TaxTMI 
TaxTMI 
2013 (11) TMI 521
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....g the relevant previous year. The details of international transactions by the assessee, as compiled from TPO order dated 12.10.2009, are as under:- Name of the AE Description of the transaction Amount paid/Received ALP Rate of interest Method adopted Redington Distribution Pvt. Ltd. Singapore Export of Trading Goods 150853167 150853167 NA TNMM Backend Rebate 70695205 70695205 NA TNMM Purchase of Trading goods 1929527743 1929527743 NA TNMM Redington Pvt. Ltd. Singapore Purchase of Trading goods 300679193 300679193 NA TNMM Redington Gulf FZE, Dubai, UAE Loan Granted 131800000 131800000 6.80% CUP Loan Repayment received 131800000 131800000 6.80% Loan Granted 133567500 133567500 8% CUP Loan Repayment received 133567500 133567500 8% CUP Receipt of Interest 1424716 1424716 6.85 Receipt of Interest 322222 322222 8% CUP TOTAL 2984237246 4. Assessee had adopted Transaction Net Margin Method (TNMM) as most appropriate method for bench marking its international transactions involving import and export of goods. The imported i....
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.... 124, whereas, assessee had paid US $ 144 per piece. Secondly, the TPO noted that assessee had sold an item called WS-C2980T-2424 to its Associate Enterprise, for a sum of Rs. 31,050/-, whereas, the same item was sold by it to an unrelated party at the rate of Rs. 33,954/-. 6. Assessee was required to explain both the above transactions and as to why CUP method should not be preferred over the TNMM method adopted by the assessee. Reply of the assessee was that list price, which it had produced before Assessing Officer, compiled from the website of M/s Intel Semiconductor Limited was only an indicative price. Further, according to assessee, such list price was not in the public domain and was only available to registered users of M/s Intel Semiconductor Limited. Hence, as per the assessee, it was not proper to make a comparison with such list price and TNMM method was more appropriate. As per the assessee, if TNMM method was adopted, no adjustment was required to be made to the purchase cost of Pentium IV. Vis-à-vis the second item, namely, WS-C2980T-2424, assessee submitted that it was only due to the competitive nature of export that lower prices were realized. 7. However....
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....on paper-book page 7, learned A.R. submitted that this was a single transaction of purchase of 1250 numbers of such Pentium IV micro processors. According to him, these were purchased by the Associate Enterprise, namely, M/s Redington Distribution (P.) Ltd., Singapore, who had sold it to the assessee, from M/s Intel Semiconductor Limited. The price at which the item was acquired from M/s Intel Semiconductor Limited and the price at which it was sold to the assessee were same. Relying on the copy of the invoice raised by M/s Intel Semiconductor Limited on the Associate Enterprise, placed at paper-book page 7, learned A.R. submitted that it amply demonstrated the above facts. In such a situation, according to him, comparison based on list price available in website of M/s Intel Semiconductor Limited was not called for. The invoice raised by M/s Intel Semiconductor Limited on the Associate Enterprise itself was a comparable transaction. Further, according to him, no preference could be placed on CUP method vis-à-vis TNMM method. List price was available only to registered users of M/s Intel Semiconductor Limited and it was not in public domain. At the best, such list price was ....
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....h list price. Learned D.R. submitted that arm's length price had to be determined considering each transaction independently and also using the most appropriate method. It has been demonstrated by the TPO that most appropriate method was CUP method, since a reliable list price was available. Assessee itself having given the list price and also having made a comparison of such list price, with the actual price at which it had purchases the products from its Associate Enterprise, could not turn back to say that TNMM was better. Reliance was placed on the decision of Mumbai Bench of this Tribunal in the case of Serdia Pharmaceuticals (India) (P.) Ltd. v. Asstt. CIT (2011) 50 DTR 98 and that of Delhi Bench of this Tribunal in the case of Clear Plus India (P.) Ltd. v. Dy. CIT (I.T.A. No. 3944 of 2010 dated 11th January, 2011). According to him, in the circumstances of the case, the TPO was justified in adopting CUP method for comparing the prices at which assessee had purchased various items from its Associate Enterprise. 11. We have perused the orders and heard the rival submissions. There is no dispute that in the transfer pricing document submitted by the assessee before the TPO, as....
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....c) price publications including stock exchange and commodity market quotations; (d) Published accounts and financial statements relating to the business affairs of the associate enterprises; (e) Agreements and contracts entered into with associate enterprises in respect of transactions similar to the international transactions; (f) letters and other correspondence documenting any terms negotiated between the assessee and the associate enterprise; (g) documents normally issued in connection with various transactions under the accounting practices followed." A reading of the above clearly shows that it is not essential that the record of uncontrolled transactions to be taken into account for analyzing the comparability should always be supported by official publications and reports. It can include even documents normally issued in connection with the transactions under the accounting practices followed. Therefore, contention of the assessee that the list price could not have been used, ....
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....th price. In our opinion, when Redington Distribution Pvt. Ltd. sold the items to assessee at very same price at which it had purchased from M/s Intel Semiconductor Limited, there cannot be any question of under pricing or over pricing. We are, therefore, of the opinion that the adjustment carried out by the lower authorities, based on list price, on the purchase of 1250 Pentium IV processors from Associate Enterprise was not called for. Such adjustment, therefore, stands deleted. 13. However, so far as the sale of the item WS-C2980 T-2424 effected by the assessee, learned A.R. has fairly admitted that the amount involved was insignificant. Therefore, the adjustment of Rs. carried on this transaction will stand. In the result, Ground Nos. 2 and 3 of the assessee are treated as partly allowed. 14. Vide its ground No.4, grievance raised by the assessee is on a disallowance of depreciation claim of Rs. 1,06,25,793/-. 15. Facts apropos are that assessee had considered expenses incurred on erection of office cabins, partitions, installation charges, flooring charges, waterproofing treatment, etc. to be of temporary nature and therefore, charged 100% depreciation. According to assesse....
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....he various expenditure and found that the claim was justified only to the extent of Rs. 8,61,265/-. Reliance was placed on the decision of co-ordinate Bench of this Tribunal in the case of ABT Ltd. v. Asstt. CIT (I.T.A. No. 1557, 1558 and 1633 & 1705/Mds/2011 dated 3 rd January, 2013). 19. We have perused the orders and heard the rival submissions. Rate at which the depreciation could be claimed on building, as applicable for the impugned assessment year, is given in New Appendix 1 of Income-tax Rules, 1962. 100% depreciation is available only to purely temporary erections such as "wooden structures", vide entry number (4) under the caption "Building". Therefore, unless and until an assessee can show that expenditure incurred was on purely temporary erection such as a wooden structure, it will not be eligible for depreciation rate of 100%. It is to be noted that assessee had itself never claimed it as a revenue expenditure in its Profit & Loss account. It had categorized such expenditure incurred as a capital outgo and then claimed depreciation of 100%. Assessee itself having treated it as an asset in its books under the head "building/temporary structure", it cannot turn back to ....
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....ffecting payment to M/s Microsoft Corporation Inc., it had considered the credit notes from them and tax was deducted only on the net payments. 24. Assessing Officer was not happy with the explanation given by the assessee in this regard. According to him, Section 195 stipulated deduction of tax at source on any sum payable on cross border transactions. Assessee was liable to deduct tax at source on the gross amount and not on the net amount. Therefore, he considered the assessee to be one at default. Difference between gross amount billed by M/s Microsoft Corporation Inc. and net amount paid by the assessee to it was disallowed under Section 40(a)(i) of the Act. Such disallowance came to Rs. 64,58,193/-. 25. Before the DRP, assessee reiterated the same contentions which were taken before the Assessing Officer. However, the DRP was of the opinion that the question of making debits based on purchase returns would arise only after giving the credit based on original invoice raised. According to DRP, assessee, despite their specific query, had failed to produce the books of accounts and ledger folio of M/s Microsoft Corporation Inc. to prove its case. They confirmed the disallowance....
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....er had not seen the ledger folio of M/s Microsoft Corporation Inc. in the books of the assessee will be incorrect. Contention of the assessee was that the payments effected by it to M/s Microsoft Corporation Inc. was net of refunds. A look at Section 195(1) is required at this juncture. This is reproduced hereunder:- "195 (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force." Argument of the assessee is that M/s Microsoft Corporation Inc. would have been chargeable to tax under the Act, only on the net royalty and not on the gross royalty. However, a reading of the above Section clearly show that chargeability to tax has to be determined at the time of credit of such income to the account of the payee or at the time of payment, whichever wa....
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....wever, Assessing Officer was not impressed. According to him, assessee could neither prove the business necessity of expenditure nor could it show that M/s IFC enjoyed any immunity from taxation in India. He, therefore, applied Section 40(a)(i) and made disallowance of Rs. 35 lakhs for non-deduction of tax at source. 32. Before the DRP, argument of the assessee was that the recipient was not taxable under Income-tax Act and therefore, it was not obliged to deduct tax at source. As per the assessee, M/s IFC was a subsidiary of World Bank and its income was not taxable in India. However, the DRP was not impressed. It confirmed the disallowance. 33. Now before us, learned A.R. submitted that IFC was an arm of World Bank, and the amount was paid to them for carrying out a due diligence for raising financial assistance. According to him, the payments were non-refundable processing fee for appraising its proposal for Initial Public Offering of US $ 50 million. According to learned A.R., International Finance Corporation (Status, Immunities and Privileges) Act, 1958 exempted the income of IFC from Indian income-tax. According to him, this Act was not properly considered by the authoriti....