Ucal Fuel Systems Ltd., CHENNAI v. ACIT, CHENNAI

ITA 725/CHNY/2015 | 2010-2011
Pronouncement Date: 21-10-2016

Appeal Details

RSA Number 72521714 RSA 2015
Assessee PAN AAACU0541K
Bench Chennai
Appeal Number ITA 725/CHNY/2015
Duration Of Justice 1 year(s) 6 month(s) 12 day(s)
Appellant Ucal Fuel Systems Ltd., CHENNAI
Respondent ACIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 21-10-2016
Appeal Filed By Assessee
Bench Allotted D
Date Of Final Hearing 07-09-2016
Next Hearing Date 07-09-2016
Assessment Year 2010-2011
Appeal Filed On 08-04-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . !' . #$#% & '' ( [ BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER ] ./ I.T.A.NO.688/MDS/2014 723 724 &725/MDS/2015 / ASSESSMENT YEARS : 2009-10 2005-06 2006-07 & 2010-11 M/S UCAL FUEL SYSTEMS LTD RAHEJA TOWERS DELTA WING UNIT-705 117 ANNA SALAI CHENNAI 600 002 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE III(3) CHENNAI [PAN AAACU 0541 K] ( )* / APPELLANT) ( + )* /RESPONDENT) ./ I.T.A.NO. 1519/MDS/2015 / ASSESSMENT YEARS : 2002-03 THE ASSTT. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 3(2) CHENNAI VS. M/S UCAL FUEL SYSTEMS LTD RAHEJA TOWERS DELTA WING UNIT-705 117 ANNA SALAI CHENNAI 600 002 ( )* / APPELLANT) ( + )* /RESPONDENT) ASSESSEE BY : SHRI S. SRIDHAR ADVOCATE DEPARTMENT BY : DR. MILIND MADHUKAR BHUSARI CIT / DATE OF HEARING : 07 - 09 - 2016 / DATE OF PRONOUNCEMENT : 21 - 10 - 2016 / O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER THE FIRST FOUR ARE APPEALS OF THE ASSESSEE FOR A SSESSMENT YEARS 2005-06 2006-07 2009-10 & 2010-11 WHEREAS T HE LAST IS REVENUES APPEAL FOR ASSESSMENT YEAR 2002-03. ITA NO.688/14 ETC :- 2 -: 2. THE APPEAL OF THE REVENUE IN I.T.A.NO. 1519/MDS/201 5 FOR ASSESSMENT YEAR 2002-03 IS TAKEN UP FIRST. 3. GRIEVANCE RAISED BY THE REVENUE IN THIS APPEAL IS T HAT THE CIT(A) QUASHED THE ORDER DATED 20.7.2009 PASSED BY THE ASSESSING OFFICER U/S 154 OF THE INCOME-TAX ACT 1961 (IN SH ORT THE ACT). 4. FACTS APROPOS ARE THAT THE ASSESSEE FILED RETURN O F INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING INCOME O F ` 14 36 13 950/- WHICH WAS REVISED TO ` 13 92 62 040/-. ASSESSMENT WAS COMPLETED UNDER SCRUTINY ASSESSING TOTAL INCOME AT ` 14 86 32 750/-. ASSESSEE IS ENGAGED IN THE BUSINE SS OF MANUFACTURE OF CARBURETORS FUEL INJECTION PARTS AND FUEL PUMPS FOR AUTOMOTIVE APPLICATIONS. AGAINST THE ABOVE ASSESSMENT ORDER ASSESSEE HAD PREFERRED AN APPEAL. THE CIT(A) PASSED AN ORDER ON NINE GROUNDS TAKEN IN APPEAL WHICH RELATED TO RESTRICTION OF CLA IM U/S 80HHC AND 80IB OF THE ACT. AGAINST THE RELIEF GRANTED BY THE CIT(A) REVENUE HAD MOVED BEFORE THE TRIBUNAL. THE TRIBUNAL VIDE ITS O RDER DATED 16.11.2007 IN I.T.A.NO. 2192/MDS/2006 HAD DISMISSED SUCH APPEAL. IN THE IMPUGNED ORDER DATED 20.7.2009 PASSED BY TH E ASSESSING OFFICER IT WAS MENTIONED THAT IT WAS BEING PASSED TO GIVE EFFECT TO THE TRIBUNAL ORDER IN I.T.A.NO.2192/MDS/2006. SINCE THE ORDER REFERRED TO THE TRIBUNAL ORDER WHICH HAD CONFIRMED THE ORDER OF THE CIT(A) ITA NO.688/14 ETC :- 3 -: ASSESSEE CHOSE TO MOVE IN APPEAL ONCE AGAIN. AS PE R THE ASSESSEE WHAT WAS STATED IN THE IMPUGNED ORDER I.E IT WAS F OR GIVING EFFECT TO THE ORDER OF THE TRIBUNAL IN I.T.A.NO.2192/MDS/2006 DATED 16.11.2007 WAS INCORRECT. IT SEEMS THAT WHILE PASSING THE IMP UGNED ORDER THE ASSESSING OFFICER ALSO CONSIDERED AN AUDIT OBJECTIO N AND ENDEAVOURED TO RECALCULATE THE DEDUCTION CLAIMED BY THE ASSESS EE U/S 80HHC ETC. IN THE APPEAL BEFORE THE CIT(A) AGAINST THE IMPUGNE D ORDER U/S 154 OF THE ACT IT WAS ARGUED BY THE ASSESSEE THAT THE ASSESSING OFFICER DID NOT HAVE JURISDICTION TO AMEND THE ASSESSMENT O RDER ON THE LINES ABOVE OSTENSIBLY FOR GIVING EFFECT TO THE ORDER OF THE TRIBUNAL. ARGUMENT OF THE ASSESSEE WAS THAT NO SUCH DIRECTIO N WAS IN THE ORDER OF THE TRIBUNAL. THE CIT(A) WAS APPRECIATIVE OF TH IS CONTENTION AND ACCORDING TO HIM THE ASSESSING OFFICER DID NOT GET JURISDICTION TO AMEND A GIVING EFFECT ORDER BASED ON AUDIT OBJECTIO N. HE THEREFORE DELETED THE ADDITION MADE THROUGH SUCH ORDER. 5. NOW BEFORE US THE LD. DR RELIED ON THE DIRECTIONS OF THE TRIBUNAL AND GROUNDS TAKEN BY THE REVENUE WHILE ASS AILING THE ORDER OF THE CIT(A). 6. PER CONTRA THE LD. AR SUPPORTED THE ORDER OF THE C IT(A). ITA NO.688/14 ETC :- 4 -: 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THE BODY OF THE O RDER OF THE ASSESSING OFFICER DATED 20.7.2009 MENTIONED THAT 80 HHC DEDUCTION CLAIMED BY THE ASSESSEE WAS BEING CALCULATED CONS IDERING THE AUDIT OBJECTION. IN A GIVING EFFECT ORDER THERE IS NO O PTION WITH AN ASSESSING OFFICER TO MAKE SUCH A RECALCULATION. EF FECTIVELY SO SINCE THE TRIBUNAL ORDER DISMISSING REVENUES APPEAL HAD NO SUCH DIRECTIONS. THE ISSUE WAS BEYOND THE SCOPE OF A RECTIFICATION U/S 154 OF THE ACT. WE ARE OF THE OPINION THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. NO INTERFER ENCE IS CALLED FOR. 8. IN THE RESULT THE APPEAL OF THE REVENUE FOR ASSESS MENT YEAR 2002-03 IS DISMISSED. 