Assistant Commissioner of Income-tax,, Pune v. Seco Tools (India) Private Ltd.,, Pune

ITA 606/PUN/2014 | 2009-2010
Pronouncement Date: 29-11-2017 | Result: Dismissed

Appeal Details

RSA Number 60624514 RSA 2014
Assessee PAN AAACS8793F
Bench Pune
Appeal Number ITA 606/PUN/2014
Duration Of Justice 3 year(s) 8 month(s) 1 day(s)
Appellant Assistant Commissioner of Income-tax,, Pune
Respondent Seco Tools (India) Private Ltd.,, Pune
Appeal Type Income Tax Appeal
Pronouncement Date 29-11-2017
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 29-11-2017
Date Of Final Hearing 18-09-2017
Next Hearing Date 18-09-2017
First Hearing Date 08-03-2016
Assessment Year 2009-2010
Appeal Filed On 28-03-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE MS. SUSHMA CHOWLA JM AND SHRI ANIL CHATURVEDI AM . / ITA NO. 606 /P U N/20 1 4 / ASSESSMENT YEAR : 20 09 - 1 0 THE DY. COMMISSIONER OF INCOME TAX CIRCLE - 6 PUNE. . / APPELLANT VS. SECO TOOLS (INDIA) PVT. LTD. GAT NO.582 PUNE NAGAR ROAD KOREGAON BHIMA PUNE 412216 . / RESPONDENT PAN: A AACS8793F . / ITA NO. 628 /P U N/20 14 / ASSESSMENT YEAR : 2009 - 10 SECO TOOLS (INDIA) PVT. LTD. GAT NO.582 PUNE NAGAR ROAD KOREGAON BHIMA PUNE 412216 . / APPELLANT PAN: AAACS8793F VS. THE DY. COMMISSIONER OF INCOME TAX CIRCLE - 6 PUNE. . / RESPONDENT . /CO NO. 2 3 /PUN/201 5 / ASSESSMENT YEAR : 20 09 - 1 0 (OUT OF ITA NO. 606 /PUN/201 4 ) SECO TOOLS (INDIA) PVT. LTD. GAT NO.582 PUNE NAGAR ROAD KOREGAON BHIMA PUNE 412216 / CROSS OBJECT OR PAN: AAACS8793F 2 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 VS. THE DY. COMMISSIONER OF INCOME TAX CIRCLE - 6 PUNE. . / RESPONDENT ASSESSEE BY : S /S HRI DANESH BAFNA / PRATIK SHAH REVENUE BY : SHRI AVADESH KUMAR / DATE OF HEARING : 1 8 .0 9 .2017 / DATE OF PRONOUNCEMENT: 2 9 .11 .2017 / ORDER PER SUSHMA CHOWLA JM: THE CROSS APPEAL S FILED BY THE REVENUE AND THE ASSESSEE ARE AGAINST ORDER OF J CIT RANGE - 6 PUNE DATED 3 1 . 0 1 .201 4 RELATING TO ASSESSMENT YEAR 20 09 - 1 0 PASSED UNDER SECTION 143(3) R.W.S. 144C OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). THE ASSESSEE HAS ALSO FILED CROSS OBJECTIONS AGAINST THE APPEAL OF REVENUE. 2 . THE CROSS APPEAL S FILED BY THE REVENUE AND THE ASSESSEE AND CROSS OBJECTIONS FILED BY THE ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3. THE REVENUE IN ITA NO. 606 /PUN/201 4 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP ERRED IN ALLOWING WORKING CAPITAL ADJUSTMENT WHEN IT IS IMPOSSIBLE TO MAKE SUCH ADJUSTMENT DUE TO UNAVAILABILITY OF RELEVANT DATA. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP ERRED IN ACCEPTING DAGGER FORST TOOLS LTD AS COMPARABLE WHEN THE COMPANY SELLS PART OF THE BUSI NESS. 3 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE DRP ERRED IN ACCEPTING HITTCO TOOLS LTD AND RAJASTHAN UDYOG LTD AS COMPARABLE WHEN THE COMPANIES ARE MAKING PERSISTENT LOSS. 4. FOR THIS AND SUCH OTHER REASONS AS MAY BE URGED A T THE TIME OF HEARING THE ORDER OF THE LEARNED DISPUTE RESOLUTION PANEL (DRP) MAY BE VACATED AND THAT OF THE TRANSFER PRICING OFFICER (TPO)/ASSESSING OFFICER BE RESTORED. 4. THE ASSESSEE IN ITA NO.628/PUN/2014 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. GROUND 1: ERRONEOUS DISALLOWANCE OF INTEREST OF RS.2 02 72 903 THE LEARNED DISPUTE RESOLUTION PANEL (LD. DRP) HAVE ERRED IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER (THE 'LD. AO') OF DISALLOWING INTEREST PAID OF RS.2 02 72 903 UNDER THE PROVISO TO SECTION 36( 1 )(III) OF THE INCOME - TAX ACT 1961 (THE 'ACT'). THE APPELLANT PRAYS THAT NO INTEREST IS DISALLOWABLE UNDER THE PROVISO TO SECTION 36( 1 )(III) OF THE ACT AND THE ADDITION IN THIS REGARD BE DELETED. 2. GROUND 2: ERRONEOUS DISALLOWANCE OF INTEREST WITHOUT PREJUDICE TO GROUND 1 ABOVE THE LD. AO HAS ERRED IN REJECTING THE WORKING OF INTEREST COMPUTATION AS PER THE PROVISO TO SECTION 36( 1 )(III) PROVIDED BY THE APPELLANT AND IN DISALLOWING RS.2 02 72 903 UNDER PROVISO TO SECTI ON 36( 1 )(III) OF THE ACT. THE APPELLANT PRAYS THAT SHOULD ANY INTEREST BE DISALLOWED UNDER THE PROVISO TO SECTION 36( 1 )(III) OF THE ACT THE SAME BE RESTRICTED UPTO THE DATE OF CAPITALISATION OF THE ASSETS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36( 1 )(III) OF THE ACT FOR WHICH THE WORKING OF THE APPELLANT OUGHT TO BE CONSIDERED. 3. GROUND 3 : ERRONEOUS COMPUTATION OF DEPRECIATION ON INTEREST CAPITALISED WITHOUT PREJUDICE TO GROUND 1 AND 2 ABOVE THE LD. AO HAS ERRED IN GRANTING DEPRECIATION AT 7.5 % APPLICABLE TO BLOCK OF PLANT AND MACHINERY PUT TO USE FOR A PERIOD OF LESS THAN 180 DAYS ON THE AMOUNT OF INTEREST OF RS.2 02 72 903 CAPITALISED TO THE COST OF ASSET UNDER SECTION 32 READ WITH SECTION 43(1) OF THE ACT. THE APPELLANT PRAYS THAT SHOULD ANY INTEREST BE CAPITALISED ON ASSETS AS PER THE PROVISIONS OF SECTION 36( 1 )(III) READ WITH SECTION 43(1) OF THE ACT DEPRECIATION BE ALLOWED AT 15 % APPLICABLE TO BLOCK OF PLANT AND MACHINERY PUT TO USE FOR A PERIOD OF MORE THAN 180 DAYS. 4. GROUND 4 : ERRONE OUS COMPUTATION OF ADDITIONAL DEPRECIATION ON INTEREST CAPITALISED WITHOUT PREJUDICE TO GROUND 1 AND 2 ABOVE THE LD. AO HAS ERRED NOT GRANTING ADDITIONAL DEPRECIATION AT 20 % AS PER THE PROVISIONS OF SECTION 32(1)(IIA) O F THE ACT ON THE AMOUNT OF INTEREST OF RS.2 02 72 903 4 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 CAPITALISED TO THE COST OF ASSET UNDER SECTION 32 READ WITH SECTION 43(1) OF THE ACT. THE APPELLANT PRAYS THAT SHOULD ANY INTEREST BE CAPITALISED ON ASSETS AS PER THE PROVISIONS OF SECTION 36( 1 )(III) READ WITH SECTION 43(1) OF T HE ACT ADDITIONAL DEPRECIATION AT 20 % AS PER THE PROVISIONS OF SECTION 32( 1 )(IIA) OF THE ACT BE ALLOWED ON THE SAME. 5 . GROUND 5 : ERRONEOUS DISALLOWANCE OF DEPRECIATION ON ADDITION TO BUILDING THE LD. AO HAS ERRED IN REJECTING THE DOCUMENTARY EVIDENCES PROVIDED BY THE APPELLANT AND CONFIRMING THE DISALLOWANCE OF THE DEPRECIATION AMOUNTING TO RS.42 12 395 ON ADDITION TO BUILDING MADE BY THE COMPANY STATING THAT THE BUILDING HAS NOT BEEN PUT TO USE DURING THE YEAR. THE APPELLANT PRAYS THAT THE BUILDING W AS PUT TO USE DURING THE YEAR AND THE DEPRECIATION ON THE SAME OF RS.42 12 395 BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 6. GROUND : ERRONEOUS DISALLOWANCE OF DEPRECIATION ON ADDITION TO PLANT AND MACHINERY IN NEW BUILDING THE LD. DRP HAVE ERRED IN CONFIRMING THE ACTION OF THE LD. AO OF DISALLOWING THE CLAIM OF DEPRECIATION AMOUNTING TO RS.64 07 934 (INCLUDING ADDITIONAL DEPRECIATION AMOUNTING TO RS.11 42 393) ON ADDITION TO PLANT AND MACHINERY PUT TO USE IN NEW BUILDING. THE APPELLANT PRA YS THAT THE PLANT AND MACHINERY HAS BEEN PUT TO USE IN THE NEW BUILDING DURING THE YEAR AND DEPRECIATION AMOUNTING TO RS.64 07 934 ON THE SAME BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 7. GROUND 6 : ERRONEOUS DISALLOWANCE OF DEPRECIATION ON ADDITION TO PLANT AND MACHINERY THE LD. DRP HAVE ERRED IN CONFIRMING THE ACTION OF THE LD. AO OF CONSIDERING NEW PLANT AND MACHINERY INSTALLED IN THE EXISTING BUILDING WHICH HAS BEEN PUT TO USE FOR MORE THAN 180 DAYS AS PUT TO USE FOR LESS THAN 180 DAYS AND THEREBY DISALLOWING DEPRECIATION CLAIM OF RS.1 94 40 874 THE APPELLANT PRAYS THAT THE PLANT AND MACHINERY INSTALLED IN THE EXISTING BUILDING DURING THE YEAR HAS BEEN PUT TO USE FOR MORE THAN 180 DAYS AND DEPRECIATION ON THE SAME OF RS.1 94 40 874 BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 8. GROUND 7 : ERRONEOUS DISALLOWANCE OF DEPRECIATION ON ADDITION TO COMPUTERS THE LD. DRP HAVE ERRED IN CONFIRMING THE ACTION OF THE LD. AO OF ALLOWING THE CLAIM OF DEPRECIATION ON ADDITION TO COMPUTERS AT THE RATE OF 10 % APPLICABLE TO THE BLOCK OF FURNITURE AND FITTINGS AS OPPOSED TO THE RATE OF 60 % APPLICABLE TO THE BLOCK OF COMPUTERS AND THEREBY DISALLOWING DEPRECIATION AMOUNTING TO RS.27 168. 5 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 THE APPELLA NT PRAYS THAT THE DEPRECIATION ON ADDITION TO COMPUTERS AMOUNTING TO RS.27 168 BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. 5. THE ASSESSEE IN CO NO.23/PUN/2015 HAS RAISED THE FOLLOWING GROUNDS OF OBJECTIONS: - 1. THE HONORABLE DISPUTE RESOLUTION PANEL ('HON'BLE DRP') / LEARNED ASSESSING OFFICER ('LD. AO') ERRED IN ACCEPTING THE COMPARABLES INCLUDED BY THE LEARNED TRANSFER PRICING OFFICER ('LD. TPO') EVEN THOUGH THE COMPARABLE COMPANIES ARE FUNCTIONALLY DISSIMILAR TO THE FUNCTIONS CARRIE D ON BY THE RESPONDENT FOR ITS ASSOCIATED ENTERPRISE. 2. THE HON'BLE DRP / LD. AO / LD. TPO ERRED IN NOT ALLOWING ECONOMIC ADJUSTMENT WITH RESPECT TO DIFFERENTIAL DEPRECIATION COSTS VIS - A - VIS COMPARABLES AS CLAIMED BY THE RESPONDENT. 3. THE LD. AO ERRE D IN DENYING WORKING CAPITAL ADJUSTMENT ON THE GROUND OF ABSENCE OF RELIABLE DATA INSPITE OF ADEQUATE DATA BEING PROVIDED BY THE RESPONDENT DURING THE COURSE OF ASSESSMENT PROCEEDINGS TO COMPUTE THE ADJUSTMENT. THE ABOVE CROSS OBJECTIONS ARE WITHOUT PREJUDICE TO EACH OTHER. 6. FIRST WE SHALL TAKE UP THE APPEAL FILED BY THE ASSESSEE. THE GROUND OF APPEAL NO.1 IS AGAINST THE DISALLOWANCE OF INTEREST ON BORROWING S UNDER PROVISO TO SECTION 36(1)(III) OF THE ACT IS NOT PRESSED AND HENCE THE SAME IS DISMISSED AS NOT PRESSED. 7. THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.2 ON WITHOUT PREJUDICE BASIS HAS CHALLENGED THE COMPUTATION OF INTEREST I.E. TO BE DISALLOWED IN ACCORD ANCE WITH PROVISO OF SECTION 36(1)(III) OF THE ACT. THE ASSESSEE IS AGGRIEVED BY THE DISALLOWANCE WORKED OUT BY THE ASSESSING OFFICER AT RS.2 02 72 903/ - UNDER PROVISO TO SECTION 36(1)(III) OF THE ACT. 8. BRIEFLY IN THE FACTS OF THE CASE THE ASSE SSEE FOR THE YEAR UNDER CONSIDERATION HAD FURNISHED THE RETURN OF INCOME DECLARING TOTAL INCOME AT NIL 6 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 AFTER CLAIMING LOSS OF RS.2 93 74 937/ - WHICH WAS REVISED TO RS.3 68 35 902/ - . THE ASSESSEE WAS WHOLLY OWNED SUBSIDIARY OF SECO TOOLS AB SWEDEN. IT WA S ENGAGED IN THE MANUFACTURE AND TRADING IN A WIDE RANGE OF CARBIDE INSERTS MILLING CUTTERS AND TURNING TOOL HOLDERS AND CARRIERS. THE ASSESSEE HAD CLASSIFIED THE PRODUCTS BOTH MANUFACTURED AND TRADED INTO BASIC GOODS I.E. INSERTS FOR METAL CUTTING AND T HEIR TOOL HOLDERS CALLED CARRIERS. THE ASSESSING OFFICER ON PERUSAL OF THE ANNUAL REPORT OF THE ASSESSEE NOTED THAT THE ASSESSEE HAD MADE HUGE INVESTMENTS IN FIXED ASSETS AND THERE WAS ALSO INCREASE IN SHORT TERM BORROWINGS OF THE COMPANY . T HE AUDITOR HA D ALSO IN HIS NOTE MENTIONED THAT THE ASSESSEE HAD USED SHORT TERM FUNDS FOR MAKING LONG TERM INVESTMENTS. THE ASSESSEE WAS ASKED TO EXPLAIN THE NOTE IN THE AUDITORS REPORT. THE ASSESSING OFFICER ALSO NOTED THAT THERE WAS INCREASE IN GROSS BLOCK OF FIXE D ASSETS FROM RS.75.61 CRORES AS ON 31.03.2008 TO RS.114.09 CRORES AS ON 31.03.2009 AND THE CHANGE IN CLOSING WORK - IN - PROGRESS FROM RS.3.68 CRORES AS ON 31.03.2008 TO RS.8.65 CRORES AS ON 31.03.2009. THE BORROWINGS BY THE ASSESSEE HAD INCREASED FROM RS.28 CRORES AS ON 31.03.2008 TO RS.65.36 CRORES AS ON 31.03.2009. THE INTEREST EXPENDITURE HAD INCREASED FROM RS.2.47 CRORES TO RS.5.89 CRORES. THE ASSESSEE WAS ASKED AS TO WHY THE INTEREST EXPENDITURE INCURRED ON BORROWINGS UTILIZED FOR LONG TERM INVESTMENT S BE NOT DISALLOWED BY TREATING THE SAME AS CAPITAL EXPENDITURE. THE ASSESSEE IN REPLY POINTED OUT THAT IT HAD NOT AVAILED ANY LOANS SPECIFICALLY FOR THE PURPOSE OF CAPITAL ASSETS DURING THE YEAR. THE ASSESSEE DID ADMIT THAT IT HAD OVERDRAFT ACCOUNT WITH RBS BANK FROM WHICH THE SAID PAYMENTS WERE MADE. THE REMARK OF THE AUDITOR WAS THE REQUIREMENT AS PER THE COMPANIES ACT WAS THE EXPLANATION OF ASSESSEE . IT WAS FURTHER EXPLAINED THAT THE AUDITOR TALKS ABOUT LONG TERM INVESTMENT OF RS.67 CRORES BUT THE ADDITIONS TO THE FIXED ASSETS WERE ONLY OF RS.38 CRORES AND CLOSING CAPITAL WORK - IN - PROGRESS OF 7 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 RS.8.6 CRORES AND HENCE REMARK IN THE AUDIT REPORT THUS COULD NOT BE THE BASIS FOR DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT. THE ASSESSEE ALSO CLAIME D THAT IT HAD NOT OBTAINED ANY SPECIFIC LOANS FOR PURCHASE OF CAPITAL ASSET. THEREAFTER THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER CONSIDERED THE PROVISIONS OF SECTION 36(1)(III) OF THE ACT AND HELD AS UNDER: - 14. FROM THE DISCUSSIONS IT IS EVIDENT THAT ALL THE INCREMENTAL BORROWINGS MADE IN THE F.Y 2008 - 09 HAVE BEEN USED FOR ACQUISITION OF FIXED ASSETS ONLY. THE ASSESSEE COMPANY HAS USED SHORT TERM OVERDRAFT FACILITY TO ACQUIRE THE LONG TERM FIXED ASSETS AND IT HAS NOT CAPITALIZED AND CALC ULATED THE INTEREST REQUIRED TO BE CAPITALIZED ON THESE BORROWINGS. TAKING INTO CONSIDERATION THE DETAILS AVAILABLE ON RECORD THE BORROWING COST ATTRIBUTABLE TO FIXED ASSETS ACQUIRED DURING THE YEAR IS COMPUTED BY REDUCING THE ALLOWABLE COMPONENT OF INTE REST FROM THE TOTAL INTEREST PAID. 15. COMPUTATION OF INTEREST ALLOWED AS DEDUCTION: THE FOLLOWING COMPONENTS OF THE INTEREST PAID/PAYABLE BY THE ASSESSEE DURING THE YEAR IS CONSIDERED FOR DEDUCTION - A . THE INTEREST PAID EQUIVALENT TO THE INTEREST PAID IN T HE EARLIER FINANCIAL YEAR I.E. F.Y. 2007 - 08 AS THIS INTEREST PAYMENT PERTAINS TO BORROWINGS TAKEN FOR THE ASSETS CAPITALIZED IN THE F.Y. 2007 - 08 RS.2 47 12 774/ - B . INTEREST PAYMENT ON THE BORROWINGS FROM THE DATE ON WHICH THE ASSETS ARE CONSIDERED TO BE READY AND PUT TO USE (AS DISCUSSED IN PARA 23 TO 28 BELOW) TO THE END OF FINANCIAL YEAR I.E. 31 ST MARCH 2009 RS.1 39 84 498 AS PER WORKING ATTACHED AS ANNEXURE - I ALLOWABLE INTEREST EXPENDITURE = (A+B) = RS.3 86 97 272/ - 9. THEREAFTER THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE OF INTEREST EXPENDITURE AS PER PARA 16 WHICH READS AS UNDER: - 16. WORKING OF DISALLOWANCE OF INTEREST EXPENDITURE INTEREST ON THE BORROWINGS ATTRIBUTABLE TO THE ASSETS WHICH IS REQUIRED TO BE CAPITALIZED AT THE END OF THE YEAR IS COMPUTED BY REDUCING THE INTEREST ALLOWED (A+B) FROM THE TOTAL INTEREST PAID. INTEREST CONSIDERED FOR CAPITALIZATION = INTEREST ON SHORT TERM LOAN DEBITED IN THE P & L ACCOUNT (A+B) 58970175 --- 3 86 97 272 = RS.2 02 72 903/ - RS.2 02 72 903/ - IS DISALLOWED AS REVENUE EXPENDITURE (DISALLOWANCE OF RS.2 02 72 903/ - ) 10. THE ASSESSEE FILED OBJECTIONS TO THE DRP AGAINST DISALLOWANCE OF INTEREST EXPENSES AT RS.2.02 CRORES. THE DRP VIDE PARAS 2.6.1 TO 2.6.6 DISCUSSED THE 8 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 FACTS AND OBJECTION S OF THE ASSESSEE AND THE FINDINGS OF THE DRP ARE IN PARAS 2.6.7 TO 2.6.10 IN THE FINAL ASSESSMENT ORDER OF THE ASSESSING OFFICER. THE DRP REJECTED THE PLEA OF ASSESSEE VIS - - VIS APPLICATION OF PROVISO TO SECTION 36(1)(III) OF THE ACT. WITH RESPECT TO CO MPUTATION OF DISALLOWANCE THE DRP HELD THAT CAPITALIZATION OF INTEREST SHOULD BE RELATABLE TO THE PERIOD FROM DATE OF BORROWING TILL THE DATE THE ASSET WA S PUT TO USE. ACCORDINGLY DIRECTIONS WERE GIVEN TO THE ASSESSING OFFICER TO WORK OUT THE AMOUNT OF CAPITALIZED INTEREST AND HE WAS ALSO DIRECTED TO CONSIDER THE OBJECTIONS RAISED BY THE ASSESSEE AND PROVIDE AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE OBJECTIONS WHICH WERE RAISED BY THE ASSESSEE BEFORE THE DRP ARE TABULATED UNDER PARA 10 OF THE A SSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT WHICH READS AS UNDER: - 10.. I . THE LEARNED AO HAS APPLIED A REVERSE METHODOLOGY OF COMPUTING ALLOWABLE REVENUE EXPENDITURE AND REDUCING THE SAME FROM TOTAL INTEREST COST TO DERIVE THE INTEREST COST TO BE CAPITALIZED. II . THE LEARNED AO HAS INCORRECTLY ASSUMED THAT THE DATE OF BORROWING CAPITAL IS APRIL 1 2008 UNIVERSALLY IN ALL CASES. III . THE LEARNED AO HAS IGNORED THE ASSETS CAPITALIZED FOR LESS THAN 180 DAYS IN THE COMPUTATION. IV . THE LEARNE D AO HAS ERRED IN HOLDING THAT THE PLANT AND MACHINERY PUT TO USE FOR MORE THAN 180 DAYS AS PER THE TAX AUDIT REPORT HAS BEEN PUT TO USE POST OCTOBER 2008 ONLY AND HENCE INTEREST ALLOWED AS REVENUE EXPENDITURE HAS BEEN ERRONEOUSLY COMPUTED FOR 179 DAYS. V . T HE TOTAL INTEREST COST CONSIDERED BY THE LEARNED AO IS INCORRECT. 