2022 (12) TMI 999 - AT - Income Tax

Disallowance of depreciation in respect of asset given on lease - the lessee has been given only right to use the asset for the terms of the lease on payment of specified lease rent for a lease period of 10 years - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in Reliance Corporate IT Park Ltd. 2019 (6) TMI 1489 - ITAT MUMBAI while deciding similar issue in favour of the assessee following the ratio of the Hon'ble Supreme Court in the case of ICDS 2013 (1) TMI 344 - SUPREME COURT we are of the considered view that the assessee is entitled for depreciation on the leased asset as per provisions of section 32(1) - CIT(A) after considering relevant facts has rightly deleted additions made by the AO towards disallowance of depreciation, hence, we are inclined to uphold the findings of the Ld CIT(A) and reject the ground taken by the Revenue. Transfer pricing adjustment qua the comparables - benchmarking the international transaction pertaining to provision of ITeS services - HELD THAT - Companies functionally dissimilar with that of assessee need to be deselected from final list.

Issues Involved:
1. Deletion of disallowance of depreciation on assets given on lease.
2. Rejection of Excel Infoways Limited as a comparable.
3. Rejection of Eclerx Services Ltd as a comparable.
4. Rejection of Acropetal Technologies Limited as a comparable.
5. Inclusion of Sparsh BPO Services Ltd as a comparable.
6. Inclusion of Techprocess Payment Services Ltd as a comparable.
7. Rejection of BVG India Ltd as a comparable.
8. Rejection of Inmacs Management Services Limited as a comparable.

Detailed Analysis:

1. Deletion of Disallowance of Depreciation on Assets Given on Lease:
The issue pertains to the deletion of disallowance of depreciation in respect of assets given on lease. The assessee had leased its polymer plant to Reliance Industries Ltd and claimed depreciation on the leased assets. The AO disallowed the depreciation claim, arguing that in a finance lease, the lessee is entitled to claim depreciation. However, the CIT(A) allowed the appeal, following the Tribunal's decision in the assessee's own case for the preceding assessment year. The Tribunal upheld the CIT(A)'s order, noting that the ownership of the asset remained with the assessee during the lease period, and the lessee did not claim depreciation. The Tribunal referenced the Supreme Court's decision in ICDS vs CIT, which held that the lessor is entitled to claim depreciation if they retain ownership of the asset.

2. Rejection of Excel Infoways Limited as a Comparable:
The TPO included Excel Infoways Ltd as a comparable for benchmarking the international transaction pertaining to 'provision of ITeS services'. The CIT(A) rejected this company as a comparable, citing unreliable segmental data and non-comparable employee costs. The Tribunal upheld the CIT(A)'s decision, noting that the segmental results were not reliable, and the employee cost could not be computed for the relevant segment.

3. Rejection of Eclerx Services Ltd as a Comparable:
The TPO included Eclerx Services Ltd as a comparable, arguing that it provides data processing and data analytics services. The CIT(A) rejected this company as a comparable, following the Tribunal's decision in the assessee's own case for the preceding assessment year. The Tribunal upheld the CIT(A)'s decision, noting that Eclerx Services Ltd is a KPO company providing high-end services, which are not comparable to the low-end ITeS services provided by the assessee.

4. Rejection of Acropetal Technologies Limited as a Comparable:
The TPO included Acropetal Technologies Ltd as a comparable, based on its Healthcare BPO segment. The CIT(A) rejected this company as a comparable, citing unreliable segmental results due to significant un-allocable expenses. The Tribunal upheld the CIT(A)'s decision, noting that the financial information was unreliable, and the employee cost could not be computed for the relevant segment.

5. Inclusion of Sparsh BPO Services Ltd as a Comparable:
The TPO rejected Sparsh BPO Services Ltd as a comparable, citing negative net worth. The CIT(A) included this company as a comparable, noting that the net worth was incorrectly computed by the TPO. The Tribunal upheld the CIT(A)'s decision, noting that the correct net worth was not negative, and the functional comparability was not in dispute.

6. Inclusion of Techprocess Payment Services Ltd as a Comparable:
The TPO rejected Techprocess Payment Services Ltd as a comparable, arguing that it has high intangibles and performs different functions. The CIT(A) included this company as a comparable, noting no change in its functional profile from the preceding assessment year. The Tribunal upheld the CIT(A)'s decision, noting that the company was considered comparable in the preceding year, and there was no change in its functional profile.

7. Rejection of BVG India Ltd as a Comparable:
The TPO included BVG India Ltd as a comparable. The CIT(A) rejected this company as a comparable, citing functional differences and domestic operations. The Tribunal upheld the CIT(A)'s decision, noting that the company operates in various business verticals and its revenue is from domestic contracts, unlike the assessee's export services.

8. Rejection of Inmacs Management Services Limited as a Comparable:
The TPO included Inmacs Management Services Ltd as a comparable. The CIT(A) rejected this company as a comparable, citing non-availability of its annual report in the public domain. The Tribunal upheld the CIT(A)'s decision, noting that the data was not available in the public domain, and the company could not be considered comparable in its absence.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. Consequently, the cross-objection filed by the assessee was dismissed as infructuous.

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