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TMI Blog2018 (3) TMI 1761X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregated under manufacturing segment of the Appellant were not at an arm's length. 1 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the international transactions aggregated under manufacturing segment were at an arm's length and hence no adjustment in respect thereof was called for and the stand taken by the AO/the DRP/ the TPO in this regard is misconceived, erroneous and incorrect. 1 : 3 The DRP has erred in rejecting the additional ground of objection raised by the Appellant requesting the DRP to direct the AO/TPO to reduce the amount of Rs. 9,06,80,292/- being fixed assets written off while computing the operating margin of the manufacturing segment of the Appellant. 1 : 4 The AO/ DRP/ TPO have erred in considering an amount of Rs. 9,06,80,292/- being fixed assets written off as a part of the operating cost while calculating the operating margin of the manufacturing segment of the Appellant. 1 : 5 The AO/ DRP/ TPO have erred in not appreciating the business reasons behind the low margins earned by Appellant under manufacturing segment during the year under consideration. 1 : 6 The Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4 : 3 The Appellant submits that the AO be directed to allow depreciation as claimed by it and to re-compute its total income accordingly. 5 : 0 Re.: Disallowance of provision for legal and professional fees of Rs. 93,50,000/- and power and fuel of Rs. 47,62,500/- respectively u/s. 37 of the Income-tax Act. 1961 (ITA): 5 : 1 The AO / DRP has erred in disallowing a sum of Rs. 1,41,20,500/- being the provision made for legal and professional fees of Rs. 93,50,000/- and power and fuel of Rs. 47,62,500/- u/s. 37 of the ITA. 5 : 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the expenditure incurred by it had crystallized during the year under consideration was incurred, wholly and exclusively for the purposes of the business and the stand taken by the AO / DRP is based on suspicions, surmises and conjectures and hence is incorrect, illegal, unwarranted and unjustified. 5 : 3 The Appellant submits that the AO be directed to delete the disallowance so made by him and to re-compute its total income accordingly." 3. The appellant before us is a company incorporated under the provisions of the Companies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing segment whose details have been enumerated by the TPO in para 5 of his order. Notably, assessee aggregated different transactions under the manufacturing segment while benchmarking the same in its Transfer Pricing Study report, an aspect on which there is no dispute. In its Transfer Pricing Study, the assessee selected the Transactional Net Margin Method (TNMM) as the most appropriate method, which also is not a subject matter of the difference between the assessee and the TPO. In the Transfer Pricing Study, assessee had determined the weighted average margin of the comparable concerns based on the financial data of three financial years by using Operating Profit/Operating Costs (OP/OC) as the Profit Level Indicator (PLI). While the PLI methodology was not disputed, but the TPO required the assessee to compute the margin of the comparable concerns based on the financial data of the single financial year corresponding to the assessment year under consideration. Be that as it may, the TPO determined the arithmetic mean of margin of the four comparable concerns at 8.07% detailed as under :- Comparables OP/OC Asahi India Glass Ltd. 1.01% Gujarat Guardian Ltd. 24.65% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the margin of comparables as drawn by the TPO. In support of his submissions, the learned representative pointed out that so far as assessee is concerned, though the amount of fixed assets written-off of Rs. 9,06,80,292/- was debited in the Profit & Loss Account, but while computing the income for the purposes of tax, the same has been added back and, for that matter, our attention has been drawn to the computation of total income annexed to the return of income. Secondly, on the point of law, it is sought to be made out that in the following cases different benches of the Tribunal have taken a view that the amount of fixed assets written-off could not be taken as part of the operating costs of the tested segment :- i) Thyssenkrupp Industries India (P.) Ltd. vs Addl. Commissioner of Income-tax, [2013] 33 taxmann.com 107 (Mumbai - Trib.); and, ii) Claas India Pvt. Ltd. vs DCIT, ITA No. 3883/Del/2010 dated 12.08.2015. Supporting his argument further, the learned representative pointed out that, in fact, in the case of Serial Innovations India (P.) Ltd. vs DCIT, [2015] 60 taxmann.com 406 (Bangalore-Trib.) before the Bangalore Bench of the Tribunal, the working of the margins note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. In our view, the impugned sum cannot be construed as part of operating costs for the purpose of arriving at the margin of assessee's manufacturing segment. The said proposition is amply supported by the earlier decisions of our coordinate Benches in the case of Thyssenkrupp Industries India (P.) Ltd. (supra) as well as Claas India Pvt. Ltd. (supra). Moreover, factually speaking, it is quite clear that though the assessee had debited the fixed assets written-off of Rs. 9,06,80,292/- in the Profit & Loss Account, but while computing income for the purposes of income-tax, the said amount has been added back and this aspect is also accepted in the assessment order. In para 17 of the assessment order, the Assessing Officer while computing the total income under the normal provisions of the Act has started with the figure of Rs. 41,61,49,407/-, which is the 'business income' computed by the assessee in its return after adding back the element of fixed assets written-off of Rs. 9,06,80,292/-. This feature further strengthens the argument of the assessee that the impugned sum cannot be construed as a part of operating costs of the manufacturing segment for the purpose of carrying out c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is obviated. Therefore, on the basis of Grounds no. 1.3 and 1.4, the claim of assessee is allowed and the Assessing Officer is directed to delete the addition of Rs. 19,21,38,016/- made to the returned income on account of transfer pricing adjustment. Pertinently, so far as the other pleas on this aspect raised by way of Grounds of appeal no. 1.1, 1.2, 1.5, 1.6 and 1.7 are concerned, they are rendered academic since assessee has already succeeded in seeking deletion of the addition in terms of Grounds 1.3 and 1.4 above and, therefore, they are not being adjudicated for the present. 13. Insofar as Ground of appeal no. 2 is concerned, the same relates to the claim of amortisation of premium paid for leasehold land of Rs. 20,14,932/-. It is noticed that the Assessing Officer disallowed the claim by relying on the decision of the Special Bench of the Tribunal in the case of Joint Commissioner of Income Tax vs Mukund Ltd., (2007) 106 ITD 231 (Mum) as also the stand of the assessing authority in assessee's own case for the earlier assessment years. Before us, it was pointed out that the lead year of dispute on this aspect was Assessment Year 2001-02, wherein the Tribunal in assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in giving consequential effect and scaling down assessee's claim for depreciation in this year. We are inclined to uphold the stand of the Assessing Officer with a caveat that if the position of assessee's claim of depreciation for Assessment Year 2006-07 is altered by any higher authority in favour of the assessee, the consequential relief be allowed to the assessee in the instant assessment year also. With these remarks, we hereby affirm the ultimate decision of the Assessing Officer and accordingly, assessee fails on this aspect. 18. Insofar as Ground of appeal no. 4 is concerned, the same relates to assessee's claim of depreciation @ 60% on computer software as against 25% allowed by the Assessing Officer. 19. Insofar as the factual aspects are concerned, the learned representative pointed out that expenditure on computer software in question related to SAP software and that the income-tax authorities erred in allowing depreciation @ 25%. In support, reliance has been placed on the judgment of the Hon'ble Bombay High Court in the case of CIT vs M/s. Saraswat Infotech Ltd., ITA(L) No. 1243 of 2012 dated 15.01.2013, wherein depreciation on computer software has been held t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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