9911796707
TMI Blog2022 (12) TMI 831X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in an uncontrolled transactions shall be adjusted with the functions performed taking into account the assets employed or to be employed and there is assumption by the respective parties to the transactions. Hence, as rightly pointed by the Ld. CIT(A) that the unit situated at was exclusively engaged in the export activities and only reported export transactions relating to the services to Associated Enterprises (AEs). Therefore, the assets deployed in Bhogapuram Unit for the provision of such services to the AE and their corresponding cost therefore would be an important component of the operating cost for the services rendered. The assessee has also claimed depreciation while computing the total income in the relevant assessment year. We are also of the considered view that since the assets are used by the assessee with respect to the services provided to AE and hence the depreciation of such assets of Bhogapuram Unit should necessarily form part of the operating cost and should be considered in the computation of ALP of the assessee. CIT(A) has rightly considered the extraordinary depreciation and has recomputed the PLI of the assessee - In view of the above, we find no infi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and proceed to adjudicate the case on merits. 3. Brief facts of the case are that the assessee is a Private Limited Company engaged in the business of software development, Business Process Outsourcing and consultancy services, filed the return of income for the AY 2008-09 admitting a total income of Rs. 3,07,18,050/-. The case was selected for scrutiny and in response to the assessee's international transactions with the AEs, the AO referred the matter to the TPO to determine the Arm's Length Price (ALP). The assessee has reported software development services to AEs for an amount of Rs. 6,95,72,683/-. The TPO vide his order u/s. 92CA(3) of the Act dated 28/10/2011 determined the ALP at Rs. 8,92,40,880/- resulting in forward adjustment of Rs. 2,40,22,257/-. Accordingly, the AO made addition of Rs. 2,40,22,257/- to the total income of the assessee. Aggrieved by the order of the Ld. AO, the assessee is in appeal before the Ld. CIT(A). The assessee's representative before the Ld. CIT(A) raised a ground relating to extraordinary depreciation. The Ld. CIT(A) considering the submissions made by the assessee's representative, partly allowed the appeal. Aggrieved by the order of the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t given effect to the extraordinary depreciation submitted by the assessee. Per contra, the Ld.CIT-DR submitted that the claim of extraordinary depreciation and its inclusion in the operating cost was never raised by the assessee before the TPO and only before the Ld. CIT (A). The Ld. CIT-DR relied on the orders of the Ld. Revenue Authorities. 6. We have heard both the sides and gone through the material available on record and the orders of the Authorities below. The first contention of the Ld. AR is the depreciation should not form part of the operating cost since the assessee has incurred huge capital additions and the depreciation should be considered as an extraordinary item and cannot form part of the computation in the determination of ALP. The Ld. CIT(A) in his order observed that the addition to the assets were made to the assessee's export unit at Bhogapuram and the depreciation claimed was relating to that unit only. The Bhogapuram unit is exclusively used for the software development and is a self-contained unit. Admitted facts are that the assessee has not rejected the comparables adopted by the TPO but only objected to the inclusion of the depreciation in the opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantum of extraordinary depreciation from the records produced by the assessee and has concluded that the extraordinary depreciation on account of non utilization of capacity would be Rs. 1,38,03,107/-. The Ld. AR also could not produce any evidences for non-utilization of capacity even before us. The Ld. AR also did not raise any technical objection in the order passed by the TPO. Section 32 of the Act, makes it compulsory to take the depreciation into consideration in computing the taxable profit. The assessee has also claimed depreciation while computing the total income in the relevant assessment year. We are also of the considered view that since the assets are used by the assessee with respect to the services provided to AE and hence the depreciation of such assets of Bhogapuram Unit should necessarily form part of the operating cost and should be considered in the computation of ALP of the assessee. The Ld. CIT(A) has rightly considered the extraordinary depreciation and has recomputed the PLI of the assessee as follows: Operating Revenue Rs. 6,52,18,623 Operating Costs Salaries etc 2,74,08,638 Other Admn. Costs 1,05,31,298 (Rs.1,37,78,043 -Rs.32,46,745) Depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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