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TMI Blog2012 (5) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... der passed under section 92CA (3) of the Act making an addition of Rs. 4,27,32,000 to the total income of the appellant on account of adjustment in the arm's length price ('ALP') of the international transaction entered by the appellant with its associated enterprises. 2.2 That on the facts and the circumstances of the case and in law, the reference made by the learned AO suffers from jurisdictional error as the learned AO has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was 'necessary or expedient' to refer the matter to the learned Transfer Pricing Officer ('TPO') for computation of ALP as is required under section 92CA(1) of the Act. 2.3 That on the facts and the circumstances of the case and in law, the learned TPO / learned AO ignored the fact that the appellant (vis-a-vis its R&D segments) is entitled to a tax holiday under section 10A of the Act on its profits and therefore does not have an ulterior motive of shifting profits outside India. 2.4 That on the fact and the circumstances of the case and in law, the learned TPO / AO has erred by not accepting the economic analysis undertaken by the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of project completion of 43.05 per cent on initial estimated project value disclosed in the advance Purchase Orders raised by BSNL as against the actual Purchase Orders received from BSNL for BSNL Phase IV ++ contract. 3.2 That on the facts and circumstances of the case and in law, the Hon'ble DRP has erred in not considering the additional evidences filed by the appellant in the form of actual Purchase Orders received from BSNL, despite the fact that the additional evidences were filed vide a separate application as required by Rule 4 Income-tax (Dispute Resolution Panel) Rules, 2009 requesting the Hon'ble DRP to admit the additional evidences and in doing so, the Hon'ble DRP has failed to advance the substantial justice. 3.3 That on the facts and circumstances of the case and in law, the Hon'ble DRP has erred in not granting an opportunity of being heard to the appellant in regard to admissibility of additional evidence before rejecting the evidences on alleged procedural default. 4.1 That on the facts and circumstances of the case and in law, the learned AO has erred in treating marketing expenditure on account of mobile handsets issued free of cost to aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts of assessment year 2006-07 since necessary details to substantiate the amount of provision were filed before the learned AO during the course of assessment hearing. 6.1 That on the facts and circumstances of the case and in law, the learned AO has erred in reducing the rate of depreciation on certain items viz. UPS, WAN/LAN etc. being integral part of the computer systems, from 60% to 15% resulting into a disallowance of Rs. 2,01,17,941. 6.2 That on the facts and circumstances of the case and in law, the Hon'ble DRP has erred in confirming the adjustment to the rate of tax depreciation in case of UPS, WAN/LAN, etc on the basis that the said capital items are not necessary to operate a computer. 6.3 Without prejudice, based on the facts and circumstances of the case and in law, the learned AO has erred in not allowing depreciation on the enhanced written down value on account of similar disallowance made in earlier years. 7. That on the facts and circumstances of the case and in law, the learned AO has erred in not granting credit for the entire amount of TDS claimed by the appellant. 8. That on the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 to the total income of the assessee in connection with its international transaction. In the draft assessment order issued by the learned Additional Commissioner of Income-tax, Range 13, New Delhi under section 143(3) read with section 144C of the Act on December 24, 2009, following additions were proposed: Sr. No. Issues on which addition made Amount of addition (Rs) 1. Addition on account of alleged short recognition of income under BSNL project 309,698,566 2. Marketing expenses incurred on mobile handsets issued to employees, After Marketing Service Centres ('AMSCs') and Dealers on free of cost ('FoC') basis and on mobile phones scrapped During the year treated as capital expense, eligible for tax depreciation @ 15 per cent 284,020,105* 3. Disallowance of 25 per cent of the provision for obsolescence 30,593,250 4. Disallowance of tax depreciation claimed by the assessee on computer peripherals @ 60 per cent (i.e. UPS, LAN/ WAN etc.) (tax depreciation @ 15 per cent allowed.) 5. Transfer pricing adjustment 42,732,000 6. Disallowance of provision for warranty. 538,972,000 Total 1,226,133,862 *Net disallowance after allowing tax depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt on account of following reasons: "A working capital adjustment has been made by the Assessee in the margin to account for the difference in accounts payables and receivables position between the Assessee and comparables. Accordingly, the adjusted mean margin comes to 7.43%, reduced from unadjusted margin of 10.87%. The biggest problem about this adjustment is the inability to find out the position of the payables and receivables at the beginning and end of the year. As stated earlier, NES and NMP R&D are two of the many divisions of the Assessee Company. It is not possible to segregate the debtors and creditors of the company pertaining to these two activities. Such segregation has not been given in the Transfer Pricing report. Moreover, the credit terms offered by the comparables are not known. The debtors and creditors shown in the balance sheet of the comparables contain both trade and non-trade creditors. In the absence of a break-up, such adjustment cannot be reliable and justified. Similarly, the assumption of prime lending rate as the interest rate applicable for making the working capital adjustment suffers from risks of inaccuracy. The cost of capital for MNCs is det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;" ............................" The ld. counsel has further submitted that the Hon'ble Delhi, ITAT has also upheld the need of making working capital adjustment in following judgments. ♦ Mentor Graphics (Noida) (P.) Ltd. v. Dy. CIT [2007] 109 ITD 101/18 SOT 76 (Delhi) ♦ Sony India (P.) Ltd. v. Dy. CIT [2008] 114 ITD 448 (Delhi) Thus in light of the provisions of Rule 10B(1)(e) and the Hon'ble ITAT judgments, it has been pleaded to grant the Appellant the benefit of working capital adjustment. 5.3 Ld. Departmental Representative on the other hand relied upon the order of the TPO. 5.4 The DRP in its order has not dealt with the issue properly and has held that for the sake of consistency and to protect the interest of the revenue, the adjustment made by the TPO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05 crores) to determine the revenue short recognized by the assessee for A.Y. 2006-07. In the objections filed before the Hon'ble DRP, the assessee submitted the following facts:- ♦ Revenue of Rs. 617.99 crores allegedly considered by the Assessing Officer is only an estimate of the expected project revenues. However, project revenue of Rs. 546.05 crores considered by the assessee is based on actual purchase orders received by the assessee from BSNL. ♦ Copies of all actual purchase orders to support the basis of determination of project revenue of Rs. 546.05 crores were also filed before the DRP vide application dated January 29, 2010 (refer pages 395 to 997 of the Paper Book II, Volume B, and Volume C) for admission of additional evidence, as per the proviso to Rule 4(3)(b) of the Income Tax (Disputes Resolution Panel) Rules, 2009. However, the DRP failed to consider the above facts and confirmed the addition proposed by the Assessing Officer merely on the ground that no application was made by the assessee for admission of additional evidence (being the actual purchase orders issued by various circles of BSNL, evidencing the actual projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 and 2001-02. 9.2 In this regard, the Hon'ble High Court had remitted the matter for Assessment Year 2000-01 and 2001-02 to the file of the ITAT and the ITAT vide order dated 22.9.2011 has remanded back the matter to the file of the Assessing Officer to fresh consideration. The facts being identical, following the precedent as above, we also remit this issue to the file of the Assessing Officer to consider the issue afresh. Needless to add that the assessee should be granted adequate opportunity of being heard. 10. Apropos Ground No. 5 : Disallowance of 25 per cent of the provision for obsolescence. 10.1 During the year under consideration, placing reliance on the orders passed by his precedecessors, 25% of the provision for obsolescence of Rs. 122,373,000/- was disallowed by the Assessing Officer in the draft assessment order on the premise that the said provision is in the nature of an unascertained liability. The DRP has upheld the said disallowance on the basis that the Hon'ble Delhi High Court has in case of the assessee itself confirmed the same for Assessment Year 2000-01 and 2001-02. 11. Against the above order the Assessee is in appeal before us. 12. It has been cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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