TMI Blog2019 (6) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... located at Thane be allowed as Revenue Expenses. Disallowance of expenditure on account of purchase of application software - Revenue or capital expenditure - HELD THAT:- Respectfully following the decision of tribunal in assessee's own case for AY 2004-05 and with a view to maintain consistency, we hold that expenditure incurred by the assessee for purchase of application software to the tune of ₹ 8,65,032/- be allowed as Revenue expenses. We have while taking decision has also noted that these are not operating software but are application software. Disallowance u/s 14A - expenditure incurred in relation to earning of an exempt income - HELD THAT:- No reason to take a different view than what was taken by tribunal in assessee‟s own case for AY 2004-05 as facts are similar and also with a view to maintain consistency, we uphold disallowance of expenditure to the tune of 2% of exempt income. Disallowance on account of valuation of stock u/s 145A - differential Cenvat Credit in opening and closing stock - exclusive method of accounting OR inclusive method of accounting - HELD THAT:- The assessee is following exclusive method of accounting for valuing closin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... And Shri Ramit Kochar, Accountant Member For the Assessee : Ms. Aarti Vissanji For the Revenue : Shri. Rignesh K. Das (DR), Shri. Rajeev Gubgotra (DR) ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER These cross appeals, filed by Revenue as well as by Assessee, being ITA No. 6789/Mum/2013 ITA no. 7196/Mum/2013 respectively both for assessment year 2007-08 are directed against the appellate order dated 24.09.2013 in appeal no. CIT(A)-15/Arr.109/13-14 passed by learned Commissioner of Income-tax (Appeals)-15, Mumbai (hereinafter called the CIT(A) ), the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 18.02.2011 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) read with Section 144C(3) of the Income-tax Act, 1961 (hereinafter called the Act ). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) in ITA no. 6789/Mum/2013 for AY 2007-08, read as under:- 1. Whether on the facts and in circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax (Appeals) has erred in upholding action of the Assessing Officer of making addition of ₹ 5,12,27,909/- u/s. 145A on account of differential Cenvat Credit in opening and closing stock. b. Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) has erred in upholding action of the Assessing Officer of adopting an artificial formula for calculating the value of Cenvat in opening and closing stock disregarding the actual values mentioned in Tax Audit Report. c. The learned Commissioner of Income-tax (Appeals) has erred in not following the decision of Supreme Court in the case of CIT Vs. Indo Nippon Chemical Co. Ltd (261 ITR 275) and decision of I.T.A.T. Mumbai in the case of Hawkins Cookers Ltd V. ITO (14 DTR 206). 5. a. The learned Commissioner of Income-tax (Appeals) erred in upholding action of the Assessing Officer of making adjustment/addition of ₹ 53,16,420/- on account of notional guarantee fee for counter guarantee given by the appellant to an Associated Concern. b. The learned Commissioner of Income-tax (Appeals) erred in upholding action of the Assessing Officer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entions and submissions of the appellant are being discussed and decided here in under: i. The appellant argued that in its own case for A.Y. 2000-01, the Hon'ble ITAT have allowed the expenses and also depreciation claimed by it. However, on perusal of the order dated 22.12.2010 it is noted that Hon'ble ITAT in para 13 of the order have allowed the expenses on account of rates and taxes, watch and ward and depreciation. Following the same, the disallowance made by AO with regard to these expenses is directed to be deleted. However, in this year expenditure on account of insurance has not been allowed. Impliedly Hon'ble ITAT have upheld this disallowance. Thus since the facts are identical as compared to the year under consideration respectfully following the above the Hon'ble ITAT, the disallowance made by AO on account of insurance is upheld. ii. This ground of appeal is partly allowed. 6. Now the matter is before tribunal at behest of both the rival parties. The Revenue is aggrieved by decision of learned CIT(A) allowing expenses incurred including depreciation with respect to Kavesar unit by lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has reached tribunal and we have observed that tribunal was pleased to allow these expenses including depreciation for AY 2004-05 in ITA no. 212/Mum/2008 vide appellate order dated 19.03.2018 wherein tribunal followed the decision of the tribunal in assessee‟s own case for AY 2003-04 in ITA No.1525/Mum/2007, by holding as under:- 2.5 We have heard the rival submissions and perused the relevant materials on record. We find that the ITAT K Bench, Mumbai in assessee s own case for AY 2003-04 (ITA No. 1525/Mum/2007) has followed the following order of the Tribunal for AY 2002-03: It is observed that a similar issue has been decided by the Tribunal in assessee s own case for the earlier years i.e. assessment year 2000-01 and 2001-02 by its order dated 22nd December, 2010 and 28th March, 2012 passed in ITA No. 6491/Mum/2004 and 2519/Mum/2005 respectively whereby a similar disallowance sustained by the Ld. CIT(Appeals) on account of depreciation and other expenses of Kavesar Factory was deleted by the Tribunal accepting the alternative contention of the assessee that the expenses incurred to protect the business assets should be allowed as ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance of expenditure to the tune of ₹ 8,65,032/- on account of expenditure incurred on purchase of application software. These expenses incurred by the assessee towards acquisition of application software were claimed by the assessee as Revenue expenses and cost thereof were charged to Profit and Loss Account. The assessee had claimed before the AO that these application software are used for the purposes of operating computers and were purchased separately and were not supplied by manufacturer alongwith computers. Without prejudice, It was also claimed that the new version of these application software is launched every year in the market and the application software purchased in one year become outdated in the next year. However, these expenses incurred by the assessee towards purchase of application software were disallowed by the AO by treating the same as capital expenditure but the AO allowed depreciation to the tune of 60% for full year while 30% rate of depreciation was allowed for half year, as was prescribed in Appendix-I of the Income-tax Rules, 1962- Computer including Computer Software. The assessee carried the matter in appeal before the Ld. CIT(A) but wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed that these application software purchased are required for operating computer systems and bring in efficiencies in operations. The said application software were not supplied by computer hardware purchased by the assessee but were separately acquired. There are infact three software purchased by the assessee, which are subject of dispute before us, as under: Application Software Amount(Rs.) 1. Minitab latest Software M.E. Project 4,81,624 2. Iquinox Ver. 6 3,26,000 3. Internet proxy server software 57,403 Total 8,65,032 It is claimed that Minitabl Software helps in increasing the manufacturing efficiency. It helps extract date from SAP system and compile them in a suitable and presentable manner so as to give meaningful analysis to the management and other personnel, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue expenditure. Facts being identical, we follow the ratio laid down in the above decisions and hold that the expenditure incurred by the assessee towards the purchase of application software is revenue in nature. Thus the 2nd ground of appeal is allowed. Respectfully following the decision of tribunal in assessee‟s own case for AY 2004-05 and with a view to maintain consistency( Ref: Hon‟ble Supreme Court decision in the case of Radhasoami Satsang v. CIT reported in (1992)193 ITR 321(SC) ), we hold that expenditure incurred by the assessee for purchase of application software to the tune of ₹ 8,65,032/- be allowed as Revenue expenses. We have while taking decision has also noted that these are not operating software but are application software. The ground number 2 in assessee‟s appeal is allowed. We order accordingly. 14. The next issue raised by the assessee in its appeal vide ground number 3(a) to (d) relates to disallowance of expenditure incurred in relation to earning of an exempt income by invoking provisions of Section 14A of the 1961 Act. The assessee had received total dividend income of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 Value of the total assets as on 31st March 6,217,300,000 c) Average value of total assets during the year 5,687,789,000 Amount of disallowance [a ( b/c ) ] 1,507,568 iii) 0.5% of Average Investment 4,459,038 TOTAL DISALLOWANCE U/S.14A (i+ii+iii) 5,966,606 5.5. Thus, the disallowance u/s.14A of the IT Act works out to ₹ 59,66,606/-. Since the assessee company has already disallowed an amount of ₹ 1,50,725/- and added back to the business income in the Statement of Income, a further disallowance of ₹ 58,15,881/-(i.e. 59,66,606-1,50,725) is made under section 14A of I. T. Act 1961. Addition made to total income: ₹ 58,15,881/- 15. Aggrieved by an assessment framed by the AO as aforesaid w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered disallowance of ₹ 1,50,725/-. Therefore, it cannot be said that there are no costs/expenses attributable to earning of the income which is not forming part of the total income. ii. The appellant has contended that it had sufficient funds and that the investments were made out of internal accruals. In this regard the appellant also relied upon the Judgement of Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities Power Limited (Supra). In this regard it is stated that the decision is in respect of the allowability of interest under section 36(1) (iii) of the Act and not in respect of section 14A of the Act. The appellant has submitted that there cannot be disallowance of interest as it had sufficient internal/own funds for such investments. In this regard it is mentioned that in the proposed proforma, the clause (i) takes care of it. As per the working submitted by the appellant, the appellant has taken such direct interest/expenses attributable to the exempt income as NIL. This further takes care of appellant's reliance on the case of Reliance Utilities Power Ltd. (Supra). There is therefore disallowance worked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of investment, income from which does not or shall not form part of total income. The information as aforesaid together with your say/submission on the proposed disallowance under section 14A be submitted on the date of next hearing. In response to the above appellant submitted that method adopted by it to calculate disallowance u/s. 14A is correct and reasonable. However,, without prejudice in response to questionnaire the working of disallowance u/s. 14A was submitted as per which disallowance, has been worked out to ₹ 68,04,816. In view of the above facts AO is directed to disallow a sum ₹ 68,04,816/- resulting into enhancement of ₹ 9,88,935/-. vi. This ground of appeal is dismissed with enhancement. 16. Being aggrieved by the appellate order passed by learned CIT(A) confirming disallowance of expenditure(including enhancement) to the tune of ₹ 68,04,816/- by invoking provision of Section 14A of the 1961 Act, the assessee carried the matter further in appeal before the tribunal and it was submitted at the outset by learned counsel for the assessee that impugned assessment year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in ITA no. 212/Mum/2008 vide appellate order dated 19.03.2018, the tribunal has upheld the disallowance u/s 14A of the 1961 Act to the tune of 2% of the exempt income. It was prayed that the disallowance u/s 14A be restricted to 2% of exempt income. 17. The Ld. DR on the other hand relied upon the order of the Ld. CIT(A). 18. We have considered rival contention and perused the material on record. We have observed that the assessee has made investment to the tune of ₹ 154.82 crores as at 31.03.2007(₹ 163.93 crores as at 31.03.2006) and assessee has received dividend income of ₹ 7.18 crore from Companies and Mutual Funds during the previous year relevant to impugned assessment year which was claimed as an exempt income u/s 10(34) of the 1961 Act. The assessee has further received exempt income of ₹ 1.02 crores by way of interest on tax free bonds during the previous year relevant to assessment year which was also claimed as an exempt income u/s. 10(15) of the Act. The assessee has own interest free funds available with it to the tune of ₹ 511.73 crores as at 31.03.2007( Preceding year ₹ 406.05 crores as at 31.03.2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order dated 08.01.2013 in CIT v. M/s Godrej Agrovet Ltd. (ITA No. 934 of 2011). As we are dealing with the assessment year 2004-05, following the above decisions, we direct the AO to restrict the disallowance u/s 14A to 2% of the total exempt income of the assessee, in place of the disallowance made by the AO and the enhancement done by the Ld. CIT(A). Thus the 4th 5th grounds of appeal are partly allowed. 18.3 We have no reason to take a different view than what was taken by tribunal in assessee‟s own case for AY 2004-05 as facts are similar and also with a view to maintain consistency( Ref: Hon‟ble Supreme Court decision in the case of Radhasoami Satsang v. CIT reported in (1992)193 ITR 321(SC) ) we uphold disallowance of expenditure to the tune of 2% of exempt income. Respectfully following the decision of the tribunal in assesses own case we hold that disallowance of expenditure incurred in relation to earning of an exempt income u/s 14A of the 1961 Act be restricted to 2% of exempt income. The ground of appeal bearing number 3(a) to (d) filed by the assessee in memo of appeal filed with the tribunal is partly all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow the above decision of the Hon ble Bombay High Court and delete the addition of ₹ 3,93,57,123/- made by the AO. Thus the 6th ground of appeal is allowed. The assessee is contending that it is following exclusive method of accounting while accounting for cenvat credits. Our attention was drawn to the decision of Hon‟ble Bombay High Court in the case of CIT v. Diamond Dye Chem Limited in ITA no. 146 of 2015 reported in 396 ITR 536(Bom.). 20. The Ld. DR on the other hand relied upon the appellate order of the Ld. CIT(A). 22. We have considered rival contentions and perused the material on record. We have observed that the assessee is following exclusive method of accounting for valuing closing stock wherein unutilised MODVAT/Cenvat Credit is not added to the value of closing stock. We have observed that Section 145A stipulates that the duties, taxes, fees and cess (by whatever name called) paid to bring the inventory to present location is to be added to value inventory as on the date of valuation. We have observed that the Mumbai-tribunal has passed an elaborate order in the case of Sunshield Chemicals Private Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.] The Section 145A of the Act was introduced by the Finance (No. 2) Act,1998 w.e.f. April 1,1999 and starts with a non-obstante clause that notwithstanding anything contained in Section 145 of Act, the valuation of purchase and sales of goods and inventory for the purposes of determining the income chargeable under the head Profits and gains of business or profession shall be in accordance with the method of accountancy regularly employed by the taxpayer and shall be further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the taxpayer to bring the goods to the place of its location and condition as on the date of valuation. The Explanation to Section 145A of the Act stipulates that for the purposes of this section, any tax, duty, cess or fee under any law in force shall include all payment notwithstanding any right arising as a consequence to such payment. It is important to understand the structure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d conditions as on the date of valuation of the goods are known as 'Value Added Taxes'-These Value added taxes were introduced in India in 1986 to avoid cascading effect of taxes with an objective to reduce transaction cost and bring transparency in the system. The scheme allowed setting off of duties paid on procurements of inputs against the duty payable on finished goods manufactured by the enterprise thereby restricting the levy of tax to value addition done by the enterprise in manufacturing the finished goods. The scheme when launched in 1986 was called Modified Value Added tax scheme (popularly known as MODVAT scheme) which allowed credit/set off of duties paid on specified inputs used in manufacture of excisable goods against the excise duty liability of the enterprise on manufacture of goods as per provisions of Excise Laws, rules and regulations. The scheme was expanded and credit of duty paid on capital goods was also brought under the ambit of the scheme MODVAT in the year 1994. The scheme was later renamed CENVAT Credit scheme in the year 2000. The 'Service Tax' was introduced in India from the year 1994 and Service Tax Credit Rules, 2002 were introduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the credit of duty paid on inputs could have been used for discharge of duty/liability only in respect of those final products in the manufacture of which such inputs were used. Thus it was claimed that there was a nexus between the inputs and the final products. In the 1995-96 Budget, the MODVAT Scheme was liberalised/simplified and the credit earned on any input was allowed to be utilised for payment of duty on any final product manufactured within the same factory irrespective of whether such inputs were used in its manufacture or not. The experience showed that credit accrued on inputs is less than the duty liable to be paid on the final products and thus the credit of duty earned on inputs gets fully utilised and some amount has to be paid by the manufactured by way of cash. Prior to the 1995-96 Budget, the excise duty on inputs used in the manufacture of tractors and commercial vehicles varied from 15% to 25%, whereas the final products attracted excise duty of 10% or 15% only. The value addition was also not of such a magnitude that the excise duty required to be paid on final products could have exceeded the total input credit allowed. Since the excess credit could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxes have to be adjusted and payment made complete. Any manner or mode of application of the said Rule would result in affecting the rights of the assessees. 6. We may look at the matter from another angle. If on the inputs, the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the Act does not enable the authorities concerned to make a rule which is impugned herein and, therefore, we may have no hesitation to hold that the Rule cannot be applied to the goods manufactured prior to 16-3-1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods 7. There are several decisions referred to by the learned counsel on either side but we do not think that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recoverable from the revenue authorities by way of set off against the excise duty payable on finished goods manufactured by the enterprise shall not form part of the cost of purchase of the inventories in bringing the same to their present location and condition. Thus, the ICAI stipulated enterprises to follow 'exclusive method' also called as 'net method' of accounting (which in the instant case, the assessee company is also following) whereby the taxes and duties paid which are recoverable from revenue authorities shall not be included in the cost of purchases and in valuing inventories. On the other hand Section 145A of the Act requires following the 'inclusive method' also called as 'gross method' of accounting whereby it requires the valuation of purchase, sale and inventory to be further adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the taxpayer to bring the goods to the place of its location and condition as on the date of valuation notwithstanding any right arising as a consequence to such payment of taxes, duties, cess or fee. Hon'ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: Computation of value of inventory. The issue relating to whether the value of closing stock of the inputs, work-in-progress and finished goods must necessarily include the element for which MODVAT* credit is available has been the matter of considerable litigation. In order to ensure that the value of opening and closing stock (bold for emphasis) reflect the correct value, it is proposed to insert a new section to clarify that while computing the value of the inventory as per the method of accounting regularly employed by the assessee, the same shall include the amount of any tax, duty, cess or fees paid or liability incurred for the same under any law in force. The proposed amendment which is clarificatory in nature shall take effect retrospectively from the 1st day of April, 1986 and will accordingly apply in relation to assessment year 1986-87 and subsequent years. [Clause 45] *Now CENVAT. (Section 145A was initially proposed to be applicable in relation to assessment year 1986-87 and subsequent years. However, later on, when the Finance (No.2) Bill, 1998 was enacted into law the provision was made applicable from 1.4.1999 i.e. assessment year 1999-2000) 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 145A of the Income-tax Act. 23.23 The adjustments envisaged by section 145A will not have any impact on the trading account of the assessee. In other words both under exclusive method of accounting and inclusive method of accounting, the gross profit in the trading account will remain the same.' The present regime of value added taxation has progressed way ahead now as compared to the year 1998 when Section 145A of the Act was introduced whereby now the Cenvat Credit Scheme is allowing across the board credit of various taxes, duties, cess, fee as per applicable laws, rules and regulation like excise duty on inputs, CVD/SAD on import of inputs, service tax on services utilized for manufacturing of finished goods, excise duty on capital goods etc. paid to be set off against liability of excise duty on finished goods manufactured by the enterprise without any one to one co-relation which is likely to be further revolutionized with the introduction of 'GST' shortly with an intent and purpose of eliminating cascading effect of taxes levied at multiple stages to reduce transaction cost and bring in transparency into the system and Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are actually paid to the credit of Government before the due date of filing of return of income as stipulated u/s 139(1) of the Act. The Excise laws, rules and regulation also requires the records to be maintained in an prescribed manner whereby cenvat credit availed and utilized can be clearly demarcated to establish that correct cenvat credit is availed and utilized by the Enterprise. The Income Tax Act,1961 cannot work in vaccum in isolation but has to progress along-with the rapid development taking place in the economy as it is a living Act and harmonization of various laws is the need of the hour to reduce complexities and bring in the ease of doing business, of course, without compromising / sacrificing with the basic intent and mandate of the Income Tax Act, 1961 to collect correct taxes as per provisions of the Act. During the last few decades, things have radically and drastically changed in the economy the way businesses are conducted as now e-commerce and international transactions have taken primacy in the economy which are now the key areas of challenge under the Income Tax Laws. It is for the Parliament to frame and amend laws to keep pace with the fast changing en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandatorily prepare its accounts as per 'inclusive method' or 'gross method' to compute profit chargeable to tax in accordance with Section 145A of the Act while filing return of income with the Revenue. Thus as per Section 145A of the Act as it exists in the statute, we hold that the assessee company has to compulsorily value the purchase and sale of goods and inventory for the purposes of determining the income chargeable to tax under the head 'profit and gains of business or profession' in accordance with the method of accounting regularly employed and further adjusted to include taxes, duties, cess or fee(by whatever name called) under any law for the time being in force, actually paid or incurred to bring the goods to the place of its location and condition as on the date of valuation notwithstanding any right arising as a consequence to such payment. This is the mandate of Section 145A of the Act which we hold is mandatory. At this stage we are reminded of the decision of the Privy Council, in the case of CIT v. Ahmedabad New Cotton Millls Co. Ltd. AIR 1930 PC 56 that while considering the effect of altering the method of valuation, P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the previous year to arrive at a correct income chargeable to tax as per the Act and the same cannot be applied in a piecemeal and ad-hoc manner to a few handful chosen and selected transactions as is done by the revenue in the instant case which will lead to distortion of income chargeable to tax which is not permissible under the Act. Our above observations and discussions in preceding para's are equally applicable to VAT/sales tax on the raw materials, WIP and finished goods. In our considered view, the interest of justice will be best served, if the matter is restored to the file of the AO to re-determine the correct income chargeable to tax as per the Act after considering the provisions of Section 145A of the Act in light of our observations as contained in the preceding para's. Needless to say that proper and adequate opportunity will be given to the assessee company by the AO in accordance with the principles of natural justice as enshrined in doctrine of audi alteram partem in accordance with law and the assessee company will be allowed to produce necessary evidence in support of its defense. We order accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rogress, whereas the excise duty paid on unsold finished goods had to be included in the inventory of finished goods. Therefore, the decision of the Commissioner of Income-tax (Appeals) and the subsequent decision of the Tribunal reversing the decision of the Commissioner of Income-tax (Appeals) were only related to unutilised Modvat credit. It is to be noted that Section 145A of the 1961 Act was inserted by Finance (No. 2) Act, 1998 w.e.f. 1.4.1999 and later there has been substitution of Section 145A of the 1961 Act by Finance(No. 2) Act, 2009, w.e.f. 01.04.2010, wherein new clause (b) is inserted in the provisions of Section 145A and new clause (a) in amended Section 145A concerns with valuation of inventory which is exactly similarly worded to Section 145A as was inserted by Finance (No. 2) Act, 1998, w.e.f. 01.04.1999. The notes on clause explain the substitution of Section 145A of the 1961 by Finance Act( No.2 ), 2009 w.e.f. 01.04.2010 as under: Clause 56 of the Bill seeks to substitute section 145A of the Income-tax Act, which relates to method of accounting in certain cases. The existing provisions contained in said section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly apply in relation to assessment year 1998-99 and subsequent assessment years. Thus, the amendment to Section 145A of the 1961 Act by Finance Act, 2009 w.e.f. 01.04.2010 so far as valuation of inventories was similarly worded as the provision existed vide Finance Act, 1998 wef 01.04.1999. The assessee has heavily relied upon the decision of Hon‟ble Bombay High Court in the case of CIT v. Diamond Dye Chem Limited(supra), wherein Hon‟ble Bombay High Court held that the tax impact will be neutral under both inclusive and exclusive method and held that cenvat credit could not have been added to value of closing stock, by holding as under: 5. We have considered the submissions. It is not disputed that the assessee was liable to excise duty. The assessee got credit in the excise duty already paid on the raw materials purchased by it and utilized in the manufacturing of excisable goods. The assessee was adopting the exclusive method i.e. valuing the raw-materials on the purchase price minus (-) the Modvat credit. The same would be permissible. The Apex Court in the case of Indo Nippon Chemicals Co. Ltd. (supra) while affirming the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Guidance Note, the ICAI once again discussed the above two methods and, in the circumstances, it was urged that the net method followed by the assessee was wrong because the assessee has followed the net method without making any adjustments as required under section 145A. In this connection, we may point of that section 145A was introduced by the Finance (No. 2) Bill 1998. Originally, the Bill contemplated the proposed amendment to apply from 1-4-1986 in relation to the assessment year 1986-87 and subsequent years. However, later on, when the said Bill was enacted into law, the provision was made applicable from 1-4-1999, i.e., assessment year 1999-2000. In this appeal, we are concerned with the assessment year 1989-90. In the circumstances, we are not inclined to go into the provisions of section 145A. We are also not examining, therefore, the Subsequent Guidance Note issued by the ICAI which is based on section 145A. The Legislature clearly intended, therefore, that the computation made by the assessees prior to the assessment year 1999-2000 should not be disturbed and, therefore, the Legislature has brought the said section 145A into force only from 1-4-199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anteed by Kansai Paints Company Limited, Japan to the extent of Ringitt Malaysia (RM 24 Million). The Japanese company did not charge any guarantee fee from its Malaysian AE. The assessee company shared the guarantee amount with its Japanese AE to the extent of 55% i.e. in the ratio of its shareholding in Malaysian Company. Thus, the assessee issued letter dated 7th August 2006 wherein it gave counter guarantee of RM 13.2 Million to Kansai Paint Company Limited, Japan its AE. The relevant documents including Board Resolutions are filed by assessee in paper book filed with tribunal. The assessee contended that said counter guarantee of RM 13.2 Million (₹ 17,12,14,000/- ) given by it will not amount of rendering of any service by assessee to Kansai Paint Company Limited, Japan. The TPO held that said counter guarantee given by assessee to Kansai Paint Company Limited, Japan is an international transaction as defined u/s 92B with its AE within meaning u/s 92A which is subject to transfer pricing regulation wherein ALP of the aforesaid transaction has to be computed. The TPO computed ALP of the aforesaid international transaction of giving counter guarantee to its AE in Japan at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. vi. The appellant argued that since it is not in the business of lending and borrowing or giving a guarantee, the amended provision of Sec. 92B would not apply to this case. This contention of the appellant has no force since the definition of international transactions includes lending, borrowing or guarantee. vii. The appellant contended that the letter given was not truly a counter guarantee. In this connection1'it is mentioned that the letter dated 07.08.2006 clearly makes reference to the counter guarantee and hence there is no scope for the assessee to argue otherwise. viii. Further in the letter there is a reference of Board resolution dated 19.04.2006. In the said resolution it is clearly mentioned that the company will issue a counter guarantee of RM 13.2 million favouring Kansai Paint Co. Ltd., Japan (KP) in regard to the corporate guarantee of the like amount provided to RHB Bank Bhd. by KP for the credit facility, sanctioned by the bank to Kansai Coatings Sdn. Bhd. Malaysia (AE). In view of these facts the contentions of the appellant is not acceptable. ix. The appellant, argued, that there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by it in favour of its AE in Japan. The assessee relied upon the decision of Mumbai-tribunal in the case of Bombay Dyeing and Manufacturing Company Ltd. v. DCIT reported in (2017) 87 taxmann.com 213(Mum-trib.) and decision of Hyderabad-tribunal in the case of DCIT v. Cyient Ltd. (2018) 91 taxmann.com353(Hyd-trib.) to contend firstly that giving of corporate guarantee to an AE will not constitute International Transaction u/s 92B and secondly that the term guarantee‟ was inserted in definition of international transaction u/s 92B by Financial Act 2012, w.e.f 01.04.2002 by way of an explanation to Section 92B will only be prospective in nature albeit the explanation was inserted w.e.f. 01.04.2002 to clarify the definition of international transaction. The assessee also relied upon the decision of Micro Ink Ltd. v. ACIT 157 ITD 132(Ahd.) and DCIT v. Spentex India Ltd.,(2018) 94 Taxmann.com 419(Del-trib). 25. The Ld. DR on the other hand relied upon the order of the TPO and the appellate order passed by Ld. CIT(A). It was prayed that additions made towards corporate guarantee commission @3% of the corporate guarantee issued be upheld. 26. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te guarantee by taxpayer in favour of its AE is certainly an international transaction covered by provisions of Section 92B and in our considered view provisions of un-amended provisions of Section 92B duly covered liability created by a taxpayer in favour of its AE which was even by way of non fund based liability such as corporate guarantee issued by taxpayer in favour of AE. Explanation inserted in Section 92B by Finance Act, 2012 w.e.f. 01.04.2002 also clarified the position that guarantees issued by taxpayer in favour of its AE shall also be covered as an international transaction. Section 92B was amended by Finance Act, 2012 w.e.f. 01.04.2012 wherein an Explanation was inserted to clarify the position that international transaction would included guarantee also. The provisions of Section 92B are reproduced hereunder: Meaning of international transaction. 92B. (1) For the purposes of this section and sections 92, 92C, 92D and 92E, international transaction means a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical service, repairs, design, consultation, agency, scientific research, legal or accounting service; (e) a transaction of business restructuring or reorganisation, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date; (ii) the expression intangible property shall include- (a) marketing related intangible assets, such as, trademarks, trade names, brand names, logos; (b) technology related intangible assets, such as, process patents, patent applications, technical documentation such as laboratory notebooks, technical know-how; (c) artistic related intangible assets, such as, literary works and copyrights, musical compositions, copyrights, maps, engravings; (d) data processing related intangible assets, such as, proprietary computer software, software copyrights, automated databases, and integrated circuit masks and masters; (e) engineering related intangible assets, such as, industrial design, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal in the case of Piramal Glass Limited v. DCIT reported in (2017) 80 taxmann.com 68(Mum-trib,) and decision of Mumbai-tribunal in the case of Videocon Industries Limited v. DCIT reported in (2017) 79 taxmannn.com 216(Mum-trib.) and there are several other decision of Mumbai-tribunal. We have also noted that recently Hon‟ble Bombay High Court in the case of CIT v. Glenmark Pharmaceuticals Limited reported in (2019) 101 taxmann. com 84(Bombay) had held that ALP of the corporate guarantee can not be determined on the basis of charges as were prevailing for issuance of Bank Guarantee. The Hon‟ble Bombay High Court held that no substantial question arose in this appeal. The Assessment year before Hon‟ble Bombay High Court was AY 2009-10 and it based its decision on its earlier order in taxpayer‟s own case for AY 2008-09, dated 02.02.2017 in ITA no. 1302 of 2014. The order of Hon‟ble Bombay High Court for AY 2009-10, dated 10.12.2018 in the case of Glenmark Pharmaceuticals Limited (2019) 101 taxmann.com 84(Bom.), is reproduced hereunder: 3. Regarding Question No. (1):- (a) We note that the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of guarantee, however, when they are Commercial banks that issue bank guarantees which are treated as the blood of commerce being easily encashable in the event of default, and if the bank guarantee had to be obtained from Commercial Banks, the higher commission could have been justified. In the present case, it is assessee company that is issuing Corporate Guarantee to the effect that if the subsidiary AE does not repay loan availed of it from ICICI, then in such event, the assessee would make good the amount and repay the loan. The considerations which applied for issuance of a Corporate guarantee are distinct and separate from that of bank guarantee and accordingly we are of the view that commission charged cannot be called in question, in the manner TPO has done. In our view the comparison is not as between like transactions but the comparisons are between guarantees issued by the commercial banks as against a Corporate Guarantee issued by holding company for the benefit of its AE, a subsidiary company. In view of the above discussion we are of the view that the appeal does not raise any substant We have further noted that Hon‟ble Supreme Court admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of comparison with Bank Guarantee and relied upon the decision of its Co-ordinate bench in the case of Everest Kento Cylinder Ltd. v. Dy. CIT [2013] 34 taxmann.com 19 (Mum. - Trib.). Mr. Suresh Kumar, the learned counsel appearing for the Revenue very fairly states that being aggrieved with the above order in M/s. Everest Kento Cylinders Ltd., the Revenue had filed an appeal to this Court raising an identical issue viz. CIT v. Everest Kento Cylinders Ltd. [2015] 378 ITR 57/232 Taxman 307/58 taxmann.com 254 (Bom.). By an the above appeal was not entertained. (b) As no distinction in facts and/or law has been shown to us in this appeal which would warrant taking a different view on this very issue from that taken by this Court in Everest Kento Cylinders Ltd. (supra), we follow the same. (c) Accordingly, question no.(i) as proposed does not give rise to any substantial question of law for the reasons indicated in our order dated 8th May, 2015 in Everest Kento Cylinders Ltd. (supra). Therefore not entertained. The rate of guarantee commission varies depending upon several factors depending upon risk factor, period involved, amount inv ..... 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