IN THE INCOME TAX APPELLATE TRIBUNAL DELHI

BENCH ‘I-1’, NEW DELHI

BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER

AND SH. KULDIP SINGH, JUDICIAL MEMBER

(THROUGH VIDEO CONFERENCING)

ITA No.6194/Del/2015 (for Assessment Year 2009-10)

ITA No.463/Del/2016 (for Assessment Year 2009-10)

Havells India Ltd., Vs. DCIT (LTU),

1, Raj Narain Marg, NBCC Plaza,
Civil Lines Sector – 4,
Delhi – 110054 Pushp Vihar, Saket
New Delhi
PAN No. AAACH 0351 E
(APPELLANT) (RESPONDENT)

Assessee by Shri Ved Jain, Advocate

Shri Akshat Goyal, Advocate
Revenue by Shri Bhagwati Charan, CIT(DR)

Date of hearing: 09/12/2020

Date of Pronouncement: 19/01/2021

ORDER

PER ANIL CHATURVEDI, AM:

Both the appeals by the assessee are preferred against the order
of the Commissioner of Income Tax (Appeals)-22 & 44, New Delhi
dated 23.10.2015 & 29.10.2015 respectively pertaining to
Assessment Year 2009-10. Appeal No 6194/Del/2015 is against
the quantum additions confirmed by CIT(A) and appeal No ITA
No.463/Del/2016 is against the order passed u/s 154 of the Act.

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2. The relevant facts as culled from the material on records are

as under:

3. The assessee is a company stated to be engaged in the

business of manufacturing of switchgears, energy meters etc.
Assessee electronically filed its return of income for A.Y. 2009-10
on 26.09.2009 declaring total income of Rs.2,73,93,854/- under
the normal provisions and Rs.1,67,73,82,769/- under the MAT
provisions. The case was selected for scrutiny and notice u/s
143(2) of the Act dated 06.09.2010 was issued and served on the
assessee.

4. AO noted that during the year under consideration, assessee

had entered into international transactions with its Associate
Enterprise (AEs) and the value of such transactions exceeded
Rs.15 crores. He therefore referred the case to TPO on 25.07.2011
u/s 92CA for computing the Arm’s Length Price (ALP) of the
international transactions entered by the assessee with its AEs.
The TPO vide order dated 22.01.2013 passed u/s 92CA(3)
proposed adjustment of Rs.59,02,538/- with respect to market
support services and Rs.15,19,68,061/- towards interest on
excess amount of investments in share and thus proposed
aggregate adjustment of Rs.15,78,70,599/- to the total income on
account of ALP with respect to international transaction with
associated enterprises. AO thereafter in the order passed u/s
143(3) r.w.s 144C(4)(a) of the Act dated 28.05.2013 determined

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the total income of the assessee under normal provisions of the

Act at Rs.21,18,15,600/- and book profit of Rs.165,91,02,036/-.

5. Aggrieved by the order of AO, assessee carried the matter

before the CIT(A) who vide order dated 23.10.2015 in Appeal
No.30/14-15/CIT(A)-22, New Delhi granted partial relief to the
assessee. Aggrieved by the order of CIT(A), assessee is now in
appeal before us and has raised following grounds in ITA No.
6194/Del/2015 and ITA No.463/Del/2016 for A.Y. 2009-10.

ITA No.6194/Del/2015
1. That the impugned order of CIT (Appeals)-22, New Delhi is
bad in law and wrong on the facts and in the circumstances
of the case and legal position.

2. That on the facts and in the circumstances of the case and

the legal position, the learned CIT (Appeals) has erred in
confirming the Order passed by the AO re-computing the
book profit u/s 115JB by adding the amount at
Rs.2,47,68,964/- on account of Sales incentive under
‘Shahenshah Scheme’ treating the same as unascertained
and contingent liability.

3. That on the facts and in the circumstances of the case and

the legal position, the learned CIT (Appeals) has erred in
confirming the Order of the AO when :

i. addition made by the AO in the assessment proceedings u/s

143(3) is debatable addition.
ii. the addition u/s 143(3) is debatable, the rectification
proceedings u/s 154 are illegal and void-ab-initio.

4. That the appellant, craves, leave to add/alter/delete/amend

any ground(s) of appeal before or at the time of hearing.”

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ITA No.463/Del/2016

1. That the impugned order of CIT (A)-44, New Delhi is bad in law
and wrong on the facts and in the circumstances of the case
and legal position.

2.01 That on the facts and in the circumstances of the case and the
legal position, the learned CIT(A) has erred in confirming the
disallowance of Rs.17,59,124/- u/s 40(a)(i) of the Act, 1961
paid to a foreign entity as testing / certification fees outside
India, as no income has accrued /arisen in India.

2.02 That the Learned CIT(A) has failed to appreciate that

testing/certification fees paid outside India was not chargeable
to tax under the provisions of the IT Act, 1961 read with the
overriding provisions of the applicable DTAA and therefore,
there was no default in not deducting tax at source.

2.03 That the learned CIT(A) has erred in holding that the amount
paid to foreign entity towards testing/ certification fees is for
technical services for the purpose of making/earning income in
India.

3. That on the facts and in the circumstances of the case and the
legal position, the learned CIT(A) has erred in confirming the
disallowing a sum of Rs.2,47,68,964/- in respect of provision
made for sales incentive under “Shahensha Scheme” and
holding that the provision made by the appellant under the
aforesaid scheme was not being made on a scientific or logical
basis and therefore the provisions, is not allowable as
deduction.

4. That on the facts and in the circumstances of the case and the
legal position, the learned CIT(A) has erred in not allowing the sum
of Rs. 23,059/- being the interest income of Rs.16,725/- and

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Rs.6,334/- in respect of Baddi and Haridwar units respectively for

the purpose of deduction u/s 8OIC of the I.T. Act, 1961.

5.01. That on the facts and in the circumstances of the case and the
legal position, the learned CIT (A) has erred m not allowing the
deduction of education cess and secondary and higher education
cess of Rs.54,75,037/-.

5.02. That on the facts and in the circumstances of the case and the
legal position, the learned CIT (A) has erred in not adjudicating the
aforesaid claim on the ground that the claim was not made by
filing a revised return, without appreciating that the embargo/
prohibition contained in the case of Goetze India Limited 284 ITR
323 (SC) do not apply to the powers of the appellate authority to
entertain any fresh/ new claim.

6. That on the facts and in the circumstances of the case and the
legal position, the learned CIT (A) has erred in not allowing the
deduction of interest expenses of Rs.1,57,80,709/- when:

a) the proviso to section 36(1)(iii) of the IT Act, 1961 is not

applicable to the appellant Company.
b) interest expenses has been incurred for expansion and not
for the extension of existing business activities of the
appellant Company.
c) without prejudice, the learned CIT (A) has erred in not
adjudicating the aforesaid claim on the ground that the claim
was not made by filing a revised return, without
appreciating that the embargo/ prohibition contained in the
case of Goetze India Limited 284 ITR 323 (SC) do not apply
to the powers of the appellate authority to entertain any
fresh/ new claim.

7. That on the facts and in the circumstances of the case and the
legal position, the learned CIT (A) has erred in confirming the
adjustment by re-determining the arm’s length price under Section
92CA of the Act, of the appellant Company’s international
transactions of support services provided to wholly owned foreign
subsidiary Company and step down subsidiary Company (AE) at
Net Cost plus margin (‘NCP’) of 12.92% as against 7.70% claimed

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by the appellant Company and thus confirming the disallowance

of Rs.36,04,286/-.”

6. We thus first proceed to dispose of assessee’s appeal in ITA

No.463/Del/2016.

7. Before us, at the outset, Learned AR submitted that the

Ground No.1 is general in nature therefore requires no
adjudication.

8. Ground No.2 and the sub grounds are with respect to the
disallowance u/s 40(a)(i) of the Act.

9. During the course of assessment proceedings, AO noticed

that assessee had paid Rs.17,59,124/- to a foreign entity and
while making the aforesaid payment no TDS was deducted. The
assessee was asked to explain as to why the amount not be
disallowed u/s 40(a)(i) of the Act to which the assessee inter alia
stated that the amount was paid as testing expenses to various
foreign entities for the purpose of certification of electrical
products manufactured by it. It was further submitted that the
testing was done by foreign entity outside India for the purpose of
exports outside India, the services was rendered and utilized
outside India and the payment have also been received by the
foreign entity outside India, the assessee’s case falls under the
exemption provided u/s 9(1)(vii)(b) of the Act and therefore
assessee was not required to deduct TDS on the payments. The

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submissions of the assessee was not found acceptable to AO as

he was of the view that the payment made by the assessee falls
within the purview of “fees for technical services” and the testing
report certification etc. was in respect of products to be utilized
for the purpose of the business of the assessee. AO also noted
that the Hon’ble Delhi High Court in assessee’s own case for A.Y.
2005-06 had decided the issue against the assessee. He therefore,
held that non-deduction of tax by the assessee would lead to
attraction of provision u/s 40(a)(i) of the Act and accordingly he
disallowed the payments of Rs.17,59,124/-.

10. Aggrieved by the order of AO, assessee carried the matter

before the CIT(A) who upheld the order of AO. Aggrieved by the
order of CIT(A), assessee is now before us.

11. Before us, Learned AR reiterated the submission made

before the AO and CIT(A). He further submitted that AO had
made the disallowance after wrongly inferring the order passed by
the Delhi High Court for A.Y. 2005-06 to be against the assessee.
He submitted that AO had quoted only a part of order of the Delhi
High Court in the assessment order and had failed to notice that
Delhi High Court had restored the issue to the ITAT to examine
the issue relating to the applicability of Indo-US Treaty to the
receipts in question and consequently applicability of provision of
Section 40(a)(i) of the Act. He submitted that pursuant to the

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directions of the Hon’ble Delhi High Court, the Tribunal after

reviewing the facts had vide order dated 24.05.2018 in ITA
No.1300/Del/2010 decided the issue in favour of the assessee.
He pointed to the relevant order which is placed in the paper book
submitted by the assessee. He therefore submitted that the
reliance placed by the AO on the decision of Hon’ble Delhi High
Court in the case of assessee is misplaced. He thereafter
submitted that identical issue came up in subsequent year i.e.
A.Y. 2006-07 and the Tribunal following the findings given by the
Tribunal in A.Y.2005-06 deleted the addition made by AO. He
submitted that identical issue once again came before the
Tribunal in A.Y. 2007-08 (ITA No.6073/Del/2010) wherein the
Tribunal following the findings given by the Tribunal in A.Y.
2005-06 and 2006-07 deleted the addition made by AO. He
further submitted that the order for A.Y. 2007-08 was followed by
the Tribunal while passing the order for A.Y. 2008-09. He thus
submitted that the issue is thus squarely covered in favour of the
assessee by the orders of Tribunal for A.Ys. 2005-06, 2006-07,
2007-08 & 2008-09. Learned AR further submitted that the facts
of the issue in the year under consideration are identical to that
of earlier years. He therefore, submitted that addition made by
the AO be deleted.

12. Learned DR on the other hand supported the order of AO in

CIT(A).

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13. We have heard the rival submissions and perused all the
materials available on record. The issue in the present ground is
w.r.t disallowance u/s 40(a)(i) of the Act. The AO was of the view
that on the amount of Rs 17,59,124/- paid by the assessee to
various foreign entities for the purpose of certification of the
electrical products manufactured by it, assessee should have
deducted TDS as it was in the nature of technical services
received by assessee. Before us, Learned AR has submitted that
identical issue of disallowance has been decided by the Co-
ordinate Benches of Tribunal in favour of the assessee in A.Ys.
2005-06, 2006-07, 2007-08 & 2008-09. The aforesaid contention
of the Learned AR has not been controverted by the Learned DR.
We find that while deciding the issue in A.Y. 2008-09 (order dated
10.11.2020) in favour of the assessee, the coordinate Bench of the
Tribunal has observed as under:

“3. As regards Ground No. 1, 1.1 and 1.2 relating to addition of

Rs. 5,68,856/- u/s 40(a)(i) paid to foreign entity as
treaty/certification fees outside India. The Ld. AR submitted that
during the previous year’s relating to the Assessment Year 2008-
09, the assessee paid levy and certificate charges aggregating to
Rs.5,68,856/- to M/s KEMA Quality BV, Netherlands for the
purpose of certification of electrical products manufactured by the
assessee. The aforesaid foreign entity was authorized for
certification of products for export which is a mandatory
requirement for selling products in Europe, Middle East Countries,
and South African Countries. The assessee did not withhold tax at
source on the aforesaid payment of Rs. 5,68,856/- made to the
overseas entity, since the assessee bonafidely believed that such
certification fee was not liable to tax in India. The Ld. AR

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submitted that the aforesaid issue stands covered in favour of the

assessee by the order of the Tribunal passed in the assessee’s
own case for Assessment Year 2006-07 (ITA No. 4813/Del/2010)
& Assessment Year 2007-08 (ITA No. 6073/Del/2010) vide order
dated 30/09/2019.

4. The Ld. DR relied upon the assessment order and the order the
CIT(A).

5. We have heard both the parties and perused the material

available on record. It is pertinent to note that in A.Y. 2007-08, the
assessee paid levy and certificate charges aggregating to
Rs.5,68,856/- to M/s KEMA Quality BV,Netherland for the
purpose of certification of electrical products manufactured by the
assessee. The aforesaid foreign entity was authorized for
certification of products for export which is a mandatory
requirement for selling products in Europe, Middle East Countries,
and South African Countries. The explanation given by the
assessee before the Assessing Officer for not withhold tax at
source on the aforesaid payment of Rs.5,68,856/- made to the
overseas entity, since the assessee bonafidely believed that such
certification fee was not liable to tax in India, as the same was not
covered within the meaning of “ Fee for Technical Services” as
provided u/s 9(1) (vii) of the Act and/or the overriding provisions of
the Double Taxation Avoidance Agreements. The aforesaid issue
stands covered in favour of the assessee by the order of the
Tribunal passed in the assessee’s own case for Assessment Year
2006-07 (ITA No. 4813/Del/2010 & Assessment Year 2007-08
being ITA No. 6073/Del/2010). The Tribunal vide order dated
30/09/2019 passed in Assessment Year 2006-07 held that the
payment made by the assessee to very same party i.e. M/s KEMA
Quality BV Netherland cannot be brought to tax in India as “Fees
for Technical Services” in accordance with India Netherland DTAA.
In the present Assessment Year also the facts remain identical.
Thus, the issue is squarely covered in assessee’s own case for
Assessment Year 2006-07 & 2007-08 vide order dated
30/09/2019 passed by this Tribunal. Hence, Ground No. 1, 1.1,
1.2 are allowed.”

14. Before us, no material has been placed by the Revenue to

point out that the orders passed by the Co-ordinate Bench of

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Tribunal in A.Y. 2005-06 to 2008-09 in assessee’s own case has

been set aside/ stayed or over ruled by the higher judicial forum
nor has it pointed to any distinguishing feature in the facts of the
case in the year under consideration and that of earlier years.
Considering the totality of the aforesaid facts and following the
order of the Co-ordinate bench in the assessee’s own case and for
similar reasons, we hold that the Revenue was not justified in
making the addition. We therefore set aside the action of AO.
Thus the ground of the assessee is allowed.

15. Ground No.3 is with respect to disallowance of

Rs.2,47,68,964/- in respect of provision made for sales incentive
under “Shahenshah Scheme”.

16. During the course of assessment proceedings, AO noticed

that assessee had made provision in respect of “Shahenshah
Scheme” and the assessee was asked to furnish the details of the
same. Assessee inter alia submitted that it had made provision of
Rs.5,67,26,847/- in respect of “Shahenshah Scheme” towards
sales incentive payable to dealers and distributors and had paid
Rs.2,61,14,170/- in respect to the said scheme and
Rs.58,43,713/- was written back and credited to Excess
Provisions of bad debts/sales incentive written back. The
assessee also pointed to the relevant features to the “Shahenshah
Scheme” and it was further submitted that the provision made for
the scheme is not a contingent liability but rather a contractual

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liability which is legally enforceable by the dealers and

distributors. The submissions made by the assessee were not
found acceptable to AO. AO considering the fact that as against
the provision of Rs. 5,67,26,847/-, the actual payment made by
the assessee was Rs.2,61,14,170/- and Rs.58,43,713/- was
written back, concluded that the provision made by the assessee
was not based on any scientific method but was in the nature of
contingent liability. He also noted that CIT(A) while deciding the
issue in assessee’s own case for A.Y. 2008-09 had analyzed
scheme and had confirmed the addition made by the AO. He
therefore disallowed Rs.2,47,68,964/- [5,67,26,847 – 2,61,14,170
– (5843713/-)].

17. Aggrieved by the order of AO, assessee carried the matter

before the CIT(A), who following the order of his predecessor in
assessee’s own case for A.Y. 2008-09, upheld the action of the
AO. Aggrieved by the order of CIT(A), assessee is now before us.

18. Before us, Learned AR reiterated the submissions made

before the AO and CIT(A) and further submitted that against the
order of CIT(A) for A.Y. 2008-09, assessee had carried the matter
before the Tribunal. The Tribunal vide order dated 30.09.2019 in
ITA No.4695/Del/2012 has decided the issue in favour of the
assessee by holding that the provision made in respect of
“Shahenshah Scheme” is on a scientific basis. He further

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submitted that the Co-ordinate Bench of Tribunal had deleted the

similar additions made by AO in A.Y. 2007-08 & 2006-07. He
pointed to the relevant findings in the synopsis filed by him. He
therefore submitted that since the issue in the year under
consideration is identical to that of earlier years, therefore
following the order of tribunal in earlier years, the additions made
by AO be deleted.

19. Learned DR on the other hand supported the order of AO in

CIT(A).

20. We have heard the rival submissions and perused all the
materials available on record. The issue in the present ground is
with respect to the disallowance of provision made with respect to
the sales incentive payable under “Shahenshah Scheme”. The AO
had disallowed the provision by holding that the provision made
by the assessee was not based on any scientific method and there
is an element of contingent liability and therefore the sum is not
allowable. We find that identical issue arose in assessee’s own
case in AY 2006-07, 2007-08 and 2008-09 before the co-ordinate
Bench of Tribunal. The Co-ordinate Bench of Tribunal in earlier
years has decided the issue in favour of the assessee by holding
that the provision made by the assessee in respect to
“Shahenshah Scheme” to be on scientific basis. Before us, no
material has been placed by the Revenue to point out any

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distinguishing feature in the facts of the case in the year under

consideration and that of earlier years. Further Revenue has also
not placed any material to demonstrate that the decision of the
Tribunal in assessee’s own case in A.Y. 2006-07, 2007-08, 2008-
09 has been set aside/ stayed or over ruled by the higher judicial
forum. Considering the totality of the aforesaid facts and following
the order of the Co-ordinate bench in the assessee’s own case and
for similar reasons, we hold that the Revenue was not justified in
making the addition. We therefore set aside the action of AO.
Thus the ground of the assessee is allowed.

21. Ground No.4 is with respect to the denial of claim of

deduction u/s 80IC on interest income.

22. AO noticed that assessee had credited Rs.16,725/- and

Rs.6,334/- on account of interest income in the accounts of
Baddi Unit and Haridwar Unit. The assessee was asked to show
cause as to why the deduction u/s 80IC not be disallowed on
such interest income as it was not derived from the business
activity of the industrial undertaking. Assessee made the
submissions which were not found acceptable to AO. AO was of
the view that as per the provisions of Section 80IC, deduction is
available only on income derived from business activity of
industrial undertaking and since interest has been derived from
fixed deposits, the interest was not eligible for deduction. He

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accordingly denied the claim of deduction u/s 80IC on such

interest income.
23. Aggrieved by the order of AO, assessee carried the matter
before the CIT(A) who upheld the order of AO. Aggrieved by the
order of CIT(A), assessee is now before us.

24. Before us, Learned AR reiterated the submissions made

before the lower authorities and further submitted that interest
income was earned on the fixed deposits which was required to be
maintained as per the statutory requirements of the respective
state. He submitted that since the interest income was
inextricably linked to the main business activity of the assessee,
it should be considered to be treated as eligible for claiming
deduction. In support of its claim for interest being eligible for
deduction, he also relied on the decision of Hon’ble Delhi High
Court in the case of PCIT vs. Bharat Sanchar Nigam Ltd. in ITA
No.477/2016 dated 01.08.2016 and the decision of ITAT in the
case of M/s. NHPC Ltd vs. ACIT in ITA No.3738/Del/2015 in
order dated 08.05.2019.

25. Learned DR on the other hand supported the order of lower

authorities.

26. We have heard the rival submissions and perused all the
materials available on record. The issue in the present ground is

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with respect to the denial of claim of deduction u/s 80IC on the

interest income earned by the assessee. Before us it is Learned
AR’s contention that the interest income earned is inextricably
linked to the main business activity of the assessee as it was
earned from fixed deposits which was required to be maintained
as per the statutory requirements. The aforesaid contentions of
the assessee have not been controverted by the Revenue. We find
that the Hon’ble Delhi High Court in the case of PCIT vs. Bharat
Sanchar Nigam Ltd. (supra) and the Co-ordinate Bench of
Tribunal in the case of M/s. NHPC Ltd. (supra) has held that the
Revenue was not justified in denying the claim of deduction on
such income. Before us, Revenue has not pointed any contrary
binding decision in its support. We therefore, hold that AO not
justified in denying the claim of deduction u/s 80IC of the Act
and thus direct the AO to grant deduction u/s 80IC on the
interest income earned by the assessee. Thus the ground of the
assessee is allowed.

27. Fifth ground is with respect to deduction of education cess

and secondary and higher education cess of Rs.54,75,037/-.

28. During the course of assessment proceedings, assessee

submitted before the AO that it has paid Education Cess and
Secondary and Higher Education Cess of Rs.54,75,037/- and the
same being allowable expenditure, therefore the claim of

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expenditure be allowed. AO noted that claim of deduction was not

made in the return of income nor assessee had filed revised
return of income to claim such deduction. AO was of the view that
the claim of deduction without filing the revised return cannot be
allowed in view of the decision of Hon’ble Apex Court in the case
of Goetz (India) Ltd vs. CIT (2006) 284 ITR 323 (SC). On the
merits of the denial of claim of deduction, AO was of the view that
income tax, surcharge in the form of cess whether called by
Educational Cess or Senior Higher Secondary Education Cess are
levied on the net income and determined on the basis of income
tax/ corporate tax on the net income earned by the assessee. He
was of the view that the cess was not a deductable expenditure.
He accordingly denied the claim of deduction.

29. Aggrieved by the order of AO, assessee carried the matter

before the CIT(A) who upheld the order of AO.

30. Aggrieved by the order of CIT(A), the assessee is now before

us.

31. Before us, Learned AR submitted that identical issue arose

in assessee’s own case in A.Y. 2008-09, wherein on identical
facts, when the claim was made without filing the revised return
of income, the Co-ordinate Bench of Tribunal has allowed the
deduction. He pointed to the relevant findings noted in the

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synopsis. He submitted that since the facts of the case in the year
under consideration are identical to that of A.Y. 2008-09,
therefore following the order for AY 2008-09, the claim of the
assessee are allowed.

32. Learned DR on the other hand supported the order of lower

authorities.

33. We have heard the rival submissions and perused all the
materials available on record. The issue in the present grounds is
with respect to the claim of deduction on account of education
cess and secondary and higher education cess.

34. It is an undisputed fact that the claim of deduction was not

made in the return of income nor any revised return of income
was filed for claiming the deduction. The claim of deduction was
made before the AO during the course of assessment proceedings.
We find that identical issue arose in assessee’s own case in A.Y.
2008-09 wherein the claim of deduction was denied by the AO.
When the matter was carried by the assessee before the Tribunal,
the Co-ordinate Bench of Tribunal decided the issue in favour of
the assessee by observing as under:

“17. We have heard both the parties and perused the material
available on record It is pertinent to note that the levy of education
cess on Income tax is distinct from that of an income tax or
surcharge since the letter to form part of part one of the First

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Schedule which defines income tax and provides rate of levy

thereof. Unlike income tax and surcharge which are levied for
general purpose, Government has explained an cess and is
admittedly levied for specific purpose that is to fulfill the
commitment of the government to provide quality health services
and finance universalized quality basic education and secondary
and higher education. Unlike surcharge which was an exclusive
component of income tax, education cess as introduced vide
Finance Act, 2004 was also imposed an additional levy on indirect
taxes namely Customs, Excise and Service Tax. Education cess
does not part take the care of being a component of income tax per
say as levied under the Provisions of the Act. The decision of the
Hon’ble Supreme Court in case of Goetz India (supra) will not be
applicable in the present case. The claim of the assessee in respect
of the education cess is allowable as deduction for the purpose of
computation of taxable profits under the Act as held in the Hon’ble
Bombay High Court’s decision in case of Sesa Goa Ltd. (supra).”

35. Before us, no material has been placed by the Revenue to

point out that the orders passed by the Co-ordinate Bench of
Tribunal in earlier years in assessee’s own case has been set
aside/ stayed or over ruled by the higher judicial forum. The
Revenue has also not pointed to any distinguishing features in
the facts of the case in the year under consideration and that of
AY 2008-09 decided by the co-ordinate Bench of the tribunal.
Considering the totality of the aforesaid facts and following the
order of the Co-ordinate bench in the assessee’s own case for AY
2008-09 and for similar reasons we hold that the Revenue was
not justified in denying the claim of deduction. We therefore set
aside the action of AO. Thus the ground of the assessee is
allowed.

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36. Ground No.6 is with respect to denial of claim of deduction

of interest expenses of Rs.1,57,80,709/-.
37. During the course of assessment proceedings, assessee
claimed that the interest expenses capitalized in respect of land of
Greater Noida amounting to Rs.20,72,556/-, interest in respect of
land of Neemrana to RICCO amounting to Rs.50,69,120/- and
interest of Rs.82,39,033/- paid to Canara Bank in respect of
Neemrana Plant aggregate interest being Rs.1,57,80,709/- which
has been capitalized be allowed as a revenue expenditure. To
justify the claim of expenditure as revenue expenses it was
submitted that the interest has been paid for the expansion of
existing business activities of the assessee which was already
being carried out at other units. It was further submitted that
since there was a complete unity, interlacing, inter dependence
and inter connection of management, financial, administrative
and production aspects amongst all division of each unit and
amongst all units of the business as a whole, the expenditure
incurred in connection with the new unit is deductible. It was
further submitted that proviso of section 36(1)(iii) was not
applicable in assessee’s case. The interest has been paid for
extension of existing business activity. The submissions of the
assessee was not found acceptable to AO for the reasons that no
such claim of expense was made in the return of income or nor
any revised return was filed by the assessee to claim such
deduction. On the merits, it was noted by the AO that since the
interest has been paid to acquire capital assets, the interest was

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not allowable as revenue expenditure. AO also noted that

assessee had capitalized the interest attributable to loans used to
acquire such assets and on such enhanced cost had claimed
depreciation. He accordingly denied the claim of deduction. When
the matter was carried before the CIT(A), CIT(A) upheld the order
of AO. He therein after considering the submission of the assessee
noted that the products manufactured in two units i.e. Greater
Noida at Neemrana and at RICCO were completely different and
therefore assessee had entered into expansion of its existing
business activities by setting of units namely Greater Noida at
Neemrana. He therefore held that proviso of Section 36(1)(iii) were
applicable and accordingly upheld the disallowance of interest.

38. Aggrieved by the order of CIT(A), assessee is now before us.

Before us Learned AR with respect to the admissibility of claims
during the assessment proceedings submitted that if the claim is
genuine the same can be admitted even without filing revised
return of income and for this proposition he relied on the decision
of the Hon’ble Apex Court in the case of Jute Corporation of India
Limited vs. CIT 187 ITR 688 (SC) and National Thermal Power
Company Ltd vs. CIT 229 ITR 383 (SC). On the issue of claim on
merits, he submitted that assessee is a leading company engaged
in the business of manufacturing of switch gears, wires, electrical
fans, CFL, electric motors and other electrical goods at various
units and all the units are interdependent. He submitted that
there is complete interdependence and interconnection between

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management, financial, administrative and production aspects

amongst all divisions of each unit and amongst all units of the
business. He submitted that the interest on loan was for the
expansion of business its existing business operations in the
same line of products, being electrical products such as CFL and
electric motor, spares etc. for which assessee had two plants, one
in Greater Noida and other in Neemrana. He further submitted
that during the course of assessment proceedings, the AO had
asked for a specific query regarding the pre-operative expenditure
of Rs.4,30,88,908/- incurred for setting up the manufacturing
unit at Neemrana and it was submitted that it was for the
expansion of the business and not for Extension of the business
and the AO had allowed the expenses without invoking the
provision of Section 35D of the Act. He further submitted that
Hon’ble Delhi High Court in assessee’s own case for A.Y. 2005-06
are held that where there were intermingling and interlacing of
the funds of the units and common management, then all the
business constituted the same or single business and expenditure
incurred by the assessee on new unit would be considered as
expenditure in respect of an expansion of the existing business.
He further submitted that pre-amended proviso to Section
36(1)(iii) shall be applicable to the relevant assessment year in
question (prior to its amendment by Financial Act, 2015) as
amended Proviso will not be applicable retrospectively. He
therefore submitted that the assessee be allowed the claim of
deduction.

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39. Learned DR on the other hand pointed to the findings of

CIT(A) and submitted that in the present case the AO in CIT(A) is
fully justified in denying the claim of deduction. He thus
supported the order of lower authorities.

40. We have heard the rival submissions and perused the

material on record. In the present ground assessee is seeking the
deduction of interest paid. It is an undisputed fact that during the
year under consideration assessee had capitalized interest
expenses of Rs.20,72,556/- in respect of land at Greater Noida &
Interest of Rs.50,69,120/- for land purchased at Neemrana to
RICCO. The aforesaid interest was capitalized in the books of
accounts and not claimed as revenue expenditure. However,
during assessment proceedings, assessee claimed the interest
expenses pertaining to Noida & Neemrana Unit as revenue
expenses u/s 36(1)(iii) of the Act which was denied by AO.

41. We find that CIT(A) while deciding the issue and after
examining the excise returns of various manufacturing units of
Assessee has given a finding that the products manufactured at
Greater Noida are capacitors and reactors and the products
manufactured at Neemrana are electric motors, CFL bulbs etc.
The products manufactured at Greater Noida and Neemrana Unit
are completely different and the technology, plant & machinery,
skill required for its production cannot be same for the

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manufacturing of existing products and therefore assessee had

entered into extension of business and it is not a case of
expansion of business. In such a situation he held that proviso to
Section 36(1)(iii) are applicable and therefore assessee is not
eligible for deduction of interest. Before us, no fallacy has been
pointed in the finding of CIT(A) therefore we find no reason to
interfere with the order of CIT(A). Thus the ground of Assessee
is dismissed.

42. Ground No.7 is with respect to Transfer Pricing Adjustments

of Rs.36,04,286/-.

43. AO noted that assessee had entered into service agreement

with Havells Sylvania Europe Ltd., its associated enterprises to
provide various business support services like development and
implementation of strategic plans, restructuring and
reorganization programs, identification and mitigation of business
and financial risk, development and management of the
company’s supply chain and other procurement services etc, (the
details of which are listed in the order) for which assessee had
received consideration of Rs.4,78,20,606/-. For benchmarking of
aforesaid international transactions, Assessee had applied
Transactional Net Margin Method (TNMM) by considering itself to
be the tested party and operating profit to operating cost (OP/OC)
as the Profit Level Indicator (‘PLI’). Assessee considered three
comparable companies namely Hartron Informatics Ltd. (with

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OP/OC of 12.05%), Escorts Asset Management Ltd. (with OP/OC

of 1.22%) and Mecklai Financial and Commercial Services Ltd.
(with OP/OC of 9.82%) as comparable companies and the average
operating profit margin of those comparable companies was
worked out at Rs.7.70%. Since the profit margin of the assessee
was at 5.01%, which was within the arm’s length range of +/- 5%
of the average operating profit margin of the comparable
companies at 7.70%, Assessee considered the international
transaction of provision of services to be at arm’s length. During
the proceeding before the TPO, TPO disregarded the
benchmarking analysis undertaken by the appellant and rejected
the comparable companies considered by the assessee. He
thereafter arrived at the following set of five comparable
companies with an average operating profit margin @ 17.97% :

Sr. Company Name OP/OC (%)

No.
1. Best Mulyankan Consultants 9.91
Ltd.
2. IDC (India) Ltd. 10.46
3. Piramal Enterprises Ltd. 22.69
4. Choksi Laboratories Ltd. 23.19
5. WAPCOS Ltd.(Segment) 23.60
Average 17.97

44. The TPO accordingly made an adjustment of Rs.5,902,538/-

on account of arm’s length price of the international transaction
of provision of services. Assessee challenged the inclusions of the

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comparable before CIT(A). CIT(A) after considering the submission

made by the assessee arrived at following set of comparables:
Sr. Particulars After appeal effect
No. of order of CIT(A)
(A) Name of the Company for
ALP
1 Best Mulyankan Consultants 9.91%
Ltd.
2. IDC (India) ltd. 9.99%
3. Piramal Enterprises Ltd. 17.13%
4. WAPCOS Ltd. (Segment) 23.60%
5. In house Production Ltd. 5.16%
6. India Tourism Development 11.75%
Corporation Ltd.

(B) Average (Arithmetic Mean) 12.92%

45. The assessee is aggrieved by the action of CIT(A) in the

inclusions of Piramal Enterprises Ltd. and WAPCOS Ltd.
(Segment).

46. Before us, Learned AR submitted that extract of service

income of Piramal Enterprises Ltd. shared by the TPO in its order
does not match with the figures reported in the annual report
available in the Public Domain and in support of which he
pointed to the copy of the annual report which is placed in the
paper book. He submitted that TPO cannot use the information
which does not match with the figures reported in the Annual
Report and for this proposition he placed reliance on the decision
of the case of M/s. Dell International Services India Pvt. Ltd. vs.

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DCIT, IT(TP)A No.879/Bang/2018 order dated June 24, 2020,

AIRCOM International (India) (P.) Ltd. vs. DCIT Appeal
No.4403(Delhi) of 2012 where the Tribunal had held that the
information which was not available in public domain could not
have been used by the TPO, when the same is contrary to the
Annual Report. He further submitted that as per the Annual
Report of Piramal Enterprises Ltd. which is available in the public
domain, it was formerly known as Piramal Healthcare Ltd and it
is a pharmaceutical company and is engaged in the business of
manufacture of medicines, drugs and formulations. He further
submitted that the information provided in the Annual Report
reveals that 98.79% of the company’s total revenue is earned from
sale of manufactured and traded pharmaceutical products and
therefore it is functionally different with the assessee company
and therefore cannot be considered to be a comparable company.
He further pointed out that during the year extra-ordinary events
in the form of exclusion of Minrand International Inc. and RxElite
Holdings Inc. had taken place in Piramal Enterprises Ltd. to
enhance its presence in the Inhalation anesthetics segment. He
therefore, relying on the decision rendered by Hon’ble Delhi High
Court and Delhi Tribunal submitted that companies having extra-
ordinary income has to be excluded. He therefore, submitted that
since the comparable company is functionally not comparable to
the assessee therefore it should not have been considered as a
comparable company. He in the alternative submitted that the

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matter may be remitted to the TPO with a direction to him to

share the financial details which has been relied upon by him.

47. With respect to WAPCOS Ltd., he submitted that is

functionally dissimilar to the company as it is engaged in the
high-end consultancy and works on engineering projects. The
segment of the company is functionally not comparable as it
undertakes high-end technical services as against the routine
support services undertaken by the assessee. He pointed to the
detailed description of the services provided by it in the Annual
Report of the paper book. He therefore submitted that it cannot
be considered as comparable to the assessee. He further
submitted that it is a Govt. of India undertaking and has the
support and backing of the Government which also makes it to be
not comparable to the assessee and further the function profiles
of the entity is completely different. He submitted that the
business profile of Government owned undertakings is dissimilar
to that of the entities operating in free market/ uncontrolled
environment. In support of his proposition to the Government
undertaking cannot be selected as a comparable, he placed
reliance on the decision of Hon’ble Bombay High Court in the
case of Thyssen Krupp Industries India (P) Ltd. ITA No.2218 of
2013 and Hyderabd ITAT order in the case of Worley Parsons
India Pvt. Ltd. in ITA No.273/Hyd/2016 wherein it has been held
that public sector undertakings are not driven by profit motive
alone but such other considerations also weigh such as discharge

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of social obligations etc. and hence they cannot be considered as

comparable to the private companies. He therefore submitted that
this company be excluded as a comparable company.

48. Learned DR on the other hand supported the order of lower

authorities.

49. We have heard the rival submissions and perused all the
materials available on record. With respect to inclusion of Piramal
Healthcare Ltd., it is the contention of the Learned AR that the
extract of services income extracted the TPO in the order does not
match with the figures reported in the Annual Report which are
available in the public domain. The fact of the figures being
different when pointed out by the Learned AR has not been
controverted by the Learned DR. The Learned AR for the Annual
Report placed in the paper book has also pointed out that 98.79%
of its revenue are earned from sale of manufactured and traded
pharmaceutical products. On the other hand the revenue earned
by the assessee are for various business services. In such a
situation, we find force in the argument of Learned AR that it
cannot be considered to be a comparable to assessee company.
We thus direct its exclusion as a comparable company.

50. As far as the inclusion of WAPCOS Ltd. is concerned, we

find that it is a Govt. India undertaking and undertaking high-
end technical consultancy services like rural electrification, Water

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harvesting, low cost Sanitation, lakes and wetlands etc. it is also

engaged in independent review and monitoring agency for projects
in Rajasthan and West Bengal and it provides supervision for
construction/ up gradation of Rural roads under Pradhan Mantri
Gram Sadak Yojana. Considering the functions undertaken by it,
we are of the view that the functions performed by it are not
comparable to the assessee company which is engaged in
providing basic business support services and therefore we are of
the view that it cannot be considered to be a comparable
company. We further find that Co-ordinate Bench of Tribunal in
the case of Worley Parsons India Pvt. Ltd. (supra) has noted that
public sector undertakings are not driven by profit motive alone
but other considerations such as discharge of social obligations
etc also weigh and hence they cannot be considered as
comparable to the private companies. Considering the totality of
the aforesaid facts and relying on the aforesaid decision of Worley
Parsons (supra) we hold that WAPCOS Ltd. cannot be considered
to be a comparable company and we therefore direct its exclusion.
Thus this Ground of assessee is allowed.

51. In the result, appeal of the assessee is allowed.

52. Now we take up assessee’s appeal in ITA

No.6194/Del/2015. Before us, Learned AR submitted that if the
issue of “Shahenshah Scheme” raised in Ground No.3 in ITA
No.463/Del/2016 is decided in favour of the assessee, then the

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grounds raised in the present appeal would be rendered academic

and will not require any adjudication.

53. We while deciding the issue with respect to “Shahenshah

Scheme” in ITA No.463/Del/2016 have decided it in assessee’s
favour therefore in view of the submission of Learned AR, the
grounds raised in present appeal are held to be academic and
therefore dismissed. Thus the appeal of the assessee is
dismissed.

54. In the result, appeal of the assessee is dismissed.

55. In the combined result, appeal of the assessee in ITA

No.463/Del/2016 is partly allowed and appeal in ITA
No.6194/Del/2015 is dismissed.

Order pronounced in the open court on 19.01.2021

Sd/- Sd/-
(KULDIP SINGH) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER

Date:- 19.01.2021
PY*

Copy forwarded to:

1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI

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