Appeal details
Counselvise Citation
[2016] 121 COUNSELVISE.COM (IT) 3677 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 11 month(s) 4 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
15-01-2016
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
K
Next Hearing Date
18-02-2015
Assessment Year
2009-2010
Appeal Filed On
10-02-2014
Judgement Text
, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE S/SHRI SAKT IJIT D E Y , JUDICIAL MEMBER AND N.K.BILLAIYA , ACCOUNTANT MEMBER ./ I.T.A. NO. 915 /MUM/201 4 ( / ASSESSMENT YEA R: 200 9 - 10 ) YASH JEWELLERY PVT LTD., GALA NO.603 AND 604, BLOCK NO.1 SEEPZ - SEZ, SEEPZ ++, ANDHERI (E), MUMBAI - 400096 / VS. DY. COMMISSIONER OF INCOME TAX RANGE 8 ( 3 ), AAYAKAR BHAVAN, 2 ND FLOOR, M.K.ROAD, MUMBAI - 400020 ./ ./P AN/GIR NO. : AAACY2834R ( / APPELLANT ) .. ( / RESPONDENT ) / ASSESSEE BY : MS.AARTI VISANJI / RE VENUE BY : SHRI N K CHAND / DATE OF HEARING : 09.11 . 201 5 / DATE OF PRONOUNCEMENT : 15.01.2016 / O R D E R PER SAKT IJIT DE Y, JM THE PRESENT APPEAL OF THE ASSESSEE IS AGAINST THE ASSESSMENT ORDER PASSED UNDER SECTION 143 (3) R.W.S.144C(5) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2009 10, PURSUANT TO THE DIRECTION OF DISPUTE RESOLUTION PANEL (DRP) . 2. THE ASSESSEE HAS RAISED SIX GROUNDS IN THE APPEAL. GROUNDS NO.5 AND 6 BEING GENERAL IN NATURE DO NOT REQUIRE ANY SPECIFIC ADJUDICATION. I.T.A.NO. 915 /MUM/201 4 2 3. AT THE TIME OF HEARING , THE LEARNED COUNSEL APPEARING FOR THE ASSESSEE EXPRESSED HER INTENTION OF NOT PRESSING GROUND NO.3 , HENCE GROUND NO.3 IS DISMISSED AS NOT PRESSED. 4. THIS LEAVES US WITH GROUND NO.1, 2 AND 4. OFF - COURSE, ASSESSEE HAS RAISED ONE MORE ADD ITIONAL GROUND WHICH WILL BE DEALT WITH IN DUE COURSE. 5. THE GROUND NO.1 TAKEN BY THE ASSESSEE READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE HON' MEMBERS OF DISPUTE RESOLUTION PANEL [DRP] OUGHT TO HAVE DIRECTED THE ASSESSIN G OFFICER [A O ] TO DELETE THE NOTIONAL ADJUSTMENT OF INTEREST ON DELAYED PAYMENT FROM ASSOCIATED ENTERPRISE OF RS. 18,89,938/ - IN ITS ENTIRETY . 6. FACTS RELATING TO THIS ISSUE ARE , ASSESSEE AN INDIAN COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SA LE OF STUDDED JEWELLERY. FOR THIS PURPOSE ASSESSEE HAS SET UP A UNIT IN SEEPZ, ANDHERI (E), MUMBAI . TO B RIEFLY DESCRIBE BUSINESS PROFILE OF THE ASSESSEE , I T IS A PART OF DYNAMICS JEWELLERY GROUP WHICH HAS IT BUSINESS IN INDIA AS WELL AS ABROAD BUT ARE CA TERING TO THE MARKET IN USA. JEWEL AMERICA INC IS A PREMIUM MARKETER, MANUFACTURER AND DISTRIBUTOR OF FINE JEWELLERY, SERVING ALL MAJOR RETAILERS IN USA. LOOKING AT THE MARKET DEMAND JEWEL AMERICA INC PROCURES JEWELLERY FROM DYNAMICS JEWELLERY GROUP C OMPANIES I N INDIA INCLUDING THE ASSESSEE. THUS, JEWEL AMERICA OPERATES AS A DISTRIBUTOR ON WHOLESALE BASIS FOR THE JEWELLERY MANUFACTURED BY ITS GROUP COMPANIES IN INDIA. DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS ENTERED INTO INTERNATIONAL TRANS ACTION RELATING TO EXPORT OF JEWELLERY TO BOTH ASSOCIATED ENTERPRISES (AES) AND NON AES. IN THE RETURN FILED IN FORM NO.3CEB, ASSESSEE REPORTED THE FOLLOWING INTERNATIONAL TRANSACTIONS WITH AES . I.T.A.NO. 915 /MUM/201 4 3 S.NO. NATURE OF INTERNATIONAL TRANSACTIONS AMOUNT IN RS. METHOD BY ASSESSEE 1 SALE OF STUDDED JEWELLERY TO JEWEL AMERICA INC, USA 159,10,66,810 TNMM 2 SALE OF STUDDED JEWELLERY TO ANSARI H K CO.LTD, HONGKONG 8 5 , 9 75 TNMM 3 PURCHASE OF CUT AND POLISHED DIAMONDS, ETC, FROM JEWEL AMERICA INC. USA 44,13,864 TNM M 4 PURCHASE OF COLOUR STONES FROM ANSARI H K CO.LTD, HONGKONG. 51,60,114 TNMM 5 PURCHASE OF CUT AND POLISHED DIAMONDS, ETC, FROM ANSARI H K CO.LTD, HONGKONG 22,56,310 TNMM 6 PURCHASE OF GOLD FROM ANSARI H K CO.LTD, HONGKONG 17,84,714 TNMM 7 PURCHAS E OF COLOUR STONES FROM ANSARI H K CO.LTD, THAILAND 23,26,245 TNMM THE TPO ON VERIFICATION NOTICED THAT THE ASSESSEE HAS AGGREGATED BOTH SALE OF JEWELLERY TO A.ES AND PURCHASE OF RAW MATERIALS FROM AES . FOR B ENCH MARKING PRICE CHARGED FOR INTERNATIONA L TRANSACTIONS TNMM WAS CHOSEN AS MOST APPROPRIATE METHOD. THE ASSESSEE HAS SELECTED 12 COMPANIES AS COMPARABLES WITH AVERAGE MAR G IN OF 4.46% ON COST. AS ASSESSEES MARGIN IN AE SEGMENT WAS SHOWN AT 13.67%, AND ENTITY LEVEL MARGIN AT 8.90 PERCENT , T HE P RICE CHARG ED FOR INTERNATIONAL TRANSACTIONS WITH AE WERE FOUND TO BE WITHIN ARMS LENGTH AS PER TRANSFER PRICING STUDY . T O FIND OUT THE CORRECTNESS OF ASSESSEES CLAIM , THE TPO UNDERTOOK A SEARCH PROCESS INDEPENDENTLY AND SHORT LISTED 29 COMPARABLE COMP ANIES WITH AVERAGE ARITHMETIC MEAN AT 5.75% ON COST. HE OBSERVED THAT IF EFFECT OF FOREIGN EXCHANGE FLUCTUATION IS CONSIDERED THEN MARGIN WOULD BE AT 4.18 % ON COST. WHEREAS , ASSESSEES MARGIN IN CLUDING FOREIGN EXCHANGE FLUCTUATION COMES TO 8.90% ON COST AND EXCLUDING FOREIGN EXCHANGE FLUCTUATION COMES TO 8 . 94% ON COST . A S THE MARGIN REPORTED BY THE ASSESSEE WAS HIGHER THAN THE MARGIN OF THE COMPARABLE COMPANIES SELECTED BY THE TPO , PRICE CHARGED BY THE ASSESSEE FOR INTERNATIONAL TRANSACTIONS WITH ITS AES WAS ACCEPTED AS WITHIN ALP. I.T.A.NO. 915 /MUM/201 4 4 HOWEVER, THE TPO ON FURTHER VERIFICATION NOTICED THAT THE EXPORT OF GOODS WORTH RS.159.12 CRORES TO ITS AES JEWEL AMERICA INC CONTAINS TRANSACTIONS WHERE EXPORT RECEIVABLE WERE RECEIVED OUTSIDE THE CREDIT PERIOD MENTI ONED IN THE INVOICES. H, THEREFORE, CALLED UPON ASSESSEE TO EXPLAIN WHY INTEREST FOREGONE ON DELAYED EXPORT RECEIPT SHOULD NOT BE ADJUSTED AGAINST THE TRANSACTIONS WITH A.E. HE ALSO CALLED UPON THE ASSESSEE TO SUBMIT THE INVOICE WISE DETAIL ED WORKING OF EXPORT RECEIPTS AND INTEREST CHARGEABLE FOR SUCH DELAY. AFTER EXAMINING THE DATA FURNISHED BY THE ASSESSEE IT WAS NOTICED BY THE TPO THAT WHILE IN CASE OF AE THERE IS A DELAY OF EVEN MORE THAN ONE YEAR IN REALISATION OF THE EXPORT RECEIVABLE S ON CERTAIN INSTANCES IN CASE OF NON - AE SUCH DELAY DO NOT EXCEED 180 DAYS WHICH IS NORMAL CREDIT PERIOD GIVEN TO AE. ACCORDINGLY, TPO TABULATED THE TRANSACTION S WITH AE WHERE DELAY IN RECEIPT IS MORE THAN 180 DAYS. FOR JUSTIFYING THE DELAY IN RECEIVING THE EXPORT R ECEIVABLES THE ASSESSEE SUBMITTED AS UNDER: 10.2 THE NORMAL CREDIT PERIOD GRANTED FOR SALES TO AE IS 180 DAYS. UP TO SEPTEMBER 2008, MAJORITY OF RELATIONS WITH NORMAL CREDIT PERIOD. LN RESPECT OF SALES MADE FROM OCTOBER 2008, THE REALISATION IS NOT WITHI N THE NORMAL CREDIT PERIOD. THE ASSESSEE SUBMITTED THAT NO INTEREST IS CHARGED FOR THIS DELAY DUE TO: I. SLOW DOWN IN WORLD ECONOMY, MORE PARTICULARLY US MARKET TO WHICH THE ASSESSEE COMPANY CATERS TO. THIS FACTOR ON STANDALONE BASIS RESULTED INTO DELAY IN REALISATION OF DEBT IN THE HANDS OF THE ASSESSEE COMPANY. II. REJECTIONS BY THE END CUSTOMER OF THE AE RESULTING IN RECTIFICATIONS AND CONSEQUENTLY, DELAY IN ACCEPTANCE OF THE GOODS BY THE AE. III. JEWEL AMERICA INC USA PLAYS THE ROLE OF DISTRIBUTIN G OF JEWELLERY AND SERVICES JEWELLERY RETAILERS IN YEARS. THERE WAS CONSIDERABLE DELAY IN ACCEPTANCE OF GOODS BY THE RETAIL CUSTOMERS, WHICH RESULTED INTO DELAY IN SALES AND CONSEQUENTLY, DELAY IN REALIZATION IN THEIR HANDS. I.T.A.NO. 915 /MUM/201 4 5 IV. SUCH DELAYS ARE NORMAL FEATURE KEEPING IN VIEW THE DYNAMICS OF BUSINESS. V. IN OPTIONS OF RELATIONSHIP OF LENDER AND BORROWER, THERE ARE NO SUCH EXPLICIT PROVISIONS UNDER THE ACT, WHICH PROVIDES FOR CHARGING OF INTEREST ON DELAYED DATES FROM THE ASSOCIATED ENTERPRISES IN THE ABSENCE OF ANY CONTRACTUAL OBLIGATION. IN THIS RESPECT, THE ASSESSEE RELIED ON THE DECISIONS OF ITAT MUMBAI IN THE CASE OF NIMBUS COMMUNICATION LTD AND ITAT PUNE IN THE CASE OF PATNI COMPUTER SYSTEMS LIMITED. VI. THERE ARE DELAYS IN THE R E A L ISA TION OF D EBT FROM NON - ASSOCIATED ENTERPRISES ALSO AND NO INTEREST CHARGED BY THIS COMPANY TO THEM. THEREFORE THERE IS NO DIFFERENCE IN TERMS WITH ASSOCIATED ENTERPRISES AND NON - ASSOCIATED ENTERPRISES. VII. ADJUSTMENT BY WAY OF INTEREST ON DELAYED DEBT, IF IT ALL , HAS TO BE MADE, THEN THE SAME HAS TO BE BY WAY OF ADJUSTMENT TO THE SELLING PRICE CHARGED BY THE ASSESSEE COMPANY TO JEWEL AMERICA INC USA AND NOT BY WAY OF ASSESSING/CHARGING INTEREST INCOME SEPARATELY AS THERE IS NO LOAN / ADVANCE GRANTED BY THE ASSESS EE COMPANY TO AE'S BUT THE RELATIONSHIP IS THAT OF A DEBTOR AND CREDITOR. IN THIS I RESPECT, THE ASSESSEE RELIED .ON THE DECISION OF COX & KING INDIA PVT LTD V. ITO [ 2010] 42 SOT 15 (MUM) (URO). 7 . THE TPO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE HOWEVER DID NOT FIND MERIT IN THE PLEAS. HE OBSERVED , THE ASSESSEE HAS EXTENDED CREDIT FACILITIES TO ITS AE . T HOUGH , LENDING OR BORROWING IS NOT ONE OF THE ACTIVITY OF THE BUSINESS, H OWEVER, ASSESSEE HAS NOT CHARGED ANY INTEREST OR COMPENSATION FOR PROV IDING CREDIT FACILITIES PROVIDED BY ONE PARTY TO ANOTHER. HE OBSERVED , BY NOT CHARGING INTEREST FOR THE EXTENDED PERIOD. A SSESSEE HAS PASSED ON A TANGIBLE BENEFIT IN THE FORM OF EXTENDED CREDIT FACILITIES TO ITS AE AS A RESULT OF WHICH TAX BASE OF ASSESS EE S TA NDS TRANSFERRED TO A.E. THEREBY, CAUSING AVOIDANCE OF TAX IN INDIA. FROM THE DETAILS OF LOANS AS WELL AS OTHER MATERIALS AS CALLED FOR, THE TPO NOTICED THAT THE AVERAGE COST OF BORROWED FUNDS WORKS OUT TO 9.20%. HE FURTHER WAS OF THE VIEW THAT AS T HE EXTENDED CREDIT FACILITIES TO AE IS LIKE A SHORT I.T.A.NO. 915 /MUM/201 4 6 TERM LOAN WITHOUT ANY SECURITY, THE ASSESSEE IS BEARI NG FOREIGN EXCHANGE FLUCTUATION RISK AND ON THAT ACCOUNT ASSESSEE DESERVES TO GET SOME PROFIT AND ALSO FOR THE RISK HE IS BEARING ON ACCOUNT OF FACT TH AT AE IS NOT IN FINANCIALLY GOOD POSITION INDICATING A POOR CREDIT WORTHINESS. FOR THESE REASONS, HE ADDED FURTHER AMOUNT OF 3% PER ANNUM TO THE AVERAGE INTEREST RA TE ON SECURED LOANS OBTAINED BY THE ASSESSEE DURING THE PREVIOUS YEAR. THUS, THE TPO ADOPTIN G INTEREST RATE OF 12.30% PER ANNUM ON THE DELAYED REALISATION OF DEBTS FROM THE AE WORKED OUT THE NOTIONAL INTEREST AT RS.18,89,938 / - WHICH WAS TREATED AS ADJUSTMENT TO THE ALP. ON THE BASIS OF THE ORDER PASSED BY THE TPO , THE AO FRAMED DRAFT ASSESSMENT INCORPORAT ING ADJUSTMENT SUGGESTED BY THE TPO . BEING AGGRIEVED BY THE SAID ADJUSTMENT MADE TO THE ALP, THE ASSESSEE FILED OBJECTION S BEFORE THE DRP. THE DRP WHILE UPHOLDING THE CHARGING OF INTEREST @ 9.30%, H OWEVER, DELETED THE ADDITIONAL 3 % INTEREST C HARGED BY THE TPO ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION RISK. IN TERMS WITH THE DIRECTION OF DRP , AO HAS PASSED THE IMPUGNED ASSESSMENT ORDER. 8 . THE LD. AR REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE DEPARTMENTAL AUTHORITIES AND FURTHER SUBM ITTED , THE TP O HAVING FOUND PRICE CHARGED BY ASSESSEE FOR THE TRANSACTION WITH A.E. WITHIN ARM S LENGTH , NO SEPARATE ADJUSTMENT ON ACCOUNT OF DELAY IN REALISATION OF EXPORT RECEIVABLES SHOULD HAVE BEEN MADE. SHE SUBMITTED , THERE IS NO DISPUTE TO THE FA CT THAT THE TPO HAS ACCEPTED THE MARGIN REPORTED BY THE ASSESSEE FROM EXPORT MADE TO JEWEL AMERICA INC WHICH IS MUCH HIGHER THAN THE MARGIN OF THE COMPARABLES COMPANIES. THEREFORE, IF AT ALL ANY ADJUSTMENT ON ACCOUNT OF DELAY HAS TO BE MADE THAT SHOULD NO T BE TREATED AS A SEPARATE TRANSACTION BUT HAS TO BE ADJUSTED AGAINST THE MAR G IN SHOWN BY THE ASSESSEE. SHE SUBMITTED , EVEN AFTER INCLUDING THE FOREIGN EXCHANGE FLUCTUATION ASSESSEES MARGIN IS MUCH MORE THAN THE COMPARABLE COMPANIES. IN THIS CONTEXT SHE DREW OUR ATTENTION TO THE MARGIN WORKED I.T.A.NO. 915 /MUM/201 4 7 OU T BY THE TPO BY INCLUDING AND EXCLUDING FOREIGN EXCHANGE FLUCTUATION RATE IN HIS ORDER. SHE SUBMITTED , AS THE MARGIN OF THE ASSESSEE AT 8.90% AND 8.94% IS MUCH HIGHER THAN THE MARGIN OF 5.75% AND 4.18% OF THE COMPA RABLES SELECTED BY THE TPO HIMSELF , SU CH HIGHER MARGIN SHOWN BY THE ASSESSEE TAKES CARE OF THE ADJUSTMENT TO BE MADE ON ACCOUNT OF DELAYED CREDIT FACILITIES. SHE SUBMITTED , THE PRICE CHARGED BY THE ASSESSEE TO ITS AES IS TAK ING INTO CONSIDERATION SUCH CRED IT FACILITIES. SHE, THEREFORE, SUBMITTED THAT NO SEPARATE ADJUSTMENT ON ACCOUNT OF DELAYED REALISATION OF EXPORT RECEIVABLES SHOULD BE MADE. FOR SUCH PROPOSITION SHE RELIED UPON THE FOLLOWING DECISIONS: A) TECNIMONT ICB HOUSE V/S DCIT ITA NO.487/ MUM/2014 (AY - 2009 - 10) DATED 8.7.2015 B) KUSUM HEALTHCARE PVT LTD V/S ACIT - ITA NO.6814/DEL/2014 (AY - 2010 - 11) DATED 31.3.2015 C) M/S GOLD STAR JEWELLERY LTD V/S JCIT - ITA NO.6570/MUM/2012 (AY - 2008 - 09) DATED 14.1.2015 ALTERNATIVELY, SHE SUBMITTED , IF AT ALL SEPARATE ADJUSTMENT ON ACCOUNT OF DELAYED CREDIT FACILITIES HAS TO BE MADE T HEN DOMESTIC P L R CANNOT APPLY AS TRANSACTION BETWEEN THE ASSESSEE AND AE IS INTERNATIONAL TRANSACTION , HENCE, INTERNATIONAL LENDING RATE WOULD APPLY. SHE SUBMITTED , AS THE TPO IN THE COURSE OF PROCEEDINGS HAS HIMSELF WORKED OUT LIBOR RATE OF 2.69% THAT SHOULD BE ADOPTED AS THE RATE OF INTEREST. SHE SUBMITTED , EVEN IF LIBOR RATE OF 2 . 6 9 % IS APPLIED TO THE MAR G IN SHOWN BY THE ASSESSEE IT WOULD STILL BE HIGHER THAN THE MARGIN OF COMPARABLE COMPANIES REQUIRING N O FURTHER ADJUSTMENT. 9 . THE LD . DR, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE HAS C OMPUTED MARGIN OF ITS INTERNATIONAL TRANSACTIONS BY ADOPTING TNMM , THEREFORE, HE MUST HAVE CONSIDERED THE NET MARGIN BY TAKING INTO I.T.A.NO. 915 /MUM/201 4 8 CONSIDERATION ALL ASPECTS, HENCE , IT IS FOR THE ASSESSEE TO PROVE WITH DOCUMENT ARY EVIDENCE THAT WHILE NEGOTIATING THE PRICE CREDIT FACILITIES WAS ALSO FACTOR ED IN. REFERRING TO RULE 10D(K) AND (L), THE LD.DR SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED ANY DOCUMENTATION FOR PRICE NEGOTIATION TO SHOW THAT THE ADJUSTMENT TO BE MADE IN WORKING CAPITAL ON ACCOUNT OF CREDIT FACILITY IS ALREADY SUBSUME D IN THE PRICE. HENCE, RETROFITTING OF SUCH ADJUSTMENT TO THE PRICE CHARGED IS NOT PERMISSIBLE. HOWEVER, THE LD.DR AGREED THAT INTEREST CAN BE CHARGED AT LIBOR RATE. HE ALSO RELIED UPO N THE DECISION OF ITAT, PUNE BENCH IN THE CASE OF IGATE COMPUTER SYSTEM LTD V/S ADL.CIT IN ITA NO.2504/PN/2012 (AY - 2005 - 06) DATED 27.5.2015 . 10 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE DECISI ONS CITED AT THE BAR . THERE IS NO DISPUTE TO THE FACT THE MARGIN SHOWN BY THE ASSESSEE FOR INTERNATIONAL TRANSACTIONS WITH A.E. IS REASONABLY HIGHER THAN THE MARGIN SHOWN BY THE COMPARABLE COMPANIES. IT IS ALSO NOT DISPUTED THAT IN SOME INSTANCES CREDIT FACILITIES PROVIDED BY THE ASSESSEE TO ITS AE EXTENDED BEYOND THE PERIOD OF 180 DAYS. AS FAR AS PROVIDING SUCH EXTEN DED CREDIT FACILITY IS CONCERNED, IT COMES WITHIN THE SCOPE AND AMBIT OF INTERNATIONAL TRANSACTION AS DEFINED U/S 92B OF THE ACT AS HELD IN A NUMBER OF JUDICIAL PRECEDENTS. T HEREFORE, WE HAVE TO PROCEED ON THE BASIS THAT EXTENDED CREDIT FACILITY TO AE IS AN INTERNATIONAL TRANSACTION. 11 . HAVING HELD SO, WE HAVE TO EXAMINE WHETHER THE ADJUSTMENT TO ALP MADE BY THE TPO AND UPHELD BY THE DRP ON ACCOUNT OF SUCH EXTENDED CREDIT FACILITIES IS VALID OR NOT. AS STATED EARLIER , THE MARGIN SHOWN BY THE ASSESSEE OF INTERNATIONAL TRANSACTION WITH ITS AE IS AT 13.67 % ON CO S T AND AT ENTITY LEVEL IS 8.9 % ON COST. EVEN INCLUDING FOREIGN EXCHANGE FLUCTUAT ION, THE MARGIN OF THE ASSESSEE AT ENTITY LEVEL IS 8.94 % ON COST. THUS, AS COULD BE SEEN THE MARGIN SHOWN BY THE ASSESSEE IS REASONABLY I.T.A.NO. 915 /MUM/201 4 9 HIGHER THAN THE AVERAGE MARGIN OF THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE AS WELL AS TPO HIMSELF . THAT BEING THE CASE, IT IS TO BE SEEN WHETHER SEPARATE ADJUSTMENT IS STILL REQUIRED ON ACCOUNT OF EXTENDED CREDIT FACILITIES. IT IS THE CONTENTION OF THE LD.COUNSEL BEFORE US THAT CONSIDERING THE MARGIN SHOWN BY THE ASSESSEE NO SEPARATE ADJUSTMENT CAN BE MADE ON AC COUNT OF CREDIT FACILITY A S ELEMENT OF INTEREST FOR DELAYED PAYMENT IS SUBSUMED IN THE HIGHER MARGIN CHARGED BY THE ASSESSEE. PER CONTRA, IT IS THE CONTENTION OF THE DEPARTMENT THAT ASSESSEE HAS NOT PROVED THROUGH DOCUMENTATION THAT INTEREST COMPONENT FOR DELAYED PAYMENT HAS BEEN FACTORED IN, IN THE PRICE CHARGED. AFTER ANALYSING THE FACTS ON RECORD, WE FIND THAT ASSESSEE HAS PROVIDED EX TE NDED CREDIT FACILITIES AS FAR AS REALISATION OF EXPORT RECEIVABLES TO BOTH A.E AND NON A.E. WITHOUT CHARGING INTEREST. W HILE CREDIT FACILITIES TO NON A.ES HAVE NEVER EXCEEDED 180 DAYS, IN CASE OF A.E. IN SOME INSTANCES IT HAS EXCEEDED 180 DAYS AND EVEN MORE THAN A YEAR. HOWEVER, BEFORE CONCLUDING THAT A TANGIBLE BENEFIT HAS BEEN PASSED ON TO THE A.E. AS A RESULT OF SUCH EXT ENDED CREDIT FACILITY , MARGIN OF BOTH THE TRANSACTIONS VIZ. A.E. AND NON A.E. HAVE TO BE SEEN. IF THERE IS CONSIDERABLE DIFFERENCE BETWEEN THE MARGIN OF A.E. TRANSACTION WITH THAT OF NON A.E. THEN IT NEEDS TO BE EXAMINED WHETHER HIGHER MARGIN CHARGED TO A. E. TAKES CARE OF THE EX TE NDED CREDIT PERIOD FOR REALISATION OF EXPORT SALE PROCEEDS. IN THE PRESENT CASE, UNDISPUTEDLY, THE MARGIN OF A.E. TRANSACTION IS RELATIVELY HIGHER THAN THE MARGIN OF COMPARABLES BROUGHT ON RECORD BOTH BY ASSESSEE AND THE TPO. THAT BEING THE CASE, IT IS ALL THE MORE NECESSARY TO EXAMINE ASSESSEES CLAIM THAT COST INVOLVED DUE TO DELAY IN REALISATION OF EXPORT RECEIVABLES FROM A.E. WAS FACTORED IN WHILE FIXING THE PRICE OF INTERNATIONAL TRANSACTION WITH A.E. HOWEVER, IN OUR VIEW, ASSE SSEE HAS TO ESTABLISH SUCH CLAIM THROUGH PROPER DOCUMENTARY EVIDENCE WHICH, AS IT APPEARS, HAVE NOT BEEN EXAMINED BY TRANSFER PRICING OFFICER OR DRP , NOR THEY ARE BEFORE US. 12. THE NEXT ISSUE WHICH ARISES IS WHETHER ALLOWING EXTENDED CREDIT PERIOD TO A.E . SHOULD BE CONSIDERED AS AN INDEPENDENT INTERNATIONAL TRANSACTION FOR I.T.A.NO. 915 /MUM/201 4 10 BENCHMARKING OR SHOULD BE AGGREGATED WITH OTHER INTERNATIONAL TRANSACTIONS WITH A.E. FOR DETERMINING ALP. IT IS EVIDENT FROM MATERIAL ON RECORD AS WELL AS ORDER OF THE TRANSFER PRICING OFFICER, ASSESSEE HAS BENCHMARKED THE PRICE CHARGED FOR INTERNATIONAL TRANSACTIONS WITH A.ES APPLYING TNMM BY AGGREGATING ALL TRANSACTS VIZ., BOTH PURCHASE AND SALE. TPO HAS ALSO NOT FOUND FAULT WITH THE AFORESAID APPRACH OF THE ASSESSEE. THEREFORE, IN OUR VIEW, CREDIT FACILITY ALLOWED TO A.E. CANNOT BE CONSIDERED ON STAND ALONE BASIS FOR BENCHMARKING BUT HAS TO BE AGGREGATED TO ALL INTERNATIONAL TRANSACTIONS WITH A.E. FOR DETERMINING ARM'S LENGTH PRICE . MORE SO, BECAUSE AS PER RULE 1 0A(D) ALL CLOSELY LINKE D TRANSACTIONS WITH A.ES HAVE TO AGGREGATED AND CLUBBED TOGETHER FOR TRANSFER PRICING. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT EXTENDED CREDIT PERIOD TO A.E. FOR REALISATION OF SALE PROCEEDS IS DIRECTLY RELATED TO AND ARISING OUT OF THE SALE TRANSACT ION. THEREFORE, SALE TRANSACTION WITH A.E. AND RESULTANT EXTENDED CREDIT PERIOD FOR REALISATION OF SALE PROCEEDS ARE TWO SIDES OF A COIN, HENCE, CLOSELY LINKED TRANSACTIONS. THUS, IN TERMS WITH THE STATUTORY PROVISIONS THE TRANSACTION RELATING TO EXTRA CRE DIT PERIOD TO A.E HAS TO BE AGGREGATED WITH THE SALE TRANSACTIONS FOR DETERMINING ALP. THE TRIBUNAL, MUMBAI BENCH, IN M/S. GOLDSTAR JEWELLERY LTD. (SUPRA) WHILE CONSIDERING INDENTICAL ISSUE HELD AS UNDER. THE FIRST ISSUE RAISED BY THE ASSESSEE IS WHETHER THE AGGREGATE PERIOD EXTENDED BY THE ASSESSEE TO THE AE WHICH IS MORE THAN THE AVERAGE CREDIT PERIOD EXTENDED TO THE NON - AE WOULD CONSTITUTE INTERNATIONAL TRANSACTION. WE ARE OF THE VIEW THAT AFTER THE INSERTION OF EXPLANATION TO SECTION 92B(1), THE PAYME NT OR DEFERRED PAYMENT OR RECEIVABLE OR ANY DEBT ARISING DURING THE COURSE OF BUSINESS FALL UNDER THE EXPRESSION INTERNATIONAL TRANSACTION AS PER EXPLANATION. THEREFORE, IN VIEW OF THE EXPANDED MEANING OF THE INTERNATIONAL TRANSACTION AS CONTEMPLATED UNDER CLAUSE (I) (E) OF EXPLANATION TO SECTION 92B(1), THE DELAY IN REALIZATION OF DUES FROM THE AE IN COMPARISON TO NON - AE WOULD CERTAINLY FALLS IN THE AMBIT OF INTERNATIONAL TRANSACTION. HOWEVER, THIS TRANSACTION OF ALLOWING THE CREDIT PERIOD TO AE ON REALIZA TION OF SALE PROCEEDS IS NOT AN INDEPENDENT INTERNATIONAL TRANSACTION BUT IT IS A CLOSELY LINKED OR CONTINUOUS TRANSACTION ALONG WITH SALE TRANSACTION TO THE AE. THE CREDIT PERIOD ALLOWED TO THE PARTY DEPENDS UPON VARIOUS FACTORS WHICH ALSO INCLUDES THE PR ICE CHARGED BY THE ASSESSEE FROM PURCHASER. THEREFORE, THE CREDIT PERIOD EXTENDED BY THE ASSESSEE TO THE AE CANNOT BE EXAMINED INDEPENDENTLY BUT HAS TO BE CONSIDERED ALONG WITH THE MAIN INTERNATIONAL TRANSACTION BEING SALE TO THE AE. AS PER RULE 10A(D) IF A NUMBER OF TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS IN NATURE AND ARISING FROM A CONTINUOUS TRANSACTIONS OF SUPPLY OF AMENITY OR SERVICES THE TRANSACTIONS IS TREATED AS CLOSELY LINKED TRANSACTIONS FOR THE PURPOSE OF TRANSFER PRICING AND, THEREFORE, T HE AGGREGATE AND CLUBBING OF CLOSELY LINKED I.T.A.NO. 915 /MUM/201 4 11 TRANSACTION ARE PERMITTED UNDER SAID RULE. THIS CONCEPT OF AGGREGATION OF THE TRANSACTION WHICH IS CLOSELY LINKED IS ALSO SUPPORTED BY OECD TRANSFER PRICING GUIDELINES. IN ORDER TO EXAMINE WHETHER THE NUMBER OF T RANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS SO AS TO AGGREGATE FOR THE PURPOSE OF EVALUATION WHAT IS TO BE CONSIDERED IS THAT ONE TRANSACTION IS FOLLOW - ON OF THE EARLIER TRANSACTION AND THEN THE SUBSEQUENT TRANSACTION IS CARRIED OUT AND DEPENDENT WHOLLY O R SUBSTANTIALLY ON THE EARLIER TRANSACTION. IN OTHER WORDS, IF TWO TRANSACTIONS ARE SO CLOSELY LINKED THAT DETERMINATION OF PRICE OF ONE TRANSACTION IS DEPENDENT ON THE OTHER TRANSACTION THEN FOR THE PURPOSE OF DETERMINING THE ALP, THE CLOSELY LINKED TRANS ACTION SHOULD BE AGGREGATED AND CLUBBED TOGETHER. WHEN THE TRANSACTION ARE INFLUENCED BY EACH OTHER AND PARTICULARLY IN DETERMINING THE PRICE AND PROFIT INVOLVED IN THE TRANSACTIONS THEN THOSE TRANSACTIONS CAN SAFELY BE REGARDED AS CLOSELY LINKED TRANSACTI ONS. IN THE CASE IN HAND THE CREDIT PERIOD EXTENDED TO THE AE IS A DIRECT RESULT OF SALE TRANSACTION. THEREFORE NO QUESTION OF CREDIT PERIOD ALLOWED TO THE AE FOR REALIZATION OF SALE PROCEEDS WITHOUT HAVING SALE TO AE. THE CREDIT PERIOD EXTENDED TO THE AE CANNOT BE TREATED AS A TRANSACTION STAND ALONE WITHOUT CONSIDERING THE MAIN TRANSACTION OF SALE. THE SALE PRICE OF THE PRODUCT OR SERVICE DETERMINED BETWEEN THE PARTIES IS ALWAYS INFLUENCED BY THE CREDIT PERIOD ALLOWED BY THE SELLER. THEREFORE, THE TRANSAC TION OF SALE TO THE AE AND CREDIT PERIOD ALLOWED IN REALIZATION OF SALE PROCEEDS ARE CLOSELY LINKED AS THEY ARE INTER LINKED AND THE TERMS AND CONDITIONS OF SALE AS WELL AS THE PRICE ARE DETERMINED BASED ON THE TOTALITY OF THE TRANSACTION AND NOT ON INDIVI DUAL AND SEPARATE TRANSACTION. THE APPROACH OF THE TPO AND DRP IN ANALYZING THE CREDIT PERIOD ALLOWED BY THE ASSESSEE TO THE AE WITHOUT CONSIDERING THE MAIN INTERNATIONAL TRANSACTION BEING SALE TO THE AE WILL GIVE DISTORTED RESULT BY DISREGARDING THE PRICE CHARGED BY THE ASSESSEE FROM AE. THOUGH EXTRA PERIOD ALLOWED FOR REALIZATION OF SALE PROCEEDS FROM THE AE IS AN INTERNATIONAL TRANSACTION, HOWEVER, FOR THE PURPOSE OF DETERMINING THE ALP, THE SAME HAS TO BE CLUBBED OR AGGREGATED WITH THE SALE TRANSACTIONS WITH THE AE. EVEN BY CONSIDERING IT AS AN INDEPENDENT TRANSACTION THE SAME HAS TO BE COMPARED WITH THE INTERNAL CUP AVAILABLE IN THE SHAPE OF THE CREDIT ALLOWED BY THE ASSESSEE TO NON AE. WHEN THE ASSESSEE IS NOT MAKING ANY DIFFERENCE FOR NOT CHARGING THE INTEREST FROM AE AS WELL AS NON - AE THEN THE ONLY DIFFERENCE BETWEEN THE TWO CAN BE CONSIDERED IS THE AVERAGE PERIOD ALLOWED ALONG WITH OUTSTANDING AMOUNT. IF THE AVERAGE PERIOD MULTIPLIED BY THE OUTSTANDING AMOUNT OF THE AE IS AT ARMS LENGTH IN COMPARISO N TO THE AVERAGE PERIOD OF REALIZATION AND MULTIPLIED BY THE OUTSTANDING FROM NON AES THEN NO ADJUSTMENT CAN BE MADE BEING THE TRANSACTION IS AT ARMS LENGTH. THE THIRD ASPECT OF THE ISSUE IS THAT THE ARMS LENGTH INTEREST FOR MAKING THE ADJUSTMENT. BOTH T HE TPO AND DRP HAS TAKEN INTO CONSIDERATION THE LENDING RATES, HOWEVER, THIS IS NOT A TRANSACTION OF LOAN OR ADVANCE TO THE AE BUT IT IS ONLY AN EXCESS PERIOD ALLOWED FOR REALIZATION OF SALES PROCEEDS FROM THE AE. THEREFORE, THE ARMS LENGTH INTEREST IN AN Y CASE WOULD BE THE AVERAGE COST OF THE TOTAL FUND AVAILABLE TO THE ASSESSEE AND NOT THE RATE AT WHICH A LOAN IS AVAILABLE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER/TPO TO RE - DO THE EXERCISE OF DETERMINATION OF ALP IN TERMS OF ABOVE OBSERVATION. 13. SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY THE TRIBUNAL, MUMBAI BENCH, IN CASE OF TECNIMOUNT ICB HOUSE (SUPRA). IN FACT, IN CASE OF KUSUM HEALTHCARE PVT. I.T.A.NO. 915 /MUM/201 4 12 LTD. (SUPRA), THE TRIBUNAL, DELHI BENCH, HELD THAT IF ALP OF THE MAIN SALE TRANSACTION COMPUTED UNDER TN MM IS ACCEPTED, NO SEPARATE ADJUSTMENT ON ACCOUNT OF OUTSTANDING RECEIVABLES CAN BE MADE. HOWEVER, IT NEEDS TO BE MENTIONED, IN CASE OF KUSUM HEALTHCARE (SUPRA), ASSESSEE DEMONSTRATED THAT IMPACT OF EXTENDED CREDIT PERIOD ON WORKING CAPITAL WAS FACTORED IN THE PRICING / PROFITABILITY. THE DECISION OF IGATE COMPUTER SOFTWARES LTD. V/S ADDL. CIT IS FACTUALLY DISTINGUISHABLE AS IN THAT CASE A SSESSEE ITSELF HAS CONSIDERED THE EXTENDED CREDIT FACILITY AS A SEPARATE INTERNATIONAL TRANSACTION. THUS, TAKING INTO CO NSIDERATION, THE PRINCIPLE LAID DOWN AS ABOVE WE ARE OF THE VIEW THAT TRANSACTION RELATING TO EXTENDED CREDIT PERIOD PROVIDED TO A.E. IS REQUIRED TO BE AGGREGATED WITH OTHER INTERNATIONAL TRANSACTIONS FOR COMPUTING ALP AND CANNOT BE DONE SEPARATELY . FOR D OING SO RATE OF INTEREST HAS TO BE ON THE BASIS OF LIBOR + BASIS P O INT AND NO T DOMESTIC PLR. AS IN THE PRESENT CASE, TPO HIMSELF HAS WORKED OUT LIBOR RATE OF 2.69 % SAME CAN BE CONSIDERED. AS, NEITHER THE DEPARTMENT NOR THE ASSESSEE HAS UNDERTAKEN THIS EXERC ISE . WE REMIT THIS ISSUE TO THE FILE OF THE AO /TPO FOR VERIFYING THIS ASPECT AND DETERMINING THE ALP OF INTERNATIONAL TRANSACTION WITH A.E . AFTER AFFORDING FULL OPPORTUNITY TO THE ASSESSEE TO ESTABLISH ITS CASE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPO SES. 1 4 . THE GROUND NO.2 RAISED BY THE ASSESSEE IS REPRODUCED BELOW: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE A O OUGHT TO HAVE NOT MADE DISALLOWANCE OF INTEREST OF RS.94,44,829 / - - UNDER SECTION 36(1 )(III) OF THE ACT. 1 5 . BRIEFLY STATE D THE FACTS OF THE ISSUE ARE , DURING THE ASSESSMENT PROCEEDINGS, THE AO ON VERIFICATION OF THE BALANCE - SHEET OF THE ASSESSEE NOTICED THAT IT HAS GIVEN INTEREST FREE ADVA NCES TO ITS ASSOCIATE CONCERN . HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN WHY PRORAT A DISALLOWANCE SHOULD NOT BE MADE FROM THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE. I N RESPONSE TO THE QUERY RAISED BY THE AO, THE ASSESSEE IN I.T.A.NO. 915 /MUM/201 4 13 ITS REPLY DATED 12.3.2011 EXPLAINED WHY NO INTEREST SHOULD BE DISALLOWED ON ACCOUNT OF INTEREST FREE ADVANCES GIVEN TO ASSOCIATE CONCERN , BUT , AT THE SAME TIME, IT OFFERED TO DISALLOW INTEREST ATTRIBUTABLE TO INTEREST FREE ADVANCED GIVEN TO ASSOCIATE CONCERN AND QUANTIFIED THE SAME AT RS.94,44,829 / - . THE AO AFTER CONSIDERING THE FACT THAT ASSESSEE HAS NO T PROVED COMMERCIAL EXPEDIENCY FOR ADVANCING INTEREST FREE LOANS AND ALSO THE FACT THAT BORROWED FUNDS WERE NOT DIVERTED TOWARDS INTEREST FREE ADVANCES AND FURTHER TAKING INTO CONSIDERATION THE FACT THAT ASSESSEE ITSELF HAS OFFERED TO DISALLOW PROPORTIONAT E INTEREST EXPENDITURE RELATABLE TO INTEREST FREE ADVANCES , DISALLOWED THE INTEREST OF RS.94,44,928 / - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGAINST THIS ADDITION , THE ASSESSEE DID NOT FILE ANY OBJECTION BEFORE THE DRP. THUS, THE DISALLOWANCE MAD E BY THE AO IN THE DRAFT ASSESSMENT ORDER WAS ALSO MADE BASIS FOR SIMILAR DISALLOWANCE IN THE FINAL ASSESSMENT ORDER. 16 . THE LD. COUNSEL SUBMITTED BEFORE US , THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH IT TO MAKE INTEREST FREE ADVANCE S; THEREFORE , THERE IS NO CASE FOR DISALLOWING THE INTEREST EXPENDITURE. HOWEVER, THE LD. COUNSEL ADMITTED THAT THE ASSESSEE BEFORE THE AO HAS DISALLOWED INTEREST EXPENDITURE TO AVOID PROLONGED LITIGATION AND ALSO NO GROUNDS WERE RAISED BEFORE THE TRP ON T HE ISSUE. 17 . THE LD. DR SUBMITTED BEFORE US , THE ASSESSEE HAVING ITSELF DISALLOWED THE INTEREST EXPENDITURE RELATING TO INTEREST FREE ADVANCES AT THE ASSESSMENT STAGE AND HAVING NOT RAISED ANY GROUND BEFORE THE DRP, NOW THE ASSESSEE CANNOT RAISE THIS ISS UE BEFORE THE TRIBUNAL. 18 . HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD S, W E FIND THAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON ITS OWN OFFERED THE DISALLOWANCE OF INTEREST I.T.A.NO. 915 /MUM/201 4 14 EXPENDITURE ATTRIBUTAB LE TO INTEREST FREE ADVANCES GIVEN TO ITS AE. IT IS ALSO A FACT ON RECORD THAT BEFORE DRP, THE ASSESSEE HAS NOT CHALLENGED THE DISALLOWANCE OF THE AFORESAID INTEREST EXPENDITURE. THIS FACT CLEARLY PROVES THAT THE ASSESSEE HAD ACCEPTED THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.94,44,829/ - AND THAT BEING THE CLEAR FA C TUAL POSITION , I N OUR VIEW, THE ASSESSEE CANNOT RAISE THIS ISSUE. ACCORDINGLY, WE DECLIN E TO ENTERTAIN THIS GROUND RAISED BY THE ASSESSEE. THE SAME IS DISMISSED. 19 . THE GROUND NO.4 TA KEN BY THE ASSESSEE IS AS UNDER: 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE A O OUGHT TO HAVE REDUCED NOT THE GROSS INTEREST INCOME BUT THE NET INTEREST INCOME OF RS.13,46,522/ - FOR QUALIFYING THE PROFITS OF THE BUSINESS FOR DETERMINING THE ELIGIBLE DEDUCTION U / 10AA OF THE ACT AND T HE ELIGIBLE DEDUCTION U / S 10AA OF THE ACT SHOULD BE RECOMPUTED ACCORDINGLY. 20 . IT IS THE CLAIM OF THE ASSESSEE THAT WHILE COM PUTING THE DEDUCTION U/S 10AA OF THE ACT, THE AO SHOULD HAVE REDUCED THE NET IN TEREST INCOME OF RS. 13,46,522/ - INSTEAD OF GROSS INTEREST INCOME. 21 . BRIEFLY STATED FACTS OF THE ISSUE ARE WHILE EXAMINING ASS ESSEE S CLAIM OF DEDUCTION U/S 10AA OF THE ACT, AO NOTICED THAT ASSESSEE HAS RECEIVED INTEREST INCOME OF RS.21,16,182/ - WHIC H HAS BEEN INCLUDED IN THE BUSINESS INCOME WHILE CLAIMING DEDUCTION U/S 10AA. THEREFORE, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE INTEREST INCOME NOT BEING PART OF BUSINESS INCOME SHOULD BE INCLUDED FOR COMPUTING DEDUCTION U/S 10AA OF THE ACT . IN RE SPONSE TO THE QUERY RAISED BY THE AO IT WAS SUBMITTED BY THE ASSESSEE THAT INTEREST INCOME EARNED BY THE ASSESSEE WAS ON ACCOUNT OF FIXED DEPOSITS IN BANK S WHICH ARE PLE D G E D AGAINST GUARANTEE GIVEN BY BANK FOR THE PURPOSE OF ASSESSEES BUSINESS. IT WAS T HEREFORE SUBMITTED , AS THE INTEREST INCOME HAS NEXUS WITH BUSINESS ACTIVITIES IT SHOULD FORM PART I.T.A.NO. 915 /MUM/201 4 15 OF BUSINESS INCOME. ALTERNATIVELY, IT WAS SUBMITTED BY THE ASSESSEE, IF AT ALL, INTEREST INCOME HAS TO BE REDUCED BY TREATING IT AS NOT FORMING PART OF BUSIN ESS INCOME, THE NET INTEREST INCOME OF RS.13,46,522/ - SHOULD BE REDUCED AS INTEREST PAID BY THE ASSESSEE TO BANK AMOUNTING TO RS.7,69,660/ - SHOULD BE NETTED OFF . THE AO, HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND COMPUTED DEDUCTIO N U/S 10AA AFTER REDUCING THE INTEREST INCOME OF RS.21,16,182/ - FROM THE BUSINESS PROFIT. AS IT APPEARS THE ASSESSEE DID NOT RAISE THIS ISSUE BEFORE THE DRP WHILE OBJECTING TO THE DRAFT ASSESSMENT ORDER. THEREFORE, THE COMPUTATION OF DEDUCTION U/S 10AA AF TER REDUCING THE INTEREST INCOME WAS ALSO REPEATED IN THE FINAL ASSESSMENT ORDER. 22. THE LD. AR SUBMITTED BEFORE US, FIRSTLY, THE INTEREST INCOME HAS A DIRECT NEXUS WITH THE BUSINESS ACTIVITY HENCE , FORM S PART OF T HE BUSINESS ACTIVITY, THEREFORE, CANNO T BE EXCLUDED FROM THE BUSINESS INCOME WHILE COMPUTING THE DEDUCTION U /S 10AA. ALTERNATIVELY, IT WAS SUBMITTED , IF AT ALL INTEREST INCOME HAS TO BE EXCLUDED FROM THE BUSINESS PROFIT THEN THE INTEREST PAID BY THE ASSESSEE SHOULD BE NETTED OFF AGAINST THE IN TEREST INCOME AND THE NET INTEREST INCOME SHOULD BE REDUCED. 2 3 . THE LD. DR , ON THE OTHER HAND, RAISING PRELIMINARY OBJECTION SUBMITTE D, ASSESSEE HAS NOT RAISED ANY GROUND ON THIS ISSUE BEFORE THE DRP , THEREFORE, NO SUCH GROUND CAN BE RAISED AT THIS STAG E AS IT DOES NOT EMANATE FROM THE ORDER OF DRP. HE SUBMITTED IF AT ALL, ASS ESSEE COULD HAVE RAISED THE ISSUE BY WAY OF ADDITIONAL GR OUND . 2 5 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE LD. COUNSEL F OR THE ASSESSEE HAS FAIRLY ADMITTED THAT THIS ISSUE WAS NOT RAISED BEFORE THE DRP . T HEREFORE , WHEN THE ASSESSEE HAS NOT RAISED ANY OBJECTION ON THIS ISSUE BEFORE THE DRP, IN OUR VIEW, THE I.T.A.NO. 915 /MUM/201 4 16 ASSESSEE CANNOT RAISE SUCH ISSUE BEFORE US AT THIS STAGE AS THE ASSESSEE HAS ACCEPTE D THE DECISION OF THE AO IN THE DRAFT ASSESSMENT PROCEEDINGS, WHEREIN HE EXCLUDED THE INTEREST INCOME WHILE COMPUTING THE DEDUCTION U/S 10AA OF THE ACT . THE FINAL ASSESSMENT ORDER PASSED BY THE AO IS ONLY TO GIVE EFFECT TO THE DIRECTION OF DRP , WHEREIN TH IS ISSUE W AS NOT RAISED BY THE ASSESSEE . AS THE DRP HAS NOT DECIDED THIS ISSUE AND THE FINAL ASSESSMENT ORDER IS ONLY FOR IMPLEMENTING THE DIRECTION OF THE DRP IN TERMS OF SECTION 14 4 C(1 3 ) OF THE ACT, THE ASSESSEE CANNOT RAISE THIS ISSUE AT THIS STAGE, TH EREFORE, WE DECLINE TO ENTERTAIN WITH THIS GROUND. ACCORDINGLY, THIS GROUND IS DISMISSED. 26 . THE ASSESSEE HAS ALSO RAISED ONE ADDITIONAL GROUND WHICH READS AS UNDER : 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE A. O. O UGHT T O HAVE INCREASE THE PROFITS OF THE BUSINESS BY THE AMOUNT OF INTEREST DISALLOWED UNDER SE CTION 36( 1 )(III) OF THE ACT AND THE ELIGIBLE DEDUCTION UNDER SECTION 10 AA OF THE ACT OU GHT HAVE BEEN COMPUTED ACCORDINGLY. 27 . THIS GROUND RAISED BY THE ASSESSEE IS C ONSEQUENTIAL TO GROUND NO.2 OF THE APPEAL. IT IS THE CONTENTION OF THE ASSESSEE THAT IF THE INTEREST EXPENDITURE DISALLOWED U/S 36(1)(III) IS SUSTAINED THEN IT SHOULD FORM PART OF THE BUSINESS INCOME AND DEDUCTION U/S 10AA SHOULD BE GRANTED. 28 . THE L D.DR HOWEVER, RAISED OBJECTION FOR NOT ENTERTAINING THIS ADDITIONAL GROUND ON THE PLEA THAT IT REQUIRES EXAMINATION OF FRESH FACTS. 2 9 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS FAR AS THE PRELIMINARY OBJECTION OF THE DR IS CO NCERNED, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LD.DR . A S CAN BE SEEN THE FACTS AND I.T.A.NO. 915 /MUM/201 4 1 7 MATERIAL RELATING TO THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE ARE AVAILABLE BEFORE THE AO A S THE ASSESSEE ITSELF DISALLOWED INTEREST EXPENDITURE RELATABL E TO INTEREST FREE ADVANCES. W HETHER ANY STATUTORY DISALLOWANCE MADE BY A.O. WOULD ENHAN CE THE PROFIT OF THE ASSESSEE THEREBY MAKING HIM ELIGIBLE TO CLAIM DEDUCTION U/S 10AA ON SUCH ENHANCED PROFIT IS A PURELY LEGAL ISSUE. THEREFORE, ASSESSEES CLAIM OF DEDUCTION U/S 10AA HAS TO BE EXAMINED BY KEEPING IN VIEW PRINCIPLE LAID DOWN IN JUDICIAL PRECEDENT S . HOWEVER, CONSIDERING THE FACT THAT THIS ISSUE WAS NEITHER RAISED BEFORE THE AO NOR BEFORE THE DRP AND HAS BEEN RAISED FOR T HE FIRST TIME BEFORE THIS FORU M, W E DEEM IT PROPER TO REMIT THE ISSUE TO THE FILE OF THE AO FOR DECIDING THE SAME AFTER DUE OPPORTUNITY OF BEING HEARD TO ASSESSEE. THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 30 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUN CED IN THE OPEN COURT ON 15.01. 2016 SD/ SD/ ( N.K.BILLAIYA ) ( SAKT IJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI : ON THIS 15 TH JAN , 201 6 . . ./ SRL , SR. PS / PRADEEP J.C. I.T.A.NO. 915 /MUM/201 4 18 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, (ASSTT. REGISTRAR) , /ITAT, MUMBAI
