Brakes India Private Limited, CHENNAI V. DCIT, CHENNAI

ITA 560/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7568 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 09-01-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 10-03-2016
• Court: TRIBUNAL
• Department Lawyers: MILIND MADHUKAR BHUSARI
• Assessee Lawyers: VIKRAM VIJAYARAGHVAN
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Business expenditure; International transaction; Additional depreciation; Bonafide belief; Earning of tax free income; Services rendered outside India; Retrospective amendment; Speculation loss; Revenue expenditure; Capital expenditure
• Section: 92B; 14A; 43(5); 10B; 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ' # , $ #% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ITA NOS. 558, 559/MDS/2016, 444/MDS/2015 & 560 /MD S/2016 ASSESSMENT YEARS : 2008-09, 2009-10, 2010-11 & 2011 -12 M/S. BRAKES INDIA LTD., MTH ROAD, PADI, CHENNAI 600 050. PAN AAACB2533Q ( /APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, LARGE TAXPAYER UNIT-2, CHENNAI 600 101. ( / RESPONDENT) AND ITA NOS. 757, 758, 759/MDS/2016, 416/MDS/2015 & 760 /MDS/2016 ASSESSMENT YEARS : 2007-08, 2008-09, 2009-10, 2010- 11 & 2011-12 THE DEPUTY COMMISSIONER OF M/S.BRAKES INDIA LIMITED, INCOME-TAX, 21,PATULLOS ROAD, ANNA SAL AI, LARGE TAXPAYER UNIT-2, V. CHENNAI-02. CHENNAI 600 101. PAN AAACB2533Q ( /APPELLANT) ( / RESPONDENT) ASSESSEE BY : SHRI VIKRAM VIJAYARAGHVAN, ADVOCATE DEPARTMENT BY : SHRI MILIND MADHUKAR BHUSARI, CIT - - ITA 444, 416/15 & 757 TO 760/16 E TC. 2 !' / DATE OF HEARING : 10.01.2017 #$%& !' / DATE OF PRONOUNCEMENT : 06.03.2017 & / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE CROSS APPEALS BY THE ASSESSEE AND BY THE REVENUE ARE DIRECTED AGAINST THE DIFFERENT ORDERS O F THE DISPUTE RESOLUTION PANEL(DRP), CHENNAI. 2. FIRST, WE TAKE UP THE ASSESSEES APPEAL IN ITA NOS.558/MDS/16 & 444/MDS/15 AND 560/ MDS /16 FOR THE ASSESSMENT YEARS 2008-09, 2010-11 AND 2011-12. 2.1 THE COMMON GRIEVANCE OF THE ASSESSEE IN ITA NOS.558/MDS/16 AND 444/MDS/15 IS WITH REGARD TO DI SALLOWANCE OF UNREALIZED EXCHANGE LOSS CONSIDERING THE SAME A S SPECULATION LOSS, AND NOT TREATING IT AS BUSINESS L OSS RELYING ON THE CBDT INSTRUCTION NO.03 /2010 DATED 23.03.2010 O N MARK TO MARKET LOSSES. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 3 3. WE CONSIDER THE FACTS OF THE CASE AS NARRATED IN A.Y 2008-09 FOR BREVITY THAT THE ASSESSEE CLAIMED UNREA LIZED EXCHANGE LOSS ON ACCOUNT OF DERIVATIVE TRANSACTION TO THE TUNE OF ` 3,76,68,000/-. ACCORDING TO A.O., THE ASSESSEES C LAIM OF LOSSES ON ACCOUNT OF VALUING THE FOREIGN EXCHANGE LIABILITIES/RECEIVABLES AT THE RATES PREVAILING AS ON 31.03.2010 ARE NOT ON ACCOUNT OF FOREIGN EXCHANGE RECEIVABLE/PAYAB LE RESULTING FROM THE REGULAR BUSINESS TRANSACTIONS. THE LIABIL ITIES ARE ON ACCOUNT OF THE HEDGING/FORWARDING CONTRACTS, WHICH ARE TOTALLY INDEPENDENT FROM THE ASSESSEES REGULAR BUSINESS OF EXPORTING THE MANUFACTURED GOODS. THE ASSESSEE DURING THE YE AR, IN ORDER TO REDUCE ITS RISK OF EXPOSING TO THE FLUCTUATIONS IN THE EXCHANGE RATES, ENTERED INTO HEDGING CONTRACTS, WHICH ARE ES SENTIALLY FORWARD CONTRACTS, HAVE BEEN VALUED AT THE EXCHANGE RATES PREVAILING AT THE END OF 31.03.2010 AND THE RESULTI NG DEFICIT HAS BEEN TREATED BY THE ASSESSEE AS EXCHANGE LOSS AND D EBITED IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE FURTHER CLAIMED THAT SINCE IT HAD ENTERED INTO THE HEDGING/FORWARDING CO NTRACTS TO PROTECT THE POSSIBLE LOSSES OF THE BUSINESS ON ACCO UNT OF EXCHANGE FLUCTUATIONS, IT CONSTITUTES A BUSINESS TR ANSACTION AND - - ITA 444, 416/15 & 757 TO 760/16 E TC. 4 THE RESULTING LOSSES ARE TO BE ALLOWED AS REGULAR B USINESS LOSSES. THE ASSESSEE ALSO SUBMITTED THAT THERE WERE INSTANC ES OF GAINS ON ACCOUNT OF VALUING THE OUTSTANDING HEDGING/FORWA RD CONTRACTS AS ON 31 ST MARCH, IN THE EARLIER/SUBSEQUENT YEARS AND THE SAI D GAINS HAVE BEEN CREDITED IN PROFIT AND LOSS ACCOUNT AND OFFERED TO TAX. THEREFORE, THE ASSESSEE CLAIMED THAT ITS C LAIM OF EXCHANGE FLUCTUATION LOSSES ON VALUATION AT THE END OF THE FINANCIAL YEAR AMOUNTS TO BUSINESS LOSSES AND NEEDS TO BE ALLOWED. 3.1 THE DRP OBSERVED THAT IN THE INSTANT CASE, THE CONTRACTS/HEDGING CONTRACTS ARE NOT REGULAR IN BUSI NESS TRANSACTIONS. THESE CONTRACTS ARE PRIMARILY TO PRO TECT THE ASSESSEE FROM THE UNFORESEEN EXCHANGE FLUCTUATIONS. IN OTHER WORDS, THESE CONTRACTS ARE ENTERED KEEPING THE POSS IBLE FUTURE FLUCTUATIONS IN VIEW. THEREFORE, THE HEDGING/FORWA RDING CONTRACTS, THOUGH FOR THE PURPOSE OF PROTECTING THE ASSESSEE FROM EXCHANGE FLUCTUATION RISKS, ARE ESSENTIALLY SP ECULATIVE TRANSACTIONS IN NATURE (HERE, ONE HAS TO REMEMBER T HAT SPECULATION IN THIS CONTEXT IS NOT WITH REFERENCE T O THE DEFINITION OF SPECULATION TRANSACTIONS PROVIDED U/S.43(5) OF T HE ACT). - - ITA 444, 416/15 & 757 TO 760/16 E TC. 5 THEREFORE, THE LOSSES ON ACCOUNT OF THE VALUATION O F THE HEDGING/FORWARDING CONTRACTS AS ON 31.03.2010 ARE N OT ALLOWABLE AS EXPENDITURE U/S.37 OF THE ACT. IT WAS OBSERVED THAT IT MAY BE TRUE THAT THE ASSESSEE IN THE EARLIER YEARS HAVE OF FERED THE EXCHANGE GAINS ON OUTSTANDING HEDGING CONTRACTS TO TAX. BUT, THAT DOES NOT RENDER ANY RIGHT TO THE ASSESSEE TO C LAIM THE LOSSES, AS DEDUCTIONS IN ANY SUBSEQUENT YEARS AND W HAT IS REQUIRED TO BE SEEN IS WHETHER THE ASSESSEE IS ENTI TLED FOR DEDUCTION OF A PARTICULAR AMOUNT, AS PER THE PROVIS IONS OF THE INCOME-TAX ACT. ACCORDINGLY, THE DRP CAME TO THE C ONCLUSION THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM THE EXCH ANGE LOSSES ON ACCOUNT OF VALUATION OF THE OUTSTANDING HEDGING/FOR WARDING CONTRACTS AS ON 31 ST MARCH OF THE PREVIOUS YEAR, AS AN ALLOWABLE DEDUCTION UNDER THE PROVISION OF THE I.T. ACT AND J USTIFIED THE ACTION OF THE AO. AGGRIEVED, THE ASSESSEE IS IN AP PEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN OUR CONSIDERED OPINION, THE SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF M AJESTIC EXPORTS VS. JCIT IN I .T.A. NOS.1336 & 3072/MDS/2014 FOR ASSESSMENT - - ITA 444, 416/15 & 757 TO 760/16 E TC. 6 YEARS : 2009-2010 & 2010-2011 VIDE ORDER DATED 24.0 7.2015, THE TRIBUNAL HELD AS FOLLOWS:- WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL ON RECORD. IN THIS CASE, THE ASSESSEE WAS ENGAGED IN T HE BUSINESS OF MANUFACTURING AND EXPORT OF HOSIERY GARMENTS. DURI NG THE COURSE OF EXPORT, THE ASSESSEE ENTERED INTO DERIVATIVE CONTRA CT. THE ASSESSEE INCURRED LOSS IN THIS TRANSACTION. THE ASSESSEE CL AIMED IT AS BUSINESS LOSS. ACCORDING TO THE ASSESSING OFFICER THIS LOSS WAS NOT BUSINESS LOSS AND IT IS A SPECULATIVE LOSS AND THIS TRANSACTION IS SPECULATIVE IN NATURE AS SUCH THE LOSS INCURRED ON THIS TRANSACTION CANNO T BE SET OFF AGAINST BUSINESS INCOME OF THE ASSESSEE. ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE, THE DERIVATIVE TRANSAC TION CANNOT FALL UNDER SEC.73. EXPLANATION TO SEC.73 CREATES A DEEMING FI CTION BY WHICH AMONG THE ASSESSEE, WHO IS A COMPANY, AS INDICATED IN THE SAID EXPLANATION DEALING WITH THE TRANSACTION OF SHARE A ND SUFFER LOSS, SUCH LOSS SHOULD BE TREATED TO BE SPECULATIVE TRANSACTIO N WITHIN THE MEANING OF SEC.73 OF THE ACT, NOTWITHSTANDING THE FACT THAT THE DEFINITION OF SPECULATIVE TRANSACTION MENTIONED IN SEC.43(5) OF T HE ACT, THE TRANSACTION IS NOT OF THAT NATURE AS THERE HAS BEEN ACTUAL DELIVERY OF THE SCRIPS OF SHARE. AS PER THE DEFINITION OF SEC.43(5 ), TRADING OF SHARES WHICH IS DONE BY TAKING DELIVERY DOES NOT COME UNDE R THE PURVIEW OF THE SAID SECTION. SIMILARLY, AS PER CLAUSE (D) OF SEC.43(5), DERIVATIVE TRANSACTION IN SHARES IS ALSO NOT SPECULATION TRANS ACTION AS DEFINED IN THE SAID SECTION. THEREFORE, BOTH PROFIT/LOSS FROM ALL THE SHARE DELIVERY TRANSACTIONS AND DERIVATIVE TRANSACTIONS ARE HAVING THE SAME MEANING, SO FAR AS SEC.43(5) OF THE ACT IS CONCERNED. AGAIN , IN VIEW OF THE FACT THAT BOTH DELIVERY TRANSACTIONS AND DERIVATIVE TRAN SACTIONS ARE NON- SPECULATIVE AS FAR AS SEC.43(5) IS CONCERNED, IT FO LLOWS THAT BOTH WILL HAVE THE SAME TREATMENT AS FAR AS APPLICATION OF EX PLANATION TO SEC.73 IS CONCERNED. THEREFORE, AGGREGATION OF THE SHARE TRADING PROFIT AND LOSS FROM DERIVATIVE TRANSACTIONS SHOULD BE DONE BE FORE THE EXPLANATION TO SEC.73 IS APPLIED. THE ABOVE VIEW HAS BEEN TAKE N BY SPECIAL BENCH OF THIS TRIBUNAL, MUMBAI BENCH, IN THE CASE OF CIT V. CONCORD COMMERCIAL PVT. LTD. (2005) 95 ITD 117 (MUM)(SB). IN THIS CASE, THE SPECIAL BENCH HELD THAT : BEFORE CONSIDERING WHETHER THE ASSESSEES CASE IS HIT BY THE DEEMING PROVISION OF EXPLANATION TO SEC. 73 OF THE ACT, THE AGGREGATE OF THE BUSINESS PROFIT / LOSS HAS TO BE W ORKED OUT BASED ON THE NON-SPECULATIVE PROFITS; EITHER IT IS FROM S HARE DELIVERY OR FROM SHARE DERIVATIVE . 8. FROM THE ABOVE, IT IS CONCLUDED THAT BOTH TRADING O F SHARES AND DERIVATIVE TRANSACTIONS ARE NOT COMING UNDER THE PU RVIEW OF SECTION 43(5) OF THE ACT WHICH PROVIDES DEFINITION OF SPECULATIV E TRANSACTION EXCLUSIVELY - - ITA 444, 416/15 & 757 TO 760/16 E TC. 7 FOR PURPOSES OF SECTION 28 TO 41 OF THE ACT. AGAIN, THE FACT THAT BOTH DELIVERY BASED TRANSACTION IN SHARES AND DERIVATIVE TRANSACTIONS ARE NON- SPECULATIVE AS FAR AS SECTION 43(5) IS CONCERNED GO ES TO CONFIRM THAT BOTH WILL HAVE SAME TREATMENT AS REGARDS APPLICATION OF THE EXPLANATION TO SECTION 73 IS CONCERNED, WHICH CREATES A DEEMING FI CTION. NOW, BEFORE APPLICATION OF THE SAID EXPLANATION, AGGREGATION OF THE BUSINESS PROFIT/LOSS IS TO BE WORKED OUT IRRESPECTIVE OF THE FACT, WHETH ER IT IS FROM SHARE DELIVERY TRANSACTION OR DERIVATIVE TRANSACTION. 8.1 NOW, THIS VIEW HAS BEEN TAKEN BY CO-ORDINATE, CHENNAI IN THE CASE M/S. AISHWARYA & CO P. LTD IN ITA NO.860/MDS/2014, DATED 29.05.2015, WHEREIN THEY FOLLOWED THE JUDGMENT OF THE CALCUTTA HIGH COURT IN THE CASE OF M/S. BALJIT SECURITIES PVT. LTD. (88 CCH 313) WH EREIN HELD AS UNDER :- CLAUSE (D) OF SECTION 43(5) BECAME EFFECTIVE WITH EFFECT FROM 1ST APRIL, 2006. THEREFORE, PRIOR TO 1ST APRIL, 2006 ANY TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES WAS PERIODICALLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIP WAS A SPECULATIVE TRANSACTION. S UB-SECTION 1 OF SECTION 73 PROVIDES AS FOLLOWS: (1) ANY LOSS, COMPUTED IN RESPECT OF A SPECULATIO N BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST PROFI TS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. THE RESULTANT EFFECT WAS THAT ANY LOSS ARISING OUT OF SPECULATIVE TRANSACTION COULD ONLY HAVE BEEN SET OFF AGAINST PROFITS ARISING OUT OF SPECULATIVE TRANSACTION. IN THE PRESENT CASE, THE ASSESSEE, AS ALREADY INDICATE D, HAS BEEN DEALING IN SHARES WHERE DELIVERY WAS IN FACT TAKEN AND ALSO IN SHARES WHERE DELIVERY WAS NOT ULTIMATELY TAKEN. IN OTHER WORDS, THE ASSESSEE HAS BEEN DEALING IN ACTUAL SELLING AND BUYING OF SHARES AS ALSO DEALING IN SHARES ONLY FOR THE PURPOSE OF SETTLING THE TRANSACTION OTHERWISE THAN BY ACTUAL DELIVERY. THE QUESTION ARISE WHETHER THE LOSSES ARISING OUT OF THE DEALINGS AND TRANSACTION IN WHICH THE ASSESSEE DID NOT ULTIMATELY TAKE DELIVERY OF THE SHARES OR GIVE DELI VERY OF THE SHARES COULD BE SET OFF AGAINST THE INCOME ARISING OUT OF THE DEALINGS AND TRANSACTIONS IN ACTUAL BUYING AND SELLING OF SHARES. AN ANSWER TO THIS QUE STION IS TO BE FOUND IN THE EXPLANATION APPENDED TO SECTION 73 WHICH READS AS F OLLOWS: EXPLANATION: WHERE ANY PART OF THE BUSINESS OF A C OMPANY OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, OR A COMPANY TH E PRINCIPAL BUSINESS OF WHICH IS THE BU9SINESS OF BANKING OR THE GRANTING OF LOAN S AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUC H COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PU RCHASE. IN ORDER TO RESOLVE THE ISSUE BEFORE US, THE SECTION HAS TO BE READ IN THE MANNER AS FOLLOWS: EXPLANATION : WHERE ANY PART OF THE BUSINESS OF A COMPANY ( . . . .. .. .. .. .. .. .. . .. .. . ) CONSIST IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSIS TS OF THE PURCHASE AND SALE OF SUCH SHARES. IT WOULD, THUS, APPEAR THAT WHERE AN ASSESSEE, BEIN G THE COMPANY, BESIDES DEALING IN OTHER THINGS ALSO DEALS IN PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, THE ASSESSEE SHALL BE DEEMED TO BE CARRY ING ON A SPECULATION BUSINESS. THE ASSESSEE, IN THE PRESENT CASE, PRINCI PALLY IS A SHARE BROKER, AS - - ITA 444, 416/15 & 757 TO 760/16 E TC. 8 ALREADY INDICATED. THE ASSESSEE IS ALSO IN THE BUSI NESS OF BUYING AND SELLING OF SHARES FOR SELF WHERE ACTUAL DELIVERY IS TAKEN AND GIVEN AND ALSO IN BUYING AND SELLING OF SHARES WHERE ACTUAL DELIVERY WAS NOT INT ENDED TO BE TAKEN OR GIVEN. THEREFORE, THE ENTIRE TRANSACTION CARRIED OUT BY TH E ASSESSEE, INDICATED ABOVE, WAS WITHIN THE UMBRELLA OF SPECULATIVE TRANSACTION. THERE WAS, AS SUCH, NO BAR IN SETTING OFF THE LOSS ARISING OUT OF DERIVATIVES FRO M THE INCOME ARISING OUT OF BUYING AND SELLING OF SHARES. THIS IS WHAT THE LEAR NED TRIBUNAL HAS DONE. 9. FROM THE ABOVE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF BALJIT SECURITIES PVT. LTD. CITED SUPRA, THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE. HOWEVER, WE MAKE IT CLEAR THAT TOTAL TRANSACTION CONSIDERED FOR DETERMINING THIS BUSINESS LOSS FROM DERIVATIVE TRA NSACTIONS CANNOT BE MORE THAN THE TOTAL EXPORT TURNOVER OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND IF THE DERIVATIVE TRANSACTION IS IN EXCESS OF EXPORT TURNOVER, THEN THAT LOSS SUFFERED IN RESPECT OF THAT PORTION OF EXCESS TRANSACTIONS TO BE CONSIDERED AS SPECULATIVE LOSS ONLY AS THAT EXCESS DERIVATIVE TRANSACTION HAS NO PROXIMITY WITH EXPORT TURNOVER AND THE ASSESSING OFFICER IS DIRECTED TO COMPUTE ACCORDINGLY. THIS GROUND IS ALLOWED AS INDI CATED ABOVE . FURTHER, SIMILAR VIEW WAS TAKEN BY THE CO-ORDINATE BENCH IN THE CASE OF M/S.AMBATTUR CLOTHING LTD. IN ITA NO.1436,1643/2 014 AND 910/2015 VIDE ORDER DATED 28.12.2015. RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, WE REMIT THIS ISSU E TO THE FILE OF THE AO WITH DIRECTION TO PASS FRESH ORDER IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL AND ALSO MAKE IT CLEAR THAT THE ASSESS ING OFFICER SHALL CONSIDER THE TOTAL FORWARD TRANSACTIONS EQUAL TO TH E EXPORT TURN OVER AND TO DETERMINE THE EXCHANGE FLUCTUATION LOSS. A CCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 9 4.1 THE NEXT ISSUE IN ITA NO.560/16 IS WITH REGARD TO DISALLOWANCE EXCHANGE FLUCTUATION LOSS OF ` 37.60 CRORES. THE ASSESSEE CLAIMED EXCHANGE FLUCTUATION LOSS ON ACCOUNT OF PCFC BORROW INGS. ACCORDING TO AO, SUCH EXPENDITURE IS OF CAPITAL NATURE AND TH E SAME WAS DISALLOWED BY HIM. THE DRP CONFIRMED THE DISALLOWAN CE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4.2. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. IN OUR OPINION, PACKING CREDIT FOREIGN CURR ENCY BORROWINGS WHICH IS IN THE NATURE OF WORKING CAPITAL BORROWING S AND THE EXCHANGE FLUCTUATION ON THIS COUNT TO BE CONSIDERED AS A REV ENUE EXPENDITURE AND TO BE ALLOWED. ACCORDINGLY, WE PLACED RELIANCE ON RBI MASTER CIRCULAR DATED 02.07.2012. ACCORDINGLY, THIS GROUND IS ALLOWED. 5. THE GRIEVANCE OF THE ASSESSEE FOR THE AY 2009-10 IN ITA NO.559/MDS/2016 AND IN ITA NO.444/MDS/2015 FOR THE AY 2010-11 IS WITH REGARD TO DISALLOWANCE OF EXPENSES BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ON LEASED TELEPHONE LI NES ON THE REASON THAT THERE WAS NO DEDUCTION OF TDS. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 10 6. THE FACTS OF THE CASE AS NARRATED FOR THE A.Y 20 09-10 ARE THAT DURING THE YEAR, THE ASSESSEE HAS INCURRED EXPENDIT URE OF 23,20,362/- TOWARDS LEASED TELEPHONE LINES. THE A SSESSEE HAS NOT DEDUCTED TDS ON THIS EXPENDITURE. WHEN THE ASSESSE E WAS ASKED TO EXPLAIN WHY THE ABOVE EXPENDITURE SHOULD NOT BE DIS ALLOWED U/S.40(A)(I), THE ASSESSEE STATED VIDE LETTER DATED 17.2.2015 THAT NO TAX WAS DEDUCTED AT SOURCE, SINCE THE SAME WAS ONLY REIMBURSEMENT OF EXPENSES AND THEY WERE INCURRED OUTSIDE INDIA. THE PAYMENT TOWARDS LEASED TELEPHONE LINES HAS BEEN MADE TO TRW AUTOMOTIVE SERVICES SDN BHD, MALAYSIA FOR OBTAINING TELEPHONE LINES FOR THE PURPOSE OF DATA TRANSFER. HENCE, THE PAYMENT AMOUN TS TO ROYALTY FOR USING THE LEASED LINES AND THE ASSESSEE SHOULD HAVE WITHHELD THE TAX ON THE SAID PAYMENT AND THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF M/S. VERIZON COMMUNICATION SINGAPORE PVT. L TD. (TS-577- HC-2013) IS APPLICABLE IN THIS CASE. 6.1 FURTHER, IT WAS OBSERVED THAT BASED ON THE EXPL ANATION TO SEC.9(2) OF THE ACT INSERTED BY THE FINANCE ACT, 20 10 WITH RETROSPECTIVE EFFECT FROM 01.06.1976 AND THE AMENDM ENT TO SEC.195(1) MADE IN FINANCE ACT, 2012, WITH RETROSPE CTIVE EFFECT FROM 01.04.1962 AND THE DECISION OF THE SUPREME COURT IN THE CASE OF - - ITA 444, 416/15 & 757 TO 760/16 E TC. 11 TRANSMISSION CORPORATION OF AP LTD. V. CIT (239 ITR 587), THE EXPENDITURE TOWARDS LEASED TELEPHONE LINES WAS DISA LLOWED IN THE DRAFT ORDER. ACCORDINGLY, THE DRP UPHELD THE PROPO SED DISALLOWANCE OF LEASED TELEPHONE LINE CHARGES FOR THE AY 2010-11 WITH AN OBSERVATION THAT THE PAYMENT IS NOT A REIMBURSEMENT BUT IS A CLEAR CASE OF SUBLEASING OF TELEPHONE LINES BY TRW AUTOMO TIVE SERVICES. FURTHER, IT WAS OBSERVED THAT THE PAYMENTS WERE MAD E BY THE ASSESSEE FOR THE SERVICES RECEIVED IN THE FORM OF L EASE OF TELEPHONE LINES AND HENCE, THE SERVICES CLEARLY CONSTITUTED A ROYALTY, WHICH ATTRACTS PROVISION OF SEC.9(2) OF THE ACT AND THE A SSESSEE IS UNDER THE OBLIGATION TO WITHHOLD THE TAX U/S.195 OF THE ACT. RELYING ON THE DECISION OF THE MADRAS HIGH COURT IN THE CASE OF M/ S. VERIZON COMMUNICATION SINGAPORE PVT. LTD. AND AS PER THE DI RECTIONS OF THE DRP, THE DCIT CONFIRMED THE ADDITION MADE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE CONTENTION OF THE LD. AR IS THAT THE REIMBUR SEMENT OF EXPENDITURE TOWARDS LEASED TELEPHONE LINES DOES NOT INCLUDE ANY PROFIT ELEMENT BEING, SO, THERE CANNOT BE ANY TDS O N THIS PAYMENT. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 12 8. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THI S ISSUE CAME FOR CONSIDERATION BEFORE THE DRP FOR THE AY 2010-11 AND IN CONFORMITY WITH THE ORDER OF THE DRP, THIS HAS TO BE CONFIRMED . 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. THE LD. AR RELIED ON THE FOLLOWING JUDGMEN TS: A) CIT V. BOVIS LEND LEASE (INDIA) (P) LTD. [208 TA XMAN 0168 (KAR)] B) CAIRN ENERGY INDIA PTY. LTD. VS. ACIT [2 ITR 003 8 (CHENNAI)] C) CIT V. INDUSTRIAL ENGINEERING PROJECTS (P) LTD. [60 CCH 0453 (DELHI HC)] D) MAHINDRA & MAHINDRA LTD. VS. DCIT [122 TTJ 0577 (MUM-SB)] E) NATHPA JHAKRI JOINT VENTURE VS. ACIT [131 TTJ 07 02 (MUM-TRIB)] F) CIT V. SIEMENS AKTIONGESELLSCHAFT [177 TAXMAN 00 81 (BOM)] G) DIT V. WNS GLOBAL SERVICES (UK) LTD. [214 TAXMAN 0317 (BOM)] H) CHANNEL GUIDE INDIA LIMITED V. ACIT [20 ITR 0438 (MUM-TRIB)] I) DCIT V. HOFINCONS INFOTECH & INDUSTRIAL SERVICES (P) LTD. [152 ITD 0249 (CHEN-TRIB) J) METRO & METRO VS. ACIT [158 TTJ 0308 (AGRA-TRIB) ] K) STERLING ABRASIVE LTD. V. ACIT [140 TTJ 0068 (AH EM-TRIB)] L) UNITED HELICHARTERS PVT. LTD. VS. ACIT [60 SOT 0 58 (MUM)(URO)]. 10. IN OUR OPINION, THE ASSESSEE HAS TO DEMONSTRATE THAT THIS IMPUGNED PAYMENT DOES NOT INCLUDE ANY PROFIT ELEMEN T SO AS TO - - ITA 444, 416/15 & 757 TO 760/16 E TC. 13 DEDUCT TDS AND IT IS ONLY REIMBURSEMENT OF ACTUAL E XPENSES. BEFORE US, THE LD. AR WAS NOT ABLE TO DEMONSTRATE THAT IT DOES NOT INCLUDE ANY PROFIT ELEMENT. ACCORDINGLY, WE REMIT THIS ISS UE TO THE FILE OF THE AO AND THE ASSESSEE IS DIRECTED TO SHOW THAT THIS I S ONLY REIMBURSEMENT ON COST TO COST AND IT DOES NOT INCLU DE ANY ELEMENT OF PROFIT. THIS GROUND IS ALLOWED FOR STATISTICAL PUR POSES FOR BOTH THE ASSESSMENT YEARS. 11. THE NEXT GROUND RAISED BY THE ASSESSEE IN ITA NO.444/15 & ITA NO.560/16 FOR THE A.Y 2010-11 & 2011-12 IS WITH REGARD TO DISALLOWANCE OF ADDITIONAL DEPRECIATION U/S.32(1)(I IA) OF THE ACT. 11.1. THE FACTS AS NARRATED IN THE AY 2010-11 ARE THAT THE ASSESSEE IN ITS RETURN OF INCOME CLAIMED ADDITIONAL DEPRECIA TION OF 2,19,57,207/-, BEING 10% (50% OF 20%) ON THE PLANT AND MACHINERY PURCHASED IN THE SECOND HALF OF THE FINANCIAL YEAR 2008-09. THE ASSESSEE DURING THE FINANCIAL YEAR 2008-09, PURCHAS ED A PLANT AND MACHINERY AND CLAIMED ONLY 10% (HALF OF 20%) AS ADD ITIONAL DEPRECIATION IN THE RETURN OF INCOME FOR THE AY 200 9-10 AS THE PLANT AND MACHINERY WERE PUT TO USE FOR LESS THAN 180 DAY S. HENCE, THE ASSESSEE CLAIMED THE BALANCE OF 10% (I.E. REMAINING 50% OF 20%) OF - - ITA 444, 416/15 & 757 TO 760/16 E TC. 14 THE ADDITIONAL DEPRECIATION IN THE RETURN OF THE CU RRENT AY 2010-11. HOWEVER, THE AO OBSERVED THAT THE ADDITIONAL DEPREC IATION IS ALLOWABLE ONLY IN THE YEAR OF PURCHASING THE NEW PL ANT AND MACHINERY AND PUTTING TO USE. ACCORDING TO THE AO, IN THE CA SE OF NEW PLANT AND MACHINERY PUT TO USE FOR LESS THAN 180 DAYS, ONLY H ALF OF THE ADDITIONAL DEPRECIATION IS ALLOWABLE TO THE ASSESSE E, IN VIEW OF THE SPECIFIC PROVISIONS CONTAINED UNDER THE SECOND PROV ISO TO CLAUSE (II) OF SUB-SEC.(1) OF SEC.32. HENCE, THE AO REJECTED THE ASSESSEES CLAIM OF ADDITIONAL DEPRECIATION IN THE CURRENT YEA R 2010-11 AND RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF CRI PUMPS PVT. LTD. V. ACIT (58 SOT 134)(CHENNAI). HOWEVER, THE ASSESSEE SUBMITTED THAT THOUGH THE PROVISIONS OF SECOND PROVISO TO CLAUSE (II) OF SUB- SEC.(1) OF SEC.32 STIPULATES THE METHOD OF COMPUTAT ION OF ALLOWABLE ADDITIONAL DEPRECIATION IN THE YEAR OF PUTTING THE PLANT AND MACHINERY TO USE, THE STATUTES DO NOT PROHIBIT THE ASSESSEE F ROM CLAIMING THE BALANCE OF ADDITIONAL DEPRECIATION IN THE FOLLOWING AY AND THEREFORE, THE ASSESSEE CLAIMED THAT ITS CLAIM OF BALANCE OF 1 0% OF THE ADDITIONAL DEPRECIATION SHOULD BE PERMITTED IN THE CURRENT AY 2010-11. TO SUPPORT HIS VIEW, THE LD. AR RELIED ON SEVERAL CASE LAWS. THE CONTENTION OF THE LD. AR WAS NOT ACCEPTED BY TH E DRP AND - - ITA 444, 416/15 & 757 TO 760/16 E TC. 15 RELYING ON THE ORDERS OF THIS TRIBUNAL, CHENNAI BEN CH, IN THE CASES OF CRI PUMPS P. LTD. V. ACIT (58 SOT 134) AND DCIT V. IP RINGS IN ITA NO. 1328/MDS/2014) WHICH WAS CONFIRMED BY THE M ADRAS HIGH COURT IN THE CASE OF M.M.FORGINGS LTD. V. ADDL. CIT (11 TAXMANN.COM 367), THE DRP DISALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. IN OUR OPINION, SAME ISSUE WAS DECIDED AGA INST THE ASSESSEE BY THE TRIBUNAL IN ASSESSES OWN CASE FOR THE AY 2007-08 IN ITA NOS.266 & 656/MDS/2012) VIDE ORDER DATED 22 .03.2013 WHEREIN HELD THAT:- WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBM ISSIONS. CLAIM OF THE ASSESSEE IS UNDER SECTION 32(1)(IIA), WHICH ALLOW A DDITIONAL DEPRECIATION FOR NEW MACHINERY OR PLANT ACQUIRED AND INSTALLED AFTER 31ST MARCH, 2005. THE SAID SUB-CLAUSE (IIA) OF SECTION 32(1) READS AS UNDER:- 32 (1) IN RESPECT OF DEPRECIATION OF (I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (II) . . .. .. .. .. . . . . . . . . . .. .. . . . . . . . . . . . . . (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OT HER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AF TER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE AND PRODUCTION OF ANY ARTICLE OR THING, A FURTHER S UM EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PL ANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II): - - ITA 444, 416/15 & 757 TO 760/16 E TC. 16 PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF - (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTAL LATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHE R PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST-HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLE S; OR (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIAT ION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OF ANY ONE PREVIOUS YEAR ; FIRST REQUIREMENT FOR BEING ELIGIBLE FOR SUCH A CLA IM IS THAT IT SHOULD BE ON A NEW MACHINERY OR PLANT. A MACHINERY IS NEW ONLY WHE N IT IS FIRST PUT TO USE. ONCE IT IS USED, IT IS NO LONGER A NEW MACHINERY. A DMITTEDLY, THE MACHINERY, ON WHICH CARRY FORWARD ADDITIONAL DEPRECIATION HAS BEEN CLAIMED, WAS ALREADY USED IN THE PRECEDING ASSESSMENT YEAR THOUGH FOR A PERIOD OF LESS THAN 180 DAYS. THEREFORE, FOR THE IMPUGNED ASSESSMENT YEAR, IT IS NO MORE A NEW MACHINERY OR PLANT. ONCE IT IS NOT A NEW MACHINERY OR PLANT, ALLOWANCE UNDER SECTION 32(1)(IIA) CANNOT BE ALLOWED TO IT. ADDITIO NAL DEPRECIATION ITSELF IS ONLY FOR A NEW MACHINERY OR PLANT. HENCE, CARRY FORWARD OF ANY DEFICIT ADDITIONAL DEPRECIATION WHICH, AS PER ASSESSEE, AROSE ON ACCOU NT OF USE FOR A PERIOD LESS THAN 180 DAYS IN THE PRECEDING YEAR, IF ALLOWED, WI LL NOT BE AN ALLOWANCE FOR A NEW MACHINERY OR PLANT. FURTHER, A LOOK AT SECOND P ROVISO TO SECTIO 32(1)(IIA) CLEARLY SHOWS THAT IT RESTRICTS A CLAIM OF DEPRECIA TION TO 50% OF THE AMOUNT OTHERWISE ALLOWABLE, WHEN ASSETS ARE PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS IRRESPECTIVE OF WHETHER SUCH CLAIM IS FOR NORM AL DEPRECIATION OR ADDITIONAL DEPRECIATION. THUS INTENTION OF THE LEGI SLATURE WAS TO GIVE SUCH ADDITIONAL DEPRECIATION FOR THE YEAR IN WHICH ASSET S WERE PUT TO USE AND NOT FOR ANY SUCCEEDING YEAR. THERE IS NOTHING IN THE ST ATUTE WHICH ALLOWS CARRY - - ITA 444, 416/15 & 757 TO 760/16 E TC. 17 FORWARD OF SUCH DEPRECIATION. THERE CANNOT BE ANY P RESUMPTION THAT UNLESS IT IS SPECIFICALLY DENIED, CARRIED FORWARD HAS TO BE A LLOWED. WHAT CAN BE CARRIED FORWARD AND SET OFF HAVE BEEN SPECIFICALLY MENTIONE D IN TH ACT. THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN I.T.A. NO. 1069/MDS/2010 DATED 6TH JANUARY, 2012, AT PARA 15, HELD AS UNDER:- 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE PROVISIONS OF SECTION 32 AS APPLICABLE FOR THE RELE VANT ASSESSMENT YEAR CLEARLY SHOWS THAT ADDITIONAL DEPRECIATION IS ALLOW ABLE ON THE PLANT AND MACHINERY ONLY FOR THE YEAR IN WHICH THE CAPACITY E XPANSION HAS TAKEN PLACE WHICH HAS RESULTED IN THE SUBSTANTIAL INCREAS E IN THE INSTALLED CAPACITY. IN THE ASSESSEES CASE THIS TOOK PLACE IN THE ASSESSMENT YEAR 2005-06 AND THE ASSESSEE HAS ALSO CLAIMED THE ADDIT IONAL DEPRECIATION DURING THAT YEAR AND THE SAME HAS ALSO BEEN ALLOWED . EACH ASSESSMENT YEAR IS SEPARATE AND INDEPENDENT ASSESSMENT YEAR. T HE PROVISIONS OF SECTION 32 OF THE ACT DO NOT PROVIDE FOR CARRY FORW ARD OF THE RESIDUAL ADDITIONAL DEPRECIATION, IF ANY. IN THE CIRCUMSTANC ES, THE FINDING OF THE LEARNED CIT(A) ON THIS ISSUE IS ON A RIGHT FOOTING AND DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUENTLY, GROUND NO.1 OF THE ASSESSEES APPEAL STANDS DISMISSED. WE ARE THEREFORE OF THE OPINION THAT CIT(APPEALS) W AS JUSTIFIED IN FOLLOWING THE VIEW TAKEN BY CO-ORDINATE BENCH OF TH IS TRIBUNAL. 56. GROUND NO.1 OF THE ASSESSEE STANDS DISMISSED. 12.1 RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND IN FA VOUR OF THE REVENUE FOR THESE ASSESSMENT YEARS ALSO. THIS GROUN D IS DISMISSED. 13. THE NEXT ISSUE IN ITA NO.444/MDS./15 & ITA NO .560/MDS./15 FOR THE ASSESSMENT YEARS 2010-11 AND 2011-12 IS W ITH REGARD TO DISALLOWANCE U/S.14A R.W. RULE 8D OF INCOME TAX RUL ES, 1962. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 18 14. THE FACTS OF THE CASE AS NARRATED FOR THE A.Y 2 010-11 ARE THAT THE ASSESSEE IS FOUND TO HAVE INVESTED 1,305.63 LAKHS AS ON 31.03.2010 (THE OPENING BALANCE OF INVESTMENTS AS O N 01.04.2009 ARE 1051.83 LAKHS). HOWEVER, THE ASSESSEE HAS SEGREGA TED ONLY 8,15,722/- AS EXPENDITURE ATTRIBUTABLE TO SUCH INV ESTMENTS, WHICH WAS NOT ACCEPTED BY THE AO. THEREFORE, THE AO, BY INVOKING THE PROVISIONS OF SEC.14A R.W.RULE 8D OF THE IT RULES D ETERMINED THE EXPENDITURE ATTRIBUTABLE FOR EARNING SUCH EXEMPT IN COME AT 32,47,836/- AND PROPOSED TO DISALLOW THE DIFFERENCE OF 24,32,114/-. 14.1 BEFORE THE PANEL, THE ASSESSEE SUBMITTED THAT THE INVESTMENTS IN THE ACQUISITION OF SHARES WERE FROM ITS OWN INTE REST-FREE FUNDS AND IT HAD NOT INCURRED ANY EXPENSES IN RELATION TO INV ESTMENTS MADE IN SHARES. THE ASSESSEE FURTHER CLAIMED THAT SINCE TH ERE WAS NO DIVIDEND INCOME RECEIVED DURING THE YEAR, NO EXPENS ES U/S.14A CAN BE DISALLOWED. 14.2 THE DRP OBSERVED THAT THE ASSESSEE IS NOT MAIN TAINING ANY SEPARATE BOOKS OF ACCOUNTS FOR THE INVESTMENTS IN S HARES, NOR THERE WAS SEPARATE ESTABLISHMENT TO LOOK AFTER THE INVEST MENTS IN - - ITA 444, 416/15 & 757 TO 760/16 E TC. 19 SHARES/FUNDS. FURTHER, IT WAS OBSERVED THAT THE AS SESSEE MAY BE HAVING SUBSTANTIAL INTEREST FREE OWN FUNDS, BUT THI S DOES NOT MEAN THAT THE INVESTMENTS ARE MADE ONLY FROM THESE OWN I NTEREST FREE FUNDS, ESPECIALLY WHEN THE BOOKS ARE NOT MAINTAINED SEPARATELY. FURTHER, ALL THE FUNDS, I.E. THE INTEREST FREE OWN FUNDS AND THE INTEREST BEARING BORROWED FUNDS ARE PUT INTO A COMMON POOL O F FUNDS. FROM THIS COMMON KITTY ALL THE OUTGOINGS (I.E. INVESTMEN TS IN SHARES, REGULAR BUSINESS EXPENSES ETC.) ARE MET WITH. IN OTHER WOR DS, ONCE THE FUNDS, I.E. WHETHER THE INTEREST-FREE OWN FUNDS OR THE INTEREST BEARING BORROWED FUNDS, ARE PUT INTO A COMMON POOL OF FUNDS , THEY WILL LOOSE THEIR DISTINCTION AND ALL TYPES OF FUNDS WILL BE TR EATED ALIKE. IN SUCH A SITUATION, THE ONLY WAY TO ASCERTAIN THE INVESTMENT S MADE FROM THE BORROWED FUNDS, IF ANY, IS ON A PROPORTIONATE BASIS . THEREFORE, THE INTEREST EXPENSES, WHICH COULD NOT BE DIRECTLY LINK ED TO ANY ACTIVITY, ARE TO BE TREATED AS COMMON INTEREST EXPENSES AND C ONSIDERED IN THE STEP-2 OF THE FORMULA GIVEN IN RULE-8D FOR THE PURP OSE OF ATTRIBUTING THE INDIRECT INTEREST BURDEN ON THE INVESTMENTS MAD E ON PROPORTIONATE BASIS. 14.3 FURTHER, IT WAS OBSERVE D BY THE DRP THAT THE DISALLOWANCE OF EXPENSES U/S.14A R.W.RULE 8D IS IN RELATION TO THE EARNING OF THE - - ITA 444, 416/15 & 757 TO 760/16 E TC. 20 EXEMPT INCOME AND NOT IN RELATION TO THE EXEMPT INC OME EARNED AS SUCH. THE DISALLOWANCE OF EXPENSES IS ALWAYS IN RE LATION TO THE EFFORTS MADE FOR EARNING SUCH EXEMPT INCOME AND NOT PROPORTIONATE TO THE EXEMPT INCOME EARNED. IT IS PARTICULARLY SO BECAUSE, IN SOME YEARS THE INCOME SO EARNED MAY BE LESS OR NIL AND T HEREFORE, THE DISALLOWANCE TO BE COMPUTED SHOULD ALWAYS BE WITH R EFERENCE TO THE INVESTMENTS MADE IN SUCH ACTIVITY AND THE EFFORT MA DE THEREIN, AS HELD BY THE SPECIAL BENCH OF ITAT, DELHI IN THE CAS E OF CHEMINVEST LTD. V. ITO (121 ITD 318). IT WAS ALSO SEEN FROM T HE PROFIT AND LOSS ACCOUNT THAT THE ASSESSEE HAS SEVERAL ACTIVITIES IN CLUDING INVESTMENTS IN SHARES AND FOR THE PURPOSE OF MAKING THESE INVESTMENTS ETC., THE SAME MANAGEMENT, MANPOWER, MA CHINERY AND INFRASTRUCTURAL FACILITIES OF THE ASSESSEE ARE BEIN G USED. HENCE, THERE IS AN ELEMENT OF EXPENDITURE INVOLVED IN THE PROCESS AND THIS EXPENDITURE MAY NOT BE DIRECT AND THUS, THERE IS AN EXPENDITURE INVOLVED IN MAKING THESE INVESTMENTS. THEREFORE, T HERE IS A NEED TO IDENTIFY AND APPORTION A REASONABLE AMOUNT OF EXPEN SES AS ATTRIBUTABLE FOR EARNING THE EXEMPTED INCOME. IN O RDER TO ARRIVE AT A REASONABLE AMOUNT OF EXPENDITURE, WHICH MAY VARY FR OM CASE TO CASE AND SITUATION TO SITUATION, THE LEGISLATURE, A FTER TAKING VARIOUS - - ITA 444, 416/15 & 757 TO 760/16 E TC. 21 FACTORS INTO CONSIDERATION, ARRIVED AT A COMMON FOR MULA TO CALCULATE THE EXPENSES @ 0.5% OF THE AVERAGE INVESTMENTS MADE AS PER STEP-3 OF THE FORMULA GIVEN IN RULE-8D AND THE LEGI SLATURE INCORPORATED AND INTRODUCED RULE 8D. SINCE THE AO FOUND THAT THERE WAS SOME ELEMENT OF EXPENSES INCURRED BY THE ASSESS EE IN RELATION TO THE INVESTMENTS IN SHARES AND EARNING THE EXEMPT INCOME, WHICH NEEDS TO BE QUANTIFIED AND DISALLOWED AS PROVIDED U /S.14A OF THE ACT, HE HAD RIGHTLY QUANTIFIED THE SAID EXPENSES OF 32,47,836/-. FURTHER, IT IS OBSERVED THAT THERE WAS AN ELEMENT O F EXPENSES INVOLVED IN MAKING INVESTMENTS WHOSE INCOME IS EXEM PT FROM TAX AND THEREFORE, THE AO IS DUTY BOUND TO INVOKE THE P ROVISIONS OF RULE 8D. ONCE THE PROVISIONS OF RULE 8D ARE INVOKED, TH E AO HAS NO OPTION BUT TO ARRIVE AT THE EXPENSES @ 0.5% AS PER STEP-3 OF THE FORMULA, WHICH IS MANDATORY. ACCORDINGLY, THE DRP C ONFIRMED THE ACTION OF THE AO. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 15. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. LD.A.R PLACED RELIANCE ON THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. REPORTED IN 378 ITR 33(DEL.) WHEREIN HELD THAT:- - - ITA 444, 416/15 & 757 TO 760/16 E TC. 22 THE EXPRESSION DOES NOT FORM PART OF THE TOTAL IN COME IN SECTION 14A OF THE INCOME-TAX ACT, 1961, ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS Y EAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE INCOME. IN OTHER WORDS, SECTION 14A WILL NOT AP PLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. FURTHER, IT IS HELD THAT NO EXEMPT ED INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSME NT YEAR AND SINCE THE GENUINENESS OF THE EXPENDITURE INCURR ED BY THE ASSESSEE WAS NOT IN DOUBT, NO DISALLOWANCE COULD BE MADE UNDER SECTION 14A . 15.1 FURTHER, THE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.REDINGTON (INDIA) LTD. VS. ACIT IN T.C NO.520 O F 2016 DATED 23.12.2016 HELD THAT:- 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOUL D RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENTLY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHERE THERE IS NO EXEMP T INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASSUMED INCOME. (MADRAS INDUSTRIAL INVESTMENT CORPORATION L TD. VS. CIT (225 ITR 802). HE LANGUAE OF S.14A(1) SHOULD BE READ IN TH E CONTEXT AND SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 23 15.2 BEING SO, WE DIRECT THE ASSESSING OFFICER TO DISALLOW THE EXPENDITURE U/S.14A TO THE EXTENT OF EXEMPTED INCOM E ONLY. THIS GROUND OF APPEAL OF ASSESSEE IS PARTLY ALLOWED . 16. THE NEXT ISSUE IN ITA NO.444/MDS./15 FOR THE AY 2010-11 IS WITH REGARD TO ALLOCATION OF R & D EXPENDITURE B ETWEEN ELIGIBLE UNIT U/S. 10B OF THE ACT AND NON-ELIGIBLE UNIT U/S. 10B UNIT OF THE ACT. 17. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IN ITS RETURN OF INCOME CLAIMED 100% DEDUCTION IN RESPECT OF THE INC OMES EARNED BY APACHE UNIT AND ROLLTECH UNIT AMOUNTING T O 11,52,78,946/- AND 38,37,920/- RESPECTIVELY. THE AO OBSERVED THAT THE ASSESSEE CLAIMED WEIGHTED DEDUCTI ON @ 150% ON R & D EXPENSES, AMOUNTING TO 32,32,53,422/-. HOWEVER, THE ASSESSEE HAS NOT ALLOCATED ANY PROPORT IONATE R & D EXPENSES TO THE ABOVE TWO UNITS, WHICH ARE CLAIMI NG 100% DEDUCTIONS U/S.10B OF THE ACT. SINCE THE RESULTS O F THE R & D FACILITY ARE ALSO BEING ENJOYED BY THE ABOVE TWO UN ITS, THE AO APPORTIONED A PROPORTIONATE R & D EXPENSES (BASED O N THE TURNOVER) TO THE SAID UNITS AND REWORKED THE ELIGIB LE BUSINESS - - ITA 444, 416/15 & 757 TO 760/16 E TC. 24 PROFITS OF THE UNITS AND HE ALSO ALLOCATED A PROPOR TIONATE EXEMPT INCOME TO THE ABOVE TWO UNITS AND REDUCED FROM THE ELIGIBLE PROFITS OF THE BUSINESS, AND DETERMINED THE DEDUCTI ONS U/S.10B OF THE ACT. ACCORDINGLY, IN THE DRAFT ASSESSMENT ORDE R DETERMINED THE TOTAL ALLOWABLE DEDUCTION U/S.10B OF THE ACT AT 10,91,64,348/-. 17.1 THE ASSESSEE BEFORE THE PANEL SUBMITTED THAT T HE ISSUE OF APPORTIONING THE R & D EXPENSES TO THE 100% EXPO RT ORIENTED UNITS (APACHE UNIT AND ROLLTECH UNIT) HAS ALREADY B EEN EXAMINED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 1989-90 (IN ITA NO.3191/MDS/92 DATED 6.2.2003, WHER EIN IT WAS HELD THAT IN THE ABSENCE OF ANY NEXUS, THE R & D EX PENSES SHOULD NOT BE APPORTIONED TO THE 100% EXPORT ORIENT ED UNITS. REGARDING THE APPORTIONMENT OF EXEMPT INCOME TO THE 100% EXPORT ORIENTED UNITS, THE ASSESSEE SUBMITTED THAT IF AT ALL, SUCH APPORTIONMENT IS WARRANTED, IT SHOULD BE AN ADDITIO N TO THE ELIGIBLE PROFITS OF THE BUSINESS AND NOT A REDUCTIO N FROM THE PROFITS AND THE ASSESSEE SUBMITTED THAT SUCH APPORT IONMENT IS UNJUSTIFIED AND UNWARRANTED. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 25 17.2 THE DRP AFTER CONSIDERING THE TRIBUNAL DECISIO NS IN ITA NO.3191/MDS/92 FOR THE AY 1989-90 AND ITA NOS.266 & 656/MDS/2012 FOR THE AY 2007-08 OBSERVED THAT THE F ACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE EXACTLY IDENT ICAL TO THOSE INVOLVED IN AY 2007-08, WHERE THE TRIBUNAL DIRECTED THE AO TO EXAMINE CERTAIN FACTUAL DETAILS AND APPORTION THE R & D EXPENSES IF THE R & D RESULTS ARE BEING USED BY THE SAID 100% EOUS. RESPECTFULLY FOLLOWING THE AFORESAID DECISIO N OF THE TRIBUNAL, THE DRP REMANDED THE ISSUE TO THE AO WITH DIRECTIONS. 18. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. WE FIND THAT THIS ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2007-08 IN ITA NOS.266 & 656/MDS/2012, WHEREIN IT WAS REMANDED TH E ISSUE TO THE AO WITH THE FOLLOWING OBSERVATIONS:- 31. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE DISPUTE IS REGARDING SCIENTIFIC RESEARCH EXPEND ITURE OF THE ASSESSEE, WHICH WAS ALLOCATED BY THE ASSESSING OFFI CER TO THE UNITS ON WHICH DEDUCTION UNDER SECTION 10B WAS CLAIMED. AS PER ASSESSEE, THE RESEARCH WAS NOT RELATED TO ANY OF THE PRODUCTS MANUFACTURED BY SUCH UNITS, BUT WAS FOR DEVELOPMENT OF NEW PRODUCTS . ASSESSEE HAD CLAIMED WEIGHTED DEDUCTION UNDER SECTION 35(2AB) ON EXPENDITURE OF ` 5,83,66,790/- INCURRED ON ACQUIRING CAPITAL ASSETS FOR ITS RESEARCH & DEVELOPMENT. WEIGHTED DEDUCTION WAS ALSO CLAIMED O N REVENUE - - ITA 444, 416/15 & 757 TO 760/16 E TC. 26 EXPENDITURE OF ` 12,38,76,337/- INCURRED IN ITS RESEARCH AND DEVELOPMENT FACILITIES. WEIGHTED DEDUCTION WAS CLA IMED AT 150%. ASSESSEE ALSO CLAIMED A SUM OF ` 5,84,49,176/- AS EXPENDITURE INCURRED IN RELATION TO R&D UNDER SECTION 35(1)(IV) OF THE ACT. THOUGH THE ASSESSEE MENTIONED THAT THE PRODUCTS MANUFACTUR ED IN THE UNITS FOR WHICH 10B WAS AVAILABLE, WERE TIME TESTED PRODU CTS, A.O. WAS OF THE OPINION THAT ASSESSEE WAS MANUFACTURING PAD ASS EMBLYFROM ITS APACHE EXPORT UNIT AND DIH BRAKES, ADAPTOR CASTING MACHINE, AIR, CALLIPER ASSEMBLY AND PISTON ASSEMBLY FROM ITS ROLL TEC ENGINEERING UNIT. AS PER A.O., THE NEW PRODUCTS DEVELOPED COUL D BE USED EXTENSIVELY FOR EXPORT PURPOSES. HOWEVER, WE FIND NOTHING IS AVAILABLE ON RECORD TO SHOW WHAT TANGIBLE BENEFIT, IF ANY,ASS ESSEE HAD DERIVED ON ACCOUNT OF THE RESEARCH WORK. WHETHER ANY SUCH EARLIER RESEARCH HAD HELPED THE ASSESSEE WITH REGARD TO ITS ACTIVITI ES IN THE UNITS ON WHICH IT HAD CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT, IS ALSO NOT ON RECORD. CIT(APPEALS) HAD GIVEN RELIEF TO TH E ASSESSEE ACCEPTING ITS CLAIM THAT IT HAD NOT INCURRED ANY SU CH EXPENDITURE WITH REFERENCE TO THE UNITS ON WHICH 10B DEDUCTION WAS C LAIMED. WE ARE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK B Y THE ASSESSING OFFICER. ASSESSING OFFICER HAS TO VERIFY WHETHER T HE RESEARCH DONE BY THE ASSESSEE HAD ANY TANGIBLE BENEFIT VIS--VIS THE ACTIVITIES CARRIED ON BY IT FROM THE UNITS ON WHICH DEDUCTION UNDER SECTI ON 10B WAS CLAIMED. ASSESSING OFFICER HAS TO COMPUTE SUCH DAT A WITH REGARD TO RESEARCH EXPENDITURE INCURRED IN EARLIER YEARS AND COME TO A CONCLUSION IN THIS REGARD. ASSESSEE HAS TO CO-OPER ATE WITH THE ASSESSING OFFICER AND GIVE NECESSARY INFORMATION. WE, THEREFORE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THI S ISSUE BACK TO ASSESSING OFFICER FOR CONSIDERATION AFRESH. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 27 THEREFORE, THIS ISSUE IS REMITTED TO THE FILE OF TH E AO ON SIMILAR DIRECTIONS. 19. THE NEXT ISSUE IN ASSESSEES APPEAL IN ITA NOS.444/MDS./15 & 560/MDS./16 FOR THE ASSESSMENT Y EARS 2010-11 & 2011-12 IS WITH REGARD TO DISALLOWANCE OF WEIGHTED DEDUCTION U/S.35(2AB) OF THE ACT. 19.1 THE FACTS OF THE CASE ARE THAT THE ASSESSEE DURING THE FINANCIAL YEAR 2009-10 CLAIMED TO HAVE INCURRED R & D EXPENDITURE OF 26,35,82,207/- AS REVENUE EXPENDITURE AND 2,71,91,273/- AS CAPITAL EXPENDITURE. THE DSIR, TH E AUTHORITY FOR APPROVING THE R & D EXPENSES, HAS APPROVED THE R & D REVENUE EXPENSES AT 1997.51 LAKHS. THE R & D EXPENSES APPROVED BY THE DSIR ARE ELIGIBLE FOR WEIGHTED DEDUCTION @ 150% U/S.35(2AB) OF THE ACT. HOWEVER, THE ASSESSEE, IN ITS RETURN OF INCOME FILED, CLAIMED A WEIGHTED DEDUCTION OF 39,53,73,310/-, BEING 150% ON THE ENTIRE R & D REVENUE EXPENDITURE OF 26,35,82,207/-. THE AO IS HIS ORDER OBSERVED THAT SINCE THE ASSESSEES R & D REVENUE EXPENSES HAVE BEEN APPROVE D BY THE DSIR TO THE EXTENT OF 1997.51 LAKHS ONLY, THE ASSESSEE IS ELIGIBLE TO CLAIM WEIGHT DEDUCTION @ 150% ON THESE AMOUNTS - - ITA 444, 416/15 & 757 TO 760/16 E TC. 28 U/S.35(2AB) OF THE ACT. FURTHER, THE AO NOTICED TH AT SINCE THE ACTUAL R & D REVENUE EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT ARE ONLY 1902.24 LAKHS, THE ASSESSEE IS ENTITLED FOR WEIGHT DEDUCTION OF 1250% ON 1902.24 LAKHS ONLY. ACCORDING TO THE AO, THE ASSESSEE CANNOT SPLIT THE DEDUCTIONS UNDER TWO DIFFERENT SECTIONS AND CONSEQUENTLY, NO DEDUCTION I S AVAILABLE TO THE ASSESSEE U/S.35(1)(I) OF THE ACT ON THE AMOUNTS , WHICH ARE NOT APPROVED BY THE DSIR AND PROPOSED TO DISALLOW T HE EXCESS CLAIM OF DEDUCTION OF 11,00,36,888/-. 19.2 THE ASSESSEE BEFORE THE PANEL SUBMITTED THAT A NY REVENUE EXPENDITURE INCURRED BY THE ASSESSEE FOR R & D PURPOSES IS ELIGIBLE FOR NORMAL DEDUCTION @ 100% U/ S.35(1(I) OF THE ACT AND ALSO U/S.35(2AB), IF APPROVED BY THE SP ECIFIED AUTHORITY. THE ASSESSEE CLAIMED THAT THOUGH ONLY 19,02,24,281/- WAS DEBITED IN THE PROFIT AND LOSS A CCOUNT UNDER THE HEAD SCIENTIFIC REVENUE EXPENDITURE, THE ACTU AL R & D EXPENSES INCURRED BY THE ASSESSEE DURING THE FINANC IAL YEAR 2009-10 ARE 26,35,82,207/-. THE DETAILS AS FURNISHED BY THE ASSESSEE ARE : - - ITA 444, 416/15 & 757 TO 760/16 E TC. 29 (I) DEBITED IN P&L A/C AS SCIENTIFIC RESEARCH EXPE NDITURE 1902.24 LAKHS (II) PROVISIONS OF LEAVE ENCASHMENT NOT DEBITED IN P&L A/C 733.58 LAKHS TOTAL R&D (REVENUE) EXPENSES INCURRED 2635.34 LAKHS THEREFORE, THE ASSESSEE STATED THAT IT HAD CLAIMED A WEIGHTED DEDUCTION OF 39,53,73,310/-, BEING 150% OF 2635.82 LAKHS U/S.35(2AB) OF THE ACT. THE ASSESSEE, BEFORE THE P ANEL, FURTHER EXPLAINED THAT IF THE ABOVE CALCULATION IS NOT ACCE PTABLE TO THE REVENUE, TO THE EXTENT OF R&D EXPENSES APPROVED BY THE DSIR, THE DEDUCTION MAY BE ALLOWED AT THE RATE OF 150% U/ S.35(2AB) OF THE ACT. ON THE BALANCE OF THE R&D EXPENSES, WHICH WERE NOT ALLOWABLE U/S.35(2AB), NORMAL RATE OF DEDUCTION OF 100% MAY BE ALLOWED U/S.35(1)(I) OF THE ACT. AFTER CONSIDERIN G THE SUBMISSIONS OF THE ASSESSEE, THE DRP OBSERVED THAT THE ASSESSEES ALTERNATIVE CLAIM OF BALANCE OF 50% OF T HE WEIGHTED DEDUCTION U/S.35(2AB) OF THE ACT IS NOT ALLOWABLE. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 20. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. THE LD.A.R RELIED ON THE DECISION OF MUM BAI TRIBUNAL IN THE CASE OF USV LTD. VS. DCIT IN ITA NO.4517 & - - ITA 444, 416/15 & 757 TO 760/16 E TC. 30 5582/MUM/2010 FOR ASSESSMENT YEAR 2007-08 DATED 04. 07.201 WHEREIN IT WAS HELD THAT:- WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF T HE LEARNED REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF TH E AUTHORITIES BELOW AS ALSO THE PROVISIONS OF SECTION 35(2AB) R/W RULE-6(7A) OF THE RULES. ON PERUSAL OF THE PROVISIONS OF SECTION 35(2AB) OF THE ACT, WE DO AGREE WITH THE LEARNED COUNSEL FOR THE A SSESSEE THAT THE SAID SECTION EXCLUDES THE EXPENDITURE IN THE NA TURE OF COST OF ANY LAND OR BUILDING FROM WEIGHTED DEDUCTION TO BE ALLOWED UNDER SECTION 35(2AB) . THE SAID SECTION 35(2AB) AS APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION ALONG WITH THE EXPLANATION READS AS UNDER:- ' SECTION 35(2AB) PROVIDES THAT (2AB)(1) WHERE A COMPANY ENGAGED IN THE BUSINESS OF [BIO- TECHNOLOGY OR IN THE BUSIN ESS OF] MANUFACTURE OR PRODUCTION OF ANY DRUGS, PHARMACEUTI CALS, ELECTRONIC EQUIPMENTS, COMPUTERS, TELECOMMUNICATION EQUIPMENTS, CHEMICALS OR ANY OTHER ARTICLE OR THING NOTIFIED BY THE BOARD INCURS ANY EXPENDITURE ON SCIENTIFIC RESEARCH (NOT BEING E XPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN- HOUS E RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THERE SHALL BE ALLOWED A DEDUCTION OF [A SUM EQUAL TO ONE AND ONE- HALF TIMES OF THE EXPENDITURE] SO INCURRED. EXPLANATION -- FOR THE PURPOSES OF THIS CLAUSE, 'EXP ENDITURE ON SCIENTIFIC RESEARCH', IN RELATION TO DRUGS AND PHAR MACEUTICALS, SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL , OBTAINING - - ITA 444, 416/15 & 757 TO 760/16 E TC. 31 APPROVAL M/S. USV LIMITED FROM ANY REGULATORY AUTHO RITY UNDER ANY CENTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT , 1970 (39 OF 1970).]' 31. THEREFORE, IT IS EVIDENT THAT THIS SECTION EXCL UDES FROM WEIGHTED DEDUCTION ONLY COST OF LAND AND BUILDING AND NOT AN Y CHARGES AND EXPENSES RELATED TO LAND OR BUILDING. THE REPAIRS, RENT, ETC., THE EXPENDITURE INCURRED RELATING TO R&D PREMISES CANNO T FORM PART OF COST OF LAND OR BUILDING. IN THE ABSENCE OF ANY FAC T THAT THE SAID CLAIM OF THE ASSESSEE AGGREGATING TO ` 62,00,689, I S NOT THE EXPENDITURE ON RENTS, RATES AND TAXES RELATING TO R &D PREMISES, WE ARE OF THE CONSIDERED VIEW THAT THE SAID EXPENDITUR E HAS TO FORM PART OF WEIGHTED DEDUCTION AS PER SECTION 35(2AB) OF THE ACT. THEREFORE, WE, BY REVERSING THE ORDERS OF THE AUTHO RITIES BELOW, HOLD THAT THE ASSESSEE IS ENTITLED TO WEIGHTED DEDU CTION ON THE SAID AMOUNT @ 150% AS PER SECTION 35(2AB) OF THE ACT. HENCE, GROUND NO.1(B) OF THE APPEAL TAKEN BY THE ASSESSEE IS ALLO WED. 20.1 IN VIEW OF THE ABOVE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL, WE ARE INCLINED TO HOLD THAT THIS SECTION EXCLUDES FROM WEIGHTED DEDUCTION ONLY COST OF LAND AND BUILDING AND NOT ANY CHARGES AND EXPENSES RELATED TO LAND OR BUILDING. THE REPAIRS, RENT, ETC., THE EXPENDITURE INCURRED RELATING TO R&D PREM ISES CANNOT FORM PART OF COST OF LAND OR BUILDING. ACCOR DINGLY, THE ASSESSING OFFICER IS DIRECTED TO PASS A FRESH O RDER IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL AFTER GIVING OPPORTUNITY TO THE ASSESSEE. THIS GROUND OF APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 32 21. THE NEXT ISSUE IN ASSESSEE APPEALS IN ITA NOS.444/MDS./15 & 560/MDS./16 FOR THE ASSESSMENT Y EARS 2010-11 & 2011-12 IS WITH REGARD TO NON-GIVING OF TDS CREDIT. 21.1. WE HAVE HEARD ON THIS ISSUE. IN OUR CONSIDE RED OPINION, IF THE ASSESSEE IS REMITTED THE TDS, THE SAME CREDI T SHOULD BE GIVEN TO THE ASSESSEE IN RESPECTIVE ASSESSMENT YEAR S. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE AO TO GIVE DUE TDS CREDIT TO THESE ASSESSMENT YEARS AND THE ASSES SEE IS DIRECTED TO FILE NECESSARY DETAILS TO THE AO. THIS GROUND OF APPEALS OF THE ASSESSEE IS PARTLY ALLOWED FOR STATI STICAL PURPOSES. 24. THE NEXT ISSUE IN ASSESSEE APPEALS IN ITA NOS.444/MDS./15 & 560/MDS./16 FOR THE ASSESSMENT Y EARS 2010-11 & 2011-12 IS WITH REGARD TO LEVY OF INTERE ST U/S.234C AND 234D OF THE ACT WHICH IS CONSEQUENTIAL AND MAND ATORY IN NATURE, IT IS TO BE DECIDED ACCORDINGLY. 24.1 IN THE RESULT, THE ASSESSEE APPEALS IN ITA N OS. 558/MDS./16, 559/MDS./16, 444/MDS./15, AND 560/MDS ./16 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 33 25. NOW, WE TAKE UP THE REVENUES APPEAL IN ITA NOS.757/MDS./16, 758/MDS./16, 759/MDS./16, 416/MDS. /15 & 760/MDS./16 FOR THE ASSESSMENT YEARS 2007-08, 2008- 09, 2009- 10, 2010-11 & 2011-12 RESPECTIVELY. 25.1 THE FIRST COMMON ISSUE IN THESE APPEALS IS TH AT THE DRP ERRED IN DELETING THE ADDITION MADE TOWARDS CORPORA TE GUARANTEE. 26. THE FACTS OF THE CASE ARE THAT DURING THE RELEV ANT YEARS, THE ASSESSEE COMPANY STOOD AS A CORPORATE GUARANTOR FOR THE LOANS AVAILED BY ITS AES. THE ASSESSEE COMPANY HAS NOT RECEIVED ANY SERVICE CHARGES (IN THE FORM OF COMMIS SIONER, ETC.) FROM ITS AES IN RELATION TO THE CORPORATE GUARANTEE EXTENDED BY THE ASSESSEE FOR THE LOANS AVAILABLE BY THE SAID AE S. THE TPO IN HIS ORDER OBSERVED THAT THE BANK GUARANTEE COMMI SSION COLLECTED BY VARIOUS BANKS LIKE AXIS BANK, CENTRAL BANK OF INDIA IS NORMALLY AT THE RATE OF 2% OF THE BANK GUARANTEE EXTENDED. THE TPO FURTHER OBSERVED THAT THE CORPORATE GUARANT EE IS THE WEAKER SUBSTITUTE FOR THE BANK GUARANTEE AND HENCE, THE ADDITION RISK ASSUMED BY THE ASSESSEE IS VALUED AT AN ARMS LENGTH PRICE OF 1%. HENCE, THE TPO IN HIS ORDER ADOPTED 1% OF T HE LOANS - - ITA 444, 416/15 & 757 TO 760/16 E TC. 34 TAKEN BY THE AES AS THE ARMS LENGTH PRICE OF THE T RANSACTION BEING THE SERVICE CHARGES FOR EXTENDING THE CORPORA TE GUARANTEE TO THE AES FOR AVAILING BANK LOANS. THEREFORE, THE TPO DETERMINED THE ALP OF THE SERVICE CHARGES, WHILE EX TENDING THE CORPORATE GUARANTEE, AT 1% OF THE OUTSTANDING PRINC IPAL LOAN AT THE BEGINNING OF THE YEAR. IT WAS SUBMITTED THAT T HE CORPORATE GUARANTEES ISSUED ON BEHALF OF THE AE IS NOT AN INT ERNATIONAL TRANSACTION BECAUSE THE COMPANY HAS NOT INCURRED AN Y COSTS IN EXECUTING THE SAID GUARANTEES. ONLY WHEN A COST CA N BE ATTACHED THERETO, THE ARMS LENGTH TESTING FOR THE COSTS CAN BE DONE. TO SUPPORT ITS VIEW, THE ASSESSEE PLACED REL IANCE ON THE DECISIONS OF THE TRIBUNAL IN THE CASES OF BHARTI AI RTEL LTD. V. ADDL. CIT, IN ITA NO.5816/DEL/2012 DATED 11.3.2014 FOR AY 2008-09 AND REDINGTON INDIA LTD. V. JCIT, IN ITA NO.513/MDS /2014 DATED 7.7.2014 AS WELL AS THE ORDER OF THE DRP IN ASSESSE ES OWN CASE FOR THE AY 2010-11. 26.1 FURTHER, IT WAS SUBMITTED THAT THE CORPORATE G UARANTEES WERE ISSUED ONLY TO PROVIDE A COMFORT LEVEL TO THE LENDING BANKS. THESE GUARANTEES DOES NOT HAVE ANY IMPACT ON THE IN COME, PROFITS/LOSSES OR THE ASSETS OF THE COMPANY. THE E XECUTION OF - - ITA 444, 416/15 & 757 TO 760/16 E TC. 35 C.GS ON BEHALF OF COMPANYS AE HAD NOT RESULTED IN ANY COSTS TO THE ASSESSEE AND HENCE, THE QUESTION OF REALIZATION OF ANY MONEY FROM THE AE DOES NOT ARISE. HOWEVER, THE TPO ARGUED THAT IT IS DETERMINED THAT THE CORPORATE GUARANTEES ISSUED BY THE ASSESSEE TO BANKS FOR THE BENEFIT OF ITS AES UNDEN IABLY POSSESS ECONOMIC VALUE. MOREOVER, THEY ARE INTERNATIONAL T RANSACTIONS SQUARELY COVERED UNDER THE PROVISIONS OF SEC.92B OF THE ACT. THE ASSESSEE HAS NOT CHARGED ANY SERVICE FEES FROM THE AES OR FROM ANY ONE FOR THE RISKS TAKEN BY STANDING GUARAN TEE TO THE LOANS. THROUGH THE CGS, THE AES HAVE BENEFITTED AT THE EXPENSE OF THE ASSESSEE AT NO COST. HENCE, AN ARM S LENGTH SERVICE CHARGE IS APPLICABLE. ACCORDING TO THE TPO , SINCE THE CG IS A WEAKER SUBSTITUTE TO BG, THE ADDITIONAL RIS K ASSUMED BY THE ASSESSEE IS VALUED AT AN ARMS LENGTH FIGURE OF 1%. HENCE, 1% SERVICE CHARGE ON THE USD VALUE OF THE LOANS TAK EN BY THE AE IS DUE TO THE ASSESSEE FOR THE LATTERS SERVICES IN ISSUING THE CG AND ASSUMING THE FORMERS RISK. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 27. THE LD. DR RELIED ON THE ORDER OF THE TPO. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 36 28. THE LD. AR SUBMITTED THAT AN IDENTICAL ISSUE WA S CONSIDERED BY THE DRP FOR THE ASSESSMENT YEAR 2010- 11 IN THE CASE OF THE ASSESSEE, WHEREIN THE PANEL DIRECTED TH E AO TO DELETE THE UPWARD ADJUSTMENT MADE AS REGARDS SERVIC E CHARGES FOR CORPORATE GUARANTEE. 29. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE IDENTICAL ISSUE CAME FOR CONSIDERATION FOR ASSESSMENT YEAR 2010-11 IN THE CASE OF REDINGTON (I NDIA ) LTD. IN 40 CCH 0527 CHENNAI TRIB WHEREIN HELD THAT: - WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASS ESSEE PROVIDED CORPORATE GUARANTEE TO ITS OVERSEAS SUBSIDIARIES. THE TPO BENCHMARKED THE CORPORATE GUARANTEE AT 1.5% BY RELY ING ON THE MATERIALS AVAILABLE ON RECORD. THE DRP HAS ALSO FO UND THAT JUSTIFICATION OF THE TRANSACTION ON THE GROUND OF C LOSE RELATIONSHIP IS SELF DEFEATING THE CONCEPT OF ARMS LENGTH PRICE (ALP). ACCORDINGLY, THE DRP CONFIRMED THE VIEW TAKEN BY TH E TPO. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. WE H AVE CAREFULLY GONE THROUGH THE DECISION OF THE DELHI BENCH OF THI S TRIBUNAL IN BHARTI AIRTEL LTD VS ADDL. CIT(SUPRA). THIS TRIBUN AL FOUND THAT THE CORPORATE GUARANTEE ISSUED FOR THE BENEFIT OF ASSOC IATE ENTERPRISE DOES NOT INVOLVE ANY COST TO THE ASSESSEE AND DOE S NOT HAVE ANY BEARING ON PROFIT, INCOME OR LOSS OF ASSETS OF THE ASSESSEE, - - ITA 444, 416/15 & 757 TO 760/16 E TC. 37 THEREFORE, IT WAS OUTSIDE THE AMBIT OF INTERNATIONA L TRANSACTION TO WHICH ARMS LENGTH PRICE ADJUSTMENT CAN BE MADE. T HE DRP HAS ALSO PLACED ITS RELIANCE ON EXPLANATION TO SEC 92B O F THE ACT. THE DECISION OF THE DELHI BENCH OF THIS TRIBUNAL IN BHA RTI AIRTEL LTD. (SUPRA) WAS FOLLOWED BY THE CHENNAI BENCH OF THIS T RIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10. IN VIEW OF THE ABOVE, BY FOLLOWING THE ORDER OF THE DELHI BENCH OF THIS TRIBUNAL IN BHARTI AIRTEL LTD (SUPRA) AND THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 AND FOR THE REASONS STATED THEREIN, WE HOLD THAT TH E CORPORATE GUARANTEE GIVEN BY THE ASSESSEE TO ITS AES DOES NOT INVOLVE ANY COST TO THE ASSESSEE, THEREFORE, IT HAS NO BEARING ON THE PROFITS, INCOME, LOSS OR ASSETS OF THE ASSESSEE AND OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION TO WHICH ALP ADJUSTMENT H AS TO BE MADE. ACCORDING, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADD ITION OF ` 1,84,17,371/-. IN VIEW OF THE ABOVE JUDGEMENT, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND OF APPEALS OF THE REVENUE IS DISMISSED. 30. THE NEXT ISSUE IN REVENUES APPEAL IN ITA NO.41 6/MDS/16 FOR ASSESSMENT YEAR 2010-11 IS WITH REGARD TO REDUCTION IN CLAIM U/S.10B OF THE ACT BY WAY OF APPORTIONMENT OF EXEMPT INCOME AND ACCORDINGLY - - ITA 444, 416/15 & 757 TO 760/16 E TC. 38 REDUCING THE BUSINESS PROFIT FOR THE PURPOSE OF COM PUTATION OF DEDUCTION U/S.10B OF THE ACT. 31. REGARDING THE APPORTIONMENT OF EXEMPT INCOME TO THE ABOVE 100% EXPORT ORIENTED UNITS AND ITS REDUCTION FROM T HE ELIGIBLE PROFITS OF THE UNITS, IT WAS OBSERVED THAT AS TO HOW THE EX EMPT INCOME CAN PROPORTIONATELY BE REDUCED FROM THE BUSINESS INCOME OF THE 100% EOUS WHEN SUCH EXEMPT INCOME IS NOT CREDITED TO T HE PROFIT AND LOSS ACCOUNTS OF THE SAID UNITS. IF THE CONTENTION OF THE APPORTIONMENT OF EXEMPT INCOME IS TO BE CONSIDERED, SUCH EXEMPT I NCOME NEEDS TO BE ADDED TO THE ELIGIBLE BUSINESS PROFITS OF THE UN ITS AND NOT TO BE SUBTRACTED. IN ANY CASE, IT IS NEITHER POSSIBLE NO R LOGICAL TO APPORTION THE EXEMPT INCOME TO THE 100% EOUS AND REDUCE FROM THEIR ELIGIBLE BUSINESS PROFITS FOR THE PURPOSE OF COMPUTING THE D EDUCTIONS U/S.10B OF THE ACT AND DELETED THE PROPOSAL OF THE AO. AGA INST THIS, THE REVENUE IS IN APPEAL BEFORE US. 32. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE SIMILAR ISSUE CAME FOR CONSIDERATION I N ASSESSEE'S OWN CASE IN ITA NO.266/MDS./2012 DATED 222.03.2013 WHER EIN HELD THAT:- - - ITA 444, 416/15 & 757 TO 760/16 E TC. 39 39. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. NO DOUBT, HONBLE KARNATAKA HIGH COUR T IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) HAD HELD THAT E XEMPTION UNDER SECTION 10A WAS TO BE ALLOWED WITHOUT SET OFF OF BROUGHT FORWARD UNABSORBED LOSS AND DEPRECIATION FROM EARLI ER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR FROM A N ON-STP UNIT. SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE O F SCIENTIFIC ATLANTA INDIA TECHNOLOGY PVT. LTD. V. ACIT (2010) 3 8 SOT 252 HAD ALSO HELD THAT DEDUCTION UNDER SECTION 10A WAS UNDERTAKING SPECIFIC. THE ANALOGY WILL CLEARLY APP LY IN THE CASE OF UNITS ON WHICH DEDUCTION IS CLAIMED UNDER SECTIO N 10B AS WELL, SINCE SECTION 10A AND SECTION 10B ARE SIMILAR LYWORDED. NEVERTHELESS, ISSUE BEFORE HONBLE KARNATAKA HIGH C OURT, WAS REGARDING CLAIM OF DEDUCTION UNDER SECTION 10A, ON PROFITS OF AN EOU, WITHOUT SETTING OFF OF BROUGHT FORWARD LOSS OF EARLIER YEARS. IN OUR OPINION, THE ISSUE BEFORE HONBLE KARNATAKA HIGH COURT WAS ENTIRELY DIFFERENT FROM THE ISSUE RAISED BY THE REVENUE BEFORE US. HERE IT IS A CLAIM FOR SET OFF LOSS OF A UNIT ON WHICH CLAIM UNDER SECTION 10B COULD BE PREFERRED WITH THE PROFITS OF A UNIT ON WHICH DEDUCTION UNDER SECTION 10B WAS NOT A VAILABLE. THIS ISSUE, IN OUR OPINION, HAS ALREADY BEEN RESOLV ED IN FAVOUR OF ASSESSEE BY HON'BLE BOMBAY HIGH COURT IN THE CAS E OF HINDUSTAN UNILEVER LTD. (SUPRA). IN THE SAID CASE, ASSESSEE HAD FOUR UNITS WHICH WERE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B, OF WHICH, THREE UNITS HAD RETURNED PROFITS, WHEREAS , THE FOURTH UNIT RETURNED A LOSS. DEDUCTION WAS INDEPENDENTLY CLAIMED FOR THE PROFITS OF THE 10B UNITS. LOSS OF THE FOURTH U NIT WAS ALLOWED TO BE SET OFF AGAINST PROFITS OF THE UNITS ON WHICH THERE WAS NO DEDUCTION AVAILABLE UNDER SECTION 10B. LATER THE A SSESSMENT WAS SOUGHT TO BE REOPENED. THEIR LORDSHIP HELD THE REOPENING DONE FOR DISALLOWING SET-OFF OF THE LOSS OF THE FOU RTH UNIT TO BE - - ITA 444, 416/15 & 757 TO 760/16 E TC. 40 INVALID. THEIR LORDSHIP OBSERVED THAT ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION IN RESPECT OF THE PROFITS OF THREE ELIGIBLE UNITS, AND ALSO ENTITLED TO CLAIM SET-OFF OF LOSS ARISING IN THE FOURTH UNIT AGAINST OTHER BUSINESS INCOME. WE ARE OF THE OPINI ON THAT THIS DECISION CLEARLY GOES IN FAVOUR OF ASSESSEE. LD. C IT(APPEALS) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ALLOW SET OFF OF LOSS IN THE 10B UNITS WITH PROFITS IN OTHER NON-10B UNITS. 32.1 IN VIEW OF THE ABOVE CO-ORDINATE BENCH DECISI ON, THIS GROUND OF THE APPEAL OF THE REVENUESTANDS DISMISSE D. 33. THE NEXT ISSUE IN REVENUES APPEAL IN ITA NO.41 6/MDS/15 IS WITH REGARD TO DELETION OF ADDITION MADE BY AO U/S. 40(A)(I) BEING AGENCY COMMISSION, PROFESSIONAL CONSULTANCY CHARGES , WAREHOUSING CHARGES, EMBALLAGE COST, TOOL DEVELOPMENT CHARGES E TC . 34. THE FACTS OF THE CASE ARE THAT AS THE ASSESSEE COMPANY HAS NOT DEDUCTED/REMITTED ANY TDS WHILE MAKING THE ABOV E PAYMENTS TO NON-RESIDENTS, THE AO INVOKED THE PROVISIONS OF SEC .40(A)(I) OF THE ACT AND DISALLOWED THE SAME IN HIS DRAFT ASSESSMENT ORD ER. THE ASSESSEE SUBMITTED BEFORE THE PANEL THAT THE AGENCY COMMISSION, WAREHOUSING CHARGES, FREIGHT/LOGISTIC/ EMBALLAGE CH ARGES ETC. PAID FOR NON-RESIDENTS FOR THE SERVICES AVAILED OUTSIDE INDI A ARE NOT LIABLE FOR - - ITA 444, 416/15 & 757 TO 760/16 E TC. 41 TAX IN INDIA IN THE HANDS OF THE RECIPIENTS. THERE FORE, THE ASSESSEE (THE REMITTER OF THE SUMS) IS NOT UNDER OBLIGATION TO DEDUCT ANY TDS ON SUCH PAYMENTS. CONSEQUENTLY, THE PROVISIONS OF SEC.40(A)(I) HAVE NO APPLICATION. FURTHER, THE ASSESSEE SUBMITTED TH AT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AY 2007-08 IN ITA NOS.2 66 & 656/MDS/2012 DATED 22.3.2013. REGARDING THE INTERE ST PAYMENT, THE ASSESSEE SUBMITTED THAT THOUGH THE INTEREST WAS PAI D TO A HONG KONG BRANCH OF SBI, THE LEGAL ENTITY, I.E. STATE BANK OF INDIA IS AN INDIAN PUBLIC SECTOR SCHEDULED BANK AND HENCE THERE WAS NO NEED TO DEDUCT ANY TDS ON THE INTEREST PAYMENTS. REGARDING THE LEASED TELEPHONE LINE CHARGES, THE ASSESSEE SUBMITTED THAT THEY ARE ONLY REIMBURSEMENT OF EXPENSES AND HENCE, THE PROVISIONS OF SEC.40(A)(I) OF THE ACT ARE NOT APPLICABLE. REGARDING THE TOOL DEVELOPMENT CHARGES, THE ASSESSEE CLAIMED THAT THESE EXPENSES R EPRESENT THE DEVELOPMENT CHARGES OF CERTAIN TOOLS INCLUDING THE PROCUREMENT OF RAW MATERIAL FOR DEVELOPMENT OF THE SAID TOOLS. TH E NON-RESIDENTS PROCURE THE MATERIAL, DEVELOP THEM INTO TOOLS AND U SE THE TOOLS IN THE MANUFACTURING ACTIVITY OUTSIDE THE COUNTRY. SINCE THE PROCUREMENT OF THE MATERIAL, DEVELOPMENT OF THE TOOLS AND THEIR US E WAS TOTALLY - - ITA 444, 416/15 & 757 TO 760/16 E TC. 42 OUTSIDE INDIA AND ALSO THE PERSONS PROCURING THE MA TERIAL AND DEVELOPING THE TOOLS ARE NON-RESIDENTS AND THE SERV ICES ARE RENDERED OUTSIDE INDIA, THE PAYMENTS ARE LIABLE FOR TAX IN I NDIA. HENCE, THE ASSESSEE CLAIMED THAT THESE EXPENSES ARE OUTSIDE TH E PURVIEW OF PROVISIONS OF SEC.40(A)(I) OF THE ACT. 34.1 THE ASSESSEE CLAIMED IN ITS RETURN OF INCOME A GENCY COMMISSION OF 55,19,350/- AND PROFESSIONAL AND CONSULTANCY CHARGES OF 41,71,575/-. AS CLAIMED BY THE ASSESSEE, THESE SERVICES ARE RENDERED BY THE NON-RESIDENTS AND OUTS IDE INDIA AND HENCE, ITS PAYMENTS ARE NOT LIABLE TO TAX IN INDIA. THE WAREHOUSING CHARGES OF 3,44,98,431/- ARE PAID TO NON-RESIDENTS FOR THE WAREHOUSING SERVICES RENDERED OUTSIDE INDIA. SIMIL ARLY, THE EMBALLAGE COST OF 1,17,59,919/- WERE ALSO PAID TO THE NON-RESIDENTS FOR HIRING OF CONTAINERS OUTSIDE INDIA9FOR TRANSPOR TING THE EXPORTS OUTSIDE INDIA). THESE EMBALLAGE COSTS ARE AKIN TO LOGISTICS COST. NONE OF THE PERSONS WHO ARE RENDERING THE AGENCY CO MMISSION, CONSULTANCY, WAREHOUSING, EMBALLAGE COSTS HAVE PE I N INDIA. THESE PERSONS ARE RENDERING THE SERVICES OUTSIDE THE COUN TRY AND THE SERVICES WERE ALSO AVAILED/UTILIZED OUTSIDE INDIA O NLY. CONSEQUENTLY, THE PAYMENTS ARE NOT LIABLE FOR TAX IN INDIA IN THE HANDS OF THE - - ITA 444, 416/15 & 757 TO 760/16 E TC. 43 RESPECTIVE RECIPIENTS. THEREFORE, THE ASSESSEE IS NOT UNDER THE OBLIGATION TO DEDUCT ANY TDS ON THESE PAYMENTS. S IMILAR ISSUES WERE CONSIDERED BY THE TRIBUNAL IN ASSESSEESS OWN CASE AS STATED ABOVE, WHEREIN IT WAS HELD THAT THE ABOVE PAYMENTS RENDERED BY THE NON-RESIDENTS ARE NOT LIABLE FOR TDS U/S.195 OF THE ACT AND CONSEQUENTLY, OUTSIDE THE PURVIEW OF SEC.40(A)(I) O F THE ACT. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 35. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. SIMILAR ISSUE CAME FOR CONSIDERATION IN AS SESSEE'S OWN CASE IN ITA NO.266 & 656/MDS./2012 (SUPRA) WHEREIN HELD THAT:- 46. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVA L SUBMISSIONS. PURPOSES FOR WHICH ASSESSEE HAD MADE PAYMENTS TO NO N-RESIDENTS HAVE ALREADY BEEN GIVEN BY US IN THE TABLE AT PARA 42 AB OVE. ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE WHILE EFFECTING SUCH PAYMENT S. AS PER THE A.O., THESE EXPENDITURE WERE NOTHING BUT FOR MANAGERIAL S ERVICES RENDERED BY THE NON-RESIDENTS OUTSIDE INDIA. FURTHER, AS PER T HE REVENUE, EXPLANATION INSERTED BY FINANCE ACT, 2010 UNDER SECTION 9(2) OF THE ACT WITH RETROSPECTIVE EFFECT FROM 1.6.1976,HAD DISPENSED WI TH THE CONDITION REGARDING RESIDENCE OR PLACE OF BUSINESS OR BUSINES S CONNECTION IN INDIA, FOR ATTRACTING RIGOURS OF SECTION 9(1)(VII). THERE FORE, ACCORDING TO THEM, CIT(APPEALS) FELL IN ERROR IN HOLDING THAT ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE. IN THIS REGARD IT IS IMPORTANT TO H AVE A LOOK AT THE EXPLANATIONS GIVEN BY THE ASSESSEE ON THE PAYMENTS EFFECTED BY IT TO THE NON-RESIDENTS. WITH REGARD TO COMMISSION, ASSESSEE HAD BEFORE - - ITA 444, 416/15 & 757 TO 760/16 E TC. 44 ASSESSING OFFICER, GIVEN A COPY OF THE LETTER ISSUE D TO THE NON-RESIDENT PARTY WHICH READ AS FOLLOWS:- ASSISTANCE YOU WILL RENDER FULL ASSISTANCE AND CO-OPERATION WITH REGARD TO THE FOLLOW UP OF SCHEDULES AND OTHER CORR ESPONDENCE THAT EMANATE FROM CUSTOMERS FROM TIME TO TIME REGAR DING THE AGREED PRODUCTS. YOU WILL ALSO BE REQUIRED TO ENSURE THE CONSIGNME NTS ARE CLEARED, WAREHOUSED AND DISTRIBUTED BY NOMINATED AG ENTS FOR ONWARD DELIVERY TO CUSTOMERS. EXPENSES INCURRED ON ACCOUNT OF THE ABOVE WILL BE REIMBURSED BY BRAKES INDIA AND SHA LL BE SUPPORTED BY RELEVANT BASIC DOCUMENTS. ALL OTHER EX PENSES RELATED TO THE SPECIFIC PRODUCTS INCLUDING ASN (ADV ANCE SHIPMENT NOTE) SUBMISSION, SAMPLE CERTIFICATION, TR AINING AND OTHER DIRECT EXPENSES RELATED TO SUBJECT MERCHANDIS E WILL BE REIMBURSED. SUPPORTING DOCUMENTS WILL HAVE TO BE P ROVIDED WITH THE INVOICES. A COPY OF THE AGREEMENT ENTERED WITH NOMINATED AGENT IS TO BE FORWARDED TO US FOR OUR APPROVAL/REC ORDS. YOU WILL HAVE TO ARRANGE FOR MONTHLY STOCK STATEME NT PART NUMBER WISE FOR US TO COVER INSURANCE AND FOR MONITORING THE STOCK LEVELS. WITH REGARD TO WAREHOUSING CHARGES INCLUDING LOGIST ICS CHARGES, EXPLANATION GIVEN BY THE ASSESSEE TO THE A.O. WAS AS UNDER:- FREIGHT AND WAREHOUSING CHARGES THE ENTIRE EXPEND ITURE WERE WHOLLY INCURRED OUTSIDE INDIA IN TERMS OF TRANSPORTA TION, DELIVERY AND LOGISTICS COSTS. THOSE EXPENDITURE BEING INCUR RED OUTSIDE INDIA ARE NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE AND THOSE INCOME ARE NOT LIABLE FOR TAX IN INDIA. FURTHER AL L THOSE AGENTS DO NOT HAVE ANY PES IN INDIA. SEPARATE SHEET DETAI LING THE BREAK-UP ALONG WITH REMARKS IS ATTACHED FOR YOUR PER USAL. ALSO - - ITA 444, 416/15 & 757 TO 760/16 E TC. 45 WE ENCLOSE SAMPLE COPIES FOR DISTRIBUTION AND LOGIS TICS COSTS TO SUBSTANTIATE THAT THE EXPENDITURE WERE WHOLLY INCURR ED OUTSIDE INDIA. ASSESSING OFFICER HAD ALSO EXTRACTED THE PERTINENT PARTS OF THE AGREEMENT ASSESSEE ENTERED WITH M/S VOLVO, WHICH READ AS UNDE R:- SERVICES MEANS SEA FREIGHT OF THE CONTAINER FROM THE PORT OF DEPARTURE, INDIA TO THE PORT OF GOTHENBURG, SWEDEN CUSTOM CLEARANCE, HAULAGE OF THE CONTAINER TO VLCS WAREHOU SE AT ARENDAL, GOTHENBURG, STORAGE OF THE PRODUCTS FOR AN AVERAGE PERIOD OF FIVE WEEKS AND ON TIME DELIVERY ACCORDING TO VCTS CALL OFFS TO VLCS FACTORIES IN GOTHENBURG, SWEDEN AND GH ENT, BELGIUM. CONSOLIDATION OF INCOMING DELINSES FROM V TC AND MATERIAL CONTROL. SCOPE DURING THE TERMS OF THIS AGREEMENT VLC UNDERTAKES TO CARRY OUT SERVICES IN ACCORDANCE WITH THE WORKING INSTRACTION S, SPECIFICATIONS, QUALITY REQUIREMENTS AND PROCEDURES GIVEN TO VLC BY OR ON BEHALF OF BRAKES INDIA AND IN SUCH WAY THAT THE WORK SATISFIES VTCS SPECIFICATIONS AND REQUIREMENTS AS S TATED IN THE CUSTOMER CONTRACTS OR THE APPENDICES HERETO INCLUDI NG THE WEEKLY INVENTORY TO BE SENT TO BRAKES INDIA AND THE O N TIME DELIVERY OF THE PRODUCTS TO VTC IN THE QUANTITIES AG REED UPON. VLC AND BRAKES INDIA WILL, UNTIL THE TERMINATION O F THIS AGREEMENT MEET TOGETHER AT AGREED INTERVALS BUT IN ANY EVENT NO LESS THAN ONCE EVERY HALF YEAR AT AN AGREED LOCATION TO REVIEW THE PROGRESS OF THE SERVICES. 47. IN OUR OPINION, NATURE OF SERVICES MENTIONED AB OVE WILL COME NOT WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVIC ES GIVEN UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. BY VIRTUE OF SUCH SERVICES, THE CONCERNED RECIPIENTS HAD NOT MADE AVAILABLE TO THE ASSESSEE ANY NEW TECHNIC OR SKILL WHICH ASSESSEE COULD USE IN IT S BUSINESS. THE - - ITA 444, 416/15 & 757 TO 760/16 E TC. 46 SERVICES RENDERED BY THE SAID PARTIES RELATED TO CL EARING, WAREHOUSING AND FREIGHT CHARGES, OUTSIDE INDIA. THE LOGISTICS SERVICE RENDERED WAS ESSENTIALLY WAREHOUSING FACILITY. IN OUR OPINION, THIS CANNOT BE EQUATED WITH MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. EVEN IF IT IS CONSIDERED AS TECHNICAL SERVICE, THE FEE WAS PAYABL E ONLY FOR SERVICES UTILIZED BY THE ASSESSEE IN THE BUSINESS OR PROFESS ION CARRIED ON BY THE SAID NON-RESIDENTS OUTSIDE INDIA. SUCH BUSINESS OR PROFESSION OF THE NON-RESIDENTS,EARNED THEM INCOME OUTSIDE INDIA. TH US, IT WOULD FALL WITHIN THE EXCEPTION GIVEN UNDER SUB-CLAUSE (B) OF SECTION 9(1) OF THE ACT. IN ANY CASE, UNDER SECTION 195 OF THE ACT, AS SESSEE IS LIABLE TO DEDUCT TAX ONLY WHERE THE PAYMENT MADE TO NON-RESID ENTS IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IN THE CIR CUMSTANCES MENTIONED ABOVE, ASSESSEE WAS JUSTIFIED IN HAVING A BONAFIDE BELIEF THAT THE PAYMENTS DID NOT WARRANT APPLICATION OF SECTION 195 OF THE ACT. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT IT COULD NOT HAVE BEEN SADDLED WITH THE CONSEQUENCES MENTIONED UNDER SECTION 40(A) (I) OF THE ACT. DISALLOWANCES WERE RIGHTLY DELETED BY THE LD. CIT(A PPEALS). NO INTERFERENCE IS CALLED FOR. 35.1 IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, T HIS GROUND OF APPEAL BY THE REVENUE IS DISMISSED. 36. THE NEXT ISSUE IN ITA NO.760/MDS/16 FOR THE ASS ESSMENT YEAR 2011-12 IS WITH REGARD TO DEPRECIATION ON PRINTERS AND UPS. THE FACTS OF THE CASE ARE THAT THE AO HAS DISALLOWED DE PRECIATION CLAIMED BY THE ASSESSEE AT 60% ON PRINTERS, SCANNERS AND UP S TREATING THE SAME AS OFFICE EQUIPMENT ELIGIBLE FOR DEPRECIATION AT 15%. THE - - ITA 444, 416/15 & 757 TO 760/16 E TC. 47 ASSESSEE SUBMITTED THAT THE AO SHOULD HAVE ALLOWED A HIGHER RATE OF DEPRECIATION AT 60% ON UPS, SINCE IT IS NOW FAIRLY SETTLED THAT UPS IS AN ENERGY SAVING DEVICE. SIMILARLY, PRINTERS WHICH FORM PART OF DATA PROCESSING EQUIPMENT SHOULD HAVE BEEN ALLOWED DEPRE CIATION AT 60% AS PER THE RATE SPECIFIED UNDER THE INCOME-TAX ACT AND NOT AT 60%. THE ASSESSEE HAS SUBMITTED THAT IT HAS GROUPED UPS, PRINTERS AND SCANNERS UNDER THE BLOCK OF ASSETS COMPUTERS AND CLAIMED DEPRECIATION AT 60%. ACCORDING TO THE AO, THESE IT EMS ARE ELIGIBLE FOR DEPRECIATION AT 15% BEING OFFICE EQUIPMENT. HOWEVE R, THE DRP OBSERVED, BY CONSIDERING THE CASE LAWS CITED BY THE ASSESSEE THAT IN RESPECT OF PRINTERS, SCANNERS, UPS, ETC. NETWORKING EQUIPMENT, THE JUDICIAL DECISIONS ARE STRONGLY WEIGHED IN FAVOUR O F THE TAXPAYER ON THE GROUND THAT THESE HARDWARE ITEMS BECOME OPERATI ONAL ONLY THROUGH COMPUTER FUNCTIONS AND THESE COMPUTER HAR DWARE WHEN USED AS COMPONENT OF THE COMPUTER BECOME PART AND P ARCEL OF THE COMPUTER. ACCORDINGLY, THE CLAIM OF HIGHER DEPREC IATION AT 60% ON THESE ITEMS IS ALLOWED BY THE DRP. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 48 37. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD. SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUN AL IN ASSESSEES OWN CASE IN ITA NOS.266/MDS/12 AND 656/MDS/12 FOR T HE AY 2007-08 WHEREIN HELD THAT:- 58. WE FIND THAT THIS ISSUE HAD COME UP IN ASSESSE ES APPEAL FOR ASSESSMENT YEAR 2006-07. THIS TRIBUNAL AT PARA 16 OF ITS ORDER DATED 6.1.2012 (SUPRA), HAD HELD AS UNDER:- 16. IN REGARD TO GROUND NO.2 IT WAS SUBMITTED BY THE LEARNED AUTHORIZED REPRESENTATIVE THAT THE ISSUE WAS AGAINS T THE ACTION OF THE LEARNED CIT(A) IN CONFIRMING THE DISALLOWANC E OF HIGHER DEPRECIATION ON THE UPS WHICH WAS ENERGY SAVING DEVI CE. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE WAS NO W COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRI BUNAL IN THE CASE OF DCIT V. SURFACE FINISHING AND EQUIPMENT REP ORTED IN 81 TTJ 448 (JODH). AS IT IS NOTICED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, REFERRED TO SUPRA, THE ASSESSING OFFICER IS DIRECTED TO GRANT THE ASSESSEE HIGHER RATE OF DEPRECIATION ON T HE UPS, WHICH IS AN ENERGY SAVING DEVICE. IN THE CIRCUMSTANCES G ROUND NO.2 IN THE ASSESSEES APPEAL STANDS ALLOWED. 17. IN THE RESULT APPEALS OF THE REVENUE IN ITA NO S. 249 AND 1166/MDS/2010 ARE PARTLY ALLOWED FOR STATISTICAL PUR POSES AND THE APPEAL OF THE ASSESSEE IN ITA NO.1069/MDS/2010 IS PARTLY ALLOWED. 59. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH OR DER, WE HOLD THAT ASSESSEE WAS ELIGIBLE FOR HIGHER RATE OF DEPRECIATI ON ON UPS TREATING IT AN ENERGY SAVING DEVICE. - - ITA 444, 416/15 & 757 TO 760/16 E TC. 49 37.1 RESPECTFULLY FOLLOWING THE AFORESAID ORDER OF THE TRIBUNAL, WE ARE INCLINED TO DISMISS THE GROUND TAKEN BY THE REV ENUE. 38. IN THE RESULT, THE ASSESSEE APPEALS IN ITA N OS. 558, 559/MDS/2016,444/MDS/2015 & 560 /MDS/2016 ARE PART LY ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUE APPEALS IN ITA NOS. 757, 758, 759/MDS/2016, 416/MDS/2015 & 760/MDS/2016 ARE DISMI SSED. ORDER PRONOUNCED ON 06 TH MARCH, 2017 AT CHENNAI. SD/- SD/- ( '. ) ) ( *+, - ' ! ) (G. PAVAN KUMAR) (CHANDRA POOJARI) : ; <= /JUDICIAL MEMBER >' <= /ACCOUNTANT MEMBER *>: /CHENNAI, B<+ /DATED, THE 06 TH MARCH, 2017. K S SUNDARAM C<>D ;EF G>F% /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. C C H () /CIT(A) 4. C C H /CIT 5. FIJ ;;KL /DR 6. JMN O /GF.