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M/S. Kiri Dyes And Chemicals … vs The Asstt. Commissioner Of Income … on 30 July, 2021 आयकर अपीलीय अिधकरण, अहमदाबाद यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ” D” BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI MAHAVIR PRASAD, JUDICIAL MEMBER And SHRI WASEEM AHMED, ACCOUNTANT MEMBER Sl. ITA No(s) Asset. Appeal(s) by
No(s) Year(s) Appellant vs. Respondent
Appellant Respondent
1. 1849/Ahd/2016 2003-04 M/s. Kiri Dyes & A.C.I.T, Chemicals Ltd., Circle-2(1)(2), 53, Manekbaug Society, Ahmedabad. Lane No.7, Gate No.3, (Revenue) Ambawadi, Ahmedabad-380006. PAN No. AAACK9025C (Assessee)
2. 2295/Ahd/2016 2003-04 D.C.I.T, M/s. Kiri Dyes & Circle-2(1)(2), Chemicals Ltd., Ahmedabad. Ahmedabad (Revenue) (Assessee)
3. 1948/Ahd/2012 2008-09 Assessee Revenue
4. 2524/Ahd/2015 2010-11 Assessee Revenue
5. 1231/Ahd/2018 2010-11 Assessee Revenue
6. 3491/Ahd/2015 2011-12 Assessee Revenue
7. 44/Ahd/2016 2011-12 Revenue Assessee
8. 1850/Ahd/2016 2012-13 Assessee Revenue
9. 2296/Ahd/2016 2012-13 Revenue Assesse
10. 1654/Ahd/2017 2013-14 Assessee Revenue
11. 1814/Ahd/2017 2013-14 Revenue Assessee
12. 1655/Ahd/2017 2014-15 Assessee Revenue
13. 1815/Ahd/2017 2014-15 Revenue Assessee Assessee by : Shri T.P. Hemani, Sr. Advocate with Shri Parimal Sinh Parmar, A.R Revenue by : Shri Mohd Usman, C.I.T.D.R with Shri Raj Deep Singh, Sr.D.R सुनवाई क तारीख/Date of Hearing : 23/06/2021
घोषणा क तारीख /Da te of Pronouncement: 30/07/202 1 ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
2 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: 1. The captioned appeals have been filed at the instance of the Assessee and
the Revenue against the separate orders of the Learned Commissioner of Income
Tax (Appeals) Ahmedabad, involving the respective Assessment Years.
2. First we take up the appeal preferred by the assessee bearing ITA
No/1849/Ahd/2016 for A.Y. 2003-04, the assessee has raised the following
grounds of appeal.
1. The learned CIT(A) has erred both in law and on the facts of the casein confirming the disallowance u/s.10B to the extent of Rs.2,49,32,201/-.

2. The learned CIT(A) has erred both in law and on the facts of the case in holding that the authorized representative of the appellant gave concession of law which is binding on the assessee.

3. The learned CIT(A) has erred both in law and on the facts of the case in failing to appreciate that the learned ITAT had remitted the file to the AO for “fresh examination” of the claim as per law.

4. The learned CIT(A) has erred both in law and on the facts of the case in holding that the decision of Liberty India is applicable whereas the same has no application in the present case.

5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying interest u/s.234A/B/C/D of the Act.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
3. Before we touch upon the issue raised by the assessee in its various
interconnected grounds of appeal, we find pertinent to understand the history of
the case for the sake of better clarity of the issues involved in the impugned appeal.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
3 3.1 The assessee filed its original return of income for the year under
consideration dated 29th November 2003 declaring total income at ₹ 90,31,849/-
after claiming the deduction under section 80IB and 80HHC of the Act. The assessee
subsequently revised its return of income and claimed deduction under section 10B
of the Act on the reasoning that it was registered as 100% EOU w.e.f. 1st November
2002. The assessee in the revised return of income declared an income of ₹
29,18,932/- after claiming the exemption under section 10B of the Act. However,
the Assessing officer in the assessment framed under section 143(3) of the Act
dated 30th March 2006 denied the exemption claimed by the assessee for ₹
3,78,28,641/- under section 10B of the Act. Thereafter, the matter was carried to
the learned CIT (A), ITAT and the Hon’ble Gujarat High Court. The Hon’ble Gujarat
High Court eventually has set aside the issue to the AO in tax appeal No. 312 of
2008 vide order dated 23rd July 2008 for fresh adjudication.
3.2 In consequence to the direction of the Hon’ble Gujarat High Court, the AO
initiated the proceedings for fresh examination. The AO in the set-aside proceedings
found that the other income shown by the assessee in its financial statement is not
eligible for exemption under section 10B of the Act in view of the judgments of
Hon’ble Supreme Court in the case of CIT vs. Sterling Food reported in 237 ITR 579
and Pandian Chemicals Ltd. vs. CIT Reported in 262 ITR 278.
3.3 Besides this, the AO was also of the opinion that the assessee is not eligible
for exemption under section 10B of the Act for the reasons as detailed under:
i. It was mandatory on the part of the assessee to file the certificate of the chartered accountant for claiming the deduction under section 10B of the Act. But the same was not filed. However, the certificate which was filed along with the revised return of income was pertaining to the assessment year 2004-05.
ii. The approval for 100% EOU was granted in the middle of the year i.e. 1st November 2002.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
4 iii. If other income shown by the assessee are excluded for working out the exemption under section 10B of the Act, the income of the assessee from the eligible unit becomes negative. Thus there is no question for claiming or allowing the exemption under section 10B of the Act.

3.4 In view of the above, the AO denied the exemption claimed by the assessee
under section 10B of the Act and assessed the income in the assessment framed
under section 143(3) read with section 254/260B vide order dated 15th December
2008 determining the total income at ₹ 4,16,41,810/- only.
3.5 On appeal, the learned CIT (A) vide order dated 30th November 2009 held
that the assessee is eligible for exemption under section 10B of the Act with effect
from 1st November 2002. Meaning thereby that the assessee is not eligible for
deduction with respect to other income accrued or arise for the period 01-04-2002
to 31-10-2002 for deduction under section 10B of the Act. However the ld. CIT-A
was pleased to grant exemption under section 80IB and 80HHC for pre EOU period
income subject to verification and fulfilment of condition therein. Further with
respect to post EOU period, the learned CIT (A) found that the other income
declared by the assessee for the year is of ₹ 11,34,67,923/- only. Out of such other
income a sum of ₹ 5,55,31,132/- pertains to the pre-EOU period (i.e. upto 31st
October 2002) and the balance amount of ₹ 6,08,75,051/- pertains to the post EOU
period (i.e. from 1st November 2002). The learned CIT (A) further found that the
other income as declared includes Excise duty refund, Interest, DEPB etc which are
not the part of eligible income under section 10B as per Hon’ble supreme court
decision in case of Liberty India vs. CIT reported in 317 ITR 218. Accordingly the
learned CIT (A) excluded the entire other income of Rs. 6,08,75,051/- from the
computation of eligible profit under section 10B of the Act.
4. Against the order of this learned CIT (A), both the assessee and the Revenue
filed appeals before the ITAT in ITA Nos. 814 & 1035/AHD/2010. The ITAT vide
order dated 7th March 2014 held that the assessee is eligible for exemption under ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
5 section 10B of the Act for the post EOU period i.e. from 1st November 2002 in view
of the CBDT circular bearing number 1/05 dated 6-1-2005.
5. The ITAT also recorded in his order that the learned AR for the assessee has
fairly conceded that the assessee is not eligible for exemption with respect to the
other income namely Duty Drawback, DEPB and DEPB rate difference in view of the
Judgment of Hon’ble Supreme Court in case of Liberty India vs. CIT reported in 317
ITR 218. The relevant recording of the ITAT reads as under:
The ld.A.R has submitted that the issue with respect to income from DEPB Duty Draw back, DEPB Duty Draw Back difference are covered against the Asessee in view of the decision of Apex Court in the case of Liberty India(supra). Thus the Assessee would not be eligible for deduction under section 10B on the aforesaid items.
5.1 For the balance amount of other income, the ITAT also recorded in his order
that the ld. AR for the assessee contended that the same is covered in favor of
assessee. The relevant recording of the ITAT reads as under:
With respect to other incomes other than those covered against the assessee, it is submitted that the same are covered in favour of Assessee by the various decision cited hereinabove.
5.2 After recording the arguments of the ld. AR, the ITAT was pleased to set
aside the issue to the file of the AO for fresh examination after considering the other
income between the pre and post EOU period on the basis of the case laws cited by
the ld. AR. The relevant finding of the ITAT reads as under:
From the table it is seen that Assessee has bifurcated the income into 2 periods up to the period of granting of EOU status and subsequent to it. We are of the view that these factual aspect needs verification at the end of A.O. We therefore remit the issue to the file of A.O for fresh examination of the claim of Assessee, the bifurcation of income into 2 period in the light of the decisions cited reasonable opportunity of hearing to the Assessee. The Assessee shall be at liberty to furnish additional evidence before A.O. Thus this ground is allowed for statistical purposes.
5.3 In the 3rd round of litigation, the AO in the assessment framed under section
143(3) read with section 254 of the Act vide order dated 7th October 2015 denied
the exemption with respect to the other income aggregating to ₹ 6,00,87,989/-only.
The breakup of such other income stands as under:
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
6 Other Incomes DEPB Rs.2,41,94,222/-
DEPB Difference Rs.1,80,270/- Duty Draw Back Rs.5,57,529/- Excise Duty Refunds(M) Rs.3,15,58,576/- Excise Duty Refunds(T) Rs.9,69,840/- Bank Interest Rs.10,12,683/- Quality difference income Rs.41,720/- Bank Interest Rs.5,22,546/- Discount Income Rs.10,50,423/- Total Rs.6,00,87,989/- 5.4 The AO was of the view that other income namely Duty draw back, DEPB
and DEPB rate difference are covered against the assessee by the judgment of
Hon’ble supreme court in case of Liberty India vs. CIT (supra).
5.5 Similarly Excise duty refund cannot be included in eligible profit u/s 10B of
the Act as held by the E bench of Mumbai ITAT in case of Tessitura Monti India Pvt
Ltd. vs. ITO in ITA no. 7127/Mum/2010.
5.6 The AO with respect to bank interest & netting of the interest income,
exchange rate difference and rate difference in sale price held that the case law
relied upon by the assessee are challenged by the Revenue which are pending
before the higher forum, therefore at this juncture, the same cannot be allowed.
5.7 The AO further observed that the net income for the post EOU period
declared by the assessee was of Rs. 2,54,92,775/- which includes other income for
Rs. 6,00,86,989/-for the post EOU period which is not eligible for exemption.
Therefore, in the present scenario if the same is disallowed then, the eligible profit
becomes negative by Rs. 3,45,95,214/-. Therefore the assessee is not eligible for
deduction under section 10B of the Act.
6. Aggrieved assessee carried the matter before the ld. CIT-A. The learned CIT
(A) observed that the provision of section 10B (4) deals about the profit of the
business of the undertaking. Admittedly, it is a fact on record that all the income ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
7 shown under the head other income are business income of the assessee which was
duly recorded in the books of account and offered to tax as business income of the
eligible undertaking. Accordingly in view of the decision of Special Bench of ITAT in
case of Maral Overseas Ltd. vs. ACIT, 136 ITD 177 every income forming part of
the business income will be eligible for deduction under section 10B as per the ratio
provided therein.
7. However, the learned CIT (A) with respect to the income shown by the
assessee for DEPB, duty drawback and DEPB rate difference aggregating to Rs.
2,49,32,201/- held that the above income has already been decided not eligible for
exemption under section 10B of the Act by the ITAT vide order dated 7th March
2014 in ITA Nos. 814 & 1035/AHD/2010. Therefore, such income cannot be
considered as eligible income from the eligible unit at the level of the learned CIT
(A). Thus the learned CIT (A) allowed the partly relief to the assessee.
8. Being aggrieved by the order of the learned CIT (A), both the assessee and
the revenue are in appeal before us. The assessee is in appeal against the direction
of the learned CIT (A) for not allowing the exemption with respect to DEPB, duty
drawback and DEPB rate difference aggregating to Rs. 2,49,32,201/- whereas the
Revenue is in appeal against the direction of the learned CIT (A) for allowing the
exemption with respect to the other income pertaining to the post EOU period in
the ratio of export turnover to total turnover. The ground of appeal of the Revenue
in ITA number 2295/Ahd/2016 for A.Y. 2003-04 read as under:
1. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance made u/s.l0B treating the excise duty refund (M), excise duty refund (T), bank interest, quality difference income, discount income holding it eligible as profits of the business undertaking for computing the disallowance u/s.l0B without properly appreciating the facts of the case and the material brought on record.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.

3. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
8 9. The learned AR before us filed a paper book running from pages 1 to 42 and
contended that the ITAT in the 2nd round of litigation represented before it in ITA
No. 814 and 1035/AHD/2010 only made a reference to the submissions raised by
the learned AR at that relevant point of time. As such, the ITAT remitted the matter
to the file of AO for fresh examination without any specific finding on merit. The
learned AR further contended that the AO in the set-aside proceedings has decided
the issue against the assessee on merit and not on the basis of the direction
provided by the ITAT. Thus it can be inferred that there was no finding given by the
ITAT with respect to DEPB, Duty Drawback and DEPB rate difference income
aggregating to Rs. 2,49,32,201/- that the assessee is not eligible for exemption with
respect to such income of Rs. 2,49,32,201/-
9.1 without prejudice to the above, the learned AR further submitted that even
it is assumed that the concession has been given by the counsel for the assessee
before the ITAT in the 2nd round of litigation, then such concession is in the nature
of concession of law which is against the judgment of Hon’ble jurisdictional High
Court in case of Dishman Pharmaceuticals and Chemicals Ltd in Tax appeal number
192 of 2019. Furthermore, such concession can play no role to decide the issue
against the assessee as it was given under the wrong impression of the provisions
of law. The learned AR in support of his claim relied on the judgments:
I. Department of Elementary Education vs. Pramod Kumar Sahoo (2019) 10 SCC 674 II. Central Council for Research in Ayurveda vs. DK Santha Kumari (2001) 5 SCC 60 III. DCIT vs. KS Suresh 399 ITR 1(Mad) IV. Krishna B Aggarwal vs. ITO in ITA No 2176/Ahd/2012 10. However the learned DR submitted that the assessee has fairly conceded
before the ITAT that it is not eligible for exemption with respect to DEPB, Duty
Drawback and DEPB rate difference income aggregating to Rs. 2,49,32,201/-. The
ITAT accordingly decided the issue against the assessee.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
9 11. The learned AR in respect of the appeal filed by the Revenue contended that
the issue for allowing the exemption under section 10B of the Act after considering
income in the ratio of export turnover and total turnover has been decided in favour
of the assessee in the judgments as given under:
i. PCIT vs. Dishman Pharmaceuticals and Chemicals Ltd. in Tax Appeal No-
129 of 2019 (Guj) ii. Maral Overseas Ltd vs. ACIT (2012) 136 ITD 177(Indore) (SB) iii. Sonic Technology India Inc. vs. ITO in ITA No. 2665 & 2720/Ahd/2011 12. Both the learned AR and the DR before us vehemently supported the order
of the authorities below to the extent favourable to them.
13. We have heard the rival contentions of both the parties and perused the
materials available on record. The 1st question that arises for our adjudication
whether the other income shown by the assessee in its eligible undertaking is
entitled for the exemption under section 10B of the Act. The provisions of subsection
1 of section 10B of the Act provides that a deduction will be available to a 100%
EOU for the profit derived from the export of articles or things or computer software
for a period of 10 years. Thus the profit and gains derived from the export activities
by an eligible undertaking as discussed above is eligible for deduction under section
10B of the Act. The manner of computing the profits and gains from the export
activities of an eligible undertaking has been provided under subsection 4 to section
10B of the Act, which refers to the profit of the undertaking in the proportion of
export turnover and total turnover of such eligible undertaking. This can be
presented in the formula as given under:
Profit of the eligible undertaking X export turnover/total turnover of the eligible undertaking 13.2 Under the above provision, what has been referred is the profit of the eligible
undertaking which implies that all the income pertaining to such eligible undertaking
will be taken into consideration while working out the deduction. In holding so we ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
10 draw support and guidance from the judgment of Hon’ble special bench ITAT Indore
in case of Maral Overseas Ltd vs. ACIT (supra) where it was held as under:
It is clear from the plain reading of section 10B(1) that the said section allows deduction in respect of profits and gains as are derived by a 100 per cent EOU. Further, section 10B(4) stipulates specific formula for computing the profit derived by the undertaking from export. Thus, the provisions of sub-section (4) of section 10B mandate that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of export turnover by the total turnover. Thus, even though sub-section (1) of section 10B refers to profits and gains as are derived by a 100 per cent EOU, the manner of determining such eligible profits has been statutorily defined in sub-section (4) of that section. Both sub-sections (1) and (4) are to be read together while computing the eligible deduction under section 10B. One cannot ignore sub-section (4) of section 10B which provides specific formula for computing the profits derived by the undertaking from export. As per the formula so laid down, the entire profits of the business are to be determined which are further multiplied by the ratio of export turnover to the total turnover of the business. [Para 77] Section 10B sub-section (1) allows deduction in respect of profits and gains as are derived by a 100 per cent EOU. Section 10B(4) lays down special formula for computing the profits derived by the undertaking from export. [Para 78] Thus, sub-section (4) of section 10B stipulates that deduction under that section shall be computed by apportioning the profits of the business of the undertaking in the ratio of turnover to the total turnover. Thus, notwithstanding the fact that sub-section (1) of section 10B refers the profits and gains as are derived by a 100 per cent EOU, yet the manner of determining such eligible profits has been statutorily defined in sub-section (4) of section 10B. As per the formula stated above, the entire profits of the business are to be taken which are multiplied by the ratio of the export turnover to the total turnover of the business.
Sub-section (4) does not require an assessee to establish a direct nexus with the business of the undertaking and once an income forms part of the business of the undertaking, the same would be included in the profits of the business of the undertaking. Thus, once an income forms part of the business of the eligible undertaking, there is no further mandate in the provisions of section 10B to exclude the same from the eligible profits. The mode of determining the eligible deduction under section 10B is similar to the provisions of section 80HHC inasmuch as both the sections mandate determination of eligible profits as per the formula contained therein. The only difference is that section 80HHC contains a further mandate in terms of Explanation (baa) for exclusion of certain income from the “profits of the business” which is, however, conspicuous by its absence in section 10B. On the basis of the aforesaid distinction, sub-section (4) of section 10A/10B is a complete code providing the mechanism for computing the ‘profits of the business’ eligible for deduction under section 10B. Once an income forms part of the business of the income of the eligible undertaking of the assessee, the same cannot be excluded from the eligible profits for the purpose of computing deduction under section 10B. [Para 79] 13.3 Now coming to the case on hand, there is no ambiguity to the fact that the
other income as discussed above belongs to the eligible undertaking which was
offered as business income in the income tax return by the assessee. Accordingly
we hold that all the incomes shown by the assessee under the head other income
post EOU period are eligible for deduction under section 10B of the Act.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
11 13.4 Before parting, it is important to note that the ITAT on the earlier occasion
in ITA numbers 814 & 1035/Ahd/2010 vide order dated 7th March 2014 has given
the finding qua the fact that the other income comprising of to DEPB, Duty
Drawback and DEPB rate difference income aggregating to Rs. 2,49,32,201/- is not
eligible for deduction under section 10B of the Act. This finding of the ITAT was
based on the concession made by the learned counsel for the assessee. However,
it was contended by the learned AR for the assessee that the ITAT has not given
any finding respect to DEPB, Duty Drawback and DEPB rate difference income but
it was set aside to the AO for fresh adjudication after recording the concession
extended by the then learned AR for the assessee.
13.5 Now the controversy arises for our adjudication whether the ITAT has given
any finding qua the DEPB, Duty Drawback and DEPB rate difference income i.e. the
said income is on not eligible for deduction under section 10B of the Act. In this
connection, we have perused the finding of the ITAT. A close/minute reading of the
ITAT order reveals that there was no finding given by the ITAT except recording
the concession of the learned AR that the income namely DEPB, Duty Drawback and
DEPB rate difference income are not eligible for deduction under section 10B of the
Act. The relevant finding of the ITAT has already been reproduced in the previous
paragraph.
13.6 A question also arises for a consideration whether the tribunal was supposed
to give the independent finding with respect to the dispute where the assessee does
not agitate. Under the normal circumstances, the ITAT does not give any finding
based on reasons with respect to the disputes not agitated by the counsel of the
assessee. However, it is also pertinent to note that the ITAT in the same order has
also observed that certain issues stand in favour of the assessee but the ld. CIT-A
has not just followed the same blindly by allowing the same but adjudicated the
same on merit in his order. Thus in the light of above discussion, we hold that the ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
12 ITAT in his order on the previous occasion has not decided the issue on merit, just
remitted the same to the AO for de-novo adjudication.
13.7 In view of the above we direct the AO to allow the exemption to the assessee
with respect to DEPB, Duty Drawback and DEPB rate difference income in the
manner as discussed above. Hence the ground of appeal of the assessee is allowed
and the ground of appeal of the Revenue is dismissed.
14. In the result the appeal of the assessee is allowed  Coming to ITA number 2295/Ahd/2016 an appeal by the Revenue corresponding to A.Y. 2003-04 15. The Revenue has raised following grounds of appeal:
1. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance made u/s.l0B treating the excise duty refund (M), excise duty refund (T), bank interest, quality difference income, discount income holding it eligible as profits of the business undertaking for computing the disallowance u/s.l0B without properly appreciating the facts of the case and the material brought on record.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer.

3. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent.
16. At the outset we note that the Revenue’s grounds of appeal have been
adjudicated along with the assessee’s appeal in ITA No. 1849/Ahd/2016 for A.Y.
2003-04 where the issue has been decided against the Revenue. For the detail
discussion please refer the paragraph number 13 to 13.7 of this order. Accordingly
the Revenue Grounds of appeal are dismissed. In result the appeal of the Revenue
is dismissed.
 Coming to ITA No. 1948/Ahd/2012 an appeal by the Assessee corresponding to A.Y. 2008-09 ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
13 17. The assessee has raised the following grounds of appeal:

1. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in disallowing legal and consultancy fees of Rs.5,00,000/- paid to SBI Capital Markets ltd.

2. The Id. CIT(A) has erred in law and on the facts of the case in not allowing deduction of expenditure incurred in connection with the public issue u/s 35 of the Act after holding that the Appellant shall not be eligible to claim such deduction as the public issue is brought in the succeeding year and not during the year under consideration.
3. The Id. CIT(A) has failed to appreciate that there being no such kind of condition prescribed in the provisions of S.35D of the Act and there being satisfaction of all such conditions prescribed in S.35D of the Act, the deduction with regard to expenditure incurred in relation to public issue cannot be denied to the Appellant.

4. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in disallowing an amount of Rs.48,85,261/- being provision for diminution in value of investment.
5. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in not granting full claim of deduction u / s 10 B of the Act in totality at Rs.11,02,89,592/- as claimed by the assessee.

6. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in excluding duty draw back income of Rs.97,35,571/- from export profit to determine eligible profit for deduction u/s 10B of the Act.
7. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in allocating expenditure of Rs.1,13,34,211/-pertaining to Non-EOU unit to the EOU unit and accordingly both the lower authorities erred in law in reducing the profit to that extent form export profit to determine eligible profit for deduction u/s 10B of the Act.

8. Ld. CIT(A) has erred both in law and on facts of the case in not appreciating that the Id. AO had not increased eligible profit to determine deduction u/s 10B of the Act to the extent of entire amount of additions / disallowance made by the Id. AO.

9. The Id. CIT(A) has erred in law and on the facts of the case in confirming the action of Id. AO in increasing book profits u/s 115JB of the Act by a sum of Rs.48,85,261/- on account of provisions for diminution in value of assets.

10. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

11. The Id. CIT(A) has erred in law and on facts in confirming the action of Id. AO in charging interest u/s 234B/C/D of the Act.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
14 12. The ld.CIT(A) has erred in law and on facts in confirming the action of ld.AO in initiating penalty proceedings u/s.271(1)(c) of the Act.

The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the
grounds of appeal at the time of or before the hearing of the appeal.
18. The 1st issue raised by the assessee in ground Nos. 1 to 3 is that the learned
CIT (A) erred in confirming the order of the AO by treating the expenses of ₹ 5
lakhs paid to SBI Capital Markets Ltd as capital in nature related to the issue of
shares.
19. The assessee in the year under consideration has paid a consultancy fee of
₹ 5 lakhs to SBI Capital Market Ltd. As per the assessee, it was in the process of
launching public issue and such fees was paid for the study of the capital market.
The assessee in connection with such IPO has incurred the expenses of ₹
2,01,76,753/- in the year under consideration which was capitalized for claiming the
deduction under section 35D of the Act. The expenses fall under section 35D of the
Act are in the nature of fee paid to merchant banker, registrar to the issue, lawyers
and solicitors, printing and distribution of public issue application forms, holding
road show, media publicity, traveling and other types of expenses incurred in
connection with public issue. All the expenses as mentioned above in connection
with public issue were duly capitalized in the books of accounts.
19.1 It was contended by the assessee that the fees paid to SBI Capital Market
Ltd does not fall within the nature of expenses as provided under section 35D of
the Act. Therefore, the assessee treated the consultancy fee as revenue in nature.
Without prejudice to the above, the assessee also contended that the expenses
incurred in connection with the issue of shares are revenue in nature as held by the
Hon’ble Madras High Court in the case of CIT vs. Southern Petrochemicals Industries
Corporation Ltd. reported in 311 ITR 202.
19.2 However, the AO found that the impugned expenses were incurred by the
assessee for the purpose of the study of the capital market which was conducted ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
15 before the issue of IPO. Therefore, such expenses were incurred in connection with
the raising of funds through the issue of shares. Therefore, the same cannot be
treated as revenue in nature and the same needs to be capitalized in the books of
accounts. The AO in holding so has placed reliance on various judgments which are
recorded in para 5.4 on page 9 of his order. Accordingly, the AO disallowed the
claim of the assessee by treating the impugned consultancy fee as capital in nature
and made the addition to the total income of the assessee.
20. Aggrieved assessee preferred an appeal to the learned CIT (A).
21. The assessee before the learned CIT (A) reiterated the contentions made by
it during the assessment proceedings and further made alternate claimed that if the
impugned expenses are treated as capital in nature, then its claim under section
35D should be enhanced by such expenditure.
21.1 However, the learned CIT (A) found that the SBI Capital Market ltd has raised
the bill dated 26th October 2006 to the assessee. Thus the same pertains to the
previous year 2006-07 corresponding to assessment year 2007-08. Therefore, such
claim cannot be made in the year under consideration.
21.2 Furthermore, the learned CIT (A) found that such expenses were incurred by
the assessee for raising the funds by way of IPO and therefore the same cannot be
allowed as revenue expenses.
21.3 Likewise, the learned CIT (A) noted that the public issue was brought by the
assessee in the assessment year 2009-10 with effect from 22 nd April 2008 and
therefore the question of claiming deduction under section 35D of the Act arise in
the assessment year 2009-10. Therefore, the learned CIT (A) denied to entertain
the alternate claim made by the assessee. In view of the above, the learned CIT (A)
rejected the contention of the assessee.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
16 22. Being aggrieved, by the order of the learned CIT (A), the assessee is in
appeal before us.
23. The learned AR before us submitted that the amount of expenditure
negligible in value in comparison to the turnover of the assessee. Therefore, the
same should be allowed as deduction from the point of view of materiality concept.
The learned AR alternatively contended that if the impugned expenditure is not
allowed as revenue in nature then the same should be allowed under the provisions
of section 35D of the Act.
24. On the contrary, the learned DR vehemently supported the order of the
authorities below.
25. We have heard the rival contentions of both the parties and perused the
materials available on record. The facts of the case involved in the question have
already been extracted in the preceding paragraph which are not in dispute.
Therefore, for the sake of brevity, we’re not inclined to repeat the same. The 1st
controversy that arises for adjudication whether the expenses in dispute incurred
by the assessee are revenue in nature and therefore the same are allowable under
the provisions of section 37(1) of the Act. The provisions of section 37(1) of the Act
states that any amount of expenditure not being capital or personal in nature
incurred wholly and exclusively for the purpose of the business shall be allowed as
deduction. However, the onus lies upon the assessee to satisfy the conditions
imposed under section 37(1) of the Act. However the ld. AR before us has not
demonstrated based on the documentary evidence the purpose for which such
expenditure has been incurred. On perusal of the order of the AO, we note that
such expenditure has been incurred for study of capital market in connection with
IPO. Therefore, in our considered view the same cannot be allowed as deduction
by treating the same as revenue expenses under the provisions of section 37(1) of
the Act.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
17 25.1 The next controversy arises whether the impugned expenditure pertains to
the previous year 2006-07 as alleged by the learned CIT (A). Admittedly, the
expenditure was incurred in the earlier year but the same was claimed as deduction
in the year under consideration. However, there is no loss to the revenue in a
situation, if law permits, to allow the deduction in the year under consideration as
there is no change in the rate of tax applicable on the company in the year under
consideration viz a viz the earlier year. Therefore, on this count, the deduction of
the impugned expenditure cannot be denied as held by the learned CIT (A). But,
this finding of the learned CIT (A) becomes irrelevant as we have denied the claim
of the assessee for the deduction under section 37(1) of the Act.
25.2 The 3rd controversy arises for adjudication whether such expenditure is
eligible for deduction under section 35D of the Act. On perusal of the order of the
AO, we note that the impugned expenditure has been incurred in connection with
the IPO brought by the assessee. The relevant finding of the AO reads as under:
Admittedly, the amount paid to the above consultant was in relation to study of capital markets for raising capital via IPO route. No expenses relatable to raising of an IPO can be said to have been incurred for running of the current business of the assessee. Prima facie, raising of capital is an activity which is not part of regular activity of the assessee and any expenditure incidental to such activity is required to be debited to the capital so raised and cannot be passed through the normal P&L account. The assessee itself has disallowed all other expenses related to the public issue of shares by the company. Hence its claim that part of such expenditure was revenue in nature and should be allowed as such cannot be accepted.
25.3 Admittedly, the IPO was brought by the assessee in the month of April 2008
i.e. in the financial year 2008-09 and the expenses were incurred in the previous
year 2006-07. There is no denial under the provisions of section 35D of the Act for
the expenses incurred in the earlier year. What is required is this that the
expenditure incurred by the assessee should be eligible for deduction under the
provisions specified under section 35D of the Act. If, the expenditure is eligible for
deduction under section 35D of the Act then it is the duty of the Revenue to allow
the same despite the fact that the assessee has not claimed the same in the income
tax return. Thus the question arises whether the expenditure incurred in connection
with the study of the capital market are qualified for deduction under section 35D ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
18 of the Act. In this connection, the attention is drawn to sub-clause (iv) to clause (c)
to subsection 2 of section 35D of the Act which reads as under: (2) The expenditure referred to in sub-section (1) shall be the expenditure specified in any one or more of the following clauses, namely :–
(a)*******
(b)*******
(c) where the assessee is a company, also expenditure–
(i) *****
(ii) *****
(iii) ***
(iv) in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus;
25.4 The above clause has been interpreted by the Hon’ble Madhya Pradesh High
Court in the case of CIT vs. Shree Synthetics Ltd. reported in 162 ITR 819 that such
list of the expenses is illustrative nature. As such all the expenses incurred in
connection with the issue of shares since beginning till the completion of the IPO
are eligible for deduction under 35D of the Act. The relevant extract of the judgment
reads as under:
The word ‘being’ has been used in section 35D(2)(c )(iv) by way of illustration and is not restricted only to the words ‘underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus’.
There are the following stages in connection with the issue of shares for public subscription: (1) issue of prospectus and invitation to the public to subscribe, (2) making of calls, that is, entertainment of applications by subscribers, (3) acceptance by the company represented by allotment of shares, (4) actual issue of share scrip and entering the names of the shareholders in the register of members; and (5) expenses incurred after issue, i.e., payment of brokerage and underwriting commission, as also refund of excess amount over- subscribed. The word “being” used in section 35(D) must be read with reference to the context in which the words are used. It would include the last stage in connection with the issue of shares, namely, even refund of the amount of oversubscription in relation to those shares for which applications were invited.
25.5 In view of the above we hold that the assessee is eligible for deduction of
the impugned expenditure as per the provisions specified under section 35D of the
Act. Accordingly, the alternate ground of appeal of the assessee is allowed.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
19 26. The next issue raised by the assessee in ground No. 4 is that the learned CIT
(A) erred in confirming the addition made by the AO for Rs. 48,85,261/- on account
of provision for the diminution in the value of investments.
27. The assessee in the year under consideration has made a provision for Rs.
48,85,261/- representing the diminution in the value of investments as on balance
sheet date. As per the assessee, the accounting standard 13 issued by the ICAI
requires to record the investments as on the balance sheet date either at cost or
the market value whichever is lower. Therefore, the provision was made in the
books of accounts.
28. However, the AO found that such provision made by the assessee does not
represent the ascertained liability though the same was recorded as per the
accounting standard but the requirements of accounting standard cannot overturn
the provisions provided under the Act. Accordingly, the AO disallowed the claim of
the assessee.
29. On appeal, the learned CIT (A) was pleased to uphold the order of the AO.
Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before
us.
30. The learned AR before us has not made any contention on merit, rather, he
conceded the order of the authorities below. However, the learned AR before us
pleaded that as a result of disallowance of the claim of the assessee, the benefit
provided under section 10B of the Act should be allowed on the enhanced income
on account of such addition.
31. On the other hand, the learned DR vehemently supported the order of the
authorities below.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
20 32. We have heard the rival contentions of both the parties and perused the
materials available on record. The provisions of section 10B of the Act provides a
deduction to an eligible undertaking with respect to the profit and gains derived
from the export of articles or things or computer software. Admittedly, the assessee
in the case on hand is maintaining more than one undertaking as pointed out by
the AO in his order:
The assessee has three manufacturing units of which one is an EOU and the export profits of this unit are being claimed exempt under section 10B. the requisite certificate in form no56G has been filed during the course of assessment proceedings.
32.1 Now the 1st question that arises whether such investment was made by the
assessee in the undertaking eligible for deduction under section 10B of the Act. In
this connection our attention was drawn on pages 102 to 105 of the PB where the
profit and loss account of the eligible and non-eligible units were placed. On perusal
of the same, we note that such loss with respect to investments in mutual fund on
account of the diminution in its value has been shown in the profit and loss account
of the eligible unit. This fact was also not doubted by the authorities below. The
learned DR at the time of hearing has also not advanced any argument contrary to
the arguments advanced by the learned AR. Thus we can draw an inference that
such loss pertains to the eligible unit. Accordingly we direct the AO to enhance the
amount of deduction under section 10B of the Act by the amount of ₹ 48,85,261/-.
Hence the ground of appeal of the assessee is allowed in terms of above.
33. The next issue raised by the assessee in ground No. 5 to 8 is that the learned
CIT (A) erred in partly reducing the deduction claimed under section 10B of the Act.
34. The assessee in the year under consideration has shown duty drawback
income amounting to ₹ 97,35,571/- from its eligible undertaking. This amount of
Duty Drawback income was considered by the assessee in computing the deduction
under section 10B of the Act. However, the AO found that the assessee has claimed
double deduction with respect to such Duty Drawback income under section 10B of ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
21 the Act. As per the AO, the assessee has included such amount in working out the
profit and gains of the eligible undertaking in the ratio of export turnover and the
total turnover of the undertaking. Thereafter, the assessee has once again
considered such amount of Duty Drawback income independently and separately
while working out the deduction under section 10B of the Act in the ratio of export
turnover and the total turnover. Accordingly, the AO concluded that the assessee
has taken double benefit of deduction under section 10B of the Act with respect to
such income.
34.1 The AO also found that there was a sister concern of the assessee namely
Survin Laboratories which has shown an expense amounting to ₹ 2,80,05,452/-
only. As per the AO such sister concern has incurred the expenses on behalf of other
manufacturing undertaking of the assessee. Accordingly, the AO was of the view
that such expenses need to be allocated to the undertakings of the assessee being
eligible and no eligible undertaking.
34.2 On question by the AO, the assessee agrees to allocate the expenses of the
sister concern in the ratio of productions carried out by eligible and non-eligible unit.
The assessee further worked out an expense of ₹ 1,13,34,211/- attributable to the
eligible unit in the letter dated 16th December 2010. Accordingly the AO allocated
the expenses to the extent of ₹ 1,13,34,211/- to the eligible unit while working out
the deduction under section 10B of the Act.
35. Aggrieved assessee preferred an appeal to the learned CIT (A).
36. The assessee with respect to the Duty Drawback income of ₹ 97,35,571/-
contended that it has not claimed any double deduction and therefore the same
should be accepted in toto as shown in form 56 G issued by the chartered
accountant.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
22 36.1 The assessee with respect to the allocation of the expenses of the sister
concern namely Survin Laboratories for ₹ 1,13,34,211/- of the eligible unit
contended that it is maintaining separate income and expenditure account of its all
the units being 3 in numbers. Furthermore, the assessee has not incurred any
expense in the unit of sister concern attributable to the eligible undertaking.
36.2 However the learned CIT (A) disregarded the contention of the assessee by
observing as under:
In ground no, 6 the appellant objected the reduction of duty drawback of Rs. 97.35.571/- from eligible profits of EOU. It is seen that the duty drawback of Rs. 97,35,571/- is part of other income of EOU unit (Kiri), the total other incomes are of Rs. 3,33,60,996/-, whereas in making computation, the other incomes of Rs. 2,36,25,425/- are reduced, accordingly the amount of Rs.97,35,571/- i.e. duty drawback was not reduced and accordingly the profit is worked out at Rs. 12,37,32,567/-, which .is considered as eligible profit of the EOU unit and for working deduction u/s.108, the profit is worked out in the ratio of turnover at the same time the portion of incentive in the ratio of turnover is also added in making overall deduction u/s10B as claimed in IT Return, hence, the AO has rightly pointed out that the deduction is claimed double, once it is included in the eligible profits and secondly it is separately worked out as incentive. As the AO has rightly reduced duty drawback of Rs.97,35,571/- from the profits of EOU for computation u7s.10B, the action of AO is upheld. The Ground of appeal is dismissed.

(ii) In ground no. 7 the appellant objected the reduction of expenses of Survin Lab of Rs. 1,13,24,211/-from eligible profits of EOU. It is seen that The expenses of Survin Laboratories of Rs. 1,13,34,211/- are allocated to EOU unit (Kiri) as per working given by the appellant based on production, such expenses were not reduced by the appellant for working eligible profits of EOU unit, the same were reduced by AO as per working provided by the appellant. As the AO has rightly reduced expenses of Survin Laboratories of Rs.1,13,34,211/- from the profits of EOU for computation u7s.10B, the action upheld. The Ground of appeal is dismissed.
37. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal
before us:
38. The learned AR before us contended that the other income by way of Duty
Drawback of ₹ 97,35,571/- has been derived by the eligible undertaking and
therefore the same is eligible for deduction under section 10B of the Act.
38.1 The learned AR further submitted that the assessee has not claimed double
deduction with respect to duty drawback income as held by the authorities. For this ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
23 purpose, the learned AR drew our attention on pages 94 to 97 of the paper book
where the certified form 56 G was placed.
38.2 Regarding the apportionment of the expenses of the sister concern namely
Survin Laboratories, the learned AR contended that it is engaged in providing spray
Roy plants services which is not required by the eligible undertaking. Furthermore,
the sister concern is preparing separate income and expenditure account.
Accordingly, the learned AR contended that the impugned expenditure cannot be
allocated to the eligible undertaking.
39. On the other hand the learned DR vehemently supported the order of the
authorities below.
40. We heard the rival contentions of both the parties and perused the materials
available on record. It was alleged by the Revenue that the assessee has claimed
double deduction with respect to the other income of ₹ 97,35,571/- being Duty
Drawback. For this purpose, we have referred form 56 G certified by the chartered
accountant placed on pages 94 to 97 of the paper book. On perusal of the same we
note that, the profit of the eligible undertaking has been computed by taking the
turnover of the eligible undertaking. From this turnover there were various
deduction made in form 56 G. Such deductions include Freight and insurance on
export sale, trading export sales, indirect expenses, loss on export trading etc. 40.1 Furthermore, this eligible undertaking has shown the other income
separately. In other words the assessee has not computed the deduction under
section 10B of the Act with respect to Duty Drawback income while computing profit
on export turnover. Accordingly, the assessee has calculated separately the
deduction available with respect to such Duty Drawback income. These facts have
been verified from the form 56 G placed in the paper book as discussed above.
Accordingly we are of the view that, the authorities below have misunderstood the
detail filed by the assessee and wrongly drew an inference against the assessee by ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
24 holding that the assessee has claimed double deduction with respect to duty
drawback income. On this count, we allow the ground of appeal of the assessee.
40.1.1 Coming to the allocation of the expenses of the sister concern. In this
regard we find that the sister concern of the assessee is only incurring the expenses
without showing any income. The sister concern was exclusively working for the
undertaking of the assessee. Therefore, in our considered view such expenses needs
to be allocated to the undertakings of the assessee being eligible and non-eligible
unit. However, it was contended by the learned AR before us that the eligible
undertaking has not taken any services from the sister concern. Therefore, there
should not be any expense of the sister concern to be allocated to the eligible
undertaking for the purpose of computing the deduction under section 10B of the
Act. Nevertheless, contention of the assessee was not based on any documentary
evidence.
40.2 Besides the above, we also note that the assessee vide letter dated 16th
December 2010 itself has admitted for the allocation of the expenses of the sister
concern. The relevant finding of the AO reads as under:
Accordingly, it has submitted vide its letter dated 16/12/2010 that out of the total expenses of the unit Rs.1,13,34,211/- can be said to be attributable to Kiri EOU and hence needs to be factored in while computing the deduction. The assessee has made further submission dated 30/12/2010 stating the reason for apportionment of expenses relating to Survin between EOU and non-EOU.
40.3 Thus, we find that the contention of the learned AR before us is contrary to
the finding of the authorities below.
40.4 That as may be, the learned AR before us prayed to provide one more
opportunity to the assessee to justify its stand that the expenses incurred by the
sister concern are not attributable to the eligible undertaking. The prayer of the
learned AR was not objected by the learned DR appearing on behalf of the Revenue.
Accordingly in the interest of justice and fair play we are inclined to remit the issue
to the file of the AO for fresh adjudication de novo to this extent in accordance to ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
25 the provisions of law. Hence, the ground of appeal of the assessee is allowed for
the statistical purposes.
41. The next issue raised by the assessee in ground No. 9 is that the learned CIT
(A) erred in confirming the order of the AO by making addition to the book profit
computed under section 115JB of the Act for ₹ 48,85,261/- on account of provision
for diminution in the value of assets.
42. The assessee in its profit and loss account has shown provision for diminution
in the value of investment amounting to ₹ 48,85,261/- only which was added to the
total income of the assessee/ book profit computed under normal computation of
income and 115JB of the Act.
43. On appeal, the assessee contended that the provision was made with respect
to the diminution in the value of assets which does not represent the provision
respect to the unascertained liabilities. Therefore there cannot be any adjustment
in the book profit of the assessee. However, the learned CIT (A) was pleased to
confirm the order of the AO by observing as under:
I have carefully considered the facts of the case, submissions of the appellant-company before me, provisions of the law and decisions of Hon’ble Supreme Court relied by the appellant. The position of law as on the date of balance sheet was different, whereas through Finance (No. 2} Act; 2009, para (i) is substituted, therefore, the amounts set-aside as provision for diminution in the value of any asset requires to be added for the computation of book profit. Such provisions were made with retrospective effect from 01,04.2001, therefore, the AO at the time of framing the assessment order on 30.12.2010, considered the amended provisions and made addition of diminution in the value of assets in computation of book profit. As the AO has rightly added the amount of provision for diminution in value of asses, the action of AO is upheld. The Ground of appeal is dismissed.
44. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal
before us.
45. The learned AR before us submitted that the issue is covered in favour of the
assessee by the Judgment of Hon’ble Gujarat High Court in the case of Vodafone
Essar Gujarat Ltd reported in 397 ITR 55 ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
26 46. On the other hand the learned DR vehemently supported the order of the
authorities below.
47. We have heard the rival contentions of both the parties and perused the
materials available on record. The facts relating to the case have already been
elaborated in the preceding paragraph which are not in dispute. Therefore, we are
not inclined to repeat the same for the sake of brevity and convenience. The
controversy that needs to be addressed so as to whether the assessee is eligible for
deduction with respect to the provisions made against the diminution in the value
of assets as discussed above while determining the book profit under section 115JB
of the Act. This controversy has been resolved by the Hon’ble Gujarat High Court in
the case of CIT Vs. Vodafone Essar Gujarat Ltd. reported in 397 ITR 55 wherein it
was held as under:
“With insertion of clause (i) to the explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB of the Act. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset aside of the balance sheet as net of the provision for bad debt, it would amount to a write off and such actual write off would not be hit by clause (i) of the explanation to section 115JB.”
47.1 It was contended by the learned AR at the time of hearing that the assessee
has written off such diminution in the value of assets against the investments. The
learned AR has not brought anything on record contrary to the arguments advanced
by the learned AR for the assessee. We have also perused the balance sheet of the
assessee placed on pages 4 to 21 of the paper book and find that there was no
provision created on the side of liability in the balance sheet of the assessee.
Accordingly, it seems that the assessee has actually adjusted such loss on account
of diminution in the value of assets against the investments. Hence, the principles
laid down by the Hon’ble Gujarat High Court in the case of Vodafone Essar Gujarat
Ltd (supra) are squarely applicable to the facts of the case on hand. Accordingly we
direct the AO to delete the addition made by him while determining the books profit ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
27 under the provisions of section 115JB of the Act. Hence the ground of appeal of the
assessee is allowed.
48. The issue raised vide ground no 10 to 12 by the assessee are either general
or consequential or premature to decide. Accordingly we dismiss the same being
general or consequential or premature.
49. In the result appeal of the assessee is partly allowed.
 Coming to ITA No. 2524/Ahd/2015 an appeal by the Assessee corresponding to A.Y. 2010-11 50. The assessee has raised the following grounds of appeal:
1. Learned CIT(A) has erred in law and on facts of the case in confirming the action of learned AO in disallowing interest and administrative expenditure u/s.14A r.w.r.8D in the sum of Rs.35,23,174/- out of the total disallowance of Rs.74,70,778/-.

2. Learned CIT(A) ought to have appreciated that the appellant has already discharged its onus and in absence of any material on record contrary to the claim, the disallowance u/s.14A r.w.r. 8D was uncalled for.

3. The learned CIT(A) has erred in law and on facts of the case in confirming the action of AO in treating rent income as “income from other sources” and thereby disallowing Rs.2,94,000/- on account of standard deduction claimed u/s.24 of the Act.

4. The learned CIT(A) has erred in law and on the facts of the case in confirming the action of learned AO in adding disallowances u/s.14A of the Act to book profit calculated u/s.115JB of the Act. In the facts and circumstances of the case, expenses in relation to any exempt income have not been debited in the profit and loss account and thus estimation of such expenses as per S.14A r.w.r.8D cannot be made basis for adjusting book profit u/s.115JB of the Act.

5. The learned CIT(A) has erred in law and on the facts of the case in not reducing income of Rs.5,46,37,200/- offered for tax in AY 2009-10 under the normal provisions of the Act from the book profit while calculating MAT for the year under consideration. Ld.CIT(A) failed to appreciate that this income has already been taxed under the normal provisions of the Act in earlier year and therefore the same cannot once again be taxed under the provisions of MAT for the year under consideration.

6. The learned CIT(A) has erred in law and on the facts of the case in disallowing advertisement, consultancy, stationery and travelling expenses in relation to IPO, amounting to Rs.23,93,179/- u/s.35D of the Act.

7. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations and information ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
28 submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

8. The ld.CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying interest u/s.234A/B/C/D of the Act.

9. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in initiating penalty u/s.271(1)(c) of the Act.

50.1 The first issue raised by the assessee vide ground nos. 1 & 2 is that the
learned CIT(A) erred in confirming the action of AO by invoking the provisions of
section 14A r.w.r. 8D of Income Tax Rules without recording dissatisfaction about
its claim.
51. The assessee in the year under consideration claimed exemption of ₹
35,23,171/- under section 10(34) of Act with respect to its dividend income. The
assessee also claimed interest expenses of ₹ 27,16,53,000/- in the return of
income. But there was no disallowances of expenses made by the assessee under
section 14A of the Act against such exempted income. Accordingly, the AO invoked
the provisions of rule 8D of the Income Tax Rule and worked out the amount of
disallowances at ₹ 74,07,778/- being ₹ 62,03,170/- on account of interest and ₹
12,67,608/- on account of administrative expenses which was added to the total
income of the assessee.
52. Aggrieved assessee preferred an appeal before the learned CIT (A) who
restricted the addition to the extent of exempted income of ₹ 35,23,174/- only.
53. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal
before us.
54. The learned AR before us filed a paper book running from pages 1 to 151
and submitted that the own fund of the assessee exceeds the amount of investment.
Therefore there cannot be any disallowance of interest expense.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
29 55. On the other hand, the learned DR before us submitted that the assessee
failed to establish based on the documentary evidence that the borrowed fund was
not utilized in the investments. The ld. DR vehemently supported the order of the
authorities below.
56. We heard the rival contention of the both parties and perused the materials
available before us. The fact of the case have been elaborated in previous
paragraph, hence for the sake of brevity, we are not inclined to repeat the same.
At the outset we note that the AO has made the addition on two folds i.e. on account
of interest expenses and on account of administrative expenses.
56.1 Regarding the addition made on account of interest expenses, we note that
the assessee has substantial amount of interest free fund in the form of share capital
and reserve which exceeds the amount of investment. This fact can be verified from
the Balance Sheet of the assessee. The relevant page of the Balance Sheet, placed
on page number 7/Y of paper book, is extracted below:
Balance Sheet as at 31st March, 2010 Particulars Annexure As At (Rs.in Lacs) 31.03.2010 As At 31.03.2009 SOURCES OF FUNDS:
Capital & Liabilities:
Share capital A 1500.01 1500.01 Reserves & Surplus B 13022.59 10795.66 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Investments F 11826.74 1660.42 56.2 In view of the above, it can be presumed that the assessee has used its own
fund in the impugned investment and therefore there cannot be any disallowance
on account of interest expenses. Regarding this the Hon’ble Courts have held that
where own interest free fund of the assessee is sufficient enough to meet the
investment then no any disallowances on account of interest is warranted under ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
30 section 14A r.w.r. 8D of the Act. In this respect we draw support from the judgment
of Hon’ble jurisdictional High Court in the case of CIT vs. Torrent Power Ltd reported
in 363 ITR 474 where it was held as under:
It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] 56.3 Respectfully following the same we set aside the finding of the ld. CIT (A)
and direct the AO to delete the addition made by him on account of interest
expenses.
56.4 Coming to the second fold of addition i.e. addition on account of
administrative expenses, in this regard we note that the learned AR before us has
not advanced any contention. As such the onus lies upon the assessee to provide
the documentary evidence that it has not incurred any expense against the
exempted income. In the absence of such details, the AO had no option except to
resort to the provisions of section 14A read with rule 8D for making the disallowance
against the exempted income. However, it is also pertinent to note that the amount
of disallowance under section 14A r.w.r. 8D cannot exceed the amount of exempted
income as held by the Hon’ble Delhi High Court in case of P.CIT vs. Craft Builders &
Construction (P.) Ltd. reported in (2019) 101 taxmann.com 167 further SPL filed by
the revenue against such order was dismissed by the Hon’ble Supreme Court in 112
taxmann.com 322 where the Hon’ble High court held as under:
“25. Total exempt income earned by the respondent-assessee in this year was Rs. 19 lakhs. In these circumstances, we are not required to consider the case of the Revenue that the disallowance should be enhanced from Rs. 75.89 crores to Rs. 144.52 crores. Upper disallowance as held in Pr. CIT v. McDonalds India (P.) Ltd. ITA 725/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year. This decision follows the ratio and judgment of the Supreme Court in the case of Maxopp Investments Ltd. v. CI T[2018] 402 ITR 640/254 Taxman 325/91 taxmann.com 154 and the earlier judgments of the Delhi High Court in Cheminvest v. CIT [2015] 378 ITR 33/234 Taxman 761/61 taxmann.com 118 and CIT v. Holcim (P.) Ltd. [2015] 57 taxmann.com 28 (Delhi).”
56.5 In view of the above we direct the AO to limit the disallowance of the
administrative and interest expenses, if any, then it should be lower of exempted ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
31 income or the disallowance made under section 14A r.w.r. 8D of Rules of Income
Tax Rules. Accordingly, we confirm the disallowance made by the AO which was
subsequently confirmed by the learned CIT (A) towards the administrative
expenses. Thus the grounds of appeal raised by the assessee is partly allowed.
57. The 2nd issue raised by the assessee in ground No. 3 is that the learned CIT
(A) erred in confirming the order of the AO by treating the rental income as the
income from other sources and thereby disallowing the deduction claimed under
section 24 of the Act for ₹ 2,94,000/- only.
58. The assessee in the year under consideration has declared rental income of
₹ 9,80,000/- and claimed the standard deduction under section 24 of the Act for ₹
2,94,000/- being 30% of the rental amount. However the AO found that the
assessee has let out the open plot of land on which a shed was constructed by the
tenant. Accordingly he was of the view that the impugned rent has been received
by the assessee from letting out the plot of land without having any building.
Therefore, such rent cannot be categorized as income under the head house
property. Accordingly the AO treated the rental income declared by the assessee
under the head income from house property as income from other sources and thus
disallowed the standard deduction claimed by the assessee for ₹ 2,94,000/- by
adding to the total income of the assessee.
59. On appeal, the learned CIT (A) was pleased to confirm the order of the AO.
60. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal
before us.
61. The learned AR before us contended that there was a shed constructed by
the tenant on the land which was taken on rent from the assessee. This fact has
not been disputed by the authorities below. The section i.e. 22 of the Act provides
to charge the tax on rent based on the annual value of the building or land
appurtenant thereto. Thus to attract the provisions of section 22 of the Act there ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
32 has to be a building. Thus a mere land cannot be subject to the provisions of house
property income if it is let out. However, if there is a land appurtenant to the
building, then the rent with respect to such land shall be subject to the provisions
of income under the head house property. The Legislature has not used the word
building and land appurtenant thereto. Furthermore, there is no requirement under
the provisions of section 22 of the Act that both the building and the land should be
owned by the assessee. As such, it is sufficient enough to charge the rental income
from the land under the head house property provided it is appurtenant to the
building. Accordingly it was contended by the learned AR that the conditions as
specified under section 22 the Act have been satisfied.
62. On the other and the learned DR vehemently supported the order of
authorities.
63. We have heard the rival contentions of both the parties and perused the
materials available on record. The fact of case have already been elaborated in
previous paragraphs, hence for the sake of brevity we are not inclined to repeat the
same. The question arises before us, whether rent received from letting out of an
open land on which some shades were constructed by the tenant can be classified
as income from house property being land appurtenant to building under section 22
of the Act. What we find from the fact of case is that it was open land which was
out let out not the building and rental income received for the letting out of land
not shades or building. Thus in our humble understanding, the impugned rent
cannot be treated as income from building or shades for the reason that what was
let out is an open land not the building or shades. In this regard we draw support
and guidance from the order of the Hon’ble Punjab and Haryana High Court in case
of Govardhan Dass & Sons Vs. CIT reported in (2007) 158 Taxmann 465 (P&H)
where the Hon’ble Court held as under:
“It was clear from the statement of case that what was let out was kutcha plinths on open land, which by no stretch of imagination could be termed as house property. The property in question, from which income was derived, was neither building nor land appurtenant thereto within the meaning of section 22. [Para 6] ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
33 A plain reading of section 22 provides that it is the income from property consisting of any ‘building’ or ‘land appurtenant thereto’ which is assessed under section 22 and not the income from renting out of open land or some kutcha plinth only. In the instant case, no building having been let out, there was no question of treating the rent received for letting out of land only as income from house property. [Para 7] What is covered by the expression ‘appurtenant’ is the land which is necessary for enjoyment of the building and not the land only. [Para 8]”
63.1 Respectfully following the same we uphold the finding of the authorities
below. Thus the ground of appeal raised by the assessee is dismissed.
64. The next issue raised by the assessee in ground no. 4 is that the learned CIT
(A) erred in confirming the disallowance made by the AO in part for ₹ 35,23,174/-
while computing the book profit under the provisions of section 115JB of the Act.
65. The AO while determining the income under normal computation has made
the disallowance under the provisions of section 14A read with rule 8D amounting
to ₹ 74,07,778/- which was added to the total income of the assessee. Likewise,
the AO has also made the addition of the similar amount under clause (f) of
explanation-1 to section 115JB of the Act, while determining the book profit.
66. Aggrieved assessee preferred an appeal to the learned CIT (A) who has
restricted the addition under clause (f) of explanation-1 to section 115JB of the Act
to the extent of exempted income.
67. Being aggrieved, by the order of the learned CIT (A) the assessee is in appeal
before us.
68. The learned AR before us contended that the amount of disallowance made
under section 14A read with rule 8D cannot be considered for determining the book
profit under section 115JB of the Act.
69. The learned AR alternatively contended that 1% of the exempted income can
be disallowed while computing the book profit under section 115JB of the Act.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
34 70. On the other hand the learned DR vehemently supported the order of the
authorities below.
71. We have heard the rival contentions of both the parties and perused the
materials available on record. The AO in the instant case has made the disallowance
under section 14A r.w.r. 8D of the Income Tax Rules for Rs. 74,07,778/- while
determining the income under normal computation of income. Further, the AO while
determining the book profit under Minimum Alternate Tax (MAT) as per the
provisions of section 115JB of the Act, has added the disallowance made under the
normal computation of income under section 14A r.w.r. 8D of Income Tax Rule for
Rs. 74,07,778/- in pursuance to clause (f) of explanation 1 to section 115JB of the
Act which was restricted to Rs. 35,23,174/- by the learned CIT (A) to the extent of
exempted income.
71.1 However, we note that in the recent judgment of Special Bench of Hon’ble
Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82
Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot
be the subject matter of disallowances while determining the book profit u/s 115JB
of the Act. The relevant portion of the said order is reproduced below:
“In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962.”
71.2 The ratio laid down by the Hon’ble Tribunal is squarely applicable to the facts
of the case on hand. Thus it can be concluded that the disallowance made under
section 14A r.w.r. 8D cannot be resorted while determining the expenses as
mentioned under clause (f) to explanation 1 to section 115JB of the Act.
71.3 However, it is also important to note that the disallowance needs to be made
with respect to the exempted income in terms of the provisions of clause (f) to ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
35 section 115JB of the Act while determining the book profit. In holding so, we draw
support from the judgment of Hon’ble Calcutta High Court in the case of CIT Vs.
Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated
19.11.14 wherein it was held that the disallowance regarding the exempted income
needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act
independently. The relevant extract of the judgment is reproduced below:-
“We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act.”
71.4 Given above, we hold that the disallowances made under the provisions of
Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of section
115JB of the Act as per the direction of the Hon’ble Calcutta High Court in the case
of CIT Vs. Jayshree Tea Industries Ltd. (Supra). But the disallowance needs to be
made with respect to the exempted income in terms of the provisions of clause (f)
to section 115JB of the Act while determining the book profit.
71.5 Now the question arises how to determine the disallowance as per the clause
(f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note
that there is no mechanism/ manner given under the clause (f) to Explanation-1 of
Sec. 115JB of the Act to workout/ determine the expenses with respect to the
exempted income. Therefore in the given facts & circumstances, we feel that ad-
hoc disallowance will serve the justice to the Revenue and assessee to avoid the
multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to
make the disallowance of 1% of the exempted income as discussed above under
clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel necessary to bring
this fact on record that we have restored other cases involving identical issues to
the file of AO for making the disallowance as per the clause (f) to Explanation-1 of
Sec. 115JB of the Act independently. But now we note that since there is no
mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
36 to make the disallowance independently, therefore our action for restoring back the
issue to the file of AO would unnecessarily cause further litigation. Thus we limit the
disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause
(f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the
assessee is partly allowed.
72. The next issue raised by the assessee in ground No. 5 was not pressed. So
we accordingly dismiss the same as not pressed.
73. The next issue raised by the assessee in ground No. 6 is that the learned CIT
(A) erred in confirming the disllowance of ceratin expenses namely advertisment,
consultancy, stationary and travelling out of calim made under section 35D of the
Act.
74. The necessary fact of the issue on hand is that the assessee made public
issue of shares in order to finance its new project. In the process of IPO the
assessee incurred certain expenses and treated them as preliminary expenses under
section 35D of the Act. However the assessee missed out to claim the deduction of
the preliminary expenses in the return of income for ₹ 5,01,82,479/- only. Thus the
assessee made the claim before the learned CIT (A) first time by way of rasing an
additional ground of appeal. In the remand report the AO objected on the
allowability of claim of the assessee with regard to the follwing expenses:
1. IPO advertisment expenses for ₹ 10 lakh for the reason that tax at source was not deducted by the assessee.
2. IPO consulatncy fee for ₹ 2,25,000/- for the reason that the tax at source was not deducted by the assessee
3. IPO stationary expenses for ₹ 85,56,884/- for the reason that the assessee was not able substantiate its claim based on documentary evidences that the expenses were incurred.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
37 4. IPO travelling expenses for ₹ 31,24,910/- for the reason that the assessee was not able substantiate its claim based on documentary evidences that the expenses were incurred.
75. Accordingly, the learned CIT (A) reduced the claim of the assessee by ₹
23,93,179/- being aggregate of the above mentioned expenses. The relevant finding
of the ld. CIT-A reads as under:
7.9.7.2 Except to the above observations of the AO, no other adverse findings about the. veracity of the claim of expenditure on IPO were noticed by the AO In-the remand proceedings. Neither the AO has given any observations that the claim of expenditures on IPO made were not allowable u/s. 35D of the I. T. Act and same was not as per law. Considering the adverse observations as listed above, and submission of the appellant, the total claim of expenditure made by the appellant at Rs.5,01,82,479/- is reduced by the following items:-
(i) IPO Advertisement Expenditure Rs.10,00,000/- (ii) IPO consulting fees Rs. 2,25,000/- (iii) 1PO Stationery expenses of Rs.8,55,688/-being 10% of the total claim of
Rs.8556884/-. The AO has not found any specific defects in respect of the claim.

(iv) IPO travelling expenses of Rs.3,12,491/-being 10% of the total claim of Rs.31,24,910/-.The AO has not found any specific defects in respect of the claim.

7.9.8. In view of the aforesaid discussion, total disallowance of the claim of expenditures works out to Rs. 23,93,179/- which is reduced from the total claim of expenditure at Rs. 5,01,82,479/- and in result the balance claim of expenditure amounting to Rs.4,77,89,300/- is directed to be considered for deduction u/s. 35D of the I. T. Act, 1961. Since the provisions of section 40(a)(ia) of the I.T. Act are attracted on the payments towards various expenditures amounting to Rs.23,93,179/- and hence disallowance of these expenditures to the extent of an amount of Rs.23,93,179/- is upheld and same is reduced from the total claim of expenditure u/s. 35D of the I. T. Act as mentioned above. It has been noticed that in the appellate proceedings, the appellant has claimed the deduction @ 20% every year in view of the provisions of section 35D{2) of the I. T. Act, 1961, since the AO has not given any observations about the rate of allow ability of the same i.e. @ 20% or the 10% every year and hence, the AO is directed to allow the claim in view of the provisions of section 35D of the . T. Act, 1961 after necessary verification. In result, the claim of deduction u7s. 35D of the Act made through the additional ground of appeal is partly allowed.
76. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal
before us.
77. The learned AR before us contended that all the expenses in dispute have
been incurred only for the purpose of the IPO. Likewise, the payments were made ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
38 through the banking channel. Similarly these expenses were not debited in the profit
and loss account. Furthermore, the books of accounts were duly audited and
accepted by the authorities below.
77.1 The learned AR alternatively contended that the disallowance needs to be
made then it should be restricted to 30% of such expenses as per the amended
proviso to section 40(a)(ia) of the Act.
77.2 The learned AR further alternatively submitted that the recipient of the
expenses in dispute have already offered the same to tax and therefore no
disallowance can be made under the provisions of section 40(a)(ia) of the Act on
account of non-deduction of TDS.
78. On the other hand, the learned DR vehemently supported the order of the
authorities below.
79. We have heard the rival contentions of both the parties and perused the
materials available on record. The deduction under section 35D was not allowed to
the assessee with respect to the expenditures which can be broadly categorised as
under:
i. lack of supporting evidence in respect of stationary and travelling expenses.
ii. IPO and consultancy expenses were incurred without deducting the TDS.

79.1 Regarding the statutory and travelling expenses, we find that there was no
documentary evidence furnished by the assessee in support of his claim. Therefore
we do not find any reason to interfere in the order of the learned CIT (A).
Accordingly we deny the deduction of stationary and travelling expenses amounting
to ₹ 8,55,688/- and ₹ 3,12,491/- respectively under the provisions of section 35D
of the Act.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
39 79.2 Coming to the expenses incurred without deducting the TDS, in this
connection the first controversy arise whether the provision of section 40(a)(ia) can
be invoked in the case of deduction claimed under section 35D of the Act. For this
purpose we refer the provisions of section 40 of the Act which reads as under:
40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,–
79.3 The above provisions overrides the provisions contained under section 35D
of the Act. Therefore, though the expenses which are eligible for deduction under
section 35D of the Act but the same cannot be allowed as deduction in the event
the TDS was not deducted.
79.4 Regarding the alternate contention by the learned AR, we find force in the
argument advanced by the Learned AR that if the recipient of consultancy and
advertisement fees has paid the taxes on the amount received from the assessee,
then there will be no any disallowance warranted under section 40(a)(ia) of the Act.
Indeed the said provision, though inserted by the Finance Act 2012 w.e.f. 1-4-2013,
has been held to be retrospective in operation by recent decision of the Hon’ble
Delhi High Court in the case of CIT v. Ansal Land Mark Township (P) Ltd. (2015) 61
taxmann.com 45 (Del) wherein the question raised before the court and the decision
rendered thereon is reproduced herein below for the sake of clarity:-
“Question: Whether the second proviso to Section 40(a)(ia) (inserted by the Finance Act, 2012), which states that TDS shall be deemed to be deducted and paid by a deductor if resident recipient has disclosed the amount in his return of income and paid tax thereon, is retrospective in nature or not?”

Held: Section 40(a)(ia) was introduced by the Finance (No.2) Act, 2004 to ensure that an expenditure should not be allowed as deduction in the hands of an assessee in a situation where income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee.

Hence, section 40(a)(ia) is not a penalty provision for tax withholding lapse but it is a provision introduced to compensate any loss to the revenue in cases where deductor hasn’t deducted TDS an amount paid to deductee and, in turn, deductee also hasn’t offered to tax income embedded in such amount The penalty for tax withholding lapse per se is separately provided under section 271C and, therefore, section 40(a)(i) isn’t attracted to the same. Hence, an assessee could not be penalized under section 40(a)(ia) when there was no loss to revenue.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
40 The Agra Tribunal in the case of Rajiv Kumar Agarwal-vs-ACIT [2014] 45 taxmann.com 555 (Agra – Trib) had held that the second proviso to Section 40(a)(ia) is declaratory and curative in nature and has retrospective effect from 1st April, 2005, being the date from which sub- clause (ia) of section 40(8) was inserted by the Finance No.(2) Act, 2004, even though the Finance Act, 2012 had not specifically stated that proviso is retrospective in nature.

The High Court affirmed the ratio laid down by the Agra Tribunal and held that said provisos is declaratory and curative in nature and ha retrospective effect from 1 st April, 2005.”
79.5 In view of above, we are inclined to set aside the order of the ld. CIT-A to
the AO for fresh adjudication in the light of the above discussion. As we have set
aside the issue raised by the assessee to the file of the AO, we are not inclined to
entertain the 2nd alternate contention raised by the learned AR for the assessee. As
such, the alternate contention becomes infructuous. Hence the ground of appeal of
the assessee is partly allowed for the statistical purposes.
80. The issue raised vide ground Nos. 7, 8 and 9 by the assessee are either
general or consequential or premature to decide. Accordingly we dismiss the same
being general or consequential or premature as infructuous.
81. In the result the appeal filed by the assessee is partly allowed.
 Coming to ITA No. 1231/Ahd/2018 an appeal by the Assessee corresponding to A.Y. 2010-11
82. The assessee has raised the following grounds of appeal:
1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the penalty when show cause notice u/s.274 r.w.s.271(l)(c) of the Act did not specify the exact charge as to whether the penalty is levied for concealment or furnishing of inaccurate particulars of income. Such a defect renders the penalty void ab initio and is also a violation of the principles of natural justice.

2. The learned CIT(A) has erred in law and on facts in confirming the action of AO in initiating and levying penalty under section 271(l)(c) of the Act without recording mandatory satisfaction as contemplated under the Act at the time of framing the assessment order.

3. The learned CIT(A) has erred both in law and on the facts of the case in confirming the penalty of Rs.88,200/- levied u/s 271(l)(c) of the Act on disallowance of standard deduction of Rs.2,94,000/- claimed from income from house property after treating it as income from other sources.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
41 4. In any case, the impugned penalty order is barred by limitation and thus without jurisdiction and illegal.

5. In any case, quantification of the penalty is erroneous and excessive.

6. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explained and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.
The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
83. The only issue raised by the assessee is that the learned CIT (A) erred in
confirming the penalty levied by the AO for ₹ 88,200/- under the provisions of
section 271(1)(c) of the Act.
84. The assessee in the year under consideration has shown the income from
letting out the land for ₹ 9,80,000/- as the income under the head House Property.
Accordingly the assessee claimed the standard deduction provided under section 24
of the Act for ₹ 2,94,000/- being 30% of 9,80,000/- for the repair and maintenance
expenses. However, the AO in the assessment order held that the income from
letting out the land is not chargeable to tax under the head income from House
Property. As such the impugned income is taxable under the head income from
other sources. Accordingly, the assessee is not entitled for the standard deduction
claimed by the assessee under the provisions of section 24 of the Act. Accordingly
the AO disallowed the standard deduction claimed under section 24 of the Act for ₹
2,94,000/- and added to the total income of the assessee. Further, the AO in the
assessment proceedings initiated the penalty with respect to the addition made in
the assessment order. Finally, the AO levied the penalty for ₹88,200/- being 100%
of the amount of tax sought to be evaded.
85. Aggrieved assessee preferred an appeal to the learned CIT (A) who has also
confirmed the order of the AO.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
42 86. Being aggrieved by the order of learner CIT (A) the assessee is in appeal
before us.
87. The learned AR before us filed a paper book running from pages 1 to 110
and submitted that the assessee has not concealed any particulars of income or
furnished any inaccurate particulars of income. As such, the assessee has made
disclosure in the income tax return with respect to the impugned income. It was
also contended that the issue involved for treating the rental income from the letting
of the land under the head house property viz a viz income from other sources is a
matter of the difference in opinion. Accordingly the assessee under the bona fide
belief has shown rental income under the head house property and therefore the
deduction under section 24 of the Act was claimed. Accordingly the ld. AR contended
that there cannot be any penalty under the provisions of section 271(1)(c) of the
Act.
88. On the other and the learned DR vehemently supported the order of the
authorities below.
89. We have heard the rival contentions of both the parties and perused the
materials available on record. The issue in the present case relates to the penalty
imposed by the AO under section 271(1)(c) of the Act which was subsequently
confirmed by the learned CIT (A). The assessee in his return of income has made a
claim of the standard deduction under section 24 of the Act against the rental
income from the letting of land. It was contended that the building was constructed
on the land by the tenant, therefore the assessee was of the view that the impugned
land was appurtenant to building. So, the impugned rent is chargeable to tax under
the hand House Property. Admittedly, land cannot be equated with the house
property and therefore any income accrued to the assessee from letting of such
land is chargeable to tax under the head income from other sources. Therefore, the
assessee was not entitled for the standard deduction as provided under section 24
of the Act. Now the question arise whether in the given facts, the deduction claimed ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
43 by the assessee under section 24 of the Act by treating the rent from the land as
income from house property will amount to furnishing inaccurate particular of
Income. At this juncture it is pertinent to consider the assessee’s explanation that
there was a shed constructed by the tenant on the leased land and on the basis of
such shed, the assessee under the bona fide belief concluded that the lease rental
will be taxed as income from house property. This explanation of the assessee has
not been controverted by the Revenue. Further all the materials facts relating to the
claim of deduction on lease rental have been disclosed by the assessee in the return
of income. Thus in our considered view the claim made by the was based on genuine
difference of opinion related to taxability of the rental income which cannot be made
to subject to penalty under section 271(1)(c) of the Act. In holding so we draw
support and guidance from the judgment of Hon’ble Jurisdictional High Court in case
of CIT vs. Sambhav Media Ltd reported in 33 taxmann.com 97 where it was held as
under:
3. The issue pertains to deletion of penalty imposed on account of disallowance of bad debts. It appears that the assessee disclosed all relevant material facts before the Assessing Officer at the time of filing of return. The Assessing Officer did not find such claim sustainable and imposed penalty on the assessee. The CIT(A) deleted such penalty and the Tribunal has rightly held in the finding that it is a case of difference of opinion in allowability of certain deductions and in absence of any material to indicate any dishonest attempt on the part of the assessee to conceal the income, no penalty can be imposed.
89.1 We also draw support and guidance from the order of Coordinate bench of
Mumbai ITAT in case of ITO vs. Kantilal G Kotecha reported in 108 taxmann.com
119 where it was held as under:
3.5.1 We find that the assessee’s case falls under Explanation 1 of section 271(1)(c ) of the Act wherein he had offered bonafide explanation narrating the entire facts before the ld AO. Moreover, it is well settled that the discharge of consideration by way of issue of shares is a valid consideration and hence for the Goodwill Portion, the assessee was allotted shares in the public limited company should have to be treated as valid consideration for the transfer of Goodwill together with other assets and liabilities. Reliance in this regard is placed on the decision of Hon’ble Kerala High Court in the case of the Commonwealth Trust India Ltd. v. CIT [2008] 173 Taxman 379/306 ITR 356.
We find from the materials available on record that the entire facts relating to the said issue and which are material to the computation of total income were duly disclosed by the assessee before the ld AO. No explanation furnished by the assessee was found to be false by the ld AO. It was only a genuine difference of opinion between assessee and the ld AO in not allowing the claim of exemption u/s 47(xiv) of the Act. 3.5.2 We find that the ld CITA had also given the finding that the explanation given by the assessee was bonafide and in that regard had observed as under which are crucial for ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
44 determining the penalty dispute before us. These findings are not controverted by the revenue. The observations of the ld CITA in this regard are as under:- “A claim of deduction can be said to be bonafide if a legally sustainable view on its allowability exists in the given facts. Such a view need not be necessarily cent percent foolproof. If chances are there that a person, properly instructed in law, can form an opinion about his deduction, then it will be considered as bonafide. A claim shall lack bonafide if the facts are manufactured to give a colour of genuineness to the deduction, or if there is not even a far flung possibility of forming a legally sustainable opinion about the deduction, either because of the facts prevailing in a particular case or because no judicial precedent in favour of allowability of such deduction or if an issue is still virgin and had not received attention of the Courts so far, then simple and plain interpretation of the provision leaves no chance to a reasonably prudent person to form an opinion that such a deduction is allowable. In simple words, the term ‘bonafide’ means : in good faith or without fraud or deception and honestly as distinguished from bad faith”.
3.5.3 We find that the reliance placed by the ld DR on the decision of Hon’ble Supreme Court in the case of Mak Data (P.) Ltd. (supra) is not applicable to the facts of the case as in that case, there was a survey conducted in the premises of that assessee and there was undisclosed income found and statement was recorded from the assessee wherein he had accepted to offer the same. Subsequently while filing the return, the assessee did not offer such income found during survey. Later during the assessment proceedings, when the assessee had no other option but to offer the income found during survey, he came forward before the ld AO to offer such income. In that factual matrix, the Hon’ble Supreme Court held that department is not in the business of selling peace and that assessee had to be invited with the levy of penalty. This decision is factually distinguishable with that of the assessee. In the instant case, there was absolutely no malafide on the part of the assessee in making the claim of exemption u/s 47(xiv) of the Act as could be seen from the findings rendered hereinabove. We find that the decision that would be applicable to the facts of the instant case would be the decision of Hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 189 Taxman 322/322 ITR 158 wherein it was held that when no information given in the return was found to be incorrect or inaccurate or the details supplied by the assessee was found to be factually incorrect, then primafacie, the assessee cannot be held guilty of furnishing inaccurate particulars. It may at best result in making incorrect claim in law. The Hon’ble Apex Court further observed that by any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. It held that merely because a claim made by the assessee is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Accordingly, by placing reliance on the said decision of Hon’ble Supreme Court in Reliance Petroproducts (P.) Ltd.’s case (supra) we hold that the ld CITA had rightly deleted the penalty in respect of denial of exemption u/s 47(xiv) of the Act on self -generated Goodwill portion partially. Accordingly, we do not find any infirmity in the order of the ld CITA.
89.2 Accordingly, we are of the view that there cannot be any penalty under the
provisions of section 271(1)(c) of the Act in the given facts and circumstances.
Hence, the order of the learned CIT (A) is set aside and we further direct the AO to
delete the penalty levied by him. Thus, the ground of appeal of the assessee is
allowed.
90. In the result, appeal of the Assessee is allowed.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
45  Coming to ITA No. 3491/Ahd/2015 an appeal by the Assessee corresponding to A.Y. 2011-12 91. The Assessee has raised the following grounds of appeal:
1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in invoking the provisions of s.14A of the Act r.w.r 8D of the Income Tax Rules, 1962. In the facts and circumstances of the case, without recording satisfaction, ld.AO could not have rejected the stand of the appellant invoked provisions of Rule 8D of IT Rules.

2. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in disallowing Rs.26,65,132/- u/s.14A r.w.r.8D.

3. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in adding back disallowance u/s.14A of Rs.26,65,132/- to the book profit u/s.115JB of the Act.

4. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in making upward addition of Rs.50,00,000/- by way of T.P. adjustment on account of guarantee commission worked out by the TPO without there being any jurisdictional as well as legal and factual basis for the same.

5. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in referring the case of the appellant to the transfer pricing officer. Under the facts and circumstances of the case, there was no reason to interfere with the pricing adopted by the appellant as the same is falling within the parameters laid down under the scheme of the Act.

6. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in invoking the provisions of chapter X without prima facie demonstrating that there was some tax avoidance.

7. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in making a reference to Ld.TPO u/s.92C(3) r.w.s.92CA(1) of the Act without providing an opportunity of being heard to the appellant.

8. The learned CIT(A) has erred both in law and on the facts of the case in not appreciating that the whole reference and the consequential orders are bad and illegal because the alleged approval granted by CIT u/s.92CA(1) of the Act is vitiated in law firstly because the appellant was not heard before any such approval and secondly because the same has been granted mechanically without any application of mind and without due diligence.

9. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO in disallowing professional fees of Rs.31,00,093/- u/s.37(1) of the Act after treating it as capital expenditure.

10. Both the lower authorities have passed the orders without properly appreciating the fact and that they further erred in grossly ignoring various submissions, explanations ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
46 and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

11. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying interest u/s.234A/B/C/D of the Act.

12. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in initiating penalty u/s.271(1)(c) of the Act.
92. The first issue raised by the assessee in ground Nos. 1 to 2 is that the learned
CIT (A) erred in sustaining the disallowance in part for ₹ 26,65,132/- made by the
AO under section 14A read with rule 8D.
93. We note that the Revenue is also in appeal vide gorund no. 1 of appeal in
ITA No- 44/Ahd/2016 against the part relief provided by the learned CIT (A) to the
assessee. The relevant ground of appeal of the Revenue reads as under:
1. The Ld.CIT(A) has erred has erred in law and on facts in restricting the disallowance made u/s.14A of the Act to Rs.26,65,132/- as against Rs.1,91,56,166/-, without properly appreciating the facts of the case and the material brought on record.

94. At the outset we note that the similar issue has been raised by the assessee
in ITA No. 2524/Ahd/2015 for A.Y 2010-11 in ground no. 1 & 2 which has been
partly allowed in favor of the assessee. For detailed discussion please refer the
relevant paragrapgh No.56 of this order. Thus we hold that the principles laid down
in above paragraph will mutas mutandis apply herein also. In the result, the ground
of appeal raised by the assessee is partly allowed whereas ground of appeal raised
by the Revenue is dismissed.
95. The 2nd issue raised by the assessee vide ground no- 3 in its appeal is that
the learned CIT(A) erred in partly confirming the addition made in book profit under
section 115JB of the Act on account of the disallowances made under section 14A
under normal compuation of Income.
96. At the outset we note that the similar issue has been raised by the assessee
in ITA No. 2524/Ahd/2015 for A.Y. 2010-11 in ground no. 4 which has been partly ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
47 allowed in favor of the assessee. For detailed discussion please refer the relevant
paragrapgh No.71 of this order. Thus we hold that the principles laid down in above
paragraph will mutas mutandis apply herein also. In the result ground of appeal
raised by the assessee is partly allowed.
97. The 3rd issue raised by the assessee in ground Nos. 4 to 8 is that the learned
CIT (A) erred in confirming the order of the AO/TPO with respect to transfer pricing
adjustment of ₹ 50 lakhs on account of corporate guarantee provided by the
assessee to its AE’s.
98. The TPO during the assessment proceedings found that assessee has
provided corporate guarantee on loan taken by its Associated Enterprises based in
Singapore for ₹ 100 crore in the immediate preceding A.Y. 2010-11 which is
continuing in the year under consideration as well. The TPO also found that the
assessee, in the A.Y. 2010-11, charged guarantee fee for ₹ 1,88,42,093/- whereas
no guarantee fee charged in the year under consideration. Therefore, the TPO
issued SCN to the assessee for computing ALP with respect to such bank guarantee.
99. In response assessee submitted that it was in the process of acquiring Dystar
Textifarben GMBH & Company based in Germany and other Dyster group company.
For this purpose a special purpose vehicle company namely M/s Kiri Holding
Singapore Pvt. Ltd. was setup as 100% subsidiary of the assessee. The AE M/s Kiri
Holding Singapore Pvt. Ltd. in order to acquire Dystar group has procured loan from
banks in Singapore against which it (the assessee) has given corporate guarantee
without involving any bank. Thus no guarantee charges was paid either to any
banker or third party by it (the assessee). However, it charged guarantee fee of ₹
1,88,42,093/- in the preceding A.Y. 2010-11 suo-moto. Subsequently, the Board of
directors of both the companies realized that no cost was incurred by the appellant
assessee company for guarantee extended to its AE. As such the corporate
guarantee was furnished only on papers. Accordingly it was decided to waive off ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
48 guarantee fee for the year under consideration as charged in A.Y. 2010-11. Hence
the same was written off in the year under consideration.
99.1 The assessee also submitted that corporate guarantee given in favour of its
AEs/ subsidiary does not fall under the definition of international transaction, as
there was no cost incurred in connection with such guarantee. Further it is the
normal practice where holding company provides such type of guarantee to its
subsidiary which is in the nature of commercial expediency. The assessee further
submitted that it was not the AE i.e. M/s Kiri Holding Singapore Pvt. Ltd. which
benefited from such guarantee, but it was the appellant company who benefited by
getting larger market. In this respect the assessee placed reliance on the judgment
of Hon’ble Courts in following cases:
(a) SA Builder reported in 288 ITR 1
(b) CIT vs. Amalgamation Ltd. reported in 266 ITR 188 c
(c) ACIT vs. W S Industries Ltd. reported in 2009 TIOL 783-Mad 99.2 The assessee further submitted that it is not engaged in the business of
banking. Thus it cannot charge the guarantee fee from its AE. The assessee also
contended that the notional value of guarantee was not a transaction to shift the
profits from India.
99.3 Assessee also contended that while considering guarantee to AE the business
strategy of the assessee should also be considered. The assessee in this regard
referred the OECD guidelines 2010 where in para 1.59 it was stated that “a tax
payer seeking to penetrate a market or to increase its market share might
temporarily lower than the price charged for otherwise comparable products, in
same market. ”
99.4 However, the TPO disregarded the contention of the assessee by holding as
under:
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
49 (i) The assessee, without substantiating its contention based on cogent material, claimed that issuance of corporate guarantee has commercial expediency and in return assessee will get benefited in future. Further the provisions of chapter X of the Act are an anti-avoidance rule which do not differentiate transaction on account of commercial expediency. In any case transaction with the AEs needs to be tested on the parameter of ALP. Therefore the reliance placed on the judgment of SA Builder Ltd (supra) by the assessee is not acceptable.
(ii) The extension of corporate guarantee to AE falls within the ambit of service as the same is also recognized by the OECD commentary and therefore needs to be benchmarked. This view was also confirmed by the US tax court in case of Container Corporation vs. Commissioner as well as by Canadian Tax Court in case of General Electric (GE) dated 4th December 2009 and also by Mumbai ITAT in case of Nimbus Communications Ltd. reported in [2013] 34 taxmann.com 298.
(iii) In transaction of guarantee there is always a cost inherent in the form of administrative expenses, maintenance of appropriate level of cash & cash equivalent, capital, standby credit line to cope up with the risk associated with guarantee. These costs need to be covered by charging fee on such guarantee.
99.5 The TPO in view of the above held that the guarantee extended by the
assessee in favour of its AE i.e. M/s Kiri Holding Singapore Pvt. Ltd. is an
international transaction in the nature of services and need to be benchmarked. In
order to benchmark the guarantee fee, the TPO analyzed the bond data in US
market which was available on the web namely www.finance.yahoo.com . The TPO
analyzed the A rated and BB rated bond out of 3060 bond data and worked out rate
at 4.67% as reasonable fee to be charged on guarantee. Accordingly the TPO made ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
50 upward adjustment of ₹. 4,67,00,000/- only and added the same to the total income
of the assessee.
100. The aggrieved assessee preferred an appeal to the ld. CIT (A) where it was
submitted that transaction of corporate guarantee is not an international transaction
in the given facts and circumstances. It is because there was no income arising from
such transaction to the assessee whereas the provision of subsection 1 to section
92 mandate to benchmark the transaction if any income arising from international
transaction. In absence of income arising from such transaction no notional income
can be brought to tax. The assessee in this respect placed reliance on the order of
the Hon’ble Hyderabad tribunal in case of Four Soft Ltd. vs. DCIT in ITA no.
1495/H/2010. The assessee further contended that this view is also supported by
the memorandum explaining provisions and CBDT circular bearing no 14/2001.
100.1 The Assessee also submitted that the intention of TP provision is to prevent
the avoidance of tax by shifting the income from India to other tax jurisdiction
through intra group transaction. But in corporate guarantee extended by parent
company to foreign subsidiary does not involve any monetary transaction. Therefore
the question of shifting of profit does not arise. In this respect the assessee placed
its reliance on the following judgment:
(i) Dana Corporation, In re [2010] 321 ITR 178 (AAR) (ii) Vanceburg Group B.V. , In re [2007] 289 ITR 464 (AAR) (iii) Deere and Company, In re bearing AAR No. 934 of 2010 100.2 Further there was not any method provided under the Act to benchmark the
guarantee fee/commission with respect to the transaction under consideration.
Therefore the charging provision of section 92B of the Act gets failed. The assessee
also contended that the issue of corporate guarantee stands in its favor as it has
not incurred any cost and having no bearing on profit or losses. As such the
transaction of bank guarantee should not be treated as international transaction. In ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
51 this respect the assessee placed its reliance on the order of the Hon’ble Delhi
tribunal in case of Bharti Airtel Ltd vs. ACIT reported in 43 taxmann.com 150.
100.3 The assessee alternatively contended that in any case the corporate
guarantee fee should be taken @ 0.5 % on the value of bank guarantee.
101. The ld. CIT (A) allowed the alternative appeal of the assessee by observing
as under:
In view of the aforesaid discussion and the decisions of various authorities referred above, it would be fair and reasonable to restrict the upward adjustment to 0.5% as against the AOs determination at 4.37%. In fact. 4.37% taken by the AO does not have any basis and it was equivalent to the interest rate which is far from the fact as the appellant has not provided any loans but the guarantee which did not involve any expenditure on the part of the appellant not any monetary benefits in the hands of the recipient AE. In result, the upward adjustment to the extent of Rs.50,00,000/- is worked out and the same is confirmed. Relief is granted for the balance amount.
102. Being aggrieved by order of learned CIT (A), both the assessee and the
Revenue are in appeal before us. The assessee is in appeal against the confirmation
of the addition for ₹50 lakhs on account of such corporate guarantee whereas the
Revenue is in appeal against the deletion of the addition made by the AO for Rs.
4,17,00,000/-. The grounds bearing numbers 3 to 7 raised by the Revenue in ITA
No. 44/AHD/2016 are extracted as under:
1. The Ld.CIT(A) has erred in law and on facts in rejecting the arm’s length guarantee fee of 4.67% arrived at by the TPO in respect of guarantees given by the assessee, reducing the upward adjustment of Rs.4,67,00,000/-.

2. The Ld.CIT(A) has erred in law and on facts in holding adhoc guarantee fee of Rs.0.50% in respect of guarantees given without appreciating the fact that the above rate was without any basis and hence the rate needed to be adjusted before it could be adopted as an arm’s length rate.

3. The Ld.CIT(A) has erred in law and on facts in rejecting the arm’s length price of Rs.4,67,00,000/- determined by the TPO/Assessing Officer in respect of guarantee given by the assessee company in respect of loans taken by the group company.

4. The Ld.CIT(A) has erred in law and on facts in holding that the assessee has not provided any loans but the guarantee which did not involve any expenditure on the part of the appellant nor any monetary benefits in the hands of the recipient AE.

