Ashok Leyland Limited, CHENNAI v. DCIT, CHENNAI

ITA 160/CHNY/2013 | 2004-2005
Pronouncement Date: 21-10-2016 | Result: Partly Allowed

Appeal Details

RSA Number 16021714 RSA 2013
Assessee PAN AAACA4651L
Bench Chennai
Appeal Number ITA 160/CHNY/2013
Duration Of Justice 3 year(s) 8 month(s) 21 day(s)
Appellant Ashok Leyland Limited, CHENNAI
Respondent DCIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-10-2016
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 21-10-2016
Date Of Final Hearing 10-08-2016
Next Hearing Date 10-08-2016
Assessment Year 2004-2005
Appeal Filed On 31-01-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH CHENNAI ! . BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY JUDICIAL MEMBER ./ I.T.A. NOS. 311 /MDS/2013 & 2915/MDS/2014 # $ !%$ / ASSESSMENT YEAR : 2004-05 & 2008-2009 THE DEPUTY COMMISSIONER OF INCOME TAX LARGE TAXPAYER UNIT CHENNAI 600 034. VS. M/S. ASHOK LEYLAND LIMITED NO.1 SARDAR PATEL ROAD GUINDY CHENNAI 600 032. ./ I.T.A. NO. 160/MDS/2013 # $ !%$ / ASSESSMENT YEAR : 2004-05 M/S. ASHOK LEYLAND LIMITED NO.1 SARDAR PATEL ROAD GUINDY CHENNAI 600 032. VS. THE DEPUTY COMMISSIONER OF INCOME TAX LARGE TAXPAYER UNIT CHENNAI 600 034 [PAN AAACA 4651L ] ( / APPELLANT) ( /RESPONDENT) ASSESSEE BY : SHRI. VIKRAN VIJAYARAGHAVAN ADV DEPARTMENT BY : SHRI. DURAI PANDIAN IRS JCIT. & ! ' ( / DATE OF HEARING : 10-08-2016 )*% ' ( / DATE OF PRONOUNCEMENT : 20-10-2016 ITA NOS.160 & 311/13 AND 2915/14 :- 2 -: ! / O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER : THESE APPEALS FILED BY THE DEPARTMENT AND ASSESSE E ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE COMMISSI ONER OF INCOME-TAX (APPEALS) CHENNAI FOR THE ABOVE ASSESSMENT YEARS. SINCE THE ISSUE INVOLVED IN THESE APPEALS ARE COMMON IN NATURE THE SE APPEALS ARE COMBINED HEARD TOGETHER AND DISPOSED OF BY THIS O RDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP DEPARTMENT APPEAL IN ITA NO.311/MDS/2013 OF ASSESSMENT YEAR 2004-2005 FOR AD JUDICATION:- 3. THE FIRST GROUND RAISED BY THE REVENUE IS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN TREAT ING THE LOSS ARISING OUT OF WRITE OFF OF SHARES HELD BY THE ASSE SSEE IN ASHOK LEYLAND INVESTMENT SERVICES LTD AS CAPITAL LOSS. 3.1 THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE WAS HOLDING 7 20 000 SHARES (OF =10 EACH) IN M/S. A SHOK LAYLAND INVESTMENT SERVICES LTD ( IN SHORT ALISL ). SINCE ALISL WENT INTO LIQUIDATION THE ASSESSEE WROTE OFF THE SHARES HELD IN ALISL AND CLAIMED THE SAME AS CAPITA L LOSS. THE ASSESSING OFFICER ASSESSING OFFICER OBSERVED TH AT AS ITA NOS.160 & 311/13 AND 2915/14 :- 3 -: PER SEC.46 OF THE ACT DISTRIBUTION OF ASSETS ON LIQ UIDATION WILL NOT AMOUNT TO TRANSFER AND HENCE THE QUESTION OF CAPITAL LOSS DOES NOT ARISE. ACCORDINGLY THE ASSESS ING OFFICER DISALLOWED THE ASSESSEE'S CLAIM . AGGRIEVED BY THE ORDER THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 3.2 IN THE APPELLATE PROCEEDINGS THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT T HE CHENNAI BENCH OF ITAT IN THE CASE OF M/S. ASHLEY HOLDINGS LTD VS. ACIT IN ITA NO.744/MDS/2009 DATED 11.07.2011 HELD THAT THE ASSESSEE IS ENTITLED FOR ALLOWANCE OF CAPITAL LOSS RESULTING FROM THE SHARES HELD IN ALISL WHICH WENT INTO LIQUI DATION. IN THIS CASE M/S. ASHLEY HOLDINGS WAS HOLDING 7 20 000 SHARES (COSTING =2 05 02 000/-) IN M/S. ASHOK LEYLA ND INVESTMENT SERVICES LTD. WHEN ALISL WENT INTO LIQUI DATION M/S. ASHOK HOLDINGS LTD CLAIMED THE SAME AS CAPITAL LOSS RESULTING FROM THE SHARES HELD IN ALISL WHICH WENT INTO LIQUIDATION. THE COMMISSIONER OF INCOME TAX (APPEA LS) PLACING RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. ASHLEY HOLDINGS