Birlasoft (India) Ltd., New Delhi v. ACIT, New Delhi

ITA 479/DEL/2016 | 2011-2012
Pronouncement Date: 29-09-2016 | Result: Allowed

Appeal Details

RSA Number 47920114 RSA 2016
Assessee PAN AAACB2769E
Bench Delhi
Appeal Number ITA 479/DEL/2016
Duration Of Justice 8 month(s)
Appellant Birlasoft (India) Ltd., New Delhi
Respondent ACIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 29-09-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I1
Tribunal Order Date 29-09-2016
Date Of Final Hearing 04-08-2016
Next Hearing Date 04-08-2016
Assessment Year 2011-2012
Appeal Filed On 29-01-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 1 NEW DELHI BEFORE SH. N. K. SAINI A M AND SMT. BEENA PILLAI JM ITA NO. 479 /DEL/201 6 : ASSTT. YEAR : 2011 - 12 BIRLASOFT (INDIA) LTD. (FOR MERLY BIRLASOFT LTD.) 8 TH FLOOR BIRLA TOWER 25 BARHKHAMBA ROAD NEW DELHI - 110001 VS ASSTT. C OMMISSIONER OF I NCOME T AX CIRCLE - 5 (1) NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. A A ACB2769E SA NO. 44/DEL/2016 ( IN ITA NO. 479/DEL/2016 : ASSTT. YEAR : 2011 - 12) BIRLASOFT (INDIA) LTD. (FORMERLY BIRLASOFT LTD.) 8 TH FLOOR BIRLA TOWER 25 BARHKHAMBA ROAD NEW DELHI - 110001 VS ASSTT. COMMISSIONER OF INCOME TAX CIRCLE - 5(1) NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACB2769E ASSESSEE BY : SH. AJAY VOHRA SR. ADV. SH. NEERAJ JAIN ADV. & ABHISHEK AGARWAL CA REVENUE BY : SH. N. C. SWAIN CIT DR DATE OF HEARING : 04 .0 8 .2 01 6 DATE OF PRONOUNCEMENT : 29 .09 .201 6 ORDER PER N. K. SAINI AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 31.12 .2015 OF THE AO PASSED U/S 144C R.W.S. 143(3) OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE ASSESSEE HAS ALSO MOVED AN APPLICATION FOR THE STAY OF THE IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 2 RECOVERY OF OUTSTANDING DEMAND AMOUNTING TO RS. 37 50 83 420/ - . 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN COMPLETING THE ASSESSMENT UNDER SECTION 144C READ WITH SECTION143(3) OF THE INCOME - TAX ACT (THE ACT) AT AN INCOME OF RS. 73 60 36 382 AS AGAINST THE LOSS OF RS. 34 78 61 077 RETURNED BY THE APPELLANT. 2. THAT THE ASSESSING OFFICER ERRED ON FAC TS AND IN LAW IN MAKING ADJUSTMENT OF RS. 103 59 59 621 TO THE INCOME OF THE APPELLANT ON ACCOUNT OF THE ALLEGED DIFFERENCE IN THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES UNDERTAKEN DURING THE PREVI OUS YEAR ON THE BASIS OF ORDER PASSED BY TRANSFER PRICING OFFICER ('TPO') UNDER SECTION 92CA(3) OF THE ACT. 2.1 THAT THE DISPUTE RESOLUTION PANEL ('DRP')/TPO ERRED ON FACTS AND IN LAW IN DISREGARDING THE INTERNAL BENCHMARKING UNDERTAKEN BY THE APPELLANT F OR DETERMINING THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS APPLYING TNMM HOLDING THAT: (I) THE APPELLANT DID NOT MAINTAIN SEGMENTAL ACCOUNTS FOR THE RELATED AND NON - RELATED TRANSACTIONS AND THERE WAS NO SEGREGATION OF THESE ACTIVITIES IN TH E AUDITED FINANCIALS. IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 3 (II) IN THE SEGMENTAL ACCOUNTS PREPARED BY THE APPELLANT EXPENSES WHICH CANNOT BE DIRECTLY ALLOCATED ARE APPORTIONED ON THE BASIS OF RESPECTIVE TURNOVER AND IS NOT RELIABLE AT ALL. (III) THAT THE CHARTERED ACCOUNTANTS WHILE AUDITING THE SEGMENT ANALYSIS HAS RELIED ON THE SEGMENTS DRAWN BY THE MANAGEMENT. (IV) THAT THE APPELLANT HAS FAILED TO PROVIDE THE DETAILS OF EMPLOYEES FUNCTIONING UNDER THE AE AND NON - AE SEGMENTS. 2.2 THAT THE DRP/ TPO ERRED ON FACTS AND IN LAW IN HOLDIN G THAT THE INTERNAL COMPARABILITY DOES NOT PROVIDE MEANINGFUL BENCHMARKING EVEN AFTER ACCEPTING THAT FAR OF THE SEGMENTS ARE IDENTICAL AND CONCURRENT TRANSACTIONS OF BOTH THE SEGMENTS ARE HOMOGENEOUS. 2.3 THAT THE DRP/ TPO ERRED ON FACTS AND IN LAW IN D ISREGARDING THE INTERNAL BENCHMARKING ANALYSIS APPLYING TNMM UNDERTAKEN BY THE APPELLANT WITHOUT POINTING OUT ANY ERROR OR MISTAKE IN THE SEGMENTAL PROFITABILITY IN RELATION TO REVENUE EARNED FROM AE AND NON AES TRANSACTIONS WORKED OUT BY THE APPELLANT AN D ALSO CERTIFIED BY INDEPENDENT CHARTERED ACCOUNTANTS. 2.4 WITHOUT PREJUDICE WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES WITH EXTERNAL COMPARABLES THE DRP/ TPO ERRED ON FACTS AND IN LAW IN CONSIDERING T HE FOLLOWING COMPANIES WHICH DOES NOT PASS IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 4 COMPARABILITY CRITERIA PROVIDED UNDER RULE 10B(2) OF THE INCOME TAX RULES: I. ACROPETAL TECHNOLOGIES LIMITED II. INFOSYS LTD. III. WIPRO TECHNOLOGY SERVICES IV. IGATE GLOBAL SOLUTIONS LTD V. E - INFOCHIPS LTD. VI . SANKHYA INFOTECH LTD. VII. SASKEN COMMUNICATION TECHNOLOGIES LTD. VIII. E - ZEST SOLUTIONS LTD. IX. PERSISTENT SYSTEMS & SOLUTIONS LTD. X. INFOR GLOBAL SOLUTIONS XI. ZYLOG SYSTEMS LTD 2.5 THAT THE DRP ERRED ON THE FACTS AND IN LAW IN SUSTAINING THE INCLUS ION OF INFOR GLOBAL LIMITED AS COMPARABLE WITHOUT ADJUDICATING THE OBJECTION OF THE APPELLANT THAT IN THE ABSENCE OF AVAILABILITY OF RELIABLE AUDITED FINANCIAL INFORMATION IN THE PUBLIC DOMAIN THE COMPANY CANNOT BE CONSIDERED AS COMPARABLE. 2.6 THAT ON T HE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP/ TPO ERRED IN REJECTING THE CONTENTION OF THE APPELLANT REGARDING RISK ADJUSTME NT ALLEGEDLY HOLDING THAT IN ABSENCE OF ROBUST AND RELIABLE DATA BOTH FOR THE ASSESSEE AND FOR THE COMPARABLE S RISK ADJUSTMENT CANNOT BE CONSIDERED FOR ENHANCING COMPARABILITY. 