TMI Blog2015 (10) TMI 2375X X X X Extracts X X X X X X X X Extracts X X X X ..... he same is to be allowed @ 60% as they are part and parcel of computer itself and are peripheral component/equipment connected with the computer. In the decision of Omini Club Informational Technology Ivt P Ltd. [2010 (4) TMI 769 - ITAT, DELHI] and also in catena of other decisions by the co-ordinate Benches of the Tribunal there has been a consistent view that printer and UPS are part of computer and hence depreciation has to be allowed @ of 60%. However, so far as claim of depreciation on air-conditioners installed in server’s room, the same cannot be treated as part of computer and therefore, restricting the claim of depreciation @ 15% by the AO is fully justified - Decided partly in favour of assessee. Disallowance of software expenses incurred on purchase of printer-server software - Held that:- Of the expenditure incurred on the software is to facilitate the assessee’s business or enable the management to conduct the business more efficiently or profitably, then it has to be treated as revenue expenditure. In all these cases, the expenditure incurred on the software expenses were allowed as revenue expenditure. Here also, the software purchase for print server is nothing b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection that the said comparable cannot be included in this year, if the assessee is able to demonstrate the factors and circumstances leading to its exclusion, specifically functional dissimilarity and also the factors leading to huge variation in profit margin. Here in this year, the assessee before the TPO as well as before the DRP has disputed the comparable based on high margins. This plea of the assessee has been accepted by the department in the subsequent year. Thus, following subsequent order of the DRP, we exclude the Wuhu Cold Storage and Transportation Co. from the list of final comparables. Accordingly, the Assessing Officer is directed to exclude the same and benchmark the average margin of other comparables with that of the assessee and if the margin of such comparables falls within the range of ± 5% of the Arm’s length price, then needless to say, no adjustment should be made - Decided partly in favour of assessee. Disallowance of claim of expenditure on account of feasibility study - Held that:- The assessee has made the payment to professional firm, McKinsey & Co. for conducting a Feasibility Study Report for establishing a BPO business for assessee’s own funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity as an agent; (v) Addition on account of transfer pricing adjustment of ₹ 1,49,35,518/-; (vi) Charging of interest u/s 234B; and (vii) Initiation of proceedings of levy of penalty u/s 271(1)(c) and 271BA. 3. Besides this, the assessee has also raised additional grounds on account of violation of principles of natural justice. This ground was not pressed at the time of hearing, therefore additional ground is treated as dismissed as not pressed. 4. The relevant facts qua the disallowance u/s 14A (which has been raised vide ground no. 1 2) are that the assessee had made an investment in shares and mutual funds for sums aggregating to ₹ 10,33,85,369/- on which it has earned a dividend income of ₹ 30,29,856/- which was claimed as exempt. In response to the show cause notice, the assessee submitted that no expenditures have been incurred directly or indirectly for earning of the dividend income for the reason that; firstly, the entire investment was made out of its own funds and secondly, dividend earned have been directly credited to the bank account and no cost at all can be said to be allocated. It was further pointed out that in AY 2002-03, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had made a claim that depreciation should be allowed @ 60% as it is peripheral and connected with computer for which the rate of depreciation is @ 60%, whereas, the AO held that these assets cannot be equated with computer and admissible depreciation provided for computer will not be applicable. He accordingly allowed depreciation @ 15%. Similarly, for the airconditioner installed in the server room assessee, has claimed depreciation @ 60% which has been restricted to 15% by the AO by treating it as plant and machinery. 9. Before the DRP, the assessee relied upon the decision of Special Bench in the case of DCIT vs Data Craft India Ltd, reported in 40 SOT 249. However, the DRP held that such decision will not be applicable as the Special Bench has decided regarding computer itself and not the computer peripherals. Accordingly, the DRP directed the AO to restrict the disallowance on UPS and printers @ 15%. 10. Before us, Shri F V Irani, relied upon the catena of case laws on the point that printers and UPS are computer peripherals only and they are to be treated as part and parcel of computer on which depreciation is to be allowed @ 60%. On the other hand, Ld. DR r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. From the perusal of the decisions relied upon by the Ld. Counsel, we find that the Hon ble High Courts have held that if the expenditure incurred on the software is to facilitate the assessee s business or enable the management to conduct the business more efficiently or profitably, then it has to be treated as revenue expenditure. In all these cases, the expenditure incurred on the software expenses were allowed as revenue expenditure. Here also, the software purchase for print server is nothing but to facilitate the assessee s business and to conduct day-to-day activity in an efficient manner and, therefore, it has to be allowed as revenue expenditure. Thus, following the principle and ratio laid down by the Hon ble High Court, as cited above, we allow the claim of ₹ 8,70,755/- incurred on print software as revenue expenditure. Accordingly, ground no. 5 is treated as allowed whereas ground no. 6 raising an alternate contention of allowing depreciation @ 60%, in case it is treated as capital expenditure have been rendered purely academic and therefore, same is treated as infructuous. 16. From ground no. 7 to 12, the assessee has challenged the addition of ₹ 1,18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31 March, 2007 (previous year : ₹ 44,743,264) to the principal s account. The management believes that if the Company is required to retain this amount in compliance with RBI regulation, its commission income on cargo or vessels handled will be revised to the extent of such retention amount. Hence the management believes that the aforesaid does not have an impact on the financial statement of the Company . 18. Thus, the assessee s contention was that, since it did not had any agreement with the principal for such retention, therefore, the container detention charges was directly credited to the Balance sheet as a liability. In response to the show cause notice, the assessee gave detailed explanation before the AO vide letter dated 03.10.2012. The relevant extract of which has been incorporated from pages 8 to 9 of the impugned assessment order. Sum and substance of the assessee s contention was that : (i) The containers are owned by NYK Japan and CDC)are charges levied on 3rd parties importer by the principal on certain circumstances and conditions; (ii) the assessee merely collects CDC on behalf of principal as an agent which is deposited in separate bank acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd collected, received by the assessee during the year, the same has to be brought to tax during the year under consideration. The principles of RESJUDICATA being not applicable to Income-tax proceedings, the assessee s argument that the amount has not been taxed in the past is irrelevant. We, therefore decline to interfere with the AO s order in this regard . 20. Thus, following the same, AO treated the amount credited in the relevant previous year at ₹ 1,18,65,365/- as income accrued to the assessee for the assessment year 2007-08. 21. Before us, the Ld. Counsel Shri F V Irani after explaining the entire facts, submitted that the assessee is only acting as an agent and neither the receipts nor expenses are routed through its P L account. The assessee is only entitled for commission income as per the agency agreement with the principal. The CDC is actually the receipts of the shipping company. Solely due to RBI guidelines on remittance, a portion of CDC charges remains with the agent for meeting the administrative expenses of the principal in India. This amount has always been treated as liability in the Balance sheet, because the assessee only acted in fiduciary cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As per the agency agreement, the CDC charges are collected by the assessee solely on behalf of the principal and are deposited in the separate bank account. These funds are then use to meet the expenses of the principal in India and then it is remitted back to the principal in accordance with the foreign exchange regulations. The RBI had issued a Circular, whereby a small portion of CDC charges are to be retained in India towards discharging of administrative charges on and behalf of principal in India. Thus, the agent is bound to conduct the business of its principal according to the terms and conditions and directions given by the principal. Here CDC collected on behalf of the principal, though retained by the assessee in view of RBI Circular, however, belongs to the principals. That is why, neither these charges are routed through profit and loss account nor any expenses which has been incurred in relation there to. In other words, neither the receipts nor the expenses collected or incurred on behalf of the principal is routed through the profit and loss accounts of the assessee. The amount collected by the assessee is solely in fiduciary capacity, where by the principal has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking PLI as operating profit to total sales. However, after certain corrections in the TP proceedings, the corrected margins of the comparables were as under :- The TPO noted out of above comparable that there were 5 common comparables which were in the earlier three years also including one comparable, Wuhu Port Storage and Transportation Co., which the assessee had rejected this year on the ground of excess profit. The five comparables which were there in the TP study of assessee in earlier years were as under :- S. No. Name of Comparable Company Updated PLI (OP/TC)(%) for FY 2006-07 1 Toll Holdings Limited 16.32 2 BAL trans Holdings Limited 2.68 3 Sun Kwang Co. Ltd. 17.66 4 Wuhu Port Storage Transportation Company 52.43 5 Chu Kong Shipping Development Company 4.17 26. The assessee s objection now before the TPO that Wuhu Port cannot be inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and secondly, the business and functions of Wuhu Cold Storage and Transportation Co. is quite different from the assessee inasmuch as said comparable is engaged in the activity of port loading and unloading activities and storage activities on its own, which in the case of the assessee is obtained by the AE from the other vendors. Wuhu Cold Storage and Transportation Co. is a complete service provider, whereas, the assessee is more of service recipient of such activities. Once it has been found that this comparable is performing activities and functions which are different from the functions carried out by the assessee, then without there being any change in the facts and circumstances in this year, the said company cannot be held to be a good comparable in this year. Simply the assessee has included this comparable in Transfer Pricing Study Report in this year as well as in the earlier years, it does not preclude the assessee from raising the objection that the said comparable cannot be included in this year, if the assessee is able to demonstrate the factors and circumstances leading to its exclusion, specifically functional dissimilarity and also the factors leading to huge var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on UPS and printers is held to be allowable @ 60% whereas, the depreciation on Air-conditioners is allowable only @ 15%. 36. As regards the issue relating to taxability of container detention charges, the same is also similar to the grounds raised in AY 2007-08 and accordingly, in view of the finding given therein, it is held that the said charges cannot be taxed in the hands of the assessee in this year. 37. So far as disallowance u/s 14A, it is seen from the impugned order that the Assessing Officer has made the disallowance of ₹ 3,75,092/- under section 14A r.w. Rule 8D(2)(iii) on the dividend income of ₹ 32,34,372/-. 38. First of all, in this year Rule 8D is applicable, therefore, the earlier decision rendered by the Tribunal and our finding given there in AY 2007-08 will not apply to the impugned year. 39. Before the DRP as well as before the Assessing Officer, the assessee has not made out any claim as to why no expenditure can be said to be attributable for the purpose of making the investment which has yielded exempt income. Already the assessee s submissions with regard to direct expenses and indirect expenditure has already been accepted. As regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record that some kind of new line of business was to be set up or was to be controlled by different management. Hence, it cannot be treated as capital expenditure, or for non business purpose or any kind of pre-operative expenses. Here in this case, BPO business could not take off and whatever expenditure has been incurred has to be allowed either as business expenditure or as a business loss incurred during the course of business. Thus, the claim of such an amount cannot be disallowed either as a capital expenditure or for non-business purpose. Accordingly, ground no. 12 13 are treated as allowed. 45. As regards ground relating to non-grant of refund and, nongrant of TDS credit, we direct the Assessing Officer to verify the claim of the assessee and decide in accordance with the facts and material on record and grant relief/credit if found to be admissible. 46. Regarding levy of interest u/s 234B, it has been admitted that it is purely consequential and accordingly, the same is dismissed. 47. Lastly, as regard levy of interest u/s 234D, the Ld. Counsel submitted that assessee has not received any interest and therefore, there is no question of charging interest u/s 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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