ExlService.com (India) P.Ltd, New Delhi V. DCIT LTU, Circle-1, New Delhi

ITA 5435/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2853 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 25-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income; Competent authority; Rule 8D; Set aside
• Section: 143(3); 92E; 234B; 14A; 115JB; 13; 22; 32

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO. 8452/DEL/2019 [A.Y 2015-16] ITA NO. 5435/DEL/2017 [A.Y 2012-13] ITA NO. 5436/DEL/2017 [A.Y 2013-14] EXLSERVICE.COM INDIA PVT LTD VS. THE A.C.I.T, LT U 414, 4 TH FLOOR, PLOT NO. 10 & 11 CIRCLE - 1 DLF JASOLA TOWER B, DDA NEW DELHI DISTRICT CENTRE, NEW DELHI PAN: AAACE 5174 C [APPELLANT] [RESPONDENT] ASSESSEE BY : SHRI AJAY VOHRA, SR . ADV SHRI NEERAJ JAIN, ADV REVENUE BY : SHRI SURENDER PAL, C IT-DR DATE OF HEARING : 02.03.2021 DATE OF PRONOUNCEMENT : 08.03.2021 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, ITA NO. 5435 AND 5436/DEL/2012 ARE APPEALS BY THE ASSESSEE PREFERRED AGAINST THE ORDERS OF THE LD. CIT(A)-22, NEW DELHI DATED 16.06.2017 FOR A.Y 2012-13 AND 2013-14. ITA NO. 8452/DEL/2019 IS 2 APPEAL BY THE ASSESSEE PREFERRED AGAINST THE ORDER DATED 26.09.2019 FOR A.Y 2015-16 FRAMED U/S 143(3) R.W.S 144C(13) OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] PERTAINING TO A.Y 2013-14. 2. AT THE VERY OUTSET, THE LD. DR STRONGLY OBJECTED FOR HEARING OF THE APPEAL IN ITA NO. 5435 AND 5436/DEL/2012 CLAIMI NG THAT THIS IS NOT THE BENCH TO CONSIDER THESE APPEALS AND SHOULD BE H EARD BY THE REGULAR BENCH ASSIGNED TO HEAR SUCH APPEALS. 3. WE DO NOT FIND ANY MERIT IN THIS OBJECTION OF TH E LD. DR. THE TRIBUNAL, WHILE GRANTING STAY IN APPEAL IN ITA NO. 8452/DEL/2019 IN SA NO. 1001/DEL/2019 ORDER DATED 01.11.2019 HAD MADE I T VERY CLEAR THAT OTHER APPEALS OF THE ASSESSEE ON SIMILAR ISSUE HAVE BEEN FIXED BEFORE THE BENCH ON THE SAME DATE. 4. SINCE COMMON GROUNDS ARE INVOLVED IN THE CAPTION ED APPEALS, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 3 5. GROUND NO. 1 IN ALL THE APPEALS IS OF GENERAL IN NATURE AND NEEDS NO ADJUDICATION. 6. COMMON GROUND NOS. 2 TO 2.6 IN ALL THE APPEALS R ELATE TO THE DISALLOWANCE OF DEPRECIATION ON GOODWILL. 7. BRIEFLY STATED, THE FACTS OF THIS QUARREL ARE TH AT DURING THE A.Y. 2010-11, THE APPELLANT ENTERED INTO AN ASSET PURCHA SE AGREEMENT [APA] ON 04.11.2009 AND SUBSEQUENT AMENDMENT THERET O ON 01.03.2010 WITH AMERICAN EXPRESS INDIA PVT LTD TO A CQUIRE GLOBAL TRAVEL SERVICE CENTRE AS A GOING CONCERN FOR A LUMP SUM CONSIDERATION ON SLUMP SALE BASIS OF RS. 1350 MILLION. 8. THE AFORE-STATED PURCHASE CONSIDERATION WAS ALLO CATED TO IDENTIFIABLE ASSETS AND LIABILITIES BASED ON THEIR BOOK VALUE AND THE DIFFERENCE BETWEEN THE PURCHASE AND NET VALUE OF AC QUIRED ASSESTS WAS RECOGNISED AS GOODWILL OF RS. 76,97,89,365/- IN T HE BOOKS OF THE APPELLANT IN A.Y 2012-13. 4 9. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DE PRECIATION STATING THAT IN A.Y 2010-11, THOUGH THE DRP HAS ALLOWED THE CLAIM OF DEPRECIATION, THE DEPARTMENT HAS FILED AN APPEAL BE FORE THE TRIBUNAL AND FURTHER, THE ASSESSEE HAS FAILED TO ESTABLISH I TS CLAIM OF THE PARAMETERS DISCUSSED IN THE ASSESSMENT ORDER. THE MAIN REASON FOR DISALLOWANCE OF DEPRECIATION IS THAT THE ASSESSEE H AS NOT SHOWN OR ESTABLISHED ANY SUCH INTANGIBLE ASSETS OR INTELLECT UAL ASSETS RECOGNISED IN THE BOOKS OF ACCOUNTS OF THE TRANSFEROR. THE AS SESSING OFFICER FURTHER OBSERVED THAT THERE IS NO QUESTION OF TRANS FER OF INTANGIBLE OR INTELLECTUAL ASSETS BY THE TRANSFEROR TO THE TRANSF EREE AS BOTH THE PARTIES HAVE AGREED THAT TRANSFER OF ASSETS ON GOIN G CONCERN BASIS ON THE CONDITION THAT THE ASSESSEE HAS AGREED TO PROVI DE SERVICE TO THE TRANSFEROR FOR WHICH THE ASSESSEE WILL RECEIVE CONS IDERATION ON COST PLUS MARK UP BASIS. 10. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE EXPENSE ACQUISITION OF GOODWIL L AND THE PRICE FOR WHICH THAT IS PURCHASED. THE ASSESSING OFFICER OBS ERVED THAT THE PURCHASE PRICE OF THE TRANSACTION WAS APPROXIMATELY RS. 1350 MILLION WHICH WAS ALLOCATED TO IDENTIFIABLE ASSETS AND LIAB ILITIES BASED ON THEIR BOOK VALUE AND DIFFERENCE HAS BEEN RECOGNISED AS GO OD WILL AT RS. 769 5 MILLION. ACCORDING TO THE ASSESSING OFFICER, PURCH ASE CONSIDERATION INCLUDES RS. 476 MILLION IN RESPECT OF CUSTOMER REL ATIONSHIP HAS BEEN HELD FOR SALE TO EXL SERVICE HOLDING INC, THE ULTIM ATE PARENT COMPANY WHICH HAS BEEN DISCLOSED UNDER CURRENT ASSETS. 11. DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A). THE RELEVANT FINDINGS OF THE LD. CIT(A ) READ AS UNDER: FROM A PERUSAL OF THE ASSESSMENT ORDER, IT IS NOTI CED THAT THE A.O. HAS T HELD THAT THE DEPRECATION IS NOT TO BE A LLOWED ON GOODWILL. THE A.O. HAS DISALLOWED DEPRECIATION ON T HE GROUND THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT ANY SUCH INTANGIBLE ASSET OR INTELLECTUAL ASSET WAS ACQUIRED BY IT. REASON FO R DISALLOWANCE OF DEPRECIATION WAS FAILURE OF THE ASSESSEE TO ESTABLI SH THE EXISTENCE OF GOODWILL AND THE PRICE / VALUATION OF THE SAME. THE ASSESSMENT ORDER ON THE PAGE 19/20 MENTIONS THAT THE PURCHASE PRICE OF THE UNDERTAKINGS WAS APPROXIMATELY INR 1350 MILLION OUT OF WHICH THE GOODWILL WAS RECOGNIZED AT 769 MILLION INR. THE PUR CHASE CONSIDERATION INCLUDED 476 MILLION INR IN RESPECT O F THE CUSTOMER RELATIONSHIPS, WHICH HAD BEEN SOLD TO M/S EXL SERVI CES HOLDINGS INC, THE PARENT COMPANY. THOUGH, THE AO HAS REFERRE D TO THE FINDINGS IN THE ASSESSMENT ORDER OF THE A.Y. 2010-1 1 AND HAS ALSO MENTIONED THE PENDENCY OF THE APPEAL OF THE REVENUE BEFORE THE ITAT AS ONE OF THE REASONS FOR THE DISALLOWANCE, TH E MAIN REASON FOR DISALLOWANCE WAS THAT THE APPELLANT ACTUALLY DI D NOT HAVE ANY 6 GOODWILL AND THE VALUATION OF THE GOODWILL, IF ANY, AS CLAIMED BY THE APPELLANT WAS NOT CORRECT. 8.2 IT WAS IN THIS BACKGROUND THAT THE MATTER WAS F URTHER INVESTIGATED AND IT WAS LEARNT THAT THE FACTS BEFOR E HON'BLE ITAT / DRP IN A.Y. 2010-11, WHICH FORMED THE BASIS OF TH E DECISION OF DRP/ITAT IN A.Y. 2010-11 WERE SLIGHTLY DIFFERENT FR OM THE ACTUAL FACTS IN A.Y. 2011-12 AND 2012-13. THE DRP'S IN ITS ORDER FOR A.Y. 2011-12 HAS SIMPLY FOLLOWED ITS DECISION FOR A.Y. 2 010-11 AND THE ORDER OF THE HON'BLE ITAT FOR A.Y. 2010-11 IS BASED ON THE FACTS OF A.Y. 2010-11 AS PRESENTED BEFORE THE HON'BLE ITA T. 12. THE LD. CIT(A) FURTHER SUPPORTED THE DISALLOWAN CE BY OBSERVING AS UNDER: THERE IS NO REFERENCE TO TRANSFER OF INTANGIBLES FO R INR 476 MILLION TO THE PARENT COMPANY OF THE APPELLANT IN A BOVE PARA. IN A.Y. 2011-12, THE ASSESSEE TRANSFERRED THE CUSTOMER CONT RACTS OF THE BUSINESS UNDERTAKING PURCHASED BY IT TO ITS HOLDING COMPANY FOR 476 MILLION INR VIDE INVOICE DATED 15.10.2010. IN T HE REPORT U/S 92E ATTACHMENT III FOR A.Y. 2011-12 THIS AMOUNT HAS BEEN MENTIONED AS REIMBURSEMENT FOR CUSTOMER RELATIONSHI P BENEFIT TO THE COMPANY. THE NOTES MENTIONED THAT THE REIMBURSE MENT HAS BEEN MADE AT THE COST AND NO BENCH MARKING IS REQUI RED. FOR REFERENCE THE ATTACHMENT III OF THE TRANSFER PRICIN G REPORT FOR A.Y. 2011-12 ALONGWITH NOTES 4, 8 AND 10 ARE REPROD UCED HEREIN UNDER. 7 'EXLSERVICE.COM (INDIA) PRIVATE LIMITED DETAILS IN RESPECT OF EACH ASSOCIATED ENTERPRISE AND EACH INTERNATIONAL TRANSACTION OR CLASS OF INTERNATIONAL TRANSACTIONS NOTSPECIFCALLY REFERREED ANYWHERE ELSE DURING THE YEAR ENDED MARCH 31, 2011 PRICE (RS.) EXL SERVICE HOLDINGS, INC., US, 280 PARK AVENUE, 38TH FLOOR NEW YORK, NY 10017 REIMBURSEMENT OF EXPENSES RECEIVED BY THE COMPANY 321,754,4 85 321,754,485 NO BENCHMARKING REQUIRED (SEE NOTE 4, 8 AND 10 IN ATTACHMENT EXL SERVICE HOLDINGS, INC., US, 280 PARK AVENUE, 38TH FLOOR NEW YORK, NY 10017 REIMBURSEMENT FOR CUSTOMER RELATIONSHIP BENEFITS TO THE COMPANY. 476,000,0 00 476,000,000 NO BENCHMARKING REQUIRED (SEE NOTE 4, 8 AND 10 IN ATTACHMENT FXL SERVICE HOLDINGS, INC., US, 280 PARK AVENUE, 38TH FLOOR NEW YORK, NY 10017 REIMBURSEMENT OF PERQUISITE TAX TO THE COMPANY ON EMPLOYEE STOCK OPTIONS NO BENCHMARKING REQUIRED (SEE NOTE 4, 8 AND 10 IN ATTACHMENT 4. THE COMPANY HAS INCURRED CERTAIN EXPENSES ON BEHALF OF ITS ASSOCIATED ENTERPRISES AND RECOVERED THE SAME FROM THE TOTAL AMOUNT RECEIVED OR RECEIVABLE FOR SERVICES PROVIDED NAME & ADDRESS OF THE ASSOCIATED ENTERPRISE DESCRIPTION OF SERVICES PROVIDED/ AVAILED TO /FROM THE ASSOCIATED AS PER BOOKS OF ACCOUNT (RS.) --- ------- AS COMPUTED BY THE ASSESSEE HAVING METHOD USED FOR DETERMINING THE ARMS LENGTH PRICE. 8 ASSOCIATED ENTERPRISES AT COST. THE COMPANY BELIEVES THAT THE FUNCTION PERFORMED BY THE COMPANY RELATES TO FACILI TATING OF PAYMENT ON BEHALF OF ASSOCIATED ENTERPRISES. ACCORDINGLY, THE 'COST ONLY' REIMBURSEMENT BY ASSOCIATED ENTERPRISES TO THE COMPANY COULD BE REGARDED AS THE ARM'S PRICE. 8. IN THE VARIOUS ATTACHMENTS OF THIS REPORT, THE TOT AL AMOUNT PAID/RECEIVED OR PAYABLE/RECEIVABLE AS PER BOOKS OF THE COMPANY IS THE TOTAL AMOUNT FOR EACH CLASS OF TRANS ACTIONS FOR ASSESSMENT YEAR 2011-12, LISTED FOR EACH ASSOCIATED ENTERPRISES. 9. IN DETERMINING THE OPERATING MARGIN FOR EACH CLASS OF INTERNATIONAL TRANSACTIONS, THE INDIRECT COSTS HAVE BEEN ALLOCATED BASED ON APPROPRIATE ASSUMPTIONS AS DETER MINED BY THE MANAGEMENT. 