Aithent Technologies Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5846/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91152 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 30-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR; VIVEK WADEKAR
• Assessee Lawyers: AKHILESH GUPTA PARTNER
• Keywords: Depreciation; Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Notional interest
• Section: 143(3); 92D; 92B; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.5846/DEL/2011 ASSESSMENT YEAR : 2007-08 AITHENT TECHNOLOGIES PVT. LTD., A-16/9,VASANT VIHAR, NEW DELHI. PAN: AAACS2319H VS. DCIT, CIRCLE 1(1), CR BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AKHILESH GUPTA, PARTNER DEPARTMENT BY : SHRI VIVEK WADEKAR, CIT, DR & MS Y. KAKKAR, SR. DR DATE OF HEARING : 10.06.2015 DATE OF PRONOUNCEMENT : 12.06.2015 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E FINAL ORDER PASSED BY THE ASSESSING OFFICER (AO) ON 31.10.2011 U/S 143(3) READ ITA NO.5846/DEL/2011 2 WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HERE INAFTER ALSO CALLED THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2006- 07. 2. THE FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE ADDITION OF RS.8,61,31,210/- MADE BY THE AO ON ACCOUNT OF TRANS FER PRICING ADJUSTMENT. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE, AN INDIAN COMPANY, WAS INCORPORATED ON 3.11.2000 AND HAS A BR ANCH OFFICE IN CANADA. THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF AITHENT INC., USA. THE ASSESSEE IS ENGAGED IN DEVELOPMENT OF COM PUTER SOFTWARE. SEVEN INTERNATIONAL TRANSACTIONS WERE REPORTED IN F ORM NO.3CEB, WHICH HAVE BEEN ENLISTED BY THE TRANSFER PRICING OFFICER (TPO) IN HIS ORDER DATED 26.10.2010. THE ASSESSEE BENCHMARKED THESE I NTERNATIONAL TRANSACTIONS AND DEMONSTRATED THEM TO BE AT ARMS L ENGTH PRICE (ALP) BY FOLLOWING THE TRANSACTIONAL NET MARGIN METHOD (TNMM ). THE LAST TWO TRANSACTIONS, NAMELY, REIMBURSEMENT OF EXPENSES AND APPORTIONMENT OF ADMINISTRATIVE EXPENSES, ETC., ARE NOT IN DISPUTE. THE FIRST FIVE TRANSACTIONS ARE OF RENDERING SOFTWARE DEVELOPMEN T SERVICES BY THE ITA NO.5846/DEL/2011 3 ASSESSEE TO ITS ASSOCIATED ENTERPRISES (AES). THE ASSESSEE, APART FROM HAVING HEAD OFFICE IN INDIA HAS ALSO A BRANCH OFFIC E IN CANADA PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS AE IN THE USA. THE ASSESSEE ALSO PAID FOR CERTAIN CONSULTING SERVICES RENDERED BY IT S AE TO ITS CANADA BRANCH. FOR THE TIME BEING, WE ARE NOT CONSIDERING THE INTERNATIONAL TRANSACTION OF UNSECURED INTEREST FREE LOAN FOR WHI CH AN ADJUSTMENT OF RS.87,90,467 WAS RECOMMENDED BY THE TPO. IN SO FAR AS THE ABOVE TRANSACTIONS OF RENDERING SOFTWARE DEVELOPMENT SERV ICES AND RECEIVING CONSULTING SERVICES, TO THE EXCLUSION OF INTEREST F REE LOAN ARE CONCERNED, THE ASSESSEE USED CERTAIN COMPARABLES AND SHOWED TH AT THESE TRANSACTIONS WERE AT ARMS LENGTH PRICE. THE ASSESSEES TOTAL RE VENUE FROM SERVICES RENDERED AS PER ITS PROFIT & LOSS ACCOUNT, A COPY O F WHICH IS AVAILABLE ON PAGE 58 OF THE PAPER BOOK, STANDS AT RS.36,63,45 ,769/-. THE ASSESSEE RECEIVED A SUM OF RS.13.67 CRORE, AS PER PAGE 485 O F THE PAPER BOOK, FROM ITS ASSOCIATED ENTERPRISES (AES). THIS SHOWS THAT THE REMAINING AMOUNT OF RS.22.96 CRORE (RS.36.63 CRORE MINUS RS.1 3.67 CRORE) WAS THE REVENUE EARNED FROM NON-AES (UNRELATED PARTIES). TH E TPO ALTERED SOME OF THE COMPARABLES CHOSEN BY THE ASSESSEE AND COMPU TED THE ARMS ITA NO.5846/DEL/2011 4 LENGTH MARGIN OF HIS FINAL SET OF COMPARABLES AT 23 .56% OF THE OPERATING COST. THIS ARMS LENGTH MARGIN WAS APPLIED ON TOTA L REVENUES EARNED BY THE ASSESSEE AT RS.36.63 CRORE (INCLUSIVE OF REVENU ES FROM NON-AES). THAT IS HOW, HE PROPOSED TRANSFER PRICING ADJUSTMEN T OF RS.8,61,31,210/- ON THIS SCORE. THE ASSESSEE REMAINED UNSUCCESSFUL B EFORE THE DRP ON VARIOUS ISSUES INCLUDING THE SELECTION OF COMPARABL ES MADE BY THE TPO. HOWEVER, THE ASSESSEES CLAIM FOR NOT CONSIDERING D EPRECIATION ON BUILDING LET OUT TO OUTSIDERS AS AN OPERATING COST, WAS ACCEPTED BY THE DRP AND A DIRECTION WAS GIVEN TO THE TPO, WHICH ASP ECT WILL BE DISCUSSED INFRA . THE ASSESSEE IS AGGRIEVED AGAINST THE DETERMINATI ON OF THE ALP AND THE RESULTANT ADDITION MADE BY THE AO. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT WHILE COMP UTING THE ARMS LENGTH PRICE (ALP) OF THE ASSESSEES INTERNATIONAL TRANSAC TIONS UNDER THIS SEGMENT, THE TPO APPLIED ARMS LENGTH MARGIN ON THE TOTAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE INCLUSIVE OF THE REVENUE RECEIVED FROM NON- AES. ITA NO.5846/DEL/2011 5 5. WE HAVE NOTICED ABOVE THAT THE ASSESSEE HAS A BRANCH OFFICE IN CANADA AND THERE ARE SOME TRANSACTIONS BETWEEN THE HEAD OFFICE IN INDIA AND THE BRANCH OFFICE IN CANADA. THESE TRANSACTION S HAVE ALSO BEEN TAKEN INTO SWEEP FOR THE PURPOSES OF MAKING THE TRA NSFER PRICING ADJUSTMENT. THERE IS NO DISPUTE ON THE FACT THAT T HE ASSESSEE HAS OFFERED ITS TOTAL INCOME FOR TAXATION, WHICH ALSO COMPRISE S OF THE REVENUES FROM ITS CANADA BRANCH. IN OTHER WORDS, THE FIGURES OF EXPENSES AND INCOMES, ASSETS AND LIABILITIES OF BRANCH OFFICE IN CANADA H AVE BEEN MERGED WITH SUCH FIGURES OF HEAD OFFICE IN INDIA. IT IS THE MER GED FIGURES OF BOTH THE HEAD OFFICE AND BRANCH OFFICE TAKEN TOGETHER AS ONE UNIT, THAT HAVE BEEN TAKEN INTO CONSIDERATION FOR ALL PRACTICAL PURPOSES INCLUDING THE COMPUTATION OF TOTAL INCOME AND THE TRANSFER PRICIN G ANALYSIS. 6. THE FIRST QUESTION FOR OUR CONSIDERATION IS W HETHER THE TRANSACTIONS BETWEEN THE HEAD OFFICE IN INDIA AND BRANCH OFFICE IN CANADA CAN BE CONSIDERED AS INTERNATIONAL TRANSACTIONS, EVEN THOU GH THE ASSESSEE INADVERTENTLY REPORTED THE SAME SO AS A MATTER OF A BUNDANT CAUTION. THE ANSWER IS OBVIOUSLY IN NEGATIVE BECAUSE SECTION 92B (1) CATEGORICALLY ITA NO.5846/DEL/2011 6 PROVIDES THAT: FOR THE PURPOSES OF THIS SECTION AN D SECTIONS 92, 92C, 92D AND 92E, AN INTERNATIONAL TRANSACTION MEANS A TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRISES ... A BARE PERUSAL OF THE DEFINITION OF INTERNATIONAL TRANSACTION BRING S TO LIGHT THAT FOR TREATING ANY TRANSACTION AS AN INTERNATIONAL TRANSA CTION, IT IS SINE QUA NON THAT THERE SHOULD BE TWO OR MORE SEPARATE AES. WH EN WE CONSIDER THE DEFINITION OF INTERNATIONAL TRANSACTION GIVEN IN SECTION 92B ALONG WITH THE MEANING OF THE AE GIVEN IN SECTION 92A, IT CLEA RLY TRANSPIRES THAT IN ORDER TO DESCRIBE A TRANSACTION AS AN INTERNATIONA L TRANSACTION, THERE MUST BE TWO OR MORE SEPARATE ENTITIES. 7. IT IS SIMPLE AND PLAIN THAT NO PERSON CAN TR ANSACT WITH SELF IN COMMON PARLANCE. AS SUCH, ONE CANNOT EARN ANY PROFI T OR SUFFER LOSS FROM SELF. THE SAME IS TRUE IN THE CONTEXT OF BUSI NESS AS WELL. NEITHER ANY PERSON CAN EARN INCOME NOR SUFFER LOSS FROM SEL F. IT IS CALLED THE PRINCIPLE OF MUTUALITY. WHEN EXPANDED COMMERCIALLY, THE PROPOSITION WHICH FOLLOWS IS THAT THERE CAN BE NO PROFIT FROM T RADE WITH SELF. THIS HAS BEEN FAIRLY SETTLED THROUGH A CATENA OF JUDGMENTS F ROM THE HONBLE APEX ITA NO.5846/DEL/2011 7 COURT INCLUDING SIR KIKABHAI PREM CHAND VS CIT (1953) 24 ITR 506 (SC) AND ALSO THE HONBLE HIGH COURTS. IN BETTS HARTLEY HUETT & CO. LTD. (1979) VS. CIT 116 ITR 425 (CAL) , IT HAS BEEN HELD THAT THERE CANNOT BE A VALID TRANSACTION OF SALE BETWEEN BRANCH OFFIC E AND HEAD OFFICE AND HENCE PROFIT ON SUCH SALES IS NOT INCLUDIBLE IN ASS ESSEE'S COMPUTATION OF TOTAL INCOME. SIMILAR VIEW HAS BEEN TAKEN IN RAM LAL BECHAIRAM VS. CIT (1946) 14 ITR 1 (ALL). EVEN IF FOR A MOMENT, WE ACCEPT THE CONTENTION OF THE REVENUE AS CORRECT THAT THE HEAD OFFICE EARNED PROFIT FROM ITS BRANCH OFFICE, THEN SUCH PROFIT EARNED WOU LD CONSTITUTE ADDITIONAL COST OF THE BRANCH OFFICE. ON THE AGGRE GATION OF THE ACCOUNTS OF THE HEAD OFFICE AND BRANCH OFFICE, SUCH INCOME O F THE HO WOULD BE SET OFF WITH THE EQUAL AMOUNT OF EXPENSE OF THE BO, LEAVING THEREBY NO SEPARATELY IDENTIFIABLE INCOME ON ACCOUNT OF THIS T RANSACTION. 8. REVERTING TO THE EXTANT CONTEXT, WE FIND THA T WHEN THE ASSESSEE IS ONLY ONE ENTITY, THEN SUCH INTER SE DEALINGS BETWEEN THE HEAD AND THE BRANCH OFFICE CEASE TO BE COMMERCIAL TRANSACTIONS I N THE PRIMARY SENSE, WHAT TO TALK OF AN INTERNATIONAL TRANSACTION, WHO SE PRE-REQUISITE IS A ITA NO.5846/DEL/2011 8 TRANSACTION BETWEEN TWO OR MORE ASSOCIATED ENTERPRI SES. SINCE THE OFFICE IN CANADA IS ONLY A BRANCH OFFICE AND NOT A SEPARAT E ENTITY DISTINCT FROM THE ASSESSEE, THE TRANSACTIONS BETWEEN THE HEAD OFF ICE IN INDIA AND BRANCH OFFICE IN CANADA CANNOT BE CONSIDERED AS INT ERNATIONAL TRANSACTION. 9. THERE IS HARDLY ANY NEED TO ACCENTUATE THAT T HERE CAN BE NO ESTOPPEL AGAINST LAW. MERELY BECAUSE THE ASSESSEE TOOK AN I NADVERTENT APPRECIATION OF THE TRANSACTIONS WITH SELF AS INTER NATIONAL TRANSACTIONS, THAT CANNOT PREVENT IT FROM CLAIMING BEFORE THE AUT HORITIES THAT THE CORRECT LEGAL POSITION SHOULD PREVAIL. IN VIEW OF THE FACT THAT THE ASSESSEES OFFICE IN CANADA IS ITS BRANCH OFFICE, T HE TRANSACTIONS BETWEEN THE HEAD OFFICE AND THE BRANCH OFFICE, UNDER THE PR OVISIONS OF THE ACT, CANNOT BE CONSIDERED AS INTERNATIONAL TRANSACTIONS. WE, THEREFORE, HOLD THAT THE TPO WAS NOT JUSTIFIED IN DETERMINING THE A LP OF THE INTERNATIONAL TRANSACTION OF SOFTWARE PRODUCT DEVE LOPMENT/SOFTWARE CONSULTANCY SERVICES BY APPLYING THE AVERAGE OPERA TING PROFIT MARGIN OF THE COMPARABLES TO THE COST BASE OF TRANSACTIONS WITH ITS AE, WHICH ITA NO.5846/DEL/2011 9 ALSO INCLUDED THE TRANSACTIONS WITH THE BRANCH OFFI CE IN CANADA. SUCH COST BASE IS DIRECTED TO BE CONSIDERED AS EXCLUSIVE OF TRANSACTIONS WITH THE CANADA BRANCH. WE, THEREFORE, SET ASIDE THE IMP UGNED ORDER TO THIS EXTENT. 10. IT IS UNCONTROVERTED, AS IS ALSO APPARENT F ROM THE TPOS ORDER, THAT THE TRANSFER PRICING ADJUSTMENT HAS BEEN MADE BY CO NSIDERING THE TOTAL COSTS INCURRED BY THE ASSESSEE IN RESPECT OF BOTH T HE CONTROLLED AND UNCONTROLLED TRANSACTIONS WITH THE ASSOCIATED ENTER PRISES (AE) AND NON- AES. AN ADDITION TOWARDS TRANSFER PRICING ADJUSTME NT CAN BE MADE BY COMPARING THE ASSESSEES PROFIT RATE FROM THE INTER NATIONAL TRANSACTION WITH THAT OF COMPARABLE UNCONTROLLED TRANSACTIONS. UNDER THE TNMM, THE PROCESS IS SIMPLE IN INITIALLY FINDING OUT THE OPERATING PROFIT MARGIN OF THE ASSESSEE AND THEN THE AVERAGE ADJUSTED OPERA TING PROFIT MARGIN OF COMPARABLE CASES. SUCH ADJUSTED PROFIT MARGIN OF T HE COMPARABLES CONSTITUTES BENCHMARK MARGIN, WHICH IS THEN COMPARE D WITH THE OPERATING PROFIT MARGIN FROM THE ASSESSEES INTERNA TIONAL TRANSACTIONS WITH ITS AE. IT IS NOT PERMISSIBLE TO MAKE TRANSFE R PRICING ADJUSTMENT BY ITA NO.5846/DEL/2011 10 APPLYING THE AVERAGE OPERATING PROFIT MARGIN OF THE COMPARABLES ON THE ASSESSEES UNIVERSAL TRANSACTIONS ENTERED INTO WITH BOTH THE AE AND NON- AES. AS THE ENTIRE EXERCISE UNDER CHAPTER-X IS CON FINED TO COMPUTING TOTAL INCOME OF THE ASSESSEE FROM INTERNATIONAL TRANSACTIONS HAVING REGARD TO THE ARMS LENGTH PRICE, THERE IS NO SCOPE FOR COMPUTING THE INCOME EVEN FROM NON-INTERNATIONAL TRANSACTIONS HAV ING REGARD TO THE ALP. AS THE TPO HAS COMPUTED THE TRANSFER PRICING ADJUSTMENT QUA ALL THE TRANSACTIONS CARRIED OUT BY THE ASSESSEE WITH R EFERENCE TO THE BASE OF TOTAL COSTS, ALSO INCLUSIVE OF COSTS RELEVANT FOR TRANSACTIONS WITH NON- AES, WE VACATE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF AO/TPO FOR RECALCULATING THE AMOUNT OF ADDITION OF TRANSFER PRICING ADJUSTMENT BY TAKING INTO CONSIDER ATION THE INTERNATIONAL TRANSACTIONS ONLY UNDER THIS SEGMENT TO THE EXCLUSI ON OF TRANSACTIONS WITH CANADA OFFICE AND NON-AES. 11. THE ASSESSEE HAS ASSAILED THE INCLUSION OF SOME COMPANIES IN THE LIST OF COMPARABLES. THE TPO IS DIRECTED TO CONSIDE R THE ARGUMENTS OF THE ASSESSEE AND THEN DECIDE AS PER LAW AS TO WHETH ER SUCH COMPANIES ITA NO.5846/DEL/2011 11 ARE COMPARABLE OR NOT. NEEDLESS TO SAY, THE ASSESSE E WILL BE ALLOWED A REASONABLE OPPORTUNITY OF HEARING BY THE TPO/AO. 12. THE SECOND ISSUE RAISED IN THIS APPEAL IS AGAIN ST CONSIDERING DEPRECIATION ON BUILDING AS OPERATING COST, WHICH B UILDING WAS LET OUT AND SOME RENTAL INCOME WAS ALSO EARNED THEREFROM. W E DO NOT FIND ANY DISCUSSION IN THE ORDER PASSED BY THE TPO ON THIS I SSUE. THE ASSESSEE ARGUED BEFORE THE DISPUTE RESOLUTION PANEL (DRP) TH AT DEPRECIATION ON BUILDING LET OUT TO SOME THIRD PARTY SHOULD BE EXCL UDED FROM THE TOTAL OPERATING COSTS. THE DRP HAS DISCUSSED THIS ASPECT ON PAGE 2 OF ITS DIRECTIONS GIVEN ON 3.9.2011 DIRECTING THE TPO: TO VERIFY AND EXCLUDE THE EXCESS AMOUNT AND RECOMPUTED ALP AS PER LAW AND FACTS. IT IS NOTICED THAT SUCH DIRECTION GIVEN BY THE DRP HAS NO T BEEN GIVEN EFFECT TO BY THE TPO/AO. THERE IS NO DISCUSSION IN THE FINAL ASSESSMENT ORDER PASSED BY THE AO ON 31.10.2011 GIVING EFFECT TO THE TPOS ORDER ON THIS ASPECT OF THE MATTER. THE LD. AR CONTENDED THAT BO TH THE TPO AS WELL AS THE AO FAILED TO GIVE EFFECT TO THE DIRECTION GIVEN BY THE DRP WHICH IS BINDING ON THEM. ITA NO.5846/DEL/2011 12 13. IN SUCH CIRCUMSTANCES, THE QUESTION ARISES AS TO WHETHER THE DIRECTION GIVEN BY THE DRP IS MANDATORY OR DIRECTOR Y ON THE TPO/AO. IN ORDER TO FIND AN ANSWER TO THIS QUESTION, WE NEE D TO HAVE A LOOK AT THE MANDATE OF SECTION 144C(13), WHICH IS AS UNDER:- (13) UPON RECEIPT OF THE DIRECTIONS ISSUED UNDER S UB-SECTION (5), THE ASSESSING OFFICER SHALL, IN CONFORMITY WITH THE DIR ECTIONS, COMPLETE, NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 153 OR SECTION 153B, THE ASSESSMENT WITHOUT PROVIDING ANY FURTHER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, WITHIN ONE MONTH FROM THE END OF THE MONTH IN WHICH SUCH DIRECTION IS RECEIVE D. 14. A BARE PERUSAL OF THIS PROVISION INDICATES T HAT UPON RECEIPT OF THE DIRECTIONS ISSUED BY THE DRP UNDER SUB-SECTION (5) OF SECTION 144C, THE AO HAS TO COMPLETE THE ASSESSMENT IN CONFORMITY WITH THE DIRECTIONS SO GIVEN. IN OTHER WORDS, THE ASSESSING AUTHORITY IS BOUND BY THE DIRECTIONS GIVEN BY THE DRP AND THESE DIRECTIONS ARE MANDATORY AND NOT DIRECTORY IN NATURE. REVERTING TO THE FACTS, ONCE THE DRP DI RECTED THE TPO TO EXCLUDE THE EXCESS AMOUNT OF DEPRECIATION, IT WAS I NCUMBENT UPON HIM TO GIVE EFFECT TO SUCH DIRECTION NOTWITHSTANDING HI S CONTRARY VIEW ON THE ISSUE. ITA NO.5846/DEL/2011 13 15. HERE, WE WANT TO NOTE THAT THE FINANCE ACT , 2012 HAS INSERTED SUB-SECTION (2A) TO SECTION 253 W.E.F. 1.7.2012 PR OVIDING REMEDY TO THE DEPARTMENT AGAINST THE DIRECTION GIVEN BY THE DRP W HICH IS NOT ACCEPTABLE TO IT. THIS SUB-SECTION PROVIDES THAT T HE COMMISSIONER MAY DIRECT THE AO TO APPEAL TO THE TRIBUNAL AGAINST THE ORDER IF HE OBJECTS TO ANY DIRECTION ISSUED BY THE DRP IN RESPECT OF ANY O BJECTION FILED ON OR AFTER 1.7.2012 BY THE ASSESSEE U/S 144C(2), IN PURS UANCE OF WHICH THE AO HAS PASSED AN ORDER COMPLETING THE ASSESSMENT. THE INSERTION OF THIS PROVISION REAFFIRMS THAT THE DIRECTION GIVEN BY THE DRP U/S 144C(5) IS BINDING ON THE AO WHO, UNDER SUB-SECTION (13) OF SE CTION 144C, IS BOUND TO COMPLETE THE ASSESSMENT IN CONFORMITY WIT H THE DIRECTION GIVEN BY THE DRP. IT IS ONLY IN THE SECONDARY STAG E AFTER THE COMPLETION OF ASSESSMENT, AS PER WHICH THE REVENUE, IF AGGRIEV ED AGAINST DIRECTION GIVEN BY THE DRP, CAN APPEAL BEFORE THE TRIBUNAL AG AINST THE ORDER PASSED BY THE AO GIVING EFFECT TO SUCH DIRECTION. I N ANY CASE, THE DIRECTION GIVEN BY THE DRP HAS TO BE HONOURED BY TH E AO WHILE FINALIZING THE ASSESSMENT U/S 143(3) READ WITH SECT ION 144C(13) OF THE ACT. COMING BACK TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE ITA NO.5846/DEL/2011 14 DIRECTION GIVEN BY THE DRP FOR VERIFYING AND EXCLUD ING THE EXCESS AMOUNT OF DEPRECIATION HAS NOT BEEN ADHERED TO BY T HE TPO/AO, WHICH POSITION IS CONTRARY TO LAW. AS SUCH, WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF THE AO/TPO FOR PASSING AN ORDER IN CONFORMITY WITH THE DIRECTION GIVEN BY THE DRP. WE WANT TO MAKE IT EXPLICIT THAT WE HAVE NOT UNDERTAKEN THE EX ERCISE OF EXAMINING ANY ASPECT OF THE ACTUAL AMOUNT OF THE EXCESS DEPRE CIATION LIABLE FOR EXCLUSION. THE DRP HAS ALSO SIMPLY DIRECTED THE TPO TO VERIFY THIS ASPECT, AND, THEN, EXCLUDE THE EXCESS AMOUNT OF DEP RECIATION IN DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIO N. AS SUCH, THE OFFICER IS NOT ONLY ENTITLED BUT ALSO DUTY BOUND TO VERIFY THE CORRECTNESS OF THE CLAIM LODGED BY THE ASSESSEE BEFORE EXCLUDIN G THE EXCESS AMOUNT OF DEPRECIATION. 16. THE NEXT ISSUE RAISED IN THIS APPEAL IS AGAINST THE TREATMENT OF HYPOTHETICAL INTEREST ON SECURITY DEPOSITS AS INCOM E U/S 28(IV) OF THE ACT. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE WAS FOUND TO HAVE LET OUT ITS PROPERTY ON RECEIVING AN INTEREST-FREE SECU RITY DEPOSIT OF ITA NO.5846/DEL/2011 15 RS.77,25,480/-. THE AO DETERMINED INTEREST RATE OF 15% WHICH, IN HIS OPINION, SHOULD HAVE OTHERWISE LED TO INCREASE IN T HE ANNUAL LETTING VALUE OF THE PROPERTY. INITIALLY HE DISCUSSED THE INCLUS ION OF THIS AMOUNT IN THE ANNUAL LETTING VALUE OF THE PROPERTY, BUT, LATER ON , HE SWITCHED OVER TO SECTION 28(IV) AND, FINALLY, INCLUDED A SUM OF RS.1 1,58,822/- IN THE ASSESSEES TOTAL INCOME TOWARDS NOTIONAL INTEREST O N INTEREST FREE DEPOSIT. THE ASSESSEE CHALLENGED THE VIEW TAKEN BY THE AO IN THE DRAFT ORDER BEFORE THE DRP, WHO, VIDE PARA 3.3 OF ITS DIRECTION , DIRECTED THE AO TO DELETE THIS ADDITION. IT WAS HELD THAT NEITHER THE ALV OF THE PROPERTY CAN BE INCREASED U/S 23 WITH THE NOTIONAL INTEREST NOR SECTION 28(IV) CAN BE APPLIED. HOWEVER, WE FIND FROM THE FINAL ASSESSMEN T ORDER PASSED BY THE AO THAT THE ADDITION OF RS.11.58 LAC HAS STILL BEEN MADE. 17. AGAIN, IT IS AMPLY CLEAR THAT THE DIRECTION GIV EN BY THE DRP FOR DELETION OF THIS ADDITION HAS NOT BEEN TAKEN INTO C ONSIDERATION BY THE AO WHILE FINALIZING THE ASSESSMENT. WE HAVE NOTICED A BOVE THAT THE DIRECTION GIVEN BY THE DRP IS BINDING ON THE AO IN TERMS OF SECTION 144C(13). ADOPTING THE DISCUSSION MADE ABOVE, WE H OLD THAT THE ITA NO.5846/DEL/2011 16 ADDITION OF RS.11.58 LAC IS NOT WARRANTED BECAUSE O F THE DIRECTION GIVEN BY THE DRP FOR THE DELETION OF THE ADDITION. THIS GROUND IS ALLOWED. 18. THE LAST ISSUE IN THIS APPEAL IS AGAINST THE AD DITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT TOWARDS INTEREST ON INT EREST FREE LOAN GIVEN BY THE ASSESSEE TO ITS AE. THE TPO OBSERVED THAT T HE ASSESSEE ADVANCED SOME INTEREST FREE LOAN TO ITS AE. HE APPLIED INTER EST RATE OF 14% ON SUCH AMOUNT FOR WORKING OUT THE TP ADJUSTMENT OF RS.87,9 0,467/-. THE ASSESSEE REMAINED UNSUCCESSFUL BEFORE THE DRP AND T HE AO IN HIS FINAL ORDER MADE THE ABOVE ADDITION. 19. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS IS A RECURRIN G ISSUE COMING FROM THE EARLIER YEARS, WHICH HAS BEEN DECIDED BY THE TRIBUN AL IN ASSESSEES OWN CASE FOR THE PRECEDING YEARS. IN ITS ORDER FOR THE AY 2002-03, THE TRIBUNAL RESTORED THIS MATTER FOR A FRESH CONSIDERA TION IN THE LIGHT OF CERTAIN DIRECTIONS. SIMILAR VIEW HAS BEEN REPEATED BY THE TRIBUNAL VIDE PARA 16 ON PAGE 10 OF ITS ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, NAMELY, 2006-07, BY REMITTING THE MATTER TO THE FILE OF ITA NO.5846/DEL/2011 17 THE AO/TPA. IN THE ABSENCE OF ANY DISTINGUISHING F ACTS FOR THIS YEAR VIS- -VIS THE EARLIER YEARS, RESPECTFULLY FOLLOWING THE PRECE DENT, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THIS MATTER TO THE FIL E OF AO/TPO FOR A FRESH DETERMINATION OF THE TRANSFER PRICING ADJUSTM ENT, ON THE BASIS OF THE DIRECTIONS GIVEN BY THE TRIBUNAL FOR SUCH EARLIER Y EARS. 20. AT THIS JUNCTURE, WE WANT TO CLARIFY THAT THE DIRECTION GIVEN BY THE TRIBUNAL IN EARLIER YEARS SHOULD BE SEEN IN THE LIG HT OF THE RECENT JUDGMENT DELIVERED BY THE HONBLE DELHI HIGH COURT ON 27.3.2015 IN CIT VS. COTTON NATURALS (I) PVT. LTD . IN THIS CASE, IT HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT THAT THE CURRENCY IN WHICH THE LOAN IS TO BE RE- PAID NORMALLY DETERMINES THE RATE OF RETURN ON THE MONEY LENT, I.E. THE RATE OF INTEREST. AS SUCH, WE DIRECT THE TPO TO COM PUTE THE RATE OF INTEREST TO BE APPLIED IN CONFORMITY WITH THE AFORE SAID JUDGMENT OF THE HONBLE DELHI HIGH COURT IN COTTON NATURALS (I) PVT. LTD. (SUPRA), IF THE EARLIER TRIBUNAL ORDER DOES NOT ACCORD WITH ITS RATIO. IN SO FAR AS THE QUANTUM OF LOAN IS CONCERNED, THE ASSESSEE DID NOT AGITATE THE SAME. ITA NO.5846/DEL/2011 18 21. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 12.06.201 5. SD/- SD/- [A.T. VARKEY] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 12 TH JUNE, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.