PER T.R.SOOD, A.M. The appeal filed by the assessee is directed against the order dated

31.3.2009 of Dispute Resolution Panel-III, New Delhi

2. In this appeal the assessee has raised the following concise grounds:- TRANSFER PRICING MATTERS

1. That the Ld. AO has erred both on facts and in law in computing the income of the Appellant at Rs. 83,58,92,690 as against the return returned income of Rs. 1,38,47,796.

2. The Ld. AO/DRP erred on facts and in law in determining the arms length price (ALP) of the international transaction of payment towards corporate service fees at Rs. 39,96,587/- as against the sum of Rs. 7,99,31,741/-, disregarding the significant benefits received by the appellant from such services.

3. That the Ld. AO/TPO grossly erred in determining the ALP by inappropriately applying the CUP method based on presumptions and surmises. CORPORATE TAX MATTERS

4. That the Assessing officer/DRP erred on facts & in law in making a disallowance of finance expenses of Rs. 9,85,67,574 alleging that borrowed funds were utilized for giving interest free advances to its joint venture company Hindustan Max-GB Ltd.

5. That the Ld. AO/DRP erred on facts & in law in making a disallowance of Rs. 8,284,573 out of commission expenses for the year under consideration based on a view formed in the immediately preceding assessment year on following transactions:-

5.1 disallowing sums of Rs. 4,54,744 and Rs. 44,09,664 paid as commission to Malachite Chemicals and Edward Keller (Phils)Inc.

5.2 disallowing commission expense of Rs. 34,20,165 being excessive and unreasonable by arbitrarily fixing an average rate of commission paid to Indian agents at 3%.

6. That the Ld. Assessing officer/DRP erred on facts & in law in making a disallowance of expenditure of Rs. 21,15,375 by invoking the provisions of section 14 A of the Act read with Rule 8 D of the Income Tax Rules, 1962.

7. That the Ld. AO/DRP erred on facts & in law in making a disallowance of interest / finance expenses of Rs. 1,14,75,000 alleging that the borrowed funds were utilized to undertake the capital expansion project on surmises and conjectures.

8. That he Ld. AO/DRP erred on facts & in law in making a disallowance of regular bank charges paid to banks of Rs. 1,20,00,000 under section 40(a)(ia) of the Act alleging that the appellant has an obligation to deduct TDS on bank charges under section 194H of the Act.

9. That the Ld. AO/DRP erred on facts & in law in making a disallowance of Rs. 19,91,953 on the alleged ground that ex-gratia is not covered under section 43B read with section 36(1)(ii) of the Act and also treating the same as a prior period expense.

9.1 Without prejudice to the above, the Ld. AO erred in not allowing Rs. 21,23,841 which had been moto disallowed by the appellant on account of non-payment, by applying the provisions of section 43B of the Act.

10. That the Ld. AO/DRP erred on facts & in law in holding that the provisions written back of Rs. 1,05,26,246 is not allowable under section 30 to 37 of the Act.

11. That the Ld. AO/DRP erred on facts & in law in making a disallowance of Rs. 20,00,000 on the alleged ground that the appellant has paid penalty on customs duty and claimed it as an expenditure during the year.

12. That the Ld. AO/DRP erred on facts & in law in making a disallowance of royalty of Rs. 4,67,30,000 incurred for the manufacturing of its product Purimox treating the same to be capital in nature.

12.1 Without prejudice the above ground and in alternate, the Ld. DRP/AO was wrong in not allowing depreciation @ 25% on the amount of actual cost of royalty paid treated to be in the nature of capital expenditure.

13. That the Ld. AO/DRP erred on facts & in law in making a disallowance of expenditure of Rs.65,13,383 alleging that the appellant has failed to produce relevant bills and vouchers duringthe course of the assessment proceedings.

13.1 The Ld. DRP and AO has erred in making a disallowance of Rs. 14,82,137 (out of the total disallowance of Rs. 65,13,383) which has also been separately disallowed in the impugned draft assessment order (refer Ground No. 15) resulting in a double disallowance to that extent.

14. That the Ld. AO/DRP erred on facts & in law in making an addition of Rs. 3,74,470 by treating the said amounts to be in the nature of capital expenditure.

14.1 Without prejudice to the above, the Ld. DRP and AO has erred in not even allowing depreciation on the said amount of Rs. 3,74,470 after considering it as capital expenditure.

15. That the Ld. AO/DRP erred on facts & in law in making a disallowance of Rs. 5,07,730being amount written off as discount allowed to the customers on the alleged ground that the amount of discount allowed does not pertain to current year, the same is not allowable.

16. That the Ld. AO/DRP erred on facts & in law in making a disallowance of Rs. 14,82,137under section 40(a)(i) of the Act on the alleged ground that the appellant was liable to deducttax under section 195 of the act on expenses incurred towards training of employees, treating the same as professional services.

17. That the Ld. DRP and AO erred on facts and in law in charging interest under sections 234B and 234C of the Act.

18. The Ld. DRP and AO also erred in proposing to initiate penalty proceedings under section271(i)(c) of the Act for concealment of income or funishing inaccurate particulars of income.

19. That the Ld. AO/DRP erred on facts & in law in not adjusting the loss brought forward and unabsorbed depreciation as claimed under clause (iii) of Explanation 1 of Section 115JB ofthe Act while computing book profit in the revised computation of income filed during the course of the assessment proceedings.

20. That the Ld. AO/DRP erred on facts & in law in adding an amount of Rs. 5,00,00,000representing investment written off during the year, to the book profits of the appellant as computed under section 115JB of the Act.

21. That the Ld. AO/DRP erred on facts & in law in adding wealth tax and provision of fringe benefit tax of Rs. 52,493 and Rs. 72,00,000 respectively while computing book profits under Section 115JB of the Act.

22. That the Ld. AO/DRP erred on facts & in law in adding Rs. 21,15,375 to book profits calculated u/s 115JB vide Explanation 1(f) to Sec 115 JB by invoking the provisions of section 14A and applying Rule 8D.

3. Ground No.1 is of general nature and does not require separate adjudication.

4. Ground Nos.2 & 3 : After hearing both the parties we find that during assessment proceedings that assessee had entered into various international transactions. One of the transactions is regarding payment made towards corporate services. A total payment towards this corporate service was Rs. 7,99,31,744/-. The payment was made to DSM NV concern of The Netherlands. It was noticed by Assessing Officer / TPO that assessee has not identified each services separately. The assessee did not submit the details regarding services availed. The services were found to be of duplicate nature. There was no logical allocation of the services. Ultimately CUP method was found to be most appropriate. Keeping all these facts in view, a 5% ad hoc allowance was given to the assessee and adjustment was made amounting to Rs. 7,59,35,154/-.

5. Before us, Ld. Counsel for the assessee submitted that identical issue regarding payment for corporate services came before the Tribunal in assessment year 2007-08, 2008-09 in ITA Nos. 1139/Chd./20011 and 1290/Chd/2012 respectively. He further submitted that Tribunal after going through various contentions in the earlier years basically held that no adjustment should be made in respect of payments towards these corporate services and these findings were recorded in paras 77, 95, 98 and 102. At the same time he admitted that ultimately in para 110, the Tribunal further held that amount paid has to be reduced by the amount of benefit received by the assessee on account of financial services. According to him, this is contrary to the findings recorded in para s 95 and 102.

6. On a query by the Bench that how much benefit the assessee has received in this year on account of financial services, he referred to page 5 of the synopsis of the case and pointed out that on account of financial services assessee has received benefit of Rs. 8.8 crores.