11. THE ASSESSEE WAS SHOW CAUSED IN THIS REGARD. AS PER THE ASSESSING OFFICER THE ASSESSEE FAILED TO FURNISH REQUISITE INFORMATION . T HE DETAILS FURNISHED BY THE ASSESSEE WERE FOUND TO B E NOT SUFFICIENT FOR CALCULATING INTEREST TO BE CAPITALIZED WHERE THE ASSESSEE HAD NOT GIVEN DATE OF INSTALLATION OF ASSETS. FURTHER THE ASSESSING OFFICER ALSO FOUND CERTAIN INFIRMITIES IN THE BANK PAYMENT 9 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 DETAILS. THE ASSESSING OFFICER FURTHER NOTED T HAT THE INTEREST EXPENDITURE HAD INCREASED SIGNIFICANTLY COMPARED TO THE PREVIOUS YEAR. THE OVERALL INTEREST CAPITALIZATION AS PROPOSED BY THE ASSESSEE OF RS.34 14 556/ - WAS FOUND TO BE SIGNIFICANTLY LOWER WHICH IN TURN DOES NOT JUSTIFY THE INCREASE IN I NTEREST EXPENDITURE. THE ASSESSING OFFICER THUS HELD THAT REVERSE METHODOLOGY OF COMPUTING ALLOWABLE REVENUE EXPENDITURE AND REDUCING THE SAME FROM TOTAL INTEREST COST TO DERIVE THE INTEREST COST TO BE CAPITALIZED WAS THE MOST APPROPRIATE METHOD OF COMPU TATION . H ENCE THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.2.02 CRORES WAS CONFIRMED BY THE ASSESSING OFFICER. IT WAS FURTHER HELD BY THE ASSESSING OFFICER THAT THE SAID DISALLOWED INTEREST HAS BEEN USED FOR ACQUISITION OF ASSETS WHICH ARE EITHER PUT T O USE OR NOT YET PUT TO USE . THE SAID INTEREST WAS HELD TO BE CONSIDERED FOR REVISED COMPUTATION OF ALLOWABLE DEPRECIATION SINCE THE MAXIMUM ADDITION WAS IN THE BLOCK OF PLANT & MACHINERY DEPRECIATION @ 7.5% OF RS.2.02 CRORES I.E. RS.15 20 468/ - WAS ALLO WED IN THE HANDS OF ASSESSEE. 12. THE FIRST GROUND OF APPEAL RAISED BY THE ASSESSEE BEFORE US WAS AGAINST THE DISALLOWANCE OF INTEREST WORKED OUT UNDER THE PROVISO TO SECTION 36(1)(III) OF THE ACT. HOWEVER THE SAID GROUND OF APPEAL IS NOT PRESSED ; HEN CE WE HAVE TO ADJUDICATE THE ISSUE RAISED VIDE GROUND OF APPEAL NO.2 I.E. ON WITHOUT PREJUDICE BASIS TO GROUND OF APPEAL NO.1 VIS - - VIS WORKING OF INTEREST COMPUTATION AS PER PROVISO TO SECTION 36(1)(III) OF THE ACT. 13. THE LEARNED AUTHORIZED REPRESENT ATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAD WORKED OUT THE AMOUNT WHICH IS DISALLOWABLE AS PER PROVISO TO SECTION 36(1)(III) OF THE ACT AT RS.34 14 556/ - ; AS AGAINST THE SAME THE ASSESSING 10 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 OFFICER HAD DISALLOWED RS.2.02 CRORES ON CERTAIN PRESUMPTIONS. THE FIRST PRESUMPTION WAS VIS - - VIS INTEREST BEING RELATABLE TO ASSETS FROM 01.10.2008. OUR ATTENTION WAS DRAWN TO ASSET - WISE DETAILS FILED AT PAGE 223 ONWARDS OF PAPER BOOK WHICH THE ASSESSEE CLAIMS WERE FILED EVEN BEFORE THE ASSESSING OF FICER. HE FURTHER POINTED OUT THAT THE ASSESSING OFFICER CONSIDERS THE TOTAL INTEREST AT RS.5.89 CRORES AGAINST WHICH EARLIER INTEREST HAS BEEN ALLOWED AT RS.2.47 CRORES HENCE INTEREST FOR 179 DAYS WAS WORKED OUT AT RS.1.39 CRORES. OUR ATTENTION WAS DR AWN TO THE ORDER OF DRP AND ITS DIRECTIONS BUT THE ASSESSING OFFICER HAS DISREGARDED THE SAME. IN CONTINUITY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSING OFFICER HAS ALSO PROPOSED THAT DISALLOWANCE OF INTEREST IS TO BE CLUBBED TO THE VALUE OF ASSETS WHICH AS PER HIM WAS MAJORLY PUT TO USE AFTER 01.10.2008 AND HENCE HE ALLOWED DEPRECIATION ON THE SAME @ 7.5%. OUR ATTENTION WAS DRAWN TO THE AUDITOR REPORT FILED BY THE ASSESSEE ALONG WITH RETURN OF INCOME AND POINTE D OUT THAT THE LIST OF ASSETS IS AVAILABLE ON RECORD AND EVEN THE AUDITOR IN THE AUDIT REPORT HAS BIFURCATED THE ASSETS I.E. ASSETS WHICH HAVE BEEN OWNED BY THE ASSESSEE FOR LESS THAN 180 DAYS OF WHICH DEPRECIATION @ 7.5% HAS BEEN ALLOWED AND WHERE THE AS SETS ARE OWNED FOR MORE THAN 180 DAYS DEPRECIATION @ 15% HAS BEEN COMPUTED. HE FAIRLY ADMITTED THAT THE ASSESSING OFFICER IS AT LIBERTY TO VERIFY THE STAND OF ASSESSEE IN THIS REGARD. 14. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RE LIANCE ON THE ORDERS OF ASSESSING OFFICER / DRP. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE WHICH ARISES BEFORE US VIDE GROUND OF APPEAL NO.2 IS WORKING OF INTEREST 11 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 WHICH IS TO BE DISALLOWED / CAPITALIZED IN THE HAN DS OF ASSESSEE IN VIEW OF THE PROVIS O OF SECTION 36(1)(III) OF THE ACT. THE SAID PROVISO VERY CLEARLY LAYS DOWN THAT WHERE THE BORROWINGS MADE BY THE ASSESSEE ARE UTILIZED MAY BE PARTLY FOR THE PURPOSE OF INVESTMENT IN ASSETS WHICH ARE CAPITAL ASSETS IN THE HANDS OF ASSESSEE THEN THE INTEREST ALLOWABLE ON SECURED LOANS IS TO BE DISALLOWED IN THE HANDS OF ASSESSEE. THE DISALLOWANCE OF INTEREST UNDER PROVISO TO SECTION 36(1)(III) OF THE ACT IS FROM THE DATE OF UTILIZATION OF SECURED FUNDS TILL THE DATE TH E ASSETS ARE PUT TO USE. THE ASSESSEE HAS DURING THE YEAR UNDER CONSIDERATION MADE INVESTMENT IN FRESH ASSETS UNDER THE SEGMENT PLANT & MACHINERY. THE SAID ASSETS HAVE BEEN PUT TO USE DURING THE YEAR. THE INTEREST ATTRIBUTABLE TO THE PERIOD I.E. THE DAT E OF UTILIZATION OF LOAN AGAINST INVESTMENT IN SUCH ASSETS TILL THE DATE OF PUTTING THE ASSET TO USE IS TO BE DISALLOWED IN THE HANDS OF ASSESSEE AS BUSINESS EXPENDITURE BUT CAPITALIZED TO THE VALUE OF ASSETS TO WHICH IT RELATES. THE ASSESSING OFFICER HAS APPLIED FORMULA FOR WORKING OUT THE DISALLOWANCE OF INTEREST AND FURTHER BY PRESUMING THAT SINCE MOST OF INVESTMENTS IN PLANT & MACHINERY WERE FOR A PERIOD LESS THAN SIX MONTHS OR 180 DAYS THEN THE ASSESSING OFFICER HELD THE ASSESSEE TO BE ENTITLED TO DE PRECIATION ON SUCH ADDITION AL COST @ 7.5%. 16. THE FIRST ISSUE WHICH NEEDS TO BE ADJUDICATED IN THE PRESENT APPEAL IS THE DISALLOWANCE OF INTEREST ON BORROWED FUNDS UTILIZED FOR MAKING INVESTMENT IN ASSETS WHICH HAVE BEEN PUT TO USE OR NOT TO PUT TO USE D URING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS PLACED ON RECORD THE WORKING OF INTEREST WHICH NEEDS TO BE CAPITALIZED TOTALING RS.34 14 556/ - WHICH IS PLACED AT PAGES 223 TO 228 OF THE PAPER BOOK. ALONG WITH TAX AUDIT REPORT THE LIST OF ADDITIONS TO FIXED ASSETS HAS ALREADY BEEN ANNEXED WHICH IN TURN SUBSTANTIATES THE DATE OF PUT TO 12 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 USE OF THE ASSETS. THE CASE OF ASSESSEE IS THAT THE WORKING IS PROVIDED BY IT WHICH IN TURN IS IN ACCORDANCE WI TH THE PROVISIONS OF THE ACT. WE FIND THAT THE ASSESSING OFFICER ON THE OTHER HAND HAS WORKED OUT THE DISALLOWANCE ON PRESUMPTIONS AND SURMISES. THE DRP HAD DIRECTED THE ASSESSING OFFICER TO RE - WORK THE DISALLOWANCE AS PER THE DATE OF PUT TO USE OF THE ASSETS. HOWEVER THE ORIGINAL DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER HAS BEEN UPHELD IN THE FINAL ASSESSMENT ORDER DISREGARDING THE DIRECTIONS OF THE DRP. THE CASE OF THE ASSESSING OFFICER IS THAT THE ASSESSEE HAS FAILE D TO FURNISH THE REQUISITE DETAILS. HOWEVER THE ASSESSEE HAS FIRST FURNISHED THE DETAILS OF FIXED ASSETS AND ITS DATE OF PUT TO USE ALONG WITH TAX AUDIT REPORT ITSELF WHICH IS AVAILABLE ON RECORD. FURTHER HE HAS ALSO PLACED ON RECORD THE WORKING OF INT EREST TO BE CAPITALIZED WHICH IS PLACED AT PAGES 223 TO 228 OF THE PAPER BOOK AND THE ASSESSEE VEHEMENTLY STRESSED THAT THE SAID DETAILS WERE FURNISHED BEFORE THE ASSESSING OFFICER. IN THE FINAL ASSESSMENT ORDER THE ASSESSING OFFICER DOES TALK ABOUT THE FIGURE OF RS. 34 14 556/ - . ONCE THE DETAILS ARE AVAILABLE ASSET - WISE AS TO DATE OF ACQUISITION AND THE DATE OF PUT TO USE THEN THERE IS NO MERIT IN WORKING OF THE ASSESSING OFFICER AND MAKING THE DISALLOWANCE ON PRESUMPTIONS AND SURMISES. 17. ANOTHER ASPECT WHICH HAS BEEN RAISED BY THE ASSESSING OFFICER IS THE MISMATCHING IN BANK PAYMENTS ADVICE I.E. BANK BOOK ENTRIES AND THE VALUE OF ASSETS PURCHASED. THE ASSESSEE CLAIMED THAT THE SAID MISMATCHING WHICH HAS BEEN HIGHLIGHTED BY THE ASSESSING OFFICER I S BECAUSE OF CONSOLIDATED PAYMENTS MADE TO PARTY ON ACCOUNT OF VARIOUS BILLS AND FURTHER THE SAME HAS BEEN RECONCILED AND THE EVIDENCES WERE FILED BEFORE THE ASSESSING OFFICER WHICH ARE PLACED AT PAGES 223 TO 295 297 AND 298 OF THE PAPER BOOK. ACCORDIN GLY ONCE 13 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 THE ASSESSEE HAS FURNISHED COMPLETE DETAILS IN THIS REGARD THERE IS NO MERIT IN THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE DISALLOWANCE WORKED OUT BY THE ASSESSING OFFICER IS NOT IN CONFORMITY WITH THE PROVISIONS OF THE ACT. 18. ANOTHER ASPECT WHICH NEEDS TO BE KEPT IN VIEW IS THAT THE ASSESSING OFFICER HIMSELF IN THE SUCCEEDING YEAR I.E. IN ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 HAD ACCEPTED SIMILAR WORKING OF DISALLOWANCE OF INTEREST WHICH NEEDS TO BE CAPITALIZED TO THE VALUE OF ASSETS IN ASSESSMENT YEARS 2010 - 11 AND 2011 - 12. ACCORDINGLY WE HOLD THAT THE DISALLOWANCE UNDER PROVISO TO SECTION 36(1)(III) OF THE ACT SHOULD BE RESTRICTED TO RS.34 14 556/ - WHICH IS COMPUTED BY THE ASSESSEE AND THE DETAILS OF WHICH WE RE AVAILABLE ON R ECORD. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS THUS ALLOWED. 19. THE CONNECTED ISSUE TO THE SAID CAPITALIZATION OF INTEREST IS THE ALLOWANCE OF DEPRECIATION ON SUCH CAPITALIZED INTEREST . THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.3 HAS RAIS ED THE SAID ISSUE WHEREIN THE ASSESSING OFFICER HAD ALLOWED DEPRECIATION @ 7.5% ON THE PREMISE THAT MAJORLY ADDITION IN THE PLANT & MACHINERY ACCOUNT IS FOR LESS THAN 180 DAYS. HOWEVER THE ASSESSEE HAS FURNISHED COMPLETE DETAILS IN THIS REGARD WHICH ARE PART OF AUDIT REPORT AND ONCE THE DETAILS ARE AVAILABLE ON RECORD THERE IS NO MERIT IN SUCH ADHOC WORKING OF ALLOWANCE OF DEPRECIATION ON SUC H INTEREST WHICH HAS BEEN CAPITALIZED TO THE COST OF ASSET. AS PER PROVISIONS OF THE ACT IF THE ASSET WHICH IS PUT TO USE FOR LESS THAN 180 DAYS THEN DEPRECIATION TO BE ALLOWED @ 7.5% BUT IN CASE THE SAID ASSET IS PUT TO USE FOR MORE THAN 180 DAYS THEN DEPRECIATION IS TO BE ALLOWED @ 15%. THE COMPLETE DETAILS IN THIS REGARD ARE AVAILABLE ON RECORD AND ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO VERIFY THE STAND OF ASSESSEE AND 14 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 ALLOW DEPRECIATION IN ACCORDANCE WITH LAW AND RE - COMPUTE THE INCOME IN T HE HANDS OF ASSESSEE. 20. NOW COMING TO THE GROUND OF APPEAL NO.4 WHICH IS ALSO LINKED TO CAPITALIZATION OF INTEREST WHICH IS ADDED TO THE COST OF ASSET. THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.4 HAS RAISED THE ISSUE OF GRANT OF ADDITIONAL DEPRECIATI ON UNDER SECTION 32(1)(IIA) OF THE ACT ON THE INTEREST SO CAPITALIZED. 21. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID PLEA OF ASSESSEE OF GRANT OF ADDITIONAL DEPRECIATION MERITS TO BE ACCEPTED IN VIEW OF THE FACTS OF THE CASE. 22. THE PERUSAL OF ASSESSMENT ORDER IN PARA 16 AT PAGE 14 ONLY TALKS ABOUT DISALLOWANCE OF INTEREST BEING CONSIDERED FOR REVISED COMPUTATION OF ALLOWABLE DEPRECIATION. HOWEVER THERE IS NO MENTION ABOUT ADDITIONAL DEPRECIATION TO BE ALLOWE D TO THE ASSESSEE BUT IN CASE THE ASSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT THEN THE ADDITIONAL DEPRECIATION IS TO BE ALLOWED ON THE INTEREST COST CAPITALIZED TO THE VALUE OF ASSET. THE ASSESSING OFFICER VIDE PA RA 27 AT PAGE 25 OF THE ASSESSMENT ORDER HAS ALLOWED ADDITIONAL DEPRECIATION ON THE COST OF NEW ASSETS AND CONSEQUENTLY THERE IS NO DISPUTE FOR ELIGIBILITY OF ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT ON INTEREST COST CAPITALIZED I.E. RS .34 14 556/ - . THE ASSESSING OFFICER SHALL VERIFY THE CLAIM OF ASSESSEE AS IN THE CASE OF DEPRECIATION AND DETERMINE THE PERIOD OF HOLDING OF ASSET AND ALLOW ADDITIONAL DEPRECIATION IN ACCORDANCE WITH LAW AND RE - COMPUTE THE BALANCE INCOME IN THE HANDS OF A SSESSEE. THUS GROUNDS OF APPEAL 15 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 NO.2 TO 4 RELATING TO CAPITALIZATION OF INTEREST COST ARE THUS ALLOWED AS INDICATED ABOVE. 23. THE ASSESSEE BY WAY OF GROUND OF APPEAL NO.5 HAS RAISED THE ISSUE OF DISALLOWANCE OF DEPRECIATION ON ADDITION MADE TO THE NEW BUILDING ON THE GROUND THAT IT HAD NOT BEEN PUT TO USE IN CURRENT YEAR. 24. THE GROUND OF APPEAL NO.6 RAISED BY THE ASSESSEE IS AGAINST DISALLOWANCE OF DEPRECIATION INCLUDING ADDITIONAL DEPRECIATION ON ADDITION TO PLANT & MACHINERY MADE IN THE NEW BUIL DING WHICH AS PER THE ASSESSING OFFICER HAS NOT BEEN PUT TO USE IN THE CURRENT YEAR. THE ASSESSING OFFICER WHILE PASSING DRAFT ASSESSMENT ORDER NOTED FROM THE DETAILS OF ADDITIONS TO FIXED ASSETS REPORTED IN THE AUDIT REPORT THAT THE ASSESSEE HAD MADE TH E ADDITION OF RS.14.42 CRORES TO THE BLOCK OF PLANT & MACHINERY ON WHICH DEPRECIATION WAS CLAIMED AT NORMAL RATES AND FURTHER ADDITION OF RS.15.61 CRORES IN THE BLOCK OF PLANT & MACHINERY ON WHICH ADDITIONAL DEPRECIATION WAS CLAIMED BY THE ASSESSEE. FUR THER THE ADDITION OF RS.8.42 CRORES WAS MADE TO THE BUILDING WHICH WAS SHOWN TO BE CAPITALIZED ON 10.03.2009 . THE ASSESSEE WAS ASKED TO SUBSTANTIATE ITS CLAIM OF DEPRECIATION ON THE NEWLY ADDED ASSETS . S HOW CAUSE NOTICE IN THIS REGARD IS REPRODUCED AT PAGE 7 OF THE DRAFT ASSESSMENT ORDER. IN REPLY FOR CLAIM OF DEPRECIATION ON BUILDING THE ASSESSEE EMPHASIZED THAT THE SAME WAS CAPITALIZED POST COMPLETION OF THE WORK AND AFTER OBTAINING ARCHITECTS CERTIF ICATE ETC. IT WAS FURTHER STATED BY THE ASSESSEE THAT ONCE THE STRUCTURE WAS BUILT AND WAS AVAILABLE FOR USE THE MACHINES WERE INSTALLED EVEN THOUGH ARCHITECTS CERTIFICATE WAS NOT RECEIVED HENCE THE DATE OF INSTALLATION OF MACHINES WAS EARLIER THAN T HE DATE OF CAPITALIZATION OF BUILDING. IN RESPECT OF NEW BUILDING THE ASSESSEE OBTAINED 16 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 COMMISSIONING CERTIFICATE FROM THE PRODUCTION DEPARTMENT WHICH IN TURN WAS APPROVED BY THE VICE PRESIDENT (PRODUCTION). THE SAID COMMISSIONING REPORT WAS FURNISHED BEFORE THE ASSESSING OFFICER ALONG WITH DETAILED LIST WITH LOCATION OF ASSETS CAPACITY OF ASSETS. IT WAS POINTED OUT BY THE ASSESSEE THAT ONCE THE MACHINES ARE CERTIFIED BY THE PRODUCTION HEAD THEN THE SAME WERE READY FOR USE AND HAVE BEEN PUT TO USE. WITH REGARD TO SHOW CAUSE NOTICE THAT DESPITE THE ADDITION TO FIXED ASSETS THERE WAS NO INCREASE IN UNIT - WISE PRODUCTION DURING THE YEAR I T WAS POINTED OUT THAT THERE WAS FALL IN PRODUCTION DURING THE YEAR DUE TO RECESSIONARY MARKET CONDITION. HOWEVER ASSETS HAVE BEEN PUT TO USE DURING THE YEAR AND WERE ENTITLED TO DEPRECIATION. WITHOUT PREJUDICE IT WAS POINTED OUT THAT EVEN IF THE ASSETS WERE NOT PUT TO USE BUT THEY ARE READY TO USE GIVEN THAT THEY WERE COMMISSIONED THEN DEPRECIATION IS ALLOWED ON SUCH ASSETS. THE ASSESSEE IN SUPPORT OF ITS CLAIM FURTHER PLACED RELIANCE ON THE FOLLOWING DECISIONS : - I) CAPITAL BUS SERVICE PVT. LTD. VS. CIT (123 ITR 404) (DELHI) II) FOREST INDUSTRIES TRAVANCORE LTD. VS. CIT (51 ITR 329) (KERALA) III) CIT VS. PREMI ER INDUSTRIES (INDIA) LTD. (170 TAXMANN 407) (MP) IV) CIT VS. SHAHBAD CO - OP SUGAL MILLS LTD (56 DTR 414) (P&H) V) SIV INDUSTRIES LTD. VS. DCIT (187 TAXMANN 442) (MAD) 25. THE ASSESSING OFFICER DENIED DEPRECIATION ON BUILDING TO THE ASSESSEE IN THE ABSENCE OF STABILITY CERTIFICATE WHICH IS REQUIRED AS PER CLAUSE (1) OF RULE 3A OF THE MAHARASHTRA FACTORY RULES 1963. FURTHER IT WA S NOTED BY THE ASSESSING OFFICER THAT APPROV AL OF ASST. DIRECTOR (TOWN PLANNING) WAS GIVEN ONLY ON 12.10.2009 WHICH WAS APPARENT FROM THE BUILDING LAYOUT PLAN. FURTHER AS PER ARCHITECTS CERTIFICATE THE BUILDING WAS READY TO USE ONLY ON 10.03.2009. IN VIEW THEREOF DEPRECIATION CLAIMED @ 5% ON A DDITIONS TO BUILDING CLAIMED TO BE PUT TO USE ON 10.03.2009 WAS DISALLOWED RESULTING IN ADDITION OF RS.42 12 395/ - . FURTHER THE ASSESSING OFFICER ALSO REJECTED THE CLAIM OF DEPRECIATION ON PLANT & MACHINERY INSTALLED IN THE NEW BUILDING. THE FIRST REASO N FOR DISALLOWANCE WAS 17 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 THAT THE NEWLY CONSTRUCTED BUILDING TECHNICALLY AND LEGALLY WAS NOT AVAILABLE TO THE ASSESSEE BEFORE 12.10.2009 I.E. DATE OF APPROVAL OF ASST. DIRECTOR (TOWN PLANNING) FOR USE AND HENCE THE PLANT & MACHINERY COULD NOT BE PUT TO USE PRIOR TO THE BUILDING ITSELF BEING AVAILABLE FOR USE. THE SECOND OBJECTION OF THE ASSESSING OFFICER WAS THE SANCTIONED POWER LOAD. THE ASSESSING OFFICER NOTED THAT SUBSTANTIAL ADDITIONS IN PLANT & MACHINERY OF APPROXIMATELY RS.42 CRORES WAS MADE IN EARLI ER YEARS AND DURING THE YEAR UNDER CONSIDERATION ALSO THERE WAS INSTALLATION OF ADDITIONAL PLANT & MACHINERY. HOWEVER THE POWER LOAD OF ASSESSEE COULD NOT MEET THE POWER REQUIREMENTS. THE PLEA OF ASSESSEE