DCIT, New Delhi v. M/s. Marubeni India (P) Ltd, New Delhi

ITA 919/DEL/2009 | 2002-2003
Pronouncement Date: 18-03-2011 | Result: Dismissed

Appeal Details

RSA Number 91920114 RSA 2009
Assessee PAN AAACM6413M
Bench Delhi
Appeal Number ITA 919/DEL/2009
Duration Of Justice 2 year(s) 6 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Marubeni India (P) Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 18-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 18-03-2011
Date Of Final Hearing 14-12-2010
Next Hearing Date 14-12-2010
Assessment Year 2002-2003
Appeal Filed On 12-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE G.E. VEERABHADRAPPA HON'BLE VICE-PRESIDENT AND SHRI RAJPAL YADAV: HONBLE JUDICIAL MEMBER I.T.A. NO.809/DEL/2009 ASSESSMENT YEAR: 2002-03 M/S. MARUBENI INDIA PRIVATE LTD. VS. ADDITIONAL CIT 5 TH FLOOR BARJAYA HOUSE (LOTUS TOWER) RANGE-6 COMMUNITY CENTRE NEW FRIENDS COLONY NEW DELHI. NEW DELHI. (PAN: AAACM6413M) (APPELLANT) (RESPONDENT) I.T.A. NO.919/DEL/2009 ASSESSMENT YEAR: 2002-03 DEPUTY CIT VS. M/S. MARUBENI INDIA PRIVATE LTD. RANGE-6 5 TH FLOOR BARJAYA HOUSE (LOTUS NEW DELHI. TOWER) COMMUNITY CENTRE NEW FRIENDS COLONY NEW DELHI. (APPELLANT) (RESPONDENT) I.T.A. NO.935/DEL/2009 ASSESSMENT YEAR: 2003-04 M/S. MARUBENI INDIA PRIVATE LTD. VS. ASSISTANT CIT 5 TH FLOOR BARJAYA HOUSE (LOTUS TOWER) RANGE-6 COMMUNITY CENTRE NEW FRIENDS COLONY NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) I.T.A. NO.1420/DEL/2009 ASSESSMENT YEAR: 2003-04 DEPUTY CIT VS. M/S. MARUBENI INDIA PRIVATE LTD. RANGE-6 5 TH FLOOR BARJAYA HOUSE (LOTUS NEW DELHI. TOWER) COMMUNITY CENTRE NEW FRIENDS COLONY NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJESH MALHO TRA CA RESPONDENT BY: SHRI NK CHAND SR. D R 2 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE AND REVENUE ARE IN CROSS APPEALS AGAI NST THE ORDERS OF LEARNED CIT(APPEALS) DATED 31.12.2008 AND 27.1.2009 IN ASSESSMENT YEARS 2002-03 AND 2003-04. THE ISSUES AGITATED IN THE APP EALS ARE INTER-CONNECTED WITH EACH OTHER THEREFORE WE HEARD THEM TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OF THEM BY THIS COMMON ORDER. 2. THE GROUNDS OF APPEALS TAKEN BY THE ASSESSEE IN ASSESSMENT YEAR 2002-03 ARE NOT IN CONSONANCE WITH RULE 8 OF THE IT AT'S RULES THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. 3. BEFORE ADVERTING TO THE DISPUTES RAISED BY THE R ESPECTIVE PARTIES IN THEIR APPEALS IT IS NECESSARY TO TAKE NOTE OF BRIE F FACTS. IT EMERGES OUT FROM THE RECORD THAT ASSESSEE MARUBENI INDIA (P) LTD. (H EREINAFTER REFERRED TO MIPL) IS THE 100% SUBSIDIARY OF MARUBENI CORPORATIO N JAPAN ( HEREINAFTERE REFERRED TO MCJ) WHO IS HOLDING 99.99% SHARES IN T HE ASSESSEE COMPANY AND THE BALANCE 0.01% SHARES ARE HELD BY MR. H.TSUD A REPRESENTATIVE OF MCJ. ITS ACTIVITIES HAVE BEEN NOTICED EXTENSIVELY B Y THE LEARNED CIT(APPEALS) IN PARAGRAPH 5 WHICH READ AS UNDER: 3 II. MIPLS OPERATIONS PRIMARILY CONSIST OF REPRESENTATI ON SERVICE. MIPL LIAISES BETWEEN VARIOUS BUSINESS DIVISIONS OF MARUBENI AND THEIR SUPPLIERS/CUSTOMERS IN INDIA. THESE OPERA TIONS INCLUDE IMPORT EXPORT AND OFF-SHORE TRADE PROJECT MANAGE MENT AND MARKETING OF FINISHED GOODS MARKET RESEARCH AND LI AISON WORK. III. MIPL TOO LIKE MCJ TRADES IN A BROAD RANGE OF INDUS TRIAL AGRICULTURAL LAND AND CONSUMER GOODS COMMODITIES A ND NATURAL RESOURCES. IV. THE VARIOUS BUSINESS SEGMENTS OF MIPL ARE: IT & TELECOM UTILITY & INFRASTRUCTURE PLANT & MACHINERY TRANSPORTATION & INDUSTRIAL MACHINERY ENERGY & PETROLEUM METAL & MINERAL RESOURCES IRON & STEEL CHEMICALS GENERAL MERCHANDISE FOOD & PRODUCE TEXTILES MIPL UNDERTAKES THE FOLLOWING TYPES OF ACTIVITIES: HANDLING/AGENCY BUSINESS MIPL ACTS AS A REPRESENT ATIVE OF MCJ AND OTHER RELATED ENTERPRISES (ORES). MIPL HEL PS MCJ AND ORES IN MARKETING THEIR PRODUCTS IN INDIA. ITS ROLE IS LIMITED TO BROKERING A DEAL BETWEEN TWO COMPANIES A ND PROVIDING PRE SHIPMENT & POST SHIPMENT LIAISON SERV ICES. 4 IN ALMOST ALL TRANSACTIONS ONE PARTY WOULD BE OVERS EAS. MARUBENI GROUP COMPANY OR CLIENT OF OVERSEAS MARUBE NI GROUP COMPANY. IN MOST CASES THE INDIAN PARTIES ARE VERY REPUTED INDUSTRIAL HOUSES WHOSE MAIN PROCUREMENT NE EDS ARE REGULARLY PROVIDED BY MARUBENI GROUP OR THEIR PRODU CTS ARE MARKETED THROUGH MIPL. FOR MIPLS SERVICES THEY ARE MAINLY PAID COMMISSION BY THEIR OVERSEAS GROUP PARTNER/MCJ IN FOREIGN CURRENCY. WHI CH MAY BE FIXED BY CONTRACT OR COULD BE VARIABLE AND A RESU LT OF NEGATIONS. MIPL EARNS COMMISSION FROM RELATED PARTIES. THE COM MISSION IS BASED GENERALLY ON THE INVOICE VALUE AND IN SOME INSTANCES BASED ON QUANTITY- DEPENDS ON THE PRODUCTS THAT ARE BEING TRADED(COULD RANGE FROM 0.1% TO 5-6%). PRINCIPAL BUSINESS SOMETIMES MIPL INVOLVES ITSELF IN TRADING I.E. EXPORT OR IMPORT IN ITS OWN NAME. SUCH TRANSAC TIONS HOWEVER ARE VERY FEW. PROJECT ACTIVITIES MIPL HAS RECENTLY STARTED SOME PROJECT- RELATED ACTIVITIES EITHER AS SUPPLIER OR SUBCONTRAC TOR. NO RELATED COMPANIES ARE INVOLVED IN THIS. MARKET RESEARCH SERVICES MIPL ENTERS INTO A CONTR ACT WITH MCJ/OTHER EACH YEAR FOR STUDYING THE MARKET & ECONO MIC 5 SITUATION IN INDIA. UNDER THE R & D AGREEMENT MIPL PROVIDES INFORMATION TO MCJ ON A PERIODIC BASIS. THIS INFORM ATION IS TO HELP MCJ DETERMINE THE MARKET AND ECONOMIC SITUATIO N IN INDIA. FOR RENDERING THIS SERVICE MIPL IS PAID A FI XED FEE EVERY QUARTER/YEAR BASED ON THE DECISION AT THE TIME OF E NTERING INTO THE AGREEMENT. 4. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR A SSESSMENT YEAR 2002- 03 ON 31.10.2002 DECLARING NIL INCOME. SIMILARLY IN ASSESSMENT YEAR 2003- 04 IT HAS FILED ITS RETURN OF INCOME ON 2 ND DECEMBER 2003 DECLARING AN INCOME OF ` 97 74 806 UNDER THE HEAD INCOME FROM BUSINESS. IT HAS DECLARED INCOME FROM OTHER SOURCES AT ` 1 93 95 460. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143(2) DATED 22.10.2003 WAS ISSUED IN ASSESSMENT YEAR 2002 -03. A SIMILAR NOTICE WAS ISSUED IN ASSESSMENT YEAR 2003-04. AN ASSESSMEN T UNDER SEC. 143(3) WAS FRAMED ON 26.3.2005 IN ASSESSMENT YEAR 2002-03 WHEREBY ASSESSING OFFICER HAS DETERMINED THE INCOME OF ASSESSEE AT ` 2 35 01 470. ASSESSING OFFICER HAS MADE FOLLOWING ADDITIONS/DISALLOWANCES: S.NO. PARTICULARS 6 1. DISALLOWANC E ON ACCOUNT OF CONSTRUCTION ACTIVITIES 1 26 59 700 2. ADDITION ON ACCOUNT OF ARMS LENGTH PRICE 2 60 49 881 3. ADDITION ON ACCOUNT OF INTEREST TO INCOME-TAX AUTHORITIES 13 15 473 4. ADDITION ON ACCOUNT OF BUSINESS PROMOTION EXPENSES 14 40 045 5. DISALLOWANCE ON ACCOUNT OF COMMUNICATION EXPENSES 79 82 798 5. IN ASSESSMENT YEAR 2003-04 HE DETERMINED THE TAX ABLE INCOME OF THE ASSESSEE AT ` 4 79 36 297. ASSESSING OFFICER HAS MADE DISALLOWANCES/ADDITIONS TO THE RETURNED INCOME OF ` 2 91 70 266. THE ADDITIONS MADE BY THE ASSESSING OFFICER ARE AS UNDE R: S. NO. PARTICULARS AMT ( IN `) 7 1. ADDITION ON ACCOUNT OF INCOME FROM INTERNATIONAL TRANSACTION 98 63 206 2. ADDITION ON ACCOUNT OF BUSINESS PROMOTION EXPENSES 8 93 040 3. ADDITION ON ACCOUNT OF COMMUNICATION EXPENSES 63 79 405 4. ADDITION ON ACCOUNT OF INTEREST PAID TO INCOME- TAX AUTHORITIES 9 36 037 5. ADDITIONAL ON ACCOUNT OF FOREIGN EXCHANGE LOSS 9 36 037 6. DISALLOWANCE ON ACCOUNT OF DONATION 2 00 000 7. ADDITION ON ACCOUNT OF LEGAL AND PROFESSIONAL CHARGES. 3 93 328 8 6. FIRST COMMON ISSUE IS INVOLVED IN CROSS APPEALS FOR ASSESSMENT YEAR 2002-03 AND DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2003-04. IT PERTAINS TO DETERMINATION OF ARMS LENGTH PRICE IN RESPECT OF INTERNATIONAL TRANSACTIONS WITH THE ASSOCIATE ENTERPRISES. THE ASSESSEE HAS REP ORTED SEVEN INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATES ENTERPRISES IN ASS ESSMENT YEAR 2002-03 AND SIX INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE E NTERPRISES IN ASSESSMENT YEAR 2003-04. THE DETAILS OF THE TRANSACTION AND THE METH OD USED FOR DEMONSTRATING THE ARMS LENGTH PRICE FOR THE PURPOSE OF TRANSFER PRICING IN RESPECT OF INTERNATIONAL TRANSACTION ADOPTED BY THE ASSESSEE HAVE DULY BEEN NOTICED BY THE LEARNED CIT(APPEALS) IN PARAGRAPH 4.1 O F THE ORDER IN BOTH THE ASSESSMENT YEARS. ASSESSING OFFICER HAS MADE A REFE RENCE UNDER SEC. 92CA(1) OF THE ACT TO THE TPO FOR COMPUTATION OF AL P IN RESPECT OF ALL THE INTERNATIONAL TRANSACTIONS. LEARNED TPO ACCEPTED ALL THE TRANSACTIONS AND THE METHOD USED BY THE ASSESSEE EXCEPT THE ONE TRANSACT ION NAMELY AGENCY AND MARKET RESEARCH. 7. LEARNED TPO HAS RECOMMENDED ADJUSTMENT IN ONLY ON E INTERNATIONAL TRANSACTION WHICH PERTAINS TO AGENCY AND MARKET RES EARCH SERVICES. THE BRIEF FACTS IN RESPECT TO THIS TRANSACTION ARE THAT ASSES SEE HAD RECEIVED 9 REMUNERATION FROM VARIOUS ASSOCIATE ENTERPRISES FOR PROVIDING THE SERVICES OF MARKETING SUPPORT AND FACILITATION. FOR BENCH MARKI NG THIS TRANSACTION IT HAS ADOPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) AS THE MOST APPROPRIATE METHOD. THE ASSESSEE HAS CHOSEN OPERATING PROFIT MAR GIN ON OPERATING COST I.E. ( OP/OC ) AS THE PLI. THE ASSESSEE HAD MADE ITSE LF AS A TESTED PARTY. ACCORDING TO THE ASSESSEE ITS MARGIN IN ASSESSMENT YEAR 2002-03 IS 9% ON COST AND AS PER STUDY OF TRANSFER PRICING REPORT T HE ARMS LENGTH MARGIN IS 8.37% ON COST. IN ASSESSMENT YEAR 2003-04 THE ASSE SSEE HAS POINTED OUT THAT THE ARITHMETICAL MEAN OF THE PLI OF THE EIGHT C OMPARABLE COMPANIES IS 9.89%. IT HAS SHOWN THE OPERATING MARGIN ON OPERATIN G COST AT 24.25%. ACCORDING TO THE ASSESSEE THE TRANSACTIONS ARE CON CLUDED TO BE AT ARMS LENGTH. 8. LEARNED TPO WAS NOT SATISFIED WITH REGARD TO THE COMPUTATION OF ARMS LENGTH PRICE WITH RESPECT TO THE INTERNATIONAL TRAN SACTION. IN HIS OPINION ASSESSEE HAS ERRED IN INCLUDING INTEREST INCOME AS A PART OF OPERATING INCOME WHILE WORKING OUT THE ARMS LENGTH PRICE. SIMILARLY HE OBSERVED THAT ASSESSEE FAILED TO EXCLUDE CERTAIN EXPENSES FROM OPERATING E XPENSES. IN ASSESSMENT YEAR 2002-03 HE RECOMPUTED THE ARMS LENGTH PRICE IN RESPECT OF THIS 10 INTERNATIONAL TRANSACTION AT `22 10 47 646 AS AGAIN ST `19 49 97 705 REPORTED BY THE ASSESSEE. THE DIFFERENCE COMES OUT T O `2 60 49 881. AN ADDITION OF THIS AMOUNT ACCORDINGLY HAS BEEN MADE IN ASSESSMENT YEAR 2002-03. ON SIMILAR ANALOGY LEARNED TPO HAS DETER MINED THE ARMS LENGTH PRICE OF THIS INTERNATIONAL TRANSACTION AT `17 36 71 139 AS AGAINST `16 38 07 933 REPORTED BY THE ASSESSEE IN FORM 3CEB. THE DIFFERENCE BETWEEN THE TWO WORKS OUT TO BE `98 63 206. HE RECO MMENDED THE ADDITION OF THIS AMOUNT TO THE ASSESSING OFFICER. 9. LEARNED CIT(APPEALS) WHILE CONSIDERING THIS ISSUE HAS PROPOUNDED FIVE ISSUES TO BE ADJUDICATED IN ASSESSMENT YEAR 2002-03 WHICH READ AS UNDER: I. WHETHER THE INTEREST INCOME OF `1.72 CRORE IS PA RT OF OPERATING INCOME OR NOT. II. WHETHER LOSS ON SALE OF FIXED ASSETS INTEREST PAID TO INCOME- TAX OFFICE CLOSURE COST AMOUNT PAID TO TELEPHONE ADALAT ARE ABNORMAL COSTS AND ARE REQUIRED TO BE EXCLUDED WHIL E COMPUTING THE OPERATING EXPENSES. III. WHETHER BUSINESS PROMOTION EXPENSES DISALLOWED BY T HE A.O. AND ADMITTED BY THE APPELLANT SHOULD ALSO BE EXCLUD ED WHILE COMPUTING THE OPERATING EXPENSES 11 IV. WHETHER THE APPELLANT IS ENTITLED FOR ADJUSTMENTS TO THE OPERATING PROFIT ON ACCOUNT OF DIFFERENCES IN THE WORKING CAPITAL POSITION AND DIFFERENCES IN THE RISKS PROFI LE BETWEEN THE APPELLANT AND THE COMPARABLE COMPANIES. V. WHETHER THE APPELLANT IS ENTITLED TO THE BENEFIT OF +/- 5% RANGE MENTIONED IN PROVISO 92C(2) WHILE COMPUTING T HE ARMS LENGTH PRICE. 10. SIMILARLY IN ASSESSMENT YEAR 2003-04 LEARNED C IT(APPEALS) HAS PROPOUNDED NINE POINTS WHICH WERE REQUIRED TO BE AD JUDICATED. AFTER GOING THROUGH THE ORDERS OF THE REVENUE AUTHORITIES BELOW AND THE GROUNDS TAKEN BY THE REVENUE IN THIS YEAR IN RESPECT OF DETERMINATI ON OF ARMS LENGTH PRICE WE ARE OF THE OPINION THAT POINT NOS.1 2 AND 6 CARVED OUT BY THE LEARNED CIT(APPEALS) ARE NOT AT ALL RELEVANT FOR DISCUSSION I N THE PRESENT ORDER BECAUSE PARTIES ARE NOT LITIGATING ON THESE ISSUES. THEY ARE TO THE EFFECT WHETHER ASSESSING OFFICER IS JUSTIFIED TO MAKE REFE RENCE TO THE TPO WITHOUT RECORDING REASON WHETHER THE ASSESSING OFFICER MECH ANICALLY ACCEPTED TPOS RECOMMENDATIONS WHETHER G.P. OF `81 098 REALIZ ED ON TRADING TRANSACTION WITH ITS AES BE INCLUDED IN THE OPERATI NG INCOME ETC. THEREFORE THE OTHER POINTS ARE AS UNDER: 12 III. WHETHER THE INTEREST INCOME OF RS.1 93 95 460 IS PART OF OPERATING INCOME OR NOT. (GROUND NO.2 & 3). IV. WHETHER EXPENSES OF RS.1 21 75 804 INCURRED AS INDIRECT EXPENSES SHOULD BE ALLOCABLE TO THE TRADING SEGMENT OF THE A PPELLANT FOR THE PURPOSES OF COMPUTING THE OPERATING MARGIN OF THE AGENCY AND MARKETING SUPPORT SERVICES SEGMENT (GROUND NO.8). V. WHETHER THE APPELLANT IS ENTITLED FOR ADJUSTMEN TS TO THE OPERATING PROFIT ON ACCOUNT OF DIFFERENCES IN THE WORKING CA PITAL POSITION AND DIFFERENCES IN THE RISKS PROFILE BETWEEN THE APPEL LANT AND THE COMPARABLE COMPANIES (GROUND NO.9). VII. WHETHER EXPENSES PERTAINING TO INTEREST PAID T O INCOME-TAX AUTHORITIES AMOUNTING TO RS.936 037 FIXED ASSETS WRITTEN OFF AMOUNTING TO RS.149 507. PROVISION FOR GRATUITY AMOUNTING TO RS. 1 487 150 AND LOSS ON DISPOSAL OF FIXED ASSETS (NET) AMOUNTING TO RS.12 742 SHOULD BE TREATED AS ABNORMAL AND NON OPERATING COSTS AND ARE REQUIRED T O BE EXCLUDED WHILE COMPUTING THE OPERATING EXPENSES. (GROUND NOS. 6 7 & 11). VIII. WHETHER BUSINESS PROMOTION EXPENSES AMOUNTING TO RS.8 93 040 DONATION EXPENSES AMOUNTING TO 2 00 000 AND LEGAL A ND PROFESSIONAL CHARGES AMOUNTING TO RS.3 93 328 DISALLOWED BY THE AO AND A DMITTED BY THE APPELLANT SHOULD ALSO BE EXCLUDED WHILE COMPUTING T HE OPERATING EXPENSES. 13 IX. WHETHER THE APPELLANT IS ENTITLED TO THE BENEFI T OF + 5% RANGE MENTIONED IN PROVISO 92C(2) WHILE COMPUTING THE ARM S LENGTH PRICE. (GROUND NO.10). 11. LEARNED FIRST APPELLATE AUTHORITY HAS RECORDED FI NDINGS IN DETAIL ON ALL THESE ISSUES INDEPENDENTLY. IN ASSESSMENT YEAR 2002 -03 HE EXCLUDED FOLLOWING ITEMS FOR COMPUTING TOTAL COST FOR THE PU RPOSE OF CALCULATING ARMS LE NGTH REMUNERATION: A)LOSS ON SALE OF FIXED ASSETS/WRITTEN OFF RS.17 20 389 B) INTEREST ON ACCOUNT OF INCOME-TAX RS.13 15 473 C) TELEPHONE EXPENSES (AS PER ORDER OF RS.31 7 0 638 TELEPHONE ADALAT ) D) BUSINESS PROMOTION EXPENSES RS.14 40 045 TOTAL RS.76 46 545 12. THE REVENUE HAS ACCEPTED THE ORDER OF LEARNED CIT(A PPEALS) IN RESPECT OF EXCLUSION OF RECEIPTS REPRESENTING LOSS ON SALE OF (A) FIXED ASSETS; & (B) INTEREST ON ACCOUNT OF INCOME-TAX. 13. LET US NOW CONSIDERED THE EACH ITEM CONSIDERED B Y THE TPO FOR MAKING ADJUSTMENTS IN THE ARMS LENGTH REMUNERATION OF THE ASSESSEE RELATING TO INTERNATIONAL TRANSACTION. THE FIRST COMMON ITEM INV OLVED IN BOTH THE 14 ASSESSMENT YEARS IS WHETHER INTEREST INCOME OF `1.72 CRORES RECEIVED BY THE ASSESSEE IN ASSESSMENT YEAR 2002-03 AND `1 93 95 460 SHOULD BE FORMED PART OF OPERATING INCOME FOR WORKING OUT THE ARMS LENGTH PRICE. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING HAS PLACED ON RECORD A WRITTEN NOTE AND ADVANCED HIS ARGUMENTS BY REFERRING THE OR DER OF THE LEARNED CIT(APPEALS) IN ASSESSMENT YEAR 2002-03. THE LEARNED C OUNSEL FOR THE ASSESSEE WHILE IMPUGNING THE ORDER OF THE LEARNED C IT(APPEALS) CONTENDED THAT AS PER CLAUSE 21 OF THE MEMORANDUM OF ASSOCIATI ON ONE OF THE OBJECTS OF THE ASSESSEE IS TO INVEST SURPLUS FUNDS OF THE C OMPANY FROM TIME TO TIME IN DEPOSITS GOVERNMENT SECURITIES OR OTHER SECURITIES INCLUDING SHARES BONDS AND DEBENTURES TIME TO TIME TO BE DETERMINED BY THE DIRECTORS. AS PER CLAUSE 20 OF THE MEMORANDUM OF ASSOCIATION THE ASSESSEE I S ALSO PERMITTED TO LEND MONEY NOT IMMEDIATELY REQUIRED FOR THE BUSINESS OF THE COMPANY EITHER WITH OR WITHOUT SECURITY AND GENERALLY TO SUCH PERSON AN D UPON SUCH TERMS AND CONDITIONS AS THE COMPANY MAY THINK FIT AND IS AUTH ORIZED TO DO SO. THE LEARNED COUNSEL FOR THE ASSESSEE HAS APPRISED US WI TH REGARD TO ASSESSEES BUSINESS PROFILE. HE SUBMITTED THAT ONE OF THE ACTI VITIES OF THE ASSESSEE IS OF TREASURY FUNCTION. UNDER THIS ACTIVITY THE MANAGEM ENT ACCOUNTANTS MAIN TASK IS IN CEMENTING THESE TREASURYS STRATEGIC ROLE I.E . TO FACILITATE COMMUNICATION 15 AND UNDERSTANDING OF STRATEGIC POSSIBILITY AND TO A ID IMPLEMENTATION THROUGH THE USE OF DIAGNOSTIC AND THE DEVELOPMENT OF GAP AN D SUSTAINING STRATEGIES. TO ATTRACT AND RETAIN COMPETITIVELY SOUGHT AFTER INV ESTORS CAPITAL OR IN OTHER WORDS SHAREHOLDERS WEALTH. IN TODAYS WORLD INVEST ORS CAPITAL HAS MORE CHOICE AND MOBILITY THEN EVER BEFORE THE KEY TO CO -OPERATE SURVIVAL AND GROWTH LIES IN ORGANIZATIONAL CHANGE INITIATIVES TH AT WILL CONTRIBUTE DIRECTLY TO THE ECONOMIC VALUE OF THE FIRM AND ITS ABILITY TO S ATISFY THE FINANCIAL RETURN REQUIREMENTS OF ITS INVESTORS. THE MAIN OBJECT OF TR EASURY FUNCTION WHICH CASH MANAGEMENT MANAGEMENT OF BANK ACCOUNT AND DEBT MAN AGEMENT FINANCIAL PLANNING AND FORECASTING OF CASH FLOW FIN ANCIAL ASSETS MANAGEMENT. HE POINTED OUT THAT PARLEYING OF SURPLUS FUND IS AN INTEGRAL PART OF ASSESSEES BUSINESS. IN THE MOU IT HAS BEEN PROVIDED THAT ASS ESSEE WILL INVEST SURPLUS IN FIXED DEPOSITS. THE BUSINESS MODULE OF THE ASSESSEE ALSO ENVISAGE THE UTILIZATION OF THE SURPLUS FUNDS FROM TIME TO TIME TO GENERATE OPERATING REVENUE. COST OF EARNING THE INTEREST INCOME IS BUI LT INTO THE OPERATING COST OF THE ASSESSEE. IN ASSESSMENT YEAR 2001-02 INTEREST INCOME EARNED BY THE ASSESSEE HAS BEEN HELD AS BUSINESS INCOME. THE ORDER OF THE ITAT WAS UPHELD BY THE HON'BLE DELHI HIGH COURT AS WELL AS B Y THE HON'BLE SUPREME COURT. HE REFERRED PAGES 209 232 AND 246 OF THE PA PER BOOK WHEREIN 16 COPIES OF THE ITATS ORDER HON'BLE HIGH COURTS ORDER AND HON'BLE SUPREME COURTS ORDER IN ASSESSMENT YEAR 2000-01 ARE AVAILAB LE. SINCE THE INTEREST INCOME IN THE EARLIER YEARS HAS BEEN TREATED AS A I NCOME FROM BUSINESS IT SHOULD FORM PART OF OPERATING INCOME FOR THE PURPOS E OF DETERMINING THE ARMS LENGTH PRICE. HE RELIED UPON VENDORS TECH NOLO GY (P) VS. ACIT 131 TTJ 309 (ITAT DELHI) AND CONTENDED THAT INTEREST FROM ADV ANCE FROM A.E. WOULD EFFECT PROFIT MARGIN. 14. ON THE OTHER HAND LEARNED DR SUBMITTED THAT ASS ESSMENT OF INTEREST INCOME AS A BUSINESS INCOME IS ALTOGETHER A DIFFERE NT ASPECT. FOR THE PURPOSE OF DETERMINING THE VALUE OF INTERNATIONAL TRANSACTI ON AS ARMS LENGTH PRICE ONE HAS TO SEE WHETHER INTEREST INCOME HAS PLAYED A NY ROLE IN EITHER GENERATING RECEIPTS FOR INTERNATIONAL TRANSACTION O R HAD ANY INFLUENCE OVER THOSE TRANSACTIONS. HE RELIED UPON THE ORDER OF THE LEARNED CIT(APPEALS). 15. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. THERE IS NO DISPUTE THAT IN ASSESS MENT YEAR 2000-01 INTEREST INCOME EARNED ON THE DEPOSITS MADE OUT OF SURPLUS FUND WAS HELD TO BE A BUSINESS INCOME. THERE MAY NOT BE ANY DISPUTE W ITH REGARD TO THE OBJECTS AVAILABLE IN THE MOU THAT ASSESSEE SHALL IN VEST SURPLUS FUND IN FIXED 17 DEPOSITS. THE CORE ISSUE FOR OUR ADJUDICATION IS WHE THER RECEIPTS SHOWN BY THE ASSESSEE FROM INTERNATIONAL TRANSACTION WITH ITS AS SOCIATES ENTERPRISES ARE COMPARABLE TO THE RECEIPTS EARNED BY ANY OTHER ASSE SSEES WITH INDEPENDENT PARTY. AS PER THE TRANSFER PRICE REGULATION THE PU RPOSE OF THE TPO IS TO DETERMINE THE ARMS LENGTH PRICE OF THE TRANSACTION S OF THE ASSESSEE WITH ITS ASSOCIATES BY COMPARING THE SAME WITH UNCONTROLLED COMPARABLE AND WHILE DOING SO THIS EXERCISE THE TPO HAS TO CONSIDER ALL T HE COMPONENTS WHICH ARE PART OF THE OPERATING INCOME AND FROM WHICH ONE HAS TO REDUCE THE COST INCURRED IN EARNING OPERATING INCOME. THE ISSUE BEFO RE US IS NOT TO DECIDE WHETHER A PARTICULAR RECEIPT IS AN INCOME FROM BUSI NESS OR AN INCOME FROM OTHER SOURCES FOR THE PURPOSE OF THE INCOME-TAX ACT 1961. FROM THE RECORD WE FIND THAT LEARNED CIT(APPEALS) HAS DISCUSSED THE B USINESS PROFILE OF THE ASSESSEE WHICH WE HAVE ALSO NOTICED IN FOREGOING PA RAGRAPHS. HE RECORDED A FINDING THAT EARNING OF THE INTEREST INCOME HAS N EVER BEEN THE PRIMARY OPERATING INCOME GENERATING ACTIVITY IN FACT INTE REST INCOME IS PRIMA FACIE EARNED AS A RESULT OF FINANCE ACTIVITY BY INVESTING THE SURPLUS FUNDS AND IT IS NOT THE RESULT OF AN OPERATING ACTIVITY. THE BASIC O BJECT OF THE CHAPTER X OF THE INCOME-TAX ACT 1961 IS TO DETERMINE AND ARRIVE AT TH E ARMS LENGTH PRICE BY COMPARING THE OPERATING PROFITS OF THE CONTROLLED T RANSACTION WITH THE 18 UNCONTROLLED TRANSACTION. ACCORDING TO THE LEARNED CIT(APPEALS) IT IS A UNIVERSAL PRACTICE UNDER TP REGULATION THAT INTEREST INCOME IS TO BE EXCLUDED FROM THE OPERATING REVENUE FOR COMPUTING THE NET PR OFIT FROM THE OPERATING ACTIVITY. HOWEVER SITUATION WOULD BE DIFFERENT IF THE EARNING OF INTEREST ITSELF IS THE MAIN ACTIVITY FOR WHICH ALP IS TO BE DETERMI NED. THE NATURE OF SERVICE PROVIDED BY THE ASSESSEE TO ITS HOLDING COMPANIES I .E. MCJ AND OTHER ASSOCIATE CONCERNS IS IN RESPECT OF MARKETING SUPPO RT AND FACILITATION ACCORDING TO WHICH IT PROVIDES INFORMATION TO MCJ O N A PERIODIC BASIS. THIS INFORMATION HAS HELPED MCJ TO DETERMINE THE MARKET AND ECONOMIC SITUATION IN INDIA. THIS ACTIVITY IS ALL TOGETHER DIFFERENT THE N EARNING INTEREST INCOME. THE TPO WAS SUPPOSED TO EXAMINE THE PROFIT EARNED FROM T HE PROVISIONS OF ADMINISTRATION AND COMMERCIAL SUPPORT BUSINESS OF T HE ASSESSEE. THUS THE PROFIT OF A PARTICULAR OPERATION CANNOT BE CLUBBED WITH THE EARNING OF ANY OTHER REVENUE STREAM. FOR RENDERING OF SERVICES TH E TPO WAS TO DETERMINE THE ARMS LENGTH PRICE WHICH HAS TO BE COMPUTED BY KEEPING IN MIND THE RETURN ON COST. IF INTEREST IS INCLUDED AS A PART OF THE OPERATING REVENUE THEN IT WOULD MEAN TO COMPUTE THE RETURN ON INVESTMENT W HICH IS AN INAPPROPRIATE PROFIT LEVEL INDICATOR FOR A SERVICE PROVIDER. THUS FOR COMPUTING OPERATING MARGIN ON COST NEITHER THE INTEREST INCOME NOR INT EREST EXPENSES IS A RELEVANT 19 FACTOR. THE ESSENTIAL ELEMENT FOR CONSIDERATION IS T HE COST INCURRED FOR THE OPERATING ACTIVITY WHICH HAS TO BE TAKEN INTO ACCOU NT. WE FIND THAT LEARNED CIT(APPEALS) HAS EXAMINED THE ISSUE WITH DIFFERENT AN GLES ALSO. THE ASSESSEE HAS INCURRED EXPENSES FOR EARNING INTEREST INCOME A T `1.22 CRORES IN ASSESSMENT YEAR 2002-03. IT HAS SHOWN INTEREST INCOM E AT `1.72 CRORES. BOTH THESE FACTORS HAVE TO BE TAKEN INTO CONSIDERATION B EFORE INCLUSION OF ANY INTEREST INCOME IN THE OPERATING INCOME FOR THE PUR POSE OF ALP. ON DUE CONSIDERATION OF THE ORDER OF THE LEARNED CIT(APPEAL S) WE ARE OF THE OPINION THAT LEARNED FIRST APPELLATE AUTHORITY AS W ELL AS LEARNED TPO HAS EXAMINED THIS ASPECT ELABORATELY AND HAS RIGHTLY HE LD THAT INTEREST INCOME IS NOT A RELEVANT RECEIPT WHICH HAS ANY INFLUENCE ON T HE OPERATING INCOME OF THE ASSESSEE FOR WORKING OUT THE ALP. THEREFORE THIS RECEIPT HAS RIGHTLY BEE N EXCLUDED IN BOTH THE ASSESSMENT YEARS. 16. NOW WE TAKE THE OTHER ITEMS INFLUENCING THE INT ERNATIONAL TRANSACTION AND CONSIDERED BY THE LEARNED REVENUE AUTHORITIES I N ASSESSMENT YEAR 2002- 03. THE FIRST TWO ITEMS WHICH HAVE BEEN EXCLUDED BY THE LEARNED CIT(APPEALS) FROM THE COMPUTATION OF TOTAL COST FOR T HE PURPOSE OF CALCULATING ARMS LENGTH REMUNERATION ARE `31 70 638 AND `14 40 0 45. THE FIRST ITEM 20 REPRESENT A PAYMENT MADE TO TELEPHONE DEPARTMENT AG AINST THE DEMAND RAISED BY IT. THE SECOND ITEM RELATES TO BUSINESS PR OMOTION EXPENSES. THE TELEPHONE DEPARTMENT HAS RAISED A DEMAND UPON THE AS SESSEE WHICH WAS DISPUTED BY IT IN A TELEPHONE ADALAT BUT ULTIMATELY IT HAS TO PAY THE AMOUNT. ACCORDING TO THE LEARNED CIT(APPEALS) THE PAYMENT MA DE TO TELEPHONE DEPARTMENT IS IN THE NATURE OF ABNORMAL ITEM WHICH IS NOT REGULARLY INCURRED IN THE ORDINARY COURSE OF BUSINESS. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE STRENGTH OF ITATS DECISION IN THE CASE OF SAB LABOR ATORY INDIA PVT. LTD. VS. ACIT REPORTED IN 6 ITR (TRIB.) PAGE 88 CONTENDED THAT TH E LEARNED FIRST APPELLATE AUTHORITY HAS RIGHTLY GIVEN THE CREDIT OF THIS EXPENDITURE AND HAS RIGHTLY EXCLUDED THIS EXPENDITURE FOR CALCULATING T HE OPERATING COST. LEARNED DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE TP O. 17. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES WE ARE OF THE VIEW THAT IN COMPUTING THE ALP THE EXPENSES IN THE NATURE OF ABNORMAL ITEMS ARE NOT TO BE LOOKED INTO. THIS EXPENDITURE IS NOT O F A ROUTINE NATURE. IT IS NOT ASCERTAINABLE FROM THE RECORD WHETHER IT IS FOR AC TUAL USER OF THE TELEPHONE OR FOR SOME OTHER REASONS. ASSESSING OFFICER OR TPO HAS NOT BROUGHT SUFFICIENT MATERIAL ON THE RECORD WHICH CAN EXHIBIT THAT THIS AMOUNT WAS DIRECTLY INTER- 21 LINKED WITH THE INTERNATIONAL TRANSACTION THEREFOR E IN OUR OPINION LEARNED CIT(APPEALS) HAS RIGHTLY EXCLUDED THIS AMOUNT FROM CA LCULATION OF OPERATING COST. AS FAR AS THE OTHER ITEMS DISPUTED BY THE REV ENUE IS CONCERNED WE FIND FROM THE DISCUSSION OF THE LEARNED CIT(APPEALS)S ORD ER THAT THE ASSESSING OFFICER HAS MADE A DISALLOWANCE OF `14 40 045 ON ACC OUNT OF BUSINESS PROMOTION EXPENSES. HE HAS DISALLOWED 25% OF THE TO TAL EXPENSES UNDER THIS HEAD ON THE GROUND THAT ELEMENT OF PERSONAL NATURE IS INVOLVED. THE ASSESSEE DID NOT DISPUTE THIS DISALLOWANCE BEFORE THE LEARNE D CIT(APPEALS). IT ONLY PRAYED THAT IT BE EXCLUDED FROM THE OPERATING EXPEN SE. ON DUE CONSIDERATION OF THE LEARNED CIT(APPEALS)S ORDER W E ARE OF THE VIEW THAT ONCE IT IS CONSIDERED THAT THIS AMOUNT REPRESENTS E XPENSES OF PERSONAL NATURE THEN IT MAY NOT HAVE ANY BEARING ON THE INTERNATION AL TRANSACTION. LEARNED CIT(APPEALS) HAS RIGHTLY EXCLUDED THIS AMOUNT FROM TH E OPERATING COST. IN THE RESULT THE SOLITARY GRIEVANCE RAISED BY THE REVENU E IN ASSESSMENT YEAR 2002- 03 IS DE VOID OF ANY MERIT. IT IS REJECTED. THE OTHE R GROUNDS RAISED BY THE REVENUE ARE GENERAL IN NATURE AND DO NOT REQUIRE AN Y SPECIFIC ADJUDICATION. 