Nokia India Pvt. Ltd., Gurgaon v. Addl. CIT, New Delhi

ITA 551/DEL/2011 | 2006-2007
Pronouncement Date: 24-11-2011 | Result: Allowed

Appeal Details

RSA Number 55120114 RSA 2011
Assessee PAN AAACN2170R
Bench Delhi
Appeal Number ITA 551/DEL/2011
Duration Of Justice 9 month(s) 23 day(s)
Appellant Nokia India Pvt. Ltd., Gurgaon
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 24-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 24-11-2011
Date Of Final Hearing 14-11-2011
Next Hearing Date 14-11-2011
Assessment Year 2006-2007
Appeal Filed On 01-02-2011
Judgment Text
ITA NO. 551/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI A.D. JAIN JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 551/DEL/2011 A.Y. : 2006-07 M/S NOKIA INDIA PVT. LTD. 1 ST FLOOR TOWER-A SP INFOCITY INDUSTRIAL PLOT NO. 243 UDYOG VIHAR PHASE-I DUNDAHERA GURGAON HARYANA (PAN: AAACN2170R) VS. ADDL. COMMISSIONER OF INCOME TAX RANGE-13 NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. SALIL KAPOR ADV.; SH. VIJAY IYER CA AND SH. VIKAS JAIN ADV. DEPARTMENT BY : SH. RAJ TONDON C.I.T. (D.R.) ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. ASSESSING OFFICER DATED 29.11.2010 AND PERTAI NS TO ASSESSMENT YEAR 2006-07. 2. THE GROUNDS RAISED READ AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER PASSED BY THE LEARNED ADDITIONAL COMMISSIO NER OF INCOME-TAX (HEREINAFTER REFERRED TO AS 'THE LEARNED AO') IN PURSUANCE TO THE DIRECTIONS OF THE HON'BLE DISPUTE RESOLUTION PANEL - II (HEREINAFTER REFERRED TO AS 'T HE LEARNED DRP') UNDER SECTION 143(3) READ WITH SECTION 144C OF THE ITA NO. 551/DEL/2011 2 INCOME-TAX ACT 1961 ('ACT') HAS BEEN PASSED IN VI OLATION OF NATURAL JUSTICE AND IS BAD IN LAW AND VOID AB-INITIO . 2.1 THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED AO / HON'BLE DRP HAS ERRED IN CONFI RMING THE ORDER PASSED UNDER SECTION 92CA (3) OF THE ACT MAKIN G AN ADDITION OF RS. 4 27 32 000 TO THE TOTAL INCOME OF THE APPELLANT ON ACCOUNT OF ADJUSTMENT IN THE ARM'S LENGTH PRICE ( 'ALP') OF THE INTERNATIONAL TRANSACTION ENTERED BY THE APPELLANT WITH ITS ASSOCIATED ENTERPRISES. 2.2 THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE REFERENCE MADE BY THE LEARNED AO SUFFERS F ROM JURISDICTIONAL ERROR AS THE LEARNED AO HAS NOT RECOR DED ANY REASONS IN THE DRAFT ASSESSMENT ORDER BASED ON WHIC H HE REACHED THE CONCLUSION THAT IT WAS 'NECESSARY OR EXPEDIENT' TO REFER THE MATTER TO THE LEARNED TRANSFER PRICING OFFICER ('TPO') FOR COMPUTATION OF ALP AS IS REQUIRED UNDER SECTION 92CA( 1) OF THE ACT. 2.3 THAT ON THE FACTS AND THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LEARNED TPO / LEARNED AO IGNORED THE FACT T HAT THE APPELLANT (VIS-A-VIS ITS R&D SEGMENTS) IS ENTITLED T O A TAX HOLIDAY UNDER SECTION 10A OF THE ACT ON ITS PROFITS AND THE REFORE DOES NOT HAVE AN ULTERIOR MOTIVE OF SHIFTING PROFITS OUTSIDE INDIA. 2.4 THAT ON THE FACT AND THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED TPO / AO HAS ERRED BY NOT ACCEPTING THE ECONOMIC ANALYSIS UNDERTAKEN BY THE APPELLANT IN ACC ORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE RULES AND CONDUCTING A FRESH ECONOMIC ANALYSIS FOR THE DETERMINATION OF TH E ALP OF THE ITA NO. 551/DEL/2011 3 APPELLANT'S INTERNATIONAL TRANSACTIONS AND HOLDING THAT THE INTERNATIONAL TRANSACTIONS ARE NOT AT ARM'S LENGTH. 2.5 THAT THE LEARNED TPO / AO HAVE ERRED IN THE FACT S AND CIRCUMSTANCES OF THE CASE AND IN LAW IN REJECTING TH E APPELLANT'S CLAIM TO USE MULTIPLE YEAR DATA FOR COMPUTING THE ARM'S LENGTH PRICE AND INSTEAD HAS ADHERED TO THE USE OF SINGL E YEAR UPDATED DATA TO CONCLUDE THE ALP OF THE INTERNATIONAL TRANSA CTION. 2.6 THAT ON THE FACT AND THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED TPO / AO HAS DENIED A WORKING CAPI TAL ADJUSTMENT TO THE OPERATING PROFIT MARGINS OF THE COM PARABLES THEREBY ADOPTING A POSITION COMPLETELY INCONSISTENT WITH THE POSITIONS ADOPTED BY HIMSELF AND HIS LEARNED PREDEC ESSORS IN THE PAST YEARS AND CONTRARY TO THE POSITION ALSO UPHELD BY THE HON'BLE APPELLATE COMMISSIONER. 