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ACIT Circle-12(1) New Delhi Vs. Hero Honda Motors Ltd. 34, Community Center, Basant Lok, Vasant Vihar, New Delhi
May, 19th 2014
                   INCOME TAX APPELLATE TRIBUNAL
                      DELHI BENCH "C": NEW DELHI
              BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER
                                  AND
                  SHRI A. T. VARKEY, JUDICIAL MEMBER

                                ITA No. 2048/Del/2011
                              (Assessment Year: 2003-04)

               ACIT                   Hero Honda Motors Ltd.
               Circle-12(1)           34, Community Center,
               New Delhi        Vs.   Basant Lok, Vasant Vihar,
                                      New Delhi
                                      PAN: AAACH0812J
               (Appellant)            (Respondent)


                                ITA No. 2045/Del/2011
                              (Assessment Year: 2003-04)

               Hero Honda Motors Ltd.      Vs.   ACIT
               34, Community Center,             Circle-12(1)
               Basant Lok, Vasant Vihar,         New Delhi
               New Delhi
               PAN: AAACH0812J
               (Appellant)                       (Respondent)



                          Appellant by : Ajay Vohra, Adv
                         Respondent by : R. S. Gill, Sr. DR



                                      ORDER

PER A. T. VARKEY, JUDICIAL MEMBER

       Both these appeals have been preferred against the order of the ld
CIT(A)-XX, New Delhi dated 31.01.2011 for the Assessment Year 2003-04.

2.     The grounds of appeal raised by revenue in ITA No. 2048/Del/2011are as
follows:-

       "1.   On the facts and circumstances of the case and in law the ld
             CIT(A) has erred in deleting the addition of Rs. 17,22,60,688/- made
             by the Assessing Officer on account of royalty expenses.
       2.    On the facts and circumstances of the case and in law, the ld
             CIT(A) has erred in deleting the addition of Rs. 2,65,37,236/- made
             by the Assessing Officer on account of model fee for obtaining use
             of technical know how.
       3.    On the facts and circumstances of the case and in law, the ld
                                    Page No. 2

            CIT(A) has erred in deleting the addition of Rs. 73,98,784/- made by
            the Assessing Officer on account of Expenditure on software
            claimed u/s 37(1).
      4.    On the facts and circumstances of the case and in law, the ld
            CIT(A) has erred in deleting addition of Rs. 80,40,300/- made by the
            Assessing Officer on account of Transfer Pricing Adjustment
            (difference in arms length price in international transactions of
            purchase of spare parts)
      5.    The appellant craves to leave, to add, alter or amend any ground
            of appeal raised above at the time of the hearing."

3.    The   grounds   of   appeal    preferred   by   the   assessee   ITA   No.
2045/Del/2011are as follows:-
      "1.   That the CIT(Appeals) erred on facts and in law in upholding the
            action of the Assessing Officer in deleting the benefit of deduction
            under section 80HHC of the Act on the custom duty benefit under
            DEPB Scheme, amounting to Rs. 16,31,41,138/-.
      1.1   That the CIT(Appeals) erred in facts and in law in reducing the
            entire amount of DEPB benefit from the profits of the business,
            without appreciating that only profit on transfer of DEPB licenses
            ought to be excluded in terms of proviso to sub-section (3) of
            section 80HHC read with section 28(iiid) of the Act.
      1.2   That the CIT(Appeals) erred on facts and in law in treating interest
            income of Rs. 2,40,81,432/- as "income from other sources" and
            consequentially excluding the same from "profits of the business"
            for the purposes of computing deduction under section 80HHC of
            the Act.
      1.3   Without prejudice, that the CIT(Appeals) erred on facts and in law
            in not allowing netting of interest expenditure amounting to Rs.
            1,73,23,592/-, incurred during the year, against interest income of
            Rs. 2,40,81,432/- earned during the year, while computing
            deduction under section 80HHC of the Act.
      1.4   Without prejudice, that the CIT(Appeals) erred on facts and in law
            in not directing for computation of deduction under section 80HHC
            by taking amount of profits of business finally assessed in the
            assessment order.
      2.    That the CIT(Appeals) erred on facts and in law in upholding the
            action of the Assessing Officer in disallowing deduction under
            section 80IA of the Act, amounting to Rs. 2,28,86,196/-, claimed by
            the appellant in respect of the captive power generating unit at
            Gurgaon.
      2.1   That the CIT(Appeals) erred on facts and in law in upholding the
            action of the Assessing Officer in computing profits of the power
            generating unit by adopting the rate of supply of power at Rs. 4.05
            per unit, at which power was supplied by State Electricity Board, as
            the ,,market price of the power, as against rate of Rs. 5.92 per unit
            (cost of generation of power at Rs. 5.15 per unit + mark-up of 15%
            adopted by the appellant for the purposes of computing
                                     Page No. 3

            deduction under section 80IA of the Act for captive power
            generating unit.
      3.    That the CIT(Appeals) erred on facts and in law in upholding the
            levy of interest under section 234D of the Act."
4.    First of all we will decide the Revenues Appeal. Ground No. 1. Apropos,
deletion of addition of Rs. 17,22,60,688/- made by the Assessing Officer on
account of Royalty Expenses by CIT(A).
5.    Brief Facts of the case is that the assessee is engaged in the business of
manufacture and sale of motorcycles. The assessee pursuant to Technical
Collaboration Agreement (TCA), has been paying royalty to its joint Venture
Partner M/s. Honda Motor Company, Japan (Honda). During the relevant
previous years, the assessee has paid royalty of Rs. 68,90,42,672/- on different
models at ex-factory sale price of the product in pursuance of Article 25.1(2) of
the Technical Assistance Agreement (Agreement) dated 2nd June, 1995, read
with Third Supplementary Amendment to the said agreement entered into with
Honda.
6.    In the assessment order, the Assessing Officer while relying upon the
decision of the Apex Court in the case of southern Switchgear Ltd. Vs. CIT: 232
ITR 359 held that 25% of royalty constituted capital expenditure.
7.    On appeal, the ld CIT(A) deleted the disallowance treating the
expenditure incurred on account of royalty as revenue expenditure while
following its earlier order passed in the assessment year 2002-03.
8.    Aggrieved by the said order of the ld CIT(A) the revenue is before us. Ld
DR contended that a perusal of the ,,License and Technical Agreement
comprising of 41clauses, it is very clear that the Intellectual Property Rights
developed by Honda has been transferred to the assessee. The agreement
states that Honda has acquired and possesses certain Intellectual Property
Rights, manufacturing information and know-how, quality standards and
marketing methods relating to such 2/3 wheelers. Thus, as asset of enduring
benefit which was the exclusive property of Honda has been transferred for use
by the assessee company.
9.    The ld DR contended that the patent over the new developed project
has also been transferred to licensee and the licensor has transferred its
intellectual property rights to licensee, the assessee company. The licensor has
developed model nos. CD-100 STD, CD100OX, CD-100 Splendor, C-100 to cite
                                     Page No. 4