2.7 WITHOUT PREJUDICE THAT THE ASSESSING OFFICER/TPO ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ADJUSTMENT IN THE ARM'S LENGTH PRICE AT BEST SHOULD ONLY BE RESTRICTED TO THE IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 5 INTERNATIONAL TRANSACTION UNDERTAKEN WITH THE ASSOCIATED ENTERPRISE AND NOT TO THE ENTIRE TURNOVER OF THE APPELLANT. 3. THAT THE ASSESSING OFFICER/DRP ERRED ON FACTS AND IN LAW IN DISALLOWING DEDUCTION OF INCOME AMOUNTING TO RS. 4 78 62 710 CLAIMED UNDER SECTION 10A OF THE ACT IN RESPECT OF GE - GDC UNIT HOLDING THAT GE - GDC UNIT IS NOT ALTOGETHER DIFFERENT OR NEW UNIT BUT AN EXTENSION OF AN EXISTING STP UNIT AS BOTH THE UNITS ARE SITUATED IN THE SAME BUILDING AND DOING THE SAME BUSINESS. 3.1 THAT THE ASSES SING OFFICER/DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT GE - GDC WAS SET UP AS AN INDEPENDENT STANDALONE UNIT WITH SUBSTANTIAL FRESH INVESTMENT OF 8.42 CRORES AND WAS SEPARATELY REGISTERED WITH STPI AND CUSTOM AUTHORITY AS A NEW UNDERTAKING FOR P RODUCTION OF COMPUTER SOFTWARE. 3.2. THAT THE DRP ERRED ON FACTS AND IN LAW IN SUSTAINING THE AFORESAID DISALLOWANCE ON THE BASIS THAT THE REVENUE HAS CHALLENGED THE DECISION OF THE HON'BLE TRIBUNAL DELETING SIMILAR DISALLOWANCE MADE IN EARLIER YEARS BE FORE THE HON'BLE HIGH COURT AND THEREFORE THE MATTER HAS NOT REACHED FINALITY. 4. THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN MAKING AN AD - HOC DISALLOWANCE OF INTEREST EXPENSES OF RS. 75 128 ALLEGEDLY HOLDING THAT THE INTEREST PAID ON SH ORT TERM LOANS WHICH ARE INVESTED IN ACQUISITION OF FIXED ASSETS SHALL BE CAPITALIZED ALONG WITH THE FIXED ASSETS. IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 6 4 1 THAT THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE FIXED ASSETS WERE ACQUIRED BY THE ASSESSEE OUT OF ITS OWN FUNDS AND ACCORDINGLY NO INTEREST EXPENSES SHALL BE AGGREGATED WITH THE VALUE OF FIXED ASSETS. 4.2 WITHOUT PREJUDICE THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN ALLEGEDLY CONSIDERING THE INTEREST RATE AT 15% ON THE SHORT TERM LOANS F OR THE PURPOSE OF COMPUTING THE INTEREST TO BE CAPITALIZED. 4.3 WITHOUT PREJUDICE THE ASSESSING OFFICER/ DRP ERRED ON FACTS AND IN LAW IN NOT ALLOWING DEPRECIATION ON THE INCREASED COST OF ACQUISITION / WRITTEN DOWN VALUE OF SUCH ASSET AFTER INCLUDING INT EREST EXPENSES OF RS. 75 128. 5. T HAT THE ASSESSING OFFICER ERRED ON FACTS AND IN LAW IN LEVYING INTEREST UNDER SECTION 234B AND SECTION 234C OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD ALTER AM END OR VARY FROM THE AFORESAID G OUNDS OF AP PEAL BEFORE OR AT THE TIME OF HEARING. 3. GROUND NO. 1 IS GENERAL IN NATURE SO IT DO ES NOT REQUIRE ANY ADJUDICATION ON OUR PART. 4. VIDE GROUND NOS. 2 TO 2.7 THE GRIEVANCE OF THE ASSESSEE RELATES TO THE TRANSFER PRICING ADJUSTMENT AMOUNTING TO IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 7 RS.103 59 59 621/ - IN RESPECT OF INTERNATIONAL TRANSACTION OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES. 5. F ACTS OF THE CASE RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 20.01.1995 IT WAS ENGAGED IN THE ACTIVITIES OF SOFTWARE DEVELOP MENT AND RELATED SERVICES. THE SAID BUSINESS WAS BEING CARRIED OUT FROM THE STP UNIT. THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 30.09.2011 DECLARING NIL INCOME AS PER NORMAL PROVISION IN THE COMPUTATION OF INCOME. THE ASSESSEE HAD ALSO CARRIED FO RWARDED LOSS OF CURRENT YEAR AMOUNTING TO RS.34 78 61 077/ - . THE SAID RETURN WAS PROCESSED U/S 143(1) OF THE ACT. LATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE AO REFERRED THE MATTER TO THE TPO TO DETERMINE THE ARM S LENGTH PRICE U/S 92CA(3) OF T HE ACT IN RESPECT OF INTERNATIONAL TRANSACTIONS. THE TPO PROPOSED AN ADJUSTMENT OF RS.112 18 06 048/ - ON ACCOUNT OF THE ARM S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION WITH AE S RELATING TO PROVISION OF SOFTWARE DESIGN AND DEVELOPMENT SERVICES BY PASSING THE ORDER U/S 92CA(3) OF THE ACT. THE REFORE THE AO ASKED THE ASSESSEE TO SHOW - CAUSE AS TO WHY THE TP ADJUSTMENT OF THE AFORESAID AMOUNT BE NOT MADE IN TAXABLE INCOME AS RECOMMENDED BY THE TPO. THE SUBMISSIONS OF THE ASSESSEE DID IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 8 NOT FIND MERIT WITH THE AO AND ACCORDINGLY THE SAID ADDITION WAS PROPOSED IN THE DRAFT ASSESSMENT ORDER. 6. BEING AGGRIEVED THE ASSESSEE FILED THE OBJECTIONS BEFORE THE LD. DRP WHO DIRECTED THE TPO TO CORRECT CERTAIN CALCULATION MISTAKES WHILE WORKING OUT THE ADJUSTMENT BY OBSERVING AS UNDER: IN THIS REGARD THE TAXPAYER IS DIRECTED TO PROVIDE ALL THE BACKUP DETAILS TO THE TPO WITH WORKING SO THAT IT MAY BE POINTED OUT AS TO WHERE TPO HAS FAULTED IN THE CALCULATION AND FURTHER TPO IS DIRE CTED TO CONSIDER THE SAME WHILE WORKING OUT THE ADJUSTMENT. 7. THEREAFTER THE TPO WORKED OUT THE ADJUSTMENT AT RS.103 59 59 621/ - WHICH WAS ADDED BY THE AO TO THE INCOME OF THE ASSESSEE. 8. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF T HE ASSESSEE IN THE EARLIER YEAR IN ASSESSEE S OWN CASE IN ITA NO. 200/DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11 ORDER DATED 17.04.2015 (COPY OF WHICH IS PLACED AT PAGE NOS. 114 TO 1 36 OF THE ASSESSEE S PAPER BOOK). THE LD. CIT DR ALTHOUGH SUPPORTED THE ORDERS OF THE IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 9 AUTHORITIES BELOW BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE. 9. AFTER CONSIDERING THE SUBMISSIONS OF BOT H THE PA RTIES AND CAREFULLY GOING THROUGH THE MATERIAL AVAILABLE ON THE RECORD I T IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED BY THIS BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2010 - 11 IN ITA NO. 200/DEL/2015 WHEREIN RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 6 & 7 OF THE ORDER DATED 17.04.2015 WHICH READ AS UNDER: 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOT ICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS WAS A SUBJECT MATTER OF ADJUDICATION IN ASSESSEE S OWN CASE IN ITA NO. 1572/DEL/2014 FOR THE ASSESSMENT YEAR 2009 - 10 WHEREIN THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 17 & 18 OF THE ORDER DATED 28.07.2 014 WHICH READ AS UNDER: 17. THE LD COUNSEL POINTED OUT THAT A CO - ORDINATE BENCH OF THIS TRIBUNAL IN APPELLANT S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07 REPORTED IN 136 TTJ 505 HAD ALLOWED THE APPEAL OF THE ASSESSEE AND HELD AS UNDER: - 17. IN THE LI GHT OF THE DISCUSSIONS MADE ABOVE WE THEREFORE HOLD THAT THE ASSESSEE WAS JUSTIFIED IN UNDERTAKING INTERNAL BENCH MARKING ANALYSIS ON STANDALONE BASIS BY PLACING ON RECORD WORKING OF OPERATING PROFIT MARGIN FROM INTERNATIONAL TRANSACTIONS WITH AES AND TR ANSACTIONS WITH UNRELATED PARTIES UNDERTAKEN IN SIMILAR IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 10 FUNCTIONAL AND ECONOMIC SCENARIO AND THE SAME SHOULD BE THE BASIS FOR DETERMINATION OF ARM S LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTIONS UNDERTAKEN WITH THE ASSOCIATED ENTERPRISE. IN THE LI GHT OF THE FACTS OF THE PRESENT CASE AS DISCUSSED ABOVE WE THEREFORE HOLD THAT THE TRANSFER PRICING OFFICER HAD THE PRESENT CASE AS DISCUSSED ABOVE WE THEREFORE HOLD THAT THE TRANSFER PRICING OFFICER HAD TO MANDATE TO HAVE RECOURSE TO EXTERNAL COMPARAB LES WHEN THE PRESENT CASE INTERNAL COMPARABLES WERE AVAILABLE WHICH COULD BE APPLIED FOR DETERMINING THE ARM S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WITH AES. WE THEREFORE DIRECT THE ASSESSING OFFICER/ TRANSFER PRICING OFFICER TO DETERMINE ARM S L ENGTH PRICE OF INTERNATIONAL TRANSACTIONS WITH AES BY MAKING INTERNAL COMPARISON OF THE NET MARGIN EARNED BY THE ASSESSEE FROM THE INTERNATIONAL TRANSACTION WITH ASSOCIATED ENTERPRISES AND THE PROFIT EARNED BY THE ASSESSEE FROM THE INTERNATIONAL TRANSACTIO NS WITH UNRELATED PARTIES. IN THIS RESPECT THE ASSESSEE HAS ALREADY GIVEN HIS WORKING BY ALLOCATING REVENUE AND EXPENSES TO BOTH THE SEGMENTAL AND DETERMINED SEPARATE PROFITABILITY. HOWEVER ON PERUSAL OF THE TPO S ORDER WE FIND THAT THE TPO HAS NOT UNDER TAKEN ANY EXERCISE TO EXAMINE THE CORRECTNESS OF THE WORKINGS DONE BY THE ASSESSEE. WE THEREFORE RESTORE THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER/ TRANSFER PRICING OFFICER FOR FRESH ADJUDICATION AND FOR THE PURPOSE OF DETERMINING THE ARM S L ENGTH PRICE IN RESPECT OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN WITH THE ASSOCIATED ENTERPRISE BY MAKING INTERNAL COMPARISON OF PROFITABILITY FROM THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISE AND PROFITABILITY FROM THE INTERNATIONAL TRANSA CTIONS WITH UNRELATED PARTIES AFTER ALLOCATING RESPECTIVE REVENUES AND EXPENSES TO BOTH THE SEGMENTAL. THE ASSESSING OFFICER/TPO SHALL PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 11 SHALL FURNISH ALL THE DETAILS AND PARTICULARS BEFORE THE AUTHORITIES BELOW TO ENABLE THEM TO MAKE INTERNAL COMPARISON OF THE PROFITABILITY FROM THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISE AND UNRELATED PARTIES UNDERTAKEN BY THE ASSESSEE IN THE SIMILAR FUNCTIONAL AND ECONOMIC SCENARIO WE ORDER ACCORDINGLY. 18. SINCE WE HAVE ACCEPTED THE ASSESSEE S STAND THAT ARM S LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTIONS UNDERTAKEN WITH ASSOCIATED ENTERPRISES IS TO BE DETERMINED ON THE BASIS OF INTERNAL COMPARISON OF THE PROFIT EARNED FROM THE INTERNATIONAL TRANSACTIONS WITH AES AND PROFIT EARNED FROM INTERNATIONAL TRANSACTIONS WITH UNRELATED PARTIES WE DO NOT GO TO DECIDE WHETHER THE EXTERNAL COMPARABLES SELECTED BY THE TPO WERE PROPER OR JUSTIFIED TO MAKE ARM S LENGTH PRICE IN THE PRESEN T CASE AS THAT ISSUE HAS BECOME ACADEMIC AT THIS STAGE. 