2.7 THAT ON THE FACT AND THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED TPO / AO IGNORED THE BUSINESS / COMM ERCIAL REALITY THAT SINCE THE APPELLANT (VIS-A-VIS ITS R&D SEGMENTS) IS REMUNERATED ON AN ARM'S LENGTH COST PLUS BASIS I.E. IT IS COMPENSATED FOR ALL ITS COST PLUS A PRE-AGREED MARK- UP THE APPELLANT UNDERTAKES MINIMAL BUSINESS RISKS AS AGAIN ST COMPARABLE COMPANIES THAT ARE FULL FLEDGED RISK TAKI NG ENTREPRENEURS AND BY NOT ALLOWING A RISK ADJUSTMEN T TO THE APPELLANT ON ACCOUNT OF THIS FACT. 2.8 THAT ON THE FACTS AND THE CIRCUMSTANCE OF THE CA SE THE LEARNED TPO / AO RESORTED TO ARBITRARY REJECTION OF L OSS MAKING COMPANIES BASED ON ERRONEOUS / INCONSISTENT REASONS THUS DERIVING A INCORRECT / UNREPRESENTATIVE INDUSTRY SE T FOR ITA NO. 551/DEL/2011 4 BENCHMARKING THE OPERATING PROFIT MARGIN EARNED BY TH E APPELLANT. 2.9 THAT THE LEARNED TPO HAVE ERRED IN SELECTION OF SAT YAM COMPUTERS SERVICES LTD. AS A COMPARABLE COMPANY WITHOU T APPRECIATING THAT THERE IS SUFFICIENT EVIDENCE AVAI LABLE IN THE PUBLIC DOMAIN TO DEMONSTRATE THAT THE FINANCIAL DATA OF THE COMPANY PERTAINING TO THE RELEVANT YEAR I.E. FY 2005 -06 IS NOT RELIABLE. 3.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN MAKING AN ADDITION OF RS . 30 96 98 566 AS INCOME OF THE APPELLANT FROM BHARAT SANCHAR NIGAM LIMITED ('BSNL') FOR ASSESSMENT YEAR 2006-07 BY APPLYING THE PERCENTAGE OF PROJECT COMPLETION OF 43.05 PERCENT ON INITIAL ESTIMATED PROJECT VALUE DISCLOSED IN THE ADVANCE PU RCHASE ORDERS RAISED BY BSNL AS AGAINST THE ACTUAL PURCHASE ORDERS RECEIVED FROM BSNL FOR BSNL PHASE IV ++ CONTRACT. 3.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE DRP HAS ERRED IN NOT CONSIDERING THE ADD ITIONAL EVIDENCES FILED BY THE APPELLANT IN THE FORM OF ACTU AL PURCHASE ORDERS RECEIVED FROM BSNL DESPITE THE FACT THAT THE ADDITIONAL EVIDENCES WERE FILED VIDE A SEPARATE APPLICATION AS REQUIRED BY RULE 4 INCOME-TAX (DISPUTE RESOLUTION PANEL) RULES 2 009 REQUESTING THE HON'BLE DRP TO ADMIT THE ADDITIONAL EV IDENCES AND IN DOING SO THE HON'BLE DRP HAS FAILED TO ADVANCE THE SUBSTANTIAL JUSTICE. 3.3 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE DRP HAS ERRED IN NOT GRANTING AN OPPORTUN ITY OF BEING ITA NO. 551/DEL/2011 5 HEARD TO THE APPELLANT IN REGARD TO ADMISSIBILITY OF ADDITIONAL EVIDENCE BEFORE REJECTING THE EVIDENCES ON ALLEGED P ROCEDURAL DEFAULT. 4.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN TREATING MARKETING EXPEN DITURE ON ACCOUNT OF MOBILE HANDSETS ISSUED FREE OF COST TO AF TER MARKETING SERVICE CENTERS DEALERS AND EMPLOYEES FOR BUSINESS PROMOTION PURPOSES AS CAPITAL IN NATURE AND ALLOWING DEPRECI ATION @ 15% AMOUNTING TO RS 50 121 195 AS AGAINST TOTAL EXPENDIT URE OF RS. 3 34 141 301 INCURRED AND CLAIMED BY THE APPELLANT THEREBY RESULTING IN A DISALLOWANCE OF RS. 28 40 20 105 TO THE APPELLANT. 4.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN READING THE ORDER OF TH E HON'BLE DRP IN WRONG AND HOLDING THAT THE ISSUE RELATED TO DISA LLOWANCE OF MARKETING EXPENSES FOR AY 2000-01 AND 2001-02 HAS B EEN DECIDED BY THE HON'BLE DELHI HIGH COURT AGAINST THE APPELLANT WITHOUT APPRECIATING THAT THE SAID ISSUE HAS IN FAC T BEEN REMANDED BACK BY THE HON'BLE DELHI HIGH COURT TO THE HON'BLE INCOME-TAX APPELLATE TRIBUNAL FOR RECONSIDERATION A ND IS PENDING BEFORE THE HON'BLE ITA T AS ITA NO. 2781/DEL/2004 FO R AY 2000-01 AND ITA NO. 5151/DEL/2004 FOR AY 2001-02. 4.3 WITHOUT PREJUDICE BASED ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN NO T ALLOWING DEPRECIATION ON THE WRITTEN DOWN VALUE OF MOBILE HAN DSETS ISSUED BY THE APPELLANT TO AFTER MARKETING SERVICE CENTERS DEALERS AND EMPLOYEES IN EARLIER YEARS AND ALLEGEDLY CONSIDERED AS CAPITAL ITA NO. 551/DEL/2011 6 EXPENDITURE BY THE LEARNED AO IN HIS IMPUGNED ASSESS MENT ORDERS FOR THE EARLIER YEARS. 4.4 WITHOUT PREJUDICE BASED ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN IN CLUDING THE VALUE OF SCRAPPED MOBILES HANDSETS AMOUNTING TO RS. 5 9 816 346 IN THE AMOUNT CONSIDERED AS CAPITAL EXPENDITURE WIT HOUT APPRECIATING THE FACT THAT SCRAPPED MOBILE HANDSETS CAN NEVER BEEN OWNED BY THE APPELLANT AS CAPITAL ASSETS. 5.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN DISALLOWING AN AD-HOC A MOUNT OF RS 3 05 93 250 BEING 25% OF THE PROVISION FOR OBSOLES CENCE OF INVENTORY MADE ON ACCOUNT OF NON-MOVING INVENTORY AL LEGING THE PROVISION TO BE AN UNASCERTAINED LIABILITY. 5.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE DRP HAS ERRED IN RELYING UPON THE ORDER OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF APPELLANT FO R EARLIER ASSESSMENT YEAR TO HOLD THAT THE ISSUE HAS BEEN DEC IDED AGAINST THE APPELLANT BY HON'BLE DELHI HIGH COURT WITHOUT A PPRECIATING THAT THE SAID ORDER OF THE HON'BLE DELHI HIGH COURT IS NOT APPLICABLE TO THE FACTS OF ASSESSMENT YEAR 2006-07 SINCE NECESSARY DETAILS TO SUBSTANTIATE THE AMOUNT OF PROV ISION WERE FILED BEFORE THE LEARNED AO DURING THE COURSE OF AS SESSMENT HEARING. 6.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN REDUCING THE RATE OF DE PRECIATION ON CERTAIN ITEMS VIZ. UPS WAN! LAN ETC. BEING INTEGRAL PART OF THE ITA NO. 551/DEL/2011 7 COMPUTER SYSTEMS FROM 60% TO 15% RESULTING INTO A DISALLOWANCE OF RS.2 01 17 941. 6.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE DRP HAS ERRED IN CONFIRMING THE ADJUSTMENT TO THE RATE OF TAX DEPRECIATION IN CASE OF UPS WAN/LAN E TC ON THE BASIS THAT THE SAID CAPITAL ITEMS ARE NOT NECESSARY TO OPE RATE A COMPUTER. 6.3 WITHOUT PREJUDICE BASED ON THE FACTS AND CIRCU MSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN NO T ALLOWING DEPRECIATION ON THE ENHANCED WRITTEN DOWN VALUE ON ACCOUNT OF SIMILAR DISALLOWANCE MADE IN EARLIER YEARS. 7 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED AO HAS ERRED IN NOT GRANTING CREDIT FOR THE ENTIRE AMOUNT OF TDS CLAIMED BY THE APPELLANT. 8 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED AO HAS ERRED IN LEVYING INTEREST UNDER SECTION 234C OF THE ACT AT A HIGHER AMOUNT AS AGAINST THE AMOUNT OF INTEREST OFFERED BY THE APPELLANT IN THE RETURN OF INCOME CO MPUTED ON THE RETURNED INCOME. 9 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW THE LEARNED AO HAS ERRED IN COMPUTATION OF INTEREST UNDER SECTION 2348 OF THE ACT. 10 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED AO HAS ERRED IN INITIATING PENALTY PROC EEDINGS UNDER SECTION 271 (1)(C) OF THE ACT. ITA NO. 551/DEL/2011 8 11 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE DRP HAS ERRED IN CONFIRMING ALL THE AFOR ESAID ADDITIONS / DISALLOWANCES PROPOSED BY THE LEARNED A O IN THE DRAFT ASSESSMENT ORDER SUMMARILY WITHOUT ASSIGNING ANY DET AILED REASON. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHE R. THE APPELLANT CRAVES LEAVE TO ADD AMEND VARY OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL A T ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 3.1 NOKIA INDIA PRIVATE LIMITED (HEREINAFTER REFERR ED TO AS 'ASSESSEE' OR 'NOKIA INDIA') IS A WHOLLY OWNED SUBSIDIARY OF N OKIA CORPORATION FINLAND. DURING ASSESSMENT YEAR (AY) 2006-07 THE ASSE SSEE WAS INTER ALIA ENGAGED IN THE BUSINESS OF PROVIDING SERVICES IN THE NATURE OF INSTALLATION COMMISSIONING AND ERECTION OF TELECOMMU NICATION EQUIPMENT AND TRADING OF MOBILE HANDSETS NETWORKS A ND ACCESSORIES IN INDIA. FURTHER THE ASSESSEE ALSO PROVIDED RESEAR CH AND DEVELOPMENT AND OTHER SUPPORT SERVICES TO NOKIA GRO UP COMPANIES OUTSIDE INDIA. FOR AY 2006-07 THE ASSESSEE FILED ITS RETURN OF INC OME IN INDIA ON NOVEMBER 30 2006 DECLARING TAXABLE INCOME OF RS. 2 957 849 000. THE ASSESSEE'S CASE WAS SELECTED FOR SCRUTINY AND W AS ALSO REFERRED TO THE JOINT DIRECTOR OF INCOME-TAX (TRANSFER PRICING) - NEW DELHI (HEREINAFTER REFERRED AS 'LEARNED TPO') FOR DETERMIN ATION OF THE ARM'S LENGTH PRICE ('ALP') FOR THE INTERNATIONAL TRANSACT IONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES DURING FINANCIAL YEAR ('FY') 2005-06. THE LEARNED TPO PASSED AN ORDER DATE D AUGUST 27 2009 WHERE THE ALP OF THE CONTRACT SOFTWARE DEVELOPME NT SERVICES ITA NO. 551/DEL/2011 9 RENDERED BY THE ASSESSEE WAS DETERMINED ON AN AGGREG ATED BASIS AT RS. 680 092 000 AS AGAINST RS. 637 360 000 DETERMINE D BY NOKIA INDIA. ACCORDINGLY THE LEARNED TPO MADE AN ADDITION OF RS. 42 732 000 TO THE TOTAL INCOME OF THE ASSESSEE IN CONNECTION W ITH ITS INTERNATIONAL TRANSACTION. IN THE DRAFT ASSESSMENT ORDER ISSUED BY THE LEARNED ADDITIONAL COMMISSIONER OF INCOME-TAX RANGE 13 NEW DELHI UND ER SECTION 143(3) READ WITH SECTION 144C OF THE ACT ON DECEMBER 24 2009 FOLLOWING ADDITIONS WERE PROPOSED: SR. NO. ISSUES ON WHICH ADDITION MADE AMOUNT OF ADDITION (RS) 1. ADDITION ON ACCOUNT OF ALLEGED SHORT RECOGNITION OF INCOME UNDER BSNL PROJECT 309 698 566 2. MARKETING EXPENSES INCURRED ON MOBILE HANDSETS ISSUED TO EMPLOYEES AFTER MARKETING SERVICE CENTRES ('AMSCS') AND DEALERS ON FREE OF COST ('FOC') BASIS AND ON MOBILE PHONES SCRAPPED DURING THE YEAR TREATED AS CAPITAL EXPENSE ELIGIBLE FOR TAX DEPRECIATION @ 15 PERCENT 284 020 105 * 3. DISALLOWANCE OF 25 PERCENT OF THE PROVISION FOR OBSOLESCENCE 30 593 250 4. DISALLOWANCE OF TAX DEPRECIATION CLAIMED BY THE ASSESSEE ON ITA NO. 551/DEL/2011 10 COMPUTER PERIPHERALS @ 60 PER CENT (I.E. UPS LAN/ WAN ETC.) (TAX DEPRECIATION @ 15 PER CENT ALLOWED.) 5. TRANSFER PRICING ADJUSTMENT 42 732 000 6. DISALLOWANCE OF PROVISION FOR WARRANTY. 538 972 000 TOTAL TOTAL TOTAL TOTAL 1 226 133 862 1 226 133 862 1 226 133 862 1 226 133 862 * NET DISALLOWANCE AFTER ALLOWING TAX DEPRECIATION @ 15 PERCENT ON THE ACTUAL MARKETING EXPENSE OF RS 334 141 301 AGGRIEVED THE ASSESSEE OBJECTED TO THE ADDITIONS! DISALLOWANCES PROPOSED BY THE LEARNED AO IN THE DRAFT ASSESSMENT ORDER BEFORE THE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS DRP'). THE OBJECTIONS PREFERRED BY THE ASSESSEE WERE PARTI ALLY ALLOWED BY THE DRP VIDE ITS ORDER DATED SEPTEMBER 28 2010 ISSUED UNDER SECTION 144C OF THE ACT. IN THE SAID ORDER THE ADJUSTMENT P ROPOSED BY THE LEARNED AO ON ACCOUNT OF PROVISION FOR WARRANTY (AMO UNTING TO RS 538 972 000) WAS DIRECTED TO BE DELETED ON ACCOUNT OF THE FINDINGS OF THE HON'BLE DELHI HIGH COURT IN THE ASSESSEE'S OWN CASE FOR AY 2000- 01. HOWEVER THE ADJUSTMENT PROPOSED BY THE LEARNED AO IN RESPECT OF THE REMAINING ITEMS WAS UPHELD BY THE DRP. THE DIRECTIONS OF THE DRP WERE INCORPORATED BY THE LE ARNED AO IN HIS IMPUGNED ORDER DATED NOVEMBER 29 2010 AND A TAX DEMAN D OF RS 229 111 676 WAS RAISED. IN ADDITION TO THE ABOVE I NTEREST OF RS 73 559 443 WAS LEVIED UNDER THE PROVISIONS OF SECTI ON 234B OF THE ACT. ITA NO. 551/DEL/2011 11 4. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BEF ORE THE TRIBUNAL. APROPOS TRANSFER PRICING ISSUE: APROPOS TRANSFER PRICING ISSUE: APROPOS TRANSFER PRICING ISSUE: APROPOS TRANSFER PRICING ISSUE:- -- - 5. FOR THE PURPOSE OF PROVIDING THE CONTRACT SOFTWA RE DEVELOPMENT SERVICES THE ASSESSEE WAS REMUNERATED ON COST PLUS 5% BASIS. FOR ANALYSING THE IMPUGNED INTERNATIONAL TRANSACTIONS T RANSACTIONAL NET MARGIN METHOD (TNMM) WAS USED AS THE MOST APPROPRIATE M ETHOD WITH OPERATING PROFIT (OP)/ TOTAL COST (TC) AS THE RELEVAN T PROFIT LEVEL INDICATOR (PLI). BASED ON THE ECONOMIC ANALYSIS THE APPELLANT'S OP/ TC MARGIN FELL WITHIN THE +/ - 5 PERCENT RANGE AROUND T HE ARM'S LENGTH MARGIN ACCORDINGLY THE ASSESSEES INTERNATIONAL TRA NSACTIONS IN THE NATURE OF PROVISION OF CONTRACT SOFTWARE DEVELOPMENT WERE ACCEPTED TO BE AT ARM'S LENGTH. THE TPO DID NOT CONCUR WITH THE ANALYSIS UNDERTAKEN BY THE ASSESSEE. IN HIS ORDER UNDER SECTION 92CA THE TPO MADE A TRANSFER PRICING ADJUSTMENT IN RESPECT OF PROVISION OF CONTR ACT SOFTWARE DEVELOPMENT SERVICES AMOUNTING TO RS 42 732 000. IN MAKING SUCH ADJUSTMENT THE TPO ARRIVED AT A SET OF 26 COMPANIES BASED ON WHICH THE TPO ARRIVED AT AN ARM'S LENGTH MARGIN OF 12.04 PERCENT VIS A VIS AN OPERATING MARGIN OF 5% OF THE ASSESSEE WITHOUT PR OVIDING A BENEFIT OF WORKING CAPITAL ADJUSTMENT TO THE APPELLANT. THE TPO HAS IN HIS ORDER DATED AUGUST 27 2009 REJE CTED ASSESSEES CLAIM FOR WORKING CAPITAL ADJUSTMENT ON AC COUNT OF FOLLOWING REASONS: A WORKING CAPITAL ADJUSTMENT HAS BEEN MADE BY THE ASSESSEE IN THE MARGIN TO ACCOUNT FOR THE DIFFERENCE IN ACCOUNTS PAY ABLES AND RECEIVABLES POSITION BETWEEN THE ASSESSEE AND COMPAR ABLES. ITA NO. 551/DEL/2011 12 ACCORDINGLY THE ADJUSTED MEAN MARGIN COMES TO 7.43% REDUCED FROM UNADJUSTED MARGIN OF 10.87%. THE BIGGEST PROBLEM ABOUT THIS ADJUSTMENT IS THE IN ABILITY TO FIND OUT THE POSITION OF THE PAYABLES AND RECEIVABLES AT THE BEGINNING AND END OF THE YEAR. AS STATED EARLIER NES AND NMP R&D ARE T WO OF THE MANY DIVISIONS OF THE ASSESSEE COMPANY. IT IS NOT POSSIBL E TO SEGREGATE THE DEBTORS AND CREDITORS OF THE COMPANY PERTAINING TO T HESE TWO ACTIVITIES. SUCH SEGREGATION HAS NOT BEEN GIVEN IN THE TRANSFER PRICING REPORT. MOREOVER THE CREDIT TERMS OFFERED BY THE CO MPARABLES ARE NOT KNOWN. THE DEBTORS AND CREDITORS SHOWN IN THE BALAN CE SHEET OF THE COMPARABLES CONTAIN BOTH TRADE AND NON-TRADE CREDITO RS. IN THE ABSENCE OF A BREAK-UP SUCH ADJUSTMENT CANNOT BE RE LIABLE AND JUSTIFIED. SIMILARLY THE ASSUMPTION OF PRIME LENDING RATE AS TH E INTEREST RATE APPLICABLE FOR MAKING THE WORKING CAPITAL ADJUSTMENT SUFFERS FROM RISKS OF INACCURACY. THE COST OF CAPITAL FOR MNCS IS DETER MINED MORE BY THE GLOBAL INTEREST RATES RATHER THAN INDIAN PRIME LEND ING RATE . THE FINANCIALS GIVEN IN THE PUBLIC DATABASES DO NO T GIVE SEGMENTAL DISTRIBUTION OF CREDITORS AND DEBTORS. MA KING WORKING CAPITAL ADJUSTMENT ON THE FIGURES OF THE WHOLE COMPANY MAY NO T BE REPRESENTATIVE OF THE SOFTWARE SECTOR'. BASED ON THE ABOVE FINDINGS THE TPO HAS DENIED WO RKING CAPITAL ADJUSTMENT TO THE ASSESSEE. IN THIS REGARD IT HAS B EEN CONTENDED THAT IDENTICAL FINDINGS WERE GIVEN BY THE TPO IN THE TRA NSFER PRICING ORDERS OF PRECEDING ASSESSMENT YEAR AS WELL. HOWEVER STIL L THE BENEFIT OF WORKING CAPITAL ADJUSTMENT WAS GRANTED TO THE ASSESS EE BY THE TPO INSPITE OF THE CONSTRAINTS MENTIONED IN THE ORDER. ITA NO. 551/DEL/2011 13 5.1 THUS IT IS THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE THAT THE TPO WHILE DETERMINING THE ARMS LENGTH PRICE OF T HE SUBJECT INTERNATIONAL TRANSACTION DURING ASSESSMENT YEAR 20 06-07 IGNORED THE FACT THE ASSESSEE HAS BEEN GRANTED THE BENEFIT OF THE WORKING CAPITAL ADJUSTMENT DURING A.Y. 2005-06 BY HIMSELF AND THE FA CT THE SAME HAS ALSO BEEN ALLOWED BY HIS PREDECESSORS DURING THE TR ANSFER PRICING ASSESSMENT PROCEEDING FOR A.Y. 2002-03 TILL A.Y. 20 04-05 DESPITE THE CONSTRAINTS MENTIONED IN THE TRANSFER PRICING ORDER. THUS IT IS THE CONTENTION OF THE ASSESSEE THAT THERE IS NO CHANGE IN THE BUSINESS MODEL OF THE ASSESSEE WITH RESPECT TO THE PROVISION OF CONTRACT SOFTWARE DEVELOPMENT SERVICES OF THE ASSESSEE VIS A VIS A.Y. 2005-06 THE BENEFIT OF WORKING CAPITAL ADJUSTMENT SHOULD BE ALLOWED TO THE ASSESSEE IN THE SUBJECT YEAR UNDER APPEAL AS WELL. 5.2 LD. COUNSEL OF THE ASSESSEE HAS FURTHER SUBMITT ED THAT RULES 10B(1)(E) OF THE RULES PRESCRIBE THAT AT THE TIME O F APPLICATION OF TRANSACTIONAL NET MARGIN METHOD THE NET PROFIT MARGI N NEEDS TO BE ADJUSTED TO ACCOUNT FOR THE DIFFERENCE IF ANY BETWEE N THE INTERNATIONAL TRANSACTION AND COMPARABLE UNCONTROLLED TRANSACTIONS . THE RELEVANT TEXT OF THE PROVISIONS IS REPRODUCED BELOW FOR REFE RENCE: 'DETERMINATION OF ARM'S LENGTH PRICE UNDER SECTION 92C . 10B(1) FOR THE PURPOSES OF SUB-SECTION (2) OF SECTIO N 92C THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSA CTION SHALL BE DETERMINED BY ANY OF THE FOLLOWING METHODS BEING THE MOST APPROPRIATE METHOD IN THE FOLLOWING MANNER NAMELY : - THE INCOME TAX APPELLATE TRIBUNAL ('ITAT') 'E' BENC H NOKIA INDIA - A Y 2006-07 ITA NO. 551/DEL/2011 14 (A) ... (B) ... (C) ... (D) (E) TRANSACTIONAL NET MARGIN METHOD BY WHICH - '(III) THE NET PROFIT MARGIN REFERRED TO IN SUB-CLAU SE (II) ARISING IN COMPARABLE UNCONTROLLED TRANSACTIONS IS ADJUSTED TO T AKE INTO ACCOUNT THE DIFFERENCES IF ANY BETWEEN THE INTERN ATIONAL TRANSACTION AND THE COMPARABLE UNCONTROLLED TRANSACT IONS OR BETWEEN THE ENTERPRISES ENTERING INTO SUCH TRANSACT IONS WHICH COULD MATERIALLY AFFECT THE AMOUNT OF NET PROFIT MARG IN IN THE OPEN MARKET;' . THE LD. COUNSEL HAS FURTHER SUBMITTED THAT THE HONB LE DELHI ITAT HAS ALSO UPHELD THE NEED OF MAKING WORKING CAPI TAL ADJUSTMENT IN FOLLOWING JUDGMENTS. MENTOR GRAPHICS (NOIDA) PVT. LTD (109 ITO 101) SONY INDIA (P) LIMITED VS OCIT (114 ITO 448) THUS IN LIGHT OF THE PROVISIONS OF RULE 10B(1)(E) A ND THE HONB'LE ITAT JUDGMENTS IT HAS BEEN PLEADED TO GRANT THE APPELLAN T THE BENEFIT OF WORKING CAPITAL ADJUSTMENT. ITA NO. 551/DEL/2011 15 5.3 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D RELIED UPON THE ORDER OF THE TPO. 5.4 THE DRP IN ITS ORDER HAS NOT DEALT WITH THE ISS UE PROPERLY AND HAS HELD THAT FOR THE SAKE OF CONSISTENCY AND TO PROTE CT THE INTEREST OF THE REVENUE THE ADJUSTMENT MADE BY THE TPO HAS TO BE UPH ELD. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS IN L IGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. IT IS AN UNDISPUTED FACT THAT ON THE SAME SET OF FACTS AND IN THE SAME BU SINESS MODEL THE ASSESSEE HAS BEEN PROVIDED THE WORKING CAPITAL ADJU STMENTS IN THE PRECEDING ASSESSMENT YEARS. UNDER THE CIRCUMSTANCE S IN OUR CONSIDERED OPINION IT WAS INCUMBENT UPON THE TPO TO CONSIDER THE SAME IN THE CURRENT YEAR. 6.1 IN THIS REGARD WE PLACE RELIANCE UPON THE DEC ISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE CI T VS. DALMIA PROMOTERS DEVELOPERS (P) LTD. 281 ITR 346 WHEREIN IT WAS HELD T HAT FOR REJECTING THE VIEW TAKEN IN EARLIER ASSESSMENT YEARS THERE MUST BE MATERIAL CHANGE IN THE FACT SITUATION OR IN LAW. IN THIS CASE CLEARLY THERE IS NEITHER ANY CHANGE IN THE FACT SITUATION OR IN LAW . HENCE ON THE ANVIL OF THE HONBLE JURISDICTIONAL HIGH COURT DECI SION (SUPRA) THE TPO SHOULD GRANT THE ASSESSEE APPROPRIATE WORKING CAPIT AL ADJUSTMENT. ACCORDINGLY THE MATTER IS REMITTED TO THE FILE OF TH E ASSESSING OFFICER. THE ASSESSING OFFICER SHOULD REMIT THE MATTER TO THE TPO TO CONSIDER THE SAME IN LIGHT OF THE DIRECTIONS AS ABOVE. 7 77 7. .. . APROPOS GROUND NO. 3 APROPOS GROUND NO. 3 APROPOS GROUND NO. 3 APROPOS GROUND NO. 3 - -- - SHORT RECOGNITION OF INCOME UNDER BSNL SHORT RECOGNITION OF INCOME UNDER BSNL SHORT RECOGNITION OF INCOME UNDER BSNL SHORT RECOGNITION OF INCOME UNDER BSNL PROJECT PROJECT PROJECT PROJECT ITA NO. 551/DEL/2011 16 7.1 DURING THE YEAR UNDER CONSIDERATION THE ASSESSE E WAS INVOLVED IN PROVISION OF INSTALLATION AND COMMISSIONING SERV ICES AND SUPPLY OF MATERIAL TO BSNL (BESIDES OTHER TELECOM OPERATORS) AN D FOLLOWED PERCENTAGE OF COMPLETION METHOD FOR RECOGNITION OF RE VENUE UNDER THE BSNL CONTRACT. AN ADDITION OF ` 309 698 566 WAS MAD E BY THE ASSESSING OFFICER ON THE BASIS THAT THE ASSESSEE F AILED TO EXPLAIN THE DIFFERENCE IN THE ESTIMATED PROJECT REVENUES DISCLOS ED IN THE ADVANCE PURCHASE ORDER ISSUED BY BSNL ( AMOUNTING TO ` 617. 99 CRORES) AND THE ACTUAL PROJECT REVENUES CONSIDERED BY THE ASSESSEE (AMOUNTING TO ` 546.05 CRORES) FOR APPLYING PERCENTAGE OF COMPLETION OF 43.05% ON THE PROJECT REVENUES FOR DETERMINING ITS REVENUES IN ACC ORDANCE WITH ACCOUNTING STANDARD 7 ISSUED BY THE INSTITUTE OF CH ARTERED ACCOUNTANTS OF INDIA (ICAI). THEREFORE PERCENTAG E PROJECT COMPLETION OF 43.05% WAS APPLIED BY THE ASSESSING OFFICER TO THE DIFFERENCE BETWEEN THE ESTIMATED PROJECT PRICE (OF ` 617.99 CROR ES AS PER THE ADVANCE PURCHASE ORDER ISSUED BY BSNL) AND THE ACT UAL PROJECT REVENUES CONSIDERED BY THE ASSESSEE (OF ` 546.05 CR ORES) TO DETERMINE THE REVENUE SHORT RECOGNIZED BY THE ASSESSEE FOR A. Y. 2006-07. IN THE OBJECTIONS FILED BEFORE THE HONBLE DRP THE ASSESSEE SUBMITTED THE FOLLOWING FACTS:- REVENUE OF ` 617.99 CRORES ALLEGEDLY CONSIDERED BY THE ASSESSING OFFICER IS ONLY AN ESTIMATE OF THE EXPEC TED PROJECT REVENUES. HOWEVER PROJECT REVENUE OF ` 546.05 CRORES CONSIDERED BY THE ASSESSEE IS BASED ON ACTUAL PURCH ASE ORDERS RECEIVED BY THE ASSESSEE FROM BSNL. COPIES OF ALL ACTUAL PURCHASE ORDERS TO SUPPORT THE BASIS OF DETERMINATION OF PROJECT REVENUE OF ` 546.05 CRORES W ERE ALSO ITA NO. 551/DEL/2011 17 FILED BEFORE THE DRP VIDE APPLICATION DATED JANUARY 29 2010 (REFER PAGES 395 TO 997 OF THE PAPER BOOK II VOLUM E B AND VOLUME C) FOR ADMISSION OF ADDITIONAL EVIDENCE AS PE R THE PROVISO TO RULE 4(3)(B) OF THE INCOME TAX (DISPUTES R ESOLUTION PANEL) RULES 2009. HOWEVER THE DRP FAILED TO CONSIDER THE ABOVE FACTS AND CONFIRMED THE ADDITION PROPOSED BY THE ASSESSING OFFICER MERELY O N THE GROUND THAT NO APPLICATION WAS MADE BY THE ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE (BEING THE ACTUAL PURCHASE ORDERS ISSUED BY VARIOUS CIRCLES OF BSNL EVIDENCING THE ACTUAL PROJECT REVENUES R EQUIRED FOR THE PURPOSE OF RECOGNITION OF REVENUES AS PER AS-7 OF T HE ICAI). FURTHER SUBMISSION OF THE ASSESSEES COUNSEL IN THIS REGARD ARE AS FOLLOWS:- IN THIS REGARD IT MAY ALSO BE PERTINENT TO NOTE T HAT SIMILAR ADDITION IN RESPECT OF THE AFOREMENTIONED PURCHASE ORDERS ISSUED BY BSNL WAS PROPOSED BY THE ASSESSING OFFICER IN A SSESSEES CASE FOR THE A.Y. 2007-08. ON THIS ACCOUNT ADDITI ON AMOUNTING TO ` 361 135 147/- BEING THE DIFFERENCE BETWEEN 93. 25% OF 617.99 CRORES (APPROX) (BEING THE AMOUNT OF ADVANCE PURCHASE ORDER) AND 93.25% OF 546 CRORES (APPROX) (BEING TH E AMOUNT OF ACTUAL PURCHASED ORDERS) WAS PROPOSED IN THE DRAFT ASSESSMENT ORDER. HOWEVER WHILE DISPOSING OFF THE OBJECTIONS OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 THE DRP VID E ITS ORDER DATED SEPTEMBER 9 2011 ACCEPTED REVENUE AS PER ACTU AL PURCHASE ORDERS AND DELETED THE PROPOSED ADDITION ON THIS GROUND. THE DRP WHILE ADJUDICATING THIS ISSUE ISS UED A SPECIFIC ITA NO. 551/DEL/2011 18 FINDING THAT THE REVENUE IN RESPECT OF BSNL PROJECT SHOULD BE TAKEN AT ` 546 CRORES ONLY AS AGAINST ` 617.99 CRO RES. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S AND PERUSED THE RECORDS. WE FIND THAT ON THIS ISSUE IT HAS B EEN URGED BY THE ASSESSEE THAT THE ADDITION TO INCOME WAS MADE ON THE BASIS OF REVENUE AS PER ADVANCE PURCHASE ORDER. IN THIS RE GARD IT HAS BEEN ARGUED THAT THIS WAS DONE WITHOUT CONSIDERING THE A CTUAL PURCHASE ORDER PRODUCED BEFORE THE DRP BY WAY OF APPLICATION U/R 4 OF THE IT (DRP) RULES 2009. UPON CAREFUL CONSIDERATION WE ARE INCLINED TO REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFI CER TO CONSIDER THE ISSUE AFRESH IN LIGHT OF THE ADDITIONAL EVIDENCES B EING SUBMITTED BY THE ASSESSEE. ACCORDINGLY THE ISSUE STANDS REMITTED TO THE FILE OF THE ASSESSING OFFICER. 9 99 9. .. . APROPOS GROUND NO. 4 APROPOS GROUND NO. 4 APROPOS GROUND NO. 4 APROPOS GROUND NO. 4 MARKETING EXPENSES MARKETING EXPENSES MARKETING EXPENSES MARKETING EXPENSES ` 284 020 105/ ` 284 020 105/ ` 284 020 105/ ` 284 020 105/- -- - 9.1 DURING THE YEAR UNDER CONSIDERATION THE ASSES SING OFFICER HAS CONSIDERED THE COST OF MOBILE HANDSETS ISSUED TO EMP LOYEES AMSCS AND DEALERS FREE OF COST AND STOCK SCRAPPED AS CAPI TAL ASSETS ON THE BASIS THAT THE ASSESSEE CONTINUES TO BE THE OWNER O F THESES HANDSETS AND THESE HANDSETS ARE NOT PART OF THE TRADING AC TIVITIES OF THE ASSESSEE. THE DRP CONFIRMED THE SAID ADDITION ON THE GROUND THAT THE SAME HAS BEEN UPHELD BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND THE HONBLE DELHI HIGH COURT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 AND 2001-02. 9.2 IN THIS REGARD THE HONBLE HIGH COURT HAD REMIT TED THE MATTER FOR ASSESSMENT YEAR 2000-01 AND 2001-02 TO THE FILE OF THE ITAT AND THE ITAT VIDE ORDER DATED 22.9.2011 HAS REMANDED BACK T HE MATTER TO THE FILE OF THE ASSESSING OFFICER TO FRESH CONSIDERAT ION. THE FACTS BEING ITA NO. 551/DEL/2011 19 IDENTICAL FOLLOWING THE PRECEDENT AS ABOVE WE ALS O REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 10 1010 10. .. . APROPOS GROUND NO. 5 : APROPOS GROUND NO. 5 : APROPOS GROUND NO. 5 : APROPOS GROUND NO. 5 : DISALLOWANCE OF 25 P DISALLOWANCE OF 25 P DISALLOWANCE OF 25 P DISALLOWANCE OF 25 PER CENT OF THE ER CENT OF THE ER CENT OF THE ER CENT OF THE PROVISION FOR OBSOLESCENCE. PROVISION FOR OBSOLESCENCE. PROVISION FOR OBSOLESCENCE. PROVISION FOR OBSOLESCENCE. 10.1 DURING THE YEAR UNDER CONSIDERATION PLACING RE LIANCE ON THE ORDERS PASSED BY HIS PRECEDECESSORS 25% OF THE PRO VISION FOR OBSOLESCENCE OF ` 122 373 000/- WAS DISALLOWED BY THE ASSESSING OFFICER IN THE DRAFT ASSESSMENT ORDER ON THE PREMI SE THAT THE SAID PROVISION IS IN THE NATURE OF AN UNASCERTAINED LIAB ILITY. THE DRP HAS UPHELD THE SAID DISALLOWANCE ON THE BASIS THAT TH E HONBLE DELHI HIGH COURT HAS IN CASE OF THE ASSESSEE ITSELF CONFIRMED THE SAME FOR ASSESSMENT YEAR 2000-01 AND 2001-02. 11. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APP EAL BEFORE US. 12. IT HAS BEEN CONTENDED BY THE LD. COUNSEL OF THE ASSESSEE THAT DRP HAS FAILED TO APPRECIATE THAT THE HONBLE DELHI HIGH COURT HAS CONFIRMED THE SAID DISALLOWANCE ON THE BASIS THAT D URING THE RELEVANT ASSESSMENT YEARS THE ASSESSEE FAILED TO DEMONSTRATE THAT THE SAID PROVISION HAS BEEN CREATED ON ANY SCIENTIFIC BASIS AND IT HAS BEEN CATEGORICALLY OBSERVED THAT DISMISSAL OF THE GROUND RAISED BY THE ASSESSEE IN RESPECT OF PROVISION FOR OBSOLESCENCE W OULD NOT PRECLUDE THE ASSESSEE FROM GIVING THE INFORMATION TO SUSTAIN THE CLAIM IN SUBSEQUENT ASSESSMENT YEARS AND THAT ONCE SUCH INFO RMATION IS PROVIDED THE ASSESSING OFFICER WOULD GIVE DUE CON SIDERATION TO THE SAME. IT HAS BEEN CLAIMED BY THE LD. COUNSEL OF TH E ASSESSEE THAT ITA NO. 551/DEL/2011 20 ASSESSEE IN THE CONCERNED ASSESSMENT YEAR HAS DULY S UBMITTED THE FOLLOWING DETAILS/ DOCUMENTS BEFORE THE ASSESSING O FFICER. * BASIS OF CREATION OF THE PROVISION FOR OBSOLESCEN CE COPY OF THE GLOBAL POLICY IN THIS REGARD AND JUSTIFICATION OF ALLOWABILITY OF THE PROVISION FOR T AX PURPOSES VIDE ITS SUBMISSIONS DATED DECEMBER 14 2009 (REFER PAGES 182 TO 194 OF THE PAPER BOOK II VOLUME-A) * ITEM-WISE DETAILS OF MOBILE PHONE ACCESSORIES A ND SPARES CONSIDERED OBSOLETE IN RESPECT OF WHICH PROVISION HAS BEEN CREATED VIDE ITS SUBMISSIONS DAT ED DECEMBER 22 2009 (REFER PAGES 254 TO 263 OF THE PAPER BOOK II VOLUME-A). 12.1 FURTHER IT HAS BEEN CONTENTION OF THE ASSESSE E THAT THE BASIS FOR CREATION OF PROVISION AND JUSTIFICATION IN RESPECT OF THE SAME WAS ALSO SUBMITTED BEFORE THE DRP. HENCE IT HAS BEEN CLAIMED BY THE ASSESSEE THE ASSESSING OFFICER AND THE DRP HAVE COMPLETELY IGNORED THE AFORESAID DETAILS AS SUBMITTED BY THE AS SESSEE AND HELD THAT THE PROVISION OF OBSOLESCENCE IS AN UNASCERT AINED LIABILITY. 12.2 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. IN OUR CONSIDERED OPINION IN LIGHT OF T HE ABOVE SAID SUBMISSIONS BY THE ASSESSEE THIS MATTER NEEDS TO B E REMITTED TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE ISSU E AFRESH AFTER PROVIDING THE ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. ITA NO. 551/DEL/2011 21 1 11 13 33 3. .. . APROPOS GROUND NO. 6 : DISALLOWANCE OF EXCESS DEPRE CIATION APROPOS GROUND NO. 6 : DISALLOWANCE OF EXCESS DEPREC IATION APROPOS GROUND NO. 6 : DISALLOWANCE OF EXCESS DEPREC IATION APROPOS GROUND NO. 6 : DISALLOWANCE OF EXCESS DEPREC IATION CLAIMED BY THE ASSESSEE ON COMPUTER PERIPHERALS @ 6 0% CLAIMED BY THE ASSESSEE ON COMPUTER PERIPHERALS @ 6 0% CLAIMED BY THE ASSESSEE ON COMPUTER PERIPHERALS @ 6 0% CLAIMED BY THE ASSESSEE ON COMPUTER PERIPHERALS @ 6 0% - -- - ALLOWED ALLOWED ALLOWED ALLOWED BY THE ASSESSEE @ 50%. BY THE ASSESSEE @ 50%. BY THE ASSESSEE @ 50%. BY THE ASSESSEE @ 50%. 13.1 THIS ISSUE PERTAINS TO CLAIM OF DEPRECIATION @ 60% ON UPS LAN/WAN EQUIPMENT SWITCHES NETWORK EQUIPMENT AND VISUAL STUDIO ETC. 13.2 WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN ITA NO. 1266/DE L/2010 IN THE CASE OF C.I.T. VS. BSES RAJDHANI POWERS LIMITED VIDE ORDER DATED 31.8.2010 WHEREIN IT WAS HELD THAT THE COURT WAS IN AGREEMEN T WITH THE VIEW OF THE TRIBUNAL THAT THE COMPUTER PERIPHERALS SUCH AS PRINTER SCANNER ETC. FORM AN INTEGRAL PART OF COMPUTER SYSTEM. IN F ACT THE COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER. CONSEQUENTLY AS THEY ARE THE PART OF THE COMPUTER S YSTEM THEY ARE ENTITLED TO DEPRECIATION @ 60%. RESPECTFULLY FOL LOWING THE ABOVE PRECEDENT WE SET ASIDE THE ORDER OF THE ASSESSING OFFICER AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 1 11 14 44 4. .. . APROPOS APROPOS APROPOS APROPOS GROUND NO. 7 GROUND NO. 7 GROUND NO. 7 GROUND NO. 7 CREDIT FOR THE ENTIRE AMOUNT OF TDS CREDIT FOR THE ENTIRE AMOUNT OF TDS CREDIT FOR THE ENTIRE AMOUNT OF TDS CREDIT FOR THE ENTIRE AMOUNT OF TDS CLAIMED BY THE ASSESSEE NOT GIVEN. CLAIMED BY THE ASSESSEE NOT GIVEN. CLAIMED BY THE ASSESSEE NOT GIVEN. CLAIMED BY THE ASSESSEE NOT GIVEN. 14.1 UPON CAREFUL CONSIDERATION WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE MATTER AFRESH. ITA NO. 551/DEL/2011 22 15. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24/11/2011. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 24/11/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT DELHI BENCHES