TaxTMI 
TaxTMI 
2018 (3) TMI 211
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.... (KPENV). Royal Philips Electronics of the Netherlands is a diversified health and well being company. Royal Philips is organized into the following product divisions:- (i) Philips Consumer Electronics: This division develops, manufactures and markets a wide range of television, audit, video, communications and interactive media systems. (ii) Philips Domestic Appliance and Personal Care : This division makes a wide range of electrical products for personal care and household convenience. (iii) Philips Lighting: This division is the global leader in lamps, luminaries, lighting electronics, automotive lighting, special lighting, UHP & LCD backlighting and lumileds. (iv) Philips Medical Systems : This division is one of the world leaders in diagnostic imaging systems and related services. (v) Philips Semiconductors : This division supplies silicon system solutions for mobile communications, consumer electronics, digital displays, contactless payments and connectivity and in-car entertainment and networking. (vi) Other Activities : relates to Corporate Technology, Corporate Investments etc. The assessee had made international tra....
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...., it is recognized between the parties that a system requiring separate payments for resources on each separate occasion poses great problems in view of the fact that for certain Concern services (as hereinafter defined) no market price can reasonably be established with reference to comparable situations in the market place ; WHEREAS, it is further recognized that in view of the continuous flow of information such a system of separate payments would in any event be very difficult, if not impossible, to administer and would involve very costly and burdensome accounting procedures ; and WHEREAS, it is finally recognized that such a system of separate payments does no justice to the continuous efforts of Philips to generate and obtain new resources for the benefit of the Company and other member companies of the Philips concern and, accordingly, the parties have agreed on a remuneration system which is based on the relation existing from year between the activities of the Company and the activities of Philips and its Associated Companies. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS ARTICLE 1 - DEFINITIONS ................... ......
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....itself deem appropriate. ARTICLE 4 - REMUNERATION In consideration of the Concern Services rendered by Philips under this Agreement the Company agrees to pay to Philips aremuneration by aggregating amounts calculated as follows: (a) that part of the Concern Services costs which corresponds to the ratio between the Relevant local turnover and the Relevant world turnover; and (b) a surcharge of 10% on the amounts as calculated according to a) above. The amount calculated at (a) above would exclude any costs in respect of Concern Services rendered inside the Country. 3.3 The assessee stated that the reason of entering into the MSSA has been described in the preamble to the Agreement. It mentions that KPENV (acting at the same time for its Associate Companies, and referred to as 'Philips' jointly and severally in the MSSA) has substantial resources in commercial, financial, accounting and other matters which would be beneficial to successfully conducting a business. These resources 'would be employed for the benefit of individual member companies of the Philips concern' (i.e KPENV and its Associated Companies). Thus, it would appear that ....
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....cured and it may become difficult to assess the value of the benefit provided. Indeed, it may mean that the contributing enterprise is less aware than in the case of the direct- charge method that it is incurring costs for certain facilities and, in consequence, is less aware of whether or not it is benefitting from them. The most appropriate indirect method is generally recognized to be one which is based on sharing among the beneficiaries, in proportion to the benefits received or expected, the actual costs incurred in providing the services. It was stated that KPENV has applied the indirect method for allocating the costs to the assessee under the MSSA and then added a margin of 10% on the costs while making the charge. So far as the margins are concerned, they have been benchmarked through a separate benchmarking study which has relied on data from Pan-Asia comparables. It needs to be mentioned that this selection of the comparables is not appropriate as the recipient of services, with its specific functional profile of a low-risk distributor for consumer life style sector and speciality lighting sector and a near zero-risk distributor in case of health care sector and a genera....
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....e) Whether expenses incurred by one entity should be apportioned and allocated to other members of the group or whether a charge should be levied by the service provider that reflects the value of the services supplied. Because, the arm's length charge is not only a function of the price at which a supplier is prepared to perform the service (or the cost of providing the service), but also a function of the value to the recipient of the service (or the willingness of the recipient to pay for such services). Therefore, the determination of an arm's length charge must take into consideration the amount that an arm's length entity is prepared to pay for such a service in comparable circumstances. (f) Mere description of the various services will not suffice to justify the price charged in intra group services. The taxpayer has to prove with proper documentation and evidence that the services are actually rendered and payment is commensurate with the benefit derived therefrom. (g) Understandably, when expenditure is incurred for the benefit of the group as a whole, no charging of such expenditure is required as such expenditure is not incurred in connection with any i....