18 . WE FIND FROM A PERUSAL OF THE AFORESAID ORDER THAT THE CO - ORDINATE BENCH RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER/ TRANSFER PRICING OFFICER FOR FRESH ADJUDICATION; AND FOR T HE PURPOSE OF DETERMINING THE ARM S LENGTH PRICE IN RESPECT OF THE INTERNATIONAL TRANSACTIONS UNDERTAKEN WITH THE ASSOCIATED ENTERPRISE BY MAKING INTERNAL COMPARISON OF PROFITABILITY FROM THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISE AND PROFIT ABILITY FROM THE INTERNATIONAL TRANSACTIONS WITH UNRELATED PARTIES AFTER ALLOCATING RESPECTIVE REVENUES AND EXPENSES TO BOTH THE SEGMENTS. WE FIND THAT IN ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 TOO THE TRIBUNAL HAS RELIED ON ITS OWN PREVIOUS ORDER AND UPHE LD THE BENCHMARKING ANALYSIS UNDERTAKEN BY THE APPELLANT CONSIDERING INTERNAL COMPARABLE FOR DETERMINING ARM S LENGTH PRICE. SIMILARLY WE ALSO FIND THAT VIDE ORDER DATED 06.05.2014 THE A CO - ORDINATE BENCH OF THIS TRIBUNAL IN APPELLANT S OWN CASE FOR ASSE SSMENT YEAR 2005 - 06(ITA NO. 4713/DEL/2011) IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 12 UPHELD THE INTERNAL BENCHMARKING UNDERTAKEN BY THE APPELLANT CONSIDERING THE RATIO LAID DOWN IN THE DECISION OF TEHNIMONT (SUPRA) AND THE DECISION OF THIS TRIBUNAL IN THE APPELLANT S OWN CASE FOR ASSESSMENT YEAR 2006 - 07. THEREFORE IN THE LIGHT OF THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL WE RESPECTFULLY FOLLOW IT AND SET - ASIDE THE ORDER OF THE AO/TPO ON THIS ISSUE AND RESTORE IT BACK TO THE FILE OF THE AO/TPO WITH THE DIRECTION AS STATED IN ORDER FOR ASSESSMENT YEAR 2006 - 07 AS REPRODUCED ABOVE IN PARA 20. 7. SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO ORDERS DATED 28.07.2014 FOR THE ASSESSMENT YEAR 2009 - 10 IN ASSESSEE S OWN CASE IN ITA NO. 1572/DEL/2014. SO RESPECTFULLY FOLLOWING THE SAID ORDER THIS ISSUE IS SET ASIDE TO THE FILE OF THE AO/TPO TO BE DECIDED AS DIRECTED FOR THE ASSESSMENT YEAR 2009 - 10. 10. SINCE THE FACTS FOR THE YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FA CTS INVOLVED IN THE PRECEDING YEAR SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DATED 17.04.2015 THIS ISSUE IS SET ASIDE TO THE FILE OF THE AO/TPO TO BE DECIDED AS HAS BEEN DIRECTED FOR THE PRECEDING ASSESSMENT YEAR 2010 - 11 IN ITA NO. 200/DEL /2015 . 11. NEXT ISSUE VIDE GROUND NOS. 3 TO 3.2 RELATES TO THE DISALLOWANCE OF DEDUCTION OF INCOME OF RS.4 78 62 710/ - CLAIMED AS EXEMPT U/S 10A OF THE ACT IN RESPECT OF GE - GDC UNIT. IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 13 12. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE ASSESSEE ORIG INALLY HAD SET UP A STP UNIT AT 2 ND FLOOR BLOCK - III NOIDA WHICH WAS REGISTERED AS STP UNIT IN THE YEAR 1995. THEREAFTER ANOTHER NEW STP UNIT WAS SET UP AT 3 RD FLOOR BLOCK - III SECTOR - 29 NOIDA IN THE ASSESSMENT YEAR 2002 - 03. THE NATURE OF THE WORK AND THE KIND OF SOFTWARE SERVICES PROVIDED BY THE ASSESSEE COMPANY IN THE ABOVE MENTIONED TWO UNITS WERE IDENTICAL. THE AO ASKED THE ASSESSEE TO EXPLAIN SINCE THE NATURE OF BUSINESS AND THE KIND OF SERVICES PROVIDED BY THE ASSESSEE WAS THE SAME WHY THE STP U NIT ESTABLISHED BE NOT TREATED AS RECONSTRUCTION OF THE ASSESSEE COMPANIES ORIGINAL BUSINESS AND WHY BOTH UNITS SHOULD NOT BE TREATED AS SINGLE UNIT. THE AO AFTER CONSIDERING THE REPLY OF THE ASSESSEE WAS OF THE VIEW THAT THE NEW UNIT WAS SET UP TO MEET TH E INCREASED CLIENT BASE AND WAS EXISTING COMPANY AND EVEN IF THE NEW UNIT IS TREATED AS A SEPARATE UNIT THE EXEMPTION U/S 10A OF THE ACT CANNOT BE ALLOWED TO THE ASSESSEE COMPANY SINCE THERE WAS NO CHANGE IN THE BUSINESS CARRIED OUT BY THE ASSESSEE AND TH E UNIT WAS SET UP AS A RESULT OF EXTENSION OF THE EXISTING BUSINESS OF THE ASSESSEE. THE CONTENTION OF THE ASSESSEE THAT THE ITAT HAD PRONOUNCED DECISION IN ITS FAVOUR IN THE ASSESSMENT YEARS 2003 - 04 2004 - 05 2006 - 07 AND 2007 - 08 WAS NOT ACCEPTED BY THE AO BY OBSERVING THAT THE DEPARTMENT HAD PREFERRED FURTHER IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 14 APPEAL IN THE HON BLE HIGH COURT . A CCORDINGLY EXEMPTION CLAIMED U/S 10A OF THE ACT AMOUNTING TO RS.4 78 62 710/ - WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 13. NOW THE ASSESSEE IS IN A PPEAL. THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVERED VIDE ORDER DATED 28.07.2014 IN ITA NO. 1572/DEL/2014 FOR THE ASSESSMENT YEAR 2009 - 10 (COPY OF WHICH IS PLACED AT PAGE NOS. 101 TO 116 OF THE ASSESSEE S PA PER BOOK). THE LD. CIT DR ALTHOUGH SUPPORTED THE IMPUGNED ORDER BUT COULD NOT CONTROVERT THE AFORESAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MAT ERIAL AVAIL ABLE ON THE RECORD. IN THE PRESENT CASE I T IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE VIDE AFORESAID REFERRED TO ORDER DATED 28.07.2014 FOR THE ASSESSMENT YEAR 2009 - 10 WHEREIN RELEVANT FI NDINGS HAVE BEEN GIVEN IN PARAS 22 & 2 3 OF THE SAID ORDER WHICH READ AS UNDER: 22. ACCORDING TO THE LD COUNSEL SHRI AJAY VOHRA THE AO/DRP ERRED IN NOT APPRECIATING THAT GE - GDC WAS SET UP AS AN INDEPENDENT STAND ALONE UNIT WITH IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 15 SUBSTANTIAL FRESH INVESTME NT OF RS. 8.42 CRORES AND WAS SEPARATELY REGISTERED WITH STPI AND CUSTOM AUTHORITY AS A NEW UNDERTAKING FOR PRODUCTION OF COMPUTER SOFTWARE. AT THE OUTSET ITSELF THE LD COUNSEL POINTED OUT THAT THE ISSUE WAS ALSO DECIDED IN FAVOR OF THE APPELLANT BY THE DE LHI BENCH OF THE TRIBUNAL IN ITS OWN CASE OF THE AY 2003 - 4 IN ITA NOS. 3821 AND 3919/DEL/2006 AND ALSO IN ASSESSMENT YEAR 2006 - 07 2007 - 08 AND 2008 - 09 IN ITA NO. 3839/DEL/2010 ITA NO. 4776/DEL/2011 AND ITA NO. 284/DEL/2013 RESPECTIVELY. 5.5 THE LD COU NSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ITAT IN THE CASE OF ASSESSEE FOR THE ASSESSMENT YEAR 2003 - 04 HAS HELD THAT BOTH THE UNITS BEING SEPARATE AND INDEPENDENT OF EACH OTHER WERE ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. 