TaxTMI 
TaxTMI 
2016 (1) TMI 1299
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....he assessee in its TP study; 2. The Ld. CIT (A) has erred in law and on facts in deleting the addition on account of disallowance of provision of warranty amounting to Rs. 22,92,76,418/- ignoring the fact that assessee during assessment proceedings has himself admitted that the amount of Rs. 10.14 crores was mistakenly calculated excessively which shows that the assessee has not at all crystallized the amount of warranty while creating the provision; 3. The Ld. CIT(A) has erred in law and on facts in allowing depreciation on UPS (Uninterrupted Power Supply) @ 60% by not considering the fact that UPS is merely a part which is used to regulate the electric supply to computer and by no means as per Section 32 of the Act be termed as 'computer including computer software' as computer can work without UPS also; 4. The Ld. CIT(A) has erred in law and on facts in deleting the addition on account of recognition of revenue for BSNL project amounting to Rs. 13,87,91,437/- by ignoring the fact that the assessee has not provided any justification for excluding AMC revenue from revenue recognition for the relevant Asstt year; and 5. The appellant crav....
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....reciated by the CIT(A) show that the assessee had entered into a contract with Reliance Infocomm Ltd. for provision of services in relation to installation, commissioning, operation, management and maintenance of its optical network. On consideration of the said agreement it was seen that it required the assessee to provide training to RIL personnel in relation to optical software network being installed by the assessee. The contract also provided for training to be provided by expatriates from North America, Asia Pacific and Europe, therefore the assessee as per record was found to have availed of the services of expatriates from its AE's for provision of technical services to RIL under the agreement. This factual position has not been disputed by the Revenue. 4.1. The assessee in its transfer pricing study selected TNMM as the most appropriate method and applied operating profit/operating revenue as PLI. The following ten comparable companies were selected by the assessee for working out the arm's length price:- S.No. Comparable Companies Adjusted operating profit on adjusted operating revenue % Weighted Average Adjusted operating profit on adjusted operating reven....
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.... the loss incurred in 2003-04 and 2004-05 cannot make the said comparable an inherently loss making company to be excluded. 5.1. Considering these arguments the CIT(A) came to the following submissions:- 9.1. "I have carefully gone through various contentions raised by the appellant. The TPO has proposed addition in respect of only one segment of international transactions i.e. 'Technical Services' and arm's length nature of other categories of international transactions have been accepted. Both appellant and TPO have adopted same set of comparables, TNMM as MAM and operating profit/operating revenue as PLI. However, TPO has rejected two companies as comparable, being loss making companies. 9.2 The appellant has contended that a loss making company can not be discarded from the list of comparables just because it has incurred loss when its FAR is comparable with the tested party. The appellant has relied upon Indian TP regulations, judicial decisions and OECD guidelines for this proposition. I find force in contention of the appellant that comparability is not about comparing only the profit making entities with the tested party. Various judicial de....
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.... 9.5. Since the operating margin earned by Appellant at 7% is higher than the mean margin of comparable companies, the international transaction relating to availing of services by the Appellant from its associated enterprises is considered to be at arm's length. Therefore, AO is directed to delete the addition of Rs. 2,60,42,622 made on this account." 6. Aggrieved by this, the Revenue is in appeal. Ld. Sr.DR submitted that no doubt HFCL has shown some profits in subsequent years and is managing to keep alive but the loss in the year under consideration cannot be stated to be against the trend and thus the said comparable was correctly excluded by the TPO. 7. The Ld. AR on the other hand heavily relying upon the finding of the CIT(A) and carrying us through the same, submitted that the Revenue has not till date assailed FAR analysis of the said comparables. Thus where functional similarity of the comparables with the assessee has not been assailed the arguments re-iterating the TPO's version should have no relevance. Further it was also his submission that looking at the figures of FY 2005-06 and 2006-07, it cannot be said that the said comparable is barely surviving and th....
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....d to bring out the facts. 11. The reason for so holding is that the Ld.AR submitted that actual warranty expenses have been allowed in subsequent years and thus he would have no objection if the said Ground of the Revenue is allowed. In view of the said stand the Ld. Sr. DR though placed reliance on the assessment order had nothing further to state. In view of the above, Ground No.2 of the Revenue is allowed. 12. The issue addressed by Ground No.3 in the departmental appeal is found discussed at pages 7 & 8 of the assessment order where the AO has discussed the same in paras 7 & 7.1. The same is reproduced hereunder for ready-reference:- 7. Disallowance of excess depreciation: "On perusal of depreciation chart as per I. Tax Act, it is noticed that the assessee has purchased ARC Symmetra UPS and Symmetra battery module " on various dates in July 2004 for a total of Rs. 4,96,365/- and claimed depreciation on the same @ 60% amounting to Rs. 2,97,819/-under the head "Computer" . Further , the assessee has purchased ARC Symmetra UPS on in March 2005 for a total of Rs. 1,24,000/- and claimed depreciation on the same @ 30% amounting to Rs. 37,200/- under the head "....
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.... under the Act). * The UPS has been installed by the appellant in its server room and forms an integral part of the computer system. Accordingly, the appellant claimed depreciation on the same at the rate of 60 per cent (applicable to 'computers') in its return of income for subject assessment year." * The term "computer system has been defined under Explanation (a) to Section 36l(1)(xi) of the Act as follows: "computer system" means a device or collection of devices including input and output support devices and excluding calculators which are not programmable and capable of being used in conjunction with external filed, or more of which contain computer programmes, electronic instructions, input data and output data, that performs functions including, but not limited to, logic, arithmetic, data storage and retrieval communication and control". The "Merriam-Webster" dictionary defines computer peripherals as - 'a device connected to a computer to provide communication (as input and output) or auxiliary functions (as additional storage) ". * The appellant placed reliance on following case laws: CIT v. BSES Rajdham Powers (Del); ....
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.... order was assailed on the ground that it was passed by the CIT(A) without taking any evidences into consideration. 17. The Ld. AR in reply took serious exception to the said stand and referring to the finding under challenge it was submitted that the same was supported by facts. The prayer was made only in the background that further fortifying evidence in support of the relief given is available on record. 18. We have heard the rival submission and gone through the material on record. We find that though in terms of the additional evidence sought to be placed on record which has not been objected to by the Revenue the issue needs to be restored. However, we find on a reading of the order under challenge that the departmental stand that the impugned order has been passed dehors facts is not correct. It is seen that the conclusion is drawn by the CIT(A) on facts where the contract entered into by the assessee with BSNL for provision of telecommunication network installation services was taken into consideration. The fact that payments were made over for a period of 4-5 years on the basis of percentage Completion method has also been considered. It is seen that the Revenue was....