9911796707
TMI Blog2012 (5) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... e return on 8/3/2004 declaring loss of Rs. 117.03 crores under the normal provisions and of Rs.2429,04,33,473/- under section 115JB of the Act. The AO completed the assessment under section 143(3) of the Act on 28/3/2005 determining taxable income at Rs. 475,83,23,696/- after deduction under Chapter VIA and set off of brought forward losses and income under section 115JB of the Act was computed at Rs. 3670,41,60,500/-. Being aggrieved the assessee filed an appeal before the ld. CIT(A) disputing the various additions/ disallowances made by the AO while computing the income. The ld. CIT(A) allowed the appeal of the assessee in part. Hence, the assessee as well as the department are in appeal before the Tribunal. 3. First we shall take up the appeal filed by the assessee being ITA No.3082/Mum/06 for our consideration. Since there are certain grounds in the appeal of the department connected with grounds of appeal of the assessee, we shall also dispose off those grounds as well with the appeal of the assessee. 4. Ground No.1 of the appeal of the assessee reads as under: "1. The learned Commissioner of Income-tax (Appeals-III) (hereinafter referred to as CIT(A)) erred in not adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88 ITD 273(SB) and the Tribunal confirmed its earlier decision in assessee's own case for assessment years 1984-85 and 85-86 that the sales tax subsidy granted to the assessee is in the nature of capital receipt not liable to tax. It was contended that the Tribunal also considered the decision of the Hon'ble Apex Court in the case of Sahney Steel and Press Works Ltd.(supra). He submitted that the Special Bench while deciding the issue in favour of the assessee also considered the decision of another Bench of ITAT Mumbai in the case of Bajaj Auto Limited (supra) which had taken a contrary view that the subsidy is revenue receipt. It was contended that in subsequent assessment years ITAT has allowed similar claim of the assessee and even in the just preceding assessment year 2001-02 the claim for deduction of notional sales tax was held in the nature of capital receipt not liable to tax. The ld. CIT(A) accepted the above contention of the assessee and held that the claim for deduction of notional sales tax of Rs. 1024,34,61,999/- should be allowed as deduction as it is in the nature of capital receipt not liable to tax. 4.4 The assessee has also taken an alternative submission befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming the disallowance of interest of Rs.11,19,382/- being interest referable to interest free loans and advances given to subsidiary companies. 5.1 The AO has stated that assessee has advanced interest free loans to its subsidiary companies. The AO has stated that assessee was asked to prove the nexus between source of funds out of which advances were given to its subsidiary companies and interest free or own funds available with the assesse. The assessee filed details and stated that the assessee had given loans and advances of Rs.2988.98 crores to its subsidiaries as on 31/3/2002, out its own funds and internal accruals except to he extent of Rs.9,89,04,473/-. The amount of interest on the advances of Rs. 9.89 crores given out of other than own funds worked out to Rs. 11,19,382/-. The AO relying upon the decision of Hon'ble Kerala High Court in the case of V.I. Baby & Company, 254 ITR 248 and decision of the Hon'ble Bombay High Court in the case of Phalton Sugar Works Ltd., 208 ITR 989 disallowed the said interest of Rs. 11,19,382/-. Being aggrieved the assessee filed appeal before the first appellate authority. 5.2 It was contended on behalf of the assessee that assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were sufficient to meet the investment made. He further submitted that the Hon'ble Apex Court has also held in the case of S.A.Builders Ltd., vs. CIT, 288 ITR 1 that when loan to its subsidiary is given in the course and for the purpose of business of its business, no disallowance of interest has to be made. He submitted that in view of above decisions, the disallowance of interest is not justified and the same should be deleted. 5.5 On the other hand, ld. D.R relied on the orders of the authorities below. 5.6 We have carefully considered the submissions of the ld. representatives of the parties and orders of the authorities below. We have also considered the cases relied upon by the authorities below as well as the cases cited by ld. A.R (supra). There is no dispute to the fact that the assessee's own funds are far in excess of the interest free loans and advances given by the assessee to its subsidiary companies . The Hon'ble Bombay High Court has held in the case of Reliance Utilities & Power Ltd.(supra) that if there were funds available both interest free and overdraft / or loans taken, then presumption would arise that investment would be out of interest free funds g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the assessee by confirming the order of the CIT(A). 7. In ground No.4 the assessee has disputed the order of the ld. CIT(A) in confirming the disallowance of an estimated expenses of Rs. 2,56,58,887/- out of administrative expenses under section 14A of the Act being expenditure incurred in relation to earning the dividend income exempt under section 10(33) and interest income exempt under section 10(23G) of the Act while computing book profit as well as under the normal provisions of the Act. 7.1 This ground of appeal of the assessee is connected with Ground No.4 of the appeal of the department which reads as under: "4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the disallowance of expenditure incurred for earning exempt income from Rs. 66,71,05,360/- to 1% of the exempted income." 7.2 The relevant facts are that assessee earned dividend income of Rs. 23,77,75,384/- and interest income of Rs.232,81,13,284/-, which were claimed exempt under section 10(33) and 10(23G) of the Act respectively. The assessee stated that it had not incurred any expenditure towards earning of the said exempt income. However, the AO esti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of income under normal provisions of the Act and also for computing book profit under section 115JB of the Act. Therefore, the assessee as well the department are in appeal before the Tribunal. 7.5 At the time of hearing ld. A.R submitted that ground No.4 of the appeal taken by it is not pressed for. However, in respect of the ground No.4 of the appeal taken by the Department, Ld. A.R made his submissions on the lines of the submissions made before the authorities below and also placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities & Power Ltd.(supra). 7.6 On the other hand, ld. D.R relied on the order of the A.O. 7.7 We have carefully considered the submissions of the ld. representatives of the parties. In respect of ground No.4 of the appeal taken by the assessee, ld. A.R submitted that this ground is not pressed for and it is rejected. However, in respect of ground No.4 of the appeal of the Department, we for the reasons given herein above in para 5.6 while considering ground No.2 of the appeal of the assessee that its own funds are far in excess than the investments made by the assessee giving exempt income, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 80 HHC of the Act. It was contended that interest paid exceeded the interest received and hence, no deduction @90% of interest received is required to be made while computing claim for deduction u/s. 80 HHC of the Act. 8.4 It was also contended that 90% of only net interest received should be considered for reducing from the profit of business for computing deduction under section 80 HHC of the Act. 8.5 Further AO considered on an adhoc basis 90% of Rs. 10 crores out of total miscellaneous income as disallowable under Explanation (baa) to section 80 HHC of the Act for computing deduction under section 80 HHC of the Act. 8.6 With reference to exclusion of profit under section 80IA/ 80IB the assessee contended that it should be restricted to only those units with reference to which u/s. 80 HHC claim is worked out. The AO is not justified to reduce the profit allowed as deduction under section 80IA / 80 IB with reference to all units i.e. exporting and non-exporting units. It is relevant to state that the assessee has 12 units and has claimed deduction u/s. 80 IA and 80 IB of the Act with reference to all the 12 units. However, there are only three exporting units i.e. HDPE- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT(A) considered the submissions of the assessee and held as under: (a) AO has correctly excluded interest receipt from the profit of the business while considering deduction under section 80 HHC of the Act. He has further stated that AO has rightly reduced the profits of the business by 90% of the gross interest receipt. Therefore, ld. CIT(A) has not agreed with the contention of the assessee that interest received should be set off against the interest paid and 90% of only net interest receipt should be reduced from the profit of the business. (b) Action of AO to estimate to reduce 90% Rs. 10.00 crores from miscellaneous income is fair and reasonable while considering eligible deduction under section 80 HHC of the Act. The ld. CIT(A) has stated that assessee has not furnished complete details of the nature of other income and had not explained proximate nexus of the other income with the export business of the assessee. (c) As regards reduction of profit allowed as deduction under section 80IA / 80IB while computing claim under section 80 HHC, the ld. CIT(A) has held that the restriction contained in sub-section (9) of section 80 IA is referable to the specific undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A), the assessee as well as department are in appeals before the Tribunal. 8.11 In respect of order of ld. CIT(A) to reduce 90% of the gross interest received while computing deduction under section 80 HHC of the Act, ld. A.R submitted that above issue is now covered by the decision of the Hon'ble Apex Court in the case of M/s. ACG Associates Capsules Pvt. Ltd. vs. DCIT by order dated 8/2/2012 in Civil Appeal No.1914 of 2012 (arising out of SLP (c) No.32450 of 2010), copy filed at the time of hearing, in favour of the assessee. In the said case, Hon'ble Apex Court has held that 90% of net receipts are to be excluded under Explanation (baa) to section 80 HHC of the Act for determining the profits of business The ld. D.R has not disputed the above contention of the ld. A.R. 8.12 In view of the above submission that issue is covered in favour of assessee by the decision of Hon'ble Apex Court (supra), we reverse the orders of authorities below and accordingly ground No.5 (a) & (b) of the appeal taken by the assessee are allowed in favour of the assessee by directing that 90% of net interest expenses have to be considered while computing deduction under section 80 HHC of the Act. &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of certain income", and shall in no case exceed the profits and gains of such eligible business of undertaking or enterprise, as the case may be." On considering the above sub-section (9) of section 80 IA of the Act in the context of the claim to be allowed under section 80 HHC of the Act of the exporting unit we find merit in the contention of ld. A.R that deduction under section 80 HHC of the Act is computed in proportion of export turnover to total turnover. Further sub-section (9) of section 80 IA provides that when an amount of profits and gains of an undertaking is claimed and allowed as deduction under section 80 IA of the Act for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this chapter under the head "C- deduction in respect of certain incomes" and subject to the condition that the total deduction should not exceed profits and gains of such eligible business of undertaking or enterprise, as the case may be. This provision has been inserted with a view to avoid double benefit under the Act on the same profit of an undertaking or enterprise. Hence, Sec.80 IA (9) relates to deduction and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of ITAT Mumbai Benches in the case of ACIT vs. Grasim Industries Ltd., (2010) 35 SOT 249. Hence, we confirm the order of ld. CIT(A) and reject Ground No.5 of the appeal taken by the department. 8.17 In respect of Ground No.6 of the appeal of the department to dispute the order of ld. CIT(A) in deleting the inclusion of excise duty and sales tax in the total turnover for the purpose of computing deduction under section 80 HHC of the Act, it was conceded that above issue is covered in favour of the assessee not only by the decision of the Hon'ble Jurisdictional High Court on which reliance has been placed by the ld. CIT(A) (supra) but is also covered by the decision of the Hon'ble Apex Court in the case of CIT vs. Laxmi Machine Works, 290 ITR 667. The Hon'ble Apex Court in the case of Laxmi Machines Works (supra), has been held that excise duty has to be excluded from the total turnover for the purpose of computing deduction under section 80 HHC of the Act. Further the Hon'ble Jurisdictional High Court as held in the case of Sudarshan Chemical Industries Ltd.(supra) that sales tax is not to be included in the total turnover for computing deduction under section 80 HHC o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n tour cannot be regarded as expenditure allowed wholly and exclusively for business purposes as the wife could not be said to have attributed directly to the business of the assessee concerned. In the first appeal ld. CIT(A) has confirmed the action of the AO. Hence, the assessee is in further appeal before the Tribunal. 9.2 During the course of hearing ld. A.R stated that similar issue was considered by the Tribunal in assessee's own case on identical facts and circumstances in assessment year 2001-02 vide order dated 30/04/2008 in ITA No.5971/M/04, copy placed at pages 221 to 229 of the paper book against the assessee and confirmed the disallowance made by the ld. CIT(A). 9.3. In view of the above submissions of ld. A.R and the fact that assessee has not been able to establish that above expenses pertaining to wives/family members of the executives was necessary for the purpose of the business, we uphold the order of ld. CIT(A) by rejecting ground No.6 of the appeal taken by the assessee. 10. In ground No.7 of the appeal the assessee is disputing the order of the ld. CIT(A) in confirming the disallowance of an amount of Rs. 36,75,561/- out of prior period expenses of Rs. 4,23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's own case for assessment year 2001-02 (supra), we restore this issue back to the file of AO with a direction to allow the said expenditure as deduction in the year in which it got crystallized. Hence, ground No.7 of the appeal taken by the assessee is allowed for statistical purposes. 11. Ground No.8 of the appeal taken by the assessee is as under:- "8. The learned CIT(A) erred in confirming the action of the AO of taking the total consideration received on sale of shares of Larsen & Toubro for computing Capital Gains. The Appellant submits that 25% of sale consideration pertaining to restrictive covenant as per the Sale Agreement signed with Grasim Industries Limited is in the nature of capital receipt not liable to tax. The Appellant submits that the AO shall be directed to recompute taxable capital gain after reducing 25% of the sale consideration relatable to the restrictive covenant." 11.1 The relevant facts are that the assessee company and its subsidiaries are holding 2.5 crore equity shares of M/s. Larsen & Toubro Ltd. (herein after to be referred in short L&T) as part of their investment. During the previous year relevant to the assessment year under con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regulations in clause 20(8) provides the guidelines that 25% of the offer price may be considered to be attributable to the restrictive covenant accepted as part of the sale consideration. 11.2 The A.O has stated that this is universal restriction which has been considered by the company on sale of substantial number of shares held by it in L&T. The restrictive covenant incorporated in the sale agreement does not in any way restrict or place any kind of restriction on the right to carry on normal business of the assessee. The AO stated that the assessee's reliance on clause 20(8) of SEBI Regulations 1997 is not correct. SEBI is the regulatory authority in dealing in shares and securities in stock exchanges. SEBI Regulations do not apply to the Income Tax Act either in its interpretation or implementation. He has further stated that clause 20 deals with the computation of "offer price" to be made to the public when there is substantial acquisition of share as part of take over bid and various modalities of working out the offer price are dealing in clause 20 with various situations which may arise concerning take over bids, AO has stated that clause 20 (8) does not in any manner l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40 ITR 159) (Bom) 6. Addl. CIT vs. Dr. K.P.Karanth ( 139 ITR 479)(AP) 7. M/s. Parry and Co. Ltd. vs. DCIT (269 ITR 177)(Mad) 8. K.S.S.Mani vs. ITO 54 ITD 76 (Mad) 9. M.N.Karani vs. ACIT, 64 ITD 119 (Bom) 11.4 The ld. CIT(A) after considering the submissions of the assessee has held that he agrees with the AO that the claim of the assesee is not tenable. He has further stated that the decisions cited by the assessee are mainly in the context of Non Compete Agreement. The ld. CIT(A) has stated that in the case of the assessee it has not been shown that the restrictive covenant involved a valuable right, the surrender of which by the assessee resulted in giving a real and enduring benefit to M/s. Grasim Industries Ltd., The mere acceptance of restriction cannot invest it with pecuniary value. He further stated that reference to 25% sale consideration under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 is for the purpose of take over code which requires the making of a public offer for purchase of shares at a particular price. Accordingly the ld. CIT(A) has confirmed the action of the A.O that total consideration received on sale of shares of L&T has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a capital receipt chargeable to tax as capital gain. The ld. A.R submitted that the sale consideration received by the assessee to the extent of 25% cannot be considered as capital gain in the assessment year under consideration as the same was towards restrictive covenant as per agreement dated 18/11/2001. To substantiate his submission ld. A.R referred to the decision of the Hon'ble Apex Court in the case of Guffic Chem P. Ltd. vs. CIT 332 ITR 602 and submitted that it was held by Their Lordship that the Non Compete Fee received during the assessment year 1997-98 was a capital receipt and prior to April 2003 such payment was in the nature of capital receipt. The ld. A.R further submitted that the cases referred before the ld. CIT(A), mentioned herein above in para 11.3 are also applicable to the case of the assessee. He submitted that the sum of Rs. 191.625 crores be considered as capital receipt towards restrictive covenant not liable to tax. 11.6 On the other hand, ld. D.R in his submissions relied on the orders of the authorities below. He submitted that the ld. CIT(A) has rightly considered total consideration received on sale of shares of L&T for computing capital gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration, towards consideration for accepting such restrictive covenant. In the case before us there is no dispute that the assessee entered into restrictive covenant not to deal in the shares of L&T or any other L & T instrument which would provide voting rights to the assessee and its subsidiary companies or to any person acting on its behest for a minimum period of 5 years. Therefore, the said sale of 2.5 crores equity shares of L&T by the assessee to M/s. Grasim Industries Ltd. could not be considered as simple sale and if it is so, then there was no need to enter into any such kind of restrictive covenant. We are of the considered view that the said obligation in the nature of a restriction had been undertaken by the assessee with M/s. Grasim Industries Ltd., the purchaser of the shares, to ensure that the buyer may have controlling interest in the affairs of L&T being the biggest shareholder without any threat from the assessee or its associate. Therefore, we are of the considered view that a part of the sale consideration received by the assessee on sale of shares comprised of towards restrictive covenant/obligations for a minimum period of five years as per agreement ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a capital receipt. This dichotomy has not been appreciated by the High Court in its impugned judgment. The High Court has misinterpreted the judgment of this court in Gillanders' case (supra). In the present case, the Department has not impugned the genuineness of the transaction. In the present case, we are of the view that the High Court has erred in interfering with the concurrent findings of fact recorded by the Commissioner of Income-tax (Appeals) and the Tribunal. One more aspect needs to be highlighted. Payment received as non-competition fee under a negative covenant was always treated as a capital receipt till the assessment year 2003- 04. It is only vide Finance Act, 2002 with effect from April 2003 that the said capital receipt is now made taxable (See section 28(va)). The Finance Act, 2002 itself indicates that during the relevant assessment year compensation received by the assessee under non-competition agreement was a capital receipt, not taxable under the 1961 Act. It became taxable only with effect April, 2003. It is well settled that a liability cannot be created retrospectively. In the present case, compensation received under the non-competition agreement becam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for plying buses which was carried on by the firm in which he was a partner. Thus the assessee agreed not to enter into competition with firm for a period of five years to ply buses on the designated routes. The firm paid Rs. 15,95,000/- in consideration of this non-competition. The AO held that the compensation received is revenue in character. The first appellate authority also held it to be a revenue receipt. However, the Tribunal held that the compensation relatable to the restrictive covenant is capital receipt. The Hon'ble High Court held that the compensation received by the assessee for the restrictive covenant was a capital receipt not liable to income tax. Further in the case of K.S.S.Mani (supra) the Tribunal held that the agreement contains prohibitive covenant in consideration of which the assessee, who was a director of company received a sum of Rs. 2.00 lacs from the company for agreeing not to carry on any activity or employment for a period of three years which could be prejudicial to the interest of the company was a capital receipt and the ld. CIT(A) was not justified to hold that the said compensation of Rs. 2.00 lacs was profit in lieu of salary under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elchem Isha is Semi-Refrigerated LPG/ Chemicals carrier and is equipped to carry liquefied gases at minus 48 degree Celsius temperature as well as chemical products. The capacity of such vessel is 3,256 DWT. It is fitted with two stainless steel tanks having total capacity of 2,242 cubic meters. The assessee paid to REL of Rs. 10,52,88,711/- The AO made a reference to TPO under section 92CA(1) of the Act for determination of Arm's Length Price(ALP). The TPO vide his order dated 25/3/2005 has stated that the assessee was requested to determine ALP of international transaction being charter hire charges in accordance with any one of the methods prescribed under Income Tax Act. The assessee was also requested to provide details of the cost incurred by the associate entity on a regular basis on the said vessel hired to the assessee. The TPO has stated the assessee explained that the said vessel is used for transfer operation of chemicals and petrochemicals and liquefied gases. The associate entities had to carry out various specific modifications in the vessel in order to meet the requirement of the assessee. It was also stated that the charter hire charges payable by the assessee are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee filed appeal before the first appellate authority. 12.3 Ld. CIT(A) after considering the submissions of the assessee has taken the mean of the ALP determined by the TPO and prices actually paid by the assessee. Thus out of the adjustment of Rs. 3,78,13,087/- made by TPO he confirmed the adjustment of Rs. 1,85,24,376/- and deleted the balance amount. Hence, the assessee is in appeal before the Tribunal. 12.4 Relevant facts in respect of the ground of appeal taken by the Department viz. ground No.9 are that the the TPO, in his order dated 25th March 2005, passed under section 92CA(3) of the Act, has dealt with the issue vide Para-12 at Page-6 of his order. The assessee paid consultancy charges of Rs.17,62,68,906, to REL. The assessee's claim has been brought out by the TPO as follows: a) In this connection the assessee has submitted a copy or an agreement dtd. 19.4.1997 entered into between the assessee and the associated enterprise. The assessee has also furnished the approval of P81 dtd. 24.9.2001 for remittance of the fees under the said agreement. b) As per the agreement the associated entity is required to provide the following services. o Competitive information and mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He held that in the absence of comparable instances, an estimate of reasonable mark-up can only be made after taking into account all material factors and indices. He held that the consideration paid by the assessee to REL during the year under consideration towards consultancy services is reasonable having regard to the net profit disclosed by REL and also the fact that the net profit of REL includes income from time charter of Relchem Isha where a transfer pricing adjustment had been made. The Commissioner (Appeals) has not applied any method prescribed under the Act and the Rules. He has not found fault with the methods employed by the assessee or T.P.O. Aggrieved, the Revenue is in appeal before the Tribunal. 12.8 During the course of hearing of the appeal before us ld. A.R submitted that the vessel Relchem Isha is fitted with several sophisticated equipments so that it is in a position to carry LPG as well as chemicals and petrochemicals at the Jetties in low draft of 2.8 meters to 3.5 meters. He submitted that assessee submitted relevant extract of two comparable publications which gave time charter hire charges for vessels of different capacity of similar categories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by REL, adjustment on account of following factors to the extent of 25% of charter rate per day have to be considered which comes to US$ 1190 . The assessee has listed out the following special factors to justify his submission for enhancement required to be made while determining ALP of the charter hire charges vis-à-vis the market rate given in the two publication which are as under:- "The ALP of charter hire charges is arrived at without considering the following factors for which an enhancement is required to the market rates given in the 2 publications to determine an arm's length consideration 1. Unique vessel: Charter hire rates is to be increased for vessel 'Relchem Isha' carrying both liquefied gas as well as chemicals and petrochemicals, since the rates given in the publication are only for LPG. 2. Additional cost towards certification of vessel 'Relchem Isha' which was used for carrying gas as well as chemicals. Further, officers and crew holding both gas and chemical endorsements command a premium as compared to their counterparts, since availability of such officers and crew for manning the vessel is scarce. 3. Cost towards mobilization and de-mobilizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, it is a comparable under the "CUP" method. The TPO took the average of the rate published by the Shipping Intelligence Weekly and Drewry Monthly, which is the rates in the public domain and without making any adjustment for variation in capacity, cost, finance, risk, etc., computed the arm's length price. The Commissioner (Appeals) took the mean of the arm's length price determined by the TPO and price actually paid by the assessee and determined the arm's length price. Thus, the assessee as well as the authorities have not computed the arm's length price in accordance with law. Hence, we have to quash the arm's length price determined by all the parties. 12.10 Both the parties agreed before us that the "CUP" method should be followed. As there is no comparable transactions, in view of the fact that "Reichem Isha", is a Unique Vessel, with no comparable ship available, as suggested by both the parties, we set aside the issue to the file of the Assessing Officer for the limited purpose of re-computing the arm's length price by taking the date available in the public domain in the form of publication of Shipping Intelligence Weekly and Drewry Monthly as a "comparable price", a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival contentions and on a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record, we find that the TPO has rightly applied the "Cost Plus" method. The CIT(A) has granted relief for reasons which cannot be sustained. No method was followed. Any how, the TPO has committed an error in computing cost under the "Cost Plus" method. The working of the TPO as well as the assessee, are as follows: Working by the TPO Particulars U.S. Dollar Rupees Total cost 45,22,947 Less: Cost in respect of activities other than consultancy services 22,61,474 Cost relating to charter hire activity (estimated @ 50% of total cost) 22,61,474 Cost (estimated) relating to consultancy activity (1-2) 1,13,074 Optimal Operating Profit earned @ 5% of Sr.3 10,15,849 Actual operating profit earned 9,02,775 4,28,81,828 Adjustment due to transfer pricing (5-4) 17,62,68,906 Value of international transaction 13,33,87,078 Arms length price Working by the Assessee Total Cost 45,22,947 Less: Cost in respect of activities other than consultancy service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oil & Gas division, SBM & Polypropylene & Paraxylene complex at Jamnagar. The AO allowed depreciation in the earlier year however, ld. CIT(A) deleted the said allowance of depreciation of the earlier years but department filed appeals' before the Tribunal. Accordingly the AO considered the claim of depreciation by considering the written down value and worked out at Rs.4331,32,16,746/- as against the claim of Rs. 5798,16,03,243/-. In the first appeal ld. CIT(A) considering the decision of the Hon'ble Apex Court in the case of CIT vs. Mahindra Mill & Others, 243 ITR 56 and various other decisions, stated that prior to insertion of Explanation-5 to section 32 of the Act the claim of deprecation was optional. Therefore, the depreciation could not be thrust upon the assessee. Accordingly ld. CIT(A) allowed the claim of depreciation of Rs. 5798,16,03,243/- on the basis of written down value of the year and directed the AO to recompute the depreciation on the basis of the written down value arrived at after giving effect to the orders of the preceding years. Hence, department is in appeal before the Tribunal. 13.2 During the course of hearing ld. D.R relied on the order of the AO, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed and accepted so long as same are not contrary to any law. Accordingly AO disallowed the expenses of Rs. 1,81,48,738/- and held that it is a capital expenditure. Being aggrieved, the assessee filed appeal before the first appellate authority. 14.2 On behalf of the assessee it was contended that though the said expenditure aggregating Rs. 1,81,48,738/- was capitalized in the books account but is claimed as deductible revenue expenditure as the assessee is already in the manufacture of fiber yarn. It was contended that following the strategy of backward integration the assessee company ventured in the production of PFY and PSF, the raw materials required for the manufacture of yarn and fabrics. The plants for the manufacture of PSF and PFY were put up at Patalganga. One of the raw materials required for the manufacture of PSF & PFY is PTA and polyester chips. Assessee went for production of PTA by putting up a plant at Patalganga. Pursuant to the same strategy the assessee put up a plant for manufacture of LAB. Thereafter assessee went for the gas Cracker Plant which manufactures Ethylene, MEG and Polypropylene which are raw materials for PFY and PSF. Thus various manufacturin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He has held that where there is common management, common office and common control, then expenditure incurred on expansion / extension of the existing business is of revenue nature. Hence, department is in appeal before the Tribunal. 14.4 At the time of hearing ld. D.R relied on the order of the AO, whereas ld. A.R besides supporting the order of ld. CIT(A) submitted that identical issue on similar facts came up before the Tribunal in assessee's own case for assessment year 1997-98 in ITA No.6118/M/2003 and the Tribunal by its order dated 19/12/2006 after discussing all the case laws, decided the issue in favour of the assessee. He submitted that copy of said order is placed at pages 336 to 363 of the paper book. He further submitted that this issue again came up before the Tribunal in preceding assessment year in the appeal filed by the department in ITA No.6269/M/2004 and the Tribunal by its order dated 30/4/2008 by following its order dated 19/12/2006 confirmed the order of ld. CIT(A) to allow pre-operative expenses by rejecting the ground of appeal taken by the department. To substantiate his submissions he referred to pages 221 to 229 of the paper book, copy of said order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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