Rain Commodities Limited (Presently known as Rain Industries Limited), Hyderabad v. The Addl.CIT, Range-3, Hyderabad

ITA 158/HYD/2014 | 2009-2010
Pronouncement Date: 28-09-2016 | Result: Partly Allowed

Appeal Details

RSA Number 15822514 RSA 2014
Assessee PAN AABCP2276K
Bench Hyderabad
Appeal Number ITA 158/HYD/2014
Duration Of Justice 2 year(s) 7 month(s) 24 day(s)
Appellant Rain Commodities Limited (Presently known as Rain Industries Limited), Hyderabad
Respondent The Addl.CIT, Range-3, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 28-09-2016
Date Of Final Hearing 30-08-2016
Next Hearing Date 30-08-2016
Assessment Year 2009-2010
Appeal Filed On 03-02-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA.NO.83/HYD/2014 ASSESSMENT YEAR 2009-2010 THE DCIT CIRCLE-3(1) HYDERABAD. VS. M/S. RAIN COMMODITIES LTD. HYDERABAD 500 073. PAN AABCP2276K (APPELLANT) (RESPONDENT) ITA.NO.158/HYD/2014 ASSESSMENT YEAR 2009-2010 M/S. RAIN COMMODITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERABAD 500 073. PAN AABCP2276K VS. THE ADDL.CIT RANGE-3 HYDERABAD. (APPELLANT) (RESPONDENT) FOR REVENUE : MR. P. CHANDRASEKHAR FOR ASSESSEE : MR. DEEPAK CHOPRA & MS. MANASVINI BAJPAI DATE OF HEARING : 30.08.2016 DATE OF PRONOUNCEMENT : 28.09.2016 ORDER PER SMT. P. MADHAVI DEVI J.M. BOTH ARE CROSS-APPEALS FOR THE A.Y. 2009-2010. THE SE APPEALS ARE AGAINST THE ASSESSMENT ORDER DATED 31.12. 2013 PASSED UNDER SECTION 143(3) READ WITH SECTION 144C OF THE I.T. ACT 1961. 2 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-COMPAN Y WHICH IS ENGAGED IN MANUFACTURE AND TRADING OF CEMENT FILED ITS RETURN OF INCOME FOR THE A.Y. 2009-2010 ON 13.09.2009 DECLARING TOTAL INCOME OF RS.52 40 57 941. THE RETURN WAS INITIA LLY PROCESSED UNDER SECTION 143(1) OF THE ACT AND THEREAFTE R THE ASSESSMENT WAS TAKEN-UP FOR SCRUTINY BY ISSUANCE OF A NOTICE UNDER SECTION 143(2) OF THE ACT. SINCE THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS A.E. THE DETE RMINATION OF THE ALP OF THE INTERNATIONAL TRANSACTION WAS REFERRED TO THE TPO. THE TPO HAS PASSED THE ORDER UNDER SECTION 92CA OF THE ACT ON 31.10.2012 PROPOSING ADJUSTMENTS TO THE RETURNED INCOME OF THE ASSESSEE. ACCORDINGLY A DRAFT ASSESSMENT ORDER WAS P ASSED ON 28.02.2013 BY THE ASSESSING OFFICER DETERMINING THE INCOME AT RS.97 92 70 466 BY PROPOSING THE FOLLOWING TWO ADDITI ONS I.E. (1) TP ADJUSTMENT OF RS.43 17 62 526 AND (2) DISALLOWANCE OF SAP EXPENSES OF RS.2 34 50 000. 3. AGGRIEVED BY THE PROPOSED ADDITIONS THE ASSESSEE PREFERRED ITS OBJECTIONS BEFORE THE DRP WHICH GRANTED PARTIAL RELIEF TO THE ASSESSEE AND IN ACCORDANCE WITH THE DIREC TIONS OF THE DRP THE FINAL ASSESSMENT ORDER WAS PASSED. AGAINST TH E RELIEF GRANTED BY THE DRP THE REVENUE IS IN APPEAL BEFORE US WHILE THE ASSESSEE IS IN APPEAL AGAINST THE CONFIRMATION OF THE ADJUSTMENTS PROPOSED BY THE ASSESSING OFFICER. IN THE ASSESSEES APPEAL THE ASSESSEE HAS RAISED AS MANY AS 27 GROUNDS OF APPEAL . AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT GROUND OF APPEAL NO.1 IS GENERAL IN NATURE AND NEEDS NO SPECIFIC ADJUDICATION AND GROUND NOS. 24 TO 26 ARE AGAINST TH E LEVY OF INTEREST UNDER SECTION 234B AND 234C OF THE ACT AND BEI NG CONSEQUENTIAL IN NATURE MAY BE REMANDED TO THE ASSESS ING 3 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. OFFICER FOR GIVING CONSEQUENTIAL EFFECT. ASSESSING OF FICER IS DIRECTED ACCORDINGLY. GROUND NO.27 BEING AGAINST THE INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT IS A PREMATURE GROUND AND IS ACCORDINGLY REJECTED. 4. AS REGARDS GROUNDS NO.2 TO 8 THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAD PURCHASED GREEN PETROLEUM COKE (GPC) FOR A SUM OF RS.125 41 03 518 FROM ITS A.E. THE ASSESSEE BENCHMARKED THE INTERNATIONAL TRANSACTIONS USING INTERNAL CUP METHOD I.E. IT HAS COMPARED ITS PURCHASE PRICE OF GPC FROM ITS A.E. WITH ITS PURCHASES OF GPC FROM ITS NON-A.ES. TH E TPO HOWEVER OBSERVED THAT ON EXAMINATION OF THE COMPARATI VE ANALYSIS DONE BY THE ASSESSEE IT IS FOUND THAT SOME TR ANSACTIONS WERE NOT WITHIN THE ARMS LENGTH RANGE. HE HAS PRESENT ED THE SAME IN THE TABLE WHICH IS REPRODUCED HEREUNDER FOR READY REFERENCE. IMPORT PURCHASES OF GREEN PETROLEUM COKE