some examples after sustained research and development at their end. The
model developed by licensor has been admittedly patented.
10.   The ld DR contended that over and above, the transfer of the right of
Intellectual Property Right and patent, the licensor has also agreed to set up
manufacturing facilities for the licensee, the assessee company and other rights
exclusively handed over to the licensor inter alia are:-
      (a)    know-how and technical information and any other non-public
             technical or business information being the sole and exclusive
             property of licensor to be held in trust and confidence by licensee.
      (b)    use of trademark
      (c)    the know-how is not limited to drawings, specifications, process
             manuals etc.
11.   According to the ld DR the technical assessment agreement is
renewable, the initial term being for ten year, since extended to another ten
years, as on date. Therefore, according to the ld DR it is crystal clear that a
capital asset in terms of intellectual property rights and patented have been
transferred for whole by the licensor to the assessee company. The licensor has
parted with its assets in pursuance to the Agreement. For acquiring this capital
for which payment made, would also have to fall within the four walls of capital
expenditure. Therefore according to the ld DR the Assessing Officer was right in
holding that royalty formed an integral element of capital expenditure.
Therefore the Assessing Officer was right in holding that Rs. 17,22,60,688/-
capital in nature, therefore the said order may be restored. On the other hand,
the ld counsel for the assessee Shri Ajay Vohra pointed out that in the assessees
own case for the Assessment Year 2000-01 to 2002-03 and for Assessment Year
2006-07 and 2007-08 the Tribunal allowed royalty and technical guidance fee
both to Honda under section 37(1) of the Act as revenue expenditure and does
not want us to disturb the order of the ld CIT(A).
12.   We find that the co-ordinate Bench of ITAT held in the case of Hero
Motocorp Limited Vs. ACIT in ITA NO. 5130/Del/2010 for the Assessment Year
2006-07 as under:-
      26. In the light of these facts, let us examine the various decisions
      discussed above so as to arrive at the finding which of the decisions is
      applicable in the case of the assessee.
      27. In our opinion, the facts of the assessee's case are identical to the
      facts in the case of Climate Systems India Ltd. (supra). In the case of
                                Page No. 5

Climate Systems India Ltd. (supra), the assessee company made the lump
sum payment and also the running royalty. The running royalty was
calculated as a percentage of sales. The lump sum payment was treated
as capital expenditure by the assessee company and the running royalty
was treated as revenue expenditure. The Assessing Officer disallowed the
running royalty holding it to be capital expenditure which was confirmed
by the learned CIT(A) as well as the ITAT. The Hon'ble Jurisdictional High
Court allowed the appeal. The facts of the assessee's case are identical
because the assessee also in the year 1984 entered into an agreement by
which the assessee was provided with technical assistance for setting up
of the plant and also for manufacture, assembly and service of the
motorcycles. The assessee made lump sum payment of $5,00,000 for the
technical assistance for construction of plant and paid a running royalty
as a percentage of sales in respect of technical assistance for
manufacture, assembly and service of the motorcycles. The running
royalty which was paid annually was claimed as revenue expenditure
and was disallowed by the Assessing Officer treating the same as capital
expenditure. Thus, the facts of the assessee's case are identical to the 34
ITA-5130/Del/2010 facts before the Hon'ble Jurisdictional High Court in the
case of Climate Systems India Ltd. (supra).
28. Similar were the facts before the Hon'ble Jurisdictional High Court in
the case of Sharda Motor Industrial Ltd. (supra). In that case also, SMIL
made a lump sum payment and also running royalty at a specified
percentage based upon the production. The lump sum payment was
treated as capital expenditure and running royalty was claimed as
revenue expenditure. The Assessing Officer treated the royalty as capital
expenditure and the Hon'ble Jurisdictional High Court affirmed the views
of the Tribunal that the payment of running royalty was revenue
expenditure. In this case, the Hon'ble Jurisdictional High Court has
considered the decision of Hon'ble Apex Court in the case of Southern
Switchgears Ltd. (supra) relied upon by the Revenue.
29. In the case of Lumax Industries Ltd. (supra), the assessee was paying
license fee on year to year basis for acquisition of technical knowledge.
The LIL claimed the said payment as revenue expenditure which was
disallowed by the Assessing Officer holding that by virtue of the
agreement, the LIL had derived an asset of enduring nature. On appeal,
the CIT(A) allowed the assessee's claim and the Tribunal upheld the order
of the CIT(A). On further appeal, the Hon'ble Jurisdictional High court
upheld the order of the ITAT and has also observed that even if the
assessee had obtained the long term advantage of enduring benefit, that
by itself would not convert any expenditure incurred by the assessee into
capital expenditure. This decision of Hon'ble Jurisdictional High Court is
after considering the decision of Hon'ble Apex Court in the case of Jonas
Woodhead and Sons (India) Ltd. (supra) relied upon by the Revenue. The
decisions of Hon'ble Apex Court in the case of Southern Switch Gear Ltd.
(supra) and Jonas Woodhead And Sons (India) Ltd. (supra) have slightly
35 ITA-5130/Del/2010 different facts because in both the cases, there was
a collaboration agreement by which technical assistance was provided
for setting up of the factory and also manufacture and sale of product.
The payment of royalty was lump sum payment and, therefore, the
Hon'ble Apex Court upheld the view of the Revenue that 25% of the
payment is capital in nature. In the case of the assessee also, the
collaboration agreement was for grant of technical assistance for setting
up of the factory and also for the manufacture and sale of the product.
But the assessee made separate payment for the technical assistance for
                                       Page No. 6

      setting up of the factory which was $5,00,000. This sum was treated as
      capital expenditure by the assessee itself. The annual payment for the
      royalty was based upon the percentage of sale of the motorcycles. Thus,
      the facts in the case of the assessee are distinguishable than the facts
      before the Hon'ble Apex Court. On the other hand, the facts of the
      assessee's case are identical to the facts before the Hon'ble Jurisdictional
      High Court in the case of Climate Systems India Ltd. (supra) and Sharda
      Motor Industrial Ltd. (supra) and also the decision of ITAT in assessee's own
      case cited supra. We, therefore, respectfully following the above
      decisions of Hon'ble Jurisdictional High Court, hold that the annual
      payment of royalty was a revenue expenditure. Accordingly, ground No.6
      of the assessee's appeal is allowed."

