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2019 (8) TMI 349 - AT - Income TaxTP adjustment of ALP of the international transaction - royalty of technical know-how, assistance and trade mark - HELD THAT - The functional, assets and risk profile of the assessee also remained the same in the current year. We find merit in the above argument of the ld. counsel. A perusal of the royalty agreement w.e.f. 1st April, 2003 shows that the terms and conditions of the agreement are same as that of royalty agreement applicable during assessment years 2002-03 and 2003-04. The agreement effective as on 01.04.2001 as applicable during assessment years 2002-03 and 2003-04 was a single agreement which dealt with both technical know-how and assistance and trade mark whereas in the current year the assessee had split the royalty agreement into two separate agreements i.e., technical know-how and assistance agreement and use of trade mark made under the label of corporate agreement. Tribunal in assessee s own case 2017 (5) TMI 1639 - ITAT DELHI in the immediately preceding assessment year has deleted the adjustment made by the A.O./TPO on account of payment of royalty, therefore, we uphold the order of the CIT(A) on this issue and the ground raised by the Revenue on this issue is dismissed. Depreciation @ 60% on printers - HELD THAT - We find the issue relating to depreciation on computer peripherals, namely, printers and UPS at 60% stands decided in favour of the assessee by the coordinate Benches of the Tribunal where it is being consistently held that printers and UPSs are integral part of the computer system and are entitled to depreciation @ 60%. We, therefore, uphold the order of the CIT(A) in allowing depreciation @ 60% on computer peripherals and reverse the order of the CIT(A) in allowing 25% depreciation on UPSs as against 60% claimed by the assessee. Thus, the ground raised by the Revenue on this issue is dismissed and the additional ground raised by the assessee in Cross Objections is allowed. Allowing deduction u/s 80HHC - HELD THAT - Since the computation along with evidence was not submitted by the assessee either before the Assessing Officer or before the CIT(A) and since no such details are available in the audited accounts of the assessee as in the P L Account, there is only one entry i.e., receipt of ₹ 1,73,08,013/- on account of DEPB, therefore, we agree with the argument of the ld. DR that this matter should be restored to the file of the Assessing Officer with a direction to examine the profit element in the sale of DEPB licence and to recompute the deduction u/s 80HHC in the light of the decision in the case of Topman Exports 2012 (2) TMI 100 - SUPREME COURT . AO shall decide the issue as per fact and law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The issue relating to DEPB as per the first additional ground of the Cross Objections is allowed for statistical purposes. Interest income on fixed deposits for the computation of deduction u/s 80HHC - Assessee fairly conceded that this issue has been decided against the assessee by the Hon'ble High Court in the case of Ram Honda Power Equipment 2007 (1) TMI 86 - HIGH COURT, DELHI In view of the above submission of the ld. counsel for the assessee, this issue is decided against the assessee. Allowability of contribution to Group Gratuity Policy of LIC of India - the trust has not been approved by the Department - HELD THAT - We find an identical issue had come up before the Visakhapatnam Bench of the Tribunal in the case of District Cooperative Central Bank vs. ITO and Tribunal relying on various decisions held that the assessee is entitled for deduction for payment of group gratuity to LIC of India towards group gratuity scheme. It was held that the assessee has made the payments to the LIC towards group gratuity scheme directly in approved schemes. The assessee has also obtained the policy in favour of the bank. The assessee has no control over the funds contributed to LIC towards the gratuity. The assessee is receiving the gratuity payment directly from the LIC of India as per the scheme which is paid to the employee on happening of the event i.e. retirement or death or resignation. Respectfully following the decision cited (supra), we hold the assessee is entitled to the deduction for contribution to Group Gratuity Policy of LIC of India.
Issues Involved:
1. Exclusion of Sample Design and Development Charges for Deduction u/s 80HHC. 2. Depreciation on Computer Peripherals/Accessories. 3. Arm’s Length Price (ALP) of International Transactions. 4. Deduction under Section 80HHC for DEPB Credit. 5. Contribution to Group Gratuity Scheme of LIC. 6. Classification of Interest Income for Deduction u/s 80HHC. Detailed Analysis: 1. Exclusion of Sample Design and Development Charges for Deduction u/s 80HHC: The Revenue challenged the CIT(A)'s decision to include sample design and development charges in the calculation of deduction u/s 80HHC. The Tribunal upheld the CIT(A)'s decision, noting that similar issues in previous years had been decided in favor of the assessee. The Tribunal reiterated that such receipts are part of the export turnover and represent business income, thus should not be excluded under Explanation (baa) of section 80HHC. 2. Depreciation on Computer Peripherals/Accessories: The Assessing Officer had restricted depreciation on computer peripherals/accessories to 25% instead of the 60% claimed by the assessee. The CIT(A) allowed 60% depreciation on printers but restricted UPS to 25%. The Tribunal, following consistent decisions of coordinate Benches, held that both printers and UPSs are integral parts of the computer system and are entitled to 60% depreciation. Thus, the Tribunal upheld the CIT(A)'s decision for printers and reversed it for UPS, allowing 60% depreciation. 3. Arm’s Length Price (ALP) of International Transactions: The TPO proposed an upward adjustment of ?1,67,07,324/- for royalty payments, considering the assessee as a contract manufacturer. The CIT(A) deleted the addition, stating the royalty payment is at arm’s length as it is included in the sale price of garments. The Tribunal upheld the CIT(A)'s decision, noting that the terms of the royalty agreement were consistent with previous years where similar adjustments were deleted. The Tribunal emphasized that the royalty expenses are embedded in the sale price, making the transaction revenue neutral. 4. Deduction under Section 80HHC for DEPB Credit: The Assessing Officer excluded DEPB receipts from the calculation of deduction u/s 80HHC, citing lack of evidence. The CIT(A) directed exclusion of DEPB receipts without examining the profit component. The Tribunal remanded the issue back to the Assessing Officer to examine the profit element in the sale of DEPB licenses and recompute the deduction in light of the Supreme Court decision in Topman Exports. 5. Contribution to Group Gratuity Scheme of LIC: The Assessing Officer disallowed the contribution to the Group Gratuity Policy of LIC, as the trust was not approved by the Department. The Tribunal, relying on various decisions, held that such contributions are allowable under section 37(1) even if the trust is not approved, provided the payment is made to LIC. The Tribunal allowed the deduction for the contribution to the Group Gratuity Policy. 6. Classification of Interest Income for Deduction u/s 80HHC: The Assessing Officer treated interest income on fixed deposits as 'Income from Other Sources' and excluded it from the computation of deduction u/s 80HHC. The CIT(A) upheld this decision. The Tribunal confirmed the CIT(A)'s order, citing the Delhi High Court decision in Ram Honda Power Equipment, which classified such interest income as 'Income from Other Sources'. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objections for statistical purposes, providing specific directions for re-examination of certain issues by the Assessing Officer. The decision reinforced the principles of consistency and detailed examination of facts in determining the arm’s length nature of international transactions and the applicability of deductions under the Income Tax Act.
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