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TMI Blog2011 (1) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercial and technical aspects will have a bearing when the AE takes over the branch office of the appellant. However, neither the Ld. AO nor the Ld. CIT(A) have made any reference on any factors on this regard in this given case and, therefore, matter remanded back to AO. - ITA NO. 131/BANG/2010 - - - Dated:- 21-1-2011 - ORDER Per A. Mohan Alankamony, Accountant Member This appeal preferred by the assessee is directed against the order of the Ld. CIT(A)-IV in ITA No. 174/R-19/CIT(A)-IV/06-07 dated 6.11.2009 for the assessment year 2004-05. 2. The assessee is a foreign company having a branch office inIndia and also has an associate enterprise (AE) - M/s. Intel Technologies India Pvt. Ltd. (ITIPL) - and primarily engaged in providing sales and marketing support service. The assessee having taken a decision to close down its branch office w.e.f. 1.4.2003 and transfer all its assets and liabilities to its AE - ITIPL as a going concern, for a consideration to be determined by the difference between the value of assets and liabilities in the books of the assessee. 3. The assessee has raised 6 grounds in its appeal, wherein ground No. 6 being general in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the adjustments of arms length price determined by the TPO and affording the assessee an opportunity of being heard, passed an order confirming with the findings of the Ld. TPO since all objections raised by the assessee were already considered by the Ld. TPO. 6. The assessee appealed before the Ld. CIT(Appeals) who had confirmed the order passed by the Ld. Assessing Officer and out rightly rejected the valuation report certified by the Registered Valuer. The comments of the Ld. CIT(A) are listed out as under: u During the appellate proceedings, the assessee was not able to produce correspondence/e-mails exchanged between the parties with respect to the amendment of consideration clause 2.1 of the transfer agreement in order to prove bonafide of the transaction in spite of repeated requests. u From the terms and conditions of the assets and liabilities transfer agreement between the parties, it is abundantly clear that the assessee had agreed to transfer the assets liabilities of its PE along with the existing business as a going concern to the AE on the net book value. Therefore, determination of the net book value of the assessee s PE will be crucial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok value. The Accounting Standards also recognize the concept of profit loss on sale of assets. u Different Acts have adopted different rates for depreciation according to their perceptions. For instance, the rate of depreciation prescribed under the Income-tax Act is different from the rate prescribed under the Companies Act. In the instant case, majority of assets sold by the assessee were computers and accessories. The rate of depreciation prescribed for computers and accessories as per Companies Act is 40% whereas the rate adopted under the Income-tax Act is 60%. u In the recent past, there have been extremely fast technological developments in the field of computer and its accessories. A computer available in the market today becomes obsolete within a year on an average. Price levels also drop drastically within a period of a year. In such a situation, second-hand computers do not fetch much resale value. u Evaluating the value of assets by registered Chartered Engineers is acceptable in law. The Valuer engaged by the appellant is one amongst the most reputed valuers in the city, whose reports are generally accepted by the tax department. He is also not rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plained with proper reasoning as to why such depreciation rate was being considered while depreciating the value of asset. On our perusal of the valuation report, we also came at instances where the valuation was done without any reasoned footing. For instance, depreciation for furniture and fixtures was provided at the rate of 30%/40%/50%/60%/75% and 90% (Source pages 17 to 40 of the paper book furnished by the assessee) which included items like chairs, tables, Godrej filing cabinets, racks, etc. Further, we noted that Godrej safes were depreciated at 90% which is not at all reasonable. For most of the computers and accessories, depreciation was worked out at 100%/90% and thereby assuming the value of the equipments to be nil or at 10% of its cost. Considering these factors, we are in total agreement with the Revenue for rejecting the Valuer s Report. 10. As per the guidelines Note issued by the Institute of Chartered Accountants of India, CUP method may be determined by adopting the following steps for transfer of goods: ( i ) identify the price charged to the items sold in comparable uncontrolled transaction or in a number of such transactions. ( ii ) Adjust s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be at par with the net present market value and, therefore, the valuation of the assets based on the book value as determined by the Ld. AO is not justifiable. 12. To break the ice in such a situation, the only reasonable approach would be to value the assets by applying the depreciation rates as provided by the Income Tax Act for it is more dynamic and so schemed to bring in a notional charge on the profit and loss account to arrive at the actual income of an assessee keeping in view of the depletion of the assets. 13. To sum up; with regard to the questions framed by us inPara 4, we hold as under: ( i ) In the present case since the valuation based on the WDV worked out as per the Income Tax Act will be most appropriate since the valuation report of the Registered Valuer and Chartered Engineer is rejected. ( ii ) In the present case the valuation report of the Registered Valuer and Chartered Engineer requires to be rejected is justified due to the reasons discussed hereinabove. ( iii ) The Indian Branch of the assessee is sold as a going concern. We are of the opinion that this fact will also have some consequences in determining the ALP because factors li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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