10. THE COMPANY HAS CERTIFIED THAT THERE ARE NO TRANSA CTIONS, OTHER THAN THOSE DISCLOSED IN ATTACHMENTS II AND II I THAT HAVE BEEN MADE WITH ASSOCIATED ENTERPRISES OR PERSO NS SPECIFIED IN ATTACHMENT I.' 10.2 IN THE ORDER U/S 92CA(3) FOR A.Y. 2011-12 THERE IS NO DISCUSSION OF THIS TRANSACTION EXCEPT REPRODUCTION OF ITS DESCRIPTION, APPARENTLY ON THE PRESUMPTION THAT IT IS REIMBURSEMENT OF COST OF CUSTOMER RELATIONSHIP BENE FIT TO THE COMPANY WITHOUT ANY MARK UP 10.3 AS IS EVIDENT FROM THE ABOVE DISCUSSION AND RECORD OF APPELLATE PROCEEDINGS (SUPRA) THE APPELLANT DID NOT EXPLAIN IN EXPLICIT TERMS THE WORKING OF THE GOODWILL IN THE A SSESSMENT / 9 APPELLATE PROCEEDINGS OF A.Y. 2010-11. AS PER THE S AID WORKING OUT OF THE TOTAL CONSIDERATION OF 1334.15 MILLION I NR PAID BY THE APPELLANT IN THE A.Y. 2010-11, 476 MILLION INR WAS TO BE RECEIVED FROM THE PARENT COMPANY LEAVING A BALANCE CONSIDERATION OF 858.15 MILLION INR. THE NET ASSET VALUE OF THE UNDERTAKING TAKEN OVER WAS WORKED OUT AT 88.36 MILL ION INR LEAVING A DIFFERENCE OF 769.79 MILLION INR AS THE D IFFERENCE BEING THE VALUE OF THE INTANGIBLES. 10.4 THIS TRANSACTION OF INR 476 MILLION HAS TAKEN PLAC E IN A.Y. 2011-12 AND NOT IN A.Y. 2010-11. IT IS CLAIMED THAT THIS AMOUNT WAS CLUBBED IN CURRENT ASSETS IN A.Y. 2010-11. BUT THE INVOICE WAS RAISED IN A.Y. 2011-12. THE AGREEMENT BETWEEN APPEL LANT AND ITS HOLDING COMPANY FOR THE AMOUNT OF 476 MILLION INR H AS NOT BEEN FILED INSPITE OF SEVERAL OPPORTUNITIES TO ASCERTAIN THE DATE OF AGREEMENT AND THE BASIS OF VALUATION OF INTELLECTUA L PROPERTY TRANSFERRED. IN THE CASE OF SMIFS SECURITIES LTD. ( SUPRA), THE ISSUE INVOLVED WAS WHETHER GOODWILL IS AN ASSET U/S 32 AN D NOT THE VALUATION ASPECT. MOREOVER, THE DIFFERENCE OF SLUMP SALE CONSIDERATION AND COST OF ASSETS WAS TAKEN AS THE V ALUE OF GOODWILL BY THE ASSESSEE IN THAT CASE. THE SAME ISSUE WAS IN VOLVED IN THE CASE OF AREVA T&D INDIA LTD. (SUPRA). THE HON'BLE I TAT'S DECISION IN A.Y. 2010-11 IS BASED MAINLY ON THESE T WO DECISIONS. 10.5 THE CORRESPONDING AMOUNT OF INTANGIBLES IN THE CAS E OF APPELLANT IS INR 1245.79 MILLION AND NOT INR 1245.7 9 MILLION INR. THE INTANGIBLE ASSETS M/S EXL SERVICE.COM (INDIA) P VT. LTD. APPEAL NO. 18/16-17, AY-2012-13 ACQUIRED FOR INR 1334.15 M ILLION WERE 10 TRANSFERRED IN A.Y. 2011-12 FOR INR 476 MILLION INR . NO INTANGIBLE ASSETS REMAINED WITH APPELLANT AFTER THAT BUT FACTS WERE PRESENTED IN A MANNER, WHICH CONVEYED AS IF THE INT ANGIBLES ACQUIRED IN A.Y. 2010-11, WERE OF 769.79 MILLION IN R ONLY. THOUGH, IT IS CLAIMED THAT THE AMOUNT OF INR 476 MILLION WA S IN CURRENT ASSETS IN A.Y. 2010-11 (SURPRISING WITHOUT RAISING ANY INVOICE), THIS FACT WAS NEVER EXPLICITLY DISCLOSED IN A.Y. 2010-11 . IN A.Y. 2012-13, THE ISSUE INVOLVED IN WHETHER ANY GOODWILL REMAINED AFTER THE SAID TRANSFER. 13. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE VEH EMENTLY STATED THAT THE DISALLOWANCE OF DEPRECIATION ON GOOD WILL MADE BY THE ASSESSING OFFICER IN DRAFT ASSESSMENT ORDER FOR A.Y 2010-11 WAS DELETED BY THE DRP WHICH WAS UPHELD BY THE TRIBUNAL IN ITA NO. 302/DEL/2015. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE LD. CIT(A) FAILED TO GIVE CREDENCE TO THE FACT THAT THE BUSINESS WAS ACQUIRED ON SLUMP SALE BASIS FOR RS. 1334.15 MILLIO N AND OUT OF THE SAID TOTAL CONSIDERATION, RS. 476 MILLION WAS TO BE RECE IVED BY THE ASSESSEE FROM ITS PARENT COMPANY. 14. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE RELEVANT PART OF THE FINANCIAL STATEMENTS OF THE AS SESSEE AND POINTED OUT THAT UNDER SCHEDULE IX OF THE FINANCIAL STATEME NT FOR THE YEAR 11 ENDING ON 31.03.2010, AN AMOUNT OF RS. 476 MILLION HAS BEEN SHOWN UNDER OTHER CURRENT ASSETS TO BE READ ALONGWITH N OTE 4 TO SCHEDULE 18 TO THE FINANCIAL STATEMENT. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS AMOUNT HAS BEEN RECEIVED BY THE ASSESSEE IN THE NEXT F.Y. 15. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE LD. CIT(A) AND READ THE RELEVANT OBSERVATIONS OF THE FI RST APPELLATE AUTHORITY. 16. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. AT THE VERY OUTSET, WE HAVE TO STATE THAT THIS IS NOT THE INITIAL YEAR OF CLAIM OF DEPRECIATION. IN OUR CONSIDERED OPINION, UNLESS THE CLAIM IS DISTURBED IN THE INITIAL YEAR O F CLAIM, SUBSEQUENT YEARS CANNOT BE DISTURBED. 17. MOST IMPORTANTLY, IN EARLIER A.YS, CLAIM OF DEP RECIATION HAS BEEN ALLOWED BY THE TRIBUNAL IN ITA NOS. 1482/DEL/2016 A ND 1708/DEL/2016. THE RELEVANT FINDINGS OF THE CO-ORD INATE BENCH READ AS UNDER: 12 38. GROUND NUMBER 2 OF THE APPEAL OF THE AO IS AGAI NST THE DISALLOWANCE OF DEPRECIATION ON GOODWILL AMOUNTING TO 168,391,424 WHICH RESULTED INTO ON ACCOUNT OF AN ASSET PURCHAS E AGREEMENT DATED 4/11/2009 AND ITS SUBSEQUENT AMENDMENT WITH AMERICAN EXPRESS INDIA PRIVATE LIMITED TO ACQUIRE THE GLOBA L TRAVEL SERVICE CENTRE AS A GOING CONCERN FOR A LUMP SUM CONSIDERA TION. THE FACT SHOWS THAT DURING THE ASSESSMENT YEAR 2000 11 TH E ASSESSEE ENTERED INTO AN ASSET PURCHASE AGREEMENT WITH AMERI CAN EXPRESS INDIA PRIVATE LIMITED TO ACQUIRE THE GLOBAL TRAVEL SERVICE CENTRE AS A GOING CONCERN FOR A LUMP SUM CONSIDERATION OF 1 350 MILLION. THE AFORESAID CONSIDERATION WAS ALLOCATED TO AN IDENTIF IABLE ASSET AND LIABILITY BASED ON THE BOOK VALUE, AND THE DIFFERE NCE BETWEEN THE PURCHASE PRICE AND THE NET ASSET VALUE OF ACQUIRED ASSET WAS RECOGNIZED AS A GOODWILL AMOUNTING TO 769,789,365 IN THE BOOKS OF THE ASSESSEE. IT IS REQUIRED TO BE NOTED THAT THIS IS NOT THE FIRST YEAR OF THE CLAIM OF DEPRECIATION ON GOODWILL. IN FACT, THIS IS THE SECOND YEAR OF DEPRECIATION CLAIMED BY THE ASSESSE E ON THE GOODWILL. THE LEARNED ASSESSING OFFICER DISALLOWED THE DEPRECIATION, WHICH WAS DELETED BY THE LEARNED DISP UTE RESOLUTION PANEL. IT IS APPARENT THAT IN ASSESSEES OWN CASE F OR ASSESSMENT YEAR 2010 11 IN ITA NUMBER 302/DEL/2015 THE COOR DINATE BENCH RELYING ON THE DECISION OF THE HONOURABLE SUPREME COURT IN CIT VERSUS SMIF SECURITIES LTD (2012) 348 ITR 302 AND THE DECISION OF THE HONOURABLE DELHI HIGH COURT IN CASE OF AREVA T & D INDIA LTD VERSUS DEPUTY COMMISSIONER OF INCOME TAX (2012) 34 5 ITR 421 HELD THAT DEPRECIATION WAS ADMISSIBLE ON GOODWILL A MOUNTING TO 769,789,365 AND DISMISSED THE APPEAL OF THE REVENUE . THE LEARNED DISPUTE RESOLUTION PANEL DELETED THE DISALLOWANCE F OLLOWING ITS OWN 13 DIRECTION ISSUED IN ASSESSMENT YEAR 2010 11. THE REFORE, THE LEARNED ASSESSING OFFICER IS IN APPEAL BEFORE US. 39. THE LEARNED DEPARTMENTAL REPRESENTATIVE PAYMENT PLEASE SUBMITTED THAT FOR THE PURPOSE OF THE CLAIM OF THE DEPRECIATION MERELY AN ACCOUNTING ENTRY COULD NOT SUFFICE. HE S UBMITTED THAT THERE HAS TO BE AN ASSET AVAILABLE WITH THE ASSESS EE, WHICH SHOULD BE OWNED BY THE ASSESSEE. HE SUBMITTED THAT IT IS MERELY AN ACCOUNTING ENTRY WHICH DOES NOT RESULT INTO AN ASSE T AUTOMATICALLY. HE RELIED UPON THE ORDER OF THE LEARNED ASSESSING O FFICER. 40. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ISSUE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE B Y THE DECISION OF THE COORDINATE BENCH FOR ASSESSMENT YEAR 2000 11 IN ITA NUMBER 302/DEL/2015 AT PARA NUMBER 74 OF THE ORDER . 41. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ON AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. AS STATED BY US EARLIER THAT THIS ISSUE IS NOT A NEW AS THE CLAIM OF THE DEPREC IATION ON THE GOODWILL HAS ALREADY BEEN ALLOWED TO THE ASSESSEE I N ASSESSMENT YEAR 2010 11 BY THE COORDINATE BENCH VIDE PARA 18. IT CAN BE SEEN FROM THE FINDINGS OF THE CO-ORDI NATE BENCH THAT IT HAS RESPECTFULLY FOLLOWED THE FINDINGS GIVEN IN A.Y 2010-11. IN A.Y 2010-11, IN ITA NOS. 302/DEL/2015 AND 615/DEL/2015, THIS ISSUE WAS 14 CONSIDERED BY THE CO-ORDINATE BENCH AT PARA 65 AND ONWARDS OF ITS ORDER AND THE RELEVANT FINDINGS OF THE TRIBUNAL REA D AS UNDER: 71. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN TH E PRESENT CASE, IT IS NOTICED THAT THE LD. DRP DIRECTED THE AO TO A LLOW THE DEPRECIATION ON THE GOODWILL BY FOLLOWING THE DECIS ION OF THE ITAT WHEREIN THE JUDGMENT OF THE HONBLE APEX COURT IN T HE CASE OF CIT VS SMIFS SECURITIES LTD. REPORTED AT 348 ITR 302 AN D THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CAS E OF AREVA T&D INDIA LTD. VS DCIT REPORTED AT 345 ITR 421 HAS BEEN FOLLOWED. WE, THEREFORE, BY CONSIDERING THE TOTALITY OF THE F ACTS, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS GIV EN BY THE LD. DRP ON THIS ISSUE. AS SUCH DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT ON THIS ISSUE. 19. COMING TO THE FACTS WHICH HAVE BEEN CONSIDERED BY THE ASSESSING OFFICER/LD. CIT(A), WE FIND THAT IN THE BALANCE SHE ET AS ON 31.03.2010, GOODWILL HAS BEEN SHOWN AT RS. 769 MILLIONS AND UND ER SCHEDULE IX UNDER THE HEAD OTHER CURRENT ASSETS RS. 476 MILLI ON HAS BEEN SHOWN AS ASSET HELD FOR SALE AT NET BOOK VALUE OR ESTIMAT ED NET REALISABLE VALUE WHICHEVER IS LOWER AND IN NOTES TO ACCOUNT, T HE FOLLOWING HAS BEEN MENTIONED: 15 4. DURING THE YEAR, THE COMPANY ACQUIRED THE OPERA TIONS OF THE AMERICAN EXPRESS GLOBAL TRAVEL SERVICE CENTER, A BU SINESS UNIT OF AMERICAN EXPRESS LOCATED IN GURGAON, INDIA, THAT PR OVIDES THE TRAVEL-RELATED BUSINESS PROCESS OUTSOURCING SERVICE S TO AMERICAN EXPRESS, US, THE EFFECTIVE DATE OF ACQUISITION WAS MARCH 1, 2010. THE PURCHASE PRICE OF THE TRANSACTION WAS APPROXIMA TELY RS. 1,350 MILLION. THE PURCHASE CONSIDERATION WAS ALLOCATED T O IDENTIFIABLE ASSETS AND LIABILITIES BASED ON THEIR BOOK VALUE AN D THE DIFFERENCE BETWEEN THE PURCHASE CONSIDERATION AND THE VALUE OF NET IDENTIFIABLE ASSETS ACQUIRED HAVE BEEN RECOGNIZED A S GOODWILL FOR RS. 769 MILLION. THE PURCHASE CONSIDERATION INCLUDES RS. 476 MILLION IN RESPECT OF CUSTOMER RELATIONSHIPS HAS BEEN HELD FOR SALE TO EX LSERVIEE HOLDINGS. INC. THE ULTIMATE PARENT COMPANY, WHICH H AS BEEN DISCLOSED UNDER OTHER CURRENT ASSETS. THE COMPANY ALSO RECOGNIZED DEFERRED TAX ASSETS ON ACCOUNT OF TIMING DIFFERENCES ON LIABILITIES ASSUMED ON ACQUIS ITION. 