Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 6550 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 year(s) 30 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
30-04-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
Not Allotted
Assessment Year
2008-2009
Appeal Filed On
31-03-2016
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL, D BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS MADHUMITA ROY, JUDICIAL MEMBER 1. ./ ITA NO.4565/AHD/2007 AY 2004-05 2. ./ ITA NO.1529/AHD/2009 AY 2005-06 3. ./ ITA NO.1256/AHD/2012 AY 2007-08 4. ./ IT(TP)A NO.1941/AHD/2012 AY 2008-09 5. ./ IT(TP)A NO.551/AHD/2016 AY 2009-10 1 - 4. A.C.I.T /DCIT CIRCLE-1(2), BARODA. VS. 1 - 4. M/S FAG BEARING INDIA LTD., AT & PO. MANEJA, BARODA-390010. PAN: AAACF 3357 Q ( APPLICANT ) ( RESPONDENT ) AND 6. ./ ITA NO.80/AHD/2008 - AY 2004-05 7. ./ ITA NO.1588/AHD/2009 - AY 2005-06 8. ./ ITA NO.1453/AHD/2011 - AY 2005-06 9. ./ ITA NO.3400/AHD/2010 - AY 2006-07 10. ./ ITA NO.1197/AHD/2012 - AY 2007-08 11. ./ IT(TP)A NO.2061/AHD/2012 - AY 2008-09 12. ./ ITA NO.798/AHD/2016 - AY 2008-09 13. ./ ITA NO.799/AHD/2016 - AY 2008-09 6 - 1 3 . M/S FAG BEARING INDIA LTD., AT & PO. MANEJA, BARODA-390010. PAN: AAACF 3357 Q VS. 5 - 11. A.C.I.T /CIT - 1, BARODA CIRCLE-1(2), BARODA. ( APPLICANT ) ( RESPON D ENT ) REVENUE BY : SHRI O.P. VAISHNAV, SR.D .R ASSESSEE BY : SHRI MILIN MEHTA, A.R ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 2 / DATE OF HEARING : 05/02/2019 / DATE OF PRONOUNCEMENT: 30/04/2019 / O R D E R PER BENCH: THE CAPTIONED CROSS APPEALS HAVE BEEN FILED AT THE INSTANCE OF THE REVENUE AND ASSESSEE AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME TAX (APPEALS)- 1, BARODA [LD.CIT(A) IN SHORT] VIDE APPE AL NO.CAB/I-387/06- 07DATED 11/09/2007 ARISING IN THE MATTER OF ASSESSM ENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961 (HERE-IN-AFTER REFERRED TO AS 'THE ACT') DATED 29/12/2016 RELEVANT TO ASSESSMENT YEARS (AY) 2004-05. THE REVENUE HAS ALSO FILED APPEALS FOR AYS 2005-06, 2007-08, 20 08-09 & 2009-10. THE ASSESSEE HAS ALSO FILED APPEALS FOR AYS 2005-06, 20 06-07, 2007-08 & 2008- 09 SINCE THE APPEALS ARE INTER-CONNECTED, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDE R FOR THE SAKE OF CONVENIENCE. FIRST, WE TAKE REVENUE APPEAL IN ITA BEARING NO.456 5/AHD/2007 FOR A.Y. 2004-2005. THE REVENUE HAS RAISED THE FOLLOWING GRO UNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID. CIT(A) ERRED IN DELETING THE DISALLOWANCE U/S 40A(9) OF RS.20,38 ,747/-, BEING CONTRIBUTION TO PRESANNA TRUST MADE BY THE ASSESSEE AS AN EMPLOYER, WITH THE OBSERVATION THAT THIS CONTRIBUTION WAS NOT SHOWN TO HAVE BEEN MADE FOR SETTING UP OR FORMA TION OF THE AFORESAID TRUST, WITHOUT APPRECIATING THAT SECTION 40A(9) EQUALLY PROHIBITS DEDUCTION IN RESPECT OF CONTRIBUTION TO ANY FUND OR TRUST ETC. FOR ANY PURPOSE OTHER THAN T HAT PROVIDED IN SECTION 36(1)(IV) AND (V) AND THE IMPUGNED CONTRIBUTION WAS NOT COVERED BY SE CTION 36(1 )(IV) AND (V). 2.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN HOLDING THE PAYMENT OF RS. 5,54,00,000/- TO THE ASSOCIATE CONCERNS COVERED BY SECTION 40A(2)(B), IN THE NAME OF FEE FOR USE OF TECHNICAL KNOWHOW, FOR THE MANUFACTURE OF THE ASSESSEE'S PRODUCTS, AS REVENUE EXPENDITURE, WITHOU T DETERMINING THE MATTER ON MERITS AND BY SOLELY RELYING ON HIS ORDER FOR THE ASSESSMENT Y EAR 2003-04, WHICH HAS BEEN CONTESTED BY THE DEPARTMENT AS ERRONEOUS. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 3 (B) ON MERITS, THE ID. CIT(A) FAILED TO APPRECIATE THE BINDING RATIO OF THE APEX COURT'S DECISION IN THE CASE OF SCIENTIFIC ENGINEERING HOUS E PVT. LIMITED. VS CIT 157 ITR 86 (SC) AND FURTHER FAILED TO TAKE NOTE OF THE FACT THAT, I N ALLOWING THE EXPENDITURE IN EARLIER YEARS, UNDUE RELIANCE WAS PLACED ON THE FORMAL RECITALS IN THE AGREEMENTS WITH THE ASSOCIATE CONCERNS PRESENTING THE LUMP SUM PAYMENT FOR ACQUIS ITION OF TECHNICAL KNOWHOW AS PERIODICAL PAYMENT OF FEE FOR THE USE OF THE SAID K NOWHOW AND SUCH PRESENTATION AT THE COST OF SUBSTANCE IS IMMATERIAL FOR DETERMINING THE BASI C CHARACTER OF PAYMENT AS CAPITAL OR REVENUE AS SETTLED IN ASSAM BENGAL CEMENT CO. LTD. VS CIT27ITR 34 (SC). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID. CIT(A) ERRED IN REDUCING THE ADDITION OF RS.9.18 CRORES U/S 92CA (3) TO RS. 1.79 CRORES, WITHOUT CONSIDERING THE MATERIAL CONTAINED IN THE ORDER OF THE TRANSFER PRICING OFFICER ON MERITS AND JUST BY RELYING ON THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEAR 2002-03 WHICH HAS BEEN CONTESTED BY THE DEPARTMENT AS ERRONEOUS. ' 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID CIT(A) ERRED IN ALLOWING THE ENTIRE DEPRECIATION OF RS.2,56,519/- O N THE RESIDENTIAL QUARTERS IN THE COMPUTATION OF DTA UNIT, NEGATING ITS APPORTIONMENT BETWEEN THE DTA UNIT AND THE TAX- FREE EOU UNIT, WITHOUT APPRECIATING THAT THE ASSESS EE HAS NOT BEEN ABLE TO ESTABLISH THAT THESE QUARTERS WERE USED EXCLUSIVELY BY THE EMPLOYE ES OF THE DTA UNIT AND THEY HAD NO DIRECT OR INDIRECT NEXUS WITH FUNCTIONING OF THE EO U UNIT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE ID. C1T(A) ERRED IN ALLOWING THE ENTIRE DEPRECIATION OF RS.34,22,521 /- ON DATA-PROCESSING MACHINES IN THE COMPUTATION OF INCOME OF THE DTA UNIT, WITHOUT APPR ECIATING THAT THE ASSESSEE WAS USING THESE MACHINES ALONG WITH ASP R3 SOFTWARE FOR CONTR OLLING THE FUNCTIONS OF ITS ENTIRE ORGANIZATION COMPRISING DTA UNIT AND TAX-FREE EOU U NIT AND HENCE DEPRECIATION ON ALL THE ASSETS USED FOR OFFICE WORK AND ESTABLISHMENT W ORK INCLUDING THESE DATA PROCESSING MACHINES HAD TO BE APPORTIONED BETWEEN THE DTA UNIT AND THE EOU UNIT, AS WAS DONE BY THE ASSESSING OFFICER. 6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN ALLOWING THE ENTIRE ADVERTISEMENT EXPENSES OF RS.2, 06,78,311/- IN THE COMPUTATION OF DTA UNIT, WITHOUT APPRECIATING THAT THE ADVERTISEMENT E XPENSES HELPED TO CERATE BRAND AFFINITY IN THE GLOBAL MARKET AND PROMOTED THE SALE OF ALL C ATEGORIES OF THE ASSESSEE'S PRODUCTS DIRECTLY OR THROUGH FOREIGN GROUP COMPANIES, THUS R EQUIRING APPORTIONMENT OF THESE EXPENSES IN A REASONABLE MANNER BETWEEN THE DTA UNI T AND THE TAX-FREE EOU UNIT, AS WAS DONE BY THE ASSESSING OFFICER. 7.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN NEGATING THE EXCLUSION OF 90% OF THE INCOME FROM WRITE BACK OF CREDIT BALANCES OF RS.25,51,856/- AND GAIN FROM FOREIGN EXCHANGE FLUCT UATION OF RS.1,16,29,805/- UNDER CLAUSE (BAA) OF THE EXPLANATION BELOW SECTION 80HHC , WITHOUT APPRECIATING THE IMPORT OF RESIDUARY CLAUSE OF 'ANY OTHER RECEIPT OF A SIMILAR NATURE', WHICH EXCLUDES ALL THOSE RECEIPTS WHICH DO NOT FORM PART OF TURNOVER AKIN TO EXPORT TURNOVER IN ORDER TO AVOID DISTORTION IN THE WORKING OF PROFITS DERIVED FROM T HE EXPORT IN THE RATIO OF EXPORT TURNOVER TO TOTAL TURNOVER, APPORTIONING ONLY THE PROFIT FRO M THE TOTAL OF DOMESTIC AND EXPORT TURNOVER. (B) THE CIT(A) FAILED TO APPRECIATE THE CONNOTATION OF 'DERIVED FROM' IN THE SUBSTANTIVE PROVISION OF SECTION 80HHC(1) ENCOMPASSING ONLY DIR ECT RECEIPTS FROM TURNOVER AS SETTLED IN THE CASE OF CIT VS STERLING FOODS 237 ITR 579 (S C) AND THAT CLAUSE (BAA) OF THE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 4 EXPLANATION READ WITH SECTION 80HHC(3) ONLY PROVIDE S A MACHINERY TO REALISE THE INTENT OF THIS RESTRICTIVE EXPRESSION IN THE SUBSTANTIVE PROV ISION, AS SETTLED IN THE FOLLOWING DECISIONS: I. CIT USK.K.DOSHI& CO. 245 ITR 849 (BOM) BASED ON CIT VS STERLING FOODS 237 ITR 579 (SC). II. CIT VSKANTILALCHOTTALAL 246 ITR 439 (BOM). \ HI. CIT VSPRAVIN M MEHTA 246 ITR 445 III. ALEMBIC CHEMICAL WORKS LTD. VS DCIT 266 ITR 46 (GUJ ) HOLDING INSURANCE CLAIM AND OTHER MISCELLANEOUS INCOME AS EXCLUDIBLE UNDER EXPLANATION (BAA). (C) THE CIT(A) FAILED TO APPRECIATE THAT THE ONLY S IMILARITY IN DIFFERENT RECEIPTS SPECIFICALLY MENTIONED IN EXPLANATION (BAA) IS THAT THEY DO NOT FORM PART OF TURNOVER AND HENCE THE RESIDUARY CLAUSE MUST INCLUDE ALL THE REC EIPTS NOT FLOWING FROM TURNOVER IN ACCORDANCE WITH THE RULE OF ENJUSDEM GENERIS. (D) THE CIT(A) FAILED TO APPRECIATE THAT THE SCH EME OF SECTION 80HHC DOES NOT ENVISAGE ANY RECEIPT WHICH IS NEITHER INCLUDED IN THE TOTAL TURNOVER IN THE DENOMINATOR OF THE APPORTIONMENT FORMULA NOR EXCLUDED FROM THE PROFITS TO THE EXTENT OF 90% UNDER EXPLANATION (BAA), AND BY NOT INCLUDING THE IMPUGNE D RECEIPTS IN THE DENOMINATOR, THE ASSESSEE ITSELF HAD TREATED THEM AS 'ANY OTHER RECE IPT OF A SIMILAR NATURE'. 8.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN INCLUDING THE PROFITS AND THE EXPORT TURNOVER OF EOU UNIT ELIGIBLE FOR TAX HOLIDAY U/S 10B OF THE ACT IN THE COMPUTATION OF DEDUCTION U/S 80HH C WITHOUT APPRECIATING THE HEADING OF CHAPTER III UNDER WHICH SECTION 10B FALLS, I.E. 'IN COMES WHICH DO NOT FORM PART OF TOTAL INCOME', AND THE MANDATE OF SECTION 80HHC(4B) AND 8 0AB. (B) WITHOUT PREJUDICE, THE CIT(A) FAILED TO APPRECI ATE THAT, THE EXPRESSION USED IN SECTION 80HHC (4B), I.E. 'INCOME NOT CHARGED TO TAX UNDER THIS ACT' IS MUCH WIDER THAN THE EXPRESSION 'INCOMES WHICH DO NOT FORM PART OF T OTAL INCOME' AND HENCE IT ALSO COVERS THE INCOME DEDUCTIBLE UNDER SECTION 10B AS AMENDED W.E.F. 01-04-2001. (C) THE ID. CIT(A) ERRED IN OVERLOOKING THE RATIO O F CIT VS SHIRKE CONSTRUCTION EQUIPMENT PVT. LTD. 291ITR 380 (SC), IPCA LABORATOR IES LTD. VS DCIT266ITR 521 (SC) AND A.M. MOOSAVS CIT294ITR1 (SC), HOLDING THAT SECT ION 80AB OVERRIDES THE PROVISIONS OF SECTION 80HHC AS WELL AND HENCE THE INCOMES WHIC H ARE DEDUCTIBLE UNDER ANY OTHER PROVISION HAVE TO BE EXCLUDED FROM THE PROFITS OF T HE BUSINESS WHILE COMPUTING DEDUCTION U/S 80HHC. (D) THE ID. CIT(A) IGNORED THE FUNDAMENTAL RULE OF INTERPRETATION LAID DOWN IN ESCORTS INDIA LTD. VS UNION OF INDIA 199 ITR 43 (SC) THAT N O LEGISLATURE COULD HAVE INTENDED A DOUBLE DEDUCTION IN REGARD TO THE SAME INCOME UNLES S IT IS EXPRESSLY PROVIDED IN THE STATUTE AND SECTION 80HHC(4B) SPECIFICALLY PROHIBITS SUCH D EDUCTION. 9. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR A LTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL THE ORDER OF THE CIT(A) TO THE ABOVE EXTENT MAY BE SET ASIDE AND THAT OF THE A.O BE RESTORED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 5 THE FIRST ISSUE RAISED BY THE REVENUE IN GROUND NO. 1 IS THAT THE LD.CIT (A) ERRED IN DELETING THE ADDITION MADE BY AO U/S 40A(9 ) FOR RS. 20,38,747/- ON ACCOUNT OF PAYMENT TO PRASANNA TRUST FOR THE TRAINI NG OF THE EMPLOYEES. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF THE MANUFACTURING OF VAR IOUS TYPES OF BALLS AND ROLLER BEARINGS. THE ASSESSEE IN THE YEAR UNDER CON SIDERATION CLAIMED AN EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT AS EMPLO YEES TRAINING EXPENSES FOR RS. 20,38,746/- ONLY. THE ASSESSEE CLAIMED THAT THE EXPENDITURE HAD BEEN INCURRED ON THREE TO FOUR DAYS OF THE CARRIER TRAIN ING PROGRAM CONDUCTED BY PRESANNA TRUST FOR THE DEVELOPMENT AND GROWTH OF TH E EMPLOYEE. HENCE THE ABOVE-STATED EXPENDITURE IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT AS THESE EXPENDITURES WERE INCURRED WHOLLY AND EXCLUSIVELY F OR THE BUSINESS. 2.1 HOWEVER, AO REJECTED THE CONTENTION OF THE ASSE SSEE BY OBSERVING THAT THE ABOVE-STATED PAYMENT HAS BEEN MADE FOR SETTING UP AND FORMATION OF THE TRUST OTHER THAN THE FUND AS COVERED UNDER SECTION 36(1)(IV) AND SECTION 36(1)(V) OF THE ACT. ACCORDINGLY, THE ABOVE PAYMENT IS PROHIBITED UNDER THE PROVISION OF SECTION 40A(9) OF THE ACT. THEREFORE T HE AO DISALLOWED THE TRAINING EXPENSES AMOUNTING TO RS. 20,38,747/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD.CIT (A). 3. THE ASSESSEE BEFORE THE LD. CIT (A) REITERATED T HE SUBMISSION AS PLACED BEFORE THE AO AND RELIED UPON THE FOLLOWING JUDGMEN T. 1) BHARAT HEAVY ELECTRICAL LTD VS. DCIT REPORTED IN 98 TTJ 565. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 6 2) CIT VS BHARAT PETROLEUM CORPORATION LTD REPORTED IN 252 ITR 43. 3.1 THE LD.CIT (A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE DELETED THE ADDITION AS MADE BY AO BY OBSERVING THA T AO HAS NOT DOUBTED THE GENUINENESS OF THE TRANSACTION, I.E., PAYMENT MADE TO PERSANNA TRUST AND CARRIER TRAINING PROGRAM AS CONDUCTED FOR THE DEVEL OPMENT OF THE EMPLOYEES. THE AO HAS NOT BROUGHT ANYTHING ON RECORD EVIDENCIN G THAT THE PAYMENT WAS MADE FOR THE SETTING UP OR FORMATION OF THE TRUST. THEREFORE THE EXPENSE AS CLAIMED BY THE ASSESSEE IS ALLOWABLE AS BUSINESS EX PENDITURE U/S 37(1) OF THE ACT. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A) THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. DR BEFORE US VEHEMENTLY SUPPORTED THE OR DER OF THE AO. 5. THE LD. AR BEFORE US FILED TWO PAPER BOOKS AS I NDEX I AND INDEX-II RUNNING FROM PAGES 1TO 275 AND SUBMITTED THAT THE A MOUNT WAS INCURRED FOR THE TRAINING OF EMPLOYEES. THE PAYMENT WAS NOT MADE FOR THE FORMATION OR SETTING UP OR AS A CONTRIBUTION TO ANY FUND OR TRUS T. THE SAME IS THEREFORE NOT HIT BY THE PROVISIONS OF SECTION 40A(9) OF THE ACT. THE LD. AR VEHEMENTLY SUPPORTED THE ORDER OF THE LD.CIT (A). 6. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE MATERIALS AVAILABLE ON RECORD. THE LD. DR ARGUED THAT THE PAYMENT MADE TO PERSANNA TRUST ARE NOT COVERED U/S 36(1)(IV) AND SECTION 36(1)(V) OF T HE ACT. AS SUCH THESE EXPENSES ARE PROHIBITED U/S 40A(9) OF THE ACT. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 7 6.1 FROM THE PRECEDING DISCUSSION WE NOTE THAT THER E IS NO EVIDENCE BROUGHT ON RECORD BY THE AO THAT THE ASSESSEE HAS M ADE PAYMENT FOR SETTING UP OR FORMATION OF TRUST. ADMITTEDLY THE ASSESSEE M ADE THE PAYMENT TO THE TRUST, BUT THE PAYMENT TO THE TRUST DOES NOT MEAN T HAT IT IS NOT A BUSINESS EXPENSE. AS SUCH IF THE EXPENSES ARE INCURRED IN CO NNECTION WITH THE BUSINESS, THEN IT IS ELIGIBLE FOR DEDUCTION U/S 37(1) OF THE ACT PROVIDED THE SAME IS NOT IN THE NATURE OF CAPITAL AND PERSONAL EXPENSES. 6.2 IN THE CASE ON HAND THE AO HAS NOT BROUGHT ON R ECORD WHETHER THE EXPENDITURES ARE CAPITAL OR PERSONAL NATURE. THE AO HAS NOT DOUBTED THE GENUINENESS OF THE TRANSACTION. 6.3 THE AO DID NOT CALL ANY INFORMATION REGARDING T HE TRANSACTION FROM THE TRUST BY USING HIS POWER GIVEN UNDER SECTION 133(6) OF THE ACT. 6.4 IN VIEW OF THE ABOVE, THIS EXPENDITURE SHOULD B E ALLOWABLE AS BUSINESS EXPENDITURE U/S 37(1) OF THE ACT. ACCORDINGLY, WE DISMISS THE GROUND OF APPEAL RAISED BY THE REVENUE. THE SECOND ISSUE RAISED BY THE REVENUE IN THE GROUND NO. 2(A) AND 2 (B) IS THAT THE LD.CIT (A) ERRED IN HOLDING THE PAYMENT OF RS. 5,54,00,000/- AS REVENUE EXPENDITURE MADE TO ASSOCIATES ENTERPRISES FOR THE USE OF TECHNOLOGICAL KNOW-HOW. 7. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS DEBITED RS. 5,54,00,000/- FEE FOR TECHNICAL KNOW-HOW IN RESPEC T OF ITS DTA UNITS. THE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 8 ASSESSEE CLAIMED THAT SUCH FEE REPRESENTS THE ROYAL TY PAYMENT DETERMINED AS A PERCENTAGE OF NET SALES UNDER THE TERMS OF THE COLL ABORATION AGREEMENT. 7.1 HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT THE IMPUGNED ISSUE HAS BEEN DISCUSSED IN DETAI L IN THE ASSESSMENT ORDER FOR THE PREVIOUS YEAR RELEVANT TO AY 2002-2003 IN W HICH IT WAS HELD THAT THE ABOVE SAID EXPENDITURE INCURRED IN RESPECT OF TECHN ICAL KNOW-HOW FEES WAS CAPITAL IN NATURE. ACCORDINGLY, THE AO AFTER RELYIN G ON THE ORDER OF HIS PREDECESSOR TREATED THE FEES FOR TECHNICAL KNOW-HOW AS CAPITAL EXPENDITURE. ACCORDINGLY, THE DEPRECIATION OF RS. 1,38,50,000/- ON ABOVE-STATED EXPENDITURE WAS ALLOWED AND THE BALANCE AMOUNT OF R S. 4,15,50,000/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT (A). 8. THE ASSESSEE BEFORE THE LD.CIT (A) SUBMITTED THA T A SIMILAR DISALLOWANCE WAS ALLOWED BY THE LD.CIT (A) IN AY 20 03-2004 AS REVENUE EXPENDITURE. 8.1 THE LD.CIT (A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ORDER OF HIS PREDECESSOR FOR THE AY 2003-2004 T REATED IMPUGNED EXPENDITURE AS REVENUE IN NATURE. ACCORDINGLY THE L D.CIT (A) DELETED THE ADDITION MADE BY THE AO AND DIRECTED THE AO TO WITH DRAW THE DEPRECIATION OF RS.1,38,50,000/- AND TREAT THE EXPENSES FOR RS. 5,5 4,00,000/- AS REVENUE EXPENSES. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 9 BEING AGGRIEVED BY THE ORDER OF LD.CIT (A), THE REV ENUE IS IN APPEAL BEFORE US. 9. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AUT HORITIES BELOW. 10. ON THE OTHER HAND, THE LD. AR BEFORE US SUBMITT ED THAT IN THE IDENTICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSE SSEE IN ITA NO. 792/AHD/2006 PERTAINING TO AY 2001-2002 THE IMPUGNE D EXPENSES TREATED AS REVENUE EXPENSES AND ACCORDINGLY ADDITION WAS DELET ED BY THE ITAT VIDE ORDER DATED 30-09-2011. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE FIND THAT IN THE IDENTI CAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE, THE ITAT IN THE AY 2002-03 AND 2003-04 HAS DELETED THE ADDITION MADE BY THE AO AFTER HAVING RE LIANCE ON THE ORDER OF THE ITAT IN THE AY 2001-02 IN ITA NO. 792/AHD/2006 VIDE ORDER DATED 30-09- 2011 BY HOLDING THAT IMPUGNED EXPENDITURE AS REVENU E IN NATURE. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 6. WE HAVE HEARD THE PARTIES AT SOME LENGTH. WE HAV E CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF A VOLUMINOUS COMP ILATION FILED BEFORE US CONTAINING ALMOST 400 PAGES AND THE CASE LAWS CITED. BEFORE US, AN AG REEMENT DATED 30/03/2000 WAS REFERRED WHICH WAS EXECUTED BETWEEN FAG AUTOMOBILTECHNIK AG ON ONE PART REFERRED AS 'THE COLLABORATOR' AND 'FAG BEARINGS (INDIA) LTD.' AS OTHER PART MENTIONED AS 'THE INDIAN COMPANY'. THE SAID COLLABORATOR IS A SUBSIDI ARY OF FAG KUGELFISCHER GEORGE SCHAEFER AG INCORPORATED UNDER THE LAWS OF THE FEDE RAL REPUBLIC OF GERMANY. CLAUSE -(C) ON PAGE NO.1 OF THE SAID AGREEMENT STATES THAT THE 'INDIAN COMPANY' AND THE 'COLLABORATOR' HAVE OVER THE YEARS ENTERED INTO DIV ERSE AGREEMENTS FOR SUPPLY OF KNOW- HOW AND TECHNICAL ASSISTANCE IN RESPECT OF DIVERSE TYPES OF BEARINGS. THE PRESENT AGREEMENT WAS IN RESPECT OF KNOW-HOW AND TECHNICAL SERVICES IN RESPECT OF THE FOLLOWING PRODUCTS. CLUTCH RELEASE BEARINGS ALTEMATOR BEARINGS WHEET BE ARINGS HUB UNITS (ALL GENERATIONS) TENSIONER ICER ASSEMBLIES FROM THE SIDE OF THE ASSE SSEE BY REFERRING THE TYPES OF THE PRODUCTS, I.E., BEARINGS, ETC. THE MAIN ARGUMENT WA S THAT THERE WERE NEW PRODUCT ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 10 INTRODUCED BUT MAINLY THE TECHNICAL ASSISTANCE WAS TO IMPROVE THE QUALITY OF THE EXISTING PRODUCTS. 6.1. APART FROM THE ABOVE SPECIFICATIONS, IT HAS AL SO BEEN BROUGHT TO OUR NOTICE THAT THE KNOW-HOW AS SUCH WAS NOT THE PROPERTY OF THE ASSESS EE. THE KNOW-HOW REMAINED THE PROPERTY OF THE SAID 'COLLABORATOR' BECAUSE THE 'IN DIAN COMPANY' WAS NOT PERMITTED TO MAKE USE OF KNOW-HOW OTHER THAN THE PURPOSE FOR WHI CH IT HAD INTENDED IN TERMS OF THE SAID AGREEMENT. ONE OF THE CLAUSE, I.E. CLAUSE-9 PRESCRI BES THAT THE KNOW-HOW SHOULD NOT BE COMMUNICATED TO ANY PERSON OTHER THAN THE RESPONSIB LE EMPLOYEES OF THE 'INDIAN COMPANY'. RATHER ONE OF THE CLAUSE PRESCRIBES THAT UPON TERMINATION OF THE AGREEMENT THE INDIAN COMPANY HAD TO RETURN THE COLLABORATORS THE SAID KNOW-HOW. BY REFERRING THESE CLAUSES AND OTHER CONNECTED CLAUSES, THE ARGUMENT I S THAT THE SAID KNOW-HOW IN QUESTION HAD NEVER BEEN PURCHASED BY THE INDIAN COMPANY, I.E . THE ASSESSEE. THE SAID KNOW-HOW HAD NEVER BECOME AN ASSET OF THE ASSESSEE. THE SAID KNOW-HOW WAS TO BE USED BY THE ASSESSEE FOR LIMITED AND SPECIFIC PURPOSES AS PRESC RIBED IN THE AGREEMENT. 6.2. IN RESPECT OF THE OBSERVATIONS MADE HEREINABOV E, WE HAVE BEEN ASKED TO PERUSE A CLARIFICATION ISSUED BY CENTRAL BOARD OF DIRECT TAX ES BY CIRCULAR NO.21 (F-NO.7A/40/68- IT (A-II) DATED 9TH JULY, 1969. IF A KNOW-HOW IS AC QUIRED UNDER AN AGREEMENT IS MERELY A LICENCE FOR THE USER, IF IT IS FOR A LIMITED PERIOD , IF THE KNOW-HOW IS WITHOUT THE RIGHT TO USE THE PATENTS AND TRADE MARKS THEN IF ANY PAYMENT MAD E WOULD NOT BRING INTO EXISTENCE AN ASSET OF ENDURING ADVANTAGE TO THE INDIAN PARTICIPA NTS. THIS CIRCULAR THEREFORE STATES THAT THE PAYMENT SHOULD BE REGARDED IF EXPENDITURE INCUR RED FOR THE PURPOSE OF RUNNING THE BUSINESS DURING THE PERIOD OF AGREEMENT. AN ANOTHER ARGUMENT HAS ALSO BEEN EXTENDED THAT THERE WERE SERIES OF AGREEMENTS, HOWEVER, THE KNOW- HOW INITIALLY WAS ACQUIRED OUT OF AN AGREEMENT DATED 30/08/1996. THE CHANGES IN THE PROV ISIONS OF SECTION 32 WERE MADE SUBSEQUENTLY FROM 1ST DAY OF APRIL, 1998, THEREFORE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. IT HAS BEEN CLARIFIED THAT THE AGREEMENTS EXECUTED LATER ON, HAD IN FACT, AROSE OUT OF THE ORIGINAL AGREEMENTS WHICH WERE IN OPERATION SINCE INCEPTION OF THE COMPANY. IN THE LIGHT OF THE FACTUAL BACKGROUND, WE HAVE SCRUTINIZE D THE CASE LAWS CITED BEFORE US. WE HAVE NOTED THAT IN ONE OF THE CASE IT WAS HELD THAT IF T HE PAYMENT IS MADE FOR EXCLUSIVE ACQUISITION OF TECHNICAL KNOW-HOW, THEN THE EXPENDI TURE IS CAPITAL IN NATURE, BUT IF THE PAYMENT IS FOR SECURING THE USE OF KNOW-HOW, THEN A LLOWABLE AS REVENUE EXPENDITURE. 6.3. IN THESE DECISIONS, IT HAS BEEN CONVEYED THAT THE EXPENDITURE TOWARDS IMPROVISATION FOR THE EXISTING BUSINESS IS TO BE CONSIDERED A REVENUE EXPENDITURE. IN THE PRESENT APPEAL, UNDISPUTEDLY THE KNOW-HOW RELATED TO THE EXISTING M ANUFACTURING OPERATION OF BALL- BEARINGS, I.E.STATED TO BE SAME TYPE OF PRODUCT. IT CANNOT BE RULED OUT THAT IN A FAST GROWING ERA OF NEW TECHNOLOGIES THE OUTDATED OR OBSOLETE TE CHNOLOGIES ARE REQUIRED TO BE REPLACED AND THAT EXPENDITURE CAN BE HELD A BUSINESS REQUIRE MENT. 6.4. IT HAS ALSO BEEN NOTED WHILE READING THE CLAUS ES OF THE AGREEMENT THAT ONE OF THE CLAUSE IS ABOUT THE NON-PORTABILITY. THEREFORE, THI S CLAUSE HAS DEMONSTRATED THAT THE KNOW- HOW WAS NOT THE PROPERTY OF THE ASSESSEE. RATHER, T HE SAID COLLABORATOR HAS IMPOSED A CONDITION OF CONFIDENTIALITY AND SECRECY WHICH LEAD S TO AN INFERENCE THAT THE PROPERTY BELONGED TO THE SAID COLLABORATOR. RATHER, WE ARE I NCLINED TO DRAW AN INFERENCE THAT THE TRANSFER OF KNOW-HOW IN THE PRESENT SET OF FACTS AN D CIRCUMSTANCES WAS RESTRICTED FOR THE USE RATHER THAN ITS ACQUISITION. IN THE LIGHT OF TH E REASONS ASSIGNED HEREINABOVE AND CONSIDERING THE TOTALITY OF THE EVIDENCE PLACED ON RECORD DULY SUPPORTED BY THE PRECEDENTS CITED, WE HEREBY HOLD THAT THE PAYMENT OF RS.43.10 LACS WAS IN THE NATURE OF REVENUE EXPENDITURE. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 11 11.1 AS THE FACTS IN THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, THEREFORE WE ARE BOUND TO FOLLOW T HE SAME IN VIEW OF THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE O F CIT V. L.G. RAMAMURTHI 1977 CTR (MAD.) 416 : [1977] 110 ITR 453 (MAD.) WHEREIN IT WAS HELD AS UNDER: 'NO TRIBUNAL OF FACT HAS ANY RIGHT OR JURISDICTION TO COME TO A CONCLUSION ENTIRELY CONTRARY TO THE ONE REACHED BY ANOTHER BENCH OF THE SAME TRI BUNAL ON THE SAME FACTS. IT MAY BE THAT THE MEMBERS WHO CONSTITUTED THE TRIBUNAL AND DECIDE D ON THE EARLIER OCCASION WERE DIFFERENT FROM THE MEMBERS WHO DECIDED THE CASE ON THE PRESENT OCCASION. BUT WHAT IS RELEVANT IS NOT THE PERSONALITY OF THE OFFICERS PRE SIDING OVER THE TRIBUNAL OR PARTICIPATING IN THE HEARING BUT THE TRIBUNAL AS AN INSTITUTION. IF IT IS TO BE CONCEDED THAT SIMPLY BECAUSE OF THE CHANGE IN THE PERSONNEL OF THE OFFICERS WHO MAN NED THE TRIBUNAL, IT IS OPEN TO THE NEW OFFICERS TO COME TO A CONCLUSION TOTALLY CONTRADICT ORY TO THE CONCLUSION WHICH HAD BEEN REACHED BY THE EARLIER OFFICERS MANNING THE SAME TR IBUNAL ON THE SAME SET OF FACTS, IT WILL NOT ONLY SHAKE THE CONFIDENCE OF THE PUBLIC IN JUDI CIAL PROCEDURE AS SUCH, BUT IT WILL ALSO TOTALLY DESTROY SUCH CONFIDENCE. THE RESULT OF THIS WILL BE CONCLUSIONS BASED ON ARBITRARINESS AND WHIMS AND FANCIES OF THE INDIVIDU ALS PRESIDING OVER THE COURTS OR THE TRIBUNALS AND NOT REACHED OBJECTIVELY ON THE BASIS OF THE FACTS PLACED BEFORE THE AUTHORITIES. IF A BENCH OF A TRIBUNAL ON THE IDENTICAL FACTS IS ALLOWED TO COME TO A CONCLUSION DIRECTLY OPPOSED TO THE CONCLUSION REACHED BY ANOTHER BENCH OF THE TRIBUNAL ON AN EARLIER OCCASION, THAT WILL BE DESTRUCTIVE OF THE INSTITUTI ONAL INTEGRITY ITSELF. THAT IS THE REASON WHY IN A HIGH COURT, IF A SINGLE JUDGE TAKES A VIEW DIF FERENT FROM THE ONE TAKEN BY ANOTHER JUDGE ON A QUESTION OF LAW, HE DOES NOT FINALLY PRO NOUNCE HIS VIEW AND THE MATTER IS REFERRED TO A DIVISION BENCH. SIMILARLY IF A DIVISI ON BENCH DIFFERS FROM THE VIEW TAKEN BY ANOTHER DIVISION BENCH IT DOES NOT EXPRESS DISAGREE MENT AND PRONOUNCE ITS DIFFERENT VIEWS, BUT HAS THE MATTER POSTED BEFORE A FULLER BENCH FOR CONSIDERING THE QUESTION. IF THAT IS THE POSITION EVEN WITH REGARD TO A QUESTION OF LAW, THE POSITION WILL BE A FORTIORI WITH REGARD TO A QUESTION OF FACT. IF THE TRIBUNAL WANTS TO TAKE A N OPINION DIFFERENT FROM THE ONE TAKEN BY AN EARLIER BENCH, IT SHOULD PLACE THE MATTER BEFORE THE PRESIDENT OF THE TRIBUNAL, SO THAT HE COULD HAVE THE CASE REFERRED TO A FULL BENCH OF THE TRIBUNAL CONSISTING OF THREE OR MORE MEMBERS FOR WHICH THERE IS PROVISION IN THE IT ACT ITSELF.' 11.2 WE ALSO FIND THAT THE HONBLE SUPREME COURT CA SE OF AMBIKAPARSAD MISHRA VS. STATE OF U.P.AND OTHERS VIDE WRIT PETTIO N NO 1543 OF 1977 VIDE ORDER DATED 09-05-1980 HAS TAKEN THE SIMILAR VIEW A S TAKEN BY THE HONBLE HIGH COURT (SUPRA) AS UNDER: THUS WE GET THE STATUTORY PERSPECTIVE OF AGRARIAN REFORM AND SO, THE CONSTITUTIONALITY OF THE ACT HAS TO BE TESTED ON TH E TOUCHSTONE OF ART 31A WHICH IS THE RELEVANT PROTECTIVE ARMOUR FOR LAND REFORM LAWS . EVEN HERE, WE MUST STATE THAT WHILE WE DO REFER TO THE RANGE OF CONSTITUTIONAL IM MUNITY ART. 31A CONFERS ON AGRARIAN REFORM MEASURES WE DO NOT REST OUR DECISIO N ON THAT PROVISION. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 12 INDEPENDENTLY OF ART. 31A , THE IMPUGNED LEGISLATION CAN WITHSTAND CONSTITUTI ONAL INVASION AND SO THE FURTHER CHALLENGE TO ART. 31A ITSELF IS OF NO CONSEQUENCE. THE COMPREHENSIVE VOCABULARY OF THAT PURPOSEFUL PROVISI ON OBVIOUSLY CATCHES WITHIN ITS PROTECTIVE NET THE PRESENT ACT AND, BROADLY SPEAKIN G, THE ANTISEPTIC EFFECT OF THAT ARTICLE IS SUFFICIENT TO IMMUNISE THE ACT AGAINST I NVALIDATION TO THE EXTENT STATED THEREIN. THE EXTREME ARGUMENT THAT ART. 31A ITSELF IS VOID AS VIOLATIVE OF THE BASIC STRUCTURE OF THE CONSTITUTION HAS BEEN NEGATIVED BY MY LEARNED BROTHER, BHAGWATI, J. IN A KINDRED GROUP OF CASES OF ANDHRA PRADESH. T HE AMULET OF ART. 31A IS, THEREFORE, POTENT, SO FAR AS IT GOES, BUT BEYOND IT S AMBIT IT IS STILL POSSIBLE, AS COUNSEL HAVE ENDEAVOURED, TO SPIN OUT SOME SOUND AR GUMENT TO NULLIFY ONE SECTION OR THE OTHER. SURELY, THE LEGISLATURE CANNOT RUN AM OK IN THE BLIND BELIEF THAT ART. 31A IS OMNIPOTENT. WE WILL EXAMINE THE ALLEGED INFIRMI TIES IN DUE COURSE. IT IS SIGNIFICANT THAT EVEN APART FROM THE MANY DECISIONS UPHOLDING ART. 31A , GOLAK NATH'S CASE DECIDED BY A BENCH OF 11 JUDGES, WHILE HOLDING THAT THE CONSTITUTION (FIRST AMENDMENT) ACT EXCEEDED THE CONSTITUENT POWE R STILL CATEGORICALLY DECLARED THAT THE SAID AMENDMENT AND A FEW OTHER LIKE AMENDM ENTS WOULD BE HELD GOOD BASED ON THE DOCTRINE OF PROSPECTIVE OVER-RULING. T HE RESULT, FOR OUR PURPOSE, IS THAT EVEN GOLAK NATH'S CASE HAS HELD ART. 31A VALID. THE NOTE STRUCK BY LATER CASES REVERSING GOLAKNATH DOES NOT MILITATE AGAINST THE V IRES OF ART. 31A. SUFFICE IT TO SAY THAT IN THE KESAVANANDA BHARATI'S CASE. ARTICLE 31A WAS CHALLENGED AS BEYOND THE AMENDATORY POWER OF PARLIAMENT AND, THEREFORE, INVA LID. BUT, AFTER LISTENING TO THE MARATHON ERUDITION FROM EMINENT COUNSEL, A 13 JUDGE S BENCH OF THIS COURT UPHELD THE VIRES OF ARTICLE 31A IN UNEQUIVOCAL TERMS. THAT DECISION BINDS, ON THE SIMPLE SCORE OF STARE DECISIS AND THE CONSTITUTIONAL GROUN D OF ART. 141. EVERY NOW DISCOVERY OR ARGUMENTATIVE NOVELTY CANNOT UNDO OR C OMPEL RECONSIDERATION OF A BINDING PRECEDENT. IN THIS VIEW, OTHER SUBMISSIONS SPARKLING WITH CREATIVE INGENUITY AND PRESENTED WITH HIGH-PRESSURE ADVOCACY, CANNOT P ERSUADE US TO RE-OPEN, WHAT WAS LAID DOWN FOR THE GUIDANCE OF THE NATION AS A S OLEMN PRE-POSION BY THE EPIC FUNDAMENTAL RIGHTS CASE. FROM KAMESHWAR SINGH AND G OLAK NATH (SUPRA) THROUGH KESAVANANDA (SUPRA) AND KANAN DEVAN TO GWAL IOR RAYONS AND AFTER ART. 31A HAS STOOD JUDICIAL SCRUTINY ALTHOUGH, AS STATED EA RLIER, WE DO NOT BASE THE CONCLUSION ON ART. 31A. EVEN SO, IT IS FUNDAMENTAL THAT THE NATION'S CONST ITUTION IS NOT KEPT IN CONSTANT UNCERTAINTY BY JUDICIAL REVIEW EVERY SEASON BECAUSE IT PARALYSES, BY PERENNIAL SUSPENSE, ALL LEGISLATIVE A ND ADMINISTRATIVE ACTION ON VITAL ISSUES DETERRED BY THE BROODING THREAT OF FORENSIC BLOWUP. THIS, IF PERMITTED, MAY WELL BE A KIND OF JUDICIAL DESTABILISATION OF STATE ACTION TOO DANGEROUS TO BE INDULGED IN SAVE WHERE NATIONAL. CRISIS OF GREAT MO MENT TO THE LIFE, LIBERTY AND SAFETY OF THIS COUNTRY AND ITS MILLIONS ARE AT STAK E, OR THE BASIC DIRECTION OF THE NATION ITSELF IS IN PERIL OF A SHAKEUP. IT IS SUREL Y WRONG TO PROVE JUSTICE ROBERTS OF THE UNITED STATES SUPREME COURT RIGHT WHEN HE SAID. 11.3 IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REASO N TO INTERFERE IN THE FINDING OF THE LD. CIT-A. ACCORDINGLY, WE DIRECT TH E AO TO DELETE THE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 13 ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. THE THIRD ISSUE RAISED BY THE REVENUE IN GROUND NO. 3 IS THAT THE LD. CIT (A) ERRED IN REDUCING THE ADDITION MADE BY AO/TPO F OR RS. 9.18 CRORES TO RS.1.79 CRORES ON ACCOUNT OF ROYALTY PAYMENT OF RS. 1,46,67,000/- AND MARGIN OF DTA UNIT OF RS. 7,71,00,000/-. 12. THE AO DURING ASSESSMENT PROCEEDING OBSERVED TH AT ASSESSEE HAS ENTERED INTO THE VARIOUS INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES AS LISTED ON PAGES 1 & 2 OF THE TPO ORD ER. THE ASSESSEE TO JUSTIFY THE ALP OF ITS INTERNATIONAL TRANSACTION BEFORE THE TPO SUBMITTED AS UNDER:- 1) IT HAS TWO SEGMENTS NAMELY MANUFACTURING SEGMENT AN D DISTRIBUTION SEGMENT. THE MANUFACTURING SEGMENT HAS BEEN FURTHER DIVIDED INTO TWO SEGMENTS NAMELY DTA SEGMENTS AND EOU SEGMENT. 2) THE ASSESSEE PROVIDED SEGMENTS WISE DETAILS OF THE TRANSACTION WITH AE IN RESPECT OF ITS MANUFACTURING ( DTA & EOU) AND DI STRIBUTION SEGMENTS AS DETAILED UNDER: SR.NO. PARTICULAR INTERNATIONAL TRANSACTION DTA EOU TRADING TOTAL AMOUNT (RS.) 1. PURCHASE OF BEARINGS 223161520 223161520 2 EXPORT BEARINGS/TOOLS 30580729 357962129 388542858 3 PURCHASE RM/COMPONENT 921222527 43817022 135939549 4 PURCHASE OF TANGIBLE ASSETS 12944008 12944008 5 CHARGES FOR SAP-R/3 22251469 22251469 6 REIMBURSEMENT OF TRAVELLING EXPENSES 163418 163418 ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 14 7 TESTING CHARGES 2021581 2021581 8 TRAINING CHARGES 41202 41202 9 FEES FOR USE OF TECHNOLOGY 57206850 11241715 68448565 10 LUMPSUM KNOWHOW FEES 2203413 2203413 11 RECEIPT OF CONSULTANCY FEES 20483345 20483345 TOTAL 219535197 413020866 243644865 876200928 12.1 THE ASSESSEE ALSO FURNISHED VIDE LETTER DATED 30-10-2006 SEGMENTS WISE OPERATING MARGIN OF ITS BUSINESS IN RESPECT OF ITS MANUFACTURING ( DTA & EOU) AND DISTRIBUTION SEGMENTS AS DETAILED UNDER: DTA EOU TOTAL MANUFACTURING TRADING TOTAL MANUFACTURING TRADING OP/NET SALES (%) 6.97 35.83 11.32 9.29 11.05 OP=PBIT 3) HOWEVER, THE ASSESSEE FURTHER REVISED ITS AND COMPA RABLES PLI VIDE LETTER DATED 9-11-2006. ACCORDING TO THIS LETTER, T HE ASSESSEE DETERMINED ITS PLI AT 13% AND THE COMPARABLE PLI AT 9.05% BY U SING THE TNMM METHOD. THE NECESSARY DETAILS RELEVANT TO THE DETER MINATION OF ALP STAND AS UNDER: ASSESSEE SELECTED ITSELF AS A TESTED PARTY, USED TNMM FOR ALP WORKED OUT ITS PLI @13%(AT ENTITY LEVEL ) AS PBIT O N NET SALES. WORKED OUT PLI OF COMPARABLE @9.05%. 4) IN VIEW OF THE ABOVE CALCULATION THE ASSESSEE SUBMI TTED BEFORE THE TPO THAT ITS PLI IS GREATER THAN THE MEAN OF THE PLI OF THE COMPARABLE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 15 COMPANIES. HENCE THE TRANSACTIONS PERTAINING TO ITS AE WERE CARRIED OUT AT ALP. NOTE: THE WORKING OF THE PLI OF THE COMPARABLE IS P LACED ON PAGE 98 OF THE PB. 12.2 HOWEVER, THE TPO BEING DISSATISFIED RECALCULAT ED THE PLI BY REMOVING DECCAN BEARING AND HMT BEARING AS THEY WERE SHOWING LOSS CONSISTENTLY. FURTHER, THE TPO ADDED ANOTHER COMPARABLE NAMELY M/ S MENON BEARING AND WORKED OUT THE PLI AFTER EXCLUSION AND INCLUSION OF THE COMPARABLES AS DETAILED BELOW:- PLI OF THE TESTED PARTY IS 10.03%. PLI OF COMPARABLE IS 10.66%. 12.3 NOW THE TPO COMPARED THE PLI/MARGIN OF THE ASS ESSEE FOR ITS DTA SEGMENT WITH THE PLI/MARGIN OF THE COMPARABLES BY O BSERVING THAT MARGIN OF DTA SEGMENT AS CALCULATED BY THE ASSESSEE IS 6.97% ONLY WHICH IS LESS THAN WITH INDUSTRY MARGIN 10.66% AS COMPUTED ABOVE. NOTE: THE TPO AGREED FOR THE ALP IN RESPECT OF EOU (EXCEPT ROYALTY) & DISTRIBUTION SEGMENT AS DECLARED BY THE ASSESSEE. 12.4 ACCORDINGLY, THE TPO IN RESPECT OF ASSESSEES INTERNATIONAL TRANSACTION OF THE DTA SEGMENT AFTER AGGREGATING TO ALL OF THEM INCLUDING ROYALTY MADE THE DOWNWARD ADJUSTMENT BY OBSERVING AS UNDER: NET SALES OF DTA UNIT IS RS.209.25 CRRORES. ALP P ROFIT AT 10.66% MARGIN IS RS.22.31 CRORES. PROFIT EARNED IS RS.14.59 CRORE AS PER ASS ESSEES LETTER DTD 30/11/2006). THEREFORE, THE ASSESSEE WILL UNDERGO AN ADJUSTMENT OF RS.7.71 CRORE ON THE PURCHASE SIDE OF DTA UNIT SINCE THIS ADJUSTMENT TAKES CAREF OF N EED FOR DOWNWARD ADJUSTMENT IN ROYALTY PAYMENT BY DTA UNIT, NO SEPARATE ADJUSTMENT TO ROYA LTY PAYMENT IS BEING MADE. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 16 12.5 THEREFORE IN LIGHT OF THE ABOVE DISCUSSION, TH E TPO MADE AN ADDITION OF 7,71,00,000/- (209.25*3.69%) IN RESPECT OF ASSESSEE S DTA UNIT. 12.6 THE TPO FURTHER HAS TAKEN THE ALP OF THE ROYAL TY PAYMENT TO ASSESSEES AE IN RESPECT OF ITS EOU UNIT AS NIL AFT ER RELYING ON THE ORDER OF HIS PREDECESSOR FOR THE AY 2003-04. ACCORDINGLY, TH E TPO MADE THE DOWNWARD ADJUSTMENT FOR THE ENTIRE ROYALTY PAYMENT OF RS. 1,12,41,715/-IN EOU BUSINESS SEGMENT. 12.7 IN VIEW OF THE ABOVE THE AO PROVIDED AN OPPORT UNITY TO ASSESSEE REGARDING THE ADDITION OF RS. 8.83 CRORES (7.71+1.1 2 CRORES) AS PROPOSED BY THE TPO IN HIS ORDER. IN THIS CONNECTION, THE ASSES SEE VIDE LETTER DATED 28/12/2006 REPLIED AS UNDER:- REGARDING THE ADDITION OF RS. 7,71,00,000/- TPO OUGHT TO HAVE ACCEPTED THE BASIS AND WORKING OF OPERATING PROFIT MARGIN (FOR SHORT OPM) AS SUBMITTED IN THE L ETTER DATED 30- 10-2006 AND 9-11-2006. TPO HAS BIFURCATED THE PROFIT AND LOSS ACCOUNT INTO DTA AND EOU UNIT SEPARATELY AND COMPARED THE OPM OF THE COM PARABLE COMPANIES AS A WHOLE WITH OPM OF DTA UNITS. TPO OUG HT TO HAVE MADE A COMPARISON AT COMPANY LEVEL WITHOUT BIF URCATING THE BUSINESS IN SEGMENT WISE. TPO HAS CALCULATED PBIT AS AGAINST THE PBDT. TPO HAS EXCLUDED TWO COMPANIES AND ADDED ONE NEW CO MPANY IN A COMPARABLE LIST OF COMPANIES WITHOUT GIVING TH E OPPORTUNITY. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 17 PBIT OF IT (ASSESSES) IS 13% AS COMPUTED VIDE ITS L ETTER DATED 9.11.2006 WHILE TPO COMPUTED AT 10.03% WITHOUT GIVI NG THE OPPORTUNITY. REGARDING THE ADDITION OF RS. 1,12,41,715/- FOR ROY ALTY FOR EOU DIVISION: THE TECHNOLOGY KEEPS ON REGULARLY UPDATING WHICH RE QUIRES A COST IN SUCH UP-GRADATION. THEREFORE IT CANNOT BE A SSUMED THAT THE AE HAS RECOVERED THE COST OF THE TECHNOLOGY INC URRED BY IT IN THE EARLIER YEARS. THUS THE TECHNOLOGY COST CANNOT BE ASSUMED AS NIL. THE ADJUSTMENT ON ACCOUNT OF ROYALTY PAYMENT HAS BE EN MADE BY THE TPO WITHOUT ANY METHOD AS PRESCRIBED UNDER THE LAW. 12.8 HOWEVER THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND MADE AN ADDITION OF RS. 7,71,00,000/-AS PROPOSED BY TPO IN DTA UNIT. 12.9 REGARDING ROYALTY EXPENDITURE THE AO OBSERVED THAT THE ACTUAL ROYALTY AMOUNT IN EOU UNIT IS OF RS.1,46,67,000/- WHICH NEE DS TO BE DISALLOWED. 12.10 IN VIEW OF THE ABOVE, THE AGGREGATE AMOUNT OF RS. 9,17,67,000/- ( 7,71,00,000/- + 1,46,67,000) WAS ADDED TO TOTAL INC OME OF THE ASSESSEE. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD.CIT (A). 13. THE ASSESSEE BEFORE THE LD.CIT (A) SUBMITTED AS UNDER:- REGARDING THE ADDITION OF RS.1,46,67,000/- FOR ROYA LTY PAYMENT. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 18 EOU MADE PAYMENT TO ITS AE FOR THE USE OF THE TECHN OLOGY AS PER AGREEMENT WHICH HAS BEEN RENEWED FROM TIME TO TIME. THE SIA, GOI, AND RBI HAVE APPROVED THE SAID AGREEMENT. FURTHER, THE ASSESSEE SUBMITTED THAT THE LD. CIT-A HAS DECIDED THE ISSUE OF ROYALTY PAYMENT IN RESPECT OF THE EOU UNIT S IN ITS CASE FOR THE AY 2002-03 AND 2003-04 WHERE THE ROYALTY @ 1.50% WA S ALLOWED. 13.1 THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSI ON OF THE ASSESSEE AND THE ORDER OF HIS PREDECESSOR FOR AY 2002-03 HELD TH AT ROYALTY @1.50% REPRESENTS ALP. REGARDING THE ADDITION OF RS. 7,71,00,00/- IN RESPE CT OF DTA SEGMENT ONLY. THE ASSESSEE WORKED OUT THE PROFIT MARGIN AT 6.97% WHEREAS TPO WORKED OUT PROFIT MARGIN AT 10.66%. TPO HAS CALCULATED PROFIT MARGIN AT 10.66% TAKING P BDIT, WHILE THE ASSESSEE CALCULATED THE PROFIT MARGIN AT 6.97% TAKI NG PROFIT AFTER DEPRECIATION. THE ASSESSEE FURTHER SUBMITTED THAT C OMPARISON MADE BY THE TPO IS LIKE COMPARING ORANGES WITH APPLE. IT HA S ARGUED THAT IF THE DEPRECIATION AMOUNTING TO RS. 13.46 CRORES OF DTA S EGMENT IS ADDED TO THE PROFIT MARGIN, THEN THE PROFIT FOR DTA SEGMENT WOULD WORK OUT TO 13.40% WHICH IS HIGHER THAN PROFIT MARGIN 10.66% OF THE COMPARABLES AS COMPUTED BY TPO. FURTHER, THE ASSESSEE SUBMITTED THAT TPO EXCLUDED T WO COMPARABLE NAMELY DECCAN BEARING AND HMT BEARING LTD ON THE RE ASON THAT THESE COMPANIES ARE CONSISTENTLY INCURRING LOSSES. THEREF ORE THE SAME CANNOT BE CONSIDERED FOR WORKING OUT THE PROFIT MARGIN OF THE COMPARABLES. THE ASSESSEE ALSO SUBMITTED THAT DECCAN BEARING IS NOT INCURRING LOSSES CONTINUOUSLY BUT LOSSES WERE INCURRED ONLY IN THE Y EAR 2002-03 AND ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 19 2003-04. THEREFORE THE TPO WAS NOT CORRECT TO EXCLU DE THE SAME FROM WORKING OF COMPARABLE MARGINS. FURTHER, REGARDING THE INCLUSION OF MBL, IT IS SUBM ITTED THAT MBL IS NOT COMPARABLE ONE SINCE OUT OF TOTAL SALES OF MBL ONLY 11.57% BELONG TO SALES OF BEARING WHILE 44% BELONG TO SALE S OF BUSHES. WITHOUT PREJUDICE TO ITS CLAIMS AS STATED ABOVE THA T IT HAS FURTHER MADE A REFERENCE TO THE ORDER OF THE LD.CIT (A)-111, BAR ODA FOR AY 2002-03 IN ITS OWN CASE WHO HELD THAT PROFIT MARGIN CANNOT BE APPLIED TO THE ENTIRE SALES OF DTA UNIT AND PROFIT MARGIN SHOULD B E APPLIED ONLY TO THE TRANSACTION WITH AE. THE ASSESSEE FURTHER SUBMITTED THAT IF THE SAME IS FOLLOWED, THE ADDITION WOULD WORK OUT TO RS. 81,00, 848/- (21,95,35,197/- *3.69%) ONLY AS AGAINST THE ADDITIO N OF RS. 7,71,00,000/-. 13.2 THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSI ON MADE BY ASSESSEE HELD THAT DIFFERENCE OF PROFIT MARGIN OF 3.69% (10.66-6. 97) SHOULD BE APPLIED IN RESPECT OF THE TRANSACTION WITH THE AE ONLY. ACCORD INGLY THE LD. CIT-A DIRECTED THE AO TO RE-WORK THE DISALLOWANCE ON THIS BASIS AND CHECK THE ARITHMETICAL ACCURACY OF THE APPELLANTS SUBMISSION . BEING AGGRIEVED BY THE ORDER OF LD.CIT (A), REVENUE AND THE ASSESSEE ARE IN APPEAL BEFORE US. THE REVENUE IS IN THE APPEAL FOR RS. 7,38,23,552/- (ROYALTY PAYMENT OF RS. 48,24,400/-+ MARGIN OF DTA UNIT 6,89 ,99,152/-) AND THE ASSESSEE IS IN APPEAL FOR RS 1,79,43,448/-( ROYALTY PAYMENT OF RS. 98,42,600/- + MARGIN OF DTA UNIT 81,00,848/-). THE ASSESSEE HAS RAISED THE FOLLOWING GROUND IN ITA BEARING NO.80/AHD/2008 FOR A.Y. 2004-05. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 20 5. THE LD, CIT (A) ERRED IN FACT AND IN LAW IN PART IALLY CONFIRMING THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER - IV. WEST ZONE. IN DIA ('THE TPO') / AO U/S, 92 C R.W.S, 92 (1) IN RESPECT OF INTERNATIONAL TRANSACTION IN AS MUCH AS IT PERTAINED TO PART OF THE ROYALTY PAID AMOUNTING TO RS, 98,42.600 AND IN RESPECT OF OTHER INTERNATIONAL TRANSACTIONS AMOUNTING TO RS. 81,00,848 AND THUS CONFIRMING THE ADJUSTMENT TO THE INCOME OF THE APPELLANT AGGREGATING TO RS. 1,79,43,448. A. THE TPO AND AO ALSO ERRED IN FACT AND IN LAW IN REJ ECTING THE REPORT IN FORM NO. 3CEB DESPITE THE FACT THAT ALL THE FACTS AND FIGURE S MENTIONED THEREIN WERE CORRECT. B. THE TPO AND AO ALSO ERRED IN FACT AND IN LAW IN COM PUTING ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ON A BASIS DIFFERENT THA N THAT ADOPTED BY THE APPELLANT COMPANY DESPITE THE FACT THAT THE APPELLANT HAD COR RECTLY COMPUTED ARM'S LENGTH PRICE AND HAD OBTAINED THE CERTIFICATE THEREON FROM CHART ERED ACCOUNTANT FOR THE SAME. C. THE LD. CIT (A) ALSO ERRED IN FACT AND IN LAW IN HO LDING THAT ROYALTY AND FEES FOR TECHNICAL SERVICES PAID TO THE EXTENT OF ONLY (A), 1,5 % OF THE SALES VALUE MAY HE TREATED AS ARM'S LENGTH PRICE AND BALANCE WAS REQUI RED TO BE ADJUSTED UNDER CHAPTER X OF THE ACT AND THUS CONTINUING THE ADJUSTMENT TO TH E EXTENT OF RS. 98,42,600 ON THIS COUNT. D. THE TPO AND AO ALSO ERRED IN FACT AND IN LAW IN DET ERMINING THE COMPARABLE PROFIT MARGIN AT 10,66 % INSTEAD OF 6,97 % WORKED OUT BY T HE APPELLANT. E, I HE LD, CI1 (A) ALSO ERRED IN FAD AND IN LAW IN CONFIRMING THE ACTION OF \ THE TPO / AO IN SEPARATING THE PROFITS OF THE APPELLANT COMPANY IN RESPECT OF DOMESTIC TARIFF AREA UNITS AND THEN COMPARING THE SAME WITH COMPOSITE PR OFITS OF OTHER CASES, WHICH INCLUDED THE EXPORT PROFITS AND THUS CONFIRMING ADJUSTMENT O F RS, 81.00.848 THE ALLEGED GROUND OF LOWER COMPARABLE PROFITS AND THEREBY CONFIRMING ACT ION OF THE TPO AND AO IN DETERMINING THE COMPARABLE PROFIT MARGIN (CI 10.66% INSTEAD OF 6,97 %, 14. THE LD. DR BEFORE US SUBMITTED AS UNDER: ASSESSEE GROUND NO.5 CIT(A) ERRED IN PARTIALLY CONFIRMING THE ADJUSTMENT PROPOSED BY TPO U/S.92C AND ALTERNATIVELY U/S.42A(2) IN RESPECT OF ROYALTY AND TOTAL ADJUSTMENT OF RS.179 LAKH. CIT(A) ERRED IN HOLDING THAT ONLY ROYALTY AND FTS PAID AT 1.5% OF SALES VALUE MAY BE TREATED AS A RMS LENGTH PRICE. THE TPO/AO ERRED IN REJECTING THE REPORT IN FORM N O.3CEB. THE TPO AND AO ERRED IN COMPUTING ALP ON A BASIS D IFFERENT THAN THAT ADOPTED BY THE APPELLANT COMPANY DESPITE THE FACT T HAT THE ALP HAD BEEN CORRECTLY COMPUTED AND CERTIFICATE OF CA OBTAINED. THE CIT(A) ERRED IN HOLDING THAT ROYALTY AND FTS PA ID TO THE EXTENT OF ONLY 1.5% OF SALES MAY BE TREATED AS ALP THUS CONFIRMING ADDITION TO THE EXTENT OF RS.98.42 LAKH. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 21 THE TPO AND AO ERRED IN DETERMINING THE COMPARABLE MARGIN AT 10.66% INSTEAD OF 6.97 WORKED OUT BY APPELLANT. CIT(A) ERRED IN CONFIRMING ACTION OF TPO/AO IN SEPA RATING PROFITS OF DTA AND EOU AND COMPARING PROFITS OF DTA ON ACCOUNT OF LOWER PROFITS ACCE3PTING COMPARABLE MARGIN AT 10.66% INSTEAD OF 6 .97%. CIT(A) ERRED IN CONFIRMING ALLOCATION OF EXPENSES B ETWEEN DTA AND EOU ON THE BASIS OF TURNOVER AND NOT ACCEPTING ALLOCATION MADE BY THE ASSESSEE COMPANY. REVENUE GROUND OF APPEAL : 3 -CIT(A) ERRED IN REDUCING THE ADDITION OF RS.9.18 C RORE U/S.92CA(3) TO RS.1.79 CRORE IGNORING THE DETAILED REASONS GIVEN B Y THE IPO. THE METHOD IN 02-03 FOLLOWED IN THIS YEAR. THE TPO HAS TAKEN SEGMENTAL ACCOUNTS OF THE ASSESSEE COMPANY AND THE DTA MARGIN S HAVE BEEN ADJUSTED IN LIGHT OF THE HIGHER COMPARABLE MARGINS. THE USE OF TNMM AT INDEPENDENT TRANSACTION LEVEL HA S BEEN ADVOCATED IN A NUMBER OF DECISIONS AS MENTIONED IN THE SUBMISSION MADE FOR AY 2002-03 AND REPRODUCED BELOW. THE CLAIM OF THE ASSESSEE THAT THE REJECTED COMPARA BLE I.E. DECCAN BEARINGS LTD WAS A PROPER COMPARABLE IS INCORRECT IN LIGHT O F THE LOW TURNOVER AS COMPARED TO THE ASSESSEE. TURNOVER FILTERS HAVE BE EN HELD TO BE VALID FILTERS BY VARIOUS COURTS. AS FAR AS THE PROFITABILITY OF THE COMPANY IS CONCERNED, IT IS SEEN THAT IF THE OTHER INCOME IS REDUCED TO DETE RMINE THE OPERATING MARGIN, THE OPERATING MARGIN OF THIS COMPANY IS ALWAYS IN N EGATIVE. (ACCOUNTS ENCLOSED) THE CIT(A) HAS FAILED TO NOTICE THAT IN AY 2002-03, THE CIT(A) HAD BENCHMARKED THE TRANSACTION OF ROYALTY AND TECHNICA L KNOWHOW SEPARATELY BY BECHMARKING THEM AT 1.5% AND THEN THE REMAINING TRANSACTIONS WERE BENCHMARKED AT THE DIFFERENTIAL AMOUNT. IN HIS ORD ER, THE TPO HAS SPECIFICALLY MENTIONED THAT HE IS NOT BENCHMARKING THE ROYALTY TRANSACTION IN LIGHT OF THE TNMM STUDY OF THE ENTIRE MANUFACTURING SEGMENT. ONCE THE CIT(A) HAS NOT ACCEPTED THE DTA UNIT BENCH MARKING %AGE, HE SHOULD HAVE FOLLOWED THE PROCESS ADOPTED BY THE CIT (A) IN AY 02-03 I.E. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 22 BENCHMARKING ROYALTY SEPARATELY AND THEN BENCHMARKI NG THE REMAINING TRANSACTIONS. 15. ON THE OTHER HAND, THE LD. AR BEFORE US SUBMITT ED THAT IN THE IDENTICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSE SSEE IN ITA NO. 793 & 817/AHD/2006 PERTAINING TO AY 2002-2003 THE IMPUGNE D ADDITION WAS ALLOWED FOR THE STATISTICAL PURPOSE BY THE ITAT VID E ORDER DATED 14-11-2014. BOTH THE LD. DR AND THE AR BEFORE US VEHEMENTLY SUP PORTED THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT IN THE IDENT ICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE (SUPRA) , THE ITAT HAS ALLOWED THE APPEAL FOR STATISTICAL PURPOSES. THE RELEVANT EXTRACT OF THE O RDER FOR THE ISSUE OF THE REVENUE AND THE ASSESSEE IS REPRODUCED AS UNDER: FINDING OF THE ITAT IN ASSESSEES APPEAL ITA NO. 79 3/AHD/2006 IN RESPECT OF ADJUSTMENT IN DTA SEGMENT 28.3. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE RESPECTIVE REPRESENTATIVE PARTIES. WE FIND FORCE INTO THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE THAT THE ARTIFICIAL BIFURCATION OF DTA AND EOU IS DE HORS THE PROVISION S OF LAW, DTA SEGMENT HAS NO EXPORTS BUT COMPARABLE COMPANIES HAS EXPORTS AND IN CORRECT COMPUTATION BY THE LD.CIT(A). IT IS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE THAT IT CAN BE SEEN THAT THE FIGURE OF RS.8,43,42,316/- IS ARRIVED AT BY THE FOL LOWING METHOD:- A. INTERNATIONAL TRANSACTIONS IN THE NATURE OF REVE NUE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT (OTHER THAN ROYALTY) OF RS.4,01,14,355 (RS.8,88,38,750 MINUS 4,87,24,395 OF ROYALTY). B. ADDED TO ABOVE, THE ROYALTY OF THE DTA SEGMENT O F RS.4,87,24,395 GIVING AGGREGATE OF RS.8,88,38,750. C. ADDED TO ABOVE, THE INTERNATIONAL TRANSACTION IN THE NATURE OF REVENUE EXPENDITURE CREDITED TO AT THE P&L ACCOUNT OF RS.74,03,728. D. ADDED TO ABOVE, THE INTERNATIONAL TRANSACTION IN THE NATURE OF CAPITAL GOODS, PART OF THE BALANCE SHEET OF RS.5,19,25,936, AGGREGATING TO RS.14,81,68,414. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 23 E. FROM THE ABOVE, REDUCTION OF THE ROYALTY (OF DTA AND EOU SEGMENT BOTH) OF RS.6,38,26,098. IT MAY BE NOTED THAT ROYALTY OF EOU OF RS.1,51,01,703 WAS NOT INCLUDED IN THE ABOVE AGGREGATE. DESPITE THIS FACT, IT WAS REDU CED FROM THE AGGREGATE. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS THE ASSESSEE HAD BIFURCA TED ITS ACTIVITIES INTO MANUFACTURING SEGMENT AND DISTRIBUTION SEGMENT. HOWEVER, THE TRAN SFER PRICING OFFICER (TPO) HAS FURTHER BIFURCATED THE ACTIVITIES OF THE ASSESSEE I NTO DOMESTIC UNIT (DTA) AND EXPORT ORIENTED UNIT (EOU). THUS, THE TPO ARTIFICIALLY DIV IDED THE MANUFACTURING SEGMENT INTO TWO SUB-SEGMENTS, I.E. FOR EXPORTS AND FOR DOMESTIC SALES, BUT HOWEVER KEPT THE SET OF COMPARABLE COMPANIES SAME FOR BOTH EOU AND DTA. THE LD.COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TOWARDS THE BIFURCATION OF TH E INTERNATIONAL TRANSACTIONS. ITEM-WISE DESCRIPTION OF THE INTERNATIONAL TRANSACT IONS AS CONTAINED ON PAGE-3 OF THE TPO'S ORDER. HOWEVER, THE LD.CIT(A) VIDE PARAS 10.7 .2 TO 10.7.4 IN HIS ORDER HAS HELD THAT THE DIFFERENTIAL MARGIN OF THE DTA SEGMENT AND COMP ARABLES SHOULD BE APPLIED ONLY TO THE INTERNATIONAL TRANSACTIONS WITH AES AND NOT ON THE ENTIRE TURNOVER OF THE DTA UNIT. THEREFORE, LD.CIT(A) HAS RESTRICTED THE ADDITION ON ACCOUNT OF LOWER MARGINS OF THE DTA TO RS.59,12,396/- AS AGAINST RS.13.84 CRORES MADE BY T HE TPO. THIS IS DULY SUPPORTED BY THE DECISIONS OF THE COORDINATE BENCHES IN THE FOLLOWIN G CASES:- (I) PHOENIX MECANO (INDIA) LTD. VS. DCIT (2012) 17 TAXMANN.COM 119 (MUM) (II) M/S.GENISYS INTEGRATING SYSTEMS (INDIA) PVT.LT D. VS. DCIT (2013) 152 TTJ 215 (BANGALORE) (III) PENNZOIL QUAKER STATE INDIA LTD. (2012) 26 TA XMANN.COM 124 (MUM.) I T A NO S . (IV) LIONBRIDGE TECHNOLOGIES PVT.LTD. (2012) 137 IT D 197 (MUM.) 28.4. THERE IS NO FAULT CAN BE FOUND FROM THE ORDER OF THE LD.CIT(A) SO FAR AS RESTRICTING THE ADDITION ON ACCOUNT OF DIFFERENTIAL OPERATING MARGIN TO THE INTERNATION AL TRANSACTIONS IS CONCERNED. HOWEVER, THE FIGURE OF RS.8,43,42,316/- AS WORKED OUT BY THE LD.CIT(A) IS NOT CORRECT, THEREFORE THIS ISSUE IS REQUIRED TO BE RESTORED TO THE FILE OF LD. CIT(A) FOR RECOMPUTATION OF THE INTERNATIONAL TRANSACTIONS. NEEDLESS TO SAY THAT TH E LD.CIT(A) WOULD GIVE SUFFICIENT OPPORTUNITY OF BEING HEARD TO BOTH THE PARTIES. THU S, GROUND NO.6 IS ALLOWED FOR STATISTICAL PURPOSES. FINDING OF THE ITAT IN ASSESSEES APPEAL ITA NO. 79 3/AHD/2006 IN RESPECT OF ADJUSTMENT IN ROYALTY SEGMENT 29. COMING TO GROUND NO.7, WE HAVE HEARD THE PARTIE S AND GONE THROUGH THE WRITTEN SUBMISSIONS. WE FIND THAT THE LD.CIT(A) IN ITS ORDE R HAS HELD THAT ROYALTY @ 1.5% ONLY REPRESENT REASONABLE ROYALTY. THIS FINDING IS ON TH E BASIS OF THE APPELLATE ORDER PERTAINING TO AY 2001-02. IT IS ALSO HELD THAT THE BENCHMARKIN G OF ROYALTY IS TO BE DONE FOR EOU AS WELL AS DTA. THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) ERRED IN RELYING UPON THE RATES OF ROYALTY FOR THE CONTROLLED TRANSACTION OF SKF. THE CONTENTION OF THE ASSESSEE IS THAT THE FUNDAMENTAL PRINCIPLE OF CUP IS THAT THE COMPAR ABLE TRANSACTION HAS TO BE 'UNCONTROLLED TRANSACTION', MEANING THEREBY THAT IT HAS TO BE A TRANSACTION BETWEEN TWO PARTIES WHO ARE NOT RELATED TO EACH OTHER. SKF TRAN SACTION IS NOT ELIGIBLE TO BE TREATED AS CUP AS IT IS WITH RELATED PARTY. THE ANOTHER CONTEN TION OF THE ASSESSEE IS THAT THE TPO AND LD.CIT(A) HAS RELIED UPON THE RATES OF ROYALTY PAID BY THE ASSESSEE DURING THE EARLIER YEARS. THE CONTENTION IS THAT THIS TRANSACTION IS ALSO WIT H RELATED PARTIES AS IT IS GIVEN TO A RELATED ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 24 PARTY OF THE ASSESSEE FOR THE EARLIER PERIOD. IT IS ALSO THE CONTENTION OF THE ASSESSEE THAT NO MATERIAL IS AVAILABLE ON RECORD THAT ANY ENQUIRY OF ANY NATURE HAS BEEN CARRIED OUT BY ANY PERSON INCLUDING TPO TO CONCLUDE THAT THE TRANSACTI ONS OF SKF AND FOR THE EARLIER YEARS FOR THE ASSESSEE WERE THE CORRECT ALP OR WERE DONE IN CIRCUMSTANCES SO AS TO BE AT THE ALP. THE CONTENTION IS THAT THE ONLY AVAILABLE OPTI ON IS TO ADOPT TNMM AS THE METHOD FOR DETERMINATION OF THE ALP. 29.1. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIVAL CONTENTIONS. WE FIND FORCE INTO THE CONTENTION OF THE LD.COUNSEL FOR THE ASSESSEE, THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE LD.CIT(A) AND TPO WERE NOT JUSTIFIED IN AD OPTING THE CUP METHOD AND, THEREFORE, WE DIRECT THE LD.CIT(A) TO ADOPT THE METHOD OF TNMM FOR DETERMINATION OF THE ALP AND RECOMPUTE THE ALP IN RESPECT OF THE ROYALTY. THUS, THIS GROUND OF ASSESSEE'S APPEAL IS ALSO RESTORED BACK TO THE FILE OF LD.CIT(A) FOR RECOMPUT ATION OF ALP AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO BOTH THE PARTIES. GROUND NO.7 OF ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. FINDING OF THE ITAT IN REVENUES APPEAL ITA NO. 817 /AHD/2006 IN RESPECT OF DTA AND ROYALTY ADJUSTMENT 59. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE GROUND NOS. II TO IV RAISED IN REVENUES APPEAL ARE IDENTICAL TO THE GROUNDS RAISED IN ASSES SEES APPEAL IN ITA NO. 793/AHD/2006. WE THEREFORE, FOR THE SIMILAR REASONS STATED WHILE DECIDING THE ASSESSEES APPEAL HEREINABOVE DISMISS THE GROUNDS OF REVENUES APPEAL . 16.1 AS THE FACTS IN THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, THEREFORE THE SAME IS BINDING ON U S AS PER THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. L.G . RAMAMURTHI 1977 CTR (MAD.) 416 : [1977] 110 ITR 453 (MAD.) WHICH HAS BEEN ELABORATED IN THE PRECEDING PARAGRAPH. 16.2 IN VIEW OF THE ABOVE AND THE PRECEDENT IN THE OWN CASE OF THE ASSESSEE AS DISCUSSED ABOVE, WE RESTORE BOTH THE ISSUE, I.E. , ADJUSTMENT IN THE DTA SEGMENT AND THE ROYALTY PAYMENT TO THE FILE OF LD.C IT (A) FOR FRESH ADJUDICATION AND IN THE LIGHT OF ABOVE DISCUSSION A S PER THE PROVISIONS OF LAW. 16.3 HENCE THE GROUNDS OF APPEAL OF THE ASSESSEE AR E ALLOWED FOR STATISTICAL PURPOSES, AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 25 THE INTERCONNECTED ISSUE RAISED BY THE REVENUE IN GROUND NO. 4, 5 AND 6 IS REGARDING THE ERROR COMMITTED BY THE LD. CIT-A AS D ETAILED BELOW: ENTIRE DEPRECIATION OF RS.2,56,519/- ON THE RESIDEN TIAL QUARTERS ALLOCATED IN THE COMPUTATION OF INCOME OF DTA UNITS ENTIRE DEPRECIATION OF RS. 34,22,521/- ON DATA PROC ESSING MACHINES ALLOCATED IN THE COMPUTATION OF INCOME OF DTA UNITS. ENTIRE ADVERTISEMENT EXPENSES OF RS. 2,06,78,311/- ALLOCATED IN THE COMPUTATION OF INCOME OF DTA UNITS. IN OTHER WORDS, ALL THE GROUNDS OF APPEAL RELATE TO THE APPORTIONMENT OF EXPENSES BETWEEN DTA AND EOU UNITS OF THE ASSESSEE. 17. THERE WERE CERTAIN COMMON EXPENSES INCURRED AMO UNTING TO RS. 4,60,20,828.00 FOR ITS DTA AND EOU UNIT, BUT THE AS SESSEE CHARGED ALL OF THEM TOWARDS DTA UNIT ONLY. HOWEVER, THE AO BEING D ISSATISFIED WITH THE WORKING OF THE ASSESSEE, PROPOSED TO ALLOCATE SUCH EXPENSES IN THE MANNER AS DETAILED BELOW: TOTAL AMOUNT DTA EOU 1. DEPR. ON RESIDENTIAL BUILDING 256,519 222,675 33,844 2 DEPR. ON DATA PROCESSING MACHINES 3,422,521/- 2,970,974 451,547 3 DEPR. ON MOTOR CARS 1,844,880 1,601,477 243,403 4 ADVERTISEMENT EXPENSES 20,678,311 17,950,137 2,728,174 5 DEP. ON ACCOUNT OF SAP-R/3 COST (60% OF RS.3,29,44,739/-) ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 26 (1,06,93,270/- + 2,22,51,469/-) 19,766,844 17,158,924/- 2,607,920 6 DEPR. ON RENOVATION OF BUILDING 31,753 44,925 6,828 TOTAL 46,020,828 39,949,112 6,071,716 17.1 REGARDING THE ABOVE, THE ASSESSEE SUBMITTED AS UNDER:- I. REGARDING THE DEPRECIATION ON THE RESIDENTIAL QUART ERS, IT WAS SUBMITTED THAT ALL THE RESIDENTIAL UNITS WERE CONST RUCTED FOR THE STAFF OF DTA UNITS ONLY. THESE ARE OLD STAFF QUARTE RS AND NO FRESH QUARTERS WERE CONSTRUCTED FOR THE EOU UNITS. II. REGARDING THE DEPRECIATION ON DATA PROCESSING MACHI NES, IT WAS SUBMITTED THAT THE PLANT AND MACHINERY OF THE EOU U NITS IS VERY MODERN AND TOTALLY COMPUTERIZED AND DOES NOT REQUIR E MAJOR EXTERNAL SUPPORT FOR DATA PROCESSING. AS SUCH THE E NTIRE DEPRECIATION IS ATTRIBUTABLE TO THE DTA UNIT. III. IN RESPECT OF DEPRECIATION ON CAR IT WAS SUBMITTED THAT THE MOST OF THE VEHICLES ARE USED FOR DTA UNIT. IV. IN RESPECT OF ADVERTISEMENT EXPENSES IT WAS SUBMITT ED THAT THE EOU UNIT EXCLUSIVELY DEALS WITH THE GROUP CONCERNS OF THE ASSESSEE ONLY. IT DOES NOT DEAL WITH ANY OUTSIDER P ARTY IN RESPECTS OF SALES. HENCE THERE IS NO NEED TO INCUR THE EXPEN SES ON THE ADVERTISEMENTS AND MARKETING OF ITS PRODUCTS WITH G ROUP CONCERN. V. IN RESPECT OF RENOVATION OF BUILDING, IT WAS SUBMIT TED THAT MAJOR RENOVATION HAS TAKEN PLACE IN RESPECT OF THE DTA UN IT WHEREAS THE MINOR REPAIRS WERE ALSO IN RESPECT OF THE CORPO RATE OFFICE BUILDING. NO PART OF THE EXPENSES PERTAINED TO THE EOU UNIT. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 27 VI. IN RELATION TO SAP R3 COST IT WAS SUBMITTED THAT TH ESE EXPENSES ARE NOT A CAPITAL EXPENDITURE IT SHOULD BE TREATED AS REVENUE EXPENDITURE. 17.2 HOWEVER THE AO REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING AS UNDER: A. THE ASSESSEE HAS NOT BEEN ABLE TO ADDUCE ANY EVIDEN CE TO SUBSTANTIATE ITS CLAIM THAT THE RESIDENTIAL QUARTER S WERE USED EXCLUSIVELY BY THE EMPLOYEE OF DTA UNIT ONLY. THERE FORE, THE DEPRECIATION OF RS. 33,844/- OUT OF TOTAL DEPRECIAT ION OF RS. 2,56,519/- WAS ALLOCATED TO EOU UNIT AND ACCORDINGL Y THE REMAINING AMOUNT WAS ADDED TO TOTAL THE INCOME OF T HE ASSESSEE. B. THE DATA PROCESSING MACHINES WORK AS NETWORK SYSTEM S TO CONNECT ALL THE OFFICES/ UNITS FOR COORDINATING VARIOUS FUN CTIONS OF DTA AND EOU UNIT. THEREFORE THE SEGREGATION OF ITS USE BETW EEN DTA AND EOU UNIT IS NOT POSSIBLE. THEREFORE THE DEPRECIATIO N OF RS. 4,51,547/-OUT OF TOTAL DEPRECIATION OF RS. 34,22,52 1/- IS ALLOCATED TO EOU UNIT. ACCORDINGLY THE SAME WAS ADDED TO TOTA L INCOME OF THE ASSESSEE. C. REGARDING THE USE OF THE CAR, THE ASSESSEE FAILED T O FURNISH ANY EVIDENCE BY WAY OF LOGBOOK OR ANY OTHER RECORD TO S UBSTANTIATE THAT THE CAR WAS USED EXCLUSIVELY FOR DTA UNIT. MOR EOVER, THE CARS IN QUESTION ARE USED BY THE CHAIRMAN AND MANAG ING DIRECTOR WHO ARE EQUALLY RESPONSIBLE FOR THE DTA UNIT AND EO U UNIT. THEREFORE DEPRECIATION OF RS. 2,43,403/-OUT OF TOTA L DEPRECIATION OF RS. 18,44,480/- IS ALLOCATED TO EOU UNIT. ACCORDING LY THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 28 D. REGARDING THE ADVERTISEMENT EXPENSES, IT WAS NOTICE D THAT IT PERTAINS TO THE COMPANY AS A WHOLE AND THEREFORE IT CANNOT BE ATTRIBUTABLE TO ANY ONE UNIT. THE ORDINARY CUSTOMER IN THE MARKET WHETHER LOCAL OR OVERSEAS IDENTIFIES THE PRODUCT WI TH THE COMPANY AND NOT WITH THE UNITS OPERATING UNDER THE UMBRELLA OF THE COMPANY. THEREFORE EXPENSES OF RS. 27,28,174/-OUT O F RS. 2,06,78,311/- WERE ALLOCATED TO EOU UNIT AND ACCORD INGLY THE SAME ADDED TO THE TOTAL INCOME OF THE ASSESSEE. E. FROM THE SUBMISSION OF THE ASSESSEE, IT DOES NOT RE FLECT THAT THE USE OF SAP R3 SOFTWARE IS LIMITED ONLY TO DTA OR EOU. T HEREFORE DEPRECIATION OF RS. 26,07,920/- OUT OF TOTAL DEPREC IATION RS. 1,97,66,844/- ALLOCATED TO EOU UNIT AND ACCORDI NGLY THE SAME WAS ADDED TO TOTAL INCOME OF THE ASSESSEE. F. THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO JUST IFY THAT MAJOR RENOVATION WORK WAS CARRIED OUT IN RESPECT OF THE D TA UNIT. THEREFORE THE DEPRECIATION OF RS. 6,828/-OUT OF TOT AL DEPRECIATION RS. 51,753/- WAS ALLOCATED TO EOU UNIT AND ACCORDIN GLY THE SAME WAS ADDED TO TOTAL INCOME OF THE ASSESSEE. 17.3 THEREFORE, IN VIEW OF ABOVE THE AGGREGATE ADDI TION MADE BY THE AO BY WAY OF ALLOCATION OF THE EXPENSES TO EOU UNIT TO TH E TOTAL INCOME OF THE ASSESSEE FOR RS. 60,71,716/- ONLY. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE THE L D.CIT (A). 18. THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED TH AT THE AO HAD DONE THE SIMILAR APPORTIONMENT IN AY 2003-2004 ABOUT THE DEP RECATION IN RESPECT OF RESIDENTIAL QUARTERS, DATA PROCESSING MACHINES, MOT OR CARS AND IN RESPECT OF ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 29 ADVERTISEMENT EXPENSES. BUT THE LD. CIT (A) IN EARL IER YEAR 2003-04 DELETED THE APPORTIONMENT WITH REGARD TO DEPRECATION IN RES PECT OF RESIDENTIAL QUARTERS, DATA PROCESSING MACHINES, AND IN RESPECT OF ADVERTISEMENT EXPENSES. HOWEVER THE LD.CIT (A) CONFIRMED THE APPORTIONMENT WITH REGARD TO DEPRECIATION ON MOTOR CARS IN HIS ORDER FOR AY 2003 -2004. 18.1 THE LD.CIT (A) AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE PARTLY ALLOWED THE APPEAL BY OBSERVING AS UNDER: I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBS ERVED THAT I HAVE CANCELLED THE ACTION OF THE ASSESSING OFFICER WITH REGARD TO THE APPORTIONM ENT OF THE EXPENSES IN RESPECT OF THE DEPRECIATION ON RESIDENTIAL QUARTERS, DEPRECIATION ON DATA PROCESSING MACHINES AND EXPENDITURE ON ADVERTISEMENT EXPENSES IN MY ORDER A T PARA 28 FOR A.Y 2003-04. UNDER THE CIRCUMSTANCES, IN THIS YEAR ALSO THE ACTION OF THE ASSESSING OFFICER WITH REGARD TO THE APPORTIONMENT OF EXPENSES IN RESPECT OF THESE THREE ITEMS IS CANCELLED. HOWEVER, IT IS SEEN THAT THE ACTION OF THE ASSESSI NG OFFICER WITH REGARD TO THE DEPRECIATION ON MOTOR CAR HAD BEEN CONFIRMED. THE FACTS REMAININ G THE SAME, THE ACTION OF THE ASSESSING OFFICER IN THIS YEAR IS ALSO CONFIRMED. AS REGARDS THE DEPRECIATION OF SAP COSTS, IT IS OBS ERVED THAT THE APPELLANT HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE EXPENDITURE INCURRED IN THIS BEHALF RELATE ONLY TO THE ACTIVITIES OF THE DTA UNIT AND DOES NOT RELATE TO THE ACTIVITIES OF EOU UNIT. IT IS OBSERVED THAT SAP R-3 IS APPLIED EQUALLY TO THE MAI NTENANCE OF ACCOUNTS AND RECORDS OF BOTH THE DTA AND THE WOU. SIMILARLY, IT HAS NOT BEE N SHOWN THAT THE RENOVATION OF BUILDING IS ONLY RELATING TO THE DTA BUILDING. UNDE R THE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE EXPENDITURE RELATES ONLY TO THE DTA UNIT. THEREFORE, THE RE-APPORTIONMENT OF EXPENDITURE AS DONE BY THE ASSESSING OFFICER IN RES PECT OF TWO CLAIMS OF EXPENDITURE IS UPHELD TO BE CORRECT. BEING AGGRIEVED BY THE ORDER OF LD.CIT (A), THE REV ENUE AND THE ASSESSEE ARE IN APPEAL BEFORE US. THE REVENUE IS IN THE APPEAL F OR THE DELETION OF THE FOLLOWING: I) ALLOCATION OF DEPRECIATION OF RESIDENTIAL QUARTERS, II) ALLOCATION OF THE DEPRECIATION ON DATA PROCESSING M ACHINES III) ALLOCATION OF ADVERTISEMENT EXPENSES ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 30 ON THE OTHER HAND, THE ASSESSEE IS IN APPEAL FOR TH E CONFIRMATION OF ADDITION FOR THE ALLOCATION OF THE FOLLOWING: I) ALLOCATION OF DEPRECIATION ON MOTOR CAR, II) ALLOCATION OF DEPRECIATION ON SAP R3 SOFTWARE, III) ALLOCATION OF DEPRECIATION ON REPAIRS TO BUILDING. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN ITA BEARING NO. 80/AHD/2008 IS AS UNDER: 6 THE LEARNED CIT(A) ERRED IN FACT AND IN LA W IN CONFIRMING ACTION OF THE AO IN ALLOCATING THE FOLLOWING EXPENSES BETWEEN D TA UNIT AND EOU IN THE RATIO OF THEIR RESPECTIVE TURNOVER DESPITE THE FACT THA T THE APPELLANT HAD MADE DETAILED SUBMISSIONS WITH RESPECT TO THE ALLOCATION MADE BY IT AND IT WAS THEREFORE REQUESTED THAT NO FURTHER ADJUSTMENT IS REQUIRED TO BE MADE. PARTICULARS TOTAL AMOUNT (RS.) ALLOCATED TO DTA (RS.) ALLOCATED TO EOU (RS.) DEPRECIATION ON MOTOR CAR 18,44,880 16,01,477 2,43,403 DEPRECIATION ON SOFTWARE UPGRADATION/DEVELOPMENT OF ADDL.PROGRAMME OF SAP R/3 TREATED AS CAPITAL EXPENDITURE 1,97,66,844 1,71,58,924 26,07,920 DEPRECIATION ON REPAIRS TO BUILDING 1,03,505 89,850 13,655 TOTAL 2,17,15,229 1,898,50,251 28,64,978 19. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AU THORITIES BELOW. 20. ON THE OTHER HAND THE LD. AR BEFORE US SUBMITT ED THAT IN THE IDENTICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSE SSEE IN ITA NO. 1976 AND ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 31 2052/AHD/2006 PERTAINING TO AY 2003-2004, THE ITAT VIDE ORDER DATED 24- 04-2017 DELETED THE ADDITION AS MENTIONED BELOW: I) ALLOCATION OF THE DEPRECIATION ON DATA PROCESSING M ACHINES II) ALLOCATION OF ADVERTISEMENT EXPENSES 20.1 THE ITAT IN ITS ORDER AS DISCUSSED ABOVE CONFI RMED THE ADDITION AS DETAILED UNDER: I. ALLOCATION OF DEPRECIATION ON MOTOR CAR 20.2 BOTH THE PARTIES RELIED ON THE ORDER OF AUTHOR ITIES BELOW AS FAVORABLE TO THEM. 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT IN THE IDENT ICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE (SUPRA), THE ITAT H AS DELETED / CONFIRMED THE ADDITION MADE BY THE AO. THE RELEVANT EXTRACT OF TH E ORDER IS REPRODUCED AS UNDER: REGARDING THE DELETION OF THE ADDITIONS (DEPRECIATI ON ON DATA PROCESSING MACHINE AND ALLOCATION OF ADVERTISEMENT EXPENSES) 14. WE HAVE HEARD THE RIVAL CONTENTIONS. WE FIND T HAT THERE IS NOTHING ON RECORD TO SHOW THAT THE DTA PROCESSING MACHINES HAVE ACTUALLY BEEN USED FOR THE EOU UNIT WE ALSO FIND MERIT IN THE CONTENTION OF THE LEARNED CONSUL THAT THE ASSESSEE WAS NOT REQUIRED TO MARKET ITS PRODUCT TO THE EOU UNIT AS THE ENTIRE PRODUCTIO N WAS SOLD TO F AG GERMANY WHICH WAS RESPONSIBLE FOR THE MARKETING AND SELLING OF THE PR ODUCT IN FOREIGN MARKETS. IN VIEW OF THE ABOVE FACTS AND TAKING INTO CONSIDERATION THE DETAI LED FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX APPEAL WE DO NOT FIND ANY REASON TO I NTERFERE IN THE FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX APPEAL. REGARDING THE CONFIRMATION OF THE ADDITION (DEPRECI ATION ON MOTOR CAR) 37. THE ASSESSING OFFICER HAS ALLOCATED THE DEPREC IATION ON MOTOR CAR BETWEEN THE DTA UNIT AND EOU UNIT OF RS.3,70,458-. THE LEARNED COMM ISSIONER OF INCOME TAX HAS ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 32 CONFIRMED THE ACTION OF THE ASSESSING OFFICER AS AS SESSEE HAS NOT PRODUCED ANY MATERIAL TO PROVE THAT THE VEHICLES WERE ONLY USED FOR DTA UNIT S. WE HAVE HEARD THE RIVAL CONTENTIONS AND WE DO NOT FIND ANY REASON TO INTERFERE IN THE F INDING OF THE LD.CIT(A). 21.1 IN VIEW OF THE ABOVE ORDER BEING HAVING A BIND ING EFFECT ON US, WE DELETE THE ADDITION FOR THE ALLOCATION MADE BY THE AO TOWARDS THE DEPRECIATION ON DATA PROCESSING MACHINE AND ADVERTISEMENT EXPENS ES AND CONFIRM THE ADDITION MADE BY THE AO REGARDING THE DEPRECIATION ON THE CAR. THE AO IS DIRECTED ACCORDINGLY TO DELETE/ CONFIRM THE ADDITIO N MADE BY THE AO. THE RELEVANT EXTRACT OF THE ORDER HAS ALREADY REPRODUCE D HERE-IN-ABOVE. NOW COMING TO THE ISSUE RELATING TO THE DEPRECIATIO N ON RESIDENTIAL QUARTERS 21.2 THE LD. CIT (A) IN THE AY 2003-04 DELETED THE ALLOCATION OF DEPRECIATION ON RESIDENTIAL QUARTERS MADE BY THE AO . ON VERIFICATION OF GROUNDS OF APPEAL FILED BY THE REVENUE FOR AY 2003- 04 IN APPEAL NO. ITA 1976/AHD/2007 IT IS FOUND THAT THE REVENUE HAS NOT RAISED ANY GROUND AGAINST THE ACTION OF THE LD.CIT (A) FOR DELETION O F ALLOCATION OF DEPRECIATION ON RESIDENTIAL QUARTERS BETWEEN DTA AND EOU UNIT. T HUS IT IS CLEAR THAT ONCE THE REVENUE HAS NOT CHALLENGED THE ACTION OF THE LD .CIT (A), THEN THE ORDER OF THE LD.CIT (A) REACHES ITS FINALITY. AS SUCH IT IS SETTLED LAW THAT THE REVENUE CANNOT CHALLENGE THE SAME IN THE SUBSEQUENT YEAR UN TIL & UNLESS THERE WAS SOME CHANGE IN THE FACTS AND CIRCUMSTANCES. ADMITTE DLY THERE WAS NO CHANGE IN THE FACTS AND CIRCUMSTANCES REGARDING THE CLAIM OF THE ASSESSEE FOR THE DEPRECIATION IN RESPECT OF RESIDENTIAL QUARTERS AND ITS ALLOCATION THEREOF. THEREFORE WE ARE OF THE VIEW, THAT THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF ALLOCATION OF THE DEPRECIATION OF THE RE SIDENTIAL QUARTERS. IN THIS REGARD WE FIND SUPPORT AND GUIDANCE FROM THE JUDGME NT OF HONBLE SUPREME ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 33 COURT IN CASE OF RADHASOAMI SATSANG VS. CIT REPORTE D IN 60 TAXMAN 48 WHERE IN IT WAS HELD AS UNDER: 14. ON THESE REASONINGS IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING THE REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTERAND IF THERE WA S NO CHANGE IT WAS IN SUPPORT OF THE ASSESSEEWE DO NOT THINK THE QUESTION SHOULD HAVE B EEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY THE COMMISSIONER IN THE EARLIER PROCEEDINGS, A DIFFERENT AND CONTRADICTORY STAND SHOULD HAVE BEEN TAKEN. WE ARE, THEREFORE, OF THE VIEW THAT THESE APPEALS SHOULD BE ALLOWED AND THE QUESTION SHOULD B E ANSWERED IN THE AFFIRMATIVE, NAMELY, THAT THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE INCOME DERIVED BY THE RADHASOAMI SATSANG WAS ENTITLED TO EXEMPTION UNDER SECTIONS 11 AND 12. 21.3 IN VIEW OF THE ABOVE, WE HOLD THAT THERE CANNO T BE ANY ALLOCATION OF THE DEPRECIATION CLAIMED BY THE ASSESSEE IN RESPECT OF ITS RESIDENTIAL QUARTERS TOWARDS THE DTA UNIT. NOW COMING TO FRESH ISSUE OF APPORTIONMENT OF DEPRE CIATION ON SAP R3 COST AND DEPRECIATION ON RENOVATION OF BUILDING. REGARDING THE ALLOCATION OF THE DEPRECIATION ON SAP R3 EXPENSES 21.4 AT THE OUTSET WE NOTE THAT THE SAP R3 EXPENSES HAVE BEEN TREATED AS REVENUE EXPENDITURE BY US VIDE PARAGRAPH NO. 73 OF THIS ORDER. THUS THE QUESTION OF ALLOCATING THE DEPRECIATION ON SAP R3 D OES NOT ARISE. 21.5 HOWEVER, IT IS IMPORTANT TO NOTE THAT THE AO H AS NOT DISPUTED ALLOCATION OF THE EXPENSES OF SAP R3 IN HIS ORDER. AS SUCH THE AO TREATED SUCH EXPENSES AS CAPITAL IN NATURE AND ACCORDINGLY THE SAME WAS D ISALLOWED. BUT THE AO ALLOWED THE DEPRECIATION ON SUCH EXPENSES WHICH WAS ALLOCATED BETWEEN DTA AND EOU UNIT OF THE ASSESSEE. THUS THE ISSUE FOR TH E ALLOCATION OF SAP R3 EXPENSES REMAINED UNTOUCHED BY THE AO. THUS THE QUE STION ARISES WHETHER SUCH EXPENSES NEED TO BE ALLOCATED BETWEEN DTA AND EOU UNIT. FOR THIS ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 34 LIMITED PURPOSE, WE ARE OF THE VIEW THAT THE JUSTIC E WILL BE SERVED TO BOTH THE ASSESSEE AND THE REVENUE IF THE MATTER IS RESTORED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION. ACCORDINGLY, WE SET ASIDE THE I SSUE TO THE FILE OF THE AO FOR DE NOVO ASSESSMENT REGARDING THE ALLOCATION OF SAP R3 EXPENSES. REGARDING THE ALLOCATION OF THE DEPRECIATION ON REN OVATION OF THE BUILDING 21.6 AT THE OUTSET, WE NOTE THAT THE RENOVATION EXP ENSES ON THE BUILDING HAVE BEEN TREATED AS REVENUE EXPENDITURE BY US VIDE PARA GRAPH NO. 63 OF THIS ORDER. THUS THE QUESTION OF ALLOCATING THE DEPRECIATION ON RENOVATION EXPENSES DOES NOT ARISE. 21.7 HOWEVER, IT IS IMPORTANT TO NOTE THAT THE AO H AS NOT DISPUTED THE ALLOCATION OF RENOVATION OF THE BUILDING EXPENSES I N HIS ORDER. AS SUCH THE AO TREATED SUCH EXPENSES AS CAPITAL IN NATURE AND ACCO RDINGLY THE SAME WAS DISALLOWED. BUT THE AO ALLOWED THE DEPRECIATION ON SUCH EXPENSES WHICH WAS ALLOCATED BETWEEN DTA AND EOU UNIT OF THE ASSESSEE. THUS THE ISSUE FOR THE ALLOCATION OF RENOVATION EXPENSES REMAINED UNTOUCHE D BY THE AO. THUS THE QUESTION ARISES WHETHER SUCH EXPENSES NEEDS TO BE A LLOCATED BETWEEN DTA AND EOU UNIT. FOR THIS LIMITED PURPOSE, WE ARE OF T HE VIEW THAT THE JUSTICE WILL BE SERVED TO BOTH THE ASSESSEE AND THE REVENUE IF THE MATTER IS RESTORED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION. ACCO RDINGLY WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR DE NOVO ASSESSMENT REGARDING THE ALLOCATION OF IMPUGNED RENOVATION EXPENSES. 21.8 IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR ST ATISTICAL PURPOSES. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 35 THE FIFTH ISSUE RAISED BY THE DEPARTMENT IN THE GROUND NOS 7(A), 7 (B), 7(C) AND 7(D) IS THAT THE CIT (A) ERRED IN NEGATING THE EXCL USION OF 90% OF THE INCOME FROM WRITING BACK OF CREDIT BALANCE AND GAIN FROM F OREIGN EXCHANGE FLUCTUATION. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 7 IS INTERCONNECTED WITH THE ISSUE RAISED BY THE REVENUE AS DISCUSSED ABOVE. THE REFORE WE HAVE CLUBBED THEM TOGETHER FOR THE SAKE OF CONVENIENCE. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 7 IN ITA 80/AHD/2008 IS REPRODUCED AS UNDER: 7. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN REWORKING DEDUCTION U/S.80HHC OF THE INCOME TAX ACT, 1961 BY MAKING VARIOUS ADJUSTMENTS TO THE CLAIM OF THE APPELLANT. A. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CON FIRMING ACTION OF THE AO IN REDUCING THE FOLLOWING AMOUNTS FROM THE PROF ITS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC OF THE ACT ON THE GROUND THAT THEY DO NOT CONSTITUTE BUSINESS INCOME. SR.NO. NATURE OF INCOME AMOUNT (RS.IN LACS) A) SERVICE INCOME 248.00 B) INCOME FROM INVESTMENTS 14.00 C) INCOME FROM UTI 34.00 D) WRITE BACK OF PROVISIONS 64.00 E) MISC.INCOME I) SCRAP SALES 70.47 II) FREIGHT RECOVERED 6.01 III) INSURANCE CLAIM 4.59 IV) HANDLING CHARGES 2.65 V) DEPB INCOME 55.39 VI) DISCOUNT ON EARLY PAYMENTS OF SUPPLIERS 12.39 ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 36 BILLS VII) OCTROI REFUND 39.00 VIII) REVERSAL OF PROVISIONS 19.93 IX) GEB DEPOSIT 6.68 X) OTHERS 17.09 B. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CON FIRMING ACTION OF THE AO IN EXCLUDING GROSS AMOUNT OF ABOVE INCOME FROM THE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC AND NO DED UCTION SHOULD BE GRANTED FOR EXPENSES INCURRED FOR EARNING THE SAID INCOME. 22. DURING THE YEAR UNDER CONSIDERATION, THE AO WHI LE CALCULATING THE DEDUCTION U/S 80HHC OF THE ACT EXCLUDED THE 90% OF THE FOLLOWING INCOME ON THE BASIS OF EXPLANATION (BAA) UNDER SECTION 80H HC(3) OF THE ACT. WRITE BACK OF CREDIT 25,51,856/- FOREX GAIN 1,16,29,805/- SERVICE INCOME 2,48,11,456/- INCOME FROM INVESTMENT 14,00,000/- INCOME FROM UTI 34,00,000/- WRITE BACK OF PROVISION 64,00,000/- SCRAP SALES 70,47,075/- FREIGHT RECOVERED 6,01,371/- INSURANCE CLAIM 4,59,318/- HANDLING CHARGES 2,65,150/- DEPB INCOME 55,39,540/- DISCOUNT ON EARLY PAYMENT OF SUPPLER BILLS 12, 39,571/- OCTROI REFUND 39,00,000/- REVERSAL OF PROVISION 19,92,966/- ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 37 GEB DEPOSIT 6,68,412/- OTHERS 17,09,574/- TOTAL 7,36,16,094/- AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT (A). 23. THE ASSESSEE BEFORE THE LD.CIT (A) SUBMITTED AS UNDER: NOTE : THE FINDING OF THE CIT-A & ITAT HAS BEEN GIV EN FOR ALL THE ITEMS LISTED ABOVE IN SUBSEQUENT PARAGRAPHS TOGETHER FOR THE SAKE OF CONVENIENCE. IN RELATION TO WRITE BACK OF CREDIT BALANCE OF CRED ITORS/DEBTORS FOR RS. 25,51,856/- 24. THE ASSESSEE BEFORE THE CIT-A CLAIMED THAT THE DEDUCTION IS ALLOWABLE UNDER SECTION 80HHC OF THE ACT ON THE AMOUNT WRITTE N BACK AS IT IS ARISING IN THE CONNECTIONS OF BUSINESS. THE ASSESSEE IN SUPPOR T OF HIS CLAIM RELIED ON THE JUDGMENT OF ITAT MUMBAI IN CASE OF EXTRUSION PROCES S (P) LTD. REPORTED IN 106 ITD 336. CIT-A ORDER 24.1 THE LD.CIT (A) REGARDING THE WRITING BACK OF O LD CREDIT BALANCE OF RS. 25,51,856/- NOTICED THAT IT FALLS UNDER SECTION 41(1) OF THE ACT. IT IS BECAUSE THE CORRESPONDING AMOUNT HAS BEEN CLAIMED A S A DEDUCTION IN EARLIER AY. IT IS CLEAR THAT ANY AMOUNT OF PROFIT CONSTRUED U/S 41(1) OF THE ACT HAS TO BE TREATED AS BUSINESS INCOME. THEREFORE THE LD.CIT (A) ALLOWED THE ASSESSEE APPEAL. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 38 ITAT ORDER BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), REVENU E IS IN APPEAL BEFORE US. 25. THE LD. DR AND THE LD. AR, BOTH BEFORE US, REL IED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 26. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE IMPUG NED INCOME IS ARISING IN THE COURSE OF THE BUSINESS OF THE ASSESSEE. WE ALSO NOTE THAT THE AO IN HIS ASSESSMENT ORDER HAS ALSO NOT TREATED THE IMPUGNED INCOME AS INCOME FROM OTHER SOURCES. THEREFORE THE SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND ACCORDINGLY THE SAME IS ELIGIBLE FOR DE DUCTION UNDER SECTION 80HHC OF THE ACT. IN HOLDING SO, WE FIND SUPPORT AN D GUIDANCE FROM THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F ALFA LAVAL INDIA LTD VS. DCIT REPORTED IN 133 TAXMAN 740 WHEREIN IT WAS HELD AS UNDER: IN OUR OPINION, THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE DESERVES TO BE ACCEPTED. IN THE PRESENT CASE, THE ASSESSING OFFICE R HAS COMPUTED THE INCOME BY WAY OF INTEREST FROM THE CUSTOMERS, SALES TAX SET O FF, CLAIMS, REFUNDS, ETC. UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. T O PUT IT DIFFERENTLY, THE ASSESSING OFFICER HAS NOT ASSESSED THE INTEREST INCOME FROM C USTOMERS, SALES TAX SET OFF, ETC. UNDER THE HEAD INCOME FROM OTHER SOURCES OR UNDER ANY OTHER HEAD. HAVING ASSESSED THESE INCOME UNDER THE HEAD PROFITS AND G AINS OF BUSINESS OR PROFESSION, IT WAS NOT OPEN TO THE ASSESSING OFFICER TO TREAT T HESE INCOME AS IF ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES, SO AS TO EXCL UDE THE SAME FROM THE BUSINESS PROFITS WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE INCOME-TAX ACT. PERUSAL OF THE ASSESSMENT ORDER CLEARLY SHOWS THAT THE AMOUNTS IN QUESTION HAVE NOT BEEN ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES, BUT, THE SAME HAVEBEEN ASSESSED UNDER THE HEAD PROFITS & GAINS O F BUSINESS OR PROFESSION. UNDER SECTION 80HHC(3) RELEVANT TO ASSESSMENT YEAR 1989-90, THE DEDUCTION WAS TO BE COMPUTEDWITH REFERENCE TO THE PROFITS OF THE BUSINESS AS COMPUTED UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. I N THE PRESENT CASE, THE INTEREST INCOME FROM CUSTOMERS AND SALES TAX SET OFF HAVE BE EN COMPUTED AND ASSESSED UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROF ESSION AS PART OF THE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 39 OPERATIONAL INCOME AND NOT UNDER THE HEAD INCOME F ROM OTHER SOURCES. THEREFORE, THE SAID INCOME COULD NOT BE DEDUCTED FR OM THE BUSINESS PROFITS WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE INCOME-TAX ACT. THE DECISIONS RELIED UPON BY THE TRIBUNAL HAVE BEEN DIS TINGUISHED IN THE CASE OF BANGALORE CLOTHING CO. (SUPRA). IN THE CASE OF B ANGALORE CLOTHING CO. (SUPRA), IT IS HELD THAT THE ASSESSING OFFICER MUST ASCERTAI N THE NATURE OF RECEIPT IN EACH CASE INDEPENDENTLY. INTEREST INCOME MAY OR MAY NOT BE OUT OF BUSINESS ACTIVITY. IF IT IS NOT PART OF OPERATIONAL BUSINESS INCOME, THEN, T HE ASSESSING OFFICER WOULD HAVE BEEN JUSTIFIED IN EXCLUDING THE SAME FOR THE PURPOS E OF DEDUCTION UNDER SECTION 80HHC OF THE ACT. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS ACCEPTED THAT THE INTEREST INCOME RECEIVED FROM CUS TOMERS AS WELL AS SALES TAX SET OFF ARE ASSESSABLE UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. THEREFORE, HAVING ACCEPTED THAT THE SAID INCOME AS PART OF THE BUSINESS PROFIT, THE SAME COULD NOT BE EXCLUDED FROM BUSINESS PROFITS WH ILE CALCULATING DEDUCTION UNDER SECTION 80HHC OF THE ACT. 26.1 IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT TH E ITAT MUMBAI IN CASE OF EXTRUSION PROCESS (P) LTD. REPORTED IN 106 ITD 336 HAS ALSO HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80H HC OF THE ACT IN RESPECT OF THE IMPUGNED INCOME AS DISCUSSED ABOVE. THE RELEVAN T EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: WE CONSIDERED THE MATTER IN DETAIL. THE 'PROFITS O F THE BUSINESS' MEANS THE PROFITS AND GAINS COMPUTED UNDER THE PROVISIONS OF SECTIONS 28 TO 43C OF THE INCOME-TAX ACT, 1961. SECTION 41(1), COMES THEREFOR E, AMONG THE PROVISIONS RELATING TO THE COMPUTATION OF BUSINESS PROFITS/GAI NS. SECTION 41(1) PROVIDES FOR TREATING THE ASSESSMENT OF LIABILITY AS INCOME, PROVIDED THOSE LIABILITIES WERE CLAIMED AS DEDUCTIONS IN COMPUTING THE TAXABLE INCOME FOR EARLIER ASSESSMENT YEARS. IT SHOWS THAT SECTION 41(1) IS NO T CREATING ANY INCOME AS SUCH INDEPENDENTLY WITHOUT ANY BASIS. ON THE OTHER HAND, THE INCOME IS CREATED UNDER SECTION 41(1) ON THE GROUND THAT THE CORRESPONDING AMOUNTS WERE CLAIMED AS DEDUCTIONS IN THE EARLIER ASSESSMEN T YEARS. THE PROFITS AND GAINS OF THE ASSESSEE WERE REDUCED TO THAT EXTENT I N THE EARLIER ASSESSMENT YEARS. WHEN THOSE LIABILITIES CEASED TO EXIST, IT I S VERY NECESSARY TO WRITE BACK THE LIABILITIES AS A RESULT OF WHICH THE AMOUNT NEE DS TO BE OFFERED AS INCOME IN THE ACCOUNTS UNDER SECTION 41(1). THEREFORE, THE RE IS NO FORCE IN THE ARGUMENT OF THE REVENUE THAT THE INCOME DEEMED UNDE R SECTION 41(1) STANDS ALONE DIFFERENTLY AND DISTINCTLY FROM THE COMPUTATI ON OF BUSINESS INCOME OF AN ASSESSEE PROVIDED UNDER THE PROVISIONS OF LAW CO NTAINED IN SECTIONS 28 TO 43C. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 40 9. MORE PARTICULARLY SPEAKING WITH REFERENCE TO SECTI ON 80HHC, THE LAW DOES NOT DIFFERENTIATE THE PROFITS AND GAINS OF BUSINESS ON THE BASIS OF THE COLOUR OF SEGMENTS WHICH CONTRIBUTED SUCH BUSINESS PROFITS AN D GAINS. THE EXCLUSION PROVIDED IN THE ACT WITH REFERENCE TO SECTION 80HHC IS PROVIDED UNDER EXPLANATION (BAA) WHERE THE LAW DIRECTS TO EX CLUDE 90 PER CENT OF CERTAIN RECEIPTS. THOSE AMOUNTS ARE THE SUM REFERRE D TO IN CLAUSES (IIIA), (IIIB) AND (IIIC ) OF SECTION 28 OR OF ANY RECEIPTS BY WAY OF BROKERAGE COMMISSION, INTEREST, RENT CHARGES OR ANY OTHER REC EIPT OF A SIMILAR NATURE INCLUDED IN SUCH PROFIT. ANY OTHER RECEIPT OF SIMIL AR NATURE MEANS RECEIPT SIMILAR TO BROKERAGE, COMMISSION, INTEREST, RENT, C HARGES. THE WRITE BACK PROVIDED UNDER SECTION 41(1) FOR THE PURPOSE OF NUL LIFYING THE EFFECT OF EARLIER DEDUCTIONS CLAIMED TOWARDS CENTRAL EXCISE LIABILITY IS NOT A RECEIPT SIMILAR TO BROKERAGE, COMMISSION, INTEREST OR RENT CHARGES. THEREFORE EXPLANATION (BAA ) HAS NO APPLICATION EIT HER. 10. ON THE OTHER HAND, WE EMPHATICALLY FIND THAT ANY A MOUNT OF PROFIT CONSTRUED UNDER SECTION 41(1) IS NOTHING BUT BUSINE SS PROFITS IN ITS TEXTURE, COLOURAND CHARACTER. THEREFORE, THE ASSESSING OFFIC ER IS NOT JUSTIFIED IN EXCLUDING THE AMOUNT OF RS. 1,71,35,268 IN COMPUTIN G THE BUSINESS PROFITS FOR THE PURPOSE OF SECTION 80HHC. WE DIRECT THE ASSESSI NG OFFICER TO ACCEPT THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC RENDER ED BY THE ASSESSEE BY INCLUDING THE INCOME OF RS. 1,71,35,268. 26.2 IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REASO N TO INTERFERE IN THE ORDER OF THE LD.CIT-A. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. IN RELATION TO GAIN ON FOREX RS. 1,16,29,805/- 27. THE ASSESSEE SUBMITTED THAT THE INCOME FROM THE FOREIGN CURRENCY FLUCTUATION IS PART OF EXPORT TURNOVER WHICH REPRES ENTS THE ADDITIONAL SALE PRICE. THE ASSESSEE IN SUPPORT OF HIS CLAIM PLACED ITS RELIANCE ON THE JUDGMENT OF DELHI ITAT IN CASE OF SMT.SUJATA GROVER VS. DCIT REPORTED IN 74 TTJ 347. CIT-A ORDER ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 41 27.1 THE LD.CIT (A) AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE HELD THAT FOREIGN EXCHANGE FLUCTUATION INCOME HAS DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE. THEREFORE THE SAME IS ELIGIBLE FOR DE DUCTION UNDER SECTION 80HHC OF THE ACT. ITAT ORDER BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), REVENU E IS IN APPEAL BEFORE US. 28. THE LD. DR AND THE LD. AR, BOTH BEFORE US, RELI ED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. 29. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE IMPUG NED INCOME IS ARISING IN THE COURSE OF THE BUSINESS OF THE ASSESSEE. WE ALSO NOTE THAT THE AO IN HIS ASSESSMENT ORDER HAS ALSO NOT TREATED THE IMPUGNED INCOME AS INCOME FROM OTHER SOURCES. THEREFORE THE SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND ACCORDINGLY THE SAME IS ELIGIBLE FOR DE DUCTION UNDER SECTION 80HHC OF THE ACT. IN HOLDING SO, WE FIND SUPPORT AN D GUIDANCE FROM THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F ALFA LAVAL INDIA LTD (SUPRA). THE RELEVANT EXTRACT HAS ALREADY BEEN REPRODUCED I N THE PRECEDING PARAGRAPH. 29.1 IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT TH E DELHI ITAT IN CASE OF SMT. SUJATA GROVER (SUPRA) WHERE IN IT WAS HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 80HHC OF THE ACT IN RESPECT OF THE IMPUGNED INCOME AS DISCUSSED ABOVE. THE RELEVANT EXTRACT OF THE ORD ER IS REPRODUCED AS UNDER: ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 42 SECTION 80HHC OF THE INCOME-TAX ACT, 1961 - INCOME FROM FOREIGN EXCHANGE FLUCTUATION RESULTING FROM EXPORT TURNOVER OF EARLI ER YEARS WOULD NOT FALL IN CATEGORY OF 'ANY OTHER RECEIPT OF A SIMILAR NATURE' AS USED IN EXPLANATION (BAA) BELOW SECTION 80HHC(4B) 29.2 IN VIEW OF THE ABOVE, WE DO NOT FIND ANY REAS ON TO INTERFERE IN THE ORDER OF THE LD. CIT-A. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. IN RELATION TO SERVICE INCOME OF RS. 2,48,11,456.00 , SCRAP SALES OF RS. 70,47,075/-, HANDLING CHARGES RS. 2,65,150, AND GEB RS. 6.68.412 /-. 30. THE ASSESSEE BEFORE THE LEARNED CIT (A) SUBMITT ED AS UNDER: I. SERVICE INCOME INCLUDES CONSULTANCY FEES OF RS. 2,0 4,83,835/- AND INSPECTION CHARGES OF RS. 43,28,111/-. CONSULTANCY FEES WERE RECEIVED FROM FAG GERMANY FOR PROVIDING CONSULTANCY SERVICE ON MARKETING, INDUSTRIAL & COMMERCIAL INFORMATION OF T HE PRODUCT OF FAG GERMANY IN INDIA. THE SERVICE INCLUDES PROVIDIN G CUSTOMER EDUCATION BY ARRANGING SEMINARS, CONFERENCES, EXHIB ITION, AND DISTRIBUTION OF TECHNICAL INFORMATION IN RESPECT OF PRODUCT OF FAG GERMANY. II. REGARDING THE INSPECTION CHARGES, THE COMPANY DEPUT ES THE ENGINEERS TO CERTIFY THE GENUINENESS OF FAG BEARING S. THE COMPANY CHARGE FEES FOR THE SAID SERVICE AS INSPECTION CHAR GES. THIS INCOME IS PURELY RELATED TO BUSINESS OF THE ASSESSEE. THE ASS ESSEE IN SUPPORT OF HIS CLAIM RELIED ON THE JUDGMENT OF BOMBAY HIGH COU RT IN THE CASE OF CIT V/S INTERNATIONAL DATA MANAGEMENT LTD. REPOR TED IN 261 ITR 177. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 43 III. INCOME FROM SALE OF SCRAP IS DIRECTLY RELATED TO TH E MANUFACTURING ACTIVITY OF THE APPELLANT BECAUSE IT IS GENERATED D UE TO THE MANUFACTURING PROCESS OF THE ASSESSEE. SIMILARLY AP PELLANT HAS RELIED ON THE JUDGMENT OF ITAT (CHENNAI BENCH) IN THE CASE OF JCIT V/S KADRI MILLS (CBE) LTD. REPORTED IN 76 TTJ 38. IV. REGARDING THE BUSINESS INCOME OF LOADING AND UNLOAD ING CHARGES, THE ASSESSEE SUBMITTED THAT THESE ARE CONNECTED WIT H THE BUSINESS. THEREFORE IT IS A BUSINESS INCOME. V. GEB DEPOSIT WAS KEPT FOR OBTAINING AN ELECTRIC CONN ECTION. THEREFOREIT IS THE BUSINESS INCOME. CIT-A ORDER 30.1 THE LD.CIT (A) OBSERVED THAT THE AFORESAID INC OME CANNOT BE TREATED AS BUSINESS INCOME OF THE ASSESSEE. THEREFORE THE LD. CIT-A HELD THAT SUCH INCOME IS NOT ELIGIBLE FOR THE DEDUCTION UNDER SECT ION 80HHC OF THE ACT. ITAT ORDER BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), ASSESS EE IS IN APPEAL BEFORE US. 31. THE LD. AR BEFORE US SUBMITTED THAT THE AFORESA ID INCOMES ARE DIRECTLY CONNECTED WITH THE BUSINESS. THEREFORE SUCH INCOMES ARE ELIGIBLE FOR THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. THE LD. A R ALTERNATIVELY SUBMITTED THAT IF THE DEDUCTION IS DENIED, THEN THE NET INCOME SHOULD BE CONSIDERED. 32. ON THE OTHER HAND, THE LD. DR RELIED ON THE O RDER OF AUTHORITIES BELOW. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 44 IN RELATION TO SERVICE INCOME OF RS. 2,48,11,456.00 33. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE DEDUCTION UNDER SECTION 80HHC IS AVAILABLE TO THE ASSESSEE IN RESPECT OF EXPORT OF T HE GOODS. THE PROVISIONS OF THIS SECTION DO NOT SPEAK ABOUT THE DEDUCTION IN RE SPECT OF SERVICE INCOME. THEREFORE IN OUR CONSIDERED VIEW, THE ASSESSEE IS N OT ENTITLED TO THE DEDUCTION UNDER SECTION 80HHC OF THE ACT IN RESPECT OF SUCH I NCOME. HOWEVER, THE ASSESSEE IS ENTITLED TO THE DEDUCTION FOR THE EXPEN SES INCURRED BY IT AGAINST SUCH INCOME. THEREFORE WE DIRECT THE AO TO REDUCE T HE EXPENSES INCURRED BY THE ASSESSEE FROM THE SERVICE INCOME AS DISCUSSED A BOVE. THUS THE AO WILL REDUCE 90% OF THE BALANCED SERVICE INCOME FOR WORKI NG OUT THE PROFIT OF THE BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC OF THE ACT. AS SUCH THE AO WILL CONSIDER THE ONLY NET INCOME OF THE ASSESSE E BEFORE REDUCING 90% OF THE SERVICE INCOME WHILE WORKING OUT THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN THIS REGARD, WE PLACE OUR RELIANCE ON T HE ORDER OF THE DELHI HC IN CASE OF CIT VS. SHRI RAM HONDA POWER EQUIP REPORTED IN 207 CTR 689 WHEREIN IT WAS HELD AS UNDER: ( I ) IN COMPUTING WHAT THE PROFITS DERIVED FROM EXPORTS FOR THE PURPOSES OF SECTION 80HHC(1) READ WITH SECTION 80HHC(3) ARE, THE NEXUS TEST HAS TO BE APPLIED TO EXCLUDE THAT WHICH DOES NOT PARTAKE OF PROFITS THAT CAN BE SAID TO HAV E BEEN DERIVED FROM THE BUSINESS OF EXPORTS. ( II ) IN THE SPECIFIC CONTEXT OF CLAUSE (BAA) OF THE EXPLANATION TO SECTION 80HHC, WHILE DETERMINING THE 'PROFITS OF THE BUSINESS', THE ASSE SSING OFFICER HAS TO UNDERTAKE A TWO- STEP EXERCISE IN THE FOLLOWING SEQUENCE. HE HAS TO FIRST 'COMPUTE' THE PROFITS OF THE BUSINESS UNDER THE HEAD 'PROFITS AND GAINS OF BUSIN ESS OR PROFESSION.' IN OTHER WORDS, HE WILL HAVE TO COMPUTE BUSINESS PROFITS, IN TERMS OF THE ACT, BY APPLYING THE PROVISIONS OF SECTIONS 28 TO 44. ( III ) IN ARRIVING AT PROFITS OF THE BU SINESS BY THE ABOVE METHOD, THE ASSESSING OFFICER W ILL EXCLUDE ALL SUCH INCOMES WHICH PARTAKE THE CHARACTE R OF 'INCOME FROM OTHER SOURCES' WHICH IN ANY EVENT ARE TREATED UNDER SECTIONS 56 AN D 57 AND ARE THEREFORE NOT TO BE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 45 RECKONEDFOR THE PURPOSES OF SECTI ON 80HHC. THE ASSESSING OFFICER WILL APPLY THE LAW AS EXPLAINED IN THE JUDGMENTS OF THE KERALA HIGH COURT WHICH HAVE BEEN AFFIRMED BY THE SUPREME COURT. ( IV ) WHERE SURPLUS FUNDS ARE PARKED WITH THE BANK AND INTEREST IS EARNED THEREON, IT CA N ONLY BE CATEGORISED AS INCOME FROM OTHER SOURCES. THIS RECEIPT MERITS S EPARATE TREATMENT UNDER SECTION 56 WHICH IS OUTSIDE THE RING OF PROFITS AND GAINS FROM BUSINESS AND PROFESSION. IT GOES ENTIRELY OUT OF THE RECKONING FOR THE PURPOSES OF SECTION 80HHC. ( V ) INTEREST EARNED ON FIXED DEPOSITS FOR THE PURPOSES OF AVAILING CREDIT FACILITIES FROM THE BANK, DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BU SINESS AND THEREFORE HAS TO NECESSARILY BE TREATED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. ( VI ) ONCE BUSINESS INCOME HAS BEEN DETERMINED BY APPLYING ACCOUNTING STANDARDS AS WELL AS THE PROVISIONS CONTAINED IN THE ACT, THE ASSESSEE W OULD BE PERMITTED TO, IN TERMS OF SECTION 37, CLAIM AS DEDUCTION, EXPENDITURE LAID OUT FOR TH E PURPOSES OF EARNING SUCH BUSINESS INCOME. ( VII ) IN THE SECOND STAGE, THE ASSESSING OFFICER WILL DED UCT FROM THE PROFITS OF THE BUSINESS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSIN ESS OR PROFESSION', THE FOLLOWING SUMS IN ORDER TO ARRIVE AT THE 'PROFITS OF THE BUSINESS' FOR THE PURPOSES OF SECTION 80HHC (3): ( A ) 90 PER CENT OF ANY SUM REFERRED TO IN CLAUSES (IIIA ), (IIIB) AND (IIIC ) OF SECTION 28, I.E., EXPORT INCENTIVES; ( B ) 90 PER CENT OF ANY RECEIPTS BY WAY OF BROKERAGE, COMMISSION, IN TEREST, RENT, CHARGES OR ANY OTHER RECEIPT OF A SIMILAR NATURE IN CLUDED IN SUCH PROFITS; AND ( C ) PROFITS OF ANY BRANCH, OFFICE, WAREHOUSE OR ANY OTH ER ESTABLISHMENT OF THE ASSESSEE SITUATE OUTSIDE INDIA ( VIII ) THE WORD 'INTEREST' IN CLAUSE (BAA) OF THE EXPLANATION CONNOTES 'N ET INTEREST' AND NOT 'GROSS INTEREST'. THEREFORE, IN DEDUCTING SUCH INTEREST, THE ASSESSIN G OFFICER WILL TAKE INTO ACCOUNT THE NET INTEREST, I.E ., GROSS INTEREST AS REDUCED BY EXPENDITURE INCURRE D FOR EARNING SUCH INTEREST. ( IX ) WHERE, AS A RESULT OF T HE COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR PROFESSION, THE ASSESSING OFFICER TREATS THE INTEREST RECEIPT AS BU SINESS INCOME, THE DEDUCTION SHOULD BE PERMISSIBLE IN TERMS OF EXPLANATION (BAA) OF THE NET INTEREST, I.E., THE GROSS INTEREST LESS THE EX PENDITURE INCURRED FOR THE PURPOSES OF EARNING SUCH INTEREST. THE NEXUS BETWEEN OBTAINING THE LOAN AND PAYING INTEREST THEREON (LAY ING OUT THE EXPENDITURE BY WAY OF INTEREST) FOR THE PURPOSE OF EARNING THE INTEREST ON THE FIXED DEPOSIT, TO DRAW AN ANALO GY FROM SECTION 37, WILL REQUIRE TO BE SHOWN BY THE AS SESSEE FOR APPLICATION OF THE NETTING PRINCIPLE. 33.1 THE CASE LAW RELIED UPON BY THE ASSESSEE BEFOR E THE AO/CIT-A DOES NOT APPLY TO THE FACTS OF THE CASE ON HAND. AS SUCH THE CASE LAW RELIED UPON BY THE AO/CIT-A IS DISTINGUISHABLE FROM THE FACTS OF T HE PRESENT CASE. THEREFORE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 46 WE ARE RELUCTANT TO PLACE OUR RELIANCE ON THE SAID CASE LAW. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SALE OF SCRAP AND INSURANCE CLAIM AND HANDLING CHAR GES 33.2 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE IMPUG NED INCOME IS ARISING IN THE COURSE OF THE BUSINESS OF THE ASSESSEE. WE ALSO NOTE THAT THE AO IN HIS ASSESSMENT ORDER HAS ALSO NOT TREATED THE IMPUGNED INCOME AS INCOME FROM OTHER SOURCES. THEREFORE THE SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND ACCORDINGLY THE SAME IS ELIGIBLE FOR DE DUCTION UNDER SECTION 80HHC OF THE ACT. IN HOLDING SO, WE FIND SUPPORT AN D GUIDANCE FROM THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O FALFA LAVAL INDIA LTD VS. DCIT REPORTED IN 133 TAXMAN 740 WHEREIN THE ISS UE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE RELEVANT EXTRACT HAS AL READY BEEN REPRODUCED IN THE PRECEDING PARAGRAPH. 33.3 IN ADDITION TO THE ABOVE, WE ALSO NOTE THAT TH E ITAT (CHENNAI BENCH) IN THE CASE OF JCIT V/S KADRI MILLS (CBE) LTD. REPO RTED IN 76 TTJ 38 HAS ALSO HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UND ER SECTION 80HHC OF THE ACT IN RESPECT OF THE IMPUGNED INCOME AS DISCUSSED ABOV E. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THE FACTS AND MATERIALS AVAILABLE ON RECORD INCLUDING THAT OF THE DECISIONS RELIED UPON BY BOTH THE PARTIES. AFTER A CAREFUL CONSIDERATION OF THE SAME, WE ARE O F THE OPINION THAT THE EXPLN. (BAA) OF SUB-SECTION (4B) OF SECTION80HHC SPEAKS OF ONLY 'PROFITS OF BUSINESS' AS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSIN ESS OR PROFESSION' AND NOT PROFITS DERIVED FROM EXPORT. FURTHER, THE ITEMS OF RECEIPTS SUCH AS MISCELLANEOUS INCOMES LIKE GUNNY BAG SALES, SCRAP SALES, INSURANC E CLAIM, PREMIUM ON HANK YARN OBLIGATION, ETC. DO NOT HAVE EVEN A SEMBLANCE OF TH E ITEMS MENTIONED IN EXPLN. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 47 (BAA) VIZ., BROKERAGE, COMMISSION, INTEREST, RENT, CHARGES OR ANY OTHER RECEIPTS OF SIMILAR NATURE. THE PURPOSE OF EXPLN. (BAA) IS ONLY TO EXCLUDE CERTAIN ITEMS MENTIONED THEREIN WHILE ARRIVING AT THE 'PROFITS OF THE BUSINESS' AND NOT THE PROFITS DERIVED FROM THE EXPORT. THERE IS FORCE IN THE CONT ENTION OF THE LEARNED COUNSEL THAT THE CASE LAWS RELIED UPON BY THE LEARNED DEPARTMENT AL REPRESENTATIVE ARE NOT RELEVANT OR APPLICABLE TO THE FACTS OF THE CASE ON HAND AS WE ARE NOT ARRIVING AT THE INCOME DERIVED FROM EXPORT AS CONTENDED BY THE LEAR NED DEPARTMENTAL REPRESENTATIVE BUT ONLY ARRIVING AT THE PROFITS OF THE BUSINESS. HENCE, WE ARE OF THE OPINION THAT THE REVENUE AUTHORITIES HAVE COMMITTED A MISTAKE IN REMOVING THESE ITEMS OF INCOME FROM THE PROFITS OF THE BUSINESS WH ILE COMPUTING DEDUCTION UNDER S. 80HHC OF THE ACT. HENCE, WE DIRECT THE AO NOT TO EXCLUDE THE ABOVE ITEMS AS NOT FORMING PART OF BUSINESS PROFITS IN COMPUTING R ELIEF UNDER S. 80HHC OF THE ACT. 33.4 IN VIEW OF THE ABOVE, WE REVERSE THE ORDER OF THE LD. CIT-A. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. INTEREST INCOME FROM GEB RS. 6,68,412/- 33.5 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE DEDUCTION UNDER SECTION 80HHC IS AVAILABLE TO THE ASSESSEE IN RESPECT OF EXPORT OF T HE GOODS. THE PROVISIONS OF THIS SECTION DO NOT SPEAK ABOUT THE DEDUCTION IN RE SPECT OF INTEREST INCOME FROM GEB. THEREFORE IN OUR CONSIDERED VIEW, THE ASS ESSEE IS NOT ENTITLED TO THE DEDUCTION UNDER SECTION 80HHC OF THE ACT IN RES PECT OF SUCH INCOME. HOWEVER, THE ASSESSEE IS ENTITLED TO THE DEDUCTION FOR THE EXPENSES INCURRED BY IT AGAINST SUCH INCOME. THEREFORE WE DIRECT THE AO TO REDUCE THE EXPENSES INCURRED BY THE ASSESSEE FROM THE INTEREST INCOME A S DISCUSSED ABOVE. THUS THE AO WILL REDUCE 90% OF THE BALANCED INTEREST INC OME FOR WORKING OUT THE PROFIT OF THE BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HHC OF THE ACT. AS SUCH THE AO WILL CONSIDER ONLY THE NET INCOME OF THE ASSESSEE BEFORE REDUCING 90% OF THE INTEREST INCOME WHILE WORKING O UT THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN THIS REGARD, WE PLACE OUR RELIANCE ON THE ORDER ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 48 OF THE HONBLE DELHI HC IN CASE OF CIT VS. SHRI RAM HONDA POWER EQUIP REPORTED IN 207 CTR 689. THE RELEVANT EXTRACT OF TH E JUDGMENT HAS BEEN REPRODUCED IN THE PRECEDING PARAGRAPH. 33.6 IN VIEW OF THE ABOVE THE GROUND OF APPEAL OF T HE ASSESSEE IS PARTLY ALLOWED. IN RELATION TO INCOME FROM INVESTMENT AND INCOME FR OM UTI 34. THE ASSESSEE BEFORE THE LD. CIT-A SUBMITTED THA T ONLY NET AMOUNT MIGHT BE CONSIDERED FOR WORKING OUT THE DEDUCTION U NDER SECTION 80HHC OF THE ACT BY RELYING ON THE JUDGMENT OF DELHI HIGH CO URT IN THE CASE OF CIT V/S SHRI RAM HONDA POWER EQUIPMENT REPORTED IN 289 ITR 475. CIT-A ORDER 34.1 THE LD.CIT (A) OBSERVED THAT THE INTEREST EARN ED ON FIXED DEPOSIT TO AVAIL CREDIT FACILITIES FROM THE BANK DOES NOT HAVE AN IMMEDIATE NEXUS WITH THE EXPORT BUSINESS. THEREFORE IT HAS TO BE TREATED AS INCOME FROM OTHER SOURCES. THUS INCOME FROM INVESTMENT AND UTI IS HEL D THAT IT IS NOT BUSINESS INCOME. THEREFORE, THE LD. CIT-A CONFIRMED THE ORDE R OF THE AO. ITAT ORDER BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), THE AS SESSEE IS IN APPEAL BEFORE US. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 49 35. THE LD. AR BEFORE US REITERATED THE SUBMISSION AS MADE BEFORE THE LD. CIT-A. ON THE OTHER HAND THE LD. DR RELIED ON THE O RDER OF AUTHORITIES BELOW. 36. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE DEDUCTION UNDER SECTION 80HHC IS AVAILABLE TO THE ASSESSEE IN RESPECT OF EXPORT OF T HE GOODS. THE PROVISIONS OF THIS SECTION DO NOT SPEAK ABOUT THE DEDUCTION IN RE SPECT OF INCOME FROM THE INVESTMENT/ UTI. THEREFORE, IN OUR CONSIDERED VIEW, THE ASSESSEE IS NOT ENTITLED TO THE DEDUCTION UNDER SECTION 80HHC OF TH E ACT IN RESPECT OF SUCH INCOME AS DISCUSSED ABOVE. HOWEVER, THE ASSESSEE IS ENTITLED TO THE DEDUCTION FOR THE EXPENSES INCURRED BY IT AGAINST SUCH INCOME . THEREFORE WE DIRECT THE AO TO REDUCE THE EXPENSES INCURRED BY THE ASSESSEE FROM THE INCOME OF INVESTMENT/ UTI AS DISCUSSED ABOVE. THUS THE AO WIL L REDUCE 90% OF THE BALANCED INCOME FROM THE INVESTMENT/ UTI FOR WORKIN G OUT THE PROFIT OF THE BUSINESS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 HH C OF THE ACT. AS SUCH THE AO WILL CONSIDER ONLY THE NET INCOME OF THE ASSESSE E BEFORE REDUCING 90% OF THE INCOME FROM THE INVESTMENT/ UTI WHILE WORKING O UT THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. IN THIS REGARD, WE PLACE OUR RELIANCE ON THE ORDER OF THE DELHI HC IN CASE OF CIT VS. SHRI RAM HONDA P OWER EQUIP REPORTED IN 207 CTR 689. THE RELEVANT EXTRACT OF THE JUDGMENT H AS BEEN REPRODUCED IN THE PRECEDING PARAGRAPH. 36.1 IN VIEW OF THE ABOVE, THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. IN RELATION TO FREIGHT RECOVERED OF RS. 6,01,371/-, INSURANCE CLAIM/SALE TAX CLAIM/CST REFUND RS. 4,59,318. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 50 37. THE ASSESSEE BEFORE THE LD. CIT-A SUBMITTED THA T THE AMOUNT OF FREIGHT RECOVERED DOES NOT REPRESENT THE INCOM, BUT IT IS T HE RECOVERY OF EXPENSES INCURRED ON BEHALF OF CUSTOMERS. THEREFORE THE SAME SHOULD NOT BE EXCLUDED FROM THE PROFIT TO WORK OUT THE DEDUCTION UNDER SEC TION 80HHC OF THE ACT. THE ASSESSEE SIMILARLY SUBMITTED REGARDING THE INSU RANCE CLAIM THAT IT IS NOT INCOME RATHER IT REPRESENTS THE REIMBURSEMENT OF EX PENSES WITHOUT NO PROFIT ELEMENT. THEREFORE, THERE IS NO NEED TO EXCLUDE THE SAME FROM THE PROFIT TO WORKOUT THE DEDUCTION UNDER SECTION 80HHC OF THE AC T. THE ASSESSEE RELIED ON VARIOUS JUDGMENTS INCLUDING THE ORDER OF ITAT AH MEDABAD IN CASE OF GUJARAT ALKALIES & CHEMICALS LTD REPORTED IN 77 TTJ 245 AND ALSO PLACED RELIANCE ON THE JUDGMENT OF KADRI MILLS (CBE) LTD. VS. REPORTED IN 76 TTJ 38. CIT-A ORDER 37.1 THE LD.CIT (A) REGARDING THE FREIGHT AND INSUR ANCE CLAIM OBSERVED THAT THESE RECEIPTS ARE IN THE NATURE OF INCOME, BUT THE SAME CANNOT BE SAID TO BE BUSINESS INCOME. THEREFORE THE LD. CIT-A CONFIRMED THE ACTION OF THE AO. ITAT ORDER BEING AGGRIEVED BY THE ORDER OF THE LD. CIT (A), TH E ASSESSEE IS IN APPEAL BEFORE US. 38. THE LD. AR BEFORE US REITERATED THE SUBMISSION AS MADE BEFORE THE LD. CIT-A. ON THE OTHER HAND THE LD. DR RELIED ON THE O RDER OF AUTHORITIES BELOW. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 51 39. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE IMPUG NED INCOME IS ARISING IN THE COURSE OF THE BUSINESS OF THE ASSESSEE. WE ALSO NOTE THAT THE AO IN HIS ASSESSMENT ORDER HAS ALSO NOT TREATED THE IMPUGNED INCOME AS INCOME FROM OTHER SOURCES. THEREFORE THE SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND ACCORDINGLY THE SAME IS ELIGIBLE FOR DE DUCTION UNDER SECTION 80HHC OF THE ACT. IN HOLDING SO, WE FIND SUPPORT AN D GUIDANCE FROM THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F ALFA LAVAL INDIA LTD VS. DCIT REPORTED IN 133 TAXMAN 740. THE RELEVANT F INDING OF THE JUDGMENT HAS ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGR APHS. 39.1 IN VIEW OF THE ABOVE, WE REVERSE THE ORDER OF THE LD. CIT-A. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. IN RELATION TO DEPB INCOME RS. 55,39,540. 40. THE ASSESSEE BEFORE THE LD.CIT (A) SUBMITTED TH AT THE DEPB INCOME COVERED UNDER THE FIRST PROVISO TO SECTION 80HHC(3) OF THE ACT. THUS IT SHOULD BE ALLOWED AS DEDUCTION U/S 80HHC OF THE ACT. CIT-A ORDER 40.1 THE LD.CIT (A) OBSERVED THAT THE ASSESSEE COMP ANY HAVING A TURNOVER EXCEEDING RS. 10 CRORES BUT THE ASSESSEE FAILED TO SATISFY THE CONDITION SPECIFIED IN THE THIRD PROVISO TO SECTION 80HHC(3) OF THE ACT. THEREFORE THE LD. CIT-A CONFIRMED THE ACTION OF THE AO. ITAT ORDER ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 52 BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), THE AS SESSEE IS IN APPEAL BEFORE US. 41. THE LD. AR BEFORE US REITERATED THE SUBMISSION AS MADE BEFORE THE LD. CIT-A. ON THE OTHER HAND THE LD. DR RELIED ON THE O RDER OF AUTHORITIES BELOW. 42. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE IMPUG NED INCOME IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80HHC(3) OF THE ACT. WE ALS O NOTE THAT THE ISSUE INVOLVED IN THE INSTANT CASE STANDS COVERED IN FAVO R OF THE ASSESSEE BY THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF CIT V S. AVANI EXPORTS REPORTED IN 277 CTR 460 WHEREIN IT WAS HELD AS UND ER: 26. ON CONSIDERATION OF THE ENTIRE MATERIALS ON RE CORD, WE, THEREFORE, FIND SUBSTANCE IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE PETITIONERS THAT THE IMPUGNED AMENDMENT IS VIOLATIVE FOR ITS RETROSPECTI VE OPERATION IN ORDER TO OVERCOME THE DECISION OF THE TRIBUNAL, AND AT THE S AME TIME, FOR DEPRIVING THE BENEFIT EARLIER GRANTED TO A CLASS OF THE ASSESSEES WHOSE ASSESSMENTS WERE STILL PENDING ALTHOUGH SUCH BENEFIT WILL BE AVAILABLE TO THE ASSESSEES WHOSE ASSESSMENTS HAVE ALREADY BEEN CONCLUDED. IN OTHER WORDS, IN THI S TYPE OF SUBSTANTIVE AMENDMENT, RETROSPECTIVE OPERATION CAN BE GIVEN ONL YIF IT IS FOR THE BENEFIT OF THE ASSESSEE BUT NOT IN A CASE WHERE IT AFFECTS EVEN A FEWER SECTION OF THE ASSESSEES. 27. WE, ACCORDINGLY, QUASH THE IMPUGNED AMENDMENT O NLY TO THIS EXTENT THAT THE OPERATION OF THE SAID SECTION COULD BE GIVEN EFFECT FROM THE DATE OF AMENDMENT AND NOT IN RESPECT OF EARLIER ASSESSMENT YEARS OF THE A SSESSEES WHOSE EXPORT TURNOVER IS ABOVE RS.10 CRORE. IN OTHER WORDS, THE RETROSPECTIV E AMENDMENT SHOULD NOT BE DETRIMENTAL TO ANY OF THE ASSESSEES.' 42.1 IN VIEW OF THE ABOVE, WE ARE INCLINED TO REVER SE THE ORDER OF THE LD. CIT-A. ACCORDINGLY, WE DIRECT THE AO TO CONSIDER TH E AFORESAID AMOUNT FOR WORKING OUT THE DEDUCTION UNDER SECTION 80HHC OF TH E ACT. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 53 IN RELATION TO A DISCOUNT OF EARLY PAYMENT OF SUPPL IERS BILL OF RS. 12,39,571/- 43. THE ASSESSEE SUBMITTED BEFORE THE LD.CIT (A) TH AT THE ASSESSEE COMPANY RECEIVED A DISCOUNT FROM THE SUPPLIER ON AC COUNT OF EARLY PAYMENT. SUCH EARLY PAYMENT WOULD LEAD TO A REDUCTION IN THE COST OF PURCHASE, AND THE SAME CANNOT BE TREATED AS INCOME FROM OTHER SOU RCES. THEREFORE, THE SAME CANNOT BE REDUCED FROM PROFIT TO WORK OUT THE DEDUC TION UNDER SECTION 80HHC OF THE ACT. THE ASSESSEE IN SUPPORT OF HIS CO NTENTION RELIED ON THE JUDGMENT OF RAJASTHAN HC IN CASE OF CIT VS. SHARDA GUM & CHEMICALS REPORTED IN 209 CTR 143. CIT-A ORDER 43.1 THE LD.CIT (A) OBSERVED THAT THE DISCOUNT ON E ARLIER PAYMENT TO SUPPLIER IS NOT A TRADE DISCOUNT BUT A CASH DISCOUN T. THEREFORE DISCOUNT RECEIVED BY THE ASSESSEE ON ACCOUNT OF EARLIER PAYM ENT IS IN THE NATURE OF INTEREST. THUS THE AO CORRECTLY EXCLUDED IT FROM TH E INCOME ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT. ITAT ORDER BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), THE AS SESSEE IS IN APPEAL BEFORE US. 44. THE LD. AR BEFORE US REITERATED THE SUBMISSION AS MADE BEFORE THE LD. CIT-A. ON THE OTHER HAND THE LD. DR RELIED ON THE O RDER OF AUTHORITIES BELOW. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 54 45. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE IMPUG NED INCOME IS ARISING IN THE COURSE OF THE BUSINESS OF THE ASSESSEE. WE ALSO NOTE THAT THE AO IN HIS ASSESSMENT ORDER HAS ALSO NOT TREATED THE IMPUGNED INCOME AS INCOME FROM OTHER SOURCES. THEREFORE THE SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND ACCORDINGLY THE SAME IS ELIGIBLE FOR DE DUCTION UNDER SECTION 80HHC OF THE ACT. IN HOLDING SO, WE FIND SUPPORT AN D GUIDANCE FROM THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F ALFA LAVAL INDIA LTD VS. DCIT REPORTED IN 133 TAXMAN 740. THE RELEVANT FINDING OF THE JUDGMENT HAS ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGR APHS. 46.1 IN ADDITION TO THE ABOVE WE ALSO NOTE THAT HON BLE RAJASTHAN HC IN CASE OF CIT VS. SHARDA GUM & CHEMICALS REPORTED IN 209 CTR 143HAS ALSO HELD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION UNDER SECTION 80HHC OF THE ACT IN RESPECT OF THE IMPUGNED INCOME AS DISCUSSED ABOVE. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: THE TRIBUNAL HAS FOUND THAT THE ASSESSEE IN THE CO URSE OF ITS BUSINESS HAS BORROWED SUMS AND PAID INTEREST AND BANK COMMISSION TO THE TUNE OF RS. 14,33,528.32 WHICH WERE ALLOWABLE DEDUCTION. AS AGA INST PAYMENT OF INTEREST AND BANK COMMISSION, THE ASSESSEE HAS ALSO RECEIVED INT EREST AND, THEREFORE, THE NET OUTGOING UNDER THE HEAD OF INTEREST HAS BEEN STATED TO BE RS. 13,06,081.92 WHICH HAS BEEN DEDUCTED WHILE COMPUTING PROFITS OF BUSINE SS. IT HAS ALSO BEEN NOTICED BY THE TRIBUNAL THAT INTEREST INCOME TO THE TUNE OF RS . 68,534 DIRECTLY RELATED TO THE EXPORT BUSINESS AS SUCH EXCESS INTEREST EARNED WAS CREDITED BY THE BANK ON EARLY PAYMENT OF FOREIGN BILLS OF EXCHANGE. THESE FINDING S ARE FINDINGS OF FACT. THE ASSESSING OFFICER ALSO WHILE REDUCING THE PROFIT OF BUSINESS FOR THE PURPOSE OF COMPUTING INCOME OF THE ASSESSEE HAS NOT TREATED TH E RECEIPT OF INTEREST DIFFERENTLY. IT CLEARLY GOES TO SHOW THAT WHILE COMPUTING THE TA XABLE INCOME OF THE ASSESSEE HE HAS TAKEN THE BASIS AS PROFIT SHOWN AS PROFIT AND L OSS ACCOUNT WHICH INCLUDED DEDUCTION ON ACCOUNT OF OUTGOING OF INTEREST AS NOT ICED ABOVE. NO SEPARATE TREATMENT HAS BEEN GIVEN BY THE ASSESSING OFFICER I N CONSIDERING THE INCOME FROM INTEREST RECEIPT. NEITHER HAS HE ADJUSTED THE PROFI TS SHOWN IN THE PROFIT AND LOSS ACCOUNT BY MAKING ADDITION OF RS. 1,27,000 AS INCOM E FROM INTEREST TO BE TREATED SEPARATELY NOR HAS SUCH INCOME BEEN COMPUTED UNDER THE HEAD OF INCOME FROM ANY OTHER SOURCES. UNDER THESE CIRCUMSTANCES, THERE IS NO REASON TO REDUCE PROFIT OF ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 55 BUSINESS AS COMPUTED UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS FURTHER BY SUCH AMOUNT OF INTEREST RECEIVED BY THE ASSESSEE AF TER ADJUSTING DEDUCTION ALLOWABLE UNDER SECTION 32AB. WE, THEREFORE, FIND T HAT THE ORDER OF THE TRIBUNAL DOES NOT CALL FOR ANY INTERFERENCE. IT MAY BE NOTIC ED THAT THIS AMOUNT WAS DIRECTLY RELATED TO CREDIT EARNED BY THE ASSESSEE IN RESPECT OF HIS EXPORT BUSINESS ON ACCOUNT OF EARLY PAYMENT OF FOREIGN EXCHANGE BILLS, HENCE W AS REALLY PART OF INCOME FROM BUSINESS OF EXPORT. HAD THE ASSESSEE BEEN ENGAGED I N BUSINESS OF EXPORTING GOODS AND MERCHANDISE OUT OF INDIA, SUCH AMOUNT HAVE BECO ME PART OF INCOME FROM SUCH BUSINESS ONLY BEING INCIDENTAL TO SUCH TRADE ONLY. 46.2 IN VIEW OF THE ABOVE, WE ARE INCLINED TO REVER SE THE ORDER OF THE LD.CIT (A). ACCORDINGLY, WE DIRECT THE AO TO CONSIDER THE AFORESAID AMOUNT FOR WORKING OUT THE DEDUCTION UNDER SECTION 80HHC OF TH E ACT. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. IN RELATION TO OCTROI REFUND RS. 39,00,000/-, REVER SAL OF THE PROVISIONS, FOR THE EXCISE DUTY FOR RS.8,99,158/-AND FOR THE TESTIN G CHARGES RS.10,93,808/-. 47. THE ASSESSEE BEFORE THE LD. CIT-A SUBMITTED THA T OCTROI PAYMENT HAS BEEN MADE ON ACCOUNT OF THE BUSINESS TRANSACTION. T HEREFORE REFUND OF THE SAME SHOULD BE TREATED AS BUSINESS INCOME. THE ASSE SSEE IN SUPPORT OF HIS CONTENTION RELIED ON THE JUDGMENT OF AARTI INDUSTRI ES REPORTED IN 95 TTJ 14 AND ALSO ON THE JUDGMENT OF ALFA LAVAL INDIA LTD RE PORTED IN 186 CTR 390. 47.1 THE ASSESSEE REGARDING THE PROVISION OF EXCISE DUTY AND TESTING CHARGES SUBMITTED THAT IT HAS BEEN MADE OUT OF THE PROFIT O F THE COMPANY. THEREFORE AT THE TIME OF REVERSAL, IT SHOULD BE TREATED AS INCOM E OF THE ASSESSEE. CIT-A ORDER ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 56 47.2 THE LD.CIT (A) CONFIRMED THE ORDER OF THE AO B Y OBSERVING THAT THE FACTS OF THE CASE ON WHICH ASSESSEE HAS RELIED DO N OT APPLY TO THE ASSESSEE CASE. ITAT ORDER BEING AGGRIEVED BY THE ORDER OF LD. CIT (A), THE AS SESSEE IS IN APPEAL BEFORE US. 48. THE LD. AR BEFORE US REITERATED THE SUBMISSION AS MADE BEFORE THE LD. CIT-A. ON THE OTHER HAND THE LD. DR RELIED ON THE O RDER OF AUTHORITIES BELOW. 49. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY THE IMPUG NED INCOME IS ARISING IN THE COURSE OF THE BUSINESS OF THE ASSESSEE. WE ALSO NOTE THAT THE AO IN HIS ASSESSMENT ORDER HAS ALSO NOT TREATED THE IMPUGNED INCOME AS INCOME FROM OTHER SOURCES. THEREFORE THE SAME CANNOT BE TREATED AS INCOME FROM OTHER SOURCES AND ACCORDINGLY THE SAME IS ELIGIBLE FOR DE DUCTION UNDER SECTION 80HHC OF THE ACT. IN HOLDING SO, WE FIND SUPPORT AN D GUIDANCE FROM THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F ALFA LAVAL INDIA LTD VS. DCIT REPORTED IN 133 TAXMAN 740. THE RELEVANT F INDING OF THE JUDGMENT HAS ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGR APHS. 49.1 IN VIEW OF THE ABOVE, WE ARE INCLINED TO REVER SE THE ORDER OF THE LD.CIT (A). ACCORDINGLY WE DIRECT THE AO TO CONSIDER THE A FORESAID AMOUNT FOR WORKING OUT THE DEDUCTION UNDER SECTION 80HHC OF TH E ACT. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 57 IN RELATION TO OTHER RS. 17,09,574/- 50. THE ASSESSEE BEFORE THE LD. CIT-A SUBMITTED THA T THESE ARE SMALL AMOUNT ACCRUING DURING THE NORMAL COURSE OF THE BUS INESS. THEREFORE THE SAME SHOULD BE CONSIDERED AS BUSINESS INCOME. 51. AT THE OUTSET, WE NOTE THAT THE LD. AR BEFORE U S HAS NOT ADVANCED ANY ARGUMENT SUGGESTING THAT INCOME IS ARISING IN THE C OURSE OF THE BUSINESS. THUS IN THE ABSENCE OF ANY INFORMATION CONTRARY TO THE F INDING OF THE LD.CIT (A), WE ARE INCLINED TO UPHOLD THE SAME. HENCE THE GROUN D OF APPEAL OF THE ASSESSEE IS DISMISSED. IN RELATION WRITE BACK OF PROVISION OF RS. 64,00,00 0.00 52. THE LD. AR AT THE TIME HEARING DID NOT PRESS TH IS ISSUE. THEREFORE WE DISMISS THE SAME AS NOT PRESSED. 53. IN VIEW OF THE ABOVE, THE GROUND OF APPEAL OF T HE REVENUE IS DISMISSED AND THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. THE ISSUE RAISED BY THE REVENUE IN GROUND NO. 8(A),8(B),8(C) AND 8(D) IS THAT THE LD. CIT (A) ERRED IN INCLUDING THE PROFIT & EXP ORT TURNOVER OF EOU UNITS ELIGIBLE FOR TAX HOLIDAY U/S 10B OF THE ACT IN THE COMPUTATION OF DEDUCTION U/S 80HHC OF THE ACT. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 58 54. THE AO DURING ASSESSMENT PROCEEDING OBSERVED TH AT THE ASSESSEE WHILE COMPUTING THE DEDUCTION U/S 80HHC INCLUDED THE PROF IT AND THE TURNOVER OF EOU UNITS IN EXPORT TURNOVER AND TOTAL TURNOVER. HO WEVER, THE EXPORT TURNOVER OF THE EOU UNIT WAS ALREADY SUBJECTED TO D EDUCTION U/S 10B OF THE ACT. 54.1 THEREFORE THE AO WAS OF THE VIEW THAT THE ASSE SSEE IS CLAIMING THE DOUBLE BENEFIT FOR THE PROFIT OF THE EOU UNDER SECT ION 80HHC & 10B OF THE ACT WHICH IS AGAINST THE PROVISION OF THE LAW. ACCO RDINGLY, THE AO EXCLUDED THE PROFIT AND TURNOVER OF EOU UNIT WHILE COMPUTING THE DEDUCTION U/S 80HHC OF THE ACT. 55. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT (A) WHO DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 34. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBSERVED THAT THE SIMILAR ISSUE CAME UP BEFORE ME IN THE APPELLANTS OWN CASE FOR A .Y. 2003-04 WHEREIN I HAVE DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT AS AT PARA 46 OF MY ORDER DATED 19/02/007. FOLLOWING THE SAME, THE ACTION OF THE A SSESSING OFFICER IN EXCLUDING THE PROFITS AND TURNOVER OF EOU FOR THE PURPOSES OF CLA IMING DEDUCTION U/S.80HHC IS CANCELLED. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A) THE REVENUE IS APPEAL BEFORE US. 56. THE LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF A UTHORITIES BELOW. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 59 57. ON THE OTHER HAND, THE LD. AR BEFORE US CONCE DED THE FACT THAT THE ISSUE STANDS COVERED AGAINST THE ASSESSEE BY THE OR DER OF THE ITAT IN ITA NO. 1976/AHD/2007 VIDE ORDER DATED 24-4-2017. 58. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE FIND THAT IN THE IDENTI CAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE (SUPRA) , THE ITAT CONFIRMED THE FINDING OF THE AO. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDER: 20. WE HAVE HEARD THE RIVAL CONTENTIONS. WE HAVE ALSO PERUSED THE JUDICIAL PRONOUNCEMENT REFERRED BY THE LEARNED DR IN THE CA SE OF TATA BP SOLAR INDIA LIMITED VERSUS ADDITIONAL COMMISSIONER OF INCOME TA X OF ITA NO. 3381 MUMBAI/2009/A.Y. 2004-05. WE FIND THAT IN THIS CASE IT WAS HELD THAT EXPORT TURNOVER OF THE EOU WHICH WAS ENJOYING DEDUCTION UN DER SECTION 10B WAS TO BE INCLUDED IN THE TOTAL TURNOVER BUT NOT IN THE COM PUTATION OF DEDUCTION UNDER SECTION 80HHC(3)(A).THE RELEVANT PART OF THIS JUDIC IAL PRONOUNCEMENT IS REPRODUCED AS UNDER:- 'WE HAVE ALREADY SEEN THE PROVISIONS OF S. 80HHC(3) (A) OF THE ACT, WHICH REFERS TO PROFITS DERIVED FROM EXPORT OF GOODS MANUFACTURED T HEN THE PROFIT DERIVED FROM SUCH EXPORT SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUC H GOODS BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE ASSESSEE . THE EXPRESSION 'SUCH' BEFORE THE EXPRESSION EXPORT TURNOVER ONLY MEANS THAT THE EXPORT TURNOVER REFERRED TO IS THE TURNOVER OF THE GOODS MANUFACTURED WHOSE PROFIT S ARE BEING COMPUTED UNDER S. 80HHC(3)(A). WE CANNOT THEREFORE IGNORE THE INTENTI ON OF THE LEGISLATURE EXPRESSED IN SUCH CLEAR TERMS. WITH REGARD TO THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE PROFITS OF BUSINESS SHOULD BE INC REASED BY ADDING PROFITS OF S. 10B UNITS ALSO, WE ARE OF THE VIEW THAT THE PROFITS OF S. 10B UNIT FALL UNDER CHAPTER III OF THE ACT UNDER THE HEAD INCOME WHICH DO NOT FORM PAR T OF THE TOTAL INCOME. THEREFORE, THE PROFITS OF S. 10B UNIT WILL NOT ENTE R THE COMPUTATION OF TOTAL INCOME AT ALL. THE SAID PROFITS CANNOT THEREFORE FORM PART OF THE PROFITS UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. FOR ALL THE ABOVE REASONS WE ARE OF THE VIEW THAT THE ORDER OF CIT DIRECTING THE AO TO INCLUDE EXPORT TURNOVER ALSO AS PART OF THE TOTALTURNOVER WAS CORRECT AND DOES NOT CALL FOR ANY INTERFERENCE .' WE FIND THAT THE FACTS IN THE CASE OF THE ASSESSEE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY THE MUMBAI ITAT IN THE CASE REFERRE D SUPRA IN THIS ORDER. WE ALSO CONSIDER THAT THE EXPRESSION 'SUCH' BEFORE THE EXPR ESSION EXPORT TURNOVER ONLY MEANS THAT THE EXPORT TURNOVER REFERRED TO IS THE T URNOVER OF THE GOODS ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 60 MANUFACTURED WHOSE PROFITS ARE BEING COMPUTED UNDER S. 80HHC(3)(A).THEREFORE, WE FIND THAT WHILE COMPUTING DEDUCTION UNDER SECT ION 80HHC THE PROFITS OF S. 10B UNIT WILL NOT ENTER THE COMPUTATION OF TOTAL IN COME AT ALL. IN VIEW OF ABOVE FACTS AND LEGAL FINDINGS, WE REVERSE THE DECISION O F THE LD.CIT(A) AND CONFIRM THE FINDINGS OF THE ASSESSING OFFICER AND DIRECT TO COM PUTE THE DEDUCTION U/S 80HHC ACCORDINGLY AS PER THE DIRECTION GIVEN IN THE JUDIC IAL PRONOUNCEMENT OF ITAT MUMBAI IN THE CASE OF TATA BP SOLAR INDIA LIMITE D VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX OF ITA NO. 3381 MUMBAI/2 009/A.Y. 2004-05. 58.1 AS THE FACTS IN THE CASE ON HAND ARE IDENTICAL TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, THEREFORE RESPECTFULLY FOLLOWING T HE SAME. HENCE THE GROUND OF APPEAL OF THE REVENUE IS ALLOWED. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. NOW COMING TO ITA NO 80/AHD/2008 FOR A.Y.2004-05. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL AS UNDER: ALL THE GROUNDS OF APPEAL IN THIS APPEAL ARE MUTUAL LY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER 1. THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) - I, BAROCLA [''THE CIT(A)'] ERRED IN FACT AND IN LAW IN CONFIRMING ACTION OF TH E ASSTT, COMMISSIONER OF INCOME TAX, CIRCLE - 1(2). BARODA ('THE AO') IN TREATING EXPENS ES IN THE NATURE OF REPAIRS TO BUILDING AMOUNTING TO RS. 10,35,052 AS CAPITAL EXPENDITURE I NSTEAD OF REVENUE EXPENDITURE AS CLAIMED BY THE APPELLANT. 2. THE LEARNED C1T(A) ERRED IN FACT AND IN LAW IN CONFIRMING ACTION OF THE AO IN MAKING ADDITION OF RS. 67.07,658 BY DISALLOWING EXP ENDITURE ON SCIENTIFIC RESEARCH CLAIMED U/S, 35(1) OF THE ACT DESPITE THE FACT THAT THE APP ELLANT HAD FURNISHED COMPLETE DETAILS FOR SUBSTANTIATING THE CLAIM. 3. THE LEARNED C1T(A) ERRED IN FACT AND IN LAW IN CONFIRMING ACTION OF THE AO IN CONSIDERING SAP R/3 RUNNING COST AMOUNTING TO RS, 3 ,29,44,739 AS CAPITAL EXPENDITURE, .. 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING THE ACTION OF THE AO IN INCLUDING AN AMOUNT OF RS. 1,58.86.554 IN THE TOTAL INCOME OF THE APPELLANT ON THE GROUND THAT THE VALUATION OF THE CLOSING STOCK IS REQUIRED TO BE DONE BY INCLUDING THEREIN THE UNUTILIZED CENVAT CREDIT, DESPITE THE FACT THAT THE SUM WAS ALREADY SHCMN AS CURRENT ASSET AND NOT CLAIMED AS DEDUCTION. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 61 THE LEARNED AO ALSO ERRED IN FACT AND IN LAW IN NOT VALUING THE OPENING STOCK TOR THE YEAR UNDER CONSIDERATION BY THE SAME METHOD BY INCLUDING THEREIN THE AMOUNT OF CENVAT CREDIT. .. , 5. THE LD, CIT (A) ERRED IN FACT AND IN LAW IN PART IALLY CONFIRMING THE ADJUSTMENT PROPOSED BY THE TRANSFER PRICING OFFICER - IV. WEST ZONE. INDIA ('THE TPO') / AO U/S, 92 C R.W.S, 92 (1) IN RESPECT OF INTERNATIONAL TRANSAC TION IN AS MUCH AS IT PERTAINED TO PART OF THE ROYALTY PAID AMOUNTING TO RS, 98,42.600 AND IN RESPECT OF OTHER INTERNATIONAL TRANSACTIONS AMOUNTING TO RS. 81,00,848 AND THUS CO NFIRMING THE ADJUSTMENT TO THE INCOME OF THE APPELLANT AGGREGATING TO RS. 1,79,43,448. A. THE TPO AND AO ALSO ERRED IN FACT AND IN LAW IN REJ ECTING THE REPORT IN FORM NO. 3CEB DESPITE THE FACT THAT ALL THE FACTS AND FIGURE S MENTIONED THEREIN WERE CORRECT. B. THE TPO AND AO ALSO ERRED IN FACT AND IN LAW IN COM PUTING ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ON A BASIS DIFFERENT THAN THAT ADOPTED BV THE APPELLANT COMPANY DESPITE THE FACT THAT THE APPELLA NT HAD CORRECTLY COMPUTED ARM'S LENGTH PRICE AND HAD OBTAINED THE CERTIFICATE THEREON FROM CHARTERED ACCOUNTANT FOR THE SAME. C. THE LD. CIT (A) ALSO ERRED IN FACT AND IN LAW IN HO LDING THAT ROYALTY AND FEES FOR TECHNICAL SERVICES PAID TO THE EXTENT OF ONLY (A), 1,5 % OF THE SALES VALUE MAY HE TREATED AS ARM'S LENGTH PRICE AND BALANCE WAS REQUI RED TO BE ADJUSTED UNDER CHAPTER X OF THE ACT AND THUS CONTINUING THE ADJUST MENT TO THE EXTENT OF RS. 98,42,600 ON THIS COUNT. D. THE TPO AND AO ALSO ERRED IN FACT AND IN LAW IN DET ERMINING THE COMPARABLE PROFIT MARGIN AT 10,66 % INSTEAD OF 6,97 % WORKED O UT BY THE APPELLANT. E, I HE LD, CI1 (A) ALSO ERRED IN FAD AND IN LAW IN CONFIRMING THE ACTION OF \ THE TPO / AO IN SEPARATING THE PROFITS OF THE APPELLANT COMPANY IN RESPECT OF DOMESTIC TARIFF AREA UNITS AND THEN COMPARING THE SAME WITH COMPOSITE PR OFITS OF OTHER CASES, WHICH INCLUDED THE EXPORT PROFITS AND THUS CONFIRMING ADJUSTMENT O F RS, 81.00.848 THE ALLEGED GROUND OF LOWER COMPARABLE PROFITS AND THEREBY CONFIRMING ACT ION OFTHE TPO AND AO IN DETERMINING THE COMPARABLE PROFIT MARGIN (CI 10.66% INSTEAD OF 6,97 %, 6 THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING ACTION OF THE AO IN ALLOCATING THE FOLLOWING EXPENSES BETWEEN DTA UNIT AND EOU IN THE RATIO OF THEIR RESPECTIVE TURNOVER DESPITE THE FACT THAT THE APPELLANT HAD MADE DETAILED SUBMISSIONS WITH RESPECT TO THE ALLOCATION MADE BY IT AND IT WA S THEREFORE REQUESTED THAT NO FURTHER ADJUSTMENT IS REQUIRED TO BE MADE. PARTICULARS TOTAL AMOUNT (RS.) ALLOCATED TO (RS.) ALLOCATED TO EOU (RS.) DEPRECIATION ON MOTOR CAR 18,44.880 16,01,477 2,43.403 DEPRECIATION ON SOFTWARE UPGRADATION / 1.97.66.844 DEVELOPMENT OF ADDL, PROGRAMME OF SAP R/3 TREATED AS CAPITAL EXPENDITURE 1.71.58,924 26,07.920 ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 62 DEPRECIATION ON REPAIRS TO BUILDING 1.03.505 89,850 13.655 | TO TAL 2,17,15,229 1,88,50,251 28,64,978 7. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING ACTION OF THE AO IN REVOKING DEDUCTION U/S.80HHC OF THE INCOME TAX ACT, 1961 BY MAKING VARIOUS ADJUSTMENT TO THE CLAIM OF THE APPELLANT. A. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING ACTION OF THE AO IN REDUCING THE FOLLOWING AMOUNTS FROM THE PROFITS OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80HHC OF THE ACT ON THE GRO UND THAT THEY DO NOT CONSTITUTE BUSINESS INCOME. SR, NO. NATURE OF INCOME (RS, IN LACS) A) SERVICE INCOME 248,00 B) INCOME FROM INVESTMENTS 14.00 C) INCOME FROM UTI 34.00 D) WRITE BACK OF PROVISIONS 64.00 E) MISC. INCOME I) SCRAP SALES 70,47 II) FREIGHT RECOVERED 6.01 III) INSURANCE CLAIM 4.59 IV) HANDLING CHARGES 2LT V) DEPB INCOME 55.39 VI) DISCOUNT ON EARLY PAYMENT S OF SUPPLIERS BILLS 12.39 VII) OCTROI REFUND 39.00 VIII)REVERSAL OF PROVISIONS 19.93 IX) GEB DEPOSIT 6.68., ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 63 X) OTHERS 17.09 B. THE LEARNED C1T(A) ERRED IN FACT AND IN LAW IN CONF IRMING ACTION OF THE AO IN EXCLUDING GROSS AMOUNT OT ABOVE INCOME FROM THE PRO FITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/'S.80HHC AND NO DEDUCTION SHO ULD BE GRANTED TOR EXPENSES INCURRED FOR EARNING THE SAID INCOME. 8. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN R EJECTING THE FOLLOWING ADDITIONAL GROUND OF APPEAL: THE LEARNED AO ERRED IN FACT AND IN LAW IN NOT RE-C OMPUTING THE DEPRECIATION ALLOWABLE FOR THE VEAR AFTER TAKING INTO CONSIDERAT ION VARIOUS ITEMS OF REVENUE EXPENDITURE TREATED AS CAPITAL EXPENDITURE IN THE ASSESSMENT AN D APPELLATE PROCEEDINGS,' 9. THE LEARNED C1T (A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CHARAINA INTEREST U/S. 234B OF THE INCOME TAX ACT. 1961. 10. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CHARGING INTEREST U/S.234D OF THE INCOME TAX ACT 19 61. 11. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN WITHDRAWING INTEREST U/S.244A OF THE INCOME TAX ACT , 1961. 12. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN FORMING THE INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT. THE FIRST ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 IS THAT THE LD.CIT (A) ERRED IN FACT AND LAW TREATING REPAIRS TO BUILDING AMOUNTING TO RS. 10,35,052/- AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITU RE AS CLAIMED IT. 59. THE ASSESSEE HAS CLAIMED BUILDING RENOVATION AND MODERNIZATION EXPENSES OF RS. 10,35,052/- AS REVENUE EXPENSES. ON QUESTION BY THE AO, ASSESSEE SUBMITTED THAT THE EXPENSES INCURRED FOR R EPLACING THE WORN OUT AND DILAPIDATED PORTIONS OF THE BUILDING, ENTIRE PROCES S OF RENOVATION AND MODERNIZATION, THE SIZE OF THE BUILDING REMAINED SA ME, ITS USE CONTINUED TO BE THE SAME AS OFFICE. THERE ARE ONLY COSMETICS CHANGE S WHICH ARE NOT IN THE NATURE OF NEW CONSTRUCTION OR INCREASE IN THE SIZE OF CAPACITY. 59.1 IT IS ALSO SUBMITTED BY THE ASSESSEE THAT VALU E OF GROSS BLOCK OF BUILDING OF RS. 1779 LACS. HOWEVER THE RENOVATION A ND MODERNIZATION ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 64 EXPENSES AMOUNTING TO RS. 10.35 LACS ONLY WHICH IS ONLY 0.6% OF THE TOTAL VALUE OF THE ASSETS. 59.2 FURTHER ASSESSEE SUBMITTED THAT DURING THE YEA R UNDER CONSIDERATION THE COMPANY ALREADY TREATED 209.90 LACS AS CAPITAL EXPE NDITURE BEING EXTENSION AND EXPANSION OF THE BUILDINGS. 59.3 HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSESSEE AND RELIED ON THE SC JUDGMENT IN THE CASE BALLIMAL NAVAL KISHORE VS CIT REPORTED IN 224 ITR 414 AND CONSIDERED AS CAPITAL EXPENDITURE. FURT HER THE AO POINTED OUT THAT THE ASSESSEE CLAIMED THESES EXPENSES BY WAY DE DUCTION IN THE COMPUTATION OF INCOME AND NOT DEBITED THESES EXPENS ES TO P&L ACCOUNTS. ACCORDINGLY THE AO TREATED THESE EXPENSES AS CAPITA L IN NATURE AND ALLOWED DEP. @ 5 % AMOUNTING TO RS. 51,753/- AND REMAINING BALANCE AMOUNTING TO RS. 9,83,299/-ADDED TO THE TOTAL INCOME OF THE ASSE SSEE. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE THE L D.CIT (A). 60. THE ASSESSEE BEFORE THE LD.CIT (A) REITERATED T HE SUBMISSION AS PLACED BEFORE THE AO. THE ASSESSEE WITHOUT PREJUDICE TO TH E ABOVE ALSO STATED THAT IF THESE EXPENDITURES ARE CONSIDERED AS CAPITAL EXPEND ITURE THEN RATE OF DEPRECIATION ON IT SHALL BE 10%. 60.1 THE LD.CIT (A) HAS CONFIRMED THE ORDER OF THE AO AFTER HAVING RELIANCE ON THE ORDER OF HIS PREDECESSOR PERTAINING TO THE ASSESSMENT YEAR 2003-04 WHERE THE EXPENSES AS DISCUSSED ABOVE WERE TREATED AS CAPITAL IN NATURE AND DEPRECIATION WAS ALLOWED AT THE RATE OF 10% ON SUCH EXPENSES. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 65 BEING AGGRIEVED BY THE ORDER OF LD.CIT (A), THE ASS ESSEE IS IN APPEAL BEFORE US. 61. THE LD.AR BEFORE US REITERATED THE SUBMISSION A S MADE BEFORE THE AUTHORITIES BELOW. 62. ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUPPOR TED THE ORDER OF AUTHORITIES BELOW. 63. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES WH ETHER THE REPAIR EXPENSES IN THE BUILDING CARRIED OUT BY THE ASSESSEE REPRESENTS THE CAPITAL EXPENDITURE. THERE IS NO ALLEGATION OF THE REVENUE THAT ANY NEW ASSET HAS COME INTO EXISTENCE OUT OF SUCH EXPENDITURE. AS SUCH THE REPA IRING EXPENSES WERE INCURRED TO THE EXISTING BUILDING. THUS, WE ARE OF THE VIEW THAT SUCH EXPENDITURE CANNOT BE TERMED AS CAPITAL IN NATURE M ERELY ON THE GROUND THAT IT WILL GENERATE ENDURING BENEFIT TO THE ASSESSEE. REG ARDING THIS WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. COMINCO BINANI ZINC LIMITED REPORTED IN 204 ITR 56 WHEREIN IT WAS HELD AS UNDER: IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING T HE ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSES SEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVIN G THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUG H THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENE FIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AN D MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN C ASE. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 66 63.1 REGARDING THIS WE ALSO FIND SUPPORT AND GUIDAN CE FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. B HARAT SURYODAYA MILLS CO. LTD. REPORTED IN 202 ITR 942 WHEREIN IT WAS HEL D AS UNDER: AN OLD WALL WAS REQUIRED TO BE REBUILT BECAUSE OF DEMOLITION. THUS, THE EXPENDITURE WHICH WAS INCURRED WAS MORE IN THE NATURE OF REPAIRS RATH ER THAN CREATION OF A NEW CAPITAL ASSET. A WALL WAS REQUIRED TO BE BUILT BY THE ASSESSEE AS A NECESSITY FOR RUNNING HIS BUSINESS. THE TRIBUNAL WAS, THEREFORE, RIGHT IN HOLDING THAT THE EXPENDITURE WAS ALLOWABLE AS REVENUE EXPENDITURE. 63.2 WE ALSO NOTE THAT, THE CASE LAW RELIED UPON BY THE AO I.E. BALLIMAL NAVAL KISHORE & ANOTHER VS. CIT IS DISTINGUISHABLE FROM THE PRESENT FACTS OF THE CASE. IN THAT CASE THE HONBLE APEX COURT OBSER VED THAT THERE WAS A TOTAL RENOVATION OF THE THEATRE. NEW MACHINERY, NEW FURNI TURE, NEW SANITARY FITTINGS AND NEW ELECTRICAL WIRING WERE INSTALLED BESIDES EX TENSIVELY REPAIRING THE STRUCTURE OF THE BUILDING. HOWEVER IN THE INSTANT C ASE BEFORE US, THERE WAS MERE REPAIR ON THE EXISTING BUILDING. THERE WAS NO CHANGE BROUGHT TO OUR NOTICE ABOUT THE STRUCTURAL IN THE EXISTING BUILDIN G OUT OF SUCH EXPENSES. 63.3 IN VIEW OF THE ABOVE, WE DISAGREE WITH THE FIN DING OF THE LD. CIT-A. ACCORDINGLY WE DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM BY TREATING THE REPAIRING EXPENSES AS CAPITAL IN NATURE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. THE SECOND ISSUE RAISED BY THE ASSESSEE IN GROUND NO 2 IS THAT THE LD.CIT (A) ERRED IN DISALLOWING THE EXPENDITURE ON SCIENTIFIC RESEARCH CLAIMED U/S 35(1) OF THE ACT AMOUNTING TO RS. 67,07,658/-. 64. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HA S BEEN CLAIMED EXPENSES U/S 35 OF THE ACT TOWARDS THE ACQUISITION, INSTALLA TION AND COMMISSIONING OF ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 67 PLANT AND MACHINERY FOR THE R&D DIVISION. THE ASSE SSEE TO JUSTIFY SUCH EXPENSES SUBMITTED AS UNDER: I. THE MARKET AND ECONOMIC FUNCTION FOR THE PRODUCT IS DIFFERENT IN THE DIFFERENT AREA. THEREFORE IT IS NECESSARY TO MAKE P RODUCT AS PER LOCAL MARKET REQUIREMENT. FURTHER IN ALL THESE MARKET VAR IOUS TYPES OF RAW MATERIAL, DIFFERENT QUALITY AT DIFFERENT PRICE ARE AVAILABLE. II. THE ABOVE STATED EXPENDITURE HAS BEEN INCURRED FOR DEVELOPMENT AND IMPROVEMENT OF THE PRODUCT KEEPING IN MIND THE INDI AN MARKET AND CONDITION, III. R& D EXPENSES INCURRED TO FIND OUT THE MOST COST EF FECTIVE SOLUTION FOR THE MATERIAL WHICH IS PRODUCED UNDER FOREIGN TECHNO LOGY. IV. TO OPTIMIZE THE USE AND COST OF THE PLANT AND MACHI NERIES TO BE IMPORTED FROM OUTSIDE INDIA VIZ A VIZ TO BE PROCURE D WITHIN INDIA. 64.1 HOWEVER, THE AO DISAGREED WITH CONTENTIONS OF THE ASSESSEE BY OBSERVING AS UNDER: I. THE RESEARCH AND DEVELOPMENT ACTIVITIES CARRIED OUT BY ASSESSEE HAS NEITHER BEEN ENLISTED NOR SUBSTANTIATED. II. MOREOVER ASSESSEE HAS NOT GIVEN ANY EVIDENCE ON REC ORD SHOWING THE RESULT OF SUCH R & D ACTIVITIES CONDUCTED AT TH E RESEARCH AND DEVELOPMENT FACILITY. III. FURTHER THE ASSESSEE HAS BEEN IN BUSINESS SINCE LON G, HOWEVER NO OTHER NEW PRODUCTS HAVE BEEN MANUFACTURED BY IT. 64.2 IN VIEW OF THE ABOVE, THE AO CONCLUDED THAT T HE ABOVE STATED EXPENDITURE IS NOT ADMISSIBLE UNDER SECTION 35(1) O F THE ACT AND ACCORDINGLY DISALLOWED THE SAME. THE SAME WAS ADDED TO THE TOTA L INCOME OF THE ASSESSEE. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 68 AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE THE L D.CIT (A). 65. THE ASSESSEE BEFORE THE LD.CIT (A) HAS SUBMIT TED THE BREAKUP OF R&D EXPENDITURE AS DETAILED UNDER: I) TALY SURF PG1 MACHINE WITH ULTRA SOFTWARE RS.19.86 LACS II) RDIAL CLEARANCE MEASURING INSTRUMENT RS.17.58 LACS III) FEDRALAITGUAGE MICRON RS.7.40 LACS IV) SPARES/PARTS/OTHER ITEM RS.22.23 LACS RS.67.07 LACS 65.1 THE ASSESSEE ALSO CLAIMED TO HAVE ACQUIRED THE SE MACHINERIES EXCLUSIVELY FOR R & D DIVISION AND IT HAS DEVELOPED NEW VARIETY OF BEARING NAMELY TAPER ROLLER BEARINGS. 65.2 THE ABOVE MACHINES ARE USED TO CHECK THE QUALI TY OF THE COMPONENT USED IN THE MANUFACTURED PRODUCT. THESE MACHINE ARE ALSO USED TO MEASURE THE VALIDATION OF LIFE OF THE PRODUCT 65.3 THE ASSESSEE IS REQUIRED TO CARRY OUT CONTINUO US UP-GRADATION MODIFICATION IN THE DESIGN OF THE BEARINGS AS PER R EQUIREMENT OF THE CUSTOMERS. ACCORDINGLY IT IS DOING THE R&D ACTIVITY TO IMPROVE THE DESIGN OF THE BEARINGS. THEREFORE THE MACHINES ARE ALSO USED FOR DEVELOPMENT AND IMPROVEMENT OF THE PRODUCT 65.4 WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE A LSO SUBMITTED THAT IN CASE THE DEDUCTION U/S 35(I)(IV) OF THE ACT IS NOT ALLOW ED THEN IT IS ENTITLED FOR THE DEPRECIATION AT APPLICABLE RATE. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 69 65.5 THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSI ON OF ASSESSEE OBSERVED THAT THE ACTIVITIES CARRIED BY THE ASSESSEE AS DISC USSED ABOVE ARE NOT THE NATURE OF SCIENTIFIC RESEARCH AS SPECIFIED U/S 35(1 )(IV) OF THE ACT. AS SUCH THE SCIENTIFIC RESEARCH WOULD MEAN AN ACTIVITY THAT RES ULT IN A SUBSTANTIAL CONTRIBUTION TO THE EXISTING FUND OF KNOWLEDGE ON T HE SUBJECT. 65.6 FURTHER, ACTIVITY IN THE NATURE OF CARRYING O UT DEVELOPMENT TO THE EXISTING KNOWLEDGE/EQUIPMENT/PROCESSES ETC WILL NOT FALL INTO THE CATEGORY OF SCIENTIFIC RESEARCH. 65.7 IN VIEW OF THE ABOVE, THE LD.CIT (A) HELD THAT ACTIVITY IN THE NATURE OF QUALITY CONTROL, TESTING AND STYLE CHANGES DO NOT C ONSTITUTE SCIENTIFIC RESEARCH. THUS THE EXPENDITURE INCURRED ON THE PURCHASE OF TH E EQUIPMENT USED IN UNDERTAKING SUCH ACTIVITY IS NOT ELIGIBLE FOR DEDUC TION U/S 35(1)(IV) OF THE ACT. HOWEVER, THE LD.CIT (A), TREATING SUCH EXPENDI TURE AS IN THE NATURE OF CAPITAL, ALLOWED THE DEPRECATION. BEING AGGRIEVED BY THE ORDER OF LD.CIT (A) THE ASSE SSEE IS IN APPEAL BEFORE US. 66. THE LD.AR BEFORE US REITERATED THE SUBMISSION S AS MADE BEFORE THE LD. CIT (A). 67. ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUPP ORTED THE ORDER OF THE AUTHORITIES BELOW. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 70 68. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH TH E PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE PRESENT CASE, THE ASSESSEE HAS CLAIMED THE ABOVE SAID EXPENSES AS INCURRED FOR THE PURPOSE OF PRODUCT MAKE SUITABLE IN ACCORDANCE WITH THE INDIAN MARKET AND ALSO DEVELOP NEW PRODUCT, ACCORDINGLY EXPENSES ARE ELIGIBLE FOR DEDUCTION U/S 35(1)(IV) O F THE ACT. AT THIS JUNCTURE WE FIND IMPORTANT TO REFER THE PROVISION CONTAINED UNDER SECTION 35(1)(IV) OF THE ACT AS WELL AS THE PROVISIONS CONTAINED UNDER S ECTION 43(4) OF THE ACT WHICH READS AS UNDER: [ EXPENDITURE ON SCIENTIFIC RESEARCH. 35. (1) IN RESPECT OF EXPENDITURE ON SCIENTIFIC RESEAR CH, THE FOLLOWING DEDUCTIONS SHALL BE ALLOWED XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXXXXXXXXXXX ( IV ) IN RESPECT OF ANY EXPENDITURE OF A CAPITAL NATUR E ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE, SUCH DE DUCTION AS MAY BE ADMISSIBLE UNDER THE PROVISIONS OF SUB-SECTION (2) 68.1 A PLAIN READING OF THE PROVISION OF SECTION 3 5(1)(IV) REVEALS THAT THE CAPITAL EXPENSES INCURRED FOR THE PURPOSE OF SCIENT IFIC RESEARCH CAN BE CLAIMED AS DEDUCTION. FURTHER SCIENTIFIC RESEARCH IS DEFINE D U/S 43(4) OF THE ACT. THE RELEVANT EXTRACT AS READ UNDER: DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOME FRO M PROFITS AND GAINS OF BUSINESS OR PROFESSION. 43. IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE REQUIRES 75 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXX XXXXXXXXXXXXXXXXXXXX 4) 97 [(I) SCIENTIFIC RESEARCH MEANS ANY ACTIVITIES FOR THE EXTENSION OF KNOWLEDGE IN THE FIELDS OF NATURAL OR APPLIED SCIENCE INCLUDI NG AGRICULTURE, ANIMAL HUSBANDRY OR FISHERIES;] (II) REFERENCES TO EXPENDITURE INCURR ED ON SCIENTIFIC RESEARCH INCLUDE ALL EXPENDITURE INCURRED FOR THE PROSECUTION, OR THE PR OVISION OF FACILITIES FOR THE PROSECUTION, OF SCIENTIFIC RESEARCH, BUT DO NOT INC LUDE ANY EXPENDITURE INCURRED IN THE ACQUISITION OF RIGHTS IN, OR ARISING OUT OF, SCIENTIFIC RESEARCH; (III) REFERENCES TO SCIENTIFIC RESEAR CH RELATED TO A BUSINESS OR CLASS OF BUSINESS INCLUDE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 71 (A) ANY SCIENTIFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE AN EXTENSION OF THAT BUSINESS OR, AS THE CASE MAY BE, ALL BUSINESSES OF THAT CLASS; (B) ANY SCIENTIFIC RESEARCH OF A MEDICAL NATU RE WHICH HAS A SPECIAL RELATION TO THE WELFARE OF WORKERS EMPLOYED IN THAT BUSINESS OR, AS THE CASE MAY BE, ALL BUSINESSES OF THAT CLASS; 68.2 IT IS CLEAR FROM THE DEFINITION OF THE SCIEN TIFIC RESEARCH DEFINED U/S 43(4)(III) OF THE ACT THAT ANY ACTIVITY OF SCIENTI FIC RESEARCH WHICH MAY LEAD TO OR FACILITATE THE EXTENSION OF THE BUSINESS IS ELIG IBLE FOR THE DEDUCTION UNDER SECTION 35 OF THE ACT. 68.3 FROM THE SUBMISSION OF THE ASSESSEE AS DISCUS SED ABOVE, IT APPEARS THAT THE ASSESSEE HAS CONDUCTED THE SCIENTIFIC RESEARCH ACTIVITY AND THEREFORE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION IN RESPECT OF CA PITAL EXPENDITURE UNDER SECTION 35 OF THE ACT. HOWEVER, THE ONUS LIES ON TH E ASSESSEE TO PROVE ON THE BASIS OF DOCUMENTARY EVIDENCE THAT IT HAS CARRIED O UT THE SCIENTIFIC RESEARCH ACTIVITY. THESE EVIDENCES MAY INCLUDE THE FOLLOWING : I. THE DEDICATED STAFF OF THE ASSESSEE ENGAGED IN SCIE NTIFIC RESEARCH ACTIVITY ALONG WITH THE EXPERIENCE, QUALIFICATION E TC. II. THE PROJECT DETAILS ON WHICH THE ASSESSEE IS CONDUC TING SCIENTIFIC RESEARCH ACTIVITY. WHAT WAS THE OUTCOME OF SUCH SCI ENTIFIC RESEARCH ACTIVITY WHETHER IT WAS OF FAILURE OR SUCCESSFUL. I F SUCCESSFUL, WHAT WAS THE IMPACT ON THE BUSINESS. III. ANY TESTING ACTIVITY WAS CARRIED OUT BY THE ASSESSE E ON SUCH SCIENTIFIC RESEARCH ACTIVITY BY ANY INDEPENDENT AGE NCY. IV. WHETHER THE ASSESSEE HAS APPLIED TO ANY GOVERNMENT AGENCY FOR THE CERTIFICATION OF SUCH SCIENTIFIC RESEARCH ACTIVITY. V. THE DETAILS OF REVENUE EXPENSES INCURRED BY THE ASS ESSEE IN RELATION TO SUCH ACTIVITY. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 72 VI. THE MINUTES OF THE BOARD MEETINGS IN WHICH THE ACTI VITY OF SCIENTIFIC RESEARCH WAS APPROVED AND THERE WAS SOME BUDGET ALL OCATION MADE FOR SUCH ACTIVITIES. VII. THE NECESSARY DETAILS OF THE SCIENTIFIC INSTRUMENTS USED BY THE ASSESSEE AND THE MANNER IN WHICH THESE SCIENTIFIC I NSTRUMENTS WERE HELPFUL IN CONDUCTING SUCH SCIENTIFIC RESEARCH. 68.4 AS SUCH WE NOTE THAT, THE LD.AR FOR THE ASSES SEE BEFORE US HAS NOT BROUGHT ANY IOTA OF EVIDENCE SUGGESTING THAT THE AS SESSEE HAS CARRIED OUT ANY SCIENTIFIC RESEARCH ACTIVITY. THUS IN THE ABSENCE O F SUFFICIENT DOCUMENTARY EVIDENCE, WE DO NOT FIND ANY REASON TO DISTURB THE FINDING OF THE LD.CIT (A). HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS DISMI SSED. THE THIRD ISSUE RAISED BY THE ASSESSEE IN GROUND NO 3 IS THAT THE LD.CIT (A) ERRED IN TREATING SAP R/3 RUNNING COST AMOUNTING TO RS. 3,29,44,739/- AS CAPITAL EXPENDITURE. 69. THE ASSESSEE IN THE YEAR UNDER CONSIDERATION CL AIMED AN EXPENDITURE OF RS. 3,29,44,739/- TOWARDS LICENSE USER FEES AND MAI NTENANCE FEE OF SAP R/3. ON QUESTION BY THE AO THE ASSESSEE SUBMITTED THAT I T HAS ENTERED INTO CONTRACT WITH M/S FAG, GERMANY FOR ORGANIZING SERVICES FROM IBM, GERMANY FOR CUSTOMIZATION AND IMPLEMENTATION OF SAP R/3 SOFTWAR E. 69.1 ACCORDING TO ABOVE STATED CONTRACT THE ASSESSE E COMPANY HAS MADE PAYMENT FOR LICENSE USER FEES AND MAINTENANCE FEE E VERY MONTH AFTER THE DEDUCTION OF TDS. FURTHER, ASSESSEE SUBMITTED THAT THE ABOVE STATED EXPENDITURE HAS BEEN ALLOWED AS REVENUE EXPENDITURE BY THE LD.CIT (A) IN THE AY 2001-02 AND AY 2002-03. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 73 69.2 HOWEVER, THE AO DISAGREED WITH THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT ONCE THE SOFTWARE DEVELOPED FOR ANY COMPANY, ITS USE/ BENEFITS ARE DERIVED FROM SUCH SOFTWARE IN THE SUBSEQUENT YE ARS AS WELL. 69.3 THE AO FURTHER OBSERVED THAT SUCH EXPENDITU RES ARE IN THE NATURE OF CAPITAL EXPENDITURE. THEREFORE THE ASSESSEE IS ENTI TLED FOR THE DEPRECIATION ALLOWANCE. ACCORDINGLY THE AO AFTER RELYING ON THE ORDER OF HIS PREDECESSOR, TREATED THE EXPENSE AS CAPITAL IN NATURE AND ALLOWE D THE DEPRECIATION AT 60% AMOUNTING TO RS. 1,97,66,844/- AND REMAINING AMOUNT OF RS. 1,31,77,895/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE . 70. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD.CIT (A) WHO HAS CONFIRMED THE ORDER OF THE AO AFTER HAVING RELIANCE ON THE ORDER OF HIS PREDECESSOR PERTAINING TO THE ASSESSMENT YEAR 2003- 04. BEING AGGRIEVED BY THE ORDER OF LD.CIT (A) THE ASSE SSEE IS IN APPEAL BEFORE US. 71. THE LD. AR BEFORE US SUBMITTED THAT IN THE IDE NTICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE IN IT A NO. 793/AHD/2006 AND 817/AHD/2006 PERTAINING TO AY 2002-2003 THE IMPUGNE D ADDITION WAS DELETED BY THE ITAT VIDE ORDER DATED 14-11-2014. 72. ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUPPOR TED THE ORDER OF AUTHORITIES BELOW. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 74 73. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE FIND THAT IN THE IDENTI CAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE (SUPRA), THE ITAT H AS DELETE THE ADDITION MADE BY THE AO. THEREFORE THE HONBLE ITAT TREATED IT AS REVENUE EXPENDITURE THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED AS UNDE R: RELEVANT FINDING OF THE ITAT IN ITA NO. 793/AHD/200 6 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE FACT OF INCURRING OF EXPENDITURE FOR SAP ON ACCOUNT OF USER LICENCEE FEE AND ON ACCOUNT OF REIMBURSEMENT IS NOT IN DISPUTE. WE FIND THAT HON'B LE DELHI HIGH COURT IN CASE OF CIT VS. ASAHI INDIA SAFETY GLASS LTD. (2011) 64 DTR (DEL) 63 HAS CONCLUDED THAT THE EXPEN DITURE INCURRED BY ASSESSEE ON SOFTWARE IS ALLOWABLE AS REVENUE EXPENDITURE MORE S O AS THE EXPENDITURE ACQUIRED BY THE ASSESSEE WAS AN APPLICATION SOFTWARE WHICH ENABLE I T EXECUTE TASKS IN THE FIELD OF ACCOUNTING, PURCHASES AND INVENTORY MAINTENANCE. IN CASE OF IBM INDIA LTD. VS. ACIT (2007) 108 TTJ (BANG) 531 THE CO-ORDINATE BENCH OF TRIBUNAL HAS HELD THAT EXPENDITURE ON PURCHASE OF APPLICATION SOFTWARE IS ALLOWABLE AS REVENUE EXPENDITURE AS IT IS AN AID IN MANUFACTURING PROCESS RATHER THAN THE TOOL AND THOU GH THERE IS AN ENDURING BENEFIT THERE IS NO ACQUISITION OF CAPITAL ASSET. IN CASE OF GE CAPI TAL SERVICES INDIA LTD. 106 TTJ 65 (DEL), THE CO-ORDINATE BENCH HAS HELD THAT SOFTWARE I T A NO S . 7 93 & 8 17 / A HD / 20 0 6 A . Y. 200 2- 03 ( FA G BEARINGS INDIA L TD . V S . D CI T ) PAGE 12 BEING THE FILED OF VAST CHANGE TECHNOLOGY WHICH NEEDS UPDATE AND UPGRADATION REGUL ARLY, EXPENDITURE ON SOFTWARE IS ALLOWABLE AS REVENUE EXPENDITURE. BEFORE US, REVENU E HAS NOT BROUGHT ON RECORD ANY CONTRARY BINDING DECISION IN ITS SUPPORT. WE, THERE FORE FOLLOWING THE AFORESAID DECISIONS, ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY TH E ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. WE DIRECT ACCORDINGLY. THUS, THIS GROU ND OF ASSESSEE IS ALLOWED. RELEVANT FINDING OF THE ITAT IN ITA NO. 817/AHD/200 6 59. BEFORE US, BOTH THE PARTIES SUBMITTED THAT THE GROUND NOS.II TO IV RAISED IN REVENUES APPEAL ARE IDENTICAL TO THE GROUNDS RAISE D IN ASSESSEES APPEAL IN ITA NO.793/AHD/2006. WE, THEREFORE, FOR THE SIMILAR REA SONS STATED WHILE DECIDING THE ASSESSEES APPEAL HEREINABOVE DISMISS THE GROUNDS O F REVENUES APPEAL. THUS, THE REVENUES APPEAL IS PARTLY ALLOWED. 73.1 AS THE FACTS IN THE CASE ON HAND ARE IDENTICA L TO THE FACTS OF THE CASE AS DISCUSSED ABOVE, THEREFORE RESPECTFULLY FOLLOWING T HE SAME WE SET ASIDE THE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 75 ORDER OF THE LD. CIT-A. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSE SSEE IS ALLOWED. THE FOURTH ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 4 IS THAT THE LD.CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUST AINING THE ADDITION OF THE UNUTILIZED CENVAT CREDIT FOR RS. 1,58,86,554/- IN T HE VALUATION OF CLOSING STOCK. 74. THE ASSESSEE DURING THE ASSESSMENT PROCEEDI NG SUBMITTED THAT IT HAS VALUED THE CLOSING STOCK BY FOLLOWING EXCLUSIVE MET HOD OF ACCOUNTING. AS SUCH THE ASSESSEE DID NOT INCLUDE THE VALUE OF UNUT ILIZED CENVAT CREDIT APPEARING IN THE BALANCE SHEET AS ON 31-3-2004 IN T HE CLOSING STOCK. 74.1 ON A QUESTION BY THE AO, THE ASSESSEE SU BMITTED THAT IT FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING. ACCORDINGLY THE MAT ERIAL PURCHASED IS DEBITED TO THE P/L ACCOUNT WITHOUT INCLUDING THE EL EMENT OF CENVAT CREDIT THOUGH THE SAME IS PART OF THE PURCHASE VALUE. THE AMOUNT OF CENVAT CREDIT IS SHOWN AS CURRENT ASSETS IN BALANCE SHEET. 74.2 THE ASSESSEE FURTHER SUBMITTED THAT THE PR OVISIONS OF SECTION 145A OF THE ACT REQUIRE FOLLOWING THE INCLUSIVE MET HOD OF ACCOUNTING. CONSEQUENTLY, THE STOCK SHOULD BE INCLUSIVE OF THE CENVAT CREDIT. BUT THIS WILL BE TAX NEUTRAL EXERCISE AS HELD BY THE HONBLE APEX COURT IN THE CASE OF NIPPON OXO CHEMICAL LTD REPORTED IN 261 ITR 275 THA T UNDER BOTH THE METHOD SAME PROFIT IS DETERMINED AND ACCORDINGLY A TAX NEUTRAL METHOD. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 76 74.3 THE ASSESSEE FURTHER SUBMITTED THAT IT HAS P AID THE AMOUNT OF DUTY BEFORE THE DUE DATE OF FURNISHING THE RETURN OF INC OME AS SPECIFIED UNDER SECTION 139 OF THE ACT. THEREFORE THE AMOUNT OF SUC H DUTY WILL BE ALLOWED AS DEDUCTION UNDER SECTION 43B OF THE ACT. 74.4 HOWEVER, THE AO REJECTED THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT IT IS MANDATORY TO FOLLOW THE PROVISIONS OF SE CTION 145A OF THE ACT. 74.5. ACCORDINGLY THE AO ADDED THE UNUTILIZE D CENVAT CREDIT FOR A SUM OF RS. 1,58,86,554/- TO THE TOTAL INCOME OF THE ASSESSEE. 75. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD.CIT (A). THE ASSESSEE BEFORE THE LD.CIT (A) REITERATED THE SUBMI SSION AS MADE BEFORE THE AO. 75.1 THE CIT (A) OBSERVED THAT ASSESSEE HAS NOT DEN IED THE APPLICABILITY OF THE PROVISIONS OF SECTION 145A OF THE ACT. THUS IT IS REQUIRED TO FOLLOW THE INCLUSIVE METHOD OF ACCOUNTING FOR CENVAT. ACCORDIN GLY THE LD. CIT-A CONFIRMED THE ORDER OF THE AO BY OBSERVING THAT THE CENVAT AMOUNT SHOULD BE INCLUDED IN THE VALUE OF CLOSING STOCK BUT THIS YEARS OPENING STOCK NEED NOT BE DISTURBED. HOWEVER, THE LD. CIT-A FURTHER DI RECTED TO ALLOW THE DEDUCTION FOR THE AMOUNT DUTY AS PER THE PROVISIONS OF SECTION 43B OF THE ACT. THUS THE LD. CIT-A PARTLY ALLOWED THE GROUND OF APP EAL OF THE ASSESSEE. BEING AGGRIEVED BY THE ORDER OF LD.CIT (A), THE ASS ESSEE IS IN APPEAL BEFORE US. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 77 76. THE LD. AR BEFORE US SUBMITTED THAT THERE WAS N O IMPACT ON THE INCOME OF THE ASSESSEE FOR NOT USING THE EXCLUSIVE METHOD OF ACCOUNTING. THEREFORE THERE IS NO ADDITION ON ACCOUNT OF CENVAT IS WARRANTED. 77. THE LD. AR ACCORDINGLY CLAIMED IF THE ADDITION IS MADE ON THE CLOSING STOCK ON ACCOUNT OF CENVAT CREDIT, THEN THE EXCISE PAID ON THE PURCHASE SHOULD ALSO BE ADDED IN THE PURCHASE. 78. THE LD. DR BEFORE US RELIED ON THE ORDER OF THE AUTHORITIES BELOW. 79. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ALLEGATION OF THE ASSESSING OFFICER IN THE INSTANT CASE IS THAT THE ASSESSEE WHILE VALUING THE CLOSING STOCK OF ITS GOODS AS ON 31/03/2004 HAS NOT INCLUDED THE AMOUNT OF CENVAT WHICH IS CONTRARY TO THE PROVISIONS OF SECTION 145A OF THE ACT. THEREFORE, THE CLOSING STOCK OF THE ASSESSEE WAS ENHANCED BY THE AMOUNT OF CENVAT OF RS. 1,58,86,554 .00/- AS ATTRIBUTABLE TO THE CLOSING STOCK OF THE ASSESSEE. SUBSEQUENTLY, THE LD. CIT-A CONFIRMED THE ORDER OF THE AO. 79.1 FROM THE PRECEDING DISCUSSION, WE NOTE THAT THE ASSESSEE HAS BEEN RECORDING ITS TRANSACTIONS OF PURCHASE, SALES, AND VALUATION OF INVENTORIES, NET OF CENVAT CONSISTENTLY. THUS, IF THE INVENTORY OF CLOSING STOCK IS ENHANCED BY THE AMOUNT OF CENVAT CREDIT ATTRIBUTABLE TO IT, THEN THE AMOUNT OF CORRESPONDING PURCHASES SHOULD ALSO BE INCREASED BY THE SAID AMOUNT WHICH WILL RESULT IN TAX NEUTRAL EXERCISE. THUS, IN OUR CONSIDERED VIEW, THE ASSESSING OFFICER ERRED IN ENHANCING THE VALUE OF C LOSING STOCK WITHOUT GIVING EFFECT TO THE PURCHASES. IN THIS REGARD, WE FIND SUPPORT AND GUIDANCE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 78 FROM THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. GUJARAT GAS COMPANY LTD. IN TAX APPEAL NO.90 OF 201 7 VIDE ORDER DATED 07/02/2017, WHEREIN IT WAS HELD AS UNDER:- 3.03. NOW, SO FAR AS QUESTION NO. [B] I.E. WITH RE SPECT TO ADDITION MADE BY THE A.O. ON ACCOUNT OF UNUTILIZED MODVAT/CE NVAT CREDIT OF RS. 56,08,089/- IS CONNECTED, IT IS REQUIRED TO BE NOTE D THAT THE LEARNED TRIBUNAL HAS TAKEN NOTE THAT WITH RESPECT TO MODVAT RECEIVABLE ACCOUNT, THERE IS CORRESPONDING LESS DEBIT TO THE P URCHASE ACCOUNT AND HENCE TO THAT EXTENT THERE IS ALREADY INCOME OF FERED FOR TAX. IF THAT BE SO, THERE WAS NO QUESTION OF FURTHER ADDING MODV AT/CENVAT CREDIT TO THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSI DERATION. UNDER THE CIRCUMSTANCES, WE SEE NO REASON TO INTERFERE WI TH THE IMPUGNED JUDGEMENT AND ORDER PASSED BY THE LEARNED TRIBUNAL SO FAR AS CONFIRMING THE ORDER PASSED BY THE LEARNED CIT(A) D ELETING THE ADDITION MADE BY THE A.O. ON ACCOUNT OF UNUTILISED MODVAT/CENVAT CREDIT OF RS. 56,08,089/-. WE ARE IN COMPLETE AGREE MENT WITH THE VIEW TAKEN BY THE LEARNED TRIBUNAL. 79.2 THERE IS NO AMBIGUITY THAT THE ASSESSEE HAS BEEN FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING. IN VIEW OF THE ABO VE, WE REVERSE THE ORDER OF THE LD.CIT (A) AND ACCORDINGLY DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE, THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. THE FIFTH ISSUE RAISED BY THE ASSESSEE IN GROUND NO 5 IS THAT THE LD.CIT (A) ERRED IN FACT AND LAW CONFIRMING THE ADJUSTMENT TO THE INCOME OF APPELLANT IN RESPECT OF ROYALTY AMOUNTING TO RS. 98,42,600/- AND IN RESPECT OF OTHER INTERNATIONAL TRANSACTION AMOUNT TO RS. 81, 00,848/ - 80. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN REVENUE'S APPEAL VIDE ITA NO. 4565/AHD/2007 IN GROUND NO. 3 V IDE PARA NO 16 OF THIS ORDER WHICH HAS BEEN DECIDED BY US FOR STATISTICAL PURPOSES. PLEASE REFER THE RELEVANT PARA FOR OUR DETAILED DISCUSSION THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 5 OF THE ASSESSEE IS ALLOWED FOR STATIST ICAL PURPOSES. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 79 THE SIXTH ISSUE RAISED BY THE ASSESSEE IN GROUND NO 6 IS THAT THE LD.CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO TO ALLOCAT E CERTAIN EXPENSES BETWEEN EOU AND DTA IN RATIO OF TURNOVER. 81. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND D ECIDED BY US IN REVENUE'S APPEAL VIDE ITA NO. 4565/AHD/2007 IN GROUND NO. 4 T O 6 VIDE PARA NO. 21 OF THIS ORDER WHICH HAS BEEN DECIDED BY US IN FAVOUR O F THE ASSESSEE IN PART. PLEASE REFER THE RELEVANT PARA FOR OUR DETAILED DIS CUSSION THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 6 OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. THE SEVENTH ISSUE RAISED BY THE ASSESSEE IN GROUND NO 7IS THAT THE L D.CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO TO EXC LUDE CERTAIN INCOME WHILE CALCULATING THE DEDUCTION U/S 80HHC OF THE ACT. 82. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DEC IDED BY US IN REVENUE'S APPEAL VIDE ITA NO. 4565/AHD/2007 IN GROUND NO. 7 V IDE PARA NO. 22 T0 53 OF THIS ORDER WHICH HAS BEEN DECIDED BY US IN FAVOU R OF THE ASSESSEE IN PART. PLEASE REFER THE RELEVANT PARA FOR OUR DETAILED DIS CUSSION THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 7 OF THE ASSESSEE IS PARTLY ALLOWED. THE EIGHTH ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 8 IS THAT THE LD.CIT (A) ERRED IN NOT ADJUDICATING THE ADDITIONAL GROUND RAI SED BEFORE HIM TO DIRECT THE AO TO ALLOW THE DEPRECIATION IN RESPECT OF THE EXPE NSES TREATED AS CAPITAL IN NATURE. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 80 83. IT IS SETTLED LAW THAT THE ASSESSEE IS ENTI TLED FOR THE DEPRECIATION AS PER THE PROVISIONS OF LAW IN RESPECT OF THE CAPITAL EXP ENDITURE. THEREFORE WE DIRECT THE AO TO ALLOW THE DEPRECIATION IN RESPECT OF THOS E EXPENSES WHICH HAVE BEEN TREATED AS CAPITAL IN NATURE AS PER THE PROVIS IONS OF LAW. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSES. THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 9 TO 12 ARE GENERAL, CONSEQUENTIAL AND PREMATURE. THEREFORE WE DISMISS T HE SAME. IN THE RESULT, APPEAL OF THE ASSESSEE PARTLY ALLOWE D FOR STATISTICAL PURPOSES. NOW COMING TO APPEAL OF THE REVENUE BEARING ITA NO. 1529/AHD/2009 FOR THE AY 2005-06 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE EXPENDITURE OF RS.76,44,127/-, INCURRE D IN RESPECT OF MONTHLY CHARGES FOR OPERATING THE SOFTWARE PAID TO IBM GERMANY, AS REVE NUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE CONSIDERED BY THE ASSESSING OFF ICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING TO ALLOW RS.1,55,86,554/- BEING VALUE OF UNUTILIZED CENVAT CREDIT U/S.43B OF THE ACT. THE LD. CIT(A) FAILED TO APPRECIATE THE F ACT THAT ADDITION ON ACCOUNT OF CENVAT CREDIT WAS RS.22094726/- AND THE CLAIM OF THE ASSES SEE U/S.43B WAS ALREADY ALLOWED FOR THIS AMOUNT IN THE ASSESSMENT ORDER. THEREFOR E, OPENING CENVAT CREDIT BALANCE OF RS.1,55,96,554/- ALREADY ALLOWED TO THE ASSESSEE IN THE A.Y. 2004-05 WAS CORRECTLY ADDED AND ALLOWING THE SAID AMOUNT OF RS.1,55,86,55 4/- AGAIN DURING THE YEAR WILL LEAD TO DOUBLE DEDUCTION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE U/S.40A(9) ON ACCOUNT OF TRAINING COST OF EMPLOYEES, WITHOUT APPRECIATING THAT SECTION 40A(9) PROHIBITS DEDUCTIO N IN RESPECT OF CONTRIBUTION TO ANY FUND OR TRUST ETC. FOR ANY PURPOSE OTHER THAN THAT PROVIDED IN SECTION 36(1)(IV) AND (V) AND THE IMPUGNED CONTRIBUTION WAS NOT COVERED BY SE CTION 36(1)(IV) AND (V). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE4 ENTIRE DEPRECIATION OF RS.5,68,979/- ON DATA PROCESSING MACHINES IN THE COMPUTATION OF INCOME OF THE DTA UNIT, WITHOUT APPR ECIATING THAT THE ASSESSEE WAS USING THESE MACHINES ALONG WITH ASP R3 SOFTWARE FOR CONTROLLING THE FUNCTIONS OF ITS ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 81 ENTIRE ORGANIZATION COMPRISING DTA UNIT AND TAX FRE E EOU UNIT AND HENCE DEPRECIATION ON ALL THE ASSETS USED FOR OFFICE WORK AND ESTABLISHMENT WORK INCLUDING THESE DATA PROCESSING MACHINES HAD TO BE APPORTIONE D BETWEEN THE DTA UNIT AND THE EOU UNIT, AS WAS DONE BY THE ASSESSING OFFICER. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE ENTIRE ADVERTISEMENT EXPENDITURE OF RS .21,18,782/- IN THE COMPUTATION OF INCOME OF THE DTA UNIT, WITHOUT APPRECIATING THAT T HE ADVERTISEMENT EXPENSES HELPED TO CREATE BRAND AFFINITY IN THE GLOBAL MARKET AND P ROMOTED THE SALE OF ALL CATEGORIES OF THE ASSESSEES PRODUCTS, DIRECTLY OR THROUGH FOREIG N GROUP COMPANIES, THUS REQUIRING APPORTIONMENT OF THESE EXPENSES IN A REASONABLE MAN NER BETWEEN THE DTA UNIT AND THE EOU UNIT, AS WAS DONE BY THE ASSESSING OFFICER. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THE PAYMENT OF RS.6,71,81,000/- TO THE ASSO CIATE CONCERNS COVERED BY SECTION 40A(2)(B), IN THE NAME OF FEE FOR USE OF TECHNICAL KNOW HOW, FOR THE MANUFACTURE OF ASSESSEES PRODUCTS, AS REVENUE EXPENDITURE, INSTEA D OF CAPITAL EXPENDITURE TREATED BY THE ASSESSING OFFICER. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.18,17,00,000/- U/S.92CA (3) WITHOUT CONSIDERING THE MATERIAL CONTAINED IN THE ORDER OF THE TRANSFER PRI CING OFFICER ON MERITS. 8. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALTE R THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL THE ORDER OF THE CIT(A) ON THE ABOVE ISSUES MAY BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. THE ISSUE RAISED BY THE REVENUE IN GROUND NO. 1 IS THAT THE LD.CIT (A) ERRED IN ALLOWING THE EXPENSES OF RS. 76,44,127/- IN RESP ECT OF MONTHLY OPERATING CHARGES OF SOFTWARE AS REVENUE EXPENSES INSTEAD OF CAPITAL EXPENSES. 84. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DE CIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO 80/AHD/2008 IN GROUND NO. 3 PARA NO. 73 OF THIS ORDER IN FAVOUR OF ASSESSEE. FOR DETAILED DISCUSSION PLEASE REFER THE RELEVANT PARA, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 1 OF THE REVEN UE IS DISMISSED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 82 THE ISSUE RAISED BY THE REVENUE IN GROUND NO 2 IS T HAT THE LD.CIT (A) ERRED IN ALLOWING THE DEDUCTION AMOUNTING TO RS 1,55,86,554/ - OF UNUTILIZED CENVAT CREDIT U/S 43B OF THE ACT. 85. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND D ECIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO. 80/AHD/2008 IN GROUND NO. 4 PAR A NO 79 OF THIS ORDER IN FAVOUR OF THE ASSESSEE. FOR DETAILED DISCUSSION PLE ASE REFER THE RELEVANT PARA, WE DIRECT ACCORDINGLY. HENCE, GROUND NO. 2 OF THE REVENUE IS DISMISSED. THE ISSUE RAISED BY THE REVENUE IN GROUND NO 3 IS T HAT THE LD.CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 5,78,9 12/- U/S 40A(9) OF THE ACT, ON ACCOUNT OF TRAINING COST OF EMPLOYEES. 86. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DEC IDED BY US IN REVENUE'S APPEAL VIDE ITA NO 4565/AHD/2007 IN GROUND NO. 1 PA RA NO. 6 OF THIS ORDER AGAINST THE ASSESSEE. FOR DETAILED DISCUSSION PLEAS E REFER THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 3 OF THE REVENUE IS DISMISSED. THE ISSUE RAISED BY THE REVENUE IN GROUND NO. 4 AND 5 IS THAT THE LD.CIT (A) ERRED IN DELETION THE ADDITION MADE BY THE ASSESSEE ON ACCOUNT OF THE ALLOCATION OF DEPRECIATION ON DATA PROCESSING MACHI NE AND ADVERTISEMENT EXPENSES RS. 5,68,979.00 AND RS. 21,18,782.00 TO T HE EOU UNIT. 87. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN REVENUE'S APPEAL VIDE ITA NO. 4565/AHD/2007 IN GROUND NO. 4, 5 & 6 PARA NO 21 OF THIS ORDER IN FAVOUR OF THE ASSESSEE. FOR THE DETAILED D ISCUSSION PLEASE REFER THE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 83 RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 4 AND 5 OF THE REVENUE IS DISMISSED. THE ISSUE RAISED IN GROUND NO. 6 IS THAT LD. CIT-A ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 6,71,81000.00 BY TR EATING THE FEES FOR TECHNICAL KNOWHOW AS CAPITAL EXPENDITURE. 88. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECI DED BY US IN REVENUE'S APPEAL VIDE ITA NO. 4565/AHD/2007 IN GROUND NO. 2 P ARA NO 11 OF THIS ORDER IN FAVOUR OF THE ASSESSEE AND DISMISS THE APPEAL FI LED BY THE REVENUE. FOR THE DETAILED DISCUSSION PLEASE REFER THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 6 OF THE REVENUES AP PEAL IS DISMISSED. THE ISSUE RAISED IN GROUND NO. 7 IS THAT LD. CIT-A ERRED IN DELETING THE ADDITION MADE BY THE AO/TPO FOR RS. 18,17,00,000.00 ON ACCOUNT OF UPWARD ADJUSTMENT IN DTA UNIT. 89. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN REVENUE'S APPEAL VIDE ITA NO. 4565/AHD/2007 IN GROUND NO. 3 P ARA NO 16 OF THIS ORDER BY RESTORING THE ISSUE TO THE FILE OF THE LD. CIT-A FOR FRESH ADJUDICATION. FOR THE DETAILED DISCUSSION PLEASE REFER THE RELEVANT P ARA THEREIN, WE DIRECT ACCORDINGLY. HENCE, GROUND NO. 7 OF THE REVENUES APPEAL IS DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED NOW COMING TO APPEAL OF THE ASSESSEE BEARING ITA NO . 1588/AHD/2009 FOR THE AY 2005-06 ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 84 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: ALL THE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AN D WITHOUT PREJUDICE TO EACH OTHER. 1. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CON FIRMING THE ACTION OF THE AO IN DISALLOWING R&D EXPENSES OF RS.58,59,987/- CLAIMED U/S 35(1) OF THE INCOME TAX ACT, 1961 DESPITE THE FACT THAT APPELLANT HAD FURNISHED COMPLETE DETAILS FOR SUBSTANTIATING THE CLAIM. 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE AO IN DISALLOWING SAP R/3 CHARGES AMOUNTING TO RS.2,08,32 ,699/- ON THE GROUND THAT THE SAID EXPENSES ARE CAPITAL EXPENDITURE. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE AO IN ALLOCATING THE FOLLOWING EXPENSES BETWEEN DTA UNIT AND EOU IN THE RATIO OF THEIR RESPECTIVE TURNOVER AND REWORKING DEDUCTION CLAIMED U/S.10B OF THE ACT DESPITE THE FACT THAT APPELLANT HAD MADE DETAIL SUBMISSION WITH RESPECT TO ALLOCATION MADE BY IT AND IT WAS REQUESTED THAT NO FURTHER ADJUSTMENT IS REQUIRED TO BE MADE. PARTICULARS TOTAL AMOUNT (RS.) ALLOCATED TO DTA (RS.) ALLOCATED TO EOU (RS.) DEPRECIATION ON MOTOR CAR 14,75,904 13,08,046 1,67,853 DEPRECIATION ON SOFTWARE UPGRADATION/DEVELOPMENT OF ADDL.PROGRAMME OF SAP R/3 TREATED AS CAPITAL EXPENDITURE 1,70,86,096 1,51,42,859 19,43,237 TOTAL. 1,85,62,000 1,64,50,905 21,11,090 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING EXPENSES INCURRED TOWARDS REPAIRS AND M AINTENANCE AMOUNTING TO RS.3,00,745/- ON THE GROUND THAT IT IS RELATED TO P URCHASE OF COMPUTER AND SOFTWARE DEVELOPMENT CHARGES AND THEREFORE CAPITAL IN NATURE . 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW I N CONFIRMING THE ACTION OF THE AO IN MAKING ADJUSTMENT U/S.92C R.W.S.92(1) IN RESPECT OF ROYALTY AND LUMP SUM KNOW HOW FEES PAID AMOUNTING TO RS.485.41 LACS ON THE GROUND THAT THE PAYMENT OF ROYALTY WAS JUSTIFIED TO THE EXTENT OF 1.5% OF SALES. 6. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW I N CONFIRMING THE ACTION OF THE AO IN CHARGING INTEREST U/S.234B OF THE INCOME TAX ACT, 1 961. 7. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN INITIATING THE PENALTY PROCEEDINGS U/S.271(1)(C) OF THE INCOME TAX ACT 1961. 8. YOUR APPELLANT CRAVES A RIGHT TO ADD TO OR AMEN D, ALTER, SUBSTITUTE, DELETE OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 85 THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 IS THAT THE LD.CIT (A) ERRED IN DISALLOWING THE R & D EXPENSES AMOUNTING TO RS. 58,59,987/- CLAIMED U/S 35(1) OF THE ACT. 90. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO. 80/AHD/2008 IN GROUND NO. 2 PAR A NO 68 OF THIS ORDER AGAINST THE ASSESSEE. FOR THE DETAILED DISCUSSION P LEASE REFER THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 1 OF THE ASSESSEE IS DISMISSED. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO 2 IS THAT THE LD.CIT (A) ERRED IN DISALLOWING THE UP-GRADATION CHARGES OF SAP R3 SOFT WARE AMOUNTING TO RS. 2,08,32,699/- BY TREATING IT AS CAPITAL EXPENSES IN STEAD OF REVENUE EXPENSES. 91. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO 80/AHD/2008 IN GROUND NO. 3 PARA NO 73 OF THIS ORDER IN FAVOUR OF THE ASSESSEE. FOR THE DETAILED DISCUSSION PLEASE REFER THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE, GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 3 IS THAT THE LD.CIT (A) ERRED IN CONFIRMING THE ALLOCATION OF CERTAIN EXPENSE I.E . DEPRECIATION ON MOTOR CAR OF RS. 1,67,853.00 & SAP R/3 OF RS. 19,43,237.00 MA DE BY THE AO TO THE EOU UNIT. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 86 92. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO. 80/AHD/2008 IN GROUND NO. 6 AND REVENUES APPEAL VIDE ITA 4565/AHD/2007 IN GROUND NO. 4, 5 & 6 PARA NO 21 OF THIS ORDER IN FAVOUR OF THE ASSESSEE IN PART. FOR THE DETAILED DISCUSSIO N PLEASE REFER THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND N O. 3 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR THE STATISTICAL PURPOS ES. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 4 IS THAT THE LD.CIT (A) ERRED IN TREATING THE REPAIR & MAINTENANCE EXPENSES AMOUN TING TO RS. 3,00,745/- AS CAPITAL EXPENDITURE. 93. THE ASSESSEE IN THE YEAR UNDER CONSIDERATIO N HAS INCURRED CERTAIN EXPENSES ON THE PURCHASE OF THE COMPUTER AND THE SO FTWARE AMOUNTING TO RS. 2,30,557.00 AND RS. 70,188.00 RESPECTIVELY. THE AS SESSEE TREATED THESE EXPENSES AS REVENUE IN NATURE. HOWEVER, THE AO WAS OF THE VIEW THAT THE IMPUGNED EXPENDITURES WERE INCURRED ON THE ACQUISIT ION OF THE NEW ASSETS. THEREFORE THE SAME WERE TREATED AS CAPITAL IN NATUR E. ACCORDINGLY THE AO DISALLOWED THE CLAIM OF THE ASSESSEE AND ADDED THE SUM OF RS. 3,00,745./- TO THE TOTAL INCOME OF THE ASSESSEE. 94. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L D.CIT-A WHO CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER : 9.2. I HAVE CONSIDERED THE SUBMISSIONS OF THE LD.AR AND THE FACTS OF THE CASE. THE DETAILS OF THE IMPUGNED EXPENSES HAVE BEEN TABULATE D BY THE AO AT PAGE 14 OF THE ASSESSMENT ORDER. ON EXAMINATION OF THE SAME IT IS SEEN THAT THE EXPENSES INVOLVED REPLACEMENT OF PARTS LIKE FILTER, DRIVER, PRESSURE REGULATOR, AIR METER, ETC. THESE ARE CLEARLY ITEMS OF REPLACEMENT OF WORN OUT PARTS. HOWEVER IT IS SEEN THAT THE EXPENDITURE ALSO INCLUDED PURCHASE OF COMPUTER (RS.2,30,557/-) AND S OFTWARE DEVELOPMENT CHARGES (RS.26,448/- AND RS.43,740/-). THESE ARE CAPITAL I N NATURE SINCE NEW SOFTWARE HAS BEEN DEVELOPED AND NEW COMPUTER HAS BEEN PURCHASED. ACC ORDINGLY, THE DISALLOWANCE IS ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 87 CONFIRMED TO THE EXTENT OF RS.3,00,745/- AND THE BA LANCE OF RS.32,61,118/- IS DIRECTED TO BE DELETED. HOWEVER, THE AO IS DIRECTED TO ALLOW DEP RECIATION ON COMPUTER AND SOFTWARE AT THE PRESCRIBED RATE. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. 95. THE LD. AR BEFORE US SUBMITTED THAT THERE WAS NO NEW ASSET CAME INTO EXISTENCE OUT OF SUCH EXPENDITURE. AS SUCH THE IMPU GNED EXPENDITURES WERE REPRESENTING THE REPLACEMENT OF THE EXISTING ASSETS . 96. ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUPPO RTED THE ORDER OF THE AUTHORITIES BELOW. 97. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET WE NOTE THAT THE LD.AR FOR THE ASSESSEE HAS NOT BROUGHT ANY EVIDENCE IN SUPPORT OF HIS CONTENTIONS AS DISCUSSED ABOVE. THUS IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE, WE ARE INCLINED TO UPHOLD THE FINDING OF THE LD.CIT (A). HENCE THE GROUND OF APPE AL OF THE ASSESSEE IS DISMISSED. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 5 IS THAT THE LD.CIT ERRED IN CONFIRMING THE ADDITION MADE BY THE AO/TPO AMOUNTIN G TO RS. 485.41 LACS ON ACCOUNT OF PAYMENT OF ROYALTY TO EXTENT OF 1.5% OF SALES. 98. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO. 80/AHD/2008 IN GROUND NO. 5 PARA NO 16 OF THIS ORDER ALLOWED FOR THE STATISTICAL PURPOSES. FOR THE DETAI LED DISCUSSION PLEASE REFER ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 88 THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. H ENCE, GROUND NO. 5 OF THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSES. 99. THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS . 6 TO 8 ARE GENERAL, CONSEQUENTIAL AND PREMATURE. THEREFORE WE DISMISS T HE SAME. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. NOW COMING TO THE ASSESSEES APPEAL BEARING ITA NO. 1453/AHD/2011 FOR THE AY 2005-06 AGAINST THE ORDER PASSED UNDER SECTI ON 263 OF THE ACT. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. THE LEARNED COMMISSIONER OF THE INCOME TAX-I, BARO DA (THE CIT) ERRED IN FACT AND IN LAW IN REVISING THE ASSESSMENT BY INVOKING POWER S U/S. 263 OF THE ACT, WHICH WAS COMPLETED BY WAY OF ASSESSMENT MADE U/S.143(3) DESP ITE THE FACT THAT THE CONDITIONS STIPULATED FOR INVOKING SUCH EXTRA-ORDINARY JURISDI CTION WERE NOT SATISFIED. 2. THE LEARNED CIT ERRED IN FACT AND IN LAW IN DIRECTI NG THE AO TO ALLOW DEPRECIATION @25% INSTEAD OF 60% ON COMPUTER SOFTWARE AS DONE BY THE ASSESSING OFFICER IN ASSESSMENT U/S.143(3) OF THE ACT. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT LD. C IT ERRED IN HOLDING THAT THE ORDER PASSES BY THE AO U/S 143(3) OF THE ACT, IS ER RONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 100. THE LD.CIT OBSERVED FROM PARA 4 OF THE ASSE SSMENT ORDER THAT THE LD.AO TREATED THE EXPENDITURE OF LICENSE USER FEE AND MAINTENANCE FEES AMOUNTING TO RS. 2,84,76,826/- AS CAPITAL EXPENDITU RE FOR ACQUIRING INTANGIBLE ASSETS COVERED U/S 32(1)(III) OF THE ACT AND ALLOWE D DEPRECIATION AT THE RATE OF ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 89 60%. THUS ALLOWED DEPRECIATION OF RS. 1,70,86,096/ - AND REMAINING BALANCE OF RS. 1,13,90,730/- DISALLOWED AND ADDED TO THE IN COME OF THE ASSESSEE. 100.1 THE LD.CIT (A) BY FOLLOWING THE EARLIER JU DGMENT FOR AY 2002-03 CONFIRMED THE ADDITION TO THE EXTENT OF RS, 2,08,32 ,699/- VIDE ORDER DATED 27- 03-2009, TREATING IT AS A CAPITAL EXPENDITURE FOR T HE PURPOSE OF ACQUIRING THE INTANGIBLE ASSETS I.E RIGHT TO USE AND EXPLOIT A PA RTICULAR SOFTWARE PROGRAM. AS SUCH THE ADDITION CONFIRMED WAS CONSIDERED THE CAPI TAL EXPENDITURE FOR INTANGIBLE ASSETS, THEREFORE THE DEPRECIATION @ 25% ONLY SHOULD BE ALLOWABLE INSTEAD OF 60%. THEREFORE EXCESS DEPRECIATION ALLOW ED BY THE AO IN ORDER U/S 143(3) OF THE ACT DATED 26-12-2008. THUS THE ORDER OF THE AO WAS CONSIDERED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 100.2 ON QUESTION BY THE LD.CIT THE ASSESSEE SUBMI TTED THAT THE SAP- R3 COST IS EXPENDITURE ON COMPUTER SOFTWARE WHICH I S PART OF BLOCK OF COMPUTER. COMPUTER IS COVERED IN OLD APPENDIX I UND ER THE INCOME TAX RULE 1962 THE APPLICABLE RATE ON COMPUTER IS 60% NOT 25% . 100.3 FURTHER, ASSESSEE SUBMITTED THAT IN THE A SSESSEE OWN CASE FOR PERTAINING AY 2006-07 THE HONBLE DRP DECIDE THE IS SUE IN FAVOR OF ASSESSEE AS THE MONTHLY PAYMENT OF LICENSE IS RECURRING EXPE NDITURE AND REGARDING COST OF CUSTOMIZATION, CHANGES ARE MADE AS PER REQUIREME NT OF THE BUSINESS. THE ASSESSEE HAS LICENSE TO USE THE SOFTWARE OWNERSHIP LIES WITH THE SAP. SOFTWARE INSTALLED ONLY TOOL TO CARRY ON THE BUSINE SS. THERE IS NO ADVANTAGE IN CAPITAL FILED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 90 100.4 HOWEVER, THE LD. CIT AFTER CONSIDERING TH E SUBMISSION MADE BY THE ASSESSEE FIND OUT THAT THE CASE OF THE ASSESSEE PER TAINING TO AY 2002-03 PENDING BEFORE THE ITAT AND HEARING OF APPEAL OF SU CH CASE FIXED ON 19-04- 2011 BUT THE 263 TIME BARRED AFTER 31-03-2011. FURT HER THE DECISION OF DRP CANNOT BE TREATED AS CONCLUSIVE FOR AY 2005-06. THE REFORE THE LD.CIT DIRECTED TO THE AO ALLOW DEPRECIATION @-25% INSTEAD OF 60%. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT THE ASSE SSEE IS APPEAL BEFORE US. 101. THE LD. AR BEFORE US FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 193 AND SUBMITTED THAT IN THE EXPENDITURE IN QUESTION H AS BEEN DECIDED IN THE OWN CASE OF THE ASSESSEE BEARING ITA NOS. 793/AHD/2006 PERTAINING TO AY 2002- 2003 WHERE THE ITAT TREATED THE EXPENDITURE ON SAP- R3 AS REVENUE EXPENSES. 102. THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 103. WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET WE FIND THAT IN THE IDENTICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE (SUPR A), THE ITAT HAS DELETE THE ADDITION MADE BY THE AO. THEREFORE THE HONBLE ITAT TREATED IT AS REVENUE EXPENDITURE THE RELEVANT EXTRACT OF THE ORDER IS RE PRODUCED AS UNDER: 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. THE FACT OF INCURRING OF EXPENDITURE FOR SAP ON ACCOUNT OF USER LICENCEE FEE AND ON ACCOUNT OF REIMBURSEMENT IS NOT IN DISPUTE. WE FIND THAT HON'BLE DELHI HIGH COURT IN CASE OF CIT VS. ASAHI INDIA SAFETY GLASS LTD . (2011) 64 DTR (DEL) 63 HAS CONCLUDED THAT THE EXPENDITURE INCURRED BY ASSESSEE ON SOFTWARE IS ALLOWABLE AS REVENUE EXPENDITURE MORE SO AS THE EXPENDITURE ACQU IRED BY THE ASSESSEE WAS AN APPLICATION SOFTWARE WHICH ENABLE IT EXECUTE TASKS IN THE FIELD OF ACCOUNTING, PURCHASES AND INVENTORY MAINTENANCE. IN CASE OF IBM INDIA LTD. VS. ACIT (2007) ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 91 108 TTJ (BANG) 531 THE CO-ORDINATE BENCH OF TRIBUNA L HAS HELD THAT EXPENDITURE ON PURCHASE OF APPLICATION SOFTWARE IS ALLOWABLE AS REVENUE EXPENDITURE AS IT IS AN AID IN MANUFACTURING PROCESS RATHER THAN THE TOOL A ND THOUGH THERE IS AN ENDURING BENEFIT THERE IS NO ACQUISITION OF CAPITAL ASSET. I N CASE OF GE CAPITAL SERVICES INDIA LTD. 106 TTJ 65 (DEL), THE CO-ORDINATE BENCH HAS HE LD THAT SOFTWARE I T A NO S . 7 93 & 8 17 / A HD / 20 0 6 A . Y. 200 2- 03 ( FA G B EAR I NGS I N DIA L TD . V S . D CI T) PAGE 12 BEING THE FILED OF VAST CHANGE TECHNOLOG Y WHICH NEEDS UPDATE AND UPGRADATION REGULARLY, EXPENDITURE ON SOFTWARE IS A LLOWABLE AS REVENUE EXPENDITURE. BEFORE US, REVENUE HAS NOT BROUGHT ON RECORD ANY CONTRARY BINDING DECISION IN ITS SUPPORT. WE, THEREFORE FOLLOWING TH E AFORESAID DECISIONS, ARE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. WE DIRECT ACCORDINGLY. THUS, THIS GROU ND OF ASSESSEE IS ALLOWED. 103.1 IN VIEW OF ABOVE, WE HOLD THAT THE ISSUE FOR RATE OF THE DEPRECIATION DOES NOT ARISE AS THE SAP R/3 EXPENSES HAS BEEN TRE ATED AS REVENUE EXPENDITURE BY THE ITAT AS DISCUSSED ABOVE. THUS, T HE ORDER PASSED BY THE LD. CIT UNDER SECTION 263 OF THE ACT DOES NOT REQUI RE ANY ADJUDICATION AS THE SAME IS NO LONGER VALID. HENCE, THE GROUND OF THE A PPEAL OF THE ASSESSEE IS ALLOWED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. 173. NOW COMING TO THE ASSESSEES APPEAL BEARING I TA NO. 3400/AHD/2010 FOR THE AY 2006-07 THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 1 IS THAT THE LD.DRP ERRED IN MAKING THE FOLLOWING ADJUSTMENT: 1. MAKING UPWARD ADJUSTMENT OF RS. 339.24 2. SEGREGATION OF TRANSACTION IN APPLYING ALP 3. REJECTION OF TNMM AND APPLICATION OF CUP 4. ALTERATION IN COMPARABLE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 92 5. COMPARING AVERAGE RATE OF ROYALTY WITH INDIVIDUALS RATES OF ROYALTY. 6. ADJUSTMENT NOT ALLOWED IN THE ALP. 7. NOT ALLOWING THE BENEFITS OF +-5% 104. THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION HAS ENTERED INTO THE FOLLOWING INTERNATIONAL TRANSACTION WITH ITS AE AS DETAILED UNDER: S.NO. AE NAME NATURE OF TRANSACTION VALUE OF TRANSACTION 1. SCHAEFFLER KG, GERMANY I) PURCHASE OF RAW MATERIALS II) IMPORT OF BEARING FOR RESALE III) FEES FOR TECHNICAL SERVICE IV) TESTING CHARGE V) CHARGES PAID FOR I.T.PROJECT VI) REIMBURSEMENT OF EXPENSES 21,35,17,272 102,74,21,280 2,48,88,415 3,44,392 1,71,04,984 64,06,377 2. SCHAEFFLER SOUTH KOREA CORPN. I) PURCHASE OF RAW MATERIAL 10,69,32,789 3 SCHAEFFLER JAPAN CO.LTD. I) PURCHASE OF RAW MATERIAL 2,10,87,147 4. SCHAEFFLER BRAZIL LTD. PURCHASE OF RAW MATERIAL EXPORT OF BEARING/TOOLS 81,22,220 6,805 5. ROLAMENTOS FAG LTD. 85,32,907 6 FAG MEGYAROOSZAG KFT.HUNGARY PURCHASE OF RAW MATERIAL 1,27,92,493 7 FAG BEARING CORPN.USA I) EXPORT OF BEARING/TOOLS 6,06,86,727 8 FAG CHINA COMPANY LTD. CHINA EXPORT OF COMPONENTS 9,78,159 9 THE BARDEN CORPN.UK EXPORT OF COMPONENTS REIMBURSEMENT OF EXPENSES 5,25,32,054 11,75,260 10 SCHAEFFLER GROUP USA INC D/B/A USA I) EXPORT OF BEARING 48,201 11 FAG BEARINGS LTD., CANADA I) PURCHASE OF RAW MATERIAL 24,45,445 12 SCHAEFFLER PORTUGAL I) PURCHASE OF RAW 77,68,082 ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 93 S.A. MATERIAL 13 FAG KUGELFISHER AG & CO. HG), GERMANY I) FEES FOR TECHNICAL SERVICES II) FEES FOR CONSULTANCY SERVICES 6,68,96,100 2,96,66,569 14) SHANGHAI ASIA MANAGEMENT (SHANGHAI) CO.LTD. I)FEE FOR MANAGEMENT SERVICES II)REIMBURSEMENT OF EXPENSES 14,03,715 3,43,211 104.1 THE ASSESSEE TO DETERMINE THE ALP OF THE AB OVE TRANSACTIONS HAS APPLIED THE FOLLOWING STEPS AS DETAILED UNDER: SELECTED ITSELF AS TESTED PARTY USED TNMM AS MOST APPROPRIATE METHOD PLI TOOK AS PROFIT BEFORE TAX OR OPM TO NET SALES. USED MULTIPLE YEARS DATA OF COMPARABLE COMPANIES TO DETERMINE THE ALP 104.2 ACCORDINGLY, THE ASSESSEE COMPUTED THE PLI OF ITS MANUFACTURING SEGMENT AS 18.76% AND PLI OF ITS DISTRIBUTION SEGME NT AS 8.99% AS DETAILED UNDER: SL.NO. TYPE OF TRANSACTIONS AGGREGATED UNDER PBT (NOI, NNRT) TO SALES APPELLANT COMPANY COMPARABLE COMPANY 1. EXPORT OF FINISHED GOODS MANUFACTURING SEGMENT 18.76% 12.35% 2. IMPORT OF RAW MATERIAL AND COMPONENTS 3. PURCHASE OF TANGIBLE ASSETS 4. PAYMENT FOR USE OF TECHNOLOGY ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 94 5. RECOVERY OF EXPENDITURE 6. REIMBURSEMENT OF EXPENDITURE 7. PROCUREMENT OF SUPPORT SERVICES 8. CHARGES FOR SAP R/3 AND CONNECTIVITY & I.T.PROJECT 9. EXPORT OF SERVICES 10. IMPORT OF FINISHED PRODUCTS DISTRIBUTION SEGMENT 89% 1.13% 104.3 THE ASSESSEE SELECTED 5 COMPARABLES FOR ITS MANUFACTURING SEGMENT AND DETERMINED THE PLI OF SUCH COMPARABLES AS 12.35% WHICH IS LESSER FROM THE PLI OF THE ASSESSEE I.E. 18.76% 104.4 FURTHER, ASSESSEE SELECTED 20 COMPARABLES F OR ITS DISTRIBUTION SEGMENT AND DETERMINED THE PLI OF SUCH COMPARABLE A S 1.13% WHICH IS LESSER FROM THE PLI OF THE ASSESSEE I.E. 8.99% 104.5 THE TPO AFTER CONSIDERING THE TP STUDY SUBMI TTED BY THE ASSESSEE OBJECTED THE MULTIPLE YEAR DATA USED BY TH E ASSESSEE 104.6 FURTHER, TPO OBSERVED THAT THE ASSESSEE DURI NG THE YEAR UNDER CONSIDERATION HAS PAID ROYALTY OF RS. 990.34 LACS TO FAG KUGLE FISCHER, GERMANY 104.7 THE ROYALTY HAS BEEN PAID ON THE BASIS OF AG REEMENT AS DETAILED UNDER: ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 95 SR.NO. REFERENCE OF AGREEMENT EFFECTIVE DATE RATE O F ROYALTY 1. AGREEMENT DATED 12ST DECEMBER 2000 1 ST JUNE 2000 UPTO 31 ST MAY-2005 3% ON SCHEDULED PRODUCTS AND 5% ON NON-SCHEDULED PRODUCTS. AGREEMENT DATED 12T5H SEPTEMBER 2005 1-06-2005 AGREEMENT DATED 16 TH FEBRUARY 2006 1-1-2006 THIS AGREEMENT WAS EXECUTED IN VIEW OF MERGER OF COLLABORATOR. THE RATES OF ROYALTY HAVE REMAINED SAME. 2. AGREEMENT DATED 24 TH JUNE 2002 5 TH FEBRUARY 2002 5% ON DOMESTIC SALE AND 8% ON EXPORT SALES. 3. AGREEMENT DATED 30 TH MARCH- 2000 9 TH MAY 2001 5% OF SALES. 104.8 THE RATE OF ROYALTY HAS BEEN FIXED ON THE BA SIS OF CLASSIFICATION OF PRODUCT AS DETAILED UNDER: CLASSIFICATION OF PRODUCT RATE OF ROYALTY SCHEDULE PRODUCT 3% NON SCHEDULE PRODUCT 5% EXPORT SALES FROM EOU 8% 104.9 TOTALLY ROYALTY PAID BY THE ASSESSEE ON SA LES AS DETAILED UNDER: SL.NO. GROSS SALES RATE OF ROYALTY ROYALTY 1. 302259.06 3% 702.47 2. 4190.96 5% 172.58 3 1660.11 8% 115.,29 TOTAL 36110.13 ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 96 104.10 HOWEVER, THE ASSESSEE WAS PAYING ROYALTY AT THE RATE 1.5% ON ALL PRODUCTS TILL 2000. 104.11 THE ASSESSEE ALSO SUBMITTED THE TP REPORT PREPARED FOR SCHEFFER GROUP FOR AUTOMOTIVE COMPONENTS WHERE 11 TRANSACTIO N (AGREEMENT) AVAILABLE FOR COMPARABLE AS EXTERNAL CUP. 104.12 THE TPO ON VERIFICATION OF SCHEFFER GROUP ST UDY FOUND THAT SOME AGREEMENT BEARING NO 10407, 5511, AND 8450 ARE NOT ACCEPTABLE. ACCORDINGLY THE TPO ISSUE SCN TO THE ASSESSEE TO EXPLAIN THE SA ME. THE ASSESSEE HAS SUBMITTED REGARDING THE USE OF MUL TIPLE YEAR DATA AS UNDER: 1) DATA FOR FY 2005-06 OF COMPARABLE ARE NOT AVAILABL E ON DATABASE AT THE TIME OF TP STUDY 2) ACCORDING TO RULE 10B(4) AND ALSO AS PER OECD GUIDE LINES DATA OF TWO EARLIER YEARS CAN BE USED. 104.13 THE ASSESSEE ALSO OBJECTED THE REJECTION OF TNMM METHOD BY TPO BY SUBMITTING THAT THE ASSESSEE AGGREGATED ALL TRANSACTION IN TERM OF PURCHASE OF MATERIAL, SALE OF GOODS, PROVISION OF S ERVICES, RECEIPT OF SERVICES ETC THAT ENTERED WITH ITS AE. AS SUCH ALL THESE TRA NSACTIONS ARE INTERLINKED INCLUDING THE ROYALTY PAID TO ITS AE. SEGREGATION O F THESE TRANSACTIONS IS NOT POSSIBLE AND WHERE THE SEGREGATION IS NOT POSSIBLE AS PER THE OECD GUIDELINES TNMM METHOD SHOULD BE APPLIED TO DETERMINE ALP. 104.14 REGARDING THE APPLICATION OF CUP METHOD THE ASSESSEE HAS SUBMITTED THAT THE RATE OF ROYALTY PAID BY THE OTHE R GROUP COMPANIES SHOULD BE TAKEN AS CUP. ASSESSEE ALSO SUBMITTED THAT IT HA S PAID ROYALTY ON NET SALES ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 97 AFTER AND THEREFORE THE COMPARABLES SHOULD ALSO BE COMPARED ON THE BASIS OF NET SALES. 104.15 FURTHER ASSESSEE ALSO OBJECTED THE REJECTI ON OF THREE AGREEMENTS FROM THE 11 AGREEMENTS SUBMITTED BY THE ASSESSEE IN SCHEFFER GROUP STUDY. HOWEVER THE TPO REJECTED THE CONTENTION OF ASSESSEE , USE OF MULTIPLE YEAR DATA BY OBSERVING AS UNDER: AS PER RULE 10B OF THE INCOME TAX RULE FOR THE BENC HMARKING OF AN INTERNATIONAL TRANSACTION DATA OF COMPARABLES SHOUL D BE USED THE DATA FOR THE YEAR IN WHICH TRANSACTIONS HAVE TOOK PLACE. AS PER THE OECD GUIDELINES THE MULTIPLE YEAR DATA I S CONSIDERED TO BE USED UNDER SPECIAL CIRCUMSTANCE. 104.16 IN VIEW OF ABOVE, THE DATA FOR THE YEAR 20 03-04 AND 2004-5 USED BY THE ASSESSEE FOR DETERMINING THE ALP OF THE INTE RNATIONAL TRANSACTION IS REJECTED. 104.17 THE TPO REJECT THE TNMM METHOD USED BY TH E ASSESSEE FOR DETERMINING THE ALP BY OBSERVING AS UNDER: THE ASSESSEE NOT SUBMITTED ANY EVIDENCE TO PROVE TH AT THE TRANSACTIONS WHICH ARE AGGREGATED BY IT ARE INTER-LINKED AND NOT POSSIBLE TO SEGREGATE IT. THE ASSESSEE HAS PAID ROYALTY ON THE BASIS OF AGREE MENT BUT NO CLAUSE IN ALL THESE AGREEMENT RELATED TO PURCHASE OF MATERIAL , SALE OF GOODS, PROVISIONS OF SERVICES. FURTHER AS PER THE OECD GUIDELINES THE TRANSACTION WHICH ARE NOT POSSIBLE TO SEGREGATE ARE IN THE NATURE OF COMPOSIT E AGREEMENT AND ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 98 PACKAGED DEAL. NO SUCH TYPE OF AGREEMENT AND DEAL I S PRESENT IN THE CASE OF THE ASSESSEE. 104.18 THE TPO ALSO REJECTED THE CONTENTION OF THE ASSESSEE FOR USING THE RATE OF ROYALTY PAID BY THE OTHER AE BY OBSERVI NG THAT THESE TRANSACTIONS ARE RELATED PARTY TRANSACTION. THEREFORE THE SAME C ANNOT BE CONSIDERED AS INTERNAL/EXTERNAL CUP. 104.19 THE TPO REJECTED THE THREE AGREEMENTS OUT OF 11 AGREEMENTS SUBMITTED BY THE ASSESSEE AS COMPARABLE FOR THE APP LICATION OF CUP METHOD BY OBSERVING AS UNDER: AGREEMENT NO 10407:- ON VERIFICATION OF THE AGREEM ENT IT IS FOUND BY THE TPO THAT THIS AGREEMENT IS COMPOSITE A GREEMENT FOR PATENT, TRADE MARK, AND CERTAIN TRADE SECRETS AND N OT FOR THE TECHNICAL KNOW-HOW. THEREFORE THIS AGREEMENT IS NOT CONSIDERE D AS APPROPRIATE COMPARABLES. AGREEMENT NO 5511:- ON VERIFICATION OF THE AGREEM ENT IT IS FOUND BY THE TPO THAT IN THIS AGREEMENT IN ENTRY NO 2 THE ROYALTY RATE APPEAR AS 50% AND IN ABSENCE OF COMPLETE AGREE MENT NO REASON FOUND FOR SUCH HIGHER ROYALTY RATE. FURTHER NOTICED FROM THE AGREEMENT THAT THE PRODUCT MENTIONED IN THE AGREEME NT IS VIDEO VEHICLE DETECTION SYSTEM IS AN ELECTRONIC EQUIPMENT , THUS THE SAME CANNOT BE CONSIDERED AS AUTOMOTIVE-THE PRODUCT OF T HE ASSESSEE. THEREFORE THIS AGREEMENT IS NOT CONSIDERED AS APPRO PRIATE COMPARABLES. AGREEMENT NO 8450:- THIS AGREEMENT IS ALSO A COMP OSITE AGREEMENT. THEREFORE THE SAME IS REJECTED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 99 104.20 IN VIEW OF THE ABOVE, THE TPO CONSIDERED R EMAINING 8 AGREEMENTS AS EXTERNAL CUP AND DETERMINED THE AVERA GE RATE OF ROYALTY AS 2.26%. ACCORDINGLY, THE TPO COMPUTED THE ALP AND MA DE UPWARD ADJUSTMENT OF RS. 3,50,56,457/- ON ACCOUNT OF THE R OYALTY PAYMENT BY DETAILING AS UNDER: RATE OF ROYALTY TOTAL ROYALTY ADJUSTED ROYALTY @ 2.26% 3% 702.47 529.19 5% 172.58 78.006 8% 115.29 32.6742 990.33 639.765 THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L D. DRP AGAINST THE ABOVE DRAFT ORDER. 105. THE ASSESSEE BEFORE THE LD. DRP SUBMITTED AS U NDER: REGARDING SEGREGATION/AGGREGATION OF INTERNATIONAL TRANSACTION: 105.1 TPO ADMITTED THE TNMM METHOD USED BY THE AS SESSEE TO ALL TRANSACTION OTHER THAN THE ROYALTY. THE TPO SEGREGA TED ONLY ROYALTY TRANSACTION. THE AGGREGATION OF ALL OTHER TRANSACTI ONS UNDER THE MANUFACTURING SEGMENT WAS ACCEPTED BY THE TPO. THUS THE ACTION O F THE TPO IS CONTRADICTORY. REGARDING THE SELECTION OF MOST APPROPRIATE METHOD: ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 100 105.2 THE TPO HAS NOT RECORDED THE REASON FOR APP LYING THE CUP METHOD AS MOST APPROPRIATE METHOD. THEREFORE THERE WAS NO REASON FOR REJECTING THE TNMM METHOD AS THE MOST APPROPRIATE M ETHOD. REGARDING THE ALTERATION OF COMPARABLE SET: 105.3 NO VALID REASON GIVEN BY THE TPO TO REJECT THE THREE AGREEMENTS OUT OF ELEVEN AGREEMENTS. IF THE CRITERIAS SELECTE D BY THE TPO FOR REJECTION OF THE AGREEMENT IS CONSIDERED, THEN THE OTHER AGREEME NTS BEARING NOS. 3998, 4082, AND 4102 SHOULD ALSO BE REJECTED. HOWEVER THE TPO DID NOT REJECT THE SAME BY REASON OF ROYALTY RATE IN THESE AGREEMENT A RE VERY LOW. IN CASE THE ABOVE AGREEMENTS ARE REJECTED, THEN THE AVERAGE RAT E OF ROYALTY OF REMAINING 5 COMPARABLES WOULD BE 3.20% ONLY. 105.4 THE COMPANY HAS PAID ROYALTY AT THE RATE OF 2.74% OF TOTAL SALES WHICH IS LOWER THAN THE COMPARABLES RATE. THUS THE TRANSACTION SHOULD BE TREATED AS ARMS LENGTH. 105.5 HOWEVER, THE LD. DRP REJECTED THE CONTENTI ON OF THE ASSESSEE REGARDING THE AGGREGATION OF THE TRANSACTIONS TO DE TERMINE THE ALP BY PLACING THE RELIANCE ON THE ITAT JUDGMENT IN CASE OF UCB IN DIA (P) LTD VS ACIT REPORTED IN 121 ITD 131 WHEREIN ITAT HELD THAT THE INTERNATIONAL TRANSACTION HAS TO BE EVALUATED ON A STANDALONE BASIS. IN VIEW OF THE ABOVE THE LD. DRP REJECTED THE AGGREGATION OF THE TRANSACTION DONE BY THE ASSESSEE. 105.6 FURTHER, THE LD. DRP ALSO OBSERVED THAT THE TPO DURING THE ASSESSMENT PROCEEDING FOR AY 2007-08 COMPUTED THE A VERAGE RATE OF THE ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 101 ROYALTY AS 2.3% ON THE BASIS OF 5 AGREEMENTS OUT OF 11 AGREEMENTS. ACCORDINGLY THE LD. DRP CONFIRMED THE ADDITION OF R S. 339.24 LACS OUT OF 350.56 LACS. 105.7 THE LD. DRP ALSO REJECT THE BENEFIT OF ADJU STMENT OF +,-, 5% BY PLACING THE RELIANCE ON THE ITAT ORDER IN CASE OF G LOBAL VANTEDGE (P) LTD. VS. DCIT REPORTED IN 1 ITR 326. BEING AGGRIEVED BY THE ORDER OF THE LD. DRP THE ASS ESSEE IS IN APPEAL BEFORE US. 106. THE LD. AR BEFORE US SUBMITTED THAT IN THE IDENTICAL FACTS AND CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE IN IT A NO. 793/AHD/2006 AND 817/AHD/2006 PERTAINING TO AY 2002-2003 THE IMPUGNE D ADDITION WAS DELETED BY THE ITAT VIDE ORDER DATED 14-11-2014. 107. THE LD. DR BEFORE VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 108. WE HAVE HEARD THE RIVAL CONTENTION AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE NOTE THAT THE ITAT IN THE OWN CASE OF THE ASSESSEE VIDE ITA NO. 4565/AHD/2007 HAS AGGREGATED THE TRANSACTIONS INCLUDING THE ROYALTY EXPENSES AND DETERMINED THE A LP USING THE TNMM METHOD. THERE WAS NO MATERIAL CHANGE IN THE FACTS A ND THE CIRCUMSTANCES IN THE PRESENT APPEAL VIZ A VIZ IN THE APPEAL BEARING ITA NO. 4565/AHD/2007. THUS WE ARE OF THE VIEW THE PRINCIPLE OF THE CONSIS TENCY SHALL BE APPLIED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 102 108.1 AS SUCH THE IDENTICAL ISSUE HAS BEEN CONSID ERED AND DECIDED BY US IN REVENUE'S APPEAL VIDE ITA NO. 4565/AHD/2007 IN GROU ND NO. 3 VIDE PARA NO 16 OF THIS ORDER WHICH WE HAVE SET ASIDE TO THE LD. CIT-A FOR FRESH ADJUDICATION AS PER THE PROVISION OF LAW. THUS THE GROUND OF APPEAL OF THE REVENUE WAS ALLOWED FOR STATISTICAL PURPOSES. PLEAS E REFER THE RELEVANT PARA FOR OUR DETAILED DISCUSSION THEREIN, WE DIRECT ACCO RDINGLY. HENCE GROUND NO. 1 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT THE LD. DRP ERRED IN TREATING THE RUNNING COST OF SAP R/3 CHARGES AND UP-GRADATIO N COST FOR RS. 61,87,000.00 AND 1,71,05,000.00 AS CAPITAL EXPENDIT URE AND ACCORDINGLY DISALLOWED THE SAME: 109. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND D ECIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO. 80/AHD/2008 IN GROUND NO. 3 PAR A NO 73 OF THIS ORDER IN FAVOUR OF THE ASSESSEE. FOR THE DETAILED DISCUSSION PLEASE REFER THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND N O. 2 OF THE ASSESSEE IS ALLOWED. THE THIRD ISSUE RAISED BY THE ASSESSEE IS THAT THE LD. DRP ERRED IN TREATING THE ROYALTY EXPENSES OF RS. 790.52 LACS AS CAPITAL EXPE NDITURE AS WELL AS NOT ALLOWING DEPRECIATION ON SUCH EXPENSES. 110. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND D ECIDED BY US IN REVENUE'S APPEAL VIDE ITA NO. 4565/AHD/2007 IN GROUND NO. 2 P ARA NO. 11 OF THIS ORDER IN FAVOUR OF THE ASSESSEE. FOR THE DETAILED DISCUSS ION PLEASE REFER THE RELEVANT ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 103 PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND N O. 3 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 4 IS THAT THE LD.DRP ERRED IN CONFIRMING THE ALLOCATION OF CERTAIN EXPENSE I.E. D EPRECIATION ON MOTOR CAR OF RS. 1,29,619.00 & SAP R/3 OF RS. 7,86,915.00 MADE B Y THE AO TO THE EOU UNIT. 112. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DE CIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO. 80/AHD/2008 IN GROUND NO. 6 AND REVENUES APPEAL VIDE ITA 4565/AHD/2007 IN GROUND NO. 4, 5 & 6 PARA NO 21 OF THIS ORDER IN FAVOUR OF THE ASSESSEE IN PART. FOR THE DETAILED DISCUSSIO N PLEASE REFER THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND N O. 4 OF THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR THE STATISTICAL PURPOS ES. THE ASSESSEE IN GROUND NO. 5 & 6 IS SEEKING THE DIR ECTION TO ALLOW THE DEPRECIATION IN RESPECT OF THE EXPENDITURE TREATED AS REVENUE IN THE AY 2001- 02 TO 2005-06. 113. REGARDING THE GROUND RAISED BY THE ASSESSEE, WE DIRECT THE AO TO ADJUDICATE THE ISSUE AS PER THE PROVISION OF THE LA W. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS OF ABOVE . 114. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS . 7 TO 9 IS GENERAL, CONSEQUENTIAL AND PREMATURE. THEREFORE WE DISMISS T HE SAME. IN THE RESULT, THE APPEAL OF THE ASSESSEE PARTLY AL LOWED FOR STATISTICAL PURPOSES. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 104 ITA NO 1197/AHD/2012 FOR AY 2007-08 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. TRANSFER PRICING ADJUSTMENT 1.1. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CON FIRMING THE ACTION OF TRANSFER PRICING OFFICER I, AHMEDABAD (THE TPO) IN PROPOSING AND THE LEARNED DEPUTY COMMISSIONER OF THE INCOME TAX, CIRC LE 1(2), BARODA (THE AO) IN MAKING ADJUSTMENT OF RS.386.07 LACS IN DETE RMINATION OF ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTION I N RESPECT OF PAYMENT FOR ROYALTY AND REIMBURSEMENT OF INSURANCE CHARGES. 1.2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE TPO AND THE AO IN APPLYING THE ARMS LENGTH PRINCIP LE ON SEGREGATED TRANSACTIONS. 1.3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE TPO AND THE AO IN APPLYING CUP METHOD AS THE MOST A PPROPRIATE METHOD REJECTING THE TNMM AS SELECTED BY THE APPELLANT FOR DETERMINING THE ALP OF PAYMENT OF ROYALTY. 1.4. THE LEARNED CIT(A) ERRED IN FACT AND IN CONFIRMING THE ACTION OF THE TPO AND THE ASSESSING OFFICER IN NOT ALLOWING THE VARIA TION OF +/- 5% OF INTERNATIONAL TRANSACTIONS AS REQUIRED BY PROVISO T O SECTION 92C(2) OF THE ACT. 1.5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE TPO AND THE ASSESSING OFFICER IN DETERMINING THE4 A LP OF THE TRANSACTION OF REIMBURSEMENT OF INSURANCE CHARGES WITHOUT APPLY ING ANY OF THE METHOD PRESCRIBED UNDER SECTION 92C(1) OF THE ACT. 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CON FIRMING THE ACTION OF THE AO IN MAKING A DISALLOWANCE OF RS.50.53 LACS [GROSS VALUE OF EXPENDITURE] BEING SAP R/3 COST ON THE GROUND THAT THE SAID EXPE NSES ARE UPGRADATION CHARGES AND ARE CAPITAL IN NATURE. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CO NFIRMING THE ACTION OF THE ASSESSING OFFICER IN TREATING EXPENSES OF RS.48,23, 252 BEING REPAIR TO BUILDING AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITU RE. 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN CHARGING INTEREST U/S.234B AND OF THE INCOME TAX ACT, 1961. 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE AO IN CHARGING INTEREST U/S.234C AND OF THE INCOME TAX ACT, 1961. 6. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN INITIATING PENALTY PROCEEDING U/S.271(1)(C) OF THE INCOME TAX ACT, 1961. 7. YOUR APPELLANT CRAVES THE RIGHT TO ADD, ALTER, AMEN D, SUBSTITUTE, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 105 THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT THE LD. CIT-A ERRED IN MAKING THE FOLLOWING ADJUSTMENTS: 1. MAKING UPWARD ADJUSTMENT OF RS. 3,11,98,000.00 ON A CCOUNT OF ROYALTY PAYMENT. 2. REIMBURSEMENT OF INSURANCE EXPENSES OF RS. 74,09,92 5.00 MAKING UPWARD ADJUSTMENT OF RS. 3,11,98,000 ON ACCO UNT OF ROYALTY PAYMENT. 115. AT THE OUTSET, WE NOTE THAT THE IDENTICAL IS SUE REGARDING THE UPWARD ADJUSTMENT OF THE ROYALTY EXPENSES OF RS. 3,11,98,0 00.00 HAS BEEN DECIDED BY US IN ITA 3400/AHD/2010 VIDE PARA NO. 108 OF THI S ORDER WHEREIN WE HAVE RESTORED THE ISSUE TO THE FILE OF THE LD. CIT-A FOR FRESH ADJUDICATION. RESPECTFULLY FOLLOWING THE SAME WE RESTORE THE IMPU GNED ISSUE TO THE FILE OF THE LD. CIT-A FOR FRESH ADJUDICATION. HENCE THE APP EAL OF THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSES. COMING TO THE ISSUE OF REIMBURSEMENT OF INSURANCE E XPENSES 115. THE TPO ON VERIFICATION OF FORM 3CEB FOUND T HAT THE ASSESSEE HAS SHOWN REIMBURSEMENT OF INSURANCE PREMIUM OF RS. 74,09,925/- TO ITS AE. THE ASSESSEE REGARDING ITS CLAIM SUBMITTED THAT THE INSURANCE POLICY WAS TAKEN BY THE AE FOR ENTIRE SCHAEFFLER GROUP AND ALL OCATED TO ENTIRE PREMIUM TO EACH OF THE GROUP COMPANY. THE ASSESSEE HAS MAD E PAYMENT TO AMOUNT ALLOCATED TO HIM. 115.1 HOWEVER, THE TPO DISREGARD THE CONTENTION O F THE ASSESSEE BY OBSERVING THAT THE AS PER INDIAN INSURANCE ACT THE INDIAN COMPANIES CANNOT MAKE PAYMENT TO FOREIGN INSURE TO TAKE INSURANCE PO LICY FROM FOREIGN ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 106 INSURER. ACCORDINGLY THE LD. TPO COMPUTED THE ALP O F THE REIMBURSEMENT OF INSURANCE PREMIUM AT NIL. THEREFORE THE TPO MADE UPWARD ADJUSTMENT FOR RS. 74,09,925/-. ACCORDINGLY THE AO MADE AN ADD ITION ON THE BASIS OF ORDER U/S 92CA(3) OF THE ACT TO THE TOTAL INCOME OF THE ASSESSEE. 116. THE AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEF ORE THE LD.CIT (A) WHO CONFIRMED THE ORDER OF THE AO/TPO BY OBSERVING AS U NDER: 2.2.3. PART OF GROUND NO.1.1 OF APPEAL IN RESPECT OF TRAN SFER PRICING ADJUSTMENT OF RS.74,09,925/- TOWARDS REIMBURSEMENT OF FOREIGN INS URANCE PREMIUM AND GROUND NO.16 OF APPEAL REGARDING THE SAME ISSUE ARE TAKEN UP NOW. THERE IS NO DISPUTE THAT UNDER THE INDIAN REGULATIONS (IRDA/RBI), INDIAN COMPANIES CAN NEITHER MAKE NOR REMIT INSURANCE PREMIUM TO FOREIGN INSURANCE COMPANY. IN FACT, AS ADMITTED BY THE APPELLANT, RBI HAS NOT ALLOWED REMITTANCE OF INSURANCE PREMIUM IN QUESTION BY THE APPELLANT TO ITS AES. IN A THIRD PARTY SITUATION, NO COMPANY COULD HAVE BEEN S UCH INSURANCE FROM THE FOREIGN INSURER AND THERE IS NO QUESTION OF PAYMENT OF SIMILAR INSU RANCE PREMIUM PAYMENT BETWEEN INDEPENDENT PARTIES, I.E. AN INDIAN COMPANY TO AN I NSURER ABROAD. THE ALP OF THE TRANSACTION WAS THEREFORE, RIGHTLY DETERMINED AT RS .NIL BY THE TPO THROUGH CUP METHOD THOUGH NOT EXPRESSLY MENTIONED IN TPOS ORDER. WIT HOUT PREJUDICE, CLAIM OF EXPENSE OF SUCH INSURANCE PREMIUM IS NOT ALLOWABLE IN VIEW OF EXPLANATION BELOW SECTION 37(1) OF THE ACT AS WELL. GROUNDS OF APPEAL IN RESPECT OF TRANS FER PRICING ADJUSTMENT FOR INSURANCE PREMIUM OF RS.74,09,925/- ARE DISMISSED. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A) THE ASSESSEE IS IN APPEAL BEFORE US. 117. THE LD. AR BEFORE US SUBMITTED THAT IMPUGNED COST HAS BEEN INCURRED IN THE COURSE OF THE BUSINESS AT THE ALP. THEREFORE THE SAME SHOULD BE ALLOWED AS DEDUCTION. 118. THE LD. DR BEFORE US VEHEMENTLY SUPPORTED TH E ORDER OF AUTHORITIES BELOW. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 107 119. WE HAVE HEARD THE RIVAL CONTENTION AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO AMBIGUITY THAT THE ASSESSEE CANNOT CLAIM THE DEDUCTION OF THE INSURANCE EXPENSES PAID TO THE FOR EIGN INSURANCE COMPANIES. THEREFORE WE DO NOT FIND ANY MERIT IN THE CASE OF A SSESSEE. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT-A ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE SAP R/3 UP-GRAD ATION EXPENSES FOR RS. 50,53,000.00 AS CAPITAL IN NATURE. 120. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AN D DECIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO. 80/AHD/2008 IN GROUN D NO. 3 PARA NO 73 OF THIS ORDER IN FAVOUR OF THE ASSESSEE. FOR THE DETAI LED DISCUSSION PLEASE REFER THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. THE 3 RD ISSUE RAISED BY THE ASSESSEE IS THAT THE LD.CIT (A ) ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE REPAIRS TO THE BUILDING FOR RS. 48,23,252.00 AS CAPITAL EXPENDITURE. 121. AT THE OUTSET, WE NOTE THAT THE IDENTICAL I SSUE REGARDING THE REPAIRS TO THE BUILDING EXPENSES HAS BEEN DECIDED BY US IN ITA 80/AHD/2008 IN GROUND NO. 1 VIDE PARA NO. 63 OF THIS ORDER WHEREIN WE HAV E DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME WE REVERSE THE ORDER OF THE AUTHORITIES BELOW. ACCORDINGLY, WE DIRECT TH E AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSE SSEE IS ALLOWED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 108 122. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NOS . 4 TO 7 GENERAL, CONSEQUENTIAL AND PREMATURE. THEREFORE WE DISMISS T HE SAME. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. COMING TO REVENUES APPEAL BEARING ITA NO. 1256/AHD /2012 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN RESTRICTING THE UPWARD ADJUSTMENT FROM RS 426.64 LACS TO RS.311.98 LACS WITHOUT CONSIDERING THE MERITS OF THE REASONS GIVEN BY THE TPO FOR THE UPWARD ADJUSTMENT OF ROYALTY @ 2.3% BY CONSIDERING THE 5 LICENSE AGREEME NTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING TO TREAT THE EXPENDITURE AS REVENUE EXPEN DITURE WITHOUT APPRECIATING THE FACT THAT THE EXPENDITURE WERE FOR THE PURCHASE OF NEW ASSETS OR REPLACEMENT OR FOR MAJOR RENOVATION WHICH GIVES ENDURING BENEFIT TO THE ASSE SSEE, AND HENCE THE EXPENDITURE IS CAPITAL IN NATURE IN VIEW OF THE PARAMETERS LAID DO WN IN THE CASE OF SARAVANA SPINNING MILLS PVT.LTD. (2007) 293 ITR 2301 (SC). 3. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR A LTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. RELIEF CLAIMED IN APPEAL IT IS PRAYED THAT THE ORDER OF THE CIT(APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE FIRST ISSUE RAISED BY THE REVENUE IS THAT THE L D. CIT-A ERRED IN REDUCING THE ADDITION TO RS. 1,14,66,000.00 FROM 4,26,64,000 .00 RS. ON ACCOUNT OF UPWARD ADJUSTMENT MADE BY THE TPO FOR THE ROYALTY E XPENSES. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 109 123. AT THE OUTSET, WE NOTE THAT THE IDENTICAL ISSUE REGARDING THE UPWARD ADJUSTMENT OF THE ROYALTY EXPENSES OF RS. 1, 14,66,000.00 HAS BEEN DECIDED BY US IN ITA 3400/AHD/2010 VIDE PARA NO.108 AND IN THE APPEAL OF THE ASSESSEE IN ITA 1197/AHD/2012 VIDE PARA NO. 115 OF THIS ORDER WHEREIN WE HAVE RESTORED THE ISSUE TO THE FILE OF THE LD. C IT-A FOR FRESH ADJUDICATION. RESPECTFULLY FOLLOWING THE SAME WE RESTORE THE IMPU GNED ISSUE TO THE FILE OF THE LD. CIT-A FOR FRESH ADJUDICATION. HENCE THE GRO UND OF APPEAL OF THE REVENUE IS DISMISSED. THE 2 ND ISSUE RAISED BY THE REVENUE IS THAT THE LEARNED CI T (A) ERRED IN DELETING THE ADDITION MADE BY THE AO FOR RS. 56,70, 732.00 TREATING THE REPAIRS OF MACHINERY EXPENSES AS CAPITAL IN NATURE. 124. THE ASSESSEE IN THE YEAR UNDER CONSIDERATI ON HAS CLAIMED AN EXPENSE OF RS. 196.61 LACS ON ACCOUNT OF REPAIRS AND MAINTENANCE O F MACHINERY AND OTHERS. HOWEVER THE AO FROM THE DETAI LS SUBMITTED BY THE ASSESSEE FOUND THAT CERTAIN EXPENSES OF RS. 56,70,732.00 REPRESENTS THE PURCHASES/INSTALLATION OF NEW ASSETS. 124.1 ON QUESTION BY THE AO, THE ASSESSEE SUBMI TTED THAT ALL THE AFORESAID EXPENSES ARE REPRESENTING THE NORMAL WEAR AND TEAR EXPENSES. THEREFORE THE SAME CANNOT BE TREATED AS CAPITAL IN NATURE. 124.2 HOWEVER, THE AO DISAGREED WITH THE CONTE NTION OF THE ASSESSEE AND HELD THAT THE EXPENSES AMOUNTING TO RS. 56,70,7 32.00 REPRESENTS THE PURCHASES OF THE NEW ASSETS. ACCORDINGLY THE AO TRE ATED THESE EXPENSES AS ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 110 CAPITAL IN NATURE. HENCE THE AO DISALLOWED THE CLAI M OF THE ASSESSEE FOR RS. 56,70,732/- AND ADDED TO THE TOTAL INCOME OF THE AS SESSEE. 125. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD.CIT (A), WHO DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER: 5.2.1. REGARDING EXPENDITURE CLAIMED TO BE TOWAR DS REPAIRS OF MACHINERY, APPELLANTS SUBMISSION IS THAT NONE OF THE ITEMS REPLACED WERE CAPABLE OF WORKING INDEPENDENTLY AND THE ITEMS WERE REPLACED DUE TO NORMAL WEAR AND TEAR . AS PER THE PARAMETERS LAID DOWN IN THE CASE OF SARAVANA SPINNING MILLS, EXPENDITURE OF RS.56,70,732/- IS DIRECTED TO BE ALLOWED AS REVENUE EXPENDITURE. GROUND NO.5 OF APP EAL IS ALLOWED AND GROUND NO.5.1 OPF APPEAL HAVING BECOME INFRUCTUOUS IS DISMISSED. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 126. BEFORE US BOTH THE LEARNED DR AND THE AR R ELIED ON THE ORDER OF THE AUTHORITIES BELOW AS FAVORABLE TO THEM. 127. WE HAVE HEARD THE RIVAL CONTENTIONS AND PE RUSED THE MATERIALS AVAILABLE ON RECORD. REGARDING THE CLAIM OF THE ASS ESSEE, WE NOTE THAT THE MACHINERIES WHICH WERE TREATED AS CAPITAL EXPENDITU RE BY THE AO WERE REPRESENTING THE PARTS OF THE MACHINERIES. AS SUCH THESE PARTS CANNOT FUNCTION INDEPENDENTLY. THEREFORE WE HOLD THAT THE IMPUGNED EXPENSES WERE INCURRED BY THE ASSESSEE TOWARDS THE WEAR AND TEAR EXPENSES OF THE MACHINERIES. ACCORDINGLY WE DO NOT FIND ANY REASON TO DISTURB TH E FINDING OF THE LD. CIT- A. HENCE THE GROUND OF APPEAL OF THE REVENUE IS DIS MISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 111 COMING TO REVENUES APPEAL IN ITA NO. 1941/AHD/2012 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(APPEALS) ERRED IN CHANGING THE BASE FOR COMPUTING THE PERCEN TAGE ROYALTY, WHICH HAS RESULTED IN REDUCTION OF THE ADJUSTMENT FROM 502.33 LACS AS SUGGESTED BY THE TRANSFER PRICING OFFICER TO 394.24 LACS. THE LD.CIT(A) ERRED IN REWORKING THE ADJUSTMENT BY MODIFYING THE RATE OF ROYALTY DIRECTING IT TO BE COMPUTED ON GROSS SALES BASIS AND NOT ON THE NET SALES BASIS AS COMPUTED BY THE ASSESSEE ITSELF. THE ONLY ISSUE RAISED BY THE REVENUE IS THAT THE LD . CIT-A ERRED IN REDUCING THE ADDITION TO RS. 1,08,09,000.00 FROM 5,02,33,000 .00 RS. ON ACCOUNT OF ADJUSTMENT MADE BY THE TPO FOR THE ROYALTY EXPENSES . 128. AT THE OUTSET, WE NOTE THAT THE IDENTICAL IS SUE REGARDING THE UPWARD ADJUSTMENT OF THE ROYALTY EXPENSES OF RS. 1,08,09,0 00.00 HAS BEEN DECIDED BY US IN ITA 3400/AHD/2010 VIDE PARA NO. 108 AND I N THE APPEAL OF THE ASSESSEE IN ITA 1197/AHD/2012 VIDE PARA NO. 115 OF THIS ORDER WHEREIN WE HAVE RESTORED THE ISSUE TO THE FILE OF THE LD. CIT- A FOR FRESH ADJUDICATION. RESPECTFULLY FOLLOWING THE SAME WE RESTORE THE IMPU GNED ISSUE TO THE FILE OF THE LD. CIT-A FOR FRESH ADJUDICATION. HENCE THE GRO UND OF APPEAL OF THE REVENUE IS DISMISSED. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSE D. ITA NO. 2061 FAG BEARING LTD. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEALS: ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 112 ALL THE GROUNDS OF APPEAL IN THIS APPEAL ARE MUTUAL LY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. 1. TRANSFER PRICING ADJUSTMENT 1.1. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CON FIRMING THE ACTION OF TRANSFER PRICING OFFICER-I, AHMEDABAD (THE TPO) I N PROPOSING AND THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 (2), BARODA (THE AO) IN MAKING ADJUSTMENT OF RS.394.24 LACS IN DETERMINA TION OF ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTION IN RESPE CT OF PAYMENT FOR ROYALTY AND REIMBURSEMENT OF INSURANCE CHARGES. 1.2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE TPO AND THE ASSESSING OFFICER IN APPLYING THE ARMS LENGTH PRINCIPLE ON SEGREGATED TRANSACTIONS. 1.3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE TPO AND THE AO IN APPLYING CUP METHOD AS THE MOST A PPROPRIATE METHOD REJECTING THE TNMM AS SELECTED BY THE APPELLANT FOR DETERMINING THE ALP OF PAYMENT OF ROYALTY. 1.4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE TPO IN COMPARING THE AVERAGE RATE OF ROYALTY IN CAS E OF COMPARABLE WITH THE INDIVIDUAL RATES OF ROYALTY AS PER AGREEMENT ENTERE D IN TO BY THE ASSESSEE FOR DETERMINING ALP. THE TPO OUGHT TO HAVE COMPARED TH E AVERAGE RATE OF COMPARABLES WITH THE AVERAGE RATE OF ROYALTY PAID B Y THE ASSESSEE ON ITS GROSS TURNOVER. 1.5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE TPO AND THE AO IN NOT ALLOWING THE VARIATION OF +/- 5% OF INTERNATIONAL TRANSACTIONS AS REQUIRED BY PROVISO TO SECTION 92C( 2) OF THE ACT. 1.6. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE TPO AND THE AO IN DETERMINING THE ALP OF THE TRANS ACTION OF REIMBURSEMENT OF INSURANCE CHARGES WITHOUT APPLYING ANY OF THE ME THOD PRESCRIBED UNDER SECTION 92C(1) OF THE ACT. 2. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE AO IN MAKING A DISALLOWANCE OF RS.6.22 LACS [GROSS VALUE OF EXPENDITURE] BEING SAP R/3 COST ON THE GROUND THAT THE SAID EXPENSES ARE UPGRADATIO N CHARGES AND ARE CAPITAL IN NATURE. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE AO IN TREATING EXPENSES OF RS.8,34,893/- BEING REPAIR TO BUILDING AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE. 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE AO IN CHARGING INTEREST U/S.234D AND OF THE INCOME TAX AC T, 1961. 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONF IRMING THE ACTION OF THE ASSESSING OFFICER IN INITIATING PENALTY PROCEEDINGS U/S.271(1 (C) OF THE INCOME TAX ACT, 1961. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT THE LD. CIT-A ERRED IN MAKING THE FOLLOWING ADJUSTMENTS: ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 113 1. MAKING UPWARD ADJUSTMENT OF RS. 3,94,42,000.00 ON A CCOUNT OF ROYALTY PAYMENT. 2. REIMBURSEMENT OF INSURANCE EXPENSES OF RS. 92,63,03 9.00 MAKING UPWARD ADJUSTMENT OF RS. 3,94,42,000.00 ON A CCOUNT OF ROYALTY PAYMENT. 129. AT THE OUTSET, WE NOTE THAT THE IDENTICAL ISSUE REGARDING THE UPWARD ADJUSTMENT OF THE ROYALTY EXPENSES OF RS. 3,11,98,0 00.00 HAS BEEN DECIDED BY US IN ITA 3400/AHD/2010 VIDE PARA NO. 108 OF TH IS ORDER WHEREIN WE HAVE RESTORED THE ISSUE TO THE FILE OF THE LD. CIT-A FOR FRESH ADJUDICATION. RESPECTFULLY FOLLOWING THE SAME WE RESTORE THE IMPU GNED ISSUE TO THE FILE OF THE LD. CIT-A FOR FRESH ADJUDICATION. HENCE THE APP EAL OF THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSES. COMING TO THE ISSUE OF REIMBURSEMENT OF INSURANCE E XPENSES OF RS. 92,63,039.00 129.1 AT THE OUTSET, WE NOTE THAT THE IDENTICAL ISSUE REGARDING THE ADJUSTMENT OF THE INSURANCE EXPENSES OF RS. 92,63,0 39.00 HAS BEEN DECIDED BY US IN ITA 1197/AHD/2012 VIDE PARA NO. 119 OF THI S ORDER WHEREIN WE HAVE DISMISSED THE GROUND OF APPEAL OF THE ASSESSEE. RES PECTFULLY FOLLOWING THE SAME WE DISMISS THE IMPUGNED GROUND RAISED BY THE A SSESSEE. THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT-A ERRED IN CONFIRMING THE ORDER OF THE AO BY TREATING THE SAP R/3 UP-GRAD ATION EXPENSES FOR RS. 6,22,00,000.00 AS CAPITAL IN NATURE. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 114 130. AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO. 80/AHD/2008 IN GROUN D NO. 3 PARA NO 73 OF THIS ORDER IN FAVOUR OF THE ASSESSEE. FOR THE DETAI LED DISCUSSION PLEASE REFER THE RELEVANT PARA THEREIN, WE DIRECT ACCORDINGLY. HENCE GROUND NO. 2 OF THE ASSESSEE IS ALLOWED. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 3 IS THAT THE LD. CIT-A ERRED IN TREATING THE REPAIRS TO THE BUILDING EXPENSES AS CAPITAL IN NATURE AMOUNTING TO RS. 8,34,893 ONLY. 131. AT THE OUTSET, WE NOTE THAT THE IDENTICAL I SSUE REGARDING THE REPAIRS TO THE BUILDING EXPENSES HAS BEEN DECIDED BY US IN ITA 80/AHD/2008 IN GROUND NO. 1 VIDE PARA NO. 63 OF THIS ORDER WHEREIN WE HAV E DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME WE REVERSE THE ORDER OF THE AUTHORITIES BELOW. ACCORDINGLY WE DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSE SSEE IS ALLOWED. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 4 TO 6 IS IN GENERAL, CONSEQUENTIAL AND PREMATURE. THEREFORE WE DISMISS T HE SAME. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED FOR THE STATISTICAL PURPOSES. COMING TO REVENUES APPEAL IN ITA NO. 551/AHD/2016 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 115 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW , THE LD.CIT(A) HAS ERRED IN BY DELETING THE ENTIRE ADJUSTMENT OF RS.375.03 LAKHS MADE BY TH E TPO IN DETERMINATION OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION ON ACCOUN T OF ROYALTY PAYMENT AND REIMBURSEMENT OF INSURANCE CHARGES WITHOUT APPRECIA TING THE FINDINGS OF TPO ON RECORD AND MERIT OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) HAS ERRED IN BY REJECTING TPO WORKING ON ARMS LENGTH PRINCIPAL ON SEGREGATED TRANSACTION WITHOUT GOING TO THE MERIT OF THE CASE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) HAS ERRED IN BY ACCEPTING ASSESSEE CONTENTION ON TNMM METHOD FOR DE TERMINING THE ALP ON PAYMENT OF ROYALTY AND REJECTED UNANIMOUSLY CUP METHOD APPLIED BY TPO WHICH IS THE MOST APPROPRIATE METHOD. 4. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR ALTE R THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY RELIEF CLAIMED IN APPEAL IT IS PRAYED THAT THE ORDER OF THE CIT(APPEALS) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. THE ONLY EFFECTIVE ISSUE RAISED BY THE REVENUE IS T HAT THE LD. CIT-A ERRED IN DELETING THE ADDITION OF RS. 2,60,77,400.00 ON ACCO UNT OF ADJUSTMENT MADE BY THE TPO FOR THE ROYALTY EXPENSES. 132. AT THE OUTSET, WE NOTE THAT THE IDENTICAL ISSUE REGARDING THE UPWARD ADJUSTMENT OF THE ROYALTY EXPENSES OF RS. 2,60,77,0 00.00 HAS BEEN DECIDED BY US IN ITA 3400/AHD/2010 VIDE PARA NO. 108 AND IN THE APPEAL OF THE ASSESSEE IN ITA 1197/AHD/2012 VIDE PARA NO. 115 OF THIS ORDER WHEREIN WE HAVE RESTORED THE ISSUE TO THE FILE OF THE LD. CIT- A FOR FRESH ADJUDICATION. RESPECTFULLY FOLLOWING THE SAME WE RESTORE THE IMPU GNED ISSUE TO THE FILE OF THE LD. CIT-A FOR FRESH ADJUDICATION. HENCE THE GRO UND OF APPEAL OF THE REVENUE IS ALLOWED FOR THE STATISTICAL PURPOSES. NOTE : WE FIND THAT THE REVENUE IN ITS GROUND OF AP PEAL HAS AGITATED THE ISSUE OF THE INSURANCE EXPENSES CLAIMED BY THE ASSESSEE, THOUGH THERE WAS NO ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 116 PREJUDICE TO THE REVENUE AS THE LD. CIT-A DECIDED T HE ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE WE TREAT THE GROUND OF APPEAL O F THE REVENUE QUA THE INSURANCE EXPENSES AS INFRUCTUOUS. ACCORDINGLY WE D ISMISS THE SAME. IN THE RESULT, THE APPEAL THE REVENUE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. COMING TO ASSESSEES APPEAL IN ITA NO. 798/AHD/2016 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: ALL THE GROUNDS OF APPEAL IN THIS APPEAL ARE MUTUAL LY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. 1. THE LEARNED COMMISSIONER OF INCOME TAX-1, BARODA [ THE CIT] ERRED IN FACT AND IN LAW IN REVISING THE ASSESSMENT BY INVOKING POWERS U /S.263 OF THE INCOME TAX ACT, 1961 (THE ACT) DESPITE THE FACT THAT THE CONDITIONS ST IPULATED FOR INVOKING SUCH EXTRA- ORDINARY JURISDICTION WERE NOT SATISFIED. 2. THE LEARNED CIT AND IN FACT AND IN LAW IN NOT APPRE CIATING THE FACT THAT THE ASSESSMENT U/S.143(3) WAS COMPLETED AFTER CALLING FOR VARIOUS DETAILS AND AFTER EXAMINING THE ACCOUNTING POLITIES FOLLOWED BY THE APPELLANT FOR D ETERMINING THE TOTAL INCOME. 3. THE LEARNED CIT ERRED IN FACT AND IN LAW IN REVISIN G THE ASSESSMENT DESPITE THE FACT THAT THE ISSUE ON WHICH THE NOTICE U/S.263 WAS ISSU ED WAS EXAMINED BY THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1(2), BARODA {TH E AO'] DURING THE COURSE OF REGULAR ASSESSMENT. 4. THE LEARNED CIT ERRED IN FACT AND IN LAW IN PASSING THE ORDER U/S.263 WITHOUT GIVING ANY FINDING AS TO HOW THE ORDER PASSED BY THE AO U/ S.143(3) IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. THE LEARNED CIT ERRED IN FACT AND IN LAW IN HOLDING THAT SECTION 145A IS APPLICABLE AND DIRECTING THE AO TO MAKE A FRESH ASSESSMENT. 6. YOUR APPELLANT CRAVES THE RIGHT TO ADD TO OR ALTER, AMEND, SUBSTITUTE, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 133. AT THE OUTSET, WE NOTE THAT THERE WAS A DELAY IN FILING THE APPEAL BY THE ASSESSEE FOR 673 DAYS. AT THE TIME OF HEARING THE L D. AR FOR THE ASSESSEE HAS NOT FURNISHED ANY PLAUSIBLE REASON FOR THE DELAY IN FILING THE APPEAL. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 117 133.1 THEREFORE, WE ARE NOT INCLINED TO CONDONE THE DELAY IN THE ABSENCE OF ANY REASON WHICH PREVENTED THE ASSESSEE IN FILING T HE APPEAL. HENCE WE DISMISS THE APPEAL OF THE ASSESSEE. COMING TO ASSESSEES APPEAL IN ITA NO. 799/AHD/2016 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: ALL THE GROUNDS OF APPEAL IN THIS APPEAL ARE MUTUAL LY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -I, BARODA ['THE CIT(A)'] ERRED IN FACT AND IN LAW IN CONFORMING THE ACTION OF THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-L(2), BARODA ['T HE AO'] IN MAKING AN ADDITION OF DIFFERENCE BETWEEN THE OPENING BALANCE AND CLOSING BALANCE OF CENVAT AMOUNTING TO RS. 5,92,16,449 TO THE CLOSING STOCK AND THEREBY INCREASING THE TOTAL INCOME OF THE APPELLANT FROM R S. 1,46,05,00,286 TO RS. 1,51,97,16,785. 2. THE LEARNED C1T(A) ERRED IN FACT AND IN LAW IN C ONFORMING THE ACTION OF THE AO IN MAKING ADDITION OF THE UN-UTILIZED CENVAT CREDIT DESPITE THE FACT THAT THE UNUTILIZED CENVAT CREDIT REPRESENTS AN AS SET ON THE DEBIT SIDE OF THE BALANCE SHEET WHICH OTHERWISE WOULD HAVE BEEN C LAIMED AS AN EXPENDITURE. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN C ONFIRMING THE ACTION OF THE AO IN HOLDING THAT ADDITION IS REQUIRED TO BE MADE AS PER PROVISIONS OF SECTION 145A. 4. WITHOUT PREJUDICE TO GROUND NO.3, THE LEARNED C IT(A) ERRED IN FACT AND IN LAW IN NOT APPRECIATING THE FACT THAT EVEN IF SE CTION 145A IS MADE APPLICABLE IN THAT CASE THE CENVAT CREDIT WOULD HAV E BEEN CLAIMED AS EXPENDITURE AND THEREFORE UNDER NO CIRCUMSTANCES EV EN AS PER SECTION 145A ADDITION COULD HAVE BEEN MADE. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 118 5. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN UPHOLDING THE ACTION OF AO IN NOT ALLOWING EXCISE DUTY PAID, U/S 43B OF THE IN COME TAX ACT, 1961 (THE ACT]. 6. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN UPHOLDING THE ACTION OF AO IN NOT ALLOWING DEDUCTION OF EXCISE DUTY U/S.43B OF THE ACT, DESPITE THE FACT THAT THE DUTY HAD BEEN PAID BY THE APPELLANT BEFORE FURNISHING THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. 7. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN INITIATING PENALTY U/S.271(1)(C). 8. YOUR APPELLANT CRAVES THE RIGHT TO ADD TO OR ALT ER, AMEND, SUBSTITUTE, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT THE L EARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY SUSTAINING THE AD DITION OF RS. 5, 92,16,449/- ON ACCOUNT OF CENVAT CREDIT ATTR IBUTABLE TO THE CLOSING STOCK. 134.1 AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DE CIDED BY US IN ASSESSEE'S APPEAL VIDE ITA NO. 80/AHD/2008 IN THE GROUND NO. 4 PARA NO. 79 OF THIS ORDER IN FAVOR OF THE ASSESSEE. FOR A DETAILED DISC USSION, PLEASE REFER THE RELEVANT PARA, WE DIRECT ACCORDINGLY. HENCE GROUND OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 135. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED. 136. WE SUMMARIZE THE RESULT AS UNDER: 1. REVENUES APPEAL IN ITA NO.4565/AHD/07 FOR AY 2004- 05 IS PARTLY ALLOWED. 2. ASSESSEES APPEAL IN ITA NO.80/AHD/2008 FOR AY 2004 -05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 119 3. REVENUES APPEAL IN ITA NO.1529/AHD/2009 FOR AY 200 5-06 IS DISMISSED. 4. ASSESSEES APPEAL IN ITA NO.1588/AHD/09 FOR AY 2005 -06 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5. ASSESSEES APPEAL IN ITA NO.1453/AHD/2011 FOR AY 20 05-06 IS ALLOWED. 6. ASSESSEES APPEAL IN ITA NO.3400/AHD/2010 FOR AY 20 06-07 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. ASSESSEES APPEAL IN ITA NO.1197/AHD/2012 FOR AY 20 07-08 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. REVENUES APPEAL IN ITA NO.1256/AHD./2012 FOR AY 20 07-08 IS DISMISSED. 9. REVENUES APPEAL IN IT(TP)ANO.1941/AHD/2012 FOR AY 2008-09 IS DISMISSED. 10. ASSESSEES APPEAL IN IT(TP) A NO. 2061/AHD/2012 FOR AY 2008- 09 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11. REVENUES APPEAL IN ITA NO.551/AHD/2016 FOR AY 2009 -10 IS ALLOWED FOR STATISTICAL PURPOSES. 12. ASSESSEES APPEAL IN ITA NO.798/AHD/2016 FOR AY 200 8-09 IS DISMISSED. 13. ASSESSEES APPEAL IN ITA NO.799/AHD/2016 FOR AY 200 8-09 IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 30/04/2019 AT A HMEDABAD. SD/- SD/- (MS MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 30/04/2019 MANISH/TC NAIR ITA NO.4565/AHD/2007 AND 4 OTHER APPEALS(BY REVENUE ) & 80/AHD/2008 AND 7 OTHER APPEALS (BY ASSESSEE ) ASSTT. YEASR 2004-05, 05-06, 06-07, 07-08, 08-09, 0 9-10 120 ()*+,-./0(/1- / COPY OF THE ORDER FORWARDED TO : () / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 25.3.19(WORD PROCESSED BY H ONBLE AM IN HIS COMPUTER BY DRAGON) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 24.4.19 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.30.4.2019 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 30.4.2019 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ! / CONCERNED CIT 4. ! ( ) / THE CIT(A)-CONCERNED 5. $%&'' , / DR, ITAT, 6. &)*+ / GUARD FILE.
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Form AOC-2 - Disclosure of Related Party Transaction
Mehul₹50
Why Your Health & Life Insurance Premiums May Not Fall as Much as You Think
Team Counselvise - September 25, 2025
Reassessments Need Solid Reasons and Not Just Assumptions
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Share sale proceeds not unexplained Karnataka HC upholds ITAT Order deleting Addition of Rs. 7cr. u/s 68.
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