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TMI Blog2014 (12) TMI 890X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer Pricing Officer (TPO) for determination of the Arms Length Price (ALP) of the international transaction. The TPO determined the ALP and after receiving the said report, the AO drafted the assessment order which was served upon the assessee. On receipt of the same, the assessee raised its objections before the Dispute Resolution Panel (DRP) on the issues against which the assessee is aggrieved. The DRP, however, confirmed the draft assessment order passed by the AO. Pursuant thereto, the AO passed the assessment order u/s 143(3) read with section 144C of the Act, against which the assessee is in appeal before us. 3. During the assessment proceedings u/s 143(3) r.w.sec.144C of the Act, the AO perused the books of account of the assessee and from the profit and loss account filed by the assessee for the relevant assessment year, he observed that the assessee has claimed depreciation of Rs. 6.48 crores under the Companies Act while under the Income-tax Act the depreciation claim was Rs. 80.43 crores. He observed that one of the reasons for the difference is the claim of higher rate of depreciation i.e. 60% on the routers and switches treating them as computers. According to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Special Bench of the Tribunal in the case of CIT vs. Datacraft India Ltd. reported in 113 TTJ 377 in support of his contention that Routers and Switches are also 'computers' and are eligible for depreciation at 60%. The learned Departmental Representative, Ms.Priscilla Singsit, on the other hand, supported the orders of the authorities below. 6. Having heard both the parties and having considered the rival contentions as well as the material on record, we find that the issue is covered in favour of the assessee by the decision of the Apex Court as well as the Special Bench (cited supra) as regards depreciation on routers and switches is concerned and the AO, for the assessment years 2006-07, 2007-08 and 2010- 11, has followed the same in allowing depreciation at the rate of 60%. In view of the same, we direct the AO to adopt the said rationale for the relevant assessment year also and allow depreciation at the rate of 60% on routers and switches. 7. As regards Audio visual conferencing equipments and video streaming equipments, the learned counsel for the assessee has filed detailed submissions before the AO as well as before us to convince us that they are also part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire file and after a brief period of initiating and buffering, the file will begin to stream or play in real time. Video streaming involves a series of steps involving the use of media content, a computer that runs encoding software, servers for upholding the streamed media format and access to such media through various devices. From the above submissions, it is clear that the equipment used by the assessee for audio visual conferencing and also video streaming involves the use of computer. As certain input and output equipment may have independent functionality and existence but the computer devices which are involved in these activities would be of no use if these input and output devices are not used. Therefore, though the input and output devices may have independent existence and functionality in so far as the activity of the assessee is concerned, they do form part of the computer network system without which the computer used for the purpose of audio and video conferencing would be useless. The Special Bench of the Tribunal in the case of Datacraft India Ltd., (cited supra) has held that peripheral equipments used along with computer are also part of the computer. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the items with independent existence may not be computers but wherever it is found that the device is not used independent of the computer system and the purpose of audio visual conferencing and video streaming, the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery. The AO, shall, thus allow depreciation at the rate of 60% on the equipment which could be classified as computer and at the rate of 15% on the equipment which could be classified as plant and machinery. This issue is accordingly set aside to the file of the AO for re-adjudication in accordance with law and our observation above. 9. The assessee also advanced an alternative argument that once the equipment has entered the 'fleet of assets' and depreciation has been allowed at the rate of 60% in the earlier years, the same cannot be treated as plant and machinery during the relevant assessment year and depreciation granted at lower rate of 15%. The assessee has filed copies of assessment orders for the assessment years 2006-07, 2007-08 and 2010-11 and we find that for all the assessment years, the Revenue has been taking a consis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses. It was also submitted that the transactions with Cisco Singapore and Cisco Australia being international transactions, are pending determination of arms length price (ALP) by the Transfer Pricing Officer (TPO) and accordingly there was no requirement to separately determine allowability of the expenses under other provisions of the Act as for the determination of ALP, the TPO will also consider various factors including business requirement for incurring of such expenditure and whether incurring of such expenses helped the assessee. He further submitted that u/s 40A(2) of the Act, the disallowance is attracted only when an assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of sub-section (2) of sec.40A. Since Cisco Singapore and Cisco Autralia and Cisco India do not fall under any of the categories of persons under clause (b) of sub-sec.(2) of sec.40A of the Act, no disallowance 40A(2) is called for. The AO, however, did not accept the assessee's contention and held that the assessee would have received certain services to conduct its basic business of lease financing in an efficient and effective mann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee herein and therefore, the disallowance u/s 40A(2)(b) of the Act was justified. 11. Having heard both the parties and having considered the rival contentions and also the material on record, we find that the assessee has filed before us on 14-7-2014, the break-up of the expenditure as per profit and loss account during the financial year 2007-08. From the said details, it is seen that the services rendered by Cisco India to the assessee are in the nature of Financial and Accounting services, legal and tax related issues information system and related issues, Treasury services, Asset Management/residual value analysis, credit analysis and deal execution. The AO has not doubted the rendering of services by Cisco India to the assessee but has restricted the allowable expenditure to 5% of the operating expenses which means that he has only doubted the reasonableness of the quantum of payment. But to invoke the provisions of sec.40A(2) of the Act, as rightly pointed out by the learned counsel for the assessee, the AO cannot make an ad hoc disallowance u/s 40A of the Act but has to determine the expenses which are excessive and unreasonable. The AO, in the case before us, has failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the assessee has failed to explain its claim for payment of administrative support fee. Therefore, he disallowed the claim of expenditure and made the adjustment and brought it to tax. 13.1 Aggrieved, the assessee filed objections before the DRP which confirmed the order of the AO pursuant to which the assessment order was passed and the assessee is in appeal before us. 13.2 Having heard both the parties and having considered the rival contentions and also material on record, we find that the AO has given a finding that the tax payer did not produce any supporting evidence to establish that the services were actually received by it. Similarly, before us also, except for stating that the assessee has received administrative management services, no evidence is produced before us to substantiate the claim. The assessee has filed copies of agreement with the associated enterprises in support of its contentions that services were rendered pursuant to the said agreement and the payment for such services is allowable. The assessee has further submitted that the assessee has paid the administrative services fee at 5% of cost which was less than the average margin of 13 comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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