M/s.FCI OEN Connectors Ltd, Cochin V. The ACIT, Cochin

ITA 70/COCH/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4031 (ITAT-COCHIN)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 08-11-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 12-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHANTOM BOSE
• Assessee Lawyers: SATHYANARAYANAN
• Keywords: Depreciation; Transfer pricing; International transaction; Additional depreciation; Working capital adjustments; Unabsorbed depreciation
• Section: 143(3); 14A; 32

Judgement Text

IT(TP)A 70/C/2016 & SP NO.08/C/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH KOCHI BEFORE S/SHRI B P JAIN, AM & GEORGE GEORGE K, JM IT (TP)A NO. 70/COCH/2016 (ASST YEAR 2011 - 12 ) & STAY PETIION NO. 08/COCH/2016 FCI OEN CONNECTORS LTD TRIPUNITHURA ROAD THYKOODAM COCHIN 19 VS THE ASST COMMR OF INCOME TAX CORPORATE CIRCLE 1(1) KOCHI ( APPELLANT /APPLICANT ) (RESPONDENT) PAN NO. AAACO2006R ASSESSEE BY SH SATHYANARAYANAN REVENUE BY SH SHANTOM BOSE, CIT - DR DATE OF HEARING 8 TH NOV 2 016 DATE OF PRONOUNCEMENT 26 TH DEC 2016 ORDER PER GEORGE GEORGE K,JM: THIS APPEAL, AT THE INSTANCE OF THE ASSESSEE, IS DIRECTED AGAINST THE ASSESSMENT ORDER DATED 14.1.2016 PASSED U/S 143(3) RWS 144C OF THE I T ACT. THE RELEVANT ASSESSMENT YEAR IS 2011 - 12. THE ASSESSEE HAS ALSO FILED STAY P ETITION SEEKING STAY OF RECOVERY OF OUTSTANDING TAX ARREARS AMOUNTING TO RS 17,41,32,510/ - . 2 BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF CONNECTORS AND VARIOUS TYPES OF TOOLS. THE ASSES SEE COMPANY HAD TWO DIVISIONS NAMELY, CONNECTOR DIVISION AND TOOLING DIVISION. IT IS A SUBSIDIARY OF FCI FRANCE WHICH HOLDS 97.68% OF ITS IT(TP)A 70/C/2016 & SP NO.08/C/2016 2 EQUITY SHARES. FOR THE ASSESSMENT YEAR 2011 - 12, THE RETURN OF INCOME WAS FILED DECLARING THE TOTAL INCOME AT RS. 10 ,03,88,888/ - . REFERENCE U/S 92CA(1) OF THE I T ACT WAS MADE TO THE TPO TO DETERMINE ARMS LENGTH PRICE (A L P ) IN RELATION TO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES (AE S) , AS REPORTED IN FORM NO.3CEB. THE TPO, VIDE ORDER DATED 28.1.2015 U /S 92CA(3) OF THE I T ACT HAD MADE THE FOLLOWING UPWARD TRANSFER PRICING ADJUSTMENTS: I ) CONNECTOR DIVISION RS. 26,07,24,126 II ) TOOLING DIVISION RS. 5,07,58,397 III ) PAYMENT TO PATENT COST RS. 75,53,314 TOTAL RS. 31,90,35,837 2.1 PURSUANT TO THE RECEIPT OF THE TPOS ORDER, THE ASSESSING OFFICER HAD PASSED A DRAFT ASSESSMENT ORDER WHICH HAD INCORPORATED THE TRANSFER PRICING ADJUSTMENTS MADE BY THE TPO AND IN ADDITION, THE ASSESSING OFFICER HAD MADE THE FOLLOWING DISALLOWANCES/ADDITIONS: I) ADDITIONAL DEPRECIATION FOR WHICH 50% OF THE ADDITIONAL DEPRECIATION WAS ALLOWED IN AY 2010 - 11 .. 94,05,185 II) THE ASSESSING OFFICER DISALLOWED AMOUN TS U/S 14A RWR 8D .. 13,65,688 2.2 AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DRP CONFIRMED THE DRAFT ASSESSMENT ORDER AND THE FINAL ASSESSMENT ORDER W AS PASSED AS PER THE DIRECTION S OF THE DRP. 3 AGGRIEVED BY THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S 144C OF THE ACT, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US , RAISING THE FOLLOWING GROUNDS: IT(TP)A 70/C/2016 & SP NO.08/C/2016 3 1. THE LD.DRP/AO/TPO WENT WRONG IN MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT IN THE CONNECTOR DIVISION AMOUNTING TO RS.26,07,24,126/ - . THE LD.DRP ERRED IN DISREGARDING WRITTEN SUBMISSIONS FILED AND THE EXPLANATIONS/INFORMATION FURNISHED AT THE TIME OF HEARING. A) THE LD.AO/TPO/DRP ERRED IN MENTIONING THAT THERE EXISTS MISMATCHES IN THE SALES OF THE CONNECTOR DIVISION WHEREAS THERE IS NO DIFFERENCE IN THE SALES DISCLOSED AS PER THE AUDITED STATEMENTS RELATING TO THE CONNECTOR DIVISION. B) THE LD.AO/TPO/DRP WENT WRONG IN DISREGARDING INTERNAL TNMM FOR DETERMINING THE ARMS LENGTH P RICE OF TRANSACTIONS WITH ASSOCIATED ENTERPRISES. C) THE LD.AO/TPO/DRP WENT WRONG IN ADOPTING THE RESULTS OF THE COMPANIES WHICH ARE NOT EVEN BROADLY COMPARABLE WITH THE APPELLANT COMPANY. D) THE LD.AO/TPO/DRP ERRED IN NOT MAKING WORKING CAPITAL ADJUST MENTS FOR COMPUTING THE PLI OF COMPARABLE COMPANIES. E) THE LD.AO/TPO/DRP WENT WRONG IN NOT CONSIDERING SALE OF UNUSED RAW MATERIALS ACCOUNTED AS SCRAP AS A DEDUCTION IN RAW MATERIAL CONSUMPTION. THEY ERRED IN NOT CONSIDERING IT AS PART OF THE OPERATING INCOME. F) THE LD.AO/TPO/DRP WENT WRONG IN CONSIDERING RECEIPT FROM SALE OF EXPORT ENTITLEMENTS AS PART OF OPERATING INCOME. 2. THE LD.DRP/AO/TPO WENT WRONG IN MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT IN THE TOOLING DIVISION AMOUNTING TO RS.5,07,58 ,397/ - . THE LD.DRP ERRED IN DISREGARDING WRITTEN SUBMISSIONS FILED AND THE EXPLANATIONS/INFORMATION FURNISHED AT THE TIME OF HEARING. A) THE LD.DRP/AO/TPO ERRED IN DISREGARDING THE TP STUDY CONDUCTED BY THE APPELLANT FOR THE REASON THAT THERE IS SOME CLE RICAL ERROR IN ACCOUNTING THE SALES. THE APPELLANT HAD FILED REVISED/RECTIFIED STATEMENTS WITHOUT THE CLERICAL CLASSIFICATION ERROR BEFORE THE AO AND THE DRP WHICH HAS NOT BEEN CONSIDERED. B) THE LD.DRP/AO/TPO HAS NOT CONSIDERED THE SIGNIFICANT FACTOR RE LATING TO LOWER CAPACITY UTILIZATION WHILE RECKONING THE ALP OF THE TOOLING DIVISION UNDER THE TNMM. C ) THE LD.DRP/AO/TPO ERRED IN MAKING COMPARISON WITH TOTALLY UN - COMPARABLE COMPANIES. THE NATURE OF BUSINESS AND VOLUME OF TRANSACTIONS OF THE COMPARABLE COMPANIES ARE NOT AT ALL COMPARABLE WITH THAT OF THE APPELLANT. IT(TP)A 70/C/2016 & SP NO.08/C/2016 4 3. (A) THE LD.DRP/AO/TPO WENT WRONG IN MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT OF PATENT COST AMOUNTING TO RS.75,53,314/ - . THE AMOUNT OF PATENT COST WAS CORRECTLY COMPUTED AND HENCE O UGHT TO HAVE BEEN ALLOWED. (B) IF FOR ANY REASON, THE ADDITION OF RS.75,53,314/ - IS SUSTAINED IN THE AY 2011 - 12, THE SAID AMOUNT IS TO BE DEDUCTED IN AY 2012 - 13 U/S 41(1) OF THE IT ACT. THE APPELLANT HAS WRITTEN BACK IN THE IT RETURN THE SAID AMOUNT IN T HE AY 2012 - 13 (AS REDUCTION OF THE PATENT COST OF AY 2012 - 13) AND HENCE HAS OFFERED THE SAME FOR ASSESSMENT IN AY 2012 - 13 U/S 41(1) OF THE I.T ACT. THE ASSESSING OFFICER MAY BE DIRECTED TO DELETE THE SAME IN THE AY 2012 - 13 TO AVOID DOUBLE TAXATION. 4. TH E LD.AO/DRP WENT WRONG IN NOT ALLOWING ADDITIONAL DEPRECIATION OF RS.94,05,185/ BEING BALANCE 10% OUT OF ADDITIONS MADE TO PLANT AND MACHINERY DURING THE SECOND HALF OF THE AY 2010 - 11. IT IS NOW WELL SETTLED THAT THE SAID ADDITIONAL DEPRECIATION CLAIMED I S ALLOWABLE. 5. THE LD.AO/DRP WENT WRONG IN MAKING AN UPWARD TRANSFER PRICING ADJUSTMENT IN RESPECT OF SECTION 14A R.W.S. 8D OF THE I.T ACT AMOUNTING TO RS.13,65,688/ - . HAVING REGARD TO THE FACTS OF THE APPELLANT, NO ADDITION OUGHT TO HAVE BEEN MADE. 6 . FOR THESE AND OTHER GROUNDS THAT MAY BE FURTHER ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE LD.DRP RE QUIRES TO BE MODIFIED SUITABLY. 4 WE SHALL FIRST TAKE - UP FOR ADJUDICATION THE T RANSFER PRICING ISSUES. A. TRANSFER PRICING ISSUES: 5 FIRST GROU ND RELATING TO UPWARD REVISION OF CONNECTOR DIVISION AMOUNTING TO RS.26,07,24,126/ - 5.1. THE UPWARD ADJUSTMENT HAS BEEN ARRIVED AT BY THE TPO AS UNDER: NET EXPORT SALES (NET OF FOREX LOSS) (A) 265,77,38,292 AVERAGE PLI OF COMPARABLE COM PANIES AS COMPUTED BY THE TPO 13.77% AVERAGE PLI OF THE APPELLANT AS COMPUTED BY THE TPO 3.56% DIFFERENCE IN PLI (B) 9.81% IT(TP)A 70/C/2016 & SP NO.08/C/2016 5 UPWARD ADJUSTMENT ON N ET EXPORT SALES (A X B) 26,07,24,126 5. 2 THE TPO MADE THE UPWARD REVISION FOR THE FOLLOWING REASONS: - I) MISMATCHES IN THE FIGURES OF EXPORT SALES AND LOCAL SALES AS PER FINANCIALS AND WORKINGS. I I . VOLUMES OF TRANSACTIONS TO TA KE IT UNDER INTERNAL TNMM IS INADEQUATE. 5 . 3 IN THE WRITTEN SUBMISSIONS IT WAS STATED THAT THE UPWARD REVISION MADE BY THE TPO IS AN ERROR FOR THE FOLLOWING REASONS: - T HE TPO COMPARED COMPANIES WHICH ARE NOT EVEN BROADLY COMPARABLE WITH THE ASSESSEE CO MPANY. - IT IS NOW WELL SETTLED THAT THE VOLUME OF TRANSACTIONS IS NOT INSIGNIFICANT. FURTHER THE TURNOVER TO NON AE - EXPORTS IS RS 34 CRORES IS NOT INSIGNIFICANT AGAINST RS. 235 CRORES TO AE - EXPORTS. - THE TPO HAS NOT MADE ANY ADJUSTMENT FOR WORKING CAPIT AL ADJUSTMENT BETWEEN THE APPELLANT COMPANY AND THE COMPARED ENTITIES. - SALE OF SCRAP AND EXPORT ENTITLEMENTS HAVE NOT BEEN CONSIDERED FOR COMPUTING THE PLI. 5. 