THAT IT HAD ALREADY NECESSARY POWER SUPPLY TO PU T THE INDIVIDUAL MACHINERY TO PUT TO USE WAS NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSEE HAS SUBMITTED COPY OF APPLICATION DATED 19.12.2005 TO ELECTRICITY COMPANY FOR SANCTION OF ADDITIONAL CONNECTED LOAN OF 1422KW AND ADDITIONAL MAXIMUM CONTRACT DEMAND OF 450KV. HOWEVER IN THE ABSENCE OF ANY TEST REPORT AND DETAILS TO BE SUBMITTED TO THE POWER SUPPLY COMPANY FOR ENHANCING THE POWER QUALITY THE PLEA OF ASSESSEE IN THIS REGARD WAS REJECTED. HENCE THE ASSESSEES CLAIM OF DEPRECIATION AS WELL AS ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT ON ADDITIONS TO THE PLANT & MACHINERY IN NEW BUILDING WAS ALSO DISALLOWED. THE ASSESSING OFFICER DISALLOWED DEPRECIATION TO THE EXTENT OF RS.64 07 934/ - . ANOTHER ASPECT WHICH WAS NOTED BY THE AS SESSING OFFICER WAS THE CHANGE IN HIGHEST CONTRACT DEMAND. THE ASSESSING OFFICER OBSERVED FROM THE BILL OF OCTOBER 2008 THOUGH MINIMAL THAT THE NEWLY ACQUIRED PLANT & MACHINERY HAD NOT BEEN READY TO USE BEFORE OCTOBER 2008 HENCE DEPRECIATION ON ADDITI ONS TO PLANT & MACHINERY HAD TO BE COMPUTED FOR PERIOD LESS THAN 180 DAYS AND SIMILARLY ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) OF THE ACT. THE ASSESSING OFFICER THUS HELD AS UNDER: - 18 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 28. AS PER THE WORKING ENCLOSED AS ANNEXURE - III DEPRECIATION OF RS.1 94 40 874/ - ON ASSETS STATED TO PUT TO USE FOR MORE THAN 180 DAYS BY THE ASSESSEE BUT CONSIDERED TO HAVE BEEN USED FOR LESS THAN 180 DAYS IS ALLOWED. HOWEVER CONSIDERING THE DEPRECIATION ALLOWABLE ON THE INTEREST CAPITALIZED THE DISALLOWANCE WORKS OUT TO RS.1 79 20 406/ - (1 94 40 874 - 15 20 468) 26. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION AT HIGHER RATE OF DEPRECIATION ON CERTAIN ITEMS @ 60% THOUGH THE ASSESSEE WAS ENTITLED ONLY TO THE RA TE OF 15% / 7.5%. ACCORDINGLY DISALLOWANCE OF RS.1 09 619/ - WAS WORKED OUT. 27. THE ASSESSEE FILED OBJECTIONS BEFORE THE DRP WHICH CONFIRMED THE DISALLOWANCE OF DEPRECIATION OF RS.64 07 934/ - AND RS.1 94 40 874/ - ON NEW PLANT & MACHINERY. THE FINDIN GS OF THE DRP ARE REPRODUCED AT PA GE 2 6 OF FINAL ASSESSMENT ORDER. THE ASSESSING OFFICER THUS MADE DISALLOWANCE OF RS.64 07 934/ - AND RS. 1 79 20 406/ - AS PROPOSED IN THE DRAFT ASSESSMENT ORDER. HOWEVER WITH REFERENCE TO PROPOSED DISALLOWANCE OF DEPRECI ATION OF RS.42 12 294/ - ON NEW FACTORY BUILDING THE DRP GAVE FINDING IN PARA 2.7.11 WHICH IS REPRODUCED AT PAGE 2 7 OF FINAL ASSESSMENT ORDER. THE DRP DIRECTED THE ASSESSING OFFICER TO VERIFY CERTAIN DOCUMENTS WHILE DECIDING THE ISSUE OF OCCUPANCY OF NEW FACTORY BUILDING I.E. OCCUPANCY CERTIFICATE ISSUED BY MUNICIPAL AUTHORITIES; PERMANENT ELECTRICITY CONNECTION WATER SUPPLY CONNECTION CONNECTI ON OF SEWAGE. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS IN RESPECT OF CERTIFICATE FROM MUNICIPAL AUTHORITIES. THE ASSESSEE POINTED OUT THAT THE FACTORY SHED WAS LOCATED OUTSIDE THE LIMIT OF MUNICIPALITY AND HENCE THE OCCUPATION CERTIFICATE FROM THE MUNICIPAL CORPORATION WAS NOT APPLICABLE. THE ASSESSING OFFICER FURTHER NOTED THAT AS PER ANNEXURE II OF THE WORK ORDER FOR THE 19 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 NEW BUILDING SUBMITTED BY THE ASSESSEE APPROVAL OF LOCAL GOVERNMENT OFFICE WAS REQUIRED; BUT NO SUCH CERTIFICATE WAS SUBMITTED BY THE ASSESSEE. FURTHER REFERENCE WAS MADE TO ARCHITECTS CERTIFICATE FOR CHECKS CONDUCTED AND THE ELECTRICITY AND WATER SUPPLY INFRASTRUCTURE BEING IN PLACE. THE ASSESSING OFFICER REJECTED THE SAID CERTIFICATE AS THE SAME WAS ISSUED BY THE PARTY TO W HOM THE BUILDING CONTRACT WAS GIVEN AND NOT BY AN INDEPENDENT ARCHITECT. HOWEVER THE SAID CERTIFICATE WAS NOT ACCOMPANIED BY THE REQUISITE CERTIFICATES AND HENCE THE PLEA OF ASSESSEE IN THIS REGARD WAS REJECTED AND DISALLOWANCE OF DEPRECIATION AT RS.42 12 294/ - WAS UPHELD. IN RESPECT OF DISALLOWANCE OF DEPRECIATION ON COMPUTERS THE DRP HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM THE DEPRECIATION @ 60%. IN VIEW THEREOF THE ASSESSING OFFICER ALLOWED DEPRECIATION @ 60% AND MADE DISALLOWANCE OF BALANCE OF RS.27 162/ - . THE ASSESSEE IS IN APPEAL BEFORE US BY WAY OF GROUND OF APPEAL NO.5 AGAINST NON - ALLOWANCE OF DEPRECIATION ON FACTORY BUILDING AND FURTHER VIDE GROUND OF APPEAL NO.6 ON NON - ALLOWANCE OF DEPRECATION ON PLANT & MACHINERY WHICH IS INSTALLED I N THE NEW BUILDING. 2 8 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT THE ASSESSING OFFICER PRESUMES THAT NEW BUILDING HAS NOT BEEN COMPLETED. OUR ATTENTION WAS DRAWN TO THE ARCHITECTS CERTIFICATE PLACED AT PAGES 116 TO 118 OF THE PAPER BOOK WHICH IS DATED 25.03.2009. HE FURTHER POINTED OUT TO THE STABILITY CERTIFICATE DATED 17.03.2009 WHICH IS AVAILABLE. HE FURTHER POINTED OUT THAT EVEN THE TOWN PLANNING CERTIFICATE WAS AFTER MARCH 2009 BUT THE ASSESSING OFFICER SAYS THAT NO SUCH CER TIFICATE WAS AVAILABLE. HE FURTHER REFERRED TO THE ORDER OF DRP WHICH SAYS WATER CONNECTION ELECTRICITY ARE NOT THERE AND SENT BACK THE MATTER. OUR ATTENTION WAS DRAWN TO THE STABILITY CERTIFICATE WHICH IS THIRD PARTY DOCUMENT PLACED AT PAGES 343 AND 3 44 OF THE PAPER BOOK. HE THEN 20 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 OBJECTED TO THE REASONING OF ASSESSING OFFICER TO SAY THAT THE BUILDING WAS NOT COMPLETE HOWEVER NO SUCH EVIDENCE WAS FILED BY THE DEPARTMENT IN THIS REGARD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER P OINTED OUT THAT IN LINE WITH THE DIRECTIONS OF DRP THE ASSESSEE G OT SECOND CERTIFICATE. HOWEVER THE ASSESSING OFFICER REJECTED THE SAME TO BE SECOND THOUGHT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT ADEQUATE CREDENCE SHOU LD BE GIVEN TO THE ARCHITECT S CERTIFICATE. HE FURTHER REFERRED TO THE MACHINE REPAIRS AND COMMISSIONING REPAIRS AND POINTED OUT THAT IN THE SAME BUILDING HOW IT COULD NOT BE OPERATIONAL. IN OTHER WORDS THE SECOND BUILDING WAS CONSTRUCTED AND WAS AVAILA BLE FOR COMMISSIONING THE NEW PLANT & MACHINERY AND THERE WAS NO MERIT IN THE PLEA OF ASSESSING OFFICER IN THIS REGARD. ANOTHER ISSUE WHICH HAS BEEN RAISED BY THE ASSESSEE IS THAT ALL ASSETS ARE PRESUMED TO BE PUT TO USE ON 01.10.2008 WHEREAS THE AUDITOR HAS GIVEN CERTIFICATE AS TO THE DATE OF PUT TO USE OF ASSETS. HE REFERRED TO THE LIST OF PLANT & MACHINERY IN THE NEW BUILDING WHICH IS PLACED AT PAGE 155 OF THE PAPER BOOK IN WHICH DATE OF INSTALLATION OF ASSETS ON DIFFERENT DATES IS ALSO GIVEN. HE FUR THER REFERRED TO THE AUDITORS CERTIFICATE PLACED AT PAGES 61 AND 62 MACHINERY LOG CERTIFICATE OF 337 AND MACHINERY COMMISSION REPORT AT PAGE 98 ONWARDS. HE MADE REFERENCE TO PAGES 105 AND 106 OF THE PAPER BOOK. HE THEN REFERRED TO PAGES 338 TO 342 OF T HE PAPER BOOK I.E. MACHINERY LOG REPORT OF DIFFERENT MACHINERIES. HE FURTHER STRESSED THAT THE MACHINERY WAS INSTALLED IN THE SAME FACTORY AND THE PRODUCTION HAD STARTED SO THERE WA S NO MERIT IN DENYING DEPRECIATION ON THE SAID ASSETS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON CERTAIN DECISIONS IN THIS REGARD. 21 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 2 9 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN REPLY REFERRED TO THE OBSERVATIONS OF THE DRP WITH SPECIAL REFERENCE TO PARAS 2.7. 11 AND 2.7.12 IN RELATION TO CLAIM OF DEPRECIATION ON NEW BUILDING AND PLANT & MACHINERY. HE STRESSED THAT THE ASSESSING OFFICER HAD CORRECTLY DENIED DEPRECIATION ON NEW BUILDING SINCE THE BUILDING WAS NOT READY AND WAS NOT PUT TO USE. 30 . IN REJOINDER THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE AUDITORS CERTIFICATE PLACED AT PAGE 61 OF THE PAPER BOOK WHICH GIVES THE DATE OF COMPLETION OF BUILDING ON 02.03.2009. 3 1 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING BY WAY OF GROUNDS OF APPEAL NO.5 AND 6 IS AGAINST THE CLAIM OF DEPRECIATION ON IMMOVABLE AND MOVABLE ASSETS. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION CLAIMS TO HAVE CONSTRUCTED NEW BUILDING IN ADDITION TO ITS EXISTING FACTORY BUIL DING IN WHICH IT HA D INSTALLED NEW SET OF PLANT & MACHINERY. THE ASSESSEE CLAIMS THAT AFTER THE BUILDING STRUCTURE WAS COMPLETED VARIOUS SANCTIONS WERE OBTAINED BY THE ASSESSEE IN RUNNING THE FACTORY IN THE SAID PREMISES AND SIMULTANEOUSLY PLANT & MACH INERY WAS INSTALLED IN THE NEW BUILDING TO CARRY ON ITS LINKED EARLIER BUSINESS OF MANUFACTURING. HOWEVER THE CLAIM OF ASSESSEE WAS REJECTED BY AUTHORITIES BELOW ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THAT IT HAS COMPLETED ITS BUILDING AND H A D PUT TO USE THE SAME. THE ASSESSEE ON THE OTHER HAND VEHEMENTLY STRESSES THAT IT HAS COMPLETED ITS BUILDING ON 02.03.2009 WHICH FACT WAS REPORTED BY THE AUDITOR IN ITS TAX AUDIT REPORT FOR THE YEAR UNDER CONSIDERATION WHICH IS PLACED AT PAGES 42 TO 7 9 OF THE PAPER BOOK. OUR ATTENTION WAS DRAWN TO THE LIST OF ADDITIONS TO FIXED 22 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 ASSETS WHICH IS ANNEXED TO THE TAX AUDIT REPORT WHICH GIVES ASSET - WISE DETAILS OF ITS INSTALLATION AND NET COST OF ASSETS AND ALSO THE PERIOD OF IT BEING PUT TO USE I.E. WHETH ER IT IS MORE THAN 180 DAYS OR LESS THAN 180 DAYS. BEFORE LOOKING INTO VARIOUS EVIDENCES REFERRED TO BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DURING THE COURSE OF HEARING IT MAY BE PUT ON RECORD THAT THE ASSESSEE WAS ALREADY RUNNING MANU FACTURING UNIT AT THE SAID PREMISES AND IN EXTENSION HAD CONSTRUCTED NEW FACTORY UNIT AND HAD INSTALLED NEW SET OF PLANT & MACHINERY IN THE SAID UNIT. THE ISSUE WHICH IS TO BE ADJUDICATED IS THE CLAIM OF DEPRECIATION ON SUCH NEWLY CONSTRUCTED BUILDING AND NEWLY INSTALLED PLANT & MACHINERY; IN RESPECT OF WHICH THERE WA S FURTHER CLAIM OF ADDITIONAL DEPRECIATION . T HE ASSESSEE HAS TIME AND AGAIN STRESSED THAT COMPLETE DETAILS WERE FILED AND ANNEXED TO THE TAX AUDIT REPORT ITSELF. THE PERUSAL OF LIST WOULD REFLECT THE DATE OF ASSETS BEING INSTALLED AND THE ISSUE OF DEPRECIATION WA S TO BE CALCULATED FROM SUCH DATE. THE LEARNED A UTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS STRONGLY OPPOSED THE FINDINGS OF ASSESSING OFFICER THAT THE BUILDING WA S NOT READY AND HA D NOT BEEN PUT TO USE AND CONSEQUENTLY THE PLANT & MACHINERY WA S ALSO NOT BEING PUT TO USE. 32. THE FIRST EVIDENCE TO ESTABLISH THAT THE BUILDING STRUCTURE WAS COMPLETE RELIED UPON BY THE ASSESSEE IS THE ARCHITECTS CERTIFICATE DATED 25.03.2009 WHICH IS PLACED AT PAGES 116 TO 118 OF THE PAPER BOOK. THE PERUSAL OF THE SAID CERTIFICATE DATED 25.03.2009 PLACED AT PAGE 11 6 OF THE PAPER BOOK CERTIFIES THAT THE CIVIL CONSTRUCTION WORK FOR THE NEW FACTORY BUILDING I.E. R&D BUILDING FOR THE ASSESSEE WAS COMPLETED ON 10.03.2009 IN ALL RESPECTS AND THE BUILDING WAS READY FOR OCCUPATION AS PER CERTIFICATE DATED 25.03.2009 PLACED AT PAGE 117 OF THE PAPER BOOK. THE NEW FACTORY BUILDING (INSERTS BUILDING) FOR THE ASSESSEE AT 23 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 THE SAME PREMISES WAS ALSO COMPLETED ON 10.03.2009 AND THE BUILDING WAS READY FOR OCCUPATION. FURTHER THE NEW FACTORY BUILDING (MONOBLOCK BUILDING) WAS ALSO C OMPLETED ON 10.03.2009 AND THE ASSESSEE HAS ENCLOSED CERTIFICATE DATED 25.03.2009 AT PAGE 118 OF THE PAPER BOOK. THE ARCHITECT HAS VIDE CERTIFICATE DATED 03.01.2014 REITERATED THE CONTENTS OF EARLIER CERTIFICATE DATED 25.03.2009 ISSUED TO THE ASSESSEE IN RESPECT OF THREE BUILDINGS AND HAS REITERATED THAT THE BUILDING S W ERE READY FOR OCCUPATION. HE FURTHER CERTIFIES THAT THE COMPLETION CERTIFICATE WAS ISSUED AFTER VERIFYING THE BUILDING TO BE FULLY OPERATIONAL FOR PRODUCTION INCLUDING THE ASPECTS OF COMPLE TION OF E LECTRIFICATION AIR CIRCULATION / AIR CONDITIONING WATER LINES READINESS OF UNIT FOR MACHINERY INSTALLATION READINESS OF CONCRETE FLOOR FOR TAKING LOADING OF MACHINES AND READINESS OF TOILETS. FURTHER THERE WAS FACTORY IN RESPECT OF WHICH CE RTIFICATE DATED 02.03.2009 WHICH IS PLACED AT PAGE 344 OF THE PAPER BOOK UNDER WHICH THE SAID APPROVAL WAS GRANTED FOR MONOBLOCK AND R&D AREA AND THE NEW INSERT BUILDING ALONG WITH VARIOUS OTHER PORTIONS OF BUILDING. AS PER THE SAID CERTIFICATE THE ASSE SSEE WAS DIRECTED TO OBTAIN THE STABILITY CERTIFICATE IN FORM NO.1 - A FROM THE COMPETENT PERSON AS PER RULE 3 - A OF THE MAHARASHTRA FACTORIES RULES 1963 AND SUBMITTED IN THE OFFICE. THE CERTIFICATE OF STABILITY IS DATED 17.03.2009 IS PLACED AT PAGE 343 OF THE PAPER BOOK UNDER WHICH IT IS CERTIFIED THAT THE PREMISES HAD BEEN INSPECTED AND THE PLANS OF WHICH WERE APPROVED BY THE CHIEF INSPECTOR AND VARIOUS PARTIES INCLUDING FOUNDATION WITH SPECIAL REFERENCE TO MACHINERY PLANTS ETC. CERTIFIED THAT THE WORKS OF ENGINEERING CONSTRUCTION IN THE PREMISES WAS STRUCTURALLY SOUND AND ITS STABILITY WOULD NOT BE ENDANGERED FOR USE AS FACTORY FOR MANUFACTURING OF CUTTING TOOLS. THE ASSESSEE HA D ALSO REFERRED TO THE APPROVAL OF TOWN PLANNING DEPARTMENT PLACED AT PAGE 160 OF THE PAPER BOOK IN WHICH THE LAYOUT PLANS WERE SANCTIONED. 24 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 3 3 . ANOTHER ASPECT WHICH NEEDS TO BE TAKEN NOTE OF IS THE ADDITIONAL LOAD WHICH WAS ASKED FOR BY THE ASSESSEE BUT T HE SAME IS DATED 19.12.2005 WHEREIN THERE WAS AN ADHOC ADDITION OF NEW MACHINERY AND REQUEST FOR INCREASING THE CONTRACT DEMAND FROM 450KVA TO 900KVA. THE SAID DEMAND OF ASSESSEE WAS ACCEPTED BY THE MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LTD. VIDE ITS LETTER DATED 06.03.2006. IN THE ENTIRETY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES AND VARIOUS EVIDENCES PRODUCED BY THE ASSESSEE FROM DIFFERENT STATUTORY AUTHORITIES IT CANNOT BE SAID THAT THE BUILDING WAS NOT COMPLETED. IN THIS REGARD THE F IRST AND FOREMOST IS THE ARCHITECT CERTIFICATE WHICH CERTIFIED THE COMPLETION OF BUILDING ON 10.03.2009 AS PER CERTIFICATE DATED 25.03.2009. FURTHER THE ASSESSEE HAS ALSO FILED STABILITY CERTIFICATE DATED 17.03.2009 BEFORE THE DRP AND EVEN COPY OF WHICH HAS BEEN FILED BEFORE US. THE PLEA OF ASSESSEE BEFORE THE DRP WAS THAT THE ASSESSING OFFICER DID NOT ASK FOR STABILITY CERTIFICATE AND HENCE THE SAME WAS NOT SUBMITTED. THE SECOND ASPECT IS THE APPROVAL OF TOWN PLANNING DEPARTMENT WHICH ADMITTEDLY IS DATED 12.10.2009 WHICH AN APPROVAL GIVEN BY THE TOWN PLANNING DEPARTMENT SUGGESTING THAT THE FACTORY LAYOUT WAS AS PER SUBMITTED PLAN. HOWEVER THE SAID APPROVAL DOES NOT DETERMINE THE DATE OF COMPLETION OF BUILDING AND ALSO THE DATE OF PUTTING THE SAME TO USE. THE DRP ENLARGED ITS SCOPE AND STATED THAT THE OCCUPATION CERTIFICATE ISSUED BY THE MUNICIPALITY AUTHORITY WOULD BE RELEVANT FOR DECIDING THE ISSUE AND SINCE THE SAME WAS NOT FURNISHED THE MATTER WAS RESTORED BACK TO THE FILE OF ASSESSING OFFICER TO EXAMINE THE ISSUE OF NEW BUILDING BEING PUT TO USE. WE FIND NO MERIT IN THE SAID DIRECTIONS OF THE DRP IN VIEW OF EVIDENCES FILED BY THE ASSESSEE I.E. FIRST THE ARCHITECTS CERTIFICATE WHICH HAS CERTIFIED THE COMPLETION OF BUILDING AND SECOND IS THE STABILITY CERTIFICATE ISSUED BY THE CONCERNED AUTHORITY AND ALSO THE FACT OF INCREASE IN LOAD WHICH WAS DEMANDED BY THE 25 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 ASSESSEE AND ACCEPTED BY THE MAHARASHTRA STATE ELECTRICITY DISTRIBUTION COMPANY LTD. WE ARE OF THE OPINION THAT THE BUILDING FOR THE S AID INFRASTRUCTURE FACILITIES WAS COMPLETED IN MARCH 2009. CONSEQUENTLY THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEPRECIATION THOUGH @ 2.5% FOR THE PERIOD BEING LESS THAN 180 DAYS. WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SAME IN THE HANDS OF ASSES SEE. 3 4 . NOW COMING TO THE SECOND PLEA OF DEPRECIATION ON THE PLANT & MACHINERY WHICH WA S INSTALLED IN THE NEW BUILDING. THIS ISSUE IS LINKED TO EARLIER ISSUE DECIDED BY US. IN CASE THE STRUCTURE IS NO T NEARING COMPLETION THEN NEW PLANT & MACHINERY CANNOT BE INSTALLED. FROM THE PERUSAL OF ADDITIONS TO PLANT & MACHINERY FILED ALONG WITH TAX AUDIT REPORT IT IS APPARENT THAT THE ASSESSEE HAS STARTED INSTALLING THE ABOVE SAID PLANT & MACHINERY FROM DIFFERENT DATES BUT BEFORE MARCH 2009. THE COMMISSIO NING OF FACTORY NO DOUBT HAS TAKEN PLACE LATER BUT IN THE CASE OF SUCH LARGE MANUFACTURING UNIT THE PLANT & MACHINERY NEEDS TIME TO BE INSTALLED AND OPERATIONAL AND LOOKING AT THE HIGH INVESTMENT IN PLANT & MACHINERY THE SAME CANNOT BE INSTALLED IN A G AP OF FEW DAYS. ONCE THE BUILDING IS READY THEN THERE WA S NO QUESTION OF NON - COMMISSIONING OF PLANT & MACHINERY. ACCORDINGLY WE HOLD THAT ONCE THE BUILDING IS BEING OCCUPIED AND THE PLANT & MACHINERY WA S INSTALLED THEN THE ASSESSEE WA S ENTITLED TO CLAIM THE DEPRECIATION ON THE DATE ON WHICH IT WAS PUT TO USE. ONCE THE BUILDING IS COMPLETE IN ALL RESPECTS IN MARCH 2009 THEN THE PLANT & MACHINERY WOULD ALSO BE PUT TO USE THEREAFTER. MERELY BECAUSE SOME PART OF THE PLANT & MACHINERY WAS INSTALLED PRIOR TO THAT DOES NOT ESTABLISH THE CASE OF ASSESSEE THAT THE SAID ASSET WAS USED FROM THE DATE OF INSTALLATION SINCE IT IS FIRST YEAR OF OPERATION . THE DEPRECIATION AS PER THE ACT IS ALLOWABLE FROM THE DATE OF ITS USE WHICH IS LINKED TO THE DATE OF 26 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 COMPLETION OF BUILDING WHICH IN THE PRESENT CASE IS MARCH 2009. ACCORDINGLY WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM THE DEPRECIATION ON NEWLY INSTALLED PLANT & MACHINERY BUT FOR PERIOD LESS THAN 180 DAYS AS THE BUILDING WAS COMPLETE D ONLY IN THE MONTH OF MARCH 2009. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO VERIFY THE CLAIM OF ASSESSEE IN THIS REGARD AND COMPUTE DEPRECIATION ASSET - WISE FROM THE DATE OF PUT TO USE FOR THE PERIOD LESS THAN 180 DAYS. CONSEQUENTLY THE ASSESSEE IS ALSO ENTITLED TO CLAIM OF ADDITIONAL DEPRECIATION WHICH MAY BE ALLOWED AS PER ACT. THE ASSESSING OFFICER SHALL COMPUTE THE DEPRECIATION ON BUILDING AND PLANT & MACHINERY AND ADDITIONAL DEPRECIATION @ 10% ON PLANT & MACHINERY AFTER AFFORDING REASONABL E OPPORTUNITY OF HEARING TO THE ASSESSEE AND RE - COMPUTE THE INCOME OF ASSESSEE. THUS THE GROUNDS OF APPEAL NO.5 AND 6 RAISED BY THE ASSESSEE ARE ALLOWED AS INDICATED ABOVE. 3 5 . NOW COMING TO THE LAST ISSUE RAISED BY THE ASSESSEE I.E. DEPRECIATION ON ADDITION S MADE TO PLANT & MACHINERY IN THE EXISTING BUILDING. 3 6 . THE ASSESSEE IS AGGRIEVED BY THE ORDER OF ASSESSING OFFICER IN HOLDING THAT PLANT & MACHINERY WAS PUT TO USE FOR LESS THAN 180 DAYS IN THE CURRENT YEAR AND SIMILARLY ADDITIONAL DEPRECIATION WAS ALSO RESTRICTED TO 10% OF THE COST OF NEW ASSETS. THE ASSESSEE IN THIS REGARD HAS REFERRED TO COMPLETE LIST OF PLANT & MACHINERY WHICH WA S INST ALLED IN THE NEW AND EXISTING BUILDING ALONG WITH ITS DATES OF INSTALLATION AND GROSS COST WHICH ARE PLACED AT PAGES 130 TO 136 OF THE PAPER BOOK. HE HAS FURTHER REFERRED TO THE DATE OF INSTALLATION OF MACHINERY AS PER ANNEXURE TO TAX AUDIT REPORT WHICH IS PLACED AT PAGES 59 TO 64 OF THE PAPER BOOK. THE ASSESSEE HAS ALSO REFERRED TO THE MACHINE COMMISSIONING REPORTS 27 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 WHICH ARE PLACED AT PAGES 90 TO 97 99 102 TO 115 OF THE PAPER BOOK. THE ASSESSEE HAS PLEADED THAT THERE IS NO DISPUTE TO THE FACTUM OF MA CHINERY BEING PUT TO USE BUT THE ISSUE IS ONLY WITH REFERENCE TO THE DATE FROM WHICH THE DEPRECIATION IS TO BE ALLOWED. THE DEPRECIATION HAS BEEN ALLOWED FOR HALF YEAR ON THE GROUND THAT MACHINERY HAS BEEN PUT TO USE FOR LESS THAN 180 DAYS. 3 7 . THE LEA RNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 3 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES VIDE THIS GROUND OF APPEAL IS IN RELATION TO DE PRECIATION AND ADDITIONAL DEPRECIATION ON PLANT & MACHINERY WHICH IS NEW BUT INSTALLED IN THE OLD BUILDING. THE ASSESSING OFFICER HAS NOT DISPUTED THAT THE SAID PLANT & MACHINERY WA S PUT TO USE BUT HA D CURTAILED THE DEPRECIATION TO LESS THAN 180 DAYS. H OWEVER THE PLEA OF ASSESSEE IS THAT THE TAX AUDIT REPORT VERY CLEARLY PROVIDES THE DATE OF INSTALLATION OF MACHINERY AND HENCE DEPRECIATION WA S TO BE GIVEN ON THE BASIS OF SAID DATE OF PUT TO USE AS PER TAX AUDIT REPORT. WE FIND MERIT IN THE PLEA OF ASS ESSEE IN THIS REGARD SINCE THE MACHINERY WA S BEING INSTALLED IN FACTORY WHICH WA S ALREADY RUNNING AND HENCE REASONING APPLIED BY THE ASSESSING OFFICER IN RESPECT OF NEW BUILDING WA S NOT APPLICABLE HERE. THE ASSESSEE HAD ALSO CLAIMED ADDITIONAL DEPRECIATION . ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION AND ADDITIONAL DEPRECIATION ON SUCH PLANT & MACHINERY AS PER THE DATE OF ITS INSTALLATION WHICH IS PROVIDED IN THE TAX AUDIT REPORT AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND RE - COMPUTE THE BALANCE INCOME IN THE HANDS OF ASSESSEE . THE GROUND OF APPEAL NO.7 RAISED BY THE ASSESSEE IS THUS ALLOWED. 28 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 39 . THE GROUND OF APPEAL NO.8 IS NOT PRESSED AND HENCE THE SAME IS DISMISSED AS NOT PRESSED. 4 0 . NOW COMING TO THE APPEAL FILED BY THE REVENUE. THE FIRST ISSUE RAISED VIDE GROUND OF APPEAL NO.1 BY THE REVENUE IS AGAINST WORKING CAPITAL ADJUSTMENT DIRECTED BY THE DRP TO BE ALLOWED TO THE ASSESSEE. THE ISSUES RAISED IN THE GROUNDS OF APPEAL FILED BY THE R EVENUE ARE AGAINST DIRECTIONS OF DRP WHILE ADJUDICATING THE TRANSFER PRICING ADJUSTMENT TO BE MADE IN THE HANDS OF ASSESSEE. 4 1 . BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE HAD ENTERED INTO VARIOUS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERP RISES. THE MATTER WAS REFERRED TO THE TPO WHO NOTED THAT THE ASSESSEE HAD DIVIDED THE INTERNATIONAL TRANSACTIONS INTO THREE SEGMENTS I.E. MANUFACTURING SEGMENT CONTRACT MANUFACTURING SEGMENT AND DISTRIBUTION SEGMENT. THE TRANSACTIONS IN MANUFACTURING S EGMENT AND CONTRACT MANUFACTURING SEGMENT WERE BENCHMARKED BY TNMM METHOD. THE PLI WAS WORKED OUT ON OP/OR BASIS AT 3.63% IN MANUFACTURING SEGMENT 13.35% IN CONTRACT MANUFACTURING SEGMENT AND 2.93% IN DISTRIBUTION SEGMENT WHEREAS THE COMPARABLE PLI FOR THE SEGMENTS WERE 1.78% 5.14% AND 3.8% RESPECTIVELY. THE TPO NOTED THAT THOUGH THE ASSESSEE HAD BENCHMARKED TWO SEGMENTS SEPARATELY I.E. MANUFACTURING SEGMENT AND CONTRACT MANUFACTURING SEGMENT HOWEVER FAR ANALYSIS DONE FOR TWO SEGMENTS POINTED OUT TH AT BOTH BASICALLY REFERS TO SIMILAR FUNCTIONS. THE FUNCTIONS PERFORMED BY THE ASSOCIATED ENTERPRISES WERE ALSO DESCRIBED IN BOTH THE SEGMENTS. FURTHER IN THE NOTES TO ACCOUNTS ENCLOSED TO THE AUDITED ACCOUNTS OF ASSESSEE COMPANY THERE WAS NO MENTION OF CONTRACT MANUFACTURING SEGMENTS HENCE BOTH THE MANUFACTURING AND CONTRACT MANUFACTURING SEGMENTS WERE 29 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 CONSIDERED AS ONE AND THE SAME. THE TPO FURTHER CONSIDERED THE COMPARABLES SELECTED BY THE ASSESSEE AND FOLLOWING THE SELECTION OF COMPARABLES IN ASSES SMENT YEAR 2008 - 09 EXCLUDED HITT CO TOOLS LTD. AND RAJASTHAN UDYOG & TOOLS LTD. FROM FINAL SET OF COMPARABLES. FURTHER THE TPO PROPOSED TO REJECT DRAGGER - FROST TOOLS LTD. AS COMPARABLE BECAUSE OF THE SAID CONCERN HAVING DISCONTINUED ITS TOOLING BUSINESS DURING THE YEAR. THE ASSESSEE OBJECTED TO ITS REJECTION AS BOTH THE CONCERNS WERE ENGAGED IN SIMILAR ACTIVITY OF MANUFACTURE OF CUTTING TOOLS. HOWEVER THE TPO DID NOT ACCEPT THE CONTENTION OF ASSESSEE AND ALL THE THREE CONCERNS WERE REJECTED. ANOTHER T WO CONCERNS SELECTED BY THE ASSESSEE AS COMPARABLE WERE ALSO REJECTED. THUS FIVE OUT OF SIX COMPARABLES SELECTED BY THE ASSESSEE WERE REJECTED BY THE TPO. HE HOWEVER PROPOSED TO INCLUDE TWO OTHER COMPARABLES I.E. RAP ICUT C A RBIDES LTD. AND ZENITH BIRLA ( INDIA ) LTD. IN ADDITION TO OTHER THREE CONCERNS WHICH WERE ALSO SELECTED BY THE ASSESSEE IN THE PRECEDING YEAR. THUS IN ALL SIX COMPARABLES WERE CONSIDERED AS COMPARABLE TO THE ASSESSEE. THE PLEA OF ASSESSEE OF ADJUSTMENT ON ACCOUNT OF DEPRECIATION WAS ALSO REJECTED IN VIEW OF SIMILAR REJECTION IN THE PRECEDING YEAR I.E. ASSESSMENT YEAR 2008 - 09. FURTHER THE TPO NOTED THAT THE ASSESSEE HAD NOT ASKED FOR WORKING CAPITAL ADJUSTMENT IN ITS TRANSFER PRICING STUDY REPORT EVEN WITH RESPECT TO COMPARABLES SELECTED BY THE ASSESSEE HIMSELF AND HENCE THE SAME WAS NOT ACCEPTED BY THE TPO. HE PROPOSED AN ADJUSTMENT OF RS.3 12 24 350/ - . THE ASSESSING OFFICER PROPOSED AN UPWARD TP ADJUSTMENT THROUGH DRAFT ASSESSMENT ORDER AGAINST WHICH THE ASSESSEE FILED OBJE CTIONS TO THE DRP WHICH GAVE CERTAIN DIRECTIONS TO THE TPO WHICH ARE AS UNDER: - A ) TO GRANT WORKING CAPITAL ADJUST IN ACCORDANCE WITH