5.6 WE HAVE HEARD BO TH THE PARTIES AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE COMPANY IS ENGAGED IN THE ACTIVITIES OF SOFTWARE DEVELOPMENT AND RELATED SERVICES. THE SOFTWARE RELATED BUSINESS IS BEING CARRIED OUT FROM THE STP UNIT AND THE EXEMPTION U/S 10A HAS BEEN CLAIMED. ORIGINALLY THE ASSESSEE COMPANY HAD SET UP A STP UNIT AT 2ND FLOOR BLOCK - 3 SECTOR - 29 NOIDA AND IT WAS REGISTERED IS STP UNIT IN THE YEAR OF 1995. THEREAFTER ANOTHER NEW STP UNIT WAS SET UP AT 3RD FLOOR BLOCK - 3 SECTOR - 29 N OIDA IN THE ASSESSMENT YEAR 2002 - 03. THE NEW STP UNIT WAS TREATED BY THE ASSESSEE TO BE AN INDEPENDENT UNIT FOR THE PURPOSE OF EXEMPTION CLAIMED U/S 10A OF THE ACT. HOWEVER THE ASSESSING OFFICER HAS NOT ACCEPTED THE CLAIM OF THE ASSESSEE BY HOLDING THAT T HE NEW UNIT IS NOTHING BUT AN EXTENSION OF THE EXISTING UNIT AND NOT IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 16 ENTITLED TO SEPARATE DEDUCTION OF EXEMPTION U/S 10A. WE FIND THAT AN IDENTICAL ISSUE HAD ARISEN IN THE ASSESSMENT YEAR 2003 - 04 BEFORE THE TRIBUNAL WHERE THE TRIBUNAL VIDE ORDER DATED 27.0 3.2009 IN ITA NOS. 3821/DEL/2006 AND ITA NOS. 3919/DEL/2006 HAS HELD AND OBSERVED AS UNDER: - 2.9 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE CLAIM OF ASSESSEE FOR DEDUCTION U/S 10A I N RESPECT OF PROFITS DERIVED FROM THE STP UNIT KNOWN AS GE - GDC WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE PAGE NO. 10 SAID UNIT WAS SET UP AS A RESULT OF RECONSTRUCTION OF THE EXISTING BUSINESS OF THE ASSESSEE COMPANY. IN HIS IMPUGNED O RDER THE LD CIT(A) HOWEVER HELD THAT THE SAID NEW UNIT WAS NOT SET UP BY THE ASSESSEE COMPANY BY WAY OF RECONSTRUCTION OR SPLITTING UP OF THE UNIT ALREADY IN EXISTENCE. IN ITS APPEAL BY REVENUE AGAINST THE SAID ORDER OF LD CIT(A) THE DECISION SO RENDERED BY LD CIT(A) HAS NOT BEEN CHALLENGED AND THE SAME THEREFORE HAS BECOME FINAL. THE LD CIT(A) HOWEVER FURTHER HELD THAT THE ESTABLISHMENT OF A NEW UNIT BY THE ASSESSEE COMPANY WAS A PART OF EXPANSION OF ITS EXISTING UNIT AND SINCE BOTH THESE UNITS WERE E NTITLED FOR DEDUCTION U/S 10A THE SAID DEDUCTION SHOULD BE COMPUTED ON THE COMBINED PROFIT OF BOTH THESE UNITS TREATING THE SAME AS ONE UNIT. HE HOWEVER HAS NOT GIVEN ANY REASON WHATSOEVER OR HAS NOT REFERRED TO ANY PROVISIONS OF THE ACT TO SUPPORT HIS CONCLUSION THAT BOTH THE UNITS SHOULD HAVE BEEN TREATED AS ONE UNIT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A. IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 17 2.10 AT THE TIME OF HEARING BEFORE US THE LD COUNSEL FOR THE ASSESSEE HAS RELIED ON THE VARIOUS JUDICIAL PRONOUNCEMENTS WHEREIN IT WAS H ELD THAT WHERE A NEW UNDERTAKING HAS BEEN FORMED WITH FRESH CAPITAL AND INVESTMENT WITH A MOTIVE TO INCREASE THE PRODUCTION CAPACITY AND EXPAND ITS BUSINESS THEN IT CANNOT BE SAID THAT THE NEW UNDERTAKING WAS NOT THE NEW INDUSTRIAL UNIT BY ITSELF. IT WAS ALSO HELD THAT ESTABLISHMENT OF NEW INDUSTRIAL UNIT AS A PART OF ALREADY EXISTING INDUSTRIAL ESTABLISHMENT MAY RESULT IN AN EXTENSION OF THE INDUSTRY BUT IF NEWLY ESTABLISHED UNIT ITSELF IS AN INTEGRATED UNIT IN WHICH NEW PLANT AND MACHINERY ARE PUT UP AN D THE SAME ITSELF INDEPENDENTLY OF THE OLD UNIT CAPABLE OF PRODUCTION OF GOODS THEN IT CAN BE CLASSIFIED AS A NEWLY ESTABLISHED INDUSTRIAL UNDERTAKING. THIS MAKES IT ABUNDANTLY CLEAR THAT EVEN IF THE NEW UNIT WAS ESTABLISHED BY THE ASSESSEE COMPANY AS EXP ANSION OF ITS EXISTING UNIT A SUBSTANTIAL FRESH CAPITAL HAVING BEEN INVESTED IN THE SAID UNIT AND IT WAS CAPABLE OF DOING BUSINESS OF ITS OWN INDEPENDENT OF THE OLD UNIT THE SAME WAS ELIGIBLE TO BE TREATED AS A NEWLY ESTABLISHED UNDERTAKING. IN OUR OPINI ON THE LD CIT(A) THUS WAS NOT CORRECT IN HOLDING THAT BOTH THE UNITS WERE LIABLE TO BE TREATED AS ONE UNIT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A. 23. FROM THE SAID DECISION OF TRIBUNAL PERTAINING TO THE ASSESSMENT YEAR 2003 - 04 IT IS CLEAR TH AT THE TRIBUNAL HAS TAKEN A VIEW THAT NEW UNIT CANNOT BE TREATED TO BE AS ONE AND SAME UNIT WITH THE EXISTING UNIT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 10A OF THE ACT. RESPECTFULLY FOLLOWING THE TRIBUNAL S ORDER PASSED IN THE ASSESSMENT YEAR 200304 A ND OTHER IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 18 ASSESSMENT YEA S IN ASSESSE S OWN CASE FOR THE AY 2005 - 06 2006 - 07 2007 - 08 AND 2008 - 09 WE ALLOW THIS GROUND RAISED BY THE ASSESSEE AND HOLD THAT THE NEW UNIT IS TO BE TREATED AS A SEPARATE AND INDEPENDENT UNIT FOR THE PURPOSE OF COMPUTING DEDUCT ION U/S 10A OF THE ACT. THE ASSESSING OFFICER SHALL ALLOW THE DEDUCTION U/S 10A IN RESPECT OF THE NEW UNIT SET UP AT 3RD FLOOR BLOCK - 3 SECTOR - 29 NOIDA THUS THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. 15. SINCE THE FACTS FOR THE YEAR UNDER CON SIDERATION ARE IDENTICAL TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO ASSESSEE S OWN CASE. SO RESPECTFULLY FOLLOWING THE ORDER DATED 28.07.2014 IN ITA NO. 1572/DEL/2014 FOR THE ASSESSMENT YEAR 2009 - 10 THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND THE AO IS DIRECTED TO ALLOW THE DEDUCTION U/S 10A OF THE ACT IN RESPECT OF THE NEW UNIT SET UP AT 3 RD FLOOR SECTOR - III NOIDA. 16. NEXT ISSUE VIDE GROUND NOS. 4 TO 4.3 RELATES TO THE AD - HOC DISALLOWANCE OF INTEREST EXPENSES AMOUNTING TO RS.75 128/ - . 17. THE FACTS RELATED TO THESE ISSUE IN BRIEF ARE THAT THE AO ASKED THE ASSESSEE TO SHOW - CAUSE AS TO WHY THE INTEREST ON SHORT TERM LOAN OF RS.48.49 CRORES BE NOT CAPITALIZED AS THE FUNDS WERE BEING DIVERTED FOR LONG TERM INVESTMENT/INCREASE OF PRODUCTION CAPACITY. THE AO POINTED OUT THAT THE ASSESSEE FURNISHED THE SAME REPLY WHICH WAS SUBMITTED DURING THE IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 19 COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEARS 2009 - 10 AND 2010 - 11. THE AO MADE THE IMPUGNED ADDITION BY OBSERVING IN PARA 6.3.4 OF THE IMPUG NED ORDER WHICH READ AS UNDER: 6.3.4 IT IS ADMITTED BY THE ASSESSEE THAT ACTUAL CAPITAL EXPENDITURE INCURRED DURING THE FINANCIAL WAS RS. 4.01 CRORE ONLY AS PER SCHEDULE - 5 OF AUDITED FINANCIALS AND OUT OF WHICH RS. 3.45 LAKH RELATES TO FOREIGN EXCHA NGE FLUC TUATIONS. AS A RESULT RS.3.97 CRORES (RS.4.01 CRORES RS. 3.451AC) HAS BEEN DIVERTED FOR CAPITAL ASS ET. THE INTEREST PERTAINING TO RS. 3.97 CRORES OUGHT TO HAVE BEEN CAPITALIZED IN VIEW OF THE OBSERVATIONS MADE IN PRECEDING PARAGRAPHS. THE REFORE INTEREST O F RS.59 55 000/ - (@ 15% OF RS. 3.97 CRORES) IS HEREBY CAPITAL IZED AND DISALLOWED AS REVENUE EXPENDI TURE. I N THIS REGARD IT IS PERTINENT TO MENTION THAT SIMILAR PROPOSED BY THE AO IN HIS DRAFT ORDER FOR THE A.Y. 2010 - 11 HAS BEEN DULY CONFIRMED BY THE HON'BL E DRP. AGGRIEVED BY THIS ADDITION THE ASSESSEE PREFERRED AN APPEAL BEFORE THE DRP. HON'BLE DRP VIDE ORDER DATED 26.10.2015 HAS DIRECTED TO RECOMPUTE THE DISALLOWANCE IN ACCORDANCE WITH THE DIRECTIONS OF HON'BLE ITAT IN ASSESSEE'S OWN CASE FOR A.Y. 2009 - 1 0 IN ITA NO. 1572 OF 2014. HON BLE ITAT VIDE THE ABOVE SAID ORDER REMITTED THE ISSUE BACK TO THE FILE OF AO WITH FOLLOWING OBSERV ATIONS: THEREFORE IN ORDER TO APPLY THE PROVISO OF SECTION 36(L)(III) OF THE ACT TO THE FACTS OF THE F - SENT CASE THAT IS IN OTHER WORDS BEFORE DISALLOWING THE INTEREST EXPENDITURE ON THE FUND BOR ROWED FOR PROCUREMENT OF IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 20 ASSET FOR EXTENSION OF EXISTING BUSINESS THE AO HAS TO RECORD AS A MATTER OF FACT THE DATE ON WHICH THE ASSET THUS PROCUR ED WAS PUT TO USE IS ABSOLUTELY NECES SARY. HOWEVER IN THE INSTANT CASE WE FIND THAT NO SUCH EXERCISE HAS BEEN DONE BY THE AO TO FIND OUT THE DATE ON WHICH THE ASSESSEE BORROWED THE FUND FOR ACQUISITION OF ASSET IN THE RELEVANT AY AND WE ALSO FIND THAT NO ATTEMPT HAS BEEN MADE BY THE AO TO F IND OUT ON WHICH DATE THE ASSET THUS PROC URED WITH THE SAID BORROWED FUND HAVE BEEN PUT TO USE. ONLY AFTER THE DATES AS AFORE - STATED HAS BEEN FOUND OUT THEN ONLY ONE CAN COMPUTE THE DISALLOWANCE AS PRESCRIBED BY THE PROVISO T O SECTIO N 36(L)(II) OF THE ACT. IN THE SAID CIRCUMSTANCES WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMAND THIS ISSUE BACK TO THE FILE OF AO WITH A DIRECTION TO AO TO FIND OUT THE DATE ON WHI CH THE ASSESSEE BORROWED THE FUND FOR ACQUISITION OF ASSET AND ALSO TO FIND OUT ON WHIC H DATE THE ASSET FOR EXTENSION OF BUSINESS THUS PROCURED HAS BEEN PUT TO USE; AND THEREAFTER CAPITALIZE THE INC URRED FOR THE PERIOD BETWEEN THE DATE OF BORROWING OF THE FUND TO THE DATE ON WHICH THE ASSET WAS PUT TO USE AND WE ALSO CLARIFY THE INTEREST DED UCTION NEEDS TO BE ALLOWED FROM THE DATE AFTER THE ASSET HAS BEEN PUT TO USE BY THE ASSESSEE. IN VIEW OF THE ABOVE DIRECTIONS OF DRP AND IN LINE WITH T HE DIRECTIONS GIVEN BY HON'BLE I TAT THE ASSESSEE WAS ASKED TO FILE THE FOLLOWING DETAILS AS PER ORDER SH EET ENTRY DATED 16.12.2015. DETAILS OF BORROWING O/S AT 31.03.2010. DETAILS OF BOR ROWING MADE DURING F.Y. 2010 - 11. DETAILS OF PURCHASE OF ASSETS DURING THE F.Y. 2010 - 11. IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 21 DETAILS OF PUT TO USE OF ASSET S PURCHASED DURING THE YEAR. IN RESPONSE TO THE ABO VE QUERIES ASSESSEE COMPANY FILED T HE DETAILS VIDE LETTER DATED 21. 12.2015 VIDE WHICH IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HA S BOOKED TOTAL INTEREST OF RS. 7 57 21 954/ - WHICH INCLUDES INTEREST COST OF RS. 68 06 634/ - O N FRESH LOAN TAKEN DURING THE F .Y. 2010 - 11. DETAILS OF FRESH LOAN TAKEN AND INTEREST PAID WERE SUBMITTED AS FOLLOWS: NATURE OF LOAN AMOUNT OF LOAN IN INR DATE OF LOAN INTEREST PAID UTI - BANK PRE SHIPMENT CREDIT IN FOREIGN CURRENCY (US $ 10 00 000) 4 46 50 000 31.03.2011 2809 WORKING C APITAL LOAN YES BANK 5 00 00 000 21.09.2010 29 24 315 SHORT TERM LOAN YES BANK 2 00 00 000 28.02.2011 2 19 178 SHORT TERM LOAN YES BANK 3 00 00 000 04.03.2011 2 87 671 FINANCE LEASE OBLIGATION 1 85 09 970 01.04.2010 33 72 661 UNSECURED LOAN 34 00 000 - - 33 534 TOTAL 16 65 59 970 68 06 634 FURTHER IT WAS SUBMITTED THAT THE ADDITION OF ASSET ON ACCOUNT OF FINANCE LEASE AGREEMEN T AMOUNTING TO RS.1 85 09 970 / - WAS SHOWN AS PER COMPANIES ACT IN THE SCHEDULE TO THE BALANCE SHEET. HOWEVER FOR THE INCOME TA X PURPOSE THE SAID AMOUNT WAS NOT CAPITALIZED AND WHEN TH E ASSETS UNDER FINANCE LEASE ARE NOT CAPITALIZ ED UNDER INCOME TAX ACT THEN CAPITALIZATION OF ITS INTE REST COST DOES NOT ARISE. ASSESSEE ALSO SUBMITTED THE DETAILS OF ADDITI ONS MADE DURING THE YEAR A S PER INCOME TAX ACT AS SHOWN BELOW: IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 