TATA CONSULTANCY SERVICES LTD, MUMBAI V. ADDL CIT LARGE TAX PAYER UNIT, MUMBAI

ITA 794/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5974 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 09-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction; Earning of tax free income; Retrospective amendment; Additional evidence; Permanent establishment; Procedural lapse; Revised return; Revenue expenditure; Capital expenditure; TDS; Rule 8D; Set aside
• Section: 143(3); 92B; 80HHC; 14A; 115JB; 40(a)(ia); 37(1); 195; 201; 274; 80HH; 64; 43; 48; 13; 22; 92CA; 37; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, M UMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER & SHRI RAJESH KUMAR, ACCOUNTANT MEMBER VERTUAL COURT NO. III IT(TP)A NO. 3263/MUM/2017 FOR AY 2008-09 IT(TP) NO. 794/MUM/2018 FOR AY 201-011 TATA CONSULTANCY SERVICES LTD.,9 TH FLOOR, NIRMAL BLDG, NARIMAN POINT. MUMBAI 21 PAN AAACR4849R VS DCIT LARGE TAX PAYER UNIT-1, 29 TH FLOOR, WTC, CUFEE PARADE MUMBAI- 05. APPELLANT RESPONDEDNT IT(TP)A NO. 3746/MUM2016 FOR AY 2008-09 IT(TP)A NO. 1207/MUM2018 FOR AY 2010-11 DCIT LARGE TAX PAYER UNIT-1, 29 TH FLOOR, WTC, CUFEE PARADE MUMBAI- 05. VS TATA CONSULTANCY SERVICES LTD.,9 TH FLOOR, NIRMAL BLDG, NARIMAN POINT. MUMBAI 21 PAN AAACR4849R APPELLANT RESPONDEDNT REVENUE BY : SHRI SANJAY SINGH, CIT (DR) SH. MICHAL JARALD SR DR ASSESSEE BY : SHRI PORAS KAKA SR ADVOCATE WITH SH. MANISH KUMAR KANTH ADVOCATE DATE OF HEARING 27/07/2020 DATE OF PRONOUNCEMENT 18 /08 /2020 O R D E R PER PAWAN SINGH JUDICIAL MEMBER: 1. THESE FOUR APPEALS BY THE ASSESSEE AS WELL AS REVEN UE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX-58 [LD. CIT(A)], ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 2 - MUMBAI, DATED 14.02.2017 AND 24.11.2017 FOR THE AS SESSMENT YEAR (A.Y.) 2008-09 & 2010-11 RESPECTIVELY. IN BOTH THE YEARS THE PARTIES HAVE RAISED CERTAIN COMMON GROUNDS OF APPEAL, THUS ALL THE APPEALS ARE CLUBBED, HEARD AND ARE DECIDED BY CONSOLIDATED ORDER. FOR APPRECIATIONS OF FACTS, WITH THE CONSENT OF PARTIE S THE APPEALS FOR AY 2010-11 ARE TREATED AS LEAD CASE. THE ASSESSEE I N ITS APPEAL IN ITA NO. 794/MUM/2018, HAS RAISED THE FOLLOWING GROU NDS OF APPEAL : I. DISALLOWANCE OF TAXES PAID OVERSEAS TO THE LOCAL / STATE PROVINCIAL AUTHORITIES ('STATE TAXES') - RS. 21,73,23,854 1.1 ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) (HEREINAFTER R EFERRED TO AS 'THE ID. CIT(A)') ERRED IN DISALLOWING DEDUCTION OF RS 2 1,73,23,854 BEING 'STATE TAXES' PAID OVERSEAS ON THE GROUND THAT THE PAYMENT OF 'STATE TAXES' CANNOT BE ALLOWED UNDER THE PROVISIONS OF SE CTION 40(A)(II) OF THE INCOME TAX ACT, 1961 ('THE ACT') 1.2 WITHOUT PREJUDICE TO THE ABOVE, THE ID. CIT (A) ERRED IN LAW IN NOT ADJUDICATING THAT THE 'STATE TAXES' PAID IN THE USA , AS ELIGIBLE FOR THE DOUBLE TAXATION RELIEF UNDER THE PROVISIONS OF SECT ION 90 OR 91 OF THE ACT IF IT IS HELD THAT THE PAYMENT OF STATE TAXES I S NOT ALLOWABLE AS DEDUCTION. 2. ADVERTISEMENT EXPENDITURE 2.1 ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE ID. CIT (A) ERRED IN TREATING THE ADVERTISEMENT EXPENDITURE INCURRED BY THE APPELLANT IN RESPECT OF EXPERIENCE CERTAINLY CAMPAI GN AMOUNTING TO RS.1,36,46,187 CRORE AS AN INTANGIBLE ASSET INSTEAD OF TREATING IT AS REVENUE EXPENDITURE. 3. FOREIGN TAX CREDIT (DOUBLE TAX RELIEF) AS PER TH E PROVISIONS OF SECTION 90(1)(A)(II) OF THE ACT ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 3 - 3.1 ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE ID. CIT (A) ERRED IN NOT CONSIDERING THE ADDITIONAL GROUND FOR ALLOWING FOREIGN TAX CREDIT (DOUBLE TAX RELIEF) AS PER THE PROVISION S OF SECTION 90(1)(A)(II) OF THE ACT READ WITH PROVISIONS OF THE APPLICABLE DOUBLE TAX AVOIDANCE AGREEMENTS, FOR INCOME TAXES PAID IN OVERSEAS JURISDICTIONS IN RELATION TO INCOME ELIGIBLE FOR SE CTION IOAI IOAA DEDUCTION IN INDIA. GROUNDS RELATED TO TRANSFER PRICING: 4. TRANSFER PRICING ADJUSTMENTS / ADDITIONS / VARIA TIONS. 4.1 THE ASSESSMENT OF INCOME MADE BY THE LEARNED AS SESSING OFFICER (`- THE ID. A.O.') IN RELATION TO THE TRANSFER PRICING ADJUSTMENTS/ADDITIONS/VARIATIONS BASED ON THE TRANS FER PRICING ORDER IS BAD IN LAW AND ILLEGAL AS THE TRANSFER PRICING ORDE R IS PASSED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, WITHOUT THE AUTHORITY OF LAW AS PRESCRIBED BY THE PROVISIONS OF SECTION 92CA OF THE ACT. 4.2 THE ID. CIT (A) ERRED IN LAW, ON FACTS AND IN C IRCUMSTANCES OF THE CASE IN NOT DELETING THE TRANSFER PRICING ADJUSTMENTS/ADDITIONS/VARIATIONS MADE BY THE ID. A. O. AS BEING BAD IN LAW, ILLEGAL AND UNSUSTAINABLE ON THE BASIS OF THE FOLLOWING GROUNDS, TAKEN SINGLY OR CUMULATIVELY. 4.2.1 A) THE ID. A.O. HAS FAILED TO COMPLY WITH THE MANDATORY CONDITIONS STIPULATED IN SECTION 92C(3) OF THE ACT AND HAS FAILED TO RECORD HIS SATISFACTION BEFORE MAKING THE REFERENCE TO THE TRANSFER PRICING OFFICER (`TP0') B) THE ID. TPO FAILED TO PROVE THAT ANY OF THE COND ITIONS LAID DOWN IN SECTION 92C(3) OF THE ACT HAD BEEN SATISFIED WHICH MADE OUT A CASE FOR TAX EVASION. 4.2.2 THE ID. A.0./TPO FAILED TO ARRIVE AT A FINDIN G THAT THE INTENTION OF THE APPELLANT WAS TO EVADE TAX AND SHIFT PROFITS OU TSIDE OF INDIA WHICH IS A CONDITION PRECEDENT FOR MAKING THE TRANSFER PR ICING ADJUSTMENT. 4.2.3 ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (A) ERRED IN NOT HOLDING THE PROCEEDINGS INITIATED BY T HE ID. TPO AS VOID AB INITIO SINCE THE ID. AO ERRED IN MAKING THE REFEREN CE TO THE ID. TPO WITHOUT PROPER APPLICATION OF MIND TO THE FACTS ON RECORDS, WITHOUT RECORDING REASONS FOR ANY NECESSITY OR EXPEDIENCY A ND WITHOUT A LEGAL AND VALID APPROVAL OF THE ID. CIT AND HENCE THE SAM E BEING NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92CA(1) O F THE ACT. 1. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 4 - 4.2.4 THE TRANSFER PRICING ADJUSTMENTS ARE CONTRARY TO THE PRINCIPLES LAID DOWN BY THE HON'BLE MUMBAI TRIBUNAL IN THE APP ELLANT'S OWN CASE FOR THE A.Y. 2005-06 (DCIT VS. TATA CONSULTANCY SER VICES LIMITED) AND THEREFORE ARE REQUIRED TO BE QUASHED AND DELETED. F URTHER, ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT ( A) ERRED IN NOT FOLLOWING THE PRINCIPLES SO LAID DOWN AND CONCLUDIN G THAT THE ABOVE MUMBAI TRIBUNAL DECISION IS INCONCLUSIVE 5. PROVISION OF SOFTWARE CONSULTANCY SERVICES 5.1 RE-CHARACTERIZATION OF INTERNATIONAL TRANSACTIO N THE ID. CIT(A) ERRED IN LAW AND ON FACTS OF THE CAS E IN NOT ACCEPTING THE APPELLANT AS THE TESTED PARTY EVEN THOUGH THE I NTERNATIONAL TRANSACTION DURING THE YEAR UNDER REFERENCE WAS PRO VISION OF SERVICES BY THE APPELLANT TO ITS AES. 5.2 DISREGARDING THE LEGALLY BINDING AGREEMENTS BET WEEN THE APPELLANT AND ITS AES THE ID. CIT(A) ERRED IN LAW AND ON FACTS, IN DISREG ARDING THE CONTRACTUAL TERMS OF THE LEGALLY BINDING AGREEMENT/ S BETWEEN THE APPELLANT AND THE AE(S). 5.3 REJECTION OF THE FUNCTIONAL AND ECONOMIC ANALYS IS CARRIED OUT BY THE APPELLANT THE ID. CIT(A) ERRED IN LAW AND ON FACTS, IN REJECT ING THE FUNCTIONAL AND ECONOMIC ANALYSIS CARRIED OUT BY THE APPELLANT AND IN CONSIDERING THE AES AS THE LEAST COMPLEX ENTITY. 5.4 DISREGARDING THE BENCHMARKING ANALYSIS THE ID. CIT (A) ERRED IN LAW AND ON FACTS, IN DISRE GARDING BENCHMARKING ANALYSIS UNDERTAKEN BY THE APPELLANT I N TRANSFER PRICING DOCUMENTATION REPORT. 5.5 ERRONEOUS SELECTION OF TRANSFER PRICING METHOD AND PROFIT LEVEL INDICATOR (PLI) WITHOUT PREJUDICE, THE ID. CIT (A) ERRED IN LAW AND ON FACTS IN NOT SELECTING THE PLI AS OP/SALES EVEN IF THE AES ARE T REATED AS TESTED PARTIES. 5.6 SELECTION OF THE COMPARABLE COMPANIES WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT (A) ERR ED IN LAW AND ON FACTS OF THE CASE IN NOT ACCEPTING THE APPELLANT'S FRESH BENCH MAKING ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 5 - CONSIDERING THE AES AS A TESTED PARTY AND GROSS PRO FIT / SALES AS A THE APPROPRIATE PLI. 6. PROVISION OF LOANS TO AES 6.1 THE LD. CIT (A) ERRED IN LAW AND FACTS OF THE C ASE IN DISREGARDING THE FACT THAT THE LOANS GIVEN BY THE APPELLANT ARE IN SUBSTANCE 'QUASI- EQUITY' IN NATURE, AND AS A PART OF SHAREHOLDER'S A CTIVITY ON WHICH RETURNS ARE NOT EXPECTED IN THE FORM OF INTEREST. 6.2 THE ID. CIT(A) ERRED IN LAW AND ON FACTS IN HOL DING THAT THE INTEREST CHARGED ON LOANS OUTSTANDING / PROVIDED DURING THE YEAR BY THE APPELLANT TO ITS AES ARE NOT AT ARM'S LENGTH. 7 PROVISION OF GUARANTEES 7.1 THE ID. CIT(A) ERRED IN LAW AND ON FACTS, IN HO LDING THAT THE PROVISION OF VARIOUS GUARANTEES BY THE APPELLANT TO THIRD PARTIES ON BEHALF OF ITS AES WERE INTERNATIONAL TRANSACTIONS A ND IN MAKING AN UPWARD ADJUSTMENT IN THIS REGARD. 7.2 THE ID. CIT(A) ERRED IN LAW AND ON FACTS, IN NO T APPRECIATING THE FACT THAT PROVISION OF GUARANTEE IS A SHAREHOLDER A CTIVITY AND NO INCOME IS EXPECTED TO BE GENERATED FROM THE SAME. 7.3 WITHOUT PREJUDICE TO THE ABOVE, THE ID. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DISREGARDING THE APPELLANT'S CONTENTION THAT THE GUARANTEE FEE SHOULD BE CHARGED BASED ON THE EFFECTIVE RATE O F INSURANCE PREMIUM PAID BY THE APPELLANT AS A PERCENTAGE OF GROUP REVE NUE. 7.4 WITHOUT PREJUDICE TO THE ABOVE, THE ID. CIT(A) ERRED IN LAW AND ON FACTS IN NOT CONSIDERING GUARANTEE FEES TO BE CHARG ED ON ACTUAL RENT, FOR WHICH THE LEASE GUARANTEE WAS PROVIDED. 8. THE APPELLANT SUBMITS THAT EACH GROUND OF APPEAL IS WITHOUT PREJUDICE TO ONE ANOTHER. 9. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, SUBSTITUTE AND/OR MODIFY IN ANY MANNER WHATSOEVER ALL OR ANY O F THE FOREGOING GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE A PPEAL. 2. ASSESSEE VIDE ITS APPLICATION DATED 10.0.2020 HAS R AISED FOLLOWING ADDITIONAL GROUNDS OF APPEAL. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE EDUCATION CESS PAID BY THE APPELLANT DURING AY 2011-12 BEING NOT C OVERED BY DEFINITION OF TAX UNDER SECTION 40(A)(II) OF THE IT ACT SHALL BE ALLOWED ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 6 - AS A DEDUCTION FROM ITS INCOME . 3. THE REVENUE IN ITS APPEAL IN ITA NO. 1207/MUM/2018 HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, LD. CIT(A) ERRED IN ALLOWING SOFTWARE EXPENSES AMOUNTIN G TO RS. 88,64,96,865/- U/S 40(A)(I) OF THE ACT, ON ACCOUNT OF NON-DEDUCTION OF TDS U/S 195 OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, LD. CIT(A) ERRED IN ALLOWING THE DISALLOWANCE MADE BY T HE AO U/S 14A OF THE ACT WITHOUT APPRECIATING THE FACT THAT RULE 8D(2)(III) OF THE IT RULES CLEARLY DEMANDS THE INCLUSION OF AN AMOUNT EQ UAL TO 0.5% OF THE AVERAGE INVESTMENTS MADE TOWARDS EARNING EXEMPT INCOME WHILE CALCULATING AGGREGATE DISALLOWANCE U/S 14A R.W.R. 8 D OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN OBSERVING THAT THE REASONS RECORDED AS MEAGER BY THE AO ARE NOT SUFFICIENT TO INVOKE SECTION 14A OF THE ACT WHEN THE ASSESSEE ITSELF DISALLOWED ONLY EXPENDITURE DIRECTL Y RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 4. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) ERRED IN TREATING EXPENDITURE INCURRED FOR BRAND BU ILDING AS REVENUE EXPENDITURE DISREGARDING THE FACT THAT THE SAME WIL L HAVE LONG TERM BENEFIT TO THE ASSESSEE. 5. ON THE FACT AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD. CIT(A) ERRED IN HOLDING THAT THE COMMISSION PAID OVERSEAS FOR GETTING BUSINESS OUTSIDE INDIA OF STS/SEZ UNITS OF ASSESSEE IS NOT LIABLE TO TAX IN INDIA AND HENCE ASSESSEE IS NOT LIABLE TO DE DUCT TAX U/S 40(A)(IA) OF THE ACT. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD CLAIMED THAT THE ENTIRE REVENUE WAS EMANATING FROM ITS STPS/SEZ UNITS IN INDIA. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) ERRED IN NOT UPHOLDING THE ORDER OF THE AO O N THE METHOD OF COMPUTATION OF DEDUCTION U/S 10A OF THE IT ACT. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT 21% OF THE EXPENSES INCURRED IN FOREIGN CURRENCY ON ACCOUNT OF SOFTWARE DEVELOPM ENT EXPENDITURE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 7 - INCURRED ABROAD IS IN THE NATURE OF PROVIDING TECHN ICAL SERVICES AND HENCE IT WAS RIGHTLY REDUCED FROM EXPORT TURNOVER C OMPUTED U/S 10A. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) IS RIGHT IN DECIDING THE GROUNDS RAISED BY T HE ASSESSEE FOLLOWING THE DECISION GIVEN IN AY 2009-10 WITHOUT DECIDING THE ISSUE ON MERIT IN THE YEAR UNDER CONSIDERATION. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT IS RIGHTLY IN FOLLOWING THE DECISION OF AY 2009-10 WHE REIN IT WAS HELD THAT THE PAYMENTS MADE TO TCS ARE NOT TO BE TREATED AS PASS THROUGH COSTS AND THEREBY, HOLDING OP/OC TO THE APPROPRIATE PLI INSTEAD OF OP/VAE AS DETERMINED BY TPO. 11. ON THE FACTS AND IN CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD CIT(A) HAS ERRED IN FOLLOWING THE DECISION OF AY 20 09-10 WHEREIN IT WAS HELD TO WORK OUT MARGIN (OP/OC) OF AE INCLUDING COST INCURRED ON (OFFSHORE) TRANSACTION ASSIGNED TO TCS AS AGAINS T THE DECISION OF THE TPO OF ADDING MARGIN ONLY ON COST INCURRED BY T HE AE (EXCLUDING COST INCURRED BY TCS) THOUGH IT WAS HELD BY CIT(A) HIMSELF IN PARA 19.5 OF ORDER FOR AY 2009-10 THAT A ES ARE ENGAGED IN MARKETING AND DISTRIBUTION LIABLE TO BE COMPENSA TED FOR LIMITED FUNCTION. 12. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN FOLLOWING THE DECISION OF AY 20 09-10 AND IN REJECTING COMPARABLES ON THE GROUND THAT THIRD PART Y COST IS NOT EXCLUDED IN COMPARABLES CASES. 13. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN FOLLOWING THE DECISION OF AY 20 09-10 AND IN DIRECTING TO CHARGE GUARANTEE COMMISSION ON AMOUNT EXCLUDING APPROXIMATELY 58% OF THE REVENUE FROM OFFSHORE ACTI VITIES CARRIED OUT BY TCS THOUGH IT WAS INTEGRAL PART OF TOTAL CON TRACT AMOUNT OF AE. 14. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN FOLLOWING THE DECISION OF AY 20 09-10 AND IN DIRECTING TO CHARGE GUARANTEE COMMISSION @ 1.14% ON LEASE GUARANTEE IN PLACE OF 3% CHARGED BY TPO ON PERFORMA NCE GUARANTEE. 15. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN FOLLOWING THE DECISION OF AY 20 09-10 AND IN DIRECTING TO CHARGE GUARANTEE COMMISSION @ 1.14% ON LEASE GUARANTEE IN PLACE OF 3% CHARGED BY TPO. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 8 - 16. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. CIT(A) HAS ERRED IN FOLLOWING THE DECISION OF A.Y 2 009-10 AND IN DIRECTING TO CHARGE GUARANTEE COMMISSION @0.77% ON FINANCIAL GUARANTEE IN PLACE OF 3% CHARGED BY TPO. 17. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE ADJUSTMENT MADE ON ACCOUNT OF INTEREST FREE LOANS TO AE BEING EXCESSIVE VALUAT ION PAID FOR SHARES OF AE. 18. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A ) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO RESTORED. 19. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GR OUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE AND MANAGEMENT CO NSULTANCY SERVICES. THE ASSESSEE HAS A NUMBER OF OVERSEAS BRA NCHES ACROSS THE WORLD BEING ITS ASSOCIATED ENTERPRISES (AES). THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION FILED ITS RETURN OF INCOME DECLARING INCOME OF RS. 1483.18 CRORE ON 24.09.2019. THE ASSESSEE DE CLARED BOOK PROFIT UNDER SECTION 115JB OF RS. 4473.00 CRORE. TH E ASSESSEE FILED REVISED RETURN OF INCOME ON 16.02.2012 DECLARING SA ME BOOK PROFIT UNDER SECTION 115JB. IN THE REVISED RETURN, THE TDS CLAIM WAS ENHANCED FROM RS. 146.84 CRORE TO RS. 161.84 CRORE. ALONG WITH THE RETURN OF INCOME, THE ASSESSEE REPORTED VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AES FOR MORE THAN RS. 15 CROR E AND ALSO FURNISHED ITS TRANSFER PRICING STUDY REPORT IN FORM -3CEB. THE ASSESSING OFFICER AFTER TAKING NECESSARY APPROVAL M ADE REFERENCE TO ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 9 - THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTATION OF ARMS LENGTH PRICE (ALP). THE TPO AFTER CONSIDERING THE MATERIAL PLACE BEFORE HIM AND CONSIDERING THE SUBMISSIONS OF THE ASSESSEE SUGGESTED THE ADJUSTMENT ON ACCOUNT OF PROVISION OF SOFTWARE, TEC HNICAL & CONSULTANCY SERVICES OF RS. 113,27,000,00/-, INTERE ST CHARGEABLE FROM AE OF RS. 41,04,81,573/-, CORPORATE GUARANTEE OF RS. 38,47,16,761/- AND INTEREST ON OVER VALUATION OF EQ UITY SHARES OF SUBSIDIARIES OF RS. 1,71,08,999/-, THEREBY SUGGESTE D ADJUSTMENT OF RS. 1213.93 CRORE IN ITS REPORT DATED 27.01.2014. T HE ASSESSING OFFICER ON RECEIPT OF REPORT OF TPO PASSED THE DRAF T ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 144C(3). THE ASSE SSING OFFICER WHILE PASSING THE DRAFT ASSESSMENT ORDER ALSO MADE VARIOUS ADDITION/DISALLOWANCE ON CORPORATE TAX ISSUES. THE COPY OF DRAFT ASSESSMENT ORDER WAS SERVED UPON THE ASSESSEE. THE ASSESSEE INSTEAD OF FILING OBJECTION BEFORE THE DISPUTE RESOLUTION P ANEL (DRP), EXERCISED ITS OPTION FOR FILING APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) AFTER CONSIDERING THE FACTS AND THE SUBMISSI ON PLACED BY ASSESSEE PASSED THE IMPUGNED ORDER DATED 24.11.2017 GRANTING PARTIAL RELIEF TO THE ASSESSEE. THEREBY, AGGRIEVED FURTHER THE ASSESSEE HAS FILED ITS APPEAL, SIMILARLY THE REVENUE HAS ALS O FILED ITS CROSS ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 10 - APPEAL BY RAISING VARIOUS GROUNDS OF APPEAL, WHICH WE HAVE RECORDED ABOVE. 5. THE ASSESSEE VIDE ITS APPLICATION DATED 10.01.2020 ALSO RAISED ADDITIONAL GROUND OF APPEAL WHICH, WE HAVE ALSO REF ERRED ABOVE. IN THE APPLICATION FOR RAISING ADDITIONAL GROUNDS OF A PPEAL, THE ASSESSEE HAS STATED THAT THE GROUNDS OF APPEAL RAISED BY ASSESSE E IS PURELY LEGAL ISSUE AND DO NOT REQUIRE PRODUCTION/APPRAISAL OF FRESH/DETAIL S FACTS. THE ADDITIONAL GROUND HAS INADVERTENTLY NOT BEEN RAISED BEFORE THE TRIBUNAL AT THE TIME OF FILING OF APPEAL. THE ASSESSEE HAS RAISED ADDITIONA L GROUND IN THE LIGHT OF DECISION OF HONBLE RAJASTHAN HIGH COURT IN CASE OF CHAMBAL FERTILIZERS AND CHEMICALS LTD. VS. JCIT IN ITA NO. 52/2018 AND THE DECISION OF DELHI TRIBUNAL IN TATA STEEL VS. ACIT IN ITA NO. 5616/MUM /2012. THE ASSESSEE FURTHER STATED THAT FAILURE TO RAISE THIS GROUND WA S NEITHER DELIBERATE NOR INTENTIONAL. AND IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN NTPC LTD. (229 ITR 383), THE ADDITIONAL GROUND OF APPEAL MAY BE ADMITTED AND ADJUDICATED ON MERIT. THE LD. AR OF THE ASSESSEE. T HE LD. AR OF THE ASSESSEE MADE HIS SUBMISSION ON SIMILAR LINES. THE LD. AR OF THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN S ESA GOA VS. JCIT [(2020) 117 TAXMAN.COM 96 (BOM)]. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 11 - 6. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE STRON GLY OBJECTED FOR ADMISSION OF ADDITIONAL GROUND OF APPEAL. THE LD. DR FOR THE REVENUE FURTHER SUBMITS THAT EDUCATION CESS IS NOT EXPENDITURE INCURRED W HOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND HENCE NOT ALLOWABLE. TH E ASSESSEE HAS NOT CLAIMED THE DEDUCTION OF EDUCATION CESS IN ITS THE RETURN OF INCOME. IT WAS NEITHER SUBJECT MATTER OF ASSESSMENT ORDER NOR IT W AS RAISED BEFORE THE ASSESSING OFFICER OR LD. CIT(A). HENCE, THIS GROUND OF APPEAL SHOULD NOT BE ADMITTED. ON MERIT OF THE CLAIM, THE LD. DR FOR THE REVENUE SUBMITS THAT EDUCATION CESS IS NOT ALLOWABLE UNDER SECTION 40(A) (II) OR UNDER SECTION 37(1) AS IT IS NOT INCURRED FOR THE PURPOSE OF BUS INESS. IT IS WELL SETTLED PRINCIPLE IN THE INDIAN CONTEXT THAT INCOME TAX ON EDUCATION CESS IS NOT ALLOWABLE AS EXPENDITURE/DEDUCTION FROM TAXABLE PRO FIT/INCOME. THE LD. DR FOR THE REVENUE REFERRED THE PROVISION OF SECTION 4 0(A)(II) OF INCOME TAX ACT AND WOULD SUBMIT THAT SECTION 40 (A)(II) MENTIONS OF ANY RATE OR TAX LEVIED AS NOT ALLOWABLE EXPENSES. 7. THE LD. DR FURTHER SUBMITS THAT IN CASE OF INDIAN I RON & STEEL COMPANY LTD. VS. CIT (68 ITR 51), WHICH APPLIED BY THE HONBLE S UPREME COURT IN CASE OF TATA IRON & STEEL COMPANY LTD. VS STATE OF BIHAR (4 8 ITR 123(SC), AND HELD THAT IN A MINING BUSINESS, PROFIT ACCRUED EVEN AT THE STAGE OF MINING AND SO A CESS LEVIED ON THE BASIS OF PROFIT OF MINE WOU LD NOT BE DEDUCTABLE EVEN ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 12 - THOUGH THE ASSESSEE MAY NOT BE SELLING THE ORE IN T HE STATE. THE LD. DR FURTHER SUBMITS THAT THE HONBLE RAJASTHAN HIGH COU RT IN CASE OF CHAMBAL FERTILIZERS (SUPRA) HAS NOT CONSIDERED THE DECISION OF HONBLE SUPREME COURT IN CASE OF SIMITH KLINE & FRENCH INDIA LTD. [(85 TA XMAN 683 (SC)] IN CONTEXT OF DISALLOWANCE OF SURTAX UNDER SECTION 40( A)(II) OF THE ACT. THE HONBLE SUPREME COURT HELD THAT SURTAX WAS NOT ALLO WABLE UNDER SECTION 40(A)(II). THE LD. DR SUBMITS THAT HONBLE SUPREME COURT ALSO AFFIRMED THE DECISION OF HONBLE BOMBAY HIGH COURT IN LUBRIZOL I NDIA LTD. (54 TAXMAN 363 (BOM). THE LD DR FURTHER SUBMITS THAT BOMBAY HI GH COURT HAS NOT CONSIDERED THE DECISION OF SUPREME COURT IN SMITH K LINE AND FRENCH (SUPRA) AND THUS, THE DECISION OF BOMBAY HIGH COURT IN SESA GOA LTD IN PER- INCURIAM TO THAT EXTENT. 8. IN THE REJOINDER SUBMISSION, THE LD.AR OF THE ASSES SEE SUBMITS THAT THIS ISSUE ABOUT THE DEDUCTION OF EDUCATION CESS IS NO MORE RE S-INTEGRA AS HAS BEEN SETTLED BY HONBLE JURISDICTIONAL HIGH COURT IN CAS E OF SESA GOA (SUPRA). THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IS BI NDING ON COURT SUB- ORDINATE AS HELD BY BOMBAY HIGH COURT IN CIT VS. LA TA MANGESHKAR MEDICAL FOUNDATION, NOTICE OF MOTION NOS. 1779, 1783 OF 201 7. THE HONBLE BOMBAY HIGH COURT ALSO HELD THAT IT IS NOT OPEN FOR LOWER COURT, DISREGARD THE DECISION OF HIGHER COURT. WHILE EXPLAINING THE CLAI M OF DEDUCTION OF CESS, THE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 13 - LD. AR OF THE ASSESSEE, AS AN EXAMPLE REFERRED THE PROVISION OF CHAPTER-II (RATE OF TAXES) OF FINANCE ACT, 2020 AND SUBMITS TH AT FOR THE ASSESSMENT YEAR COMMENCING FROM 1 ST APRIL 2020, THE INCOME TAX SHALL BE CHARGED AT THE RATE SPECIFIED IN PART-I OF FIRST SCHEDULE AND SUCH TAX SHALL BE INCREASED BY SURCHARGE FOR THE PURPOSE OF UNION, CALCULATED IN E ACH CASE IN THE MANNER PROVIDED THEREIN. EDUCATION CESS IS NOT INCLUDED EI THER AS A RATE OR SURCHARGE IN PART-I. THE LEGISLATURE HAS CONSCIOUSLY USED THE WORD CESS WHILE INTRODUCED EDUCATION CESS. UNDER THE FIRST SCHEDULE AS MENTIONED, THE ACT APPLIES TO TOTAL INCOME; THE WORD CESS DOES NOT C OME IN PROVISO TO SUB- SECTION (2). IT COMES IN SUB-SECTION (11) & (12) A ND TO BE CALCULATED @ 4% OF INCOME-TAX AND SURCHARGE. THIS IS LEVIED ON TOTA L INCOME AND NOT ON PROFIT AND GAINS OF BUSINESS. A PERSON WOULD BE LIABLE TO PAY CESS EVEN IF THE PERSON ONLY EARNS INCOME IN THE FORM OF DIVIDEND AND HAS N O INCOME FROM PROFIT & GAINS FROM BUSINESS. THE LD. AR OF THE ASSESSEE SUB MITS THAT THE DECISION RELIED BY DR IS NOT APPLICABLE ON THE ISSUE. THE RA JASTHAN HIGH COURT IN CHAMBAL FERTILIZERS (SUPRA) SPECIFICALLY DEALT WITH THIS ISSUE. THE HONBLE RAJASTHAN HIGH COURT IN PARA-4 OF THE JUDGMENT ALSO REFERRED THE CBDT CIRCULAR ACKNOWLEDGING OMISSION OF WORD CESS FROM SECTION 40(A)(II) BY THE SELECT COMMITTEE FROM THE FINANCE BILL OF 1961. THE DECISION OF HONBLE SUPREME COURT IN SIMITH KLINE & FRENCH (INDIA) LTD. (SUPRA) HAS ALSO BEEN ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 14 - SPECIFICALLY CONSIDERED BY HONBLE RAJASTHAN HIGH C OURT. AND AFTER THE DECISION OF HONBLE BOMBAY HIGH COURT IN SESA GOA L TD., THE ISSUE IS NO LONGER RES-INTEGRA FOR THE AUTHORITY AND THIS TRIBU NAL UNDER THE TERRITORIAL JURISDICTION OF BOMBAY HIGH COURT. 9. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE AL SO GONE THROUGH THE VARIOUS DECISIONS CITED BY LD. REPRESENTATIVE OF TH E PARTIES. WE HAVE SEEN THAT HONBLE BOMBAY HIGH COURT IN SESA GOA LTD. (SU PRA) AFTER FOLLOWING THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN CHAMBAL FERTILIZERS (SUPRA) HELD THAT EDUCATION CESS IS ALLOWABLE DEDUCTION. WE INSTEAD OF GOING FURTHER IN VARIOUS SUBMISSIONS OF THE PARTIES ARE OF THE VI EW THAT AFTER THE BINDING DECISION OF JURISDICTIONAL HIGH COURT IN SESA GOA L TD (SUPRA), THE ISSUE OF DEDUCTION OF EDUCATION CESS IN NO MORE RES-INTEGRA. THEREFORE, CONSIDERING THE BINDING DECISION OF HONBLE JURISDICTIONAL HIGH COURT AND THE FACT THAT NO NEW FACTS ARE NECESSARY TO BE BROUGHT ON RECORD FOR CONSIDERING THE ADDITIONAL GROUND OF APPEAL ON MERIT. THUS, THE ADDITIONAL GRO UND OF APPEAL IS ADMITTED. 10. FURTHER CONSIDERING THE FACT THAT THE ASSESSEE HAS RAISED ADDITIONAL GROUND OF APPEAL FOR THE FIRST TIME BEFORE THIS TRIBUNAL, THE REFORE, THIS ISSUE IS RESTORED BACK TO THE FILE OF ASSESSING OFFICER TO CONSIDER I T ON MERIT IN ACCORDANCE WITH THE DECISION OF HONBLE BOMBAY HIGH COURT IN S ESA GOA LTD. (SUPRA) ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 15 - AND ALLOW APPROPRIATE RELIEF/DEDUCTION WITH REGARD TO EDUCATION CESS TO THE ASSESSEE IN ACCORDANCE WITH LAW. WE ARE ALSO IN AGR EEMENT WITH THE SUBMISSIONS OF THE LD AR FOR THE ASSESSEE THAT THE INCOME TAX IS CHARGEABLE AT THE RATE SPECIFIED IN PART-I OF FIRST SCHEDULE A ND SUCH TAX SHALL BE INCREASED BY SURCHARGE FOR THE PURPOSE OF UNION, CALCULATED I N EACH CASE IN THE MANNER PROVIDED THEREIN. EDUCATION CESS IS NOT INCLUDED EI THER AS A RATE OR SURCHARGE IN PART-I. THE OBJECTIONS RAISED BY LD DR FOR THE R EVENUE THAT THE DECISION OF BOMBAY HIGH COURT IS PER-INCURIUM , IS NOT TENABLE AS THE DECISION OF HONBLE SUPREME COURT IN SMITH KLINE & FRENCH (INDI A) LTD. (SUPRA) HAS ALSO BEEN SPECIFICALLY CONSIDERED BY HONBLE RAJAST HAN HIGH COURT IN CHAMBAL FERTILIZER (SUPRA). IN THE RESULT, THIS GRO UND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 11. NOW TURNING THE VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITS APPEAL AND BY REVENUE IN ITS CROSS APPEAL. AT THE O UTSET THE LD. AR FOR THE ASSESSEE SUBMITS THAT ALL THE GROUNDS OF THE APPEAL RAISED BY THE ASSESSEE AS WELL AS BY REVENUE ARE COVERED BY THE DECISION OF T RIBUNAL IN ASSESSEES CASE AND BY THE DECISIONS OF SUPERIOR COURTS. THE LD DR FOR THE REVENUE SUBMITS THAT HE HAS ALREADY FURNISHED THE DETAILED WRITTEN SUBMISSIONS ON ALL THE ISSUES AND HE ALSO RELY ON THE ORDERS OF THE TPO/AO OR THE LD CIT(A) AS THE CASE MAY BE. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 16 - 12. GROUND NO.1 OF ASSESSEES APPEAL RELATES TO STATE T AXES PAID IN OVERSEAS COUNTRIES. THE LD. AR OF THE ASSESSEE SUBMITS THAT AS PER SECTION 40(A)(II) READ WITH SECTION (R.W.S.) 2(43) OF THE ACT, THE DEDUCTI ON IS PROHIBITED ONLY FOR THOSE TAXES / CREDIT IS ALLOWED UNDER SECTION 90/91 OF THE ACT. ACCORDINGLY, PROVISION OF SECTION 40(A)(II) ARE NOT APPLICABLE T O THE STATE TAX. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE FOR A.Y. 2009-10 IN ITA NO. 5317/MUM/2016. 13. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 14. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE ORDER OF LOWER AUTHORITY AND THE DECISION OF TRIBUNAL IN EARLIER YEARS. WE HAVE NOTED THAT ON IDENTICAL GROUNDS OF APPEAL, THE CO-O RDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2009-10 PASSED THE FOLLOWING ORDER: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. FROM THE STAGE OF THE ASSESSMEN T PROCEEDING ITSELF, IT IS THE CLAIM OF THE ASSESSEE THAT THE TERM TAX , AS DEFINED UNDER SECTION 2(43) OF THE ACT WOULD O NLY INCLUDE TAXES CHARGEABLE UNDER THE INDIAN INCOME TA X ACT. IT IS THE FURTHER CASE OF THE ASSESSEE THAT SINCE IN RESP ECT OF THE STATE TAXES PAID OVERSEAS, THE ASSESSEE IS NOT ELIG IBLE TO CLAIM RELIEF UNDER SECTION 90 OR 91 OF THE ACT, IT WILL N OT BE COVERED UNDER SECTION 40(A)(II) OF THE ACT. ON A PERUSAL OF PROVISIONS OF ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 17 - SUBSECTION (43) OF SECTION 2 OF THE ACT, IT BECOME S CLEAR THAT THE TERM TAX HAS BEEN DEFINED TO MEAN ANY TAX PAID UNDER THE PROVISIONS OF THE ACT. SECTION 40(A)(II) OF THE ACT SAYS THAT ANY RATE OR TAXES LEVIED ON THE PROFITS OR GAIN IN ANY BUSINESS OR PROFESSION WOULD NOT BE ALLOWABLE AS DEDUCTION. EXP LANATION1 TO SECTION 40(A)(II) OF THE ACT INSERTED BY THE FIN ANCE ACT, 2006, W.E.F. 1ST APRIL 2006, FURTHER CLARIFIES THAT ANY S UM ELIGIBLE FOR RELIEF OF TAX EITHER UNDER SECTION 90 OR 91 OF THE ACT WOULD NOT BE ALLOWABLE AS DEDUCTION UNDER SECTION 40(A)(II) O F THE ACT. IT IS THE SAY OF THE ASSESSEE THAT THE TAX ELIGIBLE FO R RELIEF UNDER SECTION 90 OF THE ACT ARE ONLY THOSE TAXES WHICH AR E LEVIED BY FEDERAL / CENTRAL GOVERNMENT AND NOT BY ANY LOCAL A UTHORITY OF STATE, CITY OR COUNTY. THUS, IT IS INELIGIBLE FOR A NY RELIEF UNDER SECTION 90 OF THE ACT. THE AFORESAID SUBMISSIONS OF LEANED SR. COUNSEL FOR THE ASSESSEE, PRIMA FACIE, IS ACCEPTABL E IF ONE HAS TO STRICTLY GO BY THE MEANING OF TAX , DEFINED UNDER SECTION 2(43) OF THE ACT, AS IT ONLY REFERS TO TAX PAID UND ER THE PROVISIONS OF THE ACT. IT IS ALSO WORTH MENTIONING, THE STATE TAXES PAID BY THE ASSESSEE IN DTAA COUNTRIES ARE NO T ELIGIBLE FOR RELIEF UNDER SECTION 90 OF THE ACT. THEREFORE, THE ISSUE WHICH ARISES IS, WHETHER IT CAN BE ALLOWED AS DEDUCTION U NDER SECTION 37 OF THE ACT. NO DOUBT, IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 200506, THE TRIBUNAL IN THE ORDER REFERRED TO ABOVE FOLLOWING ITS OWN DECISION IN DCIT V/S TATA SONS LT D., [2011] 43 SOT 27 (MUM.), HAS HELD THAT THE STATE TAXES PAID O VERSEAS CANNOT BE ALLOWED AS DEDUCTION IN VIEW OF THE PROVI SIONS OF SECTION 40(A)(II) OF THE ACT. HOWEVER, THE AFORESAI D LEGAL POSITION HAS SUBSTANTIALLY CHANGED AFTER THE DECISI ON OF THE HON'BLE JURISDICTIONAL HIGH COURT IN RELIANCE INFRA STRUCTURE LTD. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 18 - (SUPRA). WHILE INTERPRETING THE PROVISIONS OF SECTI ON 2(43) OF THE ACT, VISAVIS SECTION 40(A)(II) OF THE ACT, THE HO NBLE COURT HELD THAT THE TAX WHICH HAS BEEN PAID ABROAD WOULD NOT BE COVERED WITHIN THE MEANING OF SECTION 40(A)(II) OF THE ACT, SINCE, THE MEANING OF THE WORD TAX AS DEFINED UNDER SECTION 2(43) OF THE ACT WOULD MEAN ONLY THE TAX CHARGEABLE UNDER THE ACT. THUS, AS PER THE AFORESAID DECISION OF THE HON 'BLE JURISDICTIONAL HIGH COURT, TAXES LEVIED OVERSEAS WH ICH ARE NOT ELIGIBLE FOR RELIEF EITHER UNDER SECTION 90 OR 91 O F THE ACT, WOULD NOT COME WITHIN THE PURVIEW OF SECTION 40(A)(II) OF THE ACT. IT IS THE SPECIFIC PLEA OF THE ASSESSEE THAT THE STATE TA X IS NOT COVERED EITHER UNDER INDOUS OR INDOCANADA TAX TRE ATY, HENCE, NOT ELIGIBLE FOR ANY RELIEF UNDER SECTION 90 OF THE ACT. PERTINENTLY, UNLIKE SECTION 91 READ WITH EXPLANATION(IV), SECTION 90 DOES NOT PROVIDE FOR INCLUSION OF TAX LE VIED BY ANY STATE/ LOCAL AUTHORITY OF THAT COUNTRY WITHIN THE E XPRESSION INCOME TAX. IN VIEW OF THE AFORESAID, WE DIRECT T HE ASSESSING OFFICER TO VERIFY WHETHER THE STATE TAXES PAID BY T HE ASSESSEE OVERSEAS ARE ELIGIBLE FOR ANY RELIEF UNDER SECTION 90 OF THE ACT AND IF IT IS NOT FOUND TO BE SO, ASSESSEES CLAIM O F DEDUCTION SHOULD BE ALLOWED. IN VIEW OF OUR DECISION ABOVE, N O SEPARATE ADJUDICATION OF GROUNDS NO.1.2 IS REQUIRED. 15. CONSIDERING THE DECISION OF TRIBUNAL IN APPEAL FOR AY 2009-10 ON IDENTICAL GROUNDS OF APPEAL, WHEREIN NEITHER VARIAT IONS IN FACTS NOR ANY CONTRARY LAW IS BROUGHT TO OUR NOTICE, HENCE, T HIS GROUND OF APPEAL IS ALLOWED SIMILAR DIRECTIONS. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 19 - 16. GROUND NO.2 OF ASSESSEES APPEAL RELATES TO ADVERTI SEMENT EXPENSES. THE LD. AR OF THE ASSESSEE SUBMITS THAT EXPENSES INCURRED I N RESPECT OF ADVERTISEMENT IN NEWSPAPER/ MAGAZINE IN RESPECT EXPERIENCE CERTAI NTY CAMPAIGN WHICH IS ROUTINELY INCURRED FOR THE ONGOING BUSINESS AND NOT IN THE NATURE OF BRAND BUILDING. THE LD. AR OF THE ASSESSEE FURTHER SUBMIT S THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE FOR A. Y. 2009-10 IN ITA NO. 5317/MUM/2016. 17. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 18. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE ORDER OF LOWER AUTHORITY AND THE DECISION OF TRIBUNAL IN EARLIER YEARS. WE HAVE NOTED THAT ON IDENTICAL GROUNDS OF APPEAL, THE CO-O RDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2009-10 PASSED THE FOLLOWING ORDER: 23. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE HAVE ALSO CAREFULLY EXAMINED THE CASE LAWS CITED BEFORE US. ON A DETAILED ANALYSIS OF FAC TS ON RECORD, WE HAVE NOTED THAT THE REASONING OF THE ASSESSING O FFICER THAT THE EXPENDITURE WAS INCURRED FOR BRAND BUILDING IS WITHOUT ANY BASIS. IT IS TO BE NOTED, BEFORE THE DEPARTMENTAL A UTHORITIES THE ASSESSEE HAD DEMONSTRATED THAT IN NO WAY IT IS CONN ECTED WITH DEVELOPMENT OF TATA BRAND. THE DETAILS OF EXPENDITU RE INCURRED CLEARLY DEMONSTRATE THAT THEY WERE BASICALLY FOR TH E PURPOSE OF ADVERTISING ASSESSEES PRODUCTS IN PRINT MEDIA OR T HROUGH ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 20 - SEMINAR, CONFERENCES, ETC. AS RIGHTLY OBSERVED BY L EARNED COMMISSIONER (APPEALS), THE ASSESSING OFFICER HAS B ROUGHT NO MATERIAL ON RECORD TO ESTABLISH THAT THE EXPENDITUR E IS FOR BRAND BUILDING. AS OBSERVED EARLIER, THE EXPENDITURE RELA TES TO ADVERTISEMENT IN NEWSPAPER, MAGAZINE, EVENTS, SEMIN ARS, CONFERENCES, EXHIBITIONS, ETC. THUS, THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE CLEARLY INDICATES THAT IT WAS FOR PROMOTING ITS OWN BUSINESS. FURTHER, CONSIDERING TH E TURNOVER OF THE ASSESSEE, THE EXPENDITURE INCURRED ON ADVERTISE MENT DOES NOT APPEAR TO BE UNUSUALLY HIGH. THAT BEING THE CAS E, THE EXPENDITURE INCURRED ON ADVERTISEMENT CANNOT BE TRE ATED TO BE IN THE NATURE OF CAPITAL EXPENDITURE AND AMORTIZED OVER A PERIOD OF FIVE YEARS. TO THAT EXTENT, WE AGREE WITH THE DE CISION OF LEARNED COMMISSIONER (APPEALS) ON THE ISSUE. HOWEVE R, AS REGARDS EXPERIENCE CERTAINTY EXPENDITURE AMOUNTING TO RS. 5.28 CRORE, IT APPEARS THAT LEARNED COMMISSIONER (APPEAL S) HAS HELD IT TO BE OF CAPITAL NATURE ON THE BASIS THAT THE AS SESSEE ITSELF ADMITTED SO. HOWEVER, BEFORE US, LEANED SR. COUNSEL FOR THE ASSESSEE HAS VEHEMENTLY ARGUED THAT NO SUCH ADMISSI ON WAS MADE BY THE ASSESSEE BEFORE LEARNED COMMISSIONER (A PPEALS) AND UNDER A MISCONCEPTION; LEARNED COMMISSIONER (AP PEALS) HAS COME TO SUCH CONCLUSION. THE LEANED SR. COUNSEL SUBMITTED, THE EXPERIENCE CERTAINTY CAMPAIGN WAS ALSO FOR THE PURPOSE OF ADVERTISEMENT ONLY AND IN THIS CONTEXT, HE HAS FURN ISHED BEFORE US THE DETAILS OF SUCH EXPENDITURE THROUGH ADDITION AL EVIDENCES. SINCE, THE ADDITIONAL EVIDENCES FURNISHED BY THE AS SESSEE WILL HAVE A CRUCIAL BEARING IN DETERMINING THE NATURE OF EXPENDITURE; WE ARE INCLINED TO ADMIT THE ADDITIONAL EVIDENCES. HOWEVER, CONSIDERING THE FACT THAT THESE EVIDENCES WERE NOT FURNISHED ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 21 - BEFORE THE DEPARTMENTAL AUTHORITIES, TO AFFORD A FA IR OPPORTUNITY TO THE DEPARTMENT TO VERIFY THE AUTHENTICITY OF ASS ESSEES CLAIM VISAVIS THE ADDITIONAL EVIDENCES FURNISHED BEFORE US, WE RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR DE N OVO ADJUDICATION AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE MAKE IT CLEAR, OUR AFORES AID DIRECTION IS ONLY WITH REGARD TO THE EXPERIENCE CERTAINTY EXP ENDITURE OF RS. 5.28 CRORE. THE DECISION OF LEARNED COMMISSIONE R (APPEALS) ON THIS ISSUE IS MODIFIED TO THIS EXTENT ONLY . 19. CONSIDERING THE DECISION OF TRIBUNAL IN APPEAL FOR AY 2009-10 ON SIMILAR GROUNDS OF APPEAL, WHEREIN NEITHER VARIATIO NS IN FACTS NOR ANY CONTRARY LAW IS BROUGHT TO OUR NOTICE, HENCE, T HIS GROUND OF APPEAL IS ALLOWED SIMILAR DIRECTIONS. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 20. GROUND NO.3 RELATES TO FOREIGN TAX CREDIT IN RESPEC T OF INCOME PERTAINING TO SECTION 10A/10AA ELIGIBLE UNITS IN INDIA. THE LD. A R OF THE ASSESSEE SUBMITS THAT FOREIGN TAX CREDIT SHOULD ALSO BE PROVIDED FOR TAXES PAID IN OVERSEAS JURISDICTION, IN RESPECT OF SECTION 10A/10AA ELIGIB LE INCOME IN INDIA, AS PER THE TAX CREDIT PROVISIONS OF RESPECTIVE DTAA. EVEN UNDER MAT COMPUTATION, THE ASSESSEE SHOULD BE ALLOWED FULL CREDIT FOR TAXE S PAID OVERSEAS IN RESPECT OF 10A/10AA INCOME. THE LD. AR OF THE ASSESSEE FURTHE R SUBMITS THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE FOR A.Y. 2009-10 IN ITA NO. 5317/MUM/2016. THE LD DR FOR THE REVENUE FU RTHER SUBMITS THAT THE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 22 - LD DR IN HIS WRITTEN SUBMISSIONS HAS WRONGLY SUBMIT TED THAT THE JUDGMENT OF KARNATAKA HIGH COURT IN WIPRO LIMITED (382 ITR 179) IS FOLLOWED BY THE TRIBUNAL IN AY 2009-10, AND THAT THE DECISION OF WI PRO HAS BEEN OVERRULED BY SUPREME COURT. THE CONTENTION OF THE LD. DR IS F ACTUALLY INCORRECT AND WRONG. IN PARA 48 OF WIPROS CASE KARNATAKA HIGH CO URT CONSIDERED THE DECISION OF YOKOGAVA INDIA LTD (2012) 341 ITR 385. THE REVENUE WENT IN APPEAL BEFORE SUPREME COURT, WHEREIN IT WAS HELD TH AT SECTION 10A IS DEDUCTION PROVISION (391 ITR 274 SC). THUS THE SUB MISSIONS OF THE LD DR THAT THE DECISION OF KARNATAKA HIGH COURT IS CONTRA RY TO THE DECISION OF SUPREME COURT IN YOKOGAVA INDIA IS MISPLACED AND WR ONG. 21. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. THE LD DR FOR THE REVENUE IN HIS WRIT TEN SUBMISSIONS AFTER REFERRING THE DECISION OF KARNATAKA HIGH COURT IN W IPRO LTD (SUPRA) SUBMITTED THAT THE DECISIONS ON WHICH DECISION WAS RENDERED IS STAND OVERRULED BY SUPREME COURT. 22. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND PERUSED THE ORDER OF LOWER AUTHORITY AND THE DECISION OF TRIBUNAL IN EARLIER YEARS. WE HAVE NOTED THAT ON IDENTICAL GROUNDS OF APPEAL, THE CO-O RDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2009-10 PASSED THE FOLLOWING ORDER: ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 23 - 31. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND T O THE DECISIONS RELIED UPON. AS COULD BE SEEN, WHILE THE ASSESSING OFFICER HAS DISALLOWED ASSESSEES CLAIM OF FOREIGN TAX CREDIT IN RESPECT OF INCOME EXEMPT UNDER SECTION 10A/10AA OF THE ACT ON THE REASONING THAT ONLY SUCH INCOME WHICH IS SUBJEC TED TO TAX IN BOTH THE COUNTRIES WOULD QUALIFY FOR TAX CREDIT, LE ARNED COMMISSIONER (APPEALS) HAS RESTRICTED THE RELIEF OF FOREIGN TAX CREDIT ONLY IN RESPECT OF TAX PAID IN USA EVEN IN R ESPECT OF INCOME WHICH IS EXEMPT UNDER SECTION 10A/10AA OF TH E ACT. THE LEARNED COMMISSIONER (APPEALS) HAS COME TO SUCH CON CLUSION BY FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN WIPRO LTD. (SUPRA). THE REASONING OF THE LEARNED CO MMISSIONER (APPEALS) ON THE ISSUE IS, AS PER THE DECISION OF H ONBLE KARNATAKA HIGH COURT IN WIPRO LTD. (SUPRA), THE FOR EIGN TAX CREDIT BENEFIT UNDER SECTION 90(1)(A)(II) OF THE AC T WOULD ONLY BE APPLICABLE UNDER INDOUS DTAA AND WOULD NOT BE APPL ICABLE TO OTHER DTAA COUNTRIES AND NONDTAA COUNTRIES. ON A C AREFUL READING OF THE DECISION OF THE HONBLE KARNATAKA HI GH COURT IN WIPRO LTD. (SUPRA), IT IS NOTED, WHILE DEALING WITH IDENTICAL ISSUE THE HONBLE COURT HELD THAT IN THE CASES COVERED UN DER SECTION 90(1)(A)(II) OF THE ACT, IT IS NOT THE CASE OF INCO ME BEING SUBJECTED TO TAX OR THE ASSESSEE HAS PAID TAX ON TH E INCOME. THE PROVISION APPLIES TO A CASE WHERE THE INCOME OF THE ASSESSEE IS ELIGIBLE TO TAX UNDER THE ACT AS WELL A S IN THE CORRESPONDING LAW IN FORCE IN THE OTHER COUNTRY. TH E COURT OBSERVED, THOUGH, INCOME TAX IS CHARGEABLE UNDER TH E ACT, IT IS OPEN TO THE PARLIAMENT TO GRANT EXEMPTION UNDER THE ACT FROM PAYMENT OF TAX FOR ANY SPECIFIED PERIOD, NORMALLY, TO INCENTIVIZE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 24 - THE ASSESSEE THE TO CARRY ON MANUFACTURING ACTIVITI ES OR PROVIDING SERVICES. THE COURT THEREAFTER REFERRING TO THE TREATY PROVISIONS WITH USA HELD THAT IT IS NOT THE REQUIRE MENT OF LAW THAT THE ASSESSEE BEFORE HE CLAIMS CREDIT UNDER THE INDOUS CONVENTION OR UNDER THE PROVISION OF THE ACT MUST P AY TAX IN INDIA ON SUCH INCOME. THE COURT OBSERVED, AS PER TH E EMBARGO PLACED IN THE DTAA, THE ASSESSEE IS ENTITLED TO SUC H TAX CREDIT ONLY IN RESPECT OF THAT INCOME WHICH IS TAXED IN US A. IN SIMILAR CONTEXT, THE COURT ALSO REFERRED TO THE TAX TREATY WITH CANADA WHERE THE PROVISIONS DOES NOT ALLOW CREDIT FOR TAX PAID IN CANADA IF THE INCOME IS NOT SUBJECTED TO TAX IN IND IA. WITH REGARD TO COUNTRYS WITH WHICH INDIA DOES NOT HAVE ANY AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION, THE COU RT OBSERVED THAT AS PER SECTION 91 OF THE ACT, THE ASSESSEE WOU LD BE ELIGIBLE TO AVAIL TAX CREDIT. THUS, ON A CAREFUL READING OF THE AFORESAID JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT, IT BE COMES CLEAR THAT WHERE THE RESPECTIVE TAX TREATY PROVIDES FOR B ENEFIT FOR FOREIGN TAX PAID EVEN IN RESPECT OF INCOME ON WHICH THE ASSESSEE HAS NOT PAID TAX IN INDIA, STILL, IT WOULD BE ELIGIBLE FOR TAX CREDIT UNDER SECTION 90 OF THE ACT. LIKE ARTICL E 25 OF THE INDOUSA TREATY, TREATIES WITH VARIOUS OTHER COUNTR IES SUCH AS INDODENMARK, INDOHUNGARY, INDONORWAY, INDOOMAN, INDOUS, INDOSAUDI ARABIA, INDOTAIWAN ALSO HAVE S IMILAR PROVISION PROVIDING FOR BENEFIT OF FOREIGN TAX CRED IT EVEN IN RESPECT OF INCOME NOT SUBJECTED TO TAX IN INDIA. HO WEVER, INDO CANADA AND INDOFINLAND TREATIES DO NOT PROVIDE FOR SUCH BENEFIT UNLESS THE INCOME IS SUBJECTED TO TAX IN BO TH THE COUNTRIES. THEREFORE, THE FOREIGN TAX CREDIT WOULD BE AVAILABLE TO THE ASSESSEE IN ALL CASES EXCEPT THE FOREIGN TAX PA ID IN FINLAND ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 25 - AND CANADA. THE ASSESSING OFFICER IS DIRECTED TO GR ANT CREDIT ACCORDINGLY. 23. CONSIDERING THE DECISION OF TRIBUNAL IN APPEAL FOR AY 2009-10 ON IDENTICAL GROUNDS OF APPEAL, WHEREIN NEITHER VARIAT IONS IN FACTS NOR ANY CONTRARY LAW IS BROUGHT TO OUR NOTICE, HENCE, R ESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH, THIS G ROUND OF APPEAL IS ALLOWED SIMILAR DIRECTIONS. 24. NEXT ISSUE I.E. GROUND NO. 1 IN REVENUES APPEAL RE LATES TO DISALLOWANCE OF PAYMENTS OF SOFTWARE FROM NON-RESID ENTS VENDERS UNDER SECTION 40(A)(I). THE LD. AR FOR THE ASSESSEE SUBMITS THAT SIMILAR GROUNDS OF APPEAL IN AY 2005-06 WERE DECIDE D BY TRIBUNAL IN FAVOUR OF ASSESSEE AND AGAIN IN AY 2009-10. THE LD. DR FOR THE REVENUE IN ITS SUBMISSIONS HAVE SUBMITTED THAT THE REVENUE HAS FILED APPEAL BEFORE BOMBAY HIGH COURT FOR AY 2005-06, WHI CH IS STILL PENDING DECISION. THE LD. AR FOR THE ASSESSEE SUBMI TTED THAT AT THIS POINT THIS GROUND OF APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 25. ON THE CONTRARY THE LD. DR FOR THE REVENUE SUBMITT ED THAT THOUGH SIMILAR GROUNDS OF APPEAL WAS DECIDED BY TRIBUNAL I N AY 2005-06, WHICH WAS FOLLOWED IN AY 2009-10. THE LD DR FURTHER SUBMITS THAT EXPLANATION 4 TO SECTION 9(1)(VI) IS ONLY CLARIFICA TORY IN NATURE AND ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 26 - THE DEFINITION OF THE TERM ROYALTY EMANATES FROM EX PLANATION-2 OF SECTION 9(1)(VI). 26. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AN D THE ORDER OF THE TRIBUNAL IN EARLIER YEARS. WE HAVE NOTED THAT LD CIT(A) WHILE GRANTING RELIEF TO THE ASSESSEE FOLLOWED THE ORDER OF AY 2005-06 IN ITA NO. 7513/MUM/2010 DATED 23.03.2017 (INCLUDING O RDER IN MA ORDER IN ORDER DATED 23.03.2017). WE HAVE FURTHER S EEN THAT AGAIN IN APPEAL FOR AY 2009-10 IN ITA NO. 5713/MUM/2016, THE TRIBUNAL ON SIMILAR ISSUES AFTER DETAILED DISCUSSIONS PASSED TH E FOLLOWING ORDER; 15. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND T O THE DECISIONS RELIED UPON. UNDISPUTEDLY, IN THE YEAR UN DER CONSIDERATION, THE ASSESSEE HAS CLAIMED DEDUCTION O N ACCOUNT OF EXPENDITURE INCURRED TOWARDS PURCHASE OF SOFTWARE P RODUCTS ACQUIRED FOR INTERNAL USE. THE EXPENDITURE RELATING TO THAT HAS BEEN TREATED AS CAPITAL IN NATURE AND DEPRECIATION HAS BEEN ALLOWED BY THE DEPARTMENTAL AUTHORITIES. INSOFAR AS SOFTWARE PRODUCTS ACQUIRED FOR RESALE / TRADING PURPOSE, TH E ASSESSEES CLAIM OF DEDUCTION IN RESPECT OF EXPENDITURE INCURR ED THEREON AS REVENUE IN NATURE HAS BEEN DISALLOWED ON THE GROUND THAT THE PAYMENT MADE BEING IN THE NATURE OF ROYALTY, THE AS SESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. INSOFAR AS THE EXPENDITURE INCURRED ON THE SOFTWARE PRODUCTS ACQUIRED IN INTERNAL USE, WE, ON A PERUSAL OF THE F ACTS ON RECORD ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 27 - ARE OF THE VIEW THAT BY INCURRING SUCH EXPENDITURE, THE ASSESSEE HAS ACQUIRED ASSETS OF ENDURING BENEFIT. THEREFORE, THE EXPENDITURE INCURRED IS CAPITAL IN NATURE AND THE A SSESSEE WOULD BE ENTITLED FOR DEPRECIATION ON THE COST OF SUCH AS SETS. THE TRIBUNAL WHILE DECIDING IDENTICAL ISSUE IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 200506 IN ITA NO.7513/MUM./201 0, DATED 4TH NOVEMBER 2015, THE TRIBUNAL HAS EXPRESSED SIMIL AR VIEW. THUS, FOLLOWING THE AFORESAID VIEW OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE UPHOLD THE DECISION OF LEARNED COMMISS IONER (APPEALS) ON THE ISSUE. INSOFAR AS THE DISALLOWANCE OF EXPENDITURE INCURRED ON ACQUIRING SOFTWARE PRODUCTS FOR RESALE / TRADING PURPOSE, IT IS NOTED THAT THE ASSESSING OFF ICER HAS NOT AT ALL DELIBERATED ON THE FACTUAL ASPECT OF THE ISSUE. SIMPLY RELYING UPON CERTAIN JUDICIAL PRECEDENTS AND THE STATUTORY PROVISIONS, HE HAS CONCLUDED THAT THE PAYMENT MADE BY THE ASSESSEE FOR ACQUIRING THESE SOFTWARE IS IN THE NATURE OF ROYALT Y AS PER SECTION 9(1)(VI) OF THE ACT, HENCE, ASSESSEE IS LIABLE TO D EDUCT TAX AT SOURCE UNDER SECTION 195(2) OF THE ACT. WHEREAS, LE ARNED COMMISSIONER (APPEALS) HAS IMPROVED UPON THE REASON ING OF THE ASSESSING OFFICER BY OBSERVING THAT THE SOFTWARE AC QUIRED BY THE ASSESSEE FOR TRADING PURPOSE WERE NOT SOLD AS IT IS BY THE ASSESSEE BUT HAVE BEEN UTILIZED IN PROGRAMS DEVELOP ED BY IT FOR ITS CLIENTS. HE HAS OBSERVED THAT THE PRODUCTS DEVE LOPED BY THE ASSESSEE USING SOFTWARE ACQUIRED WERE THEN SOLD TO CLIENTS WITH RIGHTS AND LICENSE. THUS, ACCORDING TO THE LEARNED COMMISSIONER (APPEALS), IT IS NOT A CASE OF MERE PURCHASE AND SU BSEQUENT SALE OF SOFTWARE AS A RESELLER / TRADER. HE OBSERVED, A SSESSEES SOFTWARE PACKAGE WILL NOT BE COMPLETE WITHOUT THE S OFTWARE ACQUIRED FOR TRADING PURPOSE. IN OTHER WORDS, THE S OFTWARE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 28 - ACQUIRED BY THE ASSESSEE IS A NECESSARY INGREDIENT OF THE PACKAGE BEING DEVELOPED AND SUPPLIED TO THE CLIENT AND THE ASSESSEE IS PROHIBITED BY AGREEMENT TO SELL THE SOF TWARE INDEPENDENTLY AND THEY CAN ONLY BE SUPPLIED AS A PA RT OF THE PACKAGE. AS PER SECTION 9(1)(VI) OF THE ACT, INCOME IN THE NATURE OF ROYALTY SHALL BE DEEMED TO ACCRUE OR ARISE IN IN DIA EVEN IN RESPECT OF A NONRESIDENT WHERE THE ROYALTY IS PAYA BLE IN RESPECT OF ANY RIGHT, PROPERTY OR INFORMATION USED OR SERVI CES UTILIZED FOR THE PURPOSE OF A BUSINESS OR PROFESSION CARRIED ON BY A PERSON IN INDIA OR FOR THE PURPOSE OF MAKING OR EARNING ANY I NCOME FROM ANY SOURCE IN INDIA. PERTINENTLY, THE EXPRESSION ROYALTY AS PER SECTION 9(1)(VI) OF THE ACT IN ITS INITIAL FORM DID NOT SPECIFICALLY DEFINE COMPUTER SOFTWARE. BY VIRTUE OF EXPLANATION 3 TO SECTION 9(1)(VI) OF THE ACT INSERTED BY FINANCE ACT W.E.F. 1ST APRIL 2010, COMPUTER SOFTWARE WAS DEFINED TO MEAN ANY COMPUTER PROGRAM RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTH ER INFORMATION STORAGE DEVICE AND INCLUDES ANY SUCH PR OGRAM OR ANY CUSTOMIZED ELECTRONIC DATA. THE SCOPE OF THE TE RM ROYALTY WAS FURTHER EXPLAINED BY EXPLANATION4 TO SECTION 9 (1)(VI) OF THE ACT INSERTED BY FINANCE ACT, 2012, WITH RETROSPECTI VE EFFECT FROM 1ST JUNE 1976, WHEREIN, IT WAS CLARIFIED THAT THE T RANSFER OF ALL OR ANY RIGHTS IN RESPECT OF ANY RIGHT, PROPERTY OR INF ORMATION INCLUDES AND HAS ALWAYS INCLUDED TRANSFER OF ALL OR ANY RIGHT FOR USE OR RIGHT TO USE A COMPUTER SOFTWARE INCLUDING G RANTING OF A LICENSE IRRESPECTIVE OF THE MEDIUM THROUGH WHICH SU CH RIGHT IS TRANSFERRED. IT IS THE CONTENTION OF THE ASSESSEE T HAT THE SOFTWARE ACQUIRED BY THE ASSESSEE FOR THE PURPOSE O F TRADING IS A COPYRIGHTED ARTICLE AND THE ASSESSEE HAS SOLD IT TO THE CUSTOMERS AS IT IS. IT HAS BEEN SUBMITTED THAT WHILE RESELLI NG / TRADING THE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 29 - SOFTWARE PRODUCTS, THERE IS NEITHER ANY TRANSFER OF RIGHT IN COPYRIGHT IN FAVOUR OF THE ASSESSEE NOR THE ASSESSE E HAS TRANSFERRED ANY RIGHT IN THE COPYRIGHT. HOWEVER, TH E LEARNED COMMISSIONER (APPEALS) HAS RECORDED A CATEGORICAL F INDING THAT THE SOFTWARE PRODUCTS ACQUIRED BY THE ASSESSEE CANN OT BE SOLD INDEPENDENTLY AND CAN BE SOLD BY UTILISING IN THE P ACKAGE DEVELOPED BY IT. IN THE AFORESAID FACTUAL CONTEXT, IT REQUIRES EXAMINATION WHETHER THE SOFTWARE PRODUCTS ACQUIRED BY THE ASSESSEE FOR TRADING PURPOSE WAS SOLD AS A CHATTEL QUA CHATTEL OR THE ASSESSEE HAS MADE SOME VALUE ADDITION TO IT OR HAS TRANSFERRED THE COPYRIGHT RELATING TO THE SOFTWARE PRODUCT ALONG WITH THE SOFTWARE PRODUCT. NO DOUBT, IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200506, THE TRIBUNAL IN ITA NO.7513/MUM./2010, DATED 23RD MARCH 2017 (AFTER REC ALL OF THE ORIGINAL APPEAL ORDER) WHILE DEALING WITH SIMILAR I SSUE HAS HELD THAT THE PAYMENT MADE BY THE ASSESSEE TOWARDS ACQUI RING THE SOFTWARE PRODUCTS IS NOT ROYALTY AS THE ASSESSEE HA S SOLD A COPYRIGHTED ARTICLE AND HAS NOT TRANSFERRED ANY LIC ENSE OR COPYRIGHT. HOWEVER, IN THE FACTS OF THE PRESENT CAS E, IN OUR CONSIDERED OPINION, FURTHER ENQUIRY IS REQUIRED TO BE MADE BY THE ASSESSING OFFICER TO FACTUALLY VERIFY THE NATUR E OF TRANSACTION RELATING TO ACQUISITION OF SOFTWARE PRODUCT FOR TRA DING PURPOSE TO FIND OUT WHETHER IT IS SALE OF COPYRIGHTED ARTICLE SIMPLICITER OR SALE OF COPYRIGHT. IN CASE, THE PAYMENT MADE BY THE ASSESSEE IS FOUND TO BE ROYALTY IN VIEW OF EXPLANATION4 TO SEC TION 9(1)(VI) OF THE ACT, THE CONTENTION OF THE ASSESSEE THAT IT COULD NOT HAVE WITHHELD TAX ANTICIPATING THE CHANGE IN LAW BROUGHT WITH RETROSPECTIVE EFFECT, HAS TO BE CONSIDERED KEEPING IN VIEW THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N NGC NETWORK ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 30 - INDIA PVT. LTD. (SUPRA). FURTHER, ASSESSEES CONTEN TION THAT EXPLANATINO4 TO SECTION 9(1)(VI) OF THE ACT CANNOT BE BROUGHT INTO PLAY WHILE APPLYING SECTION 40(A)(I) OF THE AC T AS IT ONLY REFERS TO EXPLANATION2 TO SECTION 9(1)(VI) OF THE ACT FOR THE DEFINITION OF ROYALTY ALSO HAS TO BE EXAMINED KEEPI NG IN VIEW THE RATIO LAID DOWN IN NGC NETWORKS INDIA PVT. LTD. (SU PRA). IN CASE, THE PAYMENT MADE BY THE ASSESSEE DOES NOT FIT INTO THE DEFINITION OF ROYALTY AS PROVIDED UNDER THE RELEVAN T TAX TREATY, THE ASSESSEE CERTAINLY WOULD GET THE BENEFIT OF THE TAX TREATY AND IN THAT EVENT THE LIABILITY UNDER SECTION 195 O F THE ACT CANNOT BE FASTENED ON THE ASSESSEE. SINCE, ALL THESE ISSUE S HAVE NOT BEEN PROPERLY EXAMINED AND DELIBERATED UPON BY THE DEPARTMENTAL AUTHORITIES; WE ARE INCLINED TO RESTOR E THE ISSUE TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN TER MS WITH OUR OBSERVATIONS HEREINABOVE. THE ASSESSING OFFICER MUS T DECIDE THE ISSUE AFTER PROVIDING REASONABLE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. 27. CONSIDERING THE DECISION OF TRIBUNAL IN APPEAL FOR AY 2009-10, THIS GROUND OF APPEAL IS RESTORED TO THE FILE OF ASSESSING OFFI CER TO DECIDE THE SAME BY FOLLOWING THE DIRECTION OF THE TRIBUNAL AS MENTIONE D ABOVE. IN THE RESULT THIS GROUND OF APPEAL RAISED BY THE REVENUE IS ALLOWED F OR STATISTICAL PURPOSE. 28. GROUND NO. 2 & 3 IN REVENUES APPEAL RELATES TO DIS ALLOWANCE UNDER SECTION 14A. THE LD DR FOR THE REVENUE SUBMITS THAT THE ASS ESSEE HAS EARNED DIVIDEND INCOME OF RS. 15,99,27,954/-, WHICH IS CLA IMED EXEMPTED UNDER SECTION 10(34). NO SUO MOTO DISALLOWANCES WAS OFFERED BY THE ASSESSEE. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 31 - DURING THE ASSESSMENT THE ASSESSEE SUBMITTED A COMP UTATION OF RS. 53,18,829/- INCURRED FOR EARNING SUCH EXEMPT INCOME . THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE WORKING OF THE ASSESSEE AND WORKED OUT THE DISALLOWANCES AS PER RULE 8D. THE AO COMPUTED DISAL LOWANCE @.5% OF AVERAGE VALUE OF INVESTMENT AS WELL AS INTEREST EXP ENSES ATTRIBUTABLE TO SUCH EXEMPT INCOME. THE AO MADE TOTAL DISALLOWANCES OF R S.13,59,59,116/- IN ADDITIONS TO SUO MOTO DISALLOWANCE OFFERED BY THE ASSESSEE. THE LD DR FURTHER SUBMITS THAT THE REVENUE IS NOT AGGRIEVED B Y THE DELETION OF INTEREST EXPENSES AS THE ASSESSEE BEFORE LD CIT(A) CLAIMED T HAT ITS OWN FUNDS ARE IN FAR EXCESS TO THE INVESTMENT. THE LD. DR SUBMITS TH AT 0.5% OF AVERAGE VALUE OF INVESTMENT IS AS PER LAW. 29. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUPPO RTED THE ORDER OF THE LD CIT(A). THE LD. AR FOR THE ASSESSEE SUBMITS THAT, S INCE, THE REVENUE IS NOT AGGRIEVED BY THE DELETION OF INTEREST EXPENSES AS S UBMITTED BY THE LD DR IN HIS WRITTEN SYNOPSIS, NOW THE LIMITED ISSUE REMAINE D FOR ADJUDICATION OF THE AMOUNT OF DISALLOWANCE OF 0.5% OF AVERAGE VALUE OF INVESTMENT. THE AO HAS NOT MADE SATISFACTION REGARDING INCORRECTNESS OF TH E ASSESSEE CALCULATION OF EXPENSES INCURRED BY THE ASSESSEE. THE ONUS IS ON T HE REVENUE TO SHOW THAT THE CLAIM MADE BY THE ASSESSEE IS INCORRECT AND THE RE EXIST A DIRECT NEXUS BETWEEN THE EXPENSES AND THE EXEMPT INCOME EARNED B Y THE ASSESSEE. IN ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 32 - SUPPORT OF HIS SUBMISSIONS THE LD AR FOR THE ASSESS EE RELIED ON THE DECISION IN MAXOPP INVESTMENT LTD 402 ITR 640 SC, GODREJ & BOYC E MFG CO. LTD 328 ITR 81 (BOM), HDFC BANK LTD 383 ITR 529 (BOM). 30. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. T HE AO AFTER INVOKING THE PROVISIONS OF RULE 8D MADE DISALLOWANC E OF RS. 14,12,77,945/-, WHICH CONSIST DISALLOWANCE UNDER RU LE 8D(2)(I) OF RS. 53,18,829/- ( SUO MOTO OFFERED BY ASSESSEE), UNDER RULE 8D(2)(II) OF RS. 14,391/- AND RULE 8D(2)(III) OF RS. 13,59,44 ,725/-. WE HAVE NOTED THAT THE ASSESSEE FURNISHED THE WORKING OF SUO MOTO DISALLOWANCE OF RS. 53,18,829/-, WHICH CONSIST OF R S. 35,92,649/- (SALARY OF THE EMPLOYEE WHO IS LOOKING AFTER INVEST MENT FUNCTIONS) AND RS. 17,26,180/- (OVERHEAD EXPENSES OTHER THAN H IS SALARY). THE AO HAS NOT EXAMINED THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. NO REASON AS TO WHY THE AO IS NOT SATISFIED WITH TH E WORKING OF THE ASSESSEE EXCEPT RECORDING THAT THE EXPENSES ARE VER Y MEAGER. THE LD CIT(A) AFTER CONSIDERING THE SUBMISSIONS AND THE MA TERIAL PLACED BEFORE HIM DIRECTED TO DELETE THE DISALLOWANCE INC LUDING THE DISALLOWANCE OF RULE 8D(III). THE LD DR FOR THE REV ENUE FAILED TO BRING ANY MATERIAL IN OUR NOTICE TO TAKE THE OTHER VIEW, NO CONTRARY ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 33 - DECISION IS ALSO BROUGHT TO OUR NOTICE. THUS, WE AF FIRM THE ORDER OF LD CIT(A). IN THE RESULT THIS GROUND OF APPEAL IS D ISMISSED. 31. GROUND NO. 4 IN REVENUES APPEAL RELATES ADVERTISEM ENT EXPENSES. THE LD DR FOR THE REVENUE SUPPORTED THE ORDER OF THE AO. THE LD DR FURTHER SUBMITS THAT THE ASSESSEE INCURRED ADVERTISEMENT EXPENSES OF RS. 32,52,13,873/-. OUT OF TOTAL RS. 32,52,13,873/- AND AMOUNT OF RS. 26,68,2 9,174/- WAS TREATED AS EXPENDITURE OF ENDURING IN NATURE BY AO AND TREATED IT CAPITAL IN NATURE AND ALLOWED DEPRECIATION. THE LD CIT(A) ALLOWED RELIEF BY FOLLOWING EARLIER YEAR ORDER WITHOUT VERIFYING THE FACTS OF THE YEAR UNDER CONSIDERATION. 32. ON THE CONTRARY THE LD AR FOR THE ASSESSEE SUBMITS THAT EXPENDITURE WERE INCURRED IN RESPECT OF ADVERTISEMENT IN NEWS PAPER / MAGAZINE FOR MARKETING OF ITS PRODUCT AND IS ROUTINELY INCURRED FOR ITS BU SINESS AND NOT IN BRAND BUILDING. NO ENDURING BENEFIT IS OCCURRED BY SUCH E XPENSES, WHICH IS REVENUE IN NATURE. 33. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PAR TIES. WE HAVE ALREADY WHILE DISCUSSING THE CROSS APPEAL OF ASSESSEE ON SI MILAR GROUND OF APPEAL AND UPHELD THE ORDER OF LD CIT(A), THEREFORE THIS GROUN D OF APPEAL IS DISPOSED OF ACCORDINGLY. 34. GROUND NO. 5 & 6 OF REVENUES APPEAL RELATES TO DE LETING THE DISALLOWANCE OF COMMISSION TO NON-RESIDENT, FOR THE WANT OF TDS, UN DER SECTION 40(A)(I). THE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 34 - LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF THE A O. THE LD DR FURTHER SUBMITTED THAT THE ASSESSEE WAS EITHER LIABLE TO MA KE TDS OR TO OBTAIN CERTIFICATE UNDER SECTION 195 OF THE ACT. 35. ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE SUBM ITS THAT THIS GROUND OF APPEAL IS COVERED BY THE DECISION OF AY 2009-10. TH E TRIBUNAL IN AY 2009- 10 HAS CATEGORICALLY HELD THAT THE SERVICES WERE RE NDERED OUTSIDE INDIA AND THAT THE AGENTS HAVE NO PERMANENT ESTABLISHMENT (PE ) IN INDIA, THUS , THEIR INCOME WAS NOT LIABLE TO TAX IN INDIA. HENCE, NO DI SALLOWANCE UNDE SECTION 40(A)(I) IS WARRANTED. 36. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. W E HAVE NOTED THAT IN APPEAL FOR AY 2009-10 ON IDENTICAL GROUND OF APP EAL THE TRIBUNAL PASSED THE FOLLOWING ORDER; 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE FACTS ON RECORD CLEARLY REV EAL THAT COMMISSION HAS BEEN PAID TO NONRESIDENT AGENTS LOC ATED IN THEIR RESPECTIVE COUNTRIES TOWARDS SERVICES RENDERE D BY THEM IN THOSE COUNTRIES IN RELATION TO OBTAINING EXPORT CON TRACTS FOR THE ASSESSEE. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO DEMONSTRATE THAT THE NONRESID ENT AGENTS EITHER HAVE ANY BUSINESS CONNECTION IN INDIA OR HAV E PE IN INDIA SO AS TO BRING THE COMMISSION PAYMENT WITHIN THE TA X NET. THE FACTUAL FINDING RECORDED BY LEARNED COMMISSIONER (A PPEALS) THAT ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 35 - THE NONRESIDENT AGENTS HAVE RENDERED THE SERVICES IN THEIR RESPECTIVE COUNTRIES AND DO NOT HAVE EITHER ANY BUS INESS CONNECTION IN INDIA OR ANY PE IN INDIA HAS NOT BEEN CONTROVERTED BY THE REVENUE. FURTHER, THE NATURE OF PAYMENT VIZ. COMMISSION HAS ALSO NOT BEEN DISPUTED BY THE REVENUE. THAT BEI NG THE CASE, SINCE THE COMMISSION PAID TO THE NONRESIDENT AGENT S IS NOT CHARGEABLE TO TAX IN INDIA AT THEIR HANDS, THERE IS NO NECESSITY FOR THE ASSESSEE TO WITHHOLD TAX UNDER SECTION 195( 1) OF THE ACT ON SUCH PAYMENT. ACCORDINGLY, WE UPHOLD THE DECISIO N OF LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE. 37. CONSIDERING THE DECISION OF TRIBUNAL IN APPEAL FOR AY 2009-10 ON IDENTICAL GROUNDS OF APPEAL, WHEREIN NEITHER VARIAT IONS IN FACTS NOR ANY CONTRARY LAW IS BROUGHT TO OUR NOTICE, HENCE, W E UPHOLD THE ORDER OF LD CIT(A) ON THIS GROUND OF APPEAL. IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED. 38. GROUND NO. 7, 8 & 9 RELATES TO METHOD OF COMPUTATI ON OF DEDUCTION UNDER SECTION 10A. THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF AO. THE LD DR FOR THE REVENUE FURTHER SUBMITS TH AT LD CIT(A) MERELY RELIED ON THE ORDERS OF EARLIER YEARS WITHOU T DISCUSSING AND VERIFYING THE RELEVANT FACTS TO THIS YEAR. THE LD D R FOR THE REVENUE PRAYED FOR RESTORING THE ORDER OF THE AO. 39. ON THE CONTRARY THE LD AR FOR THE ASSESSEE RELIED O N THE ORDER OF THE LD CIT(A). THE LD AR FOR THE ASSESSEE SUBMITS THAT THE FIRST ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 36 - APPELLATE AUTHORITY WHILE GRANTING RELIEF TO THE AS SESSEE FOLLOWED THE ORDER FOR AY 2005-06, WHEREBY THE TRIBUNAL FOLLOWED THE ORDER OF BOMBAY HIGH COURT IN CIT VS HCL TECHNOLOGY LTD (404 ITR 719 BOM). THE HIGH COURT IN HCL TECHNOLOGY HELD THAT TH E EXPENSES WHICH ARE TO BE EXCLUDED FROM THE TURNOVER WOULD AL SO BE EXCLUDED FOR THE PURPOSE OF COMPUTING THE TOTAL TURNOVER. TH E LD AR FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF BOMBAY HIGH COURT IN TATA INFOTECH LTD IN ITA NO. 3474 OF 2020. 40. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. W E HAVE ALSO DELIBERATED ON THE CASE LAW REFERRED BY THE LD. AR FOR THE ASSESSEE. WE HAVE NOTED THAT IN APPEAL FOR AY 2009-10 ON IDEN TICAL GROUND OF APPEAL THE TRIBUNAL PASSED THE FOLLOWING ORDER 8. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. NOTABLY, IDENTICAL ISSUE CAME U P FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 200506 (SUPRA). THE TRIBUNAL WHILE DECIDING THE ISSUE HAS HELD THAT FOREIGN CURRENCY EXPENDITUR E HAS TO BE REDUCED BOTH FROM THE EXPORT TURNOVER AS WELL AS TO TAL TURNOVER. THE AFORESAID DECISION OF THE TRIBUNAL HAS BEEN UPH ELD BY THE HON'BLE JURISDICTIONAL HIGH COURT WHILE DECIDING RE VENUES APPEAL FOR THE ASSESSMENT YEAR 200506 IN ITA NO.17 78/ 2016, DATED 18TH MARCH 2019. RESPECTFULLY FOLLOWING THE D ECISION OF ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 37 - THE COORDINATE BENCH AND THE DECISION OF THE HON'B LE JURISDICTIONAL HIGH COURT AS REFERRED TO ABOVE, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THIS ISSUE. GROUND RAISED IS DISMISSED . 41. CONSIDERING THE DECISION OF TRIBUNAL IN APPEAL FOR AY 2009-10 ON IDENTICAL GROUNDS OF APPEAL, WHEREIN NEITHER VARIAT IONS IN FACTS NOR ANY CONTRARY LAW IS BROUGHT TO OUR NOTICE, HENCE, W E UPHOLD THE ORDER OF LD CIT(A) ON THIS GROUND OF APPEAL. IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED. 42. NOW, TURNING TO THE T P ISSUES IN BOTH THE APPEALS . GROUND NO. 5 IN ASSESSEES APPEAL AND GROUND NO.10,11,&12 IN REVENU ES APPEAL RELATES TO PROVISIONS OF CONSULTANCY SERVICES. THE LD DR FOR THE REVENUE SUBMITS THAT THE ASSESSEE PROVIDED CONSULTA NCY SERVICES, DEVELOPS AND IMPLEMENTS PRODUCTS FOR CUSTOMERS ON A LL THE MATTERS COVERING IMPLEMENTATION OF COMPUTER SOFTWARE AND HA RDWARE SOFTWARE SYSTEM, MANAGEMENT AND DATA PROCESSING, IN FORMATION AND DATA COMMUNICATION SYSTEM. THE ASSESSEE HAS SEVERAL SUBSIDIARIES IN INDIA AND ABROAD. THE ASSESSEE HAS RENDERED SOFTWAR E DEVELOPMENT, TECHNICAL AND CONSULTANCY SERVICES TO ITS AE ON THE BASIS OF SPECIFIC REQUEST RECEIVED FROM AES. THE ASSESSEE WHILE MAKIN G BENCHMARKING CONSIDERED ITSELF AS A TESTED PARTY AS LIMITED RISK ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 38 - BEARING SERVICES PROVIDER, WHEREAS THE ACTIVITIES P ERFORMED BY THE AES ARE MORE COMPLEX IN NATURE. THE ASSESSEE ADOPTE D TRANSACTION NET MARGIN METHOD (TNMM) AS MOST APPROPRIATE METHOD . THE ASSESSEE HAD SHOWN ITS PROFIT LEVEL INDICATOR (PLI) ON THE BASIS OF OPERATING PROFIT/ OPERATING COST (OP/OC) AT 36.83%. THE ASSESSEE SELECTED 12 COMPARABLE COMPANIES WITH WEIGHTED AVER AGE PLI OF 12.13%. THE ASSESSEE CLAIMED MARGIN EARNED FROM THE AES AT 30.38% TO NET MARGIN EARNED FROM BOTH AES AND NON-A ES. THE TPO NOT ACCEPTED THE PLI OF THE ASSESSEE AND ASSESSEE A S A TESTED PARTY. WHILE DOING SO THE TPO HELD THAT THE COST INCURRED BY THE AES ON THE PAYMENT OF PRICE TO ASSESSEE ARE IN THE NATURE OF PAST THROUGH COST. THE TPO HELD THAT THE PLI TO COMPUTE THE MARG IN WOULD BE OPERATING PROFIT/ VALUE ADDED EXPENDITURE (OP/VAE). THE TPO AFTER SELECTING SOME OF THE COMPARABLE PROCEEDED TO COMPU TE THE ADJUSTMENT AND SUGGESTED ADJUSTMENT OF RS. 1132.7 C RORE. THE LD CIT(A) ALLOWED RELIEF TO THE ASSESSEE BY FOLLOWING THE ORDER OF CIT(A) FOR AY2009-10 AND ALSO DIRECTED TO ACCEPT TH E COMPARABLE SELECTED IN AY2009-10. THE LD DR IN HIS WRITTEN SUB MISSIONS SUBMITS THAT THE REVENUES GROUND OF APPEAL ARE BASI CALLY AGAINST THE DECISION OF LD CIT(A) ON PLI TO BE APPLIED, CONSIDE RATION OF COST ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 39 - INCURRED BY THE AES. CONSIDERING AES IN DIFFERENT GEOGRAPHICAL LOCATION AS TESTED PARTIES ALONG WITH THE COMPARABL E COMPANIES IN THOSE GEOGRAPHICAL LOCATIONS. THE LD DR FOR THE REV ENUE SUBMITS THAT OP/VAE IS THE MOST APPROPRIATE BASIS FOR PLI, CONSIDERING THE FUNCTIONS UNDERTAKEN ASSET APPLIED AND THE RISK ASS UMED (FAR) ANALYSIS OF THE ASSESSEE AS WELL AS AES. 43. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUPPO RTED THE ORDER OF LD CIT(A). THE LD AR FOR THE ASSESSEE SUBMITS THAT LD DR TRIED TO MAKE ATTEMPT TO FIND FAULT WITH THE ORDER OF CIT(A) IN AY 2009-10. THE ORDER LD CIT(A) FOR AY 2009-10 WAS DULY EXAMINE D BY TRIBUNAL AND UPHELD THE SAME IN A DETAILED AND REAS ONED ORDER. THUS, THE GROUNDS OF APPEAL RAISED BY THE REVENUE A RE NOW SQUARELY COVERED BY THE DECISION OF TRIBUNAL FOR AY 2009-10. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITS THAT IN CASE THE GROUN DS OF APPEALS RAISED BY THE REVENUE ARE DISMISSED, THE ADJUDICATI ON ON THE GROUNDS OF APPEAL IN ASSESSEES APPEAL WOULD BECOME ACADEMI C. 44. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. W E HAVE ALSO DELIBERATED ON THE DECISION OF TRIBUNAL IN AY 2009- 10. DURING THE TP ASSESSMENT PROCEEDING THE TPO REJECTED THE BASIS OF THE PLI ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 40 - SHOWN BY THE ASSESSEE BY TAKING VIEW THAT THE COST INCURRED BY THE AES ON THE PAYMENT OF PRICE TO ASSESSEE ARE IN THE NATURE OF PAST THROUGH COST. THE TPO HELD THAT THE PLI TO COMPUTE THE MARGIN WOULD BE OPERATING PROFIT/ VALUE ADDED EXPENDITURE (OP/VAE). THE LD CIT(A) GRANTED RELIEF TO THE ASSESSEE BY FOLLOWI NG THE ORDER OF HIS PREDECESSOR/ LD CIT(A) FOR AY 2009-10. WE HAVE NOTED THAT THE ORDER OF LD CIT(A) FOR AY 2009-10 HAS BEEN AFFIRMED BY THE TRIBUNAL BY PASSING THE FOLLOWING ORDER; 20. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND T O THE DECISIONS RELIED UPON. FROM THE GROUNDS RAISED BY T HE REVENUE, THE FOLLOWING THREE ISSUES ARISE FOR CONSIDERATION (I) WHAT SHOULD BE THE APPROPRIATE PLI; (II) WHETHER COST OF OUTSOURCING / SUBCONTRACTING TO THE TCS SHOULD BE CONSIDERED FOR COMPUTING THE MARGIN; AND (III) WHETHER THE ALTERNATIVE BENCH MARKING FURNISHED BY THE ASSESSEE BY TREATING THE AES AS TE STED PARTY WITH COMPARABLES IN THE SAME GEOGRAPHICAL LOCATIONS IS ACCEPTABLE. ON A CAREFUL PERUSAL OF THE FACTS ON RE CORD AS WELL AS SUBMISSIONS OF THE LEARNED COUNSEL FOR THE PARTI ES IN THE COURSE OF HEARING AS WELL AS IN THE WRITTEN NOTE, W E ARE OF THE VIEW THAT THE DECISION OF LEARNED COMMISSIONER (APP EALS) ON THE AFORESAID ISSUES ARE UNASSAILABLE. AS REGARDS T HE ISSUE OF APPROPRIATE PLI, WE ARE OF THE VIEW THAT CONSIDERIN G THE NATURE OF ACTIVITY PERFORMED BY THE ASSESSEE AS WELL AS TH E AES, IT CANNOT BE SAID THAT THE A.ES ARE NOT BEARING ANY RI SK. RATHER THE FACTS ON RECORD REVEAL THAT THE AES PERFORMED T HE ROLE OF ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 41 - RISK BEARING DISTRIBUTORS. IT IS WELL BROUGHT OUT B Y LEARNED COMMISSIONER (APPEALS) IN HIS ORDER THAT THE AES AR E BEARING CREDIT RISK AND RISK OF DEFAULT BY CLIENT. IN FACT, THE ASSESSEE THROUGH PROPER EVIDENCES HAS DEMONSTRATED INSTANCES WHERE THE CREDIT RISK WITH REFERENCE TO PART CANCELLATION OF CONTRACT HAS BEEN BORNE BY THE AES WITHOUT COMPENSATION FROM THE ASSESSEE. THE DOCUMENTARY EVIDENCES IN THIS REGARD FURNISHED BY THE ASSESSEE WERE THOROUGHLY EXAMINED NOT ONLY B Y LEARNED COMMISSIONER (APPEALS) BUT THEY WERE ALSO PRODUCED BEFORE US. THUS, FROM THE AFORESAID FACTS, IT BECOMES CLEAR TH AT SIGNIFICANT MARKETING FUNCTIONS ARE BEING PERFORMED AND DISTRIB UTION AND MARKETING RISK ARE BEING TAKEN BY THE AES. ON EXAMI NATION OF THE FINANCIALS OF THE SUBSIDIARIES IT IS REVEALED T HAT SOME SUBSIDIARIES ARE STILL MAKING LOSS AT NET LEVEL WHI CH SIGNIFIES THAT SOME RISK IS BEING BORNE BY THE AES. IT HAS FURTHER BEEN BROUGHT ON RECORD THAT THE MANPOWER BASE OF AES PER FORMED VARIOUS FUNCTIONS RELATING TO MARKETING AS WELL AS CLIENT CO ORDINATION. THE AES HAVE DEVELOPED SUFFICIENT COMPE TENCY TO HANDLE THE MARKETING WORK INDEPENDENTLY. THE ENTIRE CONTRACT RELATED WORK IS PERFORMED BY THE AES, THOUGH, IN CO OPERATION WITH THE ASSESSEE. THUS, IT IS QUITE NATURAL THAT F OR BEING A SUFFICIENTLY MOTIVATED WORK FORCE, THE AES ARE COMP ENSATED AT RETURN ON SALES AND NOT MERELY ON VALUE ADDED COSTS . THEREFORE, LEARNED COMMISSIONER (APPEALS) WAS JUSTIFIED IN DIR ECTING THE TRANSFER PRICING OFFICER TO ADOPT THE PLI OF GROSS MARGIN ON SALES. AS REGARDS CONSIDERATION BY THE TRANSFER PRI CING OFFICER, THE OUTSOURCING / SUB CONTRACTING COST TO ASSESSEE AS A PASS THROUGH COST, LEARNED COMMISSIONER (APPEALS) WAS AB SOLUTELY CORRECT IN OBSERVING THAT THE DECISION OF THE TRANS FER PRICING ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 42 - OFFICER TO EXCLUDE SUCH COSTS WHILE COMPUTING THE M ARGIN OF THE AES IS INCORRECT. WHEN SIMILAR COST INCURRED BY THE COMPARABLES WERE NOT EXCLUDED WHILE COMPUTING THEIR MARGIN, A D IFFERENT TREATMENT CANNOT BE GIVEN TO SUCH COSTS IN CASE OF THE AES. CERTAINLY, THE AFORESAID APPROACH OF THE TRANSFER P RICING OFFICER HAS RESULTED IN DISTORTING THE CORRECT PLI OF THE A ES. IN THE AFORESAID CONTEXT, THE OBSERVATIONS OF LEARNED COMM ISSIONER (APPEALS) ARE APPRECIABLE, WHEREIN, HE HAS OBSERVED THAT THE PLI OF THE AES AND PLI OF COMPARABLES HAVE NOT BEEN COMPUTED ON SIMILAR LINES BY THE TRANSFER PRICING OFFICER, H ENCE, COMPARABILITY CONDITION FAILS. IT IS FURTHER RELEVA NT TO OBSERVE, THE ALTERNATIVE BENCHMARKING FURNISHED BY THE ASSES SEE BEFORE THE TRANSFER PRICING OFFICER BY CONSIDERING THE AES IN DIFFERENT GEOGRAPHIC LOCATIONS AS TESTED PARTIES WITH THE COM PARABLES SELECTED ON THE BASIS OF THE RESPECTIVE GEOGRAPHIC LOCATIONS FURNISHED BEFORE THE TRANSFER PRICING OFFICER WERE NOT PROPERLY CONSIDERED. HOWEVER, IN COURSE OF APPEAL PROCEEDING S, THE LEARNED COMMISSIONER (APPEALS) EXAMINED THEM IN DET AIL AND AFTER A DETAILED ANALYSIS APPROVED SOME COMPARABLES SELECTED BY THE ASSESSEE AND ALSO ADDED SOME NEW COMPARABLES . WHEREAS, THE COMPARABLE SELECTED BY THE TRANSFER PR ICING OFFICER WERE NOT ON THE BASIS OF ANY DETAILED SEARC H PROCESS. AT LEAST, NO SUCH ANALYSIS IS EITHER FORTHCOMING FROM THE ORDER OF THE TRANSFER PRICING OFFICER OR COULD BE BROUGHT TO OUR NOTICE BY LEARNED DEPARTMENTAL REPRESENTATIVE. ON THE CONTRAR Y, ON A THOROUGH AND CAREFUL READING OF THE IMPUGNED ORDER OF LEARNED COMMISSIONER (APPEALS), WE ARE OF THE VIEW THAT LEA RNED COMMISSIONER (APPEALS) HAS TAKEN PAINS TO EXAMINE I N DETAIL THE ALTERNATIVE BENCHMARKING DONE BY THE ASSESSEE W ITH FOREIGN ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 43 - COMPARABLES AND AFTER DETAILED ANALYSIS HAS SHORTLI STED THE FINAL COMPARABLES TO BE CONSIDERED FOR COMPARABILITY ANAL YSIS. NO CONVINCING ARGUMENT OR EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE LEARNED DEPARTMENTAL REPRESENTATIVE TO PERSU ADE US TO DISTURB THE FINDING OF LEARNED COMMISSIONER (APPEAL S) ON THESE ISSUES. IN VIEW OF THE AFORESAID, WE DO NOT FIND AN Y MERIT IN THE GROUNDS RAISED BY THE REVENUE ON THE ISSUES. ACCORD INGLY, GROUNDS ARE DISMISSED. 45. CONSIDERING THE DECISION OF TRIBUNAL IN APPEAL FOR AY 2009-10 ON IDENTICAL GROUNDS OF APPEAL, WHEREIN ALL THE CONTEN TIONS AS RAISED BY THE LD DR FOR THE REVENUE BEFORE US, HAS BEEN CONSI DERED BY THE TRIBUNAL, WHILE AFFIRMING THE ORDER OF LD CIT(A). N O VARIATION IN FACTS NOR ANY CONTRARY LAW IS BROUGHT TO OUR NOTICE , HENCE, WE UPHOLD THE ORDER OF LD CIT(A) ON THIS GROUND OF APP EAL. IN THE RESULT THIS GROUND OF APPEALS RAISED BY REVENUE ARE DISMIS SED. 46. FURTHER CONSIDERING THE SUBMISSIONS OF THE LD AR FO R THE ASSESSEE THAT IN CASE THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED, THE GROUND OF APPEAL RAISED BY THE ASSESSEE WOULD NEED NO ADJUDICATION. ACCORDINGLY, THE DISCUSSION ON THE GROUND OF APPEAL RAISED BY ASSESSEE HAS BECOME ACADEMIC. IN THE RESULT THE GRO UNDS OF APPEAL OF REVENUE ARE DISMISSED AND THE GROUNDS OF APPEAL RAISED BY ASSESSEE HAVE BECOME INFRACTIOUS. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 44 - 47. GROUND NO. 7 IN ASSESSEES APPEAL AND GROUND NO. 1 3 TO 16 IN REVENUES APPEAL RELATES TO CORPORATE GUARANTEE COM MISSIONS/ FEE. THE LD. DR FOR THE REVENUE SUBMITS THAT DURING THE RELEVANT PERIOD THE ASSESSEE PROVIDED VARIOUS GUARANTEES SUCH AS PE RFORMANCE, FINANCIAL AND OTHER GUARANTEES TO ITS AES WITHOUT C HARGING ANY COMMISSIONS. IN TPSR THE ASSESSEE NOT BENCHMARKED T HESE TRANSACTIONS. THE GUARANTEE PROVIDED BY THE ASSESSE E ON BEHALF OF ITS AES IS SERVICES RENDERED AND WOULD FALL WITHIN THE MEANING OF INTERNATIONAL TRANSACTION AS DEFINED UNDER SECTION 92B OF THE ACT. THE TPO BENCHMARKED THE GUARANTEE COMMISSIONS @ 1.7 5% ON THE BASIS OF INFORMATION RECEIVED FROM STATE BANK OF IN DIA. AND ON FINANCIAL GUARANTEE THE TPO CHARGED COMMISSION @ 3% PER ANNUM. THE LD CIT(A) REDUCED THE GUARANTEES COMMISSIONS B Y FOLLOWING THE ORDER OF CIT(A) FOR AY 2009-10. THE FINANCIAL G UARANTEE COMMISSIONS WERE REDUCED TO 0.77% PER ANNUM AND PER FORMANCE GUARANTEE COMMISSIONS TO 1.14% PER ANNUM. ON FURTHE R APPEAL TO TRIBUNAL BOTH THE GUARANTEE COMMISSIONS WERE RESTRI CTED TO 0.5% PER ANNUM BY FOLLOWING THE DECISIONS OF COORDINATE BENCH AND BOMBAY HIGH COURT IN EVEREST KANTO CYLINDER (2015) 58 TAXMANN.COM 254 (BOM). THE LD DR FURTHER SUBMITTED THAT THE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 45 - DECISION OF TRIBUNAL IN AY 2009-10 AND BOMBAY HIGH COURT IN EVEREST KANTO CYLINDER (SUPRA) IS NOT ACCEPTABLE TO HIM AS SUCH RATE IS DECIDED ON THE BASIS OF FACTS FOR 2008-09, IT CA NNOT BE TAKEN AS UNIVERSAL RATE TO BE APPLIED IN ALL THE CASES AND F OR SUBSEQUENT YEARS. FURTHER THE CASE LAW DOES NOT DEAL WITH THE PERFORMANCE/ LEASE GUARANTEE BUT DEAL WITH FINANCIAL GUARANTEE. 48. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUBMI TS THAT THESE GROUNDS OF APPEAL ARE COVERED BY THE DECISION OF TR IBUNAL IN AY 2009-10, WHEREIN THE TRIBUNAL FOLLOWED THE DECISION OF BOMBAY HIGH COURT IN EVEREST KANTO CYLINDERS (SUPRA) AND C OORDINATE BENCH IN WNS GLOBAL SERVICES (P) LTD VS ITO [2019] 103 TA XMANN.COM 75 AND DIRECTED THE AO TO CHARGE GUARANTEE COMMISSION @ 0.5% PER ANNUM FOR PERFORMANCE OF LEASE AS WELL AS FINANCIAL GUARANTEE. THE LD AR FOR THE ASSESSEE FURTHER SUBMITS THAT THE GUA RANTEE WHETHER GRANTED FOR PERFORMANCE OR LEASE OR FINANCIAL LEASE ARE ALL EFFECTIVELY IN THE NATURE OF FINANCIAL GUARANTEE ON LY. THE LD AR FOR THE ASSESSEE FURTHER SUBMITTED THAT GROUND NO. 13 O F REVENUES APPEAL IS SIMILAR TO THE GROUND NO.11RAISED BY REVE NUE IN APPEAL FOR 2009-10. THE GROUND RELATES TO THE DECISION OF CIT( A) IN RESTRICTING THE CHARGE OF GUARANTEE COMMISSION ONLY ON 34% I.E. ONSITE PORTION ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 46 - OF THE CONTRACT WHICH WAS PERFORMED BY AES. THE REV ENUE HAS WRONGLY MENTIONED 48% IN PLACE OF 34% WHICH IS CORR ECT PERCENTAGE OF ONSITE WORK IN 2010-11 AS AGAINST 48% IN AY 2009 -10. THE CIT(A) FOLLOWED THE SAME APPROACH AS IN AY 2009-10 AND HELD THAT THE ASSESSEE CANT BE CHARGED BY ANY GUARANTEE COMM ISSION ON THE PORTION OF WORK PERFORMED BY ASSESSEE ITSELF. THE S AID GROUND OF REVENUE WAS DISMISSED IN AY 2009-10. 49. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. W E HAVE ALSO DELIBERATED ON THE DECISION OF TRIBUNAL IN AY 2009- 10. WE HAVE NOTED THAT AS PER PARA 13 OF TPSR, THE ASSESSEE NOT BENCHMARKED THE TRANSACTIONS OF CORPORATE GUARANTEES COMMISSIONS. T HE TPO AFTER SERVING THE SHOW CAUSE NOTICE AND CONSIDERING THE R EPLY OF THE ASSESSEE CONCLUDED THAT THE GUARANTEE PROVIDED BY T HE ASSESSEE ON BEHALF OF ITS AES WOULD FALL WITHIN THE MEANING OF INTERNATIONAL TRANSACTION AS DEFINED UNDER SECTION 92B OF THE ACT . THE TPO BENCHMARKED THE GUARANTEE COMMISSIONS @ 1.75% ON TH E BASIS OF INFORMATION RECEIVED FROM STATE BANK OF INDIA. AND ON FINANCIAL GUARANTEE THE TPO CHARGED COMMISSION @ 3% PER ANNUM AND SUGGESTED ADJUSTMENT OF RS.38.47 CRORE. THE LD CIT( A) REDUCED THE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 47 - GUARANTEES COMMISSIONS BY FOLLOWING THE ORDER OF CI T(A) FOR AY 2009-10. THE FINANCIAL GUARANTEE COMMISSIONS WERE R EDUCED TO 0.77% PER ANNUM AND PERFORMANCE GUARANTEE COMMISSIO NS TO 1.14% PER ANNUM. WE HAVE SEEN THAT ON SIMILAR GROUNDS R ELATED TO THE ISSUE OF VARIOUS CORPORATE GUARANTEES THE TRIBUNAL IN AY 2009-10 PASSED THE FOLLOWING ORDER; 43. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND T O THE DECISIONS RELIED UPON. INSOFAR AS THE CONTENTION OF LEARNED SR. COUNSEL FOR THE ASSESSEE THAT PROVISION OF GUARANTE E IS NOT AN INTERNATIONAL TRANSACTION AS PER SECTION 92B OF THE ACT, WE ARE UNABLE TO ACCEPT SUCH CONTENTION. IN OUR CONSIDERED OPINION, AFTER INTRODUCTION OF EXPLANATION(I)(C) TO SECTION 92B OF THE ACT, WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002, PROVISION OF GUARANTEE TO AES HAS TO BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. DIFFERENT BENCHES OF THE TRIBUNAL HAVE ALSO EXPRESSED SIMILAR VIEW ON THE ISSUE. THEREFORE, WE HOLD THAT THE PROVISION OF GUARANTEE TO THE AES IS AN INTERNATION AL TRANSACTION. IN FACT, THE AFORESAID VIEW HAS BEEN E XPRESSED BY THE COORDINATE BENCH IN WNS GLOBAL SERVICES PVT. L TD. (SUPRA). THEREFORE, FOLLOWING THE AFORESAID DECISIO N OF THE CO ORDINATE BENCH AND THE DECISION OF THE HON'BLE JURI SDICTIONAL HIGH COURT IN EVEREST CANTO CYLINDERS LTD. (SUPRA), WE DIRECT THE ASSESSING OFFICER TO CHARGE GUARANTEE COMMISSIO N @ 0.5% PER ANNUM BOTH ON PERFORMANCE / LEASE GUARANTEE AS WELL AS FINANCIAL GUARANTEE. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 48 - 50. ON THE BASIS OF AFORESAID FACTUAL DISCUSSION AND CO NSIDERING THE DECISION OF TRIBUNAL IN APPEAL FOR AY 2009-10 ON ID ENTICAL GROUNDS OF APPEAL, WHEREIN ALL THE CONTENTIONS HAS BEEN CON SIDERED BY THE TRIBUNAL, WHILE AFFIRMING THE ORDER OF LD CIT(A). N O VARIATION IN FACTS NOR ANY CONTRARY LAW IS BROUGHT TO OUR NOTICE , HENCE, WE UPHOLD THE ORDER OF LD CIT(A) ON THIS GROUND OF APP EAL. IN THE RESULT THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DI SMISSED AND THE GROUND OF APPEAL RAISED BY ASSESSEE IS PARTLY ALLOW ED. 51. GROUND NO. 17 IN REVENUES APPEAL AND GROUND NO. 6 IN ASSESSEES APPEAL RELATES TO TP ADJUSTMENT ON ACCOUNT OF INTER EST FREE LOANS TO AES. THE LD DR FOR THE REVENUE SUBMITS THAT DURING THE TP PROCEEDINGS, THE TPO NOTED THAT THE ASSESSEE PROVID ED LOAN TO ITS AES WITHOUT CHARGING ANY INTEREST. ON SHOW CAUSE, T HE ASSESSEE CONTENDED THAT THESE ARE QUASI CAPITAL. THE TPO AFT ER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE SUGGESTED ADJUSTMEN T ON ACCOUNT OF THESE LOANS BY CHARGING INTEREST @11% PER ANNUM AND SUGGESTED ADJUSTMENT OF RS. 41.04 CRORE. THE LD CIT(A) GRANT ED PARTIAL RELIEF TO THE ASSESSEE BY REDUCING THE RATE OF INTEREST TO LIBOR PLUS 300 BPS BY FOLLOWING THE ORDER FOR AY 2009-10. THE TRIB UNAL IN AY 2009-10 RESTORED THE ISSUE TO THE FILE OF AO FOR DE NOVO ADJUDICATION ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 49 - AS PER THE RATIO IN CASE OF DLF HOTELS HOLDINGS LTD (ITA NO. 6336/DELHI/2012 DATED 30.06.206). THE LD. DR FOR TH E REVENUE SUBMITS THAT FOLLOWING THE ORDER OF TRIBUNAL THESE ISSUES MAY BE RESTORED TO THE FILE OF AO WITH SIMILAR DIRECTION. 52. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUBMI TS THAT SO FAR AS ISSUE RELATED WITH TP ADJUSTMENT ON ACCOUNT OF THE INTERE ST FREE LOANS TO AES ARE CONCERNED, THE LD DR HAS NOT GIVEN ANY COMMENTS. TH E TRIBUNAL IN APPEAL FOR AY 2009-10 HAS RESTORED THE SIMILAR ISSUE TO TH E FILE OF AO. THE ASSESSEE PRAYS THAT THIS ISSUE MAY BE RESTORED TO AO WITH SI MILAR DIRECTION AND THEY MAY BE GIVEN OPPORTUNITY OF HEARING BEFORE PASSING THE ORDER IN THIS YEAR AS WELL. SO FAR AS ISSUE RELATED WITH THE ADJUSTMENT ON ACCOUNT OF SUBSCRIPTIONS OF EQUITY SHARES OF AE IS CONCERNED, THE LD CIT(A) HAS FOLLOWED THE DECISION OF JURISDICTION HIGH COURT IN VODAFONE INDIA SERVIC ES (P) LTD VS UOI [2014] 50 TAXMANN.COM 300(BOM.) AND HELD THAT SHARE SUBSCR IPTION IS A CAPITAL SUBSCRIPTION IS A CAPITAL ACCOUNT TRANSACTION, THER EFORE, NO TRANSFER PRICING ADJUSTMENT IS WARRANTED ON SUCH TRANSACTIONS. THE DECISION OF BOMBAY HIGH COURT HAS BEEN ACCEPTED BY THE GOVERNMENT OF INDIA AS PER ITS PRESS RELEASE DATED 28 TH JANUARY 2015. 53. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. W E HAVE ALSO ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 50 - DELIBERATED ON THE DECISION OF TRIBUNAL IN AY 2009- 10. SO FAR AS ISSUE RELATED WITH THE ADJUSTMENT ON INTEREST FREE LOAN TO AES IS CONCERNED, THE SIMILAR ISSUE IN AY 2009-10, HAS BEE N RESTORED BY TRIBUNAL TO THE FILE OF AO WITH THE FOLLOWING ORDER ; 37. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. WE HAVE ALSO CAREFULLY GONE THR OUGH THE CASE LAW CITED BEFORE US. NOTABLY, RIGHT FROM THE S TAGE OF TRANSFER PRICING PROCEEDING ITSELF THE ASSESSEE HAS TAKEN A STAND THAT LOANS AND ADVANCES TO THE AES ARE IN THE NATUR E OF QUASI EQUITY, HENCE, CANNOT BE TREATED AS LOAN SIMPLICITE R. IT IS RELEVANT TO OBSERVE, THE TRANSFER PRICING ADJUSTMEN T MADE ON ACCOUNT OF INTEREST IS IN RESPECT OF LOANS ADVANCED TO FOUR OVERSEAS AES. FROM THE DETAILS AVAILABLE ON RECORD, IT IS NO TICED THAT MAJOR PORTION OF LOANS ADVANCED TO TCS IBERO A MERICA, IS FOR ACQUISITION OF DOWNSTREAM SUBSIDIARY AND ABOUT 20% OF THE ADVANCE WAS FOR WORKING CAPITAL. MONEY ADVANCED TO TCS FNS PTY. LTD., AUSTRALIA, WAS PURELY FOR ACQUISITION OF DOWNSTREAM SUBSIDIARY. SIMILARLY, ADVANCE TO TCS ASIA PACIFIC PTY. LTD., IS FOR ACQUISITION OF DOWNSTREAM SUBSIDIARY. ONLY THE ADVA NCE MADE TO TCS MOROCCO IS FOR WORKING CAPITAL REQUIREMENT. IT IS FURTHER NOTED, MAJOR PART OF ADVANCES MADE TO TCS IBERO AME RICA, TCS FNS PTY. LTD. AND TCS MOROCCO HAVE BEEN CONVERTED T O EQUITY SUBSEQUENTLY. IT IS ALSO A FACT ON RECORD THAT BEFO RE LEARNED COMMISSIONER (APPEALS), THE ASSESSEE HAS FILED A DE TAILED WRITTEN SUBMISSION ON 27TH MARCH 2014, ELABORATELY DISCUSSING THE NATURE OF ADVANCE MADE TO THE AES AND THE PURPO SE FOR WHICH SUCH ADVANCES WERE MADE. IT WAS SUBMITTED BY THE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 51 - ASSESSEE THAT THE ADVANCES MADE TO THE AES WERE AS A PART OF BUSINESS STRATEGY AND NOT SIMPLY TO HELP THE AES WI TH CAPITAL INFUSION. THE ASSESSEE HAS ADVANCED DETAILED ARGUME NT STATING THAT ADVANCES MADE TO THE AES IS A SHAREHOLDER ACTI VITY AND NOT ADVANCEMENT OF LOAN. IN THIS CONTEXT, THE ASSESSEE HAS REFERRED TO OECD TRANSFER PRICING GUIDELINES AS WELL AS UK A ND AUSTRALIAN REGULATIONS. IT IS EVIDENT FROM THE IMPU GNED ORDER OF THE LEARNED COMMISSIONER (APPEALS), THOUGH, HE SKET CHILY REFERRED TO SOME OF THE SUBMISSIONS MADE BY THE ASS ESSEE, HOWEVER, HE HAS NOT AT ALL DEALT WITH THEM IN AN EF FECTIVE MANNER. THE LEARNED COMMISSIONER (APPEALS), THOUGH, HAS OBSERVED THAT THE LOANS ADVANCED WERE NOT MERELY FO R DOWNSTREAM ACQUISITION BUT FOR A VARIETY OF PURPOSE INCLUDING WORKING CAPITAL REQUIREMENT AND OTHER BUSINESS USES , HOWEVER, HE HAS NOT ELABORATED AS TO FOR WHAT OTHER PURPOSE LOANS WERE ADVANCED. WITHOUT PROPERLY DEALING WITH THE FACTUAL ASPECT OF THE ISSUE, LEARNED COMMISSIONER (APPEALS) HAS JUMPE D TO THE LEGAL ASPECT AND HAS HELD THAT THE AMOUNT ADVANCED BY THE ASSESSEE IS IN THE NATURE OF LOAN AND HAS TO BE BEN CHMARKED AS SUCH. AFTER CONSIDERING THE SUBMISSIONS OF THE PART IES AND EXAMINING THE MATERIAL ON RECORD, WE ARE CONVINCED THAT VARIOUS SUBMISSIONS MADE BY THE ASSESSEE BEFORE LEA RNED COMMISSIONER (APPEALS) HAVE NOT AT ALL BEEN DEALT W ITH. THE PRIMARY CONTENTION OF THE ASSESSEE THAT THE ADVANCE MADE TO THE AES IS IN THE NATURE OF QUASI EQUITY AND FALLS WITHIN SHAREHOLDERS ACTIVITY HAS NOT BEEN PROPERLY ADDRES SED BY THE DEPARTMENTAL AUTHORITIES KEEPING IN VIEW THE RATIO LAID DOWN IN THE RELEVANT CASE LAWS. IT ALSO REQUIRES DELIBERATI ON WHETHER IT CAN BE CONSIDERED AS AN INTERNATIONAL TRANSACTION U NDER SECTION ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 52 - 92B R/W EXPLANATION1(C). SINCE, THE AFORESAID LEGA L AND FACTUAL ASPECTS HAVE NOT BEEN CONSIDERED PROPERLY, WE ARE I NCLINED TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFI CER FOR DE NOVO ADJUDICATION AFTER DUE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. THE ASSESSING OFFICER MUST EXAMINE ALL RE LEVANT FACTS TO FIND OUT THE EXACT NATURE OF THE ADVANCES MADE T O THE AES. HE SHOULD ALSO EXAMINE THE APPLICABILITY OF THE RAT IO LAID DOWN IN THE CASE OF DLF HOTEL HOLDINGS LTD. (SUPRA) AND ANY OTHER CASE LAWS WHICH MAY BE CITED BEFORE HIM. THE ASSESS EE MUST BE AFFORDED REASONABLE OPPORTUNITY OF BEING HEARD. GRO UND IS ALLOWED FOR STATISTICAL PURPOSES. 54. CONSIDERING THE ORDER OF THE TRIBUNAL IN AY 2009-1 0, THE GROUND NO. 6 IN REVENUES APPEAL IS RESTORED TO THE FILE OF AO WITH SIMILAR DIRECTION. NO DOUBT THE AO BEFORE PASSING THE ORDER AFRESH SHALL GRANT OPPORTUNITY OF HEARING TO THE ASSESSEE. 55. NOW ADVERTING TO THE ISSUES RAISED BY THE REVENUE IN ITS APPEAL WITH REGARD TO EXCESSIVE VALUATION PAID FOR SHARES OF AE . THE LD AR FOR THE ASSESSEE VEHEMENTLY SUBMITTED BEFORE US THAT THE LD CIT(A) WHILE GRANTING RELIEF TO THE ASSESSEE HAS FOLLOWED THE DE CISION OF JURISDICTION HIGH COURT IN VODAFONE INDIA SERVICES (P) LTD VS UOI [20 14] 50 TAXMANN.COM 300 (BOM.) WHEREIN IT WAS HELD THAT SHARE SUBSCRIPT ION IS A CAPITAL SUBSCRIPTION IS A CAPITAL ACCOUNT TRANSACTION, THER EFORE, NO TRANSFER PRICING ADJUSTMENT IS WARRANTED ON SUCH TRANSACTIONS. WE HA VE NOTED THAT THE LD ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 53 - CIT(A) IN HIS ORDER HAS RELIED ON THE ORDER OF BOMB AY HIGH COURT IN VODAFONE INDIA SERVICES (SUPRA) AND CBDT INSTRUCTIO N NO. 5/2015 ACCEPTING THE ORDER OF BOMBAY HIGH COURT. NO CONTRARY FACTS O R LAW IS BROUGHT TO OUR NOTICE TO DEVIATE FROM THE ORDER OF LD CIT(A) IS BR OUGHT TO OUR NOTICE, HENCE, WE AFFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. RES ULTANTLY THE GROUND OF APPEAL RAISED BY THE REVENUE IS DISMISSED. 56. LAST ISSUE IN ASSESSEES APPEAL LEFT FOR ADJUDICATI ON RELATES TO LEGAL ISSUES WITH REGARD TO REFERENCE TO TPO WITHOUT PROPER APPLICATI ON OF MIND, NO INTENTION OF SHIFTING OF PROFIT ETC THAT IS GROUND NO. 4. CON SIDERING THE FACTS THAT ALL TRANSFER PRICING GROUNDS OF APPEAL ARE BASICALLY DE CIDED IN FAVOUR OF THE ASSESSEE, THUS, IN OUR VIEW THE DISCUSSIONS ON THIS (THESE) GROUND OF APPEAL HAVE BECOME ACADEMIC. 57. IN THE RESULT, APPEAL OF THE ASSESSEE AS WELL AS RE VENUE BOTH ARE PARTLY ALLOWED. (APPEALS FOR AY 2008-09 BEING ITA NO. 3263/M/2017 B Y ASSESSEE ITA NO. 3746/M/2017 BY REVENUE) 58. AT THE OUTSET OF HEARING THE LD. AR FOR THE ASSESS EE SUBMITS THAT ALL THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS WELL AS BY REVENUE ARE IDENTICAL TO THE GROUNDS OF APPEAL RAISED BY THEM IN AY 2010-11. THE LD. AR FOR THE ASSESSEE FILED HIS SHORT WRITTEN SYNOPSIS; HOWEVER, THE LD. DR ADOPTED THE SIMILAR SUBMISSIONS AS SUBMITTED IN AY 2010-11. GRO UND NO. 1&2 IN ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 54 - ASSESSEES APPEAL RELATES TO THE DISALLOWANCE OF ST ATE TAX AND INTEREST PAID IN OVERSEAS COUNTRIES. WE HAVE NOTED THAT PART OF THI S GROUND OF APPEAL SO FAR AS IT RELATES TO THE DISALLOWANCE OF STATE TAXES IS CO NCERNED, IS IDENTICAL TO THE GROUND NO.1 IN APPEAL FOR AY 2010-11, WHICH WE HAVE ALLOWED IN PRECEDING PARAS OF THIS ORDER BY FOLLOWING THE ORDER FOR AY 2 009-10. THUS, FOLLOWING THE PRINCIPLES OF CONSISTENCY THIS PART OF GROUND O F APPEAL IS ALLOWED WITH SIMILAR DIRECTIONS. 59. SO FAR AS DISALLOWANCE OF INTEREST PAID IN OVERSEAS COUNTRIES IS CONCERNED, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE PAYMENT S MADE ON ACCOUNT OF INTEREST IN DELAY IN PAYMENTS OF FEDERAL OR STATE T AXES OVERSEAS WHICH IS COMPENSATORY IN NATURE SHOULD BE ALLOWED AS BUSINES S EXPENDITURE UNDER SECTION 37(1). CONSIDERING THE SUBMISSIONS OF THE L D AR FOR THE ASSESSEE, WE ARE OF THE VIEW THAT THE GENERAL PRINCIPLE OF ALLOWABILITY THAT THE EXPENDITURE CANNOT BE OVERLOOKED AND THAT THE ACCEPTED PRINCIPL E IS THAT ONLY THOSE EXPENDITURE CAN BE ALLOWED WHICH ARE ATTRIBUTABLE T O THE BUSINESS ACTIVITY AS WELL AS LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PUR POSES OF THE BUSINESS. THUS, WE DIRECT THE AO TO ALLOW THE INTEREST ON DEL AYED PAYMENT OF STATE TAX OR FEDERAL TAXES BEING COMPENSATORY IN NATURE. IN T HE RESULT THESE GROUNDS OF APPEAL ARE ALLOWED. ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 55 - 60. GROUND NO. 3 IN ASSESSEES APPEAL RELATES TO DISA LLOWANCE UNDER SECTION 40(A)(I) ON ACCOUNT OF EXPENDITURE ON IMPORTED SOFT WARE. WE HAVE NOTED THAT THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NO . 1 OF APPEAL RAISED BY REVENUE IN AY 2010-11, WHICH WE HAVE DISMISSED BY F OLLOWING THE ORDER OF TRIBUNAL FOR AY 2009-10, THEREFORE, FOLLOWING THE P RINCIPLES OF CONSISTENCY THIS GROUND OF APPEAL IS ALLOWED WITH SIMILAR DIREC TIONS. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED. 61. ADDITIONAL GROUNDS OF APPEAL RAISED BY THE ASSESSE E VIDE APPLICATION DATED 10.01.2020, WITH REGARD TO DEDUCTION OF EDUCATION C ESS, IS ALSO IDENTICAL WITH THE ADDITIONAL GROUND OF APPEAL RAISED BY ASSESSEE IN APPEAL FOR AY 2010-11, WHICH WE HAVE ADMITTED AND RESTORED TO THE FILE OF AO, THEREFORE, FOLLOWING THE PRINCIPLES OF CONSISTENCY THIS GROUND OF APPEAL IS ALSO ADMITTED AND RESTORED TO THE FILE OF AO WITH SIMILAR DIRECTIONS. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 62. NEXT GROUND THAT IS GROUND NO. 1 IN REVENUES APPE AL RELATES TO DISALLOWANCE UNDER SECTION 40(A)(I) ON ACCOUNT OF NON-DEDUCTION OF TDS ON EXPENDITURE ON IMPORTED SOFTWARE. WE HAVE NOTED THAT THIS GROUND O F APPEAL IS IDENTICAL TO THE GROUND NO. 1 OF APPEAL RAISED BY REVENUE IN AY 2010-11, WHICH WE HAVE DISMISSED BY FOLLOWING THE ORDER OF TRIBUNAL FOR AY 2009-10, THEREFORE, ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 56 - FOLLOWING THE PRINCIPLES OF CONSISTENCY THIS GROUND OF APPEAL IS DISMISSED WITH SIMILAR DIRECTIONS. IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED. 63. NEXT GROUND OF APPEAL THAT IS GROUND NO. 2 IN REVEN UES APPEAL RELATES TO DEDUCTION UNDER SECTION10A IN RESPECT OF UNITS ON W HICH DEDUCTION UNDER SECTION 80HHC WAS ALLOWED IN PAST. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF THE AO. 64. ON THE OTHER HAND THE LD AR FOR THE ASSESSEE SUBMI TS THAT NOTHING IN SECTION 10A PROHIBITS ASSESSEE FROM CLAIMING DEDUCTION IN RESPECT OF PROFITS OF AN UNDERTAKING, WHERE DEDUCTION UNDER SECTION 80 HHE H AS BEEN CLAIMED IN PAST. THE CLAIM FOR DEDUCTION IS CLAIMED IN RESPECT OF RESIDUAL YEARS REMAINING IN THE BLOCK 10 YEARS AND THERE IS NO ATT EMPT TO EXTENT THE PERIOD OF 10 YEARS OF TAX HOLIDAYS BY EXERCISING OPTION TO CL AIM DEDUCTION UNDER SECTION 10 INSTEAD OF CONTINUING UNDER SECTION 80HH E. THE CLAIM OF ASSESSEE WAS DULY SUPPORTED BY AUDIT CERTIFICATE AND DATE OF COMMENCEMENT OF MANUFACTURE / PRODUCTION HAS BEEN TAKEN AS THE INIT IAL DATE AND NOT THE DATE OF COMMENCEMENT OF CLAIM UNDER SECTION 10A. THE LD AR FOF THE ASSESSEE FURTHER SUBMITS THAT CBDT VIDE CIRCULAR NO. 1/2005 DATED 06.01.2005, CLARIFIES THAT UNDERTAKING SET UP IN DOMESTIC TARIF F AREA AND DERIVING PROFIT FROM EXPORT OF COMPUTER SOFTWARE AND WHICH IS SUBSE QUENTLY CONVERTED IN TO EXPORT ORIENTED UNIT (EOU) SHALL BE ELIGIBLE FOR A DEDUCTION UNDER SECTION10B ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 57 - FOR THE REMAINING PERIOD OF 10 CONSECUTIVE YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT YEAR RELEVANT TO THE PREVI OUS YEAR IN WHICH UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE COMPUT ER SOFTWARE AS A DTA UNIT. IN OTHER ALTERNATIVE SUBMISSIONS IT WAS SUBMI TTED THAT IN CASE THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION UNDER TWO A LTERNATIVE SECTIONS, THE ASSESSEE WOULD BE ALLOWED DEDUCTION UNDER SUCH AS S ECTION WHICH IS MORE BENEFICIAL TO THE ASSESSEE. FINALLY, THE LD AR FOR THE ASSESSEE SUBMITS THAT SIMILAR DEDUCTION UNDER SECTION 10A WAS ALLOWED TO THE ASSESSEE BY BOMBAY HIGH COURT IN AY 2005-06 IN ITA NO. 1778 OF 2016 AN D BY TRIBUNAL IN AY 2009-10. 65. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. W E HAVE ALSO DELIBERATED ON THE DECISION OF TRIBUNAL IN AY 2005- 06 AND 2009-10. THE ASSESSEE CLAIMED DEDUCTION IN RESPECT OF TWO UN ITS, (I) CHENNAI SHOLINGANALLUR STP AND (II) DELHI NOIDA I STP. THE ASSESSEE CLAIMED THAT ITS CLAIM IS DULY SUPPORTED BY AUDIT CERTIFICATE AND DA TE OF COMMENCEMENT OF MANUFACTURE / PRODUCTION HAS BEEN TAKEN AS THE INIT IAL DATE AND NOT THE DATE OF COMMENCEMENT OF CLAIM UNDER SECTION 10. THE ASSESS EE RELIED ON THE CBDT VIDE CIRCULAR NO. 1/2005 DATED 06.01.2005, WHICH C LARIFIES THAT UNDERTAKING SET UP IN DOMESTIC TARIFF AREA AND DERIVING PROFIT FROM EXPORT OF COMPUTER ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 58 - SOFTWARE AND WHICH IS SUBSEQUENTLY CONVERTED IN TO EXPORT ORIENTED UNIT (EOU) SHALL BE ELIGIBLE FOR A DEDUCTION UNDER SECTI ON10B FOR THE REMAINING PERIOD OF 10 CONSECUTIVE YEARS BEGINNING WITH TH E ASSESSMENT YEAR RELEVANT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH UNDERTA KING BEGINS TO MANUFACTURE OR PRODUCE COMPUTER SOFTWARE AS A DTA U NIT. THE AO DURING THE ASSESSMENT DISALLOWED THE DEDUCTION UNDER SECTI ON 10 A BY TAKING VIEW THAT COMMENCEMENT OF UNIT (ELIGIBLE FOR BENEFIT OF SETION10A) IS NOT AVAILABLE TO THE ASSESSEE. THE AO ALSO HELD THAT BY OPTING OUT OF 80HHE AND CLAIMING DEDUCTION UNDER SE CTION 10A, THE ASSESSEE IS TRYING TO CLAIM WHICH IN NOT AVAILABLE TO THE UNIT IN THE LIGHT OF PHASING OUT OF SECTION 80HHE FORM AY 2001- 02. THE LD CIT(A) ALLOWED RELIEF TO THE ASSESSEE BY NOTING THA T CLAIM WAS TO THE ASSESSEE BY CIT(A)IN AY 2005-06, WHICH HAS BEEN UPH ELD BY TRIBUNAL IN ITA NO. 6820/MUM/2010. WE HAVE NOTED TH AT IN APPEAL FOR AY 2009-10 THE TRIBUNAL ALLOWED THE SIMILAR DED UCTION UNDER SECTION 10A BY PASSING THE FOLLOWING ORDER; 53. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERU SED THE MATERIAL ON RECORD. AS NOTED, IDENTICAL ISSUE ARISI NG IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200506 CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO.682 0/MUM./2010 DATED 4TH NOVEMBER 2015. WHILE DECIDING THE ISSUE, THE TRIBUNAL HELD THAT SINCE BOTH, SECTION 80HHE AND SE CTION 10A OF ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 59 - THE ACT ENTITLE THE ASSESSEE FOR BENEFIT, THE ASSES SEE WOULD LEGITIMATELY BE ENTITLED TO THE BENEFIT OF THAT PRO VISION OF LAW WHICH ENABLES A LARGER BENEFIT BEING EARNED BY HIM. IT IS ALSO NOTICED THAT THE AFORESAID DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY THE HON'BLE JURISDICTIONAL HIGH COURT WHI LE DECIDING REVENUES APPEAL IN ITA NO. 1778/2016, VIDE JUDGMEN T DATED 18TH MARCH 2019. THE OBSERVATION OF THE HONBLE JUR ISDICTIONAL HIGH COURT ON THE ISSUE IS AS UNDER: '6] SECTION 80HHE OF THE ACT PERTAINS TO DEDUCTION IN RESPECT OF PROFITS FROM EXPORT OF COMPUTER SOFTWARE ETC. SU B-SECTION (5) OF SECTION 80 HHE PROVIDES THAT WHERE DEDUCTION UNDER SAID SECTION IS CLAIMED AND ALLOWED IN RESPECT OF T HE PROFITS OF THE BUSINESS REFERRED IN SUB-SECTION (1) FOR ANY AS SESSMENT YEAR, NO DEDUCTION SHALL BE ALLOWED IN RELATION TO SUCH PROFITS UNDER ANY OTHER PROVISION OF THE ACT FOR THE SAME O R ANY OTHER ASSESSMENT YEAR. WHAT SUBSECTION (5) OF SECTION 80 HHE THUS PROHIBITS IS THE CLAIM OF DEDUCTION ALLOWED UNDER S ECTION 80HHE UNDER ANY OTHER PROVISION, BE IT IN THE SAME ASSESSMENT YEAR OR IN OTHER ASSESSMENT YEAR. IN THE PRESENT CASE, IT IS NOT EVEN THE GROUND OF THE REVENUE THAT THE DEDUCTION UNDER SECTION 10A OF THE ACT CLAIMED BY T HE ASSESSEE IN THE PRESENT YEAR IS IN RELATION TO PROF IT FOR WHICH THE ASSESSEE WAS GRANTED DEDUCTION UNDER SECTION 80 HHE. SUB-SECTION 5 OF SECTION 80 HHE OF THE ACT, THEREFO RE, IN THE PRESENT CASE WOULD HAVE NO APPLICABILITY. WE ARE FO RTIFIED IN OUR VIEW BY A DIVISION BENCH JUDGE ENT OF DELHI HIG H COURT IN THE CASE OF COMMISSIONER INCOME TAX VS. DAMCO SOLUT IONS PVT. LTD., REPORTED IN 200 TAXMAN PAGE 26 IN WHICH IT WAS OBSERVED AS UNDER:- '2. THIS STAND OF THE ASSESSING OFFICER WAS REPELLE D BY THE CIT (A) HOLDING THAT THE PURPOSE OF SUBSECTION (5) OF SECTION 80HHE WAS TO AVOID DOUBLE BENEFIT AND TH AT WOULD NOT MEAN THAT IF THE ASSESSEE FOR A PARTICULA R ASSESSMENT YEAR WANTED RELIEF ONLY UNDER SECTION 10 A OF THE ACT THAT WOULD BE DENIED TO THE ASSESSEE. TH E ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 60 - ONLY EMBARGO WAS NOT TO GIVE RELIEF UNDER BOTH THE PROVISIONS.' 7] COMING TO THE REVENUES SECOND OBJECTION TO THE ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT, WE MAY RECALL, THAT THE ASSESSEE HAD ADMITTEDLY STARTED MANUFACTUR ING COMPUTER SOFTWARE FOR EXPORT PRIOR TO 1 ST APRIL 2001, WHEN SECTION 10A WAS SUBSTITUTED BY THE FINANCE ACT OF 2 000. IT WAS UNDER THIS AMENDMENT THAT THE PROFIT AND GAINS DERI VED BY AN UNDERTAKING FROM EXPORT OF COMPUTER SOFTWARE CAME T O BE COVERED FOR DEDUCTION UNDER SECTION BA. THE REVENUE CONTENDS THAT THIS BENEFIT WOULD NOT BE AVAILABLE TO AN INDU STRY WHICH WAS ALREADY EXISTING AND ENGAGED IN SUCH ACTIVITY. HOWEVER, THE INTERPRETATION OF THE REVENUE WOULD RENDER THE FIRST PROVISO TO SUBSECTION (1) OF SECTION 10A WHOLLY REDUNDANT. THIS PROVISO READS AS UNDER:- '10A(1)PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICAT ION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIAT ELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, T HE UNDERTAKING SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN THIS SUBSECTION ONLY FOR THE UNEXPIRED PERIOD OF TH E AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS. AS PER THIS PROVISO, THEREFORE, WHILE COMPUTING TOT AL INCOME OF THE UNDERTAKING FOR ANY ASSESSMENT YEAR, THE PROFIT AND GAIN WHICH HAD NOT BEEN INCLUDED PRIOR TO THE INTRODUCTI ON OF FINANCE ACT, 2000, SUCH AN UNDERTAKING WOULD BE ENTITLED TO DEDUCTION AS PER SUB-SECTION (1) ONLY FOR THE UNEXPIRED PERIO D OF 10 CONSECUTIVE ASSESSMENT YEARS. IN PLAIN TERMS, THERE FORE, THIS PROVISO WOULD APPLY TO AN INDUSTRY WHICH WAS ALREAD Y IN EXISTENCE, ENGAGED IN MANUFACTURING AND EXPORT OF C OMPUTER SOFTWARE WHEN THE SAID AMENDMENT WAS MADE IN SECTIO N 10A. HOWEVER, SUCH AN INDUSTRY WOULD BE ELIGIBLE TO CLAI M THAT DEDUCTION IN RELATION TO PROFIT AND GAIN ARISING OU T OF SUCH ACTIVITY ONLY FOR REMAINDER OF THE PERIOD OF 10 ASS ESSMENT ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 61 - YEARS, WHICH COULD BE CLAIMED FOR CONSEQUENT ASSESS MENT YEARS ALONE. 9] IF THE REVENUE'S INTERPRETATION OF SUB-SE CTION (1) OF SECTION 10 WERE TO BE ACCEPTED, THEN, THIS PROVISO WOULD BE RENDERED REDUNDANT. '10] COMING TO THE REVENUE'S CONTENTION IN RELATION TO THE COMPUTATION OF BENEFIT OF SECTION 10A OF THE ACT, T HIS ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF SUPREME COURT I N THE CASE OF COMMISSIONER OF INCOME TAX VS. HCL TECHNOLOGIES, REPORTED IN 404 ITR 719, IN WHICH THE COURT HELD THAT THE TO TAL TURNOVER FOR THE PURPOSE OF SECTION 10 OF THE ACT CANNOT BE UNDERSTOOD AS DEFINED FOR THE PURPOSE OF SECTION 80 HHE. IT WA S FURTHER HELD THAT THUS THE EXPENSES WHICH ARE TO BE EXCLUDE D FROM THE EXPORT TURNOVER, WOULD ALSO HAVE TO BE EXCLUDED FOR THE PURPOSE OF COMPUTING TOTAL TURNOVER. 2. THUS, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH AND THE DECISION OF THE HON'BLE JURISDICTIONA L HIGH COURT IN ASSESSEES OWN CASE AS REFERRED TO ABOVE, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THE I SSUE. THIS GROUND IS DISMISSED. 66. CONSIDERING THE DECISION OF BOMBAY HIGH COURT IN I TA NO. 1778 OF 2016 WHICH WAS FOLLOWED BY TRIBUNAL IN AY 2009-10 AS EXT RACTED ABOVE, THUS, RESPECTFULLY FOLLOWING THE SAME, THE GROUNDS OF RAI SED BY THE REVENUE IS DISMISSED. 67. NEXT GROUNDS OF APPEAL IN REVENUES APPEAL I.E., G ROUND NO. 3 TO 6 WHICH RELATES TO DISALLOWANCE UNDER SECTION 40 (A) (I) ON ACCOUNT ON NON DEDUCTION OF TDS ON EXPENDITURE ON COMMISSION TO NON-RESIDENT . WE HAVE NOTED THAT THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NO . 5 TO 6 OF REVENUES APPEAL FOR AY 2010-11, WHICH WE HAVE DISMISSED ON THE BASI S OF DECISION OF ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 62 - TRIBUNAL FOR AY 2009-10. HENCE, FOLLOWING THE PRINC IPLES OF CONSISTENCY THESE GROUNDS OF APPEAL ARE DISMISSED. 68. NEXT GROUNDS OF APPEAL IN REVENUES APPEAL I.E. GR OUND NO. 7 TO 9 RELATES TO METHOD OF COMPUTATION OF DEDUCTION UNDER SECTION 10 A. WE HAVE NOTED THAT THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NO . 7, 8 & 9 OF REVENUES APPEAL FOR AY 2010-11, WHICH WE HAVE DISMISSED ON T HE BASIS OF DECISION OF TRIBUNAL FOR AY 2009-10. HENCE, FOLLOWING THE PRINC IPLES OF CONSISTENCY THESE GROUNDS OF APPEAL ARE DISMISSED. 69. NEXT GROUNDS OF APPEAL IN REVENUES APPEAL I.E. GRO UND NO. 10 RELATES TO DISALLOWANCE OF DEDUCTION UNDER SECTION 10A/ 10AA. THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF AO. 70. ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE SUBM ITS THAT THIS GROUND OF APPEAL IS COMPLETELY COVERED BY THE CBDT CIRCULAR N O.1/2013 DATED 17 TH JANUARY 2013 AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT IN SUBSEQUENT YEARS. 71. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. C ONSIDERING THE SUBMISSIONS OF THE LD AR FOR THE ASSESSEE THAT THE ASSESSEE WAS ALLOWED DEDUCTION UNDER SECTION10A/10AA IN SUBSEQUE NT YEARS AND THAT THIS ISSUE IS COVERED BY THE CBDT CIRCULAR NO. 1 /2013 DATE 17 TH ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 63 - JANUARY 2013, WHEREIN IT WAS CLARIFIED THAT THE SOFTWARE DEVELOPED ABROAD AT A CLIENTS PLACE WOULD BE ELIGIBLE FOR BENEFITS UNDER THE RESPECTIVE PROVISIONS, BECAUSE THESE WOULD AMOUNT TO DEEMED E XPORT AND TAX BENEFITS WOULD NOT BE DENIED MERELY ON THIS GROUND. IT WAS ALSO CLARIFIED THAT THE BENEFITS UNDER THESE PROVISIONS CAN BE AVAILED OF O NLY BY THE UNITS OR UNDERTAKINGS SET UP UNDER SPECIFIED SCHEMES IN INDI A, IT IS NECESSARY THAT THERE MUST EXIST A DIRECT AND INTIMATE NEXUS OR CON NECTION OF DEVELOPMENT OF SOFTWARE DONE ABROAD WITH THE ELIGIBLE UNITS SET UP IN INDIA AND SUCH DEVELOPMENT OF SOFTWARE SHOULD BE PURSUANT TO A CON TRACT BETWEEN THE CLIENT AND THE ELIGIBLE UNIT. CBDT ALSO CLARIFIED THAT CIR CULAR NO. 694, DATED 23-11- 1994 STANDS FURTHER CLARIFIED. WE HAVE ALSO NOTED T HAT LD CIT(A) WHILE PASSING THE IMPUGNED ORDER FOLLOWED VARIOUS CBDT C IRCULARS AND GRANTED RELIEF TO THE ASSESSEE. IN THE RESULT THIS GROUND OF APPEAL IS DISMISSED. 72. NOW TURNING TO THE VARIOUS GROUNDS OF APPEAL RELA TED WITH THE TP ISSUES. GROUND NO. 12 TO 15 IN REVENUES APPEAL RELATES TO PROVISION OF SOFTWARE CONSULTANCY SERVICES. THE BASIC AND PRIMARY ISSUE I N THESE GROUNDS OF APPEAL IS IF THE GP/SALES IS THE APPROPRIATE PLI OR NOT. W E HAVE NOTED SIMILAR GROUNDS OF APPEAL WAS RAISED BY THE REVENUE IN APPE AL FOR AY 2010-11 VIDE GROUND NO. 9 TO 12, WHICH WE HAVE DISMISSED IN EARL IER PART OF THIS ORDER, BY FOLLOWING THE ORDER OF TRIBUNAL FOR AY 2009-10. THU S, FOLLOWING THE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 64 - PRINCIPLES OF CONSISTENCY THESE GROUNDS OF APPEAL A RE DISMISSED WITH SIMILAR OBSERVATION. 73. GROUND NO. 17 & 18 IN REVENUES APPEAL AND GROUND N O. 9.3 IN ASSESSEES APPEAL RELATES TO PROVISION OF VARIOUS GUARANTEES. WE HAVE SEEN THAT THESE GROUNDS OF APPEAL ARE IDENTICAL AS GROUND NO.13 TO 16 IN REVENUES APPEAL AND 7.3 IN ASSESSEES APPEAL FOR AY 2010-11, WHICH WE H AVE DECIDED IN EARLIER PARAS OF THIS ORDER. THUS, FOLLOWING THE PRINCIPLE S OF CONSISTENCY THESE GROUNDS OF APPEAL ARE BY REVENUE IS DISMISSED WITH SIMILAR OBSERVATION AND THE GROUND IN ASSESSEES APPEAL IS PARTLY ALLOWED. 74. GROUND NO. 16 IN REVENUES APPEAL RELATES TO CHARG ING OF GUARANTEE FEE ON THE ENTIRE AMOUNT. THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF THE AO/TPO. 75. ON THE OTHER HAND THE LD. AR FOR THE ASSESSEE FOR T HE PERFORMANCE GUARANTEE SUBMITS THAT PART OF THE ACTIVITY WAS PERFORMED BY THE ASSESSEE ITSELF WHILE THE REMAINING SERVICES WERE RENDERED BY AE. IF THE PERFORMANCE GUARANTEE IS TREATED AS CHARGEABLE SERVICES, THE CHARGES SHOULD BE LEVIED ONLY ON THE COMPONENT OF SERVICES PERFORMED BY THE AE. WITH RE GARD TO LEASE GUARANTEE, THE LD. AR SUBMITS THAT PART OF THE PREMISES (40% D URING THE YEAR) WAS OCCUPIED BY THE ASSESSEE. THUS, IF THE LEASE GUARAN TEE IS TREATED AS CHARGEABLE ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 65 - SERVICES, THE CHARGES SHOULD BE LEVIED ONLY FOR THE BALANCE 60% DURING THE YEAR UNDER CONSIDERATION. 76. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND HAVE GONE THROUGH THE ORDER OF THE LOWER AUTHORITIES. THE TPO SUGGESTED THE ADJUSTMENT BY TAKING VIEW THAT PROVISION OF GUARANTEE RESULTS IN MEASURABLE AND MATERIAL CREDIT ENHANCEMENT FOR THE BORROWER. THE TPO NOTED THAT ALLAHABAD BANK ID CHARGING GUARANTEE FEE AT 2.4%, THE TPO APPLIED MAR K UP OF .6% TO COVER UP RISK AND TREATED 3% FOR FINANCIAL GUARANTEE AT ARM S LENGTH. BEFORE, LD CIT(A) THE ASSESSEE MADE EXHAUSTIVE WRITTEN SUBMISS IONS AS RECORDER BY LD CIT(A). THE LD CIT(A) GRANTED RELIEF TO THE ASSESS EE BY HOLDING THAT LEASE GUARANTEE IS SIMILAR TO PERFORMANCE GUARANTEE. THE LD CIT(A) NOTED THAT 58% OF THE PREMISES FOR WHICH GUARANTEE WAS GIVEN WAS O CCUPIED BY THE ASSESSEE AND THE FEE IF PAYABLE BE RESTRICTED TO REMAINING AMOUNT AS THE ASSESSEE HAS SHOWN EVIDENCED TO THAT EFFECT AS NO GUARANTEE FEE CAN BE LEVIED TO THE SELF OCCUPIED PROPERTY. BEFORE, US THE LD. AR FOR THE AS SESSEE VEHEMENTLY SUBMITTED THAT IF THE PERFORMANCE GUARANTEES IS TRE ATED AS CHARGEABLE SERVICES, THE CHARGES SHOULD BE LEVIED ONLY ON THE COMPONENT OF SERVICES PERFORMED BY THE AE AND IF THE LEASE GUARANTEE IS TREATED AS CHA RGEABLE SERVICES, THE CHARGES SHOULD BE LEVIED ONLY FOR THE 60% DURING TH E YEAR UNDER CONSIDERATION. WE FIND CONVINCING FORCE IN THE SUBM ISSION OF THE LD AR FOR ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 66 - THE ASSESSEE AND ACCEPT THE SAME. IN THE RESULT THI S GROUND OF APPEAL IS DISMISSED. 77. GROUND NO.10 IN ASSESSEES APPEAL RELATES TO CORPO RATE GUARANTEE RATE. THE LD AR FOR THE ASSESSEE SUBMITS THAT GUARANTEE FEE RATE DETERMINED IN CASE OF PERFORMANCE GUARANTEE IS FOUND AT THE ARMS LENGTH IN CASE OF UNDERTAKING BY LD CIT(A). 78. ON THE OTHER HAND THE LD. DR FOR THE REVENUE SUPPOR TED THE ORDER OF THE LOWER AUTHORITIES. 79. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PA RTIES AND HAVE GONE THROUGH THE ORDER OF TAX AUTHORITIES BELOW. WE HAVE NOTED THAT THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NO. 7.3 OF APPEAL BY ASSESSEE IN AY 2010- 11, WHEREIN WE HAVE RESTRICTED THE GUARANTEE COMMIS SION TO 0.5% BY FOLLOWING THE ORDER OF TRIBUNAL IN AY 2009-10, THER EFORE, FOLLOWING THE PRINCIPLES OF CONSISTENCY THIS GROUND OF APPEAL IS PARTLY ALLOWED WITH SIMILAR DIRECTIONS. 80. GROUND NO. 8 IN ASSESSEES APPEAL RELATES TO PROVIS ION OF INTER-COMPANY LOANS. WE HAVE NOTED THAT THIS GROUND OF APPEAL IS IDENTICAL TO THE GROUND NO. 6 OF APPEAL BY ASSESSEE IN AY 2010-11, WHEREIN WE H AVE RESTORED THE ISSUE TO THE FILE OF AO, THEREFORE, FOLLOWING THE PRINCIPLES OF CONSISTENCY THIS GROUND OF APPEAL IS PARTLY ALLOWED WITH SIMILAR DIRECTIONS . ITA NOS. 3263 & 3746/MUM/2017, 794 & 1207/MUM/2018. TATA CONSULTANCY SERVICES LT D., MUMBAI (AY 2008-09 &2010-11) - 67 - 81. NOW A LAST GROUND OF APPEAL IN ASSESSEES IS GROUN D NO. 6, WHICH RELATES TO ALLEGED PROCEDURAL IRREGULARITY IN MAKING REFERENCE TO TPO. CONSIDERING THE FACT THAT WE HAVE ALLOWED ALL TP RELATED GROUNDS OF APPEAL IN FAVOUR OF THE ASSESSEE, HENCE, THIS GROUND AND ALL REMAINING PART S OF VARIOUS GROUNDS OF APPEAL BY ASSESSEE HAVE BECOME INFRUCTUOUS. 82. IN THE RESULT THE APPEAL OF THE ASSESSEE IN AY 200 8-09 IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN CO URT ON 18 TH AUGUST 2020. SD/- SD/- (RAJESH KUMAR) ( PAWAN SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 18/08/2020 SK, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) 4. ( ) / CONCERNED CIT 5. , ! ' , / DR, ITAT, MUMBAI 6. &'() / GUARD FILE. / BY ORDER, //TRUE COPY// / ( ASST. REGISTRAR) !, / ITAT, MUMBAI