M/s. Gillette Diversified Operations Pvt. Ltd., Mumbai V. ACIT, New Delhi

ITA 5677/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2933 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 07-10-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Competent authority; Notional interest
• Section: 143(3); 92B; 80HHC; 115JB; 10B; 32; 11

Judgement Text

ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2 NEW DELHI BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 5736/DEL /2015 ASSTT. YEAR: 2010-11 ACIT, CIRCLE 10(1), NEW DELHI VS GILLETTE DIVERSIFIED PVT. LTD., P&G PLAZA, CARDINAL GRACIOUS ROAD, CHANKALA, ANDHERI (EAST), MUMBAI-400009 (PAN: AAACG2469C) (APPELLANT) (RESPONDENT) ITA NO. 5675/DEL/2015 TO 5677/DEL/2015 ASSTT. YEAR: 2008-09 TO 2010-11 GILLETTE DIVERSIFIED PVT. LTD., P&G PLAZA, CARDINAL GRACIOUS ROAD, CHANKALA, ANDHERI (EAST), MUMBAI-400009 VS ACIT, CIRCLE 12(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI PRA DIP DINODIA, ADV. SHRI R.K. KAPOOR, ADV. DEPARTMENT BY: SHRI SANJAY KUMAR YADAV, SR. DR DATE OF HEARING: 24.05.2018 DATE OF PRONOUNCEMENT: 23.0 8.2018 ORDER PER SUDHANSHU SRIVASTAVA, J.M. ITA NO. 5675/DEL/2015 IS ASSESSEES APPEAL AGAINST THE ORDER DATED 30.7.2015 PASSED BY THE LD. CIT (APPEAL S)-44, NEW ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 2 DELHI FOR ASSESSMENT YEAR 2008-09. ITA 5676/DEL/2 015 IS ASSESSEES APPEAL AGAINST THE ORDER DATED 30.7.2015 PASSED BY THE LD. CIT (A)-44, NEW DELHI FOR ASSESSMENT YEAR 2 009-10, ITA 5677/DEL/2015 IS ASSESSEES APPEAL AGAINST ORDER DA TED 30.7.2015 PASSED BY THE LD. CIT (A)-44, NEW DELHI F OR ASSESSMENT YEAR 2010-2011 AND ITA 5736/DEL/2015 IS THE DEPARTMENTS CROSS APPEAL FOR ASSESSMENT YEAR 2010- 11. SINCE THESE APPEALS INVOLVE IDENTICAL ISSUES, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF THROUGH THIS CON SOLIDATED ORDER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF WIDE RANGE OF PRODUCTS F OR PERSONAL CARE USE. IT IS ENGAGED IN THE DISTRIBUTION OF ORA L CARE PRODUCTS PRIMARILY FALLING UNDER HEALTH CARE SEGMENT CONSIST ING OF TOOTHBRUSH, TOOTHPASTE, DENTAL FLOSS ETC. THE ASSE SSEE IS A SUBSIDIARY OF GILLETTE INDIA GROUP OF COMPANIES. 2.1 FOR ASSESSMENT YEAR 2008-09, THE RETURN OF INCO ME WAS FILED AT A LOSS OF RS. 3,57,402/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 1961 (H EREINAFTER REFERRED TO AS 'THE ACT') AT A TOTAL INCOME OF RS. 2,21,93,140/- AFTER MAKING AN ADJUSTMENT IN RESPECT OF TRANSFER P RICING ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 3 ADJUSTMENT OF RS. 2,25,50,540/-. THIS ADJUSTMENT W AS MADE ON ACCOUNT OF NON-CHARGING OF INTEREST ON DELAYED P AYMENTS RECEIVED FROM THE ASSOCIATED ENTERPRISES (AE). 2.2 IN ASSESSMENT YEAR 2009-10, THE RETURN OF INCOM E WAS FILED DECLARING INCOME AT NIL AND AN INCOME OF RS.3,02,28,446/- UNDER THE PROVISIONS OF SECTION 11 5JB OF THE ACT. IN THIS YEAR, THE TRANSFER PRICING ADJUSTMENT IN RESPECT OF INTEREST ON DELAYED PAYMENTS WAS OF RS. 1,58,33,490 /-. 2.3 IN ASSESSMENT YEAR 2010-11, THE RETURN OF INCOM E WAS FILED DECLARING INCOME AT NIL AND OF RS. 11,796,566 /- U/S 115JB OF THE ACT. IN THIS YEAR, THE TRANSFER PRICI NG ADJUSTMENT WITH RESPECT TO INTEREST ON DELAYED PAYMENT FROM TH E AES WAS OF RS. 1,59,24,926/-. IN ASSESSMENT YEAR 2010-11, A DISALLOWANCE OF RS. 5,31,53,415/- WAS ALSO MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEPRECIATION CLAIME D BY THE ASSESSEE ON PLANT AND MACHINERY WHICH WAS NOT BEING USED BY THE ASSESSEE COMPANY. 2.4 IN ALL THE THREE YEARS UNDER CONSIDERATION, THE ASSESSEE APPROACHED THE LD. COMMISSIONER OF INCOME TAX (A) W HO UPHELD THE ACTION OF THE ASSESSING OFFICER/TRANSFER PRICING ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 4 OFFICER (TPO) IN MAKING THE TRANSFER PRICING ADJUST MENT WITH RESPECT TO NOTIONAL INTEREST ON DELAYED PAYMENT REC EIVED FROM THE AE. THE LD. COMMISSIONER OF INCOME TAX (A), HO WEVER, UPHELD THE ASSESSEES CLAIM FOR DEPRECIATION IN ASS ESSMENT YEAR 2010-11. 2.5 NOW, THE ASSESSEE IS BEFORE THE ITAT CHALLENGIN G THE FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (A) IN RESPECT OF CONFIRMATION OF TRANSFER PRICING ADJUSTMENT WITH RESPECT TO INTEREST ON DELAYED PAYMENTS FROM THE AE IN ALL THE THREE YEARS UNDER APPEAL WHILE THE DEPARTMENT IS IN APPEAL IN A SSESSMENT YEAR 2010-11 AND IS CHALLENGING THE ACTION OF THE L D. COMMISSIONER OF INCOME TAX (A) IN DIRECTING THE DEL ETION OF DISALLOWANCE WITH RESPECT TO DEPRECIATION ON PLANT AND MACHINERY NOT UTILIZED BY THE ASSESSEE COMPANY. 3. THE LD. AR APPEARING ON BEHALF OF THE ASSESSEE S UBMITTED THAT ASSESSMENT YEAR 2010-11 MAY BE TAKEN AS THE LE AD CASE AND ASSESSMENT YEARS 2008-09 AND 2009-10 BEING ESSE NTIALLY IDENTICAL, THE SAME ARGUMENTS WOULD APPLY FOR THESE ASSESSMENT YEARS AS WELL. ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 5 3.1 THE LD. AUTHORISED REPRESENTATIVE (AR) SUBM ITTED THAT THE MAJOR TRANSACTION UNDERTAKEN BY THE ASSESSEE IS THE EXPORT OF FINISHED GOODS AMOUNTING TO RS.45.79 CRORES TO I TS AES FOR WHICH THE ASSESSEE HAD APPLIED TNMM AS THE MOST APP ROPRIATE METHOD. IT WAS SUBMITTED THAT THE ASSESSEE EARNED M ARGINS UNDER THE TNMM METHOD @ 5.63% BASED ON OP/OR AND TH E COMPARABLES HAD EARNED A MARGIN OF 4.72% AS HAVE BE EN NOTED BY THE TPO IN PARA 2 OF HIS ORDER. IT WAS SUBMITTED THAT THE ASSESSEE HAD EARNED A HIGHER PROFIT OF RS. 41.66 LA CS WHILE TRANSACTING WITH ITS AE AS COMPARED TO THE COMPARAB LES BASED ON THESE MARGINS. IT WAS SUBMITTED THAT ALL THE REP ORTED INTERNATIONAL TRANSACTIONS HAD BEEN ACCEPTED AT THE ARMS LENGTH PRICE (ALP) AND NO ADJUSTMENT HAS BEEN MADE BY THE TPO IN ANY OF THE REPORTED INTERNATIONAL TRANSACTIO NS. THE LD. AR FURTHER SUBMITTED THAT THE TPO HAD HELD ALL THE INTERNATIONAL TRANSACTIONS TO BE AT ARMS LENGTH PR ICE, BUT HAD MADE AN ADJUSTMENT OF RS. 1,59,24,916/- ON ACCOUNT OF OUTSTANDING RECEIVABLES FROM THE AES BEYOND THE ALL EGED STANDARD CREDIT PERIOD OF 30 DAYS @ INTEREST RATE O F 14.88% BASED ON PLR OF STATE BANK OF INDIA. ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 6 3.2 THE LD. AR ELABORATED THAT DURING THE TRANSFER PRICING PROCEEDINGS, THE TPO OBSERVED THAT THE BALANCE SHEE T OF THE ASSESSEE WAS SHOWING RECEIVABLES AS ON 31 ST MARCH, 2010 AND THE TPO REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY THE RECEIVABLES WHICH WERE OUTSTANDING BEYOND THE AGREE D PERIOD SHOULD NOT BE TREATED AS SEPARATE INTERNATIONAL TRA NSACTIONS AND WHY INTEREST @ 14.88% ON SUCH RECEIVABLES SHOUL D NOT BE COMPUTED TO DETERMINE THE ALP OF SUCH RECEIVABLES. IT WAS FURTHER SUBMITTED THAT IN RESPONSE TO THE SHOW CAUS E NOTICE, THE ASSESSEE FILED ITS REPLY DATED 23.11.2013 GIVIN G REFERENCE TO COMMERCIAL BUSINESS REASONS, UNIFORMITY IN NON-CHAR GING INTEREST FROM AE AND NON-AE AND TO CONSIDER THE CRE DIT PERIOD OF 180 DAYS AGAINST THE EXPORT REALIZATION. ALTERNA TIVELY, THE ASSESSEE ALSO REQUESTED TO APPLY LIBOR INSTEAD OF S BI PLR RATE OF 14.88% BUT THE TPO DID NOT CONSIDER THE SUBMISSI ON OF THE ASSESSEE APPROPRIATE AND PROCEEDED TO DETERMINE THE TRANSFER PRICING ADJUSTMENT AT RS. 1,59,24,926/-. 3.3 THE LD. AR FURTHER SUBMITTED THAT THE INTEREST ON OVERDUE RECEIVABLES IS RESULT OF SALE OF GOODS AND WHEN THE MAIN TRANSACTION HAS BEEN CONSIDERED TO BE AT ALP THEN T HERE IS NO REASON TO TREAT THE RECEIVABLES AS A SEPARATE INTER NATIONAL ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 7 TRANSACTION. THE LD. AR SUBMITTED THAT RECEIVABLE MENTIONED UNDER EXPLANATION TO SEC. 92B OF THE ACT DOES NOT M EAN ACCOUNTS RECEIVABLE AND, THUS, THE OUTSTANDING BA LANCE CANNOT BE TREATED AS AN INDEPENDENT TRANSACTION FOR TRANSF ER PRICING ADJUSTMENT. THE LD. AR FURTHER SUBMITTED THAT RECE IVABLE UNDER CLAUSE (C) WOULD APPLY TO LOAN FUNDS ONLY AND, THER EFORE, THE CHARGING OF INTEREST IS APPLICABLE ONLY WITH THE LE NDING OR BORROWING OF FUNDS AND NOT IN THE CASE OF COMMERCIA L OVER-DUES WHICH IS ALREADY SUBJECTED TO TRANSFER PRICING. IT WAS ALSO SUBMITTED THAT THE RATE OF INTEREST CHARGED ON LOAN GRANTED CANNOT BE USED AS COMPARABLE FOR CHARGING INTEREST ON OUTSTANDING TRADE RECEIVABLES, EVEN IF APPLICABLE A S PER THE CONTRACT. THE LD. AR REITERATED THAT THE TRADE RECE IVABLES HAVE A DIFFERENT BUSINESS PERSPECTIVE ALTOGETHER AND INTER EST ON OVERDUE IS ONLY AN INCIDENTAL ACTIVITY TO THE MAIN ACTIVITY OF SALE OR PURCHASE OF GOODS OR PROVISION OF SERVICES. 3.4 THE LD. AR PLACED RELIANCE ON NUMEROUS JUDICIAL PRECEDENTS FOR THE PROPOSITION THAT NON-CHARGING OF INTEREST I N RESPECT OF EXTENDED CREDIT PERIOD CANNOT BE HELD AS AN INTERNA TIONAL TRANSACTION PROVIDED THE ASSESSEE WAS GIVING SIMILA R TREATMENT TO BOTH AES AND NON AES. ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 8 3.5 THE LD. AR ALSO SUBMITTED THAT THE WORKING CAPI TAL ADJUSTED MARGINS OF THE ASSESSEE HAVE ALREADY FACTORED IN TO ACCOUNT FOR THE IMPACT OF DELAY IN RECEIVABLES AND, THUS, ANY S EPARATE ADJUSTMENT ON THIS ACCOUNT WAS NOT WARRANTED IN VIE W OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF PRINCIPAL CIT VS. KUSUM HEALTH CARE PVT. LTD. REPORTED IN 201 7-TII-28-HC- DELHI (TP). IT WAS SUBMITTED THAT THE WORKING CAPIT AL ADJUSTED MARGINS OF THE COMPARABLE AND THE ASSESSEE COMPUTED IN ACCORDANCE WITH THE HONBLE DELHI HIGH COURT IN KUS UM HEALTHCARE (SUPRA) IS 6.78% AND 5.63% RESPECTIVELY, WHICH IS, THUS, WITHIN THE +/-5% RANGE AS PER PROVISO TO SEC 92C. OUR ATTENTION WAS DRAWN TO THE WORKING PLACED AT PAGE 1 62 OF THE PAPER BOOK. 3.6 WITHOUT PREJUDICE, IT WAS FURTHER SUBMITTED, TH AT THE ASSESSE HAS, IN THE TRANSFER PRICING PROCEEDINGS, A LSO SUBMITTED THE UPDATED MARGINS OF THE COMPARABLES AT THE INSTA NCE OF THE TPO WHICH COMES TO (3.39%) AS COMPARED TO THE ASSES SEES PLI OF 4.72% AND PLACE AT PAGE 114 OF THE PAPER BOOK. IT W AS SUBMITTED THAT THIS HAS NOT BEEN DISCUSSED BY THE TPO IN ITS ORDER. 3.7 THE LD. AR ALSO SUBMITTED THAT IN THE CASE OF T HE ASSESSEE, THE TRANSACTION OF RECOVERABLES HAS SPRUNG UP AND I S AN OFF-SHOOT ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 9 OF SALES TRANSACTION. IT WAS SUBMITTED THAT THE TRA NSACTION OF SALES WITH THE AE WERE, ADMITTEDLY, AT ALP AND THE MARGINS EARNED BY THE ASSESSEE WERE HIGHER THAN THAT OF THE COMPARABLES AND, THEREFORE, THE TRANSACTION OF DELAYED RECOVERA BLE, IF AT ALL, IT IS TO BE TREATED AS A SEPARATE TRANSACTION, THE SAM E GETS SUBSUMED IN THE OVERALL TNMM ANALYSIS AND NO SEPARA TE ADJUSTMENT IS WARRANTED ON THE DELAYED RECOVERABLE. 3.8 IT WAS FURTHER SUBMITTED BY THE LD. AR THAT WIT HOUT PREJUDICE TO THE CONTENTION THAT OVERDUE RECEIVABLE S IS NOT A SEPARATE INTERNATIONAL TRANSACTION, IT WAS SUBMITTE D THAT EVEN THE RBI ALLOWS A TIME LIMIT OF 6 MONTHS FOR REALIZING T HE EXPORT PROCEEDS (NOW 365 DAYS FROM YEAR 2013). IT WAS SUBM ITTED THAT THE RBI IS THE COMPETENT AUTHORITY FOR THE TIME BE ING IN FORCE FOR REGULATING PAYMENTS AND DEALINGS IN FOREIGN CURRENC Y. IT WAS PRAYED THAT THE CREDIT PERIOD OF 180/365 DAYS FOR R EALIZING EXPORT PROCEEDS FROM AE OUTSIDE INDIA MAY BE CONSIDERED FO R MAKING ADJUSTMENT IF ANY. 3.9 RELIANCE WAS PLACED ON THE ORDER OF ITAT DELHI BENCH IN THE CASE OF AVL INDIA PVT. LTD VS. DCIT [ITA NO. 4275/D EL/2016] IN WHICH ALSO THE TPO HAD MADE ADJUSTMENT FOR RECEIVAB LES TAKING PRUDENT ESTIMATE OF 30 DAYS CREDIT PERIOD AT INTERE ST RATE OF ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 10 14.88% BUT THE LD. CIT (A) HAD ALLOWED AND THE ITAT CONFIRMED THE CREDIT PERIOD OF 180 DAYS. 3.10 FURTHER RELIANCE WAS ALSO PLACED ON THE FOLLO WING JUDICIAL PRECEDENTS WHEREIN A CREDIT PERIOD OF 180 DAYS HAS BEEN ACCEPTED BY THE COURTS: -DCIT VS. M/S INDO AMERICAN JEWELLERY LIMITED- ITA NO. 5872 (MUM.) OF 2009 -LINTAS INDIA P. LTD VS. ACIT [2013] 152 TTJ 706 ( MUM) -MASTEK LTD. VS. ACIT (ITA NO.3120/AHD/2010) -BAUSCH & LOMB EYE CARE (I) PVT LTD V ACIT - ORDER DATED MAY 23, 2014 IN ITA /3861/DEL/ 2010 , ITAT DELHI 3.11 THE LD. AR SUBMITTED THAT EVEN IF INTEREST O N OVERDUE RECEIVABLES IS TREATED AS INTERNATIONAL TRANSACTION , STANDARD CREDIT PERIOD OF 180 DAYS, AS AGAINST 30 DAYS TAKEN BY TPO, BE ALLOWED TO THE ASSESSEE AS EVEN THE PROVISIONS OF L AW LIKE SEC 10A OR 80HHC ETC AND RBI RULES ALLOW 6 MONTHS/ONE YEAR PERIOD NOW FOR REALIZING EXPORT PROCEEDS AND ALLOW BENEFIT OF DEDUCTION. RELIANCE PLACED ON GSS INFOTECH [ITA NO. 602/HYD/20 17]. 3.12 WITHOUT PREJUDICE TO THE ABOVE, IT WAS FURTH ER SUBMITTED THAT RATE OF INTEREST FOR CALCULATION OF NOTIONAL I NTEREST CANNOT BE TAKEN AT THE RATE OF 14.88% P.A., BUT HAS TO BE THE RATE FROM ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 11 BORROWERS PERSPECTIVE. IT WAS SUBMITTED THAT IN THE PRESENT CASE, AS THE AES ARE BASED IN USA, SWITZERLAND, SINGAPORE ETC, RATES SHOULD BE AS PER THE PREVALENT BORROWING RATES IN T HOSE COUNTRIES, WHICH IS LIBOR. IT WAS FURTHER SUBMITTED THAT COMPARING INDIAN INTEREST RATES FOR THE PURPOSE OF BENCHMARKING OF LENDING OR BORROWING (WHICH ARE DOMINATED IN FOR EIGN CURRENCY) DOES NOT CONSTITUTE AN APPROPRIATE COMPARABLE WITHI N THE MEANING OF RULE 10B (A)(I) AND THAT THE COMPARISON OF INTEREST ON A FOREIGN CURRENCY LOAN WITH INDIAN RATES ON DOMEST IC LOANS TANTAMOUNTS TO CONTRAVENTION OF THE ABOVE STATED RU LE. IT WAS PRAYED THAT IN THE CASE OF THE INTEREST RATE ON OVE RDUE TRADE RECEIVABLES TO THE ASSOCIATED ENTERPRISES, LIBOR BE APPLIED INSTEAD OF THE INDIAN SBI BASE RATE FOR THE ALP DET ERMINATION. THE LD. AR PLACED RELIANCE ON THE FOLLOWING JUDICIA L PRECEDENTS: - TECH MAHINDRA LIMITED ITA. NO. 1176/MUM/2010 -SIVA VENTURES LTD. V ACIT (TS-218-ITAT-2013)(CHNY) - COTTON NATURALS [TS-117-HC- 2015-DEL-TP] -GSS INFOTECH LTD [TS-298- ITAT-2016(HYD)-TP] 3.13 IT WAS FURTHER SUBMITTED THAT THE 6 MONTHS L IBOR RATE FOR AY 2010-11, WAS 1.10 % AND EVEN IF THIS IS INCREASE D BY 150 BASIS POINTS IT WILL BECOME 2.60%.THE ADJUSTMENT ON ACCOUNT OF ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 12 OVERDUE RECEIVABLES, IF ANY, WILL BE AROUND RS.3 LA CS BASED ON 180 DAYS CREDIT PERIOD AND 2.60% LIBOR RATE AS PER THE CALCULATIONS ENCLOSED IN ANNEXURE-IV. IT WAS SUBMIT TED THAT THIS AMOUNT OF ADJUSTMENT GETS SUBSUMED INTO THE EXTRA P LI MARGINS EARNED BY ASSESSEE AS COMPARED WITH COMPARABLES WHE REBY ASSESSEE HAS MADE EXTRA PROFIT OF ABOUT 41 LACS. HE NCE, NO ADJUSTMENT WHATSOEVER IS WARRANTED. 4.0 ARGUING AGAINST THE DEPARTMENTS APPEAL, IT WAS SUBMITTED BY THE LD. AR THAT THE AO DISALLOWED THE DEPRECIATI ON ON PLANT & MACHINERY ON THE GROUND THAT THE ASSESSEE COMPANY D ID NOT PUT THE PLANT & MACHINERY TO USE FOR THE BUSINESS ACTIV ITIES DURING THE YEAR, RATHER THESE WERE OUT TO USE BY M/S RIALT O ENTERPRISES PVT. LTD. IT WAS SUBMITTED THAT THE AO ALSO ALLEGED THAT THE DEPRECIATION IS ALLOWABLE ONLY IF THE ASSETS WERE E ITHER USED ACTIVELY OR PASSIVELY FOR THE PURPOSE OF BUSINESS B UT IN THE INSTANT CASE THE ASSESSEE COMPANY DID NOT CARRY OUT ANY MAN UFACTURING ACTIVITIES. THE LD. AR DREW OUR ATTENTION TO THE RE LEVANT PORTION OF THE IMPUGNED ORDER WHEREIN THE LD. CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE BY STATING THAT- I HAVE PERUSED THE AGREEMENT BETWEEN THE APPELLANT AND RIALTO ENTERPRISES PRIVATE LIMITED. AS PER THE SAID AGREEMENT ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 13 THERE ARE ANNEXURES OF PLANT AND MACHINERY TO BE PR OVIDED BY THE APPELLANT HOWEVER, THE COST OF SUCH PLANT AND M ACHINERY, DATE OF PURCHASE ETC ARE NOT AVAILABLE IN THE SAID AGREEMENT. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO VER IFY ACTUAL COST OF THE PLANT AND MACHINERY USED FOR THE PRODUC TION OF PRODUCT OF THE APPELLANT BY M/S RIALTO ENTERPRISES PRIVATE LIMITED BEFORE ALLOWING DEPRECIATION U/S 32. ACCORD INGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 4.1 STRONG RELIANCE WAS PLACED ON THE REASONS GIVEN BY THE LD. CIT (A) IN ALLOWING THE CLAIM OF THE DEPRECIATION T O THE ASSESSEE. IT WAS SUBMITTED THAT AS PER THE PROVISIONS OF SEC 32, THE ASSET SHOULD BE OWNED AND USED FOR THE PURPOSE OF BUSINES S OF THE ASSESSEE AND THAT IT DOES NOT MANDATE THAT THE ASSE T MUST BE USED BY ASSESSEE ITSELF. IT WAS SUBMITTED THAT DURI NG THE YEAR UNDER CONSIDERATION ALSO, THE ASSETS HAD BEEN OWNED BY THE ASSESSEE, THOUGH INSTALLED AT THE PREMISES OF M/S R IALTO ENTERPRISES PVT. LTD, FOR THE BUSINESS OF ASSESSEE ONLY. THE ASSESSEE COMPANY ITSELF IS NOT MANUFACTURING THE GO ODS BUT GOT THEM MANUFACTURED FROM M/S RIALTO ENTERPRISES PVT. LTD AND AS PER THE AGREEMENT WITH RIALTO, THE ASSESSEE WAS TO PROVIDE ALL THE REQUIRED MACHINERIES, EQUIPMENT TESTING EQUIPMENT A ND MOULDS FOR THE PURPOSE OF MANUFACTURING PRODUCTS TO RIALTO . IT WAS FURTHER SUBMITTED THAT THE RELEVANT CLAUSES OF THE AGREEMENT WERE ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 14 EXPLAINED BEFORE THE LD. CIT (A) VIDE SUBMISSION DA TED 9 TH JULY 2015 (PAPER BOOK PAGES 104-106) AND THE LD. CIT (A) , IN HIS ORDER, HAS ALSO APPRECIATED THAT THE PLANT & MACHIN ERY NEED NOT NECESSARILY BE ACTUALLY USED BY THE ASSESSEE ITSELF FOR CLAIMING DEPRECIATION AND CAN BE USED BY OTHER PERSON ALSO A S IN THE CASE OF LEASED ASSETS. THE LD. AR MADE A REFERENCE TO TH E FOLLOWING OBSERVATIONS OF THE LD. CIT (A): DURING THE REMAND PROCEEDINGS, THE AO HAS RAISED A NEW ISSUE THAT EVEN THE DEPRECIATION OF PLANT AND MACHI NERY USED BY M/S RIALTO ENTERPRISES PVT. LTD. FOR MANUFACTURI NG SHOULD NOT BE ALLOWED TO THE APPELLANT. ALTHOUGH THE AO'S CLAIM IS NOT ENTERTAINABLE AT THE STAGE OF APPELLATE PROCEEDINGS AGAINST THE PENALTY ORDER. HOWEVER, THE CLAIM OF THE AO IS PRIMA-FACIE NOT MAINTAINABLE AS DEPRECIATION IS ALWAYS ALLOWABL E EVEN WHEN THE PLANT AND MACHINERY IS LEASED OUT AND IS B EING USED BY THE OTHER PERSON. HERE, IN THE APPELLANT'S CASE, THE PLANT AND MACHINERY IS BEING USED BY A CONCERN WHIC H EXCLUSIVELY MANUFACTURES PRODUCTS FOR THE APPELLANT AND PLANT AND MACHINERY IS MAINTAINED BY THE APPELLANT ITSELF . THEREFORE, THERE REMAINS NO DOUBT REGARDING THE OWN ERSHIP AS WELL AS THE FACT THAT PLANT AND MACHINERY WAS PUT T O USE FOR BUSINESS PURPOSES. IN SUCH CIRCUMSTANCES, DEPRECIAT ION IS FULLY ALLOWABLE TO THE APPELLANT. THEREFORE, THE IS SUE RAISED BY THE AO DURING THE REMAND PROCEEDINGS HAS NO MERITS AND HENCE DESERVES TO BE REJECTED. ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 15 4.2 THE LD. AR PLACED RELIANCE ON NUMEROUS JUD ICIAL PRECEDENTS TO SUPPORT HIS CONTENTION THAT IT IS NOT NECESSARY THAT THE ASSETS SHOULD BE USED BY THE ASSESSEE ITSELF IN ORDER TO C LAIM DEPRECIATION. 4.3 THE LD. AR SUMMED UP HIS ARGUMENTS BY SUBMITTI NG THAT: - THE PLANT AND MACHINERY PLACED AT RIALTO PREMISE S WERE EXCLUSIVELY FOR MANUFACTURING THE PRODUCTS FOR THE ASSESSEE COMPANY AND ITS ASSOCIATES. - THE PROPRIETARY RIGHTS OF ASSETS REMAINED WITH TH E ASSESSEE COMPANY. - THE ASSESSEE CONTINUED TO OWN AND MAINTAIN THE PL ANT AND MACHINERY, THE COSTS OF MAINTENANCE AND REPAIRS AS WELL AS THE DEPRECIATION COSTS. - THE PRICE OF THE PRODUCTS SOLD TO ASSESSEE COMPAN Y DID NOT INCLUDE THE DEPRECIATION COSTS. - THE PLANT AND MACHINERY WERE OF ASSESSEE COMPANY S PROPRIETARY DESIGN, OVER WHICH IT MAINTAINED OWNERS HIP AND CLOSE CONTROL ON ACCESS AS WELL AS MEASURES UNDERTAKEN TO PREVENT COUNTERFEITING. 4.4 THE LD. AR ALSO MADE A REFERENCE TO SECTION 32 OF THE ACT AND SUBMITTED THAT THE FOLLOWING CONDITIONS AS PRES CRIBED IN SECTION 32 OF INCOME TAX ACT, 1961 WERE FULLY SATIS FIED IN THE CASE OF THE ASSESSEE COMPANY:- ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 16 - ASSESSEE MUST BE THE OWNER OF THE ASSET - REGISTE RED OWNER NEED NOT BE NECESSARY -THE ASSET MUST BE USED FOR THE PURPOSES OF BUSINE SS OR PROFESSION. - THE ASSET MUST BE USED DURING THE PREVIOUS YEAR. 4.5 IT WAS PRAYED THAT THE DEPARTMENTS APPEAL ON T HE ISSUE BE DISMISSED. 5.0 IN RESPONSE, THE LD. SENIOR DEPARTMENTAL REPRES ENTATIVE (SR. DR) PLACED STRONG RELIANCE ON THE ORDER OF THE TPO AS UPHELD BY THE LD. CIT (A) WITH RESPECT TO THE TRANSFER PRICIN G ADJUSTMENT ON OVERDUE RECEIVABLES. 5.1 IN RESPECT OF THE DEPARTMENTS APPEAL PERTAININ G TO DISALLOWANCE OF DEPRECIATION, THE LD. SR. DR PLACED RELIANCE ON THE FINDINGS OF THE AO. 6.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL ON RECORD. WE TAKE UP THE ASSESSEES A PPEALS FIRST AND THE SOLE ISSUE FOR OUR CONSIDERATION IN THE THR EE APPEALS IS WHETHER THE TRANSFER PRICING ADJUSTMENT/S IN RESPEC T OF RECEIVABLES OUTSTANDING BEYOND THE AGREED PERIOD IS SUSTAINABLE OR NOT. THE LD. CIT (A) HAS DISCUSSED THE ISSUE AT LENGTH IN THE IMPUGNED ORDER AND HAS NOTED THAT AS PER THE INVOIC ES, PAYMENTS ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 17 WERE TO BE MADE WITHIN FIVE WORKING DAYS OF THE INV OICING PERIOD. IT HAS ALSO BEEN NOTED BY THE LD. CIT (A) THAT THE TPO HAS FURTHER ALLOWED A GRACE PERIOD OF 30 DAYS IN ALL CASES OF D ELAYED PAYMENTS BEFORE PROCEEDING TO COMPUTE THE TRANSFER PRICING A DJUSTMENT. THE LD. CIT (A) HAS DISMISSED ALL THE CONTENTIONS R AISED BY THE ASSESSEE BEFORE HIM BY RELYING ON THE VARIOUS JUDIC IAL PRECEDENTS WHICH HE HAS DULY QUOTED IN THE IMPUGNED ORDER. THE LD. AR HAS ALSO ARGUED AT LENGTH AND HAS PLACED RELIANCE ON A PLETHORA OF CASE LAWS WITH RESPECT TO EACH LIMB OF HIS CONTENTI ON. WE FIND THAT THE HONBLE DELHI HIGH COURT, ALSO BEING THE J URISDICTIONAL HIGH COURT FOR THE ASSESSEE, HAS DEALT THIS ISSUE I N PRINCIPAL CIT VS. KUSUM HEALTH CARE PVT. LTD REPORTED IN 2017-TII -28-HC-DELHI TP AND HAS HELD IN PARA 10 OF THE JUDGMENT AS UNDER : THE COURT IS UNABLE TO AGREE WITH THE ABOVE SUBMIS SIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION RECEIVABLES DOES NOT MEAN THAT DE HORS THE CONTEXT EVERY ITEM OF RECEIVABLES APPEARING IN TH E ACCOUNTS OF AN ENTITY, WHICH MAY HAVE DEALINGS WITH FOREIGN AES WOULD AUTOMATICALLY BE CHARACTERIZED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE, EVEN BEYOND THE AGREED LIMIT, DUE TO A VARIETY OF FACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CASE TO CASE ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 18 BASIS. IMPORTANTLY, THE IMPACT THIS WOULD HAVE ON T HE WORKING CAPITAL OF THE ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS, THERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANALYZING THE STATISTICS OVER A PERIOD OF TIME TO D ISCERN A PATTERN WHICH WOULD INDICATE THAT VIS-A-VIS THE REC EIVABLES FOR THE SUPPLIES MADE TO AN AE, THE ARRANGEMENT REFLECT S AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE A E IN SOME WAY. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT AY CAN HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO C ONCLUDING THAT THE FIGURE OF RECEIVABLES BEYOND 180 DAYS CONS TITUTES AN INTERNATIONAL TRANSACTION BY ITSELF. WITH THE ASSES SEE HAVING ALREADY FACTORED IN THE IMPACT OF THE RECEIVABLES O N THE WORKING CAPITAL AND THEREBY ON ITS PRICING/PROFITAB ILITY VIS-A- VIS THAT OF ITS COMPARABLES, ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF THE OUTSTANDING RECEIVABLES WOULD HAVE DISTORTED THE PICTURE AND RECHARACTERSIED THE TRANSACTION. TH IS WAS CLEARLY IMPERMISSIBLE IN LAW AS EXPLAINED BY THIS C OURT IN CIT VS. EKL APPLIANCES LTD. (2012) 345 ITR 241 (DELHI) 2012- TII-01 -HXC-DEL-TP. 6.1 THUS, THE HONBLE DELHI HIGH COURT HAS HELD THE DELAY IN COLLECTION OF MONIES EVEN BEYOND THE AGREED PERIOD WILL HAVE TO BE ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 19 INVESTIGATED ON A CASE TO CASE BASIS. IT HAS ALSO B EEN LAID DOWN THAT THE TPO WILL HAVE TO MAKE A PROPER ENQUIRY TO DISCERN A PATTERN WHICH COULD INDICATE THAT THE ARRANGEMENT R EFLECTS AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE A E IN SOME WAY. IT HAS ALSO BEEN HELD THAT WHERE THE ASSESSEE HAS A LREADY FACTORED IN THE IMPACT OF RECEIVABLES ON THE WORKING CAPITAL , ANY FURTHER ADJUSTMENT ONLY ON THE BASIS OF OUTSTANDING RECEIVA BLES WOULD DISTORT THE PICTURE. 6.2 WE ARE OF THE CONSIDERED OPINION THAT THIS ASPE CT WILL HAVE TO BE NECESSARILY RE-EXAMINED BY THE AO/TPO BEFORE ANY SUCH ADJUSTMENT IS MADE. IT HAS ALSO BEEN SUBMITTED BY T HE LD. AR THAT THE IMPACT OF THE OUTSTANDING RECEIVABLES HAS BEEN FACTORED IN THE WORKING CAPITAL ADJUSTMENT. THIS ASPECT ALSO REQUIRES VERIFICATION. WE ALSO NOTE THAT THE LD. CIT (A) DID NOT HAVE THE BENEFIT OF THIS JUDGMENT OF THE HONBLE DELHI HIGH COURT WHEN HE PASSED THE IMPUGNED ORDER. THEREFORE, ON AN OVERALL VIEW OF THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE RA TIO OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PRINCIPAL CIT VS. K USUM HEALTH CARE PVT. LTD (SUPRA) WE RESTORE THIS ISSUE TO THE FILE OF THE AO/TPO FOR THE PURPOSE OF RE-EXAMINING AND RE-CONSI DERING THE ISSUE IN LIGHT OF THE RATIO OF THE JUDGMENT OF THE HONBLE DELHI ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 20 HIGH COURT IN THE CASE OF PRINCIPAL CIT VS. KUSUM H EALTH CARE PVT. LTD (SUPRA) AND PASS A SPEAKING ORDER AS PER L AW AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE. THE ASSESSEE SH ALL BE AT LIBERTY TO TAKE ALL/ANY OF THE PLEAS RAISED BEFORE US AND SHALL ALSO BE AT LIBERTY TO FILE RELEVANT WORKINGS/COMPUTATION S. 7.0 ACCORDINGLY, THE THREE APPEALS OF THE ASSESSEE STAND ALLOWED FOR STATISTICAL PURPOSES. 8.0 COMING TO THE DEPARTMENTS APPEAL CHALLENGING T HE ACTION OF THE LD. CIT (A) IN DELETING THE DISALLOWANCE OF DEP RECIATION, WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR O F THE ASSESSEE BY THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF ICDS LTD. VS. CIT REPORTED IN (2013) 29 TAXMANN.COM 129 (SC) WHEREIN THE HONBLE APEX COURT, WHILE EXAMINING PROVISION OF SE CTION 32 OF THE ACT, HELD AS UNDER: SECTION REQUIRES THAT THE ASSESSEE MUST USE THE AS SET FOR THE 'PURPOSES OF BUSINESS'. IT DOES NOT MANDATE USAGE O F THE ASSET BY THE ASSESSEE ITSELF. AS LONG AS THE ASSET IS UTILIZED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, THE RE QUIREMENT OF SECTION 32 WILL STAND SATISFIED, NOTWITHSTANDING NON- USAGE OF THE ASSET ITSELF BY THE ASSESSEE. 8.1 THE HONBLE SUPREME COURT CONSIDERED THE PHRASE 'USE FOR THE PURPOSE OF BUSINESS' IN THE CASE OF LIQUIDATOR S OF PURSA LTD. V. CIT(1954) 25 ITR 265 (SC). THE HONBLE APEX COUR T POINTED OUT ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 21 THAT THE CRITICAL WORDS WHICH ARE ESSENTIALLY CONST ITUENT FOR THE PURPOSE OF CONSIDERING THE CLAIM OF THE ASSESSEE WA S MACHINERY OR PLANT 'USED FOR THE PURPOSES OF BUSINESS, PROFES SION OR VOCATION'. THE WORDS 'USED FOR THE PURPOSES OF BUSI NESS' OBVIOUSLY MEANS USED FOR THE PURPOSE OF ENABLING TH E OWNER TO CARRY ON THE BUSINESS AND EARN PROFITS IN THE BUSIN ESS. 8.2 IN VIEW OF THE BINDING PRECEDENT OF THE HONBL E APEX COURT, RESPECTFULLY FOLLOWING THE SAME, WE FIND NO REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A) ON THE ISSUE A ND DISMISS THE GROUNDS RAISED BY THE DEPARTMENT. 9.0 IN THE RESULT THE APPEAL OF THE DEPARTMENT STAN DS DISMISSED. 10.0 IN THE FINAL RESULT, THE APPEALS OF THE ASSESS EE ARE ALLOWED AND THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 23 RD AUGUST, 2018. SD/- SD/- (PRAMOD KUMAR) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD AUGUST, 2018 GS ITA NO. 5736, 5675 TO 5677/D/2015 ASSESSMENT YEAR 2008-09 TO 2010-11 22 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER ASSISTANT REGI STRAR