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2015 (4) TMI 179 - ITAT AHMEDABAD

2015 (4) TMI 179 - ITAT AHMEDABAD - TMI - Depreciation on the WDV of technical support service fees paid - CIT(A) allowed part claim - assessee is a 50/50 joint venture, therefore, there was overaseas AE relationship with Fedders International Air Conditioning and Fedders International INC, USA - Held that:- Ld. CIT(A) has given a categorical finding that the expenditure being capitalized and thereupon the deprecation was allowed in the past, therefore, on the same lines, assessee was held as en .....

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CIT(A) deleted the disallowance - Held that:- Considering the dates of payment, due dates and the date on which the payment was made and to conclude that the payment was made as per the extended grace period of due date as discussed by the Ld. CIT(A),we hereby confirm the said factual findings and uphold the deletion - Decided against revenue.

Transfer pricing adjustment - CIT(A) deleted the addition - selection of most appropriate method - Held that:- The certain points were not deal .....

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prescribed under Rule 10B(1)(a) has not been discussed; therefore, we deem it proper to restore this issue back to him to be decided needless to say after providing adequate opportunity of hearing to both the sides. - Decided in favour of revenue for statistical purposes.

- ITA Nos. 917 to 919/Ahd/2011 - Dated:- 26-3-2015 - Shri Mukul Kr. Shrawat And Shri Anil Chaturvedi JJ. For the Appellant : Shri Dinesh Singh, Sr. D.R. & Shri Ajit Pal Singh Daia, TPO For the Respondent : Shri .....

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tances of the case and in law, the Ld. CIT(A) has erred in restricting the disallowance on account of depreciation to ₹ 7,78,835/- as against ₹ 28,48,301/- made by the AO, based on the order passed on by the TPO 1.1 The Ld. CIT(A) Valsad has erred in law and on facts in allowing the depreciation on the WDV of technical support service fees paid of ₹ 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 em .....

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-. 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 ₹ 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 Technica .....

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ided in Books of Account $ 2,50,000/- for each years. During the financial year 2003-04, it was decided by UCPL Board to change financial year from Sept-August to April-March. In view of that UCPL had 7 months short period financial year from Sept 03 to March 04. In said short period financial year, UCPL has provided in books of Accounts, technical Support Service Fees payable to Fedders-USA for proportionate 7 months i.e. for $ 1,45,833/-. During the financial year 04-05 UCPL has made payment f .....

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uring the financial year 05-06 company s management opined that above mentioned provision for $ 1,45,833/- made during the financial year 03-04 is now no more payable and in view of that UCPL has reversed the said provision of $ 1,45,833/- in the financial year 05-06 and shown the same as income during the year [emphasis supplied] The TPO was not convinced and held that the technical support fees was not to be considered at arms length price. Accordingly, the AO has held that since the assessee .....

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. The officer while passing the order dated 30-11-06 u/s. 92CA(3) has held that an amount of ₹ 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 a .....

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tter was carried before the first appellate authority, Ld. CIT(A) has discussed this issue at length and thereupon came to the conclusion that the appellant had claimed depreciation for three consecutive years. In this regard, the relevant observation of Ld. CIT(A) is as under:- 5.3.3 As pointed by the ld. AR the issue of Depreciation with regards to TSS Fees paid to M/s. Fedders International Airconditioning Pvt. Ltd (FIAPL) aroused in the A.Y. 2002-03. Here, it is important to mention that the .....

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receipt of the 1st Installment. 5.3.4 The RBI (the Competent Authority) gave the approval on 14.01.2002 for the payments. The appellant paid the 1st installment of US $ 1,04,167/- (= ₹ 47,47,185/- on January 2005 (F.Y. 2004- 05) after deduction of TDS and R&D Cess. The appellant made claim of depreciation in the A.Ys. 2002-03, 2003-04, & 2004-05 on the basis of Provisions made in the books of a/c. and not on actual payment of TSS Fees. Though the appellant had not paid the amount .....

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reciation for the A.Y. 2004-05 (i.e. FY 2003-04) Amount Rs. 2002-03 3,419,968/- 854,992/- 2003-04 9,374,972/- 2,343,743/- 2004-05 11,393,287/- 2,848,322/- Total Depreciation claimed on TSS vide revised return for AY 2004-05 6,047,057/- 4. On the basis of the above discussion, Ld. CIT(A) has noted that the first installment was paid in the month of January, 2005 after the deduction of TDS. According to him, the TPO had overlooked the said aspect. He has concluded that the entire amount was wrongl .....

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n 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/- (= ₹ 47,47,185/-) only. As I have said earlier, the issues required to be decided in an .....

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5. From the side of Revenue, Ld. DR, Shri Dinesh Singh, appeared and mentioned that a written submission is furnished by the TPO-I, Ahmedabad, relevant portion reproduced below:- 1.2 On perusing of the order of the Hon ble CIT(A) for A.Y. 2004- 05, it can be seen that the Hon ble CIT(A) did not address this issue properly (para 5.3.5 to the order). In this para, the CIT(A) bifurcated the whole amount ₹ 1,13,93,207/- in two parts. The payment amounting to ₹ 47.47.185/- (which was paid .....

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appreciating or finding any flaw in the TPO's order in which the entire sum of TSS fees amounting to ₹ 1,13,93.207/- was determined to be non-existent on the basis that the assessee failed to justify the basis for the payment for TSS fees for the relevant F.Y 2003-04. The assessee failed to reply whether Fedders International Inc.USA (the AE), charges such fee from other associated enterprises. The assessee failed to furnish the costs incurred by Fedder's International Inc.USA tow .....

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e TSS fee in his order. The CIT (A) decided the issue simply on the basis that some part of the TSS fee amounting to ₹ 1,13,93,207/- 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. No .....

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t. 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 make any comment on this finding of the TPO. Since this year, the assessee has not provided any details of the laboratory time performed under the technical support se .....

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upport services fees. 6. On the other hand, from the side of the assessee, Ld. A.R. Shri Hardik Vora, has informed that for A.Y. 2002-03 an order u/s. 143(3) was passed by the AO dated 24-03-2005, wherein a query was raised that why an amount of ₹ 60,79,943/- paid to Fedders International INC, USA should not be capitalized. The assessee s reply was that the impugned amount was paid for technical support service such as design and engineering support, laboratory testing, product designing, .....

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no adjustment or disallowance was made. The AO has allowed depreciation at the rate of 20%. For A.Y. 2003-04 an order u/s. 94CA(3) was passed by the TPO dated 28-02-2006 wherein after considering the international transaction with AE no adjustment was suggested. In consequence thereupon the assessment order for A.Y. 2003-04 was passed by the AO u/s. 143(3) 7. We have heard both the sides at some length. The fundamental argument from the assessee is that on the same terms and conditions the Reve .....

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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 rela .....

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was held as entitled for the deprecation. Thus, under the totality of the facts and circumstances of the case as discussed hereinabove, we are of the considered opinion that there was no fallacy in the direction of Ld. CIT(A) to re-compute the depreciation and allow the same as per law. Since part relief granted by Ld. CIT(A) is not disturbed hence this ground of the revenue is hereby dismissed. Ground No. 2 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in d .....

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, Ld. CIT(A) has examined the due dates and the date on which the payment was made and then arrived at the conclusion that the payment was made as per the extended grace period of due date. By following Vinay Cement 213 CTR 268 (SC), the disallowance was reversed. 8.1 After hearing both the sides and considering the dates of payment as discussed by the Ld. CIT(A), we hereby confirm the said factual findings and uphold the deletion. This ground of the revenue is therefore dismissed. B. ITA No. 91 .....

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O determined the Arms Length Price at Nil . 9. This issue has been dismissed above hence on the same lines this Ground of the Revenue is hereby dismissed. Ground No. 2 2. The Ld. CIT(A) Valsad, while deleting the addition of ₹ 6,76,757/- made by the TPO, has erred in law and on facts that the TPO did not discuss the most appropriate method for 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 .....

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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 ₹ 2056, however, as against that the TPO has noted that the average price for which the AC components were purchased from AE were at ₹ 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 N .....

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of the Act. Hence, arm's length price can be ₹ 2.210 (i.e. arithmetical mean of ₹ 2.364 and ₹ 2.056) or ₹ 2.321 (i.e. 5% higher to arithmetical mean of Rs: 2210 per unit). As appellant has already opted for the option available to the assessee of 5% variation as per the proviso to section 92C(2) of the Act. The arm s length price as per the provisions of section 92C(2) of the Act should be ₹ 2.321 as against price paid to associated enterprises of ₹ 2.280 .....

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ding of the AO/TPO and the submissions made by the Id. AR. There is a force in the arguments of the Id.AR. The AO/TPO's made a simple calculation on the data available with him and come to the conclusion that there was a need for upward adjustment of prices. In the order it was not discussed which was the most appropriate method for determining ALP. In the absence of that, the contention raised by the appellant gains ground. In view of this I direct the AO to delete the addition made in this .....

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