KGK ENTERPRISES(NOW KNOWN AS KGK DIAMONDA (I) PVT. LTD.), MUMBAI v. DCIT, Jaipur

ITA 567/JPR/2016 | 2007-2008
Pronouncement Date: 28-11-2017 | Result: Allowed

Appeal Details

RSA Number 56723114 RSA 2016
Assessee PAN AADFK7821L
Bench Jaipur
Appeal Number ITA 567/JPR/2016
Duration Of Justice 1 year(s) 6 month(s) 1 day(s)
Appellant KGK ENTERPRISES(NOW KNOWN AS KGK DIAMONDA (I) PVT. LTD.), MUMBAI
Respondent DCIT, Jaipur
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2017
Appeal Filed By Assessee
Tags No record found
Order Result Allowed
Bench Allotted Not Allotted
Tribunal Order Date 28-11-2017
Assessment Year 2007-2008
Appeal Filed On 27-05-2016
Judgment Text
VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCHE S JAIPUR JH DQY HKKJR] U;KF;D LNL; OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT JM & SHRI VIKRAM SINGH YA DAV AM VK;DJ VIHY LA- @ ITA NO. 567/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2007-08 M/S KGK ENTERPRISES (NOW KNOWN AS KGK DIAMONDS (I) PVT. LTD.) DE-4011-16 TOWER D 4 TH FLOOR BHARAT DIAMOND BOURSE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI-400051 MAHARASHTRA CUKE VS. THE ASSTT. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-2 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADFK7821L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 610/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2007-08 THE DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-2 JAIPUR CUKE VS. M/S KGK ENTERPRISES (NOW KNOWN AS KGK DIAMONDS (I) PVT. LTD.) 647-A PANCHARATNA OPERA HOUSE MUMBAI LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADFK7821L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 568/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2008-09 M/S KGK ENTERPRISES (NOW KNOWN AS KGK DIAMONDS (I) PVT. LTD.) DE-4011-16 TOWER D 4 TH FLOOR BHARAT DIAMOND BOURSE BANDRA CUKE VS. ACIT CENTRAL CIRCLE-2 JAIPUR ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 2 KURLA COMPLEX BANDRA (EAST) MUMBAI-400051 MAHARASHTRA LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADFK7821L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 611/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2008-09 THE DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-2 JAIPUR CUKE VS. M/S KGK ENTERPRISES (NOW KNOWN AS KGK DIAMONDS (I) PVT. LTD.) 647-A PANCHARATNA OPERA HOUSE MUMBAI LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADFK7821L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 569/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2009-10 M/S KGK ENTERPRISES (NOW KNOWN AS KGK DIAMONDS (I) PVT. LTD.) DE-4011-16 TOWER D 4 TH FLOOR BHARAT DIAMOND BOURSE BANDRA KURLA COMPLEX BANDRA (EAST) MUMBAI-400051 MAHARASHTRA CUKE VS. ACIT CENTRAL CIRCLE-2 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADFK7821L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 612/JP/2016 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2009-10 THE DY. COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-2 JAIPUR CUKE VS. M/S KGK ENTERPRISES (NOW KNOWN AS KGK DIAMONDS (I) PVT. LTD.) 647-A PANCHARATNA OPERA HOUSE MUMBAI ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 3 LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADFK7821L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI S.R.SHARMA (CA) & SHRI RAJNIKANT BHATRA (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI VARINDRA MEHTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 28/09/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 28/11/2017 VKNS'K@ ORDER PER: SHRI VIKRAM SINGH YADAV A.M. THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND T HE REVENUE DIRECTED AGAINST THE ORDERS PASSED BY LD. CIT(A)-4 JAIPUR DATED 18.03.2016 FOR A.Y. 2007-08 2008-09 AND 2009-10 RE SPECTIVELY. GIVEN THE SIMILARITY OF FACTS AND COMMON GROUNDS OF APPEA L INVOLVED IN ALL THESE CASES ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. 2. WITH THE CONSENT OF BOTH THE PARTIES THE MATTE R RELATING TO A.Y 2007-08 WAS TAKEN AS A LEAD CASE FOR THE PURPOSE OF PRESENT DISCUSSION AND ADJUDICATION OF THE ISSUES THAT HAVE BEEN RAISE D BEFORE US. IN THIS CASE THE RESPECTIVE GROUNDS OF APPEAL TAKEN BY THE ASSESSEE AND THE REVENUE ARE AS UNDER:- ASSESSEES GROUNDS OF APPEAL (ITA NO. 567/JP/16) 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEAL S) HAS ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE I N CONFIRMING DISALLOWANCE UNDER SECTION 14A R.W.R. 8D TO THE EXT ENT OF RS. 6 47 319/-. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 4 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN CONFIRMING THE INTEREST EXPENSES AS PER RULE 8D WIT HOUT APPRECIATING THE FACT THAT THE LEARNED AO HAS NOT RECORDED HIS S ATISFACTION HAVING REGARDS TO ACCOUNTS OF THE APPELLANT. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS AND IN THE CIRCUMSTANCES OF THE CA SE IN CONFIRMING DISALLOWANCES RS. 64 060/- BEING 10% OF BUSINESS PR OMOTION EXPENSES ON ESTIMATION BASIS WITHOUT APPRECIATING THE FACT T HAT THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOS E OF BUSINESS. REVENUES GROUNDS OF APPEAL (ITA NO. 610/JP/16) 1. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF T HE CASE LD CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS. 1 87 41 0 73/- MADE ON ACCOUNT OF INTEREST ON THE OUTSTANDING RECEIVABLES FROM THE AES AS DETERMINED BY ADDL DIT TPO-1 JAIPUR IN ITS ORDER U/S 92CA WI THOUT APPRECIATING THE FACT THAT ADDITION WAS MADE BY APPLYING THE MOS T APPROPRIATE METHOD FOR CALCULATING THE ALP ON OUTSTANDING RECEI VABLES FROM AES. 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE LD CIT(A) WAS RIGHT IN RESTRICTING THE DISALLOWANCE OF RS. 4 76 314/- TO RS. 64 060/- MADE ON ACCOUNT OF UNVERIFIABLE EXPENSES W ITHOUT APPRECIATING THE FACT THAT AO SPECIFICALLY POINTED OUT THE DEFICIENCIES THAT DETAILS LIKE NAME OF PERSON WHO HAD INCURRED T HE SAID EXPENSES OR DETAILS IN RESPECT OF ITS NATURE AND PURPOSE BUSINE SS OR OTHERWISE WERE NOT MENTIONED. 3. FIRSTLY IN RESPECT OF GROUNDS NO. 1 & 2 OF ASSE SSEES APPEAL RELATING TO DISALLOWANCE UNDER SECTION 14A BRIEFLY THE FACTS OF THE CASE ARE THAT THERE WERE INVESTMENTS OF RS 7 85 050 WHIC H HAVE BEEN MADE IN THE EARLIER YEARS AND CARRIED FORWARD TO THIS YE AR AND FURTHER THE ASSESSEE COMPANY HAS MADE A FRESH INVESTMENT OF RS. 1 99 52 000 (RS 2 07 37 050/- LESS RS. 7 85 050/-) DURING THE YEAR UNDER CONSIDERATION. IN THIS REGARD THE SUBMISSION OF THE ASSESSEE BEFO RE THE AO WAS THAT SUCH INVESTMENTS HAVE BEEN MADE FROM INTERNAL ACCRU ALS AND NOT FROM ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 5 ANY BORROWED FUNDS AND NO EXPENDITURE HAS BEEN INCU RRED BY THE ASSESSEE COMPANY. THE AO DIDNT ACCEPT THE CONTENTI ONS OF THE ASSESSEE AND DISALLOWED AN AMOUNT OF RS. 653 513/- WHICH HAS BEEN SUSTAINED BY THE LD. CIT(A) TO THE EXTENT OF RS. 6 47 319/-. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE OUTSET IT WAS SUBMITTED BY THE LD AR THA T FOR A.Y 2010-11 SIMILAR DISALLOWANCE UNDER IDENTICAL SET OF FACTS W AS MADE BY THE AO BY INVOKING SECTION 14A R.W.R. 8D AND THE SAID DISALLO WANCE WAS DELETED BY THE TRIBUNAL IN ITA NO. 797/JP/15 DATED 11.08.2016. IT WAS ACCORDINGLY SUBMITTED THAT THE SAME MAY KINDLY BE FOLLOWED AND NECESSARY RELIEF MAY BE PROVIDED TO THE ASSESSEE. 5. IT WAS FURTHER SUBMITTED BY THE LD AR THAT NO DI SALLOWANCE CAN BE MADE WHEN INTEREST FREE FUNDS AVAILABLE WITH THE AS SESSEE COMPANY ARE MUCH HIGHER THAN INVESTMENTS MADE TO EARN EXEMPT IN COME. IN SUPPORT RELIANCE WAS PLACED ON DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF RELIANCE UTILITIES & POWER LTD. 313 ITR 340 HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS. GUJARAT NARMADA VALLE Y FERTILIZERS CO. LTD. 221 TAXMAN 479 AND HONBLE BOMBAY HIGH COURT IN C ASE OF CIT VS. HDFC BANK LTD. 366 ITR 505. IT WAS FURTHER SUBMITTED THAT THE SAID INVESTMENTS WERE MADE FOR ACQUIRING CONTROLLING STA KE AND WERE PART OF STRATEGIC INVESTMENTS AND THEY WERE NOT MADE WITH A N INTENTION OF EARNING TAX FREE INCOME. ACCORDINGLY SECTION 14A DO ES NOT APPLY TO SUCH INVESTMENT IN SUPPORT RELIANCE WAS PLACED ON DECI SION OF HONBLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD. V. CIT 378 IT R 33. IT WAS FURTHER SUBMITTED THAT DISALLOWANCE OF INTEREST EXPENDITURE WOULD NOT BE ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 6 TENABLE WHERE AO FAILED TO ESTABLISH A NEXUS BETWEE N INTEREST BEARING FUNDS AND INVESTMENT MADE. IN SUPPORT RELIANCE WAS PLACED ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN CASE O F KARNATAKA STATE INDUSTRIAL & INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. 65 TAXMANN.COM 295. IT WAS FURTHER SUBMITTED THAT NO D EFECT HAS BEEN POINTED OUT BY THE LD. AO IN THE CLAIM OF THE ASSES SEE THAT NO EXPENSES WERE INCURRED FOR THE PURPOSE OF MAKING INVESTMENT. IT WAS FURTHER SUBMITTED THAT THE APPLICATION OF SECTION 14A AND R ULE 8D IS NOT AUTOMATIC AND THE AO HAS TO RECORD HIS OBJECTIVE SA TISFACTION HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND IN SUPPO RT THE LD AR PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I N CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. V. DCIT 81 TAXMAN. COM 111. IT WAS FURTHER SUBMITTED THAT DURING THE YEAR ASSESSEE CL AIMED NIL INCOME AS EXEMPT FROM TAX AND IN VIEW OF THAT THERE CANNOT B E ANY DISALLOWANCE U/S 14A AS THE SAME CANT EXCEED THE EXEMPT INCOME AND IN THIS REGARD RELIANCE WAS PLACED ON DECISION OF PUNJAB & HARYANA HIGH COURT IN CASE OF EMPIRE PACKAGE PVT LTD (ITA NO. 415 OF 2 015 DATED 12.01.2016. 6. THE LD. DR IS HEARD WHO HAS VEHEMENTLY ARGUED TH E MATTER TOOK US THROUGH THE FINDINGS OF THE AO AND THE LD CIT(A) AND RELIED ON THE ORDER OF THE SAID AUTHORITIES. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE COMPANY HAS MADE FRESH INVESTMENT OF RS. 1 99 52 000/- DURING THE YEAR AND IT IS CONT ENDED THAT THE SAME IS MADE OUT OF INTERNAL ACCRUALS AND IN SUPPORT TH E ASSESSEE HAS ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 7 SUBMITTED THAT THE PARTNERS CAPITAL ACCOUNT STOOD AS ON 31.3.2007 AT RS 1 30 33 76 061 WHICH DEMONSTRATE SUFFICIENT INTE REST FREE FUNDS AVAILABLE WITH THE ASSESSEE TO MAKE THE SUBJECT INV ESTMENTS OF RS 1 99 52 000/-. FURTHER WE DONT SEE ANY FINDING OF THE AO ESTABLISHING THE NEXUS BETWEEN THE BORROWED FUNDS AND THE SUBJEC T INVESTMENTS. A PRESUMPTION WOULD THEREFORE ARISE IN FAVOUR OF THE ASSESSEE THAT THE INVESTMENTS HAVE BEEN MADE OUT OF INTEREST FREE FUN DS. HOWEVER THE ASSESSING OFFICER WENT AHEAD AND DISALLOWED AN AMOU NT OF RS. 653 513 INVOKING PROVISIONS OF SECTION 14A AND RULE 8D. ON APPEAL THE DISALLOWANCE WAS REDUCED TO RS. 647 319/- BY THE LD . CIT(A) WHEREBY HE ALLOWED SETTING OFF OF INTEREST INCOME FROM GROS S INTEREST EXPENSES WHILE WORKING OUT DISALLOWANCE U/S 14A. UNDER IDENT ICAL SET OF FACTS IN ASSESSEES OWN CASE FOR AY 2010-11 (IN ITA NO. 797/ JP/15 DATED 11.08.2016) THE AO HAD MADE A DISALLOWANCE FOLLOWI NG THE SAME REASONING AND AFTER EXAMINING THE MATTER IN DETAIL WE HAVE TAKEN A VIEW THAT DISALLOWANCE UNDER THE PROVISIONS OF SECT ION 14A IS NOT WARRANTED AND THE RELEVANT FINDINGS ARE CONTAINED A T PARA 2.4 OF THE SAID ORDER WHICH IS REPRODUCED AS UNDER:- 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT THE INVESTMENT WORTH RS. 3.37 CRORES HAVE BEEN MADE BY THE ASSESSEE IN T HE EARLIER YEARS AND NOT IN THE YEAR UNDER CONSIDERATION. EVEN IF ONE WERE TO CONSIDER THE AVAILABILITY OF INTEREST FREE FUNDS DURING THE YEAR IT IS NOTED THAT PARTNERS CAPITAL ACCOUNT IS WORTH RS. 115.70 CRORES. FURTHER THE SECURED LOANS AVAILED BY THE A SSESSEE IN FORM OF PACKING CREDIT LIMIT (PCL) AND POST SHIPMENT EXP ORT FINANCE (PSEF) FROM VARIOUS BANK ARE EXCLUSIVELY FOR THE PU RPOSE OF PURCHASE OF RAW MATERIAL PAYMENT OF LABOUR CHARGES AND OTHER DIRECT EXPENSES AND WHICH THUS HAVE A END-USE RESTR ICTION AND ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 8 MONITORING BY THE BANKS TOWARDS THE MANUFACTURING A ND EXPORT ACTIVITY OF THE APPELLANT. IN LIGHT OF ABOVE WE AG REE WITH THE CONTENTION OF THE ASSESSEE THAT GIVING THE AVAILABI LITY OF INTEREST FREE FUNDS OVER AND ABOVE THE SECURED LOANS AND ALS O THE FACT THAT THE SECURED LOANS HAD A SPECIFIC END-USE RESTR ICTION THE INVESTMENTS HAVE BEEN MADE FROM ITS INTERNAL ACCRUA LS IN THE EARLIER YEARS AND GIVEN THAT NO EXPENDITURE HAS BE EN INCURRED NO DISALLOWANCE U/S 14A IS WARRANTED. FURTHER THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF HDFC BANK LTD. (SUPRA) AND HONBLE GUJARAT HIGH COURT IN CASE OF GUJARAT N ARMADA VALLEY FERTILIZERS (SUPRA) ALSO SUPPORTS THE CASE OF THE A SSESSEE. IN LIGHT OF ABOVE GROUND NO. 1 OF THE ASSESSEE IS ALLOWED. 8. IN LIGHT OF ABOVE FOLLOWING OUR DECISION IN AS SESSEES OWN CASE FOR AY 2010-11 THE DISALLOWANCE UNDER SECTION 14A IS HEREBY DELETED. FURTHER GIVEN THAT THERE IS NO INCOME THAT HAS BEE N EARNED DURING THE YEAR WHICH HAS BEEN CLAIMED AS EXEMPT FROM TAX THE RE CANNOT BE ANY DISALLOWANCE WHICH EXCEEDS SUCH EXEMPT INCOME AS HA S BEEN HELD BY HONBLE PUNJAB AND HARYANA HIGH COURT IN DECISION R EFERRED SUPRA. FURTHER THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE 17 (1) NEW DELH I VS VIREET INVESTMENT (P.) LTD [2017] 82 TAXMANN.COM 415 (DELHI - TRIB.) (SB) FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT V. HOLCEM INDIA (P.) LTD. [2015] 57 TAXMANN.COM 28 (DELHI) HAS HEL D THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING AVER AGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE Y EAR. FOLLOWING THE SAME THE DISALLOWANCE MADE UNDER SECTION 14A IS DE LETED AND GROUNDS NO. 1 AND 2 OF ASSESSEES APPEAL ARE THUS ALLOWED. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 9 ITA NO. 567/JP/17 9. NOW COMING TO REVENUES APPEAL. IN GROUND NO. 1 THE REVENUE HAS CHALLENGED THE ACTION OF LD CIT(A) IN DELETING THE ADDITION OF RS. 1 87 41 073/- MADE ON ACCOUNT OF INTEREST ON OU TSTANDING RECEIVABLES FROM ASSOCIATED ENTERPRISES AS DETERMIN ED BY THE TPO IN HIS ORDER U/S 92CA(3) OF THE ACT. 10. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS MAINLY ENGAGED IN THE BUSINESS OF MANUFACTURING CUT AND POLISHED DIAM ONDS. HOWEVER DURING THE YEAR UNDER CONSIDERATION IT HAS ALSO UN DERTAKEN CERTAIN TRADING ACTIVITIES IN RELATION TO CUT AND POLISHED DIAMONDS. THE ASSESSEE HAS SELECTED TNMM AS THE MOST APPROPRIATE METHOD TO BENCHMARK ITS TRANSACTIONS RELATING TO PURCHASES AND SALES. THE O PERATING PROFIT ON SALES HAS BEEN SELECTED AS PLI AND HAS REPORTED ITS OPERATING MARGIN OF 6.15% AS AGAINST THE COMPARABLE UPDATED MARGIN OF 6 .00%. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS A REFERENCE WAS MADE BY THE AO TO THE TPO TO DETERMINE THE ARMS LE NGTH PRICE SO DETERMINED BY THE ASSESSEE IN RESPECT OF ITS REPORT ED INTERNATIONAL TRANSACTIONS DURING THE FINANCIAL YEAR 2006-07 RELE VANT TO IMPUNGED ASSESSMENT YEAR. THE TPO EXAMINED THE INTERNATIONAL TRANSACTIONS AND ARMS PRICE SO DETERMINED BY THE ASSESSEE AND HAS N OT PROPOSED ANY TRANSFER PRICING ADJUSTMENT IN RESPECT OF THE SAID TRANSACTIONS. THE ASSESSEES TNMM METHOD OF DETERMINATION OF ARMS LE NGTH PRICE IN RESPECT OF ITS SALE AND PURCHASE TRANSACTIONS WITH ITS AES AND OPERATING MARGIN OF 6.15% HAS THUS BEEN ACCEPTED BY THE TPO. AT THE SAME ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 10 TIME THE TPO ON PERUSAL OF THE FINANCIAL STATEMEN TS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE HAS SUBSTANTIAL AMOUNT O F OUTSTANDING RECEIVABLES FROM THE AES WHICH REMAINED OUTSTANDING FOR A LONG PERIOD OF TIME AND NO INTEREST HAD BEEN CHARGED ON SUCH AM OUNT. THE TPO DECIDED TO EXAMINE THE SAID TRANSACTIONS BY INVOKIN G HIS POWERS UNDER SECTION 92CA(2A) AND 92CA(2B) OF THE ACT AND ISSUED A DETAILED SHOW CAUSE NOTICE TO THE ASSESSEE WHICH READS AS UNDER:- PERUSAL OF THE FINANCIALS OF THE ASSESSEE COMPANY SHOWS THAT YOU HAVE SUBSTANTIAL AMOUNT OF OUTSTANDING RECEIVABLES FROM THE AES WHICH HAVE REMAINED OUTSTANDING FOR A PROLONGED PERIOD AND NO INTEREST HAD BEEN CHARGED ON SUCH AMOUNT. A PERUSAL OF THE COPIES OF INVOICES RAISED TO AES DURING THE YEAR REVEAL THAT THE TERMS OF PAYMEN T HAVE NOT BEEN HONOURED AND THERE IS A CONSIDERABLE DELAY IN PAYME NT AS PER THE PERIOD STIPULATED IN INVOICES OR PAYMENTS HAVE NOT BEEN RECEIVED. 2. THE MAIN QUESTION HERE IS WHETHER THE TAX PAYER COULD HAVE EXTENDED SUCH FACILITY TO ANY UNRELATED PARTY SIMIL AR TO THAT OF THE AE WITHOUT CHARGING ADEQUATE COMPENSATION. BECAUSE WH EN INDEPENDENT ENTERPRISES DEAL WITH EACH OTHER THE CONDITIONS OF THEIR FINANCIAL RELATIONS ORDINARILY ARE DETERMINED BY MARKET FORCE S. BUT FOR THE RELATIONSHIP BETWEEN THE TAX PAYER AND ITS AE INCO ME WOULD HAVE ACCRUED TO THE TAX PAYER. NO SELLER WOULD ALLOW A D EBTOR TO ENJOY THE INTEREST FREE AMOUNT ENDLESSLY AND IN NORMAL BUSINE SS PRACTICE IS EXPECTED TO MAKE EFFORTS FOR RECOVERY OF THE RECEIV ABLES AMOUNT AFTER A TIME GAP. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 11 CONSIDERING THE ABOVE IT IS PROPOSED THAT THE ARM S LENGTH PRICE OF THE INTEREST ON THE OUTSTANDING RECEIVABLES FROM THE AE BE DETERMINED BY CONSIDERING IT TO BE SIMILAR TO A LOAN IN NATURE. T HIS TRANSACTION HAS NOT BEEN ANALYZED IN THE TP STUDY. IT IS PROPOSED THAT COMPARABLE UNCONTROLLED PRICE (CUP) METHOD SHOULD BE APPLIED F OR DETERMINATION OF THE ALP AS CUP METHOD IS MOST APPROPRIATE FOR DETE RMINATION OF THE ALP OF INTEREST. IN AN UNCONTROLLED SITUATION THE ASSESSEE WOULD HAVE EXPECTED A SUITABLE RETURN (INTEREST) ON THE AMOUNT ADVANCED (OR DUE FROM THE OTHER PARTY). THE RATE OF INTEREST EXPECTE D IN A SIMILAR SITUATION WOULD GIVE ARMS LENGTH INTEREST. SO FAR AS THE INTEREST RATE IS CONCERNED IT IS TO BE APPRECIATED THAT THE INTEREST RATE IS TO BE BENCHMARKED BY CONSIDERING THE ASSESSEE AS A LENDER AND NOT AS A BORROWER. THE RATE AT WHICH INDEPENDENT LENDER IN I NDIA WOULD HAVE ADVANCED MONEY TO AN UNRELATED BORROWER IN INDIA IS RELEVANT. HERE THE ASSESSEE IS THE LENDER HENCE THE RATE OF INTEREST EXPECTED ON MONEY ADVANCED TO AN UNKNOWN PARTY IN INDIA COULD BE CONS IDERED AS THE ARMS LENGTH PRICE OF THE INTEREST ON THE ADVANCE. IT VERY PERTINENT TO MENTION HERE THAT IT IS A TRAD E PRACTICE THAT THESE KIND OF DELAYS ATTRACT PENAL RATE OF INTEREST SOMEW HERE FROM 24% TO 36% P.A. DEPENDING ON CASE TO CASE. HOWEVER TO BE REASONABLE AND FAIR TO THE ASSESSEE INSTEAD OF CHARGING THE PENAL INTEREST WHICH WOULD HAVE MADE THE CASE FOR CHARGING OF INTEREST IN THE RANGE OF 24% TO 36% IT WAS CONSIDERED NOT TO BE OUT OF PROPORTION T O TREAT THESE DELAYED PAYMENTS AS UNSECURED LOANS ADVANCED TO THE AES AS HAS BEEN PROPOSED ABOVE. IT IS PROPOSED TO CHARGE A NORMAL R ATE OF INTEREST @ 14.05% ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 12 2.2 DETERMINATION OF FAIR AND REASONABLE RATE OF IN TEREST:- IN THE CASE AT HAND PAYMENTS HAVE BEEN EXTENDED TO THE AE BY AN INDIAN COMPANY. IT IS ALSO A FACT THAT THE RISK PER CEPTION OF A BANK IS VERY DIFFERENT FROM THAT OF A COMMERCIAL ENTITY LIK E YOURS THAT DOES NOT ALLOW SUCH A LONG PERIOD FOR REALIZATION IN THE NOR MAL COURSE OF BUSINESS. IN YOUR CASE THE RISK FACED IS HIGHER. T HEREFORE IT IS CONSIDERED PRUDENT THAT INTEREST EQUAL TO THE PRIME LENDING RATE OF THE STATE BANK OF INDIA BE APPLIED ON THIS ACCOUNT. THE PLR OF SBI WAS 11.05% FOR THE FY 2006-07 AND 300 BASIS POINTS TO B E ADDED FOR RISK INCLUDING LACK OF SECURITY FOREX PROCESSING FEE CREDIT RATING AND LOAN TENURE IS CONSIDERED APPROPRIATE. THEREFORE A TOTA L OF 14.05% MARKUP IS CONSIDERED TO BE APPROPRIATE. 3. * * * * * * 4. DETERMINATION OF ARMS LENGTH INTEREST DUE FROM AES:- SUBJECT THE ABOVE REMARKS THE INTEREST IS CALCULAT ED IN THE ANNEXURE-1 TO 4 OF THIS NOTICE. THE LEDGER ACCOUNTS WERE TAKEN AS FURNISHED BY THE ASSESSEE. THE INTEREST CALCULATED IN THE ANNEXURE I S TABULATED BELOW. THE CREDIT PERIOD AS PER PAYMENT TERM IN THE INVO ICES RAISED HAS BEEN ALLOWED. THE ASSESSEE HAS BEEN ALLOWED THE BENEFIT OF PAYABLES FROM THE AES AND ACCORDINGLY THE BENEFIT OF INTEREST ON PAYABLES HAS BEEN ALLOWED. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 13 PARTICULARS INTEREST ON OUTSTANDING FROM/TO AES AS ON 31.3.2006 INTEREST ON EXPORT/IMPO RT FROM AES TOTAL INTEREST TOTAL INTEREST RECEIVABLES RS. 1 99 02 722/- AS PER ANNEXURE 1 RS. 68 82 140/- AS PER ANNEXURE 2 RS. 2 67 84 862/- TOTAL INTEREST PAYABLE RS. 16 47 710/- AS PER ANNEXURE3 RS. 45 51 473/- AS PER ANNEXURE 4 RS. 61 99 183/- NET INTEREST CHARGEABLE RS. 2 05 85 679/- BASED ON THE CALCULATION ABOVE THE ARMS LENGTH IN TEREST IS DETERMINED AS RS. 2 05 85 679/- AND ACCORDINGLY THE SAME IS T HE PROPOSED ADJUSTMENT U/S 92CA. 12. IN RESPONSE TO THE SHOW-CAUSE THE ASSESSEE FIL ED DETAILED SUBMISSIONS WHICH WERE CONSIDERED BUT NOT FOUND ACC EPTABLE BY THE TPO. THE TPO REFERRED TO THE EXPLANATION (1)(C) TO SECTION 92B WHICH HAS BEEN INSERTED WITH RETROSPECTIVE EFFECT FROM 01 .04.2002 AND HELD THAT ANY TYPE OF ADVANCE PAYMENTS OR DIFFERED PAYM ENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSI NESS ADVANCEMENT IS COVERED UNDER THE DEFINITION OF INTERNATIONAL TRANS ACTION. REFERRING TO ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 14 THE PROVISIONS OF SECTION 92F(V) AND RULE 10B(2)(C ) THE TPO HELD THAT THE TRANSFER PRICING REGULATION ARE TO BE APPLIED K EEPING IN MIND THE OVERALL SCHEME OF THE TAX PAYERS BUSINESS ARRANGEM ENTS. THE TPO HELD THAT THE ASSESSEE HAS PROVIDED BENEFIT TO ITS AES B Y WAY OF ADVANCEMENT OF INTEREST FEE LOAN IN THE GARB OF DEL AY RECEIPT OF RECEIVABLES. IT WAS HELD THAT THESE FUNDS COULD HAV E BEEN OTHERWISE DEPLOYED FOR AT LEAST EARNING INTEREST INCOME. THE ASSESSEE HAS THEREFORE INCURRED COST IN CONNECTION WITH A BENEFI T AND SERVICES PROVIDED TO THE AE BY WAY OF DELAY RECEIPT OF RECEI VABLE ACCORDINGLY THE DELAY IN RECEIPT OF RECEIVABLES WAS HELD TO BE AN INTERNATIONAL TRANSACTIONS U/S 92B(1) READ WITH CLAUSE (V) OF SEC TION 92F. 13. IT WAS FURTHER HELD BY THE TPO THAT THE AMENDME NT TO SECTION 92B IS CLARIFICATORY IN NATURE AND IT HAS ONLY CLAR IFIED THE STAND OF THE DEPARTMENT BY MAKING THE PROVISION EXPLICITLY CLEAR AND THE RECEIVABLES WERE ALWAYS COVERED UNDER THE DEFINITION OF INTERNA TIONAL TRANSACTION EVEN PRIOR TO AMENDMENT. 14. IT WAS FURTHER HELD BY THE TPO THAT EXPLANATION (I)(A) AND (C) OF SECTION 92B RECOGNIZES SALES AND RECEIVABLES ARISIN G DURING THE COURSE OF BUSINESS AS SEPARATE TRANSACTION. REQUIRING DETE RMINATION OF ALP OF THE INTEREST CHARGEABLE ON EXCESS PERIOD OF CREDIT ALLOWED TO AN ASSOCIATED ENTERPRISE IT HAS TO BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRINCIPLE AND IT IS INDEPENDENT OF OTHER TRA NSACTIONS ENTERED INTO BY THE ASSESSEE WITH THE AES. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 15 15. REGARDING ASSESSEES CONTENTION THAT OVER DUES RECEIVABLE FROM AES CANNOT BE COMPARED TO THE LOAN WHETHER SECURED OR UNSECURED THE TPO HELD THAT THE TRANSACTION HAS BEEN CONSIDERED T O BE SIMILAR TO THE LOAN TRANSACTION AND SINCE THE ASSESSEE HAS NOT CHA RGED ANY INTEREST FROM ITS AES IT IS REQUIRED TO BE EXAMINED AND CHA RGE ARMS LENGTH INTEREST BY CONSIDERING THE RATES PREVAILING IN IND EPENDENT TRANSACTION. 16. IT WAS FURTHER HELD BY THE TPO THAT REAL INCOME THEORY IS NOT APPLICABLE IN THE CONTEXT OF CHAPTER X. FURTHER IT WAS HELD THAT THE BUSINESS EXPEDIENCY DOES NOT HAVE ANY ROLE TO PLAY. WHILE APPLYING ARMS LENGTH PRINCIPLE ONE HAS TO DETERMINE WHAT I NDEPENDENT PARTIES IN COMPARABLE TRANSACTION WOULD DO. 17. REGARDING ASSESSEES CONTENTION THAT IT DOES NO T CHARGE INTEREST ON DEBIT BALANCE WITH INDEPENDENT PARTIES AND UNDER CU P METHOD NO ADJUSTMENT CAN BE MADE AS CONTROLLED TRANSACTIONS I S COMPARABLE WITH UNCONTROLLED TRANSACTIONS IT WAS APPRECIATED BY TH E TPO THAT MAIN QUESTION THEREFORE IS WHETHER THE TAXPAYER COULD HA VE EXTENDED SUCH CREDIT FACILITIES TO ANY UNRELATED PARTY SIMILAR TO THAT OF ITS AE WITHOUT CHARGING ARMS LENGTH RATE OF INTEREST. BECAUSE WH EN INDEPENDENT ENTERPRISES DEAL WITH EACH OTHER THE CONDITIONS OF THEIR FINANCIAL RELATIONS ORDINARILY ARE DETERMINED BY MARKET FORCE S. IT WAS HOWEVER HELD BY THE TPO THAT BUT FOR THE RELATIONSHIP BETWE EN THE TAX PAYER AND ITS AES ARMS LENGTH INTEREST INCOME WOULD HAVE AC CRUED TO THE TAX PAYER AS IN INDEPENDENT UNRELATED TRANSACTIONS THE PARTY ADVANCING CREDIT EXPECTS FINANCIAL COMPENSATION IN THE FORM O F INTEREST AS PREVALENT UNDER SUCH CIRCUMSTANCES. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 16 18. REGARDING ASSESSEES CONTENTION THAT AVERAGE PE RIOD OF REALIZATION FROM NON AES IS MORE (18 DAYS) THAN THE AVERAGE PERIOD OF REALIZATION FROM AES (5 DAYS) THE TPO ACKNOWLEDGI NG THE FACT THAT ASSESSEE HAS NOT CHARGED ANY INTEREST FROM BOTH AES AND NON AES HELD THAT THE AVERAGE REALIZATION PERIOD BECOMES IRRELEV ANT. 19. FURTHER THE ASSESSEES CONTENTION REGARDING NO N-APPLICATION OF RATE OF INTEREST AT 14.05% WAS ALSO REJECTED BY THE TPO. THE ASSESSEE HAD CONTENDED THAT IT HAS BORROWED FOREIGN CURRENCY FOR PACKING CREDIT FACILITIES AND POST SHIPMENT FACILITIES FROM VARIOU S BANKS AND AVERAGE COST OF BORROWINGS MADE BY THE ASSESSEE HAS BEEN WO RKED AT 7.80% WHICH IS BASED ON LIBOR AND IT WAS SUBMITTED THAT T O BENCHMARK THE INTEREST RATE ACTUAL COST OF BORROWING ATTRIBUTABL E TO FINANCING OF SUCH EXPERTS SHIPMENTS TO AES SHOULD BE TAKEN INTO CONSI DERATION. 20. BASED ON THE ABOVE THE ALP OF THE INTEREST ON THE OUTSTANDING RECEIVABLE WAS DETERMINED BY THE TPO AT RS. 1 87 41 073/- APPLYING CUP METHOD AS AGAINST NIL SHOWN BY THE ASSESSEES C OMPANIES. BASED ON THE TPO ORDER U/S 92CA (3) THE AO MADE AN ADDIT ION OF RS. 1 87 41 073/- WAS MADE TO THE TOTAL INCOME OF THE A SSESSEE COMPANY. 21. ON CLOSE PERUSAL OF THE ORDER OF THE TPO AS WE HAVE NOTED ABOVE WHAT WE FIND IS THAT ONE ISSUE WHICH THE TPO HAS EMPHASIZED TIME AND AGAIN IN HIS ORDER RIGHT FROM THE SHOW-CA USE NOTICE TO HER FINAL ANALYSIS IS WHETHER THE TAX PAYER COULD HAVE EXTENDED SUCH FACILITY TO ANY UNRELATED PARTY SIMILAR TO THAT OF THE AE WI THOUT CHARGING ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 17 ADEQUATE COMPENSATION. IN RESPONSE THE ASSESSEE SU BMITTED THAT IT HAS EXTENDED SIMILAR CREDIT FACILITY TO NON-AES WIT HOUT CHARGING ANY INTEREST. THE TPO THOUGH ACKNOWLEDGED THE SAID FACT BUT REFUSED TO ACCEPT THE SAME. UNDER THE CUP METHOD WHICH HAS BE EN INVOKED BY THE TPO (WHICH WE WILL DISCUSS LATTER WHETHER THE S AME IS WARRANTED IN THE INSTANT CASE OR NOT) THE TPO IS REQUIRED TO EV ALUATE THE ARMS- LENGTH CHARACTER OF A CONTROLLED TRANSACTION BY COM PARING THE PRICE AND CONDITIONS TO THE PRICE AND CONDITIONS OF SIMILAR T RANSACTIONS BETWEEN THE TAXPAYER AND AN UNRELATED PARTY (INTERNAL CUP ) OR BETWEEN TWO UNRELATED PARTIES (EXTERNAL CUP). THE IMMEDIATE Q UESTION THAT COMES TO OUR MIND IS THAT WHERE INTERNAL CUP IS AVAILABLE WOULD THERE BE A NECESSITY TO EXAMINE THE EXTERNAL CUP AND CAN THE L ATTER BE HELD TO PRESENT A MORE RELIABLE OUTCOME IN THE FACTS OF THE PRESENT CASE. WE FIND THAT THE SAME WAS APPRECIATED BY THE LD CIT(A) WHO ON APPEAL BY THE ASSESSEE HAS GRANTED RELIEF TO THE ASSESSEE CO MPANY BY DELETING THE NOTIONAL INTEREST CHARGED FOR DELAY IN REALIZAT ION OF EXPORT SELLING INVOICES. 22. THE RELEVANT FINDINGS OF THE LD. CIT(A) IS AS UNDER:- 3.1.2 I HAVE DULY CONSIDERED ASSESSEES SUBMISSIO N AND CAREFULLY GONE THROUGH ASSESSMENT ORDER PASSED BY THE AO. I H AVE ALSO TAKEN A NOTE OF THE FACTUAL MATRIX OF THE CASE AS WELL AS J UDICIAL PRONOUNCEMENTS RELIED UPON. IT IS A MATTER OF FACT THAT AS A MATTER OF TRADE PR ACTICE IN THE GEM AND JEWELLERY INDUSTRY INTEREST ON OVERDUE RECEIPTS IS NOT CHARGED. FURTHER IT IS SUBMITTED THAT AS A MATTER OF POLICY NO INTE REST WAS CHARGED ON ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 18 DELAYED REALIZATION OF SALE PROCEEDS FROM AE AND NO N AE CUSTOMERS. THEREFORE THE APPELLANT SUBMITS THAT NON CHARGING OF INTEREST TO NON- AES COULD BE REGARDED AS AN INTERNAL CUP AND ON THE SAME BASIS THERE CAN BE NO CASE FOR THE APPELLANT TO CHARGE INTEREST TO ITS AES. APPELLANT HAS ALSO SUBMITTED THE CALCULATION OF AVERAGE OF TH E REALIZATION DAYS BEYOND THE CREDIT PERIOD IN RESPECT OF SALES MADE D URING FY 2006-07 TAKEN BY AES AND TAKEN BY NON AES. THE AES HAVE T AKEN ON AN AVERAGE OF ADDITIONAL 5 DAYS FROM THE DUE DATE WHE REAS NON AES HAVE TAKEN ON AN AVERAGE OF ADDITIONAL 18 DAYS FROM THE DUE DATE TO MAKE THE PAYMENTS IN RESPECT OF SALES MADE TO THEM DURIN G FY 2006-07. IT IS QUITE EVIDENT THAT BOTH AES AND NON AES HAVE TAKE N ADDITIONAL DAYS OVER AND ABOVE THE CREDIT PERIOD GRANTED TO THEM AN D INTEREST HAVE NOT BEEN CHARGED FROM ANY OF THEM IRRESPECTIVE OF PERIO D OF DELAY. RELYING THE DECISION OF FOLLOWING CASES APPELLANT FURTHER SUBMITS THAT IN RESPECT OF THE EXCESS CREDIT PERIOD GRANTED TO THE AES NO ADJUSTMENT IS REQUIRED TO BE MADE: TECH MAHINDRA LIMITED (FORMERLY KNOWN AS MAHINDRA B RITISH TELECOM LTD. TECNIMONT ICB HOUSE M/S INDO AMERICAN JEWELLERY LTD M/S AGILISYS IT SERVICE PVT. LTD. M/S LIVING STONES V BAUSH & LOMB EYECARE (I) P. LTD VIP INDUSTRIES LTD. TATA AUTOCOMP SYSTEMS LIMITED FURTHER APPELLANT WITHOUT PREJUDICE TO ABOVE EVEN IF PROPOSED ADJUSTMENT HAS TO BE MADE HAS REQUESTED THAT THE C ALCULATION OF INTEREST SHOULD BE BASED ON THE LIBOR BASED RATE AS PER THE RBI ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 19 GUIDELINES IN RESPECT OF THE EXTERNAL COMMERCIAL BO RROWINGS AND TRADE CREDITS. THE FACT IS THAT THE ASSESSEE HAD ADOPTED UNIFORM P OLICY OF NOT CHARGING INTEREST ON DELAYED REALIZATION ON SALE PR OCEEDS FROM BOTH THE AES AND NON AE CUSTOMERS. THIS BEING SO THE JUDGME NTS OF HONBLE ITAT JAIPUR IN CASE OF VAIBHAV GEMS LTD & VVF LTD H ONBLE BOMBAY HIGH COURT IN CASE OF INDO AMERICAN JEWELLERY LTD H ONBLE ITAT MUMBAI IN CASE OF TECH MAHINDRA AND ITAT DELHI BENCH IN TH E CASE OF BAUSCH & LOMB EYECARE (INDIA) (P) LTD. CITED (SUPRA) ARE SQU ARELY APPLICABLE IN ASSESSEES CASE. THUS IN VIEW OF FACTS AND CIRCUMSTANCES OF THE CAS E AS DISCUSSED ABOVE THEREOF THE ADJUSTMENT IN RESPECT OF NOTION AL INTEREST ON DELAYED REALIZATION OF SALE PROCEEDS IS HEREBY DELE TED. ASSESSEE GETS A BENEFIT OF RS. 1 87 41 073/- ON ACCOUNT OF NOTIONAL INTEREST CHARGED FOR DELAY IN REALIZATION OF EXPORT SALES INVOICES FROM ASSOCIATED ENTERPRISES. 23. DURING THE COURSE OF HEARING THE LD. AR SUBMIT TED THAT ASSESSEE FIRM ALSO MADE SALES TO NON AES DURING THE YEAR UN DER CONSIDERATION WHERE IT HAD UNPAID RECEIVABLE AT THE YEAR END. IT WAS SUBMITTED THAT THE ASSESSEE FIRM PROVIDED UNIFORM CREDIT BOTH TO AES AND NON- AES/THIRD PARTIES OF 145 DAYS AND DID NOT CHARGE A NY INTEREST ON SUCH UNPAID RECEIVABLES FROM BOTH TYPE OF THE CUSTOMERS . ADDITIONAL DAYS TAKEN BEYOND DUE DATE FOR MAKING PAYMENT BY NON-AE S WERE 18 DAYS ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 20 WHEREAS THOSE TAKEN BY AES WERE 5 DAYS. THERE WAS N O AGREEMENT BETWEEN THE ASSESSEE FIRM AND THE AE TO CHARGE INTE REST ON DELAYED PAYMENTS. IT WAS SUBMITTED THAT THE ABOVE FACTS REM AINS UNDISPUTED BY THE LOWER AUTHORITIES. 24. IT WAS FURTHER SUBMITTED THAT SINCE NO INTERES T HAS BEEN CHARGED FROM THE NON AES I.E. IN CASE OF INDEPENDENT TRAN SACTIONS AS WELL THERE CANNOT BE ANY OCCASION TO MAKE AN ARMS LENGTH PRICE ADJUSTMENT FOR NOTIONAL INTEREST ON DELAY IN REAL IZATION OF TRADE DEBTS FROM THE AES. THE VERY PURPOSE OF THE ARMS LENGTH PRICE ADJUSTMENTS IS TO NEUTRALIZE THE IMPACT OF INTRA AE RELATIONSHIP O N COMMERCIAL TRANSACTION BUT GIVEN THE UNCONTROVERTED FACTS T HERE IS NO IMPACT OF INTRA AE RELATIONSHIP IN THE ABOVE CASE. THUS THERE WAS NO BASIS FOR IMPOSING 'NOTIONAL INTEREST' ON EXPORT PROCEEDS THA T WERE RECEIVED LATE FROM THE AES. 25. OUR REFERENCE WAS DRAWN TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF INDO AMERICAN JEWELLERY L TD. [2014] 44 TAXMANN.COM 310 (BOMBAY) WHEREIN UNDER IDENTICAL SET OF FACTS IT WAS HELD AS UNDER: ..IN THE FACTS OF THE PRESENT CASE THE SPECIFIC F INDING OF THE ITAT IS THAT THERE IS COMPLETE UNIFORMITY IN THE ACT OF THE ASSESSEE IN NOT CHARGING INTEREST FROM BOTH THE ASSOCIATED ENTERPRI SES AND NON ASSOCIATED ENTERPRISES DEBTORS AND THE DELAY IN REA LISATION OF THE EXPORT PROCEEDS IN BOTH THE CASES IS SAME. IN THESE CIRCUM STANCES THE DECISION OF THE TRIBUNAL IN DELETING THE NOTIONAL INTEREST O N OUTSTANDING AMOUNT OF EXPORT PROCEEDS REALISED BELATEDLY CANNOT BE FAU LTED. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 21 26. OUR REFERENCE WAS ALSO DRAWN TO THE DECISION O F THE ITAT DELHI BENCH IN THE CASE OF BAUSCH & LOMB EYECARE (INDIA) (P.) LTD. (60 TAXMANN.COM 141) WHICH HAD RELIED ON THE RATIO LAI D DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF INDO AMERI CAN JEWELLERY LTD. (SUPRA) AND HELD AS UNDER: .18.1 WE FIND THAT LD. DR HAS CLAIMED THAT INORDI NATE DELAY IN RECEIVING THE OUTSTANDING AMOUNTS TO PASSING A BENE FIT TO AE AND IT CONSTITUTES REAL INCOME. APROPOS ASSESSEE HAS BEEN ABLE TO DEMONSTRATE THAT ASSESSEE AS A POLICY DOES NOT CHAR GE ANY INTEREST ON ANY DELAYED PAYMENT IRRESPECTIVE OF THE PARTY BEING AE OR NON AE AS IT WAS A CONSISTENT BUSINESS POLICY. RELIANCE IS PLACE D BY ASSESSEE ON OECD GUIDELINES AT PARA 1.9 PRESCRIBING THAT NO INT EREST COULD BE CHARGED ON DELAYED PAYMENT ON COMMERCIAL CONSIDERAT ION FOR ENSURING A LONG AND HEALTHY RELATIONSHIP AS PERSUASIVE VALUE . 18.2 IN THE CASE OF INDO AMERICAN JEWELLERY LTD. ( SUPRA ) HON'BLE BOMBAY HIGH COURT WHILE AFFIRMING THE ITAT DECISION HAS HELD THAT THERE BEING UNIFORMITY IN ASSESSEE'S ACT IN NOT CHA RGING INTEREST BOTH FROM AE AND NON AE AND DELAY IN REALIZATION IN BOTH THE CASES IS SAME NOTIONAL INTEREST CANNOT BE CONSIDERED WITH ALP ON DELAYED REALIZATION. THIS HAS BEEN FURTHER FOLLOWED BY THE ITAT IN THE C ASE OF LINTAS INDIA P. LTD. (SUPRA ) & MASTEK LTD. (SUPRA ). 18.2 IN VIEW OF ABOVE FACTS RESPECTFULLY FOLLOWING THESE JUDICIAL PRECEDENTS WE ARE OF THE VIEW THAT THE ADJUSTMENT I N RELATION TO NOTIONAL INTEREST ON OUTSTANDING RECEIVABLES CANNOT BE MADE IN THE CASE OF THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALL OWED. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 22 27. OUR REFERENCE WAS ALSO DRAWN TO THE DECISION OF ITAT JAIPUR BENCH IN THE CASE OF VAIBHAV GEMS LTD. (ITA NO. 01/ JP/2014) WHEREIN THE JAIPUR BENCH FOLLOWING THE RATIO LAID DOWN IN THE ABOVE MENTIONED JUDGMENTS OF INDO AMERICAN JEWELLERY LTD. (SUPRA) AND BAUSCH & LOMB EYECARE (INDIA) (P.) LTD. (SUPRA) HAD DELETED THE ADJUSTMENT MADE BY THE TPO WITH RESPECT TO NOTIONAL INTEREST ON DELAY ED REALIZATION OF SALE PROCEEDS AND HELD AS UNDER: WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. THE FACT IS THAT THE ASSESSEE HAD ADOPTED UNIFORM POLICY OF NOT CHARGING INTEREST ON DELAYED REALIZAT ION ON SALE PROCEEDS FROM BOTH THE AES AND NON AES CUSTOMERS. THIS BEIN G SO THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT CIT VS. IND O AMERICAN JEWELLERY LTD. AND THE JUDGEMENT OF ITAT DELHI BENC H IN THE CASE OF BAUSCH & LOMB EYECARE (INDIA) (P) LTD. CITED (SUPRA ) ARE SQUARELY APPLICABLE IN ASSESSEES CASE. THUS IN VIEW THEREO F WE DELETE THE ADJUSTMENT IN RESPECT OF NOTIONAL INTEREST ON DELAY ED REALIZATION OF SALE PROCEEDS. THUS GROUND NO. 1 OF THE ASSESSEE IS ALLO WED 28. FURTHER OUR REFERENCE WAS ALSO DRAWN TO THE DE CISION OF ITAT MUMBAI BENCH IN THE CASE OF TECH MAHINDRA LIMITED I TA NO. 1176/MUM/2010 WHEREIN IT WAS HELD AS UNDER: AS A MATTER OF FACT IN CASE THE TRANSFER PRICING OFFICER INDEED WANTED TO ADOPT INTERNAL CUP IN THIS CASE IT WOULD PRIMA FACIE APPEAR THAT THE CORRECT COMPARABLE WAS THE INTEREST THAT THE ASSESS EE WAS CHARGING FROM INDEPENDENT ENTERPRISES WHICH WAS ADMITTEDLY NIL IN THE PRESENT CASE. IT IS ONLY ELEMENTARY THAT AN ALP ADJ USTMENT CAN ONLY BE MADE TO NULLIFY THE IMPACT OF INTERRELATIONSHIPS BE TWEEN THE ASSOCIATE ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 23 ENTERPRISES I.E. FOR VARIATIONS IN ASSESSEES DEAL INGS VIS--VIS DEALINGS WITH INDEPENDENT ENTERPRISES AND THEREFORE WHEN ASSESSEE IS NOT CHARGING THE INTEREST ON DELAYED PAYMENTS FROM INDE PENDENT ENTERPRISES A VIEW IS PERHAPS POSSIBLE THAT THE AS SESSEE CANNOT BE SUBJECTED TO THE ALP ADJUSTMENT IN RESPECT OF DELAY ED PAYMENTS FROM ASSOCIATED ENTERPRISES EITHER. IN OTHER WORDS THE TPO NEED NOT CONSIDER WHAT MUST HAPPEN IN IDEAL CIRCUMSTANCES BU T NEED TO RESTRICT HIMSELF TO LOCATING THE DIFFERENCES IN ASSESSEES D EALINGS WITH AES VIS-- VIS ASSESSEES DEALINGS WITH NON AES AND NEUTRALIZ E THE IMPACT OF SUCH DIFFERENCES 29. FURTHER RELIANCE WAS PLACED BY THE LD AR ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: 29.1 DET NORSKE VERITAS A/S VS. ADIT [2016] 67 TAXMANN.C OM 16 (MUMBAI - TRIB.) WHEN DECIDING THE ARM'S LENGTH PRICE OF AN INTERN ATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISES THE REAL ISSUE FOR CONSIDERATION IS AS TO WHAT WOULD HAVE BEEN THE SITUATION IN AN ARM'S LENG TH SITUATION I.E. IN RESPECT OF DELAY IN REALIZATION OF SIMILAR DEBT FRO M AN INDEPENDENT ENTERPRISES IN THIS CASE. ONCE THE ASSESSEE HAS CON TENDED THAT THE INTEREST IS NOT BEING CHARGED FROM ANYONE INCLUDIN G OF COURSE THE NON AES AND THAT CONTENTION IS NOT DISPUTED TO BE FACT UALLY INCORRECT IT CANNOT BE OPEN TO THE TPO TO MAKE ADJUSTMENT IN THE CASE OF DELAYS IN REALIZATION FROM THE AES. THE TREATMENT BEING ACCOR DED TO THE AES AND NON AES IS THE SAME AND IN SUCH A SITUATION ALP ADJUSTMENT CANNOT BE MADE FOR DELAY IN REALIZATION OF MONIES FROM THE AE. THE CONSIDERATION AS TO HOW THE ASSESSEE WOULD HAVE REC EIVED INTEREST IF ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 24 MONEY WAS GIVEN TO AN OUTSIDER IS IRRELEVANT BECAUS E IT IS NOT A CASE OF EXTENDING LOAN OR PLACING DEPOSIT RATHER IT IS A C ASE OF AMOUNT BECOMING DUE AS A RESULT OF COMMERCIAL TRANSACTION. 29.2 EXCELLENCE DATA RESEARCH PRIVATE LIMITED VS. ACIT ( 2016) 48 CCH 51 HYD TRIB SINCE IN THE CASE BEFORE US THE FACTS AND CIRCUM STANCES ARE SIMILAR AND MORE PARTICULARLY THE TPO HAS NOT TAKEN INTO CO NSIDERATION THAT THE FACT THAT THE ASSESSEE HAS ALSO NOT CHARGED THE INT EREST NOT RECEIVABLE FROM THE NON AE WE COMPLY THE ASSESSEES PLEA ON T HIS GROUND. ACCORDINGLY GROUND NO. 14 TO 17 ARE ALLOWED. 29.3 ACIT VS. GITANJALI EXPORTS CORPORATION LIMITED (201 6) 178 TTJ 0529 (MUMBAI) WE FIND THAT THIS IS UNCONTROVERTED STAND OF THE ASSESSEE THAT HE HAS NOT CHARGED INTEREST ON DELAY IN REALIZATION OF DEB TS IN NON AE SITUATIONS AS WELL. ONCE IT IS NOT IN DISPUTE AS IS THE CASE BEFORE US THAT NO INTEREST IS CHARGED FROM THE NON AES I.E. INDEPEND ENT TRANSACTIONS AS WELL THERE CANNOT BE ANY OCCASION TO MAKE AN ALP A DJUSTMENT FOR NOTIONAL INTEREST ON DELAY IN REALIZATION OF TRADE DEBTS FROM THE AES. THE VERY PURPOSE OF THE ARMS LENGTH PRICE ADJUSTME NTS IS TO NEUTRALIZE THE IMPACT OF INTRA AE RELATIONSHIP ON COMMERCIAL T RANSACTION BUT GIVEN THE ABOVE FACTS THERE IS NO IMPACT OF INTRA AE RELATIONSHIP IN THE ABOVE CASE 30. IT WAS FURTHER SUBMITTED BY THE LD AR THAT THE LD. TPO IN HER ORDER HAS MISPLACED HER RELIANCE ON VARIOUS JUDICIAL PRON OUNCEMENTS. THE CASES ARE DISTINGUISHABLE AS SUBMITTED BELOW: ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 25 30.1 TECNIMONT ICB LTD. V. DEPUTY COMMISSIONER OF I NCOME-TAX [2013] 32 TAXMANN.COM 357 (MUMBAI - TRIB.) THIS IS THE CASE PERTAINING TO REIMBURSEMENTS RECEI VED FROM AES WHERE THERE WAS NO INSTANCES WHERE IN SIMILAR TRANSACTION S WERE NOT ENTERED WITH NON-AES WHEREAS IN PRESENT CASE THERE IS EXPLI CIT FINDING THAT THE RECEIVABLES ARE DUE FROM BOTH AES AND NON-AES AND N ONE OF THE CASE INTEREST WAS NOT CHARGED BY THE ASSESSEE. 30.2 LOGIX MICRO SYSTEMS LTD. V. ASSISTANT COMMISSIONER OF INCOME- TAX [2010] 42 SOT 525 (BANGALORE) IN THIS CASE THERE ARE NO FINDINGS THAT THE ASSESSE E COMPANY WAS MAKING SALES TO AES AND THAT WHETHER INTEREST WAS C HARGED FROM AE OR NOT. 30.3 COX & KING (INDIA) (P.) LTD. V. INCOME-TAX OFFICER [2010] 42 SOT 15 (MUM.) (URO) IN THIS CASE THERE WAS AN EXPRESS FINDING OF TPO TH AT THE ASSESSEE HAD SHOWN MORE FAVOR IN GIVING CREDIT PERIOD TO AE THAN NON-AE. WHEREAS IN THE CASE AT HAND ADDITIONAL DAYS TAKEN BEYOND DUE DATE FOR MAKING PAYMENT BY NON-AES WERE 18 DAYS WHEREAS THOSE TAKE N BY AES WERE 5 DAYS. 30.4 VVF LTD. V. DY. CIT (ITA NO. 673/MUM/06): IN THIS CASE THE ASSESSEE COMPANY HAD EXTENDED INT EREST FREE LOANS TO ITS AES. WHEREAS THE PRESENT CASE PERTAINS TO NOTIO NAL INTEREST CALCULATED ON OUTSTANDING RECEIVABLES ON THE SALES MADE BY THE ASSESSEE FIRM TO ITS AES. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 26 31. IT WAS FURTHER SUBMITTED BY THE LD AR THAT EXPO RTS MADE TO THE AE IS BENCHMARKED ON THE BASIS OF THE TRANSACTIONAL NET MARGIN METHOD (TNMM) AND THE TPO HAS ACCEPTED THE SAME. HOWEVER W ITH RESPECT TO DELAYED REALIZATION OF DEBTS THE TPO RE-CHARACTERI ZED THE SAID TRANSACTION AS AN UNSECURED LOAN. THE HONBLE DELH I HIGH COURT IN THE CASE OF EKL APPLIANCES LIMITED [(2012) 345 ITR 241 (DEL) HELD THAT RECHARACTERIZATION OF A TRANSACTION IS POSSIBLE IN ONLY TWO SITUATIONS I.E. (I) WHERE THE ECONOMIC SUBSTANCE OF A TRANSACT ION DIFFERS FROM ITS FORM AND (II) WHERE THE FORM AND SUBSTANCE OF THE T RANSACTION ARE THE SAME BUT ARRANGEMENTS MADE IN RELATION TO THE TRANS ACTION VIEWED IN THEIR TOTALITY DIFFER FROM THOSE WHICH WOULD HAVE BEEN ADOPTED BY INDEPENDENT ENTERPRISES BEHAVING IN A COMMERCIALLY RATIONAL MANNER. NONE OF THESE CONDITIONS IS SATISFIED IN THE PRESEN T CASE. THE FORM AND SUBSTANCE OF THE TRANSACTIONS ARE THE SAME. THE TPO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO DEMONSTRATE AND ESTABLISH THAT THE FORM AND SUBSTANCE OF TRANSACTIONS ARE DIFFERENT. IT IS NOT THE CASE OF THE TRANSFER PRICING OFFICER THAT THE EXPORT TRANSACTION WAS A S HAM TRANSACTION TO FINANCE THE AE. WHATEVER ARE THE TERMS OF REALIZATI ON OF THE EXPORTS PROCEEDS WITH THE NON-AES THE SAME ARE THE TERMS O F REALIZATION OF EXPORTS FROM THE NON AES. 32. IT WAS FURTHER SUBMITTED THAT REALIZATION OF EX PORT PROCEEDS IS INEXTRICABLY LINKED WITH THE SALE TRANSACTION. IT W AS SUBMITTED THAT TRANSACTION OF ALLOWING CREDIT PERIOD TO AE ON REAL IZATION OF SALE PROCEEDS IS NOT AN INDEPENDENT INTERNATIONAL TRANSA CTION BUT IT IS A CLOSELY LINKED OR CONTINUOUS TRANSACTION ALONG WITH SALE TRANSACTION TO THE AE. THE CREDIT PERIOD ALLOWED TO THE PARTY DEPE NDS UPON VARIOUS ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 27 FACTORS WHICH ALSO INCLUDES THE PRICE CHARGED BY TH E ASSESSEE FROM PURCHASER. THEREFORE THE CREDIT PERIOD EXTENDED BY THE ASSESSEE TO THE AE CANNOT BE EXAMINED INDEPENDENTLY BUT HAS TO BE CONSIDERED ALONG WITH THE MAIN INTERNATIONAL TRANSACTION BEING SALE TO THE AE. AS A RESULT ONCE THE SALE IS FOUND TO BE AT AN ARMS LENGTH PRI CE NO FURTHER ADJUSTMENT CAN BE MADE IN RESPECT OF DELAY IN REALI ZATION OF EXPORT PROCEEDS. 33. RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL P RONOUNCEMENTS: 33.1 DET NORSKE VERITAS A/S VS. ADIT [2016] 67 TAXM ANN.COM 16 (MUMBAI - TRIB.) IN ANY EVENT WHEN INTERNATIONAL TRANSACTIONS HAV E BEEN BENCHMARKED ON THE BASIS OF TNMM AND INTEREST ON D ELAY IN REALIZATION OF AMOUNTS IS ONLY INCIDENTAL TO SUCH TRANSACTIONS RATHER THAN A STANDALONE TRANSACTION SUCH AN ADJUSTMENT CANNOT B E MADE INDEPENDENTLY. FOR THIS PROPOSITION WE FIND SUPPOR T FROM A COORDINATE BENCH DECISION IN THE CASE OF MICRO INK LTD. V. ADD L. CIT [2015] 63 TAXMANN.COM 353 (AHD.). IN THE LIGHT OF THE ABOVE D ISCUSSIONS AND BEARING IN MIND ENTIRETY OF THE CASE WE DEEM IT FI T AND PROPER TO DELETE THE IMPUGNED ALP ADJUSTMENT OF RS 7 20 110. THE ASS ESSEE GETS THE RELIEF ACCORDINGLY. 33.2 KUSUM HEALTHCARE PVT LTD VS ACIT (2015) 62 TAX MANN.79 (DEL) FROM THE ABOVE ANALYSIS IT IS CLEAR THAT ASSESSE E HAD EARNED SIGNIFICANTLY HIGHER MARGIN THAN THE COMPARABLE COM PANIES (WHICH HAVE BEEN ACCEPTED BY THE TPO) WHICH MORE THAN COMPENSAT ES FOR THE CREDIT PERIOD EXTENDED TO THE AES. THUS THE APPROACH BY T HE ASSESSEE OF ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 28 AGGREGATING THE INTERNATIONAL TRANSACTIONS PERTAINI NG TO SALE OF GOODS TO AE AND RECEIVABLES ARISING FROM SUCH TRANSACTIONS W HICH IS UNDOUBTEDLY INEXTRICABLE CONNECTED IS IN ACCORDANCE WITH ESTABL ISHED TP PRINCIPLES AS WELL AS RATIO LAID DOWN BY THE HON'BLE JURISDICTION AL HIGH COURT IN THE CASE OF SONY ERICSSON MOBILE COMMUNICATION INDIA (P .) LTD. (SUPRA).. 33.3 MICRO INK LTD VS ACIT (2014) 63 TAXMANN.353 (A HD): THE WHOLE EXERCISE OF ALP ADJUSTMENTS IS TO NEUTR ALIZE THE IMPACT OF INTER SE RELATIONSHIPS BETWEEN THE AES AND IT IS T HEREFORE NOT THE DELAY SIMPLICTOR IN PAYMENT BUT DELAY IN PAYMENT VIS-A-VI S SIMILAR SITUATIONS WITH NON-AES (I.E. INDEPENDENT ENTERPRISES) WHICH I S OF CRUCIAL CONSIDERATION SUCH A COMPARISON CANNOT BE BASED ON THE HYPOTHESIS AS TO WHAT WOULD HAVE IN THE WISDOM OF THE TPO HAPPE NED IF ASSESSEE WAS TO HAVE SIMILAR TRANSACTIONS WITH NON-AES. THE COMPARISON HAS TO BE BASED ON REAL TRANSACTIONS OF SIMILAR NATURE IF AT ALL SUCH TRANSACTIONS HAVE TAKEN PLACE. WHEN NO SUCH TRANSAC TIONS HAVE TAKEN PLACE AS IN INSTANT CASE THERE IS OBVIOUSLY NO OC CASION OF ANY COMPARISON. THE STAND TAKEN BY THE REVENUE THEREFO RE IS NOT ONLY QUITE DETACHED FROM COMMERCIAL REALITY BUT ALSO WHO LLY UNTENABLE IN LAW. IN ANY CASE WHAT CAN BE EXAMINED ON THE TOUCH STONE OF ARM'S LENGTH PRINCIPLES IS THE COMMERCIAL TRANSACTION ITS ELF AS A RESULT OF WHICH THE DEBT BALANCE HAS COME INTO EXISTENCE AND THE TERMS AND CONDITIONS INCLUDING TERMS OF PAYMENT ON WHICH TH E SAID COMMERCIAL TRANSACTION HAS BEEN ENTERED INTO. THE INTERNATIONAL TRANSACTION IS EXPORTS OF GOODS WHICH BEEN BENCHMARKED ON TNMM BASIS AND WHICH IS DULY ACCEPTE D BY THE TPO. IN VIEW OF THESE DISCUSSIONS AND RESPECTFULLY FOLLOWI NG THE DECISION OF THE ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 29 COORDINATE BENCH IN ASSESSEE'S OWN CASE FOR THE EAR LIER YEARS THE GRIEVANCE OF THE ASSESSEE IS UPHELD AND THE ASSESSI NG OFFICER IS DIRECTED TO DELETED THE IMPUGNED ALP ADJUSTMENT. 34. IT WAS FURTHER SUBMITTED THAT EXTENSION OF CRED IT TO AES BEYOND STIPULATED CREDIT PERIOD CANNOT BE CONSTRUED AS AN INTERNATIONAL TRANSACTION. IT WAS SUBMITTED THAT A CONTINUING DE BIT BALANCE IN THE ACCOUNT OF THE AE DOES NOT AMOUNT TO AN INTERNATIO NAL TRANSACTION UNDER SECTION 92B IN RESPECT OF WHICH ALP ADJUSTMEN TS CAN BE MADE. FACTUM OF PAYMENT HAS TO BE CONSIDERED VIS-A-VIS TE RMS OF PAYMENT SET OUT IN THE TRANSACTION ARRANGEMENT AND NOT IN ISOL ATION WITH THE COMMERCIAL TERMS ON WHICH TRANSACTION IN RESPECT OF WHICH PAYMENT IS TO BE MADE. 35. OUR REFERENCE WAS DRAWN TO THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF NIMBUS COMMUNICATIONS LTD VS A CIT (2011) 139 TTJ 214 (MUMBAI) HELD THAT A CONTINUING DEBIT BALANCE IN OUR HUMBLE UNDERSTANDING IS NOT AN INTERNATIONAL TRANS ACTION PER SE BUT IS A RESULT OF THE INTERNATIONAL TRANSACTION. THE PAYMENT TERMS ARE AN INTEGRAL PART OF ANY COM MERCIAL TRANSACTION AND THE TRANSACTION VALUE TAKES INTO A CCOUNT THE TERMS OF PAYMENT SUCH AS PERMISSIBLE CREDIT PERIOD AS WELL . THE RESIDUARY CLAUSE IN THE DEFINITION OF 'INTERNATIONAL TRANSACT ION' I.E. ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS INCOME S LOSSES OR ASSETS OF SUCH ENTERPRISES DOES NOT APPLY TO A CONTINUING DE BIT BALANCE ON THE GIVEN FACTS OF THE CASE FOR THE ELEMENTARY REASON THAT THERE IS NOTHING ON RECORD TO SHOW THAT AS A RESULT OF NOT REALIZING THE DEBTS FROM ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 30 ASSOCIATED ENTERPRISES THERE HAS BEEN ANY IMPACT O N PROFITS INCOMES LOSSES OR ASSETS OF THE ASSESSEE. 36. IT WAS SUBMITTED THAT LAYING DOWN A SIMILAR RAT IO HONBLE ITAT PUNE BENCH IN THE CASE OF PATNI COMPUTER SYSTEMS LT D. V. DY. CIT (2011) 141 TTJ (PUNE) 190 HAS HELD THAT EXTENSION O F CREDIT TO AES BEYOND STIPULATED CREDIT PERIOD CANNOT BE CONSTRUED AS AN INTERNATIONAL TRANSACTION SO AS TO REQUIRE ADJUSTMENT FOR ASCERT AINING ALP. 37. IT WAS FURTHER SUBMITTED THAT AMENDMENT IN SECT ION 92B IS TO BE TREATED AS PROSPECTIVE IN EFFECT. THE FINANCE ACT 2 012 WIDENED THE SCOPE OF INTERNATIONAL TRANSACTION BY INSERTING EXP LANATION IN SECTION 92B WITH RETROSPECTIVE EFFECT FROM 01.04.2002. AS P ER THIS EXPLANATION CAPITAL FINANCING INCLUDING ANY TYPE OF LONG-TERM OR SHORT-TERM BORROWING LENDING OR GUARANTEE PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE PAYMENT OR DEFER RED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS IS NOW DEEMED AS INTERNATIONAL TRANSACTION. 38. IT WAS SUBMITTED THAT SUCH AMENDMENT TO SECTION 92B IS AN AMENDMENT TO SUBSTANTIVE LAW SINCE IT RESULTED IN E NHANCEMENT OF THE SCOPE OF INTERNATIONAL TRANSACTIONS AS ENVISAGED UN DER ERSTWHILE SECTION 92B OF THE ACT. THE SUBJECT AMENDMENT THOUGH STATED TO BE CLARIFICA TORY SHOULD BE TREATED AS EFFECTIVE FROM ASSESSMENT YEAR 2013-14 O NWARDS. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE DELHI HIG H COURT IN THE CASE OF NEW SKIES SATELLITE BV [TS-64-HC -DEL (2016)] HE LD THAT AMENDMENTS THOUGH ORIGINALLY NOTIFIED AS CLARIFICAT ORY MAY TURN OUT TO ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 31 BE SUBSTANTIVE IN FACT AND SUCH A SUBSTANTIVE AMEND MENT IS INCAPABLE OF BEING GIVEN RETROSPECTIVE EFFECT. RELEVANT EXTRA CTS OF THE SAID ORDER IS REPRODUCED HEREUNDER:- UNDOUBTEDLY THE LEGISLATURE IS COMPETENT TO AMEN D A PROVISION THAT OPERATES RETROSPECTIVELY OR PROSPECTIVELY. NONETHEL ESS WHEN DISPUTES AS TO THEIR APPLICABILITY ARISE IN COURT IT IS THE ACTUAL SUBSTANCE OF THE AMENDMENT THAT DETERMINES ITS ULTIMATE OPERATION AN D NOT THE BARE LANGUAGE IN WHICH SUCH AMENDMENT IS COUCHED. A CLAR IFICATORY AMENDMENT PRESUMES THE EXISTENCE OF A PROVISION THE LANGUAGE OF WHICH IS OBSCURE AMBIGUOUS MAY HAVEMADE AN OBVIOU S OMISSION OR IS CAPABLE OF MORE THAN ONE MEANING. IN SUCH CASE A S UBSEQUENT PROVISION DEALING WITH THE SAME SUBJECT MAY THROW L IGHT UPON IT. YET IT IS NOT EVERY TIME THAT THE LEGISLATURE CHARACTERIZE S AN AMENDMENT AS RETROSPECTIVE THAT THE COURT WILL GIVE SUCH EFFECT TO IT. THIS IS NOT IN DEROGATION OF THE EXPRESS WORDS OF THE LAW IN QUEST ION (WHICH AS A MATTER OF COURSE MUST BE THE FIRST TO BE GIVEN EFFE CT TO) BUT BECAUSE THE LAW WHICH WAS INTENDED TO BE GIVEN RETROSPECTIV E EFFECT TO AS A CLARIFICATORY AMENDMENT IS IN ITS TRUE NATURE ONE THAT EXPANDS THE SCOPE OF THE SECTION IT SEEKS TO CLARIFY AND RESUL TANTLY INTRODUCES NEW PRINCIPLES UPON WHICH LIABILITIES MIGHT ARISE. SUC H AMENDMENTS THOUGH FRAMED AS CLARIFICATORY ARE IN FACT TRANSFORMATIVE SUBSTANTIVE AMENDMENTS AND INCAPABLE OF BEING GIVEN RETROSPECT IVE EFFECT. AN IMPORTANT QUESTION WHICH ARISES IN THIS CONTEXT I S WHETHER A CLARIFICATORY AMENDMENT REMAINS TRUE TO ITS NATUR E WHEN IT PURPORTS TO ANNUL OR HAS THE UNDENIABLE EFFECT OF ANNULLING A N INTERPRETATION GIVEN BY THE COURTS TO THE TERM SOUGHT TO BE CLARIFIED. I N OTHER WORDS DOES ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 32 THE RULE AGAINST CLARIFICATORY AMENDMENTS LAYING DO WN NEW PRINCIPLES OF LAW EXTEND TO SITUATIONS WHERE LAW HAD BEEN JUDICIA LLY INTERPRETED AND THE LEGISLATURE SEEKS TO OVERCOME IT BY DECLARING T HAT THE LAW IN QUESTION WAS NEVER MEANT TO HAVE THE IMPORT GIVEN T O IT BY THE COURT? THE GENERAL POSITION OF THE COURTS IN THIS REGARD I S WHERE THE PURPOSE OF A SPECIAL INTERPRETIVE STATUTE IS TO CORRECT A JUDI CIAL INTERPRETATION OF A PRIOR LAW WHICH THE LEGISLATURE CONSIDERS INACCURA TE THE EFFECT IS PROSPECTIVE. ANY OTHER RESULT WOULD MAKE THE LEGISL ATURE A COURT OF LAST RESORT. UNITED STATES V. GILMORE 8 WALL [(75US ) 33 019LED396 ( 1869 )] PEONY PARK V. OMALLEY [ 223F2D668 ( 8TH CIR 1955)] IT DOES NOT MEAN THAT THE LEGISLATURE DOES NOT HAVE THE POWER TO OVE RRIDE JUDICIAL DECISIONS WHICH IN ITS OPINION IT DEEMS AS INCORREC T HOWEVER TO RESPECT THE SEPARATION OF LEGAL POWERS AND TO AVOID MAKING A LEGISLATURE A COURT OF LAST RESORT THE AMENDMENTS CAN BE MADE PROSPECT IVE ONLY[ REF COUNTY OF SACRAMENTO V STATE (134 CAL APP 3D 428) A ND IN RE MARRIAGE OF DAVIES (105 III APP 3D 66)] (EMPHASIS BY UNDERL INING SUPPLIED BY US) 39. IT WAS SUBMITTED THAT THE ITAT MUMBAI BENCH RE LYING ON THE RATIO LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE AB OVE MENTIONED CASE IN ITS ORDER DATED 31.03.2016 IN THE CASE OF RUSAB H DIAMONDS (2016) 158 ITD 0564 (MUMBAI) HAS HELD THAT SINCE EXPLANAT ION TO SECTION 92B HAS INCREASED THE SCOPE OF INTERNATIONAL TRANSACTIO N SUCH AMENDMENT THOUGH STATED TO BE CLARIFICATORY AND STATED TO BE EFFECTIVE FROM 1ST APRIL 2002 HAS TO BE NECESSARILY TREATED AS EFFECT IVE FROM AT BEST ASSESSMENT YEAR 2013-14. RELEVANT EXTRACTS OF THE S AID ORDER IS AS UNDER:- ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 33 .IF THE 2012 AMENDMENT DOES INCREASE THE SCOPE OF INTERNATIONAL TRANSACTION UNDER SECTION 92B AS IS OUR CONSIDERED VIEW THERE IS NO WAY IT COULD BE IMPLEMENTED FOR THE PERIOD PRIOR TO THIS LAW COMING ON THE STATUTE I.E. 28TH MAY 2012. THE LAW IS WELL SET TLED. IT DOES NOT EXPECT ANYONE TO PERFORM AN IMPOSSIBILITY. REITERAT ING THIS SETTLED LEGAL POSITION HONBLE SUPREME COURT HAS IN THE CASE OF KRISHNASWAMY S PDVS UNION OF INDIA [(2006) 281 ITR 305 (SC)].. 40. IT WAS FURTHER SUBMITTED THAT SIMILAR RATIO WAS LAID DOWN BY THE HONBLE ITAT MUMBAI BENCHES IN THE BELOW MENTIONED CASES:- HIRACO JEWELLERY (INDIA) PVT. LTD. I.T.A. NO.7297/ MUM/2014 (MUMBAI) GITANJALI EXPORTS CORPORATION LIMITED (2016) 178 TT J 529 (MUMBAI) SIRO CLINPHARM PRIVATE LIMITED (2016) 177 TTJ 609 ( MUMBAI) 41. IT WAS FINALLY SUBMITTED THAT WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS INTEREST RATE TO BE CHARGED FOR EXCESS CREDIT PERIOD SHOULD BE BASED ON LIBOR RATE RATHER THAN THE INTEREST RAT E CHARGED BY THE DOMESTIC BANKS. HONBLE ITAT DELHI BENCH IN THE CAS E OF AVENUE ASIA ADVISORS (P.) LTD [2016] 178 TTJ 295 (DELHI - TRIB. ) HELD THAT HEAD NOTES SECTION 92C OF THE INCOME-TAX ACT 1961 - T RANSFER PRICING - COMPUTATION OF ARM'S LENGTH PRICE (COMPARABLES AND ADJUSTMENTS/ADJUSTMENTS - INTEREST) - ASSESSMENT YE AR 2009-10 - WHETHER SINCE IN CASE OF ASSESSEE INVOICES WERE RE ISED BY ASSESSEE IN FOREIGN CURRENCY AND AE ENJOYED BENEFIT OF INTEREST IN TERMS OF LIBOR RATE OF INTEREST WHILE COMPUTING ADJUSTMENT FOR IN TEREST ON RECEIVABLES ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 34 SAID LIBOR RATE OF INTEREST HAD TO BE CONSIDERED RA THER THAN PRIME LENDING RATE OF INTEREST OF SBI - HELD YES 42. THE LD DR IS HEARD WHO HAS VEHEMENTLY ARGUED T HE MATTER AND TOOK US THROUGH THE FINDINGS OF THE TPO WHICH WE HA VE ALREADY NOTED ABOVE. HE SUBMITTED THAT IN VIEW OF THE AMENDMENT BROUGHT IN BY THE FINANCE ACT 2012 THERE IS NO AMBIGUITY THAT DELAY IN REALIZATION OF EXPORT PROCEEDS BEYOND STIPULATED CREDIT PERIOD AND CONTINUING DEBIT BALANCE IN THE ACCOUNT OF THE ASSOCIATED ENTERPRISE S CONSTITUTE AN INTERNATIONAL TRANSACTIONS U/S 92B OF THE ACT. IT W AS FURTHER SUBMITTED THAT THE SAID TRANSACTION WAS ACCORDINGLY BENCHMARK ED APPLYING THE CUP METHOD WHICH IS THE MOST APPROPRIATE METHOD AND ADJUSTMENT HAS BEEN PROPOSED BY THE TPO TOWARDS CALCULATION OF INT EREST ON SUCH RECEIVABLES BEYOND THE PRESCRIBED CREDIT LIMIT. 43. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE ORDER OF THE TRAN SFER PRICING OFFICER THE LD. CIT(A) AS WELL AS THE DECISIONS OF THE HON BLE HIGH COURTS AND THE CO-ORDINATE BENCHES. 44. IN OUR VIEW THE FIRST AND THE FOREMOST ISSUE WH ICH ARISE FOR CONSIDERATION IS WHETHER DELAY IN REALIZATION OF EX PORT PROCEEDS BEYOND STIPULATED CREDIT PERIOD AND CONTINUING DEBIT BALAN CE IN THE ACCOUNT OF THE ASSOCIATED ENTERPRISES AMOUNTS TO AN INTERNATIO NAL TRANSACTION U/S 92B OF THE ACT IN LIGHT OF EXPLANATION TO SECTION 9 2B INSERTED BY THE FINANCE ACT 2012 WHICH HAS BEEN SPECIFICALLY INVOKE D BY TRANSFER PRICING OFFICER. THE SAID EXPLANATION TO SECTION 9 2B READS AS UNDER:- ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 35 EXPLANATION.FOR THE REMOVAL OF DOUBTS I T IS HEREBY CLARIFIED THAT (I) THE EXPRESSION INTERNATIONAL TRANSACTIO N SHALL INCLUDE (A) THE PURCHASE SALE TRANSFER LEASE OR USE OF T ANGIBLE PROPERTY INCLUDING BUILDING TRANSPORTATION VEHICLE MACHINE RY EQUIPMENT TOOLS PLANT FURNITURE COMMODITY OR ANY OTHER ART ICLE PRODUCT OR THING; (B) THE PURCHASE SALE TRANSFER LEASE OR USE OF I NTANGIBLE PROPERTY INCLUDING THE TRANSFER OF OWNERSHIP OR THE PROVISIO N OF USE OF RIGHTS REGARDING LAND USE COPYRIGHTS PATENTS TRADEMARKS LICENCES FRANCHISES CUSTOMER LIST MARKETING CHANNEL BRAND COMMERCIAL SECRET KNOW-HOW INDUSTRIAL PROPERTY RIGHT EXTERI OR DESIGN OR PRACTICAL AND NEW DESIGN OR ANY OTHER BUSINESS OR C OMMERCIAL RIGHTS OF SIMILAR NATURE; (C) CAPITAL FINANCING INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING LENDING OR GUARANTEE PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS; (D) PROVISION OF SERVICES INCLUDING PROVISION OF M ARKET RESEARCH MARKET DEVELOPMENT MARKETING MANAGEMENT ADMINISTR ATION TECHNICAL SERVICE REPAIRS DESIGN CONSULTATION A GENCY SCIENTIFIC RESEARCH LEGAL OR ACCOUNTING SERVICE; (E) A TRANSACTION OF BUSINESS RESTRUCTURING OR REOR GANISATION ENTERED INTO BY AN ENTERPRISE WITH AN ASSOCIATED EN TERPRISE IRRESPECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFIT INCOME ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 36 LOSSES OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF THE TRANSACTION OR AT ANY FUTURE DATE. 45. THE CO-ORDINATE BENCH IN CASE OF AMERIPRISE IND IA (P.) LTD . [2015] 62 TAXMANN.COM 237 (DEL) HAD AN OCCASION TO EXAMINE THE SAID EXPLANATION IN THE CONTEXT OF THE EXPRESSION ANY O THER DEBT ARISING DURING THE COURSE OF BUSINESS AND HAS HELD AS UNDE R:- 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PE RUSING THE RELEVANT MATERIAL ON RECORD IT IS NOTICED AS HIGHL IGHTED ABOVE THAT THE ASSESSEE ARGUED BEFORE THE TPO THAT INTEREST ON RECEIVABLES IS NOT AN INTERNATIONAL TRANSACTION. AT THIS STAGE IT WOULD BE APPOSITE TO NOTE THAT THE FINANCE ACT 2012 HAS INSERTED EXP LANATION TO SECTION 92B WITH RETROSPECTIVE EFFECT FROM 1.4.2002 . CLAUSE (I) OF THIS EXPLANATION WHICH IS OTHERWISE ALSO FOR REMOV AL OF DOUBTS GIVES MEANING TO THE EXPRESSION 'INTERNATIONAL TRAN SACTION' IN AN INCLUSIVE MANNER. SUB-CLAUSE (C) OF CLAUSE (I) OF T HIS EXPLANATION WHICH IS RELEVANT FOR OUR PURPOSE PROVIDES AS UNDE R: 'EXPLANATION.FOR THE REMOVAL OF DOUBTS IT IS HERE BY CLARIFIED THAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHAL L INCLUDE (A) TO (B)** (C) CAPITAL FINANCING INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING LENDING OR GUARANTEE PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS;.' ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 37 22. ON GOING THROUGH THE RELEVANT PART OF THE EXPLA NATION INSERTED WITH RETROSPECTIVE EFFECT FROM 1.4.2002 THEREBY AL SO COVERING THE ASSESSMENT YEAR UNDER CONSIDERATION THERE REMAINS NO DOUBT THAT APART FROM ANY LONG-TERM OR SHORT-TERM LENDING OR B ORROWING ETC. OR ANY TYPE OF ADVANCE PAYMENTS OR DEFERRED PAYMENT S 'ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS' HAS ALS O BEEN EXPRESSLY RECOGNIZED AS AN INTERNATIONAL TRANSACTION. THAT BE ING SO THE PAYMENT/NON-PAYMENT OF INTEREST OR RECEIPT/NON-RECE IPT OF INTEREST ON THE LOANS ACCEPTED OR ALLOWED IN THE CIRCUMSTANC ES AS MENTIONED IN THIS CLAUSE OF THE EXPLANATION ALSO BECOME INTE RNATIONAL TRANSACTIONS REQUIRING THE DETERMINATION OF THEIR ALP. IF THE PAYMENT OF INTEREST IS EXCESSIVE OR THERE IS NO OR LOW RECEIPT OF INTEREST THEN SUCH INTEREST EXPENSE/INCOME NEED TO BE BROUGHT TO ITS ALP. THE EXPRESSION 'DEBT ARISING DURING THE CO URSE OF BUSINESS' IN COMMON PARLANCE ENCOMPASSES INTER ALIA ANY TRA DING DEBT ARISING FROM THE SALE OF GOODS OR SERVICES RENDERED IN THE COURSE OF CARRYING ON THE BUSINESS. ONCE ANY DEBT ARISING DUR ING THE COURSE OF BUSINESS HAS BEEN ORDAINED BY THE LEGISLATURE AS AN INTERNATIONAL TRANSACTION IT IS BUT NATURAL THAT IF THERE IS A NY DELAY IN THE REALIZATION OF SUCH DEBT ARISING DURING THE COURSE OF BUSINESS IT IS LIABLE TO BE VISITED WITH THE TP ADJUSTMENT ON ACCO UNT OF INTEREST INCOME SHORT CHARGED OR UNCHARGED. UNDER SUCH CIRCU MSTANCES THE CONTENTION TAKEN BY THE ASSESSEE BEFORE THE TPO THA T IT IS NOT AN INTERNATIONAL TRANSACTION TURNS OUT TO BE BEREFT O F ANY FORCE. 46. FURTHER WE REFER TO THE DECISION OF THE HONBL E DELHI HIGH COURT IN CASE OF KUSUM HEALTH CARE PVT. LTD. (ITA NO. 765 /2016 DATED ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 38 25.04.2017) WHEREIN THE HONBLE HIGH COURT WAS PLEA SED TO HELD AS UNDER:- 10. THE COURT IS UNABLE TO AGREE WITH THE ABOVE SU BMISSIONS. THE INCLUSION IN THE EXPLANATION TO SECTION 92B OF THE ACT OF THE EXPRESSION RECEIVABLES DOES NOT MEAN THAT DE HORS THE CONTEXT EVERY ITEM OF RECEIVABLES APPEARING IN THE ACCOUNTS OF AN ENTITY WHICH MAY HAVE DEALINGS WITH FOREIGN AES WOULD AUTOMATICALLY BE CH ARACTERISED AS AN INTERNATIONAL TRANSACTION. THERE MAY BE A DELAY IN COLLECTION OF MONIES FOR SUPPLIES MADE EVEN BEYOND THE AGREED LIMIT DU E TO A VARIETY OF FACTORS WHICH WILL HAVE TO BE INVESTIGATED ON A CAS E TO CASE BASIS. IMPORTANTLY THE IMPACT THIS WOULD HAVE ON THE WORK ING CAPITAL OF THE ASSESSEE WILL HAVE TO BE STUDIED. IN OTHER WORDS T HERE HAS TO BE A PROPER INQUIRY BY THE TPO BY ANALYSING THE STATISTI CS OVER A PERIOD OF TIME TO DISCERN A PATTERN WHICH WOULD INDICATE THAT VIS--VIS THE RECEIVABLES FOR THE SUPPLIES MADE TO AN AE THE ARR ANGEMENT REFLECTS AN INTERNATIONAL TRANSACTION INTENDED TO BENEFIT THE A E IN SOME WAY. 11. THE COURT FINDS THAT THE ENTIRE FOCUS OF THE AO WAS ON JUST ONE AY AND THE FIGURE OF RECEIVABLES IN RELATION TO THAT A Y CAN HARDLY REFLECT A PATTERN THAT WOULD JUSTIFY A TPO CONCLUDING THAT TH E FIGURE OF RECEIVABLES BEYOND 180 DAYS CONSTITUTES AN INTERNAT IONAL TRANSACTION BY ITSELF. WITH THE ASSESSEE HAVING ALREADY FACTORED I N THE IMPACT OF THE RECEIVABLES ON THE WORKING CAPITAL AND THEREBY ON I TS PRICING/PROFITABILITY VIS--VIS THAT OF ITS COMPARABLES ANY FURTHER ADJU STMENT ONLY ON THE BASIS OF THE OUTSTANDING RECEIVABLES WOULD HAVE DIS TORTED THE PICTURE AND RE-CHARACTERISED THE TRANSACTION. THIS WAS CLEA RLY IMPERMISSIBLE IN ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 39 LAW AS EXPLAINED BY THIS COURT IN CIT V. EKL APPLIA NCES LTD. (2012) 345 ITR 241 (DELHI). 12. CONSEQUENTLY THE COURT IS UNABLE TO FIND ANY E RROR IN THE IMPUGNED ORDER OF THE ITAT GIVING RISE TO ANY SUBSTANTIAL QU ESTION OF LAW FOR DETERMINATION. THE APPEAL IS ACCORDINGLY DISMISSE D. 47. IN LIGHT OF ABOVE IN THE INSTANCE CASE WHAT H AS TO BE EXAMINED IS WHETHER OUTSTANDING RECEIVABLES IN RELATION TO S ALE TRANSACTIONS WITH THE AES REFLECTS A PATTERN OVER A PERIOD OF TIME OR IS JUST RESTRICTED TO THE IMPUNGED ASSESSMENT YEAR THAT WOULD JUSTIFY A T PO CONCLUDING THAT THE FIGURE OF RECEIVABLES BEYOND 145 DAYS CONSTITUT ES AN INTERNATIONAL TRANSACTION BY ITSELF. FROM PERUSAL OF RECORDS PER TAINING TO AY 2007-08 2008-09 AND 2009-10 IT IS OBSERVED THAT THE ASSESS EE HAS OUTSTANDING RECEIVABLES BEYOND 145 DAYS IN RESPECT OF ITS EXPOR T SALE TRANSACTIONS WITH ITS AES THOUGH THE QUANTUM OF RECEIVABLES PER IOD OF DELAYED REALIZATION MAY VARY IN EACH OF THESE YEARS. IN EA CH OF THESE YEARS THE TPO HAS ALSO CATEGORIZED THESE OUTSTANDING RECEIVAB LES AS AN INDEPENDENT TRANSACTION AND HAS PROPOSED A TRANSFER PRICE ADJUSTMENT TOWARDS INTEREST ON SUCH OUTSTANDING RECEIVABLES BE YOND 145 DAYS. HOWEVER AT THE SAME TIME THERE IS NOT ENOUGH MATE RIAL ON RECORD WHICH THROW LIGHT ON THE EXACT REASONS FOR SUCH DEL AY IN RECEIVABLES AND HENCE IN VIEW OF THE SAME IT CANNOT BE STATED WIT H CERTAINTY THAT THERE SEEMS TO BE SOME PATTERN IN DELAYED REALIZATION OF EXPORT PROCEEDS BEYOND STIPULATED CREDIT PERIOD AND CONTINUING DEBI T BALANCE IN THE ACCOUNT OF THE ASSOCIATED ENTERPRISES WHICH INTENDS TO BENEFIT THE ASSOCIATED ENTERPRISES AND AMOUNTS TO AN INTERNATIO NAL TRANSACTION IN TERMS OF EXPLANATION TO SECTION 92B OF THE ACT. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 40 48. HERE IT WOULD BE EQUALLY RELEVANT TO EXAMINE A NOTHER CONTENTION RAISED BY THE LD. AR THAT SUCH AMENDMENT BY WAY OF AN EXPLANATION TO SECTION 92B IS AN AMENDMENT TO A SUBSTANTIVE LAW AS IT HAS RESULTED IN ENHANCEMENT OF THE SCOPE OF INTERNATIONAL TRANSACTI ONS AS ENVISAGED U/S 92B OF THE ACT AND SUCH AMENDMENT THOUGH STATE D TO BE CLARIFICATORY SHOULD THUS BE TREATED AS EFFECTIVE FROM AY 2013-14 ONWARDS AND IS NOT APPLICABLE FOR THE IMPUGNED ASSE SSMENT YEAR I.E AY 2007-08 AND EVEN TO TWO SUBSEQUENT ASSESSMENT YEARS IE AY 2008-09 AND AY 2009-10 WHICH ARE UNDER CONSIDERATION BEFORE US. 49. IN THIS REGARD LD. AR HAS PLACED RELIANCE ON T HE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF NEW SKIES SATEL LITE BV (SUPRA) AND THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF RU SABH DIAMONDS (SUPRA) WHEREIN IN THE LATTER CASE IT WAS HELD TH AT 2012 AMENDMENT DOES INCREASE THE SCOPE OF INTERNATIONAL TRANSACTIO NS U/S 92B AND THERE IS NO WAY THAT IT COULD BE IMPLEMENTED PRIOR TO THE LAW COMING ON THE STATUTE I.E. 28TH MAY 2012 AND ACCORDINGLY SUCH AM ENDMENT THOUGH STATED TO BE CLARIFICATORY AND EFFECTIVE FROM 1ST A PRIL 2002 HAS TO BE NECESSARILY TREATED AS EFFECTIVE FROM AY 2013-14 ON WARDS. THE RELEVANT EXTRACTS OF THE DECISION OF THE CO-ORDINATE BENCH R EADS AS UNDER:- 20. IN ORDER TO EXPLAIN THIS LINE OF REASONING A FEW M ATERIAL FACTUAL DEVELOPMENTS AND THE LEGAL ANALYSIS WILL HAVE TO BE TAKEN NOTE OF. WE HAVE NOTED THAT EVERYTHING HINGES ON APPLICATION OF EXPLANATION TO SECTION 92B VIDE FINANCE ACT 2012 THOUGH WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002. THIS EXPLANATION PROVID ES AS FOLLOWS: EXPLANATION*: - FOR THE REMOVAL OF DOUBTS IT IS HE REBY CLARIFIED THAT ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 41 (*INSERTED BY THE FINANCE ACT 2012 THOUGH WITH RET ROSPECTIVE EFFECT FROM 1ST APRIL 2002) (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE (A) THE PURCHASE SALE TRANSFER LEASE OR USE OF TANGI BLE PROPERTY IN CLUDING BUILDING TRANSPORTATION VEHICLE MACHINERY EQUIPM ENT TOOLS PLANT FURNITURE COMMODITY OR ANY OTHER ARTICLE PRODUCT OR THING; (B) THE PURCHASE SALE TRANSFER LEASE OR USE OF INTAN GIBLE PROPERTY INCLUDING THE TRANSFER OF OWNERSHIP OR THE PROVISION OF USE OF RIGHTS REGARDING LAND USE COPYRIGHTS PATENTS TRADEMARKS LICENCES FRANCHISES CUSTOMER LIST MARKETING CHANNEL BRAND COMMERCIAL SECRET KNOW - HOW INDUSTRIAL PROPERTY RIGHT EXTERIOR DESIGN OR PRACTICAL AND NEW DESIGN OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE; (C) CAPITAL FINANCING INCLUDING ANY TYPE OF LONG -TERM OR SHORT - TERM BORROWING LENDING OR GUARANTEE PURCHASE OR SALE O F MARKETABLE SECURITIES OR ANY TYPE OF ADVANCE PAYMENTS OR DEFE RRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COU RSE OF BUSINESS; (D) PROVISION OF SERVICES INCLUDING PROVISION OF MARKE T RESEARCH MARKET DEVELOPMENT MARKETING MANAGEMENT ADMINISTRATION TECHNICAL SERVICE REPAIRS DESIGN CONSULTATION AGENCY SCI ENTIFIC RESEARCH LEGAL OR ACCOUNTING SERVICE; (E) A TRANSACTION OF BUSINESS RESTRUCTURING OR REORGANI SATION ENTERED INTO ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 42 BY AN ENTERPRISE WITH AN ASSOCIATED ENTERPRISE IRR ESPECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFIT INCOME LOSSES O R ASSE TS OF SUCH ENTERPRISES AT THE TIME OF THE TRANSACTION OR AT AN Y FUTURE DATE; (II) THE EXPRESSION 'INTANGIBLE PROPERTY' SHALL INCLUDE (A) MARKETING RELATED INTANGIBLE ASSETS SUCH AS TRADE MARKS TRADE NAMES BRAND NAMES LOGOS; (B) TECHNOLOGY RE LATED INTANGIBLE ASSETS SUCH AS PROCESS PATENTS PATENT APPLICATIONS TECHNICAL DOCUMENTATION SUCH AS LABOR ATORY NOTEBOOKS TECHNICAL KNOW -HOW; (C) ARTISTIC RELATED INTANGIBLE ASSETS SUCH AS LITERA RY WORKS AND COPYRIGHTS MUSICAL COMPOSITIONS COPYRIGHTS MAPS ENGRAVINGS; (D) DATA PROCESSING RELATED INTANGIBLE ASSETS SUCH AS PROPRIETARY COMPUTER SOFTWARE SOFTWARE COPYRIGHTS AUTOMATED D ATABASES AND INTEGRATED CIRCUIT MASKS AND MASTERS; (E) ENGINEERING RELATED INTANGIBLE ASSETS SUCH AS I NDUSTRIAL DESIGN PRODUCT PATENTS TRADE SECRETS ENGINEERING DRAWING AND SCHEMATICS BLUEPRINTS PROPRIETARY DOCUMENTATION; (F) CUSTOMER RELATED INTANGIBLE ASSETS SUCH AS CUSTOM ER LISTS CUSTOMER CONTRACTS CUSTOMER RELATIONSHIP OPEN PURCHASE ORD ERS; (G) CONTRACT RELATED INTANGIBLE ASSETS SUCH AS FAVOUR ABLE SUPPLIER CONTRACTS LICENCE AGREEMENTS FRANCHISE AGREEMENTS NON - COMPETE ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 43 AGREEMENTS; (H) HUMAN CAPITAL RELATED INTANGIBLE ASSETS SUCH AS T RAINED AND ORGANISED WORK FORCE EMPLOYMENT AGREEMENTS UNION CONTRACTS; (I) LOCATION RELATED INTANGIBLE ASSETS SUCH AS LEASEH OLD INTEREST MINERAL EXPLOITATION RIGHTS EASEMENTS AIR RIGHTS WATER R IGHTS; (J) GOODWILL RELATED INTANGIBLE ASSETS SUCH AS INSTIT UTIONAL GOODWILL PROFESSIONAL PRACTICE GOODWILL PERSONAL GOODWILL OF PROFESSIONA L CELEBRITY GOODWILL GENERAL BUSINESS GOING CONCERN VALUE; (K) METHODS PROGRAMMES SYSTEMS PROCEDURES CAMPAIGNS SURVEYS STUDIES FORECASTS ESTIMATES CUSTOMER LISTS OR T ECHNICAL DATA; (L) AN Y OTHER SIMILAR ITEM THAT DERIVES ITS VALUE FROM IT S INTELLECTUAL CONTENT RATHER THAN ITS PHYSICAL ATTRIBUTES.'