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TMI Blog2013 (6) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... nents. Ground No. 3 - Erred in disallowing Appellant's claim of additional depreciation of ₹ 10,45,544 in respect of computers installed in factory. Ground No. 4(A) - Hon'ble DRP erred in directing the learned AO to dismiss the Assessee's claim of deprecation on goodwill relying on the decision of the Hon'ble Supreme Court (SC) in the case of Goezte (India) Ltd Vs CIT (284 ITR 323) Ground No. 4(B) - Erred in disallowing Appellant's claim of depreciation on the amount of ₹ 4,30,00,000 accounted for as goodwill by the Appellant in its books of accounts. Ground No. 5(A) - Hon'ble DRP erred in directing the learned AO to dismiss the Assessee's claim of depreciation on lease hold rights or alternate claim to allow deduction over the period of lease of 89 years relying on the decision of the Hon'ble SC in the case of Goezte (India) Ltd (Supra) Ground No. 5(B) - Erred in disallowing claim of depreciation in respect of lease hold rights on land. Ground No. 5(C) - Without prejudice to Ground 5(B), erred in disallowing claim of deduction for lease rentals paid in advance for obtaining lease hold rights over the lease period of 89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjustment made by TPO 6,86,47,189 Total Income 195,73,81,781 3. We find that Tribunal in similar set of facts in assessee's own case for A.Y. 2006-07 in ITA.No.1480/PN/2010 following earlier years decision on this issue, has held as under: 9. On this aspect, we have carefully considered the rival stands. It is a well-settled proposition that while carrying out the transfer pricing study of an international transaction, it is imperative that a comparison is made with the similarly placed transactions, as far as possible. In the present case, as noted earlier, the assessee benchmarked its International transaction of export of spares and components to its AE on the basis of TNM Method by relying on external comparable companies. So, however, the income-tax authorities have applied an internal TNMM mechanism in order to benchmark the impugned International transaction. The TPO analyzed the profitability of exports of spares and components to AEs on one hand, and compared it to the profitability of export of spares and components made by the assessee to third parties (i.e. non-AEs). At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the assessee company. On this basis, the assessee has attempted to point out that the margins in category 'A' transactions cannot be compared with the transactions of category 'B' and 'C', inasmuch as it involves functional and economic differences. It is sought to be made out that with regard to category 'B' and 'C' transactions, the assessee does not earn the kind of margins as it can earn by undertaking transactions of category 'A'. 10. In our considered opinion, the net profit margin in any particular kind of activity is indeed effected by various factors which are industry-specific and can also be unit-specific having regard to the degree of business experience enjoyed by an entity. The factors which can be industry-specific, for example can be in the field of competitiveness, new entrants, product differentiation and other Government regulations, etc. It is therefore quite imperative that while undertaking transfer pricing analysis one must examine the transactions undertaken with regard to the relevant factors effecting such transactions vis- -vis transactions sought to be compared. In this context, we may now appreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the tabulation in para 7 that the profit margin (on cost) in relation to export to AEs is 67% and on transactions of exports to third party distributors (i.e. non-AEs) is 56.58% and the same clearly depicts that the transaction undertaken by the assessee of category 'A' with its AEs, namely, export of spares and components which are required for the purpose of servicing of vehicles sold by the assessee have been undertaken at an arm's length price and the same does not require any transfer pricing adjustment as done by the income-tax authorities. 13. Now, we are left with the transactions of category 'B' and 'C' which have been undertaken by the assessee with its AE. In so far as such transactions are concerned, there is no internal comparable transaction, inasmuch as such like transactions have not been carried out with non-AEs. The transactions of such nature involving sourcing of spares and components used in the manufacture of vehicles undertaken by the AE abroad have not been undertaken by the assessee with non-AEs. Therefore, in the absence of any internal transactions with third parties with similar functions and economic scenario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... twhile proviso to section 92C(2) of the Act was not available to the assessee for the year under consideration. 16. We have carefully considered the rival submissions. One of the issues raised by the assessee in this appeal is with regard to the claim seeking benefit of the option available under the erstwhile proviso to section 92C(2) of the Act, which allows the assessee an option for adjustment of +/-5% variation for the purpose of computing ALP. Such an issue has been a subject-matter of consideration by the Pune Bench of the Tribunal in the case of Starent Networks (India) P. Ltd. in ITA No. 1350/PN/10 dated 03.10.2011, whereby following discussion is relevant: 20. We have carefully considered the rival submissions. In this case, a pertinent issue which has been vehemently agitated by the appellant is with regard to its claim of seeking benefit of the option available under the erstwhile proviso to section 92C(2) of the Act. The erstwhile proviso which was inserted by Finance Act, 2002 with effect from 1.4.2002 read as under: Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has actually been undertaken shall be deemed to be the arm's length price. The case set up by the Revenue is that the amended Proviso shall govern the determination of ALP in the present case, inasmuch as the amended provisions were on statute when the proceedings were carried on by the Transfer Pricing Officer (TPO). As per the Revenue, the amended Proviso would have a retrospective operation and in any case, would be applicable to the proceedings which are pending before the TPO on insertion of the amended Proviso, which has been inserted by the Finance (No. 2) Act, 2009 with effect from 1.10.2009 and, in this case, the TPO has passed his order on 30.10.2009. The learned Departmental Representative has also referred to the CBDT Circular No 5/2010 (supra) read with Corrigendum dated 30.9.2010 issued by the CBDT in this regard. Per contra, the stand of the assessee is that the amended Proviso would be applicable prospectively and would not apply in respect of the stated assessment year, which is prior to the insertion of the amended Proviso with effect from 1.10.2009. 22. We have carefully examined the rival stands on this aspect. The amended Proviso has been brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no justification to deny the benefit of +/-5% to the assessee in terms of the erstwhile Proviso for the purposes of computing the ALP. 23. However, before parting we may also refer to a Corrigendum dated 30.9.2010 by the CBDT by way of which para 37.5 of the circular No 5/2010 (supra) has been sought to be modified. The Corrigendum reads as under: CORRIGENDUM In partial modification of Circular No. 5/2010 dated 03.6.2010, (i) In para 37.5 of the said Circular, for the lines the above amendment has been made applicable with effect from 1st April, 2009 and will accordingly apply in respect of assessment year 2009-10 and subsequent years. the following lines shall be read; the above amendment has been made applicable with effect from 1st October, 2009 and shall accordingly apply in relation to all cases in which proceedings re pending before the Transfer Pricing Officer (TPO) on or after such date. (ii) In para 38.3, for the date 1st October, 2009, the following date shall be read: 1st April, 2009 . In terms thereof, it is canvassed that the amended proviso has been made applicable with effect from 1.10.2009 and shall apply even to cases where pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) that the circulars which are in force during the relevant period are to be applied and the subsequent circulars either withdrawing or modifying the earlier circulars have no application. Moreover, the circulars in the nature of concession can be withdrawn prospectively only as held by the Hon'ble Supreme Court in the case of State Bank of Travancore v. CIT 50 CTR 102 (SC). Considering all these aspects, we therefore find no justification in the action of the lower authorities in disentitling the assessee from its claim for the benefit of +/-5% to compute ALP in terms of the erstwhile proviso to section 92C(2) of the Act. We order accordingly. 17. In view of the precedent, the stand of the Revenue in the present case to deny the assessee benefit for adjustment of +/-5% variation while computing ALP is not justified. As per the Tribunal, though the amended proviso to section 92C(2) was applicable with effect from 1.10.2009, so however, for the reasons contained therein, it would not cover such like cases as is the case before us. In para 22 of the order, which has been reproduced above, it has been observed that the applicability of amendment is to be effective in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2006-07 held that since margin earned by assessee from export of service spares (category a) to AE (67%) is higher than that of margin earned from export to non-AE 56.58%, the transaction pertaining to export of service spare meet to arm's length test for from Indian Transfer Pricing perspective. In absence of any internal transaction with third parties with similar function and economic background, bench marking of transaction of category b and c undertaking with AE cannot be done appropriately by involving internal TNMM mechanism. In this regard assessee pointed out that for the benchmarking transaction between assessee and AEs in respect of such activities assessee has undertaken comparison with operating margins earned by third party support service provider in India and tabulation in this regard was placed in the relevant record. It was sought to be made out that margins declared by assessee on such activity at 11.05% compare favourably with average operating margins earned by third party service provider company in India which worked out to 5.1%. In this background Tribunal in A.Y. 2006-07 in assessee's own case held that aforesaid plea of assessee was liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A Nos 965, 966 1203/PN/09 dated 6.4.2011 considered the observations of the Assessing Officer in the remand proceedings of the assessment year 2002-03 and upon noticing the decision of the Vishakhapatnam Bench of the Tribunal in the case of Jeypore Sugar Co Ltd v. ACIT 2011 9 taxmann.com 122 (Visakh.), again restored the matter back to the file of the Assessing Officer for examination afresh in the light of such decision. 21. In this background, the learned Counsel for the assessee further supported the claim of the assessee in principle, on the basis of a subsequent decision of the Hyderabad Bench of the Tribunal in the case of A.P. Paper Mills Ltd. v. ACIT 33 DTR 148 (Hyd). 22. On the other hand, the learned Departmental Representative, appearing for the Revenue, has not contested the aforesaid factual matrix brought out by the learned Counsel on behalf of the appellant. 23. Having regard to the precedents, where the matter has been restored for re-adjudication by the Assessing Officer in the past years, in the instant year also we deem it fit and proper to restore the matter to the file of the Assessing Officer to examine the issue in the light of the observations of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal on the issue is applicable to the facts before us and same should be allowed. Facts being similar, so following the same reasoning assessee's claim of additional depreciation on computers installed in factory is allowed. AO is directed accordingly. 7. Next issue is with regards to disallowance of depreciation in respect of leasehold rights in land. We find that ITAT in assessee's own case for A.Y. 2006-07 at Para 26 to 30 following earlier years decision on the issue, has observed as under : 26. In respect of Ground No. 6, the grievance of the assessee is that the income-tax authorities have erred in disallowing the assessee's claim of depreciation in respect of lease hold rights in land. Alternatively by way of Ground No 7 the plea of the assessee is that it be allowed deduction for lease rentals paid in advance for obtaining lease hold rights over the period of lease of 89 years. 27. The brief background is that assessee paid a total consideration of ₹ 19,00,60,195/- for acquiring lease-hold rights of land. The assessee had acquired lease hold rights from Greaves India Ltd in respect of assignment of rights by MIDC for a total consideration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Emerson Network Power India Pvt. Ltd. (ITA 118/Mum/10 dated 25.3.2011) has allowed deduction for the lease hold premium paid to MIDC for acquiring lease hold rights over the period of lease, and a copy of such decision was placed on record. However, it has also been brought out that such alternative plea has otherwise been decided against the assessee by the Tribunal in the assessee's own case for assessment years 1997-98 and 1998-99. 29. In view of the aforesaid background of the dispute, in our view, it would be appropriate that the subsequent legal position resulting on account of the decision of the Hon'ble Gujarat High Court in the case of Sun Pharmaceutical India Ltd (supra) ought to be considered when it comes to adjudicating the alternative claim of the assessee contained in Ground No. 7 before us. As the substantive plea of the assessee is on account of depreciation on lease hold rights, which has been set asi1de to the file of the Assessing Officer in terms of Ground No 6 above, the impugned alternative plea therefore is also set aside to the file of the Assessing Officer for fresh adjudication in the light of above observations as well as on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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