9. NOW WE TAKE UP APPEAL OF THE ASSESSEE IN I.T.A.NO. 723/MDS/2015 FOR ASSESSMENT YEAR 2005-06. 10. IN THIS APPEAL OF THE ASSESSEE WHICH IS DIRECTED A GAINST THE ORDER OF THE CIT(A)-11 CHENNAI DATED 29.12.2014 IT HAS ALTOGETHER RAISED 13 GROUNDS OF WHICH GROUND NOS.1 AND 13 ARE GENERAL IN NATURE REQUIRING NO SPECIFIC ADJUDICATION. ITA NO.688/14 ETC :- 5 -: 11. THE LD. AR AT THE OUTSET SUBMITTED THAT HE WAS NOT PRESSING GROUND NO.2 CHALLENGING THE VALIDITY OF THE RE-ASSE SSMENT PROCEEDINGS. 12. VIDE GROUND NOS.3 TO 6 GRIEVANCE RAISED BY THE AS SESSEE IS THAT THE CIT(A) CONFIRMED RECOMPUTATION OF DEDUCTIO N CLAIMED BY THE ASSESSEE U/S 80IB WHICH RESULTED IN AN ADDITION OF `1 07 97 817/-. 13. FACTS APROPOS ARE THAT ASSESSEE HAD FILED RETURN FOR THE IMPUGNED ASSESSMENT YEAR DECLARING INCOME OF ` 13 64 09 870/- WHICH WAS REVISED TO ` 19 47 94 754/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED THAT WHILE CLAIMING DEDUCT ION U/S 80IB OF THE ACT ASSESSEE HAD NOT ALLOCATED HEAD OFFICE REN T AND ELECTRICITY CHARGES TO THE PONDICHERRY UNIT ON WHICH SAID CLAIM WAS PREFERRED. AS PER THE ASSESSING OFFICER ASSESSEE HAD PAID RENT OF ` 96 95 630/- AND ELECTRICITY CHARGES OF ` 5 92 718/-. FURTHER AS PER THE ASSESSING OFFICER HEAD OFFICE WAS AT MARAIMALAINAGAR UNIT A ND THERE WAS NO SEPARATE OFFICE FOR THE PONDICHERRY UNIT. IT WAS N OTED BY THE ASSESSING OFFICER THAT 40% OF THE HEAD OFFICE SPACE WAS USED BY COMMON STAFF. HE CAME TO A CONCLUSION THAT 60% OF THE RENT ELECT RICITY CHARGES WOULD RELATE TO MARAIMALAINAGAR UNIT WHEREAS BALANC E 40% WAS COMMON EXPENDITURE ATTRIBUTABLE TO PONDICHERRY AS W ELL AS MARAIMALAINAGAR UNIT. THIS CAME TO ` 40 75 339/-. LD ASSESSING ITA NO.688/14 ETC :- 6 -: OFFICER ALLOCATED THIS AMOUNT PROPORTIONATELY BETWE EN PONDICHERRY UNIT AND MARAIMALAINAGAR UNIT BASED ON THE TURNOVER. TH E DEDUCTION U/S 80IB OF THE ACT CLAIMED BY THE PONDICHERRY UNIT WAS REWORKED DOWNWARDS THROUGH ALLOCATION OF THE COMMON EXPENDI TURE TO THE PONDICHERRY UNIT. 14. THE ASSESSING OFFICER ALSO NOTED THAT ASSESSEE HA D INCURRED R&D EXPENDITURE OF ` 13 77 56 251/- WHICH CAME TO 5.07% OF ITS TOTAL TURNOVER. AS PER THE ASSESSING OFFICER OUT OF THE ABOVE AMOUNT HAD HAD CHARGED ON THE MARAIMALAINAGAR UNIT ` 11 44 99 047/- AFTER DEDUCTING NON-ELIGIBLE CAPITAL EXPENDITURE. ASSES SING OFFICER WAS OF THE OPINION THAT THE BENEFIT OF R&D EXPENDITURE COU LD NOT BE RESTRICTED TO THE MARAIMALAINAGAR UNIT AND IT SHOULD BE PASSE D ON TO PONDICHERRY UNIT AS WELL. RELIANCE WAS PLACED ON THE DIRECTORS REPORT FORMING PART OF THE ANNUAL REPORT OF THE ASSESSEE FOR COMING TO THIS CONCLUSION. WHEN ASSESSEE WAS QUERIED ON THE ABOVE ITS SUBMIS SION WAS THAT DIFFERENT PRODUCTS WERE BEING MANUFACTURED BY THE M ARAIMALAINAGAR AND PONDICHERRY UNITS AND R&D WHICH WAS CARRIED OUT ENTIRELY RELATED TO THE PRODUCTS MANUFACTURED AT MARAIMALAINAGAR UNI T. HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. HE HELD THAT PROPORTIONATE ALLOCATION OF SUCH EXPENDIT URE WAS REQUIRED. SUCH PROPORTIONATE ALLOCATION RESULTED IN REDUCTION OF THE INCOME FROM ITA NO.688/14 ETC :- 7 -: PONDICHERY UNIT BY A SUM OF ` 1 07 97 817/- AND THE CONSEQUENTIAL REDUCTION IN THE CLAIM U/S 80IB OF THE ACT. 15. AGGRIEVED ON BOTH THE ABOVE THE ASSESSEE MOVED I N APPEAL BEFORE THE CIT(A). IT SEEMS THAT ASSESSEE DID NOT SERIOUSLY PRESS THE ISSUE OF HEAD OFFICE EXPENDITURE BEFORE T HE CIT(A). HOWEVER VIS--VIS ALLOCATION OF R&D EXPENDITURE ARGUMENT OF THE ASSESSEE WAS THAT PRODUCTS WHICH WERE BEING MANUFAC TURED BY THE TWO UNITS WERE ENTIRELY DIFFERENT. ACCORDING TO THE ASSESSEE THOUGH BOTH THE UNITS MANUFACTURED CARBURETORS FOR TWO AND FOUR WHEELERS AS WELL AS FUEL INJECTION PUMPS THE PRODUCTS WERE EN TIRELY DIFFERENT. THE PRODUCTS WHICH WERE MANUFACTURED FOR TWO AND FOUR W HEELERS WERE CARBURETORS AND AIR SUCTION PUMPS AND AS PER THE A SSESSEE THESE PRODUCTS FROM THE TWO UNITS WERE NOT IDENTICAL. CLA IM OF THE ASSESSEE WAS THAT NO R&D EXPENDITURE WAS INCURRED IN RELATIO N TO PONDICHERRY UNIT. HOWEVER THE CIT(A) WAS NOT APPRECIATIVE OF THIS CONTENTION. ACCORDING TO HIM ANNUAL REPORT OF THE ASSESSEE ME NTIONED THAT R&D ACTIVITIES IT DERIVED CONSIDERABLE BENEFITS TO THE ASSESSEE. AS PER THE CIT(A) THE REPORT DID NOT MENTION THAT SUCH R&D BEN EFITS WERE EXCLUSIVELY GOING TO MARAIMALAINAGAR UNIT. THE CIT (A) OBSERVED THAT THE PRODUCTS WERE SIMILAR THOUGH NOT IDENTICAL AND THEREFORE THE ASSESSEES CONTENTION THAT BENEFITS FROM THE R&D WE RE ENJOYED ONLY ITA NO.688/14 ETC :- 8 -: BY THE MARAIMALAINAGAR UNIT COULD NOT BE ACCEPTED. HE CONFIRMED THE REALLOCATION MADE BY THE ASSESSING OFFICER INSOFAR AS IT RELATED TO THE R&D EXPENDITURE AND THE SUBSEQUENT REDUCTION IN CL AIM U/S 80IB OF THE ACT. 16. NOW BEFORE US LD. AR SUBMITTED THAT AFTER ACCEPTIN G THE PRODUCTS MANUFACTURED AS NOT IDENTICAL THE CIT(A) HAD SUMMARILY REJECTED THE CLAIM OF THE ASSESSEE THAT R&D ACTIVI TIES CARRIED ON HAD NO BEARING WITH PONDICHERRY UNIT. THUS ACCORDING TO HIM THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE RECALCULATION D ONE BY THE ASSESSING OFFICER. 