2023 (11) TMI 797 - AT - Income Tax

TP Adjustment - international transactions of the assessee pertaining to payment of management fees - CIT(A) restricting the arms length price of international transaction of management fees paid by the assessee to 1.5% of the operating revenue of the assessee - HELD THAT - In view of the observations made by the ITAT in assessee s own case for assessment year 2011-12 2020 (1) TMI 154 - ITAT AHMEDABAD we observe that the ITAT has clarified that 2% of the operating revenue of manufacturing segment would be allowable to the assessee towards management charges. Excess depreciation claimed on computer software license - assessee had claimed depreciation @ 60% on computer software installed during the year under consideration - AO considered this software as intangible and restricted the depreciation on such software @ 25% - HELD THAT - We observe that in the case of CIT vs. Computer Age Management Services 2019 (7) TMI 1153 - MADRAS HIGH COURT has held that where software license acquired by the assessee was in the nature of software application, the assessee was eligible to claim depreciation @ 60%. Again, in the case of A.R. Kema Medical India Pvt. Ltd. 2022 (4) TMI 1182 - ITAT MUMBAI again held that where the assessee purchased license of ERP SAP Software, the assessee was entitled to depreciation on such license @ 60%. Again, in the case of Castus Imaging India Pvt. Ltd. 2018 (5) TMI 636 - MADRAS HIGH COURT decided that printer being part of computer, it is eligible for depreciation at higher rate of 60%. Thus CIT(A) has not erred in allowing depreciation @ 60% on such computer software. Decided in favour of assessee. Excess claim of consumption of own generation of electricity - HELD THAT - We observe that on perusal of the paper book, it is seen that the assessee had filed various invoices for hiring of generator sets, which have not been disputed. Further, the assessee had also submitted that invoices for purchase of oil for running the DG sets. More importantly, it is also observed that the production in the aforesaid units had also taken place during the impugned year under consideration and the income therefrom has been offered to tax. Accordingly, assessee has produced necessary invoices for taking the DG sets on rent and the invoices for the purchase of oil for running the aforesaid DG sets. Income from manufacturing units have duly been offered to tax by the assessee and also that while disallowing the aforesaid expenditure, AO has also not rejected the books of accounts of the assessee. Accordingly, we find no infirmity in the order of ld. CIT(A) while allowing this ground of appeal of the assessee.

Summary

Issues Involved:
1. Deletion of upward adjustment by TPO regarding management fees.
2. Benchmarking of transactions with AE.
3. Aggregation of transactions under Section 92C of the Act.
4. Allowance of payment of management fees without benchmarking.
5. Disallowance of excess depreciation on computer software license.
6. Excess claim of consumption of own generated electricity units.

Summary:

1. Deletion of Upward Adjustment by TPO Regarding Management Fees:
The Department challenged the deletion of upward adjustment of Rs. 2,11,50,685/- made by the TPO concerning international transactions related to management fees. The CIT(A) had restricted the arms-length price of management fees to 1.5% of the operating revenue. The ITAT referred to its previous order for AY 2011-12, which allowed 2% of the operating revenue towards management fees. Consequently, the ITAT dismissed the Department's appeal and allowed the assessee's cross objection, setting the arms-length price at 2%.

2. Benchmarking of Transactions with AE:
The Department argued that the assessee failed to benchmark transactions with its AE as per law. The ITAT, following its previous decisions and the APA agreement, ruled in favor of the assessee, allowing the management fees at 2% of the operating revenue.

3. Aggregation of Transactions Under Section 92C of the Act:
The Department contended that the CIT(A) erred in allowing aggregation of transactions contrary to Section 92C of the Act and Rules 10A to 10C. The ITAT upheld the CIT(A)'s decision, referencing its earlier rulings and the APA agreement.

4. Allowance of Payment of Management Fees Without Benchmarking:
The Department's appeal against the allowance of management fees without proper benchmarking was dismissed. The ITAT reiterated its stance from previous years, allowing the fees at 2% of the operating revenue.

5. Disallowance of Excess Depreciation on Computer Software License:
The Department appealed against the deletion of Rs. 9,47,864/- disallowed by the AO for excess depreciation on computer software licenses. The CIT(A) had allowed 60% depreciation, citing judicial precedents. The ITAT upheld this decision, referencing cases where software licenses were considered eligible for 60% depreciation.

6. Excess Claim of Consumption of Own Generated Electricity Units:
The Department challenged the deletion of Rs. 1,11,12,560/- added by the AO for excess claims on own generated electricity. The CIT(A) found no basis for the AO's substitution of rates and upheld the assessee's claims, noting the absence of rejection of books of accounts and the commercial expediency of the expenses. The ITAT found no infirmity in the CIT(A)'s order and dismissed the Department's appeal.

Conclusion:
The ITAT dismissed the Department's appeals for assessment years 2012-13, 2013-14, and 2014-15, and allowed the assessee's cross objections for the same years, upholding the CIT(A)'s decisions on all contested issues.