5. On the facts and in the circumstances of the case, the ld.CIT(A) ought to have upheld the order of the Assessing Officer.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
52 103. The Ld. AR before us filed a paper book-running form pages 1 to 668 and
submitted that there cannot be any adjustment for corporate guarantee fees as the
same is not the international transaction. The ld. AR in support of his contention
relied on the order of this Tribunal in the case of Micro Ink Ltd vs. ACIT (63
taxmann.com 353). Accordingly, the ld. AR contended that there cannot be any
adjustment in assessee’s profit for such corporate guarantee furnished to the AE.
104. On the other hand the Ld. DR before us submitted that the corporate
guarantee furnished by the assessee to its AE is an international transaction and
therefore the same needs to be benchmarked to determine the ALP. The learned
DR vehemently supported the order of the authorities below.
105. We have heard the rival contention and perused the materials on record. The
first contention raised by the ld. AR that corporate guarantee is not covered by the
definition of international transaction given u/s 92B of the Act. In this regard, we
note that the issue whether the corporate guarantee is covered by the definition of
international transaction u/s 92B has been settled by the order of this Tribunal in
case of Micro Ink Ltd vs. ACIT (63 taxmann.com 353). In the said order it was
decided by the Hon’ble bench that guarantees is included in the definition by way
of insertion of Explanation to section 92B of the Act which is for the residuary clause
of the definition under section 92B of the Act. As such it will be only hit by the
explanation when the guarantee has “bearing on profits, income, losses or assets”.
The relevant extract of the case (supra) is as under:
“That is, in our considered view, purely fallacious logic. In our considered view, under Section 92B, corporate guarantees can be covered only under the residuary head i.e. “any other transaction having a bearing on the profits, income, losses or assets of such enterprise”. It is for this reason that Section 92B, in a way, expands the scope of international transaction in the sense that even when guarantees are issued as a shareholder activity but costs are incurred for the same or, as a measure of abundant caution, recoveries are made for this non-chargeable activity, these guarantees will fall in the residuary clause of definition of international transactions under section 92B. As for the learned Departmental Representative’s argument that “whether the service has caused any extra cost to the assessee should not be the deciding factor to determine whether it is an international and then gives an example of brand royalty to make his point. What, in the process, he overlooks is that Section 92B(1) specifically covers sale or lease of tangible or intangible property”.
The expression “bearing on the profits, income, losses or assets of such enterprises” is relevant only for residuary clause i.e. any other services not specifically covered by Section ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
53 92B. It was also contended that, while rendering Bharti Airtel decision, the Delhi Tribunal
did go overboard in deciding something which was not even raised before us. In the written
submission, it was stated that “Hon’ble Delhi ITAT was not requested by the contesting
parties to decide the issue as to whether the provision of guarantee was a service or not”.
That’s not factually correct. We are unable to see any merits in learned Departmental
Representative’s contention, particularly as decision categorically noted that not only before
the Tribunal, but this issue was also raised before the DRP- as evident from the text of DRP
decision. We now take up the issue with respect to specific mention of the words
in Explanation to Section 92B which states that “For the removal of doubts, it is hereby
clarified that (i) the expression “international transaction” shall include…….. (c) capital
financing, including any type of long -term or short -term borrowing, lending or guarantee,
purchase or sale of marketable securities or any type of advance, payments or deferred
payment or receivable or any other debt arising during the course of business.” There is no
dispute that this Explanation states that it is merely clarificatory in nature inasmuch as it is ‘for the removal of doubts’, and, therefore, one has to proceed on the basis that it does not
alter the basic character of definition of ‘international transaction’ under Section 92B.
Accordingly, this Explanation is to be read in conjunction with the main provisions, and in
harmony with the scheme of the provisions, under Section 92B. Under this Explanation, five
categories of transactions have been clarified to have been included in the definition of ‘international transactions’. The first two categories of transactions, which are stated to be
included in the scope of expression ‘international transactions’ by virtue of clause (a) and
(b) of Explanation to Section 92B, are transactions with regard to purchase, sale, transfer,
lease or use of tangible and intangible properties. These transactions were anyway covered
by transactions ‘in the nature of purchase, sale or lease of tangible or intangible property’.
The only additional expression in the clarification is ‘use’ as also illustrative and inclusive
descriptions of tangible and intangible assets. Similarly, clause (d) deals with the ” provision
of services, including provision of market research, market development, marketing
management, administration, technical service, repairs, design, consultation, agency,
scientific research, legal or accounting service” which are anyway covered in “provision for
services” and “mutual agreement or arrangement between two or more associated
enterprises for the allocation or apportionment of, or any contribution to, any cost or expense
incurred or to be incurred in connection with a benefit, service or facility provided or to be
provided to anyone or more of such enterprises “. That leaves us with two clauses in
the Explanation to Sect ion 92B which are not covered by any of the three categories
discussed above or by other specific segments covered by Section 92B, namely borrowing
or lending money. The remaining two items in the Explanation to Section 92B are set out in
clause (c) and (e) thereto, dealing with (a) capital financing and (b) business restructuring
or reorganization. These items can only be covered in the residual clause of definition in
international transactions, as in Section 92B (1), which covers “any other transaction having
a bearing on profits, incomes, losses, or assets of such enterprises”. It is, therefore, essential
that in order to be covered by clause (c) and (e) of Explanation to Section 92B, the
transactions should be such as to have bearing on profits, incomes, losses or assets of such
enterprise. In other words, in a situation in which a transaction has no bearing on profits,
incomes, losses or assets of such enterprise, the transaction will be outside the ambit of
expression ‘international transaction’. This aspect of the matter is further highlighted in
clause (e) of the Explanation dealing with restructuring and reorganization, wherein it is
acknowledged that such an impact could be immediate or in future as evident from the
words “irrespective of the fact that it (i.e. restructuring or reorganization) has bearing on
the profit, income, losses or assets of such enterprise at the time of transaction or on a
future date”. What is implicit in this statutory provision is that while impact on ” profit,
income, losses or assets” is sine qua non, the mere fact that impact is not immediate, but
on a future date, would not take the transaction outside the ambit of ‘international
transaction’. It is also important to bear in mind that, as it appears on a plain reading of the
provision, this exclusion clause is not for “contingent” impact on profit, income, losses or
assets but on “future” impact on profit, income, losses or assets of the enterprise. The ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
54 important distinction between these two categories is that while latter is a certainty, and only its crystallization may take place on a future date, there is no such certainty in the former case. In the case before us, it is an undisputed position that corporate guarantees issued by the assessee to the various banks and crystallization of liability under these guarantees, though a possibility, is not a certainty. In view of the discussions above, the scope of the capital financing transactions, as could be covered under Explanation to Section 92B read with Section 92B(1), is restricted to such capital financing transactions, including inter alia any guarantee, deferred payment or receivable or any other debt during the course of business, as will have “a bearing on the profits, income, losses or assets or such enterprise”. This precondition about impact on profits, income, losses or assets of such enterprises is a precondition embedded in Section 92B(1) and the only relaxation from this condition precedent is set out in clause (e) of the Explanation which provides that the bearing on profits, income, losses or assets could be immediate or on a future date. These guarantees do not have any impact on income, profits, losses or assets of the assessee. There can be a hypothetical situation in which a guarantee default takes place and, therefore, the enterprise may have to pay the guarantee amounts but such a situation, even if that be so, is only a hypothetical situation, which are, as discussed above, excluded. When an assessee extends an assistance to the associated enterprise, which does not cost anything to the assessee and particularly for which the assessee could not have realized money by giving it to someone else during the course of its normal business, such an assistance or accommodation does not have any bearing on its profits, income, losses or assets, and, therefore, it is outside the ambit of international transaction under section 92B (1) of the Act.”
105.1 Since in the case on hand, the guarantee is not having “bearing on profits,
income, losses or assets,” therefore, respectfully following the same we are also of
the opinion that such guarantee issued by the assessee is not covered under the
definition of section 92B of the Act.
105.2 Before us, no material has been placed on record by the Revenue to
demonstrate that the decision of Tribunal as discussed above has been set aside /
stayed or overruled by the higher Judicial Authorities. Before us, Revenue has not
placed any material on record to point out any distinguishing feature in the facts of
the present case viz a viz the case as discussed above nor has placed any contrary
binding decision in its support.
105.3 We also note that admittedly the assessee has charged guarantee fee of Rs.
1,88,42,093/- from its AE in the immediate previous assessment year for providing
very same corporate guarantee which was written off in the current year. The TPO
in show cause notice raised this issue and asked explanation from the assessee.
The assessee in this regard furnished that there were no cost involved in such ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
55 corporate guarantee extended to its AE. Thus they mutually decided to waive off
the guarantee fee and decided not to charge fee in future also. The TPO, thereafter,
dropped the issue in final finding with respect to the corporate guarantee fees
written off in the year under consideration which implies that the TPO has accepted
the assessee contention. Thus what inferred is this that the revenue in one previous
year has accepted the claim of the assessee but making an addition in current year
which is against the principles of consistency. Therefore there no effect on the
income of the assessee.
105.4 Accordingly, we direct the TPO/AO to delete the addition made by him. Thus
the ground of appeal of the assessee is allowed and the ground of appeal of the
Revenue is dismissed.
106. The next issue raised by the assessee in ground No. 9 is that the learned CIT
(A) erred in confirming the disallowance made by the AO for ₹ 31,00,093/- on
account of professional fees.
107. The assessee to acquire a group of companies namely Dystar Group, based
in Germany, established a subsidiary company namely Kiri Holding Pvt Ltd. in
Singapore. For this purpose, the assessee was requiring the fund from the company
namely well prospering Ltd. In this connection, the assessee engaged a company
namely Wong Partnership LLp based in Singapore to draft various agreements and
provide legal advice for arranging the funds through convertible bonds. Accordingly
the assessee paid consulatncy and legal fee for ₹ 31,00,093/- to Wong Partnership
LLP and claimed that such expenses are revenue in nature which are allowable as
deduction under section 37 of the Act.
107.1 However the AO found that the assessee has incurred the expenses in
connection with the share subscription, shareholders agreement and convertible
bond subscription agreement. Accordingly the AO was of the view that such
expenses were in the nature of capital which cannot be allowed as deduction under ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
56 section 37(1) of the Act. Thus the AO disallowed the same and added to the total
income of the assessee.
108. Aggrieved assessee preferred an appeal to the learned CIT (A) who
confirmed the order of the AO by observing as under:
Having considered the facts of the case and submission, it is apparent that the professional fee payment to Wong Partnership was not in respect of existing business of the appellant. Rather it was in respect of the legal advice for arrangement of funds through convertible bonds for acquisition of the Dyestar Group of companies through M/s. Kiri Holding Singapore Limited. Since it is in non business expenditure and the appellant has not derived any income against these expenditures, therefore, those cannot be allowed u/s. 37(1] of the 1. T. Act. Therefore, disallowance made by the AO treating the same as capital expenditure is found correct and justified, and hence, the same is confirmed. The ground of appeal is accordingly dismissed 109. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal
before us.
110. The learned AR before us contended that the expenses incurred by the
assessee in connection with the loan obtained from the financial institution are
revenue in nature as held by the Hon’ble Apex Court in the case of India Cement
Ltd vs. CIT reported in 60 ITR 52.
110.1 The learned AR also submitted that the AO has made the disallowance by
observing that the payment made to Wong Partnership LLP as capital in nature but
the fact is that no new assets has come into existence out of such expenses viz a
viz it has not resulted any benefit of enduring nature to the assessee. Likewise,
there was no allegation of the AO whether such expenses were incurred wholly and
exclusively for the purpose of the business. Accordingly it was contended that such
expenses should be allowed as revenue in nature.
111. On the contrary the learned DR vehemently supported the order of the
authorities below.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
57 112. We have heard the rival contentions of both the parties and perused the
materials available on record. From the preceding discussion, we note that the
assessee has claimed the deduction for the impugned consultancy expenses under
section 37(1) of the Act on the reasoning that such expenses were not capital in
nature whereas the AO treated the same as capital in nature.
112.1 Before we look into the fact whether the impugned consultancy expenses are
in the nature of capital expenses, we note that admittedly the assessee to acquire
the Dystar Group has established a company in Singapore. Now the Singapore
company was requiring fund for the acquisition of Dystar Group. To arrange the
fund for the Singapore company, a professional consulting from was engaged.
Against the professional advices for arranging the fund for the Singapore company,
a fee of ₹ 31,00,093/- was paid. First of all, the question arises whether such
payment was made by the assessee wholly and exclusively for the purpose of its
business. The answer stand in negative. It is because the funds were arranged for
the Singapore company and not for the assessee. Singapore company is a separate
and independent legal entity which is chargeable to tax in Singapore. Thus it seems
to us that the assessee has not incurred such expenses wholly and exclusively for
its business which is a prerequisite for claiming the deduction under section 37(1)
of the Act.
112.2 Indeed, the AO has not touched upon the issue whether the impugned
expenses were incurred wholly and exclusively for the purpose of the business. The
AO only held that such expenses were capital in nature.
112.3 However, on perusal of the order of the learned CIT (A), we find that the
learned CIT (A) has given very clear-cut finding that the assessee has not incurred
such expenses wholly and exclusively for the purpose of its business. Such finding
of the learned CIT (A) has been reproduced in the preceding paragraph. What has
been challenged before us is the order of the learned CIT (A). In other words the
order of the AO has merged with the order of the learned CIT (A). Accordingly, we ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
58 do not find any infirmity in the order of the learned CIT (A). Hence the ground of
appeal of the assessee is dismissed.
113. The issue raised vide ground no 10, 11 and 12 by the assessee are either
general or consequential or premature to decide. Accordingly we dismiss the same
being general or consequential or premature.
114. In the result, the appeal of the assessee is partly allowed.
Coming to ITA No. 44/Ahd/2016 an appeal by the Revenue corresponding
to A.Y. 2011-12 115. The Revenue has raised the following grounds of appeal:
1. The Ld.CIT(A) has erred has erred in law and on facts in restricting the disallowance made u/s.14A of the Act to Rs.26,65,132/- as against Rs.1,91,56,166/-, without properly appreciating the facts of the case and the material brought on record.

2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance made on account of export commission u/s.40(a)(i) of the Act amounting to Rs.19,00,721/-, without properly appreciating the facts of the case and the material brought on record.

3. The Ld.CIT(A) has erred in law and on facts in rejecting the arm’s length guarantee fee of 4.67% arrived at by the TPO in respect of guarantees given by the assessee, reducing the upward adjustment of Rs.4,67,00,000/-.

4. The Ld.CIT(A) has erred in law and on facts in holding adhoc guarantee fee of Rs.0.50% in respect of guarantees given without appreciating the fact that the above rate was without any basis and hence the rate needed to be adjusted before it could be adopted as an arm’s length rate.

5. The Ld.CIT(A) has erred in law and on facts in rejecting the arm’s length price of Rs.4,67,00,000/- determined by the TPO/Assessing Officer in respect of guarantee given by the assessee company in respect of loans taken by the group company.

6. The Ld.CIT(A) has erred in law and on facts in holding that the assessee has not provided any loans but the guarantee which did not involve any expenditure on the part of the appellant nor any monetary benefits in the hands of the recipient AE.

7. On the facts and in the circumstances of the case, the Ld.CIT(A) ought to have upheld the order of the Assessing Officer.

8. It is, therefore, prayed that the order of the Ld.CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
59 9. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
116. The 1st issue raised by the Revenue is that the learned CIT (A) erred in
deleting the addition in part amounting to ₹ 1,91,56,166/- made by the AO under
section 14A read with rule 8D of Income Tax Rule.
117. The issue raised by the Revenue has already been adjudicated by us along
with the appeal of the assessee bearing No. 3491/AHD/2015 vide paragraph No. 94
of this order. The ground raised by the Revenue was dismissed by us. For the
detailed discussion, please refer the relevant paragraph. Accordingly, the ground of
appeal raised by the Revenue is dismissed.
118. The 2nd issue raised by the Revenue is that the learned CIT (A) erred in
deleting the addition made by the AO for ₹ 19,00,721/- under section 40(a)(ia) on
account of non-deduction of tax on export commission.
119. The assessee during the year has claimed to have paid commission to certain
brokers in connection with the export of goods through such brokers. The details of
the brokers, export sales achieved through them and the amount of commission
stand as under:
Nmes of Parties Export Sale Rs Commission Rs. Lig Li Ching, 5F No 55, Lane 15,37,650 1,28,680 258, Rueiguang Neihu District, Taipei city, 11466, Talwan M/s Sheskhani International 1,98,44,840 10,14,096 Shop 10-11, first shopping Centre, S.I.T.E. manghopir Road, karachi, 75700, Pakistan Shin Jeng Eun., Korea 1,64,31,581 7,57,945 Total 3,78,14,071 19,00,721 119.1 During the assessment proceedings it was contended by the assessee that:
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
60 i. The brokers were independent agents and they were not working for the assessee.
ii. The brokers had no permanent establishment or fixed place of business in India.
iii. The services were rendered by the brokers from outside India.
Furthermore, these services were utilised outside India. iv. The payment to the brokers were directly made to them in their respective countries and none of the broker has received the payment in India.
119.2 In view of the above the assessee submitted that commission paid to the
overseas brokers is not chargeable to tax in India under the provisions of section 9,
5 & 6 of the Act. For the deduction of tax under the provisions of section 195 of the
Act, chargeability of income to tax in India is prerequisite. Once the income is not
chargeable to tax, then the question of deducting the TDS under section 195 of the
Act does not arise.
119.3 However the AO disagreed with the contention of the assessee by observing
that the commission paid to the foreign brokers was from the business connection
in India as well as the amount of commission to the brokers was from the source of
income in India. Accordingly, the income was deemed to accrue or arise in India as
provided under section 9(1)(i) of the Act. Accordingly the AO held that the amount
of commission paid to the foreign brokers was chargeable to tax in India and
therefore the assessee was liable to deduct the TDS under section 195 of the Act.
Accordingly the AO disallowed the sum of ₹ 19,00,721/- and added to the total
income of the assessee.
120. Aggrieved assessee preferred an appeal to the learned CIT (A). The learned
CIT (A) after considering the facts deleted the addtion made by the AO by observing
as under:
4.10. Regarding the first issue it is noted from the evidences given by the appellant as well as noted by the AO in his order that the services have been rendered by the foreign agents outside India. The sales were booked by them in their country or for the country for which ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
61 they have been appointed as commission agents. None of the activities soliciting the clients
and procuring the orders has taken place in India. The goods were being delivered by the
appellant company in the other country. The activities of procuring the payment on behalf
of the appellant company were also done abroad. The AO was therefore, incorrect to hold
that the source of income lies in India as the sales have been made from India. The
provisions of Income Tax Act clearly provide that the tax would be deducted on. the income
which is taxable in India. The activity of earning the income is not the sale but soliciting the
sales by commission agents. Though this activity is linked to the sales of the company but it
cannot be said that the income has been derived from sales which has been made from
India. The income has been derived from the activity of soliciting the sales on behalf of the
appellant company. The agents have carried out all the activity on the foreign soil and none
of their activity is in India therefore, it cannot be said that the income has accrued or arisen
in India and the source of income was in India. There is no fact brought out by the AO in
the order as well as observed by me during the course of appellate proceedings to indicate
that the services have been rendered in India.

4.1 1 . The judgment of honourable Supreme Court in the case of CIT vs. Toshoku Limited
[125 ITR 525 (SC)] is important on the issue, whereby it has been held that commission
earned by the non-resident for acting as the selling agent ‘for the Indian exporter, wherein
such non-resident was rendering services from outside India does not accrue in India. In the
present case before me also, the foreign selling commission agents are resident of foreign
country, from where the procurement service had been provided for which the commission
has been paid, and therefore, the issue is directly and squarely covered by the Apex Court
decision.

4.12. Regarding the observation of the AO that the income is deemed to accrue or arise in
India by applying the provisions of section 9 (l)(i), it is seen that there is no fact on record
to indicate that any of the agents had any permanent establishment in India. All the agents
had their offices on the foreign soil and nothing on record that they had PE in India. Further
the assessing officer has also not pointed out any such fact in its order which indicate that
there was any such office of the overseas agents in India which attract the deeming
provisions. Further the observation that the source of income was in India is also not proper
as it has clearly been discussed in fhe preceding paragraphs that none of the services have
been rendered in India and source of income cannot be said to be in India as the source of
income is the services rendered and not the sales. There is no business connection in India
from which the income has been earned, there is no property through or from which the
income has been earned. Therefore, the provisions of section 9 (l)(i) also cannot be applied.
4.13. Reliance is placed on the judgement of honourable Supreme Court in the case of GE
India Technology Centre Private Limited 327 ITR 456 and the judgement of
honourable ITAT Mumbai in the case of our Ardesi B Cursetjee & Sons Ltd. 115 TTJ
916. 4.14. Therefore, in view of the preceding discussion the AO was not justified to hold that
the commission payable to the overseas agents was deemed to accrue or arise in India and
is taxable under the Act in view of the specific provisions of sections 5 (2)[b) read with
section 9 (l)(i) of Income Tax Act.

4.15. Regarding the issue of obtaining no deduction certificate under section 195 it is seen
that for the applicability of the provisions of this section, the sum must be chargeable under
the provisions of the Income Tax Act. Section 195 provides for deduction of tax by the person
responsible for paying to a non-resident any interest or any other sum chargeable under the
Provisions of the Act. It is clear that the payment was not the interest. It has to be seen
whether the payment is covered under the term “any other sum chargeable under the
provision of this Act”. It’ has been observed in the preceding discussion that income was not
chargeable to tax as it has not been received in India nor it has accrued or arisen in India ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
62 directly or indirectly. Therefore, once the income is not taxable there is no liability to deduct tax and therefore, it was not obligatory for the appellant to deduct tax in view of this, there was no violation of the1 provisions of section1 195 and the appellant was also not required to pay no deduction certificate from the AO.
121. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal
before us.
122. Both the learned DR and AR before us vehemently supported the order of
the authorities below as favourable to them.
123. We have heard the rival contention and perused the materials on record
carefully. The assessing officer has disallowed the commission paid to foreign agents
by holding that the income arising on account of commission paid to overseas
agents was deemed to accrue or arise in India and was accordingly taxable under
the provision of section 5(2)(b) r.w.s. 9(1)(i) of the Act but the assessee has failed
to make the compliances with the provisions of section 195(2) of the Act. In this
case, the non-residents agents have rendered their services outside India in
connection with procurement of sale. All the agents have overseas offices and they
were not having any permanent establishment in India. At the time hearing learned
DR has not brought any material on record suggesting that the non-resident agents
are having any permanent establishment in India or services were provided within
India. In absence of such finding it is held that the commission income earned by
the foreign agent cannot be deemed to be accrue or arise in India. Regarding the
applicability of section 195 of the Act, we observe that once the income is not
taxable, there is no liability of deduction of tax, therefore, it was not applicable for
the assessee to deduct tax. Therefore, there was no violation of provision of section
195 of the Act. Accordingly, this ground of appeal of the revenue is dismissed.
124. The next issue raised by the Revenue in ground Nos. 3 to 7 is that the learned
CIT (A) erred in deleting the addition made by the AO for ₹ 4,17,00,000/- in part
on account of transfer pricing adjustment with respect to corporate guarantee.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
63 125. The issue raised by the Revenue has already been adjudicated by us along
with the appeal of the assessee bearing No. 3491/AHD/2015 vide paragraph No.
105 of this order. The ground raised by the Revenue was dismissed by us. For the
detailed discussion, please refer the relevant paragraph. Accordingly, the ground of
appeal raised by the Revenue is dismissed.
126. The issues raised in ground nos. 8 and 9 by the Revenue in its appeal are
general in nature. Hencce the same is dismissed being general in nature and
infructuous.
127. In the result the appeal of the Reveune is dismissed.
 Coming to ITA No. 1850/AHD/2016 for the assessment year 2012-13, an appeal by the assessee 128. The assessee has raised the following grounds of appeal:
1. The learned CIT(A) has erred both in law and on the facts of the case in confirming the disallowance u/s.14A r.w.r.8D to the extent of Rs.20,000/-.