7. On the other hand Ld. DR submitted that basically the issue is covered by the order of Tribunal in ITA No. 1139/Chd/2011 and 1290/Chd/2012 for assessment years 2007-08 and 2008-09. He also referred to various paras like 95, 98, 102 & 110 and submitted that Tribunal has given a clear finding in para 110 that payment for total corporate services have to be restricted to the extent of 50% of the financial service benefit received by the assessee because assessee should have retained atleast 50% of the benefits on account of such financial service. He pointed out that assessee has moved an Misc. Application also in this regard and the Tribunal has dismissed that M.A. No. 06 & 07/Chd/2015 arising out of ITA Nos. 1139/Chd/2011 and 1290/Chd/2012 respectively and the Tribunal has given logic of this restriction vide paras 5 & 6 of the Misc. Application order.

8. We have considered the rival submissions carefully and find that in assessment years 2007-08 and 2008-09 when this issue was being adjudicated by the Tribunal, some force was found in the contention of Ld. DR that basically assessee was receiving corporate services from the Associate Enterprises in the area of Production and Sales, Market Information, Business Intelligence, Safety, Health and Environment and Finance related strategic planning support. The Revenue had pointed out that amounts had increased over a period of time. The details of increase in the corporate services is noted in Misc. Application order which is as under:- Assessment year Amount (in Rs. ) 2007-08 22,700,000 2008-09 63,970,136 2009-10 79,931,741 2010-11 89,829,606

9. In view of the above constant increase in the services charges, the assessee was asked to justify the same and, therefore, it was contended that in fact after assessee has started receiving financial services particularly with regard to the issuance of guarantees and sanctioning of various bank limits at the lower interest rate. It was pointed out that assessee had been able go get benefit because of these financial services in the form of lower guarantee fee and also guarantee issued by the banker without any security and lower interest on the limits sanctioned by the bank. However, at the same time on a query by the Bench it was admitted that there is an international practice because of which assessee could have possibly passed on only 50% of such benefits to the Associate Enterprise. In this background the assessee was asked to quantify the amount of benefits received and financial services.

10. In view of this situation, ultimately the Bench held that no adjustment was required to be made in respect of normal corporate service but because of the admission of the assessee that 50% of the financial benefits were required to be retained by the assessee a direction was given in para 110 that payment on account of corporate services should be restricted up to 50% of benefit received on account of financial services. . Normally, the same had to be reduced from the corporate services charges paid by the assessee. This position was admitted by Shri K.M. Gupta who was present during the hearing of this appeal and who was also present during the original hearing of the appeal. The issue was finally adjudicated vide para 110 of the consolidated order in assessment years 2007-08 and 2008-09 which reads as under:- 11 0. I n v i ew of th e ab o ve s ai d p ri n cip l es lai d dow n, w e fin d no m er it i n t h e a dj ust m e nts m a d e b y t he TPO . A n oth e r asp e c t i s t o b e k ept i n min d w hi l e d e ci di ng the i ss u e. Th e p le a r ai s ed b y t h e ld . A R f or t h e as s ess e e w as t ha t sa v in gs t o t he a ss e ss e e a s r es ul t o f s er v i ce s p ro vi d ed b y th e A E s ho uld b e c ons id e re d w hil e ho ld in g th e t ra ns a cti on to b e at a rm s le ng th . It w as fa irl y co n c ed ed b y th e l d. A R f or th e as se ss e e t ha t un d er i nt e rn ati on ally a c c e pt ed no r ms, sa v in gs ar e t o b e s ha r ed b etw e en the p ar ti es in th e rati o o f 5 0 : 5 0. T h e ld . AR fo r th e a ss e ss e e fu rt he r po in te d o ut th at t h e s av in gs o n a c co unt o f g uar an t e e fe e i n as s es sm e nt ye ar 20 07 -0 8 w er e Rs . 1 . 40 Cr an d th e t ot al s a vin gs i n a ss es s me nt y ea r 2 00 8- 09 w e re Rs. 9. 29 Cr . Th e TP O in a ss e ss m e nt y e ar 2 00 7- 08 h as m ad e an a dju st m en t o f R s. 2, 91 ,9 5 ,4 71/ - an d i n t he a ss e ss m ent y ea r 20 0 8- 09 h as ma d e a n a dju st m en t of R s. 6 , 14 ,1 3, 98 3/ -. I n v i ew o f t h e ad mi ssi on o f t h e ass e ss e e, w e ar e of th e v i ew t ha t 5 0 % of th e b en e fit s ari sin g to the a ss e ss e e on a c co unt of fi na n ci al b en efi ts is to b e r eta in ed b y th e as s ess e e i n i nd e p en d ent p a rt y t ra ns ac tio n . H ow e v e r, in t h e fa ct s of th e p r es e nt c as e , th e a ss es s e e has t ra nsf e rr e d 10 0% of t h e sai d b en e fit s t o th e A E b y wa y of p a yi ng th e C or po ra t e S e rv i c e Ch ar ge s . Ac c or di ngl y , we d ir e ct th e T PO /A .O . to dis all ow 50 % of t h e b e n efits a ri sin g on ac c ou nt of g ua ra nt e e f ee a n d i nt er e st c os t as b e in g n ot on ar m s l en gt h a nd th e b al an c e pa y m en t is a ll owa bl e i n th e ha n ds o f th e a ss e sse e a s b ei ng o n a rm s l e ngt h a ga ins t whic h no a dj ust m e nt is t o b e ma de . The T PO /A . O. sh all a ffo rd r e as on abl e o pp or tu nit y of h e ari ng t o t h e as se ss e e to d e t er mi n e t h e tota l f in an ci al b e ne fit s a ri sin g to th e a ss e ss e e in th e r esp e c ti v e y e ar s. Th e g ro un ds of a pp e al r ai s ed b y t h e a ss ess e e ar e t hu s, p ar tly a ll ow ed .

11. Further, the assessee has moved a Misc. Application against the order of the Tribunal for both the years and the same was adjudicated vide Miss. Application Nos. 6 & 7/Chd/2015 arising out of ITA No. 1139/Chd/2011 and 1290/Chd/1290 vide order dated 19.2.2015 vide paras 5 to 8 which reads as under:- 5. We have considered the rival submissions carefully. We find that during assessment year 2007-08 the assessee has paid corporate service fee of Rs. 3,30,72,526/- which included some direct services and some services on account of sharing of I.T. Platform like SAP Etc. The nature of services was explained to be the

Corporate Service Charge: The AE provides the corporate services in the area of Production and Sales, Market Information, Business Intelligence, Safety, Health and Environment and Finance related strategic planning support to the assessee. For which it charges as per the allocation of total expense of DSM Corporate and Business Group Units.

Some of these amounts particularly on account of I.T. Services were held to be payable by the TPO. However, since no break-up was given for other services, therefore, the same was held to be of no benefit to the assessee and the whole of the amounts was added by way of adjustment by the TPO and tbhis action was challenged before the Tribunal. When it was pointed out by the Revenue that in later years, the amount paid on account of Corporate Services is increasing from year to year substantially then a query was raised to determine the reason for such a big jump in the corporate service charges. At this stage, the Ld. Counsel has pointed out that the main reason for substantial increase in the amount of Corporate Services amount paid was on account of financial services. The assessee has started receiving financial services in the form of corporate guarantee as well as sanctions of the limit by banks on the recommendation of holding company because of which the assessee got the limits sanctioned from the bank at much lower rates than the market rates. At the instance of Bench the Ld. Counsel has also quantified the amounts of benefits received by the assessee company during these two years. The amounts of corporate service charges in various assessment years are as under:- Assessment year Amount (in Rs. ) 2007-09 22,700,000 2008-09 63,970,136 2009-11 79,931,741 2010-12 89,829,606

6. From the above figures the Bench agreed with the contention of the Revenue that service charges paid on account of corporate services had increased manifold in the later years. Therefore, assessee was asked why there is such a huge increase in the total corporate service charges. The assessee in reply had explained that in later years the assessee had started receiving financial services also and because of which the total corporate service charges had increased. In this regard detailed written submissions were filed which are placed on record. We would like to give the following extracts from such written submissions:-

