Gulbrandsen Chemicals Pvt.Ltd., Baroda V. The Income tax Officer,Ward-1(3), Baroda

ITA 792/AHD/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9671 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 27-09-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 11-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RICHA RASTOGI; M P SINGH
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Transfer pricing; International transaction; Rule of consistency; Wholly owned subsidiary; Revenue expenditure; Capital expenditure
• Section: 143(3); 148; 92

Judgement Text

ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 1 OF 17 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR , AM AND S.S. GODARA , JM ] I.T.A. NO S . 3416 /AHD/201 0 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 GU LBRANDSEN CHEMICALS PVT. LTD. ........ ... . . APPELLANT ON COASTAL HIGHWAY, POST OFFICE MUJPUR, TAL. PADRA, DIST. BARODA. [P AN: AA B CG 0812 A ] VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(1), BARODA . . . RESPONDENT APPEARANCES BY: S.N. SOPARKAR FOR THE APPELL ANT M.P. SINGH & RICHA RASTOGI FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 2 7 . 09 .2016 DATE OF PRONOUNC ING THE ORDER : 23 . 12. 2016 O R D E R PER BENCH : 1. THESE TWO APPEALS FILED BY THE ASSESSEE APPELLANT ARE DIRECTED AGAINST TWO SEPARATE ORDERS , DATED 26.10.2009 PASSED BY THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX (TPO - II), AHMEDABAD, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 144C (13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 200 6 - 07 , AND ORDER DATED 28.12.2010 PAS SED BY LEARNED CIT(A) - I, BARODA, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE ACT, FOR THE ASSESSMENT YEAR 2004 - 05 , RESPECTIVELY. ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 2 OF 17 2. GRIEVANCES RAISED BY THE APPELLANT , IN BOTH THE ASSESSMENT YEARS , ARE AS FOLLOWS: - GROUNDS OF APPEA L ITA NO.3416/AHD/2010 - A.Y. 2006 - 07 GROUND NO. 1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ASSESSING OFFICER ('AO') GROSSLY ERRED, IN CONFORMITY WITH THE DIRECTIONS OF HON'BLE DISPUTE RESOLUTION PANEL, AHMEDABAD ('DRP') UNDER SECTION 144C(5) OF THE INCOME - TAX ACT, 1961 ('THE ACT'), IN MAKING THE UPWARD TRANSFER PRICING ADJUSTMENT OF RS.1,12,40,558/ - IN RESPECT OF APPELLANT'S INTERNATIONAL TRANSACTIONS OF SALE OF ANH CHEMICAL WITH ASSOCIATED ENTERPRISE GULBRANDSEN CHEMICALS INC. ('AE'). THE APPELLANT SUBMITS THAT NO TRANSFER PRICING ADJUSTMENT IS WARRANTED IN ITS CASE AND WISHES TO RAISE THE FOLLOWING GROUNDS OF APPEAL: I. THE HON'BLE DRP/LD.TPO/LD. AO ERRED IN DETERMINING THE ARM'S LENGTH PRICE OF SALE OF ANH CHEMICAL TO AE ON EACH INDIVIDUAL TRANSACTION BASIS RATHER THAN ON ANNUAL AGGREGATE BASIS, IN CONTRADICTION TO ALL PRIOR YEARS EXCEPT IMMEDIATELY PRECEDING YEAR WHEREIN ALSO PRINCIPLE OF AGGREGATION ON MONTHLY BASIS HAS BEEN FOLLOWED. A. THE HON'BLE DRP/LD.TPO/LD. AO FAILE D TO APPRECIATE THAT APPELLANT HAS LONG TERM BUSINESS ARRANGEMENT WITH ITS AE FOR SALE OF CHEMICAL PRODUCTS AND UNDER SUCH ARRANGEMENT EVALUATION OF PRICING ON ANNUAL AGGREGATE BASIS IS IN CONFORMITY WITH ARM'S LENGTH PRINCIPLE AND IS PERMISSIBLE UNDER THE ACT AND RULES IN RESPECT OF CLOSELY LINKED TRANSACTIONS IN SAME PRODUCT. B. THE HON'BLE DRP/LD.TPO/LD. AO FAILED TO APPRECIATE THAT IN THE PRIOR YEARS PROCEEDINGS U/S. 92 OF THE ACT IN APPELLANT'S OWN CASE THE EVALUATION OF ARM'S LENGTH PRICING ON ANNUAL AGGREGATE BASIS HAS BEEN ACCEPTED AND FOLLOWED BY THE LD. TPO AND THERE IS NO REASON TO DEVIATE FROM SUCH ACCEPTED APPROACH. II. THE HON'BLE DRP/LD.TPO/LD. AO ERRED IN IGNORING THE THIRD PARTY EXTERNAL COMPARABLE UNCONTROLLED TRANSACTIONS OBTAINED FROM THE INFORMATION AVAILABLE IN PUBLIC DOMAIN AND RELIED UPON BY THE APPELLANT IN ITS TRANSFER PRICING DOCUMENTATION REPORT. III. THE LD.TPO/LD. AO ERRED IN COMPARING PRICES CHARGED TO AE AND TO NON - AE BASED ON INVOICE DATES (WHICH DO NOT REPRESENT THE TRANS ACTION DATES) IN DEFIANCE OF BINDING DIRECTIONS OF HON'BLE DRP. IV. THE HON'BLE DRP ERRED IN DIRECTING THAT COMPARISON OF PRICES CHARGED TO AE AND TO NON - AE BE MADE PURCHASE ORDER DATE WISE (I.E. PO DATE WISE). THE HON'BLE DRP FAILED TO APPRECIATE THAT P O DATE WISE COMPARISON DOES ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 3 OF 17 NOT REFLECT ARM'S LENGTH COMPARISON AND IS IMPRACTICAL BECAUSE ON CERTAIN DATES THERE MAY EXISTS AE TRANSACTION(S) BUT NON - AE TRANSACTION(S) MAY NOT EXIST ON SAME DATE AND VICE - VERSA AND THAT SUCH COMPARISON RESULT IN ABSURDITY. V. THE HON'BLE DRP/LD.TPO/LD. AO ERRED IN COMPARING PRICES CHARGED TO AE WITH HIGHEST PRICE CHARGED TO NON - AE FOLLOWING ERRONEOUS DATE - WISE COMPARISON, RATHER THAN TAKING DATE - WISE AVERAGE OF ALL NON - AE PRICES AS STIPULATED IN PROVISO TO 92C(2). VI. THE HON'BLE DRP/LD.TPO/LD.AO ERRED IN NOT CARRYING OUT ADJUSTMENTS FOR ECONOMICALLY SIGNIFICANT AND MATERIAL DIFFERENCES IN TRANSACTIONS WITH AE AND TRANSACTIONS WITH NON - AE CUSTOMERS, WHICH ADJUSTMENTS ARE PERMISSIBLE IN LAW IN TERMS OF RULE 10B(3) AND RULE 10B(1)(A)(II) & (III) OF THE INCOME - TAX RULES 1962. A. THE HON'BLE DRP/LD.TPO/LD. AO FAILED TO APPRECIATE THAT THERE ARE ECONOMICALLY SIGNIFICANT AND MATERIAL DIFFERENCES IN TRANSACTIONS WITH AE AND TRANSACTIONS WITH NON - AE CUSTOMERS IN TERMS OF (A) VOLUME OF BUSINESS (B) BUSINESS ARRANGEMENT (C) TERMS OF PAYMENT (D) OTHER INCIDENTAL ENTITLEMENTS OF APPELLANT (SUCH AS DEPB BENEFIT) (E) CREDIT RISK (F) SELLING AND MARKETING FUNCTION AND RELATED COST (G) FINANCE COST (H) REIMBURSEMENT OF R&D COST, ETC, WHICH MATERIALLY AFFECT THE PRICES CHARGED OR PAID IN OPEN MARKET. B. THE HON'BLE DRP/LD.TPO/LD. AO FAILED TO APPRECIATE THAT SUCH ADJUSTMENTS ARE NECESSARY TO ESTABLISH COMPARABILITY BETWEEN TRANSACTIONS WITH AE AND TRANSACTIONS WITH NON - AE CUSTOMER S BEFORE DETERMINATION OF ARM'S LENGTH PRICE. VI. (A) THE HON'BLE DRP/LD.TPO/LD. AO ERRED BY NOT GRANTING THE BENEFIT OF ADJUSTMENT O F 5% AS PER PROVISO TO SECTION 92C(2) OF THE ACT. (B) THE HON'BLE DRP/LD.TPO/LD. AO ERRED BY NOT COMPUTING TH E TRANSFER PRICING ADJUSTMENT WITH REFERENCE TO THE LOWER END OF 5% ARM'S LENGTH RANGE AS PROVIDED IN PROVISO TO SECTION 92C(2) OF THE ACT. GROUND NO. 2: A) THE HON'BLE DRP/LD. AO ERRED IN NOT GRANTING THE CLAIM OF WEIGHTED DEDUCTION U/S. 35(2AB) AMO UNTING TO RS.76,28,284/ - IN RESPECT OF CAPITAL AS WELL AS REVENUE EXPENDITURE INCURRED FOR CARRYING OUT THE RESEARCH & DEVELOPMENT ACTIVITIES OF THE BUSINESS DESPITE COMPLIANCE WITH ALL THE CONDITIONS OF THE PROVISION. B) THE HON'BLE DRP/LD. AO FURTHER ER RED IN NOT CONSIDERING THE ALTERNATIVE CLAIM OF THE APPELLANT IN GRANTING THE ALLOWANCE OF THE ELIGIBLE AMOUNT OF ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 4 OF 17 RS. 6,17,377/ - IN TERMS OF PROVISIONS CONTAINED IN SEC.35(1)(IV) ALLOWING THE DEDUCTION IN RESPECT OF ANY EXPENDITURE OF CAPITAL NATURE INCURR ED IN THE PURCHASE OF PLANT & MACHINERY. GROUND NO. 3: THE HON'BLE DRP/LD. A.O. ERRED IN CONFIRMING THE ADDITION OF AN AMOUNT OF RS.256834/ - BEING THE AMOUNT OF EMPLOYEES' CONTRIBUTION TO P.P. WHICH WAS PAID BELATEDLY BUT VERY MUCH WITHIN THE FINANCIAL Y EAR. THE HON'BLE DRP/LD. A.O. OUGHT TO HAVE ALLOWED THE SAME. GROUND NO. 4: THE HON'BLE DRP/LD. A.O. ERRED IN DISALLOWING AN AMOUNT OF RS.1,64,045/ - , BEING THE AMOUNT OF DIFFERENCE BETWEEN AMORTIZED AMOUNT OF REPAIRS AND REPLACEMENT EXPENSE IN EXCESS OF THE DEPRECIATION ALLOWED IN RELATION TO THE EXPENDITURE INCURRED ON REPLACEMENT OF BUILDING ROOFING HOLDING THAT THE SAME WAS IN THE NATURE OF CAPITAL EXPENDITURE ELIGIBLE FOR DEPRECIATION ONLY. THE EXPENDITURE BEING IN THE NATURE OF REPLACEMENT/REPAIRS DE SERVES ALLOWANCE AS CLAIMED. GROUND NO. 5: THE HON'BLE DRP/LD. A.O. ERRED IN DISALLOWING AN AMOUNT OF RS.3,15,346/ - , BEING THE AMOUNT OF DIFFERENCE BETWEEN THE AMORTIZED AMOUNT OF EXPENSE INCURRED ON STORES AND SPARES IN EXCESS OF THE DEPRECIATION ALLOWE D IN RELATION TO THE EXPENDITURE INCURRED ON THE PURCHASE OF STORES AND SPARES HOLDING THAT THE SAME WAS IN THE NATURE OF CAPITAL EXPENDITURE ELIGIBLE ONLY FOR DEPRECIATION. THE EXPENDITURE BEING IN THE NATURE OF REPLACEMENT/REPAIRS DESERVES ALLOWANCE AS C LAIMED. GROUND NO. 6: THE HON'BLE DRP/LD. A.O. ERRED IN CONFIRMING THE ADJUSTMENT OF RS,698836/ - BEING THE AMOUNT OF PROVISION MADE TOWARDS LIABILITY FOR GRATUITY, INCURRED DURING THE YEAR AND AS DETERMINED ON ACTUARIAL VALUATION, IN DETERMINATION OF THE PROFITS CHARGEABLE TO TAX AS BOOK PROFITS U/S.115JB OF THE I.T. ACT. THE ADJUSTMENT OF RS.6,98,836/ - IS UNWARRANTED AND INADMISSIBLE AND THE CLAIM OF THE APPELLANT DESERVES ALLOWANCE. GROUND NO. 7: THE LD. AO ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. GROUNDS OF APPEAL ITA NO.792/AHD/2011 - A.Y. 2004 - 05 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - I, BARODA HAS ERRED IN FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE LD. AO IN ISSUING THE NOTICE ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 5 OF 17 U/S 148 OF THE IT A CT. AND, THEREFORE, THE ASSESSMENT MADE CONSEQUENT THERETO BEING BAD IN LAW IS PRAYED TO BE CANCELLED. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - I, BARODA HAS ERRED IN FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE LD. A.O. IN DISALLOWING THE CLA IM OF DEDUCTION U/S. 35(2AB) OF THE ACT OF RS.1,30,01,806/ - ON THE GROUND OF NON - SUBMISSION OF THE FORM NO.3CK TO 3CM ALONG WITH THE RETURN OF INCOME FILED. THE DISALLOWANCE BEING BAD IN LAW AND IN FACTS IS PRAYED TO BE DIRECTED TO BE ALLOWED. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - I, BARODA HAS ERRED IN FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE LD. A.O. IN DISALLOWING AN AMOUNT OF EXPENSES CLAIMED OF RS.3,23,170/ - AS PRIOR PERIOD EXPENSE. THE DISALLOWANCE IS CONFIRMED WITHOUT CONSIDERING THE SUBMISSION OF THE APPELLANT BEING BAD IN LAW AND IN FACTS AND HENCE THE SAME IS PRAYED TO BE ALLOWED. 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - I, BARODA HAS ERRED IN FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE LD. A.O. IN MAKING DISALLOWAN CE OF DEPRECIATION IN RESPECT OF EXCESS CENVAT CREDIT AVAILED ON CAPITAL GOOD AND THEREBY MAKING DISALLOWANCE OF RS.16,68,060/ - . THE DISALLOWANCE IS CONFIRMED WITHOUT CONSIDERING THE SUBMISSION OF EH APPELLANT BEING ERRONEOUS IN FACTS AND IN LAW AND THE S AME IS PRAYED TO BE ALLOWED. 3 . SO FAR AS TH E GRIEVANCE RAISED IN FIRST GROUND OF APPEAL OF THE ASSESSEE IS CONCERNED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE BEFORE US AN INDIAN COMPANY WHICH IS WHOLLY OWNED SUBSIDIARY OF A MAURITIUS BAS ED COMPANY BY THE NAME OF EW LIMITED, WHICH, IN TURN, IS A GROUP COMPANY OF GULBRANDSEN CHEMICALS INC USA (GCI, USA) AND GULBRADSEN EC LIMITED UK. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE SOLD ALUMINIUM CHLORIDE (ANH, A CHEMICAL PRODUCT), TO ITS AE GCI USA. IN THE TRANSFER PRICING REPORT, THIS TRANSACTION WAS BENCHMARKED AS FOLLOWS: SALE OF ANH: A. THIS INTRA - GROUP TRANSACTION HAS BEEN BENCHMARKED ON CUP METHOD FOR TESTING ADHERENCE TO ARM S LENGTH STANDARDS, USING INTERNAL COMPARABLE UNCONTROLLED TRANSACTIONS. ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 6 OF 17 B. ANALYSIS ESTABLISHES THAT AVERAGE PRICE CHARGED BY GCPL TO THIRD PARTIES FOR SALES OF ANH IN INTERNAL COMPARABLE UNCONTROLLED TRANSACTIONS IS RS.37.52/KG. AS AGAINST THIS, AVERAGE PRICE REALISED BY GCPL FROM ITS AES ON SALE OF ANH IS RS.3 8.07/KG., WHICH IS HIGHER THAN INTERNAL CUP. ACCORDINGLY, IT IS CONCLUDED THAT INTRA - GROUP TRANSACTIONS OF SALE OF ANH TO AES MEETS WITH ARM S LENGTH STANDARD. 4 . THE ASCERTAINMENT OF ARM S LENGTH PRICE OF THE ASSESSEE S TRANSACTIONS WITH ITS AES CAME U P FOR SCRUTINY BEFORE THE TRANSFER PRICING OFFICER. DURING THESE PROCEEDINGS, THE TPO NOTED THAT THE ASSESSEE HAS SOLD 60,10,855 KG OF ANH TO I TS AE ON AN AVERAGE PRICE OF RS. 38.07. HE NOTED THAT THERE WAS A HUGE DIFFERENCE IN THE PRICES AT WHICH THE ASSE SSEE HAS SOLD TO ANH TO ITS AE VIS - - VIS THE PRICES AT WHICH HE HAS SOLD THE SAME PRODUCT TO ITS NON AES. TAKING THE PRICE AT WHICH THE ASSESSEE HAS SOLD THE PRODUCT TO ITS NON AE AS A VALID INTERNAL CUP (COMPARABLE UNCONTROLLED PRICE), THE TPO COMPUTED TH E ARM S LENGTH PRICE OF SALE TO THE AE. THE ASSESSEE ADOPTED THE HIGHEST PRICE AT WHICH THE SALE WAS MADE TO NON AE AS THE INTERNAL CUP. THE DIFFERENCE WAS THUS WORKED OUT, AS PER TABLES GIVEN IN THE TRANSFER PRICING ORDER, AT RS . 1,19,09,726. THE ASSESSE E WAS, IN THIS BACKGROUND, REQUIRED TO SHOW CAUSE AS TO WHY THIS DIFFERENCE BETWEEN THE ARM S LENGTH PRICE ON THE BASIS OF INTERNAL CUP AND THE TRANSACTION VALUE NOT BE ADDED TO THE INCOME OF THE ASSESSEE. 5 . IT WAS EXPLAINED BY THE ASSESSEE THAT THE PRI CES OF THE CHEMICAL PRODUCTS, UNLIKE THAT OF VEGETABLES OR ON STOCK EXCHANGES, DO NOT FLUCTUATE ON DAILY BASIS, AND THAT IN THE BUSINESS TRANSACTIONS OF THE ASSESSEE WITH AES AND NON AES, THE PRICES OF THE PRODUCTS ARE DETERMINED ON THE DATE ON WHICH THE SALE CONTRACTS ARE NEGOTIATED AND CONCLUDED AND THE PRICES SO DETERMINED ARE FOLLOWED FOR ALL THE PRODUCT DELIVERIES MADE PURSUANT TO RELEVANT SALE CONTRACTS . THE ASSESSEE FURTHER EXPLAINED THAT THE ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 7 OF 17 ASSESSEE HAS AN ONGOING ARRANGEMENT WITH ITS AE UNDER WHICH THE AE IS OBLIGED TO PURCHASE AT LEAST 50% OF ITS PRODUCTION, AND TO MAKE ADVANCE PAYMENT ALONG WITH PURCHASE ORDER 120 DAYS BEFORE THE EXPECTED DATE OF DELIVERIES. THE ASSESSEE ALSO POINTED OUT CERTAIN FACTUAL ERRORS IN THE COMPUTATIONS MADE BY THE ASSESSEE. IT WAS THEN EXPLAINED THAT IF AT ALL THE SALE PRICES TO NON AES ARE TO BE TAKEN AS VALID INTERNAL CUP INPUTS, ADJUSTMENTS ARE REQUIRED TO BE MADE IN RESPECT OF (I) ADVANCE PAYMENTS, (B) GUARANTEED SALES OF 50% PRODUCTS, (III) ABSENCE OF CREDIT R ISK AND (IV) ABSENCE OF SALES AND MARKETING COSTS. THESE ADJUSTMENTS WERE CLAIMED AT 8%, 20%, 3% AND 5% RESPECTIVELY. THE TPO REJECTED THESE CONTENTIONS, THOUGH HE DID RECTIFY SOME OF THE ERRORS POINTED OUT BY THE ASSESSEE. AN ALP ADJUSTMENT OF RS . 1,12,40 ,558 WAS ACCORDINGLY RECOMMENDED. 6 . AGGRIEVED BY THE ADJUSTMENT SO PROPOSED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE DRP BUT WITHOUT ANY SUCCESS. THE DRP NOTED THAT AGGREGATION OF TRANSACTIONS, WHICH IS WHAT AVERAGE PRICES BEING ADOPTED IMPLIE S, IS REQUIRED ONLY WHEN IT IS NOT PRACTICAL TO DO THE BENCHMARKING OF TRANSACTIONS ON INDIVIDUAL BASIS. ESSENTIALLY, THE RELEVANT CONTROLLED TRANSACTIONS, ACCORDING TO THE DRP, MAY BEST BE AGGREGATED IF IT IS IMPRACTICAL TO ANALYSE PROFITS OF EACH TRANSA CTION OR IF SUCH TRANSACTIONS ARE SO INTERRELATED THAT THIS IS MOST RELIABLE MEANS OF BENCHMARKING THE OUTCOME OF TRANSACTIONS AGAINST THE ARM S LENGTH OUTCOME. IT WAS ALSO NOTED THAT UNDER RULE 10A(D), THE EXPRESSION TRANSACTION INCLUDES A NUMBER OF C LOSELY RELATED TRANSACTIONS BUT THE TRANSACTIONS CAN ONLY BE TAKEN TO BE INTERLINKED IF ITS SEPARATE EVALUATION OR PROFITABILITY ANALYSIS IS NOT POSSIBLE. IT WAS ALSO NOTED THAT THE ASSESSEE IS INCORRECT IN CONTENDING THAT THE PRICES OF ANH DO NOT FLUCT UATE MUCH, AS IS EVIDENT FROM THE DATA FURNISHED BY THE ASSESSEE HIMSELF. IT WAS NOTED THAT THERE IS A WIDE VARIATION IN ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 8 OF 17 PRICES AT WHICH THE PRODUCT IS SOLD TO NON AES. A REFERENCE WAS ALSO MADE TO THE PRICING TERMS UNDER THE AGREEMENT WITH THE AE WHICH CL EARLY INDICATED THAT THE PREVAILING MARKET PRICES WAS AN ESSENTIAL INPUT FOR PRICE FIXATION WHICH IMPLIED THAT THE MARKET PRICES WERE NORMALLY EXPECTED TO VARY FROM TIME TO TIME. IT WAS ALSO NOTED THAT THE PURCHASE OF 50% OF PRODUCTION WAS DUE TO REQUIREME NT OF THE FOREIGN COLLABORATION APPROVAL AND IT SHOULD NOT, THEREFORE, BE TAKEN AS A COMMERCIAL CONSIDERATION AFFECTING THE PRICES. THE DRP ALSO REJECTED RELIANCE ON EXTERNAL COMPARABLES AS INTERNAL CUP WERE AVAILABLE IN THE CASE. BY IMPLICATION THUS, THE DRP HELD THAT AS LONG AS INTERNAL CUP INPUTS ARE AVAILABLE, IT IS NOT OPEN TO THE ASSESSEE TO USE EXTERNAL CUP INPUTS. AS FOR THE ADJUSTMENTS CLAIMED BY THE ASSESSEE, THE DRP WAS OF THE VIEW THAT IF THESE ADJUSTMENTS WERE TO BE ALLOWED, THE PRICES OF ANH WILL BE REDUCED TO RS 24 PER KG BUT THEN NO TRANSACTION WITH A NON AES HAS TAKEN PLACE AT THAT PRICE WHICH MAKES IT AN ABSURD COMPARISON. THE DRP FURTHER NOTED THAT THE ADJUSTMENT QUANTIFICATION IS DEVOID OF ANY SCIENTIFIC BASIS. AS FOR THE ASSESSEE S GR IEVANCE AGAINST THE MAXIMUM SALE PRICE TO NON AE BEING TAKEN AS INTERNAL CUP, DRP JUSTIFIED THE SAME ON THE GROUND THAT ALL SALES TO NON AES ARE DOMESTIC SALES WHEREAS TRANSACTIONS WITH AE ARE EXPORTS TO USA WHERE PRICES ARE BOUND TO BE HIGHER. IT WAS ALSO NOTED THAT THE LOCATIONAL SAVINGS TO AE ARE FAR IN EXCESS OF THE ADJUSTMENTS SOUGHT BY THE ASSESSEE. THE DRP ACCEPTED THE PLEA OF THE ASSESSEE TO THE EXTENT THAT THE RELEVANT DATE IS THE DATE ON WHICH SALE CONTRACTS ARE ENTERED INTO RATHER THAN THE DATE O F ACTUAL SALES AND TO THAT EXTENT REMITTED THE MATTER TO THE FILE OF THE TPO FOR FRESH EXAMINATION. THE ASSESSEE IS NOT SATISFIED BY THE STAND SO TAKEN BY THE DRP AND IS IN APPEAL BEFORE US. 7 . WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL O N RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 9 OF 17 8 . AS LEARNED SENIOR COUNSEL RIGHTLY CONTENDS, THE FUNDAMENTAL ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IN THIS CASE IS WHETHER AGGREGATION OF TRANSACTIONS, WHICH ARE ENTERED INTO IN A SINGLE CONTRACT THOUGH NOT NECESSARILY AT THE SAME PRICE, IS PERMISSIBLE - PARTICULARLY WHEN THE SAME PRINCIPLE HAS BEEN PERMITTED IN ALL THE EARLIER ASSESSMENT YEARS. AS TO THE QUESTION, WHETHER SUCH AN APPROACH IS PERMISSIBLE, WE FI ND SOME JUDICIAL PRECEDENTS TO SUPPORT THIS APPROACH. WE FIND THAT, IN THE CASE OF KNORR BREMESE INDIA PVT LTD VS ACIT [(2016) 380 ITR 303 (P&H)], HON BLE PUNJAB & HARYANA HIGH COURT HAS OBSERVED THAT THE DOUBT, IF ANY, IN THIS REGARD IS SET AT REST BY RU LE 10A(D), WHICH PROVIDES THAT FOR THE PURPOSE OF RULE 10A AND RULES 10 B TO 10E, TRANSACTION INCLUDES A NUMBER OF CLOSELY RELATED TRANSACTIONS AND THAT THUS, THE CLOSELY LINKED TRANSACTIONS CAN, IN A GIVEN SITUATION, BE COMPONENTS OF SINGLE COMPOSITE TRANSACTION . THEIR LORDSHIPS HAVE THEN ADDED THAT THE ASSESSEE WOULD, HOWEVER, HAVE TO PROVE THAT ALTHOUGH EACH SALE AND EACH PROVISION OF SERVICE IS PRICED SEPARATELY, THEY WERE ALL PROVIDED UNDER ONE COMPOSITE AGREEMENT WHICH CONSTITUTES ONE INTERNATI ONAL TRANSACTION . SIMILARLY, IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDIA PVT LTD VS CIT [(2015) 374 ITR 118 (DEL)], HON BLE DELHI HIGH COURT HAS OBSERVED THAT, THERE IS CONSIDERABLE TAX LITERATURE AND TEXT THAT CUP METHOD, I.E. COMPARABLE UNC ONTROLLED PRICE METHOD, RP METHOD, I.E. RESALE PRICE METHOD, AND CP METHOD (I.E. COST PLUS METHOD) CAN BE APPLIED TO A TRANSACTION OR A CLOSELY LINKED OR CONTINUOUS TRANSACTIONS . THEIR LORDSHIPS HAVE, IN THIS BACKDROP, PUT IN A WORD OF CAUTION THAT THUS, IT WOULD BE INAPPROPRIATE TO PROCEED WITH THE ARM S LENGTH PRICE COMPUTATION METHODS WITH A PRECONCEIVED NOTION OF SINGULARITY AS A STATUTORY MANDATE AND THAT CLUBBING OF CLOSELY LINKED, WHICH COULD INCLUDE CONTINUOUS TRANSACTIONS, MAY BE PERMISSIBLE AN D NOT OSTRACISED . CLEARLY, THEREFORE, IN CERTAIN SITUATIONS, SUCH AGGREGATION OF TRANSACTIONS IS PERMISSIBLE FOR BENCHMARKING EVEN WHEN THE PRICES AT ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 10 OF 17 WHICH TRANSACTIONS ARE ENTERED INTO ARE DIFFERENT. IN PRINCIPLE THUS AGGREGATION OF TRANSACTIONS CAN BE D ONE AND IS PERMISSIBLE. THE NEXT QUESTION IS WHETHER IN THE PRESENT CASE SUCH AN AGGREGATION SHOULD BE DONE. TO ANSWER THIS QUESTION, WE NEED NOT GO BEYOND PAST HISTORY OF THIS CASE ITSELF. IT IS AN ADMITTED PAST HISTORY OF THE CASE THAT ALL THE TRANSACTI ONS HAVE BEEN CONSIDERED TOGETHER ALL ALONG, EXCEPT IN THE ASSESSMENT YEAR 2005 - 06 IN WHICH TRANSACTIONS OF EACH MONTH ARE TAKEN TOGETHER - RATHER THAN TRANSACTIONS OF THE ENTIRE FINANCIAL PERIOD, AND IN NONE OF THE EARLIER ASSESSMENT YEARS, THE SALE TRANS ACTIONS HAVE BEEN CONSIDERED ON STANDALONE BASIS. IT IS ONLY IN THE PRESENT YEAR, A DEPARTURE HAS BEEN MADE BY THE TPO IN THIS REGARD. WHETHER TRANSACTIONS ARE SO INTERRELATED IN RELATION TO THE SAME CONTRACT AS TO BE TAKEN TOGETHER IS ESSENTIALLY A FACTU AL ASPECT PERMEATING OVER THE DIFFERENT YEARS, AND, AS OBSERVED BY HON BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS CIT [(1992) 193 ITR 321 (SC)], EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEA R BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLO W THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR . IN THIS VIEW OF THE MATTER, THERE IS NO GOOD REASON TO TAKE A DIFFERENT STAND NOW AND CLAIM THAT AGGREGATION OF TRANSACTIONS CANNOT BE PERMITTED IN THIS ASSESSMENT YEAR, SO FAR AS BENCHMARKING OF ANH SALE S TO AE IS CONCERNED. THE PLEA OF THE ASSESSEE IS INDEED WELL TAKEN AND IT MERITS OUR ACCEPTANCE. WE HAVE ALSO NOTED THAT THERE IS NO DISPUTE THAT ONCE THIS PRINCIPLE IS ADOPTED, THE BENCHMARKING DONE OF THE ASSESSEE IS TO BE ACCEPTED AND THE TRANSACTIONS ARE TO BE HELD AS ARM S LENGTH TRANSACTIONS. THE ASSESSEE, THEREFORE, DESERVES TO SUCCEED ON THIS ISSUE. HAVING SAID THAT, WE MUST CLARIFY THAT WE REFRAIN FROM MAKING ANY OBSERVATIONS ON MERITS REGARDING APPLICATION OF ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 11 OF 17 AGGREGATION PRINCIPLE IN GENERAL AND THAT OUR CONCLUSIONS ARE CONFINED TO PECULIAR FACTS, INCLUDING THE ACCEPTED PAST HISTORY, OF THIS CASE. 9 . GRIEVANCE OF THE ASSESSEE IS THUS UPHELD AND THE IMPUGNED ALP ADJUSTMENT OF RS . 1,12,40,558 IS THUS DELETED. 10. ASSESSEE S NEXT GROUND , AS COMMON I N BOTH THE IMPUGNED ASSESSMENT YEA R S 200 6 - 07 & 200 4 - 0 5, CHALLENGES ACTION OF BOTH THE LOWER AUTHORITIES DENYING IT SECTION 35(2AB) WEIGHTED DEDUCTION OF RS.76,28,284/ - AND RS.1,30,01,806 ; RESPECTIVELY. 11. WE FIND THAT THE LEARNED C IT(A) IN ASSESSMENT YE AR 2006 - 07 RELIE S UPON THE DRP S FINDINGS , READING AS UNDER : - 15.10 WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE CAREFULLY, BUT THE SAME ARE FOUND NOT ACCEPTABLE. THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER HAS GIVEN A CATEGORICAL FIN DING THAT SUB - CLAUSE(3) OF SUB - SECTION (2AB) OF SECTION 35 VERY CLEARLY PROVIDES THAT NO COMPANY SHALL BE ENTITLED FOR DEDUCTION UNLESS IT ENTERS INTO AN AGREEMENT WITH THE PRESCRIBED AUTHORITY FOR CO - OPERATION IN RESEARCH AND DEVELOPMENT FACILITY AND FOR AUDIT OF ACCOUNTS MAINTAINED FOR SUCH FACILITIES AND THE ASSESSEE WAS ASKED TO GIVE DETAILS AND EXPLANATION AS TO WHETHER IT HAS COMPLIED WITH ALL THE REQUIREMENTS OF SECTION 35(2AB) OF THE ACT SO THAT ITS CLAIM COULD BE CONSIDERED FOR WEIGHTED DEDUCTION. HOWEVER THE ASSESSEE HAS NOT FURNISHED ANY DOCUMENTS OR OTHER MATERIALS EVIDENCING THE FACT THAT IT HAS ENTERED INTO AN AGREEMENT WITH THE PRESCRIBED AUTHORITY AS CONTEMPLATED UNDER SUB - CLAUSE(3). COMPLIANCE WITH THE REQUIREMENTS OF SUB - CLAUSE(3) IS MAN DATORY INASMUCH AS THE WORDS USED THEREIN ARE SHALL . SINCE, ASSESSEE HAS NOT COMPLIED WITH ALL THE CONDITIONS LAID DOWN UNDER SECTION 35(2AB) , CLAIM OF THE ASSESSEE CANNOT BE ENTERTAINED. FURTHER, AS PER CLAUSE (C) OF RULE 6(7A), THE ASSESSEE IS REQUIR ED TO FILE THE ANNUAL AUDITED ACCOUNTS OF R&D CENTRE WITH THE SECRETARY, DSIR BY 31 ST OCTOBER OF EACH SUCCEEDING YEAR. THE ASSESSEE HAS NOT FURNISHED COPY OF ACCOUNTS FILED WITH D S IR. HENCE, IT FAILS TO SATISFY THE CONDITION TO CLAIM THE WEIGHTED DEDUCTI ON UNDER SECTION 35(2AB). IN VIEW OF ABOVE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS NOT ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT AND HENCE THE PROPOSED DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THIS RESPECT IS CONFIRMED. 15.11 WITHOUT PREJUDICE TO ABOVE AND IN THE ALTERNATE, THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE A O OUGHT TO HAVE ALLOWED THE EXPE4NEDITURE INCURRED IN THE PURCHASE OF PLANT AND MACHINERY OF AN AMOUNT OF RS.6,17,377/ - AT ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 12 OF 17 100% IN TERMS O F PROVISIONS CONTAINED IN SEC.35(1)(IV) PROVIDING FOR DEDUCTION IN RESPECT OF ANY EXPENDITURE OF A CAPITAL NATURE ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE AS ADMISSIBLE UNDER SUB - SECTION (2) OF SECTION 35. SUB - SECTION (2) OF SECTION 35 BARS THE CLAIM OF ALLOWANCE OF EXPE4NDITURE OF CAPITAL NATURE INCURRED IN THE PURCHASE OF LAND AND, THEREFORE , THE EXPENSE INCURRED ON PLANT AND MACHINERY IS ELIGIBLE FOR ALLOWANCE. 15.12 WE HAVE CONSIDERED THE ALTERNATE SUBMISSION OF TH E ASSESSEE CAREFULLY. FROM THE RECORDS IT IS OBSERVED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO THE ASSESSEE HAD MADE SIMILAR CLAIM BEFORE THE ASSESSING OFFICER , WHICH WAS NOT ACCEPTED BY THE A O AS THE NECESSARY DETAILS WERE NOT SUBMITTED BY T HE ASSESSEE. BEFORE US ALSO THE ASSESSEE APART FROM MAKING GENERAL CLAIM HAS NOT SUBMITTED ANY DETAILS/PROOF IN SUPPORT OF ITS CLAIM. IN ABSENCE OF ANY DETAILS/PROOF, THE ASSESSEE S CLAIM IN THIS RESPECT IS REJECTED. 12. WE HAVE HEARD THE RIVAL CONTEN TIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 13. THERE DOES NOT SEEMS T O BE ANY DISPUTE ABOUT THE FACT THAT THE ASSESSEE HAS NO T FILED FORM 3CK, 3CL AND 3CM REGARDING APPROVAL OF ITS RESEARCH & DEVELOPMENT FACILITY ALONG WITH EXPENSES INCURRED THERE UPON AS FOLLOWED BY NECESSARY INTIMATION FROM THE PRESCRIBED AUTHORITY TO THE CHIEF COMMISSIONER/COMMISSIONER OF THE INCOME TAX , AS STIPULATED UNDER RULE 6(7A) OF THE I . T . RULES 1962 . LEARNED COUNSEL SEEKS TO PLACE RELIANCE UPON THE HON BLE JURISDICTIONAL HIGH COURT S DECISION IN THE CASE O F CIT VS. CLA RIS LIFESCIENCES LIMITED, 326 ITR 251 ( GUJ.) HOLDING THAT EVEN EXPENDITURE INCURRED PRIOR TO OBTAINING FORM 3CM IS ALLOWABLE AS WEIGH TED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. WE FIND THAT THE SAID CASE LAW IS NOT APPLICABLE IN FACTS OF THE INSTANT CASE WHEREIN NECESSARY APPROVAL HAVE NOWHERE BEEN PR ODUCED ON RECORD. THE ASSESSEE VEHEMENTLY SUBMITS THAT IT HAD COMPLIED WITH ALL N ECESSARY FACTS. OUR ATTENTION WAS INVITED TO PAGE NO. 64 OF THE PAPER BOOK . LEARNED DEPARTMENTAL REPRESENTATIVE POINT S OUT THAT THE SAME IS NOT APPROVAL BUT RECOGNITION WITH SPECIFIC STIPULATION THAT IT IS NOT TO BE READ FOR THE PURPOSE OF DEDUCTION IN QU ESTION. THE ASSESSE E AT THIS STAGE RAISE S A N ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 13 OF 17 ALTERNATIVE SUBMISSION AS EXTRACTED HEREIN ABOVE THAT AUTHORITIES BELOW OU GHT TO HAVE HELD IT ELIGIBLE FOR SECTION 35(1)(IV) DEDUCTION. WE NOTICE THAT THE LEARNED DRP HAS NOT CONSIDERED THE SAID ARGUMENT IN P ARA GRAPH NO. 15.11 HEREINABOVE. IT MERELY HOLDS THAT SECTION 35(2) OF THE A CT BA RS THE IMPUGNED DEDUCTION PERTAINING TO EXPENDITURE INCURRED ON PURCHASE OF LAND ETC. IT HOWEVER DOES NOT SPECIFICALLY PINP OINT AS TO WHAT WAS THE EXPENDITURE INCURRED HEAD - WI SE SO AS TO BE HIT B Y THE ABOVE BAR IN GRANTING THE IMPUGNED DEDUCTION. WE THUS DEEM IT FIT AND PROPER TO REMIT THE ISSUE BACK TO THE ASSESSING OFFICER FOR ADJUDICATION AFRESH AS PER LAW AFTER EXAMINING NECESSARY DETAILS STATED I N ASSESSEE S BOOKS OF ACCO UNT AFTER AFFORDING IT ADEQUATE OPPORTUNITY OF HEARING . THIS GROUND IS PARTLY ACCEPTED FOR BOTH THE ASSESSMENT YEA R S , IN THE TERMS INDICATED HEREINABOVE. 1 4 . ASSESSEE S NEXT GROUND PLEADS THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN DISALLOWING ITS EMPLO YEES CONTRIBUTION TO P.F. AMOUNTING TO RS. 2 , 56 , 83 4 / - ON THE GROUND OF BELATED PAYMENT THEREOF. 1 5 . L EARNED COUNSEL FILED BEFORE US HON BLE JURISDICTIONAL HIGH COURT S DECISION IN (2014) 41 TAXMANN.COM 149 (GUJARAT) CIT VS. AMOLI ORGANICS (P.) LIMITED, HOL DING THAT IF THE ASSESSEE HAS DEPOSITED THE ABOVE CONTRIBUTIONS WITHIN THE GRACE PERIOD, THE IMPUGNED DISALLOWANCE IS NOT SUSTAINABLE. 16. REVENUE FAILS TO REBUT THIS LEGAL POSITION. WE THUS REMIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FACTUAL VERIFICATION AND ALLOW THE IMPUGNED CONTRIBUTION TO THE EXTENT THAT HA S BEEN DEPOSITED WITHIN THE STIPULATED GRACE PERIOD. THIS GROUND OF ASSESSEE S APPEAL SUCCEEDS FOR STATISTICAL PURPOSES. 1 7 . ASSESSEE S NEXT SUBSTANTIVE GROUND CHALLENGES BOTH THE LOWER AUTHORITIES ACTION DISALLOWING A SUM OF RS.1,64,045/ - (I.E. RS.2,98,263/ - BEING 1/5 TH EXPENSES LESS ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 14 OF 17 RS.1,34,218/ - INVOLVING 10% DEPRECIATION CLAIM) REGARDING REPAIR AND REPLACEMENT EXPENSES OF ITS BUILDING S ROOF HOLDINGS. THE ASSESSING O FFICER TREATED THE SAME AS CAPITAL EXPENDITUR E TO ALLOW DEPRECIATION @ 10%. HE FOUND THE ASSESSEE TO HAVE I NCURRED THE EXPENDITURE IN QUESTION ON REPLACING OF PLANT BUILDING S ROOFING. 1 8 . WE COME TO LEARNED DRP S FINDINGS. IT OBSERVES THAT THE ABOVE EXPENSE S HAVE NOT BEEN INCURRED ON CURRENT REPAIRS AS THE ASSESSEE ITSELF HAD TREATED THE IMPUGNED EXPENSES TO HAVE RESULTED INTO ENDURING BENEFITS ESTIMATED FOR A PERIOD OF FOUR YEARS I.E. BEYOND THE RELEVANT PREVIOUS YEARS THEREBY ALLOWING IT AS TO BE CAPITALIS ED FOLLOWED BY DEPRECIATION CLAIM AT THE PRESCRIBED RATE. 19 . WE HAVE HEARD BOTH THE PARTIES . R ELEVANT FINDINGS PERUSED. IT HAS COME ON RECORD THAT THE ASSESSEE HAS IN FACT INCURRED THE IMPUGNED SUMS ON PLANT BUILDING S ROOF REPAIR. THE AUTHORITIES BEL OW HA VE TAKEN STRONG COGNIZANCE TO THE EFFECT THAT IT HAS ITSELF ESTIMATED BENEFITS OF ABOVE REPAIRS TO CONTINUE FOR A PERIOD OF FOUR YEARS. WE FIND THIS APPROACH TO BE WHOLLY UNREASONABLE S INCE THIS IS NOT THE LOWER AUTHORITIES CASE THAT THE ASSESSEE S REPAIRS IN QUESTION HAVE IN ANY MANNER ADDED ANY STRUCTURE OR ASSET OF PERMANENT NATURE CONFERRING IT A N ENDURING BENEFIT. WE FURTHER FIND HON BLE APEX COURT IN THE CASE OF TAPARIA T OOLS L IMITED VS. JC I T (2015) 372 ITR 605 (SC) HAS ACCEPTED A SIMILAR PROP OSITION THAT ALLOWABILITY OF REVENUE EXPENDITURE CLAIM CANNOT BE DENIED MERELY ON THE GROUND THAT THE SAME HAS BEEN AMORTIZED OR CLAIMED FOR OVER A PERIOD OF YEARS . WE ACCORDINGLY ACCEPT ASSESSEE S CORRESPONDING SUBSTANTIVE GROUND AND DIRECT THE ASSESSING O FFICER TO DELETE TH E IMPUGNED DISALLOWANCE. THIS SUBSTANTIVE GROUND SUCCEEDS . ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 15 OF 17 2 0 . ASSE SS EE S NEXT SUBSTANTIVE GROUND SEEKS TO DELETE DISALLOWANCE OF RS.3,15,346/ - IN THE NATURE OF HOLDING STORES AND SPARS AS TREATED AS CAPITAL EXPENDITURE IN NATURE BY LOWER AUTHORITIES. 2 1 . WE FIND THAT THE DRP DEALS WITH THE INSTANT ISSUE IN THE FOLLOWING MANNER: - 19. THE ASSESSEE HAS NEXT OBJECTED TO THE PROPOSED DISALLOWANCE OUT OF STORES AND SPARES EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED EXPENSE ON ACCOUNT OF STORES AND SPARES OVER THE PERIOD OF 2 - 5 YEARS DEPENDING UPON THE LIFE OF SPARES AND STORES. THE AO FOR THE DETAILED REASONS MENTIONED IN PARA NO. 8 OF DRAFT ASSESSMENT ORDER HAS TREATED THE EXPENSES CLAIMED ON ACCOUNT OF STORES AND SPARES AS CAPITAL EXPENSE AND ALLOWED DEPRECIATION ON SAME @ 15%, THE PRESCRIBED RATE OF DEPRECIATION ON PLANT & MACHINERY. ACCORDINGLY, THE AO DISALLOWED AN AMOUNT OF RS.3,15,346/ - (RS.4,98,018/ - BEING AMORTIZED E XPENSES LESS RS.1,82,672/ - BEING DEPRECIATION @ 15%). THE ASSESSEE HAS FILED OBJECTIONS BEFORE THE DRP AGAINST THE SAID PROPOSED DISALLOWANCE MADE BY THE AO IN THE DRAFT ASSESSMENT ORDER. DURING THE COURSE OF PROCEEDINGS BEFORE THE DRP THE ASSESSEE HAS M ADE ELABORATE SUBMISSION AS UNDER. 19.2 THE EXPENDITURE IS INCURRED IN THE PREVIOUS YEAR 2004 - 05 RELEVANT TO A.Y. 2005 - 06 AND THE EXPENDITURE IS FOR PURCHASE OF STORES & SPARES IN BULK TO BE UTILIZED OVER A PERIOD OF 2 - 5 YEARS. CONSIDERING SUCH ESTIMATED L IFE, IT IS AMORTIZED ACCORDINGLY. FOR THE SAME REASONS AND THE LAW AS DISCUSSED IN RELATION TO THE CLAIM FOR AMORTIZED EXPENSE OF REPAIRS TO BUILDING, THE CLAIM IS ALLOWED AS MADE. 19.3 THE PARTICULARS OF EXPENSE IS ENCLOSED INDICATING THE DESCRIPTION OF T HE ITEMS PURCHASED AS WELL AS EVIDENCING THAT SUCH ITEMS ARE NOT INDEPENDENT ITEMS OF EQUIPMENT WHICH CAN INDEPENDENTLY FUNCTION. 19.4 THE AMORTIZED CLAIM OF SIMILAR EXPENSE IN THE A.Y. 2005 - 06 IS ACCEPTED BY THE ASSESSING OFFICER AND FOLLOWING THE RULE OF CONSISTENCY, HE OUGHT TO HAVE ALLOWED THE SAME. 19.5 THE ASSESSEE'S SUBMISSIONS HAVE BEEN CONSIDERED CAREFULLY, BUT THE SAME ARE FOUND NOT ACCEPTABLE. THE ASSESSEE HAS SUBMITTED THAT THE EXPENSES CLAIMED ON ACCOUNT OF STORES AND SPARES WERE INCURRED IN TH E PREVIOUS YEAR 2004 - 05 RELEVANT FOR THE ASSESSMENT YEAR 2005 - 06 AND THE ASSESSEE HAS AMORTIZED THE SAME IN ITS BOOKS OF ACCOUNT OVER A PERIOD OF 2 - 5 YEARS BASED ON ITS ESTIMATION OF YEARS OF UTILIZATION, I.E IT IS ADMITTED FACT THAT THE EXPENSES UNDER CON SIDERATION WERE NOT INCURRED DURING THE FINANCIAL YEAR UNDER CONSIDERATION. THE ASSESSEE BEFORE US HAS TAKEN A LEGAL PLEA THAT AMORTIZED CLAIM OF SIMILAR EXPENSE IN THE A.Y. 2005 - 06 IS ACCEPTED BY THE ASSESSING OFFICER AND FOLLOWING ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 16 OF 17 THE RULE OF CONSISTENCY , HE OUGHT TO HAVE ALLOWED THE SAME. THE SAID ARGUMENT OF THE ASSESSEE IS DEVOID OF MERIT AS EACH ASSESSMENT YEAR IS A SEPARATE ASSESSMENT UNIT AND EACH ASSESSMENT PROCEEDING IS INDEPENDENT PROCEEDINGS. THE AO WHILE FINALIZING THE ASSESSMENT OF ANY PARTICU LAR ASSESSMENT YEAR HAS TO CORRECTLY ASSESS THE ASSESSEE'S INCOME AS PER THE PROVISIONS OF LAW AND HE IS NOT BOUND BY THE DECISION OF HIS PREDECESSOR. IT IS ADMITTED LEGAL POSITION THAT THE MAXIM OF RES JUDICATA IS NOT APPLICABLE TO THE INCOME TAX PROCEEDI NGS. RELIANCE IN THIS RESPECT IS PLACED ON THE FOLLOWING DECISIONS: I) CIT VS. FOSS ELECTRONICS 236 IT'R 125 (RAJ) II) RADHASOAMI SATSANG VS. CIT 193 ITR 321 (SC) III) ACIT VS. GENDALAL HAZARILAL & CO. 263 ITR 679 (MP) 19.6 IN VIEW O F ABOVE, WE HOLD THAT THE AO HAS RIGHTLY HELD THAT THE VERY ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS, PROVES THAT EXPENDITURE IN QUESTION CANNOT BE ALLOWED AS REVENUE IN NATURE. SINCE, THE SAID EXPENSES ARE NOT CURRENT IN NATURE AND SINCE EXPENDITURE IS DEFERRED TO BE WRITTEN OFF OVER A PERIOD OF TWO - FIVE YEARS IN THE BOOKS OF ACCOUNT, IT HAS TO BE CONCLUDED THAT EXPENDITURE HAS RESULTED INTO BENEFITS OF ENDURING NATURE. ACCORDINGLY WE DO NOT FIND ANY INFIRMITY WITH THE ACTION OF THE AO IN HOLDING THAT THE EXPENDITURE OF RS.12,17,810/ - IS CAPITAL IN NATURE AND HENCE, AO HAS RIGHTLY ALLOWED DEPRECIATION ON SAME AT 15% AS APPLICABLE TO PLANT AND MACHINERY. ACCORDINGLY WE CONFIRM THE PROPOSED DISALLOWANCE ON THIS ISSUE. 2 2 . WE HAVE HE ARD BOTH THE SIDES. IT HAS ALREADY COME ON RECORD THAT THE ASSESSING OFFICER HIMSELF HAS ACCEPTED ASSESSEE S ACTION HAVING AMORTIZED SIMILAR EXPENSES IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2005 - 06. LEARNED DEPARTMENTAL REPRESENTATIVE AT THIS STAGE POINTS OUT THE THE IMPUGNED EXPENDITURE WA S INCURRED IN PRECEDING ASSESSMENT YEAR AND THEREFORE THE SAME IS NOT ALLOWABLE IN THE INSTANT ASSESSMENT YEAR. WE OBSERVE IN THESE PECULIAR FACTS THAT OUR ABOVE DISCUSSION IN PRECEDING PARAS RELYING ON THE CASE L AW OF TAPARIA TOOLS LIMITED (SUPRA) APPL IES HEREIN AS WELL S INCE THERE IS NO MATERIAL IN THE CA S E RECORDS TO INDICATE ANY ADDITION IN ASSETS RESULTING IN ENDURING BENEFITS . W E FURTHER PLACE RELIANCE ON UNION OF INDIA VS. AZ ADI BACHO A NDOLAN (SUPRA) TO FOL LOW JUDICIAL CONSISTENCY TO CONCLUDE THAT ONCE THE ITA N O S . 3416/AHD/2010 & 792/AHD/2011 ASSESSMENT YEARS: 2006 - 07 & 2004 - 05 PAGE 17 OF 17 ASSESSING OFFICER ACCEPTED SIMILAR CLAIM IN THE PRECEDING ASSESSMENT YEAR , HE OUGHT NOT TO REJECT APPORTION OF THE SAID CLAIM IN THE INSTANT ASSESSMENT YEAR. WE THUS ACCEPT ASSESSEE S INSTANT SUBSTANTIVE GROUND AS WELL. 2 3 . IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 23 RD DAY OF DECEMBER , 2016. SD/ - SD/ - PRAMOD KUMAR S.S. GODARA ( ACCOUNTANT MEMBER) ( JUDICIAL MEMBER) DATED: 23 RD DAY OF DECEMBER , 2016. COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD