KELLOGG INDIA P.LTD,MUMBAI vs. DCIT 10(3), MUMBAI

In grounds no.1, 2 and 3, the assessee has challenged the addition of ` 17,68,29,302, on account of transfer pricing adjustment relating to advertising, marketing and sales promotion (AMP) expenditure.

Brief facts are, the assessee, an Indian company, was incorporated in the year 1990and is engaged in the manufacturing and sale of ready to eat cereal products in India. It is a wholly owned subsidiary of Kellogg, USA, and operates as a licensed manufacturer in India by utilizing the technology and marketing intangibles of Kellogg, USA. During the year under consideration, the assessee entered into various international transactions with its Associated Enterprise (AE).After making a detailed analysis of international transactions with the AE in the transfer pricing study report, the assessee found them to 3 Kellogg India Pvt. Ltd. be at arm's length price. The Transfer Pricing Officer after examining the transfer pricing study report as well as other materials on record issued a show cause notice to the assessee to explain why the arm's length price of the AMP expenditure should not be determined by applying Bright Line Test (BLT) method. In response to the show cause notice, the assessee filed its reply stating that the AMP expenditure incurred by the assessee, since, is in respect of products manufactured and sold in India and the payment towards such expenditure having been made to third parties in India, it cannot be treated as international transaction under section 92B of the Act. Further, it was submitted by the assessee, since there is no agreement/arrangement with the AE for incurring AMP expenditure for promotion of the brand of the AE, it cannot form part of international transaction. Further, it was submitted by the assessee, the arm's length price of such transaction cannot be determined by applying BLT as it is not a prescribed method in the statute. In support of such contention, the assessee relied upon various decisions also. However, the Transfer Pricing Officer did not find merit in the submissions made by the assessee and proceeded to determine the arm's length price of the AMP expenditure by applying BLT method. While doing so, he completely relied upon the Special Bench decision of the Tribunal, Delhi Bench, in LG Electronics India Pvt. Ltd. v/s ACIT, [2013] 140 ITD 41 (Del.) (SB). In the process, he considered the arithmetic mean of 4 Kellogg India Pvt. Ltd. two comparables viz. Dabur India Ltd. and Marico Ltd. worked out at 11.51% as BLT for AMP expenditure and determined the arm's length price of AMP expenditure at ` 22,71,47,960, and ultimately made an adjustment of ` 17,68,29,302. The adjustment suggested by the Transfer Pricing Officer was added back to the income of the assessee while framing the draft assessment order. Though, the assessee raised objections against the draft assessment order before learned DRP, however, the adjustment made by the TPO was upheld.

The learned Authorised Representative submitted, the AMP expenditure incurred by the assessee does not come within the purview of international transaction as defined under section 92B of the Act. He submitted, not only the AMP expenditure was paid to third parties in India but it was incurred wholly and exclusively for the products manufactured and marketed by the assessee in India. The learned Authorised Representative submitted, though, the Transfer Pricing Officer has inferred existence of international transaction with regard to AMP expenditure by stating that there was an arrangement between the assessee and the AE for promotion of the brand of the AE, however, he has not brought any material on record to demonstrate existence of such an arrangement. He submitted, all risk and rewards of manufacturing sale of the products in Indian market is that of the assessee and the assessee incurs the AMP expenditure to market and promote its own products. He submitted, the Transfer

The learned Departmental Representative, though, relied upon the observations of the Transfer Pricing Officer and learned DRP, however, he submitted that in subsequent decisions, the Hon'ble Delhi High Court has not approved of the Special Bench decision of the Tribunal, in LG Electronics India Pvt. Ltd. (supra) and the application of BLT method. He submitted, since the issue is now pending before the Hon'ble Supreme Court, the matter may be restored back to the Assessing Officer for deciding the issue keeping in view the decision of the Hon'ble Supreme Court. In support of such contention, the learned Departmental Representative relied upon the following decisions:–

We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Undisputed facts are, the assessee is not merely a distributor of the products manufactured by the AE but the assessee itself manufactures its own products in India under license from the AE. It is also a fact that for marketing and promotion of its manufactured products in India, assessee has incurred AMP expenditure by making payments to third parties in India. Therefore, the basic issue which arises for consideration is, whether the AMP expenditure incurred by the assessee in India can come within the purview of international transaction as defined under section 92B of the Act. In this regard, the contention of the assessee before the Transfer Pricing Officer was, since the assessee has incurred the AMP expenditure for products manufactured and sold by it in India, it does not come within the purview of international transaction. Further, the assessee has also submitted that since there is no arrangement/agreement between the assessee and the AE for incurring such expenditure to promote the brand of the AE, it cannot be said that there is an international

Moreover, there is no doubt that the Transfer Pricing Officer has determined the arm's length price of AMP expenditure by applying BLT method. While doing so, he has heavily relied upon the Special Bench decision of the Tribunal, in LG Electronics India Pvt. Ltd. (supra). Now, it is fairly well established that determination of arm's length price of AMP expenditure by applying BLT method is not valid.In a catena of decisions, the Hon'ble Delhi High Court while disapproving the decision of the Tribunal in L.G. Electronics India Pvt. Ltd. (supra) have held that BLT method is invalid as it is not prescribed in the statute. In this context, we may refer to the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra). Following the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra) and various other decisions, different Benches of the Tribunal have also held that in absence of an express arrangement/agreement between the assessee and the AE for incurring AMP expenditure to promote the brand of the AE, AMP expenditure incurred by making payment to third parties for promoting and marketing the product manufactured by the 10 Kellogg India Pvt. Ltd. assessee, does not come within the purview of international transaction.

At this stage, it is relevant to observe, while deciding identical nature of dispute in assessee’s own case for the assessment year 2011–12, learned DRP in direction dated 28th December 2015, have deleted the adjustment made by the Transfer Pricing Officer on account of AMP expenditure by recording a factual finding that the Transfer Pricing Officer has failed to demonstrate that there is an agreement/arrangement between the assessee and the AE for incurring AMP expenditure. While doing so, learned DRP has relied upon the decision of the Hon'ble Delhi High Court in Maruti Suzuki India Ltd. (supra). Thus, viewed in the light of the ratio laid down in the decisions cited by the learned Authorised Representative, including the decision of the Hon'ble Delhi High Court in Martuti Suzuki India Ltd. (supra), it has to be concluded that the AMP expenditure incurred by the assessee in India cannot come within the purview of the international transaction. Hence, the Transfer Pricing Officer has no jurisdiction to determine the arm's length price of AMP expenditure.

Having held so, it is now necessary to deal with the contention of the learned Departmental Representative to restore the issue to the Assessing Officer for keeping it pending till the issue is settled by the Hon'ble Supreme Court. In our view, the aforesaid contention of the 11 Kellogg India Pvt. Ltd. learned Departmental Representative is not acceptable. As per the prevailing legal position, the AMP expenditure incurred by the assessee in India cannot come within the purview of international transaction. That being the case, the adjustment made by the Transfer Pricing Officer cannot survive. Therefore, we do not find any necessity to restore the issue to the Assessing Officer. Grounds are allowed.

In ground no.4, the assessee has challenged the addition made on account of adjustment to the arm's length price of royalty paid to the A.E.

Brief facts are, in course of proceedings before him, the Transfer Pricing Officer found that during the year the assessee has paid royalty to its AE which has been benchmarked by using Comparable Uncontrolled Price (CUP) method. As observed by the Transfer Pricing Officer, the assessee could not furnish any comparable royalty agreement to demonstrate that royalty payment was at arm's length. Further, he observed, the royalty agreement of the assessee is for more than 10 years and the comparable agreements produced before him were of short duration of two to three years. Further, such agreements were neither contemporaneous nor from the same sector. Thus, he held that the arm's length price of royalty payment is not at arm's length and determined the same at nil. However, since he has already made adjustment on account of AMP expenditure, he did not 12 Kellogg India Pvt. Ltd. make any separate adjustment on account of royalty payment. Learned DRP also upheld the aforesaid decision of the TPO.

The learned Authorised Representative drawing our attention to the royalty agreement placed in the paper book submitted, the agreement is continuing for past several years. He submitted, as per the terms of the agreement, assessee from the very inception pays royalty to the AE @ 5% on domestic transaction and at 8% on export transaction. He submitted, since the assessee is using the technology, the brand and intangibles of the AE, it has to pay royalty to continue its manufacturing activities. He submitted, the payment of royalty in all other assessment years, except, the impugned assessment year has been accepted by the Transfer Pricing Officer to be at arm's length. Thus, he submitted, by applying the rule of consistency no adjustment can be made to the arm's length price of royalty payment. The learned Authorised Representative submitted, though the Transfer Pricing Officer has pointed out certain flaws in the benchmarking of the assessee but he himself has not come up with proper benchmarking and has simply determined the arm's length price at nil without applying any prescribed method. He submitted, such approach of the Transfer Pricing Officer is unacceptable. In support of such contention, he relied upon the decision of the Hon’ble Andhra Pradesh High Court in PCIT v/s R.A.K. Ceramics India Pvt. Ltd., 246 taxmann.com 85 (AP).

We have considered the rival submissions and perused material on record. On 18th July 1994, the assessee had entered into a financial and technical collaboration agreement with Kellogg, USA, for availing technical knowhow / data for manufacturing licensed products in India. As per the terms of agreement, the assessee is required to pay royalty @ 5% on the domestic sales and 8% on export sales. Thus, in pursuance to the terms of the aforesaid agreement, the assessee utilises technical / financial data of Kellogg, USA, on payment of royalty. The payment of royalty in the past assessment years was found to be at arm's length by the Transfer Pricing Officer. Even, in the subsequent assessment years also the Transfer Pricing Officer has found the payment of royalty to the AE to be at arm's length. Undisputedly, in the impugned assessment year the assessee has benchmarked the royalty payment by applying CUP method. It is observed, the Transfer Pricing Officer has rejected the benchmarking of the assessee with some general observations. If the benchmarking done by the assessee is not acceptable to the Transfer Pricing Officer, he must provide the basis/reasoning on which he found it unacceptable. Even assuming that the benchmarking done by the assessee was not correct, the Transfer Pricing Officer should have benchmarked the royalty payment by applying any of the prescribed

In grounds no.5 and 6, the assessee has challenged on account of unutilized MODVAT/CENVAT credit.

Brief facts are, in course of assessment proceedings, the Assessing Officer noticing that the assessee is following exclusive method of accounting for valuation of stock called upon the assessee to explain why the unutilized CENVAT credit amounting to ` 45,43,850, as on 31st March 2009, should not be included in the cost of inventory as per section 145A of the Act. Though, the assessee objected to the proposed addition, however, the Assessing Officer rejecting the 15 Kellogg India Pvt. Ltd. objections of the assessee added back the amount of ` 45,43,850, to the income of the assessee. The assessee objected to the aforesaid addition before learned DRP. After considering the submissions of the assessee, learned DRP enhanced the addition under section 145A of the Act to ` 84,60,697.

The learned Authorised Representative submitted, if following the provision of section 145A of the Act, unutilized MODVAT credit is added to the opening stock,It should also be added to closing stock and purchases as provided in the said provision. He submitted, while deciding identical issue in assessee’s own case in the preceding assessment year, the Tribunal has also held that unutilized MODVAT credit is added to closing stock, similar adjustment is also to be made to the purchases and sales and opening stock as well. In this context, he drew our attention to the decisions of the Tribunal for assessment years 2004–05, 2005–06, 2006–07, 2007–08 and 2008–09. Drawing our attention to the tax audit report, he submitted, profit chargeable to tax remains the same irrespective of the fact whether MODVAT credit is included or excluded from the opening and closing stock as well as sales and purchases. Thus, he submitted, it is revenue neutral.

The learned Departmental Representative relied upon the observations of the Transfer Pricing Officer and learned DRP.

We have considered rival submissions and perused material on record. Undisputedly, the unutilized MODVAT credit has been added only to the closing stock by the Departmental Authorities by invoking the provision of section 145A of the Act. However, now it is fairly well settled that adjustment, if any, under section 145A of the Act has to be made both to the opening stock and closing stock as well as purchases and sales. In fact, in assessee’s own case for the assessment year 2004–05, the Tribunal in ITA no.7186/Mum./2008, dated 20th May 2011, has held that adjustment on account of MODVAT credit has to be made both in respect of closing stock, opening stock, purchases and sales. The same view has been expressed by the Tribunal while deciding assessee’s appeal for the assessment years 2006–07, 2007–08 and 2008–09, vide order dated 22nd December 2016, passed in ITA no.6274/Mum./2011 &Ors. Facts being identical, respectfully following the earlier decision of the Tribunal in assessee’s own case, as referred to above, we direct the assessee to make necessary adjustment to the opening stock, closing stock, sales and purchases on account of MODVAT credit. These grounds are allowed for statistical purposes.

Ground no.7 is not pressed, hence, dismissed.

In ground no.8, the assessee has challenged re–computation of depreciation by reducing from Written Down Value (WDV) the amount

Brief facts are, during the assessment proceedings the Assessing Officer while examining assessee’s claim of depreciation, noticed that such depreciation has been claimed by the assessee on the opening WDV as on 1st April 1997, without reducing the depreciation allowable for the assessment years 1997–98 to 2000–01. When called upon for explaining the above, the assessee submitted that since the assessee had not actually claimed the depreciation in those years, it has claimed depreciation on the opening WDV as on 1st April 1997. The Assessing Officer, however, did not accept the contention of the assessee and allowed assessee’s claim of depreciation after reducing the depreciation allowable for the assessment years 1997–98 to 2000–01 from the opening WDV. The assessee challenged the aforesaid decision of the A.O. before learned DRP. Learned DRP directed the Assessing Officer to compute depreciation after reducing from the WDV the depreciation actually allowed in the preceding assessment years.

The learned Authorised Representative submitted, though the assessee has not claimed depreciation in the return of income filed for the assessment years 1998–99 to 2001–02, however, he submitted, while completing the assessment for the A.Y. 1999–2000, the Assessing Officer computed depreciation. He submitted, though the 18 Kellogg India Pvt. Ltd. assessee contested the computation of depreciation by the Assessing Officer in assessment year 1999–2000, however, ultimately, assessee’s claim was rejected by the Hon'ble Supreme Court. He submitted, since assessee’s case was not selected for scrutiny for the assessment years 1998–99, 2000–01, 2001–02, the Assessing Officer did not compute depreciation in these years. Thus, it was claimed by the assessee that the opening WDV as on 1st April 2001, should be worked out after reducing the depreciation allowed to the assessee for the assessment year 1999–2000 only. He submitted, the aforesaid claim of the assessee was allowed by the Tribunal while deciding the appeal for the assessment year 2002–03 in Mum./2008, dated 20th January 2010. Thus, he submitted, assessee’s claim of depreciation in the impugned assessment year should be computed keeping in view the aforesaid order of the Tribunal.

The learned Departmental Representative submitted, necessary direction may be given to the Assessing Officer.

We have considered rival submissions and perused material on record. It is evident from the facts on record, in the return of income filed for the impugned assessment year, the assessee had claimed depreciation on the opening WDV as on 1st April 1997. However, it is a fact on record that while completing the assessment for the assessment year 1999–2000, the Assessing Officer had computed

In ground no.9, the assessee has challenged the disallowance of product development expenditure of ` 2,01,18,607.

Brief facts are, in the course of the assessment proceedings the Assessing Officer while examining assessee’s claim of deduction on account of product development expenditure noticed that similar expenditure claimed by the assessee in the preceding assessment years were disallowed by treating them as capital in nature. Thus, following the past assessment orders, the Assessing Officer disallowed the product development expenditure by treating it as capital in nature.

The learned DRP also upheld the aforesaid decision of the Assessing Officer.

The learned Authorised Representative submitted, while deciding identical dispute in the preceding assessment years, the Tribunal has held that the product development expenditure is revenue in nature and accordingly allowed assessee’s claim. He submitted, even the Revenue’s appeal against the decision of the Tribunal in the assessment year 2004–05 has been dismissed by the Hon'ble Jurisdictional High Court. Further, he submitted, following the decision of the Tribunal in the preceding assessment years, the first appellate authority has allowed assessee’s claim in the assessment year 2003– 04, 2006–07 and 2007–08 against which the Revenue has not preferred any appeal. Thus, he submitted, the issue stands covered in favour of the assessee.

The learned Departmental Representative relied upon the observations of the Assessing Officer and learned DRP.

We have considered rival submissions and perused material on record. It is evident, the Assessing Officer following similar disallowance made in the earlier assessment years has made disallowance in the impugned assessment year by treating the product development expenditure as capital in nature. However, while deciding assessee’s appeal on identical issue in assessment year 2002–03, vide ITA no.4335/Mum./2008, dated 20th January 2010, the Tribunal has allowed assessee’s claim of deduction by treating the expenditure as revenue in nature. The same view was expressed by the Tribunal while deciding the appeals for the assessment years 2004–05, 2005–06 and 2008–09. In fact, while deciding Revenue’s appeal against the decision of the Tribunal for the assessment year 2004–05, the Hon'ble Jurisdictional High Court in of 2012, dated 18th June 2014, has upheld the decision of the Tribunal. Therefore, respectfully following the consistent view of the Tribunal and the decision of the Hon'ble Jurisdictional High Court on the disputed issue, we delete the addition made by the Assessing Officer. This ground is allowed.

In ground no.10, the assessee has challenged disallowance of ` 17.70 lakh.

Brief facts are, during the year under consideration the assessee had paid an amount of ` 17.70 lakh to Strategic Systems Pvt. Ltd., which was debited to the Profit & Loss account towards legal and professional fees. After calling for necessary details the Assessing Officer was of the view that such expenditure pertains to acquisition of software and not upgradation of software. Further, he observed, while completing the assessment for the assessment years 2005–06, 2006– 07, 2007–08 and 2008–09, similar expenditure claimed by the assessee was capitalized. Thus, following the past assessment orders, the Assessing Officer disallowed assessee’s claim of expenditure by treating it as capital in nature.

The learned DRP, though, upheld the decision of the Assessing Officer, however, he directed the Assessing Officer to allow depreciation.

The learned Authorised Representative submitted, while deciding identical issue in the assessment year 2008–09, the Tribunal has allowed assessee’s claim. He submitted, in the assessment years2005– 06, 2006–07 and 2007–08, the learned Commissioner (Appeals) has allowed similar claim which has been accepted by the Revenue.

The learned Departmental Representative relied upon the observations of the Assessing Officer and learned DRP.

We have considered rival submissions and perused material on record. Undisputedly, relying upon the past assessment orders the Assessing Officer has disallowed the payment made to Strategic Systems Pvt. Ltd., by treating it as capital in nature. However, while considering the issue relating to similar disallowance made towards payment made to the very same party in the assessment year 2008– 09, the Tribunal in ITA no.6276/Mum./2011, dated 22nd December 2016, has allowed assessee’s claim by treating it as revenue in nature. Facts being identical, respectfully following the aforesaid decision of the Tribunal, we delete the addition. This ground is allowed.

In ground no.11, the assessee has challenged the disallowance of ` 1,85,73,320, under section 40(a)(i) of the Act.

Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has paid an amount of ` 10,52,48,814, to Kellogg, USA. After verifying the details of tax deducted at source under section 195 of the Act, the Assessing Officer concluded that the assessee has not deducted tax at source on royalty payment of ` 1,85,73,320. Accordingly, he disallowed the same under section 40(a)(i) of the Act.

Learned DRP after taking note of the decision of the learned Commissioner (Appeals) for the assessment year 2008–09 directed the Assessing Officer to verify whether the assessee fulfills the conditions

The learned Departmental Representative relied upon the observations of learned DRP.

We have considered rival submissions and perused material on record. As could be seen from the order passed by the Tribunal for the assessment year 2007–08 (supra), the disallowance made under section 40(a)(i) of the Act was deleted since the assessee had fulfilled the conditions of section 10(6A) of the Act. In fact, in the impugned assessment year also, learned DRP has directed the Assessing Officer to verify whether conditions of section 10(6A) of the Act have been fulfilled and thereafter allow relief to the assessee. It is the contention of the learned Authorised Representative before us that in the impugned assessment year the assessee has fulfilled the conditions of 25 Kellogg India Pvt. Ltd. section 10(6A) of the Act. In view of the aforesaid, we direct the Assessing Officer to verify the aforesaid claim of the assessee and if assessee’s claim is found to be correct, in the sense that all the conditions of section 10(6A) of the Act have been fulfilled, no disallowance under section 40(a)(i) of the Act can be made, as held by the Tribunal in the assessment year 2007–08 (supra). This ground is allowed subject to verification.

In ground no.12, the assessee has challenged the decision of the Departmental Authorities in treating the interest income of ` 74,61,945, as income from other sources.

Brief facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee has offered the interest income of ` 1,68,31,706, as business income. When called upon to explanation, the assessee justified its stand of offering the interest income as income from business. However, the Assessing Officer was not convinced with the submissions of the assessee and treated the interest income as income from other sources. While considering the objections raised by the assessee, learned DRP upheld the decision of the Assessing Officer.

The learned Authorised Representative submitted, while deciding the issue in assessee’s own case in assessment years 2007–08 and 2008–09, the Tribunal has restored them to the Assessing Officer with 26 Kellogg India Pvt. Ltd. certain directions. Thus, he submitted, similar direction may be issued in the impugned assessment year.

The learned Departmental Representative has no objection for restoration of the issue to the Assessing Officer.

We have considered rival submissions and perused material on record. It is observed that while deciding identical issue in assessee’s own case for the assessment year 2007–08 and 2008–09 (supra), the Tribunal has held as under:– “6.2 AO noted that the impugned interest income was earned by the assessee and considering the nature of assessee's business, the same was assessable under the head 'Income from other sources against which set-off of brought forward business losses was not permissible. The assessee attributed the same to the 'credit float' enjoyed by the assessee. The surplus funds out of business operations were invested in short term deposits with the bank. Reliance was placed on the judgment of Bombay High Court in Lok Holdings 309 ITR 356. However, the same got rejected by AU on the premise that such interest income was not derived from the business activity of the assessee. CIT(A) allowed the issue in favour of assessee by relying upon various judicial pronouncements. Aggrieved, the Revenue is in appeal before us. AR has contended that there is complete nexus of interest income with the business activity of the assessee and the same has accrued only due to parking of surplus funds in normal course of business in short term Bank deposits. Per query from the Bench, the Ld. AR placed a note on interest income qua its nexus with business activity of the assessee. The assessee is engaged in the business of manufacturing and distribution of ready to eat cereals. It procures raw material and necessary ingredients from vendors and sells manufactured products to distributors. The AR has contended that the assessee collects sales proceeds within a week's time whereas it enjoys credit period of more than 45 days from its vendors. It enjoys a longer credit period from its vendors as against shorter credit period given to its customers. The resultant float is parked in short term bank deposits. The period of these deposits ranges from 30 to 90 days. Reliance has been placed on the judgment of Hon'ble Bombay High Court

Facts being identical, respectfully following the aforesaid decision of the Co–ordinate Bench, we restore the issue to the Assessing Officer. Ground is allowed for statistical purposes.

In ground no.13, the assessee has claimed set–off of brought forward business loss before setting–off unabsorbed depreciation.

As it appears, this issue was not raised by the assessee before learned DRP. When a query to this effect was raised to the learned Authorised Representative, he conceded that the issue was not raised before learned DRP and further submitted that the assessee would file a rectification petition before the Assessing Officer in respect of the said issue. In view of the aforesaid submissions of the learned Authorised Representative, this ground is dismissed.

In ground no.14, the assessee has claimed set–off of brought forward business loss against the interest income which was treated as income from other source by the Assessing Officer.

While deciding ground no.12 relating to characterization of interest income as income from other sources, we have restored the issue to the Assessing Officer for fresh adjudication. Thus, the issue raised in this ground is consequential to the decision to be taken by the Assessing Officer on the characterization of interest income. Therefore, this issue is also requires to be restored back to the Assessing Officer. It is relevant to observe, in the course of hearing, the learned Authorised Representative made a without prejudice submission that irrespective of the head under which the interest income is assessed, the character and essence of the interest income is in the nature of business income, hence, the brought forward business loss has to be set–off against such income. In support of such contention, he relied upon the decision of the Hon'ble Jurisdictional High Court in Sham Progretti S.P.A. v/s ACIT, 132 ITR 70 (Del.). In our view, in course of proceedings before the Assessing Officer the assessee can raise such contention and if such contention is raised by the assessee, the Assessing Officer has to consider the same on merit. With the aforesaid direction, this ground is allowed for statistical purpose.

In ground no.15, the assessee has raised the issue of set–off of unabsorbed depreciation against the interest income assessed under the head income from other sources.

It is observed, while deciding the objection of the assessee on the aforesaid issue, learned DRP in Para–12.5 of its directions has held that unabsorbed depreciation being part of current year’s depreciation is eligible for set–off against income under any other head including income from other sources. Accordingly, the Assessing Officer was directed to allow set–off of unabsorbed depreciation. However, as it appears, the Assessing Officer has not implemented the aforesaid direction of learned DRP which, in our view, is unacceptable. Accordingly, we direct the Assessing Officer to implement the direction of learned DRP on the issue and allow set–off of unabsorbed depreciation. This ground is allowed.

In the result, assessee’s appeal is partly allowed. ./2014 Revenue’s Appeal

The effective grounds raised

In the result, Revenue’s appeal is dismissed.

To sum up, assessee’s appeal is partly allowed and Revenue’s appeal is dismissed. Order pronounced in the open Court on 19.07.2019