17. PER CONTRA THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 18. WE HAVE HEARD THE RIVAL CONTENTIONS AND THE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS STATED IN TH E ANNUAL REPORT FOR FINANCIAL YEAR 2004-05 THAT R&D CARRIED OUT BY THE ASSESSEE WAS TO ABSORB THE TECHNOLOGY FOR AIR ASSISTED DIRECT INJEC TION FOR TWO STROKE ENGINES AND PRODUCT LAUNCH WAS PROCEEDING AS PER S CHEDULE FOR INDIAN THREE WHEELER APPLICATION. IT IS NOT DISPU TED BY THE LOWER AUTHORITIES THAT PRODUCTS MANUFACTURED AT PONDICHER RY UNIT AND MARAIMALAINAGAR UNIT THOUGH SIMILAR WERE NOT IDENTI CAL. THAT THE ITA NO.688/14 ETC :- 9 -: PRODUCTS WERE DIFFERENT IS CLEAR FROM THE LIST ENUM ERATED IN PAPER BOOK PAGE 110. IN OTHER WORDS PRODUCTS WERE DIFFERENT. THE R&D UNIT ITSELF AS SUCH WAS SITUATED IN MARAIMALAINAGAR UNIT . THIS IS EVIDENT FROM LETTER DATED 15.4.2004 OF MINISTRY OF SCIENCE AND TECHNOLOGY OF NEW DELHI GIVING RECOGNITION TO THE R&DRP UNIT PL ACED AT PAPER BOOK PAGE 62. WHEN THE ASSESSEE ASSERTED THAT R&D WAS EXCLUSIVELY FOR MARAIMALAINAGAR UNIT AND FOR ITS PRODUCTS IN OUR O PINION WITHOUT ANY EVIDENCE BEING BROUGHT ON RECORD THE LOWER AUTHORIT IES SHOULD NOT HAVE TAKEN A VIEW THAT SUCH EXPENDITURE WAS ALSO RE LATABLE TO PONDICHERRY UNIT. WE ARE OF THE OPINION THAT THE R EALLOCATION OF R&D EXPENDITURE WAS NOT CALLED FOR IN THE FACTS AND CIR CUMSTANCES OF THE CASE. SUCH REALLOCATION OF R&D EXPENDITURE AND THE CONSEQUENT REDUCTION IN CLAIM U/S 80IB OF THE ACT STANDS DELE TED. GROUND NOS. 3 TO 6 ARE ALLOWED. 19. VIDE GROUND NOS.7 & 8 GRIEVANCE OF THE ASSESSEE I S THAT FOREIGN EXCHANGE FLUCTUATION GAIN/LOSS WAS NOT ALLO WED BENEFIT OF DEDUCTION U/S 80IB OF THE ACT. 20. ASSESSING OFFICER WHILE CALCULATING ELIGIBLE DEDUC TION U/S 80IB OF THE ACT EXCLUDED FOREIGN EXCHANGE GAIN OF ` 44 06 047/- FROM THE PROFITS OF THE PONDICHERRY UNIT. ARGUMENT OF T HE ASSESSEE THAT THE GAINS WERE NOT A SEPARATE TRANSACTION BY ITSELF AND WAS INTRICATELY ITA NO.688/14 ETC :- 10 -: CONNECTED WITH COST OF MATERIALS AND SALE OF FINISH ED GOODS WAS NOT ACCEPTED BY THE ASSESSING OFFICER. RELIANCE WAS PL ACED BY THE ASSESSING OFFICER ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF PANDIAN CHEMICALS LTD VS CIT 262 ITR 278. ASSESS EES APPEAL ON THIS ISSUE WAS NOT ACCEPTED BY THE CIT(A). THE CIT (A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT ASSESSING OFFI CER HAD ALLOWED SUCH DEDUCTION IN ASSESSMENT YEARS 2004-05 AND 200 6-07 BUT HAD DEVIATED FROM HIS EARLIER STAND FOR NO GOOD REASON. 21. NOW BEFORE US LD. AR STRONGLY ASSAILING THE ORDER OF THE CIT(A) SUBMITTED THAT WHEN FOREX LOSSES OF EARLIER YEARS WERE CONSIDERED AS EXPENDITURE WHILE CALCULATING DEDUCTI ON U/S 80IB OF THE ACT IN THE EARLIER YEARS. ACCORDING TO HIM WHEN S UCH EXPENSES WERE OPERATIONAL IN NATURE IT COULD NOT BE EXCLUDED. 22. PER CONTRA THE LD. DR ONCE AGAIN RELIED ON THE JU DGMENT OF THE APEX COURT IN THE CASE OF PANDIAN CHEMICALS LTD .(SUPRA). 23. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. CLAIM OF THE ASS ESSEE BEFORE THE ASSESSING OFFICER WAS THAT FOREIGN EXCHANGE BENEFIT S WERE INTRICATELY LINKED TO THE ACQUISITION OF MATERIAL AND SALE OF G OODS. ASSESSEE HAD SPECIFICALLY MENTIONED BEFORE THE CIT(A) THAT FOREI GN EXCHANGE LOSSS ITA NO.688/14 ETC :- 11 -: WERE CONSIDERED AS EXPENDITURE WHILE CALCULATING EL IGIBLE DEDUCTION U/S 80IB OF THE ACT FOR ASSESSMENT YEARS 2004-05 AN D 2006-07. RULE OF CONSISTENCY REQUIRES THAT WHEN FOREIGN EXCHANGE LOSS IS CONSIDERED AS EXPENDITURE FOR CALCULATING DEDUCTION U/S 80IB OF THE ACT IN EARLIER YEARS WHEN THERE IS A SURPLUS IN A SUBSEQUENT YEAR IT SHOULD NOT BE EXCLUDED. WHEN A SIMILAR SET OF FACTS PERMEATES TH ROUGH A NUMBER OF YEARS AND THERE IS NOTHING ON RECORD TO SHOW THAT A DIFFERENT VIEW WAS REQUIRED TO BE TAKEN ON SUCH SET OF FACTS THOUGH R ULE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS RULE OF C ONSISTENCY HAS TO BE APPLIED UNLESS THERE IS A GROSS VIOLATION OF LAW WHICH CALLS FOR A DEVIATION. WE ARE OF THE OPINION THAT THE LOWER AU THORITIES ERRED IN NOT ALLOWING THE CLAIM OF DEDUCTION U/S 80IB OF TH E ACT ON FOREIGN EXCHANGE GAINS OF ` 44 06 047/-. SUCH DISALLOWANCE HAS TO BE DELETED. GROUND NOS. 7 & 8 ARE ALLOWED. 24. VIDE ITS GROUND NOS. 9 & 10 ASSESSEE ASSAILS REAL LOCATION OF ELECTRICITY AND RENTAL EXPENDITURE INCURRED FOR THE HEAD OFFICE TO THE PONDICHERRY UNIT WHILE WORKING OUT DEDUCTION U/S 8 0IB OF THE ACT. 25. FACTS IN RELATION TO THIS ISSUE HAS BEEN CAPTURED B Y US IN PARA 13 ABOVE. SIMILAR DISALLOWANCE WAS MADE IN ASSESSM ENT YEAR 2005-06 AND THE MATTER WAS CARRIED IN APPEAL BY THE ASSESS EE TO THIS TRIBUNAL. IN AN ORDER DATED 21.4.2011 IN I.T.A.NO. 1487/MDS/2 010 IT WAS HELD ITA NO.688/14 ETC :- 12 -: BY THIS TRIBUNAL THAT ASSESSEE COULD NOT SHOW WHY THE HEAD OFFICE EXPENDITURE OUGHT NOT HAVE BEEN ALLOCATED IN PROPOR TION TO TOTAL TURNOVER. THE FACTS AND CIRCUMSTANCES BEING THE VE RY SAME WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. GROUND NOS. 9 & 10 ARE DISMISSED. 26. VIDE GROUND NOS.11 AND 12 THE ASSESSEES GRIEVANCE IS THAT THE CLAIM OF DEDUCTION OF ` 2 94 74 433/- BY THE R&D UNIT OF MARAIMALAINAGAR UNIT WAS DISALLOWED. 27. FACTS APROPOS ARE THAT THE ASSESSEE HAD ON 27.1.20 03 ENTERED INTO AN AGREEMENT WITH ONE M/S ORBITAL ENGI NE COMPANY (AUSTRALIA) PTY LTD FOR MANUFACTURE OF DIRECT FUEL INJECTION SYSTEM FOR TWO STROKE TWO WHEELERS. THE PROJECT WAS CALLED P ROJECT ORBITAL. ASSESSEE HAD INCURRED AN EXPENDITURE OF ` 2 94 74 433/- ON THIS PROJECT. ASSESSING OFFICER WAS OF THE OPINION THAT COMMERCIAL PRODUCTION OF THE PRODUCT BEING DEVELOPED HAD NOT YET STARTED DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSME NT YEAR. HE THEREFORE TREATED ` 2 94 74 433/- AS CAPITAL IN NATURE AND RELYING ON THE JUDGMENT OF THE CALCUTTA HIGH COURT IN INDIAN O XYGEN LTD VS CIT 164 ITR 466 DISALLOWED THE CLAIM OF THE ASSESSEE. ITA NO.688/14 ETC :- 13 -: 28. IN ITS APPEAL BEFORE THE CIT(A) ARGUMENT OF THE ASSESSEE WAS THAT R&D ACTIVITY RESULTING IN THE EXPENDITURE OF ` 2 94 74 433/- WAS INCURRED FOR EXPANSION OF THE EXISTING PRODUCT LINE AND NOT FOR ANY NEW PRODUCTS. HOWEVER THE CIT(A) WAS NOT APPRECIA TIVE OF THIS CONTENTION. ACCORDING TO HIM BY VIRTUE OF THE AGR EEMENT THAT ASSESSEE HAD ENTERED INTO WITH M/S ORBITAL ENGINE C OMPANY AUSTRALIA ASSESSEE WAS TO PAY ROYALTY AT 5% FOR A PERIOD OF 8 YEARS FROM THE DATE OF COMMENCEMENT OF COMMERCIAL PRODUCTION. AS PER THE CIT(A) THERE WAS NO ROYALTY PAID DURING THE RELEVANT ASSES SMENT YEAR WHICH PROVED THAT COMMERCIAL PRODUCTION HAD NOT STARTED. HE THUS CONFIRMED THE DISALLOWANCE. 29. STRONGLY ASSAILING THE ORDERS OF THE LOWER AUTHORIT IES THE LD. AR SUBMITTED THAT THE R&D EXPENDITURE WAS INCURRED FOR THE SAME PRODUCT LINE WHICH ASSESSEE WAS ENGAGED AND HENCE IT COULD BE CONSIDERED AS A NEW BUSINESS. RELYING ON THE JUDGM ENT OF THE APEX COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD VS CIT 177 ITR 377 LD. AR SUBMITTED THAT WHEN IMPROVISATION IN P ROCESS AND TECHNOLOGY WAS SUPPLEMENTAL TO THE EXISTING BUSINES S AND THERE WAS NO FRESH VENTURE EXPENDITURE INCURRED FOR SUCH I MPROVISATION COULD NOT BE CONSIDERED AS A CAPITAL OUTGO. FURTHER AS PER THE LD. AR BREAK-UP OF EXPENDITURE GIVEN AT PAGE 64 OF THE PAP ER BOOK CLEARLY ITA NO.688/14 ETC :- 14 -: PROVED THAT THERE WAS NO CAPITAL OUTGO OR CAPITAL A CQUISITION. HENCE ACCORDING TO HIM THE DISALLOWANCE WAS UNJUSTIFIABL Y MADE. 30. PER CONTRA THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 31. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. ASSESSEE WAS ALR EADY ENGAGED IN MANUFACTURE OF FUEL INJECTION SYSTEM AND THIS HAS N OT BEEN DISPUTED BY THE REVENUE. WHAT THE ASSESSEE WAS ENDEAVOURING T O DO THROUGH THE AGREEMENT ENTERED WITH M/S ORBITAL ENGINE COMPANY AUSTRALIA WAS MANUFACTURE OF DIRECT FUEL INJECTION SYSTEMS FOR TW O STROKE ENGINES. IT MAY BE TRUE THAT THERE WAS NO SALE OF DIRECT FUEL INJECTION SYSTEMS FOR TWO STROKE ENGINES DURING THE RELEVANT PREVIOUS YE AR. HOWEVER IN OUR OPINION ASSESSEE BEING ALREADY INTO THE LIN E OF MANUFACTURING FUEL INJECTION SYSTEMS DEVELOPING THE TECHNOLOGY FOR AN IMPROVED VERSION OF FUEL INJECTION SYSTEM CANNOT BE CONSIDER ED AS A NEW VENTURE AT ALL. IN TAKING THIS VIEW WE ARE JUST FORTIFIED BY THE JUDGMENT OF APEX COURT IN ALEMBIC CHEMICAL WORKS CO. LTD (SUPRA ). OBSERVATION OF THE APEX COURT IN THE SAID JUDGMENT WHICH IS VERY RELEVANT IS REPRODUCED HEREUNDER: THE IMPROVISATION IN THE PROCESS AND TECHNOLOGY IN SOME AREAS OF THE ENTERPRISE WAS SUPPLEMENTAL TO THE EXISTING ITA NO.688/14 ETC :- 15 -: BUSINESS AND THERE WAS NO MATERIAL TO HOLD THAT IT AMOUNTED TO A NEW OR FRESH VENTURE. THE FURTHER CIRCUMSTANCE TH AT THE AGREEMENT PERTAINED TO A PRODUCT ALREADY IN THE LIN E OF THE ASSESSEE'S ESTABLISHED BUSINESS AND NOT TO A NEW PR ODUCT INDICATES THAT WHAT WAS STIPULATED WAS AN IMPROVEME NT IN THE OPERATIONS OF THE EXISTING BUSINESS AND ITS EFFICIE NCY AND PROFITABILITY NOT REMOVED FROM THE AREA OF THE DAY-TO-DAY BUSINESS OF THE ASSESSEE'S ESTABLISHED ENTERPRISE. 32. WE ALSO NOTE FROM THE BREAK-UP OF EXPENDITURE GIVEN BY THE ASSESSEE IN PAGE 64 OF THE PAPER BOOK THAT THESE WE RE SALARIES TRAVEL AND ADMINISTRATIVE EXPENDITURE TECHNICAL GUIDANCE COMPONENTS CONSUMABLES AND TOOLS PRELIMINARY FEE ETC. THESE PAYMENTS DO NOT GIVE ANY ENDURING BENEFIT TO THE ASSESSEE NOR RES ULT IN ACQUISITION OF ANY CAPITAL ASSET. IN THE CIRCUMSTANCES WE ARE OF THE OPINION THAT THE DISALLOWANCE WAS NOT CALLED FOR. SUCH DISALLOWANCE STANDS DELETED. 33. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. 34. NOW COMING THE APPEAL OF THE ASSESSEE FOR ASSESSME NT YEAR 2006-07 IN I.T.A.NO.724/MDS/2015 THOUGH THE ASSES SEE HAS RAISED ALTOGETHER EIGHT GROUNDS SOLE GRIEVANCE RAISED IS REGARDING REALLOCATION OF R&D EXPENDITURE TO ITS PONDICHERRY UNIT IGNORING ITS CONTENTION THAT R&D EXPENDITURE INCURRED DID NOT RE LATE TO SUCH UNIT. 35. A SIMILAR GROUND HAS BEEN RAISED BY THE ASSESSEE F OR ASSESSMENT YEAR 2005-06 AND WE HAVE ALREADY HELD AT PARA 18 ABOVE ITA NO.688/14 ETC :- 16 -: THAT SUCH REALLOCATION WAS NOT CALLED FOR IN THE FA CTS OF THE CASE WHEN ASSESSEE COULD DEMONSTRATE THAT THE BENEFIT OF R&D EXPENDITURE DID NOT GO TO THE PRODUCT MANUFACTURED IN THE PONDICHER RY UNIT. ACCORDINGLY WE ARE OF THE OPINION THAT THE ASSESS EE HAS TO SUCCEED ON THIS ISSUE. 36. IN THE RESULT APPEAL OF THE ASSESSEE FOR ASSESSME NT YEAR 2006-07 STANDS ALLOWED. 37. COMING TO THE APPEAL OF THE ASSESSEE FOR ASSESSMEN T YEAR 2010-11 IN I.T.A.NO.725/MDS/2015 IT HAS ALTOGETHE R RAISED 10 GROUNDS OF WHICH GROUND NOS.1 5 9 & 10 ARE GENERAL IN NATURE NEEDING NO SPECIFIC ADJUDICATION. 38. VIDE GROUNDS 2 TO 4 GRIEVANCE RAISED BY THE ASSE SSEE IS THAT THE ASSESSING OFFICER IN THE ORDER PASSED U/S 143(3) R.W.S 144C OF THE ACT MADE AN UPWARD ADJUSTMENT OF ` 4 75 05 574/- FOR NOTIONAL INTEREST CALCULATED ON THE ADVANCES GIVEN BY THE ASSESSEE TO ITS WHOLLY OWNED SUBSIDIARY CALLED M/S AMTEC PREC ISION PRODUCTS INC IN USA. 39. FACTS APROPOS ARE THAT ASSESSEE-COMPANY WHICH WAS ORIGINALLY PROMOTED WITH THE OBJECTIVE OF MANUFACTU RING CARBURETORS AND FUEL PUMPS FOR MARUTI RANGE OF VEHICLES HAD DI VERSIFIED ITS PRODUCT ITA NO.688/14 ETC :- 17 -: RANGE BY MANUFACTURING CARBURETORS FOR OTHER VEHICL ES ALSO. FUEL PUMPS MANUFACTURED BY THE ASSESSEE WERE SOLD TO M/S AMTEC PRECISION PRODUCTS INC WHICH WAS A SUBSIDIARY OF T HE ASSESSEE. THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSE SSEE DURING THE RELEVANT PREVIOUS YEAR WERE AS UNDER: NAME OF THE ASSOCIATE DETAILS OF TRANSACTION AMOUNT OF TRANSACTION IN (RS.) M/S AMTEC PR ECISION PRODUCTS INC. USA ADVANCES PAID 62 83 33 216 M/S AMTEC PRECISION PRODUCTS INC. USA SALE OF PRODUCTS 4 70 72 724 TOTAL 67 54 05 940 40. THE CORRECTNESS OF THE VALUE ASSIGNED TO THE ABOVE INTERNATIONAL TRANSACTIONS WAS REFERRED TO THE TPO. LD. TPO AFTER VERIFYING THE TD DOCUMENTATIONS REACHED AN OPINION THAT INSOFAR AS IT RELATED TO SALE OF PRODUCTS TO M/S AMTEC PRECISION PRODUCTS INC. USA THE PRICING WAS AT ARMS LENGTH. HOWEVER INSOFAR AS THE ADVANCES GIVEN BY THE ASSESSEE TO M/S AMTEC PRECISION PRODU CTS INC. USA THE TPO NOTED NO THAT NO INTEREST WAS CHARGED BY THE ASSESSEE ON SUCH ADVANCE OF ` 62 83 33 216/-. CLAIM OF THE ASSESSEE WAS THAT I T HAD GIVEN THE ADVANCES TO ITS WHOLLY OWNED SUBSIDIARY WHICH HAD SUFFERED HUGE LOSSES AS A MATTER OF COMMERCIAL EXPEDIENCY. AS PER THE ITA NO.688/14 ETC :- 18 -: ASSESSEE WITHOUT SUCH ADVANCES BANK GUARANTEE WH ICH IT HAD GIVEN WOULD HAVE BEEN INVOKED FOR THE LOANS TAKEN BY THE SUBSIDIARY. AS PER THE ASSESSEE THE SUBSIDIARY WAS VIRTUALLY SICK AN D THE QUESTION OF CHARGING ANY INTEREST FROM SUBSIDIARY DID NOT ARISE . FURTHER AS PER THE ASSESSEE THE ADVANCES WERE GIVEN PURELY FOR COMMER CIAL AND BUSINESS EXPEDIENCY AND WAS AT ARMS LENGTH. RELYING ON R ULE 10B(1) ASSESSEE ARGUED THAT EVEN WHERE A COMPUTATION OF A LP UNDER CUP METHOD WAS DONE DIFFERENCES BETWEEN INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSEE AND THAT OF THE COMPARA BLE ENTITIES HAD TO BE CONSIDERED. AS PER THE ASSESSEE NOBODY ELS E WOULD HAVE GIVEN A LOAN TO ITS SUBSIDIARY CONSIDERING ITS FINANCIAL POSITION. 41. HOWEVER THE TPO DID NOT ACCEPT THE ABOVE CONTENT IONS OF THE ASSESSEE. ACCORDING TO HIM NO PRUDENT BUSINE SSMAN WOULD HAVE GIVEN A LOAN WHEN THE RECOVERY WAS DOUBTFUL. AS PE R THE TPO ADVANCE GIVEN TO THE SUBSIDIARY WAS ALSO INTERNATIO NAL TRANSACTION. IT WAS ONLY LENDING OF MONEY. WHETHER OR NOT THERE WAS COMMERCIAL EXPEDIENCY IN TAKING THE LOAN WAS IRRELEVANT AS PE R THE TPO. THE TPO NOTED THAT ASSESSEE HAD BORROWED FUNDS BEARING INTEREST OF 10% TO 12.75% TO GIVE ADVANCE. TPO NOTED THAT AN EXIM LOAN WHICH WAS ASS IGNED IN ASSESSEES FAVOUR CARRIED AN INTEREST RATE OF 5.07%. HE WORKE D OUT THE INTEREST RELATABLE TO THE ADVANCES GIVEN BY THE ASSESSEE TO ITS AE AS UNDER: ITA NO.688/14 ETC :- 19 -: ADVANCE MADE DURING FY 2008-09 RS.20 64 09 438- @ 10% 2 06 40 944 ADVANCES MADE DURING F.Y 2009 - 10 RS.27 90 44 500/- @ 12.75% 2 12 43 317 EXIM LOAN O F RS.33 72 41 800/ - ASSIGNED IN ASSESSEES FAVOUR ON 1.12.2009 (120 DAYS) APPLYING LIBOR 5.07% 56 21 313 4 75 05 574 42. WHEN AN UPWARD ADJUSTMENT ON THE ABOVE LOANS WAS SUGGESTED BY THE ASSESSING OFFICER THE ASSESSEE C HOSE TO MOVE AN APPLICATION TO THE DRP. ARGUMENT OF THE ASSESSEE WAS THAT THE LOANS WERE GIVEN FOR COMMERCIAL AND BUSINESS REASONS AND THERE WAS NO REQUIREMENT OF APPLYING ALP REGULATIONS. HOWEVER DRP WAS NOT APPRECIATIVE OF THIS ARGUMENT. ACCORDING TO IT T RANSFER PRICING ADJUSTMENT AND RATES OF DETERMINATION OF TAXABLE IN COME UNDER REGULAR PROCEEDINGS WERE TOTALLY DIFFERENT. THE QUESTION O F COMMERCIAL EXPEDIENCY WOULD ARISE AS PER THE DRP FOR DETERMI NATION OF REGULAR TAXABLE INCOME AND NOT FOR TRANSFER PRICING. THE D RP ALSO OBSERVED THAT ALP OF THE INTEREST CHARGEABLE ON LOANS WAS AR RIVED AT BY THE TPO BY APPLYING THE LIBOR. SINCE DRP CONFIRMED THE REC OMMENDATIONS MADE BY THE TPO AN ASSESSMENT ORDER WAS PASSED CO NFIRMING THE ADDITION. 