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2015 (7) TMI 239 - ITAT DELHI

2015 (7) TMI 239 - ITAT DELHI - TMI - Depreciation on computer accessories and peripherals - @60% OR 25% - Held that:- As relying on case of CIT vs. BSES Rajdhani Powers Limited [2010 (8) TMI 58 - DELHI HIGH COURT ] 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 en .....

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owed by Proviso to Section 92C(2) of the Act. Accordingly, the ld. CIT (A) rightly found that the assessee's international transactions with its AE's with respect to provision of contract software development services during the FY 2004-05 is at arm's length. CIT(A) has rightly held that the assessee‟s international transaction was at arm‟s length and thus no addition as directed by the TPO was warranted. In the background of the aforesaid discussions and respectfully following the p .....

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L MEMBER: This appeal filed by the Revenue is directed against the order dated 14.1.2011 passed by the Ld. CIT(A)-XX, New Delhi pertaining to assessment year 2005-06. 2. The Revenue has raised the following grounds in its Appeal:- 1. The order of the Ld. CIT(A) is erroneous and contrary to facts and law. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to allow depreciation on computer accessories and peripherals @60% as against 25% al .....

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re not in accordance with the prevailing market trends. 4. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of the hearing. 3. The brief facts of the case are that the assessee filed its return of income on 27.10.2005 declaring a total income of ₹ 6,41,476/- which was processed u/s. 143(1) of the Income Tax Act, 1961 (hereinafter called the Act ) on 22.3.2007 wherein a refund of ₹ 1,63,000/- was determined. Later on the case was .....

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on to above, it is also engaged in providing marketing support services to IKOS Systems Inc., USA to secure clients for it for maintenance services. 5. A reference to the TPO was made u/s. 92CA(1) of the Act and the TPO passed the order u/s. 92CA(3) of the Act on 19.9.2008 proposing an addition of ₹ 2,31,97,273/- on account of difference in arm‟s length price determined by the TPO and that adopted by the assessee. The TPO‟s order dated 19.9.2008 reads as under:- The Arm s lengt .....

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2004-05 to bring the international transactions at arm s length price. 6. Pursuant to the TPO direction, Assessing Officer made the addition of ₹ 2,31,97,273/- to the total income of the assessee; and also added the addition of ₹ 25,97,918/- on account of depreciation on computer accessories and peripherals by reducing the same from 60% to 25% and thus the AO completed the assessment u/s. 143(3) vide his order dated 17.11.2008 on total income of ₹ 2,38,38,750/-. 7. Against the .....

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;s margin of 12% for contract of software development services, which falls within ± 5% range allowed by Proviso to Section 92C(2) of the Act. So he held that the assessee‟s international transactions are at arm‟s length; and thereafter ld. CIT (A) observed that other grounds raised are academic since relief has been granted to the assessee. Thus, he partly allowed the appeal of the assessee. 8. Aggrieved by the order of the Ld. CIT(A), now the Revenue is in appeal before the .....

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of change is enormous. Hence what is bought today becomes obsolete or technologically outdated within a very short time. This is specially too for computers and this obvious fact needs no elaboration. Therefore, he submitted that the rate of depreciation provided for computers is exceptionally high i.e. 60% whereas the same does not hold good for plant and machinery. He also submitted that the networking equipments are just cables inter connecting or joining instruments that facilitate connectiv .....

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etworking equipment is correspondingly needed to be reduced from 60% to 25% and addition of ₹ 25,97,918/- on this account was rightly been made by the AO. Therefore, he pleaded that the action of the AO may be upheld and thus the order of the ld. CIT (A) may be reversed. 10. On the other hand, the ld. AR relied on the order of the ld. CIT (A) and does not want us to interfere 11. We have heard both the parties and perused the records. With regard to ground no. 2 to 2.1 relating to disallow .....

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in the case of CIT vs. BSES Rajdhani Powers Limited wherein the Hon‟ble Jurisdictional High Court has held that computer accessories form an integral part of the computer system and thus depreciation on them is allowable @60%. We find that Ld. CIT(A) was quite right in observing that the items for which assessee claimed depreciation appear to be integral to the computer systems. Therefore, he was opinion that with regard to these items the higher rate of deprecation at 60% should be allow .....

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at the assessee gave a list of 87 companies as comparables before the TPO. However, TPO applied the filter of wages to sales between 30% to 60%. Having done so, the TPO brought down the comparables to twenty five companies from eighty seven companies originally selected by the assessee. From these twenty five companies, the TPO further rejected fifteen companies citing reasons, such as, low foreign exchange revenue, declining sales/negatives net wealth, different financial year ending, related p .....

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g to software development services, referred by AO is determined at ₹ 28,69,50,838/-. The book value of these international transactions is ₹ 26,37,53,585/-. Therefore, the book value of international transactions is understated by ₹ 2,31,97,273/-. In view of above, AO shall enhance the total income of the assessee by ₹ 2,31,97,273/- for the AY 2005-06 for the international transactions undertaken by the assessee during the FY 2004-05 to bring the international transactio .....

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of Assessing Officer. 14. On the contrary, Ld. Counsel of the assessee has relied upon the order of the Ld. CIT(A) and defended the same and does not want us to interfere in the same. 15. We find that Ld. CIT(A) after considering the facts of the case and the submission of the AR observed that with regard to Infosys Technologies Ltd. it was evident from the Annual Report of the company that Infosys Technologies provides much wider range of services, performs extensive functions, undertakes dive .....

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t Infosys Technologies Ltd. is a product owner, undertakes substantial advertising/ sales promotion and brand-building activities and is engaged in significant R&D activities, and is very huge in size/volume as compared to the assessee. Hence, it cannot be said to be comparable with the assessee. The said proposition has also been confirmed by Delhi Tribunal in Agnity India Technologies vs. ITO (supra) (ITA No.3856/Del/2010) wherein the Coordinate Bench held as follows : Various arguments, a .....

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th margin to 25.6%. It is argued that the case of the assessee is not comparable with Infosys Technologies Ltd., the reason being that the latter is giant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these points, we are of the view that the case of aforesaid Infosys and the assessee are not comparable at all .....

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The aforesaid order was upheld by the Hon ble Delhi High Court after taking note of the chart as given below: Basic Particular Infosys Technologies Ltd. Assessee Risk Profile Operate as full-fledged risk taking entrepreneurs Operate at minimal risks as the 100 percent services are provided to AEs Nature of services Diversified-consulting, application design, development, re-engineering and maintenance system integration, package evaluation and implementation and business process management, etc. .....

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services performed at the customer‟s location overseas). And offshore (50.20 per cent) Refer p. 117 of the Paper Book) than half of its service, income from onsite services The appellant provides only offshore services (i.e. remotely from India) Expenditure on advertising/sales promotion and brand building ₹ 80 crores Rs. Nil (as the 1-percent services are provided to AEs) Expenditure on Research and Development ₹ 236 crores Rs. Nil Other 100 per cent offshore (from India) 11. .....

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e with the assesse Accordingly, Ld. CIT(A) proposed to exclude this company from comparable set of companies. . Therefore, the ld. CIT (A) has rightly ordered exclusion of the Infosys Technologies Ltd. from the comparable and this impugned order is upheld. Satyam Computer Services Ltd. 18. On a perusal of the Annual Report of the company for FY 2004-05, it is evident from the Annual Report of the company that Sat yam Computer Services Ltd. provides a much wider range of services, performs extens .....

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ompany's auditors have themselves admitted this fact; and the criminal proceedings have been initiated for serious fraud committed by the directors of the company. 20. So we take note that M/s. Satyam Computer Services Ltd. is a diversified company, undertakes substantial advertising/ sales promotion and brand-building activities and carries out significant R&D activities, and is very huge in size/ volume as compared to the assessee and on the top of it, has unreliable financial statemen .....

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