. 21. SHORTLY BEFORE THE 2012 AMENDMENTS WERE BROUGHT A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF N IMBUS COMMUNICATIONS LTD. (SUPRA) AND SPEAKING THROUGH O NE OF US HAD OBSERVED AS FOLLOWS: '4. IT IS ONLY ELEMENTARY IN TERMS OF THE PROVISIO NS OF SECTION 92 ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTIO N HAS TO BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE (A LP) AND THAT THIS EXERCISE INCLUDES THE ALLOWANCE FOR ANY EXPENS E OR INTEREST ARISING FROM AN INTERNATIONAL TRANSACTION AS WELL. THAT IS THE ONLY PROVISIONS UNDER WHICH ALP ADJUSTMENTS CAN BE MADE. IN OTHER WORDS THEREFORE ARM'S LENGTH PRICE ADJUSTMENTS CA N ONLY BE MADE ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 44 IN RESPECT OF AN 'INTERNATIONAL TRANSACTIONS'. THE EXPRESSION 'INTERNATIONAL TRANSACTION' ON THE OTHER HAND IS DEFINED UNDER SECTION 92B AS A TRANSACTION BETWEEN TWO OR MORE AS SOCIATED ENTERPRISES EITHER OR BOTH OF THEM ARE NON-RESIDEN TS 'IN THE NATURE OF PURCHASE SALE OR LEASE OF TANGIBLE OR INTANGIBL E PROPERTY OR PROVISION OF SERVICES OR LENDING OR BORROWING OF M ONEY OR ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS INCOMES LOSSES OR ASSETS OF SUCH ENTERPRISES' AS ALSO TRANSACTION IN THE NATURE OF COST OR EXPENSE SHARING ARRANGEMENT. THE QUESTION THAT W E MUST ADDRESS OURSELVES TO IS WHETHER A CONTINUING DEBIT BALANCE CONSTITUTES A 'TRANSACTION' IN TERMS OF THE PROVISI ONS OF SECTION 92B. 5. A CONTINUING DEBIT BALANCE IN OUR HUMBLE UNDER STANDING IS NOT AN INTERNATIONAL TRANSACTION PER SE BUT IS A RESUL T OF THE INTERNATIONAL TRANSACTION. IN PLAIN WORDS A CONTIN UING DEBIT BALANCE ONLY REFLECTS THAT THE PAYMENT EVEN THOUGH DUE HA S NOT BEEN MADE BY THE DEBTOR. IT IS NOT HOWEVER NECESSARY T HAT A PAYMENT IS TO BE MADE AS SOON AS IT BECOMES DUE. MANY FACTORS INCLUDING TERMS OF PAYMENT AND NORMAL BUSINESS PRACTICES INF LUENCE THE FACT OF PAYMENT IN RESPECT OF A COMMERCIAL TRANSACTION. UNLIKE A LOAN OR BORROWING IT IS NOT AN INDEPENDENT TRANSACTION WHI CH CAN BE VIEWED ON STANDALONE BASIS. WHAT CAN BE EXAMINED ON THE TO UCHSTONE OF ARM'S LENGTH PRINCIPLES IS THE COMMERCIAL TRANSACTI ON ITSELF AS A RESULT OF WHICH THE DEBIT BALANCE HAS COME INTO EXI STENCE AND THE TERMS AND CONDITIONS INCLUDING TERMS OF PAYMENT O N WHICH THE SAID COMMERCIAL TRANSACTION HAS BEEN ENTERED INTO. THE PAYMENT TERMS ARE AN INTEGRAL PART OF ANY COMMERCIAL TRANSA CTION AND THE ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 45 TRANSACTION VALUE TAKES INTO ACCOUNT THE TERMS OF P AYMENT SUCH AS PERMISSIBLE CREDIT PERIOD AS WELL. THE RESIDUARY C LAUSE IN THE DEFINITION OF 'INTERNATIONAL TRANSACTION' I.E. ANY OTHER TRANSACTION HAVING A BEARING ON THE PROFITS INCOMES LOSSES OR ASSETS OF SUCH ENTERPRISES DOES NOT APPLY TO A CONTINUING DEBIT B ALANCE ON THE GIVEN FACTS OF THE CASE FOR THE ELEMENTARY REASON THAT THERE IS NOTHING ON RECORD TO SHOW THAT AS A RESULT OF NOT R EALIZING THE DEBTS FROM ASSOCIATED ENTERPRISES THERE HAS BEEN ANY IMP ACT ON PROFITS INCOMES LOSSES OR ASSETS OF THE ASSESSEE. IN VIEW OF THESE DISCUSSIONS IN OUR CONSIDERED VIEW A CONTINUING D EBIT BALANCE PER SE IN THE ACCOUNT OF THE ASSOCIATED ENTERPRISES D OES NOT AMOUNT TO AN INTERNATIONAL TRANSACTION UNDER SECTION 92B IN R ESPECT OF WHICH ALP ADJUSTMENTS CAN BE MADE. THE FACTUM OF PAYMENT HAS TO BE CONSIDERED VIS-A-VIS TERMS OF PAYMENT SET OUT IN TH E TRANSACTION ARRANGEMENT AND NOT IN ISOLATION WITH THE COMMERCI AL TERMS ON WHICH TRANSACTION IN RESPECT OF WHICH PAYMENT IS A CCORDING TO THE REVENUE AUTHORITIES DELAYED.' 22. WE HAVE NOTED THE LEARNED DEPARTMENTAL REPRESE NTATIVES CONTENTION THAT THE ABOVE DECISION IS NO LONGER GOO D IN LAW SINCE A COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF I -GATE COMPUTER SYSTEMS LTD. (SUPRA) HAS INTER ALIA STATED THAT ' THE HON'BLE BOMBAY HIGH COURT IN ASSESSEE'S OWN CASE RELATING TO THE ASSESSMENT YEAR 2002-03 IN INCOME TAX APPEAL NO. 11 48/2012 VIDE JUDGMENT DATED 28.2.2013 HAS HELD THAT IN VIE W OF THE AMENDMENT BY THE FINANCE ACT 2012 WITH RETROSPECTIV E EFFECT FROM 1ST APRIL 2002 THE SAID TRANSACTION OF CHARGING OF INTEREST FROM THE ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 46 AES IS COVERED UNDER THE AMENDED PROVISION OF SECTI ON 92B(1) OF THE ACT'. 23. HOWEVER WHEN WE PERUSED HON'BLE BOMBAY HIGH C OURT'S JUDGMENT REFERRED TO IN THIS COORDINATE BENCH'S ORD ER WE FOUND THE FACTUAL SLIGHTLY BUT VERY MATERIALLY DIFFERENT. 24. THE RELEVANT QUESTION BEFORE THEIR LORDSHIPS IN THE SAID CASE AND AS SET OUT AT PAGE 2 OF THIS JUDGMENT WAS '(C) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE TRIBUNAL DID NOT ERR IN HOLDING THAT THE LOSS SUFFERED BY TH E ASSESSEE BY ALLOWING EXCESS PERIOD OF CREDIT TO THE ASSOCIATED ENTERPRISES WITHOUT CHARGING ANY INTEREST DURING SUCH PERIOD WO ULD NOT AMOUNT TO INTERNATIONAL TRANSACTION WHEREAS SECTION 92B(1) OF THE INCOME TAX ACT 1961 REFERS TO 'ANY OTHER TRANSACTION HAV ING A BEARING ON THE PROFITS INCOME LOSSES OR ASSETS OF SUCH ENTER PRISE''. RATHER THAN ANSWERING THIS QUESTION ON MERITS AND WITH TH E CONSENT OF BOTH THE PARTIES THEIR LORDSHIPS SENT THE MATTER B ACK FOR FRESH CONSIDERATION OF THE TRIBUNAL. WHILE DOING SO AT P AGE 3-4 OF THE JUDGMENT THEIR LORDSHIPS OBSERVED AS FOLLOWS: '2. SO FAR AS QUESTION (C) IS CONCERNED COUNSEL FO R THE PARTIES STATE THAT IN VIEW OF THE AMENDMENT TO SECTION 92B(1) OF THE INCOME TAX ACT 1961 ('ACT' FOR SHORT) BY FINANCE ACT 2012 WI TH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002 THE QUESTION AS FRAMED MAY BE RESTORED TO THE FILE OF THE TRIBUNAL FOR FRESH DECISION IN L IGHT ON THE AMENDMENT. ACCORDINGLY THIS ISSUE IS REMITTED TO T HE FILE OF THE TRIBUNAL FOR FRESH DECISION ON MERITS' ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 47 25. THE OBSERVATIONS SO MADE BY HON'BLE JURISDICTI ONAL HIGH COURT IN OUR LIMITED UNDERSTANDING CANNOT BE CONS TRUED AS HOLDING THAT 'IN VIEW OF THE AMENDMENT BY THE FINANCE ACT 2 012 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL 2002 THE SAID TRANSACTION OF CHARGING OF INTEREST FROM THE AES IS COVERED UNDER THE AMENDED PROVISION OF SECTION 92B(1) OF THE ACT'. AS IT APPE ARS FROM THE PLAIN WORDS OF THE STATUTE- AS EXTRACTED EARLIER THE ISS UE IS LEFT OPEN FOR ADJUDICATION BY THIS TRIBUNAL. 26. IN ANY EVENT TO THIS EXTENT THIS JUDGMENT DO ES NOT INVOLVE AN ADJUDICATION ON A LEGAL ISSUE AS IT IS A RESULT OF CONSENSUS OF THE PARTIES. WHEN BOTH THE PARTIES BEFORE THEIR LORDSHI PS AGREED AND SO 'STATED' BEFORE THEIR LORDSHIPS TO LET THE MATT ER BE RESTORED TO THE FILE OF THE TRIBUNAL THERE COULD NOT HAVE BEEN AND THERE WAS NO ADJUDICATION ON ANY LEGAL ISSUE. 27. IT IS FOR THIS REASON THAT THE SAID DECISION OF TH E PUNE BENCH OF THE TRIBUNAL RELIED UPON BY THE LEARNED D EPARTMENTAL REPRESENTATIVE IS PER INCURIUM AND DOES NOT BIND T HE COORDINATE BENCHES. 28. THE QUESTION THEN IS AS TO WHAT IS THE IMPACT OF AMENDMENT IN SECTION 92B BY THE VIRTUE OF FINANCE ACT 2012 ON THE DEFINITION OF INTERNATIONAL TRANSACTION SO FAR AS THE INTEREST ON DELAYED REALIZATION OF DEBT IS CONCERNED. 29. THE AMENDMENT SO MADE BY THE FINANCE ACT 2012 STATED TO BE WITH RETROSPECTIVE EFFECT 1ST APRIL 2002 INS ERTS AN EXPLANATION TO SECTION 92B WHICH INTER ALIA THAT 'FOR THE REM OVAL OF DOUBTS IT ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 48 IS HEREBY CLARIFIED THAT (C) CAPITAL FINANCING INC LUDING ANY TYPE OF LONG-TERM OR SHORT -TERM BORROWING LENDING OR GUAR ANTEE PURCHASE OR SALE OF MARKETABLE SECURITIES OR ANY TYPE OF ADV ANCE PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT ARISING DURING THE COURSE OF BUSINESS'. IN PLAIN WORDS THIS AMEND MENT INTER ALIA IMPLIES THAT CAPITAL FINANCING OF ANY TYPE INCLUDI NG BY WAY OF 'DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT A RISING DURING THE COURSE OF BUSINESS' WILL CONSTITUTE AN INTERNAT IONAL TRANSACTION UNDER SECTION 92B. GOING BY THIS DEFINITION 'ANY DE BTS ARISING DURING THE COURSE OF BUSINESS' WILL CONSTITUTE AN INTERNAT IONAL TRANSACTION. A TRADE DEBT IS ACCORDINGLY COVERED BY THIS DEFIN ITION. HOWEVER SINCE THE ASSESSMENT YEAR THAT WE ARE DEALING WITH IS PRIOR TO THE ASSESSMENT YEAR 2012-13 THE NEXT IMPORTANT QUESTIO N IS WHETHER THIS AMENDMENT COULD BE HELD TO BE APPLICABLE IN TH E ASSESSMENT YEAR BEFORE US AS WELL. UNDOUBTEDLY THE AMENDMENT IS SAID TO BE RETROSPECTIVE BUT THEN THE QUESTION REALLY IS WHETH ER JUST STATING THE LAW TO BE RETROSPECTIVE WILL MAKE IT RETROSPECTIVE IN EFFECT. 30. THE FACT THAT JUDICIAL PRECEDENTS PRIOR TO TH E INSERTION OF EXPLANATION TO SECTION 92B HELD THAT A CONTINUING DEBIT BALANCE ON A STANDALONE BASIS DOES NOT CONSTITUTE AN INTERNAT IONAL TRANSACTION REQUIRED TO BE BENCHMARKED ASSUMES CONSIDERABLE SIG NIFICANCE IN THE LIGHT OF A NEW JUDICIAL DEVELOPMENT THAT WE WIL L DEAL WITH IN A SHORT WHILE NOW. IN THE PRESENT CASE WE ARE DEALIN G WITH A SITUATION IN WHICH THE AMENDMENT WAS MADE WITH RETR OSPECTIVE EFFECT AND IT COVERED CERTAIN ISSUES WHICH WERE ALR EADY SUBJECTED TO A JUDICIAL INTERPRETATION IN A PARTICULAR MANNER. T HE JUDICIAL ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 49 INTERPRETATION SO GIVEN WAS CERTAINLY NOT THE END O F THE ROAD. THE MATTER COULD HAVE BEEN CARRIED IN APPEAL BEFORE HIG HER JUDICIAL FORUMS. IF THE DECISION OF A JUDICIAL BODY DOES NOT SATISFY THE TAX ADMINISTRATION NOTHING PREVENTS THEM FROM GOING TO THE HIGHER JUDICIAL FORUM OR FROM SO AMENDING THE LAW WITH PR OSPECTIVE EFFECT THAT THERE IS NO AMBIGUITY ABOUT THE INTENT OF LEGI SLATURE AND IT IS CONVEYED IN UNAMBIGUOUS WORDS. 31. NULLIFYING A JUDICIAL INTERPRETATION THOUGH LE GISLATIVE AMENDMENT MUCH AS MANY OF US MAY ABHOR IT IS NOT TOO UNCOMMON AN OCCURRENCE. OF COURSE WHEN LEGISLATURE HAS TO TAKE AN EXTREME MEASURE TO NULLIFYING THE IMPACT OF A JU DICIAL RULING IN TAXATION IT IS THE TIME FOR AT LEAST ON A THEORET ICAL NOTE INTROSPECTION FOR THE DRAFTSMAN AS TO WHAT WENT SO WRONG THAT FUNDAMENTAL INTENT OF LAW COULD NOT BE CONVEYED BY THE WORDS OF THE STATUTE OR PERHAPS FOR THE JUDICIAL FORUMS A S TO WHAT WENT SO WRONG THAT THE INTERPRETATION WAS SO OFF THE MARK V IS--VIS FUNDAMENTAL PRINCIPLES OF TAXATION OR THE SOUND POL ICY CONSIDERATIONS. HOWEVER AMENDMENT SO MADE ARE GENE RALLY PROSPECTIVE AND THERE IS A SOUND CONCEPTUAL FOUNDA TION AS HAS BEEN HIGHLIGHTED IN THE BINDING JUDICIAL PRECEDENTS THAT WE WILL DEAL WITH IN A SHORT WHILE FOR THAT APPROACH. THERE IS NO DEARTH OF EXAMPLES ON THIS ASPECT OF THE MATTER. TAKE FOR EXA MPLE THE AMENDMENT TO SECTION 263 BY THE FINANCE ACT 1961. IN MANY JUDICIAL PRECEDENTS [SUCH AS IN THE CASE OF CIT V. SUNBEAM AUTO LTD. [2011] 332 ITR 167/[2010] 189 TAXMAN 436 (DELHI) WHEREIN IT WAS HELD THAT 'LEARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 50 SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINC TION BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY'. IF THER E WAS ANY INQUIRY EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCAS ION TO THE CIT TO PASS ORDERS UNDER S. 263 OF THE ACT MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASE S OF 'LACK OF INQUIRY' THAT SUCH A COURSE OF ACTION WOULD BE OPEN'] IT WA S REITERATED THAT IT WAS ONLY THE LACK NOT THE ADEQUACY OF INQUIRY WHICH COULD CONFER JURISDICTION UNDER SECTION 263 ON THE COMMISSIONER. BY INSERTING EXPLANATION 2 TO SECTION 263(1) WHICH INTER ALIA P ROVIDED THAT POWERS UNDER SECTION 263 COULD ALSO BE INVOKED IN T HE CASES WHERE 'THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VE RIFICATION WHICH SHOULD HAVE BEEN MADE' ALL RATIO OF ALL THESE DECI SIONS WAS NULLIFIED. THAT HOWEVER IS DONE WITH PROSPECTIVE EFFECT I.E. WITH EFFECT FROM 1ST JUNE 2015. AS A MATTER OF FACT IT IS A LAUDABLE POLICY OF THE PRESENT TAX ADMINISTRATION TO STAY AWAY FROM MAKING THE RETROSPECTIVE AMENDMENTS AND THUS CONTRIBUTE TO GR EATER CERTAINTY AND CONGENIAL BUSINESS CLIMATE. NOTHING EVIDENCES I T BETTER THAN THIS SUBTLE BUT EASILY DISCERNIBLE PARADIGM SHIFT IN THE APPROACH TO THE AMENDMENTS MADE IN SECTION 263 IN THE VERY FIRS T FULL BUDGET OF THE PRESENT GOVERNMENT. 