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TMI Blog2012 (5) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered the cost of mobile handsets issued to employees, AMSCs and Dealers free of cost and stock scrapped as capital assets on the basis that the assessee continues to be the owner of theses handsets and these handsets are not part of the trading activities of the assessee. Held that: High Court had remitted the matter for Assessment Year 2000-01 and 2001-02 to the file of the ITAT and the ITAT vide order dated 22.9.2011 has remanded back the matter to the file of the Assessing Officer to fresh consideration. – Decided in favor of the assessee by way of remand to AO. Regarding disallowance of 25 per cent of the provision for obsolescence – Held that: - dismissal of the ground raised by the assessee in respect of provision for obsolescence would not preclude the assessee from giving the information to sustain the claim in subsequent assessment years and that once such information is provided, the Assessing Officer would give due consideration to the same. - Decided in favor of the assessee by way of remand to AO. Regarding disallowance of excess depreciation - Held that this issue is squarely covered by the decision of the Hon'ble Jurisdictional High Court in [2010 - TMI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case and in law, the learned TPO / AO has erred by not accepting the economic analysis undertaken by the appellant in accordance with the provisions of the Act read with the Rules, and conducting a fresh economic analysis for the determination of the ALP of the appellant's international transactions and holding that the international transactions are not at arm's length. 2.5 That the learned TPO / AO have erred in the facts and circumstances of the case and in law in rejecting the appellant's claim to use multiple year data for computing the arm's length price and, instead, has adhered to the use of single year updated data to conclude the ALP of the international transaction. 2.6 That on the fact and the circumstances of the case and in law, the learned TPO / AO has denied a working capital adjustment to the operating profit margins of the com parables, thereby adopting a position completely inconsistent with the positions adopted by himself and his learned predecessors in the past years and contrary to the position also upheld by the Hon'ble Appellate Commissioner. 2.7 That on the fact and the circumstances of the case and in law, the learned TPO / AO ignored t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing marketing expenditure on account of mobile handsets issued free of cost to after marketing service centers, dealers and employees for business promotion purposes, as capital in nature and allowing depreciation @ 15% amounting to Rs 50,121,195 as against total expenditure of Rs. 3,34,141,301 incurred and claimed by the appellant, thereby resulting in a disallowance of Rs. 28,40,20,105 to the appellant. 4.2 That on the facts and circumstances of the case and in law, the learned AO has erred in reading the order of the Hon'ble DRP in wrong and holding that the issue related to disallowance of marketing expenses, for AY 2000-01 and 2001-02 has been decided by the Hon'ble Delhi High Court against the appellant, without appreciating that the said issue has in fact been remanded back by the Hon'ble Delhi High Court to the Hon'ble Income-tax Appellate Tribunal for reconsideration and is pending before the Hon'ble ITA T as ITA No. 2781/Del/2004 for AY 2000-01 and ITA No. 5151/Del/2004 for AY 2001-02. 4.3 Without prejudice, based on the facts and circumstances of the case and in law, the learned AO has erred in not allowing depreciation on the written down value of mobile handsets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the facts and circumstances of the case and in law, the learned AO has erred in levying interest under section 234C of the Act at a higher amount as against the amount of interest offered by the appellant in the return of income computed on the returned income. 9. That on the facts and circumstances of the case and in law, the learned AO has erred in computation of interest under section 2348 of the Act. 10. That on the facts and circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings under section 271 (1)(c) of the Act. 11. That on the facts and circumstances of the case and in law, the Hon'ble DRP has erred in confirming all the aforesaid additions / disallowances proposed by the learned AO in the draft assessment order, summarily without assigning any detailed reason. The above grounds are without prejudice to each other. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal." 3.1 Nokia India Private Limited (hereinafter referred to as 'assessee' or 'Nokia India') is a wholly owned subsidiary of Nokia Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Disallowance of provision for warranty. 