20. FROM THE ABOVE FACTS, IT CAN BE SEEN THAT RS. 4 76 MILLION WAS NEVER CONSIDERED FOR CLAIM OF DEPRECIATION ON GOOD WILL. CONSIDERING THE FACTS IN THE LIGHT OF JUDICIAL DECISIONS AND MO ST IMPORTANTLY, KEEPING IN MIND THAT THIS IS NOT THE INITIAL YEAR O F CLAIM OF DEPRECIATION, WE DO NOT FIND ANY MERIT IN THE DISAL LOWANCE MADE BY 16 THE ASSESSING OFFICER AND UPHELD BY THE LD. CIT(A). WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOW ANCE IN THE CAPTIONED A.YS. THE COMMON GRIEVANCE IS ALLOWED IN THE CAPTI ONED APPEALS. 21. SECOND COMMON GRIEVANCE RELATES TO DISALLOWANCE MADE U/S 14A R.W.R 8D OF THE RULES. 22. WE ARE TAKING THE FACTS FOR A.Y 2012-13 IN WHIC H YEAR THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 3,70,22,149/ - FROM INVESTMENTS HELD IN MUTUAL FUNDS WHICH WAS CLAIMED TO BE EXEMPT U/S 19(34) OF THE ACT. THE INVESTMENTS ARE IN MUTUAL F UNDS NAMELY, ICICI PRUDENTIAL PLAN, BIRLA SUNLIFE CASH PLUS INSTITUTIO NAL PLANS AND HDFC MUTUAL FUND AND EARNED DIVIDEND ON DAILY BASIS ON S UCH INVESTMENT. 23. THE ASSESSING OFFICER STRAIGHTAWAY APPLIED RULE 8D OF THE RULES INVOKING PROVISIONS OF SECTION 14A OF THE ACT MECHA NICALLY AND MADE THE IMPUGNED DISALLOWANCE. 24. THE LD. CIT(A) UPHELD THE FINDINGS OF THE ASSES SING OFFICER FOLLOWING THE ORDER OF THE DRP FOR A.Y 2010-11. 17 25. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE ST ATED THAT SUCH DISALLOWANCES WERE DELETED BY THE TRIBUNAL IN EARLI ER A.YS. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT INVEST MENTS ARE ONLY IN MUTUAL FUNDS FROM WHICH DIVIDEND IS RECEIVED ON DAI LY BASIS AND SIMULTANEOUSLY THE SUM IS REINVESTED. THE LD. COUN SEL FOR THE ASSESSEE VEHEMENTLY STATED THAT NO SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESS EE WHICH IS MANDATORY AS HELD BY THE HON'BLE SUPREME COURT IN T HE CASE OF GODREJ BOYCE 394 ITR 449 AND MAXOPP INVESTMENT 402 ITR 640 . 26. THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO TH E ORDER OF THE TRIBUNAL IN A.Y 2011-12 IN ITA NO. 1482 AND 1708/20 16 ORDER DATED 26.08.2020 AND STATED THAT SUCH DISALLOWANCE WAS DE LETED BY THE TRIBUNAL AS NO SATISFACTION WAS RECORDED BY THE ASS ESSING OFFICER WITH RESPECT TO THE EXAMINATION OF BOOKS OF ACCOUNT. 27. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW. IT IS THE SAY OF THE LD. DR THA T THE ASSESSING OFFICER HAS ONLY APPLIED THE THIRD LIMB OF RULE 8D OF THE R ULES AND HAS MADE 18 DISALLOWANCE OF ONLY 0.5% OF THE AVERAGE INVESTMEN T WHICH IS REASONABLE. 28. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. A PERUSAL OF THE ASSESSMENT ORD ER SHOWS THAT NO SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER WITH RESPECT TO THE EXAMINATION OF THE BOOKS OF ACCOUNT. WHILE MAKING DISALLOWANCE, THE ASSESSING OFFICER OBSERVED THAT IT IS UNBELIEVABLE THAT FOR EARNING INCOME OF RS. 3.70 CRORES, NO EXPENDITURE WAS MADE BY THE ASSESSEE. THERE IS NOT EVEN A WHISPER OF EXAMINATION OF BOOKS OF ACCOUNT OF THE ASSESSEE TO VERIFY THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. 29. ON SIMILAR FACTS, THE TRIBUNAL IN A.Y 2011-12 H AS DELETED THE DISALLOWANCE IN ITA NO. 1482 & 1708/DEL/2016 ORDER DATED 26.08.2020. THE RELEVANT FINDINGS READ AS UNDER: 15. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE LEARNED TRANSFER PRICING OFFICER AND DIRECTION OF T HE LEARNED DISPUTE RESOLUTION PANEL. IT WAS SUBMITTED THAT AS THE ASSESSEE HAS NOT RECOVERED THE OUTSTANDING DUE FROM ITS ASSOCIATED ENTERPRISE IN ACCORDANCE WITH THE AGREEM ENT, THE 19 OUTSTANDING BEYOND THAT PERIOD IS A SEPARATE INTERN ATIONAL TRANSACTION, WHICH IS REQUIRED TO BE BENCHMARKED SE PARATELY. HE THEREFORE SUBMITTED THAT NO INFIRMITY COULD BE POINTED OUT IN THE DIRECTION OF THE LEARNED DISPUTE RESOLUTION PANEL, WHICH HAS ALSO SCALE DOWN THE INTEREST, WHICH WAS COMPUTED BY THE LEARNED TRANSFER-PRICING OFFICER. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ON AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. AS IN THE PRE SENT CASE THE ASSESSEE HAS BEEN GRANTED THE WORKING CAPITAL ADJU STMENT WHILE COMPUTING THE ARMS-LENGTH PRICE OF THE INTERNATIO NAL TRANSACTION OF THE SALE OF SERVICES, ACCORDING TO US NO SEPARA TE BENCHMARKING SHOULD BE DONE OF THE OUTSTANDING RECEIVABLE AS OU TSTANDING RECEIVABLE ARE PART OF THE WORKING CAPITAL OF THE A SSESSEE. FURTHER THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF THE HONOURABLE DELHI HIGH COURT IN CASE OF PRINC IPAL COMMISSIONER OF INCOME TAX VERSUS KUSUM HEALTHCARE PRIVATE LIMITED (SUPRA). THEREFORE GROUND NUMBER TWO OF TH E APPEAL OF THE ASSESSEE IS ALLOWED AND LEARNED TRANSFER PRICI NG OFFICER/LEARNED ASSESSING OFFICER ARE DIRECTED TO D ELETE THE ADDITION OF RS 3 55509/ IN RELATION TO THE DELAY I N RECEIPT OF RECEIVABLE FROM ASSOCIATED ENTERPRISE. 17. GROUND NUMBER 4 TO 8 OF THE APPEAL ARE NOT PRES SED AND THEREFORE THOSE GROUNDS ARE DISMISSED. 20 18. GROUND NUMBER 9 OF THE APPEAL IS WITH RESPECT T O THE DISALLOWANCE OF DEPRECIATION CLAIMED BY THE APPELL ANT AT THE RATE OF 60% ON VOICE RECORDING SOFTWARE LICENSES AMOUNT ING TO 3,31,030/. ON THIS VOICE RECORDING SOFTWARE LICEN SE PURCHASED BY THE ASSESSEE, THE ASSESSEE CLAIMED DEPRECIATION OF 1 98618/ AT THE RATE OF 60% HOWEVER THE LEARNED ASSESSING OFFI CER HELD THAT IT IS ACTUALLY A LICENSE AS OPPOSED TO SOFTWARE AND ASSESSEE IS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 25% ONLY, DISALLOWED DIFFERENTIAL DEPRECIATION OF AN AMOUNT OF RS 115860 . THE LEARNED DISPUTE RESOLUTION PANEL ON OBJECTION BY THE ASSES SEE CONFIRMS THE FINDING OF THE LEARNED ASSESSING OFFICER FOLLOWING ITS DIRECTIONS FOR ASSESSMENT YEAR 2010 11 AND HELD THAT THE RA TE OF 60% WAS APPLICABLE ONLY TO THE COMPUTER SOFTWARE PURCHASED OR ACQUIRED ALONG WITH THE COMPUTER AND NOT TO SOFTWARE LICENS E. 19. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE APPELLA NT BY THE ORDER OF COORDINATE BENCH IN APPELLANTS OWN CASE FOR ASSESS MENT YEAR 2010 11 IN ITA NUMBER 302/DEL/2015. HE EXTENSIVELY RE FERRED TO PARA NUMBER 24 OF THAT ORDER. 20. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. IT WAS SUBMITTED T HAT THERE IS A DIFFERENCE BETWEEN THE COMPUTER SOFTWARE AND THE S OFTWARE ON WHICH THE ASSESSEE IS CLAIMING DEPRECIATION AT THE RATE OF 60%, WHICH IS MERELY A LICENSE. 21 21. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ON AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IN THE PRESEN T CASE, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY TH E DECISION IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010 11 I N ITA NUMBER 302/DEL/2015 DATED 3 JANUARY 2017 WHEREIN PARA NUMB ER 24 OF THAT DECISION THE IDENTICAL SOFTWARE WAS CONSIDERED . IN PARA NUMBER 28, THE COORDINATE BENCH RELYING ON THE DECI SION OF THE HONOURABLE DELHI HIGH COURT IN CASE OF CIT VERSUS B SE YAMUNA POWERS LTD (2013) 355 ITR 47 DIRECTED THE AO TO AL LOW THE CLAIM OF THE ASSESSEE FOR DEPRECIATION AT THE RATE OF 60% . THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT DISTINGUISH T HE ABOVE DECISION OR BROUGHT BEFORE US ANY OTHER JUDICIAL PR ECEDENT. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE COORDINATE BENCH IN ASSESSEES OWN CASE WE DIRECT THE LEARNED ASSESSING OFFICER TO GRANT ASSESSEE DEPRECIATION ON THE ABOVE SOFTWARE AT THE RATE OF 60%. ACCORDINGLY, GROUND NUMBER 9 OF T HE APPEAL OF THE ASSESSEE IS ALLOWED. 22. GROUND NUMBER 10 OF THE APPEAL OF THE ASSESSEE IS AGAINST THE DISALLOWANCE OF 1,252,630 U/S 14A READ WITH RULE 8 D OF THE INCOME TAX RULES. THE FACT SHOWS THAT DURING THE YEAR THE APPELLANT HAS EARNED A DIVIDEND INCOME OF RS. 1 86,74,678 FROM I NVESTMENT HELD IN MUTUAL FUNDS WHICH WAS EXEMPT U/S 10 (34) OR (3 5) OF THE INCOME TAX ACT. THE DETAILS OF THE ABOVE DIVIDEND I NCOME SHOW THAT ASSESSEE HAS EARNED SUCH DIVIDEND INCOME ON MUTUAL FUNDS OF LIQUID PLAN, CASH PLUS PLAN AND OTHER MUTUAL FUNDS. THE LE ARNED ASSESSING OFFICER NOTED THAT IT IS UNBELIEVABLE THAT NO EXPEN DITURE WAS INCURRED BY THE APPELLANT IN EARNING SUCH INCOME AN D MADE 22 DISALLOWANCE OF 1,252,630 BEING 0.5% OF THE AVERAG E VALUE OF INVESTMENT RELATED TO THE TAX FREE INCOME IN TERMS OF SECTION 14 A OF THE ACT BY INVOKING THE PROVISIONS OF RULE 8D (III) OF THE INCOME TAX RULES. THE LEARNED DISPUTE RESOLUTION PA NEL ON OBJECTION BEFORE IT FOLLOWED ITS OWN ORDER FOR ASSESSMENT YEA R 2010 11 AND UPHELD THE FINDINGS OF THE LEARNED ASSESSING OFFICE R. 23. THE LEARNED AUTHORISED REPRESENTATIVE CHALLENG ED THE ABOVE ADDITION ON THE FACT THAT NO SATISFACTION WAS RECOR DED BY THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, WHICH IS MANDATORY. HE RELIED UPON THE SEVERAL JUD ICIAL PRECEDENTS FOR THE PROPOSITION. HE FURTHER SUBMITTED THAT APPE LLANT HAS EARNED DIVIDEND FROM INVESTMENT IN MUTUAL FUND ONLY AND MUTUAL FUNDS ARE REQUIRED TO PAY DIVIDEND DISTRIBUTION TAX ON DIVIDENDS DISTRIBUTED AND ONLY THE NET INCOME HAS BEEN RECEIV ED AS DIVIDENDS BY THE APPELLANT. HE FURTHER STATED THAT MUTUAL FU NDS ARE COVERED BY SEBI RULES AND CHARGE FUND MANAGEMENT CHARGES. OUT OF THE INCOME EARNED BY THE FUND THE FUND MANAGEMENT CHARG ES ARE DEDUCTED AND NET INCOME IS AVAILABLE FOR DISTRIBUTI ON TO UNIT HOLDERS. HE THEREFORE SUBMITTED THAT DURING THE YEA R UNDER CONSIDERATION THE ASSESSEE HAS RECEIVED ONLY THE NE T INCOME OF RS 186,74,678 AFTER DEDUCTION OF SUCH FUND MANAGEMENT CHARGES. HE FURTHER STATED THAT NO EFFORT/ TIME WAS UTILIZED IN RECEIVING THE DIVIDEND INCOME AND THE INVESTMENT ACTIVITY ONLY R EQUIRES FILING OF MUTUAL FUND STANDARD PRINTED REQUISITION FORMS AND ISSUE OF CHEQUES. THE DIVIDEND ON MATURITY PROCEEDS ARE STRA IGHTWAY CREDITED TO THE APPELLANTS BANK ACCOUNT. IN THE E ND, IT WAS 23 SUBMITTED THAT THE COORDINATE BENCH IN ASSESSMENT Y EAR 2010 11 HAS SET ASIDE THE MATTER TO THE FILE OF THE LEARNED ASSESSING OFFICER. 24. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEME NTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITY AND SU BMITTED THAT THE LEARNED ASSESSING OFFICER HAS RECORDED PROPER SATISFACTION THEREFORE THE ARGUMENT OF THE LEARNED AUTHORISED RE PRESENTATIVE THAT NO SATISFACTION HAS BEEN RECORDED IS DEVOID OF ANY MERIT. IT WAS FURTHER STATED THAT THE LEARNED AO HAS MERELY C OMPUTED DISALLOWANCE BEING 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT. HE OTHERWISE SUBMITTED THAT EVEN THE MINIMUM ACTIVITIE S THAT AS STATED BY THE LEARNED AUTHORISED REPRESENTATIVE AL SO DESERVES TO BE CONSIDERED FOR MAKING THE DISALLOWANCE AND THE O NLY OPTION LEFT WITH THE LEARNED ASSESSING OFFICER IS TO INVOKE THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE FOR DISALLOWANCE U/ S 14 A OF THE ACT. HE THEREFORE SUBMITTED THAT NO FAULT COULD BE FOUND WITH THE ORDERS OF THE LOWER AUTHORITIES. 25. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT ION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. ON CAREFUL PER USAL OF THE ASSESSMENT ORDER, IT IS FOUND THAT IN PARA NUMBER S EVEN OF THE ASSESSMENT ORDER THE LEARNED ASSESSING OFFICER NOT ED THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 186,74,6 78, WHICH DID NOT FORM PART OF THE TOTAL INCOME. ON THE BASIS OF THIS THE LEARNED ASSESSING OFFICER STRAIGHTWAY ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DISALLOWANCE U/S 14 A READ WITH RULE 8D SHO ULD NOT BE MADE. THE ASSESSEE SUBMITTED ITS REPLY ON 6TH JAN UARY 2015 24 STATING THAT THE ASSESSEE HAS NOT INCURRED ANY EXP ENDITURE IN RELATION TO THE EARNING OF SUCH EXEMPT INCOME. THE LEARNED ASSESSING OFFICER IN PARA NUMBER 7.2 HELD THAT IT I S UNBELIEVABLE THAT FOR EARNING AN INCOME OF 1.86 CRORES NO EXPEN DITURE WAS MADE BY THE ASSESSEE. HE NOTED THAT IT IS PERTINENT THA T THE ASSESSEE HAS NOT PROVIDED THE DETAILS OF SUCH EXPENSES AS A RE DIRECTLY ATTRIBUTABLE TO AND WHICH ARE NECESSARILY REQUIRED FOR MAKING / MAINTAINING INVESTMENT IN SHARES AND MUTUAL FUNDS AND EARNING THERE FROM. THEREFORE, HE HELD THAT HE IS NOT SATI SFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO E XPENDITURE HAS BEEN INCURRED IN RESPECT OF SUCH EXPENDITURE IN REL ATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THEREAFTER HE PROCEEDED TO COMPUTE THE DISALLOWANCE APPLYING THE PROVISIONS OF RULE 8D AND COMPUTED SUCH DISALLOWANC E AT 1,252,630. ON CAREFUL CONSIDERATION OF THE REASONS GIVEN BY T HE LEARNED ASSESSING OFFICER WE DO NOT FIND ANY SATISFACTION WITH RESPECT TO THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE T HAT ASSESSEE HAS INCURRED ANY EXPENDITURE WITH RESPECT TO THE E ARNING OF EXEMPT INCOME. IN VIEW OF THIS, ACCORDING TO US, T HE LEARNED ASSESSING OFFICER HAS FAILED TO RECORD ANY SATISFAC TION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THA T IT HAS NOT INCURRED ANY EXPENDITURE. THE LEARNED ASSESSING OFF ICER DID NOT CITE ANY OF THE EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, WHICH IS INCURRED BY THE ASSESSEE FOR EA RNING OF THE EXEMPT INCOME. THE SATISFACTION OF THE LEARNED ASS ESSING OFFICER AS PROVIDED UNDER SUBSECTION 2 OF SECTION 14 A OF T HE INCOME TAX ACT IS A PRELIMINARY REQUIREMENT FOR INVOKING THE P ROVISIONS OF RULE 8D OF THE INCOME TAX RULES FOR MAKING A DISALLOWANC E U/S 14 A OF 25 THE ACT. THEREFORE, IN ABSENCE OF ANY SATISFACTION RECORDED BY THE LEARNED AO WITH RESPECT TO THE EXAMINATION OF THE B OOKS OF ACCOUNT OF THE ASSESSEE TO VERIFY THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THE DISALLOWANCE U/S 14A CANNOT BE S USTAINED. ACCORDINGLY WE DIRECT THE LEARNED ASSESSING OFFICE R TO DELETE THE DISALLOWANCE OF 1,252,630 MADE U/S ON THE GIVEN FACTS OF THE CASE IN HAND AND RESPECTFULLY FOLLOWING THE FINDING S OF THE CO-ORDINATE BENCH, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U/S 14A OF THE ACT R.W .R 8D OF THE RULES. 30. SINCE WE HAVE ALREADY DELETED THE DISALLOWANCE U/S 14A OF THE ACT IN NORMAL COMPUTATION OF TOTAL INCOME, WE DIREC T THE ASSESSING OFFICER TO DELETE THE ABOVE ADDITION WHILE CALCULAT ING THE BOOK PROFIT U/S 115JB OF THE ACT. THIS COMMON GRIEVANCE IN ALL THE APPEALS IS ALLOWED. 31. NEXT COMMON GRIEVANCE IN ALL THE APPEALS RELATE S TO LEVY OF INTEREST U/S 234A, 234B AND 234C OF THE ACT. 32. LEVY OF INTEREST IS MANDATORY THOUGH CONSEQUEN TIAL. HOWEVER, IN SO FAR AS LEVY OF INTEREST U/S 234C IS CONCERNED, W E DIRECT THE ASSESSING OFFICER TO LEVY INTEREST ON THE RETURNED INCOME OF THE ASSESSEE. 