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....gement to be used within the Philips group and is not made available to any third parties. It is important to mention that the objective of the Group is to centralize certain activities so that an overall standardization is achieved by the service delivery and quality. However, in few cases, technical assistance and licenses are granted to third parties in return of royalty. The royalty proceeds are deducted from concern costs before allocating the cost to respective companies. As the services provided by AE under MSSA are vast and on continuous basis, the relative share (in %) of services provided to third parties as compared to Philips is negligible and hence not comparable. The assessee submitted that the intra group services from AE have been accounted under different segments as follows:- MSSA R&D Services Total Lighting 204,56,74,673 16,86,34,000 221,43,08,673 CL 53,52,94,985 14,01,63,749 67,54,58,734 Healthcare 43,83,20,392 28,67,403 44,11,87,795 Healthcare (CM) 6,57,99,588 20,65,84,406 27,23,83,995 Corporate 30,66,93,969 3,85,04,214 34,51,98,183 Total 339,17,83,606 55,67,53,773 394,85....
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....region Module 5 : The costs of the concern development activities are allocated based upon : 5a: Production value ; or 5b: Production quantities (mostly at AG level). 5c: Purchase value in case of outsourced production or contract manufacturing (internal or external Philips) The services as per Module 3 are Nil for Indian entity. The assessee has allocated costs in proportion of the turnover for Modules 1, 2, & 4 whereas the allocation for Module 5 is basis production value ratios. It held that it has to be seen in the context of these services as to whether these result in some tangible benefit to the assessee or not. The services as they appear are routine services and it may be just to standardize the output of the assessee. The unique factors of the Indian market cannot be governed and strategized through guidance from the parent set up which may not have enough expertise. Further, the production by the Indian entity may be as per specification from the parent, but this cannot extend to the office and market operations of the sourcing etc. of the assessee. The ld DRP observed that the ld Counsel for the assessee contended that assessee is ....
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....nd on what basis the said cost was placed upon the assessee. Thus, the assessee's contentions of the benefit given in A.Y. 2008-09 and 2010-11 be taken into consideration, does not survive. The payment for Intra Group Services to AEs is separate international transaction independent of financial results and capable of verifiable separately. Therefore, the TPO was right in his action to determine the ALP separately, rather than aggregating it with other transactions under TNMM. The documents field before the Panel shows that the assessee company have received hardware/software from third parties directly and the biling was also raised by those third parties on the assessee. Only the said transaction was routed through the AE, those invoices were to the tune of Rs. 13,87,84,117/- and invoices amounting to Rs. 97,99,091/- which was raised by the third parties on the AE for the services rendered by them to the assessee. Thus, the DRP rightly directed the TPO to examine these invoices and allowability of the same as expense to be decided. From the review of the services and benefit report and the supporting documents submitted by the assessee, it can be seen that the assessee company is....
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....d to be maintained by the assessee. Rule 10D(1) of the 1. T Rules. 1962 also mandates the maintainability of record of uncontrolled transactions to be taken into account in analysing the comparability of the international functions entered into by the assessee. It, therefore, is obligatory on part of the appellant to maintain such record and produce the same before the TPO to show that it has benchmarked the international transaction at ALP. This obligation, however, has not been discharged by the assessee. 9.3 The appellant in the present case is also not shown to be willing to pay any amount for such services, if it were, so provided by an independent enterprise or if the same would have been performed in house. The DRP is found to have considered these services as non-beneficial for the recipient and did not take it as chargeable services. The perusal of e-mails and other contemporaneous record only goes to reveal that incidental and passive association benefit has been provided by the associate enterprise. In this view of the matter there could neither be any cost contribution or cost reimbursement nor payment for such services to the AE. The TPO, therefore, has rightl....
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....ive orders; 2.5 Concluding that no specific benefit was received by the Appellant and thus holding that benefit test have not been satisfied by the Appellant so as to merit allowance of such expenses; 2.6 Rejecting/Not taking cognizance of the transactional level economic analyis undertaken by the Appellant in the TP study to substantiate the arm's length price of such transaction; 2.7 Not appreciating the fact that percentage of sales increased in the future years after the Appellant started receiving management support services ; 2.8 Erred in concluding that no specific benefit was received by the Appellant from the services received ; 2.9 Not appreciating that the Appellant being a part of multinational enterprise wherein many processes are centralized to facilitate the group entities to attain operational efficiency and a competitive edge in their respective countries. These arrangements are meant for the beneficiary of such pooled services; 2.10 Not taking cognizance of the fact that rational and scientific allocation keys for the payment of Management support service fees were provided by the Appellant and that the Appella....
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.... or accounting service, within the ambit of Transfer Pricing provisions. However, they fail to pro-vide any further guidance on the approach to be followed while benchmarking intra-group services. Reliance is thus, placed on the international tax practices followed in the UN TP Manual, OECD Guidelines, the United States Transfer Pricing regulations etc. both by the taxpayer and the Revenue while undertaking the compliance and the audit exercise respectively The test for an intra-group service generally involves examination of the following factors: * The nature of activities; * The associated need and benefits; * Documentary evidence in support of the transaction; * The charge-out mechanism; and * The ALP of the transaction. Nature of activities In Transfer Pricing's context, it is essential to draw a line of distinction between a business activity and a service. Essentially the guiding principle that goes in determining the existence of an intra-group service is whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise ....
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....lled environment is not expected to make payments for an incidental benefit associated with another set of uncontrolled transaction. Basis this, it can be surmised that incidental benefit do not require an independent remuneration arrangement. The Delhi Tribunal in the case of M/s Knorr-Bremse India Pvt. Ltd. v. ACIT TS-700-ITAT-2012 (Del) held that professional consultancy and management fee paid by the appellant were only towards incidental and passive association benefits, therefore the Transfer Pricing Officer had rightly adopted nil value as the ALP. * Activities leading to duplication of benefits: A third party would never make payment for receiving the same service twice since the incremental benefit is lost. Keeping this in mind, an activity leading to duplication of benefits cannot be construed as a service and therefore does not require any remuneration. Surmising the above, for an activity to qualify as a service, the fundamental factor that need to be considered is: * Whether an independent enterprise would have been willing to pay for the activity; or * Whether an independent enterprise would have performed the activity in-house itse....
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....ry possible detail. The agreement should list the services to be provided along with how and when these services are be requisitioned. The agreement should provide what costs are to be included in the charge for the services and the basis of determining the payment for various categories of services. In case the all or a part of the service is outsourced to a third party, the same may be mentioned in the agreement along with the mark-up, if any charged on the third party costs. It is advisable that the service agreement contains a clause providing the parameters of the measuring the expected benefits and linking the charges to such benefits. Such an arrangement help in establishing the cost benefit nexus before the Indian Revenue. * Cost benefit analysis: Details of cost benefit analysis, if any undertaken at the time of entering into the agreement. Third party quotes for similar services if arranged for at the time of entering into the agreement, should also be made available * Functional analysis: The functional analysis should cover all basic questions like: * Who is doing what and for whom; * Where are they doing it; * Why are they d....
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....gs detailing the description of products / services used by employees of service recipient along with the amount paid for the product / services and the quantity; - Role of recipient company's personnel engaged in information technology operations vis.a vis. The role of the service provider so as to establish nonduplicity of services. - Presentation / reports containing benefits obtained from having a centralised information technology function in terms of cost saving and economics of scale; - Screenshots / emails showing IT services actually being received (troubleshooting problems, creation of logins for employees); - Third party invoices raised on the service provider and agreements for the services and software licenses procured; Human resource and training - Email invitation and attendance sheet of the employees attending the training programme; - Documents depicting any review of employment contracts by the service provider on behalf of recipient; - Reports demonstrating benefits of a centralized human resource system like lowering of attrition rate, lesser personnel employed in the human function than required, people survey results. Before p....
