DCIT, Circle-17(1), Hyderabad, Hyderabad V. Divi's Laboratories Ltd, Hyderabad, Hyderabad

ITA 709/Hyd/2015

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7374 (ITAT-HYDERABAD)
• Duration Of Justice: 6 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Assessment Year: 2009-2010
• Appeal Filed On: 25-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R DIPAK
• Assessee Lawyers: S RAMA RAO
• Keywords: Transfer pricing; Period of limitation; Services rendered outside India; Retrospective amendment; Additional evidence; Question of law; Bad and doubtful debts; Time period of passing order; Set aside
• Section: 143(3); 10AA; 115JB; 10B; 13; 6; 12; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD. BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI L . P . SAHU, ACCOUNTANT MEMBER (THROUGH VIRTUAL HEARING) ITA NO. & ASST. YEAR APPELLANT RESPONDENT 708/HYD/2015 2008 - 09 DY. COMMISSIONER OF INCOME TAX, CIRCLE 17(1), HYDERABAD. M/S. DIVIS LABORATORIES LTD., HYDERABAD. PAN AAACD6745J 709/HYD/2015 2009 - 10 - DO - - DO - 710/HYD/2015 2008 - 09 M/S. DIVIS LABORATORIES LTD., HYDERABAD. ADDL. CIT, RANGE - 1, HYDERABAD. 711/HYD/2015 2009 - 10 - DO - DCIT, CIR. 1(2), HYDERABAD. ASSESSEE BY : SHRI S. RAMA RAO. RE VENUE BY : SHRI R. DIPAK (D.R.) DATE OF HEARING : 28.04. 2021. DATE OF PRONOUNCEMENT : 17 .0 8 . 2021. . O R D E R PER SHRI S.S. GODARA, J.M. : THESE REVENUES AND ASSESSEE'S CROSS APPEALS ITA NOS.7 08 /HYD/2015 AND 7 1 0/HYD/2015 FOR ASSESSMENT YEAR 2008 - 09 2 ITA NO S . 708 TO 711/HYD/201 5 AND ITA NOS.711/HYD/2016 AND 709/HYD/2015 FOR ASSESSMENT YEAR 2009 - 10 ARISE AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS) - X, HYDERABADS SEPARATE ORDERS; BOTH DT.27.02.2015 PASS ED IN CASE NOS .0367/ADDL. CIT, R - 1/CIT(A) - X/2014 - 15 AND 0367/ADDL. CIT, R - 1/CIT(A) - X/2014 - 15 (A SSESSMENT Y EAR WISE) IN PROCEEDINGS U/S.143(3) R.W.S. 144C(4) AND 143(3) R.W.S. 92CA(3) OF THE INCOME TAX ACT, 1961 ('TH E ACT') ; RESPECTIVELY . HEARD BOTH THE PARTIES. CASE FILE S PERUSED. 2. WE ADVERT TO THE ASSESSEE'S APPEALS ITA 710 & 711/HYD/2015. ITS FIRST AND FOREMOST SUBSTANTIVE GROUND IN ASSESSMENT YEAR 2008 - 09 ITA 710/HYD/2015 SEEKS TO REVERSE BOTH THE LOWER AUTHORITIES ACTION MAKING 115JB MAT ADJUSTMENT OF RS.62,49,631 INVOL VING PROVISION FOR BAD AND DOUBTFUL DEBTS. LEARNED COUNSEL VEHEMENTLY ARGUED THAT THE IMPUGNED MAT ADJUSTMENT IS NOT SUSTAINABLE IN LAW BEING AN 3 ITA NO S . 708 TO 711/HYD/201 5 ASCERTAINED THAN A CONTINGENT LIABILITY . B OTH THE LOWER AUTHORITIES HAVE INVOKED U/S. 115JB EXPLN. (1)(I) STI PULATING SUCH MAT ADJUSTMENT QUA THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET. THE LEGISLATURE HAD ADMITTEDLY MADE THE CORRESPONDING AMENDMENT IN THE FINANCE ACT NO.2 OF 2009 WITH RETROSPECTIVE EFFECT 1.4.2001 TO THIS EFFECT. HONBLE GUJARAT HIGH COURT S F ULL BENCH DECISION IN CIT VS. VODAFONE ESSAR GUJARAT LIMITED DT.16.08.2017 HAS ALSO SETTLE D THE LAW THAT A MERE PROVISION FOR DOUBTFUL DEBT S HAS TO BE INCLUDED IN SECTION 115JB MAT ADJUSTMENT. THEIR LORDSHIP S FURTHER CONCLUDE THAT A PROVISION AMOUNTS TO WRITE OFF IF THERE IS SIMULTANEOUS REDUCTION FORM THE LOANS AND ADVANCES I N THE ASSET SIDE OF THE BALANCE SHEET IN TERMS OF VIJAYA BANK CASE 323 ITR 166 (SC). WE THUS FIND NO REASON TO REVERSE THE LEARNED L OWER AUTHORITIES ACTION MAKING THE IMPUGNED 4 ITA NO S . 708 TO 711/HYD/201 5 SECTION 115JB MAT ADJUSTMENT QUA ASSESSEE'S PROVISION MADE FOR BAD AND DOUBTFUL DEBTS. THE ASSESSEE'S FIRST AND FOREMOST SUBSTANTIVE GROUND IN ASSESSMENT YEAR 2008 - 09 IS REJECTED. 3. THE ASSESSEE'S 2 ND SU BSTANTIVE GROUND IS SECOND SUBSTANTIVE GROUND IN ASSE SSMENT YEAR 2008 - 09 AND SOLE GROUND IN ASSESSMENT YEAR 2009 - 10 IS THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN EXCLUDING THE CORRESPONDING GAIN QUA DUTY DRAW BACK AMOUNT S OF RS.1,04,83,421 AND RS.1,84,89,636; RESPECTIVELY NOT ELIGIBLE FOR THE PURPOSE OF COMPUTING PROFITS IN ITS SECT ION 10B DEDUCTION CLAIMS . THE REVENUES CASE IN TUNE WITH THE LOWER AUTHORITIES IDENTICAL REASON ING IS THAT SUCH AN IN COME COULD NOT BE HELD TO HAVE BEEN DERIVED FROM FROM THE ELIGIBLE UNIT AND T HEREFORE, THE SAME IS NOT ENTITLED FOR SECTION 10B DEDUCTION. WE FIND THAT THE INSTANT ISSUE IS NO MORE RES INTEGRA AS PER P CIT VS. DISHMAN 5 ITA NO S . 708 TO 711/HYD/201 5 PHARMACEUTICALS AND CHEMICALS LTD . ( 2019) 417 ITR 37 3 (GUJ) THAT SUCH AN INCOME ARISING FROM SALE OF DUTY DRAW BACK ALSO AMOUNTS TO PROFITS AND GAINS DERIVED FROM 100% EXPORT ORIENTED UNIT. WE ACCORDINGLY ADOPT THE VERY REASONING MUTATIS MUTANDIS AND DIRECT THE ASSESSING OFFICER TO TREAT TH E ASSESSEE'S IMPUGNED DUTY DRAW BACK GAIN (SUPRA) IN BOTH THESE ASSESSMENT YEARS A S ELIGIBLE FOR 10B DEDUCTION AS PER LAW. NECESSARY COMPUTATION SHALL FOLLOW . T HE ASSESSEE'S SECOND AND SOLE SUBSTANTIVE GROUND IN THESE TWIN ASSESSMENT YEARS (SUPRA) TO T HIS EFFECT SUCCEEDS. 4 . IT FURTHER TRANSPIRES DURING THE COURSE OF HEARING THAT THE ASSESSEE ALSO FILED IDENTICAL PETITIONS IN BOTH THESE APPEALS SEEKING TO RAISE ADDITIONAL GROUND(S) OF EDUCATION CESS DEDUCTION(S) OF RS.1,05,97,230 AND RS.1,3,81,150; RESPECTIVELY. TH E REVENUES CASE IN THE LIGHT OF ITS WRITTEN SUBMISSION S COMING 6 ITA NO S . 708 TO 711/HYD/201 5 FROM THE CITS SIDE IS THAT THIS ADDITIONAL GROUND GIVE S ALTOGETHER A NEW TEXTURE TO THE ALREADY PLEAD ED ISSUES AND NOT ALLOWABLE THEREFORE AS PER HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. BEGU MNOOR BANU (1993) 204 ITR 166 (AP). WE FIND NO MERIT IN THE REVENUES INSTANT TECHNICAL ARGUMENT AS PER THIS TRIBUNAL SPECIAL BENCH DECISION ALL CARGO GLOBAL LOGISTICS LTD. VS. DCIT 137 ITD 287 (SB) A FTER CONSIDERING THE DECISION NTPC LTD. VS. CIT (229 ITR 383 (SC) ; HOLDS THAT WE CAN VERY WELL ENTERTAIN SUCH A PURE QUESTION OF LAW SO AS TO DETERMINE THE CORRECT TAX LIABILITY WHEREIN THE RELEVANT FACTS ARE ALREADY ON RECORD. WE MAKE IT CLEAR THAT THE ASSESSEE HAD DULY FILED ITS COMPUTATION (S) REGA RDING THE IMPUGNED EDUCATION CESS (ES) CORRESPONDING FIGURES. WE THUS ACCEPT THE ASSESSEE'S IDENTICAL PETITION(SUPRA) DT.23.11.2020. 5 . COMING TO MERITS OF THE ASSESSEE'S EDUCATION CESS CLAIM, WE NOTICE THAT SESA GOA 7 ITA NO S . 708 TO 711/HYD/201 5 LIMITED VS. JCIT (2020) 423 ITR 426 (BOM) AS WELL AS (2019) 107 TAXMAN.COM 484 (RAJ) CHAMBAL FERTILISERS LTD. VS. JCIT TAK E INTO CONSIDERATION THE CBDT S CIRCULAR DT.18.05. 1967 THAT THE CLINCHING EXPRESSION TAX EMPLOYED IN SECTION 40 (A) (II) DOES NOT INCLUDE CESS AND THEREFORE THE SAME IS VERY MUCH ALLOWABLE AS A DEDUCTION. WE ADOPT THE VERY REASONING MUTATIS MUTANDIS AND DIRECT THE ASSESSING OFFICER TO ACCEPT THE ASSESSEE'S IMPUGNED EDUCATION CESS DEDUCTION CLAIM IN BOTH THESE ASSESSMENT YEARS INVOLVING SUMS, AS PER LAW. NECESSARY CO MPUTATION SHALL FOLLOW. 6 . THE ASSESSEE'S IDENTICAL THIRD AND SECOND SUBSTANTIVE GRIEVANCES IN BOTH ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 SUCCEED IN ABOVE TERMS. ITS APPEAL ITA NOS. 710 /HYD/2015 IS PARTLY ACCEPTED & 711/HYD/2015 IS ACCEPTED IN FOR EGOING TERMS. 8 ITA NO S . 708 TO 711/HYD/201 5 7 . WE NEXT ADVERT TO THE REVENUES APPEALS ITA NOS. 708 & 709/HYD/2015. ITS FIRST AND FOREMOST SUBSTANTIVE GROUND IN BOTH THESE ASSESSMENT YEARS SEEKS TO REVIVE THE TRANSFER PRICING OFFICERS IDENTICAL ACTION ADOPTING CRISIL AGAINST L IBOR RATE S WHIL ST COMPUTING THE INTEREST ON LOANS AND ADVANCES MADE TO OVERSEES ASSOCIATED ENTERPRISES INVOLVING ADJUSTMENT S OF RS.2,08,27,493 AND RS.84,52,506; RESPECTIVELY. WE NOTICE AT THE OUTSET THAT THE TPOS ORDER(SUPRA)) FOR ASSESSMENT YEAR 2009 - 1 0 AND 2010 - 11 HA D ADOPTED LIBOR RATES ONLY IN COMPUTING THE ARMS LENGTH PRICE (ALP) OF THE IMPUGNED LOANS AND ADVANCES IN CORRESPONDING FOREIGN CURRENCY. THIS TRIBUNAL'S CO - ORDINATE BENCH DECISION IN THE FO U RSOFT INDIA LIMITED 142 TTJ 358 (HYD) ALSO HOLDS THAT IT IS ONLY LIBOR RATE WHAT NEEDS TO BE ADOPTED QUA INTERNATIONAL FINANCIAL TRANSACTIONS. WE THUS FIND NO ILLEGALITY 9 ITA NO S . 708 TO 711/HYD/201 5 OR IRREGULARITY IN THE CIT(A)S ORDER TO THIS EFFECT. TH IS REVENUES F IRST AND FOREMOST IDENTICAL SU BSTANTIVE GROUND FAILS. 8 . THE REVENUES 3 RD AND 4 TH SUBSTANTIVE GROUNDS IN ASSESSMENT YEAR 2008 - 09 AND 5 TH GROUND IN A.Y. 2009 - 10 CHALLENGE CORRECTNESS OF CIT(A)S ACTION HOLDING THE ASSESSEE ELIGIBLE FOR SECTION 10AA DEDUCTION QUA ITS CONTRACT FE E RECEIPTS OF RS.1,29,53,790 AND RS.1,36,77,199; RESPECTIVELY. ITS CASE IS THAT THE ASSESSEE HAD FILED ADDITIONAL EVIDENCE REGARDING APPROVAL OF ITS CORRESPONDING UNIT(S) WHEREIN NEITHER THERE WAS ANY SANCTION FOR EXPORT OF SERVICES NOR THE SAME HA D BEEN PUT TO THE ASSESSING OFFICER FOR HIS NECESSARY FACTUAL VERIFICATION. THE CIT(A)S DETAILED DISCUSSION ACCEPTING THE ASSESSEE'S CLAIM TO THIS EFFECT READ S AS UNDER : 10 ITA NO S . 708 TO 711/HYD/201 5 WE FIND NO MERIT IN THE REVENUES INSTANT SUBSTANTIVE GROUND NOT ONLY GOING BY THE STATUTORY PROVISIONS I.E. SECTION 10AA(1) EXPLN.(1) DEFINING EXPORT TURNOVER AS ALSO INCLUDING EXPORT OF SERVICES BUT ALSO KEEPING IN MIND THE FACT THAT THE VISAKHAPATNAM SEZ (VSEZ) HA D BEEN GRANTED APPROVAL VIDE LETTER DT.13.08.2007 AS AGAINST THE SE ASSESSMENT S 11 ITA NO S . 708 TO 711/HYD/201 5 FRAMED ON 31.01.2012 AND 20.09.2011 ; RESPECTIVELY. THERE IS FURTHE R NO INDICATION THAT THE ASSESSEE HAD FILED ANY ADDITIONAL EVIDENCES TO THIS EFFECT BEFORE THE CIT(A) . WE HOLD IN THIS FACTUAL BACKDROP THAT THE CIT(A) HAS RIGHTLY TREATED THE ASSESSEE'S CONTRACT RESEARCH FEE RECEIPTS AS EXPORT TURNOVER FOR ARRIVING AT S ECTION 10AA DEDUCTION. THE REVENUES CORRESPONDING GROUND S TO THIS EFFECT IN BOTH ASSESSMENT YEARS STAND DECLINED. 9 . THE REVENUES FIFTH AND SIXTH SUBSTANTIVE GROUNDS IN ASSESSMENT YEAR 2008 - 09 AND THIRD AND FO U RTH SUBSTANTIVE GROUNDS IN ASSESSMENT YEAR 2009 - 10 CHALLENGE THE CIT(A)S ACTION REVERSING THE ASSESSMENT FINDINGS DISALLOWING MARK TO MARKET (MTM) LOSSES OF RS.18,92,87,645 AND RS.45,21,01,025; RESPECTIVELY. THE CIT(A)S DETAILED DISCUSSION TO THIS EFF ECT READS AS UNDER : 12 ITA NO S . 708 TO 711/HYD/201 5 --- SPACE LEFT INTENTIONALLY --- 13 ITA NO S . 708 TO 711/HYD/201 5 14 ITA NO S . 708 TO 711/HYD/201 5 15 ITA NO S . 708 TO 711/HYD/201 5 16 ITA NO S . 708 TO 711/HYD/201 5 17 ITA NO S . 708 TO 711/HYD/201 5 1 0 . THE REVENUES SOLE SUBSTANTIVE ARGUMENT BEFORE US IS THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE IMPUGNED MTM LOSSES DISALLOWANCE DESPITE THE FACT THAT THE CBDT CIRCULAR NO.3 OF 2010 DT.23.03.2010 HAS HELD 18 ITA NO S . 708 TO 711/HYD/201 5 THE SAME TO BE A NOTIONAL AND NOT AN ACTUAL LOSS. ALL THESE REVENUES ARGUMENTS FAILS TO CONVINCE US AS NOT ONLY THE ASSESSEE HAD FILED ALL THE DETAILS OF CORRESPONDING FORWARD / DERIVATIVE CONTRACTS, NECESSARY CERTIFICATE FROM THE SBI BUT ALSO THE RELEVANT STATEMENTS THEREOF SINCE F .Y.2007 - 08 TO 2011 - 12 ALONG WITH THE CATENA OF CASE LAW(S) HOLDING THAT SUCH LOSSES ARE IN FACT IN THE NATURE OF AN ASCERTAINED LIABILITY THAN A CONTINGENT ONE . WE THUS FIND NO REASON TO INTERFERE WITH THE CIT(A) DETAILED DISCUSSION EXTRACTED ABOVE TO TH IS EFFECT. THE REVENUES CORRESPONDING INSTANT SUBSTANTIVE GROUNDS STAND REJECTED. 11. THIS LEA VE S US WITH REVENUES IDENTICAL 7 TH AND 6 TH SUBSTANTIVE GROUNDS IN BOTH THE SE ASSESSMENT YEARS THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS WHILE DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE ASSESSEE'S FREIGHT AND INSURANCE CHARGES OF RS.4,21,48,702 AND 19 ITA NO S . 708 TO 711/HYD/201 5 RS.4,58,34,902; RESPECTIVELY NOT ONLY FROM EXPORT BUT ALSO FROM TOTAL TUR NOVER . WE FIND THAT THE INSTANT ISSUE IS ALSO NO MORE RES INTEGRA AS PER HON'BLE APEX COURTS DECISION IN CIT VS. HCL TECHNOLOGIES LTD. (2018) 404 ITR 719 FOLLOWED BY CBDT CIRCULAR NO.4 OF 2018 DT .14.08.2018 THAT WHATEVER ITEM IS TO BE EXCLUDED FROM EXP ORT MUST ALSO FOLLOW THE SUIT REGARD ING THE TOTAL TURNOVER . THE REVENUES INSTANT SUBSTANTIVE LAST GROUND IS REJECTED THEREFORE. SO IS THE OUTCOME OF ITS TWIN APPEALS ITA 708 & 709/HYD/2015 (SUPRA). 12. WE LASTLY ACKNOWLEDGE THAT ALTHOUGH THE INSTANT APPEA LS ARE BEING DECIDED AFTER A PERIOD OF 90 DAYS FROM THE DATE OF HEARING AS PER RULE 34(5) OF THE IT(AT) RULES 1963, THE SAME HOWEVER, DOES NOT APPLY IN THE COVID LOCKDOWN SITUATION AS PER HON'BLE APEX COURT'S RECENT DIRECTIONS DATED 27 - 04 - 2021 IN M.A.NO.66 5/2021 IN SM(W)C 20 ITA NO S . 708 TO 711/HYD/201 5 NO.3/2020 'IN RE COGNIZANCE FOR EXTENSION OF LIMITATION' MAKING IT CLEAR THAT IN SUCH CASES WHERE THE LIMITATION PERIOD (INCLUDING THAT PRESCRIBED FOR INSTITUTION AS WELL AS TERMINATION) SHALL STAND EXCLUDED FROM 14TH OF MARCH, 2021 TILL F URTHER ORDERS. 1 3 . TO SUM UP, ASSESSEE'S APPEALS ITA 710 & 711/HYD/2015 ARE PARTLY ALLOWED AND ALLOWED & REVENUES APPEALS ITA 708 & 709/HYD/2015 ARE DISMISSED IN ABOVE TERMS . A C OPY OF THIS COMMON ORDER BE PLACED IN THE RESPECTIVE CASE FILES. O RDER PRONOUNCED IN THE OPEN COURT ON 17TH AUG. , 2021. SD/ - SD/ - (LAXMI PRASAD SAHU) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DT. 17 .0 8 .2021. * REDDY GP 21 ITA NO S . 708 TO 711/HYD/201 5 COPY TO : 1. M/S. DIVIS LABORATORIES LIMITED, 7 - 1 - 77/E/1/303, DHARAM KARAN ROAD, AMEERPET, HYDERABAD - 500016. 2. DCIT, CIRCLE 17(1), HYDERABAD. 3. PR. C I T - 5 , HYDERABAD. 4. CIT(APPEALS) - X, HYDERABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE. B Y ORDER SR. PVT. SECRETARY, ITAT, HYDERABAD.