538,972,000 Total 1,226,133,862 *Net disallowance after allowing tax depreciation @ 15 per cent on the actual marketing expense of Rs 334,141,301 Aggrieved, the assessee objected to the additions! disallowances proposed by the learned AO in the draft assessment order before the Dispute Resolution Panel (hereinafter referred to as DRP"). The objections preferred by the assessee were partially allowed by the DRP vide its order dated September 28, 2010, issued under section 144C of the Act. In the said order, the adjustment proposed by the learned AO on account of provision for warranty (amounting to Rs 538,972,000), was directed to be deleted on account of the findings of the Hon'ble Delhi High Court in the assessee's own case for AY 2000-01. However, the adjustment proposed by the learned AO in respect of the remaining items was upheld by the DRP. The directions of the DRP were incorporated by the learned AO in his impugned order dated November 29, 2010 and a tax demand of Rs 229,111,676 was raised. In addition to the above, interest of Rs 73,559,443 was levied under the provisions of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly, the assumption of prime lending rate as the interest rate applicable for making the working capital adjustment suffers from risks of inaccuracy. The cost of capital for MNCs is determined more by the global interest rates rather than Indian prime lending rate . The financials given in the public databases do not give segmental distribution of creditors and debtors. Making working capital adjustment on the figures of the whole company may not be representative of the software sector". Based on the above findings, the TPO has denied working capital adjustment to the assessee. In this regard, it has been contended that identical findings were given by the TPO in the transfer pricing orders of preceding assessment year as well. However, still the benefit of working capital adjustment was granted to the assessee by the TPO in spite of the constraints mentioned in the order. 5.1 Thus it is the contention of the ld. counsel of the assessee that the TPO while determining the arms length price of the subject international transaction during assessment year 2006-07 ignored the fact the assessee has been granted the benefit of the working capital adjustment during A.Y. 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order has not dealt with the issue properly and has held that for the sake of consistency and to protect the interest of the revenue, the adjustment made by the TPO has to be upheld. 6. We have carefully considered the submissions in light of the material produced and precedent relied upon. It is an undisputed fact that on the same set of facts and in the same business model the assessee has been provided the working capital adjustments in the preceding assessment years. Under the circumstances, in our considered opinion, it was incumbent upon the TPO to consider the same in the current year. 6.1 In this regard we place reliance upon the decision of the Hon'ble Jurisdictional High Court in the case CIT v. Dalmia Promoters Developers (P.) Ltd. [2006] 281 ITR 346/151 Taxman 202 (Delhi) wherein it was held that for rejecting the view taken in earlier assessment years, there must be material change in the fact, situation or in law. In this case, clearly there is neither any change in the fact, situation or in law. Hence, on the anvil of the Hon'ble Jurisdictional High Court decision ( Supra ), the TPO should grant the assessee appropriate working capital adjustment. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made by the assessee for admission of additional evidence (being the actual purchase orders issued by various circles of BSNL, evidencing the actual project revenues required for the purpose of recognition of revenues as per AS-7 of the ICAI). Further submission of the assessee's counsel in this regard are as follows:- In this regard, it may also be pertinent to note that similar addition in respect of the aforementioned purchase orders issued by BSNL was proposed by the Assessing Officer in assessee's case for the A.Y. 2007-08. On this account, addition amounting to Rs. 361,135,147/- being the difference between 93.25% of 617.99 crores (approx) (being the amount of advance purchase order) and 93.25% of 546 crores (approx) (being the amount of actual purchased orders) was proposed in the draft assessment order. However, while disposing off the objections of the assessee for Assessment Year 2007-08, the DRP vide its order dated September 9, 2011 accepted revenue as per actual purchase orders and deleted the proposed addition on this ground. The DRP, while adjudicating this issue, issued a specific finding that the revenue in respect of BSNL project should be taken at Rs. 546 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of the assessee itself confirmed the same for Assessment Year 2000-01 and 2001-02. 11. Against the above order the Assessee is in appeal before us. 12. It has been contended by the ld. counsel of the assessee that DRP has failed to appreciate that the Hon'ble Delhi High Court has confirmed the said disallowance on the basis that during the relevant assessment years, the assessee failed to demonstrate that the said provision has been created on any scientific basis and it has been categorically observed that dismissal of the ground raised by the assessee in respect of provision for obsolescence would not preclude the assessee from giving the information to sustain the claim in subsequent assessment years and that once such information is provided, the Assessing Officer would give due consideration to the same. It has been claimed by the ld. counsel of the assessee that assessee in the concerned assessment year has duly submitted the following details/ documents before the Assessing Officer. * Basis of creation of the provision for obsolescence, copy of the global policy in this regard and justification of allowability of the provision for tax purposes vide its sub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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