22 DESCRIPTION OF ASSET/BLOCK OF ASSET ADDITIONS/ADJUSTMENTS DURING THE YEAR TOTAL ADDITIONS MORE THAN 180 DAYS LESS THAN 180 DAYS FURNITURE GENERAL 6 79 965 12 61 212 19 41 177 BUILDING (LEASE HOLD I MPROVEMENT) - - - PLANT & MACHINERY GENERAL 15 60 697 7 78 557 23 39 254 COMPUTERS (NEW BLOCK) 1 06 36 062 62 92 534 1 69 28 596 TOTAL 1 28 76 724 83 33 303 2 12 09 027 FURTHER ASSESSEE COMPANY IN ITS SUBMISSION SUBMITTED THE DETAILS I N GENERAL SUCH AS THE DATE ON WHICH ASSETS WERE PUT TO USE AS PER ITS FORM 3CD HOWEVER TO CALCULATE THE DISALLOWANCE AS PER DIRECTIONS OF THE HON'BLE ITAT THREE INFORMATIONS WERE SPECIFICALLY REQUIRED I.E. THE DATE OF BORROWING OF L OAN DATE OF PURCHASE OF ASSETS AND THE DATE ON WHICH ASSETS WERE PUT TO USE. ACCORDINGLY THE ASSESSEE WAS ASKED TO SUBMIT THE DETAILS OF PURCHASE DATE OF THE ASSETS ALONG WITH DATES OF PUT TO USE OF THESE ASSETS. ASSESSEE COMPANY COULD SUBMIT THE SAID DETAIL ALONG WITH INVOIC E IN FEW CASES ONLY. FROM PERUSAL OF THE SAID INVOICES IT IS SEEN THAT THERE IS A DIFFERENCE OF 15 DAYS TO 2 MONTHS IN THE DATE OF PURCHASE AND THE DATE ON WHICH ASSETS WERE PUT TO USE. DETAILS SUBMITTED BY ASSESSEE WITH RESPECT TO ASKED INFORMATION AS SU BMITTED IN CASE OF FEW ASSETS IS AS BELOW: DESCRIPTION OF ITEM INVOICE DATE DATE PUT TO USE AMOUNT OF INVOICE AMOUNT OF INR CISCO SWITCH 24.08.2010 03.09.2010 $18988.60 8 65 672 DELL LAPTOP 02.12.2010 21.02.2011 $1053.24 3 79 922 DELL LAPTOP 26.08.2010 07.09.2010 $11137.06 5 27 465 IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 23 SINCE THE INVOICE DETAILS OR DATE OF PURCHASE REGARDING ALL THE ASSETS CAPITALIZED DURING THE YEAR HAVE NOT BEEN PROVIDED THIS OFFICE HAS NO OPTION BUT TO CALCULATE THE DISAL LOWANCE OF INTEREST ON AD - HOC BASIS FOR 1 MONTH. ACCORDINGLY AS PER THE DETAILS PROVIDED FOLLOWING AD - HOC CALCULATION IS MADE FOR CAPITALIZ ATION OF INTEREST EXPENSES: THE DATE ON WHICH FIRST LOAN WAS BORROWED BY THE ASSESSEE DURING THE YEAR: 21.09.2010 THE AMOUNT INCURRED FOR PURCHASE OF ASSETS AF TER 21.09.2010 I.E. IN SECOND HALF OF THE YEAR: RS. 83 32 303/ - CAPITALIZATION OF AMT. OF INTEREST FOR SIX MONTHS; 83 32 303 X 29 24 315/50000000 - RS. 4 87 325/ - CAPITALIZATION OF INTEREST FOR ONE MONTH AS DISCUSSED ABOVE: 4 87 325/6 = RS. 81 220/ - DEPRE CIATION TO BE ALLOWED @ 7.5% ON CAPITALIZATION; RS. 81 22 0 X 7.5/100 = RS 6 092/ - DISAL LOWANCE ON CAPITALIZATION OF INTEREST: RS. 81 220 - RS. 6 092/ - = RS.75 128 / - THUS TOTAL ADDITIO N OF RS. 75 128/ - IS MADE UNDER THIS HEAD. (ADDITION - RS.75 128/ - ) 1 8. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED BY THIS BENCH OF THE IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 24 TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2010 - 11 IN ITA N O. 200/DEL/2015 IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 17.04.2015. 19. IN HIS RIVAL SUBMISSIONS THE LD. CIT DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 20. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MAT ERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED FOR THE PRECEDING YEAR VIDE AFORESAID REFERRED TO ORDER DATED 17.04.2015 IN ASSESSEE S OWN CASE AND THE RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 17 & 18 OF THE SAID ORDER WHICH READ AS UNDER: 17. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED BY THIS B ENCH OF THE ITAT NEW DELHI IN ASSESSEE S OWN CASE IN ITA NO. 1572/DEL/2014 FOR THE ASSESSMENT YEAR 2009 - 10 VIDE PARAS 32 TO 37 WHICH READ AS UNDER: 32. FROM A PERUSAL OF THE RECORDS WE TAKE NOTE THAT THE APPELLANT DURING THE RELEVANT PREVIOUS YEAR HAD TOT AL BORROWING AGGREGATING TO RS. 55.04 CRORES COMPRISING OF THE FOLLOWING: (I) CASH AND EXPORT CREDIT FACILITY OF RS. 28 77 40 932/ - (II) TERM LOAN OF RS. 2 16 66 667/ - (III) FOREIGN CURRENCY TERM LOAN OF RS. 11 41 18 750/ - IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 25 (IV) EXTER NAL COMMERCIAL BORROWING OF RS. 12 61 36 047/ - 33. AND DURING THE RELEVANT PREVIOUS YEAR INCURRED TOTAL EXPENDITURE AMOUNTING TO RS. 18.02 CRORES ON ADDITION TO FIXED ASSET COMPRISING OF THE FOLLOWING: - (I) SOFTWARE RS. 10 08 17 4 72/ - (II) LEASEHOLD IMPROVEMENTS RS. 4 01 94 194/ - (III) COMPUTER HARDWARE RS. 2 83 05 870/ - (IV) OFFICE EQUIPMENTS RS. 92 06 519/ - (V) FURNITURE & FIXTURES RS. 17 10 491/ - TOTAL RS. 18 02 34 546/ - 34. OUT OF THE AFORESAID TOTAL ADDITION O F RS. 18 02 34 546/ - RS. 1 52 57 346/ - WAS ADDITION ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION OF RS. 4 79 38 507 ON ASSET TAKEN ON FINANCE LEASE. THE AUDITORS HOWEVER IN THEIR REPORT OBSERVED THAT SHORT TERM FUNDS AMOUNTING TO RS. 60.36 CRORE HAD BEEN USED FOR LONG TERM PURPOSES AS FOLLOWS: - PATICULARS RS. CRORE SHORT TERM FUNDS (I) UNSECURED LOAN 37 50 00 000 (II) SECURED LOANS 34 61 56 856 LESS: LONG TERM USE FIXED ASSETS - NET BLOCK 78 02 80 997/ - NET AMOUNT 60 36 15 83 4/ - 35. THE ASSESSING OFFICER ON THE BASIS OF THE AFORESAID OBSERVED THAT SHORT TERM BORROWED FUNDS AMOUNTING TO RS. 11.7 CRORES (RS. 18.02 CRORES ( - ) 1.53 CRORES ( - ) 4.7 CRORES) HAVE BEEN DIVERTED FOR PURCHASE OF FIXED ASSET AND THEREFORE INTEREST PE RTAINING TO SUCH FUNDS AMOUNTING TO RS. 11.7 CRORES OUGHT TO HAVE BEEN CAPITALIZED AND ACCORDINGLY DISALLOWED INTEREST AMOUNTING TO RS. 1 75 50 000@ 15% ON THE SAID SUM OF RS. IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 26 11.7 CRORES. THE SAID FINDING OF THE ASSESSING OFFICER WAS UPHELD BY THE DRP WH ICH HAS ALSO OBSERVED THAT THE APPELLANT HAS NOT EXPLAINED HOW THE ACQUISITION OF ASSET IS SOURCED FROM THE PROFIT EARNED BY IT AND AS TO WHY THE APPELLANT HAS RAISED LOAN OF RS. 60.365 CRORES FOR LONG TERM PURPOSE. 