBA TO UNRELATED PARTIES WAS A TRANSACTION BETWEEN A MANUFACTURER AND AN END-USER THAT THE AO HAD NOT PAID ANY ATTENTION TO THE FACT THAT ASSESSEE HAD SOLD APPROXIMATELY 74% OF DIACAMBA TO ITS AE AND RE MAINING 26% WAS TOLD TO NON-AE.S,THAT ONE WOULD NOT HAVE TO INCUR SELLING A ND DISTRIBUTION EXPENSES WHILE MAKING SALES TO AE,THAT AN ADJUSTMENT SHOULD HAVE BEEN MADE TO THE PRICES CHARGED TO NON-AE.S FOR SELLING AND DISTRIBU TION EXPENSES,THAT EVEN IN SALE PRICE TO NON-AE.S FINAL RESULT WAS THE TRANSAC TION PROVED TO BE DONE AT FAIR MARKET VALUE,THAT THE SAME WAS LESS THAN THE AVERAG E SALE PRICE CHARGED BY THE ASSESSEE TO G-USA(USD 14.11 PER KG.),THAT THE TRANS ACTION OF EXPORT OF GOODS TO ITS AE WOULD MEET THE ARMS LENGTH PRINCIPLE.FIN ALLY,HE DELETED THE ADDITION PROPOSED/MADE BY THE TPO/AO. 8.3. BEFORE US,THE DR SUPPORTED THE ORDER OF THE TPO AND THE AR RELIED UPON THE ORDER OF THE FAA. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE WANTED TO SELL DIACAMBA IN USA,TH AT FROM THE LOCAL REGISTRATION PROSPECTIVE IT WAS ESSENTIAL TO HAVE A USA ENTITY, THAT IT SET UP G- USA WHICH COULD CARRY OUT REGISTRATION MARKETING AN D DISTRIBUTING FUNCTIONS, THAT IT HAD APPLIED THE TNMM FOUR DETERMINING THE A LP OF THE TRANSACTIONS, THAT G-USA DEALT ONLY IN THE PRODUCTS OF THE ASSESSEE AN D HAD NO OTHER BUSINESS ACTIVITY,THAT ANY PROFIT/LOSS OCCURRING TO THE AE WAS ON ACCOUNT OF THE PRODUCTS PURCHASED FROM THE ASSESSEE,THAT THE AE HAD INCURRE D A NET LOSS OF 10.98% ON SALES,THAT 74% OF THE SALE WAS MADE TO G-USA,THAT T HERE WAS NO EVIDENCE OF SHIFTING OF PROFIT BY THE ASSESSEE TO ITS AE,THAT I T HAD CHARGED USD 14.11 PER KG. FROM ITS AE FOR THE GOODS SUPPLIED,THAT THE AVE RAGE SALE PRICE TO NON-AES OF USD 14.64 PER KG. RESULTED IN ADJUSTED APL OF USD13 .99 PER KG.IN OUR, GHARDA CHEMICALS-(05-06) 14 OPINION THERE IS NO LEGAL OR FACTUAL INFIRMITY IN T HE ORDER OF THE FAA. THEREFORE, CONFIRMING THE SAME WE DECIDE GROUND NO.9 AGAINST T HE AO. ITA/5348/MUM/2009-AY.2004-05: 9. GROUNDS OF APPEAL NO.1 & 2,FILED BY THE ASSESSEE,DE ALS WITH UN-UTILISED MODVAT CREDIT.WHILE DECIDING THE APPEAL FILED BY TH E AO(GOA-3)WE HAVE DECIDED THE ISSUE AGAINST THE AO,IN PART AND MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE AO.FOLLOWING THE SAME FIRST TWO GRO UNDS STAND ALLOWED IN FAVOUR OF THE ASSESSEE,IN PART.AO HAS TO VERIFY THE FACTS AS DIRECTED IN THE EARLIER PART OF OUR ORDER. 10. GROUND NO.3 IS WITH REGARD TO CONFIRMING REDUCTION OF 90% OF BUSINESS RECEIPTS WHILE COMPUTING BUSINESS PROFIT FOR THE PU RPOSE OF DEDUCTION U/S. 80HHC WHICH INCLUDES CONSULTANCY EXPENSES, SUNDRY C REDIT BALANCE WRITTEN BACK,PENALTY RECOVERED,ANALYSIS CHARGES, INTEREST & BROKERAGE ON FD, SUNDRY INCOME AND OTHER MISCELLANEOUS INCOME.THE FAA HAD U PHELD THE EXCLUSION OF VARIOUS ITEMS WHILE COMPUTING THE DEDUCTION U/S.80H HC OF THE ACT. 10.1. DURING THE COURSE OF HEARING BEFORE US,THE AR OF TH E ASSESSEE STATED THAT OUT OF SEVEN RECEIPTS THE ASSESSEE WANTS TO PURSUE THREE RECEIPTS ONLY I.E. CONSULTANCY SERVICES(RS. 12.91 LAKHS)SUNDRY CREDIT ORS BALANCES WRITTEN BACK (RS.1.01LAKHS) AND SUNDRY INCOME (RS. 39.88 LAKHS). WITH REGARD TO CONSULTANCY SERVICES,IT WAS ARGUED THAT ISSUE HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PFIZER LTD(330 ITR 62), THAT I N THE CASES OF TV SUNDARAM IYENGAR & SONS LTD.(222 ITR 344),EASTERN INTERNATIO NAL HOTEL LTD.(93 ITD 233) THE ISSUE OF SUNDRY CREDIT BALANCES WRITTEN BA CK HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THAT IN THE CASES OF ALFA LAVEL (I NDIA)LTD.(295ITR451)& ABHISHEK INDUSTRIES LTD.(217TAXMANN104),THE ISSUE O F SUNDRY INCOME FOR THE GHARDA CHEMICALS-(05-06) 15 PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC HAS BEEN DECIDED AGAINST THE REVENUE.THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 10.2. WE HAVE HEARD THE RIVAL SUBMISSIONS WE FIND THAT TH E AO HAD EXCLUDED CONSULTANCY SERVICES,SUNDRY CREDIT BALANCES WRITTEN BACK,PENALTY RECOVERED, ANALYSIS CHARGES,INTEREST AND BROKERAGE ON FD,SUNDR Y INCOME AND OTHER MISCELLANEOUS INCOME FROM THE PROFITS OF THE BUSINE SS WHILE COMPUTING THE DEDUCTION U/S. 80HHC,THAT THE FAA HAD UPHELD THE OR DER OF THE AO. WE FIND IN THE CASE OF PFIZER LTD.(SUPRA)THE HONBLE BOMBAY HI GH COURT HAS DISCUSSED THE FACTS OF THE CASE AND HAS DECIDED THE ISSUE AS UNDE R: THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF PHAR MACEUTICALS AND ANIMAL HEALTH PRODUCTS. FOR THE AY. 2000-01, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80HHC OF THE INCOME-TAX ACT, 1961. THE ASSESSING OFFICER, WHILE COMPUTING THE DEDUCTION EXCLUDED 90 PER CENT. OF THE AMOUNT OF AN INSURANCE CLAIM WHICH WAS RELATED TO THE STOCK-IN-TRADE OF THE ASSESSEE. THE COMMISSIONER (A PPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THE TRIBUNAL NOTED THAT FOR THE AY. 1998-99 IT HAD COME TO THE CONCLUSION THAT THERE WAS NO JUSTIFICATION TO EXCLU DE 90 PER CENT. OF THE INSURANCE CLAIM. BESIDES THIS, THE TRIBUNAL HELD THAT THE INS URANCE CLAIM FORMED PART OF THE INCOME OF THE BUSINESS OF THE ASSESSEE AND WAS LIAB LE TO BE CONSIDERED AS PART OF THE PROFITS OF THE BUSINESS IN VIEW OF EXPLANATION (BAA ) TO SECTION 80HHC AND HELD THAT 90 PER CENT. OF THE INSURANCE CLAIM COULD NOT BE EX CLUDED. ON APPEAL : HELD, (I) THAT IF THE STOCK-IN-TRADE OF THE ASSESSE E WERE TO BE SOLD, THE INCOME THAT WAS RECEIVED FROM THE SALE OF GOODS WOULD CONSTITUTE TH E PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD OF PROFITS AND GAINS OF BUS INESS OR PROFESSION.THE INCOME EMANATING FROM THE SALE WOULD NOT BE LIABLE TO A RE DUCTION OF NINETY PER CENT. FOR THE SIMPLE REASON THAT IT WOULD NOT CONSTITUTE A RECEIP T OF A NATURE SIMILAR TO BROKERAGE, COMMISSION, INTEREST, RENT OR CHARGES. A CONTRACT O F INSURANCE WAS A CONTRACT OF INDEMNITY. THE INSURANCE CLAIM IN ESSENCE INDEMNIFI ES THE ASSESSEE FOR THE LOSS OF THE STOCK-IN-TRADE. THE INDEMNIFICATION THAT WAS MADE T O THE ASSESSEE MUST STAND ON THE SAME FOOTING AS THE INCOME THAT WOULD HAVE BEEN REA LIZED BY THE ASSESSEE ON THE SALE OF THE STOCK-IN-TRADE. IN THESE CIRCUMSTANCES, THE INSURANCE CLAIM ON ACCOUNT OF THE STOCK-IN-TRADE DID NOT CONSTITUTE AN INDEPENDENT IN COME OR A RECEIPT OF A NATURE GHARDA CHEMICALS-(05-06) 16 SIMILAR TO BROKERAGE, COMMISSION, INTEREST, RENT OR CHARGES. HENCE, SUCH A RECEIPT WOULD NOT BE SUBJECT TO A DEDUCTION OF NINETY PER C ENT. UNDER CLAUSE (1) OF EXPLANATION (BAA). IN DETERMINING THE PROFITS OF TH E BUSINESS FOR THE PURPOSES OF EXPLANATION (BAA), THE INCOMES WHICH WERE SUSCEPTIB LE TO A REDUCTION OF NINETY PER CENT. WERE THOSE INCOMES REFERRED TO IN CLAUSES (II IA), (IIIB) AND (IIIC) OF SECTION 28 AND RECEIPTS BY WAY OF BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR RECEIPTS OF A SIMILAR NATURE INCLUDED IN SUCH PROFITS. THEREFORE, BEFORE A RECEIPT WAS LIABLE TO BE EXCLUDED TO THE EXTENT OF NINETY PER CENT., IT MUST BE A RECEIPT OF A NATURE SIMILAR TO BROKERAGE, COMMISSION, INTEREST, RENT OR CHARGES. T HEREFORE THE CLAIM ON ACCOUNT OF INSURANCE FOR THE STOCK-IN-TRADE DID NOT CONSTITUTE A RECEIPT OF A SIMILAR NATURE WITHIN THE MEANING OF EXPLANATION (BAA) AND WAS THEREFORE NOT LIABLE TO BE REDUCED TO THE EXTENT OF NINETY PER CENT. WE FURTHER FIND THAT THE ISSUE OF SUNDRY CREDIT BAL ANCES WRITTEN BACK HAS BEEN DEALT BY THE HONBLE APEX COURT IN THE CASE OF TV S UNDARAM IYENGAR & SONS LTD. (SUPRA) AS FOLLOW IF A COMMONSENSE VIEW OF THE MATTER WERE TAKEN, THE ASSESSEE, BECAUSE OF THE TRADING OPERATION, HAD BECOME RICHER BY THE AMOUNT WHICH IT TRANSFERRED TO ITS PROFIT AND LOSS ACCOUNT. THE MONEYS HAD ARISEN OUT OF ORDINARY TRAD ING TRANSACTIONS. ALTHOUGH THE AMOUNTS RECEIVED ORIGINALLY WERE NOT OF INCOME NATU RE, THE AMOUNTS REMAINED WITH THE ASSESSEE FOR A LONG PERIOD UNCLAIMED BY THE TRA DE PARTIES. BY LAPSE OF TIME, THE CLAIM OF THE DEPOSIT BECAME TIME-BARRED AND THE AMO UNT ATTAINED A TOTALLY DIFFERENT QUALITY. IT BECAME A DEFINITE TRADE SURPLUS. THE AS SESSEE ITSELF HAD TREATED THE MONEY AS ITS OWN MONEY AND TAKEN THE AMOUNT TO ITS PROFIT AND LOSS ACCOUNT. THE AMOUNTS WERE ASSESSABLE IN THE HANDS OF THE ASSESSEE SIMILARLY,THE ISSUE OF SUNDRY INCOME HAS BEEN DEALT IN THE CASE OF ALFA LAVEL (INDIA) LTD.(SUPRA) AS UNDER: ..INTEREST FROM CUSTOMERS AND SALES TAX SET OFF RE CEIVED BY THE ASSESSEE,BEING PROFITS OF THE BUSINESS UNDER THE HEAD PROFITS AND GAINS O F BUSINESS OR PROFESSION, COULD NOT BE EXCLUDED WHILE CALCULATING THE DEDUCTION UND ER SECTION 80HHC RESPECTFULLY,FOLLOWING THE ABOVE REFERRED JUDGMENTS ,WE HOLD THE 90% OF THE RECEIPTS OF THE ASSESSEE UNDER THE ABOVE THREE HEAD S SHOULD NOT BE EXCLUDED FROM THE PROFIT OF THE BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80 GHARDA CHEMICALS-(05-06) 17 HHC OF THE ACT.WE UPHOLD THE ORDER OF THE FAA FOR T HE REMAINING FOUR RECEIPTS.GROUND NUMBER 3 IS DECIDED IN FAVOUR OF TH E ASSESSEE, IN PART. 11. NEXT GROUND DEALS WITH REDUCTION OF PROFITS ELIGIBL E FOR DEDUCTION U/S.80HHC FOR THE PURPOSE OF CALCULATING BOOK PROFITS U/S.115 JB OF THE ACT.DURING THE COURSE OF HEARING BEFORE US,REPRESENTATIVES OF BOTH THE SIDES AGREED THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE TRIBUNAL ,WHILE ADJUDICATING THE APPEAL FOR THE AY.2003-04 (SUPRA). WE FIND THAT THE ISSUE WAS DEALT BY THE TRIBUNAL AS UNDER: 12. NEXT GROUND OF APPEAL PERTAINS TO DEDUCTION U/S.80 HHC OF THE ACT FOR PURPOSE OF CALCULATING BOOK PROFITS U/S.115JB OF THE ACT.WHILE DECIDING GOA NO.4 FILED BY THE ASSESSEE,WE HAVE NARRATED THE FACTS RELATED WITH TH E QUESTION UNDER CONSIDERATION. 12.1. BEFORE US,REPRESENTATIVE OF BOTH THE SIDES CONCEDED THAT ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE.WE FIND THAT ORIGINALLY THE QUESTION WAS DECIDED AGAISNT THE ASSESSEE. BUT,LATER ON AN APPLIACTION W AS FILED BY THE ASSESSEE U/S. 254 (2) OF THE ACT BEFORE THE TRIBUNAL,WHO RECALLED ITS ORD ER.BY ITS ORDER DATED 25.01. 2012,THE TRIBUANL RELYING UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF BHARI INFORMATION TECHNOLOGY SYMSTEMS PTV. LTD. (17 TAXMANN.COM.62), DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 12.2. RESECTFULLY FOLLOWING THE ABOVE,WE ALSO HOLD THAT D EDUCTION CLAIMED U/S.80HHC HAD TO BE WORKED OUT ON THE BASIS OF ADJUSTED BOOK PROFIT U/S.115JA AND NOT ON THE BASIS OF PROFITS COMPUTED UNDER REGULAR PROVISIONS OF LAW APPLICABLE TO COMPUTATION OF PROFITS AND GAINS OF BUSINESS. RESPECTFULLY,FOLLOWING THE ABOVE ORDER,4TH GROUND O F APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. 12. GROUND NUMBER 5,RAISED BY THE ASSESSEE,WAS NOT PRES SED BY THE AR DURING THE COURSE OF HEARING BEFORE US.HENCE,THE SAME STAN DS DISMISSED,AS NOT PRESSED. ITA/8758/MUM/2010-AY.2005-06: GHARDA CHEMICALS-(05-06) 18 13. THE FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT DELET ION OF DISALLOWANCE OF INTEREST AMOUNTING TO RS.7.12 CRORES.DURING THE ASS ESSMENT PROCEEDINGS,THE AO OBSERVED THAT AN AMOUNT OF RS. 47.49 CRORES WERE SH OWN AS CAPITAL WORK IN PROGRESS(CWIP)AS ON 31/03/2005,THAT THE ASSESSEE HA D CLAIMED INTEREST EXPENDI -TURE OF RS.15.45 CRORES.HE DIRECTED THE ASSESSEE T O SHOW CAUSE AS TO WHY PROPO -RTIONATE INTEREST RELATABLE TO CWIP SHOULD NOT BE DISALLOWED.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE AO DISALLOWED T HE SUM OF RS.7,12,38,331/- OUT OF THE INTEREST EXPENDITURE, AS INTEREST RELATA BLE TO CWIP. HE COMPUTED THE DISALLOWANCE AT THE RATE OF 15% OF THE AMOUNT OF CW IP. 13.1. WHILE ADJUDICATING THE APPEAL FOR THE EARLIER YEAR, WE HAVE DECIDED THE ISSUE AGAINST THE AO.FOLLOWING THE SAME FIRST GROUN D IS DISMISSED. 14. NEXT GROUND OF APPEAL IS ABOUT DELETING THE ADDITIO N OF RS. 5.25 CRORES ON ACCOUNT OF UNUTILISED MODVAT CREDIT.CONSIDERING OUR ORDERS FOR THE EARLIER AY.,ISSUE OF UNUTILISED MODVAT CREDIT IS RESTORED B ACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION.HE IS DIRECTED TO DECIDE THE ISS UE AS PER THE DIRECTIONS GIVEN IN THE ORDER FOR THE AY.2004-05.GROUND NO.2 IS DECI DED IN FAVOUR OF THE AO,IN PART. 15. THIRD GROUND DEALS WITH DELETING THE ADDITION OF RS . 24.35 CRORES ON ACCOUNT OF EXCISE DUTY ON CLOSING STOCK.LIKE EARLIER AY.THE ISSUE(GOA-4)IS BEING RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUD ICATION. 16. NEXT GROUND OF APPEAL PERTAINS TO DELETION OF ADDITION O F RS.44.52 CRORES MADE U/S.2(22) (E) OF THE ACT.IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL, WHILE DECIDING THE APP EAL FOR THE AY.2002-03 (ITA/916/MUM/2010 DTD.03.12.2010).RELEVANT PORTION OF THE ORDER READS AS FOLLOW: GHARDA CHEMICALS-(05-06) 19 11.EVEN ON MERITS THERE IS NO CASE FOR THE REVENUE . IN FACT THE CIT(A) HAS ANALYSED THIS ISSUE ELABORATELY AND CAME TO A CONCLUSION THA T PROVISIONS OF SECTION 2(22)(E) ARE NOT ATTRACTED IN THE CASE OF NORMAL BUSINESS TRANSA CTIONS. THE SAME PRINCIPLE WAS UPHELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. RAJ KUMAR 318 ITR 462 WHEREIN THIS ISSUE WAS ELABORATELY DISCUSSED AS UNDER: - 'SECTION 2(22)(E) OF THE INCOME-TAX ACT, 1961, SHOW S THAT A PAYMENT WOULD ACQUIRE THE ATTRIBUTES OF A DIVIDEND WITHIN THE MEANING OF THE PROVISION IF THE FOLLOWING CONDITIONS ARE FULFILLED : (I) THE COMPANY MAKING T HE PAYMENT IS ONE IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED ; (II) MONEY SHOULD BE PAID BY THE COMPANY TO A SHARE HOLDER HOLDING NOT LESS THAN TEN PER CENT. OF THE VOTING POWER OF THE COMPANY. IT WO ULD MAKE NO DIFFERENCE IF THE PAYMENT WAS OUT OF THE ASSETS OF THE COMPANY OR OTH ERWISE ; (III) THE MONEY SHOULD BE PAID EITHER BY WAY OF AN ADVANCE OR LOAN OR IT MAY BE 'ANY PAYMENT' WHICH THE COMPANY MAY MAKE ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF ANY SHAREHOLDER OR ALSO TO ANY M/S. GHARDA CHEMICALS LTD. CONCERN IN WHICH SUCH SHAREHOLDER IS A MEMBER OR A PARTNER AND IN WHICH HE IS SUBSTANTIALLY INTERESTED ; AND (IV) THE LIMITING FA CTOR BEING THAT THESE PAYMENTS MUST BE TO THE EXTENT OF ACCUMULATED PROFITS, POSSESSED BY SUCH A COMPANY. THE IMMEDIATE PRECURSOR TO SECTION 2(22)(E) IS FOUN D IN SECTION 2(6A) OF THE INDIAN INCOME-TAX ACT, 1922. THE PURPOSE OF INSERTION OF SUB-CLAUSE (E) TO SECTI ON 2(6A) IN THE 1922 ACT WAS TO BRING WITHIN THE TAX NET MONIES PAID BY CLOSELY HEL D COMPANIES TO THEIR PRINCIPAL SHAREHOLDERS IN THE GUISE OF LOANS AND ADVANCES TO AVOID PAYMENT OF TAX. THEREFORE, SUB-CLAUSE (E) OF SECTION 2(22) OF THE 1961 ACT, WH ICH IS IN PARI MATERIA WITH SUB- CLAUSE (E) OF SECTION 2(6A) OF THE 1922 ACT, PLAINL Y SEEKS TO BRING WITHIN THE TAX NET, ACCUMULATED PROFITS WHICH ARE DISTRIBUTED BY CLOSEL Y HELD COMPANIES TO ITS SHAREHOLDERS IN THE FORM OF LOANS. THE PURPOSE BEIN G THAT PERSONS WHO MANAGE SUCH CLOSELY HELD COMPANIES SHOULD NOT ARRANGE THEIR AFF AIRS IN A MANNER THAT THEY ASSIST THE SHAREHOLDERS IN AVOIDING THE PAYMENT OF TAXES B Y HAVING THESE COMPANIES PAY OR DISTRIBUTE, WHAT WOULD LEGITIMATELY BE DIVIDEND IN THE HANDS OF THE SHAREHOLDERS' MONEY IN THE FORM OF AN ADVANCE OR LOAN. THE WORD ' ADVANCE' HAS TO BE READ IN CONJUNCTION WITH THE WORD 'LOAN'. USUALLY ATTRIBUTE S OF A LOAN ARE THAT IT INVOLVES THE POSITIVE ACT OF LENDING COUPLED WITH ACCEPTANCE BY THE OTHER SIDE OF THE MONEY AS LOAN : IT GENERALLY CARRIES INTEREST AND THERE IS AN OBL IGATION OF REPAYMENT. ON THE OTHER GHARDA CHEMICALS-(05-06) 20 HAND, IN ITS WIDEST MEANING THE TERM 'ADVANCE' MAY OR MAY NOT INCLUDE LENDING. THE WORD 'ADVANCE' IF NOT FOUND IN THE COMPANY OF OR IN CONJUNCTION WITH A WORD 'LOAN' MAY OR MAY NOT INCLUDE THE OBLIGATION OF REPAYMENT. IF IT DOES, THEN IT WOULD BE A LOAN. THUS, ARISES THE CONUNDRUM AS TO WHAT MEANING ONE WOULD ATTRIBUTE TO THE TERM 'ADVANCE'. THE RULE OF CONSTRUCTION WHICH ANSWERS T HIS CONUNDRUM IS NOSCITUR A SOCIIS. THE RULE HAS BEEN EXPLAINED BOTH BY THE PRI VY COUNCIL IN THE CASE OF ANGUS ROBERTSON V. GEORGE DAY [1879] 5 AC 63 BY OBSERVING 'IT IS LEGITIMATE RULE OF CONSTRUCTION TO CONSTRUE WORDS IN AN ACT OF PARLIAM ENT WITH REFERENCE TO WORDS FOUND IN IMMEDIATE CONNECTION WITH THEM' AND THE SUPREME COURT IN THE CASE OF ROHIT PULP AND PAPER MILLS LTD. V. COLLECTOR OF CENTRAL EXCISE , AIR 1991 SC 754 AND STATE OF BOMBAY V. HOSPITAL MAZDOOR SABHA, AIR 1960 SC 610. THE PRINCIPLES WITH REGARD TO THE APPLICABILITY OF THE RULE OF CONSTRUCTION ARE B RIEFLY AS FOLLOWS : (I) DOES THE TERM IN ISSUE HAVE MORE THAN ONE MEANING ATTRIBUTED TO IT, I.E., BASED ON THE SETTING OR THE CONTEXT ONE COULD APPLY THE NARROWER OR WIDER MEANI NG ; (II) ARE THE WORDS OR TERMS USED FOUND IN A GROUP TOTALLY 'DISSIMILAR' OR IS TH ERE A 'COMMON THREAD' RUNNING THROUGH THEM ; (III) THE PURPOSE BEHIND INSERTING O F THE TERM. IN THE INSTANT CASE (I) THE TERM 'ADVANCE' HAS UNDOUBTEDLY MORE THAN ONE MEANIN G DEPENDING ON THE CONTEXT IN WHICH IT IS USED ; (II) BOTH THE TERMS, THAT IS, 'A DVANCE' OR 'LOAN' ARE RELATED TO THE ACCUMULATED PROFITS OF THE COMPANY ; AND (III) THE PURPOSE BEHIND THE INSERTION OF THE TERM 'ADVANCE' WAS TO BRING WITHIN THE TAX NET PAYM ENTS MADE IN THE GUISE OF LOAN TO SHAREHOLDERS BY COMPANIES IN WHICH THEY HAVE A SUBS TANTIAL INTEREST SO AS TO AVOID PAYMENT OF TAX BY THE SHAREHOLDERS. THE WORD M/S. GHARDA CHEMICALS LTD. 'ADVANCE' WHICH APPEARS IN THE COMPANY OF THE WORD 'LOAN' COULD ONLY MEAN SUCH ADVANCE WHICH CARRIES WITH IT AN OBLIGATION OF REPA YMENT. TRADE ADVANCES WHICH ARE IN THE NATURE OF MONEY TRANSACTED TO GIVE EFFECT TO A COMMERCIAL TRANSACTION WOULD NOT FALL WITHIN THE AMBIT OF THE PROVISION OF SECTION 2 (22)(E) OF THE ACT. THE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURING C USTOMIZED KITCHEN EQUIPMENT. THE ASSESSEE WAS ALSO THE MANAGING DIRECTOR AND HELD NE ARLY 65 PER CENT. OF THE PAID-UP SHARE CAPITAL OF C. A SUBSTANTIAL PART OF THE BUSIN ESS OF THE ASSESSEE, WHICH WAS NEARLY 90 PER CENT. WAS OBTAINED THROUGH C. FOR THI S PURPOSE, C WOULD PASS ON THE ADVANCE RECEIVED FROM ITS CUSTOMERS TO THE ASSESSEE TO EXECUTE THE JOB WORK ENTRUSTED TO THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE O PINION THAT THE MONEY RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF A LOAN GIVEN BY C TO THE ASSESSEE WHO ADMITTEDLY HELD MORE THAN 10 PER CENT. OF THE SHARES IN C. THE ASSESSING OFFICER CONCLUDED THAT GHARDA CHEMICALS-(05-06) 21 THE MONEY RECEIVED BY THE ASSESSEE WAS DEEMED DIVID END WITHIN THE MEANING OF THE PROVISIONS OF SECTION 2(22)(E). THE COMMISSIONER (A PPEALS) REVERSED THE ORDER OF THE ASSESSING OFFICER. THE TRIBUNAL SUSTAINED THE DECIS ION OF THE COMMISSIONER (APPEALS).ON APPEAL : HELD, THAT THE TRADE ADVANCES GIVEN TO THE ASSESSEE BY C COULD NOT BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E).' 12. THE HON'BLE DELHI HIGH COURT IN FACT FOLLOWED T HE PRINCIPLES ESTABLISHED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. NA GINDAS M. KAPADIA 177 ITR 393. THE SAME PRINCIPLES WERE ALSO REITERATED BY THE HON 'BLE DELHI COURT IN THE CASE OF CIT VS. AMBASSADOR TRAVELS P. LTD. 318 ITR 376. IN VIEW OF THESE PRINCIPLES, WE ARE OF THE VIEW THAT THE COMMERCIAL TRANSACTIONS BETWEE N TWO COMPANIES COULD NOT BE BROUGHT WITHIN THE PURVIEW OF THE PROVISIONS OF SEC TION 2(22)(E). ACCORDINGLY ON MERITS ALSO WE FIND NO CASE TO INTERFERE WITH THE O RDER OF THE CIT(A) ON THIS ISSUE. THE GROUNDS 1,2 & 3 ARE THEREFORE REJECTED. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. AS THE ISSUE IS COVERED BY THE ABOVE ORDER OF THE T RIBUNAL,SO,GROUND NO.6 IS DECIDED AGAINST THE AO. 17. GROUND NO.7 PERTAINS TO DELETION OF ADDITION OF RS. 5,18,210 MADE U/S. 92 CA (3)OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO AN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE (AE),GHARADA AUSTRALIA(G-AUS.).THE AO MADE A REFERE NCE TO THE TPO TO DETERMINE THE ARMS LENGTH PRICE(ALP) OF THE SAID T RANSACTION.ON 23/1/2008,THE TPO PASSED HIS ORDER PROPOSING CERTAIN ADJUSTMENTS. IN PURSUANCE OF THE ORDER OF THE TPO,AN ADJUSTMENT OF RS. 5.18 LAKHS WAS DETERMI NED IN RESPECT OF USAGE CHARGES PAID TO G-AUS. 17.2. BEFORE THE FAA,IN THE APPELLATE PROCEEDINGS,THE ASS ESSEE EXPLAINED THAT SALE OF CHEMICALS IN AUSTRALIA COMPULSORILY REQUIRE D A PRODUCT REGISTRATION AND IT WAS TO BE HELD BY A COMPANY IN AUSTRALIA,THAT G- AUS WAS SET UP FOR THE SOLE PURPOSE OF HOLDING PRODUCT REGISTRATION TO ENABLE G HARADA INDIA SALE IN THAT GHARDA CHEMICALS-(05-06) 22 REGION,THAT THE AUSTRALIAN-AE HELD REGISTRATION OF CERTAIN PRODUCTS IN AUSTRALIA, THAT IT HAD ENTERED INTO AN AGREEMENT WITH IT ON 18 .12.2012 PURSUANT TO WHICH G- AUS ALLOWED THE IT TO USE THE SAID PRODUCT REGISTRA TION HELD BY THE AE,THAT IN LIEU THEREOF IT WAS AGREED THAT ASSESSEE WOULD PAY USAGE CHARGES PRODUCTS REGISTRATION TO ITS AE,THAT THE USAGE CHARGES WAS C ALCULATED IN ORDER TO COVER THE GENERAL AND ADMINISTRATIVE COSTS INCURRED BY THE AE FOR ITS OPERATION,THAT FOR SELLING CHLOROPYRIPHOS(CPF)THE AE PROCURED REGISTRA TION DATA FROM MAKHTESHIM AGAN (AUSTRALIA)PTY LTD (MAA),THAT MAA WAS AN UNREL ATED THIRD PARTY,THAT AS PER THE AGREEMENT FOR PROCURING REGISTRATION DATA THE AE HAD TO PAY US$ 0.25 PER KG UNIT SOLD AND DEBIT NOTE WOULD BE RAISED ON IT BY MAA,THAT THE AE HAD CHARGED THE ASSESSEE 0.35 USD FOR THE SALE OF CPF P RODUCT, THAT IT INCLUDED THE 0.25 USD CHARGED TO THE THIRD PARTY AND FURTHER 0.1 0 USD IN ORDER TO COVER ITS GENERAL AND ADMINISTRATIVE COST,THAT FOR ALL OTHER PRODUCTS THE AE HELD PRODUCT REGISTRATION AND DID NOT PROCURE REGISTRATION DATA FROM ANY OTHER THIRD-PARTY, THAT THE AE WAS NOT RENDERING ANY SERVICE TO THE ASSESSE E EXCEPT AS A HOLDER OF PRODUCT REGISTRATION,THAT THE AE WAS NOT ENTITLED T O ANY MARKUP ON THE COST THAT HAD BEEN INCURRED,THAT THE EXPENSES WERE INCURRED O NLY ON A PASS THROUGH BASIS AND THEREFORE HAD TO BE REIMBURSED AT COST.THE FAA, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ORDER OF THE TP O,DELETED THE ADDITION FOLLOWING HIS ORDER FOR THE EARLIER YEAR. 17.3. BEFORE US,THE DR SUPPORTED THE ORDER OF THE TPO/AO, AND THE AR RELIED UPON THE ORDER OF THE FAA. WE FIND THAT THAT THE AUSTRALIAN-AE WAS SET UP TO O BTAIN AND HOLD REGISTRATION RIGHTS OF CERTAIN PRODUCTS IN AUSTRALIA AS WAS REQU IRED TO ENABLE THE ASSESSEE TO MAKE SALE OF ITS PRODUCTS IN AUSTRALIA,THAT THE AUS TRALIAN-AE WOULD PAY USAGE RIGHTS RECEIVED FROM THE ASSESSEE TO MA-AUS,AFTER K EEPING SOME PORTION,THAT THE TPO DID NOT CONSIDER THE BASIC FACT THAT THE AS SESSEE MADE DIRECT SALES TO THIRD PARTIES AND THE RESULTANT PROFIT WAS ACCOUNTE D FOR DIRECTLY IN ITS BOOKS OF GHARDA CHEMICALS-(05-06) 23 ACCOUNTS,THAT THE EXPENSES PERTAINING TO MAKING THO SE SALES HAD TO BE BOOKED IN ITS P&L A/C.,THAT THE ROLE OF THE AUSTRALIAN-AE WAS LIMITED,THAT AE DID NOT HAVE ANY OTHER BUSINESS. 18. GROUND NO.8 PERTAINS TO SECOND TP ADJUSTMENT AND IT IS ABOUT DEPRECIATION OF REGISTRATION RIGHTS AMOUNTING TO RS.5,76,55,986/-AN D REGISTRATION RIGHTS,VALUED AT RS.67,99,06,271/-.DURING THE TP PROCEEDINGS,THE TPO FOUND THAT THE ASSESSEE HAD ACQUIRED THE REGISTRATION RIGHTS FOR TOTAL AMOU NT OF RS.67.99 CRORES BASED ON ASSETS REVALUED IN THE BOOKS OF G-USA,AS ON 1.10.20 04 WHICH ON 30/09/2004 BEFORE THE VALUATION WAS EQUIVALENT TO RS. 44.92 CR ORES.HE HELD ADJUSTMENT OF THE 23.06 CRORES WILL HAVE TO BE MADE,THAT THE ADJU STMENT WOULD RESULT IN REWORKING OF CAPITAL LOSS ON LIQUIDATION OF ASSETS AND THE SAME TIME THE CLAIM OF DEPRECIATION ON INTANGIBLE ASSETS BEING REGISTRATIO N RIGHTS WOULD HAVE TO BE REDUCED. ON A QUERRY BY THE AO IN THAT REGARD,THE ASSESSEE S TATED THAT IN THE EVENT THE TP ADJUSTMENT PROPOSED BY THE TPO WERE TO BE ACCEPTED CAPITAL LOSS ON LIQUIDATION OF INVESTMENT HELD BY THE ASSESSEE IN G-USA HAD TO BE RECOMPUTED,THAT AFTER DISALLOWANCE OF REVALUATION OF REGISTRATION RIGHTS THERE WOULD BE A LOSS OF RS. 23.06 CRORES,THAT THE LOSS SHOULD BE ALLOWED TO BE CARRIED FORWARD AND SET OFF IN THE SUBSEQUENT ASSESSMENT YEARS. AFTER CONSIDERING SUBMISSION OF THE ASSESSEE,THE AO HELD THAT THE ASSESSEE HAD COMPUTED LONG TERM CAPITAL LOSS ON SHARES OF G-USA ON LIQUIDATION OF INVESTMENT, THE AE WAS HUNDRED PERCENT SUBSIDIARY C OMPANY OF THE ASSESSEE, THAT IT HAD TAKEN OVER THE 100% SUBSIDIARY COMPANY AND ALL THE ASSETS AND LIABILITIES WERE TAKEN OVER,THAT AS PER THE PROVISI ONS OF SECTION 47(IV)/ (V) TRANSACTIONS FROM THE HOLDING COMPANY TO SUBSIDIARY COMPANY OR VICE VERSA WERE NOT REGARDED TRANSFER,THAT PROVISIONS OF SECTI ON 45 OF THE ACT WERE NOT APPLICABLE, THAT THE COMPUTATION OF CAPITAL GAINS C OULD NOT BE CARRIED OUT IN RESPECT OF TRANSACTIONS WITH THE AE, THAT ADJUSTMEN T OF RS.23.06 CRORES WOULD GHARDA CHEMICALS-(05-06) 24 RESULT IN REWORKING OF CAPITAL LOSS,THAT THE VALUE OF REGISTRATION HAD TO BE REDUCED TO RS.44.92 CRORES,THAT THERE WAS A LOSS OF CAPITAL TO THE ASSESSEE.HE FURTHER HELD THAT THE ADJUSTMENT WAS NOT CALLED FOR COMPUTATION OF INCOME UNDER THE HEAD CAPITAL GAINS IN VIEW OF THE PROVISION OF SECTION 47 OF THE ACT,THAT ASSESSEE WAS NOT ENTITLED TO CARRY FORWARD OF LONG- TERM CAPITAL LOSS AND THE CLAIM MADE BY IT IN THAT REGARD HAD TO BE REJECTED. HE HELD THAT DEPRECIATION WAS TO BE ALLOWED IN RESPECT OF REGISTRATION RIGHT TAKI NG THE VALUE BEFORE THE REVALUATION OF RS.44.92 CRORES. HE WORKED OUT THE D EPRECIATION @ 25%(RS11.23 CRORES) IS AGAINST THE ASSESSEES CLAIM OF RS.16.99 CRORES. HE DISALLOWED THE CLAIM OF ACCESS DEPRECIATION OF RS.5.76 CRORES AND ADDED THE SAME TO THE TOTAL NO OF THE ASSESSEE.FINALLY THE WDV OF REGISTRATION WAS REVISED AT RS.33.69 CRORES AS ON 31.03/2005. 18.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM, IT W AS ARGUED THAT THE ASSESSEE HAD WHOLLY OWNED SUBSIDIARY IN USA,THAT IT HAD REGI STRATION RIGHT IN CFS AND DIACAMBA ,THAT THE REGISTRATION RIGHTS WERE RESTATE D IN ITS BOOKS OF ACCOUNTS BY THE AE AS ON 30/09/2004 ON THE BASIS OF VALUATION A NALYSIS CARRIED OUT BY AN INDEPENDENT EXPERT,THAT THE AE WAS DISSOLVED ON THE LAST DAY OF SEPTEMBER, 2004, THAT UPON DISSOLUTION ALL THE ASSETS AND LIAB ILITY OF THE AE WERE DISTRIBUTED TO THE ASSESSEE AT BOOK VALUE, THAT POST LIQUIDATIO N THE ASSESSEE CONTINUED THE BUSINESS IN USA THROUGH ITS BRANCHES, THAT THE ASSE TS WERE TAKEN OVER BY THE ASSESSEE INCLUDED INTANGIBLE ASSETS-BEING TO REGIST RATION RIGHTS OF CFS AND DIACA -MBA,THAT THE BOOK VALUE OF THE REGISTRATION WAS RS .67.99 CRORES, THAT THE PESTICIDE MARKET OF US WAS A VERY MATURE MARKET WIT H THE STRONG REGULATORY REQUIREMENTS, THAT PESTICIDE REGISTRATION WAS A PRE -REQUISITE FOR ANY OPERATION, THAT AS PER THE PREVALENT LAWS OF USA ASSESSEES WER E REQUIRED TO OBTAIN A REGISTRATION FROM THE US ENVIRONMENTAL PROTECTION A GENCIES, THAT FOR A REGISTRATION THE APPLICANT WOULD BE REQUIRED TO SUB MIT A DOSSIER,THAT THE AE HAD GHARDA CHEMICALS-(05-06) 25 OBTAINED REGISTRATION,THAT THE PRODUCT REGISTRATION WAS REVIEWED ON A PERIODIC BASIS FOR SAFETY TO HUMAN BEINGS,ANIMALS AND THE EN VIRONMENT,THAT FEES WERE PAYABLE ANNUALLY TO MAINTAIN THE REGISTRATIONS, THA T THE AE HAD INCURRED SIGNIFICANT REGISTRATION COST FOR THE PRODUCTION RE GISTRATION AMOUNTING TO USD 1, 28, 6,995.33,THAT THE ABOVE VALUE WAS DULY REFLECTE D AS GROSS BLOCK IN THE BOOKS OF THE AE,THAT THE VALUER HAD CONSIDERED THE ACTUAL EXPENDITURE INCURRED ON ACQUISITION OF REGISTRATION RIGHTS AS ABOVE WHILE V ALUING THE REGISTRATION RIGHTS,THAT THE AE HAD MEMBERSHIP OF THREE PROFESSI ONAL TASK FORCE AGENCIES FORMED UNDER FEDERAL INSECTICIDE,FUNGICIDE,AND RODE NTICIDE ACT,THAT THE MEMBERSHIP OF THE ABOVE AGENCIES WAS ESSENTIAL TO M AINTAIN THE REGISTRATION OF CPF AND DIACAMBA, THAT THE ELIGIBILITY TO SELL THE PRODUCTS BY THE ASSESSEE IN USA DEPENDED SOLELY ON THE OWNERSHIP OF THE REGISTR ATION RIGHTS OF THE PRODUCTS AS REQUIRED BY THE LAW OF THAT COUNTRY, THAT THE AO /TPO HAD MADE AN ADJUSTMENT OF RS. 23.06 CRORES BY REJECTING THE VAL UATION OF REGISTRATION RIGHTS BY AN INDEPENDENT EXPERT VALUE, THAT THE TPO HAD NO T READ THE VALUATION REPORT IN PROPER PERSPECTIVE, THAT THE ASSESSEE HAD REQUES TED THE VALUER TO FURTHER CLARIFY THE VALUATION REPORT, THAT THE VALUER HAD R EPORTED THAT ACCURATE DETERMINATION OF ACTUALLY STUDY COSTS PAID BY THE T HAT ORDER WAS KEY IN PREPARING THE BASIS FOR VALUING THE TOTAL NEGOTIATED SETTLEME NT PAID BY THE FELLOW ON REGISTRATION, THAT THE ASSESSEE HAD INCURRED COST O F USD1,28,16,995 AND FURTHER SUM OF USD30,62,311 WAS ALSO SPENT,THAT AE HAD INCU RRED EXPENDITURE OF USD 1,58,79,306 AND NOT USD 97,33,679 AS ADOPTED BY THE TPO,THAT THE BUSINESS OF THE ASSESSEE WAS GROWING FROM YEAR TO YEAR. DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE MADE AN APPLICATION FOR ADMISSION OF A DDITIONAL EVIDENCES UNDER RULE 46AOF THE INCOME TAX RULES, 1962.AFTER ADMITTI NG THE ADDITIONAL EVIDENCES, THE FAA FORWARDED A COPY OF THE DOCUMENTS TO THE TP O FOR HIS COMMENTS. THE TPO FILED HIS COMMENTS IN THAT REGARD. AFTER CONSIDERING THE AVAILABLE MATERIAL,THE FAA HE LD THAT THE ASSESSEE HAD A WHOLLY OWNED SUBSIDY IN USA,THAT THE AE HELD REGIST RATION RIGHTS IN TWO GHARDA CHEMICALS-(05-06) 26 PRODUCTS,THAT THE RIGHTS WERE REVALUED IN THE BOOKS OF THE AE AS ON 1.1.2004 BASED ON VALUERS REPORT, THAT THE REGISTRATION RIG HTS WERE REVALUED FROM RS. 44.29 CRORES TO RS. 67.99 CRORES,THAT THE AE WAS DI SSOLVED ON 30/09/2004, THAT UPON DISSOLUTION ALL THE ASSETS AND THE LIABILITIES OF THE AE WERE TAKEN BY THE ASSESSEE AT THE BOOK WILL YOU WHICH INCLUDED VALUE OF REGISTRATION RIGHTS ARE TO BE 67.99 CRORES,THAT THE TPO HAD MADE AN ADJUSTMENT OF RS. 23.06 CRORES TO THE CONSIDERATION PAID BY THE ASSESSEE ON ACQUISITION O F THE ASSETS AND LIABILITIES OF THE AE BY IGNORING THE REVALUATION OF THE REGISTRAT ION RIGHTS,THAT A SUM OF USD30,62,311WAS SPENT ON MEMBERSHIP FEES AND INCIDE NTAL EXPENSES, THAT THOSE EXPENSES WERE INCURRED MUCH PRIOR TO THE YEAR 2004, THAT THERE WAS INFLATION AND RISK PREMIUM FACTOR ATTACHED TO IT, T HAT SAME HAD TO BE FACTORED IN, THAT THE TPO IN HIS REMAND REPORT HAD NOT DISPUTED THE ACTUAL EXPENDITURE INCURRED BY THE AE, THAT HE HAD ALSO NOT DISPUTED T HE CONTENTS OF THE VARIOUS CLARIFICATIONS PROVIDED BY THE VALUER,THAT THE AE W AS IN A POSITION TO TRANSFER OR ASSIGN THE REGISTRATION TO ITS SUCCESSOR OR TO ANY THIRD PARTY WHICH ACQUIRED RESPECTIVE REGISTRATIONS,THAT THE OBSERVATIONS MADE BY THE TPO ABOUT NON- TRANSFERABILITY OF THE REGISTRATION AND RESTRICTION ON SALE OF REGISTRATION DATA WERE NOT IN ACCORDANCE WITH THE FACTS ON RECORD, THAT TH E AE WAS DISSOLVED AND BY OPERATION OF LAW LICENSES FOR THE TWO PRODUCTS DEVO LVED ON THE ASSESSEE AND THEY WERE NOT ACQUIRED BY IT, THE BOOK VALUE OF REGISTRA TION RIGHTS TAKEN OVER BY THE IT AS USD1,47,30,136,THAT IT WAS MUCH LOWER VALUE COMP ARED TO THE VALUATION MADE BY THE VALUER AT USD15.6 MILLION, THAT THE BOO K VALUE WAS ALSO LOWER COMPARED TO THE ACTUAL EXPENDITURE INCURRED OF USD1 ,58,79,306 ON THE REGISTRATION OF THOSE PRODUCTS, THAT THE TPO HAD ME RELY REJECTED THE VALUATION DONE BY THE VALUER ON THE SURMISE WITHOUT CONSIDERI NG THE EVIDENCES ON RECORD,THAT THE ADJUSTMENT MADE BY THE TPO BY REJEC TING THE REVALUATION OF THE REGISTRATION RIGHT WAS NOT PROPER.FINALLY,HE HELD T HAT THE CONSIDERATION FOR REGISTRATION RIGHTS,AS ADOPTED BY THE ASSESSEE AS P ER THE BOOK VALUE OF RS.67.99 CRORES IN THE BOOKS OF THE AE,HAD TO BE ACCEPTED. GHARDA CHEMICALS-(05-06) 27 18.2. BEFORE US,THE DR RELIED UPON THE ORDER OF THE TPO.T HE AR MADE THE SAME SUBMISSIONS THAT WERE MADE BEFORE THE FAA AND SUPPO RTED HIS ORDER. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE WHOLLY OWNED SUBSIDY OF THE ASSESSEE HELD REGISTRATION RIGHTS IN TWO PRODUCTS,THAT IT HAD PAID REGISTRATION CHARGES FOR SELLING THOSE PRODUCTS IN THE US MARKETS,THAT IT HAD ALSO PAID OTHER FEES AS REQUIRE D BY THE US LAWS,THAT IT HAD INCURRED TOTAL EXPENDITURE OF USD 1,58,79,306 UNDER THE HEAD REGISTRATION CHARGES,THAT THE AE GOT THE ASSETS REVALUED AS ON 0 1.01.2204,THAT REGISTRATION RIGHTS WERE REVALUED FROM RS. 44.29 CRORES TO RS. 6 7.99 CRORES BY THE INDEPENDENT VALUER,THAT ON 30.09.2004 THE AE WAS DI SSOLVED,THAT THE ASSESSEE TOOK OVER THE ASSETS AND LIABILITIES OF THE AE AT T HE REVALUED PRICE,THAT THE PAYMENT FOR REGISTRATION RIGHTS AND OTHER FEES WERE PAID MUCH BEFORE THE REVALUATION,THAT IT ADOPTED LESSER VALUE OF THE RIG HTS AS COMPARED TO THE VALUE DETERMINED BY THE VALUER,THAT FURTHER CLARIFICATION WERE CALLED FROM THE VALUER,THAT IN THE REMAND REPORT THE TPO AGREED THA T PAYMENT WAS MADE BY THE AE FOR THE RIGHTS IN EARLIER YEARS,THAT THERE WAS N O DISCREPANCY IN THE METHOD OF VALUATION,THAT THE TPO POINTED OUT ELEMENT OF NON T RANSFERABILITY IN THE VALUATION REPORT FOR SUPPORTING THE ADJUSTMENT,THAT THE FAA HAS GIVEN A CATEGORICAL FINDING OF FACT THAT THE TPO WAS FACTUA LLY INCORRECT IN ARRIVING AT THE CONCLUSION OF NON TRANSFERABILITY, THAT THE AE HAD RIGHT TO TRANSFER THE RIGHTS TO OTHERS ALSO.CONSIDERING THE ABOVE FACTS,WE ARE OF T HE OPINION,THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL I NFIRMITY.THEREFORE, CONFIRMING HIS ORDER,WE DECIDE GROUND NO.8 AGAINST THE AO. 19. LAST GROUND IS ABOUT COMPUTATION OF INTEREST U/S. 2 34B OF THE ACT AND IS CONSEQUENTIAL IN NATURE. ITA/8376/MUM/2010(05-06) ASSESSEES APPEAL : GHARDA CHEMICALS-(05-06) 28 20. FIRST GROUND OF APPEAL IS ABOUT NON-ADJUDICATION OF THE GROUND RELATING TO COMPUTATION/RE-COMPUTATION OF CAPITAL LOSS ON LIQUI DATION OF INVESTMENT HELD BY THE ASSESSEE IN G-USA.IN THE RETURN OF INCOME,THE A SSESSEE HAD COMPUTED LONG- TERM CAPITAL LOSS OF RS. 18.22 CRORES ON LIQUIDATIO N OF GHARDA USA.VIDE ITS LETTER,DATED 18/11/2008 THE ASSESSEE, WITHOUT PREJU DICE, SUBMITTED THAT IN THE EVENT OF TRANSFER PRICING ADJUSTMENT PROPOSED BY TP O IS ACCEPTED AND TP ADJUSTMENT WERE TO BE MADE,THEN THE CAPITAL LOSS HA D TO BE RECOMPUTED AT RS.23.06 CRORES. HOWEVER,THE AO HELD THAT AS PER TH E PROVISIONS OF SECTION 47 (IV)/(V) OF THE ACT,TRANSACTION FROM HOLDING COMPAN Y TO SUBSIDIARY COMPANY OR VICE VERSA WERE NOT REGARDED AS TRANSFER,THAT THE PROVISIONS OF SECTION 45 OF THE ACT WERE NOT APPLICABLE. ACCORDINGLY,THE AO DID NOT CARRY OUT COMPUTATION OF CAPITAL GAIN/LOSS AT ALL.BEFORE THE FAA,THE ASSESSE E,VIDE ITS LETTER DATED 6/4/2010,STATED THAT COMPUTATION OF CAPITAL GAIN WA S MADE UNDER SECTION 46 (2) OF THE ACT ON THE ASSETS RECEIVED ON LIQUIDATION OF THE G-USA AT FAIR VALUE. THE FAA DID NOT ADJUDICATE THE GROUND RAISED BY THE ASS ESSEE ON THE BASIS THAT THE GROUND WAS LINKED TO TP ADJUSTMENT OF RS.23.06 CROR ES AND HELD THAT HE HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE,THAT TH E GROUND WAS CONSEQUENTIAL AND HAD LOST ITS RELEVANCE. 20.1. BEFORE US,THE AR SUBMITTED THAT TP ADJUSTMENTS AND RECALCULATION OF LONG- TERM CAPITAL LOSS WERE TWO DIFFERENT THINGS,THAT TH EY WERE NOT LINKED WITH EACH OTHER,THAT SEPARATE ADJUDICATION WAS REQUIRED WITH REGARD TO ALLOWABILITY OR OTHERWISE OF THE LONG-TERM CAPITAL LOSS. THE DR LEF T THE ISSUE TO THE DISCRETION OF THE BENCH. 20.2. AFTER HEARING THE RIVAL SUBMISSIONS,WE ARE OF THE O PINION THAT THE FAA SHOULD HAVE DECIDED THE ISSUE RAISED BY THE ASSESSE E.THE TP ADJUSTMENTS DO NOT DEAL WITH COMPUTATION/ RE-COMPUTATION OF CAPITAL LO SS.SUCH COMPUTATION WILL HAVE ITS OWN CONSEQUENCES.THE ASSESSEE HAD SPECIFIC ALLY MENTIONED THAT LOSS GHARDA CHEMICALS-(05-06) 29 WOULD HAVE TO BE COMPUTED AT RS. 23.06 CRORE AS AGA INST RS.18.2 TO CRORES. AS THE FAA HAS NOT ADJUDICATED THE ISSUE,SO,IN THE INT EREST OF JUSTICE,WE ARE RESTORING BACK THE ISSUE TO THE FILE OF THE FAA FOR FRESH ADJUDICATION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEAR ING TO THE ASSESSEE.FIRST GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESS EE,IN PART. 21. SECOND GROUND OF APPEAL IS ABOUT NOT ALLOWING ADDIT IONAL DEDUCTION OF 50% (I.E 150% -100%) U/S.35(2AB)(1) OF THE ACT IN RESPE CT OF THE EXPENDITURE OF RS. 15.57 CRORES INCURRED ON IN-HOUSE RESEARCH AND DEVE LOPMENT ACTIVITY CARRIED OUT ITS DOMBIVILI R&D FACILITY. 21.1. DURING THE COURSE OF HEARING BEFORE US, THE AR STAT ED THAT THE CBDT HAD ISSUED THE CERTIFICATE ON 30.3.2009,THAT ASSESSEE W AS ENTITLED FOR DEDUCTION.HE REFERRED TO THE PAGES 216 AND 217 OF THE PAPER BOOK .HE RELIED UPON THE CASES OF CLARIS LIFE SCIENCES LTD.(326ITR251)AND SANDAN VIKAS(INDIA)LTD.(335ITR117).THE DR LEFT THE ISSUE T O THE DISCRETION OF THE BENCH. 21.2. WE FIND THAT THE CBDT HAD ISSUED THE CERTIFICATE ON 30.3.2009 .WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE AY.2003-04 AND THE TRIBUNAL HAD RESTORED BACK THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJU DICATION.WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THAT ORDER(SUPRA) AND SAME READS AS UNDER: 8.ADDITIONAL GROUND OF APPEAL FILED BY THE ASSESSEE,IS ABOUT CLAIM MADE BY THE ASSESSEE U/S.35(2AB)OF THE ACT. IN THE RETURN OF IN COME FILED BY IT FOR THE YEAR IT CLAIMED A DEDUCTION FOR 100% OF THE EXPENDITURE INC URRED BY IT WHICH QUALIFIED FOR DEDUCTION U/S. 35(2AB) OF THE ACT. IT WAS ARGUED BEFORE US,THAT ALL DETAILS RELATING T O THE SAID EXPENDITURE WERE AVAILABLE IN THE TAX AUDIT REPORT FILED BY IT,THAT DEDUCTION WAS ALLOWABLE AT THE RATE OF 150% OF THE EXPENDITURE FOR THE YEAR UNDER CONSIDERATION ,THAT THE AO SHOULD BE DIRECTED TO ALLOW THE DIFFERENCE. GHARDA CHEMICALS-(05-06) 30 AFTER GOING THROUGH THE SUBMISSIONS MADE BY THEASSE SSEE,WE ARE OF THE OPINION THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF T HE AO.HE IS DIRECTED TO DECIDE THE ALLOWABILITY OF THE CLAIM MADE BY THE ASSESSEE AFTE R AFFORDING A REASONALBE OPPROTUNITY OF HEARING TO IT.ADDITIONAL GROUND OF A PPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. AS THE AO/FAA DID NOT HAVE BENEFIT OF THE CERTIFICA TE ISSUED BY THE BOARD AT THE TIME OF ASSESSMENT/DECIDING THE APPEAL.SO,FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL,MATTER IS RESTORED BACK TO THE FILE OF THE FAA TO DECIDE THE ISSUE AFRESH.SECOND GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT,APPEALS FILED BY THE AO AND THE ASSESSE E FOR THE AY.S.STAND PARTLY ALLOWED. . . . ORDER PRONOUNCED IN THE OPEN CO URT ON 29 TH APRIL, 2016. 29 , 2016 SD/- SD/- (. . , /C.N. PRASAD) ( /RAJENDRA) /JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 29.04.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR K BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.