2. The learned CIT(A) has erred both in law and on the facts of the case in holding that disallowance of interest u/s.14A works out to Rs.63,60,000/- and as regards administrative expenditure the same works out to Rs.28,66,874/-.

3. The learned CIT(A) has erred both in law and on the facts of the case in holding that Corporate Guarantee given to associate enterprise is an ‘international transaction’ falling within the purview of transfer pricing provisions.

4. The learned CIT(A) has erred both in law and on the facts of the case in holding that direct and binding decision of jurisdictional Tribunal which has considered all the earlier judgments on the issues in the case of Micro Ink Limited vs ACIT (2015) (63 taxmann.com 353) is not to be followed, despite the same being applicable on the facts of the case.

5. The learned CIT(A) has erred both in law and on the facts of the case in confirming the upward adjustment @ 0.5% to the extent of Rs.44,32,634;’/- on account of corporate guarantee given to associate enterprises while determining arm’s length price under the provisions of transfer pricing.

6. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of laws and Principles of Natural Justice and therefore deserves to be quashed.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
64 7. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying interest u/s.234A/234B/234C/D of the Act.

8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in initiating levy of penalty u/s.271(1)(c) of the Act.
129. The first issue raised by the assessee in ground Nos. 1 to 2 is that the learned
CIT (A) erred in sustaining the disallowance in part for ₹ 20,000/- made by the AO
under section 14A read with rule 8D.
130. We note that the Revenue is also in appeal vide ground no. 1 of appeal in
ITA No- 2696/Ahd/2016 against the part relief provided by the learned CIT (A) to
the assessee. The relevant ground of appeal of the Revenue reads as under:
The Ld.CIT(A) has erred in law and on facts in restricting the disallowance u/s.14A to Rs.20,000/- as againt Rs.2,47,78,596 worked out by the AO without properly appreciating the facts of the case and the material brought on record.
131. At the outset we note that the similar issue has been raised by the assessee
in ITA No. 2524/ahd/2015 in ground no. 1 & 2 which have been partly allowed in
favor of the assessee. For detailed discussion please refer the relevant paragrapgh
No.56 of this order. Thus we hold that the principles laid down in above paragraph
will mutas mutandis apply herein also. In the result ground of appeal raised by the
assessee is partly allowed whereas ground of appeal raised by the Revenue is
dismissed.
132. The next issue raised by the assessee vide ground no. 3, 4, and 5 of its
appeal is that erred in confirming the part addition on account of corportae
guarantee extended to AE.
133. We note that the Revenue is also in appeal vide gorund no. 3, 4, and 5 of its
appeal in ITA No. 2696/Ahd/2016 against the part relief provided by the learned
CIT (A) to the assessee. The relevant ground of appeal of the Revenue reads as
under:
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
65 1. The Ld.CIT(A) has erred in law and on facts in rejecting the arm’s length guarantee fee of 2.16% arrived at by the TPO in respect of guarantee given by the assessee reducing upward adjustment of Rs.1,91,48,980/- to Rs.44,32,634/- without properly appreciating the facts of the case and the material brought on record.

2. The Ld.CIT(A) has erred in law and on facts in holding adhoc guarantee fee of 0.50% in respect of guarantee given without appreciating the fact that the above rate was without any basis and hence the rate need to be adjusted before it could be adopted as an arms length rate.

3. The Ld.CIT(A) has erred in law and on facts in rejecting the arm’s length price of Rs.1,91,48,980/- determined by TPO/Assessing Officer in respect of guarantee given by the assessee company in respect of loans taken by the group company.
134. At the outset we note that the similar issue has been raised by the assessee
in ITA No. 3491/Ahd/2015 in ground no. 4 to 8 which have been allowed in favor
of the assessee. For detailed discussion please refer the relevant paragrapgh No.105
of this order. Thus we hold that the principles laid down in above paragraph will
mutas mutandis apply herein also. In the result ground of appeal raised by the
assessee is allowed whereas ground of appeal raised by the Revenue is dismissed.
135. The ground nos. 6, 7 and 8 raised by the assessee in its appeal are general,
consiquential and premature in nature. Hence the same are dismissed being
general, consequential and premauture in nature and infructuous.
136. In the result the appeal of the assessee is partly allowed.
 Coming to ITA No. 2296/AHD/2016 for the assessment year 2012-13, an appeal by the Revenue 137. The Revenue has raised the following grounds of appeal:
1. The Ld.CIT(A) has erred in law and on facts in restricting the disallowance u/s.14A to Rs.20,000/- as against Rs.2,47,78,596 worked out by the AO without properly appreciating the facts of the case and the material brought on record.

2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of interest amounting to Rs.1,03,41,512/- u/s.36(1)(iii)of the Act without properly appreciating the facts of the case and the material brought on record.

3. The Ld.CIT(A) has erred in law and on facts in rejecting the arm’s length guarantee fee of 2.16% arrived at by the TPO in respect of guarantee given by the assessee ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
66 reducing upward adjustment of Rs.1,91,48,980/- to Rs.44,32,634/- without properly appreciating the facts of the case and the material brought on record.

4. The Ld.CIT(A) has erred in law and on facts in holding adhoc guarantee fee of 0.50% in respect of guarantee given without appreciating the fact that the above rate was without any basis and hence the rate need to be adjusted before it could be adopted as an arms length rate.

5. The Ld.CIT(A) has erred in law and on facts in rejecting the arm’s length price of Rs.1,91,48,980/- determined by TPO/Assessing Officer in respect of guarantee given by the assessee company in respect of loans taken by the group company.

6. he Ld.CIT(A) has erred in law and on facts in holding that assessee has not provided any loans but the guarantee which did not involve any expenditure on the part of the appellant nor any monetary benefits in the hand of the recipient AE.

7. On the facts and in the circumstances of the case, the Ld.CIT(A) sought to have upheld the order of the Assessing Officer.

8. It is therefore, prayed that the order of the Ld.CIT9A) may be set aside and that of the Assessing Officer may be restored to the above extent.
138. The 1st issue raised by the Revenue is that the learned CIT (A) erred in
restricting the addition made under section 14A upto 20,000/- out of total addition
of ₹ 2,47,78,596/- only.
139. The issue raised by the Revenue has already been adjudicated by us along
with the appeal of the assessee bearing No. 1850/AHD/2016 for A.Y. 2012-13 vide
paragraph No. 131 of this order. The ground raised by the Revenue was dismissed
by us. For the detailed discussion, please refer the relevant paragraph. Accordingly,
the ground of appeal raised by the Revenue is dismissed.
140. The 2nd issue raised by the Revenue in ground No. 2 is that the learned CIT
(A) erred in deleting the disallowance made by the AO for ₹ 1,03,41,512/- on
account of diversion of fund under section 36(1)(iii) of the Act.
141. During the year under consideration assessee’s capital work in progress
(CWIP) and advance for capital goods increased by ₹ 82,17,65,196/- which includes
an amount of ₹ 30,83,70,236/- outsatnding for payment against capital goods and
an amount of ₹ 9,73,72,695/- being revenue expenses capitalised by the assessee.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
67 Thus in the year under consideration net fund deployed in form CWIP and capital
goods for ₹ 41,60,22,265/- (₹ 82,17,65,196 – ₹ 30,83,70,236 – ₹ 9,73,72,695) only.
141.1 The AO was of the view that the borrowed fund has been diverted and
deployed in the form of CWIP and Capital advance, hence the proportionate interest
expenses incurred needs to be disallowed. Accordingly the AO proposed to disallow
the interest @ 12% on the amount of ₹ 41,60,22,265/- whereas the assessee
contended that during the year it has incurred interest cost of ₹ 6,98,02,444/- on
term loan utilised both for the purpose of business and expansion of existing project.
Out of total interest cost it has capitalised an amount of ₹ 3,95,81,203/- being 57%
of total cost against the expansion of extisting project. Therefore, no additional
disallowance of interest is required.
141.2 However, the AO rejected the submission of the assessee by holding that the
assessee has not provided any justification or fund flow statement establishing that
the term loan was utilised for the expansion of existing project being CWIP and
advace for capital goods to the extent interest amount capitalized suo moto. Hence
the AO in absence of any justification worked the amount of interest which needs
to be capitalized at ₹ 4,99,22,715/- being @ 12% on fund deployed in CWIP and
Advance for Capital Goods. Accordingly the AO made an additon of Rs.
1,03,41,512/- after providing benefit of amount already capitalized by the assessee
for ₹ 3,95,81,203/- only.
142. Aggreived assessee prefered an appeal to the learned CIT (A).
143. The assessee before the learned CIT(A) besided reiterating the submission
made before AO, contended that CWIP shown by it don’t fall under the catogory of
extension of existing project/ business as provided under the provision of section
36(1) of the Act. Indeed the same is expansion of project which is different from
extension of project/business. The assessee alternatively calimed that it has interest
free fund which exceeds by 9.11 time than the amount of investment in CWIP and ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
68 capital goods. Thus the capitalisation of interest is not required. The assessee in its
support placed reliance on various judgment of Hon’ble Gujarat High Court including
CIT vs. Torrent Power Ltd. reported in 363 ITR 474.
144. The learned CIT(A) allowed the appeal of the assessee in accordance with
the alternate claim made by the assesse by observing as under:
It is apparent that the appellant had made the investment in CWIP at Rs.4160 lacs, while it had the interest freee own fund of Rs.37902 lacs as on 31/03/2012. Thus, the intereest free funds owned by the appellant were much more than the interest free advanced granted to the aforesaid three parties. Thus, no interest bearing funds have been utilised for the purpose of advances to the aforesaid three parties. Even otherwise also the advances and CWIP given to the aforesaid parties were for the expansion of the project and not for any other purposed. Considering the facts and submissions, the disallowance made by the AO towards the interest treating the same as capital expenditure u/s.36(1)(iii) is not correct, and therefore, the same is deleted.
145. Being aggrived the order of the learned CIT (A) the Reveneue is in appeal
before us.
146. Both the learned DR and AR before us vehemently supported the order of
the authorities below to the extent favourable to them.
147. We have heard the rival contentions of both the parties and perused the
materials available on record. Admittedly, there was the expansion of existing
project of the assessee for which assessee has employed fund in the form of capital
work in progress (CWIP) and advance for capital goods amounting to Rs.
41,60,22,265/-. Simultaneously the assessee was incurring huge interest cost and
made suo-moto capitalisation of interest cost of Rs. 3,95,81,203/- being 57% of the
total interest cost incurred. However the AO worked the interest attributable to the
CWIP and advance for capital goods @ 12% amounting to Rs. 4,99,22,715/- and
made the addition of Rs. 1,03,41,512/- which came to be deleted by the learned
CIT (A). Admittedly the assessee was having interest free fund of Rs.
379,02,05,844/- in form of share capital and Reserve. Thus fact can be verified form
the balance sheet of the assessee placed on page 15 of paper book. The extract of
same is reproduced here under:
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
69 KIRI INDUSTRIES LIMITED Balance Sheet as at 31st March, 2012 Particulars Notes As at 31st March, 2012 EQUITY AND LIABILITIES SHARE HOLDERS FUNDS Share Capital 2 190,000,530 Reserves and Surplus 3 3,600,205,314 3,790,205,844 148. At the outset we find that various Hon’ble Courts have held that there cannot
be any disallowance of interest expenses in a situation where the own fund exceeds
the amount of investment made by the assessee. As such, there is a presumption
that the investment has been made by the assessee out of its own without involving
any borrowed fund. In holding so we draw support and guidance from the judgment
of Hon’ble jurisdictional High court in the case of CIT vs. Torrent Power Ltd reported
in 363 ITR 474 where it was held as under:
It was noted from records that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of`Rs.195.10 crores. In other words, the assessee had sufficient funds for making the investments and it had not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the revenue which earned it the interest on bonds and dividend income. [Para 7] 148.1 In view of the above we hold that there cannot be any disallowance of
interest expenses. Accordingly the grounds of appeal raised by the Revenue is
dismissed.
149. The next issue raised by the Revenue vide ground no. 3 to 6 is that the
learned CIT (A) erred in allowing the part relief to assessee out of addition made by
the AO/TPO on account of corportae guarantee extended to AE.
150. The issue raised by the Revenue has already been adjudicated by us along
with the appeal of the assessee bearing No. 1850/AHD/2016 vide paragraph No.
134 of this order. The ground raised by the Revenue was dismissed by us. For the
detailed discussion, please refer the relevant paragraph. Accordingly, the ground of
appeal raised by the Revenue is dismissed.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
70 151. The next issuue raised by the Revenue in ground nos. 7 to 9 are general in
nature. Hence the same is dismissed being general and infructuous.
152. In the result the appeal of the Revenue is dismissed.
 Coming to ITA No. 1654/AHD/2017 for the assessment year 2013-14, an appeal by the Assessee 153. The following grounds of appeal have been raised by the assessee:
1. The ld.CIT(A) has erred in law and on facts of the case in confirming the action of the ld.AO of disallowing Employees’ contribution towards PF and ESI amounting to Rs.13,20,404/- u/s.36(1)(va) of the Act.

2. The learned CIT(A) has erred both in law and on the facts of the case in holding that Corporate Guarantee given to associate enterprise is an “international transaction” falling within the purview of transfer pricing provisions.

3. The learned CIT(A) has erred both in law and on the facts of the case in holding that direct and binding decision of jurisdictional Tribunal which has considered all the earlier judgments on the issues in the case of Micro Ink Limited vs ACIT (2015) (63 taxmann.com
353) is not to be followed, despite the same being applicable on the facts of the case.

4. The learned CIT(A) has erred both in law and on the facts of the case in confirming the upward adjustment to the extent of ?Rs.7,40,796/- @ 0.5% p.a. on account of corporate guarantee given to associate enterprise while determining arm’s length price under the provisions of transfer pricing.

5. The learned CIT(A) has erred both in law and on the facts of the case in confirming the upward adjustment to sale price of Rs.1,17,906/- by applying Internal CUP Method. Both these actions of making upward adjustment and adopting a different method for determining ALP without giving reasons for rejection of method followed by the appellant are illegal and without jurisdiction.

6. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

7. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying interest u/s.234A/B/C of the Act.

8. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in initiating penalty u/s.271(1)(c) of the Act.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
71 154. The first issue raised by the assessee in ground no. 1 is that the learned CIT
(A) erred in confirming the disallowances of ₹ 13,20,404/- on account of late
payment of employee’s contribution towards EPF and ESI.
155. At the outset we note the leanred AR for the assessee conceded before us
that the issue has been covered against the assessee by the order of Hon’ble
Jurisdictional High Court in case of CIT vs. Gujarat State Road Transport Corporation
reported in 366 ITR 170. Hence, respectfully following the order of Hon’ble High
Court, we dismiss the ground of appeal of the assessee.
156. The next issue raised by the assessee vide ground no. 2 to 4 is that the
learned CIT(A) erred in confirming the part addition on account of corportae
guarantee extended to AE.
157. We note that the Revenue is also in appeal vide gorund no. 6 to 9 of its
appeal in ITA No- 1814/Ahd/2017 against the part relief provided by the learned
CIT (A) to the assessee. The relevant ground of appeal of the Revenue reads as
under:
1. The Ld.CIT(A) has erred in deleting the addition of Rs.32,00,240/- based on the upward adjustment made by the TPO by computing the guarantee fees at 2.16% per annum.

2. The Ld.CIT(A) has erred in law and on facts in holding adhoc guarantee fees of 0.5% in respect of guarantee given without appreciating the fact that the above rate was without any basis and hence the rate needed to be adjusted before it could be adopted as arms length rate.

3. The Ld.CIT(A) has erred in law and on facts in rejecting the arms length price of Rs.32,00,240/- determined by the TPO in respect of guarantee given by assessee company in respect of loan taken by group company.

4. The Ld.CIT(A) has erred in law and on facts in holding that the assessee had not provided any loans but guarantee which did not involve any expenditure on part of the assessee or monetary benefits in the hands of recipient.
158. At the outset we note that the similar issue has been raised by the assessee
in ITA No. 3491/Ahd/2015 in ground no. 4 to 8 which has been allowed in favor of
the assessee. For, the detailed discussion please refer the relevant paragrapgh No. ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
72 105 of this order. Thus we hold that the principles laid down in above paragraph
will mutas mutandis apply here in also. In the result ground of appeal raised by the
assessee is allowed whereas ground of appeal raised by the Revenue is dismissed.
159. The next issue raised by the assessee vide ground no. 5 is that the learned
CIT(A) erred in confirming the upward adjustment in sale price for Rs. 1,17,906/-
in TP report.
160. At the outset we note that the learend AR for assessee before us submitted
that he was directed by the assessee not to press this ground of appeal being
smallness of amount. Accordingly we dismiss the groud of appeal of the assesse
being not pressed.
161. The next issuue raised by the assessee in ground nos. 6 to 8 in its appeal are
general, consequential or premature in nature. Hencce the same are dismissed
being general and infructuous.
162. In the result the appeal of the assessee is partly allowed.
Coming to ITA No. 1814/AHD/2017 for the assessment year 2013-14, an
appeal by the Revenue 163. The following grounds of appeal have been raised by the Revenue:
1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance u/s36(1)(iii) of the IT Act amounting to Rs.71978426/-.

1.1. The Ld.CIT(A) has failed to appreciate that the assessee had invested more than Rs.100 Crore in new capital assets which was extension of existing business and therefore the provisions of Section 36(1)(iii) was squarely applicable. 1.2. That the Ld.CIT(A) has failed to appreciate that the assessee had paid considerable amount of interest on borrowings made and it had no such interest free cash flow available to investment in acquisition of such capital asset (CWIP). 1.3. That the Ld.CIT(A) has failed to appreciate that the onus was on the assessee to demonstrate that the assessee had such interest free cash flow to invest in such new assets (CWIP).
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
73 2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s.36(1)(iii) of the IT Act amounting to Rs 13402729/- made on account of Capital Advances.

3. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s.14A amounting to Rs.7,88,66,656/-.

4. The Ld.CIT(A) has erred in deleting the addition of disallowance u/s.14A to the Book Profit u/s.115JB of the Act.

5. The Ld.CIT(A) has erred in deleting the addition of disallowance of foreign Commission expense of Rs.619209/- even when the assessee failed to prove the genuineness of such expenditure.

1.1. The Ld.CIT(A) has erred in deleting the said addition u/s.40(a)(ia) of the IT Act as no TDS was made on such payments.

6. The Ld.CIT(A) has erred in deleting the addition of Rs.32,00,240/- based on the upward adjustment made by the TPO by computing the guarantee fees at 2.16% per annum.

7. The Ld.CIT(A) has erred in law and on facts in holding adhoc guarantee fees of 0.5% in respect of guarantee given without appreciating the fact that the above rate was without any basis and hence the rate needed to be adjusted before it could be adopted as arms length rate.

8. The Ld.CIT(A) has erred in law and on facts in rejecting the arms length price of Rs.32,00,240/- determined by the TPO in respect of guarantee given by assessee company in respect of loan taken by group company.

9. The Ld.CIT(A) has erred in law and on facts in holding that the assessee had not provided any loans but guarantee which did not involve any expenditure on part of the assessee or monetary benefits in the hands of recipient.

