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2015 (7) TMI 243 - ITAT DELHI

2015 (7) TMI 243 - ITAT DELHI - TMI - Disallowance of depreciation on ITG Networking equipments - reducing the rate of depreciation from 60% claimed by the assessee to 25% - Held that:- It is noticed that similar issue came up for consideration before the Tribunal in the assessee’s own case for the immediately preceding assessment year, i.e., 2006-07. [2014 (12) TMI 757 - ITAT DELHI] wherein the Tribunal has accepted the applicability of higher rate of depreciation by relying on the case DCIT vs .....

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Disallowance of depreciation on company owned vehicles - Held that:- The Delhi Bench of the Tribunal in DCIT vs. Haryana Oxygen Ltd. [1999 (12) TMI 107 - ITAT DELHI-D] as held that the use of cars by directorsemployees of a company cannot be characterized as user for non-business purpose and, hence, no part of such car expenses can be disallowed. The Hon’ble Gujarat High Court in Sayaji Iron and Engineering Company vs. CIT (2001 (7) TMI 70 - GUJARAT High Court ) has held that once the dire .....

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les used by the directors/employees by treating it as personal user or non-business user of the company. We fail to see any rationale in treating the amount of depreciation on cars as for personal use, when admittedly these have been provided to employees. A company is a separate legal entity distinct from its directors or employees. As such, there can be no question of treating the use of vehicles by the directors/employees as a personal use by the company.- Decided in favour of assessee.
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he same, we, order for the deletion of the addition.- Decided in favour of assessee.

Transfer pricing adjustment - determination of ALP of the international transaction of ‘Provision of marketing support services - selection of comparables - Held that:- TSR Darashaw (Segmental) company has three segments, which inter alia include: ‘Pay Roll and Trust Fund activity (Pay Roll).’ It is this segment which has been considered by the assessee as comparable. This company on an overview is a .....

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rvices rendered by the assessee to its AEs, we find that both are way apart from each other. There can be no logical comparison between a specific pay roll services rendered by a company to its clients with the marketing support services rendered by the assessee to its AEs. This company is, therefore, directed to be excluded from the final set of comparables.

TCE Consulting Engineers Ltd. is engaged in the provision of engineering services, such as, operation and design engineering, u .....

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es provided by assessee. This company has also been held by the tribunal to be incomparable in its order for the immediately preceding assessment year passed in the case of the assessee itself. As such, this company is also directed to be excluded from the list of comparables.

Vimta Labs Ltd. is not functionally comparable with the assessee. Spectrum of the services rendered by this company covers analytical food and drugs; clinical reference lab services to address the specialties an .....

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ess totally alien to that of the assessee, cannot be considered as a comparable. Similar view has been taken by the Tribunal in the case of the assessee for the immediately preceding assessment year. We, therefore, direct the exclusion of this company from the list of comparables.

WAPCOS company operates in two segments, namely, `Consultancy & engineering products’ and ‘Lumpsum turnkey projects’. It is noticed that the TPO has considered only `Consultancy and engineering products segm .....

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be no match to the assessee’s marketing support services. Similar view has been taken by the Tribunal in the case of the assessee for the immediately preceding assessment year. This company is also directed to be excluded from the list of comparables.

IDC Ltd., and ICRA Management Consulting Services Ltd. - A careful perusal of the nature of business done by IDC (India) Ltd. transpires that this company is an Information technology research and advisory firm. This company earns all it .....

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h the IT research/Advisory services provided by these two companies, we are unable to accept the contention of the ld. DR to order a de novo adjudication. It is patent that the assessee in the instant appeal is aggrieved against the inclusion of the afore discussed four companies from a total set of six companies. It has no issue with the inclusion of IDC Ltd., and ICRA Management Consulting Services Ltd. The Revenue is not in appeal before us. In such circumstances, we are unable to remedy the .....

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, Advocate For the Respondent : Shri Bhaskar Goswami, Sr. DR ORDER PER R.S. SYAL, AM: This appeal by the assessee emanates from the final assessment order passed by the Assessing Officer (AO) u/s 143(3) read with section 144C of the Income-tax Act, 1961 (hereinafter also called the Act ) on 24.10.2011 in relation to the assessment year 2007-08. 2. The first effective issue raised in this appeal is against the disallowance of depreciation on ITG Networking equipments by ₹ 1,20,89,521 by red .....

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in the case DCIT vs. Data Craft India Ltd. (2010) 133 TTJ (Mum) (SB) 377. The Hon ble Delhi High Court in the case CIT vs. BSES Yamuna Powers Ltd. 2010-TIOL-636-HC-DEL-IT has approved similar view by holding that depreciation on computer peripherals should be allowed at 60% instead of the regular rate of depreciation applicable to machinery. No distinguishing feature was pointed out by the ld. DR in the facts of the instant year vis-à-vis the preceding year. In view of the aforediscussed .....

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iven by the AO for disallowing depreciation is the personal use of vehicles by the employees of the company. The Delhi Bench of the Tribunal in DCIT vs. Haryana Oxygen Ltd. (2001) 76 ITD 32 (Del) has held that the use of cars by directorsemployees of a company cannot be characterized as user for non-business purpose and, hence, no part of such car expenses can be disallowed. The Hon ble Gujarat High Court in Sayaji Iron and Engineering Company vs. CIT (2002) 253 ITR 749 (Guj) has held that once .....

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e vehicles used by the directors/employees by treating it as personal user or non-business user of the company. We fail to see any rationale in treating the amount of depreciation on cars as for personal use, when admittedly these have been provided to employees. A company is a separate legal entity distinct from its directors or employees. As such, there can be no question of treating the use of vehicles by the directors/employees as a personal use by the company. Similar issue has also been de .....

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50% of running and maintenance expenses of the vehicles were to be disallowed for non-business purpose. 7. After considering the rival submissions and perusing the relevant material on record, we find that this issue is squarely covered by the above referred judgment of the Hon ble Gujarat High Court and the Tribunal order passed by the Delhi Bench. The analogy which applies for not making any disallowance on account of depreciation for personal or nonbusiness use, equally applies for not makin .....

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harging of interest u/s 234A in para 3.14 of its direction and made the following observations:- The CBDT had in order u/s 119 issued in file number 225/13/2007 in LTA-II (pt) had extended the last date for filing the return to 15.11.2007 and assessee filed it on 13.11.2007. The AO is directed to verify the facts and take action as per facts as record and as per law. 10. It is an admitted position that the AO passed the final order without complying with the above direction given by the DRP in t .....

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see was incorporated as a private company in India in July, 1988. It was converted into a wholly owned subsidiary of MS Corp in January, 1996. The assessee is engaged in providing services in supporting development of client server applications to assist customers in the successful development of Microsoft Technology, both directly and through service providers and providing training through various training centres to assist customers in the operation of Microsoft licensed software. The assesse .....

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ntroversy in the present appeal rotates around the determination of the arm s length price of the international transaction of Provision of marketing support services. With the help of certain comparables chosen, the assessee tried to demonstrate that this international transaction was at arm s length price (ALP). For proving this, the assessee adopted Profit level indicator (PLI) of Operating Profit to Total Cost (OP/TC). On a reference made by the Assessing Officer (AO) to the Transfer Pricing .....

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de his order dated 21.10.2011, giving effect to the directions rendered by the DRP, shortlisted the following six companies as comparables:- S.No. Name of the company WC Adjusted OP/ OC-After DRP Directions 1. IDC India Limited 13.94% 2. TSR Darashaw (Segmental) 33.90% 3. TCF Consulting Engineers Ltd. 18.04% 4. Vimta Labs Ltd. 26.34% 5. Water & Power Consultancy Services (India) Ltd. (WAPCOS) 32.92% 6. ICRA Management Consulting Services Ltd. 8.83% Arithmetic Mean 22.33% 13. With the reduced .....

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national transaction of Provision of marketing support services. At this juncture, we want to record that the assessee adopted TNMM as the most appropriate method for determining the ALP of this international transaction, which method has been approved by the TPO. The assessee has not objected to any other aspect of the determination of ALP by the TPO in his final order giving effect to the directions given by the DRP, except for the inclusion of the following four companies:- S.No. Name of the .....

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ee did not undertake sale of Microsoft software, but, only created awareness and promoted sale of Microsoft products in India. The Marketing support services undertaken by the assessee include : Expanding the markets for Microsoft retain products in India through local print electronic advertising, promotional campaigns, anti-piracy drives, etc; and Performing other activities which includes: i. Dissemination of information to potential customers; ii. Commenting on any development in the territo .....

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s under the Master Service Agreement with Microsoft Corporation. This Agreement was executed on 1.7.2003. This discerns that the nature of marketing support services rendered by the assessee during the year under consideration are similar to those of the preceding year as both the years are governed by the same Master Service Agreement dated 1.7.2003. It is observed that transfer pricing adjustment of such international transaction was made by the authorities below for the immediately preceding .....

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The ld. DR was also fair enough to admit that there is no difference in the nature of marketing support services provided by the assessee during the instant year as well as the preceding year. With the above understanding of the nature of marketing support services rendered by the assessee to its AE, we will now try to ascertain whether the above referred four companies are, in fact, comparable or not. i. TSR Darashaw (Segmental) 16. This company was chosen by the assessee as comparable in its .....

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re not inclined to uphold the objection taken by the ld. DR on the inclusion of this company as comparable merely on the fact that the assessee treated it as comparable in its TP study report. It goes without saying that there can be no estoppel against correctness. If the assessee inadvertently includes a company in its final set of comparables, which is, in fact, not comparable, he has a right to agitate before the authorities that this company may be excluded. This right of the assessee does .....

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. The crux is that what really matters is the actual comparability and not the wrong view canvassed by the assessee in the original reporting. What is true for the assessee is equally true for the Revenue as well. The authorities are fully competent to consider the comparability of the companies treated by the assessee as comparable. If the analysis undertaken by the TPO shows that some of the companies so construed by the assessee as comparable are, in fact, not comparable, then, such companies .....

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le. 18. Coming to the merits of comparability, we find that this company has three segments, which inter alia include: Pay Roll and Trust Fund activity (Pay Roll). It is this segment which has been considered by the assessee as comparable. This company on an overview is a broking and investment banking house. Its other segments are : Registrar and Transfer Agent activity (R&D) and Records management activity (Records). The segment of Pay Roll was considered by the assessee as comparable in i .....

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rvices rendered by the assessee to its AEs. This company is, therefore, directed to be excluded from the final set of comparables. ii. TCE Consulting Engineers Ltd. 19. This company was considered by the TPO as comparable on the strength of his reason of inclusion in the list of comparables for the AYs 2002-03 and 2003-04. 20. We find that this company is engaged in the provision of engineering services, such as, operation and design engineering, upgradation & renovation services, surveys &a .....

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s also been held by the tribunal to be incomparable in its order for the immediately preceding assessment year passed in the case of the assessee itself. As such, this company is also directed to be excluded from the list of comparables. iii. Vimta Labs Ltd.: 21. The TPO included this company in the set of comparables by noticing that it has been so used as comparable with the assessee since the AY 2002-03. He further supported his finding by noticing that this company was providing similar serv .....

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ges that the same is functionally dissimilar from the assessee. How a company conducting clinical trials on foods and drugs can be considered as comparable with the assessee undertaking marketing support services, is anybody s guess. This company being in the nature of business totally alien to that of the assessee, cannot be considered as a comparable. Similar view has been taken by the Tribunal in the case of the assessee for the immediately preceding assessment year. We, therefore, direct the .....

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sideration the other segment of Lumpsom turnkey projects . The company, under the alleged comparable segment, provides consultancy services, such as, pre-feasibility report of hydroelectric projects, field investigation drilling of tube wells, etc. From the above description of the activities performed by the company under this segment, it is vivid that the same is engaged in providing engineering and consultancy services, which can be no match to the assessee s marketing support services. Simil .....

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g heard to the assessee. 26. Before parting with this issue, we will like to deal with an argument put forth by the ld. DR. He submitted that the TPO did not properly consider the nature of the Marketing support services provided by the assessee and also accepted some companies chosen by the assessee as comparable which were, in fact, not comparable. He invited our attention towards the only remaining two companies in the list of comparables, namely, IDC India Ltd., and ICRA Management Consultin .....

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DR to the extent of improper examination of the case done by the authorities in not properly appreciating the nature of services performed by the assessee in this international transaction, which led to the acceptance of improper comparables selected by the assessee. It is however, clear from the order of the TPO that he was well aware with a distinct international transaction of provision of marketing support services, which expression has been repeatedly used by him in the order. Thus, it can .....

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sights to providers, builders and users of information technology. The company is focusing on go-to-marketing (GTM) services as key area of operations. The company earns all its income in the form of research and survey income. 28. As regards ICRA Management Consulting Services Ltd., the assessee s TP study report divulges the nature of activity undertaken by this company as under:- ICRA Management Consulting Services Ltd., was incorporated in 2005 with the objective of taking over the entire bu .....

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be considered as comparable with the international transaction of Provision of marketing support services rendered by the assessee to its AE. Similar is the position regarding ICRA Management Consulting Services Ltd., which is providing Advisory services. In our considered opinion, a company providing advisory services can be no match with a company providing actual marketing support services. Despite this clear mismatch of the functional profile of the assessee s international transaction of Pr .....

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