13.   Similar facts were before the Assessing Officer for the relevant Assessment
Year 2003-04; the issue regarding royalty technical guidance fee was dealt by
ITAT in assessees favor in Assessment Year 2001-02, 2002-03 and 2007-08, and
since there is no change of facts or law in the present case before us and as
afore-stated similar issue was allowed in favour of the assessee in respect to the
royalty, we respectfully follow the orders of the co-ordinate Bench, and we
confirm the order of the ld CIT(A) and dismiss the appeal of the revenue on this
ground.
14.   Apropos deletion of addition of Rs. 2,65,37,236/- made by the Assessing
Officer on account of model fee for obtaining use of technical know-how.
15.   Brief facts of the case is that assessee during the relevant previous year
had paid total amount of Rs. 10,61,48,944/- towards know-how fee for new
models to M/s Honda Motor Co. Ltd. Japan (Honda) under the third
supplementary agreement dated 25.09.2001 to the Technical collaboration
agreement dated 02.06.1995. Since, said fee was paid for use of know-how of
new model and not for acquisition thereof, the same was claimed allowable
deduction u/s 37(1) of the Act. The Assessing Officer disallowed 25% of the total
model fees alleging that the said expenditure provided long term benefit to the
assessee and in essence is a capital expenditure. On appeal, the ld CIT(A)
while observing that characterization of payment of royalty under the same
technical collaboration agreement cannot be different from payment of
model fee, held that expenditure on model fee was allowable revenue
expenditure. Aggrieved by the said order of the ld CIT(A), the Revenue is
before us. At the outset itself the ld counsel for the assessee pointed out that
the issue before us, stands squarely covered in favour of the assessee by the
order of the Tribunal in the assessees own case for Assessment Year 1996 -97,
                                      Page No. 7

wherein the Tribunal was pleased to allow model fee paid to Honda u/s 37(1) of
the Act as revenue expenditure on the ground that payment was only for right
to use the technical know-how and there was no ownership of any intellectual
property, which continued to remain with Honda. The said decision is reported
as Hero Honda Motors Ltd. Vs. JCIT: 95 TTJ (Del) 782. The ld counsel brought to
our notice that the Honble Delhi High Court has not entertained the appeal
filed by the department on the said issue. The decision of the High Court was
accepted by the Department and has become final, as no SLP has been filed
there against. It was further submitted that the Tribunal in the assessment years
1997-98 and 1999-2000 allowed similar expenditure on payment of model fee,
following the decision of the Tribunal for assessment year 1996-97. The Tribunal in
Assessment Year 2001-02, allowed royalty and technical guidance fee paid to
Honda u/s 37(1) of the Act as revenue expenditure on the ground that
payment was only for right to use the technical know-how and did not result in
transfer of ownership in any intellectual property, which continued to remain
with Honda. Similar view has been held by the Tribunal in the Assessment Year
2006-07, 2007-08 and 2002-03.
16.   In assessees own case for Assessment Year 2001-02 in ITA No.
716/Del/2008,     ITA   No.   1312/Del/2008,       ITA   No.   718/Del/2008,   ITA   No.
1648/Del/2007 and ITA No. 1623 & 1624/Del/2008 the co-ordinate Bench has
held as under:-
      "Here we may also add that assessees plea about consistency on the
      basis of Honble Supreme Court judgment in the case of Radhasoami
      Satsang (supra) is also relevant in as much as the Department has
      allowed the assessee expenditure in this behalf as revenue expenditure
      for a long period of 15 years. Honble Supreme Court judgment in the
      case of SS and Jonas were pronounced in 1997 and with these
      judgments being on the case law books Department still allowed the
      assessees expenditure in respect of TGF as revenue expenditure. In our
      view, the assessees expenditure towards TGF/model fee is fully eligible to
      be treated as revenue expenditure and even if it is assumed that there is
      any shred of doubt, the rule of consistency does help assessees case
      and it will not be desirable that assessee be subjected to a new regime
      of opinion without analysis of peculiar facts. The model fee expenditure
      has already been settled by ITAT and Honble Delhi High court as
      revenue expenditure in assessees own case. In view of all these facts,
      assessee succeeds on merits on the issue about Model Fee and TGF
      expenditure being fully allowable revenue expenditure."
                                     Page No. 8

17.   Respectfully following the aforesaid decision in assessees own case, we
confirm the order of the ld CIT(A) and dismisses the appeal of the Revenue on
this ground.
18.   Apropos addition of Rs. 73,98,784/- made by Assessing Officer on
account of expenditure on software claimed u/s 37(1) of the Act.
19.   The assessee, during the year incurred expenditure amounting to Rs.
73,98,784/- towards user charges/ license fee for use of the software. The
expenditure related to purchase of application software e.g., lotus notes, Catia
ADD + ASS, Tivoli TSM client etc. for Research and Development department
and some other department. The assessee claimed the same as revenue
expenditure allowable u/s 37(1) of the Act on the ground that license to use the
software does not result in creation of an asset or providing enduring benefit to
the company. According to the assessee the application software enables the
assessee to carry out its business operation efficiently and smoothly. The
Assessing Officer, however, held the said expenditure as capital in nature
alleging that the assessee has acquired the asset for long term use. On appeal
the ld CIT(A) following the earlier Assessment Year deleted the aforesaid
addition by holding that the expenditure was incurred for facilitating day to
day operations and conduct of business and satisfy the test laid down by the
Special Bench of the Tribunal in the case of Amway Indian Enterprises Vs. DCIT:
111 ITD 112. Aggrieved by the said order of the ld CIT(A) the Revenue is before
us. According to the ld DR the said expenditure was incurred by the assessee to
gain enduring benefit in the capital field. According to the ld DR, software is an
asset acquired for use in business and assessees claim that it in volves rapid
obsolescence by itself does not undermine the real character of the asset. Thus
according to the ld DR, the ld CIT(A) erred in deleting the said addition and so
he pleads that the order of the ld CIT(A) may be reversed and the order of the
Assessing Officer restored. On the other hand the ld counsel Shri Ajay Vohra
contended that the said expenditure does not constitute profit earning
apparatus and merely enable the assessee to efficiently conduct is business.
Further, according to the ld counsel, it need to be appreciated that none of
the software was in relation to the production function of the assessee, to be
considered as resulting in an enduring benefit in the capital field or accretion to
the profit earning apparatus. The ld counsel submitted that the aforesaid
                                      Page No. 9

software merely facilitated the accounting/ research and development
functions, etc. carried on by the assessee to streamline the existing business
operations and carry them efficiently and profitably. The ld counsel AR, Ajay
Vohra contended that no enduring benefit or any ownership rights had
accrued to the assessee. The ownership title for the software remained with the
vendor and the assessee had only license to use the software with a
termination   clause.   The   assessee    has      only   license   to   use    software,
documentation and information etc. The assessee is not permitted to sub-
license or rent the software and otherwise transfer any of its rights or obligations
under this agreement. According to the ld counsel, it may be appreciated that
since the assessee only had the license to use the aforesaid software and the
proprietary, intellectual rights therein continued to vest with the vendor(s), the
licensor of the software. It will be appreciated that there was no outright sale of
the aforesaid software to the assessee and the aforesaid expenditure did not
result in acquisition/ creation for an asset in the capital feild as the assessee did
not acquire any ownership rights in the aforesaid software.          The   ld    counsel
stressed that the assessees rights were confined to the use of software alone
and the assessee was prohibited from making copies of the aforesaid software
for commercial exploitation. The ld counsel submitted that in the event of
termination of the agreement, the assessee was prohibited from using the
software and was to return the same to the licensor or destroy all copies of such
software and delete/ remove the same from all its computer hardware and
storage media. Ld counsel wanted us to distinguish between outright sale and
license to use. And in the case of outright sale of software, there are absolutely
no restrictions on the purchase of software as to its user and disposal.
According to the ld counsel, the purchaser of the software can exploit the
same in whatever manner it likes, including the right to make copies of the
software for commercial exploitation, modifying/ altering the same without the
consent of the seller, sub-license, sell, transfer the software, etc., for an
indefinite period. However here the assessee cannot venture to do so and it is
limited to only use of the software during the subsistence of the agreement
between the licensor.
20.   The aforesaid expenditure, according to the ld counsel is allowable
revenue deduction, as the same is meant for better conduct and improvement
                                    Page No. 10

of the existing business and does not result in any enduring benefit in the capital
field or creation of a capital asset. The expenditure merely resulted in
facilitating the assessees trading operations or enabling him to manage and
conduct his business more efficiently or more profitably, while leaving the fixed
capital untouched. The ld counsel relied on the following decisions:
            Empire Jute Co. Ltd. Vs. CIT: 124 ITR 1 (SC)
            CIT Vs. Associates Cement Companies Ltd.: 172 ITR 257 (SC)
            Alembic Chemical Works Co. Ltd. Vs. CIT: 177 ITR 377 (SC)
21.   According to the ld counsel, in view of the aforesaid facts and
circumstances of the case and in the light of various tests as laid down by
Special Bench in Amway India Enterprises (Supra) , the expenditure incurred by
the assessee in relation to the application of software for carrying routine day to
day operations of the business is allowable revenue expenditure. The ld counsel
pointed out that the co-ordinate Bench of this Tribunal vide its order dated
31.07.2013, in assessees own case for the Assessment Year 2002-03 has decided
the aforesaid issue in favour of the assessee while observing that assessee had
only obtained license to use the software while the intellectual rights contained
in the software continued to vest with the licensor of the software; thereby
holding that the expenses incurred towards license fee for usage of software
were allowable u/s 37(1) of the Act. Therefore the ld counsel does not want us
to disturb the order of the ld CIT(A). We have heard both the parties and gone
through the records and perused the case laws cited by both sides. We find
that for the Assessment Year 2002-03, the same issue was decided in ITA No.
1052/Del/2011 & ITA No. 902/Del/2011 dated 31.07.2013
            "33. We have duly considered the rival contentions and gone
            through the record carefully. From perusal of the details, exhibiting
            the nature of software available on page 18 of the ld CIT(A)s order
            as well as page 77 of the paper book-I, it reveals that these are
            application software, which were used in day to day operation
            and conduct of assessees business. Basically, they do not provide
            any enduring benefit to the assessee. The assessee only had the
            license to use the software and the proprietary, intellectual rights
            contained in the software continued to vest with the vendor I.e.
            licensor of the software. Therefore, in our opinion, ld First Appellate
            Authority has rightly appreciated the facts and circumstances and
            no interference is called for in her finding. This ground of appeal is
            rejected."
                                    Page No. 11

22.   Since there is no change in the facts and laws, we respectfully following
the decision rendered in assessees own case in this respect and we confirm
the order of the ld CIT(A) and dismiss the appeal of the Revenue on this ground.
23.   Apropos deletion of addition of Rs. 80,40,300/- made by the Assessing
Officer on account of Transfer Pricing adjustment (difference in arms length
price in international transactions of purchase of spare parts)
24.   The assessee in the TP documentation applied TNMM to determine the
arms length prices of international transaction of import of components, spare
parts, etc. It was also stated in the TP documentation that in absence of
comparable uncontrolled price such transactions cannot be applied to bench
marking the CUP method. The TPO, however, in his order applied CUP method
by comparing the international transaction of import of components with prices
of purchase of similar components after they are indigenizing from the
domestic vendor. According to the assessee the CUP method evaluates
whether the amount charged in a controlled transaction is at arms length with
reference to the amount charged in a comparable uncontrolled transaction to
provide a direct estimate of the price of parties would have agreed to, had
they resorted directly to an open market alternative to the controlled
transaction. And it was the contention of the assessee that minor differences in
contractual terms or economic conditions could materially affect the amount
charged in an uncontrolled transaction. And the method becomes less reliable
substitute for arms length dealings if not all significant characteristics of the
uncontrolled transactions are comparable. And the prices of international
transactions of import of components and spare parts would not be compared
with the prices of such components sourced from local manufacturers in the
domestic market after their indigenization. Therefore the consistent stand of the
assessee was that in the absence of comparable uncontrolled transactions has
rightly applied Transactional Net Margin Method (TNMM) as the most
appropriate method for determining the arms length price of such
international transactions and the TPO in the Transfer Pricing assessment for
Assessment Year 2007-08 has accepted the aforesaid contention of the
assessee and did not make any adjustment on account of import of
components.
                                    Page No. 12

25.   The ld counsel pointed out that Tribunal while disposing the appeal of the
assessee for Assessment Year 2006-07 (ITA No. 5130/Del/2010) and 2002-03
(902/De/2011) remanded the matter back to the TPO with the direction to
verify if raw material was available to the assessee from domestic sources.
            "99. We have carefully considered the arguments of both the
            sides and perused the material placed before us. After considering
            the facts of the case and the arguments of both sides, we agree
            with the Revenue that for determining the ALP of purchase of the
            spare parts/ components, CUP method would be most appropriate
            method. Therefore, we uphold the selection of CUP method by the
            TPO. However, while applying the CUP method, it is to be
            ascertained whether similar goods were available indigenously. If
            the goods were not available indigenously, then naturally the rate
            of indigenous goods cannot be applied for determining the ALP. It
            is the contention of the assessee that when the goods were not
            available indigenously then only the same were purchased from
            AE. However, no evidence in this regard is produced by the
            assessee. At the same time, we find that no specific opportunity
            was allowed to produce such evidence. In view of above, in our
            opinion, it would meet the ends of justice if the orders of authorities
            below on this point are set aside and the matter is restored too the
            file of the Assessing Officer. We order accordingly and direct the
            Assessing Officer to allow adequate opportunity to the assessee to
            produce evidence in support of its contention that the spare parts
            were purchased from the AE only when the same were not
            available indigenously. The Assessing Officer will re-adjudicate the
            issue in accordance with law after considering the submissions of
            the assessee and also after taking into account the order of the
            TPO for subsequent year, if the facts are similar."

      41.    We find that in this year, assessee has made purchase of spare
      parts from its AE at Rs. 20,43,68,023/-. The assessee has adopted TNMM
      method as the most appropriate method in its transfer pricing
      documentation. The transaction was referred to the learned TPO by the
      Assessing Officer who did not accept the TMNN method adopted by the
      assessee. He determined the arms length price of the international
      transaction of import of components by applying CUP method and
      recommend the adjustment at Rs. 10,27,90,237/-. Leaned CIT(Appeals)
      on an analysis of the details has observed that learned TPO ought to
      have not rejected the TNMM method. According to her, application of
      CUP method is not appropriate. Therefore, she deleted the adjustment
      recommended by the learned TPO in the value of international
      transaction entered with the associate enterprises by the assessee.

      42.    We find that the similar issue has been considered by the ITAT in the
      findings extracted supra and since there is no change in facts or law, we
      respectfully follow the order of the co-ordinate Bench and we set aside
      the order of the ld CIT(A) and restore these issues to the file of the
                                        Page No. 13

      Assessing Officer for re-adjudication. The Assessing Officer shall follow the
      directions given in Assessment Year 2006-07, extracted supra."

26.   We find that the similar issue has been considered by the ITAT in the
findings extracted supra and since there is no change in facts or law, we
respectfully follow the order of the co-ordinate Bench and we set aside the
order of the ld CIT(A) and restore these issues to the file of the Assessing Officer
for re-adjudication. The Assessing Officer shall follow the directions given in
Assessment Year 2006-07, extracted supra.
27.   In the result, the appeal of the Revenue is partly allowed for statistical
purpose.


28.   Coming       to    the   appeal   preferred     by   the   assessee   in   ITA   No.
2045/Del/2011, the ground No. 1 and 1.1 of assessee is denial of benefit of
deduction u/s 80HHC of the Income-tax Act, 1961, 1961(herein after ,,the Act)
on the custom duty benefit under DEPB Scheme, amounting to Rs.
16,31,41,138/- and other claims of the assessee while computing deduction
under section 80HHC.

29.   Brief facts of the case is as follows. The assessee is engaged in the
business of manufacture and sale of motorcycles.

30.   The assessee in the return of income claimed deduction u/s 80HHC of the
Act of Rs. 4,08,99,897/-. The deduction claimed was duly supported by
Chartered Accountants Report in Form 10CAC.

31.   The assessee in the return of income claimed deduction u/s 80HHC of the
Act of Rs. 7,08,99,897/-. The deduction claimed was duly supported by
Chartered Accountants Report in Form 10CCAC. The Assessing Officer,
however, while completing assessment allowed deduction u/s 80HHC of the
Act at Rs. 5,80,86,196/- by inter-alia:

             (a)        not regarding custom duty benefit under DEPB scheme
                        amounting to Rs. 16,31,41,138/- as benefit under section
                        28(iiib) of the Act instead holding it to be covered under
                        clause 28(iv) of the Act and, therefore, excluding 90% of
                        amount received under DEPB scheme from profits of business
                                    Page No. 14

                  by treating the same as ,,other receipts in terms of clause
                  (baa) of Explanation to section 80HHC of the Act.

            (b)   not reducing excise duty and sale tax from total turnover
                  without appreciating the excise duty and sales tax being not
                  leviable on exports, the same do not form part of the export
                  turnover and therefore, on parity of reasoning, same ought
                  to have been excluded from total turnover.

            (c)   treating interest income of Rs. 2,75,10,284/- as "income from
                  other sources" as against business income returned by the
                  appellant.

            (d)   without prejudice, not netting off the interest expenditure of
                  Rs. 1,73,23,592/- against interest income for computing
                  deduction under section 80HHC of the Act.

32.   The CIT(A) accepted the claim of the appellant in excluding sales tax
and excise duty from the total turnover for the purposes of computing
deduction under section 80HHC of the Act. However, the ld CIT(A) upheld the
action of the Assessing Officer in reducing the amount of deduction under
section 80HHC by not treating custom duty benefit under DEPB scheme as
taxable under section 28(iiib) and by treating interest income as income from
other sources.

33.   Aggrieved by the said order of the ld CIT(A), the assessee is before us.

34.   According to the ld counsel, Shri Ajay Vohra, the benefit is provided by
way of credit to the pass book on exports of specified goods at prescribed
rates. Such credit is recognized in the books of accounts as income on export
sale by debiting "DEPB receivable account" and crediting "DEPB income
account" which is grouped under the heading "other income". The ld counsel
reiterated that assessee utilizes the said credit subsequently against import of
components. The ld counsel further stated that pursuant to the order passed
by the Assessing Officer, section 28(iii) and section 80HHC was amended by the
Taxation Laws (Amendment) Act, 2005, w.e.f. 01.04.1998, whereby "profit arising
from transfer of DEPB befit was brought to tax under clause (iiid) of section 28
of the Act. The amendment was also made in section 80HHC by way of
                                       Page No. 15

inserting proviso to sub-section (3) thereof to allow deduction under that
section to profit on transfer of DEPB benefit contained in section 28(iiid), subject
to satisfaction of certain conditions. According to him, the Bombay High Court
in the case of CIT Vs. Kalpataru Colours and Chemicals Ltd., 328 ITR 451, had
held that section (iiid) covers full amount of DEPB benefit including amount of
credit utilized by an assessee, which is not eligible for deduction under section
80HHC, if conditions stipulated in proviso to that section are not satisfied.

35.   According to him, the ld CIT(A), while following the amendments to
section 28(iii) read with second proviso to section 80HHC(3) of the Act, inserted
by the Taxation Laws (Amendment) Act, 2005, w.e.f. 01.04.1998 and the
decision of Bombay High Court in the case of CIT Vs. Kalpataru Colours and
Chemicals Ltd. (supra) confirmed the disallowance of DEPBV benefit.

36.   The ld counsel for the assessee Shri Ajay Vohra pointed out that
assessees own case for the Assessment Year 2002-03 is set aside and this issue
has been remanded back to the file of the Assessing Officer for verification in
the light of the Honble Supreme Courts order in the case of Topman Exports
Vs. CIT reported in 342 ITR 49, and decision of Honble Delhi High Court in the
case of CIT Vs. K.R.B.L. Ltd reported in 82 DTR 241 and the decision of Honble
Gujarat High Court in the case of Avni Export reported in 348 ITR 391. The co-
ordinate bench in ITA Nos. 1052/Del/2011 & ITA No. 902/Del2011held as under:

      "9.     Ld. Counsel for the assessee at the very outset submitted that Honble
      Supreme Court has transferred a large number of writ petitions filed in various
      High Courts, challenging the amendment carried out in the 3rd and 4th provision
      to section 80HHC, vide amendment of taxation law (2nd amendment) Act, 2005.
      The Honble Gujarat High Court has decided this issue in the case of Avani
      Exports and others Vs. CIT Rajkot reported in 348 ITR 391. He pointed out that
      Honble Court has upheld the constitutional validity of the Act but held that it
      cannot be applied with retrospective effect. He further submitted that assessing
      officer in the assessment order has held that benefit under DEPB scheme was
      covered u/s 28 (IV) and was not to be regarded as export incentives u/s 28(III)
      (a) /(b) or (c) of the Act. Thus, the assessing officer has reduced 90% of DEPB
      benefit from profits while computing the deduction admissible u/s 80HHC. He
      pointed out that this issue was considered by the special bench of the ITAT in
      the case of Topman Export. Wherein it was held that only the profit on sale of
      DEPB credit would fall within the ambit of (IIId) of Section 28. This decision of the
      tribunal was reversed by the Honble Bombay High Court in the case of
      Kalpataru Colours and Chemicals Vs. additional CIT reported in 31/ ITR page 87,
      however, the Honble Supreme Court has upheld the view of the tribunal in the
      case of Topman Export Vs. CIT reported in 342 ITR page 49. He also pointed out
      that after the decision of Honble Supreme Court, Honble Delhi High Court has
      also held that where the assessee itself had utilized the DEPB credit for its
                                       Page No. 16

      business and had not transferred the same to any 3rd party, then the provisions
      of section 28(IIId) would not be attracted, and therefore, the 2nd 3rd , 4th proviso
      of section 80 HHC (3) will also not be applicable on the assessee. On the other
      hand, Ld. DR relied upon the order of the assessing officer.

      10.          On due consideration of the facts and circumstances, we find that
      decision of Honble Gujarat High Court in the case of Avni exp ort has come on
      2nd of July, 2012. Similarly, the decision of Honble Supreme Court in the case of
      Topman Exports was pronounced on 8th of February, 2012. The benefit of both
      these decisions was not available to the Ld. Revenue authorities because CIT(A)
      has decided the appeal of assessee on 29.11.2010, therefore, we set aside this
      issue to the file of assessing officer for verification and readjudication. The Ld.
      Assessing officer shall keep in mind, the decision of Honble Supreme Court in
      the case of Topman Exports Vs. CIT reported in 342 ITR 49, decision of Honble
      Delhi High Court in the case of CIT Vs. K.R.B.L. Ltd. reported in 82 DTR page 241
      and the decision of Honble Gujarat High Court in the case of Avni Export
      reported in 348 ITR 391, while deciding, whether any amount from DEPB receipt
      deserves to be reduced from the eligible profit for computing deduction u/s
      80HHC?"

37.   Since there is no change in the facts and law on this issue we respectfully
following the decision in assessees own case for Assessment Year 2002-03
above and we set aside the impugned order and direct the Assessing Officer to
verify the claim in the light of the decision of the Honble Supreme Court in the
case of Topman Exports (supra), K.R.B.L. Ltd (supra) and Avni Exports (supra).

38.   Next issue is ground no. 1.2 and 1.3 that of the treatment given for interest
income of Rs. 2,40,81,432/- as "income from other sources" and consequentially
excluding the same from profits of the business for the purposes of computing
deduction u/s 80HHC of the Act.

39.   At the outset the ld counsel Shir Ajay Vohra submitted that the Tribunal
vide its order dated 31.07.2013, passed in assessees own case for the
Assessment Year 2002-03 held that net income has to be excluded under
Clause (baa) of the explanation to Section 80HHC and directed the Assessing
Officer to verify the claim of the assessee and to re-compute the deduction
admissible u/s 80HHC in the light of the Delhi High Court decision in the case of
Shri Ram Honda Power Equipment 289 ITR 475 (Del). After citing the case of
Shriram Honda (supra)co-ordinate Bench of this Tribunal has held that Clause
(baa) of the explanation to Section 80HHC envisages two step process in
computing profit derived from export. In the first step assessing officer is
required to apply section 28 to 44 in order to compute the profits and gains of
business or profession. In doing so, the Assessing Officer may find that certain
                                      Page No. 17

incomes, which have no nexus to the export business of the assessee, are not
allowable and therefore ought to be treated as income from other source.
Once, Assessing Officer computed what is business income, then, he should
proceed to the next step of deducting 90% of the receipts referred in clause
(baa) of the explanation to section 80HHC, in order to arrive at the profits
derived from the exports. The co-ordinate bench of this tribunal after quoting
the said decision of jurisdictional High Court held in para 33 of its order which is
reproduced as follow:-

      "13.     This decision has been approved by the Honble Supreme Court in the
      case of AC associate Capsules Pvt. Ltd. Vs. CIT reported in 343 ITR page 89.The
      Honble High Court has held that interest income earned on fixed deposit for
      the purpose of availing credit facilities from the bank the does not have
      immediate nexuses with the export business and, therefore, has to necessarily
      be treated as income from other source and not a business income. The
      Honble High Court has further held that net interest income is to be considered
      which will not fall within the ambit of eligible profit for the purpose of
      computation of deduction u/s 80HHC, 90% of the net interest income is to be
      excluded under clause (baa) of the explanation. Respectfully following this
      decision, we direct the assessing officer to verify the claim of assessee and then
      re-compute the deduction admissible u/s 80HHC in the light of Honble Delhi
      High Courts decision. The next component under these grounds is exclusion of
      90% of miscellaneous income. The assessee has a miscellaneous income of Rs.
      3,11,00,000/-. The Ld. Counsel for the assessee has submitted this miscellaneous
      income is under 11 heads, which include royalty, rent mutual fund, bill
      discounting, etc. He pointed out that assessee itself has excluded 90% of the
      receipts representing miscellaneous interest income royalty, rent and
      miscellaneous income from commission. The other receipts have arisen during
      the course of business and is an operational income and cannot be considered
      as of the nature of ,,any other receipts in terms of clause (baa) of explanation
      to section 80HHC of the Act. He made detail written submission in his note and
      made reference to a large number of decisions. The Ld. DR on the other hand,
      pointed out that no discussion is discernable in the order of Ld. CIT(A) on this
      issue, therefore, this issue may be remitted back to the file of Ld.CIT(A).

      14.    On due consideration of the facts and circumstances, we find that
      neither in the assessment order nor in the order of Ld. CIT(A), a discussion is
      available about the nature of receipts and how 90% of these miscellaneous
      receipts are excluded. In the absence of complete factual details in the
      impugned orders, it is difficult to cross verify the details submitted by the Ld.
      Counsel in his written note, therefore, we set aside this issue also to the file of
      assessing officer for verification and the adjudication."

40.   In view of the above order of the co-ordinate bench of this Tribunal on
the issue before us and since there is no change of facts or law, we respectfully
follow it and set aside the impugned order on this issue and remand the issue
back to the file of the Assessing Officer to verify and adjudicate afresh this issue
as stated above.
                                     Page No. 18

41.   Apropos disallowing deduction u/s 80IA of the Act, amounting to Rs.
2,28,86,196/-, claimed by the appellant in respect of the captive power
generating unit at Gurgaon and that the ld CIT(A) erred on upholding the
action of the Assessing Officer in computing profits of the power generating unit
by adopting the rate of supply of power at Rs. 4.05 per unit, at which power
was supplied by State Electricity Board, as the ,,market price of the power, as
against rate of Rs. 5.92 per unit (cost of generation of power at Rs. 5.15 per unit
+ mark-up of 15%) adopted by the appellant for the purposes of computing
deduction u/s 80IA of the Act for captive power generating unit. In view of the
power supply constraints in the area of Gurgaon, Haryana, where the assessee
had set-up its manufacturing facility, the appellant had set-up power plant in
order to meet the captive consumption requirement of power. The appellant
claimed deduction u/s 80IA of the Act at Rs. 2,28,86,196/- in respect of power
generated at the aforesaid unit and captively consumed by the appellant. The
deduction claimed was duly supported by Chartered Accountants Report. For
the purpose of computing deduction u/s 80IA, the appellant adopted the
transfer price of power, captively consumed, at the cost of generation of
power per unit with mark-up of 15%. The cost of generation of power was
adopted at Rs. 5.15, which was based on cost certified in the cost audit report.
Accordingly, the appellant adopted the rate of transfer of power @ Rs. 5.92 per
unit (Rs. 5.15 + 15% of Rs. 5.15). The Assessing Officer, in the assessment order,
has held that the inter-unit transfer of power from the Power Plant should have
been at the price at which HSEB (government body) is supplying to appellants
Dharuhera/ Gurgaon Plant, i.e. Rs. 3.90 per unit. Since the cost of generation
was more than the market value taken by the Assessing Officer, no deduction
u/s 80IA of the Act has been allowed in the assessment order by the Assessing
Officer following the earlier year assessment order which stand has been
upheld by the ld CIT(A). Aggrieved by the said order of the ld CIT(A) the
assessee is before us.
42.   The ld counsel, Shri Ajay Vohra submitted that the rate of transfer price of
power power, adopted by the appellant for the purpose of computing
deduction u/s 80IA of the Act is correct and no disallowance of deduction
claimed under the said section is called for. According to him, in terms of sub-
section(8) of Section 80-IA of the Act, profits of the eligible business are required
                                      Page No. 19

to be computed on the basis of inter unit transfer of goods and services at the
price such goods would ordinarily fetch on sale in the open market. The ld
counsel contended that the market price of the goods is to be determined at
the price at which there is willingness on part of the buyer to purchase and on
part of the seller to sell the goods. For the aforesaid proposition, reference was
made to the following decisions:-
         P. Ramnath Aiyars Law Lexicon (2002 Edition) on the meaning of
         expression ,,market price
         Inland Revenue Commissioner Vs. Clay and Buchanan (1914) 3KB
         466,471
         Kailash Chandra Mitra Vs. The Secretary of State for India (1910)17CLJ
         State of UP Vs. Ram Sarup XII SCN 65 S.C.
        In view of the aforesaid decisions, the ld counsel argued that the rate at
      which electricity was supplied by HSEB cannot be said to be expression of
      market price since for the following reasons:-
              HSEB was not in a position to provide assured, committed and
              continuous supply of electricity, as per the appellants requirement,
              or even of other manufacturing companies operating in that
              areas;
              as a result, till recently, Maruti Udyog Ltd, an independent supplier
              of electricity, generating electricity using the same technology as
              adopted by the appellant, was charging rate of supply of power @
              Rs. 7.50 per unit, from its associated factories located in vicinity and
              the companies were purchasing at that price since no electricity
              supply was available from HSEB.
43.     The ld Counsel therefore submitted that the price charged by HSEB in
Darahera Plant can, by no stretch of imagination, be treated or considered as
the price of power in the open market. According to the ld counsel Shri Ajay
Vohra the rate charged by HSEB at Dhruhera plant is not, therefore, the rate
which the power could be said to be available in the open market in Gurgaon
area. When the fact remains that HSEB could not assure providing
uninterrupted power and the assessee was forced to procure the same power
which was available from an alternate source at much higher cost. The ld
counsel stressed that the inter-division transfer of power from the captive power
                                      Page No. 20

plants, had been made and recorded at the price lower than the market price,
which has been considered as fair price by the Auditors. According to the ld
counsel, the said price being the fair market value of power was in conformity
with the provisions of sub-section (8) of Section 80-IA of the Act. The ld counsel
contended that the re-computation of the allowable deduction made by the
Assessing Officer by substitution the said price with Rs. 3.90, at which electricity
was not available in the open market is contrary to the mandate of sub-section
(8) of Section 80-IA of the Act. The ld counsel relied on the decision of Mumbai
Bench of the Tribunal in the case of Reliance Infrastructure Ltd. Vs. Addl. CIT: ITA
No. 4631/Mum/2009, wherein price paid for purchase of power form third party,
other than government body, was accepted to be constituting market price
for the purpose of computing deduction u/s 80IA(4) of the Act. It was submitted
by the ld counsel that the rate as adopted by the appellant, as the market
price of power be taken to compute the profits of the Power Plant for
computing deduction u/s 80IA of the Act. Therefore the ld counsel pleads that
the impugned order may be set aside. On the other hand the ld DR supported
the decision of the ld CIT(A) and pointed out that the aforesaid issue has been
decided against the assessee by co-ordinate Bench of this Tribunal in the
assessees own case for the Assessment Year 2006-07, 2007-08 and 2002-03.
44.   We find that for the Assessment Year 2006-07, the co-ordinate Bench of
this Tribunal has held in assessees own case in ITA No. 5130/Del/2010 dated
23.11.2012 on this issue as under:-
      "39. We have carefully considered the submissions of both the sides
      and perused the material placed before us. Sub-section (8) of Section
      80IA reads as under:-
             "(8) Where any goods (or services) held for the purposes of the
             eligible business are transferred to any other business carried on by
             the assessee, or where any goods (or services) held for the
             purposes of any other business carried on by the assessee are
             transferred to the eligible business and, in either case, the
             consideration, if any, for such transfer as recorded in the accounts
             of the eligible business does not correspond to the market value of
             such goods (or services) as on the date of the transfer, then, for the
             purposes of the deduction under this section, the profits and gains
             of such eligible business shall be computed as if the transfer in
             either case, had been made at the market value of such goods (or
             services) as on that date:
             Provided that where, in the opinion of the Assessing Officer, the
             computing of the profits and gains of the eligible business, in the
             manner hereinbefore specified presents exceptional difficulties, in
                                    Page No. 21

              the Assessing Officer may compute such profits and gains on such
              reasonable basis as he may deem fit.
              (Explanation- for the purpose of this sub-section, "market value", in
              relation to any goods or services, means the price that such goods
              or services would ordinarily fetch in the open market._"
      40.     From the above, it is evident that where the goods or services held
      for the purposes of eligible business are transferred to another business,
      carried on by the assessee, then for the purpose of deduction under this
      section, the profits and gains of such eligible business shall be computed
      as it transfer had been made at the market value of such goods or
      services as on date. IN the case under appeal before us, it is not in
      dispute that in the eligible business, the assessee is generating the power
      which is being consumed by the assessee companys manufacturing
      facility. Therefore, the profit of the eligible business is to be computed at
      the market rate of supply of power. It is the assessees contention that
      Maruti Udyog Limited is supplying the power to its AE at the rate of Rs.
      8.50 per unit while the assessee had computed the profit of the eligible
      business by taking the rate of power at Rs. 7.08 per unit. The assessee has
      computed the rate of power by the cost of generation per unit with mark
      of 15%. However, the Assessing Officer has pointed out that the
      government undertaking i.e. Haryana State Electricity Board has supplied
      the power to the assessee and other industrial units in the area at the rate
      of Rs. 3.90 per unit. Now, the question is, what is the market rate at which
      power is being supplied. In our opinion, the rate at which power is being
      supply by the Haryana State Electricity Board, to each and every
      industrial unit situated in the area, in which the assessees manufacturing
      unit is situated, is the market rate at which power is available. The rate at
      which Maruti Udyog Limited is claimed to supply the power to its AE
      cannot be said to be the market rate of the power in that area because
      as per assessees own claim, Maruti Udyog Limited is supplying the power
      to its AE and not to unrelated parties in general. In view of the above, we
      hold that the Assessing Officer was fully justified in arriving at the
      conclusion that there was a loss, in the power generation undertaking of
      the assessee and therefore, there was no eligible profit for allowing
      deduction under section 80IA. Accordingly, we dismiss ground Nos. 8 &
      8.1 of the assessees appeal."


45.   Since, there is no change in facts and law, respectfully following the
decision rendered by the co-ordinate Bench, we dismiss this ground of the
assessee and confirm the order of the ld CIT(A).


46    Apropos levy of interest u/s 234D of the Act.

47.   Ld counsel for the assessee Shri Ajay Vohra submitted that the provision of
section 234D of the Act were inserted from 01.06.2003 and in the following
cases, it was held that the same was prospective in operation and would apply
                                    Page No. 22

from Assessment Year 2004-05 and onwards. Ld counsel relied heavily on the on
the following decisions:-

             DIT Vs. Jacabs Civil Incorporated: 330 ITR 578 (del) (HC)
             ITO Vs. Ekta Promoters Private Limited: 113 ITD 719 (Del)(SB)

48.   Ld DR pointed out that section 234D has been amended by the Finance
Act, 2012 w.e.f. 01.06.2003, whereby Explanation 2 has been inserted in the
section to provide that provisions of said section will be applicable to
assessment years prior to 01.06.2003 also, provided assessment for such years is
completed after said date. And according to the ld DR, in the present case,
the assessment being completed on 28.02.2006, in view of the aforesaid
amendment, the said ground need to be decided against the assessee.

49.   We have heard both the sides and has gone though the case laws cited
by both the parties and has carefully perused the records. Let us see Section
234D of the Act:-

      "234D. (1) Subject to the other provisions of this Act, where any refund is
      granted to the assessee under sub-section (1) of section 143, and--
             (a) no refund is due on regular assessment; or
             (b) the amount refunded under sub-section (1) of section 143
             exceeds the amount refundable on regular assessment,
      the assessee shall be liable to pay simple interest at the rate of [one-half]
      per cent on the whole or the excess amount so refunded, for every
      month or part of a month comprised in the period from the date of grant
      of refund to the date of such regular assessment.
      (2) Where, as a result of an order under section 154 or section 155 or
      section 250 or section 254 or section 260 or section 262 or section 263 or
      section 264 or an order of the Settlement Commission under sub-section
      (4) of section 245D, the amount of refund granted under sub-section (1)
      of section 143 is held to be correctly allowed, either in whole or in part, as
      the case may be, then, the interest chargeable, if any, under sub-section
      (1) shall be reduced accordingly.
      Explanation (1)-Where, in relation to an assessment year, an assessment is
      made for the first time under section 147 or section 153A, the assessment
      so made shall be regarded as a regular assessment for the purposes of
      this section."
      Explanation (2)-For the removal of doubts, it is hereby declared that the
      provisions of this section shall also apply to an assessment year
      commencing before the 1st day of June, 2003 if the proceedings in
      respect of such assessment year is completed after the said date."
                                       Page No. 23

50.      In view of the explanation (2) it has been clearly stated that the provision
of this section shall also apply to an assessment years before 1st June 2003 if the
assessment for such year commences before 1st June 2003, and if the
proceedings in respect of such assessment year is completed after the said
date. Admittedly in this case assessment was completed only on 28.02.2006. We
find force in the argument of the ld DR that the provision of section 234D would
apply for the assessee in this case. Therefore we uphold and confirm the order
of the ld CIT(A) and dismiss the appeal of the assessee on this ground.

51.      In the result the assessees appeal ITA No. ITA No. 2045/Del/201 1is partly
allowed.


          Order pronounced in the open court on 15.05.2014.

               -Sd/-                                                -Sd/-
         (B.C. MEENA)                                         (A. T. VARKEY)
       ACCOUNTANT MEMBER                                    JUDICIAL MEMBER

Dated:15 /05 /2014
A K Keot

Copy forwarded to

      1. Applicant
      2. Respondent
      3. CIT
      4. CIT (A)
      5. DR:ITAT
                                                           ASSISTANT REGISTRAR
                                                               ITAT, New Delhi

 
 
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