Tribunal upholds CIT(A) decisions on depreciation rate & transfer pricing comparables. Revenue's appeal dismissed.

The Tribunal upheld the CIT(A)'s decisions on both issues: 1. Allowing a higher depreciation rate of 60% for computer accessories and peripherals, dismissing the Revenue's contention for a lower rate. 2. Excluding Infosys Technologies Ltd. and Satyam Computer Services Ltd. as comparables for Transfer Pricing adjustment, confirming the arm's length nature of the assessee's international transactions. The Revenue's appeal was dismissed, and the order was pronounced on 30/06/2015.

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Issues Involved:
1. Depreciation on computer accessories and peripherals.
2. Adjustment under section 92CA(3) of the Income Tax Act on account of Transfer Pricing (TP) for software development services.

Detailed Analysis:

1. Depreciation on Computer Accessories and Peripherals:
The Revenue contended that the depreciation rate for computer accessories and peripherals should be 25%, as opposed to the 60% claimed by the assessee. The Assessing Officer (AO) had reduced the depreciation rate, resulting in an addition of Rs. 25,97,918/- to the taxable income.

The CIT(A) allowed the higher depreciation rate of 60%, considering the items such as switches, back-up storage devices, servers, and projectors as integral parts of the computer system. This decision was based on the precedent set by the Hon'ble Delhi High Court in the case of CIT vs. BSES Rajdhani Powers Limited, which held that computer accessories form an integral part of the computer system and are eligible for higher depreciation.

The Tribunal upheld the CIT(A)'s decision, finding no infirmity in allowing the higher depreciation rate of 60% for computer accessories and peripherals. The issue was dismissed, affirming the CIT(A)'s order.

2. Adjustment under Section 92CA(3) on Account of TP for Software Development Services:
The AO made an addition of Rs. 2,31,97,273/- based on the Transfer Pricing Officer's (TPO) determination of the arm's length price (ALP) for international transactions. The TPO had initially considered 87 companies as comparables, which were filtered down to seven companies with an OP/TC of 21.60%.

The CIT(A) excluded Infosys Technologies Ltd. and Satyam Computer Services Ltd. from the list of comparables, reducing the arm's length margin to 15.95%. The CIT(A) observed that Infosys Technologies Ltd. and Satyam Computer Services Ltd. were not comparable due to their significantly larger size, diversified services, substantial R&D activities, and unreliable financial statements in the case of Satyam.

The Tribunal agreed with the CIT(A)'s exclusion of these companies, citing the Delhi Tribunal's decision in Agnity India Technologies vs. ITO, which held that a captive unit with limited risk cannot be compared with a giant company assuming all types of risks. The Tribunal upheld the CIT(A)'s finding that the assessee's margin of 12% fell within the permissible range of +/-5% as per the Proviso to Section 92C(2) of the Act, thus confirming that the international transactions were at arm's length.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on both issues:
1. The higher depreciation rate of 60% for computer accessories and peripherals was upheld.
2. The exclusion of Infosys Technologies Ltd. and Satyam Computer Services Ltd. from the list of comparables for TP adjustment was upheld, confirming the assessee's international transactions were at arm's length.

The appeal of the Revenue was dismissed, and the order was pronounced in the Open Court on 30/06/2015.

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