9911796707
TMI Blog2015 (10) TMI 2375X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation on UPS and Printers which was claimed @ 60% by the assessee and restricted by 15% by the AO; and also disallowance of depreciation on air-conditioners installed in server room claimed at 60%; (iii) Disallowance of printer software of Rs. 8,07,755/- as capital expenditure which was claimed as revenue expenditure by the assessee; and alternatively it has been contended that, if the same is to be treated as capital expenditure then depreciation should be allowed @ 60%; (iv) Addition on account of 'container detention charges' of Rs. 1,18,65,365/- collected on behalf of the Principal and retained in terms of RBI direction by the assessee, which has been treated as income accrued to the assessee its in the course of its activity as an agent; (v) Addition on account of transfer pricing adjustment of Rs. 1,49,35,518/-; (vi) Charging of interest u/s 234B; and (vii) Initiation of proceedings of levy of penalty u/s 271(1)(c) and 271BA. 3. Besides this, the assessee has also raised additional grounds on account of violation of principles of natural justice. This ground was not pressed at the time of hearing, therefore additional ground is treated as dismissed as not pressed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decision of the investments and to work-out the disallowance. The AO after analyzing the entire details has restricted the disallowance at Rs. 1 lakh on account of manpower / administrative cost, which can be said to be attributable for earning of exempt income. Such a finding of AO cannot be faulted with in absence of any proper rebuttal and also the disallowance as it is appears to be quite reasonable. Thus on the facts if the case, disallowance u/s 14A as restricted after DRPs direction is confirmed. Accordingly ground no. 1 & 2 are treated as dismissed. 8. As regards restriction of depreciation allowance on purchase of printers and UPS for sums amounting to Rs. 5,96,310/-, the assessee had made a claim that depreciation should be allowed @ 60% as it is peripheral and connected with computer for which the rate of depreciation is @ 60%, whereas, the AO held that these assets cannot be equated with computer and admissible depreciation provided for computer will not be applicable. He accordingly allowed depreciation @ 15%. Similarly, for the airconditioner installed in the server room assessee, has claimed depreciation @ 60% which has been restricted to 15% by the AO by tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y High Court in the case of CIT vs Raychem RPG Ltd [2012] 346 ITR 183 and also Delhi High Court decision in the case of CIT vs Amway India Enterprise, reported in 346 ITR 341, wherein it has been held that expenditure incurred on purchase of software is to be treated as revenue expenditure. The Ld. DR on the other hand, relied upon the order of the AO. 15. After considering the rival submission and on perusal of relevant finding given in the impugned order, we find that the assessee has claimed payment made for purchase of print server software as revenue expenditure, which has been disallowed by the AO on the ground that it has an enduring benefit to the assessee. From the perusal of the decisions relied upon by the Ld. Counsel, we find that the Hon'ble High Courts have held that if the expenditure incurred on the software is to facilitate the assessee's business or enable the management to conduct the business more efficiently or profitably, then it has to be treated as revenue expenditure. In all these cases, the expenditure incurred on the software expenses were allowed as revenue expenditure. Here also, the software purchase for print server is nothing but to facilitate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India vide its circular has directed to retain container detention charges at US $ 1.5 per day per 20 ft. equivalent units (TEU) as 'administrative charges' for an agent's local use. The assessee, in its note No. 2 to schedule forming part of audited financial statement gave the following note :- "Vide a circular, RBI has granted permission for retention of container detention charges @ USD 1.5 per day, per twenty feet equivalent units ('TEU') as administrative charges for an agent's local use. Since, the company's agreement with its Principal does not provide for such retention, it has credited an amount aggregating Rs. 56,508,629/- as at 31 March, 2007 (previous year : Rs. 44,743,264) to the principal's account. The management believes that if the Company is required to retain this amount in compliance with RBI regulation, its commission income on cargo or vessels handled will be revised to the extent of such retention amount. Hence the management believes that the aforesaid does not have an impact on the financial statement of the Company". 18. Thus, the assessee's contention was that, since it did not had any agreement with the principal for such retention, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e recognition in a later year goes on to prove beyond doubt the revenue character of the receipt in assessee's hand. The only aspect that remains to be adjudicated upon is the year of taxability, and accordingly the amounts having accrued and collected, received by the assessee during the year, the same has to be brought to tax during the year under consideration. The principles of RESJUDICATA being not applicable to Income-tax proceedings, the assessee's argument that the amount has not been taxed in the past is irrelevant. We, therefore decline to interfere with the AO's order in this regard". 20. Thus, following the same, AO treated the amount credited in the relevant previous year at Rs. 1,18,65,365/- as income accrued to the assessee for the assessment year 2007-08. 21. Before us, the Ld. Counsel Shri F V Irani after explaining the entire facts, submitted that the assessee is only acting as an agent and neither the receipts nor expenses are routed through its P&L account. The assessee is only entitled for commission income as per the agency agreement with the principal. The CDC is actually the receipts of the shipping company. Solely due to RBI guidelines on remittance, a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her receipts (including CDC charges) arising in the course of the principal's shipping business in India and remits the same to its principal. The CDC charges are recovered from the third party on and on behalf of the principal. As per the agency agreement, the CDC charges are collected by the assessee solely on behalf of the principal and are deposited in the separate bank account. These funds are then use to meet the expenses of the principal in India and then it is remitted back to the principal in accordance with the foreign exchange regulations. The RBI had issued a Circular, whereby a small portion of CDC charges are to be retained in India towards discharging of administrative charges on and behalf of principal in India. Thus, the agent is bound to conduct the business of its principal according to the terms and conditions and directions given by the principal. Here CDC collected on behalf of the principal, though retained by the assessee in view of RBI Circular, however, belongs to the principals. That is why, neither these charges are routed through profit and loss account nor any expenses which has been incurred in relation there to. In other words, neither the receipts n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction of Rs. 14,83,83,874/- on account of agency commission and other services. For benchmarking the transaction, the assessee has adopted TNMM as a most appropriate method (MAM) and selected 9 comparables after taking PLI as operating profit to total sales. However, after certain corrections in the TP proceedings, the corrected margins of the comparables were as under :- The TPO noted out of above comparable that there were 5 common comparables which were in the earlier three years also including one comparable, Wuhu Port Storage and Transportation Co., which the assessee had rejected this year on the ground of excess profit. The five comparables which were there in the TP study of assessee in earlier years were as under :- S. No. Name of Comparable Company Updated PLI (OP/TC)(%) for FY 2006-07 1 Toll Holdings Limited 16.32 2 BAL trans Holdings Limited 2.68 3 Sun Kwang Co. Ltd. 17.66 4 Wuhu Port Storage & Transportation Company 52.43 5 Chu Kong Shipping Development Company 4.17 26. The assessee's objection now before the TPO that Wuhu Port cannot be included in the comparable list because of very abnormal high margin. It was pleaded that after removing the W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee inasmuch as said comparable is engaged in the activity of port loading and unloading activities and storage activities on its own, which in the case of the assessee is obtained by the AE from the other vendors. Wuhu Cold Storage and Transportation Co. is a complete service provider, whereas, the assessee is more of service recipient of such activities. Once it has been found that this comparable is performing activities and functions which are different from the functions carried out by the assessee, then without there being any change in the facts and circumstances in this year, the said company cannot be held to be a good comparable in this year. Simply the assessee has included this comparable in Transfer Pricing Study Report in this year as well as in the earlier years, it does not preclude the assessee from raising the objection that the said comparable cannot be included in this year, if the assessee is able to demonstrate the factors and circumstances leading to its exclusion, specifically functional dissimilarity and also the factors leading to huge variation in profit margin. Here in this year, the assessee before the TPO as well as before the DRP has disputed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue relating to taxability of container detention charges, the same is also similar to the grounds raised in AY 2007-08 and accordingly, in view of the finding given therein, it is held that the said charges cannot be taxed in the hands of the assessee in this year. 37. So far as disallowance u/s 14A, it is seen from the impugned order that the Assessing Officer has made the disallowance of Rs. 3,75,092/- under section 14A r.w. Rule 8D(2)(iii) on the dividend income of Rs. 32,34,372/-. 38. First of all, in this year Rule 8D is applicable, therefore, the earlier decision rendered by the Tribunal and our finding given there in AY 2007-08 will not apply to the impugned year. 39. Before the DRP as well as before the Assessing Officer, the assessee has not made out any claim as to why no expenditure can be said to be attributable for the purpose of making the investment which has yielded exempt income. Already the assessee's submissions with regard to direct expenses and indirect expenditure has already been accepted. As regards indirect expenditure, that is, under Rule 8D(2)(iii) nothing has been brought on record that having regard to the accounts of the assessee, no expenditure can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss purpose or any kind of pre-operative expenses. Here in this case, BPO business could not take off and whatever expenditure has been incurred has to be allowed either as business expenditure or as a business loss incurred during the course of business. Thus, the claim of such an amount cannot be disallowed either as a capital expenditure or for non-business purpose. Accordingly, ground no. 12 & 13 are treated as allowed. 45. As regards ground relating to non-grant of refund and, nongrant of TDS credit, we direct the Assessing Officer to verify the claim of the assessee and decide in accordance with the facts and material on record and grant relief/credit if found to be admissible. 46. Regarding levy of interest u/s 234B, it has been admitted that it is purely consequential and accordingly, the same is dismissed. 47. Lastly, as regard levy of interest u/s 234D, the Ld. Counsel submitted that assessee has not received any interest and therefore, there is no question of charging interest u/s 234D. We, accordingly direct the Assessing Officer to verify the claim of the assessee and decide the issue accordingly. 48. In the result, appeal of the assessee is treated as partly allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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