TaxTMI 
TaxTMI 
2015 (4) TMI 179
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....depreciation on the WDV of technical support service fees paid of Rs. 47,47,185/- from A.Y. 2002-03 overlooking the facts that the TPO determined the Arms Length Price at "Nil". 2. Facts in brief as emerged from the corresponding assessment order passed u/s. 143(3) dated 22-12-2006 and the TPO order dated 30th November, 2006 were that the assessee company is a joint venture between Voltas Ltd and Fedders International Air Conditioning Pvt Ltd. The assessee is in the business of manufacturing of air conditioners. For the year under consideration a loss of Rs. 1,15,38,701/- was declared under the normal provisions of the I.T. Act but under section 115JB income declared at Rs. 56,10,754/-. A reference was made u/s. 92CA(1) of I.T. Act to the TPO. The TPO in the order passed u/s. 92CA(3) dated 30th November, 2006 has mentioned that the assessee is a 50/50 joint venture, therefore, there was overaseas AE relationship with Fedders International Air Conditioning and Fedders International INC, USA. It was noted that a sum of Rs. 1,13,93,207/- as technical support fee was paid to Fedders International INC. The assessee has furnished an explanation as under:- "Write up for Technical Suppor....
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....ansfer Pricing Officer, Mumbai as regards the transactions shown by the assessee in the 3CEB report. The officer while passing the order dated 30-11-06 u/s. 92CA(3) has held that an amount of Rs. 1,13,93,207/- shown by the assessee as payable to its Joint Venture Partner Fedders Inc for providing technical support services should be disallowed, as the transactions 'non-existent'. The officer further held that the assessee itself has reversed the entry in the subsequent year and has shown the same as income. During the year under consideration the assessee has capitalized the above amount and claimed depreciation on it. Since the payment to Fedders Inc has never been made, the depreciation claimed on it by the assessee will be withdrawn and added back to the income of the assessee. Therefore an amount for Rs. 28,48,301/- [25% of Rs. 1,13,93,207/-] is added back to the income of the assessee. As per the direction of the Transfer Pricing Officer, penalty proceedings u/s. 271(1)(c) will be initiated on this point for furnishing inaccurate particulars of income." 3. When the matter was carried before the first appellate authority, Ld. CIT(A) has discussed this issue at length and ther....
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....n existence. The conclusion drawn was as under:- "5.3.5 In the earlier paras I have decided that the initial year for allowing depreciation was A.Y. 200-03. The AO had accepted the TSS Fees paid/payable was Capital expenditure and allowed depreciations for the A.Y. 2002-03 & 2003-04. Accordingly the appellant had revised the depreciation claim as required by the AO and there was no dispute to that extent. Now it should be decided on what amount should be depreciation be allowed? In the interest of justice and to avoid complicity, I am of the opinion that whatever the amount the appellant had paid to the Fedders Inc., depreciation must be allowed on that amount. The appellant cannot and should not enjoy the depreciation on the non-existence transactions i.e. on unpaid TSS Fees. In other words, the appellant is entitled for the depreciation on the payments made of US $ 1,04,167/- (= Rs. 47,47,185/-) only. As I have said earlier, the issues required to be decided in an uncomplicated, fair, and just manner. The department had already accepted the revised depreciation claimed by the appellant for the A.Y. 2002-03 & 2003-04. Thus, depreciation for the A.Y. 2004-05 has to be computed on ....
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..../- was paid prior to the TPO's order 1.3 Further, the learned CIT(A) erred in deciding the issue relying on that "AO had accepted the TSS Fees paid/payable was capital expenditure and allowed depreciation for A Y 2002-03 and 2003-04. Accordingly, the appellant had revised the depreciation claim as required by the AO and there was no dispute to that extent. Now it should be decided on what amount should be on what amount should the depreciation be allowed?' (in para 5.3.5 on page 14 of the CIT (A) order) The above basis of the learned CIT(A) is not accepted since the TPO has also examined the Technical Support Agreement dated 05.10.2001, in Article 3 provides for the consideration to be paid. The TPO found out that this is a initial sum of $ 2,50,000/-based on total of 440 hours of laboratory time performed during the initial year of the agreement. The Article does provide for review on annual basis but this is for the difference in installments and cannot be implied that such fees was to be paid every year. The assessee has not submitted any document to evidence that such service requiring the payment were rendered in the year under reference. The learned CIT (A) did not ....
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....ment of the assessee was that the agreement in question was effective for five years, therefore, in a situation when the deprecation was allowed on the same terms and conditions then there was no basis to deviate from the decision already taken on same set of facts and circumstances. It has also been pointed out that the amount in question was paid after getting the approval of the RBI (the Competent Authority). It has further been informed that the instalments paid were subject to TDS and these facts have not been denied by the Revenue Department. Moreover, later on the claim of depreciation was also revised As far as the decision of UCB India Pvt Ltd vs. ACIT 121 ITD 131 (Mum) is concerned, the same was on different issue and not the issue related to the assessee. In that case, it was noted that the CUP method adopted by the TPO suffered from infirmities hence the matter was remanded to the file of TPO. Having perused this precedent, we are not in agreement to follow the same because the facts of the appeal before us is entirely different. We have noted that the Ld. CIT(A) has given a categorical finding that the expenditure being capitalized and thereupon the deprecation was all....
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....r determining the Arms Length Price (APL) and in the absence of that the contention raised by the appellant gains ground. 2.1 The ld.CIT(A) overlooked the facts that the TPO selected CUP as the most appropriate method which was already selected by the assessee. So there remains no contentions about the most appropriate method. Secondly the TPO did not consider the domestic transaction because of geographical and volume differences." 10. As per the assessment order passed u/s.143(3) dated 23.12.2008 and u/s.92 CA(3) dated 21.10.2008 it was observed by the Revenue Department that the Assessee has made "international transaction" of purchase of AC Units as an International transaction from AE. It was found that a price on which the Assessee had imported from non AE parties was at Rs. 2056, however, as against that the TPO has noted that the average price for which the AC components were purchased from AE were at Rs. 2,279.72/-. The TPO has thereafter directed to make an adjustment and fix the Arms Length Price is as under: Quantity purchase from AE 3025 Total Value 68,96,157 Avg. Price from AE 2,280 Avg. Price from purchase from Non-AE(Import) 2,056 ALP of transaction takin....