TMI Blog2016 (7) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational transaction - Held that:- In the present case, it is an admitted fact that the ld. CIT(A) directed the AO to make the proportionate adjustment of the expenses to the extent it is attributable to the international transactions. No valid ground to interfere with the findings of the ld. CIT(A). Disallowance on account of excess claim of depreciation on computer peripherals - Held that:- Computer accessories and peripherals such as printers, scanners and server 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 part of the computer system, they are entitled to depreciation at the higher rate of 60 per cent. See CIT Vs BSES Yamuna Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT ] - Decided in favour of assessee Addition on account unascertained liability - Held that:- In the present case, it appears that the ld. CIT(A) allowed the claim of the expenses on this basis that the assessee was following this accounting policy, consistently and claiming the expenses by creating the provisions for such expenses. In our opinion, this issue requires verification at the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 at -6.92% of 1.41% as taken by the TPO. 3.1 On the facts and in circumstances of the case the Ld. CIT(A) was not justified in directing the AO that the percentage of adjustment to international transaction should be in proportion to quantum of international transaction bears to the total turnover. 3.2 On the facts and in circumstances of the case the Ld. CIT(A) was not justified in directing proportionate adjustment to the international transaction as transactions other than international transaction are at arms' length. 4. The appellant craves leave for reserving the right to amend, modify, alter add or forego any ground(s) of appeal at any time before or during the hearing of appeal. 4. Vide Ground Nos. 1 1.1, the grievance of the department relates to the deletion of addition of ₹ 77,90,000/- made by the AO on account of provision of liability regarding exchange rate fluctuation. 5. Facts related to this issue in brief are that the assessee filed the return of income on 31.10.2004 declaring a loss of ₹ 11,02,45,980/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT Vs Woodward Governor India P. Ltd. reported at 312 ITR 254. It was also stated that in the instant year there was foreign exchange fluctuation gain of ₹ 1,02,82,000/- which had been brought to tax as income and thus there was an inconsistent stand of the AO. 8. The ld. CIT(A) after considering the submissions of the assessee deleted the addition by observing as under: The appellant is following mercantile system of accounting consistently. The forex loss is due to the reinstatement of accounts at the end of the financial year as per the Accounting Standard 11 issued by the Institute of Chartered Accountants of India. The appellant imports watches, raw materials and components from various parties from abroad on which the payment is in foreign currency. At the end of the year, the appellant revalues its outstanding balances. The underlying liability was on account of revenue transaction, income/loss on account of settlement of creditors/debtors. Therefore, the forex loss also takes the colour of revenue loss. The issue has been settled by the judgment of the Hon ble Supreme Court in the case of Woodward Governor (2009) 312 ITR 254 (SC). The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR relied on the ratio laid down by the special Bench ITAT in the case of ONGC Vs. DCIT, 83 ITD 151 Delhi where it was held that such liability is not notional but accrued. It was also submitted by the Ld. AR that in the immediately succeeding year, while valuing unpaid liability in the year on the exchange rate prevailing at that date a gain of ₹ 43 lakhs accrued to the assessee and the same was offered to tax and actually taxed by the department. 16. By considering the totality of the facts and circumstances of the case we agree with the order of the CIT(A) for the reason that the liability was incurred on account of raw material components etc. and hence it was revenue loss. Since the additional liability had arisen during the current year, the loss incurred by the assessee was fate accompli' ' and not .a notional one so the same is allowable as per the ratio laid down in the case of ONGC vs. Dy. CIT, 83 ITD 151 (ITAT-Sp. Bench) Delhi. Hence, the order of the CIT(A) on this issue is upheld. 13. So, respectfully following the aforesaid referred to order, we do not see any merit in this ground of the departmental appeal. 14. The next issue vide Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount used by the assessee for carrying out regular business activities. Therefore, it was an incidental event which had happened in the course of business of the assessee and was an allowable expenditure while computing the income of the assessee u/s 37 of the Act. 19. Being aggrieved the department is in appeal. The ld. DR reiterated the observations made by the AO and strongly supported the assessment order dated 19.12.2006. 20. In his rival submissions the ld. Counsel for the assessee reiterated the submission made before the authorities below and strongly supported the impugned order passed by the ld. CIT(A). 21. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that an amount of ₹ 8,25,000/- was fraudulently withdrawn from the assessee s bank account with Citi Bank by forging the signature of the assessee who had filed a suit against the bank, but no progress had yet been made. Therefore, it is clear that the incidental events happened in the regular course of business of the assessee, so it was an allowable expenditure u/s 37 of the Act and the ld. CIT(A) right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method and OP/Sales was chosen as Profit Level Indicator (PLI). The assessee clubbed the international transaction except for the service income and benchmarked together. The assessee had carved out the manufacturing segment from the audited accounts, this segment was further divided into three segment, namely, Segment AE, Segment non-AE, Segment other than non-AE. It was stated that during the year under consideration the assessee had entered into transactions of more than 5 crores. The AO referred the matter to the Transfer Pricing Officer (TPO) for determining the Arm s Length Price of the transactions with its Associated Enterprises (AEs). The TPO vide his order dated 12.12.2006 u/s 92CA(3) of the Act determined/computed the income of the assessee by making an upward adjustment of ₹ 3,10,96,895/- by observing at page nos. 17 18 as under: Thus, it could be seen that while applying TNMM the net profit margin of the tested party has to be computed as it is. Similarly, under clause (ii) the net profit margins of the comparables are also computed. Further, clause (iii) permits adjustments to the net profit margins computed in accordance with clause (ii) i.e. the marg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % Net Profit at Arm's length margin ₹ 50,26,323 Adjustment at Arm's length margin [50,26,323-(-2,60,70,572)] (50,26,323 + 2,60,70,572) ₹ 3,10,96,895 Accordingly, an upward adjustment of ₹ 3,10,96,895/- is required to be made to the total income of the assessee. Accordingly, the arm's length price of international transaction shall get adjusted upward/downward as the case may be from the book value of the transaction to extent of ₹ 3,10,96,895/-. 25. The TPO accepted the segmental accounts and also accepted three comparables selected by the assessee. However, objected to the calculation made by the assessee who had taken out unabsorbed overheads and extra depreciation on account of unutilized machines while calculating the margin of manufacturing segment involving transaction with the AE. The TPO did not considered one of the comparable, namely, Artfield Group Ltd. because the data during the TP study was available only for six months and subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... calculation, leading to a presumption in the mind of the appellant that the said re-computation has been accepted by the TPO. In order to support the re-computation done for the Artfield Group, please find attached as Annexure 22 (pages 229- 232), the back-up computation and a copy of the financial data as available in the OneSource.com database. 28. The ld. CIT(A) after considering the submissions of the assessee observed that the TPO had no objection in accepting the comparable Artfield Group. Therefore, it was only reasonable to take the full financial year data of the accepted comparables for benchmarking purpose. The ld. CIT(A), therefore, held that 12 months data year ending 31.03.2004 should have been taken for calculating the PLI. Accordingly, the mean margin of the comparables was worked out as under: Name of Company OP/Sales FY 2003-04 Artfield Group Ltd. -6.42% Egganagoldpfeil Holdings 3.33% Peace Mark (Holdings) Ltd. 6.10% Mean 1% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment is in appeal. The ld. DR reiterated the observations made by the TPO and the AO and strongly supported the assessment order passed by the AO. 32. In his rival submissions the ld. Counsel for the assessee reiterated the submission made before the authorities below and strongly supported the impugned order passed by the ld. CIT(A). It was further submitted that the issue under consideration is squarely covered by the judgment of the Hon ble Jurisdictional High Court in the case of CIT Vs Keihin Panalfa Ltd. in ITA 11/2015 vide order dated 09.09.2015 (copy of the said order was furnished which is placed on the record). The reliance was also placed on the following decisions of various benches of the ITAT: M/s Genisys Integrating Systems (India) Pvt. Ltd. Vs DCIT in ITA No. 1231/Bang./2010 order dated 05.08.2011 (ITAT Bangalore) IL Jin Electronics (I) (P) Ltd. Vs ACIT in ITA No. 438/Del/2008 order dated 06.11.2009 (ITAT Delhi) 33. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the ld. CIT(A) directed the AO to make the proportionate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Counsel for the assessee submitted that he has the instruction not to press the Cross Objection and gave in writing as under: Not pressed 37. The ld. DR did not object if the Cross Objection is dismissed as not pressed. Accordingly, the Cross Objection of the assessee is dismissed as not pressed. 38. In ITA No. 258/Del/2013 for the assessment year 2005- 06, the grounds raised by the department read as under: 1. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the addition of ₹ 3,16,43,179/- made by the AO on account of Arms Length Price. 2. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the addition of ₹ 5,66,270/- made by the AO on account of advances written off. 3. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the addition of ₹ 5,65,648/- made by the AO on account of excess claim of depreciation on computer peripherals. 4. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in deleting the addition of ₹ 1,22,952/- made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Printers 68800 20640 1548 Backup Tape Library 457600 137280 10296 Switches 82160 24648 1849 Switches 197600 59280 4446 Unigraphic Seat 384800 115440 8658 Printers 13000 3900 293 Printers 64500 19350 1451 Total 1782415 658250 92602 Thus an amount of ₹ 5,65,648/- is being disallowed as being excessive depreciation debited to the P/L account. (Addition of ₹ 5,65,648) 43. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: In the instant case, the depreciation has been claimed on computer, printers, scanners and UPS as would be evident from the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Computer accessories and peripherals such as printers, scanners and server 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 part of the computer system, they are entitled to depreciation at the higher rate of 60 per cent. 49. Since the ld. CIT(A) has decided this issue by following the judgment of the Hon ble Jurisdictional High Court. We, therefore, do not see any merit in this ground of the departmental appeal. 50. The last issue vide Ground No. 4 in this appeal relates to the deletion of addition of ₹ 1,22,952/- made by the AO on account unascertained liability. 51. The facts related to this issue in brief are that the assessee had debited ₹ 6,00,000/- towards provision for legal statutory services. The AO noticed that the invoice raised were of ₹ 4,77,048/-. He, therefore, disallowed remaining amount of ₹ 1,22,952/-. 52. Being aggrieved the assessee carried the matter to the ld. CIT(A) and submitted as under: It is next submitted that appellant has been following this method consistently in as much as provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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