It is respectfully submitted that under the corporate services entered into by the appellant, the associated enterprise inter alia provides guarantee to banks for the benefit of the appellant. It is submitted the guarantee issued by the associated enterprise enabled the appellant to obtain borrowings at cheaper rate of interest and led to significant savings of finance cost of the appellant. During financial year 2006-07 and 2007-08 the appellant had availed term loan from Deutsche Bank amounting to INR 52.63 crores. Such loan was granted by Deutsche Bank based upon a risk assumption agreement entered into by the associated enterprise with Deutsche Bank, Amsterdam. In this regard the following documents are attached for consideration by the Honble Tribunal: (i) Loan agreement entered into by the appellant with Deutsche Bank (Annexure 1) (ii) Letter issued by Deutsche Bank, Amsterdam to the associated enterprise confirming assumption of risk on behalf of the appellant (Annexure 2) (iii) Deed of pledge of deposit entered into by the associated enterprise with Deutsche Bank, Amsterdam pledging an amount of EUR 10 million as guarantee against providing loan to the appellant (Annexure 3) As per the benchmarking analysis conducted by the appellant, the arms length price of the guarantee issued by the associated enterprise in support of the appellant is 2.65% for financial year 2006-07 and 4.65% for financial year 2007-08 which translates into benefit of Rs. 39 crore and 2.45 crore respectively. The detailed benchmarking report along with credit rating analysis is provided as Annexure4. It is respectfully submitted that as per the analysis conducted by the appellant, the credit rating was calculated in a scientific manner and the same was determined at B2. Considering the credit rating of the appellant, it would be appreciated that without the support of guarantee form it associated enterprise, the appellant could have borrowed money at a significant premium to the Prime Lending Rate (PLR) prevailing during the relevant financial year. However, on a conservative basis, the interest savings availed by the appellant, due to guarantee provided by the associated enterprise has been computed on the basis of prevailing PLR. The PLR prevailing during financial year 2006-07 was 10.75% whereas the PLR during financial year 2007-08 was the relevant period was 12.75% whereas the appellant had borrowed money at 8.10%. Considering the above factors, the interest cost savings enjoyed by the appellant due to guarantee provided by the associated enterprise for financial year 2006-07 and 2007-08 is as under: Financial Year Amount of loan (INR in Cr) Interest rate PLR Savings % Savings (INRE in Cr) 2006-07 52.63 8.10% 10.75% 2.65% 1.39 2007-08 52.63 8.10% 12.75% 4.65% 2.45 Further, the associated enterprise has also provided guarantee to enable the appellant to avail Letter of Credit (LC) facility from Royal Bank of Scotland (RBS) without providing any security. During financial year 2007-08 the appellant availed letter of Credit (LC) facility from Royal Bank of Scotland (RBS). The said facility was issued by the bank on the basis of a corporate guarantee amounting to EUR30 million issued by the associated enterprise. As per general banking norms, for obtaining a LC facility, a fixed deposit is required to be pledged by the customer as a security against the facility allowed by the bank. However, in the case of appellant, since the guarantee was provided by the associated enterprise, the facility was allowed by the bank without obtaining any security from the appellant. It is respectfully submitted that in the absence of guarantee provided by the associated enterprises, the appellant would have borrowed money to obtain a fixed deposit for pledging the same with the bank for availing the LC facility. In view of the aforesaid, it is respectfully submitted that the appellant enjoyed significant savings interest cost due to the guarantee provided by the associated enterprise against the LC facility availed by the appellant. The detailed economic analysis undertaken by the appellant for benchmarking the guarantee provided by the associated enterprise is provided as Annexure 4. The results of the analysis are summarized as under: Particulars Amount (INR) Amount of facility (EUR 30,000,000 @ Rs. 57 (A) 1,710,000,000 Prime Lending Rate of SBI(B) 12.75% Interest payable by DSM India (C= A*B) 218,025,000 Interest Rate available on FD (1 to 3 years ) (D) 8.75% Interest receivable by DSM India (E= A*D) 149,625,000 Interest savings by the appellant (F= C-E) 68,400,000 Guarantee fee (F/A%) 4% From the above analysis, it can thus be concluded that a guarantee fee charged by DSM Netherlands to DSM India at 4% for the overall arrangement, shall be considered to be at arms length as required under Indian Regulations. In view of the aforesaid, it is respectfully submitted that the above documents now placed on record by the appellant pursuant to the query raised by the Honble Tribunal may kindly be taken into consideration while adjudicating the appeal of the assessee. b. Issue of guarantee by DSM Finance B.V. The Ld DR contended that the appellant has entered into contract service agreement with DSM N.V. whereas the guarantee was been issued by another associated enterprise, DSM Finance B.V. In this regard it is respectfully submitted that DSM Finance B.V. is a part of corporate treasury division of the DSM group and has a mandate from DSM N.V. (now Royal DSM NV or Koninklijke DSM N.V) to manage/arrange/support the funding of DSM group companies. A power of attorney executed by DSM NV authorizing DSM Finance BV to sign any obligation / arrangement in the field of cash management is attached as Annexure 5. It is further submitted that the name of DSM NV was changed to Royal DSM NV on completion of 100 years of its existence in 2004. An extract from the Chamber of Commerce for Limburg, Netherland is attached as Annexure 6. In view of the aforesaid, it is respectfully submitted that the guarantee was issued by DSM Finance B.V. at the directions/instruction of DSM N.V. and accordingly, an arms length guarantee fee was payable by the appellant to DSM N.V. in consideration for issuance of such guarantee.

7. From the above it become clear that assessee had started receiving some financial services also from the holding company which explained the increase in total payments on account of corporate services. The assessee had tried to justify the payment on account of such financial services but when again it was confronted that if assessee had saved Rs. 100/- and if he pays the entire amount of Rs. 100/- to the holding company and in that case there would be no savings to the assessee. In response to this query, the Ld. Counsel on behalf of the assessee had admitted that there is international practice to pass on 50% of the amount of such financial savings on account of financial services and balance 50% was to be retained by the recipients of the services. This was found to be logical because benefit was being shared on 50 50 basis. Therefore, assessee was asked to give amount of total benefit on account of financial services. The details of such benefit as admitted by the Ld. Counsel for the assessee at the time of original hearing was stated to be as under:- Assessment year Amount of benefit or Services obtained by the assessee. 2007-08 Rs. 1.40 crores 2008-09 Rs. 9.29 crores

8. On the basis of above admission the Bench held that fee paid for other corporate services could not have increased so much and therefore, it was fair and just that that normal fee paid for corporate services should not be disallowed but in view of the increase in the amount the benefits obtained by the assessee on account of financial services have to be shared on the basis of 50-50. This positon has been clearly indicated in para 110 of the order of Tribunal. The Misc. Application was ultimately dismissed.

12. From the above paras it becomes clear that the Tribunal has given a direction to basically allow the payment made on account of corporate services subject to the rider that 50% benefit received on account of financial services should be reduced from such payments.

