TMI Blog2016 (1) TMI 1299X X X X Extracts X X X X X X X X Extracts X X X X ..... . Disallowance of excess depreciation on UPS - Held that:- A perusal of the order shows that relying upon the decision of the Delhi High Court in the case of CIT vs BSES Rajdhani Power Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT ] depreciation @ 60% for UPS, printers and scanners on the ground that they formed integral part of the computer system is allowed and held to be applicable to block of computer. The position of law is well-settled, thus in the absence of any arguments to the contrary by the Revenue, Ground of the Revenue is dismissed. - I.T.A. No. 2751/Del/2013 - - - Dated:- 11-1-2016 - Diva Singh (Judicial Member) And O. P. Kant (Accountant Member) For the Appellant : Deepak Chopra, Adv. Rohan Khare, Adv. For the Respondent : Sanjay Kumar, Sr. DR ORDER Diva Singh (Judicial Member) The present appeal has been filed by the Revenue assailing the correctness of the order dated 31.12.2013 of CIT(A)-29, New Delhi pertaining to 2005-06 assessment year on the following grounds:- 1. The Ld. CIT(A) has erred in law and on facts in deleting the addition on account of difference in ALP determined by the TPO the assessee amounting to ₹ 2,60,42 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances as it is in an endeavour to avoid protracted litigation. 3. The relevant facts of the case as available from para 2 of the assessment order u/s 143(3) dated 29.12.2008 address the background of the assessee as under:- 2. The assessee is engaged in the business of marketing and after sales support services to Nortel group companies, installation, testing and commissioning services in relation to telecom equipment/I.T/other products and technical services, including repair and maintenance services in relation to the telecom equipment/IT products supplied by Nortel group of companies in India. 3.1. The assessee in the year under consideration returned an income of ₹ 33,34,44,830/- wherein the assessment was concluded at a figure of ₹ 74,27,57,980/-. The assessee in the year under consideration disclosed the following international transactions in its 3CEB Report:- S.No. International Transactions Method Value Rs. 1. Import of components TNMM 714,98,28,572 2. Provision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -14.36 -14.36 3. F L Smidth Limited 5.01 NC NC 5.01 4. Powerplant Performance Improvement Ltd. NA NA -12.04 -12.04 5. RITES Limited NA 21.16 9.53 15.38 6. TCE Consulting Engineers Ltd. 9.63 -0.02 4.18 4.96 7. Water Power Consultancy Services Ltd. NA 8.25 -9.86 1.08 8. CMC Ltd. NC -0.17 1.46 0.52 9. Hartron Communication NA -26.25 -19.12 -21.99 10. Himachal Futuristic Communication Ltd. NA -31.38 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only 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 Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.01 3. RITES Limited 19.24 4. TCE Consulting Engineers Ltd. 9.63 5. Water Power Consultancy Services Ltd. 13.01 6. Himachal Futuristic Communication Ltd. -27.01 Arithmetic Mean 6.77 9.5. Since the operating margin earned by Appellant at 7% is higher than the mean margin of comparable companies, the international transaction relating to availing of services by the Appellant from its associated enterprises is considered to be at arm s length. Therefore, AO is directed to delete the addition of ₹ 2,60,42,622 made on this account. 6. Aggrieved by this, the Revenue is in appeal. Ld. Sr.DR submitted that no doubt HFCL has shown some profits in subsequent 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 ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of Chrys Capital and finding ourselves in agreement with the reasoning and the finding of the CIT(A), Ground no.1 of the Revenue is dismissed. 9. The facts relatable to Ground No.2 are found discussed in pages 3-5 of para 4 of the assessment order. In view of the stand taken by the assessee qua the same reference thereto is not necessary. 10. The issue has been considered by the CIT(A) at pages 19 to 20 in paras 21 to para 21.4 and again for similar reason there is no need to bring out the facts. 11. The reason for so holding is that the Ld.AR submitted that actual warranty expenses have been allowed in subsequent years and thus he would have no objection if the said Ground of the Revenue is allowed. In view of the said stand the Ld. Sr. DR though placed reliance on the assessment order had nothing further to state. In view of the above, Ground No.2 of the Revenue is allowed. 12. The issue addressed by Ground No.3 in the departmental appeal is found discussed 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- 26. Appellant s case During the financial year relevant to subject assessment year, the appellant claimed depreciation of INR 297,189 @ 60% on the opening balance of UPS of INR 496,365 under the head Computer . The appellant had purchased another UPS in March 2005 for INR 124,000 and claimed depreciation of INR 37,200 on the same @ 30 per cent under the head Computer since it was put to use for less than 180 days (i.e. 50% of the normal rate of depreciation permissible on computers under the Act). The UPS has been installed by the appellant in its server room and forms an integral part of the computer system. Accordingly, the appellant claimed depreciation on the same at the rate of 60 per cent (applicable to computers ) in its return of income for subject assessment year. The term computer system has been defined under Explanation (a) to Section 36l(1)(xi) of the Act as follows: computer system means a device or collection of devices including input and output support devices and excluding calculators which are not programmable and capable of being used in conjunction with external filed, or more of which contain computer programmes, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of matching principle in mind where the Revenue is recognized and the necessary expenses to the extent incurred duly certified by the auditors sought to be placed on record by way of additional evidence may be considered and verified and if satisfied on facts may be directed to be allowed. 16. Ld. Sr. DR considering the fresh evidences sought to be filed by the assessee stated that he has no objection if the same are taken into consideration however the impugned order was assailed on the ground that it was passed by the CIT(A) without taking any evidences into consideration. 17. The Ld. AR in reply took serious exception to the said stand and referring to the finding under challenge it was submitted that the same was supported by facts. The prayer was made only in the background that further fortifying evidence in support of the relief given is available on record. 18. We have heard the rival submission and gone through the material on record. We find that though in terms of the additional evidence sought to be placed on record which has not been objected to by the Revenue the issue needs to be restored. However, we find on a reading of the order under challenge that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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