TMI Blog2017 (8) TMI 225X X X X Extracts X X X X X X X X Extracts X X X X ..... clear as to whether these receivables represented lending or guarantee or these were against the sales or advance or represented the deferred payments. So, in the absence of clear facts on record, we are unable to reach at a just conclusion. We, therefore, deem it appropriate to remand this issue back to the file of the AO/TPO for fresh adjudication in accordance with law by providing due and reasonable opportunity of being heard to the assessee and by considering the various decisions cited by both the parties, mentioned in the former part of this order. Disallowance of differential depreciation of Voice Recording Software License- Held that:- Direct the AO to allow the claim of the assessee for depreciation @ 60%. See CIT Vs BSES Yamuna Powers Ltd.[2010 (8) TMI 58 - DELHI HIGH COURT] Addition u/s 14A - Held that:- In the present case, it is not clear as to whether the AO had considered the only investment which yielded the exempt income or the entire investment made by the assessee. It is also not clear as to whether the investments were made by the assessee in the shares of subsidiary company out of commercial expediency. We, therefore, in the absence of the clear fact on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order dated 28.11.2014 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act). 2. In the assessee s appeal, following grounds have been raised: 1 . That on the facts and in the circumstances of the case and in law, the assessment order passed by the Ld . Assessing Officer ( Ld . AO ) is bad in law . 2 . The Ld . AO / Ld . Transfer Pricing Officer ( Ld . TPO ) has grossly erred in disregarding the details submitted by the Appellant and not following the directions issued by the Ld . Dispute Resolution Panel ( Ld . DRP ) wherein the Ld . DRP has directed to give the economic adjustment on account of accelerated depreciation charged by the Appellant in its books of account, as compared to the depreciation rates prescribed under Schedule XIV of the Companies Act, 1956 and also erred in not following the guidance by DRP with respect to the treatment of provision for doubtful debts as operating or non - operating in nature . 3 . The Ld . AO / Ld . TPO erred in not providing appropriate adjustment on account of differences in working capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to compensate for risk free activities of the Appellant and hence considered it to be risk bearing, in that case appropriate tested party for the arm's length analysis should be the Appellant's overseas Associated Enterprise ( AE ) ; 5 . 7 . 2 without prejudice, no further attribution of profits to the Appellant is necessary as in the present scenario the profits currently retained by the AE in the value chain ( as compared to the profits earned by the Appellant ) are in effect lower than what should be prudently attributed to the AE as per the profit split analysis carried out; 5 . 8 not appreciating the fact that in the relevant assessment year the Appellant was entitled to a tax holiday on its profits from provision of IT enabled services and therefore did not have any motive of deriving any tax advantage by manipulating the transfer prices of its international related party transactions; 5 . 9 not appreciating that in the instant case the collective addition made by Ld . TPO ( Rs . 85 . 75 crores ) and profits already booked by the Appellant ( Rs . 66 . 49 crores ) and another group entity viz . Induc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be applied for imputing interest; 6 . 5 ignoring the Appellant's contention that the recovery of the receivables is within the time limit prescribed / approved by Reserve Bank of India . 7 . Strictly without prejudice to the above grounds, the Ld . TPO / Ld . AO erred on facts and in law in not appreciating that : 7 . 1 the adjustment on international transaction of provision of IT enabled services and also on outstanding receivables ( alleged international transactions ) is leading to imputing the double income on the same / single international transaction and hence results in double taxation of the same amount which is not in accordance with the provisions of the law; 7 . 2 imputing the interest on alleged international transaction has resulted in abnormally high effective mark - up of 33 . 16 % for benchmarking the captive low - end / risk free activities of the Appellant . 8 . The reference made by the Ld . AO suffers from jurisdictional error as the Ld . AO has not recorded any reasons in the draft assessment order based on which he reached the conclusion that it was 'necessary or expedien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposited by the Appellant on 30 July 2010 . Due to which, the Appellant could not trace the TDS entry of Rs . 30,505 in its TDS return at the time of assessment / DRP proceedings . While the Appellant was able to trace the amount of expenses of Rs . 30,505 out of its TDS return at the time of TDS proceedings initiated by the TDS Office on the basis of disallowance of Rs . 2,69,241 being made in the draft assessment order . 14 . The Ld . AO erred in law and on the facts and circumstances of the case by making an addition of Rs . 463 in respect of contribution to Employee State Insurance wrongly considering the date of payment to be beyond the due date of filing of return ignoring the submission made by the Appellant that the payment was in fact made within the year under consideration on 26 October 2009 . The Ld . AO also erred in : 14 . 1 . considering the original return of income filed by the Appellant for the year under consideration on 15 October 2014, as belated return ignoring the fact that the due date of filing of the return of income for the assessment year 2010 - 11 was extended vide Press Release No . 402 / 92 / 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated depreciation policy and give adjustment on the same on account of Arm's Length Price adjustment u / s 92CA ( 3 ) without appreciating the findings of TPO . 2 . On the facts and in circumstances of the case and in law, the Hon'ble DRP has erred in directing to grant working capital adjustment on account of Arm's Length Price adjustment u / s 92CA ( 3 ) without appreciating the findings of TPO . 3 . On the facts and in the circumstances of the case and in law, the Hon'ble DRP has erred in directing to allow deduction u / s 10A / 10B in respect of income of Rs . 8,11,956 /- from sale of scrap . 4 . On the facts and in the circumstances of the case and in law, the Hon'ble DRP has erred in directing to delete the disallowance on account of depreciation on Goodwill of Rs . 9,62,23,671 /- , which is not applicable as per the provision of Income Tax Rule, 1962 . 5 . On the facts and in the circumstances of the case and in law, the Hon'ble DRP has erred in directing to delete the excess depreciation of Rs . 5,00,376 /- on Software License, depreciation restricted @25 % instead of @60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter, the AO passed draft assessment order dated 07.03.2014 in conformity with the order of the TPO u/s 144C of the Act. Against the said assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP) and submitted that changes to the ALP determined by the assessee was not justified and the economic analysis carried out by the assessee in the TP documentation should be accepted and that the discrepancy in the operating margin computation of the comparable should be rectified. It was further submitted that the TPO has taken a contrary approach in considering companies demonstrating super normal growth/constitutionally high revenue/profits and rejecting companies with persistent loss. It was further submitted that the TPO arbitrarily excluded certain companies on the very foolish grounds even though those were comparables in terms of functions performed, assets employed and risk assumed. It was also submitted that the TPO rejected/ignored the companies for which current year data was available in the public database at the time of assessment proceedings which are comparable to IT enabled back-office services of the assessee. 9. The ld. DRP after cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les. Having said that, since under ITeS segment the revenue is just ₹ 82.78 lacs which is below the turnover filter of ₹ 5 crores, therefore, this company is not a suitable comparables. 3. Cepha Imaging P. Ltd. This company is engaged in epublishing services. Hence, not a suitable comparable. 4. Informed Technologies India Ltd. This company is having sales below ₹ 5 crores. Hence, not a suitable comparable. 5. R. Systems International Ltd This company is having financial year ending other than March. Hence, not a suitable comparables. The ld. DRP also justified the inclusion of the following comparables: 1 . Accentia Technologies Ltd . 2 . TCS e - serve Ltd . 3 . TCS e - serve International Ltd . 4 . I - gate Global Solutions Ltd . 10. Now the assessee is in appeal. The ld. Counsel for the assessee mainly objected the inclusion of Accentia Technologies Ltd., TCS e-serve Ltd. and TCS e-serve International Ltd. and submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angible. 12. 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 Accentia Technologies Ltd. was amalgamated with Asscent Infoserve Pvt. Ltd. in terms of approval by the Hon ble High Court vide order dated 25.04.2009 and this extra ordinary event occurred after the TP study was prepared by the assessee. It is also not in dispute that the comparable M/s Accentia Technologies Ltd. was having intangible i.e. goodwill amounting to ₹ 21,94,49,287/- and also the said company was functionally dissimilar from the assessee because it was providing services to healthcare industry in the nature of medical transcription, medical coding, billing and receivable management while the assessee was engaged in the business of rendering of transaction processing services, internet and voice based customer care services for its worldwide clients. Therefore, functionally also this company i.e. Accentia Technologies Ltd. was different and not comparable. 13. On a similar issue the ITAT Delhi Bench I , New Delhi in the case of Equant Solutions India (P) Ltd. Vs DCIT, Circle- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quant global network platforms and services, coordination, remote configuration, and implementation of quality customer networking solutions . Therefore this comparable is ordered for its exclusion accordingly . 14. Since the facts in the assessee s case are similar to the facts involved in the aforesaid referred to case of M/s Equant Solutions India (P) Ltd. So, respectfully following the aforesaid order, we direct the AO to exclude this comparable while working out the arm s length price. 15. As regards to the other comparables i.e. M/s TCS eserve International Ltd. and TCS e-serve Ltd. are concerned, it is noticed that the issue is also covered vide aforesaid referred to order in the case of M/s Equant Solutions India (P) Ltd. Vs DCIT, Circle-3, Gurgaon, wherein it has been held as under: TCS E - service International Ltd . is engaged in the business of BPO service and providing high - end technology services such as software testing, verification and validation of the software . Therefore, it is functionally dissimilar to the assessee . Further annual report of the company does not provide any segmental information related to ITES as well as soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / commercial arrangement of the Assessee . * That they are not charging interest on overdue balances which is outstanding to non AEs . * under the Indian transfer pricing regulations, benchmarking of an international transaction has to be carried out against uncontrolled comparable transactions and carrying out the benchmarking with the Prime Lending Rate of a bank is not permissible as the same does not amount to application of CUP or any of the method . * On without prejudice basis, even if one were to impute interest, then LIBOR rate should be applied on the international loan for imputing interest . * additional mark - up of 300 basis points should not be charged since no basis is provided by the TPO . * Considering ninety days period is without any basis and this could differ based on facts and circumstances of each case . 18. The ld. DRP after considering the submissions of the assessee directed the AO to verify the amount of receivable by observing in paras 12.2 to 12.2.3 of the order dated 23.09.2014 which read as under: 12 . 2 After carefully considering the arguments of the taxpayer and the reasoning provided by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bing of transaction is possible only when the underlying international transactions are homogenous in nature . In the case of the taxpayer, the international transaction relating to interest chargeable on receivables was not considered separately by the taxpayer . Section 92C ( 1 ) allows the determination of The arm's length price in relation to an international transaction by any of the six methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons . When a 'class of transaction' is considered, then, while creating such class of transaction it is necessary to club similar transactions . The transaction referred to in these grounds do not belong to the class . Since, in the present case as per the service agreement the payment is to be received within the period of 90 days, therefore, the TPO was justified to charge interest beyond the Arm's length period . Any delay beyond a period of 90 days, in an arm's length situation would have warranted a return based on opportunity cost of the money Accordingly, this Panel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have paid interest, it was a continuing debit balance and was not an international transaction per se . It was further submitted that as per the provisions contained in Section 92B of the Act, the essential requirement for a transaction to be covered within the ambit of Section 92B of the Act was that it should be between two or more AEs either of whom is a non-residence and as per the provisions contained in Clause (v) of Section 92F of the Act, the term transaction includes an arrangement, understanding or action. Therefore, from the co-joint reading of provisions contained in Section 92B and 92F of the Act, it could be inferred that Transfer Pricing regulation would be applicable to any transaction being arrangement, understanding or action in concert, inter alia, in the nature of purchase, sale or lease of tangible or intangible property or any other transaction having bearing on profits, income, losses or assets of such enterprises. Therefore, the continuing debit balance only reflects that the payment, even though due has not been made by the debtor, it is not, however, necessary that a payment is to be made as soon as it becomes due and many factors including t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o . 7354 / Mum / 2011 Four Soft Ltd . Vs DCIT 142 TTJ 358 ( Hyd .) DCIT Vs Tech Mahindra Ltd . 46 SOT 141 ( Mum ) Tricom India Ltd . Vs ITO in ITA No . 322 / Mum / 2014 Aurionpro Solutions Ltd . in ITA No . 7872 / Mum ./ 2011 Hinduja Global Solutions Ltd . Vs ACIT in ITA No . 254 / Mum / 2013 Advanta India Ltd . Vs ACIT in ITA No . 1643 / Ban / 12 21. In his rival submissions the ld. DR strongly supported the orders of the authorities below and further submitted that the transactions of the nature of deferred payment or receivable or any other debit etc. is covered as international transaction vide explanation (i)(c) introduced by the Finance Act, 2012 in Section 92B of the Act with retrospective effect from 01.04.2002. Therefore, interest charged/not charged on outstanding receivables is an international transaction. The reliance was placed on the judgment of the Hon ble Bombay High Court in the case of CIT-2, Pune Vs Patni Computers System Pvt. Ltd. reported at 215 Taxman 108 (Mum.). The reliance was also placed on the following decision of the ITAT Bangalore: Logix Micr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license on Voice Recording Software. Therefore, the allowable rate of depreciation is 25% only. 26. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that this issue is covered in assessee s favour in the case of HCL Comnet Systems and Services Ltd. Vs CIT in ITA No. 5906/Del/2010. It was further stated that as per the settled position in law, when a hardware or software is used alongwith computer notwithstanding that such software may be acquired/purchased independent of the computer, such hardware or software is termed as computer and is eligible for depreciation, at the rate of depreciation applicable to computer i.e. 60%. The reliance was placed on the following case laws: CIT Vs Birlasoft Ltd . in ITA No . 1284 / 2011 ( Delhi ) CIT Vs BSES Yamuna Powers Ltd . 358 ITR 47 ( Del ) CIT Vs Citicorp Maruti Financle Ltd . in ITA 1712 1714 / 2010 ( Del ) CIT Vs Orient Ceramics and Inds Ltd . 200 Taxman 64 ( Del ) CIT Vs BSES Rajdhani Powers Ltd . in ITA No . 1266 / 2010 ( Del ) 27. In his rival submissions the ld. CIT DR strongly supported the orders of the authorities b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81 ( Bom .) Chemical Metallurgical Design Co . Ltd . in ITA No . 803 / 2008 ( Del .) CIT Vs Ms . Sushma Kapoor 319 ITR 299 ( Del ) CIT Vs Metalman Auto P . Ltd . 336 ITR 434 ( P H ) CIT Vs Reliance Industries Ltd . 339 ITR 632 ( Bom ) CIT Vs Torrent Power Ltd . 363 ITR 474 ( Guj .) Maxpax Investment Ltd . Vs ACIT 104 TTJ 881 ( Del . Trib .) ACIT Vs Eicher Ltd . 101 TTJ 369 ( Del .) Maruti Udyog Ltd . Vs DCIT 92 ITD 119 ( Del .) Wimco Seedlings Ltd . Vs DCIT 107 ITD 267 ( Del .) DLF Ltd . Vs CIT 27 SOT 22 ( Del .) ACIT Vs Jindal Saw Pipes Ltd . 118 TTJ 228 ( Del .) Impulse (( India ) ( P ) Ltd . Vs ACIT 22 SOT 368 ( Del .) ACIT Vs Champion Commercial Co . Ltd . in ITA No . 644 / Kol ./ 2012 CIT Pilani Investment Industries Corp . Ltd . in ITA No . 653 / Kol ./ 2012 CIT Vs Gujarat Power Corporation Ltd . in ITA No . 1587 / 2009 . D . Metsteel ( P ) Ltd . Vs ACIT ( 2011 ) 47 SOT 62 ( Mum .) ( Trib .) ACIT Vs Pun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the following amounts: I . relatable to income exempt under section 10 or section 11 or section 12; II . provided any such amount is debited to the profit and loss account during the relevant previous year . 36. The reliance was placed on the following case laws: . CIT Vs Bhushan Steel Ltd . in ITA No . 593 / 2015, order dated 29 . 09 . 2015 by the Hon ble Delhi H . C . Quippo Telecom Infrastructure Ltd . Vs ACIT in ITA No . 4931 / Del / 2010 37. In his rival submissions the ld. CIT DR supported the orders of the authorities below. 38. 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 not clear as to whether the AO had considered the only investment which yielded the exempt income or the entire investment made by the assessee. It is also not clear as to whether the investments were made by the assessee in the shares of subsidiary company out of commercial expediency. We, therefore, in the absence of the clear fact on record, deem it appropriate to set aside this issue back to the file of the AO/TPO to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d arrived at the figure of ₹ 2,69,241/- as rent payment made by the assessee. The said amount was added in the hands of the assessee u/s 69C of the Act considering the same as unexplained expenditure. 43. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the impugned amount was wrongly interpreted by the AO/DRP as the assessee was unable to provide any details of such transaction which was not available in the individual transaction system. It was further submitted that during the course of TDS proceeding initiated u/s 201(1)/201(1A) of the Act, the said transaction was explained and clarified in detail during the said proceedings. Therefore, the addition made by the AO was not justified and deserves to be deleted. 44. In his rival submissions the ld. CIT DR supported the orders of the authorities below. 45. 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 during the course of assessment proceedings, the assessee was unable to produce the relevant documents in support of its claim. However, during the course of proceedings u/s 201(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as envisaged under Rule 10B ( 1 )( e ) embraces cumulative effect of all the items of income and expenses which are of operating nature . Ordinarily, there can be no question of considering each item of such operating expenses or income in isolation de hors the other expenses to claim adjustment on the ground of such expenditure or income of the assessee on the higher side seen individually or as a percentage of other operating expense / incomes in comparison with its comparables . The reason is obvious that when we consider the operating profit margin, the effect of all the individual higher or lower items of expenses or incomes gets submerged in the overall operating profit margin, ruling out the need for any adjustment on one - to - one comparison . One company may have taken a building on rent for carrying on its business, in which case, it will pay rent which will find its place in the operating costs . For the purposes of making comparison, one cannot contend that the payment of rent by one enterprise in comparison with a non - payment of rent by another, should be neutralized by giving proper adjustment from the operating profit of the compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total expenses is marginalized by the lower percentage of repairs and other incidental costs of the assets and vice versa . 5 . 14 . However, the position may be a little different when there is a difference in the rates of depreciation charged by two companies on similar category of assets . One company may adopt the policy of charging depreciation on its assets in conformity with the rates prescribed in Schedule XIV of the Companies Act and other company may adopt a policy of charging depreciation at the higher rates or lower than those prescribed under Schedule XIV . This can be demonstrated with the help of an example . Other things being equal, if the operating profit of company A, after claiming depreciation of Rs . 10 on the value of asset worth Rs . 50 with rate of depreciation 20 % , is Rs . 100, the operating profit of company B with everything same including the value of assets at Rs . 50, but with rate of depreciation 30 % , will be Rs . 95 . It shows that the comparability is jeopardized due to higher rate of depreciation charged by company B at 30 % in comparison with lower rate of depreciation charged by company A at 20 %. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coupled with the lower repair cost etc . , and vice versa . That is how, it held that : there can be no justification in applying the filter of rejecting the companies with depreciation higher or lower than a particular percentage of total costs . . It is, thus, overt that these two cases relied by the ld . DR, in fact, support the case of the assessee rather than the Revenue . 5 . 17 . Another case relied by the ld . DR in 24 / 7 Customer Com Pvt . Ltd . VS . DCIT 2012 - TII - 143 - ITAT - BANG - TP, again does not take us any further . In that case, the assessee raised an additional ground for suitable adjustment towards higher rate of depreciation charged by the assesee vis - a - vis its comparables . It is patent from the penultimate para of this order that the tribunal eventually remitted the issue of depreciation, as raised through the additional ground, to the file of the AO / TPO for a fresh consideration and decision . So, this order also does not support the case of the Revenue . The last case relied by the ld . DR is Lason India Pvt . Ltd . VS . ACIT 2012 - TII - 47 - ITAT - M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands the above adjustment should be allowed . The ld . AR argued that the excessive rate of depreciation charged by the assessee should be lowered to the rates as prescribed under Schedule XIV to the Companies Act so as to bring a parity between the rates of depreciation charged by the assessee vis - avis its comparables . This contention in our considered opinion, is not tenable . It has been noticed above that Rule 10B ( 1 )( e )( iii ) contemplates the making of adjustment to the net profit margin of the comparables determined under sub - clause ( ii ) to Rule 10B ( 1 )( e ). Even Rule 10B ( 3 ) also requires the making of adjustment in the hands of comparables to eliminate the material effects of differences . Thus, the adjustment can be made only in the hands of the comparables operating profit margin and not to that of the assessee . 5 . 20 . The ld . DR pleaded for not allowing any adjustment on this score by arguing that the difference in the rates of depreciation by the assessee and comparables does not affect the computation of the net operating profit margin on a long term basis . He stated that the hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les because of the inclusion of proportionate depreciation also on the assets which still appear in their books but actually depreciated fully due to parity with the assessee s higher rates of depreciation . It was explained with the help of an example in which the assessee is charging depreciation under SLM at the rate of 33 . 33 % on a particular asset considering the useful life of three years, as against the comparables providing depreciation on similar asset under SLM at the rate of 16 . 21 % by impliedly considering its useful life a little over six years . He explained that the comparable company providing depreciation at 16 . 66 % on SLM would continue to hold assets in 4th, 5th and 6th year as well and the amount of depreciation in these three years will also be at 16 . 21 % despite the fact that this particular asset has exhausted its useful life after three years as has been done by the assessee . This proposition, in the opinion of the ld . DR, warranted reduction in the amount of depreciation of comparables companies to the extent of 16 . 21 % of the value of such asset from 4th to 6th years . It was thus pleaded that if some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Second is the situation in which any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year . In such a situation, the cost of acquisition of the block of assets is taken as the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year . The income received or accruing as a result of such transfer or transfers is deemed to be the capital gains arising from the transfer of short - term capital assets . A careful perusal of the above provisions deciphers that the individual assets on their purchase merge with other assets of that block, thereby losing their separate identity . Depreciation is provided on the basis of the written down value of such block and not the w . d . v . of such individual assets . Even the event of their transfer also does not lead to automatic charging of capital gains, unless the case falls under either of two clauses of section 50 . Assessee gets depreciation on the w . d . v . of such assets, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking or any of the undertakings of the company or of any part thereof not including any excess referred to in the proviso to section 350 of the written - down value of any asset which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value . Proviso to section 350 provides that : if any asset is sold, discarded, demolished or destroyed for any reason before depreciation of such asset has been provided for in full, the excess, if any, of the written - down value of such asset over its sale proceeds or, as the case may be, its scrap value, shall be written off in the financial year in which the asset is sold, discarded, demolished or destroyed . 5 . 22 . 4 . On a reading of sections 349 in conjunction with section 350 of the Companies Act, it emerges that depreciation on each asset is separately provided at the rates specified in Schedule XIV for the purposes of the determination of profit . If an asset is sold or discarded before providing full depreciation on it, then the excess of the w . d . v . of such asset over its sale price / scrap value, to the extent provided, shall be written off in the financial year i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee . This contention of the ld . DR, though appears attractive at the first blush, but loses its shine on an in - depth analysis . It is severely simple that if an asset has reached the milestone of the end of its useful life, then it would be either sold or discarded . Ordinarily, no company would continue to hold obsolete assets . Once an asset is sold after its useful life, the company will write off the unamortized depreciation in the year of its sale or discarding, by considering its sale price and w . d . v . and hence it would cease to appear in the books of account . Once it does not appear in the books of account, there can be no question of any depreciation on it in the later years as has been put forth on behalf of the Revenue . Continuing with the example given by the ld . DR, we find that the particular asset on the completion of its useful life of three years would become obsolete in fourth year and sold / discarded by the company and the shortfall in the amount and depreciation charged over its cost would be accordingly written off in its accounts . In such a situation, that particular asset with useful life of three years w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable . But since neither the assessee nor the Revenue seek the exclusion of this company from the list of comparables, we cannot suo motu order so . We, therefore, sum up our conclusion on this aspect of the matter by holding that if the assessee as well as the comparable companies are using the SLM and there is a difference in the rates of depreciation charged by them, then there is a need to make suitable adjustment to the profits of the comparables . 52. Therefore, in view of the similarity in the facts for the year under consideration vis- -vis the facts for the assessment year 2003-04, this issue is set aside to the AO to be decided in the same line as directed for the assessment year 2003-04 in the aforesaid referred to order dated 22.12.2014. 53. The next issue vide Ground No. 2 relates to the direction of the DRP to grant working capital adjustment on account of arm s length price adjustment u/s 92CA(3) of the act. 54. As regards to this issue the ld. Counsel for the assessee at the very outset stated that this issue is also squarely covered in favour of the assessee by the decision of the various Benches of the Income Tax Appellate Tribunal as per foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the DRP properly and assessee to needs to be provided one more opportunity in the interest of justice for proving its case for working capital adjustments . The propositions of law laid down by the Tribunals on the issue of working capital adjustment in ITes and IT segment deserves to be considered by TPO . Thus, it would be appropriate to set aside the matter to the file of the Assessing Officer / T . P . O . for fresh adjudication, in accordance with law on the issue of claim of the assessee on working capital adjustments . 57. So, respectfully following the aforesaid referred to order, this issue is set aside to the file of the AO/TPO for fresh adjudication in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 58. The next issue vide Ground No. 3 relates to the direction of the DRP to allow deduction u/s 10A/10B of the Act in respect of income amounting to ₹ 8,11,956/- from sale of scrap. 59. The facts related to this issue in brief are that the assessee included a sum of ₹ 8,11,956/- earned from sale of scrap for the purpose of calculating the deduction u/s 10A/10B of the Act. The AO rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 409 of the assessee s paper book which is the copy of the computation of the income in the assessment order dated 28.11.2014 and submitted that the sale of scrap was included in the business income which was accepted by the AO while working our total taxable income. It was further submitted that when it was considered as business income, the ld. DRP was fully justified in directing the AO to allow the deduction u/s 10A/10B of the Act. It was further submitted that the income from sale of scrap was inextricably linked to and had a first degree nexus with the profit and gain of the eligible undertaking and is eligible for deduction u/s 10A/10B of the Act. The reliance was placed on the following case laws: Maral Overseas Ltd . Vs ACIT 136 ITD 177 ( Trib .) Riviera Home Furnishings Vs ACIT 237 Taxman 520 ( Del .) CIT Vs Punjab Stainless Steel Industries 364 ITR 144 ( SC ) CIT Vs Sadhu Forging Ltd . 336 ITR 444 ( Del .) 63. We have considered the submission of both the parties and carefully gone through the material available on the record. It is noticed that on a similar issue the Hon ble Jurisdictional High Court in the case of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DRP to delete the disallowance proposed by the AO on account of depreciation on goodwill. 66. The facts related to this issue in brief are that however, the assessee entered into an Asset Purchase Agreement with American Express India P. Ltd. to acquire the Global Travel Service Centre as a going concern for a lump sum consideration which was allocated to identifiable assets and liabilities based on their book value and the difference between purchase price (after working capital adjustments) and net value of acquired assets has been recognized as goodwill amounting to ₹ 76,97,89,365/- and depreciation amounting to ₹ 9,62,23,671/- was claimed. The AO during the course of assessment proceedings observed that the assessee has not been able to establish that it has acquired any goodwill and the specific amount was paid for the same. He further observed that the tangible assets were transferred by physically handing over the assets and allowing the use of the said assets independently and to the exclusion of others. He also observed that the assessee had not been able to any evidence to the effect that transfer of any such asset called goodwill has taken place by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s . 769 million . Under these facts, the issue for consideration is if the assessee is entitled for depreciation on this balance sum of Rs . 769 million and if so, for what classification and rate? 16 . 4 . 2 The Panel therefore, perused the decision of Delhi High Court in the case of Areva T D India Limited vs . DCIT [ 2012 ] 20 taxmann . com 29 ( Delhi ). The facts of the said case where that a business was acquired by the assessee company on slump sale basis for a total consideration of Rs . 44 . 70 crore Out of it, tangible asset were transfer for net value of Rs . 28 . 11 crores and the balance amount of Rs . 16 . 59 crores was claimed by the assessee for acquisition of various business and commercial rights characterized as 'goodwill' . Such business and commercial rise comprised of business claims, business records, business information's, contracts, skilled employees, know - how etc . The assessee claimed depreciation on such intangible assets u / s 32 ( 1 )( ii ). The ITAT decided the matter in favour of the assessee and thereafter assessee either department approached the high court . Under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution business of the transferor In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business . This view is fortified by the ratio of the decision of the Supreme Court in Techno Shares Stokes Ltd . ( supra ) wherein it was held that intangible assets owned by the assessee and used for the business purpose which enables the assessee to access the market and has an economic and money value is a license or akin to a license which is one of the items falling in Section 32 ( 1 ) ( ii ) of the Act . 14 . In view of the above discussion, we are of the view that the specified intangible assets acquired under slump sale agreement were in the nature of business or commercial rights of similar nature specified in Section 32 ( 1 )( ii ) of the Act were accordingly eligible for depreciation under that Section . In the case of Cyber India Online Limited vs . ACIT [ 2014 ] 42 taxmann . com 108 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the AO's finding which disallowed the depreciation on goodwill and therefore the impugned order of the Ld . CIT ( A ) is set aside and the addition of Rs . 1,669,020 /- made on this account is deleted . 16 . 4 . 3 The Panel finds that the facts and circumstances of the case is discussed above and the case of the assessee are similar where the business has been taken over on slump sale basis and depreciation has been claimed on the differential amount between the consideration paid and allocable to the tangible assets . Hon'ble Delhi Court in the case of Areva T D has put this differential amount towards intangible assets of the nature of 'business or commercial rights of similar nature' specified in section 32 ( 1 )( ii ) of the Act . In the instant case, the assessee has clearly mentioned that such business or commercial rights inter - alia, includes intellectual property rights ( comprising of a patent for 'method and system for improve travel transaction billing and reconciling', contracts related to business, business authorizations ( comprising of STPI Licenses, product bonded warehouse licenses, license ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, on which depreciation is allowable. The reliance was placed on the following case laws: CIT Vs Smifs Securities Ltd . 348 ITR 302 ( SC ) Bharti Teletch Ltd . 278 CTR 339 ( Del .) Areva T D India Ltd . Vs DCIT 345 ITR 421 71. We have considered the submissions of both the parties and perused the material available on the record. In the present case, it is noticed that the ld. DRP directed the AO to allow the depreciation on the goodwill by following the decision of the ITAT wherein the judgment of the Hon ble Apex Court in the case of CIT Vs Smifs Securities Ltd. reported at 348 ITR 302 and the decision of the Hon ble Jurisdictional High Court in the case of Areva T D India Ltd. Vs DCIT reported at 345 ITR 421 has been followed. We, therefore, by considering the totality of the facts, do not see any valid ground to interfere with the findings given by the ld. DRP on this issue. As such do not see any merit in this appeal of the department on this issue. 72. Last issue vide Ground No. 5 of the appeal relates to the depreciation on the software license directed to the restricted by the DRP @ 25% instead of 60% claimed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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