13. This situation further becomes clear from the contentions made in the synopsis filed on 5.6.2014 in this appeal. The brief synopsis in this regard reads as under:-

The appellant also submitted that financial services forming part of the CSC also include provisioning of guarantee(s) by AE on behalf of DSP India (please refer to point b(iii) of Article 4 of the corporate service contract (placed at page 33 of the paperbook). In this regard, the assessee has also submitted the details of an unconditional and irrevocable guarantee provided by DSM N.V., an AE of DSM India, to the bank (Citibank International Plc.) on behalf of DSM India amounting to Euro 10 million (approx 68 crores) in connection with any overdraft, loan, credit facility etc. In this regard, a copy of the letter providing this inter-company guarantee facility to DSM India has also been submitted by the assessee to the Ld. TPO as Appendix 6B to the submission dated August 16, 2012 (placed at pages 300 to 303 of paperbook). Furthermore a letter by Royal Bank of Scotland, providing the details of credit facilities existing for DSM India in various financial years wherein security has been provided by Koninklijke DSM NV, was also submitted with the Ld. TPO as appendix 6 to the submission dated September 17,2012(placed at page 338 of the paperbook). The detailed benchmarking report along with credit rating analysis is provided as Appendix 2. It is respectfully submitted that as per the analysis conducted by the appellant, the credit rating was calculated in a scientific manner and the same was determined at B3. The results of the aforesaid benchmarking are as under:- Nature of facility Amount of facility Equivalent INR Guarantee fee Benefit to the appellant(INR in Cr) Packing Credit EUR to million 68 Crores 2.56% 1.74 LC/Guarantee EUR 30 million 204 Crores 3.50% 7.14 Total 8.88 Your honour would appreciate from the above that the services availed by DSM India resulted in benefit to the assessee and indeed added economic and commercial value to the business of the assessee. In case these services were not provided by the AEs the assessee would have left with no choice but to pay an independent enterprise (third party) for the activity performed for it or would have performed the activity in house for itself.

14. The above also clearly shows that how assessee has received the financial services which have led to the benefits to the assessee to the tune of Rs. 8.88 crores. Therefore, we set aside the order of Assessing Officer and direct him to re-compute the amount of adjustment by reducing 50% of Rs. 8.88 crores from the total Corporate service charges i.e. Rs. 7,99,31,741/- minus Rs. 4.44 crores (i.e. 50% of Rs. 8.88 crores) i.e. (Rs. 7,99,31,741 Rs. 4,44,00,000) = Rs. 3,55,31,741/-. The Assessing Officer may also examine the amount of benefit calculated by the assessee and verify the amount if the conclusion is different, the Assessing Officer may decide the issue accordingly. Otherwise adjustment shall be made for Rs. 3,55,31,741/-.

15. Ground No.4 : After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that assessee had diverted certain funds by way of advance to Hindustan Max G. B. Ltd and, therefore, proportionate interest @ 16.55% was held to be not allowable.

16. Before us Ld. Counsel for the assessee pointed out that identical issue has been decided by the Tribunal for assessment years 2003-04 to 2008-09. He further pointed out that in assessment year 2003-04, the Revenue had filed the appeal before the jurisdictional High Court and the Honble Punjab & Haryana High Court has confirmed the decision of the Tribunal and, therefore, now the matter is squarely covered in favour of the assessee.

17. On the other hand Ld. DR strongly supported the order of Assessing Officer.

18. After considering the rival submissions we find that Tribunal in ITA No. 366/Chd/2004 has decided this issue in favour of the assessee and has noted the facts as under:-

It is noted that HMGB Limited manufacturers and supplies Penicillin G which is a critical raw material for the appellant. The table below provide an overview of the total raw material (Penicillin G) purchased by the appellant from all suppliers and the raw material purchased from HMGB Limited during the previous year relevant to the assessment year 2003-04 under consideration:- Particulars Quantity in Kg. % of total purchases Penicillin G- Imported (A) 1012686 38.37% Penicillin G- Domestic *from HMGB Limited 120256 0 45.56% *Other suppliers 424098 16.07% (B) 1626658 61.63% Total(A+B) 2639344 100% It is seen from the above that the purchases of Penicillin BG from HMGB Limited constitutes about 45.56% of total purchases and about 73.93% of total domestic purchases, therefore, by advancing the sum of money, the appellant has in fact secured its own business and ensured that it meets up its own production schedule. It is also observed that if the appellant would not have provided the advances to the HMGB Limited the production capacity of the appellant would have been reduced considerably because of not receiving the raw material supplied by HMGB Limited in timely manner. In view of the above, it is held that the advance made to HMGB Limited were for the purposes of the business of the appellant.

Thereafter following observation has been made in para 8 which is as under:-

8. Applying the above tests to the facts of the case of the assessee, it is seen that undisputedly borrowings have been made by the assessee company from the holding company on which it is praying interest. Now, the claim of Assessing Officer is that the assessee has made advances to HMGB, its subsidiary company by utilizing the borrowings and writing off the internet due to it. In our view, the advances have been made to HMGB for commercial consideration since the assessee company is entitled to purchase raw material from the said company and infact the component of supply from HMGB is substantial. A part from the above, on the advances made, the assessee is also entitled to an interest at the rate of 16.5%. It is no doubt true that a part of such interest pertaining to the instant year and previous year has been written of on account of losses suffered by the HMGB, yet it is also a fact that even in the instant year, the assessee has earned interest on the advances made to HMGB of sum of Rs. 5.08 crores, which has been offered for tax. It is thus evident that, the borrowings made by the assessee company from the parent company had been utilized for the purpose of business or profession. The claim of the appellant has been accepted consistently in the past and allowed by the Assessing Officer and the deduction claimed on account of interest expenditure has been allowed. There are no changes in the facts and circumstances other than that the part of the interest accrued and due on the advances made to HMGB has been written off in the instant year. This fact alone cannot be a basis to suggest that the borrowings from the parent company has not been utilized for business purposes particularly when it is not in dispute that the assessee had earned interest of Rs. 5.08 crores even in the year under consideration which forms part of the income assessed. It is also not in dispute that the assessee had raised interest free loan of Rs. 95 crores from its parent company in the past which too has been put to use by the assessee in its business and it has been claim of the assessee before the lower authorities that the amount advances to HMGB is out of such amount. There is no finding in the assessment order that the advances made to HMGB in the past years, which are outstanding during the year, have been made out of the interest bearing loan from the parent company. In any case we are not going into this aspect. In our view, there is sufficient material to show that the relationship of the assessee with its subsidiary, HMGB was based on commercial expediency and the advancing of the amount was for business purpose. In this regard, we may make a reference to the order of the CIT(A) for assessment year 2004-05 which is also subject mater of appeal before us. The CIT(A) has tabulated the price advantage to the assessee on purchases made from HMGB, an uncontroverted fact, which clearly indicates commercial prudence apart from ensuring continuous and timely supplies. Thus, on the grounds of consistency and commercial expediency, the deduction claimed by the assessee company is in accordance with law and the CIT)(A) correctly allowed the claim of the assessee. In such circumstances, the interest paid on the borrowings of Rs. 76,21,436/- is an allowable deduction under section 36 (1)(iii) of the Act in terms of the la .lders (supra) whrein it has been observed as under:- It is true that the borrowed amount in question was not utilised by the assessee in its own business, but had been advanced as interest free loan to its sister concern. However, in our opinion that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans.

19. The above order of Tribunal has been confirmed by Honble Punjab & Haryana High Court in ITA No. 257 of 2009 vide order dated 28.10.2013 which is placed in the paper book at pages 465 to 474. Therefore, the issue is squarely covered in favour of the assessee. According, following the earlier orders, we decide this issue in favour of the assessee.

20. Ground No.5: After hearing both the parties we find that certain commission payments were disallowed by the Assessing Officer. The commission to the extent of Rs. 48,64,408/- paid to various foreign parties was totally disallowed and commission paid to local parties in excess of 3% commission was disallowed which amounted to Rs. 34,20,165/-.

21. Before us Ld. Counsel for the assessee submitted that this issue has also been decided by the Tribunal in earlier years and commission paid to foreign parties has been remanded back to Assessing Officer in assessment year 2006-07 in ITA No. 1455/Chd/2010. He further pointed out that domestic commission was fully allowed by the Tribunal, therefore, issue may be decided in terms of order passed in assessment year 2006-07.

22. On the other hand Ld. DR simply supported the order of CIT(A).

23. After considering the rival submissions we find that this issue was adjudicated vide paras 86 & 87 of the order of Tribunal in ITA No. 1455/Chd/2010, which reads as under:-

86. We have heard the rival contentions and perused the record. The issue raised vide ground No. 4 is against the disallowance of commission expenses totaling Rs.96,15,144/-. During the year under consideration, the assessee had claimed total expenditure of Rs.2.60 crores under the head commission. The said commission included both commission paid on account of exports and also the commission paid on domestic sales. The case of the revenue is that the assessee had made sales to certain parties, to whom commission was also paid and the same being not relatable to the business of the assessee, was not to be allowed as an expenditure. However, the case of the assessee before us is that the said commission has been paid against the purchase orders booked by the said concern, who were engaged in trading and were also commission agents. The two transactions were claimed to be different and without any connection to each other. The assessee has placed on record the details of commission paid at pages 291 & 292 of the Paper Book. The abovesaid details reflect commission on export sales paid of Rs.105,63,783/- and domestic commission of Rs.155,27,136/-. The assessee had further furnished the details of the parties alongwith the rates of commission, sales made to the said parties and the total commission paid to the said parties, which are placed at pages 293 and 294 of the Paper Book. As against the export commission, the assessee had paid a sum of Rs.695,475/- on sales of Rs.2.35 crores to M/s Edward Keller @ 2.950%. Further commission of Rs.40,97,199/- on sale value of Rs.13.80 crores has been paid to P.I. Mensangan Sakti. The next item of payment is to M/s Malachite Chemicals, which as per the assessee is Rs.885,880/- on sale value of Rs.2.98 crores @ Rs.2.966%. The Assessing Officer has adopted the commission paid to M/s Malachite Chemicals at Rs.455,257/-. The case of the assessee before us is that the commission agents are also traders of the drugs and are also acting as commission agents. The assessee is engaged in the manufacture of intermediaries and bulk drugs, which in turn are utilized by other concerns for the preparation of the final products. The assessee, through the said commission agents had sold the items manufactured by it to different concerns. The assessee has placed on record the confirmation from P.I. Mensangan Sakti in respect of receipt of commission of Rs.40,97,199/-. The said certificate is placed at pages 305 of the Paper Book. We find merit in the case of the assessee. However, the necessary details in this regard are not available, in particular the plea of the Assessing Officer that the assessee had made sales to the said parties on which commission had been paid. We, therefore, remit this issue to the file of Assessing Officer to verify the claim of the assessee that the commission paid to the said concern had no connection with the sales made to the said concerns and if the contention of the assessee is found to be correct, the Assessing Officer is directed to allow the claim of expenditure booked on account of commission paid on export sales. Reasonable opportunity of hearing shall be afforded to the assessee to put forward its contentions. In view thereof, this issue is set aside to the file of Assessing Officer with our directions.

87. The second aspect of the claim of expenditure under the head commission relates to the commission paid on domestic sales. The Assessing Officer noted that the assessee had paid commission at varying rates starting from about 1% to 5%. The assessee has filed on record the details of the abovesaid commission totaling Rs.155,27,136/-The assessee has tabulated the names of the parties alongwith the details of same value of sales, commission paid and the rates at which paid. The perusal of the said details reflect the commission @ 4.48% being paid to M/s Ace Corporation. The total amount paid to the said party is Rs.1351,250/-. The Assessing Officer, on the other hand, vide para 5.12 has noted that the commission to the said party has been made @ 6.6% vide para 5.12 at page 32 of the assessment order. The assessee, on the other hand, has furnished the details of commission at pages 291 and 292 of the Paper Book in which the commission to M/s Ace Corporation has been shown at Rs.13,51,250/-. We are in conformity with the submission of the assessee that the rate of commission paid for the transaction cannot be interfered by the Assessing Officer as it is the understanding between the parties at the relevant time which determines the rate of commission to be paid on a particular transaction. In view thereof, we reverse the order of Assessing Officer in restricting the rate of commission to 3% . In any case, the said restriction was made by the Assessing Officer observing that the rate of commission paid by the assessee was 6.6% whereas the assessee claims that it had paid commission @ 4.48%. The other two parties to whom commission had been paid by the assessee and the same has been restricted by the Assessing Officer are M/s Integrated Technology and M/s Aakaar Engineering & Manufacturing Co. The commission to the said parties, as alleged by the Assessing Officer are paid @ 6.90% and 6.76% respectively. In line with our observations herein above, we find no merit in the disallowance made by the Assessing Officer restricting to rate of commission to 3% as against the rates agreed upon between the parties. Reversing the order of the Assessing Officer, we delete the addition of Rs.42,77,213/-. The Ground No. 4 raised by the assessee is, thus partly allowed.

24. Following the above order we set aside the issue regarding payment of commission to the non resident parties to the file of Assessing Officer for reexamination in terms of direction contained in para 86 of the order of Tribunal for assessment year 2006-07. Therefore, this aspect is allowed for statistical purposes.

25. Further, as far as the domestic commission is concerned, we delete this addition following the order of Tribunal vide para 87 for assessment year 2006-

07. This aspect is decided in favour of the assessee.

26. Ground No.6 : After hearing both the parties we find that Assessing Officer noticed that assessee had invested a sum of Rs. 5 crores in HMGB ltd. He was of the opinion that income from this investment would be exempt, therefore, he invoked the provisions of section 14A read with Rule 8-D and made disallowance of Rs. 21,15,375/-

27. Before us it was mainly submitted that this investment was written off during the year and, therefore, no exempt income was earned and hence disallowance u/s 14A could not have been made.

28. On the other hand Ld. DR strongly supported the order of Assessing Officer.

29. After considering the rival submissions we find that Honble Punjab & Haryana High Court in the case of CIT, Faridabad Vs. Lakhani Marketing Faridabad in ITA 970 of 2008 (O&M) has clearly held that if there is no exempt income then provisions of section 14A cannot be invoked. Therefore, in our opinion, if there was no income during the year then no disallowance is called for. Since in the case before us investment itself has been written off, therefore, there could not be any income. Accordingly we delete this addition.

30. Ground No.7: After hearing both the parties we find that during assessment proceedings it was noticed that there is an outstanding capital work in progress as on 31.3.2009 amounting to Rs. 142.45 millions. Further, the assessee has paid interest amounting to Rs. 165.71 million on loan of Rs. 2056 million. Assessee was asked why proportionate interest should not be capitalized. In response the assessee filed various details but ultimately Assessing Officer disallowed proportionate interest in terms of provisions of section 36(1)(iii) because the same was required to be capitalized.

31. Before us Ld. Counsel for the assessee referred to various documents and pointed out that whatever fresh loans were taken were foreign loans for specific investment which are not part of the capital work in progress, therefore, proportionate disallowance is not justified.

32. On the other hand Ld. DR supported the order of Assessing Officer.

33. After considering the rival submissions principally we find force in the submissions of Ld. Counsel for the assessee that if no particular loan has been taken for the asset which has been shown under the head capital work in progress then disallowance could not have been made. However, each loan and its utilization requires fresh examination, therefore, we remand this issue to the file of Assessing Officer with a direction to ascertain details of various loans and how they were fully utilized and then only decide the issue in accordance with law.

34. Ground No.8 : After hearing both the parties we find that the assessee has shown expenditure of Rs. 1,20,00,000/- and had not deducted TDS on the same. Assessing Officer has invoked the provisions of section 194H read with section 40(a)(ia) and disallowed this amount as no tax was deducted.

35. Before us Ld. Counsel for the assessee submitted that no tax is required to be deducted against the financial services charges. He referred to page 444 of the paper book which is copy of Schedule 20 related to financial expenses which shows that amount of Rs. 1.20 crores relates to bank charges. It was contended that assessee has obtained regular bank service from banks and bank charges to the tune of Rs. 1,19,98,1219/- were paid which has been shown as Rs. 1.2 crores in the schedule of financial expenses. Since no tax is required to be deducted, this amount could not have been disallowed. In this regard he relied on the decision of Honble Gujarat High Court in the case of Ahmedabad Stamp Vendors Association vs Union of India 257 ITR 202 and the decision of the Mumbai Bench of the Tribunal in the case of Kotak Securities Ltd vs DCIT in ITA No. 6657/Mum/2011.

36. On the other hand Ld. DR while supporting the order of Assessing Officer submitted that no details are available showing to which bank such charges were paid.

37. We have considered the rival submissions carefully and again agree principally with the contention of Ld. counsel of assessee that no tax is required to be deducted in respect of bank charges paid to the banks. However, it is not clear from the records whether these amount pertains to bank charges because Schedule 20 simply shows financial charges, therefore, we remit this matter back to the file of Assessing Officer with a direction to verify whether assessee has paid bank charges to different banks, then no disallowance is required to be made otherwise the issue may be decided in accordance with the law.

38. Ground No. 9: After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that assessee has claimed a sum of Rs. 98,90,766/- from taxable income on account of ex. gratia paid for earlier years u/s 43B read with section 36(1)(ii). According to Assessing Officer, ex. gratia was not covered u/s 43B, therefore, the sum of Rs. 98,90,766/- was disallowed in the draft assessment.

39. Before DRP, the assessee made the following submissions

9. That on facts and circumstances of the case and in law

9.1 The Ld. Assessing Officer has erred in proposing a disallowance of Rs. 9,890,766/- claimed by the assessee company on payment basis under section 43B of the Act on the alleged ground that ex.gratia is not covered under section 43B read with section 36(1)(ii) of the Act and treating the same as being prior period expense.

9.2 The Ld. Assessing Officer has erred in wrongly proposing the above mentioned disallowance of Rs. 9,890,766 ignoring the fact that only Rs. 1,991,953 has been actually claimed by the assessee company under section 43B of the Act while computing the taxable income.

9.3 The Ld. Assessing Officer has erred in proposing a disallowance of Rs. 9,890,766 without giving the assessee company an opportunity of explaining the facts of the case.

9.4 Without prejudice to the above grounds, the Ld. Assessing Officer should have allowed Rs. 2,123,841/- being the amount of ex.gratia payable to the employees during assessment year 2009-00, sue motto disallowed by the assessee company on account of non- payment by applying the provisions of section 43B of the Act.

40. The DRP simply rejected these contentions by observing that ex.gratia is not covered by the provisions of section 43B. The Assessing Officer reproduced the observations of the DRP at page 79 of the assessment order in para 7.2. However, he observed that since total deduction shown under this head was only Rs. 19,91,953/-, therefore, he disallowed only a sum of Rs. 19,91,953/- .

41. Before us, the Ld. Counsel for the assessee submitted that ex.gratia is like bonus and it consists of the amount which is not covered by the Bonus Act or the excess payment over and above the amount prescribed under the Bonus Act, therefore, ex.gratia should be construed as bonus only and in this regard he relied on the decision of of Honble Calcutta High Court in the case of CIT vs Shaw Wallace and Co. Ltd. 190 ITR 455 (Cal.). He further submitted that in any case the sum of Rs. 21,23,841/- was amount of ex.gratia which was payable during the year and if the same is not held to be the part of the bonus u/s 43B, then the same should be allowed on accrual basis.

42. On the other hand Ld. DR strongly supported the assessment order.

43. After considering the rival submissions we do not agree with the submissions that ex. gratia should be construed as part of the bonus. We have carefully perused the judgement of Honble Calcutta High Court and in that case there is no such principle laid down. However, the Honble Court has clearly held that ex.gratia payment made to employees which consists of bonus payment over and above the Bonus Act should be allowed as business expenditure. Therefore, if sum of the ex.gratia payment was payable for that year, the same was required to be allowed on accrual basis as part of the business expenditure. Since this aspect has not been examined by the Assessing Officer, therefore, we set aside his order and remand the matter back to his file for reexamination of the computation of the ex.gratia payment and if some of the ex.gratia payment pertains to the assessment before us i.e. Assessment year 2009-10, then the same should be allowed on accrual basis as business expenditure otherwise the issue may be decided in accordance with law.

44. Ground No.10: After hearing both the parties we find that during assessment proceedings the assessee has reduced a sum of Rs. 1,05,26,246/- from taxable income on account of provisions written back. On appeal, it was mainly submitted that Assessing Officer has failed to appreciate the fact that this amount was originally not claimed as expenditure and, therefore, could not be made taxable now. The DRP simply held that this amount was taxable and accordingly Assessing Officer made addition of Rs. 1,05,26,246.

45. Before us Ld. Counsel for the assessee reiterated the submissions made and emphasized that this amount was never claimed as expenditure when the provision was created. At best, this amount could have been made taxable u/s 41(1) if deduction was allowed earlier. In this regard he referred to page 568 of the paper book which is copy of the Audit Report.

46. On the other hand Ld. DR strongly supported the assessment order.

47. After considering the rival submissions we find that if expenditure was not allowed in the earlier years when provision was created then no addition could be made when such provision is written back. However, no details are available in assessment order. We have also gone through page 568 of the paper book but do not find any detail therein, therefore, in the interest of justice we set aside the order of Assessing Officer and remit the same back to his file to examine whether any claim of expenditure was allowed in the earlier years when this provision was created. If no such expenses was allowed then writing back of the provisions cannot be treated as income, However, if such expenditure was allowed in the earlier years then the same is required to be added in the income. Therefore, he should decide the issue after examining these facts.

48. Ground No.11: After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed in the notes to the accounts it was mentioned that a penalty on custom duty amounting to Rs. 20 lakhs due to import of duty free material against the DEPB licences was there. Therefore, this penalty was proposed to be added to the income of the assessee. Before DRP it was pointed out that penalty was of contingent nature and no claim has been made in the account, therefore, this amount could not be disallowed. The DRP simply held that in notes to the accounts there is a clear mention a sum of Rs. 20 lakhs as penalty, therefore, this amount was required to be added to the income and accordingly the Assessing Officer disallowed this sum.

49. Before us Ld. Counsel for the assessee submitted that only a sum of Rs. 2 lakhs was shoawn as penalty which was shown under the head contingent liability in the notes to the accounts whereas the Assessing Officer has taken the same to be a sum of Rs. 20 lakhs as actual penalty paid which is not correct. In this regard he referred to pages 455 and 456 of the paper book which is relevant portion of the notes of the account.

50. On the other hand Ld. DR strongly supported the order of Assessing Officer.

51. After considering the rival submissions we find that the following amount is shown under the head contingent liability:- (iii) Penalty on custom duty amounting to Rs. 0.20 (previous year Rs. 0.20) due to import of the duty free material against DEPB Licenses which was not in order. The above clearly shows that firstly the amount is Rs. 0.2 million i.e Rs. 2 lakhs and not Rs. 20 lakhs. Secondly, a contingent liability represents a liability which may arise or not arise on happening of a particular event and it is not the actual liability. Therefore, it cannot be said that assessee has claimed this amount as expenditure. Accordingly the amount mentioned under the head contingent liability cannot be disallowed, therefore, we set aside the order of Assessing Officer and delete this addition.

52. Ground No.12: After hearing both the parties we find that during assessment proceedings it was noticed by Assessing Officer that assessee has claimed the expenditure to the tune of Rs. 4,67,30,000/- on account of payment for royalty. It was further noticed that in the earlier years the deduction under the same head was only Rs. 4,15,10,000, therefore, assessee was asked to justify the claim of the royalty payment. In response, it was stated that assessee has entered into a license agreement with DSM Anti Infective BV (in short DAI BV). According to this agreement DAI BV had agreed to give a license to the assessee company for the use of the patent and technology for the produce of a product known as Purimox it was further explained that this agreement was non divisible, non exclusive and non transferable and non sub-licensable. The owner of the patent i.e. DAI BV remains the owner along with improvement made to this patent. The Agreement provides that assessee shall use the technology solely for manufacture of the product of purimox and for not any other purpose. Therefore, such expenses could not be termed as expenditure for acquisition of a capital asset. Some case laws were also referred to. The Assessing Officer after examining these submissions did not agree with the same and observed that payment of royalty could not be considered as revenue expenditure because by paying this sum, the assessee enjoyed rights of using the patent and advance technology.

53. On appeal, similar submissions were made before the DRP but DRP also agreed with the views of the Assessing Officer and therefore, ultimately a sum of Rs. 4,67,30,000/- was disallowed.

54. Before us, Ld. Counsel for the assessee referred to the license agreement, copy of which is available at pages 660 to 668 of the paper book. He carried us through various clauses and pointed out that assessee got right to use the patents owned by DAI BV. He also pointed out that such license agreement was not divisible, non exclusive and non transferable, therefore, assessee did not have any other right but to use the technology for production of purimox. The property and ownership of the patents always remained with the DAI BV. Therefore, it cannot be said that assessee had paid this royalty for acquisition of any capital asset or for any enduring benefit. In this regard, he mainly relied on the decision of Honble Supreme Court in the case of CIT v I.A.E.C (Pumps) Ltd 232 ITR 316 . He also relied on the following judgments:- i) Empire Jute Co. Ltd v CIT [1980] 124 itar 1) ii) Hero Honda Motors Ltd (TS-40-High Court-20115(DEL) iii) Assam Bengal Cement Co Ltd v CIT [1955] (27 ITR 34 ) iv) CIT v Alembic Glass Industries Ltdx [1969] 71 ITR 752 (Guj.)

55. On the other hand Ld. DR strongly supported the order of the Assessing Officer.

56. We have considered the rival submissions carefully. We find force in the submissions of Ld. Counsel for the assessee. The license agreement between the DAI BV and the assessee has been entered on 10.03.2006. Clause (2) of this agreement reads as under:- 2. LICENCE

2.1 For the duration of this Agreement and subject to the terms and conditions contained herein, DAIBV herby grants DAI-INDIA hereby accepts from DAIBV, a non-dividable, non exclusive, non transferable and non-sublicensable the Patents and the Technology solely to use the patents and the Technology at the Purimox Plant for the manufacture of the Product and for the subsequent sale of the Product within the Territory.

2.2. DAI_INDIA shall use the Technology solely for the manufacture of the Product at the Purimox Plant and the sale of the Product in accordance with the terms of conditions contained herein. Any other use of the Technology by DAI-INDIA shall be deemed a material breach of DAI-INDIA hereunder and shall entitle DAIBV to terminate the Agreement pursuant to Article 8.3 below, in addition to any other remedies available to it by law. Further some other important clauses are as under:-

4. The title to the Patents and the Technology shall remain with DAIBV, Title to any and all improvements of the Patents and Technology shall vest exclusively in DAIBV.

5.1 DAI-INDIA shall pay a lump sum royalty for the License granted hereunder royalty payable in installments as follows:- 2006 : US$ 0 2007 : US$ 1.0 mio (one million) 2008 : US$ 1.0 mio (one million) 2009 : US$ 1.0 mio (one million)

57. The perusal of the license agreement and particularly the above clauses clearly shows that assessee has obtained the right to use the patent for production of purimox and this right is non exclusive and cannot be used for other purposes other than the production of the particular product. Further, the ownership of the patent remains with the owner. Also for usage of this patent, a lumpsum payment in the form of royalty has been agreed for in terms of clause

5.1. Therefore, it is clearly a payment of royalty for use of the patent. In our opinion, this is clearly a case of revenue expenditure.

58. In the similar case which came up for the consideration of the Honble Supreme Court in the case of CIT v I.A.E.C (Pumps) Ltd. (supra) wherein under an agreement the assessee was granted a licence to use its patents and designs exclusively in India. The agreement was for a duration of 10 years with the parties having the option to extend or renew the agreement. The foreign company undertook not to surrender its patents without the consent of the assessee and to make available to the assessee any improvements, modifications and additions to designs. It had also undertaken to enable the assessee to defend any counterfeit by others. The assessee was not to disclose to third parties any of the documents made available by the foreign company to the assessee without having received a written authorisation from the foreign company. The High Court held that these features of the agreement clearly established that what was obtained by the assessee was only a licence and what was paid by the assessee to the foreign company was only a licence fee and not the price for acquisition of any capital asset. On appeal by the Department to the Supreme Court it was held as under:

Held, affirming the decision of the High Court, that the High Court had applied the proper principles of law and had rightly held that the expendi-ture incurred by the assessee was only revenue expenditure.

59. In our opinion the case of the assessee is identical to the above noted case of the Supreme Court and the principle laid down by Honble Supreme Court is clearly applicable. Therefore, we set aside the order the Assessing Officer and hold that expenditure incurred for payment of royalty is allowable and therefore, delete the addition.

60. Ground No. 13 : After hearing both the parties we find that during assessment proceedings the assessee was asked to furnish details of misc. expenses amounting to Rs. 7,70,21,133/-. On verification of these details, it was found that proper bills, vouchers were not available in respect of certain items of expenditure. The assessee was again given opportunity but assessee could not furnish the proper bills etc. The details of these expenses has been incorporated by Assessing Officer at page 104 of the assessment order.

61. On appeal, it seems that assessee filed additional evidence before the DRP which has not been considered and DRP confirmed the action of the Assessing Officer, therefore, the Assessing Officer disallowed a sum of Rs. 65,13,383/-.

62. Before us Ld. Counsel for the assessee submitted that this issue cropped up in the assessment at the fag end of the proceedings and assessee could not file the requisite details because of paucity of time. Majority of the bills amounting to Rs. 61,14,688/- were filed before the DRP by way of additional evidence but the same was not considered. As far as a sum of Rs. 14,82,137/- is concerned, the same has been separately disallowed as training expenses and this would be a case of double disallowance.

63. On the other hand Ld. DR strongly supported the assessment order.

64. After considering the rival submissions we agree with the contention of the Ld. Counsel. It seems that DRP has not bothered to consider the additional evidence filed before it without assigning any reason. In any case when separate disallowance has been made for Rs. 14,82,137/- on account of training expenses this would amount to double disallowance. Therefore, in the interest of justice we set aside the order of Assessing Officer and remit the same back to his file for re-examination of the issue and, the same should be decided after considering the contention of double disallowance on account of training expenses as well as after verification of the supporting bills filed before the DRP.

65. Ground No.14 was not pressed before us and, therefore, the same is dismissed as not pressed.

66. Ground No.15 ; After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that assessee has claimed huge amount under the head discount. It was noticed that in some of the csses which has been listed by him at pages 109 and 110 of the assessment order, invoices pertains to the earlier period, therefore, the discount could not have been claimed during the year. The DRP also confirmed this disallowance; therefore, Assessing Officer disallowed this amount. 67 Before us it was submitted that actually the assessee could not recover the amount of dues from the parties listed by the Assessing Officer details of which has been filed in the paper book at page 642. He also referred to page 644 of the paper book which is a copy of the submissions made before the Assessing Officer in which it was clearly stated that this amounts though relates to the earlier years but the same are on account of sales made to various parties and could not be recovered. The Ld. Counsel submitted that at best this could be treated as short and excess recoveries and assessee could have easily claimed the same as bad debts because no recoveries could be made from these customers.

68. On the other hand Ld. DR strongly relied on the order of Assessing Officer.

69. After considering the rival submissions we agree with the submission of Ld. Counsel of the assessee. If amount could not be recovered from the customers despite efforts and the same could have been easily claimed as a bad debt which are clearly allowable, by writing off such amounts because simply an amount has been shown as discount the same cannot be disallowed. Therefore, we set aside the order of Assessing Officer and delete this addition.

70. Ground No.16: After hearing both the parties we find that during assessment proceedings the Assessing Officer noticed that assessee has incurred expenses of Rs. 14,82,137/- on training of its employee at Netherlands by the holding company. On enquiry it was explained that a special course meant to enhances the professional skill of the employee of the assessee was undertaken at Netherlands. According to Assessing Officer, this would amount to rendering of professional services by holding company and, therefore, TDS was deductible u/s 195 of the Act. The assessee was asked to explain why this amount should not be disallowed because of non deduction of TDS. In response, it was mainly stated that expenditure was incurred on training of the employee and assessee has simply reimbursed the holding company expenses incurred on such training. Further, the holding company did not have any presence in India and even if it amounts to rendering of services they were rendered abroad and are not taxable in India and there was no requirement for deducing the tax. Reliance was also placed on various case laws. The Assessing Officer was not satisfied with this explanation and proposed to made addition in the draft assessment order. The DRP after considering the submissions observed as under;-

The DRP has considered the submission of the assessee carefully. It is seen that payments have been made to holding company for providing training to employees of the assessee. The assessee has submitted that leadership training does not fall into category of technical service under relevant Article of DTAA and also it does not satisfy make available clause contained in Article 12(5) of Indo-Netherlands treaty. DRP has noted that imparting of training in specialized filed is itself technical in nature. Further, when the employees of the assessee have been trained, how can it be said that technical knowledge has not been imparted to the assessee. Therefore, make available clause is satisfied. Accordingly payments are in nature of FTS under both domestic act and DTAA and hence subject to withholding tax u/s 195 of the Act. Accordingly, DRP is of the view that since tax has not been deducted while making payment, Assessing Officer action is as per law. The grounds of objection are rejected

. In view of the above the Assessing Officer disallowed this expenditure.

71. Before us, Ld. Counsel for the assessee submitted that employee of the company Mr R.T. de Vries underwent business leadership training programme in Netherlands. The assessee company has simply reimbursed the expenses incurred on such training. This expenditure cannot be treated as fee for technical services and, therefore, no tax was deductible. He also relied on the decision of ITAT Mumbai Bench of the Tribunal in Raymond Ltd v DCIT 86 ITD 791 (Mum.)

72. On the other hand Ld. DR strongly supported the order of Assessing Officer

73. After considering the rival submissions carefully we agree with the contention of Ld. Counsel for the assessee. Merely reimbursement of expenses incurred on the training of a particular employee abroad cannot be termed as fee for technical services. Even if, assuming for the argument sake that this would amount to fee for technical services, then it is to be seen that such service was rendered in India, which has not happened. Therefore, in our opinion this amount of reimbursement of expenses does not attract provisions of section 195 and tax was not deductible. Accordingly we set aside the order of Assessing Officer and delete this addition.

74. Ground No.17 Through this ground the assessee has raised the issue of charging of interest u/s 234B and 2234C which is consequential in nature and therefore, we direct the Assessing Officer to charge the interest as per the provisions of law.

75. Ground No.18: Through this ground the issue of initiation of penalty proceedings u/s 271(1)(c) has been raised.

76. Both the parties agreed that this is pre-mature and does not require separate adjudication. Therefore, we hold that this is premature issue and does not require any adjudication.

77. Ground No.20: After hearing both the parties we find that a sum of Rs. 5 crores was added by the Assessing Officer to the book profits because the same was in the nature of provision for diminution of investment. In fact there is no discussion in the assessment order and this amount has been added as

provision of diminution of investment being in cash flow and is shown as provision at para 21 of the order.

78. Before us, Ld. Counsel for the assessee submitted that it is a case of total loss of investment and in this regard he referred to page 82 of the assessment order where a discussion has been made while disallowing the write off of the investment. It is a case of total loss of investment because net worth of the HMGB where investment was made has become negative. The clause (i) of Explanation 1 to section 115 JB mandates adjustment for provision for diminution of investment and whereas in the case before us the total investment is written off.

79. On the other hand Ld. DR strongly submitted that the Company HMGB has not been liquidated, therefore, the same is to be treated as provision for diminution of value of any asset and, therefore, has been rightly added to the book profit.

80. We have considered the rival submissions carefully. Clause (i) to Explanation 1 reads as under;- [1] For this purposes of this section, book profits

means the net profit as shown in the profit and loss account of the relevant previous years prepared under sub-section (2), as increased by- (a) to h) (i) the amount or amounts set aside as provision for diminution in the value of any asset. The plain reading of the above provision would clearly show that adjustment can be made to the book profit under clause (i) to Explanation (1) only in respect of provision of diminution of value of any asset but in case before us it is a case of total write off. Perusal of Schedule 18 of the profit and loss account, copy of which is available at page 443 clearly shows that this amount has been written off by the following narration - Writing off of investment Thus, it becomes clear that it is a case of total loss of investment which is not covered by clause (i) to Explanation (1) of section 115JB which has been reproduced by us above, therefore, we set aside this order of Assessing Officer and delete this addition.

81. Ground No. 21: The Ld. Counsel for the assessee submitted that Assessing Officer wrongly made adjustment of wealth tax amounting to Rs. 52,493/- and provision of FBT amounting to Rs. 72 lakhs. He contended that this amount could not be treated as part of income tax. In this regard he relied on the decision of Honble Bombay High Court in the case of CIT v Echjay Forgings Pvt. Ltd 251 ITR 15 and in JCIT v Usha Martin Industries Ltd, Balmer Lawrie and Co. Ltd vs ACIT & ACIT v Balmer Lawrie and Co. Ltd and DCIT v India Container Leasing Co Ltd. 288 ITR (AT) 63.

82. On the other hand Ld. DR supported the assessment order.

83. After considering the rival submissions carefully we find force in the contentions of Ld. Counsel for the assessee. The Special Bench of the Tribunal in the cases of JCIT v Usha Martin Industries Ltd, Balmer Lawrie and Co. Ltd vs ACIT & ACIT v Balmer Lawrie and Co. Ltd (supra) has clearly held that provision for Wealth Tax is not enumerated in the provision to section 115JB, therefore, the same cannot be added to the book profits. This position was also confirmed by the Honble Bombay High Court in the case of CIT v Echjay Forgings Pvt. Ltd (supra). In our opinion, the same logic would apply in case of FBT. Therefore, we set aside the order of Assessing Officer and direct him to reduce the provision for wealth tax and provision for FBT from the book profit.

84. Ground No.22: After hearing both the parties we find that Assessing Officer has added a sum of Rs. 21,15,375/- to the book profits which was disallowed u/s 14A.

85. Before us Ld. Counsel for the assessee submitted that this ground has become consequential lo ground No.6 which has already been contended and shall depend upon the outcome of the decision of that ground.

86. On the other hand Ld. DR supported the order of Assessing Officer

87. After considering the rival submissions we noticed that while adjudicating ground No.6 of the assessees appeal, we have already deleted the addition made u/s 14A vide para 29 of the order, therefore, naturally there cannot be any addition to the book profit. Therefore, we set aside the order of Assessing Officer and delete this addition.

88. Ground No.23: This ground is again of consequential nature and therefore, Assessing Officer is directed to allow the amount of MAT credit as per the provision of the Act.

89. In the result, the appeal is partly allowed. Order pronounced in the Open Court on 16/03/2015 Sd/- Sd/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 16 th March, 2015 rkk Copy to: The Appellant, The Respondent, The CIT, The CIT(A), The DR