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2014 (12) TMI 757 - AT - Income TaxRestriction of rate of depreciation on ITG Networking Equipments @ 25% against 60% - Held that - The AO restricted the claim of depreciation on ITG Networking Equipments by relying on the view taken by him for the AY 2002-03 - the applicability of higher rate of depreciation is accepted by relying on the Special Bench order passed in the case of DCIT vs. Data Craft India Ltd. 2010 (7) TMI 642 - ITAT, MUMBAI - in the absence of any distinguishing feature having been brought to our notice by the revenue about the facts of the instant year and the preceding year Decided in favour of assessee. Depreciation on company owned vehicles disallowed Held that - The company provided vehicles to its employees for their use for which the purchase price was paid by the company, unless it exceeded the benchmark fixed by it in DCIT vs. Haryana Oxygen Ltd. 1999 (12) TMI 107 - ITAT DELHI-D it has been held that use of car by directors-employees of a company cannot be characterized as used for non-business purpose and, hence, no part of car expenses incurred on such cars can be disallowed. In Sayaji Iron and Engineering Company vs. CIT 2001 (7) TMI 70 - GUJARAT High Court it has been held that once the directors of the assessee company were entitled to use the vehicles of the company for the personal use as per the terms and conditions of their appointment, it cannot be said that the assessee incurred expenditure for the personal use of cars by the directors - such user of vehicles by the employees of the company cannot even be considered as non-business user - There are innumerable judgments on this point holding that there can be no disallowance of depreciation or other expenses on maintenance of the vehicles used by the directors/employees by treating it as personal user or non-business user of the company there is no rationale in treating the amount of depreciation on cars as for personal use, when admittedly these have been provided to employees - a company is a separate legal entity distinct from its directors or employees - as such, there can be no occasion to treat the use of vehicles by the directors/employees as a personal use by the company - the deletion of the addition of depreciation on such vehicles is ordered. Prior period expenses disallowed Held that - The assessee debited Prior period expenses amounting to ₹ 83,62,295/- These expenses were voluntarily not claimed as deduction in the computation of income for the AY 2007-08 - the Prior period expenses appearing in the accounts for the AY 2007-08 would mean that the expenses were incurred for the earlier years including AY 2006-07 the assessee incurred some expenses for the period relevant to the AY 2006-07 during the period relevant to the AY 2007-08 without claiming deduction in the computation of income of any of the years - Such expenses deserve to be allowed as deduction in the computation of income, to which they pertain - there can be no reason to deny deduction for such expenses genuinely incurred for the purpose of business, if these are otherwise deductible as per law thus, the matter is remitted back to the AO to scrutinize the details of such prior period expenses booked in the accounts for AY 2007-08 for ascertaining if these were incurred for the AY 2006-07 and then to that extent allow deduction, if these are otherwise deductible. Transfer pricing adjustment Selection of comparables - Engineers (India) Ltd.- International transaction of provision of marketing support services Held that - Simply because the assessee chose an incomparable company as comparable for an earlier year, cannot bind it for all the years to come - What is required to be examined is the actual comparability for the year in question rather than what was done in the past - If the assessee, having included the name of a company in its comparables for the earlier years or even for the current year, contends before the TPO or DRP etc., that this company is not, in fact, comparable, then it is for the authorities to first decide the comparability on merits and then proceed for its inclusion or exclusion in/from the list of comparables. A mere claim made by the assessee for considering a company as comparable, does not ipso facto lead to its final inclusion or exclusion. It is only when the TPO examines the assessee s contention that he can reach a positive conclusion about the comparability of such a company - Engineers (India) Ltd., is a company providing engineering and related technical services for petroleum refineries and other industrial projects - This company has two business segments, namely, Consultancy & Engineering projects and Lumpsum Turnkey projects - These services are in the nature of engineering services, which, by no standard, can