18. IN THE ASSESSEES APPEAL THE NEXT ITEM RELATES T O INCLUSION OF FOLLOWING AMOUNTS IN THE OPERATING COST: *COMPENSATION FOR DISCLOSURE OF BUSINESS `12 19 764 22 UNITS IN DELHI OFFICE * COMPENSATION FOR CLOSURE OF BUSINESS UNIT ` 6 24 221 * COMPENSATION FOR CLOSURE OF CHENNAI OFFICE ` 5 0 54 007 TOTAL TOTAL TOTAL TOTAL `68 97 992 19. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VER Y OUTSET SUBMITTED THAT THE LEARNED CIT(APPEALS) HAS CONFIRMED INCLUSI ON OF THE ABOVE AMOUNT IN THE OPERATING COST ON THE GROUND THAT THE ASSESSEE IS PRIMARILY ENGAGED IN CONTRACT SERVICE PROVIDER TO I TS AE WHICH MEANS THAT CONTINUITY OF BUSINESS IS ENSURED TO THE MIPL. IF THE ASSOCIATE ENTERPRISES INTENDS TO BREAK THE RELATION OF WHICH IT HAS ENJOYED CONCESSIONAL FRUIT OVER THE YEAR THEN ON CLOSURE OF CERTAIN BRANCHES THE A.E. OUGHT TO HAVE ADEQUATELY COMPENSATE THE ASSESS EE FOR SUCH SEVERANCE OF RELATION. THE ASSESSEE HAS CLOSED THE SE THREE OFFICES IN ORDER TO REDUCE THE SURPLUS STAFF TO REDUCE THE DI FFERENT PROFILE I.E. CONSOLIDATION OF BUSINESS UNIT. THE ASSESSEE HAS TO SEE ECONOMIC ENVIRONMENT AVAILABLE IN THE MARKET AND TO REDUCE T HE LOSSES IT THOUGHT IT FIT TO CLOSE CERTAIN BRANCHES. 23 20. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT LEARNED FIRST APPELLATE AUTHORITY HAS FAILED TO APP RECIATE THE FACTS AND CIRCUMSTANCES IN RIGHT PERSPECTIVE. THE A SSESSEE IS AN INDEPENDENT JURIDICAL ENTITY. IT IS NOT GUIDED BY I TS A.E. FOR TAKING ALL SUCH ADMINISTRATIVE DECISIONS. IT HAS BE EN RUNNING ITS BUSINESS IN INDIA AS AN INDEPENDENT UNIT. THE DECIS ION TO CLOSE CERTAIN OFFICES WAS TAKEN BY THE EXECUTIVE MANAGEME NT IN INDIA. HE POINTED OUT THAT EFFORT OF THE TPO AS WELL AS OF THE LEARNED CIT(APPEALS) IS TO TAX THE A.E. IN THE GARB OF ASSE SSEE. THESE ITEMS ARE ABNORMAL ITEMS. THEY ARE NOT REGULAR OPER ATING EXPENDITURE THEREFORE THESE OUGHT TO HAVE BEEN EX CLUDED FROM THE OPERATING COST WHILE WORKING OUT THE ALP OF INT ERNATIONAL TRANSACTION. HE AGAIN RELIED UPON THE DECISION OF I TAT BANGALORE IN THE CASE OF SAB LAB INDIA (P) LTD. (SUPRA). HE A LSO RELIED UPON THE ORDER OF THE ITAT IN THE CASE OF MC DONALD REPO RTED IN 3 SOT PAGE 240. 24 21. LEARNED DR ON THE OTHER HAND CONTENDED THAT THE AS SESSEE IS A CAPTIVE COMPANY OF ITS AE. THE AE RUNS THE WHOLE R ISK. MCJ IS PAYING THE ASSESSEE COST PLUS 10%. THUS THE CLOSURE OF BU SINESS WOULD AUTOMATICALLY REDUCE THE COST OF AE . IT IS A RELEV ANT ISSUE FOR INCLUSION IN THE OPERATING COST. 22. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. LEARNED FIRST APPELLATE AUTHORITY HAS OBSERVED THAT IF THE BUSINESS IN CERTAIN BRANCHES WAS CLOSED AS PER THE INDEPENDENT DECISION OF THE ASSESSEE THEN IT MAY NOT BE A RELEVANT FACTOR W HICH CAN INFLUENCE THE INTERNATIONAL TRANSACTION. BUT IF THE BUSINESS WAS CLOSED BY THE INFLUENCE EXERCISED AT THE END OF AE THEN THIS ISSUE WOULD BE A RELEVANT ISSUE FOR THE PURPOSE OF ALP. LEARNED CIT(APPEALS) DIRECTED THE AS SESSEE TO PRODUCE DOCUMENTARY EVIDENCE WHERE IT HAS BEEN DECIDED TO C LOSE DOWN THESE BRANCHES. THE ASSESSEE FAILED TO SUBMIT THOSE DETAIL S. LEARNED DR HAS DEMONSTRATED THAT CLOSURE OF THESE BRANCHES WOULD A UTOMATICALLY REDUCE THE COST OF A.E. IN SUCH SITUATION IT IS A RELEVANT IT EM FOR CONSIDERATION FOR THE TRANSFER PRICING ISSUE. THE ARGUMENT OF THE ASSESSEE THAT BY INCLUSION OF THESE RECEIPTS REVENUE IS DRAWING TO TAX THE A.E. IN OU R UNDERSTANDING THIS 25 SUBMISSION IS NOT ON A SOUND FOOTING. THE LEARNED CO UNSEL FOR THE ASSESSEE CONTENDED THAT IF THIS STAND OF THE REVENUE IS ACCE PTED THEN THERE WILL NEVER B A LOSS TO AN ENTITY IN INDIA RATHER IN OTHER WORDS H IGHER THE LOSS THE REVENUE WILL EXPECT HIGHER INCOME-TAX ON THOSE LOSSES BY TR EATING IT AS AN OPERATING EXPENSES AND EXPECTING HIGHER MARGIN ON THAT WHICH WOULD BE AGAINST THE PRINCIPLE OF NATURAL JUSTICE. IT IS NOT THE CASE. THE ITAT IN THE CASE OF MENTORGRAPHIC REPORTED IN 109 ITD 101 HAS OBSERVED THAT TRANSFER PRICING IS NOT AN EXACT SCIENCE. ONE HAS TO EVALUATE THE TRANS ACTION AND IT IS DIFFICULT TO ARRIVE AT A CERTAINTY IN THAT PROCESS. ELEMENT OF GUESS-WORK WOULD ALWAYS BE THERE. THE ANALYSIS CARRIED OUT BY THE ADJUDICATING AUTHORITY SHOULD BE JUDICIOUS ONE AND THAT SHOULD BE CARRIED OUT AFTER TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE. IN THE PRESENT CASE THE COMPENSATION RECEIVED BY CLOSURE OF CERTAIN UNITS M AY NOT BE A REGULAR PHENOMENA. BUT BY VIRTUE OF CLOSING DOWN CERTAIN BR ANCHES ASSESSEE HAS REDUCED THE COST OF A.E. IT MEANS THAT CLOSURE HAS A DIRECT LINK WITH THE INTERNATIONAL TRANSACTION. ASSESSEE HAS BEEN RECEIV ING THE CERTAIN CHARGES AT COST PLUS 10%. IN SUCH CIRCUMSTANCES THIS TYPE OF R ECEIPTS WOULD ALWAYS BE CONSIDERED IN THE OPERATING EXPENSES. LEARNED FIRST APPELLATE AUTHORITY HAS RIGHT HELD THAT COST OF CLOSURE IS NOT TO BE EXCLUD ED FROM COMPUTING THE 26 OPERATING EXPENSES. THE GROUND NOS. 6 & 7 RAISED BY T HE ASSESSEE IN THIS REGARD ARE REJECTED. 23. THE NEXT ITEM DISPUTED BY THE ASSESSEE IN GROUND NO.8 IS THAT LEARNED CIT(APPEALS) HAS ERRED IN USING THE CURRENT YEAR DATA FOR COMPARABLE PURPOSES AND NOT RELYING ON THE DATE OF PRECEDING T WO YEARS. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND OF APPEAL ON THE GROUND THAT SPECIAL BENCHS DECISION OF THE ITAT IN THE CAS E OF AZTECTECH SOFTWARE & TECHNOLOGY IS AGAINST THE ASSESSEE. THIS IS AGAINST T HE ASSESSEE. THIS DECISION IS REPORTED IN 107 ITD 141 AND IT HAS BEEN REAFFIRMED I N THE CASE OF MENTORGRAPHIC ( 109 ITD PAGE 101 ). HENCE THIS GROUND OF APPEAL IS REJECTED. 24. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO NOT PR ESSED GROUND NO.10 HENCE IT IS REJECTED. 25. IN GROUND NO.9 ASSESSEE HAS CONTENDED THAT LEAR NED CIT(APPEALS) HAS REJECTED ITS CLAIM FOR RISK ADJUSTMENT. ACCORDI NG TO THE ASSESSEE THE COMPARABLE COMPANIES DATA COMES TO BE ADJUSTED TO A CCOUNT FOR THE 27 FUNCTIONAL AND RISK LEVEL DIFFERENCE IN ORDER TO IM PROVE RELIABILITY OF THE TRANSFER PRICING ANALYSIS. THE LEARNED COUNSEL FOR T HE ASSESSEE POINTED OUT THAT THAT ASSESSEE COMPANY DOES NOT TAKE ANY FINANC IAL RISK WHILE PROVIDING SERVICES OF AGENCY. AT THE SAME TIME ASSESSEE DOES NOT HOLD ANY PATENT AND INTANGIBLE THEREFORE LOW PROFIT/COMMISSION ARE EA RNED BY THE ASSESSEE. ON THE STRENGTH OF ITATS DECISION IN THE CASE OF SONY IN DIA VS. DCIT REPORTED IN 114 ITD 448. HE SUBMITTED THAT IN THIS CASE AN ADJUSTME NT OF 20% TO THE COMPARABLE MARGIN TO ADJUST FOR DIFFERENCE IN RISK AND OWNERSHIP ON INTANGIBLE HAS BEEN ACCEPTED. IN THE CASE OF ASSESSE E SAME RATIO IS TO BE APPLIED. ON THE OTHER HAND LEARNED DR RELIED UPON THE ORDER OF THE LEARNED CIT(APPEALS). 26. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. LEARNED CIT(APPEALS) HAS REJECTED T HIS ARGUMENT OF THE ASSESSEE ON THE GROUND THAT ASSESSEE FAILED TO BRIN G ANY EVIDENCE ON THE RECORD TO SHOW THAT THEIR EXISTS ANY DIFFERENCE IN THE RISK PROFILE OF THE COMPARABLE COMPANIES VIS--VIS THE ASSESSEE. ACCORD ING TO THE LEARNED CIT(APPEALS) IN ORDER TO TAKE BENEFIT OF THIS ADJUST MENT INFORMATION SHOULD BE SUBMITTED ALONG WITH DETAILS UNDER RULE 10D MAINT AINED BY THE ASSESSEE. 28 WE FIND THAT LEARNED CIT(APPEALS) HAS DISCUSSED IN DE TAIL AND OBSERVED THAT UNDER SECTION 92D(I) OF THE ACT PROVIDE THAT EVERY PERSON ENTERING INTO AN INTERNATIONAL TRANSACTION IS REQUIRED TO KEEP AND MAINTAIN SUCH INFORMATION AND DOCUMENT IN RESPECT OF THEREOF AS IS BEING PRES CRIBED UNDER RULE. RULE 10D(1) OF THE IT RULES. THIS RULE REQUIRES MAINTENANCE OF A RECORD OF THE ANALYSIS PERFORMED TO EVALUATE COMPARABLE AS WELL A S A RECORD OF THE ACTUAL WORKING CARRIED OUT FOR DETERMINING THE ALP. RULE 1 0D(4) OF THE RULES REQUIRES THAT THE INFORMATION AND DOCUMENTATION TO BE MAINTA INED UNDER RULE 10D(1) SHOULD BE CONTEMPORANEOUS AS FAR AS POSSIBLE AND SH OULD EXIST LATEST BY THE DUE DATE OF FILING OF THE RETURN. WITH REGARD TO AD JUSTMENT ON ACCOUNT OF RISK ACCORDING TO THE LEARNED CIT(APPEALS) ASSESSEE FAILE D TO FILE THE DETAILS EXHIBITING RISK BORN BY COMPARABLES. IN THE ABSENCE OF THAT COMPARABILITY IT IS DIFFICULT TO MAKE ADJUSTMENT. AS FAR AS THE DECI SION OF THE ITAT IS CONCERNED THAT RELATES TO FACTS SITUATION OF THAT CASE. IN A G IVEN CIRCUMSTANCE SOME ESTIMATED MARK UPON MAY BE APPLIED FOR RISK ADJUSTM ENT. THE ASSESSEE OUGHT TO HAVE DEMONSTRATED THIS FACTOR BEFORE THE LEARNED TPO AS WELL AS BEFORE THE LEARNED CIT(APPEALS). THUS IN THE ABSENCE OF EXA CT DETAILS EXHIBITING THE RISK BORN BY THE COMPARABLE VIS--VIS THE RISK IN R UNNING THE BUSINESS TAKEN BY 29 THE ASSESSEE IT IS DIFFICULT TO GIVE ANY BENEFIT O N THAT ACCOUNT. GROUND NO.9 RAISED BY THE ASSESSEE IS THEREFORE REJECTED. 27. IN GROUND NO.11 ASSESSEE HAS SUBMITTED THAT THERE IS A GENERAL RECESSION IN THE INTERNATIONAL MARKET BECAUSE OF G ENERAL RECESSION ASSESSEE COULD NOT ACHIEVE THE DESIRED BUSINESS TARGET. THE L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAS PLACED ON RECO RD ECONOMIC SURVEY OF GOVERNMENT OF INDIA FOR THE FINANCIAL YEAR 2001-02 A ND POINTED OUT THAT INDUSTRIAL GROWTH DURING FIRST NINE MONTHS WAS ONLY 2.3% AS COMPARED TO 5.8% DURING THE CORRESPONDING PERIOD OF THE PREVIOU S YEAR. THERE WAS AN INTERNATIONAL RECESSION IN THIS PERIOD. THUS A REAS ONABLE BENEFIT BE GIVEN TO THE ASSESSEE IN ITS OVERALL PROFIT. THE LEARNED COUN SEL FOR THE ASSESSEE ALSO SUBMITTED THAT ASSESSEE HAS PROVIDED THESE FACTORS IN ITS WRITTEN SUBMISSIONS FILED BEFORE LEARNED CIT(APPEALS) BUT LEARNED CIT(APPEA LS) FAILED TO RECORD ANY FINDING ON THIS ISSUE. LEARNED DR ON THE OTHER HAND CONTENDED THAT DETERMINATION OF ARMS LENGTH PRICE IS NOT THE RESU LT OF ANY SOLUTION OF MATHEMATIC PRECISION. THERE IS NO EXACT CONCLUSIVE S CIENTIFIC FORMULA. IT IS AN ESTIMATED WORKING BASED ON PRINCIPLE OF NATURAL JUS TICE COUPLED WITH THE 30 PROCEDURE PROVIDED IN CHAPTER X OF THE INCOME-TAX AC T 1961 AND IN THE I.T. RULES. 28. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. THIS ISSUE APPEARS NOT TO HAVE BEE N RAISED BEFORE THE TPO BUT IN THE WRITTEN SUBMISSIONS BEFORE THE LEARNED C IT(APPEALS) ASSESSEE HAS RAISED THIS ISSUE. IN OUR OPINION IT IS AN ISSUE R AISED ON GENERAL CONDITIONS OF THE MARKET. BUT THE ADJUSTMENT RECOMMENDED BY THE TP O IS BASED ON THE RESULT SHOWN BY THE COMPARABLE IN UNCONTROLLED TRAN SACTIONS. THAT COMPARISON HAS TAKEN INTO CONSIDERATION THE GENERAL FACTOR AVAILABLE TO THE ASSESSEE VIS--VIS TO THE COMPARABLE IN THE MARKET. THEREFORE NO SEPARATE ADJUSTMENT DESERVES TO BE MADE BECAUSE OF THE GENER AL CONDITIONS OF THE MARKET AT THAT RELEVANT POINT OF TIME. IT MAY BE A C ORROBORATIVE FACTOR FOR DETERMINATION OF ALP IN THE CASE OF ASSESSEE BUT I T IS DIFFICULT TO WORK OUT THE EXACT INFLUENCE OF THE MARKET CONDITION IN THE PROF IT MAKING OF THE ASSESSEE. TPO HAS CONSIDERED THE RESULTS OF THE COMPARABLE CAS ES AND THEREAFTER RECOMMENDED ADJUSTMENT THEREFORE WE DO NOT DEEM I T APPROPRIATE TO MAKE ANY AD HOC ADJUSTMENT ON THE BASIS OF THIS ARGUMENT AT THIS STAGE. THIS GROUND OF APPEAL IS REJECTED. 31 29. IN GROUND NO.12 GRIEVANCE OF THE ASSESSEE IS THA T BENEFIT OF PROVISO APPENDED TO SECTION 92C OF THE INCOME-TAX ACT 1961 H AS BEEN DENIED TO THE ASSESSEE. THE ARITHMETIC MEAN OF PROFIT LEVEL INDIC ATOR OF FIVE COMPARABLE IS 9.33%. IF BENEFIT OF MINUS FIVE I.E. RANGE UNDER THE PROVISO IS GIVEN TO THE ASSESSEE ON THE PLIS DETERMINED BY THE LEARNED CIT(APP EALS) THEN ARITHMETIC MEAN OF THE PLI WOULD BE 3.8%. SIMILARLY IF PLUS FI VE IS ADDED THEN IT WOULD BE 14.8%. ACCORDING TO THE LEARNED COUNSEL BENEFIT OF THIS PROVISO OUGHT TO HAVE BEEN EXTENDED TO THE ASSESSEE. LEARNED DR ON T HE OTHER HAND POINTED OUT THAT BENEFIT OF MINUS 5% PROVIDED IN THE PROVIS O IS NOT A STANDARD DEDUCTION. HE RELIED UPON THE ORDER OF THE ITAT IN T HE CASE OF GLOBAL VENTAGE (P) LTD. VS. CIT REPORTED IN 2010 TAX INDIA ON LINE PAGE 24. HE PLACED ON RECORD COPY OF THE ITATS ORDER. HE ALSO R ELIED UPON THE ORDER OF THE ITAT MUMBAI IN THE CASE OF DCIT VS. BASF INDIA LTD. REPORTED IN 41 SOT 10. 30. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. LEARNED FIRST APPELLATE AUTHORITY REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE BENEFIT CANNOT BE C ONSIDERED TO BE A STANDARD UNIVERSAL DEDUCTION ALLOWED IN EACH AND EV ERY CASE WHICH THE ASSESSEE EXCEEDS THE PERMISSIBLE LIMIT AND FALLS OU TSIDE THE ARMS LENGTH 32 RANGE. THE PROVISO PROVIDES A RELIEF TO THE TAXPAYER AT THE TIME OF DETERMINING ALP. IN EFFECT THE TRANSFER PRICE SHOWN BY THE ASSE SSEE WAS NOT TO BE DISTURBED IF IT WAS WITHIN +/- 5% MEAN ALP RANGE TH AN THE ARMS LENGTH PRICE DETERMINED BY THE ASSESSING OFFICER BASED ON THE AR ITHMETICAL MEAN OF THE PRICES. IN THE CASE OF THE ASSESSEE IT DOES NOT FAL L WITHIN THAT MEAN. LEARNED FIRST APPELLATE AUTHORITY ALSO OBSERVED THAT THIS O PTION IS AVAILABLE TO THE ASSESSEE BUT IT IS AVAILABLE ONLY WHEN ASSESSEE IS COMPUTING THE ALP AND NOT WHEN THE A.O./PTO IS COMPUTING THE ALP. LEARNED CIT(A PPEALS) HAS MADE AN ELABORATE DISCUSSION ON THE ISSUE. CONSIDERING T HE TWO ORDERS OF THE ITAT COUPLED WITH THE FINDINGS OF THE LEARNED CIT(APPEALS) WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS REJECTED. 31. IN THE NEXT GROUND OF APPEAL GRIEVANCE OF THE AS SESSEE IS THAT LEARNED CIT(APPEALS) HAS NOT RECORDED SPECIFIC FINDING FOR GR ANTING SET OFF OF BROUGHT FORWARD LESS AND UNABSORBED DEPRECIATION. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES WE HAVE GONE THROUGH THE RECORD CA REFULLY. WE FIND THAT LEARNED CIT(APPEALS) HAS LEFT THIS ISSUE OPEN FOR TH E ASSESSING OFFICER WHICH IS TO BE ADJUDICATED WHEN ASSESSING OFFICER WILL G IVE EFFECT TO HIS ORDER OR OF THE HIGHER AUTHORITY. IN OUR UNDERSTANDING LEARNED FIRST APPELLATE AUTHORITY 33 HAS NOT COMMITTED ANY ERROR BECAUSE AS AND WHEN ASS ESSING OFFICER WILL DETERMINE THE INCOME OF THE ASSESSEE HE WILL SEE TH E BROUGHT FORWARD BUSINESS LOSSES AND UNABSORBED DEPRECIATION. HE WIL L TREAT BOTH THESE ITEMS IN ACCORDANCE WITH LAW. THUS THIS GROUND IS PRE-MAT URED ONE AT THIS STAGE. IT IS REJECTED. 32. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING RAISED AN ALTERNATIVE ARGUMENT. HE SUBMITTED THAT IF INTEREST INCOME IS EXCLUDED FROM OPERATING INCOME FOR THE PURPOSE OF COMPUTING ALP T HEN ESTIMATED EXPENSES ON ACCOUNT OF ADMINISTRATIVE SALARY ETC. BE COMPUT ED AND EXCLUDED FROM THE OPERATING COST. HE MADE A REFERENCE TO THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. WANDOOR JUPITOR CHITTRY. HE POINTED OUT THAT IN THIS CASE 10% OF EXPENSES HAVE BEEN ESTIMATED FOR E ARNING INTEREST INCOME. HE CLAIMED THAT AT LEAST 10% OF INTEREST INCOME BE CONSIDERED TOWARDS INTEREST COST. THIS ISSUE WAS NOT RAISED BEFORE THE LEARNED REVENUE AUTHORITIES BELOW. TO SOME EXTENT ARGUMENTS OF THE LEARNED COUN SEL FOR THE ASSESSEE IS LOGICAL ONE. WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR READJUDICATION AND GRANT NECESSARY BENEFIT TO THE A SSESSEE. IN VIEW OF THE 34 ABOVE DISCUSSION THE APPEAL OF THE ASSESSEE IN ASS ESSMENT YEAR 2002-03 IS PARTLY ALLOWED WHEREAS APPEAL OF THE REVENUE IS DIS MISSED. 33. IN ASSESSMENT YEAR 2003-04 AS OBSERVED EARLIER ONLY REVENUE IS DISPUTING THE DETERMINATION OF THE ALP. WE HAVE EXT RACTED THE RELEVANT POINTS EXPOUNDED BY THE LEARNED CIT(APPEALS) FOR DETERMINATI ON OF ALP IN PARAGRAPH 10 PAGE 11 OF THIS ORDER. THE FIRST ITEM IS EXCLUSION OF INTEREST INCOME FROM OPERATING INCOME. THIS ISSUE WE HAVE ALR EADY ADJUDICATED WHILE ADJUDICATING THIS ISSUE IN ASSESSMENT YEAR 2002-03. LEARNED CIT(APPEALS) HAS HELD THAT INTEREST INCOME CANNOT BE CONSIDERED AS FORMING PART OF OPERATING INCOME. THIS FINDING IS AGAINST THE ASSES SEE AND ASSESSEE IS NOT CHALLENGING THIS ISSUE IN ITS APPEAL. THE NEXT ITEM RELATES TO EXCLUSION OF INTEREST PAID TO INCOME-TAX VALUE OF FIXED ASSETS WRITTEN OFF PROVISIONS FOR GRATUITY ETC. THESE ITEMS WERE INCLUDED BY THE ASSES SEE IN THE OPERATING COST. LEARNED CIT(APPEALS) HAS HELD THAT THESE ARE TO BE EX CLUDED. THE ASSESSEE IS NOT DISPUTING THIS FACTOR AND REVENUE COULD HAVE NO T ANY GRIEVANCE. THE ONLY GRIEVANCE OF THE REVENUE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN HOLDING THAT EXPENSES OF `1 21 75 804 AS RELATED TO TRADING S EGMENTS AND IT CANNOT BE CONSIDERED IN THE COMMISSION SEGMENTS FOR THE PU RPOSE OF ALP. OTHER 35 ISSUES HAVE BEEN DECIDED AGAINST THE ASSESSEE. BY E XCLUSION OF THIS AMOUNT THE ARMS LENGTH REVENUE WORKED OUT ON THE BASIS OF TPOS REPORT COMES OUT TO `16 31 25 719 WHICH IS LESS THEN THE ACTUAL REVEN UE SHOWN BY THE ASSESSEE AT `16 38 07 933. THEREFORE ACCORDING TO THE LEARNED CIT(APPEALS) NO ADJUSTMENT IS REQUIRED IN THIS YEAR. LET US CONSIDE R WHETHER EXPENSES OF `1 21 75 804 IS A RELEVANT FIGURE THIS YEAR OR NOT. TH E BRIEF FACTS OF THE CASE ARE THAT IN THE FINANCIAL YEAR 2002-03 ASSESSEE TO OK TWO PROJECTS NAMELY TISCO PROJECT AND PURLIA PROJECT. IT HAD INCURRED TOTA L EXPENSES OF `2 82 92 590. OUT OF THESE EXPENSES A SUM OF `1 61 1 6 786 IS DIRECT SITE EXPENSES FOR BOTH THESE PROJECTS. THE OTHER AMOUNT I S THE INDIRECT EXPENSES/OVERHEADS. THE ASSESSEE HAS POINTED OUT THA T THESE TWO CONTRACTS HAS NOTHING TO DO WITH THE AGENCIES SUPPORT SERVICE S RENDERED BY THE ASSESSEE TO ITS A.E. THEREFORE THESE EXPENSES ARE NOT TO BE CONSIDERED WHILE DETERMINING THE ALP OF THE ASSESSEE. LEARNED CIT(APPEALS) AFTER TAKING NOTE OF ASSESSEES SUBMISSIONS AND ALSO CONSIDERING THE DETAILS OF PROJECT EXPENSES ON PAGE 31 HAS EXCLUDED THIS AMOUNT FROM C OMMISSION SEGMENTS. THE FINDINGS APART FROM THE DETAILS OF EXPENSES READ AS UNDER: 9.2 I HAVE GONE THROUGH THE ABOVE SUBMISSIONS THE APPELLANTS CASE IS THAT THEY HAVE INCURRED AN EXPENDITURE OF `2 82 92 590 ON TISCO 36 AND PURULIA PROJECTS WHICH RELATES TO THE TRADING S EGMENTS OF THE APPELLANTS BUSINESS. AS PART OF THE TRADING ACTIVI TIES THE APPELLANT HAS INCURRED DIRECT SITE EXPENSES TO THE TUNE OF `1 61 16 786 AND THE BALANCE `12 175 804 (`2 82 92 590 - `1 61 16 786) IS TOWARDS OF ALLOCATION OF INDIRECT EXPENSES/OVERHEADS. THE TPO DI D NOT ALLOW THE ALLOCATION OF INDIRECT EXPENSES TOWARDS THE TRADING SEGMENT AND INSTEAD TREATED THESE EXPENSES AS PART OF THE COMMI SSION SEGMENT ONLY. 9.3 DURING THE APPELLATE PROCEEDINGS THE APPELLANT SUBMITTED THAT THEY ARE MAINTAINIANG SEGMENTAL ACCOUNTS OF THE TRA DING AND COMMISSION BUSINESS ESPECIALLY THE PROJECTS WHICH ARE PART OF THE TRADING SEGMENT. SINCE APART FROM THE DIRECT COSTS I NCURRED ON A PROJECT THERE ARE OTHER INDIRECT COSTS WHICH ARE I NCURRED FOR THE OVERALL SUPERVISION OF THESE PROJECTS THE COST OF WHICH CA NNOT BE DIRECTLY IDENTIFIED AND ALLOCATED THEREFORE IT IS REASONAB LE TO CONCLUDE THAT SOME PORTION OF THESE INDIRECT COSTS ALSO KNOWN AS CORPORATE OVERHEADS NEED TO BE ALLOCATED TO THE TRADING SEGME NT AS WELL AS PARTICULAR PROJECT DEPARTMENT. HENCE I AGREE WITH T HE APPELLANTS CONTENTION THAT IN THE ABSENCE OF ANY ALLOCATION OF SUCH EXPENSES IT IS PRUDENT TO USE INCOME AS THE APPROPRIATE ALLOCATIO N KEY TO ALLOCATE SUCH OVERHEADS/INDIRECT EXPENSES TO THE TRADING SEG MENT. 34. ON DUE CONSIDERATION OF THE FINDINGS OF THE LE ARNED CIT(APPEALS) WE ARE OF THE VIEW THAT THESE EXPENSES HAVE NO RELA TION WITH THE INTERNATIONAL 37 TRANSACTIONS OF THE ASSESSEE THEREFORE THEY CANNO T BE CONSIDERED WHILE COMPUTING THE ALP OF THE ASSESSEE. LEARNED CIT(AP PEALS) HAS EXAMINED THE OTHER ASPECTS IN DETAIL. WE HAVE CONSIDERED THO SE ISSUES ALSO I.E. WHETHER LAST YEAR DATA HAS TO BE TAKEN INTO CONSIDERATION O R MULTIPLE YEARS DATA. WE HAVE CONSIDERED THIS ISSUE WHILE DEALING WITH THE D ETERMINATION OF THE ALP IN ASSESSMENT YEAR 2002-03. SIMILARLY WE HAVE CONS IDERED THE ISSUE IN RESPECT OF BUSINESS PROMOTION EXPENSES ETC. DISCUSS ED BY THE LEARNED CIT(APPEALS) ON PAGE NOS. 47 & 48 OF THE IMPUGNED O RDER. ON AN ANALYSIS OF THE LEARNED CIT(APPEALS)S ORDER WE DO NOT FIND ANY REASON TO INTERFERE IN IT ON THE ISSUE OF DETERMINATION OF TRANSFER PRI CING IN ASSESSMENT YEAR 2003-04. 35. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS DISMISSED. 36. THE ASSESSEE IN THE FIRST GROUND OF APPEAL FOR ASSESSMENT YEAR HAS PLEADED THAT LEARNED CIT(APPEALS) HAS ERRED IN DENY ING THE BENEFIT OF BROUGHT FORWARD TO UNABSORBED DEPRECIATION ALLOWANC E OF ` 1 55 34 911. IN ASSESSMENT YEAR 2002-03 WE HAVE CONSIDERED THIS I SSUE AND WE HAVE OBSERVED THAT LEARNED CIT(APPEALS) HAS RIGHTLY LEFT THIS ISSUE OPEN FOR THE ASSESSING OFFICER. ASSESSING OFFICER SHALL CONSIDER THIS EFFECT WHEN HE WILL GIVE EFFECT TO THE ORDER IN THE PAST YEAR. THUS IN OUR OPINION IT IS A 38 CONSEQUENTIAL ISSUE WHICH WILL BE CONSIDERED BY THE ASSESSING OFFICER AS WHEN HE WILL GIVE EFFECT TO THE ORDER OF THE LEARNE D CIT(APPEALS) OR THE HIGHER AUTHORITIES. 37. IN GROUND NO.2 ASSESSEE HAS SUBMITTED THAT LEA RNED CIT(APPEALS) HAS ERRED IN UPHOLDING THE CHARGING OF INTEREST UND ER SECTION 234B AND 234D. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTE D THAT CHARGING OF INTEREST UNDER SEC. 234B IS CONSEQUENTIAL IN NATURE HOWEVER INTEREST UNDER SECTION 234D IS NOT CHARGEABLE UPON THE ASSESSEE IN VIEW OF THE SPECIAL BENCHS DECISION OF THE ITAT RENDERED IN THE CASE O F ITO VS. EKTA PROMOTERS REPORTED IN 113 ITD 719. 38. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMST ANCES WE ARE OF THE OPINION THAT SECTION 234D HAS BEEN BROUGHT ON STATU TE BOOK FROM 1.6.2003. THE SPECIAL BENCH OF THE ITAT HAS HELD THAT IT IS A PPLICABLE FROM ASSESSMENT YEAR 2004-05. THUS INTEREST UNDER SECTI ON 234D IS NOT CHARGEABLE IN THIS YEAR. WE ALLOW THE GROUND OF APP EAL RAISED BY THE ASSESSEE PARTLY AND DIRECT THE ASSESSING OFFICER NOT TO CHAR GE INTEREST UNDER SEC. 234D OF THE ACT. 39 39. IN GROUND NO.3 ASSESSEE HAS PLEADED THAT LEARN ED REVENUE AUTHORITIES HAVE ERRED IN WITHDRAWING THE INTEREST GRANTED UNDE R SEC. 244A OF THE ACT. AT THE TIME OF HEARING LEARNED COUNSEL FOR THE ASS ESSEE DID NOT PRESS THIS GROUND OF APPEAL HENCE IT IS REJECTED. 40. THE ASSESSEE HAS MOVED AN APPLICATION UNDER RUL E 11 OF THE IT RULES FOR ADMISSION OF ADDITIONAL GROUND OF APPEAL IN BOT H THE YEARS. IT IS PLEADED IN THE APPLICATION THAT ASSESSEE HAS BEEN SHOWING I NTEREST INCOME AS INCOME FROM BUSINESS. ASSESSING OFFICER DID NOT ACCEPT THI S STAND OF THE ASSESSEE AND THE DISPUTE TRAVELED UP TO THE ITAT. THE ITAT H AS HELD THAT INTEREST INCOME IS TO BE TREATED AS BUSINESS INCOME. REVENUE TOOK THE MATTER IN THE HON'BLE HIGH COURT AND THEREAFTER TO THE HON'BLE SU PREME COURT. HON'BLE SUPREME COURT HAS ACCEPTED THE STAND OF THE ASSESSE E AND IN ASSESSMENT YEAR 2000-01 IT HAS BEEN HELD THAT INTEREST INCOME WOUL D BE ASSESSED AS BUSINESS INCOME. IN ORDER TO AVOID LITIGATION ASSESSEE IN T HIS ASSESSMENT YEAR HAS OFFERED INTEREST INCOME AS INCOME FROM OTHER SOURCE S BUT IN VIEW OF THE HON'BLE SUPREME COURTS DECISION ITS INTEREST INCO ME IS TO BE ASSESSED AS BUSINESS INCOME. 40 41. LEARNED DR ON THE OTHER HAND OPPOSED THE PRAYE R OF THE ASSESSEE AND SUBMITTED THAT IT ITSELF HAS SHOWN THE INTEREST INC OME AS AN INCOME FROM OTHER SOURCES THEREFORE IT CANNOT CHANGE ITS STAN D. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD C AREFULLY. I N VIEW OF THE HON'BLE SUPREME COURTS DECISION IN THE CASE OF NTP C LTD. REPORTED IN 229 ITR 383 WE PERMIT THE ASSESSEE TO RAISE THIS GROUN D. SINCE IN ASSESSMENT YEAR 2000-01 THE STAND OF THE ASSESSEE THAT INTERE ST INCOME IS TO BE ASSESSED AS A BUSINESS INCOME HAS BEEN ACCEPTED BY THE ITAT AND THEREAFTER THE ORDER HAS BEEN UPHELD BY THE HON'BLE HIGH COURT AS WELL A S HON'BLE SUPREME COURT. SINCE THIS ISSUE WAS NOT AVAILABLE BEFORE TH E ASSESSING OFFICER OR BEFORE THE LEARNED CIT(APPEALS) FACTUAL DETAILS AR E TO BE VERIFIED THEREFORE WE REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSI NG OFFICER FOR VERIFICATION AND READJUDICATION IN THESE YEARS. 42. IN THE RESULT APPEALS OF THE ASSESSEE ARE ALLO WED FOR STATISTICAL PURPOSES WHEREAS THE APPEALS OF THE REVENUE ARE DIS MISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 18.03.2011 (G.E. VEERABHADRAPPA ) ( RAJPAL YADAV ) VICE-PRESIDENT JUDICIAL MEMBER DATED: 18/03/2011 MOHAN LAL 41 COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR