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TMI Blog2018 (5) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... approach and, therefore, for the reasons stated aforesaid, we do not find any reason to interfere in the order of the Ld. DRP and we confirm the same. This ground of appeal of revenue is dismissed. Disallowance of depreciation (normal and additional on certain assets - Held that:- Remarks given that these are assets which were rightly claimed to be plant and machinery. The Ld. DRP has rightly excluded the aforesaid assets from the list of plant and machinery and reclassified it as furniture and fixture. We do not find any infirmity in the order of the Ld. DRP and, therefore, we confirm the finding of the Ld. DRP. This ground of appeal of revenue is also dismissed. Addition u/s. 14A - Held that:- Admitted factual position that no loan funds were in the books of accounts of the company, there cannot be any question of payment of interest against the loan funds and consequently disallowance of interest expenses in terms of Rule 8D(2)(i) or (ii) of the Rules. Since there is no unallocable interest the DRP has rightly held that no interest expenses can be disallowed. - I.T.A. No. 229/Kol/2015 And I.T.A. No. 346/Kol/2015 - - - Dated:- 14-2-2018 - Shri J. Sudhakar Reddy, AM And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing (iv) Provide a range of market support services; (v) provide range of services in Information Technology; (vi) Advise and Assistance on reporting/accounting, financial control and planning activities and (vii) other ancillary services in support of Assessee's business, including public affairs advise or public relations. Clause 4 of the SLA provides that the consideration payable for services to be rendered by ANPAP shall be the actual cost incurred by ANP AP for providing services to the Assessee plus a margin of 5% of such cost. The issue in the Assessee's appeal is as to whether the payment made by the Assessee under SLA is at Arm's Length as required under the provisions of Sec. 92 of the Act. DRP has followed its own order for AY 2009-10 and held as under: 2. 2. The issue raised by the Assessee in the above 3 objections is of the TPO wrongly classifying the support Services received by the Assessee from Akzo Nobel Paints (Asia Pacific) Pte Ltd ( ANPAP') to be in the nature of Stewardship Services and has wrongly determined the arm's length payments for such Services to be nil. The TPO has held that the Services performed for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pped up in AY 2009-10 and the Ld. DRP has followed its order for AY 2009-10 which has been adjudicated by the Tribunal at para 26 to 32 which is as under: 26. We have given a careful consideration to the rival submissions. As per the OECD Guidelines paragraph 7. 2: Nearly every MNE group must arrange for a wide scope of services to be available to its members, in particular administrative, technical, financial and commercial services. Such services may include management, coordination and control functions for the whole group. ( emphasis added) The U. S. regulations define an intra-group service in the following manner (Treas. reg. 1-482- 9(1)(1)): Controlled services transaction - (i) In general. A controlled services transaction includes any activity (as defined in paragraph (1)(2)of this section) by one member of a group of controlled taxpayers (the renderer) that results in a benefit (as defined in paragraph (1)(3) of this section) to one or more other members of the controlled group (the recipient(s)). Thus, as per this definition of services, first there should be an activity performed by one of the members of a group of related parties which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... experienced service providers. The OECD Guidelines in this regard (para 7. 6) lays down the following: Under the arm's length principle, the question whether an intragroup service has been rendered when an activity is performed for one or more group members by another group member should depend on whether the activity provides a respective group member with economic or commercial value to enhance its commercial position: This can be determined by considering whether an independent enterprise in comparable circumstances would have been willing to pay for the activity if performed for it by an independent enterprise or would have performed the activity inhouse for itself. If the activity is not one for which the independent enterprise would have been willing to Pay or perform for itself, the activity ordinarily should not be considered as an intra-group service under the arm's length principle. ( emphasis added) 28. As we have already observed the question we need to decide is as to whether the services rendered by ANPAP can be said to be stewardship services. If the answer is in the negative, then we need not go into the question regarding rendering of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Para 83 Seeing to it that the subsidiary (service recipient)develops materials to the satisfaction(in other words, seeing to it that the subsidiary produces or provides goods or services which are up to the standards expected of the parent) Services not managerial but stewardship Para 84 Visiting the subsidiary's clients, on the spot supervision -Do- Para 86 Making presentations for getting new business; getting third parties to give business to subsidiaries in particular markets -Do- Para 88 To make certain that the various offices maintained plaintiff s production standards and that the subsidiaries perform their duties to their client s satisfaction -Do- Para 89 Deciding to consolidated foreign Offices; travelling to such offices to solve personnel problems. General supervisory services offices; travelling to such offices in attempt to control to solve personnel problems activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Support, Finance and Planning has been evidenced by way of such communication/documents. It was neither disputed by the TPO that apart from services which are received in the form of emails, reports, documents etc. from ANPAP, the assessee also received constant and continuous information over calls, audio-video conferences, personal visits etc. Therefore, the benefits received in the above form ought to have been given due consideration. Hence, for the purpose of demonstration and explanation, the assessee has submitted documents evidencing the regular flow of valuable commercial services. From the above details submitted by the assessee it has been amply demonstrated that the benefits generated by the said services during the relevant financial year have undeniably added economic / commercial value to enhance the commercial position of the assessee and such services are received by the assessee on a continuous basis across its operational areas. Hence it is erroneous to classify the services to be in the nature of stewardship services. 30. The TPO in his observations on each of the items of service set out in Annexure A to this order commented that the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices that benefitted the parent company. The DRP also concluded that some benefit would have accrued to the Assessee as a result of such services but such services cannot be determined with certainty and therefore the conclusion of the TPO should be upheld. Without pointed out how services -rendered cannot be segregated as benefiting the parent company and that benefiting the group companies, the DRP could not have come to such a conclusion. 32. We therefore conclude that the assessee has established the nature of services including quantum of services received from ANP AP, that services were provided in order to meet specific need of the assessee for such services, the economic and commercial benefits derived by the assessee from intra group services. In its submission dated 5. 1l. 2012 filed before the TPO, the Assessee filed report dated 30. 6. 2009 of Pricewaterhouse Coopers LLP, Chartered Accountants. In such a report a search for similar independent service providers providing services that were provided by ANPAP under SLA was identified and it was found on such analysis that similar services provided by and to unrelated parties were at an average margin of cost + 5. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate objectives by aligning workforce and organizational objectives in the field of marketing HR, Finance, Management Services, Purchases etc. Thus, the Services provided by ANCR benefit the AE as well as the Assessee in India. To the extent the services have helped the parent to exercise supervision and control over the group entities, it amounts to Stewardship services. The remaining Services may have benefitted both the parent and the subsidiary in India. How much of the benefit can be attributed to the parent and to the unit in India is a subjective matter and the dividing line lies in between. It is therefore evident that the benefit out of intra group services has accrued to the Assessee in India as well as to the group parent also. However, the proportion of benefits accruing to each party remains indeterminate. In view of this, we are of the opinion that no interference is called for in the determination made by the TPO. 7. We have heard both the parties. We note that the TPO has not carried out the exercise for computing the arm s length price on the plea that assessee did not provide the agreement with ANCR, whereas the assessee claims to have provided a copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n machines are leased out by the assessee to its dealers and dealers are allowed to stall according to their choice. The machines are handled by the dealers being actual user had been paying rent in such machines. 3. That on the facts and circumstances of the case, the Ld. DRP has erred in deleting disallowance made by denying the claim of additional depreciation of ₹ 1, 33, 19, 699/- on certain assets which are not directly use for manufacturing process, considering the submission of the assessee. 4. That on the facts and circumstances of the case, the Ld. DRP has erred in deleting the addition of ₹ 31, 81, 727/- u/s. 14A following the decision of DRP in the assessee's case for A/Y- 2009-10, without considering that the department is in appeal before the Hon ble ITAT against the decision of DRP for the Ld Assessment Year which is pending for disposal. 9. First we take up Ground No 1 of Revenue appeal; Brief facts of the case are that the assessee in its return of income has claimed depreciation amounting to ₹ 17, 31, 23, 505/- which assessee computed by considering the opening WDV of the assets at ₹ 85, 71, 36, 043/-. The AO while de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber Chemicals on slump sale basis. Consequently the Appellant reduced the wdv of the Assets transferred under slump sale from the block of Assets in accordance with the provisions of section 43(6)(c)(lC) of the Act. The AO however adjusted the sale proceeds. of the undertaking transferred under slump sale against. the relevant block of asset Instead of adjusting the wdv of the assets as mandated by the provisions of section 43(6)(c)(lC) of the Act. This treatment of the AO resulted in lower closing wdv of the block of assets (for AY 2006-07 as also lower opening wdv of the block for subsequent periods (Ay 2007-08 onwards). Based on the closing wdv as per assessment order of AY 2006-07, the AO recomputed the depreciation in the Assessment orders for AY 2007-08, AY 2008-09 and AY 2009-10. However as mentioned by the Assessee above, this issue is directly covered by the decision of DRP in 2009-10 in the Assesses's own case and by the Order Hon'ble ITAT for earlier years. It has been held by the ITAT Order for A. Y. 2005-06 as under- we have heard the contentions and gone through the cited orders. The issue has been consistently decided by the coordinate Benches of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our solution machines do not aid the assessee in the manufacturing process. According to AO, the colour solution machines being installed at the premises of the dealers are in no way connected with the mother/main machines responsible for producing the paint and he compared the colour solution machines like Air conditioner etc. and hence, the AO treated the colour solution machines as furniture and fixture instead of plant and machinery. In the process, the AO disallowed depreciation on the colour solution machines as under: Particulars Amount (Rs. ) Disallowance of Additional Depreciation Disallowance of Normal Depreciation Total : 90, 81, 593/- 22, 70, 397/- 1, 13, 51, 990/- Aggrieved, the assessee preferred an appeal before the Ld. DRP and the Ld. DRP allowed the prayer of the assessee. Aggrieved, revenue is before us. 12. We have heard rival submissions and gone through facts and circumstances of the case. We note that the assessee company is engaged in the business of manufacture and sale of decorative paints under the name and style of Dulux brand which are mainly used for in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king into consideration the very nature of the product i. e. the end product (tinting product) excise duty is levied. The AO erred in observing that in order to be eligible for additional depreciation machinery has to be used within the factory premises of the assessee is erroneous. The Hon ble Jurisdictional High Court in the case of CIT Vs. Birla Jute Industries Ltd. (2003) 260 ITR 55 wherein it was held that there is no requirement under the provisions of the Act that machine has to be situated/installed within the factory premises of the assessee has to be eligible for claim of additional depreciation. We note that the Ld. DRP decided the issue in favour of the assessee by observing as under: 2. 2. This ground of objection has basically 2 sub grounds. The first is regarding the lower rate of depreciation and the claim of additional depreciation on Colour Mixing Machines disallowed by the AO by treating them as Furniture Fixture. The second being lower rate of depreciation allowed on certain Assets not considered by the AO as Plant and Machinery but reclassified as Furniture Fixture. The first issue is regarding depreciation and addl. Depreciation on Colou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 218, that such machines need not be installed only in the factory premises of the Assessee. A similar view has been taken by the jurisdictional High Court in CIT Vs Birla Jute Industries Ltd. supra wherein the Hon'ble Court has examined the phrase business of manufacture used in section 32(iia) of the Income Tax Act. Therefore, considering the above facts and the decision cited, it is held that the Colour Mixing Machines were plant machinery of the Assessee and eligible for depreciation at the applicable rate as well as the claim of additional depreciation. Accordingly the disallowance made by the A. O. of the depreciation and additional depreciation of Rs, l, 13, 51, 990/- is held to be not justified and this ground of objection is allowed. 2;2. 2. With regards to the action of the A. a. reclassifying certain Assets as furniture and fixture instead of Plant Machinery and thus allowing lesser claim of depreciation to the extent of ₹ 1, 33, 19, 699/-, it is seen that the A. O. had not given any opportunity to the Assessee before undertaking such an exercise which by itself is not justified. Further more on the merits of the case it is see ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olour sheds with the colourants (tinting product) which could not have been possible without the aid of the colour solution machine and it is an integral part in the profit earning apparatus of the company. The AO erred in stating that the colour solution machines installed in the dealer s premises is not in any way connected with the mother/main machines responsible for producing the paints and the colour solution machines are comparable to air conditioner etc. due to their nature of functioning and hence, need to be treated as furniture and fixture is erroneous and baseless as discussed by us above and for the sake of brevity is not repeated again. We also note that the AO in the earlier assessment year and in subsequent assessment year i. e. 2012-13 and 2013-14 has not disputed the allowability of normal and additional depreciation on colour solution machines for the assessment year prior to the subject assessment year and in subsequent assessment years (i. e. AYs 2012-13 and 2013-14) post issuance of direction by Ld. DRP in the subject assessment year. In the aforesaid facts and circumstances of the case, the AO ought to have been consistent in his approach and, therefore, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reclassified it as furniture and fixture. We do not find any infirmity in the order of the Ld. DRP and, therefore, we confirm the finding of the Ld. DRP. This ground of appeal of revenue is also dismissed. 16. Ground no. 4 of revenue s appeal is against the deletion of addition u/s. 14A of the Act of ₹ 31, 81, 727/-. The assessee has earned an income of ₹ 8, 60, 13, 541/-. The assessee explained that this amount was on account of dividend received from various mutual fund investment made by the assessee during the year. It was brought to the notice of the AO against the income of ₹ 86, 01, 354/- the company has made suo moto disallowance of ₹ 4, 72, 192/-. On an enquiry by the AO, the assessee company stated that the said disallowance suo moto made was based on the company s estimate of proportionate man power cost and operating cost incurred during the period. According to the assessee, operating cost has been estimated at ₹ 22000/- per month on stationery, Fax, postage, telephone conveyance etc. For computation of proportionate man power cost the company has estimated the total man power cost at ₹ 22, 01, 428/-. Thereafter the assessee has c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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