4 HOWEVER, IN THE COURSE OF HEARING OF THE APPEAL, THE LD AR CONFINED H IS SUBMISSIONS TO THE F OLLOWING ISSUES: I) INTERNAL TNMM SHOULD BE ADOPTED; II) ASSESSEE SHOULD BE GRANTED WORKING CAPITAL ADJUSTMENT & III) RECEIPTS FROM SALE OF SCRAP AND EXPORT ENTITLEMENT SHOULD BE INCLUDED IN THE OPERATING PROFITS. INTERNAL TNMM SHOULD BE ADOPTED : 5.5 IT W AS SUBMITTED BY THE LD AR THAT T HE TPO OUGHT TO HAVE RELIED ON THE INTERNAL COMPARABLES AND OUGHT NOT TO HAVE ADOPTED EXTERNAL COMPANIES, WHICH ARE NOT EVEN IT(TP)A 70/C/2016 & SP NO.08/C/2016 6 BROADLY COMPARABLE. IT WAS SUBMITTED THAT T HE TPO HAS REJECTED THE INTERNAL COMPARABLE ONLY FOR THE REASON THAT THE VOLUME OF TRANSACTIONS WITH NON - AE IS NOT SIGNIFICANT , WHICH IS FACTUALLY AND LEGALLY INCORRECT. IT WAS SUBMITTED THAT THE SALES TO NON AE IS RS. 34 CRORES WHERE AS SALES TO AE IS RS.235 CRORES AND THEREFORE, IT IS NOT INSIGNIFICANT TO BE IGNORED. I T IS NOW LEGALLY WELL SETTLED THAT FOR ADOPTING INTERNAL COMPARABLES, VOLUME OF TRANSACTIONS NEED NOT BE CONSIDERED. THE LD DR SUPPORTED THE ORDER OF THE TPO. 5.5.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE A SSESSEE HAD USED THE INTERNAL TNMM METHOD FOR BENCH MARKING TRANSACTIONS WITH AE. THE TPO REJECTED THE INTERNAL TNMM METHOD ADOPTED BY THE ASSESSEE FOR THE BENCH MARKING TRANSACTIONS WITH AE SINCE THE VOLUME OF TRANSACTIONS WITH A NON AE IS NOT SIGNIFICAN T. FURTHER, THE TPO ALSO NOTICED THAT THERE IS INCONSISTENCY IN THE ASSESSEES TP STUDY WITH REGARD TO TRANSACTION OF SALE WITH AE AND NON AE. THE VIEW TAKEN BY THE TPO WAS CONFIRMED BY THE DRP. WE NOTICE THAT THE SALES TO THE NON AE IS INSIGNIFICANT AND IS AMOUNTING TO ONLY RS. 34 CRORES WHEREAS THE SALES TO AE IS AROUND 235 CRORES . F OR A PROPER BENCH MARKING OF ALP, THERE SHOULD BE ADEQUATE SALES TURNOVER FOR THE ASSESSEE WITH THE NON AE AND AE S . I N THE INSTANT CASE, SINCE THE SALES TURNOVER OF THE ASSESSEE WITH THE NON AE IS INSIGNIFICANT COMPARED TO THE OVERALL EXPORT TURNOVER OF THIS DIVISION, THE I NTERN AL TNMM ADOPTED BY THE ASSESSEE, ACCORDING TO US, HAS BEEN RIGHTLY REJECTED BY THE TPO. THEREFORE, THE GROUND NO. 1 (B) IS REJECTED. WORKING CAP ITAL: IT(TP)A 70/C/2016 & SP NO.08/C/2016 7 6 THE TPO HAS NOT MADE ANY ADJUSTMENT TO THE WORKING CAPITAL. ACCORDING TO THE ASSESSEE, T HIS WORKS OUT TO 2.60%. IT WAS SUBMITTED THAT A S PER RULE 10B(2}, FOR ENTERPRISE LEVEL COMPARISON, ASSETS SHOULD BE COMPARABLE. IT RULE 10B(1}(E}(III} READ WITH RULE 10B(2}(D} AND RULE 10B(3} ALLOWS WORKING CAPITAL ADJUSTMENTS FOR COMPUTATION OF ALP UNDER TNMM. IT WAS STATED THAT VARIOUS TRIBUNALS HAVE HELD THAT WORKING CAPITAL ADJUSTMENTS REQUIRED TO BE GRANTED. THE LD DR PRESENT WAS DULY HEARD. 6 .1 THE DRP REJ ECTED THE ASSESSEE S CONTENTION WITH REGARD TO GRANT OF WORKING CAPITAL ADJUSTMENT BY OBSERVING AS UNDER: 1.6 WORKING CAPITAL ADJUSTMENT AS A GENERAL RULE CANNOT BE GRANTED. IT HAS TO BE DEMONSTRATED IN THE FACTS OF THE CASE THAT BECAUSE OF FAVOURABLE W ORKING CAPITAL POSITION OR OTHERWISE OF THE SAME, THE PROFIT OF THE COMPARABLES IN THE OPEN MARKET WERE IMPACTED. THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDERED. THE WRITTEN SUBMISSION FILED ALONG WITH FORM 35A AND THE SUMMARY SUBMITTED DURING THE HEAR ING HAVE BEEN PERUSED. THE DETAILS PROVIDED BY THE ASSESSEE RELATING TO THE COMPARABLES ARE NOT SUPPORTED WITH SPECIFIC FACTUAL DETAILS AND EVIDENCE TO MAKE OUT A CASE FOR CONSIDERATION IN FAVOUR OF ITS CONTENTION. AS SUCH, THE CONTENTION FOR GRANTING WOR KING CAPITAL ADJUSTMENT CANNOT BE ACCEPTED. IN VIEW OF ABOVE, THIS PANEL FINDS THAT THE APPROACH OF THE TPO IS JUSTIFIED AND ACCEPTABLE. THE OBJECTIONS OF THE ASSESSEE ARE REJECTED. 6.2 WE NOTICE THAT THE ASSESSEE IN ITS TP STUDY HAS NOT GIVEN ADEQUATE D ETAILS FOR GRANT OF WORKING CAPITAL ADJUSTMENTS. MOREOVER, THE COMPARABLES SELECTED BY THE ASSESSEE HAS NOT BEEN GRANTED THE WORKING CAPITAL ADJUSTMENT. HENCE, THE TPO HAS RIGHTLY REJECTED THE CLAIM OF THE ASSESSEE TO GRANT WORKING CAPITAL ADJUSTMENT. IT I S ORDERED ACCORDINGLY. HENCE, GROUND NO.1(D) IS REJECTED. RECEIPTS FROM SALE OF SCRAP AND EXPORT ENTITLEMENT SHOULD BE INCLUDED IN THE OPERATING PROFITS. IT(TP)A 70/C/2016 & SP NO.08/C/2016 8 7 IT WAS SUBMITTED THAT RECEIPTS ON ACCOUNT OF S ALE OF SCRAP ITEMS AND EXPORT ENTITLEMENTS ARE FORMING PART OF THE OPERATING PROFIT. IT WAS STATED THAT T HE TPO HAS EXCLUDED THESE ITEMS FROM THE COMPUTATION OF OPERATING PROFITS OF THE ASSESSEE. IT WAS SUBMITTED THAT THE S CRAP GENERATION IS SIGNIFICANT HAVING REGARD TO THE NATURE OF OPERATIONS OF THE ASSESSE E. IT WAS CONTENDED THAT THE E XPORT ENTITLEMENTS ARE NOTHING BUT REALIZATION ON EXPORT SALES. IT WAS STATED THAT T HIS IS CLOSELY LINKED TO THE EXPORTS AND IS GIVEN AS AN INCENTIVE TO SUBSIDISE EXPORTERS BY GIVING REDUCTION IN CUSTOMS DUTY ON RAW MATERIALS . IT WAS CONTENDED THAT T HESE TWO ITEMS HAVE TO BE REDUCED FROM RAW MATERIALS CO ST. THE LD AR RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: I . TNS INDIA PRIVATE LTD. 57 TAXMANN.COM 165 II . WATSON PHARMA PRIVATE LIMITED 54 TAXMANN.COM 88 III . PETRO ARALDITE PRIVA TE LTD. 51 TAXMANN.COM 230 IV. GE BE (P) LTD. 42 TAXMANN.COM 554 V. ALFA LAVAL (INDIA) LTD. 46 TAXMANN.COM 394. 7.1 THE LD DR SUPPORTED THE ORDER OF THE TPO AND DRP. 7.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE DRP HAD REJECTED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER: 1.2 THE CONTENTION OF ASSESSEE FOR INCLUDING PROFITS FROM SALE OF SCRAPS AND EXPORT ENTITLEMENT BENEFIT AS PART OF OPERATING INCOME FROM THE EXPORT SEGMENT WAS NOT ACCEPTED BY THE TPO. SALE OF SCRAPS BEING ONE INCIDENTAL IS NOT PART OF THE MAIN BUSINESS OPERATION OF THE ASSESSEE. EXPORT ENTITLEMENT IS ONLY FROM THE INCENTIVE SCHEME OF THE GOVT. AND HAS NO RELATION WITH OPERATING INCOME OF THE ASSESSEE. THE TPO HAS RELIED ON ASSESSEE LAWS IN SUP PORT OF HIS DECISION. IN CONSIDERING THE ISSUE IN ALL ASPECTS, THIS PANEL FINDS THE ACTION TPO IS JUSTIFIED. 7.3 THE ASSESSEE, IN THE COURSE OF HEARING HAD SUBMITTED THAT SCRAP IS DIRECT OUTCOME OF THE MANUFACTURING PROCESS IT HAD UNDERTAKEN IN ITS CON NECTOR DIVISION AND IT(TP)A 70/C/2016 & SP NO.08/C/2016 9 THE SAME OUGHT TO HAVE BEEN REDUCED FROM THE COST OF RAW MATERIAL . IT WAS SUBMITTED THAT IT IS INEXTRICABLY CONNECTED WITH EXPORT TURNOVER AND IT IS A DIRECT BI - PRODUCT OF THE MANUFACTURING ACTIVITIES OF THE ASSESSEE S UNDERTAKEN. THE LD COUNSEL HAD SHOWN TO US THE SCRAP AND EXPLAINED HOW THE SAME IS BI - PRODUCT OF THE ASSESSEES MANUFACTURING ACTIVITIES. IT WAS PRAYED THAT THE RECEIPT ON ACCOUNT OF SALE OF THESE SCRAP SHOULD BE TAKEN AS OPERATING PROFITS. FURTHER, IT WAS SUBMITTED TH AT FOR THE SUBSEQUENT ASSESSMENT YEA R, DURING THE COURSE OF PROCEEDING BEFORE THE TPO FOR THE ASSESSMENT Y EAR 2013 - 14 , THERE WAS A PROPOSAL TO EXCLUDE THE SALE PROCEEDS OF SCRAP AND EXPORT ENTITLEMENTS PROFITS FROM THE OPERATING TURNOVER OF THE ASSESSEE A ND ON ASSESSEES OBJECTION, THE SAID PROPOSAL WAS DROPPED. A COPY OF THE TPOS ORDER DATED 28.10.2016 FOR THE AY 2013 - 14 WAS PLACED ON RECORD. 7.4 AS REGARDS THE SALE OF SCRAP, WE NOTICE THAT THE SCRAP IS THE BI - PRODUCT OF THE DIRECT MANUFACTURING, A ND PRIMA FACIE, WE ARE OF THE VIEW THAT THE SAME OUGHT TO HAVE BEEN REDUCED FROM THE RAW - MATERIAL COST . IF THE RECEIPTS ON ACCOUNT OF SALE OF SCARP GOES TO REDUCE, COST OF RAW MATERIALS, NEEDLESS TO SAY IT IS PART OF OPERATING PROFITS. SIMILARLY, THE EXPORT ENTITLEMENTS IS ALSO NOT H ING BUT REALIZATION OF EXPORT SALES AND IS CLOSELY LINKED TO THE EXPORT. THE ASSESSEE HAS PRODUCED THE TPOS ORDER FOR THE ASST YEAR 2013 - 14 WHEREIN THE TPO HAD ACCEPTED ASSESSEES TP STUDY INCLUDING THE RECEIPT ON ACCOUNT O F SALE OF SCRAP AND EXPORT ENTITLEMENT AS PART OF OPERATING PROFITS. THEREFORE, WE ARE OF THE VIEW THAT THIS MATTER NEEDS FRESH EXAMINATION BY THE TPO AND ACCORDINGLY WE REMIT THIS ISSUE TO THE TPO FOR DE - NOVA CONSIDERATION. THE TPO SHALL DISPOSE OF THE I SSUE AS EXPEDITIOUSLY AS POSSIBLE AFTER AFFORDING A REASONABLE IT(TP)A 70/C/2016 & SP NO.08/C/2016 10 OPPORTUNITY OF HEARING TO THE ASSESSEE. IT IS ORDERED ACCORDINGLY. IN THE RESULT, GROUND NO.1(E) & 1(F) ARE ALLOWED FOR STATISTICAL PURPOSE. 8 . SECOND GROUND RELATING TO UPWARD REVISION OF TO OLING DIVISION AMOUNTING TO RS. 5,07,58,397 / - . 