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TMI Blog2019 (9) TMI 438X X X X Extracts X X X X X X X X Extracts X X X X ..... he employees not choosing to exercise the option, if some of the options remain unvested or are not exercised, the discount hitherto claimed as deduction is required to be reversed and offered for taxation in such later year. We, therefore, hold that the discount in relation to options vesting during the year cannot be held as a contingent liability - order of AO is reversed holding that deferred employees compensation debited to the profit and loss account is allowable u/s 37(1) of the Act. Regarding the reversal of ESOP expenses in P/L account - We find force in the argument of the learned AR that if the same amount of provision has suffered tax the in the earlier years, then this the cannot be made subject to tax in the year under consideration. The learned AR in support of his claim has also filed the details demonstrating the years in which such amount was suffered to tax. The details are placed on record - such details were not provided by the assessee before the lower authorities. Therefore we are inclined to restore this issue to the file of the AO for fresh adjudication Disallowance of deduction in respect of contribution made to Ranbaxy community healthcare socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich this is the 4th year of the claim and assessee has claimed 100% of the eligible profit as deduction, cannot be disallowed in this year. Re-computing the capital gain/loss on leasehold land along with building during the year under consideration - HELD THAT:- Sale proceeds allocated by the assessee towards the land appear to be un-reasonable. In most of the cases, the value of the land appreciates, and the value of the building depreciates barring the in exceptional circumstances. But in the present case, no such exceptional circumstances were brought to our notice by the assessee. Therefore, we disagree with the value adopted by the assessee for the land and the building. But we also note that the AO has also not brought any reasonable basis for allocation the sale proceeds as discussed. To our mind, he should have referred the matter to the DVO for the valuation of the land and building for the allocating the sale proceeds, but he failed to do so. After considering the facts in totality, we allocate the sale value of the building as discussed above. Hence the ground of appeal of the assessee is partly allowed. Claim of weighted deduction u/s 35(2AB) on the cost of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the provision for ₹ 1431.63 crores was suffered to tax under section 115JB of the Act in the immediate preceding AY 2009-10 whereas it has been written back in the year under consideration for ₹ 1969.13 crores. Thus the difference between amount of provision disallowed under section 115JB of the Act in the immediate preceding assessment year 2009-10 viz a viz the amount written back in the year under consideration is of ₹ 537.50 crores ( 1969.13-1431.63 crores). Thus the assessee cannot claim the relief more than the amount suffered to tax in the immediate preceding AY 2009-10 while determining the income under section 115 JB of the Act. Thus we direct the AO to restrict the relief to the assessee while determining the income under section 115 JB of the Act to the extent of ₹ 1431.63 crores only - ground of appeal of the assessee is partly allowed. - IT(TP)A No. 1782/Del/2014 And IT(TP)A No. 781/Del/2015 - - - Dated:- 5-9-2019 - MR P. P. BHATT, PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER For The Appellant : Shri S. N. Soparkar, Shri Vartik Chokshi And Ms.Urvashi Shodhan Shri P.Shah, ARs For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder. 2. That the Ld. DRP erred, both on facts and in law, in confirming the addition of ₹ 145,13,17,725 by holding that the appellant's international related party transactions do not satisfy the arm's length principle as envisaged under the Act and in doing so the Ld. DRP has grossly erred in agreeing with the Ld. Transfer Pricing Officer's ('TPO') action of: 2.1 disregarding the arm's length price ('ALP') and the methodical benchmarking process carried out by the appellant in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 2.2 not accepting the overseas Associated Enterprises ('AEs') as the tested party, being the least complex of the transacting entities and instead considering the appellant as the tested party, thus violating the basic principles of TP. 2.3 disregarding the approach adopted by the appellant of undertaking a regional benchmarking in the TP report which is in line with the globally accepted TP principles. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. That the Ld. AO/DRP erred on facts and in law in holding that deferred employee compensation debited to the Profit Loss Account (P L) pursuant to company's Employees Stock Option Scheme (ESOP) amounting to ₹ 6,84,523 is not allowable as deduction. 5.1 That the AO/DRP erred on facts and in law in holding that employees compensation expense claimed by the appellant did not represent a crystallized liability and the claim being without any evidence, random in nature, hence not allowable as deduction. 5.2 That the AO/DRP further erred on facts and in law in holding that since the appellant did not deduct any tax at source, the amount claimed was disallowable under section 40(a)(ia) of the Act. 5.3 Without prejudice, that the AO/DRP failed to appreciate that: (a) tax was not deductible on mere issuance of options and (b) no disallowance, in any case, can be made under section 40(a)(ia) of the Act on account of alleged non-deduction of tax on payments made in the nature of 'emoluments' to employees. 5.4 Without prejudice, that the AO/DRP erred on facts and in law in not even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( a) there is nothing on record to dispute the contention of the appellant that no expenditure, over and above expenditure suo-moto disallowed by the appellant was actually incurred in relation to the exempt income; ( b) preconditions for applying Rule 8D as prescribed in sub-sections (2)1 (3) of section 14A of the Act were not satisfied. 8.2 That the AO/ DRP erred on facts and in law in not appreciating that there was no nexus between any interest expenditure incurred by the appellant and the exempt income and consequently, no part of interest expenditure was, in any case, disallowable under section 14A of the Act. 8.3 That the AO / DRP erred on facts and in law in holding that the primary reasons for making investment was to earn exempt income, for making disallowance under section14A of the Act, which is in complete disregard to material placed on record by the appellant. 8.4 Without prejudice, that the AO erred on facts and in law in computing the amount of disallowance as per Rule 8D of the Rules. 9. That the Ld. AO/DRP further erred on facts and in law in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire deduction claimed under sections 80-lB and 80-IC of the Act. 10.7 That the Ld. AO/DRP erred on facts and in law, in proposing alternate computation mechanism (particularly in paras B-1, B-2, C and D of the impugned order) to arrive at the profits eligible for deduction under sections 80-lB and 80-IC of the Act, disregarding the method prescribed under the Act. 10.8 That the Ld. AO/DRP erred on facts and in law in not evaluating the additional information filed by the assessee in support of deduction claimed under section 80-lB and section 80-IC of the Act and establishing conclusions merely on the basis of previous assessment year's order. 11. That the Ld. AO/DRP erred on facts and in law in disallowing mark to market losses of ₹ 3,331.61 crores, suffered by the appellant in relation to forward contracts entered into for protection against currency fluctuation, by holding the same to be 'contingent in nature'. 11.1 Without prejudice, that in case mark to market loss is held to be nondeductible for the year under assessment, the reversal of loss / gain on mark to market, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d234DoftheAct. 20. That the Ld.AO erred on facts and in law in withdrawing interest under section 244A of the Act. 21. That the above grounds of objection are independent of, and without prejudice to one another. 22. That the appellant craves leave to alter, amend or withdraw all or any grounds herein or add any further grounds as may be considered necessary either before or during the hearing. 3. The issues raised by the assessee in Ground Nos. 1 and 18 to 22 are general and consequential in nature. Therefore, no separate adjudication is required for the same. Hence, we dismiss the same. 4. The interconnected issue raised by the assessee in Ground Nos. 2 to 4 is that the Ld. DRP erred in confirming the addition made by the AO /TPO amounting to ₹ 145,13,17,725/- on account of the transaction with AE s by considering the assessee as a tested party. 5. The briefly stated facts are that the assessee is a limited company and engaged in the business of manufacturing and trading of pharmaceuticals products, bulks drugs and trading activity. The case of the assessee fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 167,22,61,314 12. Sale of fixed assets TNMM 1,28,64,240 13. Testing charges paid TNMM 20,43,14,512 14. Purchase of raw material/packing material TNMM 1,60,21,796 TOTAL 17,006,802,321 5.1. The assessee during the assessment proceeding filed its transfer pricing study report treating its AE s as tested party. The assessee further justifies its stand treating the AE s as tested party on the reasons as discussed in brief herein below: i. The AE s are engaged simply in the sales and distribution activities. ii. The assessee is engaged in the manufacturing activities. iii. There is no intangible prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 6 7 in the order of the TPO. Further the assessee categorized all its 30 AE s in the different regions based on geographical location. 5.6. Such categorization of AE s as per region and class of transaction is being established to carry out the benchmarking with the comparables in the relevant regions for the specific class of transaction. In view of the class of transaction and region wise AE s, assessee identified the various comparables from database which are available on Para 5.3/5.4 on pages 7 to 9 of TPO order and shows the PLI of the comparables of each region and class of transaction. 5.7. Accordingly, after comparing the PLI of the comparable with the PLI of AE s, assessee claimed that the margin earned by the AE s falls within the parameters set out for benchmarking of the respective transactions. 5.8. The TPO after considering the Transfer Pricing approach adopted by the assessee observed two situations for benchmarking of transaction as detailed under: Comparing the results of one AE situated in X country with a comparable situated in Y country or No benchm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to provide the supplementary transfer pricing report considering the assessee as the tested party. 5.16. In response to show cause notice the assessee without prejudice to its above contention filed the revised TP study treating itself as the tested party. The assessee in the revised TP study used TNMM as most appropriate method and used OP/TC as the PLI before the economic condition and after economic condition and arrived at the PLI 6.32% and 19.47% respectively. The assessee made the economic adjustment in respect of R D cost and loss of contribution due to US regulatory conditions while determining its PLI after adjustment. 5.17. The assessee in its revised TP study has selected 8 comparable and taken three years average margin calculated at 14.55%. Accordingly, the assessee claimed that its transactions with the AE s had been entered at arm length price. 5.18. The TPO after considering the revised TP study rejected the claim of the assessee for using multiple year data after referring to the provision of Rule 10B(4) and various judgment in this regard. In view of the above TPO finally held that single year data sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preferred an appeal before the Ld.DRP who partly allowed the appeal of the assessee by observing as under:- 5.1. In objection 3.1, the assessee has reiterated the objection dealt with in grounds of objection 2.1 to 2.5 by stating that the TPO has rejected even the supplementary economic analysis conducted by the assessee during the TP proceedings. TPO has given the supplementary analysis of the assessee in Para 6 of his order and given the reasons why the same needs to be rejected in subsequent paragraph 7 and in the show cause notice. The reasons given by the TPO are valid and cogent. The DRP has examined the matter and comes to the conclusion that the TPO was right in rejecting even the supplementary TP documentation for the reasons given in the TP order. 