2015 (8) TMI 654 - AT - Income Tax

Transfer Pricing adjustment - addition on international transaction pertaining to the transaction of business support services - Held that - The Transfer Pricing Officer accepted the price charged by the assessee in respect of services provided through sub-agency, but while computing the arm s length price it had ignored the comparable uncontrolled price and took the price charged by the assessee as the arm s length price. Further, the services provided by the assessee on its own were compared with comparable uncontrolled price. Therefore, two separate arm s length price were determined by the Transfer Pricing Officer for the same service provided by the assessee to the associated enterprise. Even if the comparable uncontrolled price is adopted as the most appropriate method, the arm s length price cannot be more than the price received by GESA. Whereas the Transfer Pricing Officer has taken into consideration the price charged by the assessee with 10 per cent. mark-up. Hence, the computation of the arm s length price is otherwise not based on correct uncontrolled price. The international transaction in question should be considered as one and price received by the assessee in total has to be compared with the arm s length price. The assessee received the price for providing the service as per the agency agreement. Therefore, the service provided by the assessee to the associated enterprise are closely interlinked and price of one part is dependent on the price of the other part. Therefore, the entire services provided by the assessee has to be treated as one international transaction for the purpose of determining the arm s length price. Thus we set aside the issue to the record of the Transfer Pricing Officer/ Assessing Officer, to decide the same afresh, by considering in the light of the above observation as well as the decision of this Tribunal in the case of UCB India P. Ltd. v. Asst. CIT (2009 (2) TMI 237 - ITAT BOMBAY-L ) - Decided in favour of assessee for statistical purposes. Rate of depreciation on computer hardware - Held that - Allowability of depreciation at 60% on the computer accessories and peripherals is no more res integr. We allow the claim of depreciation on printer, scanner, electronic token display system at 60 per cent. See CIT v. BSES Yamuna Powers Ltd 2010 (8) TMI 58 - DELHI HIGH COURT and DCIT Versus Datacraft India Ltd. 2010 (7) TMI 642 - ITAT, MUMBAI - Decided in favour of assessee. Depreciation on software - Held that - We allow the claim of 60% of depreciation on software as relying on Maruti Udyog Ltd. v. Deputy CIT 2004 (10) TMI 278 - ITAT DELHI-A and Hindustan Construction Co. Ltd. v. Deputy CIT 2013 (1) TMI 367 - ITAT MUMBAI - Decided in favour of assessee. Proportionate disallowance of depreciation on computer and software, based on the number of employees of the assessee - Held that - It is clear from the directions of the Dispute Resolution Panel that the proportionate disallowance of depreciation was directed only in respect of software cost allocated by associated enterprise and not on any other asset. Therefore, the Assessing Officer has not followed the directions correctly while passing the impugned order whereby he disallowed the proportionate depreciation on the entire computer block of asset. As regards proportionate disallowance based on the number of employees is concerned, we are of the view that the personal computers in any establishment/organisation are not restricted to the number of employees at any given point of time. The strength of the employees may vary depending upon the capacity at which the company is working. Further, keeping extra computer for meeting any emergent situation of non-functional computer or under repair computer is not an unusual practice. Therefore, when the number of computer is not disputed then software installed on the existing computer cannot be treated as excess or not for business use of the assessee. Hence, we do not find any logic or substance in the directions of the Dispute Resolution Panel in restricting the depreciation of software licence to the extent of number of employees working with the assessee. Accordingly, the orders of the authorities below qua this issue are set aside and claim of the assessee is allowed in full.- Decided in favour of assessee. Interest under section 234D - Held that - As there is a calculation mistake in computing interest under section 234D, we direct the Assessing Officer to verify the alleged working mistake in computation of interest under section 234D.- Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Transfer Pricing Adjustment for AY 2008-09 and AY 2009-10
2. Rate of Depreciation on Computer Hardware and Software for AY 2009-10
3. Proportionate Disallowance of Depreciation Based on Number of Employees for AY 2009-10
4. Levy of Interest under Section 234D for AY 2009-10

Detailed Analysis:

1. Transfer Pricing Adjustment for AY 2008-09 and AY 2009-10
Issue: Whether the Assessing Officer/Transfer Pricing Officer/Dispute Resolution Panel erred in making adjustments related to international transactions for business support services.

Facts: The assessee, a 100% subsidiary of HLAG, provided business support services to its parent company and reported international transactions amounting to Rs. 39.63 crores. The Transfer Pricing Officer (TPO) made an adjustment of Rs. 18.37 crores using the Comparable Uncontrolled Price (CUP) method, comparing the assessee's transactions with those between HLAG and GESA.

Arguments:
- The assessee argued that the CUP method was inappropriate due to the termination of the HLAG-GESA agreement before the relevant period and differences in the nature of services.
- The TPO contended that the GESA agreement provided a valid internal comparable and justified using prior years' data under Rule 10B(4).

Judgment: The Tribunal found that the TPO misunderstood Rule 10B(4), which allows prior years' data only in exceptional circumstances. The Tribunal ruled that the CUP method was not applicable as the GESA agreement was terminated and not contemporaneous. The Tribunal set aside the issue for fresh consideration by the TPO/Assessing Officer, emphasizing that the entire service transaction should be treated as one for determining the arm's length price.

2. Rate of Depreciation on Computer Hardware and Software for AY 2009-10
Issue: Whether the depreciation rate for computer peripherals and software should be 60% or lower.

Facts: The assessee claimed 60% depreciation on computer hardware (including printers, scanners, and electronic token display systems) and software. The Assessing Officer allowed only 15% and 25% depreciation, respectively.

Arguments:
- The assessee cited various judicial precedents supporting 60% depreciation for computer peripherals and software.
- The Departmental representative upheld the Assessing Officer's view.

Judgment: The Tribunal followed the Delhi High Court's ruling in CIT v. BSES Yamuna Powers Ltd. and the Special Bench decision in Deputy CIT v. Datacraft India Ltd., allowing 60% depreciation on both computer peripherals and software.

3. Proportionate Disallowance of Depreciation Based on Number of Employees for AY 2009-10
Issue: Whether depreciation should be disallowed proportionately based on the number of employees versus the number of software licenses.

Facts: The Dispute Resolution Panel (DRP) directed the Assessing Officer to disallow depreciation proportionately for software licenses exceeding the number of employees.

Arguments:
- The assessee argued that the number of computers and software licenses should not be restricted to the number of employees.
- The Departmental representative contended that the assessee failed to provide purchase invoices.

Judgment: The Tribunal found no logic in restricting depreciation based on the number of employees and allowed full depreciation, setting aside the DRP's directions.

4. Levy of Interest under Section 234D for AY 2009-10
Issue: Whether there was a calculation error in computing interest under section 234D.

Facts: The assessee claimed an error in the computation of interest, resulting in an excess charge of Rs. 2,04,647.

Arguments:
- The assessee provided a computation statement showing the alleged error.
- The Departmental representative suggested that the issue should be addressed under section 154 for rectification.

Judgment: The Tribunal directed the Assessing Officer to verify and rectify the computation error.

Conclusion:
The Tribunal allowed the appeal for AY 2008-09 for statistical purposes and partly allowed the appeal for AY 2009-10, directing fresh consideration on transfer pricing adjustments and granting higher depreciation rates for computer hardware and software. The Tribunal also dismissed the proportionate disallowance of depreciation based on the number of employees and directed verification of the interest computation under section 234D.