43. NOW BEFORE US LD. AR STRONGLY ASSAILING THE ORDER OF THE ASSESSING OFFICER SUBMITTED THAT THE INTEREST WAS N OTIONALLY CALCULATED. AS PER THE LD. AR TRANSFER PRICING REGULATIONS HAS NO APPLICABILITY WHEN ITA NO.688/14 ETC :- 20 -: COMMERCIAL EXPEDIENCY OF A LOAN GIVEN TO A SUBSIDIA RY WAS PROVED. RELIANCE WAS PLACED ON THE JUDGMENT OF THE APEX COU RT IN HERO CYCLES P. LTD VS CIT CIVIL APPEAL NO.514 OF 2008 DATED 5 .11.2015. IN ANY CASE AS PER THE LD. AR EVEN IN A SITUATION WHERE T HE TRANSACTION WAS CONSIDERED EXIGIBLE TO THE TRANSFER PRICING REGUL ATION THEN THE PRINCIPLES ENUMERATED BY THE AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF MICRO INKS LTD VS ACIT IN I.T.A.NOS.1668/A HD/2006 ETC. DATED 6.8.2013 WAS REQUIRED TO BE FOLLOWED. IT WAS HELD THEREIN THAT WHERE THE NATURE OF RELATIONSHIP BETWEEN THE ASSESSEE A ND THE AE WERE SO FUNDAMENTAL THEN THE LIBOR PLUS RATE WHICH WAS TH E STARTING POINT OF COMPUTATION OF ALP OF THE INTEREST FREE LOANS WAS T O BE REDUCED TO ZERO. 44. PER CONTRA LD. DR SUPPORTED THE ORDERS OF THE LOWE R AUTHORITIES. 45. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTE D THAT THE AE OF THE ASSESSEE NAMELY M/S AMTEC PRECISION PRODUCTS INC. TO WHICH ASSESSEE HAD ADVANCED THE LOAN WAS A SUBSIDIARY OF THE ASSESSEE. IT IS ALSO NOT DISPUTED THAT THE CAPITAL OF THE AE WAS ALMOST ERODED AND IT WAS RUNNING IN HUGE LOSSES. IT MAY BE TRUE THAT C OMMERCIAL EXPEDIENCY OF A LOAN TRANSACTION WAS NOT RELEVANT T O TRANSFER PRICING ITA NO.688/14 ETC :- 21 -: EVEN WHERE IT COULD BE SHOWN THAT MAKING OF SUCH LO AN WAS STRATEGICALLY IMPORTANT. TPO HAD ADOPTED THE CUP M ETHOD FOR WORKING OUT THE POSSIBLE INTEREST INCOME THAT WOULD HAVE BE EN EARNED BY THE ASSESSEE ON SUCH ADVANCES. METHOD OF COMPUTATION O F COMPARABLE UNCONTROLLED PRICE IS SET OUT IN RULE 10B(1) AS UND ER: (A)COMPARABLE UNCONTROLLED PRICE METHOD BY WHICH (I) THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR SERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION OR A NUMBER OF SUCH TRANSACTIONS IS IDENTIFIED. (II) SUCH PRICE ADJUSTED TO ACCOUNT FOR DIFFERENCES IF ANY BETWEEN THE INTERNATIONAL TRANSACTION [OR THE SPECI FIED DOMESTIC TRANSACTION] AND THE COMPARABLE UNCONTROLL ED TRANSACTIONS OR BETWEEN THE ENTERPRISES ENTERING IN TO SUCH TRANSACTIONS WHICH COULD MATERIALLY AFFECT TH E PRICE IN THE OPEN MARKET. (III) THE ADJUSTED PRICE ARRIVED AT UNDER SUB-CLAUSE(II) IS TAKEN TO BE AN ARMS LENGTH PRICE IN RESPECT F THE PROPERTY TRANSFERRED REVENUE SERVICES PROVIDED IN T HE INTERNATIONAL TRANSACTION [OR THE SPECIFIED DOMESTI C TRANSACTION]. 46. THUS WHEN CUP METHOD IS APPLIED FOR BENCHMARKING T HE INTERNATIONAL TRANSACTION PRIMARY REQUISITE IS ID ENTIFICATION OF PRICE CHARGED OR PAID FOR THE PROPERTY TRANSFERRED OR SER VICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION. NO DOUBT THE TPO HAD FOR THE EXIM LOAN CONSIDERED LIBOR PLUS RATE AS THE COMPARA BLE UNCONTROLLED PRICE. HOWEVER THE PARTY TO WHICH LOAN WAS ADVANC ED BY THE ASSESSEE HERE WAS NOT ONLY A SUBSIDIARY BUT ALSO O NE WHOSE CAPITAL ITA NO.688/14 ETC :- 22 -: STOOD COMPLETELY ERODED AND WHICH WAS SUFFERING C ONTINUOUS LOSSES. NO BANKER WOULD HAVE ADVANCED ANY SUMS TO SUCH A CO MPANY SINCE THE RISK WOULD HAVE BEEN TOO MUCH. THUS THE ONLY SO URCE FOR SUCH A SUBSIDIARY TO RAISE ANY FUNDS WAS ITS PRINCIPAL ALO NE. IT IS AN ACCEPTED POSITION THAT THE SUBSIDIARY COMPANY OF THE ASSESS EE TO WHICH THE ADVANCES WERE MADE WAS SICK. THUS FINDING A COMPA RABLE UNCONTROLLED TRANSACTION WHERE A LOAN WAS GIVEN TO AN ENTITY WHICH WAS SUBSIDIARY TO THE TESTED PARTY AND WHOSE CAPIT AL STOOD COMPLETELY ERODED DUE TO LOSS WAS NOT PRACTICAL OR FEASIBLE. THE SIMPLE REASON IS THAT NO OTHER PERSON WOULD HAVE GIVEN ANY LOAN TO S UCH AN ENTITY WHATEVER MIGHT BE THE INTEREST RATE SINCE THE CHANC ES OF RECOVERY WAS NEGLIGIBLE. IN SUCH A SITUATION WHEN THERE COULD HAVE BEEN NO REASONABLY IDENTIFIABLE COMPARABLE UNCONTROLLED TRANSACTION C OMPUTATION OF COMPARABLE UNCONTROLLED PRICE BY APPLYING OF RULE 10B(1) FEL L AT THE THRESHOLD. SECTION 92C(1) PRESCRIBES COMPUTATION OF ALP BY COMPARABLE UNCONTROLLED PRICE METHOD RESALE PRICE METHOD COST PLUS METHOD PROF IT SPLIT METHOD TRANSACTIONAL NET MARGIN METHOD AND ANY OTHER METHO D PRESCRIBED BY THE BOARD COULD HAVE BEEN APPLIED. IN OUR OPINION THE QUESTION OF BENCHMARKING THE TRANSACTION OF THE NATURE MENTIONE D APPLYING ANY OF THE METHODOLOGY PRESCRIBED IN SEC.92C(1) DID NOT ARISE AT ALL DUE TO THE PARTICULAR FACTS AND CIRCUMSTA NCES. ACCORDING ITA NO.688/14 ETC :- 23 -: TO US FASTENING OF AN INTEREST RATE ON THE ASSES SEE WHEN THERE WAS NO COMPARABLE UNCONTROLLED RATE THAT COULD HAVE BEE N IDENTIFIABLE WAS INCORRECT. WE THEREFORE HAVE NO HESITATION IN D ELETING THE ADDITION MADE BY THE ASSESSING OFFICER/TPO IN THIS REGARD. GROUND NOS. 2 TO 4 ARE ALLOWED. 47. VIDE GROUND NO.6 THE GRIEVANCE OF THE ASSESSEE I S THAT INTEREST U/S 234A WAS CHARGED ON IT EVEN THOUGH TH ERE WAS NO DELAY IN FILING THE RETURN OF INCOME OF THE IMPUGNED ASSE SSMENT YEAR. 48. WE ARE OF THE OPINION THAT THIS MATTER CAN BE LOOKE D INTO BY THE ASSESSING OFFICER AND IF THERE WAS NO DELAY IN FILING THE RETURN QUESTION OF LEVY OF INTEREST U/S 234A OF THE ACT W OULD NOT ARISE. ACCORDINGLY THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 49. VIDE GROUND NO.7 GRIEVANCE OF THE ASSESSEE IS THA T THE BROUGHT FORWARD LOSSES FROM EARLIER YEARS THOUGH CL AIMED BY THE ASSESSEE AT ` 4 67 80 473/- ONLY ` 3 23 44 970/- WAS ALLOWED BY THE LOWER AUTHORITIES. 50. LD. AR SUBMITTED THAT HE WAS NOT PRESSING THIS GROU ND SINCE RELIEF ON THIS WAS GIVEN SUBSEQUENTLY IN A RECTIFI CATORY PROCEEDINGS. ACCORDINGLY GROUND NO.7 IS DISMISSED. ITA NO.688/14 ETC :- 24 -: 51. VIDE GROUND NO.8 GRIEVANCE OF THE ASSESSEE IS THA T TDS CREDIT OF ` 28 12 263/- WAS NOT GIVEN TO IT. 52. WE ARE OF THE OPINION THAT THIS ISSUE CAN BE VERIFI ED BY THE ASSESSING OFFICER AND IF ASSESSEE IS ELIGIBLE FOR TDS CLAIMED BY IT THIS MAY BE GIVEN. ORDERED ACCORDINGLY. GROUND NO.8 IS ALLOWED FOR STATISTICAL PURPOSES. 53. IN THE RESULT APPEAL OF THE ASSESSEE FOR ASSESSME NT YEAR 2010-11 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 54. NOW COMING TO THE APPEAL FOR ASSESSMENT YEAR 2009-1 0 IN I.T.A.NO.688/MDS/2014 THE ASSESSEE HAS TAKEN ALTO GETHER NINE GROUNDS OF WHICH GROUND NOS. 8 & 9 ARE GENERAL IN N ATURE NEEDING NO SPECIFIC ADJUDICATION. 55. VIDE ITS GROUND NOS. 2 TO 4 THE GRIEVANCE OF THE ASSESSEE IS UPWARD ADJUSTMENT OF ` 1 17 91 564/- BEING NOTIONAL INTEREST CALCULATED FOR THE ADVANCES GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY M/S AMTEC PRECISION PRODUCTS INC. 56. THIS GROUND IS SIMILAR TO GROUND NO. 2 TO 4 TAKEN F OR ASSESSMENT YEAR 2010-11. WE HELD AT PARA 45 AND 46 THAT SUCH UPWARD ADJUSTMENT WAS NOT CALLED FOR IN THE FACTS A ND CIRCUMSTANCES ITA NO.688/14 ETC :- 25 -: OF THE CASE. FOR THE REASONS CITED IN THE SAID PAR A WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER. GROUND NO. 2 TO 4 STAND ALLOWED. 57. VIDE ITS GROUND 5 & 6 GRIEVANCE OF THE ASSESSEE I S THAT A SUM OF ` 160 LAKHS WAS ADDED BASED ON TDS CERTIFICATES. 58. FACTS APROPOS ARE THAT DURING THE COURSE OF ASSESSM ENT PROCEEDINGS ASSESSEE WAS REQUIRED TO RECONCILE IT S CLAIM OF TAX DEDUCTED AT SOURCE WITH GROSS RECEIPTS AS PER THE P ROFIT & LOSS ACCOUNT. ASSESSEE STATED THAT A SUM OF ` 3 29 600/- WAS DEDUCTED BY ONE M/S VISTEON CLIMATE SYSTEMS INDIA LTD. U/S 194 C OF THE ACT. AS PER THE ASSESSEE M/S VISTEON CLIMATE SYSTEMS INDI A LTD HAD MADE A PROVISION OF ` 32 LAKHS IN THEIR ACCOUNTS FOR AMOUNTS DUE TO THE ASSESSEE ON TESTING OF FUEL PUMPS. CLAIM OF HE AS SESSEE WAS THAT THE GROSS AMOUNT WAS WRONGLY STATED BY M/S VISTEON CLIM ATE SYSTEMS INDIA LTD. IN THE TDS CERTIFICATES AS ` 160 LAKHS. AS PER THE ASSESSEE WHAT WAS DUE TO IT FROM VISTEON CLIMATE SYSTEMS IND IA LTD WAS ONLY ` 32 LAKHS AND NOT ` 160 LAKHS MENTIONED IN THE TDS CERTIFICATES. HOWEVER THE ASSESSING OFFICER IN THE DRAFT ASSESSM ENT ORDER SOUGHT TO REJECT THE REASON OF THE ASSESSEE. AS PER THE ASS ESSING OFFICER ASSESSEE HAD NOT RAISED ANY SALE INVOICE NOR HAD AC COUNTED ANY ITA NO.688/14 ETC :- 26 -: INCOME BUT HAD ONLY CLAIMED TAX DEDUCTION FOR CRED IT. THE ASSESSING OFFICER ALSO NOTED THAT ASSESSEE WAS DOING SALES A ND SERVICE BUSINESS FOR M/S VISTEON CLIMATE SYSTEMS INDIA LTD AND HAD RAISED INVOICE TO THE TUNE OF ` 1.99 LAKHS AND ` 327.74 LAKHS DURING THE RELEVANT ASSESSMENT YEARS. AS PER THE ASSESSING OFFICER THE RE WAS NO CONFIRMATION FROM THE DEDUCTOR EXPLAINING THE NATUR E OF TRANSACTION. 