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2013 (8) TMI 753 - AT - Income TaxComparison - Arm s length price Comparability of price with the chosen company - whether Assessee is in merely functional advisory consultancy service without any risk to its sister companies Held that - Apropos assessee s contention that assessee is in merely functional advisory consultancy service without any risk cannot be accepted as in preceding two years the ITAT 2012 (10) TMI 779 - ITAT, DELHI has held that it is in marketing services which carry elements of risk and the assessee s services are to be treated as marketing services. Relying upon the decision in the case of MCI Com India (P.) Ltd 2012 (10) TMI 790 - ITAT DELHI , it has been held that companies like EIL, Rites, Wapsos and TCE are engineering companies and provide end to end solutions and therefore they cannot be compared with those assessee who were into providing marketing support services to the parent company. They were held to be functionally not comparable with thee engineering companies - Therefore, they are to be excluded - Matter to go back to the file of AO /TPO who will determine the T.P. adjustments by excluding Vapi and WAPCOS comparables. Rate of depreciation on computers Assessee charged depreciation @ 60% - Held that - It is well settled that computers and peripherals are eligible for depreciation @ 60%. Besides assessee s opening WDV cannot be disturbed.
Issues Involved:
1. Transfer Pricing Adjustments 2. Disallowance of Club Entrance Charges 3. Reduction of Depreciation Allowance 4. Charging of Interest under Sections 234B and 234D Detailed Analysis: 1. Transfer Pricing Adjustments: The primary issue involves the confirmation of an addition of Rs. 3,83,76,374 to the appellant's income based on the Transfer Pricing Officer's (TPO) assessment that the international transactions did not meet the arm's length principle. The appellant argued that the TPO included companies that were not comparable in terms of functions, assets, and risks. Specifically, the appellant contested the inclusion of Vapi Waste & Effluent Management Co. Ltd. and WAPCOS Ltd., asserting that these companies operate in different sectors involving high-end technical and engineering services, unlike the appellant's financial advisory support services. The Tribunal agreed with the appellant, citing precedent cases (MCI Com India (P.) Ltd. and Verizon India (P.) Ltd.) that established such companies as not comparable to entities providing marketing support services. Consequently, the Tribunal directed the exclusion of these companies from the comparables, remanding the matter back to the AO/TPO for re-determination of Transfer Pricing adjustments. 2. Disallowance of Club Entrance Charges: The appellant contested the disallowance of Rs. 7,00,000 on account of club entrance charges, which the Assessing Officer (AO) deemed a capital expenditure. The appellant argued that the expenditure was business-related. The Tribunal, referencing the Supreme Court's decision in CIT v. United Glass Mfg. Co. Ltd. and the Delhi High Court's decisions in CIT v. Samtel Color Ltd. and CIT v. Nestle India Ltd., allowed the claim, recognizing the business expediency of the expenditure. 3. Reduction of Depreciation Allowance: The appellant challenged the reduction of depreciation allowance by Rs. 63,787 on items such as Docking stations and Rack 42u, which the AO classified as 'plant and machinery' depreciable at 15%, rather than 'computers' depreciable at 60%. The Tribunal upheld that computers and peripherals are eligible for 60% depreciation and directed the AO to allow this rate without disturbing the opening Written Down Value (WDV). 4. Charging of Interest under Sections 234B and 234D: The Tribunal noted that the charging of interest under sections 234B and 234D is consequential and did not require further deliberation. Conclusion: The Tribunal allowed the appellant's appeal in part, directing the exclusion of non-comparable companies from the Transfer Pricing analysis, allowing the club entrance fee as a deductible expenditure, and confirming the higher depreciation rate for computer peripherals. The matter regarding Transfer Pricing adjustments was remanded back to the AO/TPO for re-evaluation.
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