AEGIS LTD, MUMBAI V. DCIT RG 5(1), MUMBAI

ITA 7694/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8609 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Assessment Year: 2010-2011
• Appeal Filed On: 26-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: RAJAN VORA HEMAN CHANDARIYA
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; International transaction; Proportionate interest; Initiation of penalty proceedings; Notional interest; Commercial expediency; Unabsorbed depreciation
• Section: 92C; 143(3); 92B; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K, MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER ITA NO.7694/MUM/2014 (ASSESSMENT YEAR : 2010-11) AEGIS LIMITED, ESSAR TECHNO PARK, OLD SWAN MILL COMPOUND, LBS MARG, KURLA (W), MUMBAI 400 070 PAN:AAACE 8354Q ...... APPELLANT VS. THE DCIT , RANGE -5(1) MUMBAI. .... RESPONDEN T ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) THE DCIT , RANGE -5(1) MUMBAI. .... APP ELLANT VS. AEGIS LIMITED, ESSAR TECHNO PARK, OLD SWAN MILL COMPOUND, LBS MARG, KURLA (W), MUMBAI 400 070 PAN:AAACE 8354Q ...... RESPONDENT ASSESSEE BY : S/SHRI RAJAN VORA/ HEMAN CHANDARIYA REVENUE BY : SHRI N.K.CHAND DATE OF HEARING : 03/02/2017 DATE OF PRONOUNCEMENT : 08/02/2017 2 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) ORDER PER G.S. PANNU,AM: THE CAPTIONED CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE PERTAINING TO ASSESSMENT YEAR 2010-11 ARE RELATING TO AN ORDER PASSED BY DCIT, 5(1), (IN SHORT THE ASSESSING OFFICER) PAS SED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 29/11/2014, WHICH IS IN CONFORMITY WITH THE DIRECTION OF THE DISPUTE RESOLUTION PANNEL-1, MUMBAI (IN SHORT THE DRP) DATED 24/10/2014. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS WELL AS REVENUE READ AS UNDER:-- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, 1. THE LEARNED ASSESSING OFFICER ('AO') HAS ERRED IN COMPLETING THE ASSESSMENT OF APPELLANT AT INR 1,97,44,90,852 (AS AGAINST RETURNE D INCOME OF INR 53,53,12,560) VIDE ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S 14 4C OF THE INCOME-TAX ACT, 1961 ('THE ACT') AFTER CONSIDERING THE ADJUSTMENTS MADE BY LEARNED TRANSFER PRICING OFFICER ('IPO') IN HIS ORDER PASSED UNDER SECTION 9 2CA(3) OF THE ACT AND SUBSEQUENTLY CONFIRMED BY THE LEARNED DISPUTE RESOLUTION PANEL ( 'DRP'). GROUNDS RELATING TO TRANSFER PRICING MATTERS: 2. THE LEARNED TPO / AO / DRP HAVE ERRED IN MAKING AN ADDITION OF INR 88,02,54,695 TO THE TOTAL INCOME (AS DETAILED BELOW) OF THE APPE LLANT IN RESPECT OF VARIOUS INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPE LLANT WITH ITS ASSOCIATED ENTERPRISES ('AE'). S.NO. PARTICULARS AMOUNT (INR) 1. ADJUSTMENT IN RESPECT OF IT -ENABLED SERVICES 4,47,84,556 2. ADJUSTMENT IN RESPECT OF SUBSCRIPTION AND REDEMP TION OF PREFERENCE SHARE CAPITAL 63,64,02,739 3. ADJUSTMENT IN RESPECT OF GUARANTEE COMMISSION ON INTRA-GROUP GUARANTEES EXTENDED BY THE APPLICANT 19,90,67,400 TOTAL 88,02,54,695 3 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) 3. THE LEARNED TPO / AO / DRP HAVE ERRED IN NOT ACC EPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN RESPECT OF THE IMPUG NED INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT WITH ITS AES IN ACCOR DANCE WITH PROVISIONS OF THE ACT AND MODIFYING THE ECONOMIC ANALYSIS FOR DETERMINATI ON OF ARM'S LENGTH PRICE ('ALP') OF THE SAID TRANSACTIONS TO HOLD THAT THE SAME ARE NOT AT ARM'S LENGTH. ADJUSTMENT IN RESPECT OF PROVISION OF IT-ENABLED SE RVICES ('ITES'): 4. THE LEARNED TPO / AO / DRP HAVE ERRED IN: A. NOT ACCEPTING THE USE OF MULTIPLE YEAR DATA, AS ADOPTED BY THE APPELLANT IN ITS TRANSFER PRICING ('IP') DOCUMENTATION; AND B. DETERMINING THE ARM'S LENGTH MARGINS / PRICES U SING DATA PERTAINING ONLY TO FINANCIAL YEAR ('FY') 2009-10 WHICH WAS NOT AVAILAB LE TO THE APPELLANT AT THE TIME OF COMPLYING WITH THE INDIAN TP DOCUMENTATION REQUIREM ENTS. 5. THE LEARNED TPO / AO / DRP HAVE ERRED IN APPLY ING INAPPROPRIATE COMPARABILITY CRITERIA SUCH AS 'TURNOVER LESS THAN INR 1 CRORE' A ND 'DIFFERENT ACCOUNTING YEAR' FOR REJECTING CERTAIN COMPARABLE COMPANIES SELECTED BY THE APPELLANT IN ITS TP DOCUMENTS IN RESPECT OF INTERNATIONAL TRANSACTION P ERTAINING TO PROVISION OF IT ENABLED SERVICES. 6.THE LEARNED TPO / AO / DRP HAVE ERRED IN ERRONEOU SLY REJECTING CERTAIN COMPANIES FROM AND ADDING CERTAIN COMPANIES TO THE FINAL SET OF COMPARABLES FOR BENCH MARKING THE INTERNATIONAL TRANSACTION PERTAINING TO PROVISION OF IT-ENABLED SERVICES ON AN AD-HOC BASIS, THEREBY RESORTING TO CHERRY PIC KING OF COMPARABLES FOR BENCHMARKING THE SAID TRANSACTION. 7. THE LEARNED TPO / AO / DRP HAVE ERRED IN CONSIDE RING FOREIGN EXCHANGE GAINS / LOSSES ARISING FROM BUSINESS OPERATIONS AS NON-OPER ATING NATURE WHILE COMPUTING OPERATING MARGINS OF THE APPELLANT AS WELL AS COMPA RABLE COMPANIES. 8. THE LEARNED TPO / AO / DRP HAVE ERRED IN SELECTI NG CERTAIN COMPANIES (WHICH ARE EARNING SUPER NORMAL PROFITS) AS COMPARABLE TO THE APPELLANT. 9. THE LEARNED TPO / AO / DRP HAVE ERRED IN NOT MAK ING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN THE WORKING CAPITAL EMPL OYED BY THE APPELLANT VIS-A-VIS THE COMPARABLE COMPANIES. 10. THE LEARNED TPO / AO / DRP HAVE ERRED IN NOT MA KING SUITABLE ADJUSTMENTS TO ACCOUNT FOR DIFFERENCES IN RISK PROFILE OF THE APPE LLANT VIS-A-VIS THE COMPARABLE COMPANIES. 4 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) 11. THE LEARNED TPO / AO / DRP HAVE ERRED IN NOT PR OVIDING THE BENEFIT OF THE VARIATION OF 5 PERCENT FROM THE ARITHMETIC MEAN AS PROVIDED IN THE PROVISO TO SECTION 92C(2) OF THE ACT, WHILE MAKING ADJUSTMENT TO THE V ALUE OF INTERNATIONAL TRANSACTIONS OF THE APPELLANT, APPLICABLE AS PER LA W. ADJUSTMENT IN RESPECT OF ISSUE AND REDEMPTION OF P REFERENCE SHARES: 12. THE LEARNED TPO / AO / DRP HAVE ERRED IN RE-DET ERMINING THE ARM'S LENGTH COMPENSATION PERTAINING TO SUBSCRIPTION AND REDEMPT ION OF PREFERENCE SHARE CAPITAL BY RE-CHARACTERIZING THE SAME AS INTEREST-FREE LOAN AND THEREBY IMPUTING INTEREST THEREON. 13. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED TP O / AO / DRP HAVE ERRED IN CONSIDERING INDIAN BOND RATES FOR THE PURPOSE OF CO MPUTING INTEREST ON THE ALLEGED LOAN INSTEAD OF LIBOR BASED RATE. ADJUSTMENT IN RESPECT OF CORPORATE GUARANTEE: 14. THE LEARNED TPO / AO / DRP HAVE ERRED IN RE-DET ERMINING THE ARM'S LENGTH COMPENSATION FOR CORPORATE GUARANTEES EXTENDED BY A PPELLANT ON BEHALF OF ITS AES AND CONFIRMING AN ADJUSTMENT OF INR 19,90,67,400 ON THIS ACCOUNT. 15. WITHOUT PREJUDICE TO ABOVE, THE LEARNED TPO / AO / DRP HAVE ERRED IN MAKING DOUBLE ADDITION ON ACCOUNT OF GUARANTEE COMMISSION, SINCE THE APPELLANT HAS CUMULATIVELY RECOVERED GUARANTEE COMMISSION FROM IT S AES IN AY 2012-13 AT 1 PERCENT INCLUDING GUARANTEE COMMISSION FOR AY 2010- 11; 16. WITHOUT PREJUDICE TO ABOVE, IF THE ADDITION OF ON ACCOUNT OF GUARANTEE COMMISSION IS UPHELD IN THE YEAR UNDER CONSIDERATIO N, THE GUARANTEE COMMISSION OFFERED TO TAX IN AY 2012-13 SHOULD BE EXCLUDED FR OM THE TAXABLE INCOME. GROUNDS RELATING TO CORPORATE TAX MATTERS: 17. THE LEARNED AO / DRP HAVE ERRED IN MAKING AN AD DITION OF INR 58,96,32,789 TO THE TOTAL INCOME (AS DETAILED BELOW) OF THE APPELLA NT ON ACCOUNT OF NON-TRANSFER PRICING RELATED DISALLOWANCES. S.NO. PARTICULARS AMOUNT (INR) 1. DISALLOWANCE OF CARRY FORWARD AND SET- OFF OF UNABSORBED DEPRECIATION ALLOWANCE 49,25,34,311 2. DISALLOWANCE OF INTEREST EXPENSE UNDER SECTION 40(A)(IA) PAID TO NON-BANKING FINANCIAL INSTITUTION 11,380 3. DISALLOWANCE OF INTEREST EXPENSES CLAIMED 5 ,37,76,428 4. ADDITION OF EXCHANGE GAIN ON REPAYMENT OF LAON 4,33,10,670 5 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) TOTAL 58,96,32,789 [[ 18. THE LEARNED AO / DRP HAVE ERRED IN NOT UPHOLDIN G THE CLAIM OF THE APPELLANT FOR CARRY FORWARD AND SET-OFF OF UNABSORBED DEPRECIATIO N ALLOWANCE (INR 40,22,26,882) AND BUSINESS LOSS (INR 9,03,07,429) AGGREGATING TO INR 49,25,34,311: A. BY NOT MAKING A DUE EXAMINATION IN ACCORDANCE WI TH LAW AS TO WHETHER THERE WAS A CHANGE IN THE BENEFICIAL SHAREHOLDING OF THE ASSE SSEE BEYOND THE LIMITS SPECIFIED UNDER SECTION 79; B. BY NOT CONSIDERING THAT THE CLAIM FOR CARRY FOR WARD AND SET-OFF OF UNABSORBED DEPRECIATION ALLOWANCE AGGREGATING TO INR 40,22,26, 882 IS NOT REGULATED BY THE PROVISIONS OF SECTION 79 OF THE ACT. 19. THE LEARNED AO / DRP HAVE ERRED IN MAKING A DIS ALLOWANCE OF CURRENT YEAR LOSS AGGREGATING TO INR 22,48,71,471 ON ACCOUNT OF REDEM PTION OF PREFERENCE SHARES. A. THE LEARNED AO / DRP HAS FAILED TO GIVE DUE REG ARD TO THE EXPRESS SCHEME OF SECTION 92C / CHAPTER X-B OF THE ACT, WHEREBY NO PO WER IS VESTED IN THE LEARNED AO TO ENHANCE OR MODIFY THE FINDINGS OF THE LEARNED TP O. B. THE LEARNED AO / DRP HAS FAILED TO FOLLOW THE L AW OF THE LAND THAT THE DEEMING FICTION UNDER THE ACT IS LIMITED FOR THE PURPOSE IT IS SO MADE AND THE SAME DOES NOT PERMEATE THROUGH THE ENTIRE ASSESSMENT. C. THE LEARNED AO / DRP HAS TRAVELLED BEYOND THE P ROVISIONS OF THE ACT IN SEEKING TO RE-CHARACTERIZE LAWFULLY CONSUMMATED TRANSACTION(S) , WHERE NO SUCH POWER, EXPRESS OR IMPLIED, IS CONFERRED UNDER THE ACT. 20. THE LEARNED AO / DRP HAVE ERRED IN MAKING AN A DDITION BY IMPUTING A NOTIONAL INTEREST EXPENSE (AMOUNTING TO INR 11,380) ARISING OUT OF LEASE PAYMENTS WHICH IS NOT COVERED UNDER SECTION 194A OF THE ACT WITHOUT A PPRECIATING THE FACT THAT THE PAYEE WOULD HAVE OFFERED THE PAYMENT TO TAX IN ITS RETURN OF INCOME. 21. THE LEARNED AO /DRP HAVE ERRED ON FACTS AND I N LAW IN DISALLOWING INTEREST EXPENSE, AMOUNTING TO INR 5,37,76,428, CLAIMED BY T HE APPELLANT BY HOLDING THAT THE APPELLANT HAS NOT ESTABLISHED THE COMMERCIAL EX PEDIENCY FOR ADVANCING INTEREST FREE LOANS TO SISTER CONCERNS I SUBSIDIARIES: A. THE AO/DRP FAILED TO CONSIDER THE FACTUAL MATRIX AND THE CIRCUMSTANCES OF THE CASE, EVIDENCING THE FACT THAT APPELLANT HAS EXTEND ED LOANS FROM ITS OWN FUNDS; B. FOLLOW THE LAW LAID DOWN BY THE HON'BLE SUPREME COURT AND THE JURISDICTIONAL HIGH COURT ON ALLOWABILITY OF INTEREST ON LOANS MAD E TO A SISTER CONCERN, WITHOUT INTEREST, WHERE COMMERCIAL EXPEDIENCY IS PRIMA FACI E EVIDENCED IN THE TRANSACTION. 6 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) 22. THE LEARNED AO HAS ERRED ON FACTS AND IN LAW I N MAKING AN ADDITION OF EXCHANGE GAIN ON REDEMPTION OF PREFERENCE SHARES AGGREGATING TO INR 43,310,670 TO THE BUSINESS INCOME: A. THE LEARNED AO HAS FAILED TO GIVE DUE REGARD TO THE EXPRESS SCHEME OF SECTION 92C I CHAPTER X-B OF THE ACT, WHEREBY NO POWER IS V ESTED IN THE LEARNED AO TO ENHANCE OR MODIFY THE FINDINGS OF THE LEARNED TPO. B. THE LEARNED AO HAS FAILED TO FOLLOW THE LAW OF THE LAND THAT THE DEEMING FICTION UNDER THE ACT IS LIMITED FOR THE PURPOSE IT IS SO M ADE AND THE SAME DOES NOT PERMEATE THROUGH THE ENTIRE ASSESSMENT. C. THE LEARNED AO HAS TRAVELLED BEYOND THE PROVISIO NS OF THE ACT IN SEEKING TO RE- CHARACTERIZE LAWFULLY CONSUMMATED TRANSACTION(S), W HERE NO SUCH POWER, EXPRESS OR IMPLIED, IS CONFERRED ON HIM BY THE ACT. D. THE LEARNED AO FAILED TO FOLLOW THE LAW LAID DOW N BY THE HON'BLE SUPREME COURT IN THE CASE OF SUTLEJ COTTON MILLS LTD. VS CIT (116 IT R 1) AND CIT VS WOODWARD GOVERNOR INDIA P. LTD. (312 ITR 254) THAT WHERE GAIN ACCRUES ON FOREIGN CURRENCY HELD AS A CAPITAL ASSET, THE SAME WOULD BE OF CAPITAL NATURE. 23. THE LEARNED AO I DRP HAVE ERRED IN CHARGING INT EREST UNDER SECTION 234B AND SECTION 234C OF THE ACT. 24. THE LEARNED AO I DRP HAVE ERRED IN GIVING SHORT CREDIT OF TDS DEPOSITED TO THE APPELLANT, WHICH WAS CLAIMED BY THE APPELLANT IN IT S RETURN OF INCOME. 25. THE LEARNED AO I DRP HAVE ERRED, BY INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT WITHOUT RECORDING ANY ADEQUATE REASONS FOR SUCH INITIATION. EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH MAY KINDLY BE CONSIDERED INDEPENDENT OF EACH OTHER. GROUNDS OF REVENUES APPEAL:- 1 ' WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE DRP ERRED IN FACT & LAW WHILE REDUCING THE RATE OF CORP ORATE GUARANTEE FEE WHEN THE SAME WAS ARRIVED AT BY THE TPO BY ADOPTING A SCIENT IFIC APPROACH TO APPLY DIFFERENTIAL IN THE CORRESPONDING CREDIT RATING OF ASSESSEE AND THE AE' 2 THE APPELLANT PRAYS THAT THE DIRECTION OF THE HO NBLE DRP-I ON THE ABOVE GROUNDS BE SET ASIDE TO THE FILE OF THE AO OR CONFIRM THE O RDER OF THE AO. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 7 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) 4. A COPY OF THE ORDER OF THE DIRECTIONS OF THE DR P-I, MUMBAI WAS RECEIVED ON 31.10.2014 BY THE ERSTWHILE ASSESSING OFFICER I.E D CIT 5(1)(1). THE FINAL ASSESSMENT ORDER HAS BEEN PASSED BY DCIT 5(1)(1), MUMBAI ON 27 .11.2014. ACCORDINGLY THE LAST DATE FOR FILING OF APPEAL WAS 27/01/2015. CONSEQUEN T TO RESTRUCTURING THE CASE RECORDS WAS TRANSFERRED TO THE AO OF THIS CHARGE I. E. DCIT 6(1)(1), MUMBAI ON 23.01.2015 AND FOLLOWING THREE DAYS WERE PUBLIC HOL IDAYS. THE COMMENTS OF TPO WERE OBTAINED ON 25.02.2015 BY THE AO. THUS THE DEL AY IS REGRETTED AND THEREFORE IT IS HUMBLY REQUESTED THAT THE DELAY MAY KINDLY BE CO NDONED. 3. BEFORE WE PROCEED TO ADDRESS THE RESPECTIVE GROU NDS OF APPEAL, WE MAY BRIEFLY REFER TO THE BACKGROUND OF THE CASE. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF PROV IDING CUSTOMER INTERACTION (CUSTOMER ACQUISITION, CUSTOMER SERVICE S), BACK-OFFICE (RECEIVABLES MANAGEMENT AND DATA MANAGEMENT) RECOVE RY AND COLLECTION SERVICES FOR ITS CUSTOMERS. FOR THE ASS ESSMENT YEAR UNDER CONSIDERATION, IT FILED A RETURN OF INCOME ON 14/10 /2010 DECLARING AN INCOME OF RS.66,34,88,210/-, WHICH WAS SUBSEQUENTLY REVISED TO RS.53,53,12,560/-. IN THE ENSURING SCRUTINY ASSESS MENT FINALIZED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT DATED 29 /11/2014, THE TOTAL INCOME HAS BEEN ASSESSED AT RS.197,44,90,852/-. TH E ASSESSMENT SO FINALIZED BY THE ASSESSING OFFICER WAS, INTER-ALIA, IN CONFORMITY WITH THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION S ENTERED BY THE ASSESSEE WITH ASSOCIATED ENTERPRISES, WHICH WAS DET ERMINED BY THE TRANSFER PRICING OFFICER IN AN ORDER PASSED UNDER S ECTION 192CA(3) OF THE ACT DATED 13/01/2014; AND, ALSO IN ACCORDANCE WITH THE DIRECTIONS PASSED BY THE DRP-1, MUMBAI DATED 24/10/2014. NOT BEING SATISFIED WITH THE ORDER OF THE ASSESSING OFFICER, ASSESSEE I S IN APPEAL BEFORE US ON THE ABOVE SAID GROUNDS OF APPEAL, WHEREAS THE RE VENUE IN ITS CROSS- 8 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) APPEAL IS AGGRIEVED BY THE DIRECTIONS OF THE DRP IN THE CONTEXT OF ARRIVING AT THE ARMS LENGTH RATE OF THE CORPORATE GUARANTEE FEE. IN THIS BACKGROUND, THE RIVAL COUNSELS HAVE BEEN HEARD AND THE RELEVANT MATERIAL PERUSED. 4. FIRST, WE MAY TAKE UP THE APPEAL OF THE ASSESSEE . IN SO FAR AS THE GROUND OF APPEAL NO.1 IS CONCERNED, THE SAME IS GE NERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. THE GR OUNDS OF APPEAL NO.2 & 3 RELATE TO AN ADDITION OF RS.88,02,54,695/- MAD E ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT IN RESPECT OF THREE CAT EGORIES OF INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE NAMELY, IT ENABLED SERVICES(ITES), SUBSC RIPTION AND REDEMPTION OF PREFERENCE SHARE CAPITAL; AND, GUAR ANTEE COMMISSION ON INTRA-GROUP GUARANTEES EXTENDED BY THE ASSESSEE. THE ISSUES RAISED IN GROUND OF APPEAL NO.2 & 3 ARE GENERAL IN NATURE, AND THE SPECIFIC ISSUES HAVE BEEN RAISED IN SUBSEQUENT GROUNDS. 4.1 WE MAY FIRST TAKE UP THE ISSUES RAISED BY THE ASSESSEE IN THE CONTEXT OF THE ADJUSTMENT OF RS.4,47,84,556/- MADE IN RESPECT OF ITE SERVICES SEGMENT, AND SUCH ISSUES ARE MANIFESTED IN GROUNDS OF APPEAL NO.4 TO 11. IN THE CONTEXT OF INTERNATIONAL TRANSA CTION OF ITE SERVICES, THE RELEVANT FACTS CAN BE SUMMARIZED AS FOLLOWS. A SSESSEE IS ENGAGED IN PROVIDING IT ENABLED BUSINESS PROCESS OUTSOURCING S ERVICES(BPO) TO ITS ASSOCIATED ENTERPRISES AND THIRD PARTIES. APART FRO M THE AFORESAID, DURING THE YEAR ASSESSEE ALSO RENDERED RECEIVABLE MANAGEMENT SERVICES TO ITS ASSOCIATED ENTERPRISES. IN ITS TRA NSFER PRICING STUDIES, ASSESSEE HAD BENCHMARKED THE SAID TRANSACTIONS SEPA RATELY BY USING 9 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) THE TRANSACTIONAL NET MARGIN METHOD AS THE MOST APP ROPRIATE METHOD AND OPERATIONAL PROFIT/OPERATIONAL COST(OP/OC) WAS USED AS THE PROFIT LEVEL INDICATOR (PLI). THE ASSERTIONS OF THE ASS ESSEE WERE THAT HAVING REGARD TO THE MARGIN OF THE COMPARABLE CONCERNS SEL ECTED, THE MARGINS OF THE ASSESSEE IN THE RESPECTIVE SEGMENTS OF PROV ISION OF ITE SERVICES AND RECEIVABLE MANAGEMENT SERVICES WERE FAVOURABLE AND THUS, THE STATED VALUE OF THE TRANSACTIONS WAS AT AN ARM'S LE NGTH PRICE. THE TRANSFER PRICING OFFICER, HOWEVER, MERGED THE AFORE SAID TWO SEGMENTS INTO A SINGLE ITE SERVICES SEGMENT AND DETERMINED T HE ASSESSEES MARGIN AT 20.11% ON COST. THOUGH THE TRANSFER PRIC ING OFFICER DID NOT DISAGREE WITH THE SELECTION OF TNM METHOD AS THE MO ST APPROPRIATE METHOD BUT HE HAS INTRODUCED SOME NEW FILTERS, MOD IFIED THE THRESHOLD LIMIT OF VARIOUS FILTERS AND/ OR OT HER COMPARABILITY CRITERIA APPLIED BY THE ASSESSEE AND ARRIVED AT THE FOLLOWI NG FINAL SET OF SIX COMPARABLES:- S.NO. NAME OF COMPARABLE OPERATING MARGIN (OP/OC)% 1. ACCENTIA TECHNOLOGIES LTD. 43.07 2, ACROPETAL TECHNOLOGIES LTD. 22.22 3. COSMIC GLOBAL LTD. 14.97 4. E 4E HEALTHCARE BUSINESS SERVICES PVT. LTD. 19.52 5. INFORMED TECHNOLOGIES INDIA LTD. 26.15 6. INFOSYS BPO LTD. 31.20 TOTAL 1 57.13 MEAN 26.18 THE AVERAGE MARGIN OF THE SAID COMPARABLES ARRIVE D AT 26.18% WAS COMPUTED AS ARMS LENGTH MARGIN AND AFTER COMPARING IT WITH ASSESSEES MARGIN, AN AMOUNT OF RS.4,47,84,566/- WA S DETERMINED AS AN 10 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) ADJUSTMENT THAT WAS REQUIRED TO BE MADE TO BRING T HE STATED VALUE OF THE TRANSACTIONS TO THEIR ARM'S LENGTH PRICE. THE DRP HAS ALSO AFFIRMED THE ULTIMATE DECISION OF THE TRANSFER PRICING OFFIC ER, AND ACCORDINGLY, THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.4, 47,84,566/- IN THE FINAL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT. 4.2 ALTHOUGH ON THIS ASPECT ASSESSEE HAS RAISED MUL TIPLE GROUNDS BUT THE SHORT POINT THAT HAS BEEN ARGUED BEFORE US IS F OR INCLUSION AND EXCLUSION OF CERTAIN CONCERNS IN THE FINAL SET OF COMPARABLES, WHICH WE SHALL DISCUSS HEREINAFTER IN SERIATIM. THE FIRST P LEA OF THE ASSESSEE IS FOR EXCLUSION OF ACCENTIA TECHNOLOGIES LTD. FROM THE FI NAL SET OF COMPARABLES ON THE GROUND THAT THE SAID CONCERN IS FUNCTIONALLY DISSIMILAR; THAT IT HAS UNDERGONE EXTRAORDINARY EVE NTS DURING THE YEAR, I.E. AMALGAMATION; AND, THE PRESENCE OF SIGNIFICANT INTANGIBLES. ACCORDING TO THE ASSESSEE COMPANY, THE SAID CONCER N IS FUNCTIONALLY DIFFERENT BECAUSE THE SAID CONCERN IS A SOFTWARE A ND SOFTWARE PRODUCTS PROVIDER AND, THEREFORE, IT IS INCOMPARABLE TO ASSE SSEES ACTIVITY OF ITE SERVICES. SECONDLY, IT IS POINTED OUT THAT DURING THE YEAR UNDER CONSIDERATION, A COMPANY NAMED, ASSCENT INFOSERVE P RIVATE LIMITED HAS MERGED WITH THE SAID CONCERN AND, THEREFORE, THE FI NANCIAL RESULTS OF THE SAID CONCERN ARE IMPACTED ON ACCOUNT OF SUCH EXCEPT IONAL EVENTS. IT IS ALSO SOUGHT TO BE POINTED OUT THAT THE SAID CONCERN HAD ACQUIRED CERTAIN COMPANIES FOR SAAS TECHNOLOGY, WHICH FORMS A PART OF ITS ASSETS BASE WHICH SERVES THE PURPOSE OF PROVIDING NICHE SE RVICES TO THE CUSTOMERS, WHICH IS QUITE DIFFERENT FROM THE ROUTIN E ITE SERVICES PROVIDED BY THE ASSESSEE. ACCORDING TO THE LD. REP RESENTATIVE, 11 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) ASSESSEE IS EMPLOYING ROUTINE TANGIBLE ASSETS, AND DOES NOT OWN ANY SIGNIFICANT INTANGIBLES WHILE RENDERING ITE SERVIC ES, AND THEREFORE, ACCENTIAL TECHNOLOGIES LIMITED IS INCOMPARABLE T O ASSESSEES TESTED SEGMENT OF PROVIDING ITE SERVICES TO ITS ASSOCIAT ED ENTERPRISES. 4.3 IN THIS ASPECT, THE LD. DEPARTMENTAL REPRESENTA TIVE HAS OPPOSED THE PLEA OF THE ASSESSEE BY RELYING ON THE DISCUSSI ON MADE BY THE TRANSFER PRICING OFFICER IN PARA 10.4 OF HIS ORDER, WHEREBY IT IS SOUGHT TO BE POINTED OUT THAT THE SAID CONCERN HAS BEEN RIGH TLY EXCLUDED. FIRSTLY, IT IS SOUGHT TO BE POINTED OUT THAT THE SAID CONCER N WAS CONSIDERED AS A COMPARABLE BY THE ASSESSEE ITSELF AND, THEREFORE, T HERE IS NO JUSTIFICATION FOR THE ASSESSEE TO AGAIN SEEK ITS E XCLUSION. SECONDLY, WITH REGARD TO THE MERGER OF ACCENT INFOSERVE PRIVATE LT D., WITH THE SAID CONCERN, THE LD. DEPARTMENTAL REPRESENTATIVE POIN TED OUT THAT THERE WAS NOTHING ON RECORD TO SHOW THAT THE SAID EVENT H AD IMPACTED THE COMPARABILITY OF THE SAID CONCERN WITH THE ASESSEE S TESTED ACTIVITIES, WHICH ARE IN THE FIELD OF A CLASSICAL BPO. THE LD. DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THE TRANSFER PRICI NG OFFICER HAD REJECTED THE SAID PLEA BY RELYING ON THE DECISION O F THE MUMBAI TRIBUNAL IN THE CASE OF WILLIS PROCESSING (INDIA) PVT. LTD. ,ITA NO.2152/MUM/2014 ON THE GROUND THAT, WHERE THE MERGER OF TWO FUNCTIO NALLY SIMILAR CONCERNS TOOK PLACE, THEN THE EVENT OF MERGER BY IT SELF CANNOT BE TAKEN AS A FACTOR FOR EXCLUSION OF THE SAID CONCERN FROM THE LIST OF COMPARABLES. IN THIS CONTEXT, OBSERVATION OF THE D ELHI BENCH OF THE TRIBUNAL IN THE CASE OF AGILENT TECHNOLOGIES INTERN ATIONAL PRIVATE LIMITED, ITA NO. 1837/DEL/2014 HAVE ALSO BEEN REFE RRED TO SHOW THAT IN 12 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) SUCH SITUATION, A CONCERN CAN BE EXCLUDED ONLY IF, BECAUSE OF MERGER OR DEMERGER, THE SAID CONCERN BECOMES FUNCTIONALLY DIF FERENT. 4.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THOUGH THE SAID CONCERN HAS BEEN EXCLUDED FROM THE FINAL SET O F COMPARABLE IN ASSESSMENT YEAR 2009-10 ALSO BY THE TRIBUNAL VIDE O RDER IN ITA NO.1213/MUM/2014 DATED 27/07/2015(SUPRA), SO HOWEVE R, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAD POINTED OUT THA T THE REASON FOR EXCLUSION FOR ASSESSMENT YEAR 2009-10(SUPRA) IS NOT VALID, IN THE INSTANT ASSESSMENT YEAR. PRIMARILY, IN THE INSTAN T YEAR, THE EXCLUSION HAS BEEN SOUGHT ON THE GROUND THAT CERTAIN EXTRAORD INARY EVENTS HAVE TAKEN PLACE DURING THE FINANCIAL UNDER CONSIDERATIO N NAMELY, MERGER OF ACCENT INFOSERVE PRIVATE LTD. WITH THE ASSESSEE COM PANY. FACTUALLY SPEAKING, THE SAID EVENT IS NOT DISPUTED BY THE REV ENUE, BUT THE CASE MADE OUT BY THE REVENUE IS THAT THE SAID EVENT OF M ERGER DOES NOT DEFEAT THE COMPARABILITY OF THE SAID CONCERN AS NO EFFECT ON FINANCIAL RESULTS HAS BEEN DEMONSTRATED. IN PRINCIPLE, WE HA VE NO QUARREL WITH THE PROPOSITION BEING ADVANCED BY THE REVENUE BECAU SE THE MERGER/DEMERGER BY ITSELF WOULD NOT RENDER A CONCER N DISSIMILAR UNLESS IT IS SHOWN THAT SUCH AN EXCEPTIONAL OR EXTRAORDINA RY EVENT HAD IMPACTED ITS COMPARABILITY. SO HOWEVER, IN THIS CO NTEXT OF EXCLUSION OF ACCENTIA TECHNOLOGIES LTD., A REFERENCE MAY BE MA DE TO THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ZAVATA INDIA PVT. LTD. VS. DCIT, IN ITA NO.473/HYD/2015 D ATED 29/07/2015 FOR ASSESSMENT YEAR 2010-11, WHEREIN THE TRIBUNAL HAS C ONFIRMED THE EXCLUSION OF THE SAID CONCERN ON THE GROUND OF THE IMPACT ON THE FINANCIAL RESULTS. IN FACT, IN THE CASE OF ZAVITA INDIA PVT. LTD.(SUPRA), THE 13 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) TRIBUNAL WAS CONSIDERING A SITUATION, WHERE THE ASS ESSING OFFICER HAD EXCLUDED THE SAID CONCERN AFTER BEING DIRECTED BY T HE DRP TO EXAMINE WHETHER ANY EXTRAORDINARY EVENT HAD EFFECTED THE FINANCIAL RESULTS. THE TRIBUNAL NOTICED THAT THE ASSESSING OFFICER HA D EXCLUDED THE CONCERN FROM THE LIST OF COMPARABLES AFTER CARRYING OUT THE VERIFICATION DIRECTED BY THE DRP. IN THIS BACKGROUND, THE TRIBU NAL AFFIRMED THE EXCLUSION OF THE SAID CONCERN FROM THE FINAL SET O F COMPARABLES. TO THE SIMILAR EFFECT IS THE JUDGMENT OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TECHBOOKS INTERNATIONAL PVT. LTD. VS. DCIT , IN ITA NO.240/DEL/2015 DATED 06/07/2015 FOR ASSESSMENT YEA R 2010-11. IN OUR CONSIDERED OPINION, THE DECISION OF THE HYDERAB AD TRIBUNAL IN THE CASE OF M/S. ZAVATA INDIA PVT. LTD.(SUPRA)CLEARLY D ISPELS THE STAND OF THE REVENUE IN THE CONTEXT OF THE INSTANT ASSESSMENT Y EAR. THEREFORE, THE SAID CONCERN IS EXCLUDABLE ON THE GROUND OF EXISTEN CE OF AN EXTRAORDINARY EVENT IN THIS YEAR, WHICH HAS HAD AN EFFECT ON ITS FINANCIAL RESULT, THEREBY IMPACTING ITS COMPARABILITY WITH AS SESSEES TESTED SEGMENT OF IT ENABLED SERVICES. THUS, ON THIS SHOR T POINT, WE UPHOLD THE PLEA OF THE ASSESSEE FOR EXCLUSION OF ACCENTIA TECHNOLOGIES LTD. FROM THE FINAL SET OF COMPARABLES. 5. THE NEXT PLEA OF THE ASSESSEE IS FOR EXCLUSION O F M/S.COSMOS GLOBAL LTD. FROM THE FINAL SET OF COMPARABLES. THE LD. REPRESENTATIVE FOR THE ASSESSEE JUSTIFIED THE PLEA FOR EXCLUSION O F COSMOS GLOBAL LIMITED ON THE GROUND THAT THE BUSINESS MODEL OF TH E SAID CONCERN IS SIGNIFICANTLY DIFFERENT FROM THAT OF THE ASSESSEE C OMPANY. BY REFERRING TO THE RELEVANT EXTRACTS OF THE ANNUAL REPORT OF TH E SAID CONCERN, COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGES 420 TO 434, IT IS 14 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) SOUGHT TO BE POINTED OUT THAT IT HAS INCURRED SIGNI FICANT EXPENDITURE ON TRANSLATION CHARGES, WHICH SHOWS THAT IT HAS OUTSOU RCED A MAJOR PORTION OF ITS ACTIVITIES, WHICH IS NOT SO IN THE CASE OF THE ASSESSEE. APART THEREFROM, IT IS POINTED OUT THAT IN ASSESSMENT YEA R 2009-10, THE SAID CONCERN HAS BEEN EXCLUDED BY THE TRIBUNAL ALSO AND IN THIS CONTEXT, A REFERENCE HAS BEEN MADE TO PARA 10(II & III) OF THE ORDER OF THE TRIBUNAL DATED 27/7/2015(SUPRA). 5.1 ON THE OTHER HAND, THE PLEA OF THE LD. DEPARTME NTAL REPRESENTATIVE IS PRIMARILY IN SUPPORT OF THE REAS ONING ADVANCED BY THE TRANSFER PRICING OFFICER, WHICH IS TO THE EFFECT TH AT THE ASSESSEE HAD ITSELF INCLUDED IT AS A COMPARABLE IN ITS INITIAL T RANSFER PRICING STUDY. 5.2 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN ASSESSMENT YEAR 2009-10(SUPRA), THE SAID CONCERN HA S BEEN EXCLUDED FROM THE FINAL SET OF COMPARABLES ON THE GROUND THA T THERE WAS A SIGNIFICANT DIFFERENCE IN BUSINESS STRATEGIES LIKE OUTSOURCING OF THE ENTIRE SERVICE SEGMENT, ETC. IN SO FAR AS THE FACT -POSITION IS CONCERNED, IN THE INSTANT ASSESSMENT YEAR ALSO REVENUE HAS NOT DOUBTED THE DIFFERENCE IN THE BUSINESS STRATEGIES, SO HOWEVER, THE PLEA RAISED IS THAT THE SAID CONCERN HAS BEEN INCLUDED BY THE ASSESSEE ITSELF AS A COMPARABLE CONCERN IN ITS INITIAL TRANSFER PRICING STUDY. 5.3 IN THIS CONTEXT, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT INITIALLY THE SAID CONCERN WAS INCLUDE D AS A COMPARABLE BASED ON THE DATA AVAILABLE IN PUBLIC DOMAIN; AND, SUBS EQUENTLY THE SAID CONCERN WAS SOUGHT TO BE EXCLUDED AT THE TIME OF PR OCEEDINGS BEFORE THE TRANSFER PRICING OFFICER ITSELF BASED ON THE DA TA THEN AVAILABLE IN 15 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) PUBLIC DOMAIN. IN THIS CONTEXT, IN OUR CONSIDERED OPINION, THERE CANNOT BE AN ABSOLUTE PROPOSITION THAT ONCE AN ASSESSEE H AS INCLUDED OR EXCLUDED CERTAIN CONCERNS FROM ITS LIST OF COMPARA BLES, IT IS THEREAFTER PRECLUDED FROM CONTESTING OTHERWISE; NO DOUBT WHERE AN ASSESSEE HAS INCLUDED OR EXCLUDED A CONCERN FROM ITS LIST OF C OMPARABLES, AND IT SEEKS A CHANGE IN ITS POSITION, THEN THERE HAS TO B E JUSTIFIABLE AND BONAFIDE REASONS FOR DOING THE SAME. IN THE PRESEN T CASE, IN SO FAR AS THE EXCLUSION OF COSMOS GLOBAL LIMITED IS CONCERNED , IT IS QUITE CLEAR THAT IT HAS BEEN FOUND TO BE INCOMPARABLE BY THE TR IBUNAL IN ASSESSMENT YEAR 2009-10 ON ACCOUNT OF THE FACT TH AT IT IS OPERATING WITH A DIFFERENT BUSINESS MODEL. THE ASSESSEE HAS SOUGHT TO EXPLAIN THE INITIAL INCLUSION OF THE SAID CONCERN ON ACCOU NT OF NON-AVAILABILITY OF THE RELEVANT DATA, WHICH CAME IN PUBLIC DOMAIN SUBS EQUENTLY. IN ANY CASE, WE FIND THAT THE EXCLUSION OF COSMOS GLOBAL L IMITED HAS BEEN SOUGHT BY THE ASSESSEE BEFORE THE TRANSFER PRICING OFFICER ITSELF, WHICH CLEARLY SUGGESTS THAT THE ASSESSING AUTHORITY WAS I N A POSITION TO ADEQUATELY AND APPROPRIATELY CARRY OUT THE NECESSA RY VERIFICATION. WITHOUT FINDING ANY FAULT ON THE MERIT OR THE BONA FIDES OF THE EXCLUSION, THE ACTION OF THE TRANSFER PRICING OFFIC ER IN MERELY SHUTTING OUT ASSESSEES PLEA IS NOT JUSTIFIED. THEREFORE , CONSIDERING THE ENTIRE CONSPECTUS OF THE FACTS AND CIRCUMSTANCES OF THE CA SE WE DEEM IT FIT AND PROPER TO UPHOLD THE PLEA OF THE ASSESSEE FOR E XCLUSION OF COSMOS GLOBAL LIMITED FROM THE FINAL SET OF COMPARABLES. 6. THE NEXT PLEA OF THE ASSESSEE IS FOR EXCLUSION O F INFOSYS BPO LIMITED FROM THE FINAL SET OF COMPARABLES PRIMARILY ON THE GROUND THAT THE ARRAY AND SCALE OF OPERATIONS OF THE SAID CONCE RN IS QUITE 16 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) INCOMPARABLE TO ASSESSEES ACTIVITY OF PROVIDING ROUTINE BPO SERVICES TO THE ASSOCIATED ENTERPRISE IN THE NATURE OF DATA COLLECTION AND ANALYSIS. THE TRANSFER PRICING OFFICER HAS INCLUDE D SAID CONCERN ON THE GROUND THAT IT IS ENGAGED IN SIMILAR FUNCTIONS AND FURTHER, THAT THE SAID CONCERN WAS A PART OF SET OF COMPARABLES INITIALL Y SELECTED BY THE ASSESSEE ITSELF. 6.1 BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT THE SAID CONCERN IS ENGAGED IN PROVIDING HIGH END INTEGRATED SERVICES BY ASSISTING ITS CLIENTS IN IMPROVING THE IR COMPETITIVE POSITION BY MANAGING THEIR BUSINESS PROCESSES. THE LD. REPR ESENTATIVE FOR THE ASSESSEE REFERRED TO THE EXTRACT FROM THE WEBSITE O F THE SAID CONCERN AS ALSO ITS ANNUAL REPORT TO POINT OUT THAT IT IS ENGA GED IN RENDERING OF A WIDE RANGE OF BPO SERVICES IN THE NATURE OF BUSINES S PLATFORMS, CUSTOMER SERVICE OUTSOURCING, FINANCE AND ACCOUNTIN G, HUMAN RESOURCES OUTSOURCING, LEGAL PROCESS OUTSOURCING, S ALES AND FULFILMENT, SOURCING AND PROCUREMENT OUTSOURCING, ETC. IT IS ALSO POINTED OUT THAT IT OPERATES AT A LARGE SCALE OF OPERATIONS WITH A TURNOVER OF RS.1126.63 CRORES, WHEREAS THE TURNOVER OF THE ASSESSEE IS QUI TE SMALL IN COMPARISON. BY REFERRING TO THE ANNUAL REPORT, IT HAS ALSO BEEN SOUGHT TO BE POINTED OUT THAT DURING THE YEAR UNDER CONSID ERATION IT HAS ACQUIRED A CONCERN MC CARNISH SYSTEMS LLC, WHICH IS AN EXCEPTIONAL EVENT. IT HAS ALSO BEEN POINTED OUT THAT THE SAID CONCERN HAS A VERY HIGH VALUE OF GOODWILL, WHICH IS QUITE INCOMPARABLE WITH THE SCALE OF OPERATIONS OF THE ASSESSEE COMPANY. IT IS POINTED OUT THAT ASSESSEE IS RENDERING ROUTINE SERVICES AND IS BEING REMUNERATE D AT COST PLUS MODEL BASIS, AND THUS THE SAID CONCERN IS INCOMPAR ABLE. 17 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) 6.2 BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THOUGH ASSESSEE HAS RAISED THE PLEA OF EXCLUDING TH E SAID CONCERN BEFORE TRANSFER PRICING OFFICER BUT NO SUCH OBJECT ION WAS RAISED BEFORE THE DRP AND, THEREFORE, THIS BEING A NEW PLEA, IT SHOULD NOT BE ADMITTED BY THE TRIBUNAL. 6.3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN SO FAR AS THE PLEA OF THE LD. DEPARTMENTAL REPRESENTATIVE TO THE EFFECT THAT THE EXCLUSION OF THE SAID CONCERN HAS NOT BEEN RAISED B EFORE THE DRP IS CONCERNED, THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE CLAIM IS BASED ON THE SUBSEQUENT DECISION OF THE TR IBUNAL ON THIS ASPECT AND THAT THE PLEA BE JUDGED ON ITS MERITS. APART THEREFROM, IT IS ALSO SOUGHT TO BE POINTED OUT THAT NO ADDITIONAL GROUND IS REQUIRED TO BE RAISED BECAUSE THE PLEA FOR EXCLUSION OF INFOSYS BP O LIMITED IS SUBSUMED IN GROUND OF APPEAL NO.6, WHICH IS QUITE OMNIBUS. IN OUR CONSIDERED OPINION, WE DO NOT FIND ANY MERIT IN THE OBJECTION RAISED BY THE LD. DEPARTMENTAL REPRESENTATIVE INASMUCH AS, A SSESSEE RESISTED THE INCLUSION OF THE SAID CONCERN IN THE LIST OF CO MPARABLES EVEN IN THE COURSE OF PROCEEDINGS BEFORE THE TRANSFER PRICING O FFICER. THE FACTUM OF ASSESSEE NOT HAVING RAISED ANY OBJECTION BEFORE THE DRP DOES NOT PRECLUDE IT FROM RAISING IT BEFORE THE TRIBUNAL BE CAUSE IT IS NOT A PLEA WHICH IS ALIEN TO THE REVENUE, SINCE IT WAS VERY MU CH BEFORE THE TRANSFER PRICING OFFICER HITHERTO. IN SO FAR AS T HE MERITS OF THE EXCLUSION OF INFOSYS BPO LIMITED IS CONCERNED, IT IS QUITE CL EAR THAT WHEREAS IS ENGAGED IN PROVIDING ROUTINE BPO SERVICES TO ITS AS SOCIATED ENTERPRISE, THE INFOSYS BPO LIMITED IS ENGAGED IN PROVIDING HIG H END INTEGRATED SERVICES. MOREOVER, THE SAID CONCERN HAS A SIGNIFI CANTLY LARGE SCALE OF 18 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) OPERATIONS AND A HIGH BRAND VALUE, WHICH MAKES IT Q UITE INCOMPARABLE WITH THE ASSESSEE ON A QUALITATIVE BASIS. IT HAS ALSO BEEN POINTED OUT BEFORE US THAT IN THE CASE OF TECHBOOKS INTERNATIO NAL PVT. LTD.(SUPRA) FOR THE VERY SAME ASSESSMENT YEAR, THE SAID CONCERN HAS BEEN FOUND TO BE INCOMPARABLE ON THE GROUND OF EXCEPTIONAL EVENT REFLECTED BY THE ACQUISITION OF MC CARNISH LLC. DURING THE YEAR UNDE R CONSIDERATION . EVEN OTHERWISE, IN OUR CONSIDERED OPINION, THE ASSE SSEE CONCERN IS RENDERING ROUTINE SERVICES AND IS BEING REMUNERATED ON COST PLUS BASIS AND IT IS INCOMPARABLE TO INFOSYS BPO LIMITED, WHI CH IS OSTENSIBLY ENGAGED IN A VARIETY OF SERVICES AND IS ADMITTEDLY ABLE TO CHARGE A PREMIUM PRICING FOR ITS SERVICES ON ACCOUNT OF ITS BRAND VALUE AND MARKET REACH. THEREFORE, WE UPHOLD THE PLEA OF THE ASSESSEE FOR EXCLUSION OF INFOSYS BPO FROM THE FINAL SET OF COMP ARABLES. 7. THE NEXT PLEA OF THE ASSESSEE IS FOR INCLUSION O F R SYSTEMS INTERNATIONAL LIMITED (BPO-SEG.) IN THE FINAL SET O F COMPARABLES. THE TRANSFER PRICING OFFICER REJECTED THE AFORESAID C ONCERN ON THE GROUND THAT IT WAS FOLLOWING A DIFFERENT FINANCIAL YEAR EN DING ON 31/12/2009 INSTEAD OF 31/3/2010 AND, THEREFORE, IT WAS NOT A G OOD COMPARABLE. THE DRP HAS ALSO AFFIRMED THE REJECTION ON THE REAS ONING GIVEN BY THE TRANSFER PRICING OFFICER. EVEN BEFORE US, THE LD. D EPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE STAND OF THE TRANS FER PRICING OFFICER BY PLACING RELIANCE ON THE DECISION OF THE MUMBAI T RIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD. ITA NO.4/PN/08 DATED 10/02/2009. 7.1 ON THE OTHER HAND, THE LD. REPRESENTATIVE FOR T HE ASSESSEE POINTED OUT THAT THOUGH THE SAID CONCERN WAS FOLL OWING A DIFFERENT 19 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) FINANCIAL YEAR, BUT THE DATA FOR EACH OF QUARTERS W AS AVAILABLE IN PUBLIC DOMAIN AND, THEREFORE, THE DATA CORRESPONDING TO TH E FINANCIAL YEAR OF THE ASSESSEE COMPANY WAS AVAILABLE IN RELATION TO R SYSTEMS INTERNATIONAL LIMITED (BPO-SEG.) ALSO. IN THIS CON TEXT, OUR ATTENTION HAS BEEN INVITED TO THE DECISION OF THE TRIBUNAL IN ASS ESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10(SUPRA), WHEREIN VIDE ORDER DATED 27/7/2015(SUPRA), SIMILAR OBJECTION OF THE REVENUE IN THE CONTEXT OF INCLUSION OF R-SYSTEMS INTERNATIONAL LIMITED (BPO-S EG.) HAS BEEN REJECTED IN THE FOLLOWING WORDS: (V) R SYSTEMS INTERNATIONAL LTD. (SEGMENTAL): ....... IF THERE ARE NO EXTRAORDINARY EVENTS AND FA CTORS IN THESE PERIODS THEN PROPORTIONATE OPERATING MARGINS ON OPERATING COST C AN BE VERY WELL TAKEN FOR BENCHMARKING THE MARGINS. WE FIND NO FAULT FOR REWORKING THE MARGIN ON THE BASIS OF ADDING THE THREE MONTHS AND EXCLUDING THREE MONTHS TO WORK OUT THE PROPORTIONATE WORKING MARGIN IF THE FINANCI AL DATA ARE DULY AUDITED AND ARE AVAILABLE IN THE PUBLIC DOMAIN, OF COURSE W ITH A RIDER THAT DURING THAT PERIOD THERE ARE NO OTHER FACTORS AFFECTING THE OPE RATING MARGIN. THUS, WE ACCEPT THE CONTENTION OF THE LD. COUNSEL THAT THIS COMPANY SHOULD BE INCLUDED IN THE LIST OF FINAL COMPARABLES FOR BENCH MARKING THE MARGINS. 7.2 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. UNDOUBTEDLY, THE DATA TO BE USED IN ANALYZING THE COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION OUGHT TO BE THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNA TIONAL TRANSACTION HAS BEEN ENTERED INTO. THE AFORESAID IS THE CLEAR REQU IREMENT OF RULE 10(B)(4) OF THE INCOME TAX RULES, 1962(THE RULES) . FOR THE SAID REASON, THE DATA COMPRISED IN THE FINANCIAL YEAR ENDING ON 31/12/2009 OF R- SYSTEMS INTERNATIONAL LIMITED (BPO-SEG.) CANNOT BE USED FOR THE PURPOSE OF COMPARABILITY WITH ASSESSEES TESTED S EGMENT. SO 20 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) HOWEVER, THE PLEA OF THE ASSESSEE IS THAT THE DATA FOR ALL THE QUARTERS IS AVAILABLE IN PUBLIC DOMAIN AND, THEREFORE, ON THAT BASIS IT IS POSSIBLE TO CONSTRUCT DATA CORRESPONDING TO THE INSTANT FINANCI AL YEAR OF THE ASSESSEE COMPANY AND, THEREFORE, IT WOULD MEET THE TEST OF EVEN RULE 10(B)(4) OF THE RULES. THE SAID APPROACH OF THE AS SESSEE HAS BEEN APPROVED BY THE TRIBUNAL IN ASSESSMENT YEAR 2009-10 (SUPRA) AND WE FIND THAT IT IS ALSO SUPPORTED BY THE JUDGMENT OF T HE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. M/S. MERCE R CONSULTING (INDIA) PVT. LTD. GURGAON, ITA NO.101 OF 2015(O&M) DATED 2 4 TH AUGUST, 2016. THE FOLLOWING DISCUSSION IN THE DECISION OF THE HO NBLE HIGH COURT IN THE CONTEXT OF R-SYSTEMS INTERNATIONAL LIMITED (B PO-SEG.) ITSELF IS RELEVANT: 27. THE TPO EXCLUDED THE CASE OF R-SYSTEMS INTERN ATIONAL LIMITED FROM THE LIST OF COMPARABLES. THE ITAT INCLUDED THE SAME. THE TRANSFER PRICING OFFICER EXCLUDED THE CASE OF R-SYSTEMS INTERNATIONAL LIMITE D ON THE GROUND THAT IT FOLLOWS THE CALENDAR YEAR I.E. 1 ST JANUARY TO 31 ST DECEMBER FOR MAINTAINING ITS ANNUAL ACCOUNT WHEREAS THE ACCOUNTING YEAR OF THE A SSESSEE IS 1 ST APRIL TO 31 ST MARCH. THE TRANSFER PRICING OFFICER FOLLOWED AN O RDER PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN ACIT V. HAPANG LLOY D GLOBAL SERVICES LTD. 2013-TH-68-ITATMUM-TP IN WHICH IT HAD BEEN HELD THA T A COMPANY WITH A DIFFERENT FINANCIAL YEAR ENDING CANNOT BE COMPARED. 28. WE ARE UNABLE TO AGREE WITH THE DECISION OF THE TRANSFER PRICING OFFICER AND OF THE DRP THAT AFFIRMED IT. THE VIEW TAKEN BY THE TRIBUNAL COMMENDS ITSELF TO US. IT IS NOT THE FINANCIAL YEAR PER SE THAT IS RELEVANT. EVEN IF THE FINANCIAL YEARS OF THE ASSESSEE AND OF ANOTHER ENTE RPRISE ARE DIFFERENT, IT WOULD MAKE NO DIFFERENCE. IF IT IS POSSIBLE TO DET ERMINE THE VALUE OF THE TRANSACTIONS DURING THE CORRESPONDING PERIOD, THE PURPOSE OF COMPARABLES WOULD BE SERVED. THE QUESTION IN EACH CASE IS WHET HER DESPITE THE FINANCIAL YEARS OF THE ASSESSEE AND OF THE OTHER ENTERPRISE BEING DIFFERENT, THE FINANCIALS OF THE CORRESPONDING PERIOD OF EACH OF T HEM ARE AVAILABLE. IF THEY ARE, THE TRANSFER PRICING OFFICER MUST REFER TO THE CORRESPONDING PERIOD OF BOTH THE ENTITIES IN DETERMINING WHETHER THE TWO AR E COMPARABLE OR NOT FOR THE PURPOSE OF DETERMINING THE ALP. 21 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) 29. AS NOTED BY THE TRIBUNAL, THE AUDIT ACCOUNTS O F R SYSTEM INTERNATIONAL LTD. FOR THE YEAR ENDING 31.12.2008 HAD BEEN GIVEN UNDER ONE COLUMN AND THE DATA FOR THE QUARTER ENDING 31.03.2009 AND 31.0 3.2008 (BOTH AUDITED) HAD BEEN GIVEN IN TWO OTHER COLUMNS. THUS, AS RIGH TLY HELD BY THE TRIBUNAL, IF FROM THE YEARLY DATA ENDING 31.12.2008, THE RESULTS OF THE QUARTER ENDING 31.03.2008 ARE EXCLUDED AND IF THE RESULTS FOR THE QUARTER ENDING 31.03.2009 ARE INCLUDED, IT IS POSSIBLE TO OBTAIN THE DATA FOR THE FINANCIAL YEAR 01.04.2008 TO 31.03.2009. 30. THIS VIEW IS NOT CONTRARY TO RULE 10(B)(4) WHIC H READS AS UNDER:- 10B(4) THE DATA TO BE USED IN ANALYSING THE COMPA RABILITY OF AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATIN G TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEE N ENTERED INTO. 31. THE RULE DOES NOT EXCLUDE FROM CONSIDERATION TH E DATA OF AN ENTITY MERELY BECAUSE ITS FINANCIAL YEAR IS DIFFERENT FROM THE FINANCIAL YEAR OF THE ASSESSEE. WHAT THE RULE REQUIRES IS THAT THE DATA TO BE USED IN ANALYZING THE FINANCIAL RESULTS OF AN UNCONTROLLED TRANSACTION WI TH AN INTERNATIONAL TRANSACTION SHALL BE THE DATA RELATING TO THE FINAN CIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO. T HUS SO LONG AS THE DATA RELATING TO THE FINANCIAL YEAR IS AVAILABLE, IT MAT TERS NOT, IF THE FINANCIAL YEAR FOLLOWED IS DIFFERENT. IN THE CASE BEFORE US THE D ATA RELATING TO THE RELEVANT FINANCIAL YEAR OF R-SYSTEMS INTERNATIONAL LIMITED I S AVAILABLE. 32. WE ARE, THEREFORE, ENTIRELY IN AGREEMENT WITH THE DECISION OF THE TRIBUNAL THAT IF THE DATA RELATING TO THE FINANCIAL YEAR IN WHICH THE INTERNATIONAL TRANSACTION HAS BEEN ENTERED INTO IS DIRECTLY AVAILABLE FROM THE ANNUAL ACCOUNTS OF THAT COMPARABLE, THEN IT CANNOT BE HELD AS NOT PASSING THE TEST OF SUB-RULE (4) OF RULE 10B. 7.3 IN THE ABOVE BACKGROUND, WE ARE, THEREFORE, INC LINED TO UPHOLD THE PLEA OF THE ASSESSEE FOR INCLUSION OF R-SYSTEMS INTERNATIONAL LIMITED (BPO-SEG.) IN THE FINAL SET OF COMPARABLES. 7.4 IN SO FAR AS THE PLEA OF THE LD. DEPARTMENTAL R EPRESENTATIVE BASED ON THE DECISION OF PUNE TRIBUNAL IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD.(SUPRA) IS CONCERNED, WE FIND THAT THE SAME HAS BEEN RENDERED ON A DIFFERENT FOOTING. THE PUNE BEN CH OF THE TRIBUNAL WAS CONSIDERING THE EXCLUSION OF A CONCERN ON THE G ROUND THAT THE FINANCIAL YEAR COMPRISED OF 18 MONTHS ENDING AS ON 31/3/2005 AND 22 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) THERE WAS NO SEPARATE DATA AVAILABLE FOR 12 MONTHS ENDING AS ON 31/03/2004. IN THIS BACKGROUND, THE TRIBUNAL ACCEP TED THE PLEA TO EXCLUDE SUCH A CONCERN FROM THE LIST OF FINAL COMPA RABLES. QUITE CLEARLY, THE FACTS IN THE INSTANT CASE IN RELATION TO THE R- SYSTEMS INTERNATIONAL LIMITED (BPO-SEG.) ARE QUITE DIFFERENT. FURTHER, I T MAY ALSO BE OBSERVED THAT THE SITUATION BEFORE US IS ALSO NOT LIABLE TO BE GOVERNED BY THE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PTC SOFTWARE (I) PVT. LTD.,75 TAXMANN.COM 31(BOM). IN THE CASE BEFORE THE HON'BLE BOMBAY HIGH COURT, REVENUE WAS CONTESTING T HE EXCLUSION OF A CONCERN, WHICH HAD BEEN EXCLUDED BY THE TRIBUNAL ON THE GROUND THAT IT WAS FOLLOWING A DIFFERENT FINANCIAL YEAR. THE R EVENUE CONTENDED BEFOE THE HON'BLE HIGH COURT THAT THE DIFFEREN CE IN THE TWO FINANCIAL YEARS WAS ONLY OF THREE MONTHS, WHICH COULD BE IGNO RED. THE HON'BLE HIGH COURT REJECTED THE AFORESAID PLEA OF THE REVE NUE AND UPHELD THE EXCLUSION OF SUCH A CONCERN FROM THE FINAL LIST OF COMPARABLE. NOTABLY, THERE WAS NO PLEA BEFORE THE HON'BLE HIGH COURT T HAT THE DATA FOR THE RELEVANT 12 MONTHS OF THE CONCERN WAS AVAILABLE I N PUBLIC DOMAIN AND, THEREFORE, THE SITUATION BEFORE THE HON'BLE HIGH COURT WAS QUITE DIFFERENT FROM WHAT IS BEFORE US. IN FACT, THE SIT UATION BEFORE US IS IDENTICAL TO THAT CONSIDERED BY HON'BLE PUNJAB & H ARYANA HIGH COURT IN THE CASE OF M/S. MERCER CONSULTING (INDIA) PVT. LTD . GURGAON(SUPRA) AND IN THIS VIEW OF THE MATTER WE UPHOLD THE PLEA OF TH E ASSESSEE FOR INCLUSION OF M/S. MERCER CONSULTING (INDIA) PVT. LT D. GURGAON, IN THE FINAL SET OF COMPARABLES. 7.5 AT THE TIME OF HEARING, IT WAS STATED BY THE LD . REPRESENTATIVE FOR THE ASSESSEE THAT IF ACCENTIA TECHNOLOGIES LTD., CO SMOS GLOBAL LIMITED 23 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) AND INFOSYS BPO LTD. ARE EXCLUDED AND R SYSTEMS INT ERNATIONAL LIMITED( BPO-SEG) IS INCLUDED IN THE FINAL SET OF COMPARABLE S, THEN THE MARGIN OF THE COMPARABLES SHALL BE WITHIN +/- 5% RANGE OF THE ASSESSEES MARGIN REFLECTING THAT THE TRANSACTIONS OF THE ASSESSEE O F PROVIDING IT ENABLED SERVICES TO THE ASSOCIATED ENTERPRISE ARE AT AN ARM S LENGTH PRICE AND DOES NOT REQUIRE ANY FURTHER ADJUSTMENT. SINCE ASS ESSEE HAS SUCCEEDED ON THE AFORESAID PLEA, WE FIND NO REASON TO ADJUDIC ATE OTHER PLEAS ON THIS ASPECT, WHICH ARE KEPT OPEN. ACCORDINGLY, THE ASSESSING OFFICER/TRANSFER PRICING OFFICER IS DIRECTED TO RE- DETERMINE THE ARMS LENGTH PRICE OF THE ASSESSEE IN THE ABOVE LIGHT. T HUS, ON THIS ASPECT ASSESSEE SUCCEEDS. 8. WE MAY NOW TAKE UP GROUNDS OF APPEAL NO.12 & 13, WHICH RELATE TO TRANSFER PRICING ADJUSTMENT OF RS.63,64,02,739/- IN RESPECT OF SUBSCRIPTION AND REDEMPTION OF PREFERENCE SHARE CAP ITAL. 8.1 BRIEFLY PUT, THE RELEVANT FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAD SUBSCRIBED TO 1,85,03,46 8 REDEEMABLE PREFERENCE SHARES OF ESSAR SERVICES MAURITIUS AND A LSO REDEEMED 1,81,00,000 OF SUCH SHARES AT PAR. THE ASSESSING O FFICER NOTES THAT ESSAR SERVICES MAURITIUS WAS AN ASSOCIATED ENTERPRI SE AND THAT THE SAID SHARES WERE NON-CUMULATIVE AND REDEEMABLE ON PAR WI THOUT DIVIDEND. THE TRANSFER PRICING OFFICER ALSO OBSERVED THAT ASS ESSEE HAD A RUNNING ACCOUNT WITH THE SAID ASSOCIATED ENTERPRISE, IN TER MS OF WHICH MONIES WERE BEING ADVANCED AS AND WHEN THE NEED AROSE. C ONSIDERING THE NATURE AND FREQUENCY OF TRANSACTIONS IN THE RUNNING ACCOUNT WITH THE ASSOCIATED ENTERPRISE, THE TRANSFER PRICING OFFICER INFERRED THAT THE 24 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) SUBSCRIPTION AND REDEMPTION OF PREFERENCE SHARES WA S IN THE NATURE OF LOAN AND NOT AS SUBSCRIPTION FOR INVESTMENT IN SHAR ES. THE TRANSFER PRICING OFFICER, THEREAFTER, APPLIED THE ARMS LENG TH RATE OF INTEREST CHARGEABLE ON THE AMOUNT GIVEN TO THE ASSOCIATED EN TERPRISE IN THE SHAPE OF PREFERENCE SHARES. THE DRP HAS ALSO AFFIR MED THE APPROACH OF THE TRANSFER PRICING OFFICER IN RE-CHARACTERIZING T HE TRANSACTION OF PREFERENCE SHARES INTO A LOAN AND CHARGING OF INTER EST THEREON. IN THIS MANNER, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 8.2 BEFORE US, IT WAS A COMMON POINT BETWEEN THE PA RTIES THAT AN IDENTICAL SITUATION HAS BEEN CONSIDERED BY THE TRIB UNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10, WHEREIN IT HA S BEEN HELD THAT THE TRANSFER PRICING OFFICER CANNOT DISREGARD THE A PPARENT TRANSACTION AND SUBSTITUTE IT WITH A TRANSACTION AS PER HIS OWN PERCEPTION. THE FOLLOWING DISCUSSION IN THE ORDER OF THE TRIBUNAL D ATED 27/07/2015(SUPRA) IS RELEVANT IN THIS CONTEXT: 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT FINDINGS IN THIS REGARD IN THE IMPUGNED ORDERS. THE ASSESSEE HAS SUBSCRIBED TO REDEEMABLE PREFERENCE SHARES OF ITS AE, ESSAR SE RVICES, MAURITIUS AND HAS ALSO REDEEMED SOME OF THESE SHARES AT PAR. THE TPO HAS REDEEMED SOME OF THESE SHARES AT PAR. THE TPO HAS RE-CHARACTERIZED T HE SAID TRANSACTION OF SUBSCRIPTION OF SHARES INTO ADVANCING OF UNSECURED LOAN BY TERMING IT AS AN EXCEPTIONAL CIRCUMSTANCE AND HAS CHARGED/IMPUTED IN TEREST, ON THE REASONING THAT IN AN UNCONTROLLED THIRD PARTY SITUA TION, INTEREST WOULD HAVE BEEN CHARGED. WE ARE UNABLE TO APPRECIATE SUCH AN A PPROACH OF TPO AND UNDER WHAT CIRCUMSTANCES, LEAVE ABOVE ANY EXCEPTION AL CIRCUMSTANCES, A TRANSACTION OF SUBSCRIPTION OF SHARES CAN BE RE-CHA RACTERIZED AS LOAN TRANSACTION. THE TPO /ASSESSING OFFICER CANNOT DISR EGARDED ANY APPARENT TRANSACTION AND SUBSTITUTE IT, WITHOUT ANY MATERIAL OF EXCEPTION CIRCUMSTANCE HIGHLIGHTING THAT ASSESSEE HAS TRIED TO CONCEAL THE REAL TRANSACTION OR SOME SHAM TRANSACTION HAS BEEN UNEARTHED. THE TPO CANNOT QUESTION THE COMMERCIAL EXPEDIENCY OF THE TRANSACTION ENTERED IN TO BY THE ASSESSEE UNLESS THERE ARE EVIDENCE AND CIRCUMSTANCES TO DOUB T. HERE IT IS A CASE OF INVESTMENT IN SHARES AND IT CANNOT BE GIVEN DIFFERE NT COLOUR SO AS TO EXPAND 25 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) THE SCOPE OF TRANSFER PRICING ADJUSTMENTS BY RE-CHA RACTERIZING IT AS INTEREST FREE LOAN. NOW, WHETHER IN A THIRD PARTY SCENARIO , IF AN INDEPENDENT ENTERPRISE SUBSCRIBES TO A SHARE, CAN IT BE CHARACT ERIZE AS LOAN. IF NOT, THEN THIS TRANSACTION ALSO CANNOT BE INFERRED AS LOAN. T HE CONTENTION OF THE LD. COUNSEL IS ALSO SUPPORTED BY THE HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF DEXISKIER DHBOAL SA, ITA NO. 776 OF 2011 ORDER D ATED 30TH AUGUST, 2012 AND BY VARIOUS OTHER DECISIONS, AS CITED BY HIM. TH E CO-ORDINATE BENCHES OF THE TRIBUNAL HAVE BEEN CONSISTENTLY HOLDING THAT SU BSCRIPTION OF SHARES CANNOT BE CHARACTERIZES AS LOAN AND THEREFORE NO IN TEREST SHOULD BE IMPUTED BY TREATING IT AS A LOAN. ACCORDINGLY, ON THIS GROU ND ALONE, WE DELETE THE ADJUSTMENT OF INTEREST MADE BY THE ASSESSING OFFICE R. THUS, GROUND NO. 14 IS TREATED AS ALLOWED. 8.3 AT THE TIME OF HEARING THE LD. REPRESENTATIVE F OR THE ASSESSEE ALSO PLACED RELIANCE ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DEXISKIER DHABOL SA, (SUPRA), WHICH HAS BEEN REFERRED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2009- 10(SURPA), WHILE HOLDING THE ISSUE IN FAVOUR OF THE ASSESSEE. 8.4 THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT DI SPUTED THE FACT THAT THE INSTANT ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2009-10(SUPRA), WHICH CONTINUES TO HOLD THE FIELD AS IT HAS NOT BEEN ALTERED BY ANY HIGHER AUTHORITY. AS A CONSEQUENCE, FOLLOWING THE AFORESAID PRECEDENT, THE ACTION OF TH E ASSESSING OFFICER IS SET-ASIDE AND ASSESSEE SUCCEEDS IN GROUNDS OF APPEA L NO.12 & 13. 9. WE MAY NOW TAKE UP TAKE UP GROUNDS OF APPEAL NO. 14 TO 16, WHICH RELATE TO TRANSFER PRICING ADJUSTMENT OF RS.1 9,90,67,400/- , MADE IN RESPECT OF THE ARM'S LENGTH FEE FOR THE CORPORAT E GUARANTEE EXTENDED BY THE ASSESSEE ON BEHALF OF ITS ASSOCIATE D ENTERPRISES. 9.1 IN THIS CONTEXT, THE RELEVANT FACTS ARE THAT DU RING THE YEAR UNDER CONSIDERATION THE TRANSFER PRICING OFFICER NOTICED THAT ASSESSEE HAD PROVIDED GUARANTEE TO BANKS ON BEHALF OF ASSOCIATED ENTERPRISES AS PER 26 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) THE DETAILS TABULATED IN PARA 5.1 OF HIS ORDER. TH E TOTAL VALUE OF GUARANTEES GIVEN BY THE ASSESSEE ON BEHALF OF ITS A SSOCIATED ENTERPRISES WAS RS.670,57,31,000/-. THE ASSESSEE DID NOT TREA T THE TRANSACTION OF PROVIDING CORPORATE GUARANTEE AS AN INTERNATIONAL T RANSACTION WITHIN THE MEANING OF SECTION 92B OF THE ACT. HOWEVER, TH E TRANSFER PRICING OFFICER DISREGARDED THE SAID APPROACH AND INSTEAD H ELD THAT ASSESSEE OUGHT TO HAVE CHARGED GUARANTEE FEE FROM ITS ASSOCI ATED ENTERPRISES AS IT INVOLVED PROVIDING BENEFIT TO THE ASSOCIATED ENT ERPRISES. THE TRANSFER PRICING OFFICER PROCEEDED TO DETERMINE CREDIT RATIN GS FOR THE ASSESSEE AS WELL AS THE CONCERNED ASSOCIATED ENTERPRISES AND CA ME TO CONCLUDE THAT GUARANTEE FEE EQUIVALENT TO 4.43% OF THE OUTSTANDIN G AMOUNT OF LOANS FROM THE BANKS OUGHT TO HAVE BEEN CHARGED BY THE AS SESSEE FROM ITS ASSOCIATED ENTERPRISES. ACCORDINGLY, THE TRANSFER PRICING OFFICER WORKED OUT AN ADJUSTMENT OF RS.29,39,56,194/- ON TH IS ASPECT. THE ASSESSING OFFICER PROPOSED THE SAID ADDITION IN ITS DRAFT ASSESSMENT ORDER DATED 14/02/2014. THE DRP, IN PRINCIPLE, AGRE ED WITH THE APPROACH OF TRANSFER PRICING OFFICER BUT DIFFERED W ITH THE ARMS LENGTH RATE OF GUARANTEE FEE. THE DRP FOLLOWING ITS DIR ECTIONS IN THE ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR OF 2009-10, DIRECTED THAT THE GUARANTEE FEE BE COMPUTED AT 3% PER ANNUM AND ACCORDINGLY, IN THE FINAL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT DATED 29/11/2014, THE ADJUSTMEN T ON ACCOUNT OF GUARANTEE FEE HAS BEEN REDUCED TO RS.19,90,67,400/- FROM RS.29,39,56,194/-. NOT BEING SATISFIED, ASSESSEE I S IN APPEAL BEFORE US BY WAY OF GROUNDS OF APPEAL NO.14 TO 16, WHEREAS RE VENUE HAS CONTESTED THE DECISION OF THE DRP TO REDUCE THE ARM 'S LENGTH RATE OF THE 27 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) GUARANTEE FEE IN ITS CROSS APPEAL. SINCE THE CROS S-GROUNDS RELATES TO THE SAME ISSUE, THEY HAVE BEEN TAKEN UP TOGETHER. 9.2 AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS RAISED VARIED ARGUMENTS, INTER-ALIA, CONTENDING THAT PROVIDING OF GUARANTEE IS NOT AN INTERNATIONAL TRANSACTION WITHI N THE MEANING OF SECTION 92B OF THE ACT; THAT IT WAS IN THE NATURE O F SHAREHOLDER ACTIVITY AND DID NOT CONSTITUTE ANY INTRA GROUP SERVICES, SO FAR AS THE INSTANT ASSESSMENT YEAR IS CONCERNED. APART THEREFROM, A P ERTINENT POINT HAS BEEN BROUGHT OUT TO SAY THAT SUBSEQUENT TO THE IMP UGNED ASSESSMENT, ON A SUO-MOTO BASIS, ASSESSEE HAS RECOVERED GUARANT EE FEE @1% OF OUTSTANDING GUARANTEED AMOUNT FROM ITS ASSOCIATED E NTERPRISES FOR THE PERIOD RIGHT FROM FINANCIAL YEAR 2007-08 ONWARDS. IT HAS BEEN POINTED OUT THAT THE SAID GUARANTEE FEE RECOVERED HAS BEEN RECOGNIZED IN THE FINANCIAL STATEMENTS FOR THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR 2012-13, COPIES OF WHICH HAVE BEEN PLACED IN T HE PAPER BOOK AT PAGES 561 TO 565. IT WAS, THEREFORE, CONTENDED THA T WITHOUT PREJUDICE TO THE ASSESSEES PLEA THAT NO ADJUSTMENT ON ACCOUN T OF GUARANTEE FEE WAS SUSTAINABLE, IT IS CANVASSED THAT ON ACCOUNT OF THE SUBSEQUENT RECOVERY NO FURTHER ADDITION IS WARRANTED. THE LD. REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT SIMILAR SITUATION HAD PREVAILED BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2009-10 ALSO AND IT HAS BEEN DIRECTED THAT THE GUARANTEE FEE BE BENCHMARKED BY TAKING THE RATE @ 1% OF THE OUTSTANDING GUARANTEED AMOUNT. 9.3 THE LD. DEPARTMENTAL REPRESENTATIVE HAS NOT DI SPUTED THE FACTUAL MATRIX BROUGHT OUT BY THE LD. REPRESENTATIV E FOR THE ASSESSEE, 28 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) BUT CONTENDED THAT THE ACTION OF THE TRANSFER PRICI NG OFFICER/ASSESSING OFFICER WAS JUSTIFIED. 9.4 HAVING CONSIDERED THE RIVAL STANDS, WE FIND THA T UNDER SIMILAR FACTS AND CIRCUMSTANCES, THE ISSUE OF CHARGING OF G UARANTEE FEE HAS BEEN ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10(SUPRA) IN THE FOLLOWING WORDS:- 22. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. THE ASSESSEE HAS GIVEN C ORPORATE GUARANTEE ON BEHALF AEGIS USA AMOUNTING TO RS. 666,46,80,000/- A ND ON BEHALF OF ESSAR SERVICES, MAURITIUS FOR RS. 75,73,50,000/-. BEFORE US, THE LD. COUNSEL HAD SUBMITTED THAT IN THE SUBSEQUENT YEARS THE ASSESSEE HAS SUO MOTO ENTERED INTO GUARANTEE AGREEMENTS WITH ITS AE PURSUANT TO W HICH IT HAS CHARGED GUARANTEE COMMISSION OF 1% FROM ITS AE, W.E.F. FINA NCIAL YEAR 2007-08 FOR A PERIOD OF FIVE YEARS. THE SAID GUARANTEE COMMISSION RECOVERED BY THE ASSESSEE HAS BEEN RECOGNIZED IN THE FINANCIAL STA TEMENT BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2012- 13 AND HAS ALSO BEEN OFFE RED FOR TAX IN THAT YEAR. IN WAKE OF THESE FACT AND WITHOUT GOING INTO THE OT HER ARGUMENTS OF THE ASSESSEE AND ALSO LOOKING TO THE FACT THAT THE TRIB UNAL IN VARIOUS CASES HAS ACCEPTED GUARANTEE COMMISSION CHARGEABLE BETWEEN 0. 5% TO 1%, WE HOLD THAT GUARANTEE COMMISSION OF 1% SHOULD BE CHARGEABL E. HERE IN THIS CASE, ASSESSEE ITSELF HAS AGREED TO CHARGE GUARANTEE COMM ISSION @ 1% OF THE OUTSTANDING GUARANTEED AMOUNT, ACCORDINGLY, WE ALSO HOLD THAT A GUARANTEE COMMISSION SHOULD BE BENCHMARK BY TAKING THE RATE O F 1% OF THE OUTSTANDING GUARANTEED AMOUNT IN LINE WITH THE CONS ISTENT VIEWS TAKEN BY THE COORDINATE BENCHES, FROM ITS AE AND ADJUSTMENTS SHOULD BE MADE ACCORDINGLY. THUS, GROUNDS 12 & 13 AS RAISED BY THE ASSESSEE ARE TREATED AS PARTLY ALLOWED. 9.5 FOLLOWING THE AFORESAID PRECEDENT, WE DIRECT TH E ASSESSING OFFICER/TRANSFER PRICING OFFICER THAT THE GUARANTEE FEE BE BENCHMARKED BY ADOPTING THE RATE AT 1% OF THE OUTSTANDING GUARA NTEED AMOUNT FOR MAINTAINING CONSISTENCY WITH THE PRECEDENT IN THE A SSESSEES OWN CASE. THUS, IN SO FAR AS GROUNDS OF APPEAL NO.14 TO 16 AR E CONCERNED, THEY ARE PARTLY ALLOWED AND THE GROUNDS RAISED BY THE RE VENUE IN ITS CROSS- APPEAL ARE DISMISSED. 29 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) 10. THE NEXT GROUND OF APPEAL NO.17 IS GENERAL IN N ATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION, THEREFORE, T HE SAME IS DISMISSED. 11. IN GROUND OF APPEAL NO.18, THE GRIEVANCE OF THE ASSESSEE IS AGAINST THE ACTION OF THE LOWER AUTHORITIES IN DENY ING CARRY FORWARD AND SET-OFF OF UNABSORBED DEPRECIATION OF RS.40,22,26,8 82/- AND BUSINESS LOSS OF RS.9,03,07,429/-. 11.1 IN THIS CONTEXT, THE BRIEF FACTS ARE THAT IN I TS RETURN OF INCOME FOR ASSESSMENT YEAR 2010-11, ASSESSEE CLAIMED CARRY FOR WARD AND SET-OFF OF UNABSORBED DEPRECIATION AND BUSINESS LOSS TOTALLING TO RS. 32,32,55,033/- AND RS.13,86,21,348/-. OUT OF THIS, A SUM OF RS.1,47,59,086/- PERTAINED TO GLOBAL VANTAGE PRIVAT E LIMITED, BECAUSE IN TERMS OF SCHEME OF ARRANGEMENT THE BPO DIVISION OF GLOBAL VANTAGE PRIVATE LIMITED WAS MERGED AND VESTED INTO ASSESSE E COMPANY BY THE ORDERS OF THE HON'BLE BOMBAY HIGH COURT AND HON'BLE DELHI HIGH COURT DATED 31/1/2008 AND 04/03/2008 RESPECTIVELY. THE S AID SCHEME OF ARRANGEMENT WAS EFFECTUATED DURING THE FINANCIAL YE AR 2008-09 AND IN THE RETURN OF INCOME FILED FOR THE INSTANT YEAR ASS ESSEE CARRY FORWARD THE SET-OFF OF UNABSORBED DEPRECIATION OF RS.1,47, 59,086/- PERTAINING TO GVPL WAS CLAIMED. FURTHER, THE BPO DIVISION OF AEGIS BPO SERVICES GURGAON LIMITED WAS MERGED WITH THE ASSESSEE IN THE INSTANT ASSESSMENT YEAR AND AS A CONSEQUENCE IN THE RETURN OF INCOME ASSESSEE CLAIMED CARRY FORWARD AND SET-OFF OF UNABSORBED DEP RECIATION AND BUSINESS LOSS OF THE BPO DIVISION OF AEGIS BPO SER VICES GURGAON LIMITED OF RS.13,86,21,348/- AND RS.9,79,88,094/- RESPECTI VELY. THE ASSESSING OFFICER ON THE BASIS OF ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER 30 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) IN THE CASE OF GVPL FOR ASSESSMENT YEAR 2003-04 DIS ALLOWED THE BENEFIT OF CARRY FORWARD AND SET-OFF OF UNABSORBED DEPRECIA TION OF BUSINESS LOSS. SIMILARLY, WITH RESPECT TO THE UNABSORBED DE PRECATION AND BUSINESS LOSS PERTAINING TO THE BPO DIVISION OF AEG IS BPO SERVICES GURGAON LIMITED, THE ASSESSING OFFICER RESTRICTED T HE CLAIM OF CARRY FORWARD AND SET-OFF OF UNABSORBED DEPRECIATION OF B USINESS LOSS. IN NUTSHELL, THE SAID CARRY FORWARD AND SET-OFF OF UNA BSORBED DEPRECIATION ALLOWANCE OF RS.40,22,26,882/- AND RS.9,03,07,429/- WAS DENIED BY THE ASSESSING OFFICER. 11.2 BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSE SSEE POINTED OUT THAT SIMILAR SITUATION HAD ARISEN BEFORE THE TRIBUN AL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10(SUPRA), WHEREIN TH E ASSESSING OFFICER WAS DIRECTED TO VERIFY AND ALLOW BUSINESS LOSS AND UNABSORBED DEPRECIATION PERTAINING TO THE ERSTWHILE UNITS, WHI CH HAD MERGED WITH THE ASSESSEE COMPANY. THE ONLY PLEA OF THE ASSESSE E BEFORE US IS THAT SIMILAR DIRECTIONS BE GIVEN TO THE ASSESSING OFFICE R IN THE INSTANT YEAR ALSO. 11.3 THE LD. DEPARTMENTAL REPRESENTATIVE HAS NO OB JECTION TO THE AFORESAID LIMITED PLEA OF THE ASSESSEE. 11.4 HAVING CONSIDERED THE RIVAL STANDS, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER BACK TO THE FILE OF ASSESSING OF FICER, WHO SHALL APPROPRIATELY CONSIDER THE CLAIM OF CARRY FORWARD A ND SET-OFF OF UNABSORBED DEPRECIATION AND BUSINESS LOSS IN ACCORD ANCE WITH LAW, OF- COURSE AFTER ALLOWING THE ASSESSEE A REASONABLE OP PORTUNITY OF BEING 31 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) HEARD AND PUTTING FORTH ITS POSITION ON THE SUBJECT . THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 12. NOW, WE MAY TAKE UP GROUNDS OF APPEAL NO.19 AND 22, WHICH RELATE TO A SIMILAR ISSUE. 12.1 IN BRIEF, THE RELEVANT FACTS ARE THAT IN EARLI ER YEARS, ASSESSEE HAD SUBSCRIBED TO THE PREFERENCE SHARES OF ESSAR SERVIC ES MAURITIUS AND A PART OF SUCH SHARES HAVE BEEN SOLD BY THE ASSESSEE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDER ATION. WHILE COMPUTING THE CAPITAL GAINS, ASSESSEE DETERMINED A LOSS OF RS.22,48,78,471/- PRIMARILY ON ACCOUNT OF INDEXATIO N COST, WHICH WAS CLAIMED TO BE CARRY FORWARD. SIMILARLY, THE ASSESS EE HAD CREDITED AN AMOUNT OF RS.4,33,10,670/- TO THE P&L ACCOUNT ON AC COUNT OF EXCHANGE GAIN ON REDEMPTION OF THE PREFERENCE SHARES, WHICH WAS REDUCED FROM THE NET PROFIT WHILE COMPUTING THE TAXABLE INCOME, AS THE SAME WAS CAPITAL IN NATURE. A WORKING OF THE CAPITAL LOSS AND THE EXCHANGE GAIN ARISING ON ACCOUNT OF REDEMPTION OF PREFERENCE SHAR ES IS PLACED AT PAGE 560 OF THE PAPER BOOK. 12.2 AS NOTED EARLIER, TRANSFER PRICING OFFICER HA D RE-CHARACTERIZED THE PREFERENCE SHARES AS BEING AKIN TO GIVING OF AN IN TEREST FREE LOAN. THE ASSESSING OFFICER RELIED UPON THE ORDER OF THE TRAN SFER PRICING OFFICER AND HELD THAT THERE COULD NOT BE ANY CAPITAL LOSS A ND THE RESULTANT EXCHANGE GAIN OF RS.4,33,10,670/- ALSO COULD NOT BE TREATED AS CAPITAL IN NATURE. THEREFORE, HE ASSESSED IT AS BUSINESS INCO ME. THE AFORESAID STAND HAS BEEN AFFIRMED BY THE DRP ALSO. 32 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) 12.3 ON BOTH THESE ASPECTS, IT WAS A COMMON POINT B ETWEEN THE PARTIES THAT SIMILAR SITUATION PREVAILED IN ASSESSM ENT YEAR 2009-10, WHEREIN THE ACTION OF THE ASSESSING OFFICER HAS BEE N SET-ASIDE BY THE TRIBUNAL VIDE ITS ORDER DATED 27/07/2015(SUPRA) IN THE FOLLOWING WORDS:- 46. .......... THIS ISSUE HAVE ALREADY BEEN DEALT WITH BY US, WHILE DECIDING GROUND NO. 14, WHEREIN TRANSFER PRICING AEGIS LIMIT ED ITA NO.1213/M/2014 33 ADJUSTMENT MADE BY THE TPO ON THIS ACCOUNT HAS B EEN DELETED. AS ALREADY HELD ABOVE, SUCH A RECHARACTERIZATION OF TRANSACTIO N OF SUBSCRIPTION OF PREFERENCE SHARES INTO ADVANCING OF UNSECURED LOANS AS DONE BY THE TPO IS NOT CORRECT, BECAUSE THE ACTUAL TRANSACTIONS CANNOT BE DISREGARDED OR SUBSTITUTED FOR SOME OTHER TRANSACTION OTHER THEN E XCEPTIONAL CIRCUMSTANCES WHICH HAS NOT BEEN BROUGHT ON RECORD. NOWHERE THE A SSESSING OFFICER OR THE TPO HAS INDICATED HOW IN THE INSTANT CASE EXCEPTION AL CIRCUMSTANCES CAN BE INFERRED FROM THE MATERIAL ON RECORD. THE ASSESSEE HAD ENTERED INTO THESE ARRANGEMENT FOR SPECIFIC PURPOSE AND IN A CAPACITY OF SHAREHOLDER WAS FURTHERING ITS OWN INTEREST BY SUBSCRIBING THE SHAR ES. IT HAD BORROWED MONEY FROM EXIM AND AXIS BANK AT HIGH INTEREST RATE. TO R EDUCE THE INTEREST BURDEN, THE ASSESSEE DECIDED TO PAY THESE DEBT BY REDEEMING ITS PREFERENCE SHARES. SUBSEQUENTLY, IT SUBSCRIBED AGAIN FOR FRESH PREFERE NCE SHARES IN ORDER TO FURTHER ITS PARTICIPATION INTEREST IN DOWNSTREAM SU BSIDIARIES. THIS TRANSACTION CANNOT BE RECHARACTERIZED OR INFERRED AS A LOAN. THE TRANSACTION OF PURCHASE AND REDEMPTION CANNOT BE HELD TO BE A LOAN TRANSACTION AND ACCORDINGLY SUCH A LOSS CANNOT BE DISALLOWED WHICH IS PURELY ON ACCOUNT OF INDEXATION. WE THUS, DIRECT THE ASSESSING OFFICER T O WORK OUT GAIN/LOSS AFTER TREATING IT AS A TRANSACTION OF PURCHASE AND REDEMP TION OF SHARES. THUS, GROUND NO. 20 IS TREATED AS ALLOWED. ................................................... ................................................... ................... 60......... AS ADMITTED BY BOTH THE PARTIES, THIS ISSUE IS SIMILAR TO GROUND NO. 14 AND 20 AND, THEREFORE, IN VIEW OF THE FINDING GI VEN THEREIN, WE HOLD THAT THE APPROACH OF THE TPO AS WELL AS ASSESSING OFFICE R IS NOT CORRECT. SUCH A FOREIGN EXCHANGE GAIN, WHICH HAS BEEN SEPARATELY AC COUNTED IN THE BOOKS, CANNOT BE TAXED AS BUSINESS INCOME HERE IN THE CASE OF THE ASSESSEE, BECAUSE SAME WAS ON ACCOUNT OF SHARES AND THEREFORE, SAME S HALL BE CONSIDERED WHILE WORKING OUT CAPITAL GAIN OR LOSS AS PER SECTI ON 48. THUS WE HOLD THAT THE GAIN ARISING TO THE ASSESSEE, SHALL BE TAXABLE UNDER THE HEAD CAPITAL GAINS BECAUSE THE FOREIGN EXCHANGE GAIN HAS BEEN A CCOUNT OF CAPITAL ASSET I.E. ON ACCOUNT OF SHARES AND ANY SUCH CLAIM WOULD ALSO BE OF A CAPITAL IN NATURE. THE ASSESSING OFFICER HAS ERRED IN LAW IN M AKING THE SAID ADDITION AS NORMAL BUSINESS PROFITS OF THE ASSESSEE. ACCORDINGL Y, GROUND NO. 23 AS RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 33 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) 12.4 IN VIEW OF THE AFORESAID PRECEDENT, THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE CURRENT YEARS LOSS OF R S.22,48,71,471/- AND MAKING ADDITION ON ACCOUNT OF EXCHANGE GAIN AMOUNTI NG TO RS.4,33,10,670/- ON ACCOUNT OF REDEMPTION OF PREFER ENCE SHARES IS DIRECTED TO BE DELETED. 13. NOW, WE MAY TAKE UP GROUND OF APPEAL NO.20, WHI CH DEALS WITH A DISALLOWANCE OF INTEREST EXPENDITURE OF RS.11,380/- BY INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ON THI S ASPECT, THE LD. REPRESENTATIVE FOR THE ASSESSEE CONCEDED THAT SECT ION 40(A)(IA) OF THE ACT HAS BEEN JUSTIFIABLY INVOKED AS ASSESSEE HAD N OT DEDUCTED TAX AT SOURCE UNDER SECTION 194A OF THE ACT ON INTEREST P AYMENTS TO IBM INDIA PRIVATE LIMITED AND ORIX AUTO INFRASTRUCTURE. THUS, ON THIS ASPECT ASSESSEE HAS TO FAIL. 14. 14. BY WAY OF GROUND OF APPEAL NO.21, ASSESSEE HAS CHALLENGED THE DECISION OF THE LOWER AUTHORITIES DISALLOWING INTEREST EXPENDITURE OF RS.5,37,76,428/-. IN THIS CONTEXT, BRIEF FACTS ARE THAT THE ASSESSING OFFICER OBSERVED THAT ASSESSEE DEBITED A SUM OF RS.18,67,04,773/- IN THE P&L ACCOUNT ON ACCOUNT OF INTEREST EXPENDITURE, WHEREAS ASSESSEE HAD ADVANCED RS.110,9 3,88,518/- TO VARIOUS SISTER CONCERNS/ SUBSIDIARIES, EITHER FREE OF INTEREST OR AT A RATE LOWER THAN THE RATE AT WHICH ASSESSEE HAD BORROWED THE FUNDS. THE ASSESSING OFFICER ALSO NOTES THAT AT THE END OF THE PREVIOUS YEAR UNDER CONSIDERATION OUTSTANDING LOANS WERE TO THE TUNE OF RS.208.83 CRORES, WHEREAS THE TOTAL BORROWING AS ON 31/3/2009 WAS OF RS.49.73 CRORES. 34 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) SIMILARLY, IT WAS NOTICED THAT THE LOANS TO SUBSIDI ARIES/SISTER CONCERNS STOOD AT RS.110,93,88,518/- IN THIS YEAR AS AGAINS T RS.17,50,79,147/- AS ON 31/3/2009. IN THIS BACKGROUND, THE ASSESSING OF FICER SHOW CAUSED THE ASSESSEE AS TO WHY THE INTEREST EXPENDITURE CLA IMED IN THE P&L ACCOUNT BE ALLOWED IN ITS ENTIRETY AS A PORTION OF THE BORROWINGS WERE DIVERTED TOWARDS LOANS AND ADVANCES TO THE SUBSIDIA RIES/SISTER CONCERNS. IN REPLY, ASSESSEE POINTED OUT THAT THE LOANS WERE ADVANCED TO THE SUBSIDIARIES/SISTER CONCERNS ON THE BASIS OF COMMERCIAL EXPEDIENCY, WHICH WAS A NORMAL AND ACCEPTABLE BUSIN ESS PRACTICE. IT WAS ALSO CANVASSED BY THE ASSESSEE THAT THE FUNDS A DVANCED TO THE SUBSIDIARIES/SISTER CONCERNS WERE OUT OF OWN NON-I NTEREST BEARING FUNDS. THE ASSESSING OFFICER HOWEVER, DISAGREED WI TH THE ASSESSEE, AS ACCORDING TO HIM THE ADVANCES TO THE SUBSIDIARIES/ SISTER CONCERNS WERE MADE OUT OF BORROWED FUNDS AND NO COMMERCIAL EXPEDI ENCY WAS ESTABLISHED. THE ASSESSING OFFICER PROCEEDED TO DI SALLOW PROPORTIONATE INTEREST ON THE BORROWED FUNDS AND ACCORDINGLY A DI SALLOWANCE OF RS.5,37,76,428/- WAS MADE, WHICH HAS ALSO BEEN AFFI RMED BY THE DRP. 14.1 BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSE SSEE HAS MADE VARIOUS SUBMISSIONS ON THIS ASPECT. FIRSTLY, IT IS POINTED OUT THAT ASSESSEE HAD SUFFICIENT OWN FUNDS AND, THEREFORE, FOLLOWING THE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD., 313 ITR 340(BOM), IT HAS TO BE PRESUMED THAT THE LOANS AND ADVANCES TO THE SUBSIDIARIES/SIS TER CONCERNS HAVE MADE OUT OF NON-INTEREST BEARING FUNDS. IT HAS AL SO BEEN POINTED OUT BEFORE US THAT THE ADVANCES MADE TO THE SUBSIDIARIE S/SISTER CONCERNS ARE FOR THEIR BUSINESS CONSIDERATION, WHICH AMOUNTS TO COMMERCIAL 35 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) EXPEDIENCY QUA THE ASSESSEE AND THUS, INTEREST EXPE NDITURE IS ALLOWABLE UNDER SECTION 36(1)(III) OF THE ACT. IT IS POINTED OUT THAT THE SUMS ADVANCED TO THE SUBSIDIARIES/SISTER CONCERNS WERE U TILIZED BY THEM FOR PAYMENT OF SERVICE TAX, SALES TAX, SALARY AND OTHER STAFF WELFARE EXPENSES, ETC. IN THIS CONTEXT, RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F S.A. BUILDERS VS. CIT, 288 ITR 1, TO SUBMIT THAT WHERE MONEY IS ADVAN CED TO THE SUBSIDIARIES/SISTER CONCERNS FOR COMMERCIAL EXPEDIE NCY AND THE FUNDS SO ADVANCED ARE UTILIZED BY THE SUBSIDIARIES/SISTER CONCERNS FOR SOME BUSINESS PURPOSE, THEN THE INTEREST EXPENSES INCURR ED FOR AVAILING SUCH FUNDS IS LIABLE TO BE ALLOWED. IT HAS ALSO BEEN P OINTED OUT THAT OUT OF THE TOTAL ADVANCES OF RS.110,93,88,518/-, SUMS OF RS.33,35,73,000/- AND RS.44,43,98,000/- PERTAINED TO INTER-CORPORATE DEPOSITS PLACED WITH ESSAR INVESTMENTS LTD. AND ESSAR PROJECTS LTD. RESP ECTIVELY AT THE INTEREST RATE OF 10%. 14.2 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRES ENTATIVE HAS PRIMARILY REITERATED THE REASONING ADVANCED BY THE ASSESSING OFFICER, WHICH WE HAVE ALREADY ADVERTED TO IN THE EARLIER PA RAS AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 14.3 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. IN THE CONTEXT OF THE DISALLOWANCE OUT OF INTEREST EXPENDI TURE, THE INITIAL PLEA OF THE ASSESSEE IS THAT IT IS IN POSSESSION OF ENOU GH OWN NON-INTEREST BEARING FUNDS TO COVER THE ADVANCES TO THE SUBSIDIA RIES/SISTER CONCERNS AND, THEREFORE, FOLLOWING THE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. 36 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) (SUPRA), NO DISALLOWANCE IS CALLED FOR. IN THIS CO NTEXT, AT THE TIME OF HEARING, THE LD. REPRESENTATIVE FOR THE ASSESSEE HA D REFERRED TO THE ANNUAL FINANCIAL STATEMENTS, WHICH SHOW THAT AS ON 31/3/2010 ASSESSEE HAD OWNED FUNDS TO THE TUNE OF RS.842,57,77,000/- C OMPRISING OF EQUITY SHARE CAPITAL, RESERVE AND SURPLUS, IN CONTRAST, T HE ADVANCES TO THE SUBSIDIARIES/SISTER CONCERNS STAND AT RS.110,93,88, 519/- AS ON 31/3/2010. THE AFORESAID ABUNDANTLY BRINGS OUT THA T THE NON-INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE ARE ENOUG H TO COVER THE AMOUNTS LENT TO SUBSIDIARIES/SISTER CONCERNS AND, T HEREFORE, IN TERMS OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF RELIANCE UTILITIES AND POWER LTD.(SUPRA), THE PRESUMPTION IS THAT THE ADVANCES TO THE SUBSIDIARIES/SISTER CONCERNS ARE OUT OF SUCH OW NED NON-INTEREST BEARING FUNDS. ON THIS COUNT ITSELF, WE FIND THAT THE DISALLOWANCE OF RS. 5,37,76,428/- MADE BY THE ASSESSING OFFICER IS LIAB LE TO BE DELETED. APART FROM THE AFORESAID PLEA, ASSESSEE HAD ALSO PO INTED OUT AT THE TIME OF HEARING THAT THE BORROWINGS RAISED DURING T HE YEAR FROM VARIOUS BANKS AND OTHER FINANCIAL INSTITUTIONS WERE ACQUIRE D FOR SPECIFIC UTILIZATION LIKE ACQUISITION OF FIXED ASSETS, CAPIT AL EXPENDITURE, ETC. AND, THEREFORE, THE SAME WOULD NOT BE PRESUMED TO HAVE B EEN LENT TO SUBSIDIARIES /SISTER CONCERNS. BE THAT AS IT MAY, HAVING REGARD TO THE FACT-SITUATION AND THE RATIO OF THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER L TD.(SUPRA), WE UPHOLD THE PLEA OF THE ASSESSEE FOR DELETION OF INTEREST E XPENDITURE OF RS.5,37,76,428/-. THUS, ON THIS ASPECT ASSESSEE SU CCEEDS. 15. IN SO FAR AS GROUND OF APPEAL NO.23 IS CONCERNE D, THE SAME RELATES TO CHARGING OF INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT , 37 ITA NO.7694 /MUM/2014 ITA NO.1209/MUM/2015 (ASSESSMENT YEAR : 2010-11) WHICH IS CONSEQUENTIAL IN NATURE AND DOES NOT REQUI RE ANY SPECIFIC ADJUDICATION. 16. IN GROUND OF APPEAL NO.24, THE GRIEVANCE OF THE ASSESSEE IS FOR GRANT OF CREDIT FOR TDS OF RS.55,89,46,412/- CLAIME D BY THE ASSESSEE IN ITS RETURN OF INCOME AS AGAINST A CREDIT OF RS.51,3 7,06,620/- GRANTED BY THE ASSESSING OFFICER. ON THIS ASPECT, THE ASSESSI NG OFFICER IS DIRECTED TO EXAMINE THE PLEA OF THE ASSESSEE ON THE BASIS OF THE MATERIAL ON RECORD AND AS PER LAW. THUS, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES ONLY. 17. THE LAST GROUND RAISED BY THE ASSESSEE IS AGAIN ST INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT, WHICH IS PREMATURE AND IS HEREBY DISMISSED. 18. IN THE RESULT, WHEREAS APPEAL OF THE ASSESSEE I S PARTLY ALLOWED, THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/02/2017 SD/- SD/- (SANDEEP GOSAIN) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMB ER MUMBAI, DATED 08/02/2017 VM, 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. GUARD FILE.