LTD (SUPRA ) HELD THAT THE ASSESSEE IS ENTITLED FOR ALLOWANCE OF CAPITAL LOSS RESULTING FROM THE ITA NOS.160 & 311/13 AND 2915/14 :- 4 -: SHARES HELD IN ALISL WHICH WENT INTO LIQUIDATION AN D DIRECTED THE LD. ASSESSING OFFICER TO ALLOW THE SAM E AS AN ALLOWABLE CAPITAL LOSS. AGGRIEVED BY THE ORDER TH E REVENUE FILED AN APPEAL BEFORE US. 3.3 WE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERI AL ON RECORD AND JUDICIAL DECISIONS CITED. ADMITTEDLY THI S ISSUE WAS DECIDED BY THE TRIBUNAL IN THE CASE OF M/S. ASHLEY HOLDINGS LTD VS. ACIT IN ITA NO.744/MDS/2009 DATED 11.07.2011 WHEREIN HELD THAT ASSESSEE IS ENTITLED FOR ALLOWANCE OF CAPITAL LOSS RESULTING FR OM THE SHARES HELD IN OTHER COMPANIES WHICH WENT INTO LIQUIDATION. BEING SO WE ARE OF THE OPINION THAT THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) NOT COMMITTED ANY ERROR BY FOLLOWING BINDING DECISION O F THE TRIBUNAL IN THE CASE OF M/S. ASHLEY HOLDINGS LTD (SUPRA). THE GROUND RAISED BY THE REVENUE IN THIS APPEAL IS DISMISSED. 3.4 IN THE RESULT THE APPEAL OF THE REVENUE IN ITA NO.311/MDS/2013 OF ASSESSMENT YEAR 2004-2005 IS DIS MISSED. 4. NOW WE TAKE UP ASSESSEE APPEAL IN ITA NO.160/MDS/2 013 OF ASSESSMENT YEAR 2004-2005:- ITA NOS.160 & 311/13 AND 2915/14 :- 5 -: 4.1 THE FIRST GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RESTR ICTING THE RATE OF DEPRECIATION ON CERTAIN BUILDINGS TO 5%. 4.2 THIS ISSUE CAME FOR CONSIDERATION BEFORE THIS T RIBUNAL FOR THE ASSESSMENT YEAR 2000-2001 IN ASSESSEE OWN CASE IN ITA NO.2445/MDS/2005 WHEREIN IT WAS HELD AS UNDER:- 6.WE HAVE HEARD THE PARTIES AT LENGTH. THE SHORT CONTROVERSY BEFORE US IS THAT IF THE ASSESSEE HAS PROVIDED RESIDENTIAL FLATS TO ITS EMPLOYEES THEN A T WHAT RATE DEPRECIATION IS TO. BE ALLOWED. THE CIT(APPEALS) HAS TRIED TO INT ERPRET THE CIRCULAR BY STATING THAT THE BOARD MIGHT HAVE ISSUED THE SAID CIRCULAR IN THE CONTEXT OF THE EMPLOYEES' QUARTERS BUILT IN THE FACTORY PREMISES AND NOT TO. THE RESIDENTIAL FLATS WHICH ARE AWAY FROM THE FACTORY. ON THE PERUSAL OF THE CBDT INSTRUCTIONS/ LETTER WE. FIND THAT NO SUCH DISTINCTION IS MADE. IN OUR OPINION THE CIRCULAR/LETTER ISSUED THE CBDT AND RELIED ON BY THE LEARNED COUNSEL IS IN UNAMBIGUOUS LANGUAGE AND NO SECOND INTERPRETATION IS REQUIRED. WE THEREFORE HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN RESTRICTING THE DEPRECIATION TO 5% IN RESPECT OF THE FIVE RESIDENTIAL FLATS WHICH ARE USED BY THE EMPLOYEES OF THE ASSESSEE COMPANY. WE THEREFORE ALLOW GROUND NO.2 IN FAVOUR OF THE ASSESSEE AND ON THIS ISSUE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY THIS GROUND IS DECIDED IN FAVOUR OF TH E ASSESSEE. THIS GROUND IS ALLOWED. ITA NOS.160 & 311/13 AND 2915/14 :- 6 -: 5. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED IN CONFIRMING THE REDUCTION OF 90% RENT RECEIVED AND MISCELLANEOU S INCOME FROM BUSINESS PROFITS. 5.1 THIS ISSUE CAME FOR CONSIDERATION BEFORE THIS T RIBUNAL IN ITA NO.2835/MDS/2014 FOR THE ASSESSMENT YEAR 2004-05 IN ASSESSEES OWN CASE WHEREIN IT WAS HELD AS UNDER:-- 4.2 WE HAVE HEARD BOTH THE PARTIES PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISION CITED. TH E SUPREME COURT IN THE CASE OF ACG ASSOCIATED CAPSULE S (P) LTD (CITED SUPRA) WHEREIN HELD THAT NINETY PER CENT OF NOT THE GROSS RENT OR GROSS INTEREST BUT ONLY TH E INTEREST OR NET RENT WHICH HAD BEEN INCLUDED IN TH E PROFITS OF BUSINESS OF THE ASSESSEE AS COMPUTED UND ER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESS ION WAS TO BE DEDUCTED UNDER CLAUSE (1) OF EXPLANATION (BAA) TO SEC. 80HHC FOR DETERMINING THE PROFITS OF THE BUSINESS. IN VIEW OF THE ABOVE JUDGMENT 90% OF T HE NET INTEREST WHICH HAVE BEEN INCLUDED IN THE PROFIT S OF THE BUSINESS OF THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS TO BE EXCLUDED FOR THE PURPOSE OF APPLYING CLAUSE (1) TO EXPLANATION (BAA) TO SEC. 80 HHC OF THE ACT. THE SAME IS APPLICABLE IN THE CASE OF RENT IF THE RENT PAYMENT IS INCLUDED AS BUSINESS EXPENDITUR E OF THE ASSESSEE. WITH THESE OBSERVATIONS WE REMIT THE ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER FOR RE- COMPUTATION AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NOS.160 & 311/13 AND 2915/14 :- 7 -: ACCORDINGLY THIS ISSUE IS REMITTED BACK TO THE FIL E OF THE LD. ASSESSING OFFICER FOR FRESH CONSIDERATION. 6. THE LAST GROUND RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFI ED IN DECIDING THAT EACH OF THE INTERNATIONAL TRANSACTION IS TO BE DETE RMINED SEPARATELY AND INDEPENDENTLY. 6.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER FOUND THAT THERE IS AN ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER TO THE ALP OF THE ASSESSEE 'S INTERNATIONAL TRANSACTIONS. THE TRANSFER PRICING OF FICER VIDE HIS ORDER CR NO.44/TPO-1/AY.2004-05 DATED 19.12.200 6 FOUND THAT THERE IS A VARIATION IN THE PRICE OF THE SALES MADE TO THE ASSOCIATED ENTERPRISES AND THE SALES MADE TO THE THIRD PARTIES AND THE DIFFERENCE IS IN EXCESS OF P ERMISSIBLE LIMITS OF + OR - 5%. HENCE THE TRANSFER PRICING OFFICER DETERMINED THE ALP BASED ON THE CUP METHOD AND MADE THE ADJUSTMENT TO THE ALP AT RS.14 32 677 /--. THE CONTENTS OF THE ORDER OF THE TRANSFER PRICING OFFICER U/S.92 CA(3) OF THE ACT ARE AS UNDER: THE ASSESSEE HAS WORKED OUT THE DIFFERENCE IN PRI CE BETWEEN THE SALES MADE TO ASSOCIATED ENTERPRISE AND ITA NOS.160 & 311/13 AND 2915/14 :- 8 -: THE THIRD PARTY PRICE WHEREIN THE PRICE VARIATION IS NOTICED ON CERTAIN OCCASIONS AND THE PRICE VARIATIO N IN EXCESS OF 5% ALONE IS CONSIDERED FOR ADJUSTMENT. THE DIFFERENCE IN PRICE VARIATION ON ONE TO ONE COMPARI SON IN EXCESS OF 5% HAS TO BE CONSIDERED FOR NECESSARY ADJUSTMENT IN PRICE. IT MAY ALSO BE MENTIONED THAT THE SPECIFIC LAW SUCH AS INCOME TAX ACT OVERWRITES OF THE PROVISION OF GENERAL CLAUSES ACT UNTIL OTHERWISE SPECIFICALLY PROVIDED. THEREFO RE THE ASSESSEE'S SUBMISSIONS ARE REJECTED. THE PRICE VARI ATION OF =14 32 677/- IS ADJUSTED TO MAKE THE VALUE OF EXPORTS AT ARMS LENGTH PRICE AS UNDER: VALUE OF SALES AS ADMITTED BY THE ASSESSEE ON THE COLUMN IN PAGE NO. 4) 36 68 26 651/- ADD: ADJUSTMENT FOR PRICE DIFFERENCES AS INDICATED ABOVE 10 76 983/- ---------------- ARMS LENGTH PRICE NOW DETERMINED AT 36 79 03 614/ - ------------------ VALUE OF SALES AS ADMITTED BY THE ASSESSEE ON THE SALE OF CHASSIS (SL.NOS.4 & 5 OF TABULAR COLUMN IN PAGE NO.4) 20 75 57 023/- ADD; ADJUSTMENT FOR PRICE DIFFERENCE AS INDICATED ABOVE 3 55 714/- ------------------ ARMS LENGTH PRICE NOW DETERMINED AT 20 79 12 737/ - ------------------ - HENCE THE LD. ASSESSING OFFICER ACCORDINGLY ADJUST UPWARDLY THE TOTAL INCOME OF THE ASSESSEE BY =14 32 677/- IN ACCORDANC E WITH SUBSECTION OF SEC. 92C OF THE ACT AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE. ITA NOS.160 & 311/13 AND 2915/14 :- 9 -: AGGRIEVED BY THE ORDER ASSESSEE FILED AN APPEAL BE FORE THE COMMISSIONER OF INCOME TAX (APPEALS). 