26 33. BY WAY OF ADDITIONAL GROUND, THE ASSESSEE HAS C LAIMED DEDUCTIBILITY OF EDUCATION CESS. 34. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT IN THE RETURN OF INCOME FILED FOR RELEVANT A.YS, THE ASSES SEE DID NOT CLAIM DEDUCTION FOR EDUCATION CESS PAID BEFORE THE DUE DA TE FOR FILING RETURN OF INCOME FOR SUBJECT A.YS IT IS THE SAY OF THE LD . COUNSEL FOR THE ASSESSEE THAT THE HON'BLE RAJASTHAN HIGH COURT IN T HE CASE OF CHAMBAL FERTILIZERS AND CHEMICALS LIMITED IN ITA NO. 52/201 8 ORDER DATED 31.07.2018 HAS HELD THAT EDUCATION CESS IS AN ALLOW ABLE DEDUCTION WHILE COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS FROM PROFESSION OR BUSINESS. 35. EVEN THE CBDT, IN ITS CIRCULAR NO. 91/58/66-ITJ (19) DATED 18.05.1967 HAS CLARIFIED THAT THE WORD CESS HAS B EEN OMITTED FROM CLAUSE AND EFFECT OF OMISSION OF THE WORD CESS IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED IN THE ASSESSMENTS FOR THE YEA RS 1961-63 ONWARDS. 27 36. IN LIGHT OF THE DECISION OF THE HON'BLE RAJASTH AN HIGH COURT [SUPRA] WE DIRECT THE ASSESSING OFFICER TO ALLOW CL AIM OF DEDUCTIBILITY OF CESS FROM THE INCOME IN THE CAPTIONED A.YS. ADD ITIONAL GROUND IN ALL THE APPEALS IS ALLOWED. 37. IN ITA NO. 8452/DEL/19 THE SOLITARY ISSUE WHICH NEEDS TO BE ADJUDICATED RELATES TO THE ENHANCEMENT OF INCOME OF THE ASSESSEE BY RS. 19,87,075/- HOLDING THAT THE INTERNATIONAL TRAN SACTION PERTAINING TO THE PROVISION OF CORPORATE GUARANTEED TO THE BANK O N BEHALF OF THE AE DOES NOT SATISFY THE ARMS LENGTH PRINCIPLE. 38. BRIEFLY STATED, THE FACTS OF THIS QUARREL ARE T HAT EXSSERVICE.INC, AE OF THE ASSESSEE WAS HAVING TAX LITIGATION WITH T HE INCOME TAX DEPARTMENT FOR A.Y 2003-04 TO 2005-06 AND TO SETTLE THE QUARREL, IT HAS PREFERRED MUTUAL ASSESSMENT PROCEDURE [MAP] FOR THE SAID A.Y WITH THE COMPETENT AUTHORITY WHILE MAP WAS PENDING CONCLUSIO N AGAINST THE DEMAND RAISED FOR THE SAID A.YS, BANKER OF THE ASSE SSEE I.E. HDFC BANK ISSUE GUARANTEED TOWARDS PRESIDENT OF INDIA ACTING THROUGH DY. CIT, CIRCLE 1(2) FOR TAX AMOUNT AGGREGATING TO RS. 13, 24,71,650/-. FACTS ON RECORD SHOW THAT THE SAID GUARANTEE WAS ISSUED B Y THE HDFC BANK 28 ON 13.04.2009 AND WAS VALID ONLY TILL 12.04.2012 AN D ACCORDINGLY, THE SAID GUARANTEE WAS NOT VALID FOR THE YEAR UNDER CON SIDERATION AS THE GUARANTEE EXPIRED ON 12.04.2012. 39. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE VEHEMENTLY STATED THAT IN THE ABSENCE OF ANY GUARANTEE BEING I SSUED BY THE BANK OF THE ASSESSEE FOR BENEFIT OF ITS AE DURING THE YE AR UNDER CONSIDERATION, NO NOTIONAL INCOME IN THE FORM OF CO MMISSION OUGHT TO BE IMPUTED IN THE HANDS OF THE ASSESSEE COMPANY. 40. PER CONTRA THE LD. DR ARE STRONGLY SUPPORTED TH E FINDINGS OF THE DRP. 41. WE HAVE CAREFULLY CONSIDERED THE FACTS MENTIONE D HEREINABOVE. IN OUR CONSIDERED OPINION, THE SAID GUARANTEE WAS I SSUED BY HDFC FOR AND ON BEHALF OF THE AE AND NO CORPORATE GUARANTEE WAS ISSUED BY THE ASSESSEE COMPANY. THE SAID GUARANTEE WAS ISSUED BY HDFC ON THE BASIS OF FIXED DEPOSITS OF THE ASSESSEE COMPANY ON WHICH THE ASSESSEE CONTINUED TO RECEIVE INTEREST FROM THE BANK AND HEN CE THERE WAS NO COST/EXPENSES INCURRED BY THE ASSESSEE COMPANY. 29 42. IN FACT, THE COST CHARGED BY THE BANK AT THE TI ME OF ISSUING THE GUARANTEE IN F.Y. 200910 WAS CHARGED BY THE ASSESS EE FROM ITS AE WITH MARK UP OF 14%. 43. MOST IMPORTANTLY, AS MENTIONED ELSEWHERE, THE S AID GUARANTEE WAS ISSUED BY HDFC BANK TO THE INCOME TAX DEPARTMEN T AGAINST THE TAX LIABILITY OF THE AE ONLY. 44. THEREFORE, IN CASE IF ANY DEMAND IS RAISED UPON CONCLUSION OF MAP PROCEEDINGS, LIABILITY TO PAY THE SAID TAX DEMA ND WILL ONLY BE ON AE OF THE ASSESSEE AND NOT ON THE ASSESSEE COMPANY. CONSIDERING THE FACTS IN TOTALITY, WE ARE OF THE CONSIDERED VIEW TH AT THE TPO/DRP ERRED IN IMPUTING NOTIONAL INCOME EQUIVALENT TO COM MISSION CHARGED BY BANKS. WE, ACCORDINGLY, DIRECT THE ASSESSING OFF ICER TO DELETE THE ADDITION OF RS.19,87,075/-. GROUND NO. 4 IN ITA NO. 8452/DELHI/2019 IS ALLOWED. 45. TO SUM UP, COMMON GROUNDS RELATING TO DISALLOWA NCE OF DEPRECIATION, DISALLOWANCE U/S 14A, ADDITIONAL GROU ND CLAIMING DEDUCTIBILITY OF CESS ARE ALLOWED AND TRANSFER PRIC ING ADJUSTMENT/ ADDITION MADE IN ITA NO 8452/DL/2019 IS ALSO ALLOWE D. 30 46. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE IN ITA NOS. 5435 & 5436/DEL/2012 AND ITA NO. 8452/DEL/2019 ARE ALLOWED . THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08.0 3.2021. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 08 TH MARCH, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 31 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER