Varroc Engineering Pvt. ltd., Aurangabad V. Assistant Commissioner of Income-tax,

ITA 573/PUN/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1081 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 24-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K RASTOGI
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Additional depreciation; Cost of acquisition
• Section: 92C; 143(3); 54B; 92B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , A M . / ITA NO. 573 /PN/201 4 / ASSESSMENT YEAR : 200 9 - 10 VARROC ENGINEERING PVT. LTD., E - 4, MIDC INDUSTRIAL AREA, WALUJ, AURANGABAD 431136 . / APPELLANT PAN: AAACV2420J VS. THE ASST. COMMISSIONER OF INCOME TAX C IRCLE 1, AURANGABAD . / RESPONDENT / APPELLANT BY : SHRI KISHORE PHADKE / RESPOND ENT BY : SHRI S.K. RASTOGI, CIT / DATE OF HEARING : 2 4 .0 9 .2015 / DATE OF PR ONOUNCEMENT: 24 . 0 9 .2015 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF ASST. C IT , CIRCLE 1 , AURANGABAD DATED 1 6 . 0 1 .201 4 RELATING TO ASSESSMENT YEAR 20 0 9 - 1 0 PASSED AGAINST ORDER U NDER SECTION 143(3) R.W.S . 144C OF THE INCOME - TAX ACT. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THE LEARNED AO I TPO ERRED IN LAW AND ON FACTS AND HON'BLE MUMBAI DRP ERRED ACCEPTING AO / /TPO'S VIEW IN DETERMINING ARM'S LENGTH PRICE OF INTEREST RECEIVABLE TR ANSACTION FROM NETHERLAND BASED AE COMPANY OF THE APPELLANT AT RS.9,23,36,585 (INTEREST RATE 12.94%) ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 2 INSTEAD OF RS.3,39,01,355 (INTEREST RATE 4.75%) THEREBY MAKING AN NET ADDITION OF RS.5,84,35,230 TO THE RETURNED INCOME. 2. THE LEARNED AO AND LEARNED DRP ERRED IN LAW AND ON FACTS IN DISALLOWING ADDITIONAL DEPRECIATION U/S 32(1)(IIA) ON SOME OF THE ITEMS OF FIXED ASSETS (PLANT AND MACHINERY) AMOUNTING TO RS.3,57,606. 3. THE LEARNED AO ERRED IN LAW AND ON FACTS AND HON'BLE DRP ERRED IN LAW AND ON FACTS IN SUSTAINING AO'S VIEW IN HOLDING THAT DELAYED PAYMENTS OF PF I ESIC I MLWF AMOUNTING TO RS.5,97,354 SHOULD BE DISALLOWED AS A DEDUCTION CONSIDERING PROVISIONS OF SECTION 36(1)(VA). 4. THE APPELLANT CRAVES LEAVES TO ADD, MODIFY, ALTER, AMEND, OR WITHDRAW AL L OR ANY OF THE GROUNDS OF APPEAL HEREIN AND TO SUBMIT SUCH STATEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING. 3. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1 IS AGAINST THE ADJUSTMENT MADE ON ACCOUNT OF ARM'S LENGTH PRICE OF INTEREST RECEIVABLE TRANSACTION FROM THE NETHERLAND BASED ASSOCIATE ENTERPRISE COMPANY. 4. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING OF POLYMER ENGINEERING AND ELECTRICAL GOODS AND WIND POWER GENERATION. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES I.E. VARR O C EU ROPEAN HOLDING BV, CIT Y BANK INTERNATIONAL PLC EURO PLAZA HOORGORRDDREES 54B AMSTER , NETHERLAND FOR DISBURSEMENT OF LOAN, REPAYMENT OF LOAN, INTEREST RECEIVABLE AND PART CONVERSION OF CAPITAL INTO LOAN AS ENVISAGED IN SECTION 92C OF THE ACT. THE ASSESSING OFFICER HAD MADE REFERENCE TO THE TRANSFER PRICING OFFICER ( TPO ) FOR DETERMINING A RM'S LENGTH PRICE OF PURCHASES AND SERVICES AVAILED BY THE ASSESSEE COMPANY. THE TPO VIDE ITS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT NOTED THAT THE PRIME LENDING RATE OF STATE BANK OF INDIA ADVANCED RATE VARIED BETWEEN 12.25% TO 13.75% I.E. AT AN A VERAGE RATE OF 12.94%. HOWEVER, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD CHARGED INTEREST @ 4.75% FROM ITS ASSOCIATE ENTERPRISES ON THE LOAN ADVANCED TO THE ASSOCIATE ENTERPRISES. TH E TPO ALSO NOTED THAT SIMILAR TRANSFER PRICING ADJUSTMENT ON AD VANCEMENT OF LOAN TO THE ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 3 ASSOCIATE ENTERPRISES WAS PROPOSED IN ASSESSMENT YEAR 2008 - 09 , WHICH HAS BEEN UPHELD BY THE DISPUTE RESOLUTION PANEL (DRP) - II, MUMBAI , VIDE DIRECTIONS DATED 21.09.2012. IN VIEW THEREOF, THE TPO PROPOSED AN ADJUSTMENT OF RS. 5,84,35 ,230/ - . THE DRP IN VIEW OF ITS EARLIER ORDER RELATING TO ASSESSMENT YEAR 2008 - 09 UPHELD THE PROPOSED ADJUSTMENT IN THE INTERNATIONAL TRANSACTION. THE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT MADE AN ADDITION OF RS.5.84 CRORES ON ACCOUNT OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION WITH ITS ASSOCIATE ENTERPRISES. 5. THE ASSESSEE IS IN APPEAL AGAINST THE SAID TP ADJUSTMENT MADE IN ITS HANDS BY THE ASSESSING OFFICER . 6. THE LEARNED AUTHORI ZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT SIMILAR ISSUE AS NOTED BY THE TPO AND ALSO DRP, AROSE IN THE CASE OF ASSESSEE IN THE EARLIER YEAR RELATING TO ASSESSMENT YEAR 2008 - 09 . CASE OF ASSESSEE IN THE EARLIER YEAR RELATING TO ASSESSMENT YEAR 2008 - 09 . 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDER OF ASSESSING OFFICER. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FIND THAT T HE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 2482/PN/2012 , RELATING TO ASSESSMENT YEAR 2008 - 09 , VID E ORDER DATED 30.12.2014 HAD ADJUDICATED THE ISSUE VIDE PARAS 3 TO 19 AND HAD HELD THAT WHERE THE ASSESSEE HAD BORROWED LOAN FROM CITY BANK AND ADVANCED THE SAME ON LIBOR+ RATES TO ITS ASSOCIATE ENTERPRISES, THEN THE SAID TRANSACTION WITH ITS ASSOCIATE ENT ERPRISES WAS WITHIN ARM'S LENGTH PRICE. THE TPO / AO WAS DIRECTED TO RE - COMPUTE THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 4 3. THE BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE COMPANY WAS E NGAGED IN THE BUSINESS OF MANUFACTURE OF POLYMER ENGINEERING AND ELECTRICAL GOODS AND WIND POWER GENERATION. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PROPOSED TO TAKE OVER A RUNNING AUTO COMPONENT BUSINESS IN EUROPE. THE SAID BUSINESS WAS CA RRIED O N THROUGH A ITALIAN AND POLAND COMPANY. THE COST OF ACQUISITION OF THE SAID EUROPEAN BUSINESS WAS TO BE AROUND EURO 64.95 MILLION AND THE LOANS FROM THE OVERSEAS COMPANIES WERE TO THE TUNE OF EURO 46 MILLION AND THE CONTRIBUTION OF THE ASSESSEE WAS TO THE TUNE OF EURO 18.95 MILLION. THE ASSESSEE COMPANY APPLIED FOR PROPER PRIOR APPROVALS UNDER THE FEMA AND MADE THE APPLICATION TO THE RBI FOR ACQUISITION IN EUROPE. THE ASSESSEE RAISED A LOAN FROM CIT I BANK DURING THE YEAR UNDER CONSIDERATION TO THE TUNE OF EURO 11.12 MILLIONS. THE CLAIM OF THE ASSESSEE WAS THAT THE LOAN WAS RAISED FROM CIT I BANK FOR PART FINANCING THE EUROPEAN BUSINESS ACQUISITION AND THE SAID LOAN WAS RAISED @ INTEREST LIBOR + 1.5% P.A. WHICH RANGES BETWEEN 2 - 2.5% AND THE BALANC E FUNDS WERE FROM ASSESSEES OWN CAPITAL AND RESERVES OF THE COMPANY. THE SAID FUNDS WERE INTRODUCED IN THE NETHERLAND COMPANY AS ITS OWN SHARE FOR THE EUROPEAN BUSINESS ACQUISITION. HOWEVER , THE SAID LOAN WAS PARTIALLY CONVERTED INTO A SOFT LOAN FROM TH E ASSESSEE COMPANY TO THE NETHERLAND COMPANY . IN VIEW OF THE SAID TRANSACTIONS, THE ASSESSEE ENTERED INTO TRANSACTIONS WITH ITS AE WITH REGARD TO DISBURSEMENT OF LOAN TO AE AND THE REPAYMENT OF LOAN BY THE AE . FURTHER, INTERNATIONAL TRANSACTIONS ON ACCOU NT OF INTEREST RECEIVABLE FROM AE AND CONVERSION OF SHARE APPLICATION MONEY INTO MONEY BY THE AE COMPANY WERE THE OTHER TRANSACTIONS CARRIED ON BY THE ASSESSEE WITH ITS AE. THE ASSESSEE BENCHMARKED THE TRANSACTION BY RESORTING TO CUP METHOD. THE ASSESSEE FURNISHED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 15,14,72,558/ - . THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTION FOR OVER 15 CRORES WITH ITS AE . THE ASSESSING OFFIC ER AFTER GOING THROUGH THE REPORT IN FORM NO. 3CEB WAS OF THE VIEW THAT THE CASE NEEDS TO BE REFERRED TO THE TRANSFER PRICING OFFICER (IN SHORT TPO) FOR DETERMINING ARMS LENGTH PRICE OF THE SERVICES AVAILED BY THE ASSESSEE COMPANY. CONSEQUENTLY, REFERENCE WAS MADE UNDER SECTION 92CA OF THE ACT FOR COMPUTING ARMS LENGTH PRICE . MADE UNDER SECTION 92CA OF THE ACT FOR COMPUTING ARMS LENGTH PRICE . 4. THE TPO NOTED THAT THE ASSESSEE HAD UNDERTAKEN THE FOLLOWING INTERNATIONAL TRA NSACTIONS WITH ITS AE UNDER THE PROVISIONS OF SECTION 92B OF THE ACT. SR NO. NATURE OF TRANSACTIONS AMOUNT OF TRANSACTIONS METHOD ADOPTED 1. DISBURSEMENT OF LOAN 7,66,740 CUP 2. REPAYMENT OF LOAN 2,79,10,000 CUP 3. INTEREST RECEIVABLE 2,91,82,060 CUP 4. PART CONVERSION OF CAPITAL INTO LOAN 57,24,00,000 CUP TOTAL 63,02,58,800 5. THE TPO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AS NO TP STUDY REPORT HAD BEEN SUBMITTED BY THE ASSESSEE. FURTHER , TRANSACTION HAD TAKEN PLACE WITH THE AE, UNDER WHICH, PART OF THE CAPITAL HAD BEEN CONVERTED INTO LOAN AND THE SOURCE OF SUCH CAPITAL WAS A LOAN OBTAINED FROM CIT I BANK. FURTHER, THE INDIAN BANKS WERE LENDING THE MONEY AT THE B PLR RATE S PREVAILING IN INDIA. HOWEVER, THE INTEREST CHARGED BY ASSESSEE TO AE ON SUCH LOAN WAS 4.75% . THE ASSESSEE WAS SHOW CAUSED AS TO WHY INTEREST AMOUNT COULD NOT BE CHARGED TO AE AT THE INDIAN B PLR RATES AND ACCORDINGLY, THE TP ADJUSTMENT BE WORKED OUT. S INCE THE ASSESSEE FAILED TO FURNISH ANY REPLY TO THE SAID SHOW CAUSE NOTICE, THE TPO PROCEEDED TO WORK OUT THE ADDITION ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD. TH E TPO NOTED THAT DURING THE YEAR UNDER CONSIDERATION, INTEREST OF RS .2.91 CRORES HA D ACCRUED TO THE ASSESSEE ON LOAN GRANTED TO THE AE I.E. ON LOAN OF EURO 10 MILLION TO VARROC EUROPEAN HOLDING BV , NETHERLAND S , EURO 1,00,00,000 AND REPAYMENT OF LOAN ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 5 OF EUR O 5 ,00,000 HENCE EFFECT IVELY LOAN DURING THE YEAR AMOUNT ED TO EURO 96,30,000 WHICH WAS EQUIVALENT TO RS. 55,21,57,400/ - . THE TPO FURTHER NOTED THAT THE ASSESSEE COMPANY DECIDED THAT THE INTEREST WAS CHARGED @ 4.75% P.A. HOWEVER, THE RATE PREVAILING AS PER SIX MONTHS LIBOR + 1.5% FOR THE YEAR ENDING 31.03.2008 WAS 6.79% . THE TPO TABULATED THE TRANSACTIONS IN RESPECT OF LOANS GRANTED AND INTEREST CHARGED UNDER PARA 8 AT PAGE 3 OF THE ORDER UNDER SECTION 92CA(3) OF THE ACT AND PROPOSED AN ADJUSTMENT OF RS. 4, 41,74,661/ - . 6. THE ASSESSEE HAD BENCHMARKED ITS INTERNATIONAL TRANSACTION TAKING INTEREST RATE CHARGED @ INTERNATIONAL RATE OF THE DISBURSING BANK I.E. CIT I BANK . THIS BENCHMARKING WAS ADOPTED AT FOREIGN CURRENCY CITI BANK RATES. THE TPO OBSERVED THA T THE TRANSACTION IN QUESTION WAS NOT OF SIMILAR NATURE. THE LOAN GIVEN TO AE IN THE CURRENCY OF THAT COUNTRY IS NOT A FOREIGN CURRENCY DEMAND WITH AE, BECAUSE THE LOAN GIVEN TO THE AE IS IN FOREIGN CURRENCY OF THAT COUNTRY AND THUS LOAN IS NOT IN FOREIGN CURRENCY FOR THE AE. FURTHER THE AE CANNOT BE CREDITED TO HAVE THE CREDIBILITY A KIN TO THAT OF NA TIONAL BANK OF THAT COUNTRY. ACCORDINGLY BENCHMARKING ADOPTED BY ASSESSEE IS NOT FOUND TO BE ACCEPTABLE. THE ASSESSEE WAS THUS REQUESTED TO SHOW CAUSE AS TO WHY T HE LENDING RATE FOR THE PURPOSES OF COMPARABILITY FOLLOWING CUP METHOD BE NOT TAKEN AT BANKING PRIME LENDING RATE (BPLR), FOR THE YEAR ENDED MARCH 31 ST , 2008. THE ASSESSEE FAILED TO FURNISH ANY REPLY OR FURNISH ANY TP STUDY REPORT. SINCE THE ASS ESSEE HAD CONVERTED THE SHARE CAPITAL INTO LOAN TO AE BY PASSING RESOLUTION ON 25.01.2008 , THE TPO OBSERVED THAT THE ASSESSEE ALSO SUBMITTED A TIMELINE AND EVENTS CHART AND THE CALCULATION OF THE INTEREST CHARGED ON 25.08.2011. THE TPO THEREAFTER, VIDE PAR A 13 OBSERVED AS UNDER: - 13. THE ISSUE WHICH, CAN BE RAISED HERE IS THAT THE BPLR IS BEING TAKEN FOR THE COMPARISON. IT CAN BE MENTIONED HERE THAT THE LOANS ARE ADVANCED TO THE COMPANY BY THE BANKS AFTER PROPER ASSESSMENT OF THE REQUIREMENT OF FUND, QUAN TUM OF FUND, CREDIT WORTHINESS OF THE BORROWER, ECONOMIC ANALYSIS OF THE INDUSTRY IN WHICH THE BORROWER EXISTS AND ALL OTHER RELEVANT PARAMETERS. THESE FACTORS DO HAVE THEIR EXISTS AND ALL OTHER RELEVANT PARAMETERS. THESE FACTORS DO HAVE THEIR BEARING ON THE RISK PERCEPTION ON THE LOANS SO ADVANCED BY THE BANKS. IT IS THE TOTALITIES OF THESE ASPECTS AND FACTORS W HICH ARE DETERMINATIVE OF THE LENDING RATE BY THE BANKS AND THE BPLR THUS SERVES AS GUIDANCE FOR THE LENDING RATE. THE OBJECTIVITY AND APPLICABILITY OF BPLR CAN BE TAKEN AS TOPNOTCH COUPLED WITH THE FACTORS ASSOCIA TED WITH THE BORROWER AND THE SURROUNDING ECONOMIC CIRCUMSTANCES. 7. THE TPO WAS OF THE VIEW THAT BPLR OR THE LENDING RATES W OULD BE THE CORRECT INDICATOR FACTOR FOR THE DETERMINATION OF THE CHARG E OF INTEREST O N ADVANCE TO THE SUBSIDIARY BECAUSE THE AS SESSEE WAS NOT A BANKER. THE TPO FURTHER OBSERVED THAT IT WA S A FACT OF THE CASE THAT THE LOAN HAS BEEN ADVANCED BY THE ASSESSEE TO ITS AE AND FOR HAVING ADVANCED SUCH LOAN, INTEREST HAS BEEN PROVIDED IN THE BOOKS OF ACCOUNT. IT IS THIS INTEREST RATE , WH ICH HAS BEEN AGREED TO BE CHARGED BY THE ASSESSEE , WAS TO BE BENCHMARKED TO DETERMINE ITS ARM'S LENGTH PRICE . AS PER TPO , THE LOAN HAS BEEN GIVEN TO COMPANY WHICH HAS NO FINANCIAL LEGS TO RUN ON AND FURTHER, ON ITS OWN IT COULD NOT HAVE ARRANGED FOR THE F UNDS IT REQUIRED THAT THE LOAN HAS BEEN GIVEN BY THE PRINCIPAL TO ITS SUBSIDIARY. IN THE GIVEN FINANCIAL HEALTH OF THE SUBSIDIARY AND FOR ASSUMING TH E RISK PERTAINING TO LOAN IN FOREIGN CURR ENCY, RISKS RELATING TO FOREIGN EXCHANGE FLUCTUATION, THE RATE OF INTEREST CHARGED SHOULD ADEQUATELY COMPENSATE THE ASSESSEE. UNDER THE CIRCUMSTANCES AND IN ARMS LENGTH SITUATION, THE RATE CHARGED BY THE ASSESSEE SHOULD HAVE BEEN AT LEAST AT BPLR IN INDIA, IF NOT HIGHER , WAS THE VIEW OF TPO . THE TPO IN VIEW THEREOF, HELD AS UNDER: - ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 6 17. IN VIEW OF THE FACTS OF THE CASE, DISCUSSION AS ABOVE, THE ARM'S LENGTH PRICE CO MPUTED BY THE ASSESSEE IN RESPECT OF THE INTERNATIONAL TRANSACTION RELATING TO PR O VISIO N OF INTEREST IS NOT FOUND TO BE ACCEPTABLE. IN TH E GIVEN FACTS AND IN THIRD PARTY SITUATION, THE ASSESSEE WOULD NEVER LEND MONEY TO AN UN RELA T ED EN T I T Y END IN ANY SUCH CASE AT THE RATE NOT LESS THAN BPLR. IN NORMAL CIRCUMSTANCES IF S U CH ADVANCE H AS TO BE GIVEN TO ANY UNRELATED ENTITY, THE RATE OF INTEREST CHARGEABLE WOULD B E SIGNIFICANTLY HIGHER THAN THE BPLR. HOWEVER, AS SUCH HIGHER RATE OF INTEREST MORE THAN BPLR IS NEITHER ASCERTAINABLE NOR DETERMINABLE; IT IS CONSIDERED SUITABLE TO BENCHMARK THIS INTERNATIONAL TRANSACTION WITH BENCHMARK RATE OF INTEREST TAKEN AS BPLR. ACCORDINGLY, BASED OR THE RATE OF BPLR OF THE STATE BANK OF INDIA WHICH IS A PREMIER BANK, THE RATE AT 12.25 % FOR THE BANK, FOR THE YEAR ENDED 31 ST MARCH, 2008 IS TAKEN AS A BENCHMARK RA T E. ACCORDINGLY, THE DIFFERENTIAL QUANTUM OF INTEREST ON THE LOA N TO ADVANCE TO THE SUBSIDIARIES BY THE ASSESSEE, WORKED OUT AT RS.4,41,74,661 IS ADDED TO THE VALUE OF INTERNATIONAL TRANSACTION TOWARDS PROVISION OF INTEREST RECEIVABLE FROM THE AE, TO ARRIVE AT THE ARM'S LENGTH PRICE OF THIS INTERNATIONAL TRANSACTION. I T MAY ALSO BE NOTED THAT AT LIBOR + RATES OF 6.79%, BENCHMARKING OF THE ASSESSEE COMPANY IS NOT AT AN ALP. AT THIS RATE THE ASSESSEE SHOULD HAVE CHARGED AT LEAST RS.4,03,52,970, WHEREAS IT HAS CHARGED ONLY RS.2,86,27,089. HOWEVER, IN AS DEMONSTRATED IN B OTH THE CASES THE ASSESSEE IS NOT AT AN ALP. 8. THE TPO THUS, PROPOSED AN ADJUSTMENT OF RS. 4,41,74,661/ - AS ARM'S LENGTH PRICE OF THE TRANSACTIONS. THE SAID PROPOSAL WAS FORWARDED TO THE ASSESSING OFFICER AND THE SAME WAS CONFRONTED TO THE LEARNED AUTHO RIZED REPRESENTATIVE FOR THE ASSESSEE AND A DRAFT ASSESSMENT ORDER IN THIS REGARD WAS PROPOSED. THE DISPUTE RESOLUTION PENAL (IN SHORT DRP) UPHELD THE PROPOS ITION OF THE TPO AND CONSEQUENTLY, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 4,41,74,661/ - BEIN G THE ARM'S LENGTH PRICE ADJUSTMENT OF THE INTERNATIONAL TRANSACTIONS. 9. THE ASSESSEE IS IN APPEAL AGAINST THE SAID ADJUSTMENT MADE BY THE TPO AND RAISED THE ISSUE VIDE GROUNDS OF APPEAL NOS.1 AND 2 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT INVESTMENT WAS MADE BY THE ASSESSEE TO ITS WHOLLY OWNED COMPANY NETHERLAND TO BUY STAKE IN ITALIAN COMPANY. THE INVESTMENT MADE BY THE ASSESSEE COMPANY WAS TWOFOLD ; I.E. IN THE SHARES OF THE NETHERLANDS COMPANY AND ALSO THE LOAN ADVAN CE D TO THE SAID COMPANY FOR THE FIRST TWO YEARS , LOAN CONT INUED AT INTEREST RATE OF 4.7 5 %. AS PER THE TPO, THE ASSESSEE SHOULD HAVE APPLIED B P LR RATE. HOWEVER, SINCE THE ASSESSEE WAS MAKING INTERNATIONAL LENDING, CHARGED THE INTERNATIONAL RATES AND NOT D OMESTIC RATES. THE BORROWINGS FOR THE SAID INVESTMENTS WERE MADE FROM CIT I BANK WHICH IN TURN, CHARGED INTEREST. THE ASSESSEE CLAIMS THAT SUBSTANTIVE PART OF THE DEAL WAS IN CAPITAL INVESTMENT IN WHOLLY OWNED COMPANY , IN TURN ACQUISITION OF COMPANY IN IT ALY. THE LOAN RECEIVED FROM CITI BANK WAS UTILIZED FOR TWO PURPOSES I.E. ACQUISITION OF SHARE CAPITAL AND ALSO FOR INTERNATIONAL FUNDING. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT IT HAD BORROWED ON LIBOR + INTEREST RATES I.E. THE JAPANESE BASE LIBOR + RATES WHICH WAS LOWER THAN US LIBOR + RATES AND ADVANCED THE SAME BY CHARGING LIBOR + RATES. THE CHARGING OF THE INTEREST ON LOANS IN ASSESSMENT YEAR S 2008 - 09 AND 2009 - 10 WAS @ 4.7 5 %. HOWEVER , IN ASSESSMENT YEAR 2010 - 11 , THE WHOLE LOAN WAS CONVERTED INTO SHARE APPLICATION MONEY. FURTHER PLEA OF THE ASSESSEE WAS THAT IT APPLIED THE INTERNAL CUP METHOD OF BORROWING AT INTERNATIONAL RATE. SO, THERE WAS NO MERIT IN APPLYING DOMESTIC RATES TO COMPUTE THE ARM'S LENGTH PRICE ADJUSTMENT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT THE LENDING WAS MADE AT LIBOR + RATES. FURTHER, THE RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE. ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 7 A . SI VA INDUSTRIES & HOLDINGS LTD. V. ACIT, CHENNAI [2011] 11 TAXMANN.COM 404 (CHENNAI) B . TECH MAHINDRA LIMITED [2 011] 12 TAXMANN.COM 132 (MUM) C . HINDUJA GLOBAL SOLUTIONS LTD. [2013] 35 TAXMANN.COM 348 (MUMBAI TRIB.) D . WIPRO LTD VS. DCIT ITA NO: 624 & 1178/BANG/20 07 DATED:31.10.2008 FOR THE AY 2003 - 04 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT THE FINDING OF DRP AT PAGE 4 WAS THAT THE ASSESSEE HAD INVESTED ITS OWN FUNDS AND BORROWED FUNDS . FURTHER, IT WAS POINTED OUT BY THE LEARNE D DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE TRANSFER PRICING WAS TO BE DONE WHEN COMPARED WITH THE INTERNATIONAL TRANSACTIONS. IT WAS ARGUED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT NO PERSON WOULD CHARGE SOMETHING LESS T HAN THE COST. OUR ATTENTION WAS DRAWN TO THE PAGE 17 OF THE TPO ORDER WHEREIN, LIBOR + R ATES EQUAL TO THE RATE OF 6.79%. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF THE ASSESSEE. THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF POLYMER ENGINEERING AND ELECTRIC GOODS AND WIND POWER GENERATION. THE ASSESSEE WAS A PART OF VARROC GROUP , CATER ED TO THE NEEDS OF INDIAN AUTO COMPONENT INDUSTRY. DURING THE FINANCIAL YEAR, THE ASSESSEE HAD UNDERTAKEN THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES : - SR NO. NATURE OF TRANSACTIONS AMOUNT OF TRANSACTIONS METHOD ADOPTED 1. DISBURSEMENT OF LOAN 7,66,740 CUP 2. REP AYMENT OF LOAN 2,79,10,000 CUP 2. REP AYMENT OF LOAN 2,79,10,000 CUP 3. INTEREST RECEIVABLE 2,91,82,060 CUP 4. PART CONVERSION OF CAPITAL INTO LOAN 57,24,00,000 CUP TOTAL 63,02,58,800 12. THE ASSESSEE HAD PARTLY CONVERTED ITS CAPITAL INVESTED IN THE ASSOCIATED ENTERPRISES INTO LOAN TRAN SACTIONS AND T HE SOURCE OF THE SAID CAPITAL WAS LOAN OBTAINED FROM CITI BANK. THE TPO NOTED THAT THE ASSESSEE HAD DIVERTED PART OF THE LOAN RAISED FROM CITI BANK TO ITS ASSOCIATED ENTERPRISES , FOR RAISING THE LOAN CHARGE HAD BEEN CREATED AGAINST THE ASSET S OF THE ASSESSEE COMPANY. AS PER TPO, THE INDIAN BANKS WERE LENDING THE MONEY AT B PLR RATES PREVAILING IN INDIA ON THE SECURITY OF THE ASSETS OF THE COMPANY , WHEREAS THE ASSESSEE HAD CHARGED INTEREST RATE OF 4.75% TO ITS ASSOCIATED ENTERPRISES ON SUCH LO AN DISBURSEMENT. 13. DURING THE YEAR UNDER CONSIDERATION , INTEREST OF RS. 2,91,82,060/ - HAD ACCRUED AS INTEREST ON LOAN GRANTED TO ITS ASSOCIATED ENTERPRISES. THE ASSESSEE HAD GRANTED LOAN TO M/S. VARROC EUROPEAN HOLDING BV NETHERLANDS EURO 1,00,00,000 AN D REPAYMENT OF LOAN OF EURO 5,00,000 , HENCE DURING THE YEAR, THE EFFECTIVE LOAN AMOUNTED TO EURO 96,30,000 WHICH WAS EQUIVALENT TO RS.55,21,57,400/ - . THE ASSESSEE HAD CHARGED INTEREST @ 4.75% PER ANNUM. AS PER THE TPO, T HE RATE PREVAILING AS PER LIBOR +, FOR THE YEAR ENDING 31.03.2008 WAS 6.79%. THE TPO TABULATED THE TRANSACTIONS OF GRANTING OF LOAN AND THE INTEREST CHARGED BY THE ASSESSEE AND COMPUTED THE PROPOSED ADJUSTMENT AS UNDER: - ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 8 (AMT. IN RS.) DESCRIPTION VARROC EUROPEAN HOLDING BV NETHERL ANDS [A] LOAN ADVANCED / BALANCE OF LOAN AT THE YEAR ENDING 31.03.2008 RS.59.43 CRS. (FIGURES AS PER THE FINANCIALS) [B] BASE CHARGE ADOPTED BY THE ASSESSEE LIBOR [C] BASE CHARGE ADOPTED BY THE ASSESSEE TO BENCHMARK THE TRANSACTION HOWEVER, RATE CHARGED BY THE ASSESSEE = 4.75% [D] BANK PRIME LENDING RATE (BPLR) OF SBI AS ON 31.03.2008 12.25% [E] RATE CHARGED BY THE ASSESSEE 4.75% [F] INTEREST CHARGED BY THE ASSESSEE RS.2,86,2 7,089 [G] THE RATE PREVAILING AS PER 6 MONTHS LIBOR FOR THE YEAR ENDED 31.03 .2008 WAS 6.79% RS. 4,03,52,970 [H] INTEREST @ 12.25% AS PER BPLR OF SBI RS.7,28,00,000 [I] DIFFERENCE IN BPLR AND ASSESSEES AMOUNT RS.4,41,74,661 [J] PROPOSED ADJUSTMENT RS. 4,41,74,661 14. THE ASSESSEE HAD BENCHMARKED ITS INTERNATIONAL TRANSACTIONS TAKING THE INTEREST RATE CHARGED AT INTERNATIONAL RATE S OF THE DISBURSING BANK I.E. CITI BANK . HOWEVER, THE TPO WAS OF THE VIEW THAT LOAN GIVEN TO THE ASSOCIATED ENTERPRISES IN THE CURRENCY OF THAT COUNTRY WAS NOT A FOREIGN CURRENCY DEPOSIT WITH ASSOCIATE D ENTERPRISES. ON THE OTHER HAND, THE ASSESSEE HAD BORROWED THE MONEY ON BANKING PRIME LENDING RATES AND WAS SHOW CAUSED BY THE TPO AS TO WHY LENDING RATE FOR THE PURPOSE OF COMPARABILITY FOLLOWING CUP METHOD SHOULD NOT BE TAKEN. THE TPO IN VIEW OF THE R ELATED DISCUSSION FOUND THAT THE ARM'S LENGTH PRICE COMPUTED BY THE ASSESSEE IN RESPECT OF THE INTERNATIONAL TRANSACTIONS RELATING TO PROVISION OF INTEREST, WAS NOT ACCEPTABLE. THE VIEW OF THE TPO WAS THAT IN NORMAL CIRCUMSTANCES WHERE ANY ADVANCE HAD TO BE THE TPO WAS THAT IN NORMAL CIRCUMSTANCES WHERE ANY ADVANCE HAD TO BE GIVEN TO ANY UNRELATED ENTITY, THEN THE RATE OF INTEREST CHARGEABLE WOULD BE HIGHER THAN THE BPLR . SINCE THE HIGHER RATE OF INTEREST MORE THAN BPLR WAS NEITHER ASCERTAINABLE NOR DETERMINABLE, THE T PO CONSIDERED IT SUITABLE TO BENCHMARK THE INTERNATIONA L TRANSACTIONS WITH BENCHMARK OF INTEREST TAKEN AS BPLR. ACCORDINGLY, RATE OF 12.25% I.E. THE BPLR OF THE SBI WAS TAKEN AS BENCHMARK RATE AND THE DIFFERENTIAL QUANTUM OF INTEREST ON THE LOAN ADVANCED TO THE SUBSIDIARIES , AMOUNTING TO RS.4,41,74,661/ - WAS ADDED TO THE VALUE OF INTERNATIONAL TRANSACTIONS TO ARRIVE AT THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. THE TPO DIS - REGARDED THE LIBOR + RATE OF 6.75% AS NOT THE BENCHMARK APPLIED BY THE ASSESSEE AS ACCORDING TO THAT RATE, THE INTEREST SHOU LD HAVE BEEN CHARGED AT RS. 4,03,52,970/ - WHEREAS IT HAD ONLY CHARGED RS.2,86,27,089/ - . IN VIEW THEREOF, AN ADJUSTMENT OF RS.4,41,74,661/ - WAS MADE IN THE HANDS OF THE ASSESSEE. THE SAID ORDER OF TPO HAS BEEN UPHELD BY DRP. 15. IN THE FACTS OF THE PRESEN T CASE, THE ASSESSEE HAD ADVANCED MONEY IN THE FORM OF SHARE APPLICATION MONEY WHICH W ERE LATER CONVERTED INTO LOAN ON THE ADVICE OF EUROPEAN CONSULTANTS. ON SUCH ADVANCE MADE TO ITS ASSOCIATED ENTERPRISES, THE ASSESSEE HAD CHARGED INTEREST @ 4.75% . W HIL E BENCHMARKING THE INTERNATIONAL TRANSACTIONS WHAT HAS TO BE SEEN IS THE COMPARISON BETWEEN RELATED TRANSACTIONS I.E. WHERE THE ASSESSEE HAS ADVANCED MONEY TO ITS ASSOCIATED ENTERPRISES AND CHARGED INTEREST THEN THE SAID TRANSACTION IS TO BE COMPARED WITH A TRANSACTION AS TO WHAT RATE THE ASSESSEE WOULD HAVE CHARGED, IF IT HAD EXTENDED THE LOAN TO THE THIRD PARTY IN FOREIGN COUNTRY. ONCE THERE IS A TRANSACTION BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES IN FOREIGN CURRENCY, THEN THE TRANSACTION WOU LD HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIPLES WITH REGARD TO THE INTERNATIONAL TRANSACTIONS. IN THAT CASE, THE INTERNATIONAL RATES FIXED BEING ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 9 LIBOR + RATES WOULD HAVE AN APPLICATION AND THE DOMESTIC PRIME LENDING RATES WOULD NOT BE APPLI CABLE. THE ASSESSEE HAS FURTHER EXPLAINED THAT IT HAD RAISED THE LOAN FROM CITI B ANK ON INTERNATIONAL RATES FOR THE PURPOSE OF INVESTMENT IN THE SHARE APPLICATION MONEY OF ITS ASSOCIATED ENTERPRISES, WHICH IN TURN WAS PARTLY CONVERTED FROM CAPITAL INTO LO AN. WHERE THE ASSESSEE HAD A COMPARABLE OF BORROWING LOAN ON INTERNATIONAL RATES AND ADVANCING TO ITS ASSOCIATED ENTERPRISES , THEN THE SAID COMPARABLE WA S TO BE APPLIED FOR BENCHMARKING THE TRANSACTION OF ADVANCING THE LOAN ON INTEREST TO ITS ASSOCIATED E NTERPRISES. THE ASSESSEE HAD CHARGED INTEREST RATE OF 4.75% ON THE LOAN ADVANCED TO THE ASSOCIATED ENTERPRISES. THE ASSESSEE ON THE OTHER HAND, CLAIMS THAT IT HAD BORROWED THE MONEY ON LIBOR + RATES I.E. INTERNATIONAL RATES, WHICH WERE JAPANES BASED LIBOR + RATES WHICH WERE LOWER THAN THE US BASED LIBOR + RATES . THE PLEA OF THE ASSESSEE BEFORE US WAS THAT IT HAD ADVANCED THE LOAN TO ITS ASSOCIATED ENTERPRISES ON LIBOR + RATE S I.E. 4.75%. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES WHERE THE ASSESSEE HAS THE INTERNAL CUP OF OPERATING AT INTERNATIONAL RATES AVAILABLE AND SINCE THE SAID LOAN RAISED BY THE ASSESSEE AT INTERNATIONAL RATES WAS ADVANCED TO ITS ASSOCIATED ENTERPRISES, WE FIND NO MERIT IN THE ORDER OF THE TPO IN APPLYING THE DOMESTIC LOAN RATES I. E. B PLR RATES FOR BENCHMARKING TRANSACTION OF CHARGING OF INTEREST ON THE LOANS ADVANCED TO THE ASSOCIATED ENTERPRISES BY THE ASSESSEE . W HERE THE ASSESSEE HAD MADE THE BORROWINGS ON LIBOR + RATES AND ADVANCED THE SAME AT LIBOR + RATES, THEN THE SAID TRANSAC TION IS AT ARM'S LENGTH PRICE AND THERE IS NO MERIT IN ANY ADJUSTMENT TO BE MADE ON THIS ACCOUNT. 16. THE CHENNAI BENCH OF THE TRIBUNAL IN M/S. SIVA INDUSTRIES & HOLDINGS LIMITED VS. ACIT , CHENNAI (2012) 26 TAXMANN.COM 96 (CHENNAI) HAD HELD AS UNDER: - T HE ASSESSEE HAD GIVEN THE LOAN TO THE ASSOCIATED ENTERPRISES IN US DOLLARS, AND ASSESSEE WAS ALSO RECEIVING INTEREST FROM THE ASSOCIATED ENTERPRISES IN INDIAN RUPEES. ONCE THE TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES WAS IN FOREIGN CURRENCY AND ASSESSEE AND THE ASSOCIATED ENTERPRISES WAS IN FOREIGN CURRENCY AND THE TRANSACTION WAS AN INTERNATIONAL TRANSACTIONS , THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON THE APPLYING THE COMMERCIAL PRINCIPLES IN REGARD TO INTERNATIONAL TRANSACTIONS. IF THAT WAS SO, THEN THE DOMESTIC PRIME LENDING THE RATE WOUL D HAVE NO APPLICABILITY AND THE INTERNATIONAL RATE FIXED BEING LIBOR WOULD COME INTO PLAY. IN THE CIRCUMSTANCES, THE VIEW THAT LIBOR RATE HAD TO BE CONSIDERED WHILE DETERMINING THE ARM'S LENGTH PRICE INTEREST RATE IN RESPECT OF THE TRANSACTION BETWEEN THE ASSESSEE AND THE ASSOCIATED ENTERPRISES WAS TO BE UPHELD. AS IT WAS NOTICED THAT THE AVERAGE OF THE LIBOR RATE FOR 1 - 4 - 2005 TO 31 - 3 - 2006 IS 4.42 PER CENT AND THE ASSESSEE HAD CHARGED INTEREST AT 6 PER CENT WHICH WAS HIGHER THAN THE LIBOR RATE, NO ADDITIO N ON THIS ACCOUNT WAS LIABLE TO BE MADE IN THE HANDS OF THE ASSESSEE . IN THE CIRCUMSTANCES, THE ADDITION MADE BY THE ASSESSING OFFICER ON THIS COUNT WAS DELETED. 17. THE MUMBAI BENCH OF THE TRIBUNAL IN DCIT VS. TECH MAHINDRA LTD. (2011) 12 TAXMANN.COM 1 32 (MUM.) HELD THAT WHERE THERE IS A CHOICE BETWEEN THE INTEREST RATE OF CURRENCY OTHER THAN THE CURRENCY IN WHICH TRANSACTION HAD TAKEN PLACE AND THE INTEREST RATE IN RESPECT OF THE CURRENCY IN WHICH TRANSACTION HAS TAKEN PLACE, THE LATTER SHOULD BE ADOPT ED. WHERE THE TRANSACTION IS BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES IN FOREIGN CURRENCY AND THE TRANSACTION IS INTERNATIONAL TRANSACTION , THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING COMMERCIAL PRINCIPLES IN REGARD TO INTERNA TIONAL TRANSACTIONS. 18. SIMILAR PRINCIPLE HAS BEEN LAID DOWN BY THE MUMBAI BENCH OF THE TRIBUNAL IN HINDUJA GLOBAL SOLUTIONS LTD. VS. ACIT (2013) 35 TAXMANN.COM 348 (MUMBAI TRIB.) . ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 10 1 9 . IN THE ENTIRETY OF THE ABOVE FACTS AND CIRCUMSTANCES, WE HOLD TH AT WHERE THE ASSESSEE HAD ENTERED INTO A TRANSACTION WITH ITS ASSOCIATED ENTERPRISES IN FOREIGN CURRENCY, AND THE TRANSACTIONS WERE INTERNATIONAL TRANSACTIONS, THEN THE SAME HAD TO BE LOOKED INTO BY APPLYING COMMERCIAL PRINCIPLE IN REGARD TO INTERNATIONAL TRANSACTIONS. IN THE FACTS OF PRESENT CASE, THE ASSESSEE HAD BORROWED THE LOAN FROM CITI BANK AND ADVANCED THE SAME ON LIBOR + RATES TO ITS ASSOCIATED ENTERPRISES , THEN THE SAID TRANSACTION WITH ITS ASSOCIATED ENTERPRISES IS WITHIN ARM'S LENGTH PRICE. THE TPO / AO THUS, DIRECTED TO RE - COMPUTE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. ANOTHER ASPECT TO BE KEPT IN MIND IS THE PLEA OF THE ASSESSEE WITH REGARD TO THE INTEREST RECEIVABLE. THE ASSESSEE HA D ALSO RAISED THE ISSUE THAT THE TPO HAD ADOPTED THE INTEREST RECEIVABLE FROM ASSOCIATED ENTERPRISE COMPANY AT RS.2,86,27,089/ - INSTEAD OF RS.2,91,82,060/ - WHICH IS DISCLOSED IN THE AUDIT REPORT IN FORM NO.3CEB. THE ASSESSING OFFICER IS ALSO DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE IN THIS REGARD AND COMPUTE THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS . REASONABLE OPPORTUNITY OF BEING HEARD SHALL BE AFFORDED TO THE ASSESSEE BY THE ASSESSING OFFICER / TRANSFER PRICING OFFICER. THE GROUNDS OF APPEAL NOS.1 AND 2 RAISED BY THE ASSE SSEE ARE THUS, ALLOWED AS INDICATED ABOVE . 9 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FURTHER POINTED OUT THAT THE HONBLE BOMBAY HIGH COURT IN CIT VS. TATA AUTOCOMP SYSTEMS LTD. (2015) 56 TAXMANN.COM 206 (BOM) HAS ALSO LAID DOWN THE S IMILAR PROPOSITION. WE FIND THAT THE HONBLE BOMBAY HIGH IN COURT CIT VS. TATA AUTOCOMP SYSTEMS LTD. (SUPRA) HAS HELD THAT WHILE COMPUTING ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION, WHERE THE ASSESSEE HAD ADVANCED LOAN TO ITS ASSOCIATE ENTERPRISES S ITUATED IN GERMANY, THEN THE RATE OF INTEREST WAS TO BE DETERMINED ON THE BASIS OF RATE PREVAILING IN GERMANY, WHERE THE LOAN HAD BEEN CONSUMED AND NOT TO BE DETERMINED ON THE BASIS OF RATE PREVAILING IN INDIA. THE ISSUE ARISING IN THE PRESENT APPEAL IS I DENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2008 - 09 AND BEFORE THE HONBLE BOMBAY HIGH COURT IN CIT VS. TATA AUTOCOMP SYSTEMS LTD. (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO RE - COMPUTE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES , FOLLOWING THE DIRECTIONS IN OUR EARLIER YEAR . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT T HAT THOUGH IN THE EARLIER, THERE WAS DISCREPANCY IN THE PICKING UP OF FIGURE INTEREST RECEIVABLE FROM ASSOCIATE ENTERPRI SES, BUT IN THE ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 11 YEAR UNDER APPEAL, THERE IS NO SUCH ISSUE. ACCORDINGLY, WE ALLOW THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE AS INDICATED AB OVE. 10 . THE ISSUE IN GROUND OF APPEAL NO.2 RAISED BEFORE IS IN RELATION TO THE DISALLOWANCE OF ADDITIONAL DEPRECIATION UNDER SECTION 32(1) ( IIA) OF THE ACT ON ITEMS OF FIXED ASSETS. 11. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OU TSET POINTED OUT THAT THE ISSUE IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN PRECEDING Y EAR, WHEREIN ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT WAS CLAIMED ON LIST OF ITEMS AND THE TRIBUNAL HAD DIRECTED THAT THE S AID ADDITIONAL DEPRECIATION IS ALLOWABLE ONLY ON TROLLEY AND INDUSTRIAL FANS. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD . THE ISSUE ARISING IN THE PRESENT APPEAL IS WITH RESPECT TO THE CLAIM OF ADDITIONAL DEPRECIATION ON VARIOUS ASSETS, WHICH ARE TABULATED UNDER PARA 4 AT PAGE 2 OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE ACT. THE ASSESSEE HAD C LAIMED THE ADDITIONAL DEPRECIATION ON VARIOUS ASSETS TREATING THE SAME TO BE PLANT & MACHINERY. WE FIND THAT IDENTICAL LIST OF ASSETS WERE CONSIDERED BY THE TRIBUNAL WHILE DECIDING SIMILAR ISSUE OF CLAIM OF ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT IN THE PRECEDING YEAR. THE TRIBUNAL AFTER DELIBERATING UPON THE ISSUE, HAS RESTRICTED THE ALLOWABILITY OF ADDITIONAL DEPRECIATION ONLY ON TWO ASSETS I.E. TROLLEY AND INDUSTRIAL FANS. IN RESPECT OF THE OTHER ASSETS, THE FINDINGS OF TRIBUNAL TH AT THE SAME ARE FURNITURE AND FIXTURES AND ON WHICH, DEPRECIATION @ 10% IS TO BE ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 12 ALLOWED. THE RELEVANT FINDINGS OF THE TRIBUNAL VIDE PARAS 25 TO 30 ARE AS UNDER: - 2 5 . AT PAGE 4 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS GIVEN THE BREAK - UP OF THE VALUE OF THE ASSETS, THE DEPRECIATION AND ADDITIONAL DEPRECIATION CLAIMED AND HAS WORKED OUT THE DEPRECIATION TO BE ALLOWED @ 10% , WHICH IS AS UNDER: - SR NO ITEMS VALUE DEPRECIATI ON ADDL. DEPRECIATI ON CLAIMED DEPRECIATIO N ALLOWED @ 10% (B) DIFFERENC E (DIS ALLOW ED (A - B) DEPRECIATION DISALLOWED MORE THAN 181 DAYS LESS THAN 181 DAYS 1 RACKS 2016664 359486 329460 439280 219640 109820 439280 2 TROLLEY 1601828 2078828 396184 528246 264123 132061 528246 3 AIR CONDITIONE R 1348845 866424 267308 356411 178 205 89102 356411 TABLE 1895287 554356 250868 334491 167245 83622 334491 4 DISPENSER 288738 0 43309 57746 38873 14436 57746 5 COOLER 683161 142313 110123 146831 73415 36707 146831 6 TV MUSIC SYSTEM 33870 32181 5080 6774 3387 1693 6774 7 FREEZE / REFRI GERAT OR 16640 12267 3415 4554 2277 1138 4554 8 HANDICAM 111416 66991 21736 28982 14491 7245 28982 9 PROJECTOR 311130 0 46670 62226 31113 15556 62226 10 SCANNER 3348 0 502 670 