2018 (10) TMI 424 - AT - Income Tax

Depreciation on certain items characterized as computers (viz. UPS, LAN/WAN equipment, catalyst switches, network equipments, etc.) - reduction from 60% to 15%, by treating the same as Plant and Machinery and thus, disallowing depreciation - Held that - The equipment forms integral part of the computer systems and the assessee is entitled to the claim of depreciation at 60% by treating the peripherals as part of block of computers. Depreciation at 25% on Goodwill acquired from purchase of networks business disallowed - Held that - The additional claims taken before us were already submitted before the Assessing Officer vide submissions dated 04.10.2012, therefore, we are inclined to admit the claims. We remand back this issue to the file of the Assessing Officer for adjudication. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. TPA - Comparable selection criteria - Held that - Companies functinal dissimilar with that of assessee need to be deselected from final list.

Issues Involved:
1. Validity of the Assessment Order.
2. Depreciation on certain items characterized as "computers."
3. Disallowance under section 40(a)(i) of the Income Tax Act.
4. Depreciation on goodwill.
5. Transfer Pricing adjustments.
6. Short credit of TDS.
7. Initiation of penalty proceedings under section 271(1)(c).
8. Levy of interest under sections 234B and 234D.
9. Calculation of interest under sections 234B and 234D.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:
The appellant challenged the assessment order as being arbitrary and in violation of principles of natural justice. However, this ground was not adjudicated as it was considered general in nature.

2. Depreciation on Certain Items Characterized as "Computers":
The appellant argued that items such as UPS, LAN/WAN equipment, catalyst switches, and network equipment should be classified as "computers" and thus eligible for 60% depreciation. The Tribunal found that the issue was identical to a previous case (M/s Nokia Siemens Networks India for AY 2008-09) where such items were considered integral parts of computer systems and allowed 60% depreciation. Therefore, the Tribunal allowed the appellant's claim for higher depreciation.

3. Disallowance Under Section 40(a)(i):
The appellant faced disallowance of ?33,27,776 on payments made to foreign entities, classified as Fee for Technical Services (FTS), without withholding tax. The appellant could not produce necessary details during the assessment but provided them later. The Tribunal admitted the additional evidence and remanded the issue back to the Assessing Officer for fresh adjudication, ensuring the principles of natural justice were followed.

4. Depreciation on Goodwill:
The appellant claimed 25% depreciation on goodwill arising from the purchase of network business, which was disallowed by the Assessing Officer. The Tribunal admitted the appellant's additional claims, which were initially submitted before the Assessing Officer, and remanded the issue back for fresh adjudication, ensuring the appellant was given a fair hearing.

5. Transfer Pricing Adjustments:
The appellant challenged several aspects of the transfer pricing adjustments made by the Transfer Pricing Officer (TPO) and upheld by the Dispute Resolution Panel (DRP):

- Software Development Segment: The Tribunal followed its previous decision in M/s Nokia Siemens Networks India (AY 2008-09), excluding certain comparables and including others, and remanded the issue back to the TPO for re-evaluation.

- Network Division (Support Service Segment): The Tribunal directed the exclusion of certain comparables (Apitco Ltd., IDC (India) Ltd., RITES (Seg), WAPCOS Ltd. (Seg)) as they were functionally different from the appellant. The issue was remanded back to the TPO for fresh adjudication.

- Working Capital Adjustment: The Tribunal directed the TPO to grant working capital adjustment to account for differences in working capital employed by the appellant and comparable companies, following its previous decision in M/s Nokia Siemens Networks India.

Other grounds related to the transfer pricing adjustments were either not pressed by the appellant or dismissed.

6. Short Credit of TDS:
The appellant claimed short credit of TDS which was not properly addressed by the Assessing Officer. The Tribunal remanded the issue back to the Assessing Officer for proper adjudication, ensuring the appellant was given a fair hearing.

7. Initiation of Penalty Proceedings Under Section 271(1)(c):
The ground related to the initiation of penalty proceedings was considered consequential and not adjudicated upon at this juncture.

8. Levy of Interest Under Sections 234B and 234D:
The appellant challenged the levy of interest under sections 234B and 234D. This ground was also considered consequential and not adjudicated upon at this juncture.

9. Calculation of Interest Under Sections 234B and 234D:
The appellant raised issues regarding the calculation of interest under sections 234B and 234D. This ground was considered consequential and not adjudicated upon at this juncture.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remanded back to the Assessing Officer and TPO for fresh adjudication, ensuring the principles of natural justice were followed.

← Previous Next →