FROM A.E. AND NON-A.E. FOR THE A.Y. 2009-10 A.E. PURCHASES NON-A.E. PURCHASES DIFF. BETWEEN THE FOB PER UNIT PRICES DIFF AS % OF A.E. PURCHASE PRICE INVOICE NO. INV. DATE TOTAL INVOICE VALUE (USD) NET QTY. (MT) FOB PER UNIT (USD) INVOICE NO. INV. DATE TOTAL INVOICE VALUE (USD) NET QTY. (MT) FOB PER UNIT (USD) 107944/ 100871 19.08.08 501032811 10253 436.8 008-08 12.08.08 1396 823 7940 176 260.75 59.70 SAME ITEM SOLD BY A.E. TO A GRP CO. (RAIN CII CARBON) DIFF. BETWEEN THE FOB PER UNIT PRICES DIFF AS % OF A.E. PURCHASE PRICE INVOICE NO. INV. DATE TOTAL INVOICE VALUE (USD) FOB PER UNIT (USD) 08220 8T 22.08.0 8 139519 2 5847 .9 238 198.8 45.51 08220 8M 22.08.0 8 330700 5010 .6 66 370.8 84.89 10790 9 15.08.0 8 424499 0 1473 9.6 288 148.8 34.07 4 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. A.E. PURCHASES SAME ITEM SOLD BY A.E. TO A GRP CO. (RAIN CII CARBON) DIFF. BETWEEN THE FOB PER UNIT PRICES DIFF AS % OF A.E. PURCHASE PRICE INVOICE NO. INV. DATE TOTAL INVOICE VALUE (USD) NET QTY. (MT) FOB PER UNIT (USD) INVOICE NO. INV. DATE TOTAL INVOICE VALUE (USD) NET QTY. (MT) FOB PER UNIT (USD) 108108/ 108110 28.09.08 8442222 19778 320 108095 26.09.08 2651945 13120 202 118 36.88 4.1. THE TPO THEREFORE BROUGHT THESE DISCREPANCIES TO THE NOTICE OF THE ASSESSEE AND ASKED THE ASSESSEE TO EXPLA IN THE SAID DISCREPANCIES. THE ASSESSEE VIDE ITS REPLY DATED 17. 10.2012 SUBMITTED THAT THE A.E HAS SOLD THE GPC TO THE ASSESSEE AT ITS PURCHASE PRICE AND THERE IS NO MARK-UP ON THE SAME AN D HENCE THERE IS NO ARMS LENGTH ADJUSTMENT TO BE MADE. HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES EXPLA NATION HOLDING THAT UNDER THE CUP METHOD THE CONTROLLED TRANS ACTION HAS TO BE COMPARED WITH AN UNCONTROLLED TRANSACTION AND NOT WITH ANY OTHER CONTROLLED TRANSACTION. HE HELD THAT IN TH E CASE OF THE ASSESSEE A.ES PURCHASE OF GPC FROM THE ULTIMATE S UPPLIERS IS ALSO A CONTROLLED TRANSACTION AND THEREFORE IT CANN OT BE COMPARED WITH THE ASSESSEES PURCHASE OF GPC FROM THE A.E. HE THEREFORE DID NOT ACCEPT THE ASSESSEES CONTENTIONS THAT S INCE IT HAS PURCHASED THE GPC FROM THE A.E. AT THE SAME PRICE A T WHICH A.E. HAS PURCHASED IT TO BE AT ARMS LENGTH. HE HELD TH AT THE ASSESSEE HAS FAILED TO ESTABLISH THAT GPC SUPPLIED BY THE A.E. WAS OF BETTER QUALITY THAN THAT SUPPLIED BY NON-A.ES A ND FURTHER THAT IT HAS ALSO FAILED TO SHOW THAT THE TERMS OF PAYMEN T IN THE A.E. PURCHASE WERE NOT IN ANY WAY BENEFICIAL TO IT THA N THOSE IN THE NON-A.E. PURCHASES. HE THEREFORE HELD THAT THE ASSE SSEES CONTENTION THAT THE PURCHASE OF GPC FROM THE A.E. IS AT A RMS LENGTH IS NOT ACCEPTABLE. THEREAFTER HE PROCEEDED TO C OMPUTE THE 5 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. ALP AND ARRIVED AT A SHORT-FALL OF RS.20 53 36 947 AND PROPOSED THE ADDITIONS. THE ASSESSING OFFICER IN THE DRAFT ASS ESSMENT ORDER PROPOSED THE ADDITION AGAINST WHICH THE ASSESSE E RAISED ITS OBJECTIONS BEFORE THE DRP. HOWEVER THE DRP REJECTED TH E ASSESSEES OBJECTIONS AND THEREFORE THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE REITERATING ASSESSEES SUBMISSIONS BEFORE THE TPO AND DRP HAS DRAWN OUR ATTENTION TO THE ORDER OF THE TPO UNDER SECTI ON 92CA OF THE ACT TO DEMONSTRATE THAT THE TPO INSTEAD OF COMPARING THE A.E. TRANSACTIONS WITH NON-A.E. TRANSACTIONS HAS COMPA RED THE NON-A.E. TRANSACTIONS WITH OTHER CONTROLLED TRANSACTIONS WHICH ACCORDING TO HIM IS AGAINST THE PRINCIPLES OF T.P. AD JUSTMENTS. FURTHER HE ALSO SUBMITTED THAT UNDER CUP METHOD STRICT COMPARISON HAS TO BE MADE AS TO THE NATURE AND QUALITY OF THE PRODUCT. HE HAS DRAWN OUR ATTENTION TO PAGES 2 AND 3 OF THE PAPER BOOK WHEREIN THE TRANSACTIONS PICKED-UP BY THE TP O TO BE NOT AT ARMS LENGTH PRICE HAVE BEEN ANALYSED. THE ASSE SSEE HAS PRODUCED THE COMPARATIVE CHART OF TRANSACTIONS CONSIDER ED BY THE TPO TO BE NOT AT ARMS LENGTH AND POINTED OUT THAT THE O THER PRODUCT IN TERMS OF QUALITY AND COMPOSITION WITH THE TY PE OF COKE PURCHASED BY THE ASSESSEE FROM EACH VENDOR IS AT VARI ANCE. HE SUBMITTED THAT OUT OF 07 TRANSACTIONS PICKED-UP BY THE TPO ONE OF THE TRANSACTION IS FOR PURCHASE OF SHOT COKE WHILE THE OTHER TRANSACTIONS WERE FOR THE PURCHASE OF SPONGE COKE. H E SUBMITTED THAT THE QUALITY OF THE PRODUCT ALSO DIFFERS AS IS EVIDE NT FROM THE DIFFERENCE IN THE SULPHER CONTENT OF THE PRODUCT. HE SUBMITTED THAT SULPHER CONTENT DETERMINES THE IMPURITY OF THE PROD UCT PURCHASED. HE HAS ALSO DRAWN OUR ATTENTION TO THE DIF FERENCE IN 6 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. LOCATIONS FROM WHICH THE PRODUCT HAS BEEN PURCHASED. HE SUBMITTED THAT DEPENDING ON THE PRODUCT SOURCE THE QUALIT Y OF THE PRODUCT DIFFERS AND THE PRICE ALSO VARIES. THEREFO RE ACCORDING TO HIM THE PRICE OF GPC IS INVERSELY RELATED TO THE CO NTENT OF THE SULPHER AND ALSO THE LOCATION OF THE SOURCE AND HENCE THE TRANSACTIONS CANNOT BE COMPARED WITH EACH OTHER. THERE FORE ACCORDING TO HIM THE TPO HAS ERRED IN COMPARING THE A.E. TRANSACTIONS WITH OTHER CONTROLLED TRANSACTIONS AND ALSO IN PICKING-UP ONLY SOME TRANSACTIONS. HE SUBMITTED THAT IF TH E TRANSACTIONS IN ENTIRETY ARE CONSIDERED THEN THE MARGIN OF THE ASSESSEE IS VERY MUCH AT ARMS LENGTH PRICE WITH THE OTH ER NON- A.E. TRANSACTIONS. FURTHER ACCORDING TO HIM THE TPO HAS ALSO ERRED IN NOT TAKING INTO CONSIDERATION THE DIFFERENCE IN THE PRODUCT AND QUALITY. HE THEREFORE PRAYED THAT THE ISSUE MAY BE REMANDED TO THE FILE OF THE TPO FOR FRESH ANALYSIS. 6. THE LD. D.R. HOWEVER SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THERE IS HUGE DIFFER ENCE IN THE PRICE CHARGED BETWEEN THE ASSESSEE AND A.E. AND R ELATED PARTIES. AS REGARDS THE ASSESSEES CONTENTION THAT IT IS A BACK-TO- BACK TRANSACTION I.E. A.E. OF THE ASSESSEE HAS SUPPL IED THE MATERIAL TO THE ASSESSEE AT ITS PURCHASE PRICE THE D.R . SUBMITTED THAT THE SAME IS NOT RELEVANT AS THERE MAY BE DIFFERENT C RITERIA AT WHICH THE A.E. HAS PURCHASED THE PRODUCT AS COMPARED TO THE CIRCUMSTANCES UNDER WHICH THE ASSESSEE HAS PURCHASED THE MATERIAL FROM ITS A.E. AS REGARDS THE DIFFERENCE IN THE PRODUCTS AND THEIR QUALITY HE SUBMITTED THAT THE SAME IS NOT SUS TAINABLE AS THERE IS NOT MUCH OF VARIATION IN THE PRICE EVEN THO UGH THE ASSESSEE HAS POINTED OUT THE VARIATIONS IN THE SULPHER CONTENT. 7 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. THEREFORE ACCORDING TO THE LD. D.R. THE TP ADJUSTMENT CONFIRMED BY THE DRP SHOULD BE UPHELD. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT BOTH THE ASSESSEE AS W ELL AS THE ASSESSING OFFICER HAVE ADOPTED THE CUP METHOD FOR THE T .P. STUDY AND THE DETERMINATION OF THE ARMS LENGTH PRICE OF THE TRANSACTIONS. IT IS ALSO SEEN THAT THE ASSESSEE HAS ENTER ED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH VARIOUS PARTIES BOTH A.E. AND NON-A.E. FOR PURCHASE OF GREEN PETROLEUM COKE ( GPC). THE ASSESSING OFFICER HAS PICKED-UP ONLY A FEW TRANSACTIO NS TO HOLD THAT THEY ARE NOT AT ARMS LENGTH. WE ARE CONVINCED BY THE SUBMISSIONS OF THE ASSESSEE THAT THE TRANSACTIONS WITH THE A.E. SHOULD BE COMPARED WITH THE TRANSACTIONS WITH NON-A.ES AND CANNOT BE COMPARED TO ANY OTHER CONTROLLED TRANSACTIONS. THE TPO HAS COMPARED THE TRANSACTION OF THE ASSESSEE WITH IT S A.E. WITH OTHER CONTROLLED TRANSACTIONS WHICH IS NOT PERMISS IBLE UNDER THE T.P. REGULATIONS AND GUIDELINES. FURTHER THE DIFF ERENCES BETWEEN THE PRODUCTS AND THEIR QUALITY ALSO HAVE NOT B EEN TAKEN INTO CONSIDERATION BY THE TPO. THE CUP METHOD REQUIRE S THE MOST DIRECT COMPARISON BETWEEN THE PRODUCTS AND IN CASE OF ANY VARIATION BETWEEN THE PRODUCTS ADJUSTMENTS HAVE TO BE CA RRIED OUT FOR SUCH VARIATIONS BEFORE COMPARING THE PRICES. IT REQUIRES CLOSE SIMILARITY IN PRODUCTS PROPERTY OR SERVICES TH AT ARE INVOLVED AND WHERE THE PRICES OF THE PRODUCT FLUCTUATES REGULARL Y TIMING OF THE TRANSACTION IS ALSO RELEVANT I.E. THE MARKET COND ITIONS AND THE TERMS AND CONDITIONS OF THE TRANSACTIONS WOULD AL SO MAKE MATERIAL DIFFERENCE. THUS THE SIMILARITY OF PRODUC TS AND THEIR QUALITY AND TERMS AND CONDITIONS SUCH AS SCOPE AND TE RMS OF WARRANTEES PROVIDED VOLUME OF SALES OR PURCHASES C REDIT TERMS 8 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. ETC. LEVEL OF THE MARKET SUCH AS WHOLESALE OR RETAIL E TC. AND THE GEOGRAPHIC MARKET I.E. THE PLACE IN WHICH THE TRANSA CTION TAKES PLACE (LIKE A COUNTRY) THE FOREIGN CURRENCY RISKS THE ALTERNATIVES REALISTICALLY AVAILABLE TO THE BUYER AND SELLER AND THE INTANGIBLE PROPERTY ATTACHED TO THE SALE ETC. ARE ALL THE FACTORS TO BE CONSIDERED WHILE COMPARING A TRANSACTION UNDER THE CU P METHOD. 7.1. FROM THE CHART PRODUCED BY THE ASSESSEE REFERRED TO IN THE ABOVE PARAS IT IS NOTICED THAT THE ASSESSEE HAD PURCHASED THE GPC FROM VARIOUS COUNTRIES AND THEREFORE THE GEOGR APHICAL SOURCE INFLUENTS THE QUALITY AND COMPOSITION OF THE PR ODUCT AND PROPORTIONATELY THE PRICE ALSO. THEREFORE IN OUR OPI NION THE T.P. ANALYSIS MADE BY THE TPO NEEDS RE-CONSIDERATION. IN V IEW OF THE SAME GROUNDS OF APPEAL NO. 2 TO 8 ARE REMITTED TO THE FILE OF THE ASSESSING OFFICER/TPO FOR FRESH ANALYSIS IN ACCORDA NCE WITH RULE 10B(1)(A) OF THE I.T. RULES. 8. AS REGARDS GROUNDS NO. 9 TO 21 AGAINST THE DIRECTIO N OF THE DRP TO CALCULATE THE GUARANTEE FEE AT 1.25% ON THE GUARANTEE AMOUNT AS AGAINST THE TPOS DIRECTION TO COMPU TE IT AT 2% ON THE GUARANTEE AMOUNT OF RS.300 CRORES IN FAVOUR OF THE LENDERS TO THE A.E. THE RAIN COMMODITIES USA INC. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE HAD AR ISEN IN ASSESSEES OWN CASE IN THE EARLIER YEARS AND THE TRIB UNAL HAD DIRECTED THE ASSESSING OFFICER TO ADOPT THE LIBOR+ 0.5 0% AS GUARANTEE FEE. HE PLACED RELIANCE UPON THE DECISION O F MUMBAI TRIBUNAL IN THE CASE OF GLENN MARK PHARMACEUTICALS W HICH HAS BEEN FOLLOWED BY THIS TRIBUNAL IN ASSESSEE S OWN CA SE FOR THE A.Y. 2008-09. 9 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. 9. THE LD. D.R. HOWEVER SUPPORTED THE ORDERS OF THE TPO AND SUBMITTED THAT WHERE THE BORROWED FUNDS ARE ADVA NCED BY THE ASSESSEE IN INDIA TO THE A.E. IN USA THEN THE L IBOR RATE CANNOT BE ADOPTED. HE SUBMITTED THAT THE RATES PREVAILIN G IN INDIA SHOULD BE ADOPTED AS RIGHTLY DONE BY THE TPO. H E ALSO FURTHER DISTINGUISHED THE INTEREST RATE ON LONG TERM LOA NS AND SHORT TERM LOANS AND SUBMITTED THAT THE LIBOR RATE IS APPL ICABLE ONLY ON SHORT TERM LOANS. 10. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT IN ASSESSEES OWN CA SE FOR THE A.Y. 2008-09 B BENCH OF THIS TRIBUNAL (TO WHICH ONE OF US I.E. J.M. IS THE SIGNATORY) HAS CONSIDERED THE ISSUE AT LE NGTH AND AT PARAS 10 TO 14 BY TAKING NOTE OF THE DECISION IN THE CA SE OF M/S. EVEREST KANTO CYLINDER LTD. VS. DCIT THE ITAT HAS UP HELD THE CORPORATE GUARANTEE FEE AT LIBOR + 0.50%. THE RELEVANT PARAGRAPHS ARE REPRODUCED HEREUNDER FOR READY REFER ENCE. 10. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL FACTS ON RECOR D AS WELL AS THE ORDERS OF THE REVENUE AUTHORITIES. THE ASSESSEE FACILITATED THE ACQUISITION OF CII CARBON LLC BY RC USA BY LENDING LOAN TO ITS WHOLLY OWNED ENTERPRISES. THE A SSESSEE HAS TAKEN THE DECISION TO MAKE INVESTMENT IN ITS AE EITHER ON SHARE CAPITAL OR LENDING LOAN USING ITS BUSINESS EXPEDIENCY. SINCE IT HAD MADE THE DECISION TO MAKE LOAN TO ITS AE. BY VIRTUE OF AMENDMENT TO SECTION 92B I T IS INTERNATIONAL TRANSACTION. ONCE IT IS CONSIDERED AS INTERNATIONAL TRANSACTION IT IS PRUDENT TO MAKE BE NCH MARKING ALSO IN THE INTERNATIONAL ARENA. SIMILAR VI EWS WERE EXPRESSED BY THE COORDINATE BENCH OF THIS TRIB UNAL IN THE CASES OF FOUR SOFT PVT. LTD. (SUPRA) SIVA INDU STRIES & HOLDINGS LTD. (SUPRA) AND VIJAY ELECRICALS LTD. (I TA NO. 1159/HYD/2013. IT WAS HELD IN THE CASE OF SIVA INDU STRIES AS BELOW : 10 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. ONCE THE TRANSACTION BETWEEN THE ASSESSEE AND THE A E IS IN FOREIGN CURRENCY AND THE TRANSACTION IS AN INTER NATIONAL TRANSACTION THEN THE TRANSACTION WOULD HAVE TO BE LOOKED UPON BY APPLYING THE COMMERCIAL PRINCIPLES IN REGAR D TO INTERNATIONAL TRANSACTION. IF THIS IS SO THEN THE DOMESTIC PRIME LENDING RATE WOULD HAVE NO APPLICABILITY AND INTERNATIONAL RATE FIXED BEING LIBOR WOULD COME INT O PLAY. IN THE CIRCUMSTANCES WE ARE OF THE VIEW THAT IT IS LIBOR RATE WHICH HAS TO BE CONSIDERED WHILE DETERMINING T HE ARMS LENGTH INTEREST RATE IN RESPECT OF THE TRANSA CTION BETWEEN THE ASSESSEE AND THE AES. CONSIDERING THE ABOVE VIEW WE ARE INCLINED TO ACCE PT THE DECISION OF THE CIT(A) AND ACCORDINGLY WE DISMISS T HE GROUNDS OF ASSESSEE AS WELL AS GROUND 2 OF THE REV ENUE. 11. ALP ADJUSTMENT ON CORPORATE GUARANTEE ASSESSEES GROUNDS OF APPEAL: THE LD. CIT(A) HAS ERRED IN 7. MAKING ADJUSTMENT WHILE DETERMINATION OF ALP ON THE SHAREHOLDERS CORPORATE GUARANTEE PROVIDED TO BANK ON BEHALF OF WOS. 8. DETERMINING THE ALP ON THE SHAREHOLDER CORPORATE GUARANTEE PROVIDED BY THE APPELLANT @ 1.25% ON THE GUARANTEE AMOUNT. 9. NOT APPRECIATING THE FACT THAT WOS WAS SET UP AS A SPY FOR ACQUISITION OF BUSINESS IN USA. 10. NOT APPRECIATING THAT THE SHAREHOLDER CORPORAT E GUARANTEE IS NOT COVERED UNDER THE DEFINITION OF INTERNATIONAL TRANSACTION U/S 92B OF THE ACT. 11. NOT APPRECIATING THAT THE AMENDMENT TO SECTION 92B WOULD NOT APPLY TO THE FACTS OF THE CASE. 12. NOT UNDERTAKING AN OBJECTIVE ANALYSIS FOR DETERMINING THE ALP ON THE SHAREHOLDER CORPORATE GUARANTEE. 13. NOT MAKING ADJUSTMENTS FOR THE DIFFERENCES IN THE COMPARABLE TRANSACTIONS SELECTED VIS-A-VIS 11 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. SHAREHOLDER CORPORATE GUARANTEE PROVIDED BY THE APPELLANT. 14. DISCRIMINATING THE US WOS BY DETERMINING THE ALP FOR SHAREHOLDER-CORPORATE GUARANTEE VIS-A-VIS SIMILAR SHAREHOLDER CORPORATE GUARANTEE PROVIDED BY PARENT COMPANIES TO INDIAN SUBSIDIARIES IN VIOLATION OF ARTICLE 26 OF INDIA - US DOUBLE TAXATI ON AVOIDANCE AGREEMENT. ('DTAA'). REVENUES GROUND 3. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT ALP IS CALCULATED BY THE TPO AFTER CONSIDERING THE GUARANTEE FEE AND BY DEPENDING ON THE CREDIT RATING OF THE AE AND ONCE THE ALP IS APPROVED THE PERCENTAGE ON GUARANTEE FEE CANNOT BE REVISED. LD. AR SUBMITTED THAT ASSESSEE THROUGH A COMMON FACILITIES AGREEMENT IN CONNECTION WITH OVERSEAS ACQUISITION OF SUBSIDIARY COMPANIES HAD PROVIDED CORPORATE GUARANTEE IN FAVOUR OF RCUSA. THE TPO HAD NOTED THAT ASSESSEE HAD GUARANTEED A CONSORTIUM OF BANKS WHICH PROVIDED LOANS TO RCUSA TO INDEMNIFY THE DEFAULTS IF ANY ON ACCOUNT OF LOAN REPAYMENT BY R CUSA. LD. AR SUBMITTED THAT A CORPORATE GUARANTEE DID NOT FALL WITHIN THE MEANING OF INTERNATIONAL TRANSACTION AS DEFINED IN SECTION 92B THAT IT WAS IN THE NATURE OF SHAREH OLDER ACTIVITY IN THE BUSINESS INTEREST OF PARENT THAT T HE ASSESSEE WAS RESTRICTED BY LAW FROM CHARGING FEE FO R A CORPORATE GUARANTEE PROVIDED BY IT IN TERMS OF PARA 2.2.9 OF THE RBI MASTER CIRCULAR ON GUARANTEES AND CO- ACCEPTANCE DATED 02/07/2012 THAT A CORPORATE GUARA NTEE IS SECONDARY WITH NO COST OR RISK TO SHAREHOLDERS A ND THAT IT WAS IN THE BUSINESS INTEREST OF THE ASSESSEE. LD . AR SUBMITTED THAT WITHOUT PREJUDICE TO THE CLAIM THAT CORPORATE GUARANTEES ARE NOT TO BE CHARGED THE MET HOD OF COMPUTATION OF THE GUARANTEE FEE WAS ERRONEOUS. LD. AR ALSO SUBMITTED THAT THERE IS NO COST TO THE ASSESSE E AS IT WAS GIVEN ON THE BASIS OF HOLDING COMPANY AND THERE IS NO PROFIT INVOLVED IN THIS YEAR. LD. AR SUBMITTED THAT THE TRANSACTION WAS NOT RELATING TO THIS YEAR. (REFER PAGES 56 TO 59 OF PAPER BOOK - RELATES TO PY 2005-06.). LD. AR RELIED ON THE FOLLOWING DECISIONS: 1. FOUR SOFT PVT. LTD. (SUPRA) 2. BHARTI AIRTEL LTD. VS. ACIT (ITA NO. 5816/DEL/2 012 12 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. 3.REDINGTON (INDIA) LTD. VS. JCIT (ITA NO.613/MDS/2014). 12. LD. DR SUBMITTED THAT THE ASSESSEE HAD NOT REPO RTED THIS TRANSACTION AS INTERNATIONAL TRANSACTION. HE S UBMITTED THAT THE CASE GLENMARK PHARMACEUTICALS VS. ACIT (IT AT- MUMBAI) HAD MADE AFTER CONSIDERING SOME CALCULATION TO ARRIVE THE FIGURE 0.53% WHEREAS THE CIT(A) IN THE P RESENT CASE HAD ADOPTED 1.25% WITHOUT ANY BASIS. HE ALSO SUBMITTED THAT THE TPO HAD ANALYSED THE RISK FACTOR IN THIS TRANSACTION SINCE THE GUARANTEE WAS GIVEN WITHOUT A NY SECURITY. HE ALSO SUBMITTED THAT EVEN THOUGH THERE IS NO COST TO THE ASSESSEE BUT THERE IS INTRINSIC BENEFIT TO THE AE. HE SUBMITTED THAT HE RELIES ON THE ORDER OF AO/TPO AND JUSTIFIED THE ACTION OF THE AO. 13. AFTER TAKING INTO CONSIDERATION THE ABOVE DECIS ION OF THE TRIBUNAL AND THE RATIO OF THE FOUR SOFT PVT. L TD. (SUPRA) WE HOLD THAT THE CORPORATE GUARANTEE IS AN INTERNAT IONAL TRANSACTION. FOR THE SAKE OF CLARITY AND READY REFE RENCE WE REPRODUCE THE RELEVANT PARAS BELOW: 25.4. IN THE AFORESAID VIEW OF THE MATTER WE AGRE E WITH THE TPO THAT ALP OF THE CORPORATE GUARANTEE HAS TO BE DETERMINED AS IT FALLS WITHIN THE SCOPE AND AMBIT O F AN INTERNATIONAL TRANSACTION AFTER THE RETROSPECTIVE AMENDMENT TO SECTION 92B. HOWEVER IT APPEARS THAT THE TPO HAS APPLIED THE RATE OF 3.75% WHICH IS APPLICA BLE TO BANK GUARANTEE ISSUED BY THE BANK. AS THE CORPORATE GUARANTEE IS NOT IN THE NATURE OF BANK GUARANTEE T HE RATE APPLICABLE TO BANK GUARANTEE PROVIDED BY THE B ANK CANNOT BE APPLIED TO CORPORATE GUARANTEE WHICH IS PROVIDED BY A GROUP COMPANY. IN CASE OF GLENMARK PHARMACEUTICALS VS. ACIT IN ITA NO. 5031/MUM/ 2012 DATED 13/11/2013 THE MUMBAI BENCH OF THE TRIBUNAL AFTER ANALYSING THE FACTS IN THAT CASE HAD HELD THAT 0.53% CORPORATE GUARANTEE RATE IN THAT CASE WAS APPROPRIATE . THE ITAT HYDERABAD BENCH IN CASE OF INFOTECH ENTERPRISES LTD. IN ITA NO. 115/HYD/2011 AND IN ITA NO. 2184/HYD/2011 DATED 16/01/2014 WHILE CONSIDERING IDENTICAL ISSUE OF DETERMINING ALP OF CORPORATE GUARANTEE PROVIDED BY THE ASSESSEE TO ITS AE FOLLOWED THE RATIO LAID DOWN IN CASE OF GLENMARK PHARMACEUTICALS VS. ACIT (SUPRA) AND REMITTED THE ISSUE BACK TO THE TPO TO DECIDE THE QUANTUM OF CORPORATE GUARANTEE RATE BY FOLLOWING TH E METHOD ADOPTED IN CASE OF GLENMARK PHARMACEUTICALS (SUPRA). 13 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. 26. SINCE THE ISSUE IN THE PRESENT CASE IS IDENTIC AL TO THE ISSUE DECIDED BY THE ITAT HYDERABAD BENCH IN C ASE OF INFOTECH ENTERPRISES (SUPRA) FOLLOWING THE SAME WE ALSO REMIT THIS ISSUE TO THE FILE OF THE TPO TO DEC IDE THE QUANTUM OF CORPORATE GUARANTEE RATES ACCORDINGLY. I F THE ASSESSEE IS ABLE TO BRING ON RECORD ANY COMPARABLES WITH REGARD TO CORPORATE GUARANTEE THE TPO MAY ALSO CONSIDER THE SAME WHILE DETERMINING ALP OF CORPORAT E GUARANTEE. THE TPO MUST PROVIDE A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE. THIS GROUND IS ALLOWED FOR STAT ISTICAL PURPOSES. THUS THE GROUNDS 7 TO 11 ARE REJECTED. 14. AS REGARDS GROUNDS 12 TO 14 ARE CONCERNED WE FIND THAT THEY ARE RELATING TO COMPUTATION OF ALP. THE AVERAGE MARGIN OF THE COMPARABLES IN SIMILAR TRANSA CTIONS HAS TO BE ARRIVED AT BEFORE DETERMINING ALP. THIS I SSUE OF THE PERCENTAGE AT WHICH THE CORPORATE GUARANTEE CAN BE BENCHMARKED HAS COME UP BEFORE VARIOUS BENCHES OF T HE TRIBUNAL. WE FIND THAT IN THE CASE OF GLENMARK PHARMACEUTICALS VS. ACIT IN ITA NO. 5031/MUM/2012 DATED 13/11/2013 THE TRIBUNAL HAS EXAMINED THE APPROACH OF THE ASSESSEE THEREIN IN DETERMINING THE PERCENTAGE OF CORPORATE GUARANTEE TO BE METHODICAL AND FOUND IT TO BE APPROPRIATE. THUS THE TRIBUNAL HAS LAID DOWN GUIDELINES FOR DETERMINATION OF RATE OF CORPOR ATE GUARANTEE. IN THE CASE BEFORE US THE AO ADOPTED 2% OF THE LOAN GUARANTEED AND THE SAME WAS REDUCED TO 1.25% B Y THE LD. CIT(A) WITHOUT ANY BASIS OR STUDY IN THIS M ATTER. WE FIND THAT IN THE DECISION OF THE COORDINATE BEN CH OF THIS TRIBUNAL IN FOUR SOFT PVT. LTD. (SUPRA) AND ALSO T HE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CA SE OF M/S EVEREST KANTO CYLINDER LTD. VS. DCIT IT WAS HE LD THAT COMMERCIAL BANKS GUARANTEES ARE EASILY ENCASHABLE I N THE EVENT OF DEFAULT HENCE HIGHER COMMISSION IS JUSTIFI ED FOR THEM WHEREAS IN CASE OF CORPORATE GUARANTEE THE PA RENT COMPANY WOULD REPAY LOAN IN CASE ITS AE DEFAULTS. FURTHER IT WAS HELD THAT THE CONDITIONS FOR ISSUAN CE OF CORPORATE GUARANTEES ARE DISTINCT AND SEPARATE FROM BANK GUARANTEE. ACCORDINGLY THE HONBLE HIGH COURT UPHE LD ITAT DECISION OF GUARANTEE COMMISSION @ 0.50%. THE RELEVANT PORTION OF ITAT MUMBAI DECISION IS REPROD UCED FOR CONVENIENCE: 21. SO FAR AS THE LEARNED SENIOR COUNSELS CONTENTI ON THAT GUARANTEE COMMISSION IS NOT AN INTERNATIONAL 14 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. TRANSACTION AND THERE COULD NOT BE ANY METHOD FOR EVALUATING THE ALP FOR THE GUARANTEE COMMISSION WE DO NOT FIND ANY MERIT IN THE SAID CONTENTION IN VIEW OF THE AMENDMENT BROUGHT BY THE FINANCE ACT 2012 WITH RETROSPECTIVE EFFECT FROM 1-4- 2002 BY WAY OF EXPLANATION ADDED IN SECTION 92B. PAYMENT OF GUARANTEE FEE IS INCLUDED IN THE EXPRESSION 'INTERNATIONAL TRANSACTION' IN VIEW OF THE EXPLANATION I(C) OF SECTION 92B. ONCE THE GUARANTEE FEE FALLS WITHIN THE MEANING OF 'INTERNATIONAL TRANSACTION' THEN THE METHODOLOGY PROVIDED IN THE RULES ALSO BECOMES APPLICABLE. HERE IN THIS CASE IT IS UNDISPUTED THAT THE ASSESSEE IN ITS T.P. STUDY REPORT AND ALSO THE TPO HAVE ACCEPTED THAT IT IS AN INTERNATIONAL TRANSACTION AND CUP IS THE MOST APPROPRIATE METHOD FOR BENCHMARKING THE CHARGING OF GUARANTEE FEE. WE ALSO DO NOT AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL THAT THERE COULD NOT BE ANY COST OR CHARGE OF GUARANTEE FEE BY PROVIDING CORPORATE GUARANTEE TO ITS SUBSIDIARY BECAUSE THERE IS AN ALWAYS ELEMENT OF BENEFIT OR COST WHILE PROVIDING SUCH KIND OF GUARANTEE TO AE. HOWEVER IN THIS CASE THE ASSESSEE HAS ITSELF CHARGED 0.5% GUARANTEE COMMISSION FROM ITS AE THEREFORE IT IS NOT A CASE OF NOT CHARGING OF ANY KIND OF COMMISSION FROM ITS AE. THE ONLY POINT WHICH HAS TO BE SEEN IN THIS CASE IS WHETHER THE SAME IS AT ALP OR NOT. WE HAVE ALREADY COME TO A CONCLUSION IN THE FOREGOING PARAS THAT THE RATE OF 3% BY TAKING EXTERNAL COMPARABLE BY THE TPO CANNOT BE SUSTAINED IN FACTS OF THE PRESENT CASE. WE ALSO FIND THAT IN AN INDEPENDENT TRANSACTION THE ASSESSEE HAS PAID 0.6% GUARANTEE COMMISSION TO ICICI BANK INDIA FOR ITS CREDIT ARRANGEMENT. THIS COULD BE A VERY GOOD PARAMETER AND A COMPARABLE FOR TAKING IT AS INTERNAL CUP AND COMPARING THE SAME WITH THE TRANSACTION WITH THE AE. THE CHARGING OF 0.5% GUARANTEE COMMISSION FROM THE AE IS QUITE NEAR TO 0.6% WHERE THE ASSESSEE HAS PAID INDEPENDENTLY TO THE ICICI BANK AND CHARGING OF GUARANTEE COMMISSION AT THE RATE OF 0.5% FROM ITS AE CAN BE SAID TO BE AT ARMS LENGTH. THE DIFFERENCE OF 0.1% CAN BE IGNORED AS THE RATE OF INTEREST ON WHICH ICICI BANK BAHRAIN BRANCH HAS GIVEN LOAN TO AE (I.E. SUBSIDIARY 15 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. COMPANY) IS AT 5.5% WHEREAS THE ASSESSEE IS PAYING INTEREST RATE OF MORE THAN 10% ON ITS LOAN TAKEN WITH ICICI BANK IN INDIA. THUS SUCH A MINOR DIFFERENCE CAN BE ON ACCOUNT OF DIFFERENTIAL RATE O F INTEREST. THUS ON THESE FACTS WE DO NOT FIND ANY REASON TO UPHOLD ANY KIND OF UPWARD ADJUSTMENT IN ALP IN RELATION TO CHARGING OF GUARANTEE COMMISSION. HENCE THE ADDITION OF RS.28 50 353/ - ON ACCOUNT OF TP ADJUSTMENT ON GUARANTEE COMMISSION IS HEREBY DELETED AND THE ORDER OF THE CIT(A) IS SET ASIDE. ACCORDINGLY GROUND NO.2 IS TREATED TO BE ALLOWED. FOLLOWING THE ABOVE DECISION OF THE MUMBAI BENCH WHICH HAS BEEN UPHELD BY THE HONBLE HIGH COURT WE FIND THAT IN THE CIRCUMSTANCES OF THE SAI D CASE IT WAS HELD APPROPRIATE TO CHARGE THE CORPORA TE GUARANTEE AT 0.50% FROM ITS AE AND THAT IT CAN BE SAID TO BE AT ARMS LENGTH. HOWEVER IN THE CASE BEFORE US WE FIND THAT THERE IS NO CORPORATE GUARANTEE COMMISSION CHARGED BY THE ASSESSEE. THEREFORE WE REMIT THIS ISSUE TO THE FILE OF THE AO/TPO TO DETERMINE THE ALP OF THE CORPORATE GUARANTEE BY FOLLOWING THE JUDICIAL PRECEDENTS MOR E PARTICULARLY THE CASE OF GLENMARK PHARMACEUTICALS VS. ACIT (SUPRA). IN THE RESULT BOTH THE ASSESSEES AS WELL AS REVENUES APPEAL ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 14. THE GROUND 15 OF THE ASSESSEE RELATING TO TDS & TCS CREDIT IS ALSO REMITTED BACK TO THE FILE OF AO. 10.1. RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE ASSESSING OFFICER TO ADOPT THE SAME FOR THE RELEVANT AS SESSMENT YEAR ALSO. THE REVENUE IS ALSO AGGRIEVED BY THE DIRE CTIONS OF THE DRP TO ADOPT LIBOR RATE BY RAISING GROUNDS OF APPEAL NO. 2 AND 3. IN VIEW OF THE ABOVE DECISION THE REVENUES GROU NDS OF APPEAL NO.2 AND 3 ARE REJECTED AND ASSESSEES GROUNDS OF AP PEAL NO. 9 TO 21 ARE TREATED AS ALLOWED. 16 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. 11. AS REGARDS GROUND NO.22 WHICH IS AGAINST DISALL OWING THE SAP IMPLEMENTATION EXPENSES OF RS.2 34 50 000 AND TREATING THE SAME AS CAPITAL EXPENDITURE THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT ASSESSEE HAD CLAIMED RS.5 10 25 000 UNDER THE SUB-HEAD SAP INSTALLATION EXPENSES UNDER TH E HEAD MISCELLANEOUS EXPENSES. WHEN ASKED TO FILE DETAILS ASSESSEE COMPANY FILED BREAK-UP OF THE SAME WHICH INCLUDES RS.1 75 25 000 TOWARDS SAP SOFTWARE LICENSE FEE AND RS.3 35 000 TOWARDS SAP IMPLEMENTATION CHARGES. THE A SSESSING OFFICER OBSERVED THAT THE EXPENSES OF SAP IMPLEMENTATI ON IS CAPITAL IN NATURE AND THEREFORE THE SAME CANNOT BE ALL OWED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER THEREAFTE R ALLOWED THE DEPRECIATION ON THE CAPITAL EXPENDITURE AND BROUGHT TH E BALANCE OF RS.2 34 50 000 TO TAX. AGGRIEVED THE ASSES SEE IS IN APPEAL BEFORE US. LEARNED COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE SAP IMPLEMENTATION CHARGES ARE REVENUE IN NATURE AND FOR THIS PURPOSE HE PLACED RELIANCE UPON THE DECISIO N OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ASAHI INDIA SAFETY CLASS LTD. REPORTED IN (2012) 346 ITR 329. 12. THE LD. D.R. ON THE OTHER HAND SUPPORTED THE ORD ERS OF THE ASSESSING OFFICER AND PLACED RELIANCE UPON TH E DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SR INIVASA RESOURCES VS. ACIT REPORTED IN (2014) 41 TAXMANN.COM 350 (HYD.) (TRIB.). 13. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD WE FIND THAT THE HONBLE DELHI HIG H COURT WAS DEALING WITH THE CASE OF AN ASSESSEE WHICH HAS IN STALLED SOFTWARE WHICH WAS AN APPLICATION OF SOFTWARE I.E. ORACLE IN THE 17 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. RELEVANT ASSESSMENT YEAR. THE ASSESSEE THEREIN HAD CLA IMED THE ENTIRE AMOUNT AS EXPENSES ON REVENUE ACCOUNT. THE HON BLE DELHI HIGH COURT AFTER CONSIDERING VARIOUS DECISIONS ON THE ISSUE HAS CONSIDERED THE DIFFERENCE BETWEEN THE SYSTEM SOFTW ARE AND APPLICATION SOFTWARE AND OBSERVED THAT THE APPLICATION SOFTWARE WOULD HAVE TO BE ABATED FROM TIME TO TIME BASED ON THE REQUIREMENT OF THE ASSESSEE IN THE CONTEXT OF THE ADVANCE MENT OF ITS BUSINESS AND/OR ITS DIVERSIFICATION IF ANY AND THE CHANGES BROUGHT ABOUT DUE TO STATUTORY AMENDMENTS BY LAW OR BY PROFESSIONAL BODIES LIKE ICAI ETC. THEREAFTER THE H ONBLE HIGH COURT HAS CONCLUDED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON SOFTWARE IS ALLOWABLE AS REVENUE EXPEND ITURE MORE SO AS THE SOFTWARE ACQUIRED BY THE ASSESSEE WAS AN A PPLICATION SOFTWARE WHICH ENABLES IT TO EXECUTE TASKS IN THE FIELD OF ACCOUNTING PURCHASE AND INVENTORY MARGINS. IN THE CASE OF SRINIVASA RESOURCES THE COORDINATE BENCH OF THIS TRIB UNAL WAS ALSO DEALING WITH THE NATURE OF THE EXPENDITURE ON PURC HASE OF APPLICATION SOFTWARE AND HAS HELD IT TO BE CAPITAL EXPE NDITURE. THE DECISION OF THE TRIBUNAL IS DATED OCTOBER 11 20 13 WHEREAS THE DECISION OF THE HONBLE HIGH COURT IS DATED 04 TH NOVEMBER 2011. THUS IT CAN BE SEEN THAT THE DECISION OF THE HON BLE DELHI HIGH COURT HAS NOT BEEN CONSIDERED BY THE COORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF SRINIVASA RESOURCES. FU RTHER THE JUDICIAL DISCIPLINE REQUIRES THAT THE DECISION OF THE H IGHER COURT BE FOLLOWED OVER THE DECISION OF THE LOWER COURT/TRI BUNAL. SINCE THE DECISION OF THE HONBLE HIGH COURT IS ON THE VERY SAME ISSUE WE ARE INCLINED TO FOLLOW THE DECISION OF THE HONBLE HIGH COURT OF DELHI AND ACCORDINGLY WE DIRECT THE ASSESSING OFFICE R TO ALLOW THE EXPENDITURE INCURRED ON IMPLEMENTATION OF THE APPLICAT ION 18 ITA.NO.83/HYD/2014 & ITA.NO.158/HYD/2014 RAIN COMMO DITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) HYDERA BAD. SOFTWARE OF SAP AS REVENUE EXPENDITURE. ACCORDINGLY GROUND OF APPEAL NO.22 IS ALLOWED. 14. AS REGARDS THE GROUND OF APPEAL NO.23 IT IS THE GRIEVANCE OF THE ASSESSEE THAT THE ASSESSING OFFICER HA S NOT ALLOWED THE CREDIT OF TDS AND TCS AT RS.25 32 285. W E REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR VERIFIC ATION AND CONSIDERATION IN ACCORDANCE WITH LAW. GROUND OF APPEA L NO.23 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT ASSESSEES APPEAL IS TREATED AS PA RTLY ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.09.2 016. SD/- SD/- (B. RAMAKOTAIAH) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD DATED 28 TH SEPTEMBER 2016 VBP/- COPY TO : 1. THE DCIT CIRCLE-3(1) 7 TH FLOOR B-BLOCK I.T. TOWERS HYDERABAD. 2. THE ADDL. CIT RANGE-3 7 TH FLOOR I.T. TOWERS HYDERABAD. 3. RAIN COMMODITIES LTD. (PRESENTLY KNOWN AS RAIN INDUSTRIES LTD. ) RAIN CENTER PLOT NO.3A SRINAGAR COLONY HYDERABAD 500 073. 4. THE DISPUTES RESOLUTION PANEL 2 ND FLOOR I.T. TOWERS 10-2-3 A.C. GUARDS HYDERABAD 500 004. 5. THE DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION I.T. TOWERS 10-2-3 A.C. GUARDS HYDERABAD 004. 6. THE CIT-III HYDERABAD 500 004. 7. THE ADDL. CIT (TRANSFER PRICING) HYDERABAD. 8. D.R. ITAT A BENCH HYDERABAD. 9. GUARD FILE.