8 .1. THE TPO HAS COMPUTED THE AV ERAGE PLI OF 7 COMPANIES CHOSEN AT 9.92%. A CCORDING TO THE TPO, THE PLI OF THE ASSESSEE IS NEGATIVE 37.83% AND THEREFORE, THE TPO MADE UPWARD REVISION OF 47.75% (37.83% + 9.9 2%) AMOUNTING TO RS.5,07,58,397/ - 8.2 THE ONLY ISSUE ARGUED BY THE LD AR OF THE ASSESSEE WAS THAT T HE TPO DISREGARDED THE LOWER CAPACITY UTILIZATION OF THE ASSESSEE'S PLANT. IT WAS CONTENDED THAT T HE TOOLING DIVISION HAD OPERATED ONLY AT 40% CAPACITY AND N O ADJUSTMENT HAS BEEN MADE FOR THIS FACTOR. I T WAS STATED THAT IF THIS FACT OR IS CONSIDERED THE PLI OF TOOLING DIVISION WILL BE 8.94% INSTEAD OF NEGATIVE 37.83% CALCULATED BY THE TPO . IT WAS CONTENDED THAT T HE OECD TRANSFER PRICING GUIDELINES FOR MULTIN ATIONAL ENTERPRISES AND TAX ADMINISTRATIONS, JULY 2010, PRESCRIBE THE MAKING OF ADJUSTMENTS TO ELIMINATE DIFFERENCES IN CAPACITY UTILIZATION OR IDLE CAPACITY ADJUSTMENTS. IT WAS SUBMITTED THAT RULE 10B(1)(E){III) OF THE INCOME - TAX RULES, 1962 ('THE RULES') STIPULATES THAT AN ADJUSTMENT TO THE NET PROFIT MARGIN CAN BE MADE FOR 'CAPACITY UNDER - UTILIZATION'. THE LD DR PRESENT WAS DULY HEARD. 8 .3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE DRP HAD REJECTED THE ABOVE CLAIM OF THE ASSESSEE BY OBSERVING AS FOLLOWS: IT(TP)A 70/C/2016 & SP NO.08/C/2016 11 2.2 THE OBJECTION OF THE ASSESSEE CLAIMING ADJUSTMENT FOR C APACITY UTILIZATION HAS BEEN CONSIDERED. IT WAS CLAIMED THAT THE TOOLING DIVISION IS OPERATING ONLY AT40% CAPACITY AND HENCE, AN ADJUSTMENT IS NECESSARY FOR C APACITY UNDERUTILIZATION. FOR AN ADJUSTMENT TO BE ALLOWED, IT IS TO BE EXHIBITED BY THE ASSESSEE THAT BECAUSE OF THE SPECIFIC FACTOR OR REASON THE COMPARABILITY ADVANTAGE OR DISADVANTAGE THE ASSESSEE IS FACING VIS - A - VIS THE COMPARABLES. DURING THE HEARING , THE AR OF THE ASSESSEE WAS ASKED WHETHER SIMILAR DATA IS AVAILABLE FOR THE COMPARABLES ON THE BASIS OF WHICH THE CLAIM OF THE ASSESSEE CAN BE CONSIDERED. HOWEVER, NO SUCH DATA COULD BE FURNISHED. THIS ADJUSTMENT CANNOT BE CLAIMED AS MATER OF ROUTINE, AS OBSERVED BY THE TPO, ESPECIALLY IN CASE OF A COMPANY WHICH HAS BEEN IN BUSINESS FOR SEVERAL DECADES, AND WITHOUT DEMONSTRATING HOW ITS CAPACITY UTILIZATION COMPARED WITH THAT OF THE INDUSTRY AS A WHOLE. THE ASSESSEE CANNOT CLAIM THAT UNDERUTILIZATION OF CA PACITY JUSTIFIED SALE OF GOODS TO AES AT LOWER PRICES. THUS, TPO HAS ALSO GIVEN COGENT REASONS AND JUSTIFICATION FOR REJECTING THE CLAIM OF ASSESSEE FOR THIS ADJUSTMENT. THEREFORE, IT WILL NOT BE POSSIBLE TO CONSIDER THIS OBJECTION OF THE ASSESSEE. 8. 4 W E NOTICE THAT THE TOOLING DIVISION OF THE ASSESSEE HAS BEEN IN OPERATION FOR MORE THAN TEN YEARS. THERE IS NO SPECIFIC REASON S GIVEN BY THE ASSESSEE AS TO WHY THE CAPACITY UTILIZATION IS ONLY AT 40% AND IT SHOULD BE GIVEN ADJUSTMENTS. NORMALLY ADJUSTMENT I S GIVEN FOR UNDERUTILIZATION OF CAPACITY WHEN THE UNIT IS IN ITS INFANCY, LOCKOUT DUE TO WORKERS UNREST, POWER CUTS ETC., IN THE INSTANT CASE, THE ASSESSEE HAS NOT STATED ANY SPECIFIC REASON FOR UNDERUTILIZATION OF ITS CAPACITY. MOREOVER THE ASSESSEE HAS N OT FURNISHED ANY DETAILS WITH REGARD TO THE CAPACITY UTILIZATION OF THE COMPARABLES . SINCE T HERE IS NO ADEQUATE INFORMATION AS REGARD TO THE CAPACITY UTILIZATION OF THE COMPARABLES; WE DEEM IT APPROPRIATE THAT NO ADJUSTMENT NEEDS TO BE GRANT ED FOR UND ERUTILIZATION OF ASSESSEES PLANT IN THE TOOLING DIVISION. IT IS ORDERED ACCORDINGLY. IN THE RESULT, THE GROUND NO.2 IS REJECTED. IT(TP)A 70/C/2016 & SP NO.08/C/2016 12 9 THIRD GROUND RELATING TO UPWARD TRANSFER PR ICING ADJUSTMENT OF PATENT COST RS 75,53,314 / - . 9 .1 THE TP O HELD THAT WHILE T HE TOOLING DIVISION WAS PART OF FCI TECHNOLOGY SERVICES DURING THE FINANCIAL YEAR 2009 - 10, NO PATENT WAS PAID BY THAT COMPANY. AFTER THE DEMERGER OF THE TOOLING DIVISION, IT IS NOW BEING PAID BY THE ASSESSEE COMPANY FCI DEN CONNECTORS LTD., WHICH IS IN VIO LATION OF THE AGREEMENT. 9 .2 THE ABOVE VIEW TAKEN BY THE TPO WAS CONFIRMED BY THE DRP AFTER NOTICING THAT THE ASSESSEE HAD OFFERED THIS AMOUNT OF RS. 75,53,314/ - IN THE SUBSEQUENT ASST YEAR I.E. A.Y 2012 - 13. THE LD AR REITERATED THE SUBMISSIONS MADE BEFOR E THE DRP. THE LD DR PRESENT WAS DULY HEARD. 9.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE NOTICE THAT FOR THE ASSESSMENT YEAR 2012 - 13, THE ASSESSEE HAD RETURNED BACK THIS AMOUNT OF RS. 75,53,314/ - AS NO MORE PAYABLE AND HAS OFFERED IT FOR TAXATION. HENCE, THE ASSESSEE HAS ACCEPTED THE DECISION OF THE TPO SINCE THE PATENT COST WAS NO MORE PAYABLE BY THE ASSESSEE. IF AT ALL WHAT HAS BEEN RETURNED IN THE ASSESSMENT YEAR 2012 - 13 , IS TO BE DELETED, THE ASSESSEE HAS TO MOVE A RECTIFICATION PETITION FOR AY 2012 - 13 AND NO DIRECTION CAN BE GIVEN BY US. IT IS ORDERED ACCORDINGLY. IN THE RE SULT , GROUND NO .3 IS REJECTED. B. CORPORATE TAX ISSUES: 10 FOURTH GROUND IN THE APPEAL MEMO RELATES TO THE GRAN T OF ADDITIONAL DEPRECIATION AMOUNTING TO RS. 94,05,185/ - IT(TP)A 70/C/2016 & SP NO.08/C/2016 13 10.1 FOR THE IMMEDIATELY PRECEDING YEAR I.E. ASSESSMENT YEAR 2010 - 11, THE ASSESSEE HAD ACQUIRED PLANT AND MACHINERY FOR WHICH ADDITIONAL DEPRECIATIO N AS ALLOWABLE UNDER THE STATUE WAS ALLOWED. HOWEV ER, SINCE THE ASSESSEE HAD USED THESE ASSETS FOR LESS THAN 180 DAYS, ADDITIONAL DEPRECIATION WAS GRANTED FOR THE ASSESSMENT YEAR 2010 - 11 ONLY @ 10%. THE BALANCE 10% (OUT OF THE TOTAL 20%), IT IS SUBMITTED THAT THE SAME IS ALLOWABLE FOR THE AY 2011 - 12. IT WAS SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF APOLLO TYRES LTD IN ITA NO.616/COCH/2011. THE LD DR PRESENT WAS DULY HEARD. 10.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AN IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF APPOLLO TYRES LTD (SUPRA) . THE RELEVANT FINDINGS OF THE TRIBUNAL READ AS FOLLOWS: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. SECTION 32(1)(IIA) READS AS FOLLOWS: 32(1)(IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UNDER CLAUSE (II): PROVIDED THAT NO DEDUCTION SHALL B E ALLOWED IN RESPECT OF (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTALLATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA BY ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODAT ION, INCLUDING ACCOMMODATION IN THE NATURE OF A GUEST - HOUSE; OR ( C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLES; OR (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPRECIATION OR OTHERW ISE) IN COMPUTING THE IT(TP)A 70/C/2016 & SP NO.08/C/2016 14 INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OF ANY ONE PREVIOUS YEAR. 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT, WHICH READS AS FOLLOWS: PROVIDE D FURTHER THAT WHERE AN ASSET REFERRED TO CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA), AS THE CASE MAY BE, IS ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSE OF BUSINESS OR PROFESSION FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THAT PREVIOUS YEAR, THE DEDUCTION UNDER THIS SUB - SECTION IN RESPECT OF SUCH ASSET SHALL BE RESTRICTED TO FIFTY PER CENT OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (I) OR CLAUSE (II) OR CLAUSE (IIA) AS THE CASE MAY BE. 11. A BARE READING OF THIS SECTION 32(1)(IIA) CLEARLY SAYS THAT IN CASE A NEW MACHINERY OR PLANT WAS ACQUIRED AND INSTALLED AFTER 31 - 03 - 2005 BY AN ASSESSEE, WHO IS ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCE OF ARTICLE OR THING, T HEN, A SUM EQUAL TO 20% OF THE ACTUAL COST OF THE MACHINERY AND PLANT SHALL BE ALLOWED AS A DEDUCTION. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS ACQUIRED AND INSTALLED THE MACHINERY AFTER 31 - 03 - 2005. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF ARTICLE OR THING. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION WHICH IS EQUIVALENT TO 20% OF THE ACTUAL COST OF SUCH MACHINERY. THE DISPUTE IS THE YEAR IN WHICH THE DEPRECIATION HAS TO BE ALLOWED. THE ASSESSEE HAS ALREADY CLAI MED 10% OF THE DEPRECIATION IN THE EARLIER ASSESSMENT YEAR SINCE THE MACHINERY WAS USED FOR LESS THAN 180 DAYS AND CLAIMING THE BALANCE 10% IN THE YEAR UNDER CONSIDERATION. SECTION 32(1)(IIA) DOES NOT SAY THAT THE YEAR IN WHICH THE ADDITIONAL D EPRECIATION HAS TO BE ALLOWED. IT SIMPLY SAYS THAT THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION EQUAL TO 20% OF THE COST OF THE MACHINERY PROVIDED THE MACHINERY OR PLANT IS ACQUIRED AND INSTALLED AFTER 31 - 03 - 2005. PROVISO TO SECTION 32(1)(IIA) SAYS THAT IF THE MACHINERY WAS ACQUIRED BY THE ASSESSING DURING THE PREVIOUS YEAR AND HAS PUT TO USE FOR THE PURPOSE OF BUSINESS LESS THAN 180 DAYS, THE DEDUCTION SHALL BE RESTRICTED TO 50% OF THE AMOUNT CALCULATED AT THE PRESCRIBED RATE. THEREFORE, IF THE MAC HINERY IS PUT TO USE IN ANY PARTICULAR YEAR, THE ASSESSEE IS ENTITLED FOR 50% OF THE PRESCRIBED RATE OF ADDITIONAL DEPRECIATION. THE INCOME - TAX ACT IS SILENT ABOUT THE ALLOWANCE OF THE BALANCE 10% ADDITIONAL DEPRECIATION IN THE SUBSEQUENT YEAR. TAKING ADVA NTAGE OF THIS POSITION, THE ASSESSEE NOW CLAIMS THAT THE YEAR IN WHICH THE MACHINERY WAS PUT TO USE THE ASSESSEE IS ENTITLED FOR 50% ADDITIONAL DEPRECIATION SINCE THE MACHINERY WAS PUT TO USE FOR LESS THAN 180 DAYS AND THE BALANCE 50% SHALL BE ALLOWED IN T HE NEXT YEAR SINCE THE ELIGIBILITY OF THE ASSESSEE FOR CLAIMING 20% OF THE ADDITIONAL DEPRECIATION CANNOT BE DENIED BY INVOKING SECOND PROVISO TO SECTION 32(1)(II) OF THE ACT. 12 THIS ISSUE WAS CONSIDERED BY THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE O F COSMO FILMS LTD (SUPRA). THE REVENUE HAS TAKEN A SIMILAR GROUND AS TAKEN BEFORE THIS TRIBUNAL THAT THE ASSESSEE CANNOT CARRY FORWARD THE ADDITIONAL DEPRECIATION TO BE ALLOWED IN THE SUBSEQUENT ASSESSMENT YEAR. THE DELHI BENCH OF THIS TRIBUNAL AFTER CONSI DERING THE PROVISIONS OF SECTION 32(1)(IIA) AND PROVISO TO SECTION 321)(II) OF THE ACT FOUND THAT WHEN THERE IS NO RESTRICTION IN THE ACT TO DENY THE BENEFIT OF BALANCE 50%, THE ASSESSEE IS ENTITLED FOR THE BALANCE ADDITIONAL DEPRECIATION IN THE SUBSEQUENT IT(TP)A 70/C/2016 & SP NO.08/C/2016 15 ASSESSMENT YEAR. IN FACT, THE DELHI BENCH OF THIS TRIBUNAL HAS OBSERVED AS FOLLOWS AT PAGES 641 AND 642 OF THE ITD: THUS, THE INTENTION WAS NOT TO DENY THE BENEFIT TO THE ASSESSEES WHO HAVE ACQUIRED OR INSTALLED NEW MACHINERY OR PLANT. THE SECOND PROV ISO TO SECTION 32(1)(II) RESTRICTS THE ALLOWANCES ONLY TO 50% WHERE THE ASSETS HAVE BEEN ACQUIRED AND PUT TO USE FOR A PERIOD LESS THAN 180 DAYS IN THE YEAR OF ACQUISITION. THIS RESTRICTION IS ONLY ON THE BASIS OF PERIOD OF USE. THERE I NO RESTRICTION THAT BALANCE OF ONE TIME INCENTIVE IN THE FORM OF ADDITIONAL SUM OF DEPRECIATION SHALL NOT BE AVAILABLE IN THE SUBSEQUENT YEAR. SECTION 32(2) PROVIDES FOR A CARRY FORWARD SET UP OF UNABSORBED DEPRECIATION. THIS ADDITIONAL BENEFIT IN THE FORM OF ADDITIONAL ALLO WANCE U/S 32(1)(IIA) IS ONE TIME BENEFIT TO ENCOURAGE THE INDUSTRIALIZATION AND IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LTD (SUPRA), THE PROVISIONS RELATED TO IT HAVE TO BE CONSTRUED REASONABLY, LIBERALLY AND PURPOSIVE TO MAKE THE PROVISION MEANINGFUL WHILE GRANTING THE ADDITIONAL ALLOWANCE. THIS ADDITIONAL BENEFIT IS TO GIVE IMPETUS TO INDUSTRIALIZATION AND THE BASIC INTENTION AND PURPOSE OF THESE PROVISIONS CAN BE REASONABLY AND LIBERALLY HELD THAT THE ASSESSEE DESERVE S TO GET THE BENEFIT IN FULL WHEN THERE IS NO RESTRICTION IN THE STATUTE TO DENY THE BENEFIT OF BALANCE OF 50% WHEN THE NEW MACHINERY AND PLANT WERE ACQUIRED AND USED FOR LESS THAN 180 DAYS. ONE TIME BENEFIT EXTENDED TO ASSESSEE HAS BEEN EARNED IN THE YEAR OF ACQUISITION OF NEW MACHINERY AND PLANT . IT HAS BEEN CALCULATED @15% BUT RESTRICTED TO 50% ONLY ON ACCOUNT OF USAGE OF THESE PLANT & MACHINERY IN THE YEAR OF ACQUISITION. IN SECTION 32(1)(IIA), THE EXPRESSION USED I SHALL BE ALLOWED. THUS, THE ASSESS EE HAD EARNED THE BENEFIT AS SOON AS HE HAD PURCHASED THE NEW MACHINERY AND PLANT IN FULL BUT IT IS RESTRICTED TO 50% IN THAT PARTICULAR YEAR ON ACCOUNT OF PERIOD USAGES. SUCH RESTRICTIONS CANNOT DIVEST THE STATUTORY RIGHT. LAW DOES NOT PROHIBIT THAT BALAN CE 50% WILL NOT BE ALLOWED IN SUCCEEDING YEAR. THE EXTRA DEPRECIATION ALLOWABLE U/S 32(1)(IIA) IN AN EXTRA INCENTIVE WHICH HAS BEEN EARNED AND CALCULATED IN THE YEAR OF ACQUISITION BUT RESTRICTED FOR THAT YEAR TO 50% ON ACCOUNT OF USAGE. THE SO EARNED INCE NTIVE MUST BE MADE AVAILABLE IN THE SUBSEQUENT YEAR. THE OVERALL DEDUCTION OF DEPRECIATION U/S 32 SHALL DEFINITELY NOT EXCEED THE TOTAL COST OF MACHINERY AND PLANT . IN VIEW OF THIS MATTER, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT TO EXT END THE BENEFIT. WE ALLOW GROUND NO.2 OF THE ASSESSEES APPEAL. SINCE WE HAVE DECIDED GROUND NO.2 IN FAVOUR OF ASSESSEE, THERE IS NO NEED TO DECIDE THE ALTERNATE CLAIM RAISED IN GROUND NO.3. THE SAME IS DISMISSED. 13. THIS ISSUE WAS ALSO CONSIDERED BY A NOTHER BENCH OF THIS TRIBUNAL AT DELHI IN SIL INVESTMENT LTD (SUPRA). AT PAGE 233 OF THE TTJ, THE TRIBUNAL HAS OBSERVED AS FOLLOWS: 40. THERE IS NOTHING ON RECORD TO SHOW THAT THE DIRECTIONS GIVEN BY THE LEARNED CIT(A) ARE NOT PROPER. THE ELIGIBILITY FOR DEDUCTION OF ADDITIONAL DEPRECIATION STANDS ADMITTED, SINCE 50 PER CENT THEREOF HAD ALREADY BEEN ALLOWED BY THE AO IN THE ASST.YR.2005 - 06, I.E. THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THEREFORE, OBVIOUSLY, THE BALANCE 50 PER CENT OF THE DEDUCTION IS TO BE ALLOWED IN THE CURRENT YEAR, I.E. ASST.YR. 2006 - 07. THE LEARNED CIT(A) HAS MERELY DIRECTED THE VERIFICATION OF THE CONTENTIONS OF THE ASSESSEE AND TO ALLOW THE BALANCE IT(TP)A 70/C/2016 & SP NO.08/C/2016 16 ADDITIONAL DEPRECIATION AFTER SUCH FACTUAL VERIFICATION. ACCORDINGLY, FINDING NO MER IT THEREIN, GROUND NO.3 RAISED BY THE DEPARTMENT IS REJECTED. 14. A SIMILAR VIEW WAS TAKEN BY MUMBAI BENCH OF THIS TRIBUNAL IN MITC ROLLING PVT LTD (SUPRA). IN VIEW OF THE ABOVE DECISIONS OF THE CO - ORDINATE BENCHES OF THIS TRIBUNAL ON IDENTICAL SET OF F ACTS THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE BALANCE 50% OF THE DEPRECIATION HAS TO BE ALLOWED IN THE SUBSEQUENT YEAR, THEREFORE, THE ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE ARE SET SIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE CLAIM OF BALANCE 50% ADDITIONAL DEPRECIATION IN THE YEAR UNDER CONSIDERATION. 10.3 IN VIEW OF THE DECISION OF THE COCHIN BENCH OF THE TRIBUNAL IN THE C ASE OF APOLLO TYRES LTD (SUPRA) WHICH IS IDENTICAL TO THE FACTS OF THE INSTANT CASE , WE DIRECT THE AS SESSING OFFICER TO GRANT ADDITIONAL DEPRECIATION OF BALANCE 10% FOR THE CURRENT ASSESSMENT YEAR NAMELY ASST.YEAR 2011 - 12. IT IS ORDERED ACCORDINGLY. IN THE RESULT, THE GROUND NO.4 IS ALLOWED . 1 1 FIFTH GROUND RELATES TO THE ADDITION MADE BY INVOKING P ROVISI ONS OF SECTION 14A R.W.R 8D OF THE I T RULES. 11.1 THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.1,38,62,144/ - WHICH WAS CLAIMED AS EXEMPT FROM INCOME TAX . THE ASSESSEE DID NOT SHOW ANY EXPENSES FOR EARNING THE DIVIDEND INCOME. THE PLEA OF THE ASSESSEE T HAT THERE WERE NO EXPENSES PERTAINING TO THE EARNING OF THE DIVIDEND INCOME , WAS NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 14A R.W.R 8D(III), COMPUTED THE DISALLOWANCE AMOUNTING TO RS. 13,65,688/ - . THE VIEW TAKEN BY THE ASSESSING OFFICER WAS CONFIRMED BY THE DRP. IT(TP)A 70/C/2016 & SP NO.08/C/2016 17 11.2 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. ON THE OTHER HAND, THE LD DR SUPPORTED THE ORDERS OF THE ASSESSING OFFICER AND THE DRP. 11.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN ADMITTED FACT THAT THERE WERE COMMON ADMINISTRATION EXPENSES FOR ALL BUSINESS ACTIVITIES INCLUDING THE INVESTMENT ACTIVITIES OF THE ASSES SEE. THE ASSESSEE INCURRED ROUTINE EXPENSES TO MAINTAIN ITS ESTABLISHMENT AND TOWARDS ADMINISTRATION . N ECESSARILY, A PORTION OF SAID EXPENDITURE HAS TO BE ATTRIBUTED FOR MANAGERIAL AND DIRECTORS REMUNERATION. M ANAGERIAL STAFF AND DIRECTORS ARE INVOLVED IN MAKING DECISIONS ON INVESTMENTS. SUCH BEING THE CASE, A PORTION OF THIS MANAGERIAL REMUNERATION AND DIRECTORS REMUNERATION SHOULD BE ATTRIBUTABLE TOWARDS INVESTMENT, THE RETURN ON WHICH IS EXEMPT BEING DIVIDEND INCOME . THEREFORE, THE ASSESSING OFFICER H AS RIGHTLY INVO KED THE PROVIS I O N S OF SECTION 14A R.W.R 8D(III) OF I T RULES AND DISALLOWED RS.13,65,688/ - . IN THE RESULT, THE GROUND NO.5 IS REJECTED. 12 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. STAY PETIION NO . 08/COCH/2016 (BY THE ASSESSEE) 13 SINCE THE APPEAL FILED BY THE ASSESSEE IS D ISPOSED OF, THE STAY PETITION HAS BECOME INFRUCTUOUS AND THE SAME IS DISMISSED AS SUCH . IT(TP)A 70/C/2016 & SP NO.08/C/2016 18 14 TO SUM - UP, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED ; WHEREAS THE STAY PETI TION OF THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF DEC 2016. SD/ - S D / - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 26 TH DEC 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDE NT 3 . CIT(A) 4 . CIT, 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN