Xchanging Solutions Limited, Bangalore v. DCIT, Bangalore

ITA 1294/BANG/2012 | 2008-2009
Pronouncement Date: 31-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 129421114 RSA 2012
Assessee PAN AAFCS9303L
Bench Bangalore
Appeal Number ITA 1294/BANG/2012
Duration Of Justice 4 year(s) 23 day(s)
Appellant Xchanging Solutions Limited, Bangalore
Respondent DCIT, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 31-10-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 31-10-2016
Date Of Final Hearing 29-09-2016
Next Hearing Date 29-09-2016
Assessment Year 2008-2009
Appeal Filed On 08-10-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI A .K. GARODIA ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER I.T. (T.P) A. NO S . 1294 /BANG/201 2 & 166/BANG/2014 (ASSESSMENT YEAR S : 20 08 - 09 & 2009 - 10 ) M/S. XCHANGING SOLU TIONS LTD. NOS.13 14 & 15 SJR I PARK EPIP INDL. AREA PHASE - I WHITEFIELD BANGALORE - 560 066 PAN AAFCS 9303L VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 12(5) BANGALORE. APPELLANT RESPONDENT. APPELLANT BY : SHRI NAGESHWAR RAO ADVOCATE. RESPON DENT BY : SHRI G.R. REDDY CIT - I (D.R) DATE OF H EARING : 06.10.2016 . DATE OF P RONOUNCEMENT : 31. 1 0. 201 6 . O R D E R PER SHRI VIJAY P AL RAO J. M. : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ASSESSMENT ORDER DT.16.8.2012 AND 20.1.2014 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT 1961 (IN SHORT 'THE ACT') IN PURSUANT TO THE DI RECTIONS OF THE DISPUTE RESOLUTION PANEL ( DRP ) FOR THE ASSESSMENT YEARS 2008 - 09 & 2009 - 10 RESPECTIVELY. 2 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 2. FIRST WE TAKE UP THE APPEAL FOR THE ASSESSMENT YEAR 2008 - 09 WHEREIN THE ASSESSEE HAS FILED THE FOLLOWING GROUNDS : 1. THE LEARNED TPO AND THE LE ARNED AO HAVE ERRED IN LAW AND IN FACT BY FAILING TO TAKE COGNIZANCE OF THE VALID BUSINESS/COMMERCIAL REASONS PUT FORTH BY THE APPELLANT FOR NOT CHARGING A GUARANTEE FEE TO ITS ASSOCIATED ENTERPRISES. 2. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LA W AND IN FACT BY IGNORING THE CORPORATE GUARANTEES OBTAINED FROM OVERSEAS SUBSIDIARIES/ PARENT COMPANY FOR WHICH NO GUARANTEE FEE HAS BEEN PAID BY THE ASSESSEE. 3. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS BY NOT GIVING PROPORTIONA TE EFFECT TO THE GUARANTEES WHICH EXISTED ONLY FOR A PART OF THE YEAR. 4. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS BY CONSIDERING CORPORATE GUARANTEE TRANSACTION AS AN INTRA - GROUP SERVICE WARRANTING AN ARM S LENGTH REMUNERATION BY IGNORING THE FACT THAT SUCH A TRANSACTION I S A MERE SHAREHOLDER ACTIVITY. 5. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS BY CONSIDERING THE OUTSTANDING DUES FROM THE AES TO BE IN THE NATURE OF LOAN AND NOT CONSIDERING THE BUSINESS/ COMMERCIAL EXPEDIENCIES OF THE ARRANGEMENT. 6. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS IN IMPUTING INTEREST ON THE LOANS ADVANCED TO THE AES BY COMPLETELY DISREGARDING THE FACT THAT LOANS GIVEN TO AES ARE IN THE NATURE OF QUASI E QUITY AND WERE COMMERCIALLY EXPEDIENT FROM XSL S PERSPECTIVE. 7. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS IN NOT OBJECTIVELY SELECTING THE INTEREST RATE TO DETERMINE THE ARM S LENGTH RATE OF INTEREST APPLICABLE FOR OUTSTANDING DUES FROM THE AES. THE APPELLANT SUBMITS THAT EACH OF THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND VARY OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL SO AS TO ENABLE THE HON BLETRIBUNAL TO DECIDE ON THE APPEAL IN ACCORDANCE WITH THE LAW. 3. THE ASSESSEE HAS ALSO FILED THE ADDITIONAL GROUNDS AS UNDER : 8. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND ON FACTS BY CONSIDERING THE OUTSTANDING DUES FROM AES A SEPARATE INTERNATIONAL TRANSACTION SUBJECT TO TRANSFER PRICING. 3 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 9. WITHOUT PREJUDICE TO GROUND NO. 8 ABOVE THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND ON FACTS BY NOT CONSIDERING THE IM PACT OF WORKING CAPITAL ADJUSTMENT AND MAKING AN ADDITION IN THIS REGARD. 10. WITHOUT PREJUDICE TO GROUND NO. 1 THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND ON FACTS IN NOT OBJECTIVELY SELECTING THE ARM S LENGTH RATE OF FEE/COMMISSION APPLICABL E FOR CORPORATE GUARANTEES ISSUED TO AES. 11. WITHOUT PREJUDICE TO GROUND NO. 6 THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND ON FACTS IN NOT OBJECTIVELY SELECTING THE ARM S LENGTH RATE OF INTEREST APPLICABLE FOR LOANS ISSUED TO AES. 12. THE LEARN ED AO HAS ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE REVISED BOOK PROFIT UNDER SECTION 115JB OF THE ACT AS COMPUTED BY THE COMPANY UNDER THE REVISED RETURN OF INCOME FILED BY IT WITHOUT ASSIGNING ANY REASONS THEREOF. 13. THE LEARNED AO HAS ERRED IN LA W AND ON FACTS BY FAILING TO ADJUST THE AMALGAMATION LOSS (ARISING ON AMALGAMATION OF MATRIXONE INDIA LIMITED WITH THE COMPANY) WITH THE PROFIT FOR THE YEAR HAVING REGARD TO THE PROVISIONS OF SECTION 211(6) OF THE COMPANIES ACT 1956 WHILE COMPUTING BOO K PROFIT UNDER SECTION 115JB OF THE ACT. 14. THE L EARNED AO HAS ERRED IN LAW AND ON FACTS BY RESTRICTING CREDIT TOWARDS TAX DEDUCTED AT SOURCE ( TDS ) TO AN AGGREGATE AMOUNT OF INR 49 79 797 AS AGAINST INR 53 77 886 CLAIMED BY THE APPELLANT IN ITS REVISED RE TURN OF I NCOME RESULTING INTO REDUCTION OF TDS CLAIM BY INR 3 98 089 AND REDUCTION IN REFUND CLAIM BY INR 3 98 089 TOGETHER WITH APPLICABLE INTEREST UNDER SECTION 244A OF THE ACT . THE PETITIONER SUBMITS THAT THE ABOVE ADDITIONAL GROUND S ARE BEING RAISED BY WAY OF ABUNDANT CAUTION. THE ADDITIONAL GROUND S RAISE ISSUES WHICH ARE FUNDAMENTAL TO THE APPEAL AND THE NON - ADMISSION AND NON - ADJUDICATION OF THE SAME WOULD RESULT IN AN INCOMPLETE APPRECIATION AND ADJUDICATION OF THE MATTER. THE PETITIONER SUBMITS TH AT THE FAILURE TO RAISE THESE GROUNDS AT AN EARLIER STAGE IS NEITHER WILFUL NOR WANTON BUT DUE TO THE REASONS STATED ABOVE. NO PREJUDICE WOULD BE CAUSED TO THE RESPONDENT BY REASON OF THE ABOVE ADDITIONAL GROUNDS BEING ADMITTED AND ADJUDICATED AND ACCORDI NGLY THE BALANCE OF CONVENIENCE IS IN FAVOUR OF SUCH AN ORDER BEING PASSED BY THIS HON BLE TRIBUNAL. 4 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 ADMISSIBILITY OF ADDITIONAL GROUNDS. 4. THE ASSESSEE HAS FILED A PETITION UNDER RULE 11 OF THE ITAT RULES FOR ADMISSION OF THE ADDITIONAL GROUNDS. 5. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ADDITIONAL GROUNDS ARE BEING RAISED BY WAY OF ABUNDANT CAUTION. THE ADDITIONAL GROUNDS RAISED ARE FUNDAMENTAL TO THE APPEALS AND NON - ADJUDICATION OF THE SAME WOU LD RESULT IN AN INCOMPLETE APPRECIATION AND ADJUDICATION OF MATTER. HE HAS SUBMITTED THAT FAILURE TO RAISE THESE GROUNDS AT AN EARLIER STAGE IS NEITHER WILLFUL NOR WANTON BUT DUE TO OVERSIGHT. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWIN G DECISIONS : I. JUTE CORPORATION OF INDIA LTD. VS. CIT & ANR. 187 ITR 688 (SC) II. NTPC CO. LTD. VS. CIT 229 ITR 383 (SC) III. AHMEDABAD ELECTRIC CO. LTD. VS. CIT 199 ITR 351 (BOM) THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS PLEADED THAT THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE MAY BE ADJUDICATED ON MERITS. 6. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS VEHEMENTLY OPPOSED TO THE ADMISSION OF THE ADDITIONAL GROUNDS AND SUBMITTED 5 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 THAT THE ASSESSEE HAS RAISED THESE GROUNDS WITHOUT RAISI N G BEFORE THE AUTHORITIES BELOW. T HEREFORE IF THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE ADMITTED AT THIS STAGE IT WILL CAUSE A PREJUDICE TO THE INTEREST OF REVENUE AS THE ASSESSING OFFICER AS WELL AS DRP DID NOT HAVE THE OPPORTUNITY TO DEAL WITH TH ESE GROUNDS AND EXAMINE THE RELEVANT RECORD. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE ADDITIONAL GROUND NOS.9 TO 11 ARE NOT THE FRESH PLEA RAISED BY THE ASSESSEE BUT THESE ARE ADDITIO NAL/ALTERNATIVE PLEAS RAISED BY THE ASSESSEE IN RESPECT OF THE ISSUE ALREADY RAISED IN GROUND NOS.1 6 & 8 OF THE MAIN GROUNDS. FURTHER THESE ADDITIONAL GROUND NOS.9 TO 11 PERTAINS TO THE ISSUE ARISING FROM THE FINAL ORDER PASSED IN PURSUANT TO THE DIRECT IONS OF THE DRP. ACCORDINGLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN VIEW OF THE VARIOUS PRECEDENTS AS RELIED UPON BY THE ASSESSEE AND SPECIFICALLY THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF NTPC LTD. VS. CIT (SUPRA) WE ADMIT THE GROUND NOS.9 TO 11 FOR ADJUDICATION ON MERITS. 8. AS REGARDS THE GROUND NOS.12 & 13 WE FIND THAT THE ASSESSEE DID NOT RAISE ANY OBJECTION REGARDING ADJUSTMENT OF THE AMALGAMATION LOSS WHILE 6 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 COMPUTING THE BOOK PROFIT UNDER SECTION 115JB WHICH S HOWS THAT THE ASSESSEE ACCEPTED THE DRAFT ASSESSMENT ORDER ON THIS ISSUE AND THEREFORE DID NOT RAISE ANY OBJECTION ON THIS ISSUE BEFORE THE DRP. THE ASSESSEE HAS NOT EXPLAINED THE FACTS AND CIRCUMSTANCES UNDER WHICH THE ASSESSEE COULD NOT RAISE THESE GR OUNDS/OBJECTIONS BEFORE THE DRP. WE FURTHER NOTE THAT THE ONLY EXPLANATION PUT FORTH BY THE ASSESSEE BEFORE US REGARDING THE SE ADDITIONAL GROUNDS ARE THAT THESE ARE BEING RAISED BY WAY OF ABUNDANT CAUTION WHICH SUGGEST THAT THE ASSESSEE IS RAISING SOME AD DITIONAL PLEA BY WAY OF THE ADDITIONAL GROUNDS WHEREAS THE GROUND NOS.12 & 13 ARE FRESH GROUNDS BEFORE THE TRIBUNAL WITHOUT RAISING ANY OBJECTION BEFORE THE DRP. F URTHER THE CLAIM WAS MADE BY THE ASSESSEE ONLY IN THE REVISED RETURN WHICH WAS NOT CONSIDER ED BY THE ASSESSING OFFICER. ACCORDINGLY WHEN THIS ISSUE REQUIRES EXAMINATION OF RELEVANT FACTS OF LOSS ARISING ON ACCOUNT OF AMALGAMATION WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE OUGHT TO HAVE BEEN RAISED BEFORE THE DRP FOR PROPER ADJUDICATION. ACCORDINGLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE SET ASIDE THIS ISSUE TO THE RECORD OF THE DRP FOR CONSIDERATION AND ADJUDICATION OF THE ISSUE AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 9. AS REGARDS THE ADDITIONAL GROUND NO.14 THIS ISSUE WAS ALSO NOT RAISED BEFORE THE DRP. FURTHER THIS IS NOT AN ISSUE WHICH REQUIRES ANY ADJUDICATION BUT IT IS ONLY AT THE MOST A MISTAKE OF COMPUTATION OF TAX. THEREFORE THE ASSESSEE OUGHT TO HAVE TAKEN APPROPRIATE STEP EITHER BEFORE THE DRP OR FILING PETITION UNDER SECTION 1 54 OF THE ACT BEFORE THE ASSESSING OFFICER. IN VIEW OF THE FACT THAT THIS ISSUE DOES NOT REQUIRE ANY ADJUDICATION OR JUDGMENT THE ASSESSEE MAY RAISE THIS ISSUE BEFORE THE ASSESSING OFFICER. 10. GROUND NOS.1 TO 4 ARE REGARDING TRANSFER PRICING ADJUSTMENT IN RESPECT OF CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE ON BEHALF OF ITS ASSOCIATED ENTERPRISE (AE) WITHOUT CHARGING THE GUARANTEE FEES. 11. AS PER 9CEB REPO RT AND TP DOCUMENT THE ASSESSEE HAS REPORTED THE FOLLOWING INTER N ATIONAL TRANSACTIONS : 8 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 INTERNATIONAL TRANSACTIONS AMOUNT PAID / PAYABLE (RS.) AMOUNT RECEIVED/ RECEIVABLE (RS.) PROVISION OF MANAGEMENT SERVICES 569 187 095 PROJECT WORK 686 582 831 RECOVERY OF EXPENSES 34 249 252 REIMBURSEME NT OF EXPENSES 2 303 783 UNSECURED LOAN 598 329 762 APART FROM THE INTERNATIONAL TRANSACTIONS AS REPORTED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS ALSO PROVIDED A CORPORATE GUARANTEE TO BANK ON BEHALF O F AE WITHOUT CHARGING ANY FEES. IN THE TP STUDY THE ASSESSEE CLAIMED THAT THIS TRANSACTION WAS AT ARM S LENGTH WHICH WAS NOT ACCEPTED BY THE TPO. THE TPO MADE AN ADJUSTMENT ON ACCOUNT OF GUARANTEE FEES ON THE GUARANTEE PROVIDED TO THE SUBSIDIARY OF RS.3 89 88 802. THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER /TPO BEFORE THE DRP BUT COULD NOT SUCCEED. 12. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THIS TRANSACTION ARISING ON ACCOUNT OF OWNERSHIP LINKAGE WHICH IS BASED ON THE REPUTATION OF THE GROUP AS THERE COULD BE NO WARRANTY ACCEPTABLE TO BANKERS WHICH CAN BE 9 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 PROVIDED BY THE INDEPENDENT THIRD PARTY. THUS THE LD. AR HAS SUBMITTED THAT THE GUARANTEE PROVIDED BY THE FINANCIAL INSTITUTION CHARACTERISTICALLY DIFFERENT COM PARED TO THE OWN GUARANTEE PROVIDED BY THE PARENT COMPANY. THEREFORE THE GUARANTEE PROVIDED BY THE INDEPENDENT PARTY BEING FINANCIAL INSTITUTION CANNOT BE CONSIDERED AS A COMPARABLE PRICE WITH THE GUARANTEE PROVIDED BY THE PARENT COMPANY HAVING THE ADVAN TAGE IN LIEU OF THE EQUITY SUPPORT OR FINANCIAL SUPPORT. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THERE WAS NO PROVISION UNDER SECTION 92B AS TO BRING THE GUARANTEE PROVIDED BY THE ASSESSEE IN THE AMBIT OF T HE DEFINITION OF INTERNATIONAL T RANSACTIONS PRIOR TO THE AMENDMENT IN THE SHAPE OF EXPLANATION TO SECTION 92B VIDE FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 1.4.2002. THE LD. AR HAS SUBMITTED THAT THIS AMENDMENT HAS AN EFFECT OF EXPEND ING THE SCOPE OF THE SECTION AND INTRODUCED N EW PRINCIPLE UPON WHICH LIABILITY ARISE S . SUCH AMENDMENT THOUGH CLAIME D AS CLARIFICATORY BUT IN FACT SUBSTANTIVE AMENDMENT AND INCAPABLE OF BEING GIVEN RETROSPECTIVE EFFECT. THUS THE LD. AR HAS SUBMITTED THAT A SUBSEQUENT RETROSPECTIVE AMENDMENT IN SECTI ON 92B CANNOT BRING THE TRANSACTION OF PROVIDING GUARANTEE UNDER THE AMBIT OF INTERNATIONAL TRANSACTIONS AS PER THE AMENDED PROVISION OF SECTION 92B. IN SUPPORT OF HIS 10 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 CONTENTION HE HAS RELIED UPON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL DT.31.3.20 16 IN CASE OF SIRO CLINPHARM PVT. LTD. VS. DCIT IN IT(TP )A NO.2618/MUM/2014 AND 2876/MUM /2014. THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE MUMBAI BENCH OF THIS TRIBUNAL HAD HELD THAT SCOPE OF CHARGING PROVISION CAN BE ENLARGED WITH RETR OSPECTIVE EFFECT BUT THE ANTI AVOIDANCE MEASURE THAT THE T.P. LEGISLATION INHERENTLY IS NOT PRIMARI LY A SOURCE OF REVENUE VIS - - VIS CERTAIN NORMS AND THESE NORMS CANNOT BE GIVEN EFFECT FROM A DATE EARLIER THAN THE DATE WHEN NORMS ARE BEING INTRODUCED. T HUS THE EXPLANATION TO SECTION 92B HAS TO BE NECESSARILY BE TREATED AS EFFECTIVE AT THE BEST FOR THE ASSESSMENT YEAR 2013 - 14. 13. ALTERNATIVELY THE LD. AR HAS SUBMITTED THAT THE GUARANTEE FEES CANNOT BE BENCHMARKED BY THE FEES CHARGED BY THE BANK/FI NANCIAL INSTITUTIONS PROVIDED TO THE INDEPENDENT PARTIES AND FURTHER THE ASSESSEE HAS RECEIVED BANK GUARANTEES FORM THE GROUP CONCERN WITHOUT P AYING ANYTHING AND THEREFORE AN ADJUSTMENT FOR THE VALUE OF CORPORATE GUARANTEE RECEIVED BY THE ASSESSEE IS REQU IRED TO BE GIVEN WHILE DETERMINING THE ALP AND TP ADJUSTMENT ON THIS ISSUE. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HYDERABAD BENCH DT.28.3.2014 IN THE CASE OF FOUR SOFT PVT. LTD. VS. DCIT IN ITA 11 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 NO.1903/ HYD /2011 . THE LD. AR HAS POINTED OUT THAT FOR THE ASSESSMENT YEAR 2011 - 12 THE DRP HAS ACCEPTED THE CLAIM OF ASSESSEE REGARDING THE ADJUSTMENT FOR THE VALUE OF CORPORATE GUARANTEE RECEIVED BY THE ASSESSEE FROM ITS AE. HE HAS RELIED UPON THE PARA 2.9 OF THE DIRECTIONS OF DRP DT.3 0.11.2015. 1 4 . ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE ON BEHALF OF ITS AE IS HAVING BEARING ON THE PROFIT INCOME AS WELL AS ASSETS OF THE ASSESSEE. HE HAS SUBMITTED THAT THE ASSESSEE DID NOT RAISE ANY OBJECTION OR GR O UND BEFORE THE DRP THAT THIS TRANSACTION IS NOT AN INTERNATIONAL TRANSACTIONS BUT THE ASSESSEE HAD CLAIMED THAT THIS TRANSACTION IS AT ARM S LENGTH WHEN THE OTHER TRANSACTIONS ARE ACCEPTED BY THE TPO AT ARM S LENGTH AND FURTHER THE ASSESSEE HAS RECEIVED CORPORATE GUARANTEE FROM ITS AE WITHOUT PAYING ANY GUARANTEE FEES. HENCE THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE NEW PLEA RAISED BY THE ASSESSEE CANNOT BE ACCEPTED WITHO UT RAISING A N ADDITIONAL GROUND AND EXPLAINING THE REASONS BY NOT RAISING THIS OBJECTION BEFORE THE DRP. HE HAS CONTENDED THAT WHEN THE ASSESSEE HAS ACCEPTED THIS BEING INTERNATIONAL TRANSACTION AND DISPUTED ONLY THE RATE OF ARM S LENGTH 12 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 GUARANTEE FEES DETERMINED BY THE TPO THEN THIS CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED AT THIS LEVEL. 1 5 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE ASSESSEE HAS RAISED THE OBJECTION B EFORE THE DRP AS RECORDED IN PARAS 6.1 AND 6.2 AS UNDER : 13 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 THUS IT IS CLEAR THAT GRIEVANCE OF THE ASSESSEE AGAINST THE ORDER OF THE TPO ON THE ISSUE OF ALP IN RESPECT OF GUARANTEE FEES IS LIMITED ONLY REGARDING THE CORRECT ALP. WE FURTHER NOTE TH AT PRIOR TO THE DECISIONS OF MUMBAI BENCH IN THE CASE OF SIRO CLINPHARM PVT. LTD. VS. DCIT (SUPRA) THERE ARE SERIES OF DECISIONS OF THIS TRIBUNAL INCLUDING THE DECISION IN CASE S OF FOUR SOFT PVT. LTD. VS . DCIT (SUPRA) AND NIMBUS COMMUNICATION LTD. VS. A CIT (SUPRA) WHEREIN THE TRIBUNAL HAS TAKEN A CONSISTENT VIEW THAT PROVIDING COR PORATE GUARANTEE TO AE IS AN INTERNATIONAL TRANSACTION HOWEVER THE ALP OF SUCH TRANSACTION WAS TO BE COMPUTED HAVING REGARD TO THE FINANCIAL CONSIDERATION AS THE NATURE OF TRANSACTION BETWEEN THE RELATED PARTIES . THE TRIBUNAL HAS TAKEN A VIEW THAT THE GUARANTEE FEES FOR PROVIDING CORPORATE 14 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 GUARANTEE SHOULD NOT BE MORE THAN 0.5%. THE HYDERABAD BENCHE S OF THIS TRIBUNAL IN THE CASE OF FOUR SOFT PVT. LTD. VS.DCIT (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE IN PARA S 2 4 TO 26 AS UNDER : 24. IT IS NOTED BY THE TPO DURING THE F.Y. 2005 - 06 THE ASSESSEE HAS PROVIDED BANK GUARANTEES ON BEHALF OF ITS OVERSEAS S UBSIDIARY FOURSOFT BV NETHERLANDS FOR AN AMOUNT OF RS.69 81 16 000/ - WHICH IS CONTINUING FOR THE YEAR UNDER CONSIDERATION ALSO. THE TPO FOLLOWING THE ORDER PASSED FOR A.Y. 2006 - 07 TREATED THE COMMISSION CHANGED BY ICICI BANK AT 3.75% ARMS LENGTH PRICE FO R THE CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE TO ITS AE WORKED OUT THE TP ADJUSTMENT OF RS.2 61 79 350/ - . THE DRP ALSO REJECTED ASSESSEE S OBJECTION ON THE ISSUE. 25 . W E H A V E H E A R D T H E PA R T I E S A N D PE R U S E D T H E MA T E R I A L O N R E C O R D . T H E S U M A N D S U B S T AN C E O F TH E S U B M IS S I ON S M A D E B Y T H E L E A R N E D A R IS TH E C O R P O R A T E G U A R AN T E E P R O VI DE D B Y T H E A S S E SS E E C ANNO T B E E QUA T E D T O B A N K GUA R A N T E E AN D R E S U L T ANT L Y T H E C O M M IS S I O N R A T E F O R B A N K GUA R A N T E E C A N N O T B E AP P L I E D T O TH E C O R P O R A T E GU A R A N T E E . I T W A S S U B M I TT E D T H A T T H E C O R P O R A T E G U A R AN T E E I S N O T H I N G B U T A N A D D I T I O NA L GUA R A N T E E P R O V I D E D B Y TH E P A R E N T C OM P AN Y A N D I T D O E S NO T I N V O LV E A N Y C O S T O R R IS K T O T H E S H A R E H O L D E R S . I T W A S S U B M I TT E D T H A T S I N C E T H E C O R PO R A T E G U A R AN T E E W AS G I V E N K E E P I N G I N VI E W P A R AM O U N T B U SI NE S S I N T E R E S T O F T H E P A R E N T C O M PA N Y I T HA S T O B E A LL O WE D A S BU S I N E S S E X PEN D I T U R E . I T I S TH E F U R T H E R S U B M IS S I O N S O F T H E L EA R NE D A R T H A T T H E R E T R O S P E C T I V E A M ENDM E N T E F F E C T E D T O S E C T I O N 9 2 B O F TH E AC T B Y F I NAN C E A C T 2 0 1 2 B Y I N S E R T I O N O F EX P L A N A T I O N ( I ) ( C ) T O S E C T I O N 9 2 B A LS O H A S N O T E N L A R G E D T H E S C O P E O F TH E I NT E R N A T I O N A L T R A N S A C T I ON T O I N C L UD E TH E C O R PO R A T E G U A R AN T E E I N T H E NA T U R E P R O V I D E D B Y T H E A S S E SS E E . T H E L E A R N E D A R F U R T H E R C O N T E N D E D T H A T TH E I S S U E I S C O V E R E D I N F A V O U R O F T H E A S S E SS E E B Y V I R T U E O F TH E O R D E R PA S S E D B Y T H E T R I BU N A L I N A SS E S S EE S O W N C A S E F O R A Y 20 0 6 - 0 7 ( S UP R A ) . 25 . 1 T H E L E A R N E D DR O N T H E O T H E R H A N D S U B M I TTE D T H A T B Y VI R T U E O F T H E A M E N D M E N T M A D E T O S E C T I O N 9 2 B O F T H E AC T W I T H R E T R O S PE C T I V E E F F E C T F R O M 01 / 0 4 / 20 0 2 T H E C O R P O R A T E GU A R A N T E E P R O VI D E D B Y T H E A S S E S S E E I S T O B E C O N S I D E R E D A S A N I N T E R NAT I O N A L T R A N S A C T I ON AND T HE R E F O R E T H E A S S E S S I N G O F F IC E R WA S J U S T I F I E D I N D E T E R M I N I N G A R M S L E N G T H P R IC E O F S U C H T R A N S A C T I O N . 25 . 2 HA VI N G C ON S I D E R E D T H E S U B M IS S I ON S O F T H E P A R T I E S W E A R E U N AB L E T O A C C E P T T H E C O N T ENT I O N O F TH E L EA R N E D A R T H A T C O R P O R A T E G U A R A N T E E O F TH E N A T U R E P R O V I DE D B Y T H E A S S E SS E E W I L L N O T C O M E W I T H I N T H E M E AN I N G O F I NTE R NAT I O N A L T R AN S A C T I O N I N T E R M S W I T H S E C T I O N 9 2 B O F T H E A C T . I T I S N O T D I S PU T E D T H A T S E C T I O N 9 2 B O F T H E AC T H A S B E E N A M EN D E D B Y TH E F I N A N C E AC T 20 1 2 W I T H T H E I N S E R T I O N O F EX P L A N A T I O N I ( C ) W I T H R E T R O S P E C T IV E E F F E C T F 15 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 R O M 01 / 04/20 0 2 . E X P L A N A T I O N ( I ) ( C ) T O S E C T I O N 9 2 B R EAD S A S UNDE R : C AP I T A L F I NAN C I N G I N CL UD I N G A N Y T Y P E O F L ONG - T E R M O R S H O R T - T E R M BO RR O W I N G L END I N G O R G U A R A N T E E P U R C H A S E O R S A L E O F M A R K E T AB L E S E C U R I T I E S O R A N Y T Y P E O F A D V A N C E PA Y ME N T S O R DE F E RR E D P A Y M E N T O R R E C E I V A B L E O R A N Y O T H E R D E B T A R I S I N G D U R I N G TH E C OU R S E O F BU S I N E S S . 25 . 3 A R E A D I N G O F TH E A F O R E S A I D C L A U S E F R O M T H E EX P L ANAT I O N WO U L D M A K E I T CL E A R T HA T T H E C O R P O R A T E GUA R A N T E E P R O V I DE D B Y T H E A SS E SS E E C O M E S W I T H I N T H E SC OP E A N D A M B I T O F I N TE R N A T I O NA L T R A N S A C T I O N A S P E R TH E A F O R E S A I D C L A U S E . T HE R E F O R E T H E C O N T ENT I O N O F T H E L E A R N E D A R T H A T TH E I S S U E I S C O V E R E D I N F A V O U R O F T H E A S S E SS E E B Y V I R T U E O F TH E O R D E R PA S S E D I N A S S E SS E E S O W N C A S E F O R A Y 20 0 6 - 0 7 N O L O N GE R H O L D S GO O D S I N C E T H E O R D E R P A SS E D B Y T H E C O O R D I N A T E B E N C H I S P R I O R T O T H E A M E N D M E N T M A D E T O P R O VI S I O N O F S E C T I O N 9 2 B O F T H E AC T . I T W I L L B E PE R T I NE N T T O M ENT I O N H E R E T HA T T H I S I S S U E WA S A LS O C O N S I D E R E D B Y T H E I T A T M U M BA I B E N C H I N C A S E O F M AH I ND R A & MA H I ND R A VS . DC I T I N I T A N O . 8 5 9 7/ M U M /2 0 1 0 5 4 S O T ( U R ) 1 4 6 . T H E C OO R D I NA T E BEN C H O F T H I S TR I B UNA L W H I L E C O N S I D E R I N G SI M I L A R A R G U M EN T A D V A N C E D O N BEH A L F O F TH E A SS E S S E E B Y P L A C I N G R E L I A N C E O N T H E D E CI S I O N O F T H E F O U R S O F T L T D. ( S U P R A ) H E L D A S UNDE R : 15 . 2 A FTE R H E A R I N G T H E R IV A L S U B M I S SI O N S W E FE E L T H A T A S S E S S I N G O FF I C E R W IL L H A V E T O F O LL O W T H E D E C ISI O N O F TH E I T A T H Y D E R ABA D O R TH E AMEN D E D P R O VI S I O N O F T H E AC T I N T H I S R E G A R D . I F T H E F I N A N C E B I L L O F 2 0 1 2 I S P A SS E D B Y T H E P A R LI A M E N T AMEND I N G T H E P R O V I SI O N S O F S E C T I O N 9 2 B W I T H E F FE C T F R O M 1 S T A P R I L 20 0 2 H E W IL L HA V E T O I G N O R E TH E D E CI S I O N O F T H E I T A T H Y D E R A BAD . I N C A S E S E C T I O N 9 2 B I S N O T AME N DE D W I T H R ET R O S P E C T IV E EF F E C T H E S H O U L D G R A N T R E LI E F T O T H E A P PE L L ANT . 25 . 4 I N T H E A F O R E S A I D V I E W O F TH E MAT T E R W E AG R E E W I T H T H E T P O T H A T A L P O F T H E C O R PO R A T E GUA R A N T E E HA S T O B E D E T E R M I NE D A S I T F A L L S W I T H I N TH E S C O P E A N D AMB I T O F A N I N T E R N A T I O N A L T R AN S A C T I O N A F T E R T H E R E T R O S P E C T I V E AME N D M EN T T O S E C T I O N 9 2 B . H OWE V E R I T A P PEA R S T HA T T H E T P O HA S A P P LI E D TH E R A T E O F 3 . 7 5 % W H I C H I S AP P L I C AB L E T O B AN K G U A R AN T E E I S S UE D B Y T H E BAN K . A S T H E C O R P O R A T E G UA R A N T E E I S N O T I N T H E NA T U R E O F BAN K G U A R A N T EE T H E R A T E A P P L I C A B L E T O B A N K GU A R A N T E E P R O V I D E D B Y T H E BAN K C A N N O T B E A P P LI E D T O C O R P O R A T E GUA R A N T E E W H I C H I S P R O V I D E D B Y A G R O U P C O M P A N Y . I N C A S E O F G L E N M A R K P HA R M A C E U T I C A L S V S . A CI T I N I T A N O . 50 3 1 / M U M / 201 2 D A T E D 1 3 / 1 1 / 2013 T H E M U M B A I B E N C H O F T H E TR I B U N A L A F TE R A N A L YS I N G T H E F A C T S I N T H A T C A S E H A D H E L D T H A T 0 . 5 3 % C O R P O R A T E G U A R AN T E E R A T E I N T H A T C A S E W A S APP R OP R I A T E . T H E I T A T H Y D E R A B A D B E N C H I N C A S E O F IN F O T E C H E N T E R P R IS E S L T D . I N I T A N O . 1 1 5 / H Y D / 2 0 1 1 A N D I N I T A NO . 2 1 84/ H Y D / 2 0 1 1 D A T E D 1 6 / 0 1 / 201 4 W H I L E 16 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 C O N S I D E R I N G I D E NT IC A L I S S U E O F D E T E R M I N I N G A L P O F C O R PO R AT E GU A R A N T E E P R O V I D E D B Y T H E A S S E SS E E T O I T S A E F O LL OWE D T H E R AT I O L A I D D O W N I N C A S E O F G L ENM A R K P H A R M A C EUT I C A L S VS . A C I T ( S UP R A ) A N D R E M I TT E D TH E ISS U E BA C K T O T H E T P O T O D E C I D E T H E QUA N T U M O F C O R PO R A T E G UA R A N T E E R A T E B Y F O L L O W I N G T H E M E T H O D A DOPTE D I N C A S E O F G L ENM A R K P H A R M A C E U T IC A L S ( S U P R A ) . 26 . SI N C E T H E I S S U E I N T H E P R E S E N T C A S E I S I D E N T IC A L T O T H E ISS U E DE C I D E D B Y T H E I T A T H Y D E R ABA D B E N C H I N C A S E O F IN F O T E C H E N T E R P R I S E S ( S U P R A ) F O LL O W I N G T H E S A M E W E A LS O R E M I T T H I S I S S U E T O T H E F IL E O F T H E T P O T O D E C I D E T H E Q U A NTU M O F C O R P O R AT E G U A R A N T E E R A T E S A C C O R D I N G L Y . I F TH E A SS E SS E E I S A B L E T O B R I N G O N R E C O R D A N Y C O M PA R A B L E S W I T H R E GA R D T O C O R P O R A T E G U A R AN T EE T H E T P O M A Y A L S O C ON S I D E R T H E S A M E W H I L E DE T E R M I N I N G A L P O F C O R PO R A T E G UA R A NT E E . T H E T P O M U S T P R O VI D E A R E A S O N AB L E O P P O R T U N I T Y O F B E I N G HEA R D T O T H E A SS E S S E E BE F O R E D E C I D I N G TH E ISS UE . T H I S G R OU N D I S A L L OWE D F O R S T AT I S T IC A L P U R P O S E S . IT IS PERTINENT TO NOTE THAT IN CASE OF CORPORATE GUARANTEE PROVIDED TO A BANK OR FINANCIAL INSTITUTION ON BEHALF OF THE AE THE ASSESSEE CREATES A CHARGE ON ITS ASSETS IN FAVOUR OF THE BANK/FINANCIAL INSTITUTION AND TO THAT EXTENT THE TRANSACTION OF PROVIDING CORPORATE GUARANTEE IS HAVING BEARING ON THE A S SETS OF THE ASSESSE E AND IN TURN THE ASSESSEE CANNOT USE THOSE ASSETS UNDER CHARGE FOR THE PURPOSE OF AVAILING FURTHER FINANCIAL CREDIT/LOANS FROM THE BANK/FINANCIAL INSTITUTION. THUS THIS TRIBUNAL HELD THAT BY PROVIDING CORPORATE GUARANTEE FALLS IN THE DEFINITION OF INTERN ATIONAL TRANSACTIONS AS PER SECTION 92B(1) WITHOUT CONSIDERING THE EXPLANATION TO THE SAID SECTION. AS WE HAVE DISCUSSED IN THE FOREGOING PART OF THIS ORDER THAT THE TRIBUNAL HAS BEEN TAKEN A CONSISTENT VIEW THAT CORPORATE GUARANTEE PROVIDED TO THE AE FAL LS IN THE AMBIT OF INTERNATIONAL 17 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 TRANSACTIONS AS PER SECTION 92B(1) EVEN WITHOUT CONSIDERING THE EXPLANATION INSERTED VIDE FINANCE ACT 2012. THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF SIRO CLINPHARM PVT. LTD. VS. DCIT (SUPRA) HAS RESTRICTED ITS F INDING ONLY TO THE APPLICABILITY OF EXPLANATION IN THE CASES WHERE THE ASSESSMENT WAS COMPLETED PRIOR TO THE INSERTION OF THE SAID EXPLANATION RETROSPECTIVELY. EVEN OTHERWISE THE EARLIER DECISIONS OF THE TRIBUNAL ON THIS ISSUE WERE NOT CONSIDERED BY THE D ELHI BENCH OF THE TRIBUNAL. IN THE CASE OF M/S. NIMBUS COMMUNICATION LTD. VS. ACIT IN ITA NO S . 6816/MUM/2010 AND 7105 /MUM/ 2011 THE TRIBUNAL VIDE ORDER DT.7.8.2013 HAS CONSIDERED AN IDENTICAL ISSUE IN PARAS 4 & 5 AS UNDER : 4. AS REGARDS THE ISSUE RAI SED IN GROUND NO. 2 RELATING TO TP ADJUSTMENT MADE ON ACCOUNT OF GUARANTEE COMMISSION IN RESPECT OF CORPORATE GUARANTEE GIVEN BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES (AES) FOR OBTAINING BANK LOANS THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREE D THAT A SIMILAR ISSUE WAS INVOLVED IN ASSESSEE'S OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2005 - 06 AND THE TRIBUNAL VIDE ITS ORDER DATED 12 - 06 - 2013 PASSED IN ITA NO. 3664 & 2359/MUM/2010 HAS ALREADY DECIDED THE SAME VIDE PARA NO. 9 & 10 WHICH READ AS UNDER: - '9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FOR THE GUARANTEE GIVEN TO THE BANK AGAINST THE FINANCIAL ASSISTANCE GIVEN TO ITS AES NO COMMISSION WAS CHARGED BY THE ASSESSEE COMPAN Y ON THE GROUND THAT THE SAID AES WERE NOT BENEFITED BY THE GUARANTEE SO GIVEN AND IT WAS THE ASSESSEE WHO BENEFITED AS A RESULT OF COMMERCIAL BENEFITS SECURED FOR FUTURE. IN SUPPORT OF THIS STAND OF THE ASSESSEE THE LD. COUNSEL FOR THE ASSESSEE HAS CONTE NDED THAT BUSINESS STRATEGY SHOULD BE TAKEN INTO CONSIDERATION WHILE MAKING ANY TP ADJUSTMENTS IN RESPECT OF SUCH TRANSACTIONS AND HAS RELIED ON THE OECD TRANSFER PRICING GUIDELINES ISSUED IN 2010. AS STATED IN PARA 1.59 OF THE SAID GUIDELINES THE BUSINES S STRATEGIES SHOULD ALSO BE EXAMINED IN DETERMINING COMPARABILITY FOR 18 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 TRANSFER PRICING PURPOSES AND CERTAIN ILLUSTRATIONS OF SUCH BUSINESS STRATEGIES ARE ALSO GIVEN THEREIN. AS STATED IN PARA 1.60 OF THE SAID GUIDELINES WHICH HAS BEEN RELIED UPON BY THE LD . COUNSEL FOR THE ASSESSEE BUSINESS STRATEGIES ALSO COULD INCLUDE MARKET PENETRATION SCHEMES AND TAXPAYER SEEKING TO PENETRATE A MARKET OR TO INCREASE ITS MARKET SHARE MIGHT TEMPORARILY CHARGE A PRICE FOR ITS PRODUCT THAT IS LOWER THAN THE PRICE CHARGED F OR OTHERWISE COMPARABLE PRODUCTS IN THE SAME MARKET. AS EXPLAINED FURTHER A TAX PAYER SEEKING TO ENTER A NEW MARKET OR EXPAND (OR DEFEND) ITS MARKET SHARE MIGHT TEMPORARILY INCUR HIGHER COSTS AND HENCE ACHIEVE LOWER PROFIT LEVELS THAN OTHER TAXPAYERS OPER ATING IN THE SAME MARKET. IN OUR OPINION THE RELEVANT FACTS OF THE PRESENT CASE DO NOT INDICATE THAT THERE WAS ANY SUCH BUSINESS STRATEGY ADOPTED BY THE ASSESSEE IN NOT CHARGING COMMISSION IN RESPECT OF GUARANTEES ISSUED FOR ITS ASSOCIATED ENTERPRISES. AS A MATTER OF FACT THERE IS NOTHING TO SUGGEST THAT ANY SUCH BUSINESS STRATEGY WAS ADOPTED BY THE ASSESSEE WITH SPECIFIC INTENTION OR MOTIVE AND THE CASE HAS BEEN SOUGHT TO BE MADE OUT MERELY ON THE BASIS OF COMMERCIAL EXPEDIENCY BY CLAIMING THAT THE ASSES SEE WAS BENEFITED AS A RESULT OF GIVING THE GUARANTEES IN THE FORM OF COMMERCIAL BENEFITS SECURED FOR FUTURE. IN OUR OPINION SUCH COMMERCIAL EXPEDIENCY CANNOT BE EQUATED WITH BUSINESS STRATEGY WHICH IS SPECIFIC AND WELL LAID OUT. AS RIGHTLY HELD BY THE L D. CIT(A) A FINANCIAL LOAN GUARANTEE IS A COMMITMENT ENTERED INTO BY THE ASSESSEE COMPANY WITH A THIRD PARTY LENDER OF ITS ASSOCIATED ENTERPRISES WHICH OBLIGES THE ASSESSEE COMPANY TO COVER THE RISK OF DEFAULT BY ITS ASSOCIATED ENTERPRISE AND THIS ACT THU S INVOLVES PERFORMANCE OR CARRYING OUT OF SERVICE TO COVER THE RISK OF DEFAULT FOR WHICH 'PRICE' HAS TO BE CHARGED. EVEN THE OECD TRANSFER PRICING GUIDELINES 2010 SUPPORTS THIS VIEW IN PARA 7.13 WHERE IT IS EXPLAINED THAT WHERE HIGHER CREDIT RATING OF ASSO CIATED ENTERPRISE IS DUE TO A GUARANTEE BY ANOTHER GROUP MEMBER SUCH ASSOCIATION POSITIVELY ENHANCES THE PROFIT MAKING POTENTIAL OF THAT ASSOCIATED ENTERPRISE. WE THEREFORE FIND OURSELVES IN AGREEMENT WITH THE CONTENTION OF THE LD. D.R. THAT THERE WAS A CLEAR BENEFIT ACCRUED TO THE ASSOCIATED ENTERPRISES BY THE GUARANTEE PROVIDED BY THE ASSESSEE AND WHEN SUCH BENEFIT WAS PASSED ON BY THE ASSESSEE TO THE SAID ASSOCIATED ENTERPRISES GUARANTEE COMMISSION SHOULD HAVE BEEN CHARGED AT ARM'S LENGTH PRICE. THE COMMERCIAL RELATIONSHIP BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISES IS DISTINCT AND SEPARATE FROM THE TRANSACTIONS OF GIVING GUARANTEE AND SUCH TRANSACTIONS HAVE TO BE CONSIDERED AND EXAMINED INDEPENDENTLY IN ORDER TO DETERMINE THE ARM'S LENGTH PRI CE. 10. AS REGARDS THE RATE OF GUARANTEE COMMISSION IT IS NOTED THAT THE ARM'S LENGTH PRICE OF GUARANTEE COMMISSION WAS DETERMINED BY THE TPO BY APPLYING CUP METHOD AND THE ARITHMETIC MEAN OF 1.5% OF THE GUARANTEE COMMISSION CHARGED BY THE HSBC BANK IN TH E RANGE OF 0.15 TO 3% WAS TAKEN AS ARM'S LENGTH PRICE. THE LD. CIT(A) UPHELD THE CUP METHOD APPLIED BY THE TPO BUT ADOPTED THE RATE OF 0.25% OF GUARANTEE FEE AS ARM'S LENGTH PRICE RELYING ON THE DECISION OF FRENCH COURT IN THE CASE OF SOCIETE CARREFOUR. TH E LD. D.R. AT THE TIME OF HEARING BEFORE US HAS RELIED ON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S EVEREST KANTO CYLINDER LTD. (SUPRA) WHEREIN WHILE ACCEPTING THE CUP METHOD AS THE MOST 19 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 APPROPRIATE METHOD FOR BENCHMARKING THE GUARANTEE FEE THE TRIBUNAL ACCEPTED 0.5% GUARANTEE FEE/COMMISSION TO BE AT ARM'S LENGTH AFTER TAKING INTO CONSIDERATION THE RATES OF GUARANTEE COMMISSION CHARGED BY VARIOUS BANKS INCLUDING THE GUARANTEE COMMISSION CHARGED BY THE HSBC BANK IN THE RANGE OF 0.15% TO 3%. SINCE THE FACTS INVOLVED IN THE PRESENT CASE ARE MATERIALLY SIMILAR TO THE FACTS INVOLVED IN THE CASE OF EVEREST KANTO CYLINDER LTD. (SUPRA) WE PREFER TO FOLLOW THE DECISION RENDERED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE SAID C ASE OVER THE DECISION OF FRENCH COURT IN THE CASE OF SOCIETE CARREFOUR (SUPRA). WE ACCORDINGLY MODIFY THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO RECOMPUTE THE COMMISSION FOR GUARANTEE GIVEN BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES @ 0.5% BEING THE ARM'S LENGTH PRICE. GROUND NO. 1 OF REVENUE'S APPEAL IS THUS PARTLY ALLOWED WHEREAS GROUND NO. 2 OF ASSESSEE'S APPEAL IS DISMISSED'. 5. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACT S RELEVANT THERETO ARE SIMILAR TO A.Y. 2005 - 06 WE RESPECTFULLY FOLLOW THE ORDER OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL FOR A.Y. 2005 - 06 AND DIRECT THE A.O. TO RESTRICT THE TP ADJUSTMENT BY RECOMPUTING THE COMMISSION FOR GUARANTEE GIVEN BY THE ASSESSEE TO ITS AES AT 0.5% BEING THE ARM'S LENGTH PRICE. GROUND NO. 2 OF THE ASSESSEE'S APPEAL FOR A.Y. 2006 - 07 IS PARTLY ALLOWED. AS IT IS CLEAR THAT THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE TRIBUNAL FOR THE EARLIER ASSESSMENT YEAR AND WHILE TAKING A CONSI STENT VIEW HELD THAT GUARANTEE PROVIDED BY THE ASSESSEE GIVE S THE BENEFIT TO THE AE AND SUCH BENEFIT WAS PASSED ON BY THE ASSESSEE TO THE SAID AE AND THEREFORE SHOULD HAVE BEEN CHARGED AT ALP. 1 6 . WE FURTHER NOTE THAT THE DRP FOR THE ASSESSMENT YEAR 2 011 - 12 VIDE ITS DIRECTION DT.3011.2015 AS WELL AS FOR THE ASSESSMENT YEAR 2010 - 11 ACCEPTED THE ASSESSEE'S ARGUMENT THAT AN APPROPRIATE ADJUSTMENT THAT THE VALUE OF CORPORATE GUARANTEE RECEIVED FROM ITS ARM S LENGTH BE GRANTED. IN PARA 2.9 OF THE SAID DIRE CTION OF DRP AS UNDER : 20 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 2.9 AS FAR AS THE ARGUMENT OF CORPORATE GUARANTEE RECEIVED BY THE TAXPAYER IS CONCERNED THE SAME CARRIES MERIT. IN THE INTEREST OF FAIRNESS THE TPO IS DIRECTED TO PROVIDE ADJUSTMENT FOR THE VALUE OF CORPORATE GUARANTEES RECEI VED BY THE TAXPAYER FORM ITS AES AFTER VERIFICATION OF INDIVIDUAL TRANSACTIONS. ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE RECORD OF THE A.O./TPO TO RECOMPUTED THE ALP BY CONSIDERING THE ARM S LENGTH GUARANTEE FEES AT 0.5% AND FURTHER BY PROVIDING APPR OPRIATE ADJUSTMENT FOR CORPORATE GUARANTEE RECEIVED BY THE ASSESSEE FROM ITS ARM S LENGTH. 1 7 . GROUND NOS.5 TO 7 AND 9 ARE REGARDING T P ADJUSTMENT IN RESPECT OF THE LOAN PROVIDED TO AE. 1 8. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT T HE TRANSACTION OF LOAN PROVIDED TO THE AE IS SHAREHOLDER ACT TO PROTECT ITS INVESTMENT INTEREST IN THE SUBSIDIARY AND IN FURTHERANCE OF ITS OWN INTEREST. THEREFORE THIS TRANSACTION CANNOT BE CONSIDERED AS AN INTERNATIONAL TRANSACTION. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION DT.21.9.2016 OF KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF TEGA INDUSTRIES LTD. VS. DCIT IN ITA NO.1912/KOL/2012 DT.21.9.2016 . THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE TRIBUNAL HAS HELD TH AT THE MOTIVE AND EXPECTATION OF THE 21 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 ASSESSEE FROM THE PROVISION OF LOAN ARE NOT THAT OF A LENDER OR A WARRANTOR TO EARN MARKET RATE OF INTEREST BUT THE EXPECTATION OF A SHAREHOLDER TO PROTECT ITS INVESTMENT INTEREST. ALTERNATIVELY THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE ARM S LENGTH INTEREST RATE SHOULD BE THE RATE PREVAILIN G IN THE COUNTRY OF AE AND THEREFORE INSTEAD OF ADOPTING PLR THE ARM S LENGTH PRICE I NTEREST RATE SHOULD BE LIBOR. 1 9 . ON THE OTHER HAND THE LD. DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 20 . AT THE OUTSET WE NOTE THAT THE TRANSACTION OF LOAN /ADVANCE IS CLEARLY DEFINED IN SECTION 92B(1) AS INTERNATIONAL TRANSA CTION BEING LENDING OR BORROWING MONEY OR ANY OTHER TRANSACTION HAVING BEARING O N THE PROFITS INCOME LOSES OR ASSETS OF ENTERPRISES. WE FIND THAT THE TRIBUNAL HAS BEEN TAKING A CONSISTENT VIEW ON THIS ISSUE AS FAR AS THE TRANSACTION OF LENDING MONEY TO THE AE BEING INTERNATIONAL TRANSACTION HOWEVER THE ARM S LENGTH RATE HAS BEEN A CCEPTED BY THE TRIBUNAL BY CONSIDERING LIBOR RATE AS THE TRANSACTION IS IN FOREIGN C URRENCY. THEREFORE INTEREST RATE PREVAILING IN THE ECONOMIC GEOGRAPHY OF AE SHALL BE TAKEN INTO CONSIDERATION. ACCORDINGLY WE DIRECT THE ASSESSING 22 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 OFFICER / TPO TO APPL Y LIBOR + 2% AS ALP . WE FIND THAT THE TRIBUNAL IN THE CASE OF FOUR SOFT PVT. LTD. VS. DCIT (SUPRA) HAS HELD IN PARA 17 AS UNDER : 17. WE HAVE HEARD THE PARTIES. THIS ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE A.Y. 2006 - 07 ( SUP RA ). THE COORDINATE BENCH WHILE DECIDING THE ISSUE HELD AS UNDER : '19. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE AS WE FIND THAT THE ALP IS TO BE DETERMINED FOR THE INTERNATIONAL TRANSACTION THAT IS ON INTERNATIONAL LOAN AND NOT FOR THE DOMESTIC LOAN. HENCE THE COMPARABLE IN RESPECT OF FOREIGN CURRENCY LOAN IN THE INTERNATIONAL MARKET IS TO BE LIBOR BASED WHICH IS INTERNAT IONALLY RECOGNISED AND ADOPTED. IN OUR CONSIDERED VIEW THE DRP RIGHTLY DIRECTED THE ASSESSING OFFICER TO ADOPT THE LIBOR PLUS FOR THE PURPOSE OF TP ADJUSTMENT. OUR VIEW IS FORTIFIED BY THE DECISION OF THE MADRAS BENCH IN THE CASE OF SIVA INDUSTRIES ( SUPRA ). WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE DRP SHOULD HAVE ADOPTED THE EURIBOR FOR THE PURPOSE OF THE TP ADJUSTMENTS AS WE FIND THAT THE MOSTLY USED AND RECOGNISED BENCHMARK RATE FOR INTERNATIONAL LOAN IS LIBOR BASED. HENCE THE DRP RIGHTLY DIRECTED THE ASSESSING OFFICER TO ADOPT THE LIBOR RATES. WE CONFIRM THE DIRECTIONS OF THE DRP. HOWEVER BY CONSIDERING THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ACTUAL LIBOR WAS 4.42% AS AGAINST T HE 5.78% APPROVED BY THE DRP WE FIND IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE COMPANY. IN VIEW OF THIS MATTER WE REMIT THIS MATTER TO THE FILE OF THE ASSESSING OFFIC ER TO VERIFY THE ACTUAL AVERAGE LIBOR PREVAILED IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND ADOPT THE INTEREST RATE 4.42% IF THE CLAIM OF THE ASSESSEE IS FOUND CORRECT. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE'. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN A SERIES OF DECISIONS WHICH ARE ALSO RELIED UPON BY THE LD. AR OF THE ASSESSEE ON THIS POINT. THIS ISSUE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 2 1 . GROUND N O.8 IS REGARDING T P ADJUSTMENT IN RESPECT OF OUTSTANDING RECEIVABLE FROM THE AE FOR ABNORMAL PERIOD. 23 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 2 2 . THE ASSESSEE IS PROVIDING SOFTWARE DEVELOPMENT SERVICES TO THE AE. THE ASSESSEE HAS SHOWN AN OUTSTANDING OF RS.32 06 17 338 FROM ITS AE ON W HICH NO INTEREST HAS BEEN CHARGED. THE TPO ACCEPTED THE TRANSACTION OF PROVIDING SOFTWARE DEVELOPMENT SERVICES TO AE AT ARM S LENGTH HOWEVER PROCEEDED TO DETERMINE THE ALP IN RESPECT OF INTEREST ON OUTSTANDING RECEIVABLE FROM AE. ACCORDINGLY THE TPO MA DE AN ADJUSTMENT OF RS.14 77 227 ON ACCOUNT OF INTEREST ON RECEIVABLE FROM AE. THE TPO APPLIED 10.5% AS ARM S LENGTH INTEREST RATE. 2 3 . WE HAVE HEARD THE LEARNED COUNSEL FOR THE ASSESSEE AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN A SERIES OF DECISIONS INCLUDING THE DECISION IN THE CASE OF M/S. DELL INTERNATIONAL SERVICES INDIA PVT. LTD. VS. J CIT IN ITA NO.308/BAN G/2015 DT.17.6.2016 WHEREIN THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN PARA 7 AS UNDER : 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT ALLOWING A CREDIT PERIOD ON RECEIVABLE FROM AE I S NOT AN INDEPENDENT INTERNATIONAL TRANSACTION HOWEVER IT IS PART OF THE MAIN INTERNATIONAL TRANSACTION OF PROVIDING SOFTWARE DEVELOPMENT SERVICES BY THE ASSESSEE TO ITS AES. THERE ARE SERIES OF DECISIONS WHEREIN THE TRIBUNAL HAS 24 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 CONSIDERED THIS TRANSACT ION AS PART OF THE MAIN INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS AE AND THEREFORE THE TREATMENT OF THE SAME AT THE TIME OF DETERMINING THE ARM S LENGTH OF THE INTERNATIONAL TRANSACTION HAS TO BE GIVEN IN THE SHAPE OF ALLOWING THE NECESSARY A DJUSTMENT IN THE COMPARABLE PRICES ON ACCOUNT OF WORKING CAPITAL ADJUSTMENT. WE FIND THAT THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF GOLDSTAR JEWELLERY LTD . IN ITA NO.6570/MUM/2012 VIDE ORDER DT.14.1.2015 AS WELL AS THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF KUSUM HEALTHCARE PVT. LTD. VS. ACIT IN ITA NO.6814/DEL/2014 VIDE ORDER DT.31.3.2015 HAS TAKEN THIS VIEW THAT ALLOWING THE CREDIT PERIOD OVER AND ABOVE NORMAL CREDIT PERIOD PREVAILING IN THE INDUSTRY IS CERTAINLY RELEVANT AND PART OF THE MAIN I NTERNATIONAL TRANSACTION OF SALE OR PURCHASE BETWEEN THE ASSESSEE AND THE AE. HOWEVER IT WAS HELD THAT IT CANNOT BE TREATED AS AN INDEPENDENT INTERNATIONAL TRANSACTION DE HORSE THE MAIN INTERNATIONAL TRANSACTION BETWEEN THE PARTIES. WE FURTHER NOTE THAT AN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED BY THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF INFORMATION SYSTEMS RESOURCE CENTRE PVT. LTD. VS. ACIT IN ITA NO.7757/MUM/2012 AND C.O. 282/MUM/2013 VIDE ORDER DT.29.5.2015 IN PARAS 11 TO 13 AS UNDER : 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. IN THE PRESENT CASE THE SALE TRANSACTION OF THE ASSESSEE WITH ITS A.E. HAVE BEEN ACCEPTED BY THE TRANSFER PRICING OFFICER / ASSESSING OFFICER AT ARM'S LENGTH AND NO ADJUSTMENT HAS BEEN MADE IN RESPECT OF THE SALE TRANSACTION. HOWEVER THE TRANSFER PRICING OFFICER HAS MADE THE ADJUSTMENT ON ACCOUNT OF CREDIT PERIOD PROVIDED BY THE ASSESSEE TO THE A.E. ON REALISATION OF SALE PROCEEDS. AT THE OUTSET WE NOTE THAT AN IDE NTICAL ISSUE HAS BEEN CONSIDERED BY THE CO ORDINATE BENCH OF THE TRIBUNAL MUMBAI BENCHES IN GOLDSTAR JEWELLERY LTD. (SUPRA) VIDE PARA 8 HELD AS UNDER: 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS REPO RTED INTERNATIONAL TRANSACTION IN ITS TP REPORT REGARDING SALE TO ITS AE FROM MANUFACTURE OF JEWELLERY UNITS AND DIAMOND TRADING UNIT. THE TPO ACCEPTED THE PRICE CHARGED BY THE ASSESSEE FROM AE AT ARM S LENGTH. HOWEVER THE TPO HAS MADE THE ADJUSTMENT ON A CCOUNT OF NOTIONAL INTEREST FOR THE EXCESS PERIOD ALLOWED BY THE ASSESSEE TO AE FOR REALIZATION OF DUES. THE TPO APPLIED 18.816% PER ANNUM AS ARM S LENGTH ON THE OVER DUE AMOUNTS OF AE AND PROPOSED ADJUSTMENT OF RS. 2 49 95 139/ - . THE DRP THOUGH CONCURRED WITH THE VIEW OF THE ASSESSING OFFICER/TPO ON THE ISSUE OF INTERNATIONAL TRANSACTION HOWEVER THE ADJUSTMENT WAS REDUCED BY APPLYING THE INTEREST RATE OF 7% INSTEAD OF 18.816% APPLIED BY THE TPO. THE FIRST ISSUE RAISED BY THE ASSESSEE IS WHETHER THE AGGRE GATE PERIOD EXTENDED BY THE ASSESSEE TO THE AE WHICH IS MORE THAN THE AVERAGE CREDIT PERIOD EXTENDED TO THE NON - AE WOULD CONSTITUTE INTERNATIONAL TRANSACTION. WE ARE OF THE VIEW THAT AFTER THE INSERTION OF EXPLANATION TO SECTION 92B(1) THE PAYMENT OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY DEBT ARISING DURING THE COURSE OF BUSINESS FALL UNDER THE EXPRESSION INTERNATIONAL TRANSACTION AS PER EXPLANATION. THEREFORE IN VIEW OF THE EXPANDED MEANING OF THE INTERNATIONAL TRANSACTION AS CONTEMPLATED UNDER 25 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 CLAUSE (I ) (E) OF EXPLANATION TO SECTION 92B(1) THE DELAY IN REALIZATION OF DUES FROM THE AE IN COMPARISON TO NON - AE WOULD CERTAINLY FALLS IN THE AMBIT OF INTERNATIONAL TRANSACTION. HOWEVER THIS TRANSACTION OF ALLOWING THE CREDIT PERIOD TO AE ON REALIZATION OF SA LE PROCEEDS IS NOT AN INDEPENDENT INTERNATIONAL TRANSACTION BUT IT IS A CLOSELY LINKED OR CONTINUOUS TRANSACTION ALONG WITH SALE TRANSACTION TO THE AE. THE CREDIT PERIOD ALLOWED TO THE PARTY DEPENDS UPON VARIOUS FACTORS WHICH ALSO INCLUDES THE PRICE CHARGE D BY THE ASSESSEE FROM PURCHASER. THEREFORE THE CREDIT PERIOD EXTENDED BY THE ASSESSEE TO THE AE CANNOT BE EXAMINED INDEPENDENTLY BUT HAS TO BE CONSIDERED ALONG WITH THE MAIN INTERNATIONAL TRANSACTION BEING SALE TO THE AE. AS PER RULE 10A(D) IF A NUMBER O F TRANSACTIONS ARE CLOSELY LINKED OR CONTINUOUS IN NATURE AND ARISING FROM A CONTINUOUS TRANSACTIONS OF SUPPLY OF AMENITY OR SERVICES THE TRANSACTIONS IS TREATED AS CLOSELY LINKED TRANSACTIONS FOR THE PURPOSE OF TRANSFER PRICING AND THEREFORE THE AGGREGA TE AND CLUBBING OF CLOSELY LINKED TRANSACTION ARE PERMITTED UNDER SAID RULE. THIS CONCEPT OF AGGREGATION OF THE TRANSACTION WHICH IS CLOSELY LINKED IS ALSO SUPPORTED BY OECD TRANSFER PRICING GUIDELINES. IN ORDER TO EXAMINE WHETHER THE NUMBER OF TRANSACTION S ARE CLOSELY LINKED OR CONTINUOUS SO AS TO AGGREGATE FOR THE PURPOSE OF EVALUATION WHAT IS TO BE CONSIDERED IS THAT ONE TRANSACTION IS FOLLOW - ON OF THE EARLIER TRANSACTION AND THEN THE SUBSEQUENT TRANSACTION IS CARRIED OUT AND DEPENDENT WHOLLY OR SUBSTANT IALLY ON THE EARLIER TRANSACTION. IN OTHER WORDS IF TWO TRANSACTIONS ARE SO CLOSELY LINKED THAT DETERMINATION OF PRICE OF ONE TRANSACTION IS DEPENDENT ON THE OTHER TRANSACTION THEN FOR THE PURPOSE OF DETERMINING THE ALP THE CLOSELY LINKED TRANSACTION S HOULD BE AGGREGATED AND CLUBBED TOGETHER. WHEN THE TRANSACTION ARE INFLUENCED BY EACH OTHER AND PARTICULARLY IN DETERMINING THE PRICE AND PROFIT INVOLVED IN THE TRANSACTIONS THEN THOSE TRANSACTIONS CAN SAFELY BE REGARDED AS CLOSELY LINKED TRANSACTIONS. IN THE CASE IN HAND THE CREDIT PERIOD EXTENDED TO THE AE IS A DIRECT RESULT OF SALE TRANSACTION. THEREFORE NO QUESTION OF CREDIT PERIOD ALLOWED TO THE AE FOR REALIZATION OF SALE PROCEEDS WITHOUT HAVING SALE TO AE. THE CREDIT PERIOD EXTENDED TO THE AE CANNOT B E TREATED AS A TRANSACTION STAND ALONE WITHOUT CONSIDERING THE MAIN TRANSACTION OF SALE. THE SALE PRICE OF THE PRODUCT OR SERVICE DETERMINED BETWEEN THE PARTIES IS ALWAYS INFLUENCED BY THE CREDIT PERIOD ALLOWED BY THE SELLER. THEREFORE THE TRANSACTION OF SALE TO THE AE AND CREDIT PERIOD ALLOWED IN REALIZATION OF SALE PROCEEDS ARE CLOSELY LINKED AS THEY ARE INTER LINKED AND THE TERMS AND CONDITIONS OF SALE AS WELL AS THE PRICE ARE DETERMINED BASED ON THE TOTALITY OF THE TRANSACTION AND NOT ON INDIVIDUAL AND SEPARATE TRANSACTION. THE APPROACH OF THE TPO AND DRP IN ANALYZING THE CREDIT PERIOD ALLOWED BY THE ASSESSEE TO THE AE WITHOUT CONSIDERING THE MAIN INTERNATIONAL TRANSACTION BEING SALE TO THE AE WILL GIVE DISTORTED RESULT BY DISREGARDING THE PRICE CHARGED BY THE ASSESSEE FROM AE. THOUGH EXTRA PERIOD ALLOWED FOR REALIZATION OF SALE PROCEEDS FROM THE AE IS AN INTERNATIONAL TRANSACTION HOWEVER FOR THE PURPOSE OF DETERMINING THE ALP THE SAME HAS TO BE CLUBBED OR AGGREGATED WITH THE SALE TRANSACTIONS WITH TH E AE. EVEN BY CONSIDERING IT AS AN INDEPENDENT TRANSACTION THE SAME HAS TO BE COMPARED WITH THE INTERNAL CUP AVAILABLE IN THE SHAPE OF THE CREDIT ALLOWED BY THE ASSESSEE TO NON AE. WHEN THE ASSESSEE IS NOT MAKING ANY DIFFERENCE FOR NOT CHARGING THE INTERES T FROM AE AS WELL AS NONAE THEN THE ONLY DIFFERENCE BETWEEN THE TWO CAN BE CONSIDERED IS THE AVERAGE PERIOD ALLOWED ALONG WITH OUTSTANDING AMOUNT. IF THE AVERAGE PERIOD MULTIPLIED BY THE OUTSTANDING AMOUNT OF THE AE IS AT ARM S LENGTH IN COMPARISON TO THE AVERAGE PERIOD OF REALIZATION AND MULTIPLIED BY THE OUTSTANDING FROM NON AES THEN NO ADJUSTMENT CAN BE MADE BEING THE TRANSACTION IS AT ARM S LENGTH. THE THIRD ASPECT OF THE ISSUE IS THAT THE ARM S LENGTH INTEREST FOR MAKING THE ADJUSTMENT. BOTH THE TPO AN D DRP HAS TAKEN INTO CONSIDERATION THE LENDING RATES HOWEVER THIS IS NOT A TRANSACTION OF LOAN OR ADVANCE TO THE AE BUT IT IS ONLY AN EXCESS PERIOD ALLOWED FOR REALIZATION OF SALES PROCEEDS FROM THE AE. THEREFORE THE ARM S LENGTH INTEREST IN ANY CASE WO ULD BE THE AVERAGE COST OF THE TOTAL FUND AVAILABLE TO THE ASSESSEE 26 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 AND NOT THE RATE AT WHICH A LOAN IS AVAILABLE. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER/TPO TO RE - DO THE EXERCISE OF DETERMINATION OF ALP IN TERMS OF ABOVE OBSERVATION. 12. THUS IT IS CLEAR THAT THE TRIBUNAL HAS TAKEN A VIEW THAT THE TRANSACTION OF ALLOWING THE CREDIT PERIOD TO THE A.E. ON REALISATION OF SALE PROCEEDS HAS TO BE CONSIDERED ALONG WITH THE MAIN INTERNATIONAL TRANSACTION IN RESPECT OF SALE TO A.E. A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL DELHI BENCH IN KUSUM HEALTHCARE PVT. LTD. (SUPRA) WHEREIN THE TRIBUNAL VIDE PARA 7 TO 10 HELD AS UNDER: 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AN UNCONTROLLED ENTITY WILL EXPECT TO EARN A MAR KET RATE OF RETURN ON ITS WORKING CAPITAL INVESTMENT INDEPENDENT OF THE FUNCTIONS IT PERFORMS OR PRODUCTS IT PROVIDES. HOWEVER THE AMOUNT OF CAPITAL REQUIRED TO SUPPORT THESE FUNCTIONS VARIES GREATLY BECAUSE THE LEVEL OF INVENTORIES DEBTORS AND CREDITOR S VARIES. HIGH LEVELS OF WORKING CAPITAL CREATE COSTS EITHER IN THE FORM OF INCURRED INTEREST OR IN THE FORM OF OPPORTUNITY COSTS. WORKING CAPITAL YIELDS A RETURN RESULTING FROM A) HIGHER SALES PRICE OR B) LOWER COST OF GOODS SOLD WHICH WOULD HAVE A POSITI VE IMPACT ON THE OPERATIONAL RESULT. HIGHER SALES PRICES ACTS AS A RETURN FOR THE LONGER CREDIT PERIOD GRANTED TO CUSTOMERS. SIMILARLY IN RETURN FOR LONGER CREDIT PERIOD GRANTED A FIRM SHOULD BE WILLING TO PAY HIGHER PURCHASE PRICE WHICH ADDS TO THE COST OF GOODS SOLD. THEREFORE HIGH LEVELS ACCOUNTS RECEIVABLE AND INVENTORY TEND TO OVERSTATE THE OPERATING RESULTS WHILE HIGH LEVELS OF ACCOUNTS PAYABLE TEND TO UNDERSTATE THEM THEREBY NECESSITATING APPROPRIATE ADJUSTMENT. THE APPROPRIATE ADJUSTMENTS NEED TO BE CONSIDERED TO BRING PARITY IN THE WORKING CAPITAL INVESTMENT OF THE ASSESSEE AND THE COMPARABLES RATHER THAN LOOKING AT THE RECEIVABLE INDEPENDENTLY. SUCH WORKING CAPITAL ADJUSTMENT TAKES INTO ACCOUNT THE IMPACT OF OUTSTANDING RECEIVABLES ON THE PROFITA BILITY. IN THIS REGARD THE RELIANCE IS PLACED ON THE FOLLOWING RULINGS WHEREIN THE NEED TO UNDERTAKE WORKING CAPITAL ADJUSTMENT HAS BEEN APPRECIATED BY THE HON BLE TRIBUNALS : MERCER CONSULTING INDIA PVT. LTD. [TS - 170 - ITAT - 2014(DEL)] MENTOR GRAPHICS (NOIDA) PRIVATE LIMITED [109 ITD 101] EGAIN COMMUNICATION (P) LTD. [ITA NO. 1685/PN/2007] SONY INDIA (PVT.) LTD. [2011 - TII - 43 - ITAT - DEL - TP] CAPGEMINI INDIA PRIVATE LIMITED [TS - 45 - ITAT - 2013(MUM) - TP] 8. IN VIEW OF THE ABOVE A WORKING ADJUSTMENT APP ROPRIATELY TAKES INTO ACCOUNT THE OUTSTANDING RECEIVABLE. THEREFORE THE ASSESSEE HAS UNDERTAKEN A WORKING CAPITAL ADJUSTMENT TO REFLECT THESE DIFFERENCES BY ADJUSTING FOR DIFFERENCES IN WORKING CAPITAL AND THEREBY PROFITABILITY OF EACH COMPARABLE COMPANY . ACCORDINGLY WHILE CALCULATING THE WORKING CAPITAL ADJUSTED OPERATING MARGIN ON COSTS OF THE COMPARABLE COMPANIES THE IMPACT OF OUTSTANDING RECEIVABLES ON THE PROFITABILITY HAS BEEN TAKEN INTO ACCOUNT. IF THE PRICING/ PROFITABILITY OF THE ASSESSEE ARE MORE THAN THE WORKING CAPITAL ADJUSTED MARGIN OF THE COMPARABLES THEN ADDITIONAL IMPUTATION OF INTEREST ON THE OUTSTANDING RECEIVABLES IS NOT WARRANTED. 9. THE ASSESSEE HAD UNDERTAKEN A WORKING CAPITAL ADJUSTMENT FOR THE COMPARABLE COMPANIES SELECTED IN I TS TRANSFER PRICING REPORT WHICH WAS ALSO SUBMITTED WITH THE LD. TPO. A SNAPSHOT OF THE RESULT IS PROVIDED BELOW: SEGMENT NAME APPELLANT S MARGIN (OP/TC) WORKING CAPITAL ADJUSTED MARGINS OF COMPARABLES (OP/TC) MANUFACTURING ACTIVITY 46.33% 11.84% TRADING A CTIVITY 17.44% 8.36% 10. THE ABOVE ANALYSIS EMPIRICALLY DEMONSTRATES THAT THE DIFFERENTIAL IMPACT OF WORKING CAPITAL OF THE VIS - A - VIS ITS COMPARABLES HAS ALREADY BEEN FACTORED IN THE PRICING/PROFITABILITY OF THE ASSESSEE WHICH IS MORE THAN THAT WORKING CAP ITAL ADJUSTED MARGIN OF THE COMPARABLES. HENCE ANY FURTHER ADJUSTMENT TO THE MARGINS OF THE ASSESSEE ON THE PRETEXT OF OUTSTANDING RECEIVABLES IS UNWARRANTED AND WHOLLY UNJUSTIFIED. 27 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 13. FOLLOWING THE ORDERS OF THE TRIBUNAL WE SET ASIDE THIS ISSUE TO TH E RECORD OF THE ASSESSING OFFICER / TRANSFER PRICING OFFICER AND DIRECT TO RE DO THE EXERCISE OF DETERMINATION OF ARM'S LENGTH PRICE IN THE LIGHT OF THE ABOVE DECISIONS OF THE TRIBUNAL. THE GROUNDS RAISED IN THIS CROSS OBJECTION ARE ALLOWED FOR STATISTICAL PURPOSES. FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL WE SET ASIDE THIS ISSUE TO THE RECORD OF THE A.O./TPO WITH THE DIRECTION TO REDO THE EXERCISE OF DETERMINATION OF ALP BY CONSIDERING THE PROPER WORKING CAPITAL ADJUSTMENT IN THE COMPARABLE PRICES IN RESPECT OF TRANSACTION OF SOFTWARE DEVELOPMENT SERVICES PROVIDER TO THE AE. WE MAKE IT CLEAR THAT IF AFTER GIVING THE NECESSARY ADJUSTMENT THE INTERNATIONAL TRANSACTION OF THE ASSESSEE IS FOUND AT ARM S LENGTH THEN THERE IS NO QUESTION OF ANY SEPARAT E ADJUSTMENT ON ACCOUNT OF ALLOWING THE CREDIT PERIOD ON THE RECEIVABLE FROM AE. WE FURTHER CLARIFY THAT THE NORMAL CREDIT PERIOD ALLOWED FOR THE RECEIVABLE FROM THE AE SHALL BE THE CREDIT PERIOD PREVAILING IN THE INDUSTRY AND THEREFORE WE ARE OF THE VIEW THAT TWO MONTHS CREDIT PERIOD SHOULD BE TAKEN AS A NORMAL BUSINESS PRACTICE IN THE INDUSTRY. THE TPO/A.O SHALL ALSO CONSIDER THE BENCHMARK INTEREST RATE AS LIBOR/PLR IN THE LIGHT OF VARIOUS PRECEDENTS ON THIS ISSUE. A SIMILAR VIEW HAS BEEN TAKEN BY TH IS TRIBUNAL IN A SERIES OF OTHER DECISION S AS REFERRED IN THE EARLIER DECISIONS AS WELL AS RELIED UPON BY THE LD. AR OF THE ASSESSEE. ACCORDINGLY TAKING A CONSISTENT VIEW WE SET ASIDE THIS ISSUE TO THE RECORD OF THE A.O./TPO WITH THE DIRECTION TO RE DO THE DETERMINATION OF ALP IN RESPECT OF PROVIDING SOFTWARE DEVELOPMENT SERVICES BY CONSIDERING THE PROPER WORKING CAPITAL ADJUSTMENT IN COMPARABLE PRICE. IN CASE AFTER GIVING THE NECESSARY ADJUSTMENT THE INTERNATIONAL TRANSACTION OF THE ASSESSEE IS FOUN D AT ARM S LENGTH THEN THERE IS NO QUESTION OF SEPARATE ADJUSTMENT ON ACCOUNT OF ALLOWING CREDIT PERIOD ON RECEIVABLE FROM THE AE. 28 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 IT(TP)A NO.166/BANG/2014 FOR THE A.Y. 2009 - 10 2 4 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACT BY FAILING TO TAKE COGNIZANCE OF THE VALID BUSINESS/COMMERCIAL REASONS PUT FORTH BY THE APPELLANT FOR NOT CHARGING A GUARANTEE FEE TO ITS ASSOCIATED ENTERPRISES. 2. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACT BY IGNORING THE CORPORATE GUARANTEES OBTAINED FROM OVERSEAS SUBSIDIARIES/ PARENT COMPANY FOR WHICH NO GUARANTEE FEE HAS BEEN PAID BY THE APPELLANT . 3. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS BY NOT GIVING PROP ORTIONATE EFFECT TO THE GUARANTEES WHICH EXISTED ONLY FOR A PART OF THE YEAR. 4. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS BY CONSIDERING CORPORATE GUARANTEE TRANSACTION AS AN INTRA - GROUP SERVICE WARRANTING AN ARM S LENGTH REMUNERA TION BY IGNORING THE FACT THAT SUCH A TRANSACTION I S A MERE SHAREHOLDER ACTIVITY. 5. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS BY CONSIDERING THE OUTSTANDING DUES FROM THE AES TO BE IN THE NATURE OF LOAN AND NOT CONSIDERING THE BUS INESS/ COMMERCIAL EXPEDIENCIES OF THE ARRANGEMENT. 6. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS IN IMPUTING INTEREST ON THE LOANS ADVANCED TO THE AES BY COMPLETELY DISREGARDING THE FACT THAT LOANS GIVEN TO AES ARE IN THE NATURE OF QUASI EQUITY AND WERE COMMERCIALLY EXPEDIENT FROM XSL S PERSPECTIVE. 7. THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND IN FACTS IN NOT OBJECTIVELY SELECTING THE INTEREST RATE TO DETERMINE THE ARM S LENGTH RATE OF INTEREST APPLICABLE FOR OUTSTANDI NG DUES FROM THE AES. 8. THE LEARNED AO HAS ERRED IN LAW AND ON FACTS BY REDUCING RS 39 07 208 (FOREIGN TRAVEL EXPENSES) FROM EXPORT TURNOVER OF BANGALORE BPO UNIT IN THE FORMULA PRESCRIBED UNDER SECTION 10A(4) OF THE ACT EVEN THOUGH THE COMPANY IS NOT R ENDERING TECHNICAL SERVICES OUTSIDE INDIA . 9. THE LEARNED AO HAS ERRED IN LAW AND ON FACTS BY PLACING INCORRECT RELIANCE ON THE RULING OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS HIMATSINGIKESEIDE LTD SINCE THE RULING IS ON THE FACT OF AN ELIGIBLEUN IT HAVING ONLY UNABSORBED DEPRECIATION AND SUCH UNABSORBED DEPRECIATION OF THE ELIGIBLE UNITIS TO BE SET - OFF WITH THE PROFITS OF THE SAME ELIGIBLE UNIT WHICH IS NOT THE FACTS OF THE APPELLANT. 10. FURTHER THE LEARNED AO BY PLACING INCORRECT RELIANCE ON THE RU LING OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS HIMATSINGIKESEIDELTD HAS ALSO DISREGARDED THE JURISDICTIONAL RULING OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT AND ANR. VS YOKOGAWA INDIA LTD. AND ORS. (341 29 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 ITR 385) AND HAS COMPUTED THE D EDUCTION FOR BANGALORE BPO UNIT ELIGIBLE UNDER SECTION 10A OF THE ACT AT RS 33 79 64 225 AFTER ADJUSTING THE ELIGIBLE PROFITS WITH THE LOSSES OF THE OTHER ELIGIBLE UNITS I.E. SCANDENT BANGALORE AND SSIT CHENNAI FOR THE SAME YEAR. 11. THE LEARNED AO HAS ERR ED IN LAW AND ON FACTS BY NOT CONSIDERING THE PROFIT AS PER PROFIT AND LOSS ACCOUNT AS PER SCHEDULE VI READ WITH PROVISIONS OF SECTION 211 OF THE COMPANIES ACT 1956 FOR COMPUTATION OF BOOK PROFITS ON THE PRETEXT THAT THE PROFIT REFLECTED ON THE FACE OF THE PROFIT AND LOSS ACCOUNT ARE ONLY RELEVANT AND BY DISREGARDING THE ADJUSTMENT MADE TO THE PROFIT AND LOSS BALANCE THROUGH SCHEDULE TO THE FINANCIAL STATEMENTS OF THE COMPANY DURING THE SUBJECT AY. BASED ON THIS THE LEARNED AO HAS CONSIDERED RS 20 44 39 258 AS THE PROFITS AS AGAINST RS 10 16 53 062. 12. THE LEARNED AO HAS ERRED IN LAW AND ON FACTS BY NOT CONSIDERING THE FACT THAT AS PER PROVISIONS OF SUB - SECTION (6) OF SECTION 211 OF THE COMPANIES ACT ANY REFERENCE TO A BALANCE SHEET OR PROFIT AND LOSS ACCOUNT SHALL INCLUDE ANY NOTES TO ACCOUNTS THEREON OR DOCUMENTS ANNEXED THERETO AND CONSEQUENTLY FAILED TO ADJUST THE AMALGAMATION LOSS TO THE BOOK PROFITS. 13. THE LEARNED AO HAS ERRED IN LAW AND O N FACTS BY ADDING BACK THE PROVISION FOR ONEROUS LEASES AM OUNTING TO RS 6 41 61 438 (THAT WAS DEBITED TO PROFIT AND LOSS ACCOUNT OF THE COMPANY ON THE BASIS OF CONTRACTUAL OBLIGATIONS) ON THE PRETEXT THAT THE SAME CONSTITUTES UNASCERTAINED LIABILITY . 14. THE LEARNED AO HAS ERRED IN LAW AND ON FACTS BY CONTENDING TH AT APPELLANT HAS ADDED THE PROVISION FOR ONEROUS LEASE IN NORMAL TAX COMPUTATION BY TREATING IT AS AN UNASCERTAINED LIABILITY WHEREBY NOT APPRECIATING THE FACT THAT THE DISALLOWANCE WITH RESPECT TO PROVISION FOR ONEROUS LEASE IN NORMAL TAX COMPUTATION WAS ON ACCOUNT OF NON - DEDUCTION OF TAXES UNDER SECTION 40(A)(IA) ON THE PROVISION MADE. 15. THE LEARNED AO HAS ERRED IN LAW AND O N FACTS BY NOT ALLOWING THE DEDUCTION OF LOWER OF BROUGHT FORWARD LOSS OR UNABSORBED DEPRECIATION AMOUNTING TO RS 2 93 60 721 BY DI SREGARDED THE SUBMISSIONS MADE BY THE COMPANY PROVIDING YEAR WISE DETAILS OF LOSS BEFORE DEPRECIATION AND UNABSORBED DEPRECIATION . 16. THE LEARNED AO HAS ERRED IN LAW AND ON FACTS BY COMPUTING INTEREST OF RS 6 01 152 UNDER SECTION 234C OF THE ACT ON THE DEMA ND RAISED AS AGAINST RS 61 448 CALCULATED ON THE RETURNED INCOME BYTHE APPELLANT IN ITS RETURN OF INCOME. 2 5 . THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND AS GROUND NO.21 AS UNDER : 17 : THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND ON FACTS BY CONSIDERING THE OUTSTANDING DUES FROM AES A SEPARATE INTERNATIONAL TRANSACTION UNDER SECTION 92B SUBJECT TO TRANSFER PRICING . 30 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 18 : WITHOUT PREJUDICE TO GROUND NO. 17 ABOVE THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND ON FACT S BY NOT CONSIDERING THE IMPACT OF WORKING CAPITAL ADJUSTMENT AND MAKING AN ADDITION IN THIS REGARD . 19 : WITHOUT PREJUDICE TO GROUND NO. 1 THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND ON FACTS IN NOT OBJECTIVELY SELECTING THE ARM S LENGT H RATE OF FEE/COMMISSION APPLICABLE FOR CORPORATE GUARANTEES ISSUED TO AES . 20 : WITHOUT PREJUDICE TO GROUND NO. 6 THE LEARNED TPO AND THE LEARNED AO HAVE ERRED IN LAW AND ON FACTS IN NOT OBJECTIVELY SELECTING THE ARM S LENGTH RATE OF INTEREST APPLICAB LE FOR LOANS ISSUED TO AES. 2 6 . GROUND NOS.1 TO 4 & 21 ARE REGARDING THE T.P. ADJUSTMENT IN RESPECT OF THE GUARANTEE FEES ON CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE TO AE. 2 7 . TH IS ISSUE IS COMMON AS FOR THE ASSESSMENT YEAR 2008 - 09 AND IN V IEW OF OUR FINDING FOR THE ASSESSMENT YEAR 2008 - 09 THESE GROUNDS OF THE ASSESSEE'S APPEAL STAND DISPOSED OF IN THE SAME TERMS. 2 8 . THE GROUND NO.5 IS REGARDING TP ADJUSTMENT ON THE OUTSTANDING DUE FROM AE. THIS ISSUE IS ALSO COMMON AS FOR THE ASSES SMENT YEAR 2008 - 09 AND IN VIEW OF OUR FINDING FOR THE ASSESSMENT YEAR 2008 - 09 THESE GROUNDS OF THE ASSESSEE'S APPEAL STAND DISPOSED OF IN THE SAME TERMS. 2 9 . THE GROUND NOS.6 & 7 ARE REGARDING T.P. ADJUSTMENT IN RESPECT OF LOAN/ADVANCE GIVEN TO AE. THIS ISSUE IS ALSO COMMON AS FOR THE ASSESSMENT 31 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 YEAR 2008 - 09 AND IN VIEW OF OUR FINDING FOR THE ASSESSMENT YEAR 2008 - 09 THESE GROUNDS OF THE ASSESSEE'S APPEAL STAND DISPOSED OF IN THE SAME TERMS. 30 . GROUND NO.8 IS REG ARDING EXCLUSION OF EXPENSES FRO M EXPORT TURNOVER WHILE COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT . 3 1 . WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V M/S TATA ELXSI LTD. & OTHERS 349 ITR 98 (K AR) HAD HELD THAT WHILE COMPUTING THE EXEMPTION U/S 10A IF THE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES THE SAME SHOULD ALSO BE EXCLUDED FROM THE TOTAL TURNOVER IN THE DENOMINATOR. THE RELEVANT FINDING OF THE HON BLE JURISDICTIONAL HIGH COURT READS AS FOLLOWS: - ..SECTION 10A IS ENACTED AS AN INCENTIVE TO EXPORTERS TO ENABLE THEIR PRODUCTS TO BE COMPETITIVE IN THE GLOBAL MARKET AND CONSEQUENTLY EARN PRECIOUS FOREIGN EXCHANGE FOR THE COUNTRY. THIS ASPECT HAS TO BE BORNE IN MIND. WHILE COMPUTING THE CONSIDERATION RECEIVED FROM SUCH EXPORT TURNOVER THE EXPENSES INCURRED TOWARDS FREIGHT TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA SHOULD NOT BE INCLUDED. HOWEVER THE WORD TOTAL TURNOVER IS NOT DEFINED FOR THE PURPOSE OF THIS SECTION. IT IS BECAUSE OF THIS OMISSION TO DEFINE TOTAL TURNOVER THE WORD TOTAL TURNOVER FALLS FOR INTERPRETATION BY THIS COURT; 32 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 ..IN SECTION 10A NOT ONLY THE WORD TOTAL TURNOVER IS NOT DEFINED THERE IS NO CLUE REGARDING WHAT IS TO BE EXCLUDED WHILE ARRIVING AT THE TOTAL TURNOVER. HOWEVER WHI LE INTERPRETING THE PROVISIONS OF SECTION 80HHC THE COURTS HAVE LAID DOWN VARIOUS PRINCIPLES WHICH ARE INDEPENDENT OF THE STATUTORY PROVISIONS. THERE SHOULD BE UNIFORMITY IN THE INGREDIENTS OF BOTH THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA SINCE OTHERWISE IT WOULD PRODUCE ANOMALIES OR ABSURD RESULTS. SECTION 10A IS A BENEFICIAL SECTION WHICH INTENDS TO PROVIDE INCENTIVES TO PROMOTE EXPORTS. IN THE CASE OF COMBINED BUSINESS OF AN ASSESSEE HAVING EXPORT BUSINESS AND DOMESTIC BUSINESS THE LEGISL ATURE INTENDED TO HAVE A FORMULA TO ASCERTAIN THE PROFITS FROM EXPORT BUSINESS BY APPORTIONING THE TOTAL PROFITS OF THE BUSINESS ON THE BASIS OF TURNOVERS. APPORTIONMENT OF PROFITS ON THE BASIS OF TURNOVER WAS ACCEPTED AS A METHOD OF ARRIVING AT EXPORT PR OFITS. IN THE CASE OF SECTION 80HHC THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS INCOME OF THE ASSXCESSEE WHEREAS IN SECTION 10 - A THE EXPORT PROFIT IS TO BE DERIVED FROM THE TOTAL BUSINESS OF THE UNDERTAKING. EVEN IN THE CASE OF BUSINESS OF AN UNDERTAKING IT MAY INCLUDE EXPORT BUSINESS AND DOMESTIC BUSINESS IN OTHER WORDS EXPORT TURNOVER AND DOMESTIC TURNOVER. TO THE EXTENT OF EXPORT TURNOVER THERE WOULD BE A COMMONALITY BETWEEN THE NUMERATOR AND THE DENOMINATOR OF THE FORMULA. IF T HE EXPORT TURNOVER IN THE NUMERATOR IS TO BE ARRIVED AT AFTER EXCLUDING CERTAIN EXPENSES THE SAME SHOULD ALSO BE EXCLUDED IN COMPUTING THE EXPORT TURNOVER AS A COMPONENT OF TOTAL TURNOVER IN THE DENOMINATOR. THE REASON BEING THE TOTAL TURNOVER INCLUDES E XPORT TURNOVER. THE COMPONENTS OF THE EXPORT TURNOVER IN THE NUMERATOR AND THE DENOMINATOR CANNOT BE DIFFERENT. THEREFORE THOUGH THERE IS NO DEFINITION OF THE TERM TOTAL TURNOVER IN SECTION 10A THERE IS NOTHING IN THE SAID SECTION TO MANDATE THAT WH AT IS EXCLUDED FROM THE NUMERATOR THAT IS EXPORT TURNOVER WOULD NEVERTHELESS FORM PART OF THE DENOMINATOR. WHEN THE STATUTE PRESCRIBED A FORMULA AND IN THE SAID FORMULA EXPORT TURNOVER IS DEFINED AND WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER THE VERY SAME MEANING GIVEN TO THE EXPORT TURNOVER BY THE LEGISLATURE IS TO BE ADOPTED WHILE UNDERSTANDING THE MEANING OF THE TOTAL TURNOVER WHEN THE TOTAL TURNOVER INCLUDES EXPORT TURNOVER. IF WHAT IS EXCLUDED IN COMPUTING THE EXPORT TURNOVER IS INCLUD ED WHILE ARRIVING AT THE TOTAL TURNOVER WHEN THE EXPORT TURNOVER IS A COMPONENT OF TOTAL TURNOVER SUCH AN INTERPRETATION WOULD RUN COUNTER TO THE LEGISLATIVE INTENT AND IMPERMISSIBLE. THUS THERE IS NO ERROR COMMITTED BY THE TRIBUNAL IN FOLLOWING THE JU DGEMENTS RENDERED IN THE CONTEXT OF SECTION 80HHC IN INTERPRETING SECTION 10A WHEN THE PRINCIPLE UNDERLYING BOTH THESE PROVISIONS IS ONE AND THE SAME . 33 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 IN THE LIGHT OF THE ABOVE BINDING PRECEDENTS WE DIRECT THE AO TO EXCLUDE THE ABOVE MENTIONED EXPENSES BOTH FROM THE EXPORT TURNOVER AS WELL AS FROM THE TOTAL TURNOVER WHILE CALCULATING DEDUCTION U/S 10A OF THE ACT. 3 2 . GROUND NOS.9 & 10 ARE REGARDING SETTING OFF UNABSORBED DEPRECIATION AGAINST THE PROFITS OF THE ELIGIBLE UNITS. 33. HAVING CONSIDERED T HE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS M/S HIMATASINGIKE SEIDE LTD.(SUPRA) WAS DELIVERED BY CONSIDERING THE UN - AMENDED PROVISIONS OF SEC.10A/ 10B OF THE IT ACT 1961 PRIOR TO 2001. THE HON BLE JURISDICTIONAL HIGH COURT IN A SUBSEQUENT DECISION IN THE CASE OF CIT VS M/S YOKOGAWA INDIA LTD (341 ITR 385)(SUPRA) AFTER CONSIDERING THE AMENDED PROVISIONS OF SEC.10A/10B OF THE IT ACT HAS DECIDED THI S ISSUE IN FAVOUR OF THE ASSESSEE. BY FOLLOWING THE DECISION IN THE CASE OF M/S YOKOGAWA INDIA LTD (341 ITR 385)(SUPRA) THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF M/S SAFRAN AEROSPACE INDIA PVT. LTD VS DCIT IN ITA NO.1261(B)/2010 HAD CONSIDER ED AND ADJUDICATED AN IDENTICAL ISSUE IN PARA - 4.4 AND 4.5 AS UNDER; 4.4 HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT IT IS NOT CLEAR FROM THE RECORD AS TO WHETHER BROUGHT FORWARD LOSSES AND DEPRECIATION LOSS 34 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 PERTAIN EN TIRELY TO NON - STPI UNIT ONLY OR PART OF IT ALSO PERTAINS TO STPI UNIT. THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF HIMATSINGIKA SIEDE (SUPRA) WAS CONSIDERING THE CASE OF AN ASSESSEE WHICH WAS 100% EXPORT ORIENTED UNIT IN TERMS OF SEC.10B OF THE ACT AN D WAS CLAIMING EXEMPTION U/S 10B. IN THE CASE OF THE SAID ASSESSEE UNABSORBED DEPRECIATION AVAILABLE TO THE ASSESSEE IN THE ASSESSMENT YEAR 1988 - 89 WAS CARRIED FORWARD TO THE ASSESSMENT YEAR 1994 - 95 (RELEVANT ASSESSMENT YEAR) AND WAS CLAIMED BY THE ASSES SEE TO BE ADJUSTED AGAINST INCOME FROM OTHER SOURCES THEREBY REDUCING THE ASSESSEE S INCOME FOR ASSESSMENT PURPOSES AT NIL . THE AO ACCEPTED THE SAID CLAIM OF THE ASSESSEE AND ASSESSED THE TOTAL INCOME AT NIL . HOWEVER THE COMMISSIONER OF INCOME - TAX (CIT) REVISED THE ORDER U/S 263 STATING THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS EXEMPTION U/S 10B WAS ALLOWED ON AN INFLATED AMOUNT WITHOUT DEDUCTING UNABSORBED DEPRECIATION. THE CIT DIRECTED THAT U NABSORBED DEPRECIATION SHOULD BE ADJUSTED AGAINST THE INCOME OF THE EXPORT ORIENTED BUSINESS UNDERTAKING AND THE TOTAL INCOME OF THE ASSESSEE SHOULD ACCORDINGLY BE RECOMPUTED AFRESH. THE ASSESSEE THEREIN HAD APPEALED TO THE TRIBUNAL WHICH ALLOWED THE SAME AGAINST WHICH THE REVENUE PREFERRED AN APPEAL BEFORE THE HON BLE HIGH COURT. THE HON BLE HIGH COURT HELD THAT SEC.10B CANNOT BE READ IN ISOLATION OF OTHER PROVISIONS AS IT IS ONLY AN EXEMPTION PROVISION AND EXEMPTION PROVISION CANNOT BE FANCIFUL AND IT H AS SOME RATIONALE WITH OTHER PROVISIONS OF THE ACT AND THEREFORE AFTER A COMBINED READING OF THE DEFINITION OF EXEMPTION TOTAL INCOME - TAX LIABILITY DEDUCTIBILITY ETC. ONE HAS TO COME TO A CONCLUSION THAT CALCULATION AS FAR AS POSSIBLE IS TO BE IN TERMS 35 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 OF THE ACT. TO ARRIVE AT A PROFIT AND GAIN ONE HAS TO NECESSARILY TAKE INTO CONSIDERATION TOTAL INCOME IN TERMS OF THE ACT AND TO ARRIVE AT THE INCOME ONE HAS TO TAKE INTO CONSIDERATION VARIOUS ADDITIONS AND DELETIONS IN TERMS OF THE ACT SUCH AS ALLOWA BILITY OF DEPRECIATION FOR THE PURPOSE OF CALCULATION OF TOTAL INCOME. THE HON BLE SUPREME COURT HAS DISMISSED THE SLP FILED BY THE ASSESSEE AGAINST THE ORDER OF THE HON BLE HIGH COURT. 4.5 THE HON BLE HIGH COURT OF KARNATAKA IN THE CASE OF YOKO GAWA INDIA LTD (SUPRA) WAS CONSIDERING THE CASE OF AN ASSESSEE WHICH WAS IN THE BUSINESS OF MANUFACTURE AND TRADING OF PROCESS CONTROLLED INSTRUMENTS AND IT HAD FILED RETURN OF INCOME DECLARING LOSS. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) THE AO HAD OBSERVED THAT THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10A FOR ITS STPI UNIT BEFORE SET OFF OF BROUGHT FORWARD LOSSES AND DEPRECIATION. THE AO THEREIN HAD ALSO OBSERVED THAT 10A BENEFIT CAN BE GIVEN ONLY AFTER ADJUSTING BROUGHT FORWARD LOSS AND DEPRECIAT ION FROM THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO GRANTED RELIEF TO THE ASSESSEE AND ON FURTHER APPEAL BY THE REVENUE TO THE TRIBUNAL IT WAS HELD THAT BUSINESS LOSS OF OTHER UNITS CANNOT BE SET O FF AGAINST THE PROFITS OF THE UNDERTAKING ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE FOR PURPOSES OF DETERMINATION OF THE ALLOWABLE DEDUCTION U/S 10B OF THE ACT. THE REVENUE THEREFORE FILED APPEAL BEFORE THE HON BLE HIGH COURT AND THE HIGH COURT FRAME D THE FOLLOWING QUESTION FOR DETERMINATION: WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING THAT THE DEDUCTION U/S 10A OR 10B OF THE ACT DURING THE CURRENT 36 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 ASSESSMENT YEAR HAS TO BE ALLOWED WITHOUT SETTING OFF BROUGHT FORWARD UNABSORBED LOSSES AND THE DEPRECI ATION FROM EARLIER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER IN THE CASE OF NON - STP UNITS OR IN THE CASE OF THE VERY SAME UNDERTAKING? THE HON BLE HIGH COURT HAS CONSIDERED THE ISSUE AT LENGTH AND AT PARA 31 OF ITS ORDER HAS HELD THAT AS DEDUCTION U/S 10A HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFITS AND GAINS OF UNDERTAKING WOULD NOT ARISE AND IN THAT VIEW OF THE MATTER THE APPROACH OF THE AO WAS QUI TE CONTRARY TO THE AFORESAID PROVISION AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUSTIFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRANTING THE BENEFIT OF SEC.10A TO THE ASSESSEE. THUS THE QUESTION OF LAW WAS ANSWERED IN FA VOUR OF THE ASSESSEE. THUS THERE ARE TWO JUDGMENTS OF THE HON BLE KARNATAKA HIGH COURT CONTRARY TO EACH OTHER. WHEN THERE ARE TWO JUDGMENTS OF THE VERY SAME HIGH COURT BY BENCHES OF EQUAL STRENGTH THEN THE LATER JUDGMENT OF THE HIGH COURT HAS TO BE FOL LOWED AS HELD BY THE HON BLE APEX COURT IN THE CASE OF BHIKA RAM AND OTHERS VS. UOI REPORTED IN 238 ITR 113. THE DECISION OF THE HIGH COURT IN THE CASE OF HIMATSINGIKE SIEDE (SUPRA) IS DATED 4 TH AUGUST 2006 WHEREAS THE DECISION OF THE HON BLE HIGH COURT I N THE CASE OF YOKOGAWA INDIA LTD.(SUPRA) IS DATED 9 TH AUGUST 2011. AS REGARDS THE DISMISSAL OF THE SLP BY THE HON BLE SUPREME COURT AGAINST THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF HIMATSINGIKE SIEDE (SUPRA) IS CONCERNED WE FIND T HAT THE HON BLE SUPREME COURT HAS DISMISSED THE APPEAL IN LIMINE WITHOUT LAYING DOWN ANY RATIO DECIDENDI THEREIN AND THEREFORE AS HELD BY THE HON BLE APEX COURT IN THE CASE OF 37 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 INDIAN OIL CORPORATION LTD. VS. STATE OF BIHAR & OTHERS REPORTED IN 167 ITR 897 THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD.(SUPRA) HOLDS THE FIELD. FURTHER THE HON BLE APEX COURT IN THE CASE OF VEGETABLE PRODUCTS LTD. REPORTED IN 88 ITR 192 (SC) HAS HELD THAT WHERE TWO REASONABLE CONSTRU CTIONS ARE POSSIBLE THEN THE CONSTRUCTION IN FAVOUR OF THE ASSESSEE MUST BE ADOPTED. RESPECTFULLY FOLLOWING THE SAID DECISION WE ALLOW THE GROUND OF APPEAL NO.2. . FOLLOWING THE LATEST JUDGMENT OF THE HON BLE HIGH COURT IN CASE OF M/S YOKOGAWA INDIA LT D (341 ITR 385)(SUPRA) AS WELL AS CO - ORDINATE BENCH DECISION IN CASE OF M/S SAFRAN AEROSPACE INDIA PVT. LTD. (SUPRA) WE DECIDE THIS ISSUE IN FAVOUR OF ASSESSEE AND DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION U/S 10A OF THE IT ACT WITHOUT SETTING OFF O F BROUGHT FORWARD LOSSES/UNABSORBED DEPRECIATION 3 4 . GROUND NOS.11 & 12 ARE REGARDING THE ADJUSTMENT MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LOSS ARISING DUE TO AMALGAMATION WAS NOT SHOWN IN THE PROFIT AND LOSS ACCOUNT BUT DISCLOSED IN THE NOTES T O ACCOUNTS. THIS ISSUE IS COMMON TO THE ISSUE RAISED BY THE ASSESSEE IN THE ADDITIONAL GROUND NOS.12 & 13. AS WE HAVE SET ASIDE THIS ISSUE TO THE RECORD OF THE DRP FOR THE ASSESSMENT YEAR 2008 - 09 A CCORDINGLY THIS ISSUE IS SET ASIDE TO THE RECORD OF THE DRP FOR 38 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 ADJUDICATION. NEEDLESS TO SAY THE ASSESSEE BE AFFORDED AN OPPORTUNITY OF HEARING TO THE ASSESSEE. 3 5 . GROUND NOS.13 & 14 ARE REGARDING DISALLOWANCE OF LEASE CHARGES ON THE GROUND OF UNASCERTAINED LIABILITY AS WELL AS NON - DEDUCTION OF TAXES A T SOURCE UNDER SECTION 40(A )(IA) OF THE ACT . 3 6 . THE ASSESSEE CLAIMED TO HAVE CREATED A PROVISION FOR RENTAL LIABILITY IN RESPECT OF GUINDY AND PUNE FACI LITIES. THE ASSESSING OFFICER FOUND THAT THIS AMOUNT OF RS.6 41 61 438 HAS BEEN ADDED BACK IN THE COMPUTATION UNDER REGULAR PROVISIONS OF ACT AS AN UNCERTAINED LIABILITY BUT WAS NOT ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. ACCORDINGLY THE ASSESSING OFFICER INCREASED THE BOOK PROFIT UNDER SECTION 115JB BY THE SAID AMOUNT OF RS.6 41 61 438. THE ASSESSEE RAISED THE OBJECTION BEFORE THE DRP AND SUBMITTED THAT DUE TO PRESENCE OF A LOCK IN PERIOD CLAUSE IN THE AGREEMENT MADE IN RESPECT OF GUINDY AND PUNE FACILITIES WHEREBY THE PREMISES WERE HIGHER ED FOR 72 MONTHS AND 60 MONTHS RESPECTIVELY T HE PROVISION CREATED REPRESENTS A CERTAIN LIABILITY WHICH HAS TO BE ACCOUNTED UNDER MERCANTILE SYSTEM OF ACCOUNTING. THE DRP DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND OBSERVED THAT THERE WAS NO URGENCY AS TO WHY THE ASSESSEE ACCOUN TED FOR 39 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 THE ENTIRE LEASE PERIOD LIABILITY AS ON 31.3.2009 WHEN THE SAME COULD HAVE BEEN ACCOUNTED DURING THE LEASE PERIOD FROM YEAR TO YEAR. FURTHER WHEN THE LOCK IN PERIOD HAS ALREADY EXPIRED THEN THIS IS NO MORE EVEN AN ANTICIPATED LIABILITY. 3 7 . BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT AS PER THE ACCOUNTING STANDARD 29 THE ASSESSEE HAS TO TAKE INTO CONSIDERATION ALL PROBABLE OUTFLOW OF SOURCES AND APPLICATIONS ON THE BASIS OF A RELIABLE ESTIMATE. THE LD. AR HAS SUBMITTED THAT WHEN THERE IS A LOCK IN PERIOD IN THE LEASE AGREEMENT THEN THE ASSESSEE IS BOUND TO PAY THE RENT ATLEAST FOR THE LOCK IN PERIOD AND THEREFORE THE PROVISION IS BASED ON PRUDENT ACCOUNTING PRINCIPLE. HE HAS FURTHER CONTENDED THAT WHEN THE ACCOUNTS OF THE A SSESSEE ARE MAINTAINED AS PER SCHEDULE VI OF THE COMPANIES ACT THEN EXCEPT THE ADJUSTMENT PROVIDED UNDER EXPLANATION TO SECTION 115JB THE ASSESSING OFFICER IS NOT EM POWERED TO TINKER WITH THE PROFIT S OF THE ASSESSEE. 3 8 . ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT THERE IS NO BASIS OF MAKING THE PROVISION OF UNCERTAIN LIABILITY IN RESPECT OF FUTURE RENT WHICH DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. THE LD. DR HAS POINTED OUT THAT THE LOCK IN PERIOD HAD ALREADY EXPIRED AND THEREFORE T HERE WAS NO LIABILITY IN 40 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 EXISTENCE AS ON 31.3.2009. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 3 9 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS MADE A PROVISION IN RESPECT OF THE ENTIRE RENT TO BE PAID FOR A MINIMUM PERIOD OF 72 MONTHS AND 60 MONTHS RESPECTIVELY IN RESPECT OF THE PREMISES A T GUINDY AND PUNE . WE FIND THAT THIS PROVISION DOES NOT PERTAIN TO ANY LIABILITY A CCRUE D DURING THE YEAR UNDER CONSIDERATION BUT THE PROVISION WAS MADE BY THE ASSESSEE FOR THE RENT TO BE PAID FOR FUTURE YEARS. AS PER THE A.S. 29 A PROVISION IS RECOGNIZED WHEN AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF PAST EVENT IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION AND A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIONS ARE NOT MET THEN NO PROVISION SHOULD BE RECOGNIZED. THEREFORE THE PRIMARY CONDITION IS THE PRESENT OBLIGATION AS A RESULT OF PAST EVENT THOUGH THE SE TTLEMENT OF OBLIGATION MAY BE IN FUTURE. IN THE CASE ON HAND THE FUTURE RENT TO BE PAID BY THE ASSESSEE IN RESPECT OF THE PREMISES IN QUESTION IS NOT A PRESENT OBLIGATION TO BE SETTLED IN FUTURE. THE ASSESSEE HAS NOT PRODUCED ANY RECORD TO SHOW THAT A DECISION WAS TAKEN BY THE ASSESSEE TO VACATE THE PREMISES PRIOR TO THE LOCK IN PERIOD AS PER 41 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 THE LEASE AGREEMENT. ONCE THERE IS NO DECISION OF VACATING THE PREMISES PRIOR TO THE LOCK INPERIOD THEN MAKING THE PROVISION IN RESPECT OF THE FUTURE RENT WHICH IS OTHERWISE AN ALLOWABLE EXPENDITURE FOR THE RELEVANT YEAR DOES NOT FALL UNDER THE CONCEPT OF RECOGNIZING THE PROVISION AS PER THE A.S. 29. THE DRP HAS RECORDED THE FACT THAT THE ASSESSEE HAS RETAINED THE PREMISES BEYOND THE LOCK IN PERIOD AND THEREFORE THE LIABILITY FOR FUTURE YEAR NOT ACCRUED DURING THE FINANCIAL YEAR UNDER CONSIDERATION. THE CONCEPT OF DISCLOSURE IN NOTES TO ACCOUNTS WOULD AMOUNT TO DISCLOSURE IN THE FINANCIAL STATEMENT IS APPLIED IF AN ITEM OF INCOME OR EXPENDITURE IS REQUIRED TO BE P ART OF PROFIT AND LOSS ACCOUNT AS PER PART II OF SCHEDULE VI OF THE COMPANIES ACT BUT THE SAME WAS NOT DISCLOSED IN THE PROFIT AND LOSS ACCOUNT AND HAS BEEN DISCLOSED IN THENOTES FORMING PART OF FINANCIAL ACCOUNTS. THEREFORE THE SAID DISCLOSURE IN THE NOT ES TO ACCOUNTS WOULD BE TREATED AS DISCLOSURE OF PARTICULAR INCOME OR EXPENDITURE AS THE CASE MAY BE IN THE PROFIT AND LOSS ACCOUNT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. IN THE CASE ON HAND SINCE THIS WAS NOT A PERM ISSIBLE PROVISION AS PER ACCOUNTING STANDARD THEREFORE IT WAS NOT REQUIRED TO BE DISCLOSED IN THE PROFIT AND LOSS ACCOUNT AND ACCORDINGLY THE DISCLOSURE MA D E IN NOTES TO ACCOUNTS WOULD NOT CHANGE THE NATURE OF PROVISION 42 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 AS ACCRUED EXPENDITURE. IN VIEW OF THE FACTS AND CIRCUMSTANCES AS DISCUSSED ABOVE WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE. 40 . GROUND NO.15 IS REGARDING BROUGHT FORWARD LOSSES OR UNABSORBED DEPRECIATION WHICHEVER IS LESSOR HAS TO BE AL LOWED AS DEDUCTION. 41 . WE HAVE HEARD THE LEARNED COUNSEL AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE DRP HAS ALLOWED THE OBJECTIONS OF THE ASSESSEE ON THIS ISSUE IN PARA 16.2 AS UNDER : 16.2 THE DRAFT ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE ASSESSEE ;HAVE BEEN PERUSED. THE DISPUTE ARISES ON A COMPUTATIONAL ISSUE I.E. WHAT SHOULD BE THE AMOUNT OF BROUGHT FORWARD LOSS TO BE REDUCED FROM THE BOOK PROFIT IN TERMS OF CLAUSE III OF EXPLANATION 1 TO SEC. 115JB. THE ASSESSING OFFICER ADOPTED THE FIGURE OF LOSS AS ON 1.4.2007 WHEREAS THE ASSESSEE CLAIMS THAT THE FIGURE SHOULD BE THE LOSS BROUGHT FORWARD FOR THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 09 - 1 0 I.E. AS ON 1.4.2008. WE FIND THAT THE ASSESSING OFFICER HAS ERRONEOUSLY TAKEN THE OPENING BALANCE OF LOSS FOR THE F.Y. 2007 - 08 AT RS.6 53 71 386 WHEREAS HE SHOULD HAVE CALCULATED THE LOSS BROUGHT FORWARD AS ON 1.4.2008 ONLY. THE ASSESSING OFFICER IS DI RECTED TO RECOMPUTE THE BOOK PROFITS UNDER SECTION 43 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 115JB BY ADOPTING THE FIGURE OF BROUGHT FORWARD LOSS AS ON 1.4.2008 ACCORDINGLY. THE OBJECTION OF THE ASSESSEE IS ALLOWED SUBJECT TO THE ABOVE DIRECTION. DESPITE THE DIRECTIONS OF THE DRP THE ASSESSIN G OFFICER WHILE PASSING THE FINAL ASSESSMENT ORDER HAS NOT ALLOWED THIS CLAIM OF THE ASSESSEE WHICH IS A GROSS DISRESPECT AND DEROGATION ON THE PART OF THE ASSESSING OFFICER TO THE BINDING ORDERS/DIRECTIONS OF THE DRP. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO RECOMPUTE THE BOOK PROFIT UNDER SECTION 115JB AS DIRECTED BY THE DRP. WE MAKE IT CLEAR SUCH A CONDUCT OF THE ASSESSING OFFICER IS UNWARRANTED AND D EPRECIABLE AND GOES EVEN AGAINST THE INTEREST OF REVENUE BEING A SELF INFLECTING INJURY. EVEN IF THE DIRECTIONS OF THE DRP ARE NOT ACCEPTABLE TO THE ASSESSING OFFICER THE REMEDY IS TO FILE THE APPEAL AFTER PASSING THE FINAL ORDER IN TERMS OF THE DIRECTIONS OF THE DRP. BY NOT FOLLOWING THE DIRECTIONS OF THE DRP THE ASSESSING OFFICER HAS ACTED AGA INST THE INTEREST OF REVENUE/DEPARTMENT AS IN SUCH A SITUATION THE REVENUE CANNOT FILE EVEN AN APPEAL ON THE ISSUE WHERE THE FINDINGS OF THE DRP ARE NOT ACCEPTABLE TO THE REVENUE. 44 IT (TP) A NO S . 1294/BANG/2012 & 166 /BANG/ 2014 40. GROUND NO.16 IS REGARDING LEVY OF INTEREST UNDER SECTION 234C WHICH IS MANDATORY AND CONSEQUENTIAL IN NATURE. 41. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST OCT. 201 6 . SD/ - (A .K. GARODIA ) ACCOUNTANT MEMBER SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER BANGALORE DT. 31.10.2016. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR ITAT BANGALORE. 6. GUARD FILE. BY ORDER ASST. REGISTRAR ITAT BANGALORE