TMI Blog2013 (8) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year under consideration relevant block assets is used by the assessee in its business - individual usage of the asset is only relevant in the first year when the asset was put to use and not subsequent years after it has formed part of the block of assets - Decided in favour of assessee. Depreciation on computer peripherals - A.O. disallowed depreciation - Held that:- computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60% - Following decision of COMMISSIONER OF INCOME TAX Versus BSES YAMUNA POWERS LLD. / BSES RAJDHANI POWERS LTD. [2010 (8) TMI 58 - DELHI HIGH COURT] - Decided in favour of assessee. Devaluation of stock - A.O. disallowed 20% of the amount of devaluation of stock - Held that:- The assessee has been following his method of valuation of stock during all the previous year as well as the subsequent years - When the revenue has been accepting this method of valuation for many years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The first issue of consideration in both the appeals as the transfer pricing adjustment made in regard to advertisement, marketing and sales proportion expenditure. The grounds of appeal read as follows: "ADDVERTISEMENT, MARKETING AND SALES PROMOTION ("AMP") EXPENDITURE 2.1 That on the facts and circumstances of the case and in law, the AO/Dispute Resolution Panel (UDRP") has erred, in upholding the adjustments made by the Transfer Pricing Officer (UTPO"). 2.2 That on the facts and circumstances of the case and in law, the Learned TPO / AO / DRP has erred in making an adjustment of INR 151,632,834 to the income of the appellant and in holding that the transactions between the appellant and its associated enterprises were not at an arm's length price as defined under section 92F(ii) of the Act. 2.3 That on the facts and circumstances of the case and in law, the Learned TPO / AO / DRP has erred in making an addition to the income of the appellant by concluding that the appellant should have been compensated for its marketing efforts in India. 2.4 The Learned AO / DRP / TPO has erred in law and on facts, by not taking cognizance of the business model, functional and ris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Learned TPO I AO I DRP has not placed correct reliance on OECD Transfer Pricing Guidelines and other international commentaries and jurisprudence, particularly with reference to determination of arm's length price for marketing intangibles. 2.13 That the Learned TPO I AO I DRP has erred on facts and in not appreciating that the appellant had used Transactional Net Margin Method to benchmark its international transactions and thus individual comparison of expenditure is not called for. 2.14 That the Learned TPO I AO I DRP has erred in law and on facts, by treating AMP expenses as a separate line of activity and receiving a markup on the same. 2.15 The Learned TPO I AO I DRP has erred in law and on facts, by arbitrarily determining the mark-up for the deemed services rendered in an ad-hoc and inappropriate manner. 2.16 The Learned TPO I AO I ORP has erred in law and on facts by identifying incorrect set of comparable companies for computing the mark-up to be charged on the reimbursement to be received with respect to AMP expenses. 2.17 That the Learned TPO I AO I ORP has erred in law and on facts, by questioning the commercial decisions of the Appellant in relation to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking of fresh search. The TPO should also be at liberty to conduct a fresh search and arrive at appropriate comparable/conclusions. The ld. counsel for the assessee submitted that the assessee incurred expenditure on sales commission to the tune of Rs.7,79,07,784/- for the A.Y. 2007-08 and to the tune of Rs.9,73,58,499/- for the A.Y. 2008-09 and that if the ratio of the decision of the Special Bench is applied, then the sales commission expenditure should not be considered as a component of advertising marketing and promotional expenditure. The principle laid down by this Special Bench of the Tribunal is very clear in this regard. The AO is directed to verify this claim of the assessee and follow the directions of the Special Bench on the issue. In result this ground of the assessee for assessment years is allowed for statistical purposes. 7. Ground no. 3 for the A.Y. 2007-08 is on the claim of the assessee in respect to depreciation on Plant and Machinery, the contention of the assessee is that the AO has not followed the directions of the DRP in this regard. 8. The DRP at Para 6.2 page 6 of its order held as follows: "6.2 The DRP after considering the objection of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gainst this judgement has also been rejected. The AO is accordingly directed to allow depreciation @ 60% on the computer peripherals as claimed by the assessee." 12. As the issue is admittedly covered in favour of the assessee by the decision of the jurisdictional High Court, we allow this ground of the assessee. 13. Ground no. 5 is on the disallowance of loss on sale of fixed asset. 14. The DRP at Para 8.1 8.2 at page 7 of its order of the A.Y. 2007-08 held as follows: 8.1 The assessee objected to the proposed disallowance of Rs. 3,03,095/- in respect of loss on sale of assets without appreciating that the amount was already disallowed by the assessee in its Return of Income. The assessee explained that during the previous year, the assessee had incurred a loss of Rs. 3.03.095/- on sale of fixed assets. This comprised of two components: (a) profit on sale of fixed assets of Rs. 9,01,320/- and (b) fixed assets scraped of Rs. 12,04,415/-. The net result on the above was a loss of Rs. 3,03,095/- which has been taken into accounts and therefore, there was no requirement by the Assessing Officer to make any further adjustment. 8.2 The DRP has considered the matter and susta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shed stock of Rs.20,15,811/- consist 100% devaluation on many of the items. Similarly the devaluation in manufacturing stock has not been justified except giving technical code name of the items. Devaluation in joints and accessories as well as in spares is also not properly justified by the Assessee company. In view of the above out of the devaluation claimed of Rs.1,24,61,626/- a sum of 20% being Rs.24,92,325/- is disallowed and added back into the income of the assessee company. (Addition of Rs.24,92,325/-)" 18. The DRP at page 8 Para 9.2 upheld the disallowance by observing as follows: "9.2 The DRP has considered the assessee's objections as well as the arguments of the AO. It is seen that the AO has not disputed the principle of devaluation of stock and infact has allowed 80% of the claim made by the assessee. The disallowance of the remaining 20% is on account of lack of clarity/explanation furnished by the assessee." 19. After hearing rival contentions, we find that the disallowance in question cannot be sustained on the ground of consistency. 20. The assessee has been following this method of valuation of stock during all the previous year as well as the subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, in the projected scenario of the instant case, the entire exercise was revenue neutral. It was a matter of record that against the provision of Rs. 139lakhs, the assessee had to actually incur expenditure of Rs. 218.03 lakhs, i.e., more than the provision made. It was undisputed that the expenditure incurred by the assessee on the project was admissible deduction. The only dispute that the revenue sought to raise was regarding the year of allowability of expenditure. Considering that the assessee was a company assessed at uniform rate of tax, the entire exercise of seeking to disturb the year of allowability of expenditure would, in any case, be / revenue neutral. [Para 11] In such circumstances, no substantial question of law arose for consideration and, therefore, the appeal was to be dismissed. [Para 14]." 24. Respectfully applying the propositions laid down in those cases to the facts of this case we allow this ground of the assessee. 25. Ground no. 7 is on the disallowance of provision for installation expenses. The AO as well as the DRP have disallowed this expenditure on the ground that the sale has not crystallized. Before us it is submitted that the income at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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