9911796707
TMI Blog2015 (3) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... s earlier" puts limitation on filing of revised return beyond one year from the end of assessment year. Thus, the second revised return filed on December 24, 2009, was beyond the time-limit prescribed under the Act. Therefore, since there is a limitation provided under section 139(5) which cannot be ignored, we have to hold that the second revised return filed was beyond the time-limit prescribed. We cannot direct the Assessing Officer or the Dispute Resolution Panel to consider the same, when the law itself does not permit the same. - Decided against assessee. Capital gain on the sale of Goa unit of the assessee - short-term capital gain V/S long-term capital gain - Held that:- the assessee can be considered as setting up the business only from the time it got allotment of the land, if not ready to commence manufacturing activity, and not before. In this case, even though actual manufacturing activity started much later, the setting up of the business can be considered only when the assessee is in position to occupy land to start the unit in Goa, Goa Industrial Development Corporation, as considered by authorities. The principles discussed above in fact consider the setting up muc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer to examine the above aspect and decide afresh, keeping in mind the principle laid down in the above cases relied on by assessee and order of the Income-tax Appellate Tribunal in the assessment year 2003-04. - Decided in favour of assessee for statistical purposes. ESOP allotment claim disallowed - Held that:- As decided in Biocon Ltd. v. Deputy CIT [2013 (8) TMI 629 - ITAT BANGALORE] employee stock option plan discount (difference between market price and issue price) is a deductible expenditure at the time of vesting of the option. An adjustment has to be made if the market price is different at the time of exercise of the option. In that case also the assessee framed an Employee Stock Option Plan (ESOP) pursuant to which it granted options to its employees to subscribe for shares at the face value of 10. As the market price of each share was 919, the assessee claimed that it had given a discount of 909 which was allowable as a deduction as employee compensation. Though the options vested equally over four years, the assessee claimed a larger amount in the first year than was available under the Securities and Exchange Board of India guidelines, thus on facts, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r also, we modify the order of the Assessing Officer/Dispute Resolution Panel to that effect and direct the Assessing Officer to examine the nature of expenditure and whether the same can be allowed as incurred for the purpose of business. - Decided in favour of assessee for statistical purposes. For Individual doctors services ince the issue was set aside by the Commissioner of Income-tax (Appeals) to the file of the Assessing Officer to verify the nature of expenditure and disallow only that expenditure which is not incurred for the purpose of business, we also modify the order of the Assessing Officer/Dispute Resolution Panel and direct the Assessing Officer to examine the nature of expenditure and consider disallowance of expenditure which is not incurred for the purpose of business. The issue is restored to the file of the Assessing Officer. - Decided in favour of assessee for statistical purposes. Allocation of part of the head office expenditure against the profits of the units eligible for deduction under section 10B - whether Dispute Resolution Panel has erred in allocating a part of the head office expenditure against the profits of the units eligible for deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained. The alternate claim under section 37(1) was not made before the Revenue authorities. Therefore in the interest of justice we restore the claim under section 37(1) to the file of the Assessing Officer to examine the same afresh, keeping in mind the order of the Income-tax Appellate Tribunal in the assessment year 2003-04 and other cases relied on by the assessee - Decided in favour of assessee for statistical purposes. Disallowance of loss incurred on transfer of investment in Pathnet, joint venture by treating the same as capital loss - Held that:- The authorities are justified in disallowing the same as capital loss and not as revenue loss to be set off under the head "Business". However, they are not correct in disallowing the same without considering the same under the head "Capital gains or loss". The assessee no doubt treated the same as investments and sale of investments resulted in loss. This should be considered as long-term/short-term capital loss as the case may be and allowed set off or carried forward to be set off later as per the provisions of Act. This was not done by the authorities. Therefore, we allow the alternate claim of assessee and direct the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 18, 19 and 20 are general in nature and does not require any adjudication. In the course of appellate proceedings the assessee has not pressed ground No. 4 which is on claim of weighted deduction under section 35(2AB) of the Act. 2.1. We have heard learned counsel and the learned Departmental representative in detail and also perused the chart placed on record with reference to the grounds and submissions including the paper book relevant for considering the issues under appeal. The learned Departmental representative relied on the facts as stated in orders and the findings of the Assessing Officer/Dispute Resolution Panel. Various grounds are decided as under : 3. Grounds Nos. 2 and 17 : These two grounds are as under : "Ground No. 2. The Assessing Officer's order giving effect to the Assessing Officer and the learned Dispute Resolution Panel order without considering the revised return filed by the assessee incorpo rating the merger of Perlecan Pharma Pvt. Ltd. with Dr. Reddy's Lab oratories Ltd. as per the order of the hon'ble High Court of Andhra Pradesh is bad in law and lack of merits. Ground No. 17. The Assessing Officer and the learned Dispute Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second revised return should be considered as a valid revised return cannot be accepted. Even though, the reason for filing the second revised return is due to merger of Perlecan Pharma Pvt. Ltd. with the assessee-company effective from January 1, 2006, vide order of the hon'ble High Court of Andhra Pradesh dated July 7, 2009 and a second revised return was prepared and filed giving effect to the said order, the provisions of the Income-tax Act does not permit the second revised return filed beyond the time-limit provided to be treated as a valid return of income. The provisions of section 139(5) are as under : "(5) If any person, having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier : Provided that where the return relates to the previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,60,60,688 ₹ 5,89,61,512 (B) Sale of business and commercial right at Goa Sale consideration ₹ 10,42,82,630 Less : Cost of acquisition - ₹ 10,42,82,630" 4.3. Subsequently, the assessee filed the capital gains in the revised return of income as under : "Capital gains in the revised return of income : Gross sale consideration received ₹ 75,61,88,546 Less : Net worth of the unit Land ₹ 1,60,60,688 WDV of block of assets + Additions made during the year ₹ 24,49,49,785 ₹ 26,10,10,563 Long-term capital gains ₹ 49,51,77,983" 4.3.1. The date of sale to M/s. Watson India Ltd. was on October 29, 2005, on which there is no dispute. There is also no dispute with reference to consideration received under capital gain working. The only dispute was with reference to date of setting up of the unit. According to the assessee, as the assessee applied to Goa Industrial Development Corporation (GIDC), vide letter dated October 28, 2002, for allotment of plot, it contends that the capital gain is long-term capital gain, as it sold after three years. However, the Assessing Officer was of the opinion that it was only an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a [1970] 40 Comp Cas 325 (SC). The learned Departmental representative relied on the orders of the Dispute Resolution Panel. 4.5. We have considered the issue and examined the relevant facts and case law. In this case, the assessee made the application to Goa Industrial Development Corporation on October 28, 2002, for allotment of plot in the industrial area being developed by Goa Industrial Development Corporation. There is no dispute with reference to date of lease registration being of July 31, 2003. The recitals of the agreement are already extracted in the assessment order but suffice to say that the assessee paid an amount of ₹ 2,05,660 as security deposit at the time of application and in pursuance, the assessee paid premium of ₹ 1.76 crores on March 11, 2003 and possession was handed over on April 10, 2003. The period of 30 years lease starts from April 10, 2003, which can be extended to 95 years. This indicates that even though the assessee made an offer for establishing a unit in Goa Industrial Development Corporation, the offer was complete only when the same was accepted and this seems to have happened on March 11, 2003 when the assessee paid further amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the hon'ble Supreme Court and the hon'ble High Court, meaning and scope of expression, business has been propounded. It is not necessary to recite and recapitulate of those decisions but on the strength of them it would be suffice to say that word 'business' had a wide import and it means an activity carried on continuously and systematically by a person by the application of his labour and skill with a view to earn an income. Section 3 of the Income-tax Act, 1961 defines 'previous year'. Previous year means the financial year immediately preceding the assessment year. The proviso appended to this section further contemplates that in the case of a business newly set up in the said financial year, the previous year shall be the period beginning with the date of setting up of the business. The expression 'set up' has not been defined anywhere in the Act but it is understood in the common parlance and has been explained in a large number of decisions. According to the meaning expounded in the authoritative pronouncement, if an assessee is in a position to deliver the goods it means that the business is set up. Actual delivery is immaterial. For examp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above in fact consider the setting up much later. But the authorities even gave a benefit in considering the date of taking possession of land while deciding the date of set-up. Therefore, we are of the considered opinion that date of setting up of the business activity, as accepted by the Assessing Officer and the Dispute Resolution Panel as on April 10, 2003, does not require any modification, even though lease deed was entered into subsequently and unit was set up much later. In view of this, the gain can only be considered as short-term capital gain, as decided by authorities. The ground is accordingly rejected. 5. Ground No. 4 is regarding weighted deduction available to the assessee under section 35(2AB) which was withdrawn. 6. Ground No. 5 reads as under : "5. The Assessing Officer and the learned Dispute Resolution Panel has erred in disallowing the expenditure incurred towards payment of interest to Department of Chemicals and Petrochemicals (DCP)." 6.1. Ground No. 5 pertains to the issue of disallowance of expenditure incurred towards payment of interest to Department of Chemicals and Petrochemicals (DCP). Briefly stated, the assessee has claimed a sum of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le deduction, interest payable thereon would also be a permissible deduction. However, the Dispute Resolution Panel did not agree on the reason that interest was charged for violating the provisions of Central Act and therefore penal in nature. The assessee relied on the submissions before the Dispute Resolution Panel and also the decision of the co-ordinate Bench of the Tribunal in the case of A. P. Paper Mills Ltd. v. Asst. CIT in ITA No. 872/Hyd./2006 for the assessment year 2002-03. 6.4. We have considered the issue and examined the facts. There is no dispute to the fact that the Assessing Officer allowed the principal amount which was also determined, vide (Drugs (Prices Control) Order) (DPCO). The assessee was directed to deposit total of ₹ 28.49 crores. We are unable to understand the action of the Assessing Officer in allowing the principal amount under section 37(1) but disallowing the interest thereon as penal in nature. As seen from the record, the assessee has collected more amount towards sale of norfloxacin formulation and order was passed to pay the amount collected in excess of the regulations. These transactions are contractual in nature and cannot be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 16, 2004 upheld the stand of the DCP. The DCP, sub sequently by an order dated 17/18th May 2004, revised upwards the interest demand to ₹ 1,63,70,915 (total demand : ₹ 2,84,13,228). The assessee has filed a special leave petition (Civil) No. 6518 of 2004 in the Supreme Court with prayer for interim relief challenging the order of the Division Bench of the Bombay High court. The same is pending before the hon'ble Supreme Court for disposal. 10.2 The assessee is of the view that the liability pertaining to the above demand was allowable in each of the years to which the demand pertains. The year-wise break-up of the total demand of ₹ 2,84,13,228 (inclusive of interest) is given below : Assessment year Demand product betnelan Interest demand(.) 1995-96 14,59,674 47,891 1996-97 1,05,82,638 18,06,887 1997-98 - 18,06,887 1998-99 - 18,06,887 1999-2000 - 18,06,887 2000-01 - 18,06,887 2001-02 - 18,06,887 2002-03 - 18,06,887 2003-04 - 18,06,887 2004-05 - 18,06,887 2005-06 - 65,901 Total 1,20,42,312 1,63,70,915 The assessee has not debited the aforesaid demand (including interest) to the profit and loss account. The assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiming bad debt such as deduction such debt should have been taken into account in computing the income of the assessee in the current previous year or in an earlier previous year or should represent money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee. In the instant case, the sum being claimed as bad debt never formed part of the receipts of the assessee's business either in the previous year under consideration or in an earlier year. The assessee is neither a bank nor is engaged in the business of lending money. The amount was paid to ICICI bank to settle the guarantee given to the loan availed of by a related company. The amount represents capital loss and cannot be set of against business income. Given these facts, this claim of ₹ 2,08,02,460 as bad debt is not allowable. The same is therefore, disallowed and added back to the assessee's income. The facts of the present case are different from the facts in the case law cited by the assessee. A somewhat identical issue was for consideration in the assessment year 2003-04 where the assessee wrote-off loan given to Compact Electric Ltd., a 100 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of investment in Pathnet or subsequently in the course of business by that concern. This fact has a bearing on the decision. In case the assessee extended the guarantee at the time of investment itself the same can be considered as capital in nature as part of investment decision, the loss thereon will be capital loss to be considered under the head "Capital gains". In case, the guarantee was extended later after the investment as part of business under taken by subsidiary, the principles of commercial expediency are to be considered. The Assessing Officer relied on the decision in the assessment year 2003-04 by the Commissioner of Income-tax (Appeals) which was confirmed by the Income-tax Appellate Tribunal in that year. But the facts in that case were that assessee advanced a loan directly to the subsidiary whereas in this case it was not a direct loan but a guarantee given to bank. So the facts are different. However, in the interest of justice, we restore the matter to the file of the Assessing Officer to examine the above aspect and decide afresh, keeping in mind the principle laid down in the above cases relied on by assessee and order of the Income-tax Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 909 which was allowable as a deduction as employee compensation. Though the options vested equally over four years, the assessee claimed a larger amount in the first year than was available under the Securities and Exchange Board of India guidelines. The Assessing Officer and the Commissioner of Income-tax (Appeals) rejected the claim on the ground that there was no "expenditure". On appeal to the Tribunal, the issue was referred to the Special Bench. Held by the Special Bench : (i) The difference (discount) between the market price of the shares and their issue price is "expenditure" in the hands of the assessee because it is a substitute to giving direct incentive in cash for availing of the services of the employees. There is no difference between a case where the com pany issues shares to the public at market price and pays a part of the premium to the employees for their services and another where the shares are directly issued to employees at a reduced rate. In both situations, the employees stand compensated for their effort. By undertaking to issue shares at a discount, the company does not pay anything to its employees but incurs the obligation of iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer is directed to work out the deduction keeping in mind the principle laid down by the Special Bench in the above referred case, after giving an opportunity to the assessee. Ground is allowed for statistical purposes. 10. Ground No. 8 is as follows : "8. The Assessing Officer and the learned Dispute Resolution Panel has erred in disallowing payment of sales commission and legal and professional charges made to the non-resident under section 40(a)(ia) on the ground that the assessee has failed to make an application before the Assessing Officer under section 195(2) of the Act." 10.1. During the current financial year, the assessee made payment to non- residents towards sales commission and legal and professional charges on which the assessee did not withhold taxes on the reason that the same were not subject to the tax in India. The Assessing Officer has disallowed the expenditure stating that the assessee has to compulsorily approach the Assessing Officer under section 195(2) of the Act to obtain a nil "withholding tax" order if the assessee wishes to make the payment to non-resident without withholding taxes. It was submitted that the addition mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /Hyd/2000 wherein it was held as under : "8. We have duly considered the rival contentions and the material on record under section 195 of the Act, an assessee is liable to deduct tax at source from the payments made to non-residents, if such pay ments are chargeable to tax in India in the hands of the non-resi dents. In the instant case, the Revenue has heavily relied on two decisions one of the Tribunal in the case of Cheminor Drugs [2007] 294 ITR (AT) 330 (Hyd) and the other of the Supreme Court in the case of Transmission Corporation [1999] 239 ITR 587 (SC). In the case of Cheminor Drugs [2007] 294 ITR (AT) 330 (Hyd), the assessee had not deducted tax under section 195 under similar circumstances and hence an order under section 201 was passed raising demand against the assessee at the said tax amount. It was, in the backdrop of section 201 proceedings, the Tribunal held that the provisions contained in section 195 are urgent provisions against collecting tax during the financial year itself. Therefore, the nature of enquiry and the nature of adjudication under section 195(1) is necessarily summary and gener ally peremptory in nature. The proceedings under section 201, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that any person responsible for paying to a non-resident any sum chargeable under the provisions of this Act, shall, at the time of payment, deduct Income-tax thereon at the rates in force. In other words, the contention was that when the payments made to the non- resident were not entirely income, but a trading receipt, there is no question of deduction of Income-tax at the source as the section does not provide for it. To this contention, the hon'ble Supreme Court answered that the assessee who made the payments to the non-resi dents was under an obligation to deduct tax at source under section 195 of the Act in respect of the sums paid to them under the contracts entered into. It further held that the obligation of the assessee to deduct tax under section 195 is limited only to the appropriate pro portion of income chargeable under the Act. Thus, it can, be seen that the said judgment in fact helps the assessee. The second question answered by the hon'ble Supreme Court can be understood to mean that the obligation of the assessee to deduct tax under section 195 is not there when the payment made to the non-resident does not con tain any proportion of income therein. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee applied for a certificate under section 195. Considering the above facts and order of the co-ordinate Bench extracted above, we hold that the amount cannot be disallowed in section 40(a)(i) as was done by the Assessing Officer without establishing that the amounts are taxable in India. The Assessing Officer is directed to allow the amounts. The ground is allowed. 11. Ground No. 9 reads as under : "9. The Assessing Officer and the learned Dispute Resolution Panel has erred in disallowing various payments as follows : (i) Business promotion expenditure ₹ 8,25,910 (ii) Gifts and compliments ₹ 68,62,136 (iii) Local doctor meet expenses ₹ 1,03,29,388 (iv) Individual doctor services ₹ 8,84,41,258 the above expenditure have been disallowed erroneously by the Assessing Officer on the ground that the same is not incurred wholly and exclusively for business." 11.1. This ground pertains to disallowance of various payments towards : (i) Business promotion expenditure ₹ 8,25,910 (ii) Gifts and compliments ₹ 68,62,136 (iii) Local doctors meet expenses ₹ 1,03,29,388 (iv) Individual doctor services ₹ 8,84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct the Assessing Officer to examine the nature of expenditure and whether the same can be allowed as incurred for the purpose of business. Accordingly, issue was set aside to the file of the Assessing Officer to examine and decide afresh. To that extent, the assessee's ground is allowed for statistical purposes. 11.3. Individual doctors services : On the reason that the assessee incurred these expenses towards individual doctors and payment were made in cash or kind both travel expenses, sponsorship, etc. the assessee was asked to justify the expenditure. The Assessing Officer was of the view that doctor would not admit the benefit as a receipt and most of the expenditure was self-vouched and are unverifiable in nature and disallowance made was to the extent of ₹ 8,84,41,258. This issue was considered by the Income-tax Appellate Tribunal in the order supra as under : "42. The next is with regard to disallowance of individual doctor's meet expenses at ₹ 3,20,97,763. This expenditure includes sponsor ship of doctors' travel from states to attend the conference organised by the third party to various parts of the country for which no details have been g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee." 12.1. Regarding allocation of corporate overheads (i) On 10B Generics 100 per cent. EOU units (ii) On 10B Bulk drugs 100 per cent. EOU unit (iii) On 80-IB Yanam unit (iv) On 80-IB Goa unit While computing the total income, the assessee had computed deduction under sections 10B, 80-IB and 80-IC without allocating overhead cost of corporate unit. It was the contention that the computation of deduction is based on the provisions laid down in the respective sections of 10B, 80-IB and as per the Act it is the profit which is derived by an undertaking is eligible for deduction. The assessee considered the derived profit as net of "income derived" and "expenditure derived" out of the undertaking concerned. In other words it should be "income derived" net of "expenditure derived" but not "income derived" net of expenditure attributable to. 12.2. It was reiterated that, as held by the apex court in cases like Sterlite Industries, the term used in the context of profits and gains is "derived" and it is very narrow in application than "attributable". The profits that are directly in nexus to the indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate expenditure including finance charges, but has failed to consider interest income and gain on foreign exchange fluctuations which are also attributable to corporate activities only. Hence while computing corporate overhead allocable to the said units, he has to necessarily net-off the corporate income from the corporate expenditure and net only should be considered as corporate overhead allocable. 12.5. We have considered the issue. This issue was discussed by Income-tax Appellate Tribunal in assessment year 2003-04 in the assessee's own case from para 14 to para 18 onwards. The issue was set aside to the Assessing Officer observing as under : "18. We have carefully gone through the order of the Tribunal in the case of Wipro GE Medical System Ltd. cited supra and wherein it was held that the assessee is rightly having allocated indirect expenses to the two units according to the wages and other expenses on the basis of sales for arriving respective profits of its two units. The Assessing Officer is directed to accept the assessee's working in relation to deduction under section 80-IA. In view of the above judgment, in our opinion, in the absence of identify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signment of the existing customer contracts. (iii) The customers being independent parties and not privy to this agreement were not bound to continue purchasing from DRL Roche did not guarantee that the customer would continue to purchase from DRL by inferring that the assessee has got guaranteed sales from the customers. 13.4. The assessee relied on the case of Honda Siel Power Products Ltd. v. CIT [2006] 167 Taxman 76 (Delhi) (sic) wherein it was held that if advantage consists of merely facilitating trading operations of the assessee or enables management to conduct business more profitably or efficiently, expenditure would be on revenue account though the advantage may ensure for an indefinite period. 13.5. The Dispute Resolution Panel discussed the terms of agreement and distinguished the cases relied on by the assessee. We do not intend to extract the agreement here again. Suffice to say that the agreement is for purchase and sale of a business. Preamble states the M/s. Roach manages the business of Falcon and this business consist of number of third party agreements for supply of naproxen and steroids manufactured under the Falcon business, termed as "transferred bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution Panel is sustained. The alternate claim under section 37(1) was not made before the Revenue authorities. Therefore in the interest of justice we restore the claim under section 37(1) to the file of the Assessing Officer to examine the same afresh, keeping in mind the order of the Income-tax Appellate Tribunal in the assessment year 2003-04 and other cases relied on by the assessee. The assessee should be given an opportunity to substantiate the claim. The ground is considered allowed for statistical purposes. Ground No. 14 is as follows : "14. The Assessing Officer and the learned Dispute Resolution Panel has erred in disallowing the loss incurred on transfer of investment in Pathnet, joint venture by treating the same as capital loss." 14.1. It pertains to disallowance of loss incurred on transfer of investment in Pathnet India (Pvt.) Ltd. (a joint venture entity). Pathnet is in the business of setting up of medical pathological laboratories. The assessee had 49 per cent. stake in Pathnet. 14.2. During the year under consideration, the assessee transferred its total stake in Pathnet. The assessee incurred loss of ₹ 4,90,00,000 on such transfer and debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering the same as capital loss. The assessee made investment in Aurantis for the purpose of exploring the pharmaceutical business opportunities in Brazil. During the year Aurantis went into liquidation and the assessee could not recover any amount against its investments in Aurantis. The loss charged to profit and loss account was claimed as allowable expenditure under section 37 considering it to be a business investment and accordingly loss as business loss. The Assessing Officer/Dispute Resolution Panel disallowed the same considering it to be capital in nature. 15.2. It was submitted that the investment made by the assessee in Aurantis was a business investment. The assessee has treated Aurantis as a special purpose vehicle for entering into the business of pathological laboratories. Without prejudice to the above the assessee contends that as the loss has arisen due to transfer of the assessees' investment in Pathnet and as the shares in Pathnet was held by the assessee prior to its transfer, the same should be allowed long-term capital loss under the head "Capital gains". 15.3. This claim is similar to the claim made with reference to investment in Pathnet dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 14 per cent. and accordingly considered the arm's length interest as ₹ 11,81,33,505, there by adding the differential amount of ₹ 8,19,20,766 as adjustment under section 92CA of the Income-tax Act. 16.3. In this respect it was submitted that the entities to which the advances are given are wholly owned subsidiaries and are provided to support their working capital requirements. The company has been charging interest at a rate determined based on the LIBOR, prevalent in the market from time to time, in some cases and based on the mutually agreed rate in some other cases. Since they are our group entities, the loans given by the assessee- company were risk free as these could have been repaid after a stipulated period. Hence, the unrated loan under BBB grade (which are with risk adjustment) adopted by the Transfer Pricing Officer/Assessing Officer is factually not tenable. It was further submitted that the Commissioner of Income-tax (Appeals)-III, in the assessee's own case for the assessment year 2004-05, has held the rate earned by company on the investments, in the form of bank deposits, should only be compared and allowed the appeal partly for that year. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g rate of 10.75 per cent. was accordingly adopted as the arm's length price of the interest receivable from the associated enterprise. The interest receivable at prime lending rate of 10.75 per cent. was computed at ₹ 1,43,54,690 and accordingly the difference of ₹ 1,15,93,669 was adjusted under section 92CA of the Act. Before the learned Commissioner of Income-tax (Appeals) the assessee submitted that as per interest norms LIBOR is considered to be "benchmark" for the charging of interest. Accordingly prime lending rate is not a correct tool for calculating interest in the transaction with DRI, the U.S.A. On considering of the submission, the learned Commissioner of Income-tax (Appeals) re-worked out the interest on the basis of deposit at 7 per cent. by stating as under : "10.3 On due consideration, I agree with the contention of the learned authorised representative that prime lending rate cannot be adopted for determining the arm's length price of the interest receivable from the associated enterprise. Prime lending rate is the rate at which a bank charges interest to its borrowers. The appellant is not a bank or a lending institution. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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