TMI Blog2015 (11) TMI 1666X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of Project Specific Costs under section 40(a)(ia) - Held that:- In the course of hearings before us, the learned Authorised Representative for the assessee fairly conceded that this issue is covered against the assessee and in favour of Revenue by the decision of the Hon'ble High Court of Karnataka in the case of Samsung Electronics Co. Ltd. (2011 (10) TMI 195 - KARNATAKA HIGH COURT), relied on by the A.O./DRP wherein held , in view of the provisions of Section 90 of the Act, agreements with foreign countries DTAA would override the provisions of the Act. In view of the said finding, it is clear that there is obligation on the part of the respondents to deduct tax at source under Section 195 of the Act, and also to which case the assessee was also party before the Hon'ble High Court. Respectfully following it we uphold the decision of the Assessing Officer. - Decided against assessee Advance Tax Credit - Held that:- We find this Ground was raised before the DRP and the DRP had directed the Assessing Officer to examine the claim of the assessee and allow as per the existing system of giving credit for prepaid taxes. In view of the above, the Assessing Officer is directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foreign Currency Loan Rs.23,04,22,866 Reimbursement of expenses paid. Rs.15,43,04,052. 2.2 In view of the above international transactions entered into by the assessee, the Assessing Officer ( A.O ) made a reference under Section 92CA of the Act to the Transfer Pricing Officer ( TPO ) for determining the Arm s Length Price ( ALP ) of these international transactions after obtaining the necessary approval from the CIT I, Bangalore. The TPO vide order under Section 92CA of the Act dt.22.9.2011 proposed a T.P. Adjustment of ₹ 26,13,69,735 to the ALP of the assessee's international transactions in respect of the software development services rendered by the assessee. The Assessing Officer then issued a draft order of assessment under Section 143(3) rws 144C of the Act dt.30.11.2011 determining the income of the assessee at ₹ 58,69,63,275 which included, inter alia, the proposed T.P. Adjustment of ₹ 26,13,69,735. 2.3 Aggrieved by the aforesaid draft order of assessment dt.30.11.2011 for the Assessment Year 2008-09, the assessee filed its objections thereto before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO rejected the assessee's T.P. Study for various reasons set out in the show cause notice issued and embarked on a fresh search using the data bases Prowess and Capitaline . After considering the objections of the assessee, the TPO selected the final set of 20 comparables which are as under :- Sl.No. Name of the Company OP/TC % 1. Avani Cincom Technologies. 25.62 2. Bodhtree Consulting Ltd. 18.72 3. Celestial Biolabs. 87.94 4. e-zest Solutions Ltd. 29.81 5. Flextronics (Aricent) 7.86 6. iGAte Global Solution Ltd. 13.99 7. Infosys 40.37 8. Kals Information Systems Ltd. (Seg.) 41.94 9. LGS Global Ltd. 27.52 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Specific Cost : Rs.11,25,95,270. (ii) T.P. Adjustment : Rs.26,13,69,735. 4.1 In this appeal, the assessee has raised the following grounds :- I. Transfer Pricing The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer ( AO ) and the learned Additional Commissioner of Income Tax (Transfer Pricing - VI), Bangalore ( Transfer Pricing Officer or TPO ) grossly erred in law and facts of the case in determining the Arm s Length Price ( ALP ) of the international transaction of the Appellant and thereby making an adjustment of ₹ 261,369,735/- with respect to the software development services rendered by the tax payer. 2. The learned AO and TPO ought to have accepted the arm s length price as determined by the Appellant. 3. The learned TPO and the learned AO ought to have accepted the difference in risk profile of the appellant vis-a-vis the comparable companies. The learned TPO and the learned AO erred in not allowing the benefit of market risk adjustment to the Appellant. 4. The learned TPO and the learned AO erred in concluding that the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited, Quintegra Solution Limited, Sasken Communication Technologies Limited, R Systems International Limited and Thirdware Solution Limited which are functionally not comparable to the Appellant s business. 6.8 in accepting Tata Elxsi Limited as a comparable company even though the company in its reply to the learned TPO under section 133(6) had mentioned that the company provides product design services, which is functionally not comparable to the Appellant s business. 6.9 in accepting companies such as Celestial Labs Limited, Flextronics Software Systems Limited and Softsol India Limited which are functionally not comparable to the Appellant s business; 6.10in accepting companies like Celestial Labs Limited and Infosys Limited which have abnormal/fluctuating profit margins. In doing so the learned AO have disregarded the various jurisdictional ITAT rulings in case of SAP LABS India Pvt. Ltd. Vs. ACIT (reference ITA. No. 398/Bang/2008), E-Gain Communication Private Limited (reference: ITA No. 1685/PN/07 - Pune); 6.11in accepting companies like Flextronics Software Systems Limited, Quintegra Solutions Limited, Sasken Communications Technologies Limited, Wipro Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usage of EDA (Electronic Design Automation) software tools in software development, under section 40(a) of the Act. The learned AO ought to have appreciated that the EDA software licenses are purchased by Infineon Technologies AG Germany, the ultimate parent company of the appellant, from the vendors as a standard off-the-shelf product and are not transferred to the appellant company. The appellant company only uses the licenses owned by Infineon Technologies AG, Germany. The learned AO ought to have appreciated that the payments made by the appellant company to Infineon Technologies AG, Germany for usage of EDA software tools is towards reimbursement of costs incurred by Infineon Technologies AG, Germany without any mark-up, and therefore no tax is required to be deducted on the same. Further, the learned AO has erred in not placing reliance on the ruling of Honorable Income-tax Appellate Tribunal in the company s own case for the assessment years 2000-01 and 2001-02 (ITA Nos. 467 and 468/Bang/2002) wherein the Tribunal has held that the company is not required to withhold taxes at source on payments made to the non-resident company towards purchase of shrink-wrapped / o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 7 relating to T.P. Issues are not being pressed, the same are rendered infructuous and accordingly dismissed. 5.4 In the course of proceedings before us, the learned Authorised Representative submitted that the facts of the case on hand are similar, inter alia, to the case of M/s. Sonus Networking India Pvt. Ltd. ( IT(TP) A No.1567/Bang/2012 for Assessment Year 2008-09 in which the co-ordinate bench of this Tribunal vide its order dt.14.5.2015 has rendered its ruling. It was submitted that the set of comparables chosen by the TPO in the cited case (supra) is exactly the same as those selected in the case on hand and therefore the assessee places reliance on the decisions in the cited case (supra). The learned Authorised Representative further submitted that in respect of the exclusion of the company, Bodhtree Consulting Ltd., the assessee places reliance on the decision of the co-ordinate bench of this Tribunal in the case of CISCO Systems India Pvt. Ltd., in IT(TP)A No.27/Bang/2014 dt.14.8.2014. 5.5 At the outset, it needs to be examined whether the judicial pronouncements relied on by the assessee are comparable, on facts, to the assessee in the case on hand. As pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parables by the TPO as per the contention of the assessee. 7.0 Avani Cincom Technologies Ltd. 7.1 This company was selected by the TPO as a comparable. The assessee objects to the inclusion of this company as a comparable on the ground that this company is not functionally comparable to the assessee as it is into software products whereas the assessee offers software development services to its AEs. The TPO had rejected the objections of the assessee on the ground that this comparable company has categorized itself as a pure software developer, just like the assessee, and hence selected this company as a comparable. For this purpose, the TPO had relied on information submitted by this company in response to enquiries carried out under section 133(6) of the Act for collecting information about the company directly. 7.2 Before us, the learned Authorised Representative reiterated the assessee's objections for the inclusion of this company from the list of comparable companies on the ground that this company is not functionally comparable to the assessee as it is into software products. It is also submitted that the segmental details of this company are not available and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso. This alone, however, will not suffice for the following reasons :- (i) The assessee needs to demonstrate that the FAR analysis and other relevant facts of the Trilogy case are equally applicable to the facts of the assessee's case also. Unless the facts and the FAR analysis of Trilogy case is comparable to that of the assessee in the case on hand, comparison between the two is not tenable. (ii) After demonstrating the similarity and the comparability between the assessee and the Trilogy case, the assessee also needs to demonstrate that the facts applicable to the Assessment Year 2007-08, the year for which the decision in case of Trilogy E-Business Software India Pvt. Ltd. (supra) was rendered are also applicable to the year under consideration i.e. Assessment Year 2008-09. 9.5.3 It is a well settled principle that the assessee is required to perform FAR analysis for each year and it is quite possible that the FAR analysis can be different for each of the years. That being so, the principle applicable to one particular year cannot be extrapolated automatically and made applicable to subsequent years. To do that, it is necessary to first establish that the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own case for Assessment Year 2007-08 (supra) and in other cases like Trilogy E-Business Software India Pvt. Ltd. (supra) are applicable to the year under consideration as well. 7.5 Per contra, the learned Departmental Representative supported the order of the TPO / DRP for inclusion of this company Avani Cincom Technologies Ltd. in the final set of comparables. 7.6.1 We have heard both parties and perused and carefully considered the material on record. It is seen from the record that the TPO has included this company in the final set of comparables only on the basis of information obtained under section 133(6) of the Act. In these circumstances, it was the duty of the TPO to have necessarily furnished the information so gathered to the assessee and taken its submissions thereon into consideration before deciding to include this company in its final list of comparables. Nonfurnishing the information obtained under section 133(6) of the Act to the assessee has vitiated the selection of this company as a comparable. 7.6.2 We also find substantial merit in the contention of the learned Authorised Representative that this company has been selected by the TPO as an additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee; (ii) This company has been held to be functionally incomparable to software service providers by the decision of the co-ordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra); (iii) The co-ordinate bench of this Tribunal in its order in the case of Trilogy EBusiness Software India Pvt. Ltd. (supra) at para 43 thereof had observed about this company that .. As explained earlier, it is a diversified company and therefore cannot be considered as comparable functionally with the assessee. There has been no attempt to identify, eliminate and make adjustment of the profit margins so that the difference in functional comparability can be eliminated. By not resorting to such a process of making adjustments, the TPO has rendered this company as not qualifying for comparability. We therefore accept the plea of the assessee in this regard. (iv) The rejection / exclusion of this company as a comparable for Assessment Year 2007-08 for software service providers has been upheld by the co-ordinate benches of this Tribunal in the cases of LG Soft India Pvt. Ltd. in ITA No.112/Bang/2011, CSR India Pvt. Ltd. in IT(TP)A No.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's own case for Assessment Year 2007-08 (supra) as well as in the case of Trilogy E-Business Software India Pvt. Ltd. (supra). In view of the fact that the functional profile of and other parameters of this company have not changed in this year under consideration, which fact has also been demonstrated by the assessee, following the decision of the co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 in ITA No.845/Bang/2011 and Trilogy E-Business Software India Pvt. Ltd. in ITA No.1054/Bang/2011, we hold that this company ought to be omitted form the list of comparables. The A.O./TPO are accordingly directed. 10. KALS Information Systems Ltd. 10.1 This is a comparable selected by the TPO. Before the TPO, the assessee had objected to the inclusion of this company in the set of comparables on grounds of functional differences and that the segmental details have not been provided in the Annual Report of the company with respect to software services revenue and software products revenue. The TPO, however, rejected the objections of the assessee observing that the software products and training constitutes only 4.24% of total r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) was rendered with respect to F.Y.2006-07 and therefore there cannot be an assumption that it would continue to be applicable to the year under consideration i.e. A.Y. 2008-09. To this, the counter argument of the learned Authorised Representative is that the functional profile of this company continues to remain the same for the year under consideration also and the same is evident from the details culled out from the Annual Report and quoted above (supra). 10.4 We have heard both parties and perused and carefully considered the material on record. We find from the record that the TPO has drawn conclusions as to the comparability of this company to the assessee based on information obtained u/s.133(6) of the Act. This information which was not in the public domain ought not to have been used by the TPO, more so when the same is contrary to the Annual Report of the company, as pointed out by the learned Authorised Representative. We also find that the co-ordinate benches of this Tribunal in the assessee's own case for Assessment Year 2007-08 (supra) and in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) have held that this company was developing software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee ; (ii) the observation of the ITAT, Delhi Bench in the case of Agnity India Technologies Pvt. Ltd. in ITA No.3856 (Del)/2010 at para 5.2 thereof, that Infosys Technologies Ltd. being a giant company and market leader assuming all risks leading to higher profits cannot be considered as comparable to captive service providers assuming limited risk ; (iii) the company has generated several inventions and filed for many patents in India and USA ; (iv) the company has substantial revenues from software products and the break up of such revenues is not available ; (v) the company has incurred huge expenditure for research and development; (vi) the company has made arrangements towards acquisition of IPRs in AUTOLAY , a commercial application product used in designing high performance structural systems. In view of the above reasons, the learned Authorised Representative pleaded that, this company i.e. Infosys Technologies Ltd., be excluded form the list of comparable companies. 11.3 Per contra, opposing the contentions of the assessee, the learned Departmental Representative submitted that comparability cannot be decided merely on the basis of scale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i in the case of Telecordia Technologies India Pvt. Ltd. (ITA No.7821/Mum/2011) has held that Wipro Ltd. is not functionally comparable to a software service provider. (iv) this company has acquired new companies pursuant to a scheme of amalgamation in the last two years. (v) Wipro Ltd. is engaged in both software development and product development services. No information is available on the segmental bifurcation of revenue from sale of products and software services. (vi) the TPO has adopted consolidated financial statements for comparability purposes and for computing the margins, which is in contradiction to the TPO s own filter of rejecting companies with consolidated financial statements. 12.3 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 12.4.1 We have heard both parties and carefully perused and considered the material on record. We find merit in the contentions of the assessee for exclusion of this company from the set of comparables. It is seen that this company is engaged both in software development and product development services. There is no information on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly comparable for a software development service provider. (ii) The facts pertaining to Tata Elxsi Ltd. have not changed from the earlier year i.e. Assessment Year 2007-08 to the period under consideration i.e. Assessment Year 2008-09 and therefore this company cannot be considered as a comparable to the assessee in the case on hand. (iii) Tata Elxsi Ltd. is predominantly engaged in product designing services and is not purely a software development service provider. In the Annual Report of this company the description of the segment software development services relates to design services and are not to software services provided by the assessee. (iv) Tata Elxsi Ltd. invests substantial funds in research and development activities which has resulted in the Embedded Product Design Services Segment of the company to create a portfolio of reusable software components, ready to deploy frameworks, licensable IPs and products. The learned Authorised Representative pleads that in view of the above reasons, Tata Elxsi Ltd. is clearly functionally different / dis-similar from the assessee and therefore ought to be omitted form the list of comparables. 13.3 Per contra, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under section 133(6) of the Act, this company is engaged in software development services and satisfies all the filters. 14.2 Before us, the learned Authorised Representative contended that this company ought to be excluded from the list of comparables on the ground that it is functionally different to the assessee. It is submitted by the learned Authorised Representative that this company is engaged in e-Business Consulting Services , consisting of Web Strategy Services, I T design services and in Technology Consulting Services including product development consulting services. These services, the learned Authorised Representative contends, are high end ITES normally categorised as knowledge process Outsourcing ( KPO ) services. It is further submitted that this company has not provided segmental data in its Annual Report. The learned Authorised Representative submits that since the Annual Report of the company does not contain detailed descriptive information on the business of the company, the assessee places reliance on the details available on the company s website which should be considered while evaluating the company s functional profile. It is also submitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ftware development services, it is in the business of product development and trading in software and giving licenses for use of software. In this regard, the learned Authorised Representative submitted that :- (i) This company is engaged in product development and earns revenue from sale of licences and subscription. It has been pointed out from the Annual Report that the company has not provided any separate segmental profit and loss account for software development services and product development services. (ii) In the case of E-Gain communications Pvt. Ltd. (2008-TII-04-ITAT-PUNE-TP), the Tribunal has directed that this company be omitted as a comparable for software service providers, as its income includes income from sale of licences which has increased the margins of the company. The learned A.R. prayed that in the light of the above facts and in view of the aforecited decision of the Tribunal (supra), this company ought to be omitted from the list of comparables. 15.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables. 15.3 We have heard the rival submissions and perused a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable in the case on hand. (v) The relevant portion of the Annual Report of this company evidences that it is in the business of product development. The learned Authorised Representative prays that in view of the factual position as laid out above and the decisions of the co-ordinate benches of the Tribunal in the assessee's own case for Assessment Year 2007-08 and other cases cited above, it is clear that this company being into product development cannot be considered as a comparable to the assessee in the case on hand who is a software service provider and therefore this company i.e. Lucid Software Ltd., ought to be omitted from the list of comparables. 16.2 per contra, the learned Departmental Representative supported the action and finding of the TPO in including this company in the list of comparables. 16.3 We have heard the rival submissions and perused and carefully considered the material on record. It is seen from the details on record that the company i.e. Lucid Software Ltd., is engaged in the development of software products whereas the assessee, in the case on hand, is in the business of providing software development services. We also find that, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalytic services and therefore it is not purely a software development service provider as is the assessee in the case on hand. (ii) Page 60 of the Annual Report of the company for F.Y. 2007-08 indicates that this company, is predominantly engaged in Outsourced Software Product Development Services for independent software vendors and enterprises. (iii) Website extracts indicate that this company is in the business of product design services. (iv) The ITAT, Mumbai Bench in the case of Telecordia Technologies India Pvt. Ltd. (supra) while discussing the comparability of another company, namely Lucid Software Ltd. had rendered a finding that in the absence of segmental information, a company be taken into account for comparability analysis. This principle is squarely applicable to the company presently under consideration, which is into product development and product design services and for which the segmental data is not available. The learned Authorised Representative prays that in view of the above, this company i.e. Persistent Systems Ltd. be omitted from the list of comparables. 17.2 Per contra, the learned Departmental Representative support the action of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uct engineering and infrastructure management services), proprietary software products and consultancy services in IT on various platforms and technologies. (iii) This company is also engaged in research and development activities which resulted in the creation of Intellectual Proprietary Rights (IPRs) as can be evidenced from the statements made in the Annual Report of the company for the period under consideration, which is as under : Quintegra has taken various measures to preserve its intellectual property. Accordingly, some of the products developed by the company have been covered by the patent rights. The company has also applied for trade mark registration for one of its products, viz. Investor Protection Index Fund (IPIF). These measures will help the company enhance its products value and also mitigate risks. (iv) The TPO has applied the filter of excluding companies having peculiar economic circumstances. Quintegra fails the TPO s own filter since there have been acquisitions in this case, as is evidenced from the company s Annual Report for F.Y. 2007-08, the period under consideration. The learned Authorised Representative prays that in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the inclusion of this company as a comparable on the grounds that this company is functionally different and dis-similar from it. The TPO rejected the assessee's objections on the ground that as per the company s reply to the notice under section 133(6) of the Act, the company has categorized itself as a pure software developer and therefore included this company as a comparable as the assessee was also a provider of software development services. Before us, in addition to the plea that the company was functionally different, the assessee submitted that this company was excluded from the list of comparables by the order of the coordinate bench of this Tribunal in the assessee's own case for Assessment Year 2007-08 (ITA No.845/Bang/2011) on the ground that the Related Party Transactions ( RPT ) is in excess of 15%. The learned Authorised Representative submitted that for the current period under consideration, the RPT is 18.3% and therefore this company requires to be omitted from the list of comparables. 19.2 Per contra, the learned Departmental Representative supported the action of the TPO in including this company in the list of comparables as this company was a pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development services and at para 26.1 of the order has held as under :- 26.1 Bodhtree Consulting Ltd.:- As far as this company is concerned, it is not in dispute that in the list of comparables chosen by the assessee, this company was also included by the assessee. The assessee, however, submits before us that later on it came to the assessee s notice that this company is not being considered as a comparable company in the case of companies rendering software development services. In this regard, the ld. counsel for the assessee has brought to our notice the decision of the Mumbai Bench of the Tribunal in the case of Nethawk Networks Pvt. Ltd. v. ITO, ITA No.7633/Mum/2012, order dated 6.11.2013. In this case, the Tribunal followed the decision rendered by the Mumbai Bench of the Tribunal in the case of Wills Processing Services (I) P. Ltd., ITA No.4547/Mum/2012. In the aforesaid decisions, the Tribunal has taken the view that Bodhtree Consulting Ltd. is in the business of software products and was engaged in providing open end to end web solutions software consultancy and design development of software using latest technology. The decision rendered by the Mumbai Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, prima facie, it would appear that the TPO has rejected the inclusion of this company as a comparable on a wrong appraisal of facts. 8.3.2 In the case of VMS Softech Ltd. also, the TPO has rejected the inclusion of this company as a comparable on the ground that this company fails the export sales filter of 25% applied by the TPO. However, from the extract of the Annual Report of this company for the period under consideration, submitted by the assessee, it appears that about 97.35% of the sales generated by this company was export sales. Therefore, prima facie it appears that the TPO has rejected the inclusion of this company form the list of comparables on a wrong appreciation of facts. 8.3.3 In the light of the factual matrix, as laid out above, we consider it appropriate to remand the issue, of examination of the comparability of these two companies to the assessee, back to the file of the TPO for fresh consideration in the light of the details brought on record by the assessee. Needless to add, that the assessee shall be provided adequate opportunity of being heard and make submissions / file details required in this regard, which shall be considered while de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese amounts as project specific costs. It was found that these charges consist of GLM and software charges paid by the company. The Assessing Officer held that this issue of disallowance of software usage charges (shrink wrapped software) for non-deduction of taxes is to be disallowed under Section 40(a)(i) of the Act as has been held by the Hon'ble High Court of Karnataka in the case of Samsung Electronics Co. Ltd. Others (Kar) in ITA No.2808 of 2005 dt.15.10.2011 and to which case the assessee was also a party (ITA No.1264 1265/06). In this view of the matter, the Assessing Officer made the disallowance of ₹ 11,25,95,270 under Section 40(a)(i) of the Act. On appeal, the DRP upheld the decision of the Assessing Officer who then made the disallowance in the final order of assessment. 10.3 It is against these findings of the authorities below, that the assessee is before us in this appeal. In the course of hearings before us, the learned Authorised Representative for the assessee fairly conceded that this issue is covered against the assessee and in favour of Revenue by the decision of the Hon'ble High Court of Karnataka in the case of Samsung Electronics Co. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is extracted hereunder :- 19.1 Additional ground of appeal The assessee vide letter dt.10.9.2012 filed an application seeking leave to urge additional grounds under Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963 which are as under : Ground 1 : Transfer Pricing It is most humbly prayed that this Hon'ble Tribunal to permit the appellant to raise the following additional ground in continuation of the existing grounds of appeal and be read as Ground No.1.7 after Ground No.1.6 Ground No.1.7 Depreciation adjustment - The depreciation cost as a percentage of the gross block of the appellant during the financial year 2004 was 25% and the comparables reported an average depreciation cost as a percentage of the gross block of 10%. - The difference in the depreciation cost arises due to differences in the accounting treatment across the comparables and the appellant. - Considering the above fact, to achieve reliable comparability, the margins of the comparable companies post the adjustment of the depreciation should be considered. 19.2 The assessee in the grounds raised sought adjustment towards depreciation on the ground that the depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epreciation, sought for by the assessee, does not appear to be tenable even on merits. It has been stated in the additional grounds raised that while the depreciation of the assessee is 25% of its gross block, it is 10% of the gross block for the comparables. It is interesting to note that the assessee has compared the depreciation as a percentage of the gross block of the individual cases and not as a percentage to operating cost. 19.7 No case has been made out by the assessee that the difference in depreciation is due to any reason like capacity utilization, etc. The difference in depreciation could be due to many reasons as different companies have their own accounting problems in the matter of fixed assets and depreciation on the basis of technical estimates made of useful life of the assets. Depreciation provided under the Income Tax Rules or the minimum depreciation provided under the Companies Act may not be really exhibiting the actual position. Over a period of time, the difference of depreciation provided under different methods would almost be the same except for marginal difference. In the written down value (WDV) method, the depreciation for the initial year would b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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