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....fied that it was absolutely necessary for the taxpayer to relate costs to benefits and demonstrate the value received on account of the payment. Here it is worth mentioning that the High Court in this judgment has sought to create a distinction between the In the case of Deloitte Consulting India (P.) Ltd. v. DCIT [2012] benefit test i.e. examining services exists or benefits have accrued and the arm's length test. High Court held that the powers of the TPO is limited to determination of ALP, however the TPO may determine the arm's length price as nil in situations where an independent entity in a comparable transaction would not pay any amount. In the case of Deloitte Consulting India (P) Ltd. v. DCIT[2012] 150 TTJ 824 (Mumbai) the tribunal on the issue as to whether the TPO was empowered to determine the ALP at nil, held that the taxpayer had to establish before the TPO that the payments made were commensurate to the volume and quality of the service and that such costs were comparable. The Tribunal further held that when commensurate benefit against the payment of service is not derived, the TPO is justified in making an adjustment under ALP. The Tribunal had determined the ALP ....
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....ther assessment years as discussed above has accepted claim of MSSA of the assessee. Besides we also note that the Hon'ble ITAT in the own case of the assessee has decided impugned issue in favour of assessee in ITA No. 1141/Kol/2016 for the AY 2009-10 vide order dated 5.4.2017. The relevant extract of the order is reproduced below: 4. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee. We find that the ld AR referred to the Agreement entered into by the assessee which is enclosed in page 194 of Volume 1 of Paper Book as under:- 5.2 Concern Services furnished by Philips In general, when a qualified Philips subsidiary entered into GSA agreement with Philips, it will be provided Concern Services. The major concern activities performed by Philips is related to services in commercial, accounting, auditing, financial, fiscal, social and legal matters and in all other fields in which Philips has know-how and experience. Philips shall make available to the Company such know-how, expertise and experience in the aforesaid areas as Philips now and in the future may possess and may freely and un....
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....ntaining the functions performed as below:- Functions are defined as the activities that each of the entities participating in a particular transaction performs as a normal part of their operations. Functions can be divided into broad categories: -strategic management functions are those activities that determine the overall strategy and organization of the firm ; -corporate service functions assist in the day-to-day management of the organization (e.g. finance, human resources, information systems, etc.,); -product and process development functions relate to design, research and development activities ; -procure functions are those activities related to the sourcing and purchase of raw materials and other inputs to the production process; -make functions are activities that impact the manufacture of a company's products including production planning and control and process improvement; -move functions focus on the organization of outbound logistics to deliver products to the customer ; and -sell functions include marketing, advertising, sales and distribution activities. 4.2 We find that no adjustment....
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....monitoring functions. We find that the assessee had specifically replied that it was benefitted by substantial cost reduction on an overall basis by utilizing the services rendered by KPENV pursuant to MSSA. The details of these benefits derived are enclosed in pages 965 to 981 of the Paper Book. The ld AR also drew our attention to the order of the ld DRP dated 23.12.2013 passed in the hands of KPENV for the Asst. Year 2009-10 (enclosed in pages 1018 to 1043 of Paper Book), wherein the ld DRP agreed that KPENV had rendered services which are in the nature of 'Fee for Technical Services' on going through each and every clause of the MSSA and Management Support Charges were paid by Philips India Ltd (assessee herein) to KPENV for receiving such services. We find that in Para 38 of the said order of ld DRP in the hands of KPENV, it was held as below:- 38. In view of the above, it is evident that in order to ensure the survival and success of PIL (i.e. Philips India Ltd), the assessee has been involved in the selection and training of PIL's personnel and in the process, 'made available' 'technical knowledge, experience, skill' to the personnel, which will enable the personnel....
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....rease in turnover from the years ended 31.3.2005 onwards pursuant to the MSSA. It is reiterated that MSSA was entered into on 22.10.2004 and the following table would prove the benefit derived by way of increase in turnover in figures as well as in percentage prior to rendering of management support services and thereafter :- Sr. No. Year Ended Sales (Rs Crores) % increase (taking year 200-01) as the base year Remarks 1 March 2001 15313 - No Management support services received during this period 2 March 2002 15709 3% 3 March 2003 16379 7% 4 March 2004 16293 6% 5 March 2005 21484 40% Management support services were received from FY 2004-05 onwards (i.e., first year of receipt of management support services) 6 March 2006 23829 56% Subsequent years in which Management support services continued to be received by the Assessee 7 March 2007 22790 49% 8 March 2008 27621 80% 9 March 2009 28645 87% 10 March 2010 31162 104% 11 March 2011 34867 128% ....
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....wn assessment of the commercial viability of the transaction. The services rendered by CWS and CWHK in this case concern liaising and client interaction with IBM on behalf of the assessee- activities for which, according to the assessee's claim-interaction with IBM's regional offices in Singapore and the United States was necessary. These services cannot - as the Income-tax Appellate Tribunal correctly surmised-be duplicated in India insofar as they require interaction abroad. Whether it is commercially prudent or not to employ outsiders to conduct this activity is a matter that lies within the assessee's exclusive domain, and cannot be second- guessed by the Revenue." [brackets provided by us] 4.7 We also find that the decision relied upon by the ld AR on the co-ordinate bench of this tribunal in the case of DCIT v. Bata India Ltd reported in (2016) 69 taxmann.com 120 (Kolkata Trib) dated 6.4.2016 had considered the decisions of Hon'ble Delhi High Court in the case of CIT v. EKL Appliances Ltd(2012) 345 ITR 241 (Del) ; CIT v. Cushman & Wakefield (India) (P) Ltd(2014) 367 ITR 730 (Del) and co-ordinate bench of Mumbai Tribunal in the case of Dresser Rand India (P) Ltd v. Ad....
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....ircumstances an independent enterprise would be willing to pay the price for such services? - An independent third party would be willing and able to provide such services? Whether payment made to AE meets ALP criterion will be determined, keeping in mind all the above factors, as well. 29. Keeping in mind the principles emanating from the aforesaid decisions, we shall now proceed to examine the material on record to see the nature of services received by the Assessee and as to whether the same were at Arm's Length. 47. In the light of the discussion in paragraphs 30 to 46, We hold that the Assessee has established the nature of services including quantum of services received by the related party, that services were provided in order to meet specific need of the Assessee for such services, the economic and commercial benefits derived by the Assessee of intragroup services. 4.8 We also find that in the recent decision of the Hon'ble Delhi High Court in the case of Knorr-Bremse India (P) Ltd. v. ACIT[2016] 380 ITR 307 (Punj. & Har.) wherein the relevant head notes is reproduced herein below :- Section 92C of the Income-tax Act, 19....
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....tive market. The marketing activties undertaken by the assessee were aimed at capturing the market to enable it to enhance its market shares and hence increase the revenue and profitability of the company. This is immensely critical to the assessee's own domestic business due to the intense competition in the market place. It is difficult for companies to penetrate the market, sustain and subsequently increase the customer's base. All the marketing activities of the assessee are products specific i.e. the lights, consumer lifestyle and healthcare products. Therefore it clearly demonstrates that the purpose of such promotional activities is to position our products in target customers' mind rather than rendering such marketing services to the AEs for promoting the brand exclusively. The sales and marketing team of the assessee were responsible for promoting the sales and undertaking the marketing functions. Most of these actvities were undertaken to build a better distribution channel and market sustainability in India. The assessee before the ld TPO made detailed submissions in respect of AMP expenses as detailed under:- (a) The AMP costs were incurred for advertisement in....
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..... From the above, it is evident that the purview of section 92 of the Act is limited to only such transactions that are either between two AEs or governed by a prior arrangement between the AEs and any unrelated party. Here, it may be noted that the AMP expenses do not form part of the 'international transaction' of the assessee since the expenditure has been entirely incurred in India and with unrelated domestic parties by the assessee. Assessing domestic transactions entered into by the company with independent third parties is beyond the scope of powers vested with the ld TPO under the said section. It was pleaded that relying on the judgement of Hon'ble Delhi High Court in the case of Sony Ericsson Mobile Communications India (P.) Ltd. v. CIT[2015] 55 taxmann.com 240, the ld TPO had assumed that the assessee is engaged in rendering marketing services to its AEs and thus treated AMP as an international transaction. It would be worthwhile to mention here that AMP expenses as an international transaction has not been analysed in the case of Sony Ericsson by the Hon'ble Delhi High Court and the said Court did touch upon the issue but did not conclude AMP to be an international tran....
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....n consonance with Indian Transfer Pricing Regulations. It was argued that without prejudice to the above, even if BLT is applied, a proper comparable set is important to establish the BLT. 7.4 With regard to the comparables chosen by the ld TPO, the assessee mentioned that if the comparables taken by the ld DRP in Asst Year 2011-12 are considered, assessee's AMP expenses were less than that of comparables in % terms. 7.5 However, the ld TPO rejected the assessee's claim and held that excess of AMP expenses incurred by the assessee is service rendered by the assessee for promoting the brand on behalf of AE and hence categorized the same as an international transaction u/s 92B of the Act by observing that the assessee has incurred significant AMP expenses which resulting in promoting brand of its AE. The ld TPO rejected the assessee's contention that the TNMM analysis was sufficient to show that the transactions of the assessee are at ALP and determined the price of the alleged AMP expenses by applying BLT. Based on the above, the ld TPO proposed an upward adjustment to the tune of Rs. 1,04,03,155/- towards excess AMP expenses holding that the assessee should have received reim....
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....not comparable with privately owned business groups. Subject to the above directions, action of the ld TPO was upheld in line with BEPS example. The ld DRP placed reliance on the decision of Sony Ericsson and held AMP to be an international transaction. 8. Aggrieved, the assessee is in appeal before us on the following grounds:- 3. Determination of arm's length price for AMP expenses 3.1 The AO, DRP and TPO erred on facts and in law, in making an adjustments of Rs. 10,359,000/- towards alleged excess AMP expenses incurred by Appellant and construed such expense as brand promotion for the parent AE'; 3.2 The AO, DRP and TPO erred on facts and in law in not appreciating that expenditure on AMP unilaterally incurred by the Appellant in India could not be regarded as an international transaction as per section 92B of the Act, so as to invoke the provisions of section 92 of the Act; 3.3 The TPO erred in using the formula of AMP/Sales while determining the excess AMP spend, which tantamount to bright line test and which has been rejected by the Hon'ble High Courts in various judgments; 3.4 Misinterpreting and placing incorrect reliance on t....
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....in the facts and circumstances of the case cannot be construed as an international transaction by placing reliance on the decision of Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd referred to supra. 10. In response to this, the ld DR stated that the assessee is only importing goods from its AE and selling it locally in India and as such, it is only a distributor of products. The decision rendered in Sony Ericsson Case was clearly given in the case of Distributor whereas, decision in Maruti Suzuki case was given in the case of Manufacturer & Marketer. Hence the reliance placed by this tribunal in earlier year is incorrect and cannot be used for the year under appeal. He further argued that the department had filed Special Leave Petition (SLP) before the Hon'ble Apex Court against the decision of Hon'ble Delhi High Court in the case of Maruti Suzuki India Ltd. (supra) and pleaded that only the decision of Sony Ericsson would rule the field as on date. 11. We have heard the rival submissions. At the outset, we find that the ld TPO, ld AO and the ld DRP had categorically accepted the basic fact that the assessee is a manufacturer and also engaged in distribution....
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....e laid down by the Hon'ble Delhi High Court in the case of Maruti Suzuki India Limited. (supra) are applicable to the instant case. Respectfully following the same we dismiss the ground of appeal filed by the Revenue.' Respectfully following the same, the upward adjustment made by the ld TPO and upheld by the ld DRP in the sum of Rs. 1,03,59,000/- is hereby directed to be deleted. Accordingly, the Grounds 3, 4.2 & 4.3. raised by the assessee are allowed. 12. The Ground No. 5 raised by the assessee is with regard to claim of benefit arising out of the proviso to section 92C(2) of the Act i.e variation of 5% from the arithmetic mean. In view of our decisions rendered hereinabove for Grounds 2 to 4, we do not deem it necessary to adjudicate this Ground. 13. The Ground No. 13 raised by the assessee is without prejudice to the grounds raised by it in Grounds 2 to 5, wherein the ld TPO concluded that an adjustment may be required to be made to the international transactions of the assessee in relation to its other segments, if it is held later in judicial proceedings that intra-group service charges is actually required to be paid. In this regard, the observations of the ld TPO ....
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.... The lease rentals paid by the assessee for the year 2003-04 were disallowed and the action was upheld by the ITAT. Subsequent matters have been pending/though this adjustment has been allowed in 2011-12, the panel upon consideration of the facts is not inclined to allow relief to the assessee. Aggrieved, the assessee is in appeal before us on the following grounds :- 7. Lease Rental 7.1 The Learned AO and DRP erred in law and on facts in disallowing Rs. 6,86,60,107 being the lease rent paid in respect of cars treating the same as capital expenditure. 7.2 The Learned AO and DRP erred in law and on facts in disallowing the lease rent paid without taking cognizance of the decision of the Supreme Court in the case of ICDS Ltd. v. CIT(2013) 350 ITR 527 (SC). 7.3 Strictly without prejudice to the above, the Learned AO and DRP erred in law and on facts in not allowing depreciation on total payment towards lease transactions including interest. 14.1 The ld AR argued that this issue is covered by the decision of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. v. CIT[2013] 350 ITR 527/212 Taxman 550/29 taxmann.com 129 (SC) wherein it was ....
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....and plastic industries. As such, the assessee had no plastic factory. Therefore, the assessee is not entitled for depreciation @ 30% on moulds. Accordingly, the ld AO disallowed the excess depreciation claimed by assessee for Rs. 3,14,04,052/- and added to the total income of the assessee. Aggrieved, the assessee filed objections before the ld DRP. The ld DRP rejected the claim by observing as under:- According to the New appendix 1 to Rule 5 of the IT Rules effective from AY 2006-07 onwards, (vii) of Part A of the Table Of Rates at which depreciation is admissible moulds are eligible for depreciation at the rate of 30% in the cases of factories involved in rubber & plastic goods production. In the case at hand, the businesses were Consumer Lifestyle products distribution, Healthcare, Lightings and Software development and not production of plastic or rubber goods. In the above view of the matter the Panel does not feel inclined to interfere with the finding of the AO. The depreciation @ 15% is upheld. Accordingly the objection is dismissed. 15.1 Aggrieved, the assessee is in appeal before us on the following grounds:- 8.1 The Learned AO and DRP erred ....
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....hat the assessee was allowed depreciation at higher rate in all the earlier years and no disallowance was made on account of this. However, we note that similar disallowance was also made by the ld. DRP for the A.Y. 2012-13 & 2013-14. The ld. AR before us has also not brought anything on record evidencing that the assessee had plastic factory. The Ld. AR has just verbally submitted that in most of the products which appears to be true. But as such no documentary evidence was filed in support of the assessee's claim. However in the interest of justice and fair play, we are inclines to restore this matter to the file of AO for fresh adjudication in accordance with the law. The Ld. AR is directed to produce necessary documents in support of his claim. Hence, the ground of appeal filed by the assessee is allowed for statistical purposes." Respectfully following the aforesaid judicial precedent, we restore this matter to the file of the ld AO for fresh adjudication in accordance with law. The assessee is at liberty to adduce fresh evidences before the ld AO in support of its contentions. Accordingly, the Ground Nos. 8.1 to 8.4 raised by the assessee are allowed for statistical purpos....