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TMI Blog2016 (1) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... has erred in law and on facts in deleting the addition on account of disallowance of provision of warranty amounting to Rs. 22,92,76,418/- ignoring the fact that assessee during assessment proceedings has himself admitted that the amount of Rs. 10.14 crores was mistakenly calculated excessively which shows that the assessee has not at all crystallized the amount of warranty while creating the provision; 3. The Ld. CIT(A) has erred in law and on facts in allowing depreciation on UPS (Uninterrupted Power Supply) @ 60% by not considering the fact that UPS is merely a part which is used to regulate the electric supply to computer and by no means as per Section 32 of the Act be termed as 'computer including computer software' as computer can work without UPS also; 4. The Ld. CIT(A) has erred in law and on facts in deleting the addition on account of recognition of revenue for BSNL project amounting to Rs. 13,87,91,437/- by ignoring the fact that the assessee has not provided any justification for excluding AMC revenue from revenue recognition for the relevant Asstt year; and 5. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stallation, commissioning, operation, management and maintenance of its optical network. On consideration of the said agreement it was seen that it required the assessee to provide training to RIL personnel in relation to optical software network being installed by the assessee. The contract also provided for training to be provided by expatriates from North America, Asia Pacific and Europe, therefore the assessee as per record was found to have availed of the services of expatriates from its AE's for provision of technical services to RIL under the agreement. This factual position has not been disputed by the Revenue. 4.1. The assessee in its transfer pricing study selected TNMM as the most appropriate method and applied operating profit/operating revenue as PLI. The following ten comparable companies were selected by the assessee for working out the arm's length price:- S.No. Comparable Companies Adjusted operating profit on adjusted operating revenue % Weighted Average Adjusted operating profit on adjusted operating revenue % 2003-05 2005 2004 2003 1. Engineers India Limited 20.75 20.23 17.26 20.71 2. Esquire Engineers and Consultants Limited NA NA -14.36 -14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly one segment of international transactions i.e. 'Technical Services' and arm's length nature of other categories of international transactions have been accepted. Both appellant and TPO have adopted same set of comparables, TNMM as MAM and operating profit/operating revenue as PLI. However, TPO has rejected two companies as comparable, being loss making companies. 9.2 The appellant has contended that a loss making company can not be discarded from the list of comparables just because it has incurred loss when its FAR is comparable with the tested party. The appellant has relied upon Indian TP regulations, judicial decisions and OECD guidelines for this proposition. I find force in contention of the appellant that comparability is not about comparing only the profit making entities with the tested party. Various judicial decisions have laid down the principle that abnormally high profit and loss making companies should be excluded. Further, if a company is consistently loss making over a substantial period, then obviously its business model is such that it can not be taken as comparable. In present case, the appellant has contended that Himachal Futuristic Communica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years and is managing to keep alive but the loss in the year under consideration cannot be stated to be against the trend and thus the said comparable was correctly excluded by the TPO. 7. The Ld. AR on the other hand heavily relying upon the finding of the CIT(A) and carrying us through the same, submitted that the Revenue has not till date assailed FAR analysis of the said comparables. Thus where functional similarity of the comparables with the assessee has not been assailed the arguments re-iterating the TPO's version should have no relevance. Further it was also his submission that looking at the figures of FY 2005-06 and 2006-07, it cannot be said that the said comparable is barely surviving and the law is well-settled as the criteria for exclusion on the grounds of loss making or profit making companies cannot be accepted. The nonacceptance of such reasoning is well settled by jurisprudence which is clear that either functional similarity needs to be assailed or the party praying for exclusion or inclusion needs to establish that there was something inherently wrong with the company. Some facts and circumstances as an event of amalgamation liquidation etc. needs to be esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed at pages 7 & 8 of the assessment order where the AO has discussed the same in paras 7 & 7.1. The same is reproduced hereunder for ready-reference:- 7. Disallowance of excess depreciation: "On perusal of depreciation chart as per I. Tax Act, it is noticed that the assessee has purchased ARC Symmetra UPS and Symmetra battery module " on various dates in July 2004 for a total of Rs. 4,96,365/- and claimed depreciation on the same @ 60% amounting to Rs. 2,97,819/-under the head "Computer" . Further , the assessee has purchased ARC Symmetra UPS on in March 2005 for a total of Rs. 1,24,000/- and claimed depreciation on the same @ 30% amounting to Rs. 37,200/- under the head "Computer" (Being 50% of normal rate of depreciation of 60% permissible on computers as it was used for less than 180 days). Accordingly, during the course of the assessment proceedings the assessee was asked to justify the claim of higher rate of depreciation on these equipments , as it is a part of the block of asset "Plant and machinery" and not of "computer" as provided in Section 32 of the income tax Act. 7.1. The submission of the assessee that UPS is also a part of computer were considered but th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not programmable and capable of being used in conjunction with external filed, or more of which contain computer programmes, electronic instructions, input data and output data, that performs functions including, but not limited to, logic, arithmetic, data storage and retrieval communication and control". The "Merriam-Webster" dictionary defines computer peripherals as - 'a device connected to a computer to provide communication (as input and output) or auxiliary functions (as additional storage) ". * The appellant placed reliance on following case laws: CIT v. BSES Rajdham Powers (Del); ITO vs Samiran Majumdar (98 ITD 119) Kol; ACIT vs Continental Carriers (P) Ltd (ITA No. 2137/Del/2008) (1TAT, Delhi); Mumbai DCIT vs Datacraft India Ltd (ITA Nos.7462 & 754/Mum/2007) (Special Bench, ITAT, Mumbai) 27.0 Finding: * In view of jurisdictional High Court's decision in case of C1T v. BSES Rajdhani Powers Limited, 1 hold that UPS, printers and scanner form integral part of computer system and accordingly entitled to depreciation @ 60% as applicable to block of computer. The AO is therefore, directed to allow the depreciation on these items at 60%. This ground of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... needs to be restored. However, we find on a reading of the order under challenge that the departmental stand that the impugned order has been passed dehors facts is not correct. It is seen that the conclusion is drawn by the CIT(A) on facts where the contract entered into by the assessee with BSNL for provision of telecommunication network installation services was taken into consideration. The fact that payments were made over for a period of 4-5 years on the basis of percentage Completion method has also been considered. It is seen that the Revenue was recognized by dividing cost of sales by Total estimated project cost and multiplying it by total estimated Revenue. The said position was taken by the assessee on the reasoning that in the first three years since the process of tele-communication networks installation services was still under progress. The AMC revenue and the expenses were claimed in 2008-09 assessment year. The CIT(A) in the year under consideration took note of the fact that the AO in 2008-09 assessment year did not allow the entire corresponding cost of Rs. 66.45 crores and allowed the expenses only to the extent of Rs. 44.36 crores. Whereas the AO disallowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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