335 167 670 11 INDUSTRIAL FAN 59968 0 8995 11994 5997 2998 11994 12 UPS INVE RTER 39257 584724 49743 66324 33162 16581 66324 13 ATTENDENCE CARD READER 315082 512545 85703 114271 57135 28568 114271 14 EPBX SYSTEM 267363 0 40104 53473 26736 13368 53473 SYSTEM 15 ENERGY SAVER 0 107767 8083 10777 5388 2694 10777 TOTAL 1667283 2223050 1111522 555756 2223050 26. THE FIRST ITEM WA S THE RACKS WHICH ARE UTILIZED FOR KEEPING ANY TYPE OF MATERIAL OR GOODS AND CANNOT FORM PART OF THE PLANT & MACHINERY. WE ARE OF THE VIEW THAT THE RACKS CANNOT BE CONSIDERED AS PART OF BLOCK OF PLANT & MACHIN ERY AND NO ADDITIONAL DEPRECIATION IS ALLOWABLE ON THE SAME. FURTHER, DEPRECIATION @ 10% IS TO BE ALLOWED ON SUCH RACKS BEING FURNITURE & FIXTURES. 2 7 . THE NEXT ITEM IS TROLLEY WHICH AS PER THE ASSESSING OFFICER IS PART OF THE FURNITURE & FIXTURES AS T HE SAME IS USED FOR TRANSFERRING MATERIAL AND GOODS FROM ONE PLACE TO ANOTHER. THE VALUE OF THE TROLLEY IS RS.16.01 LAKHS AND RS.20.78 LAKHS. KEEPING IN MIND THE NATURE OF ASSET AND FUNCTIONAL TEST, WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN T HIS REGARD AND DIRECT THE ASSESSING OFFICER TO CONSIDER THE SAME WITHIN BLOCK OF PLANT & MACHINERY AND ALLOW THE DEPRECIATION AND ADDITIONAL DEPRECIATION ON THE SAME. 2 8 . THE NEXT ITEM S WERE AIR - CONDITIONER, TV MUSIC SYSTEM AND INDUSTRIAL FAN . THE AIR - C ONDITIONER IS PLANT & MACHINERY ON WHICH THE DEPRECIATION AT HIGHER RATE IS ALLOWABLE. HOWEVER, NO ADDITIONAL DEPRECIATION ON THE SAME IS ALLOWABLE SINCE THE SAME CANNOT PART TAKE THE MACHINERY USED FOR MANUFACTURING ACTIVITIES. FURTHER, TV MUSIC SYSTEM IS AN ELECTRONIC ITEM ON WHICH HIGHER RATE OF DEPRECIATION IS ALLOWABLE. HOWEVER, NO ADDITIONAL DEPRECIATION IS ALLOWABLE ON SUCH TV MUSIC SYSTEM. THE INDUSTRIAL FAN BEING UTILIZED AS PART OF THE MANUFACTURING ACTIVITY, WAS ENTITLED TO THE CLAIM OF HIGHE R DEPRECIATION AND ALSO ADDITIONAL DEPRECIATION ON PLANT & MACHINERY. ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 13 2 9 . NEXT ITEM S CONSIDERED BY THE ASSESSING OFFICER WERE THE WATER COOLER , DISPENSER, REFRIGERATOR, HANDICAM , PROJECTOR AND SCANNER . ALL THESE ITEMS ARE ELECTRONIC ITEMS AND ARE TO BE CONSIDERED UNDER THE SAID HEAD. HOWEVER, THE ASSESSEE IS NOT ENTITLED TO CLAIM OF ADDITIONAL DEPRECIATION AS THE SAME WE RE NOT PART AND PARCEL OF MANUFACTURING ACTIVITY CARRIED ON BY THE ASSESSEE. 30 . ANOTHER GROUP OF ITEMS WERE UPS, INVERTER, ATTENDA NCE CARD READER, E PBX SYSTEM AND ENERGY SAVER , WHICH ARE ELECTRONIC ITEMS BUT ARE NOT PART AND PARCEL OF PLANT & MACHINERY UTILIZED FOR MANUFACTURING ACTIVITY. THE ASSESSEE WA S NOT ENTITLED TO THE CLAIM OF ADDITIONAL DEPRECIATION ON THE SAME. THUS, GROUN D OF APPEAL NO.3 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 14. THE ISSUE ARISING VIDE GROUND OF APPEAL NO.2 IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL AND FOLLOWING THE SAME PARITY OF REASONING, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT ON TROLLEY AND INDUSTRIAL FANS. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 15. THE ISSUE IN GROUND OF APPEAL NO.3 IS IN RELATION TO THE DEDUCTION CLAIMED ON ACCOUNT OF PAYMENTS TO PF / ESCI. 16. BRIEFLY, IN THE FACTS RELATING TO THE PRESENT ISSUE, THE ASSESSING OFFICER AT PAGE 7 OF THE ORDER HAS TABULATED THE DETAILS OF PF, ESCI AND MAHARASHTRA LABOUR WELFARE FUND PAYMENTS TO BE MADE BY THE ASSESSEE AND THE ACTUAL DATE OF PAYMENT. THE ASSESSING OFFICER WAS OF THE VIEW THAT WHERE THE ASSESSEE HAS FAILED TO DEPOSIT THE SAID CONTRIBUTIONS BEFORE THE DUE DATES STIPULATED UNDER THE RELEVANT ACTS, THE ASSESSEE IS NOT ENTITLED TO THE CLAIM OF DEDUCTION, IN VIEW OF PROVISIONS OF SECTION 2( 24)(X) R.W.S. 36(1)(VA) OF THE ACT. PERUSAL OF THE DETAILS TABULATED AT PAGE 7 OF THE ASSESSMENT ORDER REFLECT THAT THE PAYMENTS HAVE BEEN MADE BY THE ASSESSEE WITHIN A DELAY OF FEW DAYS AND MUCH BEFORE THE DUE DATE OF FILING THE RETURNS. FOLLOWING THE R ATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. GHATGE PATIL TRANSPORTS LTD. (201 4 ) 368 ITR 749 (BOM) , WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION IN THIS REGARD. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER ITA NO. 573 /PN/201 4 VARROC ENGG. PVT. LTD. 14 TO DISALLOW THE ADDITION OF RS.5,97,354/ - . THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS, ALLOWED. 17 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER P RONOUNCED ON THIS 24 TH DAY OF SEPTEMBER , 201 5 . S D/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 24 TH SEPTEMBER , 2015 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLAN T ; 2. THE RESPONDENT; 3. THE DIT (INTL. TAXATION), PUNE ; 4. THE DRP, PUNE ; 5. THE DR A , ITAT, PUNE; 5. THE DR A , ITAT, PUNE; 6. GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE