2016 (2) TMI 1364 - AT - Income Tax

Tribunal grants reassessment on networking equipment, allows evidence on benefits from admin support services. Stay petition dismissed.

The Tribunal partly allowed the appeal for statistical purposes, emphasizing the reassessment of the networking equipment's functionality and verification ... Depreciation on net working equipments used for audio/video conference and video streaming - @15% OR 60% - HELD THAT:- As decided in assessee own case [2014 (12) TMI 890 - ITAT BANGALORE] AO, instead of classifying the entire equipment as plant and machinery and not computer, is required to examine each item in detail as regards its functional dependency on the computer and its independent existence. The items which are functionally dependent on computers are definitely part of computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent of the computer system and the purpose of audio visual conferencing and video streaming, the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery. The AO, shall, thus allow depreciation at the rate of 60% on the equipment which could be classified as computer and at the rate of 15% on the equipment which could be classified as plant and machinery - Ground no.1 & 2 of the assessee are treated as allowed for statistical purposes. Set off of brought forward depreciation of loss - claim denied despite being made in the return of income - HELD THAT:- We find that the claim of brought forward loss was not considered by the AO. The AO is directed to verify such claim and to give a set off of brought forward loss as allowed under law. Ground no.3 is allowed for statistical purposes. TP Adjustment - treatment given by the lower authorities to the international transactions pertaining to payments made by it for administrative support services received by it from its associated enterprises - Lower authorities have considered the value of the benefit if any received by the assessee from its AE as nil due to failure of the assessee to produce evidence in this regard - Similar failures were there in the earlier years also - HELD THAT:- As per the learned DR, assessee ought to have brought all the evidence in support of its claim that it had received benefits from its AE, due to the services rendered before the DRP, in view of the Tribunal’s order for assessment year 2008-09. However, it is also possible that the order dated 19-09-2014 would have been received by the assessee only much later. There is a distinct probability that the assessee after receipt of the order of the Tribunal for assessment year 2008-09 [2014 (12) TMI 890 - ITAT BANGALORE] did not have sufficient time to gather and produce such details before the learned DRP for substantiating its case due to short interval. Due to this reason, we are of the opinion, that the benefit of doubt can be given to the assessee for the impugned assessment year also. We therefore, give similar directions as given in the earlier years. Issues Involved:1. Depreciation rate on networking equipment.2. Set-off of brought forward depreciation loss.3. Treatment of international transactions for administrative support services.Issue-wise Detailed Analysis:1. Depreciation Rate on Networking Equipment:The assessee contested the depreciation rate applied to networking equipment used for audio/video conferencing and video streaming. The equipment was depreciated at 15% instead of the claimed 60%. The Tribunal had previously addressed this issue for assessment years 2008-09 and 2009-10, directing the AO to determine whether the equipment could function independently or only with a computer. If independent, it would be eligible for 15% depreciation; if dependent on a computer, 60%. The Tribunal reiterated the need for the AO to re-examine the equipment's functionality and apply the appropriate depreciation rate. The ground was allowed for statistical purposes.2. Set-off of Brought Forward Depreciation Loss:The assessee claimed a set-off for brought forward depreciation loss of Rs. 15,84,08,221, which the AO had not granted. The AO noted that the Tribunal's decisions for previous years required reclassification of certain equipment, which would affect the written down value and subsequent depreciation calculations. The AO was directed to verify the claim and allow the set-off as per law. This ground was also allowed for statistical purposes.3. Treatment of International Transactions for Administrative Support Services:The assessee challenged the AO/TPO's substitution of the CUP method for the TNM method in evaluating payments for administrative support services received from associated enterprises. The AO/TPO had valued the benefit from these services as nil due to a lack of evidence from the assessee. The Tribunal had previously remanded this issue for assessment years 2008-09 and 2009-10, allowing the assessee to produce evidence of the benefits received. Despite the Tribunal's earlier orders, the assessee did not present evidence before the DRP for the current assessment year. However, the Tribunal acknowledged the possibility that the assessee did not have sufficient time to gather and present evidence due to the short interval between receiving the Tribunal's order and the DRP hearing. The Tribunal remanded the issue back to the TPO with similar directions as in previous years, allowing the assessee to provide evidence of the benefits received. Grounds 4 to 8 were allowed for statistical purposes.Conclusion:The appeal was partly allowed for statistical purposes, and the stay petition was dismissed as infructuous. The Tribunal emphasized the need for the AO to re-examine the functionality of the networking equipment and verify the set-off of brought forward depreciation loss. Additionally, the Tribunal allowed the assessee another opportunity to present evidence regarding the benefits received from administrative support services provided by associated enterprises.