5.2. Objection 3.2 is on the issue of use of single year data. This issue regarding use of single year data has been examined in detail in TPO's order. Briefly summarized, DRP finds that, the arguments put forth by TPO are based on the law 35 it exists. There are various rulings in favour of using single year data. As per well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument of the assessee in Para 10.4. The assessee is incurring substantial R D expenditure and this is growing. Pharmaceutical companies are driven by R D and assessee is in the higher bracket of Pharmaceutical companies which are leading in R D activities. Therefore, TPO is correct in applying R D filter at 4% of R D/Sales. DRP does not find any reason to change this filter. 5.3.3. Export sales filter The TPO has used export sales filter at 25% whereas the assessee is using at 30%. There is not merit in the argument of the assessee that the filter should be at 30% rather than 25%. Since the TPO has used different filters in the multiply of 25, it is appreciable if the same is retained it is seen that this is the normal filter applied in across the cases by the TPO. It may arbitrary to change them. As there is no much difference between 25% and 30% filter, the objection of the appellant is rejected. 5.3.4. RPT filter TPO has rejected the company having more than 25% related party transactions (RPT). To determine the arm s length price of the international transaction under consideration, such transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar line of business and having similar assets and risks profile. The TPO cannot be faulted for selecting these comparables so long as the TPO has shared these comparables with the appellant through the show cause notice. Reliance is placed on the decision of DCIT vs. Deloitee Consulting India Pvt. Ltd. (ITA Nos. 1082 1084 of 2010). 40. ....... We find that there are several factors such as market risks, environmental risk entrepreneurial risk and functional risk etc., which affect this matter and which ultimately affect the results of the company. All the aforesaid factors make it Impracticable to any authority to find out exact duplicate company of the assessee as comparable. Some variation bound to exist. We find that the TPO had made efforts to identify the comparables whose functions are similar to the assessee company by applying filter quantitatively and qualitatively to eliminate the differences between the assessee companies with that of comparable companies to neutralize the aforesaid risk factors. In view of this, there is no merit in the argument of the assessee that TPO has chosen or rejected comparables arbitrarily. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be an adjustment because of loss of contribution of sales in the US market. 5.4.1. TPO has rejected this claim of the assessee because it is difficult to quantify a reasonably accurate adjustment as contemplated in Rule 10B(3)(ii). 5 4.2. DRP has considered the submission of the assessee carefully. The R D expenditure has certainly contributed to the revenue of the assessee. It is difficult to quantify the risk of R D in a pharmaceutical company. Assessee is a full risk bearing entities. Therefore, it is unscientific to say that such adjustment should be made in the hands of the assessee forgetting that the comparables also need to be adjusted fn the same way. In the scarcity of data about the comparables, it is impossible to carry out such adjustments. Therefore, DRP unholds the action of the TPO. 5.5. In objection 3.7, the assessee has contended that there has to be proportional adjustment to the extent of international transaction. The DRP, placing reliance on the rulings pronounced by the Hon'bie Delhi Bench of the ITAT in the case of IL Jin Electronics (I) Pvt. Ltd. [2010 36 SOT 227], and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of the ratio of the ruling in one case depends on the facts and circumstances of that case. In the absence of discussion of the facts of case decided by the Hon'bie ITAT or the High Courts or the Supreme Court, it is not j possible to appreciate how the ratio is applicable to the present case. In view of this, this Ground of objection of the assessee is rejected. Further, it should be mentioned that TPO has relied on the decision of the ITAT in the case of the assessee itself. 6. Being aggrieved by the order of the Ld. DRP, the assessee is in appeal before us. 7. The Ld. AR at the outset submitted that its AE s had been accepted as a tested party in its case by the order of this ITAT in ITA 196/Del/2013 vide order dated 25-4-2016, reported in 68 taxmann.com 322. Accordingly, the AR contended that the AE s of the assessee should be treated as the tested party. The ld. AR also claimed that in the subsequent assessment years, the TPO had accepted the AEs of the assessee as the tested party. 8. On the other hand, the Ld. DR before us vehemently submitted that the facts of the case in ITA 196/Del/2013 were different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. As per section 92C(1) of the Act, ALP of the international transact is required to be determined using any of the profit based prescribed methods, being the Most Appropriate method (MAM) having regard to the nature of transaction or class of transactions. However, in order to determine the MAM for determining the ALP, it is first necessary to select the 'tested party'. The transfer pricing legislation in India does not provide any guidance on the concept of 'tested party'; however, there are some decisions on this issue, which can be of great help. 21. In order to understand the concept of tested party, one need to refer to the transfer pricing legislations of developed countries where the principles of transfer pricing have been in use for a long time and act as a guiding force for all the developing economies. The transfer pricing guidelines issued by the US Internal revenue services under section 482 provide and discuss the concept of transfer pricing. Section 1.482-5 of the US Transfer Pricing Regulations state that 'the tested party will be the participant in the controlled transaction whose operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and application of the transfer pricing method. 24. The OECD guidelines at Para no.3.18 provides as under:- 3.18 When applying a cost plus, resale price or transactional net margin method as described in Chapter II, it is necessary to choose the party to the transaction for which a financial indicator (mark-up on costs, gross margin, or net profit indicator) is tested. The choice of the tested party should be consistent with the functional analysis of the transaction. As a general rules, the tested party is the one to which a transfer pricing method can be applied in the most reliable manner and for which the most reliable comparables can be found i.e. it will most often be the one that has the less complex functional analysis. 3.19 This can be illustrated as follows. Assume that company a manufactures two types of products, P1 and P2 that it sells to company B, an associated enterprise in another country. Assume that A is found to manufacture P1 products using valuable, unique intangibles that belong to B and following technical specification set by B. Assume that in this P1 transaction, A only perf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement under section 92CC of the Act on 07 August 2015 with CBDT for AY 2014-15. According to Para, 1(F) of that agreement tested party means associated parties as listed in Appendix 1. According to the annexure-1, it has been agreed between the parties that the TNMM with PLI of operating profit margin computed based on audited financials of AE, being the tested party, shall be the method to benchmark the covered transactions in the case. In order to select the comparables regional benchmarking shall be applied in case country-bycountry benchmarking is not feasible the same shall be preferred over regional bench marking. In that appendix, CBDT has agreed to benchmark South African, Ireland and Romania AEs benchmarking region as Europe. In case of Nigeria, Malaysia and Morocco the regional benchmarking has been accepted of Asia. In case of South Africa, Peru the benchmarking of Europe and in case of Egypt, Brazil and Thailand benchmarking of Asia is accepted. According to Parano.5, it is also emphatically mentioned that foreign AEs are the tested parties. It is also important to notice that how this agreement has been reached between the parties. Page No 500 where in it is held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PA can have the guidance value for the revenue authorities for the purposes of comparability analysis. The main intent of the advance pricing agreements is to protect the fair share of the revenue of the states in simple and efficient manner and to protect the tax base. Need for Advance pricing agreements are emerging out of current global complex economic situations and its impact on revenue of tax compelling governments to intensify and streamline their transfer pricing compliance efforts to reduce the disadvantage in staking their claim for tax. Higher risk of disputes may be reduced by the advance pricing agreements. On the same intentions and objects, the ld. TPO is also required to compute the ALP of the International transactions of the Assessee for this year. Therefore, the agreement entered into by CBDT with the assessee, which has considered all the aspects of the manner of determination of ALP which are also similar for the this year, should be given highest sanctity and therefore mechanism suggest in that agreement should be necessarily followed in determining ALP of the transactions for this year. 29. Though in the APA signed by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said year.' On reading above rule, it is clear that if the International transactions are same in the year of APA and the year for which roll back is applied, roll back is allowed to the assessee on certain normal condition of filing return of income, Report of accountant and a request in specified format. Off course, it has also normal revenue safeguarding exclusion clauses of income going below the returned income and where ITAT has passed an order on the subject. Therefore even the rules provide that if the International Transactions are same in the year of APA and in the past year than both the parties, assessee and CBDT may agree for applying the agreements contained in APA agreed. In the present case, it is not disputed that the international transactions in both the years are not same. Therefore, we draw support from Rule 10 MA of Income tax Rules 1962 in applying the methodology as accepted in APA for the impugned year in appeal. 30. As the FAR Analysis of the year under APA as well as the year under appeal are similar and it is also an established fact that the tested parties selected by the APA i.e. foreign AEs are least complex an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of the assessee for A.Y. 2004-05. We have perused those decisions and applied the same in reasoning and our findings. For the sake of brevity we refer the decision of coordinate bench in General motors India (P.) Ltd. (supra) where in majority of the decisions were considered on the issue of selection of 'tested party' and it held as under :- '11.1. We shall now proceed to peruse the judicial views on the issue. The case laws relied on by the assessee is as under: ( i) Mastek Limited v. Addl. CIT in ITA No.3120/Ahd/2010 dt.29.02.2012: In this case, the question came up for consideration before the earlier Bench of this Tribunal was as to whether a minute examination of functional profile is necessary for the selection of comparables and the answer given was that functional profile must be first examined and after that proceed to select the comparable. In this case, the comparables chosen by the assessee were discussed by the TPO and those were discarded for the basic reason that the companies those quoted by the assessee were dealing in product distribution whereas the TPO was of the view that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; of the assessee and simple engaged in marking activity. In this context, we are of the view that in order to determine the most appropriate method for determining the arm's length price, first it is necessary to select the 'tested party' and such a selected party should be least complex and should not be unique, so that prima facie cannot be distinguished from potential uncontrolled comparables. We are in agreement with the findings of the earlier Bench (supra) that such a selected party should be least complex and should not be unique. ( ii) Development Consultants (P.) Ltd. v. ACIT 136 TTJ 129 followed by Sony India (P.) Ltd. v. Dy. CIT [2008] 114 ITD 448/315 ITR 150 (Delhi): The issue before the Tribunal was that the CIT (A) had confirmed the adjustments to the international transactions of the assessee with its AEs based at Bahamas, USA without considering the submissions and the financial of the AEs explaining the facts etc. In case of the merits of the case for international transactions entered by the assessee with TKC, the submission made on behalf of the assessee was as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal had recorded its findings that 58. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The tested party normally should be the party in respect of which reliable data for comparison is easily and readily available and fewest adjustments in computations are needed. It may be local or foreign entity, i.e., one party to the transaction. The object of transfer pricing exercise is to gather reliable data, which can be considered without difficulty by both the parties, i.e., taxpayer and the revenue. It is also true that generally least of the complex controlled taxpayer should be taken as a tested party. But where comparable or almost comparable, controlled and uncontrolled transactions or entities are available, it may not be right to eliminate them from consideration because they look to be complex. If the taxpayer wishes to take foreign AE as a tested party, then it must ensure that it is such an entity for which the relevant data for comparison is available in public domain or is furnished to the tax administration. The taxpayer is not then entitled to take a stand that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also vouched during the course of hearing by the learned Sr. Counsel that the financial details including operating margin of comparable companies along with the back-up computations were furnished before the TPO in the transfer pricing documentation [Source: Pages 113 to 210 of the Transfer Pricing Study]. This contradicts the assertion of the learned DR that the assessee had not furnished any financial information of the comparable companies. 11.2.2 The United Nation's Practical Manual on Transfer Pricing also contradicts the TPO's argument that GMDAT should not be selected as the tested party as the comparable companies selected by the assessee doesn't fall within his jurisdiction and he can neither call for any additional information nor scrutinize their books of accounts etc., 11.2.3 However, we find inconsistency in the stand of the TPO to the effect that while rejecting the assessee's approach for selecting GMDAT as the tested party by citing a reason that there was no reliable data available for both GMDAT and comparables and, therefore, GMDAT cannot be taken as the 'tested party', however, on the same breath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has virtually closed all doors for the petitioner. In the circumstances, impugned order of the Dispute Resolution Panel suffers from the vide of being contrary to the record as well as non-application of mind, in as much as the petitioner had never sought withdrawal of the objections filed by it. The impugned order also causes immense prejudice to the petitioner as recorded hereinabove. In the circumstances, the impugned order of the Dispute Resolution Panel, therefore, cannot be sustained. . . . . . . 11.3 We shall now peruse the case laws on which the learned DR had placed reliance in the findings of the Hon'ble Mumbai Tribunals in the cases of ( i) Aurionpro Solutions Ltd. v. Addl. CIT in ITA No.7872/Mum/2011 dated 12.4.2013; and (ii) M/s Onward Technologies Ltd. v. DCIT (OSD) in ITA No.7985/Mum/2010 dated 30.4.2013. ( i) In the case of Aurionpro Solutions Ltd. (supra), the issue before the Hon'ble Bench was that the assessee engaged in the business of software development and web designing services and that the assessee had lent loans to its AEs stationed at USA, Singapore and Bahrain. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian taxation law is limited to transaction between the assessee and its foreign AE. It can neither call for also roping in and taxing in India the margin from the activities undertaken by the foreign AE nor can it curtail the profit arising out of transaction between the Indian and foreign AE at arm's length. The contention of the ld. AR in considering the profit of the foreign AE as 'profit A' for the purposes of comparison with profit or comparables, being 'profit B', to determine the ALP of transaction between the assessee and its foreign AE, misses the wood from the tree by making the substantive section 92 otiose and the definition of 'internal transaction' u/s 92B and rule 10B redundant. This is patently an unacceptable position having no sanction of the Indian transfer pricing law. Borrowing a contrary mandate of the TP provisions of other countries and reading it into our provisions is not permissible. The requirement under our law is to compute the income from an international transaction between two AEs having regard to its ALP and the same is required to be strictly adhered to as prescribed. This contention is, therefore, repelled. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.4. Considering the divergent views expressed by various Tribunals (supra) and majority of them were in favour of selecting the 'tested party' either from local or foreign party and the United Nation's Practical Manual on transfer pricing for developing countries had observed that 'It may be the local or the foreign party', we tend to agree with the same.' 34. Above decision reproduced by us covers many divergent views of the coordinate benches and after considering them coordinate bench has reiterated all the principles noted by us for selection of tested party. Hence, we also draw staunch support from that decision. 35. Therefore, for the reasons stated above, ground no 2.2 of the appeal is allowed with a direction that overseas associated enterprises are accepted as 'tested party' being the least complex of the transacting entity for the year for comparability analysis of international Transactions of the assesseeappellant. 36. As we have already decided the first step of comparability analysis in ground no 2.2 of the appeal we set aside other grounds nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it does not express disagreement and pronounce its different views, but has the matter posted before a Fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal, so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the IT Act itself. 10.2. We also find that the Hon ble supreme court case of Ambika Parsad Mishra Vs. State of U.P.and Others vide writ petition no 1543 of 1977 vide order dated 09-05-1980 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisis and the constitutional ground of Art. 141. Every now discovery or argumentative novelty cannot undo or compel reconsideration of a binding precedent. In this view, other submissions sparkling with creative ingenuity and presented with highpressure advocacy, cannot persuade us to re-open, what was laid down for the guidance of the nation as a solemn pre-posion by the epic Fundamental Rights case. From Kameshwar Singh and Golak Nath (supra) through Kesavananda (supra) and Kanan Devan to Gwalior Rayons and after Art. 31A has stood judicial scrutiny although, as stated earlier, we do not base the conclusion on Art. 31A. Even so, it is fundamental that the nation's Constitution is not kept in constant uncertainty by judicial review every season because it paralyses, by perennial suspense, all legislative and administrative action on vital issues deterred by the brooding threat of forensic blowup. This, if permitted, may well be a kind of judicial destabilisation of State action too dangerous to be indulged in save where national. crisis of great moment to the life, liberty and safety of this country and its millions are at stake, or the basic direction of the nation itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtized amount by crediting the same to the profit and loss account. 12.1. The assessee during the year under consideration has debited/amortized ₹ 6,84,523/- and credited/ reversed ₹ 21,79,471/- on account of ESOP which was not exercised by the employees. Thus the assessee in effect credited net amount of ₹ 14,94,948/- in its P L account. However, the company has not claimed the expense of ₹ 6,84,523/- in ITR due to the fact that Hon ble ITAT Delhi in assessee s case in ITA No. 1855/D/2004 for the AY 2001-02 vide order dated 12- 06-2009 held that ESOP expenses are not allowable. 12.2. The assessee also not offered tax on the reversal of ₹ 21,79,471/- as the company has filed an appeal in Delhi high court and in notes to account the assessee mentioned that company reserves its right to offer the tax u/s 41(1) in case matter decides against it. 12.3. AO noted the facts above from the notes to accounts and issued a notice to the assessee to explain the same. 12.4. In response to the notice, the assessee submitted that the difference between market price and the issue price is a benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d employees compensation falls under the category of provision. Accordingly the ld. DRP confirmed the order of the AO. 14. Aggrieved by the direction of Ld. DRP, the assessee is in appeal before us. Regarding the ESOP expenses amounting to 6,84,523/- 15. The Ld. AR before us submitted that the issue is covered in favor of the assessee in its case by the order of Delhi Tribunal in ITA No. 196/Del/2013 vide order dated 25-04-2016. 16. The Ld. DR before us submitted that the benefit under ESOP extended to the employees is treated as perquisites. Accordingly, the assessee was under the obligation to deduct the TDS under section 192 of the Act. But the assessee has claimed such expenses without deducting the TDS. Thus the impugned expenses cannot be allowed under section 40(a)(ia) of the Act. The ld. DR vehemently supported the order of the lower authorities. 17. We have heard the rival contentions of both the parties and perused the material available on records. At the outset, we find that in the identical facts circumstances in the own case of the assessee, the ITAT in the AY 2008-09 bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not gone out from the pocket of the assessee'. From the above enunciation of law by the Hon'ble Summit Court, there remains no doubt whatsoever that the term 'expenditure' in certain circumstances can also encompass 'loss' even though no amount is actually paid out. Ex consequenti, the alternative argument of the ld. DR that discount on shares is 'loss' and hence can't be covered u/s 37(1), also does not hold water in the light of the above judgment. In view of the above discussion, we, with utmost respect, are unable to concur with the view taken in Ranbaxy Laboratories Ltd. (supra). Further whether the ESOP expenditure is a contingent loss has also been considered in the same decision as under :- 'B. Is discount a Contingent liability ? 9.3.1 The learned Departmental Representative supported the impugned order by contending that the entitlement to ESOP depends upon the fulfilment of several conditions laid down under the scheme. It is only when all such conditions are fulfilled and the employees render services during the vesting period that the question of any ascertained lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptions are exercised by the employees. Now the question arises as to whether the liability at the end of each year can be construed as a contingent one? 9.3.3 The Hon'ble Supreme Court in Bharat Earth Movers v. CIT [2000] 245 ITR 428/112 Taxman 61 dealt with the deductibility or otherwise of provision for liability towards encashment of earned leave. In that case, the company floated beneficial scheme for its employees for encashment of leave. The earned leave could be accumulated up to certain days. The assessee created provision of ₹ 62.25 lakh for encashment of accrued leave and claimed deduction for the same. The Assessing Officer held it to be a contingent liability and hence not a permissible deduction. When the matter finally came up before the Hon'ble Supreme Court, it was held that the provision for meeting the liability for encashment of earned leave by the employee was an admissible deduction. In holding so, the Hon'ble Apex Court observed that : the law is settled : if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. The Assessing Officer disallowed the same on the ground that the liability was merely a contingent liability and hence not allowable as deduction u/s 37 of the Act. When the matter finally came up before the Hon'ble Supreme court, it entitled the assessee to deduction on the accrual concept by holding that a provision is recognized when : (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources will be required to settle the obligation : and (c) a reliable estimate can be made of the amount of the obligation . Resultantly, the provision was held to be deductible. 9.3.5 When we consider the facts of the present case in the backdrop of the ratio laid down by the Hon'ble Supreme Court in Bharat Earth Movers (supra) and Rotork Controls India (P.) Ltd. (supra), it becomes vivid that the mandate of these cases is applicable with full force to the deductibility of the discount on incurring of liability on the rendition of service by the employees. The factum of the employees becoming entitled to exercise options at the end of the vesting period and it is only then that the actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 5 which has already been considered by the ITAT Delhi as discussed above, we are taking the same view. Accordingly we allow the deduction of the ESOP expenses. Hence the ground of appeal no. 5 of the assessee is allowed. Regarding the reversal of ESOP expenses in P/L account amounting to ₹ 21,79.471/- 19. The learned AR before us submitted that the provisions were not allowed as a deduction in the earlier years, therefore, the same cannot be made subject to tax in the year under consideration. 20. On the other hand, the learned DR submitted that there is no detail available on record suggesting that the amount of provision written back in the year under consideration has suffered tax in the earlier years. Therefore, the matter can be set aside to the file of the AO for fresh examination as per the provisions of law. The learned DR vehemently supported the order of the authorities below. 21. We have heard the rival contentions and perused the materials available on record. Regarding the reversal of deferred employees compensation credited to profit loss account, we find force in the argument o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed the said expenditure as business expenditure u/s 37 of the Act. 25. The aggrieved assessee preferred an appeal before the Ld.DRP who has confirmed the order of the AO. 26. Being aggrieved by the order of the DRP, the assessee is in appeal before us: 27. The Ld. AR before us submitted that in the identical facts and circumstances in the own case of the assessee for the A.Y. 2008-09, ITAT Delhi Tribunal in ITA No. 196/Del/2013 dated 25.04.2016 has decided the impugned issue in its favor. 28. On the other hand, the Ld. DR before us vehemently supported the order of the authorities below. 29. We have heard the rival contentions of both the parties and perused the materials available on records. At the outset, we find that in the identical facts circumstances in the own case of the assessee, the ITAT in the AY 2008-09 being ITA No. 196/Del/2013 vide order dated 25-4- 2016, reported in 68 taxmann.com 322, held as under: 6. We have carefully considered the rival contentions. In view of the decision of Hon'ble Delhi high court in case of assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dian company has already been disallowed u/s 14A of the Act. 32.3. However, AO disregarded the contention of the assessee and held that assessee could not establish the nexus between its fund and investment made. The assessee also did not maintain any separate books or separate bank accounts. The assessee has a separate treasury fund division and personnel working there who are getting huge salary only to make the key decision of investments. Further, without the approval of top managements such big investments cannot be made. 32.4. Accordingly, the AO calculated the expenses disallowable under Rule 8D(2)(ii) for ₹ 9,24,69,627/- and under rule 8D(2)(iii)₹ 3,12,93,000/- and added the total ₹ 11,68,23,115/- (₹ 12,37,62,627/- ₹ 69,39,512/-) to the total income of assessee. 33. Aggrieved assessee preferred an appeal to Ld. DRP who confirmed the order of the AO after placing its reliance on the order of its predecessor for the AY 2008-09 wherein it was held that assessee had not provided any basis for suo-moto disallowance. The assessee has also not maintained any separate books of account or separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me surely cannot swallow the entire amount as has happened in this case. Therefore, according to us, as such no further disallowance u/s 14A can be imputed. Furthermore, we did not find any satisfaction of the AO with regard to examination of the books of account of the assessee that how disallowance already offered by assessee of ₹ 3311708/- which are also certified by the tax auditor is incorrect. In absence of such satisfaction AO does not have any authority to invoke provisions of Rule 8D. On this count also the addition cannot be upheld. Hon'ble Delhi high court in case of CIT v. Taikisha Engg. Ltd. [2015] 54 taxmann.com109/229 Taxman 143/370 ITR 338 has held as under :- 13. We need not, therefore, go on to sub Rule (2) to Rule 8D of the Rules until and unless the Assessing Officer has first recorded the satisfaction, which is mandated by sub-Section (2) to Section 14A of the Act and sub Rule (1) to Rule 8D of the Rules. 14. The view and legal ratio expressed above is not being elucidated for the first time. The Delhi High Court in Maxopp Investment Ltd.v. CIT [2012] 347 ITR 272/203 Taxman 364/15 taxmann.co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in Rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. Rule 8D As we have already noticed, sub-section (2) of Section 14A of the said Act refers to the method of determination of the amount of expenditure incurred in relation to exempt income. The expression used is - such method as may be prescribed . We have already mentioned above that by virtue of Notification No.45 of 2008, dated March 24, 2008, the Central Board of Direct Taxes introduced Rule 8D in the said Rules. The said Rule 8D also makes it clear that where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with (a) the correctness of the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppearing in the balance sheets of the assessee, on the first day and the last day of the previous year. It is the aggregate of these three components which would constitute the expenditure in relation to exempt income and it is this amount of expenditure which would be disallowed under Section 14A of the said Act. It is, therefore, clear that in terms of the said Rule, the amount of expenditure in relation to exempt income has two aspects - (a) direct and (b) indirect. The direct expenditure is straightaway taken into account by virtue of clause (i) of sub-rule (2) of Rule 8D. The indirect expenditure, where it is by way of interest, is computed through the principle of apportionment, as indicated above. And, in cases where the indirect expenditure is not by way of interest, a rule of thumb figure of one half percent of the average value of the investment, income from which does not or shall not form part of the total income, is taken.' 15. Even earlier the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. (supra) had referred to Section 14(2) of the Act and observed:- 'Under sub-section (2), the Assessing Officer is required to det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form part of the total income under the Act. Under the proviso, it has been stipulated that nothing in the section will empower the Assessing Officer, for an assessment year beginning on or before April 1, 2001, either to reassess under section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under section 154.' 16. Equally illuminating are the following observations in Godrej and Boyce Mfg. Co. Ltd. (supra) . . . However, if the assessee does not maintain separate accounts, it would be necessary for the Assessing Officer to determine the proportion of expenditure incurred in relation to the dividend business (i.e., earning exempt income). It is for exactly such situations that a machinery/method for computing the proportion of expenditure incurred in relation to the dividend business has been provided by way of section 14A(2)/(3) and rule 8D. 17. More important and relevant for us are the observations in Godrej and Boyce Mfg. Co. Ltd. (supra) on requirement and stipulation of satisfaction being recorded by the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. (supra) and East India Pharmaceutical Works Ltd. (supra) would be relevant if the satisfaction of the Assessing Officer is in issue, and such question of satisfaction is with reference to the accounts .' Therefore, in view of above two decisions of Hon'ble jurisdictional High court we hold that no such further disallowance over and above what is admitted by the assessee can be made. Hence, ground no. 10 of the appeal of the assessee is allowed and disallowance of ₹ 74066105/- u/s 14A of the Act is directed to be deleted. 38. In view of the identical issue raised before us in the ground of appeal no 8 which is already considered by the ITAT Delhi, we are taking the same view and delete the addition made by the AO. Hence the ground no of the appeal of the assessee is allowed. 39. The issue raised by the assessee in the ground no. 9 is that the Ld. DRP erred in confirming the upward adjustment for ₹ 11,68,23,115/- while computing the book profit under section 115JB of the Act for the disallowance made u/s 14A of the Act. 40. The AO while computing the book profit u/s 115JB of the Act, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Cadila Healthcare Ltd. v. Addl. CIT [2012] 21 taxmann.com 483/67 SOT 110 (URO)(Ahd. - Trib.); ( ii) Reliance Industrial Infrastructure Ltd. [IT Appeal Nos. 69 70 (Mum) of 2009, dated 5-4-2013]; ( iii) EssarTeleholdings Ltd. [IT Appeal No. 3850 (Mum.) of 2010, dated 29-7- 2011]; ( iv) J.K. Paper Ltd. [IT Appeal Nos. 979 (Ahd.) of 2006 4027 4080 (Ahd.) of 2008]; ( v) National Commodity Derivatives Exchange Ltd. [IT Appeal No. 2923 (Mum) of 2010, dated 26-8-2011]; and ( vi) Quippo Telecom Infrastructure Ltd. [IT Appeal No. 4931 (De1hi) of 2010, dated 18-2-2011]. Respectfully following the propositions laid down in the previously mentioned decisions, we direct the Ld. AO to exclude the amount of addition of ₹ 7,66,40,105/- made u/s.14A, while computing the book profit u/s.115JB.In view of this we allow ground no.11 of the appeal. 46. In view of the identical issue raised before us in the ground of appeal no. 9 which is already considered by the ITAT Delhi, we are taking the same view and delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48. The AO during the assessment proceedings observed that the auditor in the form no. 10CCB issued by him made certain comments as narrated below: i) The sale effected by the industrial undertakings eligible for deduction under section 80IB/ 80IC of the Act have been recorded at the sale price which was charged from the customers. Thus the assessee has violated the provisions of section the 80IA read with section 80IC(7) of the Act. As such the assessee was required to record the sales at a price at which the products were transferred by the eligible undertaking to the other unit of the assessee namely selling and distribution department. It is because of the fact that the assessee has not allocated the cost incurred by its selling and distribution department while determining the profit of the eligible undertaking. ii) The assessee has allocated head office expenses to the tune of 75% to the eligible undertakings which was further bifurcated among the eligible undertakings on the basis of their turnover. As such there was no basis specified for allocating head office expenses to the tune of 75% to the eligible undertakings. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted by the Revenue. iv. There was an established system to work out the profit for each industrial undertaking which is eligible for deduction. Further profit determined for each industrial undertaking was duly certified by the auditor in his audit report in form 10CCB. The miscellaneous income in respect of which the deduction was claimed was having direct nexus with the activities of the industrial undertaking. Accordingly these were determined as per the established system applicable to the eligible undertakings. v. The other incomes which are not eligible for deduction under section 80IB/80IC of the Act were not considered while determining the profit of the eligible undertakings. As such there was the proper compliance of the provisions of section 80IA(5) of the Act. vi. The selling and the distribution unit is not a separate undertaking which requires determining the profit separately. In fact such unit is facilitating the products manufactured by the eligible undertaking. Therefore there is no question of determining the ALP for the transfer of the goods effected by the eligible undertaking to such unit i.e. selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier years. iv. The selling and the distribution unit of the assessee is in itself are profit centre and carries out a distinct activity. Therefore the income of such unit cannot be attributed to the manufacturing activity of the eligible undertaking. Therefore the profit of this unit needs to be reduced from the profit of the eligible undertaking. As such the activity carried out by the eligible undertaking cannot be merged with the activity of selling and distribution unit. v. Similarly the profit earned by the assessee on account of the use of the brand name namely Ranbaxy cannot be merged with the profit of the eligible undertaking. 50. In view of the above, the AO disallowed the deduction claimed by the assessee under section 80IB/80IC of the Act for ₹ 58,85,85,232/- and added to the total income of the assessee. 51. Aggrieved assessee preferred an appeal before the Ld. DRP against the order of AO. 52. The DRP confirmed the order of the AO by observing as under: 52.1. DRP observed the identical issue is already adjudicated by the predecessor in the case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tical issue, it did not examine the issue again and therefore followed the decision of DRP-II in AY 2008-09. Accordingly, DRP upheld the order of AO. 54. Against the order of the DRP, the assessee preferred an appeal before us. 55. The Ld. AR before us submitted that in the identical facts and circumstances in the own case of the assessee for the A.Y. 2008-09, ITAT Delhi Tribunal in ITA No. 196/Del/2013 dated 25.04.2016 has decided the impugned issue in its favor. 56. On the other hand, the Ld. DR vehemently supported the order of authorities below. 57. We have heard the rival contention and perused the materials available on record. In view of the brief facts and circumstances discussed in the previous paragraph, we find that the impugned issue is covered by the order of Delhi ITAT in the case of assessee in which the exactly the same issue was adjudicated for the assessment year 2008-09 in ITA No. 196/Del/2013 dated 25.04.2016 in its favour. The relevant extract of the order is reproduced as under: 68. We have carefully considered the rival contentions. During the year assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47 of the Act and subsequently in order u/s 143(3) rws 147 of the Act, the claim of the assessee was accepted. Hence, the claim was examined and allowed for this unit in the initial year. 70. Regarding claim of deduction u/s 80IC of the Act in case of New Tablet Plant-I the initial year of deduction is AY 2005-06. During the course of assessment proceedings, the assessee submitted copy of audited accounts of New industrial undertaking and submitted the basis for computation of the profit eligible for deduction for these undertakings. During the course of assessment proceedings assessee was specifically asked to explain the reasons and basis for apportionment of 30% R D expenditure and 75% of the head office expenses to this new undertaking. Assessee explained vide letter 02.12.2008 and after going through the submission made the assessee and based on allocation explained by the assessee, profits of the undertaking u/s 80IB/80IC were accepted by the AO. Therefore, in the initial year the claim of deduction for the unit New Tablet Plant-I was claimed, examined and allowed. 71. In case of New Tablet Plant-II which was set up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee by the AO. Before us the Ld. DR has not pointed out any changes in the facts or law relating to those yeas with the facts of this year with respect to deduction claimed by the assessee with respect to Goa plant and New tablet Plant I. Therefore, deduction related to these plants cannot be questioned in this year afresh without disturbing the deduction in initial year of the claim. Our view is also supported by the decisions of various Hon'ble High courts, one of the leading judicial precedent quoted before us is of Hon'ble Delhi high court in case of CIT v. Delhi Press PatraParakashan (P) Ltd. [2013] 355 ITR 14/217 Taxman 288/34 taxmann.com 3 (Delhi) where in it is held that:- 69. The next controversy that needs to be addressed is whether it was open for the Assessing Officer to deny the benefit of section 80-I of the Act to the assessee having allowed benefit to the assessee in the preceding three years. It is contended on behalf of the assessee that it was necessary for the Assessing Officer to be consistent with the assessment for the earlier years. The question as to the qualification of Unit Nos. 2 3 as industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to what had been decided by the Commissioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. We are, therefore, of the view that these appeals should be allowed and the question should be answered in the affirmative, namely, that the Tribunal was justified in holding that the income derived by the RadhasoamiSatsang was entitled to exemption under ss. 11 and 12 of the Income Tax Act of 1961. 72. The decision of the Supreme Court in the case RadhasoamiSatsang (supra) was on the facts where the question as to the entitlement for exemption under Section 4(3)(i) of the Income Tax Act, 1922 had not been granted for the assessment year 1939-40. The assessee had challenged the assessment order which was accepted by the Appellate Assistant Commissioner who upheld the assessee's claim for exemption. This view was consistently followed by the successive Assessing Officers till 1963-64. In these circumstances, the Supreme Court held that the view that had been settled and accepted over a period of years should not be allowed to be disturbed. 73. This court in the case of Lagan Kala Upvan (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the earlier years i.e. relating to assessment year 1988-89, 1989-1990 and 1990-1991 has not been disturbed by the Assessing Officer and there has been no change that could justify the Assessing officer adopting a different view in the assessment years 1991-92 and thereafter. As stated hereinbefore, in certain cases where the issues involved have attained finality on account of the subject matter of dispute having been finally adjudicated, the question of reopening and revisiting the same issue again in subsequent years would not arise. This is based on the principle that there should be finality in all legal proceedings. The Supreme Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 had held as under: ........... that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.... 75. In the facts of the present case, where although the Assessing officer has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is available for the assessment years succeeding the initial assessment year, the conditions for availing the benefit are inextricably linked with the previous year relevant to the assessment year in which the new undertaking was formed. In such circumstances, it would not be possible for an Assessing Officer to reject the claim of an assessee for deduction under Section 80-I of the Act on the ground that the industrial undertaking in respect of which deduction is claimed did not fulfil the conditions as specified in Section 80-I(2) of the Act, without undermining the basis on which the deduction was granted to the assessee in the initial assessment year. This in our view would not be permissible unless the past assessments are also disturbed. 77. The Assessing Officers over a period of three years being assessment years 1988-89, 1989-1990 and 1990-1991 have consistently accepted the claim of the assessee for deduction under 80- I of the Act and it would not be open for the Assessing Officer to deny the deduction under Section 80-I of the Act on the ground of non fulfilment of the conditions under 80-I(2) of the Act without disturbing the assessment for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 7th year of its claim out of 10 years, has earned eligible profit of ₹ 300682774/- and deduction thereon is claimed at the rate of 30% thereof amounting to ₹ 90204832/- and New Tablet Plant-I u/s 80IC for which this is the 4th year of the claim and assessee has claimed 100% of the eligible profit amounting to ₹ 220579510/- as deduction, cannot be disallowed in this year. 76. Coming to the second argument that the revenue should follow the consistency and where position has been accepted and determined by the department after examination of the facts and where there is no change either in the facts or in law than the earlier decision taken by the revenue should be adhered to. Ld. DR did not point out any changes in the facts and/or law in the year in which deductions granted in earlier years with respect to impugned year. We have carefully considered the argument of the ld. AR and we do not see any dispute on the principle of consistency as it has already been propounded by Hon'ble Supreme Court and various other Hon'ble High Courts. The latest in point of time is Excel Industries Ltd. (supra) where Hon'ble Supreme court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter - and if there was no change it was in support of the assessee - we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken. 31. It appears from the record that in several assessment years, the Revenue accepted the order of the Tribunal in favour of the assessee and did not pursue the matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it.' 77. Therefore, following this principal also we are of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79. On examination of the above stated balance sheet and profit and loss account of the above industrial undertaking where the claim of the deduction of the assessee is worked out and certified by the Independent accountant is prepared based on similar accounting policies and practices. It is also apparent that the profit and loss and the balance sheet have been prepared on rational basis after allocation of proper expenditure, which has been followed by the assessee consistently and based on the accounting practices followed in earlier years. The main reason for asking of separate books of accounts of the eligible undertaking is only to verify that whether the assessee has computed the eligible profits for deduction has some sanctity or not. Assessee has consistently followed allocation of 75% of head office expenses to the individual undertaking based on sales clocked by the individual units. This practice has been consistently followed by the assessee in past year and the revenue as stated by us earlier with respect to AY 2002-03 onwards, has accepted it. The Assessee has in brief and succinctly has explained the rationale behind allocation of each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BBB . ( 1) The report of the audit of the accounts of an assessee, which is required to be furnished under sub-section (7) of section 80-IA or sub-section (7) of section 80-I, except in the cases of multiplex theatres as defined in subsection (7A) of section 80-IB or convention centres as defined in sub-section (7B) of section 80-IB 1[or hospitals in rural areas as defined in sub-section (11B) of section 80-IB], shall be in Form No. 10CCB. ( 2) A separate report is to be furnished by each undertaking or enterprise of the assessee claiming deduction under section 80-I or 80-IA or 80-IB1[or 80- IC] and shall be accompanied by the Profit and Loss Account and Balance Sheet of the undertaking or enterprise as if the undertaking or the enterprise were a distinct entity. ( 3) In the case of an enterprise carrying on the business of developing or operating and maintaining or developing, operating and maintaining an infrastructure facility, the form shall be accompanied by a copy of the agreement of the enterprise with the Central Government or the State Government or the local authority for carrying on the business of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking. Consequently, the Assessing Officer worked out, on his own, the manufacturing account, as indicated in his Order, giving a bifurcation in terms of quantity of raw wool produced. On Appeal before hon'ble court it was held as under :- 4. In our view, the findings given by ITAT and the High Court are findings of fact. In this case, we are not concerned with the interpretation of Section 80IA of the Act. On facts, we find that the assessee ought to have maintained a separate account in respect of raw material which it had sold during the assessment year. If the assessee had maintained a separate account, then, in that event, a clear picture would have emerged which would have indicated the income accrued from the manufacturing activity and the income accrued on the sale of raw material. We do not know the reason why separate accounts were not maintained for the raw material sold and for the income derived from manufacture of yarn. On reading of the above decision, it is apparent that the main purposes of the maintenance of separate account are to deduce correct profit eligible for deduction. Hon'ble Supreme court in abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le the assessing officer to verify that deduction under any particular provision has been correctly computed. If from any system/ software, identified and separate accounts relatable to any particular unit/ undertaking are discernible and are capable of being generated, the same, in our view, is sufficient compliance with the requirement of maintenance of separate books of account, if any. However, it is to be noted in present era of technological evolution that old age notions of the maintenance of accounts and business records do not survive and business entity today survives on real time information on each aspect of its business process. In this era when an entity maintains its accounting and business records on Enterprise Resource Planning system, which is a standard procedure or program to optimize all business processes including Sales, Logistics, Production, Quality, Finance of an entity and SAP is a name of software product and it's a company name too which a leading provider of these solutions, it is rather incorrect to say that separate books of accounts are not maintained by the assessee. Evidence led before ld. AO in the form of profit and loss accounts, before ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, (ii) export Incentives of ₹ 78.93 crores, (iii) sundries and miscellaneous income ₹ 33.74 Cr and Income from trading activity of ₹ 94.25 Crores totalling to ₹ 225.83 Crs. It was stated that the gross total income of the assessee is ₹ 178.64 Crores and if the above stated income are excluded i.e. of ₹ 225.83 Crores the total income of the assessee will result in to loss and therefore there is no profit in manufacturing activity of the assessee and hence no deduction is allowable to the assessee. On this aspect we have carefully perused the computation of total income filed by the assessee which is at page no 1145 to 1155 of the paper book where the gross total income of the assessee is ₹ 3347340467 and claim of the deduction u/s 80 IB/IC of the act of ₹ 1366821506/-. Therefore, it is apparent that assessee's deduction is not exceeding the gross total income of the assessee. We have perused the provision of section 80A of the act which provides as under :- Deductions to be made in computing total income. 80A. ( 1) In computing the total income of an assessee, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re being any change in the facts and / or law. Honourable Delhi high court in the case of EHPT India (P.) Ltd.(supra) where in allocation of expenses based on head counts and turnover is upheld to stress that there is no bar in law for common expenses to be allocated on a scientific/ rational basis to the eligible unit has held as under :- '10. The provisions of sub-section (4) of section 10A, relied upon by the Assessing Officer, apply for the purpose of segregating the profits of the business into export profits and domestic profits. It is a statutory formula for ascertaining what are profits derived from the export of the eligible items. It has to be read with sub-section (1). It says that the export profits have to be apportioned on the basis of the ratio which the export turnover bears to the total turnover of all the businesses of the eligible undertaking. We are not in the present case concerned with sub-section (4). That sub-section will apply when the combined profits - profits of the exempt unit and those of the non-exempt unit - have been ascertained; the next step will be to apportion them on the basis of the ratio which the export turnover bears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same method of accounting, particularly in the context of chit discount. Every assessee is entitled to arrange its affairs and follow the method of accounting, which the Department has earlier accepted. It is only in those cases where the Department records a finding that the method adopted by the assessee results in distortion of profits, the Department can insist on substitution of the existing method. Further, in the present cases, we find from the various statements produced before us, that the entire exercise, arising out of change of method from the completed contract method to deferred revenue expenditure, is revenue neutral. Therefore, we do not wish to interfere with the impugned judgment of the High Court. In the light of the observations of the Supreme Court in Hukam Chand Mills Ltd. (supra), in a case where alternative methods of apportionment of the expenses are recognized and there is no statutory or fixed formula, the endeavour can only be towards approximation without any great precision or exactness. If such is the endeavour, it can hardly be said that there is an attempt to distort the profits. On the contrary, as we have already pointed out, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose units. It is emphatically stated that there is no inter unit transfer of the goods or services. In view of the above, we do not have any option but to reject the objection of the revenue of invoking section 80 IA (8) of the Act on this issue. 87. It is one of the contention of revenue that selling and distribution activity is itself a separate profit center and therefore whatever services have been provided by the selling and distribution arm of the company to the eligible undertaking should have been charged and reduced from the profit of the industrial undertaking after valuing service of selling and distribution arm of the company at market rate. At present assessee has allocated it at cost. Therefore, ld. AO has invoked provisions of section 80 IA (8) of the act. It is not dispute that that products manufactured by these industrial units are sold by selling and distribution arm of the assessee and the cost incurred is allocated to these respective units on the basis of appropriate allocation key of 'sales'. Ld. AR of the appellant relying on the decision of coordinate bench of Cadila Healthcare Ltd. (supra) has submitted that there can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... function cannot be dragged to the manufacturing unit for the purpose of claiming deduction u/s.80IC. The Special Provision is confined to certain Undertakings, as defined in the Statute, and such eligible undertakings are entitled for the deduction of the profit of such undertakings only. He has again drawn our attention that the only source of income should be the eligible source of income and not other sources of income, such as, profits of marketing division or profits on account of established brand. For the allocation of profit of manufacturing unit the mandate is very clear because Income Tax Rule, 1962 contains Rule 18BBB wherein as per sub-rule(2) a separate report is to be furnished by each undertaking and that report shall be accompanied by a profit loss account and balance-sheet of that Undertaking as if the Undertaking is a distinct entity. He has therefore argued that the allocation of the profit of a manufacturing unit should be made on stand alone basis. He has questioned that how the sale price of the products of the Baddi Unit were determined and recorded. Because of the brand value the sale price must have been determined by the management as if the profit is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section(3) . 10.2 The 'business' is prescribed in sub-section (2) in the following manner : ( 2) This section applies to any undertaking or enterprise (a) which has begun or begins to manufacture or produce any Article or thing Therefore, 'manufacturing' is the first criteria for the eligibility of the 'business' to qualify for the deduction. Hence the 'profits' are required to be derived from a manufacturing undertaking which is producing the specified article. That 'profit' is inclusive in the 'gross total income'. As already noted, the terminology profit has not been defined in this Act therefore we have taken the help of other resources. The basic question is that what is the profit of a manufacturing unit? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parcel of the gross total income. As noted hereinabove, profit is the difference between the purchase price and the cost of production along with the cost of bringing the product to market. This basic principle of accountancy, as appeared, have been adopted by Baddi Unit because as per Profit Loss account, cost of material, personal cost and general expenses, corporate expenses were reduced from the sale price to arrive at the profit before tax i.e. ₹ 116,82,91,400/-. 10.3 It is not in dispute that for Baddi Unit the assessee has maintained separate books of accounts and therefore drawn a separate profit and loss account. In such a situation, whether the AO is empowered to disturb the computation of profit, is always a subject matter of controversy. From the side of the assessee, reliance was placed on Addl. CIT v. Delhi Press PatraPrakashan [2006] 10 SOT 74 (Delhi) (URO). In this case, the assessee was claiming deduction u/s.80IA in respect of a Unit No.4. The said Unit was showing profit @ 62%. As against that, AO has noticed that a margin of profit shown by the assessee as a whole was only to the extent of 10%. The AO has therefore recomputed the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit was directly due to operation in India. In that context the word attributable was considered and then it was held that such part of the income as it was reasonably attributable to the operations carried out in India is taxable. The expression business connection was also considered and then it was found that it will include a person acting on behalf of a non-resident and carried on certain activities is having business connection. A business connection has to be real and intimate and through which income must accrue or arise whether directly or indirectly to the non-resident. On those facts, since it was found that R D activities were carried out by the assessee, therefore, 15% of the profit was allocated to the R D activities and balance of the profit was attributable to the marketing activities in India. The said decision was entirely based upon the connectivity of the marketing operations with the profits. The CBDT Circular No.23 of 1969 dated 23/07/1969 was also taken into account wherein it was opined that where a non-resident's sales to Indian customers are secured through the services of an agent in India then that profit is attributable to the agent's ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the side of the Revenue, ld. Special Counsel has argued that in terms of the provisions of section 80IA(5) the deduction is to be computed as if such eligible business is the only source of income of the assessee. According to him, the manufacturing profit was the only source of income and that alone should be accounted for in the P L account to claim the deduction u/s.80IC of the Act. Ld. DR has explained that as per the view of the A.O. up-to 80% of the profit was the result of efficient marketing net work plus due to the brand name of the company. Only 6% was the manufacturing profit, per A.O. It is true that section 80IC does recognized the provisions of section 80IA. Refer, Sub-section (7) of section 80IC which prescribes as follows:- Section 80IC(7) : The provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80IA shall, so far as may be, apply to the eligible undertaking or enterprise under this section. Due to this reason, our attention was drawn on the provisions of section 80IA(5) of IT Act; reads as under:- Section 80IA(5) : Notwithstanding anything contained in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that too at arm's length price. From the side of the appellant an argument was raised that what should be the arm's length price in a situation when a product is ultimately to be sold in the open market. Whether the AO is suggesting that an imaginary line be drawn to determine the profit of the Baddi Unit at a particular stage of transfer of products. Definitely a difficulty will arise to arrive at the sale price as suggested by AO on transfer of product from Baddi to head office. What could be the reasonable profit which is to be charged by the Baddi Unit will then be a subject of dispute and shall be an issue of controversy. On the contrary, if the sale price is recorded at the market price, which is easily ascertainable, that was recorded in the Baddi Unit account, the scope of controversy gets minimal. Rather, the intense contention of the Ld.AR is that the facts of the case have explicitly demonstrated that the goods manufactured at Baddi Unit were transported to various C F agents across the country for sale purpose. Therefore, the eligible business is the manufacturing of pharmaceutical products and the only source of income was the profit earned on sale of the produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thus have precisely noted that 'eligible business' has a different connotation which is not at par or identical with the eligible profit . The matter we are dealing is not the case where business as a whole is transferred. This is a case where manufacturing products were sold through C F in the market. Even this is not the case that first sales were made by the Baddi Unit in favour of the head office or the marketing unit and thereupon the sales were executed by the head office to the open market. Once it was not so, then the fixation of market value of such good is out of the ambits of this section. If there is no inter-corporate transfer, then the AO has no right to determine the fair market value of such goods or to compute the arm's length price of such goods. The AO has suggested two things; first that there must be inter-corporate transfer, and second that the transfer should be as per the market price determined by the AO. Both these suggestions are not practicable. If these two suggestions are to be implemented, then a Pandora box shall be opened in respect of the determination of arm's length price vis a vis a fair market and then to arrive at reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not regarded as Revenue for the purpose of such financial reporting. As per the Accounting Standards an Enterprise Revenue ignores in house-sales that represent Revenue to one segment and Expense to another. In this connection, the AO has discussed the Hon'ble Supreme Court decision pronounced in the case of Liberty India (supra). The AO wanted to justify his attempt of segmentation on the basis of the theory that only the profits derived due to manufacturing activity can be said to be derived from eligible undertaking. It was contested by AR before us that the segment reporting is about the segregation of business and not about the segregation of any specific activity. In the case of Liberty India (supra) it was observed that the IT Act broadly provides two types of tax incentives, namely, investment linked incentives and profit linked incentives. The Court was discussing Chapter VIA which provides incentive in the form of tax deductions to the category of profit linked incentives . The incentive is linked with generation of 'operational profit'. Therefore, the respected Parliament has confined the grant of deductions only derived from eligible business. Each eligib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same way as it chargeable to income-tax under the Indian IT Act. The whole of his income arising in Raichur has legitimately been taxed under that Act. In that decision also, the word business was defined, i.e. business includes any trade, commerce or manufacture. It has also been said that all businesses, to which the said law applied, carried on by the same person shall be treated as one business for the purpose of the said Act. The question was about the manufacturing activity and it was contended that if a man is a manufacturer as well as a seller of goods, then in his case the term part of a business means carrying on all the two activities together and therefore constitute the part of the business. One of the Hon'ble Judges has said that the activities which the assessee carried on at Raichur was certainly a business of the assessee. On one hand, it was argued that the accrual of profit must necessarily be at the place where the sale proceeds are received or realized. But on the other hand, it was argued that the profits received relate (i) firstly to his business as a manufacture, (ii) secondly to his trading operations and (iii) thirdly to his business of export. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to section 5 of EPT Act. The said proviso was duly a reproduced in para-40 of the order and for ready reference typed below:- Provided further that this Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State, and where the profits of a part of a business accrue or arise in an Indian State, such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue or arise in an Indian State, and the other part of the business shall, for all the purposes of this Act, be deemed to be a separate business. The point for consideration was that whether on those facts the third proviso to section 5 could be invoked. The manufacturing activity of making ground-nut oil was carried out at Raichur (Hyderabad) which was treated as a separate business within the meaning of the said proviso and thereupon it was claimed as exempt being carried out within the territorial jurisdiction of Indian State. So the Court has observed that to succeed in their claim, it is incumbent upon the assessee to show that there was in fact a part of a busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profits that would be deemed under this section to accrue or arise in Bombay will only be the profits which may reasonably be attributed to that part of the operations carried on in Bombay, that is to say, to sale of part of its oil in Bombay. In this context, an observation was made that a trade is completed at a place where a business transaction is closed. Profits of a business are undoubtedly not received till the commodity are sold and they are ascertained only when the sale take place. This aspect has not been doubted or challenged even in the said order. But in the said order the question was that if a part of a business consisted of manufacturing activity and that activity can be segregated so as to compute the yield profit, then whether such profit accrue only at the place where the manufacture are sold. To answer this question, the Hon'ble Court has commented in para-49 that there was no express direction as to apportionment in the third proviso to section-5 of EPT Act. The opinion expressed was very specific that a profit can accrue in respect to that part of a business only when apportionment is possible. The Hon'ble Court has said that only on the said ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal course of business. It is true that otherwise no fallacy or mistake was detected in the books of accounts of Baddi Unit prepared on stand alone basis through which the only source of income/profit was the manufacturing of the specified products. We therefore hold that the AO's action of segregation was merely based upon a hypothesis, hence hereby rejected. These two grounds Nos.6 7 are allowed. We have carefully perused this decision and note that the controversy in this ground of appeal with respect to applicability of section 80 IA (8) of the act, on marketing and other selling distribution as well as research and development services provided by the undertaking as a whole to the eligible industrial undertaking at the cost or market rate for working out the eligible profit for deduction, has been decided. Ld. DR could not point out any other contrary judgment to the decision cited by the Ld. AR. Therefore, we respectfully following the above decision of coordinate bench hold that provisions of section 80IA(8) of the act does not apply to the assessee on transfer of services of marketing division of the company to the eligible industrial undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 80-IA(7) in the case of CIT v. Contimeters Electricals (P.) Ltd. [IT Appeal No. 1366 of 2008, decided on 2-12-2008] and held that as long as the audit report is filed before the framing of the assessment, the provisions of section 80-IA(7) would be complied with inasmuch as the same are directory and not mandatory. A similar view would have to be taken in the present case also inasmuch as the provisions are the same. Consequently, we do not find any fault with the conclusions arrived at by the Tribunal. No substantial question of law arises for our consideration. The appeal is dismissed. [Underline supplied by us] In this case, appellant has already filed the audit report and the profit and loss account of the units however; the profit and loss account was filed before ld. DRP but in any way available with ld. DRP and Ld. AO at the time of finalization of the assessment order. In the decision cited before us HonourableDelhi high court has held that even if the audit report is not filed then also the deduction cannot be denied if same is filed before finalization of assessment. Therefore case of the assessee stands on the better footing. No oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the case of Hukumchand Mills Ltd. (supra). In that case, in order to arrive at the correct written down value of the assets, the Tribunal permitted the department to raise a plea to find out whether the assessee was allowed any depreciation under an enactment which was in force earlier, i.e., before the Indian Income-tax Act was made applicable to the assessee. The Court held that the subject-matter of the appeal before the Tribunal was the question as to what should be the proper written down value of the assets for calculating the depreciation allowance under the Indian Income-tax Act. It was certainly open to the department, in the appeal filed by the assessee before the Tribunal, to support the finding of the AAC with regard to the written down value on any of the grounds decided against it. In the case before the Supreme Court, earlier enactment was to be referred to, whereas in the present case only a different provision of the same enactment has to be considered. Therefore, I see no reason as to why the plea of the ld. D.R. cannot be accepted. In the present case, of course, the department is the appellant unlike in the case of Hukumchand Mills Ltd. (supra). But, in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose, or proceed to investigate the facts themselves. In this part of the decision-making alone, there is scope for the play of the Tribunal's discretion. As to the very power to entertain a new plea, that is not to be ruled out, merely because a consideration thereof would call for further facts to be gone into. In Hukumchand Mills' decision [1967] 63 ITR 232, the Supreme Court laid down no fetter on the Tribunal's powers. That case, indeed, was a case where the new plea raised by the department before the Tribunal could not be considered without a further investigation into facts. Nevertheless, the Tribunal entertained the plea, and remitted the case to the ITO for the ascertainment of the relevant facts. The Supreme Court, in their decision upheld not only the Department's new plea, but also the Tribunal's order of remand based on the new plea. In the light of the above discussion, I agree with the view taken by the ld. J.M. to hold that the plea raised by the ld. D.R. is to be accepted and the matter is to be remanded to the Assessing Officer for considering the claim of the assessee for claiming deduction of unaccounted expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s we donot intend to agree with the request of revenue to set aside this issue to the file of ld. AO. 91. In view of above ground no. 12 of the appeal of the assessee with respect to claim of deduction u/s 80IC and 80IB of the Act amounting to ₹ 1,36,68,21,506/- is allowed. 58. In view of the above, we note that the issue as discussed above is covered by the order of Delhi Tribunal. Moreover, we also note that the ld. DRP has also relied on the order of its predecessor which has been reversed by the ITAT as discussed above. In view of the above discussion and following the order of the ITAT Delhi in which the deduction claimed by the assessee under section 80IB/80IC was completely allowed based on reasoning discussed above. Hence the ground of appeal of the assessee was allowed. 59. The issue raised by the assessee in the ground no. 11 is that the Ld. DRP erred in disallowing the mark to market loss of ₹ 3,331.61 crores suffered by the assessee for protection of currency fluctuation. 60. At the outset, the ld. AR before us submitted that he had been instructed by the assessee not to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- and ₹ 2,09,00,000/- against such sale of the plots bearing nos. E-3 and E3 respectively. 64.1. The assessee further to calculate the capital gain/loss on such capital assets has allocated ₹ 5,40,962/- as sale proceeds against the land. The remaining amount of ₹ 5,01,59,038/- has been allocated to the sale proceeds against the building. Accordingly, the assessee reduced the block of the building by the amount of ₹ 5,01,59,038/- only. 64.2. However, the AO was not satisfied with the modus of operandi of allocation of sale consideration as made by the assessee due to following reason. i- The land was acquired in FY 1990-91 1995-96 and accordingly the value such land naturally be increased. ii- On the Other hand, the value of the building is always subject to depreciation. 64.3. Accordingly, it would be very improper to allocate only 1.06%, i.e. ₹ 5,40,962/- of consideration against the land and remaining 99% i.e. ₹ 5,01,59,038/- to the building. In View of such observation, the AO required to justify such apportionment of sale consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, we are of the view that sale consideration for land at least should be equal to value as of 2008 as per MIDC Rate mentioned above. Hence for the calculation of LTCG on land assessee should take at least circle value as of 2008 as per MIDC Rate as sale consideration. The relevant extract of the report stands as under: Report No.ASC -2841 Date : 27th April, 2013 Appointment of sales value to Land Building * SCHEDULE -II * Plot No. E2: Particular Plot E2 Total Price as per agreement A 29,800,000 Rupees Two Crores Ninety Eight Lacs Only Land value as of 2008 as per MIDC Rate B 2,858,800 Rupees Twenty Eight Lacs Fifty Eight Thousand Eight Hundred only. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he had been instructed by the assessee not to press ground no. 14 as discussed above. Therefore we dismiss the same as not pressed. 73. The issue raised by the assessee in the ground no. 15 is that the Ld. DRP erred in not adjudicating the claim of weighted deduction u/s 35(2AB) of the Act on the cost of assets provided to employees working in approved R D facilities. 74. At the outset, we note that the similar grounds of appeal was raised before ITAT Delhi in the own case of assessee Vide ITA no 196/Del/2013. The Delhi Tribunal has set aside such ground of appeal to the AO by observing as under: We have carefully considered the rival contentions and we are of the view that the issue is squarely covered in favour of the appellant by decision of ITAT in assessee's own case. However, neither the AO nor the ld. DRP has applied its mind to the facts of this case and has not adjudicated on the issue. Facts of this expenditure with adequate details are also not record before us. Therefore we set aside this ground of appeal to the file of AO to verify the claim made by the assessee and if the facts and circumstances a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability is actually incurred or discharged that the deduction could be claimed. Such concurrent view should not have been held to be perverse and should not have been interfered by the Tribunal. 4. In relation to this question it is submitted by Mr. Pardiwalla, learned Senior Counsel appearing for the Assessee, that the Tribunal has not committed any serious and grave error of law as projected. The Tribunal has in accepting the stand of the Assessee concluded that the liability is for contribution to the DrugPrice Equalization Account. The Assessee may have disputed the liability insofar as this contribution, however, the liability is clearly ascertainable one. There was no stay against accrual of the liability under clause 7(2) of the Drug Price Control Order. This being a statutory liability it is allowable in the year in which it arises irrespective of whether the Assessee disputes it or accepts the same. 5. Mr.Pardiwalla submits that this is the consistent view and which also finds favour not only in the case of the Assessee, but in the case of M/s Glaxosmithkline Pharmaceuticals Limited. Mr.Pardiwalla places reliance on the order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78. The issue in the ground no. 17 is that the Ld.AO/DRP erred in not adjudicating the issue of adjustment of exchange fluctuation on external commercial borrowings, hedging contracts and hedging charges to cost of capital assets and allowing depreciation as part of the actual cost of depreciation. 79. This issue raised before us by the assessee has already been adjudicated by the Delhi ITAT in its case vide case no 196/Del/2013 by observing as under. We have carefully considered the rival contentions and we set aside this ground of appeal to the file of AO to verify the amount of expenditure incurred by the assessee on account of fluctuation of foreign exchange; and if they are on capital account related to acquisition of asset then to grant depreciation thereon in accordance with the provisions of law. In case if this expenditure is found to be of revenue, nature then allows the same u/s 37(1) of the Act. In the result ground No.15 of the appeal is allowed. 80. In view of the above order of Delhi ITAT in the own case of the assessee, we are of the view to follow the same. Hence the ground of app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions and section 115JB of the Act respectively declared by the assessee. 3.1. That the DRP erred on facts and in law in confirming the additions/ disallowances proposed in the draft assessment order passed by the AO, without judiciously considering the factual and legal objections filed against the said order. 3.2. That the DRP erred on facts and in law in not directing the AO to delete various additions/ disallowance, which were squarely covered in favour of the assessee by the order(s) of the appellate authorities for earlier years. 3.3. That the DRP erred on facts and in law in not independently considering/ directing the AO to consider certain claims made by way of notes forming integral part of the return on the ground that the said claims were not made in the return and no variation was proposed on the said claims in the draft assessment order. 4. That the DRP erred, both on facts and in law, in: 4.1 not accepting the overseas Associated Enterprises ('AEs') as the tested party, being the least complex of the transacting entities and instead considering the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration and nothing was payable as at the end of the relevant year, the provisions of section 40(a)(ia) of the Act were not applicable. 6.4 Without prejudice, that the AO/DRP further failed to appreciate that since the payments were not taxable in the hands of RCHS, there was no warrant to make any disallowance under the provisions of section 40(a)(ia) of the Act. 6.5 Without prejudice, that the AO/DRP erred on facts and in law in resiling from the position taken in earlier years and not even allowing deduction in respect of above contribution under section 80G of the Act as claimed by the assessee in its Income Tax return. 7. That the AO/DRP erred on facts and in law in disallowing ₹ 4,89,02,774/- under section 14A of the Act, by applying the formula prescribed in Rule 8D of the Income Tax Rules, 1962 ( the Rules ). 7.1 That the AO/DRP erred on facts and in law in proceeding to make disallowance under section 14A of the Act simply on the basis of method/ formula prescribed in Rule 8D of the Rules, without appreciating that: ( a) there is nothing on record to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B and 80-IC of the Act. 9.1 That the DRP erred in law in not independently adjudicating the issue of eligibility of the assessee to claim deduction under section 80-IB 80-IC of the Act in the assessment year under consideration and merely relying on the findings for assessment years 2008-09 2009-10. 9.2 That the DRP erred in law in not directing the AO to allow the deduction u/s 80-IB 80-IC of the Act though holding that issue of deduction is relevant only in the first year and none of the undertaking(s) were in the first year of operation/deduction. 9.3 That the DRP erred on facts and in law in holding the issue of disallowance of deduction under sections 80-IB 80-IC to be academic, without appreciating that disallowance of Mark To Market (MTM) loss in the AY 2009-10 and taxation of MTM gain in the year under appeal would rest !t in taxable income in AY 2010-11, i.e., the year under consideration. 9.4 That the AO/ DRP erred on facts and in law in denying deduction claimed by the assessee on the ground that separate balance sheet and profit and loss account were allegedly not maintained for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO, merely on the ground that the assessee had offered the said amount to tax in the return of income, without appreciating the disallowance of MTM loss made by the AO in AY 2009-10. 10.4 That the DRP erred on facts and in law in upholding the action of the AO, failing to appreciate that taxable income has to be computed/ assessed as per the provisions of the tax and not simply on the basis of position taken by the assessee while filing the return of income. 10.5 Without prejudice, even otherwise, addition in respect of MTM gain, if at all, should be restricted only to the net gain, after adjustment of losses. 11. That the AO/DRP erred on facts and in law in disallowing ₹ 86,39,727, being the amount of non-compete fee paid by the assessee in the assessment year under consideration, by treating the same as capital in nature. 12. That the AO/DRP erred on facts and in law in not adjudicating the claim of weighted deduction under section 35(2AB) of the Act, on the cost of assets provided to the employees working in approved Research Development (R D) facilities and engaged in execution of R D act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reducing the amount of provision for MTM losses amounting to ₹ 19,67\9,12,65,001/- reversed during the year and credited to the profit and loss account to the extent they have been added back in AY 2009-10 (being ₹ 14,31,63,20,000/-) while computing the book profits in terms of clause (i) to Explanation 1 to section 11JB(2) of the Act. The Appellant craves leave to alter, amend or withdraw all or any grounds or add any further grounds as may be considered necessary either before or during the hearing. 83. The issue raised by the assessee in the ground no 1 to 3, and 15 to 18 are in general and consequential in nature. Therefore, we dismiss the same. 84. The issue raised by the assessee in ground no 4 is that the LD. AO/DRP erred in treating the assessee as a tested party instead of AEs as the tested party. 85. An identical issue has been considered and decided by us in Assessee's appeal vide ITA No. 1782/DEL/2014 in the ground no. 2 to 4 vide Para no 10 of this order by allowing the same for statistical purposes. Please refer the relevant Para for our detailed discussion therein, we direct ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is allowed. 94. The issue raised by the assessee in ground No. 9 is that the Ld. DRP erred by confirming the order of the AO by holding that the assessee is not eligible for deduction under section 80IB/ 80IC of the Act. 95. An identical issue has been considered and decided by us in Assessee's appeal vide ITA No. 1782/DEL/2014 in ground no. 10 vide Para no. 57 58 of this order in favor of the assessee. Please refer the relevant Para for our detailed discussion therein, we direct accordingly. Hence Ground no. 9 of the assessee is allowed. 96. The issue raised by the assessee in the ground no. 10 and the additional ground is that the Ld.DRP erred in confirming the action of the AO by treating the MTM gain of ₹ 1983,86,34,040/- as taxable income under the normal provision of tax, and ₹ 1969,12,65,001/- u/s 115JB of the Act. 97. At the outset, we note that the provision was created by the assessee for ₹ 3331.61 crores on account of MTM loss in the immediately preceding assessment year 2009-10 which was not allowed as a deduction in the assessment framed under section 143(3) r.w.s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MTM gain during the year on similar transactions is subject to taxation while computing taxable income under normal provisions as well as under section 115JB. Since in last assessment order entire MTM loss was disallowed, treating the same as contingent liability, carried forward business loss and unabsorbed depreciation was reduced and available b/f loss for set off u/s.72 was restricted during AY 10-11 at ₹ 9,20,46,46,935/-. Base on the above remarks the taxable income of the assessee is computed under the normal provisions as well as for calculating the books profits u.s.155JB for AY 10-11 where by the MTM gain which is taxable during the year as well as the MTM loss of the earlier year is treated as contingent liabilkty. 99. From the above, we note that the amount written back by the assessee has already suffered the tax in the immediate preceding AY 2009-10. Accordingly, we hold that the amount written back by the assessee cannot be subject to tax either under normal computation of income or under section 115JB of the Act in the year under consideration. However, we find that the provision for ₹ 1431.63 crores was suffered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- u/s 37(1) of the Act. 104. An identical issue has been considered and decided by us in Assessee's appeal vide ITA No. 1782/DEL/2014 in the ground no. 17 vide Para no 79 80 of this order which has been set aside to the AO for fresh adjudication as per the law. Please refer the relevant Para for our detailed discussion therein, we direct accordingly. Hence Ground no. 13 of the assessee s appeal is allowed for statistical purposes. 105. The issue raised by the assessee in ground no 14 is that the Ld. DRP erred in not adjudicating the claim of the assessee on account of hedging charges towards the cost of fixed assets amounting to ₹ 8,84,70,548/-. 106. An identical issue has been considered and decided by us in Assessee's appeal vide ITA No. 1782/DEL/2014 in the ground no. 17 vide Para no 79 80 of this order which has been set aside to the AO for fresh adjudication as per the law. Please refer the relevant Para for our detailed discussion therein, we direct accordingly. Hence Ground no. Fourteen of the assessee s appeal is allowed for statistical purposes. 107. In the result, the appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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