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2015 (7) TMI 239 - AT - Income TaxDepreciation on computer accessories and peripherals - @60% OR 25% - Held that - As relying on case of CIT vs. BSES Rajdhani Powers Limited 2010 (8) TMI 58 - DELHI HIGH COURT Computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system. In fact, the computer accessories and peripherals cannot be used without the computer. Consequently, as they are the part of the computer system, they are entitled to depreciation at the higher rate of 60%. - Decided in favour of assessee. TP adjustment - CIT(A) deleting the addition made by the AO u/s. 92CA(4) on account of TP adjustment - Held that - CIT (A) had taken note that the arm s length margin of finally selected comparable companies is 15.95% against the assessee s margin of 12% for provision of contract software development services. The ld. CIT (A) found that the OP/TC of 12% earned by the appellant falls within the range allowed by Proviso to Section 92C(2) of the Act. Accordingly, the ld. CIT (A) rightly found that the assessee s international transactions with its AE s with respect to provision of contract software development services during the FY 2004-05 is at arm s length. CIT(A) has rightly held that the assessee‟s international transaction was at arm‟s length and thus no addition as directed by the TPO was warranted. In the background of the aforesaid discussions and respectfully following the precedent as aforesaid as laid in Agnity India Technologies (2010 (11) TMI 852 - ITAT DELHI ), we do not find any infirmity in the impugned order of the Ld. CIT(A) on the ALP issue, which does not need any interference on our part, hence, we uphold the same - Decided in favour of assessee.
Issues Involved:
1. Depreciation on computer accessories and peripherals. 2. Adjustment under section 92CA(3) of the Income Tax Act on account of Transfer Pricing (TP) for software development services. Detailed Analysis: 1. Depreciation on Computer Accessories and Peripherals: The Revenue contended that the depreciation rate for computer accessories and peripherals should be 25%, as opposed to the 60% claimed by the assessee. The Assessing Officer (AO) had reduced the depreciation rate, resulting in an addition of Rs. 25,97,918/- to the taxable income. The CIT(A) allowed the higher depreciation rate of 60%, considering the items such as switches, back-up storage devices, servers, and projectors as integral parts of the computer system. This decision was based on the precedent set by the Hon'ble Delhi High Court in the case of CIT vs. BSES Rajdhani Powers Limited, which held that computer accessories form an integral part of the computer system and are eligible for higher depreciation. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in allowing the higher depreciation rate of 60% for computer accessories and peripherals. The issue was dismissed, affirming the CIT(A)'s order. 2. Adjustment under Section 92CA(3) on Account of TP for Software Development Services: The AO made an addition of Rs. 2,31,97,273/- based on the Transfer Pricing Officer's (TPO) determination of the arm's length price (ALP) for international transactions. The TPO had initially considered 87 companies as comparables, which were filtered down to seven companies with an OP/TC of 21.60%. The CIT(A) excluded Infosys Technologies Ltd. and Satyam Computer Services Ltd. from the list of comparables, reducing the arm's length margin to 15.95%. The CIT(A) observed that Infosys Technologies Ltd. and Satyam Computer Services Ltd. were not comparable due to their significantly larger size, diversified services, substantial R&D activities, and unreliable financial statements in the case of Satyam. The Tribunal agreed with the CIT(A)'s exclusion of these companies, citing the Delhi Tribunal's decision in Agnity India Technologies vs. ITO, which held that a captive unit with limited risk cannot be compared with a giant company assuming all types of risks. The Tribunal upheld the CIT(A)'s finding that the assessee's margin of 12% fell within the permissible range of +/-5% as per the Proviso to Section 92C(2) of the Act, thus confirming that the international transactions were at arm's length. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on both issues: 1. The higher depreciation rate of 60% for computer accessories and peripherals was upheld. 2. The exclusion of Infosys Technologies Ltd. and Satyam Computer Services Ltd. from the list of comparables for TP adjustment was upheld, confirming the assessee's international transactions were at arm's length. The appeal of the Revenue was dismissed, and the order was pronounced in the Open Court on 30/06/2015.
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