ILLUSTRATION GIVEN IN ANNEXURE TO CHAPTER III OF GUIDELINES ISSUED BY OECD; B ) INCLUSION OF DRAGGER - FROST TOOLS LTD. IN FINAL SET OF COMPARABLES; AND 30 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 C ) INCLUSION OF HIT TCO TOOLS PVT. LTD. AND RAJASTHAN UDYOG & TOOLS LTD. IN THE FINAL SET OF COMPARABLES FOLLOWING THE RATIO LAID DOWN IN THE CASE OF SANDVIK ASIA PVT. LTD. 4 2 . THE ASSESSING OFFICER THEREAFTER ASKED THE TPO TO GIVE EFFECT TO THE DIRECTIONS OF THE DRP. THE TPO FURNISHED NEW SET OF COMPARABLES AFTER CONSIDERING THE DRPS DIRECTIONS AND WORKED OUT THE ARITHMETIC MEAN OF COMPARABLES AT 1.22% AS AGAINST THE PLI OF ASSESSEE AT 0.53%. THE TPO THUS HELD THAT THE SAME WAS AT +/ - 5% OF PLI OF ASSESSEE AND NO ADJUSTMENT WAS REQUIRED TO BE MADE TO THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS. IN RESPECT OF WORKING CAPITAL ADJUSTMENT WHERE THE DRP HAD ALSO ISSUED DIRECTIONS THE TPO OBSERVED THAT THE ASSESSEE WAS HAVI NG THREE DIFFERENT SEGMENTS AND EVEN IF THE SEGMENT - WISE RESULTS WERE ACCEPTED BUT NO AUTHENTIC DATA WAS AVAILABLE IN THE AUDIT REPORT. THEREFORE THERE WAS NO RELIABILITY AND ACCURACY ON SUCH WORKING EVEN IF THE SAME IS CARRIED OUT THEREFORE IN THE AB SENCE OF ANY RELIABLE DATA NO ADJUSTMENT COULD BE PROVIDED IN THE CASE. THE ASSESSING OFFICER THUS IN THE FINAL ASSESSMENT ORDER HELD THAT THE ADDITION OF RS.3.12 CRORES PROPOSED IN THE DRAFT ASSESSMENT ORDER WAS DELETED. 4 3 . THE REVENUE IS IN APPEAL AGAINST THE DIRECTIONS OF DRP. 4 4 . THE FIRST ISSUE RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IS AGAINST GRANT OF WORKING CAPITAL ADJUSTMENT IN ACCORDANCE WITH GUIDELINES ISSUED BY OECD. HOWEVER WE FIND FROM THE PERUSAL OF FINAL A SSESSMENT ORDER WHEREIN AT PAGES 44 AND 45 THE REPORT OF TPO GIVING EFFECT TO THE DIRECTIONS OF THE DRP IS REPRODUCED AND IN THE ABSENCE OF ANY RELIABLE AND ACCURATE DATA NO ADJUSTMENT WAS PROVIDED TO THE ASSESSEE. CONSEQUENTLY WE 31 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 FIND NO MERIT IN GRO UND OF APPEAL NO.1 RAISED BY THE REVENUE AND THE SAME IS DISMISSED. 4 5 . NOW COMING TO THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE WHICH IS AGAINST THE ORDER OF DRP IN ACCEPTING D RAGGER - FROST TOOLS LTD. AS COMPARABLE WHERE THE COMPANY HAD SOLD PART OF ITS BUSINESS. 4 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE STRONGLY RELIED ON THE ORDER/S OF ASSESSING OFFICER/TPO. 4 7 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REG ARD POINTED OUT THAT THE TPO HAD EXCLUDED THE SAID CONCERN ON THE GROUND THAT THE OPERATIONS WERE DISCONTINUED ON 01.01.2009 . I N ACTUAL FACT THE OPERATIONS WERE DISCONTINUED FROM 01.06.2009 AND HENCE THE ORDER OF DRP. IN RESPECT OF OTHER TWO CONCERNS I .E. HIT TCO TOOLS PVT. LTD. AND RAJASTHAN UDYOG & TOOLS LTD. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID COMPARABLES WERE SELECTED AS FUNCTIONALLY COMPARABLE FROM ASSESSMENT YEAR 2005 - 06 AND EVEN IN THE SUBSEQUENT YEARS . IN RESPECT OF HIT TCO TOOLS PVT. LTD. IT WAS POINTED OUT THAT IT WAS NOT CONSISTENT LOSS MAKING CONCERN. HE ALSO STATED THAT SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 ON SIMILAR PREMISE IN WHICH INCLUSION OF SAID CONCERN WAS C ONSIDERED. HE FURTHER REFERRED TO THE ORDER GIVING EFFECT TO THE TRIBUNAL ORDER DATED 23.03.2016 BY WHICH THE TPO HELD THAT HIT TCO TOOLS PVT. LTD. COULD NOT BE SAID TO BE CONSISTENT LOSS MAKING SINCE IT HAD SHOWN PROFITS FROM FINANCIAL YEAR 2009 - 10 ONWAR DS. IN RESPECT OF RAJASTHAN UDYOG & TOOLS LTD. THE TPO HELD THAT THE SAID CONCERN WAS CONSISTENT LOSS MAKING CONCERN IN THE ABSENCE OF PROFITS IN FUTURE YEARS AND 32 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 IN VIEW OF INCREASING LOSSES THE SAID CONCERN WAS NOT INCLUDED IN THE SET OF COMPARABLES. 4 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH IS RAISED BY WAY OF GROUNDS OF APPEAL NO.2 AND 3 BY THE REVENUE IS AGAINST DIRECTIONS OF THE DRP IN RESPECT OF CERTAIN COMPARABLES. THE FIRST CONCERN WHICH THE ASSESSEE WAN TS TO BE INCLUDED IS D RAGGER - FROST TOOLS LTD. WHICH WAS EXCLUDED BY THE TPO ON THE GROUND THAT IT HAD STOPPED OPERATIONS ON 01.01.2009. HOWEVER THE DRP HAS GIVEN FINDING THAT OPERATIONS ACTUALLY WERE STOPPED FROM 01.06.2009. CONSEQUENTLY THE SAID CONC ERN WHICH IS OTHERWISE FUNCTIONALLY COMPARABLE TO THE ASSESSEE IS TO BE INCLUDED IN FINAL LIST OF COMPARABLES. 49 . NOW COMING TO THE OTHER TWO CONCERNS I.E. HIT TCO TOOLS PVT. LTD. AND RAJASTHAN UDYOG & TOOLS LTD. WHICH W ERE EXCLUDED ON THE GROUND THAT THEY WERE CONSISTENT LOSS MAKING CONCERNS. ADMITTEDLY RAJASTHAN UDYOG & TOOLS LTD. IS CONSISTENT LOSS MAKING CONCERN AND IT WAS SO EXCLUDED IN ASSESSMENT YEAR 2008 - 09 ALSO PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL IN ITA NO. 2550/PN/2012 ORDER DATED 28.06.2013 WHEREIN THE ASSESSING OFFICER/TPO WHILE GIVING EFFECT TO THE ORDER OF TRIBUNAL HELD THAT THE SAID CONCERN WAS PERSISTENT LOSS MAKING AND COULD NOT BE INCLUDED IN THE FINAL SET OF COMPARABLES. HOWEVER THE TRIBUNAL IN SANDVIK ASIA PVT. LTD. VS. ACIT IN ITA NO.2545/PN/2012 RELATING TO ASSESSMENT YEAR 2008 - 09 ORDER DATED 27.09.2013 WHILE DECIDING THE ISSUE OF EXCLUSION OF RESULTS OF DIAMOND TOOLS AND GANG SAW BLADES SEGMENT OF M/S. RAJASTHAN UDYOG & TOOLS LTD. AS COMPAR ABLE HAVE HELD AS UNDER: - 33 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 26. ANOTHER REASON ADVANCED BY THE TPO TO REJECT THE SAID COMPARABLE IS THAT THE SAID CONCERN IS IN CONTINUOUS LOSSES. ON THIS ASPECT WE FIND THAT AS PER THE DATA CONTAINED IN THE TP STUDY FOR ASSESSMENT YEAR 2006 - 07 COPY OF WH ICH HAS BEEN PLACED IN THE PAPER BOOK THE DIAMOND TOOLS AND GAND SAW BLADES SEGMENT OF THE SAID CONCERN WAS DECLARING PROFITS IN 2004 2005 AND 2006 ALSO. HOWEVER IT IS ONLY FOR THE YEAR UNDER CONSIDERATION THAT THE RELEVANT SEGMENT OF THE SAID CONCERN H AS BEEN DECLARED A LOSS. THEREFORE IT CANNOT BE FACTUALLY TENABLE TO HOLD THAT THE RELEVANT SEGMENT OF THE SAID CONCERN HAS BEEN CONTINUOUSLY MAKING LOSSES AS SOUGHT TO BE MADE OUT BY THE TPO. FOR BOTH THE ABOVE REASONS ADVANCED BY THE TPO WE HAVE NOT FO UND ANY FACTUAL SUPPORT AND THEREFORE WE DIRECT THE ASSESSING OFFICER TO INCLUDE THE RESULTS OF THE DIAMOND TOOLS AND GANG SAW BLADES SEGMENT OF M/S RAJASTHAN UDYOG & TOOLS LIMITED AS COMPARABLE FOR THE PURPOSES OF CARRYING OUT THE BENCHMARKING ANALYSIS OF THE INTERNATIONAL TRANSACTIONS PERTAINING TO TOOLS MANUFACTURING SEGMENT OF THE ASSESSEE. 50. FOLLOWING THE SAME PARITY OF REASONING WE HOLD THAT THE SAID CONCERN IS TO BE INCLUDED IN THE FINAL LIST OF COMPARABLES WHILE BENCHMARKING THE INTERNATIONAL T RANSACTIONS OF THE ASSESSEE IN THE MANUFACTURING AND CONTRACT MANUFACTURING SEGMENTS. 51. IN RESPECT OF HIT TCO TOOLS PVT. LTD. THE TPO WHILE GIVING EFFECT TO THE ORDER OF TRIBUNAL IN ASSESSMENT YEAR 2008 - 09 HAS NOTED THAT THE SAID CONCERN WAS EARLIER MAK ING LOSSES BUT FROM FINANCIAL YEAR 2009 - 10 ONWARDS HAS EARNED PROFITS CONTINUOUSLY. THE SAID CONCERN ADMITTEDLY IS COMPARABLE AS WAS INCLUDED IN FINAL LIST OF COMPARABLES FROM ASSESSMENT YEAR 2005 - 06 AND EVEN IN SUCCEEDING ASSESSMENT YEARS. IN VIEW THER EOF WE FIND NO MERIT IN GROUND OF APPEAL RAISED BY THE REVENUE AND THE S AME IS DISMISSED. ACCORDINGLY THE GROUND S OF APPEAL NO.2 AND 3 RAISED BY THE REVENUE ARE DISMISSED . 52. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE CROSS OBJECTIONS WOULD BECOME ACADEMIC IF THE APPEAL OF REVENUE IS DISMISSED. HENCE THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. 34 ITA NO. 606 /PUN/20 14 ITA NO.628/PUN/2014 CO NO.23/PUN/2015 53 . IN THE RESULT THE APPEAL OF ASSESSEE IS PARTLY ALLOWED AND APPEAL OF REVENUE AND ALSO CROSS OBJECTIONS OF ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 2 9 T H DAY OF NOVEM BER 201 7 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 2 9 T H NOVEMB ER 201 7 . G G C C V V S S R R / COPY OF THE O RDER IS FORWARDED TO : 1. THE APPELLANT ; 2. THE RESPONDENT; 3. THE DRP PUNE ; 4. THE DIT (TP/IT) PUNE ; 5. THE DR B ITAT PUNE; 6. GUARD FILE. / BY ORDER // TRUE COPY // / SR. PRIVATE SECRETARY / ITAT PUNE