UCB INDIAP.LTD, MUMBAI V. ITO 7(3)(3), MUMBAI

ITA 6681/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3453 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 24-03-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 18-11-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Related party transaction; Capital asset; Gift; Business income; Depreciation; Transfer pricing; Business expenditure; International transaction; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 80HHC; 80IB; 37(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K BE NCH, MUMBAI BEFORE SHRI RAJENDRA ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO. 6681/MUM/2013 ( / ASSESSMENT YEAR: 2004-05 UCB INDIA PVT. LTD., 504, PENINSULA TOWERS, G.K. MARG, LOWER PAREL, MUMBAI-400 013 / VS. THE ITO 7(3) - 3, AAYAKAR BHAVAN, MUMBAI-400 020 / I .TA NO. 6454/MUM/2013 ( / ASSESSMENT YEAR: 2004-05 THE ITO 7(3) - 3, AAYAKAR BHAVAN, MUMBAI-400 020 / VS. UCB INDIA PVT. LTD., 504, PENINSULA TOWERS, G.K. MARG, LOWER PAREL, MUMBAI-400 013 / I .TA NO. 6682/MUM/2013 ( / ASSESSMENT YEAR: 2005-06 UCB INDIA PVT. LTD., 504, PENINSULA TOWERS, G.K. MARG, LOWER PAREL, MUMBAI-400 013 / VS. THE ITO 7(3) - 3, AAYAKAR BHAVAN, MUMBAI-400 020 / I .TA NO. 6455/MUM/2013 ( / ASSESSMENT YEAR: 2005-06 THE ITO 7(3) - 3, AAYAKAR BHAVAN, MUMBAI-400 020 / VS. UCB INDIA PVT. LTD., 504, PENINSULA TOWERS, G.K. MARG, LOWER PAREL, MUMBAI-400 013 / I .TA NO. 6558/MUM/2013 ( / ASSESSMENT YEAR: 2007-08 UCB INDIA PVT. LTD. 2 UCB INDIA PVT. LTD., 504, PENINSULA TOWERS, G.K. MARG, LOWER PAREL, MUMBAI-400 013 / VS. THE ITO 7(3) - 3, AAYAKAR BHAVAN, MUMBAI-400 020 / I .TA NO. 6456/MUM/2013 ( / ASSESSMENT YEAR: 2007-08 THE ITO 7(3) - 3, AAYAKAR BHAVAN, MUMBAI-400 020 / VS. UCB INDIA PVT. LTD., 504, PENINSULA TOWERS, G.K. MARG, LOWER PAREL, MUMBAI-400 013 ./ ./ PAN/GIR NO. AAACV 2809D ( / APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY: SHRI M.P. LOHIA SHRI PRANAY GANDHI SHRI SAURABH DESHPANDE / REVENUE BY: SHRI N.K. CHAND / DATE OF HEARING :26.02.2016 ! / DATE OF PRONOUNCEMENT :18.05.2016 / O R D E R/ PER C.N. PRASAD, JM: THESE BUNCH OF APPEALS ARE FILED BY THE ASSESSEE AN D THE REVENUE AGAINST THE ORDERS OF THE LD. CIT(A)-15 FOR THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2007-08. AS THESE APPEA LS WERE HEARD TOGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 6681/M/2013 -A.Y. 2004-05 ASSESSEES APP EAL 2. THE FIRST GROUND OF APPEAL IN ASSESSEES APPEAL IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF SALES PROMOTION UCB INDIA PVT. LTD. 3 EXPENSES INCURRED BY THE ASSESSEE TO THE TUNE OF R S. 10,42,837/- BY CONSIDERING THE SAME AS NOT HAVING BEEN INCURRED FOR THE APPELLANTS BUSINESS. 3. BRIEF FACTS ARE THAT THE ASSESSEE HAS DEBITED A N AMOUNT OF RS. 4,40,52,225/- UNDER THE HEAD SALES PROMOTION EXPEN SES INCLUDING A SUM OF RS. 1,04,28,370/- ON GIFT ARTICLES. THESE E XPENSES WERE INCURRED TOWARDS PURCHASE OF VARIOUS GIFT ITEMS SUC H AS BALL PENS, TOWELS AND TISSUES, WALLETS, GIFT SETS, HOUSEHOLD A PPLIANCES AND WATCHES, BESIDES SPONSORING DOCTORS MEET AT PHUKET WHERE THE AMOUNT OF RS. 17,17,785/- WAS EXPENDED. THE ASSESS ING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AND JUSTIFY THE EX PENDITURE ON GIFT ARTICLE AND SPONSORED TRIP AND EXPLAIN AS TO HOW IT IS RELATED TO THE BUSINESS OF THE ASSESSEE WHICH CONSISTS OF TRADING AND MANUFACTURING OF PHARMACEUTICALS. THE ASSESSEE IN ITS REPLY SUBMITTED THAT SALES PROMOTION EXPENSES ARE INTEGRA L PART OF PHARMACEUTICAL INDUSTRY. THEY ARE INCURRED TOWARDS FIELD FORCE INCENTIVES, DOCTORS EDUCATION, SALES REVIEW MEETING , MEDICAL CONFERENCES AND EXPENSES RELATED TO PRODUCT PROMOTI ONS AND SAMPLES. FURTHER, THERE ARE PRINTED MATERIALS WHIC H ARE USED BY THE MEDICAL SALES REPRESENTATIVES TO PROMOTE THE PRODUC T AND HIGHLIGHT VARIOUS USAGES OF THE PRODUCT TO THE DOCTORS. IT W AS CONTENDED BY THE ASSESSEE THAT THESE EXPENSES ARE INCURRED BY THE M ARKETING TEAM FOR VARIOUS ACTIVITIES FROM TIME TO TIME AND MARKET PE RFORMANCE SUCH AS DOCTORS MEETING, BOOKING OF CONFERENCE AND ENROLLIN G DOCTORS FOR MEDICAL CONFERENCES, PRINTING OF EDUCATIONAL MATERI AL FOR SALES REPRESENTATIVE, BUYING OF PROMOTIONAL GIFTS OF DOC TORS. THEREFORE, IT WAS CONTENDED THAT ALL THESE EXPENSES ARE ONLY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. HOWEVER, THE ASSESSING O FFICER HELD THAT UCB INDIA PVT. LTD. 4 THE ASSESSEE FAILED TO SHOW THAT THIS AMOUNT OF RS. 1,04,28,370/- HAS BEEN EXPENDED EXCLUSIVELY FOR THE BUSINESS. THE AS SESSING OFFICER ALSO OBSERVED THAT OUT OF TOTAL SALES PROMOTION EXP ENSES OF RS. 1,04,28,370/-, 10% OF SUCH EXPENSES WOULD FORM PART OF SALES PROMOTION WHICH COULD BE TERMED AS GIVE AWAY AND THIS AMOUNT IS TREATED AS NOT HAVING BEEN INCURRED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF BUSINESS AND NOT RELATED TO THIS YEAR UN DER CONSIDERATION. HE ALSO OBSERVED THAT ON SIMILAR LINES DISALLOWANCE WAS MADE ON ACCOUNT OF AMOUNTS SPENT ON GIFT ARTICLES IN THE PR ECEDING YEARS. THIS DISALLOWANCE WAS CONFIRMED BY THE LD. CIT(A). 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IN THE EARLIER ASSESSMENT YEARS I.E. ASSESSMENT YEARS 2002-03 AND 2003-04 IN ITA NOS. 428 & 429 OF 2007, THE TRIBUNAL HAD HELD THAT THE ADHOC DISALLOWANCE MADE BY THE ASSESSING OFFICER IS BASED ON MERE SURMISES AND PRESUMPTIONS THEREFORE DELETED THE D ISALLOWANCE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT COPY OF T HE TRIBUNAL ORDER IS PLACED AT PAGE-107 OF THE PAPER BOOK. HE SUBMIT S THAT SINCE THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF SALES PR OMOTION EXPENSES ON ADHOC BASIS, SIMILAR TO ASSESSMENT YEAR S 2002-03 AND 2003-04, THE SAME SHOULD BE DELETED. THE LD. COUNS EL FOR THE ASSESSEE FURTHER SUBMITS THAT THE AHMEDABAD TRIBUN AL IN THE CASE OF LIFE SIGHT SURGICALS PVT. LTD., VS DCIT (133 TTJ 2 7) HELD THAT EXPENDITURE ON SPONSORSHIP OF DIFFERENT PROGRAMES IS ALLOWABLE AS BUSINESS EXPENDITURE. THE LD. COUNSEL SUBMITS THAT HONBLE CIT(A) CONFIRMED THE DISALLOWANCE HOLDING THAT THE SAME IS PROHIBITED BY MCI REGULATIONS AND SHOULD BE DISALLOWED IN VIEW OF THE CBDT CIRCULAR NO. 5 OF 2012 DATED 1 ST AUGUST, 2012. THE LD. COUNSEL SUBMITS THAT MEDICAL COUNCIL OF INDIAS NOTIFICATI ON PREVENTING THE UCB INDIA PVT. LTD. 5 PHARMA COMPANIES IN GIFTING ARTICLES TO THE MEDIC AL PRACTITIONERS NOTIFIED IN THE OFFICIAL GAZETTE ON 10.12.2009 AND IS EFFECTIVE FROM THIS DATE IS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDE R CONSIDERATION. REFERRING TO PAGE-594 TO 600 OF THE PAPER BOOK THE LD. COUNSEL SUBMITS THAT THE CBDT CIRCULAR NO. 5 OF 2012 WHICH STATED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN PROVIDING SUCH FREE BEES HAD TO BE REGARDED AS INCURRED FOR THE PURPOSE WHIC H EITHER AN OFFENCE OR PROHIBITED BY LAW AND DISALLOWABLE UNDER EXPLANATION TO SEC. 37(1) OF THE ACT HAS BEEN CONSIDERED BY THE CO -ORDINATE BENCH OF THIS TRIBUNAL IN SYNCOM FORMULATIONS VS DCIT IN IT A NO. 6429 & 6428/M/2012 DATED 23 RD DECEMBER, 2015 AND HELD THAT CIRCULAR OF CBDT SHALL BE PROSPECTIVELY APPLICABLE W.E.F 1 ST AUGUST 2012. THEREFORE, THE LD. COUNSEL SUBMITS THAT SINCE THE A SSESSMENT YEAR UNDER CONSIDERATION IS ASSESSMENT YEAR 2004-05, TH E CBDT CIRCULAR SHALL NOT BE APPLICABLE. 5. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI N.K. C HAND APPEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPO RTS THE ORDER OF THE ASSESSING OFFICER AND THE LD. CIT(A) IN MAKING ADHOC DISALLOWANCE OF 10% IN RESPECT OF GIFT ARTICLES GIV EN TO THE MEDICAL PRACTITIONERS HAS NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 6. HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE L OWER AUTHORITIES AS WELL AS THE DECISIONS RELIED ON BY T HE ASSESSEE. IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2002-0 3 & 2003-04 THE TRIBUNAL DELETED SIMILAR ADHOC DISALLOWANCES MA DE BY THE ASSESSING OFFICER FROM OUT OF SALES PROMOTION EXPEN DITURE OBSERVING AS UNDER: UCB INDIA PVT. LTD. 6 WE NOW DISCUSS THE OTHER GROUNDS OF APPEAL. A COM MON DISALLOWANCE IS MADE FOR THE ASSESSMENT YEARS 2002- 03 AND 2003-04 WHICH PERTAINS TO A DISALLOWANCE OF A PERCE NTAGE OUT OF THE TOTAL SALES PROMOTION EXPENSES CLAIMED BY THE A SSESSEE. DURING THE ASSESSMENT YEAR 202-03 THE ASSESSEE CLAI MED A SUM OF RS. 3,93,15,069 AS EXPENSES IN CONNECTION WITH SALE S PROMOTION ACTIVITY. OUT OF THIS, AN AMOUNT OF RS. 4,48,975 P ERTAINED TO PURCHASE OF VARIOUS GIFT ITEMS FOR DOCTORS. FOR TH E ASSESSMENT YEAR 2003-04 THE FIGURE WERE RS. 4,43,19,884/- BEING EXPENSES CONNECTED WITH SALES PROMOTION ACTIVITIES AND AMOUN T OF RS. 1,04,71,947/- BEING SALES PROMOTIONAL EXPENSES PERT AINING TO PURCHASE OF VARIOUS GIFT ITEMS FOR DOCTORS. THE AS SESSING OFFICER DESCRIBED THE EXPENSES AS THAT WHICH IS INCURRED TO WARDS PURCHASE OF VARIOUS GIFT ITEMS SUCH AS, BALL PENS TOWELS AND TISSUE FOILS, HOUSEHOLD APPLIANCES AND WATCHES. ON A QUERY THE A SSESSEE EXPLAINED THAT THE COMPANY DISTRIBUTED ITS PRODUCT THROUGH VARIOUS MEDICAL REPRESENTATIVE, WHO GOT IN TOUCH WITH LARGE NUMBER OF DOCTORS, ETC. FOR MARKING AND DISTRIBUTING THE COMP ANY PRODUCTS. IT WAS SUBMITTED THAT THE GIFT ITEMS ARE DISTRIBUTED T HROUGH THESE MEDICAL REPRESENTATIVES AND THE SALES PROMOTION EXP ENSES INCURRED WERE FOR THE PURPOSE OF BUSINESS TO PROMOTE SALES A ND HAS TO BE ALLOWED. THE UNDISPUTED FACT WAS THAT ALL THE GIFT ARTICLES BORE THE LOGO OF THE COMPANY AND WERE USEFUL FOR BRANCH REGU LATING. SAMPLES OF THESE GIFT ARTICLES WERE PRODUCED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER DIRECTED THE ASSESS EE TO SUBMIT DETAILS OF RECIPIENTS OF GIFT ARTICLES. ON THE GRO UND THAT NON BUSINESS OBLIGATION OF THE SAME CANNOT BE RULES OU T 20% OF RS.44,48,975/- WAS DISALLOWED FOR THE ASSESSMENT YE AR 2002-03 AND20% OF RS. 1,04,71,947/- WAS DISALLOWED FOR THE ASSESSMENT YEAR 2006-07 BY THE AO . AGGRIEVED THE ASSESSEE CA RRIED THE MATTER IN APPEAL WITHOUT SUCCESS. FURTHER AGGRIEV ED THE ASSESSEE IS BEFORE US. AFTER CONSIDERING RIVAL SUBMISSIONS WE OBSERVE THAT THERE IS NO DISPUTE AS TO THE ALLOWABILITY OF THIS EXPENDIT URE AS BUSINESS EXPENDITURE. ONLY THE QUANTUM IS BEING RESTRICTED ON ADHOC BASIS. IN ONE YEAR AN ADHOC 20% DISALLOWANCE IS MADE AND I N THE OTHER YEAR AN ADHOC 10% OF THE DISALLOWANCE IS MADE. THE PRIMARY REASON FOR MAKING SUCH DISALLOWANCE IS THAT THE ASS ESSEE HAS NOT FURNISHED DETAILS OF RECIPIENTS OF THE GIFT ARTICLE S. THE ASSESSING OFFICER PRESUMES THAT THERE MIGHT BE AN ELEMENT OF NON-BUSINESS USE. THE ASSESSEE EXPLAINS THAT IT DISTRIBUTES ITS PRODUCT THROUGH UCB INDIA PVT. LTD. 7 VARIOUS MEDICAL REPRESENTATIVES WHO INTER......... GOT IN TOUCH WITH A VERY LARGE NUMBER OF DOCTORS., ETC. WHO ARE CONTACT ED FOR IMPROVING THE MARKETING AND DISTRIBUTION OF THE ASS ESSEES PRODUCTS. HE STATES THAT THE TOTAL LIST OF DOCTORS , WHO RECEIVED THE GIFTS ARE EXTREMELY VOLUMINOUS AND HENCE CANNOT BE ATTACHED. A LIST OF REPRESENTATIVES WAS FURNISHED TO THE CIT(A) . HE ALSO SUBMITS THAT THE CIT(A) WAS WRONG IN STATING THAT T HERE IS NO PROCEDURE OR SYSTEM IN PLACE TO MONITOR, CONTROL, S UPERVISE, GUIDE OR EVEN TO VETO THE DISTRIBUTION OF SAMPLES. THE A SSESSEE SUBMITS THAT IT IS AN INTERNAL PROCEDURE OF APPROVAL AND A COPY OF THE SAME IS ATTACHED AS ANNEXURE-II. THUS, SUBMISSIONS OF T HE ASSESSEE ON FACTS ARE NOT CONTROVERTED BY THE REVENUE. THERE I S AN INTERNAL CONTROL PROCEDURE IN PLACE. ON THIS FACTUAL MATRIX WE ARE OF THE CONSIDERED OPINION THAT THE ADHOC DISALLOWANCE IS NOT BASED ON FIRM LEGAL GROUND. THERE IS NO DISPUTE THAT THE EX PENDITURE INCURRED ON GIFTS WAS FOR THE PURPOSE OF BUSINESS. THE GIFTS DISPLAY THE LOGO OF THE ASSESSEE COMPANY. TO ASSUME THAT 2 0% OR 10% OF THESE GIFTS MIGHT HAVE NOT BEEN USED FOR THE PURPOS E OF BUSINESS, IN OUR CONSIDERED OPINION IS BASED ON MERE SURMISES AND PRESUMPTIONS. IT IS WELL SETTLED THAT NO ADDITION CAN BE MADE MERELY ON THE BASIS OF SUCH PRESUMPTIONS AND ASSUMP TIONS. THUS, THE ADHOC DISALLOWANCE IS HEREBY DELETED FOR BOTH T HE ASSESSMENTS. 7. IN THE CASE OF SYNCOM FORMULATIONS IN ITA NO. 6429 & 6428/M/2012 DATED 23.12.2015, THE CO-ORDINATE BENCH HELD THAT THE CBDT CIRCULAR DATED 1.8.2012 IS APPLICABLE WITH EFF ECT FROM 1.8.2012 RELEVANT TO ASSESSMENT YEAR 2013-14. WHILE HOLDING SO, IT WAS OBSERVED AS UNDER: WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THA T RECEIVING OF GIFTS BY DOCTORS WAS PROHIBITED BY MCI GUIDELINES, GIVING OF THE SAME BY MANUFACTURER IS NOT PROHIBITE D UNDER ANY LAW FOR THE TIME BEING IN FORCE. GIVING SMALL GIFT S BEARING COMPANY LOGO TO DOCTORS DOES NOT TANTAMOUNT TO GIVI NG GIFTS TO DOCTORS BUT IT IS REGARDED AS ADVERTISING EXPENSES. AS REGARDS SPONSORING DOCTORS FOR CONFERENCES AND EXTENDING HO SPITALITY, PHARMACEUTICALS COMPANIES HAVE BEEN SPONSORING PRAC TICING DOCTORS TO ATTEND PRESTIGIOUS CONFERENCES SO THAT T HEY GATHER UCB INDIA PVT. LTD. 8 CONTEMPORARY KNOWLEDGE ABOUT MANAGEMENT OF CERTAIN ILLNESS/DISEASE AND LEARN ABOUT NEWER THERAPIES. WE FOUND THAT THE DISALLOWANCE WAS MADE BY THE AO BY RELYING ON T HE CBDT CIRCULAR DATED 01.08.2012 ONWARDS. HOWEVER, THE CIR CULAR WAS NOT APPLICABLE BECAUSE IT WAS INTRODUCED W.E.F.01.0 8.2012 I.E. ASSESSMENT YEAR 2013-2014, WHEREAS THE RELEVANT ASS ESSMENT YEAR UNDER CONSIDERATION IS 2010-2011 AND 2011-2012 . ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE DISALL OWANCE SO MADE BY THE AO IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH IN ASSESSEES OWN CASE, WE DELETE THE ADHOC DISALLOWAN CE MADE BY THE ASSESSING OFFICER IN RESPECT OF GIFTS ARTICLES. GRO UND NO. 1 IS ALLOWED. 8. THE SECOND GROUND IN ASSESSEES APPEAL IS THAT T HE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF BANK INTERES T AMOUNTING TO RS. 6,61,187/- AS BUSINESS INCOME AND EXCLUDING THE SAME WHILE COMPUTING THE ELIGIBLE PROFIT FOR DEDUCTION U/S. 80 HHC OF THE ACT. 9. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE CO-ORDINATE BENCH HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 & 2003-04 BY ORDER DATED 6.2.209 IN ITA NOS. 428 & 429 OF 2007. THE LD. COUNSEL SUBMITS THAT THE CO-ORDINATE BENCH RELYING ON THE D ECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF INDIA SUPPLY JEWE LS LTD. (284 ITR 389) HAS HELD THAT INTEREST ON CURRENT ACCOUNT IS A SSESSABLE AS BUSINESS INCOME. HE FURTHER SUBMITS THAT THE CO-OR DINATE BENCH RELYING ON THE DECISIONS IN THE CASE OF LALSONS ENT ERPRISES (89 ITD 25 (SB)] AND SRIRAM POWER EQUIPMENT HELD THAT ONLY TH E NET INTEREST HAS TO BE ELIMINATED UNDER CLAUSE (BAA) OF EXPLANAT ION TO SEC. 80HHC OF THE ACT. THE LD. COUNSEL SUBMITS THAT THE HONB LE SUPREME COURT UCB INDIA PVT. LTD. 9 IN THE CASE OF ACG ASSOCIATES CAPSULES PVT. LTD VS CIT (343 ITR 89) HAS HELD THAT ONLY THE NET INTEREST SHOULD BE EXCLU DED WHILE COMPUTING THE DEDUCTION U/S. 80HHC READ WITH CLAUSE (BAA) OF EXPLANATION. THE LD. COUNSEL FOR THE ASSESSEE SUBM ITS THAT THE LD. CIT(A) FOLLOWING THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF LIBERTY INDIA VS CIT (317 ITR 218) HELD THA T DEDUCTION U/S. 80HHC IS NOT ALLOWABLE ON INTEREST INCOME SINCE INT EREST IS NOT DERIVED FROM THE BUSINESS OF THE ASSESSEE . IN OTH ER WORDS, IT WAS HELD THAT FIRST DEGREE SOURCE IS NOT ESTABLISHED IN SO FAR AS INTEREST ON CURRENT ACCOUNT IS CONCERNED THEREFORE THE SAME WAS EXCLUDED FROM COMPUTATION OF DEDUCTION U/S. 80HHC OF THE ACT. 10. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF THE LOWER AUTHORITIES AND FURTHER PLACES RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F LIBERTY INDIA (SUPRA) AND SUBMITS THAT INTEREST ON CURRENT ACCOUN T BALANCE IS NOT INCOME DERIVED FROM BUSINESS OF THE ASSESSEE FOR TH E PURPOSE OF DEDUCTION U/S. 80HHC OF THE ACT. 11. HEARD BOTH SIDES, PERUSED THE ORDERS OF THE LOW ER AUTHORITIES AND THE DECISIONS RELIED ON BY BOTH PARTIES. ON A PERUSAL OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSME NT YEARS 2002-03 AND 2003-04 IN ITA NOS. 428 & 429/M/07 AND RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS INDO SWISS JEWELS LTD. (284 ITR 389) IT WAS HELD THAT INTEREST ON CURRENT ACCOUNT IS ASSESSABLE AS BUSINESS INCOME. FURTHER THE TRIB UNAL DIRECTED THE ASSESSING OFFICER TO ELIMINATE ONLY THE NET OF INTE REST FOLLOWING THE SPECIAL BENCH DECISIONS IN THE CASE OF LALSONS ENTE RPRISES VS DCIT 89 ITD 25 (SUPRA) AS WELL AS DECISION IN THE CASE OF C IT VS RAM HONDA UCB INDIA PVT. LTD. 10 POWER EQUIPMENT 289 ITR 475 (SUPRA). HOWEVER, WE F IND THAT JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS SWA NI SPICE MILLS PVT. LTD. (332 ITR 288) AFTER ANALYZING VARIOUS DECISION S OF VARIOUS HIGH COURTS AND APEX COURT INCLUDING ITS EARLIER DECISIO N IN THE CASE OF INDO SWISS JEWELS LTD (SUPRA) HELD AS UNDER: THE CONSISTENT LINE OF REASONING WHICH EMERGES FR OM THE DECISION OF SEVERAL HIGH COURTS ADVERTED TO EARLIER IS THAT THE MERE FACT THAT AN ASSESSEE CARRIES ON BUSINESS WOUL D NOT RESULT IN AN INFERENCE THAT THE INCOME WHICH IS EARNED BY WAY OF INTEREST WOULD FALL FOR CLASSIFICATION AS BUSINESS INCOME. WHERE AN ASSESSEE INVESTS ITS SURPLUS FUNDS IN ORDER TO EARN INTEREST AND TO OBVIATE ITS FUNDS LYING IDLE, SUCH INCOME WOULD NOT FALL FOR CLASSIFICATION AS BUSINESS INCOME. THIS IS PARTICUL ARLY SO IN A SITUATION WHERE THE BUSINESS OF THE ASSESSEE DOES N OT CONSIST IN THE INVESTMENT OF FUNDS. WHERE THE ASSESSEE ENGAGE S IN AN INDEPENDENT LINE OF BUSINESS, INTEREST EARNED ON DE POSITS CANNOT BE REGARDED AS FALLING UNDER THE HEAD OF PROFITS AN D GAINS OF BUSINESS OR PROFESSION. SUCH INCOME WOULD FALL FOR CLASSIFICATION AS INCOME FROM OTHER SOURCES. IN APPLYING THE PROV ISIONS OF SEC. 80HHC(1), THE LEGISLATURE HAS MADE A SPECIFIC PROVI SION FOR THE DEDUCTION OF SUCH PROFITS OF BUSINESS AS ARE DERIVE D FROM THE EXPORT ACTIVITY. THE EXPRESSION DERIVED FROM HA S BEEN CONSTRUED TO REQUIRE A DIRECT AND PROXIMATE NEXUS W ITH THE BUSINESS OF EXPORT. ABSENT SUCH A NEXUS, THE INCOM E WHICH RESULTS FROM THE ACTIVITY WOULD HAVE TO BE EXCLUDED FROM RE CKONING FOR THE PURPOSES OF THE FORMULA PRESCRIBED BY SEC. 80H HC. 12. IN THE CASE ON HAND, THE ASSESSEE HAS RECEIVED INTEREST ON CURRENT ACCOUNT BALANCES. THE INTEREST EARNED ON C URRENT ACCOUNT BALANCES CANNOT BE SAID TO BE DERIVED ON BUSINESS O F EXPORTS. EARNING OF INTEREST INCOME FROM CURRENT ACCOUNT BAL ANCES CANNOT BE CONSTRUED TO BE A DIRECT AND PROXIMATE NEXUS WITH THE BUSINESS OF EXPORTS. RESPECTFULLY FOLLOWING THE SAID DECISION WE HOLD THAT SUCH INTEREST INCOME CANNOT BE CONSIDERED AS INCOME DERI VED FROM BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S . 80HHC OF THE UCB INDIA PVT. LTD. 11 ACT. HOWEVER, THE ALTERNATIVE ARGUMENT OF THE ASSE SSEE THAT ONLY THE NET INTEREST SHOULD BE ELIMINATED UNDER CLAUSE (BA A) TO EXPLANATION IS ACCEPTED AND THIS IS ALSO THE VIEW OF THE SPECIA L BENCH IN THE CASE OF LALSONS ENTERPRISES (SUPRA) WHICH WAS APPROVED BY T HE SUPREME COURT IN THE CASE OF ACG ASSOCIATES CAPSULES (SUPRA ). THUS, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE ONLY THE NET INTER EST. 13. THE THIRD GROUND IN ASSESSEES APPEAL IS WITH R EGARD TO CHALLENGING THE ORDER OF THE LD. CIT(A) IN UPHOLDIN G THE DEDUCTION OF 90% OF (A) INSURANCE CLAIM (B) MISCELLANEOUS INCOME (C) SERVICE CHARGES (D) CENVAT CREDIT (E) EXTRAORDINARY INCOME AS PER CLAUSE (BAA) OF EXPLANATION TO SEC. 80HHC OF THE ACT. 14. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT T HE ASSESSING OFFICER HELD THAT DEDUCTION U/S. 80HHC OF THE ACT I S AVAILABLE ONLY ON PROFITS DERIVED FROM EXPORT OF GOODS THEREFORE THE ABOVE SAID AMOUNTS CANNOT BE SAID TO BE DERIVED FROM EXPORT BU SINESS AND THUS 90% OF SUCH AMOUNTS HAVE TO BE EXCLUDED WHILE COMPU TING DEDUCTION U/S. 80HHC OF THE ACT. THE LD. COUNSEL F OR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER RELIED ON THE DE CISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS K.K. DOSHI & CO. (245 ITR 849). THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE LD. C IT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER HOLDING THAT THE DECISION OF THE SUPREME COURT IN THE CASE OF INDIAN ADDITIVES LTD VS DCIT (25 TAXMANN.COM 412) HAVE HELD THAT THE SERVICES AND CO MMISSION INCOME ARE NOT DERIVED FROM THE BUSINESS ACTIVITY O F THE UNDERTAKING. HE ALSO RELIED ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF LIBERTY INDIA VS CIT (317 ITR 218). UCB INDIA PVT. LTD. 12 14.1. WITH REFERENCE TO THE INSURANCE AMOUNT OF RS. 3,53,385/-, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT INSURANCE CLAIM AGAINST VARIOUS OPERATING LOSSES/BREAKAGES AT THE FACTORY A ND DISTRIBUTION STAGES. THESE ARE THE SALVAGED VALUE OF OPERATIONA L LOSSES AND RELATE TO THE BUSINESS OPERATIONS OF THE ASSESSEE. DRAWIN G OUR ATTENTION TO THE DECISION IN THE CASE OF PFIZER LTD (330 ITR 62) , IT WAS HELD THAT INSURANCE CLAIM FORM PART OF PROFITS OF THE BUSINES S AND THEREFORE CANNOT BE EXCLUDED WHILE COMPUTING BUSINESS PROFITS FOR THE PURPOSE OF SEC. 80HHC OF THE ACT. 14.2. WITH REFERENCE TO MISCELLANEOUS INCOME, THE L D. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS AMOUNT REPRESENTS SA LE OF SCRAP GENERATED FROM WASTAGE OR BREAKAGE OF BOTTLES, FOIL S, PACKING MATERIALS & NEWSPAPER ETC. PLACING RELIANCE ON THE DECISION OF MUMBAI BENCH IN THE CASE OF SANDOZ PVT. LTD., VS ACIT IN ITA NO. 8489 OF 2004 DATED 9.11.2012 AND THE DECISION OF AH MEDABAD BENCH IN THE CASE OF ARVIND FASHIONS LTD. VS ACIT (37 SO T 369) THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT 90% OF SUCH A MOUNT SHOULD NOT BE REDUCED FROM BUSINESS INCOME WHILE COMPUTING DED UCTION U/S. 80HHC. 14.3. COMING TO THE SERVICE CHARGES OF RS. 3,21,836 /- HE SUBMITS THAT IN CONNECTION WITH THE REIMBURSEMENT OF THE SHARED COST CHARGED BY THE ASSESSEE TO ITS GROUP COMPANY UCB MALAYSIA AND THIS WAS RELATED TO EMPLOYEE SALARY AND OFFICE ADMINISTRATIVE CHARGE S PROVIDED BY THE ASSESSEE AS COST OF THESE SERVICES. THE ASSESSEE HAS CHARGED UCB MALAYSIA 5% OF THE REIMBURSEMENT COST AS SERVICE CH ARGE OR ADMINISTRATIVE CHARGE WHICH HAS BEEN ACCOUNTED UNDE R THE HEAD OTHER MISCELLANEOUS INCOME. THE LD. COUNSEL FOR THE ASSESSEE UCB INDIA PVT. LTD. 13 PLACED RELIANCE ON THE DECISION OF MUMBAI BENCH I N THE CASE OF RISHABH INSTRUMENTS PVT. LTD IN ITA NO. 6694/M/07 D ATED 16 TH JUNE 2009 AND THE DECISION OF THE HONBLE MADRAS HIGH CO URT IN THE CASE OF T.T.G. INDUSTRIES (209 TAXMAN 0014). 14.4. COMING TO CENVAT CREDIT, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT ASSESSEE FOLLOWS INCLUSIVE METHOD OF A CCOUNTING IN RESPECT OF ACCOUNTING OF EXCISE DUTY. WHILE EXCISE DUTY PAID ON RAW MATERIALS PURCHASED IS ADDED TO PURCHASE COST OF RA W MATERIAL, THE AMOUNT OF EXCISE DUTY AVAILED AS CENVAT CREDIT IS C REDITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD OTHER INCOME. TH E LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT CENVAT CREDIT AMOUNT HAS BEEN CREDITED TO PROFIT AND LOSS ACCOUNT INSTEAD OF SHOWING RAW MATE RIAL COST NET OF CREDIT. REFERRING TO VARIOUS DECISIONS, THE LD. CO UNSEL FOR THE ASSESSEE SUBMITS THAT IN ALL THESE DECISIONS, IT HA S BEEN HELD THAT CENVAT CREDIT DOES NOT PAR TAKE TO CHARACTER OF INC OME SINCE THE CREDIT GIVEN IS THE AMOUNT PAID BY THE ASSESSEE UND ER THE MORALITIES PROVIDED BY THE REVENUE. THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT EVEN ASSUMING THE REFUND DOES NOT AMOUNT TO IN COME IN THE HANDS OF THE ASSESSEE. IT IS A PROFIT OR GAIN DIRE CTLY DERIVED BY THE ASSESSEE FROM ITS INDUSTRIAL ACTIVITIES. THEREFORE , THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT 90% OF SUCH AMOUNT SHOULD NOT BE REDUCED FROM BUSINESS INCOME WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. 14.5. COMING TO EXTRAORDINARY INCOME, THE LD. COUNS EL FOR THE ASSESSEE SUBMITS THAT THIS AMOUNT PERTAINS TO THE E XCESS OF ASSETS OVER LIABILITIES PERTAINING TO RESINS AND ADDITIVES BUSINESS OF SOLUTIA CHEMICALS INDIA PVT. LTD., WHICH WAS ACQUIRED BY T HE ASSESSEE ON A UCB INDIA PVT. LTD. 14 GOING CONCERN BASIS FROM 1.6.2003. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS AMOUNT IS THE COST DIFFERENTIAL OF ASSET OVER LIABILITY. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS AMOUNT IS NOT INCOME AT ALL BUT SHOULD GO CAPITAL RESERVE THEREFO RE NOT BE CONSIDERED AS INCOME AT ALL. 15. THE LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF THE LOWER AUTHORITIES IN EXCLUDING 90% OF ALL THESE INCOMES WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. HE SUBMITS THAT NONE OF THESE INCOMES ARE DERIVED FROM INDUSTRIAL U NDERTAKING FOR THE PURPOSE OF CONSIDERING AS INCOME FOR DEDUCTION U/S. 80HHC. HENCE, HE SUBMITS THAT 90% OF SUCH INCOME HAVE TO BE EXCLUDED BY APPLYING CLAUSE (BAA) TO EXPLANATION TO SECTION 80H HC OF THE ACT. 16. WE HAVE HEARD BOTH THE PARTIES AND THE CASE LA WS RELIED ON BY THE ASSESSEE. IN SO FAR AS INSURANCE CLAIM AND SAL E OF SCRAP IS CONCERNED, IN OUR VIEW, THIS INCOME IS GENERATED FR OM BUSINESS AND THEREFORE 90% OF SUCH INCOME CANNOT BE REDUCED FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. THIS AL SO SUPPORTED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF PFIZER LTD (SUPRA), AHMEDABAD BENCH IN THE CASE OF ARVIN D FASHION (SUPRA) AND MUMBAI BENCH IN THE CASE OF SANDOZ PVT. LTD (SU PRA). IN SO FAR AS SERVICE CHARGES ARE CONCERNED, WE ARE OF THE VIEW T HAT THIS INCOME IS NOT DERIVED FROM THE BUSINESS OPERATIONS OF THE ASS ESSEE THEREFORE, WE UPHOLD THE ACTION OF THE ASSESSING OFFICER IN RE DUCING 90% OF SUCH INCOME WHILE COMPUTING DEDUCTION U/S. 80HHC OF THE ACT. COMING TO CENVAT CREDIT, WE FIND THAT IN THE CASE OF ACIT V S THE TOTAL PACKAGING SERVICES IN ITA NO. 5364/M/09 FOR ASSESSMENT YEAR 2 006-07 BY ORDER DT. 4.11.2011 HELD THAT THE MODVAT CREDIT IS DERIVED FROM UCB INDIA PVT. LTD. 15 INDUSTRIAL UNDERTAKING ONLY FOR THE PURPOSE OF COMP UTATION OF DEDUCTION U/S. 80IB OF THE ACT WHILE HOLDING SO, TH E CO-ORDINATE BENCH HELD AS UNDER: WE HAVE HEARD THE RIVAL CONTENTION AND CAREFULLY PE RUSED THE RELEVANT MATERIAL ON RECORD. UNDISPUTEDLY, THE MODV AT CREDIT EARNED BY THE ASSESSEE DURING THE EARLIER YEARS COU LD NOT BE AVAILED AND SET OFF BECAUSE OF THE HUGE DIFFERENCE OF EXCISE DUTY RATES ON PURCHASE OF RAW MATERIAL AND SALE OF GOODS . UPTO 31ST MARCH, 2005, THE EXCISE DUTY ON RAW MATERIAL WAS 16 % WHICH THE ASSESSEE USED TO PAY WHEREAS THE EXCISE DUTY ON MAN UFACTURED GOODS COLLECTED BY THE ASSESSEE WAS 8%. THEREFORE, IT WAS NOT POSSIBLE TO RECOVER THE FULL EXCISE DUTY PAID ON PU RCHASES FROM THE EXCISE DUTY COLLECTED ON THE FINISHED GOODS. VIDE F INANCE ACT, 2006, THE GOVERNMENT HAS AMENDED THE RATES OF EXCIS E DUTY AND CONSEQUENTLY, THE EXCISE DUTY ON PURCHASES OF RAW M ATERIAL BY THE ASSESSEE WAS REDUCED FROM 16% TO 8%. THUS, ONLY AFT ER THE AMENDMENT VIDE THE FINANCE ACT 2006, THE ASSESSEE W AS ABLE NOT ONLY TO RECOVER THE FULL EXCISE DUTY PAYABLE BUT AL SO SET OFF THE MODVAT CREDIT EARNED IN THE EARLIER YEARS. 5.1 IT IS NOT THE CASE OF THE REFUND OF EXCISE DUTY IN CASH; BUT ONLY A BENEFIT OF MODVAT CREDIT WAS AVAILABLE TO TH E ASSESSEE, WHICH COULD BE SET OFF AND UTILISED AGAINST THE COL LECTION OF THE EXCISE DUTY ON SALE OF GOODS W.E.F ASSESSMENT YEAR 2006-07. THEREFORE, THIS AMOUNT HAS BEEN RIGHTLY TAKEN INTO ACCOUNT AS INCOME FOR THE YEAR UNDER CONSIDERATION. EVEN OTHER WISE, THE ASSESSING OFFICER HAS NOT TREATED THIS AMOUNT AS TH E INCOME OF THE EARLIER YEARS BUT DENIED THE DEDUCTION ON THE GROUN D THAT THIS IS NOT THE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING. 6 IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND A NY MERIT OR SUBSTANCE IN THE CONTENTION OF THE LD DR. 6.1 ON THE ISSUE WHETHER THIS BENEFIT OF MODVAT CR EDIT IS THE INCOME DERIVED FROM THE INDUSTRIAL UNDERTAKING OR N OT, THE HONBLE GUWAHATI HIGH COURT IN THE CASE OF MEGHALAYA STEELS LTD. (SUPRA), HAS HELD AS UNDER: IN SO FAR AS THE SECOND QUESTION IS CONCERNED, THE CENTRAL EXCISE DUTY REFUND CLAIMED BY THE ASSESSEE IS ON THE UCB INDIA PVT. LTD. 16 BASIS OF AN EXEMPTION NOTIFICATIONS ISSUED BY THE M INISTRY OF FINANCE (DEPARTMENT OF REVENUE) BEING NOTIFICATION NO. 32 OF 1999 AND NOTIFICATION NO. 33 OF 1999 BOTH DATED JULY 8, 1999. IN TERMS OF THESE NOTIFICATIONS, A MANUFACTUR ER IS REQUIRED TO FIRST PAY THE CENTRAL EXCISE DUTY AND T HEREAFTER CLAIMED A REFUND ON FULFILMENT OF CERTAIN CONDITION S. IN THE NEXT MONTH, AFTER VERIFICATION OF THE CLAIM, THE CE NTRAL EXCISE DUTY SO DEPOSITED IS REFUNDED TO THE ASSESSEE IF TH E CONDITIONS LAID DOWN IN THE NOTIFICATIONS ARE FULFILLED. IN TH E PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE WAS ENT ITLED TO THE CENTRAL EXCISE DUTY REFUND. THE CENTRAL BOARD OF EXCISE AND CUSTOMS IN ITS CIRCULAR DATED DECEMBER 19, 2002 CLARIFIED THAT THE REFUND IS NOT ON ACCOUNT OF EXCESS PAYMENT OF EXCISE DUTY BUT IS BASICALLY DESIGNED TO GIVE EFFECT TO THE EXEMPTION AND TO OPERATIONALISE THE EXEMPTION GIVEN BY THE NOTIFICAT IONS. IN THAT SENSE, THE CENTRAL EXCISE DUTY REFUND DOES NOT APPEAR TO BEAR THE CHARACTER OF INCOME SINCE WHAT IS REFUNDED TO THE ASSESSEE IS THE AMOUNT PAID UNDER THE MODALITIES PR OVIDED BY THE DEPARTMENT OF REVENUE FOR GIVING EFFECT TO THE EXEMPTION NOTIFICATIONS. THERE IS ALSO NOTHING TO SUGGEST THA T THE ASSESSEE HAS RECOVERED OR PASSED ON THE EXCISE DUTY ELEMENT TO ITS CUSTOMERS. EVEN ASSUMING THE REFUND DOES AMOUNT TO INCOME IN THE HANDS OF THE ASSESSEE, IT IS A PROFIT OR GAIN D IRECTLY DERIVED BY THE ASSESSEE FROM ITS INDUSTRIAL ACTIVIT Y. THE PAYMENT OF CENTRAL EXCISE DUTY HAS A DIRECT NEXUS W ITH THE MANUFACTURING ACTIVITY AND SIMILARLY, THE REFUND OF THE CENTRAL EXCISE DUTY ALSO HAS A DIRECT NEXUS WITH TH E MANUFACTURING ACTIVITY. THE ISSUE OF PAYMENT OF CEN TRAL EXCISE DUTY WOULD NOT ARISE IN THE ABSENCE OF ANY I NDUSTRIAL ACTIVITY. THERE IS, THEREFORE, AN INEXTRICABLE LINK BETWEEN THE MANUFACTURING ACTIVITY, THE PAYMENT OF CENTRAL EXCI SE DUTY AND ITS REFUND. IN THE CIRCUMSTANCES, WE ARE OF THE OPINION THAT QUESTION NO. 2 MUST BE ANSWERED IN THE AFFIRMA TIVE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6.2 THE HONBLE HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AFTER CONSIDERING THE DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS CIT R EPORTED IN 317 ITR 218. ACCORDINGLY, FOLLOWING THE DECISION OF THE HONBLE UCB INDIA PVT. LTD. 17 GAWAHATI HIGH COURT IN THE CASE OF MEGHALAYA STEELS LTD (SUPRA), WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAV OUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD T HAT THE CENVAT CREDIT IS DERIVED FROM THE INDUSTRIAL UNDERT AKING THEREFORE CANNOT BE TREATED AS OTHER INCOME AND CANNOT BE RED UCED 90% OF SUCH INCOME WHILE COMPUTING DEDUCTION U/S. 80HHC. 16.1. COMING TO EXTRAORDINARY INCOME, IT IS THE SUB MISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THIS AMOUNT IS NOT I NCOME AT ALL BUT SHOULD GO TO CAPITAL RESERVE AS THIS INCOME REPRESE NTS ONLY EXCESS INCOME OVER LIABILITIES IN THE PROCESS OF ACQUIRING THE BUSINESS BY THE ASSESSEE. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THIS ASPECT HAS TO BE LOOKED INTO BY THE ASSESSING OFFICER FOR THE REASON THAT IF THIS AMOUNT IS NOT INCOME AT ALL, THE QUESTION OF REDUCI NG 90% WILL NOT ARISE. THUS, WE RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. 17. THE LAST GROUND IN ASSESSEES APPEAL IS THAT TH E LD. CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS. 8,01,887/- BY CONS IDERING E- CONNECTIVITY CHARGES AS AN EXPENSE INCURRED FOR ACQ UIRING SOFTWARE AND RESULTING IN BENEFIT OF ENDURING NATURE AND THE REBY CLASSIFYING THE EXPENSES AS CAPITAL EXPENDITURE. 17.1. THE ASSESSING OFFICER WHILE COMPUTING THE ASS ESSMENT DISALLOWED E-CONNECTIVITY CHARGES OF RS. 20,04,718/ - PAID BY THE ASSESSEE TO ITS PARENT COMPANY UCB SA BY TREATING S UCH EXPENSES AS CAPITAL EXPENDITURE. THE ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS ACQUIRED THIS SOFTWARE AND THIS HAS EN DURING BENEFIT UCB INDIA PVT. LTD. 18 THEREFORE THE COST FOR ACQUISITION OF SUCH SOFTWARE IS CAPITAL IN NATURE AND ALLOWED DEPRECIATION @16%. 17.2. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DRP D IRECTIONS FOR THE ASSESSMENT YEARS 2006-07 AND 2008-09 UPHELD THE FIN DING OF THE ASSESSING OFFICER THAT THESE EXPENSES ARE BEING INC URRED FOR ACQUISITION OF SOFTWARE AND THEREFORE IT IS CAPITA L IN NATURE. 18. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT D URING THE YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED E-CONNEC TIVITY CHARGES OF RS 20,04,718 BEING ALLOCATED TO THE ASSESSEE BY IT S PARENT COMPANY, UCB SA, ANNUALLY FOR PROVIDING E-CONNECTIVITY AND S YSTEMS SERVICES, VIZ SAP SERVICES, E-CONNECTIVITY SERVICES AND PEOPL E SOFT SERVICES, WHICH PRIMARILY INCLUDE: ACCESS/ USAGE OF SAP MODULES AND RELATED FUNCTIONAL ITIES; DATA SECURITY, DATA PROTECTION, BACKUP/ RESTORE FAC ILITIES; CAPACITY PLANNING AND PERFORMANCE TUNING; E-MAIL CAPACITY; CONNECTION TO INTRANET SITES; WEB BROWSING CAPACITY; ACCESS TO CORPORATE PORTAL AND GLOBAL RESOURCES; WORLDWIDE SUPPORT VIA GLOBALIZED HELPDESK ORGANIZAT ION ANDACCESS/ USAGE OF PEOPLE MANAGEMENT SOFTWARE. 18.1. LD COUNSEL SUBMITS THAT THE ASSESSEE HAS CLAI MED THE SAID AMOUNT AS REVENUE EXPENDITURE UNDER SECTION 37(1) O F THE ACT. THE LEARNED AO HELD THAT THE SAID EXPENSE IS BEING INCU RRED FOR ACQUISITION OF SOFTWARE AND ACCORDINGLY, IS A CAPIT AL EXPENDITURE WHICH SHOULD BE CAPITALISED IN THE BOOKS OF ACCOUNT . THE DEPRECIATION @ 60% IS ALLOWED ON THE SAID EXPENSE TREATING THE S AME AS BEING INCURRED FOR ACQUISITION OF SOFTWARE. UCB INDIA PVT. LTD. 19 18.2. LD COUNSEL SUBMITS THAT THE LD. CIT(A) FOLLOW ING THE DRP DIRECTIONS FOR A.Y 2006-07 AND 2008-09 UPHELD THE F INDING OF THE AO THAT THESE EXPENSES ARE BEING INCURRED FOR ACQUISIT ION OF SOFTWARE AND THUS, IS CAPITAL IN NATURE. THE LD. CIT(A) ALSO HELD THAT THE SOFTWARE WAS TO BE DEVELOPED BY THE PARENT COMPANY WOULD BE PROVIDED TO THE ASSESSEE FREE OF COST WHICH AMOUNT S TO ACQUISITION OF ASSET TO BE CAPITALIZED IN SEVERAL YEARS AND HENCE PROVIDING ENDURING BENEFIT. 18.3. THE LD. COUNSEL SUBMITS THAT THESE EXPENSES FACILITATE THE EFFICIENT AND SMOOTH CONDUCT OF ITS BUSINESS ACTIVI TIES, BEING ESSENTIALLY IN THE NATURE OF ACCESS/ USAGE CHARGES FOR VARIOUS APPLICATIONS, INTRANET WEBSITES, EMAILS, GLOBAL RES OURCES, ETC AND SERVICES SUCH AS DATA SECURITY, PERFORMANCE TUNING, ETC, ALL OF WHICH ARE REQUIRED FOR THE DAY-TO-DAY RUNNING OF THE BUSI NESS. HOWEVER, DURING THE ASSESSMENT PROCEEDING, THE LEARNED AO RE LIED ON THE HEAD 'SCOPE OF CONTRACT' AT PARA 1.1 OF THE CONTRACT WHI CH MENTIONED AS UNDER :- 'UCB SHALL AT ITS DISCRETION PERFORM DEVELOPMENT WO RK ON SOFTWARES OR NEW' FUNCTIONALITIES WHICH SHALL BE OF FERED TO UCB COMPANY' 18.4. THE LD. COUNSEL SUBMITS THAT THE LEARNED AO I NFERRED THAT 'LICENSE CHARGES' INCLUDES EXPENSES ON DEVELOPMENT OF SOFTWARE AND IN CASE OF ANY FUTURE CHANGES, UPGRADATION OR NEW V ERSIONS THAT WILL BE DEVELOPED IN FUTURE, THE ASSESSEE WILL HAVE AN ACCESS TO THE SAME. THE AO FURTHER, HELD THAT SINCE THE ASSESSEE IS NOT IN THE BUSINESS OF SOFTWARE BUT IN THE MANUFACTURING BUSINESS ACQUIRIN G OF THE E- CONNECTIVITY AND INFORMATION SYSTEM SERVICES IS TO SUPPORT ITS UCB INDIA PVT. LTD. 20 PHARMACEUTICAL BUSINESS. FURTHER, SCHEDULE 1 TO THE AGREEMENT, I.E. 'SERVICES' WHICH IS SAO SERVICES TO UCB ENTITIES WA S REFERRED AND HELD THAT THE E-CONNECTIVITY TANTAMOUNT ACQUIRING O F A 'SOFTWARE.' ACCORDINGLY, THE AO HAS HELD THAT IT THE PAYMENT FO R E-CONNECTIVITY CHARGES WAS FOR PURCHASE OF SOFTWARE AND ACCORDINGL Y, ALLOWED DEPRECIATION AT THE RATE OF 60% ON THE SAME. THE L D. COUNSEL FURTHER SUBMITS THAT THE ASSESSEE DOES NOT GET ANY OWNER'S RIGHT TO ANY SOFTWARE, SERVER, PROCESSES, CONNECTIONS ETC. THE A SSESSEE MERELY RECEIVES SERVICES RELATED TO THE SOFTWARE. ALSO, T HE ASSESSEE PAYS THE COSTS/ CHARGES FOR USAGE OF THE LEASE LINE SEPARATE LY. 18.5. THE LD. COUNSEL FURTHER SUBMITS THAT UCB SA P ROVIDES THESE SERVICES AT THE SAME PROFESSIONAL SERVICE STANDARD AS OTHER THIRD PARTY SERVICE PROVIDERS. THE ALLOCATION OF THESE EX PENSES BY UCB SA IS ALSO DONE ON A RATIONAL BASIS, I.E THE NUMBER OF EMPLOYEES IN THE ASSESSEE COMPANY AND USAGE OF THE REMOTE CONNECTION S. FURTHER, THESE EXPENSES ARE IN THE NATURE OF PERIODIC (ANNUA L) CHARGES, AND ARE NOT ONE-TIME COSTS RESULTING IN ANY LONG-TERM BENEF IT. IN ADDITION, IF THE ASSESSEE DOES NOT PAY THE SAME, IT WOULD NO LO NGER HAVE ACCESS TO THESE SERVICES. THEREFORE, THE ASSESSEE HAS NEIT HER ACQUIRED ANY ENDURING BENEFIT NOR DOES ANY NEW CAPITAL ASSET COM ES INTO EXISTENCE AND HENCE, THE ABOVE EXPENDITURE IS NOT CAPITAL IN NATURE. 19. THE LD. DEPARTMENTAL REPRESENTATIVE PLACES RELI ANCE ON THE ORDERS OF THE ASSESSING OFFICER AND THE LD. CIT(A). 20. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORD ERS OF THE AUTHORITIES BELOW. THE ASSESSEE IS PAYING CHARGES TO ITS PARENT UCB INDIA PVT. LTD. 21 COMPANY UCB SA ANNUALLY CERTAIN AMOUNTS TOWARDS FOL LOWING SERVICES: ACCESS/ USAGE OF SAP MODULES AND RELATED FUNCTIONAL ITIES; DATA SECURITY, DATA PROTECTION, BACKUP/ RESTORE FAC ILITIES; CAPACITY PLANNING AND PERFORMANCE TUNING; E-MAIL CAPACITY; CONNECTION TO INTRANET SITES; WEB BROWSING CAPACITY; ACCESS TO CORPORATE PORTAL AND GLOBAL RESOURCES; WORLDWIDE SUPPORT VIA GLOBALIZED HELPDESK ORGANIZAT ION AND ACCESS/ USAGE OF PEOPLE MANAGEMENT SOFTWARE. 20.1. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS NOT ACQUIRED ANY SOFTWARE BUT WAS PAYING ANNUAL CHARGES TOWARDS ACTI VITY FOR VARIOUS SERVICES PROVIDED FOR THE PARENT COMPANY IN ACCESS/ USAGE OF SAP MODULES AND VARIOUS OTHER SERVICES REFERRED TO ABOV E. ON GOING THROUGH THE AGREEMENT ENTERED INTO BY THE ASSESSEE, WE FIND THAT ASSESSEE HAS NOT ACQUIRED ANY SOFTWARE FROM ITS PAR ENT COMPANY BUT ASSESSEE IS PAYING ACTIVITY CHARGES FOR THE FACILIT Y OF ACCESS/USAGE OF VARIOUS APPLICATIONS, INTRANET WEBSITES, EMAILS, GL OBAL RESOURCES ETC FOR DAY TODAY RUNNING OF THE BUSINESS. WE DO NOT F IND ANY ACQUISITION OF SOFTWARE BY THE ASSESSEE BY PAYMENT OF THIS ACT IVITY CHARGES. WE ALSO DO NOT FIND ANY ENDURING BENEFIT FOR THE ASSE SSEE. THUS, WE HOLD THAT THE E-CONNECTIVITY CHARGES PAID BY THE AS SESSEE ARE OF REVENUE IN NATURE. 21. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 6454/MUM/2013 A.Y. 2004-05 22. THE ONLY GROUND IN REVENUES APPEAL IS WITH RES PECT OF TRANSFER PRICING ADJUSTMENT. THE REVENUE HAS RAISE D FOLLOWING GROUNDS: UCB INDIA PVT. LTD. 22 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW I N REJECTING CUP METHOD FOLLOWED BY ASSESSING OFFICER/ TPO FOR COMPUTING OF THE ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTION OF PURCHASE OF ACTIVE PHARMACEUTICAL INGREDIENTS FROM ITS ASSOCIATE ENTER PRISE WITHOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX OF THE CASE AS CLEARLY BROUGHT OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT THE TNMM METHOD CONSIDERED BY THE ASSE SSEE IS MOST APPROPRIATE METHOD FOR COMPUTING OF THE AR MS LENGTH PRICE WITHOUT APPRECIATING THE FACT THAT THE HONBLE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200 2-03 & 2003-04 HAS REJECTED BOTH THE METHODS ADOPTED BY TH E ASSESSING OFFICER (CUP & THE ASSESSEE (TNMM) AND HA D RESTORED THE ISSUE BACK TO THE FILE OF T HE ASSESSI NG OFFICER FOR READJUDICATION. 23. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 AN D 2003-04 THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITA NOS. 428 & 429 OF 2007 DATED 6.2.209 REJECTED CUP METHOD ADOPTED BY THE TP O AND CONSIDERED SEGMENTAL TNMM AS THE MOST APPROPRIATE M ETHOD. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT R ELYING ON ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 & 2003-04 DRP REJECTED CUP METHOD AND CONSIDERED SEGMENTAL TNMM A S THE MOST APPROPRIATE METHOD FOR ASSESSMENT YEARS 2008-09 & 2 009-10 (PAPER BOOK 189 TO 215). REFERRING TO PAGE NO. 183 TO 188, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT ORDER GIVING EFFECT WAS PASSED BY THE TPO GRANTING RELIEF AS PER THE DIRECTIONS O F HONBLE ITAT FOR THE ASSESSMENT YEARS 2002-03 & 2003-04. THE LD. CO UNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT TPO HAS ACCEPTED THE DIRECTIONS OF THIS TRIBUNAL AND ACCORDINGLY NO ADJUSTMENTS HAVE BEEN P ROPOSED IN UCB INDIA PVT. LTD. 23 SUBSEQUENT YEARS I.E. 2010-11, 2011-12 & 2012-13. THUS HE SUBMITS THAT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION CU P METHOD SHOULD BE REJECTED AND TNMM SHOULD BE CONSIDERED AS THE MOST APPROPRIATE METHOD FOR BENCH MARKETING THE INTERNAT IONAL TRANSACTION WITH ITS AE. 24. THE LD. DEPARTMENTAL REPRESENTATIVE REFERRING T O PARA-88A OF TRIBUNALS ORDER SUBMITS THAT THE TRIBUNAL OPINED T HAT ASSESSEE WAS IN ERROR IN COMPARING THE OPERATIONAL MARGIN AT ENT ITY LEVEL AND TERMING IT AS TRANSACTION NET MARGIN METHOD. IT WA S ALSO HELD THAT CUP METHOD BY THE REVENUE CANNOT BE CONSIDERED AS T HE MOST APPROPRIATE METHOD THEREFORE THE MATTER WAS REMANDE D TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE TH E APPROPRIATE METHOD. IT WAS FURTHER HELD THAT ASSESSEE IS FREE TO ADOPT ANY METHOD AS PRESCRIBED BY LAW IF IT CONSIDERS THAT METHOD AS THE MOST APPROPRIATE METHOD. TNMM MAY ALSO BE CONSIDERED IF THE TRANSACTION OR A CLASS OF TRANSACTION ARE PROPERTY EVALUATED IN ACCORDANCE WITH LAW AND THE ASSESSING OFFICER MAY ACCEPT INTERNAL C OMPARABLES INCLUDING SEGMENTAL DATE OR INTERNAL TNMM IN CASE E XTERNAL COMPARABLES ARE NOT AVAILABLE DUE TO LACK OF DATE I N PUBLIC DOMAIN. THEREFORE HE SUBMITS THAT SIMILAR DIRECTION MAY BE GIVEN. 25. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITS THAT ASSESSEE HAS FURNISHED SEGMENTAL DATE BEFORE THE LD. CIT(A) AND CIT(A) DISCUSSED THESE DETAILS AND REMAND REPORT IS ALSO C ALLED FROM TPO AND CONSIDERING THE REMAND REPORT AND THE SEGMENTAL RESULTS FILED BY THE ASSESSEE, THE LD. CIT(A) ACCEPTED THE TNMM METH OD IS THE MOST APPROPRIATE METHOD AND DELETED THE ADJUSTMENT AND T HEREFORE PRAYS FOR SUSTAINING THE ORDER OF THE LD. CIT(A). UCB INDIA PVT. LTD. 24 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE, THE TRIBUNAL FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 REJECTED CUP METHOD AND C ONSIDERED SEGMENTAL TNMM METHOD AS THE MOST APPROPRIATE METHO D DIRECTED THE ASSESSING OFFICER TO EXAMINE THE EXTERNAL COMPA RABLES AND IN THE ABSENCE OF SUCH COMPARABLES TO ACCEPT INTERNAL COMP ARABLES INCLUDING SEGMENTAL DATA OR INTERNAL TNMM AND ADJUD ICATE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING ADEQUATE OPPORT UNITY TO THE ASSESSEE. IT IS THE SUBMISSION OF THE ASSESSEE THA T ORDER GIVING EFFECT WAS PASSED BY THE TPO GRANTING RELIEF AS PER THE DI RECTIONS OF THE ITAT FOR THE ASSESSMENT YEARS 2002-03 AND 2003-04 A ND SUCH ORDER IS PLACED AT PAGE-183 TO 188 OF THE PAPER BOOK. IT IS THE SUBMISSION THAT SEGMENTAL DATA HAS BEEN PROVIDED AND CONSIDERI NG THE SAME EFFECT ORDER WAS PASSED FOR THE YEAR UNDER CONSIDER ATION ALSO. WE FIND FROM THE ORDER OF THE LD. CIT(A) THAT REMAND REPORT WAS CALLED FOR BY THE LD. CIT(A) AND CONSIDERING THE REMAND RE PORT AND DIRECTIONS OF THE DRP FOR THE ASSESSMENT YEARS 2006 -07 AND 2008- 09, THE LD. CIT(A) HELD THAT ASSESSEES MARGIN IS Q UITE HIGH AS COMPARED TO ARITHMETICAL MEAN MARGIN OF THE COMPARA BLES AND THEREFORE ADJUSTMENT MADE BY THE ASSESSING OFFICER/ TPO BEING CUP AS MOST APPROPRIATE METHOD IS DIRECTED TO BE CHANGE D FOLLOWING THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FO R ASSESSMENT YEAR 2002-03 AND 2003-04. THE LD. CIT(A) FURTHER HELD T HAT ASSESSING OFFICER/TPO WOULD BE AT LIBERTY TO FACTUALLY VERIFY THE BENCHMARKING ANALYSIS CARRIED OUT BY THE ASSESSEE UNDER TNMM ON TRANSACTION TO TRANSACTION BASIS IN CONSONANCE WITH DIRECTIONS OF ITAT WHILE GIVING EFFECT TO THIS ORDER OF THE LD. CIT(A). WHILE HOLD ING SO, THE LD. CIT(A) OBSERVED AS UNDER: UCB INDIA PVT. LTD. 25 SINCE THE FACTS WERE IDENTICAL IN THIS YEAR ALSO, THE MATTER AS STATED ABOVE WAS REFERRED TO THE AO/TPO TO VERIF Y THE MATERIAL SUBMITTED BY THE APPELLANT AS TO WHETHER T HE TRANSACTIONS OF IMPORT OF APIS (I.E. THE MARGINS OF FDF SEGMENT) MEET THE ARM'S LENGTH TEST. IN REMAND REPORT THE A.O. STATED THAT THE APPELLANT HAS INCORPORATED THE OTHER INCOME ON SALE RATIO OF FDF ON TOTAL SALES AND IF THE SAME IS EXCLUDED THE OPERATING MARGIN OF FDF GOES DOWN AT 28.42%. THE AO/TPO FURTHER STATED THAT THE COMPUTATION OF OPERATING MARGIN FOR FDF SEGMENTS WH ICH HAS ADOPTED THE COST OF GOODS SOLD ON THE BASIS OF CONS UMPTION RATIO OF RAW MATERIALS BY FDF SEGMENT TO TOTAL SEGMENT CO ULD NOT BE VERIFIED. IT WAS ALSO STATED THAT AGAINST ALL THESE EXPENSES HAVE BEEN APPORTIONED ON THE BASIS OF SALE RATIO. EXPLAI NING THIS THE APPELLANT STATED THAT THE STATEMENT WAS FACTUALLY I NCORRECT SINCE THE RAW MATERIAL WAS ALLOCATED ON DIRECT BASIS WHIL E ONLY COMMON OPERATING EXPENSES WERE APPORTIONED IN RAW M ATERIAL CONSUMPTION RATIO. IT WAS FURTHER STATED THAT EVEN IF IT IS TAKEN ON SALES RATIO THE MARGIN GOES TO 28.42%. THE APPELLANT FURTHER STATED THAT IT HAS SUBMITTED SEGMENTAL MARGIN ANALYSIS COMPUTED USING SAME METHO DOLOGY IN TRANSFER PRICING STUDY IN AS A. Y.S 2005-06 UPTO 20 08-09 WHICH HAS BEEN ACCEPTED BY THE TPO AND HENCE THERE SHOULD NOT BE ANY OBJECTION BY HIM IN THIS REGARD. REGARDING COMPUTAT ION OF MARGIN ON COMPARABLE AO HAS SHOWN ARITHMETICAL MEAN 6.41% IN 22 COMPARABLES AND THEREAFTER SUGGESTED EXCLUSIO N OF FEW COMPARABLES WHOSE OPERATING REVENUE ARE VERY LESS A ND ALSO LOSS MAKING COMPANIES. EVEN IF THESE COMPANIES ARE EXCLU DED ARITHMETIC MEAN WORKS OUT TO 8.42% AGAINST WHICH AP PELLANT HAD ARITHMETICAL MEAN OF 28.42% EXCLUDING OTHER OPE RATING INCOME AND HENCE THE INTERNATIONAL TRANSACTION ENTE RED MEETS ARM'S LENGTH TEST. REGARDING NON SUBMISSION OF SCRE EN SHOT FOR COMPUTING THE FRESH' SEARCH IT WAS STATED BY THE AP PELLANT THAT SAME WERE SUBMITTED AS PER LETTER DATED 21.01.2011 BEFORE THE TPO. EVEN OTHERWISE THE SEARCH WAS CONDUCTED ON PRO WESS DATA AND CAPITALINE WHICH WAS ACCESSIBLE BY THE TPO AS W ELL. REGARDING TPO'S OBJECTION FOR NON SPECIFICATION OF PERCENTAGE OF RPT THE APPELLANT STATED THAT FOR COMPUTING OF COMP ARABLE UCB INDIA PVT. LTD. 26 COMPANIES, COMPANIES IN RELATED PARTY TRANSACTION H AVE ALREADY BEEN REJECTED AND HENCE THE OBSERVATION WAS NOT COR RECT. SINCE CUP METHOD WAS REJECTED BY HON'BLE IT AT AND ALSO OBJECTED TO BY TPO IN REMAND, SAME IS NOT BEING CON SIDERED. ACCORDINGLY OBJECTION RAISED BY TPO UNDER RULE 46A IS NOT RELEVANT. FOR EVIDENCE RELATING TO TNMM NO OBJECTIO N WAS RAISED BY TPO. ACCORDINGLY IN VIEW OF SUBMISSION VIDE DATE D 20.07.2011 AND CASE LAWS REFERRED TO THEREIN, SAME IS ADMITTED . THE DRP VIDE ORDER 20.09.2010 IN A.Y. 2006-07 RELYI NG UPON THE JUDGEMENT OF HON'BLE ITAT HAVE ACCEPTED THE TRANSAC TIONAL COMPUTATION MADE BY THE ASSESSEE UNDER TNMM AND REJ ECTED THE CUP METHOD AND DELETED ADJUSTMENT MADE UNDER CUP ME THOD. SIMILAR DIRECTIONS WERE GIVEN IN A.Y. 2008-09 ALSO BY DRP VIDE ORDER DATED 30-07.2012. THE OBSERVATION OF DRP IS R EPRODUCED AS UNDER :- 'WE HAVE GONE THROUGH THE ORDERS OF THE ITAT FOR THE A. Y 2002-03 AND 2003-04 AND THE TRANSFER PRICI NG REPORT OF THE ASSESSEE, DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE DURING THE YEAR HAS MAD E TRANSACTION WISE COMPARABILITY ANALYSIS IN THE TRAN SFER PRICING REPORT. THE TPO WITHOUT TAKING INTO CONSIDE RATION THE DIRECTIONS OF THE ITAT IN ASSESSEE'S OWN CASE F OR THE A.Y 2002-03 AND 2003-04 STILL FOLLOWED THE APPROACH OF THE THEN TPO AND APPLIED CUP METHOD TO BENCHMARK THE TRANSACTION OF IMPORT OF AP1 FROM AES. THE TPO HAS COMPLETELY IGNORED THE FACT THAT DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE HAD NOT FOLLOWED THE EN TITY LEVEL COMPARABILITY UNDER TNMM, BUT HAS BENCHMARKED EVERY TRANSACTION SEPARATELY UNDER TNMM IN VIEW OF THE ABOVE, THE ADJUSTMENT MADE BY THE TPO/AO USING CUP AS THE MAM, IS DIRECTED TO BE CHANGED FOLLOWING THE DE CISION OF THE ITAT IN ASSESSEE'S OWN CASE FOR THE A. Y 200 2-03 AND 2003-04. THE TPO/AO ARE AT LIBERTY TO VERIFY THE BENCHMARKING ANALYSIS DONE BY THE ASSESSEE UNDER TH E TNMM ON TRANSACTION BY IN CONSONANCE WITH THE DIREC TIONS OF THE 1TAT IN THE EARLIER YEARS, WHILE GIVING EFFE CT TO THESE DIRECTIONS. AS THE ADJUSTMENT PROPOSED BY THE TPO USING CUP AS THE MAM HAS ALREADY BEEN DIRECTED TO BE DELE TED, UCB INDIA PVT. LTD. 27 THE OTHER OBJECTIONS RAISED BY THE ASSESSEE BECOME INFRUCTUOUS. FROM THE ABOVE IT IS NOTED THAT HON'BLE ITAT HAD DI RECTED TO CARRY OUT THE TRANSACTION WISE ANALYSIS WHICH HA S BEEN CARRIED OUT IN THIS YEAR ALSO BY THE ASSESSEE, VERIFIED BY TPO AND WHICH HAS BEEN ANALYSED IN THE PRECEDING PARAGRAPHS. CUP METHOD WAS NOT APPROVED BY THE HON'BLE ITA T FOLLOWING WHICH A ND ALSO ON THE BASIS OF THE OBJECTION RAISED BY THE TPO IN REM AND REPORT THE CUP METHOD IS REJECTED. UNDER TNMM ALL THE OBJECTIO NS RAISED BY THE TPO IN HIS REMAND REPORT HAVE BEEN ADDRESSED BY THE APPELLANT AS DISCUSSED ABOVE AND ACCORDINGLY IT IS HELD THAT THE APPELLANT'S MARGIN IS QUITE HIGH AS COMPARED TO ARI THMETICAL MEAN MARGIN OF THE COMPARABLES AND HENCE THE ADJUST MENT MADE BY THE AO/TPO BEING CUP AS MAM IS DIRECTED TO BE CHANGED FOLLOWING THE DECISION OF THE HON'BLE ITAT IN APPELLANT'S OWN CASE FOR A.Y. 2002-03 AND 2003-04. HOWEVER, THE ASSESSING OFFICER/TPO WOULD BE AT LIBERTY TO FACTUALLY VERIFY THE BENCHMARKING ANALYSIS CARRIED OUT BY THE APPELLANT UNDER TNMM ON TRANSACTION TO TRANSACTION BASIS IN CONSONA NCE WITH DIRECTIONS OF IT A T WHILE GIVING EFFECT TO THIS OR DER. THIS GROUND OF APPEAL IS THEREFORE ALLOWED SUBJECT TO VERIFICAT ION AS ABOVE. AS SEEN FROM THE ABOVE, THE LD. CIT(A) ADOPTED THE DIRECTIONS GIVEN BY THE DRP FOR THE ASSESSMENT YEAR 2006-07 AN D 2008-09 FOR THE YEAR UNDER CONSIDERATION TO CHANGE THE METHOD F OLLOWING THE DECISION OF THE ITAT. THE ABOVE FINDINGS HAVE NOT BEEN REBUTTED BY THE REVENUE, WE DO NOT FIND ANY INFIRMITY IN THE OR DER PASSED BY THE LD. CIT(A) FOR THE YEAR UNDER CONSIDERATION ALSO. 27. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 6682/M/2013 A.Y. 2005-06 ASSESSEES APP EAL 28. THE FIRST GROUND OF APPEAL IN ASSESSEES APPEAL IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF SALES PROMOTION EXPENSES INCURRED BY THE APPELLANT TO THE TUNE OF R S. 11,94,376/- BY UCB INDIA PVT. LTD. 28 CONSIDERING THE SAME AS NOT HAVING BEEN INCURRED FOR THE APPELLANTS BUSINESS. 22. THIS ISSUE IS IDENTICAL WITH THE ISSUE IN GRO UND NO.1 IN ITA NO. 6681/M/13 FOR ASSESSMENT YEAR 2004-05 FROM PARA 2 T O 7. THEREFORE, ON SIMILAR LINES AND FOR SIMILAR REASONS , THE GROUND RAISED BY THE ASSESSEE IN ITA NO. 6682/M/13 FOR ASSESSMENT YEAR 2005-06 IS ALLOWED. 23. THE SECOND GROUND IN ASSESSEES APPEAL IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS. 31,56,446/- BY CONSIDERING E- CONNECTIVITY CHARGES AS AN EXPENSE INCURRED FOR ACQ UIRING SOFTWARE AND RESULTING IN BENEFIT OF ENDURING NATURE AND THE REBY CLASSIFYING THE EXPENSES AS CAPITAL EXPENDITURE. 24. THIS ISSUE IS IDENTICAL WITH THE ISSUE IN GRO UND NO.4 IN ITA NO. 6681/M/13 FOR ASSESSMENT YEAR 2004-05 FROM PARA 17 TO 20.1. THEREFORE, ON SIMILAR LINES AND FOR SIMILAR REASONS , THE GROUND RAISED BY THE ASSESSEE IN ITA NO. 6682/M/13 FOR ASSESSMENT YEAR 2005-06 IS ALLOWED. 25. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ITA NO. 6455/M/2013 A.Y. 2005-06 REVENUES APPE AL 26. THE ONLY GROUND IN REVENUES APPEAL IS WITH RES PECT OF TRANSFER PRICING ADJUSTMENT. 27. THIS ISSUE IS IDENTICAL WITH THE ISSUE IN GRO UND NO.1 IN ITA NO. 6454/M/13 FOR ASSESSMENT YEAR 2004-05 FROM PARA 22 TO 26. THEREFORE, ON SIMILAR LINES AND FOR SIMILAR REASONS , THE GROUND RAISED UCB INDIA PVT. LTD. 29 BY THE REVENUE IN ITA NO. 6455/M/13 FOR ASSESSMENT YEAR 2005-06 IS ALLOWED. ITA NO. 6558/M/2013 A.Y. 2007-08 ASSESSEES APP EAL 28. THE ONLY GROUND IN ASSESSEES APPEAL IS THAT TH E LD. CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS. 20,91,600/- BY CONSIDERING E- CONNECTIVITY CHARGES AS AN EXPENSE INCURRED FOR ACQ UIRING SOFTWARE AND RESULTING IN BENEFIT OF ENDURING NATURE AND THE REBY CLASSIFYING THE EXPENSES AS CAPITAL EXPENDITURE. 29. THIS ISSUE IS IDENTICAL WITH THE ISSUE IN GRO UND NO.4 IN ITA NO. 6681/M/13 FOR ASSESSMENT YEAR 2004-05 FROM PARA 17 TO 20.1. THEREFORE, ON SIMILAR LINES AND FOR SIMILAR REASONS , THE GROUND RAISED BY THE ASSESSEE IN ITA NO. 6682/M/13 FOR ASSESSMENT YEAR 2005-06 IS ALLOWED. ITA NO. 6456/M/2013 A.Y. 2007-08 REVENUES APPE AL 30. THE ONLY GROUND IN REVENUES APPEAL IS WITH RES PECT OF TRANSFER PRICING ADJUSTMENT. 31. THIS ISSUE IS IDENTICAL WITH THE ISSUE IN GRO UND NO.1 IN ITA NO. 6454/M/13 FOR ASSESSMENT YEAR 2004-05 FROM PARA 22 TO 26. THEREFORE, ON SIMILAR LINES AND FOR SIMILAR REASONS , THE GROUND RAISED BY THE REVENUE IN ITA NO. 6455/M/13 FOR ASSESSMENT YEAR 2005-06 IS ALLOWED. 32. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IN ITA NOS. 6454/M/13 FOR A.Y. 2004-05, 6455/M/13 FOR A.Y. 2005 -06 & UCB INDIA PVT. LTD. 30 6456/M/13 FOR A.Y. 2007-08 ARE DISMISSED AND THE AP PEALS FILED BY THE ASSESSEE IN ITA NO. 6681/M/13 FOR A.Y. 2004-05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND ITA NOS. 6682/M /13 FOR A.Y. 2005-06 & 6558/M/13 FOR A.Y. 2007-08 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MAY, 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER # $' /JUDICIAL MEMBER MUMBAI; '' DATED : 18 TH MAY, 2016 . $ . ./ RJ , SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ( ) / THE CIT(A)- 4. ( / CIT 5. )* +$$,- , ,-! , / DR, ITAT, MUMBAI 6. + ./0 / GUARD FILE. / BY ORDER, )$ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI