NYK LINE (INDIA) LTD, MUMBAI V. ASST CIT 1(3), MUMBAI

ITA 7534/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101167 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 25-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: F V IRANI
• Keywords: Business income; Depreciation; Transfer pricing; Business expenditure; Principle of natural justice; International transaction; Earning of tax free income; Initiation of penalty proceedings; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 37

Judgement Text

M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K , MUMBAI . . , , BEFORE SHRI B R BASKARAN , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , J UDICIAL MEMBER ITA NO. : 8549 /MUM/20 1 1 ( ASSESSMENT YEAR: 200 7 - 0 8 ) M / S NYK LINE ( INDIA ) LTD , TRADE VIEW, THIRD FLOOR, KAMALA MILLS COMPLEX, PANDURANG BUDHKAR MARG, LOWER PAREL, MUMBAI - 400 013 .: PAN: AA A C T 3 2 73 H VS A DDL COMMISSIONER OF INCOM E TAX RANGE 1 ( 3 ), MUMBAI (APPELLANT) (RESPONDENT) ITA NO. : 7534 /MUM/ 2012 ( ASSESSMENT YEAR: 2008 - 09 ) M / S NYK LINE ( INDIA ) LTD , MUMBAI - 400 013 .: PAN: AAACT 3273 H VS ADDL COMMISSIONER OF INCOME TAX RANGE 1(3), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI F V IRANI RESPONDENT BY : SHRI G M D OSS /DATE OF HEARING : 25 - 06 - 201 5 / DATE OF PRONOUNCEMENT : 23 - 09 - 201 5 ORDER , . . : PER AMIT SHUKLA, AM : THE A FORESAID APPEAL S HA VE BEEN FILED BY THE ASSESSEE A GAINST SEPARATE IMPUGNED FINAL ASSESSMENT ORDER DATED 14.10.201 AND 29.10.2012 PASSED IN PURSUANCE OF DIRECTIONS GIVEN BY DISP UTE RESOLUTION PANEL, MUMBAI (HEREINAFTER REFERRED TO AS DRP) FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) R.W.S. 144C FOR THE ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 RESPECTIVELY. SINCE ISSUES INVOLVED IN BOTH THE APPEALS ARE COMMON, THEREFORE, THEY M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 2 WERE H EARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER , FOR THE SAKE OF CONVENIENCE. 2. WE WILL FIRST TAKE - UP ASSESSEES APPEAL FOR AY 2007 - 08 BEING ITA NO. 8549/MUM/2011 , VIDE WHICH FOLLOWING ISSUES HAVE BEEN RAISED IN VARIOUS GROUNDS OF APPEAL : - (I) DISALLOWANCE U/S 14A OF RS. 1 LAKH; (II) DISALLOWANCE OF DEPRECIATION ON UPS AND PRINTERS WHICH WAS CLAIMED @ 60% BY THE ASSESSEE AND RESTRICTED BY 15% BY THE AO; AND ALSO DISALLOWANCE OF DEPRECIATION ON AIR - CONDITIONERS INSTALLED IN SERV ER ROOM CLAIMED AT 60%; (III) DISALLOWANCE OF PRINTER SOFTWARE OF RS. 8,07,755/ - AS CAPITAL EXPENDITURE WHICH WAS CLAIMED AS REVENUE EXPENDITURE BY THE ASSESSEE ; AND ALTERNATIVELY IT HAS BEEN CONTENDED THAT, IF THE SAME IS TO BE TREATED AS CAPITAL EXPENDIT URE THEN DEPRECIATION SHOULD BE ALLOWED @ 60%; (IV) ADDITION ON ACCOUNT OF CONTAINER DETENTION CHARGES OF RS. 1,18,65,365/ - CO LL ECTED ON BEHALF OF THE P RINCIPAL AND R ETAINED IN TERMS OF RBI DIRECTION BY THE ASSESSEE , WHICH HAS BEEN TREATED AS INCOME ACCR UED TO THE ASSESSEE ITS IN THE COURSE OF ITS ACTIVITY AS AN AGENT; (V) ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT OF RS. 1,49,35,518/ - ; (VI) CHARGING OF INTEREST U/S 234B; AND (VII) INITIATION OF PROCEEDINGS OF LEVY OF PENALTY U/S 271(1)(C) AND 2 71BA. 3. BESIDES THIS, THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS ON ACCOUNT OF VIOLATION OF PRINCIPLES OF NATURAL JUSTICE. THIS GROUND WAS NOT PRESSED AT THE TIME OF HEARING , THEREFORE ADDITIONAL GROUND IS TREATED AS DISMISSED AS NOT PRESSED. 4. TH E RELEVANT FACTS QUA TH E DISALLOWANCE U/S 14A (WHICH HAS BEE N RAISED VIDE GROUND NO. 1 & 2 ) ARE THAT THE ASSESSEE HAD MADE AN M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 3 INVESTMENT IN SHARES AND MUTUAL FUNDS FOR SUMS AGGREGATING TO RS. 10,33,85,369/ - ON WHICH IT HAS EARNED A DIVIDEND INCOME OF RS. 30,29, 856/ - WHICH WAS CLAIMED AS EXEMPT. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT NO EXPENDITURES HAVE BEEN INCURRED DIRECTLY OR INDIRECTLY FOR EARNING OF THE DIVIDEND INCOME FOR THE REASON THAT ; FIRSTLY, THE ENTIRE INVESTMENT WAS MADE O UT OF ITS OWN FUNDS AND SECONDLY, DIVIDEND EARNED HAVE BEEN DIRECTLY CREDITED TO THE BANK ACCOUNT AND NO COST AT ALL CAN BE SAID TO BE ALLOCATED. IT WAS FURTHER POINTED OUT THAT IN AY 2002 - 03, THE TRIBUNAL HAS DELETED THE SIMILAR DISALLOWANCE U/S 14A MADE BY THE AO . THE DRP AFTER TAKING INTO CONSIDERATION ALL THE OBJECTIONS, NOTED THAT SO FAR AS INTEREST COMPONENT IS CONCERNED, THE SAME CANNOT BE DISALLOWED, BECAUSE THE INVESTMENT WAS OUT OF BUSINESS RECEIPTS SURPLUS AND NO BORROWED FUNDS HAVE BEEN UTILIZED . HOWEVER, FOR THE PURPOSE OF INDIRECT EXPENSES, THE DRP HAS DIRECTED THE AO TO DISALLOW 5% OF EXPENDITURE INCURRED ON MANPOWER COST OF THE PERSON DIRECTLY CONCERNED WITH THE DECISION MAKING ON INVESTMENT. IN PURSUANCE THEREOF, THE AO AFTER CALLING FOR THE DETAILS FROM THE ASSESSEE AND AFTER ANALYZING SUCH DETAILS HAS MADE AN AD - HOC DISALLOWANCE OF RS. 1 LAKH. 5. BEFORE US THE LD. COUNSEL , SHRI F V IRANI SUBMITTED THAT IN THE ASSESSMENT YEAR 2002 - 03, THE TRIBUNAL HAS DELETED THE SAID DISALLOWANCE ON THE GR OUND THAT THERE IS NO NEXUS BETWEEN ANY EXPENDITURE INCURRED AND EARNING OF TAX FREE DIVIDEND INCOME. IN THIS YEAR ALSO NO SUCH EXPENDITURE CAN SAID TO BE ALLOCABLE ESPECIALLY WHEN INVESTMENTS IN SHARES AND MUTUAL FUND WERE COMING FROM EARLIER YEARS AND WE RE SOLD IN THE SUBSEQUENT YEARS. 6. THE LD. DR, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDER OF THE DRP. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT ALREADY M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 4 DRP HAS TAKE N NOTE OF THE FACT THAT ; FIRSTLY, RULE 8D IS NOT APPLICABLE IN THIS YEAR ; AND SECONDLY, THERE IS NO INTEREST EXPENDITURE ATTRIBUTABLE F OR THE EARNING OF EXEMPT INCOME ; AND LASTLY, FOR THE PURPOSE OF INDIRECT EXPENSES, ALREADY DIRECTION HAVE BEEN GIVEN TO T HE AO TO IDENTIFY THE MANPOWER COST OF THE PERSON S DIRECTLY CONCERNED WITH THE MAKING OF THE DECISION OF THE INVESTMENTS AND TO WORK - OUT THE DISALLOWANCE . THE AO AFTER ANALYZING THE ENTIRE DETAILS HAS RESTRICTED THE DISALLOWANCE AT RS. 1 LAKH ON ACCOUNT OF MANPOWER / ADMINISTRATIVE COST, WHICH CAN BE SAID TO BE ATTRIBUTABLE FOR EARNING OF EXEMPT INCOME. SUCH A FINDING OF AO CANNOT BE FAULTED WITH IN ABSENCE OF ANY PROPER REBUTTAL AND ALSO THE DISALLOWANCE AS IT IS APPEARS TO BE QUITE REASONABLE. THUS ON THE FACTS IF THE CASE , DISALLOWANCE U/S 14A AS RESTRICTED AFTER DRPS DIRECTION IS CONFIRMED . ACCORDINGLY GROUND NO. 1 & 2 ARE TREATED AS DISMISSED. 8. AS REGARDS RESTRICTION OF DEPRECIATION ALLOWANCE ON PURCHASE OF PRINTERS AND UPS FOR SUMS AMOUNTING TO RS. 5,96,310/ - , THE ASSESSEE HAD MADE A CLAIM THAT DEPRECIATION SHOULD BE ALLOWED @ 60% AS IT IS PERIPHERAL AND CONNECTED WITH COMPUTER FOR WHICH THE RATE OF DEPRECIATION IS @ 60%, WHEREAS, THE AO HELD THAT THESE ASSETS CANNOT BE EQUATED WITH COMPUTER AND ADMI SSIBLE DEPRECIATION PROVIDED FOR COMPUTER WILL NOT BE APPLICABLE. HE ACCORDINGLY ALLOWED DEPRECIATION @ 15% . SIMILARLY, FOR THE AIR - CONDITIONER INSTALLED IN THE SERVER ROOM ASSESSEE, HAS CLAIMED DEPRECIATION @ 60% WHICH HAS BEEN RESTRICTED TO 15% BY THE AO BY TREATING IT AS PLANT AND MACHINERY. 9. BEFORE THE DRP, THE ASSESSEE RELIED UPON THE DECISION OF SPECIAL BENCH IN THE CASE OF DCIT VS DATA CRAFT INDIA LTD, REPORTED IN 40 SOT 249 . HOWEVER, THE DRP HELD THAT SUCH DECISION WILL NOT BE APPLICABLE AS THE S PECIAL BENCH HAS DECIDED REGARDING COMPUTER ITSELF AND NOT THE COMPUTER PERIPHERALS . ACCORDINGLY, THE M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 5 DRP DIRECTED THE AO TO RESTRICT THE DISALLOWANCE ON UPS AND PRINTERS @ 15%. 10. BEFORE US, SHRI F V IRANI, RELIED UPON THE CATENA OF CASE LAWS ON THE POI NT THAT PRINTERS AND UPS ARE COMPUTER PERIPHERALS ONLY AND THEY ARE TO BE TREATED AS PART AND PARCEL OF COMPUTER ON WHICH DEPRECIATION IS TO BE ALLOWED @ 60%. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER OF THE AO AS WELL AS DRP. 11 . AFTER CONSIDERIN G THE RIVAL SUBMISSION S AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT SO FAR AS CLAIM OF DEPRECIATION ON UPS AND PRINTER IS CONCERNED THE SAME IS TO BE ALLOWED @ 60% AS THEY ARE PART AND PARCEL OF COMPUTER ITSELF AND ARE PERIPHERAL COMPONENT/EQUIPMENT CONNECTED WITH THE COMPUTER. IN THE DECISION OF : ITAT DELHI BENCH IN THE CASE OF OMINI CLUB INFORMATIONAL TECHNOLOGY IVT P LTD., 131 ITD 280 AND ALSO IN CATENA OF OTHER DECISIONS BY THE CO - ORDINATE BENCHES OF THE TRIBUNAL THERE HAS BEE N A CONSISTENT VIEW THAT PRINTER AND UPS ARE PART OF COMPUTER AND HENCE DEPRECIATION HAS TO BE ALLOWED @ OF 60% . HOWEVER, SO FAR AS CLAIM OF DEPRECIATION ON AIR - CONDITIONERS INSTALLED IN SERVERS ROOM, THE SAME CANNOT BE TREATED AS PART OF COMPUTER AND THE REFORE , RESTRICTING THE CLAIM OF DEPRECIATION @ 15% BY THE AO IS FULLY JUSTIFIED. ACCORDINGLY, GROUND NO. 3 IS TREATED AS ALLOWED WHEREAS GROUND NO. 4 IS TREATED AS DISMISSED. 1 2 . IN GROUND NO. 5 & 6, THE ASSESSEE HAS C HA L LENG ED THE DISALLOWANCE OF SOFTWA RE EXPENSES OF RS. 8,70,755/ - INCURRED ON PURCHASE OF PRINTER - SERVER SOFTWARE FROM RILCON AT RS. 8,07,755/ - , WHICH HAS BEEN TREATED AS CAPITAL EXPENDITURE, BECAUSE AS PER THE AO, SAID SOFTWARE WAS TO BE USED BY THE ASSESSEE COMPANY FOR FIVE YEARS TO COME A ND HENCE ITS BENEFIT WERE OF ENDURING IN NATURE AND M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 6 ACCORDINGLY HE ALLOWED THE DEPRECIATION @ 15% ON THE COST OF THE ASSET . 1 3 . THE ASSESSEE, O N THE OTHER HAND HA D PLACED A DECISION OF SPECIAL BENCH OF THE ITAT IN THE CASE OF AMWAY INDIA ENTERPRISE, REPOR TED IN 111 ITD 112. 1 4 . BEFORE US, THE LD. COUNSEL RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RAYCHEM RPG LTD [2012] 346 ITR 183 AND ALSO DELHI HIGH COURT DECISION IN THE CASE OF CIT VS AMWAY INDIA ENTE RPRISE, REPORTED IN 346 ITR 341, WHEREIN IT HAS BEEN HELD THAT EXPENDITURE INCURRED ON PURCHASE OF SOFTWARE IS TO BE TREATED AS REVENUE EXPENDITURE. THE LD. DR ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AO. 1 5 . AFTER CONSIDERING THE RIVAL SUBMISSION AND ON PERUSAL OF RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT THE ASSESSEE HAS CLAIMED PAYMENT MADE FOR PURCHASE OF PRINT SERVER SOFTWARE AS REVENUE EXPENDITURE, WHICH HAS BEEN DISALLOWED BY THE AO ON THE GROUND THAT IT HAS AN ENDURING BENEFIT TO THE ASSESSE E. FROM THE PERUSAL OF THE DECISIONS RELIED UPON BY THE LD. COUNSEL, WE FIND THAT THE HONBLE HIGH COURT S HAVE HELD THAT IF THE EXPENDITURE INCURRED ON THE SOFTWARE IS TO FACILITATE THE ASSESSEES BUSINESS OR ENABL E THE MANAGEMENT TO CONDUCT THE BUSINESS M ORE EFFICIENTLY OR PROFITABLY , THEN IT HAS TO BE TREATED AS REVENUE EXPENDITURE. IN ALL THESE CASES, THE EXPENDITURE INCURRED ON THE SOFTWARE EXPENSES WERE ALLOWED AS REVENUE EXPENDITURE. HERE ALSO, THE SOFTWARE PURCHASE FOR PRINT SERVER IS NOTHING BUT TO FACILITATE THE ASSESSEES BUSINESS AND TO CONDUCT DAY - TO - DAY ACTIVITY IN AN EFFICIENT MANNER AND, THEREFORE, IT HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THUS, FOLLOWING THE PRINCIPLE AND RATIO LAID DOWN BY THE HONBLE HIGH COURT, AS CITED ABOVE, WE ALLOW THE CLAIM OF RS. 8,70,755/ - INCURRED ON PRINT SOFTWARE AS REVENUE EXPENDITURE. M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 7 ACCORDINGLY, GROUND NO. 5 IS TREATED AS ALLOWED WHEREAS GROUND NO. 6 RAISING AN ALTERNATE CONTENTION OF ALLOWING DEPRECIATION @ 60% , IN CASE IT IS TREATED AS CAPITAL EXPENDITURE HAVE BEEN RENDERED PURELY ACADEMIC AND THEREFORE, SAME IS TREATED AS INFRUCTUOUS. 1 6 . FROM GROUND NO. 7 TO 12, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 1,18,65,365/ - ON ACCOUNT OF CONTAINER DETENTION CHARGES (CDC) COLLECTED BY THE ASSESSEE ON BEH ALF OF THE PRINCIPAL AND RETAINED IN TERMS OF RBI DIRECTION , WHICH HAS BEEN TREATED AS INCOME ACCRUED TO THE ASSESSEE DURING THE YEAR BY THE AO. 1 7 . BRIEF FACTS QUA THE ISSUE INVOLVED ARE THAT , THE ASSESSEE COMPANY IS A SHIPPING AGENT IN RESPECT OF SHIPP ING ACTIVITY OF ITS PRINCIPAL , NYK JAPAN (WHICH IS A WORLDWIDE SHIPPING LINE) IN INDIA . THE PRIMARY ACTIVITY OF THE ASSESSEE COMPANY WAS TO DERIVE INCOME FROM SHIPPING AGENCY SERVICES IN INDIA TO ITS OVERSEAS PRINCIPAL, FOR WHICH IT RECEIVES COMMISSION INC OME ONLY . THE SHIPPING AGENCY SERVICES OF THE ASSESSEE ARE GOVERNED BY THE AGENCY AGREEMENT. THE ACTIVITIES OF THE ASSESSEE INCLUDED BOOKING OF CONTAINER CARGO FOR SHIPS OWNED OR OPERATED BY NYK JAPAN. IN CASE OF IMPORT CARGO, THE ASSESSEE TAKES DELIVERY O F THE CARGO LOADED ABROAD ON THE SHIPS OWNED OR OPERATED BY NYK GROUP AND THEN SEN D THE SAME TO CONSIGNEES LOCATED IN INDIA. THE AGENCY ACTIVITY ON BEHALF OF PRINCIPAL ALSO INCLUDED MARKET DEVELOPMENT, CARGO BOOKING, PROVIDING SUPPORT FOR DOC K , LOADING AND UPLOADING, ARRANGING INL A N D TRANSPORTATION, ACCOUNTING FOR FREIGHT/DISBURSEMENT ETC. THE ASSESSEE COLLECTS THE FREIGHT AND OTHER RECEIPTS ARISING IN THE COURSE OF SHIPPING BUSINESS OF ITS PRINCIPAL IN INDIA AND REMIT BACK TO ITS OVERSEAS PRINCIPAL I.E. NY K IN ACCORDANCE WITH THE REGULATION PRESCRIBED UNDER FEMA. CONTAINER DETENTION CHARGES (CDC) REPRESENTED ON SUCH RECEIPTS COLLECTED AND REMITTED BY THE ASSESSEE ON BEHALF OF THE PRINCIPAL IN INDIA. CDC IS A CHARGE LEVIED FOR THE DETAINMENT OF THE CONTAINER S IN EXCESS OF THE PERMISSIBLE TIME PERIOD. IT IS LEVIED ON THIRD PARTY M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 8 IMPORTERS BY THE PRINCIPAL. RESERVE BANK OF INDIA VIDE ITS CIRCULAR HAS DIRECTED TO RETAIN CONTAINER DETENTION CHARGES AT US $ 1.5 PER DAY PER 20 FT. EQUIVALENT UNITS ( TEU ) AS ADMINIS TRATIVE CHARGES FOR AN AGENT S LOCAL USE. THE ASSESSEE, IN ITS NOTE NO. 2 TO SCHEDULE FORMING PART OF AUDITED FINANCIAL STATEMENT GAVE THE FOLLOWING NOTE : - VIDE A CIRCULAR, RBI HAS GRANTED PERMISSION FOR RETENTION OF CONTAINER DETENTION CHARGES @ USD 1. 5 PER DAY, PER TWENTY FEET EQUIVALENT UNITS (TEU) AS ADMINISTRATIVE CHARGES FOR AN AGENTS LOCAL USE. SINCE, THE COMPANYS AGREEMENT WITH ITS PRINCIPAL DOES NOT PROVIDE FOR SUCH RETENTION, IT HAS CREDITED AN AMOUNT AGGREGATING RS. 56,508,629/ - AS AT 31 M ARCH, 2007 (PREVIOUS YEAR : RS. 44,743,264) TO THE PRINCIPALS ACCOUNT. THE MANAGEMENT BELIEVES THAT IF THE COMPANY IS REQUIRED TO RETAIN THIS AMOUNT IN COMPLIANCE WITH RBI REGULATION, ITS COMMISSION INCOME ON CARGO OR VESSELS HANDLED WILL BE REVISED TO THE EXTENT OF SUCH RETENTION AMOUNT. HENCE THE MANAGEMENT BELIEVES THAT THE AFORESAID DOES NOT HAVE AN IMPACT ON THE FINANCIAL STATEMENT OF THE COMPANY. 1 8 . THUS, THE ASSESSEES CONTENTION WAS THAT, SINCE IT DID NOT HAD ANY AGREEMENT WITH THE PRINCIPAL FOR SUCH RETENTION, THEREFORE, THE CONTAINER DETENTION CHARGES WAS DIRECTLY CREDITED TO THE BALANCE SHEET AS A LIABILITY. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE GAVE DETAILED EXPLANATION BEFORE THE AO VIDE LETTER DATED 03.10.2012. THE RELEVANT EXTR ACT OF WHICH HAS BEEN INCORPORATED FROM PAGES 8 TO 9 OF THE IMPUGNED ASSESSMENT ORDER. SUM AND SUBSTANCE OF THE ASSESSEES CONTENTION WAS THAT : (I) THE CONTAINER S ARE OWNED BY NYK JAPAN AND CDC ) ARE CHARGES LEVIED ON 3 RD PARTIES IMPORTER BY THE PRINCIPAL ON CERTAIN CIRCUMSTANCES AND CONDITIONS; M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 9 (II) THE ASSESSEE MERELY COLLECTS CDC ON BEHALF OF PRINCIPAL AS AN AGENT WHICH IS DEPOSITED IN SEPARATE BANK ACCOUNT; (III) THE REMITTANCE OF CDC BY SHIPPING AGENTS IN INDIA TO THE OVERSEAS PRINCIPAL IS REGULATED U NDER FEMA AND ONLY A CERTAIN PART OF CDC IS ALLOWED TO BE REMITTED AND CERTAIN PART TO BE RETAINED BY THE SHIPPING AGEN T IN INDIA FOR MEETING EXPENSES OF PRINCIPAL IN INDIA, IT DOES NOT BELONG TO THE ASSESSEE; (IV) THE RBI CIRCULAR PRESCRIBING THE GUIDELIN ES FOR APPROPRIATION OF CDC COLLECTED IN INDIA WAS AS UNDER : PARTICULARS AMOUNT OF (US$ PER TEU PER DAY) REMARKS A TO BE REMITTED TO THE FOREIGN PRINCIPAL 4.00 USD 2.50 TOWARDS LEASE HIRE CHARGES AND USD 1.50 TOWARDS ADMINISTRATIVE CHARGES/COMPUTER CONTROL B TO BE RETAINED BY THE AGENT IN INDIA I 7.00 USD 1.00 TOWARDS GROUND RENT CHARGES AND USD 6.00 TOWARDS REPOSITIONING CHARGES PAYABLE ON THE BEHALF OF THE PRINCIPAL II 1.50 USD 1.50 TOWARDS ADMINI - STRATIVE CHARGES TOTAL 12.50 CDC COLLECTED IN EXCESS OF USD 12.50 WILL BE BLOCKED AND CAN BE UTILIZED IN INDIA ONLY FOR SUCH PERMISSIBLE PURPOSES AS THE RBI MAY PRESCRIBE. (V) LASTLY, THE CDC WHICH IS COLLECTED ON BE HALF OF PRINCIPAL, THOUGH RETAINED BY THE ASSESSEE COMPANY AS PER THE RBI GUIDELINE, IS THE RECEIPT BELONGING TO THE PRINCIPAL AND NO PART OF THE SAID RECEIPTS CAN BE SAID TO BE ACCRUED TO THE ASSESSEE AT ALL EITHER IN TERMS OF AGENCY AGREEMENT OR OTHERWIS E . 1 9 . BEFORE THE DRP, THE ASSESSEE BROUGHT ONE MORE ADDITIONAL FACT THAT IN THE ASSESSMENT YEAR 2010 - 11, THE ENTIRE INCOME HAS NOW BEEN OFFERED FOR TAX WHEN THE PRINCIPAL HAS SPECIFICALLY M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 10 AUTHORIZED THE AGENT TO APPROPRIATE THE AMOUNT. HOWEVER, THE DRP R EJECTED THE ASSESSEES CONTENTION IN THE FOLLOWING MANNER : THE FACTS THAT THE ASSESSEE HAS ITSELF DONE THE REVENUE RECOGNITION IN A LATER YEAR GOES ON TO PROVE BEYOND DOUBT THE REVENUE CHARACTER OF THE RECEIPT IN ASSESSEES HAND. THE ONLY ASPECT THAT REM AINS TO BE ADJUDICATED UPON IS THE YEAR OF TAXABILITY, AND ACCORDINGLY THE AMOUNTS HAVING ACCRUED AND COLLECTED, RECEIVED BY THE ASSESSEE DURING THE YEAR, THE SAME HAS TO BE BROUGHT TO TAX DURING THE YEAR UNDER CONSIDERATION. THE PRINCIPLES OF RESJUDICATA BEING NOT APPLICABLE TO INCOME - TAX PROCEEDINGS, THE ASSESSEES ARGUMENT THAT THE AMOUNT HAS NOT BEEN TAXED IN THE PAST IS IRRELEVANT. WE, THEREFORE DECLINE TO INTERFERE WITH THE AOS ORDER IN THIS REGARD. 20 . THUS, FOLLOWING THE SAME, AO TREATED THE AMOUN T CREDITED IN THE RELEVANT PREVIOUS YEAR AT RS. 1,18,65,365/ - AS INCOME ACCRUED TO THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08. 2 1 . BEFORE US, THE LD. COUNSEL SHRI F V IRANI AFTER EXPLAINING THE ENTIRE FACTS, SUBMITTED THAT THE ASSESSEE IS ONLY ACTING AS AN AGENT AND NEITHER THE RECEIPTS NOR EXPENSES ARE ROUTED THROUGH ITS P&L ACCOUNT. THE ASSESSEE IS ONLY ENTITLED FOR COMMISSION INCOME AS PER THE AGENCY AGREEMENT WITH THE PRINCIPAL. THE CDC IS ACTUALLY THE RECEIPTS OF THE SHIPPING COMPANY. SOLELY DUE TO RBI GUIDELINES ON REMITTANCE, A PORTION OF CDC CHARGES REMAINS WITH THE AGENT FOR MEETING THE ADMINISTRATIVE EXPENSES OF THE PRINCIPAL IN INDIA. THIS AMOUNT H AS ALWAYS BEEN TREATED AS LIABILITY IN THE BALANCE SHEET, BECAUSE THE ASSESSEE ONLY ACTED IN FIDUC IARY C APACITY I.E. MONEY WAS HELD IN A TRUST EVEN IN VIEW OF THE RBI CIRCULAR. NO ACTUAL INCOME HAD ACCRUED TO THE ASSESSEE NOR ASSESSEE HAD ANY RIGHT ON SUCH RECEIPTS OR INCOME. IN SUPPORT OF HIS CONTENTION , HE RELIED UPON THE HONBLE BOMBAY HIGH COURT DE CISION IN THE CASE OF CIT VS. TANUBAI B DESAI [1972] 84 ITR 713. HIS OTHER CONTENTION WAS THAT THE INCOME CAN ONLY BE SAID TO ACCRUE TO THE ASSESSEE ONLY M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 11 WHEN IT HA S A RIGHT TO RECEIVE THE INCOME OR THERE IS DOUBT OWED BY SOMEBODY IN FAVOUR OF THE ASSESSEE . IN SUPPORT OF H IS CONTEN TION, HE STRONGLY RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF E D SASSOON AND CO. LTD. VS CIT [19 54 ] 26 ITR 27 (SC) . 2 2 . ON THE OTHER HAND, LD. CIT DR, SUBMITTED THAT, AS PER THE RBI GUIDELINES, THE ASSESSEE COULD NOT HAVE REMITTED T HE SAID AMOUNT TO THE PRINCIPAL . O NCE IT CANNOT BE REMITTED , THEN WHETHER IT CAN IT BE HELD THAT SAME IS TAXABLE OR IS TO BE ASSESSED IN THE HANDS OF FOREIGN ENTERPRISE I.E. PRINCIPAL. IF T HE SAID CDC IS NEVER RECEIVED BY THE PRIN CIPAL, THEN IT CANNOT BE TAXED IN THE HANDS OF THE PRINCIPAL AND THEREFORE, THE SAID AMOUNT WILL GO UNTAXED AS IT IS NEITHER TAXED IN THE HANDS OF THE PRINCIPAL NOR IN THE HANDS OF THE AGENT. IF THE CDC IS RECEIPT / INCOME OF THE PRINCIPAL THEN ASSESSEE CO MPANY BEING AGENT OF PRINCIPAL IN INDIA , HAS TO TREAT THIS INCOME T AX A BLE IN INDIA. FURTHER IT ABSOLUTELY CLEAR THAT THIS IS THE INCOME OF THE ASSESSEE AND THAT IS THE REASON WHY IT HAS BEEN OFFERED FOR TAX IN AY 2010 - 11. 2 3 . WE HAVE HEARD THE RIVAL SU BMISSIONS AND PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AND ALSO THE MATERIAL ON RECORD. FIRST OF ALL WE HAVE TO SEE , WHETHER THE ASSESSEE HAS RIGHT TO RECEIVE THE CDC CHARGES ON ITS OWN ACCOUNTS, WHICH CAN BE TREATED TO BE INCOME ARISING OR ACCRUING TO THE ASSESSEE. IN OTHER WORDS, WHETHER A S A SHIPPING AGENT THERE IS A DEBT CREATED IN FAVOUR OF THE ASSESSEE QUA THE CDC CHARGES. FROM THE FACTS AS DISCUSSED ABOVE, IT IS ABUNDANTLY CLEAR THAT ASSES S EE IS A SHIPPING AGENT OF NYK JAPAN, THE PRINCI PAL WHO OWNS THE SHIPS AND THE CONTAINERS. IN ACCORDANCE WITH THE AGENCY AGREEMENT , THE ASSESSEE COLLECTS THE FREIGHT INCOME AND OTHER RECEIPTS (INCLUDING CDC CHARGES) ARISING IN THE COURSE OF THE PRINCIPALS SHIPPING BUSINESS IN INDIA AND REMITS THE SAME TO ITS PRINCIPAL. THE CDC CHARGES ARE M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 12 RECOVERED FROM THE THIRD PARTY ON AND ON BEHALF OF THE PRINCIPAL. AS PER THE AGENCY AGREEMENT, THE CDC CHARGES ARE COLLECTED BY THE ASSESSEE SOLELY ON BEHALF OF THE PRINCIPAL AND ARE DEPOSITED IN THE SEPARATE BANK ACC OUNT. THESE FUNDS ARE THEN USE TO MEET THE EXPENSES OF THE PRINCIPAL IN INDIA AND THEN IT IS REMITTED BACK TO THE PRINCIPAL IN ACCORDANCE WITH THE FOREIGN EXCHANGE REGULATIONS. THE RBI HAD ISSUED A CIRCULAR, WHEREBY A SMALL PORTION OF CDC CHARGES ARE TO BE RETAINED IN INDIA TOWARDS DISCHARGING OF ADMINISTRATIVE CHARGES ON AND BEHALF OF PRINCIPAL IN INDIA. THUS, THE AGENT IS BOUND TO CONDUCT THE BUSINESS OF ITS PRINCIPAL ACCORDING TO THE TERMS AND CONDITIONS AND DIRECTIONS GIVEN BY THE PRINCIPAL. HERE CDC CO LLECTED ON BEHALF OF THE PRINCIPAL, THOUGH RETAINED BY THE ASSESSEE IN VIEW OF RBI CIRCULAR, HOWEVER, BELONGS TO THE PRINCIPALS. THAT IS WHY , NEITHER THESE CHARGES ARE ROUTED THROUGH PROFIT AND LOSS ACCOUNT NOR ANY EXPENSES WHICH HAS BEEN INCURRED IN RELAT ION THERE TO. IN OTHER WORDS, NEITHER THE RECEIPTS NOR THE EXPENSES COLLECTED OR INCURRED ON BEHALF OF THE PRINCIPAL IS ROUTED THROUGH THE PROFIT AND LOSS ACCOUNTS OF THE ASSESSEE. THE AMOUNT COLLECTED BY THE ASSESSEE IS SOLELY IN FIDUCIARY CAPACITY , WHERE BY THE PRINCIPAL HAS ENTRUSTED THE AGENT TO COLLECT THE MONEY I.E. CDC CHARGES ON ITS BEHALF TO DISCHARGE THE OBLIGATION WHICH ARE PURELY THAT OF THE PRINCIPAL ONLY. THE ASSESSEE - AGENT UNDERTAKES TO COLLECT THE AMOUNT IN ITS FIDUCIARY CAPACITY AND HOLD TH E MONEY AS A TRUST. THUS, IT CANNOT BE HELD THAT ASSES S EE HAD ANY ENFORCEABLE RIGHT TO RECEIVE THE CDC CHARGES OR ANY INCOME CAN BE SAID TO HAVE ARISEN OR ACCRUED TO THE ASSESSEE QUA THE CDC CHARGES. ACCORDINGLY , WE HOLD THAT NO INCOME HAS ACCRUED OR ARISE N TO THE ASSESSEE IN THIS YEAR. NOW AS BROUGHT ON RECORD BY THE LD. COUNSEL , IN THE AY 2010 - 11, THE ASSESSEE HAS OFFERED THE ENTIRE AMOUNT OF CDC CHARGES COLLECTED RIGHT FROM YEAR 1993 TO DECEMBER, 2008 AS INCOME AND PAID THE ENTIRE TAXES IN AY 2010 - 11. TH IS HAS BEEN DONE SO ONLY WHEN THE PRINCIPAL HAD WRITTEN A LETTER DATED 25 TH MAY, 2009 , W HEREBY, THE PRINCIPAL HAS AUTHORIZED THE ASSESSEE TO RETAIN THE CDC CHAR GE S COLLECTED ON ITS BEHALF M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 13 RIGHT FROM PERIOD 1 ST APRIL, 1993 TO 31 ST MARCH, 2009. B Y VI RTUE OF THIS LETTER , THE PRINCIPAL HAS AUTHORIZED ITS AGENT TO TREAT THE AMOUNT AS AGENTS INCOME . HENCE FORTH, NOW IT CAN BE HELD THAT THIS INCOME BELONGS TO THE AGENT AND HENCE IT HAS BEEN RIGHTLY TAXED BY THE DEPARTMENT IN THE AY 2010 - 11. THUS, ON THESE FACTS AND CIRCUMSTANCES, WE HOLD THAT THE TAXING OF CDC CHARGES IN AY 2007 - 08 OR 2008 - 09 IS NOT SUSTAINED AND IS UNCALLED - FOR . THEREFORE, THE ADDITIONS MADE BY THE AO ARE DELETED. 2 4 . THE NEXT ISSUE RELATES TO TRANSFER PRICING ADJUSTMENTS OF RS. 1,99,35, 518/ - . 2 5 . AS STATED EARLIER, THE ASSESSEE PROVIDES AGEN CY SERVICES TO NYK JAPAN AND ITS SUBSIDIARIES, WHICH ARE ITS ASSOCIATED ENTERPRISES IN RESPECT OF SHIPPING ACTIVITIES IN INDIA. IT HAS BEEN PROVIDING SERVICES LIKE SALES, MARKETING, FREIGHT BOOKING, DOCUMENTATION, INLAND TRANSPORTATION, OPERATION COST CONTROL, VESSEL OPERATIONS, DISBURSEMENTS AND SYSTEMS/INFORMATION TECHNOLOGY ETC. THE AY 2007 - 08 I S THE SIXTH YEAR OF TRANSFER PR IC ING PROCEEDINGS AND IN THE EARLIER YEARS , NO ADJUSTMENT WAS MADE AS THE MARGINS ON THE INTERNATIONAL TRANSACTION WITH THE AE WERE FOUND IT TO BE AT ARMS LENGTH PRICE. DURING THE YEAR, THE ASSESSEE HAS REPORTED INTERNATIONAL TRANSACTION OF RS. 14,83,83,874/ - ON ACCOUNT OF AGENCY COMMISSION AND OTHER SERVICES. FOR BENCHMARKING THE TRANSACTION, THE ASSES S EE HAS ADOPTED TNMM AS A MOST APPROPRIATE METHOD (MAM) AND SELECTED 9 COMPARABLES AFTER TAKING PLI AS OPERATING PROFIT TO TOTAL SALES. HOWEVER, AFTER CERTAIN CORRECTIONS IN THE TP PROCEEDINGS, THE CORRECTED MARGINS OF THE COMPARA BLES WERE AS UNDER : - M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 14 THE TPO NOTED OUT OF ABOVE COMPARABLE THAT THERE WERE 5 COMMON COMPARABLES WHICH WERE IN THE EARLIER THREE YEARS ALSO INCLUDING ONE COMPARABLE , WUHU PORT STORAGE AND TRANSPORTATION CO., WHICH THE ASSESSEE HAD REJECTE D THIS YEAR ON T HE GROUND OF EX CESS PROFIT. THE FIVE COMPARABLES WHICH WERE THERE IN THE TP STUDY OF ASSESSEE IN EARLIER YEARS WERE AS UNDER : - S.NO. NAME OF COMPARABLE COMPANY UPDATED PLI (OP/TC)(%) FOR FY 2006 - 07 1 TOLL HOLDINGS LIMITED 16.32 2 BAL TRANS HOLD INGS LIMITED 2.68 3 SUN KWANG CO. LTD. 17.66 4 WUHU PORT STORAGE & TRANSPORTATION COMPANY 52.43 5 CHU KONG SHIPPING DEVELOPMENT COMPANY 4.17 2 6 . THE ASSESSEES OBJECTION NOW BEFORE THE TPO THAT WUHU PORT CANNOT BE INCLUDED IN THE COMPARABLE LIST BECAUSE OF VERY ABNORMAL HIGH MARGIN. IT WAS PLEADED THAT A FTER REMOVING THE WUHU THE ARITHMETIC MEAN MARGIN OF THE FOUR OTHER COMPARABLES WOULD BE LESS. HOWEVER, THE TPO REJECTED THE ASSESSEES CONTENTION A ND INCLUDED WUHU AS THE COMPARABLE COMPANY FOR BENCHMARKING THE ASSESSEES MARGIN IN THE FINAL LIST OF 9 COMPARABLES AND BENCHMARKED WITH THE AVERAGE MEAN MARGIN OF 66.55% OF THE COMPARABLES . A CCORDINGLY , THE TP ADJUSTMENT WAS MADE AT R S. 1,49,35,500/ - . THE DRP TOO REJECTED THE ASSESSEES OBJ ECTION WITH REGARD TO THE EXCLUSION OF WUHU COLD STORAGE AND TRANSPORTATION CO. ON THE GROUND THAT THE TPO HAS MERELY ADOPTED THE COMPARABLES SELECTED BY THE ASSESSEE IN TP STUDY REPORT AND ALSO WHICH WERE INCLUDED BY THE ASSESSEE IN THE EARLIER YEARS. 2 7 . BEFORE US THE LD. COUNSEL , SHRI F V IRANI, SUBMITTED THAT IN AY 2008 - 09, THE DRP HAS SPECIFICALLY EXCLUDED WUHU COLD STORAGE AND TRANSPORTATION CO MPANY ON THE GROUND OF VERY HIGH MARGIN AND FUNCTIONAL DISSIMILARITY. IF THIS COMPARABLE IS EXCLUDED FROM T HE FINAL LIST, THEN ASSESSEES MARGIN WILL FALL WITHIN THE RANGE OF 5% OF THE ARMS LENGTH PRICE. M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 15 2 8 . ON THE OTHER HAND, LD. CIT DR SUBMITTED THAT, IF THE COMPARABLE WITH ABNORMAL PROFITS ARE REMOVED THEN ON THE SAME LOGIC, COMPARABLES WITH LOWER P ROFITS SHOULD ALSO BE REMOVED. SIMPLY BECAUSE, A COMPARABLE H A S ABNORMAL HIGH MARGIN , THIS DOES NOT MEAN THAT THE SAME SHOULD BE EXCLUDED. WHAT ARE THE FACTORS WHICH HAD LEAD TO SUCH AN ABNORMAL PROFIT ARE NEED TO BE SCRUTINIZED AND IF REQUIRED , PROPER ADJUST MENT CAN BE MADE. LASTLY, THE ASSES S EE HAS A LWA Y S SHOWN THIS COMPARABLE IN ITS TRANSFER PRICING REPORT AND THIS YEAR IT HAS SOUGHT ITS EXCLUSION AT THE STAGE OF THE TRANSFER PRICING PROCEEDINGS MERELY ON THE GROUND IT HAD A HIGH MARGIN , WHICH CANNOT BE ACC EPTED. 2 9 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AND ALSO THE ORDER OF THE DRP FOR THE SUBSEQUENT YEAR. BEFORE US, THE MAIN DISPUTE WHICH HAS BEEN RAISED IS , WITH REGARD TO THE INCLUSION/EXC LUSION OF ONE COMPARABLE , I.E. WUHU COLD STORAGE AND TRANSPORTATION CO WHICH HAS A N UPDATED MARGIN OF 52.43% AS COMPARED TO ASSESSEES MARGIN 8.86%. IN THE SUBSEQUENT YEAR, THE DRP HAS DIRECTED THE AO/TPO TO REMOVE THE SAID COMPARABLE FROM THE FINAL LIST OF COMPARABLE COMPANY ON THE GROUND THAT, FIRSTLY, ITS MARGIN IS TOO HIGH AND SECONDLY, THE BUSINESS AND FUNCTIONS OF WUHU COLD STORAGE AND TRANSPORTATION CO. IS QUITE DIFFERENT FROM THE ASSESSEE INASMUCH AS SAID COMPARABLE IS ENGAGED IN THE ACTIVITY OF PORT LOADING AND UNLOADING ACTIVITIES AND STORAGE ACTIVITIES ON ITS OWN, WHICH IN THE CASE OF THE ASSESSEE IS OBTAINED BY THE AE FROM THE OTHER VENDORS. WUHU COLD STORAGE AND TRANSPORTATION CO. IS A COMPLETE SERVICE PROVIDER, WHEREAS, THE ASSESSEE IS MORE OF S ERVICE RECIPIENT O F SUCH ACTIVITIES. ONCE IT HA S BEEN FOUND THAT THIS COMPARABLE IS PERFORMING ACTIVITIES AND FUNCTIONS WHICH ARE DIFFERENT FROM THE FUNCTIONS CARRIED OUT BY THE ASSESSEE , THEN WITHOUT THERE BEING ANY CHANGE IN THE FACTS AND CIRCUMSTANCES I N THIS YEAR, THE SAID COMPANY CANNOT BE HEL D TO BE A GOOD COMPARABLE IN THIS YEAR. SIMPLY THE ASSESSEE HAS INCLUDED THIS M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 16 COMPARABLE IN TRANSFER PRICING STUDY REPORT IN THIS YEAR AS WELL AS IN THE EARLIER YEARS, IT DOES NOT PRECLUDE THE ASSESSEE FROM RAISIN G THE OBJECTION THAT THE SAID COMPARABLE CANNOT BE INCLUDED IN THIS YEAR , IF THE ASSESSEE IS ABLE TO DEMONSTRATE THE FACTORS AND CIRCUMSTANCES LEADING TO ITS EXCLUSION , SPECIFICALLY FUNCTIONAL DISSIMILARITY AND ALSO THE FACTORS LEADING TO HUGE VARIATION IN PROFIT MARGIN. HERE IN THIS YEAR, THE ASSESSEE BEFORE THE TPO AS WELL AS BEFORE THE DRP HAS DISPUTED THE COMPARABLE BASED ON HIGH MARGINS. THIS PLEA OF THE ASSESSEE HAS BEEN ACCEPTED BY THE DEPARTMENT IN THE SUBSEQUENT YEAR. THUS, FOLLOWING SUBSEQUENT ORD ER OF THE DRP, WE EXCLUDE THE WUHU COLD STORAGE AND TRANSPORTATION CO. FROM THE LIST OF FINAL COMPARABLES. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE SAME AND BENCHMARK THE AVERAGE MARGIN OF OTHER COMPARABLES WITH THAT OF THE ASSESSEE AN D IF THE MARGIN OF SUCH COMPARABLES FALLS WITHIN THE R AN G E OF 5% OF THE ARMS LENGTH PRICE, THEN NEEDLESS TO SAY, NO ADJUSTMENT SHOULD BE MADE. ACCORDINGLY, GROUNDS RELATED TO TRANSFER PRICING ADJUSTMENT ARE TREATED AS PARTLY ALLOWED. 30 . AS REGARDS GRO UND RELATING TO CHARGING OF INTEREST U/S 234B, IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT SAME IS CONSEQUENTIAL. ACCORDINGLY , GROUND NO. 21 IS TREATED AS DISMISSED. 3 1 . AS REGARDS THE GROUNDS RAISED RELATING TO INITIATION OF PENALTY PROCEEDINGS UNDER V ARIOUS SECTIONS ARE CONCERNED, THE SAME ARE PREMATURE AND ACCORDINGLY ARE DISMISSED AS SUCH. 3 2 . IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 3 3 . NOW, WE SHALL TAKE - UP ASSESSEES APPEAL FOR AY 2008 - 09 IN ITA NO. 7354/MUM/ 2012 M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 17 3 4 . IN THIS YEAR, THE ASSESSEE HAS RAISED FOLLOWING ISSUES IN VARIOUS GROUNDS : (I) DISALLOWANCE OF RS. 3,75,092/ - UNDER RULE 8D; (II) DISALLOWANCE ON ACCOUNT OF RESTRICTION OF CLAIM OF DEPRECIATION ON UPS AND PRINTERS AT 15% AS AGAINST 60% CLAIMED BY THE ASSE SSEE; (III) DISALLOWANCE OF CLAIM OF DEPRECIATION ON AIR CONDITIONER INSTALLED IN SERVER ROOM, WHICH HAS BEEN RESTRICTED TO 15% BY THE AO AS AGAINST THE CLAIM OF 60% MADE BY THE ASSESSEE; (IV) ADDITION ON ACCOUNT OF TAXABILITY OF CONTAINER DETENTION/RETENT ION CHARGES; (V) ADDITION OF RS. 26,02,846/ - REPRESENTING EXPENDITURE ON FEASIBILITY STUDY WHICH HAS BEEN TREATED AS CAPITAL EXPENDITURE ; AND (VI) LAST ISSUE RELATES TO NON - RECEIPT OF REFUNDS AND NON - GRANTING OF TDS CREDIT. 35 . SO FAR AS THE ISSUES RELAT ING TO CLAIM OF DEPRECIATION ON UPS, PRINTERS AND AIR - CONDITIONERS, THE SAME ARE SIMILAR TO GROUND RAISED IN APPEAL FOR ASSESSMENT YEAR 2007 - 08 AND THEREFORE THE FINDING GIVEN THEREIN WILL APPLY MUTATIS MUTANDIS IN THIS YEAR ALSO. ACCORDINGLY, THESE GROUND S ARE TREATED AS PARTLY ALLOWED I.E. DEPRECIATION ON UPS AND PRINTERS IS HELD TO BE ALLOWABLE @ 60% WHEREAS, THE DEPRECIATION ON AIR - CONDITIONERS IS ALLOWABLE ONLY @ 15%. 3 6 . AS REGARDS THE ISSUE RELATING TO TAXABILITY OF CONTAINER D ETENTION CHARGES, THE SAME IS ALS O SIMILAR TO THE GROUNDS RAISED IN AY 2007 - 08 AND ACCORDINGLY , IN VIEW OF THE FINDING GIVEN THEREIN, IT IS HELD THAT THE SAID CHARGES CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE IN THIS YEAR. 3 7 . SO FAR AS DISALLOWANCE U/S 14A, IT IS SEEN FR OM THE IMPUGNED ORDER THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF RS. M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 18 3,75,092/ - UNDER SECTION 14A R.W. RULE 8D(2)(III) ON THE DIVIDEND INCOME OF R S. 32,34,372/ - . 38 . FIRST OF ALL, IN THIS YEAR RULE 8D IS APPLICABLE, THEREFORE, THE EARLIER DEC ISION RENDERED BY THE TRIBUNAL AND OUR FINDING GIVEN THERE IN AY 2007 - 08 WILL NOT APPLY TO THE IMPUGNED YEAR. 39 . BEFORE THE DRP AS WELL AS BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS NOT MADE OUT ANY CLAIM AS TO WHY NO EXPENDITURE CAN BE SAID TO BE A TTRIBUTABLE FOR THE PURPOSE OF MAKING THE INVESTMENT WHICH HAS YIELDED EXEMPT INCOME. ALREADY THE ASSESSEES SUBMISSIONS WITH REGARD TO DIRECT EXPENSES AND INDIRECT EXPENDITURE HAS ALREADY BEEN ACCEPTED. AS REGARDS INDIRECT EXPENDITURE, THAT IS, UNDER RULE 8D(2)(III) NOTHING HAS BEEN BROUGHT ON RECORD THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, NO EXPENDITURE CAN BE SAID TO BE ALLOCABLE FOR THE EARNING OF EXEMPT INCOME. THUS, FINDING GIVEN BY THE ASSESSING OFFICER IN THIS REGARD AND ALSO THE DISALLO WANCE IS UPHELD. 40 . THE NEXT ISSUE RELATES TO DISALLOWANCE OF CLAIM OF EXPENDITURE OF RS. 26,02,846/ - ON ACCOUNT OF FEASIBILITY STUDY. 41 . THE BRIEF FACTS ARE THAT, DURING THE YEAR THE ASSESSEE HAS WRITTEN OFF A SUM OF RS. 26,02,846/ - WHICH REPRESENTED EXPENDITURE INCURRED TOWARDS PROFESSIONAL FEES FOR CONDUCTING FEASIBILITY STUDY FOR EXPLORING THE OPPORTUNITIES FOR SETTING UP BUSINESS PROCESS OUTSOURCING (BPO) UNIT IN INDIA. THE ASSESSEE HAD APPOINTED MCKINSEY & CO. A PROFESSIONAL FIRM FOR CONDUCTING TH E FEASIBILITY STUDY FOR SETTING UP OF BPO UNIT AND HAD ADVANCE D AN AMOUNT OF RS. 26,02,846/ - TOWARDS THE PROFESSIONAL FEES. HOWEVER, LATER ON, THE COMPANY TOOK A DECISION THAT BPO ACTIVITY WILL NOT BE SUITABLE FOR IT AND ACCORDINGLY , CERTAIN AMOUNT WAS WRI TTEN OFF AND CLAIMED AS AN EXPENDITURE. THE ASSESSING OFFICER HELD THAT SUCH AN EXPENDITURE WAS INCURRED FOR NEW LINE OF M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 19 BUSINESS AND T H AT TOO IT DID NOT COMMENCED THEREFORE, SUCH AN EXPENDITURE CANNOT BE ALLOWED AS REVENUE EXPENDITURE . FURTHER SIMILAR ISSUE IS PENDING BEFORE THE TRIBUNAL IN AY 2006 - 07. 42 . BEFORE US, THE LD. COUNSEL, SHRI F V IRANI, SUBMITTED THAT THE ASSESSEE SOUGHT TO EXPLORE THE SETTING - UP OF BPO BUSINESS AND FOR THAT PURPOSE IT HAS APPOINTED PROFESSIONAL FIRM. THIS PROPOSED BPO BUSINESS WAS FOR THE SAME LINE OF THE BUSINESS WITH SAME MANAGEMENT AND COMMON CONTROL. IT WAS DEFINITELY NOT FOR ANY NEW LINE OF BUSINESS AS HELD BY THE ASSESSING OFFICER. THE BPO BUSINESS WAS MEANT FOR ASSESSEES OWN FUNCTION AND BUSINESS. THUS, IT CANNOT BE HELD THAT ASSESSEES HAD NEW BUSINESS WHICH WA S TO BE STARTED , THEREFORE, SUCH AN EXPENDITURE IS NOTHING BUT FOR AVERAGE EXPENDITURE. 43 . ON THE OTHER HAND, THE LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO AS WELL AS DRP. 44 . AFTER CONSIDERING THE RIVAL S UBMISSION S AND ON PERUSAL OF THE FINDING GIVEN IN THE IMPUGNED ORDER, WE FIND THAT THE ASSESSEE HAS MADE THE PAYMENT TO PROFESSIONAL FIRM , MCKINSEY & CO. FOR CONDUCTING A FEASIBILITY STUDY REPORT FOR ESTABLISHING A BPO BUSINESS FOR ASSESSEES OWN FUNCTION. NOTHING HAS BEEN BROUGHT ON RECORD THAT SOME KIND OF NEW LINE OF BUSINESS WAS TO BE SET UP OR WAS TO BE CONTROLLED BY DIFFERENT MANAGEMENT . HENCE, IT CANNOT BE TREATED AS CAPITAL EXPENDITURE, OR FOR NON BUSINESS PURPOSE OR ANY KIND OF PRE - OPERATIVE EXPENS ES. HERE IN THIS CASE, BPO BUSINESS COULD NOT TAKE OFF AND WHATEVER EXPENDITURE HAS BEEN INCURRED HAS TO BE ALLOWED EITHER AS BUSINESS EXPENDITURE OR AS A BUSINESS LOSS INCURRED DURING THE COURSE OF BUSINESS. THUS, THE CLAIM OF SUCH AN AMOUNT CANNOT BE DIS ALLOWED EITHER AS A CAPITAL EXPENDITURE OR FOR NON - BUSINESS PURPOSE. ACCORDINGLY, GROUND NO. 12 & 13 ARE TREATED AS ALLOWED. M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 20 4 5 . AS REGARDS GROUND RELATING TO NON - GRANT OF RE FUND AND , NON - GRANT OF TDS CREDIT, WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE AND DECIDE IN ACCORDANCE WITH THE FACTS AND MATERIAL ON RECORD AND GRANT RELIEF/CREDIT IF FOUND TO BE ADMISSIBLE. 46 . REGARDING LEVY OF INTEREST U/S 234B, IT HAS BEEN ADMITTED THAT IT IS PURELY CONSEQUENTIAL AND ACCORDINGLY, THE SAME IS DISMISSED. 47 . LASTLY, AS REGARD LEVY OF INTEREST U/S 234 D , T HE LD. COUNSEL SUBMITTED THAT ASSESSEE HAS NOT RECEIVED ANY INTEREST AND THEREFORE, THERE IS NO QUESTION OF CHARGING INTEREST U/S 234 D. WE, ACCORDINGLY DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE AND DECIDE THE ISSUE ACCORDINGLY. 48 . IN THE RESULT, APPEAL OF THE ASSES S EE IS TREATED AS PARTLY ALLOWED. TO SUM - UP : BOTH THE APPEALS FILED BY THE ASSESSEE FOR AY S 2007 - 08 & 2008 - 09 STAND PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER , 2015. SD/ - SD/ - ( . . ) ( ) ( B R BASKARAN ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 23 RD SEPTEMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE DRP__ CONCERNED /C IT (A) - _____ CONCERNED , MUMB AI. 4 ) THE CIT _____ CONCERNED , MUMBAI. 5 ) , , / THE D.R. K BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. M/S NYK LINE (INDIA) LTD ITA NO. 8549 /MUM/20 1 1 ITA NO. 7534/MUM/ 2012 21 / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T. , MUMBAI * . . *CHAVAN, SR.PS