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2018 (6) TMI 1844 - AT - Income TaxTP Adjustment - addition on account of Arm s Length Price - comparable selection - assessee is engaged in the business of providing IT-enabled Services(ITES) and business support services such as financial reports/related documents technical service for development of software and other similar services to its AE on a cost plus mark up basis - HELD THAT - It is pertinent to note that the Tribunal in assessee s own case for A.Y. 2007-08 2017 (12) TMI 1731 - ITAT DELHI rejected the three comparables i.e. Vishal Information Technologies Ltd. Wipro Ltd. Mold-tek Technological Ltd. as functionally different from the assessee company. Genesys International Corporation Ltd.comparable provides Geospatial Services viz. photogrammetric services preparation of cadastral maps from aerial photographs etc. using niche software tolls which requires a different skill set e.g. services of draftsman cartographers and civil engineers etc. and need highly skilled manpower. Therefore this comparable is rightly rejected by the CIT(A) as given a categorical finding as to the function of the comparable and the requirement of the highly skilled manpower. Excess depreciation on computer accessories - Whether eligible items for depreciation at 60%? - HELD THAT - CIT(A) has given the finding that the assessee had purchased computer peripherals like wireless access point G-Tran Carry cass Pan Cards spike buster pen drive ETI enhancements switches keylock battery tae extension card tv tune convertor charger etc. Rs. 1, 62, 975/- as computer peripherals. The Hon ble Jurisdictional High Court in BSES Yamuna Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT classified these items as eligible items for depreciation at 60%. Therefore the decision of the Hon ble Jurisdictional High Court is squarely applicable in assessee s case. Therefore Ground No. 2 of the Revenue s appeal is dismissed.
Issues Involved:
1. Deletion of addition on account of Arm's Length Price (ALP) adjustment. 2. Deletion of addition on account of excess depreciation on computer accessories. Detailed Analysis: 1. Deletion of Addition on Account of Arm's Length Price (ALP) Adjustment: The assessee, an Indian company engaged in IT-enabled services and business support services, had international transactions with associated enterprises (AEs) for the financial year 2007-08. The Transfer Pricing Officer (TPO) made an adjustment of Rs. 52,85,962/- to the international transactions in the ITES segment by selecting 20 comparables and using the Transactional Net Margin Method (TNMM). The Assessing Officer (AO) included this adjustment in the assessment order. The CIT(A) excluded four companies (Vishal Information Technologies Ltd., Mold-tek, Genesys International Ltd., and Wipro Ltd.) from the comparables list used by the TPO, citing functional dissimilarity. The Tribunal upheld the CIT(A)'s decision based on the following grounds: - Vishal Information Technologies Ltd.: The Tribunal noted that Vishal operates on an outsourcing business model with a low asset base and employee cost ratio of 2% compared to the assessee's 36%. Previous Tribunal decisions also supported the exclusion of Vishal due to its different business model. - Wipro Ltd.: The Tribunal found Wipro to be functionally dissimilar due to its wide spectrum of services, high revenue, significant expenditure on R&D, and ownership of intangibles. Previous decisions by the Delhi High Court and the Tribunal supported the exclusion of Wipro due to its giant status, brand value, and global presence. - Mold-tek Technologies Ltd.: The Tribunal noted Mold-tek's involvement in engineering consulting services, which are functionally different from the assessee's services. Additionally, Mold-tek's extraordinary profit and business restructuring activities justified its exclusion. - Genesys International Ltd.: The Tribunal agreed with the CIT(A) that Genesys provides high-end geospatial services requiring highly skilled manpower, making it functionally different from the assessee. The Tribunal concluded that the CIT(A) correctly excluded these comparables and upheld the deletion of the ALP adjustment, dismissing the Revenue's appeal on this ground. 2. Deletion of Addition on Account of Excess Depreciation on Computer Accessories: The AO had disallowed excess depreciation claimed on computer accessories amounting to Rs. 73,339/-. The CIT(A) allowed the depreciation at a higher rate of 60%, relying on the jurisdictional High Court's decision in CIT vs. BSES Yamuna Powers Ltd., which held that computer peripherals form an integral part of the computer system and are eligible for higher depreciation. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's computer peripherals (e.g., wireless access points, pen drives, switches, etc.) qualify for 60% depreciation as per the High Court's ruling and other Tribunal decisions. The Tribunal dismissed the Revenue's appeal on this ground as well. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The adjustments made by the AO on account of ALP and excess depreciation were deleted, favoring the assessee. The order was pronounced in the Open Court on 13th June 2018.
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