be compared with the marketing support services provided by the assessee to its AEs in CIT vs. Verizon India (P) Ltd. 2013 (7) TMI 699 - DELHI HIGH COURT it has bene held that marketing services cannot be compared with the engineering services - marketing services provided by that assessee were entirely different from the set of services in the nature of engineering services rendered by the comparables - Engineers (India) Ltd., is engaged in providing engineering services, the same cannot be considered as comparable with the assessee, who is engaged in providing marketing support services - This company is directed to be excluded from comparables. RITES Ltd. Vinita Labs Ltd. - Functionally dissimilar company - Held that - This company is primarily a consultancy organization rendering consultancy services in all facets of transportation. Its major areas of operations are consultancy services; Export of Rolling Stock, Equipments and Spares; and leasing of Railway Rolling Stock and Equipments - the functional profile of this company is nowhere near the assessee, which is simply providing marketing support services by largely creating customer awareness for the Microsoft products in India - This company is directed to be excluded. TCE Consulting Engineers Ltd. Held that - This company is engaged in the provision of engineering services, such as, operation and design engineering, upgradation & renovation services, surveys & field investigation services - This company is operating only in one segment, namely, engineering consultancy services - there can be no comparison of this company with the assessee company - This company is also directed to be expelled from the list of comparables Decided in favour of assessee.
Issues Involved:
1. Rate of depreciation on ITG Networking Equipments. 2. Disallowance of depreciation on company-owned vehicles. 3. Disallowance of running and maintenance expenses of vehicles. 4. Disallowance of prior period expenses. 5. Transfer pricing adjustment. Issue-wise Detailed Analysis: 1. Rate of Depreciation on ITG Networking Equipments: The assessee claimed depreciation at 60% on ITG Networking Equipments under the block of Computers, which the AO restricted to 25%. The Tribunal noted that the AO relied on his order for the AY 2002-03, which had been overturned by the Tribunal, allowing the higher rate of depreciation. The Tribunal, following the precedent, allowed the higher rate of depreciation at 60%. 2. Disallowance of Depreciation on Company-Owned Vehicles: The assessee claimed depreciation on vehicles used by its employees, which the AO disallowed, citing personal use by employees. The Tribunal found that the vehicles were provided by the company and the expenses incurred were for business purposes. Citing judgments from the Delhi Bench of the Tribunal and the Hon'ble Gujarat High Court, the Tribunal held that use of vehicles by employees does not constitute personal use by the company and ordered the deletion of the disallowance. 3. Disallowance of Running and Maintenance Expenses of Vehicles: The AO disallowed 50% of running and maintenance expenses of vehicles used by employees for non-business purposes. The Tribunal noted that this issue was covered by similar judgments which held that such expenses cannot be disallowed as personal or non-business use. The Tribunal ordered the deletion of the disallowance. 4. Disallowance of Prior Period Expenses: The assessee claimed deduction for expenses incurred in AY 2006-07 but recorded in AY 2007-08. The DRP did not address this claim. The Tribunal noted that expenses incurred for business purposes should be deductible in the year they relate to, even if recorded later. The Tribunal remanded the matter to the AO to verify the details and allow the deduction if the expenses pertained to AY 2006-07 and were otherwise deductible. 5. Transfer Pricing Adjustment: The assessee reported several international transactions, with the TPO challenging only the 'Provision of marketing support services'. The TPO used single-year data and included five new comparables to determine the ALP, leading to an adjustment of Rs. 28.55 crore. The Tribunal found that the nature of the assessee's activities did not match the new comparables, which were involved in engineering and consultancy services. The Tribunal directed the exclusion of these five companies from the list of comparables and remanded the matter to the TPO/AO to recompute the ALP, allowing the assessee a reasonable opportunity to be heard. Conclusion: The appeal was partly allowed, with the Tribunal providing detailed directions on each issue, ensuring adherence to legal precedents and principles of comparability in transfer pricing. The order was pronounced in the open court on 18.12.2014.
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