TVS MOTOR COMPANY LTD.,CHENNAI V. ACIT, CHENNAI

ITA 672/CHNY/2017

AI Insights

The case involves M/s. TVS Motor Co. Ltd. appealing against various orders of the Assessing Officer (AO) concerning transfer pricing adjustments, disallowance of expenses, and the treatment of certain financial transactions under the Income Tax Act, 1961. The primary issues included the transfer pricing adjustments related to corporate guarantees and letters of comfort provided to AEs, the treatment of foreign exchange forward contracts, and the claim of additional depreciation on assets. The Tribunal examined the legal provisions, previous judgments, and the specific circumstances of the case to arrive at its decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 107398 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Other Referred Cases: CIT vs. Everest Kanto Cylinders Ltd, PCIT vs. Redington (India) Ltd., CIT vs. Faizan Shoes Pvt Ltd, CIT vs. Reliance Utilities and Power Ltd, CIT vs. Tata Iron & Steel Co. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A. SASIKUMAR; OU; OU; OUR JUDGMENTS
• Assessee Lawyers: VIKRAM VIJAYARAGHAVAN
• Keywords: Set aside; Business income; Capital asset; Opportunity of being heard; Revenue expenditure; Transfer pricing; International transaction; Retrospective amendment; Question of law; Depreciation; Additional depreciation; Cost of acquisition; Commercial expediency; TDS; Double taxation relief; Permanent establishment; Rule 8D; Non compliance
• Section: 195; 263; 22; 13; 234B; 145; 14A; 37(1); 72; 92B; 10B; 92C; 32(1)(iia); 92F; 20

Judgement Text

"आयकर अपीलीय अिधकरण, ’डी’ \u0001यायपीठ, चे\tई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI \u0001ीएबीटी. वक , \u000bाियकसद\u0011 एवं एवं एवं एवं \u0001ीअिमताभशु\u0018ा, लेखासद\tक ेसम\u001b BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER आयकरअपीलसं./ITA No.672/Chny/2017 िनधा\u000eरणवष\u000e/Assessment Year: 2012-13 M/s.TVS Motor Co. Ltd., No.29, Haddows Road, Chennai-600 006. v. The ACIT, Corporate Circle – 3(1), Chennai. [PAN: AAACS 7032 B] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Shri Vikram Vijayaraghavan, Adv. \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Shri A. Sasikumar, CIT सुनवाईक\u001aतारीख/Date of Hearing : 11.11.2024 घोषणाक\u001aतारीख /Date of Pronouncement : 24.01.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Learned Assessing Officer on 24.01.2017 passed u/s.143(3) r.w.s.92CA(4) of the Income Tax Act, 1961 (hereinafter in short \"the Act”), pursuant to the directions of the Dispute Resolution Panel-2 (hereinafter in short ‘DRP’), Bengaluru, dated 19.12.2016. 2. Ground Nos.1 to 4 are general in nature and therefore, it does not require any adjudication. 3. Ground Nos. 5 & Rs.1,28,90,0000/- made by the TPO in relation to the corporate guarantee and letter of comfort provided by the appellant to its AEs. 3.1 The facts as noted are that the assessee is engaged in the business of manufacturing two wheelers. It had tune of Rs.53,88,00,000/ Motor Company, Indonesia (‘AE’). The assessee had also given Letters of Comfort (LOC) of Rs.10,57,00,000/ by the AE. The assessee did guarantee and LOC issued in favour of the AE. The TPO is noted to have made transfer pricing adjustment in relation thereto on the same lines as confirmed by the DRP in the earlier year viz., 2% corporate guarantee and LOC. objection before the DRP which confirmed the action of the TPO. Now, the assessee is in appeal before us. 3.2 Heard both the parties. The Ld. AR for the assessee has contended that since the corporate guarantee and Letter of Comfort was provided without any cost to the AE, it did losses of the assessee and therefore could not be regarded as an international transaction and be benchmarked provisions. In this regard, the Ld. AR relied upon the decision rendered by ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 2 :: 5 &6 are against the transfer pricing ad made by the TPO in relation to the corporate guarantee and letter of comfort provided by the appellant to its AEs. The facts as noted are that the assessee is engaged in the business of manufacturing two wheelers. It had given corporate guarantee to the tune of Rs.53,88,00,000/- on behalf of the foreign subsidiary M/s PT TVS Motor Company, Indonesia (‘AE’). The assessee had also given Letters of of Rs.10,57,00,000/- to Banks/AE for the loans borrowed E. The assessee didn’t charge any fee towards such corporate guarantee and LOC issued in favour of the AE. The TPO is noted to have made transfer pricing adjustment in relation thereto on the same lines as confirmed by the DRP in the earlier year viz., 2% of the value of corporate guarantee and LOC. Aggrieved, the assessee preferred objection before the DRP which confirmed the action of the TPO. Now, the assessee is in appeal before us. Heard both the parties. The Ld. AR for the assessee has contended that since the corporate guarantee and Letter of Comfort was provided without any cost to the AE, it didn’t have any bearing of profits, income, losses of the assessee and therefore could not be regarded as an international transaction and be benchmarked under the transfer pricing provisions. In this regard, the Ld. AR relied upon the decision rendered by /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. are against the transfer pricing adjustment of made by the TPO in relation to the corporate guarantee and letter of comfort provided by the appellant to its AEs. The facts as noted are that the assessee is engaged in the business given corporate guarantee to the on behalf of the foreign subsidiary M/s PT TVS Motor Company, Indonesia (‘AE’). The assessee had also given Letters of to Banks/AE for the loans borrowed t charge any fee towards such corporate guarantee and LOC issued in favour of the AE. The TPO is noted to have made transfer pricing adjustment in relation thereto on the same lines as of the value of ggrieved, the assessee preferred objection before the DRP which confirmed the action of the TPO. Now, the Heard both the parties. The Ld. AR for the assessee has contended that since the corporate guarantee and Letter of Comfort was provided have any bearing of profits, income, losses of the assessee and therefore could not be regarded as an under the transfer pricing provisions. In this regard, the Ld. AR relied upon the decision rendered by this Tribunal in their own case for AY 2011 provisions of Section 92B has been amended by the Finance Act 2012, whereby, in terms of the Explanation to Section 92B, the guarantees/NOC issued by an assessee has been clarified to be in the nature of international transaction. We note that the Hon’ble Bombay High Court in the case of CIT vs. Everest Kanto Cylinders Ltd (378 ITR 57 considered identical issue in light of the provisions of Section 92B and the Explanation, came to a conclusion that the corporate guarantee issued by an entity on behalf of its AE is an international transaction. We further note that, this identical Madras High Court in the case of ITR 298), wherein, the Hon’ble Madras High Court held that, inherent risk cannot be ruled out in providing guarantees and hence the transaction involving issuance of corporate guarantee is covered by the definition of international transaction consequent to retrospective amendment made by the Finance Act, 2012 and, accordingly adjustments are required to be made for guarantee commission. The taken note of by us is as 75. The concept of Bank Guarantees and Corporate Guarantees war explained in the decision of the Hyderabad Tribunal in the case of Prolifics Corporation Limited. In the said case, the Revenue contended providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is an additional guarantee, provided by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of Section 92B does not enlarge the scope of the term international transaction to include the ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 3 :: this Tribunal in their own case for AY 2011-12. We however note that the provisions of Section 92B has been amended by the Finance Act 2012, terms of the Explanation to Section 92B, the guarantees/NOC issued by an assessee has been clarified to be in the nature of international transaction. We note that the Hon’ble Bombay High Court in CIT vs. Everest Kanto Cylinders Ltd (378 ITR 57 considered identical issue in light of the provisions of Section 92B and the Explanation, came to a conclusion that the corporate guarantee issued by an entity on behalf of its AE is an international transaction. We further note that, this identical issue came up before the Hon’ble jurisdictional Madras High Court in the case of PCIT v. Redington (India) Ltd. (430 , wherein, the Hon’ble Madras High Court held that, inherent risk cannot be ruled out in providing guarantees and hence the tion involving issuance of corporate guarantee is covered by the definition of international transaction consequent to retrospective amendment made by the Finance Act, 2012 and, accordingly adjustments are required to be made for guarantee commission. The relevant findings taken note of by us is as follows: - 75. The concept of Bank Guarantees and Corporate Guarantees war explained in the decision of the Hyderabad Tribunal in the case of Prolifics Corporation Limited. In the said case, the Revenue contended that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is an additional guarantee, by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of Section 92B does not enlarge the scope of the term international transaction to include the /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. 12. We however note that the provisions of Section 92B has been amended by the Finance Act 2012, terms of the Explanation to Section 92B, the guarantees/NOC issued by an assessee has been clarified to be in the nature of international transaction. We note that the Hon’ble Bombay High Court in CIT vs. Everest Kanto Cylinders Ltd (378 ITR 57) has considered identical issue in light of the provisions of Section 92B and the Explanation, came to a conclusion that the corporate guarantee issued by an entity on behalf of its AE is an international transaction. We further issue came up before the Hon’ble jurisdictional PCIT v. Redington (India) Ltd. (430 , wherein, the Hon’ble Madras High Court held that, inherent risk cannot be ruled out in providing guarantees and hence the tion involving issuance of corporate guarantee is covered by the definition of international transaction consequent to retrospective amendment made by the Finance Act, 2012 and, accordingly adjustments relevant findings 75. The concept of Bank Guarantees and Corporate Guarantees war explained in the decision of the Hyderabad Tribunal in the case of Prolifics Corporation that the transaction of providing Corporate Guarantee is covered by the definition of international transaction after retrospective amendment made by Finance Act, 2012. The assessee argued that the Corporate Guarantee is an additional guarantee, by the Parent company. It does not involve any cost of risk to the shareholders. Further, the retrospective amendment of Section 92B does not enlarge the scope of the term international transaction to include the Corporate Guarantee in the nature provided Tribunal held that in case of default, Guarantor has to fulfill the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non from Associated Enterprise as a commercial principle. Further, it has been observed that this position indicates that provision of guarantee always involves risk and there is a service provided to the Associate Enterprise in increasing its creditwo Financial institutions or from others. There may not be immediate charge on P & L account, but inherent risk cannot be ruled out in providing guarantees. Ultimately, the Tribunal upheld the adjustments mad commissions both on the guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment of Associate Enterprise. 76. In the light of the above decisions, we hold that the Tri error in deleting the additions made against Corporate and Bank Guarantee and restore the order passed by the DRP. 3.3 We also note that this Tribunal in the assessee’s own case for the subsequent AY 2013- No.2404/Chny/2019, had held the transaction of corporate guarantee to be an international transaction by benchmarking the same at 0.5%. Accordingly, the first plea of the assessee is hereby rejected. 3.4 Hence, the limited issue now to be adjudicated the guarantee commission. In this regard, the Ld. AR had brought to our notice that this Tribunal in their own case for AY 2013 the decision of the Hon’ble Bombay High Court Everest Kento Cylinde guarantee commission direct the AO to adopt the guarantee commission @ 0.50% as against 2% and accordingly re-compute the transfer pricing adjustment. This ground therefore stands partly allowed. ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 4 :: Corporate Guarantee in the nature provided by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfill the liability and therefore, there is always an inherent risk in providing guarantees and that may be a reason that Finance provider insist on non-charging any com from Associated Enterprise as a commercial principle. Further, it has been observed that this position indicates that provision of guarantee always involves risk and there is a service provided to the Associate Enterprise in increasing its creditworthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on P & L account, but inherent risk cannot be ruled out in providing guarantees. Ultimately, the Tribunal upheld the adjustments made on guarantee commissions both on the guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment 76. In the light of the above decisions, we hold that the Tribunal committed an error in deleting the additions made against Corporate and Bank Guarantee and restore the order passed by the DRP. We also note that this Tribunal in the assessee’s own case for the -14 in IT (TP) A No.66/Chny/2019 No.2404/Chny/2019, had held the transaction of corporate guarantee to be an international transaction by benchmarking the same at 0.5%. Accordingly, the first plea of the assessee is hereby rejected. Hence, the limited issue now to be adjudicated is the ALP value of the guarantee commission. In this regard, the Ld. AR had brought to our notice that this Tribunal in their own case for AY 2013-14, by relying on the decision of the Hon’ble Bombay High Court in the case of Everest Kento Cylinders Ltd (supra) had ascertained the ALP guarantee commission at 0.5%. Respectfully following the same, we direct the AO to adopt the guarantee commission @ 0.50% as against 2% compute the transfer pricing adjustment. This ground stands partly allowed. /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. by the assessee therein. The Tribunal held that in case of default, Guarantor has to fulfill the liability and therefore, there is always an inherent risk in providing guarantees and that charging any commission from Associated Enterprise as a commercial principle. Further, it has been observed that this position indicates that provision of guarantee always involves risk and there is a service provided to the Associate Enterprise in rthiness in obtaining loans in the market, be from Financial institutions or from others. There may not be immediate charge on P & L account, but inherent risk cannot be ruled out in providing guarantees. e on guarantee commissions both on the guarantees provided by the Bank directly and also on the guarantee provided to the erstwhile shareholders for assuring the payment bunal committed an error in deleting the additions made against Corporate and Bank Guarantee We also note that this Tribunal in the assessee’s own case for the 14 in IT (TP) A No.66/Chny/2019 & ITA No.2404/Chny/2019, had held the transaction of corporate guarantee to be an international transaction by benchmarking the same at 0.5%. Accordingly, the first plea of the assessee is hereby rejected. is the ALP value of the guarantee commission. In this regard, the Ld. AR had brought to our 14, by relying on in the case of CIT v. had ascertained the ALP at 0.5%. Respectfully following the same, we direct the AO to adopt the guarantee commission @ 0.50% as against 2% compute the transfer pricing adjustment. This ground 4. Ground No.7 is against the action of the lower authorities holding that the brand promotion expenses incurred during the year was in the nature of international transaction and thereafter making TP adjustment of Rs.13,64,39,089/- in relation thereto. 4.1 The brief facts are that, the TPO noted that, the assessee has incurred brand promotion/market development expenditure in Indonesia to the tune of Rs.14.99 Crs. According to the TPO, although the assessee was the brand owner, bu and therefore whatever Advertising & Marketing Expenses (hereinafter in short ‘AMP’) was incurred, ought to have been borne by Indonesia AE and not by the assessee. The TPO accordingly show caused the assessee why the impugned transaction should not be considered as international transaction and that AMP expenditure incurred on behalf of the AE ought to be treated as amount recoverable from the AE at cost along with mark up. The TPO is noted to have reje holding as under: “8.2.1 A reference of section 92B(1) of the Act may be made at this stage which defines the international transaction as under: \"92B, (1) For the purpose of this section and sections 92,92C,92D and 92E \"international transaction\" means a transaction between two or more associated enterprises, either or both of whom are non in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or b any other such transaction having a bearing on the profits, income, losses or assets of such enterprise, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment o to, any cost or expense incurred or to be incurred in connection with a ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 5 :: is against the action of the lower authorities holding that the brand promotion expenses incurred during the year was in the nature of international transaction and thereafter making TP adjustment in relation thereto. The brief facts are that, the TPO noted that, the assessee has incurred brand promotion/market development expenditure in Indonesia to the tune of Rs.14.99 Crs. According to the TPO, although the assessee was the brand owner, but the Indonesia AE was a licensed manufacturer and therefore whatever Advertising & Marketing Expenses (hereinafter in short ‘AMP’) was incurred, ought to have been borne by Indonesia AE and not by the assessee. The TPO accordingly show caused the assessee why the impugned transaction should not be considered as international transaction and that AMP expenditure incurred on behalf of the AE ought to be treated as amount recoverable from the AE at cost along with mark up. The TPO is noted to have rejected the objections of the assessee by 8.2.1 A reference of section 92B(1) of the Act may be made at this stage which defines the international transaction as under: \"92B, (1) For the purpose of this section and sections 92,92C,92D and 92E \"international transaction\" means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other such transaction having a bearing on the profits, income, losses or assets of such enterprise, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. is against the action of the lower authorities holding that the brand promotion expenses incurred during the year was in the nature of international transaction and thereafter making TP adjustment The brief facts are that, the TPO noted that, the assessee has incurred brand promotion/market development expenditure in Indonesia to the tune of Rs.14.99 Crs. According to the TPO, although the assessee t the Indonesia AE was a licensed manufacturer and therefore whatever Advertising & Marketing Expenses (hereinafter in short ‘AMP’) was incurred, ought to have been borne by Indonesia AE and not by the assessee. The TPO accordingly show caused the assessee as to why the impugned transaction should not be considered as international transaction and that AMP expenditure incurred on behalf of the AE ought to be treated as amount recoverable from the AE at cost along with mark cted the objections of the assessee by 8.2.1 A reference of section 92B(1) of the Act may be made at this stage \"92B, (1) For the purpose of this section and sections 92,92C,92D and 92E \"international transaction\" means a transaction between two or residents, in the nature of purchase, sale or lease of tangible or intangible orrowing money, or any other such transaction having a bearing on the profits, income, losses or assets of such enterprise, and shall include a mutual agreement or arrangement between two or more associated f, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises.\" The transfer pricing regulations also require that it is not overall arrangement/ substance of the transactions that must be kept in mind. Section 92F (v) of the Income \"transaction includes an arrangement, understanding or action in concert, whether or not such arrangem formal or in writing;\" Similarly, Rule 10B (2)(c) states: \"the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, respective parties to the transactions;\" It is evident from the above extracted provision that an arrangement between two AEs for allocation or apportionment of or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises is an international transaction. In this case, admittedly, the assessee has incurred the cost of AMP for the benef International transaction under section 92B(1) of the Act. Apart from this, in the Finance Act, 2012, an explanation to Sec.928 has been inserted w.r.e.f. 01.04.2002 which has included the 'use of intangible under the definition of \"International transaction. As for the definition of intangible property', the explanation also provides an inclusive definition of the expression intangible property [w.r.e.f. 01.04.2002). This includes marketing related intangible assets, such as, trademarks, trade names, brand names, logos; customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders; human capital related intangible assets, such as, traine agreements, union contracts; goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern v methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data. The above view has been upheld by a plethora of decisions given recently by various benches of the Hon'ble ITAT. In the c Pvt Ltd. vs. ACIT, (ITA No.5140/Del/2011), the Special Bench of ITAT, New Delhi, has laid down the law on the various aspects of transfer pricing on the nature of AMP spend holding it to be an international transaction. 8.2 It is not correct to say that brand promotion expenses have not benefitted the AE. By spending on marketing and advertisement, the assessee is Increasing the exposure of its brand in a foreign market, which admittedly, the assessee is trying to penetrat 8.3 The assessee has stated that TVSM has incurred marketing expenses to promote TVS brand in Indonesia being the economic owner of the brand. The functions performed, asset utilized and risk assumed (FAR analysis) of the assessee company is reproduce ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 6 :: benefit, service or facility provided or to be provided to any one or more of such enterprises.\" The transfer pricing regulations also require that it is not the 'form' but the overall arrangement/ substance of the transactions that must be kept in mind. Section 92F (v) of the Income-tax Act states as below: \"transaction includes an arrangement, understanding or action in concert, whether or not such arrangement, understanding or action is formal or in writing;\" Similarly, Rule 10B (2)(c) states: \"the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions;\" It is evident from the above extracted provision that an arrangement between two AEs for allocation or apportionment of or any contribution to, any cost or ncurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises is an international transaction. In this case, admittedly, the assessee has incurred the cost of AMP for the benefits of its AE accordingly AMP expenditure is an International transaction under section 92B(1) of the Act. Apart from this, in the Finance Act, 2012, an explanation to Sec.928 has been inserted w.r.e.f. 01.04.2002 which has included the 'use of intangible property' under the definition of \"International transaction. As for the definition of intangible property', the explanation also provides an inclusive definition of the expression intangible property [w.r.e.f. 01.04.2002). This includes marketing intangible assets, such as, trademarks, trade names, brand names, logos; customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders; human capital related intangible assets, such as, trained and organized work force, employment agreements, union contracts; goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern v methods, programmes, systems, procedures, campaigns, surveys, studies, forecasts, estimates, customer lists, or technical data. The above view has been upheld by a plethora of decisions given recently by various benches of the Hon'ble ITAT. In the case of M/s L.G. Electronics India Pvt Ltd. vs. ACIT, (ITA No.5140/Del/2011), the Special Bench of ITAT, New Delhi, has laid down the law on the various aspects of transfer pricing on the nature of AMP spend holding it to be an international transaction. .2 It is not correct to say that brand promotion expenses have not benefitted the AE. By spending on marketing and advertisement, the assessee is Increasing the exposure of its brand in a foreign market, which admittedly, the assessee is trying to penetrate. 8.3 The assessee has stated that TVSM has incurred marketing expenses to promote TVS brand in Indonesia being the economic owner of the brand. The functions performed, asset utilized and risk assumed (FAR analysis) of the assessee company is reproduced as below: /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. benefit, service or facility provided or to be provided to any one or the 'form' but the overall arrangement/ substance of the transactions that must be kept in mind. \"transaction includes an arrangement, understanding or action in ent, understanding or action is \"the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how risks and benefits are to be divided between the It is evident from the above extracted provision that an arrangement between two AEs for allocation or apportionment of or any contribution to, any cost or ncurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises is an international transaction. In this case, admittedly, the assessee has incurred its of its AE accordingly AMP expenditure is an Apart from this, in the Finance Act, 2012, an explanation to Sec.928 has been property' under the definition of \"International transaction. As for the definition of intangible property', the explanation also provides an inclusive definition of the expression intangible property [w.r.e.f. 01.04.2002). This includes marketing intangible assets, such as, trademarks, trade names, brand names, logos; customer related intangible assets, such as, customer lists, customer contracts, customer relationship, open purchase orders; human capital related d and organized work force, employment agreements, union contracts; goodwill related intangible assets, such as, institutional goodwill, professional practice goodwill, personal goodwill of professional, celebrity goodwill, general business going concern value; methods, programmes, systems, procedures, campaigns, surveys, studies, The above view has been upheld by a plethora of decisions given recently by ase of M/s L.G. Electronics India Pvt Ltd. vs. ACIT, (ITA No.5140/Del/2011), the Special Bench of ITAT, New Delhi, has laid down the law on the various aspects of transfer pricing on the .2 It is not correct to say that brand promotion expenses have not benefitted the AE. By spending on marketing and advertisement, the assessee is Increasing the exposure of its brand in a foreign market, which admittedly, the 8.3 The assessee has stated that TVSM has incurred marketing expenses to promote TVS brand in Indonesia being the economic owner of the brand. The functions performed, asset utilized and risk assumed (FAR analysis) of the TVS Motor Company Limited Conceptualize the brand promotion strategy in the Indonesian market. Decide the nature of promotional activities to be undertaken promotional events, roadshows, print Decide and allocate the budget for brand promotion activities in the Indonesian market. Identify third party vendors in the Indonesian market for availing the brand promotion services Negotiate the contracts and the pricing arrangements with the vendors and enter into contracts Discussion from time to time on the implementation strategy for brand promotion activities with the vendor, providing guidance and co Create marketing and promotional ma through the third party vendors Monitor the third party vendors in the execution phase of the brand promotion activities Payment to third party vendors for the services received. 8.4 To arrive at the ALP of whether TVSM India is promoting a brand in Indonesia as a legal owner or it is assisting PT TVS Indonesia being licensed manufacturer by way of increase of sale using TVS brand in Indonesia. As per the argu PT TVS Indonesia had incurred higher percentage of AMP expenses it means that the economic ownership of TVS brand in Indonesia vests with AE PT TVS Indonesia. However it may be also possible that the percentage of AMP expenses incurred by PT TVS Indonesia is less than what the other independent licensed manufacturer would have incurred in Indonesia. If so it implies that, TVSM India is providing services to develop TVS brand in Indonesia. In this circumstances whatever the expendit TVSM India in Indonesia should be reimbursed by the AE along with the mark up. 8.5 However as per statement of the assessee, the percentage of AMP expenses incurred by the other independent parties Indonesia is not available in Public Domain. In this scenario it is more appropriate to consider TVSM India as a tested party and it has to be ascertained whether TVSM India has incurred any AMP expenditure in other countries where the spares and vehicles are exported by TVSM India. The searc exported vehicles to other countries such as Colombia, Bangladesh, Hong Kong, Japan, Nepal, Singapore and Sri Lanka where TVSM India has not incurred any AMP expenses. It means that due to the presence AE PT TVS Indonesia, the assessee company incurred huge amount as AMP expenditure which clearly indicates that TVSM India is a service provider in respect to AMP expenses incurred in Indonesia. 8.6 The assessee has taken the stand that arrangements with non be compared with the brand promotion expenses incurred by the company in Indonesia as the business model and the market catered to in these two arrangements are completely different. 8.7 The assessee has not explained how the functions of the TVSM India are different in respect to AE PT TVS Indonesia and with other independent parties and also that the export and other functions of the assessee company is same. The assessee also not ex from the export made and AMP expenditure incurred in Singapore, ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 7 :: TVS Motor Company Limited Conceptualize the brand promotion strategy in the Indonesian market. Decide the nature of promotional activities to be undertaken - whether to opt for promotional events, roadshows, print advertisements or sponsorships. Decide and allocate the budget for brand promotion activities in the Identify third party vendors in the Indonesian market for availing the brand the pricing arrangements with the vendors and Discussion from time to time on the implementation strategy for brand promotion activities with the vendor, providing guidance and co-ordination Create marketing and promotional materials (flyers/leaflets/ brochures) through the third party vendors Monitor the third party vendors in the execution phase of the brand Payment to third party vendors for the services received. 8.4 To arrive at the ALP of AMP expenses, it is important to understand that whether TVSM India is promoting a brand in Indonesia as a legal owner or it is assisting PT TVS Indonesia being licensed manufacturer by way of increase of sale using TVS brand in Indonesia. As per the argument of the assessee that PT TVS Indonesia had incurred higher percentage of AMP expenses it means that the economic ownership of TVS brand in Indonesia vests with AE PT TVS Indonesia. However it may be also possible that the percentage of AMP urred by PT TVS Indonesia is less than what the other independent licensed manufacturer would have incurred in Indonesia. If so it implies that, TVSM India is providing services to develop TVS brand in Indonesia. In this circumstances whatever the expenditure incurred by the TVSM India in Indonesia should be reimbursed by the AE along with the mark 8.5 However as per statement of the assessee, the percentage of AMP expenses incurred by the other independent parties Indonesia is not available Domain. In this scenario it is more appropriate to consider TVSM India as a tested party and it has to be ascertained whether TVSM India has incurred any AMP expenditure in other countries where the spares and vehicles are exported by TVSM India. The search resulted in that TVSM India has exported vehicles to other countries such as Colombia, Bangladesh, Hong Kong, Japan, Nepal, Singapore and Sri Lanka where TVSM India has not incurred any AMP expenses. It means that due to the presence AE PT TVS the assessee company incurred huge amount as AMP expenditure which clearly indicates that TVSM India is a service provider in respect to AMP expenses incurred in Indonesia. 8.6 The assessee has taken the stand that arrangements with non-AEs cannot pared with the brand promotion expenses incurred by the company in Indonesia as the business model and the market catered to in these two arrangements are completely different. 8.7 The assessee has not explained how the functions of the TVSM India are different in respect to AE PT TVS Indonesia and with other independent parties and also that the export and other functions of the assessee company is same. The assessee also not explained how the functions of TVSM India is different from the export made and AMP expenditure incurred in Singapore, /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. PT TVS Indonesia Conceptualize the brand promotion strategy in the Indonesian market. Decide whether to opt for -- Decide and allocate the budget for brand promotion activities in the -- Identify third party vendors in the Indonesian market for availing the brand -- the pricing arrangements with the vendors and -- Discussion from time to time on the implementation strategy for brand -- terials (flyers/leaflets/ brochures) -- Monitor the third party vendors in the execution phase of the brand -- -- AMP expenses, it is important to understand that whether TVSM India is promoting a brand in Indonesia as a legal owner or it is assisting PT TVS Indonesia being licensed manufacturer by way of increase of ment of the assessee that PT TVS Indonesia had incurred higher percentage of AMP expenses it means that the economic ownership of TVS brand in Indonesia vests with AE PT TVS Indonesia. However it may be also possible that the percentage of AMP urred by PT TVS Indonesia is less than what the other independent licensed manufacturer would have incurred in Indonesia. If so it implies that, TVSM India is providing services to develop TVS brand in ure incurred by the TVSM India in Indonesia should be reimbursed by the AE along with the mark- 8.5 However as per statement of the assessee, the percentage of AMP expenses incurred by the other independent parties Indonesia is not available Domain. In this scenario it is more appropriate to consider TVSM India as a tested party and it has to be ascertained whether TVSM India has incurred any AMP expenditure in other countries where the spares and vehicles h resulted in that TVSM India has exported vehicles to other countries such as Colombia, Bangladesh, Hong Kong, Japan, Nepal, Singapore and Sri Lanka where TVSM India has not incurred any AMP expenses. It means that due to the presence AE PT TVS the assessee company incurred huge amount as AMP expenditure which clearly indicates that TVSM India is a service provider in respect to AMP AEs cannot pared with the brand promotion expenses incurred by the company in Indonesia as the business model and the market catered to in these two 8.7 The assessee has not explained how the functions of the TVSM India are different in respect to AE PT TVS Indonesia and with other independent parties and also that the export and other functions of the assessee company is same. plained how the functions of TVSM India is different from the export made and AMP expenditure incurred in Singapore, Bangladesh, Hong Kong, Japan and Nepal. Considering the facts of the case the AMP expenses incurred by TVSM India in other countries may be considered as comparable and the ALP of AMP expenses may be computed based on the FAR analysis of TVSM India. The segmental details of TVSM India for Indonesia and other countries are given below: Description Sales (in Rs.) Indonesia 51,17,37,520 Other Countries 1068,48,70,186 The AMP/ Sales Ratio of TVSM India for other countries (export to independent third parties) is arrived at 0.19% against the AMP sales ratio of 25.31% incurred in favour of AE PT TVS Indonesia. 8.8 To find out the mark brand promotion/excess AMP, an independent search was conducted and companies are selected as comparable companies. The margin of 4 comparable companies is annexed as Annexure and the same is 6.12% (OP/OI). 8.9 In view of the discussion made above, the amount which represents the amount that should have been compensate computed hereunder: Advertisement and publicity Total AMP expenses Sales of the assessee to AE AMP/Sales Ratio of the assessee The ALP of the International transaction related to the incurring of AMP expense leading to the creation a marketing intangible is calculated as under: Total sales to AE Arm's length level of AMP exp. (% of sale) Arm's length AMP Amount actually spent on AMP exp. Amount spent in excess as service provider Mark-up @ 6.12% The amount by which the assessee company should have been reimbursed by A.E, and for which the made The ALP calculated on the international transaction in respect to brand promotion has not been determined by the assessee company in accordance with section 92C (3). Hence the arms length price has been cal the provision of sub-sections (1) and (2) of 92C and determined as Rs. 9,72,301 and Rs. 78,70,058 towards reimbursement of excess AMP and mark up on Excess AMP. Hence an adjustment to the income of the assessee amounting to Rs. 78,70,058 tow ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 8 :: Bangladesh, Hong Kong, Japan and Nepal. Considering the facts of the case the AMP expenses incurred by TVSM India in other countries may be considered as comparable and the ALP of AMP expenses may be computed based on the FAR analysis of TVSM India. The segmental details of TVSM India for Indonesia and other countries are given below: Sales (in Rs.) AMP (in Rs.) AMP/Sales Ratio 51,17,37,520 12,95,68,031 25.31% 1068,48,70,186 2,03,31,969 (14,99,00,000 - 12,95,68,031) (total advt. exp. In Forex Advt. exp in Indonesia) 0.19% The AMP/ Sales Ratio of TVSM India for other countries (export to independent third parties) is arrived at 0.19% against the AMP sales ratio of 25.31% incurred in favour of AE PT TVS Indonesia. 8.8 To find out the mark-up of ALP of the AMP services rendered towards brand promotion/excess AMP, an independent search was conducted and companies are selected as comparable companies. The margin of 4 comparable companies is annexed as Annexure and the same is 6.12% (OP/OI). 8.9 In view of the discussion made above, the amount which represents the amount that should have been compensated to the assessee company is re Particulars Amount in Rs. Advertisement and publicity 12,95,68,031 Total AMP expenses 14,99,00,000 Sales of the assessee to AE 51,17,37,520 AMP/Sales Ratio of the assessee 25.31% International transaction related to the incurring of AMP expense leading to the creation a marketing intangible is calculated as under: Particulars Amount in INR Arm's length level of AMP exp. (% of sale) Amount actually spent on AMP exp. Amount spent in excess as service provider The amount by which the assessee company should have been reimbursed by A.E, and for which the adjustment is proposed to be The ALP calculated on the international transaction in respect to brand promotion has not been determined by the assessee company in accordance with section 92C (3). Hence the arms length price has been calculated as per sections (1) and (2) of 92C and determined as Rs. 9,72,301 and Rs. 78,70,058 towards reimbursement of excess AMP and mark up on Excess AMP. Hence an adjustment to the income of the assessee amounting to Rs. 78,70,058 towards mark-up on service rendered for brand /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. Bangladesh, Hong Kong, Japan and Nepal. Considering the facts of the case the AMP expenses incurred by TVSM India in other countries may be considered as comparable and the ALP of AMP expenses may be computed based on the FAR analysis of TVSM India. The segmental details of TVSM India AMP/Sales Ratio 25.31% The AMP/ Sales Ratio of TVSM India for other countries (export to independent third parties) is arrived at 0.19% against the AMP sales ratio of 25.31% up of ALP of the AMP services rendered towards brand promotion/excess AMP, an independent search was conducted and 4 companies are selected as comparable companies. The margin of 4 comparable 8.9 In view of the discussion made above, the amount which represents the d to the assessee company is re- International transaction related to the incurring of AMP expense leading to the creation a marketing intangible is calculated as under: Amount in INR 51,17,37,520 0.19% 9,72,301 12,95,68,031 12,85,95,729 78,70,058 13,64,65,787 The ALP calculated on the international transaction in respect to brand promotion has not been determined by the assessee company in accordance culated as per sections (1) and (2) of 92C and determined as Rs. 9,72,301 and Rs. 78,70,058 towards reimbursement of excess AMP and mark up on Excess AMP. Hence an adjustment to the income of the assessee up on service rendered for brand promotion and Rs. 12,85,95,729 towards reimbursement of expenditure incurred towards brand promotion are to be made to the income of the assessee. The important point is to allocate the expenditure to AE segment, need not to be a international transaction but it should be related to AE segment. The assessee has not produced any uncontrolled comparable to show that this type of brand promotion expenditure is routine in the industry. No independent enterprises would incur huge expenditure on market promotion and brand promotion in the circumstances that ultimate benefit goes to AE. Though the assessee is a legal owner of the brand, by incurring such expenditure on the brand, benefit goes to AE PT TVS Ind whole process the actual advantage is accruing to the AE. Not only the sale is going up in Indonesia, due to extraordinary expenditure incurred by the assessee on AMP, export cost of goods from TVSM India to the assessee has gone up which reduces the profitability of the assessee. Therefore, an upward adjustment is required.” 4.2 Aggrieved, the assessee preferred an objection before the DRP which was dismissed. Being aggrieved, the assessee is now in appeal before us. 4.3 Assailing the action of the TPO, the Ld. AR submitted that, AMP expenses cannot be regarded as an international transaction under Chapter X of the Act. In this regard, he relied upon the decisions of the Hon’ble Delhi High Court in the cases ITR 117), Bosch & Laumb Eye Care India Pvt Ltd vs. Addl. CIT (381 ITR 227) and Honda Siel Power Products Pvt Ltd vs. DCIT (237 taxman 304). He also relied upon several decisions of the Tribunal rendered following the foregoing judgments o (supra). The Ld.AR further submitted that the lower authorities did not correctly appreciate the basic facts and therefore erroneously made the impugned adjustment. The Ld. AR explained to us that, in all the AMP ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 9 :: promotion and Rs. 12,85,95,729 towards reimbursement of expenditure incurred towards brand promotion are to be made to the income of the The important point is to allocate the expenditure to AE segment, for this it need not to be a international transaction but it should be related to AE segment. The assessee has not produced any uncontrolled comparable to show that this type of brand promotion expenditure is routine in the industry. rprises would incur huge expenditure on market promotion and brand promotion in the circumstances that ultimate benefit goes to AE. Though the assessee is a legal owner of the brand, by incurring such expenditure on the brand, benefit goes to AE PT TVS Indonesia. In this whole process the actual advantage is accruing to the AE. Not only the sale is going up in Indonesia, due to extraordinary expenditure incurred by the assessee on AMP, export cost of goods from TVSM India to the assessee has educes the profitability of the assessee. Therefore, an upward ” Aggrieved, the assessee preferred an objection before the DRP which was dismissed. Being aggrieved, the assessee is now in appeal Assailing the action of the TPO, the Ld. AR submitted that, AMP expenses cannot be regarded as an international transaction under Chapter X of the Act. In this regard, he relied upon the decisions of the Hon’ble Delhi High Court in the cases of Maruti Suzuki India Ltd (381 Bosch & Laumb Eye Care India Pvt Ltd vs. Addl. CIT Honda Siel Power Products Pvt Ltd vs. DCIT . He also relied upon several decisions of the Tribunal rendered following the foregoing judgments of Hon’ble Delhi High Court (supra). The Ld.AR further submitted that the lower authorities did not correctly appreciate the basic facts and therefore erroneously made the impugned adjustment. The Ld. AR explained to us that, in all the AMP /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. promotion and Rs. 12,85,95,729 towards reimbursement of expenditure incurred towards brand promotion are to be made to the income of the for this it need not to be a international transaction but it should be related to AE segment. The assessee has not produced any uncontrolled comparable to show that this type of brand promotion expenditure is routine in the industry. rprises would incur huge expenditure on market promotion and brand promotion in the circumstances that ultimate benefit goes to AE. Though the assessee is a legal owner of the brand, by incurring onesia. In this whole process the actual advantage is accruing to the AE. Not only the sale is going up in Indonesia, due to extraordinary expenditure incurred by the assessee on AMP, export cost of goods from TVSM India to the assessee has educes the profitability of the assessee. Therefore, an upward Aggrieved, the assessee preferred an objection before the DRP which was dismissed. Being aggrieved, the assessee is now in appeal Assailing the action of the TPO, the Ld. AR submitted that, AMP expenses cannot be regarded as an international transaction under Chapter X of the Act. In this regard, he relied upon the decisions of the ki India Ltd (381 Bosch & Laumb Eye Care India Pvt Ltd vs. Addl. CIT Honda Siel Power Products Pvt Ltd vs. DCIT . He also relied upon several decisions of the Tribunal f Hon’ble Delhi High Court (supra). The Ld.AR further submitted that the lower authorities did not correctly appreciate the basic facts and therefore erroneously made the impugned adjustment. The Ld. AR explained to us that, in all the AMP cases, impugned by the Revenue, the position taken is that, the global foreign headquarter / AE owns the brands and the subsidiary in India was incurring marketing expenses and therefore, the Revenue took a view that the incurrence of marketing expenses by the Subsidiary marketing tangibles which enhanced the brand values owned by the foreign company and therefore the foreign company should reimburse the Indian subsidiary for its marketing spend with a mark foregoing principle, the Ld. AR submitted assessee was the owner of the brand and its subsidiary was in Indonesia and therefore, the AMP spends ought to be incurred only by the brand owner, i.e. the assessee and if the subsidiary in Indonesia incurs any AMP expenses, then the foreign AE ought to recover the same with a mark from the assessee. According to the Ld. AR therefore, the Revenue cannot blow hot and cold by taking completely contrary positions across different cases. The Ld. AR accordingly urged that the be set aside. He also additionally objected to the methodology of computing the adjustment and his written arguments, which has been taken on record. 4.4 Per contra, the Ld. DR relied on the decision of this Tribunal in the assessee’s own case for AY 2011 action of the TPO/DRP/AO. ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 10 :: by the Revenue, the position taken is that, the global foreign headquarter / AE owns the brands and the subsidiary in India was incurring marketing expenses and therefore, the Revenue took a view that the incurrence of marketing expenses by the Subsidiary marketing tangibles which enhanced the brand values owned by the foreign company and therefore the foreign company should reimburse the Indian subsidiary for its marketing spend with a mark-up. Applying the foregoing principle, the Ld. AR submitted that, in the present case, the assessee was the owner of the brand and its subsidiary was in Indonesia and therefore, the AMP spends ought to be incurred only by the brand owner, i.e. the assessee and if the subsidiary in Indonesia incurs any AMP , then the foreign AE ought to recover the same with a mark from the assessee. According to the Ld. AR therefore, the Revenue cannot blow hot and cold by taking completely contrary positions across different cases. The Ld. AR accordingly urged that the transfer pricing adjustment be set aside. He also additionally objected to the methodology of computing the adjustment and his written arguments, which has been Per contra, the Ld. DR relied on the decision of this Tribunal in the ssee’s own case for AY 2011-12, wherein, the Tribunal has upheld the action of the TPO/DRP/AO. /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. by the Revenue, the position taken is that, the global foreign headquarter / AE owns the brands and the subsidiary in India was incurring marketing expenses and therefore, the Revenue took a view that the incurrence of marketing expenses by the Subsidiary created marketing tangibles which enhanced the brand values owned by the foreign company and therefore the foreign company should reimburse the up. Applying the that, in the present case, the assessee was the owner of the brand and its subsidiary was in Indonesia and therefore, the AMP spends ought to be incurred only by the brand owner, i.e. the assessee and if the subsidiary in Indonesia incurs any AMP , then the foreign AE ought to recover the same with a mark-up from the assessee. According to the Ld. AR therefore, the Revenue cannot blow hot and cold by taking completely contrary positions across different transfer pricing adjustment be set aside. He also additionally objected to the methodology of computing the adjustment and his written arguments, which has been Per contra, the Ld. DR relied on the decision of this Tribunal in the 12, wherein, the Tribunal has upheld the 4.5 We have heard both the parties and perused the material on record. It is noted that the assessee had incurred expenditure towards advertisement and promotio has contended that, it was the economic owner of the brand ‘TVS’ therefore this expenditure was incurred for its own benefit as it enhanced its brand value. Further, the assessee has also directly sold its produ Indonesia, which in assessee’s view, necessitated incurrence of AMP expenses. At the same time, the fact also remains that the AE being the licensed manufacturer was legally entitled to exploit the economic ownership of brand in Indonesia and thus t marketing distribution was required to be borne by it. The Ld. AR however has averred that, the AE would have incurred marketing expenses as well and that there was nothing brought on record by the TPO that the marketing expenses incurred by the Indonesian AE was less than normal. He further urged that there was no arrangement or agreement between the assessee and the AE in this regard, and therefore, there was no international transaction within the meaning of Section 92B of the Ac vehemently stressed on the incorrect methodology followed by the TPO to make the transfer pricing adjustment i.e. the bright line test, which had been specifically rejected by the Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communica ITR 118) and for these reasons, he has urged that the decision rendered ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 11 :: We have heard both the parties and perused the material on record. It is noted that the assessee had incurred expenditure towards advertisement and promotion of TVS products in Indonesia. The assessee has contended that, it was the economic owner of the brand ‘TVS’ therefore this expenditure was incurred for its own benefit as it enhanced its brand value. Further, the assessee has also directly sold its produ Indonesia, which in assessee’s view, necessitated incurrence of AMP expenses. At the same time, the fact also remains that the AE being the licensed manufacturer was legally entitled to exploit the economic ownership of brand in Indonesia and thus the risks associated with marketing distribution was required to be borne by it. The Ld. AR however has averred that, the AE would have incurred marketing expenses as well and that there was nothing brought on record by the TPO that the ncurred by the Indonesian AE was less than normal. He further urged that there was no arrangement or agreement between the assessee and the AE in this regard, and therefore, there was no international transaction within the meaning of Section 92B of the Ac vehemently stressed on the incorrect methodology followed by the TPO to make the transfer pricing adjustment i.e. the bright line test, which had been specifically rejected by the Hon’ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT (374 and for these reasons, he has urged that the decision rendered /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. We have heard both the parties and perused the material on record. It is noted that the assessee had incurred expenditure towards n of TVS products in Indonesia. The assessee has contended that, it was the economic owner of the brand ‘TVS’ therefore this expenditure was incurred for its own benefit as it enhanced its brand value. Further, the assessee has also directly sold its products in Indonesia, which in assessee’s view, necessitated incurrence of AMP expenses. At the same time, the fact also remains that the AE being the licensed manufacturer was legally entitled to exploit the economic he risks associated with marketing distribution was required to be borne by it. The Ld. AR however has averred that, the AE would have incurred marketing expenses as well and that there was nothing brought on record by the TPO that the ncurred by the Indonesian AE was less than normal. He further urged that there was no arrangement or agreement between the assessee and the AE in this regard, and therefore, there was no international transaction within the meaning of Section 92B of the Act. He vehemently stressed on the incorrect methodology followed by the TPO to make the transfer pricing adjustment i.e. the bright line test, which had been specifically rejected by the Hon’ble Delhi High Court in the case of tions India (P.) Ltd. v. CIT (374 and for these reasons, he has urged that the decision rendered by this Tribunal in their own case for AY 2011 incuriam. 4.6 Having considered the gamut of facts in light of the prevailing jurisprudence, we find that slightly different than the decision of Hon’ble Delhi High Court (supra), but at the same time, the relevance to the impugned issue at hand. In the decisions rendered by Hon’ble Delhi High Court (supra), the Hon’ble Court upheld the assessee’s plea that the Indian subsidiary had rightly incurred the AMP expenses in its own right for the licensed products being marketed in India and that such AMP expenses could not be said to be recouped from the foreign holding company on the pretext that since the legal ownership of brand vested with the latter, such AMP expenses benefitted t company by enhancing its brand value. The Hon’ble High Court held that, it was necessary for the Revenue to show existence of some arrangement or understanding between the parties regarding the AMP spends and it particularly negated the 4.7 Now in the present case before us, it is the assessee which is the Indian holding company having ownership of the brand, which it has licensed to the foreign AE, PT TVS Indonesia. It is not known whether the foreign AE had incurred any marketing expenses in its own right. Also, it ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 12 :: by this Tribunal in their own case for AY 2011-12 stands rendered Having considered the gamut of facts in light of the prevailing jurisprudence, we find that the facts involved in the present case are slightly different than the decision of Hon’ble Delhi High Court (supra), but at the same time, the ratio decidendi emerging from this decision is of relevance to the impugned issue at hand. In the decisions rendered by Hon’ble Delhi High Court (supra), the Hon’ble Court upheld the assessee’s plea that the Indian subsidiary had rightly incurred the AMP expenses in ght for the licensed products being marketed in India and that such AMP expenses could not be said to be recouped from the foreign holding company on the pretext that since the legal ownership of brand vested with the latter, such AMP expenses benefitted the foreign holding company by enhancing its brand value. The Hon’ble High Court held that, it was necessary for the Revenue to show existence of some arrangement or understanding between the parties regarding the AMP spends and it particularly negated the application of bright line test. Now in the present case before us, it is the assessee which is the Indian holding company having ownership of the brand, which it has licensed to the foreign AE, PT TVS Indonesia. It is not known whether the had incurred any marketing expenses in its own right. Also, it /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. 12 stands rendered per Having considered the gamut of facts in light of the prevailing the facts involved in the present case are slightly different than the decision of Hon’ble Delhi High Court (supra), ing from this decision is of relevance to the impugned issue at hand. In the decisions rendered by Hon’ble Delhi High Court (supra), the Hon’ble Court upheld the assessee’s plea that the Indian subsidiary had rightly incurred the AMP expenses in ght for the licensed products being marketed in India and that such AMP expenses could not be said to be recouped from the foreign holding company on the pretext that since the legal ownership of brand he foreign holding company by enhancing its brand value. The Hon’ble High Court held that, it was necessary for the Revenue to show existence of some arrangement or understanding between the parties regarding the AMP spends and it Now in the present case before us, it is the assessee which is the Indian holding company having ownership of the brand, which it has licensed to the foreign AE, PT TVS Indonesia. It is not known whether the had incurred any marketing expenses in its own right. Also, it is not discernible from the material placed on record as to whether the marketing expenses incurred by the assessee was only towards its own business in Indonesia and for enhancement of its br the aforesaid details have been brought on record by the assessee. Likewise, the TPO has also not identified the ‘arrangement’ between the assessee and Indonesian AE, basis which he is inferring an ‘international transaction’. Going by t (supra), ordinarily the foreign AE ought to have incurred the AMP expenses in Indonesia as it was the economic owner of the brand in Indonesia wherein it was licensed to manufacture and market the products. Now whether, the AMP expenses was incurred by foreign AE or not, and whether the AMP expenses incurred by the assessee in Indonesia resulted in any benefit to the foreign Indonesian subsidiary, or whether there was any arrangement between the parties is not 4.8 In light of the above therefore, it cannot be said that the decision of Hon’ble Delhi High Court (supra) can be squarely applied to the facts involved in the present case. However, viz., the bright line test adopted in the case of Sony Ericsson (supra). Court has held in the case of Maru needs to establish the existence of international transaction before ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 13 :: is not discernible from the material placed on record as to whether the marketing expenses incurred by the assessee was only towards its own business in Indonesia and for enhancement of its brand value. None of the aforesaid details have been brought on record by the assessee. Likewise, the TPO has also not identified the ‘arrangement’ between the assessee and Indonesian AE, basis which he is inferring an ‘international transaction’. Going by the ratio laid down by Hon’ble Delhi High Court (supra), ordinarily the foreign AE ought to have incurred the AMP expenses in Indonesia as it was the economic owner of the brand in Indonesia wherein it was licensed to manufacture and market the w whether, the AMP expenses was incurred by foreign AE or not, and whether the AMP expenses incurred by the assessee in Indonesia resulted in any benefit to the foreign Indonesian subsidiary, or whether there was any arrangement between the parties is not known. In light of the above therefore, it cannot be said that the decision of Hon’ble Delhi High Court (supra) can be squarely applied to the facts involved in the present case. However, the benchmarking he bright line test adopted by the TPO has been specifically rejected in the case of Sony Ericsson (supra). Further, the Hon'ble Delhi High Court has held in the case of Maruti Suzuki Ltd (supra) that the R needs to establish the existence of international transaction before /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. is not discernible from the material placed on record as to whether the marketing expenses incurred by the assessee was only towards its own and value. None of the aforesaid details have been brought on record by the assessee. Likewise, the TPO has also not identified the ‘arrangement’ between the assessee and Indonesian AE, basis which he is inferring an ‘international he ratio laid down by Hon’ble Delhi High Court (supra), ordinarily the foreign AE ought to have incurred the AMP expenses in Indonesia as it was the economic owner of the brand in Indonesia wherein it was licensed to manufacture and market the w whether, the AMP expenses was incurred by foreign AE or not, and whether the AMP expenses incurred by the assessee in Indonesia resulted in any benefit to the foreign Indonesian subsidiary, or whether known. In light of the above therefore, it cannot be said that the decision of Hon’ble Delhi High Court (supra) can be squarely applied to the facts marking methodology by the TPO has been specifically rejected he Hon'ble Delhi High ti Suzuki Ltd (supra) that the Revenue needs to establish the existence of international transaction before undertaking benchmarking of AMP expenses. Hence, decidendi laid down in these judgments,we agree with the assessee that the approach of the TPO cannot be upheld. judgments of Hon’ble Delhi High Court (supra) ha by this Tribunal in assessee’s own case for AY 2011 regard to the change in legal position on this issue, consequent to these judgments (supra), the earlier decision rendered in assessee’s own case for AY 2011-12 is no longer valid. 4.9 Having held so above, at the cost of repetition, it is observed that, even the assessee has not brought on record all the relevant facts concerning the Indonesian AE, the AMP expenses incurred by the latter and if not, then whether ca incurred expenses on its behalf etc. Also, the nature of AMP expenses incurred by the assessee, reasons for such excessive AMP costs vis sales etc. have also not been explained before the TPO. Without these facts being brought on record, one cannot objectively ascertain and decide as to whether there exists any arrangement between the parties at all or not. For the aforesaid reasons and in fitness of the matters, aside the order passed by the AO on AMP to the file of AO/TPO for examining it afresh. issue shall keep in mind the ratio laid down in the decisions of the Hon’ble ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 14 :: ndertaking benchmarking of AMP expenses. Hence, applying this laid down in these judgments,we agree with the assessee that the approach of the TPO cannot be upheld. We note that the aforesaid judgments of Hon’ble Delhi High Court (supra) had not been considered by this Tribunal in assessee’s own case for AY 2011-12. Hence, having regard to the change in legal position on this issue, consequent to these judgments (supra), the earlier decision rendered in assessee’s own case no longer valid. Having held so above, at the cost of repetition, it is observed that, even the assessee has not brought on record all the relevant facts concerning the Indonesian AE, the AMP expenses incurred by the latter and if not, then whether can it be said that the assessee had indeed incurred expenses on its behalf etc. Also, the nature of AMP expenses incurred by the assessee, reasons for such excessive AMP costs vis sales etc. have also not been explained before the TPO. Without these acts being brought on record, one cannot objectively ascertain and decide as to whether there exists any arrangement between the parties at all or not. For the aforesaid reasons and in fitness of the matters, aside the order passed by the AO on AMP expenses and restore the same to the file of AO/TPO for examining it afresh. The TPO while deciding this issue shall keep in mind the ratio laid down in the decisions of the Hon’ble /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. applying this ratio laid down in these judgments,we agree with the assessee that We note that the aforesaid d not been considered 12. Hence, having regard to the change in legal position on this issue, consequent to these judgments (supra), the earlier decision rendered in assessee’s own case Having held so above, at the cost of repetition, it is observed that, even the assessee has not brought on record all the relevant facts concerning the Indonesian AE, the AMP expenses incurred by the latter n it be said that the assessee had indeed incurred expenses on its behalf etc. Also, the nature of AMP expenses incurred by the assessee, reasons for such excessive AMP costs vis-à-vis sales etc. have also not been explained before the TPO. Without these acts being brought on record, one cannot objectively ascertain and decide as to whether there exists any arrangement between the parties at all or not. For the aforesaid reasons and in fitness of the matters, we set expenses and restore the same The TPO while deciding this issue shall keep in mind the ratio laid down in the decisions of the Hon’ble Delhi High Court (supra) and/or any subsequent developments on this issue, and shall pass a speaking order after allowing assessee sufficient opportunity of being heard. 4.10 For the reason set out above therefore, this ground is accordingly allowed for statistical purposes. 5. Ground Nos.8 adjustment on account of royalty of Rs.2,15,56,000/ 5.1 Brief facts are that, the TPO noted that the assessee did not earn any royalty despite providing use of technical support/brand to its AE in Indonesia. At the same time, he observed that, the assessee company received Rs.69,03,943/- sale. Therefore, the TPO required the assessee to explain as why transfer pricing adjustment in relation to royalty should not be m factory sale in the relevant AY as well. The assessee is noted to have replied that, since the AE was incurring losses at gross profit level, the assessee had decided not to charge royalty from it. The TPO however did not agree to this rationale and held that, royalty is a charge on profits and is not an appropriation of profits and therefore irrespective whether the AE incurred losses or not, on arm’s length basis, the assessee ought to have charged the royalty. The TPO accordingly computed pricing adjustment towards royalty receivable at the rate of 2% at ex ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 15 :: Delhi High Court (supra) and/or any subsequent developments on this and shall pass a speaking order after allowing assessee sufficient opportunity of being heard. For the reason set out above therefore, this ground is accordingly allowed for statistical purposes. & 9 are in relation to the transfer pricing adjustment on account of royalty of Rs.2,15,56,000/-. Brief facts are that, the TPO noted that the assessee did not earn any royalty despite providing use of technical support/brand to its AE in e same time, he observed that, the assessee company - as royalty during AY 2010-11 @ 2% of ex sale. Therefore, the TPO required the assessee to explain as why transfer pricing adjustment in relation to royalty should not be made @ 2% of ex factory sale in the relevant AY as well. The assessee is noted to have replied that, since the AE was incurring losses at gross profit level, the assessee had decided not to charge royalty from it. The TPO however did nale and held that, royalty is a charge on profits and is not an appropriation of profits and therefore irrespective whether the AE incurred losses or not, on arm’s length basis, the assessee ought to have charged the royalty. The TPO accordingly computed upward transfer pricing adjustment towards royalty receivable at the rate of 2% at ex /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. Delhi High Court (supra) and/or any subsequent developments on this and shall pass a speaking order after allowing assessee sufficient For the reason set out above therefore, this ground is accordingly are in relation to the transfer pricing Brief facts are that, the TPO noted that the assessee did not earn any royalty despite providing use of technical support/brand to its AE in e same time, he observed that, the assessee company 11 @ 2% of ex-factory sale. Therefore, the TPO required the assessee to explain as why transfer ade @ 2% of ex- factory sale in the relevant AY as well. The assessee is noted to have replied that, since the AE was incurring losses at gross profit level, the assessee had decided not to charge royalty from it. The TPO however did nale and held that, royalty is a charge on profits and is not an appropriation of profits and therefore irrespective whether the AE incurred losses or not, on arm’s length basis, the assessee ought to upward transfer pricing adjustment towards royalty receivable at the rate of 2% at ex- factory sale at Rs.2,15,56,000/ the DRP. Aggrieved by the same, the assessee is in 5.2 Before us the Ld. AR veh agreement, as it stood in FY 2009 provided that, unless the licensee achieves monthly sales of 10,000 numbers of two wheelers, no royalty would be charged and therefore according to him, no adjustment in terms of this amended agreement was warranted. Per contra, the Ld. CIT, DR relied upon the appellate order passed by this Tribunal in assessee’s own case for earlier AY 2011 wherein identical adjustment had been upheld. 5.3 We have heard both the parties and perused the material on record. It is noted that this issue had come up for consideration before this Tribunal in the assessee’s own case in the earlier AY 2011 arguments were raised by the assessee then as well, and, after considering the same, upheld the action of the TPO by holding as under: 11. The next ground is with regard to charging of notional royalty to tax. 12. The facts of the issue are that The TPO has given a show cause in which the assessee was asked to justify the reason for non the financial year 2010 charged on ex-factory sale. In response, the assessee submitted that the licensee PT TVS Indonesia was continuously incu through an amendment to the agreement agreed that royalty will be waived till such time the Licensee achieves a monthly sales of 10,000 numbers of two wheelers (i.e. deferment). According to DRP, the reasons given by the assessee are not sufficient and nothing new has been submitted before the ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 16 :: factory sale at Rs.2,15,56,000/-. This action of the TPO was upheld by the DRP. Aggrieved by the same, the assessee is in appeal before us. Before us the Ld. AR vehemently argued that the royalty agreement, as it stood in FY 2009-10, had been amended later on, which provided that, unless the licensee achieves monthly sales of 10,000 numbers of two wheelers, no royalty would be charged and therefore no adjustment in terms of this amended agreement was warranted. Per contra, the Ld. CIT, DR relied upon the appellate order passed by this Tribunal in assessee’s own case for earlier AY 2011 wherein identical adjustment had been upheld. rd both the parties and perused the material on record. It is noted that this issue had come up for consideration before this Tribunal in the assessee’s own case in the earlier AY 2011 arguments were raised by the assessee then as well, and, after considering the same, upheld the action of the TPO by holding as 11. The next ground is with regard to charging of notional royalty to tax. 12. The facts of the issue are that The TPO has given a show cause in which was asked to justify the reason for non-receipt of royalty during the financial year 2010-11, whereas during F.Y2009-10,2% royalty was factory sale. In response, the assessee submitted that the licensee PT TVS Indonesia was continuously incurring losses and the assessee through an amendment to the agreement agreed that royalty will be waived till such time the Licensee achieves a monthly sales of 10,000 numbers of two wheelers (i.e. deferment). According to DRP, the reasons given by the see are not sufficient and nothing new has been submitted before the /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. . This action of the TPO was upheld by appeal before us. emently argued that the royalty 10, had been amended later on, which provided that, unless the licensee achieves monthly sales of 10,000 numbers of two wheelers, no royalty would be charged and therefore no adjustment in terms of this amended agreement was warranted. Per contra, the Ld. CIT, DR relied upon the appellate order passed by this Tribunal in assessee’s own case for earlier AY 2011-12 rd both the parties and perused the material on record. It is noted that this issue had come up for consideration before this Tribunal in the assessee’s own case in the earlier AY 2011-12 and similar arguments were raised by the assessee then as well, and, the Tribunal, after considering the same, upheld the action of the TPO by holding as 11. The next ground is with regard to charging of notional royalty to tax. 12. The facts of the issue are that The TPO has given a show cause in which receipt of royalty during 10,2% royalty was factory sale. In response, the assessee submitted that the rring losses and the assessee through an amendment to the agreement agreed that royalty will be waived till such time the Licensee achieves a monthly sales of 10,000 numbers of two wheelers (i.e. deferment). According to DRP, the reasons given by the see are not sufficient and nothing new has been submitted before the DRP. Hence, the DRP uphold the decision of the TPO. Against this, the assessee is in appeal before us. 13. We have heard both the parties and perused the material on record. In this case, assessee following the mercantile system of accounting, there is no question of deferment of receipt of income since the assessee was in a position to create the document as the transaction with AE which cannot be appreciated. It is only afterthought so a Accordingly, we are of the opinion that lower authorities were justified treating the accrued royalty as income of assessee. Thus, this ground is rejected. 5.4 Following the above decision (supra), this ground is al 6. Ground No.10 is against the disallowance of u/s.14A of the Act read with Rule 8D. 6.1 Brief facts are that, the AO noted that assessee has earned dividend income of Rs.2,42,00,000/ the tune of Rs.930,92,00,000/ u/s.14A r.w.r.8D was required. The AO accordi disallowance of Rs.8,28,74,299/ fact that the assessee had suomoto disallowed sum of Rs.94,55,825/ the AO made further disallowance of Rs.7,84,18,474/ AO was upheld by the DRP. 6.2 Heard both the parties. assessee has own funds of Rs.1121 Crs. as against investments of Rs.930 Crs as on 31.03.2012. In light of the that since its own funds it, the question of making disallowance out of interest paid on borrowed ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 17 :: DRP. Hence, the DRP uphold the decision of the TPO. Against this, the assessee is in appeal before us. 13. We have heard both the parties and perused the material on record. In this assessee following the mercantile system of accounting, there is no question of deferment of receipt of income since the assessee was in a position to create the document as the transaction with AE which cannot be appreciated. It is only afterthought so as to postpone the liability of taxation. Accordingly, we are of the opinion that lower authorities were justified treating the accrued royalty as income of assessee. Thus, this ground is rejected. Following the above decision (supra), this ground is al is against the disallowance of u/s.14A of the Act Brief facts are that, the AO noted that assessee has earned dividend income of Rs.2,42,00,000/- and held investments as on 31.03.2012 to the tune of Rs.930,92,00,000/-. Therefore, according to him, disallowance u/s.14A r.w.r.8D was required. The AO accordingly computed disallowance of Rs.8,28,74,299/- under Rule 8D. Having regard to the fact that the assessee had suomoto disallowed sum of Rs.94,55,825/ the AO made further disallowance of Rs.7,84,18,474/-. The action of the AO was upheld by the DRP. Aggrieved, the assessee is before us. Heard both the parties. It was brought to our notice that, the assessee has own funds of Rs.1121 Crs. as against investments of Rs.930 Crs as on 31.03.2012. In light of the aforesaid fact, the assessee claimed its own funds were much higher than the investment made by the question of making disallowance out of interest paid on borrowed /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. DRP. Hence, the DRP uphold the decision of the TPO. Against this, the 13. We have heard both the parties and perused the material on record. In this assessee following the mercantile system of accounting, there is no question of deferment of receipt of income since the assessee was in a position to create the document as the transaction with AE which cannot be s to postpone the liability of taxation. Accordingly, we are of the opinion that lower authorities were justified treating the accrued royalty as income of assessee. Thus, this ground is rejected. Following the above decision (supra), this ground is also rejected. is against the disallowance of u/s.14A of the Act Brief facts are that, the AO noted that assessee has earned dividend and held investments as on 31.03.2012 to . Therefore, according to him, disallowance ngly computed under Rule 8D. Having regard to the fact that the assessee had suomoto disallowed sum of Rs.94,55,825/-, . The action of the ved, the assessee is before us. It was brought to our notice that, the assessee has own funds of Rs.1121 Crs. as against investments of Rs.930 the assessee claimed much higher than the investment made by the question of making disallowance out of interest paid on borrowed funds in terms of Rule 8D(2) notice the decision of the Hon'ble Bombay High Co Bank Ltd. v. DCIT (2014) 366 ITR 505 \"where assessee's own funds and other non more than investment in tax free securities, impugned order passed by the Assessing Officer disallow section 14A of the Act ( to be set aside\". We note that Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 laid the proposition of law that and interest bearing funds, the presumption is that interest free funds were utilized for interest free investme from the factual matrix discussed supra, that funds more than Rs 1121 the tune of Rs. 930 crores, therefore, the presumption in the cases of Reliance Utilities & Power Ltd supra is clearly applicable and the Ld. DR could not demonstrate that this presumption is factually incorrect, therefore, the disallowance made under section 14Aread with 8D(2)(ii) of the Rules, was not warranted 6.3 Coming to disallowance under Rule 8D(2)(iii), it is noted that t Special Bench of this Tribunal in the case of ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 18 :: funds in terms of Rule 8D(2)(ii) did not arise. The Ld. AR brought to our of the Hon'ble Bombay High Court in the case of Bank Ltd. v. DCIT (2014) 366 ITR 505 wherein it was \"where assessee's own funds and other non-interest bearing funds were more than investment in tax free securities, impugned order passed by the Assessing Officer disallowing a part of interest payments section 14A of the Act (read with rule 8D(2)(ii) of I.T Rules, 1962 . We note that Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 e proposition of law that, when there are both interest free funds and interest bearing funds, the presumption is that interest free funds were utilized for interest free investment and advances. Thus, we note tual matrix discussed supra, that assessee had total own 1121 crores and the total investment made only to crores, therefore, the presumption in the cases of Reliance Utilities & Power Ltd supra is clearly applicable and the Ld. DR ate that this presumption is factually incorrect, llowance made under section 14Aread with 8D(2)(ii) of the Rules, was not warranted and is directed to be deleted. Coming to disallowance under Rule 8D(2)(iii), it is noted that t Special Bench of this Tribunal in the case of ACIT v. Vireet Investment /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. The Ld. AR brought to our urt in the case of HDFC wherein it was held that interest bearing funds were more than investment in tax free securities, impugned order passed by ing a part of interest payments under le 8D(2)(ii) of I.T Rules, 1962) needs . We note that Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 has when there are both interest free funds and interest bearing funds, the presumption is that interest free funds nt and advances. Thus, we note assessee had total own crores and the total investment made only to crores, therefore, the presumption in the cases of Reliance Utilities & Power Ltd supra is clearly applicable and the Ld. DR ate that this presumption is factually incorrect, llowance made under section 14Aread with Rule is directed to be deleted. Coming to disallowance under Rule 8D(2)(iii), it is noted that the ACIT v. Vireet Investment (P.) Ltd. reported in [2017] 82 taxmann.com 415 the dividend yielding investments are to be considered in computation of disallowance under this Rule. In this re also referred to the revised computation of disallowance in terms of Rule 8D(2)(iii) with reference to dividend yielding investments, which was placed at Page 106 of the Paper Book. Respectfully following the decision of Special Bench (supra), t provided by the assessee andre 14A read with Rule 8D(2)(iii) accordingly allowed. 7. Ground No.11 commission paid to non Rs.26,58,53,696/-. 7.1 The AO noted that, the assessee has made payments to non resident Indians abroad to the tune of Rs.26,58,53,696/ agency commission. According to the AO, the assessee has not deducted tax at source. When confronted, the assessee had submitted that, these are payments made to foreign agents for the purpose of promoting sale of products of the assessee abroad. provided by the agent in India, arise in India and consequently the assessee was not under any obligation ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 19 :: (P.) Ltd. reported in [2017] 82 taxmann.com 415, has held that only the dividend yielding investments are to be considered in computation of disallowance under this Rule. In this regard, the Ld. AR for the assessee also referred to the revised computation of disallowance in terms of Rule 8D(2)(iii) with reference to dividend yielding investments, which was placed at Page 106 of the Paper Book. Respectfully following the decision pecial Bench (supra), the AO is directed to verify the computation provided by the assessee andre-compute the disallowance under section (2)(iii) accordingly. This ground is therefore partly is against the disallowance of export agency commission paid to non-residents u/s.40(a)(i) of the Act, to the tune of The AO noted that, the assessee has made payments to non resident Indians abroad to the tune of Rs.26,58,53,696/- ncy commission. According to the AO, the assessee has not deducted tax at source. When confronted, the assessee had submitted that, these are payments made to foreign agents for the purpose of promoting sale of products of the assessee abroad. Since none of the services were being provided by the agent in India, no income shall be deemed to accrue or arise in India and consequently the assessee was not under any obligation /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. , has held that only the dividend yielding investments are to be considered in computation of gard, the Ld. AR for the assessee also referred to the revised computation of disallowance in terms of Rule 8D(2)(iii) with reference to dividend yielding investments, which was placed at Page 106 of the Paper Book. Respectfully following the decision verify the computation compute the disallowance under section This ground is therefore partly llowance of export agency residents u/s.40(a)(i) of the Act, to the tune of The AO noted that, the assessee has made payments to non- towards export ncy commission. According to the AO, the assessee has not deducted tax at source. When confronted, the assessee had submitted that, these are payments made to foreign agents for the purpose of promoting sale of services were being med to accrue or arise in India and consequently the assessee was not under any obligation to deduct tax at source on such payments under Section 195 of the Act. The AO however did not agree with the submission of the assessee and disallowed the payment of Rs.26,58,53,696/ terms of Section 40(a)(i) of the Act, which was also confirmed by the DRP. 7.2 Aggrieved, the assessee is before us. 7.3 We have heard both the parties and perused the material available on record. We note that this issue has already come up before this Tribunal in the assessee’s own case for earlier assessment year 2011 wherein, this Tribunal was pleased to allow the co assessee by relying on the decision of this Tribunal in AY 2008 noted that the Tribunal has relied on the decision of the jurisdictional High Court in the case of reported in [2014] 367 ITR this Tribunal, as taken note of by us, is as under: 14. The next issue is disallowance of export agency commission paid residents u/s.40(a)(i) of the Act.14.1 The facts of the case are that the assessee has incurred a sum commission. The assessee payments were made to of the products of the assessee. Hence, the assessee stated that the services were rendered by the agents outside India and therefore TDS u/s.195 is not applicable. Also these amounts are not taxable as per Article of the DTAA between India and Singapore as the outside India and not from any AO, the payments were made fo carried on In India. Hence, the payment, though made to Non abroad, is deemed to have arisen in India. AO noted in his assessment that it is the AO and not the assessee or the non commission payment is made can decide about the or Sec.40(a)(i) of the Act. According to AO, ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 20 :: to deduct tax at source on such payments under Section 195 of the Act. r did not agree with the submission of the assessee and disallowed the payment of Rs.26,58,53,696/- for non-deduction of TDS in terms of Section 40(a)(i) of the Act, which was also confirmed by the Aggrieved, the assessee is before us. We have heard both the parties and perused the material available on record. We note that this issue has already come up before this Tribunal in the assessee’s own case for earlier assessment year 2011 wherein, this Tribunal was pleased to allow the contentions of the assessee by relying on the decision of this Tribunal in AY 2008 noted that the Tribunal has relied on the decision of the jurisdictional High Court in the case of CIT v. Faizan Shoes Pvt. Ltd. reported in [2014] 367 ITR 155 (Mad HC). The relevant findings of this Tribunal, as taken note of by us, is as under:- 14. The next issue is disallowance of export agency commission paid residents u/s.40(a)(i) of the Act.14.1 The facts of the case are that the assessee has incurred a sum of Rs.33,23,82,167/- towards export agency commission. The assessee has not deducted tax at source. The above payments were made to foreign agents for the purpose of promoting the sales of the assessee. Hence, the assessee stated that the services rendered by the agents outside India and therefore TDS u/s.195 is not licable. Also these amounts are not taxable as per Article-7Business profits of the DTAA between India and Singapore as the services were rendered from outside India and not from any permanent establishment in India. According to were made for the assessee’s business purposes, which are In India. Hence, the payment, though made to Non-residents at abroad, is deemed to have arisen in India. AO noted in his assessment that it is the AO and not the assessee or the non-resident to who commission payment is made can decide about the applicability of Sec.195(1) or Sec.40(a)(i) of the Act. According to AO, either the assessee company or /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. to deduct tax at source on such payments under Section 195 of the Act. r did not agree with the submission of the assessee and deduction of TDS in terms of Section 40(a)(i) of the Act, which was also confirmed by the We have heard both the parties and perused the material available on record. We note that this issue has already come up before this Tribunal in the assessee’s own case for earlier assessment year 2011-12, ntentions of the assessee by relying on the decision of this Tribunal in AY 2008-09. It is noted that the Tribunal has relied on the decision of the Hon’ble CIT v. Faizan Shoes Pvt. Ltd. . The relevant findings of 14. The next issue is disallowance of export agency commission paid to non- residents u/s.40(a)(i) of the Act.14.1 The facts of the case are that the towards export agency ed tax at source. The above foreign agents for the purpose of promoting the sales of the assessee. Hence, the assessee stated that the services rendered by the agents outside India and therefore TDS u/s.195 is not 7Business profits services were rendered from permanent establishment in India. According to r the assessee’s business purposes, which are residents at abroad, is deemed to have arisen in India. AO noted in his assessment order whom the applicability of Sec.195(1) either the assessee company or the recipients ought to have made an respectively before the Income can exempt the case from the assessee company nor the recipients of commissions have availed the provisions, the AO has no other option but to invoke provisions 40(a)(i) of the Act for non compliance to provisions 195(1) of the AO made an addition of commission. 15. We have heard both the parties and perused the material on similar issue came for consideration before this Tribunal in case in ITA Nos.1707 & 1782/Mds./2012 for order dated 27.04.2016 wherein held as “27. We have considered rival submissions and perused the materials on record. With regard to the issue as to whether the TDS has to be deducted or not when the commission payment made to the overseas agents, the isuse is squarely covered in favour of the assessee by the decision of the Faizan Shoes Pvt appeal of the Revenue, Held, dismissing the appeal, that on a reading of section 9(1)(vii) ,commission paid by the assessee to the non agents would services”. For procuring overseas buyers, wholesalers or the non free on boar was the nature of technical service that the non agents had provided abroad to the assessee was not clear the order of the Assessing Officer. The opening of letters of credit for the purpose of comp an incident of export and, therefore, the non was under assessee, for which agent did not provide running of the business of the commission paid to the non within the definition of “fees for assessee was not liable to deduct tax at commission. 28. Respectfully following the above judgement of the Hon’ble Jurisdictional High court cited supar, the ground raised by the Revenue is dismissed.” In view of the order of the Tribunal cited supra, this ground of allowed. 7.4 Therefore, respectfully following the same, we allow of the appeal and direct deletion of this addition. ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 21 :: the recipients ought to have made an application u/s.195(2) or 195(3) respectively before the Income tax authority, at International Taxation, who can exempt the case from liability to TDS u/s.195(1) of the Act. Since neither company nor the recipients of commissions have availed the provisions, the AO has no other option but to invoke provisions of the 40(a)(i) of the Act for non compliance to provisions 195(1) of the act. Hence, the AO made an addition of Rs.33,23,82,167/- towards export agency 15. We have heard both the parties and perused the material on record. A e came for consideration before this Tribunal in assessee's own case in ITA Nos.1707 & 1782/Mds./2012 for assessment year 2008- order dated 27.04.2016 wherein held as follows:- “27. We have considered rival submissions and perused the materials rd. With regard to the issue as to whether the TDS has to be or not when the commission payment made to the overseas isuse is squarely covered in favour of the assessee by the Hon’ble jurisdictional High Court in the case of CIT Vs. Faizan Shoes Pvt Ltd. [2014} 367 ITR 155, wherein by dismissing the appeal of the Revenue, the Hon’ble High Court has held as under: Held, dismissing the appeal, that on a reading of section 9(1)(vii) ,commission paid by the assessee to the non- agents would not come under the term “fees for technical services”. For procuring orders for leather business from overseas buyers, wholesalers or retailers, as the case may be, the non-resident agent was paid 2.5per cent. commission on free on board basis. This was a commissions impliciter. What was the nature of technical service that the non agents had provided abroad to the assessee was not clear the order of the Assessing Officer. The opening of letters of credit for the purpose of completing the export obligation was incident of export and, therefore, the non-resident agent was under an obligation to render such services to the assessee, for which commission was paid. The non- agent did not provide technical services for the purp running of the business of the assessee in India. Therefore, the commission paid to the non resident agents would not fall within the definition of “fees for technical services” and the assessee was not liable to deduct tax at source on payment of ssion. 28. Respectfully following the above judgement of the Hon’ble Jurisdictional High court cited supar, the ground raised by the Revenue In view of the order of the Tribunal cited supra, this ground of assessee is respectfully following the same, we allow Ground No.11 of the appeal and direct deletion of this addition. /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. application u/s.195(2) or 195(3) authority, at International Taxation, who liability to TDS u/s.195(1) of the Act. Since neither company nor the recipients of commissions have availed the of the section the act. Hence, export agency record. A assessee's own -09 vide “27. We have considered rival submissions and perused the materials rd. With regard to the issue as to whether the TDS has to be or not when the commission payment made to the overseas isuse is squarely covered in favour of the assessee by the of CIT Vs. Ltd. [2014} 367 ITR 155, wherein by dismissing the the Hon’ble High Court has held as under:-- Held, dismissing the appeal, that on a reading of section -resident not come under the term “fees for technical orders for leather business from retailers, as the case may be, resident agent was paid 2.5per cent. commission on impliciter. What resident agents had provided abroad to the assessee was not clear from the order of the Assessing Officer. The opening of letters of leting the export obligation was resident agent an obligation to render such services to the -resident technical services for the purposes of assessee in India. Therefore, the agents would not fall technical services” and the source on payment of 28. Respectfully following the above judgement of the Hon’ble Jurisdictional High court cited supar, the ground raised by the Revenue assessee is Ground No.11 8. Ground No.12 is against the disallowance of loss on actual re payment of External Commercial Borrowings (hereinafter in short ‘ECB’) loan during the year. 8.1 The brief facts as noted are that, the assessee had capitalized hedging cost of Rs.4,09,82,305/ the same as expenditure in the computation of total income. Upon enquiry by the AO, the assessee explained t premium on forward contracts currency exposure arising out of fluctuation in foreign currency rate that such premium was being amortized and claimed as deduction over the life of the contract entered into was in relation to by way of external commercial borrowings to from the foregoing, the exchange loss arising upon repayment of E loan was also included in the hedging cost. The AO however did not agree with the explanation put forth by the assessee and disallowed the claim by holding as under: \"The contentions of the assessee have been considered and are not acceptable. The assessee itself had stated that it had capitalized the hedging cost in the books of account as the same was incurred in relation to acquisition of fixed assets. This being so, the assessee cannot change their stand when it comes to claiming of expenditure for i expenditure was incidental to the business. The treatment of an expenditure as capital or revenue depends upon the period for which the enduring benefit was derived by the assessee. The assessee itself admitted that the be enduring for many years and had capitalized the same in the books. Hence, for income tax purposes also, the same has to be treated as capital in nature. ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 22 :: is against the disallowance of loss on actual re payment of External Commercial Borrowings (hereinafter in short ‘ECB’) The brief facts as noted are that, the assessee had capitalized hedging cost of Rs.4,09,82,305/- in the books of accounts, but claimed the same as expenditure in the computation of total income. Upon enquiry by the AO, the assessee explained that it had paid upfront forward contracts entered into to mitigate any foreign currency exposure arising out of fluctuation in foreign currency rate that such premium was being amortized and claimed as deduction over the life of the contract. It was explained that, the forward contract entered into was in relation to repayment of foreign currency loan taken by way of external commercial borrowings to acquire fixed assets from the foregoing, the exchange loss arising upon repayment of E loan was also included in the hedging cost. The AO however did not agree with the explanation put forth by the assessee and disallowed the claim \"The contentions of the assessee have been considered and are not see itself had stated that it had capitalized the hedging cost in the books of account as the same was incurred in relation to acquisition of fixed assets. This being so, the assessee cannot change their stand when it comes to claiming of expenditure for income tax purposes and say that the expenditure was incidental to the business. The treatment of an expenditure as capital or revenue depends upon the period for which the enduring benefit was derived by the assessee. The assessee itself admitted that the benefit would be enduring for many years and had capitalized the same in the books. Hence, for income tax purposes also, the same has to be treated as capital in nature. /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. is against the disallowance of loss on actual re- payment of External Commercial Borrowings (hereinafter in short ‘ECB’) The brief facts as noted are that, the assessee had capitalized in the books of accounts, but claimed the same as expenditure in the computation of total income. Upon hat it had paid upfront to mitigate any foreign currency exposure arising out of fluctuation in foreign currency rate and that such premium was being amortized and claimed as deduction over It was explained that, the forward contract repayment of foreign currency loan taken acquire fixed assets. Apart from the foregoing, the exchange loss arising upon repayment of ECB loan was also included in the hedging cost. The AO however did not agree with the explanation put forth by the assessee and disallowed the claim \"The contentions of the assessee have been considered and are not see itself had stated that it had capitalized the hedging cost in the books of account as the same was incurred in relation to acquisition of fixed assets. This being so, the assessee cannot change their stand when it ncome tax purposes and say that the expenditure was incidental to the business. The treatment of an expenditure as capital or revenue depends upon the period for which the enduring benefit was benefit would be enduring for many years and had capitalized the same in the books. Hence, for income tax purposes also, the same has to be treated as capital in nature. In view of the above, Rs.4,09,82,305 was treated as capital in nature, disallowed and added back to the total income. However, depreciation is allowed.\" 8.2 The above findings of the AO was upheld by the DRP. Aggrieved, the assessee is before us. 8.3 Assailing the action of the lower authorities, the Ld.AR of the assessee submitted that the nature was in accordance with prescribed norms, i.e (i) it was in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI), (AS in accordance with the Income Computation and Disclosures Standards (ICDS) recommended by the Act for computing income from business and profession under the Income decisions of the Hon'ble High Courts and the ITA that the fluctuation in foreign exchange rates while repaying the foreign currency loans raised to acquire capital assets, which had already been put to use, cannot alter the actual cost of assets in terms of Section 43(1) of the Act and that it was allowable as revenue expenditure the Ld. DR for the Revenue supported the action of the lower authorities and argued that premium was paid on account of loan taken for capital purposes and therefore could not be allowed as re ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 23 :: In view of the above, Rs.4,09,82,305 was treated as capital in nature, added back to the total income. However, depreciation is The above findings of the AO was upheld by the DRP. Aggrieved, the assessee is before us. Assailing the action of the lower authorities, the Ld.AR of the assessee submitted that the claim of the forward premium as revenue in nature was in accordance with prescribed norms, i.e (i) it was in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI), (AS-11) in this regard. (ii) it was accordance with the Income Computation and Disclosures Standards (ICDS) recommended by the Act for computing income from business and profession under the Income-tax Act. (iii) was in accordance with various decisions of the Hon'ble High Courts and the ITAT. He further submitted the fluctuation in foreign exchange rates while repaying the foreign currency loans raised to acquire capital assets, which had already been put to use, cannot alter the actual cost of assets in terms of Section 43(1) and that it was allowable as revenue expenditure the Ld. DR for the Revenue supported the action of the lower authorities premium was paid on account of loan taken for capital purposes and therefore could not be allowed as revenue expenditure. /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. In view of the above, Rs.4,09,82,305 was treated as capital in nature, added back to the total income. However, depreciation is The above findings of the AO was upheld by the DRP. Aggrieved, Assailing the action of the lower authorities, the Ld.AR of the premium as revenue in nature was in accordance with prescribed norms, i.e (i) it was in accordance with the Accounting Standards issued by the Institute of 11) in this regard. (ii) it was accordance with the Income Computation and Disclosures Standards (ICDS) recommended by the Act for computing income from business and tax Act. (iii) was in accordance with various He further submitted the fluctuation in foreign exchange rates while repaying the foreign currency loans raised to acquire capital assets, which had already been put to use, cannot alter the actual cost of assets in terms of Section 43(1) and that it was allowable as revenue expenditure. Per contra, the Ld. DR for the Revenue supported the action of the lower authorities premium was paid on account of loan taken for capital venue expenditure. 8.4 We have heard both the parties and perused the material available on record. In the present case, the assessee is noted to have obtained ECBs for acquiring indigenous fixed assets. It had accordingly entered into forward contracts to hedge the foreign exchange fluctuation at the time of repayment of loan. For this, it had paid an upfront premium to the seller of the contract. Further, the assessee had also incurred foreign exchange loss at the time of repayment of such ECBs. The asses have amortized the premium cost over the life of contract, which along with the loss incurred on repayment of foreign currency loan was claimed as deduction from business profits. 8.5 The first claim in dispute before us relates to premium paid on foreign exchange forward contracts entered into by the assessee. These foreign exchange forward contracts were entered for the purposes of repayment of foreign exchange loan/external commercial borrowing taken by the assessee We find that this identical issue had come up for consideration before the Ahmedabad Bench of this Tribunal in the case of (India) Ltd Vs DCIT (145 taxmann.137) premium paid on foreign exchange forward contracts entered into by assessee for purpose of repayment of loan was to be amortized as ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 24 :: We have heard both the parties and perused the material available on record. In the present case, the assessee is noted to have obtained ECBs for acquiring indigenous fixed assets. It had accordingly entered into hedge the foreign exchange fluctuation at the time of repayment of loan. For this, it had paid an upfront premium to the seller of the contract. Further, the assessee had also incurred foreign exchange loss at the time of repayment of such ECBs. The assessee is noted to have amortized the premium cost over the life of contract, which along with the loss incurred on repayment of foreign currency loan was claimed as deduction from business profits. claim in dispute before us relates to amortiz premium paid on foreign exchange forward contracts entered into by the These foreign exchange forward contracts were entered for the purposes of repayment of foreign exchange loan/external commercial borrowing taken by the assessee for acquiring indigenous fixed assets We find that this identical issue had come up for consideration before the Ahmedabad Bench of this Tribunal in the case of CLP Wind Farm (India) Ltd Vs DCIT (145 taxmann.137) wherein it was held that the on foreign exchange forward contracts entered into by assessee for purpose of repayment of loan was to be amortized as /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. We have heard both the parties and perused the material available on record. In the present case, the assessee is noted to have obtained ECBs for acquiring indigenous fixed assets. It had accordingly entered into hedge the foreign exchange fluctuation at the time of repayment of loan. For this, it had paid an upfront premium to the seller of the contract. Further, the assessee had also incurred foreign exchange see is noted to have amortized the premium cost over the life of contract, which along with the loss incurred on repayment of foreign currency loan was claimed amortized portion of premium paid on foreign exchange forward contracts entered into by the These foreign exchange forward contracts were entered for the purposes of repayment of foreign exchange loan/external commercial acquiring indigenous fixed assets. We find that this identical issue had come up for consideration before the CLP Wind Farm wherein it was held that the on foreign exchange forward contracts entered into by assessee for purpose of repayment of loan was to be amortized as revenue expenditure over life of contract note of by us is as follows: “9. We have heard both the parties. relates to premium paid on foreign exchange forward contracts entered into by the assessee amounting in all to Rs. 38,96,97,000/ vis a vis the amortized portion of the forward cover premium, which fact is noted in para 3.1 of the assessment order. These foreign exchange forward contracts were entered for the purposes of repayment of foreign exchange loan/external commercial borrowing taken by the assessee for its projects in the renewal energy business, which fa Having outlined the facts as above we shall now proceed to adjudicate the issue. …. 13. A bare perusal of the above reveals that AS effects of changes in foreign exchange rate is to be accounted for on transactions undertaken in foreign currency or in foreign country. One of the effects dealt with the standard relates to premium paid on foreign exchange cover. Thus with respect to the issue before us ,undoubtedly it is AS-11 which prescribes the method of accountin recommends the premium paid on foreign exchange forward contracts to be amortized as expense or income over the life of the contracts. The term expense has been used in juxtaposition with income and its meaning has to be derived in co \"income\", which undoubtedly is revenue receipts. There is no doubt therefore that the recommendation by AS on forward exchange contracts as expense means writing it off as revenue expenditure in the profit and loss account. The language of the Accounting Standard is very clear when it recommends amortizing the premium as expense or income. The manner of writing off recommended by the Standard, i.e\" expense or income\" itself makes it very clear that it is to be written off in the Profit and Loss account where all expenses and incomes are recorded. The claim of the assessee therefore clearly is in accordance with AS Having said so, for allowability of the claim as per AS to see whether there is any bar to the applicability of the same in the Act. In other words it is to be seen whether the Act prescribes any specific treatment for the said premium which is to be followed if so prescribed and in the absence o prescribed by the Accounting Standard. The Hon'ble Apex Court in the case of Virtual Soft Systems Ltd. (supra) has laid down the proposition ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 25 :: revenue expenditure over life of contract. The relevant findings taken note of by us is as follows:- 9. We have heard both the parties. The claim in dispute before us relates to premium paid on foreign exchange forward contracts entered into by the assessee amounting in all to Rs. 38,96,97,000/- vis a vis the amortized portion of the forward cover premium, which fact in para 3.1 of the assessment order. These foreign exchange forward contracts were entered for the purposes of repayment of foreign exchange loan/external commercial borrowing taken by the assessee for its projects in the renewal energy business, which fact is not disputed . Having outlined the facts as above we shall now proceed to adjudicate 13. A bare perusal of the above reveals that AS-11 prescribes how the effects of changes in foreign exchange rate is to be accounted for on s undertaken in foreign currency or in foreign country. One of the effects dealt with the standard relates to premium paid on foreign exchange cover. Thus with respect to the issue before us ,undoubtedly it 11 which prescribes the method of accounting for the same and it recommends the premium paid on foreign exchange forward contracts to be amortized as expense or income over the life of the contracts. The term expense has been used in juxtaposition with income and its meaning has to be derived in conjunction and consonance with the term \"income\", which undoubtedly is revenue receipts. There is no doubt therefore that the recommendation by AS-11 of writing off the premium on forward exchange contracts as expense means writing it off as ture in the profit and loss account. The language of the Accounting Standard is very clear when it recommends amortizing the premium as expense or income. The manner of writing off recommended by the Standard, i.e\" expense or income\" itself makes it lear that it is to be written off in the Profit and Loss account where all expenses and incomes are recorded. The claim of the assessee therefore clearly is in accordance with AS-11 of the ICAI. Having said so, for allowability of the claim as per AS-11, i to see whether there is any bar to the applicability of the same in the Act. In other words it is to be seen whether the Act prescribes any specific treatment for the said premium which is to be followed if so prescribed and in the absence of same, the claim is to be allowed as prescribed by the Accounting Standard. The Hon'ble Apex Court in the case of Virtual Soft Systems Ltd. (supra) has laid down the proposition /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. . The relevant findings taken The claim in dispute before us relates to premium paid on foreign exchange forward contracts entered .The claim is vis a vis the amortized portion of the forward cover premium, which fact in para 3.1 of the assessment order. These foreign exchange forward contracts were entered for the purposes of repayment of foreign exchange loan/external commercial borrowing taken by the assessee for ct is not disputed . Having outlined the facts as above we shall now proceed to adjudicate 11 prescribes how the effects of changes in foreign exchange rate is to be accounted for on s undertaken in foreign currency or in foreign country. One of the effects dealt with the standard relates to premium paid on foreign exchange cover. Thus with respect to the issue before us ,undoubtedly it g for the same and it recommends the premium paid on foreign exchange forward contracts to be amortized as expense or income over the life of the contracts. The term expense has been used in juxtaposition with income and its njunction and consonance with the term \"income\", which undoubtedly is revenue receipts. There is no doubt 11 of writing off the premium on forward exchange contracts as expense means writing it off as ture in the profit and loss account. The language of the Accounting Standard is very clear when it recommends amortizing the premium as expense or income. The manner of writing off recommended by the Standard, i.e\" expense or income\" itself makes it lear that it is to be written off in the Profit and Loss account where all expenses and incomes are recorded. The claim of the assessee 11, it is pertinent to see whether there is any bar to the applicability of the same in the Act. In other words it is to be seen whether the Act prescribes any specific treatment for the said premium which is to be followed if so f same, the claim is to be allowed as prescribed by the Accounting Standard. The Hon'ble Apex Court in the case of Virtual Soft Systems Ltd. (supra) has laid down the proposition that where there is no express bar in Act regarding the application of a Accounting Standard prescribed by ICAI, deductions/claims of assesses are to be determined on the basis of these accounting standards 14. The Act, under section 43A, prescribes the adjustments on account of foreign exchange fluctuations to be made to the cos purchased outside India which requires payment to be made in foreign exchange. Explanation 3 to the said section requires cost of such assets to be computed with reference to the rate agreed in the foreign exchange forward contracts if an The said section, we find is not applicable to the facts of the present case since it is not the case of the Revenue that the foreign exchange loan has been taken for purchasing any asset outside the country. No other section dealing with the al forward contracts has been pointed out by the Ld.DR before us. Therefore as per the decision of the Hon'ble apex court in the case of Virtual Soft (supra), the accounting prescribed by AS according to which the is to be amortized as expense/income. The reliance by the Ld.DR/Ld.CIT(A) on the decision of the Bangalore Bench of the ITAT in the case of Orchid Ply Industries Ltd. (supra) for the proposition that the loan obligations ,the premium paid for forward cover also is to be treated as capital in nature, we find is of no assistance to the assessee since the Visakhapatnam Bench of the ITAT in the case of Maddi Lakshmaiah & Co. Ltd. (supra) held that for determining whether devaluation loss is Revenue or capital, the object for which the currency is obtained is not relevant and what is relevant is the utilization of the amount at the time of devaluation. The ITAT while holding so r decision of the Hon'ble apex court in the case of CIT v. Woodword Governor India (P.) Ltd. [2009] 179 Taxman 326/312 ITR 254/223 CTR 1 and the Hon'ble Bombay High Court in the case of CIT v. V.S. Dempo& Co. (P.) Ltd. [1994] 72 15. In view of the above, we hold that the assessee is entitled to claim the amortization of premium paid on foreign exchange contracts amounting to Rs. 38,96,97,000/ ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 26 :: that where there is no express bar in Act regarding the application of a unting Standard prescribed by ICAI, deductions/claims of assesses are to be determined on the basis of these accounting standards 14. The Act, under section 43A, prescribes the adjustments on account of foreign exchange fluctuations to be made to the cost of fixed assets purchased outside India which requires payment to be made in foreign exchange. Explanation 3 to the said section requires cost of such assets to be computed with reference to the rate agreed in the foreign exchange forward contracts if any entered. The said section, we find is not applicable to the facts of the present case since it is not the case of the Revenue that the foreign exchange loan has been taken for purchasing any asset outside the country. No other section dealing with the allowability of premium paid on forward contracts has been pointed out by the Ld.DR before us. Therefore as per the decision of the Hon'ble apex court in the case of Virtual Soft (supra), the accounting prescribed by AS-11 will apply, according to which the premium/discount on forward exchange contracts is to be amortized as expense/income. The reliance by the Ld.DR/Ld.CIT(A) on the decision of the Bangalore Bench of the ITAT in the case of Orchid Ply Industries Ltd. (supra) for the proposition that the loan having been taken for meeting capital obligations ,the premium paid for forward cover also is to be treated as capital in nature, we find is of no assistance to the assessee since the Visakhapatnam Bench of the ITAT in the case of Maddi Lakshmaiah & d. (supra) held that for determining whether devaluation loss is Revenue or capital, the object for which the currency is obtained is not relevant and what is relevant is the utilization of the amount at the time of devaluation. The ITAT while holding so referred to and relied on the decision of the Hon'ble apex court in the case of CIT v. Woodword Governor India (P.) Ltd. [2009] 179 Taxman 326/312 ITR 254/223 CTR 1 and the Hon'ble Bombay High Court in the case of CIT v. V.S. Dempo& Co. (P.) Ltd. [1994] 72 Taxman 134/206 ITR 291/[1993] 115 CTR 163. 15. In view of the above, we hold that the assessee is entitled to claim the amortization of premium paid on foreign exchange contracts amounting to Rs. 38,96,97,000/-.” /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. that where there is no express bar in Act regarding the application of a unting Standard prescribed by ICAI, deductions/claims of assesses are to be determined on the basis of these accounting standards…. 14. The Act, under section 43A, prescribes the adjustments on account t of fixed assets purchased outside India which requires payment to be made in foreign exchange. Explanation 3 to the said section requires cost of such assets to be computed with reference to the rate agreed in the foreign The said section, we find is not applicable to the facts of the present case since it is not the case of the Revenue that the foreign exchange loan has been taken for purchasing any asset outside the country. lowability of premium paid on forward contracts has been pointed out by the Ld.DR before us. Therefore as per the decision of the Hon'ble apex court in the case of 11 will apply, premium/discount on forward exchange contracts The reliance by the Ld.DR/Ld.CIT(A) on the decision of the Bangalore Bench of the ITAT in the case of Orchid Ply Industries Ltd. (supra) for having been taken for meeting capital obligations ,the premium paid for forward cover also is to be treated as capital in nature, we find is of no assistance to the assessee since the Visakhapatnam Bench of the ITAT in the case of Maddi Lakshmaiah & d. (supra) held that for determining whether devaluation loss is Revenue or capital, the object for which the currency is obtained is not relevant and what is relevant is the utilization of the amount at the time eferred to and relied on the decision of the Hon'ble apex court in the case of CIT v. Woodword Governor India (P.) Ltd. [2009] 179 Taxman 326/312 ITR 254/223 CTR 1 and the Hon'ble Bombay High Court in the case of CIT v. V.S. Dempo& Taxman 134/206 ITR 291/[1993] 115 CTR 163. 15. In view of the above, we hold that the assessee is entitled to claim the amortization of premium paid on foreign exchange contracts 8.6 In view of the above decision (supra), deduction for the amortized sum of forward premium claimed by way of hedging cost. 8.7 The next component of the impugned disallowance is the loss arising upon repayment of ECBs which were used for acquiring indigenous fixed assets in India. On perusal of the provisions of Section 43(1) of the Act, which defines the term 'actual cost' as the actual cost incurred for acquiring the capital asset by the assessee, reduced by that portion of cost of capital asset that has been met person or authority. This Section is noted to have several Explanations as well. However, on perusal of the same, it is noted that nowhere does this Section specify that any gain or loss on foreign currency loans acquire for the purchase of indigenous assets will have to be reduced or added to the cost of assets. We find the decision of the Hon'ble Supreme Court in the case of CIT v. Tata Iron & Steel Co. Ltd. relevant in the facts of the present case that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Once the asset has been acquired, the events subsequent to the acquisition cannot alter the price paid for it. Therefore, the fluctuation in foreign exchange rates while repaying the foreign currency loans raised to acquire capital assets, which ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 27 :: In view of the above decision (supra), we direct the AO to allow the deduction for the amortized sum of forward premium claimed by way of The next component of the impugned disallowance is the loss arising upon repayment of ECBs which were used for acquiring indigenous On perusal of the provisions of Section 43(1) of the Act, which defines the term 'actual cost' as the actual cost incurred for acquiring the capital asset by the assessee, reduced by that portion of cost of capital asset that has been met directly or indirectly by any other person or authority. This Section is noted to have several Explanations as well. However, on perusal of the same, it is noted that nowhere does this Section specify that any gain or loss on foreign currency loans acquire for the purchase of indigenous assets will have to be reduced or added to the cost of assets. We find the decision of the Hon'ble Supreme Court in CIT v. Tata Iron & Steel Co. Ltd. (231 ITR 285 relevant in the facts of the present case. In the decided case, it was held that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Once the asset has been acquired, the events subsequent to the acquisition cannot alter the price paid for it. Therefore, the fluctuation in foreign exchange rates while repaying the foreign currency loans raised to acquire capital assets, which /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. we direct the AO to allow the deduction for the amortized sum of forward premium claimed by way of The next component of the impugned disallowance is the loss arising upon repayment of ECBs which were used for acquiring indigenous On perusal of the provisions of Section 43(1) of the Act, which defines the term 'actual cost' as the actual cost incurred for acquiring the capital asset by the assessee, reduced by that portion of directly or indirectly by any other person or authority. This Section is noted to have several Explanations as well. However, on perusal of the same, it is noted that nowhere does this Section specify that any gain or loss on foreign currency loans acquired for the purchase of indigenous assets will have to be reduced or added to the cost of assets. We find the decision of the Hon'ble Supreme Court in 231 ITR 285) to be . In the decided case, it was held that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Once the asset has been acquired, the events subsequent to the acquisition cannot alter the price paid for it. Therefore, the fluctuation in foreign exchange rates while repaying the foreign currency loans raised to acquire capital assets, which had already been put to use, cannot alter the actual cost of assets in terms of Section 43(1) of the foreign exchange loss incurred on the same foreign currency loans were allowed as deduction by this Tribunal in assessee’s own case for AY 2011 12 by holding as under: “19. The next issue is that the ACIT/DRP trea exchange difference in repayment of ECB loan relating to non assets as “capital” in nature and allowed only depreciation on such loss. 20. The facts of the issue is related to actual loss on exchange difference in repayment section 43A applied to assets importer from a foreign country out of foreign currency loan and in the instant case exchange loss/gain related to importer assets has been capitalized by the assessee itself. AO invoked the provisions of the section 43A, which was upheld by DRP. Against this assessee is in appeal before us. 21. Before us, ld.A.R relied on the order of Pune Tribunal, in the case of Cooper Corporation in ITA No.866/PN/2014. According to him, foreign fluctuation exchange fluctuation in revenue’s field. Hence, it is allowable expenditure. 22. We have heard both the parties and perused the material on record. Admittedly, this issue came up for consideration before Pune Tribunal, in the case of Cooper Corp vide order dated 29.04.2016 for assessment year 2008 as follows:- “10. We have carefully considered the rival submissions. Order of the authorities below and case laws cited. The Central issue involved in the pr hands of assessee on account of restatement of outstanding foreign currency loans necessitated by fluctuation in foreign exchange would be allowable as business loss or a loss of capital nature in the facts revenue, the increased liability due to exchange fluctuation correspond with carrying costs of the fixed assets and thus capital in nature, the assessee seeks to submit that the loss is revenue in nature. 10.1 On considerat were held in Indian currency in the earlier years. The Assessee entered into an agreement with the lenders to convert the loans ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 28 :: had already been put to use, cannot alter the actual cost of assets in terms of Section 43(1) of the Act. It is further observe foreign exchange loss incurred on the same foreign currency loans were by this Tribunal in assessee’s own case for AY 2011 12 by holding as under:- 19. The next issue is that the ACIT/DRP treated the actual loss on exchange difference in repayment of ECB loan relating to non-imported assets as “capital” in nature and allowed only depreciation on such 20. The facts of the issue is related to actual loss on exchange difference in repayment of ECB loan. Before AO ld.A.R submitted that section 43A applied to assets importer from a foreign country out of foreign currency loan and in the instant case exchange loss/gain related to importer assets has been capitalized by the assessee itself. voked the provisions of the section 43A, which was upheld by DRP. Against this assessee is in appeal before us. 21. Before us, ld.A.R relied on the order of Pune Tribunal, in the case of Cooper Corporation in ITA No.866/PN/2014. According to him, luctuation exchange fluctuation in revenue’s field. Hence, it is allowable expenditure. 22. We have heard both the parties and perused the material on record. Admittedly, this issue came up for consideration before Pune Tribunal, in the case of Cooper Corporation in ITA No.866/PN/2014 vide order dated 29.04.2016 for assessment year 2008-09wherein held “10. We have carefully considered the rival submissions. Order of the authorities below and case laws cited. The Central issue involved in the present case is whether provisions for loss in the hands of assessee on account of restatement of outstanding foreign currency loans necessitated by fluctuation in foreign exchange would be allowable as business loss or a loss of capital nature in the facts narrated above. While as per the revenue, the increased liability due to exchange fluctuation correspond with carrying costs of the fixed assets and thus capital in nature, the assessee seeks to submit that the loss is revenue in nature. 10.1 On consideration of facts, it is noticed that certain loans were held in Indian currency in the earlier years. The Assessee entered into an agreement with the lenders to convert the loans /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. had already been put to use, cannot alter the actual cost of assets in further observed that, similar foreign exchange loss incurred on the same foreign currency loans were by this Tribunal in assessee’s own case for AY 2011- ted the actual loss on imported assets as “capital” in nature and allowed only depreciation on such 20. The facts of the issue is related to actual loss on exchange of ECB loan. Before AO ld.A.R submitted that section 43A applied to assets importer from a foreign country out of foreign currency loan and in the instant case exchange loss/gain related to importer assets has been capitalized by the assessee itself. voked the provisions of the section 43A, which was upheld by 21. Before us, ld.A.R relied on the order of Pune Tribunal, in the case of Cooper Corporation in ITA No.866/PN/2014. According to him, luctuation exchange fluctuation in revenue’s field. Hence, it is 22. We have heard both the parties and perused the material on record. Admittedly, this issue came up for consideration before Pune oration in ITA No.866/PN/2014 09wherein held “10. We have carefully considered the rival submissions. Order of the authorities below and case laws cited. The Central issue esent case is whether provisions for loss in the hands of assessee on account of restatement of outstanding foreign currency loans necessitated by fluctuation in foreign exchange would be allowable as business loss or a loss of narrated above. While as per the revenue, the increased liability due to exchange fluctuation correspond with carrying costs of the fixed assets and thus capital in nature, the assessee seeks to submit that the loss is ion of facts, it is noticed that certain loans were held in Indian currency in the earlier years. The Assessee entered into an agreement with the lenders to convert the loans in foreign currency equivalents to take advantage of the lower rate of interest r factually demonstrated that the conversion into foreign currency loans have actually benefited the Assessee in terms of saving of interest costs. We also notice that there is no dispute on the fact that the acquisi projects etc. from the term loans taken are already complete and the assets so acquired have been put to use. As a consequence, the loss occasioned from foreign currency loans so converted is a post facto event subsequ having been put to use. We simultaneously notice that there is no adverse finding from the Revenue about the correctness or completeness of accounts of assessee on the touchstone of section 145 of the Act. In other words, the profits/ the business have been admittedly computed in accordance with generally accepted accounting practices and guidelines notified. 10.2 The assessee has inter alia applied AS effects of the changes in the exchange rate to record the incurred owing to fluctuation in the foreign exchange. AS enjoins reporting of monetary items denominated foreign currency using the closing rate at the end of the accounting year. It also requires that any difference, loss or gain, arising from such conversion of the liability at the closing rate should be recognized in the profit & loss account for the reporting period. In the same vain, CBDT notification S.O. 892(E) dated 3 1-03-2015 referred to also inter alia deals with recognition of exchange differences. The notification also sets out that the exchange differences arising on foreign currency transactions have to be recognized as income or business expense in the period in which they arise subject to exception as set out in Section 43A or Rul case may be. 10.3 The contention of the revenue that the loss is only contingent and notional and subsisting has been examined. As per section 209 of the Companies Act, 1956, the Assessee being a company is requir system of accounting. S. 211 of the Companies Act, 1956 also, in terms, mandates that accounting standards as applicable is required to be followed while drawing statement of affairs. S. 145 of the Income Tax Act, 1961 compute business income either by cash or mercantile system of accounting. Thus, in view of the various provisions of the Companies Act and Income Tax Act, it was mandatory to draw accounts as per AS II. Thus, in our considere recognized on account of foreign exchange fluctuation as per notified accounting standard AS 11 is an accrued and subsisting liability and not merely a contingent or a I hypothetical liability. A legal liability also exists against the ass fluctuation and loss arising there from. Actual payment of loss ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 29 :: in foreign currency equivalents to take advantage of the lower rate of interest rate applicable to later. The assessee has factually demonstrated that the conversion into foreign currency loans have actually benefited the Assessee in terms of saving of interest costs. We also notice that there is no dispute on the fact that the acquisition of capital assets / expansion of projects etc. from the term loans taken are already complete and the assets so acquired have been put to use. As a consequence, the loss occasioned from foreign currency loans so converted is a post facto event subsequent to capital assets having been put to use. We simultaneously notice that there is no adverse finding from the Revenue about the correctness or completeness of accounts of assessee on the touchstone of section 145 of the Act. In other words, the profits/gains from the business have been admittedly computed in accordance with generally accepted accounting practices and guidelines 10.2 The assessee has inter alia applied AS-Il dealing with effects of the changes in the exchange rate to record the incurred owing to fluctuation in the foreign exchange. AS enjoins reporting of monetary items denominated foreign currency using the closing rate at the end of the accounting year. It also requires that any difference, loss or gain, arising such conversion of the liability at the closing rate should be recognized in the profit & loss account for the reporting period. In the same vain, CBDT notification S.O. 892(E) dated 3 2015 referred to also inter alia deals with recognition of e differences. The notification also sets out that the exchange differences arising on foreign currency transactions have to be recognized as income or business expense in the period in which they arise subject to exception as set out in Section 43A or Rule 115 of the Income Tax Rules, 1962 as the 10.3 The contention of the revenue that the loss is only contingent and notional and subsisting has been examined. As per section 209 of the Companies Act, 1956, the Assessee being a company is required to compulsorily follow mercantile system of accounting. S. 211 of the Companies Act, 1956 also, in terms, mandates that accounting standards as applicable is required to be followed while drawing statement of affairs. S. 145 of the Income Tax Act, 1961 similarly casts obligation to compute business income either by cash or mercantile system of accounting. Thus, in view of the various provisions of the Companies Act and Income Tax Act, it was mandatory to draw accounts as per AS II. Thus, in our considered view, the loss recognized on account of foreign exchange fluctuation as per notified accounting standard AS 11 is an accrued and subsisting liability and not merely a contingent or a I hypothetical liability. A legal liability also exists against the assessee due to fluctuation and loss arising there from. Actual payment of loss /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. in foreign currency equivalents to take advantage of the lower ate applicable to later. The assessee has factually demonstrated that the conversion into foreign currency loans have actually benefited the Assessee in terms of saving of interest costs. We also notice that there is no dispute tion of capital assets / expansion of projects etc. from the term loans taken are already complete and the assets so acquired have been put to use. As a consequence, the loss occasioned from foreign currency loans ent to capital assets having been put to use. We simultaneously notice that there is no adverse finding from the Revenue about the correctness or completeness of accounts of assessee on the touchstone of gains from the business have been admittedly computed in accordance with generally accepted accounting practices and guidelines Il dealing with effects of the changes in the exchange rate to record the losses incurred owing to fluctuation in the foreign exchange. AS-11 enjoins reporting of monetary items denominated foreign currency using the closing rate at the end of the accounting year. It also requires that any difference, loss or gain, arising such conversion of the liability at the closing rate should be recognized in the profit & loss account for the reporting period. In the same vain, CBDT notification S.O. 892(E) dated 3 2015 referred to also inter alia deals with recognition of e differences. The notification also sets out that the exchange differences arising on foreign currency transactions have to be recognized as income or business expense in the period in which they arise subject to exception as set out in e 115 of the Income Tax Rules, 1962 as the 10.3 The contention of the revenue that the loss is only contingent and notional and subsisting has been examined. As per section 209 of the Companies Act, 1956, the Assessee ed to compulsorily follow mercantile system of accounting. S. 211 of the Companies Act, 1956 also, in terms, mandates that accounting standards as applicable is required to be followed while drawing statement of affairs. S. similarly casts obligation to compute business income either by cash or mercantile system of accounting. Thus, in view of the various provisions of the Companies Act and Income Tax Act, it was mandatory to draw d view, the loss recognized on account of foreign exchange fluctuation as per notified accounting standard AS 11 is an accrued and subsisting liability and not merely a contingent or a I hypothetical liability. essee due to fluctuation and loss arising there from. Actual payment of loss is an irrelevant consideration to ascertain the point of accrual of liability. As a corollary, the revenue has committed error in holding the liability as notional or contingent. 10.4 Copious reference has been made to S. 43A by Assessee as well as revenue. Thus, it would be pertinent to examine the issue on the touchstone of S. 43A of the Act. Section 43A, to the extent relevant in the context, reads as under: “Notwithstanding provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment (a) towards the whole or a part of the cost of the asset; or (b) towards repm’menl of the whole or a part of the moneys borrowed by hun from am’ person, direct/v or indirect/v. in any foreign currency specifically for the purpose of acquiring the the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment. irrespective of the method of accounting adopted by t case may be, deducted from (i) the actual cost of the asset as defined in clause (I) of section 43; or (ii) the amount of expenditure of a capital nature referred to in clause (iv) of subsection (I) of section 3 or (iii) the amount of expenditure of a capital nature referred to in section 35A; or (iv) the amount of expenditure a/a capital nature referred to in clause (ix) of subsection (I) of section 36: or (v) the cost of acquisition of a capital asset (not b capital asset referred to in section 50) for the purposes ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 30 :: is an irrelevant consideration to ascertain the point of accrual of liability. As a corollary, the revenue has committed error in holding the liability as notional or contingent. 10.4 Copious reference has been made to S. 43A by Assessee as well as revenue. Thus, it would be pertinent to examine the issue on the touchstone of S. 43A of the Act. Section 43A, to the extent relevant in the context, reads as under: “Notwithstanding anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange during any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making payment— (a) towards the whole or a part of the cost of the asset; (b) towards repm’menl of the whole or a part of the moneys borrowed by hun from am’ person, direct/v or indirect/v. in any foreign currency specifically for the purpose of acquiring the asset along with interest, if any. the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment. irrespective of the method of accounting adopted by the assessee, shall be added to, or, as the case may be, deducted from—- (i) the actual cost of the asset as defined in clause (I) of section 43; or (ii) the amount of expenditure of a capital nature referred to in clause (iv) of subsection (I) of section 3 (iii) the amount of expenditure of a capital nature referred to in section 35A; or (iv) the amount of expenditure a/a capital nature referred to in clause (ix) of subsection (I) of section 36: (v) the cost of acquisition of a capital asset (not b capital asset referred to in section 50) for the purposes /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. is an irrelevant consideration to ascertain the point of accrual of liability. As a corollary, the revenue has committed error in 10.4 Copious reference has been made to S. 43A by Assessee as well as revenue. Thus, it would be pertinent to examine the issue on the touchstone of S. 43A of the Act. Section 43A, to anything contained in any other provision of this Act, where an assessee has acquired any asset in any previous year from a country outside India for the purposes of his business or profession and, in consequence of a change in the rate of exchange any previous year after the acquisition of such asset, there is an increase or reduction in the liability of the assessee as expressed in Indian currency (as compared to the liability existing at the time of acquisition of the asset) at the time of making (a) towards the whole or a part of the cost of the asset; (b) towards repm’menl of the whole or a part of the moneys borrowed by hun from am’ person, direct/v or indirect/v. in any foreign currency specifically for the asset along with interest, if any. the amount by which the liability as aforesaid is so increased or reduced during such previous year and which is taken into account at the time of making the payment. irrespective of the method of accounting he assessee, shall be added to, or, as the (i) the actual cost of the asset as defined in clause (I) of (ii) the amount of expenditure of a capital nature referred to in clause (iv) of subsection (I) of section 35: (iii) the amount of expenditure of a capital nature (iv) the amount of expenditure a/a capital nature referred to in clause (ix) of subsection (I) of section 36: (v) the cost of acquisition of a capital asset (not being a capital asset referred to in section 50) for the purposes of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature of as the case may the capital asset as aforesaid: Provided that where an addition to or deduction hem the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by t an increase or reduction in the liability as aforesaid, the amount to be added to or, as the case may he. deducted under this section from, the actual cost or expenditure or cost of acquisition at the time of making the shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of ma A bare reading of the aforesaid provision of Section 43A, which opens with a non would show that it comes into play only when the assets are acquired from a country outside India and does not apply to acquisitio notable feature is that S.43A provides for making corresponding adjustments to the costs of assets only in relation to exchange gains/ losses arising at the time of making payment. It therefore deals with realized exchange g exchange gain/loss is not covered under the scope of S. 43A of the Act. It is thus apparent that special provision of S. 43A has no application to the facts of the case. Therefore, the issue whether, the loss is on re account or a capital one is required to be tested in the light of generally accepted accounting principles, pronouncements and guidelines etc. 10.5 Before We delineate on the allowability of loss based on generally accepted accountancy principles, it to examine whether the increased liability due to fluctuation loss can be added to the carrying costs of corresponding capital assets with reference to S. 43(1) of the Act. Section 43(1) defines the expression ‘actual cost’. As per S. 43( means actual cost of the assets to the assessee, reduced by that portion of the costs as has been met directly or indirectly by any other person or authority. Several Explanations have been appended to S. 43(1). However, the section nowhere specifies that any gain or loss on foreign currency loan acquired for purchase of indigenous assets will have to be reduced or added to the costs of the assets. Thus, viewed from this perspective also, such increased liability cannot be bracketed ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 31 :: of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature of as the case may be, the cost of inquisition of the capital asset as aforesaid: Provided that where an addition to or deduction hem the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before its substitution by the Finance Act, 2002, on account of an increase or reduction in the liability as aforesaid, the amount to be added to or, as the case may he. deducted under this section from, the actual cost or expenditure or cost of acquisition at the time of making the payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into account at the time of making payment A bare reading of the aforesaid provision of Section 43A, which opens with a non-obstante and overriding clause, would show that it comes into play only when the assets are acquired from a country outside India and does not apply to acquisition of indigenous assets. Another notable feature is that S.43A provides for making corresponding adjustments to the costs of assets only in relation to exchange gains/ losses arising at the time of making payment. It therefore deals with realized exchange gain/ loss. The treatment of unrealized exchange gain/loss is not covered under the scope of S. 43A of the Act. It is thus apparent that special provision of S. 43A has no application to the facts of the case. Therefore, the issue whether, the loss is on re account or a capital one is required to be tested in the light of generally accepted accounting principles, pronouncements and guidelines etc. 10.5 Before We delineate on the allowability of loss based on generally accepted accountancy principles, it may be pertinent to examine whether the increased liability due to fluctuation loss can be added to the carrying costs of corresponding capital assets with reference to S. 43(1) of the Act. Section 43(1) defines the expression ‘actual cost’. As per S. 43(1), actual cost means actual cost of the assets to the assessee, reduced by that portion of the costs as has been met directly or indirectly by any other person or authority. Several Explanations have been appended to S. 43(1). However, the section nowhere specifies that any gain or loss on foreign currency loan acquired for purchase of indigenous assets will have to be reduced or added to the costs of the assets. Thus, viewed from this perspective also, such increased liability cannot be bracketed /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. of section 48, and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital be, the cost of inquisition of Provided that where an addition to or deduction hem the actual cost or expenditure or cost of acquisition has been made under this section, as it stood immediately before he Finance Act, 2002, on account of an increase or reduction in the liability as aforesaid, the amount to be added to or, as the case may he. deducted under this section from, the actual cost or expenditure payment shall be so adjusted that the total amount added to, or, as the case may be, deducted from, the actual cost or expenditure or cost of acquisition, is equal to the increase or reduction in the aforesaid liability taken into A bare reading of the aforesaid provision of Section 43A, obstante and overriding clause, would show that it comes into play only when the assets are acquired from a country outside India and does not n of indigenous assets. Another notable feature is that S.43A provides for making corresponding adjustments to the costs of assets only in relation to exchange gains/ losses arising at the time of making payment. It therefore deals with realized ain/ loss. The treatment of unrealized exchange gain/loss is not covered under the scope of S. 43A of the Act. It is thus apparent that special provision of S. 43A has no application to the facts of the case. Therefore, the issue whether, the loss is on revenue account or a capital one is required to be tested in the light of generally accepted accounting principles, 10.5 Before We delineate on the allowability of loss based on may be pertinent to examine whether the increased liability due to fluctuation loss can be added to the carrying costs of corresponding capital assets with reference to S. 43(1) of the Act. Section 43(1) 1), actual cost means actual cost of the assets to the assessee, reduced by that portion of the costs as has been met directly or indirectly by any other person or authority. Several Explanations have been appended to S. 43(1). However, the section nowhere specifies that any gain or loss on foreign currency loan acquired for purchase of indigenous assets will have to be reduced or added to the costs of the assets. Thus, viewed from this perspective also, such increased liability cannot be bracketed with cost of acquisition of capital assets save and except in terms of overruthng provisions of S.43A of the Act. 10.6 We also simultaneously note here that the Hon’ble Supreme Court in the & case of CIT vs. Tata Iron and Steel Co. Ltd. (1998) 22 ITR 285 held that raising money for purchase of asset are two different and independent transactions. Thus, events subsequent to acquisition of assets cannot change price paid for it. Therefore, fluctuations in foreign exchange rate while repa installments of foreign loan raised to acquire asset cannot alter actual cost of assets. The relevant operative para is reproduced hereunder:- “Coming to the question raised, we find it difficult to follow how the manner of repayment of loan can affec the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee but even if the assessee did not repay the loan it will not al asset. If the borrower defaults in repayment of a part of the loan, the cost of the asset will not change. What has to be home in mind is that the cost of an asset and the cost of raising money for purchase of the asset are two differen is purchased with non the Government. the cost of the asset will be the price paid by the assessee for acquiring the asset. In the instant case, the allegation is that at the repayment of loan, there was a fluctuation in the rate of foreign exchange as a result of which, the assessee had to repay a much lesser amount than he would have otherwise paid. In our judgment, this is not a factor which can alter the cost incur purchase of the asset. The assessee may have raised the funds to purchase the asset by borrowing but what the assessee has paid for it, is the price of the asset. That price cannot change by any event subsequent to the acquisition o mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. We hold that the questions were rightly answered by the High Court. The appeals dismissed. There will be no order as to costs.” Thus, it is evident the variation in the loan amount has no bearing on the cost of the asset as the loan is a distinct and independent transaction as in comparison with acquisition of assets out of said l borrowed. Actual cost of the corresponding fixed asset ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 32 :: t of acquisition of capital assets save and except in terms of overruthng provisions of S.43A of the Act. 10.6 We also simultaneously note here that the Hon’ble Supreme Court in the & case of CIT vs. Tata Iron and Steel Co. Ltd. (1998) 22 ITR 285 held that cost of an asset and cost of raising money for purchase of asset are two different and independent transactions. Thus, events subsequent to acquisition of assets cannot change price paid for it. Therefore, fluctuations in foreign exchange rate while repa installments of foreign loan raised to acquire asset cannot alter actual cost of assets. The relevant operative para is reproduced “Coming to the question raised, we find it difficult to follow how the manner of repayment of loan can affec the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee but even if the assessee did not repay the loan it will not alter the cost of the asset. If the borrower defaults in repayment of a part of the loan, the cost of the asset will not change. What has to be home in mind is that the cost of an asset and the cost of raising money for purchase of the asset are two different and independent transactions. Even if an asset is purchased with non-repayable subsidy received from the Government. the cost of the asset will be the price paid by the assessee for acquiring the asset. In the instant case, the allegation is that at the time of repayment of loan, there was a fluctuation in the rate of foreign exchange as a result of which, the assessee had to repay a much lesser amount than he would have otherwise paid. In our judgment, this is not a factor which can alter the cost incurred by the assessee for purchase of the asset. The assessee may have raised the funds to purchase the asset by borrowing but what the assessee has paid for it, is the price of the asset. That price cannot change by any event subsequent to the acquisition of the asset. In our judgment, the manner or mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. We hold that the questions were rightly answered by the High Court. The appeals dismissed. There will be no order as to costs.” Thus, it is evident the variation in the loan amount has no bearing on the cost of the asset as the loan is a distinct and independent transaction as in comparison with acquisition of assets out of said loan amount borrowed. Actual cost of the corresponding fixed asset /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. t of acquisition of capital assets save and except in 10.6 We also simultaneously note here that the Hon’ble Supreme Court in the & case of CIT vs. Tata Iron and Steel Co. cost of an asset and cost of raising money for purchase of asset are two different and independent transactions. Thus, events subsequent to acquisition of assets cannot change price paid for it. Therefore, fluctuations in foreign exchange rate while repaying installments of foreign loan raised to acquire asset cannot alter actual cost of assets. The relevant operative para is reproduced “Coming to the question raised, we find it difficult to follow how the manner of repayment of loan can affect the cost of the assets acquired by the assessee. What is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee but even if the assessee ter the cost of the asset. If the borrower defaults in repayment of a part of the loan, the cost of the asset will not change. What has to be home in mind is that the cost of an asset and the cost of raising money for purchase of the asset are two t and independent transactions. Even if an asset repayable subsidy received from the Government. the cost of the asset will be the price paid by the assessee for acquiring the asset. In the time of repayment of loan, there was a fluctuation in the rate of foreign exchange as a result of which, the assessee had to repay a much lesser amount than he would have otherwise paid. In our judgment, this is not a factor red by the assessee for purchase of the asset. The assessee may have raised the funds to purchase the asset by borrowing but what the assessee has paid for it, is the price of the asset. That price cannot change by any event subsequent to the f the asset. In our judgment, the manner or mode of repayment of the loan has nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. We hold that the questions were rightly answered by the High Court. The appeals are Thus, it is evident the variation in the loan amount has no bearing on the cost of the asset as the loan is a distinct and independent transaction as in comparison oan amount borrowed. Actual cost of the corresponding fixed asset acquired earlier by utilizing the aforesaid loan will not undergo any change owing to such fluctuation. 10.7 The issue is also tested in the light of provision of S. 36(l)(iii) governing ded stated earlier, manner of utilization of loan amount has nothing to do with allowability of any expenditure in connection with loan repayment. Both are independent and distinct transactions in nature. Similar analo Act which also reinforces that utilization of loan for capital account or revenue account purpose has nothing to do with allowablity of corresponding interest expenditure. A proviso inserted thereto by Finance Act, interest expenditure in revenue account only up to the date on which capital asset is put to use. Once the capital asset is put to use, the interest expenditure on money borrowed for acquisition of capital asset is also treate noted, S. 43A specifically and categorically calls for adjustments in cost of assets for loss or gain arising out of foreign currency fluctuations in respect of funds borrowed in foreign currency for acquisition of foreig a deeming provision of S. 43A cannot be applied to loss or gain arising from foreign currency loss utilized for purchase of indigenous assets. Needless to say, impugned currency fluctuation loss has emanated from fo Besides AS-II, the claim of exchange fluctuation loss as revenue account is also founded on the argument that the aforesaid action was taken to save interest costs and consequently to augment the profitability or reduce revenue losses assessee. The impugned fluctuation loss therefore has a direct nexus to the saving in interest costs without bringing any new capital asset into existence. Thus, the business exigencies are implicit as well explicit in the action of the Assessee. T argument that the act of conversion has served a hedging mechanism against revenue receipts from export also portrays commercial expediency. Thus, We are of the opinion that the plea of the assessee for claim of expenditure is attributable to revenue account has considerable merits. 10.8 Section 145 of the Income Tax Act deals with method of accounting and states that business income inter computed in accordance with cash or mercantile system of accounting. Sub Government to notify accounting standards to be followed for determination of business income. Section 211 of the Companies Act also similarly casts a duty on a company to give a true and fair view of the profit and loss of the company for the financial year. It also requires the company to adhere, the accounting standards for preparation of profit in the Profit & Loss Account and the Balance Sheet. A conjoint reading of section 145 of the Act and section 211 of the Companies Act leaves no room for doubt that’ the Assessee is obliged to follow ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 33 :: acquired earlier by utilizing the aforesaid loan will not undergo any change owing to such fluctuation. 10.7 The issue is also tested in the light of provision of S. 36(l)(iii) governing deduction of interest costs on borrowals. As stated earlier, manner of utilization of loan amount has nothing to do with allowability of any expenditure in connection with loan repayment. Both are independent and distinct transactions in nature. Similar analogy can be drawn from S.36(l)(iii) of the Act which also reinforces that utilization of loan for capital account or revenue account purpose has nothing to do with allowablity of corresponding interest expenditure. A proviso inserted thereto by Finance Act, 2003, also prohibits claim of interest expenditure in revenue account only up to the date on which capital asset is put to use. Once the capital asset is put to use, the interest expenditure on money borrowed for acquisition of capital asset is also treated as revenue expenditure. As also noted, S. 43A specifically and categorically calls for adjustments in cost of assets for loss or gain arising out of foreign currency fluctuations in respect of funds borrowed in foreign currency for acquisition of foreign assets. However, the same rationale of a deeming provision of S. 43A cannot be applied to loss or gain arising from foreign currency loss utilized for purchase of indigenous assets. Needless to say, impugned currency fluctuation loss has emanated from foreign currency loans. II, the claim of exchange fluctuation loss as revenue account is also founded on the argument that the aforesaid action was taken to save interest costs and consequently to augment the profitability or reduce revenue losses assessee. The impugned fluctuation loss therefore has a direct nexus to the saving in interest costs without bringing any new capital asset into existence. Thus, the business exigencies are implicit as well explicit in the action of the Assessee. T argument that the act of conversion has served a hedging mechanism against revenue receipts from export also portrays commercial expediency. Thus, We are of the opinion that the plea of the assessee for claim of expenditure is attributable to count has considerable merits. 10.8 Section 145 of the Income Tax Act deals with method of accounting and states that business income inter-alia has to be computed in accordance with cash or mercantile system of accounting. Sub-section (2) thereof authorizes the Central Government to notify accounting standards to be followed for determination of business income. Section 211 of the Companies Act also similarly casts a duty on a company to give a true and fair view of the profit and loss of the company for he financial year. It also requires the company to adhere, the accounting standards for preparation of profit in the Profit & Loss Account and the Balance Sheet. A conjoint reading of section 145 of the Act and section 211 of the Companies Act om for doubt that’ the Assessee is obliged to follow /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. acquired earlier by utilizing the aforesaid loan will not 10.7 The issue is also tested in the light of provision of S. uction of interest costs on borrowals. As stated earlier, manner of utilization of loan amount has nothing to do with allowability of any expenditure in connection with loan repayment. Both are independent and distinct transactions gy can be drawn from S.36(l)(iii) of the Act which also reinforces that utilization of loan for capital account or revenue account purpose has nothing to do with allowablity of corresponding interest expenditure. A proviso 2003, also prohibits claim of interest expenditure in revenue account only up to the date on which capital asset is put to use. Once the capital asset is put to use, the interest expenditure on money borrowed for acquisition d as revenue expenditure. As also noted, S. 43A specifically and categorically calls for adjustments in cost of assets for loss or gain arising out of foreign currency fluctuations in respect of funds borrowed in foreign currency n assets. However, the same rationale of a deeming provision of S. 43A cannot be applied to loss or gain arising from foreign currency loss utilized for purchase of indigenous assets. Needless to say, impugned currency reign currency loans. II, the claim of exchange fluctuation loss as revenue account is also founded on the argument that the aforesaid action was taken to save interest costs and consequently to of the assessee. The impugned fluctuation loss therefore has a direct nexus to the saving in interest costs without bringing any new capital asset into existence. Thus, the business exigencies are implicit as well explicit in the action of the Assessee. The argument that the act of conversion has served a hedging mechanism against revenue receipts from export also portrays commercial expediency. Thus, We are of the opinion that the plea of the assessee for claim of expenditure is attributable to 10.8 Section 145 of the Income Tax Act deals with method of alia has to be computed in accordance with cash or mercantile system of es the Central Government to notify accounting standards to be followed for determination of business income. Section 211 of the Companies Act also similarly casts a duty on a company to give a true and fair view of the profit and loss of the company for he financial year. It also requires the company to adhere, the accounting standards for preparation of profit in the Profit & Loss Account and the Balance Sheet. A conjoint reading of section 145 of the Act and section 211 of the Companies Act om for doubt that’ the Assessee is obliged to follow the accounting standards prescribed to determine business income under the head “business or profession”. We notice that the Hon’ble Supreme Court in the case of Woodward Governor India (P) Ltd. (supra) nature. In the light of observations made in Woodward Governor India (P) Ltd. (supra), we arc of the view that loss arising on foreign exchange fluctuation loss has been rightly accounted for as a revenue expense in in accordance with accounting fiat of AS 10.9 We find that the decision in the case of Sutlej Cotton Mills Ltd. (supra) relied upon by the Ld. Departmental Representative is of no assistance to the Revenue. The Hon’ble Supreme Court therein stated the principle of law that where any profit or loss arises to an assessee on account of depreciation in foreign currency held by him on conversion from another currency, such profit and loss would ordinary be trading loss if the forei account as trading asset or as a part of circulating capital embargo in business. However, if the foreign currency is held as a capital asset, the loss should be capital in nature. The aforesaid principle of law of case to determine whether the foreign currency is held by the assessee on revenue account or as a part of circulating capital. In the present case, fluctuation loss inflicted upon the assessee bears no nexus or rel assets. The action of the assessee is tied up to its underlying objective i.e. saving in interest costs, hedging its revenue receipts etc. which are undoubtedly on revenue account. Thus, the loss generated in impugned action revenue expenditure. Similarly, decision of the Apex Court in the case of Tata Iron and Steel co. (supra) also weighs in favour of the assessee. We also note that reliance placed by the CIT(A) on Elecon Engineering Co. Ltd. (supra) decision concerns applicability of S. 43A in the facts of that case and thus clearly distinguishable. 11. For the aforesaid reasons, in the absence of applicability of section 43A of the Act to the facts of the case and in the absence of any other provision of the Income Tax Act dealing with the issue, claim of exchange fluctuation loss in revenue account by the Assessee in accordance with generally accepted accounting practices and mandatory accounting standards notified by the ICAI and a notification cannot be faulted. No inconsistency with any provision of Act or with any accounting practices has been brought to our notice. Otherwise also, in the light of fact that the conversion in foreign currency loans which loss, were dictated by revenue considerations towards saving interest costs etc. we have no hesitation in coming to the conclusion that loss being on revenue account is an allowable expenditure under S. 37(1) of the Act. The order of the C ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 34 :: the accounting standards prescribed to determine business income under the head “business or profession”. We notice that the Hon’ble Supreme Court in the case of Woodward Governor India (P) Ltd. (supra) has observed that AS-I I is mandatory in nature. In the light of observations made in Woodward Governor India (P) Ltd. (supra), we arc of the view that loss arising on foreign exchange fluctuation loss has been rightly accounted for as a revenue expense in the Profit & Loss account in accordance with accounting fiat of AS-11. 10.9 We find that the decision in the case of Sutlej Cotton Mills Ltd. (supra) relied upon by the Ld. Departmental Representative is of no assistance to the Revenue. The Hon’ble e Court therein stated the principle of law that where any profit or loss arises to an assessee on account of depreciation in foreign currency held by him on conversion from another currency, such profit and loss would ordinary be trading loss if the foreign currency held by the assessee on revenue account as trading asset or as a part of circulating capital embargo in business. However, if the foreign currency is held as a capital asset, the loss should be capital in nature. The aforesaid principle of law is required to be applied to the facts of case to determine whether the foreign currency is held by the assessee on revenue account or as a part of circulating capital. In the present case, fluctuation loss inflicted upon the assessee bears no nexus or relation to the acquisition to the assets. The action of the assessee is tied up to its underlying objective i.e. saving in interest costs, hedging its revenue receipts etc. which are undoubtedly on revenue account. Thus, the loss generated in impugned action bears the character of revenue expenditure. Similarly, decision of the Apex Court in the case of Tata Iron and Steel co. (supra) also weighs in favour of the assessee. We also note that reliance placed by the CIT(A) on Elecon Engineering Co. Ltd. (supra) is misplaced. The decision concerns applicability of S. 43A in the facts of that case and thus clearly distinguishable. 11. For the aforesaid reasons, in the absence of applicability of section 43A of the Act to the facts of the case and in the any other provision of the Income Tax Act dealing with the issue, claim of exchange fluctuation loss in revenue account by the Assessee in accordance with generally accepted accounting practices and mandatory accounting standards notified by the ICAI and also in conformity with CBDT notification cannot be faulted. No inconsistency with any provision of Act or with any accounting practices has been brought to our notice. Otherwise also, in the light of fact that the conversion in foreign currency loans which led to impugned loss, were dictated by revenue considerations towards saving interest costs etc. we have no hesitation in coming to the conclusion that loss being on revenue account is an allowable expenditure under S. 37(1) of the Act. The order of the C /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. the accounting standards prescribed to determine business income under the head “business or profession”. We notice that the Hon’ble Supreme Court in the case of Woodward Governor I I is mandatory in nature. In the light of observations made in Woodward Governor India (P) Ltd. (supra), we arc of the view that loss arising on foreign exchange fluctuation loss has been rightly the Profit & Loss account 10.9 We find that the decision in the case of Sutlej Cotton Mills Ltd. (supra) relied upon by the Ld. Departmental Representative is of no assistance to the Revenue. The Hon’ble e Court therein stated the principle of law that where any profit or loss arises to an assessee on account of depreciation in foreign currency held by him on conversion from another currency, such profit and loss would ordinary be trading gn currency held by the assessee on revenue account as trading asset or as a part of circulating capital embargo in business. However, if the foreign currency is held as a capital asset, the loss should be capital in nature. The is required to be applied to the facts of case to determine whether the foreign currency is held by the assessee on revenue account or as a part of circulating capital. In the present case, fluctuation loss inflicted upon the ation to the acquisition to the assets. The action of the assessee is tied up to its underlying objective i.e. saving in interest costs, hedging its revenue receipts etc. which are undoubtedly on revenue account. Thus, bears the character of revenue expenditure. Similarly, decision of the Apex Court in the case of Tata Iron and Steel co. (supra) also weighs in favour of the assessee. We also note that reliance placed by the is misplaced. The decision concerns applicability of S. 43A in the facts of that case 11. For the aforesaid reasons, in the absence of applicability of section 43A of the Act to the facts of the case and in the any other provision of the Income Tax Act dealing with the issue, claim of exchange fluctuation loss in revenue account by the Assessee in accordance with generally accepted accounting practices and mandatory accounting standards lso in conformity with CBDT notification cannot be faulted. No inconsistency with any provision of Act or with any accounting practices has been brought to our notice. Otherwise also, in the light of fact that led to impugned loss, were dictated by revenue considerations towards saving interest costs etc. we have no hesitation in coming to the conclusion that loss being on revenue account is an allowable expenditure under S. 37(1) of the Act. The order of the CIT(A) sustaining the disallowance is not called for and is thus reversed. In the result, the Ground No.1 is allowed.” In view of the decision of Co ground raised by the assessee is allowed.” 8.8 It is noted that the lower authorities had made the impugned disallowance on the limited point that, of accounts capitalizing the that the same was capital in nature. The Ld. AR that, AS-11 notified by ICAI, as amended in 2003, provided that the foreign exchange loss arising out of foreign currency fluctuations in respect of fixed assets acquired out of foreign currency loans was to be routed through Profit & Loss Account. 12, the ICAI had modified Para 46A of AS of which the company now had an option to either debit such foreign exchange loss to the Pr cost of assets. The assessee, in the present case, chose the latter option. Merely because the assessee chose the lat determinative of the character of the cost. the entries whether the assessee i not depends upon the provision of law relating thereto. The existence or absence of entries in the books of account be decisive or conclusive in the matter. This legal principle has been laid down by the Hon'ble Supr ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 35 :: sustaining the disallowance is not called for and is thus In the result, the Ground No.1 is allowed.” In view of the decision of Co-ordinate Bench of Pune Tribunal, this ground raised by the assessee is allowed.” It is noted that the lower authorities had made the impugned disallowance on the limited point that, the assessee's entries in the books of accounts capitalizing the hedging cost to the cost of assets denoted was capital in nature. The Ld. AR had pointed out to us 11 notified by ICAI, as amended in 2003, provided that the foreign exchange loss arising out of foreign currency fluctuations in respect of fixed assets acquired out of foreign currency loans was to be & Loss Account. However, in the relevant FY 2011 12, the ICAI had modified Para 46A of AS-11 in December 2011, in terms of which the company now had an option to either debit such foreign exchange loss to the Profit & Loss Account or capitalize the same to cost of assets. The assessee, in the present case, chose the latter option. Merely because the assessee chose the latter option would not determinative of the character of the cost. It is by now trite in law that, the entries whether the assessee is entitled to a particular deduction or not depends upon the provision of law relating thereto. The existence or absence of entries in the books of account be decisive or conclusive in the matter. This legal principle has been laid down by the Hon'ble Supr /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. sustaining the disallowance is not called for and is thus ordinate Bench of Pune Tribunal, this It is noted that the lower authorities had made the impugned the assessee's entries in the books to the cost of assets denoted had pointed out to us 11 notified by ICAI, as amended in 2003, provided that the foreign exchange loss arising out of foreign currency fluctuations in respect of fixed assets acquired out of foreign currency loans was to be n the relevant FY 2011- 11 in December 2011, in terms of which the company now had an option to either debit such foreign e the same to the cost of assets. The assessee, in the present case, chose the latter option. er option would not be It is by now trite in law that, s entitled to a particular deduction or not depends upon the provision of law relating thereto. The existence or absence of entries in the books of account be decisive or conclusive in the matter. This legal principle has been laid down by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg Co. Ltd. v. CIT [1976] 82 ITR 363 wherein the Hon'ble Court has clearly stated as follows: \"Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto a which the assessee might taken of its right nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter.\" 8.9 Likewise, it is noted that, the Hon'ble jurisdictional High Court also while adjudicating the nature and allowability of expenditure incurred on repairs & maintenance which were capitalized to fixed assets, have held that the entries in the books of accounts was not determinative to decide whether expenditure was capital or not, bu of the provisions of the law. The relevant judgments wherein such expenses were allowed as revenue deduction, inspite of the same being capitalized in books of accounts taken note of by us are as follows: - Reliance Footprint 553/63 SOT 124 (Mum.) since upheld by the Hon'ble Bombay High Court in CIT v. Reliance Supply Chain Solutions Ltd. [ITA No. 948 of 2014, dated 5-7-2017] - Reliance Fresh Ltd. v. Asstt. CIT [2016] 72 taxmann.com 170/5 ITR(T) 150 (Mumbai) since upheld by the Hon'ble Bombay High Court in ITA No. 985 of 2017 ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 36 :: Kedarnath Jute Mfg Co. Ltd. v. CIT [1976] 82 wherein the Hon'ble Court has clearly stated as follows: \"Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might taken of its right nor can the existence or absence of entries in the books of account be decisive or conclusive in Likewise, it is noted that, the Hon'ble jurisdictional High Court also adjudicating the nature and allowability of expenditure incurred on repairs & maintenance which were capitalized to fixed assets, have held that the entries in the books of accounts was not determinative to decide whether expenditure was capital or not, but it had to be examined in light of the provisions of the law. The relevant judgments wherein such expenses were allowed as revenue deduction, inspite of the same being capitalized in books of accounts taken note of by us are as follows: Reliance Footprint Ltd. v. Asstt. CIT [2014] 41 taxmann.com 553/63 SOT 124 (Mum.) since upheld by the Hon'ble Bombay High Court in CIT v. Reliance Supply Chain Solutions Ltd. [ITA No. 948 of 2017] Reliance Fresh Ltd. v. Asstt. CIT [2016] 72 taxmann.com 170/5 ITR(T) 150 (Mumbai) since upheld by the Hon'ble Bombay High Court in ITA No. 985 of 2017 /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. Kedarnath Jute Mfg Co. Ltd. v. CIT [1976] 82 wherein the Hon'ble Court has clearly stated as follows: \"Whether the assessee is entitled to a particular deduction or not will nd not on the view which the assessee might taken of its right nor can the existence or absence of entries in the books of account be decisive or conclusive in Likewise, it is noted that, the Hon'ble jurisdictional High Court also adjudicating the nature and allowability of expenditure incurred on repairs & maintenance which were capitalized to fixed assets, have held that the entries in the books of accounts was not determinative to decide t it had to be examined in light of the provisions of the law. The relevant judgments wherein such expenses were allowed as revenue deduction, inspite of the same being capitalized in books of accounts taken note of by us are as follows: Ltd. v. Asstt. CIT [2014] 41 taxmann.com 553/63 SOT 124 (Mum.) since upheld by the Hon'ble Bombay High Court in CIT v. Reliance Supply Chain Solutions Ltd. [ITA No. 948 of Reliance Fresh Ltd. v. Asstt. CIT [2016] 72 taxmann.com 170/50 ITR(T) 150 (Mumbai) since upheld by the Hon'ble Bombay High 8.10 For the reasons above, the reasoning given by the AO for making the impugned disallowance is found to be unjustified. 8.11 Overall therefore, we hold that the Rs.27,45,310/- was untenable and is therefore directed to be deleted. This ground is allowed. 9. Ground No.13 is regarding amortization of FCMTR to the tune of Rs.27,45,310/-. 9.1 The Ld.AR doesn’t press this ground, so dismissed. 10. Ground No.14 denying the claim of balance additional depreciation amounting to Rs 5,94,90,540/- on the assets which were put to use in the earlier 12. 10.1 The facts of the case claimed Rs. 5,94,90,540/ @ 10% on the assets which were purchased and put to use on the latter half of earlier A.Y. 2011 allowability of balance additional depreciation in the subsequent assessment year on the assets which were put to use for less than 180 days for the financial year relating to preceding assessment year. was of the opinion that there was no provision in t ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 37 :: For the reasons above, the reasoning given by the AO for making the impugned disallowance is found to be unjustified. Overall therefore, we hold that the impugned disallowance of was untenable and is therefore directed to be deleted. is regarding amortization of FCMTR to the tune of The Ld.AR doesn’t press this ground, so dismissed. is against the action of the lower authorities he claim of balance additional depreciation amounting to Rs on the assets which were put to use in the earlier facts of the case are that, the AO noted that the assessee has 5,94,90,540/- on account of balance additional depreciation @ 10% on the assets which were purchased and put to use on the latter earlier A.Y. 2011-12. The AO noted that the issue relates to the ability of balance additional depreciation in the subsequent assessment year on the assets which were put to use for less than 180 days for the financial year relating to preceding assessment year. was of the opinion that there was no provision in the Act for claiming in /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. For the reasons above, the reasoning given by the AO for making impugned disallowance of was untenable and is therefore directed to be deleted. is regarding amortization of FCMTR to the tune of is against the action of the lower authorities he claim of balance additional depreciation amounting to Rs. on the assets which were put to use in the earlier FY 2011- the AO noted that the assessee has on account of balance additional depreciation @ 10% on the assets which were purchased and put to use on the latter . The AO noted that the issue relates to the ability of balance additional depreciation in the subsequent assessment year on the assets which were put to use for less than 180 days for the financial year relating to preceding assessment year. The AO he Act for claiming in the subsequent financial year the balance 50% of additional depreciation, when the assessee had claimed initial 50% of additional depreciation in the year of purchase of asset as it is used for less than 180 days in terms of proviso to section 32(1) of the Act. not permissible, and the additional depreciation is allowable on plant & machinery which are purchased in the year and put to use in the same year. He therefore disallowed the claim of the as DRP confirmed the action of the AO. Aggrieved, the assessee is before us. 10.2 We have heard both the parties and also perused the relevant material available on record. The notice that this issue is no longer res integra and the Hon'ble Karnataka High Court in CIT vs Rittal (India) Ltd. 388 ITR 423 similar issue wherein Hon'ble High Court held as under: \"2. The undisputed facts of this case are that the respondent was an existing industrial undertaking, when it had acquired and installed new plant and machinery in M/s. National Engineering Industries Ltd. AY of additional 20% depreciation (i.e. 10% additional depreciati Section 32(1)(iia) of the Act in the corresponding assessment year 2007-08. This was so claimed because admittedly the new machinery was acquired after 01.10.2006 and before 31.03.2007, meaning thereby that it was put to use for the purpose of bu than 180 days. There is also no dispute with regard to the fact that under Section 32(1)(iia), read with second proviso to 32(1)(ii) of the Act, for the assessment year 2007 have been, and was of depreciation allowable under sub Act. ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 38 :: the subsequent financial year the balance 50% of additional depreciation, when the assessee had claimed initial 50% of additional depreciation in the year of purchase of asset as it is used for less than 180 days in terms to section 32(1) of the Act. According to him, such practice is not permissible, and the additional depreciation is allowable on plant & machinery which are purchased in the year and put to use in the same year. He therefore disallowed the claim of the assessee. On appeal, the DRP confirmed the action of the AO. Aggrieved, the assessee is before us. We have heard both the parties and also perused the relevant material available on record. The Ld. AR for the assessee brought to our sue is no longer res integra and the Hon'ble Karnataka CIT vs Rittal (India) Ltd. 388 ITR 423 has adjudicated similar issue wherein Hon'ble High Court held as under: \"2. The undisputed facts of this case are that the respondent n existing industrial undertaking, when it had acquired and installed new plant and machinery in M/s. National Engineering Industries Ltd. AY- 2013-14 the financial year 2006-07 and claimed 50% of additional 20% depreciation (i.e. 10% additional depreciati Section 32(1)(iia) of the Act in the corresponding assessment year 08. This was so claimed because admittedly the new machinery was acquired after 01.10.2006 and before 31.03.2007, meaning thereby that it was put to use for the purpose of business for a period of less than 180 days. There is also no dispute with regard to the fact that under Section 32(1)(iia), read with second proviso to 32(1)(ii) of the Act, for the assessment year 2007-08, the respondent- assessee could have been, and was granted benefit of 50% of the 20% of the amount of depreciation allowable under sub-section (ii) of Section 32(1) of the /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. the subsequent financial year the balance 50% of additional depreciation, when the assessee had claimed initial 50% of additional depreciation in the year of purchase of asset as it is used for less than 180 days in terms According to him, such practice is not permissible, and the additional depreciation is allowable on plant & machinery which are purchased in the year and put to use in the same sessee. On appeal, the DRP confirmed the action of the AO. Aggrieved, the assessee is before us. We have heard both the parties and also perused the relevant for the assessee brought to our sue is no longer res integra and the Hon'ble Karnataka has adjudicated \"2. The undisputed facts of this case are that the respondent-assessee n existing industrial undertaking, when it had acquired and installed new plant and machinery in M/s. National Engineering 07 and claimed 50% of additional 20% depreciation (i.e. 10% additional depreciation) under Section 32(1)(iia) of the Act in the corresponding assessment year 08. This was so claimed because admittedly the new machinery was acquired after 01.10.2006 and before 31.03.2007, meaning thereby siness for a period of less than 180 days. There is also no dispute with regard to the fact that under Section 32(1)(iia), read with second proviso to 32(1)(ii) of the assessee could granted benefit of 50% of the 20% of the amount section (ii) of Section 32(1) of the 3. The dispute in the present appeal is with regard to the allowance of the balance 10% depreciation in the next assessment year 2 that the benefit of the total 20% allowable depreciation under Section 32(1)(iia) of the Act was given. The Assessing Officer, as well as the Appellate Commissioner, disallowed the claim of the assessee, whereas the Tribunal, vide its order date the assessee. Challenging the same, this further appeal has been filed by the Revenue. ….. 7. Clause (iia) of Section 32(1) of the Act, as it now stands, was substituted by the Finance Act, 2005, applicable with effe 01.04.2006. Prior to that, a proviso to the said Clause was there, which provided for the benefit to be given only to a new industrial undertaking, or only where a new industrial undertaking begins to manufacture or produce during any year previous 8. The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, or that it should be claimed in one year, have been done away by substituting clause (iia) with effect from 01.04.2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialization, by either setting up a new industrial unit or by expanding the existin purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to Clause (ii) of the said Section makes it clear that only 50% of the 20% would be allowable, if the new plant and machinery so acquired is put t financial year. However, it nowhere restricts that the balance 10% would not be allowed to be claimed by the assessee in the next assessment year. 9. The language used in Clause (iia) of the said Section clearly provides that \"a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under Clause (ii)\". The word \"shall\" used in the said Clause is very significant. The benefit which is to be granted is 20% additional depreciation. referred to above, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10% additional deduction can be availed in the subsequent assessment year, otherwise the very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed. ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 39 :: 3. The dispute in the present appeal is with regard to the allowance of the balance 10% depreciation in the next assessment year 2 that the benefit of the total 20% allowable depreciation under Section 32(1)(iia) of the Act was given. The Assessing Officer, as well as the Appellate Commissioner, disallowed the claim of the assessee, whereas the Tribunal, vide its order dated 28.01.2014, has allowed the appeal of the assessee. Challenging the same, this further appeal has been filed 7. Clause (iia) of Section 32(1) of the Act, as it now stands, was substituted by the Finance Act, 2005, applicable with effe 01.04.2006. Prior to that, a proviso to the said Clause was there, which provided for the benefit to be given only to a new industrial undertaking, or only where a new industrial undertaking begins to manufacture or produce during any year previous to the relevant assessment year. 8. The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, or that it should be claimed in one year, have been done away by substituting th effect from 01.04.2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialization, by either setting up a new industrial unit or by expanding the existin purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to Clause (ii) of the said Section makes it clear that only 50% of the 20% would be allowable, if the new plant and machinery so acquired is put to use for less than 180 days in a financial year. However, it nowhere restricts that the balance 10% would not be allowed to be claimed by the assessee in the next assessment 9. The language used in Clause (iia) of the said Section clearly provides hat \"a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under Clause (ii)\". The word \"shall\" used in the said Clause is very significant. The benefit which is to be granted is 20% additional depreciation. By virtue of the proviso referred to above, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10% additional deduction n the subsequent assessment year, otherwise the very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed. /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. 3. The dispute in the present appeal is with regard to the allowance of the balance 10% depreciation in the next assessment year 2008-09, so that the benefit of the total 20% allowable depreciation under Section 32(1)(iia) of the Act was given. The Assessing Officer, as well as the Appellate Commissioner, disallowed the claim of the assessee, whereas d 28.01.2014, has allowed the appeal of the assessee. Challenging the same, this further appeal has been filed 7. Clause (iia) of Section 32(1) of the Act, as it now stands, was substituted by the Finance Act, 2005, applicable with effect from 01.04.2006. Prior to that, a proviso to the said Clause was there, which provided for the benefit to be given only to a new industrial undertaking, or only where a new industrial undertaking begins to manufacture or to the relevant assessment year. 8. The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, or that it should be claimed in one year, have been done away by substituting th effect from 01.04.2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialization, by either setting up a new industrial unit or by expanding the existing unit by purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to Clause (ii) of the said Section makes it clear that only 50% of the 20% would be allowable, if the new plant o use for less than 180 days in a financial year. However, it nowhere restricts that the balance 10% would not be allowed to be claimed by the assessee in the next assessment 9. The language used in Clause (iia) of the said Section clearly provides hat \"a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under Clause (ii)\". The word \"shall\" used in the said Clause is very significant. The benefit which is to By virtue of the proviso referred to above, only 10% can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10% additional deduction n the subsequent assessment year, otherwise the very purpose of insertion of Clause (iia) would be defeated because it 10. It has been consistently held by this Court, as well as the Apex Court, that benef liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was re only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under Section 32(1)(iia) of the Act is a one time benefit to encourage industrialization, and the provisions related to it have to be construed reasonably, libe to make the provision meaningful while granting additional allowance. We are in full agreement with such observations made by the Tribunal. 11. In view of the aforesaid, we do not find that any interference is called for with the ord arises in this appeal for determination by this Court.\" 10.3 It was also brought to our notice that the Hon’ble Madras High Court in assessee’s own case for AY 2004 dated 14.03.2017has adjudicated similar issue wherein Hon'ble High Court held as under: “2. The Tribunal, by virtue of the impugned judgment, has sustained, in entirety, the order passed by the Commissioner of Income 'the Commissioner') under Section 263 o Commissioner had issued a notice to the appellant / assessee in pursuance of powers conferred upon him under Section 263 of the Act on several issues including the issue pertaining to the right of the assessee to carry forward t following the relevant previous year, in which the subject asset was purchased and put to use. 3.It is common ground before us that in so far as this issue is concerned, it is covered against the Revenue by ou delivered today in the following cases, as also by the judgment dated 06.03.2017 passed in T.C.A.No.157 of 2017, titled Commissi Income-Tax, Madurai Multivista Global Ltd. vs. The Asst. Co No.402 of 2013 ii.M/s.Brakes India Ltd. vs. The Deputy Commissioner of ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 40 :: 10. It has been consistently held by this Court, as well as the Apex Court, that beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the essment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under Section 32(1)(iia) of the Act is a one time benefit to encourage industrialization, and the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting additional allowance. We are in full agreement with such observations made by the Tribunal. 11. In view of the aforesaid, we do not find that any interference is called for with the order of the Tribunal, or that any question of law arises in this appeal for determination by this Court.\" It was also brought to our notice that the Hon’ble Madras High Court in assessee’s own case for AY 2004-05 in T.C.(A) No.294 of 2016 has adjudicated similar issue wherein Hon'ble High “2. The Tribunal, by virtue of the impugned judgment, has sustained, in entirety, the order passed by the Commissioner of Income- 'the Commissioner') under Section 263 of the Act. To be noted, the Commissioner had issued a notice to the appellant / assessee in pursuance of powers conferred upon him under Section 263 of the Act on several issues including the issue pertaining to the right of the assessee to carry forward the balance additional depreciation in the year following the relevant previous year, in which the subject asset was purchased and put to use. 3.It is common ground before us that in so far as this issue is concerned, it is covered against the Revenue by ou delivered today in the following cases, as also by the judgment dated 06.03.2017 passed in T.C.A.No.157 of 2017, titled Commissi Madurai vs. M/s.Shri.T.P.Textiles Private Limited: Multivista Global Ltd. vs. The Asst. Commissioner of Income Tax, TCA. No.402 of 2013 ii.M/s.Brakes India Ltd. vs. The Deputy Commissioner of /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. 10. It has been consistently held by this Court, as well as the Apex icial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the legislation is absolutely clear, that the assessee shall be stricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the essment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under Section 32(1)(iia) of the Act is a one time benefit to encourage industrialization, and the provisions rally and purposively, to make the provision meaningful while granting additional allowance. We are in full agreement with such observations made by the Tribunal. 11. In view of the aforesaid, we do not find that any interference is er of the Tribunal, or that any question of law It was also brought to our notice that the Hon’ble Madras High No.294 of 2016 has adjudicated similar issue wherein Hon'ble High “2. The Tribunal, by virtue of the impugned judgment, has sustained, in -Tax (in short f the Act. To be noted, the Commissioner had issued a notice to the appellant / assessee in pursuance of powers conferred upon him under Section 263 of the Act on several issues including the issue pertaining to the right of the he balance additional depreciation in the year following the relevant previous year, in which the subject asset was 3.It is common ground before us that in so far as this issue is concerned, it is covered against the Revenue by our judgments delivered today in the following cases, as also by the judgment dated 06.03.2017 passed in T.C.A.No.157 of 2017, titled Commissioner of Limited: i.M/s. mmissioner of Income Tax, TCA. No.402 of 2013 ii.M/s.Brakes India Ltd. vs. The Deputy Commissioner of Income Tax, TCA. No.551 of 2013 iii.M/s.AbiShowatech (India) Ltd. vs. The Deputy/Asst. Commissioner of Income Tax, TCA. Nos.699 to 702 of 2013 4.To be noted, at the point in time when the appeal was admitted, vide order dated 18.04.2016, the following substantial questions of law were framed: i.Whether the Tribunal was right in law in holding that the Commissioner of Income Tax has rightly invoked juris Act ? ii.Whether the allowance of additional depreciation by the Assessing Officer after eliciting replies from the assessee could be revised under Section 263 of the Act without establishing that the assessment order was erroneous and prejudicial to the interest of the Revenue ? and iii.Whether the Tribunal was right in law in holding that the assessee is not entitled to claim additional depreciation during the year in respect of additions made to fixed assets in the second 2003-04 ?' 5. In view of the aforementioned judgments, it is agreed by the learned counsels for both parties that question no. (iii) will have to be answered in favour of the assessee. It is ordered accordingly. 10.4 Respectfully following the above binding decisions of Hon’ble High Court (supra), we direct the AO to delete the impugned disallowance and allow this ground of appeal. 11. Ground No. 15 income chargeable to t actually amounts to Rs.2,55,96,39,659/ brought to our notice that the assessee has filed rectification application before the AO. Therefore, we expect the AO to compute the correct chargeable income in accordance to law. ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 41 :: Income Tax, TCA. No.551 of 2013 iii.M/s.AbiShowatech (India) Ltd. vs. The Deputy/Asst. Commissioner of Income Tax, TCA. Nos.699 to 702 of noted, at the point in time when the appeal was admitted, vide order dated 18.04.2016, the following substantial questions of law were i.Whether the Tribunal was right in law in holding that the Commissioner of Income Tax has rightly invoked jurisdiction under Section 263 of the ii.Whether the allowance of additional depreciation by the Assessing Officer after eliciting replies from the assessee could be revised under Section 263 of the Act without establishing that the assessment order rroneous and prejudicial to the interest of the Revenue ? and iii.Whether the Tribunal was right in law in holding that the assessee is not entitled to claim additional depreciation during the year in respect of additions made to fixed assets in the second half of the assessment year 5. In view of the aforementioned judgments, it is agreed by the learned counsels for both parties that question no. (iii) will have to be answered in favour of the assessee. It is ordered accordingly.” Respectfully following the above binding decisions of Hon’ble High Court (supra), we direct the AO to delete the impugned disallowance and this ground of appeal. is against the action of the AO computing total income chargeable to tax at Rs.2,72,09,35,654/-, whereas the same actually amounts to Rs.2,55,96,39,659/-. At the outset the Ld.AR brought to our notice that the assessee has filed rectification application before the AO. Therefore, we expect the AO to compute the correct rgeable income in accordance to law. /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. Income Tax, TCA. No.551 of 2013 iii.M/s.AbiShowatech (India) Ltd. vs. The Deputy/Asst. Commissioner of Income Tax, TCA. Nos.699 to 702 of noted, at the point in time when the appeal was admitted, vide order dated 18.04.2016, the following substantial questions of law were i.Whether the Tribunal was right in law in holding that the Commissioner diction under Section 263 of the ii.Whether the allowance of additional depreciation by the Assessing Officer after eliciting replies from the assessee could be revised under Section 263 of the Act without establishing that the assessment order rroneous and prejudicial to the interest of the Revenue ? and iii.Whether the Tribunal was right in law in holding that the assessee is not entitled to claim additional depreciation during the year in respect of the assessment year 5. In view of the aforementioned judgments, it is agreed by the learned counsels for both parties that question no. (iii) will have to be answered Respectfully following the above binding decisions of Hon’ble High Court (supra), we direct the AO to delete the impugned disallowance and is against the action of the AO computing total , whereas the same . At the outset the Ld.AR brought to our notice that the assessee has filed rectification application before the AO. Therefore, we expect the AO to compute the correct 12. Ground No. 16 Rs.9,53,56,176/- u/s. 234B of the Act. The levy of interest the Act may be verified by the AO 13. In the result, appeal filed by the assessee Order pronounced on the Sd/- (अिमताभशु\u0018ा) (AMITABH SHUKLA लेखासद\u0007य/ACCOUNTANT MEMBER चे\u0003ई/Chennai, \u0005दनांक/Dated: 24th January, 2025 TLN, Sr.PS आदेशक\r\u000eितिलिपअ\u0014ेिषत/Copy to 1. अपीलाथ\r/Appellant 2. \u000e\u000fथ\r/Respondent 3. आयकरआयु\u0015/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u000eितिनिध/DR 5. गाड\u001eफाईल/GF ITA No.672/Chny/201 M/s.TVS Motor Co. Ltd. :: 42 :: Ground No. 16 is against the AO levying interest of u/s. 234B of the Act. The levy of interest may be verified by the AO and allowed in accordance to law. ppeal filed by the assessee is partly allowed. Order pronounced on the 24th day of January, 2025, in Chennai. AMITABH SHUKLA) /ACCOUNTANT MEMBER Sd/ (एबीटी. (ABY T. VARKEY \tयाियकसद\u0007य/JUDICIAL MEMBER January, 2025. Copy to: , Chennai / Madurai / Salem / Coimbatore. /Chny/2017 (AY 2012-13) M/s.TVS Motor Co. Ltd. is against the AO levying interest of u/s. 234B of the Act. The levy of interest u/s. 234B of in accordance to law. is partly allowed. , in Chennai. Sd/- . वक ) ABY T. VARKEY) /JUDICIAL MEMBER , Chennai / Madurai / Salem / Coimbatore. "