32. WHAT HAS HOWEVER BEEN DONE IN THE CASE BEFOR E US IS TO AMEND THE LAW WITH RETROSPECTIVE EFFECT. OF COURSE IT HAPPENED MUCH BEFORE THE CURRENT AWARENESS ABOUT THE EVILS O F RETROSPECTIVE TAXATION HAVING BEEN TRANSLATED INTO ACTION. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 51 33. DEALING WITH SUCH A SITUATION HON'BLE DELHI H IGH COURT HAS IN THE CASE OF DIT V. NEW SKIES SATELLITE BV [2016] 382 ITR 114/68 TAXMANN.COM 8 OBSERVED AS FOLLOWS: '30. UNDOUBTEDLY THE LEGISLATURE IS COMPETENT TO A MEND A PROVISION THAT OPERATES RETROSPECTIVELY OR PROSPECTIVELY. NON ETHELESS WHEN DISPUTES AS TO THEIR APPLICABILITY ARISE IN COURT IT IS THE ACTUAL SUBSTANCE OF THE AMENDMENT THAT DETERMINES ITS ULTI MATE OPERATION AND NOT THE BARE LANGUAGE IN WHICH SUCH AMENDMENT I S COUCHED.. 36. A CLARIFICATORY AMENDMENT PRESUMES THE EXISTEN CE OF A PROVISION THE LANGUAGE OF WHICH IS OBSCURE AMBIGUO US MAY HAVE MADE AN OBVIOUS OMISSION OR IS CAPABLE OF MORE THA N ONE MEANING. IN SUCH CASE A SUBSEQUENT PROVISION DEALING WITH T HE SAME SUBJECT MAY THROW LIGHT UPON IT. YET IT IS NOT EVERY TIME THAT THE LEGISLATURE CHARACTERIZES AN AMENDMENT AS RETROSPECTIVE THAT TH E COURT WILL GIVE SUCH EFFECT TO IT. THIS IS NOT IN DEROGATION O F THE EXPRESS WORDS OF THE LAW IN QUESTION (WHICH AS A MATTER OF COURS E MUST BE THE FIRST TO BE GIVEN EFFECT TO) BUT BECAUSE THE LAW W HICH WAS INTENDED TO BE GIVEN RETROSPECTIVE EFFECT TO AS A CLARIFICAT ORY AMENDMENT IS IN ITS TRUE NATURE ONE THAT EXPANDS THE SCOPE OF TH E SECTION IT SEEKS TO CLARIFY AND RESULTANTLY INTRODUCES NEW PRINCIPL ES UPON WHICH LIABILITIES MIGHT ARISE. SUCH AMENDMENTS THOUGH FRA MED AS CLARIFICATORY ARE IN FACT TRANSFORMATIVE SUBSTANTI VE AMENDMENTS AND INCAPABLE OF BEING GIVEN RETROSPECTIVE EFFECT. .. 37. AN IMPORTANT QUESTION WHICH ARISES IN THIS CO NTEXT IS WHETHER A 'CLARIFICATORY' AMENDMENT REMAINS TRUE TO ITS NATURE ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 52 WHEN IT PURPORTS TO ANNUL OR HAS THE UNDENIABLE EF FECT OF ANNULLING AN INTERPRETATION GIVEN BY THE COURTS TO THE TERM S OUGHT TO BE CLARIFIED. IN OTHER WORDS DOES THE RULE AGAINST CL ARIFICATORY AMENDMENTS LAYING DOWN NEW PRINCIPLES OF LAW EXTEND TO SITUATIONS WHERE LAW HAD BEEN JUDICIALLY INTERPRETED AND THE L EGISLATURE SEEKS TO OVERCOME IT BY DECLARING THAT THE LAW IN QUESTIO N WAS NEVER MEANT TO HAVE THE IMPORT GIVEN TO IT BY THE COURT? THE GENERAL POSITION OF THE COURTS IN THIS REGARD IS WHERE THE PURPOSE OF A SPECIAL INTERPRETIVE STATUTE IS TO CORRECT A JUDICI AL INTERPRETATION OF A PRIOR LAW WHICH THE LEGISLATURE CONSIDERS INACCURA TE THE EFFECT IS PROSPECTIVE. ANY OTHER RESULT WOULD MAKE THE LEGISL ATURE A COURT OF LAST RESORT. UNITED STATES V. GILMORE 8 WALL [(75 U S) 330 19L ED 396 (1869)] PEONY PARK V. O'MALLEY [223 F2D 668 (8T H CIR 1955)]. IT DOES NOT MEAN THAT THE LEGISLATURE DOES NOT HAVE TH E POWER TO OVERRIDE JUDICIAL DECISIONS WHICH IN ITS OPINION IT DEEMS AS INCORRECT HOWEVER TO RESPECT THE SEPARATION OF LEGAL POWERS A ND TO AVOID MAKING A LEGISLATURE A COURT OF LAST RESORT THE AM ENDMENTS CAN BE MADE PROSPECTIVE ONLY [REF COUNTY OF SACRAMENTO V. STATE (134 CAL APP 3D 428) AND IN RE MARRIAGE OF DAVIES (105 III A PP 3D 66)]' (EMPHASIS SUPPLIED) 34. QUITE CLEARLY IN VIEW OF THE LAW SO LAID DOWN BY THEIR LORDSHIPS JUST BECAUSE A PROVISION IS STATED TO BE CLARIFICAT ORY IT DOES NOT BECOME ENTITLED TO BE TREATED AS 'CLARIFICATORY' BY THE JUDICIAL FORUMS AS WELL. 35. LEGISLATURE MAY DESCRIBE AN AMENDMENT AS CLARIF ICATORY IN NATURE BUT A CALL WILL HAVE TO BE TAKEN BY THE JUD ICIARY WHETHER IT IS ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 53 INDEED CLARIFICATORY OR NOT. THIS DETERMINATION I. E. WHETHER THE AMENDMENT IN INDEED CLARIFICATORY OR IS THE AMENDME NT TO OVERCOME A JUDICIAL PRECEDENT ASSUMES GREAT SIGNIF ICANCE BECAUSE WHEN IT IS FOUND THAT THE PURPOSE OF SUCH INTERPRET IVE STATUTE OR CLARIFICATORY AMENDMENT IS 'CORRECT A JUDICIAL INT ERPRETATION OF PRIOR LAW WHICH THE LEGISLATURE CONSIDERS INACCURATE TH E EFFECT IS PROSPECTIVE'. 36. IT IS VERY IMPORTANT TO BEAR IN MIND THE FACT THAT RIGHT NOW WE ARE DEALING WITH AMENDMENT OF A TRANSFER PRICING RELATED PROVISION WHICH IS IN THE NATURE OF A SAAR (SPECIFI C ANTI ABUSE RULE) AND THAT EVERY ANTI ABUSE LEGISLATION WHETHER SAAR (SPECIFIC ANTI ABUSE RULE) OR GAAR (GENERAL ANTI ABUSE RULE) IS A LEGISLATION SEEKING THE TAXPAYERS TO ORGANIZE THEIR AFFAIRS IN A MANNER COMPLIANT WITH THE NORMS SET OUT IN SUCH ANTI ABUSE LEGISLATION. AN ANTI-ABUSE LEGISLATION DOES NOT TRIGGER THE LEVY OF TAXES; IT ONLY TELLS YOU WHAT BEHAVIOUR IS ACCEPTABLE OR WHAT IS NOT ACC EPTABLE. WHAT TRIGGERS LEVY OF TAXES IS NON-COMPLIANCE WITH THE M ANNER IN WHICH THE ANTI-ABUSE REGULATIONS REQUIRE THE TAXPAYERS TO CONDUCT THEIR AFFAIRS. IN THAT SENSE ALL ANTI ABUSE LEGISLATIONS SEEK A CERTAIN DEGREE OF COMPLIANCE WITH THE NORMS SET OUT THEREIN . IT IS THEREFORE ONLY ELEMENTARY THAT AMENDMENTS IN THE A NTI-ABUSE LEGISLATIONS CAN ONLY BE PROSPECTIVE. IT DOES NOT M AKE SENSE THAT SOMEONE TELLS YOU TODAY AS TO HOW YOU SHOULD HAVE B EHAVED YESTERDAY AND THEN GOES ON TO LEVY A TAX BECAUSE Y OU DID NOT BEHAVE IN THAT MANNER YESTERDAY. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 54 37. WHEN THIS IS PUT TO THE LEARNED DEPARTMENTAL REPRESENTATIVE HIS STOCK REPLY IS THAT THE AMENDME NT ONLY CLARIFIES THE LAW IT DOES NOT EXPAND THE LAW. 38. WELL IF THE 2012 AMENDMENT DOES NOT ADD ANYTH ING OR EXPAND THE SCOPE OF INTERNATIONAL TRANSACTION DEFIN ED UNDER SECTION 92B ASSUMING THAT IT INDEED DOES NOT- AS LEARNED D EPARTMENTAL REPRESENTATIVE CONTENDS THIS PROVISION HAS ALREADY BEEN JUDICIALLY INTERPRETED AND THE MATTER RESTS THERE UNLESS IT I S REVERSED BY A HIGHER JUDICIAL FORUM. HOWEVER IF THE 2012 AMENDME NT DOES INCREASE THE SCOPE OF INTERNATIONAL TRANSACTION UND ER SECTION 92B AS IS OUR CONSIDERED VIEW THERE IS NO WAY IT COULD BE IMPLEMENTED FOR THE PERIOD PRIOR TO THIS LAW COMING ON THE STATUTE I.E. 28TH MAY 2012. THE LAW IS WELL SETTLED. IT DOES NOT EXPECT A NYONE TO PERFORM AN IMPOSSIBILITY. REITERATING THIS SETTLED LEGAL PO SITION HON'BLE SUPREME COURT HAS IN THE CASE OF KRISHNASWAMY S. P D. V. UNION OF INDIA [2006] 281 ITR 305/151 TAXMAN 286 OBSERVED AS FOLLOWS: 'THE OTHER RELEVANT MAXIM IS LEX NON COGIT AD IMPO SSIBILIATHE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL APHORISMS ALL INTENTION OF COMPELLI NG IMPOSSIBILITIES AND THE ADMINISTRATION OF LAW MUST ADOPT THAT GENER AL EXCEPTION IN THE CONSIDERATION OF PARTICULAR CASES. [SEE : U.P.S .R.T.C. V. IMTIAZ HUSSAIN 2006 (1) SCC 380 SHAIKH SALIM HAJI ABDUL K HAYUMSAB V. KUMAR & ORS. 2006 (1) SCC 46 MOHAMMOD GAZI V. STAT E OF M.P. & ORS. 2000 (4) SCC 342 AND GURSHARAN SINGH V. NEW DE LHI MUNICIPAL COMMITTEE 1996 (2) SCC 459].' ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 55 39. IT IS FOR THIS REASON THAT THE EXPLANATION TO S ECTION 92B THOUGH STATED TO BE CLARIFICATORY AND STATED TO BE EFFECTI VE FROM 1ST APRIL 2002 HAS TO BE NECESSARILY TREATED AS EFFECTIVE FR OM AT BEST THE ASSESSMENT YEAR 2013-14. IN ADDITION TO THIS REASON IN THE LIGHT OF HON'BLE DELHI HIGH COURT'S GUIDANCE IN THE CASE OF NEW SKIES SATELLITE BV (SUPRA) ALSO THE AMENDMENT IN THE DEF INITION OF INTERNATIONAL TRANSACTION UNDER SECTION 92B TO THE EXTENT IT PERTAINS TO THE ISSUANCE OF CORPORATE GUARANTEE BEING OUTSID E THE SCOPE OF 'INTERNATIONAL TRANSACTION' CANNOT BE SAID TO BE R ETROSPECTIVE IN EFFECT. THE FACT THAT IT IS STATED TO BE RETROSPECT IVE IN THE LIGHT OF THE AFORESAID GUIDANCE OF HON'BLE DELHI HIGH COURT WOULD NOT ALTER THE SITUATION AND IT CAN ONLY BE TREATED AS PROSPE CTIVE IN EFFECT I.E. WITH EFFECT FROM 1ST APRIL 2012 ONWARDS. 50. WE FIND THAT THE COORDINATE BENCH IN RISHABH DI AMONDS (SUPRA) HAS EXAMINED AT LENGTH THE EFFECT OF THE AMENDMENT BROUGHT IN BY THE FINANCE ACT 2012 CONSIDERED THE DECISION OF THE HO NBLE DELHI HIGH COURT IN CASE OF NEW SKIES SATELLITE BV AND HAS HEL D THAT EXPLANATION TO SECTION 92B WHICH INCREASES THE SCOPE OF INTERNATIO NAL TRANSACTION HAS TO BE NECESSARILY TREATED AS EFFECTIVE PROSPECTIVEL Y FROM THE ASSESSMENT YEAR 2013-14 THOUGH STATED TO BE CLARIFICATORY AND STATED TO BE EFFECTIVE FROM 1ST APRIL 2002. WE HAVE ALSO GONE THROUGH OTHE R COORDINATE BENCH DECISIONS IN CASE OF GITANJALI EXPORTS CORPOR ATION (SUPRA) AND SIRO CLINPHARM PRIVATE LIMITED (SUPRA) WHERE SIMILAR VIE W HAS BEEN TAKEN. THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE O F PATNI COMPUTER SYSTEMS LTD. HAS BEEN RIGHTLY ANALYSED BY THE COORD INATE BENCH IN RISHABH DIAMONDS (SUPRA) AND IT WAS HELD THAT RATH ER THAN ANSWERING ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 56 THIS QUESTION ON MERITS AND WITH THE CONSENT OF BO TH THE PARTIES THEIR LORDSHIPS SENT THE MATTER BACK FOR FRESH CONSIDERAT ION OF THE TRIBUNAL AND TO THIS EXTENT THE DECISION OF THE COORDINATE BENCH IN CASE OF AMERIPRISE INDIA PVT LTD WHICH HAS EQUALLY RELIED O N THE SAID DECISION OF THE BOMBAY HIGH COURT IS DISTINGUISHABLE. IN LIGHT OF THE SAME FOLLOWING THE DECISION OF THE COORDINATE BENCH IN R ISHABH DIAMONDS AND IN ABSENCE OF ANY CONTRARY HIGHER AUTHORITY ON THE SUBJECT WE AGREE WITH THE CONTENTION RAISED BY THE LD. AR THAT SUCH AMENDMENT BY WAY OF AN EXPLANATION TO SECTION 92B IS AN AMENDMEN T TO A SUBSTANTIVE LAW AS IT HAS RESULTED IN ENHANCEMENT OF THE SCOPE OF INTERNATIONAL TRANSACTIONS AS ENVISAGED U/S 92B OF THE ACT. ACCOR DINGLY THE SUBJECT TRANSACTION IF AT ALL IT HAS TO BE CONSIDERED AS A N INTERNATIONAL TRANSACTION IN LIGHT OF DECISION IN CASE OF KUSUM H EALTHCARE (SUPRA) WHICH IT IS NOT IN THE FACTS OF THE PRESENT CASE AS WE HAVE HELD ABOVE IT HAS TO BE CONSIDERED AS AN INTERNATIONAL TRANSAC TION FROM AY 2013-14 ONWARDS AND FOR THE YEARS UNDER CONSIDERATION BEING AY 2007-08 2008-09 AND 2009-10 THE SAME WILL THUS NOT QUALIFY AS AN INTERNATIONAL TRANSACTION. 51. NOW IN THE PRE-AMENDED LEGISLATIVE SCENARIO I. E PRIOR TO INSERTION OF THE EXPLANATION TO SECTION 92B WHICH WILL BE AP PLICABLE IN THE INSTANT CASE THE TRANSFER PRICING PROVISIONS HAVE BEEN JUD ICIALLY INTERPRETED AND THE MATTER IS NO MORE RES INTEGRA. IN THIS REGARD WE REFER TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN CASE O F INDO AMERICAN JEWELLERY LTD (SUPRA) WHEREIN THE QUESTION FOR CONS IDERATION BEFORE THE HONBLE HIGH COURT WAS AS UNDER: ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 57 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE ITAT WAS JUSTIFIED IN DELETING THE ADDITION OF RS.87 66 641/- BEING INTEREST RECEIVABLE ON OUTSTANDING AMOUNT DUE TO TH E ASSESSEE COMPANY FROM THE ASSOCIATED ENTERPRISES?' 52. WHILE ANSWERING THE ABOVE QUESTION THE HONBLE HIGH COURT WAS PLEASED TO HELD AS UNDER: 3. AS REGARDS THE SECOND QUESTION IS CONCERNED TH E TRANSFER PRICING OFFICER WHILE DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS NOTICED THAT THE OUTSTANDING BALANCE FROM ASSOCIATED ENTERPRISES WAS AMOUNTING TO RS.8.76 CRORES. AS THA T AMOUNT WAS OUTSTANDING FOR MORE THAN YEAR TAKING THE RATE OF INTEREST AT 10% THE TRANSFER PRICING OFFICER DETERMINED THE INTEREST RE CEIVABLE AT RS 87.66 LACS AND ADDED THE SAME TO THE INTERNATIONAL TRANSA CTION COST. 4. ON APPEAL THE CIT(A) HELD THAT THE TOTAL OUTSTA NDING AMOUNT WAS RS.8.73 CRORES AND OUT OF WHICH THE AMOUNT OUTSTAND ING FROM THE ASSOCIATED ENTERPRISES WAS TO THE EXTENT OF RS.5.11 CRORES AND THE BALANCE AMOUNT OF RS 3.62 CRORES WAS OUTSTANDING FR OM NON ASSOCIATED ENTERPRISES. RELYING ON THE BOARD CIRCULAR NO. 12 O F 2001 THE CIT(A) FURTHER HELD THAT IN THE PRESENT CASE THE PROFIT O F ONE ASSOCIATED ENTERPRISE IS NEGLIGIBLE AND THE OTHER ASSOCIATED E NTERPRISE HAS INCURRED LOSSES AND THEREFORE IT CANNOT BE SAID THAT THE ASS ESSEE HAD TRANSFERED ANY PROFIT TO THE ASSOCIATED ENTERPRISES OUTSIDE IN DIA BY NOT CHARGING INTEREST ON THE OUTSTANDING PAYMENT WHICH HAS BEEN REALISED AFTER THE ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 58 DUE DATE AND ACCORDINGLY DELETED THE INTEREST CHARG ED ON LATE REALISATION OF THE EXPORT PROCEEDS. 5. ON APPEAL FILED BY THE REVENUE THE ITAT UPHELD THE ORDER OF CIT(A). WHILE UPHOLDING THE ORDER OF CIT(A) THE ITAT HELD THAT INTEREST INCOME IS ASSOCIATED ONLY WITH THE LENDING OR BORRO WING OF MONEY AND NOT IN CASE OF SALE. WE EXPRESS NO OPINION ON THE A BOVE REASONING OF THE ITAT AND KEEP THAT REASONING OPEN FOR DEBATE IN AN APPROPRIATE CASE. HOWEVER IN THE FACTS OF THE PRESENT CASE TH E SPECIFIC FINDING OF THE ITAT IS THAT THERE IS COMPLETE UNIFORMITY IN TH E ACT OF THE ASSESSEE IN NOT CHARGING INTEREST FROM BOTH THE ASSOCIATED E NTERPRISES AND NON ASSOCIATED ENTERPRISES DEBTORS AND THE DELAY IN REA LISATION OF THE EXPORT PROCEEDS IN BOTH THE CASES IS SAME. IN THESE CIRCUM STANCES THE DECISION OF THE TRIBUNAL IN DELETING THE NOTIONAL INTEREST O N OUTSTANDING AMOUNT OF EXPORT PROCEEDS REALISED BELATEDLY CANNOT BE FAU LTED. 53. FOLLOWING THE ABOVE DECISION OF BOMBAY HIGH CO URT IN CASE OF INDO AMERICAN JEWELLERY SIMILAR POSITION HAS BEEN ADOPTED BY THE VARIOUS CO-ORDINATE BENCHES OF THE TRIBUNAL INCLUDI NG THE JAIPUR BENCHES IN CASE OF VAIBHAV GEMS LTD (SUPRA) AND GIL LETTE INDIA (ITA NO. 1/JP/13 & 2/JP/13 DATED 12.8.2016 (SPEAKING THROUGH ONE OF US). DURING THE COURSE OF HEARING THE LD AR HAS STATED THAT REVENUE HAS FILED AN APPEAL AGAINST THE DECISION OF THE TRIBUNA L IN CASE OF VAIBHAV GEMS LTD THE SAME HAS BEEN ADMITTED AND HEARD BY T HE HONBLE RAJASTHAN HIGH COURT AND WE FIND THAT THE HONBLE R AJASTHAN HIGH COURT HAS SINCE PRONOUNCED ITS DECISION IN THAT CAS E VIDE ITS ORDER DATED 13.10.2017 IN ITA NO. 14/2015 & OTHERS IN FAVOUR OF THE ASSESSEE AND ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 59 AGAINST THE REVENUE THUS AFFIRMING WITH THE POSITI ON TAKEN BY THE BOMBAY HIGH COURT IN CASE OF INDO AMERICAN JEWELLER Y. NO CONTRARY AUTHORITY HAS BEEN BROUGHT OR HAS COME TO OUR NOTIC E IN THIS REGARD. RATHER WE FIND THAT SUBSEQUENTLY THE BOMBAY HIGH COURT IN THE CASE OF LIVINGSTONES (ITA NO. 887/2014) IN ITS ORDER DAT ED 28 NOVEMBER 2016 HAS TAKEN A SIMILAR VIEW FOLLOWING THE ABOVE D ECISION IN CASE OF INDO AMERICAN JEWELLERY. 54. IN CASE OF LIVINGSTONES CASE (SUPRA) THE HONB LE BOMBAY HIGH COURT WAS PLEASED TO HELD AS UNDER: 3. THE GRIEVANCE OF THE REVENUE IS THAT THE RESPON DENT- ASSESSEE GRANTED LONGER PERIOD OF CREDIT TO ITS ASS OCIATED ENTERPRISES ON SALE OF GOODS AS COMPARED TO THE PER IOD OF CREDIT GRANTED TO NON ASSOCIATED ENTERPRISES. CONSEQUENTLY THE NOTIONAL INTEREST ON DELAYED COLLECTION OF CONSIDERATION ON SALE OF GOODS TO ASSOCIATED ENTERPRISES NEEDS TO BE ADDED TO THE DEC LARED CONSIDERATION TO ARRIVE AT AN ARMS LENGTH PRICE. 4. THE TRIBUNAL BY THE IMPUGNED ORDER RENDERED A FI NDING OF FACT THAT THE RESPONDENT-ASSESSEE HAS NOT CHARGED A NY INTEREST FROM THIRD PARTIES I.E. NON ASSOCIATED ENTERPRISES ON DELAYED PAYMENTS EXCEEDING MORE THAN 300 TO 400 DAYS FROM T HE SALE OF GOODS. CONSEQUENTLY IT HOLDS THAT ONCE SUCH DELAYE D PAYMENT IN RESPECT OF SALE OF GOODS MADE TO THIRD PARTIES CARR IES NO INTEREST THEN ADDING OF NOTIONAL INTEREST TO DELAYED PAYMENT S MADE BY THE ASSOCIATED ENTERPRISES IS NOT CALLED FOR. 5. FURTHER THE IMPUGNED ORDER PLACES RELIANCE UPON THE ORDER OF THIS COURT IN INCOME TAX APPEAL (L) NO. 1053 OF 2012 ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 60 (COMMISSIONER OF INCOME TAX-9 VS. M/S INDO AMERCIAN JEWELLERY LTD.) RENDERED ON 8 TH JANUARY 2013. IN THE ABOVE CASE A SIMILAR QUESTION WAS NOT ENTERTAINED BY THIS COURT ON THE G ROUND THAT THERE IS COMPLETE UNIFORMITY IN THE ACT OF THE ASSE SSEE THEREIN IN NOT CHARGING INTEREST FROM ASSOCIATED ENTERPRISES A ND NON ASSOCIATED ENTERPRISES FOR DELAY IN RECOVERY OF ITS SALE PROCEEDS. 6. IN THE PRESENT CASE ALSO THE TRIBUNAL HAS RENDER ED A FINDING OF FACT THAT THE INTEREST IS NOT BEING CHAR GED IN CASE OF SALES MADE TO NON-ASSOCIATED ENTERPRISES FOR DELAYE D PAYMENT JUST AS IN THE CASE OF ASSOCIATED ENTERPRISES. THES E FINDING OF FACT RENDERED BY THE TRIBUNAL IS NOT SHOWN TO BE PERVERS E IN ANY MANNER. 7. CONSEQUENTLY THE QUESTION OF LAW AS PROPOSED DO ES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS NOT ENTERTAINED. 55. APPLYING THE ABOVE LEGAL PROPOSITION IN THE IN STANT CASE WE FIND THAT THERE ARE SALES MADE TO ASSOCIATED ENTERPRISES AMOUNTING TO RS 3 53 56 20 066 AND SALES TO NON-ASSOCIATED ENTERPRI SES AMOUNTING TO RS 1 98 60 46 262. THE SALES TO ASSOCIATED ENTERPRISE S CONSTITUTE 64% OF TOTAL SALES MADE BY THE ASSESSEE AND AT THE SAME TI ME THERE ARE SALES TO NON-ASSOCIATED ENTERPRISES WHICH EQUALLY CONSTIT UTE A BIG PERCENTAGE AT 36% OF THE TOTAL SALES. THE LD. AR HAS CONTEND ED THAT IN ACCORDANCE WITH THE COMPANYS POLICY AND ALSO IN ACCORDANCE WI TH PRACTICE IN THE GEMS AND JEWELLERY INDUSTRY NO INTEREST WAS CHARGE D ON DELAYED REALIZATION OF SALE PROCEEDS FROM BOTH ASSOCIATED E NTERPRISES AND NON- ASSOCIATED ENTERPRISES AND UNIFORM CREDIT PERIOD O F 145 DAYS HAS BEEN ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 61 GRANTED TO BOTH ASSOCIATED ENTERPRISES AND NON-ASSO CIATED ENTERPRISES. IT WAS FURTHER CONTENDED THAT AVERAGE PERIOD OF REA LIZATION FROM NON- ASSOCIATED ENTERPRISES IS SLIGHTLY MORE THAN THE AV ERAGE PERIOD OF REALIZATION FROM THE ASSOCIATED ENTERPRISES AND IN THAT SENSE NO BENEFIT COULD BE SAID TO HAVE BEEN PROVIDED TO ASSOCIATED E NTERPRISES OVER AND ABOVE THE NON-ASSOCIATED ENTERPRISES. IN THIS REG ARD THE LD CIT(A) HAS RETURNED A FINDING THAT THE ASSESSEE HAD ADOPTED UN IFORM POLICY OF NOT CHARGING INTEREST ON DELAYED REALIZATION ON SALE PR OCEEDS FROM BOTH THE AES AND NON AE CUSTOMERS. REGARDING AVERAGE PERIOD OF REALIZATION BEYOND THE CREDIT PERIOD IN RESPECT OF SALES MADE D URING FY 2006-07 TAKEN BY AES AND TAKEN BY NON AES THE LD CIT(A) HAS RETURNED A FINDING THAT THE AES HAVE TAKEN ON AN AVERAGE OF AD DITIONAL 5 DAYS FROM THE DUE DATE WHEREAS NON AES HAVE TAKEN ON AN AVER AGE OF ADDITIONAL 18 DAYS FROM THE DUE DATE TO MAKE THE PAYMENTS IN R ESPECT OF SALES MADE TO THEM DURING FY 2006-07 AND IT IS QUITE EVID ENT THAT BOTH AES AND NON AES HAVE TAKEN ADDITIONAL DAYS OVER AND AB OVE THE CREDIT PERIOD GRANTED TO THEM AND INTEREST HAVE NOT BEEN C HARGED FROM ANY OF THEM IRRESPECTIVE OF PERIOD OF DELAY. THERE IS NOTH ING WHICH HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTEST THE SAI D FINDINGS OF THE LD CIT(A) AND THE ABOVESAID FACTS AND FINDING OF THE L D CIT(A) REMAIN UNCONTROVERTED BEFORE US. 56. IN THE INSTANT CASE WE THEREFORE FIND THAT THE RE IS COMPLETE UNIFORMITY IN THE ACT OF THE ASSESSEE IN NOT CHARGI NG INTEREST FROM BOTH THE ASSOCIATED ENTERPRISES AND NON-ASSOCIATED ENTER PRISES AND THE AVERAGE PERIOD OF REALIZATION OF THE EXPORT PROCEED S IS TITLED MORE IN ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 62 FAVOR OF NON-ASSOCIATED ENTERPRISES AND THUS CANNOT BE SAID TO BENEFIT THE ASSOCIATED ENTERPRISES VIS--VIS NON-ASSOCIATED ENTERPRISES. 57. FURTHER AS WE HAVE NOTED INITIALLY THAT THE TP O HAD EMPHASIZED TIME AND AGAIN IN HIS ORDER RIGHT FROM THE SHOW-CA USE NOTICE TO HER FINAL ANALYSIS AS TO WHETHER THE TAX PAYER COULD H AVE EXTENDED SUCH FACILITY TO ANY UNRELATED PARTY SIMILAR TO THAT OF THE AE WITHOUT CHARGING ADEQUATE COMPENSATION. INTERESTINGLY IN THIS REGAR D THE TPO ACKNOWLEDGED THE FACT THE ASSESSEE HAS EXTENDED SIM ILAR CREDIT FACILITY TO NON-AES WITHOUT CHARGING ANY INTEREST BUT HE REF USED TO ACCEPT THE SAME AND WENT AHEAD AND COMPUTED ALP ADJUSTMENT BY WAY OF NOTIONAL INTEREST APPLYING CUP METHOD. IT IS THIS FALLACY IN STAND OF THE REVENUE THAT WE FIND IS NOT IN CONSONANCE WITH THE TRANSFER PRICING REGULATIONS. THE WHOLE EXERCISE OF ALP ADJUSTMENT IS TO NEUTRALIZE THE IMPACT OF INTER-SE RELATIONSHIP BETWEEN THE ASSOCIA TED ENTERPRISES AND WHAT IS THEREFORE RELEVANT IS NOT JUST TO EXAMINE W HETHER THERE IS DELAY IN REALIZATION OF EXPORT PROCEEDS FROM THE ASSOCIAT ED ENTERPRISES BUT DELAY IN REALIZATION OF EXPORT PROCEEDS VIS--VIS S IMILAR SITUATION WITH NON-ASSOCIATED ENTERPRISES. AND ON THE SAME FOOTIN G WHAT IS THEREFORE EQUALLY RELEVANT IS NOT JUST TO EXAMINE WHETHER THE ASSESSEE IS CHARGING ANY INTEREST FOR DELAY IN REALIZATION OF EXPORT PRO CEEDS FROM THE ASSOCIATED ENTERPRISES BUT CHARGING INTEREST FOR TH E DELAY IN REALIZATION OF EXPORT PROCEEDS VIS--VIS SIMILAR SITUATION WITH NON-ASSOCIATED ENTERPRISES. WE FIND THAT THE SAME WAS RIGHTLY APP RECIATED BY THE LD CIT(A) WHO HAS GRANTED RELIEF TO THE ASSESSEE COMPA NY BY DELETING THE NOTIONAL INTEREST FOR DELAY IN REALIZATION OF EXPOR T PROCEEDS. THE SAID ACTION OF THE LD CIT(A) IS THEREFORE IN CONSONANCE WITH THE LEGAL ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 63 PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH CO URT IN CASE OF INDO- AMERICAN JEWELLERY (SUPRA) AND CONSISTENT VIE W TAKEN BY VARIOUS COORDINATE BENCHES INCLUDING JAIPUR BENCHES AS WE H AVE NOTED ABOVE. 58. NOW LETS LOOK AT THE MATTER FROM THE TRANSFER PRICING METHODOLOGY PERSPECTIVE AS WELL. WE FIND THAT THE TPO HAS APPLI ED CUP METHOD FOR DETERMINING THE ALP ADJUSTMENT TOWARDS THE NOTIONAL INTEREST ON DELAY IN REALISATION OF EXPORT PROCEEDS. UNDER THE CUP M ETHOD THE TPO IS REQUIRED TO EVALUATE THE ARMS-LENGTH CHARACTER OF A CONTROLLED TRANSACTION BY COMPARING THE PRICE AND CONDITIONS T O THE PRICE AND CONDITIONS OF SIMILAR TRANSACTIONS BETWEEN THE TAXP AYER AND AN NON- ASSOCIATED ENTERPRISE (INTERNAL CUP) OR BETWEEN TWO NON-ASSOCIATED ENTERPRISES (EXTERNAL CUP). IN THE INSTANT CASE WHERE THERE ARE REAL TRANSACTIONS OF SIMILAR NATURE UNDERTAKEN BY THE AS SESSEE WITH NON- ASSOCIATED ENTERPRISE IN OUR VIEW THE SAME WILL R EFLECT A BETTER AND MORE RELIABLE COMPARISON AS COMPARED TO HYPOTHETICA L TRANSACTIONS BETWEEN TWO NON-ASSOCIATED ENTERPRISES. IN OTHER W ORDS IN THE INSTANT CASE INTERNAL CUP WOULD PROVIDE A MORE RELIABLE CO MPARISON THAN AN EXTERNAL CUP WHICH HAS BEEN APPLIED BY THE TPO. GIV EN THE UNDISPUTED FACT IN THE INSTANT CASE THAT THERE IS COMPLETE UNI FORMITY IN NON- CHARGING OF INTEREST ON DELAY IN REALIZATION OF EXP ORT PROCEEDS AND THE AVERAGE PERIOD OF REALIZATION OF THE EXPORT PROCEED S IS TITLED MORE IN FAVOR OF NON-ASSOCIATED ENTERPRISES THERE CANNOT B E ANY ALP ADJUSTMENT EVEN APPLYING THE CUP METHOD AS DONE BY THE TPO. 59. FINALLY EVEN UNDER THE TNMM METHOD WHICH HAS B EEN APPLIED BY THE ASSESSEE TO BENCHMARK ITS INTERNATIONAL TRANSAC TION OF EXPORT OF GOODS EXTENDING CREDIT PERIOD FOR REALIZATION OF S ALE PROCEEDS BEYOND ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 64 THE PRESCRIBED PERIOD TO THE ASSOCIATED ENTERPRISE WHERE THE SAME IS CONSIDERED AS AN INTERNATIONAL TRANSACTION IS A CL OSELY LINKED TRANSACTION WITH THE TRANSACTION OF EXPORT OF GOODS AND THEREFO RE THE SAME CANNOT BE TREATED AS AN INDIVIDUAL AND SEPARATE TRANSACTIO N WHICH WILL REQUIRE AN INDEPENDENT BENCHMARKING. THE SAME IS IN CONSON ANCE WITH RULE 10A(D) AS WELL AS THE CONCEPT OF AGGREGATION OF CLO SELY LINKED TRANSACTION SUPPORTED BY THE OECD TRANSFER PRICIN G GUIDELINES. IT IS NOT THE CASE OF THE REVENUE BEFORE US THAT WHERE SUCH A TRANSACTION IS AGGREGATED WITH TRANSACTION OF EXTENDING CREDIT PER IOD FOR REALIZATION OF SALE PROCEEDS BEYOND THE PRESCRIBED PERIOD TO THE A SSOCIATED ENTERPRISE IT WILL REQUIRE ANY FURTHER ALP ADJUSTM ENT THAN WHAT HAS BEEN DETERMINED BY THE ASSESSEE AND ACCEPTED BY THE TPO. IN THE INSTANT CASE THE INTERNATIONAL TRANSACTION OF EXPO RT OF GOODS HAS BEEN DULY BENCHMARKED ON TNMM BASIS AND THE ASSESSEE HAS REPORTED ITS OPERATING MARGIN OF 6.15% AS AGAINST THE COMPARABLE UPDATED MARGIN OF 6.00% WHICH HAS BEEN ACCEPTED BY THE TPO AND THU S NOT IN DISPUTE AND THUS DOESNT REQUIRE ANY FURTHER ALP ADJUSTMENT . 60. IN LIGHT OF ABOVE DISCUSSIONS AND IN THE ENTIRE TY OF FACTS AND CIRCUMSTANCES OF THE CASE WE CONFIRM THE ORDER OF THE LD CIT(A) IN SETTING ASIDE THE ORDER OF THE TPO AND THE AO IN RE LATION TO ALP ADJUSTMENT IN RELATION TO INTEREST ON OUTSTANDING R ECEIVABLES FROM THE ASSOCIATED ENTERPRISES. IN THE RESULT GROUND NO. 1 OF THE REVENUES APPEAL IS DISMISSED. 61. NOW COMING TO GROUND NO. 3 OF THE ASSESSEES AP PEAL AND GROUND NO. 2 OF THE REVENUES APPEAL THE AO MADE DISALLOW ANCE OF RS. 476 314/- BEING 10% OF THE TOTAL EXPENSES OF RS. 47 63 146/- INCURRED ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 65 ON VARIOUS EXPENSES. THE LD. CIT(A) CONFIRMED 10% D ISALLOWANCES OF BUSINESS PROMOTION EXPENSES AMOUNTING TO RS. 64 060 /- AND THE BALANCE DISALLOWANCE WAS DELETED. NOW THE ASSESSEE IN APPEAL AGAINST THE SAID DISALLOWANCE OF RS. 64 060/- AND THE REVEN UE IS IN APPEAL AGAINST THE RELIEF GRANTED BY THE LD CIT(A). THE LD . AR SUBMITTED THAT THE SAID DISALLOWANCE HAS BEEN CONFIRMED ON ESTIMAT ED BASIS WITHOUT PIN-POINTING ANY SPECIFIC DEFECTS IN THE BOOKS OF A CCOUNT OR VOUCHERS MAINTAINED BY THE ASSESSEE COMPANY AND HENCE THE S AME MAY BE DELETED. ON PERUSAL OF ORDERS OF THE LOWER AUTHORIT IES WE FIND THAT THE DISALLOWANCE HAS BEEN MADE ON A PURELY ADHOC BASIS AND SUCH ADHOC DISALLOWANCE CANNOT BE SUSTAINED IN THE EYES OF LAW . IN THE RESULT DISALLOWANCE OF RS. 64 060/- IS HEREBY DELETED. THE GROUND NO. 3 OF THE ASSESSEES APPEAL IS ALLOWED AND GROUND NO. 2 OF RE VENUE IS DISMISSED. 62. IN THE RESULT THE APPEAL OF THE ASSESSEE IS TH US ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. 63. NOW COMING TO CROSS APPEALS FOR AY 2008-09 IN ITA NO. 568/JP/16 AND 611/JP/16 AND CROSS APPEALS FOR AY 20 09-10 IN ITA NO. 569/JP/16 AND 612/JP/16 BOTH PARTIES AGREED AND SU BMITTED THAT FACTS AND CIRCUMSTANCES OF THE CASE ARE PARI MATERIA AND RESPECTIVE CONTENTIONS RAISED IN THE CONTEXT OF ITA NO. 610/JP /16 AND 567/JP/16 MAY BE CONSIDERED. THEREFORE FOLLOWING OUR DETAIL ED REASONING AS GIVEN IN ITA NO. 610/JP/16 AND 567/JP/16 OUR FINDI NGS AND DIRECTIONS CONTAINED THEREIN SHALL APPLY MUTATIS MUTANDIS TO THESE CROSS APPEALS AS WELL. ITA NO. ITA NO. 567 610 568 611 569 & 612/JP/2016 M/S KGK ENTERPRISES VS. THE ACIT JAIPUR 66 WITH THE ABOVE DIRECTIONS THE RESPECTIVE APPEALS F ILED BY THE ASSESSEE AND THE REVENUE FOR THE IMPUNGED ASSESSMENT YEARS A RE DISPOSED OFF. ORDER PRONOUNCED IN THE OPEN COURT ON 28/11/2017. SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 28/11/2017 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S KGK ENTERPRISES MAHARASHTRA 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT CENTRAL CIRCLE-2 JAIPUR T HE DCIT CENTRAL CIRCLE-2 JAIPUR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR ITAT JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 567 610 568 611 569 & 612/JP/2016} VKNS'KKUQLKJ@ BY ORDER LGK;D IATHDKJ@ ASST. REGISTRAR