TMI Blog2014 (12) TMI 890X X X X Extracts X X X X X X X X Extracts X X X X ..... used in the audio visual conferencing and video streaming activity - the AO, instead of classifying the entire equipment as plant and machinery and not computer, is required to examine each item in detail as regards its functional dependency on the computer and its independent existence. The items which are functionally dependent on computers are definitely part of computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent of the computer system and the purpose of audio visual conferencing and video streaming, the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery - The AO shall allow depreciation at the rate of 60% on the equipment which could be classified as computer and at the rate of 15% on the equipment which could be classified as plant and machinery - assessee also advanced an alternative argument that once the equipment has entered the ‘fleet of assets’ and depreciation has been allowed at the rate of 60% in the earlier years, the same cannot be treated as plant and machinery during the relevant assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in favour of assessee. - IT(TP)A No.1558/Bang/2012 - - - Dated:- 19-9-2014 - - SMT. P. MADHAVI DEVI AND SHRI RAJENDRA, JJ. For The Appellant : Shri Rajan Vora, CA. For The Respondent : Ms.Priscilla Singsit, CIT(DR). ORDER Per Smt. P.MADHAVI DEVI, JM: This is an appeal filed by the assessee directed against the order of the AO dated 12-10-2012 for the assessment year 2008- 09 passed in compliance with the directions of the DRP u/s 144C of the Income-tax Act, 1961[hereinafter referred to as 'the Act']. 2. Brief facts of the case are that the assessee-company, which is engaged in the business of leasing and finance and is a non-banking finance company registered with RBI, filed its return of income for the relevant assessment year. During the assessment proceedings u/s 143(3) of the Act, the Assessing Officer (AO) observed that there is an international transaction of the assessee with its Associated Enterprise (AE). He, therefore, made a reference to the Transfer Pricing Officer (TPO) for determination of the Arms Length Price (ALP) of the international transaction. The TPO determined the ALP and after receiving the said report, the AO dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order was passed restricting the depreciation claim at 15%. 5. Learned counsel for the assessee, Shri Rajan Vora, submitted that the AO, for the assessment year 2006-07 which is placed at pages 497 to 520 of the paper book filed by the assessee on 14-7-2014, has accepted that depreciation at the rate of 60% is allowable on routers and switches on the basis of the decision of the Hon ble Supreme Court in the case of CIT vs. M/s.Birlasoft India Ltd.,(SLP(Civil) No.20645/2012) wherein the Hon ble Supreme Court has affirmed the Hon ble Delhi High Court s decision of allowing depreciation at the rate of 60% on computer peripherals such as CD writer, network cables, switches, isolators etc., He submitted that following the decision of the AO for the earlier assessment years in the assessee s own case, depreciation at the rate of 60% should be allowed on Routers and switches for the relevant assessment year also for the sake of uniformity and finality to the issue. He also placed reliance upon the decision of the Special Bench of the Tribunal in the case of CIT vs. Datacraft India Ltd. reported in 113 TTJ 377 in support of his contention that Routers and Switches are als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd then sends it over a digital line. The decoder reverses the processes at the receiving end and this compression and decompression allows large amount of data to be transferred across a network at close to real time. Conferencing systems make use of various end points in a system such as video input consisting of camera, video output in the form of microphones and speakers etc. The data transmission happens in a number of ways depending on the technology being used including digital technologies as well as analog technologies, broadband internet connection and radio frequencies which can include satellite transmission and Wifi. Therefore, according to the learned counsel for the assessee, computer system is extremely important to conferencing process and therefore the audio visual transmission equipment should be considered as part of a computer. 8.2 Regarding the video streaming equipment, it was submitted that the video streaming allows user to begin viewing the video clips stored in a server without first downloading the entire file and after a brief period of initiating and buffering, the file will begin to stream or play in real time. Video streaming involves a series of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computer for the purpose of granting depreciation at the rate of 60% after providing the assessee due opportunity of hearing. 8.3 In the case before us also, all the components of the equipment are necessary for fulfillment of the objective of the audio-visual conferencing and video streaming. Some of the components may exist independently and may also be functioning independently but in the assessee s business they are only performing the functions as input and output devices. The assessee can also use this equipment independent of the computer system used in the audio visual conferencing and video streaming activity. But did the assessee use them independently is the question. In view of the same, we are of the opinion that the AO, instead of classifying the entire equipment as plant and machinery and not computer, is required to examine each item in detail as regards its functional dependency on the computer and its independent existence. The items which are functionally dependent on computers are definitely part of computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent of the computer system an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . and due to the uniqueness of the nature of services, it is the basic business necessity/requirement for M/s.Cisco India Pvt. Ltd., to avail such services from Cisco Singapore, Cisco Australia and Cisco India. It is submitted that M/s.Cisco India Ltd., does not have any employee on its pay-roll to assist in carrying out its lease financing business in India and accordingly all functions to be undertaken in relation to the lease financing business in India such as finance, treasury, risk management, legal, general administration and other similar activities etc., are provided by Cisco Singapore and Cisco Australia to Cisco Capital India and certain other support services are provided by Cisco India. It was submitted that the management fee incurred by Cisco Capital India amounting to ₹ 10,37,82,167/- reflects a substantial portion of all the administrative expenses incurred by Cisco Capital India and thus according to him, it has clearly satisfied the test of commercial expediency and hence should be allowed for income-tax computation purposes. It was also submitted that the transactions with Cisco Singapore and Cisco Australia being international transactions, are pending de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .40A(2)(b) of the Act need not be invoked where the same would tantamount to revenue neutral exercise. In addition to the above, the learned counsel for the assessee also submitted that no ad hoc disallowance can be made u/s 40A(2)(a) of the Act. In support of this contention, he placed reliance upon the following decisions: i) Sayaji Iron Engg. Co. vs. CIT (253 ITR 749)(Guj); ii) M/s.Johnson Johnson Ltd. vs. ACIT (ITA Nos.3289 9437/Mum/2004)(ITAT)(Mum.); and iii) M/s.Goldcrest Exports vs. ITO (ITA No.442/Mum/2009) (ITAT)(Mum.) 10.4 In addition to all the above grounds and arguments on the issue, the alternative ground raised by the assessee is that where an issue has been referred to the TPO for determination of the ALP of the international transaction, no adjustment is required to be made u/s 40A(2) of the Act. The learned Departmental Representative, on the other hand, supported the orders of the authorities below. He submitted that the assessee has failed to demonstrate that Cisco India had, in fact, rendered management services to the assessee herein and therefore, the disallowance u/s 40A(2)(b) of the Act was justified. 11. Having heard both the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO for determination of the ALP and therefore it cannot be considered for disallowance u/s 40A of the Act, since we have already held that the provisions of sec.40A are not attracted, we do not see the need to adjudicate this contention of the assessee. 12. As regards, ground No.3, it is stated by the learned counsel for the assessee that in computing the total income of the assessee, the AO has not given effect to the set off of brought forward depreciation/loss of the earlier years. We direct the AO to re-consider this issue in accordance with law. 13. As regards ground No.4 which relates to transfer pricing adjustment made to the payment made by the assessee to avail administrative support services, the brief facts are as under: The AO referred the international transaction of the assessee with its associated enterprise for determination of the ALP to the TPO u/s 92CA of the Act. The TPO observed that the assessee has claimed to have made payment of ₹ 2,16,37,189/- towards administrative support services. The TPO called for details and after verifying the same, held that the assessee has failed to explain its claim for payment of administrative support fee. There ..... X X X X Extracts X X X X X X X X Extracts X X X X
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