36. IT MAY BE TAKEN NOTE THAT INTERES T ON CAPITAL BORROWED EVEN FOR ACQUISITION OF ASSETS IS ELIGIBLE FOR DEDUCTION AS PER SECT 36(I)(III) OF THE ACT. SUBSEQUENTLY A PROVISO HAS BEEN INSERTED BY THE FINANCE ACT 2003. APRIL1 2004 RELATING TO ASSESSMENT YEAR 2004 - 05 AND SUBSEQUENT YEARS. HENCE THE SAID PROVISO WILL APPLY TO THE PRESENT ASSESSMENT YEAR PROVIDED THE ASSESSEE S CASE FALLS UNDER IT. IN TERMS OF SECTION 36(1)(III) OF THE ACT DEDUCTION IS ALLOWED IN RESPECT OF INTEREST ON CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSION. IN TERMS OF THE PROVISO TO SAID SECTION NO DEDUCTION HOWEVER IS ALLOWED IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION FOR THE PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE. A READING OF SECTION 36(1)(III) MANDATES THAT ONLY INTEREST FOR THE PERIOD BETWEEN THE DATE OF BORROWING TO THE DATE OF PUT TO USE IS TO BE CAPITALIZED AS PART OF ACTU AL COST OF ASSET. IN OTHER WORDS NO INTEREST IS REQUIRED TO BE CAPITALIZED FOR THE PERIOD AFTER SUCH ASSETS ARE PUT TO USE. THEREFORE THE INTEREST EXPENDITURE ON THE UTILIZATION OF BORROWED FUNDS FOR THE ACQUISITION OF NEW ASSETS FROM THE DATE OF ITS ACQ UISITION TILL THE DATE WHEN THE ASSET IS PUT TO USE IS TO BE DISALLOWED. IN OTHER WORDS THE INTEREST PAID ON THE CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS SHALL NOT BE ALLOWED AS DEDUCTION FROM THE DATE ON WHICH TH E CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH THE ASSET WAS FIRST PUT TO USE. 37. HERE ADMITTEDLY AN AMOUNT OF RS.11.7 CRORE WAS BORROWED FOR ACQUISITION OF ASSETS FOR EXPANSION OF EXISTING BUSINESS; THEREFORE THE INTEREST AC CRUED ON THE BORROWED FUND FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH THE ASSET WAS PUT TO USE SHALL BE DISALLOWED. IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 27 THEREFORE IN ORDER TO APPLY THE PROVISO TO SECTION 36(1)(III) OF THE ACT TO THE FAC TS OF THE PRESENT CASE THAT IS IN OTHER WORDS BEFORE DISALLOWING THE INTEREST EXPENDITURE ON THE FUND BORROWED FOR PROCUREMENT OF ASSET FOR EXTENSION OF EXISTING BUSINESS THE AO HAS TO RECORD AS A MATTER OF FACT THE DATE ON WHICH THE ASSESSEE BORROWED THE FUND FOR ACQUISITION OF ASSET FOR EXTENSION OF BUSINESS AND THE DATE ON WHICH THE ASSET THUS PROCURED WAS PUT TO USE IS ABSOLUTELY NECESSARY. HOWEVER IN THE INSTANT CASE WE FIND THAT NO SUCH EXERCISE HAS BEEN DONE BY THE AO TO FIND OUT THE DATE ON WH ICH THE ASSESSEE BORROWED THE FUND FOR ACQUISITION OF ASSET IN THE RELEVANT AY AND WE ALSO FIND THAT NO ATTEMPT HAS BEEN MADE BY THE AO TO FIND OUT ON WHICH DATE THE ASSET THUS PROCURED WITH THE SAID BORROWED FUND HAVE BEEN PUT TO USE. ONLY AFTER THE DATES AS AFORE - STATED HAS BEEN FOUND OUT THEN ONLY ONE CAN COMPUTE THE DISALLOWANCE AS PRESCRIBED BY THE PROVISO TO SECTION 36(1)(II) OF THE ACT. IN THE SAID CIRCUMSTANCES WE SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMAND THIS ISSUE BACK TO THE FILE OF A O WITH A DIRECTION TO AO TO FIND OUT THE DATE ON WHICH THE ASSESSEE BORROWED THE FUND FOR ACQUISITION OF ASSET AND ALSO TO FIND OUT ON WHICH DATE THE ASSET FOR EXTENSION OF BUSINESS THUS PROCURED HAS BEEN PUT TO USE; AND THEREAFTER CAPITALIZE THE INTEREST INCURRED FOR THE PERIOD BETWEEN THE DATE OF BORROWING OF THE FUND TO THE DATE ON WHICH THE ASSET WAS PUT TO USE AND WE ALSO CLARIFY THAT INTEREST DEDUCTION NEEDS TO BE ALLOWED FROM THE DATE AFTER THE ASSET HAS BEEN PUT TO USE BY THE ASSESSEE. 18. SO BY RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER THIS ISSUE IS REMANDED BACK TO THE FILE OF THE AO TO BE DECIDED IN ACCORDANCE WITH THE DIRECTION GIVEN IN THE ORDER DATED 28.07.2014 FOR THE ASSESSMENT YEAR 2009 - 10 IN ASSESSEE S OWN CASE IN ITA N O. 1572/DEL/2014. 21. SO RESPECTFULLY FOLLOWING THE AFORESAID ORDER DATED 17.04.2015 IN ITA NO. 200/DEL/2015 FOR THE ASSESSMENT YEAR 2010 - 11 THIS ISSUE IS RESTORED BACK TO THE FILE OF THE AO TO BE IT A NO. 479 & SA 44 /DEL /201 6 BIRLASOFT (INDIA ) LTD. 28 DECIDED IN ACCORDANCE WITH THE DIRECTIONS GIVEN IN THE ORDER DATED 28.07.2014 FOR THE ASSESSMENT YEAR 2009 - 10 IN ASSESSEE S OWN CASE IN ITA NO. 1572/DEL/2014. 22. AS REGARDS TO THE GROUND NO. 5 RELATING TO THE INTEREST CHARGED U/S 234B AND 234C OF THE ACT. IT WAS THE COMMON CONTENTION OF BOTH THE PARTIES THA T IT IS CONSEQUENTIAL IN NATURE WE ORDER ACCORDINGLY. 23. SINCE WE HAVE DISPOSED OFF THE APPEAL OF THE ASSESSEE. THE STAY APPLICATION BECOMES INFRUCTUOUS HENCE DISMISSED. 24 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE STAY APPLICATION IS DISMISSED AS INFRUCTUOUS . ( ORDER PRON OUNCED IN THE COURT ON 29 /09/2016) SD/ - SD/ - ( BEENA PILLAI ) (N. K. SAINI) JUDICIAL MEMBER ACC OUNTANT MEMBER DAT ED: 29 /09 /2016 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR