The DCIT(OSD)Range-1, Ahmedabad V. Dishman Pharmaceuticals & Chemicals Ltd., Ahmedabad

ITA 817/AHD/2011

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8314 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 20-07-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 15-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Transfer pricing; International transaction; Rule of consistency; Additional depreciation; Earning of tax free income; Services rendered outside India; Permanent establishment; Question of law; Bad and doubtful debts; Difference of opinion; Deemed dividend; Onus to prove; Revised return; Revenue expenditure; Capital expenditure
• Section: 92C; 43B; 143(3); 92B; 92E; 5(2); 80HHC; 14A; 10B; 201(1)

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER SR. NO. ITA NO. AND ASSTT.YEAR APPELLANT RESPONDENT 1 - 3 692/AHD/2011 WITH CO NO.89/AHD/2011 ASSTT.YEAR 2005-06 AND 2447/AHD/2011 ASSTT.YEAR 2005-06 DCIT(OSD), RANGE - 1 AHMEDABAD DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. PAN : AAACD 4164 D 4 2957/AHD/2013 ASSTT.YEAR 2006-07 DCIT(OSD), RANGE - 1 AHMEDABAD DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. 5 3086/AHD/2013 ASSTT.YEAR 2006-07 DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. DCIT(OSD), RANGE - 1 AHMEDABAD 6 817/AHD/2011 ASSTT.YEAR 2006-07 DCIT(OSD), RANGE - 1 AHMEDABAD DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. 7 773/AHD/2011 ASSTT.YEAR 2006-07 DISHMAN PHARMACEUTICALS & CHEMICALS LTD. BHADRAJ-RAJ CHAMBERS SWASTIK CROSS ROAD NAVRANGPURA, AHMEDABAD. DCIT(OSD), RANGE - 1 AHMEDABAD REVENUE BY : SHRI VASUNDHARA UPMANYU, CIT - DR SHRI R.P. MAURYA, SR.DR ASSESSEE BY : SHRI T.P. HEMANI, AR WITH SHRI PARIMAL PARMAR, AR ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 2 / DATE OF HEARING : 22/03/2018 / DATE OF PRONOUNCEMENT: 23 /05/2018 ! / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: IN THIS BUNCH OF 7 APPEALS, ASSESSEE AND REVENUE AR E CHALLENGING ORDERS OF THE LD.CIT(A) PASSED IN ASSESSMENT YEARS 2005-06 AND 2006-07. SINCE COMMON ISSUES ARE INVOLVED, THEREFORE, WE HEA RD THESE APPEALS TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OF THEM BY THIS COMMON ORDER. 2. FIRST WE TAKE APPEALS FOR THE ASSESSMENT YEAR 20 05-06 I.E. ITA NO.692/AHD/2011, CO NO.89/AHD/2011 AND ITA NO.2447/ AHD/2011. 3. ITA NO.692/AHD/2011 IS DIRECTED AT THE INSTANCE OF THE REVENUE AGAINST ORDER OF LD.CIT(A)-VI, AHMEDABAD DATED 16.12.2010. ASSESSMENT ORDER WAS FRAMED UNDER SECTION 143(3) ON 22.12.2008 BY THE AD DL.CIT, RANGE-1, AHMEDABAD. ON RECEIPT OF NOTICE, THE ASSESSEE HAS FILED CROSS-OBJECTION IN THIS APPEAL BEARING NO.89/AHD/2011. ITA NO.2447/AH D/2011 IS ALSO DIRECTED AT THE INSTANCE OF THE REVENUE, BUT AGAINST ORDER O F LD.CIT(A) DATED 5.7.2011. PROCEEDING IN THIS APPEAL HAS ARISEN OUT OF AN ASSE SSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 19 61 DATED 30.12.2010. IN OTHER WORDS, ASSESSMENT WAS REOPENED AND ADDITION M ADE IN RE-ASSESSMENT PROCEEDINGS TRAVELLED TO THE LD.CIT(A), WHICH HAVE BEEN DELETED. THE REVENUE IS AGGRIEVED WITH THOSE DELETIONS. THE GROUNDS OF APPEAL OF THE REVENUE IN ITA NO.692/AHD/2011 READS AS UNDER: 1. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING THE ADDITION OF RS.8,65,17,574/- MADE ON ACCOUNT OF TPO ORDER UNDER SECTION 92CA(3) OF THE I.T.ACT BY REJECTING THE TNMM SELECTED BY TH E ASSESSEE. 2. THE LD.CIT(A) ERRED IN LAW AND ON FACTS IN DELET ING THE ADDITION OF RS.18,45,974/- MADE ON ACCOUNT OF MISCELLANEOUS EXP ENSES. 4. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS FI LED ITS RETURN OF INCOME FOR ASSTT.YEAR 2005-06 ON 31.10.2005 DECLARING A TO TAL INCOME AT RS.3,57,62,060/-. THE ASSESSEE AT THE RELEVANT TIM E WAS ENGAGED IN MANUFACTURING OF BULK DRUGS, CHEMICALS AND INTERMED IATES. CASE OF THE ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 3 ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND N OTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. A PERUSAL OF RECORD REVEALED THAT THE ASSESSEE HAS INTERNATIONAL TRANSA CTIONS IN TERMS OF SECTION 92B WITH ITS ASSOCIATED ENTERPRISES (AE FOR SHORT ). HENCE, REFERENCE UNDER SECTION 92CA OF THE ACT WAS MADE TO THE LD.TPO FOR DETERMINING ARMS LENGTH PRICE (ALP FOR SHORT) OF INTERNATIONAL TRANSACTIO NS BETWEEN THE ASSESSEE AND ITS AE. ON ANALYSIS OF DETAILS GIVEN IN FORM NO.3C B, THE LD.TPO FOUND THE FOLLOWING INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE: SL. NO. NATURE OF INTERNATIONAL TRANSACTIONS VALUE OF TRANSACTIONS RECEIPT PAID 1. SALES OF VARIOUS PRODUCTS 98,32,51,452 2. CONTRACT RESEARCH SERVICES 7,39,71,950 3. SERVICES RELATING TO PROCUREMENT OF RAW MATERIALS 49,65,562 4. MANAGEMENT SERVICES 49,92,225 TOTAL 105,72,23,402 1,29,57,787 5. SINCE ADJUSTMENTS HAVE BEEN MADE BY THE TPO WITH REGARD TO FIRST TWO TRANSACTIONS, THEREFORE, WE WILL BE CONFINING OUR D ISCUSSION QUA THESE TWO ITEMS. IN ORDER TO DEMONSTRATE THAT ITS TRANSACTIO NS WITH ITS AE ARE AT ALP, THE ASSESSEE HAS SUBMITTED TP STUDY REPORT WHEREIN IT H AS DETERMINED ALP BY USING TRANSACTIONAL NET MARGIN METHOD (TNMM FOR S HORT). HOWEVER, THE LD.TPO WAS NOT SATISFIED WITH METHODOLOGY ADOPTED B Y THE ASSESSEE AND HE RECORDED A FINDING THAT THE ASSESSEE SOLD VARIOUS C HEMICALS, ACTIVE PHARMACEUTICAL INGREDIENTS TO ITS SUBSIDIARIES IN U S AND UK, WHEREAS IT HAS SOLD SIMILAR PRODUCTS TO OTHER PARTIES AS WELL AT M UCH HIGHER RATE. THUS, IN THE OPINION OF THE TPO, WHEN THE INTERNAL UNRELATED PAR TY PRICE I.E. INTERNAL COMPARABLE UNCONTROLLED PRICE (CUP FOR SHORT) ARE AVAILABLE, THEN ASSESSEE OUGHT TO HAVE DETERMINED THE ALP OF ITS INTERNAL TR ANSACTION BY USING CUP METHOD INSTEAD OF TNMM ADOPTED BY THE ASSESSEE. TH E LD.AO REPRODUCED DETAILS IN TABULAR FORM EXHIBITING DESCRIPTION OF I TEMS SOLD BY THE ASSESSEE. GEOGRAPHICAL LOCATIONS OF ITS AE I.E. US, UK AND EU ROPE, QUANTITY OF ITEMS SOLD, RATE AT WHICH PRODUCTS SOLD, INTERNAL CUP, DIFFEREN CE AND TOTAL ADJUSTMENT REQUIRED TO BE MADE. SUCH DETAILS ARE AVAILABLE ON PAGE NO.5 AND FINDING OF ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 4 THE LD.TPO AND FINDINGS OF THE LD.TPO IS ALSO AVAIL ABLE IN THE ORDER OF THELD.CIT(A). ON THE BASIS OF CUP METHOD, THE LD.T PO RECOMMENDED FOR MAKING UPWARD ADJUSTMENT IN THE PRICE OF PRODUCTS S OLD TO THESE AES. SIMILARLY, HE APPLIED SAME ANALOGY FOR MAKING UPWAR D ADJUSTMENT IN RESPECT OF CONTRACT RESEARCH RECEIPTS. THE LD.TPO MADE REC OMMENDATION FOR ADJUSTMENT OF RS.8,65,17,574/- ON TWO ITEMS I.E. SA LE OF VARIOUS PRODUCTS AND CONTRACT RESEARCH SERVICES. RECOMMENDATION MADE BY THE LD.TPO HAVE BEEN GIVEN EFFECT BY THE AO IN HIS ASSESSMENT ORDER DATE D 22.12.2008. 6. DISSATISFIED WITH THE ADJUSTMENT, ASSESSEE CARRI ED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE ASSESSEE HAS FIELD WRITT EN SUBMISSIONS CONTENDING THEREIN AS TO WHY CUP WAS NOT AN APPROPRIATE METHOD FOR DETERMINING ALP OF PRODUCTS SOLD BY THE ASSESSEE. IT FURTHER CONTENDE D THAT THE LD.TPO HAS NOT RECORDED ANY FINDING AS TO HOW TNMM ADOPTED BY THE ASSESSEE WAS NOT AN APPROPRIATE METHOD. WITHOUT POINTING OUT FAULT WIT H THE METHOD OF ASSESSEE, THE LD.TPO OUGHT TO HAVE NOT JUMPED INTO AN ALTERNA TIVE METHOD. THE ASSESSEE HAS APPRAISED THE LD.CIT(A) ABOUT ESSENTIA L INGREDIENTS OF CUP METHOD. IT WAS SUBMITTED THAT THIS METHOD CAN ONLY BE APPLIED AFTER TAKING INTO CONSIDERATION VARIOUS FACTORS AND MATERIAL DIF FERENCE ARISING ON ACCOUNT OF RISK, FINANCIAL SUPPORT, MARKETING SUPPORT, TECHNIC AL SUPPORT, GEOGRAPHICAL PRESENCE, READY SET UP, ASSETS EMPLOYED AND CURRENC Y FLUCTUATIONS. ACCORDING TO THE ASSESSEE ADJUSTMENT BY APPLYING CUP METHOD O N ACCOUNT OF DIFFERENCE BETWEEN INTERNATIONAL TRANSACTIONS AND CUP TRANSACT IONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACTIONS, WHICH COULD MATERIALLY AFFECT THE PRICE IN THE OPEN MARKET, ARE DIFFICULT TO QUANTIFY . IT WAS EMPHASISED THAT THE LD.TPO HAS NOT MADE ANY ATTEMPT TO MAKE ANY ADJUSTM ENT ON ACCOUNT OF FACTORS VIZ. FINANCIAL SUPPORT, MARKETING EFFORTS, TECHNICAL SUPPORT, GEOGRAPHICAL PRESENCE AND ALL OTHER RELEVANT MATERI AL FACTORS. THE ASSESSEE, THEREAFTER COMPILED DETAILS IN TABULAR FORM WITH RE GARD TO UPWARD ADJUSTMENT OF RS.3,86,01,104/- MADE ON ACCOUNT OF SALE OF VARI OUS PRODUCTS. SUCH DETAILS HAVE BEEN REPRODUCED BY THE LD.CIT(A) ON PAGE NOS.3 TO 19 OF THE PAPER BOOK. THE LD.CIT(A) THEREAFTER ACCEPTED CONTENTIONS AND D ELETED UPWARD ADJUSTMENT MADE BY THE AO ON THE RECOMMENDATION OF THE TPO. B ASICALLY, THE LD.CIT(A) HAS RELIED UPON ORDER OF HIS PREDECESSOR PASSED IN THE ASSESSMENT YEAR 2002- 03, 2003-04 AND 2004-05. FINDING RECORDED BY THE L D.CIT(A) READS AS UNDER: ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 5 2.3. I HAVE CONSIDERED THE FACTS OF THE CASE, ORDE R PASSED BY TRANSFER PRICING OFFICER AND APPELLANT'S SUBMISSION. APPELLA NT HAD VARIOUS INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRI SES (AES) DURING THE YEAR WHICH WERE CATEGORIZED AS- SALE OF PRODUCTS, C ONTRACT RESEARCH SERVICES, SERVICES FOR PROCUREMENT OF RAW MATERIAL AND MANAGEMENT SERVICES. TPO MADE ADJUSTMENTS WITH REGARD TO FIRST TWO CATEGORIES. APPELLANT FOLLOWED TNMM METHOD FOR CALCULATING ARMS LENGTH PRICE WHICH WAS CHANGED BY THE ASSESSING OFFICER TO CUP M ETHOD AND THEN WORKED OUT VARIATION AS ADJUSTMENT. APART FROM THIS , ASSESSING OFFICER MADE ADJUSTMENT IN CONTRACT RESEARCH SERVICES BY AP PLYING RESALE MARGIN METHOD. AS REGARDS CHANGE OF METHOD FROM TNM M TO CUP, THE ISSUE IS SQUARELY COVERED BY THE ORDERS OF MY LEARN ED PREDECESSORS FOR ASSESSMENT YEARS 2002 -03, 2003-04 AND 2004-05 (COV ERING ALL APPEALS PRIOR TO THIS ASSESSMENT YEAR). THE RELEVAN T EXTRACT OF THE ORDER FOR ASSESSMENT YEAR 2004-05 IS QUOTED BELOW- 'IN SO FAR AS THE METHOD OF VARIATION OF ARMS LENGT H PRICES IS CONCERNED, THE PROVISIONS OF THE ACT ARE VERY CLEAR, IN AS MUC H AS IT IS THE ASSESSEE WHO HAS A RIGHT TO CHOOSE THE BEST APPLICABLE METHO D FOR THE PURPOSE OF CALCULATION OF ARMS LENGTHPRICES ANALYSTS AO FINDS SERIOUS DEFECTS IN THE SAID METHOD AND HE FULFILS THE PRECONDITIONS PRESCR IBED UNDER SECTION 92C (3) OF THE ACT. UNDER THE SCHEME OF THE ACT, TH E AO IS REQUIRED TO FIND OUT THE ARMS LENGTH PRICE BASED ON ANY OF THE FIVE METHODS PRESCRIBED UNDER THE ACT. UNDER THE ACT NO PARTICUL AR PREFERENCES GIVEN TO A PARTICULAR METHOD COMPARED TO OTHER METHODS. I T IS ALSO MANDATORY ON THE PART OF THE AO TO GIVE A CLEAR FINDING AS TO HOW TO AND WHY THE METHOD ADOPTED BY THE ASSESSEE CANNOT GIVE A TRUE A ND CORRECT PICTURE OF ARMS LENGTHPRICES. MOREOVER, THE AO HAS TO JUSTI FY AND GIVE REASONS AS TO WHY THE METHOD ADOPTED BY HIM IS MORE SCIENTI FIC INACCURATE IN DETERMINING THE ARM'S LENGTH PRICE IS COMPARED TO T HE METHOD ADOPTED BY THE ASSESSEE. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM FOR S HORT). THE ASSESSEE HAS JUSTIFY THE SAID METHOD BY STATING THA T HAVING REGARD TO THE SALES OF LARGE NUMBER PRODUCTS TO ITS ASSOCIATE ENTERPRISE, COUPLED WITH THE FACT THAT IT HAS ALSO SOLD DIVERSIFY PRODU CTS TO UNRELATED ENTERPRISES AND LOOKING TO THE COMPLEXITY OF THE TR ANSACTIONS, PRODUCT DIVERSITY AND MULTIPLICITY OF TRANSACTIONS, THE SAI D METHOD WAS ONLY TACTICAL METHOD TO DETERMINE THE ARMS LENGTH PRICES . UNDER THE SAID METHOD, ASSESSEEFINDS THE PROFIT BEFORE INTEREST AN D EXCESS AND (PB IT) AS A PERCENTAGE OF TURNOVER AND THE SAME INCOME IS BEING COMPARED WITH SUCH PB IT OF OTHER ENTITIES DEALING IN IDENTI CAL PRODUCTS AND HAVING COMPARABLE TURNOVERS. AS PER THE REPORT SUBMITTED U NDER RULE 10 B OF THE ID RULES, THE ASSESSEE HAS GIVEN COMPARISON OF SUCH PBIT WITH VARIOUS OTHER CONCERNS AND IT HAS DEMONSTRATED THAT SUCH PBIT OF THE APPELLANT AT 26.32% WHILE HIGHER THAN THE AVERAGE C OMPARABLE PBIT OF SUCH SIMILAR ENTITIES AT 13.33%. THE ONLY REASON, A PART FROM SOME GENERAL REGIONS, WHY THE AO HAS REJECTED THE SAID M ETHOD WAS ABSENCE OF BREAKUP OF PBIT BETWEEN TRANSACTIONS WITH ASSOCI ATED ENTERPRISES AND UNRELATED ENTITIES. IF THE PBIT WITH THE ASSOCI ATED ENTERPRISES IS HIGHER THAN THE OVERALL PBIT, THE VERY GROUND FOR R EJECTING THE SAID ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 6 26 TNMM METHOD GOES AWAY. UNDER THE CIRCUMSTANCES, THE RE WAS NO REASONABLE GROUND FOR CHANGING THE METHOD FOR DETER MINING THE ARM'S LENGTH PRICES. UNDER THE CIRCUMSTANCES, I HOLD THAT THERE WAS NO JUSTIFICATION ON THE PART OF THE AO IN CHANGING THE TNMM METHOD IS ADOPTED BY THE ASSESSEE IN DETERMINING THE ARM'S LE NGTH PRICES. ACCORDINGLY, AO IS DIRECTED TO ADOPT THE TNMM METHO D AND NOT THE CUP METHOD.' FACTS OF THE APPELLANT'S CASE ARE SIMILAR TO ASSESS MENT YEAR 2004-05 WITH THE ONLY DIFFERENCE IN APPELLANT'S PBI T AT 24.87% AS COMPARED TO AVERAGE PBIT OF SUCH SIMILAR ENTITIES A T 18.36%. THE ARGUMENTS GIVEN BY THE TPO ARE SIMILAR AND THEREFOR E THIS ISSUE IS COVERED BY THE EARLIER APPELLATE DECISION IN THE AP PELLANT'S OWN CASE IN THE SIMILAR FACTS AND CIRCUMSTANCES. APPELLANT ALSO SUBMITTED DECISION OF ITAT AHMEDABAD IN THE CASE OF SCHUTZ DISHMAN BIOTEC H PRIVATE LTD (A SISTER CONCERNS IN THE SIMILAR LINE OF BUSINESS) FO R ASSESSMENT YEAR 2002-03 IN ITA NUMBER 554/AHD/2006 DATED 15 FEBRUAR Y 2008. THE RELEVANT PART OF THE DECISION IS QUOTED BELOW- 'WE FIND NO FAULT WITH THE TNMM METHOD ADOPTED BY T HE ASSESSEE ON THE ABOVE FACTS OF THE CASE. EVEN THE H ONOURABLE APEX COURT IN THE CASE OF MORGAN STANLEY & CO HAS CLEARL Y UPHELD THE ADOPTION OF TNMM METHOD AS MOST APPROPRIATE METHOD AND THE RELEVANT PARTICULAR LINE FROM THE JUDGEMENT READS A S UNDER- 'AS REGARDS INCOME ATTRIBUTABLE TO THE P E, WE HOLD THAT THE TRANSACTIONAL NET MARGIN METHOD WAS THE APPROPRIATE METHOD FOR DETERMINING THE ARM'S LENGTH PRICE IN RESPECT OF TR ANSACTIONS BETWEEN MORGAN STANLEY & CO AND MSAS' EVEN THE HONOURABLE S PECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF AZTEC SOFTWARE AND TEC HNOLOGY SERVICES LTD HAS HELD THAT THE COMPUTATION OF ARMS LENGTH PRICE IS EFFECT TO EXERCISE. EACH CASE DEPENDS ON ITS OWN FACTS AND CIRCUMSTANCE S. IN MANY CASES WHERE IDENTICAL OR ALMOST SIMILAR UNCONTROLLED TRAN SACTION IS AREAVAILABLE FOR COMPARISON, DETERMINATION OF ARMS LENGTH PRICE IS AN EASY TASK. BUT IT IS NOT SO IN MOST OF THE TRANSACT IONS AND RARELY ONE IS ABLE TO LOCATE AND IDENTICAL TRANSACTION. IN SUCH C ASES ARMS LENGTH PRICE IS DETERMINED BY TAKING THIS SURVEY COMPARABLE TRAN SACTION IN COMPARABLE CIRCUMSTANCES AND MAKE SUITABLE ADJUSTME NT FOR THE DIFFERENCES. SIMILARLY IN THE PRESENT CASE ALSO THE PB IT OF THE ASSESSEE COMPANY IS EXACTLY SIMILAR OR NEARBY WITH THAT OF T HE OTHER UNCONTROLLED TRANSACTIONS OF UNCONNECTED ENTERPRISES. THE PB IT OF THE EXPORTS IS AS HIGH AS 23.02% AS AGAINST THE OVERALL PB 17- OF THE ASSESSEE COMPANY AT 20.04%. EVEN THE ASSESSEE HAS COMPARED THAT PB I T OF OTHER INDEPENDENT ENTITIES WITH THAT OF THE ASSESSEE AND DEMONSTRATED THE APPLICATION OF TNMM METHODCORRECTLY. ACCORDINGLY WE UPHOLD THE TNMM METHOD ADOPTED BY THE ASSESSEEAND REVERSE THE CUP M ETHOD ADOPTED BY THE REVENUE.' RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF MY LE ARNED PREDECESSORS IN THE APPELLANT'S OWN CASE AND JURISDICTIONAL 1TAT ON THE ISSUE OF CHANGE OF METHOD FROM TNMM TO CUP IN THE CASE OF AP PELLANT'S SISTER ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 7 CONCERNS HAVING IDENTICAL FACTS, ASSESSING OFFICER IS DIRECTED TO ACCEPT TNMM METHOD AS AGAINST CUP METHOD TAKEN UP BY TPO. IN TNMM METHOD, APPELLANT'S MARGIN IS HIGHER THAN AVERAGE M ARGIN OF COMPARABLE ENTITIES AND THEREFORE NO ADJUSTMENT CAN BE MADE ON THE ISSUE OF SALES MADE TO ASSOCIATED ENTERPRISES. EVEN OTHERWISE APPELLANT SUBMITTED DETAILED REASONS AS TO WHY ADJUSTMENTS MADE BY THE TPO ARE NOT JUSTIFIED. THE REASONS GIVEN ARE- DIFFERENCE IN QUANTITY SOLD, DIFFERENT GEOGRAPHICAL AREA, DIFFERENCE IN TIMING, FREQUENCY OF TRANSACTIONS, SMALLNESS OF DIF FERENCE ETC. IF ALL THESE REASONS ARE CONSIDERED, THERE IS HARDLY ANY M ATERIAL DIFFERENCE CALLING FOR ADJUSTMENT. THERE ARE INSTANCES WHERE S ALES TO ASSOCIATE ENTERPRISES ARE AT HIGHER PRICES THAN NON-ASSOCIATE ENTERPRISE REFLECTING THAT SALES WERE MADE AT ARM'S LENGTH PRICES. IN VIE W OF THE SUBMISSIONS OF THE APPELLANT, THE ADJUSTMENTS MADE BY ADOPTING CUP METHOD WILL NOT SURVIVE. AS REGARDS ADJUSTMENTS ON CONTRACT RESEARCH SERVICE S, TPO MADE UPWARD ADJUSTMENT OF RS 4.6 CRORES. OUT OF THESE AD JUSTMENT OF RS 2.96 CRORES WAS MADE IN THE CASE OF USA SUBSIDIARY AND BALANCE IN THE CASE OF UAE SUBSIDIARY. IT IS A MATTER OF RECORD TH AT THE APPELLANT HAS CHARGED US $ 4000 PER MONTH PER FULL TIME EMPLOYEE (FTE) TO ITS AE FOR CARRYING OUT RESEARCH ACTIVITIES. THE APPELLANT HAS CHARGED THE SAME RATE TO NON - AES WHICH IS VERY MUCH EVIDENT FROM T HE COPY OF INVOICES WHICH ARE PLACED ON RECORD AT PAGES NOS.179 TO 182 OF PAPER BOOK - II. WHILE APPELLANT RECEIVED US DOLLAR 11.90 LAKHS FROM THESE TWO AES AT THE RATE OF $4000 PER MEN MONTH, APPELLANT ALSO REC EIVED USDOLLAR 9.55 LAKHS FROM THREE NON- AES AT THE SAME RATE OF $4000 PER MEN MONTH FOR CONTRACT RESEARCH WORK. I FIND THAT EVEN IF CUP IS TO BE APPLIED FOR THESE TRANSACTIONS, THE COMPARABLE INSTANCES OF CHARGING PRICE TO NON-AES PROVE THAT THE TRANSACTIONS ARE ENTERED INTO AT ALP AND THEREFORE NO ADJUSTMENTS ARE CALLED FOR. IT IS ALSO SUBMITTED BY THE APPELLANT THAT IT HAS E NTERED INTO ARRANGEMENT WHEREBY IT HAS CARRIED OUT CONTRACT BAS ED RESEARCH ACTIVITY. AS PER THE TERMS AND CONDITIONS FOR CONTR ACT RESEARCH MENTIONED BY THE APPELLANT, THE ENTIRE RISK OF OUTC OME OF THE SAID RESEARCH WAS TO BE TAKEN BY THE PRINCIPALS' I.EDISH MANFZE AND DISHMAN USA. AS PER SUBMISSION, THE APPELLANT WAS TO CARRY OUT ONLY THE RESEARCH ACTIVITY, IRRESPECTIVE OF THE OUTCOME OF S UCH RESEARCH AND FOR THAT ACTIVITY, THE APPELLANT WAS TO BE COMPENSATED IN TERMS OF MEN MONTH HOURS' BASIS. IN OTHER WORDS, THE PRINCIPALS ARE GETTING THE ENTIRE CONTRACT RESEARCH WORK DONE BY THE APPELLANT AND TA KES THE RISK AND AS A COROLLARY, THE REWARDS TOO. THE BILLS ISSUED FOR CONTRACT RESEARCH WORK FOR AES AND NON-AES ARE IDENTICAL IN WHICH MAN MONT HS WAS THE BASIS OF BILLING. IN THE ABSENCE OF FORMAL CONTRACTS, THE TP O CONSIDERED THESE TRANSACTIONS AS NORMAL SALE IGNORING THE NATURE OF TRANSACTIONS. TRANSACTIONS CAN BE ENTERED EVEN WITHOUT ELABORATE FORMAL AGREEMENT BUT THAT WILL NOT CHANGE THE NATURE OF TRANSACTIONS . THESE TRANSACTIONS CANNOT BE EQUATED WITH THE NORMAL SALE TRANSACTIONS JUST BECAUSE FORMAL AGREEMENT WAS NOT ENTERED/ SUBMITTED. EVEN O RAL ARRANGEMENT/ ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 8 AGREEMENTS ARE LEGALLY RECOGNIZED. TPO DID NOT FIND ANY MATERIAL OR EVIDENCE TO SUGGEST THAT THESE TRANSACTIONS WERE NO T CONTRACT RESEARCH SERVICES BUT OUTRIGHT SALE. IN VIEW OF THIS, THE PR OFIT MARGINS OF THE ASSOCIATE ENTERPRISES CANNOT BE APPLIED TO THE APPE LLANT AS THE APPELLANT IS ONLY CHARGING ON THE BASIS OF MAN MONTHS SPENT O N THE CONTRACT RESEARCH WORK WITHOUT TAKING RISK OF OUTCOME. I THE REFORE HOLD THAT THE APPROPRIATE METHODS, WHICH CAN BE APPLIED FOR THE P URPOSE OF DETERMINING THE ARMS LENGTH PRICE, ARE THE TRANSACT ION NET MARGIN METHOD (TNMM) OR COMPARABLE UNCONTROLLED PRICE (CUP ) ,DISCUSSED INEARLIER PARA, WHICH HAVE BEEN APPLIED BY THE APPE LLANT AND AS PER THAT NO ADJUSTMENT IS CALLED FOR. UNDER THE CIRCUMSTANCE S, THIS ADDITION IS NOT SUSTAINED. IN VIEW OF THE AFORESAID DISCUSSIONS, NO ADJUSTMENT S TO THE ALP FOR ANY OF THE TRANSACTIONS ENTERED INTO BY THE APP ELLANT FOR THE YEAR UNDER CONSIDERATION IS CALLED FOR AND ASSESSING OFF ICER IS DIRECTED TO DELETE THE SAME. 7. THE LD.COUNSEL FOR THE ASSESSEE AT THE VERY OUTS ET SUBMITTED THAT THE ORDER OF THE LD.CIT(A) IN THE ASSESSMENT YEARS 2002 -03, 2003-04 AND 2004-05 HAVE BEEN UPHELD IN ITA NO.903 & 1234/AHD/2010 FOR THE ASSTT.YEAR 2002-03. SIMILARLY, ORDER FOR THE ASSTT.YEAR 2003-04 AND 200 4-05 WAS UPHELD IN ITA NOS.154, 587, 2180 AND 3213(AHD) OF 2007. IT IS RE PORTED IN 45 SOT 37. COPY OF THIS ORDER HAS ALSO BEEN PLACED ON RECORD B Y THE LD.COUNSEL FOR THE ASSESSEE. 8. THE LD.CIT-DR WHILE IMPUGNING ORDER OF THE LD.CI T(A) SUBMITTED THAT SHRI R.I.PATEL, CIT-DR HAS FILED WRITTEN SUBMISSION S, VIDE LETTER DATED 26.6.2015. COPY OF SUCH SUBMISSIONS UNDER SIGNATUR E OF SHRI B.Y. CHAVAN, JT.CIT (TPO), AHMEDABAD ARE AVAILABLE ON RECORD. S HE RELIED ON THESE SUBMISSIONS. 9. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GO NE THROUGH THE RECORD. THE LD.TPO HAS NOT POINTED OUT DEFECTS IN TNMM APPL IED BY THE ASSESSEE FOR DEMONSTRATING ALP OF ITS INTERNATIONAL TRANSACTIONS . WITHOUT ANY REASONS, HE SIMPLY CHANGED METHOD AND HELD THAT CUP METHOD IS M ORE APPROPRIATE METHOD FOR DETERMINING ALP OF INTERNATIONAL TRANSAC TION ENTERED INTO BY THE ASSESSEE WITH ITS AES. WE FIND THAT IN THE ASSTT.Y EARS 2003-04 AND 2004-05, THE TRIBUNAL HAS ACCEPTED THAT TNMM IS THE MOST APP ROPRIATE METHOD FOR DETERMINING ALP OF ASSESSEES TRANSACTIONS WITH ITS AE. IN THE PRESENT ASSESSMENT YEAR, THE ASSESSEE HAS COMPILED THE DETA ILS IN TABULAR FORM ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 9 SUBMITTING AS TO WHY CUP IS NOT APPROPRIATE METHOD. SUCH DETAILS HAVE BEEN REPRODUCED BY THE LD.CIT(A) AND THEY READ AS UNDER: SR. NO. PRODUCT ALP ADJUSTMENT IN RS. REASONS WHY COMPARISON IS NOT PROPER 1 AMMONIUM TRIBUTYLE AMMONIUM CHLORIDE 10,70,529/- THE APPELLANT HAS SOLD 9,800 KGS AT AVERAGE RATE OF RS.144.51 TO DISHMAN USA AE. THE LD. TPO HAS COMPILED THE IDENTICAL PRODUCTS SOLD TO VARIOUS CUSTOMERS IN RESPECTIVE COUNTRIES AND HAS ADOPTED THEIR AVERAGE RATE OF RS.253.47. DETAILS OF WHICH GIVEN ON PAGE NO. OF PAPER BOOK. REASONS FOR NON-COMPARABLE ARE AS UNDER : (A) FUNCTION PERFORMED, RISK ASSUMED AND ASSETS EMPLOYED I.E FAR FACTORS ARE NOT TAKEN INTO CONSIDERATION WHILE COMPARING PRICES CHARGED TO AE WITH NON-AE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO SO FAR AS QUANTITY IS CONCERNED ARE AT ALL NOT COMPARABLE, EXCEPT ONE, AS THE APPELLANT HAS SOLD USE QUANTITY OF 9800 KGS, WHEREAS COMPARABLE QUANTITY IS RANGING FROM 22 KGS TO 1950 KGS. THE ONLY COMPARABLE INSTANCE COULD BE IMPUGNED PRODUCT SOLD TO DDC FINE CHEMICALS N.V. SITUATED AT BELGIUM QUANTITY IS 10,000 KGS IS AT AVERAGE RATE OF RS. 200.97. HOWEVER, THIS IS ALSO NOT COMPARABLE FOR THE REASON OF GEOGRAPHICAL FACTOR AND FUNCTION PERFORMED, EMPLOYMENT OF ASSETS AND RISK ASSUMPTION BY AE. HENCE, THIS IS ALSO NOT COMPARABLE INSTANCE. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 10 (C) GEOGRAPHICAL FACTOR :NON AES ARE SITUATED AT DIFFERENT GEOGRAPHICAL AREA AND THEREFORE ALSO THEY ARE NOT COMPARABLE. BECAUSE OF THE DIFFERENT GEOGRAPHICAL LOCATIONS EVEN THE POLITIC RISKS ALSO VARY SO ALSO THE CURRENCY FLUCTUATION RISK. (D) REGULARITY OF TRANSACTION : THE APPELLANT SUBMITS THAT EVEN WHEN INTERNAL COMPARISON IS APPLIED, WHAT CAN BE COMPARED FOR THE PURPOSE OF DETERMINING THE ALP ARE THE REGULAR TRANSACTIONS AND NOT THE SOLITARY OR ISOLATED TRANSACTION WITH ANY OTHER THIRD NON-EE PARTY. TRANSACTION CAN EITHER THE ARENA OF COMPARISON ONLY IF ITS A TRANSACTION WHICH IS A REGULAR TRANSACTION. IN THE FACTS OF THE PRESENT CASE, TRANSACTION SELECTED BY LD. TPO ARE SUCH ISOLATED OR SOLITARY TRANSACTIONS AND THEREFORE THE VERY COMPARISON IS ERRONEOUS OR MISCONCEIVED. 2 & 3 CETRIMIDE BP 98,250 AND 92,800 NO COMMENTS FOR THE SMALLNESS OF AMOUNT. 4 PHENYLETRIMETHYLE AMMONIUM CHLORIDE 5,87,523/- THE APPELLANT WOULD LIKE TO POINT OUT THAT THERE IS A MISTAKE ON THE PART OF LD. TPO IN TAKING AVERAGE PRICE AT RS. 299.27 INSTEAD OF RS. 246.10. SUMMARISED TABLE OF QUANTITY SOLD TO NON AES AND AVERAGE PRICE THEREOF IS GIVEN HEREUNDER FOR READY REFERENCE TO CLARIFY THE ISSUE: ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 11 COUNTRY QTY. AVG. RATE ARGENTINA 600 535.67 AUSTRALIA 11558 272.49 BELGIUM 81000 242.42 IRAN 16000 228.63 JAPAN 1600 303.52 TAIWAN 24 459.30 UK 5 694.35 TOTAL 110787 246.10 AE EUROPE 11,100 246.34 FROM THE ABOVE GIVEN TABLE, IT IS VERY MUCH CLEAR THAT THE APPELLANT HAS CHARGED PRICE AT RS. 246.34 TO THE AE THAN THE AVERAGE PRICE CHARGED AT RS. 246.10 TO NON-AE. HENCE, THERE IS NO QUESTION OF MAKING TRANSFER PRICING ADJUSTMENTS. 5 PHENYLETRIMETHYLE AMMONIUM CHLORIDE 5,48,053/- THE APPELLANT WOULD LIKE TO POINT OUT THAT THERE IS A MISTAKE ON PART OF LD. TPO IN TAKING AVERAGE PRICE AT RS. 299.27 INSTEAD OF RS. 246.10. SUMMARISE TABLE OF QUANTITY SOLD TO NON-AES AND AVERAGE PRICE THEREOF IS GIVEN HEREUNDER FOR READY REFERENCE TO CLARIFY THE ISSUE : COUNTRY QTY. AVG. RATE ARGENTINA 600 535.67 AUSTRALIA 11558 272.49 BELGIUM 81000 242.42 IRAN 16000 228.63 JAPAN 1600 303.52 TAIWAN 24 459.30 UK 5 694.35 TOTAL 110787 246.10 AE USA 8280 233.08 IN THE GIVEN CASE, THE APPELLANT HAS CHARGED AVERAGE PRICE RS.233.08 TO AE WHEREAS AVERAGE ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 12 PRICE TO NON-AE WORK OUT TO BE TO RS. 246.10 WHICH IS CERTAINLY WITHIN LIMIT OF 5% AND THEREFORE AS PER 2 ND PROVISO S. 92C(2)OF THE ACT NO TRANSFER PRICING ADJUSTMENT IS REQUIRED TO BE MADE. WITHOUT PREJUDICE TO ABOVE, THE APPELLANT SUBMITS THAT IN ANY CASE THE INSTANCES ARE NOT COMPARABLE AT ALL DUE TO QUANTITY AND GEOGRAPHICAL FACTORS 6 SODIUM PICOSUMLPHAT 78,713/- NO COMMENTS FOR THE SMALLNESS OF AMOUNT. 7 TETRABUTYL AMMONIUM BROMIDE 31,81,642/- (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES IS TAKEN BY THE LD. TPO IS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE ISREAL 28800 215.82 JAPAN 4300 280.63 KOREA 3500 433.95 NETHERLAND 1000 810.60 USA 10200 240.67 TOTAL 47800 255.36 AE- EUROPE 49054 190.50 ALL FIVE INSTANCES ARE NOT COMPARABLE AS THERE IS HUGE DIFFERENCE IN QUANTITY OF THE PRODUCT SOLD TO AE AND NON-AE. EVEN IF THE NEAR QUANTITY I.E 20,800 TAKEN INTO CONSIDERATION THEN ALSO AVERAGE RATE IS RS. 215.82, WHICH IS ALSO FOR THE REQUIRED TO BE DISCOUNTED CONSIDERING THE QUANTITY FACTOR I.E 28,800 KGS TO NON-AE AGAINST 49,054 KGS. TO AE AS WELL AS GRAPHICAL FACTORS AND CERTAINLY FAR. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 13 (C) GEOGRAPHICAL FACTORS : AS ABOVE. (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 8 TETRA BUTYLE AMMONIUM BROMIDE 1,05,040/- FOR THE SMALLNESS OF AMOUNT IT IS NOT CONSIDERED. 9 TETRA BUTYLE AMMONIUM BROMIDE 55,21,061/ (A) FUNCTION PERFORMED, RISK ASSUMED AND ASSETS EMPLOYED I.E FAR FACTORS ARE NOT TAKEN INTO CONSIDERATION WHILE COMPARING PRICES CHARGED TO AE WITH NON-AE. DETAILED FAR ANALYSIS IS GIVEN BELOW TABLE. (B) QUANTITY FACTORS . THE INSTANCES TAKEN BY THE LD. TPO IS SUMMARISED AS UNDER. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 14 COUNTRY QTY. AVG. RATE ISREAL 16900 234.02 JAPAN 7040 251.84 KOREA 2000 435.60 TOTAL 25,940 254.40 AE- EUROPE 1,04,625 201.63 ALL THREE INSTANCES ARE NOT COMPARABLE AS THERE IS HUGE DIFFERENCES IN QUANTITY OF THE PRODUCT SOLD TO AE AND NON-AE. EVEN IF THE NEAR QUANTITY I.E.16,900 TAKEN INTO CONSIDERATION THAT ALSO AVERAGE RATE IS RS. 234.02, WHICH IS ALSO FOR THE REQUIRED TO BE DISCOUNTED CONSIDERING QUANTITY FACTOR I.E.16,900KGS. TO NON-AE AGAINST 1,04,625 KGS. TOAE AS WELL AS GEOGRAPHICAL FACTORS AND CERTAINLY FAR FACTORS. (C) GEOGRAPHICAL FACTORS. NON- AES ARESITUATEAT DIFFERENT GEOGRAPHICAL AREA AND THEREFORE ALSO THEY ARE NOT COMPARABLE. (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 10 TETRA BUTYLE AMMONIUM FLUORIDE THIHYDERATE 6,63,789/- (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : ONLY ONE INSTANCE HAS BEEN TAKEN INTO CONSIDERATION BY THE LD. TPO I.E ONLY 10 KGS SOLD TO CUSTOMER IN BRAZIL, WHEREAS THE APPELLANT HAS SOLD 400 KGS. TO AE. CERTAINLY THIS INSTANCE IS NOT COMPARABLE LOOKING INTO HUGE DIFFERENCE IN QUANTITY AS WELL AS ONLY ONE TRANSACTION HAS BEEN ENTERED INTO BY THE APPELLANT WITH SUCH NON AE. (C) GEOGRAPHICAL FACTORS : AS ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 15 (1) ABOVE. (D) REGULARITY OF TRANSACTION : AS (1) ABOVE. 11 TETRA BUTYLE AMMONIUM HYDROGEN SULPHATE 47,18,827 (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE GERMANY 500 663.84 JAPAN 600 630.00 NETHERLAND 1000 762.65 USA 100 962.50 TOTAL 2,200 713.10 AE- EUROPE 17306 440.43 ALL THREE INSTANCES ARE NOT COMPARABLE AS THERE IS HUGE DIFFERENCE IN QUANTITY OF THE PRODUCT SOLD TO AE AND NON-AES. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 12 TETRA BUTYLE AMMONIUM HYDROGEN SULPHATE 24,931 FOR THE SMALLNESS OF AMOUNT IT IS NOT CONSIDERED. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 16 13 TETRA ETHYLE AMMONIUM BROMIDE 1,35,57,000/- (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE BRAZIL 63 608.86 JAPAN 100 650.70 MALAYSIA 25 437.80 USA 3000 252.02 TOTAL 3,188 273.04 AE- EUROPE 1,50,000 182.66 ALL FOUR INSTANCES ARE NOT COMPARABLE IS THERE IS HUGE DIFFERENCE IN QUANTITY OF THE PRODUCT SOLD AE AND NON-AES. EVEN IF NEARER QUANTITY IS TAKEN INTO CONSIDERATION I.E 3000 AT AVERAGE RATE OFRS. 252.02, THEN ALSO IT IS FOR THE REQUIRED TO BE DISCOUNTED CONSIDERING HUGE DIFFERENCE OF QUANTITY SOLD TO NON AE AND AE I.E 3000 KGS. TO NON- AE AGAINST 1,50,000, AS WELL AS GEOGRAPHICAL FACTORS AND FAR ANALYSIS. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 14 TETRA ETHYLE AMMONIUM BROMIDE 1,05,475/- FOR THE SMALLNESS OF AMOUNT IT IS NOT CONSIDERED. 15 LIDOCAIN 3,22,720/- (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE CHINA 1000 594.68 ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 17 800 701.24 KOREA 200 688.51 THAILAND 25 657.28 TOTAL 2025 646.81 AE- EUROPE 4000 566.13 ALL FOUR INSTANCES ARE NOT COMPARABLE IS THERE IS HUGE DIFFERENCE IN QUANTITY OF THE PRODUCT SOLD AE AND NON-AES. EVEN IF NEARER QUANTITY IS TAKEN INTO CONSIDERATION I.E 1000 AT AVERAGE RATE OF RS. 594.68, THEN ALSO IT IS FOR THE REQUIRED TO BE DISCOUNTED CONSIDERING HUGE DIFFERENCE OF QUANTITY SOLD TO NON AE AND AE I.E 1000 KGS. TO NON- AE AGAINST 4,000 TO AE, AS WELL AS GEOGRAPHICAL FACTORS AND FAR ANALYSIS. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 16 TETRA BUTYLEAMM. HY. 13,69,800 (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE GERMANY 500 743.52 JAPAN 300 635.04 NETHERLAND 2000 766.50 TOTAL 2800 748.31 AE- EUROPE 3000 291.71 THE APPELLANT HAS ENTERED INTO ONLY ONE TRANSACTION WITH ABOVE MENTIONED NON-AE AND THEREFORE THEY CAN NEVER BE COMPARED WITH THE PRICE CHARGED AND IN ANY CASE THERE DUE TO QUANTITY, GEOGRAPHICAL DIFFERENCE, ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 18 COMPARISON CANNOT MAKE TRANSFER PRICING ADJUSTMENTS. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 17 TETRA BUTYLEAMM. HY. 3,53,418 (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : THE INSTANCES TAKEN BY THE LD. TPO HAS SUMMARISED AS UNDER : COUNTRY QTY. AVG. RATE GERMANY 500 743.52 JAPAN 300 635.04 NETHERLAND 2000 766.50 TOTAL 2800 748.31 AE- USA 1300 291.71 THE APPELLANT HAS ENTERED INTO ONLY ONE TRANSACTION WITH ABOVE MENTIONED NON-AE AND THEREFORE THEY CAN NEVER BE COMPARED WITH THE PRICE CHARGED AND IN ANY CASE THERE DUE TO QUANTITY, GEOGRAPHICAL DIFFERENCE, COMPARISON CANNOT MAKE TRANSFER PRICING ADJUSTMENTS. (C) GEOGRAPHICAL FACTORS : AS ABOVE (1). (D) REGULARITY OF TRANSACTION : AS ABOVE (1). 18 MYRISTYL DBA CHLORIDE POWDER 59,71,613 (A) FAR ANALYSIS : AS ABOVE. (B) QUANTITY FACTOR : ONLY ONE INSTANCE HAS BEEN TAKEN INTO CONSIDERATION BY THE LD. TPO I.E ONLY 25 KGS SOLD TO CUSTOMER IN EGYPT, WHEREAS THE APPELLANT HAS SOLD 24,494.40 KGS. TO AE. CERTAINLY THIS INSTANCE IS NOT COMPARABLE LOOKING INTO HUGE DIFFERENCE IN QUANTITY AS WELL AS ONLY SINGLE TRANSACTION HAS BEEN ENTERED INTO BY THE APPELLANT WITH ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 19 SUCH NON AE. (C) GEOGRAPHICAL FACTORS : AS (1) ABOVE. (D) REGULARITY OF TRANSACTION : AS (1) ABOVE. UPWARD ADJUSTMENT OF RS.4,68,04,255/- IN RESPECT OF CONTRACT RESEARCH RECEIPTS : AT THE OUTSET THE APPELLANT MOST RESPECTFULLY SUBMI TS THAT IN RESPECT OF UPWARD ADJUSTMENT IN WITH REGARDS TO TRANSACTION IN THE N ATURE OF CONTRACT RESEARCH RECEIPT FROM DISHMAN USA INC IS AMOUNTING TO RS.2,96,26,763 /- IS CONCERNED, THE SAME IS NOT AT ALL TENABLE AS THE TOTAL CONTACTS RESEARCH R ECEIPT WITH THE SAID ENTITY IS ONLY IN THE SUM OF RS. 87,38,550/-. THE FOLLOWING TABLE WOU LD CLARIFY THIS ASPECT : NATURE OF TRANSACTIONS AMOUNT IN RS. TRANSACTIONS WITH DISHMAN USA INC. IN RESPECT OF SALES OF GOODS (REF. PAGE ___ OF P/B) 23,00,00,469/- TRANSACTIONS WITH DISHMAN USA INC. IN RESPECT OF SALES OF SERVICES (CONTRACT RESEARCH RECEIPTS) (REF. PAGE ___ OF P/B) 87,38,550/- RATE DIFFERENCE 23,87,897/- TOTAL TRANSACTIONS WITH DISHMAN USA INC. IN RESPECT OF SALES OF GOODS AND SERVICES 24,11,26,916/- THE APPELLANT SUBMITS THAT WHEN THE TOTAL TRANSACT IONS IN THE RESPECT OF CONTRACT RESEARCH ARE TO THE TUNE OF RS. 87.38 LACS, THE QUE STION OF MAKING ADJUSTMENT BEYOND THIS GROSS FIGURE OF RECEIPT CANNOT RISE AND NO ADJUSTMENT IN THIS SUM OF RS.296.26 LAKHS CAN BE MADE. THE APPELLANT SUBMITS THAT LD. TPO HAS ALREADY MADE ADJUSTMENTS IN RESPECT OF TRANSACTION OF SALES OF G OODS BY APPLYING THE CUP METHOD AND THE SAME HAS BEEN THE SUBJECT MATTER OF CHALLEN GE IN THE EARLIER GROUNDS. HAVING DONE THAT, IT IS NOT OPEN TO LD. TPO TO ONCE AGAIN APPLY THE GROSS MARK UP METHOD AND MAKE ONE MORE ADDITION ON THIS SAME SET OF SALES WITH THE SAME AE.IF THE TPO HAS CHOSEN A PARTICULAR METHOD FOR DETERMIN ING ALP, THE SAME HAS TO BE APPLIED UNIFORMLY TO ALL THE TRANSACTIONS. IT IS TH EN NOT OPEN TO THE TPO TO SAY THAT IF A PARTICULAR TRANSACTION IS AT ALP IN THE FIRST CHOSEN METHOD THE SAME HAS TO BE REALIGNED AND READJUSTED BY APPLYING A DIFFERENT ME THOD FOR DETER MINING ALP. ONCE THE TRANSACTION IS AT ALP UNDER A PARTICULAR M ETHOD THE SAID TRANSACTION HAS TO BE ACCEPTED AS A TRANSACTION ENTERED INTO AT ALP AND THE SAME CANNOT BE DISTURBED THEREAFTER BY APPLYING A DIFFERENT METHOD FOR DETERMINING THE ALP. 10. IN THE WRITTEN SUBMISSIONS, THE LD.TPO HAS REIT ERATED OBSERVATION MADE IN THE ORDER PASSED UNDER SECTION 92CA DATED 21.10. 2008. APART FROM THE OBSERVATION OF THE TPO, IT HAS BEEN CONTENDED IN TH E WRITTEN SUBMISSIONS THAT THE ASSESSEE HAS CARRIED OUT COMPARABILITY UNDER TN MM AT ENTITY LEVEL AND NOT AT TRANSACTIONAL LEVEL. HE CONTENDED THAT THE ASSE SSEE HAS USED TNMM ON ENTITY BASIS FOR COMPUTATION OF ALP FOR ITS SALES T O ITS SUBSIDIARIES. ACCORDING ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 20 TO THE LD.DR, THE ASSESSEE OUGHT TO HAVE ADOPTED NE T TRANSACTIONAL METHOD INSTEAD OF PROFIT MARGIN OF ENTERPRISE AS A WHOLE. A REFERENCE TO THE ORDER OF THE ITAT MUMBAI IN THE CASE OF UCB INDIA P.LTD. VS. ACIT, 121 ITD 13 1(MUMBAI) HAS BEEN MADE. 11. WE HAVE GONE THROUGH THESE SUBMISSIONS AS WELL AS FINDING OF THE LD.CIT(A). IT IS PERTINENT TO OBSERVE THAT THE LD. TPO IN THE ORDER DATED 21.10.2008 HAS NOT MADE ANY SUCH ANALYSIS. HE HAS NOT POINTED OUT THE ALLEGED DEFECT AS CONTENDED IN THE WRITTEN SUBMISSI ONS. THE ANALOGY ADOPTED BY THE TPO IN THE ORDER PASSED UNDER SECTION 92CA I S THAT CUP METHOD IS FAR BETTER METHOD THAN TNMM. HOW, TNMM IS NOT APPLICA BLE ON THE GIVEN SET OF FACTS HAS NOWHERE BEEN DISCUSSED BY THE TPO IN THE IMPUGNED ORDER. THEREFORE, THE LD.DR CANNOT IMPROVE THE CASE OF THE TPO AT THIS LEVEL. MORE SO WHEN, CONSISTENTLY FROM THE ASSTT.YEAR 2002-03, IT HAS BEEN HELD THAT METHOD ADOPTED BY THE ASSESSEE IS AN APPROPRIATE METHOD. IN THE ASSESSEES OWN CASE, THIS ASPECT HAS BEEN ACCEPTED UPTO THE LEVEL OF ITAT. THERE IS NO JUSTIFICATION FOR DISTURBING OF THAT METHOD BY TAKI NG DIFFERENT OPINION FROM ORDER OF THE ITAT PASSED IN SIMILAR FACTS OF THE SA ME ASSESSEES. TAKING INTO CONSIDERATION EARLIER ORDERS OF ITAT PASSED IN ASSE SSEES CASE FOR THE ASSTT.YEAR 2002-03 TO 2004-05, WE ARE OF THE OPINIO N THAT THE LD.CIT(A) HAS BASED HIS FINDING ON THE ORDERS OF PREDECESSOR. TH ERE IS NO INDEPENDENT DISCUSSION IN THIS ORDER. THUS, THE FINDINGS HAVE BEEN UPHELD BY THE ITAT, AND THEREFORE, WE DO NOT SEE ANY REASONS TO DEVIATE OUR SELVES FROM THOSE FINDING. RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL I N EARLIER YEARS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL RAISED BY T HE REVENUE. ACCORDINGLY, FIRST GROUND OF APPEAL IS REJECTED. 12. GROUND NO.2 IN THE REVENUES APPEAL IS INTER-CO NNECTED WITH SOLITARY GROUND TAKEN BY THE ASSESSEE IN THE CO. 13. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS CLAIMED MISC. EXPENSES TO BE WRITTEN OFF AT RS.19,36,409/-. THE AO HAS DI SALLOWED A SUM OF RS.18,45,974/- AND ADDED TO TOTAL INCOME OF THE ASS ESSEE. ON APPEAL, THE LD.CIT(A) HAS CONFIRMED THE DISALLOWANCE AT RS.15 L AKHS ON LUMP-SUM BASIS. DELETION MADE BY THE LD.CIT(A) IS BEING CHALLENGED BY THE REVENUE IN ITS ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 21 GROUND NO.2, WHEREAS ADDITION RETAINED BY THE LD.CI T(A) IS BEING CHALLENGED BY THE ASSESSEE IN ITS CO. THE BREAK-UP OF RS.18,45,9 74/- IS AS UNDER: A) R&D EXPENSES : RS.94,830/- B) LIBRARY A/C. : RS.17,11,144/- C) LIFE MEMBERSHIP TO CLUBS : RS.40,000/- 14. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS FAR AS DISALLOWANCE IS CONCERNED, RS.15.00 LAKHS IS ON A HIGHER SIDE. THE ASSESSEE HAS WRITTEN OFF THIS EXPENDITURE. HE FURTHER CONTENDED IF THE CLAI M WITH REGARD TO LIBRARY BOOKS IS NOT BEING GIVEN, THEN ASSESSEE BE ALLOWED DEPRECIATION ON THE BOOKS. ON THE OTHER HAND, THE LD.DR RELIED UPON ORDER OF T HE AO. 15. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE CIT(A)S ORDER WOULD I NDICATE THAT AD HOC DISALLOWANCE WAS CONFIRMED BY THE LD.CIT(A) AFTER E XPERIENCING NON- AVAILABILITY OF NECESSARY INFORMATION. THE LD.CIT( A) HAS OBSERVED THAT THE ASSESSEE FAILED TO GIVE DETAILS ABOUT PURPOSE AND N ATURE OF THE EXPENDITURE; HOW THESE WERE WRITTEN OFF ETC. AFTER TAKING INTO CONSIDERATION THE FINDING OF THE LD.CIT(A), WE ARE OF THE VIEW THAT LUMP-SUM ADD ITION CONFIRMED BY THE LD.CIT(A) IS LITTLE ON THE HIGHER SIDE, BECAUSE THE ASSESSEE HAS CONTENDED THAT IF WRITTEN OFF IS NOT ALLOWABLE, THEN ACTUAL EXPENS ES INCURRED DURING THE YEAR OUGHT TO BE ALLOWED. IN OTHER WORDS, CASE OF THE A SSESSEE IS THAT BY FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT HAS INCURRED VA RIOUS EXPENSES, WHICH HAS BEEN WRITTEN OFF IN THIS YEAR. THEREFORE, TO MEET ENDS OF JUSTICE, ASSESSEE DESERVES A FURTHER RELIEF OF RS.5,00,000/-. IN OTH ER WORDS, ADDITION CONFIRMED BY THE LD.CIT(A) OF RS.15,00,000/- IS RESTRICTED TO RS.10,00,000/- (TEN LAKHS) ONLY, AND THUS THE ASSESSEE GETS A FURTHER PART REL IEF. ACCORDINGLY, THIS INTER- CONNECTED GROUND RAISED IN THE APPEAL OF THE REVENU E AND CO OF THE ASSESSEE IS PARTLY ALLOWED. 16. NOW WE TAKE ITA NO.2447/AHD/2011 (REVENUES AP PEAL) 17. IN THE FIRST GROUND OF APPEAL, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING ADDITION OF RS.2,41 ,04,933/- WHICH WAS ADDED BY THE AO WITH THE AID OF SECTION 2(22)(E) OF THE I NCOME TAX ACT. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 22 18. BRIEF FACTS OF THE CASE ARE THE AO HAS OBSERVED THAT DURING THE ASSESSMENT PROCEEDINGS OF A.Y 2006-07, IT WAS SEEN THAT SCHUTZ DISHMAN BIO- TECH P.LTD. (SDBPL FOR SHORT) HAS GIVEN LOANS TO THE ASSESEE. ASSESSEE HOLDS 22.3% SHARE HOLDING OF SDBPL. THUS, THE LD.A O WAS OF THE VIEW THAT LOANS GIVEN TO THE ASSESSEE DESERVES TO BE TREATED AS DEEMED DIVIDEND UNDER SECTION 2(22)(E) OF THE ACT. SIMILARLY, THE ASSESS EE HAS RECEIVED LOAN FROM B.R. LABS P.LTD. AMOUNTING TO RS.16,03,933/-. BOTH THESE LOANS WERE TREATED BY THE AO AS DEEMED DIVIDEND IN THE HANDS OF THE AS SESSEE AND ADDITION OF RS.2,41,04,933/- WAS MADE UNDER SECTION 2(22)(E) OF THE ACT IN REASSESSMENT ORDER. DISSATISFIED WITH THE ADDITION, THE ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). 19. IT CONTENDED THAT SIMILAR ISSUE WAS TAKEN IN TH E HANDS OF SDBPL. DISPUTE TRAVELLED UPTO THE ITAT, AND IT WAS HELD TH AT ASSESSEE AND SDBPL WERE MAINTAINING CURRENT ACCOUNTS. THESE WERE NOT IN THE NATURE OF LOANS WHICH COULD BE TREATED AS DEEMED DIVIDEND. WITH RE GARD BR LABORATORY, IT WAS CONTENDED THAT IT IS NOT A REGISTERED SHARE HOL DER OF BR LABORATORY, AND THEREFORE, IN VIEW OF SPECIAL BENCH DECISION OF THE ITAT IN THE CASE OF ACIT VS. BHAUMIK COLOR P.LTD., 118 ITD 1 (MUM)(SB) SUCH LOAN S ARE NOT TO BE TREATED AS DEEMED DIVIDEND. THE LD.CONSEL FOR THE ASSESSEE SUBMITTED THAT IN THE CASE OF SDBPL ISSUE TRAVELLED TO THE HONBLE HIGH COURT IN TAX APPEAL NO.958 OF 2015 WHEREIN HONBLE HIGH COURT UPHELD ORDER OF THE ITAT BY OBSERVING THAT THE TRIBUNAL HAS RIGHTLY HELD THAT THERE ARE LARGE NUMBER OF ADJUSTMENT ENTRY IN THE ACCOUNTS BETWEEN TWO ENTITIES; THE AMOUNTS W ERE NOT IN THE NATURE OF DEPOSITS, BUT MERELY ADJUSTMENTS AND SECTION 2(22)( E) OF THE ACT WOULD NOT BE APPLICABLE. THE LD.COUNSEL FOR THE ASSESSEE FURTHE R DREW OUR ATTENTION TOWARDS THE ORDER OF THE ITAT PASSED IN THE ASSESSEES OWN CASE FOR THE ASSTT.YEAR 2003-04 AND 2040-05. HE PLACED ON RECORD COPY OF T HE TRIBUNALS ORDER IN ITA NO.2015 & 2125/AHD/2012. IT APPEARS THAT IN THESE ASSESSMENT YEARS ALSO THERE MUST BE SOME REOPENING THAT IS WHY SECOND ROU ND OF LITIGATION IS THERE. THE LD.DR ON THE OTHER HAND RELIED UPON ORDER OF TH E AO. HE FAILED TO CONTROVERT SUBMISSION MADE BY THE LD.COUNSEL FOR TH E ASSESSEE. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 23 20. WE FIND THAT IN THE ASSTT.YEARS 2003-04 AND 200 4-05, THE TRIBUNAL HAS CONSIDERED IDENTICAL ISSUE IN ASSESSEES OWN CASE. FOLLOWING FINDING OF THE TRIBUNAL DESERVES TO BE NOTED: 7. THE ID. CIT(A) WAS CONVINCED AFTER VERIFICATION THAT THE ISSUE IS COVERED BY THE DECISION OF THE FIRST APPELLATE AUTH ORITY. THE RELEVANT FINDINGS OF THE ID. CIT(A) FOR A.Y. 2003-04 READS A S UNDER:- 'IT IS NOT IN DISPUTE THAT APPELLANT HAD LOT OF BUS INESS TRANSACTIONS WITH M/S SCHUTZ DISHMAN BIOTECH LTD. THERE WERE TRA NSACTIONS OF PURCHASE OF RAW MATERIAL AS WELL AS TEMPORARY ACCOM MODATION DEPOSITS. ASSESSING OFFICER OF M/S SCHUTZ DISHMAN B IOTECH LTD INITIATED ACTION UNDER SECTION 201 (1) BY TREATING THE TRANSACTION WITH APPELLANT COMPANY AS DEEMED DIVIDEND AND THE S AID COMPANY WAS TREATED AS ASSESSEE IN DEFAULT FOR NOT DEDUCTING TDS IN ASSESSMENT YEAR 2004-05 AND 2005-06. IN BOTH THE YEARS, CIT(A)-XXL, AHMEDABAD BY ORDER DATED 28-09-2010 HEL D THAT TRANSACTIONS ENTERED INTO BY THE APPELLANT WHICH IT S ASSOCIATE CONCERN WOULD NOT ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT. AND ACCORDINGLY THERE WOULD NOT BE ANY OBL IGATION TO DEDUCT TAX UNDER SECTION 194 AND THEREFORE THE ASSE SSEE CANNOT BE TREATED AS THE ASSESSEE IN DEFAULT WITHIN THE ME ANING OF SECTION 201(1) OF IT ACT. THE RELEVANT EXTRACT OF T HE SAID APPEAL ORDER IN PARA-SIX IS QUOTED BELOW- 'THERE IS LARGE NUMBER OF DEBIT AND CREDIT TRANSACT IONS. MEANING THEREBY, THE APPELLANT HAS GIVEN AND RECEIVED FUNDS AS AND WHEN REQUIRED TO AND FROM ITS ASSOCIATE CONCERN. IT IS N OT ON ACCOUNT WHEREBY LOANS AND ADVANCES HAVE BEEN GIVEN TO THE A SSOCIATE CONCERN. IT IS ON ACCOUNT PAYMENTS IN THE NATURE OF CURRENT ADJUSTMENT ACCOMMODATION ACCOUNT WHEREIN THERE IS A MOVEMENT OF FUNDS BOTH WAYS, ON THE BASIS. UNLIKE TRANSACTIO NS OF LOAN AND ADVANCES, THE MOVEMENT FUNDS IS BOTH WAYS AND THE S AME IS MORE IN THE NATURE OF CURRENT ACCOUNT RATHER THAN A LOAN ACCOUNT. TRANSACTIONS IN THE NATURE OF LOANS AND ADVANCES AR E USUALLY VERY FEW AND FOR A LONGER DURATION. IN THE FACTS OF THE PRESENT CASE, THE NATURE OF THE TRANSACTION AS IN THE FORM OF CUR RENT ACCOMMODATION, ADJUSTMENT ACCOUNT AND THEREFORE THE SAME IS NOT A TRANSACTION IN THE NATURE OF LOANS AND ADVANC ES. IN ABSENCE OF ANY LOANS AND ADVANCES, THE PROVISIONS OF SECTIO N 2 (22) (E) OF THE ACT IN RESPECT OF DEEMED DIVIDEND ARE NOT ATTRA CTED AND THEREFORE THE QUESTION OF DEDUCTION OF TAX AT SOURC E ALSO WOULD NOT ARISE.' SINCE THESE TRANSACTIONS BETWEEN APPELLANT AND ITS ASSOCIATE CONCERN M/S SCHUTZ DISHMAN BIOTECH LTD WAS THERE SI NCE ASSESSMENT YEAR 2004-05 ONWARDS AND DURING THE YEAR THE DEBIT BALANCE IN THE APPELLANT'S ACCOUNT WAS SUBSTANTIALL Y REDUCED. SINCE CIT (A) DID NOT FIND THE TRANSACTIONS BETWEEN APPELLANT AND ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 24 ITS ASSOCIATE CONCERN AS LOANS AND ADVANCES GIVEN, LOGICALLY THE SAME CANNOT BE LOANS AND ADVANCES RECEIVED BY THE A PPELLANT. IT IS NOT IN DISPUTE THAT IN THE BOOKS OF THE ASSOC IATE CONCERN, THERE ARE FIVE ACCOUNTS RELATING TO VARIOUS TRANSAC TIONS IN THE NAME OF APPELLANT AND SIX ACCOUNTS IN THE NAME OF A SSOCIATE CONCERN IN THE BOOKS OF APPELLANT. IN THESE MANY AC COUNTS WHERE A LARGE NUMBER OF DEBIT AND CREDIT ENTRIES INVOLVIN G DIFFERENT BUSINESS TRANSACTIONS. APART FROM THIS, THERE ARE C ERTAIN FINANCIAL . TRANSACTIONS ALSO IN THESE ACCOUNTS. THE MOVEMENT OF FUNDS WAS NOT FOR ANY PERIOD BUT WAS FREQUENT AND IN BOTH WAY S. RESPECTFULLY FOLLOWING THE DECISION OF ID CIJ (APPE AL) IN THE CASE OF ASSOCIATE CONCERN HOLDING THAT TRANSACTIONS ARE NOT IN THE NATURE OF LOAN AND ALSO DECISIONS OF JURISDICTIONAL ITAJ RELIED UPON BY THE APPELLANT, THE ADDITION ON ACCOUNT OF DEEMED DIVIDEND CANNOT SURVIVE IN THIS YEAR.' FACTS RELATING TO THE FINANCIAL TRANSACTIONS WITH S DBPL ARE IDENTICAL TO THE AFORESAID ASSESSMENT YEAR IN WHICH THE ISSUE IS DECIDED IN FAVOUR OF THE APPELLANT. IN VIEW OF THIS , BY FOLLOWING THE APPEAL ORDER IN ASSESSMENT YEAR 2006-07, ADDITI ON ON ACCOUNT OF DEEMED DIVIDEND IN RESPECT OF FINANCIAL TRANSACTIONS WITH SDBPL MADE BY THE ASSESSING OFFICER IS NOT CON FIRMED. 8. A PERUSAL OF THE AFOREMENTIONED FINDINGS OF THE ID. CIT(A) SHOWS THAT HE HAS FOLLOWED THE FINDINGS GIVEN IN A.Y. 2006-07 WHEREIN THE FIRST APPELLATE AUTHORITY HAS FOLLOWED THE DECISION TAKEN IN THE CASE OF SDBPL. WE FIND THAT THE APPEAL OF SDBPL TRAVELLED U P TO THE HON'BLE JURISDICTIONAL HIGH COURT OF GUJARAT WHEREIN THE HO N'BLE HIGH COURT WAS SEIZED WITH THE FOLLOWING QUESTION OF LAW FOR CONSI DERATION;- 'WHETHER ON FACTS AND IN LAW THE ITAT WAX RIGHT IN CANCELLING THE ORDER PASSED U/S 201(1) AND 201 (A) OF THE ACT, WIT HOUT APPRECIATING THAT THE AMOUNT ADVANCED WAS IN THE NA TURE OF DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT'.'' 9. AND THE RELEVANT FINDINGS OF THE HON'BLE HIGH CO URT READS AS UNDER:- 4. IT CAN THUS BE SEEN THAT THE COMMISSIONER AS A M ATTER OF FACT FOUND THAT THE PAYMENTS WERE NOT IN THE NATURE OF CURRENT ADJUSTMENT. THERE WAS MOVEMENT OF FUND BOTH WAYS ON NEED BASIS. THE T RANSACTIONS IN THE NATURE OF LOANS AND ADVANCES ARE USUALLY VERY FEW I N NUMBER WHEREAS IN THE PRESENT CASE, SUCH TRANSACTIONS ARE IN THE FORM OF CURRENT ACCOMMODATION ADJUSTMENT ENTRIES. THE COMMISSIONER THEREFORE, HELD THAT THE TRANSACTIONS WERE NOT IN THE NATURE OF LOA NS AND ADVANCES. THE REVENUE CARRIED THE MATTER IN APPEAL. THE TRIBUNAL CONCURRED WITH THE VIEW OF THE. CIT (APPEALS) AND HELD THAT THE AMOUNT S WERE NOT IN THE NATURE OF INTER CORPORATE DEPOSITS AND WERE THEREFO RE, NOT TO BE TREATED AS LOANS OR ADVANCES AS CONTEMPLATED IN SECTION 2(2 2)(E) OF THE ACT. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 25 5. THE ISSUE IS SUBSTANTIALLY ONE OF APPRECIATION O F FACTS. WHEN THE CIT(APPEALS) AS WELL AS TRIBUNAL CONCURRENTLY HELD THAT LOOKING TO LARGE NUMBER OF ADJUSTMENT ENTRIES IN THE ACCOUNTS BETWEE N TWO ENTITIES, THE AMOUNTS WERE NOT IN THE NATURE OF LOAN OR DEPOSIT, BUT MERELY ADJUSTMENTS, APPLICATION OF SECTION 2(22)(E) OF THE ACT WOULD NOT ARISE. CONSEQUENTLY, NO QUESTION OF LAW ARISES. TAX APPEAL S ARE DISMISSED. 21. RESPECTFULLY FOLLOWING ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY MERIT IN THIS APPEAL. IT IS REJECT ED. 22. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING ADDITION OF RS.2,78 ,06,483/- WHICH WAS ADDED BY THE AO BY MAKING A DISALLOWANCE UNDER SECTION 40 (A)(IA) OF THE ACT. 23. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE MADE PAYMENTS OF PROFESSIONAL FEES, COMMISSION, INTEREST AND DISCHARGE OF CERTAIN CONTRACTUAL OBLIGATIONS. IT WAS REQUIRED TO DEDUCT TDS. IT HAS DEDUCTED TDS, B UT PAID IT BELATEDLY. IN OTHER WORDS, TDS BETWEEN APRIL 2004 AND FEBRUARY 20 15 DUE DATE FOR PAYMENT OF THE SAME INTO GOVERNMENT ACCOUNT WAS 31 ST MARCH, 2015 WHILE TDS IN MARCH, 2005 DUE DATE FOR PAYMENT IN GOVERNME NT ACCOUNT WAS ON OR BEFORE THE DUE DATE OF FILING THE RETURN I.E. 31.10 .2005. IN OTHER WORDS, THE AO WAS OF THE VIEW THAT THE TDS FROM APRIL 2004 TO FEBRUARY 2005 OUGHT TO HAVE BEEN PAID BEFORE 31 ST MARCH, 2005. HE THEREFORE DISALLOWED PAYMENT/ EXPENDITURE INCURRED BY THE ASSESSEE ON WHICH TDS W AS NOT DEPOSITED. ON THE OTHER HAND, CASE OF THE ASSESSEE IS THAT SECTIO N 40(A)(IA) HAS BEEN AMENDED BY FINANCE ACT, 2010 W.E.F 1.4.2005 WHICH C ONTEMPLATES THAT IF AN ASSESSEE HAS DEPOSITED TDS DEDUCTED DURING THE YEAR BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME, THEN NO DISALLOWANCE I S TO BE MADE. THE LD.AO DID NOT ACCEPT THIS CONTENTIONS, BUT THE LD.CIT(A) HAS ACCEPTED IT. 24. ON DUE CONSIDERATION OF THE ABOVE FACTS, WE FIN D THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF M/S.FARSO N FIBRES S. ITO, TAX APPEAL NO.1070 OF 2010 (GUJ) WHEREIN IT HAS BEEN HELD THAT IF TDS HAS BEEN DEPOSITED PRIOR TO THE DUE DATE OF FILING OF RETURN , THEN NO DISALLOWANCE HAS TO BE MADE. THE LD.CIT(A) HAS RIGHTLY DELED THE DISAL LOWANCE, AND WE DO NOT FIND ANY ERROR IN THIS GROUND OF APPEAL. IT IS REJECTED . ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 26 25. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 26. NOW WE TAKE ASSESSMENT YEAR 2006-07. 27. IN THIS YEAR, THE ASSESSEE AND REVENUE ARE IN C ROSS APPEALS I.E. REVENUES APPEAL IS ITA NO.817/AHD/2011 AND ASSESSE ES APPEAL IS IN ITA NO.773/AHD/2011, AGAINST ORDER OF THE LD.CIT(A) DAT ED 3.1.2011. THESE APPEALS HAVE ARISEN FROM THE PROCEEDINGS UNDER SECT ION 143(3) OF THE ACT. 28. THE ASSESSEE AND REVENUE HAVE ALSO FILED APPEAL BEING ITA NO.3086 AND 2957/AHD/2013 AGAINST THE ORDER OF THE LD.CIT(A ) DATED 31.10.2013. THESE APPEALS AROSE FROM PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. PENALTY ORDER WAS PASSED BY THE AO ON 30.3.20 12. 29. FIRST WE TAKE ITA NO.817/AHD/2011 FILED BY THE REVENUE. HOWEVER, IF ANY GROUND FOUND TO BE INTER-CONNECTED WITH GROUND OF APPEAL TAKEN BY THE ASSESSEE, THEN WE WILL TAKE UP THOSE GROUNDS TOGETH ER. 30. IN THE FIRST GROUND OF APPEAL, GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING ADDITION OF RS.15,7 1,69,588/-. 31. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS FILED ITS RETURN OF INCOME ON 31.12.2006 DECLARING A TOTAL INCOME AT RS .9,55,84,979/-. IT HAS INTERNATIONAL TRANSACTION WITH ITS AE. THEREFORE , A REPORT UNDER SECTION 92E OF THE INCOME TAX ACT, 1961 RELATING TO INTERNATION AL TRANSACTIONS WAS SUBMITTED IN FORM NO.3CEB. THE LD.AO HAS MADE REFE RENCE TO THE TPO FOR DETERMINATION OF ARMS LENGTH PRICE (ALP FOR SHORT) OF INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS AE . THE LD.TPO VIDE ITS ORDER DATED 29.9.2009 RECOMMENDED UPWARD ADJUSTMENT OF RS .15,71,69,588/- ON ACCOUNT OF SALE PRICE TO THE INTERNATIONAL TRANSACT IONS ENTERED INTO BY THE ASSESSEE WITH ITS AE. ACCORDINGLY, AN ADDITION O F THIS AMOUNT HAS BEEN MADE TO THE TOTAL INCOME OF THE ASSESSEE. DISSATI SFIED WITH THE ADDITION, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD .CIT(A). THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS BEFORE THE LD.CIT(A) WHIC H HAS BEEN REPRODUCED BY THE LD.CIT(A) ON PAGE 2 TO 17 OF THE IMPUGNED ORDER . THE LD.CIT(A) THEREAFTER OBSERVED THAT ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 27 THE ORDER OF HIS PREDECESSOR AS WELL AS BY THE ORDE R OF THE ITAT IN ASSESSEES OWN CASE. FOLLOWING THIS ORDER, THE LD.CIT(A) HAS DELETED THE ADJUSTMENT MADE BY THE AO ON THE BASIS OF RECOMMENDATION OF TP O. THE FINDING OF THE LD.CIT(A) READS AS UNDER: RESPECTFULLY FOLLOWING THE ABOVE DECISIONS OF MY L EARNED PREDECESSORS IN THE APPELLANT'S OWN CASE AND JURISDICTIONAL ITAT ON THE ISSUE OF CHANGE OF METHOD FROM TNMM TO CUP IN THE CASE OF AP PELLANT'S SISTER CONCERNS HAVING IDENTICAL FACTS, ASSESSING OFFICER IS DIRECTED TO ACCEPT TNMM METHOD AS AGAINST CUP METHOD TAKEN UP BY TPO. IN TNMM METHOD, APPELLANT'S MARGIN IS HIGHER THAN AVERAGE M ARGIN OF COMPARABLE ENTITIES AND THEREFORE NO ADJUSTMENT CAN BE MADE ON THE ISSUE OF SALES MADE TO ASSOCIATED ENTERPRISES. EVEN OTHERWISE APPELLANT SUBMITTED DETAILED REASONS AS TO WHY ADJUSTMENTS MADE BY THE TPO ARE NOT JUSTIFIED. THE REASONS GIVEN ARE- DIFFERENCE QUANTITY SOLD, DIFFERENT GEOGRAPHIC AL AREA, DIFFERENCE IN TIMING, FREQUENCY OF TRANSACTIONS, SMALLNESS OF DIF FERENCE ETC. IF ALL THESE REASONS ARE CONSIDERED, THERE IS HARDLY ANY MATERIAL DIFFERENCE CALLING FOR ADJUSTMENT. THERE ARE INSTANCES WHERE SALES TO ASSOCIATE ENTERPRISES ARE AT HIGHER PRICES THAN NON-ASSOCIATE ENTERPRISE REFLECTING THAT SALES WERE MADE AT ARM'S LENGTH PRICES. IN OF THE SUBMISSIONS OF THE APPELLANT, THE ADJUSTMENTS MADE BY ADOPTING MET HOD WILL NOT SURVIVE. ACCORDINGLY THE ADJUSTMENTS MADE UNDER THE TRANSFER PRICING PROVISIONS ARE DELETED. 32. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD. IT IS PERTINENT TO OBSERVE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF BULK DRUGS AND FINE CHEMICALS. IT HAD ENTERED I NTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS AE FOR SALE OF BULK DRUGS A ND FINE CHEMICALS. THE ASSESSEE HAS BENCH MARKED ITS INTERNATIONAL TRANSAC TIONS BY ADOPTING TNMM METHOD. THE TPO DID NOT ACCEPT THIS METHOD AS MOST APPROPRIATE METHOD AND OBSERVED THAT THE ASSESSEE SHOULD HAVE SUPPORTED IT S TRANSACTIONS AT ALP FOR FOLLOWING CUP METHOD AS MOST APPROPRIATE METHOD. W E HAVE DISCUSSED THIS ISSUE WHILE DEALING WITH THE APPEAL OF THE REVENUE IN THE ASSESSMENT YEAR 2005-06 IN THE EARLIER PART OF THIS ORDER. WE HAVE SPECIFICALLY OBSERVED THAT THIS ISSUE HAS BEEN COME UP FOR CONSIDERATION START ING FROM ASSESSMENT YEAR 2002-03 AND CONSISTENTLY IT HAS BEEN HELD THAT SINC E TNMM ADOPTED BY THE ASSESSEE IS MOST APPROPRIATE METHOD, ITS INTERNATIO NAL TRANSACTIONS OUGHT TO BE VALUED FOR THE PURPOSE OF BENCH MARKING BY ADOPT ING TNMM METHOD. IF THAT METHOD IS BEING ADOPTED THEN THE PROFIT LEVEL INDICATOR IS 23.59% AS COMPARED AVERAGE PROFIT OF SIMILAR ENTITY AT 18.46% . THUS, THE LD.CIT(A) HAS ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 28 OBSERVED THAT ALP OF THE ASSESSEE IN RESPECT OF 14 INTERNATIONAL TRANSACTIONS, WITH REGARD TO WHICH UPWARD ADJUSTMENTS WERE RECOMM ENDED BY THE TPO WERE TO BE CONSIDERED AT ARMS LENGTH. IT IS ALSO PERTINENT TO OBSERVE THAT LIKE IN THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HAS EX PLAINED AS TO WHY COMPARISON MADE BY THE AO QUA EACH TRANSACTIONS ENTERED WITH AE WAS NOT PROPER. SUCH COMPARATIVE ANALYSIS HAS BEEN NOTICED BY THE CIT(A) ON PAGE NOS.11 TO 17 OF THE IMPUGNED ORDER. FOR THE SAKE O F BREVITY OF REPETITION, WE DO NOT WANT TO TAKE COGNIZANCE OF THOSE COMPARATIVE ANALYSIS. WE HAVE GONE THROUGH IT, AND WE ARE OF THE VIEW THAT IF TNMM IS BEING ADOPTED AS MOST APPROPRIATE METHOD, FOR BENCH MARKING OF INTERNATIO NAL TRANSACTION, THEN ASSESSEES TRANSACTIONS ARE AT ALP. AFTER TAKING I NTO CONSIDERATION THE FINDING OF THE LD.CIT(A), WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED. 33. GROUND NO.2. IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO TAKE CORRECT FIGURE OF GRATUITY PROVISION. 34. BRIEF FACTS OF THE CASE ARE THAT IN THE STATEME NT OF INCOME THE ASSESSEE HAD DISALLOWED A SUM OF RS.93,34,526/- AS THE PROVI SIONS FOR GRATUITY. IT HAD FILED A LETTER DATED 1.12.2009 AND SUBMITTED THAT T HOUGH IN THE STATEMENT OF INCOME IT HAD MADE DISALLOWANCE OF RS.93,39,526/-, BUT THE ACTUAL AMOUNT OF PROVISION OF CURRENT YEAR IS OF RS.20,60,905/-. TH E ASSESSEE HAS SUBMITTED CERTIFICATE FROM CHARTERED ACCOUNTANT. HOWEVER, TH E LD.AO DID NOT ACCEPT THIS CLAIM THE ASSESSEE. ON APPEAL, THE LD.CIT(A) ACCEP TED THE CLAIM OF THE ASSESSEE AND OBSERVED THAT THE AMOUNT WHICH IS DISA LLOWABLE IS PROVISION MADE DURING THE YEAR AND NOT OPENING BALANCE. ACCO RDING TO THE LD.CIT(A) IT IS NOT A FRESH ISSUE. THE AO SHOULD HAVE CONSIDERE D THE CORRECT AMOUNT FOR DISALLOWANCE. THE LD.CIT(A) ALSO OBSERVED THAT DIS ALLOWANCE OF OPENING BALANCE CANNOT BE MADE. 35. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD. IT APPEARS THAT WHILE FILING RETURN OF INCO ME THE ASSESSEE HAS INCLUDED AN AMOUNT FOR ADDITIONS IN THE TOTAL INCOME. WHEN IT REALIZED THE PROVISION MADE FOR GRATUITY FOR THE YEAR UNDER CONSIDERATION, THEN IT HAD FILED AN ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 29 APPLICATION AND SUBMITTED TO THE AO THAT CURRENT YE ARS CLAIM ONLY RS.20,69,905/-. THIS AMOUNT COULD BE DISALLOWED. THE LD.CIT(A) HAS RIGHTLY APPRECIATED THE CONTROVERSY AND HAS RIGHTLY DIRECTE D THAT AO THAT ONLY FOR THE PROVISION MADE IN THE CURRENT YEAR COULD BE DISALLO WED AND NOT OPENING BALANCE. THEREFORE, AFTER LOOKING INTO THE FINDING OF THE LD.CIT(A), WE DO NOT FIND ANY ERROR IN IT. THIS GROUND OF APPEAL IS REJ ECTED. 36. GROUND NO.3: GRIEVANCE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW CORRECT FIGURE OF DEPR ECIATION. 37. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS CLAIMED DEPRECIATION OF RS.13,67,45,462/- IN THE RETURN OF INCOME. DURING THE ASSESSMENT PROCEEDINGS, IT HAS MADE A REVISED CLAIM AT RS.14,1 5,32,235/-. THIS CLAIM WAS DISALLOWED BY THE AO BY OBSERVING THAT THE ASSE SSEE FAILED TO FILE REVISED RETURN OF INCOME. THE LD.AO HAS MADE REFERENCE TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA LTD. THE LD.CIT(A) HAS OBSERVED THAT IT WAS THE DUTY OF THE AO TO DETERMINE THE COR RECT AMOUNT OF DEPRECIATION AVAILABLE TO THE ASSESSEE. HE FURTHER OBSERVED THA T AS PER EXPLANATION 3 TO SECTION 32(1)(I), THE AO HAS TO ASSESS UPON CORRECT AMOUNT OF DEPRECIATION ON THE ASSESSEE. 38. WITH ASSISTANCE OF THE LD.REPRESENTATIVES, WE H AVE GONE THROUGH THE RECORD CAREFULLY. IT WAS NOT A FRESH CLAIM MADE BY THE ASSESSEE. THUS, THE LD.AO HAS ERRED IN NOT CONSIDERING THE CLAIM OF THE ASSESSEE. THE LD.CIT(A) HAS RIGHTLY OBSERVED THAT THE CLAIM OF THE DEPRECIA TION AS MADE BY THE ASSESSEE, AND IT WAS FOR THE AO TO COMPUTE THE CORR ECT FIGURE OF DEPRECIATION ADMISSIBLE TO THE ASSESSEE. THE LD.CIT(A) HAS DIRE CTED THE AO TO GRANT CORRECT AMOUNT OF DEPRECIATION. THERE COULD NOT BE ANY FAU LT TO THIS FINDING, HENCE THIS GROUND OF APPEAL IS REJECTED. 39. GROUND NO.4: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING ADDITION O F RS.3,10,423/- OUT OF MISC. EXPENSES CLAIMED BY THE ASSESSEE AND DISALLOWED BY THE AO. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 30 40. THIS GROUND OF APPEAL IS INTER-CONNECTED WITH G ROUND NOS.23 AND 24 OF THE ASSESSEES APPEAL I.E. ITA NO.773/AHD/2011. WE TAKE ALL THESE GROUNDS TOGETHER. 41. THE ASSESSEE HAD DEBITED THE FOLLOWING AMOUNTS: A) LIBRARY BOOKS : RS.14,84,530/- B) CLUB MEMBERSHIP FEES : RS.40,000/- C) R&D EXPENSES : RS.94,830/- D) DEFERRED REVENUE EXPENSES: RS.1,91,063/- 42. THE LD.AO HAS DISALLOWED THE CLAIM OF THE ASSES SEE. HOWEVER, ON APPEAL, THE LD.CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE PARTLY. ON ADHOC BASIS, THE LD.CIT(A) HAS CONFIRMED AN ADDITION OF R S.15 LAKHS. AN IDENTICAL ISSUE CAME UP BEFORE US IN THE ASSESSMENT YEAR 2005 -06. WE HAVE CONFIRMED EXPENSES IN PRINCIPLE. FOLLOWING OUR OBSERVATION IN THE ASSESSMENT YEAR 2005- 06, WE MODIFIED THE ORDER OF THE LD.CIT(A) AND REST RICTED THE DISALLOWANCE TO THE EXPENDITURE OF RS.10 LAKHS. THE GROUND NOS.23 A ND 24 OF THE ASSESSEES APPEAL ARE PARTLY ALLOWED, WHEREAS THE GROUND NO.4 RAISED BY THE REVENUE IS DISMISSED. 43. GROUND NO.5: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE REVENUE IS THAT THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITI ON F RS.81 LAKHS WHICH WAS ADDED BY THE AO WITH THE AID OF SECTION 2(22)(E) OF THE ACT BY UPHOLDING THAT LOANS OBTAINED FROM SDBL IS TO BE TREATED AS DEEMED DIVIDEND. SUCH TRANSACTION WAS NOT CONSIDERED AS OF TAKING LOAN, R ATHER IT WAS CONSIDERED AS BUSINESS TRANSACTION BECAUSE BOTH PARTIES WERE MAIN TAINING CURRENT ACCOUNT WHEREIN LOANS ARE BEING TAKEN CONSISTENTLY. THIS I SSUE HAS BEEN EXAMINED IN THE ASSESSMENT YEARS 2005-06 WHEREIN WE HAVE FOLLOW ED THE ORDERS OF THE ITAT IN EARLIER YEARS IN THE CASE OF SDBL. EVEN TH E HONBLE HIGH COURT HAS CONFIRMED THE ORDER OF THE ITAT IN TAX APPEAL NO.95 8 AND 959 OF 2015. SECTION 2(22)(E) OF THE ACT IS NOT APPLICABLE ON TH E TRANSACTIONS BETWEEN THESE TWO PARTIES. CONSIDERING OUR FINDING IN THE ASSTT. YEAR 2005-06, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED . ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 31 44. GROUND NO.6 AND 7: THESE GROUNDS ARE INTER-CONN ECTED WITH GROUND NOS.26 AND 27 TAKEN BY THE ASSESSEE IN ITS APPEAL I .E. ITA NO.773/AHD/2010. 45. THE ISSUE INVOLVED IN ALL THESE GROUNDS RELATES TO COMPUTATION OF CORRECT FIGURE FOR THE GRANT OF DEDUCTION UNDER SECTION 10B OF THE ACT. 46. BRIEF FACTS OF THE CASE ARE THAT IN THE RETURN OF INCOME, THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 10B OF THE ACT AT R S.33,19,35,229/- IN RESPECT OF EOU UNITS AT BAVLA AND NARODA. THE ASSE SSEE HAS SUBMITTED AUDIT REPORT INFORM NO.56G OF THE ACT. ON ANALYSIS OF TH E RETURNS AND DOCUMENTS, THE LD.AO AS OF THE VIEW THAT THE ASSESSEE IS NOT E NTITLED FOR DEDUCTION UNDER SECTION 10B ON SOME OF THE ITEMS. ACCORDINGLY, HE MADE ADJUSTMENTS AND REDUCED DEDUCTION BY A SUM OF RS.10,21,60,135/-. I N OTHER WORDS, THE LD.AO HAS COMPUTED THE DEDUCTION AT RS.22,97,75,094/-. S IX POINTS WHICH HAVE BEEN CONSIDERED BY THE AO FOR MAKING ADJUSTMENT IN THE COMPUTATION OF DEDUCTION ARE AS UNDER: I) UNREALISED EXPORT EXCLUDED FROM THE EXPORT TURNOVER ; II) OTHER INCOME NOT CONSIDERED FOR ELIGIBLE DEDUCTION U/S 10B ; III) CUSTOM DUTY ALLOCATED ON THE BASIS OF RAW MATERIAL IMPORTS IN EOUS AND NON-EOU ; IV) PACKING EXPENSES AND PACKING MATERIAL EXPENSES ALLO CATED IN PROPORTION TO QUANTUM OF SALES IN EOUS AND NON-EOU ; V) CLEARING AND FORWARDING EXPORTS EXPENSES ALLOCATED IN PROPORTION TO QUANTUM OF SALES IN EOUS AND NON-EOU ; VI) ALLOCATION OF ADMINISTRATIVE AND INTEREST EXPENSES IN PROPORTION TO. TOTAL SALES IN EOUS AND NON-EOU. 47. OUT OF THE ABOVE SIX POINTS, THE ASSESSEE IS CH ALLENGING ORDER OF THE LD.CIT(A) ON ISSUE NO.1 AND 2 WHEREAS REVENUE IS CH ALLENGING ORDER OF THE CIT(A) ON ISSUE NOS.3 TO 6. 48. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE WITH REGARD TO THE PROPOSITION THAT ASSESSEE IS ENTITLED FOR GRANT OF DEDUCTION UNDER S ECTION 10B OF THE ACT. THE DISPUTE RELATES TO QUANTIFICATION OF THE DEDUCTION. FIRST WE TAKE THE ISSUE AGITATED BY THE REVENUE IN ITS GROUNDS OF APPEAL. IN THE FIRST FOLD OF GRIEVANCE, THE REVENUE HAS CONTENDED THAT THE AO HA S RIGHTLY ALLOCATED CUSTOM DUTY ON THE BASIS OF RAW-MATERIAL IMPORTS IN EOU AND NON-EOU UNITS. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 32 THE AO WAS OF THE VIEW THAT CUSTOM DUTY PAID BY THE ASSESSEE AND DEBITED IN THE ACCOUNTS OUGHT TO BE ALLOCATED ON THE IMPORTS M ADE FOR THE EOU UNITS. THE LD.CIT(A) AFTER MAKING A DETAILED ANALYSIS HELD THAT THERE WAS NO CUSTOM DUTY ON THE IMPORTS MADE REQUIRED TO BE CONSUMED IN EOU UNITS. IF THAT BE A FACT, THEN HOW THE AO COULD ALLOCATE SUCH AMOUNT TO SUCH UNITS ? THE ASSESSEE HAS BEEN MAINTAINING SEPARATE BOOKS OF ACC OUNTS AND DEBITED ACTUAL EXPENDITURE IN EACH UNIT. THEREFORE, THE LD.CIT(A) IS JUSTIFIED IN HOLDING THAT CUSTOM DUTY WHICH IS NOT INCURRED BY THE ASSESSEE O N THE IMPORTS OF RAW- MATERIAL MEANT FOR EOU UNITS CANNOT BE ALLOCATED. WE DO NOT ANY MERIT IN THIS FOLD GRIEVANCE RAISED BY THE REVENUE. IT IS REJECT ED. 49. NEXT THREE FOLD GRIEVANCES ARE COMMON. THE GRI EVANCE OF THE REVENUE IN THESE FOLDS OF GRIEVANCES RELATES TO ALLOCATION OF EXPENDITURE INCURRED TOWARDS PACKING MATERIAL, CLEARING AND FORWARDING E XPENSES, ADMINISTRATIVE AND INTEREST EXPENSES. IT IS PERTINENT TO OBSERVE THAT WHERE MIXED ACCOUNTS AND COMMON MANAGEMENT IS THERE, THEN CERTAIN OVERHE AD EXPENSES REQUIRED TO BE ALLOCATED AT THE LEVEL OF HO, BUT IF AN ASSES SEE IS MAINTAINING SEPARATE BOOKS ACCOUNTS AND DEMONSTRATE ALL EXPENDITURE INCU RRED BY IT; IDENTIFIABLE AND ALLOCATABLE, THEN ON ESTIMATE BASIS SUCH EXPEND ITURE CANNOT BE ALLOCATED ON THE BASIS OF TURNOVER OR QUANTUM OF SALES. THE LD.CIT(A) HAS OBSERVED THAT ACCOUNTS OF THE ASSESSEE WERE AUDITED. IT HAS MAIN TAINED SEPARATE ACCOUNTS. THE AO DID NOT PIN-POINT SPECIFIC DEFECTS IN THE EX PENDITURE DEBITED BY THE ASSESSEE. IN OTHER WORDS, IF THE AO IS ABLE TO LAY HIS HAND ON A PARTICULAR EXPENDITURE, WHICH IS MEANT FOR EOU UNITS, BUT DEBI TED EITHER TO THE HO OR IN NON-EOU UNITS, THEN PROBABLY HE WOULD BE JUSTIFIED IN ALLOCATING EXPENDITURE ON ESTIMATED BASIS. BUT NO SUCH EXERCISE HAS BEEN CARRIED OUT BY THE AO, THEREFORE, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. GROUNDS OF APPEAL RAISED BY THE REVENUE IN THIS CONNECTION ARE REJECTED. 50. AS FAR AS FIRST FOLD GRIEVANCE OF THE ASSESSEE IS CONCERNED, THE LD.AO HAS EXCLUDED UNREALIZED EXPORTS FROM EXPORT TURNOVER. THE LD.CIT(A) CONFIRMED HIS ACTION. 51. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO DOUBT UNREALIZED EXPORT HAS BEEN EXCLUDED FROM THE EXPORT TURNOVER, THEN SIMULTANEOUSLY THESE ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 33 AMOUNT SHOULD BE EXCLUDED FROM THE TOTAL TURNOVER W HILE COMPUTING THE ELIGIBLE AMOUNT FOR GRANT OF DEDUCTION UNDER SECTIO N 10B. 52 WE FIND FORCE IN THIS CONTENTION, BECAUSE IF AN ITEM DOES NOT FALL IN EXPORT TURNOVER, THEN IT IS TO BE EXCLUDED FROM TOT AL TURNOVER ALSO. WE DIRECT THE AO TO EXCLUDE UNREALIZED EXPORTS FROM THE EXPOR T TURNOVER AS WELL AS FROM TOTAL TURNOVER FOR COMPUTING DEDUCTION ADMISSIBLE U NDER SECTION10B OF THE ACT. 53. IN THE NEXT FOLD GRIEVANCE, ASSESSEE HAS PLEAD ED THAT THE LD.CIT(A) HAS ERRED IN NOT INCLUDING OTHER INCOME IN THE ELIGIBLE PROFIT FOR DEDUCTION UNDER SECTION 10B. THE LD.COUNSEL FOR THE ASSESSEE AT TH E VERY OUTSET SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE BY THE ORDER OF SPECIAL BENCH OF THE ITAT IN THE CASE OF MARAL OVERSEAS LTD . VS. CIT, 136 ITD 177. HE FURTHER CONTENDED THAT ITAT, AHMEDABAD HAS FOLLO WED THIS DECISION IN THE CASE OF SONIC TECHNOLOGY P.LTD. RENDERED IN ITA NO. 2665 & 2720/AHD/2011. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDERS OF THE LD.CIT(A). 54. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND G ONE THROUGH THE RECORD. WE FIND THAT SPECIAL BENCH OF ITAT IN THE CASE OF MARAL OVERSEAS LTD. (SUPRA) HAS CONSIDERED THIS ISSUE. THE LD.AO HAS B EEN HARPING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LI BERTY INDIA LTD. VS.CIT, 317 ITR 218 IN COMING TO THE CONCLUSION THAT OTHER INCO MES VIZ. SALE OF SCRAP ETC. ARE NOT TO BE CONSIDERED AS DERIVED FROM EXPORT ACT IVITIES. IT IS PERTINENT TO OBSERVE THAT IN THE CASE OF SONIC TECHNOLOGY P.LTD. THE ASSESSEE HAS CLAIMED DEDUCTION AFTER INCLUDING INTEREST INCOME, SALE OF SCRAP, SUNDRY BALANCE WRITTEN OFF, EXCHANGE RATE FLUCTUATIONS AND INCREMENTAL TUR NOVER AND DISBURSEMENT OF SUBSIDY FROM THE GOVERNMENT. THESE ITEMS WERE HELD TO BE ELIGIBLE FOR GRANT OF DEDUCTION UNDER SECTION10B OF THE ACT. THE ITAT IN THE CASE OF SONIC TECHNOLOGY HAS FURTHER OBSERVED THAT ORDER OF THE S PECIAL BENCH INDORE BENCH HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT. D ISCUSSION MADE BY THE ITAT QUA THIS ISSUE READS AS UNDER: 11. WE ALSO FIND THAT THE DECISION OF SPECIAL BEN CH OF TRIBUNAL IN THE CASE OF MARAL OVERSEAS LTD. (SUPRA) WAS UPHELD BY H ON'BLE DELHI HIGH COURT IN THE CASE OF HRITNIK EXPORT PVT. LTD.(ITA NO. 219 /2014 & 239/2014 ORDER DATED 13.11.2014) WHEREIN HON'BLE HIGH COURT DISMIS SED THE APPEAL OF REVENUE BY HOLDING AS UNDER:- ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 34 BY WAY OF THESE APPEALS, THE REVENUE HAS CHALLENGED THE ORDERS PASSED BY INCOME TAX APPELLATE TRIBUNAL (TRIBUNAL, FOR SHORT) DATED 11TH SEPTEMBER, 2013 AND 24TH OCTOBER, 2013 RELATING TO ASSESSMENT YEARS 2008-09 AND 2009-10, RESPECTIVELY. TRIBUNAL HAS FOLLOWED THE DE CISION OF THEIR SPECIAL BENCH IN THE CASE OF MARAL OVERSEAS LTD. VERSUS ADD ITIONAL COMMISSIONER OF INCOME TAX DECIDED ON 20TH MARCH, 2012, IN WHICH IT HAS BEEN HELD:- '78. SECTION 10B SUB-SECTION (1) ALLOWS DEDUCTION IN RESPECT OF PRO FITS AND GAINS AS ARE DERIVED BY A 100% EOU. SECTION 10B(4) LAYS DOWN SPECIAL FORMULA FOR COMPUTING THE PROFITS DERIVED BY THE UN DERTAKING FROM EXPORT. THE FORMULA IS AS UNDER :- PROFIT OF THE BUSINESS OF THE UNDERTAKING X EXPORT TURNOVER TOTAL TURNOVER OF BUSINESS CARRIED OUT BY THE UNDE RTAKING 79. THUS, SUB-SECTION (4) OF SECTION 10B STIPULATED THAT DEDUCTION UNDER THAT SECTION SHALL BE COMPUTED BY APPORTIONING THE PROFITS OF THE BUSINESS OF THE UNDERTAKING IN THE RATIO OF TURNOVER TO THE TOTAL TURNOVER. THUS, NOT- WITH-STANDING THE FACT THAT SUB-SECTION (1) OF SECTION 10B REFERS THE PROFITS AND GAINS AS ARE DERIVED BY A 100% EOU, YET THE MAN NER OF DETERMINING SUCH ELIGIBLE PROFITS HAS BEEN STATUTORILY DEFINED IN SUB-SECTION (4) OF SECTION 10B OF THE ACT. AS PER THE FORMULA STATED ABOVE, THE E NTIRE PROFITS OF THE BUSINESS ARE TO BE TAKEN WHICH ARE M ULTIPLIED BY THE RATIO OF THE EXPORT TURNOVER TO THE TOTAL TURNOVER OF THE BU SINESS. SUB-SECTION (4) DOES NOT REQUIRE AN ASSESSEE TO ESTABLISH A DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING AND ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE UNDERTAKING, THE SAME WOULD BE INCLUDED IN THE PROF ITS OF THE BUSINESS OF THE UNDERTAKING. THUS, ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE ELIGIBLE UNDERTAKING, THERE IS NO FURTHER MANDATE I N THE PROVISIONS OF SECTION 10B TO EXCLUDE THE SAME FROM THE ELIGIBLE PROFITS. THE MODE OF DETERMINING THE ELIGIBLE DEDUCTION U/S 10B IS SIMIL AR TO THE PROVISIONS OF SECTION 80HHC INASMUCH AS BOTH THE SECTIONS MANDATES DETERMINATI ON OF ELIGIBLE PROFITS AS PER THE FORMULA CONTAINED THERE IN. THE ONLY DIFFERENCE IS THAT SECTION 80HHC CONTAINS A FURTHER MANDATE IN TERMS OF EXPLANATION (BAA) FOR EXCLUSION OF CERTAIN INCOME FROM THE ''PR OFITS OF THE BUSINESS'' WHICH IS, HOWEVER, CONSPICUOUS BY ITS ABSENCE IN SECTION 10B . ON THE BASIS OF THE AFORESAID DISTINCTION, SUB- SECTION (4) OF SECTION 10A / 10B OF THE ACT IS A COMPLETE CODE PROVIDING THE MECHANISM FOR COMP UTING THE ''PROFITS OF THE BUSINESS'' ELIGIBLE FOR DEDUCTION U/S 10B OF TH E ACT. ONCE AN INCOME FORMS PART OF THE BUSINESS OF THE INCOME OF THE ELI GIBLE UNDERTAKING OF THE ASSESSEE, THE SAME CANNOT BE EXCLUDED FROM THE ELIG IBLE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10B OF THE ACT. AS PER THE COMPUTATION MADE BY THE ASSESSING OFFICER HIMSELF, THERE IS NO DISPUTE THAT BOTH THESE INCOMES HAVE BEEN TREATED BY THE ASSESSING OFFICER AS BUSINESS INCOME. THE CBDT CIRCULAR NO. 564 DATED 5TH JULY, 1990 REPO RTED IN 184 ITR (ST.) 137 EXPLAINED THE SCOPE AND AMBIT OF SECTION 80HHC AND THE MODE OF DETERMINATION OF PROFITS DERIVED BY AN ASSESSEE FRO M THE EXPORT OF GOODS. I.T.A.T., SPECIAL BENCH IN THE CASE OF INTERNATIONA L RESEARCH PARK LABORATORIES V. ACIT, 212 ITR (AT) 1, AFTER FOLLOWI NG THE AFORESAID CIRCULAR, HELD THAT STRAIGHT JACKET FORMULA GIVEN IN SUB-SECT ION (3) HAS TO BE FOLLOWED TO DETERMINE THE ELIGIBLE DEDUCTION. THE HON'BLE SU PREME COURT IN THE CASE OF P.R. PRABHAKAR; 284 ITR 584 HAD APPROVED THE . A .Y. 2007-08 PRINCIPLE ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 35 LAID DOWN IN THE SPECIAL BENCH DECISION IN INTERNAT IONAL RESERARCH PARK LABORATORIES V. ACIT (SUPRA). IN THE ASSES SEE'S OW N CASE THE I.T.A.T. IN THE PRECEDING YEARS, AFTER CONSIDERING THE DECISION IN THE CASE OF LIBERTY INDIA HELD THAT PROVISIONS OF SECTION 10B ARE DIFFERENT FROM THE PROVISIONS OF SECTION 80IA WHEREIN NO FORMULA HAS BEEN LAID DOWN FOR COMPUTIN G THE ELIGIBLE BUSINESS PROFIT. 80. IN VIEW OF THE ABOVE DISCUSSION, QUESTION NO. 2 IS ANSWERED IN AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. ACCORDIN GLY, THE ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION ON EXPORT INCENTIVE RECEIVED BY IT IN TERMS OF PROVISIONS OF SECTION 10B ( 1) READ WITH SECTION 10B(4) OF THE ACT.' THE AFORESAID VIEW IS IN CONSONANCE WITH THE DECISI ON OF THIS COURT DATED 1ST SEPTEMBER, 2014 PASSED IN ITA 438/2014, COMMISS IONER OF INCOME TAX-VII VERSUS XLNC FASHIONS IN WHICH THIS COURT HA S HELD AS UNDER :- 'DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961 (ACT, IN SHORT) IS TO BE MADE AS PER THE FORMULA PRESCRIBED BY SUB- SECTION (4), WHICH READS AS UNDER: '10B. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLI SHED HUNDRED PER CENT EXPORT- ORIENTED UNDERTAKINGS- ......... ........... (4) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFIT S DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE TH E AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THIN GS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING'. SUB-SECTION (4), THEREFORE, IS THE SPECIAL PROVISIO N WHICH ENABLES THE ASSESSEE TO COMPUTE THE PROFITS DERIVED FROM THE EX PORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. WE DO NOT SEE ANY CONF LICT BETWEEN SUB- SECTION (1) AND SUB-SECTION (4) TO SECTION 10B , AS SUB- SECTION (1) STATES THAT DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DER IVED BY A HUNDRED PERCENT EXPORT-ORIENTED UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR SOFTWARE WOULD BE ELIGIBLE UNDER THE SAID SECTION. SUB- SECTION (1) IS A GENERAL PROVISION AND IDENTIFIES THE INCOME WHICH I S EXEMPT AND HAS TO BE READ IN HARMONY WITH SUB-SECTION (4) WHICH IS THE F ORMULA FOR FINDING OUT OR COMPUTING WHAT IS ELIGIBLE FOR DEDUCTION UNDER SUB- SECTION (1). NEITHER OF THE TWO PROVISIONS SHOULD BE MADE IRRELEVANT AND BO TH HAVE TO BE APPLIED WITHOUT NEGATING THE OTHER. IN OTHER WORDS, THE MAN NER OF COMPUTING PROFITS DERIVED FROM EXPORTS UNDER SUB-SECTION (1), HAS TO BE DETERMINED AS PER THE FORMULA STIPULATED IN SUB-SECTION (4), O THERWISE SUB-SECTION (4) WOULD BECOME OTISE AND IRRELEVANT. THE ISSUE IN QUESTION IN THIS APPEAL WHICH PERTAINS TO THE ASSESSMENT YEAR 2009-10, RELATES TO DUTY DRAW BACK IN THE FORM OF D EPB BENEFITS. AS PER SECTION 28 , CLAUSE (III-C), . A.Y. 2007-08 ANY DUTY OF CUSTOM S OR EXCISE REPAID OR REPAYABLE AS DRAWBACK TO A PERSON AGAINST EXPORTS UNDER ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 36 CUSTOMS AND CENTRAL EXCISE DUTIES DRAW BACK RULES, 1971 IS DEEMED TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE SA ID PROVISION HAS TO BE GIVEN FULL EFFECT TO AND THIS MEANS AND IMPLIES THA T THE DUTY DRAW BACK OR DUTY BENEFITS WOULD BE DEEMED TO BE A PART OF THE B USINESS INCOME. THUS, WILL BE TREATED AS PROFIT DERIVED FROM BUSINESS OF THE UNDERTAKING. THESE CANNOT BE EXCLUDED. EVEN OTHERWISE, WHEN WE APPLY SUB-SECTION (4) TO SECTION 10B , THE ENTIRE AMOUNT RECEIVED BY WAY OF DUTY DRAW BACK WOULD NOT BECOME ELIGIBLE FOR DEDUCTION/EXEMPTION. THE AMOUNT QUANTIFIED AS PER T HE FORMULA WOULD BE ELIGIBLE AND QUALIFY FOR DEDUCTION/EXEMPTION. THE P OSITION IS SOMEWHAT AKIN OR CLOSE TO SECTION 80HHC OF THE ACT, WHICH ALSO PRESCRIBES A FORMULA FOR COMPUTATION OF DEDUCTION IN RESPECT OF EXPORTS. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY MERIT IN THE PRESENT APPEAL AND THE SAME IS DISMISSED.' KARNATAKA HIGH COURT IN COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE VERSUS MOTOROLA INDIA ELECTRONICS (P) LTD., ITA NO. 428/20 07, DECIDED ON 11.12.2013, REPORTED AS [2014] 46 TAXMANN.COM 167 ( KARNATAKA) HAS ALSO TAKEN A SIMILAR VIEW, WHEREIN IT HAS BEEN HELD:- 'BY FINANCE, ACT, 2001, WITH EFFECT FROM 01.04.2001 , THE PRESENT SUB- SECTION (4) IS SUBSTITUTED IN THE PLACE OF OLD SUB- SECTION (4). NO DOUBT SUB- SECTION 10(B) SPEAKS ABOUT DEDUCTION OF SUCH PROFITS AND GAINS A S DERIVED FROM 100% EOU FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. THEREFORE, IT EXCLUDES PROFIT AND GAINS FROM EXPORT OF ARTICLES. BUT SUB- SECTION (4) EXPLAINS WHAT IS SAYS THAT PROFITS DERI VED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE ACCOUNT WHICH BARES TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING AND NOT THE PROFITS AND GAINS FROM EXPORT OF ARTICLES. THEREFORE, PROFITS AND GAI NS DERIVED FROM EXPORT OF ARTICLES IS DIFFERENT FROM THE INCOME DERIVED FROM THE PROFITS OF THE BUSINESS OF THE UNDERTAKING. THE PROFITS OF THE BUSINESS OF THE UNDERTAKING INCLUDES THE PROFITS AND GAINS FROM EXPORT OF THE ARTICLES A S WELL AS ALL OTHER INCIDENTAL INCOMES DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IT IS INTERESTING TO NOTE THAT SIMILAR PROVISIONS ARE NOT THERE WHILE DEALING WITH COMPUTATION OF INCOME UNDER SECTION 80HHC . ON THE CONTRARY THERE IS SPECIFIC PROVISIONS LIKE SECTION 80HHB WHICH EXPRESSLY EXCLUDES THIS TYPE OF INCOMES. THEREFORE, IN VIEW OF THE AFORESAID PROVIS IONS, IT IS CLEAR THAT, WHAT IS EXEMPTED IS NOT MERELY THE PROFITS AND GAIN S FROM THE EXPORT OF ARTICLES BUT ALSO THE INCOME FROM THE BUSINESS OF T HE UNDERTAKING.' IN VIEW OF THE AFORESAID POSITION, THE APPEALS HAVE TO BE DISMISSED. WE ORDER ACCORDINGLY. 12. WE THUS FIND THAT THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN THE CASE OF MARAL OVERSEAS (SUPRA) WHEREIN THE RATIO THAT ON CE ON INCOME FORMS PART OF THE BUSINESS OF THE INCOME OF THE ELIGIBLE UNDER TAKING OF THE ASSESSEE, THE . A.Y. 2007-08 SAME CANNOT BE EXCLUDED FROM THE ELIGIBLE PROFITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 10B OF THE ACT, HAS BEEN UPHELD BY HON'BLE DELHI & KARNATAKA HIGH COURTS IN THE CASE O F HRITNIK EXPORTS PVT. LTD. & MOTOROLA INDIA ELECTRONICS PVT. LTD. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 37 55. RESPECTFULLY FOLLOWING THE ABOVE, WE ALLOW SECO ND FOLD OF GRIEVANCE RAISED BY THE ASSESSEE IN ITS GROUND NO.27 AND DIRE CT THE AO TO INCLUDE THIS OTHER INCOME IN THE ELIGIBLE PROFIT FOR THE PURPOSE OF GRANT OF DEDUCTION UNDER SECTION 10B OF THE ACT. 56. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. IT IS DISMISSED. 57. NOW WE TAKE APPEAL OF THE ASSESSEE I.E. ITA NO. 773/AHD/2011. 58. GROUND NOS.1 AND 2 TAKEN BY THE ASSESSEE ARE IN TER-CONNECTED. THE ASSESSEE HAD PRIOR PERIOD INCOME OF RS.46,50,648/-. IT HAS DEBITED PRIOR PERIOD EXPENDITURE OF RS.43,11,114/-. IT HAS ADJUS TED BOTH THESE AMOUNTS. A NET DIFFERENTIAL AMOUNT OF RS.3,39,534/- HAS BEEN C REDITED TO PROFIT & LOSS ACCOUNT. THE LD.AO HAS APPRECIATED THESE FACTS AND TAXED PRIOR PERIOD INCOME OF RS.46,50,648/- OFFERED BY THE ASSESSEE DURING TH IS ASSESSMENT YEAR. HE DID NOT ALLOW DEDUCTION OF ALLEGED PRIOR PERIOD EXP ENDITURE OF RS.43,11,114/-. THIS VIEW OF THE AO HAS BEEN CONFIRMED BY THE LD.CI T(A). THUS, IN GROUND NOS.1 AND 2 THE ASSESSEE HAS PLEADED THAT PRIOR PER IOD EXPENDITURE OF RS.43,11,114/- BE ALLOWED TO IT AS DEDUCTION AND IN CASE IT IS NOT ALLOWABLE, THEN ALTERNATIVELY, IT HAS PLEADED THAT NET DIFFERE NTIAL AMOUNT OF RS.3,39,534/- BE ONLY TAXED OUT OF PRIOR PERIOD INCOME. 59. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD.AO WHILE ASSESSING PRIOR PERIOD INCOME OF RS.46,50,648/- HAS OBSERVED THAT SINCE IT IS TAXABL E INCOME OFFERED BY THE ASSESSEE ITSELF, AN ITEM HAS TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE ON THE PRINCIPLES OF TAXABILITY ON ACCRUAL OR RECEI PT BASIS. THIS HAS BEEN OFFERED BY THE ASSESSEE ON RECEIPT BASIS. THEREFOR E, IT IS TO BE TAXED, WITH REGARD TO THE ALLOWANCE OF PRIOR PERIOD EXPENDITURE , THE LD.AO HAS OBSERVED THAT SUCH ITEM CANNOT BE ALLOWED BECAUSE IT IS NOT ASCERTAINABLE WHETHER THIS EXPENDITURE HAS BEEN CRYSTALLIZED IN THE CURRENT YE AR OR NOT. ACCORDING TO THE AO, BILLS AND VOUCHERS WERE NOT PRODUCED BY THE ASS ESSEE. ON APPEAL, THE LD.CIT(A) CONFIRMED THE VIEW POINT OF THE AO BY OBS ERVING THAT SET OFF PRIOR PERIOD EXPENDITURE AGAINST PRIOR PERIOD INCOME COUL D BE GRANTED IF THE SUCH EXPENDITURE WAS INCURRED FOR EARNING SUCH INCOME. IN THIS WAY, THE LD.CIT(A) ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 38 CONCURRED WITH THE AO. THE LD.COUNSEL FOR THE ASSE SSEE IN SUPPORT OF ITS CONTENTIONS RELIED UPON THE JUDGMENT OF HONBLE GUJ ARAT HIGH COURT IN THE CASE OF SAURASHTRA CHEMICALS REPORTED IN 213 ITR 52 3 (GUJ). HE ALSO RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE C ASE OF CIT VS. EXCEL INDUSTRIES LTD., 358 ITR 295 (SC). ON THE STRENGTH OF THE HONBLE SUPREME COURTS DECISION, IT WAS CONTENDED THAT IN EVERY YE AR THE ASSESSEE HAS PRIOR PERIOD EXPENDITURE AS WELL AS INCOME BECAUSE IN SUC H A BIG ORGANIZATION QUANTIFICATION OF CERTAIN EXPENDITURE AND THEIR CRY STALLIZATION ALWAYS REMAINED DEPENDED UPON MANY CIRCUMSTANCES, AND SOMETIME THEY CRYSTALLISED IN THE SUBSEQUENT PERIOD. THE AO OUGHT TO HAVE FOLLOWED T HE PRINCIPLE OF CONSISTENCY AND ALLOWED THE DEDUCTION OF SUCH PRIOR PERIOD EXPE NDITURE. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDERS OF THE REVEN UE AUTHORITIES BELOW. 60. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS. WE FIND THAT INCOME OF THE ASSESSEE IS BEING ASSESSED AT ENTITY LEVEL. ALL TH E EXPENDITURE DEBITED UNDER DIFFERENT HEADS CANNOT BE DECIDED QUA A SPECIFIC RECEIPT. ONCE THE ASSESSEE HAS BEEN OFFERING INCOME OF PRIOR PERIOD AS AN ENTI TY, THEN ITS PRIOR PERIOD EXPENDITURE CANNOT BE DISALLOWED SIMPLY BY OBSERVIN G THAT IT IS NOT ASCERTAINABLE WHETHER THIS EXPENDITURE WAS INCURRED FOR EARNING A PARTICULAR RECEIPTS OFFERED UNDER THE HEAD PRIOR PERIOD INCOME . TO OUR MIND, IF AN ASSESSEE IS OFFERING PRIOR PERIOD INCOME, THEN THE EXPENDITURE WHICH WAS INCURRED UNDER DIFFERENT HEADS OUGHT TO BE SET OFF AGAINST THAT INCOME. THEREFORE, WE ARE OF THE VIEW THAT NET DIFFERENTIAL AMOUNT OF RS.3,39,534/- OUGHT TO BE ASSESSED AS INCOME OF THE ASSESSEE. WE ALLOW BOTH THESE GROUNDS OF APPEAL FOR STATISTICAL PURPOSE AND DIRECT THE AO TO ALLOW SET OFF PRIOR PERIOD EXPENDITURE AGAINST PRIOR PERIOD INCOME AND ONLY NE T INCOME IS TO BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 61. GROUND NOS.3 TO 5: THESE GROUNDS ARE INTER-CON NECTED WITH EACH OTHER. GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.4,76,876/- WHICH WAS ADDED BY THE AO WITH THE AID OF SECTION 14A R.W. RULE 8D OF THE INCOME TAX RULES. 62. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS SHOWN DIVIDEND INCOME OF RS.3,53,08,748/- WHICH HAS BEEN CLAIMED AS EXEMP T INCOME UNDER SECTION 10(34) OF THE INCOME TAX ACT. THE ASSESSEE DID NOT OFFER ANY EXPENDITURE FOR ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 39 DISALLOWANCE UNDER SECTION 14A. THE LD.AO THEREAFT ER FOUND INTEREST EXPENDITURE DEBITED BY THE ASSESSEE AT RS.7,28,42,7 48/-. THE LD.AO CALCULATED DISALLOWANCE AS PER RULE 8D AND MADE ADD ITION OF RS.4,76,876/-. BEFORE THE LD.CIT(A) IT WAS CONTENDED THAT RULE 8D IS APPLICABLE FROM THE ASSESSMENT HEAR 2008-09 AS HELD BY THE HONBLE BOMB AY HIGH COURT IN THE CASE OF GODREJ & BOYCE VS. CIT. THE LD.CIT(A) AGRE ED TO THIS PROPOSITION OF THE ASSESSEE, BUT OBSERVED THAT SINCE THE ASSESSEE HAS NOT OFFERED ANY EXPENDITURE FOR DISALLOWANCE UNDER SECTION 14A, THE REFORE, SOME DISALLOWANCE HAS TO BE MADE. IN THIS WAY, THE LD.CIT(A) HAS CON FIRMED THE DISALLOWANCE MADE BY THE AO. 63. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT INVESTMENT AT THE YEAR-END ARE OF RS.1,203.72 LAKHS WHEREAS TH E ASSESSEE HAS INTEREST FREE FUNDS AVAILABLE AT RS.17,154.34 LAKHS. THE AS SESSEE HAS RELIED UPON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS. TORRENT POWER LTD., 363 ITR 474 (GUJ), CIT VS. SUZLON ENERG Y LTD., 354 ITR 630 (GUJ) AND JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CI T VS. RELIANCE UTILITIES & POWER LTD., 313 ITR 340. ON THE OTHER HAND, THE LD .DR RELIED UPON THE ORDER OF THE REVENUE AUTHORITIES BELOW. 64. AS FAR RELIANCE OF THE ASSESSEE ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT AND HONBLE BOMBAY HIGH COURT ARE CONCER NED, PROPOSITION LAID DOWN IN THESE JUDGMENTS ARE NOT IN DISPUTE. THE PR OPOSITION IN THE DECISIONS IS IF AN ASSESSEE HAS INTEREST FREE FUNDS THEN NO D ISALLOWANCE FOR INTEREST EXPENDITURE IN MAKING INVESTMENT, WHICH WOULD RESUL T EXEMPT INCOME BE MADE. THIS PROPOSITION WAS ACCEPTED BY THE LD.CIT( A) ITSELF. THE LD.CIT(A) FURTHER ACCEPTED THAT IN THIS YEAR DISALLOWANCE CAN NOT BE MADE WITH HELP OF RULE 8D, BECAUSE IT WAS NOT APPLICABLE IN THE ASSE SSMENT YEAR 2006-07. IT HAS BEEN MADE APPLICABLE FROM THE ASSESSMENT YEAR 2 008-09. THE LD.CIT(A) THEREAFTER EXAMINED THE FACTS AND OBSERVED THAT DIV IDEND INCOME OF RS.3,53,08,748/- HAS BEEN EARNED BY THE ASSESSEE WH ICH IS EXEMPT FROM TAX. THEREFORE, SOME ADMINISTRATIVE EXPENDITURE OR SOME OTHER EXPENDITURE MUST BE ATTRIBUTABLE FOR EARNING SUCH EXEMPT INCOME. ON AN ESTIMATE BASIS, THE LD.CIT(A) HAS UPHELD DISALLOWANCE OF RS.4,76,876/-. AFTER TAKING INTO ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 40 CONSIDERATION THESE FACTS, WE ARE OF THE VIEW THAT THE LD.CIT(A) THOUGH CHANGED REASONING, BUT CONFIRMED DISALLOWANCE OF SA ME AMOUNT. ONCE INVESTMENT WAS MADE BY THE ASSESSEE, THEN IT WAS NO T REQUIRED TO BE CONTINUOUSLY MONITOR IT AND ADMINISTRATIVE EXPENDIT URE COULD NOT BE ESTIMATED AT THIS MAGNITUDE WHICH HAS BEEN WORKED OUT BY THE AO WITH HELP OF RULE 8D. TO OUR MIND, ENDS OF JUSTICE WOULD BE MET, IF AN ADHOC DISALLOWANCE OF RS.3,00,000/- BE SUSTAINED FOR EARNING OF TAX FREE INCOME. WE ALLOW THIS GROUND OF APPEAL PARTLY AND CONFIRM THE ADDITION TO THE EXTENT OF RS.3,00,000/-. 65. GROUND NOS.6 TO 9: IN THESE GROUNDS OF APPEAL, GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRM ING ADDITION OF RS.3,17,294/-. 66. BRIEF FACTS OF THE CASE ARE THE LD.AO HAS MADE RECONCILIATION OF INCOME REFLECTED IN THE TDS CERTIFICATE WITH THE INCOME SH OWN IN THE ACCOUNTS. HE FOUND THAT THE ASSESSEE HAS INCOME OF RS.2,89,521/- FROM TRAVEL MAT SERVICES P.LTD. AND RS.27,773/- UNDER THE HEAD JOB WORK INCO ME. ON THE BASIS OF TDS CERTIFICATE, HE WORKED OUT A SUM OF RS.3,17,294/-. THIS INCOME WAS NOT INCLUDED BY THE ASSESSEE, HENCE WHEN IT WAS CONFRON TED BY THE AO VIDE ORDER SHEET ENTRY DATED 24.12.2009, THE ASSESSEE HAS ADMI TTED THIS INCOME AND AGREED FOR ADDITION. ACCORDINGLY, THE LD.AO MADE ADDITION. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 67. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONT ENDED THAT IT BE REMITTED TO THE FILE OF THE AO FOR VERIFICATION. IN CASE SU CH INCOME HAS BEEN OFFERED IN SUBSEQUENT YEAR, THEN ADDITION FOR THIS YEAR DESERV ES TO BE DELETED. SINCE THE ASSESSEE ITSELF ADMITTED THE INCOME BEFORE THE AO S UCH ADMISSION MUST BE AFTER VERIFICATION OF THE FACTS. THE ASSESSMENT OR DER WAS PASSED ON 26.2.2010. THE ASSESSEE IS NOT SURE IF IT WAS OFFE RED AND WHETHER IT HAS BEEN TAXED IN SUBSEQUENT YEAR OR NOT. THEREFORE, FOR MA KING A ROVING INQUIRY AND VERIFICATION, WE DO NOT FIND IT NECESSARY TO REMIT THIS ISSUE TO THE FILE OF AO. THUS, GROUNDS NO. 6 TO 9 ARE DISMISSED. 68. GROUND NOS.10 AND 11. : IN THESE GROUNDS OF A PPEAL, GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRM ING ADDITION OF ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 41 RS.2,40,940/- UNDER SECTION 43B OF THE ACT. THE FI NDING RECORDED BY THE LD.CIT(A) INCLUDING REPRODUCTION OF THE AOS FINDIN G READS AS UNDER: 6. THE GROUND NO. 5 OF CONCISE GROUND OF APP EAL IS AGAINST ADDITION OF RS. 2,40,940/- U/S 43B OF THE ACT. 6.1 THE A.O. HAS STATED IN THE ASSESSMENT ORD ER DATED 26.02.2010, WHICH IS AS UNDER: 'AS PER 3CD REPORT ESIC OUTSTANDING ON MARCH 2006 I S RS. 1,96,709/- WHEREAS, AS PER THE GROUPINGS OF 1HE BAL ANCE SHEET PROVIDED BY THE ASSESSEE, ESIC PAYABLE AS AT THE YE AR END WORKS OUT TO BE RS.4,53,004/- OF WHICH THE OPENING BALANC E WAS RS.65,209/-. IN THIS REGARD, THE ASSESSEE CONTENDED THAT THE DIFFERENCE REPORTED IN 3CD REPORT AND AS SHOWN IN T HE GROUPINGS OF ACCOUNTS WOULD BE ON ACCOUNT OF EMPLOYEES' CONTR IBUTION. HOWEVER, AS PER THE 3CD REPORT, EMPLOYEES' CONTRIBU TION OUTSTANDING AS ON 31.03.2006 IS ONLY RS.15,355/-. H ENCE, THE DIFFERENCE RS.2,40,940/- (RS.453004 -RS. 196709 - R S. 15355) REMAINS UNEXPLAINED. THIS AMOUNT IS ACCORDINGLY ADD ED U/S 43B. PENALTY U/S.271(1)(C) FOR FURNISHING INACCURATE PAR TICULARS OF INCOME IS SEPARATELY INITIATED.' 6.2 THE APPELLANT HAS SUBMITTED IN ITS WRITTEN SU BMISSION WHICH IS AS UNDER: THE APPELLANT SUBMITS THAT THERE IS NO OUTSTANDING BALANCE OF ESI AND WHATEVER BALANCE WAS OUTSTANDING AS AT 31ST MARCH, 2006 THE SAME WERE DEPOSITED IN DUE DATE AND THEREF ORE NO ADDITION CAN BE MADE IN THIS REGARD. THEREFORE, THE APPELLANT SUBMITS THAT ADDITION MADE BY THE ID. AO IS REQUIRE D TO BE DELETED.' 6.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. APPELLANT WAS NOT ABLE TO E XPLAIN THE DISCREPANCY. IT HAS JUST MADE THE STATEMENT THAT TH E OUTSTANDING BALANCE WAS DEPOSITED BEFORE DUE DATE. HOWEVER ASSE SSING OFFICER FOUND THAT THERE WAS DIFFERENCE IN FIGURES REPORTED IN 3C D REPORT AND GROUPINGS OF ACCOUNTS WHICH APPELLANT WAS NOT ABLE TO RECONCILE. APPELLANT COULD NOT SUBSTANTIATE THE EXPLANATION GI VEN BY IT. IN THE ABSENCE OF PROPER EXPLANATION, ADDITION MADE BY THE AO IS CONFIRMED. 69. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD. AS OBSERVED IN THE EARLIER GROUNDS OF APPE AL, ASSESSMENT ORDER WAS PASSED ON 26.2.2010. MORE THAN 8 YEARS HAVE EXPIRE D WHEN HEARING IN THIS APPEAL WAS TAKEN PLACE. IF THE ASSESSEE IS UNABLE TO PIN-POINT THE FACTS WHETHER THESE AMOUNTS HAVE BEEN PAID IN SUBSEQUENT YEAR AND ON ACTUAL ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 42 PAYMENT BASIS DEDUCTION UNDER SECTION 43B HAS BEEN ALLOWED IN SUBSEQUENT YEARS OR NOT. WE CANNOT KEEP THE ISSUE ALIVE ENDL ESSLY. IT WAS FOR THE ASSESSEE TO PLACE ON RECORD SPECIFIC INFORMATION QUA SPECIFIC GROUND. WE DO NOT FIND ANY ERROR IN THE FINDING OF THE LD.CIT(A), HENCE, THESE GROUNDS ARE REJECTED. 70. GROUND NO.12: GRIEVANCE OF THE ASSESSEE IS TH AT THE LD.CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.2,86,051/-. 71. IT EMERGES OUT FROM THE RECORD THAT THE ASSESSE E HAS MADE PAYMENT FOR PURCHASE OF SOME MACHINERY. HOWEVER, IT COULD NOT PURCHASE MACHINERY AND WROTE OFF SUCH ADVANCE FOR PURCHASE OF MACHINERY IN THE ACCOUNTS. THE LD.CIT(A) DISALLOWED THE CLAIM OF THE ASSESSEE ON T HE GROUND THAT IT WAS A CAPITAL LOSS AND NOT A REVENUE LOSS IN NATURE. 72. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONT ENDED THAT THE ASSESSEE IS NOT REQUIRED TO DEMONSTRATE WHETHER DEBTS HAVE A CTUALLY BECOME BAD OR NOT. IN SUPPORT OF HIS CONTENTION, THE LD.COUNSEL FOR THE ASSESSEE RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF T.R.F. LTD. VS. CIT, 323 ITR 397 (SC). THE LD.DR ON THE OTHER HAND RELI ED UPON THE ORDER OF THE CIT(A). 73. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND G ONE THROUGH THE RECORD. A PERUSAL OF THE FINDING OF THE LD.CIT(A) RECORDED IN PARA 7.3 WOULD SHOW THAT THE ASSESSEE ITSELF ADMITTED BEFORE THE L D.CIT(A) THAT THIS AMOUNT IS NOT ALLOWABLE UNDER SECTION 36(2) OF THE ACT. IN O THER WORDS, IT COULD NOT BE CLAIMED AS BAD DEBT WRITTEN OFF. THE ASSESSEE ALTE RNATIVELY CLAIMED IT HAS BUSINESS LOSS UNDER SECTION 28 OF THE ACT. THE LD. CIT(A) HAS OBSERVED THAT A BUSINESS LOSS COULD BE ALLOWED TO THE ASSESSEE IF I T HAS SUFFERED IN NORMAL COURSE OF RUNNING BUSINESS, AND IT SHOULD NOT BE IN THE NATURE OF CAPITAL LOSS. THE LD.CIT(A) FURTHER OBSERVED THAT THE LOSS SHOULD BE PROVED AS IRRECOVERABLE. JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TR F LTD. (SUPRA) WILL BE APPLICABLE ON BAD DEBTS WRITTEN OFF. HERE THE CLAI M OF THE ASSESSEE WAS ADMITTED TO BE NOT RELATED TO BAD DEBTS, BUT TO A L OSS AND THE LD.CIT(A) FURTHER OBSERVED THAT IT WAS IN THE NATURE OF CAPITAL LOSS, WHICH CANNOT BE ALLOWED TO IT. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 43 74. AFTER GOING THROUGH THE FINDING OF THE LD.CIT(A ) WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. JUDGMENT OF THE HONBLE SUPREME COURT IS NOT APPLICABLE ON THE GIVEN FACTS. HENCE, THIS GROUND OF APPEAL IS REJECTED. 75. GROUND NOS.13 TO 14: IN THESE GROUNDS OF APPEA L, GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRM ING DISALLOWANCE OF RS.1,12,01,869/- UNDER SECTION 40(A)(I) OF THE ACT. 76. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS DEBITED FOLLOWING EXPENDITURE IN THE PROFIT & LOSS ACCOUNT: SR.NO. PARTICULARS AMOUN T A) PROFESSIONAL SERVICE EXPENDITURE PAID TO FOUR PARTIES MENTIONED ON PAGE NO.14 OF THE AO ORDER 6,70,674 B) REIMBURSEMENT OF ADMINISTRATIVE SERVICES TO DISHMAN EUROPE LTD. 81,02,625/ - C) REIMBURSEMENT OF INSURANCE & FOREIGN TRAVEL EXPENDITURE TO DISHMAN EUROPE LTD. 24,28,570/ - TOTAL 1,12,01,869/ - 77. THE LD.AO HAS OBSERVED THAT THE ASSESSEE HAS RE MITTED THE ABOVE AMOUNT TO NON-RESIDENT WITHOUT DEDUCTING TDS UNDER SECTION 195 OF THE ACT, AND THEREFORE, THIS DESERVES TO BE DISALLOWED TO TH E ASSESSEE. DISSATISFIED WITH THE DISALLOWANCE, THE ASSESSEE CARRIED THE MAT TER IN APPEAL AND FILED WRITTEN SUBMISSIONS WHICH HAS BEEN REPRODUCED BY TH E LD.CIT(A) ON PAGE NOS.33 TO 36 OF THE IMPUGNED ORDER. THE EXPLANATIO N GIVEN BY THE ASSESSEE QUA THIS ITEMS AND REPRODUCED BY THE LD.CIT(A) IS WORT H TO NOTE. IT READS AS UNDER: 10.2 IN SO FAR AS ITEMS (B) AND (C) RELATING TO . 'REIMBURSEMENT OF EXPENSES' CONCERNED; THE APPELLANT SUBMITS THAT THI S PAYMENT IS MADE TO NON-RESIDENTS WHO HAS INCURRED SOME EXPENDITURE FOR AND ON BEHALF OF THE ASSESSEE. THE TERM 'REIMBURSEMENT' HAS NOT B EEN DEFINED IN THE ACT AND HENCE ITS MEANING HAS TO BE UNDERSTOOD AS I N COMMON PARLANCE. AS PER BLACK'S LAW DICTIONARY THE TERM 'R EIMBURSE' MEANS TO PAY BACK, TO MAKE RESTORATION, TO REPAY THAT IS EXP ENDED, TO INDEMNIFY OR MAKE WHOLE. AS PER THE CONCISE OXFORD DICTIONARY THE TERM 'REIMBURSE' MEANS REPAY (A PERSON WHO HAS EXPENDED MONEY) OR REPAYS (A PERSON'S EXPENSES). ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 44 10.3 THE ABOVE DEFINITIONS MAKE IT CLEAR THAT A PURE REIMBURSEMENT SHOULD NOT CONSTITUTE A REWARD OR COMPENSATION PAID FOR A SERVICE RENDERED. HENCE, A MERE REIMBURSEMENT OF EXPENSES C ANNOT BE CONSTRUED AS A 'FEE' FOR SERVICES RENDERED SINCE WH AT IS ACHIEVED BY A REIMBURSEMENT IS A MERE REPAYMENT OF WHAT HAS BEEN ALREADY SPENT AND IS NOT A REWARD OR A COMPENSATION FOR SERVICES RENDERED. TDS ON EXPENSES/COSTS REIMBURSED TO A NON-RESIDENT DO NOT GIVE RISE TO ANY CHARGEABLE INCOME IN THE HANDS OF A NON-RESIDENT AN D GOING LITERALLY BY THE ABOVE PRINCIPLE SECTION 195 SHOULD NOT GET ATTR ACTED FOR REIMBURSEMENTS. IN ADDITION TO THE PAYMENT FOR SERV ICES RECEIVED FROM A NON-RESIDENT, THE INDIAN '' ENTITY GENERALLY UNDE R THE TERMS OF THE CONTRACT ALSO REIMBURSES AT ACTUAL EXPENSES LIKE IN SURANCE, TRAVEL, LODGING, BOARDING ETC. INCURRED BY SUCH FOREIGN ENT ITY FOR PROVISION OF THE SERVICES. 10.4 IN SUCH SITUATIONS, THE COURTS HAVE GENERAL LY HELD THAT AS THERE IS NO INCOME ELEMENT EMBEDDED IN SUCH PURE REIMBURS EMENTS DULY SUPPORTED BY BILLS ETC. AND CONTRACTUAL LIABILITY T O BEAR THEM BEING OF THE RESIDENT, THEY ARE NOT TAXABLE IN THE HANDS OF THE NON-RESIDENT. BOMBAY HIGH COURT HAS IN THE CASE OF CIT VS. TATA ENGINEER ING AND LOCOMOTIVE CO. LTD. (245 ITR 823) HELD THAT NO PART OF EXPENSE S OF FOREIGN TECHNICIAN DEPUTED BY A FOREIGN COMPANY COULD BE TR EATED AS PAYMENT IN LIEU OF FEES AND WAS NOT LIABLE TO DEDUCTION OF TAX AT SOURCE. IN THE CASE OF CIT VS. INDUSTRIAL ENGG. PROJECTS (P) LTD. (202 ITR 1014) THE HON'BLE DELHI HIGH COURT HAS HELD THAT REIMBURSEMEN T OF EXPENSES DOES NOT CONSTITUTE INCOME AND ACCORDINGLY NOT TAXABLE. IN THIS CASE, THE ASSESSEE HAD AN AGREEMENT WITH THE FOREIGN COMPANY TO RENDER CERTAIN SERVICES FOR A MINIMUM FEE OF RS. 1.2 LAKHS PER YEA R. THE AGREEMENT ALSO PROVIDED THAT CERTAIN COSTS OR EXPENSES COULD BE REIMBURSED. THE COURT FOUND THAT NO EXCESS AMOUNT OVER AND ABOVE EX PENSES INCURRED WAS RECEIVED. IT HELD THAT THE REIMBURSEMENT OF EXP ENSES COULD NOT BE REGARDED AS REVENUE RECEIPTS. FOLLOWING THE ABOVE D ECISION, REIMBURSEMENT OF ACTUAL EXPENSES WERE HELD NOT TO B E 'INCOME' IN CASE OF CLIFFORD CHANCE, UNITED KINGDOM (82 ITD 106) (MU MBAI ITAT). IN ANOTHER CASE, BOMBAY TRIBUNAL IN THE CASE OF ARTHUR ANDERSON (UNREPORTED) HELD THAT WHERE THE REIMBURSEMENT IS O F ACTUAL EXPENSES SUPPORTED BY BILL NO FOX SHOULD BE DEDUCTED. IN MAH INDRA & MAHINDRA LTD. VS. DC/T- [2005] 1 SOT896 (MUM), THE ITAT HELD , AFTER REVIEWING THE CASE LAWS IN THE MATTER, THAT TDS U/S 795 IS NO T REQUIRED WHEN THE ASSESSEE DIRECTLY INCURRED TRAVELLING AND HOTEL EXP ENSES ON FOREIGN TECHNICIANS AND THE SAME WERE NOT REIMBURSED TO THE FOREIGN PARTIES OR THE FOREIGN TECHNICIANS. IN THE CASE OF CIT VS. DUN LOP RUBBER CO. LTD., REPORTED IN 142 ITR 493 (CAL), THE ASSESSEE COMPAN Y HAD PAID ITS SHARE OF COSTS AND EXPENSES IN RELATION TO SHARING THE FRUITS OF RESEARCH AND DEVELOPMENT AS COST FOR IMPAIRING THE INFORMATI ON. THE HON'BLE CALCUTTA HIGH COURT HELD THAT THE AMOUNT RECEIVED B Y THE FOREIGN COMPANY FROM THE INDIAN COMPANY DID NOT CONSTITUTE INCOME ASSESSABLE UNDER THE ACT. THE ASSESSEE THEREFORE SUBMITS THAT PROVISIONS OF S. 195 ON SUCH REIMBURSEMENT OF EXPENDITURE ARE NOT ATTRAC TED AT ALL. 10.5 IN SO FAR AS ITEM (A) RELATING TO PROFESSIONAL SERVICE IS CONCERNED, THE APPELLANT SUBMITS THAT THIS PAYMENT IS MADE TO NON-RESIDENTS WHO ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 45 DO NOT HAVE ANY PERMANENT ESTABLISHMENT (PE) IN IND IA AND THE COMPENSATION IS PAID FOR EVENTS OCCURRING OUTSIDE I NDIA THEREFORE THE SAME CANNOT BE SAID TO BE FROM ANY BUSINESS CONNECT ION IN INDIA. THE APPELLANT SUBMITS THAT THE SAID PAYMENTS ARE EXEMPT FROM TAX IN VIEW OF THE CBDT CIRCULAR NO. 786, DATED 7TH FEBRUARY, 2 000. THE RELEVANT PORTION OF WHICH READS AS UNDER: 'THE DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 W OULD ARISE IF THE PAYMENT OF COMMISSION TO THE NON-RESIDENT AGENT IS CHARGEABLE TO TAX IN INDIA. IN THIS REGARD ATTENTION TO CBDT CIRCULAR NO. 23, DATED 23RD JULY, 1969, IS DRAWN WHERE THE TAXABILITY OF 'FOREI GN AGENTS OF INDIAN EXPORTERS' WAS CONSIDERED ALONG WITH CERTAIN OTHER SPECIFIC SITUATIONS. IT HAD BEEN CLARIFIED THEN THAT WHERE THE NONRESIDENT AGENT OPERATES OUTSIDE THE COUNTRY, NO PART OF HIS INCOME ARISES I N INDIA. FURTHER, SINCE THE PAYMENT IS USUALLY REMITTED DIRECTLY ABROAD IT CANNOT BE HELD TO HAVE BEEN RECEIVED BY OR ON BEHALF OF THE AGENT IN INDIA. SUCH PAYMENTS WERE THEREFORE, HELD TO BE NOT TAXABLE IN INDIA. THE RELEVANT SECTIONS, NAMELY, SECTION 5(2) AND SECTION 9 OF THE INCOME-TAX ACT, 1961, NOT HAVING UNDERGONE ANY CHANGE IN THIS REGAR D, THE CLARIFICATION IN CIRCULAR NO. 23 STILL PREVAILS. NO TAX IS THEREF ORE DEDUCTIBLE UNDER SECTION 195 AND CONSEQUENTLY, THE EXPENDITURE ON EX PORT PAYABLE TO A NON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA BE COMES ALLOWABLE EXPENDITURE'. THE APPELLANT SUBMITS THAT THE CIRCULAR ISSUED BY T HE BOARD IS BINDING ON THE ASSESSING OFFICER IN THE LIGHT OF THE DECISI ON OF THE SUPREME COURT IN THE CASE OF UCO BANK V. CIT [1999] 237 ITR 889 (104- TAXMAN 547). THE APPELLANT THEREFORE SUBMITS THAT PROVISIO NS OF 3. 195 ON SUCH PAYMENTS OF SALES COMMISSION ARE NOT ATTRACTED AT A LL. 10.6 THE APPELLANT MOST RESPECTFULLY SUBMITS THAT THE MAIN OBJECTION OF THE ID. AO WAS THAT THE SAID EXPENDITURE IS REQU IRED TO BE ADDED U/S 40(A)(I) OF THE ACT AS PER THE KARNATAKA HIGH COURT DECISION IN THE CASE OF SAMSUNG ELECTRONICS LTD. BECAUSE THE APPELLANT H AS NOT MADE ANY APPLICATION U/S 195(2) OF THE ACT. 11.1 DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE APPELLANT VIDE LETTER DATED 13[11/2009 (PI REFER PAGE NO. 137 OF PAPER BOOK) SUBMITTED AND EXPLAINED TO THE ID. AO THAT THE APPELLANT COMPANY HAS DEBITED RS.8 I, 02,6221- -TOWARDS ADMINISTRAT IVE SERVICES EXPENSES AND THIS EXPENDITURE WAS INCURRED ON THE S ALARY, TRAVELLING AND OTHER EXPENDITURE OF ONE OF THE SENIOR ASSOCIAT ES DR. HENK PLUIM WHO IS RESPONSIBLE FOR PROCUREMENT, CHEMICAL DEVELO PMENT, TECHNOLOGY UP GRADATION, R&D ETC. IT WAS ALSO EXPLAINED THAT T HE PAYMENT WAS MADE BY DISHMAN EUROPE LTD. TO DR. HENK PLUIM WHICH WAS REIMBURSED BY THE APPELLANT TO DISHMAN EUROPE LTD AND DEBITE D UNDER THE HEAD ADMINISTRATIVE SERVICES EXPENDITURE. THE APPELLANT VIDE LETTER DATED 01/12/2009 ALSO SUBMITTED AND EXPLAINED TO THE ID. AO THAT THE ENTIRE EXPENDITURE OF DR. HENK PLUIM WAS BORNE BY DISHMAN INDIA, DISHMAN USA AND DISHMAN UK ON THE BASIS OF SERVICES RENDERE D BY HIM AND DEVOTION OF HIS TIME TO ALL THESE THREE COMPANIES. IT WAS ALSO EXPLAINED ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 46 THAT THE GROUP CHAIRMAN HAS FINALIZED THE AL LOCATION OF EXPENDITURE CONSIDERING THE PERFORMANCE OF SERVICE AND DEVOTION OF TIME OF DR. HENK PLUIM. HOWEVER, THE ID. AO DID NOT APPRECIATE THIS FACTUM OF THE CASE AND REFERRED TO LETTER DATED 09/ 12/2009 (PI. REFER PAGE NO.263-264) WHEREIN THE APPELLANT HAS MENTIONE D THAT FOR SUBSEQUENT YEAR, THE APPELLANT HAS ALLOCATED SUCH E XPENDITURE TO DISHMAN INDIA, DISHMAN UK AND DISHMAN USA IN PROPOR TION TO 40:40:20. ACCORDINGLY THE ID. AO ADOPTED THE SAME F OR THE YEAR UNDER CONSIDERATION AND MADE ADDITION OF RS.31,13,104 /-. THE APPELLANT, IN THIS CONNECTION SUBMITS THAT WHEN FOR THE YEAR UNDER CONSIDERATION, THE EXPENDITURE HAS ALREADY BEEN ALLOCATED ON THE BASIS OF ADVICE GIVEN BY THE GROUP CHAIRMAN CONSIDERING THE EFFORTS , SERVICES AND DEVOTION OF TIME OF DR. HENK, THEN ,'' THE ACTI ON OF ID. AO IN ADOPTING THE MECHANISM FOR ALLOCATION OF SUCH E XPENDITURE FOR SUBSEQUENT YEAR IS INCORRECT. THE APPELLANT SUBMIT S THAT IN SUBSEQUENT YEAR DR. HENK HAD PROVIDED SERVICES IN PROPORTION T O 40:40:20 TO DISHMAN INDIA, DISHMAN USA AND DISHMAN UK BUT THAT DOES NOT MEAN THAT THE SAME MECHANISM SHOULD BE APPLIED FOR THE Y EAR UNDER CONSIDERATION WHEN THE GROUP CHAIRMAN HAS ALLOCATED SUCH EXPENDITURE. HENCE, THE APPELLANT SUBMITS THAT THIS ALTERNATE AD DITION IS ALSO REQUIRED TO BE DELETED.' 78. THE LD.CIT(A) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE AND CONFIRMED ADDITION. 79. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE CONT ENDED THAT BOTH AUTHORITIES HAVE BASED THEIR FINDING ON THE DECISIO N OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS, 320 ITR 2 09. THIS DECISION HAS BEEN REVERSED BY THE HONBLE SUPREME COURT IN THE C ASE OF GE INDIA TECHNOLOGY, 327 ITR 456. HE FURTHER RELIED UPON CBD T CIRCULAR NO.786 DATED 7.2.2000 AND ORDER OF THE ITAT IN THE CASE OF ACIT VS. BEST ROSES BIOTECH P.LTD., ITA NO.283/AHD/2013. 80. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD. A PERUSAL OF THE BREAKUP OF THIS EXPENDITURE WOULD INDICATE THAT EXPENDITURE INCURRED BY THE ASSESSEE COULD BE DIVIDED INTO THRE E CATEGORIES VIZ. (A) PAYMENTS TOWARDS PROFESSIONAL SERVICE CHARGES, (B) REIMBURSEMENT OF ADMINISTRATIVE SERVICES TO DISHMAN EUROPE LTD., AND (C) REIMBURSEMENT OF INSURANCE AND FOREIGN RAVEL EXPENDITURE TO DISHMAN EUROPE LTD. BEFORE MAKING AN ANALYSIS OF THIS EXPENDITURE, WE WOULD LI KE TO TAKE INTO CONSIDERATION DECISION OF HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY (SUPRA). HONBLE SUPREME COURT HAS PROP OUNDED IN THIS DECISION ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 47 THAT A PERSON CAN BE HELD LIABLE TO DEDUCT TDS WHIL E MAKING PAYMENT TO A NON-RESIDENT IF THE PAYMENTS MADE BY HIM CONSISTS O F SOME ELEMENT OF INCOME CHARGEABLE TO TAX UNDER THE PROVISIONS OF IN COME TAX ACT, 1961. THE LD.REVENUE AUTHORITIES WERE OF THE VIEW THAT IF THE ASSESSEE HAS BEEN MAKING PAYMENT TO A NON-RESIDENT THEN EITHER IT SHOULD TAK E A CERTIFICATE FROM THE AO UNDER SECTION 195(2) OR DEDUCT TDS ON SUCH PAYMENTS . FOR THIS VIEW, THEY ARE HARPING UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS (SUPRA). HOWEVER, THE HONBLE SUPREME COURT DID NOT CONCUR WITH THIS VIEW OF HONBLE HIGH COURT AND OBS ERVED THAT EXPRESSION CHARGEABLE UNDER THE PROVISIONS OF THE ACT IS BEI NG EMPLOYED UNDER SECTION 195(1) AND IF ELEMENT OF INCOME IS INVOLVED IN THE PAYMENTS MADE BY THE ASSESSEE ONLY THEN THE TDS HAS TO BE DEDUCTED. KEE PING IN VIEW THIS DECISION IN MIND, LET US EXAMINE THE NATURE OF PAYMENT MADE BY THE ASSESSEE. 81. LET US TAKE FIRST CATEGORY OF PAYMENT MADE TOWA RDS PROFESSIONAL CHARGES. ACCORDING TO THE ASSESSEE, NON-RESIDENT WA S NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA OR ANY BUSINESS CO NNECTION. THUS, SUCH SUM IS NOT TAXABLE IN INDIA AND NO QUESTION OF DEDU CTING TDS WOULD ARISE. REFERENCE TO CIRCULAR NO.786 DATED 7.2.2000 IS BEIN G MADE. THE AO FAILED TO BRING ON RECORD ANY MATERIAL SHOWING THAT RECIPIENT IS TAXABLE IN INDIA. WITH REGARD TO OTHER TWO ITEMS I.E. REIMBURSEMENT OF ADM INISTRATIVE CHARGES AND REIMBURSEMENT OF INSURANCE AND FOREIGN TRAVEL EXPEN SES ARE CONCERNED, THESE EXPENSES HAVE BEEN REIMBURSED TO DR.HENK PLUIM WHO WAS RESPONSIBLE FOR PROCUREMENT, CHEMICAL DEVELOPMENT AND TECHNOLOGICAL UPGRADATION ETC. THESE AMOUNTS HAVE BEEN CALCULATED ON THE BASIS OF SERVIC ES RENDERED AND TIME DEVOTED BY HIM TO THREE CONCERNS VIZ. DISHMAN UK, D ISHMAN INDIA AND DISHMAN USA. THE AO WAS OF THE VIEW THAT ALLOCATIO N OF EXPENDITURE WAS ON HIGHER SIDE. HE ALSO OBSERVED THAT IN SUBSEQUENT Y EAR SUCH EXPENSES HAVE BEEN ALLOCATED AMONGST THESE CONCERNS IN THE RATIO OF 40:40:20 BASED ON ADVICE GIVEN BY THE GROUP CHAIRMAN. ON THE BASIS OF THAT RATIO, THE LD.AO HAS ALLOCATED THIS EXPENDITURE IN THIS YEAR ALSO AND WO RKED OUT ALLOWANCE EXPENDITURE OUT OF RS.81,02,622/- DEBITED UNDER THE HEAD ADMINISTRATIVE SERVICES. HE OBSERVED THAT IT SHOULD BE ALLOWED A T RS.49,89,517/-. A PERUSAL OF THE ASSESSMENT ORDER WOULD INDICATE THAT THE LD. AO HAS ASSIGNED TWO REASONS FOR MAKING DISALLOWANCE, VIZ. (I) NON-DEDUC TION OF TAX, AND (II) HIGHER ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 48 ALLOCATION OF EXPENDITURE IN THE HANDS OF THE ASSES SEE WHICH WERE INCURRED ON DR.HENK PLUIM. AS FAR AS FIRST PARTY IS CONCERNED , THESE ARE SIMPLY REIMBURSEMENT OF ADMINISTRATIVE EXPENSES INCURRED B Y DR.HENK PLUIM OUTSIDE INDIA. THEY DID NOT INVOLVE ANY ELEMENT OF INCOME AND TDS WAS NOT REQUIRED TO BE DEDUCTED. AS FAR AS SECOND PARTY IS CONCERNE D, THE LD.AO FAILED TO BRING ANY MATERIAL ON RECORD TO JUSTIFY THE ADMINISTRATIV E EXPENSES REQUIRED TO BE INCURRED FOR AVAILING SERVICES OF DR.HENK. IT IS T OTALLY IN THE DOMAIN OF THE BUSINESSMAN AND THE AO CANNOT DICTATE TERMS HOW MUC H SALARY AND OTHER EXPENSES ARE NECESSARY FOR AVAILING THE SERVICES. THIS DISALLOWANCE MADE BY THE AO IS NOT SUSTAINABLE. THE LD.CIT(A) OUGHT TO HAVE NOT CONFIRMED DISALLOWANCE MADE BY THE AO. WE ALLOW THIS GROUND OF APPEAL AND DELETE ADDITION OF RS.1,12,01,869/-. 82. GROUND NOS.20 AND 21: IN THESE GROUNDS ASSESSEE IS AGGRIEVED BY THE ACTION OF THE LD.CIT(A) IN CONFIRMING DISALLOWANCE OF ADDITIONAL DEPRECIATION ON PLANT AND MACHINERY OF RS.2,93,19,329/-. 83. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS FILED ITS RETURN OF INCOME ON 31.12.2006. IT HAS CLAIMED DEPRECIATION OF RS.13,67,45,462/- ON BLOCK OF ASSETS. HOWEVER, VIDE LETTER DATED 24.12. 2009 IT FILED A REVISED CLAIM OF DEPRECIATION WHEREIN IT HAS INCREASED AN AMOUNT OF RS.14,15,32,235/-. IN ADDITION TO THE ABOVE INCREASED DEPRECIATION, THE A SSESSEE HAS CLAIMED ADDITIONAL DEPRECIATION ON PLANT & MACHINERY INSTAL LED DURING THE YEAR OF RS.2,93,19,329/-. THIS CLAIM OF ADDITIONAL DEPRECI ATION HAS BEEN REJECTED BY THE AO ON THE GROUND THAT THE ASSESSEE DID NOT FILE REVISED RETURN AND IT COULD NOT CLAIM ENHANCED DEPRECIATION. DISSATISFIED WIT H THE ACTION OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD .CIT(A). IT HAS RELIED UPON THE FOLLOWING DECISIONS IN SUPPORTS OF ITS CLAIM: I) CIT VS. M/S.JAI PARABOLIC SPRINGS LTD., 306 ITR 402 ; II) CHICAGO PNEUMATIC INDIA LTD. VS. DCIT, 15 SOT 252 ( BOM); III) JCIT VS. HERO HONDA FINLEASE LTD., 115 TTJ 0752 (DE L); IV) ASHEESH SECURITIES LTD. VS. DCIT, 297 ITR 317 (DEL) ; V) MOSER BEAR INDIA LTD. VS. JCI, 108 ITD 80 (DEL); VI) SNC LAVALIN/ACRES INC. VS. ACIT, 15 SOT 1 (DEL); VII) KISAN DISCRETIONARY FAMILY TRUST VS. ACIT, 113 TTJ 918 (AHD) ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 49 84. THE LD.CIT(A) ALSO DID NOT ACCEPT CLAIM OF THE HE ASSESSEE AND OBSERVED THAT THE ASSESSEE SHOULD HAVE FILED REVISED RETURN. 85. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD. IN THE JUDGMENT REFERRED BY THE ASSESSEE B EFORE THE LD.CIT(A) IT HAS BEEN HELD THAT DECISION OF HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA PUTS A BAR UPON THE POWER OF THE AO FOR MAINTAINING ANY FRESH CLAIM IF NO REVISED RETURN WAS FILED. HOWEVER, FOR APPELLATE A UTHORITIES, HONBLE SUPREME COURT HAS NOT PUT ANY BAR, AND IF A PARTICULAR ITEM IS GOING TO AFFECT TAXABILITY OF THE ASSESSEE, THEN THE APPELLATE AUTHORITIES WOU LD BE JUSTIFIED IN ENTERTAINING SUCH CLAIM. DETAILS OF ASSETS ARE NOT IN DISPUTE. IT HAS ALREADY CLAIMED REGULAR DEPRECIATION ON THESE ASSETS. THE ONLY QUESTION WAS WHETHER ADDITIONAL DEPRECIATION COULD BE ALLOWED OR NOT. T HUS, THE LD.CIT(A) OUGHT TO HAVE ENTERTAINED THIS CLAIM OF THE ASSESSEE AND OUG HT TO HAVE DECIDED THE ISSUE ON MERIT. TAKING INTO CONSIDERATION ALL THES E ASPECTS, WE ALLOW THIS GROUND OF APPEAL FOR STATISTICAL PURPOSE AND RESTOR E THIS ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION THE LD.AO SHALL DECIDE T HIS ISSUE ON MERIT WHETHER ADDITIONAL DEPRECIATION AS CLAIMED BY THE ASSESSEE IS ADMISSIBLE OR NOT. THESE GROUND OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOS E. 86. GROUND NO.22: IN THIS GROUND OF APPEAL, GRIEVAN CE OF THE ASSESSEE RELATES TO CONFIRMATION F DISALLOWANCE OF DEPRECIAT ION ON ELECTRICAL INSTALLATION AMOUNTING TO RS.1,00,938/-. THE LD.COUNSEL DID NOT PRESS THIS GROUND OF APPEAL, HENCE, REJECTED. 87. GROUND NOS.23 AND 24: IN THESE GROUNDS OF APPE AL GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE OF MISC. EXPENSES TO THE TUNE OF RS.15,00,000/- OUT OF RS.18,10,423/-. 88. WE HAVE TAKEN UP THIS GROUND OF APPEAL WHILE CO NSIDERING THE REVENUES APPEAL. 89. GROUND NO.25: IN THIS GROUND OF APPEAL GRIEVAN CE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING ADDITION OF RS.28,01,598/-. ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 50 90. THE LD.CIT(A) HAS TAKEN COGNIZANCE OF THE FINDI NG RECORDED BY THE AO ON THIS ISSUE AND ALSO WRITTEN SUBMISSIONS MADE BY THE ASSESSEE. FOR APPRECIATING THE CONTROVERSY, WE DEEM IT APPROPRIAT E TO TAKE NOTE OF THE FINDING OF THE LD.CIT(A) ON THIS ISSUE, WHICH READS AS UNDER: 12.1 THE A.O. HAS STATED IN THE ASSESSMENT ORDER DA TED 26/02/2010 WHICH IS AS UNDER: ' PERUSAL OF THE 3CD REPORT SHOWS THAT THE AUDITOR HAS WORKED OUT THE EFFECT OF DEVIATION OF VALUATION PRESCRIBED UNDER S ECTION 145A, AT A NEGATIVE FIGURE OF RS 28,01,598/- WHICH HAS BEEN CL AIMED AS DEDUCTION BY THE ASSESSEE IN ITS COMPUTATION OF INCOME. THE A SSESSEE WAS REQUESTED TO EXPLAIN HOW THIS FIGURE COULD AT ALL B E NEGATIVE, BECAUSE AT THE MOST, THE EFFECT COULD BE NIL BUT NEVER NEGATIV E. IN THIS REGARD, AS PER ORDER SHEET ENTRY DATED 09.1 2.2009 ON RECORD, COULD NOT EXPLAIN THE BASIS OF THIS WORKING BY US A UDITOR. IT WAS CONTENDED THAT THIS AMOUNT HAD BEEN WORKED FOR RAW MATERIAL ONLY. AS REGARDS FINISHED GOODS IT WAS EXPLAINED THAT AS REG ARDS THE THE EXCISE DUTY ON CLOSING STOCK OF FINISHED GOODS AS ON 31/03 /2006, THE ASSESSEE HAS PAID THE EXCISE DUTY THEREON IN THE SUBSEQUENT FINANCIAL YEAR 2006- 07 BEFORE THE DATE DUE FOR FILING THE INCOME TAX, R ETURNS. IN THIS REGARD CERTIFICATE OF THE CA WAS ALSO PRODUCED AND PLACED ON RECORD. AS CAN BE SEEN FROM ABOVE, THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM FOR DEDUCTION U/S 145A OF RS 28,01,598/-AS WO RKED OUT BY THE AUDITOR. ACCORDINGLY THE SAME IS ADDED BACK. PENALT Y U/S.271(L)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME IS SEPA RATELY INITIATED.' 1 2.2 THE APPELLANT HAS SUBMITTED IN ITS WRITTEN SUBMISSION WHICH IS AS UNDER: 'IN THIS CONNECTION, THE APPELLANT MOST RESPECTFULL Y SUBMITS THAT AS PER THE GUIDELINES ISSUED BY INSTITUTE OF CHARTERED ACC OUNTANT'S OF INDIA, THE APPELLANT CAN HAVE EITHER 'INCLUSIVE METHOD' FO R ACCOUNTING ENTRIES WITH REGARD TO MODVAT OR 'EXCLUSIVE METHOD'. IT IS EXPLAINED THAT IN THE 'INCLUSIVE METHOD', THE PURCHASE OF RAW MATERIA L DEBITED IN THE BOOKS OF ACCOUNTS IS INCLUSIVE OF THE CORRESPONDING MODVAT ELEMENT. IT IS SUBMITTED THAT IF THE APPELLANT IS FOLLOWING THI S METHOD THEN THE CLOSING STOCK HAS TO BE VALUED INCLUSIVE OF MODVAT ELEMENT. ON THE OTHER HAND, IN THE 'EXCLUSIVE METHOD' THE COST OF R AW MATERIAL DEBITED IN THE PURCHASE ACCOUNT IS NET OF MODVAT ELEMENT. I N THIS SYSTEM, THE APPELLANT HAVE A SEPARATE ACCOUNT FOR ACCOUNTING FO R THE EXCISE DUTY PAYABLE AND THE MODVAT CREDIT AVAILABLE TO IT. THE APPELLANT SUBMITS THAT IF THE APPELLANT IS FOLLOWING THIS METHOD OF A CCOUNTING THEN THE CLOSING STOCK HAS TO BE VALUED EXCLUSIVE OF MODVAT ELEMENT. IT IS HOWEVER, EXPLAINED THAT IN EITHER OF THE METHODS AD OPTED AS ABOVE, THE PROFIT OF THE APPELLANT WOULD NOT CHANGE. IT IS, TH EREFORE, SUBMITTED THAT AS THE METHOD ADOPTED BY THE APPELLANT HAD NOT RESU LTED INTO ANY ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 51 REDUCTION IN THE INCOME OF THE APPELLANT, THERE W AS NO JUSTIFICATION IN THE LEARNED ASSESSING OFFICER MAKING ADDITION OF R S.28,01,598/-. IT IS THEREFORE, SUBMITTED THAT THE ADDITION MADE BY THE ID. AO U/S 145A IS REQUIRED TO BE DELETED. THE APPELLANT ALSO RELIES O N JURISDICTIONAL AHMEDABAD TRIBUNAL ORDER IN THE CASE OF M/S ALPANIL INDUSTRIES BEARING ITA NO. 169 & 170/AHD/2005, WHEREIN UNDER IDENTICAL FACTS, THE HON'BLE BENCH HAS DELETED 'ADDITION U/S 145A MADE BY THE ID . AO. COPY OF THE SAID ORDER IS ENCLOSED ON PAGE NO.223 TO 244 OF WRI TTEN SUBMISSION. PLEASE REFER PARAS 8 TO 12 PAGES 225 TO 234 OF WRIT TEN SUBMISSION.' 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESS MENT ORDER AND APPELLANT'S SUBMISSION. APPELLANT CLAIMED THE MODVA T FROM THE COMPUTATION OF TOTAL INCOME HOWEVER ASSESSING OFFIC ER FOUND THAT SUCH CLAIM CANNOT BE NEGATIVE. IT IS NOT IN DISPUTE THAT ASSESSING OFFICER DID NOT MAKE ADDITION ON ACCOUNT OF THIS BUT REJECTED T HE APPELLANT'S CLAIM OF DEDUCTION WHICH APPELLANT WAS NOT ABLE TO SUBSTA NTIATE. THEREFORE THE JUDICIAL DECISION RELIED UPON BY THE APPELLANT IS N OT RELEVANT WHICH RELATES TO ADDITION ON THIS ACCOUNT. IF APPELLANT I S MAKING ANY CLAIM IN THE COMPUTATION OF INCOME, THE ONUS TO PROVE AND SU BSTANTIATE IT IS ON THE APPELLANT. SINCE APPELLANT WAS NOT ABLE TO FURN ISH REQUIRED DETAILS AND SUBSTANTIATE ITS CLAIM, ASSESSING OFFICER IS JU STIFIED IN REJECTING THE APPELLANT'S CLAIM. IN VIEW OF THIS, THIS GROUND IS DISMISSED. 91. THE LD.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING THE ABOVE FINDING SUBMITTED THAT THERE IS NO IMPACT ON TAXABILITY WHE THER THE ASSESSEE FOLLOWS EXCLUSIVE OR INCLUSIVE METHOD OF ACCOUNTING, HENCE NO ADDITIONS IS CALLED FOR UNDER SECTION 145A. HE RELIED UPON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ACIT VS. NARMADA CHEMATUR PETR OCHEMICALS, 327 ITR 369 (GUJ). ON THE OTHER HAND, THE LD.DR RELIED UPON TH E ORDERS OF THE AO. 92. WE HAVE DULY CONSIDERED RIVAL CONTENTIONS AND G ONE THROUGH THE RECORD CAREFULLY. IN THE CASE OF NARMADA CHEMATUR PETROCH EMICALS (SUPRA), HONBLE HIGH COURT HAS OBSERVED THAT CLOSING STOCK HAS TO B E VALUED AT THE OPTION OF THE ASSESSEE I.E. AT THE COST OR MARKET PRICE, WHIC HEVER IS LOWER. DUTY OF CENTRAL EXCISE ON THE GOODS MANUFACTURED I.E. ASSES SABLE GOODS MANUFACTURED BY THE ASSESSEE DOES NOT FORM PART OF MANUFACTURING COST. IT CAN BE TERMED AS POST MANUFACTURING COST, AND THEREFORE, UNTIL AN D UNLESS IT IS ENTERED ON ONE SIDE AS AN ITEM OF COST, IT CANNOT BE TAKEN AS COMPONENT OF VALUE OF CLOSING STOCK ON THE OTHER SIDE. TRUE PURPOSE OF C REDITING THE VALUE OF UNSOLD STOCK IS TO BALANCE THE COST OF THOSE GOODS ENTERED ON THE OTHER SIDE OF THE ACCOUNT. NOW QUESTION IS, HOW THIS JUDGMENT IS APP LICABLE ON THE FACTS OF THE ASSESSEE BEFORE US. THE ASSESSEE ITSELF HAS WORKED OUT A NEGATIVE FIGURE OF ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 52 RS.28,01,598/-. BUT IT IS UNABLE TO EXPLAIN HOW TH IS FIGURE HAS COME. THE LD.CIT(A) HAS OBSERVED THAT ONCE THE ASSESSEE HAS B EEN CLAIMING DEDUCTION, THEN IT IS FOR THE ASSESSEE TO EXPLAIN. WE HAVE RE PRODUCED THE FINDING OF THE AO, WRITTEN SUBMISSIONS OF THE ASSESSEE BEFORE THE LD.CIT(A) AND WE ARE UNABLE TO DRAW ANY CONCLUSION FROM THIS HALF-BAKED FACTS. IT IS QUITE DIFFICULT TO ARRIVE AT FIRM CONCLUSION AND HOW TO APPLY DECISION OF THE HONBLE HIGH COURT. THEREFORE, WE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO. THE ASSESSEE SHALL FILE COMPLETE DETAILS WITH WORKI NG AND ITS IMPACT AS TO HOW IT HAS WORKED OUT NEGATIVE FIGURE OF RS.28,01,598/- . IN VIEW OF THE ABOVE, WE ALLOW THIS GROUND OF APPEAL FOR STATISTICAL PURPOSE . 93. GROUND NOS.26 AND 27: WE HAVE ALREADY TAKEN UP THESE TWO GROUNDS ALONG WITH GROUND NO.6 AND 7 OF THE REVENUES APPEA L. HENCE, THEY ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 94. GROUND NOS.28 AND 30. THESE GROUNDS ARE GENERA L IN NATURE AND DO NOT CALL FOR RECORDING ANY SPECIFIC FINDING, HENCE DISM ISSED. 95. WE NOW TAKE ITA NO.2957/AHD/2013 (REVENUES APP EAL) AND ITA NO.3086/AHD/2013 (ASSESSEES APPEAL). 96. THESE ARE CROSS-APPEALS AT THE INSTANCE OF THE ASSESSEE AND REVENUE AGAINST ORDER OF THE LD.CIT(A) DATED 31.10.2013. S OLE ISSUE INVOLVED IN BOTH THE APPEALS RELATES TO WHETHER THE ASSESSEE DESERVE S TO BE VISITED WITH PENALTY UNDER SECTION 271(1)(C) OF THE ACT. IF YES , THEN WHAT SHOULD BE QUANTUM OF PENALTY. 97. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS FILED ITS RETURN OF INCOME ON 31.12.2006 DECLARING TOTAL INCOME AT RS.9 ,55,84,979/-. THE ASSESSMENT ORDER WAS FRAMED UNDER SECTION 143(3) ON 26.2.2010 DETERMINING TAXABLE INCOME AT RS.38,49,01,339/-. THE LD.AO HAS MADE VARIOUS ADDITIONS FOR ARRIVING AT THE ABOVE TAXABLE INCOME OF THE ASS ESSEE. DISSATISFIED WITH THE ASSESSMENT ORDER, THE ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE LD.FIRST APPELLATE AUTHORITY WHO VIDE ORDER DATED 3.1.2011 P ARTLY DELETED THE ADDITION. A NOTICE UNDER SECTION 274 R.W.S 271(1)(C) OF THE A CT WAS ISSUED ON 26.2.2010 INVITING EXPLANATION OF THE ASSESSEE AS TO WHY PENA LTY UNDER SECTION 271(1)(C) ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 53 OF THE ACT BE NOT IMPOSED UPON THE ASSESSEE FOR CON CEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCO ME. THE LD.AO HAS CONSIDERED THE FOLLOWING ITEMS OF ADDITIONS FOR IMP OSING PENALTY UNDER SECTION 271(1)(C) OF THE ACT: ADD: PRIOR PERIOD INCOME 46,50,648/ - ADD: DISALLOWANCE U/S.14A 4,76,876/ - ADD: INCOME AS PER TDS CERTIFICATE LESS SHOWN 3,17,294/ - ADD: UNEXPLAINED ESIC OUTSTANDING U/S.43B 2,40,940/ - ADD: SUNDRY BALANCES WRITTEN OFF FOR CAPITAL GOODS 2,86,051/ - ADD: NON DEDUCTION OF TDS U/S.40(A(IA) 1,12,01,869/ - ADD: IMPACT OF SECTION 145A CLAIMED AS DEDUCTION 28,01,598/ - ADD: MISC. EXPENSES WRITTEN OFF 15,00,000/ - ADD: DISALLOWANCE U/S.10B 6,56,59,970/ - 98. AFTER HEARING THE ASSESSEE, HE IMPOSED PENALTY OF RS.3,03,77,454/- FOR FURNISHING INACCURATE PARTICULARS OF INCOME. DISSA TISFIED WITH THE PENALTY ORDER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE LD.CIT(A) WHO PARTLY DELETED PENALTY. THE LD.CIT(A) HAS SUMMARIZ ED HIS ORDER AS UNDER: 3.3 TO SUM-UP LEVY OF PENALTY WITH REFERENCE TO TH E FOLLOWING DISALLOWANCES/ADDITIONS IS UPHELD. (1) ADDITION ON ACCOUNT OF NON-RECONCILIATION OF TDS AN D INCOME. (2) ADDITION OF ESIC OUTSTANDING (3) DISALLOWANCE OF SUNDRY BALANCES WRITTEN OFF (4) DISALLOWANCE OF MODVAT U/S.14A PENALTY LEVIED WITH REFERENCE TO THE FOLLOWING BALA NCE DISALLOWANCES/ADDITIONS IS CANCELLED. (1) ADDITION OF PRIOR PERIOD INCOME (2) DISALLOWANCE /S.14A (3) DISALLOWANCE U/S.40(A)(IA) (4) DISALLOWANCE OF MISCELLANEOUS EXPENSES (5) DISALLOWANCE OF DEDUCTION U/S.10B AO IS DIRECTED TO RE-COMPUTE THE PENALTY ACCORDINGL Y. THESE GROUNDS OF APPEAL RE PARTLY ALLOWED. 99. THUS, REVENUE IS AGGRIEVED QUA ITEMS ON WHICH PENALTY HAS BEEN DELETED BY THE LD.CIT(A) WHEREAS THE ASSESSEE IN IT S APPEAL IMPUGNING CONFIRMATION OF PENALTY BY THE LD.CIT(A). ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 54 100. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. SECTION 271 (1)(C) OF THE INCOME TAX ACT, 1961 HAS DIRECT BEARING ON THE CONTROVERSY. THEREFORE, IT IS PERTI NENT TO TAKE NOTE OF THE SECTION. '271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTIC ES, CONCEALMENT OF INCOME, ETC. (1) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) OR THE CIT IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT, IS SA TISFIED THAT ANY PERSON (A) AND (B)** ** ** (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. HE MAY DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY. (I)AND (INCOME-TAX OFFICER,)** ** ** (III) IN THE CASES REFERRED TO IN CLAUSE (C) OR CL AUSE (D), IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, A SUM WHICH SHALL NOT BE LESS THAN, BUT WHICH SHALL NOT EXCEED THREE TIMES, THE AMOUNT OF T AX SOUGHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICULARS OF HIS INCOME OR FRINGE BENEFIT THE FURNISHING OF INACCURATE PARTICU LARS OF SUCH INCOME OR FRINGE BENEFITS: EXPLANATION 1- WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR O FFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMM ISSIONER (APPEALS) OR THE CIT TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THE N, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OR SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C) OF TH IS SUB-SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED. 101. A BARE PERUSAL OF THIS SECTION WOULD REVEAL T HAT FOR VISITING ANY ASSESSEE WITH THE PENALTY, THE ASSESSING OFFICER OR THE LEAR NED CIT(APPEALS) DURING THE COURSE OF ANY PROCEEDINGS BEFORE THEM SHOULD BE SAT ISFIED, THAT THE ASSESSEE HAS; (I) CONCEALED HIS INCOME OR FURNISHED INACCURA TE PARTICULARS OF INCOME. AS FAR AS THE QUANTIFICATION OF THE PENALTY IS CONCERN ED, THE PENALTY IMPOSED UNDER THIS SECTION CAN RANGE IN BETWEEN 100% TO 300 % OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE, AS A RESULT OF SUCH CONC EALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS. THE OTHER MOST I MPORTANT FEATURES OF THIS ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 55 SECTION IS DEEMING PROVISIONS REGARDING CONCEALMENT OF INCOME. THE SECTION NOT ONLY COVERED THE SITUATION IN WHICH THE ASSESSE E HAS CONCEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS, IN CERTAIN SIT UATION, EVEN WITHOUT THERE BEING ANYTHING TO INDICATE SO, STATUTORY DEEMING FI CTION FOR CONCEALMENT OF INCOME COMES INTO PLAY. THIS DEEMING FICTION, BY WA Y OF EXPLANATION I TO SECTION 271(1)(C) POSTULATES TWO SITUATIONS; (A) FI RST WHETHER IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCO ME UNDER THE PROVISIONS OF THE ACT, THE ASSESSEE FAILS TO OFFER AN EXPLANATION OR THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE FALSE BY THE ASSESSING OFFICER OR LEARNED CIT(APPEAL); AND, (B) WHERE IN RESPECT OF ANY FACT, MATERIAL TO THE COMPUTATION OF TOTAL INCOME UNDER THE PROVISIONS OF THE ACT, THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION AND THE AS SESSEE FAILS, TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT THE ASSESSEE HAD DISCLOSED ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N OF THE TOTAL INCOME. UNDER FIRST SITUATION, THE DEEMING FICTION WOULD CO ME TO PLAY IF THE ASSESSEE FAILED TO GIVE ANY EXPLANATION WITH RESPECT TO ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME OR BY ACTION OF THE ASS ESSING OFFICER OR THE LEARNED CIT(APPEALS) BY GIVING A CATEGORICAL FINDIN G TO THE EFFECT THAT EXPLANATION GIVEN BY THE ASSESSEE IS FALSE. IN THE SECOND SITUATION, THE DEEMING FICTION WOULD COME TO PLAY BY THE FAILURE O F THE ASSESSEE TO SUBSTANTIATE HIS EXPLANATION IN RESPECT OF ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME AND IN ADDITION TO THIS THE ASSESSE E IS NOT ABLE TO PROVE THAT SUCH EXPLANATION WAS GIVEN BONA FIDE AND ALL THE FA CTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME HAVE BEEN DISCLOSED BY THE ASSESSEE. THESE TWO SITUATIONS PROVIDED IN EXPLANATION 1 APPENDED TO SECTION 271(1)(C) MAKES IT CLEAR THAT THAT WHEN THI S DEEMING FICTION COMES INTO PLAY IN THE ABOVE TWO SITUATIONS THEN THE REL ATED ADDITION OR DISALLOWANCE IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR T HE PURPOSE OF SECTION 271(1)(C) WOULD BE DEEMED TO BE REPRESENTING THE I NCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAVE BEEN FURNISHED. 102. IN THE LIGHT OF THE ABOVE, LET US EXAMINE EACH ITEM OF ADDITIONS MADE BY THE AO FOR VISUALIZING THE FACT WHETHER THE ASSESSE E DESERVES TO BE VISITED WITH PENALTY ON SUCH AN ADDITION OR NOT. FIRST WE TAKE ITEMS OF ADDITION ON WHICH PENALTY HAS BEEN DELETED BY THE LD.CIT(A). ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 56 103. FIRST ITEM IS ADDITION OF RS.46,50,000/-. IT IS PERTINENT TO OBSERVE THAT THE ASSESSEE HAS PRIOR PERIOD INCOME OF RS.46,50,64 8/-. IT HAS CLAIMED PRIOR PERIOD EXPENDITURE WHICH HAVE BEEN CRYSTALLIZED DUR ING THIS YEAR AGAINST THIS INCOME AT RS.43,11,114/-. IT HAS CREDITED NET INC OME OF RS.3,39,534/-. THE LD.AO DID NOT ALLOW PRIOR PERIOD EXPENDITURE, BUT A SSESSED PRIOR PERIOD INCOME. WHILE DEALING WITH THIS ISSUE IN THE QUANTUM APPEAL , WE HAVE GRANTED SET OFF PRIOR PERIOD EXPENDITURE AGAINST PRIOR PERIOD INCOM E. THUS ADDITION HAS NOT BEEN CONFIRMED BY US IN THE QUANTUM APPEAL DISCUSSE D IN THE UPPER PART OF THIS ORDER, HENCE, NO PENALTY UNDER SECTION 271(1)( C) CAN BE IMPOSED UPON THESE ITEMS. 104. WE FIND THAT SUB-CLAUSE (III) OF SECTION 271(1 )(C) PROVIDES MECHANISM FOR QUANTIFICATION OF PENALTY. IT CONTEMPLATES THA T THE ASSESSEE WOULD BE DIRECTED TO PAY A SUM IN ADDITION TO TAXES, IF ANY, PAYABLE HIM, WHICH SHALL NOT BE LESS THAN , BUT WHICH SHALL NOT EXCEED THREE TIM ES THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN OTHER WORDS, THE QUANTIF ICATION OF THE PENALTY IS DEPENDED UPON THE ADDITION MADE TO THE INCOME OF TH E ASSESSEE. SINCE BASIS FOR VISITING THE ASSESSEE WITH PENALTY HAS BEEN EXT INGUISHED BY DELETING THE ADDITION BY US FOR THE REASONS STATED BY HEREINABOV E IN THE QUANTUM APPEAL, THEREFORE, THERE CANNOT BE ANY PENALTY UPON THE ASS ESSEE UNDER SECTION 271(1)(C) OF THE ACT, AND ACCORDINGLY, WE UPHOLD TH E ORDER OF THELD.CIT(A) ON THIS ISSUE. 105. NEXT ITEM IS WITH RESPECT TO ADDITION OF RS.15 .00 LAKHS OUT OF MISC. EXPENSES. THE ASSESSEE HAS CLAIMED EXPENDITURE OF RS.18,10,423/- UNDER VARIOUS HEADS VIZ. LIBRARY BOOKS, CLUB MEMBERSHIP F EES, R&D EXPENSES AND DEFERRED REVENUE EXPENSES. EXPENDITURE OF RS.14,84 ,530/- WAS CLAIMED TOWARDS LIBRARY BOOKS AS REVENUE EXPENDITURE. ON A N AD HOC BASIS, A DISALLOWANCE OF RS.15 LAKHS HAS BEEN CONFIRMED. WE HAVE PARTLY CONFIRMED DISALLOWANCE OF RS.10 LAKHS ON AD HOC BASIS. THE ASSESSEE HAS DISCLOSED COMPLETE FACTS WITH REGARD TO THE ABOVE BOOKS, AND ALTERNATIVELY CLAIMED THAT DEPRECIATION ON BOOKS BE PROVIDED TO IT IN CASE THI S EXPENDITURE IS DISALLOWED. CONSIDERING AD HOC DISALLOWANCE, WE ARE OF THE VIEW THAT THIS IS NOT AN ITEM ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 57 WHICH COULD BE ALLEGED THAT THE ASSESSEE HAS INTENT IONALLY FURNISHED INACCURATE PARTICULARS OF INCOME. THE DISPUTE BETWEEN THE ASS ESSEE AND THE REVENUE RELATES TO WHETHER EXPENDITURE INCURRED ON BOOKS SH OULD BE ALLOWED AS CAPITAL EXPENDITURE OR REVENUE EXPENDITURE. SINCE THE ASSE SSEE FAILED TO SUBSTANTIATE ITS EXPLANATION, THEREFORE, ADHOC DISALLOWANCE WAS CONFIRMED. BUT ASSESSEE DOES NOT DESERVE TO BE VISITED WITH PENALTY ON THIS ITEM. THE LD.CIT(A)HAS RIGHTLY DELETED THE PENALTY. 106. NEXT ITEM ON WHICH PENALTY HAS BEEN DELETED BY THE LD.CIT(A) RELATES TO QUANTIFICATION OF DEDUCTION ADMISSIBLE UNDER SECTIO N 10(B) OF THE ACT. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSE E IS ENTITLED FOR DEDUCTION UNDER SECTION 10(B) OF THE ACT. IT HAS CLAIMED DED UCTION UNDER SECTION 10(B) OF THE ACT AT RS.33,19,35,229/- WHICH HAS BEEN REST RICTED BY THE AO AT RS.22,97,75,094/-. A DISALLOWANCE OF RS.10,21,60,1 35/- WAS MADE. AS DISCUSSED IN THE QUANTUM APPEAL, DISALLOWANCE HAS B EEN MADE ON ACCOUNT OF FOLLOWING REASONS VIZ. (A) UNREALIZED EXPORT EXCLUD ED FROM THE EXPORT TURNOVER, (B) OTHER INCOME NOT CONSIDERED FOR ELIGIBLE DEDUCT ION UNDER SECTION 10(B), (C) CUSTOM DUTY ALLOCATED ON THE BASIS OF RAW-MATERIAL IMPOSED IN EOU AND NON- EOU, (D) PACKING EXPENSES AND PACKING MATERIAL EXPE NSES ALLOCATED IN PROPORTION TO QUANTUM OF SALES IN EOUS AND NON-EOU, (E) CLEARING AND FORWARDING EXPORTS EXPENSES ALLOCATED IN PROPORTION TO QUANTUM OF SALES IN EOU AND NON-EOU, AND ALLOCATION OF ADMINISTRATIVE A ND INTEREST EXPENSES IN PROPORTION TO TOTAL SALES IN EOU AND NON-EOUS. THE LD.CIT(A) HAS CONSIDERED THIS ISSUE IN THE PENALTY ORDER AS UNDER: IN THE RETURN OF INCOME APPELLANT HAD CLAIMED DEDU CTION U/S.10B OF RS.33,19,35,229/- IN RESPECT OF EOU AT BAVLA AND NA RODA. IN THE ASSESSMENT ORDER, AN AMOUNT OF RS.10,21,60,135/- (O UT OF THE SAID CLAIM) WAS DISALLOWED. IN THE APPELLATE ORDER THIS DISALLOWANCE WAS REDUCED TO RS. 6,56,59,670/-. PENALTY U/S.271(1)(C) WAS LEVIED WITH REFERENCE TO THE AMOUNT CONFIRMED BY THE CIT(APPEAL S). SUBSEQUENT TO THE APPELLATE ORDER DTD.03.01.2011 AND IMPUGNED PEN ALTY ORDER DTD.30.03.2012, ORDER U/S.155 DTD.18.04.2013 WAS PA SSED BY THE A.O. BY ALLOWING FURTHER DEDUCTION U/S.10B OF RS.3,01,00 ,015/-. THE FURTHER DEDUCTION WAS ALLOWED ACCEPTING THE CONTENTION OF T HE APPELLANT THAT IT HAD REALIZED EXPORT DEBTORS TO THE EXTENT OF RS.L6, 28,59,717/- (OUT OF THE OUTSTANDING DEBTORS OF RS.17,52,50,303/-) WITHI N FOUR YEARS FROM THE END OF THE PREVIOUS YEAR. IN THE WRITTEN SUBMIS SION REPRODUCED ABOVE, THE ID. A.R. CONTENDED THAT DEDUCTION U/S.10 B WAS CLAIMED ON THE BASIS OF THE CERTIFICATE OF THE CHARTERED ACCOU NTANT IN FORM NO.56G; ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 58 THUS, THE CLAIM WAS BONAFIDE AND APPELLANT COULD NO T BE SAID TO HAVE FURNISHED INACCURATE PARTICULARS OR CONCEALED INCOM E. IN SUPPORT THEREOF HE RELIED ON THE CASES CITED AT 147 TTJ 67 (DELHI), 136 ITD 177 (INDORE SPECIAL BENCH) AND AHMEDABAD TRIBUNAL'S DECISION IN KADAM EXPORTS PVT. LTD. VS. ITO IN ITA NO.2890/A/2011. THE DEDUCTION U/S.10B WAS CLAIMED ON THE BASIS OF T HE CERTIFICATE OF CA IN NO.56G. THE DISALLOWANCE MADE IN THE ASSES SMENT ORDER WAS REDUCED BY ORDER U/S.155 BY THE AO. ALL THE NECESSA RY DETAILS IN SUPPORT OF THE CLAIM WERE VERY MUCH PLACED ON RECORD BY THE APPELLANT. THE DISALLOWANCE CONFIRMED BY THE CIT(APPEALS) WAS WITH REFERENCE TO THE UNREALIZED EXPORT TURNOVER, WHICH CAME TO BE RECTIF IED LATER BY THE AO U/S.155 AND OTHER ITEMS NOT CONSIDERED FOR ELIGIBLE DEDUCTION (SINCE THEY WERE HELD TO HAVE NOT BEEN DERIVED FROM THE EO U). THUS, IT CANNOT BE SAID THAT APPELLANT FURNISHED ANY INACCURATE PAR TICULARS OF THE DEDUCTION CLAIMED OR CONCEALED ANY PARTICULARS. IN THE CASE RELIED ON BY THE ID. A.R. OF ACIT VS. DSL SOFTWARE LTD. (147 TTJ 67) (DELHI) (2012), IT WAS HELD AS UNDER: - 'IN TERMS OF PROVISIONS OF SEC. 10A(5) AND 80HHE(4) DEDUCTION UNDER THESE SECTIONS IS NOT ADMISSIBLE UNLESS ASSES SEE FURNISHES IN THE PRESCRIBED FORM, ALONG WITH THE RETURN OF IN COME, REPORT OF AN ACCOUNTANT, AS DEFINED IN EXPLANATION BELOW SUB- SECTION (2) OF SECTION 288, CERTIFYING THAT DEDUCTION HAS BEEN COR RECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THESE SECTIONS . THE ASSESSEE HAD GIVEN ALL THE PARTICULARS OF INCOME AND HAD DIS CLOSED ALL FACTS TO THE AO IN RELATION TO CLAIM FOR DEDUCTION U/S. 1 0A & 80HHE OF THE ACT. HE HAD DISCHARGED THE ONUS CAST ON IT IN T ERMS OF EXPLANATION 1 TO SEC. 271(L)(C) OF THE ACT. DISALLO WANCE OF CLAIM FOR DEDUCTIONS U/S.WA & 80HHE IN RELATION TO UNREAL IZED EXPORTS OR DISALLOWANCE OF AN ESTIMATED AMOUNT, HAVING RECO URSE TO PROVISIONS OF SEC. 14A THE ACT CANNOT BE CONSIDERED AS CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS THEREOF, ESPECIALLY WHEN ALL THE RELEVANT PARTICULA RS WERE DISCLOSED BEFORE THE AO. MERE ERRONEOUS CLAIM IN AB SENCE OF ANY CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS IS NO GROUND FOR LEVYING PENALTY, ESPECIALLY WHEN THERE IS NOTHI NG ON RECORD TO SHOW EXPLANATION OFFERED BY ASSESSEE WAS NOT BONA F IDE OR ANY MATERIAL PARTICULARS WERE CONCEALED OR FURNISHED IN ACCURATE. ORDER OF CIT(A) UPHELD.' IT IS ALSO SEEN THAT IN THE CASE OF CIT VS. KAS MOV IE (P) LTD. [2012] 207 TAXMAN 183 (MAG.) (DELHI), IT WAS HELD THAT WHERE C LAIM OF ASSESSEE FOR DEDUCTION U/S.80HHF WAS REJECTED ON THE GROUND THAT BASIC CONDITION FOR CLAIM OF DEDUCTION U/S.80HHF WAS NOT SATISFIED BY THE ASSESSEE, LEVY OF PENALTY U/S.271(L)(C) WAS NOT CALLED FOR. F URTHER, IN THE CASE OF GEETA PRINGS (P.) LTD. VS. ASSTT. CIT [2012] 247 CT R 620 (GUJ.), IT WAS HELD AS UNDER: - 'THE ASSESSEE HAD MADE FULL DISCLOSURE ABOUT THE CL AIM. THE CLAIM WAS ALSO CERTIFIED BY THE CHARTERED ACCOUNTANT. NEC ESSARY ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 59 DECLARATIONS IN THE PRESCRIBED FORMS WERE MADE, MAY BE, IN THE CASE OF THE ASSESSEE, SUCH CLAIM ON MERITS WAS NOT GRANTED. HOWEVER, THIS DID NOT MEAN THAT THE ASSESSEE HAD CO NCEALED ANY INCOME. FURTHER, THE ISSUE ULTIMATELY AT ANY RATE W AS DEBATABLE SINCE ONE HIGH COURT HAS ALREADY HELD IN FAVOUR OF THE ASSESSEE. WHEN NO INFORMATION AS GIVEN IN RETURN WAS FOUND TO BE INCORRECT, PENALTY COULD NOT BE IMPOSED.' KEEPING IN VIEW THE FACTS OF THE CASE AND THE ABOVE STATED CASE LAWS, I AM OF THE VIEW THAT IMPUGNED PART DISALLOWANCE OF T HE DEDUCTION CLAIMED U/S.10B DOES NOT ATTRACT THE PENAL PROVISIO NS OF SECTION 271(L)(C). PENALTY LEVIED WITH REFERENCE TO THE SAI D DISALLOWANCE IS NOT SUSTAINABLE. 107. FURTHER, IN THE QUANTUM APPEAL, WE HAVE OBSERV ED THAT UNREALIZED EXPORT TURNOVER EXCLUDED FROM THE ELIGIBLE PROFIT F OR GRANT OF DEDUCTION UNDER SECTION 10(B) OUGHT TO BE EXCLUDED FROM THE TOTAL T URNOVER. WE HAVE DIRECTED THE AO TO RE-CALCULATE THE DEDUCTION ADMISSIBLE TO THE ASSESSEE, AFTER THIS EXERCISE. THE LD.CIT(A) IN QUANTUM APPEAL FURTHER DID NOT CONCUR WITH THE CONTENTION OF THE AO THAT CUSTOM DUTY OUGHT TO BE R E-ALLOCATED ON THE BASIS OF RAW-MATERIAL IMPORTS IN EOU AND NON-EOU UNITS. WE HAVE CONFIRMED ACTION OF THE LD.CIT (A) BY HOLDING THAT IN EOU UNITS NO CUST OM DUE WAS PAYABLE, AND THEREFORE, THERE IS NO REQUIREMENT OF RE-ALLOCATING CUSTOM DUTY IN EOU UNITS FROM NON-EOU UNITS. THUS, THIS ADDITION HAS NOT BE EN UPHELD BY THE TRIBUNAL, AND THEREFORE, PENALTY QUA THIS ITEM COULD NOT BE IMPOSED UPON THE ASSESSEE. 108. SIMILARLY, IN THIS VERY ORDER, WE HAVE REJECTE D GROUND NO.7 IN REVENUES QUANTUM APPEAL BY HOLDING THAT EXPENDITURE FROM NON -EOU UNITS OUGHT NOT TO BE ALLOCATED TO EOU UNITS FOR THE PURPOSE OF DEDUCT ION UNDER SECTION 10(B). ON AN ANALYSIS ALL THESE RECORDS WOULD INDICATE THA T THE LD.CIT(A) HAS APPRECIATED THE CONTROVERSY IN RIGHT PERSPECTIVE AN D HELD THAT ON THE ADJUSTMENT MADE IN THE ELIGIBLE DEDUCTION UNDER SEC TION 10(B) THE ASSESSEE DOES NOT DESERVES TO BE VISITED WITH PENALTY. THIS GROUND OF APPEAL RAISED BY THE REVENUE IS REJECTED. 109. GROUND NO.3 AND 4 IN THE REVENUES APPEAL RELA TED TO VISITING THE ASSESSEE WITH PENALTY WITH REGARD TO THE ADJUSTMENT MADE IN THE AMOUNT OF DEDUCTION ADMISSIBLE UNDER SECTION 10(B) OF THE ACT . WE DO NOT FIND ANY REASONS TO INTERFERE IN THE FINDING OF THE LD.CIT(A ) BECAUSE THE ASSESSEE HAS ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 60 NOT FURNISHED ANY INACCURATE PARTICULARS OF INCOME QUA THIS CLAIM FOR DEDUCTION UNDER SECTION 10(B). HENCE, ADJUSTMENT HAS BEEN MA DE SIMPLY FOR THE REASONS THAT THE ASSESSEE HAS INCLUDED UNREALIZED E XPORT IN THE ELIGIBLE DEDUCTION ON THE BASIS OF CERTIFICATE OF THE CHARTE RED ACCOUNTANT. THEREFORE, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVEN UE. IT IS DISMISSED. 110. AS FAR AS APPEAL OF THE ASSESSEE IS CONCERNED THE FIRST ITEM ON WHICH PENALTY HAS BEEN CONFIRMED IS ADDITION OF RS.28,01, 598/-. THIS ADDITION HAS BEEN MADE WITH THE AID OF SECTION 145A OF THE ACT. 111. WE HAVE ALREADY SET ASIDE THIS ISSUE TO THE FI LE OF THE LD.CIT(A) WHILE DEALING WITH GROUNDS RAISED BY THE ASSESSEE IN ITS QUANTUM APPEAL, HENCE, PENALTY CANNOT BE IMPOSED ON THIS ITEM. 112. NEXT ITEM ON WHICH PENALTY HAS BEEN CHALLENGED IS ON ADDITION OF RS.3,17,294/-. THIS ADDITION WAS MADE BY THE AO O N THE GROUND THAT ON RECONCILIATION OF INCOME REFLECTED IN TDS CERTIFICA TE, THE ASSESSEE HAS NOT OFFERED ANY INCOME OF RS.3,17,349/-. THE CASE OF T HE ASSESSEE IS THAT THIS AMOUNT HAS BEEN OFFERED IN SUBSEQUENT YEARS BECAUSE IT WAS NOT REALIZED IN THIS YEAR. THOUGH ON THE BASIS OF CREDIT TAKEN IN THE TDS CERTIFICATE, ADDITION HAS BEEN MADE, BUT IT IS PERTINENT TO OBSERVE THAT IN EVERY ASSESSMENT YEAR, THE ASSESSEE HAS BEEN OFFERING PRIOR PERIOD INCOME. THUS, POSSIBILITY OF ITS RECONCILIATION IN SUBSEQUENT YEAR CANNOT BE RULED O UT. THE ASSESSEE CANNOT BE DESERVED TO BE VISITED WITH PENALTY ON THIS ADDITIO N. 113. NEXT ITEM RELATES TO ADDITION OF RS.2,40,940/- . ACCORDING TO THE AO AS PER 3CD REORT, ESIC OUTSTANDING AT THE END OF YEAR WAS SHOWN AT RS.1,96,709/- WHEREAS AS PER THE GROUPINGS OF BALAN CE SHEET, ESI OUTSTANDING PAYABLE WAS OF RS.4,53,004/-. THE AO MADE ADDITION OF DIFFERENTIAL UNDER SECTION 43B OF THE ACT. THE CASE OF THE ASSESSEE I S THAT IN FROM NO.3CD REPORT OUTSTANDING WAS SHOWN AT RS.1,96,709/-. THI S AMOUNT HAS BEEN ADDED BACK. THEREFORE, THE AO OUGHT TO HAVE NOT TAKEN CO GNIZANCE OF OTHER AMOUNTS. ON DUE CONSIDERATION OF THE FACTS, WE ARE OF THE VIEW THAT ON ACCOUNT OF SOME DIFFERENCE OF OPINION, WITH REGARD TO ACCOUNTING ENTRY THIS ADDITION HAS BEEN MADE. IN THE FORM 3CD THE ASSESS EE HAS SHOWN ITA NO.692 /AHD/2011 AND 7 OTHERS ACIT VS. DISHMAN PHARMACEUTICALS & CHEMICALS 61 OUTSTANDING OF RS.1,96,709/- AND THIS AMOUNT HAS BE EN ADDED BACK BECAUSE IT WAS NOT ACTUALLY PAID TO ESIC ACCOUNT. OTHER AMOUN T MENTIONED FOR MAKING ADDITION IS AVAILABLE IN THE BALANCE SHEET AND NOT IN 3CD REPORT. THERE MUST BE SOME COMMUNICATION GAP OR SOME RECONCILIATION RE QUIRED, BUT IT CANNOT BE SAID THAT THE ASSESSEE HAS FURNISHED INACCURATE PAR TICULARS OF THIS ITEM. THE LD.CIT(A) IS NOT JUSTIFIED IN CONFIRMING PENALTY. P ENALTY IS ACCORDINGLY DELETED. 114. NEXT ITEM ON WHICH THE ASSESSEE HAS BEEN VISIT ED WITH PENALTY RELATES TO THE ADDITION OF RS.2,86,051/-. THE ASSESSEE HAS MADE PAYMENT OF CERTAIN ADVANCES FOR PURCHASE OF MACHINERY. IT DID NOT PUR CHASE MACHINERY AND COULD NOT REALIZE THE ADVANCE PAID BY IT. IT CLAIMED AS BAD DEBTS. THE LD.CIT(A) HAS OBSERVED THAT IT IS CAPITAL LOSS AND IT CANNOT BE C LAIMED UNDER SECTION 36(2) OF THE ACT. ON DUE CONSIDERATION OF THE ABOVE FACTS, WE ARE OF THE VIEW THAT THE ASSESSEE HAS DISCLOSED COMPLETE PARTICULARS OF ITEM AND CLAIMED IT ON THE GROUND THAT WAS A BUSINESS LOSS, BECAUSE IT COULD N OT RECOVER THE MONEY GIVEN TO THE SUPPLIERS. THE DIFFERENCE OF OPINION BETWEE N THE ASSESSEE AND THE REVENUE IS WHETHER IT WAS A REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. THE REVENUE DISALLOWED THE CLAIM BY IT, TREATING IT AS A CAPITAL EXPENDITURE. CONSIDERING THE STAND OF THE ASSESSEE, IT CANNOT BE SAID THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME. THEREF ORE, NO PENALTY IS IMPOSABLE ON THIS ADDITION ALSO. 115. IN THE RESULT, WE ALLOW APPEAL OF THE ASSESSEE AND DELETE PENALTY CONFIRMED BY THE LD.CIT(A), WHEREAS THE APPEAL OF T HE REVENUE IS DEVOID OF ANY MERIT, HENCE DISMISSED. 116. IN COMBINED RESULT, ALL APPEALS OF THE REVENUE ARE DISMISSED. ASSESSEES CO NO.89/AHD/2011 IS PARTLY ALLOWED. AS SESSEES APPEAL IN ITA NO.3086/AHD/2013 IS ALLOWED AND ITA NO.773/AHD/2011 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 23 RD MAY, 2018 AT AHMEDABAD. SD/- SD/- ( AMARJIT SINGH ) ACCOUNTANT MEMBER ( RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 23 /05/2018