6.2 IN THE APPELLATE PROCEEDINGS THE LD. COMMISSIO NER OF INCOME TAX (APPEALS) OBSERVED THE VALUE OF THE SALE TRANSACTIONS MADE BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES AND THE SALE PRICES OF THIRD PARTY TRAN SACTIONS AND THE APPLICATION OF CUP METHOD FOR THE PURPOSE O F DETERMINATION OF ALP ARE NOT UNDER DISPUTE. THE ONL Y DISPUTE IS WITH RESPECT TO DETERMINATION OF ALP IN RESPECT OF EACH OF THE TRANSACTION OR IN RESPECT OF THE TOTAL OF ALL THE TRANSACTIONS ESPECIALLY WHEN APPLYING THE PERMITTED MARGIN OF + OR - 5%. THERE ARE CLEAR INSTANCES OF CUPS IN THIS CASE. HENCE THE CUP METHOD IS THE MOST APPROPR IATE METHOD OF DETERMINING THE ALP. FURTHER EACH TRANSA CTION HAS A CLEAR CUP. IN SUCH CASES THE ALP OF EACH TRA NSACTION IS TO BE DETERMINED SEPARATELY AND INDEPENDENTLY. S INCE THE METHOD FOLLOWED IS CUP AND THE COMPARABLE BECOMES O NLY ONE. THUS THERE ARE NO MULTIPLE (I.E. MORE THAN ON E) PRICES AVAILABLE / DETERMINED. IN SUCH A CASE ADOPTING THE ARITHMETIC MEAN OF 'MORE THAN ONE PRICE DETERMINED' WILL NOT ARISE. HENCE THE PROVISIONS OF PROVISO TO SUB-S EC.(2) OF ITA NOS.160 & 311/13 AND 2915/14 :- 10 -: SEC.92C ARE NOT APPLICABLE IN THE INSTANT CASE. SIN CE THERE IS ONLY ONE PRICE IS AVAILABLE IN THE INSTANT CASE TH E QUESTION OF ADOPTING THE ARITHMETIC MEAN WILL NOT ARISE. FUR THER WHEN ONLY ONE PRICE (CUP) IS AVAILABLE FOR EACH OF THE INTERNATIONAL TRANSACTION THE SAME AMOUNTS TO ALP. IN SUCH CASES APPLICATION OF + OR - 5% MARGIN IS NOT AT ALL REQUIRED. FOR THIS PURPOSE RELIANCE IS PLACED ON THE DECISION OF HYDERABAD BENCH OF ITAT IN THE CASE OF DCIT V. DELOIT TE CONSULTING INDIA P LTD (IN ITA NO.1082/HYD/2010 DAT ED 22.07.2011). THE PROVISIONS IS CLEAR THAT THE ALP OF EACH OF THE INTERNATIONAL TRANSACTION IS TO BE DETERMINE D SEPARATELY AND INDEPENDENTLY. ONCE AS PER THE ACT ITSELF THE ALP OF EACH OF THE INTERNATIONAL TRANSACTIONS W ITH ASSOCIATE ENTERPRISES IS TO BE DETERMINED THE PERM ISSIBLE TOLERANCE OF + OR - 5% IS ALSO WITH REFERENCE TO EACH OF THE INTERNATIONAL TRANSACTION ONLY. IT WILL BE HIGHLY I MPROBABLE IF PERMISSIBLE TOLERANCE OF + OR - 5% IS TO BE WORKED OUT WITH REFERENCE TO THE SUM TOTAL OF ALPS OF ALL THE INTER NATIONAL TRANSACTIONS. ALP OF AN INTERNATIONAL TRANSACTION I S TO BE DETERMINED WITH REFERENCE TO THE PREVAILING MARKET CONDITIONS EXISTING AS ON THAT DATE ESPECIALLY WHE N CUP METHOD IS ADOPTED. THEREFORE THE ASSESSEE'S ARGUME NT ITA NOS.160 & 311/13 AND 2915/14 :- 11 -: THAT THE PERMISSIBLE TOLERANCE OF + OR - 5% IS TO BE WORKED OUT WITH REFERENCE TO THE SUM TOTAL OF ALPS OF ALL THE INTERNATIONAL TRANSACTIONS IS TOTALLY UNFOUNDED AN D NOT AS PER THE SPIRITS OF THE PROVISIONS OF THE STATUTES. HENCE THE ACTION OF THE ASSESSING OFFICER IN DETERMINING THE ALP OF EACH OF THE INTERNATIONAL TRANSACTION SEPARATELY AN D WORKING OUT OF THE + OR - 5% PERMISSIBLE / TOLERANCE LIMITS WITH REFERENCE TO THE INDIVIDUAL ALPS OF THE INTERN ATIONAL TRANSACTIONS IS JUSTIFIED AND CONFIRMED. AGAINST TH IS THE ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. 6.3. WE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATERIA L ON RECORD AND JUDICIAL DECISIONS CITED. ASSESSEE PLACE D RELIANCE ON THE ORDER OF CO-ORDINATE BENCH IN THE CASE OF MAINETTI INDIA PVT. LTD VS. ACIT IN ITA NO.1789/MDS/2011 & ITA NO.2074/MDS/2012 DATED 16.03.2012 WHERE THE CO-ORDINATE BENCH HELD AS UNDE R:- 12. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PAR TIES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDER OF THE TRIBUNAL RELIED UPON BY THE LD. A. R. WE FIND THAT THE ISSUE IN HAND HAS ALREADY BEEN DEALT WITH BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN ITA NO.1789 /MDS./11 DECIDED ON 16.03.12. THE FINDINGS OF TRIBUNAL ARE R EPRODUCED HEREIN UNDER:- 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. PERU SAL OF THE PROVISIONS OF SEC.92C SHOWS THAT THE WORDS U SED IS IN RELATION TO AN INTERNATIONAL TRANSACTION - - - - - - ITA NOS.160 & 311/13 AND 2915/14 :- 12 -: HAVING REGARD TO THE NATURE OF TRANSACTION OR CLASS OF TRANSACTION OR CLASS OF ASSOCIATED PERSONS OR FUNCT IONS PERFORMED BY SUCH PERSONS. THE TERM CLASS OF TRANSACTION AND NATURE OF TRANSACTIONS COME TO T HE FOREFRONT IN THE PRESENT CASE. IN THE ASSESSEES CA SE THE TRANSACTION WITH THE AE IS NOT ONE OF SIMPLE PURCHASE OR SIMPLE SALE. THE ASSESSEE PURCHASES FRO M ONE AND SELLS TO ANOTHER. THE ASSESSEE HAS PURCHASE D FROM ITS AE IN HONGKONG SRILANKA MALAYASIA PAKIS TAN AND RANDY ASIA AND HAS SOLD TO ITS AE IN SRILANKA KOREA HONGKONG GULF EGYPT BANGLADESH MALAYASIA TAIWAN UK AND PAKISTAN. IN REGARD TO THE SALES MAD E BY THE ASSESSEE THE TRANSACTION WITH BANGALADESH I S IN POSITIVE THE TRANSACTION WITH EGYPT IS IN NEGATIVE THE TRANSACTION WITH GULF IS IN THE POSITIVE THE TRANS ACTION WITH HONGKONG IS IN NEGATIVE THE TRANSACTION WITH KOREA IS IN POSITIVE THE TRANSACTION WITH SRILANKA IS IN THE NEGATIVE THE TRANSACTION WITH MALAYASIA IS IN THE NEGATIVE THE TRANSACTION WITH PAKISTAN IS IN THE NEGATIVE THE TRANSACTION WITH TAIWAN IS IN THE NEG ATIVE AND THE TRANSACTION WITH UK IS IN THE NEGATIVE. THU S WHAT IS NOTICED IS THAT ON THE PURCHASE THE ASSESSE E HAS A POSITIVE DIFFERENTIAL I.E. THE ASSESSEE PURCH ASES AT A LOWER PRICE FROM ITS AE THAN THE NON-AE AND WHEN ITS SALES TO THE AE ITS SELLING PRICE IS LOWER THAN TH E SELLING PRICE AS COMPARED WITH THE NON-AE. THERE IS NO QUESTION THAT THE ASSESSEE IS GENERATING PROFITS FR OM THE TRANSACTION. THERE IS NO DISPUTE THAT THE ASSES SEE IS ALSO PAYING TAXES ON THE PROFITS THAT IT HAS GENERA TED FROM ITS TRANSACTION OF PURCHASE AND SALE WITH ITS AE. THE ASSESSEE THUS IT IS NOTICED IS DOING THE BUSI NESS OF TRADING WHEN IT PURCHASED FROM ITS AE FROM ONE COUNTRY AND SELLS TO ANOTHER AE IN ANOTHER COUNTRY. THIS MARGIN COULD BE ON ACCOUNT OF BOTH FOREIGN EXCHANGE FLUCTUATIONS AS ALSO THE MARK UP DONE BY THE ASSESS EE. THESE TRANSACTIONS CLEARLY SHOW THAT WHAT IS DONE B Y THE ASSESSEE IS ONE OF PURCHASE AND SALE. WITH THIS IN MIND READING OF THE PROVISIONS OF SEC.92C SHOWS THA T THE WORD USED IS NATURE OF TRANSACTION. NATURE O F TRANSACTION WOULD BE A PARTICULAR SET OF TRANSACTI ON WHICH ARE TO BE SEEN TOGETHER. WHEN THE ASSESSEE IS BUYING FROM ONE PLACE AND SELLING AT ANOTHER THAT W OULD BE A CLASS OF TRANSACTION. WHEN THE ASSESSEE IS D OING THE BUSINESS OF TRADING IT WOULD NOT BE A RIGHT TO HOLD THAT THE PURCHASE IS ONE CLASS OF TRANSACTION AND THE SALES ARE ANOTHER CLASS OF TRANSACTION. THE ASSES SEE DEALING WITH THE AES IS A BETTER POSITION TO NEGOTI ATE BETTER PRICES AND CONSEQUENTLY WOULD BE ABLE TO GET A BETTER BARGAIN. HERE WHAT IS TO BE SEEN IS WHETHER THE ITA NOS.160 & 311/13 AND 2915/14 :- 13 -: TRANSACTION OF PURCHASE AND SALE BEING THE NATURE O F TRANSACTIONS WHEN SEEN IN CONSOLIDATED FROM GENERATES PROFITS WHICH NORMALLY WOULD BE GENERATED . FOR THIS BOTH THE PURCHASE AND SALE TRANSACTIONS WO ULD HAVE TO BE CONSIDERED. TO EXPLAIN BY AN EXAMPLE THE ASSESSEE PURCHASES A PRODUCT AT `10 FROM ITS AE. THE SAME PRODUCT IS SOL D BY A NON-AE AT `12/-. THE ASSESSEE SELLS THE FINISHED PRODUCT TO ITS AE AT `15/-. THE SAME FINISHED PRODU CT IS SOLD BY A NON-AE AT `17/-. THE PROFITS FROM BOTH TRANSACTIONS ASSESSEE TO AE AS ALSO NON-AE TO NON - AE WOULD GIVE `5/- BUT FOR THE PURPOSE OF DETERMINI NG THE ALP AS THE ASSESSEE PURCHASES FROM ITS AE AT A PRICE LOWER THAN NON-AE THE PURCHASE PRICE WOULD B E ACCEPTED AS THE DEVIATION IS NEGATIVE I.E. `10/- IS LOWER THAN `12/- BUT AS THE ASSESSEE SELLS TO ITS AE AT A PRICE LOWER THAN A NON-AE THE SALE PRICE WILL BE ADJUSTE D TO THE SELLING PRICE OF THE NON-AE AS THE DEVIATION IS POSITIVE I.E. `15/- IS LOWER THAN `17/-. THEREFORE `17/- WILL BE CONSIDERED AS ALP. THIS WOULD RESULT IN I) THE ASSESSEE BUYS FROM THE AE AT `10/- (II) THE ASSESSE ES SALE PRICE IS ADJUSTED TO ALP AT `17/-. THUS THE PR OFIT OF THE ASSESSEE WILL BE DETERMINED AT `7/-. NOW IF WE COMPARE THE PROFITABILITY ASSESSEES PURCHASE AND SALE TO AE IS `5/-. PERCENTAGE OF PROFIT 5 X 100 = 33.33 % 15 NON-AE PURCHASE & SALE IS `5/- PERCENTAGE OF PROFIT 5 X 100 = 29.41% 17 AFTER ADJUSTMENT PROFIT IS `7/- PERCENTAGE OF PROFIT 7 X 100 = 41.17% 17 THUS THE PROFITABILITY IF CONSIDERED WITHOUT CONSIDERING THE POSITIVE DEVIATIONS WOULD LEAD TO IMPOSSIBLE PROFIT ABILITY POSITIONS WHICH IS NOT WHAT IS CONTEMPLATED UNDER THE PROVISIONS OF 92C. IN THE CIRCUMSTANCES THE ASSESS ING OFFICER IS DIRECTED TO RE-COMPUTE THE ALP BY TAKING INTO CONSIDERATION BOTH THE NET DIFFERENCE ON THE SALE F ROM THE AE AND PURCHASE FROM THE AE. THE ASSESSING OFFICER MAY LOOK INTO THE FACT AS TO THE MARGINS OF THE PROFITS IN REGARD TO THE TRANSACTIONS DONE BY THE ASSESSEE WITH ITS AE AS ALSO THE NON-AE TRANSACTIO NS AND THEN COMPUTE THE ADJUSTMENT OF ALP IF ANY. IN THE CIRCUMSTANCES THE GROUNDS NOS.5 6 8 & 9 OF THE ASSESSEE STAND PARTLY ALLOWED FOR STATISTICAL PURPO SES. RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES WITH SIMILAR DIRECTIONS TO THE ASSESSING OFFICER . ITA NOS.160 & 311/13 AND 2915/14 :- 14 -: THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED FOR S TATISTICAL PURPOSE. 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IN ITA NO.160/MDS/2013 IS PARTLY ALLOWED FOR STATISTICAL P URPOSE. 8. NOW WE TAKE UP REVENUE APPEAL IN ITA NO.2915/MDS/2 014 OF ASSESSMENT YEAR 2008-2009:- THE FIRST GROUND R AISED BY THE REVENUE IS THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIRECTING THE ASSESSING OFFICER TO CONSIDERED TH E INTEREST EXPENDITURE OF =18 77 03 235/- AS AGAINST THE INTER EST EXPENDITURE OF =68 81 90 000/- CONSIDERED BY ASSESSING OFFICER FOR THE PURPOSE OF DISALLOWANCE U/S.14A R.W. R 8D(2)(II) OF INCOME TAX ACT. 8.1 AFTER HEARING BOTH THE PARTIES THIS ISSUE CAME FOR CONSIDERATION IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2006- 2007 IN ITA NO.2086/MDS/2010 DATED 16.02.2016 WHER EIN IT WAS HELD AS UNDER:- 8.4 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITE D. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E ASSESSEE IS IN RECEIPT OF EXEMPTED INCOME AND NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME. I N ASSESSEES OWN CASE THE CO-ORDINATE BENCH OF ITA NOS.160 & 311/13 AND 2915/14 :- 15 -: TRIBUNAL HAS CONSIDERED 2% DISALLOWANCE OF EXEMPTED INCOME U/S.14A OF THE ACT. THE ACTION OF THE ASSES SING OFFICER APPLYING RULE 8D IS NOT CORRECT AS THE PROVISIONS OF RULE 8D ARE INTRODUCED EFFECTIVE FR OM 24.03.2008 AND APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 AND WE RELY ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF SIMPSON AND CO. LTD. V. DCIT IN TAX CASE (APPEAL) NO.2621 OF 2006 DATED 15.10.2012 AND DIRECT THE ASSESSING OFFICER TO DISA LLOW 2% OF EXEMPT INCOME AS DISALLOWANCE U/S.14A OF THE ACT. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED . ACCORDINGLY THIS GROUND IS ALLOWED. 9. THE SECOND GROUND RAISED BY THE REVENUE IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIREC TING THE ASSESSING OFFICER TO ALLOW THE WEALTH TAX PAID IN R ESPECT OF BUSINESS ASSETS AS EXPENDITURE. 9.1 AFTER HEARING BOTH THE PARTIES THIS ISSUE CAME FOR CONSIDERATION IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2006- 2007 IN ITA NO.2086/MDS/2010 DATED 16.02.2016 WHER EIN IT WAS HELD AS UNDER:- 9.2 ON APPEAL BEFORE TRIBUNAL THE LD. AUTHORISED REPRESENTATIVE REITERATED HIS SUBMISSION S AND RELIED ON THE GROUNDS OF APPEAL AND ARGUED THAT WEALTH TAX PAID ON BUSINESS ASSETS SHOULD BE ALLOWED. THE ARGUMENTS OF THE LD. AUTHORISED REPRESENTATIVE ARE NOT CONVINCING AND THE PROVISIONS ARE VERY CLEAR U/S.40(IIA) AS ANY SUM P AID ON ACCOUNT OF WEALTH TAX IS NOT DEDUCTABLE. CONSIDERING THE APPARENT FACTS WE CONFIRM THE ITA NOS.160 & 311/13 AND 2915/14 :- 16 -: DISALLOWANCE OF THE ASSESSING OFFICER AND DISMISS THE ASSESSEE GROUND. ACCORDINGLY THIS GROUND OF THE REVENUE IS ALLOWED. 10. THE THIRD GROUND RAISED BY THE REVENUE IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE ADDITION OF =15 94 32 297/- MADE BY THE LD. ASSESSING OFFICE R ON PROTECTIVE BASIS ON ACCOUNT OF EXCHANGE FLUCTUATION LOSS BY WA Y OF FCCN CONSIDERING THE INCONSISTENCE STAND OF THE ASSESSEE . 10.1 THE ASSESSEE CLAIMED EXCHANGE LOSS ON FOREIGN CURRENCY CONVERTIBLE NOTES(FCCN) OF =15 94 32 297/-. THE ASS ESSING OFFICER IN THE ASSESSMENT ORDER STATED THAT THE ASSESSEE HAD CLAIMED A LOSS OF = 15 94 32 2971- ON ACCOUNT OF EXCHANGE FLUCTUATION ON ACCOUNT OF FCCN. IT IS SIGNIFICANT TO NOTE THAT THE ASSESSEE HAD CLAIMED EXCHANGE GAIN ON FCCN AS NOT TAXABLE IN EARLIER YEARS. THE A SSESSING OFFICERS HAD HELD THE GAIN ON ACCOUNT OF FCCN PROCEEDS AS RE VENUE INCOME. THE AO HELD THAT IT IS ILLOGICAL ON THE PART OF THE ASSESSEE TO CLAIM A GAIN AS A CAPITAL RECEIPT AND A LOSS AS A REVENUE OUTGO. THE LD. ASSESSING OFFICER DISALLOWED =15 94 32 297/-. AGAI NST THIS ASSESSEE IS IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ITA NOS.160 & 311/13 AND 2915/14 :- 17 -: 10.2. IN THE APPELLATE PROCEEDINGS LD. AUTHORISED REPRESENTATIVE THAT THE LD. ASSESSING OFFICER WRONGLY CONSIDERED THAT ENTIRE =15 94 32 297/- PERTAINS TO EXCHANGE FLUCTUATION LO SS BY WAY OF FCCN. THE BREAKUP OF EXCHANGE LOSS OF =15 94 32 297/- IS GIVEN AS UNDER:- PARTICULARS AMOUNT = REINSTATEMENT OF EXPORT CREDITORS AND DEBTORS 3 58 58 832 REINSTATEMENT OF FIXED DEPOSITS MADE OUT OF FCCN PR OCEEDS 38 70 715 REINSTATEMENT OF LOANS GIVEN TO ASSOCIATE COMPANIES 11 97 92 750 TOTAL 15 94 32 297 THE LD. AR FURTHER SUBMITTED THAT IT WAS CLEAR THA T =38 70 715/-- CAN BE CONSIDERED AS CAPITAL AS PER THE ASSESSING O FFICER AND HENCE BASED ON THE LD. ASSESSING OFFICER CONTENTI ON THE PROTECTIVE ADDITION HAS TO BE =38 70 715/- ONLY. THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) OBSERVED THAT LD. ASSESSING OF FICER HAS RIGHTLY OBSERVED BY THE AO IN THE EARLIER YEARS THE ASSESSEE HAS NOT OFFERED TO TAX THE CAPITAL GAIN ARISEN OUT OF EXCHA NGE FLUCTUATION FROM FCCN TREATING IT AS CAPITAL RECEIPT. THE LOSS ARISEN OUT OF FOREIGN EXCHANGE FLUCTUATION DURING THE PRESENT ASS ESSMENT YEAR FROM FCCN IS NOT OFFERED TO TAX.' THERE IS INCONSIS TENCY IN THE STAND TAKEN BY THE ASSESSEE THE LD. ASSESSING OFFICER HAVING TAKEN A STAND THAT FOREIGN EXCHANGE GAIN 'DERIVED IN EARLI ER YEARS AS ITA NOS.160 & 311/13 AND 2915/14 :- 18 -: REVENUE RECEIPT AND TAXABLE HE HAS TO ALLOW THE LO SS ARISEN OUT OF FOREIGN EXCHANGE FLUCTUATION AS EXPENDITURE IN VIEW OF THE DECISION TAKEN BY THE HON'BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA LTD (312 ITR 254) . WITH REGARD TO THE EXACT AMOUNT OF SUCH LOSS THE ASSESSEE HAS SUBMITTED THE DETAI LS DURINQ THE COURSE OF APPEAL PROCEEDINGS AS PER WHICH ONLY =38 70 715 /- APPEAR TO BE THE EXCHANGE FLUCTUATION LOSS OUT OF F CCN. HOWEVER THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE DETAILS AND ALLOW THE LOSS A RISEN OUT OF EXCHANGE FLUCTUATION AS EXPENDITURE AND LD. COMMISS IONER OF INCOME TAX (APPEALS) PARTLY ALLOWED THE GROUND. AG AINST THIS THE REVENUE IS IN APPEAL BEFORE US. 10.3 WE HEARD THE RIVAL SUBMISSIONS PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AUTHO RISED REPRESENTATIVE STRONGLY PLACED RELIANCE ON THE FOLLOWING JUDGMENTS :- (I) CIT VS. WOODWARD GOVERNOR 312 ITR 254. (II) EID PARRYS LTD. VS. CIT 174 ITR 11 . IN OUR OPINION THESE JUDGMENTS CANNOT BE APPLIED TO THE FACTS OF THE CASE AS ADDITIONAL LIABILITY RESULTING ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IN RESPECT OF FOREIGN CURRENCY CONVERTI BLE NOTES CANNOT BE ITA NOS.160 & 311/13 AND 2915/14 :- 19 -: CONSIDERED AS A CAPITAL LOSS. IN OUR VIEW LOSS ON ACCOUNT OF EXCHANGE FLUCTUATION IS IN THE FIELD OF REVENUE IF THE FUND ARISING FROM FOREIGN CURRENCY CONVERTIBLE NOTES USED FOR THE PURPOSE OF WORKING CAPITAL PURPOSE. ON THE OTHER HAND FUND RAISED THROUGH FO REIGN CURRENCY CONVERTIBLE NOTES USED FOR ACQUISITION OF FIXED AS SET IT SHOULD BE IN CAPITAL FIELD. MERE AGREEMENTS IS NOT ENOUGH TO CO NCLUDE THAT THE FOREIGN CURRENCY CONVERTIBLE NOTES IN QUESTION WE RE OBTAINED FOR ACQUIRING CURRENT ASSETS/CAPITAL ASSETS. IN OUR OP INION THIS IS TO BE EXAMINED BY THE LD. ASSESSING OFFICER IN THE LIGHT OF THE ORDER OF THE SPECIAL BENCH IN THE CASE OF OIL & NATURAL GAS CORPORATION LTD VS. DCIT 83 ITD 151 (DEL)(SP) . ACCORDING THIS ISSUE IS REMITTED BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR FRESH CON SIDERATION. 11. THE FOURTH GROUND RAISED BY THE REVENUE IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIREC TING THE LD. ASSESSING OFFICER TO ALLOW THE DEPRECIATION @60% O N THE UPS. 11.1 AFTER HEARING BOTH THE SIDES WE ARE OF THE OP INION THAT SIMILAR ISSUE CAME BEFORE THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2006-2007 IN ITA NO.2086/MDS/2010 D ATED 16.02.2016 WHEREIN HELD AS UNDER:- ITA NOS.160 & 311/13 AND 2915/14 :- 20 -: 12.4 WE HAVE HEARD THE SUBMISSIONS PERUSED THE MATERIAL ON RECORD. THE CLAIM OF THE ASSESSEE UPS IS A ENERGY SAVING DEVICE AND ALTERNATIVE CLAIM THAT IT IS A INTEGRAL PART OF COMPUTER CANNOT FIT I NTO THE BLOCK. THE UPS SYSTEM IS ONLY SUPPORTING THE SYSTEM AND IS LIKE OTHER PLANT AND MACHINERY AND H AS SEPARATE IDENTITY ON ITS OWN. THEREFORE WE FOLLOW THE CO-ORDINATE BENCH DECISION OF THE TRIBUNAL AND ALLO W DEPRECATION 25% ONLY AND ACCORDINGLY THE APPEAL I S PARTLY ALLOWED. THIS GROUND OF THE REVENUE IS PARTLY ALLOWED. 12. THE LAST GROUND RAISED BY THE REVENUE IS THAT T HE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDI NG THAT PROVISIONS OF SEC. 40(A)(I) ARE NOT APPLICABLE IN RESPECT OF I NCOME ACCRUED TO NON- RESIDENTS ON CONVERSATION OF FOREIGN CURRENCY CONVE RTIBLE NOTES (FCCN) AND DELETING THE ADDITIONS OF =8 84 07 000/-. 12.1 AFTER HEARING BOTH THE SIDES WE ARE OF THE OP INION THAT SIMILAR ISSUE CAME BEFORE THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2006-2007 IN ITA NO.2826/MDS/2014 D ATED 23.09.2016 WHEREIN HELD AS UNDER:- 43.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. PLAIN READING OF SEC.47(X) R.W .S. 49(2A) OF THE ACT DOES NOT SPECIFY TRANSFER ON CONVERSIO N OF FCCN TO SHARES AND IT CANNOT BE SAID THAT THE ASSESSEE I NCURRED ANY EXPENDITURE SO AS TO DEDUCT TDS U/S.40(A)(I) OF THE ACT AND ACCORDINGLY DELETION BY THE COMMISSIONER OF IN COME ITA NOS.160 & 311/13 AND 2915/14 :- 21 -: TAX (APPEALS) IS JUSTIFIED. THIS GROUND OF THE REV ENUE IS REJECTED. THE GROUND OF THE REVENUE IS DISMISSED. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE AND REVENUE IN ITA NO.160/MDS/2013 AND ITA NO.2915/MDS/2014 IS PA RTLY ALLOWED FOR STATISTICAL PURPOSE AND IN ITA NO. 311/2013 OF REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON THURSDAY THE 20TH DAY O F OCTOBER 2016 AT CHENNAI. SD/- SD/- ( . ) ( DUVVURU RL REDDY ) / JUDICIAL MEMBER #$% & '( ) (CHANDRA POOJARI) ) / ACCOUNTANT MEMBER / CHENNAI + / DATED: 20.10.2016 KV ' -#(./ 0/%( / COPY TO: 1 . 12 / APPELLANT 3. & 3( () / CIT(A) 5. /!67 -#(# / DR 2. -812 / RESPONDENT 4. & 3( / CIT 6. 7$ 9 / GF