59. WHEN A PROPOSAL ON THE ABOVE LINES WAS MADE TO TH E ASSESSEE IT CHOSE TO MOVE THE DRP. THE DRP DIRECT ED THE ASSESSING OFFICER TO VERIFY THE CLAIM IN THE LIGHT OF DOCUMEN TATION PROVIDED BY THE ASSESSEE AND TO DECIDE IT IN ACCORDANCE WITH LAW. THE ASSESSING OFFICER ONCE AGAIN ENQUIRED WITH M/S VISTEON CLIMAT E SYSTEMS INDIA LTD. M/S VISTEON CLIMATE SYSTEMS INDIA LTD VIDE L ETTER DATED 8.8.2013 STATED THAT IT HAD MADE A PROVISION FOR ` 32 LAKHS IN ITS ACCOUNT FOR SERVICES RENDERED BY THE ASSESSEE AND THUS FELL U/S 194J OF THE ACT. IT WAS ALSO STATED BY THEM THAT THE TDS CERTIFICATE MENTIONED SEC. 194C BY MISTAKE. HOWEVER THE ASSESSING OFFICER W AS OF THE OPINION THAT THE LETTER OF M/S VISTEON CLIMATE SYSTEMS INDI A LTD COULD NOT BE ACCEPTED. ACCORDING TO HIM THE SUM OF ` 160 LAKHS WAS CREDITED BY THE DEDUCTEE IN THE ASSESSEES ACCOUNT AND THE TDS WAS DEDUCTED U/S 194C OF THE ACT AT 2% PLUS CESS. AS PER THE AS SESSING OFFICER THE ASSESSEE AND THE DEDUCTEE HAD THEREAFTER CHANGED TH EIR STAND AND ITA NO.688/14 ETC :- 27 -: REDUCED THE SUM FROM ` 160 LAKHS TO ` 32 LAKHS AND SUBSTITUTED THE APPLICABLE SECTION WITH 194J AGAINST 194C. HE THUS MADE AN ADDITION OF ` 160 LAKHS. 60. NOW BEFORE US D. AR STRONGLY ASSAILING THE ORDER O F THE ASSESSING OFFICER SUBMITTED THAT FORM NO.16A ISSUED BY THE DEDUCTOR M/S VISTEON CLIMATE SYSTEMS INDIA LTD. TO THE ASSE SSEE WAS UPDATED ON 6.5.2013 SHOWING THE CORRECT AMOUNT AND CORRECT SECTION UNDER WHICH TAX WAS BEING DEDUCTED. AS PER THE LD. AR OBSERVATION OF THE ASSESSING OFFICER THAT UPDATION OF FORM 16A WAS ONL Y AN AFTERTHOUGHT WAS INCORRECT. LD. AR SUBMITTED THAT ASSESSEE OUG HT NOT HAVE BEEN FASTENED WITH AN INCOME WHICH NEVER ACCRUED TO IT. 61. PER CONTRA THE LD. DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 62. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. ASSESSEE HAD PLA CED BEFORE THE ASSESSING OFFICER LETTER DATED 5.6.2013 ISSUED BY M /S VISTEON CLIMATE SYSTEMS INDIA LTD WHERE THEY HAD MENTIONED THAT THE Y HAD RECEIVED SOME TESTING SERVICE FROM THE ASSESSEE ON WHICH IT HAD MADE A PROVISION OF ` 32 LAKHS IN ITS ACCOUNTS. IT WAS ALSO MENTIONED B Y THE SAID PARTY THAT THE PAYMENT TO THE ASSESSEE FELL U/S 194J OF THE ACT ITA NO.688/14 ETC :- 28 -: AND SEC. 194C WAS MENTIONED BY MISTAKE. IT IS ALSO NOT DISPUTED THAT FORM 16A WAS UPDATED BY THE DEDUCTOR. IN SUCH CIRC UMSTANCES WE ARE OF THE OPINION THAT THE ADDITION OUGHT NOT HAVE BEEN MADE JUST FOR A REASON THAT A MISTAKE WAS COMMITTED BY THE DEDUCT OR IN THE TDS CERTIFICATE ISSUED. IN ADDITION THERE WAS NOTHING ON RECORD TO SHOW THAT ASSESSEE HAD RENDERED ANY SERVICES WHICH COUL D EARN IT INCOME OF ` 1.6 CRORES. IN OUR OPINION THE ADDITION WAS NOT CALLED FOR. SUCH ADDITION STANDS DELETED. GROUND NOS. 5 & 6 STAND A LLOWED. 63. VIDE GROUND NO.7 GRIEVANCE OF THE ASSESSEE IS THA T DEDUCTION U/S 80IA CLAIMED ON WINDMILL DIVISION WA S RESTRICTED BY A SUM OF ` 68 59 399/-. 64. FACTS APROPOS ARE THAT DURING THE COURSE OF ASSESSM ENT PROCEEDINGS IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HAD CLAIMED DEDUCTION OF ` 68 59 399/- ON THE PROFITS OF ITS WINDMILL DIVISION AT PALLADAM RELYING ON SEC. 80IA OF THE A CT. AS PER THE ASSESSING OFFICER THE SAID WINDMILL WAS INSTALLED DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1995-96 AND ASSES SEE HAD CLAIMED DEPRECIATION ON SUCH WINDMILL FROM THE SAID YEAR. THE ASSESSEE AS PER THE ASSESSING OFFICER HAD CHOSEN TO CLAIM THE DEDUCTION U/S 80IA ONLY FROM ASSESSMENT YEAR 2002-03. ASSESSING OFFICE R WAS OF THE OPINION THAT ASSESSEE SHOULD HAVE SET OFF THE DEP RECIATION FOR EARLIER ITA NO.688/14 ETC :- 29 -: YEAR BEFORE CLAIMING DEDUCTION U/S 80IA OF THE AC T. ASSESSING OFFICER DID NOTE THAT SIMILAR ISSUE WAS HELD IN FAVOUR OF T HE ASSESSEE BY THE TRIBUNAL FOR ASSESSMENT YEAR 2005-06 RELYING ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHAS WAMY SPINNING MILLS P. LTD VS ACIT 340 ITR 477. BUT ACCORDING TO HIM SINCE THE SLP FILED BY THE DEPARTMENT AGAINST THE ABOVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT WAS PENDING BEFORE THE APEX COURT THE I SSUE DID NOT ATTAIN FINALITY. HE DISALLOWED THE CLAIM. THE VIEW TAKEN BY THE ASSESSING OFFICER WAS APPROVED BY THE DRP. 65. WE FIND THAT THE ISSUE RAISED BY THE ASSESSEE IS S QUARELY COVERED IN ITS FAVOUR BY THE JUDGMENT OF THE JURISD ICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS P. LTD .(SUPRA). THE SLP FILED BY THE DEPARTMENT AGAINST THE SAID JUDGMENT W AS DISMISSED BY THE APEX COURT. IN SUCH CIRCUMSTANCES WE ARE OF T HE OPINION THAT PRIOR YEAR DEPRECIATION COULD NOT HAVE BEEN FORCIBL Y SET OFF AGAINST THE INCOME OF THE ASSESSEE WHEN THE INITIAL ASSESSMENT YEAR FOR WHICH THE ASSESSEE PREFERRED THE CLAIM WAS DIFFERENT. WE TH EREFORE ALLOW GROUND NO.7 RAISED BY THE ASSESSEE. 66. IN THE RESULT APPEAL OF THE ASSESSEE FOR ASSESSM ENT YEAR 2009-10 IS PARTLY ALLOWED. ITA NO.688/14 ETC :- 30 -: 67. TO SUMMARIZE REVENUES APPEAL I.T.A.NO.1519/MDS/20 15 IS DISMISSED. ASSESSEES APPEALS I.T.A.NO.688/MDS/20 14 AND 723/MDS/ 21015 ARE PARTLY ALLOWED I.T.A.NO.725/MDS/2015 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS I.T.A.NO.724/MDS/2015 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST OCTOBER 2016 AT CHENNAI. SD/- SD/- ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER / CHENNAI ! / DATED: 21 ST OCTOBER 2016 RD !' # $% &% / COPY TO: 1 . '( / APPELLANT 4. ) / CIT 2. #*'( / RESPONDENT 5. %+ # - / DR 3. ) () / CIT(A) 6. / 0 / GF