2015 (11) TMI 1766 - AT - Income Tax

Interest accrued on the deferred installments towards the premium of the premises - Interest to NOIDA Authority towards the allotment of plot to the assessee and claimed the same as deduction - allowable business expenditure u/s 37 - Held that - The facts are not disputed that the interest claimed by assessee was in respect of deferred instalments after the land including the superstructure was put to use on acquisition. Therefore ld. CIT(A) rightly held that the interest pertaining to the period post acquisition and putting of such land including the superstructure in use could not be capitalized along with the cost of land. We are in agreement with the view taken by ld. CIT(A) which is also fortified by the decision of Hon ble Supreme Court in the case of Bombay Steam Navigation Co. (P) Ltd. (1964 (10) TMI 12 - SUPREME COURT). Depreciation on computer accessories and peripherals such as printer scanners and server - Held that - The said issue is covered by the decision of Hon ble Delhi High Court in the case of CIT Vs. BSES Yamuna Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT holding that the depreciation on computer accessories and peripherals such as printer scanners and server was to be allowed @ 60% the same being part of computer system. TPA - Comparable selection - Held that - Since the OP/OC of each comparable affected the average margin on the basis of which addition is made therefore computation of correct OP/OC of each comparable is of paramount importance. We therefore restore this issue to the file of ld. TPO to examine the assessee s contention. Ground is allowed for statistical purposes. Misc. income as operating income in computing the operating margins of Mahindra Acres Consulting Engineers Ltd. and Rites Ltd. - Held that - The assessee s reliance is on the decision of the ITAT in the case of M/s bobst India Pvt. Ltd. Vs. ACIT 2014 (2) TMI 1347 - ITAT PUNE in which it has been held that any item of income or expenditure which is not linked to the international transactions under review has to be excluded from the computation of net operating profits and operating revenues. We find that this plea has not been taken before CIT(A) and therefore we refrain from making any comment on this aspect particularly because if this principle is to be applied then it is to be applied in respect of all the items of income and expenditure which aspect has not been examined by lower revenue authorities. Since this issue does not arise out of the CIT(A) s order we refrain to adjudicate the same. Ground is dismissed.

Summary

Issues Involved:

1. Treatment of provisions written back as operating income.
2. Treatment of provisions created during the year as operating expenditure.
3. Disallowance of interest paid to NOIDA Authority.
4. Depreciation rate on computer peripherals.
5. Use of current year financial information for comparability analysis.
6. Inclusion of Esquires Engineers & Consultants in the list of comparables.
7. Classification of operating and non-operating expenses for comparability analysis.
8. Consideration of miscellaneous income as operating income.

Detailed Analysis:

1. Treatment of Provisions Written Back as Operating Income:

The primary issue was whether provisions written back during the year should be treated as operating income. The CIT(A) observed that the TPO had already treated the provision written back as operating income. The Tribunal upheld this view, dismissing the department's ground as misconceived.

2. Treatment of Provisions Created During the Year as Operating Expenditure:

The second issue was whether provisions created during the year should be considered as operating expenditure. The CIT(A) held that provisions created during the year are a normal business incidence and should be treated as operating expenditure. The Tribunal agreed with the CIT(A) and dismissed the department's ground, emphasizing the application of the Matching Concept in accounting.

3. Disallowance of Interest Paid to NOIDA Authority:

The assessee had paid interest to NOIDA Authority for the allotment of a plot and claimed it as a deduction. The AO disallowed this, treating it as a capital expenditure. The CIT(A) allowed the claim, stating that interest pertaining to the period post-acquisition and putting the land to use could not be capitalized. The Tribunal upheld this view, referencing the Supreme Court decision in Bombay Steam Navigation Co. (P) Ltd. vs. CIT, and dismissed the department's ground.

4. Depreciation Rate on Computer Peripherals:

The issue was whether depreciation on computer peripherals should be allowed at 60%. The CIT(A) allowed the depreciation at 60%, following the Delhi High Court decision in CIT vs. BSES Yamuna Powers Ltd. The Tribunal upheld this decision, dismissing the department's ground.

5. Use of Current Year Financial Information for Comparability Analysis:

The assessee contested the use of current year financial information for comparability analysis, arguing it was not available at the time of filing the return. The Tribunal dismissed this ground, stating it is well-settled law that only current year's financial information should be used.

6. Inclusion of Esquires Engineers & Consultants in the List of Comparables:

The assessee argued for the inclusion of Esquires Engineers & Consultants in the list of comparables. The Tribunal restored this issue to the TPO for reconsideration, allowing the ground for statistical purposes.

7. Classification of Operating and Non-Operating Expenses for Comparability Analysis:

The assessee contended that certain expenses were wrongly classified as non-operating and vice versa. The Tribunal restored this issue to the TPO for examination, emphasizing the importance of correct OP/OC computation for comparables.

8. Consideration of Miscellaneous Income as Operating Income:

The assessee argued that miscellaneous income should not be considered as operating income. The Tribunal refrained from adjudicating this issue as it was not raised before the CIT(A) and did not arise from the CIT(A)'s order, dismissing the ground.

Conclusion:

The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection for statistical purposes. The order was pronounced in open court on 27/11/2015.