10. The Ld.CIT(A) has erred in law and on facts by rejecting the facts that I transactions like advances given to the AE in a way by share application money are nothing but loan given to AE.

11. The Ld.CIT(A) has erred in law and on fact that the arms length price of Rs.12,52,159 determined by the TPO in respect of the ALP interest was required to be charged by the assessee from the AE in view of Share application money advanced as loan by the assessee.
164. The first issue raised by the Revenue vide ground Nos. 1 & 2 in its appeal is
that the learned CIT (A) erred in deleting the addition made under section 36(1)(iii)
of the Act for Rs. 7,19,78,426 on CWIP and Rs. 1,34,02,729/- on account of capital
advance.
165. At the outset we note that the similar issue has been raised by the Revenue
in ITA No. 2296/Ahd/2016 in ground no. 2 which has been allowed in favor of the
assessee. For the detailed discussion please refer the relevant paragrapgh No.147-
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
74 148 of this order. Thus we hold that the principles laid down in above paragraph
will mutas mutandis apply herein also. In the result ground of appeal raised by the
Revenue is dismissed.
166. The next issue raised by the Revenue vide ground no. 3 is that the learned
CIT (A) erred in deleting the addition made by the AO under section 14A for Rs.
7,88,66,656/- only.
167. At the outset, we note that the similar issue has been raised by the assessee
in ITA No. 2524/Ahd/2015 in ground no. 1 & 2 which has been partly allowed in
favor of the assessee. For the detailed discussion please refer the relevant
paragrapgh No. 56 of this order. Thus we hold that the principles laid down in above
paragraph will mutas mutandis apply herein also. In the result, the ground of appeal
raised by the Revenue is dismissed.
168. The next issue raised by the Revenue vide ground 4 is that the learned CIT
(A) erred in deleting the addition made in book profit computed under section 115JB
of the Act for Rs. 7,88,66,656/- only.
169. At the outset we note that the similar issue has been raised by the assessee
in ITA No. 2524/Ahd/2015 in ground no. 4 which has been partly allowed in favor
of the assessee. For the detailed discussion, please refer the relevant paragrapgh
No. 71 of this order. Thus we hold that the principles laid down in above paragraph
will mutas mutandis apply herein also. In the result ground of appeal raised by the
Revenue is partly allowed.
170. The next issue raised by the Revenue vide ground 5 is that the learned CIT
(A) erred in deleting the addition of Rs. 6,19,209/- made on account foreign
commission under section 40(a)(ia) of the Act.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
75 171. At the outset we note that the similar issue has been raised by the Revenue
in ITA No. 44/Ahd/2016 in ground no. 2 which has been allowed in favor of the
assessee. For the detailed discussion, please refer the relevant paragrapgh No. 123
of this order. Thus we hold that the principles laid down in above paragraph will
mutas mutandis apply herein also. In the result ground of appeal raised by the
Revenue is dismissed.
172 The next issue raised by the Revenue vide ground no. 6 to 9 is that the
learned CIT (A) erred in allowing the part relief to assessee out of addtion made by
the AO on account of corportae guarantee extended to AE.
173. The issue raised by the Revenue has already been adjudicated by us along
with the appeal of the assessee bearing No. 1654/AHD/2017 vide paragraph No.
158 of this order. The ground raised by the Revenue was dismissed by us. For the
detailed discussion, please refer the relevant paragraph. Accordingly, the ground of
appeal raised by the Revenue is dismissed.
174. The next issue raised by the Revenue vide ground no. 10 & 11 is that the
learned CIT (A) erred in deleting the upward adjustment of Rs. 12,52,159/- made
by the AO account of interest free loan given to AE.
175 The AO/TPO during the assessment proceedings found that the assessee has
advanced money/share application money to its AE without charging any interest
thereon. As per the AO/TPO such transaction of advancing money for the acquisition
of the shares are international transaction, therefore the same needs to be
benchmarked. Accordingly the AO/TPO worked out the ALP of the interest
attributable on such advance/share application money and made the upward
adjustment of ₹ 12,52,159/- by adding to the total income of the assessee.
176. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted
the upward adjustment made by the TPO/AO.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
76 177. Being aggrieved by the order of the learned CIT (A) the Revenue is in appeal
before us.
178 The learned DR before us vehemently supported the order of the AO whereas
the learned AR before us submitted that money was advanced by the assessee to
its AE for the acquisition of the shares. Therefore, the provisions of chapter X of the
Act cannot be applied to the impugned transaction being capital account
transactions. Accordingly the learned AR requested to delete the addition made by
the authorities below.
179. We have heard the rival submissions and also perused the relevant finding
given in the impugned orders of the lower authorities. It is sine qua non for invoking
the provisions of chapter X of the Act that the transaction for the subscription of
shares falls within the purview of income arising from international transaction. The
transaction of subscribing of shares of a company is always on capital account. The
AO has re-characterized the share application money as a loan simply because there
was the time gap between the dates when the share application amount was paid
and the shares were allotted. Admittedly the shares were allotted to the assessee.
This fact of the allotment of shares can be found out from the observation of the
AO/TPO on page 51 of the order which reads as under:
“It is pertinent to note that in all the cases loans/share application given have been converted into equity investment in same financial year 2012-13 after enough time given to the AE’s use interest free funds.”
179.1 If the parties have agreed to treat the advance/share application money for
subscription of shares, then onus is upon the AO to prove it contrary that it is an
international transaction. Here, the AO has drawn presumption on the ground that
there was delay in allotment of shares, hence it is an international transaction of
capital financing. Such a presumption cannot change the character of transaction.
This issue of re-characterization of share application money into loan has been
considered at length by the Hon’ble Bombay High Court in the case of Vodafone ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
77 India Services (P) Ltd. Vs Union of India reported in 368 ITR 1, wherein Hon’ble
High Court after detailed discussion has concluded that provisions of chapter X are
not applicable to international transaction of issuance of equity shares. Here in this
case it has been brought on record that the shares have been allotted to the
assessee company after some time gap. Therefore, such shares ostensibly fall into
capital account that cannot be treated as capital financing which needs to be
benchmarked for the purpose of determining the ALP by imposing any kind of
interest. The TPO/AO cannot disregard any apparent transaction and substitute it
by re-characterizing the said transaction without any material or exceptional
circumstances that the assessee has tried to conceal the real transaction.
Investment made in shares or applying for the shares cannot be given different
colour so as to expand the scope of transfer pricing adjustment by re-characterizing
it as interest free loan. Thus, we are unable to uphold the contention of the Revenue
that share application money pending allotment should be re-characterized as loan
till the period it is allotted after a reasonable time. Accordingly, we do not find any
reason to interfere in the finding of the learned CIT (A), thus the ground of appeal
raised by the Revenue is dismissed.
180. In the result the appeal of the Revenue is partly allowed.
 Coming to ITA No. 1655/AHD/2017 for the assessment year 2014-15, an appeal by the Assessee 181. The Assessee has raised following grounds of appeal:
1. The ld.CIT(A) has erred in law and on facts of the case in confirming the action of the ld.AO of disallowing Employees’ contribution towards PF amounting to Rs.17,02,382/- u/s.36(1)(va) of the Act.

2. The ld.CIT(A) has erred in law and on facts of the case in changing the very basis of disallowance of Rs.2,14,130/- which was disallowed by the Assessing Officer u/s.194C r.w.s. 40(a)(ia) of the Act. However, ld.CIT(A) has confirmed the said disallowance by invoking the provisions of S.195 that too without issuing any notice to that effect. This action of ld.CIT(A) is patently illegal and without jurisdiction.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
78 3. The ld.CIT(A) has erred in law and on facts of the case in confirming the action of the ld.AO of disallowing advertisement expense of Rs.2,14,130/- u/s.40(a)(ia) r.w.s.195 of the Act.

4. The ld.CIT(A) has erred in law and on facts of the case in confirming the action of the ld.AO of applying s.194C of the Act which is not at all applicable to advertisement expenses.

5. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed.

6. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in levying interest u/s.234A/B/C of the Act.

7. The learned CIT(A) has erred in law and on facts of the case in confirming action of the ld.AO in initiating penalty u/s.271(1)(c) of the Act.
182. The first issue raised by the assessee in ground no. 1 in its appeal is that the
learned CIT (A) erred in confirming the disallowances of ₹ 17,02,382/- on account
of late payment of employee contribution towards EPF and ESI.
183. At the outset we note that the similar issue has been raised by the assessee
in ITA No. 1654/Ahd/2017 in ground no. 1 which has been decided againt the
assessee. For the detailed discussion please refer the relevant paragraph No.155 of
this order. Thus we hold that the principles laid down in above paragraph will
mutatis mutandis apply herein also. In the result ground of appeal raised by the
assessee is dismissed.
184. The second issue raised by the assessee in ground nos. 2 to 5 in its appeal
is that the learned CIT (A) erred in confirming the disallowances of ₹ 2,14,130/-
under section 40(a)(ia) of the Act.
185. The Assessee during the year under consideration claimed advertisement
expenses for ₹ 11,65,675/- only. The AO during the assessment proceedigs found
that out of such advertisment expenses, an amount of ₹ 2,14,130/- was paid to M/s
Market Bulletin without deducting tax at source under section 194C of the Act.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
79 Accrodingly the AO invoked the provison of section 40(a)(ia) of the Act, and
disalllowed the advertisment expenses paid to M/s Market Bulletin for ₹ 2,14,130/-
by adding the same to the total income of the assessee.
186. Aggrieved assessee carried the mater to the learned CIT (A) and contended
that the addition was made without granting an opportunity of being heard which
is in violation of principles of natural justice. Thus in the light various decision of
Hon’ble Supreme Court, any addtion made without affording opprotunity of being
heard is in voilation of principles of natural justice and thus the same is not
sustainable.
187. The assessee on merit submitted that amount was paid for advertisment in
news journel namely Market Bulletin which is published in Pakistan. Therefore the
same is not taxable in India as the Market Bulletin has no business connection and
PE in Inida. Further as per the provision of section 91 of the Act the resident country
of Market Bulletin i.e. Pakistan have right to tax the same as business income. Hence
the assessee is not required to deduct the tax under section 195 of the Act for the
reason that income is not chargeable to tax in Inida.
188. However the learned CIT (A) confirmed the action of the AO by observing as
under:
7.3. I have carefully considered the facts of the case, assessment, order and submission of the appellant. The AO has made the disallowance of advertisement expenses of Rs.2,14,130/- invoking the provisions of Section 40(a) (ia) of the Act due to non-deduction of the TDS u/s. 195 of the Act. it has been noticed that the appellant has credited the aforesaid amount in the ledger account of M/s. Market Bulletin as payment for advertisement. Since the appellant has not made any TDS nor it has submitted any details and evidences to show that the same have been offered for taxation by the recipient party in its books of account/return of income. The appellant has pleaded that the principle of natural justice has not been followed by the AO in the assessment proceedings by granting the opportunity to explain its contention. However, it has been seen that the appellant has not even furnished any details and evidences in support of its submission in the present appellate proceedings also and this opportunity remained un-availed by the appellant. Further, the appellant has failed to prove (hot the recipient party did not have any business connection or permanent establishment in India and therefore, in absence of any details and evidences the claim of the appellant is not verifiable. Thus there is no merit in the submission of the appellant. The appellant has simply contested the ground on the plea that the AO has ‘ not granted opportunities to furnish the details and evidences. Even if the appellant’s ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
80 contention is found acceptable, then also the appellant could have submitted the details and evidences in support of its contention in the present appellate proceedings as it has the opportunity to submit the same, which has not been done so. This amply shows that the appellant does not have any case 1o put-forth in its support, in view of the aforesaid discussion, the disallowance made by the AO is found correct and justified and hence the same is confirmed.
189. Being aggrieved, by the order of the learned CIT (A), the assessee is in
appeal before us.
190. The learned AR before us reiterated the contentions as made before the
authorities below whereas the ld. DR vehemently supported the order of the
authorities below.
191. We have heard the rival contentions of both the parties and perused the
material availabe on record. Admitedly the assessee has made payment of ₹
2,14,130/- to M/s Market Bulletin which is resident of pakistan. Though the AO made
the disallowance by invoking the provision of section (40)(a)(ia) of the Act on
account of non dedcution of TDS under section 194C of the Act, however the learned
CIT (A) in light of new fact that the amount was paid to non resident assessee
confirmed the addtion by holding that assessee failed to comply with the provision
of section 195 (2) of the Act. Now the question question arise whether the
advertisment charges paid to a non resident is laible to be taxed in India and the
assessee is liable to deduct witholding tax.
191.1 In this case, the payee M/s Media Bulletin is based in Pakistan and have
rendered its services of advertisement in Pakistan/outside India. The payee was not
having any permanent establishment in India. At the time of hearing learned DR did
not bring any material on record suggesting that the non-resident payee is having
any permanent establishment in India or services were provided within India. In
absence of such finding it is held that the income earned by the non-resident payee
cannot be deemed to be accrue or arise in India. Regarding applicability of section
195 of the Act, we observe that once the income is not taxable in India, there is no ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
81 liability of deduction of tax. Therefore, it was not applicable for the assessee to
deduct tax, therefore, there was no violation of provisions of section 195 of the Act.
191.2 Before parting it is pertinent to note that the assessee has challenged the
addition on legal grounds also. However, we have allowed the appeal of the
assessee on merits. Hence we don’t find any reason to adjudicate the issue raised
on legal ground. Accordingly, we direct to the AO to delete the addition by him.
Hence, the ground of appeal of the assessee is allowed.
192. The issue raised by the assessee in ground no. 6 & 7 in its appeal are
consequential and premature to decide. Hence the same are dismissed being
infructuous.
192.1 In the result the appeal of the assessee is partly allowed.
 Coming to ITA No. 1815/AHD/2017 for the assessment year 2014-15, an appeal by the Revenue 193. The Revenue has raised the following grounds of appeal:
1. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s.36(1)(iii) of the IT Act amounting to Rs.79664825/-.

1.1. The Ld.CIT(A) has failed to appreciate that the assessee had invested more than Rs.100 Crore in new capital assets which was extension of existing business and therefore the provisions of Section 36(1)(iii) was squarely applicable. 1.2. That the Ld.CIT(A) has failed to appreciate that the assessee had paid considerable amount of interest on borrowings made and it had no such interest free cash flow available to invest in acquisition of such capital asset (CWIP). 1.3. That the Ld.CIT(A) has failed to appreciate that the onus was on the assessee to demonstrate that the assessee had such interest free cash flow to invest in such new assets (CWIP).
2. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance u/s.14A amounting to Rs.3,91,90,512/-.

3. The Ld.CIT(A) has erred in deleting the addition of disallowance u/s.14A to the Book Profit u/s.115JB of the Act.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
82 4. The Ld.CIT(A) has erred in deleting the addition of disallowance of foreign Commission expense of Rs.34,96,732/- even when the assessee failed to prove the genuineness of such expenditure.

4.1. The Ld.CIT(A) has erred in deleting the said addition u/s.40(a)(iv) of the IT Act as no TDS was made on such payments.
194. The fisrt issue raised by the Revenue is that the learned CIT (A) erred in
deleting the disallowances made by the AO for Rs. 7,96,64,825/- made under
section 36(1)(iii) of the Act.
195. At the outset we note that the similar issue has been raised by the Revenue
in ITA No. 2296/Ahd/2016 in ground no. 2 which has been allowed in favor of the
assessee. For the detailed discussion, please refer the relevant paragrapgh No.147-
148 of this order. Thus we hold that the principles laid down in above paragraphs
will, mutatis mutandis, apply herein also. In the result ground of appeal raised by
the Revenue is dismissed.
196. The next issue raised by the Revenue is that the learned CIT (A) erred in
deleting the disallwoances for Rs. 3,91,90,512/- made by the AO under section 14A
r.w.r. 8D of the Act.
197. At the outset we note that the similar issue has been raised by the assessee
in ITA No. 2524/Ahd/2015 in ground no. 1 & 2 which have been partly allowed in
favor of the assessee. For detailed discussion please refer the relevant paragrapgh
No. 56 of this order. Thus we hold that the principles laid down in above paragraph
will mutas mutandis apply herein also. In the result, the ground of appeal raised by
the Revenue is dismissed.
198. The next issue raised by the Revenue is that the learned CIT (A) erred in
deleting the addition made by the AO in book profit computed under section 115JB
of the Act for Rs. 3,91,90,512/.
ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
83 199. At the outset we note that the similar issue has been raised by the assessee
in ITA No. 2524/Ahd/2015 in ground no. 4 which has been partly allowed in favor
of the assessee. For detailed discussion, please refer the relevant paragraph No.71
of this order. Thus we hold that the principles laid down in above paragraph will
mutas mutandis apply herein also. In the result ground of appeal raised by the
Revenue is partly allowed.
200. The next issue raised by the Revenue is that the learned CIT (A) erred in
deleting the addition made by the AO for Rs. 34,96,732/- on account foreign
commission under section 40(a)(ia) of the Act.
201. At the outset we note that the similar issue has been raised by the Revenue
in ITA No. 44/Ahd/2016 in ground no. 2 which has been allowed in favor of the
assessee. For detailed discussion please refer the relevant paragraph No.123 of this
order. Thus we hold that the principles laid down in above paragraph will mutatis
mutandis apply here in also. In the result, the ground of appeal raised by the
Revenue is dismissed.
202. In the Result the appeal of the Revenue is partly allowed.
203. The combined results of all the appeals are as follows:
(1) Assessee’s appeal in ITA No.1849/Ahd/2016 for AY 2003-04 is allowed (2) Revenue’s appeal in ITA No.2295/Ahd/2016 for AY 2003-04 is dismissed (3) Assessee’s appeal in ITA No.1948/Ahd/2012 for AY 2008-09 is partly allowed (4) Assessee’s appeal in ITA No.2524/Ahd/2015 for AY 2010-11 is partly allowed (5) Assessee’s appeal in ITA No.1231/Ahd/2018 for AY 2010-11 allowed (6) Assessee’s appeal in ITA No.3491/Ahd/2015 for AY 2011-12 is partly allowed (7) Revenue’s appeal in ITA No.44/Ahd/2016 for AY 2011-12 is dismissed (8) Assessee’s appeal in ITA No.1850/Ahd/2016 for AY 2012-13 is partly allowed (9) Revenue’s appeal in ITA No.2296/Ahd/2016 for AY 2012-13 is dismissed (10) Assessee’s appeal in ITA No.1654/Ahd/2017 for AY 2013-14 is partly allowed ITA nos.1849Ahd/2016 & 12 others Asstt. Years 2003-04 & others
84 (11) Revenue’s appeal in ITA No.1814/Ahd/2017 for AY 2013-14 is partly allowed (12) Assessee’s appeal in ITA No.1655/Ahd/2017 for AY 2014-15 is partly allowed (13) Revenue’s appeal in ITA No.1815/Ahd/2017 for AY 2014-15 is partly allowed.
Order pronounced in the Court on 30/07/2021 at Ahmedabad.
Sd/- Sd/- (MAHAVIR PRASAD) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy)
Ahmedabad; Dated 30/07/2021
Manish

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