Tribunal ruling on revenue additions, depreciation, warranty provision, and BSNL project revenue recognition

The Tribunal dismissed the Revenue's appeal regarding the deletion of additions on account of differences in Arm's Length Price and allowing depreciation on Uninterrupted Power Supply at 60%. The appeal was allowed in the deletion of addition related to the disallowance of provision of warranty. The issue concerning the recognition of revenue for the BSNL project was partly allowed, with the Tribunal directing the matter to be reconsidered by the Assessing Officer. The order was pronounced on January 11, 2016.

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Issues Involved:

1. Deletion of addition on account of difference in Arm's Length Price (ALP).
2. Deletion of addition on account of disallowance of provision of warranty.
3. Allowing depreciation on Uninterrupted Power Supply (UPS) at 60%.
4. Deletion of addition on account of recognition of revenue for BSNL project.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Difference in ALP:

The Revenue challenged the deletion of an addition of Rs. 2,60,42,622/- made by the Transfer Pricing Officer (TPO) due to differences in ALP. The TPO had excluded three companies from the list of comparables due to unavailability of financial data for FY 2004-05 and excluded two loss-making companies. The CIT(A) reinstated Himachal Futuristic Communication Ltd. (HFCL) as a comparable, arguing it was not consistently loss-making. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not dispute the functional comparability of HFCL and failed to provide cogent reasons for its exclusion. Thus, the Tribunal dismissed the Revenue's appeal on this ground.

2. Deletion of Addition on Account of Disallowance of Provision of Warranty:

The Revenue contested the deletion of an addition of Rs. 22,92,76,418/- related to the disallowance of a warranty provision. The assessee admitted to an excessive calculation of Rs. 10.14 crores. The CIT(A) allowed the actual warranty expenses in subsequent years. The Tribunal, agreeing with the assessee's stand and noting the lack of further arguments from the Revenue, allowed this ground of the Revenue's appeal.

3. Allowing Depreciation on UPS at 60%:

The Revenue objected to the CIT(A)'s decision to allow depreciation on UPS at 60%, arguing it should be treated as "Plant and Machinery" with a depreciation rate of 15%. The CIT(A) relied on the Delhi High Court's decision in CIT vs. BSES Rajdhani Power Ltd., which held that UPS, printers, and scanners form an integral part of the computer system and are entitled to 60% depreciation. The Tribunal upheld this decision, dismissing the Revenue's appeal on this ground.

4. Deletion of Addition on Account of Recognition of Revenue for BSNL Project:

The Revenue challenged the deletion of an addition of Rs. 13,87,91,437/- related to the recognition of revenue for the BSNL project. The CIT(A) considered the matching principle and the fact that the assessee recognized revenue based on the percentage completion method. The Tribunal noted that the CIT(A)'s decision was based on facts and was not made without considering evidence. However, the Tribunal allowed the admission of additional evidence and restored the issue to the Assessing Officer (AO) for reconsideration, directing the AO to grant necessary relief in accordance with the law and the matching principle.

Conclusion:

The Tribunal dismissed the Revenue's appeal on grounds 1 and 3, allowed ground 2, and partly allowed ground 4 by restoring the issue to the AO for reconsideration. The order was pronounced on January 11, 2016.

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