GUJARAT GUARDIAN LTD.,,NEW DELHI vs. DCIT, NEW DELHI

Sl.No. ITA Filed by Assessment Authority No. Assessee/Revenue year passing the order 159, 4856 & 5358/Del/2010 & Assessment Years: 2002-03, 2003-04, 2004-05, 2006-07 & 2005-06 respectively Gujarat Guardian Ltd. 4/7C, DDA Shopping Centre New Friends Colony DCIT Vs. New Delhi 110065 Circle-12(1) New Delhi PAN NO :AAACG1622K APPELLANT RESPONDENT ITA Nos.4859/Del/2009, ITA Nos.157 & 4791/Del/2010 Assessment Years: 2002-03, 2003-04 & 2004-05 respectively Gujarat Guardian Ltd. 4/7C, DDA Shopping Centre DCIT New Friends Colony Vs. Circle-12(1) New Delhi 110065 New Delhi PAN NO :AAACG1622K APPELLANT RESPONDENT Appellant by : Shri Ajay Vohra, Sr. A.R., Shri Neeraj Jain, A.R., Shri Ramit Katiyal, A.R. & Shri Kunal Pandey, A.R. Respondent by : Shri Bhopal Singh, Sr. D.R. Date of Hearing : 06.05.2025 Date of Pronouncement : 16.07.2025 O R D E R PER PRAKASH CHAND YADAV, JUDICIAL MEMBER:

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 2 of 66 These appeals of assessee and revenue are arising from the orders of CIT(A)/DRP as per the details mentioned in the cause title of this order. Since the issue in all these appeals is common, these are clubbed together, heard together and disposed of by this common order for the sake of convenience and brevity. It is further clarified that in these appeals multiple issues are involved, similar in almost all years, so we are discussing the relevant facts at appropriate places where issues are mentioned.

(assessee’s appeal) for the AY 2002-03 as follows:

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 3 of 66 3.1 The assessee during the relevant previous year entered into several international transactions including export of float glass to its associated enterprise. In the Transfer Pricing Documentation, the international transactions were benchmarked using Transactional Net Margin Method (“TNMM”) method. By considering this method as Most appropriate method, the assessee has shown operating profit ratio of GGL at 27.26%, which as per assessee was higher than average of operating profit margin of 5 comparable companies at 6.77%, and hence it is contention of the assessee that the international transactions entered into by GGL are considered to be at arm's length.

3.2 The TPO, however, in the order passed under section 92CA(3) of the Act determined the arm’s length price of international transactions of export of float glass, applying CUP method as against the TNMM applied by the assessee, holding that in the case of the assessee, same products have been sold to unrelated parties, and hence internal CUP would be the most suitable method for benchmarking the sale price to associated enterprise.

3.3 The TPO, for the purpose of computing the ALP, has applied CUP method as the most appropriate method, and has adopted following methodology for selection of the comparable uncontrolled transactions:

(i) The sales made to associated enterprises and independent parties were segregated on the basis of class of goods i.e. clear glass, bronze glass and grey glass.

(ii) Amongst the categories so classified further segregation was made on the basis of thickness of glass.

(iii) The sales made in respect of each category was then consolidated

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 4 of 66 on the basis of zone/continent.

(iv) Country wise monthly average prices realized in the same or preceding month from uncontrolled customers was adopted as the arm’s length price for exports made in each country.

(v) In the absence of sales to unrelated parties in a specific country, monthly average price of export of same category of product in the same continent was used as the benchmark.

(vi) In cases where there was no sale of same category of products to unrelated parties in the same continent, the export of glass to unrelated parties of different category in terms of thickness was used as the benchmark.

3.4 The TPO accordingly computed an adjustment of Rs. 2,13,89,379 in respect of international transaction of export of goods. (reference in summary calculation of TP adjustment @ pg 3-8 of Convenience compilation – TP). After the receipt of TPO order, the AO passed the assessment order and framed the assessment.

4.1 The CIT(A), held that CUP method can only be applied in respect of such transactions only, where the products of similar nature have been sold to unrelated parties, within the same month and same country. Accordingly, the CIT(A) held that out of total international transactions of export of glass, CUP method could only be applied in respect of four transactions amounting to Rs 47,10,329/-. The CIT(A) accordingly, restricted the adjustment made by the TPO to Rs 6,94,469/-.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 5 of 66 5. Aggrieved by the order of ld. CIT(A), the assessee and revenue both has come up in appeal before us. The main contention of the assessee is that CUP method could not be applied for determining the ALP of the international transactions of export of float glass to the customers in various countries and the assessee has rightly applied TNMM method for benchmarking the international transaction. The assessee has made following submissions:

(a) The TPO rejected TNMM holding that [Para 8 of TP order on Pg 13 of convenience compilation - TP], “ The assessee has exported the same glass to both AE & non AE and hence internal comparables are available. The TNMM does not provide an appropriate method since on an entity wide basis the assessee’s aggregate net profit may be within industry range but chances of under invoicing cannot be ruled out because it is difficult to determine the income arising out of international transactions”.

(b) The premise of application of the CUP method by the TPO is incorrect due to differences in factors such as thickness of glass sold to the AEs and non-AEs, geographical differences, volume of products sold to AEs and Non-AEs and differences in the terms and conditions at which goods were sold by the assessee to AEs and Non- AEs. It would be appreciated that due to aforesaid factors benchmarking analysis of international transaction of sale of float glass undertaken by the assessee cannot be done by applying CUP method on a transactional basis. Accordingly, under the circumstances, a profit-based method i.e. TNMM can only be applied for the purpose of benchmarking analysis.

(c) The TNMM examines the net profit margin relative to an appropriate base (e.g. cost, sales, assets) that a taxpayer realizes from a controlled transaction (or transactions that are appropriate to to 159, 4791, 4856 &5358/Del/2010 & ITA No.2539/Del/2017 Gujarat Guardian Ltd., New Delhi Page 6 of 66 aggregate under the transfer pricing principles). TNMM determines an arm’s length price for the transfer of tangible property by reference to an objective measure of profitability of an uncontrolled party, or comparable, that engages in similar transactions or operates under similar circumstances. The method compares the profitability of either the controlled party buyer or seller to the profitability of the comparable. The TNMM is statutory method prescribed under section 92C of the Act and under the Indian Transfer Pricing regulations all the methods stand on equal footing.

(d) The transaction of export of glass is closely linked with the overall operations of the assessee. It is submitted that the assessee was the first company to set up the float glass plant in India. Until that time float glass was not known in the Indian market and conventional sheet glass was used in all the applications. Being the first entrant, the company had to develop the market for float glass. Float glass plant is an example of continuous process industry and the furnace once fired cannot be shut. If the plant is to operate at less than the optimum capacity, there would be substantial fixed cost that would still have to be incurred. Soon after the commencement of production, the assessee realized that there was excess capacity of about 40-50% in the domestic market and the assessee could sell only 40% of its production in the Indian market leading to heavy losses and cash flow problems. It is pertinent to note that the glass industry in India has been facing situation of excess capacity for several years. In this scenario, it was imperative for the company to explore the export market for sale of its products.

(e) Further, the Letter of Intent (LOI) and the approval letter for foreign collaboration issued to the assessee by the Government of India, stipulated a condition that the company would export 25% of its production. Non-fulfilment of export obligation would have to 159, 4791, 4856 &5358/Del/2010 & ITA No.2539/Del/2017 Gujarat Guardian Ltd., New Delhi Page 7 of 66 attracted penal provisions. The assessee had to make sure that such an eventuality does not occur. Also, the assessee had imported part of the equipment’s at concessional rate of duty of 15% under Export Promotion Capital Goods (EPCG) Scheme. In connection with these imports, the assessee had undertaken export obligation to be fulfilled over a period of 5 years. Accordingly, export of glass was essential for the survival of the assessee in the float glass industry. In view of the aforesaid, it is respectfully submitted that transaction of export of glass was closely and inextricably linked with the overall operations of the assessee and therefore, entity level TNMM has been correctly applied by the assessee for the purpose of benchmarking the international transaction of export of glass.

6.1 Ld. D.R. relied upon the orders of AO and TPO and also relied upon the synopsis filed by his predecessor DR with the bench.

Finding of the Bench:-

9. Facts as coming out from the order of ld. CIT(A) are that the assessing officer computed “profits of the business” for the purposes of computing the deduction under section 80HHC of the Act, as defined in Explanation (baa) to section 80HHC of the Act after

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 9 of 66 reducing 90% miscellaneous income of Rs.9,82,069 comprising of the following:

Description Amount Scrap sales 7,48,467 Cash discounts from the vendors 85,369 Sundry amounts written back 1,44,233 Interest on fixed deposits for Excise 5,585 Department Total 9,82,069 9.1 The CIT(A) held that scrap sale of Rs.7,48,467 and cash discount of Rs.85,369 are not in the nature of brokerage, commission, interest, rent, etc., or receipt of similar nature covered in Explanation (baa) to section 80HHC(1) of the Act. The CIT(A), however, did not accept the assessee’s contention with respect to sundry amounts written back amounting to Rs.1,44,233.

9.2 Ld. A.R. submitted that the sundry amounts written back of Rs.1,44,233 being in the nature of operating income is part of profit of the business and is not in the nature of brokerage, commission, interest and rent, etc., covered in Explanation (baa) of section 80HHC(1) of the Act and is, therefore, not required to be excluded while computing profit of the business for the purpose of deduction under section 80HHC of the Act.

-:Finding of the Bench:-

13. The next issue in the assessee’s appeal is disallowance of Rs.4,47,917/-, being depreciation on indexed cost of asset on account of foreign exchange rate fluctuation. With respect to this issue, the AO has relied upon the amendment to section 43A of the Act to hold that assessment to the value of fixed asset will only be made at the time of actual payment. The disallowance of depreciation as aforesaid was affirmed by the ld. CIT(A) in view of the amendment.

Finding of the Bench: 16. After considering the rival submissions, we are of the view that to 159, 4791, 4856 &5358/Del/2010 & ITA No.2539/Del/2017 Gujarat Guardian Ltd., New Delhi Page 11 of 66 the authorities have erred in relying upon the provisions of section 43A of the Act, which provisions are held to be prospective by the Hon’ble Delhi High Court in the case of Woodward Governor reported in 294 ITR 451, which decision has been further affirmed by the Hon’ble Supreme Court in the case of CIT Vs. Woordward Governor reported in 312 ITR 254 (SC). Therefore, we allow this ground of appeal of the assessee.

17. The next issue in the assessee’s appeal is the disallowance of Rs.10,67,000/- being doubtful debts written off as irrecoverable by the assessee during the relevant assessment year. The case of the AO is that the assessee has made a mere provision of the doubtful debts and has failed to provide any documentary evidence to show that the assessee has actually written off these amounts. The ld. CIT(A) affirmed the order of AO on the ground that unless and until the debt become actually shown as bad, the assessee is not entitled for the deduction of the bad debt as per the provisions of section 36(1)(vii) of the Act.

19. Ld. D.R. relied upon the orders of authorities below.

Finding of the Bench: 20. After considering the rival submissions we observe that Hon’ble Supreme Court in the case of TRF Ltd. Vs. CIT reported in 323 ITR 397 has held that it is not necessary for an assessee to establish that the debt, in fact, has become irrecoverable. The Hon’ble Apex Court further held that if the assessee writes off these

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 12 of 66 debts in its books of accounts as irrecoverable, then passing of these entries would be sufficient for allowing the claim of the assessee. We further observe that CBDT vide its Circular No.12/2016 dated 30.5.2016 has also ruled that the intention behind the amendment u/s 36(1)(vii) of the Act was to eliminate litigation on the issue of allowability of bad debts by doing away with the requirement for the assessee to establish that the debt, has in fact become irrecoverable. Considering the purport of the CBDT Circular and the judgement of Hon’ble Supreme Court, we allow this issue in favour of the assessee subject to the condition that the assessee will prove before AO with the help of audited financials that the assessee has actually written off these amounts in its books of accounts in the relevant year. With these observations, this issue is allowed for statistical purposes.

Finding of the Bench:

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 13 of 66 25. The next issue is claim of assessee with respect to the sales tax incentives amounting to Rs.13,21,05,557/-. These incentives pertain to Gujarat Unit of the assessee company.

26. Before going into the merits of this ground, it is pertinent to note certain dates which goes to the root of the matter:

26.1 Perusal of the above chart would show that the assessee has originally filed the return of income on 30.10.2002. This return of income filed by the assessee was processed and thereafter selected for scrutiny u/s 148 of the Act. Thereafter, relying upon the judgement of Hon’ble Supreme Court in the case of CIT Vs. Ponni Sugar reported in 306 ITR 392. The assessee has filed an additional ground before the ld. CIT(A) and claimed that the assessee is entitled for the sales tax incentives and the receipts of sales tax incentives are capital receipts not liable to be taxed under the Income Tax Act. The assessee further argued that these incentives were provided for making investment in the state of Gujarat. It is pertinent to observe that this claim was not made before the AO during the re-assessment

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 14 of 66 proceedings rather has been made for the first time before the ld. CIT(A) by way of additional ground.

27. The ld. CIT(A) relying upon the judgement of Goetz India Ltd. Vs. CIT reported in 284 ITR 323 dismissed the ground of the assessee by holding that assessee could have made this claim by filing revised return.

Finding of the Bench: -

30.1 After admitting this ground, we have to decide whether an assessee can claim incentive or any other benefits, which he is entitled under the income tax law under proceedings of section 148 of the Act.

30.2 In this regard, ld. Counsel for the assessee relied upon the judgement of Hon’ble Karnataka High Court in the case of Karnataka State Co-operative Apex Banks reported in 283 taxman 98 (Karn.) for to 159, 4791, 4856 &5358/Del/2010 & ITA No.2539/Del/2017 Gujarat Guardian Ltd., New Delhi Page 15 of 66 the proposition that the assessee can claim a benefit in the proceedings of section 148 of the Act also. Ld. D.R. relied upon the judgement in the case of Sun Engineering reported in 198 ITR 297 (SC) for the proposition that assessee cannot claim a benefit under proceedings of section 148 of the Act.

30.3 After considering the rival submissions, we are of the view that the case of the assessee is squarely covered by the Hon’ble Supreme Court in the case of Sun Engineering (supra), wherein it was held as under:

26. Although s. 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that that construction should be preferred which makes the machinery workable. Since the proceedings under s. 147 of the Act are for the benefit of the Revenue and not an assessee and are aimed at garnering the escaped income" of an assessee, the same cannot be allowed to be converted as "revisional" or "review" proceedings at the instances of the assessee, thereby making the machinery unworkable.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 16 of 66 related to the taxability of these incentives. Further, the case law relied upon by the counsel for the assessee in case of Karnataka State Co-operative Apex Banks, the facts of that case are different in as much as in that case the assessee has claimed the benefit in the return of income filed in response to the notice issued u/s 148 of the Act. However, in the present case, the assessee has not claimed this benefit while filing the return of income in response to section 148 of the Act, therefore, that case has no application in the facts of the present case. Further, we do not find any force in the argument of the assessee that it is a case of assessment and not reassessment. In our view intimation passed u/s 143(1) of the Act are also equivalent to the order of assessment for certain provisions for example, powers u/s 263 of the Act can be initiated against the intimation passed by the assessing officer, as it stood at relevant times. Recently, coordinate bench of the Delhi ITAT in the case of Jindal Photo in ITA No.5251/Del/2015 dated 21.5.2025 while deciding the admissibility of a fresh claim under similar set of facts after referring to the judgement in the case of Goetz India Ltd. (supra) and the provisions of section 139(1) of the Act and 139(5) of the Act has observed as under: - 18 With regard to admissibility of claim, the ld AR submitted that the reliance placed by AO/CIT(A) on decision of Goetz (supra) is highly misplaced since SC judgment was in context of power of AO to entertain a fresh claim made otherwise than by revised return. The Supreme Court, however, made it clear that the decision in Goetze India Limited (supra) was restricted to the power of Assessing Authority to entertain a claim for deduction otherwise than by a revised return and the same, did not impinge on the power of the Tribunal u/s 254 of the Act to permit a new claim…………..

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 17 of 66 Act, 1922. The ld AR relied on the following decisions, where Courts have held that the AO is duty bound to grant benefits and reliefs during assessment, even if not claimed in ROI. 20.The ld. counsel for the assessee relied upon the decision of the Hon'ble Supreme Court in the case of CIT vs. Mahindra Mills: 243 ITR 56, which approved the aforesaid Circular……………….

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 18 of 66 agitated this issue before the CIT(A) in regular appeal which was adjudicated by him and rejected, hence the issue was before ITAT in normal course. In view of the above, the assessee cannot be allowed a claim without revising the return u/s 139(5) within the due date and mandatory time limits.

54. In this context, the decision in the case of Wipro Ltd is of great relevance. Though it was in the context of specific statutory timeline for withdrawal of claim as mandated under section10B(8), it laid down the importance of fulfillment of statutory conditions namely filing of return under section 139(1) for claiming exemption/deductions. This proposition was further strengthened by the Hon’ble Supreme Court in the later decision in the case of Shriram Investment in Civil appeal no 6274 of 2013 dated 04.10.2024 where it upheld the decision of Madras High Court that after the revised return was barred by time there was no provision to consider the claim made by the assessee. The hon’ble Supreme Court also noted that the case of NTPC was one where the Department gave no objection for enabling the assessee to setup a fresh claim which makes the instant case distinguishable on facts as in the instant case, the Revenue has raised objection to the claim at every stage, be it the AO, CIT(A) or the Departmental Representative before the ITAT. We are of the opinion that when there is no provision in the Act where the assessee can claim expenses/deduction outside the Return filed u/s 153A, the same has to be rejected. Our conclusions are duly supported by the decision of the Hon’ble Supreme Court in the case of Commissioner of Customs (Imports), Mumbai Vs. Dilip Kumar and Company(AIR 2018 Supreme Court 3606) that the provisions for exemption/deduction has to strictly construed and any perceived ambiguity would necessarily accrue to the benefit of the Revenue.

30.5 In view of the above judgement of Hon’ble Apex Court in the case of Sun Engineering cited (supra), the decision of coordinate bench in the case of Jindal Photo (supra), we are of the view that assessee is not entitled for this claim in proceedings u/s 148 of the Act. So far as the issue on merits is concerned, whether the assessee is entitled to sales tax incentive or not, we will deal with this issue in appeal of assessee for AY 2005-06, which findings would be applicable in this year also.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 19 of 66 8. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) erred in not directing the assessing officer to compute book profit under section 115JB of the Act after reducing from the profit as per profit and loss account deduction under section 80HHC of the Act computed on the basis of profit as per books of accounts instead of reducing deduction under that section computed as per provisions of the Act. 8.1 That on the facts and circumstances of the case and in law, the assessing officer ought to have allowed 100% deduction under section 80HHC of the Act in respect of export profits while computing ‘book profits’ in terms of clause (iv) of Explanation 1 to section 115JB of the Act, and not restricting the same to the extent specified in sub- section (1B) of the section 80HHC of the Act.

33.1 He placed reliance, in this regard, on the following decisions:  CIT v. Flex Foods Ltd.: 360 ITR 359 (Del)  CIT v. Sri Vishnu Shankar Mils Ltd.: 198 Taxman 236 (Mad)  CIT v. G.T.N. Textiles Limited: 248 ITR 372 (Ker)  CIT v. C. P. S. Textiles (P.) Ltd.: 340 ITR 590 (Mad)  CIT v. K.G. Denim Ltd.: 180 Taxman 590 (Mad)  CIT v. Hindustan Aeronautics Ltd.: 203 Taxman 449 (Kar)  Syncome Formulation (I) Ltd.: 108 TTJ 105 (Mum) (SB)  JT. CIT v. Kanco Enterprises Ltd.: 156 ITD 926 (Kol)  Kothari Products Ltd. v. DCIT:

306, 348 & 408/LKW/2012 (Lucknow)  The Indian Smelting and Refining Company Ltd. v. ACIT: and 2941/Mum/2012 (Mum)  Wheels India Ltd., Chennai v. Assessee: ITA No.1430/Mds/2010 (Chen)  N.W. Export Limited v ITO: ITA No. 3123/Mum/2010 (Mum)  Addl. CIT v Weizmann Ltd and Weizmann Ltd.: IT.A No.4603 & 4161/Mum/2008 (Mum)  DCIT vs. Govind Rubber (P) Ltd: 89 ITD 457 (Mum-Tri)  Garware Polyester Ltd vs ACIT:143 ITD 87 (Mum-Tri)  M/s Bonfiglioli Transmissions Pvt. Ltd. v ACIT: ITA No.457Mds/2007 (Chen)  ACIT vs Varinder Agro Chemicals Ltd: 161 Taxman 134 (Chd)(Mag) 33.2 In addition to the above, Mr Vohra ld Sr Counsel further submitted that the book profits under section 115JB of the Act should be computed with reference to adjusted book profits and not the taxable profits computed under the normal provisions of the Act.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 21 of 66 34. Ld. D.R. relied on the orders of the authorities below.

Finding of the Bench: -

ITA 4859/Del/2009 (AY 2002-03) (Revenue Appeal): Now we adjudicate cross appeal of revenue in for the AY 2002-03 as follows:

36. This appeal is filed by the revenue against the order of ld. CIT(A) for assessment year 2002-03. Revenue has raised 3 grounds of appeal. Brief facts of the case relevant for ground number 2 are not repeated here for the sake of brevity. So far as ground No.1 is concerned, this ground is general in nature and hence does not require any specific adjudication.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 22 of 66 Finding of the Bench: -

38. Ground No.3 of the revenue’s appeal is related to the deletion of Rs.27.29,861/- on account of software purchase. Brief facts of the case, which are relevant for this issue are that the assessee has purchased software for an amount of Rs.29,38,331/-. The AO treated these expenses as capital in nature on the ground that these expenses were providing benefits of enduring nature to the assessee and hence the same are capital in nature. The ld. CIT(A) in its order partly sustained the disallowance by observing that out of the total expenses of Rs.29.38 lakhs, an amount of Rs.27,29,861/- is pertaining to such expenses, which are revenue in nature and balance of the amount has been disallowed by the ld. CIT(A) treating the same as capital in nature.

Finding of the Bench: - 38.1 At the outset, it is observed that this issue is squarely covered by the decision of ITAT Delhi in assessee’s own case in & 3215/Del/2013 vide order dated 22.8.2014 for the AYs 2007-08 & 2008-09, wherein the coordinate bench of this Tribunal in paras 43 & 44 has discussed this issue and after referring to the judgement of Hon’ble Delhi High Court in the case of Asahi India Safety Glass Ltd.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 23 of 66 reported in 346 ITR 329 and CIT Vs. Amway India reported in 346 ITR 341 has held that the expenses incurred by the assessee on account of software license purchase and development of other miscellaneous software and maintenance of web sites are revenue in nature. Respectfully following the verdict of the coordinate bench, we dismiss the appeal of the revenue and sustain the order of ld. CIT(A).

(AY 2003-04) (Assessee’s Appeal):

40. Ground Nos.1 & 2 are further divided into sub-grounds.

40.1. In ground Nos.1 to 1.4, the assessee has challenged the addition of Rs.1,52,392/- on account of adjustments made by the TPO in respect of international transactions entered into by the assessee.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 24 of 66 in appeal against this finding of the ld. CIT(A).

Finding of the Bench: -

Finding of the Bench: - 44.1 While deciding the appeal for assessment year 2002-03 in ITA number 158/Del/2010, we have already observed that in case the assessee has actually written off these advances then no disallowance can be made by the AO. With the same direction, we restore this issue to the file of AO.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 25 of 66 46. Brief facts pertaining to this issue are as under:

46.1 During the relevant previous year, the appellant changed its method of accounting of “Tin used in Tinbath”, by classifying it as plant and machinery, which was earlier accounted as inventory in the books of account. Consequently, the value of ‘Tin used in Tin- bath’ amounting to Rs.5,40,74,511 was converted into fixed asset and depreciation was charged on the same. The facts in this regard are explained as under:

46.2 The float glass manufacturing process consists of: (a) receiving raw materials (silica sand, soda ash, limestone, dolomite etc.), mixing them in the Batch House and conveying the same to furnace; (b) melting of raw materials in the Furnace using natural gas as fuel; (c) glass ribbon formation in Tin Bath; (d) controlled cooling of glass in Annealing Lehr; and (e) computer controlled automatic cutting.

46.3 In Tin Bath section, molten glass from the furnace would flow by gravity where a continuous ribbon would be formed by controlling glass temperature with time. Tin Bath section is filled with about 200 MT of molten tin. The glass ribbon is pulled through the bath on a layer of molten tin, the temperature of which is controlled electrically. In this section the molten glass floats across the surface of the molten tin, which then absorbs sufficient heat from the glass to enable it to begin forming cohesive and continuous sheet or ‘ribbon’ of glass. The glass produced through this process is called “Float Glass”.

46.4 Although, the molten glass “floats” across the tin bath, some amount of tin sticks to the glass. Molten tin is also highly reactive

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 26 of 66 metal that combines with oxygen, sulfur, iron and glass in the tin bath. As a result of these combinations and reactions, tin oxide and tin sulfide impurities continuously form on surface of the molten tin.

46.5 These impurities are continuously required to be removed. In addition, other quantity losses occur due evaporation, migration and contamination of molten tin. Thus, Tin in Tin-Bath undergoes continuous and inexorable volumetric and purity losses as a result of tin oxide and tin sulfide formation, tin evaporation, iron contamination and tin absorption in to glass being manufactured. The amount of tin lost in the process is regularly replenished to maintain the required level of Tin in Tin-Bath section of the plant.

46.6 The appellant company, as per industry practice, hitherto treated the original quantity of tin as part of the inventory and subsequent additions of tin to replace the quantity lost in the manufacturing process had been charged to expense account.

46.7 Based on technical re-evaluation, the appellant was advised that the treatment of Tin in Tin-Bath as inventory was not proper. The volume of tin, installed in the Tin-Bath section of the plant is continuously subject to exhaustion, and wear & tear. On account of physical changes and purity losses, even with the replacement of quantity lost in the process, the Tin in Tin-bath would not retain its original characteristics and would undergo continuous deterioration. Accordingly, Tin in Tin-bath was reclassified to be treated as depreciable asset. It also does not confirm to the definition of inventory as per Accounting Standard-2 ‘Valuation of Inventories’ which is given below: “3.1 Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 27 of 66 process or in the rendering of services.”

46.8 Molten tin, it is respectfully submitted, is neither a trading asset held for sale nor it is an asset used in the process of sale of float glass and is also not used as consumable in the production process.

46.9 In view thereof, Tin in Tin-bath does not qualify to be inventory as per AS-2. Instead, it satisfies the definition of ‘Fixed Asset’ as per Accounting Standard-10 given as under:

“6.l Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business.”

46.10 The Company was also advised by legal consultants that the float glass plants are treating Tin in Tin-Bath as depreciable asset. Therefore, Tin in Tin-bath was retrospectively reclassified as depreciable asset. Accordingly, the appellant during the relevant previous year, charged in the books of accounts depreciation on ‘Tin used in Tin-bath’ for the earlier years amounting to Rs.2,55,61,332.

46.11 The AO made disallowance of Rs.5,40,74,511 being the amount of Tin used in Tinbath treating the same as fixed asset instead of closing stock. It is pertinent to mention here that prior to this assessment year, the assessee was treating this item of Tin as part of inventory. However, in the impugned year, the assessee changed the accounting method and transferred this inventory to the block of fixed assets. The AO could not accept the method of the assessee and treated the same as part of closing stock and made an addition of Rs.5,40,74,511/-. The AO also reversed the entry of Rs.2,55,61,332/- being depreciation on the asset. This addition has to 159, 4791, 4856 &5358/Del/2010 & ITA No.2539/Del/2017 Gujarat Guardian Ltd., New Delhi Page 28 of 66 been deleted by the ld. CIT(A), however, the ld. CIT(A) while computing the book profit of the assessee has added the amount of depreciation in the book provided u/s 115JB of the Act.

Finding of the Bench

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 29 of 66 loss account except to the extent as provided in explanation to section 115J of the Act. Further, the assessee relied upon various judgements as mentioned in the synopsis filed by the assessee. Considering the totality of facts and circumstances of the case, we observe that the AO has passed a very cryptic order while deciding this issue, therefore, in the interest of justice, we restore this issue to the file of AO for examining afresh in the light of judgement of Hon’ble Supreme Court in the case of Apollo Tyres (supra) and the other judgements relied upon by the assessee in its synopsis. Ld. AO will grant meaningful opportunity to the assessee to decide before taking a view on this issue.

Finding of the Bench

52. At the outset, we observe that the ld. CIT(A) has dismissed this ground solely relying upon the judgement in the case of Goetz India Ltd. reported in 284 ITR 323.

53. So far as the action of the ld. CIT(A) in not entertaining the claim of the assessee by way of additional ground, and reliance upon the Goetz India Ltd. (supra), we have already decided that the judgement in the cases of Goetz India Ltd. (supra) does not impinge upon the powers of ld. CIT(A), therefore, we hold that the ld. CIT(A) has erred in discarding the claim of the assessee, sitting as an appellate authority. So far as the issue whether the assessee is entitled to sales tax incentive is concerned, we will deal with this issue in appeal of assessee for AY 2005-06, which findings would be to 159, 4791, 4856 &5358/Del/2010 & ITA No.2539/Del/2017 Gujarat Guardian Ltd., New Delhi Page 30 of 66 applicable in this year also.

Finding of the Bench

(AY 2003-04) (Revenue Appeal):

Now we adjudicate cross appeal of revenue in for the AY 2003-04 as follows:

Finding of the Bench

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 31 of 66 58. After considering the rival submissions, we observe that so far as the TP issue is concerned, we have already decided this issue in AY 2002-03 in assessee’s appeal and the findings given therein would mutatis mutandis apply here also.

Finding of the Bench

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 32 of 66 submitted before us. In case the assessee is able to demonstrate with the documentary evidences that these expenses were actually crystalized in this year, then the AO is duty bound to allow these expenses. With these observations, we restore this issue to the file of AO.

(AY 2004-05) Assessee’s appeal:

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 33 of 66 ITA No.4791/Del/2010 (AY 2004-05) (Revenue’s appeal): for the AY 2004-05 in respect of revenue’s appeal as follows:

(AY 2005-06) Assessee’s appeal:

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 34 of 66 The assessee had set up the plant in the backward area at Village Kondh (Taluka Valia), District Bharuch, Gujarat. As per the Sales- tax Incentive Scheme applicable to a “Pioneer Unit” in a backward area of the State of Gujarat, the appellant was given incentive by way of complete exemption from payment of sales tax on sale of goods (Sales-tax subsidy) and in respect of purchase of raw materials, processing materials, consumable stores or packing materials, etc. a concessional rate of tax @ 0.25% (Purchase-tax incentive) was fixed. Based on the Gujarat Government Resolutions, it may be noted that the objective of the State Government was to accelerate industrialization in the backward regions in the State of Gujarat. With this objective, the Government offered certain incentives to new units to be set up in the backward regions.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 35 of 66 has placed reliance upon the judgement of Reliance Industries (Special Bench) decision reported in 88 ITD 273 and also on the judgement of Ponni Sugars reported in 306 ITR 392. However, the ld. AO discarded the claim of the assessee on the ground that the assessee has neither made this claim either in the original return nor in the revised return. Therefore, in view of the judgement of Hon’ble Supreme Court in the case of Goetze India Ltd. Vs. CIT reported in 284 ITR 323, the assessee cannot claim a relief without filing the return of income under the provisions of section 139(1) or 139(5) of the Act. The ld. AO further dealt with the issue on merits and relied upon the judgement in the case of Sahney Steel Vs. CIT reported in 228 ITR 253(SC), and concluded that the sales tax incentives are revenue receipts and hence the same are liable to be taxed under the Income tax act. Thereafter, the AO has also referred to the other judgements and dismissed the contention of the assessee. It is pertinent to note here that the ld. AO after referring to the judgement in the case of Ponni Sugars (supra), wherein held that subsidy can be capital only if the assessee is entitled to utilize the subsidy either for expansion of the unit or towards the acquisition of certain new capital assets, held that if the assessee does not utilize the subsidy for expansion then the subsidy is liable to be treated as revenue receipts.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 36 of 66

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 37 of 66

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 38 of 66 73. Aggrieved with the order of ld. CIT(A), the assessee has come up in appeal before us. Ld. Counsel for the assessee vehemently argued that the ld. CIT(A) has erred in not adjudicating this issue on merits, rather simply relying upon the judgement in the case of Goetz India Ltd. (supra). Besides this, ld. Counsel for the assessee also relied upon the synopsis filed with the bench and the main thrust of the counsel is that the sales tax incentives were linked with the deployment of the capital by the assessee and hence as per the jurisprudence of purposive interpretation, the assessee is entitled for the relief. In simple words, the main contention of the assessee is that taxability of subsidy by whatever name called is to be determined by the purpose for which the subsidy is granted and not the form/mode/manner in which the subsidy is received.

Finding of the Bench

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 39 of 66

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 40 of 66

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 41 of 66

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 42 of 66 (Typed version): Quote: Clause 6 Eligibility Criteria: A New industrial unit fulfilling the following criteria will be considered for the grant of the status of pioneer unit. i. The unit have shall fixed capital investment atleast of Rs.3 Crores (Rupees three crores.) ii. The unit shall employ atleast 100 workers on a permanent basis. iii. Only one unit per village in the eligible areas will be given pioneer status. ………………………………………………………………………………………… ………………………………………………………………………………………… As per Annexure ‘A’ Clause (8) Types of quantum of Benefits:- Those units which fulfill the criteria of pioneer status and have been granted registration by the Industries Commissioner will be eligible for the following benefits:

1.

2. Sales tax incentives:- A pioneer unit set up in the eligible area may chose one of the following incentives: i. Sales tax exemption, OR ii. Sales Tax deferment. Pioneer units claiming the incentive under the scheme will not be eligible for sales tax incentive………………………………………………………………….

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 43 of 66 (1) Sales Tax Exemption Category Quantum Time limit of area 1 2 3 A 90% of the fixed capital For a period of 14 years from the date of investment commencement of commercial production B 70% of the fixed capital For a period of 12 years from the date of investment or/Rs.2.5 commencement of commercial crores whichever is less production (2) Sales Tax Deferment A 90% of the fixed capital For a period of 14 years from the date of investment commencement of commercial production B 65% of the fixed capital For a period of 12 years from the date of investment or/Rs.2.00 commencement of commercial production. crores whichever is less Note – (1) If a unit reaches admissible amount stated in Col.2 above before the expiry of the time limit mentioned in co. 3 above, it will not be eligible for incentives thereafter. (2) In respect of sales tax deferment, the amount so deferred will be recovered in six equal annual instalments after the expiry of the time limit mentioned above. No interest will be charged on the amount so allowed to be deferred.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 44 of 66 the criteria of pioneer status have been granted registration by the Industry commissioner will be eligible for the following benefits:

1. 1. Subsidy: Such unit will be allowed subsidy at the rate which together with Central subsidy shall not exceed Rs.25 lakhs. In simple words, such unit have been granted Rs.25 lakhs as lumpsum amount on account of subsidy.

2. Thereafter the second benefit is termed as sales tax incentives. It is described in this clause that a pioneer unit set up in the eligible area may chose one of the following incentives: a) Sales tax exemption or b) Sales tax deferment.

77. As we have already noted in para 65 above, that the assessee has opted for sales tax exemption and not deferment. Now the manner of quantification has been described in clause (8) itself which says that an assessee is entitled for sales tax incentives up to the limit of 90% value of the fixed capital investment. It is pertinent to note here that this benefit( Sales Tax incentives) has been further subjected to a condition that it is available to the pioneer unit only after the commencement of commercial production. In other words, this scheme says that the assessee who falls in the definition of pioneer unit, can claim sales tax incentive benefits up to the value of 90% of the total capital payable for 14 years. This 14 years’ period would have to be reckoned from the date of commercial production and not from the date of establishment/ setting up of such unit. Further the term subsidy is used in clause 8(1) and incentive is used in clause 8(2). Both these terms are exclusive and carries different meanings, as discussed by us in below para(s).

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 45 of 66 79. First of all we will discuss the case law of CIT Vs. Ponni Sugars & Chemicals Ltd. reported in 306 ITR 392 on which both the parties i.e. AO and the assessee are relying. Perusal of this decision would say that Hon’ble Supreme Court has observed a peculiar fact i.e. in that case, the “incentives” given were to be utilized for repayment of the loans taken by the assessee to set up the new unit, which is not the case here, therefore, the reliance of the assessee on Ponni Sugars (supra) is of no relevance. It is an admitted position of fact that the assessee has already claimed this amount as income in its profit & loss account and has not utilized this amount for repayment of loan or for acquisition of some assets. Therefore, in our view, the AO is correct in relying upon the judgement of Ponni Sugars (supra) and decide the issue against the assessee. The relevant observations of their lordship in the case of Ponni Sugar as reproduced hereunder: - “the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy”

“35. The Tribunal, while making comparison of the Andhra Pradesh Scheme under Government Order MS No. 455 dated 3rd May 1971, with Maharashtra Scheme sanctioned by the Government of Maharashtra vide Resolution No. IDL-7079/(2043)-IND-8 dated 5th January, 1980, laid stress on the form, not on the substance of the Scheme. The quantum of incentive or the period of eligibility is not a determining factor to decide whether the incentive given is of the nature of subsidy. True purport of the Scheme should be spelt out. What is subsidy? That is discussed by the Hon’ble Calcutta High Court in the case of Sarda Plywood Industries Ltd. v. CIT [1999] 238 ITR 354, 368. The relevant portion is reproduced here as under :- "In Kesoram Industries’ case [1991] 191 ITR 518(Cal.), the meaning of the word "subsidy" had been considered in great detail which is to the following effect; (page 529) Webster’s New World Dictionary, 1962: ‘a grant of money, specifically (a) ..... (b) a government grant to a private enterprise considered of benefit to the public.’

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 47 of 66 Shorter Oxford English Dictionary. ‘Help, aid, assistance .... Financial aid furnished by a State or a public corporation in furtherance of an undertaking or the upkeep of a thing .....’ Chambers’ Twentieth Century Dictionary, revised edition: ‘assistance, aid in money .... a grant of public money in aid of some enterprise, industry, etc., or to keep down the price of a commodity.....’ The Reader’s Digest Great Encyclopedic Dictionary, vol. II (M.Z.): ‘2. Financial aid given by government towards expenses of an undertaking or institution held to be of public utility, money paid by government to producers of a commodity so that it can be sold to consumers at a low price.....’ In addition, our attention has been drawn to the definition given in ‘Words and Phrases, permanent edition, vol. 40,’ where subsidy is described as follows : ‘A subsidy is a grant of funds or property from a government, as of the state or municipal corporation to a private person or company to assist the establishment or support of an enterprise deemed advantageous to the public; a subvention.’ Reference is made to 60 Corpus Juris, Corpus Juris Secundum, vol. 83, page 760, gives the following under the heading of subsidy: ‘Something, usually money, donated or given or appropriated by the Government through its power agencies, a grant of funds or property from a Government, as of the State or a municipal corporation, to a private person or company to assist in the establishment or support of an enterprise deemed advantageous to the public; a subvention. Pecuniary premiums offered by the Government to persons enlisting in the public service, or engaging in particular industries, or performing specified services for the public benefit are treated in Bounties’. A subsidy, therefore, can be granted, inter alia, for the manufacturer to sell his commodity to consumers at a lower price."

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 48 of 66

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 49 of 66 was entitled to retain 100% of the amount collected from the customers towards sales tax. Hon’ble jurisdictional High Court after relying upon the judgement of Sahani Steel and Ponni Sugar (supra) observed that the object of providing subsidy by way of permission to not deposit the amounts collected which meant that the customer or service user had to pay sales tax but at the same time the Collector i.e. assessee could retain the amount so collected undoubtedly to achieve that large goal of industrial utilization. The achievement of a quantitative limit would mean that the incentives would not be available if the assessee would not be able reach the targeted sales. Hon’ble High Court in para 25 & 26 has held that since the incentives/subsidy were given after the setting up of the unit and the assessee was free to utilize the funds in any manner, the sales tax receipts are revenue receipts. The relevant observation of the Hon’ble High Court are reproduced as under: “25. In the present case, the provisions of the original scheme (i.e. the original policy of 1990) and its subsidy scheme are relevant; they have quite correctly been relied upon by the revenue. Paras 6 (A) and 6(B) of that scheme specifically provided for capital subsidy to set up prestige units; the amounts indicated (Rupees fifteen lakhs) were to be towards capital expenditure. Now, if that was the scheme under which the assessees set-up their units, undoubtedly it contained specific provisions that enabled capital subsidies. Whether the assessees were entitled to it, or not, is not relevant. The assessees are now concerned with the sales tax amounts they were permitted to retain, under the amended scheme (dated 27.07.1991) which allowed the facility of such retention, after the unit (established and which could possibly claim benefit under the first scheme) was already set up. This subsidy scheme had no strings attached. It merely stated that the collection could be retained to the extent of 100% of capital expenditure. Whilst it might be tempting to read the linkage with capital expenditure as not only applying to the limit, but also implying an underlying intention that the capital expenditure would thereby be recouped, the absence of any such condition should restrain the court from so concluding.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 50 of 66 and the lack of such a subsidy in the supplementary scheme (of 1991) meant that the recipient, i.e. the assessee had the flexibility of using it for any purpose. Unlike in Ponni Sugars (supra), the absence of any condition towards capital utilization meant that the policy makers envisioned greater profitability as an incentive for investors to expand units, for rapid industrialization of the state, ensuring greater employment. Clearly, the subsidy was revenue in nature.”

(AY 2005-06) (Assessee’s appeal): Now we discuss the other grounds in ITA Number 2539 and adjudicate the same as follows:-

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 51 of 66 vide its letter dated 4.5.2016 has categorically stated that there is no correspondence for writing back these static creditors available with the assessee.

-: Finding of the Bench:-

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 52 of 66 Rajasthan High Court in the case of CIT Vs. K.K. Enterprises reported in 227 Taxman 181.

-: Finding of the Bench:-

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 53 of 66 CIT(A) affirmed the view of the AO and disallowed these expenses.

-: Finding of the Bench:-

-: Finding of the Bench:-

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 56 of 66 that managerial services mean a service essential involving control, direction or administration of the business of the recipient (CIT Vs. Bharathi Cellular Ltd. 319 ITR 139). Similarly, consultancy has also been interpreted to mean something akin to advisory services provided by the non-resident pursuant to the deliberation between two parties (GVK Industries Vs. ITO 371 ITR 453). In the same manner in the case of (CIT Vs. Kotak Securities 383 ITR 1) Hon’ble Supreme Court has defined what is the meaning of technical services and has held that technical services can only be provided through human intervention. All these decisions as well as the agreements entered into between the assessee and its associated enterprises have not at all been considered by lower authorities. Therefore, in the interest of justice, we restore this issue to the file of AO for examining afresh in the light of above judgements as well as after analyzing the agreements entered into between the assessee and its AE with respect to the payment of commission.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 57 of 66 ITA 5358/Del/2010 (AY 2006-07) (Assessee’s appeal) (DRP route):-

Now we adjudicate assessee’s appeal in for the AY 2006-07 as follows:

109. Ground no.1 to 2.8 are related to addition of Rs.59,81,515/- to the income of the assessee on account of adjustments made by the to 159, 4791, 4856 &5358/Del/2010 & ITA No.2539/Del/2017 Gujarat Guardian Ltd., New Delhi Page 58 of 66 TPO.

111. In ground No.3, the assessee has challenged the disallowance of Rs.105,94,398/- u/s 14A read with Rule 8D of the I.T. Rules.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 59 of 66

-: Finding of the Bench:-

117. Ground No.4 of the assessee’s appeal is related to the addition of Rs.1,29,275/- on account of cessation of liability.

-: Finding of the Bench:-

123. In ground No.5, the assessee has challenged the disallowance of expenses amounting to Rs.2,04,13,749/- incurred by assessee on glow sign boards and expenses of Rs 1,60,76,902 pertaining to expenditure incurred on hoardings. The AO took the view that these expenses are capital in nature and the ld. DRP confirmed the view of the AO.

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 61 of 66 -: Finding of the Bench:-

127. In ground No.7, and its sub grounds the assessee has challenged the disallowance of certain expenses to the tune of Rs.1,02,56,677/-.

128. The assessee has incurred expenses of Rs 1,43,02,855/- under various heads such as a) Horticulture expenses b) Wind power expenses c) Software purchase expenses etc… The AO, after treating some of the expenses as capital and allowing deprecation on them made an addition of Rs 1,02,56,677/-

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 62 of 66

-: Finding of the Bench:-

132- After considering the rival submissions and perusing the order of the coordinate Bench in assessee’s own case in the ITA number 3686/D/2013, we allow this ground of the assessee.

-: Finding of the Bench:-

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 63 of 66 confirmed the order of AO.

-: Finding of the Bench:-

-: Finding of the Bench:-

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 64 of 66 payments made by the assessee with respect to the staff quarters located in the industry of the assessee.

-: Finding of the Bench:-

147. After considering the rival submissions, we observe that the impugned expenses were subject to FBT and therefore, we are of the considered opinion that no disallowance can be made with respect to these expenses.

-: Finding of the Bench:-

ITA Nos.4859/Del/2009; to 159, 4791, 4856 &5358/Del/2010 & Gujarat Guardian Ltd., New Delhi Page 66 of 66 No.158/Del/2010 would apply mutatis mutandis here also.

Order pronounced in the open court on 16th July, 2025